Qiagen N.V.

Ladies and gentlemen, thank you for standing by. I am Katie, your GlobalMeet call operator. Welcome and thank you for joining QIAGEN's Q2 2025 Earnings Conference call webcast. At this time, all participants are in a listening 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 1 on your touch-tone 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 at QIAGEN. Please go ahead.

Thank you, operator, and welcome to all of you to our call today for the second quarter of 2025. We appreciate your time and interest in QIAGEN. Joining me today are Terry Bernard, our Chief Executive Officer, and Roland Sakras, our Chief Financial Officer. Also joining us is Dr. Dominica Martorano from our IR team. Today's call is being webcast live and will be archived in the IR section of our website at www.trygen.com. A copy of the results press release and the presentation are also available on our website. Before we begin, please note that this call will include forward-looking statements. Actual results may differ materially from those projected due to a number of factors outlined in our most recent Form 20F and other filings with the U.S. Securities and Exchange Commission. We will also refer to certain financial measures not prepared in accordance with U.S. GAAP that provide additional insights into our performance. Reconciliations to the most directly comparable GAAP figures are in the release and presentation. All references to earnings per share refer to diluted EPS. And with that, let me turn over the call to Terry.

Thank you, John. And hello, good morning, good afternoon, or good evening to everyone around the world. Thanks again for joining us. QIAGEN delivered another clean and solid quarter in Q2 of 2025. Indeed, our sales growth is among the highest in the industry, And on top of that, we are increasing our outlook for the year. This performance reflects focused execution and gives us confidence to deliver on our upgraded 2025 targets. We are building a solid foundation to deliver more growth in 2026 on our path for solid and profitable growth against our 2028 targets. So let me walk you through our four key messages for today. First, we exceeded our outlook for Q2 with solid growth and improved profitability. Net sales rose 7% to $534 million, with 6% growth at constant exchange rates. Core sales are a more important metric for QIAGEN since they exclude discontinued products like pneumodics and diarrhea nodes. Those cells also grew 6% CER over the same period in 2024. Adjusted diluted EPS was 60 cents and 62 cents at CER ahead of our target and driven by the strong improvements in operational profitability. Second key message, our growth pillars perform strongly. Kayastat grew 41% at CER. This was driven by strong instrument placement that once again exceeded our quarterly goal of at least 150 systems. We continue to see solid demand across all regions and benefits from our menu expansion initiatives for syndromic testing. Quantiferon grew 11% CER, supported by solid gains in the Americas, but also in EMEA, as we maintain momentum in driving conversion of latent TB testing for the traditional skin test. Let us remember that around 60% of the global market still relies on the skin test. and this underscores the significant remaining potential for conversion. Kayakuity, our digital PCR platform, delivered double-digit CER growth and supported by healthy demand for consumables, companion diagnostic deals, while instrument placements were slightly below the prior year reflecting cautious capital spending trends among customers. QIAGEN Digital Insights, our bioinformatics business, maintains momentum in a challenging environment. Here, we expect new growth impulses from the acquisition of Genox and the Franklin Cloud platform for AI-driven interpretation of next-generation sequencing data for clinical labs. and in sample technologies. Although total sales were flat against the second quarter of 2024, we saw solid mixed single digit growth in automated consumables. Our teams are moving ahead to launch three new platforms with first SAIT in late 2025. Third key message. We have upgraded our full year 25 sales outlook based on this solid start to the year in a complex and volatile macro environment. We now expect 4% to 5% net sales growth at constant exchange rates, up from the previous target for about 4% growth. More importantly, we are now expecting 5% to 6% CER growth in our core portfolio, up from the prior outlook for about 5% growth. We are also confirming the adjusted earnings per share outlook of about $2.35 at CER, which, as you remember, we upgraded in April and represent an increase of $0.07 compared to our initial guidance for the year. So amid this external volatility, we remain focused on execution and agility to deliver on our targets and capture the right growth opportunities. And as a fourth point, we have an expanded range of ways to create value for shareholders, customers, and other stakeholders. Following our annual general meeting in June, we paid our first ever annual dividend and now have authorization for another synthetic share repurchase of up to $500 million over the coming 18 months. With about $650 million already returned to shareholders since 2024, we are well on track. to reach our goal of returning at least $1 billion to shareholders by the end of 2028, absent once again of significant M&A. At the same time, we are continuing to invest organically in the business. Our teams are also actively reviewing value-creating M&A opportunities. Our differentiated portfolio across diagnostic and life sciences is indeed strong and performing well. This is reflected in a strong record of execution and a clear commitment to implementing and executing on our strategy and creating value.

With that, I will hand it over to Roland for more on the financials. Thank you and hello everyone.

