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Operator
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.
Brian Brockmire
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.
the Quidel Ortho
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.
Brian
Thanks, Doug, and good afternoon, everyone. I'll begin with a bit more detail on our operating results for the quarter and the full year. As mentioned previously, to facilitate a comparison of the company's operating performance from the fourth quarter of 21 to the fourth quarter of 22, and from the full year of 21 to the full year of 22, All growth rates that I referenced are presented on a supplemental combined basis as if Quidel and Ortho had been combined for the applicable periods and may be referred to as supplemental combined information. So let me start by saying that one, we finished the year strong with a great Q4 that exceeded our expectations and two, we are today providing 2023 guidance that is in line with our three-year outlook that was provided at the investor day in December. I will now provide more detail on both those areas. Starting with a breakdown of Q4 revenue on slide seven, in the fourth quarter, we recorded revenue above the guidance we provided in November. Revenue excluding COVID related revenue came in at 734 million, which is up 18.6% in constant currency driven by point of care and molecular diagnostics. COVID related revenue totaled 132 million in the quarter. So in total, we recorded revenue of $867 million, a year-over-year decrease of 23% in constant currency. And currency translation decreased sales growth by about 180 basis points, resulting in total sales decline of 25%. For the full year, however, total revenue was up 10% in constant currency to $4.1 billion. Excluding COVID-related revenue, full year revenue increased 11% in constant currency. Note that as we and others in the diagnostic space have been saying for several quarters now, we believe COVID-19 is transitioning to an endemic state, and we now see it as just another respiratory disease. And appropriately, we'll begin to bucket COVID-19 revenue with our other respiratory revenue in 2023 and forward. Turning to our Q4 performance by business unit, On a constant currency basis and excluding COVID-related revenue, point of care revenue grew 138%, largely driven by pull-through of our broad respiratory menu. These results reinforce our view that our SOFIA system has been and will continue to be the beneficiary of tailwinds associated with increased respiratory testing, especially among the 85,000 cumulative instrument placements. Labs revenue declined 10% in the quarter, primarily due to the continued lockdown challenges in China. Transfusion medicine revenue grew 1% with high single-digit growth in donor screening driven by plasma demand, partially offset by immunohematology due to lower procedure volumes in China. And finally, molecular diagnostics revenue grew 45% in the quarter, though this is on a relatively low base. Now, looking at our quarterly performance by geography on a constant currency basis and excluding COVID-related revenue, North American revenue grew 38%, AMIA declined 3%, China declined 27%, and other regions, which includes Latin America, Japan, and other Asia-Pacific markets, grew 7%. North America, our largest geography by revenue, delivered strong growth, excluding COVID-related revenue driven by point of care, And though it didn't immediately impact the quarter, we recently received two government contracts. One, a one-year $108 million U.S. government contract for quick-view at-home COVID-19 tests. The contract provides for an expected value of $54 million and a maximum order value of $108 million. We did ship only a few million tests of this order in Q4, and we expect to ship the remaining tests in the initial $54 million order primarily in Q1. And then more recently, we received a second U.S. government contract for up to 37 million COVID deaths for a total of approximately $97 million. We shipped a very small amount in late Q4, but most of this non-guaranteed contract is also expected to ship in Q1. In EMEA, revenue growth, excluding COVID-related revenue, slowed as lab volumes were negatively affected by the timing of tenders. Positively, point of care grew strong double digits driven by strength in both Sophia and triage. In China, which makes up about 10% of our total company revenue, new COVID-19 lockdowns caused a double digit decline in hospital visits, which had a severe impact on our recurring revenues. Positively, though, late in the fourth quarter and into Q1, we saw increased testing and an acceleration of orders. The end of China's zero COVID policy is expected to support accelerating demand as we move through 2023. Looking at our Q4 revenue by category, recurring revenue which includes reagents, service, and other consumables grew 5% and was up 24% excluding COVID-related revenue. Quick view revenue was