Qiagen NV (QGEN) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I am Patrick Wright, your Chorus Call operator. Welcome, and thank you for joining QIAGEN's conference call to discuss the second quarter 2017 results. (Operator Instructions) Please be advised that this call is being recorded at QIAGEN's request, and will be made available on their Internet site. (Operator Instructions) At this time, I would like to introduce your host, John Gilardi, Vice President of Corporate Communications and Investor Relations at QIAGEN. Please go ahead, sir.

Yes. Thank you, Patrick, and we appreciate you all taking the time to join us on this conference call today. Our speakers are Peer Schatz, the Chief Executive Officer of QIAGEN; and Roland Sackers, the Chief Financial Officer. Also joining us is Dr. Sarah Fakih from our IR team.

As a first point, I want to thank you for your understanding and patience on the early release on Thursday of our results. I wish there was a better reason than the IT issue we had, but at least the results are really good. And again, we appreciate your understanding and patience.

On Slide 2, you'll see the safe harbor statement explaining that the discussions and responses to your questions on this call reflect management's views as of today, Friday, July 28, 2017. We will be making statements and providing responses to your questions that state our intentions, beliefs, expectations or predictions of the future, and these constitute forward-looking statements for the purpose of the safe harbor provisions. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected. QIAGEN disclaims any intention or obligation to revise any forward-looking statements. For more information, please refer to our filings with the U.S. Securities and Exchange Commission. we will also be referring to certain financial measures not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of these figures to GAAP in the press release and in the presentation for this call.

With that, I'd like to now hand over to Peer.

Yes. Thank you, John. And to all participants, I would like to welcome you to this conference call. QIAGEN's performance for the second quarter of 2017 is further confirmation of our confidence in achieving the full year goals that we set for our robust sales growth and double-digit increase in adjusted earnings per share. The results for the first half of the year also provides support for our ambitions for faster sales growth, double digit earnings gains and increased cash flow through to 2020. We are determined now more than ever to capitalize on our competitive advantages in greater value from our portfolio of Sample to Insight solutions for molecular testing. So I have 3 key messages for you today. First, we exceeded the financial targets set for the second quarter. Adjusted net sales rose 7% at constant exchange rates, and this was ahead of our outlook of 5% to 6% CER growth. While adjusted earnings were $0.30 per share CER when excluding the restructuring charge, and this was ahead of our outlook for $0.28 to $0.29 CER.

Second, we're capturing growth opportunities across our Sample to Insight portfolio. We see 2017 as an important step towards achieving the midterm goals that we have set for generating a 7% to 9% CER compound annual growth rate in sales from 2016 to 2020 and compound annual growth in adjusted earnings per share of 12% CER or faster over the same period. These results give us confidence in achieving the midterm goals, as the strength of QIAGEN's differentiated portfolio's becoming more and more evident.

Among the most important areas, the QuantiFERON latent TB test showed dynamic sales gains, and we are on track for more than 25% CER sales growth for the full year. We're also very pleased with the customer demand for the GeneReader NGS system, the only truly complete Sample to Insight solution for labs, seeking to take advantage of powerful and highly accurate next-generation sequencing technology.

Our teams have recently launched 2 new panels for deep analysis of breast and lung cancer samples, and we also initiated the custom access to a practically unlimited panel content offering with our customized channel for panel design.

Our engagement in NGS today represents over $100 million of sales and goes far beyond GeneReader, and we have seen robust double-digit CER growth in sales of our universal solutions can be used by customers with any NGS sequencer.

In Personalized Healthcare, we recently announced a groundbreaking agreement with Bristol-Myers Squibb to develop next-generation sequencing companion diagnostic solutions to better guide the use of novel immuno-oncology therapies, and we are in discussions with other pharma companies for similar agreements.

As a last point, although instrument sales were soft in the second quarter, QIAsymphony trends are very strong. And we are well on track to achieve, exceed our goal of more than 2,000 cumulative placements by the end of this year, along with robust growth and related consumables.

So third, we are upgrading our outlook for 2017, while reaffirming our commitment to increasing returns in greater -- creating greater value. Based on the solid performance in the first half of the year, we are moving to the upper end of the range for adjusted net sales growth. We've previously targeted 6% to 7% CER growth, and we are now upgrading this target to 7% CER growth. Keep in mind that we faced a disadvantage in terms of working days for the second quarter, and the underlying organic growth rate was fully in line with the levels expected for the second half of the year. We also continue to expect a significant improvement in profitability compared to 2016 and we are keeping our 2017 outlook for adjusted earnings per share of about $1.25 to $1.27 at constant exchange rates, excluding the restructuring charge.

I would now like to hand over to Roland to review the financial performance.

Thank you, Peer. Good afternoon to those of you in Europe, and good morning to those of you in the U.S. I will review our financial performance for the second quarter and first half of 2017 and, later, provide you with more details on our guidance for the third quarter and to update for the full year.