We delivered strong financial results in the second quarter of 2025. Our profitability continued to improve, supported by disciplined execution and a clear focus on operational efficiency. Let me take you through the key financial highlights now. First, we achieved another increase in our adjusted operating income margin. It rose to 29.9% of sales up 1.5 percentage points from the same quarter last year. This improvement was driven by several factors. First and foremost, the efficiency initiative launched in 2024. This included the decision to discontinue NeumodX, which more than offsets the adverse impact from currency movements against the US dollar and the new tariffs. Cost discipline across the organization played an important role. We have also maintained our focus on investing in growth and innovation. Based on the solid results for the first half of 2025, we are tracking toward an adjusted operating income margin of about 30% for 2025. Compared to 2023, this would represent about 300 basis points of margin improvement, which underscores the scalability and strength of our operating model. Second. It delivered strong cash flow in the first half of 25 while absorbing cash payments for the efficiency program and portfolio decisions. Net cash from operating activities was $301 million, unchanged from the first half of 24. This reflected the solid business expansion and benefits from Taita working capital management. Our balance sheet remains very strong, giving us flexibility to invest in innovation, pursue targeted M&A, and continue returning capital to shareholders. This year, we have already returned over $350 million to shareholders through the $300 million share repurchase program in January and the $54 million of dividends paid in July. Let me now walk you through some additional details on our sales performance in the quarter. Starting with sample technologies, sales were broadly unchanged from the second quarter of 24. We saw good trends in our focus on automated consumables across several regions. Instrument sales held steady over the year-ago period, supported by continued placements of our core platforms. Diagnostic solution sales rose 11% at constant exchange rates, with strong contributions across our regulated products and led by Kaya StatiX sales up 41% CER and Quantiferon sales rising 11% CER. We also saw another quarter of double-digit revenue growth in companion diagnostic revenues. In PCR and nucleate acid amplification, sales grew 3% CR over the year-ago period. Chiroacuity saw a positive growth rate in consumables, but instrument sales were soft due to cautious customer spending. Turning to the genomics and NGS product group, these sales were also stable in the year-over-year period. Growth in the QIAGEN digital insights bioinformatics business reflected double-digit gains among clinical customers, which absorbed softer trends among research customers that are facing continued funding pressure. We are also working through the shift from the multi-year licenses to SaaS-based subscriptions. Turning to the regions, sales in the Americas rose 7% CER, supported by strong growth in the US and Mexico. In the EMEA region, sales grew 8% CER, led by France and Italy, growing at double-digit rates, along with contributions from Germany, Switzerland, and the Middle East. The Asia-Pacific region declined 4% CER, with sales down at a low 10% CER rate in China over the same period in 2024. Moving down the income statement, adjusted operating income rose a strong 13%, to $160 million and led to the adjusted operating income margin improving to 29.9% of sales in Q2 25 from 28.4% in Q2 24. On a constant exchange rate basis, the margin rose even more sharply to 30.8% in the 25 quarter. This improvement was driven by a combination of higher sales and ongoing efficiency initiatives. The adjusted cost margin benefited from a quarter with a solid product mix, but had to absorb the impact of new tariffs and currency movements and declined to 66.7% from 67.2% in Q2 2024. R&D investments were 8.9% in Q2 2025 compared to 9.9% in the year-ago period and aligned with a target for about 9-10% on an annual basis. Sales and marketing expenses were 22.1% compared to 23.1% in Q2-24, reflecting efficiency gains while maintaining targeted customer engagement. General administrative expenses were slightly lower at 5.7% in Q2-25 compared to 5.8% a year ago. We have good cost discipline while continuing to support strategic IT upgrades. In terms of adjusted EPS at constant exchange rates, these results were above the outlook and that was even with an adjusted tax rate at 20% against our target for about 19%, which continues to be our 25 goal. Turning to cash flow, we generated $301 million in operating cash flow during the first half of 25 compared to $300 million in the 24 period. This performance is even more noteworthy given that the 25 results included about $36 million of cash restructuring payment related to our efficiency initiatives and portfolio streamlining actions. Pre-cash flow was $270 million, slightly below the $225 million in the first half of 2024. This reflects higher planned investments into digital initiatives, particularly the SAP system upgrade that is now in the implementation phase. We continue to improve our working capital management thanks to operational discipline. Accounts receivable were unchanged as of about 56 days compared to the end of 24 as our teams continue to improve in this area. At the same time, Days of inventory decreased to 159 at the end of the second quarter of 2025 compared to 193 days at the end of 2024 in light of our efficiency initiatives. As for the cash flow consideration in the second half of 2025, keep in mind that the dividend payment was made in July. We ought to anticipate that about $500 million will be paid out in H2-25 for the 2024 convertible nodes due to a likely early redemption. In light of this topic, we are reviewing attractive non-dilutive refinancing opportunities during the second half of 2025. One option under consideration is to issue cash-shared convertible nodes at favorable terms. As always, Any refinancing will be aligned with our disciplined capital allocation strategy. In closing, our strong financial position supports our proven capital allocation approach. This combines investing in strategic growth initiatives with increasing returns to shareholders. With that, let me hand the call back to Trien.