down 72% but up 371% excluding COVID-related revenue. instrument revenue grew nine percent driven by strong cast instrument sales in our tm business including a few nice large wins in north america global supply chain challenges continue to limit our ability to deliver instruments in our labs business giving q4 seasonality and instrument demand open labs instrument orders were up modestly from the third quarter that said customer demand continues to be strong and we are prioritizing new instrument placements and integrated instruments in order to maximize our recurring revenue pull-through. Now, turning to slide eight, I'd like to comment on our fourth quarter financial performance below revenue versus the prior year, again, on a supplemental combined basis. Although year-over-year growth rates were negatively impacted by the decline in COVID-related revenues, we delivered a strong quarter performance below the top line. Gross profit margin for the quarter was 54.6% in line with our expectations and down from prior year, largely due to the decline in COVID-related revenue as we transitioned from a pandemic state to an endemic state, as well as FX headwinds, partially offset by favorable base business mix. Adjusted EBITDA also declined year over year, again, due to the transition from a COVID-19 pandemic state to an endemic state, resulting in adjusted EBITDA of $245.1 million ahead of our expectations due to the strong revenue. Adjusted EBITDA margin contracted year-over-year to 28.3%, again, better than our expectations. Net interest expense for the period was $34.1 million. A decrease of $2 million is anticipated due to lower interest rates, partially offset by the increase in the average outstanding debt balances related to the combination. Our provision for income taxes was $39 million compared to $92 million for the prior year period. This represents a fourth quarter adjusted tax rate of 25.4%, bringing our full year adjusted tax rate to 22.5%. Our adjusted earnings per fully diluted share for the fourth quarter was $1.76 above our guidance and compared to $5.12 in the fourth quarter of 21 on a supplemental combined basis. The higher EPS in the fourth quarter of 21 was driven by the greater COVID-related revenue than in the fourth quarter of this year. And for the full year, our adjusted earnings per fully diluted share was $13.80 compared to $13.60 in 2021 on a supplemental combined basis. Turning to cash flow and balance sheet on slide nine, in the fourth quarter on a GAAP basis, we generated operating cash flow of $169 million And after funding $59 million in CapEx and adding back $25 million in integration and other costs, we estimate recurring free cash flow to be $135 million or 55% of our Q4 adjusted EBITDA. In terms of capital deployment, in the fourth quarter, we did not buy back any shares as we focused on bringing down our net leverage through a combination of paying down debt and building cash on the balance sheet. We paid down $52 million of debt in Q4 for a total of $104 million in the second half of 2022. We intend to maintain a flexible and balanced approach to share repurchases and debt paydown going forward, which will include debt paydown of at least the required $206 million in 2023. We ended the quarter with cash, cash equivalents, and marketable securities of $366 million, a total debt of $2.6 billion. We ended the quarter with 1.5 times net debt to EBITDA on a supplemental combined basis. And consistent with what we said at our December investor day, as COVID-related revenue declines to an endemic level over the coming year, we plan to maintain prudent levels of leverage and expect leverage to increase up to approximately two and a half times by the end of 2030. And we believe that we are in a good position to continue to invest in the business. The leveraging is a top priority for us and we have a goal to be at or below two times net leverage by the end of 24 while maintaining flexibility for strategic smaller M&A opportunities. Okay, now turning to our fiscal year 2023 guidance on slide 10, first I'd like to provide some broader context on this outlook. Going forward, although there may be spikes and no one really knows for sure, we assume COVID-19 transitions to an endemic state. similar to other seasonal respiratory viruses. And we plan to bucket it with those other respiratory viruses in 23 and forward. And while 2022 included a record-setting respiratory season, including flu and COVID-19, we expect 23 to return to a more normal respiratory season. We expect to continue to capture and grow our share of the respiratory market underpinned by our large and growing Sophia placements. Outside of respiratory, the point-of-care market is healthy and is expected to deliver strong revenue growth in 23. Our trans-user medicine business is expected to be about flat, with solid growth within our core IH business and softness in donor screening. Labs instrument supply issues