Qiagen N.V.

Ladies and gentlemen, thank you for standing by. I am Taryn, your Global Meet Call Operator. Welcome and thank you for joining QIAGEN's Q4 2024 Earnings Conference Call Webcast. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded at QIAGEN's request and will be made available on their Internet site. The prepared remarks will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. At this time, I would like to introduce your host, John Gilardi, Vice President Head of Corporate Communications and Investor Relations at QIAGEN. Please go ahead.

Thank you, operator, and welcome to all of you to our quarterly results call. We appreciate your time and interest in QIAGEN. On the call today are Terry Bernard, our Chief Executive Officer, and Roland Sackers, our Chief Financial Officer. Also joining us is Dr. Dominica Martorona from our IR team. This call is being webcast live and will be archived in the IR section of our website at www.qiagen.com. A copy of the quarterly results press release and the presentation are also available on our website. Before we begin, I'd like to remind you that this call will include forward-looking statements. Actual results may differ materially from those projected due to various factors. These risks and uncertainties are outlined in our most recent Form 20F file with the SEC and is available on our website. Additionally, we will refer to financial measures that are not prepared in accordance with U.S. generally accepted accounting principles or GAAP. These nine GAAP measures provide useful insights for investors and a reconciliation to the most directly comparable GAAP figures is included in our release. Please note that all references to earnings per share refer to diluted EPS. With that, let me hand over the call to Terry.

Thanks a lot, John. And hello, good morning, good afternoon, or good evening, depending on where you are in the world. And thank you all for joining us. I am very pleased to share that QIAgen has once again delivered a strong performance in the fourth quarter, closing out 2024 on a strong note. Our results reflect both the resilience of our business and the trust of our customers, reinforcing our momentum as we move into 2025. We exceeded the targets for sales and adjusted earnings. We are again among the fastest growing companies in our industry. Those results reflect the strength of our portfolio with over 85% of our sales coming from highly recurring revenues. They show as well our ability to deliver solid profitable growth in today's challenging and volatile environment. I would like to take a moment to recognize the efforts of our teams who have been instrumental in delivering those achievements. And I would like also to acknowledge the impact of our customers whose work continues to advance science and improve healthcare across the globe. This being said, let me now highlight our key messages. First, We exceeded our outlook for Q4 2024 in both net sales and adjusted earnings. Net sales were 521 million in the fourth quarter, growing 3% CER and surpassing our outlook for at least 520 million CER again. Sales for our core business were up 4% CER when excluding discontinued products, in particular the pneumodics and dialunox systems. Adjusted diluted EPS was 61 cents CER, exceeding our target of at least 60 cents CER. For the full year 2024, We also exceeded our outlook for at least 1,985,000,000 CER in net sales and the latest upgrade of our adjusted EPS outlook for $2.19 CER. Second, we reached key milestones across our portfolio. positioning our company to deliver solid, profitable growth towards our 28 targets. First, Kyastat Diagnostics had a very, very solid year with 25 CER growth in Q4 and over 660 new system placements in 2024. This exceeded our target. Our teams achieved FDA clearances for four panels for use for the syndromic testing system during 2024. Now, we have the full menu for the very important U.S. market with panels covering the detection of many respiratory, gastrointestinal, and meningitis and cephalitis conditions. Second, quantiferons. The gold standard test for latent tuberculosis delivered 14% growth in Q4 and 11% CER growth for the year on gains in all regions, and this underscores the increasing adoption of this solution worldwide. We continue to see ample room for Quantiferon to grow given that only about 40% of the global latent TB testing market is converted to blood-based testing. So we continue and execute on a clear strategy to drive further conversion. For our listeners in the US, for example, the recent tuberculosis outbreak in Kansas reminds us that this is a global epidemic also impacting the most developed countries. To put this in context, the Kansas outbreak is the largest documented case of this potentially fatal bacterial disease since the CDC began counting cases in the 50s. Once again, this shows that tuberculosis might be silent, but it's everywhere. Three, moving to digital PCR, our teams expanded the capabilities of the QIAQUITY system with the launch of our QIAQUITY diagnostic for clinical use. Here, we are focusing on oncology and infectious disease applications, while also building on greater utilization over the 2,700 cumulative QIAQUITY placements since launch. Fourth, in our sample technologies portfolio, we achieved a significant milestone with over a thousand cumulative placements of our new easy-to-connect automated sample preparation instruments. We continue leading in automated sample processing as we capture opportunities in high-growth areas like liquid biopsy, minimal residual disease, or microbiome as well. Our third key message for today. We continue to make significant improvements in profitability and free cash flow. In Q4 of 2024, our adjusted operating income margin rose by 2.6 percentage points and achieved 30.6% of sales. This was driven by efficiency gains across the business and obviously the decision to phase out the pneumatic system by mid-2025. For the full year 2024, our adjusted operating income margin came in at 28.7%. We also generated extremely strong free cash flow of $506 million in 2024. This is up 63% compared to 2023. Those results demonstrate again our ability to deliver growth and improve shareholder returns. As you have seen recently, early 2025, we completed a new synthetic share repurchase of approximately $300 million, building on the $300 million we already returned to shareholders early 2024. This, once again, reaffirms our commitment to return at least $1 billion to shareholders by the end of 2028 And that, of course, as we said in New York 24 is absent of significant M&A opportunities. Last, we are focusing on delivering on our 2025 outlook, which is clearly aligned with our path to achieving our 2028 goals. For 2025, we expect net sales to grow by approximately 4% CER. And more important to us, to rise about 5% CER in our core portfolio. This is once again excluding discontinued products like pneumatics. Adjusted diluted EPS is expected to be at least at $2.28 CER. Those targets are really backed by our plans to make progress in developing and commercializing our differentiated portfolio. We continue to see significant opportunities ahead for QIAGEN as we target key markets to develop and maintain leadership positions. This is really putting us on a course to achieve our mid-term targets for 2028, and they all come down to seven 31, 2, and 1. A 7% sales cager for 24 to 28 from our core business, excluding discontinued products like pneumatics. A 31% adjusted operating income margin by 2020 weight, and we are very well on our way to achieving this. A $2 billion of sales from our group of growth pillars. which together already achieved $1.4 billion of sales in 2024, and at least $1 billion in return to shareholders, and we have already completed $600 million of that goal. I would like now to hand over to Roland for a review of our financial results.

