DiaSorin S.p.A.

This is the course for conference operator. Welcome and thank you for joining the Diasorin H1 2025 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.

Thank you, operator. Ladies and gentlemen, good afternoon and welcome to the H1 first-after results conference call. As usual, I'm going to give some general comments on the business, and then Mr. Petronov, as usual, is going to take you through the numbers. Quarter one was a solid quarter for the Soren in terms of top-line growth and EBITDA margin. Quarter two revenues, ex-COVID growth, 7%, in line with the expectation, making H1 25x plus 8%. Quarter two, EBITDA margin, 36%. H1. EBITDA 35%, so in line what we expect to achieve by year-end. And Mr. Pedro will then comment on the fact that typically on our EBITDA, we have a seasonality and a difference between each seasonality too. But overall, we confirm guidance of 2025. As usual, I'm going to comment on the business by all the different business lines. I'm starting from Neurodiagnostics. Neurodiagnostics grew 8% in Q2 and in Q1, in line with expectations and confirming the strong positive trend for our CLIA business in all the geographies. Except for China, I'm going to make a comment about China. If you consider the immunodiagnostic growth X in China, it would have been 10%, both in Q2 and in H1. So the franchise, as we have seen in the past, continues to deliver growth according to the different programs that we discussed many times. If we now go by geography in immunodiagnostics, North America, which is one of the most relevant geographies for immuno grew 14% in the quarter and the growth is driven by the continued success of our hospital strategy We have a target of reaching, adding 100 new hospitals by the end of the year, and we are tracking perfectly compared to the target. And clearly, as we have discussed many times, this is due to our unique menu of specialties that makes the Gliasonica Lauer platform very suitable for this market. When it comes to Europe, good performance, plus 6% in quarter two, driven by the success of the liaison platform. As we discussed many times in geography, we are very much penetrated, so our result is relies on the fact that we keep adding products to our existing install base of their own platforms. So Europe overall continues to deliver high mid-to-high single digits, which is what we expect GeoGeography to do. When it comes to the rest of the world, we exposed the performance in the quarter despite political tensions in some countries, and the good results have been driven by strong growth in direct markets, mainly in Brazil, Mexico, and Australia, and in those geographies where we serve through local distributors. Last but not least, I would like to discuss China. China, as we have discussed now since almost two years, is becoming a very difficult market to operate. We experienced in the quarter a double GDP decrease due to the already announced and expected impact on GDP. The market research is difficult. I think that a few other companies already reported and did comment on Osmono Institute China, so I don't think we should spend more time. For the foreign, China represents less than 5% of the revenue, so even if we are struggling in this market, it does not impact the overall company performance. If we look by technology, so by product, together with our school panel, continues to drive the growth of the business, both in Europe and in the U.S. And we are launching this product also in secondary geography, so we expect that when we get the saturation of the primary markets, secondary markets will help us out to continue to grow. these franchises. But what I think is very remarkable is that also established product lines like hepatitis B or even vitamin D are experiencing growth again. And especially vitamin D is very interesting. We've been losing vitamin D for many years and now we reach a position where We are selling this product in the hospital market where, together with the rest of the menu, we can bundle it, we can secure it, and we clearly enjoy the volume increase for this parameter, which is actually happening across the globe. We continue to see positive signs of acceleration in North America. And we have reached 40 active customers by the end of H1. I remind everybody that we have a target of 35 new customers by the end. So we are well in the position to deliver these targets by the end. What I think is worth noting is that we recently signed a very relevant contract in the U.S. It is a million-dollar business, so it is the first time that we were able to sign for this assay group that decided to use now the name BES across sites and being part of the medical practice. So I'm very positive about the future of it. Now, let's move to molecular diagnostics. With molecular diagnostics, I would like to point out that we need to exclude, in order to fairly compare 25 with 24, we need to exclude the Aries contribution, the Aries contribution, which was 5.5 million in 2024. Eris, I remind everybody, is a Luminex legacy platform that we decided to discontinue last year. So we had sales through H1, but we didn't have anything this year. So if we look at the molecular diagnostics, ex-COVID, the performance in Q1, excluding Eris, growth was 8%. Sorry, I said in Q1, but I was talking about Q2. So in Q2, 2025 growth to the area is 8%. If we look at the Bay region and the ozone plagues, platforms together, what we call our multiplex syndromic business, the branches in quarter two grew 11%, and 18% in H1 2025. Clearly, after the strong start in quarter one, where we had a 25% growth, there is an expected lower pace in the second quarter because the Atomplex, the panel we launched, is a respiratory that clearly in the Q2 and Q3 is not carrying demand, and then it's related to the to the respiratory season, so we expect an acceleration of growth coming from end of Q3 heading to Q4, as it always happens