Well, thank you everybody for coming today. Welcome to the JPM Healthcare Conference. My name is Casey Woodring. I'm from the Life Science Tools and Diagnostics team here at JPM. Pleased to be joined today by QuidelOrtho. Here with me today, I have CEO Doug Bryant. So I'll turn it over here to Doug in a minute for the presentation portion, and then we'll get to the Q&A session afterwards. So with that, take it away, Doug.
Thanks, Casey. Good morning, everybody. I'm pleased that we're gonna be stuffed in this room. I'm pretty sure prevalence is going up for various respiratory things going around, including whatever I have. So, I'm pleased to be here to talk about QuidelOrtho and talk about our progress. With me here today are Joe Busky, our Chief Financial Officer, Juliet Cunningham, our Head of IR, and Rob Bujarski, our Chief Operating Officer. We will be making forward-looking statements, and these are our safe harbors. Okay.
So I've been, as some of you know, I've been the CEO at Quidel since 2009, and, during that time, we've evolved, from a small, fairly concentrated diagnostics company into QuidelOrtho, a larger, global diagnostic player that serves customers in more than 130 countries. Today I'll talk about the market opportunity and how we're, growing and capturing share, in each of our, business units. I'll also talk about our R&D efforts, that will drive growth, both near and longer term. And then finally, I'll cover our financial results, through Q3, and leave you with the reasons why we're excited about our future. Must have been in the wrong room. I've said before that Quidel's strategic intent,
In fact, I've said it for many years was to build a broader-based diagnostic company with scale and with critical mass, and we've done that. Our company provides a broad, highly diversified portfolio of more than 550 different assays on multiple platforms in four business units: Labs, Transfusion Medicine, Point-of-Care, and Molecular. We're headquartered in San Diego with roughly 7,000 employees serving customers across the globe. Based on our 2023 guidance, which we provided last August, we expect total 2023 revenue to be in the $2.9 billion-$3.0 billion range. Excluding respiratory-related revenue, we expect total revenue to be roughly $2.3 billion.
Importantly, in the first 9 months of 2023, total company recurring revenue was 82%. Instrument placements drive product pull-through, and we have a strong recurring revenue model. New product launches and continuous menu expansion enable us to grow above market and compete head-to-head with much larger companies. Of a $48 billion addressable TAM, our products target an opportunity of about $19 billion, shown here by both disease state in the middle and then by instrument platform on the right. Yeah, this chart actually shows the diagnostic healthcare continuum from left to right.
From the most centralized to the most decentralized segment of the market, from furthest from the patient, to closest to the patient, from the slowest turnaround time in terms of result back to physician and a patient, to the fastest. From the most efficient from a testing perspective, to the most effective from the perspective of the physician and the patient. We are well positioned in both reference labs and hospital settings, as well as decentralized settings, such as physician office, labs, clinics, the retail segment, and at-home settings. Our solutions cover the continuum of diagnostic care where and when they're needed. Our business units have been designed to meet and anticipate the needs across the continuum, offering synergies, efficiencies, and capabilities that place us in a position to quickly seize and deliver on opportunities in real time.
This illustrates the reason we chose to combine Quidel and Ortho Clinical Diagnostics to create global scale and capitalize on multiple cross-selling opportunities with a strong commercial team of approximately 3,000 people globally. We're just getting started. We intend to participate in the fastest-growing, most profitable diagnostic markets around the world. And again, this is the principal reason we put the two companies together. Both companies saw the need to play meaningfully in the molecular diagnostic space. We've developed Savanna, and launched the product, and can now jointly leverage our global footprint, both from a commercial perspective, of course, but also, through the systems and processes that we need, to manage a broader base of business across the globe.
