QuidelOrtho Q4 2024 Earnings Report

QuidelOrtho EPS Results

• Actual EPS: $0.63
• Consensus EPS: $1.07
• Beat/Miss: Missed by -$0.44
• One Year Ago EPS: N/A

QuidelOrtho Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

QuidelOrtho Announcement Details

• Quarter: Q4 2024
• Date: 2/12/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 12, 2025
• Conference Call Time: 5:00PM ET

QuidelOrtho (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. The company was incorporated in 1979 and is headquartered in San Diego, California.

QuidelOrtho Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Welcome to the Quidel Ortho Fourth Quarter and Full Year twenty twenty four 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 is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call.

[Operator]

I would now like to turn the call over to Julia Cunningham, Vice President of Investor Relations.

[Juliet Cunningham, Vice President-Investor Relations at QuidelOrtho]

Thank you. Good afternoon, everyone. Thanks for joining the White Al Ortho's fourth quarter and full year twenty twenty four financial results conference call. With me today are Brian Glaser, President and Chief Executive Officer, and Joe Buske, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website.

[Juliet Cunningham, Vice President-Investor Relations at QuidelOrtho]

To aid in the discussion, we posted a supplemental presentation on the IR page that will be referenced throughout this 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, financial guidance, future performance and prospects are forward looking statements that are subject to certain risks and 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 on our annual report on Form 10 ks for the 2023 fiscal year and subsequent reports filed with the SEC, including the risk factors section.

[Juliet Cunningham, Vice President-Investor Relations at QuidelOrtho]

Forward looking statements are made as of today, 02/12/2025, and we assume no obligation to update any forward looking statement except as required by law. In addition, today's call includes discussion 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 quidelorzo.com. Lastly, unless stated otherwise, all year over year revenue growth rates given on today's call are given on a comparable constant currency basis. And now, I'd like to turn the call over to our CEO, Brian Glazer.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Thanks, Juliette. Good afternoon, everyone. And thank you for joining us on the call today. We finished the year with solid top line results that were in line with our 2024 financial guidance. And I'm encouraged by the progress that we're making in improving our cost structure and focusing the business to elevate profitable growth.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

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. 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. Having the right leadership in place is essential for driving innovation, improving operational efficiency, and positioning the company for success. Our efforts to prioritize high impact opportunities are showing early signs of progress as reflected in our second half twenty twenty four results.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Turning to the fourth quarter of twenty twenty four, we saw ongoing contribution from our labs, immunohematology and point of care businesses. Total reported revenue in Q4 was $7.00 $8,000,000 which decreased by 4% year over year due to the expected declines in COVID and flu testing revenues. Importantly, over 90% of our Q4 sales were recurring driven by reagents, consumables and service. And I'd mention that all growth rates I'm about to give are in constant currency. Our labs business, which is roughly 50% of our total company revenues, achieved growth of 4% on a reported and constant currency basis, excluding COVID and non core revenue.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

This performance underscores its durable and predictable business model with strong brand recognition, long term contracts, and a loyal customer base. Within transfusion medicine, our immunohematology business continued to drive stable growth of 4% during the fourth quarter. And despite challenging year over year comparisons from the decline of COVID testing, our point of care business continues its leadership position with Sofia's large global installed base and our flu COVID combo test. 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. We expect to complete our trials over the next few months as the season runs its normal course.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Adjusted EBITDA for the fourth quarter twenty twenty four was $150,000,000 which represents 21% adjusted EBITDA margin and adjusted diluted EPS of $0.63 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. These priorities include improving R and 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. In addition, we continue to drive cost reduction initiatives that we started in 2024, including realizing the remainder of our previously announced cost savings by the year and implementing new actions focused mainly on procurement and gross margin improvement. We expect these programs to drive margin growth over the next few years that will achieve benchmark levels of profitability. 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 Blaser, President & Chief Executive Officer at QuidelOrtho]

Despite 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. 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.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

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 IR website. Again, unless stated otherwise, all year over year revenue growth rates on today's call are provided on comparable constant currency basis. During the fourth quarter and full year 2024, our business performed in line with our expectations, and we expect continued momentum going into 2025.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