Thank you, Thuy. Hello, everyone. Thank you as well from me for joining our call. We are pleased with the results for the fourth quarter and for full year 24, so let me highlight a few key figures. Tate's results for the second half of 24 show 4% CER total growth along with 5% CER growth in our core business that excludes discontinued products. An adjusted operating income margin in 2024 of 28.7%, representing an increase of 1.8 percentage points from 2023, as we set a goal of at least 150 basis points of margin improvements in 2025 to move above 30% for a full year. A 63% increase in free cash flow for 24 to 506 million U.S. dollars. These results clearly put us on a strong course to deliver our commitments for 2025. And the outlook for 2025 is clearly aligned with our 2018 targets for solid profitable growth. Let me now give you some additional insights into our results and sales trends from the fourth quarter and for the full year in 2024. Among the product groups, we saw solid growth in diagnostic solutions, along with single-digit CR gains in PCR and genomics. In sample technologies, sales declined slightly in the fourth quarter of 2024, as higher demand for consumables used on our instruments and forensics applications was offset by weaker instrument sales. For the full year, the 3% CR decline in sample tech sales included the last headwinds from the pandemic and we can anticipate a swing to low single-digit CR growth in 2025. Important to our mid-term growth strategy is increasing the use of kits on an increasing installed basis of collagen instruments. We are preparing three important new sample tech system launches over the next 24 months, and this will help to enhance mid-term growth. In diagnostic solutions, sales grew 10% CER in the fourth quarter and were up 12% CER, excluding NEUMODX. As we mentioned earlier, a key driver was the QuantiFERON TB test delivering 14% CER sales growth in Q4, as we saw solid growth in all regions. KayaStateX grew 25% CER, driven by double-digit growth in both consumables and instrument sales. We surpassed our goal for at least 600 new system placements in 2024, reaching over 4,600 cumulative placements since launch. In the PCR product group, sales grew 3% CER led by consumables for the ChiAcuity digital PCR system. In fact, consumables for use on ChiAcuity achieved double-digit CER growth as we added over 100 new assays for use on the system and launched the ChiAcuity DX version for clinical applications. Like others, we continue to see cautious spending by customers on new instruments. We continue to have confidence in the mid-term growth opportunities given the advantages of digital PCR over the predecessor generation of PCR and next-generation sequencing. In the Genomics NGS product group, sales grew 2% CR in the first quarter, supported by growth in the Kyogen Digital Insight business, as well as gains in sales of universal consumables used on the third-party NGS systems. The performance in QDI was driven by growth in the clinical portfolio and this more than offset a modest decline in the discovery portfolio. As we have noted during the year, the results for QDI in 2024 were adversely impacted by the ongoing transition to a SaaS software-as-a-service subscription model, particularly in the pharmaceutical sector from long-term licensing agreements. We see this transition continuing during 2025 as we work through converting the remaining licensing agreements into the SaaS model. Taking a look at our pillars as a group, and these are QIAcurity, QIAstat DX, QDI, Sample Technologies and Quantiferum. These delivered combined sales of 1.39 billion US dollars in 2024. This in aggregate was 99.3% of our target for the year, so we are moving in the right direction towards our goal for at least $2 billion from our growth pillars in 2028. Let's now move to results for the regions, where we are sharpening our commercial concentration with specialized and empowered teams focused on the Americas, EMEA, and Asia-Pacific Japan. In the Europe-Middle East-Africa region, sales rose 4% CER. The top performing countries included France, Italy, Spain, and Switzerland, and also in countries like Saudi Arabia and the United Arab Emirates. In the Americas, sales rose 5% CER over the fourth quarter of 2023 with solid growth in the key markets of the regions in the United States, Canada, Brazil, and Mexico. In the Asia-Pacific-Japan region, sales were down 5% CER in the fourth quarter, and this was slightly better than the full-year decline of 7% CER. China sales declined at a low teen CER rate for the fourth quarter over the year-ago period, and this mirrored the decline for the year. We continue to take a cautious view in predicting a path to market recovery in China which is moving to less than 5% of total sales in 2025. Let's now review the rest of the income statement for the fourth quarter. As I mentioned earlier, adjusted operating income rose 12% to $159 million. As a result, the adjusted operating income margin improved by 2.6% to 30.6% over the fourth quarter of 2023. These results underscore our commitment to solid profitable growth as we look for additional operating margin gains in 2025 and we could reach our 31% target earlier than 2028. The adjusted gross margin improved to 67.1% of sales from 65.7% in Q4 2023, an increase of 1.4 percentage points and a key driver for the overall gain in the adjusted operating income margin. A big contributor was again QIAstat DX, a trend we saw during 2024. This product 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 technologies consumables business and QIAcurity digital PCR. We also saw here some benefits from the decision to discontinue NeumodX and more benefits are to come in 25. R&D investments were 9.3% of sales, up slightly from 9% in the fourth quarter 23. We have generated benefits from the NeumodX decision while ramping up programs in other areas. Our target remains for R&D investments at about 9 to 10% of sales. Sales and marketing expenses declined about 1.2 percentage points to 21.8% of sales. Here we saw the benefits of our efficiency programs while increasing our digitalization initiatives with over 60% of sales currently going through digital channels. General administrative expenses declined to 5.3% of sales from 5.6% in Q4-23 as we maintain a high level of IT and cybersecurity investments combined with efficiency gains. Regarding the restructuring for NOEM ODX and related projects, we incurred about $21 million of the charges in the fourth quarter. In LIMB is our target for about $20 to $25 million for this period. Some remaining charges may come in the first half of 2025 as we complete the program in LIMB is the target for about $400 million of charges in total, and while we noted that the vast majority were non-cash items. As we also said, about $100 million are expected to be cash charges, of which we incurred $30 million and expect about $70 million in 2025. For the full year, the adjusted operating income margin was 28.7%, an increase of 1.8 percentage points from 26.9% in 2023. Here again, we have reinvested some of the benefits from our efficiency programs into targeted growth opportunities while also seeing initial contributions from the decision to discontinue NOEM ODX. As for the adjusted EPS, the results for the fourth quarter of 24 were $0.61 and also $0.61 at constant exchange rates. This was ahead of our target for at least $0.60 at CER. In fact, we were able to steadily increase our outlook during the course of 2024 and we achieved $2.20 at CER compared to the initial targets at $2.10 CER. Turning to cash flow, we delivered strong improvements during the course of 2024. Operating cash flow rose 47% to $674 million from $459 million in 2023 mainly due to reduced working capital requirements. We achieved this growth even after absorbing payments related to the restructuring decisions announced in 24. We saw a steady improvement in working capital during the course of the year. This fell by about $282 million in 24 to 5.6% of total assets at the end of 24 compared to 9.8% at the end of 23. Account receivables trends are also contributed to the improved cash flow and stood at 55.6 days at the end of 2024. Another contribution factor was a reduction in inventories, which decreased to 193 days at the end of 2024 from 214 days at the end of 2023. Free cash flow rose at an even faster pace than operating cash flow, increasing 63% to $506 million for the year over 2023. This is particularly impressive given the higher level of capex spending in 2024 over the year-ago period and mainly due to the upgrade of our SAP system. So we are very pleased with the solid cash flow results for 24 and are looking forward to another year of solid results in 25. With that, I would like to hand back to Thierry.

