Q4 2024 QuidelOrtho Corp Earnings Call
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Speaker Change: Welcome to the Codell or though fourth quarter and full year 2024 financial results conference call and webcast. At this time all participant lines are in a listen only mode for those of you participating on the conference call there will be an opportunity for your questions at the end of today's prepared remarks. Please note this conference call.
Speaker Change: 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 turn the call over to Julia Cunningham, Vice President of Investor Relations.
Julia Cunningham: Yeah. Good afternoon, everyone. Thanks for joining quite aren't worth over fourth quarter and full year 2024 financial results Conference call with me today are Brian Blazer, President and Chief Executive Officer, and Joe Pesci, Chief Financial Officer.
Julia Cunningham: This conference call is being simultaneously webcast on the Investor Relations page of our website, the eight and a discussion we posted a supplemental presentation on the IR page.
Julia Cunningham: We'll be referencing throughout this call.
Julia Cunningham: This conference call contains forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Julia Cunningham: Statements that are not strictly historical including the company's expectations plans.
Julia Cunningham: <unk> financial guidance.
Julia Cunningham: Future performance and prospects are forward looking statements that are subject to certain risks and uncertainties.
Julia Cunningham: And other factors.
Julia Cunningham: Actual results may vary materially from those expressed or implied in these forward looking statements.
Julia Cunningham: Information about potential factors that could affect our actual results is available on our annual report on Form 10-K for the 2023 fiscal year and subsequent reports filed with the SEC, including the risk factors section.
Julia Cunningham: Forward looking statements are made as of today February 12, 2025, and we assume no obligation to update any forward looking statement, except as required by law.
Julia Cunningham: In addition, today's call includes discussion of certain non-GAAP financial measures.
Julia Cunningham: Tables reconciling these non-GAAP measures to their most directly comparable GAAP measures are available in our earnings release and the supplemental presentation, which are on the Investor Relations page of our website at <unk> Dot com.
Julia Cunningham: Lastly, unless stated otherwise all year over year revenue growth rates given on today's call are given on a comparable constant currency basis.
Julia Cunningham: And now I'd like to turn the call over to our CEO, Brian Blazer.
Brian Blazer: Thanks, Juliet and good afternoon, everyone and thank you for joining us on the call today.
Brian Blazer: We finished the year with solid top line results that were in line with our 2024 financial guidance.
Brian Blazer: I'm encouraged by the progress that we're making in improving our cost structure and focusing the business to elevate profitable growth.
Brian Blazer: Today I'll discuss our 2024 operational highlights and key priorities for 2025, and then Joe will provide greater detail as we share our 2025 full year guidance.
Brian Blazer: As I've mentioned in previous calls I've been driving an operating model designed to empower our leadership team to focus on growth and profitability as part of this strategy I made key changes to the leadership team to ensure we have the right mix of talent and expertise to move our vision forward.
Brian Blazer: Having the right leadership in place is essential for driving innovation and improving operational efficiency and positioning the company for success.
Brian Blazer: Our efforts to prioritize high impact opportunities are showing early signs of progress as reflected in our second half 2024 results.
Turning to the fourth quarter of 2024, we saw ongoing contribution from our labs, immuno hematology and point of care businesses.
Brian Blazer: Total reported revenue in Q4 with $708 million, which decreased by 4% year over year due to the expected declines and Covid and flu testing revenues importantly.
Brian Blazer: Importantly over 90% of our Q4 sales were recurring driven by reagents consumables and service.
Brian Blazer: Ed mentioned that all growth rates are about to give are in constant currency.
Brian Blazer: Our labs business, which is roughly 50% of our total company revenues achieved growth of 4% on.
Brian Blazer: On a reported and constant currency basis, excluding COVID-19 and noncore revenue.
Brian Blazer: This performance underscores its durable and predictable business model with strong brand recognition long term contracts and a loyal customer base.
Brian Blazer: Within transfusion medicine, our immuno hematology business continued to drive stable growth of 4% during the fourth quarter.
Brian Blazer: And despite challenging year over year comparisons from the decline of Covid testing our point of care business continues its leadership position with Sophie as large global installed base and our flu Covid combo test.
Brian Blazer: And lastly in our molecular diagnostics business, we initiated clinical trials for our Savannah respiratory panel last month, which coincided with the ramp up of this year's respiratory season.
Brian Blazer: We expect to complete our trials over the next few months as the season runs its normal course.
Brian Blazer: Adjusted EBITDA for the fourth quarter, 2024 was $150 million, which represented 21% adjusted EBITDA margin and adjusted diluted EPS of <unk> 63.
Brian Blazer: As we continue to move our business forward I've spoken about our three central priorities delivering the best experience from our customers prioritizing execution on a small number of high impact programs and driving profitable sustainable growth.
Brian Blazer: These priorities include improving R&D productivity and the strength of our platform content as well as development of new systems that will enable us to strengthen our global market position.
Brian Blazer: In addition, we can continue to drive cost reduction initiatives that we started in 2024, including realizing the remainder of our previously announced cost savings starting mid year and implementing new actions focused mainly on the procurement and gross margin improvement.
Brian Blazer: We expect these programs to drive margin growth over the next few years that will achieve benchmark levels of profitability.
