Q3 2021 Quidel Corp Earnings Call
Looking statements.
Forward looking statements by their nature involve material risks assumptions and uncertainties.
In particular, our expectations and assumptions around the impact of COVID-19 pandemic on our business results of operations and financial condition.
And that of our suppliers customers and other business partners are highly uncertain and continuously evolving and unpredictable.
Actual results may differ materially from the forward looking statements due to various important factors, including the risk factors discussed in our most recent 10-K and subsequent periodic reports and registration statements filed with the SEC.
Furthermore, This conference call contains time sensitive information that is accurate only as of today, except as required by law. We undertake no obligation to update these forward looking statements or time sensitive information, which speaks only as of today.
Today <unk> released financial results for the three and nine months ended September 32021, if.
If you have not received our earnings release.
We'd like to be added to the Companys distribution list. Please contact me at 85864680 to three <unk>.
Following doug's comments, Randy will briefly discuss our financial results then we'll open the call to take your questions.
I'll now hand, the call over to Doug for his comments.
Thank you Ruben and welcome to everyone on the call. We really appreciate your time and your interest in <unk> I want to start by recognizing the entire <unk> team for their commitment to their teammates and communities. We started the pandemic with both great uncertainty.
And the label essential workers, we've all been affected.
As well as bonded by it because of our culture.
Pressure only motivated us to lead the industry's response to the pandemic.
To develop new assays drive discoveries on new platforms manufacture at unprecedented scale and keep that production going despite supply chain challenges and concerns over the rapidly changing environment. Our team did at all despite personal and family concerns and long hours.
Dan.
Their efforts have been heroic and their impact on this country has been lifesaving on a level that can never be fully chartered.
While others blocked.
Never wavered, but what our people have done for our company can be measured at least in part.
Because what we are discussing today only boils down to the results from a single quarter.
But step back for a moment and consider.
The U S has weathered several COVID-19 spikes.
Our teams have been asked by our country to do and have done.
What was previously considered impossible to go from zero to 60.
In multiple categories of Covid diagnostics and take those innovations to scale at lightning speed in the process quite Dell has transformed into an enterprise that is far more than essential.
We are purposeful.
We have delivered on our foundational purpose of advancing diagnostics to improve human health when it really counts and that is a far more important metrics through our quiet Dell family that any numbers we discussed today.
It was less the numbers reflect the effort we delivered solid 7% revenue growth from the third quarter of 2020, which was previously our strongest third quarter ever for revenue.
We further broadened our installed base of Sofia analyzers to just over 74000 instruments in the field.
Expanding our base to support influenza a and b.
RSV strep and of course, COVID-19 as well as numerous other diagnostic assays in our portfolio.
The year on year expansion is explosive.
And has long term implications for our diversified business going forward.
Demand for our <unk> products continued with quite Dell shipping over 45 million Sars tests in the third quarter of 2021 across all platforms and.
And we strengthened our beachhead for Covid testing in the retail segment partnering with Walgreens and Cvs to grow our presence in pharmacies when.
In asymptomatic diagnostic testing is crucial to keeping the disease and its variance at Bay.
We believe that there will be continued demand for COVID-19 rapid antigen testing for at least the next few quarters.
I would emphasize that the unpredictability of this pandemic makes everything fluid and a firm baseline level of demand. There is still too early to call looking beyond our COVID-19 categories. Our non seasonal core business is stable in.
In fact, the revenue for this business, excluding influenza and COVID-19 products grew 2% to $92 $4 million as compared to $91 4 million.
In the third quarter of 2020.
There has been no significant distribution stocking for influenza product. So we remain poised to meet the needs of the market should a normal flu season arrives.
We expect our non COVID-19 business to strengthen further in the coming months as flu season kicks off supported by our incremental Sofia placements and the opportunity to increase utilization of the platform not to mention the launch of new Sofia gastrointestinal assays.
And the launch of savanna just to name a couple.
But if we pull back to look at the big picture due to manufacturing capacity constraints.
We are primarily playing in the pharmacy segment that'd be OTC space and have made limited inroads beyond that.
Health crisis.
Due to the extraordinary efforts of these teams.
Third quarter of 2021, we manufactured and shipped the largest climates has ever produced in shipped in any quarter and quite out history and are also on track to reach our target run right capacity of approximately $70 million rapid English in caps per month by the end of the year.
And the third quarter of 2021, we also were pleased to see continued strength of our lire Pcr sales.
Given that the assay requires no proprietary instrument and as your large number of competitors offerings similar solutions we.
