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DATE
Wednesday, Nov. 5, 2025 at 5 p.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — Brian J. Blaser
Chief Financial Officer — Joseph M. Busky
Vice President, Investor Relations — Juliet C. Cunningham
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RISKS
The CFO, Joseph M. Busky, said, "fiscal Q3 was certainly a disappointing quarter for us for cash flow, primarily driven by the impacts of the system conversions, which had the impact of delaying cash into fiscal Q4 for us."
The CFO reported a $71 million goodwill impairment charge for the quarter, eliminating all goodwill on the balance sheet.
The CFO stated, "I would expect that Lex will likely have a dilutive impact on margins next year to some extent. I certainly wouldn't expect it to be accretive."
"For the quarter, we're down $13 million or 48%. For the year to date, we're down $55 million or 57%," according to the CFO, indicating the donor screening exit remains a revenue headwind until final wind-down in 2026.
TAKEAWAYS
Total reported revenue -- $700 million, a 4% year-over-year decrease driven by declines in COVID and U.S. donor screening revenue.
Organic sales growth (ex-COVID and donor screening) -- 5% year-over-year, with contributions across labs, immunohematology, and point-of-care segments.
Adjusted EBITDA -- $177 million, reflecting an adjusted EBITDA margin of 25% and a 180 basis point year-over-year improvement despite lower respiratory testing revenues.
Adjusted gross profit margin -- 48.7%, down 50 basis points from the prior year period primarily due to tariff impacts, offset by cost mitigations.
Non-GAAP operating expense -- $217 million, a decrease of $16 million or 7% as a direct result of ongoing cost savings actions.
Legal expense -- $9 million recorded for final resolution of a COVID supplier dispute originating in 2021.
Restructuring, integration, and other charges -- $40 million, including $11 million for discontinuation of Savannah platform development and $28 million in ERP system integration costs.
Adjusted diluted EPS -- $0.80 for the quarter, with year-to-date adjusted diluted EPS of $1.66, representing 36% growth.
Adjusted free cash flow -- Negative $50 million, impacted by timing shifts in accounts receivable and payable related to ERP system conversion.
Net debt to adjusted EBITDA ratio -- 4.4 times at quarter end, slightly above internal target due to timing effects from ERP implementation, but within credit agreement covenant.
U.S. donor screening revenue -- Down $13 million (48%) for the quarter and $55 million (57%) year-to-date, representing an expected total of $40 million to $50 million for the year and full wind-down in 2026.
Full-year revenue guidance -- Narrowed to $2.68 billion to $2.74 billion, maintaining the midpoint from prior guidance, with neutral FX impact expected.
Full-year adjusted EBITDA guidance -- $585 million to $605 million, reflecting incremental $30 million to $40 million cost savings; adjusted EBITDA margin guidance remains at 22% (250 basis point improvement over prior year).
Interest expense forecast -- Expected to rise by $17 million to $177 million for the full year, attributed to the August refinancing increasing the weighted average rate by roughly 100 basis points and higher amortization of financing fees.
Adjusted diluted EPS guidance -- $2.00 to $2.15 for full year, with $0.19 of the impact due to increased interest expense and $0.05 from higher tax, reflecting an updated effective tax rate of 25% (one percentage point increase).
Labs segment revenue growth -- 4% year-over-year, attributed to steady demand and stable customer renewal rates.
Immunohematology revenue -- 5% growth, ascribed to demand from blood banks and hospitals, with expectations for full-year growth in the 3%-4% range.
Point of care Triage product line -- 7% growth year-over-year, with rising cardiac and BMP testing and supportive international demand.
Other cardiac revenue -- $8 million increase over prior year period.
Respiratory revenue -- Significant decline due to a 63% drop in COVID testing and an 8% flu revenue decrease, linked to timing differences versus the prior year.
International performance (ex-COVID) -- Latin America led with 21% overall growth (22% in Labs), Japan/Asia Pacific/China each grew about 5%, and EMEA grew 3% with EBITDA margins rising 700 basis points year to date.
Cost savings realized -- Over $40 million achieved from ongoing margin improvement initiatives.
FDA clearance -- High-sensitivity troponin assay for VITROS platform received FDA clearance in 90 days, with orders expected later in the year.
