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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-05 · 179 added, 161 removed, 209 unchanged (62% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Quarterly Report on Form 10-Q (“Quarterly Report”), all references to “the Company,” “we,” “our” and “us” refer to QuidelOrtho Corporation and its subsidiaries.

In this Quarterly Report on Form 10-Q (the “Quarterly Report”), all references to “the Company,” “we,” “our” and “us” refer to QuidelOrtho Corporation and its subsidiaries.

Future Uncertainties and Forward-Looking Statements

This Quarterly Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

For this purpose, any statements contained herein that are not statements of historical fact, including without limitation certain statements under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors” and located elsewhere herein regarding industry prospects and our expected results of operations or financial position, may be deemed to be forward-looking statements.

For this purpose, any statements contained herein that are not statements of historical fact, including without limitation certain statements under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding industry prospects and our expected results of operations or financial position, may be deemed to be forward-looking statements.

Without limiting the foregoing, the words “may,” “will,” “should,” “might,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “goal,” “project,” “strategy,” “future,” and similar words are intended to identify forward-looking statements.

Our business is subject to a number of risks, including those discussed under Part II, Item 1A, “Risk Factors” of this Quarterly Report, that could cause actual results to differ materially from those indicated or expressed by the forward-looking statements made herein and such statements presented elsewhere by management from time to time.

Our business is subject to a number of risks, including those discussed under Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended July 3, 2022, that could cause actual results to differ materially from those indicated or expressed by the forward-looking statements made herein and such statements presented elsewhere by management from time to time.

Such forward-looking statements represent management’s current expectations and are inherently uncertain.

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Except as required by law, we assume no, and hereby disclaim any, obligation to update any forward-looking statements.

The following should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto beginning on page 3 of this Quarterly Report and the “Risk Factors” in Part II, Item IA of this Quarterly Report.

Information Available on Our Website

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Labs, Transfusion Medicine, Point-of-Care and Molecular Diagnostics.

We currently sell our products directly to end users through a direct sales force and through a network of distributors, for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, urgent care clinics, leading universities, retail clinics, pharmacies, wellness screening centers, blood banks and donor centers, as well as for individual, non-professional, over-the-counter (“OTC”) use.

We reached significant new markets as we introduced our QuickVue ® At-Home OTC COVID-19 test for at-home consumer use, school testing, health departments and many other locations.

For the six months ended July 3, 2022, Total revenues increased 193% to $1,615.7 million as compared to the same period in the prior year, and currency exchange rate s had a minimal impact on growth rate.

We currently sell our products directly to end users through a direct sales force and a network of distributors for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, urgent care clinics, leading universities, retail clinics, pharmacies, wellness screening centers, blood banks and donor centers, as well as for individual, non-professional, over-the-counter (“OTC”) use.

We reached significant new markets with the introduction of our QuickVue ® At-Home OTC COVID-19 test for at-home consumer use, school testing, health departments and many other locations.

For the nine months ended October 2, 2022, Total revenues increased by 126% to $2,399.5 million as compared to the same period in the prior year.

Currency exchange rates had an unfavorable impact of 400 basis points on our growth rate.

Our revenues can be highly concentrated over a small number of products.

For the six months ended July 3, 2022 and July 4, 2021, sales of our COVID-19 products accounted for approximatel y 70% a n d 64% o f our Total revenues , respectively.

For the six months ended July 3, 2022 and July 4, 2021, sales of our influenza products accounted for 8% and 3% of our Total revenues , respectively.

Approximately 54% and 29% of our Total revenues for the six months ended July 3, 2022 and July 4, 2021, respectively, were related to sales to our three largest customers.

For the nine months ended October 2, 2022 and October 3, 2021, sales of our COVID-19 products accounted for approximately 54% and 71% of our Total revenues, respectively.

For the nine months ended October 2, 2022 and October 3, 2021, sales of our influenza products accounted for 7% and 3% of our Total revenues , respectively.

A pproximately 48% of our Total revenues for each of the nine months ended October 2, 2022 and October 3, 2021 were related to sales to our four largest customers.

Recent Developments

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Commencing from the closing date of the Combinations, our financial statements include the assets, liabilities, operating results and cash flows of Ortho.

The revenues related to Ortho are included in the Labs and Transfusion Medicine business units and the results of operations are included within each of our segments, as described in Note 5 to the unaudited Consolidated Financial Statements.

