QDEL - NASDAQ

Welcome to the QuidelOrtho First Quarter 2024 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 evening, everyone, and thanks for joining the QuidelOrtho's First Quarter Financial Results Conference Call. With me today are Brian Blaser, Our newly appointed President and Chief Executive Officer; Mike Iskra, EVP and Chief Commercial Officer; and Joe Busky, Chief Financial Officer; Rob Bujarski, our EVP and Chief Operating Officer, will also join us for the Q&A session that follows our prepared remarks. This conference call is being simultaneously webcast on the Investor Relations page of our website. To aiding the discussion, we posted a supplemental presentation on the Investor Relations page that will be referenced throughout the call. This conference call contains 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, future performance and prospects, are forward-looking statements that are subject to certain risks, uncertainties, assumptions and other factors. 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 in our annual report on Form 10-K for the 2023 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Forward-looking statements are made as of today, May 8, 2024, and we assume no obligation to update any forward-looking statements, except as required by law. In addition, today's call includes discussions 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 presentation, which are on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year-over-year revenue growth rates, including revenue growth ranges, given on today's call, are given on a comparable constant currency basis. And now I'd like to introduce Mike Iskra.

Thank you, Juliet. In a few minutes, I'll introduce our new CEO, Brian Blaser, and then Joe will go into our quarterly financials in detail. First, I'd like to review our first quarter business performance and discuss the recent actions we're taking, which are [indiscernible] improve our cost structure and deliver increased shareholder value. Beginning with our first quarter 2024 performance. Excluding COVID-19 revenue, total revenue grew by 6% in constant currency, with solid growth across regions. Excluding COVID-19 revenue, we saw particularly good growth in EMEA, in China during the first quarter. Our Labs business, which was about 50% of our Q1 revenue performed as expected, with approximately 4% growth excluding the onetime third-party collaboration settlement in the prior year period. Transfusion Medicine was 23% of Q1 revenue and grew by approximately 4%, driven by immunohematology [indiscernible] group across regions in Ortho Vision Swift and Ortho Vision Max Swift instrument placements. Within Transfusion Medicine, our efforts to wind down the U.S. [indiscernible] business continue as plan. Point of Care represented 26% of Q1 revenue. Excluding COVID-19 revenue, our Point of Care business were approximately 38% year-over-year. Growth was driven by strong Sofia sales in the [indiscernible] market including our combo test, flu tests and RSV tests. And lastly, Molecular Diagnostics was 1% in Q1 revenue. Excluding COVID-19 revenue, Molecular grew approximately 15% albeit from a low revenue base. On Savanna, we continue to work on producing a highly competitive respiratory panel for the U.S. market as well as menu expansions with the STI panel and additional assays over time. We plan to provide updates as we achieve milestones and get closer to our target for full commercial U.S. launch. Since our earnings call in February, the company has undergone a tremendous amount of change. While managing change can be challenging, we see this as an opportunity to build on our strengths and address the areas we need to improve. Over the past 3 months, we have implemented cost reduction initiatives designed to deliver better results in both the near and long term. Our focus areas include margin restoration, which includes headcount reductions expected to deliver approximately $100 million in annualized savings. Beyond those initiatives, we are actively looking for new opportunities to improve business efficiencies and realize greater savings as part of our continuous improvement culture. At the same time, while acting in our prior as interim office as CEO, Rob, Joe and I prioritize maintaining business continuity in accelerating our margin restoration initiatives. To that end, I believe our first quarter performance speaks to our team's ability to navigate the transitional period while keeping our business momentum in fact, in forging ahead with purpose. We welcome Brian as our new President and CEO. Brian brings over 25 years of senior leadership experience in the diagnostic industry, including 7 years of full responsibility for Abbott's Global Diagnostics business. His track record of strengthening operations and driving revenue growth to dramatically improve profitability makes him an ideal leader to [ guide ] QuidelOrtho through its next phase of growth. On behalf of our global leadership team, I would like to thank our employees QuidelOrtho for continuing to serve our customers and deliver on our 2024 operating plan. We appreciate your dedication and ability to remain focused during transitional times. We look forward to a smooth transition with Brian now at the helm to pave the way for a successful future. Now I'd like to turn the call over to Brian.