Brian Blazer: In closing I have been impressed with our team and grateful for their support as we made difficult but necessary changes this past year.
Brian Blazer: <unk> challenging circumstances, our team has been resilient and determined to build an innovative enduring company, that's focused on supporting our customers and their needs.
Brian Blazer: I look forward to sharing our progress on our operational and financial results as we move through 2025 and with that I will hand, it over to Joe to discuss our 2024 financial performance and guidance for 2025.
Joe Pesci: Okay, Thanks, Brian and Hello, everyone I'll begin with the details of our fourth quarter and full year 2024 results on slides three and four of the earnings presentation, which is currently available on our <unk>.
Brian Blazer: IR web site.
Brian Blazer: Again, unless stated otherwise all year over year revenue growth rates on today's call are provided on a comparable constant currency basis.
Brian Blazer: During the fourth quarter and full year 2024, our business performed in line with our expectations and we expect continued momentum going into 2025.
Brian Blazer: I'll start with some high level commentary on our full year 2020 for performance and then drill down to fourth quarter results.
Brian Blazer: I'll also provide our estimated full year 2025 financial guidance and then of course, we will open up the call for some questions.
Brian Blazer: Total reported revenue for the full year of 2024 was $2 8 billion.
Brian Blazer: Including $2 3 billion in non respiratory revenue.
Brian Blazer: <unk> growth was 4% excluding COVID-19 in noncore revenue, which includes contract manufacturing.
Brian Blazer: And our respiratory revenue was $504 million, which grew 4% excluding COVID-19 compared to the prior year full year 2020 for Covid revenue was $185 million.
Brian Blazer: Including $17 million in government contracts.
Brian Blazer: Foreign currency exchange negatively impacted full year 2024 results by 60 basis points.
Brian Blazer: Adjusted EBITDA was $543 million and 19, 5% adjusted EBITDA margin.
Brian Blazer: And adjusted diluted earnings per share was $1 85.
Brian Blazer: Moving now to fourth quarter 2024 results total reported revenue was $708 million, which decreased by 4% compared to the prior year period due to lower year over year, Covid and flu revenues as discussed on our third quarter earnings call.
Brian Blazer: Foreign currency exchange negatively impacted fourth quarter results by 30 basis points.
Brian Blazer: From a regional perspective, our fourth quarter 2020 for constant currency revenue performance was led by our other region, which again is comprised of Japan Asia Pacific and Latin America and grew 13%.
Brian Blazer: China grew 11% driven by labs.
Brian Blazer: Strong loss performance in China was partially offset by softness in cardiac point of care products, resulting from timing of certain orders and reimbursement changes in some Chinese provinces as we discussed on our third quarter earnings call.
Brian Blazer: Note that for the full year, China, excluding respiratory grew in the high single digits as expected.
Brian Blazer: Our Europe Middle East Africa region declined by 6% due to a onetime item and timing of revenue in the prior year period.
Brian Blazer: On a full year of 2020 for.
Brian Blazer: Europe Middle East Africa region revenue grew by 2%.
Brian Blazer: And then finally North America declined by.
Brian Blazer: 11% compared with prior year period due to the anticipated year over year decline in respiratory revenue the decline of U S donor screening revenue as we continue to wind down that business. This year.
Brian Blazer: Timing of cardiac sales for.
Brian Blazer: For the full year 2020 for North America was down 3% excluding code.
Brian Blazer: Right now looking at our non respiratory business, which includes labs transfusion medicine, and cardiac point of care products fourth quarter 2024 revenue was relatively flat year over year. However.
Brian Blazer: <unk> labs revenue growth was 4% excluding co over to noncore revenue.
Brian Blazer: The transfusion medicine, immuno hematology revenue grew 4% and donor screening declined by 40%.
Brian Blazer: Cardiac revenue declined by 9% in Q4, primarily related to order timing in North America from a full year cardiac revenue was down.
Brian Blazer: Approximately 2% or only 3 million compared to the prior year.
Brian Blazer: Our Q4 respiratory revenue declined 18% year over year.
Brian Blazer: During Q4, we saw continued favorable product mix from our Sofia flu Colby combo test.
Brian Blazer: And we had $44 million in Covid revenue.
Brian Blazer: We saw a late start to this respiratory season, which is more in line with pre pandemic trends.
Brian Blazer: And we have seen the season becomes strong in February thus far.
Brian Blazer: More on our thoughts on the Q1 flu season and a bit.
Brian Blazer: Moving down the P&L.
Brian Blazer: Slide five shows fourth quarter 2024, adjusted gross profit margin of 47% versus 52% in the prior year period.
Brian Blazer: The year over year decrease was primarily driven by higher Covid and flu sales in the prior year period as well as bonus accruals in Q4 of 2024 that did not occur in Q4 2023 as mentioned on our Q3 earnings call.
Brian Blazer: non-GAAP.
Brian Blazer: Operating expenses of $226 million, including SG&A, and R&D decreased by $16 million compared to the prior year period, which reflects the cost savings initiatives, partially offset by the previously mentioned Q4 'twenty four barnacles.
Brian Blazer: Adjusted EBITDA was $150 million compared to $195 million in the prior year period adjusted.