For further information related to the Combinations, see Note 2 to the unaudited Consolidated Financial Statements.

Impact of COVID-19 Pandemic

The revenues related to Ortho are included in the Labs and Transfusion Medicine business units and the results of operations are included within each of our reportable segments, as described in Note 5 to the unaudited Consolidated Financial Statements.

For further information regarding the Combinations, see Note 2 to the unaudited Consolidated Financial Statements.

Impact of the COVID-19 Pandemic

The healthcare challenge and other impacts surrounding the SARS-CoV-2 virus that emerged in late 2019 and the ensuing global pandemic have presented significant business uncertainty and had a dramatic impact on businesses globally, including ours.

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At the same time, we also have observed fluctuating demand for certain of our other diagnostic products.

Demand has fluctuated in line with a range of factors, including the prevalence of the SARS-CoV-2 virus and its variants, the supply of COVID-19 tests generally, the purchasing activity of government entities, and the dissemination and effectiveness of vaccinations.

Demand for our products to identify the SARS-CoV-2 virus has fluctuated in line with a range of factors, including the prevalence of the SARS-CoV-2 virus and its variants, the supply of COVID-19 tests generally, the purchasing activity of government entities, and the dissemination and effectiveness of vaccinations.

The extent to which COVID-19 will continue to impact demand for our products depends on these and future developments, which are highly uncertain and very difficult to predict, including new information that may emerge concerning the severity of COVID-19, regulatory changes in any of the markets in which we serve, the impact of new SARS-CoV-2 variants and actions to contain and treat their impact.

Operations and Employee Safety

While many governments implemented lockdown and shelter-in-place orders, requiring non-essential businesses to shut down operations, our business was deemed “essential” and we continued to operate, manufacture and distribute products to customers.

Accordingly, we have implemented steps to protect our employees.

As a result of the COVID-19 pandemic, we have implemented steps to protect our employees.

Our office-based work sites in the U.S.

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We have been able to maintain our operations without significant interruption and have been able to develop and quickly scale manufacturing capacity for new products related to the COVID-19 pandemic.

However, during the first quarter of 2022, pandemic-related lockdowns in China impacted our business operations.

The lockdowns continued through most of the second quarter of 2022, continuing to impact portions of our operations in China prior to the easing of restrictions in May 2022 and the return to more normalized activity levels by the end of June 2022.

While the impact of the lockdowns in China was not material to our results of operations in the fiscal quarter ended July 3, 2022, we continue to monitor the potential impact of any further lockdowns in China or other regions and the other issues noted above regarding our business.

However, pandemic-related lockdowns and other responses to the pandemic in a number of countries have adversely impacted, and for some continue to adversely impact, our business operations in those countries.

For example, lockdowns in China have impacted, and continue to impact, business operations in that country.

The adverse impacts of these measures were not material to our results of operations for the nine months ended October 2, 2022.

We continue to monitor potential further impacts from these measures and the other issues noted above regarding our business.

Supply Chains

As a result of the COVID-19 pandemic, and other economic and geopolitical conditions, we have seen shortages and delays in receiving certain raw materials and other components for our products and experienced logistics and distribution challenges, as well as challenges in labor availability, all of which have affected our ability to fulfill customer orders on a timely basis, including instrument placements.

Supply chain, production, logistics and distribution challenges, including shortages of components, cost inflation, shipping delays and other logistics challenges, labor availability constraints and labor costs, have impacted, and we expect will continue for some period of time to impact, our results of operations.

Some of our products are derived from source biologic materials, which are available from a limited number of sources.

In response, we have increased safety stock of certain critical components as well as certain finished goods.

In addition, we are continuously evaluating our supply chain for potential gaps and to take other steps intended to help address continuity, such as identifying additional sources for key raw materials.

As a result of the COVID-19 pandemic, and other economic and geopolitical conditions, including inflationary pressures, general economic slowdown or a recession, rising interest rates, foreign exchange rate volatility and changes in monetary policy, we have seen shortages and delays in receiving certain raw materials and other components for our products and experienced logistics and distribution challenges, as well as challenges in labor availability, all of which have affected our ability to fulfill customer orders, including instrument placements, on a timely basis.