Thanks, Mike. I'm very pleased to join the call today. And first, let me say that it is a true honor to join this exceptional organization. I am thrilled to have the opportunity to work with this leadership team and our talented colleagues across the company. And today, I'd like to share a few of the reasons I was compelled by this opportunity at this pivotal point in the company's history. First, I have always viewed Quidel and Ortho separately as highly innovative companies and formidable competitors. Combined now as QuidelOrtho, this business has one of the broadest product portfolios spanning the continuum of care from Reference Labs to hospitals, clinics and urgent care to retail and home testing. QuidelOrtho touches every stage of the patient care spectrum, including prevention, diagnosis, patient care and monitoring. This business has all of the underlying capabilities required to drive exceptional growth and profitability in a large and expanding market. There is work to do, and I'm excited about steering the company so it can achieve its full potential. In the short term, I will be focused on our highest priorities, which are unwavering attention to customer satisfaction of patient care, improving profitability and cash flow while reducing our debt level and positioning ourselves to compete effectively in the highly competitive diagnostics market. I look forward to providing more details about our strategic direction as we move forward. I'm excited about the opportunity to engage with many of you in the coming months and answer your questions when I host our second quarter earnings call in August. Joe, I'll now turn it over to you.

Thanks, Brian. And I would also like to welcome you to the QuidelOrtho and I look forward to the next chapter in our company's growth story. Let's begin with details of our first quarter results on Slide 4 of the earnings presentation. As a reminder, unless stated otherwise, all year-over-year revenue growth rates on today's call are provided on a comparable constant currency basis. Our first quarter 2024 financial results were in line with our expectations and our underlying business trends remain solid. First quarter 2024 revenue was $711 million reported basis compared to $846 million in the prior year period. The year-over-year revenue decrease is primarily COVID-19 related. Therefore, excluding COVID-19 revenue, our total revenue grew by 6% in constant currency, with solid growth across all regions. And if you also exclude the onetime $21 million third-party collaboration settlement from Q1 last year, total revenue 10% in constant currency. From a regional perspective, in Q1, again, excluding COVID-19 revenue and in constant currency, we achieved revenue growth of 5% in North America, EMEA grew 6%, China growth of 12%, and the rest of the world growth of 6%, which includes Japan, Asia Pacific and Latin America. First quarter 2024 nonrespiratory revenue was flat compared to the prior year period of $574 million. Excluding the onetime third-party collaboration settlement in the prior year period related to our Labs business, nonrespiratory revenues grew 4%. First quarter 2024 respiratory revenue was $137 million, which included approximately $50 million in COVID-19. Respiratory revenue decreased 48% year-over-year, primarily due to lower COVID-19 revenue. Excluding the government-only COVID-19 orders, respiratory revenue grew 6%. And as Mike mentioned, our first quarter respiratory growth was driven by strong Sofia sales in the professional setting. We leveraged our large global Sofia installed base with 70% of Sofia customers purchasing multiple tests. This includes our combo test, which accounted for greater than 50% of our flue testing revenue in Q1 and is consistent with the past several quarters, demonstrating the durability of this product. Moving down the P&L. Non-GAAP total operating expenses were essentially flat compared to the prior year period. Slide 5 shows that Q1 adjusted gross profit margin was 47.5% versus 53.8% in the prior year period. The change was primarily related to lower COVID-19 product sales, which are high-margin contributors as well as onetime items that made for favorable year-over-year comparisons. In summary, gross margin headwinds were comprised of 3 onetime items. 