Ortho Clinical Diagnostics Holdings plc

Everyone, welcome to the Ortho Clinic Diagnostics Third Quarter 2021 Earnings Conference Call and Webcast. At this time, all participant lines are in 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 comments. Please note that this conference is being recorded. An audio replay of the 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, you may begin.

Thank you, Operator. Good afternoon, everyone, and welcome to the Ortho Clinical Diagnostics Third Quarter Earnings Conference Call. With me today to discuss our financial results are Chris Smith, Ortho's Chairman and CEO, and Joe Buskey, 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 being simultaneously webcast on the investor section of our website, and a version of today's presentation can be downloaded there. Before we begin, I will cover our safe harbor statement. Some of the statements we will make during this call about the company's future expectations, plans, and prospects constitute 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 the forward-looking statements we make today will be realized. We undertake no obligation to update any forward-looking statement to reflect future events, developments, or change circumstances, or for any other reason except as required by law. Also during today's call, there will 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 the 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, also 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. Lastly, unless stated otherwise, all year-over-year revenue growth rates including revenue growth ranges given on today's call, are given on a comparable constant currency basis. Now I'd like to turn the call over to Chris Smith, Ortho's chairman and CEO. Chris?

Thanks, Brian, and good afternoon, everyone. It was another great quarter for Ortho, and excited to be able to share our results. I always love to start all our presentations with this slide, which it talks about the mission and the credo of the company, because every test is a life. And this is why we do what we do on a daily basis. We embrace this, and it's a critical role in the role that we play in the health care system every single day. To give you an example, today we'll help about 800,000 patients around the world, and I just want to thank our teammates around the world for everything they do every day to make a difference in those patients' and those clinicians' lives. With that, let's get into the third quarter results. We'll start with slide five. Core revenue grew 13% in constant currency to $509 million, with the strength in both our clinical labs and our transfusion medicine business. Our base business was up 16%, excluding three percentage points of headwind from COVID tests, reflecting underlying strength in our base business. Therefore, we have raised our full-year revenue growth guidance to 14% to 15% from the prior 10% to 12% for the full-year revenue. In addition to strong revenue growth, adjusted EBITDA grew 17% to $140 million, representing a margin expansion of 25 basis points to 26.7%. And adjusted earnings per share is up 50% year over year to 21 cents. We are very pleased with our continued resilience over the last couple of years, even now as COVID tests have shifted to growth headwind. This continued momentum in our business is a clear result of our dedication to customers and the patients that they serve. We talk about the importance of lifetime customer value and the long-term relationships that we build with our customers. And I'm even more confident now that this is resonating in the marketplace and is reflected in our results. I'll get into more of that later on in the call. Continuing with our third quarter performance, let's look closely at our geographies on slide six. The Americas, our largest geography, grew 15%. EMEA grew 13%, with Western Europe up 9%. Greater China grew 10%, and the other, which is really made up of Japan and Latin America, I mean, excuse me, Japan and Asia Pacific, grew 16%. In the U.S., commercial growth excluding COVID assays was up 13%, driven by strong instrument placements, especially of our integrated systems, our menu expansion, and our revenue reoccurring pull-through, as well as our CTS partnership in our transfusion medicine business. In EMEA, growth excluding COVID assays was up 14%, driven by strength across our ClinLabs business. This is the fourth consecutive quarter of growth in Western Europe following five years of declines. We remain encouraged by the continued strength in Western Europe, which continued to re-grain ground in the market as a result of leadership changes we implemented over the last few years in our commercial excellence program. Greater China grew double digits for the third quarter in a row, with particular strength in our ME assay business. While our ME assay business was up 20 percent, we have not seen full recovery in the routine clinical chemistry testing. Our install base grew 6 percent, and our integrated systems Growth was 13 percent, and these are very good indicators for future accelerated growth. In addition, our distributor inventory levels are at or below historic levels. We are incredibly pleased with the growth in both the developed and the emerging markets, which grew 12 and 19 percent, respectively. And growth was particularly strong in India and Latin America. In summary, our team around the world continues to successfully execute on our growth strategy that we launched in 