Thanks a lot Roland. Let's spend some time to discuss a bit some progress our teams have made across the overall KIAGEN portfolio of products. Starting first with sample technology as we have highlighted At the beginning of this call, QIAGEN has surpassed over 1,000 placements of the easy-to-connect automated sample preparation instrument. This system, easy-to-connect, is unlocking new possibilities across diagnostic, genomics, cancer research, epidemiology, and forensics as well. As we continue to drive laboratory automation, we placed more than 1,800 sample prep instruments in 2024. And as Roland said, looking ahead, we are planning to launch three new sample prep systems by the end of 2026. We are also strengthening our microbiome and liquid biopsy consumable capabilities with the launch of two new sample kits. Those advancements are opening up new frontiers for precision medicine and are further cementing our leadership in automated sample prep market. Moving to Quantiferon, the market-leading test for latent tuberculosis detection. We said before, tuberculosis is still on the rise, not just in Kansas, not just in other areas of the US, not just in Europe, but across the entire world. Despite global progress, one in four people in the world carries latent tuberculosis, and SkinTest, an antiquated solution account for 60% of testing, creating a significant market conversion opportunity for QuantiFerron. At QIAGEN, we continue to be committed to expanding access to testing as part of the global effort to end the tuberculosis epidemic by 2035. As an example, in 2024, we expanded screening awareness through our partnership with the International Panel Physician Association in the U.S., which is critical for setting immigration screening standards. Additionally, we secured new American guidelines allowing for the use of quantifier in testing children of all ages, and this expanded our potential group of patients for conversion from the skin test. Beyond latent TB, we are still preparing to launch the Lyme disease test in partnership with Diaserin. We continue to invest in a KIA-rich quantiferon solution for emerging markets. Turning now to KIAstat, our syndromic testing solution that continues to expand its impact globally. As you have seen, we recently received FDA clearance for the KIAstat GI gastrointestinal panel mini BNV. And the BNV here mean testing for bacterial and viral conditions. This mini panel is designed to support outpatient diagnostic for five common bacterial and viral infections. Another test for GI that will this time focus on five bacterial conditions has been submitted and is awaiting FDA clearance. Those developments in 2025 build on a strong year for KyaSTAT, with four syndromic panels receiving FDA clearance in 2024. We are now offering a very comprehensive US test portfolio for respiratory GI meningitis conditions. This really marks another significant milestone as we continue to expand the footprint of KyaSTAT on the syndromic testing market. As you have seen last year, beyond infectious diseases diagnostic, we also advance companion diagnostic, securing partnership with Eli Lilly in Alzheimer's disease or AstraZeneca in chronic diseases. Looking ahead in 2025 and beyond, the focus remains for KyaSTAT. on expanding the portfolio, the menu, and therefore the market reach. We therefore plan to introduce a new QIA-STAT panel in Europe for blood culture testing, including pathogens that can cause sepsis. In the U.S. in 2025, we do plan to complete two submissions, the GI mini panel I just talked about, and again, the blood culture panel testing among others pathogen for some that are causing sepsis. At the same time, our team all over the world continue to work on our current installed base of more than 4,600 systems. And still, the majority of those systems are outside of the American. Meanwhile, we are advancing our high throughput strategy with the KyaSTAT RISE system. After a successful launch in Europe in 2022, we are now preparing for the launch of this solution in the US, positioning us to enter the high-throughput market and therefore drive further adoption of syndromic testing. Moving now to QIAQUITY, our digital PCR platform, which continues to push the boundaries of precision and performance. In the fourth quarter of 2024, we took a very significant step forward by expanding QIA2IT's multiplexing capabilities from 5 to 12 targets per sample. This is extremely important in helping our customers to advance the use of applications in translational research, microbiome analysis, pathogen detection, or cell and gene therapies. QIA2IT adoption continues to accelerate. And we increasingly believe in the mid-term potential of this breakthrough digital PCR system. As you have seen, in 2024, we have also launched our QIAQUITY diagnostic, bringing digital PCR into the clinical world. And we also expanded our assay menu by introducing over more than 100 new digital PCR assays. Looking ahead, We plan to expand the menu with at least, again, 100 additional assays in 2025. We are now focusing on cell and gene therapy and pathogen research. Closing with QDI, QIAgen Digital Insight. Our bioinformatics business continues to enhance the power of next generation sequencing data. In 2024, We enhance our AI-driven bioinformatics with a new AI extension for ingenuity pathway analysis that is designed to streamline complex molecular analysis. We also strengthen our role in clinical genomics through, for example, our collaboration with Genomics England on the generation study. Here, we are supporting at the scale of an entire country the analysis and interpretation of more than 100,000 newborn genomes to screen for more than 200 genetic conditions. In 2025 for QDAI, we continue to plan to launch new AI-driven applications. All part of our plan to expand our portfolio to over 14,000 AI-enabled solutions by 2028. And now back to Roland for some details on our outlook 2025. Thank you, Thierry.