630 basis points related to the large government COVID-19 orders in Q1 of last year, 140 basis points from the onetime third-party collaboration settlement in Q1 last year. And finally, 230 basis points tied to an inventory reserve related to the respiratory product expiration in Q1 of '24. Those 3 others were partially offset by underlying base business performance and cost-saving actions within manufacturing and supply chain, which were approximately 400 basis points of benefit to the margin. Adjusted EBITDA was $132 million compared to $245 million in the prior year period. Adjusted EBITDA margin was 19% compared to 29% in the prior year period. Adjusted diluted EPS was $0.44 compared to $1.80 in the prior year period. The year-over-year change in adjusted EBITDA and adjusted diluted EPS was primarily due to the lower COVID-19 revenue on the government work. Our first quarter effective tax rate was 23.5%, which was consistent with the prior year and in line with our full year expectations. In Q1 2024, we recorded a noncash goodwill impairment charge of $1.7 million for the North America reporting unit due to the decrease in the estimated fair value, which was consistent with the decline in the company's market capitalization during the quarter. Turning now to the balance sheet on Slide 6 of the presentation. We finished the quarter with $79 million of cash and $40 million drawn on our revolver. Note that during the quarter, we liquidated investments to avoid additional revolver borrowings. Recurring free cash flow of negative $13 million was driven by working capital needs. We do expect cash flow to improve in the second half of 2024 as margin restoration intact to take effect along with seasonally higher revenue expected in Q4. We continue to focus on executing our cost savings and margin restoration initiatives, which are designed to deliver improved performance and sustainable long-term growth. We expect the benefits from these initiatives to be realized in the second half of '24 and in the first half of 2025 with minimal impact in Q2 of this year. Taking all this perspective, we intend to maintain operating flexibility as we implement these initiatives. In light of this, and in an effort to be conservative, we did amend our credit agreement in April. To increase the maximum consolidated leverage ratio beginning in Q3 this year through the loan maturity in May of 2027. Importantly, we completed this amendment at a cost of 12.5 bps of the total loan commitment and the loan pricing is unchanged. During the first quarter of 2024, our consolidated leverage ratio was 3x, including pro forma EBITDA adjustments compared to the 4x maximum specified amended credit agreement for the first half of '24. Based on current expectations, we expect our consolidated leverage ratio to be approximately 3.5x by the end of this year, including pro forma EBITDA adjustments compared to the 4.25 maximum specified in the amended credit agreement. Lastly, we want to provide some relevant updates based on our current visibility. Our prior expectation for COVID-19 revenue was approximately $225 million based on our current view, which is subject to change based on COVID-19 developments, we are now expecting approximately $150 million in COVID-19 revenue for the full year 2024. Second, we also expect that Savanna revenue will be immaterial in 2024 with no expected U.S. respiratory revenue contribution from Savanna in the '24, '25 respiratory season. And as a reminder, the COVID-19 Public Health Emergency in the U.S. ended in May of 2023. However, we continue to see significant quick view COVID-19 test sales in the retail setting in the second quarter '23. Hence, we expect year-over-year COVID-19 revenue comparisons to again be challenging in Q2 of this year. And as a result of these changes to the COVID-19 and Savanna revenue, our current expectations are to be at or slightly below the low end of our previously communicated '24 guidance ranges for revenue, adjusted EBITDA and adjusted EPS. With our new President and CEO coming on board this week, we've decided to suspend guidance to give Brian opportunity to assess the business and evaluate our plans for the rest of 2024. We do intend to resume providing guidance later in the year when we are able to share our plans. I would now like to ask the operator to please open the call for questions.

[Operator Instructions] The first question is from the line of Jack Meehan with Nephron Research.

And Brian, welcome aboard.

Thank you.

I wanted -- just wanted to get your thoughts maybe to start on 2 topics. First, as you were taking the CEO -- as you were diligencing taking the CEO role at QuidelOrtho, you talked about the work you did on Savanna and what your view is on just level of confidence in competitive platform market there? That's number one. Number 2 is, your view on what the right margin profile kind of once you go through this transition period like aspirationally, where do you want to get this business to?