Lex Diagnostics update -- FDA clearance for Lex's 510(k) and CLIA waiver submission anticipated by late 2025 or early 2026, with initial limited rollout and no accretive margin impact expected until 2027 or later.
SUMMARY
QuidelOrtho (QDEL +1.34%) reported a 4% decrease in total revenue to $700 million for fiscal Q3 2025 (period ended Sept. 30, 2025), primarily due to ongoing declines in COVID and U.S. donor screening revenue. Adjusted EBITDA margin reached 25%, helped by over $40 million in cost savings, but adjusted free cash flow was negative $50 million because of ERP system conversion effects. The company narrowed its 2025 guidance ranges for revenue, EBITDA, and EPS, with the midpoint for each unchanged, and expects full-year COVID revenue to remain between $70 million and $100 million. International growth remained strong in Latin America, Japan, Asia Pacific, China, and EMEA. Management highlighted the FDA clearance of the VITROS high-sensitivity troponin assay and detailed ongoing margin improvement strategies, while also addressing the dilutive impact and limited 2026 commercial uptake anticipated from Lex Diagnostics.
The CFO stated, "we finished the quarter with $98 million in cash and $100 million in borrowings under our $700 million revolving credit facility."
Adjusted free cash flow is projected to reach 25%-30% of adjusted EBITDA for 2025 despite ERP conversion-related delays, with a 50% long-term target by mid-2027.
The company recorded a $10 million expense for asset impairment related to the expected sale of the Raritan, New Jersey facility, with a planned $20 million annual operating cost saving post-consolidation in 2027.
Instrument revenue declined by $5 million year-over-year, attributed mainly to higher rates of contract extensions rather than new placements.
Management forecasted a sequentially lower EBITDA margin in fiscal Q4 compared to fiscal Q3, driven by a seasonal shift to lower-margin instrument revenue and higher incentive compensation.
The CEO said the Sofia installed base "continues to be stable and expanding, very durable," with the flu combo test showing steady performance over two years.
The company anticipates the wind-down of U.S. donor screening revenue will end top-line headwinds in 2026, with up to 50 basis points of margin accretion expected starting in late 2026 or early 2027.
The CFO explained integrated analyzer placements constitute 30%-40% of the Lab installed base, highlighting runway for additional placements against competitors.
INDUSTRY GLOSSARY
BBP (Bulk Buy Procurement): Centralized government purchasing process for medical devices in China, impacting pricing and volume dynamics.
510(k): U.S. FDA regulatory pathway requiring evidence that a medical device is substantially equivalent to a legally marketed device.
CLIA Waiver: Certification allowing certain diagnostic tests to be used in a wider range of healthcare settings with less stringent operational requirements.
ERP (Enterprise Resource Planning) system: Integrated software platform managing key business processes, including finance, operations, and supply chain.
Raritan facility: QuidelOrtho's manufacturing site in New Jersey, referenced in this quarter for asset impairment and future consolidation savings.
Full Conference Call Transcript
Operator: Welcome to the QuidelOrtho Third Quarter 2025 Financial Results Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. 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 Juliet C. Cunningham, Vice President of Investor Relations. Thank you.
Juliet C. Cunningham: Good afternoon, and thanks for joining the QuidelOrtho Third Quarter 2025 Financial Results Conference Call. Joining me today are Brian J. Blaser, President and Chief Executive Officer, and Joseph M. Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To assist in the presentation, we also posted supplemental information on the Investor Relations page that will be referenced throughout this call. This conference call and supplemental information contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of '95.
Statements that are not strictly historical, including the company's expectations, plans, financial guidance, and future performance and prospects, are forward-looking statements that are subject to certain risks, uncertainty, assumptions, and other factors. This includes the expected impact of tariffs, macroeconomic conditions, and the proposed acquisition of LAC Diagnostics. Actual results may vary materially from those expressed or implied in these forward-looking statements. Information about potential factors that could affect our actual results is available in our annual report on Form 10-K for the 2024 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section.
Forward-looking statements are made as of today, November 5, 2025, and we assume no obligation to update any forward-looking statement except as required by law. In addition, today's call includes discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP measures to their most directly comparable GAAP measures are available in our earnings release and the supplemental information, which is on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. Now I'd like to turn the call over to our CEO, Brian J. Blaser.
