Q4 2022 Quidelortho Corp Earnings Call

Okay.

Right.

Welcome to the quit out or so fourth quarter and full year 2022 financial results conference call and webcast.

At this time, all participants 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.

A 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 Brian broken here.

Vice President of Investor Relations Brian .

Thank you operator, good afternoon, everyone and welcome to the quite aloe or so fourth quarter and full year financial results Conference call.

With me today to discuss our financial results are Doug, Brian Cornell Ortho, as president and CEO and Joe Borowski quite out of ortho as 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 todays that 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 are subject to a number of risks and 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 5th 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 implied by our 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 statement 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 the comparison of the company's operating performance from the fourth quarter of 2021 to the fourth quarter of 2022 and for the full year 2021 to the full year 2022, we will be discussing supplemental revenue and other supplemental adjusted operating results as it quite well in north though.

<unk> had been combined for the applicable periods.

I'll refer to this information is our supplemental combined information this.

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 quite out ortho website.

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, Codell Ortho as president and CEO Doug.

Thanks, Brian and good afternoon, everybody and thanks for joining our call today I'm pleased with quite a ortho its financial performance in the fourth quarter.

And for 2022 overall, but equally I am pleased with the many productive things we got done in a quarter that costs are accomplishments that I believe will set us up for continued productivity gains in 2023.

And for a 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 our 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.

And in 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.

Use your medicine was flat at 1% point of care increased 138% and.

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 again due to the Lockdowns overall of the newly combined organization performed well it was a solid quarter and a good back half of the year, which bodes well for increasing revenue growth trajectory over the next few years I.

I think it's important for investors and the broader market to recognize that I view quite adult ortho as a growth company and we will continue to manage our business as such we are a customer driven company that is executing on over 100 active R&D and clinical and regulatory projects.

With an expectation that we will be just as prolific in product development as we have done in the past the three key near term growth drivers that we are acutely focused on in 2023 are our Sofia savanna in vitro systems and product lines with over.

85000, Sofia instruments installed worldwide.

So for your franchise is a solid durable and growing business a review of our placements in the United States is informative and should be helpful to investors in understanding the longevity of the Sofia platform as well as our longer term strategy to address an increasingly decentralized.

One of the IBD market.

In the U S over 77000 Sofia instruments are on multi year contracts most of which include.

Urgent care.

Excuse me most of which include multiple products.

50% of the fears are in the P O P O L <unk>.

23% are in hospitals.

17% are in urgent care and 10% are in corporate accounts on average P. O L sites have 2.7 Sofia instruments hospitals have 7.5.

And urgent care sites have three point for the number of U S. Sofia customers is up 6% year over year to around 21400 <unk>.

Number of P. O L customers is up 8% hospital customers are up 2%.

And urgent care customers are up 9% offs.

Offset by long term care customers, which were down 20% understandably given the end to the government's COVID-19 nursing home program.

As a quick aside.

The total number of customers purchasing our respiratory disease rapid antigen tests, including our quick view.

As over 72000 out of year end 12, trailing 12 month basis.

Saying that we have a meaningful presence in the U S. Outpatient settings is an understatement.

Importantly, 82% of 77000 Sofia instruments run influenza and 70% run Covid, which explains the market share gain we've experienced over the last couple of years and the respiratory disease category.

And interestingly only 8% of Sofia instruments run Covid only.

Non COVID-19 out sales per instrument increased 57% at year end on a trailing 12 month basis.

The Sofia franchise with its huge installed base is clearly a valuable asset one that can and should be leveraged by us to the greatest extent possible, which is why the R&D team is so focused on developing additional menu for our Sofia customers.

The number of companies pursuing point of care molecular solutions that would potentially address the need for smaller syndromic panels is increasing which further validates our efforts and strategy to bring savanna too decentralized access points to health care.

I'm pleased to say that we are nearly there nearly ready for an expanded global launch ahead of the next respiratory season supply chain and instrument manufacturing issues that were a challenge for us are largely resolved and we now have the capacity to begin to shift the analyzers that we had anticipated all along.

For our cartridge manufacturer.

Manufacturing, we are in the process of increasing manual manufacturing lines.