Supply chain, production, logistics and distribution challenges, including shortages of components, cost inflation, shipping delays, labor availability constraints and rising labor costs, have impacted, and we expect will continue for some period of time to impact, our results of operations.

Some of our products are available from a limited number of sources.

In response, we have increased our safety stock of certain critical components as well as certain finished goods.

In addition, we are continuously evaluating our supply chain for potential gaps and continue to take other steps intended to help address continuity, such as identifying additional sources for key raw materials and components.

We continue to monitor these developments, as well as other international developments, including the Russia-Ukraine conflict and localization efforts, and the impact of such factors on our business.

We cannot currently predict the frequency, duration or scope of these supply, production, logistics, distribution and labor disruptions and challenges.

However, we continue to proactively work with our suppliers, manufacturers, distributors, industry partners and government agencies to address these challenges and continue to meet the needs of our customers.

Despite our mitigation efforts, such interruptions and challenges could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations depending on the nature and duration of such challenges.

However, we continue to proactively work with our suppliers, manufacturers, distributors, industry partners and government agencies to address these challenges in our efforts to meet the needs of our customers.

Despite our mitigation efforts, such interruptions and challenges have and could further materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations depending on the nature and duration of such challenges.

Our financial performance and results of operations will depend on future developments and other factors that are highly uncertain, continuously evolving and unpredictable, including the duration, severity and continuation of outbreaks and surges of COVID-19, actions to contain the spread of the virus such as vaccination efforts globally, and the ongoing supply, production and logistics challenges.

While demand for COVID-19 testing continued to be strong in the early part of 2022, it fluctuated dramatically, and as a result of a number of factors, including increased supply, effectiveness of global containment efforts and other mitigation efforts, for the remainder of the year, we expect demand and pricing for our COVID-19 testing to be less than that seen in the early part of the year.

However, in light of our experience to date with the virus and the emergence and impact of new variants, we believe some level of ongoing COVID-19 testing will be required for some period of time, even as communities return to more normal practices.

Demand for our COVID-19 testing products declined in the third quarter of 2022 compared to both the second quarter of 2022 and the third quarter of 2021, which may indicate the beginning of a transition to an endemic environment.

For the remainder of the year, we expect demand for our COVID-19 testing products to fluctuate and pricing pressures to continue as a result of a number of factors, including increased supply, emergence and spread of new variants, effectiveness of global containment efforts and other mitigation efforts.

However, in light of our experience to date with the virus and the emergence and impact of new variants, we believe some level of COVID-19 testing may continue for some period of time, even as communities return to more normal practices.

We would expect any such normalized demand to continue to experience fluctuations, which may be significant.

With respect to our core products, excluding COVID-19 tests and influenza tests, we anticipate revenue growth for the remainder of 2022.

We expect demand for our influenza tests to continue to fluctuate based on a number of factors, including the severity of the flu season.

Because our business environment is highly competitive, our long-term growth and profitability will depend in part on our ability to retain and grow our current customers and attract new customers through developing and delivering new and improved products and services that meet our customers’ needs and expectations, including product performance, product offerings, cost, automation and other work flow efficiency.

With respect to our core products, excluding COVID-19 tests, we anticipate revenue growth for the remainder of 2022, though demand for our influenza tests may continue to fluctuate based on a number of factors, including the severity of the flu season.

Because our business environment is highly competitive, our long-term growth and profitability will depend in part on our ability to retain and grow our current customers and attract new customers through developing and delivering new and improved products and services that meet our customers’ needs and expectations, including with respect to product performance, product offerings, cost, automation and other work-flow efficiency.

As a result, we expect to continue to maintain our emphasis on R&D investments for longer term growth, including for our next generation platforms and assays, as well as additional assays to be launched on our current platforms.

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• Molecular Diagnostics—Includes (i) PCR thermocyclers with reduced process time and ready-to-use reagent configurations and (ii) analyzer and amplification systems with the ability to run multiple assays at one time.

The following table compares Total revenues by business unit for the three and six months ended July 3, 2022 and July 4, 2021:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021 % Change July 3, 2022 July 4, 2021 % Change

The following table compares Total revenues by business unit for the three and nine months ended October 2, 2022 and October 3, 2021:

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021 % Change October 2, 2022 October 3, 2021 % Change

Labs $ 334.8 $ 11.4 2,837 % $ 505.5 $ 32.7 1,446 %

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Total revenues $ 783.8 $ 509.8 54 % $ 2,399.5 $ 1,061.7 126 %

For the three months ended July 3, 2022, Total revenues increased to $613.4 million from $176.6 million for the same period in the prior year.

