Q3 2023 QuidelOrtho Corp Earnings Call

November 1, 2023

Yes.

Welcome to Codell Ortho third quarter 2023 financial results conference call and webcast at this time all participant lines are in listen only mode.

For those of you participating on the conference call there will be an opportunity for your questions at the end of today's prepared remarks. Please note that this conference call is being recorded and audio replay of the conference call will be available on the company's website. Shortly after this call I would now like to turn the call over to Juliet Cunningham Vice President of Investor Relations. Please go ahead.

Thank you and welcome to the quarter Ortho third quarter financial results Conference call with me today to discuss our financial results are Doug Bryant quite all ortho as president and CEO and Joe Buskey quite all ortho Chief Financial Officer.

This conference call is being simultaneously webcast on the Investor Relations page of our web site 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 this call that are not strictly historical including the company's expectations.

<unk> future performance and prospects are forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95, which provides a safe harbor for such statement.

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 annual report on Form 10-K for the fiscal year ended January one 2023.

And subsequent reports filed with the SEC.

Please refer to our SEC filings for a more detailed discussion of forward looking statements and the risks and uncertainties of such statements.

We cannot assure you that the forward looking statements we make.

Or are implied by our statements will be realized.

Furthermore, such forward looking statements represent management's judgment and expectations as of today.

Except as required by law, we undertake no obligation to update any forward looking statement or any time sensitive information to reflect future events developments or changed circumstances or any other reason.

Also during today's call, we will discuss certain items that do not conform to U S generally accepted accounting principles or GAAP.

Please see slide slide three for a list of non-GAAP measures.

Reconciliations to these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the Investor presentation and the press release issued this afternoon.

Both of which are available on the Investor Relations page of the <unk> website.

Lastly, unless stated otherwise all year over year revenue growth rates, including revenue growth rates given on today's call are given on a comparable constant currency basis.

Unknown Executive: Welcome to Quidel Ortho, 3rd quarter, 2023 Financial Results Conference call and webcast. At this time, all participant lines are in listen only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared remarks.

With that I'd like to turn the call over to Doug Bryant.

Thank you Julianne good good afternoon, everybody and thank you for joining us today for our third quarter earnings call.

Unknown Executive: Please note that this conference call is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call.

Let me first take a moment to welcome Juliet two are quite ortho team.

As we continue to execute on our strategy to increase shareholder value.

Juliet Cunningham: I would now like to turn the call over to Juliet Cunningham, Vice President of Investor Relations. Please go ahead. Thank you and welcome to the Quidel Ortho, 3rd quarter, Financial Results Conference call. With me today to discuss our financial results are Doug Bryant, Quidel Ortho's president and CEO and Joe Busky, Quidel Ortho's chief financial officer. This conference call is being simultaneously webcast on the Investor Relations page of our website and a version of today's presentation can be downloaded there.

<unk> expertise in the medical technology sector.

And her 25 years of experiencing.

Experience managing investment community relations.

For publicly traded companies makes her an ideal choice to lead our investor relations function.

Juliet Cunningham: With me today to discuss our financial results are Doug Bryant, Quidel Ortho's president and CEO and Joe Busky, Quidel Ortho's chief financial officer. This conference call is being simultaneously webcast on the Investor Relations page of our website and a version of today's presentation can be downloaded there. Before we begin, I will cover our safe harbor statement. The statements we will make during this call that are not strictly historical, including the company's expectation, plan, future performance and prospects are forward looking statements within the meaning of the private securities litigation reform act of 1995, which provides a safe harbor for such statements.

We're committed to transparently communicating our progress to the street and excited to have her on our team and for those of you.

That have known me a long time recognize that I don't sound normal.

Let me just say that.

Having suffered through this.

Unknown Executive: Before we begin, I will cover our safe harbor statement. The statements we will make during this call that are not strictly historical, including the company's expectation, plan, future performance and prospects are forward looking statements within the meaning of the private securities litigation reform act of 1995, which provides a safe harbor for such statements. 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.

Over the weekend, we are definitely in our respiratory season.

Yes.

And it didn't start in my house.

And I know that recently the CDC published Ili is now over two 5%.

Alright.

Our respiratory season or at least at the beginning of it.

Our press forward, though.

If I can be heard and understood.

Juliet Cunningham: 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 annual report on Form 10K for the fiscal year ended January 1st, 2023 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.

Turning now to our third quarter financial performance.

And as noted in our pre announcement, we delivered ahead of our guidance and street expectations.

We're forging a path to durable growth and there are many proof points on our progress in these results, including our ability to meet the earlier than expected respiratory season demand.

Unknown Executive: These risks and uncertainties include but are not limited to those factors identified under risk factors in our annual report on Form 10K for the fiscal year ended January 1st, 2023 and subsequent reports filed with the SEC. Please refer to our SEC filings for a more detailed discussion of forward looking statements and the risks and uncertainties of such statements. We cannot assure you that the forward looking statements we make or are implied by our statements will be realized.

Continued strength of our core businesses across all geographies I'm.

I am pleased to report third quarter revenue of $744 million.

With adjusted EBITDA of $169 2 million and adjusted EBITDA margin of 23%, which was up sequentially from Q2.

Juliet Cunningham: We cannot assure you that the forward looking statements we make or are implied by our statements will be realized. Furthermore, such forward looking statements represent management judgments and expectation as of today. Acceptance required by law we undertake no obligation to update any forward looking statement or any time sensitive information to reflect future events, developments or change circumstances or any other reason.

During the third quarter, we generated $53 million and adjusted free cash flow, which is another testament to the strength of our business. This quarter, we paid down another $52 million of our total company debt and year to date, we have paid down $175 million in debt. We believe these efforts will fortify our.

Unknown Executive: Furthermore, such forward looking statements represent management judgments and expectation as of today. Acceptance required by law we undertake no obligation to update any forward looking statement or any time sensitive information to reflect future events, developments or change circumstances or any other reason.

Our balance sheet.

And give us greater flexibility to invest in our long term growth.

We are confident in our ability to deliver on our revenue growth targets over the coming quarters as we execute with speed across our businesses. There is no question that we're operating in interesting times. If you look at trends in the healthcare industry. They point to a greater need for diagnostic testing near patient care settings, an rap.

Juliet Cunningham: Also during today's call we will discuss certain items that do not conform to US generally accepted accounting principles or gas. Please see side slide three for a list of non-gap measures. Reconciliation to these non-gap measures to their most directly comparable gap measures are included in the appendix to the investor presentation and the press release issued this afternoon. Both of which are available on the investor relations page of the Quadil ortho website. Lastly, unless stated otherwise all year over year revenue growth rates including revenue growth rates given on today's call are given on a comparable constant currency basis.

Unknown Executive: Also during today's call we will discuss certain items that do not conform to US generally accepted accounting principles or gas. Please see side slide three for a list of non-gap measures. Reconciliation to these non-gap measures to their most directly comparable gap measures are included in the appendix to the investor presentation and the press release issued this afternoon. Both of which are available on the investor relations page of the Quadil ortho website. Lastly, unless stated otherwise all year over year revenue growth rates including revenue growth rates given on today's call are given on a comparable constant currency basis.

And the results are more important now than ever before.

Recent news around the adoption trends of new COVID-19, vaccines and the use of <unk> drugs has fueled speculation about the reduction in future demand for diagnostic testing.

Our view there is nothing further from the truth.

In fact patients deciding to forego getting Novak latest vaccines.

Could result in a higher number of Covid, 19 cases, and thus likely higher levels of testing.

Doug Bryant: With that I'd like to turn the call over to Doug Bryant. Thank you, Juliet. Good afternoon, everybody.

82% of eligible Americans received at least one COVID-19 shot since the vaccine became available in late 2020.

Doug Bryant: And thank you for joining us today for our third quarter earnings call. Let me first take a moment to welcome Juliet to our quite all ortho team. As we continue to execute on our strategy to increase shareholder value. Juliet's expertise in the medical technology sector and her 25 years of experiencing our experience managing investment community relations. We're publicly trading companies, making sure an ideal choice to lead our investor relations function. We're committed to transparently communicating our progress to the street and excited to have her on our team.

The U S Department of health and human services reports that only 7 million Americans have opted to get the bivalent booster since mid September.

We hope for greater adoption among all eligible people. We also recognize that only 51% of eligible Americans received a flu shot in 2022.

These statistics are a stark reminder, that while the medical technology to severely slow the spread and severity of these diseases exists.

19, along with the flu and other respiratory viruses, we test for will remain present in the general population for decades to come.

Doug Bryant: And for those of you that have known me a long time, you recognize that I don't sound normal. Let me just say that having suffered through this over the weekend, we are definitely in a respiratory season. And it didn't start in my house. And I know that recently the CDC published that I allies now over two and a half percent. So technically, I guess we are in a respiratory season or at least at the beginning of it. I'll press forward though and hope I can be heard and understood well.

Turning to the case of <unk>, one drugs in their use in diabetes and obesity.

Our <unk> and renal testing business is small and we do not expect any material impact.

It is important to remember that first these drugs are only approved for a select portion of the population.

Some are very serious long term side effects that are only beginning to be understood.

Second these medications are presently not covered by private insurance or Medicare.

With nearly 65 million Americans under Medicare coverage today. These patients must pay out of pocket for these medications and for many patients on fixed incomes. These medications are simply out of financial reach.

Doug Bryant: Turning now to our third quarter financial performance. And as noted in our pre announcement, we delivered ahead of our guidance and street expectations. We're forging a path to durable growth and there are many proof points on our progress and these results, including our ability to meet the earlier than expected respiratory season demands and the continued strength of our core businesses across all geographies. I'm pleased to report through quarter revenue of $744 million with adjusted EBITDA of $169.2 million and adjusted EBITDA margin of 23%, which was up sequentially from Q2.

However for those patients where <unk> is being administered we could continue to play an important role in their career journey priority prescribing any metabolic based medication doctors may order, our our laboratory tests to establish a baseline and then we would continue to do.