Bring additional staff and installing high volume automated lines that will produce the millions of cartridges that will be required. The first two pounds that we will launch our RVP four and the HSV Vesey V lesion panel.

And that we expect to begin clinical trials for our V. P 11 STI.

STI to Gi panels, a bacterial viral and parasite panel.

<unk> and vaginitis, we are purposely focused our initial menu on these areas to take advantage of savanna is unique features faster turnaround time test flexibility and lower total cost of ownership.

The largest of our franchises in terms of revenue representing close to 50% of our revenue is the labs business unit and our vitro as clinical chemistry.

And immunoassay systems, and slides driven by increasing global demand for our integrated chemistry, and immunoassay platforms and good commercial execution.

We are experiencing a backwater of around 650 instruments.

While most of this is due to strong demand. There is also a supply chain component, which we are addressing with our suppliers.

Just as we did with savanna I am confident that we will collaborate with our suppliers to improve forecast visibility and to resolve supply chain challenges in 2023, and I expect that we will make significant progress as we move through the year in other words, we expect to reduce the back order in 2023 by applying the same.

Principles, we've employed with savanna to RP twist platform. In addition, we're installing two more automated slide manufacturing lines in Rochester to meet increasing slide demand.

Another step we undertook in the fourth quarter was entering into a joint venture with Shanghai render medical to develop and manufacture VITAS assays in China, which longer term. We believe it will translate into a faster time to market and more compelling menu for vitro assays in support of our growth strategy in China.

We also continue to progress, our China instrument and localization initiatives.

Internally I speak often about excellent execution being a function of things done well.

Pete.

Achieving speed requires focus pick.

Picking the two or three things that are going to matter and giving yourself permission not to focus too acutely on things that don't matter as much at least not currently.

In other words first things first in my mind. These three franchises matter our success with these three programs will create the greatest shareholder return in the next couple of years. It doesn't mean that transfusion medicine is an important and that our development of a nextgen donor screening platform will be important in the longer term.

Because it is and it will it doesn't mean that leapfrog and quantitative assays at the point of care arent important in the longer term because they are and it doesn't mean that deploying our capital wisely is important because it is but for me in 2023. These three businesses matter.

Most and that's where I'm focused of.

Of course I'm also following our progress with the integration very closely and it's going well as we trend positioned from our interim stay to our future state.

Over 70% of interim state milestones have been completed to date.

A remarkable achievement in such a short amount of time following a disciplined and thoughtful approach. Our integration team is ahead of expectations in both identifying and realizing cost synergies.

Last year, we realized approximately $15 million in cost synergies.

We have also identified the full $90 million in cost synergies over the next three years and believe that there could be even more upside.

Given where we are today, we're confident that we will exceed our 2023 target that $30 million and commercial cross training related.

Training.

To revenue synergies is well underway.

In summary, we had a fantastic quarter and a terrific year. We're ahead of schedule on our integration plans and have multiple growth drivers at work.

A plan in place and everything we need to hit our financial targets going forward.

Our path to meaningful growth as we move from 2023 onward is well understood and largely derisked. The headwinds that we were rightly concerned about the obstacles we were expecting.

It may not be as significant as we had originally thought objectively our fourth quarter was truly an outstanding performance and sets us up for a strong 2023 and beyond.

With that I'd like to turn the call over to Joe just to further discuss our Q4 financial results and 2023 guidance, Joe Thanks, Doug and good afternoon, everyone.

I'll begin with a bit more detail on our operating results for the quarter and the full year as mentioned previously to facilitate a comparison.

The company's operating performance from the fourth quarter of 'twenty, one to the fourth quarter of 'twenty, two and for the full year 'twenty one to the full year of 22, all growth rates that I referenced are presented on a supplemental combined basis as if quite out of the north. So I think combined for the applicable periods and may be referred to as supplemental combined informed.

<unk>.

So let me start by saying that one we finished the year strong with a great Q4, and it exceeded our expectations and two.

We are today, providing 2023 guidance that is in line with our three year outlook that was provided provided at the Investor day in December .

I will now provide more detail on both of those areas.

Starting with a breakdown of Q4 revenue on slide seven in the fourth quarter, we recorded revenue above the guidance we provided in November .

