DiaSorin S.p.A.

Good afternoon. This is the Coruscant Conference Operator. Welcome, and thank you for joining the DSR in full year 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 Diasorin. Please go ahead, sir.

Yes, thank you, operator. Good afternoon and welcome to the full year conference call. We're going to make first some comments on the full year results and then I move to the quarter four. In 2024, revenue and profitability are in line with the planned budget and the guidance, despite geopolitical tensions and microeconomics headwinds. Specifically, when it comes to the immuno-SA business, we perform very well in the main geography, U.S. and Europe, whereas, as we will see later, we continue to experience growth difficult situations in China, although that represents a very small portion of our revenues when it comes to molecular. Molecular overall in the year performed better than the initial assumptions. Clearly, this for us has been a transition year because we launched successfully the liaison plex with the respiratory panels. And this better result of molecular over the year clearly compensated the LTG software performance compared to expectations because of the life science situations as we've been discussing over the last quarters. And overall... From a pricing perspective, which is something that we did discuss a few times in the last quarter, we've implemented a pricing program that was in place and overcompensated the inflectionary effects that we, as an industry, we registered in 2024. So overall, I believe that 2024 was a very good year, and we... to the point that I remind everybody we raised our guidance twice upward, clearly, in 2024. Just a couple of comments on the different legs. If we go back to immuno. Clearly, our U.S. hospital strategy is working well and delivering according to expectation. Let me remind you that our idea was to get to 400 hospitals served by year-end, which was achieved. So we are perfectly in plan with the LTP. The LTP calls for 600 systems installed, 600 hospitals by the end of 2027. When it comes to MIMED, we had the first active training custom hospital systems. I need to be very careful here because when it comes to MIMED, we need to talk about the hospital system because placements do follow the concept of hub and spoke, right? So multiple installations between key and liaison Excel. And as we discussed, we do have as a target 75 hospital system by the end of 2025. When it comes to Europe, 2024 has been a very strong year with double-digit growth as a combination of successful placements, increasing volumes, and outbreaks in certain areas of Europe. And then last but not least, we finally started to get a regulatory approval for the first products manufactured in China. And we expect that by 2026, we are going to have the full menu approved in the Chinese market. If we go to molecular, everybody knows we launch in September our liaison plex with a respiratory panel. We got a second panel approved shortly thereafter, and we submitted two blood culture panels expecting approval in 2025. In November, I made a comment. I said we had a funnel in the U.S., clearly, with 100 customers with equivalent to 500 placements. We are well on track, and we'll discuss later about that. We're well on track to hit our target. LiaisonPlex has been received well. extremely positively by the customers, and I'm going to give more color later when I talk about the quarter. Liaison Nest, we are wrapping up the clinical study, as expected, and we're going to be filing within the next quarter or so, so also Liaison Nest on track. And finally, let me just comment to the LTG. We certainly had a good performance of the LTG business, better than a FedTech, notwithstanding the unfavorable environment in life science. In fact, at the end of the year, LTG grew by 3% compared to previous year, clearly driven by... Very good performance of our diagnostic partners. That overly compensated weaknesses in the life science that we have seen at the beginning until mid-year 2024. So from a 2024 perspective, a very satisfactory result. Now let's go to quarter four. As usual, I'm going to comment the quarter four at constant exchange rate. We had an excellent quarter, total revenues 310 million in the quarter, with a growth of 5% year-on-year in quarter four, excluding COVID, in line with expectations and in line with guidance of 2024 full year. When it comes to COVID, clearly there is a softening of testing. In the quarter, we had 6 million euros of revenues, 26 million in full year 2024. And we see that testing continues to decrease. If now we go to, I would like to comment each individual segment of the business, starting from immunodiagnostic. Immunodagnostic, ex-COVID, 6% in the quarter with good