I'll start with some high level commentary on our full year 2024 performance and then drill down to fourth quarter results. I'll also provide our estimated full year 2025 financial guidance, and then of course, we'll open up the call for some questions. Total reported revenue for the full year 2024 was $2,800,000,000 including $2,300,000,000 in non respiratory revenue. Labs growth was 4% excluding COVID and non core revenue, which includes contract manufacturing. And our respiratory revenue was $5.00 $4,000,000 which grew 4% excluding COVID compared to the prior year.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Full year 2024 COVID revenue was $185,000,000 including $17,000,000 in government contracts. Foreign currency exchange negatively impacted full year 2024 results by 60 basis points. Adjusted EBITDA was $543,000,000 and 19.5% adjusted EBITDA margin and adjusted diluted earnings per share was $1.85 Moving now to fourth quarter twenty twenty four results, total reported revenue was $7.00 $8,000,000 which decreased by 4% compared to the prior year period due to lower year over year COVID and flu revenues as discussed in our third quarter earnings call. Foreign currency exchange negatively impacted fourth quarter results by 30 basis points. From a regional perspective, our fourth quarter twenty twenty four constant currency revenue performance was led by our other region, which again is comprised of Japan, Asia Pacific and Latin America and grew 13%.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

China grew 11%, driven by labs. Strong labs performance in China was partially offset by softness and 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. I note that for the full year, China excluding respiratory grew in the high single digits as expected. Our Europe, Middle East, Africa region declined by 6% due to a one time item and timing of revenue in the prior year period. For the full year 2024, Europe, Middle East, Africa region revenue grew by 2%.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And then finally, North America declined by 11% compared with the 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, and timing of cardiac sales. For the full year 2024, North America was down 3% excluding COVID. All right.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Now looking at our non respiratory business, which includes labs, transfusion medicine and cardiac point of care products, fourth quarter twenty twenty four revenue was relatively flat year over year. However, underlying labs revenue growth was 4% excluding COVID and non core revenue. In transfusion medicine, immunohematology revenue grew 4% and donor screening declined by 40%. Cardiac revenue declined by 9% in Q4, primarily related to order timing in North America. For the full year, cardiac revenue was down approximately 2% or only $3,000,000 compared to the prior year.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Our Q4 respiratory revenue declined 18% year over year. During Q4, we saw continued favorable product mix from our Sofia flu COVID combo test, and we had $44,000,000 in COVID revenue. We saw a late start to this respiratory season, which is more in line with pre pandemic trends, and we have seen the season become strong in February thus far. More on our thoughts on the Q1 flu season in a bit. Moving down the P and L, Slide five shows fourth quarter twenty twenty four adjusted gross profit margin of 47% versus 52% in the prior year period.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

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 twenty twenty four that did not occur in Q4 twenty twenty three as mentioned on our Q3 earnings call. Non GAAP operating expenses of $226,000,000 including SG and A and R and D decreased by $16,000,000 compared to the prior year period, which reflected cost savings initiatives partially offset by the previously mentioned Q4 'twenty four bond cycles. Adjusted intervals. Adjusted EBITDA was $150,000,000 compared to $195,000,000 in the prior year period. Adjusted EBITDA margin was 21%, which reflects the cost savings actions we have taken, partially offset by lower revenue from respiratory tests, which are high margin contributors.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Adjusted diluted earnings per share was $0.63 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 and higher interest expense in the current period, partially offset by our cost savings actions. The full year effective adjusted income tax rate for 2024 was 24%. All right. Now turning to the balance sheet on Slide six.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