Revenue, excluding COVID-19 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.

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-19 related revenue full year revenue increased 11% in constant currency note that as we and others in the diagnostic space <unk> been saying for several quarters now we believe COVID-19 is transitioning to an endemic state and we now see it as just another respiratory disease and appropriately we will begin to bucket.

COVID-19 revenue with our other respiratory revenue in 2023 and forward.

Turning to our Q4 performance by business unit on a constant currency basis, and excluding COVID-19 related revenue.

<unk> revenue grew 138% largely driven by pull through of our broad respiratory menu.

Ross results reinforce our view that our Sofia system has been and will continue to be the beneficiary of tailwind associated with increased respiratory testing, especially among the 85000 cumulative instrument placements.

Labs' revenue declined 10% in the quarter, primarily due to the continued lockdown challenges in China.

Transfusion management revenue grew 1% with high single digit growth in donor screening driven by plasma demand, partially offset by immuno hematology due to lower procedure volumes in China.

And finally molecular diagnostics revenue grew 45% in the quarter, though this is on a relatively low base.

Now looking at our quarterly performance by geography on a constant currency basis, and excluding Covid related revenue North American revenue grew 38% EMEA declined 3%, China declined 27% and other regions, which includes Latin America, Japan, and other Asia Pacific markets grew.

7%.

North America, our largest geography by revenue delivered strong growth, excluding COVID-19 related revenue driven by point of care.

And though it didn't meaningfully impact the quarter.

<unk> recently received two government contracts one.

One year 108 million U S government contract for quick view at home COVID-19 tests.

Contract provides for an expected value of $64 million and a maximum order value of $108 million.

We did ship only a few million tests of this order in Q4, and we expect to ship the remaining tests and the initial $54 million order primarily in Q1.

And then more recently, we received a second U S government contract for up to $37 million Covid tests for a total of approximately $97 million.

We shipped a very small amount in late Q4, but most of this non guaranteed contract is also expected to ship in Q1.

In EMEA revenue growth, excluding COVID-19 related revenue slow as lab volumes were negatively affected by the timing of tenders.

Positively point of care grew strong double digits, driven by strength in both Sofia and triage.

And China, which makes up about 10% of our total company revenue New COVID-19, Lockdowns caused a double digit decline in hospital visits which had a severe impact on our recurring revenues.

Positively, though late in the fourth quarter and into Q1, we saw increased testing and an acceleration of orders the end of Chinese zero Kovac policy is expected to support accelerating demand as we move through 2023.

Looking at our Q4 revenue by category occurring revenue, which includes reagents service and other consumables grew 5% and was up 24% excluding COVID-19 related revenue.

Quick view revenue was down 72%, but up 371%, excluding COVID-19 related revenue.

Instrument revenue grew 9% driven by strong cash its net sales in our TN business, including a few nice large wins in North America.

Global supply chain challenges continue to limit our ability to deliver instruments in our labs business, given Q4 seasonality and instrument demand open labs instrument orders were up modestly from the third quarter that said customer demand continues to be strong and we are prioritizing new instrument placements and integrate instruments in order to maximize our recurring.

<unk> pull through.

Now turning to slide eight I'd like to comment on our fourth quarter.

Answer performance below revenue versus the prior year again on a supplemental combined basis, although year over year growth rates were negatively impacted by the decline in COVID-19 related revenues, we delivered a strong quarter performance below the top line.

Gross profit margin for the quarter was 54, 6% in line with our expectations and down.

From prior year, largely due to the decline in Covid related revenue as we transition from a pandemic state to an endemic state as well as FX headwinds, partially offset by favorable base business mix.

Adjusted EBITDA also declined year over year again due to the transition from a COVID-19 pandemic state to an endemic stake resulting in adjusted EBITDA of $245 1 million.

Ahead of our expectations due to the strong revenue.

Adjusted EBITDA margin contracted year over year to 28, 3% again better than our expectations.

Net interest expense for the period was $34 1 million a decrease of $2 million as anticipated due to lower interest rates, partially offset by the increase in the average outstanding debt balances related to the combination.