Thanks Roland. So in addition to executing on sales and profitability, we also execute on research and development. So let's now take a quick look at progresses across our product portfolio, starting with sample technologies, where we continue to advance our next wave of automation. We are making indeed steady progress on three new instruments and I'm very pleased to report that we are perfectly on track on budget, specification and timing for Kaya Symphony Connect, Kaya Mini and Kaya Spring Connect. Those systems are designed to deliver flexible throughput, improve automation and enhance digital connectivity across both clinical and research applications. The first of them, Kaya Symfony Connect, is on track for a controlled launch towards the end of 2025. This platform strengthens our position in high-value applications, such as liquid biopsy, offering expanded capabilities and improved connectivity. Kaya Mini and Kaya Spring Connect are planned for H1 2026. Together, those platforms will expand our install base and address a broader range of customer needs with scalable, innovative sample preparation solutions. Early field tests for Kaya Spring Connect and early feedback from pharma companies have been extremely successful, and we are seeing strong interest in this high-throughput system. reflecting broader customer demand for next-generation automation. Second, QIAstat-TX, our syndromic testing platform, has a growing footprint worldwide. As you know, we are now offering a broad menu of FDA-cleared syndromic panels across respiratory, gastrointestinal, and meningitis targets. This includes three mini-panels tailored for outpatient settings, helping to address reimbursement challenges, specifically in North America. The strength of our assay portfolio has driven strong instrument placement, and in the first half of 2025, for example, we placed more chiastas systems in North America than in the whole of 2024. With those developments, Kyastat continues to build momentum as a flexible and fast-growing solution in the syndromic testing market. Turning to Quantiferon now, where we continue to drive successful conversions for the traditional skin test. I cannot emphasize enough that customers continue to choose the superior solution built on Quantiferon and the trusted Diasorin liaison automation system. but we are not being complacent. We continue to strengthen this foundation with seamless lab integration through truly universal automation. We continue to invest and innovate our quantifier on test to improve both automation and ease of use. So stay tuned. Soon, we will be able to share some exciting news on this front. Now to QIAquity, our digital PCR platform that continues to expand its presence in oncology research especially. As you might have seen, we recently announced new partnerships to develop and deliver multiplex assays optimized for QIAquity and digital PCR. ID Solutions, for example, is supporting assay development for cancer mutation detection in circulating free DNA and FFPE tissue samples. Another partnership, Tracer Biotechnologies, is working with us on minimal residual disease tests for solid tumors to support decentralized clinical trials and future companion diagnostic. Third, in addition to that, GenCurex is developing third-party IVD oncology assays for our QIAQUITY diagnostic, including application in both tissue and liquid biopsies. Those partnerships will reinforce QIAQUITY's role as a differentiated platform in oncology and will open further opportunities in areas such as transplant medicine, infectious diseases, and metabolic disorders. If we turn now to precision medicine, where QIAGEN continues to strengthen its position as a trusted pharma partner. In June, we announced a global partnership with Insight to develop a next-generation sequencing-based test for detecting CalR gene mutations in patients with a rare type of bone marrow cancer. This test will support phase 3 clinical studies. We also began a collaboration with Foresight Diagnostics to transition their next-generation sequencing-based Clarity CT DNA assay for lymphoma. This collaboration will transition this test from a central lab service into a kit for use in clinical trials. And finally, turning to our bioinformatic activities and QIAgen Digital Insights. We acquired Genox in May, adding the Franklin Cloud Platform to our clinical genomics offering. Used in over 4,000 labs worldwide, Franklin expands our capability in scalable AI-based NGS interpretation and fully complements our QCI suite of solutions. Overall, with those developments, Across our portfolio, we are now targeting about $1.49 billion in aggregated sales from our five pillars of growth in 2025, which represent about 8% growth over the prior year. Based on the results from the first half, we are well on track to achieve these goals.

And now back to Roland with the details on our outlook for 2025. Thank you, Thierry.