We believe our lira sales signal two important trends first Ah heightened brand reputation among PCR labs, and second a strong longer term underlying cohort a potential savannah customers as they see the value of adopting a system that is one of a kind in terms of speed ease of use.
As a menu and price I'll touch more on Savannah later.
And can altogether, we believe the ebbs and flows of COVID-19 demand for Sophia quick view on lira are a net positive for us in the short term and physician us favourably for a world where either COVID-19 reaches the endemic stage.
Or a completely abates as I've said before it's very difficult to provide a baseline COVID-19 revenue number that I can confidently call for until we have completely fulfilled the government order, which we estimate to take place within the next few quarters potentially by the third quarter of 2022.
Let me turn now to the progress made on our product pipeline during the third quarter of 2021.
On the COVID-19 side of the business. We are working on a quick few combination test flew a b and COVID-19 and.
And hope to submit that says to the FDA with them in the next few weeks.
We also have a few other tests and that works and I plan to share more of those as they get closer to lunch.
On the note Noncomp Covid side, we have several Sophia gastrointestinal assays that we believe can increase the clinical utility of that Sophia instrument.
And provide additional placement opportunities for the hospitals, some other moderately complex medical settings.
Within our funnel, but highly valued strategic fit.
We want to stay in diagnostics and <unk> businesses that can expand our international reach for products that can fit within our commercial channel.
We arent interested at this time and technologies that are far away from commercialization.
So we have a set of criteria, we're looking and stand ready to deploy capital to further strengthen our product portfolio.
Should the right opportunity presented itself.
To wrap up the third quarter of 2021 proved to be another strong quarter and an important step forward in our long term game plan.
We were fortunate in that we stuck to the game plan all year, and we're focused on increasing manufacturing capacity.
Platforms and offerings have never been more robust.
Productivity is up.
Across the board.
And our market penetration is deeper and wider than average for us. We believe we are well positioned for the future our products are exceptional.
<unk> to add customers into new markets.
Added incremental Sofia placements on multi year contracts and have made inroads toward establishing a brand name that is recognizable across multiple verticals.
We have executed successfully against our core goals and the business is stronger than it ever has been before now I'll turn the floor over to Randy to give you a deeper understanding of our third quarter 2021 financials, Randy. Thank you, Doug and good afternoon, everyone.
Doug stated, we had a great quarter, and we made and continue to make steady progress on our longer term goals.
As reported total revenues for the third quarter of 2021 were $509 $7 million compared to $476 1 million in the third quarter of 2020.
Achieving growth of 7% year over year, largely due to increased COVID-19 testing demand related to the Delta variant.
Currency exchange had a positive impact of $1 million in the quarter the.
The increase in total revenue was due to strong demand for all of our corporate products, especially our visually read quickly at home OTC COVID-19 test, which received EUA late in the first quarter of this year.
Sudden and sustained demand for at home testing in the quarter resulted in a shifted and Cyrus product mix related to the third quarter of 2020, when we were only authorized to sell Sofia Sars antigen tests in the professional segment and.
In fact, we started selling Sofia rapid antigen tests in the professional segment in the high teens price point and today, we're selling them. The professional segment in the low teens and selling quickly test the pharmacies schools employers.
And government agencies in the mid single digits.
Total <unk> revenue in the quarter from all products was $402 $6 million in there.
This compares to $375 $7 million in the quarter last year, a growth of 7% year over year.
In total we sold over $45 million Covid tests in the quarter approximately $24 million of those were quick view and 16 million tests of Sofia.
<unk> revenue in the quarter was $13 8 million versus nine points, there $1 million in the third quarter of last year.
Included in this influenza revenue number for the quarter was $4 $3 million in the Sofia ABC revenue.
This combo product was not yet available in the third quarter of last year.
As we mentioned last quarter moving forward, we will be reporting the Sofia AVC revenue together with flu revenue.
The us and Europe realized good growth, while China realized year over year decline due to continued shipping and.
Fly chain constraints.
For the Buckman BMP business with $34 $5 million in revenue included approximately.
4 million payment related to the agreement with Butlin Coulter and they're doing some July of this year more on this topic shortly.
Revenue specialized diagnostics solutions category increased 2% to $11.4 million driven by an increase in sales of our compliment products.
Our molecular diagnostic solutions revenue was 54 $8 million in the quarter as we continue to realise continued demand for the <unk> Cove to products, which constituted 43 $5 million of the total.
A lot of revenues grew to $10.2 million in the third quarter due to the incremental revenue from Cyrus Cove to assay.
Gross profit from the third quarter decreased to $373.4 million and was gross margin was 73% of revenue.
