This story has been updated from a previous version to include comments made by QuidelOrtho executives during the company's Q4 earnings call and to provide updated 2024 EPS guidance from the company.
NEW YORK – QuidelOrtho reported on Tuesday after the close of the market a 14 percent decline in fourth quarter revenues, which also impacted the firm's full-year results.
Attributed to lower-than-expected sales of COVID-19 and influenza testing, the results missed analysts' estimates as well as QuidelOrtho's own guidance and led to a more than 30 percent decline in the firm's stock price in Wednesday morning trading on the Nasdaq.
For the quarter ended Dec. 31, 2023, QuidelOrtho reported revenues of $742.6 million compared to $866.5 million in Q4 2022 and well below the consensus Wall Street estimate of $796.9 million.
"I will not sugarcoat the fact that our fourth quarter numbers fell short of our expectations as we overestimated the size of the endemic COVID-19 and flu season," QuidelOrtho CEO Douglas Bryant said on a call with investors on Tuesday evening. "Ultimately, our optimistic outlook turned a solid growth-enhancing year into a less appreciated achievement," Bryant later added.
On the call, Bryant and CFO Joe Busky were questioned by analysts about the results as they related to COVID-19 and influenza testing revenues.
At the close of last year, the firm initially guided for revenues of $2.8 billion to $3.1 billion, includingex-respiratory 2023 revenues of $2.21 billion to $2.25 billion and respiratory revenues of $610 million to $875 million. The respiratory revenue guidance included COVID revenue of $300 million to $500 million, rapid flu revenue of $230 million to $270 million, and other respiratory revenue of $80 million to $105 million.
It revised this guidance in Q1, raising it to $2.87 billion and $3.18 billion, then in Q2 2023 it lowered the high end to $3.08 billion. It also trimmed the high end of its respiratory revenue guidance to $775 million by lowering the high end of its COVID revenue guide to $400 million. At the close of Q3, Busky reaffirmed this full-year guidance.
However, yesterday the firm reported 2023 revenues of $3.0 billion, and on the call, Bryant said that COVID-19 revenues were down a total of $1 billion compared to 2022. Total respiratory revenues for 2023 declined approximately 62 percent to $714.6 million from $1.87 billion in 2022 as COVID sales the firm expected in Q4 did not materialize.
"We did see COVID sales in Q3, and then it dropped pretty dramatically," he said. "SARS hospitalizations are now down, the severity of the disease clearly not what it once was, and we don't see any asymptomatic testing whatsoever," Bryant also said.
And, although flu revenues were $248 million for the year, "right in the middle of our range of $230 million to $270 million," they were also down 29 percent versus the prior year, Bryant said.
Bryant and Busky guided on the call for $30 million to $50 million of respiratory business revenues in 2024 derived from sales of the newly-cleared Savanna molecular diagnostic system. This projection is based on the imminent 510(k) clearance of a respiratory panel called RVP4 and a projected sale of 1,000 instruments, with each instrument running a total of 3,000 tests in the year.
Busky further asserted on the call that on the firm's most recent prior earnings call he said QuidelOrtho needed to be at the high end of the flu range to hit its numbers on the bottom line. "In addition to that, there were some estimates on COVID that we came in below as well, and so the combination of those two things led to the miss," Busky explained.
Regarding the firm's 2024 respiratory guidance, "In response to what happened in Q4, we are widening the range on the low and the high end, so we don't miss," Busky said.
In downgrading QuidelOrtho shares to Hold, Alex Nowak at investment bank Craig-Hallum described the firm's earnings in a note to investors as "one of the most surprising results we have seen in diagnostics in some time — and not in a pleasant way for shareholders."
In addition, "A major complication is we were told the 2023 respiratory range of $610 million to $775 million was the endemic rate; we are now told this estimate was wrong, and the new $460 million to $730 million target for 2024 is correct," Nowak wrote. "Investors have seen step-down after step-down of this 'endemic' rate, with each time being told the new number is right," he said, also adding that the Savanna sales guide is "a lofty target for a product not even approved yet."
At UBS, John Sauerbeer maintained a Neutral rating for QuidelOrtho, highlighting that the firm's labs business continues to perform well and apparently gaining confidence from the firm's announcement on the call that it would shut down its US donor screening business after previous reports of a potential divestiture.
Bryant also announced on the call that QuidelOrtho will make organizational cost structure improvements by "eliminating underperforming non-value driven initiatives and initiating a senior level management delayering effort," which he said will result in a headcount reduction of 5 percent to 6 percent.
Financial results
The firm's Q4 respiratory revenues plummeted 49 percent to $174.6 million from $344.0 million. Excluding respiratory revenues, QuidelOrtho said total revenues grew 9 percent in the quarter.
