QuidelOrtho Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, instructions will be given for the questions and answers session. If anyone has difficulty hearing the conference, please press star zero for operator assistance. I'd now like to turn the call over to Mr. Ruben Argueta Padels, Director of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant, and our Chief Financial Officer, Randy Stewart. Also on the call are Chris Smith, Ortho's Chairman and Chief Executive Officer, and Joe Buskey, Ortho's Chief Financial Officer. Our fiscal fourth quarter and full year 2021 earnings release is now available on ir.quidel.com, our investor relations website. We will also post prepared remarks on the presentation tab of our IR website. Please note that some of the information we provide during today's conference call will include forward-looking statements, including but not limited to the types of statements identified as forward-looking in our annual report on Form 10-K, that we will file later today, which will be available on our IR website. Actual results may differ materially from those projected in any forward-looking statement. For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, as well as risks related to our business and the proposed business combination with ortho clinical diagnostics, please see our annual report on Form 10-K and subsequent periodic reports and registration statements filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of today. Except as required by law, we undertake no obligation to update these forward-looking statements or time-sensitive information which speak only as of today. Today, Quidel released financial results for the three and 12 months ended December 31, 2021. If you have not received our earnings release, or if you would like to be added to the company's distribution list, please contact me at 858-646-8023. Following Doug's comments, Randy will briefly discuss our financial results, then we'll open the call to take your questions. I'll now hand the call over to Doug for his comments.

Doug? Thanks, Ruben. Good afternoon, everyone, and thanks for joining us. 2021 marked another truly outstanding and transformational year for Coidel. Seemingly, everything we did was big. We opened our largest immunoassay manufacturing facility in just nine months, boosted output tenfold to help meet demand, entered the retail and at-home testing markets with QuickView at-home OTC COVID-19 assays, created strategic partnerships with CVS, Walgreens, McKesson, the NIH, and others, and entered into a 12-month agreement with the U.S. government estimated at over $500 million. Much of what we did was bold, continuing to ramp production of QuickView and Sophia rapid immunoathletes when competitors were retrenching, overcoming supply chain challenges and production interruptions caused by positive COVID-19 cases within our workforce. Launching our revolutionary Savannah molecular diagnostic instrumented system outside the United States and signing a definitive agreement to acquire ortho clinical diagnostics. The transaction that we expect will double our size and more than double our addressable global market. And the sum of what we did was breathtaking. Investing in manufacturing multiplied our scope and scale, positioning us for long term sustainable growth. Our performance was exceptional across the board, from our research labs to our facilities and operations to our finance and functional departments. 2021 was the highest revenue year in Quidel's history, surpassing a high-growth 2020 revenue number. We dramatically broadened the range of patients, partners, and providers we serve, and we emerged from a challenging year with the strongest portfolio of physical, financial, and intellectual assets in our history. The combination of Quidel and Ortho is expected to create an end-to-end diagnostic solutions portfolio that spans from the high-volume, high-complexity hospitals and labs to the farthest reaches of point of care and the vast, untapped channels of retail, OTC, and telediagnostics. To sum up, our markets are significant, our runway is long, And as I will lay out further on this call, we have the team, the strategic roadmap, and the can-do culture that we call the Quidel way to make the most of the opportunities we see ahead. Let's turn quickly to the numbers. Revenue for the fourth quarter was $637 million. We experienced a shift in product mix from Sophia products delivered through the professional market to Quick View products that have taken off in the retail pharmacy and employer testing markets. On a full year basis, revenue increased 2%, primarily supported by strong demand for COVID-19 rapid immunoassay products for both Sophia and QuickView. Growth in rapid immunoassay supported our performance for the year, with QuickView sales increasing exponentially. We entered strategic partnerships with major retail names like CVS and Walgreens to further expand into the retail and online entry points for the consumer at-home testing market. The uptake in both sales and brand recognition is building solid inroads for us to serve the retail sector, which we hope to participate in on a longer-term basis. Our acceleration of assay development and production has also served to broaden our footprint at the point of care, helping drive introduction of our full portfolio to new groups of highly engaged patients and providers. For example, there continues to be a vast opportunity to capture demand in emerging markets through both telehealth technology and digital health capabilities, expanding patient access to a broad range of point of care and OTC diagnostic products. In this space, we have both Sophia Q as well as a recently launched self-test mobile application that we call QView Business to help address enterprise and employee health use cases and have a consumer version of the app in development as well. As part