performance in U.S. and Europe. You notice a deceleration versus previous quarters, but that is due to TAFCOM versus Q4-23 because in Q4-23, we had exceptional instrument revenues. Indeed, if we go down and look at CLIA reagent in the quarter, and not immuno, CLIA reagent grew 9% in the quarter. This is net of clearly negative EVP impact in China. In the U.S., in North America, CLIA grew 14%. And this is related to the hospital strategy where we keep, again, as I said before, expanding our presence in U.S. hospitals. In Europe, in Q4, 8% growth. For immuno and CLIA, 9%. So we continue to see a very strong growth for our immuno franchise in Europe as well. Export in Q4 was negative, but this is mainly due to the Iran market, where in Q4 last year we had, again, shipments that did not materialize in Q4. So it's a phasing issue. China, we continue to experience headwind, as we have been experiencing since many quarters. double digit decrease in Q4 as a result of VBP in certain provinces and the fact that we continue to see overall tough competition coming from local competitors. Clearly, for the SOAR in China is a very now small percentage of our business moving forward. So long story short, Q4 immunodiagnostic, very strong in North America and very strong in Europe. tough comparison to last quarter of last year due to some phasing and the fact that we had instrument sales last year related to certain tenders. Now let's look at molecular diagnostic. Molecular diagnostic in Q4 ex-COVID is pretty much flat, so plus 1% in a quarter. But again, we need to look at the different components of the business separately. When it comes to our targeted molecular business, which is the Diasorin business, the original Diasorin business, so the business we bought from Focus, there is a double-digit growth, above 20%, and this is thanks to the introduction to the U.S. market of the Candida Oris product, where we continue to see a tremendous traction and success also in 2025. In Q4, I need to remind you that we have discontinued the ARIES platform as part of the plan that was the synergy plan that was presented to the market after the Luminex acquisition. So we are missing in Q4 the ARIES revenues, and we had in Q4 2023 last buy orders. So again, there is a delta which was expected in this quarter due to the discontinuation of the areas. And then last but not least, and not surprisingly, as everybody else has reported, mild start to flu season in Q4, but strong Q1. And so you will see that in Q1 there is going to be a recovery of the of the respiratory revenues. Now, let's focus a little bit more on Plex. Okay. As said before, full launch started in September 2024. We launched it in the U.S. respiratory. We got first blood culture approved, second, and then the two additional blood culture panels blood panels submitted to the FDA in September and November 2024, and we expect them to be approved by mid-year 2025. GI clinical study ongoing and submission in 2025. This means that as per our long-term planning, by 2026 we're going to have the full multiplexing panel approved on Eliasson Plex. In order to guide or explain the way that our business is performing, we decided that moving forward, we are not going to talk about placements, customers, but we're going to talk about total revenues. And this is because we look at multiplexing as a franchise, a combination of the veraging one, which is a business, historical business, where we're building on, and clear the liaisonplex, which is the increment, the new platform that we're going to be building on our install base and adding certainly new customers. So the... Launch has been extremely successful, and our ambition for 2025 is that we are going to grow the overall franchise, so the region one, plus the Plex to 75 million euros, so a growth of 25% over prior year as a combination of new accounts and conversion of some respiratory accounts with price increases from the origin one to the liaison Plex. Um, this, uh, corresponds pretty much to, uh, the additional around 150 customers, uh, Plex customers by year end. Again, I'm not going to comment any longer from now on in terms of how many customers we add per quarter. Uh, I'm just indicating what is the, um, what the budget of the assortment today is going to be for Plex. And I will continue to update the market in total multiplexing revenue growth versus 2024. What's very interesting is that when it comes to the existing customers that are using now daily zone Plex in the U.S., my last comment was that 50%, which I think it was November, 50% were flex customers. and 50% were actually fixed. Clearly, moving on, now the situation is that we have more flex than fix, right? And so we see that the adoption of our customer base of the flex concept