QuidelOrtho Corporation

Welcome to Quidel Ortho Second Quarter 2023 Financial Results Conference Calling Webcast. At this time, our participant lines are in a listen-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 Bruckmeier, Vice President of Investor Relations. Brian?

Thank you, Operator. Good afternoon, everyone, and welcome to the Cuadal-Orto Second Quarter Financial Results Conference Call. With me today to discuss our financial results are Doug Bryant, Cuadal-Orto's President and CEO, and Joe Buskey, Cuadal-Orto's Chief Financial Officer. This conference call is being simultaneously webcast to 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. Statements we will make during this call about the company's expectations, plans, future performance, 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 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 annual report on Form 10-K filed with the SEC on February 23, 2023, and subsequent reports filed with the SEC. Please refer to our SEC guidelines 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 are 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 statement or any time-sensitive information to reflect future events, developments, or change circumstances, or for any other reason. Also, during today's call, to facilitate a comparison of the company's operating performance from the second quarter of 2022 before the Quidel Ortho combination, the second 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 will refer to this information as our supplemental combined information. Certain supplemental combined information, as well as certain other items, we will 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 Bryan, Quidel Ortho's president and CDF. Doug.

Thanks, Brian. Welcome, everybody, and thanks for joining our call. We've just marked an incredibly exciting first year of harmonization and integration across the global Quidel organization. Our colleagues have performed admirably, and we as a united team have successfully achieved major milestones in a very short timeframe. We delivered solid financial results in the second quarter with revenue of $665 million in non-respiratory revenue, was up 4% on a supplemental combined basis. Demand for diagnostics across the healthcare continuum remained strong, and our labs business delivered high single-digit growth. Our team was steadfast in executing our key growth drivers this quarter. Our labs business backlog approached normalized levels, and we saw utilization increase. Sophia non-COVID-19 pulse through continued to increase, and we completed both the Savannah EUA and 510K FDA submissions as planned, including 510K for the instrument and both RVP and HSVVV lesion panels. drilling down into the results from our four business jets. First, our labs business delivered 9% growth in non-respiratory revenue, with growth across all major geographic regions. The notable global strength in clinical chemistry was driven by expected utilization levels for instrument and the strong integrated instrument placements over the last few years, which also drove solid growth in immunoassay, and it's clearly helpful to gross margin. Instrument demand remained healthy across all regions. Focused execution by our operations team enabled us to produce nearly 10% more instruments than our record-breaking first quarter and reduced our instrument backlog in our labs business by approximately 40%. These efforts enabled us to ship more instruments than previously anticipated in the quarter. As a result, our integrated installed base grew 13% and automation increased 20%, continuing the positive trend that we've seen since implementing our commercial excellence program and launching our Beetro's XT7600 integrated system in late 2018. As these shift instruments are installed, validated, and come online, We believe these placements will have a modest positive impact in 2023 and will set us up in 2024 for additional growth. Turning to our point of care business unit, respiratory revenue declines driven by a reduction in our retail business as expected following the end of the COVID-19 public health emergency in May and the continued transition to an endemic state. With insurance companies no longer supporting free at-home COVID-19 tests, including our quick-few over-the-counter tests, our overall COVID-19 business faced a challenging comp on a year-over-year basis. And as reported by several other diagnostic companies, the end of the public health emergency had a significant dampening effect on molecular COVID test volumes. For us, this helped to drive double-digit year-over-year growth of our point-of-care COVID business as many customers shifted testing for symptomatic patients back to antigen tests and more specifically to our Sophia SARS antigen assay. Looking at non-respiratory, revenue was down 4% year-over-year due to quarterly variability in our component sales to Beckman for its BMP business. which, as a reminder, is contracted to be $70 to $75 million per year. Our overall SOFIA business continues to be strong globally, with cumulative placements about flat at 87,000 instruments. In the U.S., non-COVID-19 trailing 12-month out sales per instrument grew 14% year over year. Outside the U.S., we're seeing double-digit year-to-date instrument placement growth in Europe, Middle East, and Africa, and triple-digit year-to-date placement growth in China, albeit off a small base. Moreover, we saw healthy performance from our triage business, which was up 7% compared to last year, with particular strength from China, Asia Pacific, and Latin America, which is evidence of the cross-selling revenue synergies that we have anticipated. Our transfusion medicine business was down approximately 3% from this time last year due to continued weakness in our donor screening business, partially offset by strength in immunohematology. The donor screening weakness was due to strong revenue in the prior year and a broader macro trend of declining blood donations in the United States. However, our strong immunohematology business, which represents