Welcome to the QuidelOrtho Fourth Quarter and Full Year 2022 Financial Results Conference Call and Webcast. At this time, all participant lines are in 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 Bryan Brokmeier, Vice President of Investor Relations. Bryan?

Thank you, Operator. Good afternoon, everyone. And welcome to the QuidelOrtho fourth quarter and full year financial results conference call. With me today to discuss our financial results are Doug Bryant, QuidelOrtho’s President and CEO; and Joe Busky, QuidelOrtho’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 statement. The statements we will make during today’s -- during this call about the company’s future expectations, plans and prospects include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, 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 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 quarterly report on Form 10-Q filed with the SEC on August 5, 2022, and subsequent reports filed 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 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 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 fourth quarter of 2021 to the fourth quarter of 2022 and from the full year 2021 to the full year 2022, we will be discussing supplemental revenue and other supplemental adjusted operating results as of Quidel and Ortho have been combined for the applicable periods. 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 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 QuidelOrtho 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, QuidelOrtho’s President and CEO. Doug?

Thanks, Bryan. Good afternoon, everybody, and thanks for joining the call today. I am pleased with QuidelOrtho’s financial performance in the fourth quarter and for 2022 overall. Equally, I am pleased with the many productive things we got done in the quarter. Our accomplishments that I believe will set us up for continued productivity gains in 2023 and for meaningful revenue and margin growth for years to come. Today, I will highlight our financial performance briefly and I will talk about our key growth drivers, the programs that will create accelerated revenue growth and that will be instrumental in getting EBITDA back to over 30% of revenue. As reported, Fourth quarter revenue of $866.5 million increased by 36% over the prior year quarter. Supplemental combined revenue for the full year was $4.1 billion. In the quarter and for the full year on a supplemental combined basis, revenue excluding COVID revenue grew 19% and 11%, respectively, versus the prior year periods, driven by strength in our Point-of-Care and Molecular Diagnostics businesses. In an early and pronounced respiratory season was marked by higher than typical influenza and respiratory syncytial virus prevalence rates. This was offset partially by weakness in clinical chemistry and immunoassay revenue in China due to the lockdowns there. Joe will talk more about China later, as well as our path to double-digit growth there for this year. By business unit, fourth quarter ex-COVID revenue in the Labs unit declined 10% versus the prior year. If you were to normalize the Labs business unit for China and the lockdowns, Labs would be up mid-single digits. Transfusion Medicine was flat at 1% and Point-of-Care increased 138% and Molecular was up 45% from the prior year. From a regional perspective, all the regions were up or flat except China which was down…

Thanks, Doug, and good afternoon, everyone. I will begin with a bit more detail on our operating results for the quarter and the full year. As mentioned previously, to facilitate a comparison of the company’s operating performance from the fourth quarter of 2021 to the fourth quarter of 2022 and from the full year 2021 to the full year of 2022, all growth rates that I referenced are presented on a supplemental combined basis, as if Quidel and Ortho have been combined for the applicable periods and may be referred to as supplemental combined information. So let me start by saying that; one, we finished the year strong with a great Q4 that exceeded our expectations; and two, we are today providing 2023 guidance that is in line with our three-year outlook that was provided at the Investor Day in December. I will now provide more detail on both those areas. Starting with the breakdown of Q4 revenue on slide seven. In the fourth quarter, we recorded revenue above the guidance we provided in November. Revenue excluding COVID-related revenue came in at $734 million, which is up 18.6% in constant currency driven by Point-of-Care and Molecular Diagnostics. COVID-related revenue totaled $132 million in the quarter. So in total, we recorded revenue of $867 million, a year-over-year decrease of 23% in constant currency. The currency translation decreased sales growth by about 180 basis points resulting in total sales decline of 25%. For the full year, however, total revenue was up 10% in constant currency to $4.1 billion. Excluding COVID-related revenue, full year revenue increased 11% in constant currency. Note that as we and others in the diagnostics space have been saying for several quarters now, we believe COVID-19 is transitioning to an endemic state and we now see it as just…

[Operator Instructions] The first question comes from the line of Andrew Brackmann of William Blair. Please proceed.

