QuidelOrtho Corporation

Welcome to the First Quarter 2026 Financial Results Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's call and prepared remarks. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. 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 Juliet Cunningham, Vice President of Investor Relations.

Good afternoon, everyone, and thanks for joining us today. With me are Brian Blazer, President and Chief Executive Officer, and Joe Buskey, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To assist in the presentation, we also posted supplemental information on our Investor Relations page that will be referenced in this call. This conference call and supplemental information may contain forward-looking statements, which are made as of today, May 5th, 2026. We assume no obligation to update any forward-looking statement except as required by law. Statements that are not strictly historical, including the company's expectations, plans, financial guidance, future performance, and prospects, or forward-looking statements that are subject to certain risks, uncertainty, assumptions, and other factors. Actual results may vary materially from those expressed or implied in these forward-looking statements. Please refer to our SEC filings for a description of potential risks. In addition, today's call includes discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP measures to their most directly comparable GAAP measures are available in our earnings release and supplemental information on the investor relations page of our website. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. And now I'd like to turn the call over to our CEO, Brian Blazer.

Thanks, Juliette, and good afternoon, everyone. I'll start today with a brief perspective on the first quarter and then discuss details of our business performance more broadly. Our first quarter results were impacted by a significantly softer respiratory season compared to Q1 of last year, with influenza-like illness, or ILI, visits down approximately 30% as reported by the CDC in April. While ILI visits are one indicator, the season was also notably weaker across other key measures, including severity of illness, hospitalizations, and duration. But overall, the respiratory season was both significantly milder and shorter than in Q1 2025. We also experienced broader macroeconomic and geopolitical headwinds during the first quarter. In China, sales slowed in March ahead of the anticipated national IVD pricing guidelines as distributors exercised caution on inventory purchases in light of potential future pricing declines. While final guidelines have not yet been issued following the comment period, our updated full year 2026 guidance reflects the estimated impact based on the current draft. And as expected, this estimate may change once the final guidelines and implementation timeline are announced. And accordingly, we are preparing mitigation actions to help offset these headwinds. Moving into 2027, the proposed pricing changes would impact only about half our sales in China. And even with the new guidelines, that business certainly isn't going away and will continue to be a meaningful component of our revenues. And notably, Even after these pricing changes are implemented, we believe our China business will continue to be accretive to the company margin profile. We don't think the changes will be fully implemented until the middle of next year, which gives us time to work on mitigating actions. Shifting back to Q1 results, we also saw delays in some orders and tenders due to the ongoing disruption in the Middle East. Assuming conditions stabilize, we expect these orders and tenders to resume during the remainder of the year. And importantly, our underlying business remains strong and durable. Our core labs and immunohematology franchises are performing well, and we are executing against our priorities. As a result, we believe we are well positioned to deliver on our objectives to expand our adjusted EBITDA margin and improve cash flow in 2026. We are also making solid progress in advancing our strategy. We completed the acquisition of Lex Diagnostics in April, adding a highly differentiated, ultra-fast molecular platform that strengthens our position and point of care, an area we believe will be a meaningful driver of future growth and reinforces our ability to deliver integrated diagnostic solutions across the continuum of care. And we are already seeing strong customer interest and have secured our first orders. Customer insights reinforce this opportunity. Approximately 90% of Sophia customers currently use both antigen and molecular testing systems, and many have indicated a willingness to switch to our more competitive molecular platform. Their priorities are clear. Better ease of use, faster time to result, and lower cost. And Lex is designed to deliver all three. To support launch readiness, we are expanding manufacturing capacity at our site in the UK, and we expect to begin placing instruments this quarter with measurable assay pull through and associated revenue beginning in early 2027. And turning to our labs business, we launched our high sensitivity troponin assay in the US, strengthening our cardiac portfolio and enhancing our clinical value proposition. We are seeing strong demand, and we are now shipping to more than 300 U.S. customers. We also began rolling out the vitros 450 platform in select international markets, expanding access to our diagnostic solutions. As a successor to the vitros 350, this platform is designed to meet the needs of emerging markets requiring low-volume, cost-effective solutions. Initial shipments are targeted for J-PAC, followed by LATAM and EMEA, where we recently received the CE mark. And importantly, the combination of vitro 450 and vitro CCL enables us to deliver a comprehensive solution across clinical chemistry and immunoassays in attractive international markets. We expect these product launches to support our mid-single-digit revenue growth expectations for the lab's business, which represents over half of our revenue. In summary, we are navigating near-term headwinds, but our strategy is sound, our innovation pipeline is strong, and we remain focused on executing with discipline to deliver sustainable, profitable growth. So now I'll turn the call over to Joe.