QuidelOrtho's labs business grew 12 percent to $351.9 million from $314.7 million, which executives attributed in part to lower revenues in 2022 related to COVID-19 lockdowns in China. On a constant currency basis, the labs business grew 12 percent.
The transfusion medicine business, meanwhile, grew 2 percent in Q4 2023 to $165.4 million from $162.5 million.
QuidelOrtho's point-of-care business dropped 42 percent to $216.8 million from $374.7 million in the quarter, including a 48 percent respiratory revenue impact. At constant currency, the decline was also 42 percent, but excluding respiratory sales, the point-of-care business revenues increased 6 percent.
Molecular diagnostics revenues in Q4 fell nearly 42 percent to $8.5 million from $14.6 million in Q4 2022. At constant currency, the decline was approximately 42 percent, and down nearly 11 percent excluding respiratory revenues.
Geographically, revenues increased 20 percent in Europe, the Middle East and Africa to $90.9 million from $75.8 million. They also increased approximately 36 percent in China to $77.1 million from $56.9 million which was attributed to lower revenues in the prior-year quarter due to lockdowns in that country. In North America, Q4 2023 revenues dropped 27 percent to $450.3 million from $619.2 million, but were flat at constant currency and excluding respiratory revenue impacts. In all other regions, QuidelOrtho Q4 revenues grew 9 percent to $124.3 million from $114.6 million.
QuidelOrtho's Q4 net income was $7 million, or $.10 per share, compared to a net income of $30.3 million, or $.45 per share, in the prior-year quarter. On a supplemental combined adjusted basis, the company reported EPS of $1.17, well below the consensus Wall Street estimate of $2.05. QuidelOrtho said the decline was due to lower COVID-19 revenue compared to the prior year period, as anticipated.
For full-year 2023, QuidelOrtho's revenues fell 9 percent to $3.0 billion from $3.3 billion in 2022, below the Wall Street average estimate of $3.05 billion but in the range of the firm's prior guidance for total revenues in the range of $2.88 billion to $3.08 billion. Quidel and Ortho merged in May 2022, and the supplemental combined adjusted full-year 2022 revenues, which QuidelOrtho said are reported as if the two companies had been combined for the applicable periods, were $4.05 billion in 2022, resulting in a 26 percent decline year over year.
Full-year 2022 labs business revenues grew 7 percent to $1.43 billion from $1.33 billion. On a constant currency basis, the labs business grew 8 percent, and declined approximately 2 percent excluding respiratory-related revenues. The transfusion medicine business revenues, meanwhile, declined 3 percent to $648.5 million from $668.1 million, and was down 2 percent at constant currency and excluding COVID-19 revenues.
QuidelOrtho's point-of-care business revenues dropped 54 percent to $892.2 million from $1.96 billion. At constant currency, the POC revenues also fell 54 percent but were up 2 percent at constant currency and excluding respiratory revenues.
Molecular diagnostics revenues in 2023 fell 67 percent to $31.7 million from $96.7 million in 2022. At constant currency, they also fell 67 percent, and declined 13 percent at constant currency and excluding respiratory revenues.
Geographically, revenues increased 3 percent in EMEA to $327.3 million from $316.4 million. They also increased approximately 4 percent in China to $310.1 million from $297.1 million. In North America, full-year 2023 revenues dropped 37 percent to $1.88 billion from $2.97 billion but grew 1 percent at constant currency and excluding respiratory revenue impacts. In all other regions, QuidelOrtho 2023 revenues grew 3 percent to $483.3 million from $467.4 million.
QuidelOrtho reported a 2023 net loss of $10.1 million, or $.15 per share, compared to net income of $548.7 million, or $9.56 per share, in 2022. Supplemental combined adjusted EPS for 2023 was $4.13, below the consensus Wall Street estimate of $5.02.
The firm guided for total 2024 revenue of $2.76 billion to $3.07 billion. Excluding respiratory sales, 2024 revenues on a constant currency basis are expected to be $2.30 billion to $2.34 billion. QuidelOrtho expects respiratory revenues of $460 million to $730 million. QuidelOrtho also originally guided for 2024 adjusted diluted EPS of $2.40 to $3.07, then later expanded this range to $1.88 to $3.60 to align with its 2024 guidance for adjusted EBITDA. The company noted that the mid-point of the adjusted diluted EPS range remains unchanged.
The firm ended the year with $118.9 million in cash and cash equivalents and $48.4 million in marketable securities.
In early Wednesday morning trading on the Nasdaq shares of QuidelOrtho were down 34 percent to $44.00.