Brian J. Blaser: Thanks, Juliet. Good afternoon, everyone, and thanks for joining us today. This quarter, we delivered another solid performance that reflects the strength of our diversified global diagnostics portfolio. We reported organic sales growth of 5%, excluding COVID sales and the U.S. Donor screening business that we are in the process of exiting. This growth demonstrated the underlying strength and durability of our labs, immunohematology, and point-of-care businesses across our global geographies. We also delivered significant improvements to adjusted EBITDA, expanding to 25% of sales in the quarter, primarily driven by our continued focus and execution against our margin improvement initiatives.
These initiatives have now delivered over $40 million in cost savings and put us well on our path to sustainable mid to high 20s EBITDA margins. At the same time, we have made targeted investments in key strategic areas to position us for sustained long-term growth. None of this would have been possible without the dedication and focus of our exceptional team here at QuidelOrtho. So I want to thank them for their hard work and commitment during what has been a transformative period. Together, we are building momentum and remain focused on the opportunities ahead. Let me further summarize our quarterly highlights before I turn things over to Joe for additional financial details.
As a reminder, unless otherwise noted, I'll be discussing growth rates on a constant currency basis. In our Labs business, revenue grew 4%. Demand for our vitro immunoassay and clinical chemistry platforms remains solid, supported by stable customer renewal rates and new business wins across our regions. We continue to benefit from underpenetration in the immuno segment as well as our brand recognition for testing solutions that have the lowest total cost of ownership and as the leader in customer service and support. Our immunohematology business grew 5%, reflecting consistent strong demand from blood banks and hospitals as we expand automated testing solutions and strengthen our position in key geographies.
Within our Point of Care business, our Triage product line posted 7% growth, supported by our strong value proposition, ongoing momentum in cardiac and BMP testing, and growing contribution from international markets. Other cardiac revenue increased by $8 million compared to the prior year period. Respiratory revenue declined versus the prior year quarter, primarily due to the 63% decline in COVID revenue. Flu revenue also decreased by 8% year over year due to timing versus the prior year period. As a result, our North America revenue was down 12% in total but up 5% year over year, excluding the impact of respiratory revenue and the U.S. Donor screening exit.
Our Q3 performance outside the U.S., excluding COVID, was led by strength in Latin America, which grew 21% overall and 22% in labs. Japan, Asia Pacific, and China each grew approximately 5%, and our Europe, Middle East, and Africa region grew 3%, while also increasing EBITDA margins by over 700 basis points year to date as a result of our cost discipline and focus on profitable growth. We continue to see significant growth opportunities outside the United States, reflecting our historical underpenetration in these markets. Moving now to our profitability, we are seeing consistent benefits in our results from the cost actions we have taken over the last year.
Adjusted EBITDA in Q3 was $177 million, and adjusted EBITDA margin was 25%, which is a 180 basis point improvement from the prior year period. Adjusted diluted EPS was $0.80, and these results reflect significant improvements in our underlying cost structure while also mitigating recent tariff headwinds. Our Q3 and year-to-date results continue to demonstrate considerable progress across our organization. Our global commercial team remains focused on profitable growth and expansion in key markets and strategic accounts. During the third quarter, we achieved several important competitive wins across both established and emerging geographies. In R&D, our team continues to focus on advancing a robust pipeline, including ongoing menu expansion and the development of next-generation systems.
A great example of impactful menu expansion is the clearance of our new VITROS high-sensitivity troponin assay that we announced on Monday. This new test elevates our cardiac panel to world-class performance by providing clinicians with higher sensitivity and precision that allows for earlier detection of patients having a heart attack. It also leads to a reduction in unnecessary hospital admissions and ultimately lower costs for patient care. Getting this assay in the hands of our customers was a key focus for me as I joined the company, and I am especially proud of our R&D and regulatory affairs team for the work that they have done over the last several months to gain FDA clearance.
Turning now to operations, our team is aggressively executing further cost improvements to reduce direct and indirect procurement costs, optimize our global supply chain, and consolidate our manufacturing footprint. The team has also done an outstanding job of managing the impact of tariffs, and we continue to expect to fully offset these impacts in 2025. We also continue to support Lex Diagnostics in their ongoing review of their 510(k) and CLIA waiver submission with the FDA. They continue to engage in a productive and collaborative dialogue with the agency, and based on the current review timeline, we continue to anticipate FDA clearance by late 2025 or early 2026.
