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QIAGEN (QGEN) Q3 Earnings Beat Estimates, FY20 Guidance Up

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QIAGEN N.V.’s (QGEN - Free Report) third-quarter 2020 adjusted earnings per share (EPS) were 58 cents, up 61.1% year over year (up 61% at constant exchange rate or CER). Moreover, the figure surpassed the Zacks Consensus Estimate by 5.5%.

Notably, the bottom line matched the company’s preliminary adjusted EPS projection of 58 cents and the high end of the outlook for about 52-58 cents at CER, announced on Oct 13, 2020.

The adjustment excludes the impact of certain non-recurring items like business integration, acquisition and restructuring related expenses, and purchased intangibles amortization expenses, among others.

GAAP EPS for the quarter was 7 cents per share, improving from the year over year loss per share of 71 cents.

Revenues in Detail

Net sales at actual rates in the third quarter rose 26.4% on a year-over-year basis to $483.8 million (up 26% at CER). Also, the top line exceeded the Zacks Consensus Estimate by 7.6%.

Notably, the top line was in line with the company’s preliminary results.

Robust sales were recorded on significant demand for testing solutions used in the COVID-19 pandemic and improving demand trends in other business arms of the company. However, there were weaker customer demand trends in non-COVID products.

Geographical Revenue Update

In the quarter under review, sales from the Americas (47% of sales) totaled $227 million, up 18% on a reported basis (up 19% at CER).

Revenues from Europe, Middle East and Africa (34% of sales) rose 44% reportedly (up 40% at CER) to $164 million.

Further, revenues from Asia-Pacific/Japan (19% of sales) rose 22% year over year on a reported basis (up 21% at CER) to $92 million.

QIAGEN N.V. Price, Consensus and EPS Surprise

QIAGEN N.V. Price, Consensus and EPS Surprise

QIAGEN N.V. price-consensus-eps-surprise-chart | QIAGEN N.V. Quote

Segmental Details

As of the third quarter of 2020, QIAGEN has two major customer classes – Molecular Diagnostics (that includes human healthcare including Precision Medicine and companion diagnostics) and Life Sciences (that includes Pharma and Academia/Applied Testing).

Molecular Diagnostics (representing 49% of net sales) revenues were up 29% on a reported basis (up 30% at CER) to $237 million.

Life Sciences (51% of total revenues) reported revenues of $247 million, up 24% on a reported basis (up 22% at CER).

Sales derived from Applied Testing/Academia rose 31% on a reported basis (up 29% at CER) to $160 million. Pharma sales also improved 13% on a reported basis (up 11% at CER) in the second quarter to $87 million.

Operational Update

Adjusted gross profit in the quarter under review rose 23.2% to $336.5 million. However, adjusted gross margin contracted 180 basis points (bps) to 69.6% due to a 34.3% rise in adjusted cost of revenues (adjusting for acquisition-related intangible amortization) to $147.3 million.

The sales and marketing expenses of QIAGEN rose 5.3% to $102.2 million year over year. However, the research and development expenses declined 13.7% year over year to $36.1 million whereas the general and administrative expenses fell 2.9% year over year to $27.9 million.

Adjusted operating income (excluding items like acquisition-related intangible amortization, restructuring and integration, asset impairment) rose 61.5% year over year to $170.3 million in the third quarter. Adjusted operating margin expanded a huge 765 bps to 35.2%.

Financial Update

QIAGEN exited the third quarter of 2020 with cash and cash equivalents, and short-term investments of $501.9 million, up from $744.2 million at the end of the second quarter. Long-term debt (including current portion) was $1.73 billion in the third quarter of 2020, compared with $1.71 billion in the preceding quarter.

Cumulative net cash flow from operating activities at the end of the third quarter of 2020 was $188.1 million compared with $221.4 million a year ago.

Capital expenditure in the reported quarter was $86.7 million, up from the year-ago $86.4 million. The company reported free cash outflow of $101.3 million at the end of the third quarter compared with $135 million a year ago.

The company spent $74.4 million on its share repurchase program and $430 million for redemption of the 2019 convertible notes over the first nine months of 2020.

Outlook

QIAGEN is upbeat about its progress over the past nine months and has accordingly raised its 2020 outlook.

The company expects full-year sales growth of around 20% at CER from the 2019 level of $1.53 billion (earlier expectation was 15-18% growth at CER).

For 2020, the company currently expects adjusted EPS to grow about 45% CER to be in the range of $2.07-$2.09 CER from $1.43 in 2019 (prior expectation was at least 40% growth in adjusted EPS to be at least $2.00 at CER). The Zacks Consensus Estimate for full-year adjusted EPS is pegged at $2.08.

The company has also provided its fourth-quarter expectations.

Fourth-quarter net sales growth is expected to be 24-27% at CER. Adjusted EPS is expected in the range of 58-60 cents at CER. The Zacks Consensus Estimate for fourth-quarter adjusted EPS is pegged at 63 cents.

Our Take

QIAGEN exited the third quarter of 2020 with better-than-expected revenues and earnings. It registered revenue growth across all geographies and both its operating segments in the third quarter. The company’s high level of sales for product groups used in the COVID-19 pandemic response drove the top line. The launch of QIAprep& Viral RNA UM Kit, which integrates ultra-fast sample preparation and polymerase chain reaction (“PCR”) detection in one single kit, in October; and the acquisition of the remaining 80.1% of diagnostics instruments company NeuMoDx Molecular, Inc., in September, look encouraging.

Launch of an antigen test (QIAreach SARS-CoV-2 Antigen Test) and an antibody test (QIAreach Anti-SARS-CoV-2 Total Test) are other notable developments during the quarter that buoy optimism for the stock. Strength in customer adoption of QIAcuity digital PCR system and robust placements of new QIAcube Connectand the QIAcube HT high-throughput version look encouraging. Expansion of the adjusted operating margin and a raised full-year outlook are impressive.

On the flip side, the contraction in adjusted gross margin is concerning. Also, lower demand for non-COVID-19-related products is deterring.

Zacks Rank and Other Key Picks

QIAGEN currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. (WST - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #1 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently sports a Zacks Rank #1.

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