NASDAQ:QDEL QuidelOrtho Q1 2024 Earnings Report $25.94 -1.75 (-6.32%) Closing price 04:00 PM EasternExtended Trading$25.92 -0.02 (-0.06%) As of 07:00 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast QuidelOrtho EPS ResultsActual EPS$0.36Consensus EPS $0.42Beat/MissMissed by -$0.06One Year Ago EPSN/AQuidelOrtho Revenue ResultsActual Revenue$711.00 millionExpected Revenue$697.33 millionBeat/MissBeat by +$13.67 millionYoY Revenue GrowthN/AQuidelOrtho Announcement DetailsQuarterQ1 2024Date5/8/2024TimeN/AConference Call DateWednesday, May 8, 2024Conference Call Time5:00PM ETUpcoming EarningsQuidelOrtho's Q1 2025 earnings is scheduled for Wednesday, May 7, 2025, with a conference call scheduled at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by QuidelOrtho Q1 2024 Earnings Call TranscriptProvided by QuartrMay 8, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Welcome to the Speaker 100:00:00Quidel Orfo First Quarter 20 24 Financial Results Conference Call and Webcast. At this time, all participants are in a listen only mode. For those of you participating on the conference call, there will be an opportunity for questions at the end of today's prepared remarks. Please note 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. Speaker 100:00:21I would now like to turn the call over to Juliet Cunningham, Vice President of Investor Relations. Speaker 200:00:28Thank you. Good evening, everyone, and thanks for joining the Quidel Ortho's Q1 financial results conference call. With me today are Brian Blazer, our newly appointed President and Chief Executive Officer Mike Iskra, EVP and Chief Commercial Officer and Joe Budski, Chief Financial Officer. Rob Budjarski, our EVP and Chief Operating Officer will also join us for the Q and A session that follows our prepared remarks. This conference call is being simultaneously webcast on the Investor Relations page of our website. Speaker 200:01:06To aid in the discussion, we posted a supplemental presentation on the Investor Relations page that will be referenced throughout the call. This conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not strictly historical, including the company's expectations, plans, future performance and prospects are forward looking statements that are subject to certain risks, uncertainties, assumptions and other factors. Actual results may vary materially from those expressed or implied in these forward looking statements. Information about potential factors that could affect our actual results is available in our annual report on Form 10 ks for the 2023 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Speaker 200:02:08Forward looking statements are made as of today, May 8, 2024, and we assume no obligation to update any forward looking statements, except as required by law. In addition, today's call includes discussions of certain non GAAP financial measures. Tables reconciling these non GAAP measures to their most directly comparable GAAP measures are available in our earnings release and the supplemental presentation, which are on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year over year revenue growth rates, including revenue growth ranges given on today's call or given on a comparable constant currency basis. And now I'd like to introduce Mike Iskraff. Speaker 300:03:01Thank you, Juliet. In a few minutes, I'll introduce our new CEO, Brian Blazer. And then Joe will go into our quarterly financials in detail. First, I'd like to review our Q1 business performance and discuss the recent actions we're taking, which are designed to improve our cost structure and deliver increased shareholder value. Beginning with our Q1 2024 performance, excluding COVID-nineteen revenue, total revenue grew by 6% in constant currency with solid growth across regions. Speaker 300:03:34Excluding COVID-nineteen revenue, we saw particularly good growth in EMEA and China during the Q1. Our labs business, which was about 50% of our Q1 revenue performed as expected with approximately 4% growth, excluding the one time third party collaboration settlement in the prior year period. Transfusion medicine was 23% of Q1 revenue and grew by approximately 4%, driven by immunoheumatology reagent group across regions in the OrthoVision SWIP and OrthoVision Max SWIP instrument placements. Within transfusion medicine, our efforts to wind down the U. S. Speaker 300:04:17Donor screening business continues plan. Point of care represented 26% of Q1 revenue. Excluding COVID-nineteen revenue, our Point of Care business grew approximately 38% year over year. Growth was driven by strong Sofia sales in the Perkoa market, including our combo test, flu, strep and RSV tests. And lastly, molecular diagnostics was 1% in Q1 revenue. Speaker 300:04:45Excluding COVID-nineteen revenue, molecular grew approximately 15% albeit from a low revenue base. On Savanna, we continue to work on producing a highly competitive respiratory panel for the U. S. Market as well as many expansion with the STI panel and additional assays over time. We plan to provide updates as we achieve milestones and get closer to our target for full commercial U. Speaker 300:05:10S. Launch. Since our earnings call in February, the company has undergone a tremendous amount of change. While managing change can be challenging, we see this as an opportunity to build on our strengths and address the areas we need to improve. Over the past 3 months, we have implemented cost reduction initiatives designed to deliver better results in both the near and long term. Speaker 300:05:35Our focus areas include margin restoration, which includes headcount reductions expected to deliver approximately $100,000,000 in annualized savings. Beyond those initiatives, we are actively looking for new opportunities to improve business efficiencies and realize greater savings as part of our continuous improvement culture. At the same time, while acting in our prior role as Interim Office of the CEO, while Joe and I prioritize maintaining business continuity and accelerating our margin restoration initiatives. To that end, I believe our Q1 performance speaks to our team's ability to navigate a transitional period while keeping our business momentum intact and forging ahead with purpose. We welcome Brian as our new President and CEO. Speaker 300:06:22Brian brings over 25 years of senior leadership experience in the diagnostic industry, including 7 years of full responsibility for Abbott's global diagnostic business. His track record of strengthening operations and driving revenue growth to dramatically improve profitability makes him an ideal leader to guide Quidel Ortho through its next phase of growth. On behalf of our global leadership team, I would like to thank our employees of Fidel Ortho for continuing to serve our customers and deliver on our 2024 operating plan. We appreciate your dedication and ability to remain focused during transitional times. We look forward to a smooth transition with Brian now at the helm to pave the way for a successful future. Speaker 300:07:08Now I'd like to turn the call over to Brian. Speaker 400:07:11Thanks, Mike. I'm very pleased to join the call today. And first, let me say that it is a true honor to join this exceptional organization. I am thrilled to have the opportunity to work with this leadership team and our talented colleagues across the company. Speaker 500:07:28And today, I'd like to Speaker 400:07:29share a few of the reasons I was compelled by this opportunity at this pivotal point in the company's history. First, I have always viewed Quidel and Ortho separately as highly innovative companies and formidable competitors. Combined now as Flight El Ortho, this business has one of the broadest product portfolios spanning the continuum of care from reference labs to hospitals, clinics and urgent care to retail and home testing. Whitel Ortho touches every stage of the patient care spectrum, including prevention, diagnosis, patient care and monitoring. Speaker 500:08:07This business has all of Speaker 400:08:09the underlying capabilities required to drive exceptional growth and profitability in a large and expanding market. There is work to do and I'm excited about steering the company so it can achieve its full potential. In the short term, I will be focused on our highest priorities, which are unwavering attention to customer satisfaction and patient care, improving profitability and cash flow while reducing our debt level and positioning ourselves to compete effectively in the highly competitive diagnostics market. I look forward to providing more details about our strategic direction as we move forward. I'm excited about the opportunity to engage with many of you in the coming months and answer your questions when I host our Q2 earnings call in August. Speaker 500:08:58Joe, I'll now turn it over to you. Thanks, Brian. I would also like to welcome you to Cornell Ortho and I look forward to the next chapter in our company's growth story. Let's begin with details of our Q1 results on Slide 4 of the earnings presentation. As a reminder, unless stated otherwise, all year over year revenue growth rates on today's call are provided on a comparable constant currency basis. Speaker 500:09:24Our Q1 Q1 of 2024 revenue was $711,000,000 on a reported basis compared to $846,000,000 in the prior year period. The year over year revenue decrease is primarily COVID-nineteen related. Therefore, excluding COVID-nineteen revenue, our total revenue grew by 6% in constant currency with solid growth across all regions. And if you also exclude the one time $21,000,000 third party collaboration settlement from Q1 of last year, total revenue growth was 10% in constant currency. From a regional perspective in Q1, again excluding COVID-nineteen revenue and in constant currency, we achieved revenue growth of 5% in North America. Speaker 500:10:19EMEA grew 6%, China growth of 12% and the rest of world growth of 6%, which includes Japan, Asia Pacific and Latin America. Q1 2024 non respiratory revenue was flat compared to the prior year period at 574,000,000 dollars Excluding the one time third party collaboration