is really providing an advantage versus current solutions that only provide either fix or mini panels. Last but not least, which is a very interesting, I think, point, strategy for the assorting. If I look at the current Plex customer base, 20% are commercial labs and 80% are hospitals. Why is this strategic? Because, as you know, this goes hand in hand with the immuno strategy, where we intend to continue to develop the hospital business combination of immuno and molecular solutions. The, just one comment overall, the varying other panels, which are so non-respiratory, are relatively flat. Now finally, final comment, Q4 on LTG. The LTG in Q4 did better than expected. So we have a growth of 4% in the quarter, and it is a combination of diagnostic, growing but also we are seeing that the life science is recovering and we saw also life science slowly growing back in Q4 as well and we actually continue to see a very favorable LTG trend in the first month of 2025. you need to understand that for us, this business is not purely life science, but a combination of partnership with diagnostic and life science and biopharma. So we actually serve with this technology three different segments in the market. One more update, which is more on a clinical side of MiMed, which I think is very interesting. There have been a slew of publications that came to the market as a result of independent clinical studies that have been run by MiMed. I think they are available on the MiMed website. And I would like to point specifically to three studies, very interesting. The first one has been published on 4,000 patients through across 10 different urgent care centers. And the key finding of the study is that there is a 63 percent reduction in unnecessary antibiotic prescription. And 70 percent of previously potentially missed bacterial infection have been now correctly identified. This is a very, very, very important data point to support the adoption of MIMET. The second study on 1,000 patients in 17 centers in the U.S. and Europe, which is very interesting, where they were comparing MIMET to procalcitonin, and the conclusion is that MIMET-BV outperformed standard care calcitonin, distinguishing between bacteria and viral infection. Quite often we get questions from investors about what's different between PCT and BV, and this study clearly shows that BV is much better in classifying bacteria versus virus. The third study, which goes more on the pharmacoeconomic side, is demonstrating that there is a significant cost saving up to 250 pounds per patient in case of co-infection if you adopt the MiMed testing prior to administering the antibody. So not only you do have a clinical impact, you also have an economic impact to the hospital budget. All said and done, I'm going to now leave the microphone to Mr. Petron, our CFO. He's going to drive you through the numbers, and then we're going to go to Q&A.

Thank you, Carlo. Good morning, good afternoon, everybody. Thank you for joining DSR in Q424 Earnings Call and for the interest you are showing in our company. In the next few minutes, I'm going to walk you through 2024 financial performance, and then I will turn the line to the operator for the usual Q&A session. Full year total revenues at €1,185 million are above a previous year by 3% or €37 million, despite the expected decrease in COVID sales, which are down by €33 million, and the carve-out of the flow cytometry franchise back in Q1 2023. The business XCOVID is growing at constant exchange rate by 7%, as we heard, therefore in line with the full year guidance. 2024 COVID sales accounted for €26 million vis-à-vis €60 million in 2023, thus broadly in line with our outlook, which was calling for €30 million. The FX impact in the year is negligible. Let's now turn to Q4 revenues ex-COVID at constant exchange rate, which grew by 5% as a result of a solid performance of the new franchise, up by 6%, as we heard, with clear revenues up by 9%, despite what we heard once again happened last year in Q4, actually in 2023 Q4, for the reasons that Carlo just discussed about. We had a good performance of the LTG franchise, up by 4%, thanks to mainly recovering instrument sales, which brings 2024 full-year performance of the whole LTG business to 2%, positive 2%. And the flattish performance of the molecular franchise, plus 1%, where, once again, the very good start of the liaison plex RSP panel and the strong growth of the targeted specialty product lines have been offset by the mild beginning of the flu seasons, as per CDC data, and a tough comp with Q4 when we had some last-time by-orders of the iris reagents, as discussed a couple of minutes ago. 2024 full-year adjusted gross profit at €782 million is better than last year by €33 million, or 4%, with a