QIAGEN delivered robust results in the second quarter, and we exceeded the targets we had set for adjusted net sales and adjusted earnings per share. For the second quarter of 2017, adjusted net sales were $349.6 million, representing an increase of 7% at constant exchange rates, and we were up 5% at actual rates due to 2 percentage points of currency headwind.

As we noted with the first quarter results, we are referring to adjusted net sales due to the acquisition of OmicSoft, and this is in line with how we have presented bioinformatics use in the past to fully reflect the revenue contribution.

Despite the disadvantage of less working days in the second quarter, a solid 4 percentage points of total CER adjusted net sales growth came from organic business expansion. This was complemented by another 3 points that came mainly from the acquisition of Exiqon, which was acquired in June 2016, and to a much lesser degree from the acquisition of OmicSoft in January of this year.

I want to also note here that this result shows the strength and differentiation of our portfolio, given the absence of headwind from U.S. HPV test sales in the second quarter. We continue to expect about 1 point of overall headwinds for the year and some pressure in the second half of the year.

Moving down to the income statement. The adjusted gross margin was 70.6% of sales, excluding the restructuring charge, which was up from 70.1% in the second quarter of 2016 due mainly to a higher percentage of sales from consumables. This was a trend we also saw in the first quarter of the year, while additional benefits came from bringing the QuantiFERON latent TB test production to our site in Maryland from third-party vendors.

Adjusted operating income was USD 88 million before the pretax restructuring charge, and this was an increase of 27% compared to the year-ago level of $69.5 million. As a result, the adjusted operating income margin rose to 25.2% of sales in the second quarter of the year from 20.8% in the year-ago period. These results show the impact of the targeted investments we made in the first half of 2016 to enhance growth, and also some initial benefits from the efficiency initiatives that we announced at the end of 2016 and has continued into 2017.

Research and development spending declined to 10.9% of sales in the second quarter of 2017, excluding the restructuring charge, compared to 12.6% in the year-ago period. This was because the savings created through the spinoff of the former QIAGEN site in Switzerland and targeted measures to rationalize our development portfolio more than offset incremental R&D investments on newly acquired businesses.

Sales and marketing expenses were at 27.6% of sales in the second quarter of 2017, excluding the restructuring charge compared to 29.5% in the year-ago period. And here we saw gains from the recent efficiency initiatives.

General and administrative expenses were slightly lower at 7.1% of sales on an adjusted basis when excluding the restructuring charge compared to 7.2% in the second quarter of 2016.

I would now like to review the restructuring charge taken in the second quarter of 2017 related to efficiency initiatives and our plans for the rest of this year.

As you saw on the result, the charge for the first half of 2017 was $17.4 million or $0.06 per share against our initial outlook for about $10 million or about $0.03 per share. The win is that we recently decided to accelerate some of the plans for efficiency programs based on the success we have seen so far. Key focus areas are centralizing more activities at our shared service centers to gain more flexibility and scalability, making our marketing activities more efficient and embracing digitalization to enhance sales growth, while also generating future cost savings.

We continue to review ways within these initiatives to improve efficiency and effectiveness across the organization and to translate these benefits into improved profitability. As a result, we now expect the pretax restructuring charge on a full year basis in 2017 of approximately USD 20 million or about $0.07 on an after-tax basis. In other words, this means we expect about one more set of charges on adjusted EPS for this year, and are determined to capture the benefit in 2018 and the coming years.

Moving further down the income statement, adjusted diluted earnings per share, excluding the restructuring charge, were $0.30 at both actual rates and constant exchange rates. And this result for the second quarter of 2017 includes about $0.05 per share for the charge. The share count was 232.7 million for the second quarter of the year, which was in line with the assumptions we have given for about 232 million. The adjusted tax rate was 17% of sales when excluding the charge, and this was slightly lower than our assumptions for about 18%.

I would now like to provide you with some perspectives on the performance among the product categories and our 4 customer classes. Among the product categories, consumables and related revenues were up 8% CER in the second quarter. This was a continuation of the solid trends we saw in the first quarter of the year, with consumables representing about 88% of sales. Instrument sales, on the other hand, remained sluggish and declined about 4% CER in the second quarter to represent about 12% of sales. As mentioned earlier, we are seeing robust placement of the QIAsymphony automation system, but are facing softer trends for other instruments. And we also had largely unchanged service revenues compared to 2016.

In terms of sales by type by customer, the underlying quality performance in all 4 customer classes were supported by the acquisition of Exiqon, which became organic as of June 30 and, to a lesser extent, through the acquisition of OmicSoft in January 2017.

In molecular diagnostics, sales were 6% CER, led by dynamic growth in the QuantiFERON latent TB test, as well as a 28% increase in revenues from companion diagnostic partnerships and sustained double-digit CER growth in consumables related to the QIAsymphony automation system. As mentioned earlier, we did not face headwinds from the U.S. HPV test sales, which rose in the quarter, but we did face a sizable negative impact from the timing of national tenders that led to a double-digit CER decline in HPV test sales in the rest of the world.

