QuidelOrtho Corp Q1 FY2025 earnings call

Management Statement and Operational Highlights: - Brian Blaser reflected on the company's progress over the past year, including refocusing the organization and implementing cost-saving initiatives. - Q1 results showed solid revenue growth excluding COVID and donor screening, driven by labs, immunohematology, and a strong flu season. - Achieved a 450 basis point improvement in adjusted EBITDA margin and a 68% increase in adjusted diluted earnings per share compared to the prior year period. - Progress on the $100 million annualized cost savings, with $50 million expected in the first half of 2025 and incremental $30 million to $50 million in 2025 from initiatives targeting direct and indirect procurement, inventory utilization, and cash conversion cycle optimization. - Ongoing clinical trial for the Savanna respiratory panel, with submission to the FDA expected in summer 2025 after finalizing trial data.

Segment Performance: In the first quarter of 2025, the labs business, accounting for 54% of total company revenue, achieved a 7% revenue growth with strength in both clinical chemistry and immunoassay testing. The immunohematology business maintained its global leadership position and saw a 4% growth during the quarter. The point-of-care business, representing 25% of Q1 revenue, grew 8% excluding COVID, with 18% year-over-year growth in flu sales led by the COVID flu combo test. The molecular diagnostics business grew 11% excluding COVID.

Guidance: - Maintained full year 2025 financial guidance, expecting total reported revenue between $2.6 billion and $2.81 billion. - Adjusted EBITDA is expected to be between $575 million and $615 million, representing a 22% adjusted EBITDA margin, a 250 basis point improvement from 2024. - Adjusted diluted EPS is anticipated to be between $2.07 and $2.57. - Anticipates mid- to high-single-digit growth in China for the full year assuming no change in the current tariff situation. - Expects higher cash flow in the second half of 2025 due to seasonally higher revenue and realization of cost savings. - Plans to refinance the $800 million revolving credit facility in the second half of 2025 or early 2026.

Risks: - Potential tariff headwinds of $30 million to $40 million in 2025, but mitigated through cost reductions, select pricing actions, and supply chain realignments. - Macroeconomic conditions, including impact on reimbursement rates and order timing, as seen in China with triage revenue decline due to lower reimbursement rates for certain cardiac markers.

Q: Just wanted to dig into the tariff impact a little bit more. You've got a lot of business that's on reagent rental contracts. So to the extent that you're able to pass through pricing, how much of the tariffs can you offset with that if they are to get worse?

A: Hey, Conor. Thanks for the question. Yeah, we are looking at selected pricing actions, where we can take them. But these are competitive markets and we have to be concerned about the impact there. I would say the business has had some experience in doing this during the pandemic when the business went through some, the high inflation time period. And we were able to pass some of that through. So I think we'll be doing it on a selective basis as we can.

Q: And then, again, appreciate the color on plans for mitigating some of the tariff impacts. But longer term, is this likely to impact any of your longer term manufacturing buildout plans by region?

A: At this point, I don't expect any change in our overall manufacturing footprint. Obviously, it's a fluid situation. So we need to understand how things develop. We have, as we said, major manufacturing centers in the United States, the UK, China, and some third party manufacturing in Mexico. Those sources and that global footprint has served us well, as we tried to get closer to our customers and also manage some of our supply continuity risk. So we'll continue to utilize that network. And as we always do make modifications as we see the dynamics change here.

Q: Joe, maybe another one just on the tariff side. Again, encouraging to see the offsets here. Can you just talk about the exposures? Obviously, the China, the U.S. or U.S. to China piece, I should say, was a big concern coming in. How are you thinking about, just quantifying that? And again, how the offsets, the confidence level that you guys can get there? Again, I think maintaining the guidelines would be a good outcome here.

A: Hey, Patrick. Thanks for the question. Yeah, as we said in the remarks, most of our products are actually manufactured in the U.S.. And so our largest tariff impacts are immunoassay products that are manufactured in the U.K. and shipped to the U.S.. We also ship products to China, but we're only seeing that a small portion of these are being subject to tariffs. And then finally, I would say we have some impact of some subcomponent materials that are purchased around the world that are being surcharged as we come in. So that is what makes up the gross $30 million to $40 million tariff impact that we just mentioned. That, again, is fully mitigated through identifying incremental controllable costs that we can take down, as well as passing on where it's appropriate some of these tariffs to our customers. And moving, realigning inventories and changing suppliers. So, through all those actions that we feel really comfortable with and confident in, because we've identified them all and we've implemented them all, that we feel we can fully mitigate the tariff impacts and leave our financial guidance as is.

Q: And then maybe just on Savanna, just an update there. I guess the commitment, the ongoing commitment to that program, how are you thinking about that piece? If there are additional pushouts, you guys walk away from it. What's the right way to think about just the commitment level and the confidence in some of those timelines? And what should we be keeping an eye on that piece? Thank you, guys.

A: Yeah. Thanks, Patrick. What I can say at this point is really we are just so focused on getting our RVP4 submission into the FDA that I really don't want to speculate on outcomes beyond that. Molecular continues to be one of the fastest growing segments in diagnostics. We want to participate in that and benefit from that. And so we're just laser focused on getting the job done here. And we'll update you accordingly as we make our progress.

Q: Joe, I think in the assumptions you said that China is still expecting to grow mid to high single digits for the year. What sort of underpins your confidence in that growth rate? And is there anything that you can share with respect to maybe what you've seen in the region in April which supports that? Thanks.