settlement in the prior year period related to our Labs business, non respiratory revenue grew 4%. Q1 of 2024 respiratory revenue was $137,000,000 which included approximately $50,000,000 in COVID-nineteen revenue. Respiratory revenue decreased 48% year over year, primarily due to lower COVID-nineteen revenue. Excluding the government only COVID-nineteen orders, respiratory revenue grew 6%. Speaker 500:11:17And as Mike mentioned, our Q1 respiratory growth was driven by strong Sofia sales in the professional setting. We leveraged our large global Sofia installed base with 70% of Sofia customers purchasing multiple tests. This included our combo test, which accounted for greater than 60% of our flu testing revenue in Q1 and is consistent with the past several quarters, demonstrating the durability of this product. Moving down the P and L, non GAAP total operating expenses were essentially flat compared to the prior year period. Slide 5 shows that Q1 adjusted gross profit margin was 47.5% versus 53.8% in the prior year period. Speaker 500:12:09The change was primarily related to lower COVID-nineteen product sales, which are high margin contributors as well as one time items that made for an available year over year comparison. In summary, gross margin headwinds were comprised of 3 one time items, 630 basis points related to the large government COVID-nineteen order in Q1 of last year, 140 basis points from the one time third party collaboration settlement in Q1 of last year, and finally 2 30 basis points tied to an inventory reserve related to respiratory product exploration in Q1 of 'twenty four. Those three items were partially offset by underlying base business performance and cost saving actions within manufacturing and supply chain, which were approximately 400 basis points of benefit to the margin. Adjusted EBITDA was $132,000,000 compared to $245,000,000 in the prior year period. Adjusted EBITDA margin was 19% compared to 29% in the prior year period. Speaker 500:13:20Adjusted diluted EPS was $0.44 compared to $1.80 in the prior year period. The year over year change in adjusted EBITDA and adjusted diluted EPS was primarily due to the lower COVID-nineteen revenue from the government work. Our first quarter effective tax rate was 23.5%, which was consistent with the prior year and in line with our full year expectations. In Q1, twenty twenty four, we recorded a non cash goodwill impairment charge of $1,700,000 for the North America reporting unit due to the decrease in the estimated fair value, which was consistent with the decline in the company's market capitalization during the quarter. Turning now to the balance sheet on Slide 6 of the presentation. Speaker 500:14:13We finished the quarter with $79,000,000 of cash $40,000,000 drawn on the revolver. Note that during the quarter, we liquidated investments to avoid additional revolver borrowings. Recurring free cash flow of negative $13,000,000 was driven by working capital needs. We do expect cash flow to improve in the second half of twenty twenty four as margin restoration has had to take effect, along with seasonally higher revenue expected in Q4. We continue to focus on executing our cost savings and margin restoration initiatives, which are designed to deliver improved performance and sustainable long term growth. Speaker 500:14:57We expect the benefit from these initiatives to be realized in the second half of twenty twenty four and in the first half of twenty twenty five, with minimal impact in Q2 of this year. Taking all this perspective, we intend to maintain operating flexibility as we implement these initiatives. In light of this and in an effort to be conservative, we did amend our credit agreement in April to increase the maximum consolidated leverage ratios beginning in Q3 this year through the loan maturity in May of 2027. Importantly, we completed this amendment at a cost of $12,500,000,000 of total loan commitment and the loan pricing is unchanged. During the Q1 of 2024, our consolidated leverage ratio was 3 times including pro form a EBITDA adjustments compared to the 4x maximum specified in the amended credit agreement for the first half of twenty twenty four. Speaker 500:15:58Based on current expectations, we expect our consolidated leverage ratio to be approximately 3.5 times by the end of this year, including performing EBITDA adjustments compared to 4.25 maximum specified in the amended credit agreement. And lastly, we want to provide some relevant updates based on our current visibility. Our prior expectation for COVID-nineteen revenue was approximately $225,000,000 based on our current view, which is subject to change based on COVID-nineteen developments, we are now expecting approximately $150,000,000 in COVID-nineteen revenue for the full year 2024. 2nd, we also expect that Savanna revenue will be immaterial in 2024 with no expected U. S. Speaker 500:16:47Respiratory revenue contribution from Savanna in the 2024, 2025 respiratory season. And as a reminder, the COVID-nineteen public health emergency in the U. S. Ended in May of 2023. However, we continue to see significant quick view COVID-nineteen test sales in the retail setting in the Q2 of 2023. Speaker 500:17:10Hence, we expect year over year COVID-nineteen revenue comparisons to again be challenging in Q2 of this year. And as a result of these changes to the COVID-nineteen and Savanna revenue, our current expectations are to be at or slightly below the low end of our previously communicated 24 guidance ranges for revenue, adjusted EBITDA and adjusted EPS. With our new President and CEO coming on board this week, we've decided to suspend guidance to give Brian an opportunity to assess the business and evaluate our plans for the rest of 2024. We do intend to resume providing guidance later in the year when we are able to share our plans. I would now like to ask the operator to please open the call Speaker 100:18:31The first question is from the line of Jack Meehan with Nephron Research. Your line is now open. Speaker 600:18:38Thank you. Good afternoon. And Brian, welcome aboard. Speaker 400:18:44Thank you. Speaker 600:18:48Just wanted to get your thoughts maybe to start on 2 topics. First, as you were taking the CEO, as you were diligencing taking the CEO role at Fido Ortho, Speaker 500:18:59can you talk about Speaker 600:19:00the work you did on Savanna and what your view is on just level of confidence to bring competitive platform to market there. That's number 1. Number 2 is your view on what the right margin profile kind of once you go through this transition period, like aspirationally, where do you want to get this business to? Speaker 500:19:26Well, yes, Speaker 400:19:27let me answer generally kind of why I took the job and some first impressions on the business. And I've been here 3 days and the amount of information that I had available to me as I did my due diligence was somewhat limited. But let me say first that I've been around the industry for a long time. I'm still in the very early days of learning the details of the business, but I am very familiar with the market landscape, the business model or business models here in this case. And I've had the opportunity to work with some really talented teams in this space to drive a lot of change and have been able to do things and work on projects to expand into new markets, a lot of product development and launching complex new systems, manufacturing and supply chain optimization, optimizing commercial models and that sort of thing. Speaker 400:20:37And in my assessment of the business prior to taking on the role, and now as I said, now having been here a few days, I like what I see here. I think there are clear opportunities to improve the performance of the organization in all of the areas that I just mentioned where I have experience. Many of the opportunities that I mentioned here have already been identified by the interim office of the CEO and are in light of moving along. I see the opportunity to do some more, particularly in the areas of product development and productivity, commercial excellence and just productivity improvement in general. I think the leadership team sees those opportunities as well. Speaker 400:21:27And I'm excited to work with the team here on these things to improve our performance. So I look at this as a great opportunity. To your second question about aspirationally, I don't want to get too far over my skis here, but certainly operating margins in the high 20s would be something that I think would be very reasonable for a business like this. And certainly, we're going to do everything we can do to achieve that and do more if we can. Speaker 500:22:10Great. And then wanted to Speaker 600:22:13ask about guidance. So appreciate the color, Joe, around where you're shaking out relative to the prior guide. Can you just give us a timeline when you expect to reinitiate guidance? Do you think with 2Q or could it come before then? Speaker 500:22:31Well, Jack, first of all, we wanted to be as transparent as possible. So we did provide those updates on our expectations for COVID revenue in Savanna because we know that they've been open questions for investors. And he did suspend the guidance to give Brian a chance to assess the business a little further and evaluate our plans for 2024. And we will resume guidance at some point in 2024. I think it's too early to say specifically what that date is though. Speaker 400:23:03Yes. And let me just add this is Brian. Let me just add to that a little bit. There was an Investor Day that was postponed as a result of the things that happened. And I'm anxious to get out in front of investors as soon as we can. Speaker 400:23:26We haven't defined definitively when we might do an Investor Day, but certainly we're thinking before the end of the year. And again, I'm anxious to get out there and interact with everyone. Speaker 600:23:40Okay. Thanks for the questions. Appreciate it. Speaker 100:23:46Thank you for your question. Next question is from the line of Andrew Brackmann with William Blair. Your line is now open. Speaker 700:23:54Hi, everyone. This