We finished the quarter with $98,000,000 of cash and as of the end of Q4, we had $198,000,000 of borrowings on our $800,000,000 revolver, which is a decrease of $32,000,000 compared to Q3. Our capital allocation priority continues to be debt pay down. Fourth quarter twenty twenty four adjusted free cash flow was 68,000,000 which represents 45% of our adjusted EBITDA in Q4. And our second half twenty twenty four adjusted free cash flow was 59% of our second half adjusted EBITDA. During the fourth quarter of twenty twenty four, our net debt to adjusted EBITDA ratio was 4.4 times and our consolidated leverage ratio including pro form a EBITDA adjustments was 3.5 times as permitted and defined under our credit agreement.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Now, I will provide our full year 2025 guidance, which is on Slide seven of the earnings presentation. We expect full year 2025 total reported revenue of between $2,600,000,000 and $2,810,000,000 Note that we expect a negative impact of $55,000,000 related to foreign currency exchange, which was estimated using currency rates as of 01/31/2025, and is subject to change as the year progresses. We expect adjusted EBITDA between $575,000,000 and $615,000,000 which equates to 22% adjusted EBITDA margin. This is an expected two fifty basis point improvement off of full year 2024. We expect adjusted diluted EPS of between $2.07 to $2.57 Additionally, we do not see significant currency impact to either adjusted EBITDA or adjusted EPS.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Now, these expectations are based on a set of assumptions as follows. We assume that the 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 expected to grow in

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

the mid single digits transfusion medicine, excluding U.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

S. Donor Screening, expected to grow in the low single digits Chronic care growth, excluding COVID, is assumed to grow in the mid single digits. 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, Savanna or respiratory products in 2025.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And lastly, we assume mid- to high single digit growth in China. Now for the respiratory revenue in 2025, we assume a $50,000,000 to $55,000,000 overall test market with greater than 50% of flu product revenue coming from our flu COVID combo test. We are seeing strong recent flu trends in Q1, which are factored into our full year guidance presented today. In addition, we assume full year 2025 COVID revenue will be in the range of $110,000,000 to $140,000,000 which excludes approximately $17,000,000 in government contracts that we had in 2024 and do not expect to repeat as well as lower retail sales, which accounts for less than a half a percent of our total company revenue. In addition, we assume typical quarterly seasonality with Q2 revenue being our lowest quarter and Q4 being our highest quarter for revenue and margins.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

We assume cost savings of approximately $50,000,000 in the first half of twenty twenty five as part of our previously implemented $100,000,000 in annualized cost savings actions. We expect incremental cost savings in 2025 between $30,000,000 to $50,000,000 primarily related to procurement. The majority of the $100,000,000 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 size 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.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

We assume positive adjusted free cash flow for the full year 2025 to be approximately 25% to 30% of adjusted EBITDA. 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. And we continue to target free cash flow conversion of 50% of adjusted EBITDA on the same timeline as our market improvement. 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, and we expect it to land between 3.5 to four times by the end of twenty twenty five. We assume full year interest expense to be down slightly from 2024 in the range of $158,000,000 to $162,000,000 We had expected interest expense to be approximately $5,000,000 to $7,000,000 lower than this range, but higher than expected revolver borrowings at the end of 'twenty four will carry over in 'twenty five.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

These higher borrowings are primarily related to onetime cash used for employee severance costs, our system conversions, as well as the delay in proceeds related to the sale of a facility. Again, our capital allocation priority continues to be paying down debt. We assume CapEx of approximately $160,000,000 to $170,000,000 excluding instruments under reagent rental agreements and integration related expenses. And finally, we assume a full year effective tax rate of 24%. To summarize, we believe our second half twenty twenty four performance demonstrates solid progress towards our adjusted EBITDA margin expansion goal of greater than 25% over the next couple of years.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

We remain focused on our execution and cost savings initiatives to achieve our margin expansion and profitable growth goals. With that, I'll ask the operator to please open up the line for questions.

[Operator]

Absolutely. We will now begin the question and answer session. You. The first question comes from Jack Meehan with Nephron Research. You may proceed.

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

Thank you. Good afternoon.

