Qiagen N.V.

Ladies and gentlemen, thank you for standing by. I am Katie, your call operator. Welcome and thank you for joining QIAGEN's Q3 2024 earnings conference call webcast. At this time, all participants are in listen-only mode. Please be advised that this call is being recorded at QIAGEN's request. It 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 touchtone telephone. Please press the star key followed by zero for operator assistance. At this time, I'd like to introduce your host, John Ghilardi, Vice President, Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

So thank you, operator, and thank you to all of you for joining us for our quarterly results call. We're pleased to have you with us and appreciate your interest in QIAGEN. This call is being webcast live and will be archived in the IR section of our website. You can also find a copy of the quarterly results, press release, and the presentation on our website. Now, I'd like to remind everyone that we will be discussing forward-looking statements on this call. 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 20F on file with the SEC and also available on our website. In addition, we will be referring to certain financial measures not prepared following generally accepted accounting principles or GAAP. We believe these non-GAAP measures provide useful information to investors. You can find a reconciliation in our release. All references to EPS refer to diluted EPS. So Terry Bernard, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer, will start with some remarks on the key initiatives for the quarter, followed by a Q&A session. With that, let me hand over the call to Terry.

Thank you, John. Hello, and good morning, good afternoon, or even good evening, depending on when you are in the world, and thank you for joining us. I'm very pleased to share that our teams have once again exceeded our targets and delivered another solid quarter of results. Thanks to our heavily recurring revenues, which represent over 85% of our sales we are very well on track to achieve our goals for 2024 in this still challenging macro environment. I want here to recognize the impact of our outstanding QIAgeners. But before we get into the performance of quarter three, let me take a moment to celebrate some truly remarkable achievements. 2024, is another year where our QIAGEN customers were awarded Nobel Prizes for their invaluable contribution to advancing science and improving healthcare. This is a real testament to the impact of our customers on our daily lives. As we celebrate our 40th anniversary in 2024, we are more committed than ever to delivering the highest quality product that will support future Nobel Prize winners in helping to make improvement in life possible. So now let me highlight our key messages for Q3. First and foremost, we exceeded our outlook for sales and adjusted earnings in the third quarter. We delivered $502 million of sales in the third quarter, representing 6% growth at constant exchange rates. This exceeded the outlook for at least $495 million at CER. Growth excluding the pneumatics franchise was also 6% CER. To be noted, we saw a 10% growth in our diagnostic solutions product group. Consumables and related revenues grew 8% CER over Q3 of 2023 and contributed 89% to our sales. We continue to see cautious customer spending on instrument and those sales declined 9% CER. Adjusted diluted EPS were 57 cents and results at constant exchange rates were 58 cents and this was 3 cents above our outlook for at least 55 cents. Second key message, we achieved several important product launches and key milestones. This positions KayaGen strongly for future growth as we set our ambitions towards delivering on our 2028 commitments. As a first highlight, KayaStat had a very strong quarter with 40% CER sales growth driven by increasing demand worldwide, and more than 150 placements of instruments in the third quarter. We have now received four FDA clearances for KyaSTAT panels, and this includes the announcements just this week of the clearance for the meningitis encephalitis panel. Let me here express my appreciation to our KyaSTAT team for this tremendous accomplishment. we are not done yet on our menu expression plan. In September, we also received new approvals in Europe under the new IVDR regulations for the Kiastate instruments along with the respiratory and GI gastrointestinal panels. Across Kiagen, We now have over 80% of our regulated products transferred to this new and more rigorous regulatory framework. Building on the success in syndromic testing, we are also expanding the ecosystem for KyaSTAT into precision medicine. KyaSTAT is the only syndromic system endorsed by pharmaceutical companies. and we have signed a number of pharma collaboration to use this technology in precision medicine application. Most recently, we announced collaboration with AstraZeneca and Eli Lilly. The goal is to provide chiostat test to help guide treatment decisions for various chronic diseases with AstraZeneca, and also a new test for Eli Lilly for using diagnosis of Alzheimer's disease. If we move now to the QIAQUITY digital PCR system, we also have seen significant progress. A key development was the addition of 100 new validated assays to support our customers in areas such as cancer research, inherited genetic disorders, and infectious disease surveillance. We can now offer well over 2,400 different high-quality assays developed specifically for digital PCR that are accessible to our customers through our online GeneGlobe portal. Another key development in digital PCR was creating a version of QIAQUITY for clinical applications. The first placements have been made after the FDA approval in September of QIAQUITY diagnostic. a four-plate version designed specifically for clinical customers and with an initial focus on oncology. Kaya QT Diagnostic offers many capabilities that make it a better solution for customers against qPCR or next-generation sequencing. It is very well suited for monitoring cancer progression and supporting clinical decision-making in a very meaningful way. And now we continue to build out the application portfolio for career equity diagnostic. Turning now to the third key message, we again delivered a significant improvement in profitability and free cash flow. Our adjusted operating income margin improved by 3% to 29.6% of sales from the third quarter of 2023. This came from a combination of factors, including efficiency gains across the business, as well as the decision in June to discontinue the new MODX system by 2025. In terms of free cash flow, here we saw a 73% increase to $364 million in the first nine months of 2024. we are reaffirming our full year 24 outlook for net sales and we are increasing our target for adjusted EPS. The net sales outlook continues to be at least $1,985,000 at constant exchange rates. This takes into consideration the solid base business performance to date in 2024 as well as the reduced sales expectation for pneumatics, and those are tracking as we had expected for 24. We have increased our adjusted EPS target to at least $2.19 from the prior outlook, which was $2.16, also at CER. Last, I would also here like to mention a change in our executive committee. Jonathan Sheldon, our head of our QIAGEN digital insight business, has stepped down from this role. Let me express our appreciation to Jonathan for his many important contributions to developing our bioinformatics business, and we wish him all the best in his future endeavors. Those of you who attended our Capital Market Day in New York, had the chance to meet Dominic Jones from our QIAgen Digital Insights team. And I'm looking forward to working with him and the rest of the QDI team. So as a quick summary, our teams are committed to delivering on the goals for 2024 in a challenging micro environment. Doing so will position QIAgen for further profitable growth in 2025 and put us on the course to achieve our midterm targets I would like now to hand over to Roland for a review of our financial results.