Brian Blazer: Adjusted EBITDA margin was 21%, which reflects the cost savings actions we have taken.
Brian Blazer: Partially offset by lower revenue from respiratory tests, which are high margin contributors.
Brian Blazer: Adjusted diluted earnings per share was <unk> 63, compared to adjusted diluted EPS of $1 17 in the prior year period. This year over year change was primarily due to higher respiratory revenue in the prior year period.
Brian Blazer: And higher interest expense in the current period, partially offset by our cost savings actions.
Brian Blazer: Our full year effective adjusted income tax rate for 2024 was 24%.
Brian Blazer: Alright, now turning to the balance sheet on slide six.
Brian Blazer: We finished the quarter with $98 million of cash and as of the end of Q4, we had $198 million in borrowings on our $800 million revolver, which is a decrease of $32 million compared to Q3.
Brian Blazer: Our capital allocation priority continues to be debt paydown.
Brian Blazer: Fourth quarter 2024, adjusted free cash flow was $68 million, which represents 45% of our adjusted EBITDA in Q4.
Brian Blazer: And our second half 2024, adjusted free cash flow was 59% of our second half adjusted EBITDA.
Brian Blazer: During the fourth quarter of 2024, our net debt to adjusted EBITDA ratio was four four times.
Brian Blazer: Our consolidated consolidated leverage ratio, including pro forma EBITDA adjustments was three five times as permitted and defined under our credit agreement.
Brian Blazer: Now I will provide our full year 2025 guidance, which is on slide seven of the earnings presentation.
Brian Blazer: We expect full year 2025.
<unk> reported revenue of between two six and $2 81 billion.
Brian Blazer: Note that we expect a negative impact of $55 million related to foreign currency exchange.
Brian Blazer: Which was estimated using currency rates as of January 31, 40.
Brian Blazer: Five and are subject to change as the year progresses.
Brian Blazer: We expect adjusted EBITDA between 575, and $615 million, which equates to 22% adjusted EBITDA margin. This isn't an expected 250 basis point improvement on a full year 2024.
Brian Blazer: We expect adjusted diluted EPS of between $2 77.
Brian Blazer: To $2 57.
Brian Blazer: Additionally, we do not see significant currency impact either adjusted EBITDA or adjusted EPS.
Brian Blazer: Now these expectations are based on a set of assumptions as follows we assume that.
Brian Blazer: For full year 2025 business unit growth profiles will be in line with the commentary we shared most recently in January at the Jpmorgan conference, including the labs business is expected to grow in the mid single digits.
Brian Blazer: Transfusion medicine, excluding U S donor screening is expected to grow in the low single digits.
Brian Blazer: Good morning, Taro growth, excluding Covid is assumed to grow in the mid single digits.
Brian Blazer: And molecular diagnostics is expected to continue to develop during 2025 with limited sales as a reminder, we are not assuming any sales from U S. Savannah respiratory products in 2025.
Brian Blazer: And lastly, we assume mid to high single digit growth in China.
Brian Blazer: Now for the respiratory revenue in 2025, we assume a $50 million to $55 million overall test market with greater than 50% of our fluid product revenue coming from our flu Covid combo test.
Brian Blazer: We are seeing strong recent.
Brian Blazer: Flu trends in Q1, which are factored into our full year guidance presented today.
Brian Blazer: In addition, we assumed full year 2025, COVID-19 revenue will be in the range of $110 million to $140 million.
Brian Blazer: Which excludes approximately $17 million in government contracts that we had in 2024 and do not expect to repeat as well as lower retail sales, which account for less than a half a percent of our total company revenue.
Brian Blazer: In addition, we assume typical quarterly seasonality with Q2 revenue.
Brian Blazer: Being our lowest quarter and Q4 being our highest quarter for revenue and margins.
Brian Blazer: We assume cost savings of approximately $50 million in the first half of 2025 as part of our previously implemented $100 million in annualized cost savings actions.
Brian Blazer: We expect incremental cost savings in 225 between 30% to $50 million primarily related to procurement.
Brian Blazer: The majority of 100 million in annualized savings that we implemented in 2024 was related to staffing reductions of 9% of the total workforce.
Future staffing reductions are expected to be a part of our ongoing efforts to appropriately sized our teams and we will continue to evaluate staffing reductions as part of our ongoing margin improvement efforts. However, we are now turning our attention to procurement and other categories of cost to improve margins.
Brian Blazer: We assume positive adjusted free cash flow for the full year 2025 to be approximately 25% to 30% of adjusted EBITDA.
Brian Blazer: We expect higher cash flow in the second half of 'twenty, five which is in line with seasonally higher revenue and our cost savings initiatives.
Brian Blazer: And we continue to target free cash flow conversion of 50% of adjusted EBITDA on the same timeline as our margin improvement.
Brian Blazer: We expect our net debt leverage ratio to be down close to a half a turn in the first half of 'twenty five versus year end 'twenty four.
Brian Blazer: We expected to land between three and a half before times by the end of 2025.
Brian Blazer: We assume full year interest expense to be down slightly from 2024 in the range of $1 $58 million to $162 million.
Brian Blazer: We had expected interest expense to be approximately $5 million to $7 million lower than this range.