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

First question was on the guidance. The forecast for free cash flow conversion at 25% to 30% of adjusted EBITDA. It wasn't that long ago that you were looking at something closer to 50% of adjusted EBITDA conversion. I know that was different time, different revenue base. But I was wondering if you could just talk about where you think that can go over time and what a more normalized level might look like?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yeah. Hey, Jack, it's Joe. Thanks for the question. Yeah, the cash flow is certainly not where we wanted to be. We ended 2024 at 20% recurring free cash flow as a percentage of EBITDA.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And again, as you just stated, for 2025, we expect it to be between 2530%. So it's an improvement over 2024, but ultimately our goal is to be at least 50% 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.

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

Okay. And then,

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

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. So this mid to high single digit target you have for 2025, can you just give us an update on your view on pricing and exposure to any DBT programs that are taking place?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yeah. Hi, Jack. This is Brian. China continues to be an attractive market for us, but it is a complex market as you know. In the near term, we think that the risk of additional BBP pressure has largely passed us by at least for 2025.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

But we have seen some smaller impacts to cardiac reimbursement there that are, yeah, mainly reimbursement versus, you know, broad VBP actions. You know, I don't expect any more significant actions on either BBP or reimbursement. But I would say that the competitive intensity there, just given what has happened, has increased. And as a result of that, we're kind of tempering our view from kind of high single digit to mid single digit moving forward given that the nature of the environmental dynamic there.

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

Okay. That makes sense. If I could squeeze in one more just a quick clarification. I think there was a new disclosure in the slides for the cardiac revenue. I just wanted to clarify, does that include both Triage and BNP?

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

And kind of the decline you had in the quarter, was it entirely on the Triage side, I assume?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes, that's right. Yes, we referenced that growth or decline in the prepared remarks, Jack, so we had to put a slide in the PowerPoint deck that goes with the earnings call. And yes, when we talk about the cardiac, it's the combined Triage revenue as well as the BMP revenue. And really all of the full year variances is in the triage business. That BMP business is flat, $75,000,000,000 every year.

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

Okay. Thank you, guys.

[Operator]

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

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

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 are coming a little earlier than expected this year as well. Can you just talk about the levers you guys are pulling to preserve and drive EBITDA higher, the key ones as we work our way through this year and then obviously the ones that remain out there to drive EBITDA back to where you guys want it on the margin side?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes. So, hey, Patrick. So, yes, the margins, the overall EBITDA margins are going up two fifty basis points from 24 to 25. And at a high level, I would say that the pieces are roughly $50,000,000 of the first one hundred million dollars that we actioned last year mid through twenty twenty four, which will benefit the first half of twenty twenty five. And, I would say that that $50,000,000 is going to be split pretty evenly between, OpEx and GP.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And the second tranche that

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

I would mention is the $30,000,000

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

to $50,000,000 of incremental savings for the $25,000,000 that we mentioned on this call today, which we've defined as mostly procurement related. 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, and we'll probably start to see more of those move into 2026. 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 offset.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And those are the really the big moving pieces as you think about how we go from '24 to '25 and then two fifty basis point improvement on EBITDA margins.

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

Okay. That's helpful. And then maybe just the range on respiratory. Can you talk about the different drivers there? Are we in the endemic?

[Patrick Donnelly, Managing Director, Equity Research Analyst at Citi]

Is this the right number to think about going forward? And then inside of that, just Savannah, it sounds like respiratory trials for now, not much this year, the contribution there as we work our way forward. Thank you, guys.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Thanks. Joe?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes, I can take that. Yes, so maybe take the COVID revenue piece first. Yes, we do believe that when you look at the COVID revenue for us, it is going down twenty four percent, twenty five percent.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

But the really all of that drop from twenty four to twenty five in the COVID revenue is the government contract that won't repeat that we saw in '24. And then the other piece is retail revenue, which is a really small piece of our business. It's less than a half a percent of our total company revenue. And quite honestly, it's just not really a big focus of ours right now. The professional COVID revenue is relatively flat in our guidance, twenty four to twenty five, and we believe that's really at what I would describe as an endemic level.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

As far as the rest of the respiratory revenue, it's growing in the guidance, it's growing roughly low single digits twenty four to twenty five when you think about flu, RSV and strep.

[Operator]

Thank you. The following question comes from Bill Bonnayo with Craig Hallum. You may proceed.

