Quidel Corporation Stock

Thank you. Welcome to the second quarter 2026 financial results conference call and webcast. At this time, all participant lines are in listen only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of the prepared remarks. Please note this conference call is not a live session. being recorded. An audio replay of the conference call will be available on the company's website shortly after this call. I would now like to turn the conference over to Juliet Cunningham, Vice President of Investor Relations. Please go ahead. Good afternoon, everyone, and thanks for joining us today.

With me are Brian.

President and Chief Executive Officer, and Micah Young, Chief Financial Officer. This conference call is being simultaneously webcast on the investor relations page of our website. To assist in the presentation, we also posted supplemental information on our investor relations page that will be referenced throughout this call. This conference call and supplemental information contain forward-looking statements which are made as of today, August 6, 2026. we assume no obligation to update any forward-looking statement, except as required by law. Statements that are not strictly historical, including the company's expectations, plans, financial guidance, and future performance and prospects, are forward-looking statements that are subject to certain risks, uncertainty, assumptions, and other factors. Actual results may vary materially from those expressed or implied in these forward-looking statements. Please refer to our SEC filings for a description of potential risks.

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 supplemental information on the investor relations page of our website. 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 Blazer.

Thanks Juliette and good afternoon everyone. Before I get into our second quarter results, I'd like to welcome Micah Young, our new Chief Financial Officer. Micah brings extensive experience from the medical technology industry and a strong track record of financial and operational leadership. We are excited to have him on the team and look forward to the coming year. contributions he will make as we continue executing our strategy and creating long term value for our shareholders. Let me begin with the central takeaway from our second quarter. While we are navigating significant headwinds in China and a softer respiratory environment, the underlying performance of our business remains strong. Total revenue in the quarter increased 2%.

Excluding China, revenue grew 6%, reflecting broad-based strength across our core franchises and regions. Labs revenue outside of China grew 9%, immunohematology revenue outside of China increased 5%, and triage expanded by 9%. These results demonstrate the underlying strength of customer demand and solid commercial execution across our portfolio. Our geographic revenue performance in the quarter was strong and broad-based. North America, our largest region, grew by 6 percent with strong contributions from labs and our triage point of care business. J-PAC revenue grew 10 percent driven by strong performance in Japan and India. Latin America grew 8 percent with notable strength in Brazil and Central America.

Adjusted EBITDA increased 21% to 129 million, while EBITDA margin expanded 310 basis points to 20% of revenue. This level of margin expansion during our seasonally weakest quarter of the year demonstrates that our operational improvement initiatives are delivering tangible results. We are driving better productivity throughout the organization, exercising disciplined expense management, and focusing our resources on the highest return opportunities. We also continue to invest in innovation and growth opportunities that will strengthen our competitive position and expand our addressable markets over time. One of the most significant of these opportunities is the commercialization of the Lex Point of Care Molecular Platform, now branded as NULEXA. Since completing the LECS acquisition in April, we have made substantial progress. Our teams have moved quickly to advance manufacturing scale-up, supply chain readiness, and commercial launch capabilities.

I am pleased with the progress to date, and we remain on track against these objectives. Early customer engagement has been very encouraging. We believe Nulexa addresses an important need in the market by combining molecular accuracy and rapid turnaround time with a simple, efficient workflow at the point of care. Just as importantly, NULEXA is more than a single product launch. It provides a scalable platform for future menu expansion and allows us to leverage our established commercial infrastructure, broad customer relationships, and deep expertise in point of care diagnostics. Based on our current plans, we expect customer placements and test utilization to gain steady momentum as we progress into the respiratory season later this year. Our objective is to enter the 2027-2028 respiratory season with a growing installed base, a productive commercial engine, and a strong foundation for continued expansion.

Turning back to the results for the quarter, the notable performance exception was China, where revenue declined 23% year over year. Uncertainty related to the proposed IVD pricing guidelines has impacted buying behavior as customers reduce their inventories pending the issuance of the final nationwide guidelines. Second draft of the IVD pricing guidelines, which was released for comment in late June, differs meaningfully from the preliminary draft issued in March. The second draft of the guidelines eliminates methodology and use case differentiation and includes a broader range of products. And the scope has changed with the pilot implementation increasing from three to six provinces. While the guidelines and their implementation timelines are not yet final, we believe the uncertainty regarding the guidelines is already impacting customer behavior. As we reviewed market performance data that became available after quarter end, we observed customers adjusting their purchasing and inventory levels more quickly and significantly than we had anticipated.

We are working closely with our team, customers, and distribution partners in China to adapt our commercial and operating plans. The near-term actions are focused on protecting our install base, maintaining customer engagement during the transition period, and aligning commercial resources with the involving reimbursement environment. While we remain confident in our ability to manage through these changes, the timing, extent and pace of implementation continue to create uncertainty around near term demand. The respiratory market also remained softer as we moved into the summer season. positivity rates are down markedly compared with 2025. The timing and severity of respiratory seasons are inherently difficult to predict. And while historical patterns would indicate we are due for a stronger 2026, 2027 flu season, early indicators are pointing to a below average season ahead rather than assume a typical uptick in ILI visits, we are assuming the first half softness continues and have modeled our second half respiratory revenues accordingly. Given the collective impacts of China and our respiratory season forecast, we are revising our full year guidance for revenue, adjusted EBITDA, adjusted EBITDA margin, and adjusted ETF.

We are taking a measured approach to our guidance in view of these factors. We also made the decision to withdraw free cash flow guidance until we have greater clarity of the combined working capital implications of these developments. This is a prudent response to the information available to us today. It does not change our confidence in the strength of our core business. for business. And importantly, withdrawing free cash flow guidance does not change our commitment to improving cash performance. Improving our cost structure, strengthening cash flow, and reducing leverage remain top priorities for the company. A revised outlook reflects the impact of ongoing market pressures in China and a prudent approach to respiratory season assumptions in the second half.

At the same time, our second quarter and first half results outside of China demonstrate the underlying strength of our business, the durability of our customer relationships, and the benefits of our diversified portfolio. Our focus remains on executing with discipline, responding appropriately to current conditions, and positioning quite el orto for stronger, more sustainable performance over the long term. So with that, I'll turn the call over to Micah.

Thank you, Brian, and good afternoon, everyone. Since this is my first earnings call as CFO, I want to start with the perspective I have developed over the past several weeks. I have been reviewing our operations, financial performance, capital structure, and cash generation profile with a fresh lens. Quesnel Ortho has a highly attractive global diagnostics franchise, a large installed base, and leading market positions. At the same time, I see clear opportunities to improve execution and strengthen cash conversion. From that perspective, let me turn to our second quarter results. Total revenue for the quarter was $631 million, representing 2% growth on a constant currency basis.

While the headline growth rate was affected by continued weakness in China in the first half of 2026, the underlying Q2 performance of the business was stronger than the consolidated result would suggest. While China is an important market for Quidal Ortho, our broader global business continued to perform well during the quarter. revenue outside of China, which represents nearly 90% of total company revenue, increased 6% year-over-year in Q2. That performance reflects healthy demand across our core and markets, strong customer retention, and continued commercial execution across our diagnostics portfolio, even as a consolidated result was pressured by China. As Brian mentioned, China remained a significant headwind during the quarter, with revenue declining 23% year-over-year. The market continues to experience uncertainty related to healthcare policy changes, pricing dynamics, and customer purchasing patterns. While we do not expect market conditions in China to improve in the near term, our teams remain focused on supporting customers, preserving our install base, and positioning the business to compete effectively as the market adjusts. Taken together, the strength of our business outside of China highlights the value of our diversified global footprint, even as the China and respiratory headwinds require a more cautious full-year outlook.

Turning to profitability, Q2 adjusted gross margin was 44.4%, down 130 basis points year-over-year. The unfavorable geographic mix associated with lower China volumes negatively impacted our results in the quarter. Non-GAAP SG&A and R&D operating expenses combined increased 2% to $219 million. Percentage of revenue operating expenses improved 40 basis points year over year. Adjusted EBITDA was 129 million and adjusted earnings per share was 13 cents for the quarter. Turning to the balance sheet and cash flow. We ended the quarter with $123 million in cash and $250 million in borrowings outstanding under our revolving credit facility.

Operating cash flow for the quarter is negative 111 million, and free cash flow is negative 136 million. Second quarter free cash flow included a $25 million payment to Griffles associated with the termination of the joint business arrangement. The remaining payments of $25 million and $15 million associated with the termination of that agreement will occur in 2027 and 2028, respectively. In addition, we deployed $97 million in cash for the LECS acquisition, which was reported in investing activities this quarter. At the end of the second quarter, net debt leverage was 4.3 times adjusted EBITDA, including the pro forma adjustments permitted under our credit agreement. As I evaluate the business, among my top priorities are improving cash conversion and reducing leverage. As part of my initial review, we're evaluating opportunities to improve our cost structure, optimize returns on our instrument investments, enhance working capital efficiency, and maintain a disciplined approach to capital allocation.

I'm confident that our actions can and will improve cash conversion, but we we do not have sufficient clarity today on the evolving market dynamics and the timing and impact of our mitigation efforts with the degree of precision appropriate to provide updated free cash flow guidance for 2026. rather than provide a wider guidance range reflecting potential cash flow outcomes for the remainder of the year, I don't believe would be helpful or meaningful to investors, we made the decision to withdraw free cash flow guidance. We are taking a disciplined approach to external cash flow guidance while remaining intensely focused on execution and strengthening the balance sheet. Turning to our outlook, based on current market conditions and the trends we see across our business, we are updating our full year 2026 guidance. We now expect revenue in the range of 2.52 billion to 2.60 billion. The downward revision reflects two primary factors. First, we expect the challenges in China to persist through the remainder of the year, including continued pressure on demand and ongoing uncertainty related to the China IVD pricing guidelines. Second, we are taking a prudent approach to respiratory season assumptions in the second half.

At the midpoint of our outlook, we are assuming a respiratory environment that is generally consistent with the more muted activity experienced during the first half of this year. Importantly, the adjustment to our outlook is not being driven by changes in expectations for our core laboratory and immunohematology businesses outside of China. Performance in these franchises remains stable, and we are assuming approximately 3% to 5% aggregate growth for those businesses in the second half of the year. The revised outlook primarily reflects our expectation that China-related challenges will persist and are more cautious assumptions regarding respiratory season demand. Turning to profitability, we now expect full year 2026 adjusted EBITDA of $540 million to $560 million. representing an even a margin range of 21% to 22%. And we now expect adjusted EPS of 65 cents to 90 cents. One of my priorities as CFO is to ensure that the guidance and commitments we make externally are grounded in a high level of competence.

Given the current operating environment, we have decided to withdraw free cash flow guidance. This decision is not a change in our view of the long-term quality of the business. It reflects continued uncertainty around factors that can significantly influence cash generation, including the current market environment in China, the ultimate strength and timing of the respiratory season, and the related working capital impacts. As I step into this role, I see significant opportunities to strengthen financial performance beyond the income statement. My priorities are clear. Improving cash conversion, reducing leverage, and maintaining a disciplined capital allocation framework focused on returns and balance sheet strength. While the environment remains dynamic, I am encouraged by the resilience of the underlying business, the strength of our market positions. and the opportunities we have to improve execution. Ultimately, my objective is to improve the consistency with which our operating performance converts into cashflow, supports deleveraging and drives sustainable long-term shareholder value.

With that, we'll open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from Jack Meehan with Opron Research. Please go ahead.

Thank you. Good afternoon. I was wondering if you could talk about what proactive steps you're taking to improve the balance sheet leverage.

Yes, absolutely, Jack. So first, thank you for your question. You know, let me step back a bit. The reason I joined Quidel Ortho is because I saw an opportunity to help drive the next phase of value creation. As I've evaluated the business, as I mentioned on the prepared remarks, improving cash conversion, reducing leverage, and increasing returns on invested capital are priorities. I'm focused with this team is on improving working capital, reducing the capital that's tied up into inventory, optimizing the returns on our instrument investments, and rationalizing capital expenditures, and directing capital towards the geographies and businesses generating the highest returns.

Okay, and at the end of June there was a FT article that was reporting that Quidel Huerto was considering selling its point of care business. I was wondering if you had any comment on that and if you were to consider something like that, just talk through the rationale.

Hey Jack, this is Brian. We saw the article, of course, and have seen some of the speculation. I'm not going to comment on that. Just as a general matter, we don't comment on market rumors like that. But I will say that our highest priority is maximizing long-term shareholders value and just as a matter of good government governance our board and our management team is regularly evaluating a broad range of opportunities including portfolio opportunities to strengthen the business and improve shareholder returns but our current focus right now is on executing our strategy as Micah said, improving cash conversion, reducing leverage and driving operational performance across our portfolio. And as always, we take actions that we believe are in the best interest of shareholders.

Okay, thanks, Brian. If I could squeeze in one more, you mentioned the reduced respiratory forecast for the year, and you were seeing some early indicators that might suggest kind of a lower season. I was wondering if you could elaborate on that. Is it Australia data or something else? Anything?.

color would be great. Thank you. Yes, so our approach for the respiratory season here has changed a little bit. So, you know, as you know, the respiratory market is variable year to year and really what's changed here is more than anything is our approach to forecasting for it. So historically, and I know you're familiar with this, but we have used kind of an average respiratory season as a baseline for creating our annual guidance. And this year we are assuming that the respiratory testing market is going to be consistent with more of the lower end of the historical seasons. And I think moving forward, we do We intend to take a more conservative approach and align our cost structure accordingly. We have seen up until now, you know, our positivity rates in the US are significantly lower than they used to be we're seeing lower strength of data coming out of the southern hemisphere, which at a minimum suggests either a later season or could indicate a softer season.

So we think that taking a more prudent approach here to respiratory season, given what we're seeing seeing as early indicators is the right way to position the business.

That makes sense. Thank you, Brian. Your next question comes from Bill Bonello with Craig Hallam. Please go ahead.

Hey, thanks a lot. So, I appreciate the commentary about, you know, what growth looks like, excluding China this quarter, but I think, you know, we find ourselves lots of times in a quarter where, you know, if you don't count something that's not growing, then growth looks pretty good. I'm just curious sort of how you're thinking about the business as a whole, maybe how the board and the management team it thinks about risk mitigation. strategy, you know, how do you get to a point where you can absorb poor of the business that are underperforming without having it be sort of a major problem for the company as a whole.

Yes, so, Bill, I'd answer that a couple of ways. First, I would point to the strength of the underlying business here. When you step back and look at the business excluding respiratory in China, which is basically our labs and immunohepatology business, it's about 75% of the the company last year. Those are really strong, predictable businesses that are supported by really nice underlying business model attributes. They have long contracts, very durable recurring revenue streams, large base of instruments, and so on. have very strong brand recognition, solid market positions. And those businesses continue to demonstrate very solid growth in the mid single digits. And if you point, look at our first half results, without China, we grew 6% in the second quarter. quarter and had very nice performance across all of our geographies and our business units.

You know, as it relates to significant impacts like the one we're seeing in China, all I can tell you is that we are taking very aggressive mitigation steps in China and across the business to better position the company and our cost structure to be able to manage through that and emerge on the other side of that stronger. So, you know, we have a lot of, as you know, we have a lot of cost improvement opportunities underway. We're taking additional steps. I have already taken additional steps and we're going to continue to augment those as we go through the back half of this year.

Okay, that's really helpful. That's all I wanted to know. Thank you.