are expected to modestly alleviate as we move through 23, which, along with an anticipated recovery in China, are expected to drive solid growth, it is a little more back half loaded. Savannah sales in Europe are expected to drive strong growth within our molecular diagnostics business, which along with the expected ramp in the US volumes after receipt of regulatory clearance, are expected to drive meaningful revenue in the back half of the year. Given the volume strength we're seeing in stat labs through to the end of the lockdowns in China, our recent launch on the Vitros XT3400 and our localization plans, we are expecting strong double-digit growth in China, excluding COVID-related revenue. And then finally, inflation and global supply chain disruptions continue to be a challenge. However, we are seeing greater access to semiconductor chips and expect challenges to further ease as we move through the year. So in light of these dynamics, we are introducing the following fiscal year 23 guidance, which is in line with our three-year model as presented at our investor day in December. Total revenue of 2.8 to 3.1 billion. Breaking this down further, revenue growth, excluding respiratory sales, is expected to grow 4% to 6% on a constant currency basis to 2.21 to 2.25 billions. respiratory revenue of $610 to $875 million, which includes COVID revenue of $300 to $500 million, rapid flu revenue of $230 to $270 million, and other respiratory revenue of $80 to $105 million. And this includes some benefit of recently awarded government contracts and is compared to 2022 supplemental combined total company respiratory revenue of $1.8 billion. Adjusted EBITDA is expected to be in the range of 800 to 850, representing a margin of 27.4 to 28.6%. Adjusted diluted EPS is expected to be in the range of $5 to $5.60, which includes the increase in the interest rate environment over the last year. In addition, I'd like to provide assumptions that may be helpful for modeling purposes. At current rates, We expect currency translation to be about neutral to full year sales and adjusted EBITDA. There are no differences in the number of billing days in 23 compared to 22. Net interest expense is expected to be in the range of $145 to $150 million. We're expecting a full year adjusted tax rate of about 23.5%. And consistent with what we've said at our investor day, we expect recurring free cash flow to be at the lower end of the 50% to 65% of adjusted EBITDA. And then finally, full-year diluted weighted average share count of 67.2 million. So in summary, the fourth quarter results were exceptional as our positioning in the respiratory market drove strong results, even as our largest and generally most resilient business, labs, faced temporary weakness largely due to the China lockdowns. In 2023, we expect a normal respiratory season, which will cause a difficult comp in 2023, and we expect labs to bounce back and support our business model, as our guidance indicates. This 2023 guidance provides for a two-year CAGR for revenue, excluding COVID, in line with the 6% to 9% long-term outlet we provided at the Investor Day. And beyond 2023, we fully expect to continue delivering on our high single-digit long-term growth profile. So with that, operator, I think we're now ready to open the call up for questions.
Operator
If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question comes from the line of Andrew Brackman of William Blair. Please proceed.
Andrew Brackman
Hey, guys. Good afternoon. Thanks for taking the questions and appreciate the clear comments and the value drivers in the scripts. I thought that was helpful. Maybe if I could just start on the guide here. You know, a lot of moving pieces, I think, Joe, as you called out, I think a lot of those were already anticipated. But maybe just as we sort of think about those crosswinds impacting the business to get to that 4% to 6% base number, Can you just maybe talk about how you're thinking about the progression of those variables through the year? And then I guess, how does that also impact your thoughts on pacing here? Thanks.
Brian
Yeah. Hey, Andrew. Thanks for the question. As in the comments, I do think that, in particular, the labs growth will be a little more back-end loaded for a couple reasons. One, the China recovery, we expected that will be a little more back-end loaded. And then also... the labs instrument back order recovery will certainly be a little more back-end loaded as well. So I think that is going to push a little more of the revenue that growth into the second half of the year, particularly Q4. I would also add that given how the respiratory season played out in 2022 with a very strong flu season in Q4 that sort of ended fairly quickly at the end of Q4, We're not expecting a very heavy respiratory season in Q1, but we are expecting, you know, a fairly typical respiratory season in Q4, which, again, is going to move some more of that revenue into Q4.