Since we combined the two companies in mid-2022, you know, we've been aggressively focused on returning, excuse me, reducing, complexity in the business, enhancing our culture, improving capital allocation and portfolio management. We're increasing our synergy targets, and that, I think, demonstrates that the integration of the two companies is going very well. We're moving along nicely, and we think there is even more improvement to be had by year-end 2025. And we'll describe in more detail our plans and our projections for the third bucket on the right at our Investor Day in March. So we clearly believe there's a lot more than $130 million, and we'll describe that to you in some detail shortly.
We remain focused on creating volume and prioritizing initiatives that can help drive incremental growth, increase efficiency, and improve profitability. We have several initiatives, several work streams that we're committed to, and we've engaged a significant percentage of our employee base in chasing after these initiatives. Those are in commercial, which are focused on maximizing our global presence and taking advantage of many cross-selling opportunities available to us. You know, we are keenly focused on executing our Savanna launch, of course, in the United States. I'll talk a little bit more about that in a second, which is a really large growth opportunity for us, but there are other cross-selling opportunities, as well. In operations, we're improving things in supply chain procurement and optimizing manufacturing.
In finance, we're focused on improving free cash flow and consolidating systems and processes for greater efficiency. And in R&D, that's more about prioritizing and executing the development projects that will drive growth, in the next year, as well as longer term into the next decade. And then finally, culture, which I, believe is probably equally important, bringing our people together and putting their talents to work on roles that are best suited for them, and their career growth objectives and their aspirations. So we've got a plan, and we've got a great team with a track record of getting things done. So, now we're going to move and talk about each of the, the business units. We're focused on some of the faster-growing and more profitable diagnostic market segments.
Moving forward, we see real opportunities in molecular diagnostics, of course, in particular for infectious disease testing, and diagnosis closer to the patient. In addition, I would say medium-term, highly sensitive immunoassay, to detect proteins that have thus far been a challenge for laboratorians, over the years. Our labs business, our largest revenue business, has had a great year, growing high single digits, in the first 9 months of 2023. We've successfully worked through a large instrument and reagent, backlog to return to normalized levels in Q3 2023. We've integrated a lot of the business, and that strategy is paying off. We now have an installed base, in terms of the integrated strategy, in particular, that's the combination of immunoassay and clinical chemistry.
We now have 4,500 fully integrated analyzers and with very high recurring revenue. 40%-45% of the placements are with new customers, which I think portends well for that business. The Transfusion Medicine business is a business with a rich 80-year history. Ortho is the brand name in transfusion. Our Immunohematology business is a recognized global brand leader with a growing automated installed base of about 6,800 analyzers. Immunohematology is a solid business that has the potential to grow from the low single digits to the mid to high single digits with a reasonably modest investment in a higher volume next-gen platform.
The point-of-care business, our point-of-care business rather, has made us the number one leader in respiratory testing, gaining share from much larger companies, and we've been doing that for several years now. I wanna spend a couple minutes, and I've actually got an actual chart that is prepared by a third party. It's the same third party we've used for years. And it may not be precise, but it's consistent 'cause we're using the same party. So when you look from year to year, you can see, are we gaining directionally? So while the specific numbers to the tenth of a percent may not be exact, or we could see a little bit of variability there, the direction is certainly accurate. So I'd like to comment on a couple things.
One, the flu space, which is now for us, flu standalone and flu with COVID. I'll comment on the U.S. market for that being the largest market there, and then I'll also talk about RSV. Years past, I haven't spent a lot of time talking about RSV, but I think you've seen it in the news, and it's the market's up 39% year-over-year. So I'll talk about that as well. But if you look at it in terms of a unit market share, first, if you compare October 2022, trailing twelve, and more recently, October 2023, trailing twelve, you see that the total unit market size in the professional segment in the U.S. market has gone from roughly 50 million tests per year to 57. So clearly, post-COVID pandemic, the market for respiratory testing continues to grow.
