Welcome to the QuidelOrtho Second Quarter 2025 Financial Results Conference Call and Webcast. [Operator Instructions] Please note, this conference call is being recorded. An audio replay of this conference call will be available on the company's webcast shortly after this call. I would now like to turn the call over to Juliet Cunningham, the Vice President of Investor Relations. Please proceed.

Thank you. Good afternoon, everyone, and thanks for joining the QuidelOrtho Second Quarter 2025 Financial Results Conference Call. Joining me today are Brian Blaser, President and Chief Executive Officer; and Joe Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To aid in the presentation, we have also posted supplemental information on the Investor Relations page that will be referenced throughout this call. This conference call and supplemental information contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historically -- strictly historical, including the company's expectations, plans, financial guidance and future performance as well as prospects are forward-looking statements that are subject to certain risks, uncertainties, assumptions and other factors. This includes the expected impact of tariffs and macroeconomic conditions and the proposed acquisition of LEX Diagnostics. 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-K for the 2024 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Forward-looking statements are made as of today, August 5, 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 the most directly comparable GAAP measures are available in our earnings release and the supplemental information, which are on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. Now I'd like to turn the call over to our CEO, Brian Blaser.

Thanks, Juliet. Good afternoon, everyone, and thanks for joining us today. I'll begin by reviewing our second quarter results, and then I'll discuss how we are addressing changes to U.S. trade policy and tariffs, and I'll finish with my thoughts on our recently announced intent to acquire LEX Diagnostics in the molecular space. Beginning with our second quarter results, total revenue of $614 million grew 1%, excluding COVID and the Donor Screening business, which we are in the process of winding down. Joe will go into additional detail, but let me provide some of the top line Q2 and year-to-date highlights. First, we delivered consistent solid results in our Labs and Immunohematology business units with organic constant currency growth of 5% and 3%, respectively. Our respiratory business remained stable for this time of year with a relatively small $2 million revenue decline, excluding COVID. As many of you know, Q2 is typically our lowest revenue quarter of the year due to the seasonally low viral prevalence, especially in North America. As a result, North America revenue declined by 12% during the quarter. Our Q2 OUS performance was led by strength in Latin America, Japan, Asia Pacific and Europe, Middle East and Africa. EMEA growth was up 3% in the quarter and is up 6% year-to-date. And our other region grew 10% in the quarter with 14% growth in Latin America and 6% growth in Japan and Asia Pacific. Our low OUS penetration continues to be a significant opportunity for growth for us and is an area of focus. Turning now to China. We had 2% growth in Q2 despite the tariff-related shipment holds we had in place in the month of April, and those shipments have since been fully restored. China has been a challenging market for many of our…

Thanks, Brian, and hello, everyone. I'll start by discussing our second quarter results, which are detailed on Slide 3 of the supplemental information available on the Investor Relations section of our website. And unless otherwise noted, all year-over-year revenue growth figures discussed today are presented on a constant currency basis. Let me begin by taking you through our second quarter performance, followed by a discussion of our full year 2025 financial guidance, which remains unchanged. After that, we'll open up the call for questions. Total reported revenue for the second quarter of '25 was $614 million compared to $637 million in the prior year period. The year- over-year decrease in total revenue was primarily due to lower COVID and Donor Screening revenue, the latter of which is related to the continued wind down of that business. Excluding COVID and Donor Screening revenue, revenue growth was 1% during our seasonally lowest quarter of the year. Foreign currency translation had a slightly favorable impact of 20 basis points during the second quarter. Based on foreign currency exchange rates as of the end of July, we expect FX to now have a neutral impact on revenue and adjusted EBITDA for the full year. Brian provided the regional commentary, so I'll focus on our broader business results. Looking at our non-respiratory business in the second quarter of '25, revenue grew 1%, excluding Donor Screening. Within that nonrespiratory category, our labs business grew 5%, driven by good performance in both clin chemistry and immunoassay testing. Notably, in our Labs business, we continue to see strong recurring revenue with long contracts and a loyal customer base. Integrated and automated labs installed base grew 6% and 11%, respectively. This growth is evidence that our commercial strategy to lead with integrated analyzers and automation continues to work well.…

[Operator Instructions] Our first question comes from Andrew Brackmann with the company, William Blair.