Let me now provide more perspectives on our updated outlook for 2025 and also for the first quarter. Our ambition is to generate another year of improved operational profitability as we execute our commitment to solid profitable growth. We have initiated a full year outlook for 25 for sales growth of about 4% CER, which reflects 5% CER growth in our core business. We are expecting an acceleration over full year 24, where we had a core growth rate of 2% CER. On adjusted earnings per share, our outlook for 25 is for at least $2.28 at CER. This reflects about 9% CER growth in adjusted EPS to about $2.37 CER driven by the operational business expansion, which includes about $0.02 of accretion from the share repurchase. On the other hand, external factors present a headwind of approximately $0.05 CER, primarily due to lower adjusted net interest income compared to 24% and an anticipated increase in the adjusted tax rate for 2025. For the first quarter of 2025, we have set an outlook for net sales growth of about 3% CER from sales of $459 million in the first quarter of 2025. This translates to 4% CER growth in the core business. We are taking a balanced view on the challenges and opportunities in the current macro environment. And our target for adjusted earnings per share in the first quarter is for at least $0.50 per share, also at CR, so another good improvement over results of $0.46 in the first quarter of 2024. Let me also provide some perspectives on the currency trends against the US dollar. For the full year, we currently expect an adverse impact of sales of about 2 percentage points and about $0.02 to $0.03 in adjusted EPS results. And for the first quarter, we currently expect an adverse impact on sales of about 2 percentage points and about 1 cent on adjusted EPS results. I would like now to hand back to Thierry.

Thank you, Roland. We are coming at the end of our call and before the Q&A, let me summarize our key messages for today. First, we delivered again a strong performance in Q4-24, exceeding our outlook for both net sales and adjusted earnings. Once again, Those results are positioning our company as one of the fastest growing companies in our industry. Our heavily recurring revenues, making up over 85% of our sales, continue to drive growth, even in a challenging macro environment with cautious customer spending on instruments. We were extremely pleased with a strong contribution from our diagnostic solution, led by QuantiFerron and Chiastat DX, as well by our growth in our PCR and genomics. Those successes, along with FNCC gain, drove a higher adjusted operating outcome margin of 30.6% and very solid improvement in cash flow generation. For the full year, we achieved our targets for total net sales operational profitability and product development milestones while delivering another year outstanding cash flow. QIAGEN continues to deliver. This gives us confidence that we can achieve our goals for 2025 and position QIAGEN for solid profitable growth in the years ahead. We even believe that should our environment become less volatile, this outlook 2025 offers some potential for upsides. Before ending the call, I would like to let you know that we will be having more virtual deep dive sessions in 2025 highlighting our growth killer. We received excellent feedback on our inaugural deep dive on the QDI business in December. And we want to continue and keep that format going into 2025. With that, thanks a lot. I'm handing back to John and the operator for Q&A session.