Yes, let me answer generally how -- why I took the job and some first impressions on the business. And I've here 3 days and the amount of information that I have available to me as I did my due diligence was somewhat limited. But let me say first that I've been around the industry for a long time. I'm still in the very early days of learning the details of the business but I am very familiar with the market landscape, the business model for business models here in this case. And I've had the opportunity to work with some really talented teams in this space to drive a lot of change and have been able to do things and work on projects to expand into new markets, a lot of product development and launching complex new systems, manufacturing and supply chain optimization, optimizing commercial models and that sort of thing. And in my assessment of the business prior to taking on the role and now -- as I said, now having been here a few days, I like what I see here, right? I think there are clear opportunities to improve the performance of the organization in all of the areas that I just mentioned, where I have experienced. Many of the opportunities that I mentioned here have already been identified by the interim office of the CEO and already flights moving are along. I see the opportunity to do some more particularly in the areas of product development and productivity, commercial excellence and just productivity improvement in general. I think the leadership team sees those opportunities as well. And I'm excited to work with the team here on these things to improve our performance. So I look at this as a great opportunity. To your second question about aspirationally, I don't want to get too far over my skis here. But certainly, operating margins in the high 20s would be something that I think would be very reasonable for a business like this. And certainly, we're going to do everything we can do to achieve that and do more if we can.

Great. And then I wanted to ask about guidance. So I appreciate the color, Joe, around kind of where you're shaking out relative to the prior guide. Can you just give us a time line when you expect to reinitiate guidance? Do you think with 2Q? Or could it come before then?

Well, Jack, first of all, we want to be as transparent as possible. So we did provide those updates on our expectations for COVID revenue in Savanna because we know that they've been open questions for investors. And we did suspend the guidance to give, Brian, a chance to assess the business a little further and evaluating our plans for 2024. And we will resume guidance at some point in 2024. I think it's too early to say specifically what that date is, though.

Yes. And let me just add -- this is Brian. Let me just add to that a little bit. There was an Investor Day that was postponed as a result of the things that happened. And I'm anxious to get out in front of investors as soon as we can. We haven't defined definitively when we might do an Investor Day but certainly, we're thinking before the end of the year. And again, I'm anxious to get out there and interact with everyone.

Next question is from the line of Andrew Brackmann with William Blair.

This is Maggie Buy on for Andrew today. Joe, I appreciate the color you provided us on COVID and Savanna based on what you're seeing thus far. But with the full respiratory season under your belt at this point, can you talk about what you view as realistic endemic revenue levels from here?

And Maggie, before I answer you're specifically asking about COVID revenue, correct?

Yes, just COVID and respiratory revenue.

Yes. Got it. Okay. So let me just hit on the COVID first. We did take the full year COVID revenue down to $150 million, and you guys have probably heard me say this before. The truth is no one really accurately predict the COVID market size and the timing. But we do use customer, industry and peer data as well as we've accessed the proprietary research as well to triangulate data points and come up with the projection that we spoke about. We don't believe it's 0, to be clear. We don't think that's the right number. We did $50 million of COVID revenue in Q1 as we said in the scripted remarks. And we continue to be COVID sales in Q2 on that, although at lower levels. And we do expect COVID revenues in the second half to be higher given the typical respiratory season in the third and the fourth quarters. And we will carefully continue to monitor all lean indicators, and obviously, we'll adjust expectations as things evolve and the year progresses. As far as respiratory revenue outside of COVID and the reminder following last year, we did put in place a new methodology for forecasting the flu revenue. And that methodology was based on market share and market size, number of tests, when I say market size. And mix of products, specifically mix of combo versus flu-only test. And I would have to say that the Q1 numbers turned out pretty much as expected based on that new methodology. And so as you think about the balance of year for us, as you move into the second half, we do expect a typical flu season of roughly 50 million tests. And remember, we've said that we think that the range of volume for size of market is 40 million to 60 million tests. And so we think we're going to land somewhere in the middle, that's where we we've pegged it. And we haven't seen any changes in distributor inventory levels or any other leading indicators that would materially impact our forecast. So maybe I'll stop there and see if that answers your question.