Thank you, Thierry. Hello, everyone. Thank you as well for me for joining our call. We are pleased to report strong financial results for the third quarter. Let me give you four key figures to highlight that performance. A 3 percentage point improvement in the adjusted operating income margin to 29.6%. An 18% increase in adjusted operating income. An 11% rise in adjusted net income compared to the same period last year. And a 73% increase in free cash flow for the first 9 months of 2024 to $364 million. Looking ahead, we are confident in our ability to achieve our full-year targets. We have reaffirmed our outlook for net sales of at least US$1.985 billion at CER, and we increased the adjusted EPS target to at least $2.19 at CER. This is up 9 cents from the outlook we gave in January. Let me now give you some additional insights into our results. and sales trends from the quarter. In terms of sales, we saw higher sales in the sample technologies, diagnostic solutions, and PCR product group over the third quarter of 23, while sales in genomics and GS group were unchanged. In sample technologies, we saw 1% CR growth over the year-ago quarter, driven by demand for consumables. in particular kits used on our instruments and automation systems. This growth trend is coming from the launch of upgraded systems, in particular KayaCube Connect and EZ2 Connect. We are preparing for important new system launches in 2025 and 2026 and we expect these to drive further growth. In diagnostic solutions, sales rose 10% CER and were led by the strong growth in the QuantiFeron TB test, which marked the sixth consecutive quarter of sales above $100 million. KayaStat DX sales grew at a dynamic 40% CR pace, thanks to significant double-digit sales gains in consumers and also double-digit growth in instrument sales. We are seeing growth across all regions, and are on track to exceed the 24 sales goal for over $100 million in revenues and also deliver on our target for over 600 new system placements for the year. In the PCR product group, we saw double-digit CR growth in various consumable kits. This was especially the case for consumables used on the KayaQurity digital PCR system, where consumable sales grew at a very strong double-digit pace. and we are on track for an overall double-digit sales growth in 24 over 23. But like others, we continue to see cautious spending by customers on new instruments. At the same time, customer interest is strong, and we are confident in future growth opportunities in the life sciences and also increasingly in clinical healthcare with the recent launch of the QIA QTDX version. In the Genomics NGS product group, Sales were unchanged in the third quarter of 24 over the year-ago period. We saw improving trends for sales of universal kits that are used to prepare samples for processing on sequences. Sales in the digital inside business declined at a low single-digit CR rate. This was due mainly to the transition of customers, particularly in the pharma industry, from longer-term license agreements to Software as a Service subscription contracts. But we saw good growth in our clinical business, and the mid-term growth trends are clearly in favor of QDI given the growing levels for genomic data being generated by our customers. In light of that potential, we are planning to host a virtual deep dive event for you in December to share more perspectives on the QDI business. Further information will be announced soon about this online event. Let's now move to results for the regions. We are investing to strengthen our international presence and zest was reflected in results for the quarter. In the Europe, Middle East, Africa region sales rose 8% CER. The top performing countries included France and Italy and we are seeing the contributions from our expansion initiatives in the Middle East. In the Americas, sales rose 6% CER over the third quarter of 2023, with solid growth in consumables that more than offset lower instrument sales in light of the cautious spending environment. In the Asia Pacific Japan region, sales were down 2% CER in the third quarter. China continued to decline at a high single-digit CR rate over the year-ago period. The challenging market conditions continue in China and we are cautious in predicting a path to recovery. However, it is important to note that China only made up about 5% of our sales in the third quarter. The rest of this region delivered single-digit CR growth thanks to our business expansion in Australia, Japan, India, and Singapore. Let's now review the rest of the income statement for the third quarter. As I mentioned earlier, adjusted operating income rose 18% to $149 million. Key contributors to the improved operating margin were across all lines. In the adjusted gross margin, as well as lower levels of R&D investments, and SG&A costs as a share of sales over the year-ago period. The outcome was the adjusted operating income margin increasing three percentage points to 29.6% of sales. These results underscore our commitment to solid profitable growth while also freeing up resources to reinvest into targeted growth opportunities. The adjusted cost margin was 66.5% for the quarter and an increase of 40 basis points from the third quarter of 23. The biggest contributor was KayaStat DX, which had a favorable impact on the consumable product mix, and we also had benefits from higher production capacity utilization. Additional contributions came from the sample technology consumables business and KayaStat Digital PCR. R&D investments were 8.9% of sales, down about 1 percentage point from the year ago period. In particular, the stop of R&D projects in Neumod X has been driving this decrease. Sales and marketing expenses declined about 1.2 percentage points, and this was mainly due to effective cost management through our efficiency programs. At the same time, we are stepping up targeted investments into our pillars. General and administrative expenses were steady at 5.9% of sales as we maintain a high level of IT and cybersecurity investments combined with efficiency gains. Regarding the restructuring costs for NordModX and related projects, we continue to expect total charges of approximately 400 million US dollars and for about 75% to be non-cash. The bulk of this charge came in the second quarter results with a pre-tax charge of about $350 million, of which 80% involves non-cash items. We incurred about $60 million of additional charges in the third quarter and expect about $20 to $25 million for the fourth quarter. Some remaining charges may come in the first half of 25 as we complete the program. As for adjusted EPS, reported results were $0.57, while results at constant exchange rates were $0.58 and $0.03 ahead of the outlook for at least $0.55. This confirmation of solid profitable growth enabled us to raise the full-year outlook by $0.03. The adjusted tax rate was 20% and above the estimate for about 19%, while the average number of diluted shares at $224 million was in line with our expectations. Turning to cash flow, we are pleased to see continued improvements in our results for the third quarter. Operating cash flow for the first nine months of the year increased by an impressive 56% to $482 million over the same period in 23. This is even after absorbing payments related to restructuring decisions. We have seen a steady improvement in working capital, which has decreased by about $198 million and stood at 6.4% of total assets at the end of the third quarter and down from 9.8% at the end of 2023. Accounts receivables have also fallen by about 10% since the end of 2023 and stood at 55.5 days at the end of September. Another contributing factor to the improved cash flow was a reduction this year in inventories by about $80 million since the end of 2023. Free cash flow for the first nine months of 24 grew at a faster pace than operating cash flow rising 73% to $364 million compared to the same period in 23. This is particularly impressive given the increase in capex levels. This primarily went towards software development and in particular the upgrade of our SAP system. So we are on track for solid cash flow trends in 24. and even after including the charges related to the non-ModiX decision. As for our financing, we raised about $500 million in September through the issuance of a new net share settled convertible bond due in 2031 with a 2.5% coupon. This successful offering received robust demand, reflecting investor confidence in our future growth prospects. The proceeds will be used to support our strategic growth initiatives and also to repay upcoming debt obligations. We have $500 million in convertible notes reaching maturity in the fourth quarter. We also expect to repay another $500 million in 2025 due to an early redemption option for convertible notes reaching maturity in 2027. With that, I would now like to hand back to Thuy.