This in six months intervals for the duration the patient remains on the drug which could be several decades.

Further heart disease remains the leading cause of death in America, and Unfortunately, it's growing internationally as well.

Doug Bryant: During the third quarter, we generated $53 million in adjusted free cash flow, which is another testament to the strength of our business. This quarter, we paid down another $52 million of our total company debt and near today, we have paid down $175 million in debt. We believe these efforts will fortify our balance sheet and give us greater flexibility to invest in our long-term growth. We are confident in our ability to deliver on our revenue growth targets over the coming quarters as we execute a speed across our businesses.

We would welcome the idea of that fewer patients would be affected by heart disease, we do not see a significant change and the need for testing in the near or longer term.

Let's shift now to take a closer look at our third quarter performance.

First the strong and early respiratory demand in Q3 was mainly driven by high COVID-19 prevalent throughout the United States.

This will potentially be the first real flu season, we see where COVID-19 rates immediately preceded contributing to higher prioritization of our combo assay is disease stages converge.

Doug Bryant: There's no question that we're operating an interesting time. If you look at trends in the healthcare industry, they point to a greater need for diagnostic testing. Near-patient care settings and rapid results are more important now than ever before. Recent news around the adoption trends of new COVID-19 vaccines and the use of GLP-1 drugs has fueled speculation about the reduction of future demand for diagnostic testing. In our view, there's nothing further from the truth.

While the high COVID-19 rates were less pronounced than the 2000 22023 season.

There is potential for a longer drop off in overall season duration, if the timing in Australia translates to this hemisphere announced aggressive growth in flu prevalence could occur early November with peak prevalent sometime in early January.

Both the overall market for respiratory testing and our risk our respiratory business became significantly larger due to more testing in general and significant share gains from competitors.

Doug Bryant: In fact, patients deciding to forego getting the latest vaccines could result in a higher number of COVID-19 cases and thus likely higher levels of testing. Nearly 82% of eligible Americans received at least one COVID-19 shot since the vaccine became available in late 2020. The U.S. Department of Health and Human Services reports that only 7 million Americans have opted to get by violent booster since mid-September. While we hope for greater adoption among all eligible people, we also recognize that only 51% of eligible Americans received a flu shot in 2022.

<unk>.

Specifically.

We have a strong position in this market and our respiratory diagnostic capabilities, playing an important role in combating both early and seasonal upticks of COVID-19 RSV.

And influenza among others.

We're also well positioned to manage any seasonal fluctuations given our operations teams agility to respond to meet customer demand.

We had strong solid performance across all geographies in Q3, including China.

This may be a surprise to some investors, but it isn't to us and we remain bullish on our business there today and into the future.

Doug Bryant: These statistics are a stark reminder that while the medical technology just severely slows red and severity of these diseases exists, go in 19 along with the flu and other respiratory viruses we test for will remain present in the general population for decades to come. Turning to the case of GLP1 drugs and their use in diabetes and obesity, while our A1C and renal testing business is small, and we do not expect any material impact, it is important to remember that first, these drugs are only approved for a select portion of the population and come with very serious long-term side effects that are only beginning to be understood.

Joe will discuss geography.

Gives me geographic performance in detail.

But I wanted to speak specifically about China, given the numerous recent comments by healthcare Ceos during their recent earnings calls.

Frankly, all companies in healthcare in China are not the same and neither are all diagnostic companies with businesses in China quite.

Quite all ortho has challenges of course, but our challenges are not the same as all others.

There are a few differences.

Our business in China is largely clinical chemistry and uses dry slide technology our.

Doug Bryant: Second, these medications are presently not covered by private insurance or Medicare. With nearly 65 million Americans under Medicare covers today, these patients must pay out of pocket for these medications, and for many patients on fixed incomes, these medications are simply out of financial reach. However, for those patients where a GLP1 is being administered, we could continue to play an important role on their care journey. Prior to prescribing any metabolic-based medication, doctors may order our laboratory tests to establish a baseline and would continue to do this in six months intervals for the duration the patient remains on the drug, which could be several decades.

Our instruments are in medium volume stat labs, and when the Shanghai and Beijing Lockdowns ended the volumes returned quickly to normal levels driven by people, who are ill and in need of immediate care.

This is a part of health care that is not as affected by the economy further because of our dry slide technology.

<unk> not been subject to GBP tenders.

Our pricing has been reasonably stable.

Our immunoassay business in China is still small relatively speaking with.

With respect to the often discussed and we DVT Pvp tender only in the infectious disease panel hormones and hcg are related to our business. There will be 23 provinces participating that represent in these immuno assay categories about 2% of our AUM.

Doug Bryant: Further, heart disease remains the leading cause of death in America, and unfortunately, it's growing internationally as well. While we'd welcome the idea that fewer patients would be affected by heart disease, we do not see a significant change in the need for testing in the near or longer term.

Our business in China.

Assuming we participate in the tender and lower our prices at the rates that we saw in the 2021.

Doug Bryant: Let's shift now to take a closer look at our third quarter performance. First, the strong and early respiratory demand in Q3 was mainly driven by high-COVID-19 prevalence throughout the United States. This will potentially be the first real flu season we see where COVID-19 rates immediately preceded, contributing to higher prioritization of our combo assays disease stages converge. While the high-COVID-19 rates were less pronounced than the 2022-22-23 season, there is potential for a longer drop-off in overall season duration.

Pvp tender.

The impact would be a loss of zero point, 72%, that's less than 1% of our business in China.

Our opportunities far outweigh our risks.

The anti corruption has also been an often discussed topic as I have said before we are not seeing any impact thus far and then we continue to monitor the situation closely.

Example, we are washing installation rates on instruments purchased to understand that this will create a few weeks lag and reagent bordering.

Doug Bryant: If the timing in Australia translates to this hemisphere, the most aggressive growth in flu prevalence could occur early November with peak prevalence sometime in early January. Both the overall market for respiratory testing and our respiratory business became significantly larger due to more testing in general and significant share games from competitors for us specifically. We have a strong position in this market and our respiratory diagnostic capabilities play an important role in combating both early and seasonal upticks of COVID-19, RSV, and influenza among others.

But thats the extent of what we are expecting.

In summary, our China business is fine.

It is expected to be a growth driver for us moving forward as I said, we're bullish for Q4, we expect to be up 25% over the prior year quarter, and we expect continued growth in 2024.

Shifting now to our four business units.

Our labs business unit.

Delivered 3% year over year growth in non respiratory revenue with growth across all major.

Geographic regions, including Asia Pacific, China, Europe, Middle East and Africa, and North America, where we saw year to date placements increased 19% versus 2022.

Doug Bryant: We're also well-positioned to manage any seasonal fluctuations given our operations teams' agility to respond to me customer-in-demand. We had strong solid performance across all geographies and Q3, including China. This may be a surprise to some investors, but it isn't us, and we remain bullish on our business there today and into the future. Joe will discuss geographic performance in detail, but I wanted to speak specifically about China given the numerous recent comments by health care CEOs during their recent earnings calls.

Which is the leading indicator of our labs business growth potential and durability.

I'm also pleased to note that with increased manufacturing output.

We have now worked through the majority of our labs instrument backlog returning to normalized levels and are primed to meet customer demand moving forward.

The notable strength in clinical chemistry continues to be driven by a return to pre pandemic utilization levels.

And the strong integrated instrument placements over the last few years. Additionally, our integrated installed base grew 12% and automation increased 14% year over year, continuing the positive trend that we've seen since implementing our commercial excellence program and launching our vitro.

Doug Bryant: Frankly, all companies in healthcare in China are not the same, and neither are all diagnostic companies with businesses in China. Quidel Ortho has challenges, of course, but our challenges are not the same as all others. Here are a few differences. Our business in China is largely clinical chemistry and uses dry flight technology. Our instruments are in medium volume stat labs, and when the Shanghai and Beijing lockdowns ended, the volumes returned quickly to normal levels, driven by people who are ill and in need of immediate care.

<unk> X T 7600 integrated system.

Trend that also portends well for our recurring labs revenue in the future.

Finally, we reached a significant milestone with the three hundreds.

Automation track system going live.

Further expanding our footprint and experience base through laboratory automation.

Doug Bryant: This is a part of healthcare that is not as affected by the economy. Further, because of our dry-solid technology, we have often not been subject to VVP tenders and our pricing has been reasonably stable. Our Immunal Assay business in China is still small, relatively speaking. With respect to the often discussed and we VVP tender, only the infectious disease battle hormones and HCG are related to our business. There will be 23 provinces participating that represent in these Immunal Assay categories, about 2% of our overall business in China.

Turning to our point of care business in.

In addition to its role in acute care settings or point of care portfolio remains a cornerstone for managing a range of respiratory infections, such as flu RSV, COVID-19, and strep, a and as I reflect on the COVID-19 pandemic.

Played a critical role in the public response to contain the spread of this deadly virus with.

With the initial launch of the COVID-19 vaccine and subsequent booster shots over the last two years there has been a shift away from asymptomatic testing.

And the necessity to produce a negative PCR test.

However, the public has taken a greater responsibility for their individual health and understanding how viruses spread we are seeing considerable volume from patients influenza like illness symptoms.

Doug Bryant: Assuming we participate in the tender and lower our prices at the rate that we saw in the 2021 VVP tender, the impact would be a loss of 0.72% that is less than 1% of our business in China. Our opportunities far outweigh our risks. Any corruption has also been an often discussed topic. As I said before, we are not seeing any impact thus far and we continue to monitor the situation closely. For example, we are washing installation rates on instruments purchased to understand that this will create a few weeks lag in reagent bordering. But that's the extent of what we are expecting.

Turning to their medicine cabinet to self administer our quick view at home over the counter COVID-19 test or asking their doctor for a test in the clinic.

Further strengthening our position as a leader in COVID-19 testing capabilities Im delighted to report that we received CLIA waiver.

The U S for our new Sofia, two Sars antigen plus FIA in September. This is the first rapid antigen tests <unk> COVID-19 to be awarded FDA market clearance through.