Andrew Brackman
Okay. Thanks for that. And then I guess just a similar question on the profitability front. Any thoughts on pacing there? And then it looks like the dollars for both EBITDA and adjusted earnings per share were a little bit higher than feared here. So... Any comments or any thoughts around specific gross margin sort of trends for the year and sort of how we should be thinking about OPEX? Thanks.
Brian
Yeah, consistent with what I've said on previous calls, we still expect in 2023 that seasonality is going to have our Q2 and Q3 quarters be the lightest quarters of the year, particularly Q2. And because of that, when you've got those lower revenue quarters with still a level of fixed cost, that's going to produce lower gross margins and EBITDA margins in Q2 and Q3. And then with slightly stronger revenue quarters in Q1 and Q4, you're going to have the stronger GP and EBITDA margins in Q1 and Q4. And so it's going to get you for the full year, as we've been saying, GP margins sort of in that low to mid-50s range.
the Quidel Ortho
And if I can just add, Joe, that, and I think Most of our investors know this. Historically, Q2 has been our lowest quarter in terms of revenue. Okay.
Joe
Thanks, guys. Thanks. Thanks, Andrew.
Operator
Thank you. The next question comes from the line of Andrew Cooper of Raymond James. Please proceed.
Andrew Cooper
Thanks, guys. I like the back-to-back Andrews here. But just to kind of jump into it, one thing I think investors are certainly going to be keyed into is the commentary for 2023 being normal and that $300 million to $500 million of COVID. I think it sounds like it does include those government contracts or at least some contribution from. So can you give us a sense for you know, where you're sort of settling out of what normal might be for COVID and, you know, how that's going to play out through the course of the year, kind of in context of, Joe, what you just said about some of the seasonality and flu and respiratory in general.
the Quidel Ortho
Yeah. Hey, Andrew. The 300 to 500 is still our range. So that's consistent. And we can talk about the government contracts, but we're not treating that as normal and usual.
Brian
Yeah, and it is exactly. It's consistent with what we said at investor date. We were saying 200 to 400 for endemic state, and it's up 300 to 500 because you've got this level of government contracts that we know we have in hand. So there's no change there.
the Quidel Ortho
Yeah, that's what I was trying to say.
Brian
And there's no change in what we're defining as a normal flu season either, that 230 to 270 million. which is the same guidance we gave for 2022. We're back to that, what we're calling a normal flu season. And that's inherent in this 23 guidance.
the Quidel Ortho
Okay, perfect. That's helpful. Do you want to talk about total respiratory as well?
Brian
Yeah, those are the main two pieces. And then you've got, you know, what I'll call just other respiratory, which would be molecular and RSC-strapped in the 80 to 105 million dollar range.
Connor Magnamara
So those are the three pieces.
Andrew Cooper
Exactly. Perfect. As a rare adult fighting strep right now, I appreciate that piece of the business. Maybe just next on some of the OUS business, specifically in labs, can you give us a sense for sizing of, you mentioned the EMEA tender impacts versus supply chain kind of dynamics versus the China just lockdowns, and give us a sense for, as those lift, how big each of those could contribute from a growth perspective?
Brian
Well, I can start, and then, Doug, you can add in color. For EMEA, Andrew, I wouldn't say that the tender's timing was significant. It was really more tender timing from 21 to 22 Q4 that's causing the issue with the growth rate in Q4 of 22. So I fully expect that we're going to get EMEA into the low single-digit growth range, which is where it was in 22 as well. So there's really... Nothing new there. We still expect the media to be in the low single-digit growth range in 23. In China, it was a really difficult quarter, no doubt, for China. But when you look at the decline in outpatient visits in the overall market, our number, it makes sense.
the Quidel Ortho
The number of patients is down 25%. So it pretty much mirrors what was happening. And it's not different than what we see from other companies in that country as well. Correct.