is Maggie Buie on for Andrew today. Thanks for taking our questions. Joe, I appreciate the color you provided us on COVID and Savanna based on what you're seeing this far. But with the full respiratory season under your belt at this point, can you talk about what you view as realistic endemic revenue levels from here? Speaker 700:24:16Thank you. Speaker 500:24:18And Maggie, before I answer, you're specifically asking about COVID revenue, correct? Speaker 700:24:25Yes. Just COVID and respiratory revenue. Speaker 500:24:30Yes. Got it. Okay. So let me just hit on the COVID first. We did take the full year COVID revenue percentage down to $150,000,000 And you Speaker 300:24:43guys have probably heard me Speaker 500:24:44say this before, the truth is no one can accurately predict the COVID market size or the timing, but we do use customer industry and peer data as well as we've accessed some proprietary research as well to triangulate data points and come up with the projection that we spoke about. We don't believe it's 0, to be clear. We don't think that's the right number. We did $50,000,000 of COVID revenue in Q1, as we said in the scripted remarks. And we continue to see COVID sales in Q2 although at lower levels. Speaker 500:25:23And we do expect COVID revenues in the second half to be higher given the typical respiratory season in the 3rd and the 4th quarters. And we will carefully continue to monitor all of the indicators and obviously we'll adjust expectations as things evolve and the year progresses. As far as respiratory revenue outside of COVID, as a reminder, following last year, we did put in place a new methodology for forecasting the flu revenue. And that methodology was based on market share, market size, number of tests, when I say market size and mix of products, specifically mix of combo versus flu only test. And I would have to say that the Q1 numbers turned out pretty much as expected based on that new methodology. Speaker 500:26:27And so as you think about the balance of year for us, as you move into the second half, we do expect a typical flu season of roughly 50,000,000 tests. And remember, we've said that we think that the range of volume for size of market is $40,000,000 to $60,000,000 test. And so we think we're going to land somewhere in the middle. That's where we've pegged it. And we haven't seen any changes in distributor inventory levels or any other indicator that would materially impact our forecast. Speaker 500:27:01So maybe I'll stop there and see if that answers your question. Speaker 700:27:05Yes, that's great. Thanks so much for all that color. And then maybe just another one on gross margins. I can appreciate the couple of moving pieces we saw in Q1, but just how should we be thinking about those on a quarterly basis as we go throughout the rest of the year? Thanks so much. Speaker 300:27:24Yes. So, Speaker 500:27:28yes, this is no different than what we've seen in prior years. You're going to have some seasonality within the quarter. So Q2 will be our lowest quarter for gross margin as the revenue is typically our seasonally lowest of the year and there's a certain amount of fixed costs within gross margin line that will bring that margin down. So Q2 will be the lowest And then Q3 and Q4 will go back up again based on the seasonally higher respiratory revenues and even the labs seasonality you see in Q4. So we would expect that the margins would go back up in the second half of the year. Speaker 700:28:15Great. Thank you so much. Speaker 500:28:19You got it. Thank you. Thank you Speaker 100:28:20for your question. Next question is from the line of Andrew Cooper with Raymond James. Your line is now open. Speaker 800:28:27Hey, everybody. Thanks for the question. Brian, good to have your first earnings call underway. Maybe just first, thinking about margins and the trajectory for the year, can you give a sense for maybe just where we are in terms of the cost saves that are in motion and in flight already versus maybe what's identified to get to the $100,000,000 target and not quite started and what maybe you need to go out and find in the base as it sits today? Speaker 500:28:59Yes. I'll take that question, Andrew. How are you by the way? So you will recall that on the last earnings call, we did talk about a headcount reduction in the range of 5% to 6% headcount and $100,000,000 annualized. And I'm happy to say that we completed the majority of those headcount reductions and we are continuing to look at ways to continue to improve the organization. Speaker 500:29:32We expect to complete the majority of this Ditech count reduction, which is going to be around 500 positions that we announced by mid year this year. And again, we expect to see about $50,000,000 of that benefit in the second half of this year, primarily SG and A and the other $50,000,000 of the benefit will be in the first half of twenty twenty five. Probably also important to note that these headcount reductions were a little more focused on higher level individuals within the organization. So even though it's the physician reductions are 5% to 6% headcount, it's closer to 10% to 12% of our total compensation and benefit, again, because we did focus on taking out higher level management positions. And again, we're not done. Speaker 500:30:20We're going to continue to look for ways to make this company more efficient. Speaker 800:30:26Okay, helpful. And maybe just one more on the gross margin since we just talked about Speaker 600:30:30it a bit as well. But just to Speaker 800:30:32be clear, when you talk about 2Q being the lowest, I assume that's on a sort of an adjusted basis absent the inventory write down that you called out for the quarter. Is that a fair way to think about it at least from a typical trajectory perspective? Or just how should we think about that piece, which obviously we're hoping won't repeat? Speaker 500:30:55Yes, that's true. And so as I said in prepared remarks, the Q1 margin was impacted by about 200 basis points due to an inventory reserve since we over called Q4 2023. And so you still would see Q2 be seasonally low. And I think we don't expect significant inventory reserve write offs in Q2. I guess that will give you a question. Speaker 300:31:24Okay. Thank you. And then Speaker 800:31:25if I can sneak one more in, maybe just for Brian. I think Jack tried to ask it, but maybe it got lost in the shuffle. Just what's your views on a product like Savanna in the competitive molecular kind of marketplace? How do you think about the actual kind of ability to go out and compete with that kind of mid plex product and what's attractive about that platform in particular as you think about the path forward? Speaker 400:31:51I think it's an attractive competitive product, quite frankly. And to the point, our challenge is menu. And my focus is getting the menu of tests on that platform as quickly as we can so that we have a competitive offering in the field. Speaker 800:32:15I'll stop there. Thanks everybody. Speaker 100:32:19Thank you for your question. Next question is from the line of Connor McNamara with RBC. Your line is now open. Operator00:32:28Hey, guys. Thanks for taking the question and welcome to San Diego, Brian. Speaker 300:32:34Joe, can you just Operator00:32:35comment on the how involved you were in the forecasting of respiratory and flu sales when you guys gave Q4 guidance? And I know you talked about some of the assumptions that go into how you guys do that. But did you how involved were you then versus kind of the way you looked at it now? Because it looks like you kind of took a pretty big haircut to some of the assumptions. So I'm just curious what your involvement was prior versus now? Speaker 500:33:02Yes. Hey, Con, how are you? I don't know that I want to rehash too much through Q4 other than to say that as we've said in the past, we over call COVID and flu revenue in Q4 of 2023, unfortunately. And as I said on that previous response to a question, we did put in place a new methodology because of mainly because of what happened last year that forecast flew and we feel pretty good about it. And again, using those three variables that I mentioned, market size, market share Speaker 300:33:44and use Speaker 500:33:44of products. And we're going to continue to use that methodology and refine that methodology. Speaker 300:33:50Joe, if I could, this is Kyle. It's Mike. How are you? Look, I think on both fronts, right, if we take the traditional respiratory season, as Joe said, we have a new methodology we implemented coming into this year and we feel very good. The market demand and how big the flu season is to be determined really outside of our control. Speaker 300:34:14But within our control is what are we doing to drive market share gain? Are we driving the right mix of product leveraging our combo test? We think it's highly differentiated to get the right mix and are we able to compete in all price. So not only we have a good method for forecasting, I think we have very specific KPIs for how we operationalize that and how we see what we're doing. And so that's the traditional respiratory. Speaker 300:34:43On COVID, what I'd say for this year coming in is we spent Speaker 500:34:46a good deal of time Speaker 300:34:48trying to triangulate on the right number. And the question was asked earlier, our outlook on COVID-nineteen testing. I think, look, there's still more information to come, but we feel that we've done pretty wide range of analysis covering material from our peer group, from the industry, from the market, from other experts and take that the number that we've shared with you today, the $150,000,000 is well thought. But what we also learned from last year is we can't just take one number at the beginning of the year and then not watch. So I think the other piece that's important to know is we've set up maybe what we would call early warning systems to make sure we're watching proactively some of the KPIs monitoring the market that we can react more quickly than we have in the Speaker 400:35:43past. Great. Thanks for that color. Operator00:35:44And then just a follow-up on Savanna. You took revenues out. So you took respiratory revenue out. Is it thought that if you guys do get approval for respiratory panel, you would still wait until you have multiple panels before you launch into the market? Because Brian, it sounds like that's kind of what your commentary was leading to. Operator00:36:03Or is there a chance you would still launch it in 2024 with just respiratory? Speaker 300:36:10Yes. Conor, good question. So look, I think we are all actually clear on 2 things. 