[William Bonello, Senior Research Analyst at Craig-Hallum]

Hey, thanks guys. I just want to follow-up a little bit on the first question that Patrick asked, maybe slightly differently. The margin expansion target is now a lot better than what you had said not long ago. And it would seem like you had anticipated additional cost savings, you've been talking about that and procurement as an opportunity. So I'm just curious two things, sort of what's going better, what has you more encouraged than when you originally talked about maybe 150 to 200 basis points?

[William Bonello, Senior Research Analyst at Craig-Hallum]

And then secondly, does it change your thinking about the total opportunity at all?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Hey, Bill, this is Brian. I think in terms of what's gone better, you know, we can point to a lot of the accomplishments the organization has made this last year. You know, first and foremost, the staffing reductions that we made, which were, you know, substantially were 9% of our workforce and probably monetized out closer to, you know, 12% to 13% of costs reduction there. But, you know, we very quickly jumped on the procurement piece of that. And I think, you know, as we have gotten significant traction there, that's enabling us to now talk about this additional $30,000,000 to $50,000,000 of incremental savings.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

So, you know, I still see, I wouldn't want to get too far out of our skis there. I still see, our pathway here to the, you know, 25% EBITDA range, and higher over the sort of 25% to 30% range over the next two to three years. So, that's our target. We keep trying to push that as hard as we can.

[William Bonello, Senior Research Analyst at Craig-Hallum]

Okay. That's helpful. And you talked about the procurement being more on the indirect cost side this year. Is there any color you can give on that at all? Like what types of things are you able to achieve there?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yes. It's a lot of costs. It really cuts across the entire P and L. It's everything from supply chain and logistics costs to packaging to travel and entertainment costs. It really just cuts across the whole P and L.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

It's a lot of our service costs in IT and quality, etcetera, and even some R and D expenditures. So it really is a broad based approach that we've taken to the indirect side. And the reason we're those are just a little bit more actionable in the short term than the direct procurement which are generally product related costs that require us to change in some cases the design or make regulatory submissions. And so they just take a little longer for us to implement.

[William Bonello, Senior Research Analyst at Craig-Hallum]

Yes. 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.

[William Bonello, Senior Research Analyst at Craig-Hallum]

Can you just remind us, the reason for the sequential decline?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

From Q3 to Q4 in 2024 you're talking about, Bill?

[William Bonello, Senior Research Analyst at Craig-Hallum]

Yes. Yes.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes. It's going to be mix.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yes. Product mix.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

It's product mix.

[William Bonello, Senior Research Analyst at Craig-Hallum]

Okay. But don't you have more respiratory in Q4 and isn't that higher margin? What

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

No, it's actually less, yes, which is what we had talked about on the Q3 call.

[William Bonello, Senior Research Analyst at Craig-Hallum]

Okay. Okay. Well, I'll ask on our follow-up call, so I don't look any more stupid. Thank you.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Thank you.

[Operator]

Thank you. The next question comes from Lou Li with UBS. You may proceed.

[Lu Li, Healthcare Equity Research, Director at UBS Group]

Great. Thank you. So two questions. So first one on the margin. I just wanted to get your updated thoughts on the tariff.

[Lu Li, Healthcare Equity Research, Director at UBS Group]

Is your assumption right now including like any negative impact from the tariff? Or and then maybe just like any mitigation that you can talk about?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yeah. The tariff subject seems to be ever changing here over the last couple of weeks and we're monitoring it very carefully. We were happy to see that, Mexico and Canada are moving, I think, toward a resolution to what was proposed by the administration. And as you probably know, our industry continues to lobby for an exemption there because, the bulk of medical devices and diagnostic products are manufactured in The United States. We do have some exposure there as, you know, we've got some instruments that are sourced from Mexico.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

But given the changing nature and 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'll be able to provide additional guidance on that.

