DiaSorin S.p.A.

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the DiveSorin full year 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 single 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 Diasorin full year results. Today we have a busy agenda. I'm going to make some business remarks. Then our current CFO, Mr. Pedron, is going to take us through the 2025 financials. Our future CFO, Mr. Alberto, is going to discuss about guidance to 2026, and then collectively we're going to take questions. So let me start from 2025 business comments. 2025, I think I marked a year of good achievement for our company with – success for our strategy in the different technologies with immunodelivering 7% growth, molecular diagnostic year-on-year flat, and we'll see later primarily related to the fact that the flu season this year has been very weak. And then LTG delivering to expectation flattish compared to previous year. And, again, as we will discuss later, primarily due to the fact that on the life science segment, as I think is very well known by everybody, 2025 has not been an exciting year. Let me now turn to the specific technologies. Let's start from Immuno. It's very clear that Immuno, we always talk about the success of our hospital strategy. In the U.S., we have delivered Immuno. the number of hospitals that was targeted, and actually if I go back and think about the 2023 plan, LTP, what was when we deliver our targets for the hospital strategy, our What the company was looking for is to get to 600 hospitals by 2027, and actually I believe we're going to get to 600 hospitals by the end of 2026. So this strategy has been extremely successful. By the same token, we continue to launch specialty assays. Hepatitis Delta, together with Gilead, we are the first and only company to have FDA-approved hepatitis Delta assay, which is a great opportunity in light of the expected approval of the new hepatitis Delta drug. And the TRIAD, which is an autoimmune assay, very specialistic, so we continue to fuel the our globally, our immuno franchise with specialty products. When it comes to molecular diagnostic, I will be more specific later, but we continue with increasing the launch of the different panels in the on the Plex platform. Today we have four approved, and GI submitted and expected to be approved in the next 60 to 90 days. We are, as you know, I remind everybody, as far as of today, we are focusing our effort just in the U.S. market. So when we talk about Plex, just remember it's only the U.S., and we continue to deliver the customizable mini-panel strategy. When it comes to NESS, which is the small platform, as discussed already, we got approval of our respiratory panel. We have submitted our gas panel on NESS, and we expect approval within H1 of 2026. We built a dedicated self-force in the U.S. of around 30 people with an investment with annualized is estimated to be around $10 million that will allow us to launch efficiently and effectively in the non-acute and acute space in the U.S. In parallel, we have signed up two major distributors, Fisher Scientific, that we work with our direct sales force in the acute hospital segment, and McKesson. I think the press release went out yesterday. that is taking the exclusive distribution of our liaison nets in the non-acute in the U.S., together with, again, the dedicated 30 people that we have hired to support. The business commercial launch is expected to be April 1st. Moving forward with the business from a footprint organization, we have pretty much completed the phase out of our industrial plant in Germany. Again, to streamline our manufacturing footprint, the all products manufacturing has been moved to Italy. And we are practically at the end of the process, and I would like to thank all our German employees that have been extremely collaborative and professionals in allowing the company to close the plant in good order and not to provide any disruption of supply to the customers. When it comes to Chicago and Cyprus, which are the two sites where we manufacture Plex and Ness, we have completed all the investments, which have been in the order of $30 million. And now we have the capacity in place to sustain the launch of the two platforms. When it comes to China, We have, we believe that the, we continue to see that the macro environment in China is actually not improving, to say the least. VBP policy now is adopted in all the provinces, but what we are seeing is that even in Shanghai and Beijing, that supposedly, We're not touched by VBP now, clearly. VBP is also, de facto, applied into these very large markets, and so the effect of VBP will hit China in its entirety. Because of that, and because of the fact that we honestly don't see for the assuring a space as a supplier of commodity, no specialty, as a In China, we decided to close our manufacturing site in Shanghai and discontinue the local manufacturing project. Unfortunately, and funny enough, Murphy's Law, we are making the decision when we just got approval of all the products. But I think that, again, our view on the Chinese market continues to be very negative, and the ability to compete in that market with little products I don't think is there. And although, as I think we have discussed, we are now resorting to a different strategy, which is the specialty strategy. in two areas. One is TB, where we are successful globally together with Calgene. The other one is on the GI immune strategy. We expect the TB product to be approved by the summer, so we will start our TB campaign in the summer, and the