Through the agencies de Novo process and this is also now the first rapid antigen test to receive a CLIA waiver. In addition to our CLIA waiver. We were honored to receive an award from the U S government to provide the government with at home COVID-19 tests.

Doug Bryant: In summary, our China business is fine and is expected to be a growth driver for us moving forward. As I said, we are bullish. For Q4, we expect to be up 25% over the prior year quarter and we expect continued growth in 2024. Shifting now to our four business units, our labs business unit, delivered 3% year-over-year growth and non-respiratory revenue with growth across all major geographic regions, including Asia-Pacific, China, Europe, Middle East, and Africa, and North America, where we saw a year-to-day placements increase 19% versus 2022, which is the leading indicator of our lab's business growth potential and durability.

That will be provided for free to American households, the topline impact from this $29 million award commences in the fourth quarter and is expected to continue to over 18 months.

Doug Bryant: Shifting now to our four business units, our labs business unit, delivered 3% year-over-year growth and non-respiratory revenue with growth across all major geographic regions, including Asia-Pacific, China, Europe, Middle East, and Africa, and North America, where we saw a year-to-day placements increase 19% versus 2022, which is the leading indicator of our lab's business growth potential and durability. I'm also pleased to note that with increased manufacturing output, we have now worked through the majority of our lab's instrument backlog, returning to normalized levels, and are primed to me, customer demand moving forward.

And was not included in our 2023 financial guidance and while the award will not make a material impact on our financial results we.

We feel privileged to continue providing our COVID-19 test to the U S government.

We believe by doing so we're doing what we can to help the government be prepared for another pandemic level of threat. COVID-19 has clearly moved into an endemic state. However, we expect it to remain a persistent respiratory pathogen for many years to come our testing capabilities allow patients and provide.

Doug Bryant: I'm also pleased to note that with increased manufacturing output, we have now worked through the majority of our lab's instrument backlog, returning to normalized levels, and are primed to me, customer demand moving forward. The notable strength and clinical chemistry continues to be driven by a return to pre-pandemic utilization levels and the strong integrated instrument placements over the last few years. Additionally, our integrated installed base grew 12% and automation increased 14% year over year, continuing the positive trend that we've seen since implementing our commercial excellence program and launching our VTROS XT7600 integrated system, a trend that also pretends well for our recurring labs revenue in the future.

It has to be informed both quickly and accurately.

Our transfusion medicine business met our expectations for the quarter and our immuno hematology portfolio, which represents approximately 75% of the transfusion medicine business grew 4%.

Doug Bryant: The notable strength and clinical chemistry continues to be driven by a return to pre-pandemic utilization levels and the strong integrated instrument placements over the last few years. Additionally, our integrated installed base grew 12% and automation increased 14% year over year, continuing the positive trend that we've seen since implementing our commercial excellence program and launching our VTROS XT7600 integrated system, a trend that also pretends well for our recurring labs revenue in the future.

And lastly, our molecular diagnostics business.

Consider our R&D team.

Diagnostic pioneers as they recognize the potential early on in the important role that syndromic panels can play.

And in correctly detecting pathogens responsible for infections in the bloodstream central nervous system, Gi tract and respiratory system with public awareness of Syndromic panels, increasing and the rise of multiple circulating viruses the need for fast accurate multiplex syndromic testing.

Doug Bryant: Finally, we reached a significant milestone with 300 automation track system going live. Further expanding our footprint and experience base through laboratory automation. Turning to our point of care business, in addition to its role in acute care settings, our point of care portfolio remains a cornerstone for managing a range of respiratory infections, such as flu, RSV COVID-19 and strep A. And as I reflect on the COVID-19 pandemic, we played a critical role in the public response to contain this spread of this deadly virus.

<unk> like Savannah is critical.

Savanna, our its rapid turn around time simple workflow and test flexibility, allowing more clinically relevant information to be generated closer to the basin.

In a timeframe that can affect treatment.

I am confident that we will receive savanna instrument clearance by the end of this year and launch commercially in the U S very quickly thereafter.

Doug Bryant: With the initial launch of the COVID-19 vaccine and subsequent booster shots for the last two years, there has been a shift away from asymptomatic testing and the necessity to produce a negative PCR test. However, the public has taken a greater responsibility for their individual health and understanding how viruses spread. We are seeing considerable volume from patients and influenza-like illness symptoms, turning to their medicine cabinet to self-administer our quick view at home, over the counter COVID-19 test, or asking their doctor for a test in the clinic.

Half instrument inventory and I expect that we will launch at pace.

As we continue to innovate and significantly differentiate ourselves in the market. We are focused on developing those assays and panels that address unmet clinical needs.

As an example, we have added syphilis to our STI panel syphilis is one of the fastest growing STI with a 74% increase in cases.

Since 2017.

And among those cases newborns have surged with a 203% increase.

The lack of sufficient diagnostic test methods test methods for primary surplus compounds. This problem and those numbers are likely underestimated because of this.

Doug Bryant: Further strengthening our position as a leader in COVID-19 testing capabilities, I'm delighted to report that we received CleoWaver in the U.S, for our new Sophia II SARS-Anogen Plus FIA in September. This is the first rapid antigen test that detects COVID-19 to be awarded FDA market clients through the agency's DeNovo process. This is also now the first rapid antigen test to receive a CleoWaver. In addition to our CleoWaver, we were honored to receive an award from the U.S, government to provide the government with at home COVID-19 tests that will be provided for free to American households.

Again. This is just one example of how the diagnostic testing can provide unique solutions to.

To help combat devastating but easily treatable bacterial infections, we expect several planned panels to be de novo MTB differentiated as well.

While we continue to expand our suite of products and capabilities. We are steadfast on driving our next phase of integration to.

To create a highly efficient agile organization rooted and operational experience with nearly 18 months and two becoming quite Dell ortho.

Doug Bryant: The top line impact from this $29 million award commences in the fourth quarter and is expected to continue to over 18 months and was not included in our 20-23 financial guidance. And while the award will not make a material impact on our financial results, we feel privileged to continue providing our COVID-19 test to the U.S, government. We believe by doing so, we're doing what we can to help the government be prepared for another pandemic level threat.

More today than we did previously and are aggressively focused on reducing complexity in the business enhancing our culture, improving capital allocation and portfolio management.

And upgrading our global manufacturing operations operations and supply chain capabilities.

These cost reductions also create room on our P&L. So that we can increase our business development efforts and other growth investments as I mentioned on our second quarter call. Our work to capture the $130 million in cost synergies over three years is well underway and it's worth repeating is being done in locks.

Doug Bryant: COVID-19 has clearly moved into an endemic state. However, we expect it to remain a persistent respiratory passage in for many years to come. Our testing capabilities allow patients and providers to be informed both quickly and accurately. Our transfusion medicine business met our expectations for the quarter and our immatology portfolio, which represents approximately 75% of the transfusion medicine business through 4%. And lastly, our molecular diagnostics business.

Step with creating a long term growth mindset and priority prioritizing initiatives that can help drive incremental growth increase efficiency and improve profitability. While other companies are concerned about inflation and FX headwinds.

We believe our cost synergy efforts can more than offset these effects and ultimately result in EPS growth.

Doug Bryant: And lastly, our molecular diagnostics business. I consider our R&D team diagnostic pioneers as they recognize the potential early on and the important role that syndromic panels can play in an incorrectly detecting pathogens responsible for infections in the bloodstream, central nervous system, GI tract and respiratory system. With public awareness of syndromic panels increasing in the rise of multiple circulating viruses, the need for fast, accurate, multiplexed syndromic testing solutions like Savannah is critical.

Doug Bryant: I consider our R&D team diagnostic pioneers as they recognize the potential early on and the important role that syndromic panels can play in an incorrectly detecting pathogens responsible for infections in the bloodstream, central nervous system, GI tract and respiratory system. With public awareness of syndromic panels increasing in the rise of multiple circulating viruses, the need for fast, accurate, multiplexed syndromic testing solutions like Savannah is critical. Unique Savannah are its rapid turn around time, simple workflow and test flexibility, allowing more clinically relevant information to be generated close to the patient in a timeframe that can affect treatment.

Before I turn the call over to Joe Let me take a moment to thank our many stakeholders from my brilliant colleagues to bring innovation to solving complex complex issues too.

To the patients and providers, who put their trust in our products when accuracy matters most to our investors who believe in our vision to advanced diagnostics to power a healthier future for patients around the world.

Ortho is proven ability to quickly meet the ever changing needs of health care is what sets us apart with that let's turn the call over to Joe to review, our financial performance and guidance to close out 2023, Jeff.

Doug Bryant: Unique Savannah are its rapid turn around time, simple workflow and test flexibility, allowing more clinically relevant information to be generated close to the patient in a timeframe that can affect treatment. I am confident we will receive Savannah instrument clearance by the end of this year and launch commercially in the U.S, very quickly thereafter. We have instrument inventory and I expect that we will launch at pace. As we continue to innovate and significantly differentiate ourselves in the market, we are focused on developing those assays and panels that address unmet clinical needs.

Great. Thanks, and good afternoon, everyone.

Top line performance in the third quarter was positively impacted by strong earlier than expected demand for our <unk>.

Respiratory products in key markets.

Doug Bryant: I am confident we will receive Savannah instrument clearance by the end of this year and launch commercially in the U.S, very quickly thereafter. We have instrument inventory and I expect that we will launch at pace. As we continue to innovate and significantly differentiate ourselves in the market, we are focused on developing those assays and panels that address unmet clinical needs. As an example, we have added syphilis to our STI panel. Syphilis is one of the fastest growing STIs with a 74% increase in cases since 2017, and among those cases newborns have surged with a 203% increase.

So let's begin with details.

Third quarter revenue of $5 seven of the earnings presentation.

Assist with prior year comparisons.

Quarterly non respiratory and respiratory revenue chart for 2022, and the first three quarters of 2023 on slide 18.

Sure.

