Welcome to the QuidelOrtho First Quarter 2025 Financial Results Conference Call and Webcast. At this time, all participant lines are in listen mode only. For those of you participating in the conference call, there will be an opportunity for questions at the end of the prepared remarks. Please note this conference call is being recorded. An audio replay for 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.

Thank you. Good afternoon, everyone, and thanks for joining the QuidelOrtho first quarter 2025 financial results conference call. Joining me today are Brian Blaser, President and Chief Executive Officer; and Joe Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To aid in the presentation, we also posted supplemental information on the Investor Relations page that will be referenced throughout this call. This conference call and supplemental information contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not strictly historical, including the company's expectations, plans, financial guidance, future performance, and prospects, are forward-looking statements that are subject to certain risks, uncertainties, assumptions, and other factors. This includes the expected impact of tariffs and macroeconomic conditions. Actual results may vary materially from those expressed or applied in these forward-looking statements. Information about potential factors that could affect our actual results is available in our annual report on Form 10-K for the 2024 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Forward-looking statements are made as of today, May 7, 2025, and we assume no obligation to update any forward-looking statements except as required by law. 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 the supplemental information, which are on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. Now I'd like to turn the call over to our CEO, Brian Blaser.

Thanks, Juliet, and good afternoon, everyone. As I reflect on my first anniversary since joining the company, I first want to thank all our employees and our leadership team for their unwavering support as we implemented difficult but necessary changes to our business over the last year. Together, we refocused the organization on a narrow set of priorities and set in motion key initiatives to improve our performance and our cost structure. Our business faced unique challenges and increasingly dynamic environment. The organization came together around our common mission with our customers at the center of everything we do. The team's efforts played a critical role in the strong results we delivered in Q1, reinforcing my confidence in our strategy and operational discipline. Let me start by taking a closer look at our first quarter results, followed by my thoughts on the evolving tariff situation. During Q1, we delivered solid bid single-digit revenue growth of 6%, excluding COVID and donor screening. This performance was primarily driven by our labs business, as well as stable growth in immunohematology and a strong flu season. We also recognized cost savings from our previously announced initiatives that drove a 450 basis point year-over-year improvement in adjusted EBITDA margin and a 68% increase in adjusted diluted earnings per share compared to the prior year period. From a business unit perspective, our labs business, which was 54% of total company revenue in Q1, achieved revenue growth of 7% with strength in both clinical chemistry and immunoassay testing. Our immunohematology business continued its global leadership position and consistent trajectory with 4% growth during the quarter. Our point-of-care business represented 25% of our Q1 revenue and grew 8%, excluding COVID. Q1 COVID testing was down compared to the prior year period, but flu sales were strong, resulting in…

Okay, thanks, Brian. And hello, everyone. I'll start by walking through our first quarter results, which are detailed on Slide 3 of the supplemental information available on the Investor Relations page of our website. And unless otherwise noted, all year-over-year revenue growth figures discussed today are presented on a constant currency basis. As Brian noted, our first quarter performance was in line with our expectations, and we anticipate continued momentum through the rest of 2025, particularly with our labs business, where we see strong recurring revenue with long contracts and a loyal customer base. Let me begin by taking you through our first quarter performance, followed by a discussion of our full year 2025 financial guidance, which remains unchanged. After that, we'll open up the call for questions. Total reported revenue for the first quarter of 2025 was $693 million, compared to $711 million in the prior year period. The year-over-year decrease in total revenue was primarily due to lower COVID revenue and lower donor screening revenue related to the planned wind-down of that business. Excluding COVID and donor screening revenue, we achieved mid-single-digit revenue growth of 6%. This performance was primarily driven by strength in our labs business, as well as consistent growth in immunohematology and a strong flu season. Foreign currency translation had an unfavorable impact of 150 basis points during the first quarter. From a regional perspective, our Q1 revenue performance was led by our other region, which is comprised of Japan, Asia-Pac, and Latin America, with 12% growth, driven by strong 17% growth in labs revenue. And looking at our other regions, North America declined by 6% compared to the prior year period due to the year-over-year decrease in COVID revenue and the ongoing wind-down of our donor screening business. But absent these headwinds, North America…

[Operator Instructions] Our first question is from Conor McNamara with RBC. Your line is now open.

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? From here, I'll start there.

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.

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?

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.

Our next question is from Patrick Donnelly with Citi. Your line is now open.

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.

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.

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.

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.

Our next question is from Andrew Brackmann with William Blair. Your line is now open.

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.

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.

And then maybe just a clarification to your answer to Patrick's question. I think you said only a small percentage of products being shipped to China are subject to tariffs right now. Are those exemptions that are specifically called out or any color on why you're not seeing those be subject to tariffs? Thank you.

Yeah, really, all we can say at this point is that with all of the shipments that have gone into the country over the last couple of weeks since the tariffs went into effect, we're just -- we're really just seeing a small number of those being subjected to the tariffs in practicality.

Our next question is from Jack Meehan with Nephron Research. Your line is now open.

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?

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.

Yeah, and Jack, I would just add to what Brian said, even though we did see COVID come down in the quarter year over year, we did expect to be less this year. We took it down from $185 million down to a midpoint of $125 million, and most of that decline was due to the lack of a government order fulfillment this year versus last year and then a decline in retail. But, so we expected a decline and we still think that our range is a reasonable place to be for the full year. But as I said, in the prepared remarks, we'll obviously keep a close eye on it as we move through the year.

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.

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.

The next question is from Lu Li with UBS. Your line is now open.

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.

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.

And then I assume the $30 million to $40 million gross impact is mostly 2025 numbers. So I wonder if anything will linger into '26, and then are you maintaining your 23% to 24% EBITDA margin that you presented a few months ago?

Yeah, Lu, good question. Yeah, the numbers that we talked about, the $30 million to $40 million, that is a 2025 impact number. So obviously, the annualized impact would be a little larger than that, but the tariff impacts, the mitigation impacts, I should say, that we talked to will fully offset the annualized impacts as well. And so there's no change to our margin targets and where we expect to be for 2026, no change.

Our next question is from Casey Woodring with JPMorgan. Your line is now open.

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. Thank you.

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.

Yeah, there's no indication that it's not the case at this point.

Yeah, it's not going to be permanent.

Our next question is from Andrew Cooper with Raymond James. Your line is now open.

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?

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

And then maybe just to touch on China again as well, you called out the 2% growth and called out clinical chemistry, especially. I know IA has historically been smaller for you in China, but any change in wind rates there across clin chemistry versus IA? And then maybe can you give us a sense for the penetration of integrated instruments in China versus globally?

Well, Andrew, we can start with the penetration of integrated instruments that our business there is primarily clinical chemistry. So, most of what we have there are standalone clin chem boxes. And so we've got plenty of runway to expand our immunoassay presence there. And in terms of the results that we saw in the quarter, our growth rate there was primarily impacted by triage. We did see lower clinical chemistry growth, but I would say that some of that is kind of shift across the quarters and I wouldn't read too much into that.

Our next question is from Tycho Peterson with Jefferies. Your line is now open.

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?

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.

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?

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.

We have no more questions waiting at this time. So I'll pass the call back over to Brian Blaser.

Well, thank you, operator, and thanks everyone for your interest in the company. We're very pleased with our first quarter results. We are going to keep focused on our key priorities and we look forward to updating you on our progress in the coming quarters. So thank you very much.

That concludes the conference call. Thank you for your participation. Enjoy the rest of your day.