QuidelOrtho Corporation

Welcome to the Cordell Auto first quarter 2023 financial results conference call and webcast. At this time, all participant lines are in the ceremony mode. 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. No audio replay of the conference call will be available on the company's website shortly after this call. I'd 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 First Quarter 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 Statements. The statements we will make during this call about the company's future expectations, plans, and prospects are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a safe harbor for such statements. Forward-looking statements are subject to a number of risks, uncertainties, and other factors that can 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 identified under risk factors in our annual report on Form 10-K, filed with the SEC on February 23rd, 2023, and subsequent reports filed with the SEC. Please refer to our SEC filings for 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 implied 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 statements 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 first quarter of 2022 before the Quidel Ortho combination to the first quarter of 2023, we will be discussing supplemental revenue and other supplemental adjusted operating results as if Quidel and Ortho had been combined for the applicable periods. We refer to this information as our supplemental combined information. Certain 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 Cuidado 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, Cordell Ortho's President and CEO. Doug?

Thank you, Brian. Good afternoon, and thanks, everybody, for joining us today. Cordell Ortho delivered excellent results in the first quarter, reflecting sustained high levels of execution of our growth strategy. Demand for diagnostics across the healthcare continuum remained strong. Our labs business delivered solid results and we achieved better than expected point of care sales. Further, we saw a growth across all major geographic regions, including strong performance in China. The broader medical industry is becoming increasingly aware of the need for decentralized healthcare that includes telehealth, diagnostics, and pharmaceuticals. Recent M&A activity across our industry supports the thesis that the value of diagnostics is critical and here to stay. In addition, as the US prepares for the end of the public health emergency next week, and as our company looks beyond the pandemic, we believe we have the right strategy, products, and most importantly, the team to achieve our 2023 guidance and execute on our long-term growth goals. This afternoon, I'll highlight our performance in the first quarter, discuss our areas of focus, and the clear opportunities for growth in 2023 and beyond. Looking at our first quarter, we again exceeded expectations, reporting revenue of roughly $846 million with non-respiratory revenue up 7% on a supplemental combined basis. Our respiratory revenue, which began to accelerate from mid Q3 and throughout Q4 last year due to the early and severe onset of the respiratory season, was predictably down in Q1. This shift in flu seasonality was offset by continued strong demand for our diagnostic solutions and solid non-respiratory revenue growth across all major geographic regions. As we approach the one-year mark of becoming Quidel Ortho, the strength of our combined organization is becoming apparent and our financial performance in the first quarter of 2023 is a clear indicator. Overall, I'm very pleased with our performance and results in the first quarter. Drilling down now into the results for our four business units, first, our labs, business, delivered a 15% improvement in non-respiratory revenue compared to the prior year period, with an integrated installed base up 11% and automation up 24%. We saw sizable gains across all major geographic regions, notably in North America, as well as in China, following the suspension of their zero COVID policies and subsequent recovery for non-COVID laboratory testing. We reduced our instrument backlog in our labs business by more than 20%, enabling us to ship more instruments than previously anticipated in the quarter. These shipped instruments, once installed, validated, and online, will have a modest positive impact in 2023, setting us up for 2024 growth. Continued progress on this instrument backlog is due in large part to the success of our operations team, which has expanded output across multiple product lines and is creating resiliency and redundancy within our supply chain while driving sustainable process improvements. This is a big deal, and I'm proud of their work thus far. In addition, new customer orders increased by approximately 11% from the end of Q4 to the end of Q1, which is a leading indicator of strong reagent growth later in the second half of 2023 and 2024. Second, our point-of-care business exceeded our expectations in the quarter despite the respiratory season pull forward from Q1 into Q4. We shipped more COVID tests to the government against the two contracts we had on hand, and with the public health emergency order set to expire this month, consumers acquired significantly more COVID-19 at home testing kits in the first quarter than expected. It's important to note that in this endemic phase, we're operating in a new world. We've undergone a paradigm shift where consumers are more in control over their healthcare decisions than ever before. Consumers and lawmakers formed a greater appreciation for the value of diagnostic testing. Decentralization proliferated as physician offices added point-of-care systems and learned of the value these systems provided through the speed to diagnosis. This resulted in more informed treatment decisions before patients left the office setting and ultimately increased practice demand for a broader menu of point-of-care tests. Moreover, the greater availability of at-home tests led consumers to learn how to perform nasal swabs, read test results, and obtain medical care via virtual doctor visits. Third, in our transfusion medicine business, revenues were down 8% from the year-ago period due to strong revenue in the prior year and a broader macro trend of declining blood donations in the United States. Blood donations at business-hosted blood drives were down by 50% in 2022 from 2019 and extreme weather across the US in recent months has had a compounding effect on the broader blood shortage. We recognize these trends early on and expect this business to experience continued softness over the course of 2023 due to market-wide challenges. Lastly, our molecular diagnostics business declined 75% compared to the first quarter of 2022, due to weakness in our Lyra sales as higher volume laboratory COVID-19 testing declined, offset modestly by revenue from early Savannah adopters. While we recognize there are broader macroeconomic and supply chain challenges, our combined organization has been agile, innovative, and unrelenting. We are one of the larger pure play diagnostic companies with a broad portfolio spanning the diagnostics continuum, from labs, transfusion medicine, and molecular diagnostics to point of care with a total addressable market of $48 billion. The entire healthcare sector is facing long-term secular trends from the aging population and the surge of chronic conditions and diseases to increasing global access to care, escalating costs of healthcare, and emerging infectious diseases. If you combine these trends, with the shift to patient empowerment and the increase in self-care, there