about 70% of our transfusion medicine business unit revenue, achieved a 5% year-over-year improvement in revenue, normalizing our year-to-day growth following a soft first quarter. And last, our molecular diagnostics business declined as one would expect. with sales of our Lyra assays declining as the molecular testing market continues to shift from high-volume centralized testing to more automated decentralized solutions. Notably, this was partially offset by Savannah, which continued to perform well in the EU with a modest improvement in sales year over year. Given the product's ease of use and industry-leading speed, We are seeing a lot of customer interest and have expanded our reach to more customers across Europe. Following the 2022 Curly Access launch in Italy and Austria, we are now placing instruments in France, Germany, Spain, Belgium, and Switzerland. I'm quite encouraged by the positive response Vanna has received from leading diagnostics providers across a growing number of markets. As I mentioned earlier, we completed both the SAVANA EUA and 510 FDA submissions as planned, including 510 for the instrument and both RVP4 and HSE VZV lesion panels. The launch of our revolutionary SAVANA molecular platform is a high priority. SAVANA uses real-time PCR and clinically relevant 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, urgent care settings, as well as hospital and reference labs. We completed validation of our second low-volume Savannah cartridge manufacturing line during Q2 and are currently building inventory in anticipation of Savannah's launch in the U.S. following regulatory clearance. Our initial menu includes our RVP4 respiratory viral panel and HSV-VZV lesion panel to be followed throughout 2024 by RVP11 and HSV-VZV syphilis panel, a panel for sexually transmitted infections including chlamydia gonorrhea, mycoplasma genitalia, and trichomonas vaginalis, plus two gastrointestinal panels one bacterial and or viral, and a second parasitic panel, a pharyngitis panel that tests for four bacterial pathogens, and finally a vaginitis panel. We've focused our offering 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 actually can affect treatment. On behalf of our customers and shareholders, I'm thrilled that the U.S. Savannah launch is progressing. As the platform is robust, the total addressable market is huge, and the outlook is very exciting. As a company focused on long-term growth, we continuously monitor the numerous converging trends across the healthcare sector, of which I believe will strengthen our position in the diagnostics industry, including the aging population, the surge of chronic conditions and diseases, as well as emerging infectious diseases. Additionally, the diagnostic industry can play an important role in providing greater access to care and limiting the escalating cost of healthcare. We believe that we are strategically positioned to capitalize on these trends. We have the right strategy mixed with the powerful combination of our organization and the ability to serve the full diagnostics continuum from home to hospital and lab to clinic. Our performance in the second quarter demonstrated the strength of our organization as we delivered strong value propositions to support customers across all segments. Partnering with them to help solve their most immediate business needs and executing on the initiatives that drive meaningful growth and can contribute to measurable and enduring positive impacts and health outcomes for our customers, shareholders, and communities. Our ability to consistently deliver high quality products and services is supported by our deep expertise as a pure play and feature diagnostics provider. In May 2023, we passed the one-year mark of becoming Quidel Ortho, and our integration has thus far yielded better than expected results. Our culture continues to thrive and evolve as we leverage our strengths and examine opportunities for growth while simultaneously advancing our capabilities and improving our day-to-day operations. As we pull our two companies together, major initiatives are moving forward. and we are ahead of schedule on our related cost synergy targets. We are operating as a nimble and agile company that can respond to immediate needs with our industry-leading testing technologies for healthcare providers around the world without losing focus on the patient or our long-term growth strategy. We've identified additional opportunities to optimize the organization by improving supplier agreements, reducing complexity, streamlining business processes and workflows, and implementing best practices. Therefore, we've now identified cost synergies of $130 million that we expect to realize over three years compared to our prior target of $90 million, and we continue to pursue further opportunities. As an industry leader, we're poised for the next phase of integration, that being transformation. We've mobilized our top-tier team members combined with a leading-edge industry transformation firm aiming to deliver sustained revenue and margin growth, a commitment made to our shareholders. Our strategy hinges on fostering profitable growth opportunities, improved cash flow, and fostering a culture of continuous improvement. It is important to note that it's still very early in our transformation journey. I look forward to sharing additional details by the end of the year. Before I turn the call over to Joe to review our financial performance in greater depth, the team and I are incredibly excited about what's next for Quidel Ortho. We're seizing opportunities and acting decisively, and we're never losing sight of the future of patient care. Our company reached historic heights during the pandemic, demonstrating our ability to quickly solve the problems of today. With the pandemic in the rearview mirror, we are on our way to demonstrating our agility and nimbleness once again, while driving long-term sustainable growth. With that, let's turn the call over to Joe to review our financial performance and guidance for the full year. Joe. Okay. Thanks, Doug.