[Lu Li, Healthcare Equity Research, Director at UBS Group]

Got it. So I wanted to circle back on one of your comment on the China part. So you said risk of additional EBP pressure largely passed for 2025. And you don't really expect any like significant action. Just can you just provide a little bit more detail in terms of like what have you seen on the ground and why you believe that most of the impact should be gone in 2025?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yes. Most of the VBP actions up to this point have been focused on liquid clinical chemistry products, and immunoassay products. Our, our dry slide technology has been exempt from those actions up to this point. And unlike most of our other competitors there, our mix of clinical chemistry versus immunoassay is kind of reversed. We have less immunoassay exposure in the China market, very little immunoassay placement in the China market and most of our volume there is clinical chemistry.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

So based on the timing of how these actions roll out, we believe at this point that really, we don't expect any sort of meaningful BVP impact or that would affect our products in 2025.

[Lu Li, Healthcare Equity Research, Director at UBS Group]

Okay. Got it. If I can squeeze one more. So I just wanted to think about more the long term margin expansion opportunity. So we're talking about like two fifty basis points in 2025.

[Lu Li, Healthcare Equity Research, Director at UBS Group]

Is that a right way to think about in terms of like 2026 as well, given that you do have more procurement opportunity that you just mentioned and then you also have the divestiture of the business. Just wanted to think about how you kind of like a little bit longer term 2026?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes. Hey, Lou, it's Joe. We've been, I think, pretty consistent here since Brian joined the company back last May in that we are targeting adjusted EBITDA margins greater than 25% and that it would be a 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 us like why would it take so long is because we can do the headcount actions fairly quickly, which we did. We can get to indirect procurement savings, which we will get to this year.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

It's the direct procurement savings that take a little bit longer because sometimes you're looking at bringing in recertifying new suppliers or actually swapping in and out new materials on existing products and trying to avoid five ten new five ten filings with the FDA. So it does take a little time. So I think we're making good progress from 2024 to 2025. We will make even more progress as we move into 2026 as we continue with the indirect procurement savings as well as start to see more of the 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.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

S. Donor screening business in 2026. You know, we've sized that at roughly 50 to 100 basis points. And then the final thing I'd mention is, the Savanna launch. You know, that will provide some tailwinds to margins as well as we start to move from dilutive impacts of the project to more accretive impacts of a molecular product margin.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

So all those things combined will get you to, again, that greater than 25% adjusted EBITDA margin. So we'll make progress this year. We'll make more progress next year. And I would think by the time we get to the end of 'twenty six, first half of 'twenty '7, we should be where we need to be with margins.

[Operator]

Thank

[Operator]

you. The next question comes from Andrew Cooper with Raymond James. You may proceed.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Everybody, thanks for the question. A lot already asked, but maybe just one, just to make sure on the $30,000,000 to $50,000,000 of savings this year, that's an in year number and I think you said second half weighted. So is it right to think about as we move into '26, there is some flow through there on top of like you called out the incremental direct procurement work and so forth. So we should have again kind of another above fully normalized margin expansion year in 2026. Is that the right way to think about it?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes. Hi, Andrew. Yes. The $30,000,000 to $50,000,000 that we talked about is incremental. We'll be in year.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

That's the this year impact. And you're right, it will be mostly second half impact. And it will be mostly, as I said earlier, it will be mostly in the OpEx area as a lot of that is focused on indirect insurance. Insurance. And then for sure, we have many direct procurement projects and initiatives in flight, which will start to benefit more in 2026.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And obviously, as we move through 2025, we'll talk a little more about what those impacts might look like in 2026.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Okay. Helpful. And then I'm going to sneak two together here. But maybe just on Savanna and the timing, I think you said you started the trial last month. That puts you a full kind of ten months from when you first withdrew the submission last year.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

It's a little bit later than we would have thought given the typical respiratory season of what we've seen of late would have 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, but just kind of would love the 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 guide?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yeah, sure. So on Savanna and the start of the trial, we did start it in January. As you recall, the flu season was ramping up a little later in December this year than, you know, we had expected. We tried to time the start of the trial with the increase toward the peak so that we would get the kinds of samples that we need to have a successful trial. The season will go on here for another couple of months.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