ratio of revenues of 66%. which is better than 2023, which closed at 65%. All the initiatives aimed at improving operation processes and containing costs allowed us to preserve margins, despite, as we know, some inflationary pressure and the manufacturing costs were incurring in our new plant in Shanghai, which has not reached its full capacity production yet. As I said last quarter, I do really believe this is a remarkable indicator of the success of the efforts we put in place to safeguard our profitability. Q4-24 shows a similar dynamic, both in terms of margins at 66% vis-à-vis 65% of 2023 and growth versus previous year. 2024 adjusted operating expenses at 469 million euro are basically in line with 2023, with a ratio of revenues of 40% vis-a-vis 41 of last year, confirming the trend we discussed during previous quarter's call. Q4 adjusted OPEX at 125 million euro are in line with previous year as well. As expected, Q4 is recording an increase in the operating expenses rate compared to the beginning of the year, as we saw last year, by the way, mainly because of the phasing of some projects and throw-up of some costs, mainly insurance, health insurance costs in the U.S. This means, to be clear, that Q4 24 is higher than the average quarterly rate we should expect for our OPEX during 2025. 2024 other adjusted operating expenses were negative €10 million, therefore recording an increase of €11 million compared to the previous year. This variance is mainly due to a tough comp with 2023, which closed with an income of €1 million as a result of some material one-off positive elements recorded in the previous fiscal year. Additionally, in 2024, there were several one-off expenses which made this variance even wider. I do really believe it is important to consider this substantial swing between 2023 and 2024, driven largely by non-recurring items, to fully appreciate our journey to increasing margins. I will further explore this when I discuss the adjusted EBITDA evolution. As a result of what was just described, full year adjusted EBIT at 303 million euro or 26% of revenues is higher than 23 by 20 million euro or 7%. 2024 adjusted interest income at 4 million euro is 1 million short compared to 2023 because of the lower yield on our cash balance coming mainly from a reduction on interest rates in the second part of 2024. And the adjusted tax rate at 23% is a touch higher than 2023, which closed at 22%. 24 adjusted net result at €236 million, or 20% of revenues, is better than 2023 by 12 million, or 5%. Lastly, full year 2024 adjusted EBITDA stands at €394 million, or 33% of revenues, which which is 19 million euros better than 2023, and aligns with the full year guidance. Q4 profitability, also 33%, is better than the 32% achieved the previous year. As mentioned earlier, to better appreciate the base business EBITDA margin expansion from 2023 to 2024, it's important to consider that in 2023 we had a material and non-recurring earning elements in other adjusted operating income. Excluding these, the path to EBITDA margin increase would have been even more apparent. As we will see in a minute, this is confirmed by the 2025 EBITDA guidance, which represents another step forward toward the 2027 margin expansion journey set during the last capital market day. Let me now move to the net financial position. We closed 2024 with a net debt of €618 million, therefore recording an improvement of €159 million compared to the end of 2023, mainly as a result of the very sound free cash flow generated during the year, €241 million vis-à-vis €209 million in 2023. As a result, our net debt to EBITDA ratio is down to 1.6% from the 2.1% we saw at the end of 2023, continuing the deleveraging trajectory shared during the last capital market day. Let me now finish my remarks moving to 2025 guidance, as always expressed at previous year exchange rates. So we expect revenues ex-COVID to grow by about 8%, with COVID sales around €20 million, and therefore total revenues of the company to grow by about 7%. We also expect an increase in our adjusted EBITDA margin, which in our guidance will be moving from the 33% we had in 2024 to about... 34%, which we are guiding for in 2025. Please note that this guidance includes the very recent tariffs, which have been introduced and are now enforced between U.S., Canada, Mexico, and China. Before concluding, let me please remember that diasporic financials are highly exposed to the U.S. dollar. As a rule of thumb, consider that for every one cent movement of the dollar against the euro, the assuring revenues move by about 6 to 8 million euro on a yearly basis. And the adjusted EBITDA moves by 2, 3 million euros. With that said, let me please turn the line to the operator to open the Q&A session. Thank you.