And so that’s the traditional respiratory. On COVID, what I’d say for this year coming in is we spent a good deal of time trying to triangulate on the right number. And the question was asked earlier, our outlook on COVID-19 testing, I think, look, there’s still more information to come, but we feel that we’ve done a pretty wide range of analysis covering material from our peer group from the industry to the market from other experts and I think that the number that we’ve shared with you today the 150 is well thought. But what we also learned from last year is we can’t just give you – take one number at the beginning of the year and then not launch. So I think the other piece that’s important to know is we set up maybe what we would call early warning systems to make sure we’re watching proactively some of the KPIs monitoring the market that we can react more quickly than we have for us.
Conor McNamara: Great. Thanks for that color. And then just a follow-up on Savanna. You took revenues out. So you took respiratory revenue. Is the thought that if you guys do get approval for respiratory panel, you would still wait until you have multiple panels before you launch into the market? Because Brian, it sounds like that’s kind of what your commentary was leading to. Or is there – is there a chance you would still launch it in 2024 with just respiratory?
Mike Iskra: Yes. Conor, good question. So look, I think we are all absolutely clear on two things. One, the guidance we gave is around financial expectations for Savanna. Let’s not confuse that with the operational expectations. We have a very aggressive plan that move as quickly as we can, not just on respiratory, but as mentioned, STI. And as Brian mentioned, the rest of the Savanna menu which is critical. I think what we will be careful to do is set our expectations too early. But we don’t want them to confuse with this is sort of an unrelenting effort to get products approved out in the market as soon as possible.
Conor McNamara: Great. I appreciate that color. And thanks for the questions, guys.
Operator: Thank you for your question. The next question is from the line of Patrick Donnelly with Citi. Your line is now open.
Patrick Donnelly: Hey, guys. Thanks for taking the question. Joe, maybe just on the leverage side, some of the covenant restructures you guys did. I think you bumped the number all the way up to 4.25, but the guidance here, I think it’s for 3.5. So how do you think about just the trajectory on the leverage piece as we work our way through the year here. Is that just the EBITDA moving – excuse me, EBITDA moving around or just how do you think about the leverage progression and the debt load there?
Joe Busky: Hey Patrick, how are you? So again, I just want to make sure – and I know I said this I think on every earnings call past several quarters, just to make sure everyone is clear that there’s financial statement leverage ratio that comes straight from the face of the financials and then there’s the credit agreement leverage ratio that allows pro forma EBITDA savings to be included in the calculation. And when you run that credit agreement calculation for Q1, it allows the pro forma EBITDA adjustments, we’re at 3 times versus the credit agreement covenant of 4 times at Q1. Based on the seasonality of the business, and what I’ve said before, Q2 will be seasonally low for us. I do expect that the leverage ratio will likely creep up a little bit in Q2 and then it will start to come down slightly in Q3 and Q4.
And as I said in the prepared remarks, I would expect from a credit agreement calculated ratio, including the pro forma EBITDA adjustments will be around 3.5 times at year-end, again, versus a leverage covenant of 4.25. So I feel like we’ve got plenty of cushion there and obviously we’re going to be, as Brian said earlier, we’re going to be very focused on in margin restoration and bringing that leverage ratio down as quickly as possible.
Patrick Donnelly: Okay. That’s helpful. And then maybe on the kind of the core business in China, you obviously saw some decent growth there. Can you just talk about the trends you’re seeing in that business, obviously, there’s been a lot of questions about the potential impact of some of the various legislations over there. Maybe just kind of pull the curve back a little bit, what you’re seeing and then expectations as we work our way through the year in that region would be helpful? Thank you guys.
