good afternoon. Welcome to the Quadelle Ortho fourth quarter and full year 2025 financial results conference call and webcast. At this time, all participants are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared remarks. 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 Julia Cunningham, Vice President of Investor relations.

Thank you. Good afternoon, everyone. Thanks for joining us. With me today are Brian Blazer, President and Chief Executive Officer, Jonathan Segrist, Chief Technology Officer, and Joe Buskey, 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, plan, 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 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 or on a constant currency basis. And now I'd like to turn the call over to our CEO, Brian Blazer.

Thank you, Juliette. Good afternoon, everyone. I'd like to begin today's call with a brief reflection on my experience since joining Vital Ortho 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, Quidel Ortho was a company I knew well and respected, with broad and differentiated portfolios 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 three clear priorities putting customers at the center of everything we do strengthening 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've 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. Importantly, we believe the changes we made in the business will be lasting in nature and designed to be sustained. 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 lab's 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 Quidel Ortho 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 quite alert though 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 Segrist 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 are strong results for both the quarter and the year. As Brian noted, quite all ortho 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 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 VTRUST 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 IDMTS Direct Antiglobulin Test Card, or DAT card, on the Vision Immunohematology platform. Combined with our recently cleared Ortho Illusion Kit, Quidel Ortho now offers the only complete gel-based DAT solution, from polyspecific to monospecific. In addition, in 2025, we launched our new informatics middleware solution, Quidel Ortho Results Manager. Starting with our lab's 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 they've helped 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 organics 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 pulls. 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 amino assay 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 BTROS 450, this will create a combined offering that provides us with opportunities to compete for additional full menu tenders and attractive OUS segments. In molecular, we're excited for Lex to wrap up the final stages of their 510K 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 Quit Outwork Done 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 company. I will sincerely miss the teams I've had the privilege to work so closely with over the past six 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 three and four 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 period this two percent 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 seven percent breaking down business units and regional results for Q4 in the full year on a constant currency basis our labs business continued to demonstrate durable underlying demand growing seven percent in the fourth quarter and six percent for the full year underscoring underscoring the strength and stability of our largest business Immunohematology also delivered a steady growth of 3% for the full year while maintaining its leading global market positions. 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 EBITI margins by more than 900 basis points. Latin America and Japan 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 tarot 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 whole year were $894 million, which reflects a 5% or a $52 million decrease, resulting from our cost savings initiatives fiscal year 25 gap results included a 701 million non-cash goodwill impairment charge recorded in q3 related to prior acquisition accounting this charge cleans the slate with goodwill now reset our forward gap 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 46 cents 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 six, 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 percent of adjusted EBITDA this fell short of our 25 conversion goal primarily due to 15 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 4.2 times which was above our target due to cash collection timing we just mentioned now i'll provide our full year 2026 financial guidance which is summarized on slide seven of our earnings presentation based on our current business outlook we expect the following full year 26 reported revenues up between 2.7 and 2.9 billion with quarterly revenue facing 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 mid-year 26. Point-of-care growth is soon to be relatively flat at the midpoint of our guidance, which is based on a typical flu season of 50 to 55 billion annual market tests. We also anticipate that COVID revenue will be flat at 80 billion for the full year 26. We expect triage cardiac growth to continue in the high single digits. Molecular growth to decline slightly with the discontinuation of the Savannah business given our planned acquisition of Lex Diagnostics. We anticipate minimal revenue contributions from Lex in 2026 and have factored in the expected diluted 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 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 the full year 2025, 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 appreciation we expect strong free cash flow between 120 and 160 million which factors in 50 to 60 million in one-time 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 capacity between 150 and 170 and an effective tax rate of approximately 24% for the full year. So by the end of 2016, we expect net debt leverage to be approximately 3.8 times as we progress towards our goal between 2.5 and 3.5 times. 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 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 we'll now begin our q a session so if you like to ask a question you may do so by pressing star one on your telephone keypad or if you like to remove your question please press star two once again to ask a question please press star one as a reminder if you're using a speaker phone please remember to pick up your handset before asking your question our first question comes from the line of taiko peterson of jeffrey's your line is open hey hey thanks um i want to hit on

