QuidelOrtho Conference Call Summary Company Overview - **Company**: QuidelOrtho (NasdaqGS: QDEL) - **Date**: September 10, 2025 - **Key Speaker**: Joe Buske, CFO Key Industry Insights Financial Performance - **Q2 Highlights**: Achieved 400+ basis points margin improvement compared to the previous year, marking two consecutive strong quarters in 2025 [2][3] - **Revenue Growth**: Base business continues to grow at a mid-single digit rate, particularly in labs and immunohematology [4] Strategic Decisions - **Manufacturing Facility Closure**: Decision to close a large manufacturing facility in Raritan, New Jersey, aimed at enhancing operating margins in the coming years [3] - **Product Development Shift**: Transition from Savannah molecular product development to acquiring Lex, a UK-based business, pending FDA approval for a respiratory panel [3][11] Market Positioning - **Lab Strategy**: Focus on small to mid-sized hospitals and labs, utilizing integrated analyzers for routine chemistry and immunoassays, which has proven effective [5][7] - **Automation Growth**: Integrated analyzers have seen high single-digit to low double-digit growth, indicating successful implementation of automation strategies [7][8] Regional Growth Opportunities - **Emerging Markets**: High single-digit to low double-digit growth expected in less developed regions such as Latin America and Asia Pacific, compared to low to mid-single digit growth in developed markets [9] Product Development and Future Outlook Lex Acquisition - **Strategic Rationale**: Pivoting to Lex due to its competitive advantages in turnaround time, ease of use, and cost-effectiveness compared to Savannah [11] - **Expansion Plans**: Focus on adding RSV and strep to the respiratory panel, with further opportunities in women's health and STIs [13] COVID-19 Revenue Trends - **Revenue Decline**: COVID revenue has significantly decreased from $1.4 billion in 2021 to an expected $70-100 million in 2025, with a stable professional use space revenue [18][19] Flu Season Expectations - **Flu Revenue Guidance**: Anticipating a typical flu season with projected volumes of 50-55 million tests, maintaining steady market share [20][21] Challenges and Risks Transfusion Medicine Business - **Business Wind Down**: The donor screening business is being phased out, with expected revenue dropping from $120 million last year to $40-50 million this year [23][24] China Market Dynamics - **Resilience Against Headwinds**: QuidelOrtho's unique dry slide technology has insulated it from some of the volume-based procurement initiatives affecting competitors [28][29] - **Long-term Growth Potential**: Despite complexities, the company sees opportunities for growth in the immunoassay business in China [31] Margin Improvement and Financial Strategy EBITDA Margin Goals - **Targeted Growth**: Aiming for adjusted EBITDA margins in the mid to high 20% range by mid-2027, up from 22% this year [32][34] - **Cost Reduction Initiatives**: Significant staffing reductions and indirect procurement initiatives are expected to yield substantial savings [33][34] Debt Management - **Debt Refinancing Benefits**: Recent refinancing has improved maturity profiles and financial covenants, providing more flexibility [36][37] - **Leverage Ratio Goals**: Targeting a leverage ratio of 2.5 to 3.5 by 2026, aligning with margin improvement timelines [39][40] Conclusion - **Opportunities**: The Lex product is viewed as the most significant growth opportunity in the near term [46] - **Challenges**: Ongoing macroeconomic conditions pose challenges to margin improvement and debt reduction goals [48] - **Stable Base Business**: The labs and immunohematology segments represent a stable revenue foundation, contributing to predictable growth [50][51]

Financial Data and Key Metrics Changes - Total revenue for Q2 2025 was $614 million, a decrease from $637 million in the prior year, primarily due to lower COVID and donor screening revenue [20][27] - Adjusted EBITDA increased by 19% year-over-year to $107 million, with an adjusted EBITDA margin improvement of 330 basis points to 17% [27] - Adjusted diluted EPS was $0.12, compared to a loss of $0.07 in the prior year, representing a growth of 271% [27] Business Line Data and Key Metrics Changes - The labs business grew by 5%, driven by strong performance in clinical chemistry and immunoassay testing [21] - Immunohematology revenue grew by 3%, with notable strength in Latin America and EMEA [22] - Respiratory business revenue decreased by $2 million, primarily due to a 52% decline in COVID sales [23] Market Data and Key Metrics Changes - North America revenue declined by 12% during the quarter, while international markets showed growth, particularly in Latin America (14% growth) and Japan/Asia Pacific (6% growth) [9][10] - China experienced 2% growth in Q2 despite tariff-related shipment holds, with expectations for mid-single-digit growth for the full year [11][12] Company Strategy and Development Direction - The company is focused on expanding its low OUS penetration as a significant growth opportunity [10] - Plans to acquire Lex Diagnostics to enhance its molecular diagnostics capabilities, with expected FDA clearance and market placements in 2026 [16][17] - Continued emphasis on cost structure optimization and operational improvements to drive profitability [12][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in mitigating tariff impacts, estimating potential headwinds of $20 million to $25 million for 2025, lower than previous estimates [15] - The company remains committed to delivering on its strategy to drive growth and expand profitability, with a focus on customer service and innovation [18][27] Other Important Information - The company completed its ERP conversion related to the business combination, which is expected to lower integration costs in the second half of the year [26] - The company anticipates annual operating cost savings of approximately $20 million from the consolidation of its New Jersey manufacturing site [26] Q&A Session Summary Question: Can you walk through your respiratory expectations for the remainder of the year? - The company is not changing flu assumptions, but COVID revenue guidance has been lowered due to lower emergency room visits and hospitalizations [35][36] Question: Can you provide insights on the visibility for China growth? - The company has good visibility for mid-single-digit growth in China, with minimal impact from recent pricing and volume actions [39][45] Question: What are the moving pieces affecting EBITDA? - The decrease in COVID revenue is offset by lower tariff impacts and the discontinuation of the Savannah platform, leading to no change in adjusted EBITDA guidance [48][51] Question: How is the company planning for the commercialization of the Lex platform? - No commercial efforts have started yet; the focus is on FDA approval before any marketing activities [92] Question: What is the outlook for free cash flow in the second half? - The company expects to generate more cash in the second half, targeting $140 million to $160 million of free cash flow [77][78]