For the three months ended October 2, 2022, Total revenues increased to $783.8 million from $509.8 million for the same period in the prior year.

The increases in Labs and Transfusion Medicine were primarily related to new revenues from the Combinations.

The Point-of-Care business line was the largest contributor to revenue growth, driven primarily by demand for the QuickVue SARS Antigen assays.

Molecular Diagnostics sales decreased by $13.7 million, driven by decreased pricing and demand for the Lyra ® SARS Antigen assay, partially offset by increased demand for the Solana ® SARS Antigen assay.

Currency exchange rate had an unfavorable impact of 450 basis points on the growth rate for the quarter ended July 3, 2022.

For the six months ended July 3, 2022, Total revenues increased to $1,615.7 million from $551.9 million for the same period in the prior year.

The decrease in our Point-of-Care business line was driven primarily by lower demand for SARS assays, as well as $14.7 million lower BNP sales due to the transition of the BNP Business to Beckman Coulter, Inc.

The decrease in revenues related to the transition of the BNP Business did not materially impact our gross profit and is not expected to materially impact future quarterly revenues, as the transition of the BNP Business has annualized.

Molecular Diagnostics sales decreased by $39.4 million, driven by decreased pricing and demand for the Lyra ® SARS Antigen assay.

Currency exchange rate had an unfavorable impact of 400 basis points on the growth rate for the quarter ended October 2, 2022.

For the nine months ended October 2, 2022, Total revenues increased to $2,399.5 million from $1,061.7 million for the same period in the prior year.

The increases in Labs and Transfusion Medicine were primarily related to new revenues from the Combinations.

The Point-of-Care business line was the largest contributor to revenue growth, driven primarily by an increase of $894.2 million in sales of QuickVue SARS Antigen assays, partially offset by lower BNP sales due to the transition of the BNP Business to Beckman Coulter, Inc.

Molecular Diagnostics sales decreased by $28.0 million, driven primarily by decreased pricing for the Lyra SARS Antigen assay.

Currency exchange rate had an unfavorable impact of 180 basis points on the growth rate for the six months ended July 3, 2022.

The Point-of-Care business line was the largest contributor to revenue growth, driven primarily by an increase of $894.7 million in sales of QuickVue SARS Antigen assays, partially offset by lower sales of Sofia ® assays and $45.1 million lower BNP sales due to the transition of the BNP Business to Beckman.

The decrease in revenues related to the transition of the BNP Business did not materially impact our gross profit.

Molecular Diagnostics sales decreased by $67.5 million, driven primarily by decreased pricing and demand for the Lyra SARS Antigen assay.

Currency exchange rate had an unfavorable impact of approximately 300 basis points on the growth rate for the nine months ended October 2, 2022.

Cost of Sales, Excluding Amortization of Intangible Assets

Cost of sales, excluding amortization of intangible assets, increased to $275.9 million, or 45.0% of Total revenues, for the three months ended July 3, 2022, compared to $68.6 million, or 38.8% of revenue, for the three months ended July 4, 2021.

The increase in cost of sales, excluding amortization of intangible assets, was driven primarily by a large increase in sales of QuickVue SARS Antigen assays and new product sales in Labs and Transfusion Medicine.

Cost of sales, excluding amortization of intangible assets, increased to $536.2 million, or 33.2% of Total revenues, for the six months ended July 3, 2022, compared to $140.2 million, or 25.4% of revenue, for the six months ended July 4, 2021.

The increase in cost of sales, excluding amortization of intangible assets, was driven primarily by a large increase in sales of QuickVue SARS Antigen assays in 2022, as well as new product sales in Labs and Transfusion Medicine.

Cost of sales, excluding amortization of intangible assets, increased to $376.3 million, or 48.0% of Total revenues, for the three months ended October 2, 2022, compared to $134.4 million, or 26.4% of revenue, for the three months ended October 3, 2021.

The increase in cost of sales, excluding amortization of intangible assets, was driven primarily by new product sales in Labs and Transfusion Medicine business units as a result of the Combinations, partially offset by lower sales of QuickVue SARS Antigen assays.