Thanks, Bill. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. There are no further questions at this time. I will now hand the call back to Brian Blazer for closing remarks.

Thanks, Operator, and thank you all for joining us today and the questions. I'd like to close with the following points. First, that despite the pricing changes in China and the uncertainty surrounding the upcoming respiratory season, our Q2 results demonstrate that the underlying health of our core business remains strong. And secondly, we recognize the challenges in front of us and we are addressing them head on with aggressive mitigation actions. We believe that revising our outlook is a prudent and responsible course based on what we know today. And lastly, our priorities have not changed. We remain intensely focused on serving our customers, improving our cost structure, strengthening cashflow, and significantly reducing leverage as we move through the balance of the year.

And we remain focused on execution and taking the steps necessary to strengthen our financial position. So thank you all for joining us.

us today and we look forward to updating you on our progress next quarter. This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to the First Quarter 2026 Financial Results Conference Call and Webcast. [Operator Instructions] 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.

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

Good afternoon, everyone, and thanks for joining us today. With me are Brian Blaser, President and Chief Executive Officer, and Joseph Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the investor relations page of our website. To assist in the presentation, we also posted supplemental information on our investor relations page that will be referenced in this call. This conference call and supplemental information may contain forward-looking statements which are made as of today, May 5, 2026. We assume no obligation to update any forward-looking statement except as required by law. 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, uncertainty, assumptions, and other factors. Actual results may vary materially from those expressed or implied in these forward-looking statements.

Please refer to our SEC filings for a description of potential risks. 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 supplemental information on the investor relations page of our website. 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. I'll start today with a brief perspective on the first quarter and then discuss details of our business performance more broadly. Our first quarter results were impacted by a significantly softer respiratory season compared to Q1 of last year, with influenza-like illness or ILI visits down approximately 30% as reported by the CDC in April. While ILI visits are one indicator, the season was also notably weaker across other key measures, including severity of illness, hospitalizations, and duration. Overall, the respiratory season was both significantly milder and shorter than in Q1 2025. We also experienced broader macroeconomic and geopolitical headwinds during the first quarter. In China, sales slowed in March ahead of the anticipated national IVD pricing guidelines as distributors exercised caution on inventory purchases in light of potential future pricing declines.

While final guidelines have not yet been issued following the comment period, our updated full year 2026 guidance reflects the estimated impact based on the current draft. As is expected, this estimate may change once the final guidelines and implementation timeline are announced. Accordingly, we are preparing mitigation actions to help offset these headwinds. Moving into 2027, the proposed pricing changes would impact only about half our sales in China. Even with the new guidelines, that business certainly isn't going away and will continue to be a meaningful component of our revenues. Notably, even after these pricing changes are implemented, we believe our China business will continue to be accretive to the company margin profile. We don't think the changes will be fully implemented until the middle of next year, which gives us time to work on mitigating actions.

Shifting back to Q1 results, we also saw delays in some orders and tenders due to the ongoing disruption in the Middle East. Assuming conditions stabilize, we expect these orders and tenders to resume during the remainder of the year. Importantly, our underlying business remains strong and durable. Our core labs and immunohematology franchises are performing well, and we are executing against our priorities. As a result, we believe we are well-positioned to deliver on our objectives to expand our adjusted EBITDA margin and improve cash flow in 2026. We are also making solid progress in advancing our strategy.

We completed the acquisition of LEX Diagnostics in April, adding a highly differentiated, ultra-fast molecular platform that strengthens our position in point of care, an area we believe will be a meaningful driver of future growth and reinforces our ability to deliver integrated diagnostic solutions across the continuum of care. We are already seeing strong customer interest and have secured our first orders. Customer insights reinforce this opportunity. Approximately 90% of Sofia customers currently use both antigen and molecular testing systems, and many have indicated a willingness to switch to our more competitive molecular platform. Their priorities are clear. Better ease of use, faster time to result, and lower costs. LEX is designed to deliver all three.

To support launch readiness, we are expanding manufacturing capacity at our site in the U.K. We expect to begin placing instruments this quarter with measurable assay pull-through and associated revenue beginning in early 2027. And turning to our labs business, we launched our high-sensitivity troponin assay in the U.S., strengthening our cardiac portfolio and enhancing our clinical value proposition. We are seeing strong demand. We are now shipping to more than 300 U.S. customers. We also began rolling out the VITROS 450 platform in select international markets, expanding access to our diagnostic solutions. As a successor to the VITROS 350, this platform is designed to meet the needs of emerging markets requiring low volume, cost-effective solutions. Initial shipments are targeted for JPAC, followed by LATAM and EMEA, where we recently received the CE mark.

Importantly, the combination of VITROS 450 and VITROS ECiQ enables us to deliver a comprehensive solution across clinical chemistry and immunoassays in attractive international markets. We expect these product launches to support our mid-single-digit revenue growth expectations for the labs business, which represents over half of our revenue. In summary, we are navigating near-term headwinds, but our strategy is sound, our innovation pipeline is strong, and we remain focused on executing with discipline to deliver sustainable, profitable growth. Now I'll turn the call over to Joe.

Okay. Thanks, Brian. I'll walk through the key financials for the first quarter of 2026. Unless otherwise noted, all comparisons are to the prior year period on a constant currency basis. Total reported revenue was $620 million. Of that, non-respiratory revenue was $552 million, or $544 million, excluding the Donor Screening business. Labs revenue declined 8% primarily to the factors Brian just discussed. In addition, the termination of our joint business agreement with Grifols reduced Q1 Labs revenue and created a difficult year-over-year comp. Immunohematology grew 3% driven by North America, China, and JPAC. Triage declined by $3 million, primarily due to slower distributor sales in China. Looking at our respiratory revenue, as was widely reported, the North America respiratory market showed an atypical decline versus the prior year period.

This was an industry-wide trend, not unique to QuidelOrtho, and is supported by KOLs and competitor reports. As a result, our respiratory revenue was $68 million, down significantly, as noted in our pre-announcement, due to the approximately 30% lower ILI visits compared to Q1 '25. Keep in mind, though, that our large global installed base of the Sofia platform and QuickVue has demonstrated growth over time. Importantly, during the first quarter of '26, we saw no change in testing protocols and our market share remained stable. Lastly, on revenue, foreign currency exchange was favorable by 210 basis points during the quarter. Now moving down the P&L, non-GAAP OpEx decreased by 2%, primarily due to R&D efficiencies. Adjusted gross profit margin was 44%, a decrease of 630 basis points due to product mix with lower respiratory revenue contribution.

Our adjusted EBITDA was $109 million, representing an 18% adjusted EBITDA margin and adjusted diluted loss per share was $0.04. We expect to continue to drive adjusted EBITDA margin expansion for the full year with targeted staffing reductions, procurement, and facility consolidation cost savings initiatives. Now turning to the balance sheet. At the end of March, we had cash of $140 million and borrowings of $130 million under our revolving credit facility. From a cash flow standpoint, operating cash flow was negative $33 million, and free cash flow was negative $67 million.

While we expected cash flow to be negative in the first half, which is consistent with our historical seasonality, first quarter 2026 cash flow declined year-over-year, primarily due to lower EBITDA related to the weaker respiratory season and the timing of accounts payable and accrued interest. Inventory also increased due to the weaker respiratory season as well as in preparation for multiple upcoming product launches. On the positive side, we delivered strong accounts receivable cash collections of $54 million and reduced our CapEx by $22 million compared to the prior year period, which was the result of lower systems and manufacturing capacity spend.

We remain focused on improving cash flow generation still expect positive cash flow for the full year, now expected to be in the range of $100 million to $120 million, with positive cash flow driven by higher revenue in the second half of the year. Lastly, net debt to adjusted EBITDA leverage was 4.1x, including pro forma adjustments allowable under our credit agreement. We continue to expect pro forma leverage under the terms of our credit agreement to be at 3.25 to 3.5x by the end of this year. To wrap up, first quarter results reflected the impact of lower respiratory volumes, macro and geopolitical pressure, and continued investment in our strategic initiatives, including molecular diagnostics. Now I'd like to cover our full year 2026 outlook at a high level.

For a full list of assumptions, please refer to page 6 of our first quarter 2026 earnings presentation. Importantly, we are providing a new guidance range. As noted in our Q1 pre-announcement, we are tethered to the low end of our previously provided range, which was purposely wide to account for respiratory season variability. We now expect total reported revenue of $2.7 billion to $2.75 billion, which is driven by 2 changes: our first quarter performance and the expected lower full year revenue in China, which takes into consideration distributor reactions to the pending China National IVD pricing guidelines as currently drafted. In North America, first quarter respiratory revenue reflecting a weaker ILI trend.

Looking back over the past 10 years and excluding pandemic years, of course, in periods where ILI declined in Q1 versus the prior year, trends rebounded over the remainder of the year, resulting in higher ILI on a full year basis. Despite this empirical data, to be prudent, we are continuing to plan for an average respiratory season and forecasting a flat second half without a bump up and an 8% decline in respiratory revenue for the full year 2026. These two revenue impacts flow from the top line to the bottom line. Therefore, we now expect full year 2026 adjusted EBITDA of $615 million to $630 million, still representing an adjusted EBITDA margin of 23%, which reflects a 100 basis point improvement over full year 2025.

We expect adjusted diluted earnings per share of $1.80 to $2.00, and we expect to deliver free cash flow of $100 million to $120 million. Note that the second quarter has historically been our seasonally lowest quarter. Consistent with this pattern, we expect sequential revenue, adjusted EBITDA, and adjusted EPS to be roughly in line with Q1 '26, but still reflecting year-over-year growth across all three metrics. Our updated outlook reflects improving operating performance in the second half of the year, as well as continued disciplined execution and the ramping up of the LEX Diagnostics business. With that, we'll now open up the line for questions.

[Operator Instructions] Your first question comes from Tycho Peterson of Jefferies. Your line is open. Please go ahead.

This is Jack on for Tycho. Thanks for the question. Could you just walk us through the guide for second quarter growth by segment and then also down to P&L, what margins are going to look like?

Yes, as, hey Jack, as noted in the prepared remarks, we do expect that sequentially Q2 will be relatively flat with Q1, but will provide growth year-over-year. The growth is going to come from the core business, as you think about the labs business and the IH business and the Triage business, that growth versus prior year.

Okay, that's helpful. Now in China NHSA, can you tell us exactly how big of a headwind that is in 2026? What you're assuming in the guidance and just a little bit more detail on how you arrived at that number.

Yes, sure. As you think about the updated, the updated revenue guide, which again, is tethered to the low end of the previous revenue guide, there's really only two changes that we made to the revenue guide. I want to be really clear with that. One is the respiratory season weakness we saw in Q1. Then the impacts that we're seeing in China from our distributors pausing on their purchases due to the pending new national pricing guidelines, which we expect to come out in the next couple of months. I would say if you look at the new revenue guide, Jack, it's down roughly $75 million at the midpoint, and it's probably split almost 50/50 between the respiratory and the China.

Maybe a little bit less on China, a little bit more on respiratory. Maybe maybe 45%, 30 respiratory and 30 China kind of thing. That's where we're seeing it. We have pretty good visibility, as you would imagine, from our local team and the good relationships we have with our customer base. We feel pretty good about this new guide for 2026.

Your next question comes from the line of Andrew Brackmann of William Blair.

I wanted to pick up off of Jack's first question there with respect to Q2. If you're sequentially sort of flattish to Q1, I think that implies a pretty significant ramp in adjusted EBITDA margin in Q3 and Q4. Can you maybe just talk to us about some of the levers that you see there, not just on the revenue side, but also on the cost side as well? Thanks.

Hey, Andrew. I do think that what we're looking at in the guide as you think about first half, second half, is that we are expecting the revenue growth to pick up quite a bit in the second half versus the first half. That's really a function of we expect that the China impacts that we've talked about in the prepared remarks generally are going to happen in the first half of the year and not so much in the second half of the year. In addition, as I said we are expecting continued growth with labs, IH, and Triage, and we are planning for an average respiratory season in the second half of the year.

Not, again, we're not expecting growth in the second half for respiratory year-over-year, we are expecting it to be flat. I don't expect it to be a headwind. The all those, all those factors, including what Brian mentioned with the new products coming out, the VITROS 450, the high-sensitivity troponin, and you're going to have some less revenue in the second half. You know, all those things contribute to the higher revenue in the second half versus the first half of the year, which will drop down and drive higher EBITDA, EPS, and cash flow.

Okay. Thanks. Thanks for all that. Brian, with respect to LEX here, it sounds like some folks in your customer base are pretty interested in this. Can you maybe just sort of remind us about the switching costs that might exist for this platform for customers? How big of that is a hurdle here? I guess, what are some of the things that you can do to maybe be a little bit more aggressive to get these share wins, be that on pricing strategies, bundling or anything like that? Thanks.

Yes. Thanks, Andrew. We are excited about LEX and working actively, as I mentioned, to build additional capacity in our site in the U.K. to support the ramp up. You know, at this point, we're expecting to place a few hundred instruments this year, then followed by a more significant ramp up in 2027 that I think is really going to begin to create meaningful assay pull-through. We're doing everything we can to bring on additional capacity as quickly as possible, because I think more than anything, we'll probably be capacity constrained versus demand constrained given what we're seeing with the product. Most of these instruments will be placed in customers, meaning there's no real capital outlay from a switching cost standpoint.

The ease of use profile, this is truly a plug-and-play instrument that requires sample in, answer out in 6 to 10 minutes. You know, your question about the switching costs really have very low barriers to customer objection to placing new instruments. We don't think that's going to be an issue, and we think the value proposition across speed, turnaround time, and cost are really going to position this platform well.

Your next question comes from the line of Patrick Donnelly of Citi.

Maybe one on the China side. You know, I'm sure you guys saw this morning a competitor of sorts kind of walked away from their China diagnostics business and sold it, which was rewarded just given that it's been an overhang on a lot of the companies. I guess, what's your commitment there on the China side and visibility given some of these recent changes? It just feels like a slippery slope over there. How are you framing up that risk and the comfort level going forward on that business?

Yes. Thanks, Patrick. You know, clearly the reimbursement changes are a headwind there, but the way we're looking at it the reimbursement changes themselves will only impact about half our sales there. You know, we have no plans to walk away from China. Even after these changes are implemented, we believe the business continues to be accretive to our company margin profile. In time to address this, we think that the changes won't be fully implemented until probably mid-next year. We're going to be taking actions to offset that. You know, clearly, we will continue to monitor the environment in China after these changes are made.

As long as the economics continue to be favorable of we intend to remain in that market, I think over the very long term, it continues to be an attractive growth market for healthcare and diagnostic testing in particular.

Okay. That's helpful. Then, maybe just on the margin side, the EBITDA build, can you just talk about some of the actions you're taking on the cost side not only this year, but just the base heading forward? Obviously, you guys in the past have given some longer term targets. Just how you're thinking about the key levers there as we work our way through the year and into next year. Thank you, guys.

Yes. You know, we continue to do a lot of heavy lifting on the margin side of the business. That's I think I've referenced that we've taken out close to 1,000 positions in the organization. A lot of that work pushed us into the low 20s adjusted EBITDA margin. We're going to start to see a 50 to 100 basis point improvement starting in the second half of '26 from our Donor Screening exit. We've got a really a rich portfolio of projects across our indirect and direct procurement efforts. We've got the shutdown of our Raritan facility in progress, and we've got a lot of opportunity outside the U.S. to optimize our profitability in our OUS regions.