free cash flow you know the guide here um because you know it did come in uh lower than expected in the quarter and you guys had kind of message you know i think at several different venues that you're confident in recouping the cash flows uh so can you maybe just talk on you know did anything happen in november and december when it seemed like most of those cash flows would come back And then, you know, you talked about a step down in one-time outlays in 26 and the end of the ERP conversion. So maybe just, you know, all seemingly good guys in flight. So why are we not seeing better conversion, you know, 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 two reasons that i mentioned in the script and that is we had about 15 to 20 million of the system related ar that we had assumed we were going to collect in q4 but unfortunately that 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 you know there's about uh 40 45 million dollars of cash that that we thought originally would be collected in q4 that slipped into q1 january we've already collected it to be clear uh so it's timing with Q1 only. And that difference, if we had collected that 40, 45 million in Q4, we would have been right at our target. And then as you move to 26, you know, we had talked about, it's in the script, you know, when I talked about the cash flow, you know, the midpoint of our cash flow range was 140 million. And I want to be clear, that is, that's real cash flow. That's not adjusted cash flow. And so when you factor in the one-time items for the New Jersey facility consolidation and the direct procurement, you know, this is the 50 to 60 million that I've been messaging for several months now, you know, that puts our, if you will, recurring free cash flow at around 200 million, which, you know, according to that same metric would be a little over 30 percent 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 in the strong performance in lab, you know, you had a nice acceleration, even on a multi-year comp there. Can you maybe just talk a little bit about, you know, 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?

Yeah, thanks for the question, Tycho. So, yeah, so if you look at our underlying growth rates really across the business, you know, I think things look strong. You know, labs was at 7% for the quarter, 6% for the year, point of care, 7%. We have, you know, strong triage growth at 16% in the quarter. The IH business was, you know, rock solid at 3% growth for the year. And, you know, 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, you know, as I think about the ability to sustain our growth moving forward, you know, 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. As you pointed out in the lab's business, we continue to benefit from being underpenetrated in immunoassay, 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, you know, just generally. I think, you know, moving forward, we've got, we'll have Lex coming into the business. We are strengthening our competitiveness here with the VITROS 450 and the OUS system partnership that Jonathan discussed. So, you know, just generally, I'm thinking, you know, I'm bullish on our growth rate moving forward. I think, you know, 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 thanks look single digit growth 26 same as 25. okay thank you thank you our next question is from the line of jack mahan of nephron your line is open thanks good afternoon guys um i wanted to pick up where tega left off there on china you know since the press release you had a couple weeks ago was wondering if there was any update that you could share in terms of dry slide and VBP?

Yeah. Hi, Jack. Nothing really new there. We did put out a pretty extensive statement on the website that kind of covers all the angles to 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. 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 half a percent and a percent of total company revenue and you know that's something that we would look to offset somewhere else in the business so I'm still waiting to hear more on on that but no new news to share at this point okay appreciate it wanted to see if I could get a mark to market update on Sophia I was wondering just as I was looking at the flu and COVID trends specifically um you know how much 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 and flu versus the COVID decline yeah hey Jack it's Joe uh you know the the revenue from the the combo product or ABC as you refer to it um is still continuing and strong well over 50% of the total flu revenue and actually it's been very consistent for the last two plus years and so it's the combo test is proving to be very durable now whether there's you know some transition as you mentioned from standard standalone COVID to that I can't really speak to that but I do

know that the combo test that's a percentage of the total has been very consistent now for two plus years sounds good thank you guys yeah thank you our next question is from the line of andrew breckman of william blair your line is open hi guys good afternoon thanks for taking the questions and joe i'll save my farewell uh until next quarter um but but maybe i'll start with you on a question on the guide and particularly eps guides so i think the low end of your range is actually below your 2025 EPS actual, you know, 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 two bucks versus maybe that higher end? Thanks.

Yeah. Hey, Andrew. You know, the guide that we've put out just now for 26 has a wide range just like it did, you know, the guide for 24 and 25. We, unfortunately, because of the respiratory portion of our business and, you know, sort of the bit of uncertainty that we have in that business, we have to have a wide range for respiratory. And so, you know, 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, You know, that business is super predictable. And, you know, 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. So and so what 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 to 55 million test market. And if it drops down to maybe 40, 45, you're going to go to the low end of the range. And if you're up to 60, 65, you're going to go to the high end of the range. And, you know, and again, you guys know this. We've seen blue 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, again, I want everybody to look at the midpoint of the range. I think that's what 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 to $26. And so that is, you know, 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, you know, 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, you know, where you might be thinking, why is the CPS 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 to call sort of with a reflection of your time in the CEO chair. You know, 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. You know, can you maybe sort of talk to us about some of the maybe the future areas you're focused on for driving that improvement, specifically as it relates to maybe some cost savings? Thanks.