1, the guidance we gave you is around financial expectations for Savanna. Let's not confuse that with operational expectations. Speaker 300:36:26We have a very aggressive plan to move as quickly as we can, not just on respiratory, but as mentioned STI and as Brian mentioned, the rest of the Savanna menu, which is critical. I think what we will be careful to do is set expectations too early. But we don't want them to be confused with this. It's sort of an unrelenting effort to get products improved out in the market as soon as possible. Operator00:36:54Great. I appreciate that color and thanks for the questions guys. Speaker 100:36:59Thank you for your question. The next question is from the line of Patrick Donnelly with Citi. Your line is now open. Speaker 600:37:07Hey, guys. Thanks for taking the question. Joe, maybe just on the leverage side and some of the covenant restructures you guys did. I think you bumped the number all the way up to 4.25%, but the guidance here, I think it's 3.5%. Speaker 200:37:25So how Speaker 600:37:26do you think about just the trajectory on the leverage piece as we work our way through the year here? Is that just the EBITDA moving excuse me, the EBITDA moving around? Or just how do you think about the leverage progression and the debt load there? Speaker 300:37:41Yes. Hey, Patrick. How are Speaker 500:37:42you? So again, I just want to make sure and I know I said this, I think on every earnings call for the past several quarters, just to make sure everyone's clear that there the financial statement leverage ratio that comes straight from the face of the financials and then there's the credit agreement leverage ratio that allows pro form a EBITDA savings to be included in the calculation. And when you run that credit agreement calculation for Q1, it allows the pro form a EBITDA adjustments, we're at 3 times versus the credit agreement covenant of 4 times at Q1. Based on the seasonality of the business, and where I've said before, Q2 will be seasonally low for us. I do expect that the ratio will likely creep up a little bit in Q2 and then it will start to come down slightly in Q3 and Q4. Speaker 500:38:48And as I said in the prepared remarks, I would expect from a credit agreement calculated ratio, including the pro form a EBITDA adjustments will be around 3.5x@yearend, again versus a leverage covenant of 4.25x. So I feel like we've got plenty of cushion there. And obviously, we're going to be as Brian said earlier, we're going to be very focused on margin restoration and bringing that leverage ratio down as quickly as possible. Speaker 600:39:26Okay. That's helpful. And then maybe on the kind of core business in China, you obviously saw some decent growth there. Can you just talk about the trends you're seeing in that business? Obviously, there's been a lot of questions about the potential impact of some of the various legislations over there. Speaker 600:39:45Maybe just kind of pull the curtain back a little bit, what you're seeing and then expectations as we work our way through the year in that region would be helpful. Thank you guys. Speaker 300:39:56I'll cover that. Yes, Patrick, thank Speaker 500:39:58you for the Speaker 300:39:58question. Yes, China, we're very obviously very pleased with the results here in Q1 and credit to our team there. I appreciate all that they're doing. I think as we've shared, China is a focused market for us. It's changing quickly. Speaker 300:40:13It's maturing quickly, lots of different drivers there. But in the end, I think the team is executing well in our business across the portfolio. We're seeing leveraging the direct team we have there. We're seeing some increases in point of care in placements and the general rest of the business is going well. As you may recall, we have somewhat of a unique position in China where we're pretty prominent in stat labs. Speaker 300:40:42I think that has not excluded us from things like VBP, but some of the major VBP efforts so far really have not been in our wheelhouse. In fact, we've participated throughout and have won an all around of EVP. And so I think while we've done well so far, we'll continue to keep an eye on that as well as some of the other challenges in China. But again, feel very fortunate that we've got a team on the ground that's very in tune with those things. And then I think the other positive thing for us is a lot of our efforts and investment in China around localization and instrument manufacturing as well as some R and D projects are all starting to take shape. Speaker 300:41:23And these are things that are we think are going to help us as Speaker 500:41:27we go forward in the future. Speaker 600:41:34Great. Thank you. Speaker 100:41:36Thank you for your question. The next question is from the line of Casey Woodring with JPMorgan. Your line is now open. Speaker 900:41:44Hi, great. Thanks for taking my questions and welcome, Brian. So first, can you guys touch on customer conversations around Sofia ahead of next respiratory season? You placed a number of Sofia's under 2 to 3 year contracts during COVID. So those are likely in renewal negotiations now, I would imagine. Speaker 900:42:02So maybe just walk us through how you and your customers are both approaching that renewal process, especially now with the headcount turnover in SG and A that you've called out increasing? And then as a follow-up to that, can you just talk about any expectation for 510 submission for the Sofia combo test? Speaker 300:42:23Well, I think the first part maybe you can talk about the 510 submission. So Casey, the first part of the question I think is around our base and what are we doing. I go back probably more than a year ago. We put in a concerted effort to get back in front of our customers, reevaluate where they are in the contract status, be proactive in extending agreements. I think one of the data points Joe shared in the prepared remarks is around 70% of customers ordering more than one tap. Speaker 300:42:58I think this is something that shows the efforts of getting back in front of customers, not only maintaining business we had, but showing them what other tests they could put on that platform helps make us a little more sticky, right? It creates more value for the customer and we're harder to displace. So I think that's a good number that shows our efforts there. So look, I think we're in good shape. I know going back, gosh, a couple Speaker 600:43:21of years ago, there were Speaker 300:43:23a number of placements that maybe were COVID only and as COVID went away, they went away. I think we're seeing probably more stabilized base and one that we're trying to leverage for additional tests. Speaker 500:43:36Hey, Casey. On the second part of your question, we've been anticipating being in trials during the 2024, 2025 season on the palmitate. Speaker 900:43:48Got it. That's helpful. And then just on the headcount reductions between the February call and now you've doubled your expectations from $50,000,000 to $100,000,000 Can you just walk through how you arrived at that number and if there would if that's kind of the last adjustment to that number? Thank you. Speaker 500:44:09Hey, Casey, we actually did not change that number. Maybe there's some confusion about the impact in 2024 versus the full annualized impact. The $100,000,000 annualized was always the target that we had talked about on the last call and we're right on track with that to get $50,000,000 in year 2024 and then the second half of that, the $50,000,000 in the first half of twenty twenty five. And again, as I said, we're going to continue to look for efficiencies in the business. I don't want you to think we're going to stop at that number, but we have gotten really far in executing on that first 100,000,000 dollars Okay, great. Speaker 500:44:51And maybe if Speaker 900:44:51I can just fit one more in. Did you give what flu was in the new guide here? You gave the new COVID number. Just curious if you're holding the flu number here. Thank you. Speaker 500:45:07Yes, Casey, we did not. Again, in the spirit of transparency, we wanted to give everyone an update on Savanna and COVID because we know those were 2 open questions that the Street has, but we didn't give any other updates because we have suspended guidance until Brian gets a little further into the business and we have more to come on that. Great. Thank you. Thank you. Speaker 100:45:35Thank you for your question. There are no additional questions waiting at this time. So that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallQuidelOrtho Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) QuidelOrtho Earnings HeadlinesQ1 EPS Estimates for QuidelOrtho Reduced by William BlairMay 3 at 1:09 AM | americanbankingnews.comQuidelOrtho Corporation (QDEL): Among Billionaire David Harding’s Stock Picks with Huge Upside PotentialMay 1, 2025 | insidermonkey.comMost traders are panicking. We’re cashing inMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…May 6, 2025 | Crypto Swap Profits (Ad)QuidelOrtho to Report First Quarter 2025 Financial Results | QDEL Stock NewsApril 23, 2025 | gurufocus.comQuidelOrtho to Report First Quarter 2025 Financial ResultsApril 23, 2025 | businesswire.comJ.P. Morgan Keeps Their Sell Rating on QuidelOrtho (QDEL)April 19, 2025 | markets.businessinsider.comSee More QuidelOrtho Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like QuidelOrtho? Sign up for Earnings360's daily newsletter to receive timely earnings updates on QuidelOrtho and other key companies, straight to your email. Email Address About QuidelOrthoQuidelOrtho (NASDAQ:QDEL) provides