Brian Blazer: Higher than expected revolver borrowings at the end of 'twenty four will carryover in 'twenty five the higher borrowings are primarily related to one time cash used for employee severance costs, our system conversions as well as a delay in proceeds related to the sale of a facility.
Brian Blazer: Our capital allocation priority continues to be paying down debt.
Brian Blazer: We are seeing capex of approximately $160 million to $170 million, excluding instruments under reagent rental agreements and integration related expenses and finally, we assume a full year effective tax rate of 24%.
Brian Blazer: To summarize we believe our second half <unk>.
Brian Blazer: 24 performance demonstrates solid progress towards our adjusted EBITDA margin expansion goal of greater than 25% over the next couple of years.
Brian Blazer: We remain focused on our execution and cost savings initiatives to achieve our margin expansion and.
Brian Blazer: Profitable growth goals.
Brian Blazer: With that I'll ask the operator to please open up the line for questions.
Speaker Change: Absolutely we will now begin the question and answer session. If he would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: If for any reason at all you would like to move that question. Please press star followed by two.
Speaker Change: Again to ask a question please press star one.
Speaker Change: As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Jack Meehan: The first question comes from Jack Meehan with neuron research you May proceed.
Jack Meehan: Yes.
Speaker Change: Thank you good afternoon.
Jack Meehan:
Jack Meehan: First question was on the guide and the.
Jack Meehan: The forecast for free cash flow conversion of 25% to 30% of adjusted EBITDA.
Speaker Change: It wasn't that long ago that you were looking at something closer to 50% of adjusted EBITDA conversion I know that was a different time different revenue base.
Speaker Change: But I was wondering if you could just talk about.
Speaker Change: Where you think that can go over time, and what a more normalized level might look like.
Speaker Change: Hey, Jack it's Joe Thanks for the question.
Speaker Change: Yes.
Speaker Change: The cash flow is certainly not where we want it to be we ended 2024 at 20%.
Speaker Change: Recurring free cash flow as a percentage of EBITDA and again as you just stated for 2025, we expect it to be between 25% to 30%. So it's an improvement over <unk> 24, but ultimately our goal is to be at at least 50% <unk>.
Speaker Change: Conversion of adjusted EBITDA to free cash flow conversion and I believe that getting to that target will be over the same timeline as our margin improvement goals. So I would say over the next couple of years.
Speaker Change: Okay.
Speaker Change: Then.
Speaker Change: I was hoping you could also just talk about the China region. So given some of the market uncertainty the fourth quarter actually looks like it was pretty good for you guys in the region.
Speaker Change: So this mid to high single digit target you have for 'twenty train five can you just give us an update on.
Speaker Change: Your view on pricing.
Speaker Change: Exposure to any DVT programs that are taking place.
Brian Blazer: Yes, Jack this is Brian.
Jack Meehan: China continues to be an attractive market for us, but it is a complex market as you know.
Brian Blazer: In the near term, we think that.
Brian Blazer: The risk of additional Pvp pressure has largely passed us by at least for for 2025.
We have seen some smaller impacts to cardiac reimbursement there.
Brian Blazer: Uh huh.
Brian Blazer: Yes, mainly reimbursement versus broad Pvp actions.
Brian Blazer:
Brian Blazer: I don't.
Brian Blazer: Expect any more significant.
Brian Blazer: Actions on either BBB or reimbursement, but I would say that.
Brian Blazer: Competitive intensity there just given what has happened has increased and as a result of that we're kind of tempering our view.
Brian Blazer: You from kind of high single digit to mid single digit moving forward given given that the nature of the environmental dynamic there.
Brian Blazer: Okay that makes sense.
Brian Blazer: If I could squeeze in one more just clarification I think there was a new disclosure in the slide for the cardiac revenue.
Brian Blazer: I just wanted to clarify does that include both.
Brian Blazer: Triage and BNP and kind of a decline you had in the quarter was entirely on the triage side I assume.
Brian Blazer: Yes, that's right, yes, we referenced that that.
Brian Blazer: That growth or decline in the in the prepared remarks, Jack that we had to put a slide in the Powerpoint deck that goes with the earnings call and yes, when we talked about the cardiac it's combined triage.
Brian Blazer: Revenue as well as the BNP revenue and.
Brian Blazer: And really all of the full year variances in isn't the triage business. The BNP business is flat $75 billion every year.
Brian Blazer: Okay. Thank you guys.
Speaker Change: Thank you. The next question comes from Patrick Donnelly with Citi. You May proceed.
Hey, guys. Thanks for taking my questions Joe maybe one for you on the cost side. It sounds like maybe some of the cost savings from it a little earlier than expected. This year as well can you just talk about the levers you guys are pointing to preserve and can drive EBITDA higher.
Speaker Change: Q1, because we work our way through this year.
Speaker Change: The ones that remain out there that could drive you to buy back to where you guys want it on the margin side.
Patrick: Yes, So hey, Patrick.
Yes.
Speaker Change: The margins.
Speaker Change: Overall, EBITDA margins are going up 250 basis points from 24% to 25%.
Speaker Change: A high level I would say that the.
Speaker Change: The pieces are.
Speaker Change: Roughly $50 million 100, Murphy will be actions last year amid through 'twenty 'twenty, four which will hit we will benefit in the first half of 2000.