We also recorded $35.4 million of expense related to the unwind of the inventory fair value adjustment related to the Combinations during the three months ended October 2, 2022 .

Cost of sales, excluding amortization of intangible assets, increased to $912.5 million, or 38.0% of Total revenues, for the nine months ended October 2, 2022, compared to $274.6 million, or 25.9% of revenue, for the nine months ended October 3, 2021.

We also recorded $46.6 million of expense related to the unwind of the inventory fair value adjustment related to the Combinations during the nine months ended October 2, 2022.

There were also increases in supply chain and other indirect manufacturing costs, which were only partially offset by increased absorption driven by higher production volumes.

Operating Expenses

The following table summarizes operating expenses for the three and six months ended July 3, 2022 and July 4, 2021:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 % of

total revenues July 4, 2021 % of

total revenues July 3, 2022 % of

total revenues July 4, 2021 % of

The following table summarizes operating expenses for the three and nine months ended October 2, 2022 and October 3, 2021:

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 % of

Total Revenues October 3, 2021 % of

Total Revenues October 2, 2022 % of

Total Revenues October 3, 2021 % of

Total Revenues

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Selling, Marketing and Administrative Expenses

Selling, marketing and administrative expenses for the three months ended July 3, 2022 increased by $64.2 million, or 118.5%, to $118.4 million from $54.2 million for the same period in the prior year, primarily due to the Combinations which contributed $45.8 million in increased expense, as well as increased freight expense.

Selling, marketing and administrative expenses for the six months ended July 3, 2022 increased by $100.3 million, or 97.5%, to $203.2 million from $102.9 million for the same period in the prior year, driven primarily by the Combinations which contributed $45.8 million in increased expense, higher freight expense due to higher sales volume and expedited shipping, and higher product promotional spend associated with the launch of the QuickVue At-Home OTC COVID-19 test.

Selling, marketing and administrative expenses for the three months ended October 2, 2022 increased by $141.2 million, or 224.1%, to $204.2 million from $63.0 million for the same period in the prior year, primarily due to the Combinations which contributed $137.5 million in increased expense.

Selling, marketing and administrative expenses for the nine months ended October 2, 2022 increased by $241.5 million, or 145.6%, to $407.4 million from $165.9 million for the same period in the prior year, driven primarily by the Combinations which contributed $183.3 million in increased expense, higher freight expense due to higher sales volume and expedited shipping, higher product promotional spend associated with the launch of the QuickVue At-Home OTC COVID-19 test, higher professional fees and increased employee-related costs.

Research and Development Expense

Research and development expense for the three months ended July 3, 2022 increased by $11.6 million, or 51.3%, to $34.2 million from $22.6 million for the same period in the prior year, primarily due to the Combinations which contributed $13.4 million in increased expense.

Research and development expense for the six months ended July 3, 2022 increased by $14.7 million, or 32.0%, to $60.6 million from $45.9 million for the same period in the prior year, primarily due to the Combinations which contributed $13.4 million in increased expense, as well as higher compensation costs driven by increased headcount to support the growth of the business.

Research and development expense for the three months ended October 2, 2022 increased by $41.9 million, or 176.8%, to $65.6 million from $23.7 million for the same period in the prior year, primarily due to the Combinations which contributed $32.6 million in increased expense, as well as increased costs related to the Savanna ® development, QuickVue OTC assays and Sofia projects.

Research and development expense for the nine months ended October 2, 2022 increased by $56.6 million, or 81.3%, to $126.2 million from $69.6 million for the same period in the prior year, primarily due to the Combinations which contributed $46.0 million in increased expense, as well as increased costs related to QuickVue OTC assays and Sofia projects and higher clinical trials spending.

Research and development expense includes direct external costs such as fees paid to third-party contractors and consultants, and internal direct and indirect costs such as compensation and other expenses for R&D personnel, supplies and materials, clinical trials and studies, facility costs and depreciation.

Amortization of Intangible Assets

Amortization of intangible assets for the three months ended July 3, 2022 and July 4, 2021 was $21.0 million and $6.8 million, respectively.

Amortization of intangible assets for the six months ended July 3, 2022 and July 4, 2021 was $28.1 million and $13.6 million, respectively.

The increases in amortization expense in the three and six months ended July 3, 2022 compared to the prior year periods were primarily due to the Combinations.

