QuidelOrtho Corporation

Welcome to the Quitout Ortho fourth quarter and full year 2022 financial results conference call and webcast. At this time, all participants are in listening 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 call is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call. I would now like to turn the call over to Brian Brockmire, Vice President of Investor Relations. Brian.

Thank you, operator. Good afternoon, everyone, and welcome to the Quidel Ortho fourth quarter and full year financial results conference call. With me today to discuss our financial results are Doug Bryant, Quidel Ortho's President and CEO, and Joe Buskey, Quidel Ortho's Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website, and a version of today's presentation can be downloaded there. Before we begin, I will cover our safe harbor statement. The statements we will make during this call about the company's future expectations, plans, and prospects include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a safe harbor for such statements. Our use of forward-looking statements is subject to a number of risks and uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. These risks and uncertainties include but are not limited to those factors identified under risk factors in our quarterly report on Form 10-Q filed with the SEC on August 5, 2022, and subsequent reports filed 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 or imply by our statements will be realized. Furthermore, such forward-looking statements represent management's judgment and expectations as of today. Except as required by law, we undertake no obligation to update any forward-looking statement or any time-sensitive information to reflect future events, developments, or changed circumstances or for any other reason. Also during today's call to facilitate a comparison of the company's operating performance from the fourth quarter of 2021 to the fourth quarter of 2022 and from the full year 2021 to the full year 2022, we'll be discussing supplemental revenue and other supplemental adjusted operating results as if Quidel and Ortho had been combined for the applicable periods. We will refer to this information as our supplemental combined information. This supplemental combined information, as well as certain other items we will discuss, do not conform to U.S. generally accepted accounting principles or GAAP. Please see slide three for a list of non-GAAP measures. 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 on the investor relations page of the Quidel Ortho website. 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 Doug Bryant, Quidel Ortho's president and CEO.