Speaker Change: <unk> 45.
Speaker Change: I would say that that 50 million is going to be split pretty evenly between.
Speaker Change: Opex in GP.
Speaker Change: And the second tranche that I'd mentioned is the $30 million to $50 million of incremental savings for 25 that we mentioned on this call today, which we defined as mostly procurement related.
Speaker Change: And most of those savings will occur within the Opex line, because a large majority of those savings procurement savings are going to be indirect procurement savings and the direct procurement savings that will benefit GP will take a little bit longer to realize that will probably start to see more of those who move into 2026.
Speaker Change: So those are the two main good guys benefiting margins and then of course, you have a headwind of normal merit increase for employees and 1% to 2% inflation on materials that will offset those are the really the big moving pieces do you think about how we go from 24% 25%.
Speaker Change: 250 basis point improvement on EBITDA margins.
Speaker Change: Okay. That's helpful. And then maybe just the range on respiratory can you talk about.
Speaker Change: The different drivers there are we in the endemic because it's the right number to think about going forward.
Speaker Change: Inside of that just the ban on it sounds like respiratory trials for now not much this year.
Speaker Change: Yes, the kind of contribution that you walk our way forward. Thank you guys.
Speaker Change: Yes, yes.
Speaker Change: Yes, I can take that.
Speaker Change: Yes, so maybe take the COVID-19 the Covid revenue piece first yes, we do.
Speaker Change: Do believe that when you look at the.
Speaker Change: The cobot revenue for us it is going down $24 25, but really all of that drop from $20 to 25 in the Covid revenue is the government contract that won't repeat and we saw in 'twenty four and then the other pieces retail revenue, which is a really small piece of our business, it's less than a half a percent of our total company revenue.
Speaker Change: Quite honestly, it's just not really a big focus of ours right now.
Speaker Change: Our fashionable COVID-19 revenue is relatively flat in our guidance, 20% to 25, and we believe that's really at what I would describe it.
Speaker Change: Unlike level.
Speaker Change: As far as the rest of the respiratory.
Speaker Change: Revenue is growing.
Speaker Change: In device is growing growing low single digits for Tom when you think about flu RSV and strep.
Speaker Change: Thank you.
Bill Bonello: The following question comes from Bill Bonello with Craig Hallum You May proceed.
Bill Bonello: Hey, Thanks, guys I just wanted to follow up a little bit on the first question that the.
Bill Bonello: That Patrick asked maybe maybe slightly different.
Bill Bonello: <unk>.
The margin expansion target is now.
Speaker Change: Now a lot better than what you had said not long ago and it would seem like.
Bill Bonello: You had anticipated.
Bill Bonello: Additional cost savings you've been talking about that and.
Speaker Change: Procurement as an opportunity so I'm just curious.
Bill Bonello: Two things sort of.
Bill Bonello: Right.
Bill Bonello: What's what's going better what has you more encouraged than when you originally talked about maybe 150 to 200 basis points.
Bill Bonello: And then secondly does it does it change your thinking about the <unk>.
Bill Bonello: Total opportunity at all.
Brian Blazer: Hey, Bill this is Brian.
Bill Bonello: I think.
Bill Bonello: In terms of what's gone better.
Bill Bonello: We can point to a lot of the accomplishments as the organization has made this last year first and foremost.
The staffing reductions that we've made.
Bill Bonello: We're substantially where 90% of our workforce and probably monetize data closer to 12% to 13%.
Bill Bonello: Cost reduction there.
Bill Bonello: But we very quickly jumped on the procurement piece.
Bill Bonello: Piece of that and I think.
Bill Bonello: As we have gotten significant traction there that's enabling us to now talk about this additional $30 million to $50 million of.
Bill Bonello: Incremental savings so.
Bill Bonello: Okay.
Bill Bonello: I still see.
Bill Bonello: I wouldn't want to get too far out over our skis, there I still see our.
Bill Bonello: Pathway here to the 25% EBITDA range.
Bill Bonello: And higher over.
Bill Bonello: Sort of 25% to 30% range over the next two to three years so.
Bill Bonello: That's our that's our target.
Bill Bonello: We keep trying to push that as hard as we can.
Bill Bonello: Okay.
Bill Bonello:
Bill Bonello: That's helpful.
Bill Bonello: You talked about the procurement being.
Bill Bonello: You know more and more on the indirect cost side.
Bill Bonello: This year is there any color you can give on that at all like what types of things are you able to achieve there.
Speaker Change: Yes, it's a lot of.
Speaker Change: Cost it really cuts across the entire P&L, it's everything from.
Speaker Change: Supply chain and logistics cost of packaging too.
Speaker Change: Travel and entertainment costs really just cuts across the whole P&L, it's a lot of our service.
Speaker Change: Costs in IC in quality et cetera, and even some R&D expenditures. So it really is.
Speaker Change: A broad based.
Speaker Change: Approach that we've taken to the indirect side and the reason were those those are just a little bit more actionable in the short term than the direct procurement, which are generally product related cost that require us to change.
Speaker Change: In some cases, the design or make regulatory submissions.
Speaker Change: And so they just take a little longer for us to implement.
Speaker Change: Yeah. Okay. That's helpful. And then if I can just one last one.