Let me now provide some more perspectives on our outlook for 2025 and the third quarter. Our ambition remains clear to deliver another year of solid, profitable growth and continued improvement in operational efficiency. We have upgraded our full-year 25 outlook for total net sales to grow about 4% to 5% at constant exchange rates, up from the prior target of 4% growth. More important is that we have also increased our target for growth in our core portfolio that excludes revenues from discontinued products. These core sales are now expected to grow about 5% to 6% CA, up from the prior target of 5%. Let me point out that you will see a stronger difference between total and core sales in the second half of 25, given the discontinuation of Neumodix and Dynalunux in June. So this represents about $20 million of headwind from the sales of these products in the second half of 24 that have been discontinued during the first half of 25. On adjusted earnings per share, we continue to expect results of above of about $2.35 at CER. We are increasing profitability ahead of sales as we see benefits from continuous contributions and deficiencies with a more stable favorable tax rate while also absorbing the impact of new tariffs. For full year 25, we anticipate tariffs to create a relative headwind of about 90 basis points on the adjusted cost margin as we are continuing to increase our mitigation strategy. We have taken a realistic view on growth for the second half of 2025, just as we did in the first half, reflecting the current macroeconomic environment. At the same time, we continue to see opportunities to deliver results above our targets. For the third quarter of 2025, We are targeting at at least 4% CR growth in total net sales and a faster rate at at least 5% CR growth in the core portfolio. Adjusted EPS is expected to be at at least $0.58 at current exchange rates. As we look at the current currency market trends, we expect a positive impact of about 1 percentage point on full year net sales but an adverse impact of about 2 cents on adjusted EPS given the headwinds in the first half of this year. For Q3, currency is expected to have a positive impact of up to 1 percentage point on net sales but be neutral on adjusted EPS. So in closing, we have now upgraded our initial sales and adjusted EPS targets for 2025. And I committed to delivering on these goals as a foundation for further solid profitable growth in 26 and the coming years. With that, I now hand it back to Thierry.

Thank you, Roland. So we are coming to the end of our presentation. And before your questions, let me briefly summarize the key messages for the second quarter of 25. First, we delivered another solid, clean quarter of reserves that were, again, above our outlook for both net sales and adjusted earnings. In fact, our sales growth is among the highest in the industry. Second, our growth pillars are driving momentum across our portfolio. From diagnostic to life science and across the world, we are addressing critical customer demands in highly attractive and growing markets. Based on the solid trends in the first half, we have upgraded our full year 25 net sales outlook based on the strong start of the year, and we have also confirmed our adjusted EPS target following our increase in April. Fourth, we are advancing our capital allocation that balances investments in QIAGEN with increasing shareholders' returns. At the same time, we continue to invest organically into the business in terms of innovation, digital infrastructure, and targeted M&A deals. So in closing, we are moving into the second half of the year from a position of strength. Quarter by quarter, year after year, we are building long-term value for our shareholders and we still are determined to achieve our ambitions for solid profitable growth. And before ending the call, I want to let you know that we will be having another virtual deep dive session this year, highlighting this time our growth pillar sample technology. We continue to receive excellent feedback on our two previous deep dives on QDI, if you remember last year in December, and Quantiferon. And we want to keep that very accurate, short, and winning format going. With that, thanks a lot for your attention. And I'd now 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 their touchtone telephone. If you wish to withdraw your question, you may press star followed by two. To ensure we can accommodate as many people as possible, please limit yourself to only one question and, if necessary, one follow-up. Your microphone will also be muted after finish asking the question. 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 Luke Sergut with Barclays.

This is Salem Salomon for Luke Sergut. Thanks for taking our question. Just one on the quarterly dynamics. In 3Q, you're lapping a tougher comp compared to the first half. So what's really driving the confidence in the guide from a visibility perspective? And then the 4-2 guide seems to step down just a little bit to the 2-ish percent range on a CER growth basis. Anything that is worth calling out there on the perceived deceleration, or is that sort of a risk adjusted based on visibility two quarters ahead? Thanks. Thanks.

So thanks, Luke. And that's a fair question. First of all, we are coming already from a quite high growth. So obviously increasing based on that high growth again, the guidance for the year is quite a performance. Second, we continue to operate in a very volatile environment. I strongly believe that the question of tariff is not completely solved. So it's still volatile. So we remain realistic, but also ambitious. Last, do not forget, as Roland started to allude to, that what is interesting to look at, especially in Q4, will be the core growth rate. Because in Q4 especially, you will see that the impact of the discontinuation last year of Pneumodics and Dialunox onto this year is going to become important. Roland, would you like to add something to that?

Yeah, thank you, Trey. No, I think the one thing to hear that as well, I don't think there's, you will not hear from Trey or me today that there's any particular reason why Q4 should be in any way significantly different than Q3 in terms of growth rate. So I'm not sure. Again, as I said, focus on the core growth rate and then you see it is not a significant difference from today's perspective.