Yes, that's great. And then maybe just another one on gross margins. I can appreciate the couple of moving pieces we saw in Q1 but just how should we be thinking about those on a quarterly basis as we go throughout the rest of the year?

Yes. So -- yes, this was no different than what we've seen in prior years. You're going to have some seasonality within the quarter. So Q2 will be our lowest quarter for gross margin as the revenue is typically our seasonally lowest of the year. And there's a certain amount of fixed costs within gross -- the gross margin line that we're bringing that margin down. So Q2 will be the lowest and then Q3 and Q4 will go back up, again, based on the seasonally higher respiratory revenues and even the labs seasonality you see in Q4. So we would expect that the margins would go back up in the second half of the year.

Next question is from the one of Andrew Cooper with Raymond James.

Brian, good to have your first earnings call underway. Maybe just first, thinking about margins and the trajectory for the year, can you give us a sense for maybe just where we are in terms of the cost saves that are in motion and in-flight already versus maybe what's identified to get to the $100 million target and not quite started and what maybe you need to go out and find in the base as it sits today?

Yes. I assume I'll take that question, Andrew. So you will recall that on the last earnings call, we did talk about a headcount reduction in the range of 5% to 6% pay count and $100 million annualized. And I'm happy to say that we've completed the majority of those headcount reductions and we're continuing to look at ways to continue to improve the organization. We expect to complete the majority of these headcount reduction, which is going to be around 500 positions that we announced by midyear this year. And again, we expect to see about $50 million of that benefit in the second half of this year, primarily in SG&A and the other $50 million of the benefit will be in the first half of 2025. It's probably also important to note that these headcount reductions were a little more focused on higher level individuals within the organization. So even though it's -- the position reductions are 5% to 6% headcount, it's closer to 10% to 12% of our total compensation and benefit, again, because we did focus on taking out higher level management positions. And again, we're not done. We're going to continue to look for ways to make this company more efficient.

Okay. Helpful. And maybe just one more on the gross margin since we just talked about it a bit as well. But just to be clear, when you talk about 2Q being the lowest, I assume that's on a sort of an adjusted basis, absent the inventory write-down that you called out for the quarter, is that a fair way to think about it, at least from a typical trajectory perspective? Or just how should we think about that piece, which obviously we're hoping won't repeat?

Yes, that's true, Andrew. So as I said in the prepared remarks, the Q1 margin was impacted by about 200 basis points due to an inventory reserve since we overcalled Q4 '23, and so you still would see Q2 be seasonally low. And I -- and we don't expect a significant inventory reserve write-offs in Q2. I guess, a related question.

Okay. And then if I can sneak one more in, maybe just for Brian. I think Jack tried to ask it but maybe it got lost in the shuffle. Just what's your views on a product like Savanna in the competitive molecular kind of marketplace, how do you think about the actual kind of ability to go out and compete with that kind of mid-plex product? And what's attractive about that platform, in particular, as you think about the path forward?

I think it's an attractive competitive product, quite frankly, and to the point our challenge is menu. And my focus is getting the menu of tests on that platform as quickly as we can so that we have a competitive offering in the deals.

Next question is from the line of Conor McNamara with RBC.

Welcome to San Diego, Brian. Joe, can you just comment on the -- how involved you were in the in the forecasting of respiratory and flu sales when you guys gave Q4 guidance? And I know you talked about some of the assumptions that go into how you guys do that. But did you -- how involved are you then versus kind of the way you looked at it now? Because it looks like you kind of took a pretty big haircut to some of the assumptions. So I'm just curious what your involvement was prior versus now?