Thanks for the color on the year over year decline in the adjusted gross margin can you just remind us.
Speaker Change: The reason for the sequential decline.
Bill Bonello: From Q3 to Q4, and 2024 Youre talking about Bill Yeah Yep Yep.
Speaker Change: Yes, it's going to be it's going to be mix product mix, it's the product mix.
Speaker Change: Okay.
Speaker Change: So again more respiratory in Q4 and isn't that higher margin.
No it's actually less.
Speaker Change: Which is what we had talked about on the Q3 call.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: I ask on a follow up call. So I don't look any more stupid. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from the Lumi with UBS you May proceed.
Speaker Change: Alright, thank you.
Speaker Change: So two questions. So first one on the margin I just wanted to take that or updated thoughts on the tariffs.
Speaker Change: Our assumption right now including like any.
Speaker Change: The negative impact from the tariffs and then maybe just like any medications and you can talk about.
Yes.
Speaker Change: As the tariffs subject seems to be ever changing here over the last couple of weeks and we're monitoring it very carefully.
Speaker Change: We were happy to see that.
Mexico, and Canada are moving.
Speaker Change: <unk> towards Reza.
Speaker Change: Resolution two.
Speaker Change: What was proposed by the administration.
Speaker Change: And as you probably know our industry continues to lobby for an exemption there because.
Speaker Change: The bulk of medical devices and diagnostic products are manufactured in the United States.
Speaker Change: Do have some exposure there as you know we've got some instruments.
Speaker Change: Are sourced from Mexico.
Speaker Change: But given the changing nature of morphing of the subject right now it's really just too early for us to provide any real view of potential impact at this point. So we're just going to monitor it very closely and once we understand what the real impact is we will be able to provide.
Speaker Change: Additional guidance on that.
Speaker Change: Got it.
Speaker Change: So wanted to circle back on one of your comments on the China part. So you saw less of that.
Speaker Change: Personally thanking Pasha largely passed for 2025.
Speaker Change: And you don't really expect any licenses.
Speaker Change: So I guess can you just provide a little bit more detail includes Hawaii, what have you seen on the Golan and why you believe that most of the impact should be should we call at any point in time.
Speaker Change: Yes, most of the BBT actions up to this point have been focused on liquid.
Speaker Change: Clinical chemistry products and immunoassay products.
Speaker Change: Our.
Speaker Change: Our price slide technology has been exempt from those actions up to this point and unlike most of our other competitors. There are mix of clinical chemistry versus immunoassay as is kind of reversed we have we have less immunoassay exposure in the China market have very little.
Speaker Change: Immunoassay placement in the China market and most of our volume there is clinical chemistry. So based on the timing of how these actions rollout. We believe at this point. They are really we don't expect any sort of meaningful pvp impact.
Speaker Change: Or that would affect our products in 2025.
Speaker Change: Okay got it if I can squeeze one more.
Speaker Change: I wanted to think about more of a long term margin expansion with Tobey. So when we're talking about like you said two basis point in 2005 and talk about where you can think about in terms of pipeline 2000 sites of small given that you do have.
Speaker Change: Procurement opportunities.
And then you also have the thought that Peter asked a follow up I.
Speaker Change: Just wanted to think about how you are it sounds like a little bit longer term 2020 sites.
Joe Pesci: Yeah, Hey, Louis Joe.
Joe Pesci: We've been I think pretty consistent here.
Joe Pesci: Since Brian joined the company back last May and that we are targeting.
Joe Pesci: Adjusted EBITDA margins greater than 25% and then it would be.
Joe Pesci: Two to three year journey from when he started with the company and the reason that it takes that long because it may be surprising to some of those like why would it take so long is because we can do the head count actions fairly quickly, which we did we can get to indirect procurement savings, which we will get through this year is the direct procurement.
Joe Pesci: Savings that take a little bit longer because sometimes you are looking at bringing in recertifying, new suppliers or actually swapping in and out new materials on existing products and trying to avoid.
Joe Pesci: <unk>, new five 10-K filings with the FDA and so it does take a little time. So I think we're making good progress from 'twenty to 'twenty five we will make even more progress as we move into 2026 as we.
Joe Pesci: With the indirect procurement savings as well as starting to see more of a direct procurement savings come through on the gross margin line and then the final thing I would say is that we are going to get a bit of a tailwind as we fully exit from the donor screening business. The U S. Dollar tree business in 2026, we've sized that at roughly 50 to one.
Joe Pesci: 100 basis points and then the final thing I mentioned is the <unk>.
Joe Pesci: Event at launch that will provide some tailwind to margins as well as we start to move from dilutive impacts of the project to more accretive impacts of a molecular product margin.
Joe Pesci: So all those things combined.
Joe Pesci: We will get you to that.
Joe Pesci: Again that greater than 20, 25%.
Joe Pesci: The EBITDA margin. So we'll make progress this year, we'll make more progress next year and I would think by time, we get to the end of 'twenty six first half of 2007, we should be where we need to be with margins.
Joe Pesci: Thank you.
Speaker Change: As a quick reminder, if you'd like to ask a question. Please press star one. The next question comes from Andrew Cooper with Raymond James You May proceed.