You know, I'd say additionally, we continue to benefit from this dynamic of placing more immunoassay volume that's at higher margin. You know, we see the benefit of that. I think what you're going to see moving forward is the benefit of LEX and the molecular margins being typically much higher than immunoassay margins as well. You know, I think we get into that mid-20s range solidly with our procurement initiatives and the Raritan footprint optimization and maybe some targeted staff reductions. I think we push into the higher 20s as LEX becomes a bigger component of the business over the next few years.

Your next question comes from the line of Lu Li of UBS.

Why don't you go back to China a little bit? I think you mentioned that, in the guide, you're assuming the China impact are basically happening in first half and not the second half. I'm wondering if you can provide a little bit more color on that, whether you're still seeing like distributors pausing sales maybe in April, May. Just a little bit more color in terms of like what they're saying as well. That's my first question.

Yes it's still early days. You know, I think our distributors got a bit spooked with this change in the reimbursement coming. They got very conscious of their inventories. You know, we've been working with them on some rebates and discounts and other things to offset some of that pressure. I think over the next 2 months here, we're going to see that that sort of behavior in the first quarter starts to mitigate and that will stabilize over time.

Got it. My second question, why don't you double confirm your margin target? Are you still hoping to get to like mid-to-high 20s% by mid-2027, or that margin target maybe get a little bit delayed just given the potential changes in China and then maybe other macro factors?

Yes. Hey, Lu, it's Joe. I think Brian touched on this a minute in his previous answer. Just to reiterate we are confident in our margin, EBITDA margin goals and the timeline for them. There's no change to that. That's because we still have, as Brian said, all these initiatives around procurement and site consolidation in flight that we expect to complete as we move through this year and into early next year. On China we do have some time. You know, we don't think that these potential reimbursement changes will be enacted until you get more into mid-'27. We've got about a year, really, to implement cost mitigation actions to offset any potential price declines that we may see in 2027.

And so because of all that, we still feel really good about the margin goals and the timing that we've communicated already in the past.

[Operator Instructions] There are no further questions at this time. I will now turn the call back to Brian Blaser, President and Chief Executive Officer, for closing remarks.

Thank you, operator. In closing and stepping back from the first quarter the headwinds that we saw in the respiratory season and China, this really doesn't change our direction. We are executing well, our strategy's working, and we are strengthening the business in the right areas. We do expect a stronger second half and remain focused on delivering consistent profitable growth. Thank you for your interest in the company, and we look forward to updating you in the quarters ahead.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning or good afternoon. Welcome to the QuidelOrtho Fourth Quarter and Full Year 2025 Financial Results Conference Call and Webcast. [Operator Instructions] 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.

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

Thank you. Good afternoon, everyone. Thanks for joining us. With me today are Brian Blaser, President and Chief Executive Officer; Jonathan Siegrist, Chief Technology Officer; and Joe Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To assist in the presentation, we also posted supplemental information on our IR page that will be referenced throughout this call. This conference call and supplemental information contains forward-looking statements, which are made as of today, February 11, 2026. We assume no obligation to update any forward-looking statement, except as required by law.

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 risk, uncertainty, assumptions and other factors. Actual results may vary materially from those expressed or implied in these forward-looking statements. Please refer to our SEC filings for a description of potential risk. 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 supplemental information on the IR page of our website. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis.

And now I'd like to turn the call over to our CEO, Brian Blaser.

Thank you, Juliet. Good afternoon, everyone. I'd like to begin today's call with a brief reflection on my experience since joining QuidelOrtho in May 2024 and then focus on how the work we've done positions the company for the future. And I'll highlight key progress from 2025, which includes strong mid-single-digit growth before turning the call over to Jonathan to discuss our recent progress in R&D.

When I joined the business, QuidelOrtho was a company I knew well and respected with broad and differentiated portfolio spanning the entire patient care journey. It was clear that the opportunity ahead was not driven by structural issues, but more about optimizing our business model and executing more consistently and with greater discipline to unlock the full potential of the portfolio. Early on, I conducted a comprehensive review of the business with the leadership team across our portfolio, operations, commercial execution and talent. And from that work, we established 3 clear priorities: putting customers at the center of everything we do, strengthening operational and financial performance and accelerating product development to support long-term growth.

In 2025, we did exactly what we set out to do. We realigned our cost structure, strengthened execution rigor and improved the way the organization operates day-to-day. To date, our actions have generated $140 million in cost savings, expanded adjusted EBITDA margins to the low 20s and increased our financial flexibility. And we did this while delivering strong growth in our labs business, supported by our recurring revenue business model. And importantly, we believe the changes we made in the business will be lasting in nature and designed to be sustained.

And with that context, I'd like to turn now to our Q4 financial highlights, which will be in constant currency, unless otherwise noted. Joe will provide greater detail on our Q4 and the full year results as well as provide our 2026 financial guidance later in the call. Fourth quarter revenue was $724 million as reported with 7% growth in Non-respiratory, excluding Donor Screening. Our Labs business reported strong growth of 7% in Q4, driven by continued strength in clinical chemistry.

Respiratory revenue declined as expected due to COVID-19. However, we saw strong flu revenue growth of 6%. For the full year, we achieved our 2025 financial guidance with $2.73 billion in revenue as reported. Excluding Donor Screening, Non-respiratory revenue grew 5%. Our Labs business had strong mid-single-digit growth at 6% for the full year and represented 55% of total company revenue, pointing to the strength of our underlying business.

Respiratory revenue totaled $402 million as reported. Operating expenses decreased by 5% as a direct result of our company-wide cost savings initiatives. Adjusted EBITDA margin was 22%, in line with our 2025 guidance and representing a 240 basis point improvement over the prior year. Our full year results included a significant non-cash goodwill charge in our GAAP results that was recorded in Q3. And let me be clear that this was an accounting reset that reflects post-pandemic market valuations. It does not impact our cash, our operations or our ability to invest in the core business engine you see performing today.

In closing, we're pleased with our 2025 performance and progress against our priorities. Looking ahead, our objective is to maximize the value of QuidelOrtho by delivering superior outcomes for our customers and over time, converting that value into attractive returns for shareholders. We are guided by a clear financial and operating framework, driving above-market growth, expanding margins through execution and mix, generating strong cash flow and strengthening the balance sheet. These are long-term objectives that reflect the earnings power of the business when executed consistently. And to support this, we have aligned the organization to optimize the customer experience and drive effective execution across every dimension of the business. We are sharpening our focus by prioritizing higher growth markets and being selective in how and where we deploy capital, while also continuing to build a strong leadership team and a culture grounded in quality, accountability and continuous improvement.

Our progress this year would not have been possible without the dedication of our employees around the world. Together, we are rebuilding a culture that is grounded in continuous improvement and positioning the company for long-term success. And as teams evolve, leadership transitions naturally occur. Today, we announced that Joe Busky has decided to retire as CFO in June. We have initiated a search for his successor, both Joe and I are fully committed to ensuring a smooth transition. Joe has built a highly capable finance organization and has been instrumental in achieving our cost savings initiatives over the past 18 months. I want to sincerely thank Joe for his many contributions to QuidelOrtho and wish him all the best in his retirement. Thank you, Joe.

Delivering on our ambitions requires a strong and disciplined R&D team. As I mentioned earlier, this was an area we identified as needing improvement, and we were pleased to welcome Jonathan Siegrist in late 2024 to lead these critical functions. Jonathan has played a key role in advancing our continuous improvement culture in R&D, and he has several important innovations underway. So, I asked him to join us today and provide a deeper look at what's ahead. Jonathan?

Thanks, Brian. It's a pleasure to be here today, especially as we share our strong results for both the quarter and the year. As Brian noted, QuidelOrtho has undergone a significant transformation, and R&D has been central to that journey. Over the past year, I've had the privilege of leading and advancing our overall R&D organization, including our regulatory and clinical teams. In a short time, we've upgraded talent, modernized our R&D processes and strengthened our product pipeline to support sustained growth, both in the near term and the long term.

We reorganized the team to be more efficient and scalable, strengthened our regulatory and quality teams with external domain expertise and fostered a culture of scientific rigor, process excellence and deep cross-functional collaboration. By prioritizing the critical few programs with the greatest impact, we've built a much stronger and more productive R&D organization. That focus delivered tangible results in 2025.

In Q4, we received FDA clearance for our high-sensitivity troponin eye assay on the VITROS platform and are preparing to begin U.S. shipments within the next few weeks. This extends a proven offering in the U.S., supporting timely clinical decision-making in emergency and acute care settings. We also received FDA clearance of our ID MTS Direct Antiglobulin Test Card, or DAT card on the Vision immunohematology platform. Combined with our recently cleared Ortho Elution kit, QuidelOrtho now offers the only complete gel-based DAT solution from polyspecific to monospecific.

In addition, in 2025, we launched our new informatics middleware solution, QuidelOrtho Results Manager. Starting with our Labs business, Results Manager system brings significant value to our VITROS customers, enabling them to manage their laboratory workflow with an agile and user-friendly experience and sets the stage for us to expand Results Manager to the rest of our portfolio, with immunohematology and Point of care plan next. These are just a few of the exciting examples of momentum we generated in 2025, and it helps set the stage for what's next.

Looking ahead, we're excited about new products that we expect to launch in 2026, including multiple platform launches enabled by a smart mix of organic R&D and inorganic strategic partnerships. We believe these new platforms spanning systems, informatics and automation will deliver strong customer value and drive meaningful assay menu pull.

In Clinical Labs, we plan to launch VITROS 450, the first new VITROS platform since 2019 as the successor to the VITROS 350. Built on our novel waterless dry slide chemistry, it's a fully modernized system designed for key OUS markets. We expect to launch later in the first half of this year and early feedback has been very positive. We're also partnering to offer new innovative immunoassay platforms for OUS markets that will expand our menu with more than 25 new assays on these systems not currently available on VITROS today, within a total menu of over 70 assays on these new partner systems. Together with VITROS 450, this will create a combined offering that provides us with opportunities to compete for additional full menu tenders in attractive OUS segments.

In molecular, we're excited for LEX to wrap up the final stages of their 510(k) and CLIA waiver FDA review for the LEX molecular diagnostics platform and are looking forward to commercializing this technology for the benefit of our customers. LEX is designed to deliver speed and sensitivity with true PCR chemistry and a fully automated swab to result system for point of care. This will make it one of the fastest and most intuitive PCR platforms on the market.

Overall, we've made rapid and steady progress improving the R&D organization and the strength of the product portfolio we're building for the future and remain focused on continuous improvement as we go forward to deliver on the exciting product pipeline ahead.

Now, I'll turn the call over to Joe to cover the financial results.

Okay. Thanks, Jonathan. It's been a great pleasure working with you, Brian, and the entire QuidelOrtho leadership team. I'm honored to have been a part of this team. While my retirement is still months away, I remain fully committed to the company. I will sincerely miss the teams I've had the privilege to work so closely with over the past 6 years. We've made great strides over the past 18 months, and I fully expect that we'll continue to make progress on our revenue growth, margin expansion and cash flow generation going forward.

So now let me take you through our fourth quarter and full year 2025 results, which are detailed on Slides 3 and 4 of our earnings presentation on our website. Total reported revenue for the fourth quarter of '25 was $724 million, compared to $708 million in the prior year period. This 2% year-over-year increase was achieved even as COVID and Donor Screening revenue declined. Excluding COVID and Donor Screening, our reported revenue growth for the quarter was 7%. Breaking down business unit and regional results for Q4 and the full year on a constant currency basis, our Labs business continued to demonstrate durable underlying demand, growing 7% in the fourth quarter and 6% for the full year, underscoring the strength and stability of our largest business.

Immunohematology also delivered steady growth of 3% for the full year, while maintaining its leading global market position. Our Triage business performed very well in '25 with revenue up 16% in Q4 and 7% for the full year, reflecting strong execution and expanding adoption. And respiratory revenue declined 14% in Q4 and 20% for the full year due to lower COVID testing. We saw a strong start to the '25, '26 flu season with a 6% increase in the fourth quarter, bringing our full year flu growth to 3% year-over-year.

Now from a regional perspective, excluding COVID revenue, our North America region was up 4% in Q4, but down 2% for the year as expected due to the wind down of the U.S. Donor Screening business. Excluding Donor Screening, North America was up 2% year-over-year. Europe, Middle East and Africa growth for the quarter was flat and up 4% for the year, while impressively increasing their adjusted EBITDA margins by more than 900 basis points. Latin America and Japan and Asia Pacific growth excelled in '25. Latin America increased 17% in Q4 and 18% for the year, while Japan, Asia Pacific improved 4% for the quarter and 6% for the year. And finally, China grew 5% in Q4 and 3% for the full year.

Now moving further down the P&L. Fourth quarter adjusted gross profit margin was 44.9% compared to 46.8% in the prior year period, a decline of 190 basis points due to tariffs, higher instrument placements and product mix. For the full year, though, our adjusted gross profit margin was 47.4% versus 47%. The 40 basis point increase was primarily driven by cost mitigations, offset by tariff impacts.

Fourth quarter non-GAAP operating expenses of $229 million, comprised of SG&A and R&D slightly increased year-over-year due to the timing of sales and marketing expenses. Non-GAAP operating expenses for the full year were $894 million, which reflects a 5% or a $52 million decrease resulting from our cost savings initiatives. Fiscal year '25 GAAP results included a $701 million noncash goodwill impairment charge recorded in Q3 related to prior acquisition accounting. This charge cleans the slate with goodwill now reset, our forward GAAP earnings should more closely track our operational value.

In Q4, adjusted EBITDA was $153 million and adjusted EBITDA margin was 21%, which was flat to the prior year period. For the full year, adjusted EBITDA was $597 million with a 22% margin, which is a 240 basis point increase compared to the prior year. Adjusted diluted EPS was $0.46 in the fourth quarter and $2.12 for the full year, representing growth of 15% year-over-year.

Turning now to the balance sheet on Slide 6. We finished the year with $170 million in cash and $80 million in borrowings under our $700 million revolving credit facility. We generated $87 million in free cash flow in Q4. Excluding one-time cash items, we generated $135 million in recurring free cash flow. For the year, we used $77 million in free cash flow. Excluding one-time cash items, we generated $100 million in recurring free cash flow or 17% of adjusted EBITDA. This fell short of our 25% conversion goal, primarily due to $15 million to $20 million of ERP system issues and $20 million of sales that occurred late in Q4. Both of these receivables were collected in January of 2026. At the end of the year, our net debt to adjusted EBITDA ratio was 4.2x, which was above our target due to cash collection timing just mentioned.

Now I'll provide our full year 2026 financial guidance, which is summarized on Slide 7 of our earnings presentation. Based on our current business outlook, we expect the following. Full year '26 reported revenues of between $2.7 billion and $2.9 billion, with quarterly revenue phasing similar to '25. Foreign currency exchange to be neutral from the full year based on currency rates as of January of '26. The Labs business continues to grow in the mid-single digits, immunohematology to grow in the low single digits and the U.S. Donor Screening business wind down to be substantially complete by midyear '26.

Point of care growth is assumed to be relatively flat at the midpoint of our guidance, which is based on a typical flu season of $50 billion to $55 billion annual market tests. We also anticipate that COVID revenue will be flat at $8 million for the full year '26. We expect Triage cardiac growth to continue in the high single digits.

