DiaSorin S.p.A.

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Diasoran Full Year 2021 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, Chief Executive Officer of Diasorin. Please go ahead, sir.

Thank you, operator. Good morning, good afternoon to everybody, and welcome to the year-end results called for Diasorin. I'm going to briefly comment quarter four. as usual at constant exchange rate 2020. And then Mr. Pedron will take you through the numbers. It is noteworthy that Q4 represented a full recovery quarter from a revenue perspective. So it's very interesting that we are going to be, I will compare results to Q4. of last year, and this will, in my opinion, give an indication of how the business is performing. Starting from this quarter, after the Luminex acquisition, I will provide comments in three different buckets that now we are using to represent the business, so three different technology groups. First, I will talk about COVID, which includes immuno and molecular, including also the Luminex COVID business. Second bucket is the immuno ex-COVID. The third bucket is LTGO license technology, which has to do with all those technologies that Luminex developed and licenses through partnership, primarily in the research space. Let's start from COVID. When it comes to COVID, Q4 revenues were roughly 100 million euro, of which 17 million were COVID products coming from Luminex. If we compare, as said, to Q4 2020 revenues, if we look at the diasorian product alone, so excluding the Luminex component, revenues were down 20%. And this is as expected related to the fact that Q4 volume, testing volume of COVID compared to previous year was roughly down by the same number. So we continue to have an extensive installed base of customers that are using our molecular product, although we are certainly today suffering from shift up or down From a price perspective of COVID, what I had to report is that we don't see price pressure in any of the major markets where we operate. If we look at the Omicron effect, I think it's not worthy that compared to 2020, Omicron has created a much narrower peak of testing, which has been concentrated primarily in december january with a very sharp decline that we start to notice in the last few weeks so the peak omicron peak compared to the delta peak they look very different so overall we continue to stand on our covet projection we need to wait and see what is going to happen in 2021 in the next few months about adoption of testing. And then certainly we need to understand what is going to happen in the second half when it comes to, and I don't think anybody wants to see that, but we want to understand how the next season is going to look like starting from after the summer. I have COVID, by the way, and this is why I need to speak a little slowly today. On the immuno side, Q4 was largely in line with Q4 of 2020. So let's talk about immuno non-COVID. Quarrel 4 was up 12% with CLIA XD growing 19% year on year. And CLIA vitamin D flat, notwithstanding the loss of Quest in 2021. which certainly has been well compensated by the surge in vitamin D testing due to COVID. CLIA grew double digits in all geography. Actually, on average, well above 25%, with the exception of China that continues to show a decline due to the known issues related to the lockdowns and strong price decline, which are driven by the adoption has been discussed a few times of regional tenders, which are really affecting price, especially on the MeToo products like thyroid fertility, so the high-volume products. Our CLIA business is solid and is certainly driven as in the past by specialties. And in 2021, notwithstanding, as said, the weakness of China, we achieved another record year of liaison Excel placements over 550 systems worldwide with a record amount in the U.S. So notwithstanding the fact that China, which traditionally has been driving placement of Excel, has been very short in 2021, we really succeeded with Immuno and Excel in the other two main geographies, but primarily in the U.S., where the hospital strategy that was initiated two years ago now is really paying out its dividend and we continue to gain share in this very strategic and important market share. And last comment I would like to make on Immuno has to do with MIMET. We launched the product on the liaison Excel in Europe and we submitted the file to the FDA in mid December. This essay for me is a great fit to the Diasorin portfolio as we discussed at the investor day meeting. Because it's a specialty, it goes naturally on our install base and it completes our infectious disease portfolio. So we have great expectations about the success of this product. Our partner, MiMed, is raising its ability to educate physicians. And we're going to keep you updated throughout 2021. But again, I really believe that this essay will very well fit our growing installed base in the hospital market. Let's now discuss LTG. Please remember that this business is primarily driven by our strategic partners who adopted Luminex technology to develop either research or IVD products. Year on year, the