Good morning, everybody. I'm Luke Sergott. I cover Life Science Tools and Diagnostics for Barclays. Kicking off the conference here, first meeting with QIAGEN. Long time listener, long time and caller, I guess, for me. I have Roland Sackers, CFO, and Daniel Wendorff, IR. I guess just to start off, we talked about this a little bit outside, but kind of go through updates on strategic direction, you know, CEO search, some of the M&A news that's been out there. Just kind of wrap all that up into, you know, some early comments.
Yeah. First of all, Luke, thanks for having us, and I appreciate that you're now a research analyst and not a researcher anymore. But we still miss you as a customer.
Yeah.
I think it's an important question, and I think probably you're referring to also the comments Thierry made more or less last week, where he was, from my perspective, reinforcing what we said before, right? On the one hand side, QIAGEN feels quite strong about, I think, our overall perspective in the market. I think we delivered also a very strong 2025 footprint and, with our focus around our five pillars of growth, we feel very comfortable going forward. Nevertheless, we are also going through a CEO transition. You know, Thierry, as you know, Thierry and the company announced that they go different paths and, we're in the middle of the CEO search.
We are now down from a long list to a short list. I think we said publicly last week that we probably believe that sometime in the second quarter may result in an announcement. It depends a bit when a new person can start, if it is a U.S.-based person, a European-based person, because as you know, in Europe you have a couple of non-compete clauses and other things which might take some time. Nevertheless, I think the board is very straightforward that they are looking for somebody, in U.S. you would probably say who has seen the movie, somebody who has experience in the footprint in more or less in all of our industries we are serving on the clinical as well as the Life Science side.
Clearly somebody who worked in Europe and or the U.S. I do think that is the expectation and we are moving along here quite well with, I would say, a strong group of candidates. Nevertheless, during that time period, and again, we went through a similar situation in 2019, as you know, while we are a much stronger company today, the board of course has to review all alternatives it has, right? That goes from just driving organic growth, also doing of course as we did in the past by ourselves board on acquisitions.
Of course, if there's any opportunity to create additional shareholder value or shareholder value even much faster by being part of an acquisition or any kind of transaction, we are very much open to that. That's also a reason why we hired advisors to help us facilitating that. Again, as you know, we will see what the outcome is. The old rule is, nothing change until the day we announce it, and that's where we are.
Yeah. Until you get another press release. Yeah. All right. That's fair. I guess from a CEO perspective and you guys are recruiting and in light of the strategic rationale and maybe, you know, I don't want to say shopping yourselves, but just open for more discussions around that. You know, how does that impact the search there? Is that like. Walk us through, you know, who, you know, who would be coming on? Like, would they have protections and. 'Cause like you said in 2019 you went through a similar dynamic.
No. I think you can take your two perspectives, right? I'm not telling you if I'm leaning to one or no, but just more or less I think that it's probably the range of objectives you can have. On the one hand side you can of course argue, okay, is this a limitation to your CEO search? What does it mean, for a CEO if there is a company which is reviewing its strategic position? On the other hand, you can also take a position and a view in saying, "Okay, it might be helpful for any incoming CEO if that review was properly conducted and reviewed and the board came to the conclusion the best way forward right now is, more or less, staying standalone and moving it forward as the organic plan is quite strong.
That doesn't mean that the board doesn't know about its fiduciary responsibility going forward. It's quite obvious that if one day later somebody else would come forward and say, "Hey, we have a different view on that company," and that they don't know about their fiduciary responsibility. I would argue you can take different views and nevertheless the list of candidates is quite strong.
All right. Great. All right. Let's go to the fundamentals. I think the feedback on 1Q across the board from tools was that it took investors kind of by surprise with how conservative or appearing conservative the guides were and it felt more of the same of the last few years. Walk us through what was baked into your 1Q guide and coming in a little bit softer there. Why this time it's different than what we had seen the last few years in this space?
We clearly, I would say, gave a guidance which we feel still quite comfortable with for the full year of a goal of 5% growth rate. Nevertheless, I do think it's fair to say that there is clearly quite significant ongoing macro challenges worldwide. I think the good news is that finally the U.S. has an approved NIH budget which is also quite helpful on the consumable side. Nevertheless, particularly on the automation side, it's also quite obvious that it will take some time before our customers rebuild the confidence to do mid and long-term investments, which is buying a new machine.