Our provision for income taxes was $39 million compared to $92 million from the prior year period. This represents a fourth quarter adjusted tax rate was 25, 4%, bringing our full year adjusted tax rate to 22, 5%.

Our adjusted earnings per fully diluted share for the fourth quarter was <unk> 76 above our guidance and compared to $5 12 in.

In the fourth quarter of <unk> 21 in our supplemental combined basis, the higher EPS in the fourth quarter of 'twenty, one was driven by the greater of Covid related revenue than in the fourth quarter of this year.

And for the full year, our adjusted earnings per fully diluted share was $13.80 compared to $13 60 in 2021 on our supplemental combined basis.

Turning to cash flow and balance sheet on slide nine in the fourth quarter on a GAAP basis, we generated operating cash flow of $169 million and after funding $59 million in capex, and adding back $25 million in integration and other costs, we estimate recurring free cash flow.

To be $135 million or 55% of our Q4 adjusted EBITDA.

In terms of capital deployment in the fourth quarter, we did not buyback any shares as we focus on bringing down our net leverage through a combination of paying down debt and building cash on the balance sheet.

We paid out $52 million of debt in Q4 for a total of $104 million in the second half of 'twenty two.

We intend to maintain a flexible and balanced approach to share repurchases and debt pay down going forward, which will include debt pay down of at least the required $206 million in 2023.

And we ended the quarter with cash cash equivalents in marketable securities of 366 million and total debt of $2 6 billion.

We ended the quarter at one five times net debt to EBITDA on a supplemental combined basis and consistent with what we said at our December investment.

Investor Day.

As COVID-19 related revenue declines to an endemic level over the coming year, we plan to maintain prudent levels of leverage and expect leverage to increase up to approximately two five times by the end of 'twenty three.

And we believe that we're in a good position to continue to invest in the business day.

Deleveraging is a top priority for us and we have a goal to be at or below two times net leverage by the end of 'twenty four while maintaining flexibility for strategic smaller M&A opportunities.

Okay now turning to our fiscal year 2023 guidance on slide 10, first I'd like to provide some broader context on this outlook going forward, although there may be spikes and no one really knows for sure.

We assumed COVID-19 transitions to an endemic state similar to other seasonal respiratory viruses and we plan to bucket it with those other respiratory viruses in 'twenty three and forward.

And while 2022 included a record setting respiratory season, including flu and COVID-19.

We expect 23 to return to a more normal respiratory season, we expect to continue to capture and grow our share of the respiratory market underpinned by our large and growing Sofia placements.

Outside of respiratory to point of care market is healthy and is expected to deliver strong revenue growth and 23.

Our transfusion medicine business is expected to be about flat.

With solid growth within our core IH business and softness in donor screening.

Labs instrument supply issues are expected to modestly alleviate as you move through 'twenty three.

Which along with an anticipated recovery in China are expected to drive solid growth. It is a little more back half loaded.

Savanna sales in Europe are expected to drive strong growth within our molecular diagnostics business, which along with the expected ramp in the U S volumes. After receipt of regulatory clearance are expected to drive meaningful revenue in the back half of the year.

Given the volume strength, we're seeing in stat labs due to the end of the Lockdowns in China, a recent launch on the <unk> 3400, and our localization plans, we are expecting strong double digit growth in China, excluding COVID-19 related revenue.

And then finally inflation and global supply chain disruptions continue to be a challenging. However, we are seeing greater access to semiconductor chips and expect challenges to further ease as we move through the year.

So in light of these dynamics, we are introducing the following fiscal year 'twenty three guidance, which is in line with our three year model as presented at our Investor Day in December .

Total revenue of $2 eight to $3 1 billion.

Breaking this down further.

<unk> growth, excluding respiratory sales is expected to grow 4% to 6% on a constant currency basis to $2 2122 5 billion.

Respiratory revenue of $610 million to $875 million.

Which includes COVID-19 revenue of $3 $500 million.

Rapid flu revenue of $230 million to $270 million.

And other respiratory revenue of $80 million to $105 million.

And this includes some benefit of recently awarded government contracts and as compared to 2022 supplemental combined total company respiratory revenue of $1 8 billion.

Adjusted EBITDA is expected to be in the range of 800 to 850, representing a margin of 27, 4% to 28, 6%.