In that period of time, we've increased our market share by 2.7%, from roughly 38% to roughly 41%. Our next nearest competitor, in that, in terms of unit market share, is at 16%. So significant difference between us and the next competitor. That wasn't true a few years ago. Pre-COVID, for those of you who have been following us for a while, we were pretty close with another competitor that started with a B, okay? That competitor, interestingly, in a year-over-year comparison, we went up 2.7, and they went down 2.7. So that's flu.
And what I would say also worth noting in the charts, because we look at it by segment, by physician office segment, and then we also look at it in terms of the acute setting. The physician office setting is growing faster than the hospital setting, so fairly significantly so. And so the largest part of the market now for respiratory disease testing. That sounded like RSV, didn't it? Actually, RSV is a deeper throat. When you're on the plane, you hear that guy behind you with a really low cough, that's probably RSV. So just take note. So where was I, anyway?
So what I'm suggesting is that we've always said that we thought that for certain things, where testing closer to the patient made sense, that we would see an increase in that decentralization, and we're certainly seeing that in respiratory disease testing. Now, for RSV, I'm proud to tell you for the first time at this conference, that we are now the market leader in RSV testing. We've surpassed the company that starts with an A, and. But we both dominate the space, to be fair. Our market share right now I'm showing is at 46%, and they are at 38, so pretty close. So those two us two companies pretty much are RSV in terms of unit market.
We are up 5.5% in terms of market share this year over last, and the market year-over-year, same, trailing twelve data, up, as I said, 39%. So some other facts about point-of-care. We have 88,000 Sofias on the ground. I've been asked: Are you still growing placements? Yes, we are. Through the first nine months, we had placed an additional 3,900 analyzers in the United States. And of those, 48% were brand-new customers, right? So we continue to do well in this space. I don't wanna sound arrogant, but I do wanna point out that we, we do pretty well in the space. So and this, it's our highest market share category. It's our highest margin category as well.
Right now, the split is roughly 49% in terms of the number of analyzers, and in the physician offices, and 51% are in the hospitals. The hospitals just have more on the bench, because of the volumes, at those sites. And I'm often asked this: How many of your customers are just running COVID-19? And it's about 5% of the placements just run COVID still. And then moving to Triage, another important platform for us. We've got about 16,000 analyzers on the ground, and the business is roughly about a $200 million business. So, and that's, you know, significant relative to our total, but we do expect quite a bit of growth in the category. Expansion across geographies, cross-selling has been an important lever.
We anxiously await a couple different assays. We're launching, of course, high-sensitivity troponin outside of the U.S. It's doing fine, but the real opportunity is high-sensitivity troponin in the U.S. We expect to get there sometime by the end of this year. Okay. That's probably my longest slide. You can tell I enjoy talking about point-of-care. Molecular, though, is small for us right now, but it's likely the largest opportunity for growth that we have in front of us. The Savanna approval recently with the HSV, HSV VZV panel, has enabled us to immediately place boxes. We have inventory of instruments, and in fact, we took our first few customer orders within hours of an all-hands sales meeting, all-hands sales call on the day after the FDA clearance.
So we immediately took orders. We've already shipped boxes. What's important there, I think, is even though HSV is a smaller market, it's what we call a gatekeeper assay, and it enables people. It enables us to get in the door and to place analyzers quickly. Then those same sites, as soon as RVP is cleared, we expect that to dramatically accelerate the placement, right? I'll give you one example without naming the customer, if that's okay. We closed a very, very large urgent care system, and we shipped them two. I'm sorry, two Savannas to do HSV VZV. It's clearly not a test that needs to be done in all 67 of their sites, but you can imagine that I'll be shipping 65 more shortly, as soon as RVP4 is cleared.
So the HSV doesn't seem like it's an important launch, but it truly is. Being in market, placing analyzers, getting things going, having the instrument validated here over the next several weeks, is super important for us. So obviously, we're excited about the U.S. launch of Savanna, but this is one product initiative in an overall larger molecular strategy that we will now describe in further detail at that same investor day that I talked about, that we're gonna have in March. Okay. And turning now to R&D. I don't know if that's one of our scientists, but he does look like a scientist. I'll be brief here.