Brian
And we have seen, since things have opened up, we're seeing flow through on our boxes increase nicely. And so we do have a lot of confidence in the double-digit growth in 2030 for China, as I mentioned.
the Quidel Ortho
In fact, it's been that for a couple of months now. Okay, great.
Connor Magnamara
I'll stop there and hop back in the queue. Thanks. Okay. Thanks, Andrew.
Operator
Thank you. The next question comes from Patrick Donnelly of Citi. Please proceed.
Patrick Donnelly
Hey, guys. Thank you for taking the questions. Joe, maybe one on the EBITDA side. I know you're well aware of the amount of focus people have on this one, so I just want to make sure we understand kind of the 23 guide. I mean, is this the right stepping off point going forward, right? I don't mean to ask about 24 already, but when you think about that 28% in the middle, you kind of mentioned you have maybe 100 million of COVID on government contracts. I think those tend to be a little lower, at least in kind of retail, and maybe they're on the corporate average. But I think there's this fear that, you know, as COVID comes out, you know, 24 then takes a step down. Is this the right kind of stepping off point on EBITDA? Maybe just talk about some of those moving pieces as we work our way through the year and kind of look forward.
Brian
Hey, Patrick. Yeah, I think it is a pretty fair jumping off point because if you go back to the point we just made on COVID, there's really no change there, you know, with that endemic level of annual revenue being it's 200 to 400. And you're right, it's up another 123 guide because of those government orders, which, again, like you said, doesn't carry you know, super significant amount of margin. So I do think it's a good jumping off point. And, you know, so the midpoint of our EBITDA margin guide is at 28%, which is what we talked about at the investor day in December. It's right in the middle of that 27% to 29% range that we gave. So we do feel pretty good about that. But, you know, going back to Doug's comments, there is a goal to get it up to 30%. the EBITDA margin, no doubt. And, you know, we, we know how to get there. It's going to get, we're going to get there through greater revenue growth and we're going to get there through overachievement on synergies.
Patrick Donnelly
Okay. That's, that's very helpful. I appreciate that. And then Doug, maybe on the Savannah timing and assumptions, can you just talk through, I guess, the timeline here? You know, I think this quarter is supposed to be around the five, 10 K submission. It seems like EUA probably not, not happening, but, Can you just talk about where we are, the pathway here in the U.S., and then maybe just the assumptions that are layered into the guide here on our way to that 250 million number? I think it's over three years, but just how we're progressing there and, again, the timeline in the U.S. would be great.
the Quidel Ortho
Yeah, thanks for that question, Patrick. I think it'll help us clarify just where we're at. We're still expecting RVP for EUA in April. and the 510K will be just shortly after that. So we're very much on track for a launch. As I said, the instrument build issues have been largely resolved. We think we are already at the capacity to have a meaningful launch, and we're at a point where most of the effort right now is around cartridge ramp-up So we've got manual lines that we have in place. Obviously, we think we can meet the immediate demand in Europe there. We're doubling down on the manual line, potentially, depending on the timing on the automated line. But we expect to have the ability to make millions of cartridges very shortly. So I think we're in good shape. It's been a while. So... I'm anxious to see how well we do. And I would say I'm at our kickoff meeting in the United States, and we're hearing a lot of hi-ho and a lot of cross-selling that's been effective, mostly the other way at this point, because we're talking about vitreous clinical chemistry instruments and amino acid analyzers. But I'm encouraged with the cooperation, the collegiality, of the group. I like the attitude. I like the can-do attitude. The training here is going extremely well. And so I think we're in good shape. It's not just about making product. It's also about commercializing.