Adjusted diluted EPS is expected to be in the range of $5 to $5 60, which includes the increase in the interest rate environment over the last year.

In addition, I would like to provide assumptions that may be helpful for modeling purposes.

Current rates.

We expect currency translation to be about neutral to full year sales and adjusted EBITDA.

There are no differences in the number of billing days and 23 as compared to 22.

Net interest expense is expected to be in the range of $145 million to $150 million.

We're expecting a full year adjusted tax rate of about 23, 5%.

And consistent with what we've said at our Investor Day, we expect recurring free cash flow to be at the lower end at the 50% to 65% of adjusted EBITDA.

And finally full year diluted weighted average share count of $67 2 million.

So in summary.

Our fourth quarter results were exceptional as our positioning in the respiratory market drove strong results, even as our largest and generally most resilient business labs faced temporary weakness largely due to the China lockdowns.

In 2023, we expect a normal respiratory season, which will cause a difficult comp for 2023 and.

And we expect lapsed the bounce back and support our business model as our guidance indicates.

This 2023 guidance provides for a two year CAGR for revenue excluding COVID-19.

In line with a 6% to 9% long term outlook, we provided at the Investor day.

And beyond 'twenty, one 'twenty two 'twenty three we fully expect to continue delivering on our high single digit long term growth profile.

So with that operator, I think we're now ready to open the call up for questions.

If you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one.

A reminder, if youre using a speakerphone. Please pick up your handset before asking your question, we will pause here briefly as questions are registered.

The first question comes from the line of Andrew <unk> 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 crosswinds impacting the business to get to that 4% to 6% base number can you just maybe talk about how youre 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 lab's growth will be a little more backend loaded for a couple of reasons one the China recovery, we expected that will be a little more back end loaded and then also the labs instrument backwater.

Recovery will certainly be a little more backend loaded as well. So I think that he 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're not expecting a very heavy respiratory season in Q1, but we are expecting.

Fairly typical respiratory season in Q4, which again, it's going to move some more of that revenue into Q4.

Okay. Thanks for that and then I guess just similar question on the profitability front any 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.

Yet it is consistent with what I've said on previous calls.

We still expect in 2023 that seasonality is going to have our Q2.

In Q3 quarters be the lightest quarters of the year, particularly Q2 and.

And because of that when you've got those lower revenue quarters with what's still.

Our level of fixed cost 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 youre going to have a stronger <unk>.

And EBITDA margins in Q1 and Q4.

And so it's going to get you for the full year as we've been saying GP margins sort of in that low to mid <unk> mid 50% range.

And if I can just add show that.

Thank you.

Most of our investors know this historically Q2, that's better.

Uh huh.

The quarter in terms of revenue.

Okay. Thanks, guys.

Thanks, Andrew.

Thank you.

The next question comes from the line.

Andrew Cooper of Raymond James Please proceed.

Thanks, guys I like the Athabasca back Andrew here, but just to kind of jump into it one thing I think.

Investors are certainly going to be keyed into the.

The commentary for 2023, being normal and that $300 million to $500 million of Covid I think it sounds like does include those government contact center with 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-19.

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 <unk>.

In flu and respiratory in general.

Yeah, Hey, Andrew and.

And we did go to the 300 to 500 is.

Still our a range. So that's that's consistent and then we can talk about the government contracts, but that's we're not treating that as is.

Normal unusual yeah.

Yes.

It is exactly consistent with what we said at Investor Day, we were saying, 2% to 400 for endemic state and it's up three to 500, because you've got this level of government contracts that we know we have in hand, yes.

There is no change there so yes, that's what I was trying and there's no there's no change.

What we're defining as a normal flu season, either that $230 million to $270 million, which is the same guidance. We gave for 2022, we're back to that what we're calling a normal flu season and that's inherent in this 23 guidance.

Yeah.

Okay perfect that's helpful.

You want to talk about total total respiratory as well yes. Those are the those are the main two pieces and then you've got what I'll call just other respiratory which would be molecular in RSV and strep in the $80 million to $105 million.

So those are the three pieces exactly.

Perfect.

A rare adult biting step right now I appreciate that that piece of the business.