Hey, guys. Good afternoon. Thanks for taking the questions and appreciate the clear comments on the value drivers in the scripts. I thought that was helpful. Maybe if I could just start on the guide here, a lot of moving pieces, I think, Joe, as you called out, I think, a lot of those were already anticipated. But maybe just as we sort of think about those cross wins impacting the business to get to that 4% to 6% base number, can you just maybe talk about how you are thinking about the progression of those variables through the year and then I guess, how does that also impact your thoughts on pacing here? Thanks.

Yeah. Hey, Andrew. Thanks for the question. As in the comments, I do think that, in particular, the Labs growth will be a little more back-end loaded for a couple of reasons. One, the China recovery we expect that we will be a little more back-end loaded. And then also the Labs instrument backorder recovery will certainly be a little more back-end loaded as well. So I think that is going to push a little more of the revenue that growth into the second half of the year, particularly Q4. I would also add that given how the respiratory season played out in 2022, with a very strong flu season in Q4 that sort of ended fairly quickly at the end of Q4. We are not expecting a very heavy respiratory season in Q1, but we are expecting a fairly typical respiratory season in Q4, which again is going to move some more of that revenue into Q4.

Okay. Thanks for that. And then I guess just a similar question on the profitability front, any thoughts on pacing there? And then it looks like the dollars for both EBITDA and adjusted earnings per share were a little bit higher than feared here. So any comments or any thoughts around specific gross margin sort of trends for the year and sort of how we should be thinking about OpEx? Thanks.

Yeah. Consistent with what I have said on previous calls, we still expect in 2023 that seasonality is going to have our Q2 and Q3 quarters to be the latest quarters of the year, particularly Q2. And because of that, when you have got those lower revenue quarters with still a level of fixed costs, that’s going to produce lower gross margins and EBITDA margins in Q2 and Q3, and then with slightly stronger revenue quarters in Q1 and Q4, you are going to have a stronger GP and EBITDA margins in Q1 and Q4, and so it’s going to get you for the full year as we have been saying, GP margins sort of in that low to mid-50s range.

And if I can just add, Joe, that and I think most of our investors know this, historically, Q2 has been our lowest quarter in terms of revenue.

Okay. Thanks, guys.

Thanks.

Thanks, Andrew.

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

Thanks, guys. I like the back-to-back Andrews here. But just to kind of jump into it, one thing I think investors are certainly going to be teed into is the commentary for 2023 being normal and that $300 million to $500 million of COVID. I think it sounds like it does include those government contracts or at least some contribution from. So can you give us a sense for where you are sort of settling out, of what normal might be for COVID and how that’s going to play out through the course of the year kind of in context of, Joe, what you just said about some of the seasonality in flu and respiratory in general?

Yeah. Hey, Andrew. We did go -- the $300 million to $500 million is still our range. So that’s consistent and we can talk about the government contracts. But that’s -- we are not treating that as normal and usual.

Yeah. And it is exactly, it’s consistent with what we said at Investor Day, we were saying $200 million to $400 million for endemic state and it’s up $300 million to $500 million, because you have got this level of government contracts that we know we have in hand.

Yeah.

So that’s -- there’s no change there.

Yeah. That’s what I was trying to say.

And there’s no change in what we have defined as a normal flu season either the $230 million to $270 million, which is the same guidance we gave for 2022. We are back to that what we are calling a normal flu season. That’s -- and that’s inherent in this 2023 guidance.

Yeah.

Okay. Perfect. That’s helpful.

Do you want to talk about total respiratory as well?

Yeah. Those are the main two pieces and then you have got what I will call just of the respiratory, which would be molecular and RS…

[Inaudible]

… strep…

Yeah.

…in the $80 million to $105 million range.

So those are the three pieces.

Exactly.