For Molecular growth to decline slightly with the discontinuation of the Savanna business given our planned acquisition of LEX Diagnostics. We anticipate minimal revenue contribution from LEX in 2026 and have factored in the expected dilutive impact in our guidance. We expect China to grow in the low single digits based on current market information. Adjusted EBITDA is anticipated to be between $630 million and $670 million, which equates to adjusted EBITDA margin of approximately 23.3%, a 130 basis point improvement compared to full year 2025.

We expect gross profit margin to be relatively flat to full year '25 and adjusted diluted EPS between $2 and $2.42. Included in this range is approximately $20 million in higher depreciation versus '25 related to growth in our instrument reagent rental agreements, as well as 2025 incremental investments in systems. For the full year, we expect $250 million in depreciation. We expect strong free cash flow between $120 million and $160 million, which factors in $50 million to $60 million in onetime cash use associated with our New Jersey facility consolidation and direct procurement cost savings initiative.

Interest expense to be approximately $200 million based on current debt structure, CapEx to be between $150 million and $170 million and an effective tax rate of approximately 24% for the full year. So, by the end of '26, we expect net debt leverage to be approximately 3.8x as we progress towards our goal of between 2.5x and 3.5x.

To conclude, we achieved our 2025 financial goals. Our cost savings initiatives meaningfully strengthened our results as reflected in our year-over-year EBITDA margin expansion. Looking ahead, we will continue to aggressively pursue further margin and cash flow improvement in '26, while also investing in our future top line growth.

So, with that, I'll ask the operator to please open up the line for questions.

Of course. [Operator Instructions] Our first question comes from the line of Tycho Peterson of Jefferies.

I want to hit on free cash flow, the guide here because it did come in lower than expected in the quarter. And you guys had kind of messaged, I think, at several different venues that you're confident in recouping the cash flows. So, can you maybe just talk on -- did anything happen in November and December when it seemed like most of those cash flows will come back? And then you talked about a step down in onetime outlays in '26 and the end of the ERP conversion. So maybe just all seemingly good guys in flight. So why are we not seeing better conversion in the timelines that you've laid out here for cash flow?

Hey, Tycho, it's Joe. So as just mentioned in the script, the Q4 cash flow came in a little lighter than expected. We came in at 17% as a percent of full year EBITDA versus the 25% of adjusted EBITDA that I mentioned earlier for really the 2 reasons that I mentioned in the script, and that is we had about $15 million to $20 million of that system-related AR that we had assumed we were going to collect in Q4, but unfortunately, it spilled into January. We collected that in January.

And then the second item that I mentioned was that we had some very late revenue in the quarter of about $20 million that, again, I had originally anticipated we would see that revenue a little sooner in the quarter and would have a chance to collect it in Q4. But given the way the flu season unfolded, that revenue came in very late, and therefore, we collected that cash in January. So, there's about $40 million, $45 million of cash that we thought originally would be collected in Q4 that slipped into Q1, January. We've already collected it, to be clear. So, it's timing with Q1 only. And that difference, if we had collected that $40 million, $45 million in Q4, we would have been right at our target.

And then as you move to '26, we had talked about -- it's in the script, when I talked about the cash flow, the midpoint of our cash flow range was $140 million. And I want to be clear, Tycho, that's real cash flow. That's not adjusted cash flow. And so, when you factor in the onetime items for the New Jersey facility consolidation and the direct procurement, this is the $50 million to $60 million that I've been messaging for several months now. And that puts our, if you will, recurring free cash flow at around $200 million, which according to that same metric would be a little over 30% of our EBITDA at the midpoint.

So, we -- I think we are making really good progress with cash flow. We just had some timing between Q4 and Q1.

Okay. That's helpful. And then maybe to dig into the strong performance in Lab, you had a nice acceleration even on a multiyear comp there. Can you maybe just talk a little bit about how sustainable you think these trends are? And any kind of delineation on chemistry versus immunoassay, how you're thinking about that for the year?

Yes. Thanks for the question, Tycho. Yes. So, if you look at our underlying growth rates really across the business, I think things look strong. Labs was at 7% for the quarter, 6% for the year, Point of care 7%. We had strong Triage growth at 16% in the quarter. The IH business was rock solid at 3% growth for the year. And if you look across our regions, I think we have really nice regional performance as well. I would point specifically to EMEA and LatAm, where in EMEA, we grew 4%, but we did it at the same time as we improved the margins by 900 basis points. LatAm growth was at 18%. JPAC very solid at 6%. So, as I think about the ability to sustain our growth moving forward, I think about a few things.

First of all, we've got really solid market positions in all of our segments. We have excellent brand recognition. We're winning new business. Our renewal rates are high. We -- as you pointed out, in the Labs business, we continue to benefit from being underpenetrated in immunoassay generally in the Lab segment, where our historical strength has always been more in clinical chemistry. So that's a nice growth opportunity for us. And our low OUS market penetration continues to be a growth opportunity for us just generally.

And I think moving forward, we've got -- we'll have LEX coming into the business. We are strengthening our competitiveness here with the VITRO 450 and the OUS system partnership that Jonathan discussed. So, just generally, I'm thinking -- I'm bullish on our growth rate moving forward. I think we're well positioned kind of across our business units to perform well.

Okay. That's great. And just last one quickly on China. What are you assuming in the guide for the year? And then I'll hop off.

Low single-digit growth in '26. Same as '25.

Our next question is from the line of Jack Meehan of Nephron.

I wanted to pick up where Tycho left off there on China. Since the press release you had a couple of weeks ago, I was wondering if there was any update that you could share in terms of dry slide and VBP?

Yes. Hi, Jack, nothing really new there. We did put out a pretty extensive statement on the website that kind of covers all the angles of that. But just to recap, the Jiangxi provincial HSA had made a statement that it was going to explore launching a nationalized VBP program, value-based procurement program for dry chemistry test strips in 2026. And as far as we know, there still has been no detailed proposal on that. There's been no indication of what products would be included in that or if our products would be included. So, we're waiting to hear details at this point.

Just to reiterate, we think that if our products were included, the estimate of the impact might be between 0.5% and 1% of total company revenue, and that's something that we would look to offset somewhere else in the business. So still waiting to hear more on that, but no new news to share at this point.

Okay. Appreciate it. I wanted to see if I could get a mark-to-market update on Sofia. I was wondering, just as I was looking at the flu and COVID trends, specifically, how much of the flu sales in the quarter were ABC. I was just wondering if maybe conversion from legacy COVID to ABC might have driven any of the shift you saw in the strength in flu versus the COVID decline?

Jack, it's Joe. The revenue from the combo product or ABC, as you referred to it, is still continuing strong, well over 50% of the total flu revenue. And actually, it's been very consistent for the last 2-plus years. And so, it's -- the combo test has proven to be very durable. Now whether there's some transition, as you mentioned, from stand-alone COVID to that, I can't really speak to that. But I do know that the combo test as a percentage of the total has been very consistent now for 2-plus years.

Our next question is from the line of Andrew Brackmann of William Blair.

And Joe, I'll save my farewell until next quarter. But maybe I'll start with you on a question on the guide and particularly EPS guidance. So, I think the low end of your range is actually below your 2025 EPS actual. Obviously, you've got interest expense that's going to be higher for the full year. But as you sort of think about the lower end of the range, can you maybe just talk to us about some of the assumptions that are embedded here to get you closer to that $2 versus maybe that higher end?

Yes. Hey, Andrew, the guide that we put out just now for '26 has a wide range just like it did the guide for '24 and '25. We -- unfortunately, because of the respiratory portion of our business and the sort of a bit of uncertainty that we have in that business, we have to have a wide range for respiratory. And so, if you think about the range for revenue, it's pretty tight on the Non-respiratory business. As I've been saying to you guys for a long time now, that business is super predictable, and we don't need a lot of range on that. So, most of the range on the guide is respiratory. And so again, the midpoint is where we want everyone to go to the midpoint of the guide I just gave is where I think everyone should look to go.

And so, what is going to drive it to the low end or the high end? Well, the midpoint for respiratory guide is going to be, like I said, that $50 million to $55 million test market. And if it drops down to maybe $40 million, $45 million, you're going to go to the low end of the range, if you up to $60 million, $65 million, you're going to go to the high end of the range. And again, you guys know this, we've seen flu markets of all those sizes over the last several years. So, that's why we have to pick up all sizes of the market in that range. And when you have that wide of a range for revenue, it just drops down. So, the EBITDA guidance and the EPS guidance just fall right from those revenue numbers.

Now again, I don't think it's probable we go to that low end. I think, and again, I want everybody to look at the midpoint of the range. I think that's where people should be. But I also want to call out what I said in the script a few minutes ago is that we do have depreciation and amortization going up about $20 million year-over-year from $25 million to $26 million. And so that is -- that's about a $0.21 -- $0.22 impact to the adjusted EPS. And so, as you think about where that EPS range is for '26 relative to '25, that's a big impact. There isn't as much of an impact on interest expense. Interest expense is going up, I would say, slightly from '25 to '26. I wouldn't say it's going up tremendously. Most of that where you might be thinking why is this EPS so low? It's because of the increase in depreciation.

Okay. That's very helpful. And then, Brian, maybe a question for you. You started the call sort of with a reflection of your time in the CEO chair. As you sort of think about the future here, the next couple of years of that continuous improvement sort of outlook that you outlined there, can you maybe sort of talk to us about some of maybe the future areas you're focused on for driving that improvement, specifically as it relates to maybe some cost savings?

Well, yes, if you consider cost savings specifically, I'm still very focused on getting the company to the 25-plus EBITDA range, 25% EBIT margin range. And I'm pretty confident in our ability to project into that range for a number of reasons. First, starting in the middle of the year, I think we're going to see a 50 to 100 basis point improvement just from exiting the Donor Screening business that we've announced for a long time. We've got a very rich pipeline of projects in place. We've been working on these direct and indirect procurement projects for some time now. We've got a nice portfolio of projects that span multiple years, as well as our plans to optimize our manufacturing footprint further.

We still have a lot of opportunity to optimize profitability in a number of regions. I pointed to the 900 basis point improvement we made in EMEA. We've got other opportunities as we look globally. And we do benefit not only from a growth standpoint, when we place integrated systems, because of the immunoassay volume, but that improves our product mix as the immunoassay margins are higher than our clinical chemistry margin. I think we'll see the benefit of margins in LEX as we start to achieve molecular level margins from that platform as it comes online. And so, I think we get probably to the mid-20s with a lot of our procurement initiatives, continued staffing optimization, the Raritan New Jersey footprint optimization. I think the high 20s come as LEX becomes a bigger component of our product mix. And we still do have some work to optimize staffing. We've done a lot of work there.

So, those are the things I'm thinking of on the sort of the cost side of the coin. On the growth side, we're really turning to how can we optimize our portfolio with new menu additions for our existing products, and we're starting to create the financial flexibility that we can start contemplating what our new systems will be that will allow us to project into higher volume segments and drive additional growth for the company. So, a lot of great things ahead of us here, and I think very positive on both the top and the bottom line.

Hey, Andrew, before we go to the next question, operator, Andrew, hang on, Juliet, just reminded me on your first question that I left out a piece of information that I probably should have informed you on that when I talked about the higher depreciation in '26 versus '25, the $20 million. I probably should have mentioned that, that's driven by really 2 main things. It's the reagent rental capitalization in '25 was about 14% higher than in '24. And so, we had a -- this is a good thing. We're placing more boxes in instrument location or customer locations. And so that's part of it. And then the other big piece is the systems, the capitalization. You guys have heard me talk a lot about the ERP system conversions, and we spent a lot of money on the system conversions that are done. And so, we had to transfer and that's all been capitalized in late Q3, early Q4. And that's -- those 2 things are really driving that higher depreciation when you look at '26 versus '25. So, sorry, I missed that [indiscernible].

Our next question comes from the line of Patrick Donnelly of Citi.

Joe, maybe one for you just on the margin front. Can you talk about the gross margin? They were a little bit soft relative to what we were looking for. I know you called out the tariff piece, maybe a little bit of mix. It would be helpful if you talk through that. And then just the right way to think about the go forward, I guess, those gross and op margins as we work our way through '26, maybe just a little bit of progression and cadence on that front would be helpful.

Yes. Hey, Patrick, so the gross margins in Q4 were down and I would say that it was down due to, I mean, 3 main things. There definitely was some tariff impact. When you think of -- and again, I'm talking about Q4 '24 to Q4 '25, we're down. It's the tariff impact. We had more instrument revenue in Q4 '25 versus the previous year. And then we also had some other, I would say, negative product mix impacts for Q4. When you look at the full year '25, we were actually up 40 basis points for the full year '25 versus '24. And then as you look forward to '26, I would say that we're going to be relatively flat on the GP margin line. And again, we've got some additional tariff impact in there in '26 that you didn't have early in '25 and also some product mix impact. As a good guy, we definitely have some direct procurement initiatives. But I think those direct procurement initiatives are going to start hitting more robustly as you move through '26 and into '27.

As I've been saying, these direct procurement initiatives take a little time. They're very complex. So, I do think we're going to get over the short term, as you move from '26 into '27 and '28 even, we're going to see more gross margin improvement. And Brian and I have a goal to get our gross margin really up much closer to 50% as we move through the next couple of years. And that's going to be a combination of the direct procurement initiatives that I just mentioned, as well as you think about LEX. And once we get through the dilutive stages or the early stages of LEX, molecular margins do typically have higher margins than antigen. So, we do expect LEX over time is going to benefit our gross margins.

Yes. Maybe on that point, we left off on LEX, Joe. It might be one for Brian. Just in terms of any milestones we should be keeping an eye out. I know it sounds like dialogue with FDA is continuing to move forward on LEX. Just what we should be looking out for confidence on the time lines and when we should expect to start to see some revenue there.

Yes, I'll ask -- yes, I'll actually ask Jonathan to comment on that since he's in the middle of it.

Yes, sure. Happy to. Thanks for the question, Patrick. Yes, with regards to LEX, we had talked about LEX back in May. We certainly would have hoped to have clearance right about now, but it's not unexpected, especially given it's a brand-new platform, which take a little bit longer through its first FDA cycle. A reminder that this is a CLIA waiver as well. So, we're looking at not only assay, but the hardware, the software, cybersecurity, the usability as well. All indications we have right now is that it's really going according to plan. And I know from our own FDA review submissions, we've seen FDA taking their deep review of the process.

So, everything is going according to plan. No issues we see at the moment, just kind of waiting for that to work its way through the rest of the process with the FDA. And then as we spoke about before, once we get the other side of that, we'll be continuing with all of the acquisition activities and timing and processes that are associated with that.

Our next question is from the line of Lu Li of UBS.

Maybe just following up on some of the R&D pipeline that Jonathan just mentioned. I guess like maybe on the VITRO system, it seems like all the new product launches are OUS opportunity. So, I wonder like any plan for the U.S. side? And then also, how should we think about the assay pull for opportunity in the coming years?

Yes. So, we're going to be issuing a press release with more details on this agreement that Jonathan discussed in his remarks. But basically, our OUS markets are becoming a larger part of our business and more important for our growth profile. And we've recognized that we need to strengthen our portfolio to take advantage of the growth opportunities in those markets, and that's what this partnership is designed to do. It provided us a way to move quickly with really some very high-quality solutions for the benefit of our customers. So more to come on that. We'll get some details out in the next few days on that.