of our focus on democratizing access to testing, we take considerable pride in the fact that we supported financially or donated a portion of our COVID-19 testing production to charitable organizations such as the United Way, the JETS Foundation, University of Arizona, the Chicano Federation of San Diego, and the Blackhawks Foundation. through our academic government and sports league partners. Our charitable partnerships help serve some of the communities hit hardest by COVID-19, and we are proud to have played a part in increasing equitable access to diagnostic testing. In January, we saw incredibly strong demand for our Sophia COVID-19 antigen test in the professional market as well as demand for our QuickView at-home product as a result of elevated COVID-19 case counts. As we move closer to the end of February, we are seeing demand moderate in the professional and retail markets commensurate with lower COVID-19 positive cases, but bolstered by the continued fulfillment of state and U.S. government orders as COVID-19 shifts from a pandemic to what some scientists anticipate as an endemic phase. Unless the government changes direction, we would expect that demand will continue through the second quarter. While we won't speak at this time about full year 2022 revenue expectations, what we will say confidently is that Q1 2022 will be our largest quarter in terms of revenue in the history of Quidel. During 2021, we also announced the transition of the Beckman BNP business to Beckman Coulter, concluding the litigation that had been ongoing since the purchase of the business in October 2017. This agreement is a major step forward for both Quidel and Beckman. It enables us to focus on expanding our core businesses and executing on our longer-term strategy, while also establishing for Quidel a stable cash flow stream through 2029, the remainder of the term of the existing BNP supply agreement. And as long as we're on the subject of future cash flow streams, I'd also like to address progress we've made with our revolutionary Savannah platform. and what lies in store for us as we prepare for its US launch later this year. The Savannah platform will be our next flagship product and we are incredibly proud of the progress made today. Savannah allows for PCR testing of up to 12 pathogens plus controls from a single sample. The amplification time is very fast with total turnaround time for our RVP panels in approximately 20 minutes. The Savannah platform is fully integrated, very easy to use, and will have both direct swab and liquid sample compatibility. The reagent is stable at room temperature, which is a huge deal, particularly in hospital labs. As I mentioned at the outset, we've already launched in the EU. We're in market in a limited launch with our respiratory viral panel for respiratory panel and have received very positive customer feedback today including requests for additional instruments we expect 2022 to be a busy year for zavanna and as we work toward eua for rvp4 and 510k submission for our rvp 11 assay as well as for our hsvvv sti and gastrointestinal panels we also plan on automating our manufacturing line thereby substantially increasing our production capacity for our Savannah cartridges. Once launched in the US, we're targeting revenues of over $300 million per year within three years. Much of that will be determined by our ability to manufacture instruments and fully automate cartridge manufacturing lines. But if we've demonstrated anything during this pandemic, it's that we can scale rapidly. which bodes well for a flawless, successful launch. Aside from our team's extraordinary execution and scaling our operations to help meet demand for COVID-19 testing, our biggest highlight came at the very end of the year with the announcement of our agreement to acquire Ortho Clinical Diagnostics. We believe this transformative acquisition will position Quidel as a global leader in diagnostics, substantially diversifying our product pipeline while widening our global reach and scale. Our agreement to acquire Ortho for a combination of cash and newly issued shares in the combined company is expected to make us one of the larger pure play diagnostic companies in the industry. Bringing our two leading companies together will give us the ability to leverage complementary expertise and an unparalleled range of capabilities to drive growth into new markets. The highly complementary nature of Quidel's and Ortho's product portfolios is expected to create ample cross-selling opportunities across a diverse customer and channel mix, enabling us to maximize the value of existing platforms and drive worldwide growth. Future revenue synergies are particularly attractive with Savannah, given Ortho's deep roots among laboratory customers and extensive global commercial reach. Driving global commercial execution of Savannah will be a chief priority for us in 2022 and beyond. The planned ortho acquisition is expected to more than double our global market opportunity, estimated to be worth over $50 billion between the point of care, clinical chemistry, and transfusion medicine categories. Financially, it allows us to maintain 9% to 11% top-line growth post-COVID and generate 30% or more EBITDA margins and substantial operating cash flow creating a pathway for strong value creation over the long term. Culturally, Quidel and Ortho are an excellent fit, which was a key factor in our decision to move forward with the acquisition. Both companies share a passion for advancing innovation and enhancing the well-being of the customers, patients, and communities we serve. Of course, we are already hard at work setting the stage for a smooth integration. With our proven experience in successfully integrating acquired businesses into our operations, we are confident we have the right processes in place. And with the help of the great people at Ortho, we believe that we