This is Maggie Boeye on for Andrew today. Maybe first, just to start, can you walk through just your respiratory expectations for the remainder of the year? And just how you got to where your current COVID guidance is? Do you feel that you've kind of gotten your guide to a more conservative place given the chance it could be a lighter season?

Yes. Maggie, it's Joe. So first of all, it's probably worth stating -- I'm not sure I said it in the prepared remarks, but we're not changing any of our flu assumptions. The flu guidance is exactly the same as it was when we started the year. There's no change there. The only change in our respiratory revenue guidance is on COVID. And as I said in the remarks, we are seeing a rise in positivity in COVID as we speak. However, ED visits and hospitalizations are lower, which points to less disease severity and likely less testing as a result. So year-to-date, we've had about $33 million in COVID revenue. We do expect higher revenue in the second half. But -- so probably not as much as we assume for Q3. So we are bringing the range down from $110 million to $140 million to $70 million to $100 million for the full year for COVID.

Okay. That's helpful. And then just maybe one on China. Can you -- I know you mentioned in the prepared remarks the visibility you have that gave you comfort in narrowing that range to mid-single-digit growth for 2025. So can you walk us through how that's the right number? Is there -- where does the potential risk lie there? And then just how are you thinking about the revenue growth opportunity in China over the longer term?

Yes. So thanks, Maggie, for the question. I'll just double-click into China for a minute here. So our business in China is a little different than most of our peers there. We have mostly clinical chemistry business where we have very good pricing due to our dry-slide technology. We're also underpenetrated in immunoassays which generally have higher prices and margins. And so that's a real opportunity for us. And we continue to see China as an important market for us as long as the economics continue and notwithstanding anything crazy that happens with tariffs or otherwise. The market has seen a number of pricing and volume actions taking place. There have been a couple of BBP actions that took place in infectious disease and hormone. Some tumor markers were impacted by that. Those had relatively minimal impact on us. There was also a unified reimbursement plan for some additional cardiac assays. And that also had kind of a relatively minor impact to our business there. And of course, they've gone through this panel debundling process or DRG process, which has had some impact to our volume there. But because we're largely a stat lab-focused placement there, those panels are generally not debundled when they're run in a stat lab that you're generally looking for broad indications of what's going on. And so you don't tend to unbundle those tests. So we've been maybe less impacted by that. I would say that most of the BBP, this reimbursement, the unbundling actions, these have kind of already happened. And we don't really see any actions on the immediate horizon that would impact the remainder of 2025. So we are expecting higher growth in the back half of the year that would bring us to the mid-single-digit level for the full year and just monitoring the environment carefully as you always have to do in that region.

Our next question comes from Patrick Donnelly with the company, Citi.

Joe, it sounds like maybe a few moving pieces on the EBITDA side, maybe a little less COVID and then better on the Savanna piece and maybe the tariffs. Can you just talk through the moving pieces? Obviously, when Savanna got discontinued, it felt like you guys had some room. Is that just COVID being high margin moving down a little bit? What are the levers there? And again, it sounds like you're still confident in the midterm guide, '26 and beyond. But yes, maybe just walk us through the margins, the moving pieces to keep it here. It felt like maybe there's some room. Is there conservatism still? Curious how you're thinking about it.

Yes. Sure, Patrick. So again, maybe for the full year guidance on the revenue side, it's actually pretty simple. The COVID numbers are coming down a little bit. It's being offset by less FX impact. So therefore, the revenue guide for the full year is unchanged. And then when you move down to adjusted EBITDA and adjusted EPS, we are looking at the COVID revenue range coming down on the low and the high end by $40 million due to the reasons I just outlined in my response to Maggie earlier. And that's probably a $20 million to $25 million impact on gross profit and adjusted EBITDA. And then the good guys offsetting that are we have less tariff impacts to the tune of $15 million to $20 million. And then we have the discontinuation of the Savanna development that is going to provide $5 million to $10 million of upside. And so all those -- really those 3 things net out and get us back to the same number for the bottom line adjusted EBITDA and adjusted EPS.