Non respiratory revenue was up 2% in constant currency to $559 million in the third quarter driven by continued strength in our labs business, which grew at 3% we.

Doug Bryant: As an example, we have added syphilis to our STI panel. Syphilis is one of the fastest growing STIs with a 74% increase in cases since 2017, and among those cases newborns have surged with a 203% increase. The lack of sufficient diagnostic test methods for primary syphilis compounds is a problem, and those numbers are likely underestimated because of this. Again, this is just one example of how diagnostic testing can provide unique solutions to help combat devastating but easily treatable bacterial infections. We expect several planned panels to be de novo and to be differentiated as well.

We are focused more on full year, non respiratory and labs growth rates and quarterly results with smoothed out quarterly variability tied to instrument placements.

Doug Bryant: The lack of sufficient diagnostic test methods for primary syphilis compounds is a problem, and those numbers are likely underestimated because of this. Again, this is just one example of how diagnostic testing can provide unique solutions to help combat devastating but easily treatable bacterial infections. We expect several planned panels to be de novo and to be differentiated as well.

We have good visibility in this part of our business and are confident of high single digit labs growth in Q4, which will translate into non respiratory revenue growth.

Darren communicated full year guidance range.

And note that there is some timing of instrument revenue between Q3, and Q4 that explains disparity in growth rates flat business.

But importantly, we are back to normalized instrument backlog levels in Q4, we.

Doug Bryant: While we continue to expand our suite of products and capabilities, we are steadfast on driving our next phase of integration to create an highly efficient, agile organization rooted in operational experience. With nearly 18 months into becoming Quidel Orso, we know more today than we did previously in our aggressively focused on reducing complexity in the business, enhancing our culture, improving capital allocation and portfolio management, and upgrading our global manufacturing operations and supply chain capabilities.

We have a strong order book and are actively winning contracts and we believe our labs business is well positioned to provide durable growth in both the near and longer term.

Respiratory revenue came in strong at a 185 million, which reflects earlier than expected demand for COVID-19, flu strep and RSV test.

In addition to normal pre respiratory season distributor stocking orders, we saw greater demand and sell through in Q3.

Compared to prior year period, respiratory revenue was down 21%, primarily due to the anticipated decline in COVID-19 revenue.

Doug Bryant: These cost reductions also create room on our P&L so that we can increase our business development efforts and other growth investments. As I mentioned on our second quarter call, our work to capture the $130 million in cost synergies over three years is well underway, and it's worth repeating is being done in lock step with creating a long-term growth mindset and prioritizing initiatives that can help drive incremental growth, increase efficiency, and improve profitability. While other companies are concerned about inflation and FX headwinds, we believe our cost synergy efforts can more than offset these effects and ultimately result in EPS growth.

Now looking at our quarterly performance by geography on a constant currency basis, and excluding respiratory revenue, we saw solid performance across the regions with instruments and lab showing strength in most regions.

North America revenue declined 1% EMEA.

EMEA grew 3%, China grew 6% and our other region, which includes Latin America, Japan, and other Asia Pac markets grew 7%.

North.

Erica, which is our largest geography by revenue declined as I said, 1% compared to the prior year period. However, if you exclude COVID-19 revenue only North America actually grew 10% and delivered solid revenue in the last business.

Doug Bryant: Before I turn the call over to Joe, let me take a moment to thank our many stakeholders from my brilliant colleague, Sue Bring Innovation, to solving complex issues to the patients and providers who put their trust in our products when accuracy matters most to our investors who believe in our vision to advance diagnostics to power a healthier future for patients around the world. Quite all, or if those proven ability to quickly meet the ever-changing needs of health here, is what sets us apart.

In EMEA <unk>.

Non respiratory revenue increased 3% with strong performance in transfusion medicine, and as Doug said earlier, our China region achieved strong third quarter results, a 6% growth.

We of course will continue to monitor the situation closely and we expect that our China business, excluding respiratory will grow in the high teens for the full year 2023.

Joe Busky: With that, let's turn the call over to Joe to review our financial performance in guidance to close that 2023, Joe. Revenue on 5-7 of the earnings presentation. And to assist with prioritizing our comparisons, we've added four nearly quarterly non-resritory and respiratory revenue chart for 2022 and first recorders of 2023 with 5-18 of that next. Non-Restritory Revenue was up 2% in constant currency to 559 million in a third quarter driven by continued strength in our lab's business which grew to 3%.

Now turning to our third quarter financial performance below the revenue line compared to the prior year period, and turning to slide eight in the deck <unk>.

Adjusted gross profit was $376 million or 55% gross margin, a 490 basis point improvement sequentially.

Gross margin was driven by Sofia in North America, primarily COVID-19 flu combo test strep and RSV.

Moving down the P&L SG&A expenses were $194 million, a decrease of $10 million compared to the prior year period.

We continue to execute on cost synergies.

On sequential basis, SG&A expenses increased by $15 million due to variable expense accruals related to higher sales and integration costs.

We expect SG&A expense in Q4 to be more in line with what we saw in Q2.

Joe Busky: We are focused more on full-year non-Restritory and lab growth rates than quarterly results, which smooth out quarterly variability tied to instrument placements. We have good visibility in this part of our business and are confident that of high single-digit lab growth in Q4, which will translate to non-Restritory revenue growth without median full-year diet structure. And note that there is some time you know of instrument revenue between Q3 and Q4 that explains this variant growth rates.

R&D expense was $62 million, a decrease of $3 million year over year, reflecting our continued disciplined investment in our product pipeline.

Net interest expense for the period was $38 million, an increase of $8 million.

Versus the prior year period as expected.

And during the third quarter, adjusted EBITDA was $169 million or 23% adjusted EBITDA margin to 600 basis points higher than Q2, driven by higher North American sales and expense management.

Joe Busky: But importantly, we are back to normalize instrument backlog levels in Q4. We have a strong order book and are actively winning contracts and we believe our lab's business is well-positioned to provide durable growth in both the near and longer term. Revitory revenue came in strong at 185 million, which reflects earlier than expected demand for COVID-19 flu strep and RSV test. In addition to normal pre-revitory season distributor stockin orders, we saw greater demand and sell through in Q3.

Compared to the prior year period adjusted EBITDA.

Declined by $58 million due to the previously referenced anticipated decline in COVID-19 revenue.

Our adjusted earnings per fully diluted share for the third quarter was <unk> 90, <unk> compared to $1 85 in the third quarter of 2022 the year over year decrease was driven by an exceptionally strong COVID-19 revenue in the prior year.

Adjusted diluted EPS increased by 64.

Which is stronger than expected due to higher total revenue.

Now moving to the balance sheet on slide nine.

Joe Busky: Compared to prior year period, Restritory revenue was down 21%, primarily due to the anticipated decline in COVID-19 revenue. Now looking at our quarterly performance by geography on a constant currency basis and excluding Restritory revenue, we saw solid performance across the regions with instruments and labs showing strength in most regions. North America revenue declined 1%, Amia grew 3%, China, grew 6%, and our other region, which includes Latin America, Japan, and other Asia markets, grew 7%.

We ended the third quarter with cash cash equivalents in marketable securities of $205 million and total debt of $2 5 billion.

Capex during the quarter was $33 million and adjusted free cash flow was $53 million, which was positive and reinforces our view on the full year 2023, adjusted free cash flow guidance.

In terms of capital allocation deleveraging remains a top priority with our goal to be at or below two turns net debt leverage by the end of 2024.

Towards that end, we have paid down $175 million year to date with 52 million paid down during the third quarter. Our current net debt ratio was three times and we continue to expect our net debt to be approximately two five times by year end.

Joe Busky: North America, which is our largest geography by revenue, declined if I said 1% compared to prior year period. However, if you exclude COVID-19 revenue only, North America actually grew 10% and delivered solid revenue in the last business. And Amia, non-Restritory revenue increased 3% with strong performance in transition medicine, and it's up to earlier our China region to achieve strong third quarter results 6% growth. We of course will continue to monitor the situation closely and we expect that our China business excluding Restritory will grow in the high teens of the full year 2023.

And while we did not buy back any shares in the third quarter. We continued to maintain a balanced approach here that is given the recent stock movement, we look to be opportunistic in share repurchases, while also continuing to prioritize our debt reduction.

Now turning to our fiscal year 2023 guidance on slide 10, first I would like to provide some broader context on our outlook.

As part of our business combination, we have identified cost synergies of $130 million that we expect to realize over three years.

Joe Busky: Now starting to our third quarter of financial performance below the revenue line compared to the prior year period and returning to slight 8 in the debt. Adjusted growth profit was 3.76 million or 50.5% growth margin, a 490 basis point improvement sequentially. Growth margin was driven by Sophia and North America, primarily COVID-19 flu combo test strap in RST. Moving down the field now, SGNA expensive 494 million a decrease of 10 million compared to the prior year period as we continue to execute on cost synergies.

We are making steady progress across the organization and improving the efficiency of our business paying down debt generating cash while maintaining flexibility for smaller tuck in M&A opportunities were laid the necessary groundwork for our transformation to our organization is focused on long term topline and bottomline growth.

Our Q3 financial performance, which exceeded our plan.

Significantly Derisk Q.

Q4, and while we can't precisely predict the timing of the respiratory season in advance we believe it's prudent to plan for a normal or typical season.

Joe Busky: And on sequential basis, SGNA increased by 15 million due to variable expense of growth related to higher sales and the duration costs. We respect SGNA Expansion Q4 to be more in line with what we saw in RQ2. R&D Expansion is 62 million a decrease of 3 million year over year reflecting our continued discipline investment in our product pipeline. The interest expense of the period was 38 million and increase of 8 million versus the prior year period as expected.

In addition, we have excellent visibility into our non respiratory business and again, we expect our lab business to grow high single digits. In Q4 overall, we are very confident that we can end the year strong.

Toward that and moving to slide 10, we are reiterating our full year financial guidance as follows we expect full year 23 total revenue of $2 88 billion to three <unk>.

8 billion.

