DiaSorin S.p.A. (DIA) Earnings Call Transcript

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the DiaSorin 9-Month 2026 Results Conference Call. [Operator Instructions] At this time, I would like to hand over the conference to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir.

Thank you, operator. Good morning, good afternoon. I'm going to make some initial remarks on the Q3 results and then our CFO, Alberto Donati, will take you through the numbers. Let me start saying that it was a good quarter. At constant exchange rate, the company delivered a growth of 8%, which is an acceleration compared to the previous quarters, mainly as a result of a few factors. When it comes to immunodiagnostics, we experienced mid-single-digit growth, 5%, which has been driven by a very strong, solid performance in Europe, plus 8%, with stabilization of testing volume and very good performance in North America when it comes to hypertension and our gastrointestinal product line. If now we go to molecular, molecular had an outstanding performance, double-digit growth, 11%, and in particular the LIAISON MDX, the targeted specialties continue to drive growth of this franchise, plus over 20% in the quarter. The multiplexing, PLEX plus VERIGENE, plus 36%. I'm going to comment on that. This is not clearly influenced at all by the respiratory season. And then we have growing placements of our NES platform. NES is the point-of-care platform that the company just launched a couple of months ago. Last but not least, good signs of growth from LTG, plus 19%, in particular life science and pharma customers, plus 21%. Now let me go through the technology dynamics to provide greater insight on the achievements, and let's start from the immunodiagnostic revenue. In the Q3 2026, the immunodiagnostic base business delivered, as I said, 5% growth, 6% growth excluding China, demonstrating the resilience of the core franchise of DiaSorin and the fact that we continue to be very strong and overperform in our specialty testing portfolio. When it comes to the drivers for each geography, in North America, we grew 5%, and this is clearly supported by the continued execution on the hospital expansion strategy and strong demand for our specialty testing. Specialty testing continues to perform as in the past quarter with, as I discussed, hypertension panel growth, strong growth over 20%, which has to do with the fact that a new set of guidelines have been approved recently in the U.S. and in Europe recommending the adoption of aldosterone and renin screening for hypertensive patients, really driving demand up from a clinical perspective. Together with the stool testing specialty that continue to deliver double-digit growth, 13%, specifically in the U.S. And this is because today we have almost an overwhelming market share. We've been adopted by all the major commercial labs and we've been adopted by all the major hospital systems in a market that today is growing because of the increased adoption of specifically the calprotectin test for IBD and IBS differential diagnosis. Europe had a very good quarter, 8%, confirming a healthy environment in immunodiagnostics, especially due to the fact that there has been a stabilization of testing volume, which has affected, as you know, the result in this region in the previous quarters. The TB assay was an important contributor in Europe, growing over 20%, and this is supported by the launch in December of our high-throughput version of the LIAISON QuantiFERON test, which has been very well received by the market, and today we converted over 80% of the customer base to this new, very powerful product. When it comes to the rest of the world, excluding China, it grew 3% with strong performance in Latin America, plus 16%; APAC direct, which is Australia and India, sorry, plus 7%, with Australia growing over 14%. So it's a geography that today for us is becoming very relevant, where we have a penetration which is close to 90% in the hospital market, so it's a great platform for DiaSorin. When it comes to export, we had a decline of 5% in line with quarter 2, and this is fundamentally due to the impact of the Middle East. As we have already discussed in the previous quarters, we need a stabilization of this area of the world in order for export to continue to -- revert to growth, although this segment for DiaSorin of the market is relatively small and so is not able to really affect the growth of the company in the direct geographies. China continues to show a negative trend when it comes to the reagent business. The overall business is better than the previous quarters, minus 12% compared to the minus 24% in the previous quarters, but this has mainly to do with the fact that we have been selling more instruments in this quarter, which is going to be good for the future of this business, but the reagent business continues to decline as an effect of the implementation of VBP. Now let's move to the molecular diagnostic revenues. Total molecular, as said, grew at constant exchange rate 11%, with a very strong quarter in our molecular diagnostic business, with growth accelerating significantly compared to the previous quarters. Please note that this growth has not been influenced positively -- actually, we will see that there has been a negative effect on the flu season, because fundamentally the flu season has not started yet. NES continues -- NES launch continues in the POL market. It's been very successful so far. Clearly, this is [Technical Difficulty] flu season, because it's the beginning and then we're going to be getting into the flu season. And so anticipating a possible question from some of you, we're not going to be disclosing the number of systems we installed