Doug? Thanks, Brian. Good afternoon, everybody, and thanks for joining the call today. I'm pleased with Quidel Ortho's financial performance in the fourth quarter and for 2022 overall. Equally, I'm pleased with the many productive things we got done in a quarter, accomplishments that I believe will set us up for continued productivity gains in 2023 and for meaningful revenue and margin growth for years to come. Today, I will highlight our financial performance briefly, and I will talk about our key growth drivers, the programs that will create accelerated revenue growth and that will be instrumental and getting EBITDA back to over 30% of revenue. As reported, fourth quarter revenue of $866.5 million increased by 36% over the prior year quarter. Supplemental combined revenue for the full year was $4.1 billion. In a quarter and for the full year on a supplemental combined basis, revenue excluding COVID revenue grew 19% and 11% respectively versus the prior year periods, driven by strength in our point-of-care and molecular diagnostics businesses. And an early and pronounced respiratory season that was marked by higher than typical influenza and respiratory syncytial virus prevalence rates. This was offset partially by weakness in clinical chemistry and immunoassay revenue in China due to the lockdowns there. Joe will talk more about China later, as well as our path to double-digit growth there for this year. By business unit, fourth quarter ex-COVID revenue in the labs unit declined 10% versus the prior year. If you were to normalize the labs business unit for China and the lockdowns, labs would be up mid-single digits. Transfusion medicine was flat at 1%. Point of care increased 138%, and molecular was up 45% from the prior year. From a regional perspective, all the regions were up or flat except China, which was down again due to the lockdowns. Overall, the newly combined organization performed well. It was a solid quarter and a good back half of the year, which bodes well for an increasing revenue growth trajectory over the next few years. I think it's important for investors and the broader market to recognize that I view Coidel Ortho as a growth company and will continue to manage our business as such. We are a customer-driven company that is executing on over 100 active R&D and clinical and regulatory projects with an expectation that we will be just as prolific in product development as we have been in the past. The three key near-term growth drivers that we are acutely focused on in 2023 are our SOFIA, Savannah, and Vitro systems and product lines. With over 85,000 SOFIA instruments installed worldwide, the SOFIA franchise is a solid, durable, and growing business. A review of our placements in the United States is informative and should be helpful to investors in understanding the longevity of the SOFIA platform as well as our longer-term strategy to address an increasingly decentralized segment of the IVD market. In the U.S., over 77,000 SOFIA instruments are on multi-year contracts, most of which include urgent care, excuse me, most of which include multiple products. Roughly 50% of SOFIAs are in the POL, 23% are in hospitals, 17% are in urgent care, and 10% are in corporate accounts. On average, POL sites have 2.7 SOFIA instruments, hospitals have 7.5, and urgent care sites have 3.4. The number of U.S. SOFIA customers is up 6% year over year to around 21,400. The number of POL customers is up 8%, hospital customers are up 2%, and urgent care customers are up 9%, offset by long-term care customers, which were down 20%, understandably, given the end to the government's COVID-19 nursing home program. As a quick aside, the total number of customers purchasing our respiratory disease rapid antigen tests, including our quick view, is over 72,000 on a year-end trailing 12-month basis. Saying that we have a meaningful presence in the U.S. outpatient settings is an understatement. Importantly, 82% of 77,000 SOFIA instruments run influenza and 70% run COVID, which explains the market share gain we've experienced over the last couple years in the respiratory disease category. And interestingly, only 8% of SOFIA instruments run COVID only. Non-COVID out sales per instrument increased 57% at year-end on a trailing 12-month basis. The Sophia franchise, with its huge installed base, is clearly a valuable asset, one that can and should be leveraged by us to the greatest extent possible, which is why the R&D team is so focused on developing additional menu for our Sophia customers. The number of companies pursuing point-of-care molecular solutions that would potentially address the need for smaller syndromic panels is increasing, which further validates our efforts and strategy to bring Savannah to decentralized access points to healthcare. I'm pleased to say that we are nearly there, nearly ready for an expanded global launch ahead of the next respiratory season. Supply chain and instrument manufacturing issues that were a challenge for us are largely resolved. and we now have the capacity to begin to ship the analyzers that we had anticipated all along. For cartridge manufacturing, we are in the process of increasing manual manufacturing lines, hiring additional staff, and installing high-volume automated lines that will produce the millions of cartridges that will be required. The first two panels that we'll launch are RVP4 and the HSV-VZV lesion panels. Beyond that, we expect to begin clinical trials for RVP11, STI, two GI panels, bacterial, viral, and a parasite panel, pharyngitis, and vaginitis. We have purposely focused our initial menu on these areas to take advantage of Savannah's unique features, faster turnaround time, test flexibility, and lower total cost of ownership. The largest of our franchises in terms of revenue representing close to 50% of our revenue, is the lab's business unit and our vitreous clinical chemistry and amino assay systems and slides. Driven by increasing global demand for our integrated chemistry and amino assay platforms and good commercial execution, we are experiencing a backorder of around 650 instruments. While most of this is due to strong demand, there is also a supply chain component which we are addressing with our suppliers. Just as we did with Savannah, I am confident that we will collaborate with our suppliers to improve forecast visibility and to resolve supply chain challenges in 2023, and I expect that we will make significant progress as we move through the year. In other words, we expect to reduce the backorder in 2023 by applying the same principles we've employed with Savannah to our vTWIST platform. In addition, We are installing two more automated slide manufacturing lines in Rochester to meet increasing slide demand. Another step we undertook in the fourth quarter was entering into a joint venture with Shanghai Runda Medical to develop and manufacture vitreous assays in China, which, longer term, we believe will translate into a faster time to market and more compelling menu for vitreous assays in support of our growth strategy in China. We also continue to progress our China instrument localization initiative. Internally, I speak often about excellent execution being a function of things done well at speed. Achieving speed requires focus, picking the two or three things that are going to matter and giving yourself permission not to focus too acutely on the things that don't matter as much, at least not currently. In other words, first things first. In my mind, these three franchises matter. Our success with these three programs will create the greatest shareholder return in the next couple of years. It doesn't mean that transfusion medicine isn't important and that our development of a next-gen donor screening platform won't be important in the longer term, because it is and it will. It doesn't mean that leapfrog and quantitative assays at the point of care aren't important in the longer term. because they are. And it doesn't mean that deploying our capital wisely isn't important because it is. But for me, in 2023, these three businesses matter most, and that's where I'm focused. Of course, I'm also following our progress with integration very closely, and it's gone well. As we transition from our interim state to our future state, over 70% of interim state milestones have been completed to date, a remarkable achievement in such a short amount of time. Following a disciplined and thoughtful approach, our integration team is ahead of expectations in both identifying and realizing cost synergies. Last year, we realized approximately $15 million in cost synergies. We have also identified the full $90 million in cost synergies over the next three years and believe that there could be even more upside. Given where we are today, we're confident that we will exceed our 2023 target of $30 million, and commercial cross-training-related training through revenue synergies is well underway. In summary, we had a fantastic quarter and a terrific year. We're ahead of schedule on our integration plans and have multiple growth drivers at work. We have a plan in place and everything we need to hit our financial targets going forward. Our path to meaningful growth as we move from 2023 onward is well understood and largely de-risked. The headwinds that we were rightly concerned about may not be the obstacles we were expecting and may not be as significant as we had originally thought. Objectively, our fourth quarter was truly an outstanding performance and sets us up for a strong 2023 and beyond. With that, I'd like to turn the call over to Joe just to further discuss our Q4 financial results and 2023 guidance. Joe.