Perfect. I had a rare adult footing strip right now. I appreciate that piece of the business. Maybe just next on some of the OUS business, specifically in Labs, can you give us a sense for sizing of -- you mentioned the EMEA tender impact versus supply chain kind of dynamics versus the China just lockdowns and give us a sense for as those lift, how big each of those could contribute from a growth perspective?

Well, I can start and then Doug you can add any color. For EMEA, I wouldn’t -- Andrew, I wouldn’t say that the tenders timing was significant. It was really more tender timing in -- from 2021 into 2022 Q4 that’s causing the issue with the growth rate in Q4 of 2022. So I fully expect that we are going to get EMEA into the low single-digit growth range, which is where it was in 2022 as well. So there’s really no -- nothing new there. We still expect EMEA to be in the low single-digit growth range in 2023. In China, it was a really difficult quarter, no doubt for China. But when you look at the outpatient -- the decline in outpatient visits in the overall market, our number, it makes sense.

The number of patients was down…

Yeah.

… 25%, so it pretty much mirrors what happening…

Yeah.

And it’s not different than what we see from other companies in that country as well.

Correct. And we have seen -- since things have opened up, we are seeing flow through on our boxes increased nicely and so we do have a lot of confidence in the double-digit growth in 2023 for China, as I mentioned.

In fact, it’s been that for a couple of months now.

Okay. I will stop there and hop back in the queue. Thanks.

Okay.

You bet.

Thanks, Andrew.

Thank you. The next question comes from Patrick Donnelly of Citi. Please proceed.

Hey, guys. Thank you for taking the questions.

Sure.

Joe, maybe one on the EBITDA side. I know you are well aware of the amount of focus people have on this one. So I just want to make sure we understand kind of the 2023 guidance. I mean, is this the right stepping off point going forward, right? I don’t mean to ask about 2024 already. But when you think about that 28% in the middle, you kind of mentioned you have maybe $100 million of COVID on government contracts. I think those tend to be a little lower at least than kind of retail and maybe on the corporate average. But I think there’s this fear that as COVID comes out at 2024 then takes a step down, is this the right kind of stepping off point on EBITDA, maybe just talk about some of those moving pieces as we work our way through the year and kind of look forward?

Hey, Patrick. Yeah. I think it is a pretty fair jumping all point, because if you go back to the point we just made on COVID, there’s really no change there with that endemic level of annual revenue being it’s $200 million to $400 million. And you are right, it’s up another $100 million in 2023 guide because of those government orders, which again, look, as you said, doesn’t carry a super significant amount of margin. So I do think it’s a good jumping off point. And so the midpoint of our EBITDA margin guide is at 28%, which is what we talked about at the Investor Day in December. It’s right in the middle of that 27% to 29% range that we gave. So we do feel pretty good about that. But going back to Doug’s comments, there is a goal to get it up to 30% the EBITDA margin, no doubt. And we know how to get there, it’s going to get -- we are going to get there through greater revenue growth and we are going to get there through overachievement on synergies.

Okay. That’s very helpful. I appreciate that. And then, Doug, maybe on the Savanna timing and assumptions, can you just talk through, I guess, the time line here? I think this quarter is supposed to be around the 510(k) submission. It seems like EUA probably not happening. But can you just talk about where we are the pathway here in the U.S. and then maybe just the assumptions that are layered into the guide here on our way to that $250 million number? I think it’s over three years, that’s just how we are progressing there, and again, the time line in the U.S. would be great?