Calprotecting assay to be approved within 2026. beginning of 2027. So again, China, we are redirecting the effort. We are taking away all costs associated with being a non-specialist player and investing to become a specialty player in that market, which we honestly believe is the only way for a company like DSO to continue to survive and make good business in the Chinese market. When it comes to 2025, again, we have been experiencing, I think, overall headwinds and tailwinds. Let me remind everybody what happened last year. Tariffs clearly have been impacting the P&L last year, although we believe that – those tariffs, which is in the range of $9 million. Again, I'm talking about the cash component. We will be able to get them back sometime in 2026, but last year, they did impact our P&L. The NIH funding cuts did impact the business of our partners in life science, and in fact, it is the reason why we have a flat overall LTG business, which, as we have discussed a few times, is a combination of high single-digit growth of the diagnostic component but high single-digit decline of the life science. We have been experiencing volume normalization in Europe, testing volume, and I'm using Germany as an example. Germany used to grow. on an annualized rate around 6%, 7% from volume testing perspective at the end of 24, beginning of 25. And we actually saw that by the end of 2025, that is more around 1%. And I'm using Germany because it's a very large market, but I believe that this problem is actually replicating around Europe. And again, it's normalization clearly after the COVID effect, in my opinion. And then, last but not least, the flu season, no need to comment, but the flu season has been very poor in 2025, and also Q1 of 26, we continue to see the same effect. And because of the fact that a good chunk of our business is for molecular yeast flow, clearly we are tactically suffering from lack of revenues in this segment. From a tailwind perspective, clearly PAM implementation has been delayed post-2026, and this has lowered the level of pressure on our customers. And so I believe that from a pricing perspective, we do not foresee an impact further. coming from PAMA. Now, let's dig a little bit more into the numbers and let's look into Immuno. Our Immuno franchise You know, we like to look at total and then take out what we believe are the one-off effects. But if you look at the immunofranchise, full year growth 7%. If we take away two effects, which are China, the China decline, which was almost 18%, and the outbreak effect that we commented a few times, then the growth of the franchise would have been 9%, which means that solid, healthy growth of our immuno business. North America continues to be one of the leading markets for the SORIN. We had... a full year growth of 15%. But if you look at quarter to quarter, quarter three, 14%, quarter four, 14%. So the performance of North America is clearly extremely solid there. Europe, we saw that by year end, It's mid-single digit, which I think is okay when it comes to the European market, which does have dynamics, as we know, of growth expectation, which are very different from the rest of the world. China has been very negative, and overall, during the year, we lost 8 million in China. in revenues, which is minus 19% versus prior year. Clearly, we saw these effects softening in Q4, but what we are seeing moving forward, though, is that this VBP effect, I think, will continue now into provinces that so far were not really touched by this. And so my view when it comes to 2026 certainly is not positive about this. If you look at molecular, as you know, our molecular business is fundamentally flat year on year, but with different components. Looking at the three different legs of the business, as you know, let me remind you, we look at the business as the, what we call, targeted, which is our molecular franchise that came in original from the and focus. We have the franchise, which is the multiplexing franchise, and then we will have the NES. If we now talk about the targeted franchise, we see that which, I mean, overall is close to $100 million. There are three different segments into this. We have what we call specialty. The specialty targeted, which closed at around 40 million euro, annualized with a growth rate fully of 25 of over 35%. And by the way, fairly constant quarter to quarter, so this continues to drive the growth of the franchise. But by the same token, we have a respiratory component. which is 40% down compared to last year. The good news is that now it's becoming very small. It's between 10 to 15 million euros, but the seasonal effect has been so far very heavy because of the respiratory season. And finally, we have what we call ASR, which is, again, roughly 40 million, very profitable business. which are reagents that we sell to laboratories in the U.S., roughly 200 customers, to do LTD assays in the U.S., which is flat and not expected, clearly, to be a significant grow driver, but is a very significant profit and very profitable business for the Azorian. And on top of that, it's allowing us typically to launch as LDTs, some of the specialty assays and then meanwhile file with run clinicals and get the FDA approval that then will allow us to move to the full kit. So this franchise, I believe, is solid. will continue to deliver the growth, transforming the business from very dependent on respiratory to fundamentally to be very dependent from the growth of specialties. The second segment is the multiplexing. The multiplexing for us is the combination of varigine 