Welcome to the QuidelOrtho’s Second Quarter 2022 Financial Results Conference Call and Webcast. At this time, all participants lines are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded. An audio replay of the conference call will be available on the company’s website within a few hours after the call. I would now like to turn the call over to Bryan Brokmeier, Vice President of Investor Relations. Please proceed.

Thank you, operator. Good afternoon everyone, and welcome to the QuidelOrtho’s second quarter financial results conference call. With me today to discuss our financial results are Douglas Bryant, QuidelOrtho’s Chairman and CEO; and Joe Busky, QuidelOrtho’s Chief Financial Officer. This conference call is being simultaneously webcast on the investors section of our website and a version of today’s presentation can be downloaded there. Before we begin, I will cover our safe harbor statement. Some of the statements we will make during this call about the company’s future expectations, plans and prospects constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a safe harbor for such statements. Our use of forward-looking statements is subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from our current expectations. These risks and uncertainties include, but are not limited to, those factors identified in the joint proxy statement prospectus are quarterly report on Form 10-Q that we plan to file tomorrow and our other filings 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 filed will be realized. Furthermore this conference call contains time sensitive information that’s accurate only as of today. Except as required by law, we undertake no obligation to update any forward-looking statement or 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 in the second quarter of 2021 to second quarter of 2022, we will be discussing supplemental second quarter 2022 and 2021 revenues and adjusted operating results as Quidel and Ortho has been combined for the [Indiscernible] period. 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 the most directly comparable GAAP measures are included in the appendix of the investor presentation and press release issued this afternoon, both of which are available in the investors relation page of QuidelOrtho website. And 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 Douglas Bryant, QuidelOrtho’s Chairman and CEO. Doug?

Thank you, Bryan. Good afternoon everyone as Quidel and Ortho have combined to become QuidelOrtho. This is our first call as a combined company. Thanks for joining us. I sincerely appreciate your time and your interest in our company. For those of you that were either shareholders of the Ortho business, or are entirely new to our story, I joined QuidelOrtho from the Quidel Business where I was President and CEO for more than 13 years. Along with Bryan joining me on this afternoon’s call, we have Chief Financial Officer Joseph Busky. Both Joe and Bryan joined us from the Ortho Clinical Diagnostics business. I’m happy to have them joining me on this afternoon’s call. Beginning with our results, we delivered strong performance highlighted by 37.5% supplemental combined revenue growth, 32% supplemental combined adjusted EBITDA margin, and triple digit supplemental combined adjusted EPS growth, as the newly formed team did a terrific job in executing on our strategic priorities. Excluding COVID supplemental combined revenue grew 9% year-over-year. I am very pleased with the way both of our organizations have engaged each other and [Indiscernible] a short amount of time. We had strong execution across the QuidelOrtho businesses as our commercial R&D and operations teams maintain their focus on both near term and longer term growth opportunities. Supplemental combined revenue for the second quarter, including both Quidel and Ortho for the full quarter reached $898.5 million supported by double digit growth and point of care and molecular diagnostics, along with solid high single digit combined growth for labs, and transfusion medicine. As we review our notable achievements in the quarter, I’d like to introduce our five strategic priorities, which are one, integration and corporate culture; two product innovation; three, global commercial excellence; four, operational excellence and five capital deployment. And I’ll…

Thanks. Good afternoon, everyone. I’ll begin with a bit more detail on our operating results for the quarter. As mentioned previously, to facilitate a comparison of the company’s operating performance from the second quarter of ‘21 to the second quarter of ‘22 all figures that I referenced are presented on a supplemental combined basis, as if Quidel and Ortho have been combined for these clickable pairings and may be referred to as supplemental combined information. So starting with a breakdown revenue on slide 13. In the second quarter, we recorded revenue of $899 million, an increase the 38% in constant currency. Currency translation decreased sales growth by 320 basis points resulting in 34% total sales growth. Revenue growth was primarily driven by the strong recurring revenue pull through on our broad instrument portfolio serving the diagnostic continuum, as well as QuickView sales to government and retail customers. In the second quarter of ‘22, we generate 298 million COVID related revenue. So excluding the COVID related revenue, total revenue increased 9% in constant currency driven by point of care and molecular diagnostics. Looking at year-to-date, total revenue was up 57% in constant currency to 2.4 billion, again excluding COVID related revenue total revenue increased by 11% in constant currency. Turning to our Q2 performance by business unit point of care revenue grew 181% in the quarter, and grew 19%, excluding COVID related revenues. This is largely driven by the pull through of our broad respiratory menu. Labs revenue, which includes Ortho clinical labs and non-core revenue as well as Quidel specialized diagnostic solutions grew 3% in the quarter, and grew 6% excluding COVID related revenues, largely driven by strength, including clinic and asset revenue. Transfusion Medicine revenue grew 9% driven by strength in donor screening, notably plasma, which is a smaller…