diagnostic testing solutions. The company operates through Labs, Transfusion Medicine, Point-of-Care, and Molecular Diagnostics business units. The Labs business unit provides clinical chemistry laboratory instruments and tests that measure target chemicals in bodily fluids for the evaluation of health and the clinical management of patients; immunoassay laboratory instruments and tests, which measure proteins as they act as antigens in the spread of disease, antibodies in the immune response spurred by disease, or markers of proper organ function and health; testing products to detect and monitor disease progression across a spectrum of therapeutic areas; and specialized diagnostic solutions. The Transfusion Medicine business unit offers immunohematology instruments and tests used for blood typing to ensure patient-donor compatibility in blood transfusions; and donor screening instruments and tests used for blood and plasma screening for infectious diseases. The Point-of-Care business unit provides instruments and tests to provide rapid results across a continuum of point-of-care settings. The Molecular Diagnostics business unit offers polymerase chain reaction thermocyclers; amplification systems; and sample-to-result molecular instruments and tests for syndromic infectious disease diagnostics. The company sells its products directly to end users through a direct sales force; and through a network of distributors for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, urgent care clinics, universities, retail clinics, pharmacies, wellness screening centers, blood banks, and donor centers, as well as for individual, non-professional, and over-the-counter use. It operates in North America, Europe, the Middle East, Africa, China, and internationally. 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There are 10 speakers on the call. Operator00:00:00Welcome to the Speaker 100:00:00Quidel Orfo First Quarter 20 24 Financial Results Conference Call and Webcast. At this time, all participants are in a listen only mode. For those of you participating on the conference call, there will be an opportunity for questions at the end of today's prepared remarks. Please note 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. Speaker 100:00:21I would now like to turn the call over to Juliet Cunningham, Vice President of Investor Relations. Speaker 200:00:28Thank you. Good evening, everyone, and thanks for joining the Quidel Ortho's Q1 financial results conference call. With me today are Brian Blazer, our newly appointed President and Chief Executive Officer Mike Iskra, EVP and Chief Commercial Officer and Joe Budski, Chief Financial Officer. Rob Budjarski, our EVP and Chief Operating Officer will also join us for the Q and A session that follows our prepared remarks. This conference call is being simultaneously webcast on the Investor Relations page of our website. Speaker 200:01:06To aid in the discussion, we posted a supplemental presentation on the Investor Relations page that will be referenced throughout the call. This conference call contains forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not strictly historical, including the company's expectations, plans, future performance and prospects are forward looking statements that are subject to certain risks, uncertainties, assumptions and other factors. Actual results may vary materially from those expressed or implied in these forward looking statements. Information about potential factors that could affect our actual results is available in our annual report on Form 10 ks for the 2023 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Speaker 200:02:08Forward looking statements are made as of today, May 8, 2024, and we assume no obligation to update any forward looking statements, except as required by law. In addition, today's call includes discussions of certain non GAAP financial measures. Tables reconciling these non GAAP measures to their most directly comparable GAAP measures are available in our earnings release and the supplemental presentation, which are on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year over year revenue growth rates, including revenue growth ranges given on today's call or given on a comparable constant currency basis. And now I'd like to introduce Mike Iskraff. Speaker 300:03:01Thank you, Juliet. In a few minutes, I'll introduce our new CEO, Brian Blazer. And then Joe will go into our quarterly financials in detail. First, I'd like to review our Q1 business performance and discuss the recent actions we're taking, which are designed to improve our cost structure and deliver increased shareholder value. Beginning with our Q1 2024 performance, excluding COVID-nineteen revenue, total revenue grew by 6% in constant currency with solid growth across regions. Speaker 300:03:34Excluding COVID-nineteen revenue, we saw particularly good growth in EMEA and China during the Q1. Our labs business, which was about 50% of our Q1 revenue performed as expected with approximately 4% growth, excluding the one time third party collaboration settlement in the prior year period. Transfusion medicine was 23% of Q1 revenue and grew by approximately 4%, driven by immunoheumatology reagent group across regions in the OrthoVision SWIP and OrthoVision Max SWIP instrument placements. Within transfusion medicine, our efforts to wind down the U. S. Speaker 300:04:17Donor screening business continues plan. Point of care represented 26% of Q1 revenue. Excluding COVID-nineteen revenue, our Point of Care business grew approximately 38% year over year. Growth was driven by strong Sofia sales in the Perkoa market, including our combo test, flu, strep and RSV tests. And lastly, molecular diagnostics was 1% in Q1 revenue. Speaker 300:04:45Excluding COVID-nineteen revenue, molecular grew approximately 15% albeit from a low revenue base. On Savanna, we continue to work on producing a highly competitive respiratory panel for the U. S. Market as well as many expansion with the STI panel and additional assays over time. We plan to provide updates as we achieve milestones and get closer to our target for full commercial U. Speaker 300:05:10S. Launch. Since our earnings call in February, the company has undergone a tremendous amount of change. While managing change can be challenging, we see this as an opportunity to build on our strengths and address the areas we need to improve. Over the past 3 months, we have implemented cost reduction initiatives designed to deliver better results in both the near and long term. Speaker 300:05:35Our focus areas include margin restoration, which includes headcount reductions expected to deliver approximately $100,000,000 in annualized savings. Beyond those initiatives, we are actively looking for new opportunities to improve business efficiencies and realize greater savings as part of our continuous improvement culture. At the same time, while acting in our prior role as Interim Office of the CEO, while Joe and I prioritize maintaining business continuity and accelerating our margin restoration initiatives. To that end, I believe our Q1 performance speaks to our team's ability to navigate a transitional period while keeping our business momentum intact and forging ahead with purpose. We welcome Brian as our new President and CEO. Speaker 300:06:22Brian brings over 25 years of senior leadership experience in the diagnostic industry, including 7 years of full responsibility for Abbott's global diagnostic business. His track record of strengthening operations and driving revenue growth to dramatically improve profitability makes him an ideal leader to guide Quidel Ortho through its next phase of growth. On behalf of our global leadership team, I would like to thank our employees of Fidel Ortho for continuing to serve our customers and deliver on our 2024 operating plan. We appreciate your dedication and ability to remain focused during transitional times. We look forward to a smooth transition with Brian now at the helm to pave the way for a successful future. Speaker 300:07:08Now I'd like to turn the call over to Brian. Speaker 400:07:11Thanks, Mike. I'm very pleased to join the call today. And first, let me say that it is a true honor to join this exceptional organization. I am thrilled to have the opportunity to work with this leadership team and our talented colleagues across the company. Speaker 500:07:28And today, I'd like to Speaker 400:07:29share a few of the reasons I was compelled by this opportunity at this pivotal point in the company's history. First, I have always viewed Quidel and Ortho separately as highly innovative companies and formidable competitors. Combined now as Flight El Ortho, this business has one of the broadest product portfolios spanning the continuum of care from reference labs to hospitals, clinics and urgent care to retail and home testing. Whitel Ortho touches every stage of the patient care spectrum, including prevention, diagnosis, patient care and monitoring. Speaker 500:08:07This business has all of Speaker 400:08:09the underlying capabilities required to drive exceptional growth and profitability in a large and expanding market. There is work to do and I'm excited about steering the company so it can achieve its full potential. In the short term, I will be focused on our highest priorities, which are unwavering attention to customer satisfaction and patient care, improving profitability and cash flow while reducing our debt level and positioning ourselves to compete effectively in the highly competitive diagnostics market. I look forward to providing more details about our strategic direction as we move forward. I'm excited about the opportunity to engage with many of you in the coming months and answer your questions when I host our Q2 earnings call in August. Speaker 500:08:58Joe, I'll now turn it over to you. Thanks, Brian. I would also like to welcome you to Cornell Ortho and I look forward to the next chapter in our company's growth story. Let's begin with details of our Q1 results on Slide 4 of the earnings presentation. As a reminder, unless stated otherwise, all