because, as said, we're going to comment this at the end of the season, which is going to give a better view of the overall NES program. Looking at the different franchises in the molecular business, we have the LIAISON MDX franchise, which is roughly EUR 100 million in annualized revenues that, as you know, we always split in 3 subsegments: the targeted specialty, the targeted respiratory and the ASR business. The targeted specialty is roughly EUR 45 million in annualized revenues, continued to show a very strong growth as it happened in the previous quarter, 21% growth in the quarter and 28% in the 9 months. And this is clearly working very well for DiaSorin. It's a niche segment, very profitable, where a DiaSorin platform, the MDX, fits very well and continues to thrive. This business is fundamentally today a U.S. business. When it comes to the targeted respiratory, which today is approximately EUR 20 million of total annualized business, this franchise continues to suffer from the fact that the season so far has been disappointing, and in quarter 3 we continue to experience a decline, which is roughly around 30% of this business. Last but not least, our ASR business, which is fundamentally a business where we sell components to hospitals and labs to make LDTs, which I remind is a very profitable franchise, but by definition is flattish compared to previous year because today we feel the pressure in this segment of some of the products that we offer as ASR being now available to the labs through FDA-approved products provided by competition. So we have a trade-off here: we are losing some business to competitors, but we are winning more business because we continue to launch ASR applications. So I just want to remark, this is an extremely profitable business when it comes to molecular. Let's now go to the multiplexing franchise, which is roughly EUR 100 million of annualized revenues, and we typically split in 2 subsegments: the automated multiplexing and nonautomated multiplexing. The nonautomated multiplexing is -- let me start from that -- is legacy products, is declining strongly. It's partially been cannibalized by some of our automated platforms or lost to competitors because of pricing in this segment becoming very unattractive, especially in Europe, but continues to be, notwithstanding that, continue to be a very profitable business for DiaSorin. But what's key, as you know, for us is the automated business. For the automated business, which is a combination of VERIGENE I and LIAISON PLEX, we had a very strong performance in the quarter, plus 36%, and this has to do with the fact that we continue to expand our installed base. Let me remind you that this business is a U.S. business. We have just initiated the launch of the LIAISON PLEX in some targeted European countries, and the full launch is going to happen in Q1 next year. When it comes to the LIAISON PLEX in the U.S., from -- as said, the contribution of respiratory is very minimalistic, but we have a good installed base now and let's -- and we are waiting for the season to start. What we are seeing is that we have a pick up -- strong pick up of interest when it comes to the gastro panel, which has been launched in July in North America. So now we're starting to close deals around GI, and GI is the perfect example where flexing provide a lot of flexibility to customers to adopt different panels and maximize the clinical use for these products. We ended up quarter 3 with over 170 customers. I remind everybody that in June, I did comment on the fact that we had 150. Just to avoid misunderstandings, these are not individual customers, but a customer can be a whole hospital system with different hospitals that are actually receiving our platforms. So don't be deceived by the fact that we only increased the customer base by 20, it's -- at the end of the story, it's more than 20 accounts. The flex adoption continues to be very well received from the market, with the vast majority of our clients choosing flex versus fixed. 65% of new contracts are all signed now with flex and only 35% with fixed. And this demonstrates the fact that from a clinical point of view and from an economic point of view for customers, the mini-panel -- the flexibility around the mini-panel concept, it's a unique offering to the market the way DiaSorin is offering it, and is very well received. When it comes to customer split, obviously we are increasing our installed base in the hospital. Today, 90% of customers using our PLEX solutions are hospitals and only 10% are commercial labs. Notably, Quest is a very large account for DiaSorin; they selected our platform already at the end of 2025. But when I see now the funnel and the customers we're closing on a weekly basis, clearly these are more hospital systems. Now let me move to the LTG. Last but not least, the LTG did a phenomenal result in quarter 3, plus 19%. Let me remind everybody that this was expected and it has to do with calendarization of some of the orders because this is a B2B business. We are doing very well both in life science, which is roughly 50% of the total LTG -- in the quarter, life science grew 21%, which is actually demonstrating a recovery of this segment due to the fact that access to funding in research institutions has stabilized. By the same token, diagnostic clients, which is the remaining 50% of the business, had a very strong performance in the quarter, plus 17%. Again, don't be deceived by these percentages because it was expected. We believe that by year-end, LTG overall growth is going to be in the mid- to high single-digit. At this point, I'm turning the microphone to Mr. Donati, the CFO of DiaSorin, who's going to take you through the numbers.