I'll conclude by saying that we are encouraged by the progress we've made and confident in the path ahead. We remain focused on our execution to deliver sustainable profitable growth. With that, I'll turn the call over to Joe to take you through the details of our third quarter financial results.
Joseph M. Busky: Okay. Thanks, Brian, and hello, everyone. I'll start by taking you through our third quarter results, which are detailed on Slide 3 of our earnings presentation, which is available on the Investor Relations section of our website. I'll also discuss our full-year 2025 financial guidance, and then we'll open up the call for your questions. Total reported revenue for 2025 was $700 million compared to $727 million in the prior year period. The 4% year-over-year decrease was primarily due to lower COVID and donor screening revenue, the latter of which is related to the continued wind-down of the U.S. business. Excluding COVID and donor screening, reported revenue growth was 5%.
Foreign currency translation had a favorable impact of approximately 90 basis points during the third quarter, and based on FX exchange rates as of October, we would expect FX to have a neutral impact on revenue and adjusted EBITDA for the full year. We said that we were pleased to see in our core business with continued mid-single-digit growth, and Brian provided updates on our business unit and regional performance, so I'll focus more on our P&L and balance sheet. Third quarter adjusted gross profit margin was 48.7% versus 49.2% in the prior year period. The 50 basis point year-over-year decrease was primarily driven by tariff impacts offset by cost mitigations.
Non-GAAP operating expense of $217 million, comprised of SG&A and R&D, decreased by $16 million or 7% as a direct result of our ongoing cost savings actions. Included in the other operating expenses line of the P&L, we recorded $9 million of legal expense in connection with the final resolution of a long-running dispute with a COVID supplier that dates back to 2021. Q3 results included $40 million in restructuring, integration, and other charges, which included $11 million related to the discontinuation of the development of the Savannah platform. Integration costs were $28 million, which were primarily related to our ERP system conversion that went live in Q3.
As expected, we saw our vendor-related system conversion costs decrease by $1.3 million from Q2, and we continue to expect integration costs to decrease significantly in 2026. We also recorded a $10 million expense on the asset impairment line related to the expected value of the sale of our Raritan, New Jersey facility. As we discussed last quarter, we complete the Raritan facility consolidation, which is planned in 2027, we expect to save about $20 million in annual operating costs. As summarized on Slide 6, this is another example of the actions we are taking to move toward our adjusted EBITDA margin goal of mid to high 20s.
Moving now to profitability metrics, as Brian discussed, adjusted EBITDA was $177 million, and adjusted EBITDA margin was 25%, a 180 basis point year-over-year improvement despite the lower respiratory revenue. On a year-to-date basis, adjusted EBITDA was $444 million, or a 13% increase compared to the prior year period, with a 22% margin, which represents an increase of 320 basis points. Adjusted diluted EPS was $0.80 in the third quarter, and year-to-date adjusted diluted EPS was $1.66, which was growth of 36%. This growth demonstrates the success of our cost savings initiatives as we continue to drive toward margin expansion targets.
Turning now to the balance sheet on Slide 7, we finished the quarter with $98 million in cash and $100 million in borrowings under our $700 million revolving credit facility. During the third quarter, one-time cash flows associated with systems integration decreased by $5 million or 23% compared to Q2. However, adjusted free cash flow was a negative $50 million, largely due to the timing of accounts receivable collections that moved into Q4 and accounts payable disbursements that moved up into Q3 from Q4 as a direct result of our ERP system conversion. These temporary cash flow impacts from our system conversion were manageable due to the flexibility provided by our recent debt refinancing.
Because these impacts are purely timing-related, we continue to expect full-year adjusted recurring cash flow to represent 25% to 30% of adjusted EBITDA. We completed our debt refinancing in August, improving our debt covenant terms and reducing the required amortization over the life of the loan. A summary of our debt refinancing is on Slide 8 of our earnings presentation. As part of the refinancing, we booked a $5 million loss on the extinguishment of debt within the quarter. At the end of Q3, our net debt to adjusted EBITDA ratio was 4.4 times, and our goal continues to be net debt leverage of between 2.5 and 3.5.
