Ortho Clinical Diagnostics Holdings plc

Welcome to the Ortho Clinical Diagnostic Second Quarter 2021 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared remarks. Please note this conference is being recorded. An audio replay of this conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Brian Brockmeyer, Vice President of Investor Relations. Brian?

Good afternoon, everyone, and welcome to the Ortho Clinical Diagnostics Second Quarter Earnings Conference Call. With me today to discuss our financial results are Chris Smith, Ortho's Chairman and CEO, and Joe Buske, Ortho's Chief Financial Officer. Mike Iskra, our EVP of Commercial Excellence and Strategy, will join us on the Q&A portion of the call. This conference call is simultaneously webcast on the investor section of our website, and a version of today's presentation can be downloaded there. We'll start with a safe harbor statement and then proceed with the call. Some of the statements we will make during this call which represent our expectations or beliefs concerning future events are forward looking statements within the meaning of section 21E of the Securities Exchange Act of 1934 which provides a safe harbor for such statements. Our use of forward looking statements is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from our current expectations. These risks and uncertainties include, but are not limited to, those factors identified on slide two of today's presentation and our other filings with the SEC. Please refer to our SEC filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. We cannot assure you that forward-looking statements we will be making... we make will be realized. We undertake no obligation to update any forward-looking statement to reflect future events, developments, or change circumstances or any other reason except as required by law. During today's call, we will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP. Please see slide three for a list of these non-GAAP measures including but not limited to core revenue. constant currency, EBITDA, adjusted EBITDA, adjusted free cash flow, and adjusted diluted earnings per share. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release issued this afternoon, both of which are available in the investor section of the Ortho website. In addition, on today's call, we will refer to our core and our non-core business, our clinical laboratories known as clinical labs, and transfusion medicine businesses represent our core business. Our non-core business is comprised of our contract manufacturing and licensing revenue. Now, I'd like to turn the call over to Chris Smith, Orthos Chairman and CEO. Chris? Good afternoon.