Okay, thanks, Brian. I'll walk through the key financials for the first quarter of 2026. Unless otherwise noted, all comparisons are to the prior year period on a constant currency basis. Total reported revenue was $620 million. Of that, non-respiratory revenue was $552 million, or $544 million, excluding the donor screening business. Labs revenue declined 8%, primarily to the factors Brian just discussed. In addition, the termination of our joint business agreement with Griffles reduced P1 labs revenue and created a difficult year-over-year comp. Immunohepatology grew 3%, driven by North America, China, and JPEG. And triage declined by 3 million, primarily due to slower distributor sales in China. Looking at our respiratory revenue, as was widely reported, the North America respiratory market showed an atypical decline versus the prior year period. This was an industry-wide trend, not unique to Cordell Ortho, and is supported by KOLs and competitor As a result, our respiratory revenue was 68 million, down significantly, as noted in our pre-announcement, due to the approximately 30% lower ILI visits compared to Q125. Keep in mind, though, that our large global installed base of the Sophia platform and QuickView has demonstrated growth over time. And importantly, during the first quarter of 26, we saw no change in testing protocols, and our market share remained stable. Lastly, on revenue, foreign currency exchange was favorable by 210 basis points during the quarter. Now, moving down the P&L non-GAAP expense decreased by 2%, primarily due to R&D efficiencies. Adjusted gross profit margin was 44%, a decrease of 630 basis points due to product mix with lower respiratory revenue contribution. And our adjusted EBITDA was 109 million, representing an 18% adjusted EBITDA margin. And diluted, adjusted, diluted loss per share was 4 cents. We expect to continue to drive adjusted EBITDA margin expansion for the full year with targeted staffing reductions, procurement, and facility consolidation cost savings initiatives. Now turning to the balance sheet, at the end of March we had cash, of $140 million and borrowings of $130 million under our revolving credit facility. From a cash flow standpoint, operating cash flow was negative $33 million and free cash flow was negative $67 million. And while we expected cash flow to be negative in the first half, which is consistent with our historical seasonality, first quarter 2026 cash flow declined year over year primarily due to lower EBITDA related to the weaker respiratory season. and the timing of accounts payable and accrued interest. Inventory also increased through the week of respiratory season as well as in preparation for multiple upcoming product launches. On the positive side, we delivered strong accounts receivable cash collections of $54 million and reduced our capex by $22 million compared to the prior year period, which was the result of lower systems and manufacturing capacity spent. We remain focused on improving cash flow generation and still expect positive cash flow for the full year. Now expected to be in the range of $100 to $120 million with positive cash flow driven by higher revenue in the second half of the year. And lastly, net debt to adjusted EBITDA leverage was 4.1 times including pro forma adjustments allowable under our credit agreement. We continue to expect for formal leverage under the terms of our credit agreement to be at three and a quarter to three and a half times by the end of this year. To wrap up, first quarter results reflected the impact of lower respiratory volumes, macro and geopolitical pressure, and continued investment in our strategic initiatives, including molecular diagnostics. And now I'd like to cover our full year 2026 outlook at a high level. For a full list of assumptions, please refer to page six of our first quarter 2026 earnings presentation. Importantly, we are providing a new guidance range, as noted in our Q1 pre-announcement. We are tethered to the low end of our previously provided range, which was purposely wide to account for respiratory season variability. We now expect total reported revenue of 2.7 to 2.75 billion, which is driven by two changes. Our first quarter performance in the expected lower full-year revenue in China, which takes into consideration distributor reactions to the pending China national IVD pricing guidelines that's currently drafted. And in North America, first quarter respiratory revenue reflecting a weaker ILI trend. Looking back over the past 10 years and excluding pandemic years, of course, in periods where ILI declined in Q1 versus the prior year, trends rebounded over the remainder of the year, resulting in higher ILI on a full year basis. Despite this empirical data, to be prudent, we are continuing to plan for an average respiratory season and forecasting a flat second half without a bump up, and an 8% decline in respiratory revenue for the full year 2026. These two revenue impacts flow from the top line to the bottom line. Therefore, we now expect full year 2026 adjusted EBITDA of $615 to $630 million, still representing an adjusted EBITDA margin of 23%, which reflects a 100 basis point improvement over full year 2025. We expect adjusted diluted earnings per share of $1.80 to $2, and we expect to deliver a free cash flow of $100 to $120 million. Note that the second quarter has historically been our seasonally lowest quarter. Consistent with this pattern, we expect sequential revenue, adjusted EBITDA, and adjusted EPS to be roughly in line with Q1 26, but still reflecting year-over-year growth across all three metrics. Our updated outlook reflects improving operating performance in the second half of the year, as well as continued discipline execution and the ramping up of the Lex diagnostics business. With that, we'll now open up the line for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your questions, Press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Tycho Peterson of Jefferies. Your line is open. Please go ahead.