Patrick Donnelly
Yep, understood. It has been a while, but looking forward to seeing it out on the market. Joe and Doug, thank you guys.
the Quidel Ortho
Thanks, Patrick.
Operator
Thank you. The next question comes from Connor Magnamara of RBC. Please proceed.
Connor Magnamara
Hey, guys. Thanks for taking the question. I appreciate it. Just getting back to the respiratory business. Can you guys hear me? Can you guys hear me okay? Yeah, absolutely. Thank you. Just getting back to the respiratory business, if you just think about kind of all of the moving pieces for this year, including the government contract on COVID. Going into next year, and again, not getting into next year's guidance, but just going forward, how should we think about the total respiratory business size-wise, including all of that? And then once you do have Savannah, how does that change the size of that business?
the Quidel Ortho
Yeah, go ahead, Joe.
Brian
Yeah, I can start here. And again, breaking it up into the pieces, Connor, I think we would, again, go back to the the COVID 200 to 400 million, and the rapid flu in the 230 to 270. Those are the two base numbers. And then the Savannah number, that number is a little bit of a TBD as you move into 24, obviously, because it's going to be based on the slope of the ramp or the launch. Because obviously some of that Savannah ribbon is going to be respiratory, the RVP4 and RVP11. And then you've got that other piece, I mentioned that the RSV and the strep, we call it 80 to 100 million. And so those are your pieces as you move forward.
Connor Magnamara
Got it. Thanks. Makes sense. And then, Doug, you just mentioned some of the cross-selling excitement. And without Savannah, what are some of the areas of success that you're seeing some of the reps have cross-selling? What are they really excited about?
the Quidel Ortho
Well, right now, mainly in the U.S. at least. mainly the former Quidel people taking the ortho people into account. And we've got a number of closes pending. It's encouraging. XUS, we're a little bit surprised by the enthusiasm for the triage platform and the opportunity there with our cardiovascular assays. And I think it would be fair to say that we've been reasonably successful in a limited launch in Europe with Savannah, too.
Connor Magnamara
Great. Well, thanks for taking the questions. I appreciate it. Congrats on a nice quarter. Thanks, Kai.
Operator
Thank you. The next question comes from Eliza Garcia of UBS. Please proceed.
Eliza Garcia
Hey, guys. Thanks so much for squeezing me in here. Really appreciate it. So I appreciate there are kind of some moving parts in the lab business and the 600 open orders that I think you've kind of given, you know, it could add an incremental 2% to the top line if you were to kind of fulfill those orders. So I guess if you could maybe provide even like guideposts of how to think about, you know, what's layered into the guidance or just an upside downside case kind of in the resolution of this, you know, how quickly it could be or is there any capacity constraint and how to think about it?
the Quidel Ortho
Well, I think it would be fair to say that we have increasing visibility to the supply chain necessary to manufacture the instruments. And it wasn't by eliminating the entire backorder that we got to the two-point improvement in growth. It was to get it down to somewhere around 150 or so. Which was a normal level. Which would be normal if you would exit a typical year at about 150. So just to be clear, we're talking about... probably an increasing close rate with boxes, which naturally would create more backorder. But we're pretty confident that we can observe the additional instruments as well and get back to a normal exit rate in 2023. But that's not going to happen immediately either. We're improving. We have a little bit of encouraging news for the first quarter, but it's not at the level quite yet that we are needing to be at. I hope that's clear. Joe, do you want to add something?
Brian
Yes, that's right. And, Les, I would just add that in the guide, we did not, just to be clear, we did not assume that the full back wall goes from 650 to 150. We assumed that it came down modestly. It is going to take into 24 to drill that all the way down to where we want it to be.