year over year revenue growth rates on today's call are provided on a comparable constant currency basis. Speaker 500:09:24Our Q1 Q1 of 2024 revenue was $711,000,000 on a reported basis compared to $846,000,000 in the prior year period. The year over year revenue decrease is primarily COVID-nineteen related. Therefore, excluding COVID-nineteen revenue, our total revenue grew by 6% in constant currency with solid growth across all regions. And if you also exclude the one time $21,000,000 third party collaboration settlement from Q1 of last year, total revenue growth was 10% in constant currency. From a regional perspective in Q1, again excluding COVID-nineteen revenue and in constant currency, we achieved revenue growth of 5% in North America. Speaker 500:10:19EMEA grew 6%, China growth of 12% and the rest of world growth of 6%, which includes Japan, Asia Pacific and Latin America. Q1 2024 non respiratory revenue was flat compared to the prior year period at 574,000,000 dollars Excluding the one time third party collaboration settlement in the prior year period related to our Labs business, non respiratory revenue grew 4%. Q1 of 2024 respiratory revenue was $137,000,000 which included approximately $50,000,000 in COVID-nineteen revenue. Respiratory revenue decreased 48% year over year, primarily due to lower COVID-nineteen revenue. Excluding the government only COVID-nineteen orders, respiratory revenue grew 6%. Speaker 500:11:17And as Mike mentioned, our Q1 respiratory growth was driven by strong Sofia sales in the professional setting. We leveraged our large global Sofia installed base with 70% of Sofia customers purchasing multiple tests. This included our combo test, which accounted for greater than 60% of our flu testing revenue in Q1 and is consistent with the past several quarters, demonstrating the durability of this product. Moving down the P and L, non GAAP total operating expenses were essentially flat compared to the prior year period. Slide 5 shows that Q1 adjusted gross profit margin was 47.5% versus 53.8% in the prior year period. Speaker 500:12:09The change was primarily related to lower COVID-nineteen product sales, which are high margin contributors as well as one time items that made for an available year over year comparison. In summary, gross margin headwinds were comprised of 3 one time items, 630 basis points related to the large government COVID-nineteen order in Q1 of last year, 140 basis points from the one time third party collaboration settlement in Q1 of last year, and finally 2 30 basis points tied to an inventory reserve related to respiratory product exploration in Q1 of 'twenty four. Those three items were partially offset by underlying base business performance and cost saving actions within manufacturing and supply chain, which were approximately 400 basis points of benefit to the margin. Adjusted EBITDA was $132,000,000 compared to $245,000,000 in the prior year period. Adjusted EBITDA margin was 19% compared to 29% in the prior year period. Speaker 500:13:20Adjusted diluted EPS was $0.44 compared to $1.80 in the prior year period. The year over year change in adjusted EBITDA and adjusted diluted EPS was primarily due to the lower COVID-nineteen revenue from the government work. Our first quarter effective tax rate was 23.5%, which was consistent with the prior year and in line with our full year expectations. In Q1, twenty twenty four, we recorded a non cash goodwill impairment charge of $1,700,000 for the North America reporting unit due to the decrease in the estimated fair value, which was consistent with the decline in the company's market capitalization during the quarter. Turning now to the balance sheet on Slide 6 of the presentation. Speaker 500:14:13We finished the quarter with $79,000,000 of cash $40,000,000 drawn on the revolver. Note that during the quarter, we liquidated investments to avoid additional revolver borrowings. Recurring free cash flow of negative $13,000,000 was driven by working capital needs. We do expect cash flow to improve in the second half of twenty twenty four as margin restoration has had to take effect, along with seasonally higher revenue expected in Q4. We continue to focus on executing our cost savings and margin restoration initiatives, which are designed to deliver improved performance and sustainable long term growth. Speaker 500:14:57We expect the benefit from these initiatives to be realized in the second half of twenty twenty four and in the first half of twenty twenty five, with minimal impact in Q2 of this year. Taking all this perspective, we intend to maintain operating flexibility as we implement these initiatives. In light of this and in an effort to be conservative, we did amend our credit agreement in April to increase the maximum consolidated leverage ratios beginning in Q3 this year through the loan maturity in May of 2027. Importantly, we completed this amendment at a cost of $12,500,000,000 of total loan commitment and the loan pricing is unchanged. During the Q1 of 2024, our consolidated leverage ratio was 3 times including pro form a EBITDA adjustments compared to the 4x maximum specified in the amended credit agreement for the first half of twenty twenty four. Speaker 500:15:58Based on current expectations, we expect our consolidated leverage ratio to be approximately 3.5 times by the end of this year, including performing EBITDA adjustments compared to 4.25 maximum specified in the amended credit agreement. And lastly, we want to provide some relevant updates based on our current visibility. Our prior expectation for COVID-nineteen revenue was approximately $225,000,000 based on our current view, which is subject to change based on COVID-nineteen developments, we are now expecting approximately $150,000,000 in COVID-nineteen revenue for the full year 2024. 2nd, we also expect that Savanna revenue will be immaterial in 2024 with no expected U. S. Speaker 500:16:47Respiratory revenue contribution from Savanna in the 2024, 2025 respiratory season. And as a reminder, the COVID-nineteen public health emergency in the U. S. Ended in May of 2023. However, we continue to see significant quick view COVID-nineteen test sales in the retail setting in the Q2 of 2023. Speaker 500:17:10Hence, we expect year over year COVID-nineteen revenue comparisons to again be challenging in Q2 of this year. And as a result of these changes to the COVID-nineteen and Savanna revenue, our current expectations are to be at or slightly below the low end of our previously communicated 24 guidance ranges for revenue, adjusted EBITDA and adjusted EPS. With our new President and CEO coming on board this week, we've decided to suspend guidance to give Brian an opportunity to assess the business and evaluate our plans for the rest of 2024. We do intend to resume providing guidance later in the year when we are able to share our plans. I would now like to ask the operator to please open the call Speaker 100:18:31The first question is from the line of Jack Meehan with Nephron Research. Your line is now open. Speaker 600:18:38Thank you. Good afternoon. And Brian, welcome aboard. Speaker 400:18:44Thank you. Speaker 600:18:48Just wanted to get your thoughts maybe to start on 2 topics. First, as you were taking the CEO, as you were diligencing taking the CEO role at Fido Ortho, Speaker 500:18:59can you talk about Speaker 600:19:00the work you did on Savanna and what your view is on just level of confidence to bring competitive platform to market there. That's number 1. Number 2 is your view on what the right margin profile kind of once you go through this transition period, like aspirationally, where do you want to get this business to? Speaker 500:19:26Well, yes, Speaker 400:19:27let me answer generally kind of why I took the job and some first impressions on the business. And I've been here 3 days and the amount of information that I had available to me as I did my due diligence was somewhat limited. But let me say first that I've been around the industry for a long time. I'm still in the very early days of learning the details of the business, but I am very familiar with the market landscape, the business model or business models here in this case. And I've had the opportunity to work with some really talented teams in this space to drive a lot of change and have been able to do things and work on projects to expand into new markets, a lot of product development and launching complex new systems, manufacturing and supply chain optimization, optimizing commercial models and that sort of thing. Speaker 400:20:37And in my assessment of the business prior to taking on the role, and now as I said, now having been here a few days, I like what I see here. I think there are clear opportunities to improve the performance of the organization in all of the areas that I just mentioned where I have experience. Many of the opportunities that I mentioned here have already been identified by the interim office of the CEO and are in light of moving along. I see the opportunity to do some more, particularly in the areas of product development and productivity, commercial excellence and just productivity improvement in general. I think the leadership team sees those opportunities as well. Speaker 400:21:27And I'm excited to work with the team here on these things to improve our performance. So I look at this as a great opportunity. To your second question about aspirationally, I don't want to get too far over my skis here, but certainly operating margins in the high 20s would be something that I think would be very reasonable for a business like this. And certainly, we're going to do everything we can do to achieve that and do more if we can. Speaker 500:22:10Great. And then wanted to Speaker 600:22:13ask about guidance. So appreciate the color, Joe, around where you're shaking out relative to the prior guide. Can you just give us a timeline when you expect to reinitiate guidance? Do you think with 2Q or could it come before then? Speaker 500:22:31Well, Jack, first of all, we wanted to be as transparent as possible. So we did provide those updates on our expectations