Because we all recall six months ago, there was a lot of rumors around NIH budget might be down 20%, 30%. That is not helpful building the confidence in, again, if you want to buy a new instrument. At the same time, other things have changed, right? You're now seeing what's going on in the Middle East. We all hope that it's over quite soon, but we all know that every company has business in this area. It is clearly a significant part of a lot of logistic change. I'm quite sure that the freight companies are already reviewing fuel surcharges and other stuff.
A lot of things going on. I would say starting on a realistic, more balanced base is a good starting point. If it goes better, I'm quite sure that we, as many other companies, still take more orders. But again, I wouldn't underestimate the impact of this lack of confidence. We're still seeing particularly on academic side. The clinical side overall feels quite strong. We don't have the strongest respiratory season in the world right now, so there's no incremental tailwind. Now, QIAGEN specific, have in mind, of course, we are fighting in the first half also some headwinds from the discontinuation of, NeuMoDx and DIALUNOX.
That will fade away. Just that by itself will give us 200 basis points more growth in the second half compared to the first half. We also made important launches this year. As you know, we are launching threw new machines on sample prep. Two already on the market, so there's no launch risk on that. Quite obvious that they will generate more revenues in the second half than the first half. Also that will overall give us a step up of 150 basis points from new products on the sample prep side, 50 basis points from other launches. I think there's good reasons to believe that we see an acceleration. Nevertheless, we're not in easy environment right now.
Yeah. On the academic government environment, you touched a little bit on that. You know, we talked about how last year you had this second half weighting. I mean, last year was like a total freakout, I guess, from everybody when they saw that budget cut 40%. We don't have that this year. What we've seen is that the budgets are still slow to release. Like we're at AGBT, and I think that the sentiment there was that at least researchers felt that, "Okay, at least I'm gonna have my job. I'll figure out when I get my money later." That's like the incremental positive that we got. Are you getting that same type of feeling from your customers?
Yes and no. I would say the good news for us is you have seen that last year we were also not really much affected on the consumable side from all the shutdowns and the budget things because our products are typically products which are very resilient. As long as you go to the lab, you need our products because otherwise you can't do anything.
Yeah.
We have felt it mostly or the significant part actually on the instrumentation part. Of course, there is this level of uncertainty, which as I said before, will take some time before it moves away. It's actually also different in the U.S. than I think that is in Europe. European research budgets are actually moving quite well along, which as you know, is important for us as well. It could be more stable, but we're still moving in the right direction.
On the U.S. side, are you seeing? Is this kind of just a continuation of existing projects, or are you starting to get bids for new project starts or new ideas?
The good news is what we're really seeing is picking up for us is requests for quotes for the new instruments. You see that people are at least expecting money. They're doing their due diligence work. They want to have demos. That helps us also to get, I would say, more optimistic for the second half of the year, because you wouldn't do that if you wouldn't be somewhat optimistic because there's other things you could focus on.
On those launches, I mean, you have the QIAsprint or the QIAsprint, the QIAmini.
Yeah.
You know, the first update to QIAsymphony in a long time. Kind of walk through the genesis of and where these new boxes are gonna fit within the workflow and.
Yeah. Clearly three important launches for us.
Yeah.
As I said, QIAsymphony is on the market, QIAsprint is on the market, QIAmini will be end of the year. Probably not much contributing revenues for this year, but, probably more important for 2027. Impact to the financials will be different. As you said correctly, QIAsymphony, of course, is a well-known instrument for QIAGEN, but now we have a major new release, which has a lot of features which old machines doesn't have, from continuous loading, random access, 30% more capacity on a lower footprint. As you know, we have a lot of significant customers who growing 20%, 30%, and they are clearly in desperate need of new sample prep machines.
If you can more or less offer them now new machines which are higher throughput on the lower footprint, is exactly what they're looking for. We have, I would say, good order intake on that. This will generate particular instrumentation revenues. It will take some time before this generates incremental consumable revenues because these machines, which we are probably replacing other Symphonies, are very much utilized. Over time, it will generate more throughput. Very different on the QIAsprint . QIAsprint is a high throughput machine. Here, QIAGEN doesn't have any footprint at all because we have never been in that sub-segment.
While we are, I would say, the leading market player if it comes to sample prep, it's more than 60% footprint in the kit market, we have never been in that sub-segment. I would think here we will see both significant inflow of revenues from the new instruments and of course every kit is also an incremental kit what we're selling. I think that is something what for sure will have the largest financial impact on the sample prep side, not only for this year, but probably also midterm. Last but not least, the QIAmini, again, a very different instrument. Rather an instrument where we are expecting to replace manual work.