Thanks, Joe and summary we had a strong quarter. The integration is going well. And we’re even more excited about the growth opportunities ahead. To provide investors with deeper insights into our business and our key growth initiatives I’m pleased to announce that we plan to host an investor day on the afternoon of December 13, 2022 in New York City. I look forward to engaging with you in that forum, which will include in depth management presentations and opportunities for Q&A and informal interaction with the management team. More details about that event will be forthcoming. But please save the day on your calendars. And with that operator we are now ready to open the call for questions.

[Operator Instructions] Our first question is from the line of Brian Weinstein with William Blair. Please proceed.

Hi, guys, this is Dustin on the line for Brian. I know you provide us with full year guidance and some color on the fourth quarter. But I’m wondering if you could provide a little bit more detail on the different business segments as we move to the third and the fourth quarter? How should we expect this to move relative to the second quarter up or down or sequentially? Any additional insight that would be helpful. Thank you.

Yes I will just start by saying we’re not going to provide a lot of detail here, but I think it’s safe to say that for both companies Q3 is typically softer quarter. And so we’re looking more at sharing with you what we expect for the total for the second half. And I think that’s the guidance that you’ll provide and what else would you add Joe?

No I think that covers.

Got it. Great. Thank you. I guess as you provide the guidance for 22 just wondering how you guys are thinking about next year? I know there’s certainly a lot of variables with COVID coming out the business, and certainly have a lot of macro headwinds on your hand. But if you can talk about for next year, just where we should be thinking about numbers and where the different businesses can go?

At this stage, what we see is that we should be able to deliver on the cost synergies that we suggested, and that does not include the $45 million in interest rate, interest expense, excuse me, on reduction annually. On the revenue side, provided that we can manufacture the instruments that we have in the forecast, we feel very comfortable both on the clinical chemistry and amino assay systems as well as on the Savanna. And what I would point to, I think, generally, is to the S4 and those forecasts and suggest to you that those are solidly intact. What else would you add?

I would just add that it will reiterate what we’ve said, about 2023 and beyond that, the top line number ex-COVID will be in the high single digit, low double digit range. And we believe that the COVID revenue once it gets into an endemic stage, as we move into next year will be in that 150 million to 200 million range annual recurring revenue.

Which wouldn’t necessarily capture the ABC combo revenue.

Correct.

So that would be additive to the 150 to 300.

Great, thank you for taking the questions.

Thank you. The next question is from the line of Jack Meehan with Nephron Research, Please proceed.

Thank you. Good afternoon. Really appreciate all the color in the deck and release today. I wanted to start with a question for Joe or Dough the guide here. So the 11.80 to 12.75 EPS. So you did 204, I’m sorry, 8.04 in the first quarter to 2.12 in the second quarter by my math, that’s a buck 64 to 2.59 in the second half of the year, kind of annualized is 3.28 to 5.18. Am I thinking about it the right way in terms of like starting to build between 2023 and layering on some of the cost synergies, maybe growth? Just like any color around starting to think about where 2023 EPS might come out would be helpful.

Yes go ahead Joe.

Hey Jack, it’s Joe. Yes, I don’t want to get too much into 2023 other than what we just get to the previous question, but when you look at the guidance for ‘22 that we just gave, keep in mind in the comments I made about Q2, Q3, Q4 seasonality. Q3 is historically a seasonally low quarter for both sides of the business Ortho as well as Quidel. And so you see the lion’s share that second half EPS falling into Q4 versus Q3. Again, as far as 2023 as you think about the cost base, I do think that you can use the cost base on a supplemental combined basis in the operating expenses that we’ve given to you in the Information center a month or so ago, as well as what’s in your release today. You can use that as a guide for the second half operating expense. And even as a jumping off point, as you move into ‘23 and then pull the synergies, the impact of the synergies off that base. We’re running out right now for operating expense. That makes sense?

Yes it does. Second question on Sofia. Sorry, if I missed this during the script, just what were the Sofia sales in the quarter? And I know Doug and Joe, you talked about just confidence and kind of broader utilization. Long term, if there’s color you can provide around just what you’re seeing in the field on non-COVID testing on Sofia. Any updates would be great.