Note that the Q3 leverage ratio was slightly higher than anticipated due to the ERP system conversion impacts on our Q3 cash flow. Our consolidated leverage ratio was 3.8, including the pro forma EBITDA adjustments permitted and defined under our current agreement. This compares to the credit agreement leverage ratio covenant of 4.5 times. During the third quarter, the company's stock price and market cap remained below management's view of the company's intrinsic value, prompting an interim goodwill assessment. As a result, we booked a $71 million goodwill impairment charge in Q3, and note we have no goodwill remaining on the balance sheet as of the end of Q3.
Now turning to Slide 9, based on our current business outlook, we are providing our full-year 2025 financial guidance as follows: Given that we only have two months left in the year, we are taking the opportunity to narrow our 2025 financial guidance. Therefore, we now expect full-year 2025 total reported revenue of between $2.68 billion and $2.74 billion, with a neutral FX impact to the full year. While we're pleased with our revenue performance in Q3, we continue to expect a typical respiratory season with timing consistent with pre-pandemic patterns and similar to last year. That is occurring later in the fourth quarter and into the first quarter.
Importantly, the midpoint of our narrowed guidance range remains the same as our prior guidance. Year-to-date COVID revenue was $60 million, and we continue to expect between $70 million and $100 million for the full year. We believe this range is reasonable and reflects endemic levels. We are also narrowing our adjusted EBITDA range to $585 million to $605 million, which is again the same midpoint as our prior guidance. This adjusted EBITDA guidance includes incremental cost savings in the range of $30 million to $40 million in '25, primarily related to indirect procurement efforts. These savings are in addition to any tariff-related offsets.
Our outlook continues to reflect an adjusted EBITDA margin of 22% for the full year, which is a 250 basis point improvement versus the prior year. Following our debt refinancing in August, we expect interest expense for the full year to be up by approximately $17 million for a total of $177 million. This includes a roughly 100 basis point increase in the weighted average interest rate and the additional amortization of deferred financing fees tied to the new term loans A and B.
For the full year, we expect our effective tax rate to rise by roughly one percentage point from the previous guidance to 25%, reflecting the impact of tariff mitigation measures that have shifted income across different geographies. We are also updating our adjusted diluted EPS guidance solely to reflect higher interest expense and the taxes just discussed. We now expect full-year 2025 adjusted diluted EPS of $2.00 to $2.15. Approximately $0.19 of the impact is attributable to higher interest expense and $0.05 in higher taxes at the midpoint of the guidance.
To wrap up, we're encouraged by the progress we made in the first nine months of the year, and we remain disciplined in our approach to margin expansion, cash generation, and balance sheet improvement. We're confident that our financial discipline combined with our strategic priorities positions us well to drive long-term value for our shareholders. With that, I'll ask the operator to please open up the line for questions.
Operator: Thank you. If you would like to ask a question, please press star followed by 2. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. Our first question comes from the line of Andrew Brackmann with William Blair. Andrew, your line is now open.
Andrew Brackmann: Hi, guys. Good afternoon, and thanks for the question. Brian, I think in your prepared remarks, you mentioned some competitive wins. Can you maybe just give a little bit more color around that commentary? And I guess, in particular, on the labs front and on that segment, can you maybe just sort of talk about shared dynamics there? And how things like this additional asset that you added, I think, Monday on VITROS, should help? Thanks.
Brian J. Blaser: Yeah. Our competitive wins have been dispersed across our geographies evenly. We've had some nice wins in North America. I would say we had some very significant wins in Latin America as well as EMEA. You certainly see those reflected in the underlying growth rates. So we're excited about the traction that we're getting in those markets. Importantly, I would say we're very focused on wins now that are profitable as opposed to just winning at all costs. I give a lot of credit to our commercial team for the discipline that they've placed in their organizations to make that happen.
As far as Troponin, the launch of high-sensitivity Troponin goes, first, what I would say there is I'm just so proud of the work that the team did there, in conjunction with FDA, by the way, to gain the clearance of that assay in exactly ninety days from the time we submitted it. It's an excellent assay. It performs very well compared to peers. It really strengthens our cardiac panel. More and more clinicians are requiring high-sensitivity troponin on their platforms. I would say by itself, it's not going to have a huge impact on our short-term growth rates, but it was a long-term competitive factor for the competitiveness of our cardiac panel.