I think we can talk more during Q&A, if you like, about the attributes of Savanna, but we already have evidence both in Europe and ex-US, and now in the United States, that we're going to be extremely competitive. So I would just say, stay tuned. I created this slide because I've been asked: Why do you think 1,000 placements of Savanna in 2024 is the right number? The truth is, it's probably not the right number. It's close to what we think based on a bottoms-up forecast of what's happening in the United States. It includes basically HSV VZV, and includes RVP4. It doesn't include if we launch STIs or pharyngitis or any of the other assays that we have pending clinical trials.
And I've been asked, though, you know, when you look and you compare with other folks's launch, and you can probably in the middle of this chart, you can see who, who I'm talking about. But there was an analyzer launched in 2006, roughly, and that company only placed 450 analyzers. So people are saying: "Well, how could you be twice as successful as that company?" And my response is: That's 2006. This is not your grandfather's PCR, and it's not your grandfather's molecular market either, right? The demand for decentralized molecular diagnostic testing for appropriately sized panel near the patient has increased dramatically, right? We're simply serving a market that has been waiting for something that could decentralize molecular testing.
In 2006, molecular testing included, was basically performed in the reference labs. Oops! As we continue to innovate and significantly differentiate ourselves in the market, we are focused on developing those assays and panels that address clinically unmet needs. Now I'll go over the financial results. Again, I don't know if that's one of our finance people, Joe, but they look like they could be in finance. We reported solid Q3 numbers. Q3 year-to-date results were $2.3 billion in total reported revenue. Adjusted EBITDA was $528 million, and adjusted EPS was $2.96. During the nine months of 2023, we generated $180 million in adjusted free cash flow, and ended the period with $205 million in cash and marketable securities.
Mid-single-digit revenue growth, driven by continued execution in existing markets and also including new launches, will be aided by margin expansion from deal synergies, higher margin product availability, and fixed cost absorption. Our long-range plan of 6%-9% growth remains unchanged. As we look at our capital allocation strategy, our primary objectives are to support our growth with capital investments and R&D and put our cash and balance sheet to work with a balance of paying down debt and share repurchases. And I'm sure I'll get a question on this, but we're trying to be opportunistic when we think about those two things. And we also are making significant investments in infrastructure in order to manufacture products, et cetera, of course.
We do wanna be positioned to be opportunistic, with tuck-in M&A, that can accelerate our growth, increase our market share, or provide entry into adjacent market segments as well. And, we'll talk a little bit more about that at the Investor Day, and what we've been working on there. And so finally, I've talked about our primary growth drivers. They're important enough, though, to repeat perhaps with a different set of words. You know, first, QuidelOrtho is a stable, diversified growth company. We have a strong, resilient, and proven foundation that can flex to the changing needs of our customers and the healthcare industry. And through our integration and transformation initiatives, we continue to improve our efficiency, grow our EBITDA, and generate cash to invest in our future and create value for shareholders.
We're keenly focused on execution. We will execute our near-term path forward with remarkable speed and excellence. You know, I often say that execution is a function of things done well. Most people understand what things done well looks like, but with speed. And in order to achieve speed, we have to focus. We have to pick the two or three things that are gonna matter, get those things done, and we are moving our culture in that direction, such that all 7,000 of us think that way. And we intend to realize our future potential by investing in our future, creating strong, competitive differentiators, and ultimately helping shape our industry. And I've gone a little bit over time, haven't I?
No, that was, that was great overview. Thank you. Yeah, so now we're gonna start the Q&A portion of the session. We do have a mic runner in the room, if anybody in the room has questions. And then, if you're listening on the webcast, please feel free to send me a question via email or use the webcast function. But maybe before we dig into things, Doug, just Quidel normally pre-announces at our conference, or at least has the last few years. We didn't get one this time, so just what went into that decision this year to change things up?