2019. Next on slide seven, we remain steadfastly focused on executing against our three strategic priorities to drive profitable, sustainable growth and shareholder value. These priorities are product innovation, commercial excellence, and operational efficiencies. We continue to make progress against each during the third quarter, and let me cover just a couple of the highlights. Beginning with product innovation, as we discussed last quarter, we received emergency use authorization in the U.S. for our quantitative COVID spike antibody assay. We're the only company at this point that has that EUA. Multiple studies are underway to advance our understanding of COVID-19 immunity at individual levels, not just at populations and segments, and we believe these studies will support further recommendation from regulatory bodies around the world. Turning to our second priority, global commercial excellence, our commercial excellence program continues to improve our execution. In the third quarter, we delivered 16% growth in integrated install base. This is a driving strong growth in our MU assay business, which was up 14 percent, excluding COVID-related revenue. We continue to lead with service as a key differentiator. And as an example, in the recently published ServiceTrac awards, and ServiceTrac, as you may recall, is a third-party independent agency that surveys hospital customers, our net promoter score was 22 points higher than the next closest competitor, a true reflection of where we stand in the eyes of customers around the world. And finally, our third priority, operational efficiency. As part of our Follow the Sun approach, we're expanding our global footprint in India. Through this investment in the future, we continue our steadfast focus on innovation, customer excellence, and emerging market expansion, while also bringing efficiency, scale, and cost savings to our organization. Establishing shared service centers in different geographies and time zones around the world allows us to operate around the clock and thereby innovate faster. It will also position service and support teammates closer to our customers. This center in India will allow us to anticipate and quickly meet customer needs with innovative products and industry-leading services. It is designed to guide our organization to be a more agile and adapted company and also enable continuous reinvestment in our growth. Returning to the big picture on slide eight, I would like to highlight our strong growth trajectory and our integrated install-based growth. as well as our lifetime customer value, which underpins our strategy. As illustrated in the top chart, the growth trajectory of our core business reached an inflection point in 2019 when we pivoted from a value-based strategy to a new growth strategy as our integrated systems penetrated the market and pulled through reoccurring revenues, and our commercial excellence programs began their execution. The key driver is very clear noted in our integrated install-based growth shown in the bottom chart. Our integrated install base growth accelerated with the launch of our XT7600 and the concurrent sale of refurbished 5600s in emerging markets. This sustained double-digit growth in our integrated install base drove the overall growth of our clinical lab install base. We see a significant opportunity to carry this strength forward as we continue into the fourth quarter and into 2022. That integrated install base growth is important because our lifetime customer value, which is illustrated on slide nine, Lifetime customer value is all about building long-term relationships with our customers through the strong clinical performance of our assays, our instruments' ease of use, and our reliability of our instruments. It's also part of our best-in-class customer service and our low total cost of ownership. It is this focus on lifetime customer value that allows us to have an average customer relationship of greater than 13 years and leveraging these long-term relationships to replace our install base of standalone systems with integrated systems And that's a key source of growth for the company. The penetration of the market with our integrated analyzers is fundamental to our growth strategy. And that's because our integrated systems pull through 65% more revenue than our standalone systems. Our integrated install base continues to grow double digits. Given that our integrated install base is still just 26% of our total ClinLabs install base, we believe we still have a lot of room for growth in the coming years. Lastly, slide 10 illustrates how we are able to pull through so much reoccurring revenue on these integrated systems compared to a standalone. In 2020, our clinical labs revenue mix was weighted heavily towards clinical chemistry with a 62% to 38% split, while the broader market was the complete reverse with 68% of the revenues from MU-ASA. We believe this mismatch between our revenue mix and the proportion of the broader market represents a significant growth opportunity for us as we continue to expand our market share within IA and as we penetrate the market with our integrated instruments. This allows us to leverage our recently expanded test menu and execute on our commercial excellence program globally. In the third quarter, our MU-ASA revenue was up 14 percent, excluding COVID-related revenue. With that, I'd like to turn the call over to Joe to further discuss our Q3 financial results and our 2021 outlook. Joe?