Thank you.

Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to withdraw your question, you may press star followed by two. To ensure we can accommodate as many people as possible, please limit yourselves to only one question and, if necessary, one follow-up. Your microphone will also be muted after finished asking the questions. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from Tycho Peterson of Jefferies. Please go ahead.

Hey, thanks. First question on quantifieron, you know, terrific growth there. Are you kind of willing to underwrite double-digit growth this year? And then, obviously, you had a key patent win in the German courts earlier this week. You know, could this effectively block newer entrants from the EU? And then the second question is just on chiacuity and some of the pharma traction, I think with the 12 plex, you know, launch, you're maybe taking more share from NGS. Can you just talk a little bit about, you know, the sustainability of that? And when you think instruments overall may pick up for Chi acuity, they were a little soft in the core. Thanks.

Thanks, Taiko. And very quickly, yes, I mean, we are extremely pleased with the double-digit performance of Quantiferon again in 2024. Another example of the performance and positioning of this solution is, again, a quarter at above $100 million revenues. And therefore, indeed, to your point, we are forecasting a double-digit growth this year as well. Low double-digit, but this is what we want to execute. Now, as far as the IP, the recent press release from KayaGen is just showing that we have a strong IP and we really want to execute on it. On KayaQuity, we have been saying for the last two years that we believe that this unique solution, because of its differentiation, automation, and cost of ownership for our customers, is positioning QIAGEN to become the number one in digital PCR. The 12-flex solution is helping, like increasing the menu for life science customers is definitely helping, like introducing that solution into the clinical world is also definitely helping. We are really on our way to execute on our target of $250 million revenues for digital PCR by 2028. Last but not least, we acknowledge in full transparency that yes, we were impacted by a softer capital expense context in many labs, especially life science labs. But let's also consider facts. In Q4, QIAGEN has been able to put once again more than 200 digital PCR systems on the market that shows the strength despite that difficult environment of that solution.

The next question comes from the line of Michael Riskin with Bank of America Securities. Please go ahead.

Great, thanks. I'm going to ask both up front. First is just something you just touched on at the end there in terms of the market conditions in 24, how that impacted CHI acuity. I just want to get sort of a big picture view, your thoughts on how that trends into 2025. I mean, especially on the instrument side, I know you don't have a lot of exposure there, but that's where you saw some of the weakness this past year. Just any early indications, maybe just an update on what your expectations are for that instrument capex spending from pharma? throughout this year, you know, expectations for improvement, anything like that, that'd be helpful. And then second question would be on the margins. You know, you're talking about over 30% operating margin in 2025, really nice step up. Seems like that's a combination of both pneumatics and just efficiency gains. So maybe you could expand on that a little bit, but also you reaffirmed 31%, greater than 31% in 2028. So you're 30 in 2025. So just, Is there any reason that it can't be significantly above that? It just seems like you're only giving us 100 bps for the next three years. Just unpack that a little bit longer-term margin trajectory. Thanks.

Those are two fair questions, Michael, and I will let Roland answer on the margin and give you our view on our potential of our websites there as well. But first on the market condition. Michael, I always repeated the same. We always repeated the same for the last four years. The fundamentals of our markets, both clinical and research or academia, are still very solid for many reasons that we covered in the past. Aging population, increasing power of technology, increasing application, microbiome, liquid biopsy, minimal residues. The fundamentals of what is really under control of QIA genes are very solid. I'm more worried and I'm more concerned by the challenging volatile political or financial environment. And this is what is driving what some of you sometimes are considering like a cautious guidance for 2025. I still believe that achieving 5% growth tells in our core business, excluding pneumatics, would be a very solid performance and one of the best of the market. But we have said also in 2024 that yes, we were, like many other companies, impacted by a kind of sluggish capital expense environment in many labs, especially life science. We explained that this was probably driven by the fact that in 2024, more than 50% of the population in the world was under election. This always creates uncertainties. Therefore, we said that we see capital expense in labs normalizing progressively, especially starting in H2 of 2025. We always said as well, if this is taking more time, that might create some delays for QIAgens, but the fundamentals of the growth are still there. So that's what I can say and I confirm that statement. Now moving on the margin and the margin potential, I hand it over to Roland.

Yeah, thank you to you and hello Michael. As I said before, it's Clearly, I think a strong commitment of collagen to improve profitable growth. And as we said before, it was 180 basis points for last year. It will be at least 150 basis points for this year. So clearly going nicely around 300 basis points on a 24-month basis. I think it's important to know, and I think that's a very valuable question you asked, that probably only around 45% of that margin improvement for the two-year period is driven by the Normodix decision. The majority is actually coming from quite a number of efficiency projects we are doing within the company, plus, of course, underlying improvement in gross margin improvement. for cryogen, which we believe is going to continue. It's also important to realize that we do believe that the margin improvement does not stop in 25. We rather believe that we have a very solid track record and pass in front of us to improve margins significantly even beyond that. And if we are going down in the revenue growth rate as we plan to do, I do see not any reason that it shouldn't be a double-digit operational profit improvement also beyond 25. And I do think it's even more important, as we said before, Unfortunately, in 25, some of the external factors are most likely working against that on interest rate and on tax rates. I would consider them rather one-offs for 25, so it should also drop down to EPS starting in 26 and beyond.