Thank you, Carlo, and good morning, good afternoon, everybody, and thank you again for joining the DiaSorin Q3 2026 earnings call. So as usual, in the next few minutes, I'm going to walk you through the financial performance of the first 9 months of the year, and I will spend particular focus on the third quarter and will then eventually turn the line to the operator for the usual Q&A session. As already highlighted by our CEO, Carlo, Q3 2026 is marking a clear acceleration on revenues, and we had an adjusted EBITDA margin that reached 34% at constant exchange rate in the quarter, confirming the improvement that we anticipated, and so we are remaining confident in achieving the full year guidance for 2026. Moving to revenues, the 9 months of 2026 came in at EUR 910 million, which is up 3% at constant exchange rate and 1% at current exchange rate, reflecting an overall total FX headwind of around EUR 15 million for the first 9 months of the year. If we look at Q3, revenues were EUR 308 million, up 8% at constant exchange rate versus the same quarter of 2025 and 10% at current exchange rate. In the quarter, in Q3, the FX turned into tailwind of EUR 5 million. As a reminder, this is compared to the headwind that we had in Q1 for EUR 17 million and in Q2 for EUR 3 million. So overall, the Q3 performance is basically reflecting the fading of the extraordinary items that penalized Q1, the strong momentum of our direct markets in North America and Europe that Carlo was commenting on earlier, the recovery of the life science and pharma, as well as a positive currency translation effect as just mentioned. Moving to profitability, the adjusted gross profit for the first 9 months came in at EUR 588 million, which is plus 1% at constant exchange rate compared to the same period, 9 months of 2025, roughly flat at current exchange rate. Here, the overall FX headwind is around EUR 9 million, and the adjusted gross margin was 65% of revenues at both constant and current exchange rates. The Q3 adjusted gross profit was EUR 198 million, around 64% of revenues, benefiting from a solid business performance and disciplined cost management. The operating expenses for Q3, again, adjusted operating expenses, amounted to around EUR 118 million, roughly 38% of revenues. And this is actually a 4% increase versus Q3 2025, while the ratio to revenues improved from 40% of 2025 to 38% of 2026. This is because excluding the commercial investments related to the NES launch in North America, our OpEx growth was basically below inflation, including also the annual salary increases, and again reflecting our disciplined cost management across all the organization. EBIT -- adjusted EBIT came in at EUR 228 million for the first 9 months of 2026, which is minus 2% at constant exchange rate, minus 3% at current exchange rate, with a margin of 25% at both current and constant exchange rate, whereas the Q3 adjusted EBIT was 26% of revenues, equal to around EUR 80 million. The net financial expenses were approximately EUR 14 million in the first 9 months of the year. It's worth mentioning that this compared to the EUR 1 million of the prior year period, with an increase that is mainly driven by the lower interest income on our cash investments, also the cost associated with the share buyback program that I'm going to comment later on as well and the higher interest expenses on our borrowing and the overall credit facilities of the group. The tax rate -- the adjusted tax rate for the first 9 months of 2026 was around 26%, and for the full year of 2026, we expect the tax rate to be in the 25% to 26% range, which is broadly consistent with the normalized level of 2025 and is reflecting the expiry of the Patent Box regime that we had in Italy. As a result, our adjusted net result for the first 9 months of 2026 was EUR 159 million, around 17% of revenues, with a decrease of EUR 18 million compared to the prior year, and this is primarily reflecting the increase in the net financial expenses that I just mentioned. Moving to EBITDA, the adjusted EBITDA for the first 9 months was EUR 297 million, with a decrease of 1% at constant exchange rate and 2% at current exchange rate, with a negative FX impact around EUR 4 million. The margin for the 9 months was 33% at both constant and current exchange rate, where the slight year-on-year decline primarily reflects the planned investment to strengthen the U.S. commercial organization in support of the LIAISON NES launch, in addition to the VBP impact in China that we've been commenting multiple times. Moving to the quarter adjusted EBITDA, we closed at EUR 103 million with a margin of around 34% at constant exchange rate, which is up 15% compared to the same quarter of last year. And this result is benefiting from both our stronger revenues, the operating leverage potential of our business, as well as from a refund of approximately EUR 5 million of IEEPA tariffs, which contributed roughly 1.5 points of margin. So if you make the calculation excluding the refund, the Q3 EBITDA margin at constant exchange rate would have still been between 32% to 33%, which is perfectly in line with the expectation and our full year guidance for EBITDA of 32% to 33%, which we are confirming. Turning now to our balance sheet and cash flow performance, we delivered a solid cash generation. Our net financial position showed a net debt of EUR 782 million at the end of Q3, with a EUR 200 million movement compared to the end of 2025 as a reflection of a good operating cash generation, partially offset by the build up of inventory to support the LIAISON NES launch, with a total overall free cash flow closing at EUR 127 million. This was more than offset by the [Technical Difficulty] EUR 237 million in share buyback cash outflow under the program that was approved by the shareholders' meeting and the payment of dividends of EUR 65 million. So as anticipated, the cash generation improved in the third quarter with the net debt decreasing approximately EUR 60 million versus the end of Q2. Now going back for a second to the share buyback, I'm pleased to confirm that the program was successfully completed on October the 5, when the company acquired 3,790,000 shares, representing 6.78% of share capital, for approximately EUR 250 million, which is in line with the maximum authorized. So in light of the results that we just described, which are in line with our expectation, and also in line with the clear acceleration that we had in Q3, we are confirming our full year 2026 guidance at constant exchange rates, with revenue growth between 5% to 6% and adjusted EBITDA margin between 32% and 33%, both at constant exchange rates. I'll now hand it over to the operator for the Q&A session.