A: Yeah. Hey, Andrew. Again, thanks for the question. Even though we're seeing some softness in the triage sales due to the reimbursement rates on certain cardiac markers, we are seeing good growth in labs and immunohematology. And as you know those businesses have good visibility to us forecasting going forward. So, that's really what gives us the confidence that our China team can hit that mid to high single digit growth target for the full year. And again, as we've said many times, the VPP is not really having an impact on us as it is with others in our space. And so that's not really a concern for us right now. So it's just really the visibility to that non-respiratory business that we have in China that gives us the confidence that we can still hit those numbers.

Q: I wanted to start by asking about the respiratory sales in the quarter. So you hit our forecast, but got there in a way, wasn't exactly expecting less COVID, more flu combo. Brian, I was curious, do you think we're seeing some sort of permanent shift here toward combo/Sofia? And maybe for Joe, like, what are the implications for the guide? Like, if COVID came down, like, do you think you can make up for it kind of on the other respiratory piece?

A: Yeah, well, hi, Jack. Thanks for the question. We did see COVID down year over year and flu is up. I think we're still expecting that $110 million to $140 million range that we provided in the guidance, which includes the summer spike that's happened for the last couple of years. So, we'll be monitoring that very carefully to see what happens here. But I would say on the -- on the cobit flu question, that test has just been very durable now for the last couple of years and we've just seen very stable performance from it.

Q: And I did want to follow up on Patrick's question related to Savanna. It sounds like the trial might be wrapping up. Was curious if you've seen any of the data was a success, and if it's too early for that, I was also curious how the engagement's been with the FDA around commission. There's been some discussion around kind of turnover in the approval office. I was curious if you've seen any of that and just thoughts on if that could delay the approval at all.

A: Yeah, no, we're just, Jack, in the last stages of our process here before submission, doing some of our studies around reproducibility shelf life, et cetera. We need to get those completed. We really haven't seen any sort of negative negative impact in terms of our interactions with FDA. We are hearing things in the industry that pre submission meetings are taking a while are being delayed, but nothing that is affecting the submission process itself. That's obviously something we're going to have our finger on very carefully here as, as we go through the process. But that's really what I can share at this point about where we're at in the process.

Q: So, on the medication effort, are we going to see some timing impact here? Like, maybe some of the mitigation impact not going to show up in Q2 and then more in the second half. I was just wondering how the margin progression on this one.

A: Yeah, it's Joe. Yeah, I don't think there's going to be a lot of timing impact because I think we've got the mitigation actions pretty well paired up with the impacts of the tariff, the gross impact of the tariffs. So I don't think there's any real timing impact there to speak of, maybe a little bit, but nothing significant. I do think that the only real timing impact's going to be in Q2 because we did slow down shipments to China early this quarter as we waited for the tariff situation to evolve. And we're doing our best to catch up on those shipments, but I don't think we're going to fully catch up. And I think -- so I do think there'll be, we'll see some softness in China, revenue in Q2 that will make up as timing in Q3 and Q4. I think that's really the only timing impact that we'll see from the tariffs.

Q: I'll just stick to one. Can you just elaborate on the shipments into China and only a small percentage of those subject to tariffs right now? Can you just, why is that exactly? And what's your visibility into that continuing? And is there any kind of risk that a larger percentage would eventually get hit with tariffs here? Just kind of curious on that piece.

A: Yeah, hi, Casey. Thank you for the question. Again, I can really only say that our experience here over the last several weeks in what has been a very fluid situation is that we aren't experiencing the tariffs on the bulk of our products going in. It's very, just a small subset where we're seeing that. And we'll look to understand if that changes, but it looks like, that's going to be the case for a while.

Q: Maybe first, just if I think back to a couple of years ago, visiting the Rochester, and in some IA manufacturing capacity, if I remember right with COVID grants there, can you just give us a sense, what are you able to manufacture in the U.S. for immunoassay versus relying on that Wales facility to support this country's utilization there?

A: Yeah, we do have some immunoassay manufacturing capacity in our Rochester facility, but the bulk of it is in the UK at this point.

Q: Wondering if you can maybe just talk a little bit more on some of the strengths you're seeing on core lab and any noticeable change among your hospital customers given some of the funding uncertainty set?

A: Yeah, Tycho, thank you. Appreciate the question. We really saw across the board strong performance in labs, 7% overall growth. And then you look across North America, EMEA, our LATAM area, all reporting, pretty strong growth there in the lab segment. We continue to have a very strong value proposition in the lower volume setting where customers value, our technology value proposition with the dry slides, as well as our immunoassay capability. So strong growth in Q1, no real significant competitive headwinds at this point, and we continue to really just drive our value proposition there to continue to drive growth.

Q: And maybe a follow-up on that, on the competitive front, others have tried mass spec and not had much success. Roche is obviously going to try to go at this, I think with 50 analytes at first, but they've talked about scaling up to thousands. And maybe, can you just touch on how you view mass spec as a competitive technology going forward?

A: Yeah, I saw the launch of their new product. It's really focused on a testing segment that is not mainstream and not in our sort of central area of competition. So it's not something that we're overly concerned about. It seems to have a specialty utilization. I do know they have aspirations for it, but I think it's going to take some time for them to provide an alternative there that really competes with kind of mainstream core laboratory technology at this point.