The way it should work is, again, we haven't set a price point yet, but let's assume you can now buy a walk-away instrument for $3,000-$5,000. As I said before, most analysts think you have a similar number, Luke, except that we have a 60% market share in sample prep. Typical setup in a lab is that you have 10– 15 different applications. Let's assume you have 10, six coming from QIAGEN. Now, instead of using them manually, you can use an automated walk-away solution, break even in less than 12 months. Over time, we expect these customers ask themselves, "Why I'm still doing four others manually if I can have a walk-away solution?"
Particularly on days where everybody feels a bit squeezed, money is a bit limited. I do think that's a nice addition to our full menu. That's also a reason why we expect that our mid or long-term growth rate for sample prep should be significantly up. Again, this year, as you know, it's probably somewhere between 9% and 10% growth rate, but of course, that includes the $40 million from the Parse acquisition. If you take that out, we are still probably somewhere between 4% and 5%, which is a significant step forward from the underlying, let's say, 2%+ we had in the past for our single largest product.
In addition, being the CFO, it's clearly also important, and not a surprise, that sample prep is probably one of our most profitable products as well. So that also will have a, I would say, a good impact on our overall margin, probably 27% and forward.
On the QIAsprint, with the high throughput, right? When you think about, I'm thinking more about diagnostic labs and liquid biopsy applications. How scalable is this to get into if there's like large scale, you know, genomics population studies to single-cell, you know, again, 'cause you're the first layer of that whole biology stack. Do you need to unlock that part of the market?
The QIAsprint is mainly targeting our research customers.
Okay.
High throughput sample preparation for our research customers. You're right, the QIAsymphony Connect we have in particular developed for our liquid biopsy customers. Full sample traceability, very important, in clinical applications. It has a superior extraction performance due to a slight technology switch. Even in samples where you do not have a lot of material. You can purify that very easily with the QIAsymphony Connect. We particularly follow the strong growth of our liquid biopsy customers for the QIAsymphony Connect development. The QIAsprint, this is really high throughput mainly for research applications.
Okay, that's helpful. Then back to where you were talking about the profitability on the incremental. With new instruments, typically you know from a mix perspective, that was always a headwind obviously versus your much higher margin consumables, and that obviously hasn't changed. It's more of a question of, you know, from the new instruments coming out versus what we had seen in the past, is can we assume a better drop through from that in higher instrument mix, or is this gonna be something like we'd seen in past launches?
As you know, we do have a midterm target of 31% adjusted EBIT margin for 2028, and I think we're being quite vocal about that, we are going to increase that target going forward. In brackets, I only have to wait for a new CEO. He should review what he has to deliver, but of course, we internally developed the numbers, signed it up, so we're happy to release. It's just fair that whoever comes in has a chance to review that and might even up it. I don't know.
Yeah.
We will see that, but we feel comfortable that we have potential to increase it. A significant part of that, I would say, expansion of profitability, again, from more or less the 29.5% we had last year, is clearly also that we do expect gross margin improvement. That is driven by a couple of factors. One factor is that we expect also the consumable number and sample prep to grow. As you said correctly, overall, we have a healthy instrumentation gross margin, better than most other companies, but of course, it is not to the same level than our consumables.
That's probably also the reason why this year it stays more or less a bit flattish, goes up a bit, but not a large change, and that comes in next year. There's of course other initiatives as well, in particular also QIAstat will drive cost margin improvement because right now we're here underutilization. Of course, if that product continues what we strongly believe, 10%+, that should help us to grow into that and therefore reducing our standard costing. On top of that, we have 40, what we call QIA initiatives, QIA efficiency initiatives, where we tackle a lot of different areas in terms of margin improvement.
It has to do with, on the one hand side, rolling out our new ERP system. As you know, historically, we had two separate SAP systems, one for Europe and Asia, one for the U.S. Now we bring it to the new S/4HANA system on a global basis, so there's a lot of end-to-end work integration, which of course makes a significant difference for any larger organization. We also still have opportunities to shut down smaller sites and locations to integrate them into our larger hubs, which again, will drive efficiencies quite significantly going forward.
Okay. On that LRP, you talked a little bit on that, but on the growth perspective, you guys talk about some shared dynamics there on QuantiFERON. This is one of your key pillars of growth. I think that your position in that market is well understood, but there's always the bogey of competitive dynamics. The bigger customers in diagnostics world. Give us an update on, like, how you guys are planning for that.
Okay.
Anything you wanna walk through. It's a very niche market set, right? It's very fragmented. Where you think that you'll be able to?