Okay. Got it. And then maybe a quick follow-up on China. I know it sounds like you trimmed the guide from mid- to high single to just to mid-single. Is that just the cardiac piece? And then again, it sounded like some of the shipments that were on hold in 2Q have already shipped. Can you just talk about the confidence in the 2H piece? Is a lot of that driven by the timing? Or are there other variables that we should be keeping an eye on?

Yes. Patrick, I think the narrowing of the China full year guidance to mid-single digits is just really based on the fact that we've got 2 quarters behind us, and there's only 2 quarters to go -- and this business, it's mostly a labs business. I mean there is some IH business there. There's some Triage business there, but it's mostly labs. And the labs business is a pretty predictable business for us, not only in China but around the world. And so it's really just the visibility we have and the fact that, like Brian said, most of those impacts, we think, are behind us. And therefore, we don't expect any more of those downsides. And so it's just good visibility, we can narrow the range down to a pretty small range.

Our next question comes from Tycho Peterson with the company, Jefferies.

This is Jack on for Tycho. Appreciate the question. Congrats on the good quarter. Just want to touch on point of care. I know you talked through Triage a little bit but that was, I believe, down 2% in the quarter, but I want to touch on the other elements there in Sofia and sort of what happened in the quarter?

Yes. This is -- Jack, this is Joe. As we've said a couple of times, Q2 is our lowest respiratory quarter. So the respiratory revenue ex COVID was pretty flat. We did already mention that COVID was down 52%. And so the other piece in there, there's this other cardiac revenue, which I noted in the in the prepared remarks was down about $10 million year-over-year in the quarter, but it's all timing within the quarter. So we expect to totally make that up in the second half of the year. So it was a bit of a headwind in Q2 for sure, but it's totally timing with the second half of the year. And those are all the pieces that will get you to the Point of Care numbers.

Okay. And then I guess any color on Sofia specifically?

Yes. Again, Sofia, that's the flu revenue, and it was pretty small in the quarter and it's flat year-over-year.

Okay. And if I could just sneak one more in. I guess, as we think about China, I appreciate the colors on EVP and DRG. It sounds like you're still bundling a lot of these assays at the stat labs. I guess, how should we think about sort of like the go-forward exposure to DRG if that were to, I guess, turn adversely?

Well, I think it's the way I characterized it. Again, most of our business there is in the labs space and a significant portion of that business is in stat labs, and we continue to position our systems in stat labs and distributed testing environments where I think they're less likely to do unbundling just because of the nature of how they're treating patients. So I think we'll see some of it moving forward, but I don't -- I wouldn't expect it to turn sharply for any reason.

Our next question comes from Conor McNamara with the company, RBC Capital Markets.

Great. And sorry, Joe, just one more housekeeping item on the guidance, just to follow up on what Patrick was asking. So it looks like revenue -- you took out about $50 million in revenue between COVID and China and then...

Conor, just to maybe be clear, the China revenue in the guide is not changing, is not changing at all. I want to be really clear about that. We just narrowed the range for everyone. What came down -- came -- did come down, yes, was COVID revenue range, and that was $40 million, 4-0 on the top and the bottom. And that's really fully offset by the now change in FX assumption where FX is neutral for the year.

Okay. Got it. And -- just on molecular, can you just talk about -- obviously, it's still ways off, but can you just talk about the opportunity there and your strategy when you do go to market? Is the early placements are those going to be with current Sofia customers? Or is there a greenfield opportunity to go after new accounts? And who's going to be driving the sales there? Is that the legacy Quidel? Or are you going to be able to -- is this part of what the legacy Ortho sales reps brings to the table? If you could just expand on that, that would be great.