Got it. That's super helpful. Thank you for that. And then one on... Sorry, it's one question. Let's move to the next question. Sorry. Appreciate it. Thank you.

Thank you. We'll go next to Asia Noor with Morgan Stanley.

Hi. Thanks for taking my question. I'll keep it to one. Just on chiostat, could you unpack the 41% growth a little bit? How much was flu-related respiratory demand versus newborns? pull through on the GI and ME panels and versus new account wins in the U.S. And I'll ask my follow-up as well to this, which is, are you able to disclose the installed base for Kaiostat as of the latest quarter? Thank you.

So, thanks, Alicia, for your question. So, if you remember, the specificities of this market for syndromic more than 70% of the market is made of respiratory so respiratory remains the main test driving that growth and that performance but From a purely percentage, even if the base is lower, we are extremely pleased with the growth of testing on GI and now also meningitis specifically in Europe and starting in the US. We start also in that 41% to see the impact of the mini panels in the US. You remember that we are a unique company in the sense that we can offer both large panels and also mini panels. Fourth, there is also a good impact of capital sales and placement in those numbers. As we have said, first of all, we are way ahead of our quarterly objective of 150 systems. And as we said today, if you just take the example of the US in H1, of 2025, we put more system more care stat on the market than in the full year of 24. So it's basically what is driving this performance. I'd like to finish by saying as well that Even if chiostat is the only syndromic system which has been endorsed by pharma company for companion diagnostic, there is no influence of companion diagnostic in the growth of H1 and the growth of Q2. It's purely testing and instrument placement performance.

Thank you. We'll go next to Yanku with Deutsche Bank.

Good afternoon. Thanks for taking my questions. My first question is on your product group, Other. Could you remind us of what is included here, and could you quantify the revenue from the discontinued system within that line in H1? And should we expect a return to a more normalized growth rate from Q3 onwards? And then secondly, a follow-up on CASDS-DX. Could you speak a bit about the regional breakdown of that growth we have seen in Q2?

I will let Roland answer for OSER and the discontinuation. But remember that in previous school, we gave you the numbers for what was, for example, pneumodics in H1 of this year. By the way, pneumodics is fully discontinued as of June 25. We closed the termination of this instrument. Roland, for this first question on the quantification and OSER, and then I will come back to you with chiostat split geographically.

Yeah, thank you. Hi, Jan. I think overall, as we said, we're clearly going to stop it down. And we had odds, I think, in the first half when we're both combined, it's probably around 20 million and also the delta compared to last year. It's also a $20 million number. So it is a sizable impact for us. That's the reason why we, again, focus on the overall impact factor. on the overall impact in terms of core growth rates and focus on the core numbers because it is real apple to apple. And the second question, what is an other? It is a mix of several factors, therefore it's other. It is starting from freight reimbursements. It has also to do, of course, with certain reallocations we get from the freights all the way down to certain one-time deals we do with certain customer groups. It's a bit more bumpy.

Thank you, Roland, and for the geography split of Kayastat. So pleased to report that all the regions are benefiting and contributing to this growth. Europe, despite the strong market share that we have, is growing double digit. North America is accelerating. We have fully reorganized the leadership, the team with fully specialized people on the field now. And what we find interesting, Jan, to your question as well, is that we see countries that are becoming quite significant in terms of revenues in some emerging areas. I would give you a couple of examples. South Africa, for example, Saudi or part of Middle East, where we have significant market shares.

So this is a bit the geographic contribution. Thank you. We'll go next to Tycho Peterson with Jefferies.

Hey, thanks. I want to probe on maybe just your views on QIACuity for the back half of the year. You know, keeping in mind your target for 600 to 1,000, you know, systems this year, can you just talk about, you know, expectations for the back half of the year, how you're feeling about kind of pharma uptake, and then, you know, thoughts on competitive dynamics. Your main competitor, you know, did an acquisition of Stila. They have some new launches and are targeting kind of the lower end of the market with improved automation and complexity. So just curious how you feel about, you know, competitive dynamics. And then before I jump off, just one clarification. Did you lower the target for QDI from 200 million to 140 million by 28? I think I heard that. Thanks.