Speaker Change: Okay. Many thanks for the question a lot already asked but maybe just one.
Speaker Change: Just to make sure on the 30% to $50 million of savings. This year, that's an in year number and I think you said second half weighted towards it right to think about.
Speaker Change: We move into 2006, there is some flow through there on top of like you called out the incremental direct procurement work and so forth.
Speaker Change: So we should have again kind of another.
Speaker Change: Bogs fully normalized margin expansion year in 2006 is that the right way to think about it.
Speaker Change: Yeah, Hey, Andrew Yes, the 30% to 50 that we talked about is incremental will be in year.
Speaker Change: This year impacting you or Brian it'll be mostly second half impact and it'll be mostly as I said earlier, we mostly in the in the Opex area. There's a lot of that is focus on the chart.
Speaker Change: And then for Sean.
Speaker Change: We have many direct procurement projects and initiatives in flight.
Speaker Change: Which will start to benefit more in 2026.
Speaker Change: Obviously as we move through.
Speaker Change: Through 2025, we will talk a little more about what those impacts might look like in 'twenty six.
Speaker Change: Okay helpful and then I'm going to sneak two together here, but.
Speaker Change: Maybe just on savanna and the timing I think you said you started the trial last month.
Speaker Change: You have a follow up kind of 10 months from when you first with through the submission last year.
Speaker Change: It's a little bit later than we would have thought given.
Speaker Change: Typical respiratory season of what we've seen of late when it kicked off a little earlier Luckily there is kind of a big February surge. It appears but just how do we think about the timing there and potentially being ready for this next flu season. If all goes right I know you don't have anything baked in.
Speaker Change: Just thought I would love your thoughts there on what that could look like if it does and then secondly, just very quickly can you give us a little bit of color for the donor screening revenues assumed in the guidance.
Speaker Change: Yes sure.
Speaker Change: On Savannah, and the start of the trial.
Speaker Change: We did started in January.
Speaker Change: As you recall the <unk>.
Speaker Change: Flu season was.
Speaker Change: Ramping up a little later in December of this year then.
Speaker Change: We had expected.
Speaker Change: We tried to time the start of the trial with.
Speaker Change: The increase towards the peaks, so that we'd get the kinds of samples that we need to have a successful trial.
Speaker Change: This season.
Speaker Change: We'll go on here for another couple of months, we'll be collecting samples running our data and then we would expect we would go into a period, where we analyze the data and make a submission with the idea of.
Speaker Change: Moving through our process for an approval that would put us into the market.
Later this year. So we're really there's really no change in.
Speaker Change: The timing of our expected expectations for savanna.
Speaker Change: And theres not much more that we can really say about it until we're well through our trial and into the regulatory process and then.
Speaker Change: And to the donor screening question you had.
Speaker Change: Really no change from what we said on the Q3 earnings call.
Speaker Change: We expect that the donor screening business this year will be $40 million to $50 million.
Speaker Change: In the U S or in screening will be $40 million to $50 million and that's down quite a bit from 2024, where we finished at roughly $115 million. So it's quite a drag but.
Speaker Change: We will get through most of the wind down this year I think there'll be very little residual revenue that will fall into 2026, you should get through most of this year.
Speaker Change: Great I'll stop there. Thank you.
Speaker Change: Thank you. The next question comes from Tito Petersen with Jefferies. You May proceed.
Speaker Change: Yes, Hi, this is Jack on for Tycho. Thanks for taking my question.
Speaker Change: I guess first thinking about the longer term margin target.
Speaker Change: How should we think about the trade off between building your longer term growth engine funding innovation beyond Savannah.
Speaker Change: Sort of right sizing the cost structure.
Speaker Change: What gives you confidence in the ability to get back to consistent mid single digit growth. While also driving this new operating model.
Speaker Change: Yeah, well thank you for the question.
Speaker Change: What I would say is.
Speaker Change: There is a direct correlation between the work that we're doing in margin expansion and our ability to invest in the future of the business with new product development both in terms of.
<unk> content on our platforms and new systems. So we view them as I view them as connected.
Speaker Change: And our my initial focus was really around getting the organization focused on the things we had to do from a cost improvement standpoint getting Savannah.
Speaker Change: Tracks and then we had a number of other important menu expansion and lifecycle management projects. We're very quickly here I think with the traction that we're getting in our procurement initiatives turning the corner there too.
Speaker Change: Looking at what we can do now to further drive the robustness of our product portfolio.
Speaker Change: We're still in the early stages, there, but we're in the process of defining innovation.
Speaker Change: Roadmaps for each of our businesses.
Speaker Change: That involves assays and new systems, and so we'll share more about that.
Speaker Change: In future calls as we develop our plans I would also in terms of the underlying business model here I would just point to the fact that this is a very solid stable mid single digit growth business, that's really supported by the underlying business dynamics.
Speaker Change: Long customer relationships, a positive win loss ratio high renewal rates.
Speaker Change: And those dynamics.
Speaker Change: Really support kind of this underlying growth and really anything we do with systems. The new assays are things that we can layer on top of that.
Speaker Change: Got it appreciate the color.
Speaker Change: Second real quick.
Speaker Change: Got it to mid single digits and perhaps for the year are there any swing factors in play that could drive that to either lower mid single digit higher end.
