DiaSorin S.p.A.

Good afternoon, this is the Chorus Call Conference Operator. Welcome and thank you for joining the Diasorin First Quarter 2024 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, CEO of Jessorin. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to the Q1 results. As usual, I'm going to make a few comments, qualitative comments on the business, and then Mr. Pedrono, our CFO, is going to take you through the numbers. As usual, I'm going to make my comments at a constant exchange rate. So let's start saying that I believe we are leaving COVID behind. I feel that this has been the first quarter when we are from a business perspective. So not only from a revenue perspective, we really enter into the post-COVID world and the good, bad and ugly about it. But COVID is not a factor any longer. As far as the assortment is concerned, quarter one was a great quarter. If I exclude the COVID revenues and same scope of consolidation, meaning that if you remember last year we sold after Q1 our CF business, the business grew 7%. So it's in line with the high range of the 24 guidance. So what happened? Why is the business so good? I think what is very reassuring that the business is good in all the three legs that, as you know, we cover. Our immuno franchise continues to grow very strong, 9% quarter to quarter. We're going to make some qualifications. quantitative comments by geography, but fundamentally, as you well know, the reason why Muno is so strong is because we do have a menu that is a specialty menu that works very well in all the geographies and is keeping us away from the path of the very large competitors. And by the same token, we do in a specific geography like the U.S., we do have, I believe, a very solid winning strategy when it comes to developing our business in the hospital segment. That continues to be the driver of the growth in the U.S., together with some success in the large commercial labs, but primarily our growth in the U.S. is coming from the strategy. And I'm going to add more color later. Molecular is back to growth. It's plus 2%. This is due to the fact that certainly there was a good flu season in Q1, but by the same token, when it comes to different quadrants that we use to depict the business, we are doing fine in all the technologies that we offer, and certainly we are ready for the launch of the liaisonplex that, as everybody knows, will happen by June 1st. Finally, LTG, which is 4% up, which is almost incredible when it comes to, if you listen to comments coming from our customers that do playing life science, that are still experiencing soft quarters. As we, I think, discussed a few times, our LTG business is a combination of diagnostic and life science. So, yes, we do experience some softness in life science, but certainly more than compensated by the growth of the partners business in the diagnostic. So, all in all, LTG back to growth. And then COVID-19. As I said, you know, we have expectations of hitting 30 million by year-end. We are at 9 million in Q1, so we believe that we should get to the 30 million by end of the year. But, again, from a business perspective, COVID is becoming irrelevant these days. Now, let's go back by technology first, and I would say – Or better, let's discuss about geographies. I think it's more telling. Now, let's talk about North America and, again, ex-COVID. We had an excellent performance of our immunodiagnostic business. There has been growth of 15%. And this is, again, driven by the success of the hospital strategy. When it comes to molecular, plus 4%. And again, this is notwithstanding the fact that we are still in Q1 affected by the loss of cystic fibrosis business. This is, by the way, the last quarter where we had been last year. So starting from Q2 is going to be a clean comparison. Without the CF business, growth is high single digit when it comes to molecular. So it's good growth. And primarily, this growth is coming from what we call the targeted segment, which means less than, so monoplex or less than triplex. And this is a traditional molecular business that came from the Azorin is based on traditional products in certain niches of molecular testing. I even mine HSV, for example, for transplantation or some other application. And it's also a chunk of it is ASR-related. And, again, ASR, notwithstanding, you know, the recent discussion about regulations, our business of ASR, which is serving the LDT customers in the U.S., we believe it's going to be shielded, whatever the decision is going to be, because of two effects. The first one is that The new regulation on the discussion is grandfathering in every application that is on the market today. And by the same token, what the FDA is trying to impose to the industry is the fact that if there is validation by some of these technologies and this validation is submitted to some agencies that do actually regulate LDT testing, that's okay. And the vast majority of the DSO in U.S. customers are large commercial labs or very large hospitals. They do actually follow this regulation. So just to preempt a question that I know has been coming our way, we don't expect that whatever happens to the LDT, we don't expect that to affect necessarily our business. So when it comes to the U.S., as said, immuno, very strong, and molecular testing, strong and ready for the launch of the Plex. When it comes to Europe, again, our European business is primarily an immunoassay business. As you know, traditionally, we have not developed our molecular business significantly, and we don't intend to launch the Plex in Europe. It's a U.S. play for Phase I for the Azorin. So if we look at the European business, the growth of 6%, is actually primarily driven by our immunodiagnostic franchise, which is growing eight overall, driven by continuous volume improvement and add-on strategy to a very vast install base of Excel that we do have in the European market. Now, if you look at ex-Europe, ex-North America, that together do represent 85% of our business, and we look at the rest of the world, the business is slightly declining 3%, but it's actually a combination of two things. Very good performance in China. The very good performance in China means that in Q1, China did plus 13%. And although I want to caution everybody, that doesn't mean that all of a sudden China is back in business. It means that there is an effect of favorable comparison to last year where still Q1 was relatively soft due to COVID. And also there is another effect on pricing, and this is because notwithstanding the fact that we have been awarded listing in the VBP so we now have access to thousands of hospitals that did follow the VBP tender. That tender which we anticipated to start in Q1 has been postponed to end of Q2 and so there is an effect of price