With non respiratory revenue growth of 5% six 5% on a constant currency basis too.

Joe Busky: And during the third quarter, adjusted EBITDA was 169 million or 23% adjusted EBITDA margin to 600 basis points higher than Q2 driven by higher growth American sales and expense management. Compared to the prior year period adjusted EBITDA declined by 58 million due to the previously referenced anticipated decline in the COVID-19 revenue. Our adjusted earnings per fully diluted share for the third quarter was 90 cents compared to $1.85 in the third quarter of 2022.

$7 billion to $2 three 1 billion.

We expect respiratory revenue to be at the upper end of our range of 610 $775 million.

For Q4, and going forward, we will be including COVID-19 revenue as part of our overall respiratory business now that it's in Deneke state.

Gross margin to be in the low 50 based on product mix, including higher instrument revenues on the open lab's instrument orders as we satisfy back orders.

Joe Busky: The year over year decrease was driven by the exceptionally strong COVID-19 revenue in the prior year. Adjusted diluted EPS increased by 64 cents, which is stronger than expected due to higher total revenue. Moving to the balance sheet on slide 9, we ended at the third quarter with cash, cash equivalents and marketable securities of $205 million and total debt of $2.5 billion. CapEx during the quarter was 33 million and adjusted free cash flow was 53 million, which was positive and reinforces our view on the full year 2023 adjusted free cash flow guidance.

Adjusted EBITDA of $800 million to $830 million or 27% to 28% adjusted EBITDA margin.

And adjusted diluted EPS in the range of $4 85 to $5 30.

As a reminder, our 2023 financial guidance includes the following key assumptions at current rates currency translation is expected to be about neutral to full year sales and adjusted EBITDA with some higher FX impact on non respiratory revenue.

Net interest expense continues to be expected to be in the range of $1 $45 million to $150 million.

Joe Busky: In terms of capital allocation, de-leveraging remains the top priority with our goal to be at or below two times net debt leverage by the end of 2024. Towards that end, we have paid down 175 million a year to date with 52 million paid down during the third quarter. Our current net debt ratio is three times and we continue to expect our net debt to be approximately two and a half times by year end.

And as discussed last quarter, we expect adjusted free cash flow to be at the low end of the 50% to 65% range of adjusted EBITDA as we appropriately invest in our manufacturing capacity to meet customer demand and by the way this translates into more than 100% of adjusted net income.

Full year diluted weighted average share count of $67 3 million and with that I will now turn the call back over to Doug for his closing comments.

Joe Busky: And while we did not buy back any shares in the third quarter, we continued to maintain a balanced approach here. That is given the recent stock movement, we look to be opportunistic and sharing purchases while also continuing to prioritize our debt reduction. Turning to our fiscal year 2023 guidance from slide 10, I would like to provide some broader context for our outlook. As part of our business combination, we have identified cost synergies of 130 million that we expect to realize over three years.

Thanks, Joe and I would like to leave you with.

One key takeaway and that's.

We are the same successful respiratory company than we were prior to the global pandemic.

And the acquisition of Ortho clinical diagnostics.

Key differences that the overall respiratory market, including COVID-19, now and its current endemic state is significantly larger than it was pre pandemic.

<unk> position in the overall diagnostics market, including respiratory is much stronger as a combined company than either company was on a standalone basis, contrary to some recent opinions, we believe as evidenced by our results.

Joe Busky: We are making steady progress across the organization, improving the efficiency of our business, paying down debt, generating cash while maintaining flexibility for smaller, tuck-in, and M&A opportunities. Related and necessary groundwork for our transformation to our organization has focused on long-term top line and bottom line growth. Our Q3 financial performance which exceeded our plan significantly de-risked Q4, and while we can't precisely predict the timing of the respiratory season in advance, we believe it's proven to plan for a normal or typical season.

The market the diagnostic market.

Positioned for continued durable growth for many years to come.

And with that I'll ask the operator.

The line for questions.

Thank you we will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

If for any reason you'd like to remove that question. Please press star followed by two again to queue for a question. Please press star one we'll pause here briefly ask questions are registered.

Joe Busky: In addition, we have excellent visibility into our non-respiratory business and again we expect our last business to grow high single digits in Q4 all in all we are very content that we can end the year strong. Toward that in moving to slide 10, we are reiterating our four-year financial guidance that follows, we expect four-year 23 total revenue of 2.88 billion to 3.08 billion with a non-respiratory revenue growth of 5 to 6.5 percent on a constant currency basis to 2.27 billion to 2.31 billion.

Our first question is from Andrew Brachman with William Blair. Your line is now open.

Yes, Hi, this is duston on the line for Andrew Thanks for taking our questions.

As we look forward to 2020 forward just wondering if you can touch on some of the building blocks for revenue and margins.

Understanding it's a bit early here, but a lot of investors are asking about the moving parts.

Any color there would be greatly appreciated.

We expect respiratory revenue to be at the upper end of our range of 6.10, 775 million for Q4 and going forward we will be including COVID-19 revenue as part of our overall respiratory business now that it's in an endemic state. Growth margins to be in the low 50 based on product mix including higher instrument revenues on the open labs and ship orders as we satisfy back orders. Adjusted EBITDA of 800 to 830 million or 27 to 28 percent adjusted EBITDA margin and adjusted deluded EPS in the range of $4.85 to $5.30.

Joe Busky: We expect respiratory revenue to be at the upper end of our range of 6.10, 775 million for Q4 and going forward we will be including COVID-19 revenue as part of our overall respiratory business now that it's in an endemic state. Growth margins to be in the low 50 based on product mix including higher instrument revenues on the open labs and ship orders as we satisfy back orders. Adjusted EBITDA of 800 to 830 million or 27 to 28 percent adjusted EBITDA margin and adjusted deluded EPS in the range of $4.85 to $5.30.

Yes ill, let Joe go through some more detail, but clearly.

The fact that we've stabilized the labs business is very helpful to growth.

And we expect it to continue to do well in respiratory and then of course, we will be launching savanna.

I would look at as an investor to those three milestones Joe what would you add yeah I was just going to add that.

We still expect the growth and the margins will be aligned with the <unk>, we communicated about a year ago at Investor day, So there's really no change there.

Doug.

We have a lot of confidence in the lab business.

And as I said in the prepared remarks visibility into that.

Joe Busky: Now as a reminder our 2023 financial guidance includes the following key assumptions. A current rate, currency translation is expected to be about neutral to four-year sales in the adjusted EBITDA with some higher effects impact on non-respiratory revenue. Net interest expense continues to be expected to be in the range of 145 to 150 million and as discussed last quarter we expect the adjusted free cash flow to be at the low end of the 50 to 65 percent range of adjusted EBITDA as we appropriately invest in our manufacturing capacity to meet customer demand. By the way this translates into more than 100 percent of adjusted net income. 4-year deluded weighted average share count is 67.3 million.

Inventory business do you think about sort of a more variable pieces and sort of more of them.

Building blocks that we still have to work through between now and early next year when we provide full guidance.

Timing of the respiratory season.

For Q1.

The launch of Savannah.

It's the.

Endemic Covid levels aware that finally ends up at the end of this year is the synergy achievement and then of course, there is inflation and FX to think about also so those are all the big cities.

Understood. Thanks for the insight there.

Another question on Savannah.

Doug Bryant: Now with that I will now turn to call back over Doug for his closing comments. Thanks Joe. I'd like to leave you with one key takeaway in that. You know we are the same successful respiratory company that we were prior to the global pandemic and the acquisition of ortho-clinical diagnoses. The key difference is that the overall respiratory market including COVID-19 now in its current endemic state is significantly larger than it was pre-pandemic and in quite an outro of the position in the overall diagnostic market including respiratory is much stronger as a combined company than either company was on a standalone basis.

Good update on the approval timeline there just maybe if you could talk about your confidence in the rack.

Expansion and then.

Placement install expectations and then maybe to ask it another way what are kind of the kpis that you are going to be looking at to determine.

Savannah is a successful launch thank you.

Yeah.

We're in good shape from a menu development perspective, and the clinical trials will drive.

Our success so.

We will do.

Several clinical trials throughout 2024 with an expectation.

That once the instrument has already been cleared.

Unknown Executive: After some recent opinions we believe as evidence by our results the market the diagnostic market is positioned for continued durable growth for many years and with that I'll have the operator open the line for questions. Thank you we will now begin the Q&A session. If you would like to ask a question please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question please press star followed by two. Again to queue for a question please press star one. We'll pause here briefly as questions are registered. Thank you.

The packages should be somewhat straightforward on each of the panels that we will do so we have said before that we.

We will attempt to be in market with at least four or five different panels before the end of 2024 and that would be our.

Major objective, we have instruments in inventory.

Recently.

Completed.

The software updates.

We are.

Fully manufacturing cartridges, and so I don't see any other constraint other than.

U S FDA clearance and obviously.

We will work with us.

Dustin Scaringe: Our first question is from Andrew Brackmann with William Blair. Your line is now open. Yes, hi, this is Dustin on the line for Andrew. Thanks for taking our questions. As we look forward to 2020 forward, just wondering if you can touch on some of the billing blocks for revenue and margins, understanding the bit early here, but a lot of investors are asking about the moving parts. So any color there would be greatly appreciated.

The regions to launched savanna product for them.

Nationally as well, but obviously, we have pretty high expectations for here in the U S.

Okay, great. Thanks for taking our questions.

Thanks, Doug.

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

Dustin Scaringe: I'll let Joe go through some more detail, but clearly the fact that we've stabilized the lab's business is very helpful to growth. And we expect it to continue to do a well in respiratory and of course we'll be launching Savannah. So I would look as an investor to those three milestones, Joe, what would you add? Yeah, I was just going to add that, you know, we still expect the growth and the margins will be aligned with the LRP.

Hey, guys. Thanks for taking the questions.

The first one for Joe I've got a few questions about how are you.

We've gotten a few questions just on the <unk> ramp.