will achieve the milestones we've set for ourselves once integration plans can be implemented post-closing. For a bit of background, our integration approach will be similar to the process we used to integrate the Aaliyah assets. a transaction that doubled the size of our organization at the time. In some ways, that acquisition presented a more technically challenging integration. It was a carve-out asset purchase that did not include international entities and required a lengthy, staged, deferred closing process throughout the world over a number of years. We also spent a significant amount of time understanding dealer culture, how a triage product was manufactured and sold, and the ins and outs of the Beckman BMP business. So we devoted a lot of energy to finding the right integration structure and working collaboratively with our new colleagues and third party integration specialists to plan for a successful integration. It was essential for us to get it right. And in the end, we harvested about $20 million in synergies from a $250 million set of businesses in a little over two years and significantly delevered from over four times leverage to under one time. We also improved the company morale, which had been underprioritized in our view. Given this experience and outcome, we believe we have a good system in place that is thoughtful, effective, and reproducible. Ortho was a great company with very talented employees, strong processes, and a positive customer-centered culture. We believe that both Ortho and Quidel can learn from each other and are taking a truly collaborative approach. We've appointed integration planning leaders on both the Quidel and Ortho sides, Kristen Kaltreiter and Bob Dunn, who are aided by a select team of employees focused on the integration and third-party integration specialists. Our approach is currently broken down into three parts. First is integration strategy and day one planning. Second is day one readiness and execution. And third is the post-execution phase. We plan to identify and utilize the best of what makes both companies exceptional. Philosophically, our guiding principles for the post-closing integration involve six points. Ensure continued momentum and preserve decor across both businesses. Empower leaders with the right tools and information to make decisions that drive continued growth. Rich D' energize and retain team members at quite L and ortho with proactive communication and retention incentives throughout the integration. Rich D' capture projected costs energies by leveraging combined scale to businesses enhance our go to market model to maximize commercial benefit benefit and capture projected revenue synergies and optimize r&d priorities to match future strategy cross us and X us. We've identified $90 million in expected cost synergies that we think are achievable by the end of the year. By the end of the third year, excuse me. These cost synergies are driven by operational efficiencies, supply chain optimization, and shared administrative functions, including duplicative public company costs. Further, we've identified $100 million in expected revenue synergies by 2025, with approximately 80% to come from cross-selling opportunities. and our expanded geographical footprint to sell Savan and other products in ex-US markets. Our integration teams are working well together in planning the integration, and I believe that shortly after closing, we will begin harvesting synergies, paying down debt, growing both businesses, and bringing together two remarkable organizations. In addition, as you saw in Ortho's 8K yesterday, Chris Smith, Ortho's CEO and Chairman, will be joining me as a special advisor. Since 2019, Chris and his team have rejuvenated their company, and I think it would be short-sighted to not avail myself of his experience and expertise to assist me in thinking through things that we know that we will need to address, as well as those that are unknown at this time. Based on our current expectations, we anticipate holding the special meeting for stockholders to vote on the acquisition in late April. and expect the acquisition to close in the first half of the year. The completion of the acquisition is conditioned upon, among other things, the early termination or expiration of any applicable waiting period under the HSR Act. The good news is that effective at 1159 p.m. Eastern on February 9th, the waiting period under the HSR Act expired with respect to the acquisition. However, the completion of the acquisition remains subject to other closing conditions. Post closing, we anticipate the integration will be complete within approximately two years. In closing, I'm enormously proud of our accomplishments in 2021 and want to thank our entire Quidel team for the courage, creativity, and resilience they showed personally and collectively in driving our business forward amid all of the challenges of a second pandemic year. Their steadfast commitment to our mission of advancing diagnostics to improve human health is responsible for our success as a company and as an impactful corporate citizen when our contributions mattered most. We look forward to driving further operational excellence in 2022 through strong execution against our growth roadmap. As we work to support our customers, partners, and patients beyond the threat of COVID-19, we see great opportunities that lie ahead for Quidel to grow our core business and advance our diagnostics portfolio to improve the quality of healthcare and health outcomes across the globe. With the US launch of Savannah and the planned ortho acquisition, we have many great opportunities to continue accelerating the growth throughout 2022 and beyond. I'm excited to see our company further transform into a leading diagnostics player as we execute on those opportunities to enhance our competitive positioning and create long-term shareholder value. Randy?