Thanks a lot, Roland. And now let me take a moment to discuss with all of you more progress our teams have made across a world portfolio. First on sample technology, and Roland, you did it. We are expanding our portfolio of state-of-the-art applications in many areas, and this includes liquid biopsy. QIAGEN is a top provider of liquid biopsy samples prep solutions. and we are the only provider of all three key technologies, circulating tumor DNA, cell-free DNA, and exosomes. Our portfolio has been invaluable for many years to customers. At the start, to those in research studying various types of cancer and other diseases, and increasingly today to commercial labs across the world offering liquid biopsy tests. Those labs are many of the major names that you would recognize as the leaders in this field. We continue to solidify our leadership in this area by extending our portfolio for urine samples and moving beyond the initial focus on blood samples. In our pre-analytics joint venture with Becton Dickinson, we recently launched the PaxGene urine liquid biopsy sets. This new kit addresses critical needs on how to collect, process, and store DNA from urine samples for analysis. Key applications in both research and clinical healthcare include detection of markers for minimal residual disease analysis to monitor treatment response and even to identify therapeutic targets. We continue to innovate in this area to help advance the use of liquid biopsy, in particular to improve precision medicine and make it easier to tailor and monitor treatments to get better outcomes for patients around the world. If we move now to Quantiferon, our test for latent TB detection continues to be a key contributor in the global fight against tuberculosis. Tuberculosis is on the rise, and once again, has overtaken COVID-19 as the world's leading infectious disease killer. This is according to the WHO Global Tuberculosis Report for 2024 that was just released a few weeks ago in October. The report showed 8.2 million people were newly diagnosed with TB, tuberculosis, in 2023, and this represents the highest number of tuberculosis cases recorded by the WHO since it began monitoring in 1995. It also marked a significant increase from the 7.5 million new TB cases reported the year before in 2022. This shows once again the impact of limited testing during the pandemic. We leverage once again our knowledge and resources amid the resurgence of the world's most deadly infectious disease by hosting the Global TB Summit in London in October, our fifth annual event with invited experts reaching more than 10,000 participants across a hybrid conference of in-person and virtual sessions. Latent TB detection is essential. One in four people worldwide is estimated to be positive, one in four, and creates the new waves of active TB cases. Given that skin tests still make up well over 50% of the market for annual latent TB testing globally or in the U.S. or Europe, the growth potential for Quantiferon remains very substantial. To further accelerate conversion from skin tests to our QuantiFERON® latent TB test, we are already involved in national screening programs in more than 15 countries around the world. We are now clearly on track to exceed our target for at least $450 million of sales in 2024 and further conversion from the skin test as well as overall market growth is set to drive mid-term growth. We are also creating a new relay of growth with the QuantiFerron test for detection of Lyme disease with our partner, Diastere. We are awaiting a decision from the FDA and getting ready for the 2025 testing season. So across the QIAGEN portfolio, you can see that our company has never been better positioned and we are working to strengthen our competitive edge. And now back to Roland with the details on our outlook for the year.