business grew 20%. And this is even more significant if we compare 2021 not to 2020, that clearly 2020 did die because of the pandemic effect. But if we now compare 21 to 19, Still, we have a double-digit growth of this business, indicating that this is a very solid opportunity and is going to be a contributor, both from a margin perspective as well as top-line growth to the growth of DioSonic. Last but not least, in this space, we launched the new platform, the IntelliFlex platform, is the new multiplexing platform for research. And the Book of Orders exceeded by far our expectations. So when it comes to LTG, it's a very nice addition to the traditional diasorium IVD business. Before leaving the podium to Mr. Pedron, excuse me, One more comment, and it has to do with the Eliason Plex, or Verigine 2, as Luminex used to call it. We continue the validation effort to bring on the manufacturing line for the high-volume manufacturing in Chicago. We are focusing on, as we have discussed during Investor Day, the gastroenteric panel and the three blood panels, the gram-positive, negative, and yeast panels. And as discussed, we expect to start clinical studies for IVDR submission in the second part of 2022. And we expect to start initial placements in Europe for customer usability in the early fall. Meanwhile, our traditional multiplexing business, which is mainly driven by the Virgin One, is relatively stable. with ups and downs clearly in the respiratory panel due to the COVID business. But we continue to maintain a very solid in stone base, and we continue to invest in the multiplexing business, developing some of the manual application. You know our manual technology for multiplexing is called NXTEC, and we have launched recently a new updated gastroenteric panel for the European market. So now I'm going to leave the podium to Mr. Pedrone, who is going to drive you to the number. PJ, please.

Thank you. Thank you, Carlo. And good morning and good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DSR in 2021. And I will also make some comments on the contribution of the fourth quarter and on the impact of the Luminex business, whose acquisition was completed, as you might remember, on July the 14th of last year. To better understand the performance of the business, I will refer to adjusted P&L items, therefore sterilizing the impact of the following, so to say, Luminex dealer-related elements. So the one-off acquisition and integration costs, the effect of the purchase price allocation, costs of financing, and lastly, the fiscal impact of all of these components. Both in the presentation uploaded in our website and in the press release, we are providing a line-by-line bridge between adjusted and IFRS items. Said that, as usual, Let me please start with what I believe are the main highlights of 2021. We closed the Luminex transaction in July for a total equity value of approximately $1.8 billion. And starting from Q3, 21 Luminex financials are consolidated into the SORIN. 2021 total revenues at constant exchange rate grew by 41% in the year. therefore doing slightly better than the full year outlook, which was calling for a 40% progression. Q421 grew by 36% vis-a-vis 2020 at constant exchange rate. Luminex contribution to the top line at current exchange rate was 195 million euros in the year and 104 million euros in the quarter. This performance is slightly better than what we originally expected, with the overage mainly driven by the Luminex molecular business. The COVID revenue contribution at current exchange rate was 378 million euros in the year and 102 million euros in the quarter, compared respectively to 266 million euros and 101 million euros in 2020. 2021 full year adjusted EBITDA at €543 million or 44% of sales is slightly better than the outlook, which was set at 43% margin, mainly because of the higher top line we just discussed about. We completed the Luminex purchase price allocation. And as a result, in Q421, we booked a €24 million hit to our P&L, of which €18 million of intangibles depreciation and €6 million of higher costs of goods sold, the latter coming from the revaluation at fair value of Luminex inventory, as dictated by IFRS principles. The quarterly run rate hitting our P&L from Q1 2022 onward in the intangible depreciation line coming from the PPA is going to be 9 million euros. You might notice that this number is different from the one we shared during the capital market day, which was 40 million euros. So the difference is coming from the fact that now we have completed the PPA exercise, whereas back in December it was still an estimate. We keep confirming our ability to generate a very healthy free cash flow, €301 million in the year. The net financial position is negative for €986 million, with €403 million cash. And the net debt leverage... over adjusted EBITDA of 1.8. Finally, the Board of Directors approved to propose to the annual general meeting to be held at the end of April the distribution of an ordinary dividend of about €57 million, equal to €1.05 per outstanding share, and a buyback plan for up to 1.5 million