I don't know that I want to rehash too much through Q4 other than to say that, as we've said in the past, we overcalled COVID and flu revenue in Q4 of 2023, unfortunately. And as I said on that previous response to the question, we did put in place a new methodology because of -- mainly because of what happened last year that forecast flu and we feel pretty good about it. And again, using those 3 variables that I mentioned market size, market share and mix of products, and we're going to continue to use that methodology and refine that methodology.

Joe, if I could. This is -- Conor, it's Mike. Look, I think on both fronts, [indiscernible] if we take the traditional respiratory season, as Joe said, we have a new methodology [indiscernible] coming into this year and we feel very good. The market demand and how big the flu season is, is to be determine really outside of our control. But what's in our control is what are we doing to drive market share gains, are we driving the right mix of product, leveraging our combo test, which we decided differentiating to get the right mix and are we able to compete the old price. So not only do we have a good method for forecasting, I think we have very specific KPIs for how we operationalize that and how we stay what we're doing. And so that's the traditional respiratory. On COVID, what I'd say for this year coming in is we spent a good deal of time trying to triangulate on the right number, and the question was asked earlier, our outlook on COVID-19 starts [indiscernible] Look, there's still more information to come but we feel that we've done a pretty wide range of analysis covering material from our peer group, from the industry, from market, from other experts, and I think that the number that we've shared with you today the $150 million is well thought. But what we also learned from last year is we can't just give you take one number at the beginning of the year and then not launch. So I think the other piece that's important to know is we set up maybe what we would call early warning systems to make sure we're watching proactively some of the KPIs monitoring the market that we can react more quickly than we have in the past.

Great. And then just a follow-up on Savanna. You took revenues out -- you took respiratory revenue. Is there a thought that if you guys do get approval for respiratory panel, you would still wait until you have multiple panels before you launch into the market? Because Brian, it sounds like that's kind of what your commentary was leading to. Or is there a chance you would still launch it in 2024 with just respiratory?

Yes. Conor good question. So look, I think we are all absolutely clear on 2 things. One, the guidance we gave is around financial expectations for Savanna. Let's not confuse that with the operational expectations. We have a very aggressive plan that move as quickly as we can, not just on respiratory but as mentioned, STI, and as Brian mentioned, the rest of the Savanna menu, which is critical. I think what we will be careful to do is set our expectations too early. But we don't want them to confuse with this is sort of an unrelenting effort to get products approved out in the market as soon as possible.

The next question is from the line of Patrick Donnelly with Citi.

Joe, maybe just on the leverage side and some of the covenant restructures you guys did. I think you bumped the number all the way up to 4.25 but the guidance here, I think it's for 3.5. So how do you think about just the trajectory on the leverage piece as we work our way through the year here. Is that just the EBITDA moving around? Or just how do you think about the leverage progression and the debt load there?

Patrick, so again, I just want to make sure and I know I said this I think on every earning call in the last several quarters, just to make sure everyone is clear that there's the financial statement leverage ratio that comes straight from the face of the financials and then there's the credit agreement leverage ratio that allows pro forma EBITDA savings to be included in the calculation. And when you run that credit agreement calculation for Q1, it allows the pro forma EBITDA adjustments, we're at 3x versus the credit agreement covenant of 4x at Q1. Based on the seasonality of the business and what I've said before, Q2 will be seasonally low for us. I do expect that the leverage ratio will likely creep up a little bit and then it will start to come down slightly in Q3 and Q4. And as I said in the prepared remarks, I would expect from a credit agreement calculated ratio including the pro forma EBITDA adjustments will be around 3.5x at year-end, Again, versus a leverage covenant of 4.25. So I feel like we've got plenty of cushion there. And obviously, we're going to be -- as Brian said earlier, we're going to be very focused on margin restoration and bringing that leverage ratio down as quickly as possible.