Thank you, Thierry. Let me now provide more perspectives on our updated outlook for 24 and also the fourth quarter. We have reaffirmed the outlook for full year net sales of at least 1.985 billion US dollars at CER taking into consideration the solid growth in our base business and reduced sales from NeumodX after the decision to discontinue the system. For the fourth quarter, we have set an outlook for net sales of at least $520 million at CER, an increase of about 2% CER from $509 million in the fourth quarter of 2023. This includes a headwind of about one percentage point from the NeumodX decisions. to in effect underlying 3% CER growth over the fourth quarter of 2023, leaving the second half of 2024 with a growth rate of 4-5%. This confirms our expected acceleration in year-on-year growth rates for the second half of 2024 compared to results in the first half of this year. On adjusted earnings per share, our updated outlook for the year is for at least $2.19 at CER and another upgrade based on the significant improvements in profitability. Remember that this compares to an outlook at the start of the year for adjusted EPS for at least $2.10 CER as we double down on our commitment to solid profitable growth. Adjusted earnings per share for the fourth quarter are expected to be at least $0.60 per share also at CER, compared to $0.55 in the fourth quarter of 2023, so another good improvement. As for the impact on currencies, based on recent movements, we do not expect any change from what we announced at the end of the second quarter. We are expecting an adverse impact on full-year net sales of about 1 percentage point and an adverse impact of about $0.02 per share on adjusted EPS results. I would like to now hand back to Thuy.

Thanks a lot, Roland. We are coming to the end of our call, so let me summarize our key messages for today, and then we'll move into the Q&A session. First, we had a very solid performance for the first quarter that exceeded our outlook on net sales and also on adjusted earnings. Despite the quite challenging macro environment and cautious spending among customers on instruments, our heavily recurring revenues at over 85% of sales continues to deliver solid growth. We were especially pleased with the performance of our sample technologies, diagnostic solution, and PCR product groups. We also saw the innovation, power, and commitment to efficiency in our teams through a steady number of new product launches with an improved adjusted operating income margin at 29.6%. It is fair to say that QIAgen is delivering on its target on sales, is delivering on profitability, delivering on cash flow generation and on product development. This makes us confident in achieving the updated outlook for 24 and positioning our company for more solid profitable growth in 25 and the year ahead. And with that, I would like to hand back to John and the operator for the Q&A session. Thanks a lot.

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 your touchtone telephone. If you wish to withdraw your question, you may press star followed by two. To ensure that we can accommodate as many people as possible, please limit yourself to only 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 followed by one at this time. One moment for the first question. We'll go first to Patrick Donnelly with Citi.

Thanks for taking the questions. Thierry, maybe on quantifieron, you know, another nice double-digit growth quarter here. Can you just talk about, I guess, the drivers, the sustainability of this type of growth going forward? You know, the competitive landscape certainly seems to have quieted down from our perspective. Obviously, there was some noise over the last few quarters, but no impact clearly to your business. So maybe just talk about what you're seeing and, again, you know, the growth going forward, and then I have a follow-up after that.

Thank you, Patrick. Yes, you have seen another double digit and also highlighting another quarter, the sixth quarter, above $100 million revenues. Main driver for us remains the same. We are very coherent. We have a fantastic potential to convert skin tests. It's still more than 50% of this market. It's an antiquated technology and Quantiferon in its blood format offers value to our customers. Second, the partnership with Diaserine gives values to customers as well. We continue to convert products traditional quantiferon customer to diethylene, but we also are adding quantiferon test to the diethylene install base. It's a successful partnership, and any time we convert the customers, we can do it at a premium price. And third, because of many years of publication, proof of our technical efficiency, medical educations, we are converting more and more countries to have latent TB testing in their guidelines against tuberculosis. I would highlight that, Patrick, as the three key drivers. We believe that it's a sustainable growth ahead of us, but you have seen in our capital market day, that we announce an objective of 600 million revenues for QuantiFerron by the year 2028, which gives us a projected 6% to 7% CAGR for the coming years.

Yeah, that's helpful. I appreciate that, Thierry. And then maybe just, you know, as we're kind of turning eyes towards 25 here, I know the closing remarks there you kind of highlighted should be another healthy year. You know, can you just talk about the moving pieces, both on the revenue and then maybe Roland can chime in on the margin piece? High level as we think about next year. I mean, any reason why you guys wouldn't be kind of in that high end of the mid single digit type range next year on the revenues? Any headwinds we should be aware of? And then the same question on the margins for Roland. Thank you, guys.