We'll be collecting our samples, running our data and then we would expect we'd go into a period where we analyze the data and make a submission with the idea of moving through a process for an approval that would put us into the market later this year. So there's really no change in the timing of our expectation for Savanna. And there's not much more that we can really say about it until we're well through our trial and into the regulatory process.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

And then, Andrew, the donor screening question you had, really no change from what we said on the Q3 earnings call that we'd expect that the donor screening business this year will be $40,000,000 to $50,000,000 in The U. S. Donor screening will be $40,000,000 to $50,000,000 And that's down quite a bit from 2024 where we finished at roughly $115,000,000 So it's quite a drag. But we'll get through most of the wind down this year. I think there will be very little residual revenue that will fall into 2026.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

We should get through most of it this year.

[Andrew Cooper, VP - Equity Research at Raymond James Financial]

Great. I'll stop there. Thank you.

[Operator]

Thank you. The next question comes from Teitro Peterson with Jefferies. You may proceed.

[Jack Melick, Equity Research Associate at Jefferies]

Yes. Hi. This is Jack on for Tycho. Thanks for taking our question. I guess, first, thinking about the longer term margin target, how should we think about the trade off between building your longer term growth engine, you know, funding innovation beyond Savanna and sort of rightsizing the cost structure?

[Jack Melick, Equity Research Associate at Jefferies]

What gives you confidence in the ability to get back to consistent mid single digit growth while also driving this new operating model?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yeah. Well, thank you for the question. You know, what I would say is, there's 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 assays content on our platforms and new systems. So we view them as I view them as connected. And you know, our my initial focus was really around getting the organization focused on the things we had to do from a a cost improvement standpoint, getting Savannah, you know, on on the tracks and then we had a number of other important menu expansion and lifecycle management projects.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

We're very quickly here I think with the traction that we're getting in our procurement initiatives turning the corner there to, looking at what we can do now to further drive the robustness of our product portfolio. We're still in the early stages there, but, we're in the process of defining innovation, roadmaps for each of our businesses, you know, that involve assays and new systems. And so, you know, we'll share more about that, in future calls as we develop our plans. I'd also, you know, in terms of the underlying business model here, I would just point to the fact that, you know, this is a very solid, stable mid single digit growth business that's really supported by the underlying business dynamics of, you know, long customer relationships, a positive win loss ratio, high renewal rates, and those dynamics, really support kind of, you know, this underlying growth and really anything we do with systems and new assays are things that we can layer on top of that.

[Jack Melick, Equity Research Associate at Jefferies]

Got it. Appreciate the color. I guess second, real quick. Got into mid single digits and labs for the year. Are there any swing factors in play that could drive that to either lower or mid single digit at the higher end, for instance, China?

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yes. Well, China is a dynamic market. Things change there quickly. I would say, right now I don't see anything again on the BBP 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.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yes. I think I would only add that, as a tailwind, menu is always going to drive incremental growth. So as we continue to reprioritize the R and D group on menu expansion, I'd like to think that there would be potential upside going forward. I wouldn't say this year because what we as the guide, we're comfortable with. But moving forward, as you expand the menu, especially on the IA side, that would drive additional growth.

[Operator]

Thank you. The next question comes from Casey Woodring with JPMorgan. You may proceed.

[Casey Woodring, Vice President - Equity Research at J.P. Morgan]

Great. Thank you for taking my questions. I guess my first one, can you give us a sense on what to expect for 1Q across your different business lines and specifically on respiratory and flu in 1Q? What do you have baked in here there? ILI has been picking up as you noted.