Yeah. Thanks for that question, Patrick. I think it will help us clarify just we are at. We are still expecting RVP for EUA in April and the 510(k) will be just shortly after that. So we are very much on track for the launch. As I said, the instrument build issues have been largely resolved, we think we are already at the capacity to have a meaningful launch and we are at the point where we are most of the effort right now is around cartridge ramp up. So we have got manual lines that we are -- that we have in place. Obviously, we think we can make the immediate demand in Europe. There we are doubling down on the mainline potentially depending on the timing of the automated line, but we expect to have the ability to make millions of cartridges very surely. So I think we are in good shape. It’s been a while. So I am anxious to see how well we do. And I would say at our kickoff meeting in the United States, and we are hearing a lot of hi-ho and a lot of cross-selling. It’s been effective. Mostly, the other way at this point, because we are talking about VITROS chemistry instruments and immunoassay analyzers. But I am encouraged with the cooperation, the collegiality of the group. I like the attitude. I like the can-do attitude. The training here is going extremely well and so I think we are in good shape. It’s not just about making product, it’s also about commercializing.

Yeah. Understood. It has been a while, but looking forward to seeing it out in the market, Joe and Doug. Thank you, guys.

Thanks, Patrick.

Thank you. The next question comes from Conor McNamara of RBC. Please proceed.

Hey, guys. Thanks for taking the question. I appreciate it.

Hi.

Just getting back to regulatory business, if you...

Hi, Conor. Sorry, Conor. Please go ahead.

Can you guys hear me -- can you guys hear me okay?

Absolutely. Yeah. Absolutely. Thank you, Conor.

Okay. So just getting back to the respiratory business, if you just think about kind of all of the moving pieces for this year, including the government contract on COVID. Going into next year and not getting into next year’s guidance, but just going forward, how should we think about the total respiratory business size wise including all of that? And then once you do have Savanna, how does that change the size of that business?

Yeah. Go ahead, Joe.

Yeah. I can start here. And again, breaking it up into the pieces, Conor. I think we would again go back to the COVID $200 million to $400 million and the rapid flu in the $230 million to $270 million. Those are the two base numbers. And then the Savanna number, that number is a little bit of a TBD as you move into 2024, obviously, because it’s going to be based on the slope of the ramp or the launch, because some of that Savanna revenue is going to be respiratory, the RVP4 and RVP11. And then you have got that other piece I mentioned the RSP and the strep, we call it, $80 million to $100 million and so those are your pieces as you move forward.

Got it. That makes sense. And then just -- Doug, you just mentioned some of the cross-selling excitement and without Savanna, what are some of the areas of success that you have seen some of the reps have cross-sell and what are they really excited about? Thanks.

Right now mainly in the U.S. at least, mainly the former Quidel people taking the Ortho people into accounts and they have -- we have got a number of close is spending that’s encouraging. Ex-U.S., we are a little bit surprised by the enthusiasm for the Triage platform and the opportunity there with our cardiovascular assays. And I think it would be fair to say that we have been reasonably successful in a limited launch in Europe with Savanna, too.

Very well. Thanks for taking the question. I appreciate it and congrats on a nice quarter.

Yeah. Thanks, Conor.

Thank you. The next question comes from Eliza Garcia of UBS. Please proceed.

Hey, guys. Thanks so much for squeezing me in here. Really appreciate it. So I appreciate there are kind of some moving parts in the Lab business and the open -- the 600 open order that I think you have kind of given it could add incremental 2% to the topline if you were to kind of fill those orders. So I guess if you could maybe provide even like guideposts on how to think about what’s layered into the guidance or just an upside downside case kind of in the resolution of this, how quickly it could be or is there any capacity constraint in how to think about it?

Well, I think, it would be fair to say that have increasing visibility to the supply chain necessary to manufacture the instruments and it wasn’t by eliminating the entire back order that we got to the 2-point improvement in growth. It was to get it down to somewhere around $150 million or so…

Which was a normal level…

… which would be normal level if we would exit it typical year at about $150 million. So just to be clear, we are not -- we are talking about probably an increasing close rate with boxes, which naturally would create a more back order. But we are pretty confident that we can observe the additional instruments as well and get back to a normal exit rate in 2023. But that’s not going to happen immediately either. We are improving and we have a little bit of encouraging news for the first quarter, but it’s not at the level quite yet that we are needing to be at. I hope that’s clear. Joe, do you want to add something?

