QuidelOrtho Corporation Common Stock 2026 Q2 Earnings Call

Please go ahead. Good afternoon, everyone.

Thanks for joining us today. With me are Brian Blaser, 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 6th, 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. I'd like to turn the call over to our CEO, Brian Blaser.

Thanks, Juliet. 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 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%. 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% with strong contributions from labs and our TRIAGE point of care business. JPAC revenue grew 10%, driven by strong performance in Japan and India. Latin America grew 8% 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 LEX 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'm 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.

The 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. The scope has changed with the pilot implementation increasing from 3 to 6 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.

Our near-term actions are focused on protecting our installed base, maintaining customer engagement during the transition period, and aligning commercial resources with the evolving 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. Test 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 EPS. 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 on 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. 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. The 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 QuidelOrtho for stronger, more sustainable performance over the long term. 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. QuidelOrtho 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 QuidelOrtho, 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 end markets, strong customer retention, and continued commercial execution across our diagnostics portfolio, even as the 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 installed base, and positioning the business to compete effectively as the market adjusts.