Revenue I think sequentially is about flat I think EBITDA is about double <unk>. So can you just talk about what the moving parts are there obviously the respiratory pieces as I assume a big piece, but can you just talk about that ramp and the confidence level and the EBITDA margin EBITDA dollar ramp there and <unk>.

Dustin Scaringe: We've communicated about a year ago at industrial days, so there's no change there. And as Dustin, you know, we have a lot of companies in the last business. And as I said in the present remarks, it's been a disability into that non-resritory business. Now, do you think about sort of the more variable pieces and sort of more of the building blocks that we still have to work through between now and early next year when we provide 24 guidance?

Yeah, Hey, Patrick so.

So first of all again as I said on the call probably a couple of things we've got good.

Good visibility into the non respiratory business and we expect.

A pretty solid.

Q4 for the labs business.

Of course, the growth as you think sequentially is going to be driven.

Predominantly the respiratory business.

And so if you think about where we are in Q3.

Dustin Scaringe: It's the timing of the respiratory season. She's 41. It's the launch of Savannah. It's the endemic COVID levels where that finally ends up at the end of this year. It's the synergy achievement in that, of course, there's inflation and effects I think about also. So those are all the beginning pieces. Understood. Thanks for the insight there.

With $185 million of respiratory revenue in Q3.

Unknown Executive: Another question on Savannah. Good update on the approval time one there.

The remaining guide again, it's again as to what we've been calling on quarter on quarter as normal or typical.

Blue season, and so to get it to.

The high end of the range.

<unk>.

For respiratory revenue that I talked about in the prepared remarks.

You are looking to increase roughly 50 million from.

From Q3, Q4, and given what we know about the respiratory season that doesn't sound Super insurmountable.

Unknown Executive: Just maybe if you could talk about your confidence in the rapid menu expansion and then placement install expectations and then maybe to ask it another way, what are kind of the KPIs that you're going to be looking at that determine if Savannah is a successful launch? Thank you. We're in good shape from a menu development perspective and the clinical trials will drive our success. So we will do several clinical trials throughout 2024 with an expectation that once the instrument has already been cleared that the packages should be somewhat straightforward on each of the panels that we'll do.

And by the way.

And if that happens.

It would be down about $115 million or 33% from the prior year Q4 respiratory revenue. So so clearly we're not planning for a record respiratory season like last year, we're planning towards this normal or typical season.

And maybe Joe I could add just a little bit more color typically what has happened over the last year.

So I have been watching this now for 14 years.

Yes.

Particularly driven by U S. The distributors will order product in Q3.

Historically, it's actually been close to when kids go back to school.

So they've ordered and you can see right now in our own inventories at distribution, which we have very good visibility too you see fairly high.

Unknown Executive: So we've said before that we will attempt to be in market with least four or five different panels before the end of 2024. That would be our major objective. We have instruments in inventory. We've recently completed the software update. We are fully manufacturing cartridges and so I don't see any other constraint other than US FDA clearance and obviously you will work with the regions to launch the Savannah products internationally as well but obviously we have pretty high expectation for here in the US.

Inventory levels and what would normally happen is as we see a respiratory season emerge.

The tests are going to come out of that inventory.

And depending on how quickly that inventory bleed staff will determine what the distributors. The major distributors will order before the end of Q4, sometimes we've been holding our breath for the last week of the year, sometimes but typically.

Since in the last three weeks so that's that.

That's what happens pretty much every year, obviously COVID-19 changed that dynamic a little bit, but that's typically what happens and right now looking at what the ili rates are and the fact that I'm hearing that a lot of physicians are actually ordering the combo product.

Dustin Scaringe: Okay, great. Thanks for taking our questions. Thanks, Dustin.

I think it's reasonable to expect that we'd have a bleed off that mimics what we've seen in prior years.

Patrick Donnelly: Our next question is from Patrick Donnelly with City. Your line is now open. Hey, guys, thanks for taking the questions.

We won't see a lot of ordering for.

For example in October we.

But we will be expecting that once distribution inventory levels are down below a certain point that will trigger them to order.

Patrick Donnelly: Maybe the first one for Joe. I've got a few questions. Hey, Doug, how are you? I've got a few questions just on the 4Q ramp. You know, the revenue, I think sequentially is about flat. I think EBITDA is about double 3Q. So can you just talk about, you know, what the moving parts are there? Obviously, the respiratory pieces is I assume a big piece. But can you just talk about that ramp and the confidence level in the EBITDA margin EBITDA dollar ramp there on 4Q?

And the speed with which they got there sometimes affects how much they order as well.

Okay. That's helpful and just Joe on the on the margin Slash EBITDA dollar ramp is that almost all tied to respiratory that's a pretty big step up as well I just want to make sure we're thinking about the margin profile correctly <unk>.

Patrick Donnelly: Yeah, hey, Patrick. So first of all, again, we, as I said on the call, probably a couple. We got good visibility into the non respiratory business and we expect a pretty solid Q4 for the lab business. Of course, the growth as you think sequentially is going to be driven predominantly out of respiratory business. And so, you know, if you think about where, you know, where we are in Q3, with 155 million arrests toward revenue in Q3, the remaining guide, again, it's to get us to what we've been calling quote unquote this normal or typical flu season.

Yes, yes, it's driven by two things Patrick is the respiratory revenue step up.

As you know the respiratory products carry.

Highest standard gross margins of all of our products as well as just continued expense management synergy achievement.

Those two things are going to drive the increase in gross margin.

Okay understood. Thank you.

And then maybe just on the non respiratory piece the lab business. Doug can you maybe just talk about the trends you saw in the quarter the visibility here going forward.

Terms of the growth.

Patrick Donnelly: And so to get to the, you know, the high end of the range that the record toward revenue that I talked about and prepared remarks, you know, you're looking to increase roughly 50 million from Q3, Q4. And given what we know about the respiratory seasons, that doesn't sound super insurmountable. And by the way, if that happens, we would be down about 115 million or 33% from the prior year Q4 respiratory revenue.

Trying to balance expectations into <unk> and as we work our way into 'twenty for just what youre seeing there and expectations would be helpful.

Well just generally as I say as the orders are up so really what drives the growth rate.

After that is the speed with which we get the installs done and the customer uptick.

Test of record.

But we do expect.

A tick up in Q4 on the labs business.

Yes, frankly, because it might be a little bit too much detail, but every Friday I see exactly what we closed.

Patrick Donnelly: So clearly, we're not planning for a record respiratory season like last year. We're planning toward this normal or typical season. Yeah, and maybe Joe, I could add just a little bit more color, typically what has happened over the last years, and I've been watching this now for 14 years. Particularly driven by US, the distributors will order product in Q3. Historically, it's actually been close to when kids go back to school. So they've ordered and you can see right now in our own inventory is at distribution, which we have a very good visibility to you see fairly high inventory levels.

And I have seen a ramp up in terms of the order rates. So.

Okay.

That's my visibility to it.

Okay. That's helpful. I appreciate it guys.

Sure.

Thank you Patrick our next question is from Alex Nowak with Craig Hallum. Your line is now open.

Hey, good afternoon, everyone that actually just staying on that last topic that the labs business ramp in Q4 is there any geography in particular, that's driving the outsized growth.

China, perhaps you know obviously a lot of focus there.

Bob.

Patrick Donnelly: And what would normally happen is as we see a respiratory season emerged, the tests are going to come out of that inventory. And depending on how quickly that inventory bleeds down, we'll determine what the distributors, the majors distributors will order before the end of Q4. Sometimes we've been holding our breasts to the last week of the year. Sometimes, but typically it happens in the last three weeks. So that's what happens pretty much every year.

Yes, as I mentioned, we will be up.

Around 25% in China.

Loan.

And for the year I think.

We're we're high teens.

Currency growth two.

<unk> 2003, so China clearly is back on track it as a growth driver for us and of course the other.

The major drivers of the U S. What happens in the U S. Because of the size is particularly important.

Patrick Donnelly: Obviously, COVID changed that dynamic a little bit, but that's typically what happens. And right now looking at what the ILI rates are, and the fact that I'm hearing that a lot of positions are actually ordering the combo product, I think it's reasonable to expect that we have a bleed off that mimics what we've seen in prior years. So we won't see a lot of ordering, for example, on October, we didn't, but we will be expecting that once distribution inventory levels are down below a certain point, able to trigger them to order.

What we're seeing and expecting to see in Q4 is driven by China and by the U S.

Okay got it.

Over to you.

Yes go ahead Joe.

So im sorry, I was just going to add that in most of the regions are going to be up sequentially.

Q3, Q4, but the year over year growth as Doug said, a lot of it has to do with China and the Lockdowns, we saw last year, obviously lifted.

Okay got it. Thank you and then so answer than.

What has been the feedback so far at the FDA and.

Patrick Donnelly: And in the speed with which they got there, sometimes affects how much they order as well. Okay, that's helpful. Joe, on the margin slash EBITDA dollar ramp, is that almost all tied to respiratory? That's a pretty big step up as well. I just want to make sure we're thinking about the margin profile correctly, 3Q to 4Q. Yeah, yeah, it's driven by two things, Patrick, is it the respiratory revenue step up, which says, as you know, the respiratory products carry highest standardless margins of all of our products, as well as just continued expense management and synergy achievement. Those two things are going to drive the increase in growth any moment. Okay, understood. Thank you.

Sure they've had questions around the submission and Ive honestly forgotten is this going to be a five 10-K, where an EUA that we should get the approval at the end of this year.

Great.

Thanks for the question, Alex we're Super confident that we will have approval for the box.

And then it'll be approved five 10-K, we'll we'll pursue CLIA waiver.

And our earliest opportunity, but it's not going to be an EUA.

And Thats 500 K for that.

RVP four as well just to confirm.

That's correct, so RVP four would be cleared.

<unk> fee.

Obviously is under active.

Review as well.

Okay, Perfect and then just an update on the high volume cartridge manufacturing.