for COVID revenue in Savanna because we know that they've been open questions for investors. And he did suspend the guidance to give Brian a chance to assess the business a little further and evaluate our plans for 2024. And we will resume guidance at some point in 2024. I think it's too early to say specifically what that date is though. Speaker 400:23:03Yes. And let me just add this is Brian. Let me just add to that a little bit. There was an Investor Day that was postponed as a result of the things that happened. And I'm anxious to get out in front of investors as soon as we can. Speaker 400:23:26We haven't defined definitively when we might do an Investor Day, but certainly we're thinking before the end of the year. And again, I'm anxious to get out there and interact with everyone. Speaker 600:23:40Okay. Thanks for the questions. Appreciate it. Speaker 100:23:46Thank you for your question. Next question is from the line of Andrew Brackmann with William Blair. Your line is now open. Speaker 700:23:54Hi, everyone. This is Maggie Buie on for Andrew today. Thanks for taking our questions. Joe, I appreciate the color you provided us on COVID and Savanna based on what you're seeing this far. But with the full respiratory season under your belt at this point, can you talk about what you view as realistic endemic revenue levels from here? Speaker 700:24:16Thank you. Speaker 500:24:18And Maggie, before I answer, you're specifically asking about COVID revenue, correct? Speaker 700:24:25Yes. Just COVID and respiratory revenue. Speaker 500:24:30Yes. Got it. Okay. So let me just hit on the COVID first. We did take the full year COVID revenue percentage down to $150,000,000 And you Speaker 300:24:43guys have probably heard me Speaker 500:24:44say this before, the truth is no one can accurately predict the COVID market size or the timing, but we do use customer industry and peer data as well as we've accessed some proprietary research as well to triangulate data points and come up with the projection that we spoke about. We don't believe it's 0, to be clear. We don't think that's the right number. We did $50,000,000 of COVID revenue in Q1, as we said in the scripted remarks. And we continue to see COVID sales in Q2 although at lower levels. Speaker 500:25:23And we do expect COVID revenues in the second half to be higher given the typical respiratory season in the 3rd and the 4th quarters. And we will carefully continue to monitor all of the indicators and obviously we'll adjust expectations as things evolve and the year progresses. As far as respiratory revenue outside of COVID, as a reminder, following last year, we did put in place a new methodology for forecasting the flu revenue. And that methodology was based on market share, market size, number of tests, when I say market size and mix of products, specifically mix of combo versus flu only test. And I would have to say that the Q1 numbers turned out pretty much as expected based on that new methodology. Speaker 500:26:27And so as you think about the balance of year for us, as you move into the second half, we do expect a typical flu season of roughly 50,000,000 tests. And remember, we've said that we think that the range of volume for size of market is $40,000,000 to $60,000,000 test. And so we think we're going to land somewhere in the middle. That's where we've pegged it. And we haven't seen any changes in distributor inventory levels or any other indicator that would materially impact our forecast. Speaker 500:27:01So maybe I'll stop there and see if that answers your question. Speaker 700:27:05Yes, that's great. Thanks so much for all that color. And then maybe just another one on gross margins. I can appreciate the couple of moving pieces we saw in Q1, but just how should we be thinking about those on a quarterly basis as we go throughout the rest of the year? Thanks so much. Speaker 300:27:24Yes. So, Speaker 500:27:28yes, this is no different than what we've seen in prior years. You're going to have some seasonality within the quarter. So Q2 will be our lowest quarter for gross margin as the revenue is typically our seasonally lowest of the year and there's a certain amount of fixed costs within gross margin line that will bring that margin down. So Q2 will be the lowest And then Q3 and Q4 will go back up again based on the seasonally higher respiratory revenues and even the labs seasonality you see in Q4. So we would expect that the margins would go back up in the second half of the year. Speaker 700:28:15Great. Thank you so much. Speaker 500:28:19You got it. Thank you. Thank you Speaker 100:28:20for your question. Next question is from the line of Andrew Cooper with Raymond James. Your line is now open. Speaker 800:28:27Hey, everybody. Thanks for the question. Brian, good to have your first earnings call underway. Maybe just first, thinking about margins and the trajectory for the year, can you give a sense for maybe just where we are in terms of the cost saves that are in motion and in flight already versus maybe what's identified to get to the $100,000,000 target and not quite started and what maybe you need to go out and find in the base as it sits today? Speaker 500:28:59Yes. I'll take that question, Andrew. How are you by the way? So you will recall that on the last earnings call, we did talk about a headcount reduction in the range of 5% to 6% headcount and $100,000,000 annualized. And I'm happy to say that we completed the majority of those headcount reductions and we are continuing to look at ways to continue to improve the organization. Speaker 500:29:32We expect to complete the majority of this Ditech count reduction, which is going to be around 500 positions that we announced by mid year this year. And again, we expect to see about $50,000,000 of that benefit in the second half of this year, primarily SG and A and the other $50,000,000 of the benefit will be in the first half of twenty twenty five. Probably also important to note that these headcount reductions were a little more focused on higher level individuals within the organization. So even though it's the physician reductions are 5% to 6% headcount, it's closer to 10% to 12% of our total compensation and benefit, again, because we did focus on taking out higher level management positions. And again, we're not done. Speaker 500:30:20We're going to continue to look for ways to make this company more efficient. Speaker 800:30:26Okay, helpful. And maybe just one more on the gross margin since we just talked about Speaker 600:30:30it a bit as well. But just to Speaker 800:30:32be clear, when you talk about 2Q being the lowest, I assume that's on a sort of an adjusted basis absent the inventory write down that you called out for the quarter. Is that a fair way to think about it at least from a typical trajectory perspective? Or just how should we think about that piece, which obviously we're hoping won't repeat? Speaker 500:30:55Yes, that's true. And so as I said in prepared remarks, the Q1 margin was impacted by about 200 basis points due to an inventory reserve since we over called Q4 2023. And so you still would see Q2 be seasonally low. And I think we don't expect significant inventory reserve write offs in Q2. I guess that will give you a question. Speaker 300:31:24Okay. Thank you. And then Speaker 800:31:25if I can sneak one more in, maybe just for Brian. I think Jack tried to ask it, but maybe it got lost in the shuffle. Just what's your views on a product like Savanna in the competitive molecular kind of marketplace? How do you think about the actual kind of ability to go out and compete with that kind of mid plex product and what's attractive about that platform in particular as you think about the path forward? Speaker 400:31:51I think it's an attractive competitive product, quite frankly. And to the point, our challenge is menu. And my focus is getting the menu of tests on that platform as quickly as we can so that we have a competitive offering in the field. Speaker 800:32:15I'll stop there. Thanks everybody. Speaker 100:32:19Thank you for your question. Next question is from the line of Connor McNamara with RBC. Your line is now open. Operator00:32:28Hey, guys. Thanks for taking the question and welcome to San Diego, Brian. Speaker 300:32:34Joe, can you just Operator00:32:35comment on the how involved you were in the forecasting of respiratory and flu sales when you guys gave Q4 guidance? And I know you talked about some of the assumptions that go into how you guys do that. But did you how involved were you then versus kind of the way you looked at it now? Because it looks like you kind of took a pretty big haircut to some of the assumptions. So I'm just curious what your involvement was prior versus now? Speaker 500:33:02Yes. Hey, Con, how are you? I don't know that I want to rehash too much through Q4 other than to say that as we've said in the past, we over call COVID and flu revenue in Q4 of 2023, unfortunately. And as I said on that previous response to a question, we did put in place a new methodology because of mainly because of what happened last year that forecast flew and we feel pretty good about it. And again, using those three variables that I mentioned, market size, market share Speaker 300:33:44and use Speaker 500:33:44of products. And we're going to continue to use that methodology and refine that methodology. Speaker 300:33:50Joe, if I could, this is Kyle. It's Mike. How are you? Look, I think on both fronts, right, if we take the traditional respiratory season, as Joe said, we have a new methodology we implemented coming into this year and we feel very good. The market demand and how big the flu season is to be determined really outside of our control. Speaker 300:34:14But within our control is what are we doing to drive market share gain? Are we driving the right mix of product leveraging our combo test? We think it's highly differentiated to get the right mix and are we able to compete in all price. So not only we have a good method for forecasting, I think we have very specific KPIs for how we operationalize that and how we see what we're doing. And