So, Taiko, thanks a lot for the question. We did not review any target that we gave for 2028, not for QDI or not for any other portfolio priorities. second on the backhand of H2 for Kayakwiti. On one hand, we are confident that we can achieve our targets because when you look at the number of instruments we have to achieve in H2 compared to what we put on the market in H2 of 2024, it is very comparable. So we did it in 24. I see no reason not to do it in 25. Of course, as we always said, we operate in an environment where there is cautious capital expense spending, especially in research and academia lab. But against that headwind, we believe that we can achieve our target. Now, increased or renewed competition. We welcome that, Tyco. First of all, for us, it proves that this is a very attractive and dynamic market. We believe that that market is still growing at double digit. The fundamentals of our competitive positioning have not changed. Simpler system to use, much more automated than any competition, and greater cost of ownership. This has not changed. We fully acknowledge that BioRad has made an acquisition. We fully respect BioRad. I don't think that the market shares of Stila were basically disruptive of what's going to be basically a competition between our two companies. This being said, I have said many times that I believe that this system, the quality of Kaya Equity, deserves to become the number one in digital PCR, and I still believe hold to that statement that we will become number one on that market.

Thank you. We'll take our next question from Harry Gillis with Berenberg.

Hi, thank you very much for taking the questions. You talked about the very encouraging feedback for your new instruments and sample technologies. Could you provide some more color on how we should think about the trajectory of their contribution to revenue growth over the next few years? And then related to that, just wondering if you're still seeing any deferrals of orders in sample technologies ahead of these launches? I'm asking because the sort of flat instrument growth this quarter looks like a sequential improvement versus last quarter. So just trying to piece together the different moving parts here. Thank you.

That's a fair question and you are right. Why are we confident? Because our strategy that we have reaffirmed in our capital market day last year is to invest in automation for sample take. And if you look at Q2 results, we see automated consumables growing around mid-single digit. This is very encouraging. Of course, this happens once again in an environment where capital expenses, especially in the area of academia and life science, are depressed. Nonetheless, being able to grow positively in Q2 on automated sample tech is encouraging. Now, in addition to that, we are coming with three new systems. No other company on the market active in sample tech has this kind of investment and innovation. So, impact on our numbers has been described in our capital market day last year. We said that our ambitions by 2028 will be to grow to $650 million revenue for sample tech, which will give us a 2% to 3% CAGR until then, and this will mainly come from those instruments.

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

Thank you very much. Terry, you talked about continued automation efforts with Quantaferron and said stay tuned. What are you alluding to? Are you able to broaden your partnerships and automation beyond DSRN, or is there any contractual exclusivity that would prevent you from doing so?

Well, we are very happy with our partnership with QuantiFerrand. We repeated that a lot. The situation works very well. We see no need at the moment for adding necessarily other partners, but that doesn't prevent us from continuing to invest on the test. How do you invest on the test? One, you make it simpler to use. Second, you increase the potential throughput of the kit. This is two things we are working on, and by the way, together also with Diasori. It's a bit early to give you all the details, but in the coming, let's say, two quarters, you'll know more. Third, as you know, we are also developing a new quantifieron for emerging countries. We call it the Kaya Reach. This is due to be launched around 2027. We are still on track. So this is the way. It's not necessarily adding a new partner. The partnership with Diasorin works very well.

It's making the test even better, quicker, able to stand more volumes, and easier to use. Thank you. We'll go next to Jack Meehan with Nefron. Thank you. Good morning. Good afternoon.

I wanted to talk about the operating margin forecast for the year, just like a slightly lower, you know, at approximately 30% for the year. Can you just talk about tariff assumptions, FX, versus like kind of operational factors, how things are looking for the year?

Yeah, hi Jack. As I said on the call, first of all, I do think we had a very good one also in the second quarter and we do not expect it to be in any way different in the second half of the year. We improved 150 basis points in the second quarter, X currencies and I do think while absorbing headwind from front tariffs. As you know, we stated that a couple of times for 2025, we feel very comfortable that it doesn't change our absolute numbers. There's a lot of mitigation on the way, again, from changing our internal supply ways, the way we produce, discussion with suppliers, the way we distribute, transfer pricing, all the way to sharing with customers. Nevertheless, relatively, of course, it has an impact because, again, if you pay a certain tariff amount, and, of course, we do comply with the laws, and therefore paying tariffs as well, and you only get reimbursed to a certain extent, it has a relative impact, not necessarily absolute down to EPS. So long story short, we do believe that probably for this year it is around about a 90 basis point impact. We still continue to see even more mitigation coming in, so it might be a bit better. But of course, you see that has an impact. So I would say right now we are aiming to the 30%. We might be there. We might be a tick lower than that. Nevertheless, still a significant improvement. Absolute dollar-wise, EPS-wise, still very strong. Very happy with the 235, which is out there. I think one more comment to one of the questions I heard before, one second, because I don't think that I answered it before correctly. I think one thing, what I do think is important to stress as well, if you look on the five pillars of growth, the combined goal for this year, as you know, is a combined 1.49 million. We feel very well in our way to make and probably even beat that number as well.