The Life Science customer class rose 7% CER in aggregate. And Applied Testing continue to lead the performance with 12% CER growth in the second quarter of 2017, thanks to market share gains that drove sales for Human ID forensic solution.

In Pharma, sales was 8% CER in line with the same trend for the first quarter of 2017, also showing solid growth in consumables and related revenues. Academia showed a similar trend to the start of 2017, and sales were up 4% CER in the second quarter. Here we are seeing ongoing soft trends in Europe, along with modestly improving sentiment in the U.S.

Moving on to the next slide. We saw growth across all geographic regions and ongoing solid development in the top 7 emerging markets, which were up 12% CER for the second quarter and provided 17% of sales. In the Americas, sales rose 4% CER, an improvement in both the U.S. and Brazil, while sales in Mexico were under pressure due to the timing of national tenders. In the Europe, Middle East, Africa regions, sales were up 8% CER. And we saw mixed results in the core European markets, with higher sales in France and The Netherlands and the Nordic region, but saw a modest decline in Germany. On the other hand, we saw ongoing benefits from national tenders in the Middle East, and benefits from opening a new hub in Dubai last year. And in the Asia Pacific, Japan region, sales were up 12% CER. The key driver has been South Korea and the dramatic bulk in QuantiFERON-TB sales, supported by gains in other countries, such as Taiwan and India. Sales in Japan, however, were largely unchanged in the second quarter compared to the year-ago period.

I would now like to provide an update on our financial position and recent action to strengthen our positioning with a $300 million issuance of notes in the German private placement market. The pricing was so aggressive that QIAGEN went at having the second lowest interest rate pricing for such a transaction by a non-German issuer. The interest rate proceeds along with the outflows of cash for the OmicSoft acquisition as well as about $245 million earlier this year for the capital repayment were among the factors in the leverage ratio, which stood at 1.6x net debt to adjusted EBITDA as of June 30, 2017 compared to 1.7x at the same date in 2016. We continue to have a solid financial position and resourcing to support more targeted acquisitions as well as to return about $55 million by the end of this year as part of our commitment to return $300 million to shareholders by the end of 2017. With respect to our new facility standing at $609 million as of June 30, 2017, up from about $406 million in the year-ago period, our net debt rose only modestly. This was due in part to the solid cash flow generation. The free cash flow generation of $92 million for the first half of 2017, at first glance, is lower than the $108 million for the same period in 2016. But we had cash payments of $31 million in 2017 related to restructuring that weighted on cash flow results.

As we mentioned earlier, QIAGEN continues to pursue a disciplined capital allocation strategy, focused on supporting business expansion through targeted acquisitions, while also increasing the tranche through share repurchases.

I would like to now hand back to Peer for a strategy update.

Yes. Thank you, Roland. I'm now on Slide 9 to give you an overview of key developments of our Sample to Insight portfolio during the second quarter. I'll go into more detail on specific progress for QuantiFERON-TB, our next-generation sequencing offering, and Personalized Healthcare over the next few slides.

But I would like to briefly touch here on QIAsymphony and differentiated technologies, both of which are continuing to drive growth very well.

As already said, QIAsymphony maintained momentum and placements during the second quarter, and we are very confident that we will exceed our target for more than 2,000 cumulative placements at the end of this year. Consumables are growing at a double-digit rate. And we keep adding value to the QIAsymphony system by broadening the test menu, including 2 additional tests recently approved by the FDA, in particular, a JAK2 assay for use in blood cancer.

Differentiated technologies provide a broad portfolio of kits with unique capabilities to prepare and analyze samples for molecular testing, especially in emerging and challenging fields. For example, we are seeing tremendous success with our gold standard liquid biopsy solutions and about 20% of our new power portfolio for the often extremely challenging samples used in studying the microbiome.

And now, let me review the progress on those first 3 growth drivers in further detail. I'm now on Slide 10 to update you on developments for QuantiFERON-TB, the market-leading blood test for detecting latent tuberculosis infection. QuantiFERON-TB continue to deliver strong sales momentum during the second quarter of 2017, trending above the 25% annual growth rate target we have set for the year. We are executing on the opportunity of this approximately $1 billion market potential based on the substantial clinical benefit of the QuantiFERON-TB test, which we are driving at a very strong rate of replacement of the 120-year-old tuberculin skin test technology. We expect this high conversion rate to be sustainable for the next couple of years.

QuantiFERON-TB has significant clinical advantages over the skin test based on directly questioning the immune memory from a simple blood sample. The unique assay design allows for immediate stimulation of the sample, delivering fast results with highest test accuracy that reduces false-positive results, especially in combination with the BCG vaccination.

In fourth generation, QuantiFERON-TB Gold Plus strongly adds to these benefits with, first, even higher test accuracy based on the combined readout of CD4+ and our new and propriety CD8+ technology that improves sensitivity, particularly in immunocompromised patients or patients co-infected with HIV; second, the increase in clinical evidence that the new CD8+ technology has the potential for efficient risk stratification of latent TB infections developing into active disease; and third, improved workflow flexibility, allowing for even faster sample processing, especially for large-scale testing.