As for systems based focus on our U.S. markets, they take a little longer to develop. As I mentioned, we now have some financial flexibility to start investing in those new systems that will -- that are at this point, probably years away. Our near-term focus, though, is going to be on really heavily focused on content and menu addition for our current systems.

Yes. And I think, Brian, this is Jonathan. I would add on the U.S. side, obviously, with adding our high-sensitivity troponin assay, that rounds out our offering on the menu side here in the U.S. really well. Brian mentioned earlier in the call and reiterated here our OUS opportunities both on the immunoassay side to round out the menu offering, which is what that partnership helps us with on tenders. And then on the VITRO's 450 that I spoke about earlier, that's really hitting those lower volume segments, but it's also important on that design to hit a particular COGS target that we've done. So, from an OUS perspective, it's fundamentally and strategically about tenders and hitting with a lower piece -- lower cost capital, some of those lower volume segments, which is why you'll hear us continue talking about all the OUS opportunities in front of us.

Got it. And then maybe I will squeeze my 2 short questions into one. On the Lab side, the 7% growth, how much of that is coming out from the instrument? It seems like you have a good instrument quarter. So, I'm wondering how much is coming from that? And then also one on leverage. Any initiative in terms of like the debt refinancing in 2026 that could potentially lower the interest expense?

Hey, Lu, I can take the instrument revenue piece of that. For Q4, the instrument revenue was relatively flat to prior year. So, really, none of that growth is being driven by instrument revenue.

And the leverage.

I'm sorry, what was the -- I...

The question was around leverage.

We just went through a pretty extensive debt refinancing. And at this point, no plans for further refinancing the debt.

Our next question comes from the line of Andrew Cooper of Raymond James.

Maybe first, I just want to drill in on free cash flow a little bit more again. I appreciate guiding to the reported metric. I think that makes it a little bit clear. But even if we add back that $50 million or $60 million you called out of sort of onetime that drags against it, you're still looking to get to like 30% conversion in '26. So, obviously, a little bit shy of that 50-plus longer-term goal. Is that 50-plus still the right bogey? And if so, when should we think about bridging towards that number?

Hey, Andrew, we've been pretty clear that the target there is 50%. I don't think I said over 50%. It's 50%. And I've also -- I thought we've been saying pretty clearly that it's not -- it was never going to be a '26 goal. It was more going to be a run rate within '27 once we get further along with the direct procurement initiatives. And the cash flow goals are really kind of tethered pretty closely to the margin goals. And that's more a mid-'27 thing. So, what we had said was that we would make progress in '26. And so, I think we came in a little bit less than I thought in '25 at 17%. When you look at -- again, that's a recurring free cash flow metric, but we are making progress from that 17% to the 30%. And obviously, as I said, we're going to be -- there's a full core press within the organization on cash flow right now. And we're going to be looking under all rocks to try and find ways to increase cash flow and get ahead of that and do better than that 30%. But that -- right now, that's the bogey we're putting out there for '26.

Yes. I would just add that cash flow is -- yes, I would just add that cash flow is a company-wide focus for us and including incentive -- executive compensation incentives that will directly be tied to cash flow targets for the first time this year. So, it's a major focus for the organization.

Okay. That's helpful. And then maybe just one more on the partnership. I appreciate we'll get some more details, it sounds like relatively soon. But when we think about really what's being solved for there, I know Jonathan just talked about some of kind of getting where you need to on margins or being able to get into tenders. How much of this is, hey, here's the 25 assays that are not available on your existing system and those have kept you out of tenders versus bringing a solution that maybe makes a little bit more economic sense in some of these settings.

Hey, Andrew, this is Jonathan. I'll take that one. So, yes, it's a good read behind the question. A good chunk of it is going to be that tender gap fill if you will. I think the other important thing here is, again, we'll be talking more soon about the specific of the partnership. But one other detail, it's a couple of different systems we're partnering on. So, the other element of this partnership is it's going to get us a little bit higher throughput systems that the partner has. So, it's a big part of tenders for sure, but it's another part of us being able to go upstream a little bit from a customer and a throughput perspective in those OUS markets as well.

Our next question is from the line of Casey Woodring of JPMorgan.

And first, Joe, congratulations on retirement. Maybe following up on Patrick's earlier question on margin progression. How should we think about the direct procurement initiatives hitting the margin line in '26? It doesn't sound like a lot of that's baked in this year unless I misinterpreted your comment there. And I would also be curious to hear what the guide assumes for free cash flow in 1Q. It sounds like you have about $40 million in the bank already that was carried over from last year. So, I guess, how do you see the free cash flow progression from 1Q over the course of the year to get to your guidance range?

Hey, Casey. Thanks. So, we definitely have some direct procurement savings built into the '26 guide, but there are definitely some offsets within GP. Like I said, there's tariff impacts, there's product mix. There's some LEX dilution built into the guide, not significant, but that's definitely an offset. And so that's why we're guiding GP margin to be relatively flat even though there is direct procurement savings into -- or built into the guide for '26. I do think there'll be more direct procurement savings that will go into the '27 guide, but obviously, more to come on that.

And as far as free cash flow, and again, just to be clear, we are -- this quarter and for '26, we're now guiding to real cash flow and not this adjusted metric anymore, but we will be providing more color on the onetime cash. Like I said, we're -- the midpoint of our guide for '26 is $140 million of real free cash flow, and there's about $50 million to $60 million of onetime, which gets you to that $200 million for recurring. And I would say that similar to the last 2 years, despite that some of that timing difference between Q4 '25 and Q1 '26 that I mentioned in the script, I still think that the majority of our cash flow is going to be generated in the second half versus the first half of the year. And that's consistent with the last 2 years. I don't think there's really any change there. And so, yes.

Okay. Got it. And maybe as my second question, I just had a few on the high-sense troponin approval on VITROs that you guys called out. Any thoughts on if that could be a meaningful contributor this year to revenue? And I would also just want to ask on the Point of care piece, too. I think you guys had targeted a launch on high sense troponin in Point of care, I think it was in '24. So, any thoughts on potentially getting into that space anytime soon? And then maybe just lastly, across VITROs and Point of care, just curious what the TAM is in high sense troponin and if this could be a real growth area for you guys over the next several years.

Yes. I think -- well, first of all, as it relates to the Point of care high sense troponin, I'm not sure what was communicated there, but it's something that in theory, we'd really like to do. We're still working on a number of technology challenges there to be able to provide that in the United States. We are seeing a strong contribution with the high-sense troponin assay outside the United States. And so, we would like to pursue a pathway to commercialize the assay here in the U.S. As it relates to the Labs high-sense troponin that we launched, by itself, I don't -- it's not really going to have a huge impact on our short-term growth rates. I think over the long-term, it would have become a competitive factor for us. But that said, it will help us compete a little better in the higher volume segments where that particular assay is growing in importance.

And so, we're happy to get it on the system. And it will -- it's certainly going to help. It won't hurt, but I don't think we can point to major step function growth there as a result of a single assay.

Our last question for today's call is from Bill Bonello of Craig-Hallum Capital Group.

I just want to go back once more to the cash flow guide and outlook. So, you talked about the onetime uses of cash that are going to occur this year and gave us sort of a proxy for what sort of recurring cash flow could look like. I guess as you consider your plans beyond 2026, it would be helpful to get a sense of whether you're going to have additional sort of what you might consider onetime cash investments that you're going to have to make? Or is $200 million or so the right starting point to be thinking about 2027 free cash flow?

Yes. Bill, it's Joe. So, we have said already that the onetime cash would come down significantly. And you go back to 2024, we had over -- well over -- it was probably like $210 million of onetime cash in 2024. It came down to about $175 million in 2025. And then like I said, the $50 million to $60 million in '26 guide. For '27, I would expect it to be a similar number, probably around maybe $40 million to $50 million of onetime cash in '27. And it's the same 2 topics. It's the Raritan, New Jersey facility shutdown that takes into '27 to complete. And it's the direct procurement initiatives, which will require some onetime resources in the areas of R&D and quality and regulatory. That is also going to go into '27.

And so -- but beyond that, I don't have a lot of visibility to other onetime cash at this point that we would utilize. And so, that's all good news. As you think about our free cash flow expanding, and I do think that the free cash flow will expand as our EBITDA margin continues to go up, and we continue to look at the working capital. I do think there is opportunity in inventory in '26 and '27 that we will go after. And then, of course, the onetime cash starts to really go away. And so, as you think about those areas as well as starting to whittle down the interest expense as we either refinance the Term Loan B, which I anticipate us doing at some point this year because it does look like rates are going to come down, that brings down interest expense. And we'll do everything we can to limit reagent rental cash and try to flip customer's cash instrument sales. We've got some initiatives in place to flip that mix a little more.

We'll look to limit CapEx. And so, through all those things, all those levers, that's how we get up to that 50% conversion rate of adjusted EBITDA. So, that's sort of the path forward, if that makes sense, hopefully?

Yes. No, that does. And then I guess I just wanted to revisit your comments on gross margin. I thought that as part of your answer and maybe you were talking about full year and not Q4 sort of year-over-year decline in gross margin. But I thought in answer to Patrick's question, you had cited more instrument revenue as one of the factors impacting gross margin. But then later in response to a question that somebody asked about what was instrument -- how much of the -- to what degree was -- were instruments contributing to the higher Lab growth, you said that instrument was kind of flat year-over-year. So, I'm just trying to reconcile the 2.

Yes, you're right. It is -- for Q4 on its own, Bill, it's mostly product mix and tariffs. That's right. It's offsetting.

That will conclude today's Q&A session. So, I'll now pass it back over to Brian Blaser to close us off.

Thank you, operator, and thank you, everyone, for your time and continued interest in QuidelOrtho. To wrap things up, we delivered on our 2025 commitments, executing against the priorities we outlined, strengthening our business, expanding margins and driving solid growth across our portfolio. Looking ahead, our focus remains clear, accelerating growth, expanding margins and strengthening cash flow while further improving the balance sheet. So thank you again, and we look forward to updating you next quarter.

Thank you. That will conclude today's call. Thank you for your participation. You may now disconnect your line.

We can look to get started. Thank you for joining us. I'm Patrick Donnelly, the tools and diagnostics analyst here at Citi. Happy to have Joe Busky, here from Quidel. Thanks for being here, Joe. Thanks for coming down.

Maybe just chat a little bit. I was a little surprised by the stock reaction after 3Q. Any interesting feedback you heard from investors or the pushback on the quarter? Again, the sell-off was pretty steep. It's bounced back nicely. And then again, you guys did some insider purchases, which was good to see. But what was the feedback you heard from investors kind of post the quarter?

Well, first of all, by the way, thanks for having me here, Patrick. Good to see you.

Likewise.

We were perplexed as a lot of people were with the reaction. There's obviously a lot of puts and takes that go into stock price going up or down. But based on what we've learned, it seems it's a combination of a bunch of things, a fairly high short interest before the earnings call, some increased put option exposure prior to the earnings call, some tax loss selling, some quant fund activity in a bit of a perfect storm. But -- and there were 2 areas that were -- that we've heard that subsequent to the call that potentially people questioned, 1 was cash -- the cash flow timing related to the ERP conversions. And one was the when we narrowed the guidance and it pushes out a Q4 that's got slightly lower margin sequentially. We addressed both of those issues on the Q3 earnings call, though. So it's just -- it was an unusual thing for sure.

Yes, for sure. Yes, maybe we can dive into a couple of those. I mean, the cash flow piece you mentioned, we definitely got some questions on that. Can you just refresh us on where we are on the cash flow so far this year, the guidance and what's necessary in 4Q and just the visibility on that front to your point.

Yes. So the guidance we put out on cash flow since the beginning of the year was to be at adjusted free cash flow for the full year of 25% to 30% of adjusted EBITDA. And we are tracking towards that range. Obviously, in Q3, we had a bit of a hiccup with the system conversion, which had the impact of delaying some cash receipts on receivables from Q3 to Q4. But we do expect to have a fairly strong Q4 in terms of cash because we are, for sure, collecting all that cash that we would have normally collected in Q3. So the range of the guidance is still the same. The target that we're trying to get to a little longer-term of 50% of adjusted EBITDA cash flow. We expect to make some progress towards that next year in 2026 and then expect to get at that goal as we get into 2027, similar to the margin goals, where you expect to get into the margin target range in 2027 as well.

Okay. So maybe a little bit of push out from cash, 3Q to 4Q, but feeling pretty good about the gap?

Same for the full year. It's just some quarterly noise.

Okay. Got you. And then maybe we can just kind of run through a few of the business. I mean the Labs business has been pretty consistent. 3Q, I think was a little over 4% constant currency. Maybe just talk through that business. It feels like it's pretty solidly on that mid-single-digit growth trajectory. We'd love to dive into that business a little bit and talk through the underlying drivers?

Yes, sure. And maybe even before I get into more Labs, let me just take a short step back for the full quarter. I mean, for the quarter and the year-to-date results, we felt we had really solid results which were above expectations. The total revenue, excluding the COVID revenue and the donor screening revenue, which we were winding down that business was 5%. So the base business is growing 5%. Now within that, to your point, Patrick, we've got labs growing at 4%. We've got immunohematology grew at 5%. Triage grew at 7%. So these are all really good indications of the underlying base business doing pretty well.

And again, it's both for Q3 and year-to-date where we're seeing these solid results. Labs, yes, I mean, we've always said, since I got to the company 5 years ago, And we took Ortho public back in 2021, Labs is a mid-single-digit growth business, and it's been right there for really all those 5 years. The win rates within our Labs business continue to be consistent that's both on new business and existing business. We continue to run the strategy of leading with integrated analyzers, which is having the effect of driving more higher-margin immunoassay revenue, which is, again, the strategy we've been employing now for 5-plus years.

So we're -- I think we're year-to-date at a little over 5% for labs growth, and we should be right there for the full year, around 5%.

Okay. And in that business, I mean, to your point, consistent, good visibility, long contracts, right, 5 to 7 years, maybe on average. In terms of those contracts, -- maybe just talk through the structure, I mean, minimal consumable orders, pricing levers, are you able to adjust as we go if things like inflation, tariffs, maybe talk about the contract structure and any changes in terms of those discussions over the past couple of quarters?

Yes. It's a super stable business. It's very predictable. So when we put out our guide -- our annual guidance the nonrespiratory piece of our revenue, which has made up a lot of Labs and IH are very predictable business. And again, Labs is half of our business. It's half of our revenue. So when you think about the stability of QuidelOrtho you got to think about the half of the business is the Labs business unit, which is super stable, predictable. To your point, 5 to 7-year contracts with guaranteed minimums. The minimum spends are typically set at around 90%, 9-0, of what we think the customer is going to use in that particular year. So it's a high number. And again, with these hospitals, you can fairly easily predict what the flow-through is going to be.

So we don't have a lot of customers who typically fall significantly above or below those minimums that we set. So it's a pretty forecastable business from a customer standpoint as well. We did not have in the inflation adjusters in the contracts with our customers during the years '22, '23 and '24 as we were experiencing higher than normal inflation in our U.S. or global economy. We've since started to put those inflation adjusters back in starting in '24. So as we work through all the contract renewals within the next several years, all of our contracts will have those inflation adjusters back in them again.

Okay. And any changes in terms of pricing, how you're thinking about that piece? Any changes on that front?