Thank you, Patrick. And starting with the top line and then Roland on the margin expansion, I mean, if you look at the paradigm of our growth pattern in 24 countries, you see that acceleration, and we forecasted it. We disclosed that. The acceleration in H2, if you look at the overall H2, we're going to be between 4% to 5% growth. We have momentum in some portfolios. Kayastat, as we highlighted. Quantiferon. SampleTech is back on growth. And we have, as Roland said, new instrument coming up in 25 and then in 26. Digital PCR, we have a very different solutions and consumables are growing very well. We had had in the last three years, the fastest growth of install base in digital PCR. Roland said that our QDI, bioinformatics business was going to a transition, but the fundamentals of the business are very solid. More NGS testing, more oncology testing are calling for more bioinformatic analysis. So I'm trying to express that the growth pillars of QIAgen are leveraging good market opportunities, differentiations, and features or menu expansion. With that in mind, I believe that with the performance of 4% to 5% growth in H2, we are well on track to continue on a very decent growth of 25% and to achieve our 7% CAGR 24% to 28% as said in New York in June 2024. Roland, for the margin expansion?

Sure. Hello, Patrick. No, I just can continue what you just said. I do think we have clearly seen so far a nice acceleration also in profitability into the second half of the year compared to the first half of the year. And I clearly do believe that it's going to continue also in the fourth quarter. We will see clearly higher margins in the fourth quarter than compared to the third quarter. We are on track to what we said before, to make and deliver at least a 28.5% for the full year 24. But I do think it's also important to understand the composition of that, because as you know, an important change for us was the discontinuation of non-Modi X. I do think it is very important to understand that the majority of the impact on margin and proof from that is not in the numbers of 24. It will come over the course of the first half of the year. I would say a certain amount might be one-third. which is clearly related to R&D impacts, which is now moving into the numbers this year. All the other topics will be rather built into the numbers or helping the numbers, if you like, for 25, because as you know, we're still producing, helping our customers and so on. So there's a lot of things which we still have to eat and that is going to continue most likely by mid of next year, we are done with that. In addition to that, we continue what we started with Tayi now a couple of quarters ago, which is a continuous improvement, a career efficiency program. And we clearly see that all across the company, opportunities to empower organizations to get more decentralized and therefore having quite a number of efficiency gains which adding up, and that is what is driving the margin improvement right now, but they're not stopping halfway. So I would also expect for next year, a continuation of margin improvement.

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

Hi, thanks for taking my questions. Firstly, could you give us a bit more color on the Kaya stock placements since the GI panel launch and the mini panel launch? What share of these placements have been competitive? Was there an acceleration since last quarter? And could you also share what part of these placements were placed on reagent rental contracts? And then I have a follow-up. Thank you.

Thanks for the question. So, first of all, the first thing I'd like to highlight is Q3 is a very good number, very good performance for chiostatin placement, more than 150 placements for the quarter. It's more than our competitors, the drivers. I wouldn't say it's specifically GI approval. What is very important to remember, the U.S. is still the first market in the world and still growing for syndromic testing. And now in the U.S., Chiostat can offer the minimal menu to be competitive with customers, respiratory, GI, and meningitis. In addition to that, as you have seen, we are bringing a mini panel for respiratory in the U.S., and soon we will be bringing a mini panel for GI. So we create, we strengthen a momentum. Placement versus capital sales. This is a market where you should see between or across the region, the region at 50-50%, 50% placement, 50% capital sales. But the key message here is that we were already growing well thanks to Europe and some other regions. Without the U.S. on Kayastat, now we are even more competitive and entering 2025 more competitive for the U.S. This is what makes us confident for this franchise to achieve the commitment we took to you in New York in June, which is a revenue of $200 million by 2028.

Thanks, Thierry. And the quick and on capital deployment. So is larger M&A still likely, as you were talking about earlier in the year, or is there more of a bias towards buybacks?

I mean, we are extremely active on both fronts. You have seen us active on buyback at the beginning of the year. I think the main question for us is what is best for our shareholders at a given time. We have a very solid balance sheet. We have taken a commitment once again in New York of absent of significant M&A, a billion dollar return to shareholders until 2028. We are still committed to achieve that. At the same time, Kyogen is on the hunt for interesting value creation accretive M&A to reinforce our portfolio. And we see M&A as an option to increase the growth potential of our portfolio.

Thank you. We'll take our next question from Matt Sykes with Goldman Sachs.

Hi, good morning. Thanks for taking my questions. Thierry, maybe one for you to start out, just high level. As you think about sort of the mix of growth that you've achieved over the past year, quantifieron's obviously been a significant driver. And as you talked about sort of the long-term normalization of that growth, closer to six to seven, how are you thinking about the mix of the portfolio to drive incremental growth as quantifieron normalizes a little bit? I am assuming it's a combination of Kyostat QDI, but I would just love to hear how comfortable you are with the portfolio mix to continue to drive that incremental growth if we get that normalization and quantifier on.