So getting that assay on the panel was really important, and it was a huge priority for me when I joined the business. We're excited about that and expecting to be taking orders later this year and shipping product as quickly as we can.
Andrew Brackmann: Okay. That's great color. And then I'll just ask about China, so hopefully, we can move on. I mean, it looks like you're not seeing any impact from BBP or 5% constant currency growth in the country this region this quarter. I just want to make sure that's right, and that's the expectation moving forward. And then also on China, I think there was a new procurement policy that came out late in Q3. Any color on how we should think about that? Thanks.
Brian J. Blaser: Yeah. So there's not a whole lot that's changed from our last update that we did for Q2. We had adjusted our guidance in the Q2 call to mid-single-digit growth to reflect the sort of competitive dynamics in all of these different policies that were taking place. We have seen some impact from BBP and the de-bundling on our business, and that is reflected in the mid-single-digit growth forecast for the rest of 2025. We probably have seen less impact than others because a pretty high proportion of our instruments are used in stat labs where they're less likely to de-bundle panels and that sort of thing. So really not much has changed there since our last update.
As it relates to the new policy that came out around localization, we already have manufacturing in China, and our objective will be to continue to be in compliance with their regulations so that we can continue to manufacture and invest in China as long as the economics there remain favorable.
Andrew Brackmann: Okay. Thanks, guys. Nice quarter.
Operator: Thank you. Our next question comes from the line of Jack Meehan with Nephron Research. Jack, your line is now open. Jack, can you confirm your line is not on mute? Our next question comes from the line of Lu Li with UBS. Lu, your line is now open.
Lu Li: I want to go back to the 2025 guidance. It does seem like you are keeping the EBITDA margin at 22% unchanged. It does seem like the Q4 implied margin will be sequentially lower compared to Q3. Wondering if you can offer any color on that, and then I have a follow-up.
Joseph M. Busky: Yeah. Hey, Lu. It's Joe. We did take the opportunity, given that we only have two months left in the year, to narrow the guidance. We do want to stress the point that even though we've narrowed the guidance on revenue and adjusted EBITDA, the midpoints of that guidance are still precisely the same. The adjusted EPS guidance, again, was narrowed and also adjusted for the non-operational areas of interest expense being higher due to the refinance and the rate being slightly higher due to some mix of income by jurisdiction because of tariff mitigation actions.
If you look at Q4 sequentially versus Q3, I would say that the margins might be slightly lower because we will probably likely, like every year, see slightly higher instrument revenue in Q4 as customers are attempting to use budgets, and you see a lot more instrument revenue in Q4 versus other quarters. Just as a reminder, the instrument revenue for us and most of the folks in our space is much lower than the reagent consumables margins. So you do get a sort of a negative mix impact by that instrument revenue.
Also, I would say, and this is fairly typical each year for us, we tend to see a little higher incentive compensation expense in Q4 versus previous quarters. So that's going to have the impact of pulling down the margin slightly. Hopefully, that answers your question.
Lu Li: I appreciate the color. Second question, on instruments. What is the instrument performance in the quarter? And then, Brian, I think you mentioned there was a next-generation instrument in the pipeline. Do you have a timeline for that? Thank you.
Brian J. Blaser: The nice thing about the work we've been doing on margin expansion and getting the organization focused is we're now in a position where we can start to think about these new systems. We're still in the very early stages of concept development, so not in a position where we can share schedules at this time, but we hope to be talking a lot more about that in the future.
Joseph M. Busky: Yeah. And, Lu, the Q3 instrument revenue was down slightly, about $5 million year over year versus Q3 prior year. This is not largely unexpected. We are seeing a higher number of contract extensions with our existing customers, which is actually a positive thing for us from a margin mix perspective. So that's what's driving that.
Lu Li: Yeah. Thank you.
Operator: Thank you. Our next question comes from the line of Jack Meehan with Nephron Research. Jack, your line is now open.
Jack Meehan: Thank you, and sorry about earlier, had a phone issue. Wanted to start by just wondering if you could give us an update on the Sofia franchise, where you stand in terms of installed base and pull-through. And kind of secondarily, I saw on the guidance slide, you expect over half of the flu tests to be combo. Just curious your thoughts around the durability of the ABC test and physician preference around that? Thanks.