Yeah. So that’s right and as I would just add that, in the guide, we did not, just to be clear, we did not assume that the full backlog goes from $650 million to $150 million. We assumed that it came down modestly. It is going to take into 2024 to drill that all the way down to where we want it to be.

Okay. Super helpful. And I guess just, A, could you confirm kind of, I think, you had said $350 million for flu, if that was -- if that’s how the year shook out to 2022? And then you have been kind of pointing back to the TriageTrue opportunity OUS. How should we think about the high sensitive troponin test and kind of any updates around potentially in the U.S. as well to launch there?

Yeah. First question first I guess. To be clear, I think I heard you say the total flu is $350 million.

In 2022.

In 2022.

That’s correct.

Is that what she said?

Yeah.

She stated that correctly.

Yeah.

And then the second piece?

TriageTrue…

Oh! Eliza.

…and troponin.

Sorry. Sorry, that -- actually I missed that. Yeah. We are at the point where we are working with the FDA to determine next steps with respect to that submission. And once we get through those conversations, we will be prepared to disclose where we are at. But right now, we are still working with the FDA.

But we are selling in Europe under CE.

CE. Yeah. Two questions. Let’s be clear. Eliza, are you asking about Triage? Are you asking about on the VITROS system?

Triage.

Triage.

Are you asking -- okay. Perfect. Perfect. Yeah. We are currently. And in fact, we are in the process of setting up an automated manufacturing line for the high sense troponin on the Triage. And we fully expect that the yields will be better, that our costs will be better and we should be competitive in that market. So I think it’s safe to say that it’s a pretty good opportunity for us there.

Great. Thanks so much guys for taking all my questions.

Thank you.

Thank you. The next question comes from Alex Nowak of Craig-Hallum. Please proceed.

Okay. Great. Good afternoon, everyone. I want to continue on the theme around the flu season and just how to think about it here for 2023. You put the flu number at $230 million, $270 million for 2023, but if you go back to 2019, you did $140 million of flu sales that year. So is this really the new normal with combo testing or is the difference really more about the share gains that you were talking about? And if it’s share gains, what does that mean for the rest of the Sofia business that you could pull alongside that instrument?

Well, it is due to share gain, because you remember that we placed a significant number. We were in the year that you are talking about, I think, our total installed base in the U.S. was under 40,000. Globally we -- I think we were at 42,000. And we are now 77,000 instruments in the United States, 21,400 customers. That’s up 6% over the prior trailing 12-month period. So, yeah, if we have an expectation that we will have pull-through on the product, but that’s that shows up in RSV and strep, as Joe mentioned. So I think it’s a pretty reasonable estimate for the time being. I sense that you are challenging us a little bit and thinking it could be higher, that’s possible. But I think we are -- I think we have a peg right for the moment.

Okay. Makes total sense. And then I just wanted to get some clarification around the EBITDA to free cash flow conversion, $245 million adjusted EBITDA, I have actual free cash flow being like $76 million. I know there’s some onetime items in there, so your recurring free cash flow numbers a bit higher than that. But can you maybe walk through the divergence between EBITDA, free cash flow, recurring free cash flow this quarter and then what to expect in 2023?

Yeah. The quarter free cash flow -- recurring free cash flow that was $169 million of operating cash, less $59 million of CapEx and then you lay on add back, if you will, $25 million of one-time or non-recurring and that gets you to $135 million for the quarter, which is 55% of our adjusted EBITDA and looking forward into the guidance, we expect to be in that same range for 2023, call it, the low end of the range of 50% to 65%, so somewhere in that 55% range makes sense for next year -- for this year I should say.

Okay. So expect that for next year?

Yeah. That’s right.

Okay. Got it. Thank you.

Sure.

Thank you.

Thank you. The next question comes from Jack Meehan of Nephron. Please proceed.

Thanks. Good afternoon. On guidance, I was hoping you could just draw a finer point on first quarter expectations for COVID, flu and the other respiratory. In the CDC data, we have seen this rapid drop off in flu activity. I am not sure what you are seeing in Virena, but I just want to make sure we have the right expectations for those three buckets in 1Q.