We recorded 65 $7 million in income tax expense, resulting in effective tax rate of 23%.
Tax provision was primarily impacted by higher pretax earnings for the quarter relative to the anticipated annual pretax earnings.
We are currently estimating a full year effective tax rate of 22% for the full year, excluding any potential impact of legislation, which certainly continues to remain uncertain.
As of the end of September we have $578 $4 million in cash and cash equivalents.
Year to date, the company has invested $223 $5 million in capital expenditures, including the purchase of a third parties interested in our mckellar facility for $28 $90 million.
Mckellar facility, a strategically important to us as we invested heavily in automation such that by the end of this year, we expect to manual manufacturing capacity of 20 million Sophia tests per month.
For the full year, we're expecting the spend approximately $270 million on capex.
The first question is from Alex Nowak with Craig Hallum You May proceed.
Hey, everyone. This is trending on for Alex Nowak.
I was wondering now that Delta is waning a bit here are you starting to see COVID-19 testing normalized heading into Q4 or is it still at elevated levels.
Now with new variants constantly in the headlines and do you think a higher floor could be forming as COVID-19 testing becomes a natural part of respiratory seasons I guess in other words.
I understand it's.
It's hard to pinpoint an exact floor, but do you think that 20% to $25 million per month as the appropriate for a floor going forward.
Questions.
First with the decline in infection rate I think it is.
Pretty much our expectation that we will see lower and softening demand for COVID-19 testing across all manufacturers.
In the professional segment.
At the same time, though.
For asymptomatic.
Individuals' remains still very very high.
Ross employer.
Schools retail.
Okay, and then if I could ask one more question here of the 70 plus thousand Sofia installed.
Installed base that you have how.
How many of these systems are still primarily being used for Covid and are you starting to see utilization trend higher for other non COVID-19 assays and I guess.
From a priority perspective, what is next in the pipeline beyond Covid.
Income.
So it is true that a large number of those placements occurred during the initial handout.
We continue to place.
It's also true that many of those I think about three quarters or more included agreements to purchase influenza strep RSV and other products. So.
But assuming those.
Disease continues to be prevalent.
Here in the U S as well as ex U S.
I think that we will do.
Still reasonably well, even when the volume does fall off because imagine that if indeed.
We go from.
Pandemic level testing globally to endemic throughout our regions of the globe.
During those periods.
Endemic disease, we won't know, whether it's influenza or whether it's COVID-19 and so I suspect that we will see syndromic panels, whether they are small panels.
And so tia or larger panels like you would see on Savannah, So I think the syndromic.
And so tia or larger panels like you would see on Savannah, So I think the syndromic.
Moving forward are going to include Covid.
And what was the second part of your question I apologize.
Yes.
Yes.
We've got a number of things that we're looking at like the toxicology space a great deal I think the technology that we're developing now will be suitable to that to a higher multiplex.
Toxicology.
Panel or more.
And I also think that the allergy.
Panel, particularly when you think about regional.
The panels and the flexibility that we might have to both develop those panels, but also a manufacturer for people who live in the south are people, who live in the northeast or people, who live in Japan et cetera, the allergies that theyre going to be.
Experiencing as a result of different things floating in the air right. So I like those two in particular, there are others that I, probably shouldn't talk about on the call here.
Given what I see as a large number of competitors listening.
But.
We have a number of opportunities I think.
Our R&D team is going to be super busy over the next couple of years.
Alright, great. Thanks for the questions.
Thank you.
Your model.
Sort of anticipating why Youre asking me that question, but.
I would say that the.
The discussions that we've had with HHS and others straw.
Strongly suggests that.
They're interested in fulfilling that contract and the discussion has really been more around the timing and in which quarters and we've actually been arguing for delaying a little bit because we're struggling to fulfill some of our large employer orders and we have a pretty significant number.
<unk> of employers that have requested testing that we've been pushing out into Q1.
So.
I would say the government has been super flexible with us and we appreciate it greatly.
We think that we can get all caught up as we exit this year move into Q1, and then start fulfilling some of those orders some of which we do have a pretty nice idea, we're going to we expect to deliver but we probably won't complete those government orders until around September or so.
Great. Thank you and then just one on M&A, you talked that about $800 million of cash exiting the year. It's been a topic of discussion for little while would you say that the quality of assets or.
More valuation that is a sticking point here.
I think for US it's about strategic fit it's about having products that fit our commercial.
Team across the globe.
Yes.
We're not interested so much at least at this time and things that are too far away from commercialization.
Or where revenues are low but costs are high and there's not a lot of EBITDA.