every year. When it comes to the endosomal plexus, we now have completed our blood panel, so now we have a full blood panel approved in the US, which is allowing us to start quoting. in this market that for us is very relevant because the legacy version one platform was still holding a good market share in this particular segment. So for us it's defensive, even defensive panel plus is allowing us the ability to clearly increase pricing in this segment and moving from one technology to the other. He's giving credibility to the Zonplex platform. Now we have four different panels that can be used. And he's speaking about the ability of the company to deliver on the availability on additional menu on this platform. Clearly the next one to come that will complete our offering, phase one offering, is a gastrointestinal panel. that we will submit by the end of 2025, so in Q4 we expect to submit the product in line with expectations and get it approved beginning of next year. Now, if we move then to the molecular diagnostic, the other segment, which we call targeted, MDX, this is the story MDX platform. The business grew 10% in quarter two and 12% in H125. The non-respiratory panel, they're growing 40%. They represent half of the business, more or less. They grew 40%. Thanks to, again, the specialty positioning we've been discussing several times. One of the most successful passes we have is Candida auris, where we are the only one in the market and is getting some traction in the U.S. market. Respiratory panels in the second quarter decreased due to a softer tail of the flu season versus previous year. And also, let's remind ourselves that in this case, We are comparing to a border cell outbreak last year, which it is not repeated here, and is affecting comparison between respiratory Q2 versus respiratory Q2. We are submitting as a defensive posture in this platform a new four-flex panel for the way to be COVID-19. to get too far with competition. We expect to have this approval next year. So for the next two seasons in 2026, we're also in the MDX platform and we're going to have the complete offer. When it comes to the liaison net, which is our three-way platform, We have filed the ABCR panel and applied for a waiver in July 2025 in line with the expectation of the investor day, 2023 investor day, and we expect the launch of the system in H1 next year, so we'll be able to participate with the 2026 system. New season, next panel to come, currently under development, group extra, that again we believe is going to be available next year. So we are also building momentum on the liaison. Last but not least is the LPG, the licensed technology. We had a very good H1. We grew 10% in H1 versus three years, 7% in quarter two. I need to draw your attention to the results because if you look at the latest technology, half of the business is diagnostic, half of the business is life science. The diagnostic portion is doing well because we are supplying clearly companies that do need to have single digits in this space. When it comes to the life science, clearly we are suffering the results of what all our business partners are reporting, so softening of the instrument revenues, part of the revenues we have is related to instrument that we make and we sell to the business partners that then sell it to the research community. What is very interesting and is working for us so far is that reagent revenues in life science are still growing, clearly not as the past, but as if there has been a repositioning of the limited funds these days of researchers more on reagents than capex, which makes sense. So, in the H1, very good results. We expect some softening, clearly, in H2, but we really need to understand how these volatile markets will be performing in 2025, going into 2026. Other initiatives that I would like to comment are two. One is the closure of our German manufacturing site. As outlined during our last investor day in 23, we remain committed to driving operational efficiency across the group. And this is because we foresee that the pricing environment in this space is not seen to improve. It can only improve if companies can be innovative and launching specialty products like we continue to do, but for the products on the market, there is always, historically in this space, there has been price pressure that continues. Therefore, we continue to do whatever we can to improve our profitability in the manufacturing side, and in this very specific case, we are concentrating fundamentally our manufacturing capacity in two sites, one in Italy, one in the U.S., one to serve globally our ImmunoSA franchise, and one that is serving primarily the U.S. market, and this is why we are not so exposed to tariffs these days. We invested in capacity and automation in this site, and so after the last review, it did not make sense to continue to manufacture in Germany. We are in current negotiation, and we are going to treat fairly our employees that have been working with this company for many years, delivering great results. I expect that by next year, exposure will happen and products will be transferred to Italy. The last remark I would like to make is to do with that we have a collaboration that I think is very interesting with Gilead. that was announced last year about the hepatitis delta virus. You know, Gilead is trying to get a tier and new drug approved in the U.S. And together with Gilead, we are bringing an assay that will be used in the U.S. to screen for those patients that are candidates for the drug. We have submitted to the FDA. We responded to the last set of questions, and so we expect that this assay will be approved in the next quarters or so, and that clearly will help and support our differentiation in the U.S. market, continuing to drive our extractive franchise growth. Now, I'm done with my comments. I'm going to pass the microphone to Mr. Fedron and then we'll ask questions.