Yes. The pricing in the Labs business has been pretty consistent. I've been in this space for a long time. Having -- going back to 1997 at Dade Behring. And I've seen this movie every year since. It's -- there's -- the 5- to 7-year contract renewals create some really competitive renewal processes. And so we have seen about 1 point to 1.5 points of price erosion every year on the lab space. And that's not just for us as a company, it's everyone in our space. We're all experiencing that same erosion every year. So it's just something that's that you build into your models. And we know that from productivity perspective and from other pricing actions maybe on new menu, you got to find a way to get that price back.

Yes. Okay. And then the immunoassay to integrated analyzer piece, that ratio you've talked a little bit about in the past, I guess where are we in that evolution? Where do you want to get to? Where are we? And what could that mean on the economic side, margins, whatever it may be.

Yes. So maybe just a quick background for those who are maybe new to the story, the revenue -- our labs revenue is inverted from where the market is in terms of routine chemistry and immunoassay business. The market is 2/3 immunoassay 1/3 routine chemistry. Our business is the opposite of that. We're 1/3 immunoassay, 2/3 of routine chemistry in round numbers. And the best way I think for folks outside the company to measure our progress in this area is to look at our integrated installed base as a percentage of the total. So the integrated analyzers of the analyzers that run both routine chemistry and immunoassay.

And so our strategy is to lead with those analyzers, so we can run both types of assays. When I took Ortho public back in 2021. Our integrated installed base was 25% of the total. As we sit here now, it's about 30% of the total. So that's sort of the state of progress that we're moving. And I think the good news about that stat that I just mentioned is that there's a long runway left to go with this strategy. Where does it go ultimately? I think probably should get up to around 50% of the integrated base of the total. So again, we've got room to go, and we'll just keep running this strategy.

And are those much different margin profiles? Is there a mix shift that we should be keeping an eye on there?

There is. The immunoassays are typically higher-margin assays than the routine chemistry assays. And my estimate is that we probably pick up a margin tailwind of 10 to 20 basis points annually from this strategy. And again, that goes to offset some of the price decline that I mentioned earlier.

Yes. Okay. And then I think it was the last call, you were talking a little bit about the troponin tests getting approved. I mean how meaningful can some of these one-off test be? This one included. Any metrics we should be keeping an eye on in terms of the adoption there and getting that out in the market?

Yes. First of all, big congratulations to Jonathan Siegrist, our Head of Technology and Head of R&D within the company for getting this assay approved with the FDA in the U.S., it's a big accomplishment. It's hard to get this assay approved. There's not every company in our space has this assay. We have it in Europe. We have it approved under CE in Europe, and we've had it for several years, and it's very successful. We knew that we needed it in the U.S., and we got there. We got it approved about a month ago. So again, congrats to our team for getting it done. It's an important assay.

As you think about the clinicians and the doctors in the U.S. and how they practice, there's definitely a movement towards the use of high-sense troponin with cardiac patients from other markers. And so we felt it was very important to have. And so I don't think any one assay can move the needle tremendously with revenue growth, like I'm not going to sit here and say, our Labs business is going to grow any greater than mid-single digit. But I do think that the approval of this high-sense troponin assay is important enough that it should give us all confidence that we can continue to grow at mid-single-digit growth.

Yes, yes. Okay. And then I'm sure you don't go too many discussions without touching on China. Maybe we can just discuss that a little bit. Your guys' results, I think you did 5% growth last quarter, a slight adjustment to the guide in 2Q that we can discuss. But was it competitive dynamics?

I guess what have you seen in China as this year has evolved? And then we can get into the reimbursement piece maybe after that?

So our business has been a little more immune from a lot of the actions from the Chinese government to bring costs down. We've really not been significantly impacted by the VPB or the DRG or the reimbursement actions that are coming out of China as compared to some of our competitors. And really, that's a -- it's a function of the nature of our business. being more, as I said a minute ago, more heavily in routine chemistry than immunoassay and also our business being more focused on the stat market within China versus other areas of the health care system within China. We did see some slowdown in our revenue growth as we went from the back half of last year through the first couple of quarters of this year, and that was mainly driven by the reimbursement issues on the cardiac assays.

But we've -- we're through that now. It's been 4 quarters and we think we've got that built into the numbers. We do expect to have a good quarter in Q4 and we do expect, again, that the Chinese market for us will be a mid-single-digit grower for the full year 2025. So we're -- Brian and I are bullish on the market. We think there's lots of opportunity, and we'll just continue to monitor what's coming out of the Chinese government and what's going to impact us.

Yes. And I guess in terms of the reimbursement side, it's not just you guys. I mean, anyone who has a China diagnostics business, it seems to be this fear that another shoe is going to drop, and reimbursement is going to be a cut. You guys, I think saw a little bit in the Triage business, to your point. How confident are you -- what's the right way to think about just the scope of some of these changes? Why are you guys insulated versus others? It would be helpful to talk through that because it certainly comes up?

Yes. Again, I think a lot of it comes back to the nature of our business, the dry slide technology versus wet chemistry, the heavier focus on routine chemistry which has been more outside of a lot of these DRG reimbursement actions. So at this point, we're not aware of anything that's going to impact us. And we watch our team on the ground there watches it very closely. We had honestly, no new news to report on the Q3 earnings call, which Juliet and I read all the other transcripts from everyone in the space and really no one had any new news on China in Q3. So it's kind of a quiet quarter in terms of new things coming out of the Chinese market.

Yes. And what's the right way to think about, to your point, good large market. What's the right way to think about the growth rate there? Obviously, you guys have some of the VBP stuff in there with Triage currently. As we get beyond that, what could this market be? What's the right way to think about just the baseline growth for China for you guys?

I actually think at this point and maybe before we give more granular 2026 guidance, I would just assume it's mid-single-digit growth market. That's a fair assumption.

Okay. That's fair. And then maybe we can turn to the immunohematology business, again, performed pretty well last quarter, a little bit above kind of -- I think it had been low single, a little more mid-single this quarter. Anything jump out in terms of calling out in terms of the growth drivers and the sustainability there?

Well, I want to point out first that for that immunohematology business, we are the #1 market position for that business globally, not just the U.S., but globally, we're the #1 market leader. We had a great quarter in Q3 at 5% growth. However, I think there was a little bit of timing between Q3 and Q4 shipments and Q4 growth will probably be a little bit lower. So the full year will likely still be in that 3% to 4% growth rate, which is where our expectations are for that business.

Okay. And it seems like region-wise, I mean that's been doing a little bit better LatAm, EMEA. Is that the same thing? Is it timing? Are you feeling a little bit better about those markets? What's the geographic kind of thought process?

I think those markets have been growing nicely for not only immunohematology but also Labs and also Triage. We are -- our commercial leaders in those regions are just doing a fantastic job with their teams in selling those products. And in those markets where health care is still in -- very much in the process of expanding. We're doing quite well and winning a lot of good deals in those areas. So I think I expect that to continue as we move forward. And that's all part of the lab to mid-single digit and the IH 3% to 4% and Triage high single digit. That's all built into those target growth rates for those businesses.

Yes. And I think it was a few weeks ago, you had another FDA approval in this business, the micro typing systems card. How material is that? What does that mean for the business? Maybe just kind of pull the curtain back a little bit there?

Yes, all these menu improvements, being in the diagnostics space, it's all about keeping up with menu and -- it's a bit of an arms race at some point when you think about all the companies working on menu. If you don't keep up with menu, that's how you fall off tenders around the world. So we are doing a great job. Again, another hats off to Jonathan Siegrist and his team, the R&D team. That one specific one you mentioned, fills out our gel-based portfolio in the U.S. And again, I don't think any one assay will move the needle greatly, but it's definitely a nice confidence builder and definitely makes us much more competitive in the U.S.

Yes. Okay. And then maybe just as we think about kind of bridging between legacy transfusion medicine, immunohematology segment, post-U.S. donor screening exit, which we can get into a little bit. I guess, how do we think about the cost margin structure of the updated segment once the U.S. donor screening is officially out? And then again, maybe a quick update in terms of just the transition there.

Yes. So donor screening was a business that it's a U.S. donor screening market that we decided to exit last year. And last year, it was about $120 million of revenue. This year, we'll finish probably close to $50 million of revenue as we wind that business down and exit customers. The wind down will complete in the first half of -- largely complete in the first half of '26. So we will see some revenue next year in 2026. But I believe the headwind on the revenue line for total company will be much less. I think it will be as opposed to 2 or 3 points of headwind this year on the revenue line. It will be closer to 1 point of revenue headwind next year on the revenue line. So the wind down is going as expected. We will see some margin accretion once we have that business fully wound down and stranded costs pulled out, and I expect that to be more of a late '26, '27 event.

And we've sized that margin accretion probably somewhere between 50 and 100 basis points that we can pick up because the immunohematology business is a good margin business, but the donor screening business was definitely a lower-than-average total company margin business.

Yes. And was that -- in terms of the wind down, obviously, you guys are very focused on the margin side? Was it just, say, the profitability is not there. Let's walk away? What goes into those decisions?

Yes. The portfolio optimization decisions are always tough, but this is a business that's U.S. donor screening business. It's relatively small in market size. It's less than $1 billion in size. It's low growth, definitely low single-digit growth. And as I said a minute ago, lower -- overall lower margins than our corporate average. And when you think about where we are right now with scarce resources being allocated within the company and where we want to spend our R&D dollars we decided that we would get more ROIC from investing elsewhere and shutting down the donor screening market.

Okay. Yes, maybe we can flip to the point-of-care side, a few layers there. Maybe we can start on the Triage side, we'll move into kind of the COVID and respiratory piece. I think that was growing 7% in the quarter, good utilization cardiac, BNP, seemingly a little bit of international. So what's the right way to think about the growth drivers there, the opportunities going forward on the growth side for that business?

So total point of care business unit, I think the star of that business unit is Triage. We are -- we're seeing real nice growth there particularly outside the U.S. And again, we do expect that business to be a high single-digit growth business this year and next year as well. We -- our operations team has done a nice job over the last year or so pulling cost out of that product and making it much more attractive and much more marketable and much more competitive around the world. And so it's really starting to pay dividends now. So we're we like what we see there with Triage. I guess the other -- on the other side of the coin, you've got the COVID revenue. The COVID revenue is going to come down about $100 million from last year to this year. So again, another roughly 3 points of headwind on the top line for total company.

But we do believe that now that there is no more government orders in that number for this year, and the retail business is not there in the numbers. We think that the midpoint of our guidance this year at roughly $80 million of COVID revenue for this year is probably pretty darn close to an endemic level? I mean could have come down some more? Yes, it's possible. But it's all professional use space revenue, and we feel like we've got a better handle on those customers, and we do feel like it's kind of stabilized. So even if there is some further decline in '26, I don't deem it significant at this point. So I think we've gotten through -- we've digested a lot of that COVID revenue decline. And then what's left is the flu and RSV and Strep revenue within point of care. That business, as a reminder, we're the #1 market leader in the U.S. for pretty much all those products. And it's becoming a little more stable to predict the further we get away from the pandemic.

Our new modeling that we went to in 2024 is proving to be pretty accurate. This is the new modeling that focuses on the market size in terms of volume of tests, the mix of tests between combo and stand-alone flu and the market share that we have in the U.S. And so the original respiratory guidance that we put out at the beginning of the year is still holding through. We have not moved off of that original guidance that we put out in February. So we saw a pull forward of revenue from Q4 into Q3 for some flu revenue, which I believe some of our other competitors had mentioned the same thing. But because it was a pull forward, we kept our full year respiratory revenue the same in terms of guidance. We didn't change it. It was the pull forward from Q4 to Q3. And as you move into '26 and beyond, that flu RSV strep, the overall market growth is mid-single digit, and we're right there.

Yes. And when you think about the COVID flu piece, there's obviously the combo test. There's the solo COVID test. What is your mix currently? What's the margin difference there? Is that a dynamic worth calling out?

It is a dynamic worth calling out. We are seeing that when the COVID virus is prevalent. And when the flu variants are prevalent that the doctors will use the combo test. When there's no flu present, they'll use the COVID-only test. We tend to have COVID pretty much existing through the whole year. It ebbs and flows, up and down, but it's pretty much -- it's there all year flu as everybody knows, is pretty much only there from, say, October through April or so. So the combo test is used when both viruses are circulating. And it's proven to be pretty durable. It's been it's been over 50% of our total flu revenue mix for now 2-plus years. And it's actually increasing in mix. It's not like it's a declining mix. It's actually steady to increasing. So we do feel it's a pretty durable product. It does come at a slightly higher price, and the margins for us are slightly higher than just the flu A/B test.

Yes. Okay. And as you know, I mean everyone tracks kind of the southern hemisphere, assuming that's coming our way, is that the right way to look at it? What's your guys view? And how are you framing up this respiratory season versus past to your point. 3Q was a little better for you, among others, with the pull forward? Any thoughts there?

Yes. The Southern Hemisphere is definitely a data point that we all want to look at when you think about flu. And the Southern Hemisphere flu this year was a strong one. It was one of the strongest ones they've had in quite a while. And so that's definitely a good data point for us. I think the peak might have been similar or slightly lower than last year, but the duration was longer. We're also now seeing some good data points out of the U.K., which seems to be a little bit ahead of us in terms of flu circulation and the variant there has proven to be a pretty strong one which is also another good data point. The vaccination rates, particularly in the U.S. are down. Unfortunately for the population, I think, but it's probably a good data point for us and flu revenue as well.

And then, of course, we have our Virena data that comes from the Sofia LIS system. And so we track on a real-time basis, everything that's running through our customers activity. And again, we have -- we see that in real time. So all those data points tell us that we're pointing to, it looks like a pretty typical flu season that's going to start kicking up pretty soon.

Okay. And maybe flipping to molecular, obviously, some pretty big news there over the past couple of quarters in terms of pivoting over to LEX from Savannah. Maybe on LEX, looking to enter the market with respiratory assay, maybe just refresh us on the steps needed to get there, the timelines, what it means to you guys and just kind of walk through that catalyst set.

Yes. So LEX. LEX is the business that we invested in back in '24, and we've got an exclusive option to buy the entire company once they get FDA approval in their first panel. The first panel is a flu A/B COVID test. And we do expect, based on our discussions with the FDA that will get approval, they'll get approval of that panel late this year, early next year. And once that happens, we will very likely complete the acquisition of the company shortly after that. And then we'll start a very, very limited commercial rollout in the first half of '26. The -- I think the more robust rollout of commercially of that business would be in the second half of '26. So I don't expect significant revenue from the business in 2026. I would expect that to further more fully ramp up in 2027. As far as the next set of tests or panels, RSV and strep will be the next panel we would roll out. And then following that would be women's health panels. And that would go a long way to getting us where we need to be with that product.

Okay. And maybe just the path to the approval, obviously, I think investors have a little scar issue from Savannah in terms of the timeline pushouts. How confident are you guys in terms of these timelines? What -- I guess, what's the confidence level? What hurdles are left to clear just the view there?

Yes. I think the 2 salient points there, Patrick, are that we've got -- we have essentially a new team in place that's dealing with the FDA. We've got Jonathan Siegrist, the new Head of R&D. We've got a new head of regulatory. We've got a new head of quality. And these folks are really good at what they do. And they've been in pretty much constant discussion with the FDA since the submission was made. And we have a pretty good confidence that it's going to get approved again, late this year, early next year.

Okay. And LEX a little bit different markets, a little more decentralized. Savannah was maybe a little more hospital based. You guys had a commercial strategy. Has there been a little bit of a kind of change in the strategy? How does the rollout of this compared to what you guys were thinking with Savannah?