Based on these benefits, QuantiFERON-TB reached an important milestone in the second quarter of 2017 with the U.S. FDA approval of the fourth generation of this test. Commercialization of the fourth generation test in the U.S. is planned to begin later this year, and will further support conversion to QuantiFERON technology, which is currently about 35% of the total U.S. latent TB test market.

In Europe, QuantiFERON-TB Gold is gaining further traction, including the recent decision of the French Ministry of Health to reimburse the test to screen at-risk individuals for latent TB infection. France joins a growing number of European countries, including Germany, Spain and the U.K., which take advantage of the significant clinical benefits of the fourth-generation test and reimburse QuantiFERON-TB Gold Plus to protect public health and control spreading of the disease.

On Slide 11, I'd like to review the progress on our comprehensive next-generation sequencing portfolio, including the GeneReader NGS system, our purpose-built Sample to Insight solution for clinical research panel testing, as well as our universal NGS portfolio for Life Sciences research.

GeneReader continues to show very positive uptake by the market, and we placed fully integrated NGS workflows around the world. We delivered on the panel pipeline we've communicated during our Analyst and Investor Day in November 2016 with 2 new panels for deep analysis of breast and lung cancer samples. And we've seen excellent results with the first customers using our customized panel, which gives users the option to run an unlimited range of panels and panel content.

Our universal NGS solutions continue to expand, and we are constantly adding new partnerships with major academic and health care institutions to collaborate in large-scale translational studies using next-generation sequencing. QIAGEN's customized NGS panel designs are being implemented, for example, in translational research on the microbiome and immuno-oncology. Our universal solutions, including integrated bioinformatics, support the entire installed base of third-party NGS instruments. And our Pharma and Academia customers appreciate that our panel designs produce more reads than competitor solutions with a more streamlined workflow.

I'm now on Slide 12 to give you an overview of the agreement QIAGEN signed with Bristol-Myers Squibb to explore the use of next-generation sequencing in novel immuno-oncology therapies. We announced this groundbreaking initiative in June at the American Society of Clinical Oncology conference in Chicago. Immuno-oncology has evolved as a promising new focus area in cancer therapy. The approach is to prime the patient's own immune system to recognize and actively fight cancer cells using novel immuno-oncology medications that aim to disrupt the tumor cells by logical strategies to mask themselves, so they can spread undiscovered by the body's immune defenses. However, a key clinical challenge is to determine who can benefit most from specific novel immuno-oncology therapies and how to assess each patient's individual tumor specifications to efficiently stratify patients, so that health care providers can improve treatment decision-making and outcomes. Our agreement with Bristol-Myers Squibb represents the first time a pharmaceutical company is partnered with a diagnostic company to create a companion diagnostic for immuno-oncology applications based on next-generation sequencing. Together with Bristol-Myers Squibb, we will explore the use of NGS technology to develop a gene expression profile panel as predictive or prognostic tool for use with novel immuno-oncology therapies that BMS is developing. The new assays will be optimized for use on the GeneReader NGS system. And as the immuno-oncology field evolves, testing can potentially aid across the continuum of patient care from early diagnosis to post-treatment surveillance. We are proud to collaborate with BMS at the forefront of developing novel immuno-oncology therapies. And this collaboration builds on our proven track record in developing and commercializing companion diagnostics as well as our comprehensive portfolio of next-generation sequencing solutions.

To further strengthen our expertise in assay development for immuno-oncology, QIAGEN has also acquired worldwide rights from Johns Hopkins University to biomarkers that assess microsatellite instability and mismatch repair, along with tumor mutation burden. These biomarkers play key roles in identifying cancer patients who could benefit from I-O therapies. Since I-O drugs often complement targeted cancer therapies, it is also important to note that there are significant synergies between the development of these new assays and our continuously growing portfolio of companion diagnostics, which support decision-making for targeted therapies based on efficient patient stratification.

QIAGEN is positioned as a global leader to support the rapidly growing research in immuno-oncology, and we will continue to partner with pharma companies to commercialize diagnostics that guide the use of novel, new immuno-oncology drugs. This is a very exciting era of innovation which already has begun to revolutionize care for cancer patients. And with that, I'd like to hand over to Roland.

Thank you, Peer. As mentioned earlier, we have upgraded our full year outlook for adjusted net sales growth to 7% CER, and this compares to the early outlook for 6% to 7% CER growth to share and, of course, now we are confident in achieving our goals for 2017 with a space of about 5 to 6 percentage points of solid organic growth and about 1 to 2 percentage points of sales from acquisition. The contribution from acquisitions is a number that could round up to 2 or down to 1 point. For adjusted EPS, we are keeping the outlook at about $1.25 to $1.27 per share for adjusted EPS, excluding the restructuring charge and, again, also at constant exchange rates. This represents a significant increase to the underlying $1.11 per share in 2016, and sets a foundation for ongoing solid growth in the coming years, in line with our goal for at least 12% CER as a compound annual growth rate from 2016 to 2020.