Patrick Donnelly: And then maybe just on the non respiratory piece, the lab business, Doug, can you maybe just talk about the trends you saw in the quarter, the visibility here going forward in terms of the growth, you know, just trying to balance expectations into 4Q and as we work our way into 24, just what you see in there and expectations will be helpful. Well, just generally as they stay as the orders are up, so really what drives the growth rate, after that is the speed with which we get the installs done and the customer up to, you know, our test of record, but we do expect a tick up in Q4 on the lab's business.

Your line. Thank you.

I don't have a further update we're still targeting everything on track for midyear next year.

Excellent good to hear thank you.

Thanks, Alex.

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

Thank you good afternoon.

First I hope you feel better soon.

Wanted to follow up on some of the fourth quarter guidance questions.

Patrick Donnelly: And, you know, frankly, this may be a little bit too much detail, but every Friday, I see exactly what we closed. And I have seen a ramp up in terms of the order rates, so that's my visibility to it. Okay, that's helpful. I appreciate it, guys. Sure.

Maybe just looking at the margin profile in the fourth quarter.

I think the guide implies something like a 40% EBITDA margin.

Look at the history of the company at somewhat unprecedented outside of the Covid period. So I think I heard SG&A, we're going to be.

<unk>.

Are there other factors I'll call out.

Alexander Nowak: Thank you, Patrick. Our next question is from Alex Noick with Craig Hallum. Your line is now open. Hey, good afternoon, everyone. That actually is just saying on the last topic, there's a lab's business ramping Q4. Is there any geography in particular that's driving the best growth? Is it China perhaps? Obviously, a lot of focus there just with the top. Yeah, as I mentioned, we will be up around 25% in China alone.

I'm Super Happy that you asked that question Jack No, we're not going to do 40% EBITDA for the quarter.

There must be a disconnect somewhere because.

It should be more like.

Okay.

At <unk>, it would not be and then pretty much.

Last Q4, we were at 32% to 33%.

So it shouldnt be sized for it.

Okay.

But with the model, but even getting to a mid thirty's EBITDA margins still pretty healthy kind of relative to the pro forma.

Alexander Nowak: And for the year, I think we're we're high teams, aren't we? In terms of growth, yeah, 20.3. So China clearly is back on track. It is a growth driver for us. And of course, the other major drivers of the US, what happens in the US, because of the size, is particularly important. So what we're seeing and expecting to see Q4 is driven by China and by the US. Okay, got it. That's all over the top.

If you put together the two companies historically.

Just talk about going from 23% in the third quarter to that level.

What drives that step up.

As I said before is the increase in respiratory revenue, which carries high margins.

And then expense management.

I said on the prepared remarks that the.

Alexander Nowak: Yeah, go ahead, Joe. Oh, I'm sorry, I was just going to add that it's in your most of the regions are going to be up sequentially Q3, Q4. But but the year of your growth, as Doug said, you know, there's a lot of it has to do with China and the lockdown. Please saw last year, obviously lifted. Okay, got it. Thank you.

We expect the SG&A in Q4 to come down to closer to where it wasn't at Q2 levels.

So we're expecting a drop in expense in.

And maybe this would be a good time to comment on on this we've talked before with.

With everybody on the phone about the idea that we started with harmonization. We went to integration we had two shots on goal with cost synergies.

Unknown Executive: And then so on to Zana. What has been the feedback so far at the FDA and sure they've had questions around the submission.

Unknown Executive: And I've honestly forgotten, is this going to be a five and K or an EUA that we should get the approval of? and David Scheer. Thanks for the question now. We're super confident that we'll have approval for the box, and it'll be approved by 10K. We'll pursue Cleo Weaver at our earliest opportunity, but it's not going to be in the EUA. And that's 5K for the RPP for as well, just to confirm. That's correct. So RBP 4 would be cleared HSV, it obviously is under actor review as well.

Projects that we call synergy <unk> pointed out and some of those things are finally, showing up in the fourth quarter.

Unknown Executive: Okay, perfect.

So thats a factor.

Jack after only 18 months.

The combined company Reno it needs to be done.

We understand the levers we need to call.

And we're in the process of identifying the initiatives that we will need.

Order.

To execute moving forward.

At the end of the day, we can run this business better and we expect to run this business better.

Which will result in EPS growth over time, and I think youre seeing the beginning of it in the fourth quarter and I would expect us to be able to report to you our expectations for the efficiencies that we'll gain moving forward but.

Unknown Executive: And then just an update on the high volume carcass may factoring line. Thank you. I don't have a further update. We're still targeting everything on track for a year next year. Excellent. Good to hear. Thank you. Thanks, Alex.

I can't emphasize this enough we know what needs to be that.

Okay.

And then I appreciate all the comments on the China GBP I was just curious if you could clarify do you plan to participate in this program at all.

And do you think.

Jack Meehan: Our next question is from Jack Meehan with Neffron Research. Your line is now open. Thank you. Good afternoon. First, I hope you feel better soon. When to follow up on some of the fourth quarter guidance questions, maybe just looking at the margin profile in the fourth quarter. You know, I think the guide implies something like a 40% EBITDA margin. I just look at the history of the company. It's somewhat unprecedented outside of the COVID period. So I think I heard FDNA would be like 2Q. Are there other factors that call out?

Future test categories.

How important is it for you to maybe get exempt from the program.

Yes.

Yeah.

So theres two sides to that <unk> had other bdcs that have included clinical chemistry.

And some of those are excluded our products because they drive flight chemistry.

Jack Meehan: I'm super happy that you asked that question, Jack, because no, we're not going to do 40% EBITDA for the quarter. It's right. There must be a disconnect somewhere because it should be more like mid 30s. It would not be. And then pretty much, you know, I think last Q4, we were 33% so it shouldn't be a size 40. Okay, I'll have to play with the model, but even getting, you know, to a mid 30s EBITDA margin, still pretty healthy, kind of relative to the pro forma.

And won a couple of years ago I don't have all the details.

But we chose to participate.

We did reduce price and we actually increased volume pretty dramatically.

My colleagues in the diagnostic industry look at it the same while it is a threat to price sometimes it gives you greater access to the volume Thats out there that we might not ordinarily have had access so easily so in that case two years ago Ortho actually was the winner and did pick up the volume.

<unk>.

So we will try to participate in this tender, but it really is only.

Hormones infectious disease tests, and hcg, which are pretty low volumes for us.

If we do choose to participate we will.

More than likely reduce our pricing.

As was done in 2021 about that same level pretty.

Jack Meehan: You know, that if you put together the two companies historically, you know, just talk about going from 23% in the third quarter to that level, you know, what drives the step up. As I said before, it's the increase in respiratory revenue, which carries high margins and then expense management. You know, I said on the federal marks that we expect the SGNA Q4 to come down to closer where it wasn't at Q2 levels.

Pretty draconian, but it could be valuable to us in order to retain our volume.

And if Thats. The case you heard me in my prepared remarks say that that's 0.0 or zero point, 72% impact if we were to reduce pricing.

That level, but that would be the worst case scenario actually because.

You have to remember that we are going through distribution and distribution will pick up part of that price.

Jack Meehan: So we're expecting, you know, a drop down expense. Yeah, and maybe this would be a good time to comment on this. You know, we've talked before with everybody on the phone about the idea that we started with harmonization, we went to integration. We had two shots on goal with cost synergies projects that we called Synergy 1.0 and 2.0. And some of those things are finally showing up in the fourth quarter. So that's a factor, but Jack, after only 18 months as a combined company, we know what needs to be done.

So yes, we are going to participate if we can of course, we would.

And.

That would be the impact.

<unk>.

And if we didnt pickup any volume.

Put simply retained but we have.

Okay got it.

Just last question the account for maybe for Joe the accounts receivable.

I think $85 million sequentially what drove that.

The higher respiratory revenue in the quarter.

Jack Meehan: We understand the letters we need to pull. And we're in the process of identifying the initiatives that we will need in order to execute moving forward. You know, at the end of the day, we can run this business better, and we expect to run this business better, which will result in EPS growth over time. And I think you're seeing the beginning of it in the fourth quarter, and I would expect us to be able to report to you our expectations for the efficiencies that we will gain moving forward. But, you know, I can't emphasize this enough. We know what needs to be done.

And by the way we are global DSO, Jack is 33 days.

And it's.

I believe it's 20 or less from the U S. So all of that respiratory revenue over achievement within the U S. So we've already collected all that cash.

So yes that's.

Okay.

We've got very very solid DSO.

Thank you.

Yes. Thank you thanks Jay.

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

Hey, guys. Thanks for the questions.

Jack Meehan: Okay, and then I appreciate all the comments from the China VBP. I was just curious if you could clarify, do you plan to participate in this program at all? And do you think in future test categories, you know, how important is it for you to maybe get exempt from the program? Yeah, so there's two sides to it that you've had other VBPs that have included clinical chemistry and some of those have excluded our products because they're dry slide chemistry.

Maybe just sticking with the last business a little bit.

Can you give us a little bit more color just on sort of what the typical seasonality of the year and how we should be thinking about what that meant for <unk>, but also when we can.

Think about that for you I looked at it and see a relatively easy comp we have the <unk>.

Backlog of instrument back to normal which should be a tailwind here. So is there a scenario where this could be faster than the high single digits, you pointed to in <unk> and if not maybe.

What might be limiting that relative to some of the tailwind that we think about it in the space.

Jack Meehan: In one a couple years ago, I don't have all the details in front of me, but we chose to participate. We did reduce price and we actually increased volume pretty dramatically. I think my colleagues in the diagnostic industry look at it the same while it is a threat to price. Sometimes it gives you greater access to the volume that's out there that we might not ordinarily have had access so easily. So in that case, two years ago, or though actually was the winner and did pick up the volume.

Alright, you're specifically talking about the lab business.

Correct or non respiratory.

Right yes.

<unk>.

Yes.

I do think there again, we've got great visibility into this.

This business so.

Let's just start with the timing part of the question if you want.

So coming out of Q3, which is typically the lower in terms of instrument orders.

Q4, not only is higher decisions made before made before year end, but often if their sale instruments, we would see them higher in the fourth quarter.