shares to support the potential settlement of the outstanding convertible bond and the management equity plan. Let's now go through the main items of the P&L. 2021 revenues closed just above €1.2 billion, compared to €881 million in 2020, therefore recording a growth of 40%, both in the year and in the quarter. the year has seen some 6 million euro FX headwind, net of which the growth would have been 41%. The growth at constant exchange rate and scope of consolidation, meaning excluding Luminex, is 19% in the year, and therefore slightly better than the guidance, which was set at 18%, and flourished in the quarter. because of lower DSR in COVID sales, which Carlo just said, moved from 101 million euro in Q4 2020 to 81 million euro in Q4 2021. Q4 2021 X COVID, again, same perimeter of consolidation, so without Luminex, recorded a solid growth of 10% at constant exchange rate compared to 2020. and 7% compared to Q4 2019, mainly fueled by a very strong performance of our CLIA X-Vitamin D franchise, which grew by 19% in the quarter and 22% compared to Q4 2019. H221 Luminex pro forma sales grew nicely vis-a-vis 2020, Let me remind you that we didn't consolidate, obviously, in 2020 Luminex sales. That's why I'm saying pro forma. As a result of a good performance of the combination of the Aries and Verige in molecular platforms, paired with a very strong licensed technology business, with a joint growth of about 20%, partially offset by the so-called non-automated assays, which recorded exceptional COVID-driven sales back in 2020. when the supply of COVID testing in the market was somehow limited and greatly overcome by demand. Full year 2021 adjusted gross margin at €831 million grew by 38% compared to last year, with a ratio of revenues slightly below 2020, 67% vis-à-vis 68%. This difference is mainly driven by the inclusion of Luminex in the scope of consolidation, and is even more clear when we consider the adjusted gross margin ratio of the quarter, which closed at 66% compared to 68% of 2020. This variance is in line with our expectations and modeling and is reflected in the guidance we gave last December during the Capital Market Day. 2021 adjusted operating expenses at €357 million grew by 34% compared to 2020, with a ratio over revenues of 29% vis-à-vis 30% of the previous year. The increase in the adjusted OPEX ratio of the fourth quarter from 26% of last year to 30% of 2021 is due to the very same reason highlighted for the gross margin, Luminex consolidation into the sorry numbers. Once again, this is in line with our plans and the guidance we gave during the capital market day. We are expecting synergies to reach the level discussed during the investor day as the integration process will move forward. Full year adjusted other operating expenses at €9 million decreased by €3 million compared to last year. As a result of what just described, 2021 adjusted EBIT at €465 million or 38% of revenues has increased compared to 2020 by 43% or €141 million. Adjusted interest income and expenses at €4 million is substantially in line with 2020. and the adjusted tax rate at 23% is in line with 2020 as well. 2021 adjusted net result at €357 million, or 29% of revenues, is higher than previous year by €109 million, or 44%. Lastly, 2021 adjusted EBITDA at €543 million, or 44% of revenues, is higher than 2020 by 41% or €158 million. The variance at constant exchange rate is positive by 42% with a ratio of revenues of 44%. The adjusted EBITDA ratio in the quarter at 43% is lower than 2020, which closed at 47%. because of the expected slightly dilutive effect deriving from the consolidation of the Luminex business, the very same reason we just discussed a while ago. Now, let me please move to the free cash flow. In the course of 2021, the group generated €301 million of free cash flow vis-à-vis €232 million of 2020, therefore booking an increase of 29% of €68 million. As discussed back in July, I believe it is worth underlining that in 2021, we've had a much higher tax cash out compared to 2020, €118 million vis-à-vis €37 million. This difference has been mainly driven by two elements, a different phasing and higher profit compared to previous year. Lastly, let's move to 2022 full-year guidance. As usual, that previous year constant exchange rate The outlook is in line with what reported during our recent capital market day and is calling for revenues ex-COVID to grow by about 24%, total revenues marginally lower than 2021, minus 2% to be precise, and because of a reduction of COVID sales, for which 2022 outlook is about €150 million, compared to around €380 million in 2021, and an adjusted EBITDA margin at around 35%. Before concluding, please remember that diastolic financials are highly exposed to the US dollar, and even more so now that North America represents about 50% of the total group sales, Therefore, as a rule of thumb, consider that for every one cent movement of the dollar against the euro, the Australian revenues move by about 6 million euros on a yearly basis. Now, let me please turn the line back to the operator to open the Q&A session. Thank you.