This outlook includes some initial benefits from the efficiency initiatives started in 2016, and also about $0.03 of accretion from the commitment to withdraw $300 million by the end of this year. This full year guidance is also based on an ongoing expectation for a 17% to 18% adjusted tax rate.

Furthermore, these results exclude our current expectations for about $20 million of restructuring charges on a pretax basis for the full year that we did include in the adjusted total or about $0.07 on an after-tax basis.

In terms of currency impact, based on rates as of July 21, we now expect up to about 1 percentage point of pressure on full year CER sales growth and about $0.02 per share on the full year adjusted EPS outlook at CER rates.

I'm now on Slide 14. And here you will find detailed information on our outlook and related assumptions for the full year and also for the third quarter of 2017. In terms of adjusted net sales, our outlook for the third quarter is for adjusted net sales growth of about 7% CER. This is based on about 6 percentage points of organic growth and about 1 percentage points from the OmicSoft acquisition. Our outlook for adjusted diluted EPS in the third quarter of 2017 is about $0.32 to $0.33 per share at constant exchange rates, and this excludes up to about $0.01 of after-tax restructuring charges for the efficiency initiatives.

Also, for the third quarter, we are expecting adjusted tax rate of about 17% to 18%. In terms of the weighted average share count, our expectations for the third quarter is about 235 million shares. This increase is due to the surge in the QIAGEN share price, [advance] the exercise level for some (inaudible) linked to our cash sale convertible note that were issued in March 2014. At that time, our share price was about $21 to $22, and the purchase caused spread overlays to push the conversion price up to $32.06. As a rule of thumb, every dollar changes up or down. Thus, this conversion price means an addition or subtraction of about 700,000 shares on a full year basis. I also want to note that the incremental number of shares decline as the share price rises, and it's reduced to about 500,000 to 600,000 additional shares with a QIAGEN share price about $37.

In terms of currency expectations for the third quarter, based on rates as of July 25, 2017, we expect no headwinds on sales, but an adverse impact on adjusted earnings per share of up to $0.01.

With that, I would like to hand back to Peer.

Yes. Thank you, Roland. I would now like to provide a quick summary before we move into Q&A. Let me review what we have announced. First, our performance for the second quarter is further confirmation of our confidence in achieving our full year goals for strong gains in sales and adjusted earnings. Second, we are capturing growth opportunities across our Sample to Insight portfolio. We are moving ahead on our strategy to maximize our competitive advantages as a differentiated leader in molecular testing, supporting customers along the continuum from basic research to clinical health care. And as a last point, we are updating our full year guidance for 2017 based on the solid performance in the first half of the year. We are determined to achieve our goals for strong growth in sales and adjusted earnings for this year, complemented by our commitment to value creation for shareholders and disciplined capital allocation through completion of our commitment to return $300 million by the end of this year. And with that, I'd like to hand back to the operator for the Q&A session. Thank you.

(Operator Instructions) And our first question today comes from the line of Steve Beuchaw of Morgan Stanley.

So one for Peer and one for Roland. Peer, I'm sure there will be a lot of good questions in the Q&A about sequencing and diagnostics and Pharma. So I want to ask about something that maybe doesn't get as much attention normally, and it's the Applied business. When I think back to the Analyst Meeting, you guys called out Applied as a double-digit growth driver. And at the time, I thought it was the most surprising thing I saw in the Analyst Day presentation. And here you are, you're delivering some very good growth in Applied. Can you remind us about the case for the acceleration, what it is you're doing differently this year versus last year? And can you just frame up for us again the keys for the strong sustainable growth, considering that beyond '17, the comps will be just a little bit tougher? And then for Roland, just a couple of clarifications. I wonder if you could, given the restructuring charges in the first half of the year, frame up for us how you're thinking about free cash flow for this year. I think excluding the restructuring, we're looking at something like 19%, 20% growth through the first half. Is that a reasonable bar for the full year? And then any chance you've made an attempt to think about what the impact of Easter was, what that was quantitatively on the quarter?

Great. Thanks, Steve. So to the first question, yes, the Applied business is definitely very attractive. And it is, as we all know, 7%, 8% of our sales, but we've seen very good double-digit growth rate in the last few years. We've seen some weaknesses in the instrumentation portfolio, where there was some volatility from quarter-to-quarter. But in general, the consumables are on a very good double-digit growth pace. And it really has to do with the fact that we break down the Applied business, more than the majority of that business is forensics. We also have a veterinary testing and a food testing business, which are the bulk of the remainder. In the forensics area, we have an extremely strong position in sample processing. And almost every laboratory around the world is basically using our products for casework samples that you read about in papers, where difficult-to-process samples are being looked at for forensic evidence. But what we announced a couple of years ago that kind of got lost a little bit in the noise was that we entered the market for the assays. And these are typically PCR assays that are quite challenging to create and are extremely sensitive that detect certain STR, short tandem repeat areas within our genome, and create profiles with fingerprints for forensic evidence. This is a market we hadn't been in, in the U.S. prior to 2015 and in Europe prior to 2012 and we entered of those areas. And this is a much larger market than the pure sample processing areas. So we're gaining a lot of share in this market, and moving forward quite aggressively also to create these more complete solutions with sample technologies and assay technologies being integrated. So there's a very good trajectory ahead of us there. We really only just started. Roland, do you want to take the second one?