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

Thank you for taking my questions. Two topics. First, on M&A, given the strength of the business, the strength of the balance sheet, your cash flow, how are you thinking about the M&A funnel as we sit here today, and what are the parameters that we should expect you're applying as you look at potential deals? So that's the first topic. The second is on margins. You're clearly trending ahead of the LRP targets. for 28 that you laid out at the investor day. Where are you seeing the most upside to initiatives pursuant to margin improvement? And how should we think about the sustainability of those trends? Thank you very much.

Thank you, Doug. We can take that question, the two of us. First of all, on M&A, we do not change our approach. We are used to do successful bolt-on acquisition. Genox is the latest example. Our pipeline for interesting opportunities from now to the coming months is extremely solid. The criterias. First of all, it has to be synergistic with our growth priorities and pillars of growth. This company has been heavily focusing over the last six years. We are not going to use M&A to spread the company thin again, so focus. and synergies with where we are currently with customers to allow us to take more shares of wallet at customers is key. Second, those deals need to make financial sense for the company and therefore create value for our shareholders. In other words, we have the strength to accept some dilution for some time, I would say two years, up to maximum three years, but we see and we need to see a clear pathway to accretion and profitability. Those are the two main criteria. And on the gross margin, you remember that in the EBIT margin, in the LRP, we presented a clear pathway and waterfall of where we were acting to improve that target of 31%. So Roland can describe where we believe we have more upsides.

Yeah, and I think it's very clear also presenting here now from today's number that we are clearly tracking well ahead to that. Nevertheless, we clearly also are in an environment where the macroeconomics gets more difficult to forecast. Therefore, as you know, we decided not only for this year, but also probably last year, it served us quite well. to rather take a realistic view on the environment, giving us some flexibility so that we, I would say, can deliver on the numbers as we promised and hopefully come in, as we did now a couple of times, even nicely better. So we haven't changed our policy around that, now moving to the second half. Nevertheless, I do think what is going to drive us and help us also north of 26 into more or less 28 environment is on one side our digital initiatives. We are rolling out quite a number of digital initiatives within Kaizen, but also facing and customer facing. Also, there's a good set of AI opportunities for us. So there is, I would say, quite a number of AI initiatives which might make a difference for us as well. There's clearly still certain smaller footprint optimizations possible within QIAGEN. You have seen some already coming through. So that's ongoing. Scale comes in brackets by itself. The margin inspection is for us rather the question is when to communicate, not necessarily how to achieve that. And if you would ask me today, what is the most likely framework, I would probably say, of course, early next year, we have to give a guidance for the year. That's probably the latest point. I would say if some of the macro environment challenges get addressed to a high degree even earlier, that might be also a good point than in the, I don't know, sort of first quarter. It is within that period, it is very much revenue macro news and once we have that out of the way.

We'll take our next question from Hugo Sauvé with BNP Paribas.

Hi, guys. Thanks for taking my questions and congrats on the quarter, given how tough it is out there for a lot of people. So just on NIH, could you discuss how NIH account evolved in Q2 and share maybe some early feedback on academia and life science customers following Congress vote last week and whether or not you believe that more significant budget flush in life science is something that could happen upon improving visibility?

Thank you.

Thank you, Hugo, for the question. So as we keep saying for the last, I think now, probably two quarters, it's interesting to note that the direct sales of QIAGEN to agencies like NIH or the CDC are doing well. We are not impacted at the moment by so-called budget cuts. It is probably because, first of all, What they are using from QIAGEN are not big, big capital expense or budget, so I believe that we are probably below the radar screen when it comes to cuts, and also because as they use mainly a lot of components like enzymes, oligos, or sample prep, it's very difficult to substitute those products. Nonetheless, we are observing carefully the situation, and it's clear that If those sales direct to NIH and CDCs are not impacted, we are in a quite sluggish context in research and academia, especially on capital sales. I wouldn't say for everything, but for capital sales, we have said that many times. Now coming to what happened to the Congress recommendation and vote last week. I think it's still early to say. I think it's also fair to insist that at the moment in the U.S., there is one main decision-maker, and that decision-maker is the president. So let's observe what's going to happen in the coming negotiations. Kayagen will probably budget a decreased budget for NIH next year. But we also believe that the cuts will probably be less drastic than what was rumored a month or two months ago. So long story short, probably still a decrease in 26, probably to a lesser magnitude than what was said some time ago.

But let's remain cautious and observe. We'll take our next question from Dan Brennan with TD Cowen.

Great, thank you. Thanks for the questions. Maybe just one just on the guide. I know it was asked earlier, and Kira, you just kind of mentioned it, but Given the fourth quarter guide does imply that kind of flattish core growth, are you seeing anything today that would suggest it, or is it just pure conservatism on that front? And then could you just give us what the breakout is for the discontinued product, like how much that's contributing to core growth in the back half of the year? And then the final point, I know, Roland, you talked about you feel the guide is conservative. Just kind of if you look at your five polar guidance, which you've kind of maintained, which grade would you point to as the most conservative? Thank you.