Thank you, Carlo. Good morning. Good afternoon, everyone. Thank you for joining us here in H1 2025 Learning School and for your continued interest in our company. Over the next few minutes, I will walk you through the soaring financial performance for the first half of the year. And then, like always, following my remarks, I will open the line for the Q&A session. So, 2025 year-to-date revenues reached 619 million euros, up 5% of 30 million compared to the same period last year. This growth was achieved despite the expected declining COVID sales, which were down 7 million, and the 7 million FX headwind, primarily due to the depreciation of the US dollar against the Euro as we anticipated during our previous earnings calls. On that note, let me please remind you that on a full year basis, every one cent movement in the USD-EUR exchange rate typically impacts the earnings revenues by approximately 6 to 8 million Euros. And I just reviewed that by 2 to 3 million euros again. Given that the average USD-EUR exchange rate in H2 last year was at 1.08, I believe it's fair to expect an additional effect headwind in the second half of 2025. Excluding COVID at a constant exchange rate, we saw our core business grow by 8% in the first six months of 2025, as said, in line with FURIA guidance. Carol already covered all the performance by geography and technologies, so I'm not going to comment more. In the second quarter, revenues excluding COVID at constant exchange rate go by 7% for more or less 19 million euros. As we said and as we heard in spite of the continuation of the ARIES platform in 2024. As mentioned earlier, we see a significant foreign exchange headwind in the quarter amounting to roughly 11 million euros. These, combined with the expected declining Covid-related revenues, resulted in a shyer reported revenue growth of 2% at the current exchange rate. Gross profit for the first half of 2025 reached €46 million, representing 60% of total revenues. This marks an improvement of 16 million, or 4%, compared to the same period last year. In Q2 specifically, the growth margin remained stable at 66% of revenues, in line with Q2 2024, and consistent with the level we have seen over the past few quarters, in spite of the fact that we started to see some impact from the tariffs of moving goods, importing goods into the U.S. Adjusted operating expenses for the first half of 2025 totaled €232 million, representing a 1% increase year-over-year, or 2% at constant exchange rates. As a percentage of revenues, operating expenses declined to 37%, down from 39% in H1 2024. This improvement in operating leverage is a key driver of our margin expansion, as we have consistently emphasized in prior revenue calls and during our capital market days. Adjusted other operating expenses for the first half of 2025 were negative $6 million, $1 million better than the same period in 2024. I would also like to address the reported other operating expenses. Each in the quarter has been affected by the initiation of a disaster and decommissioning plan for our immunodiagnostic manufacturing site in Germany, which we expect to complete by the end of 2026. This initiative, as we said, is aligned with the ongoing strategy to optimize our global manufacturing footprint. similar to the actions we have taken in the past, such as the redactures of our Irish and South African facilities. These reflect our continued efforts to adapt to the evolving macroeconomic conditions and enhance our long-term competitiveness. The one-off charge recorded in Q2 of about 8 million euros reflects the first part of this program. and we expect additional 6 to 8 million euros to be booked by the end of 2026, to eventually cover the full scope of these initiatives, including, among others, the cyber-commissioning costs, project-related expenses, fixed assets records, and so on and so forth. We anticipate a positive BIDA impact of approximately 6 to 8 million euros annualized once the plan is fully implemented. Third, this is one of the levers supporting our path towards improved profitability, targeting the BIDA margin outlined during the last capital market day. The results of these dynamics adjusted interest for the first half of 2025 reached €167 million, representing 27% of readiness. These reflect an increase of €14 million, or 9% compared to the 20 years back here. Adjusted interest expenses for the first half of the year were just under €1 million. compared to an income of 2 million in the same period of 2024. This shift was driven by lower yields on our cash investments, reflecting the decline