Yes, thanks, Jack. It’s a really intuitive question. When you back out COVID-19 and look at the Sofia business what does that look like and what we see a comparison year-over-year is a difference of about 25%. So we’re up 25% in revenue on trailing 12 on the Sofia business about 25% over the prior year.

And Jack, if you just take that a step further, if you break it into price and volume, when you look at price Jack, if the price is up slightly flat to up slightly, which means that it’s primarily all volume. When you’re looking at the pull through ASCO it’s almost all volume. So it’s a really good sign for us on that trailing 12 month basis.

Just one clarification on that 25%. How much of that is coming from ABC? Are there any other tests that are standing out as you look at the utilization?

We will you see some pull through with the other facts for sure. But you’re right in saying that the competitor has driven a lot by the flu product which is both individual and because you remember last year, Jack in the quarter, very, very little flu.

Yes. And then that last question. Just to be clear on the Savannah timeline, it sounds like 510-K approval. Does that look more like 2023 now? Just any comment on sales in the quarter there? Thank you.

Yes, we’re going to introduce the product in Europe on a full launch basis. So obviously, we have the EUA for the U.S. we expect to have the 510-K mentioned by the end of the year for sure. Is that? Was that your question?

We’ll have the submission.

Yes, we submitted the EUA for RBP4 in May. And then we’ve been working on the 510-K sets. So we expect to have that end before the end of year.

Correct.

But then it’s like 90 day? Well, historically, it’s been like a 90 day review after that, right.

Yes, but remember the pressure that the FDA is under with a huge workload. And we don’t know exactly all the requirements for 510K clearance may be at the end of the day until we get into interactive discussions with the reviewer. So you’re right, 90 days is typical. I think the FDA does pretty darn good job on these high priority products, business guys have a little cushion. But I don’t think we’re going to be great with it right now.

Okay, sounds good. Thank you guys.

Thank you. The next question is from the line of Andrew Cooper with Raymond James. Please proceed.

Hey, everybody, thanks for the question. Maybe first on the financial is just thinking about the longer term targets you laid out when the deal was first announced that 30% EBITDA margin target. Now, obviously, some things have changed on the inflation side, and just the overall cost side, as well as the FX side. So how do we think about that bogey if it changed at all? And then if there’s any difference to the timeline to get there, and anything that relates to that would be super helpful?

Well, Andrew, your question is certainly timely. We were talking about this just a couple hours ago. Yes, there are some moving things that were having to evaluate. So then the question is, can we achieve more cost synergies than we thought before? I think what I would say is, even if we can’t get to greater than 30% EBITDA in 2023, if we cannot, we’re still not changing the target for the timeframe, we’re still going to work to try to get back over 30%. I don’t think that’s an inappropriate goal. But you are right, there’s a lot of factors including how much profit can we make when we can? What, if any regulatory hurdles get in our way? What’s happening with on the supply chain side with costs because of inflation? These are all factors that obviously, were not known when we initially modeled all of it. So we still firmly believe we can get there. We wouldn’t you say that’s true Joe?

Yes. I agree. Certainly not coming off the 30%. But I’m arguing and when you do the math and the guidance we gave, you’ll see that the second half even on margins on are below that, that 30% foreign there. But that’s because again, the business is seasonal, low in Q3 and that’s historically been the case for years for both businesses. And then Q4, you got to remember you’ve got a heavier load of instrument revenue that typically comes through in the fourth quarter. there will be margins down a bit. So when you look at the second half versus a full year, that’s probably going to be our most our lowest EBITDA margin quarters. And as you move into ‘23, not only do you get the cost energy tailwind that Doug mentioned, but you’re also going to get the tailwind of the growth on Savanna. As that ramp when that launch continues, and net revenue continues to grow. That’s going to drive some GP and EBITDA margin tailwind to march a step closer to that 30% or over that 30%.

Thank you. Our next question is from the line of Casey Woodring with JP Morgan, please proceed.

Hi, guys, thanks for taking my questions. So I know, are sort of all over the place right now with pro forma numbers, but looks like EPS came in below expectations. And when accounting for that inventory reserved dynamic, I think that’s likely due to QuickView margin assumptions. So can you maybe help us think about what the drop through was there now is likely pricing has come down versus where you may have been modeling prior?

So Casey just to reiterate, the suggested EPS is coming.

Yes, so the QuickView inventory reserve that we mentioned, the 25 million net of tax, that’s $18 million of a hit. So it’s a 28% impact on the quarter. So obviously, if you remove that, you would have exceeded expectations on a lot of fronts. Now that reserve, depending on what happens with second half COVID revenue could come back. I’m not saying it will, but it could.