Yes. Well, it's a really compelling platform. As I described it, it's basically an ultra-fast real-time PCR, 6 minutes to a result on their respiratory panel. It has a low-cost profile for both the instrument and the cartridges. It has a direct swab option. It's got room temperature, reagents and really, I mean, super simple sample-to-answer workflow. And I won't single out any specific competitors. But if you look at that -- our platform against any of the competitive platforms out there, there are different elements of our value proposition that compete nicely against each of those competitive platforms. And so we think there's plenty of opportunity to take share from existing competitors, but also there still is some greenfield opportunity there. In terms of the channel, it will be a combination of the current channel that we use for Sofia, but also there are professional applications for this. So we expect to utilize the ortho commercial team, the legacy ortho commercial team to place those instruments as well. And I think we're just very excited about the platform. It's in active review right now with FDA. And as we understand it, the review is going as well as you would hope, and we're looking forward to getting it on the market. When we do get approval, assuming, again, that happens by the end of the year, we'll be making placements probably with a lot of existing customers, but I would expect some new customers as well so that we can get a full range of input on the performance of the platform. And our objective will be to scale placements as quickly as we possibly can. And I think importantly, also to expand the menu of the platform beyond just the respiratory space, but into other areas like women's health and STI, as I mentioned in the prepared remarks. So again, very, very excited about the platform and looking forward to seeing a successful approval sometime later this year, hopefully.

And one final question, if you don't mind. Just with one of your competitors changing hands. Do you see an opportunity to potentially take some market share if there's any disruption there? Or is it too early to tell if that's an opportunity for you guys?

Well, any time there's disruptive activity in the market, it's generally a good opportunity for competitors, and we'll certainly look to exploit that the best we can, just like they would if we were going through it. So yes, we'll be looking at that carefully.

Our next question comes from Casey Woodring with the company, JPMorgan.

I guess the first one is just can you walk us through how you're thinking about free cash flow in the back half? 2Q took a step down given lower respiratory volumes. But just what's your visibility into the 25% to 30% of adjusted EBITDA conversion guide for the year and that implied ramp versus the -- I think it's around 5% you did in the first half.

Yes. Casey, it's Joe. So that 25% to 30% of adjusted EBITDA target, that's a recurring free cash flow number. And just to reiterate the numbers, we did -- we've done $15 million of recurring free cash flow in the first 2 quarters of this year. Last year, we actually used $79 million of cash in the first 2 quarters of the year. And then we've been saying all along that our business is very seasonal and that we will generate more cash in the second half of the year versus the first half of the year. And that was evident last year, too, last year, we generated $189 million of recurring free cash flow in the second half of the year. And so to get to our target of that 25% to 30% of adjusted EBITDA, we need to generate -- we need to be somewhere between about $140 million to $160 million of second half free cash flow. So it's totally reasonable based on what we did last year and the seasonality of the business. So we will definitely see more cash flow in the second half of this year to get us to that target.

Got it. That's helpful. And then my follow-up, just on the $30 million to $50 million in incremental savings this year, you had previously said that, that would be back half weighted. Just any more color there? Is it closer to $50 million or closer to $30 million? And do you have a better sense of the quarterly cadence that we should assume between 3Q and 4Q?

Yes. The $30 million to $50 million for this year was primarily related to indirect procurement initiatives, and we are very much on track to realize that $30 million to $50 million. I would say it's definitely more back-end loaded and that we'll see that savings in the back half of the year. And if you look at the savings that we've seen in the first half of the year, relative to last year, you can very much see from the margin improvement that we're getting the impacts of the headcount, the $100 million annualized headcount reduction that we did a year ago. And so you will also start to now see second half benefits as well, and that's going to be mostly related to the indirect procurement benefits. And it will be in that range of $30 million to $50 million, Casey. More to come on that, I guess, on the next call.

Our next question comes from Jack Meehan with the company, Nephron Research.

I wanted to talk about the guide -- the FDA guide for respiratory testing. So flu is unchanged. You brought COVID down a bit. What I was curious about is what you're assuming in terms of the ABC combo test as a percentage of mix, just the outlook for demand there?