Brian Blaser: I’ll cover that. Yes, Patrick, thank you for the question. Yes. China, we’re very – obviously, very pleased with the results here in Q1 and credit to our team there. I appreciate all that they’re doing. I think as we shared China is a focus market for us. It’s changing quickly. It’s maturing quickly. Lots of different drivers there, but in the end I think the team is executing well in our business across the portfolio, we’re seeing – leveraging the direct team out there. We’re seeing some increases in point of care in placements and in general rest of the business is going well. As you may recall, we have somewhat of a unique position in China where we’re pretty prominent in stat labs. I think that has not excluded us from things like VVP but some of the major VVP efforts so far really have not been in our wheelhouse.
In fact, we participated throughout and have won and all rounds of VVP and so I think while we’ve done well so far, we’ll continue to keep an eye on that as well as some of the other challenges in China. But again, I feel very fortunate that we’ve got a team on the ground that’s very in tune with those days. And then I think the other positive thing for us is a lot of our efforts and investments in China around localization and instrument manufacturing as well as some R&D projects are all starting to take shape, and these are things that are we think going to help us as we go forward in the future.
Patrick Donnelly: Great. Thank you. Operator Thank you for your question. The next question is from the line of Casey Woodring with JPMorgan. Your line is now open.
Casey Woodring: Hi. Great. Thanks for taking my questions and welcome Brian. So first, can you guys touch on customer conversations around Sofia ahead of next respiratory season? You placed a number of Sofia’s under two- to three-year contracts during COVID. So those are likely in renewal negotiations now, I would imagine. So maybe just walk us through how you and your customers are both approaching that renewal process, especially now with the head count turnover in SG&A that you called out increasing and – and then as a follow-up to that, can you just talk about any expectation for a 510(k) submission for the Sofia combo test.
Brian Blaser: Well, I’ll take the first part, maybe you can talk about the 510(k) submission the – so Casey, the first part of your question, I think, is around our based and what are we doing, I go back probably more than a year ago, we put in a concerted effort to get back in front of our customers reevaluate where they are on the contract status to be proactive in extending agreements. I think one of the data points Joe shared in the prepared remarks, with around 70% of customers ordering more than one test. This is something that shows the efforts of getting back in front of customers not only maintaining the business we had, but showing them what other test they could put on that platform. Helps make this a little more sticky, right?
It creates more value for the customer, and we’re harder to displace. And so I think that’s a good number that shows our efforts there. So look, I think we’re in good shape. I know going back gosh, a couple of years ago; there were a number of placements that maybe were COVID only. And as COVID went away, they went away, I think we’re seeing probably a more stabilized base and one that we’re trying to leverage for additional tests.
Joe Busky: Thank you, Casey. On the second part of your question, we anticipate being in trials during the 2024, 2025 season on the cognitive.
Casey Woodring: Got it. That’s helpful. And then just on the headcount reductions between the February call and now you’ve doubled your expectations from $50 million to $100 million. Can you just walk through how you arrived at that number? And if there – if that’s kind of the last adjustment to that number. Thank you.
Brian Blaser: Hey, Casey, we actually did not change that number. Maybe there’s some confusion about the impact in 2024 versus the full annualized impact – the $100 million annualized was always the target that we had talked about on the last call, and we’re right on track with that to get $50 million in year 2024. And then the second half of that $50 million in the first half of 2025. And again, as I said, we’re going to continue to look for efficiencies in the business. I don’t want you to think we’re going to stop at that number, but we have gotten really far in executing on that first $100 million.
Casey Woodring: Okay. Great. And maybe if I can just fit one more in. Did you give what flu was in the new guide here? You gave the new COVID number. Just curious if holding the flu number here? Thank you.
Joe Busky: Yes, Casey, we did not. Again, in the spirit of transparency, we wanted to give everyone an update on Savanna and COVID because we know those were two open questions that the street has, but we didn’t give any other updates because we have suspended guidance until Brain gets a little further into the business and we more to come on that. More to come.
Casey Woodring: Great. Thank you.
Joe Busky: Thank you.
Operator: Thank you for your question. There are no additional questions waiting at this time. So that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.