In fact, there is no E.
So.
We're less interested in that because I just think that just puts us down it's not secret helpful. I'm not sure I'd return.
So we're looking at things that are tuck ins.
But also we're looking at a couple of things that are a bit larger so.
Again for us.
Good strategic fit and I've said, many many times to our existing investors that.
We promise to try very hard not to do something dumb.
Okay. Thank you.
Okay.
Thank you Mr Weinstein.
The next question is from Kathy wondering with Jpmorgan you May proceed.
Hi, guys. This is John.
Making a lot of flu or strep or RSV.
Can we do that during periods of time or do we have some devote.
Very very high percentage of our manufacturing capacity.
We certainly can Colgate are COVID-19 slash flu combo.
So in terms of an understanding of what to make and what skew in with size.
Is it a one test that is the two tests as of the five tests as of attempt to US we have a 25 tests now.
And understand input.
We've got a large depreciation expense, even with that expense to look very similar so we're not really in a period of time, where we're worried about factory absorption.
The other thing that obviously you are not very well kind of at ICSC is that depreciation expense is noncash.
So it has no impact.
Our cash position and so it's actually better from a cash perspective, the products that we're manufacturing.
Now as we exit the year.
In a position where we can confidently say according my head of operations just the other day that we're going to exit the year at roughly.
Right around maybe plus or minus but we should be right at about 50 million tests per month.
And on the Sofia side.
Or even I would just say we are equally confident that we're going to be at that $20 million per month range. So for those.
Two technologies those too.
Any color on that thank you.
We believe so.
Having been a marketer before.
She is that every forecast.
It's Rob.
But some are useful.
I still think that $300 million buy right.
Here three years is achievable. We are we are internally ramping our forecast down a little bit for 2022.
Simply because of the delays that we.
Experienced as in any other company.
Companies typically.
Difficulty getting the chips that we mean that maybe to go on the instrument. We are now at the stage, where we have the molds ready to go from that manufacturer.
The amounts for the cartridges.
I think those are scheduled to ship.
And to the U S here.
Shortly.
We're running a couple of things to ground, but I would say we've had some fits and starts because of supply chain, but the assays themselves.
The menu looks great performance.
Across the board generally is very very good.
I like the way this product.
Right.
The way that our customers are describing their needs.
This particular product if we do everything that we say that we're going to do.
This product will actually do in the marketplace I think is.
Very difficult to.
Two.
Is a factor and we've recently had to make our standards labor rates.
We recently had to make that just a bit higher.
And once we did we were able to.
Attract and retain tally.
Talent more more easily and I think that's probably going to be at the end of the day well worth it into the calculations that we've done now more recently, we've factored in the higher labor rates were in good shape, but we did have to we just have to spend a little bit more money. It is a competitive environment in southern California four.
These types of jobs and some of them are highly skilled some earl less skills.
But.
We have had to make an adjustment anytime you say.
We're just going to hire another 400 people for the factory.
Guys like me don't think about it the guys down the hall here, though panic [laughter].
We've been out for awhile and I think we're in good shape will have we'll have the people we need.
Here moving forward.
Yeah, our labor, though because of the automation.
Please consider enter I know you know this already but our labor as a percentage of our cost is quite loads less than 10%.
Fair enough I appreciate that and then maybe just one more on the M&A Friday I don't believe you've kind of put global is the first example of places you might be looking so is that something that as you've added. This capacity maybe has moved up the list of hey, how else can we get out to some of these markets, where we're not as.
Big or has anything changed there and how do we think about.
I guess the priority stack when you consider M&A of what's Macy's or attractive.
But demand from outside of the U S.
According to our international team is significant we have served some of that but.
Up to the level that we had.
That we could.
Certainly think that with increased capacity aircrafts are going to be lower factory will be absorbed.
Greatly or overhead costs as a percentage and long term success for for tests will be.
Well within control and we should be able to price competitively having said that.
I still have an obligation to provide all the products that the federal government here in the United States disaster sports So until we get to the end of that I really won't be exploring too many X U S opportunities, but they're still out there and we may get out because of the brain and because of the quality of our <unk>.
Because of the U S FDA cleared product.
We are.
<unk> asked by foreign governments to supply products, either part of the product for all of the product, but the demand is actually out there.
But we're not going to get to it until at least.
Third or fourth quarter of 2022.
Okay I'll stop there thanks.
Sandra.
Thank you Mister Cooper.
The next question is from Jack Me with me from Research you May proceed.
Thank you and good afternoon.