Yeah. Hey, Jack. How are you? Yeah. Given I think I said earlier, the respiratory season did drop pretty quickly at the end of Q4. So we are expecting a fairly light, I will call it, flu season. COVID’s still hanging in there. If you look at the infection rates COVID is still hanging in there, ILI came down flu, but COVID’s hanging in there. And then we have got the government contracts as well. So I think we will have a decent respiratory season in Q1, driven more by COVID than flu and then Q4 is where the rest of that respiratory season is going to go in the guidance.

Yeah. Let me just add a little color, because Jack asked about the Virena data and most of the audience doesn’t have access to it. When I look at the chart, I see pretty drastic drop off in positivity rates, but the positivity rates are still higher than they now really would be at this time. So -- but to be fair, it did peak, what, the second week in December.

Yeah.

And so it’s been coming down pretty nicely. So I think you are right, though, we should have a reasonable first quarter. It just won’t be the normal…

Right.

… biggest quarter in the year, I will leave with that.

Got it. And then I think Joe and you, Doug, both kind of referenced China to down 27% ex-COVID. Is -- how much of this was in the core Lab business versus Transfusion Medicine or legacy Quidel and just what do you expect for the region in the first quarter?

Well, just overall patient volumes being down 25% period and I don’t know most Labs, yeah, it’s…

Everything was down.

… down.

Yeah. Everything was down, but it was the biggest chunk of it is going to be Labs and Q1 it’s bouncing back. We are seeing nice flow through on the instruments in Q1.

Would you expect it to still be down year-over-year, though, in the first quarter?

It will be up. It will be up.

Okay. Last one, if you will humor me, just molecular, is there any granularity you can provide around the forecast just for 2023 for that segment?

Well, I mean, again, I think, it’s going to be back-end loaded. The growth will be mostly back-end loaded again due to Savanna and the regulatory clearance in the U.S. I think that’s probably the best color I can give you.

Okay. Thanks, Joe.

You got it.

Thank you. The next question and the final question comes from the line of Casey Woodring of JPMorgan. Please proceed.

Great. Hi, guys. Thanks for fitting me in. I guess just on pricing, what’s your expectation for respiratory pricing in 2023 versus 2022 and how should we think about that trending across your different products within those three buckets?

Yeah. We are still hanging our price wise. We expect flat price.

Got it. That’s helpful. And then just last one, in terms of the sites with multiple Sofia’s, particularly the hospitals that have five or six on average that you noted in the prepared. What gives you confidence that…

Yeah.

… those multiple instrument sites won’t consolidate? And then can you just elaborate on those multiyear contracts, how much visibility do you have into those flu and those other respiratory revenue numbers?

So a couple of things. Hospitals is 7.5 instruments per hospital, to be clear. In terms of consolidation, I think, the most important point that I made was that only 8% of those boxes out there just run COVID. So the -- you could expect, for example, the boxes in the nursing homes would be returns. You can expect that a handful of customers that would maybe run just COVID-only could be an opportunity to consolidate. But at the end of the day, we haven’t seen it yet. So I don’t know how to forecast it moving forward, but I would just say, we are not seeing it yet.

Got it. That’s helpful. Thank you.

Sure. Thank you, Casey. All right.

Thank you.

I think that’s all for the questions. I want to thank everybody for your great questions actually, and in closing, thanks for -- thanks to the extraordinary dedication of our folks. We really did have a strong finish in 2022. Once again, the integration is going well, and when I say that, I am not just talking about cost and revenue synergy, I am talking about watching the people get together and across the Board, whether it’s in the factories or in meetings, supply chain or the commercial books. I think everybody is getting along tremendously, people are happy and I am expecting a great success from 2023 onward. So, thanks, everybody.

That conclude -- thank you for your participation. That concludes the conference call. You may now disconnect your lines.