Yes, that's a really good question. Savannah, which by the way, we're still serving our customers, Savannah customers. We'll serve those customers throughout '26 and even into early '27. We're not developing any new menu. But for the menu that we have out there, we are certainly serving our customers. And there's there might be $6 million to $10 million of revenue this year. So it's not completely insignificant. And I would expect similar revenue next year with Savannah. And by the way, we're going to very much try to transition all of our existing Savannah customers over to LEX. But the markets, there's a bit of overlap between the 2 Savannah was probably a little more focused on what I would say is small to midsized hospitals, which was a greater overlap with the legacy ortho commercial team selling into small and midsized hospitals. LEX, you're right. It's a little further downstream in the market, physicians office, POLs, urgent care centers, EDs and small hospitals. And so there is some overlap between LEX and Savannah.

But I think the good news is, is that the market that LEX is going after is the same market we sell into now. So the important point there is that we do not have to make any significant investment to commercialize LEX. We have the sales team, we have the distributor relationships. So no significant investment needed to commercialize the product. We know that market really well. It's a large market. And by the way, that market is actually growing faster than the market Savannah was going into the market that LEX will address is growing high single digit.

Yes. Okay. And then to your point, I was going to ask about sunsetting Savannah. It sounds like encouraging customers to switch over, is there a discount plan when you switch from Savannah to LEX? What are you guys doing to -- it sounds like, again, the revs may be similar next year, but I'm sure there's a desire to kind of sunset that at some point..

I'll be honest, I don't know the specific. I hope there's not a lot of discounts involved I just know there will be a concerted effort to transition those customers over as we move through 2026.

Yes. Yes. Understood. And then maybe the margin opportunity, I mean, that's always been a big piece of the story here. You guys have cut a lot of costs, and there's a big opportunity on the margin side. I know a big focus for you. Can you talk about where we are so far. I know the recent initiatives delivered over $140 million in cost savings. Where are those coming from? You guys did a big headcount reduction over 10% of the workforce, I believe. So maybe just talk about what we've done so far in terms of the cost savings for you guys and then we can get into the future opportunities as well?

Yes. We did mention on the Q3 call, I think Brian mentioned this in the script that we've taken out $140 million of costs since mid-'24. The majority of those costs about $100 million were related to staffing reductions that we implemented in mid '24. And those are all now fully built into our numbers as of the end of Q2. And then the remaining roughly $40 million is primarily indirect procurement initiatives that we've executed this year in 2025. There's still more procurement initiatives in the funnel and in flight, and that's what's going to lead to, for the most part, the 100 to 200 basis points of margin improvement that we've talked about for 2026 full year. So those projects are in flight. We're monitoring them pretty closely. And most of those projects, I would say, are mostly direct procurement related, which take a little longer. They're a little complex. involve more resources, you have to pull in quality, regulatory, R&D in addition to procurement and operations. And that's why they take a little longer.

And there's actually a little bit of incremental cost we'll incur in '26 for those projects to get them down. But we will start to see the benefits in '26 and into early '27 from those direct procurement initiatives. As far as headcount, staffing goes, Brian and I are trying to get away from like big bang cuts of headcount, that's really can be really disruptive to the business. So we're trying to steer the organization into more of a continuous improvement culture, where you're just constantly looking at where your headcount should be based on where the business is ebb and flowing.

Sure. And to your point, 100, 200 bps next year. I mean, is that contingent on any -- is there a need of a certain amount of revenue growth to get that? Or is it more a -- this is what we can control and if you start to get some real revenue growth to flow through, it would be a little more positive?

Well, it's predicated on us continuing to grow the base business in the mid-single digit. I think that's the assumption. And again, with the stability and the predictability of roughly 80% of our revenue in Labs, in immunohematology, feels like a pretty good assumption for us to make. And we've also assumed that COVID is going to be fairly flat -- and again, the donor screening, like I mentioned earlier, will be about 1 point of headwind. But that's all factored into that 100 to 200 basis point margin improvement.

Yes. And I was going to ask in terms of the key variables to think about as you think about the top line next year, to your point, you have the base business, the COVID piece, the donor screening. Is there anything else to call out in terms of variables that we should be thinking about as we look ahead to next year?

On the revenue line I think that's it. I think on the margins, the only thing we need to get a little more granular on once we get approval from the FDA is LEX. And what does LEX do to the margins, I think it's more likely LEX is dilutive in 2026. But it all really depends on how much product we sell, what the slope of the commercialization is, how fast the revenues climb. But I think it's more likely than not that LEX is dilutive in '26. And then hopefully, we start to reverse that trend in 2027.

Sure. And then you guys do have out this longer-term margin target, I think it's mid to high 20% by '27 I think I believe you reiterated on the 3Q call, but is that still the path and any big initiatives we obviously talked about a few into next year in terms of the levers needed to hit that? Anything you would call out?

Yes. I think very much still the target range that we're looking at. And by the way, that target range is very much in line with other pure-play global diagnostic companies. It's not -- we're not trying to overshoot margins that no one's ever done before in our space. Those are pretty typical margins for companies like us. And we're going to go from 19.5% EBITDA margin last year at 22% this year. And again, we've already put out that we think we can be between 23% and 24% adjusted EBITDA margin next year. And then as you move into we'll have the Raritan, New Jersey facility consolidation, which will provide almost another point of margin improvement. We'll have the donor screening shutdown, which will provide some margin accretion.

And then LEX is probably sort of the wild card of what does the slope of that commercialization look like? And when does it flip from dilution to accretion whether that's 27% or 28%. I think that's a TBD.

Yes. Okay. In the last couple of minutes, I just want to cover the balance sheet a bit of a topic with you guys over the years. We obviously chatted a little bit about cash flow earlier. It sounds like you're still confident in the numbers for 4Q. Can you talk about just the leverage side, where we are today, where you guys want to get to? Obviously, the LEX acquisition, we haven't seen much acquisitive nature out of you guys, just given the balance sheet. But -- maybe talk through the leverage side and the goals there and the path?

Yes. So the leverage ratio at the end of Q3 was 4.4%, which is obviously not a surprise to us, but not where we want to be. It's just too high. We absolutely know that there has to be a focus on increasing cash flow, decreasing the onetime spend of cash and bringing that leverage ratio down. So we believe that the leverage ratio will come down from Q3 to Q4. And I also believe that it's going to come down in '26 as we continue to grow EBITDA, and we continue to have less onetime cash spend and then we also execute on a bunch of inventory reduction initiatives that we've got in flight that will start to bear benefit in 2026. So I would expect us to get down into our target leverage ratio range of 2.5X to 3.5x as we move through the end of '26 into early '27.

Okay. And then the cash conversion, to your point, you have that 50% goal. Is that -- should we just see some progress next year? Is there any timeframe around when you're looking to kind of...

Yes, I think that's the right way to think about it. I think that we would make some progress against it next year. But I don't -- I wouldn't expect us to get there again until '27. '27 is a year where a lot of these in-flight margin initiatives and cash flow initiatives really start to fully execute. So I'd expect us to get there as we move into the second half of '27.

Okay. I think we're right at time, Joe, so we'll leave it there. Thank you so much.

Thanks, Patrick.

Welcome to the QuidelOrtho Third Quarter 2025 Financial Results Conference Call and webcast. [Operator Instructions] 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.

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

Thank you. Good afternoon, everyone. Thanks for joining the Quidel Third 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 assist in the presentation, we 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 strictly historical, including the company's expectations, plans, financial guidance and future performance and 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 on 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, November 5, 2025, and we assume no obligation to update any forward-looking statements, 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 information, which is 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. This quarter, we delivered another solid performance that reflects the strength of our diversified global diagnostics portfolio. We reported organic sales growth of 5%, excluding COVID sales and the U.S. donor screening business that we are in the process of exiting. This growth demonstrated the underlying strength and durability of our labs, immunohematology and point-of-care businesses across our global geographies.

We also delivered significant improvements to adjusted EBITDA, expanding to 25% of sales in the quarter, primarily driven by our continued focus and execution against our margin improvement initiatives. And these initiatives have now delivered over $140 million in cost savings and put us well on our path to sustainable mid- to high 20s EBITDA margins. And at the same time, we have made targeted investments in key strategic areas to position us for sustained long-term growth.

None of this would have been possible without the dedication and focus of our exceptional team here at QuidelOrtho. So I want to thank them for their hard work and commitment during what has been a transformative period. Together, we are building momentum and remain focused on the opportunities ahead.

So let me further summarize our quarterly highlights before I turn things over to Joe for additional financial details. And as a reminder, unless otherwise noted, I'll be discussing growth rates on a constant currency basis. In our Labs business, revenue grew 4%. Demand for our VITROS immunoassay and clinical chemistry platforms remained solid, supported by stable customer renewal rates and new business wins across our regions. We continue to benefit from underpenetration in the immunoassay segment as well as our brand recognition for testing solutions that have the lowest total cost of ownership and as the leader in customer service and support.

Our immunohematology business grew 5%, reflecting consistent strong demand from blood banks and hospitals as we expand automated testing solutions and strengthen our position in key geographies. And within our point-of-care business, our Triage product line posted 7% growth, supported by our strong value proposition, ongoing momentum in cardiac and BMP testing and growing contribution from international markets. Other cardiac revenue increased by $8 million compared to the prior year period.

Respiratory revenue declined versus the prior year quarter, primarily due to the 63% decline in COVID revenue. Flu revenue also decreased by 8% year-over-year due to timing versus the prior year period. And as a result, our North America revenue was down 12% in total, but up 5% year-over-year, excluding the impact of respiratory revenue and the U.S. donor screening exit.

Our Q3 performance outside the U.S., excluding COVID, was led by strength in Latin America, which grew 21% overall and 22% in labs. Japan, Asia Pacific and China each grew approximately 5%, and our Europe, Middle East and Africa region grew 3%, while also increasing EBITDA margins by over 700 basis points year-to-date as a result of our cost discipline and focus on profitable growth. We continue to see significant growth opportunities outside the United States, reflecting our historical underpenetration in these markets.

Moving now to our Q3 profitability. We are seeing consistent benefits from our -- in our results from the cost actions we have taken over the last year. Adjusted EBITDA in Q3 was $177 million and adjusted EBITDA margin was 25%, which is a 180 basis point improvement from the prior year period. Adjusted diluted EPS was $0.80. And these results reflect significant improvements in our underlying cost structure while also mitigating recent tariff headwinds.

Our Q3 and year-to-date results continue to demonstrate considerable progress across our organization. Our global commercial team remains focused on profitable growth and expansion in key markets and strategic accounts. During the third quarter, we achieved several important competitive wins across both established and emerging geographies. In R&D, our team continues to focus on advancing a robust pipeline, including ongoing menu expansion and the development of next-generation systems.

A great example of impactful menu expansion is the clearance of our new VITROS high-sensitivity troponin assay that we announced on Monday. This new test elevates our cardiac panel to world-class performance by providing clinicians with higher sensitivity and precision that allows for earlier detection of patients having a heart attack. It also leads to a reduction in unnecessary hospital admissions and ultimately lower cost for patient care. Getting this assay in the hands of our customers was a key focus for me as I joined the company, and I am especially proud of our R&D and regulatory affairs team for the work that they have done over the last several months to gain FDA clearance.

Turning now to operations. Our team is aggressively executing further cost improvements to reduce direct and indirect procurement costs, optimize our global supply chain and consolidate our manufacturing footprint. The team has also done an outstanding job of managing the impact of tariffs, and we continue to expect to fully offset these impacts in 2025. We also continue to support LEX Diagnostics in their ongoing review of their 510(k) and CLIA waiver submission with the FDA. They continue to engage in a productive and collaborative dialogue with the agency. And based on the current review time line, we continue to anticipate FDA clearance by late 2025 or early 2026.

So I'll conclude by saying that we are encouraged by the progress we've made and confident in the path ahead. We remain focused on our execution to deliver sustainable, profitable growth. And with that, I'll turn the call over to Joe to take you through the details of our third quarter financial results.

Okay. Thanks, Brian, and hello, everyone. I'll start by taking you through our third quarter results, which are detailed on Slide 3 of our earnings presentation, which is available on the Investor Relations section of our website. I'll also discuss our full year 2025 financial guidance, and then we'll open up the call for your questions.

Total reported revenue for the third quarter of '25 was $700 million compared to $727 million in the prior year period. The 4% year-over-year decrease was primarily due to lower COVID and donor screening revenue, the latter of which is related to the continued wind down of the U.S. business. Excluding COVID and donor screening, reported revenue growth was 5%. Foreign currency translation had a favorable impact of approximately 90 basis points during the third quarter. And based on FX exchange rates as of the end of October, we would expect FX to have a neutral impact on revenue and adjusted EBITDA for the full year.

We said that we were pleased to see strength in our core business with continued mid-single-digit growth, and Brian provided updates on our business unit and regional performance, so I'll focus more on our P&L and balance sheet. Third quarter adjusted gross profit margin was 48.7% versus 49.2% in the prior year period. The 50 basis point year-over-year decrease was primarily driven by tariff impacts offset by cost mitigations.

Non-GAAP operating expenses of $217 million comprised of SG&A and R&D decreased by $16 million or 7% as a direct result of our ongoing cost savings actions. Included in the other operating expense line of the P&L, we recorded $9 million of legal expense in connection with the final resolution of a long-running dispute with a COVID supplier that dates back to 2021.

Q3 results included $40 million in restructuring, integration and other charges, which included approximately $11 million related to the discontinuation of the development of the Savanna platform. Integration costs were $28 million, which were primarily related to our ERP system conversion that went live in Q3. As expected, we saw our vendor-related system conversion costs decreased by $1.3 million from Q2, and we continue to expect integration costs to decrease significantly in 2026.

We also recorded a $10 million expense on the asset impairment line related to the expected value of the sale of our Raritan, New Jersey facility. As we discussed last quarter, once we complete the Raritan facility consolidation, which is planned in 2027, we expect to save about $20 million in annual operating costs. As summarized on Slide 6, this is another example of the actions we are taking to move toward our adjusted EBITDA margin goal of mid- to high 20s.

Moving now to profitability metrics. As Brian discussed, adjusted EBITDA was $177 million and adjusted EBITDA margin was 25%, a 180 basis point year-over-year improvement despite the lower respiratory revenue. And on a year-to-date basis, adjusted EBITDA was $444 million or a 13% increase compared to the prior year period with a 22% margin, which represents an increase of 320 basis points. Adjusted diluted EPS was $0.80 in the third quarter and year-to-date adjusted diluted EPS was $1.66, which was growth of 36%. This growth demonstrates the success of our cost savings initiatives as we continue to drive toward our margin expansion targets.

All right. Turning now to the balance sheet on Slide 7. We finished the quarter with $98 million in cash and $100 million in borrowings under our $700 million revolving credit facility. During the third quarter, onetime cash flows associated with systems integration decreased by $5 million or 23% compared to Q2. However, adjusted free cash flow was a negative $50 million, largely due to the timing of accounts receivable collections that moved into Q4 and accounts payable disbursements that moved up into Q3 from Q4 as a direct result of our ERP system conversion. These temporary cash flow impacts from our system conversion were manageable due to the flexibility provided by our recent debt refinancing.