Maybe just next on.

The O U S business, specifically in lab can you give us a sense for siding you mentioned the EMEA at tender tender impact versus the fly chain kind of dynamics versus the China I guess locked.

A locked down 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.

Doug you can add in color for EMEA.

Andrew I wouldn't say that the tenders timing was significant it was merely more tender timing in from 'twenty, one into 'twenty to Q4, that's causing the issue with the growth rate in Q4 of 'twenty. Two so I fully expect that we're going to get EMEA into the low single digit growth range, which is where it.

It was in 'twenty, two as well so there's really no no nothing new there, we still expect EMEA to be in the low single digit growth range in 'twenty three.

In China.

It wasn't really difficult quarter, no doubt for China.

But when you look at the outpaced the decline in outpatient visits in the overall market.

Our number it makes sense that the number of patients is down 25%, so pretty much mirrors, what right happening.

And it's not different than what we see from other companies.

The country as well.

Correct and we have seen.

Since things have opened up we're seeing flow through on our boxes increased nicely and so we do a lot of confidence in the double digit growth in 2030 for China as I mentioned.

And in fact, it's been that.

A couple of months now.

Okay, Great I'll stop there and hop back in queue. Thanks.

Okay, I think center.

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

Hey, guys. Thank you for taking the questions.

So maybe one on the EBITDA side.

I know youre well aware of the amount of focus people have on this one so I just wanted to make sure we understand kind of the 23 guide I mean is this the rate stepping off point going forward right I don't mean to ask about 24 already but when you think about that 28% in the middle you kind of mentioned that you haven't maybe $100 million of Covid on government contracts I think those tend to be a little.

Lower at least in kind of retail and maybe around the corporate average, but I think it was this fear that.

Covid comes out.

For 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 Yes, I think it is a pretty fair jumping off point, because if you go back to the point you just made on Covid.

There's really no change there with that endemic level of annual revenue being it's 2% to 400 and you're right. It's up another 123 guide because of those government orders, which again that gives you said doesn't carry.

Super significant amount of.

Of margin.

So I do think it's a good jumping off point.

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%, 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 get it up to 30.

Percent EBITA margin no doubt and we know how to get there it's going to get we're going to get there through greater revenue growth and we're going to get there through over achievement on synergies.

Okay. That's very helpful. I appreciate that and then Doug maybe on the savanna timing.

Timing and assumptions can you just talk through I guess the timeline here.

You know I think this quarter is supposed to be around the five 10-K submission. It seems like <unk>, probably not not happening, but can you just talk about where we are a pathway here in the U S. And then maybe just the assumptions that are layered into to the guy here on our way to that $250 million number I think it's over three years, but it's just how we're progressing there and again the timeline in the U S. B.

Great.

Yes. Thanks for that question, Patrick I think it'll help us clarify just where we're at we're still expecting.

RVP for EUA in April .

And the 500 10-K will be.

Just shortly after that.

Joe we're very.

Much on track for a launch as I said the instrument build.

Issues have been largely resolved between our aura.

He has the capacity to have a meaningful launch.

And we're at a point, where we're most.

Most of the effort right now is around cartridge ramp up so we've got manual lines that were that we have in place. Obviously, we think we can meet the immediate demand in Europe .

There were doubling down on the mainline potentially.

Depending on the timing on the automated line, but we expect to have the ability to make millions of cartridges.

Very shortly so I think we're in good shape.

It's been a while.

So.

Anxious to see how well, we do and I would say I'm at our kickoff meeting in the United States and we're hearing a lot of I owe a lot of cross selling that's been effective.

Mostly the other way at this point, because we're talking about vitro as clinical chemistry instruments and immunoassay analyzers.

But I'm encouraged with the cooperation.

Collegiality.

The group unlike the attitude I like the can do attitude the training here is going extremely well.

So I think we're in good shape, it's not just about making product. It's also about commercializing.

Yep understood that has been a while but looking forward to seeing it out in the market John 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.

Just getting back to regulatory.

Okay.

Yes.

Sorry can.

Can you guys hear me.

Can you guys hear me okay.

Yeah, absolutely. Thanks.

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 again.

Getting into next year's guidance, but just going forward, how should we think about the total.