We'll move to our next question from Patrick Donnelly with Citi.

Hey, guys.

Thank you for taking the questions. Maybe I'll just ask the two up front as well. Maybe first role, maybe it would be for Terry. On sample tech, it seems like the guidance is for flattish growth for 25. Can you just talk about what you're seeing there? You know, the moving pieces, obviously a large part of the business hasn't been the growthiest recently. So just want to talk through the moving pieces and the right way to think about that one going forward. And then the second would just be around some of the administration changes here. Any implications you guys have seen to start the year, whether it's U.S. academic growth, or on the China side, it would be helpful to talk through those pieces if you think about 25. Thank you, guys.

Thanks Patrick and obviously if Roland wants to chime in feel free but on the sample tech guidance I will insist on two things Patrick. Our strategy for the last four years is really to invest into automated sample tech. This is why we are continuing to take market shares, this is why we are strengthening our leadership and if you look at the growth pattern throughout our portfolio manual automated in 2024 you see that automated sample tech is growing in 2024 and this is our bet and therefore we continue to invest into automation we said today and we confirmed that we will be launching three new instruments in the coming two years at the end of 2025 you will see the succession of the leading sample tech instrument in the market, which is Kaya Symphony. We call it Kaya Symphony Connect. Early 2026, we will launch a high-throughput automated system. We call it Kaya Sprint. And around mid-2026, we will launch a very small-throughput, benchtop, one-shot sample tech system. We call it Kaya Mini. So 25 is a year of transition, stabilization on manual sample tech, continuous growth on automated, and with the launches of the new instrumentation, I believe that we are on our way to execute on the guidance we gave for sample tech for the 2024-2028 CAGR. Moving to the political environment or what you qualify the administration change. I'm really calling for keeping a cool head. We continue to believe that it's too early to judge. We are in a change of an administration. Many of the decisions that have been taken by the Trump administration are classical decisions, in a transition. Topping some expenses, wait and see, putting in place the new people. It's far too early to say that many budgets will be cut forever. By the way, If you look at the first President Trump administration, a significant budget like the NIH budget has systematically and every year increased in this first term. China. As you know, Kayagen has a small or relatively small exposure to China. It's between 5% and 6% of our business. We always said over the last decade that we do not believe that the Chinese market will bounce back before 2026. We consider China as too big of a market and the potential to be ignored, but too specific of a market and too, let's say, dedicated to local champions to become a focus of investment. We don't believe that this is going to change. It's 2025. And therefore, in China, we plan on a slightly negative to flattish growth. Roland, would you like to add something?

Probably a bit on the European perspective. As you know, there's clearly also here, I would say, overall some momentum. Germany in a few weeks has an election. But if you go to, for example, here in Germany to the programs of the major parties, there's clearly always quite an innovation focus there. So I would assume also once we have here the clarity, and again, elections are down to three weeks here, I really do think that some of these wait-and-see alternatives, particularly on the capex side, it's not a consumable topic, might rather get into a more supportive environment.

The next question comes from Dub Schinkel of Wolf Research. Please go ahead.

Good day, everybody. Thank you for taking my questions. I have two. First, what are your growth assumptions by end market in 2025? You know, essentially what's embedded into guidance. And then secondly, if market conditions become more challenging, do you have the levers available to protect the 150 basis points of margin expansion that you're targeting? And conversely, if the top line is better than expected, should we expect margins to go higher? Will you let it flow through? Thank you.

Thanks for the two questions. I think we can take those two questions. The two of us, Roland and I, on the market we still believe as I said five minutes ago that the fundamentals of our market the diagnostic and the research market are very solid for the reason I explained I still believe that we are in a recovery process because we are expecting capital sales to accelerate I said before that I see that in H2 of 2025 and so The market, I think, is bouncing back progressively and seeing a market growth at the moment between 4% to 5%. I think it's a reliable number. If growth happens clearly, as I said before, if our environment, the political financial volatility is getting clarified, I said that our guidance 2025 offers some potential for upsides. But we first need to execute on our current guidance for 5% growth core and for 228 EPSCR. But Roland code also expands on the potential for margin inspection depending on the market condition.

Yeah, hi, Doug. I do think the best way to answer your question is actually just reference what we did in the past, right? And I think if you go look backwards, and I know that you're following Kaizen for quite some time, I think we always had the benefit of our cost structure being quite variable. And therefore, we very typically will always deliver on our profitability goals. And I have no reason to believe that 25 should be different. But I think it's also important to note the way around. Just look on last year. We started into the year with an EPS guidance of 210. We increased it three times. We ended and finished the year as a 220 EPS guidance, while we were still keeping a very high level of R&D investments. I do think that is the way we look on our business.

The next question comes from Dan Arias with Stiefel. Please go ahead.

Yeah, guys, thanks for the questions. Just thinking a little bit about Kyostat and the portfolio expansion here. Roland or Thierry, I know it's probably tough to compare because you launched a product in this weird post-COVID period that we're in here, but for the higher throughput Kyostat Rise instruments, how would you compare annualized pull-through for that system in Europe to the mid-throughput system once a customer is up and running? And I ask just because I'm trying to understand how the consumable stream might change here as the menu has built out. And then the bigger question is, can we think about overall consumables generation on Kyostat moving higher from an annualized pull-through standpoint? Is that something that you think happens as you push towards the end of the year? Thanks.