Yes. Steve, 2 questions. On the working day differential in the second quarter of 2017 to 2016, both have given QIAGEN somewhere between 100 bps, 150 bps more growth on their overall corporate level, again, if you would have the same kind of working days. So I think this quarter was, therefore, one of the quarters we're have a major difference. And therefore, I think it's a good question to raise. So again, it would be somewhere between 100 bps and 150 bps more growth in the same quarter if we would have the same number of working days like last year. On the free cash flow side, as we said, I think we had a good start into the year, especially having in mind that roughly around $30 million of one-off cost on expenses -- I'm sorry, cash-out in the first half of 2017. As you have seen, we clearly now finalized the vast majority of all of our activities around restructuring. And therefore, again, P&L-wise, we shouldn't expect larger payouts for the rest of the year. But of course, some of these things got a quote in the second quarter. So in terms of cash-out, I would probably expect another probably USD 20-plus million one-off cost again paid out H2 related to restructuring costs. And excluding their effect, I would say we would see a similar increase, as we have seen in the first quarter. And therefore, I think this is very well on track in terms of overall cash flow generation.

Our next question comes from the line of Tycho Peterson of JPMorgan.

Peer, starting, I guess, off of Bristol, I'm wondering if you could provide any color just in terms of the financial structure, milestones, fees, and just maybe what the pipeline looks like for other similar deals. And any risk, I guess, to that market, given what we saw out of Astra yesterday? And then for the follow-up, just wondering if you can comment on HPV. U.S. was better than we've expected and, obviously, international down. So I'm just wondering if you can comment on that and expectations for the rest of the year.

Sure. Thanks, Tycho. So the collaboration we have with Bristol-Myers, without going into details, follows pretty much the standard template that we apply, where we have some funding for the development expenses that we, together, incur over the development period, which is a 2 to 3-year period. And this basically compensates us for our development expenses with an opportunity cost margin. But the goal is really to create assay sales, and we're heavily focused on that. We see the assay, in particular, with the new IP that we created and acquired as quite intriguing. And so the -- this falls into the mold. We don't believe in big payments for development reimbursement. We believe in generating an assay that will create high volume, and we think we have a pretty good shot at it. Now, obviously, there was some volatility in the I-O market yesterday due to -- obviously, you all saw the MYSTIC trial results. I think this shouldn't be interpreted as a severe dent into I-O overall. It is definitely a trend that is showing massive and broad-based support. And we're going to continue to see challenges and, at the same time, breakthroughs with I-O drugs. I think we all agree to that. And we have, I think, a very unique cornerstone assay there. What I mentioned very briefly is that many of these drugs will also be combined with targeted therapies. And that's where our targeted immutation panels kick in very nicely, because you can, with the experience that we have and also the portfolio we have, you can combine the I-O selection and monitoring assays with the targeted assays that we, to a good degree, already have onboard today. So I wouldn't expect a big financial impact over the development period, but we're getting a lot of interest in this portfolio based on the capabilities we've announced. And I would be surprised if we don't see more similar announcements going forward. U.S. HPV, yes, good catch. Quite surprising, I think it's the first time in 5 years that we actually saw slight growth in North American HPV. And I read a lot of commentary, but what is interesting to note is that we have a very strong position in the U.S. based on superior clinical profiles, the product, which still is the case, and very clearly demonstrated by clinical studies. And this is recognized. And we now seem to have reached the position where we're not far away from this absolute bottom, and it's pretty immaterial what we expect now for the years going forward. There's still some impact in the second half of the year. So it's an important product for us and very widely available. We had volatility in sales ex-U. S., but that was explained by Roland due to the tender timing. It could very well be that HPV turns into a growth story and a growth contributor going forward.

Our next question comes from the line of Bill Quirk of Piper Jaffray.

A couple of questions from me. First off, Roland, just thinking about the earnings guidance, you guys have put $0.01 upside in both the first and the second quarter. Is it simply the share count that's what's holding you back on bumping up earnings at this point?

I would say, right now, what is -- looking at it, it's clearly that it's a nice acceleration in terms of growth -- revenue growth rate in the second part of the year, but we clearly also haven't given a range in terms of EPS guidance. So I think we feel quite confident within that range. And I think the third quarter, we probably will see if we can increase it for the rest of the year. Right now, I don't think it'll make any sense for all if we are going ahead of ourselves. So we see quite significant efficiency gain coming up. We have seen, I would say, a significant jump in operating margin in the second quarter. And I'd rather, again, be able to deliver on [key] every quarter.