Speaker Change: For instance, China.
Speaker Change: Yeah well.
China is a dynamic market.
Speaker Change: Things.
Speaker Change: Things change there.
Speaker Change: <unk> I would say right now I don't see any anything again on the Pvp front or the reimbursement front that would have a major impact there and again I kind of point to the stable recurring revenue dynamic of our business model that wouldn't point to any major swings in our labs business, Yes, I think.
Speaker Change: I would only add that.
Speaker Change: As a tailwind menu was always going to drive incremental growth as we continue <unk>.
Speaker Change: We prioritize the R&D group on menu expansion.
Speaker Change: To think that.
Speaker Change: There would be potential upside going forward.
Speaker Change: I wouldn't say this year.
Speaker Change: What we put out was the guy we're comfortable with moving forward as you expand the menu, especially on the IAA side that would drive additional growth.
Speaker Change: Thank you.
Speaker Change: Next question comes from Casey Woodring with Jpmorgan you May proceed.
Casey Woodring: Great. Thank you for taking my question I guess my first one can you give us a sense on what to expect for <unk> across your different business lines, and specifically on respiratory and flu <unk>.
Speaker Change: What you have baked in here or there.
Speaker Change: Iowa has been picking up as you noted so curious if respiratory and <unk> could come.
Speaker Change: Come in above where it was in <unk>.
Speaker Change: The Tories are lower or if some of that was pull forward in the fall and then you know I guess the respiratory is expected to come in stronger here in <unk>.
Speaker Change: How are you thinking about the rest of the year.
Speaker Change: Just given the unknowns around the 'twenty five 'twenty six respiratory season.
Speaker Change: Just maybe walk us through <unk> versus the rest of the year and respiratory.
Brian Blazer: Yeah, Hi, Casey this is Brian.
Speaker Change: We're seeing the same thing that you are seeing which is.
Speaker Change: The ili really spiking up here and also the positivity rate is also.
Speaker Change: Almost double what it was last year and I think it's higher or as high as the 17 18 flu season, which was a pretty robust season for us.
Speaker Change: We got off to a late start.
Speaker Change: But now we've seen this peak and.
The question is how quickly the peak will come down.
Speaker Change:
Speaker Change: I think just given how high it is theres a good likelihood that.
Speaker Change: The tail from the coming down from the peak will will stretch out a little a little bit further and I think that's supported to a certain extent by what we saw in the southern hemisphere.
Speaker Change: This last summer so we're watching it.
Speaker Change: And.
Speaker Change: You just don't know what the duration of the season is going to be so we assumed for our full year guidance.
Speaker Change: Average flu season.
Speaker Change: With our test side of the $50 to 55 million tests in 2025, which is kind of the average for us for the last three years.
Speaker Change: So that's what we've got baked into our full year guide.
Speaker Change: Thank you.
The following comes from Andrew Blackman with William Blair You May proceed.
Speaker Change: Hey, guys. Good afternoon, thanks for taking the questions.
Speaker Change: A lot's been asked Brian maybe one for you Big picture I think you've been in the seat now eight months or so so I think you've had some time to do sort of a full review of the business.
Speaker Change: Any sort of changes in how youre sort of thinking about this collection of assets on the whole this being the right mix or any sort of changes in how you might be thinking about acquisitions divestitures and things like that.
Speaker Change: Well.
Andrew Cooper: Thanks, Andrew are our focus really is on.
Andrew Cooper: The improving the operational performance of the business I like every one of these businesses.
Andrew Cooper: I think they fit together.
Andrew Cooper: Well again.
Andrew Cooper: Giving us the capability to.
Andrew Cooper: We work across the entire patient care value stream and being both centralized and decentralized testing I think each of the business has played a different role in our portfolio, but largely speaking our focus is on making each of them were more profitable and each of them.
Andrew Cooper: ROE, but more so so in the short term.
Andrew Cooper: I don't have anything.
Andrew Cooper: Really to say on business development opportunities, we're really just focused on improving the operation of the business at this point.
Andrew Cooper: Great I'll, just stick to that one thanks guys.
Andrew Cooper: Yeah.
Speaker Change: Thank you.
Your question comes from Carter Mack Nomura with RBC capital markets you May proceed.
Speaker Change: Hello. This is Jose Ricardo for comment I, just wanted to go back to the tariff conversation. Thank you, perhaps when we next question.
Speaker Change: Things have changed quickly since you spoke in the administration has different approaches to tear ups, depending upon the country and you talked about some of the instruments that are sourced with parts from Mexico have you also looked into the exposure on the secondary level suppliers to provide you with procurement process materials. You also incorporate into your <unk>.
Speaker Change: Fractured.
Speaker Change: Instruments.
Speaker Change: Yeah, Yeah. That's all that's all factored into the analysis that Brian referenced earlier. It is all factored in there, yes, and again, we don't see a lot of exposure.
Speaker Change: For China or Canada.
Speaker Change: Is any one country will more exposure would be ability, Mexico, including all of those layers you mentioned.
Speaker Change: Perfect. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Thank you.
Speaker Change: No other questions in queue. At this time. This concludes today's conference call. Thank you for your participation you may now disconnect your lines.