Well, it's a fair question, but the way I invite you to think about it is that anytime we think about the Kyostat rise, When you compare it with a normal chiostat, it's an equivalent of eight chiastats. That's the way you should see it. and i'm not going to give numbers of pull through because it heavily depends on geographies and conditions but obviously that help increasing one obviously the pull through per system and second obviously the volume generated on kaya start consumables and we insisted today to show that one of the The impact on the improvement also on our operational efficiency is the improvement of the KayaStat cost of goods. Last but not least, and I will insist on something, why is KayaStat growing so fast, above 20% in 2024 after an excellent year in 2023? Because it is by far the simplest instrument to use on the market. between collecting the sample and putting the cartridge on the system, it's less than two minutes done. So imagine when you are implementing that efficiency and unique differentiation in a higher throughput system. And this is why we are confident. Anytime we are bringing the rise into a high volume customers, they even more than normal customer, see the significant workflow differentiation compared to competition.

The next question comes from Dan Brennan with TD Coward. Please go ahead.

Great. Thank you. Thanks for the questions. Maybe I'll just add to two right here. Just on DPCR, you obviously called out the weaker instrument trends that were, I guess, the culprit this year for the coming in below plan, but you also cited really strong placements. Could you help walk through the 30% type growth that you're expecting for next year? Is that the second half instrument recovery? Is it pulled through? Is it clinical? So maybe some color on that. And then just be high level, nothing from the new administration on EU import tariffs, but just any way to think about your exposure and to the extent we see a 10% or 20% import tariff, kind of how we think about the impact to hydrogen. Thank you.

Thank you, Dan. So I'm going to start with the digital producer question, and I will ask Roland also to share the views that we have explained already on the potential tariff. tariff decision in the US administration first digital PCR when you look at 2024 even if we acknowledge that capital sales were a bit weaker the growth coming from consumables is remarkable we are way above the double digit mark for the full year and therefore this will continue and what is fueling this It's the progress we are making every year by either increasing assays or developing new applications. 100 new assays for life science and research in 2024. Development of solutions for what we call the biopharma application or cell and gene therapy. We said today that in December we launched that new increased plexing capabilities from 5 to 12. This is giving you even more opportunities in the pharma world and, once again, cell and gene therapies. We are launching now the system into the clinical world with some achievement in oncology and also offering that solution for labs wishing to do LDT, laboratory-developed tests. so this is the bulk of our growth obviously this will even be strengthened if we see as we said before a normalization of capital expenses in labs in labs but do not forget that in clinical world this is probably a solution that we will have to place rather than sell and so indeed in life science where we are mostly selling an acceleration of capital sales in H2 will help us achieving our target. Rolling on customs.

Yeah, I do think with a new administration, there's most likely a lot of different impacts which are discussed. And I do think one of the most likely ones, which is important for us, is actually on the corporate tax side, because as we all know, we have a significant footprint in the U.S. We have not only roughly around 50% of our revenues there, we have also more or less the majority of our people in the meantime in the U.S., So any reduction in terms of corporate tax rates should be actually beneficial for us, particularly in an environment where we so far rather have to play with an increase in tax rates. So I hope that gets done. On the other hand, of course, the tariff situation is very unclear, but I do think it's important that people differentiate between, and I know that it's not easy for people who are on the outside, there's a significant difference where you produce and where you create your values, particularly in an industry like healthcare, where you have, for example, IP companies and others that might be sometimes even very different. So I do think it really comes down to how the tariffs are structured and how things are getting implemented. We do think clearly that we plan a lot of different actions and interactions, but so far it's hard to grab for us.

The next question comes from Matt Sykes with Goldman Sachs. Please go ahead.

Thanks for taking my questions. Just two quick ones. Terry, first for you on QDI. You know, what is your expectation in terms of timing to get through that transition to SaaS from licenses? And could we see an acceleration in growth in the second half of 2025 and maybe any commentary on a potential exit rate for that business in 2025? And then, Roland, just on the margin expansion target, how are you thinking about the level and phasing of OPEX in 2025, assuming R&D sticks around that 9% level, so specifically on SG&A? How should we think about that over the course of the year? Thanks.

Yes, Matt, those are two valid questions. So first on QDI, the first thing is we continue to believe in that market. You remember that we triggered an investment plan dedicated to QDI more than a year ago. We called it the Golden Gate Investment Plan. We are still investing in adding marketing capabilities, sales capabilities, product development capabilities, and as I said during this presentation today, AI-enabled solutions. As we have been saying for the last four months, we see the transition to the SaaS business normalizing progressively starting H2 and impacting really our performance in 2026. And then I believe that this is again a high single-digit market potential, growth, I'm sorry, potential low double-digit.

The next question comes.

Sorry, go ahead. Just to follow the second part. Exactly, just on the margin expansion, I do think it's important to note that we rather expect that we will actually see already quite an increase here in the first quarter compared to a normal first quarter. So I wouldn't be surprised if we already see in the first quarter an EBIT margin north of 28%. and they're going quickly into the direction, maybe even above the 30, already in the second quarter. So it's a very typical allocation, H1, H2. So therefore, I would say it's something that is earlier than you probably would have planned for before.