Yes, you are perfectly right, and thanks for the question, and I would refer you to what we presented in New York in June. We continue to believe in focusing and focusing in growth opportunities and where we believe we can either reinforce a leadership or take substantial market shares. Reinforce a leadership. It's simple tech and quantiferon. Take meaningful market share. It is digital PCR, chiostat syndrome testing, and QIAgen Digital Insights, our bioinformatics portfolio. And we gave you very precise data back in June. SampleTech, we believe we can achieve above market growth, 2% to 3% CAGR in the coming years because our strategy to invest in automation has paid off until now. Roland alluded to easy-to-success in Q3, to Kaya Cube Connect success in Q3. And we are going to launch three new instruments between 2025 and 2026. Quantifieron, we have explained the driver behind our expectation, conversion of skin test, and we believe that by 2025, we will have lime approved together with our partner in the U.S. It's a differentiated assay. The success of lime will be conditioned by the success on the U.S. market. And we said we gave a target of six to seven percent to achieve 600 million for quantifieron by 2028. Then we said, We believe we have a very leadership solution for digital PCR, strong growth in install-based, movement from life science to clinical diagnostic. We are going to invest in more R&D, in more people on the field. We gave a target of $250 million by 2028. It's a significant double-digit growth, but the market is growing. The power of digital PCR versus qPCR or NGS is becoming more and more recognized. KyaStat, as I just said, we have a very precise plan for menu extension. If you remember, direct identification of positive blood culture next year. Complicated UTI, a very differentiated assay because none of the competitors have it in their portfolio or their plan. And pneumonia. In addition to that, our high throughput system, KayaStat Rise, will be approved in the U.S. That justifies our confidence to grow double digit and achieve $200 million by 2028, which proves What we said for the last three years, we will be a very solid number two in syndromic testing. QDI. Roland explained that we are transitioning our business, we follow the needs of our customers, toward a more SaaS business. That doesn't change the interest of the market. So investing for a double-digit growth on QDI And reaching $200 million by 2028 is still what we consider a realistic ambition, of course, but realistic objective. Those will be the mix of our growth. That doesn't mean that other parts of our portfolio will not grow. We are still very confident in our positioning in next-generation sequencing chemistry. We are still very confident in our positioning in forensic activities. And this is how we see the coming four years and starting with 25. Great.

Thanks for that, Collier. Really helpful. And then, Roland, just on – given your operating margin performance so far this year, I realize you laid out the guide in June of greater than 31% by 2028 and probably too early to revisit that. But I just want to understand sort of the progress you've made, probably – above your expectations, how are you thinking about that 2028 operating margin target from here off of this base as we end 24?

Yeah, no, it's a very fair question, and I would argue and agree with what you just said, that we clearly made good progress, and I do think, and I shared it before, that I also see, and we at Kaizen see, that we have a high confidence that the same is going to happen also in 2025. So I wouldn't be surprised that at some point in time we have to revisit that target in a positive way, but as you said also, it's way too early.

Thank you. We'll take our next question from Doug Schenkel with Wolf Research.

Hey, guys. Good afternoon. So your stock's been stuck in a range for years. You've been underperforming the group in the market for a while. You're clearly not being rewarded for increasingly solid execution. This was a good quarter. and it's not the first one this year. So with that in mind and keeping in mind, you know, the stock trades at a material discount to probably anything I can plausibly see you acquiring, I know you've said you're going to return a billion dollars to shareholders by 2028. You know, we're aware of what you said at the Capital Markets Day and, again, what you're saying today. I guess my question is, like, why not get going now? Like, what are you waiting for? If you believe in your LRP, if you remain – confident that competitive concerns are really just noise. And it sure seems like you do. Why not bet on yourself and get more aggressive with the buyback as quickly as possible at this valuation?

Doug, it's an interesting question, and we can take it, both of us, Roland and I, we never said that we wouldn't. We clearly signaled in New York that another one could come quite quickly, 25%. Once again, it's always a question of the right moment and the best value creation. On the material discount and your first comment, I would just say, obviously, we look at the share price. I remain convinced that continuing to be extremely humble and executing quarter after quarter will pay off, demonstrating that The value of our portfolio is solid, so it's about execution and delivering not only on the top line, but also on the operational efficiency, and then it will pay off. That's how I could address your question, but Roland, you might want to add something here.

I would say we are very consistent with our share by back policy since 2012 where we started and as you know typically we start with 100 million incrementals per year. We just more or less in the last two years stepped it up now to 300 million dollar incrementals and you know that we have another 300 million incremental approved. I would say there's opportunities for us, and I would say it's also fair what you said. Given also our cash flow, we have clearly opportunity over time to step that up. So it's a fair question, and if we continue that way, it's an opportunity.

Okay. Thank you, guys. Appreciate that. And then I'm building on Matt's question about OpEx. I won't roll through every variable in the equation, but it was a good margin quarter. You got new Moducks rolling off, which will be really margin accretive. You've talked a lot about the levers pursuant to process optimization. And then some of this is just, we're not going to be back to normal next year, but we're going to be a lot closer to normal than we've been for a while. I'm recognizing you don't want to revisit the multi-year targets, but just thinking about those levers and just kind of the math and how lean things have got, relatively speaking, over the last couple of years from an OpEx standpoint. Is there anything I'm missing as I kind of walk through this as we think about the margin trajectory into next year and the prospects for maybe outsized incrementals?

I think we can take once again this one that both of us, I think Roland alluded to that in a previous answer. I think we have probably some opportunities for improvement compared to the targets we gave back in June. At the same time, I would also highlight that we have already a very strong P&L if you compare to competition. We have proven you that When we speak about efforts in operational efficiency, not only we mean it, but we deliver on that. You start to see that. Not just about decisions like pneumatics. It's better site utilization and rationalization of our site networks. You have seen the decision that we took on moving the San Diego for VeroGene to a German town, or Fredericks, very close to German town. Significant efforts on pressure and pressure on cost of good. You have seen the tremendous evolution of Kaya stat cost of good and therefore contribution to margin improvement in Q3. It's tremendous efforts on quality of purchasing and procurement. It's end-to-end processes. The fundamental investment that we did in updated ERP with SAP HANA will pay off. It's probably a better investment than many companies in digital activities. So, yes, we have opportunities, but let's deliver first on the numbers we gave, and then we'll see. Roland, you might have some other colors there as well.