Okay, got it. And then a question for Peer. Just on GeneReader or maybe can you just elaborate a little bit about some of the customer profiles here. I don't know if we're at a point where we can quantify the contribution, but certainly any additional color will be most welcome.

Yes. So we basically have customers across the whole scope of different customers in clinical research and pathology. And this is different throughput ranges. We have customers running thousands of panels a year. We have customers doing a couple of hundred. And so we've seen many different types of customers. What is interesting to note is that we also have customers from around the world. There has been great success also with the global dissemination of the GeneReader. And the contribution is, let's say, we measure more internally how well are we doing in the area of clinical research and pathology and how rapidly is that segment growing. This is a sizable 9-digit segment for us, and we're seeing this starting to contribute to growth. And going forward, there's obviously a lot more in the pipeline.

Our next question comes from the line of Vijay Kumar of Evercore ISI.

So maybe a couple of questions on the guidance, Roland. Obviously, stock is up. We're kind of getting a bunch of questions. If I go back to the guidance that was raised on CER, right. It looks like M&A was raised slightly so the question's I'm getting is, what's the organic? I know the midpoint was maintained. What's the high end of the organic? Was it creeped down? Can you just address that Roland?

Yes. Thanks, Vijay. It's a good question because I think I just made it crystal-clear. We also expect an increase compared to the guidance given for the full year now in terms of organic growth rate. Vijay, the difference was the wording has slightly changed. It's just due to surroundings because it was also (inaudible) certain contribution, let's say, around 1.3%. And now there's an opportunity that is maybe somewhere between 1.3% and 1.5%, (inaudible) and so on. The reason -- the major -- the larger contribution, the acceleration and therefore to the guidance change and update is it's because we see a good growth rate in some of our growth drivers. Again, we talked about other (inaudible) organically.

Next question comes from the line of Jack Meehan of Barclays.

I want to start with QuantiFERON. Can you give us an update just in terms of the rate of tender activity you're seeing for the assay? And then, second, as you think about the rollout of the fourth-generation test in the U.S. toward the end of the year , are there any inventory issues that we should be thinking about? Obviously, you had a really strong start to the year, but are there any timing issues we should we thinking about at the end of the year?

Thanks, and good questions. So the last one first. The transition from the third generation to the fourth generation was already experienced in 2016 in Europe. So you hardly saw a blip there. I think we have had a very good -- well, we gained a lot of experience and also performed very nicely in Europe already then in transitioning and upgrading into the fourth -- into the 4G product. So I wouldn't expect a lot of volatility. We have to talk, obviously, to larger customers how they are planning to do this, but we want to make it as seamless as possible. Now the tender activity in QuantiFERON is currently less than 10% or is around 10% of the volume and primarily based on some larger tenders that are, in many cases, just starting to kick in now in the second half of the year. So the majority of the purchases in QuantiFERON are actually just standard purchases based on volume contracts, multi-year volume contracts.

Next question comes from the line of Gunnar Romer of Deutsche Bank.

Gunnar Romer, Deutsche Bank. The first one would be on HPV international. I think you saw some weakness in the second quarter. I was wondering whether you can provide us with an outlook for the full year. And also how that fits into your outlook for the molecular diagnostics customer class, how we should be thinking about a potential acceleration here in the second half. And then second question will be on the expected margin trends in the second half, because I believe your guidance implies about a flattish margin in the second half coming from a substantial improvement in the first half. I obviously appreciate that comps are getting tougher. But if you could just outline what your assumptions are behind margin development in the second half, that will be a great.

Thanks, Gunnar. So HPV international definitely was more volatile this year than what we've previously seen. It's gone a little bit up and down. We clearly had a down quarter now this quarter. We expect to see some lumpiness now in the second half of the year. We are continuing to sign-up new large-scale contracts. The timing is probably going to be more skewed into later in this year and into 2018. So there's a little bit of gap now in the third quarter, as one ran out earlier this year that we had in the third quarter of last year. So that is being adjusted for already in the guidance that Roland gave previously. Roland?

Yes. And in terms of margin, I think it's [perfectly] to say that we clearly expect an acceleration in terms of adjusted EBIT margin over the third and fourth quarter. If you look at the third quarter, I would think that the EBIT adjusted margin north of 26% is something that we'll be able to do upwards to do a calculation per quarter given our EPS guidance. And for the fourth quarter, of course, it's clearly about 30% adjusted EBITDA as well. So I would say, it's clearly largely moving in the right direction. And at the end of the year, we -- again, then I would see a nice margin improvement on a full year basis probably of more than 200 basis points. But again, it depends a little bit on where currency is placed out. That is something [with how the dollar swings right now] where we have to watch what we see finally for the full year.

Our next question comes from the line of Doug Schenkel of Cowen.