[Operator Instructions] The first question comes from the line of Anna Ractliffe from Bank of America.

I wanted to ask on the reiterated 2026 guidance, both on the group, but maybe specifically for the molecular division. The Q4 ramp, just what is driving that acceleration? Is it mostly the GI launch or continued growth in specialty? And are you depending on a particularly intense respiratory season to reach the guide? Just any of the moving parts for Q4 in molecular for both respiratory and non-respiratory would be super helpful.

Thank you, Anna. So let me start from the second half of your question related specifically on confirming the guidance and our assumption on the respiratory season. So our guidance is built on a respiratory season that is broadly in line with last year's, plus the incremental contribution of our NES panel -- respiratory panel. So if the season is roughly aligned to 2025, we would expect to land in the lower part of our guidance. Regarding the season, as you can understand, it's still early to call the season because the peak typically comes between late November and early December, so we will have much better visibility in the coming weeks and we will update you with the full year results.

I'll take the one on acceleration. Sorry, Anna. It looks like I'm the only one that got flu these days, so I'm trying to contribute to the top line. Listen, I believe that the acceleration you saw on the PLEX has to do with the fact that now we have full panel available. So as discussed, we are more credible, especially with the hospital systems, about replacing some of the existing incumbents with our platform. I believe, as said, as we discussed, that GI is a perfect, beautiful example of the clinical -- best clinical adoption of mini-panels. Last but not least, what's happening in the U.S. and what I think is helping a lot is the fact that the payers -- the denial rate from payers of complex panels is becoming -- is getting higher. And so they're really paying more attention about the fact that hospitals are submitting requests which are appropriate. And this fundamentally puts a lot of pressure on the complex panels and is helping us out to get to these institutions with a solution that makes clinical sense and is decreasing their risk when it comes to the reimbursement for the outpatient. We have one panel to go, which is the meningitis panel. We are starting clinicals, as said. I have no doubts that we're going to add this to the roster of the products we have. And what also I want to remark is the fact that we are finally launching this in Europe. If you remember, I always stated that we are a relatively small company, we need to focus and U.S. was the greatest opportunity and market. We learned a lot launching the product in the U.S., and so I really believe that in Europe -- we come into Europe very well equipped. So I'm confident on the platform, and I believe that the acceleration is the result, as said, of a good product and a good team that has been working and learning in the U.S.