Well, yeah, you know, if you consider cost savings specifically, you know, So I'm still very focused on getting the company to the 25 plus EBITDA range, 25% EBITDA margin range. And I'm pretty confident in our ability to project into that range for a number of reasons. You know, 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, you know, 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 you know 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, you know, 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 margins. I think we'll see the benefit of margins in less as we start to achieve molecular level um margins from that platform as it comes online and um you know so so i think you know we get probably to the mid-20s with a lot of our procurement initiatives continued staffing optimization the raritan uh new jersey footprint optimization i think the high 20s come uh as less becomes a bigger component of our product mix um and you know we still do have uh some some work to optimize staffing we we've done a lot of work there so you know those are the things i'm thinking of uh on the sort of the cost side of the the coin you know on the growth side you know we're really turning to how can we optimize our 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 you know that that will allow us to project into higher volume segments and drive additional growth for the company so a lot of a lot of um great things um you know ahead of us here and and i think uh you know very positive on both the top and the bottom line hey andrew um go to the next question operator andrew andrew hang on um julia just reminded me on your first question that i

left out piece of information that i probably should have informed you on that when i talked about the higher depreciation 26 versus 25 to 20 million dollars i probably should have mentioned that that's driven by really two main things it's um the reagent rental capitalization in 25 was about 14 higher than in 24 and so we had a you know this is a good thing you know replacing more boxes and 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 these system conversions that are done and so we had to transfer all that's all been capitalized in late q3 early q4 and that's those two things are really driving that higher depreciation when you look at 26 versus 25. So sorry I missed that the first time through.

All good. Thanks for the comment.

Thank you.

Thank you. Our next question comes from the line of Patrick Donnelly of Citi. Your line is open.

Hey, guys. Thank you for taking the questions. Joe, maybe one for you, just on the margin trump. Can you talk about the gross margin? They were a little bit soft, relevant 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 both gross and up margins as we work our way through 26, maybe just a little bit of progression and cadence on that front would be helpful.

So the gross margins in Q4 were down, and I would say that it was down due to, I mean, three main things. There definitely was some tariff impact when you think of, and again, I'm talking about Q424 to Q425 were down. It's the tariff impact. We had more instrument revenue in Q425 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 on much closer to 50% as we move through the next couple 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.

Yeah, maybe on that point where you left off on lextro it might be one for brian just in terms of any milestones we should be keeping an eye out i know it sounds like you know dialogue with fda is continuing to move forward on lex just what we should be looking out for confidence on the timelines and um you know when we should expect to start to see some some revs there thank you guys yeah i'll ask uh yeah i'll actually ask jonathan to comment on that since he's in the middle of it yeah sure happy to um thanks for Patrick.

Yeah, with regards to Lex, you know, 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, but to take a little bit longer through its first DA cycle. You know, reminder that this is a CLIA waiver as well. So they're looking at not only the assay, but the hardware, the software, cybersecurity, the usability as well. So 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 to the other side of that, we'll be continuing with all of the acquisition activities and timing and processes that are associated with that. Thank you.

Thank you. Our next question is from the line of Lou Lee of UBS. Your line is open.

Great. Thank you for taking my questions. Maybe just following up on some of the R&D pipeline that Jonathan just mentioned. I guess maybe on the Reto system, it seems like all the new product launches of OUS opportunity. So I wonder like any plan for the U.S. side and then also how should we think about the SA pool for opportunity in the coming years?

So we're going to be issuing a press release with more details on this agreement that Jonathan discussed in his remarks. But you know 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 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 are, at this point, probably years away. Our near-term focus, though, is going to be on, you know, really heavily focused on content and menu addition for our current systems.

Yeah, and I think, Brian, this is Jonathan here. I would add, you know, on the U.S. side, obviously, with adding our high-sensitivity troponin assay, that rounds out our offering on a menu side here in the U.S. really well. Brian mentioned earlier in the call and reiterated here our OUS opportunities on the immunoassay side to round out the menu offering, which is what that partnership helps us with on tenders. And then on the Vitros 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 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 like two short questions into one. On the left 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 of funds? Thank you.

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

Oh, sorry. What was the – yeah, 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.

Okay. thank you okay thank you our next question comes from the line of andrew cooper of raymond james your line is open hey everybody hey everybody thanks for the questions maybe first just want to drill in on on free cash flow a little bit more again you know appreciate guiding to the reported metric i think that makes it a little bit clearer but even if we add back that 50 or 60 million you called out of sort of one time 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, you know, bridging towards that number?

Hey, Andrew. Yeah, 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 that we've been saying pretty clearly that it's 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 uh the direct procurement initiatives and you know the cash flow goals are really kind of tethered pretty closely to the margin goals um and that you know that's more a mid-27 thing so what we had said was that we would make progress in 26 and so i think you know we came in a little bit less than i thought in 25 at 17 when you look at again that's recurring free cash flow metric but we are making progress from that 17 to the 30 percent and obviously as i said we're going to be you know there's a whole core press within the organization

on cash flow right now and we're going to be looking under all rocks to try to find ways to increase cash flow and get ahead of that and do better than that 30 percent but that right now that's the bogey we're putting out there for 26. yeah i would just add that um okay you know cash Cash flow is, yeah, I would just add that cash flow is a company-wide focus for us and, you know, 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, major focus for the organization.