Brian J. Blaser: What I can say about the Sofia installed base is it continues to be stable and expanding, very durable. It's a workhorse platform. The durability of our flu combo test is also very solid. We've really seen very steady performance in terms of sales of that test over the last two years. We're looking forward to yet another solid season here in the upcoming respiratory season with Sofia.
Jack Meehan: Great. And then, you know, you're further in where Lex is further in their FDA submission. Can you give us just an update on how you're thinking around launch timing and positioning of that relative to Sofia?
Brian J. Blaser: Yeah. Well, I mentioned in the prepared remarks, the dialogue with FDA continues to be constructive. We haven't seen anything really out of the ordinary. Assuming an approval late this year or early 2026, we'll be looking to ramp up placements of the platform so that we can participate as much as we possibly can in the following year's respiratory season. So that's our current plan.
Jack Meehan: Got it. And then last one, I saw on the slide still targeting the 100 to 200 bps expansion for 2026, which is great. Can you just talk about how you're thinking about free cash flow conversion, like, as a percentage of EBITDA? Like, what we should be plugged in for that for 2026? Thanks.
Joseph M. Busky: Yeah. Hey, Jack. So Q3 was certainly a disappointing quarter for us for cash flow, primarily driven by the impacts of the system conversions, which had the impact of delaying cash into Q4 for us. But despite that timing issue, due to the system conversions, we still feel that the full-year 2025 recurring free cash flow will be in that range of 25% to 30%. We still are confident in getting to the target of 50% of adjusted EBITDA for recurring free cash flow. We won't hit that target next year. I would believe that hitting the cash flow target would be consistent with the timelines we have on hitting the EBITDA targets. So I would more target mid-2027.
So 2026, I would expect us to make progress towards that 50% target, but not fully get there. The levers that we've talked about already are mitigating CapEx, reducing the number of days on hand of inventory on the balance sheet, and reducing the level of integration or one-time related cash costs that we've seen in the last couple of years. And then obviously, the EBITDA margin improvement is providing additional cash flow. Those are the levers.
Jack Meehan: Okay. Thank you, Joe.
Operator: Thank you. Our next question comes from the line of Tycho Peterson with Jefferies. Tycho, your line is now open.
Jack Meehan: Yeah. Hi. Good evening. This is Jack on for Tycho. Thanks for taking the question. Saw a nice step up in immunoheme growth. Is that mid-single-digit growth something we could look at as more sustainable moving forward, or is it more one-off outperformance in the quarter?
Joseph M. Busky: Hey, Jack. Yeah, we did have a really nice quarter for Immunohematology at 5% growth. But I would say there's probably a little bit of timing between Q3 and Q4, and I would expect that the full-year immunohematology growth will be right around where we'd expect it to be, sort of in that 3% to 4% range.
Jack Meehan: Okay. Then how should we think about Lex as it receives approval and you start to commercialize that next year in terms of sequential sort of step up in OpEx spend relative to that 100 to 200 basis point margin improvement?
Joseph M. Busky: Yeah. Jack, Lex, we do expect, as Brian said, we're going to expect to get FDA clearance late this year, early next year. We'll have a very limited rollout in the first part of the year, the first part of the respiratory season. We'll have a more fulsome rollout in the second half of 2026 as the respiratory season heats up in Q3, Q4. I would expect that Lex will likely have a dilutive impact on margins next year to some extent. I certainly wouldn't expect it to be accretive. We will work hard to keep or mitigate, I should say, any dilutive impact of Lex.
But I wouldn't expect any accretive impact from Lex until we get more up to scale with revenue, which I would not expect to happen until we get into 2027 or potentially 2028.
Jack Meehan: Okay. Thank you.
Operator: Our next question comes from the line of Patrick Donnelly with Citi. Patrick, your line is now open.
Brendan: Hi, this is Brendan on for Patrick. Thank you for taking our questions. I want to touch on the U.S. Donor screening business. As we kind of move into next year, how should we think about modeling that over the course of the year? And I think you kind of mentioned that margin benefits should start to roll through. I'm just curious how we should be thinking about margins over the course of next year with a focus on the U.S. Donor screening business?