cutting or price decrease that we were expecting that is delayed. Notwithstanding all of this, you know, China over the last, during COVID times has always been a detractor to growth for the sovereign. And when I made my comment at the beginning of this call and I said, COVID is back, it is finished. I think that also in China, now we're back to a regular business. That doesn't mean that again, it's not gonna be challenging, but at least the market in terms of volume growth will provide a positive trend to our immunoassay business. Then, before we get to the numbers, oh, sorry, let me just finish up. When it comes to the rest of the world, the negative, or actually a constant perimeter, it will be actually flat. then we are not growing because we do experience delaying revenues in the Middle East because of the current situation. And I think it came up already a couple of years ago. We do have significant business, relatively significant business, in countries that today they're not formally under embargo, but clearly... shipping products is becoming more complicated. And therefore, this is the effect that you see there. All the other geographies where we are direct, Australia, Mexico, and Brazil are actually growing high single digit or low double digit. So not a real worry as far as we are concerned. Last comment. As said, gearing up. for the launch of the Liaison Plex. All the manufacturing activities have been completed. Inventory, now we have in inventory all the products that we need to launch. All the training activities have been completed and our US Air Force is now eagerly out working with a very interesting customer base that is waiting for a reasonable solution for multiplexing. You know that the strategy of the Assoaring, I remind everybody, is relatively simple. Flex does allow customers to achieve cost savings, significant cost savings vis-a-vis the use of other technologies, point number one. And point number two, which is also relevant, it does allow customers to being able to counter some of the issues they are experiencing more and more with reimbursement because of the fact that more and more insurance companies are denying use of full panels. and actually asking customers to adhere more to the guidelines, which restrict the use of the targets that are actually reimbursed, depending on a certain patient population. So we are positive about the technology, positive about the launch, and I think we're going to be then talking about it in Q3 and Q4. Now, PG, please go ahead and take questions. then to the numbers.

Thanks. Thank you, Carlo. Good morning, good afternoon, everybody, and thank you all for joining DSR in Q124 earnings call. In the next few minutes, I will make some remarks on the financial performance of DSR in the first quarter, and then I will turn the line to the operator for the usual Q&A session. Q124 total revenues at 289 million euros are substantially in line with last year, despite the expected decrease in COVID sales and the different perimeter of consolidation coming, as you might remember, as Carlo just reminded us, from the carve-out of the flow cytometry business in Q1 2023. The business, ex-COVID, is growing in the quarter at constant exchange rate by 5%, which becomes 7% excluding the flow business. therefore in line with the higher range of the full year guidance. COVID sales in the quarter accounted for €9 million vis-à-vis 21 in 2023, thus a recording at the case of €30 million, confirming our 2024 outlook, which is calling for nearly €30 million. The FX impact in the quarter is not material. First quarter adjusted gross profit at €191 million, or 66% of revenues, is substantially the same of last year. The carve-out of the flow cytometry business and all the initiatives aimed at improving operation processes and containing costs alongside a more structured approach to pricing allowed us to preserve margins. despite the inflationary pressure experienced in the last 18 months, now muted, and the manufacturing costs we are incurring into to set up our new plant in Shanghai, which has not started the production yet, according to our plan. I believe this to be a remarkable indicator of the success of our efforts to safeguard profitability. Q1 24 adjusted operating expenses at €114 million decreased by 1% compared to 2023, with a ratio of revenues of 40% in line with last year. The fact that operating expenses have not increased despite the investment we have already discussed about a few times to support the MIMED acceleration program in the U.S., And the physiological yearly labor cost increase is a clear demonstration of our discipline in managing the cost base and the result of the synergies delivered after Luminex acquisition. Adjusted operating expenses negative for 3 million euro are substantially equal to 2023. As a result of what we just described, adjusted EBIT at €74 million, or 26% of revenues, is largely in line with last year. Adjusted interest income at €2 million is slightly better than last year, mainly because of improved yield on our cash investment, whereas the adjusted tax rate at 23% is the same of 2023. Net result at €59 million or 20% of revenues is once again very similar to last year. Lastly, adjusted EBITDA at €97 million or 34% of revenues is in line with 2023 and represents a very strong start of the year, considering that 2024 guidance is calling for a profitability between 32% and 33%. Let me now move to the net financial position. We closed March 24 with a net debt of €749 million vis-à-vis €776 million at the end of 2023. This improvement has been mostly driven by the free cash flow generated in the fourth quarter, €42 million vis-à-vis €28 million in 2023, therefore recording an increase of 50% of €14 million. The variance with last year is mostly due to the fact that in 2023, we had some negative phasing issues that have not repeated in 2024. Lastly, we confirm 2024 guidance, which is calling the previous year exchange rate for an increase in revenues ex-COVID of 5% to 7%. with COVID sales at about €30 million and an adjusted EBITDA margin of 32% to 33%. Please remember that, as discussed during the 2023 RN call, the guidance does not include any possible negative impact from the payback in Italy, consistently with the position we took last year, at the light of the latest legal developments. Regarding this matter, let me please remind you that Diasorin, as many other, I would say almost all the other diagnostic companies in Italy, decided to continue its legal dispute, which might take three years before reaching its conclusion. We will keep on monitoring the evolution of this complex and changing situation and update investors as soon as something happens. With that said, let me please turn the line to the operator to open the Q&A session. Thanks.