Great. And as a follow-up, this might be a bit ambitious, but looking into 2027 for molecular, is there any reason you wouldn't be able to see organic growth consistent with the mid-term target? What are the key moving pieces for next year, any major headwinds or tailwinds that you think aren't appreciated? Appreciate any color you can give us.

Anna, as you can imagine, I cannot comment on 2027. I will comment on 2027 at the appropriate time. Let me tell you something which is maybe very obvious when it comes to tailwinds and headwinds. I believe that when it comes to 2027 for DiaSorin, the tailwind comes from the NES, which is a great platform. We are having great customer experiences using the platform. I believe that there is a lot of room in that market because of the fact that some of our competitors' offering became very old, and customers really want systems of a better performance. So if I need to bet on something, I would say the tailwind comes from that. When it comes to headwind in 2027, as everybody is seeing, is that there is PAMA on the horizon. We got a gazillion, billion, million questions about PAMA, but we don't know what we don't know, right? And Congress is supposed to make a ruling in, around January, and I believe that the diagnostic -- the U.S. diagnostic association said that there is a 50-50 chance that they're going to kick the can forward, but we'll see. So again, these are the 2. And then China, China is China, and it's not going to improve. Europe, as said, is stabilizing in volumes, which is great. You saw the results. And when it comes to us in Europe, TB continues to be a very strong opportunity, good growth, as it is in the U.S. as well. We had a little bit of a slowdown because of volume fluctuation in the commercial labs, but in the hospital market it's still growing double digits. So this is as much as I can offer as comments on '27. Now you need to wait for March when we're going to come out with guidance and more details.

The next question comes from the line of Aisyah Noor from Morgan Stanley.

My first one is on the immunodiagnostics growth, specifically North America immuno growth of 5%. It's a little bit softer than where some of your peers had landed in the quarter, and your own North America immuno growth was on average 10% plus in the last 2 years. Anything to call out here, and would this drive more conviction towards a slowdown in the coming months and year?

Aisyah, you saw that in the U.S. we had a soft Q1, strong Q2, I would call it regular Q3 and expect a good Q4, so I wouldn't read honestly too much into it. We are heavily dependent, unfortunately, in the U.S. on some of the TB volumes and ordering pattern of some of these big labs, because as you can appreciate, we have a good, solid business there, and depending on the ordering pattern of these labs, you may see softer quarters -- softer meaning, again, mid-single-digit to double-digit. So nothing honestly to worry about. The hospital market placement continues to grow as expected. We got a very interesting kick from hypertension that is -- nobody is really looking into this. It's still a relatively small business for DiaSorin, but it's growing 20% and it's becoming a distinctive offering for us, and we are the only one with the 2 products approved in the U.S. market. So I wouldn't read too much into the 5% in the U.S. at this stage.

Understood. Understood. And one follow-up on molecular. Understand you don't want to give any placement data for NES, but could you at least give some qualitative data on how it's going, what the customer feedback is and then how it's going between the McKesson and the Fisher partnerships? Where is the system getting the most traction?

As you know, I'm an enthusiast of NES since the beginning, and I believe what we are seeing today is that -- let's reflect together. The biggest risk, if you think about it, for NES was not on the platform itself, because it was very well engineered, very well designed, and we discussed many times about this. But the biggest risk was the distribution channel, so -- because we were new in the channel, because McKesson is fundamentally distributing every other platform you have out there. And so the question was: why NES? And are the NES qualities -- technical qualities going to be enough to convince McKesson to put enough weight on this platform? And the short answer is yes. McKesson has been doing a fantastic job for us, and we now see that we have penetration in several large portions of the country in the U.S., not in all of them because of the way that McKesson operates, but very significant in some of the states, which is a lot of good news. We see that we are displacing 2 kinds of -- if you look at placements that we have, you have 40% of placements going to replace large antigen accounts. So we are moving -- we are helping moving antigen testing to molecular testing, which is great, and it has to do with the fact that it's a very simple platform to use, and these customers that were still using antigen because of the complexity of other platforms now are transitioning to something that is really push-button, get the result, which is great. And the rest, we are displacing some very tough competitors out there, which are good systems, but again, systems that, as we discussed many times, were not developed specifically for that market; they were adopted by that market because there were no other solutions. So 2 positives on this one: A, the distribution strategy is working; the second thing is we are displacing systems, and at the same time we are actually accelerating the conversion of antigen testing to molecular.

