On February 5, 2020 QIAGEN N.V. (NYSE: QGEN; Frankfurt Prime Standard: QIA) reported results of operations for the fourth quarter and full-year 2019 (Press release, Qiagen, FEB 4, 2020, View Source [SID1234553871]).

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"QIAGEN’s performance for the fourth quarter and full-year 2019 delivered on the updated outlook we had set for sales growth, and exceeded the targets set for adjusted earnings," said Thierry Bernard, Interim CEO and Senior Vice President, Head of Molecular Diagnostics Business Area of QIAGEN.

"We continue to focus on attractive growth opportunities from the Life Sciences to Molecular Diagnostics and are determined to make QIAGEN a stronger and more differentiated leader. We have set balanced targets for 2020 that capitalize on growth opportunities in our Sample to Insight portfolio while acknowledging challenges, in particular the weakness in our China business that began in mid-2019 and expectations for a continued reduction in revenues from companion diagnostic co-development projects due to the 2019 changes in our next-generation sequencing strategy. While we are currently seeing an increase in global demand for instruments and consumables that can be used for infectious disease testing for the coronavirus, we remain cautious and have not included it in our outlook for 2020 given the uncertainties and disruptions to macro business trends in China at this time," Bernard said.
"We have reallocated resources to support business expansion, while also enabling us to set an outlook for adjusted earnings per share to grow at a significantly faster rate than sales growth. This is supported in particular by the decision to discontinue development of our own NGS instruments but also by the efficiency measures and resulting gains that were announced in 2019," said Roland Sackers, Chief Financial Officer of QIAGEN. "We are reaffirming our commitment to improving operating efficiencies and to maintaining disciplined capital allocation to support growth and increase returns."

Please refer to accompanying tables for reconciliation of reported to adjusted figures.
CER – Constant exchange rates. Tables may have rounding differences. CER sales results (Q4 2019: $417.9 million, FY 2019: $1.566 billion)
(1) Weighted number of diluted shares (Q4 2019: 231.3 million, Q4 2018: 232.4 million); (FY 2019: 232.4 million, FY 2018: 233.5 million).
Reported diluted EPS for FY 2019 based on basic shares of 226.8 million. Percentage changes are to prior-year periods.

(1) Includes companion diagnostic co-development sales (Q4 2019: $9 million, -55%, -54% CER, FY 2019: $42 million, -28%, -27% CER)
Tables may have rounding differences
(1) Asia-Pacific / Japan sales excluding China (Q4 2019: 0%, 0% CER and FY 2019: +2%, +4% CER)
Tables may have rounding differences. Percentage changes are to prior-year periods. Rest of world represented less than 1% of sales.

Fourth quarter 2019 results
Total net sales rose 3% to $413.5 million in the fourth quarter of 2019 from $403.2 million in the same period of 2018. Growth was 4% at constant exchange rates (CER) as currency movements against the U.S. dollar had a negative impact of one percentage point. The acquisition of N-of-One (acquired in January 2019) provided revenues of about $1 million in the fourth quarter of 2019.

Gains in consumables and related sales (+7% CER / 88% of sales) more than outweighed weaker instrument revenues (-16% CER / 12% of sales). Amid solid placements of the QIAsymphony and QIAstat-Dx systems, lower instrument revenues reflected a sharp decline in instrument sales of the GeneReader NGS System as well as a shift to reagent-rental agreements for which revenues are generated through consumables over the rental contract period. The Americas and Europe / Middle East / Africa regions grew at solid single-digit CER rates, while the Asia-Pacific / Japan region fell 4% CER due to an ongoing decline in China, mainly due to a slowdown in orders from distributors and the end of the China NGS joint venture, and weaker sales trends in Japan. Among the customer classes, Molecular Diagnostics (+3% CER / 48% of sales) was fueled by double-digit CER gains in consumables for use in universal NGS applications, along with solid gains in consumables used for Precision Medicine and companion diagnostics. Sales of the QuantiFERON-TB test rose 1% CER on a combined high-single-digit CER growth rate in the Americas and EMEA regions but lower sales in Asia, particularly due to China and Japan. Revenues from companion diagnostic co-development projects (-54% CER / $9 million) declined sharply as expected due to the decision to end companion diagnostic projects based on the GeneReader system in light of the new clinical NGS agreement with Illumina announced in October 2019. Sales in Life Sciences (+4% CER / 52% of sales) benefited from good CER gains in consumables and related revenues, in particular from the universal NGS portfolio, the QIAcube Connect instrument and QIAGEN Digital Insights as well as the Americas region, which more than offset lower instrument sales. Pharma (+5% CER / 19% of sales) was led by high-single-digit CER growth in the Americas and Asia-Pacific / Japan regions, while Academia / Applied Testing (+3% CER / 33% of sales) also showed solid growth trends in the Americas, in particular the U.S., against a softer performance in the EMEA region.