Well, Dan, I appreciate your stamina and push a lot. But I mean, I don't think that I heard Roland speaking about conservatism. Realism, I think, is the terminology used. And we are already performing better than the market. In addition to that, we are increasing our sales guidance for the year. So it's very solid. Obviously, if he can beat that, You'll be the first to know. And again, in Q4, where I will focus is the core growth. Because in Q4, this is where also we might have a better base impact. from pneumodics and dihalunox. And so this is where probably the divergence between the total growth and the core growth will be higher. And I don't think that we said that it would be flattish for core growth in Q4, not at all. This is not in our new guidance.

Yeah, on your question, Dan, on the details for the five pillars of growth, I think you're absolutely right. We feel very comfortable that we're going to deliver, as promised, the 1419 for an aggregate. I think it's also quite obvious to see that some of them are doing very well. We talked today at length on chiostatin and quantiferon, and it is not hard to predict that both probably do somewhat better than predicted. I think it's also very clear to say that chi-acuity on the one hand side has very good positive growth rate in terms of consumables. But I think Thuy also alluded on the call, the instrumentation environment and the life science remains probably somewhat challenging. So that might come in probably close by. It might be a bit lower. We will see that. But all in, we are above set. On the others, I think they are more or less on target. So I would say that it's probably the, if you're looking for a trade-off, which is probably a positive trade-off, that is a trade-off we are probably most likely going to face.

Thank you. We'll go to Michael Riskin with Bank of America.

Great. Thanks for taking the question. I've got two. I'll just ask them both together. One, I think in the prepared remarks, you guys, Black China was down, I want to say mid-teens. Segment or product line, sort of your expectations in China for the rest of the year. And then second would be, you know, the starting season, I think it's obligatory for someone to ask if there was pull forward or not. And I didn't hear that. So if you could just comment on any indication from any of your customers of stocking, any unusual timing on purchasing decisions, just given concerns on tariffs and other things down the road, just, you know, confidence that there's no weird ordering patterns. Thanks.

Thanks, Michael. And we lost you for something like five or six seconds. So I believe I got your question on China, especially in which field we were believing that it was more depressed or not. So China, for us, we haven't changed our mind. We don't see the market bouncing back at least before the second half of 2026. It is now less than 4%. of our revenues we know that the local government is trying to help the market by proving some incentives for example on capital expenses at the same time they continue also to push international company to localize and it's also the vbp program so i would keep the same attitude for china It's too big of a market to be ignored. It's too specific to make it an investment priority. We see China being negative to the end of the year in the same, basically, percentage than H1. We don't see it really bouncing back into 2026. And as we always say, Even when China will stabilize and normalize, we will not expect more than a mid-single-digit growth from this country when it will normalize. That's our plan for China. For your question on Kayastat, no, there is absolutely no pool or inventory building from a customer ahead of the respiratory testing season. It's too early to say that it's going to be or it might be a strong respiratory season this year. We are observing what is happening, for example, in geographic like New Zealand, Australia, and so on. But there is absolutely no, not normal built on the numbers at 41% growth for Q2.

Thank you. We will take our last question from Casey Woodrig with JP Morgan.

Great. Thanks for fitting me in, guys. Appreciate it. So I have two as well. The first one is just from a regional perspective. I think you said Europe grew 8%, but sample tech in EMEA was down low singles. So just curious on the dynamics at play in Europe across the business. And then on QDI, how should we think about the back half and the cadence between 3Q and 4Q with the SaaS transition? And can you just remind us what the exposure is between clinical and research customers there? It seems like clinical is clearly doing well while research is seeing some pressure in the market. So any call around on those pieces. Thank you.

So for sample take, once again, EMEA is also contributing to the growth for automated solution. That's what I would highlight for this call. And this is where our strategy is, if that answers your questions. For QDI, the split life science or what we call discovery for QDI and clinical is still slightly in favor of discovery, but we are moving progressively to 50-50 percent split of cells, so remarkably well-balanced split between clinical and research and academia. And for the split of transition to the SIS, I mean, it varies a bit quarter by quarter because sometimes those are deals that are signed for a longer period. So you saw that we accelerate that transition in Q1. It slowed down a bit in Q2. And we expect basically a continuous move now in Q3 and Q4.

So with that, we're going to end the call here.

Thank you very much for your participation. If you have any questions or comments, please do not hesitate to reach out to Dominica and me. Thank you very much.

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