Yeah, hi, this is Jack on for Tycho. Thanks for the question. Could you just walk us through the guide for second quarter growth by segment and then also down the P&L, what margins are going to look like?

Yeah, as Ajak has noted in the prepared remarks, we do expect that sequentially Q2 will be relatively flat with Q1, but we'll provide growth year over year. And the growth is going to come from the core business, as you think about the LAPS business and the IH business and the triage business, that growth versus prior year.

Okay, that's helpful. Now in China, NHSA, can you tell us exactly how big of a headwind that is in 2026, what you're assuming in the guidance, and just a little bit more detail on how you arrived at that number?

Yeah, sure. So as you think about the updated revenue guide, which again is tethered to the low end of the previous revenue guide, there's really only two changes that we made to the revenue guide. I want to be really clear with that. One is respiratory season weakness we saw in q1 um and then the the impacts that we're seeing in china from our distributors pausing on their purchases due to the pending uh new national pricing guidelines which we expect to come out the next couple months um i would say if you if you look at the new revenue guide jackets it's down roughly 75 million at the midpoint And it's probably, you know, split almost 50-50 between the respiratory and the China, maybe a little bit less on China, a little bit more on respiratory. Maybe, you know, maybe 45-30 respiratory and 30 China kind of thing. That's where we're seeing it. And we have pretty good visibility, as you would imagine, from our local team and the good relationships we have with our customer base. So we feel pretty good about this new guy for 2026.

Your next question comes from the line of Andrew Brackman of William Blair. Your line is open. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking the question. I wanted to pick up off of Jack's first question there with respect to Q2. it's just sequentially sort of flattish to Q1. I think that implies a pretty significant ramp in adjusted EBITDA margin in Q3 and Q4. So can you maybe just talk to us about some of the levers that you see there, not just on the revenue side, but also on the cost side as well?

Thanks. Yeah. Hey, Andrew. Yeah, I do think that what we're looking at in the guide, as you think about first half, second half, is that we are expecting the revenue growth to pick up quite a bit in the second half versus the first half. And that's really a function of, you know, we expect that the China impacts that we've talked about in the prepared remarks generally are going to happen in the first half of the year and not so much in the second half of the year. And then in addition, as I said, you know, we are expecting continued growth with labs, IH and triage. And we are planning for an average respiratory season in the second half of the year. So again, we're not expecting growth in the second half for respiratory year over year, but we are expected to be flat. I don't expect it to be a headwind. And so, you know, all those factors, including, you know, what Brian mentioned with the new products coming out, the 450, the high-sense troponin, and you're going to have some less revenue in the second half. You know, all those things contribute to the higher revenue in the second half versus the first half of the year, which will drop down and drive higher EBITDA, EPS, and cash flow.

Okay, thanks for all that. And then Brian, with respect to Lex here, it sounds like some folks in your customer base are pretty interested in this. Can you maybe just sort of remind us about the switching costs that might exist for this platform for customers? How big of that is a hurdle here? And I guess what are some of the things that you can do to maybe be a little bit more aggressive to get these share wins, be that on pricing strategies, bundling, or anything like that? Thanks.

Yeah, thanks, Andrew. We are excited about LECS and, you know, working actively, as I mentioned, to build additional capacity in our site in the UK to support the ramp up. And, you know, at this point, we're expecting to place a few hundred instruments this year, then, you know, followed by a more significant ramp up in 2027 that I think is really going to begin to create meaningful assay pull through. We're doing everything we can to bring on additional capacity as quickly as possible, because I think more than anything will probably be capacity constrained versus demand constrained, given what we're seeing with the product. Most of these instruments will be placed in customers, meaning there's no real capital outlay, you know, from a switching cost standpoint. And the ease of use profile, this is truly a plug and play instrument that requires, you know, sample in, answer out in six to 10 minutes. And so, you know, your question about the switching costs really have really very low barriers to, you know, customer objection to placing new instruments. So we don't think that's going to be an issue. And we think that the value proposition across

speed turnaround time and costs um are really going to position this platform well great thanks for all the talk your next question comes from the line of patrick donnelly of city your line is open please go ahead hey guys thank you for taking the question um maybe one on the china side you know i'm i'm sure you guys saw this morning uh competitor of sorts kind of walked away from their China diagnostics business and sold it, which was rewarded, you know, just given that it's been an overhang on a lot of, a lot of the companies, I guess, what's your commitment there on the China side and visibility, you know, given some of these recent changes, it just feels like a slippery slope over there. So how are you framing up that, that risk and the comfort level going forward on that?