But like I said, we’ve covered both sides, we’ve said it doesn’t happen we’ve got to reserve to take care of the obsolete inventory. On the flip side, we also said we’re ramping up because we’ve been strongly encouraged to keep manufacturing products, which we will do. So in the event, we’re going to be well placed as we move forward. But there is a potential that we don’t need that reserve guide.

Correct.

Got you. And then just on the clinical labs business, so just curious on headwinds in China on the non-COVID piece have subsided here 3Q and if anything’s being contemplated for lockdowns in the back half of the year, and then on that open order comments, the 600 instruments, curious on what labs would have grown, if you could have filled those open orders? Thank you.

Yes, so you’re right, we do have a number of open orders. I would say just generally before flipping over to Joe, my impression is that the Chinese team has weathered this pretty nicely, the lockdown and all that. And we also have plans in place to make sure that we can compete with the changes and in whatever requirements for local manufacturing, etc. Have you done the math in your head already? I was just trying to give you the math.

Yes, I can try to hit both of them quickly going to run out of time. We have in the guidance we provided anticipated more caution on future lockdowns in China as well as the buying local movement in the country that’s potentially impacting instrument revenues. So all that factored into the guidance. The other thing you need to keep in mind, Casey is that the Beckman deal is impacting revenue in our China market too. So if you look at the Q2 numbers that we’ve just presented, and we show that the China market is down 10% in constant currency, in the second quarter, if you were to take out the back the impact it actually be up low single digits. So that has a big impact effect. And again, that’s no impact on the margins. It’s just a revenue play. So just keep that in mind as well. And on your install base or your insurance backlog question would have added about two points of growth into the numbers have we the ability to get all this out?

Thank you. Our last question is from the line of Alex Nowak with Craig Hallum. Please proceed.

Good afternoon. So, maybe going back to the ABC combo first. This is going to be the first potentially normal respiratory season in a long time. So just how are the point of care customers approaching it this year? Is the expectation that if they have associated, they’re going to be ordering ABC combo. Are you starting to see any purchases ahead of that season yet. And then maybe any status with the ABC OTC product.

Yes, I think we see evidence, Alex, that this is a viable product in the space. We certainly saw ourselves with the product. And we are building products now with that expectation. So who knows what flew. But at the end of the day, there’s certainly concern that the government level that there’s going to be flu in the back half of this year. So that’s what we’re planning on. That’s what we’re seeing early on in terms of demand. All of them are returning to that crazy demand that we saw in Q4 2021, no. But I do think there’s realistic demand for the product.

Okay, understood. And then, for the R&D channel, you mentioned all the systems you’ve got in the pipeline here. If you had a name of top one or top two projects, if the menu expansion Savannah menu expand, your cardiovascular Ortho, just what is the first or second project that are main priority for the combine?

There is a lot of priority ones. For example, it started on the transfusion medicine side, we know that to be competitive longer term in that space, we need to provide better solutions. And so we’ve got a project internally that we’ve been calling down and that’s progressing. That’s probably the third I think of that R&D budget is on that project alone. Savanna, clearly, spending what’s necessary to make the transfer from R&D into manufacturing at scale is a big lift and a big effort as well. Don’t forget also we’ve got project leapfrog running in the background too, which is our next generation amino acid platform. So there’s three or four big hitters Alex, I’ll just stop there, because I realize at the end here. What I would say. Go ahead, please.

I was going to turn it back to Dough Bryant for closing remarks.

Great. Perfect timing. So in conclusion, Q2 was our first quarter reported as a combined company. It was certainly fun putting the call together this quarter for sure. No matter how you slice it this stands out as a strong quarter across our commercial, corporate and cultural metrics. We came in with a roadmap. And these results underscore our ability to execute on strategic plans. There’s a lot of talent in this organization. Achieving our expected cost and synergies and revenue synergies will be a three year marathon. It’s not a one or two quarter sprint. But we believe our current pace is exceeding our plans, the necessary pieces that are here and match the fit that we anticipated. And as I had mentioned earlier, the cultural chemistry is even better than I had expected. I’m encouraged. Our team is excited. We’re moving forward with purpose and confidence happy in the knowledge that we’re making a difference for human health and equally important our people. On behalf of our entire management team I’d like to thank you for your continued support and interest in our new company QuidelOrtho. We look forward to sharing our journey with all of you. Thanks, and have a great day.

That concludes today’s call. Thank you for your participation. You may now disconnect your line.