QuidelOrtho Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation first quarter 2022 earnings conference call. At this time, all participants are in a snowy mode. Later, instructions will be given for the question and answer 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, Quidel's Senior 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. Our fiscal first quarter 2022 earnings release is now available on ir.quidel.com, our investor relations website. We will also post our prepared remarks on the presentations tab of our IR website following the conclusion of this call on May 4th, 2022, for a period of 24 hours. 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 quarterly report on Form 10-Q 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 months ended March 31, 2022. 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. and we'll open the call to take your questions. I'll now hand the call over to Doug for his comments.

Thanks, Reuben, and welcome, everyone. We really appreciate your time and interest in Quidel. We had an extraordinary start of the year. The first quarter was historic. We achieved record revenue on the top line, record profitability that flowed through to the bottom line, and record cash on the balance sheet. our first quarter truly demonstrates the earnings power of the business as we build on the significant investments we've made and execute against our growth roadmap our diverse suite of assays increasing brand strength and growing installed base of sophia analyzers continue to propel our market expansion and broaden our post pandemic opportunities our new product pipeline including our revolutionary Savannah platform that we expect to launch in the U.S. later this year, further adds to Ford momentum and runway. And yes, once again, the entire Quidel team performed very well. From product development in our R&D organization to the responsiveness of our manufacturing and operations teams to our commercial channel, we fired on all cylinders, Sark. First quarter results put us in a strong financial position, creating additional flexibility to strengthen our balance sheet while we continue to drive our R&D investment to further develop and broaden our portfolio. Let's take a look at some specifics. Revenue for the first quarter of 2022 reached just over $1 billion. That's a pretty extraordinary 167% increase. over the prior year period. It was driven primarily by strong performance in our rapid immunoassay product portfolio. Total rapid immunoassay revenue increased by $655 million in the first quarter, 22 to $893 million. We saw significant sales of quick view at home OTC COVID-19 tests. And while COVID-19 testing made up the bulk of this heightened demand, it's noteworthy that non-COVID sales grew 56%. We're almost double that if you exclude the Beckman B&P business, as we saw increased sales of Sophia ABC combination, tests for influenza and SARS, as well as increased demand for Sophia influenza tests. Although we haven't seen a typical flu season, flu continues to linger. Interestingly, ILI right now is at 2.1% of visits, and while we are seeing increasing seasonal influenza activity in a few states, this highlights the importance of diagnostic testing and the significance of having a differentiated menu, which is part of our post-pandemic strategy to widen our point of care footprint and introduce our full portfolio of assays to both patients and healthcare providers. Relative to COVID-19, we're seeing softening demand and we expect this trend to continue as we head into the summer months. In fact, we started to see this in the first quarter as test demand shifted significantly from retail outlets to the federal government and to a lesser extent to the professional segment. This shift allowed us to focus on delivering more tests to the U.S. more tests to the U.S. government than we originally anticipated. And in the first quarter, we shipped approximately 70 million quick QFM OTC COVID-19 tests to the federal government. We will ship the remaining 35 million tests to the government in Q2 to fulfill 108 million test commitments. And as you can appreciate, we remain in close conversation with the federal government and related government agencies to determine the government support strategies going forward. We are in discussions with the government to supply an incremental number of tests in Q2, Q3, and we'll update you on any order that is placed from those discussions. Our longer term expectation is that COVID-19 tests and infections and related testing demand will continue to wane as COVID-19 becomes more seasonal, similar to food demand. We currently are not forecasting a significant revenue contribution from our COVID-19 products in the back half of the year. The prospect of endemic SARS seasons amplifies the long-term benefits of the brand awareness we have generated in the strategic partnerships we have built with retail and distribution powerhouses. These trusted relationships provide us with access to point of care and over-the-counter channels for both COVID and non-COVID product lines going forward, which is exciting. Consistent with the anticipated shift in COVID-19 testing demand, we continue to bolster our resilience in the post-pandemic future by accelerating assay development and production and further expanding our footprint at the point of care. Given our pipeline, we have high confidence in our ability to capture evolving healthcare trends that will drive both future growth and profitability. These opportunities include a number of products we've discussed on previous calls, such as QuickView and our Sophia Q device, new Sophia assays, as well as new products. in our cardiometabolic and gastrointestinal segments. But foremost among our upcoming product launches is our flagship Savannah molecular platform. As you know, we already have CE approval for markets outside of the U.S., but our main focus is on getting the necessary approvals to launch Savannah in the U.S. later this year. We plan to submit our Savannah EUA for RVP4 next week, and submit our 510 in July with two more 510 panel submissions set for year end and three more submissions by the end of Q1 2023. Meanwhile, our teams are hard at work scaling Savannah instrument production and transitioning to fully automated manufacturing. Experienced as we are over the last couple of years, we've learned a lot about hyperscaling production and managing complex supply chains. And you can rest assured we're leveraging the lessons we've learned and expanding COVID-19 testing capacity to our other products. Once online in the fall, our Savannah cartridge automated manufacturing line is expected to begin its ramp up and outfit to over 1 million cartridges per month with 300 million annual revenues and anticipated within three years of US launch. Of course, we're also immensely excited by the opportunities presented by our planned acquisition of Ortho Clinical Diagnostics. As I've said before, this acquisition will more than double our market opportunity to over $50 billion among the point of care clinical laboratory and transfusion medicine segments. We're thrilled by the potential catalysts we see in a combined business. Our teams are working well together, planning for the integration and the highly complementary nature of Quidel's and Ortho's portfolios is expected to create ample cross-selling opportunities across a deep and diverse matrix of customers and channels to significantly accelerate market penetration worldwide after closing. We believe it is a truly compelling formula that can position the combined business for long-term growth and a lasting global impact in delivering advanced diagnostics that improve human health. Integration planning is going well. We've formed 15 cross-functional teams, defined 87 projects, plus defined day one, day 30, and longer timeline objectives that day one must have, either on track or completed. Operationally, no risks have been identified that would create significant disruption on day one through day 30. Of course, there's a lot of work still to be done and challenges are being identified, but no critical path items are delayed. Overall, we are very pleased with the cadence and progress that we've made thus far and are excited about getting to day one. We are bullish on the acquisition and look forward to harvesting the expected $90 million in cost synergies by end of the year three and $100 million in revenue synergies by 2025. We expect investors have recognized the value that can be created by bringing the companies together and will vote to approve the deal. Here's a quick snapshot of the process to closing. On April 11, we began mailing our joint proxy statement. On May 16, There will be stockholder meetings for each of Quidel and Ortho to vote on the business combination. On May 26, we've scheduled the UK court hearing, and on May 27, we anticipate the successful close of the transaction subject to receipt of the stockholder vote, the UK order, and satisfaction of other customary closing conditions. In closing, I'm incredibly proud of our employees and their commitment to making a positive impact in our fight against COVID and more than pleased to see them now find that same focus and commitment to their work addressing a post-pandemic world. And it goes without saying that I'm exceedingly encouraged by our performance in the first quarter. It's clearly one for the record books. and we have a long, exciting roadmap for our continued growth and success as we advance diagnostics to improve human health. It's our mission, and we're happy in the knowledge that we're making a difference. Randy?