Eliza Garcia
Okay. Super helpful. Um, and you know, I guess just a, could you confirm kind of, I think you had said three 50 for flu, if that was real, if that's how the year shook out for 2022. And then, um, you know, you've been kind of pointing back to the triage true opportunity. Oh, you asked, how should we think about the highly sensitive troponin test and kind of any updates around potentially in the U S as well? I'll watch there.
the Quidel Ortho
Yeah. First question first, I guess. To be clear, I think I heard you say the total flu is 350 million. In 22. In 22. That's correct. Is that what she said? Yes. So she stated that correctly. Yep. And the second piece? Triage.
Jack Meehan
Oh, yes.
the Quidel Ortho
Sorry, sorry. Actually, I missed that. Yeah, we're at the point where we're working with the FDA to determine next steps with respect to that submission. And once we get through those conversations, we'll be prepared to disclose where we're at. But right now, we're still working with the FDA. But we are selling in Europe under CE. Yeah. There's two questions. Let's be clear. Eliza, are you asking about triage or are you asking about on the vitro system? Triage.
Eliza Garcia
Triage.
the Quidel Ortho
Oh, you're asking? Okay, perfect, perfect. Yeah, we are currently. And, in fact, we are in the process of setting up an automated manufacturing line for the high-sense troponin on the triage. And we fully expect that the yields will be better, that our costs will be better, and we should be competitive in that market. So I think it's safe to say that it's a pretty good opportunity for us there.
Eliza Garcia
All right. Thanks so much, guys, for taking on the questions.
Joe
Thank you.
Operator
Thank you. The next question comes from Alex Novak of Craig Hallam. Please proceed.
Alex Novak
Okay, great. Good afternoon, everyone. I want to continue on the theme around the flu season and just kind of think about it here for 2023. You put the flu number at 230, 270 million for 2023, but you go back to 2019, you did 140 million of flu sales that year. So is this really the new normal with combo testing, or is the difference really more about the share gains that you were talking about? And if it's share gains, what does that mean for the rest of the Sophia business that you could pull alongside that instrumental?
the Quidel Ortho
Well, it is due to share gain because remember that we placed a significant number. We were, in the year that you're talking about, I think our total install base in the U.S. was under 40,000. Globally, I think we were at 42,000. And we're now 77,000 instruments in the United States, 21,400 customers. That's up 6% over the prior year. trailing 12-month period. Yeah, we have an expectation that we'll have to pull through on the product, but that shows up in RSV and strep, as Joe mentioned. I think it's a pretty reasonable estimate for the time being. I sense that you're challenging us a little bit and thinking it could be higher. That's possible, but I think we have it pegged right for the moment.
Alex Novak
Okay, makes total sense. And then I just want to get some clarification around the EBITDA to free cash flow conversion. The 245 adjusted EBITDA, I have actual free cash flow being like $76 million. I know there's some one-time minus in there, so your recurring free cash flow number is a bit higher than that. But can you maybe walk through the divergence between EBITDA free cash flow, recurring free cash flow this quarter, and then what to expect in 2023?
Brian
Yeah, the quarter recurring free cash flow, Alex, was $169 million of operating cash, less $59 million of CapEx cash. and then you later on add back, if you will, $25 million at one time or non-recurring, and that gets you to $135 for the quarter, which is 55% of our adjusted EBITDA. And looking forward into the guidance, we expect to be in that same range for 2023. You know, call it the low end of the range of 50 to 65, so somewhere in that 55% range makes sense for next year. For this year, I should say, 2023.
Alex Novak
Okay, so expect that for next year. Yeah, that's right. Okay. Got it. Thank you. Sure. Thank you.
Operator
Thank you. The next question comes from Jack Meehan of Nefron. Please proceed.
Jack Meehan
Thanks. Good afternoon. On guidance, I was hoping you could just draw a finer point on first quarter expectations for COVID, flu, and the other respiratory, you know, in the CDC data, we've seen this rapid drop-off in flu activity. I'm not sure what you're seeing in Virena, but I just want to make sure we have the right expectations for those three buckets in one queue.