Joseph M. Busky: Yeah. Hey, Brendan. Yeah. Just, it's a good question. As a reminder, the donor screening, the U.S. donor screening business, it has been quite a headwind on our top line this year. For the quarter, we're down $13 million or 48%. For the year to date, we're down $55 million or 57%. It has been quite a headwind on that top line. We do expect that we'll be somewhere between $40 million to $50 million of revenue this year. That residual revenue will completely wind down in 2026. So that top line headwind that we've been seeing from the donor screening exit will dissipate as you get into the second quarter.
And for sure, as we get into the second half of next year. We do have some stranded costs that we have to pull out of the business, but once we are complete with that, I would expect we'll be somewhere in the range of 50 basis points of margin accretion that will likely happen as you get into later 2026 into early 2027.
Brendan: Appreciate that. Thank you. And then within the lab business, I believe you talked about integrated analyzers being around like 30% of the installed base with more runway to go. I was wondering if you could update us kind of where you guys are at in terms of the analyzers, the installed base, and how should we think about the long-term opportunity in terms of adding growth there? Thank you.
Joseph M. Busky: Thank you for the questions, Brendan. Our integrated analyzer placements are almost completely inverse to our competitors' situation in the marketplace. So, you know, they might have more, let's say, 60% of their placements are integrated with immuno, a lot of immunoassay volume. Our installed base is heavily clinical chemistry with less immunoassay, probably in the 30% to 40% range. So we have, I think, a tremendous opportunity there in terms of our runway for additional placement of integrated systems. That's been our strategy for the last several years and will continue to be.
Brendan: Thank you.
Operator: Our next question comes from the line of Andrew Cooper with Raymond James. Andrew, your line is now open.
Andrew Cooper: Hey, everybody. Thanks for the time. Maybe just a quick one for me first. You know, nice to see the high-sensitivity troponin launch on VITROS. If we go back a bit, we used to talk about TriageCrew and bringing that high-sensitivity troponin to the point of care. Would love just the latest there, given that product's, I think, in Europe, not yet in the U.S., and you know, how important or how much of an opportunity do you view that point of care today relative to maybe how it was thought about a few years ago, even if predating some of your time here?
Brian J. Blaser: Yeah. So, thanks, Andrew. I appreciate that question. You know, that is an assay ultimately we would love to have on Triage. We do have it outside the U.S., a very successful test. There are some technical challenges that we have to overcome in order to have it meet the sort of performance requirements for the U.S. market. So we're looking at that and seeing if we can press over those hurdles to get that assay into the market at some point. But don't have anything really concrete to share with you in the short term at this point.
Andrew Cooper: Okay. And then on the cost, you know, cost save efforts, and transformation efforts that are underway, you know, I think when these plans were initially kind of laid out, you obviously had certain programs that you had an eye on and likely a little bit to kind of go find and capture. Just give a little bit of have you found as you continue to dig? Maybe what surprised you where there's more room to pull some costs out and maybe where there's a little bit less well?
Brian J. Blaser: Well, you know, our initial focus was heavily around just staffing in the organization, kind of at all levels across the board. We took out close to 12% of the organization as a result, and that was the focus of our initial efforts. Lately, we have been more focused on indirect and direct procurement, have made a lot of progress on indirect procurement. We're now starting to turn our attention to the direct side of things, which are mainly product cost-related things and a little harder for us to action on. But there's nothing that's really surprised me in terms of where the cost pools were located in the business that we needed to go after.
It's just a lot of heavy lifting and hard work to activate it. I would say as we get further down the path, it gets harder and harder to find new things. But we every day continue to come to work and challenge every corner of our P&L for cost savings. We'll continue to do that. It's just a matter of operating the business.
Andrew Cooper: Great. I'll stop there. Thank you.
Operator: Thank you. That will conclude today's question and answer session. I will now pass the call back over to Brian Blaser for closing remarks.
Brian J. Blaser: Thank you, operator. Thanks, everyone, for taking the time to be with us today. I'll just conclude by saying that we're proud of the very solid progress that we're making and confident in the direction that the company is heading. Our team and its disciplined execution, operational focus, and commitment to innovation are delivering tangible results and positioning us well for the future. So thank you for your time today and your continued support and interest in the business.
Operator: That concludes today's call. Thank you for your participation. You may now disconnect your line.