QIAGEN (QGEN +0.79%) continued its slow-but-steady revenue growth in the third quarter, beating its guidance for 6% growth at constant exchange rates. The diagnostic test and lab supplier also continued its move to become more efficient with earnings growing even faster, beating management's quarterly guidance as well.
QIAGEN results: The raw numbers
| Metric | Q3 2018 | Q3 2017 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $377.9 million | $364.0 million | 3.8% |
| Income from operations | $77.0 million | $63.9 million | 20% |
| Earnings per share | $0.26 | $0.21 | 24% |
Data source: QIAGEN.
What happened with QIAGEN this quarter?
- At constant exchange rates, the revenue growth would have been 6.5%, while adjusted earnings would have come in at $0.36 per share, 12.5% higher than the year-ago quarter. The revenue growth is decent enough considering QIAGEN is facing headwinds after exiting markets in China in late 2017 and disposing of its veterinary testing portfolio earlier this year.
- Instrument sales buoyed overall revenue growth with sales up 11% at constant exchange rates. Unfortunately, instruments only make up 12% of overall sales, so they don't move the overall needle much. Of course, all the QIAsymphony, GeneReader NGS, and QIAcube instruments placed in the third quarter should drive consumable sales in future quarters.
- Sales in the Americas and in the Asia-Pacific, Japan region were up 9% and 11% at constant exchange rates, respectively, making up for a 1% increase at constant exchange rates for the Europe, Middle East, and Africa region. The lackluster growth in the latter region was due to the aforementioned exit of the veterinarian business as well as timing of larger orders.
- Looking at individual products, the QuantiFERON TB tuberculosis test continues to grow at a solid mid-teens rate when measured at constant exchange rates. Next generation sequencing sales are poised to break the company's goal of more than $140 million this year, up from about $115 million last year. And QIAGEN launched the QIAstat-Dx, which is designed to run multiple simultaneous tests to help diagnose complex diseases, in Europe.
- During the quarter, QIAGEN signed a partnership with NeuMoDx Molecular to distribute its systems that test for disease using polymerase chain reaction (PCR). The deal also comes with an option to acquire the privately held company at a predetermined price of approximately $234 million for the 80.1% of the company QIAGEN doesn't already own.
Image Source: QIAGEN.
What management had to say
Peer Schatz, QIAGEN's CEO, explained why the company got into the PCR testing market with the NeuMoDx distribution and acquisition deal: "It was a strategic imperative for us to have a solution in that market to ensure the efficient scale of our sales channel and also the ability to address all kinds of more integrated disease management solutions. Real-time PCR and a higher volume testing is absolutely critical for that to happen."
Even given the desire to get into PCR testing, there are multiple companies in the space that QIAGEN could have acquired, but Schatz likes NeuMoDx's micro channel technology compared to what's currently being used:
Most systems in the market, and also those currently in the pipelines, simply use an automated liquid handling approach using standard size consumables, but replicating manual steps creates higher automation complexity and slows down the overall process.
On the other side, using a fully integrated, microfluidic approach for both sample technologies and assay technologies in one cartridge is novel in this space and has very significant performance advantages. For example, NeuMoDx systems show dramatically faster time to result performance with times as short as 40 minutes compared to existing platforms in the market taking around three to four hours. Improved time to result is crucial as it allows labs to achieve much faster sample turnaround and to deliver many more results to physicians in a much shorter time and many more results within the same day.
Looking forward
Management kept its 2018 revenue guidance intact while increasing its goal for adjusted earnings to a range of $1.33 to $1.34 per share at constant exchange rates, up from previous guidance of $1.31 to $1.33 per share.
For the fourth quarter, investors should expect 6% to 7% revenue growth at constant exchange rates, which includes about $5 million in sales of QIAstat-Dx instruments and products. The bottom line is expected to come in at $0.39 to $0.40 per share on an adjusted basis at constant exchange rates.
Looking further ahead, the QIAstat-Dx system will be up for Food and Drug Administration approval next year, which should drive sales growth in the second half of the year. And QIAGEN is on target to reach its goal of $300 million in annual sales of the QuantiFERON TB test in 2020.