Yeah, I think the different perspectives, Doug, is also that we see, of course, certain things going much faster than we thought. We clearly, as you have seen, got now four approvals on KayaStat in more or less a couple of weeks, which I think is great news. which also again helps us to revisit some of our R&D pipeline projects. And we might accelerate certain things because it's clearly some topics which are going quite well right now. So I would say it's also, again, as I said, we will see nice margin improvements in the fourth quarter next year for sure. And the 31%, going back to the question we had from Matt before, is probably something that, as I said, needs at some point in time a certain revisiting. We have also great R&D ideas and we might accelerate some of them if we have the capacity and seeing and confirming the return rates on that. So trying here, also keeping the balance is an important topic for us as well.

Thank you. We'll take our next question from Asim Noor with Morgan Stanley.

Hi, thanks for the questions. My first one is on the QDI business, where you called out a low single-digit decline. What portion of your sales is subscription versus licensing today? And was this shift to subscription already happening before but accelerated in the quarter? And how does this shape your view around the growth ambitions for QDI versus what you communicated at the Capital Markets Day of, I think, 15% growth to 2028?

Yeah, thanks. It's an interesting question. It has not happened just overnight. It's a trend. We listen to our customers, especially our pharma customers, the biggest customers, and this is the evolution they want. It doesn't change the volume of the contract. It changes the way we recognize the revenues over time. The interest for our solutions has not decreased. If you look at the performance of QDI clinical, it was very much growing. It's a bit softer in research and academia, but because research and academia is a bit softer those days, it will pick up at a point as well. So long story short, we are accompanying our customers in their also model evolution, listening to them. It's a good thing to do, I think. It's not changing the nature or the volume of our contract or the interest in our portfolio. And therefore, our ambitions to achieve 200 millions by 28 is not changing. We are a number one, but never forget compared to competition, we are a profitable number one. It's accretive also to our P&L. And this is something also that we need to highlight. It's a profitable business for KIAGEN. It's not the case in the rest of the market.

Okay, thank you. And then my second one was on quantiferon. So keen to get your updated thoughts on signing a secondary distribution partner. Just what would be the biggest hurdles to signing on a new partner? Is it the right instrument, the right licensing terms? Because partnerships are not foreign to you. You've got partnerships with Astra, Lilly, McKeeson. So it's not like you've not done this before. If you could talk through your considerations there, that would be great.

As we have said many times, we are remaining open to different options. The first thing that we want to highlight, and it is important, is that the partnership with DiaSorin works well and has proven to be efficient. By contract, we now have the right to add one new partner per geographic region where we are together operating with DiaSorin. We review options. Install base would be a criteria. real winningness of a would-be partner to invest. We need to show also commitment of that would-be partner to invest into the business in market creation, in demand creation. So basically, we are in the best of many worlds at the moment at KFZ. On one hand, we have a very successful partnership. On the other hand, we have options to take potentially other partnerships. We'll see. Time will tell.

Thank you. We'll take our next question from Michael Riskin with Bank of America.

Hey, guys. Thanks for the question. I want to follow up on sample prep, which I think was just touched on a little bit. Just, you know, you talked about market growth. You've talked about CAGR relative to that. for the out years, but just the performance this year, I just want to dig into that a little bit more. You know, it's still an important part of the business and you're outperforming on diagnostics clearly, but just any more you can call on that in terms of confidence and re-accelerating maybe some of the one-timers that are impacting that this year. Whether that's on instruments or broader market demand, just help us bridge that back to low single digits.

Well, as you know, Michael, thanks for the question. You know that we have significant market shares in this segment of the market, both manual and automated. But we have taken a clear strategy for the last four years to bet on automation. And betting on automation for us means either upgrading our current install base with new features or launching new instruments. In the last two years, two years, two years and a half, what you have seen is upgrade of current install base. Kaya Cube became Kaya Cube Connect. EZ-1 became EZ-2. What you are going to see now in the coming two years is a mix of both. We are going to upgrade Kaya Symphony. I remind you that Kaya Symphony is still the flagship instrument for thousands of laboratories all over the world. And this instrument will become Kaya Symphony Connect with new features, launched in plan at the end of 2025. We said in New York that we would enter a new segment of high-throughput sample tech. We disclosed the solution in New York. And what we will also add to that plan is the launch of a new system where we are going to give you more details, probably by JP Morgan, which is a much smaller throughput benchtop system. So we have free automation coming on. And if you look at our results for the last two quarters, we are back on growth. Yes, it's 1% growth, but it's growth based on significantly already existing market shares. So we don't see why we could not continue that momentum and even accelerating it slightly because we are going to offer new solutions, either in volume, our high-throughput system, or easy automation of low-throughput customers with the new system that we will present at J.P. Morgan. So this is giving us the confidence to be probably, yes, around 3% CAGR for the coming years, which will be above market growth, which will strengthen our market leadership, and then delivering on what we gave you and the numbers we gave you in New York.