Okay. I think first and foremost, everybody has to understand that still 60% of the market is still a 120-year-old skin test, right? Even that 120-year-old skin test market is growing 4% as global population is growing, as more mandatory testing getting required, back-to-school testing, healthcare worker testing. The market is growing. Second is that market was always competitive. People, for good or better reason, always believe there's only QIAGEN in the market. There's other companies in the market, very serious clinical companies as well, right? I'm not sure why somebody might believe one is better, a better competitor than the others. I would say we've fought them all quite significantly over the last couple of years.
Yes, we clearly have the leading market share, but what probably also has to do is that we never stand still. We improve the product. We have now launched the fourth generation. As we all know, the fifth generation is coming at some point. We made, particularly this year, significant steps forward in terms of automation. We just released weeks ago new automation steps which increased 75% of throughput. That is hard to catch for anybody going out.
Most important, we worked with our customers over the last two years to embed them into, like, three, four years contracts, which I think is a win-win situation because at the end of the day, we shouldn't forget also QuantiFERON is not only for us, but also for a lot of our customers. If not for most of our customers, a significant product with significant profitability. The question is, why should you change it? You know, Luke, you know that. Have you ever heard in the last 15 years any issue with the QuantiFERON kit, with the QuantiFERON automated system?
No. It has worked seamlessly. Changing a product on a clinical side, which is working perfectly, is a risk. The one learning we all have in our industry, that's true for a supplier, that's true for a lab as well, is once you can't deliver, you are in deep trouble, right? Putting that as a risk, we'll see how it works. We feel well prepared. There's also not a large update on that. As you know, some of the competitors pushed their launches out in the U.S, for some time going forward. Let's see what happens.
For us, I think it's even better if the launch happens soon because that's the only way that we can prove that we're still around once they're on the market.
Yeah. All right. I guess from here, the last couple minutes, I wanna talk about the recent Parse acquisition. You guys, it talked about this coming in above the $40 million target that you're having. How much of that is due to just benefiting from your commercial organization and overall just being able to scale the business, versus anything that you guys have done internally from a, you know, ease of use or workflow simplification perspective?
I think the key contribution really comes from the Parse technology itself, first of all. We closed the deal in December last year. One of the key reasons why we acquired Parse is the ease and the rapid adoption of the technology. It does not require an instrument if you don't want to, and it's virtually exponentially scalable. The most attractive part of the single-cell research market is currently the part where you can generate large datasets of millions of cells. This is where the trend is going and where we believe Parse has the best solution on the market. This is really that part of the single-cell market we thought is most attractive.
Of course, over time, you're right, we expect with our commercial reach to generate revenue synergies in that regard. We're also doubling down on R&D, which is one of the reasons why we guide for a flat adjusted operating income margin in 2026 because we really double down on R&D for Parse. This is currently the market segment which is growing the strongest.
Yeah. Okay. That would be, as we think about where QIAsprint kind of fits in within that research market, would that be one of those applications where it's an easy fit for you or no?
I wouldn't see it this way. If you think of Parse and where the money's coming from, so pharma companies are currently really exploring that field, which is driven by a few factors. You can generate large datasets. You can store and interpret the data also with AI-enabled solutions, and you can gain biological insights. If you think of a virtual cell modeling structure, this is currently where the money goes into it. If you think of the Parse technology itself, you basically use the cells as in the incubation areas, and you do the reverse transcription in the cells. The QIAsprint is really for sample preparation.
Yeah. Okay. That makes sense. I guess from here, when we're thinking about, you talked about guiding to the flat margins, but there's still a pretty healthy step up from your 1Q all the way up to 4Q. Can you just walk through quickly on the buckets there?
In terms of revenues or in terms of profitability?
The profitability side.
Again, profitability, as I said, of course, one thing comes with the scale of revenues is underlying impact. Second, which is I think it's very clear that, Parse right now is diluted to our transaction. Just in Q1 is $0.02 dilution coming from. Because, of course, margin for Parse is actually quite healthy. We are doubling down on R&D because we do believe we do have the leading franchise and again, we have probably this year at least $40 million. I think our probably only competitor in the market probably has around $4 million in that kind of a field.
So there's a nice opportunity for us to set the standard for the future, and this is exactly what we want to do. More important is that we are clearly driving forward some of our efficiency projects as well. That is a significant driver for profitability as well. Not helpful right now in the first half of it is, of course, the whole tariff implementation. It's going to annualize mid of this year, so that should be also being quite helpful at the end of the day. We might all get a big check, I'm not sure how that ends. Again, that's probably a discussion for another day. Margin improvement, I'm quite sure that we have better margin this year than we have guided yet.
Okay, great. Thank you.
Thank you. Thank you.