<unk> 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.

$200 million to $400 million.

The rapid flu in the 230 to $2 70, there those are the two base numbers and then the savanna number.

That number is a little bit of a TBD as you move into 'twenty four obviously, because it's going to be based on the slope of the ramp for the launch.

Now, let's see some of that.

Savanna revenue is going to be respiratory RVP for an RVP 11.

And then you've got that other piece.

I mentioned that the RSP in the strep.

We call it $80 million to $100 million.

And so those those pieces as you move forward.

Got it thanks 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've seen some of the reps.

So on what are they really excited about.

Right now mainly in the U S at least.

Mainly the former quite help people, taking the ortho people onto accounts and <unk>.

We've got a number.

Close its pending that's encouraging.

Ex U S. We're a little bit.

<unk> bye.

Enthusiasm for the triage platform and the opportunity there with their cardiovascular assays.

And.

I think it would be fair to say that we've been reasonably successful in a limited launch in Europe with savanna too.

Great well, thank you for taking the questions I appreciate it.

That's on a nice quarter.

Thanks Scott.

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

Hey, guys. Thanks, so much for squeezing me in here really appreciate it.

Sure.

I appreciate there are kind of moving parts in the lab business in the open.

600 open orders, but I think you've kind of given it could add an incremental 2% to the top line. If you were to kind of fill those orders. So I guess, if you could maybe provide even like guide posted how to think about whats layered into the guidance. So just an upside downside case kind of in the resolution of this.

Okay.

How.

How quickly it could be or is there any capacity constraint and how to think about it.

Well I think it would be fair to say that we have increasing visibility to the supply chain necessary to manufacture the instruments.

And it wasn't by eliminating the entire back orders that we got to the two point improvement in growth.

It was to get it down to somewhere around 150, or so which was a normal level for which would be normal with exited but typically you're at about $1 50. So just to be clear we're not we're not we're talking about.

Probably an increasing close rate.

With boxes, which naturally.

Would create a more back later, but.

We're pretty confident that we can absorb the additional instruments as well and get back to a normal exit rate.

2023.

But that's not going to happen.

Immediately either we're improving.

A little bit of encouraging news.

For the first quarter, but it's not at the level quite yet.

Needing to be at.

I hope that's clear Joe do you want to add something.

Right and lastly, I would just add that in the guide.

Did not just to be clear, we did not assume that the full backlog goes from $6 50 to 150, we assumed that it came down modestly.

It's going to take into 'twenty four to drill that all the way down to wherever you want it to be.

Okay Super helpful.

And I guess, just can you confirm kind of I think you had been $3 50 for flu.

That's how the year shook out to 2022 and then.

You've been kind of pointing back to the <unk> opportunity.

How should we think about the highly sensitive troponin test and kind of any updates around and potentially in the U S as well.

So launch there.

Yeah first question first I guess.

To be clear I think I heard you say the total fluids $350 million in 'twenty to 'twenty two that's correct.

Sure.

Is that what she said.

She stated that correctly.

Hmm.

And the second piece.

Triage true.

Hence the opponents sorry, sorry.

Sure.

I missed that.

Yes, we're at the point, where we're working with the.

FDA to determine next steps.

With respect to that submission.

Once we get through those conversations.

We'll be prepared to.

To disclose where we're at.

Right now, we're still working with the FDA, but we are selling in Europe under CE.

Yeah.

Two questions.

Let's be clear lesser are you asking about triage are you asking about on the vitro system.

Triage.

Sure Andrea.

Oh, you're asking okay perfect perfect. Yeah. We are currently in.

And in fact, we are in the process of setting up an automated.

Manufacturing lines for the <unk> on the triage and.

We fully expect that the yields would be better that our cost will be better.

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.

Alright, 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 wanted to continue on the theme around the flu season, and just how to think about it here for 2023, you've put the fluid number at $230 million to $70 million for 2023, but you go back in 2018, you did $140 million of fluid sales eight years. So is this really the new normal with combo testing or is it different 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 can pull alongside that 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're talking about I think our total.

Stalled base in the U S was under 40000.

Globally, we I think we were at 42000.

And we're now 77000.