Jack, yes, no change in that. We are still assuming that greater than 50% of the mix of flu will be the combo test. That combo testing going back to even Q1 this year and the 2 previous years, again, has been pretty durable. And we expect the same as we move into Q3 and Q4. No change.

Okay. And then either for Brian or Joe, as you've kind of reassessed the molecular strategy over the last couple of months between Savanna and LEX, I was actually curious what that means for the other parts of your molecular portfolio as LEX potentially comes in, how are you feeling about Savanna and Lyra and kind of their long-term positioning?

Yes. We're kind of taking a step back and looking at that. I expect those to have a place in our portfolio. As you know, they're smaller businesses. And really, we're hanging our hat on most of our growth there on the future of the LEX platform. So that's kind of how we're thinking of the molecular space.

Next question comes from Lu Li with company, UBS.

I think the first one on the LEX. As you're planning for the commercialization, have you already started to do some kind of like commercial work like marketing? And even I remember like you probably need to move some of the manufacturing to the U.S. I wonder if you have already started to doing that.

This is Brian. No, we have not started any commercial efforts whatsoever there. We've only announced the intent to acquire the business. They still have to get through their FDA approval. We are looking at what we can do from an infrastructure standpoint ahead of an approval. but nothing externally commercial with customers or in the marketplace whatsoever.

Got it. Makes sense. And then I guess maybe focusing on some other kind of like business in terms of like portfolio refresh, have you started like to identify any areas that you can potentially launch new products in 2026 or maybe even beyond that?

In terms of new products, well, in the short term, we're very focused on really -- it's mostly a number of, I would say, menu gap fillers, a handful of menu gap fillers across primarily the labs platforms. We are, at this point, now starting to think about and envisioning concepts for next-generation platforms. As you know, you have to stay relevant in the space, and that's important to us. But over the near term, it's primarily going to be content and maybe some additional feature capability on our existing systems, informatics and maybe some automation upgrades on existing platforms as well.

Our next question comes from Andrew Cooper with the company, Raymond James.

Maybe just first, a lot of talk about VBP. I think we've covered kind of why you're not impacted as much. But does this do anything as a competitive landscape when you think about that opportunity in immunoassay and what you bring to the China market? Or does it change the way you approach that in any way?

I just -- I think it probably speaks more to our longer-term opportunity as opposed to any radical upset of the competitive landscape there. I mean it's still a very competitive market, as you know, with not only large multinational corporations who participate, but also a lot of local suppliers in the immunoassay market. So we're looking at how we shape the organization, how we shape our business to advance our penetration there and also preserve our economics while we do it.

Okay. Helpful. And then maybe just one kind of similar type question on the respiratory side. I know in the past, you guys have commented some on share. Obviously, we've heard from some other folks saying some different things in the space. So what's the latest view on share in that respiratory setting? And I guess, in particular, in really those core settings for you in primary care and acute care and locations like that. Has there been any change and kind of any update to the thinking there would be great.

Andrew, it's Joe. Similar to what I said previously on the flu guidance, there's really no change to the flu guidance that we put out back in February. And again, just to remind everybody that the modeling that we do is based on market share size of the market in terms of volume and the mix of that combo to stand-alone flu A/B testing. And again, there's no change to any of those assumptions. We're still really in the same place. So Q1 and Q2 from a respiratory perspective played out pretty much as we expected. And based on what we're seeing from the Southern Hemisphere flu season, there's no change to our guidance there for the full year on the flu. All those assumptions are in the same place.

At this time, there are no more questions registered in the queue. I'd like to pass the conference over to our host, Brian Blaser, for closing remarks.

Thank you, operator, and I thank all of you for your time today. I'd just say to wrap up, we're pleased with our solid results in Q2 and the first half of 2025 with adjusted EBITDA margin and adjusted EPS improvement resulting from our cost initiatives. The strength of our underlying business with our recurring revenue model, long-term contracts, good visibility gives us confidence that we're on the right track and well positioned for continued growth. So we look forward to sharing our continued progress with you next quarter. Thank you.

That will conclude today's conference call. Thank you for your participation, and enjoy the rest of your day.