Okay. That's helpful. That's useful, Bridge. And then maybe just a modeling tie-up on pneumatics. I think you've been very consistent in sort of like the wind-down and the timing of that. But just as we look ahead to 2025, I mean, any way to size just how much it'll still be to the model next year. I realize that you're winding it down. We're expecting about a 1% headwind from pneumatics year over year. Is that about right? Or could it be a little bit less, a little bit more than that? Thanks.

Yeah. Yeah, thanks. Yes, thank you for highlighting that we are executing well here. Again, we are not on a call for 25, but the way I invite you to see it is that we will still have some revenues in Q1 and Q2. Our sites for pneumatics in Ann Arbor will be definitely shut down at the end of Q2. And therefore, the way you should see it probably is no revenues anymore on pneumatics in H2 of 2025. Okay.

Thanks.

We'll take our next question from Casey Woodrink with JP Morgan.

Great. Thanks for sitting me in, guys. Appreciate it. One quick one maybe for Roland. So instrument revenue was down year on year but was flat sequentially. Curious what you're embedding for instrument growth sequentially in 4Q, if you're taking any sort of seasonal step-up or assuming kind of continued stabilization there. And then I have one follow-up.

No, good question. We actually do believe that the fourth quarter in general will be slightly better sequentially in terms of instrumentation growth. Again, that is clearly one factor, particularly if you also have in mind that clearly there is a headwind also here from NormodX. So we see that particular, again, Kaya Start, Kaya Acuity, and some others are going to help, being helpful on the instrumentation side. Nevertheless, overall, it will stay negative, but better than the quarter before.

Got it. That's helpful. And, Thierry, maybe one for you. You know, you talked a little bit about your capabilities in liquid biopsy and have launched a number of new solutions there recently. Just curious how you're thinking about that application driving consumables growth here over time and if there's really any way to quantify the liquid biopsy growth contribution here moving forward. Thank you.

So the way I invite you to see Skyagen in liquid biopsy is one, that of a pioneer. Our penetration of the liquid biopsy market is not just 2024. And again, as I said today, we are the only company fully mastering the three key technologies necessary to perform good liquid biopsies. CCFDNA, CTC's exosome. And second, we are an enabler. It's using liquid biopsy-based solution by QIAGEN that big names on the market, the Gordon Health, the Natera, and many others in the world can perform their solution. And being an enabler is a very smart positioning because More and more companies investing in liquid biopsy have to use your solutions, but you are not necessarily exposed to downsides like change of coverage and reimbursement, so on and so forth. And this is where we want to insist in our position, being a top enabler of liquid biopsy solution providers, mainly in oncology application, but beyond oncology. You will see also, as we said in New York, our portfolio in sample tech will invest beyond instrumentation also in much more added value consumable sample tech and mostly around liquid biopsy because this is where we have value and we can also generate quite high pricing as well. So that's the positioning that we want to take, that we are already leveraging from, but that we want to strengthen.

Thank you. We'll take our last question from Andrew Brockman with William Blair.

Hi, guys. Good afternoon. Thanks for taking the question. Maybe just following the U.S. election earlier this week, you know, a key topic here has been just sort of tariffs, probably. So recognizing that QIAGEN is sort of very global business, can you maybe just sort of level set us on how you're thinking about it and the exposure there? And then I guess bigger picture, any impact to the way you're sort of thinking about running the business in light of some of these potentially broad policy directions that we've been hearing about? Thanks.

Thank you, William. And we can also take this question, the two of us, obviously. The first thing I would say is that, as you said, we are a global company, and one of the strengths in the company is that our geographic presence is extremely balanced between the U.S. but also Europe, emerging countries, so that's a strength. Second, we believe that it's very far too early to take some statements. Obviously, we listen to the candidates' platform, and we build our model. We'll see what happens. It's a bit premature. What is very clear as far as the U.S. is concerned, first of all, it is still and by far the main market for health care and for health care innovation in the world. Being in the U.S. present commercially but also with R&D and manufacturing is extremely important, and there is no way we are going to change that. For the rest, we need to see and to look for the coming months and constantly adjust our policies and actions according to a decision that might be made. But that's what I would say at this stage. Roland, would you like to add some colors to that?

Yeah, along the lines, I do think it's very straightforward, right? First of all, as Thierry said, there's no details for these and that clearly takes some time before that is going to happen. But nevertheless, some of the facts are clearly in the programs which were announced ahead of the elections. And the ones which are probably more concrete are on the corporate tax side. And it's quite obvious, as Thuy said, with having 150% of the revenues in the US is also having a significant local sites in a couple of places in the US. There's clearly also a corporate tax liability for hydrogen. So we have to see what that means. There's also a bigger question now, what happens to the whole pillar two developments globally, because I'm quite sure that with President Trump, that agenda is going to change as well. And as you know, we were rather expecting Rising corporate tax rate in the midterm plan as well. So again, there's no final answer on that, but I do think that it becomes more questions. Tariffs, as we all know, always go in two directions. It's never just one side adding tax to another side and nobody's reacting to that. Therefore, I would say if that is going to happen, that is something that is affecting companies globally in any direction. There you have to wait for the details.

Great. Thanks, guys.

Okay. With that, I'd like to end the call and express our appreciation to all of you for your participation. And please do not hesitate to reach out to Dominica and me with any questions or comments, topics that you want to address. Thank you very much. Bye-bye.

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