Instruments in the United States 21400 customers, that's up 6% over over the prior.

Trailing 12 month period so.

Yeah. That's it we have an expectation that it will have a pull through on the product, but that's that's that shows up in RSV and strep as Joe mentioned, so I think it's a pretty reasonable.

The estimate.

For the for the time being.

Since that you're you're challenging us a little bit and thinking it could be higher.

It's possible, but I.

I think we are.

But I think we havent pegged right for the moment.

Okay. It makes it makes total sense and then I just wanted to get some clarification around the EBITDA to free cash flow conversion of 245, adjusted EBITDA have actual free cash flow being like 76 million I know there was 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 the EBITDA free cash flow recurring free cash flow this quarter and then what to expect in 2023.

Yes.

The quarter free cash flow recurring free cash flow.

<unk>.

$169 million of operating cash less $59 million of Capex.

And then you layer on add back if you will $25 million of onetime or nonrecurring and that gets you to $1 35.

For the quarter, which is 55% of our adjusted EBITDA and looking forward.

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.

I expect that for next year.

Yeah, Okay, all right got it thank you.

Sure. Thank you.

Thank you. The next question comes from Jack Meehan.

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 and the CDC data. We've seen this rapid drop off in flu activity I'm not sure what youre seeing in viremia.

Just want to make sure we had the right expectations for those three buckets and <unk>.

Yeah, Hey, Jack how are you.

Given I think I said earlier.

The respiratory season did drop pretty quickly at the end of Q4.

So we are expecting.

Fairly light I will call it flu <unk>.

Isn't colby still hanging in there.

If you look at the the infection rates Covid still hanging in there by Ili came down flu, but kobe hanging in there.

And then we've got the government contracts as well so I think we'll have a decent respiratory season in Q1.

It's driven more by Covid and flu.

Then Q4 is where the rest of that.

Respiratory season is going to go and the guidance Yeah. Let me just add a little color because Jack asked about the virus and data than most of the audience doesn't have access to it you know when I look at the charts I see pretty drastic drop off and positivity rates, but the positivity rates are still higher than they normally would be at this time so.

But to be fair.

Peak, what the second week in December .

And so it's been coming down.

Pretty pretty nicely.

So I think youre right, though we should have a reasonable first quarter. It just won't be the normal right biggest quarter.

Okay.

Got it and then I know I think Joe and you done both kind of referenced that China.

So down 27% ex Covid is.

How much of this was in the core lab business versus transfusion medicine or legacy quite DAU.

What do you expect for the region in the first quarter.

Well, just overall patient volumes being down 25% period end.

And I don't know.

Most of the labs.

Everything we say everything was down but it was the biggest chunk of it is going to be labs, and Q1 has it's bouncing back we are seeing nice flow through.

On the instruments.

Sure.

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

It'll be up it'll be up.

Okay.

Last one if you'll humor me just molecular or is there any granularity you can provide around the forecast just for 2023 for that segment.

Okay.

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 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, That's J P. Morgan. Please proceed.

Great Hi, guys. Thanks for fitting me in.

I guess just on pricing whats your expectation for respiratory pricing in 'twenty three versus trying to and how should we think about that trending across your different products within those three buckets.

Yes, we're still hanging in there pricewise, we expect flat price.

Yeah.

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 those multiple instruments sites will consolidate.

And then can you just elaborate on those multi year contracts how much visibility do you have into those flu and other respiratory revenue numbers.

So a couple of things hospitals seven five 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 rent COVID-19.

So.

The.

You could expect for example.

Boxes in nursing homes.

The returns you can expect that the handful of customers that would maybe.

Run.

Just COVID-19 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 that moving forward, but I would just say, we're not seeing it yet.

Got it that's helpful. Thank you.

Thank you Casey.

Alright.

I think that's that's all for <unk> 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 to 2022.

Once again, the integration is going well and when I say that I'm, not just talking about cost and revenue synergy I'm talking about watching but people get together.

And across the board, whether it's in the factories or.

And meetings supply chain.

Or the.

The commercial books, I think everybody's getting along tremendously people are happy.

And I'm expecting great success from 2023 onward.

So thanks everybody.

Yes.

Okay.

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