I want to touch quickly on HPV again, ask a quick question on bioinformatics, and then ask a quick one on Bristol. First, on HPV, I was surprised to hear you've positioned HPV as a potential growth driver (inaudible) it seems that U.S. HPV comes under pronounced pressure again in the second half? I just want to make sure that I have that correct. The second thing is on bioinformatics. We haven't heard about bioinformatics in a while, other than really OmicSoft. Can you provide an update? Specifically, what do you expect the revenue to be this year? And what is organic growth in this category, excluding contributions from OmicSoft? And then on Bristol, I was just curious, is this an exclusive agreement? Can you comment on that?

So the first question was on HPV. And there, what we are -- the word, growth driver, is a strong one, and it shouldn't be interpreted as usually accretive to our overall growth. Now what I was trying to say is that we have seen the U.S. pretty much bottoming out or near bottoming out. And what we are seeing now is more a larger percentage of ex-U. S. sales, a solid position in the U.S. and a larger position ex-U. S., where our product has significant workflow advantages and also performance benefits over competition. And what we are seeing ex-U. S. are clearly more tender activities, and that's why we have the volatility. So when I'm talking about HPV on a multiyear basis, we believe that this is a solid revenue portion within the QIAGEN portfolio, but also will give us a strategic opportunity to expand from. The second question on bioinformatics, we had a lot of activity, and the customers received a lot of updates on new features and new products. And obviously, we just didn't put everything in the press releases. But the franchise is one that we expect to be a double-digit grower from here to 2020 as a CAGR. And that's what we announced last year and talked about last year, and that's what we continue to expect. We're actually pleased with the performance in the first half of the year. We will probably see some further interesting updates in the second half of the year in this area and increasing. And we're just seeing this as a much more integral part of our portfolio. The agreement with BMS has certain features of exclusivity because, clearly, we have some exclusive content. But look, Doug, if you're a pharma company and you're partnering up, I don't think you'd partner up your drugs with multiple parties. It's just far too -- I've hardly ever seen that. And the soon-to-be 15 years now in companion diagnostics is extremely difficult to be able to process that and integrate multiple parties into these clinical programs. So there might be, at some point, be multiple solutions for this in the market, it's still early days, but we're seeing a great commitment on the side of BMS and other parties to work with us going forward. And so there's a certain degree of legal exclusivity. But more importantly, I think we're just, we believe we're ahead of anybody and are moving very quickly in the space.

Our next question comes from the line of Derik De Bruin of Bank of America Merrill Lynch.

A couple of questions. So first off, I was noticing in your -- the appendix and looking at this. So your marketing expenses were down 12% year-on-year on a quarter. Just a little bit more about what you're doing in terms of your marketing budget to sort of what's sort of driving that. Have you changed the way that you're approaching? And then another question would be on the instrument numbers. Could you talk about are you seeing the slowing in instruments being a little bit sluggish? Is that more academic or is that more diagnostic labs? And...

Thanks, Derik. As I probably said in the second quarter, I think it's a combination of different things. We have seen very good uptake in some of the strategic instrumentation areas, such as QIAsymphony and GeneReader, and the pushes are very strong there and being executed well. We saw somewhat poor execution on the instrument funnels across the broader instrumentation portfolio. And this is something that we set out to improve, and something you typically can improve within 3 to 4 months. Now we have massive pushes on QIAsymphony and GeneReader in particular in 2016. And so that led to a little bit of drier pipeline early into this year that you saw in the numbers. So we're confident. This is not rocket science and very logical. It's probably the right thing to focus on. But we're now seeing the pipeline build up for the second of the year. And my hope is that we will be able to see better instrumentation growth numbers in the second half.

And our next question comes from the line of Hugo Solvet of Bryan Garnier.

One on Asia Pacific, which grew nicely in Q2. Could you just comment on the different dynamics you see in the regions, specifically in China? And could you also give us an update on QuantiFERON-TB in the country, please?

Sure. Thanks for the question. The dynamic is very, very different across Asia Pacific. And we saw a rather sluggish market, as I think everybody's seeing in Japan, and at the same time stellar growth in countries like Korea and Taiwan. And in China, we actually saw across the broad portfolio pretty much in line performance with double-digit growth, and also across all our customer classes. And QuantiFERON is also contributing to very strong growth across Asia. And we are moving very aggressively in that area, converting the market, but also clearly seeing the competitive advantages lead to higher sales. So we think we can do even better, in particular, in Asia Pac and China going forward and, in particular, now with the portfolio. And I'd also like to point to the strategic, a very important collaboration we have with Maccura that we announced earlier this year, where we are moving very aggressively on building next-generation sequencing strategy and execution in China, together with what is an extremely entrepreneurial and fast-moving and very strong partner. And so this is moving very well as well. And so we are looking quite confident into the future.

Okay. With that, Peer, I would like to close the conference call here and thank everyone for their time. If you have any questions or comments, please do not hesitate to give Sarah or me a call. Thank you very much.

Ladies and gentlemen, this concludes the conference call. Thank you for joining. Have a pleasant day. Goodbye.