Yeah. Thanks Patrick. You know, our, You know, clearly the reimbursement changes are a headwind there. But, you know, the way we're looking at it, the reimbursement changes themselves will only impact about half our sales there. And so, you know, we have no plans to walk away from China. And even after these changes are implemented, we believe the business continues to be accretive to our company. margin profile. And in time to address this, we think that the changes won't be fully implemented until probably mid next year. And so we're going to be taking actions to offset that. And, you know, clearly we will continue to monitor the environment in China, you know, after these changes are made. But as long as the economics continue to be favorable, you know, we intend to remain in that market. I think over the very long term, it continues to be an attractive growth market for healthcare and diagnostic testing in particular.

Okay, that's helpful. And then maybe just on the margin side, the EBITDA build, can you just talk about some of the actions you're taking on the cost side, not only this year, but just the base heading forward? Obviously, you guys in the past have given some longer term targets. just how you're thinking about the key levers there as we work our way through the year and into next year. Thank you guys.

Yeah. So, you know, we continue to do a lot of heavy lifting on the margin side of the business that, you know, I think I've referenced that we've taken out, you know, close to a thousand positions in the organization. A lot of that work pushed us into the low twenties adjusted EBITDA margin and We're going to start to see a 50 to 100 basis point improvement starting in the second half of 26 from our donor screening exit. And then we've got a really a rich portfolio of projects across our indirect and direct procurement efforts. We've got the shutdown of our Raritan facility in progress. And we've got, you know, a lot of opportunity outside the U.S. to optimize our profitability in our OUS regions. So, you know, I'd say additionally, we continue to benefit from this dynamic of placing more immunoassay volume that's at higher margin. And so, you know, we see the benefit of that. And I think, you know, what you're going to see moving forward is the benefit of Lex and the molecular margins being, you know, typically much higher than immunoassay margins as well. So, you know, I think we get into that mid-20s range solidly with our procurement initiatives and the Raritan footprint optimization and, you know, maybe some targeted staff reductions. I think we push into the higher 20s as Lex becomes a bigger component of the business, you know, over the next few years.

Your next question comes from the line of Lu Li of UBS. Your line is open. Please go ahead.

Great. Thank you for taking my questions. I want to go back to China a little bit. I think you mentioned that in the guide you're assuming the China impact or basically happening in first half and not the second half. I'm wondering if you can provide a little bit more color on that, whether you're still seeing like distributors pausing sales, maybe in April, May, just a little bit more color in terms of like what they're saying as well. But that's my first question.

Yeah, you know, still early days um you know i think our distributors got a bit spooked with uh this you know change in the in the reimbursement coming and so they got very conscious of their inventories and um you know we've been working with them on some rebates and discounts and other things to offset some of that pressure and so i think over the next couple of months here we're going to see that that sort of behavior uh in the first border starts to mitigate, and that will stabilize over time.

Got it. And then my second question, I wanted to double confirm your margin target. Are you still hoping to get to mid to high 20s by mid-2027, or that margin target maybe get a little bit delayed just given the potential changes in China and then maybe other macro factors?

Yeah, hey, Lou, it's Joe. I think we touched, Brian touched on this a minute in his previous answer. But just to reiterate, you know, we are confident in our margin, EBITDA margin goals and the timeline for them. There's no change to that. And that's because we still have, as Brian said, all these initiatives around procurement and site consolidation in flight that we expect to complete as we move through this year and into early next year. And on China, we do have some time. We don't think that these potential reimbursement changes will be enacted until you get more into mid-27. So we've got about a year, really, to implement cost mitigation actions to offset any potential price declines that we may see in 2027. Because of all that, we still feel really good about the margin goals and the timing that we've communicated already in the past.

Thank you.

Sure.

If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. There are no further questions at this time. I will now turn the call back to Brian Blazer, President and Chief Executive Officer for closing remarks.

Thank you, operator. So in closing and stepping back from the first quarter and the headwinds that we saw in the respiratory season and China, this really doesn't change our direction. We are executing well, our strategy's working, and we are strengthening the business in the right areas. We do expect a stronger second half and remain focused on delivering consistent profitable growth. So thank you for your interest in the company, and we look forward to updating you in the quarters ahead.

This concludes today's call. Thank you for attending. You may now disconnect.