Jack Meehan: So we will try to participate in this tender, but it really is only hormones and infectious disease tests and HCG, which are pretty low volumes for us. If we do choose to participate, we will more than likely reduce our pricing as was done in 2021 about that same level pretty pretty draconian, but it could be valuable to us in order to retain our volume. In that case, you heard me in my very remarks say that 0.72% impact if we were to reduce pricing at that level, but that would be the worst case scenario actually, because you have to remember that we're going through distribution and distribution will pick up part of that price. So yes, we are going to participate if we can, of course, we would and that would be the impact if we didn't pick up any volume, but simply retained what we had. Okay, got it.

So I'll start with that.

What's driving some of it and then the question Andrew I think it's really trying to get at is is.

Is there a potential upside there.

And I would say.

But we have to deliver we have to execute and we have to get.

We got to get installs, we got to make sure that we've got everything covered on the supply chain side and everything has to go pretty darn well to be a lot better than what we're forecasting.

How do you feel about I'll leave it at that.

Thank you.

But I will comment further on.

So what they are witnessing it's just the optimism of the CEO is conservative.

Yes.

But I will comment further on.

On the seasonality of the lab instrument revenue.

Probably a good point to Amazon if you look at the five year average of that legacy Ortho business Q1, and Q3 are typically the lowest revenue quarters in.

The five year average is about 22% to 24% of instrument revenue in those quarters and in Q2 in Q4 of our highest.

Jack Meehan: And last question, the account for maybe for Joe, the accounts receivable stepped up, I think 85 million sequentially, what drove that higher respiratory revenue in the quarter. And by the way, our global DSO jack is 33 days, and I believe it's 20 or less in the US. So all that respiratory revenue overachieving within the US, so we already collected all that cash. So yes, that's the problem. Very, very solid DSO. Thank you. Yeah, thank you. Thanks, Jack.

Revenue quarters for lab instruments in 2028% of of the annual instrument revenue. So we were.

We will see an uptick sequentially from Q3 to Q4 on less insured revenue, yes that I can say that with a lot of confidence.

Okay helpful and then.

Mentioned capital deployment and not necessarily doing any buyback as of yet as we continue to see the.

The stock price sort of come down rates remain kind of steady how do we think about that decision, making process and where that threshold is to get a little bit more aggressive on the buyback as opposed to prioritizing.

Debt pay down as you have so far.

Well, we've said it before in terms of capital allocation that we look both at debt.

Andrew Cooper: Our next question is from Andrew Cooper with Raymond James. Your line is now open. Hey, guys, thanks for the questions. Maybe just sticking with the lab's business a little bit. Can you give us a little bit more color, just some sort of what the typical seasonality is here and how we could be thinking about one what that meant for a three Q, but also, you know, when we think about that for you, I look at it and see a relatively easy comp.

Repayment as well as share repurchase and when we do the math right now obviously.

The math would tell you that it's probably better to be buying shares.

We're paying debt, but it's not dramatically so.

So but.

So we will continue to be opportunistic for sure.

Andrew Cooper: We have the backlog of instruments back to normal, which should be a tailwind here. So, you know, is there a scenario where this could be faster than the high single digit if you pointed to and fork you and if not, you know, maybe what might be limiting that relative to some of the tailwinds that we think about in the space. Andrew, you're specifically talking about the lab's business or non respiratory, right?

Okay, I will stop there and then thanks for the questions.

Thanks, Andrew.

Our next question is from John Sour beer with UBS. Your line is now open.

Hi, Thanks for taking the questions.

I was wondering if theres any additional color you can provide on the Savannah backlog and then maybe more broadly on molecular diagnostics.

Any update on the shift you're seeing there from a centralized labs the decentralized solutions and then how should we think about savanna.

Andrew Cooper: Yeah, I mean, I do think they're, again, we've got great visibility into this business, so let's just start with the timing part of the question if you want. So, coming out of Q3, which is typically the lower in terms of instrument orders, Q4 not only is higher decisions made before, made before you're in, but often if they're sale instruments, we would see them higher in the fourth quarter. So, I'll start with that.

Offsetting this in 2024.

You are right that the play there for savanna is to meet the need of <unk>.

<unk> molecular testing closer to the patient and so we would see that.

As an unmet need that has existed for some time and has been addressed in part by other companies, we happen to think our solution given the speed and ease of use.

And the comments that we're getting from potential customers.

Andrew Cooper: I mean, that's what's driving some of it. And then the question that Andrew, I think is really trying to get at is, is there potential outside there? And I would say, yeah, but we have to deliver, we have to execute and, you know, we have to get, we got to get installs, we got to make sure that we've got everything covered on the supply chain side and everything has to go pretty darn well to be a lot better than what we're forecasting. How do you feel about that? I'll leave it a little bit outside, but I'll comment further on the, so what they're witnessing. It's just the optimism of the CEO and the conservative as well. Yeah.

We think that we will be successful, but I will say that if we werent successful somebody else in the space would be.

Molecular testing needs to be closer to the patients that need has been there for a while.

Simply trying to do it and address it in a better and a better way, but if we didn't get it done if youre looking for what the trend is the trend is going to be.

B decentralized for sure.

And I didn't understand John your question on the <unk>.

Backlog of Savannah.

We do have inventory, we do have an inventory that we built in anticipation of the launch.

In early 2020 for.

Andrew Cooper: But I will comment further on the, on the seasonality of the, of the last instrument revenue. And I think it's probably a good point to have a look at the five year average of that legacy or business Q1, Q3 are typically the lowest instrument revenue quarters. And the five year average is about 22 to 24% of the instrument revenue in those quarters. And in Q2 and Q4 are the highest revenue quarters for lab instruments, you know, 20 to 28% of the annual instrument revenue.

Frankly speaking we would have loved to have shipped a lot more boxes in Q4.

But were not cleared yet so.

But again I'm confident that we will be and we will be.

We will be ready to launch.

Yes.

Got it I appreciate that and then maybe just a follow up on on the vitro platform.

And just wanted to understand here, but have you seen any extension or change in the actual sales cycle there.

Throughout the year.

No I'd say not.

Andrew Cooper: So we will, we will see an uptick sequentially from Q3 to Q4 on last instrument revenue. Yes. That, that I can say with a lot of comments. Okay, helpful. And then you mentioned capital deployment and not necessarily doing any buybacks as of yet, you know, as we continue to see the stock price sort of come down rates, you know, remain kind of steady. How do we think about that decision making process and, you know, where that threshold is to get a little bit more aggressive on the buyback as opposed to prioritizing debt paydown as you have so far.

No I don't think we've seen any significant macro changes in terms of capital availability or decisions delayed.

So it's been a it's been a fairly steady.

For a couple of years now.

So globally, we still averaged roughly 50 50 between cash yields.

Rentals that hasn't changed right.

Speed with which orders are coming now.

<unk>.

I don't see the customer behaving differently in terms of making decisions differently and we do seem to be winning.

Andrew Cooper: Well, we've said it before in terms of capital allocation that we look both at debt repayment as well as share repurchasing when we do the math right now, obviously, the math would tell you that it's probably better to be buying shares and paying out debt, but it's not dramatically so. So, but we'll continue to be opportunistic for sure.

A few more than we normally would at this stage, but I don't see anything macro John.

Impact clinics.

Clinical chemistry, <unk> immunoassay sales.

Got it thanks for taking the questions.

Thank you John.

There are no further questions at this time, so I'll pass the call back to the management team for any closing remarks.

Andrew Cooper: Okay, I will stop there then. Thanks for the question. Thanks, Andrew.

I'll just say.

Behalf the team thanks for your interest thanks for joining the call and we'll talk soon.

John Sourbeer: Our next question is from John Sourbeer with UBS. Your Savannah backlog and then maybe more broadly on molecular diagnostics. Just any updates on the shift you're seeing there from a specialized lab with decentralized solutions and then how should we think about Savannah offsetting this in in 2024? You are right that the play there for Savannah is to meet the need of bringing like the testing closer to the patient. And so we would see that as an unmet need that has existed for some time and has been addressed in part by other colleagues.

That concludes today's conference call. Thank you for your participation you may now disconnect your lines.

John Sourbeer: We happen to think our solution given its speed and the ease of use and the comments that we're getting from potential customers. We think that we will be successful, but I will say that if we weren't successful somebody else in the space would be a likely testing needs to be closer to the patient. That need has been in there for a while. We're simply trying to do it and address it in a better way. But if we didn't get it done, if you're looking for what the trend is, the trend is going to be that it's going to be decentralized for sure.

Doug Bryant: I didn't understand, John, your question on the backlog of Savannah. We do have inventory. We do have inventory that we built in anticipation of a launch in early 2024. Frankly speaking, we would have shipped a lot more boxes in Q4, but we're not cleared yet. So, but again, I'm confident that we will be and we will be ready to launch. I appreciate that.

John Sourbeer: And then maybe just a follow-up on the VTROS platform. I'm just only sure I understand here, but have you seen any extension or change in the actual cell cycle there throughout the year? No, I'd say not. No, I don't think you've seen any significant macro changes in terms of capital availability or decisions delayed. No. No, it's been a fairly steady for a couple of years now. There's a lot involved. So, globally, we still have a spotlight that we get 8.8 between casials and age rifles.

John Sourbeer: That's right. But the speed with which borders are coming, I don't see the customer behaving differently in terms of making decisions differently. And we do seem to be winning a few more than we normally would at the stage, but I don't see anything macro, John, that would impact that clinical chemistry and or immunosacial cells. Got it. Thanks for taking the questions. Thank you, John.

Doug Bryant: There are no further questions at this time. So, I'll pass the call back to the management team for any closing or a few more questions. Thanks. I'll just say on behalf of the team, thanks for your interest. Thanks for joining the call. We'll talk soon.

Unknown Executive: That concludes today's conference call. Thank you for your participation. You may now disconnect your line.

Q3 2023 QuidelOrtho Corp Earnings Call

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