The next question comes from the line of Odysseas Manesiotis from BNP Paribas.

Firstly, I wanted to touch on the margin dynamics, a clarification on the tariff refund impact. So would it be fair to say Q3 EBITDA would be around EUR 98 million excluding the EUR 5 million benefit you mentioned, Alberto, on the refunds? And looking into next year, is it fair to think there'll be some COGS inflation margin pressure we may not be seeing from what you're seeing on the inventories, or do you feel comfortable with passing that through to customers?

Okay. So the first one is easier. Yes, the 5% (sic) [ EUR 5 million ] refund from IEEPA tariffs is included in Q3 EBITDA. The second one, on your second question, of course we will not be discussing 2027 EBITDA guidance today. What I can tell you from a cost perspective is that, as you know, the military conflict in the Middle East is continuing to impact the global economy, especially the energy markets. We see higher oil and gas prices that are fundamentally feeding through the transportation cost as well as the price of the raw materials, especially the plastics. Now in 2026, we were able to absorb the inflationary impact, which as a rough high-level estimation for us has been [Technical Difficulty] range in the neighborhood of a couple of million euro. Thanks to, on one side, the cost management initiatives, as well as the inventory management because some of those price effects, we don't see them yet because we are using inventory that we still have on hand. And last but not least, the positive contribution from the tariffs refund. Now at the same time, we are estimating -- we are in the process of estimating the 2027 potential impact, which we'll be embedding in our 2027 guidance and be disclosing and discussing next year.

That's very clear. And may I follow-up on the working capital dynamics? If I look at the operating cash flow development in Q3, that was down 16% versus your EBITDA up 15%. It seems like working capital is the main culprit. Is that inventory increasing largely because of the LIAISON NES launch, or has there been a capitalization anywhere?

No, no. So you are perfectly correct. The majority of the impact on our net working capital is linked to the inventory increase, and the inventory increase is totally linked with building up NES inventory, both systems as well as starting also with the reagents, but primarily systems in order to be ready for the placements for the season.

The next question comes from the line of Charles Pitman from Barclays.

Charles Pitman-King from Barclays. Two from me, please. Maybe just first, if we could just double-check again on the LTG dynamics for the quarter, noting the commentary around favorable shipping. Is this expected to create any sort of headwind into 4Q? Just noting the earlier comments of you expect LTG to end up in the mid- to high single digits for the end of the year, that would imply broadly similar organic growth to 3Q, which would suggest actually a limited shipping impact. So just further details on that would be really helpful, please. And then just secondly, in terms of the full year '26 guidance, can you just reiterate what kind of takes you to the top and bottom end of that range, and how you expect FX to specifically impact your growth in 4Q, noting the improved EUR 5 million tailwind you highlighted at 3Q? I mean, I think for the full year I've got around a 1% headwind assumed, so anything on that would be great.

Thank you for the questions, Alberto speaking. So let me start from the first one and the LTG. So I believe that when you're referring to the shipping, for us it's more related to the calendarization of the orders. As you know, LTG is a B2B business that is largely impacted by the timing of the orders of our partners both in life science and in diagnostics. If you look at the quarterly trend, the calendarization compared to previous year primarily impacted the first half of 2026, and in fact in Q3, with a strong growth, we are basically offsetting impact that we saw -- the negative impact that we saw at the beginning of the year. And if you look at the LTG cumulated year-to-date result, in fact at constant exchange rate the franchise is growing 5%, and we are confirming a Q4 growth that will allow us to land at a mid- to high single-digit for the year for the LTG overall franchise. Talking about guidance and its related FX impact, what I can mention is the fact that -- let me start from what happened in Q1, Q2 and Q3. We mentioned before, from a top line standpoint, we had a negative impact of EUR 17 million in Q1, negative impact of EUR 3 million in Q2, positive impact of EUR 5 million in Q3. Now should the USD to euro rate stabilize at around $1.11, $1.12, the impact at the end of the year will go down to EUR 15 million. Should it stay at $1.10, it will go down to around EUR 10 million, the overall FX impact for the year. Of course, as I mentioned in the past, we are not taking a stand and we're not taking a position on the U.S. dollar, so this is the impact that I can -- we can estimate.