Maybe while we're on the topic of Q4, any commentary you can provide on trends exiting the year from either a revenue or margin perspective, and any color on some of the variables that would've impacted the quarter, like respiratory distributor buying or anything else?
That's quite a question. Let me start by saying we historically have pre-announced when we have something that's materially different than you think. So, both positive and negative. One of my first things that I did in 2010 was pre-announce that we had missed the quarter dramatically. So we will always endeavor to pre-announce when we think it makes sense. And obviously, Savanna was an important enough thing to pre-announce, but we had already announced that a few a week or so ago, so we didn't actually see a need to do that. And we'll have plenty to talk about at the earnings call here in a few weeks.
Got it. So you're guiding to 6%-9% top line growth ex-COVID over the longer term. Just wanna clarify, is, since you've been splitting out kind of ex-respiratory the last couple quarters, is that 6%-9% now, ex-respiratory? And then will you can kinda continue to split out respiratory?
No, no, that's-
Going forward.
-that's the total. And those same ranges that we had described, both at our Analyst Day, Investor Day, the last one, they still haven't changed. And we've been pretty much, we have been in those ranges. You know, a couple things have caused that to be different. For example, we said $200-$400 on COVID, and. But we didn't anticipate we were gonna get that big government order in the first quarter, so we'll be higher than the range there. On the flu, we've said $230-$270. We're still in that, we're still in that range. And then we had a bucket called other, which includes strep, RSV, and others, and $85-$115-ish?
Eight.
Okay. See, this is what CFOs do. They lower the higher end of the range. But yeah, so we're in the range there on those two, so.
Got it. That's helpful. Just is that long-term guide applicable to 2024, you think? And then maybe, can you just walk through the variables on the non-COVID side that would swing revenue above or below kind of that target?
I think we're very much on track for 2024. The variables are how well we do with the Savanna launch, of course, how well we do in Q1, continued with the respiratory season. I think there's reason to believe that we're in a respiratory season. We're seeing it in the news, but I also see it in our data. You know, we could have told you a while back that RSV was gonna be a problem. We were running at 24.5% of positivity on those tests run on Sofia's, you know, fairly early on, and it hasn't subsided. My mom has it. Yeah, I have a grandchild with it. So that's two cases. But it's around. It's surprising, though.
It's surprising, to be honest, because typically, what happens with RSV is we see it start earlier than the rest of the respiratory pathogens, and we see it peak and usually start to subside in December, and we're not seeing that at this point. So I think Q1 looks like a normal respiratory season in a larger respiratory market with larger share on our part.
Yeah. That's helpful. Maybe stepping back on, and just some more color on those long-term targets. You know, labs has historically been a mid-single-digit grower, TM, low to mid-single. So, you know, can you help us bridge to get to 6-9? Is that gonna be majority point of care? Is that a, a lot of that Savanna, just to, to grow above mid-singles there? Can you just maybe walk us through those?
Well, our largest business is the Labs business. It's clinical chemistry and immunoassay. We do really well in a sweet spot with customers, a certain size. We are placing analyzers, we are taking share, we are growing faster than the market. The thing that has occurred that has improved that is our manufacturing. We've dramatically reduced the number of instruments on backorder. We've dramatically reduced the number of back orders for key reagent products. And so we're already reporting numbers for labs that is probably higher than most people are thinking. So I think we were at 9% through Q3. And I think I'm pretty sure I said during the Q3 earnings call that we expected China to be back on track, and they are.
So, Labs is an important piece of it, augmented by what we're doing there. And then, of course, it's early with Savanna, but we do expect quite a bit of lift there. So I'm pretty comfortable that we're not, you know, as they say, we're not over our skis here. I think we're in the right range.
Okay. I'll open it up now if anybody has any questions in the room.
Sure.
One right here.
In one of your slides, you mentioned improving cash conversion-
Mm-hmm.