is a significant increase in global demand for global testing that could accelerate market growth far beyond the 5% to 7% market growth rate that we had previously forecasted for the market, which bodes well for the entire diagnostics market segment and for our long-term growth expectation of high single digits. We are witnessing crucial developments in our immediate industry, such as the miniaturization of devices, consumerization of care, and cost reductions. Technological advancements are unlocking new biomarkers and advancing proteomics, liquid biopsy, and antimicrobial resistance capabilities. New care modalities are also emerging including remote monitoring in both synchronous and asynchronous care. Cost-effectiveness, supply chain, and scalability will remain essential for all of us, but make no mistake, diagnostics is evolving rapidly and is the place to be. In the meantime, we remain focused on our three near-term growth drivers, the V-Trust system in our labs business, the Sophia platform within the point-of-care business, and the Savannah molecular platform in our molecular diagnostics business. These are the three growth engines that matter most to us in the near term, and we are executing at speed on each of these programs. Growth in our labs business is fueled by the placement of our integrated analyzers and the pull-through of higher growth, higher margin amino assays alongside our historical strength in chemical chemistry. Our focus on mid and high throughput hospital labs, where we offer the lowest cost of ownership in the market, coupled with our award winning customer service, have further added to our strength. Looking ahead, we have 20 to 25 new and refreshed assays planned for launch by the end of 2024. On the instrument side, we continue to make progress toward a planned refresh of our vitro systems and software. new automation and informatics launches, and the rollout of Vitros Duo, which is an easy-to-implement Vitros automation solution that is faster than traditional feature-rich automation solutions. These future developments are expected to better enable our integrated growth strategy within our sweet spot and help customers solve their labor challenges. We expect to accelerate both integrated and automation growth. from new customers and new to automation current customers. Our next growth priority is the development of assays for the SOFIA platform. With over 87,000 cumulative instrument placements globally, this is an incredible asset that should be leveraged fully. In the meantime, we expect our existing SOFIA assays to continue to drive point of care market share gains in the respiratory disease category. while we continue to augment our SOFIA offerings through research and development efforts that expand single and combination assay menu options for our customers. Finally, the launch of our revolutionary Savannah molecular platform is a near-term priority. Savannah uses real-time PCR and syndromic panels to address a variety of pain points across the diagnostic continuum. The platform offers speed and flexibility, and is easy to use, making it suitable for use in multiple customer environments, including physician office labs, emergency departments, pharmacies, and urgent care settings, as well as hospital and reference labs. Savannah is currently available throughout Europe with plans to commercialize worldwide upon additional regulatory clearances. We're anticipating an expanded global launch ahead of the next respiratory season. We are pursuing parallel paths to EUA and 510 clearance, progressing toward a late Q2 EUA submission with a follow up 510 shortly thereafter. We are currently in a stocking position for both the Savannah instrument and the RVP4 cartridge. And our second cartridge manufacturing line is in the final stages of validation as we work to build inventory in anticipation of Savannah's launch in the US following regulatory clearance. Our initial menu includes our RVP4 respiratory viral panel, followed by an HSV-VZV lesion panel, RVP11, a panel for sexually transmitted infections including chlamydia gonorrhea, mycoplasma genitalia, and trichomonas vaginalis, plus two gastrointestinal panel, one bacterial and or viral, and the second parasitic, a pharyngitis panel, and a vaginitis panel. We focused our offerings on syndromic testing needs to take advantage of the unique features of Savannah, including rapid turnaround time, simple workflow, and test flexibility, allowing more clinically relevant information to be generated closer to the patient in a timeframe that can impact treatment. Savannah's coming, the platform is robust, and the total addressable market is huge. The outlook is exciting. Beyond these near-term priorities, our ability to serve the full diagnostics continuum from home to hospital, lab to clinic, unlocks additional growth opportunities for us. We're the sixth largest company in the space, but we offer competitive differentiation in the market. As more customers demand converging capabilities and connected systems, we are strategically positioned to explore and capitalize on these emerging needs with over 100 active R&D clinical and regulatory projects underway. We intend to be just as prolific in product development as we have been in the past. In terms of product differentiation, our dry slide technology delivers higher first pass yields, greater instrument uptime, faster turnaround time and the lowest cost of ownership in the mid and high throughput market. In our point of care business, our long history as a trusted leader in the respiratory market with both innovative solutions and agility allowed us to be the first to market numerous times, strengthening us as a trusted partner at both small and large physician office labs. In our transfusion medicine business, we are the undisputed global leader in market share in the patient testing market with trusted partner status and decades-long relationships with loyal customers. We are well-positioned to expand access to a safe and reliable supply of the life-saving gift of blood. Finally, in molecular diagnostics, we are focused on regulatory approvals in ramping up our manufacturing lines for our Savannah molecular platform. Across all four businesses, we are steadfast in our efforts to provide diagnostics access to more patients in more places around the world. We are nearing the one-year anniversary of combining two great companies. Our thoughtful and disciplined approach to integrating the two organizations is proceeding at a healthy pace. We are focused on reducing complexity, enhancing our culture, and executing on the initiatives that matter most. Cross-selling has materialized, and the strength of our combined organization is clear. We continue to take out unnecessary costs, enhance our productivity, and increase our profitability. We identified $90 million in cost synergies over the next three years and believe there could be even more upside. We exited 2022 at a $30 million savings run rate and continue to execute on additional opportunities. We are confident we can exceed our 2023 target of $30 million. In summary, Quidel Ortho delivered excellent results in the first quarter of 2023, which is a true reflection of the strength of our combined organization. Our business model is solid and durable, And our teams across the globe are functioning extremely well and delivering results every day. We're poised to see and act on leveraging megatrends in a large and growing diagnostics market segment. With that, I'll turn the call over to Joe to further discuss our first quarter financial results and our guidance for the rest of the year. Joe.