Thanks, Brian, and welcome to Orthos Q2 2021 Earnings Call. Before diving in, I would like to welcome Brian Brockmeyer as our new VP of Investor Relations and especially thank John Sanders, our treasurer, who's been leading our investor relations program during the IPO process and our first two quarters of a public trade company. With that, let's dive into the second quarter results. If you look at slide four, I always love to begin with our mission statement. And it briefly states, because every test is a life. This is why we do what we do. We embrace this credo and this critical role that we play in the global healthcare system every single day. And I want to thank all our global teammates around the world for all they do every single day to deliver on that promise. Today, we'll help over 800,000 patients through this promise. And thanks to those teammates. Shifting to Q2 21 highlights on slide five, the company has continued to perform extremely well with our three quarters in a row of strong growth. During the second quarter of 2021, as compared to last year's second quarter, we grew our core revenue 23% in constant currency to $488 million. Our base business, excluding COVID, was up 27%, further demonstrating the strength of this core business. We generated adjusted EBIT of $128 million, an increase of 27% as compared to the second quarter of last year. And very importantly, our adjusted cash flow in the quarter was $144 million, up $191 million year on year, which benefited from a $75 million of receivable serialization in the quarter. Overall, we had very strong first half of 2021 performance, which is largely reflected in our team's dedication to growing and improving our business with innovation and commercial expansion. As you know, we shifted our strategy in 2019 to diligently manage this business for growth as opposed to value, and this is a clear testament to those efforts. Slide six illustrates this growth trajectory seen in our core business over the recent years, and in particular, the strength in the last three quarters. We also delivered solid growth in our install base, which is a great leading indicator of future revenue growth, and this includes the consistent double-digit growth of the all-important integrated systems shown here. We'll discuss this in more detail in a few slides. We see a significant opportunity to carry this strength forward as we continue into the second half of this year and well into the future. Lastly, I'm pleased to report that given our strong first half performance and sustained momentum, we are raising our full year guidance across all key metrics. Our outlook for the full fiscal year is now 10% to 12% core revenue growth, up from 9% to 11%, which we shared last quarter. Please note that we expect the contribution of COVID-19 testing sales in the back half of last year to impact our year-on-year growth rates in the remaining quarters for the year, given our expectations for declining COVID assay sales in the second half of the year, which is fully embedded in our guidance. For adjusted EBITDA, we are now forecasting growth of 15% to 17%, up from 14% to 16.5%. Joe will touch on these changes on the remaining metrics shortly. Moving on to slide seven, which really outlines our three strategic priorities to drive profitable, sustainable growth and shareholder value. These priorities are product innovation, commercial excellence, and operational efficiency, and they're integral to our long-term sustainable growth. and we will continue to invest and devote energy into each. I do want to touch a couple highlights on each one. If you look under product innovation, we launched the first high-throughput quantitative test, an all-important test as we continue to understand the COVID pandemic and what it's doing to immunity. While this is early days, we're excited about the opportunity to partner with clinicians and leading researchers to understand immunity levels, and we think this test will be key. If you shift over to global commercial excellence, We were again ranked number one by service track for service. This is the sixth year in the award year that we've been earned that award. And to give you an example, this year was the best performance we've ever had. Service tracks all the manufacturers in 37 categories, and we were first in 35 of the 37 categories. In particular, one that we think is all important to talk about service levels, which is MPS, we were over 20% higher than our next closest competitor, a true testament to our team and how important service is to our customers. And finally, if you look at operational efficiency, many highlights, but I do want to call out that the leverage we've got down now to 4.0, and we're well ahead of what we forecasted at the beginning of the year. And again, Joe will spend a little more time on that later on. Moving on to slide seven, which outlines our strategic priorities for driving, oh, excuse me, On slide 8, we highlight the opportunity for organic growth that MU-Assay market represents. Ortho has historically been a leader in the clinical lab business, and we have strong market share with many different products. The ClinLab business has an addressable market of approximately $26 billion, and we compete in the largest IVD markets here with our clinical chemistry and our MU-Assay solutions. As we discussed in the past, moving customers from a standalone analyzer to an integrated analyzer is fundamental to our growth strategy. In 2020, our clinical labs revenue mix was weighted heavily towards clinical chemistry with a 62 to 38 split, while the broader market was reversed with 68% of revenues coming from the IA business. We believe this mismatch between our revenue mix and the proportion of the broader market represents a significant growth opportunity for us to expand our IA market share. and to grow our revenue. This gap can fill through our increasing focus on lifetime customer value and expanding our menu and our install base of integrated analyzers. We are already seeing greater integration penetration with each passing year and believe automated placements will continue to gain momentum. And to give you an example, for the quarter, we registered an impressive 17% growth in our IA business. IA testing for infectious disease and advanced diagnostics is typically the highest revenue and highest margin business in the in the clinical lab side of the business, which will help us continue to drive our revenue going forward and improve our margins. If you shift to slide nine, I'd like to talk about the regions and the result activities in each of these groups. In the Americas, which represents Canada, the US and Latin America, it is now 60% of our total business and it grew 21% for the quarter, 30% without COVID. Driving this continued double-digit growth is placements, especially of our integrated systems, our menu expansion, which is all important because of the pull-through that we can see in the labs, as well as CTS, which was a new agreement that we entered into in the first quarter. In EMEA, which represents 14% of our total business, the team is gaining traction, and we saw growth of 24% in Q2, with Western Europe leading the way with 28% growth in the quarter. And as you know, when we went public, we talked a lot about the importance of growing Western Europe, and that continues to deliver. It's rebounded nicely as a result of the leadership changes that we put in place over the last couple of years and our continued focus on expanding commercial focus. While Greater China represents 12%, we had nice growth of 23% in Q2, but we continue to see a slower recovery from the pandemic than other markets. This recovery has been slower in our slide and chemistry business due to slow recovery in routine patient business and testing, which is weighted really towards chemistry. A highlight is the growth of 7% install base and 15% in our integrated systems, which will be a good indicator for future growth. And to give you an example of how we shifted this integrated system, we actually saw 40% growth on the IA side of the business in China in Q2. Other, which includes Japan, India, and other Asia-Pac countries, grew 24%. In addition, we're incredibly pleased with the rebound in most of our emerging markets, which combined grew 48% led by Latin America and India. I will now turn the call over to Joe to further discuss our Q2 financial results and our outlook through the rest of the year.