Just wanted to get an update on that. I know 2023 is expected to be at the lower end of where you expect to normally land.
Mm-hmm.
Can you talk about the trajectory, going forward?
Well, we are already seeing evidence that the things that Joe's working on are generating better free cash flow. We actually saw it in Q3. Not ready to report how we did in Q4, but we've made some changes with respect to accounts receivable and accounts payable. Those will take some time, but we're already seeing evidence of improving free cash flow. I probably shouldn't go into significant detail, but it has mainly to do with how we procure things and how we pay for them. Yeah, so.
Maybe on the margin front, can you just walk through the near and long-term margin drivers, maybe outside of Savanna?
Was it something I said?
You know, Doug, you mentioned some synergies, but also noted during the presentation, there's work left to do to improve efficiencies. You mentioned enhancing supply chain management, implementing a company-wide procurement function. Maybe you can just elaborate on some of the areas and levers there you expect to pull maybe next year, moving forward over the longer term on the margin side?
Yeah. What I would say is, we went through what I would call a due diligence phase, to look at how we compared with others across the market, and how we're purchasing things, and what the indexes look like for things that we purchase in large volumes. And we identified an opportunity, and based on all those opportunities across the company, we identified those work streams that I talked about on the slide. And one of the big categories is procurement and supply chain, for sure. You know, just plastics is one, but I don't really wanna go into detail. I would love for my head of operations to present at the Investor Day to talk about what we expect in the ranges.
Right now, we're in probably the third phase of this exercise that will conclude, I believe, on January fifteenth. So if we could have pushed this conference back a couple weeks, I would be able to give you a range that we think we can accomplish there. But it's not insignificant. That's why on that chart, and I had 130+, I was thinking about giving a range for today, but then I thought, you know, if we just wait a little while, I'll have something more specific to share with you as to what those things actually are, versus just giving you a number. When is Investor Day? Pardon? When? In March. Oh! Yes. I saw it on the calendar. I don't remember the date. We'll, we'll be announcing it soon.
Will you let me know?
Okay. Okay.
Doug, maybe in the last two minutes, we can talk about Savanna, exciting update a couple of weeks ago. Can you give us a sense of, you know, when we should expect the RVP4 panel? Should that be approved during the respiratory season here? And, just kinda, any update on what you've heard from the agency or anything?
Well, we're in good shape, and I would commit to being in market before the end of the quarter.
Okay.
Yeah.
And then, you know, you mentioned HSV as a gatekeeper assay to get Savanna's foot in the door with customers. Can you maybe just elaborate on this? How many of those 1,000 shipments this year do you expect to include HSV and, yeah, just customer demand since, since that approval?
Yeah, I don't have a specific answer for you yet, but I would think in terms of just HSV boxes based on our position in the market and who our competitors are, it should be in the hundreds. But the bigger driver will be, of course, RVP4. Remember, we are the company that submitted the de novo for HSV VZV. We were the folks who identified the need to pair varicella-zoster virus with herpes based on data that we saw coming out of Johns Hopkins and a couple other key institutions. And so we kinda are, well, we are the market leader in this, in that particular space. Yeah.
Maybe just 30 seconds here, wrapping up, capital allocation priorities this year. You mentioned share repos, tuck in M&A today. Paying down debt has been a priority in the past.
Mm-hmm.
There's been some chatter about potentially selling the TM business. So just maybe walk us through how you're thinking about 2024 from a capital allocation perspective.
You heard that thing about the TM business?
I did.
So what I would say about the TM business is, we love certain aspects of the TM business, and there are certain aspects that are significantly more difficult for us, and I'm referring, of course, to the donor screening side of things, a market that's declining. And so we will do something one way or another to improve that business because it does drag us down. Whether that ends up in a divestiture, whatever, you know, I'm not prepared to say right now.
Great! Well, that about wraps it up. Thanks, Doug, for doing this. Thank you all for coming, and enjoy the rest of the conference.
Thanks, Casey.