in interest rates. The adjusted tax rate increased from 23% to 25%, mainly due to the termination of the patent box regime for our Italian legal entity. As previously discussed during our last capital market day, this measure was not renewed by the Italian tax authorities, and the resulting impact on our effective tax rate was therefore anticipated. On a separate note, we do not expect any material impact on our tax rate from the recently approved so-called One Big Beautiful Tax Bill in the United States. Year-to-date adjusted MEP in Canada, totaled €125 million, representing 25% of revenue. This marks an increase of 5.4 million compared to 2024. Lastly, H1 adjusted EBITDA reached €214 million, exceeding prior year by 16.8 million at current change rate and by 10% at constant change rate. The BIDA margin of 35% of both at current and constant interest rates is better than the 34% recorded in 2024. With constant effects, the BIDA margin is almost 36%, benefiting from the favorable calendarization of LPG sales, typically associated with higher margins, and from disciplined cost management. As we observed last year, we anticipate higher operating expenses in the second half of the year, driven by our standard salary review, and by the timing of first and the stationary cost. The improvement in our margin is in line with the guidance and the past century profitability we have discussed many times in the past. Let me now turn to our net financial position. We closed Q2 2025 with a net debt of €608.3 million, an increase of €56 million compared to 2024 year-end. This variance is mainly the result of two key factors. On one end, we generated a historic 3-cash flow of almost €85 million in each one. On the other hand, this was more than offset by 97 million debts related to payments owed to shareholders who exercised their withdrawal rights following the recent adoption of the announced working rights mechanism, and then we have to account for 63 million euro dividends paid linearly to our shareholders. Before we move on, let me briefly update you on the ongoing Italian payback situation. Looks like we almost get to the final episode. The government mandated reimbursement mechanism tied to regional overspending on medical devices covered by the Italian National Health Service. Just a few days ago, as part of a decree enacted at the end of June, the Italian government introduced a settlement framework for outstanding labor obligations, related to the years from 2015 to 2018. Under this new provision, companies can resolve ongoing legal disputes by paying 25% of the original requested amount. a significant reduction from the 48% that we discussed in previous courses. Once attainment is made, and more further legal or administrative actions can be pursued by the authorities. As you may recall, we have built a provision on our balance sheet over the past few years to cover this risk. As a result of this legal development, we have no impact on our channels. However, we would expect a cash outflow of more or less 5 million euros. Given the fact that this expense will be deductible from a tax perspective, the net cash impact will be slightly above 3 million. It is worth noting that GDP3 does not address payback obligations for years beyond 2018. but we believe our current provisions remain adequate to cover any future exposures. Let me now conclude my remarks by sharing our outlook for full year 2025, which remains consistent with the guidance we confirmed during our Q1 turning school. As always, figures are constant exchange rate, assuming the USD-EUR exchange rate of 1.08, for 2024 as a reference, we expect readiness of student bodies to grow by approximately 8%, and we also confirm our guidance for an adjusted data margin of around 34%. Please note that our guidance already incorporates the anticipated impact of recent history studies across the geography in which we operate, but mainly the U.S. while we are exposed mainly to the US. While we acknowledge that the broader macroeconomic environment remains fluid, and while we await a further clarity following the recently announced trade agreement between the European Union and the US administration, based on the information currently available and considering the mitigation actions already implemented or underway, we do not expect a material impact on our profitability in 2025. We will continue to closely monitor developments in this evolving situation and will keep you informed as new information becomes available. With that, I now turn the line to the operator to begin the training session. Thank you.