Operating income declined to $80.0 million in the fourth quarter of 2019 from $88.3 million in the same period of 2018. Results for the fourth quarter included pre-tax charges of $24.9 million related to the decision announced in October 2019 to discontinue NGS instrument development programs and prioritize resource allocation. Adjusted operating income – which excludes purchased intangibles amortization, long-lived asset impairments and other items such as business integration, acquisition-related costs, litigation costs and restructuring – rose 16% to $138.6 million (33.5% of sales) in the fourth quarter of 2019 from $119.4 million (29.6% of sales) in the 2018 period.

Net income was $44.9 million in the fourth quarter of 2019, or $0.19 per diluted share (based on 231.3 million diluted shares), compared to $60.9 million, or $0.26 per diluted share (based on 232.4 million diluted shares) in the same period of 2018. Adjusted net income rose to $110.1 million, or $0.48 per diluted share ($0.48 CER), from $93.7 million, or $0.40 per diluted share, in the prior-year quarter. Results for the fourth quarter of 2019 included an after-tax charge of $0.12 per share (based on 231.3 million diluted shares) for restructuring measures.
Full-year 2019 results
Total net sales grew 2% at actual rates to $1.526 billion in 2019 compared to $1.502 billion in 2018, and rose 4% CER as currency movements against the U.S. dollar had a negative impact of two percentage points. The acquisition of N-of-One provided revenues of about $5 million for full-year 2019.
Operating loss was $26.1 million in 2019 compared to operating income of $266.6 million in 2018. Results in 2019 included $301.8 million of pre-tax charges related to the decision to discontinue NGS instrument development programs and prioritize resources. Adjusted operating income – which excludes purchased intangibles amortization, long-lived asset impairments and other items such as business integration, acquisition-related costs, litigation costs and restructuring – rose 5% to $421.8 million (27.6% of sales) from $403.3 million (26.9% of sales) in 2018.
The net loss for 2019 was $41.5 million, or a net loss of $0.18 per share (based on 226.8 million basic shares) compared to net income for 2018 of $190.4 million, or $0.82 per diluted share (based on 233.5 million diluted shares). Adjusted net income for 2019 was $332.8 million, or $1.43 per diluted share ($1.46 CER), compared to $311.9 million, or $1.34 per diluted share, in 2018. Results for the 2019 period included an after-tax charge of $1.01 per share (based on 232.4 million diluted shares) for the restructuring measures.
Balance sheet and cash flows

At December 31, 2019, cash, cash equivalents and restricted cash were $629.4 million compared to $1.16 billion at December 31, 2018. Net cash provided by operating activities in 2019 was $330.8 million compared to $359.5 million in the year-ago period. Free cash flow was $212.9 million compared to $249.7 million, as purchases of Property, Plant and Equipment rose to $117.9 million (7.7% of sales) from $109.8 million (7.3% of sales) in 2018. Net cash used in investing activities was $222.3 million in 2019, including $125.0 million for the acquisition of digital PCR assets, compared to $211.4 million in 2018. Net cash used in financing activities was $639.1 million for 2019, which included $430.0 million for redemption of the 2019 convertible notes, $73.0 million in repayments during the fourth quarter for a tranche of the U.S. private placement and $74.4 million for share repurchases. This compares to net cash provided by financing activities of $360.4 million in 2018, which included $494.9 million from debt issuances during the year, partially offset by $104.7 million for share repurchase programs.
Sample to Insight portfolio update
QIAGEN is focused on growth opportunities for its Sample to Insight portfolio across the continuum of molecular testing from basic research to clinical healthcare. Among recent developments:

The QIAsymphony automation system surpassed 2,500 cumulative placements at the end of 2019, supporting solid single-digit CER growth in related consumables. QIAGEN is adding applications to this modular system, including a newly launched kit to automate microbiome sample preparation, further confirming QIAGEN’s leadership in sample technologies.

Automation of QuantiFERON-TB Gold Plus (QFT-Plus) on DiaSorin’s widely used LIAISON platforms gained U.S. regulatory approval in November 2019, and the two companies launched U.S. commercial activities for this new processing option.

QIAGEN’s next-generation sequencing (NGS) solutions continued to expand in 2019, with sales totaling over $180 million.

The QIAstat-Dx system is approaching 1,000 cumulative placements and reached $15 million of sales in 2019. The U.S. submission for regulatory approval of a new gastrointestinal panel was completed in late 2019, while a new meningitis panel remains on track for launch in Europe in the first half of 2020.