so that's the traditional respiratory. Speaker 300:34:43On COVID, what I'd say for this year coming in is we spent Speaker 500:34:46a good deal of time Speaker 300:34:48trying to triangulate on the right number. And the question was asked earlier, our outlook on COVID-nineteen testing. I think, look, there's still more information to come, but we feel that we've done pretty wide range of analysis covering material from our peer group, from the industry, from the market, from other experts and take that the number that we've shared with you today, the $150,000,000 is well thought. But what we also learned from last year is we can't just take one number at the beginning of the year and then not watch. So I think the other piece that's important to know is we've set up maybe what we would call early warning systems to make sure we're watching proactively some of the KPIs monitoring the market that we can react more quickly than we have in the Speaker 400:35:43past. Great. Thanks for that color. Operator00:35:44And then just a follow-up on Savanna. You took revenues out. So you took respiratory revenue out. Is it thought that if you guys do get approval for respiratory panel, you would still wait until you have multiple panels before you launch into the market? Because Brian, it sounds like that's kind of what your commentary was leading to. Operator00:36:03Or is there a chance you would still launch it in 2024 with just respiratory? Speaker 300:36:10Yes. Conor, good question. So look, I think we are all actually clear on 2 things. 1, the guidance we gave you is around financial expectations for Savanna. Let's not confuse that with operational expectations. Speaker 300:36:26We have a very aggressive plan to move as quickly as we can, not just on respiratory, but as mentioned STI and as Brian mentioned, the rest of the Savanna menu, which is critical. I think what we will be careful to do is set expectations too early. But we don't want them to be confused with this. It's sort of an unrelenting effort to get products improved out in the market as soon as possible. Operator00:36:54Great. I appreciate that color and thanks for the questions guys. Speaker 100:36:59Thank you for your question. The next question is from the line of Patrick Donnelly with Citi. Your line is now open. Speaker 600:37:07Hey, guys. Thanks for taking the question. Joe, maybe just on the leverage side and some of the covenant restructures you guys did. I think you bumped the number all the way up to 4.25%, but the guidance here, I think it's 3.5%. Speaker 200:37:25So how Speaker 600:37:26do you think about just the trajectory on the leverage piece as we work our way through the year here? Is that just the EBITDA moving excuse me, the EBITDA moving around? Or just how do you think about the leverage progression and the debt load there? Speaker 300:37:41Yes. Hey, Patrick. How are Speaker 500:37:42you? So again, I just want to make sure and I know I said this, I think on every earnings call for the past several quarters, just to make sure everyone's clear that there the financial statement leverage ratio that comes straight from the face of the financials and then there's the credit agreement leverage ratio that allows pro form a EBITDA savings to be included in the calculation. And when you run that credit agreement calculation for Q1, it allows the pro form a EBITDA adjustments, we're at 3 times versus the credit agreement covenant of 4 times at Q1. Based on the seasonality of the business, and where I've said before, Q2 will be seasonally low for us. I do expect that the ratio will likely creep up a little bit in Q2 and then it will start to come down slightly in Q3 and Q4. Speaker 500:38:48And as I said in the prepared remarks, I would expect from a credit agreement calculated ratio, including the pro form a EBITDA adjustments will be around 3.5x@yearend, again versus a leverage covenant of 4.25x. So I feel like we've got plenty of cushion there. And obviously, we're going to be as Brian said earlier, we're going to be very focused on margin restoration and bringing that leverage ratio down as quickly as possible. Speaker 600:39:26Okay. That's helpful. And then maybe on the kind of core business in China, you obviously saw some decent growth there. Can you just talk about the trends you're seeing in that business? Obviously, there's been a lot of questions about the potential impact of some of the various legislations over there. Speaker 600:39:45Maybe just kind of pull the curtain back a little bit, what you're seeing and then expectations as we work our way through the year in that region would be helpful. Thank you guys. Speaker 300:39:56I'll cover that. Yes, Patrick, thank Speaker 500:39:58you for the Speaker 300:39:58question. Yes, China, we're very obviously very pleased with the results here in Q1 and credit to our team there. I appreciate all that they're doing. I think as we've shared, China is a focused market for us. It's changing quickly. Speaker 300:40:13It's maturing quickly, lots of different drivers there. But in the end, I think the team is executing well in our business across the portfolio. We're seeing leveraging the direct team we have there. We're seeing some increases in point of care in placements and the general rest of the business is going well. As you may recall, we have somewhat of a unique position in China where we're pretty prominent in stat labs. Speaker 300:40:42I think that has not excluded us from things like VBP, but some of the major VBP efforts so far really have not been in our wheelhouse. In fact, we've participated throughout and have won an all around of EVP. And so I think while we've done well so far, we'll continue to keep an eye on that as well as some of the other challenges in China. But again, feel very fortunate that we've got a team on the ground that's very in tune with those things. And then I think the other positive thing for us is a lot of our efforts and investment in China around localization and instrument manufacturing as well as some R and D projects are all starting to take shape. Speaker 300:41:23And these are things that are we think are going to help us as Speaker 500:41:27we go forward in the future. Speaker 600:41:34Great. Thank you. Speaker 100:41:36Thank you for your question. The next question is from the line of Casey Woodring with JPMorgan. Your line is now open. Speaker 900:41:44Hi, great. Thanks for taking my questions and welcome, Brian. So first, can you guys touch on customer conversations around Sofia ahead of next respiratory season? You placed a number of Sofia's under 2 to 3 year contracts during COVID. So those are likely in renewal negotiations now, I would imagine. Speaker 900:42:02So maybe just walk us through how you and your customers are both approaching that renewal process, especially now with the headcount turnover in SG and A that you've called out increasing? And then as a follow-up to that, can you just talk about any expectation for 510 submission for the Sofia combo test? Speaker 300:42:23Well, I think the first part maybe you can talk about the 510 submission. So Casey, the first part of the question I think is around our base and what are we doing. I go back probably more than a year ago. We put in a concerted effort to get back in front of our customers, reevaluate where they are in the contract status, be proactive in extending agreements. I think one of the data points Joe shared in the prepared remarks is around 70% of customers ordering more than one tap. Speaker 300:42:58I think this is something that shows the efforts of getting back in front of customers, not only maintaining business we had, but showing them what other tests they could put on that platform helps make us a little more sticky, right? It creates more value for the customer and we're harder to displace. So I think that's a good number that shows our efforts there. So look, I think we're in good shape. I know going back, gosh, a couple Speaker 600:43:21of years ago, there were Speaker 300:43:23a number of placements that maybe were COVID only and as COVID went away, they went away. I think we're seeing probably more stabilized base and one that we're trying to leverage for additional tests. Speaker 500:43:36Hey, Casey. On the second part of your question, we've been anticipating being in trials during the 2024, 2025 season on the palmitate. Speaker 900:43:48Got it. That's helpful. And then just on the headcount reductions between the February call and now you've doubled your expectations from $50,000,000 to $100,000,000 Can you just walk through how you arrived at that number and if there would if that's kind of the last adjustment to that number? Thank you. Speaker 500:44:09Hey, Casey, we actually did not change that number. Maybe there's some confusion about the impact in 2024 versus the full annualized impact. The $100,000,000 annualized was always the target that we had talked about on the last call and we're right on track with that to get $50,000,000 in year 2024 and then the second half of that, the $50,000,000 in the first half of twenty twenty five. And again, as I said, we're going to continue to look for efficiencies in the business. I don't want you to think we're going to stop at that number, but we have gotten really far in executing on that first 100,000,000 dollars Okay, great. Speaker 500:44:51And maybe if Speaker 900:44:51I can just fit one more in. Did you give what flu was in the new guide here? You gave the new COVID number. Just curious if you're holding the flu number here. Thank you. Speaker 500:45:07Yes, Casey, we did not. Again, in the spirit of transparency, we wanted to give everyone an update on Savanna and COVID because we know those were 2 open questions that the Street has, but we didn't give any other updates because we have suspended guidance until Brian gets a little further into the business and we have more to come on that. Great. Thank you. Thank you. Speaker 100:45:35Thank you for your question. There are no additional questions waiting at this time. So that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.Read morePowered by