1 plus neliazone Plex. Full year growth of this business all in has been around 9%. Clearly, there has been an effect here, which has to do a lot again with flu and the flu season in two ways. The business that we had with Virgin One had a flu component. But more than anything else, all the liaison plexus business that we actually are building, it's all respiratory for a very simple reason, that we just got blood in mid of 2025. So it's very clear that we have a double whammy situation in this case. So if we look at the liaison plexus per se, We had an objective to close 150 customers in the U.S., and in fact, we closed 147. So we are at target. We have placed roughly 1,000 systems with these customers in the U.S. Again, this is U.S. only because we did not make this platform available outside the U.S., 40% of the contracts that we close are fixed, and 60% are flex, which means now that the weight of the flex business is increasing, clearly, because all the new placements we are making are fundamentally based on flexibility on building the mini panels. If you look at customer split, 90% are hospitals and 10% are commercial labs. Clearly, if we look at the revenue contribution so far, Commercial Labs represents a little bit over 50% of the business, and this is because of the fact that we closed some very large contracts in commercial, and namely the one that was made public was the Quest agreement, where Quest now has transitioned to the liaison platform for all the respiratory businesses. GI panel clearance is set, expected in the next 60 to 90 days, and this clearly will accelerate penetration in the U.S., in the U.S. hospitals, also because the GI panel is the one that allows to the full extent the use of the mini panel, customized mini panel concept. When it comes to... The non-automated business, which is the legacy business left, clearly is left unattended, is declining minus 6% full year, and is supposed to continue to decline simply because it is a business that we're not invested in, is a cash cow, and still very profitable like all the cash cow businesses. LTG, we spoke about the LTG before. So it's a 50-50 business. As you know, the split is 50% diagnostic, 50% life science. When it comes to the diagnostic business, it grew 9% last year. But when it comes to the life science business, it actually declined 9%. And this is why it made... the NTG business fundamentally flat. We'll talk about expectations for this business in 2026, but I believe that in 2026 we are expecting moderate growth, primarily driven by the fact that there are initial signals that the life science business is going to do better than last year. also because, in full honesty, last year was, for everybody in the business, a very terrible year, right? And so recovery of that business is mathematically expected. At this point, I believe that I will let PG take care of comments on the financials. And then I'll make some further remarks.

Thank you, Carlo, and welcome, everyone, as Carlo said, to our 2025 fourth quarter earnings conference call. As usual, during the next few minutes, I will provide an overview of our financial performance for the full year, after which, as Carlo just reminded us, he and Alberto will cover 2026 guidance. And we will then proceed to the usual Q&A session. So 2025 full-year revenues were just short of 1.2 billion, reflecting a 1% or 10 million increase compared to the same period last year. This performance was achieved notwithstanding a 13 million euro reduction in COVID-related sales, once again as expected, and a 34 million euro negative impact from foreign exchange rate. primarily due to the depreciation of the U.S. dollar against the euro, as we have discussed many times during our last earnings calls. Excluding COVID and the constant exchange rate, our core business has achieved a 5% full-year growth, therefore in line with the guidance. Carlo previously outlined the factors contributing to this performance, the robust Results from the new franchise, despite the challenges in China and the outbreaks in Europe in 2024, normalization within the LTG franchise following a favorable phasing in the first half of 2025, and a stable trajectory for the overall molecular business, which has been negatively impacted by a very mild start of the flu season. And as you might remember, the discontinuation of the ARIES platform. 2025 adjusted gross profit at 778 million euros accounted for 65% of our revenues. These represent the increase of 4 million euros or 1% compared to 2024, mainly driven by tariff impact, which at the P&L level in the year accounted for 4 million euros, a different product mix, and a negative FX impact. With constant exchange rate, the adjusted gross profit would have increased by almost €20 million or 2%. Adjusted operating expenses for the full year were €474 million, marking a 1% decrease from the previous period, whereas at constant exchange rate, the expenses increased by 1%. As a percentage of revenues, OPEX declined to 39%, down from 40% in 2024. The small rise in absolute value at constant exchange rate was mainly due to the higher labor costs from the annual salary review and increased depreciation tied to the recent product and platform launches, including the liaisonplexes, which had been previously in development. This minimal increase reflects our disciplined approach to cost management. I'd also like to address the reported statutory operating expenses, which in Q4 have been impacted by the initiation of the development plan of our manufacturing site in China that Carlo just talked