Brian
Yeah, hey, Jack, how are you? Given, I think I said earlier, you know, the respiratory season did drop pretty quickly at the end of Q4, so we are expecting a fairly light drop I will call it flu season. COVID's still hanging in there. If you look at the infection rates, COVID's still hanging in there. ILI came down, flu, but COVID's hanging in there. And then we've got the government contracts as well. So I think we'll have a decent respiratory season in Q1, driven more by COVID than flu. And then Q4 is where the rest of that you know, that respiratory season is going to go in the guidance.
the Quidel Ortho
Yeah. Let me just add a little color because Jack asked about the Virena data and most of the audience doesn't have access to it. You know, when I look at the charts, I see pretty drastic drop off in positivity rates, but the positivity rates are still higher than they normally would be at this time. So, um, and it, but, but to be fair, it did peak what the second week in December. Um, and, and so it's been coming down, um, Pretty nicely. So I think you're right, though. We should have a reasonable first quarter. It just won't be the normal biggest quarter in the year that we would expect.
Jack Meehan
Got it. And then I know, I think Joe and you, Doug, both kind of referenced China. You know, so down 27% ex-COVID is... How much of this was in the core lab business versus transfusion medicine or legacy Quidel? And just what do you expect for the region in the first quarter?
the Quidel Ortho
Well, just overall patient volumes being down 25% period, and I don't know. Most of the labs.
Brian
Everything was down. Everything was down, but it was, you know, the biggest chunk of it's going to be labs. And Q1, it's bouncing back. We are seeing nice flow through on the instruments in Q1.
Jack Meehan
Would you expect it to still be down here, though, in the first quarter?
Brian
It'll be up. Yeah, it'll be up.
Jack Meehan
Okay. Last one, if you'll humor me, just molecular. Is there any granularity you can provide around the forecast just for 2023 for that segment?
Brian
Well, I mean, again, I think it's going to be back-end loaded. The growth will be mostly back-end loaded, again, due to Savannah and the regulatory clearance in the U.S. I think that's probably the best color I can give you. Okay. Thanks, Joe.
Joe
You got it.
Operator
Thank you. The next question and the final question comes from the line of Casey Woodring of J.P. Morgan. Please proceed.
spk08
Great. Hi, guys. Thanks for fitting me in. I guess just on pricing, what's your expectation for respiratory pricing in 23 versus 22, and how should we think about that trending across your different products within those three buckets?
the Quidel Ortho
Yeah, we're still hanging in there price-wise. We expect flat price.
Andrew Brackman
Got it, that's helpful.
spk08
And then just last one. In terms of the sites with multiple SOFIAs, particularly the hospitals that have five or six on average, you noted in the prepared, what gives you confidence that those multiple instrument sites won't consolidate? And then can you just elaborate on those multi-year contracts? How much visibility do you have into those flu and those other respiratory revenue numbers?
the Quidel Ortho
So a couple of things. Hospitals is 7.5 instruments per hospital, to be clear. In terms of consolidation, I think the most important point that I made was that only 8% of those boxes out there just run COVID. So you could expect, for example, the boxes in the nursing homes would be returned. You can expect a handful of customers that would maybe run COVID. Just COVID only could be an opportunity to consolidate, but at the end of the day, we haven't seen it yet. So I don't know how to forecast it moving forward, but I would just say we're not seeing it yet.
spk08
Got it. That's helpful. Thank you.
the Quidel Ortho
Thank you, Casey. All right, I think that's all for the questions. I want to thank everybody for your great questions, actually. And in closing, thanks to the extraordinary dedication of our folks. We really did have a strong finish to 2022. Once again, the integration is going well. And when I say that, I'm not just talking about cost and revenue synergy. I'm talking about watching the people get together And across the board, whether it's in the factories or in meetings, supply chain, or, you know, the commercial folks. I think everybody's getting along tremendously. People are happy. And I'm expecting great success from 2023 onward. So.
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