I was hoping for a little bit more color just talk about the court the monthly cadence of the Covid sales in the quarter I know at the end of August yet the press release, saying you had already topped the two two number and then obviously for the quarter came in a lot bigger. So just be helpful to get just how July August September when first Opn quick view.
And what you have seen so far in October.
Yeah.
September was a big step up and I really had to do.
Of course was increasing demand employers started coming on board.
The CVC guidance.
Adjusted slightly themselves.
Cvs Huh.
Yes came online and of course, they've got a lot of stores.
We have that a stocking going on and so I would say and then a lot of filter.
And the month of September.
And as we go into October.
We don't want us to specifically, but it's still trembling.
Not a step up from July of course, but but we're still seeing increasing demand it and it's really related to just the improvement in manufacturing capacity for one but then also our ability to distribute more closely.
Or actually manufacturing, so our ability to get the product out the door.
Improved also as we exited Q3.
Got it.
Is there a way to say how October compared the September.
Not really but I'm anticipating ask the Jack.
Q4 look like so I'll just go ahead, and say I think to be.
Reasonable but.
Over the top and get ourselves.
A bit of flexibility I would say that in queue for probably will look.
A bit like Q3, and the reason I say that is I don't know.
Exactly where the floor is on the professional segment.
Is it at the 20 to 25 like it was in the second quarter.
It's got to be higher than that but but I don't know how much higher than that so there's a little bit of fluidity here.
But if I am in modeling.
We're modeling something that's around what we just did in Q3.
That's helpful.
Then back on Savannah.
Just wanted to clarify how you're thinking about the timeline here in terms of FDA review FDA approval.
And maybe just any color around the breath of the launch internationally.
That would be helpful.
We're just at the stages.
Figuring out where we're going to ship X you us we've got a pretty good opportunities teeter.
I've got customers waiting for instruments, So that's where we're at.
X X.
<unk> launches.
We have demands.
Right now exceeds what we can manufacture and ship.
Sounds familiar.
So we'll get on there in the meantime, we are in clinical trials in the us.
Mhm.
Yeah. It just depends on RVP for colors being a component of it.
When we get a reasonably quick review time.
And if so.
That will tell you when we can effectively launch in the us, which obviously, we're going to try the losses early in 2022, it's possible normally as you know Jack.
We said before that we just for modeling purposes, we call an FTA fight the MK review about a 90 day turnaround.
But who knows these these poor folks at the FDA the reviewers as whenever works.
And so.
And they've been turning things around a lot faster than 90 days when it but and included Covid.
So I am giving you all the variables I don't know yeah.
That's helpful.
And that'd be interesting becka.
[laughter], well I'm Gonna I'm Gonna pencil in mid 2022, we will see how it plays out.
My last question Doug.
I know, it's not a huge market for you, but there's been a lot of buzz around China and local purchasing and also.
Efforts to promote local competition there.
Thank you have some exposure and triage, but just curious what you're hearing on the ground related to that and you know how you think about quite else positioning where there may or may not be exposure.
Yeah, I think it's a fair question.
I would say the biggest issue.
Right now is that the Turkmen BNP businesses.
It's reasonably significant in China and that will rollover.
And so that that is a factor too.
To the extent that the pro.
Competitive situation in China is affecting us I'm not aware on the triage site.
We're seeing any pressure at this point in time, we're doing a couple of things in terms of our.
Relationships with various distributors and managing slightly differently. So.
I would say standby and I'll have a better answer for you moving forward, but right now I don't see a lot of.
A lot of movement.
Thank you Mr Me.
That is all the time we have today. Please proceed with your presentation for closing remarks.
Well, thanks to everybody for your support and again for your interest in quite though we really appreciate it.
We had an excellent third quarter and as you saw it far exceeded but we thought we were going to do it.
And kudos to my team, particularly the operation Sky's the supply chain guys.
Our commercial guys for for figuring out how to allocate product across so many people who wanted the product call that last name.
I think I couldn't be more proud of the team and what they've gotten done and I think it portends well for us as we move forward.
We're stronger is accompanying.
Across the board.
Stronger.
And all functional areas, we have more talent, we have better processes, we are stronger appear to be relationships, particularly on the supply chain side.
And.
And as a result also much greater brand strength and I would say on the professional segment, we've earned customer loyalty.
So.
The numbers are the numbers, but at the end of the day were far stronger organization as we move into 2022 is were lunching These new products.
And I don't think this company has ever been positioned better so I'll stop there because I could keep going I think but again, thank you for being on the call.
Ladies and cancel me we thank you for your participation.
That too please disconnect Caroline Goodbye.
[music].