The next question comes from Casey Woodring with J.P. Morgan. Please go ahead.

Great. Thank you guys for squeezing me in. I'll just ask two quickly up front. So on Kyostat, you guys placed more than 660 instruments in 24, following up on more than 700 placed in 23. So can you, you know, you continue to see strong placement demand post-pandemic. Just curious what you expect for placements in 25 there and if gastro and meningitis approvals have unlocked new placement opportunities. And then my second one is just, can you touch on the reorg going to two functional teams that are centered around product portfolio and innovation and then commercial operations? Just

um what's the rationale there and what sort of incremental benefits do you expect to see from these moves in the near and longer terms thank you thank you casey um i think that uh taking into account my previous comment on always making sure that we are comparing apple to apple now that we are also accelerating the launches of our kaya stat rise anytime we put a rise it's an equivalent at least of eight units on the normal kaya stat so take this into account but If we can be in that rhythm, especially now that we have more menu in the U.S. of more than 600 systems per year, I would be satisfied. It's a good growth trajectory. On the reorganization, at Kayagen, we do not believe that there is a bad or good organization. This company has been organized around business units for many years, and it served its purpose. We had a life science business unit. the clinical diagnostic business unit, and the bioinformatics. We are just considering now that the market is changing. Our customers are changing. In many sites, it's very difficult to define whether the customer is purely a research or it's a clinical. In many, many situations, those are hybrid customers. Therefore, for me, being organized still into business units was not the right way to answer our customer needs. Another example. We said in New York that beyond addressing needs for life science, research, and academia, or for clinical, what QIAGEN does is building sustainable leading ecosystems that are covering many needs. Needs in research, needs in academia, needs in pharma, needs in biotech, needs in clinical labs, also needs in crime investigation, for example. This is what we mean by successful, sustainable ecosystems. Sample take is a clear ecosystem. You can give it to an academic lab. You can give it to clinical labs. Digital PCR, the importance for digital PCR for kyogen is not to waste time. thinking should it be a life science or a clinical application. What is important for us is to prove the value of digital PCR against, for example, qPCR or next generation sequencing. And therefore, a common investment here makes sense. Latent tuberculosis, what is important is to push it beyond, beyond just latent tuberculosis. If you look at Kayastat, it was mainly clinical. Now it's becoming also a pharma added value solution because of the companion diagnostic agreement that we signed with AstraZeneca or Eli Lilly. So this is where I invite you to see our priorities. This answers the needs of our customers much better.

The last question comes from Hugo Solvay with BNP Paribas. Please go ahead.

Hi, hello. Thanks for taking my questions. I have a couple of follow-ups. First, on NumoDX, Roland, maybe can you give us the sales number that you expect for 2025? That's too much for... On the 2028 target, that would be my second question. Can you maybe expand a bit on the reverse from incremental margin progression that should drive double-digit growth beyond 2025 and I guess the trajectory for the growth margin here? Thank you.

Hugo, I'm glad to see that you solved your IT issues, and I will have Roland getting the second question on pneumatics. It's very simple. See it like this. By 2025, H2, the second half of the year, there shouldn't be any sales of pneumatics, and we expect a maximum revenues of around basically between 8 to 10 million for 2025. Roland, the margin expansion?

Yeah, and on the margin expansion, as I said, there's a couple of drivers which I think we're just elaborating even more on that. And one which I think is very critical for us is around our IT infrastructure. And there's actually both. It is on the one side, our ERP system, as you know, in the middle of integrating our SAP system into the new SAP HANA environment. go from two instances to one global setup, but at the same time, of course, a significant digital infrastructure. As you know, we have now roughly about 60% of our revenues coming in, getting more or less handled, fully digitalized, and we do believe we can expand on that as well. And of course, that has a significant impact to a company where 85% of the business is very resilient consumable cells because they are very much recurring and having a sales force who rather can focus on lead generation instead of writing a monthly reordering for consumables is a big spin for a company like that. I think one thing we shouldn't underestimate is actually also the underlying threat for a gross margin improvement because While I would say, particularly last year, the larger part of the margin improvement for the company on the EBIT level came from the operational side, I do think that particularly looking forward, the significant incremental contribution comes from the gross margin side. One has to do with the mix. It's quite obvious that some of the diagnostic products go faster than the life science products, and typically you have a somewhat higher gross margin contribution than here. But we also have some extra situations here. Most important for us is the volume growth on Chiostatics. As you know, we clearly are still here not on a margin where we believe we have any way close to what is a company average. So there is a nice room for us to grow. And that is much more volume growth and utilization stories than anything else. And of course, the portfolio expansion helps you a lot because if you can use the same kind of production lines for just having instead of two product items, four or five different topics, that makes a significant difference. Another important topic for us that some of our instruments also have increasing cost margin. A good example is, for example, Kaya QT instruments. As you know, we do believe they'll do much better going forward. And that is, for example, one of the instruments which was a high cost margin contribution. So I would say a lot of piecing adding up, giving us the confidence on overall margin improvement, not only on the operational expense side, but also with cost margin contributions.

This concludes our question and answer session. Please continue with any other points you wish to raise.

No, thank you, operator. I'd like to thank all of you for your participation in the call, and please keep in touch and contact Dominic and me if you have any questions. Bye-bye.

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