about. This project will be completed by the end of 2026. This initiative, which was prompted by material change in the Chinese market, as we heard, is consistent with the actual ongoing strategy to optimize our global manufacturing footprint, like previous actions such as the divestiture of our Irish and South African facilities and the commissioning of our manufacturing sites in Germany. These steps demonstrate our continued effort to adapt to the evolving macroeconomic conditions and enhance our long-term competitiveness. We anticipate that the one-off charge related to the full scope of this initiative will not exceed €22 million, €20 million of which have been booked in Q4 2025, with the vast majority being non-cash costs. primarily intangible and fixed asset rate offer. The monetary total impact will be less than €3 million. We estimate that this initiative will bring an annualized saving, which was completed, of about €6 million. As a result of these dynamics, 2025 adjusted EBIT reached €304 million, representing 25% of revenues. confirming the profitability we had in 2024. These reflect an increase of constant exchange rate of €13 million, or 4%, compared to the same period last year, whereas the resultant current effect is in line with 2024. Adjusted interest expenses for the full year were slightly above €1 million, compared to an income of €4 million in 2024. The primary factor behind this variance was a reduction in our cash balances and investment yields, reflecting the declining interest rates. As discussed in previous earnings calls, the normalized tax rate has adjusted to 25% following the conclusion of the patent box regime for our Italian legal entity. For the full year 2025, the tax rate... is about 29%, and this is due to a couple of one-off events that occurred in the fourth quarter. The most significant impact resulting from the withholding tax on dividends from the U.S. subsidiary and the impact of not accrued taxes deduction of the impairment cost related to the divestiture of the Chinese manufacturing site. in light of the limited visibility on future taxable profits in our Chinese legal entity. These items are not expected to occur again in 2026. So we will go back to a normalized tax rate of 25% in 2026. 2025 adjusted net result at €223 million or 19% of revenues is lower than 24 by €13 million or 6%. as a combination of the negative effects impact accounting for €12 million and higher interest and tax rate expenses. The adjusted EBITDA for the full year 2025 is €394 million, accounting for 33% of total revenues. Therefore, in line... both with the absolute figure and revenue ratio recorded in 2024. At constant effects, adjusted EBITDA reports an increase over 2024 by 15 million of 4%. The margin is likely exceeding 33% and in line with the annual guidance. Q4-25 profitability at constant exchange rate, just short of 32%. is about 140 basis points lower than the corresponding period in 2024, mainly due to the variations in product mix and the impact of the tariffs, which accounted for $2 million or thereabout in the quarter. Before turning to the net financial position, let me share a brief comment on the tariff situation in the U.S., On March 5th, the U.S. Court of International Trade, so-called CIT, issued a nationwide order requiring U.S. Customs and Border Protection to refund IEPA-based tariffs, following the U.S. Supreme Court's February 20th ruling that the IEPA does not authorize tariff actions. The order applies to all importers, therefore to the Australian as well. The Court of International Trade has given Custom Border Protection 45 days to prepare the system for this activity. We will keep on monitoring the evolution of this very complicated situation and update investors consequently. As of today, the potential P&L upside related to 2025 tariffs is about 4 million, as we said, plus 1 to 2 million for the first two months of 2026. From March on, IPA tariffs have been replaced by the new tariff scheme imposed under Section 122, which is included in our 2026 guidance. Turning to our net financial position, we closed 2025 with a net debt amounting to $580 million, with an improvement of $38 million compared to the end of 2024. These reflect a solid free cash flow of just short of $210 million compensated by cash outflows, including $97 million in payments to shareholders exercising withdrawal rights after the recent implementation of the enhanced voting rights mechanism, as well as $63 million distributed as dividends to our shareholders. Before Carlo and Alberto... present the 2026 guidance, I'd like to share a few personal remarks. As you might know, this is going to be my last learning course in the Azorin, since in April I'll be moving to a different professional chapter of my life. As I wrap up my time here, I just want to say a big thank you to all my Azorin colleagues, my super amazing team, Carlo, obviously, and the whole board. The last 15 years have been an incredible ride and full of teamwork, growth, achievements that I will always remember. The historian has been like a second home to me throughout these years, and I have every confidence that it will continue to excel and accomplish even greater things in the future. I'm also certain that Alberto, who has been an integral part of my team since I joined the historian, will be an outstanding CFO. And to all the analysts and investors I've gotten to know over the years, it's been a real pleasure interacting with you. Thank you for your insights and open and constructive dialogue. I wish you guys the best going forward.