[Casey Woodring, Vice President - Equity Research at J.P. Morgan]

So curious if respiratory in 1Q could come in above where it was in 3Q, since inventories are lower or if some of that was just pull forward in the fall? And then I guess if respiratory is expected to come in stronger here in 1Q, how are you thinking about the rest of the year, just given the unknowns around the twenty twenty five, twenty twenty six respiratory season? Yes, just maybe walk us through 1Q versus the rest of the year in respiratory.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Yes. Hi, Casey. This is Brian. We're seeing the same thing that you're seeing, which is the ILI really spiking up here and also the positivity rate is also, you know, almost double what it was last year and I think it's higher or as high as the 'seventeen, 'eighteen flu season, which was a pretty robust season for us. You know, we got off to a late start, but now we've seen this peak and, you know, the question is how quickly the peak will come down.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

You know, I think just given how high it is, there's a good likelihood that, the tail from the coming down from the peak will stretch out a little bit further. And I think that's supported to a certain extent by what we saw in the Southern Hemisphere this last summer. So we're watching it, and you just don't know what the duration of this season is going to be. So we assumed for our full year guidance an average flu season you know, with a test size of 50 to 55,000,000 tests in 2025, which is kind of the average for us for the last three years. And that's what we've got baked into our full year guide.

[Operator]

Thank you. The following comes from Andrew Brackman with William Blair. You may proceed.

[Andrew Brackmann, Equity Research Analyst at William Blair & Company, L.L.C]

Hi, guys. Good afternoon. Thanks for taking the questions. A lot has been asked. So, Brian, maybe one for you, big picture.

[Andrew Brackmann, Equity Research Analyst at William Blair & Company, L.L.C]

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. Any sort of changes in how you're 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, cuts, things like that? Thanks.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

Thanks, Andrew. Our focus really is on improving the operational performance of the business. I like every one of these businesses. I think they fit together well, again, giving us the capability to work across the entire patient care value stream and be in both centralized and decentralized testing. I think each of the businesses plays a different role in our portfolio, but largely speaking, our focus is on making each of them more profitable and each of them grow more.

[Brian Blaser, President & Chief Executive Officer at QuidelOrtho]

So in the short term, I don't have anything really to say on business development opportunities. We're really just focused on improving the operation of the business at this point.

[Andrew Brackmann, Equity Research Analyst at William Blair & Company, L.L.C]

Great. I'll just stick to that one. Thanks guys.

[Operator]

Thank you. The final question comes from Connor McNamara with RBC Capital Markets. You may proceed.

[Jose Ricardo Moreno, Equity Research Senior Associate at RBC Capital Markets]

Hello. This is Jose Ricardo for Connor. I just wanted to go back to the tariff conversation. Thank you for letting me ask question. I know things have changed quickly since you spoke and the administration has different approaches to tariffs depending upon the country.

[Jose Ricardo Moreno, Equity Research Senior Associate at RBC Capital Markets]

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 that provide you with procurement of process materials that you also incorporate into your manufactured, instruments?

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

Yeah. Yeah. That's all factored into the analysis that Brian referenced earlier.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

It is all factored in there. Yeah. And again, we don't see a lot of exposure for China or Canada. You know, if there's any one country where more exposure, it would be Mexico, including all those layers that you mentioned.

[Jose Ricardo Moreno, Equity Research Senior Associate at RBC Capital Markets]

Perfect.

[Jose Ricardo Moreno, Equity Research Senior Associate at RBC Capital Markets]

Thank you.

[Joseph Busky, Chief Financial Officer at QuidelOrtho]

You're welcome.

[Operator]

Thank you. There are currently no other questions in queue at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect your line.

Participants

Executives

• Juliet Cunningham, Vice President-Investor Relations
• Brian Blaser, President & Chief Executive Officer
• Joseph Busky, Chief Financial Officer

Analysts

• Jack Meehan, Equity Research Analyst at Nephron Research LLC
• Patrick Donnelly, Managing Director, Equity Research Analyst at Citi
• William Bonello, Senior Research Analyst at Craig-Hallum
• Lu Li, Healthcare Equity Research, Director at UBS Group
• Andrew Cooper, VP - Equity Research at Raymond James Financial
• Jack Melick, Equity Research Associate at Jefferies
• Casey Woodring, Vice President - Equity Research at J.P. Morgan
• Andrew Brackmann, Equity Research Analyst at William Blair & Company, L.L.C
• Jose Ricardo Moreno, Equity Research Senior Associate at RBC Capital Markets