Because these impacts are purely timing related, we continue to expect full year adjusted recurring cash flow to represent 25% to 30% of adjusted EBITDA. We completed our debt refinancing in August, improving our debt covenant terms and reducing the required amortization over the life of the loan. A summary of our debt refinancing is on Slide 8 of our earnings presentation. And as part of the refinancing, we booked a $5 million loss on extinguishment of debt within the quarter. At the end of Q3, our net debt to adjusted EBITDA ratio was 4.4x, and our goal continues to be net debt leverage of between 2.5 and 3.5x.

Note that the Q3 leverage ratio was slightly higher than anticipated due to the ERP system conversion impacts to our Q3 cash flow. Our consolidated leverage ratio was 3.8x, including the pro forma EBITDA adjustments permitted and defined under our credit agreement. This compares to the credit agreement leverage ratio covenant of 4.5x. And during the third quarter, the company's stock price and market cap, which remained below management's view of the company's intrinsic value prompted an interim goodwill assessment. As a result, we booked a $701 million goodwill impairment charge in Q3. And note, we have no goodwill remaining on the balance sheet as of the end of Q3.

All right. Now turning to Slide 9. Based on our current business outlook, we are providing our full year 2025 financial guidance as follows. Given that we only have 2 months left in the year, we are taking the opportunity to narrow our 2025 financial guidance. Therefore, we now expect full year 2025 total reported revenue of between $2.68 billion and $2.74 billion with neutral FX impact to the full year. While we're pleased with our revenue performance in Q3, we continue to expect a typical respiratory season with timing consistent with pre-pandemic patterns and similar to last year. That is occurring later in the fourth quarter and into the first quarter. And importantly, the midpoint of our narrowed guidance range remains the same as our prior guidance.

Year-to-date COVID revenue was $60 million, and we continue to expect between $70 million and $100 million for the full year. We believe this range is reasonable and reflects endemic levels. We are also narrowing our adjusted EBITDA range to $585 million to $605 million, which is, again, the same midpoint as our prior guidance. This adjusted EBITDA guidance includes incremental cost savings in the range of $30 million to $40 million in '25, primarily related to indirect procurement efforts, and these savings are in addition to any tariff-related offsets. Our outlook continues to reflect an adjusted EBITDA margin of 22% for the full year, which is a 250 basis point improvement versus the prior year.

Following our debt refinancing in August, we expect interest expense for the full year to be up by approximately $17 million for a total of $177 million. This includes a roughly 100 basis point increase in the weighted average interest rate and the additional amortization of deferred financing fees tied to the new term loans A and B.

For the full year, we expect our effective tax rate to rise by roughly 1 percentage point from the previous guidance to 25%, reflecting the impact of tariff mitigation measures that have shifted income across different geographies. So we are also updating our adjusted diluted EPS guidance solely to reflect higher interest expense and the taxes just discussed. We now expect full year 2025 adjusted diluted EPS of $2 to $2.15. Approximately $0.19 of the impact is attributable to higher interest expense and $0.05 in higher taxes at the midpoint of the guidance.

To wrap up, we're encouraged by the progress we made in the first 9 months of the year, and we remain disciplined in our approach to margin expansion, cash generation and balance sheet improvement. We're confident that our financial discipline combined with our strategic priorities positions us well to drive long-term value for our shareholders.

With that, I'll ask the operator to please open up the line for questions.

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

Brian, I think in your prepared remarks, you mentioned some competitive wins. Can you maybe just give a little bit more color around that commentary? And I guess, in particular, on the labs front and on that segment, can you maybe just sort of talk about shared dynamics there and how things like this additional assay that you added, I think, on Monday on VITROS should help there.

Yes. Our competitive wins have been dispersed across our geographies pretty evenly. We've had some nice wins in North America. I would say we had some very significant wins in Latin America as well as EMEA. And you see that -- you certainly see those reflected in the underlying growth rates. So we're excited about the traction that we're getting in those markets. And importantly, I would say we're very focused on wins now that are profitable as opposed to just winning at all costs. So I give a lot of credit to our commercial team for the discipline that they've placed in their organizations to make that happen.

As far as troponin, the launch of high-sense troponin goes, first, what I would say there is I'm just so proud of the work that the team did there in conjunction with FDA, by the way, to gain the clearance of that assay in exactly 90 days from the time we submitted it. It's an excellent assay. It performs very well compared to peers. And it really strengthens our cardiac panel, and more and more clinicians are requiring high-sensitivity troponin on their platforms.

I would say, by itself, it's not going to have a huge impact on our short-term growth rates, but it was a long-term competitive factor for the competitiveness of our cardiac panel. So getting that assay on the panel was really important, and it was a huge priority for me when I joined the business. So we're excited about that and expecting to be taking orders later this year and shipping product as quickly as we can.

Okay. That's great color. And then I'll just ask China, so hopefully, we can move on. I mean it looks like you're not seeing any impact from VBP or DRG dynamics. I think it was 5% constant currency growth in the country, this region -- this quarter. I just want to make sure that's right, and that's the expectation moving forward. And then also on China, I think there was a new procurement policy that came out late in Q3. Any color on how we should think about that?

Yes. So there's not a whole lot that's changed from our -- the last update that we did for Q2. We had adjusted our guidance in the -- on the Q2 call to mid-single-digit growth to reflect the sort of competitive dynamics in all of these different policies that were taking place. We have seen some impact from VBP and the debundling on our business, and that is reflected in the mid-single-digit growth forecast for the rest of 2025.

We probably have seen less impact than others because a pretty high proportion of our instruments are used in stat labs where they're less likely to debundle panels and that sort of thing. So really, not much has changed there since our last update. As it relates to the new policy that came out around localization, we already have manufacturing in China and our objective will be to continue to be in compliance with the regulations so that we can continue to manufacture and invest in China as long as the economics there remain favorable.

Our next question comes from the line of Jack Meehan with Nephron Research. Jack, can you confirm your line is not on mute? Our next question comes from the line of Lu Li with UBS.

Great. I want to go back to the 2025 guidance. It does -- so you are keeping the EBITDA margin at 22% unchanged. It does seem like the Q4 implied margin will be sequentially lower compared to Q3. I'm wondering any color that you can offer on that front, and then I have a follow-up.

Yes. Lu, it's Joe. Yes, we did take the opportunity given that we only have 2 months left in the year to narrow the guidance. And we do want to stress the point that even though we've narrowed the guidance on revenue and adjusted EBITDA, the midpoints of that guidance are still precisely the same. And the adjusted EPS guidance, again, was narrowed and also adjusted for the nonoperational areas of interest expense being higher due to the refinance and the tax rate being slightly higher due to some mix of income by jurisdiction because of tariff mitigation actions.

But if you look at Q4 sequentially versus Q3, I would say that the margins might be slightly lower because we will probably likely, like every year, we see slightly higher instrument revenue in Q4 as customers are attempting to use their budgets and you see a lot more instrument revenue in Q4 versus other quarters. And just as a reminder, the instrument revenue for us and most of the folks in our space is much lower than the reagents and consumables margins. So you do get a sort of a negative mix impact by that instrument revenue. And then also, I would say, and this is fairly typical each year for us, we tend to see a little higher incentive compensation expense in Q4 versus previous quarters. And so that's going to have the impact of pulling down the margin slightly. So hopefully, that answers your question.

I appreciate the color. Second question on instrument. What is the instrument performance in the quarter? And then, Brian, I think you mentioned there was a next-generation instrument in the pipeline. Do you have a time line for that?

I can start with the last part of that. Yes, the nice thing about the work we've been doing on margin expansion and getting the organization focused is we're now in a position where we can start to think about these new systems. We're still in the very early stages of concept development. So not in a position where we can share schedules at this time, but we hope to be talking a lot more about that in the future.

Yes. And Lu, the Q3 instrument revenue was down slightly, about $5 million year-over-year versus Q3 prior year. And this is not largely unexpected. We are seeing a higher number of contract extensions with our existing customers, which is -- actually is a positive thing for us from a margin mix perspective. And so that's what's driving that. Yes.

Our next question comes from the line of Jack Meehan with Nephron Research.

Sorry about earlier, had a phone issue. I wanted to start, I was just wondering if you could give us an update on the Sofia franchise, where you stand in terms of installed base and pull-through. And kind of secondarily, I saw on the guidance slide, you expect over half of the flu test to be combo. Just curious your thoughts around kind of the durability of the ABC test and physician preference around that.

Yes. So what I can say about the Sofia installed base is it continues to be stable, expanding, very durable. It's a workhorse platform. And the durability of our flu combo test is also very solid. We've really seen very steady performance in terms of sales of that test over the last 2 years. So we're looking forward to yet another solid season here in the upcoming respiratory season with Sofia.

Great. And then you're further -- or LEX is further into their FDA submission. Can you give us just an update on how you're thinking around launch timing and positioning of that relative to Sofia?

Yes. As I mentioned in the prepared remarks, the dialogue with FDA continues to be constructive. There's -- we haven't seen anything really out of the ordinary. Assuming an approval late this year or early 2026, we'll be looking to ramp up placements of the platform so that we can participate as much as we possibly can in the following year respiratory season. So that's our current plan.

Got it. And then last one. I saw on the slide still targeting the 100 to 200 bps expansion for 2026, which is great. Can you just talk about how you're thinking about free cash flow conversion like as a percentage of EBITDA, like how -- what we should be plugged in for that for 2026?

Yes. Jack, so Q3 was certainly a disappointing quarter for us for cash flow, primarily driven by the impacts of the system conversions, which had the impact of delaying cash into Q4 for us. But despite that timing issue due to the system conversions, we still feel that the full year 2025 recurring free cash flow will be in that range of 25% to 30%. And we still are confident in getting to the target of 50% of adjusted EBITDA for recurring free cash flow.

We won't hit that target next year. I would believe that hitting the cash flow target would be consistent with the time lines we have on hitting the EBITDA margin targets. So I would more target, I would say, mid-'27. So for 2026, I would expect us to make progress towards that 50% target, but not fully get there. And the levers that we've talked about already are mitigating CapEx, reducing the number of days on hand of inventory on the balance sheet and reducing the level of integration or onetime related cash costs that we've seen in the last couple of years. And then obviously, the EBITDA margin improvement as providing additional cash flow. Those are the levers.

Our next question comes from the line of Tycho Peterson with Jefferies.

This is Jack on for Tycho. Saw a nice step-up in imunoheme growth. Is that mid-single-digit growth something we could look at as more sustainable moving forward? Or is it more one-off outperformance in the quarter?

Jack, yes, we did have a really nice quarter for immunohematology at 5% growth. But I would say there's probably a little bit of timing between Q3 and Q4. And I would expect that the full year immunohematology growth will be right around where we'd expect it to be sort of in that 3% to 4% range.

Okay. And then how should we think about LEX as it receives approval and you start to commercialize that next year in terms of sequential sort of step-up in OpEx spend relative to that 100 to 200 basis point margin improvement?

Yes. Jack, the LEX, we do expect, as Brian said, we're going to expect to get FDA clearance late this year, early next year, and we'll have a very limited rollout in the first part of the year and the first part of the respiratory season, and we'll have a more fulsome rollout in the second half of 2026 as the respiratory season heats up in Q3, Q4.

I would expect that LEX will likely have a dilutive impact on margins next year to some extent. I certainly wouldn't expect it to be accretive. We will work hard to keep or mitigate, I should say, any dilutive impact of LEX. But I wouldn't expect any accretive impact from LEX until we get more up to scale with revenue, which I would not expect to happen for sure until we get into 2027 or potentially 2028.

Our next question comes from the line of Patrick Donnelly with Citi.

This is Brendan on for Patrick. I want to touch on the U.S. donor screening business. As we kind of move into next year, how should we think about modeling that over the course of the year? And I think before, you've kind of mentioned that margin benefit should start to roll through. I'm just curious how we should be thinking about margins over the course of next year with a focus on the U.S. donor screening business.

Yes. Brendan, yes, just -- it's a good question. As a reminder, the donor screening -- the U.S. donor screening business, it has been quite a headwind on our top line this year. For the quarter, we're down $13 million or 48%. And for the year-to-date, we're down $55 million or 57%. It is -- so it has been quite a headwind on that top line. We do expect that we'll be somewhere between $40 million to $50 million of revenue this year, and that residual revenue will completely wind down in the first half of 2026. So that top line headwind that we've been seeing from the donor screening exit will dissipate as you get into second quarter and for sure, as we get into the second half of next year.

We do have some stranded costs that we have to pull out of the business. But once we are complete with that, I would expect that we'll be somewhere in the range of 50 basis points of margin accretion that will likely happen as you get into later '26 or into early '27.

Appreciate that. And then within the lab business, I believe you talked about integrated analyzers being around like 30% of the installed base with more runway to go. I was wondering if you could update us kind of where you guys are at in terms of the analyzers in the installed base? And how should we think about kind of like the long-term opportunity in terms of adding growth there?

Yes. Thank you for the questions, Brendan. Our integrated analyzer placements are almost completely inverse to our competitors' situation in the marketplace. So where they might have more -- let's say, 60% of their placements are integrated with a lot of immunoassay volume. Our installed base is heavily clinical chemistry with less immunoassay, probably in the 30% to 40% range. So we have, I think, a tremendous opportunity there in terms of our runway for additional placement of integrated systems, and that's been our strategy for the last several years and will continue to be.

Our next question comes from the line of Andrew Cooper with Raymond James.

Maybe just a quick one for me first. Nice to see the high-sensitivity troponin launch on VITROS. If we go back a bit, we used to talk about TriageTrue and bringing that high-sensitivity troponin to the point of care. Would love just the latest there given that product is, I think, in Europe, not yet in the U.S. And how important or how much of an opportunity do you view that point of care today relative to maybe how it was thought about a few years ago, even if predating some of your time here?

Yes. So thanks, Andrew. I appreciate that question. That is an assay that ultimately we would love to have on Triage. We do have it outside the U.S. It's a very successful test. There are some technical challenges that we have to overcome in order to have it meet the sort of performance requirements for the U.S. market. So we're looking at that and seeing if we can press over those hurdles to get that assay into the market at some point. But don't have anything really concrete to share with you in the short term at this point.

Okay. And then on the cost save efforts and transformation efforts that are underway, I think when these plans were initially kind of laid out, you obviously had certain programs that you had an eye on and likely a little bit to kind of go find and capture. Maybe just give a little bit of what have you found as you continue to dig? Maybe what surprised you where there's more room to pull some costs out and maybe where there's a little bit less as well.

Well, our initial focus was heavily around just staffing of the organization kind of at all levels across the board. And we took out close to 12% of the organization as a result, and that was the focus of our initial efforts. Lately, we have been more focused on indirect and direct procurement, have made a lot of progress on indirect procurement. We're now starting to turn our attention to the direct side of things, which are mainly product cost-related things and a little harder for us to action on. But there's nothing that's really surprised me in terms of where the cost pools were located in the business that we needed to go after. It's just a lot of heavy lifting and hard work to activate it. I would say as we get further down the path, it gets harder and harder to find new things, but we every day continue to come to work and challenge every corner of our P&L for cost savings, and we'll continue to do that. It's just a matter of operating the business.

That will conclude today's question-and-answer session. I will now pass the call back over to Brian Blaser for closing remarks.

Thank you, operator. Thanks, everyone, for taking the time to be with us today. I'll just conclude by saying that we're proud of the very solid progress that we're making and confident in the direction that the company is heading. Our team and its disciplined execution, operational focus and commitment to innovation are delivering tangible results and positioning us well for the future. So thank you for your time today and your continued support and interest in the business. Take care.

That concludes today's call. Thank you for your participation. You may now disconnect your lines.