More than 660 placements of the QIAcube Connect low-throughput sample processing instrument were completed in 2019, primarily targeting Life Sciences customers. The new automation solution builds on over 8,000 placements of the first-generation QIAcube system. The QIAcube connect and QIAsymphony automation systems together provide a full range of options for sample processing.

The launch of QIAcuity, the new nanoplate-based digital PCR system, is on track for mid-2020. QIAGEN is developing this series of differentiated new platforms to make cost-efficient, highly versatile digital PCR technology available to Life Sciences laboratories worldwide.

In Precision Medicine, a new collaboration with Amgen was announced in January 2020 with the aim to develop tissue-based companion diagnostics for Amgen’s investigational new therapy in non-small cell lung cancer targeting KRAS G12C, a genetic mutation and common cause of cancer.

Late in the fourth quarter, QIAGEN completed the divestment of its NeXtal Biotechnologies line of structural biology products, which had sales of less than $5 million in 2019.
Measures to prioritize resource allocation implemented
QIAGEN implemented a set of initiatives announced in October 2019 as part of a new orientation for the NGS portfolio and measures to prioritize resource allocation. These steps include a new 15-year partnership with Illumina to broaden the global availability and use of NGS-based in vitro diagnostic (IVD) kits to deliver insights for clinical decision-making, including companion diagnostics for precision medicine. QIAGEN also announced in October that it was discontinuing development of new NGS instruments and implementing other measures, resulting in a pre-tax charge of $276.8 million in operating results (net loss of $0.89 per share) for the third quarter of 2019, and a pre-tax charge of $24.9 million in operating results (net loss of $0.12 per share) for the fourth quarter of 2019. QIAGEN currently anticipates additional pre-tax charges of about $20 million in the first half of 2020 from these measures.
Outlook
QIAGEN announced its outlook for full-year 2020, with net sales expected to grow about 3-4% CER and adjusted diluted EPS to be about $1.52-1.54 CER per share. The sales outlook takes into consideration overall growth in QIAGEN’s Sample to Insight portfolio, offset by significant headwinds from an anticipated double-digit CER decline in companion diagnostic co-development revenues due to the new orientation for QIAGEN’s NGS strategy announced in October 2019. The outlook also takes into consideration expectations for lower sales in China in the first half of 2020 mainly due to the slowdown in orders from distributors that began in mid-2019 and the end of the China NGS joint venture announced in 2019. It does not take into account any exceptional sales of products that can be used for testing related to efforts to contain the coronavirus outbreak. This outlook also does not take into consideration any future acquisitions, including the potential acquisition of the remaining stake in NeuMoDx Molecular, Inc., for approximately $234 million through an option that expires in mid-2020.
Based on exchange rates as of January 31, 2020, currency movements against the U.S. dollar are expected to create an adverse impact of about one percentage point on net sales growth at actual rates for full-year 2020, and an adverse impact of $0.01 per share on adjusted EPS.

For the first quarter of 2020, net sales are expected to grow about 2-3% CER. Adjusted diluted EPS is expected to be $0.28-0.29 CER. Based on exchange rates as of January 31, 2020, currency movements against the U.S. dollar are expected to create an adverse impact of about 1-2 percentage points on net sales growth at actual rates, and an adverse impact of up to $0.01 per share on adjusted EPS.
Quarterly results presentation, conference call and webcast details
A presentation with additional information can be downloaded at View Source A conference call is planned for Wednesday February 5, 2020, at 15:00 Central European Time (CET) / 9:00 Eastern Standard Time (EST). A live webcast will be made available at this website, and a replay will also be made available after the event.
Use of adjusted results
QIAGEN reports adjusted results, as well as results on a constant exchange rate (CER) basis, and other non-U.S. GAAP figures (generally accepted accounting principles), to provide additional insight into its performance. These results include adjusted gross margin, adjusted operating income, adjusted operating income margin, adjusted net income, adjusted diluted EPS, adjusted tax rates and free cash flow. Adjusted results are non-GAAP financial measures that QIAGEN believes should be considered in addition to reported results prepared in accordance with GAAP, but should not be considered as a substitute. Free cash flow is calculated by deducting capital expenditures for Property, Plant & Equipment from cash flow from operating activities. QIAGEN believes certain items should be excluded from adjusted results when they are outside of ongoing core operations, vary significantly from period to period, or affect the comparability of results with competitors and its own prior periods. Furthermore, QIAGEN uses non-GAAP and constant currency financial measures internally in planning, forecasting and reporting, as well as to measure and compensate employees. QIAGEN also uses adjusted results when comparing current performance to historical operating results, which have consistently been presented on an adjusted basis. Reconciliations are included in the tables accompanying this report.