Okay. That's helpful. And then maybe on the kind of the core business in China. You obviously saw some decent growth there. Can you just talk about the trends you're seeing in that business, obviously, there's been a lot of questions about the potential impact of some of the various legislations over there. Maybe just kind of pull the curve back a little bit, what you're seeing and then expectations as we work our way through the year in that region would be helpful?

I'll cover that. Yes, Patrick, thank you for the question. Yes. China, we're very -- obviously, very pleased with the results here in Q1 and credit to our team there. I appreciate all that they're doing. I think as we shared China is a focus market for us, it's changing quickly, it's maturing quickly, lots of different drivers there. But in the end, I think the team is executing well in our business across the portfolio. We're seeing -- leveraging the direct team we have there, we're seeing some increases in Point of Care in placements and the general -- rest of the business is going well. As you may recall, we have somewhat of a unique position in China where we're pretty prominent in stat labs. I think that has not excluded us from things like BBP but some of the major BBP efforts so far really have not been in our warehouse. In fact, we participated throughout and have won and all rounds of BBP. And so I think while we've done well so far, we'll continue to keep an eye on that as well as some of the other challenges in China. But again, I feel very fortunate that we've got a team on the ground that's very in tune with those things. And then I think the other positive thing for us is a lot of our efforts and investments in China around localization and instrument manufacturing as well as some R&D projects are all starting to take shape and these are things that are we think going to help us as we go forward in the future.

The next question is from the line of Casey Woodring with JPMorgan.

Welcome, Brian. So first, can you guys touch on customer conversations around Sofia ahead of next respiratory season? You placed a number of Sofia's under 2- to 3-year contracts during COVID. So those are likely in renewal negotiations now, I would imagine. So maybe just walk us through how you and your customers are both approaching that renewal process, especially now with the headcount turnover in SG&A that you called out increasing and then as a follow-up to that, can you just talk about any expectation for a 510(k) submission for the Sofia combo test?

Well, I'll take the first part and then you can talk about the 510(k) submission. The -- so Casey, the first part of your question, I think, is around our base and what are we doing. I go back probably more than a year ago, we put in a concerted effort to get back in front of our customers reevaluate where they are on the contract status to be proactive in extending agreements. I think one of the data points, Joe shared in the prepared remarks, with around 70% of customers ordering more than one test. This is something that shows the efforts of getting back in front of customers not only maintaining the business we had but showing them what other test they could put on that platform, helps make this a little more sticky, right? It creates more value for the customer and we're harder to displace. And so I think that's a good number that shows our efforts there. So look, I think we're in good shape. I know going back a couple of years ago, there were a number of placements that maybe were COVID only. And as COVID went away, they went away, I think we're seeing probably a more stabilized base and one that we're trying to leverage for additional tests.

Casey, on the second part of your question, we anticipate being in trials during the '24, '25 season on the combo test.

Got it. That's helpful. And then just on the headcount reductions between the February call and now you've doubled your expectations from $50 million to $100 million. Can you just walk through how you arrived at that number? And if there -- if that's kind of the last adjustment to that number.

Casey, we actually did not change that number. Maybe there's some confusion about the impact in '24 versus the full annualized impact. The $100 million annualized was always the target that we had talked about on the last call, and we're right on track with that to get $50 million in year '24 and then the second half of that $50 million in the first half of '25. And again, as I said, we're going to continue to look for efficiencies in the business. I don't want you to think we're going to stop at that number but we have gotten really far in executing on that first $100 million.

Okay. Great. And maybe if I can just slip one more in. Did you give what flu was in the new guide here? You gave the new COVID number. Just curious if holding the full number here?

Yes, Casey, we did not. Again, in the spirit of transparency, we wanted to give everyone update on Savanna and COVID because we know those were 2 open questions that the Street has but we didn't give any other updates because we have suspended guidance, so Brian gets a little further into the business and more on come on that [ outcome. ]