Okay, that's helpful. And then maybe just one more on the partnership. 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?

Yeah, and this is Jonathan. I'll take that one. So, yeah, 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 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.

Okay. I'll stop there. Thank you.

Thank you. Our next question is from the line of Casey Woodring of JPMorgan. Your line is open.

Great. Thank you for taking my questions. 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 and i would also be curious to hear what the guide assumes for free cash flow in one q 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 one q over the course of the year to get to your guidance range uh hey casein thanks so um we 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 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 one-time cash. Like I said, the midpoint of our guide for 26 is $140 million of real free cash flow, and there's about $50 to $60 million of one-time, which would get you to that $200 for recurring. And I would say that similar to the last two years, despite some of that timing difference between Q425 and Q126 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 two years. I don't think there's really any change there. And so, yeah.

Okay, got it. And maybe as my second question, I just had a few on the Hisense 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 Hisense, Troponin, and 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 and Hisense, Troponin, and if this could be a real growth area for you guys over the next several years. Thank you.

Yeah, I think, well, first of all, as it relates to point-of-care Hisense 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 a Hisense Troponin assay outside the United States, and so we would like to pursue a pathway to commercialize the the assay here in the u.s um as it relates to the labs hystens troponin that we we launched you know by itself um i don't if that's not really going to have a huge impact in our short-term growth rates i think over the long term it would have become a competitive factor for us um but that said um you know it will help us compete a little better in the higher volume segments where that particular assay is, you know, growing in importance. And so, you know, we're happy to get it on the system. And, you know, it's certainly going to help. It won't hurt. But I don't think we can point to, you know, major step function growth there as a result of a single assay.

Got it.

Thank you. Our last question for today's call is from Bill Bonello of Craig Hallam Capital Group. Your line is open.

I just wanted to go back once more to the cash flow guide and outlook. So, you talked about the one-time uses of cash that are going to occur this year and gave us sort of a, you know, proxy for, you know, what 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, you know, additional, you know, sort of what you might consider one-time cash investments that you're going to have to make, or is, you know, $200 million or so the right starting point to be thinking about 2027 free cash flow?

Yeah. Hey, Bill. It's Joe. So, we have said already that, you know, the one-time cash would come down significantly. I mean, you go back to 2024 we had over well over that was probably like 210 million of one-time cash in 2024 it came down to about 175 in 2025 and then like i said the 50 to 60 million in 26 guide uh for 27 i would expect it to be a similar number probably around you know maybe 40 to 50 million of one-time cash in 27 and it's the same the same two topics it's the it's the raritan new jersey facility shutdown that takes into 27 to complete and it's the direct procurement initiatives which which require some one-time resources in the areas of r d quality and regulatory um that is also going to go into 27 um and so but beyond that uh i i don't have a lot of visibility to other one-time cash at this point that we would that we would utilize um and so you know 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 working capital i do i do think there's there is opportunity in inventory uh in 26 and 27 uh that we will we will go after and then um and then of course the one-time cash starts to starts to really go away and so as you think about um those areas as well as starting to um whittle down the interest expense as we either refinance the term loan b which i anticipate us doing at some point this year with because it does look like rates are going to come down that brings down interest expense uh and we'll do everything we can to limit reagent rental cash and try to flip customers in cash instrument sales we've got some initiatives in place to to flip that mix a little more we'll look to limit capbacks. And so through all those things, all those levers, you know, that's how we get up to that, you know, that 50% conversion rate of adjusted EBITDA. So that's sort of the path forward, if that makes sense, hopefully.

Yeah, no, that does. And then I guess I just wanted to revisit your comments on gross margin. I thought that But as part of your answer, and maybe you were talking about full year and not the Q4, you know, 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, you know, what was instrument, how much of the, you know, to what degree was it were instruments contributing to the higher lab growth, you said that, you know, instrument was kind of flat year over year. So I'm just trying to reconcile the two.

Yeah, you're right. It is for Q4 on its own, Bill. It's mostly product mix and tariffs.

That's right. it's offsetting okay that is all we had thanks thank you bill thanks bill thank you that'll conclude today's q a session so i'll now pass it back over to brian blazer to close us off thank you operator and thank you everyone for your time and continued interest in vital ortho 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'll conclude today's call thank you for your participation.

You may now disconnect your line.