Amortization of intangible assets for the three months ended October 2, 2022 and October 3, 2021 was $50.5 million and $6.9 million, respectively.

Amortization of intangible assets for the nine months ended October 2, 2022 and October 3, 2021 was $78.6 million and $20.5 million, respectively.

The increases in amortization expense in the three and nine months ended October 2, 2022 compared to the prior year periods were primarily due to the Combinations.

Acquisition and Integration Costs

Acquisition and integration costs were $80.2 million and $1.1 million for the three months ended July 3, 2022 and July 4, 2021, respectively.

Acquisition and integration costs were $83.2 million and $1.8 million for the six months ended July 3, 2022 and July 4, 2021, respectively.

The increases in the three and six months ended July 3, 2022 compared to the prior year periods were attributable to the Combinations.

Acquisition and integration costs were $26.4 million and zero for the three months ended October 2, 2022 and October 3, 2021, respectively, and primarily due to integration-related costs attributable to the Combinations.

Acquisition and integration costs were $109.6 million and $1.8 million for the nine months ended October 2, 2022 and October 3, 2021, respectively.

Costs in the current year period were primarily due to transaction and integration-related costs attributable to the Combinations.

Other Operating Expense, Net

Other operating expense, net was $ 4.0 million for each of the three and six months ended July 3, 2022.

Other operating expense, net was $4.0 million and $8.0 million for the three and nine months ended October 2, 2022, respectively.

Other operating expense, net was related to the profit share expense for our Joint Business with Grifols, which we acquired in connection with the Combinations.

Non-Operating Expenses

The following table summarizes non-operating expenses, net, for the three and six months ended July 3, 2022 and July 4, 2021:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021 % Change July 3, 2022 July 4, 2021 % Change

The following table summarizes non-operating expenses, net, for the three and nine months ended October 2, 2022 and October 3, 2021:

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021 % Change October 2, 2022 October 3, 2021 % Change

Interest expense, net $ 29.7 $ 1.3 2184.6 % $ 41.0 $ 4.7 772.3 %

Loss on extinguishment of debt — — N/A 24.0 — N/A

Other expense, net 2.5 0.2 1150.0 % 1.6 0.6 166.7 %

Other income, net (4.2) (1.0) 320.0 % (2.6) (0.4) 550.0 %

Interest Expense, Net

Interest expense, net, was $ 10.3 million and $ 1.4 million for the three months ended July 3, 2022 and July 4, 2021, respectively.

Interest expense, net was $ 11.3 million and $ 3.4 million for the six months ended July 3, 2022 and July 4, 2021, respectively.

The increases in interest expense, net in the three and six months ended July 3, 2022 compared to the prior year periods were primarily related to the new Term Loan under the Credit Agreement entered into in connection with the Combinations.

Interest expense, net, was $29.7 million and $1.3 million for the three months ended October 2, 2022 and October 3, 2021, respectively.

Interest expense, net was $41.0 million and $4.7 million for the nine months ended October 2, 2022 and October 3, 2021, respectively.

The increases in interest expense, net in the three and nine months ended October 2, 2022 compared to the prior year periods were primarily related to the new Term Loan under the Credit Agreement entered into in connection with the Combinations.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $ 24.0 million for each of the three and six months ended July 3, 2022, and was related to the extinguishment of the senior notes and former term loans and revolving credit facility of Ortho in connection with the Combinations.

Other Expense, Net

Other expense, net was $ 2.5 million and $ 0.2 million for the three months ended July 3, 2022 and July 4, 2021, respectively.

Other expense, net was $ 1.6 million and $ 0.6 million for the six months ended July 3, 2022 and July 4, 2021, respectively.

The increases in Other expense, net in the three and six months ended July 3, 2022 compared to the prior year periods were primarily related to net foreign currency losses.

For the three months ended July 3, 2022 and July 4, 2021, we recognized income tax provisions of $23.6 million in relation to income before taxes of $42.9 million and $2.6 million in relation to income before taxes of $21.7 million, respectively, resulting in effective tax rates of 55% and 12%, respectively.

The higher tax expense for the three months ended July 3, 2022 compared to the same period in the prior year is primarily a result of a proportionate increase in pre-tax profits, as well as increases in non-deductible executive compensation, Global Intangible Low-Tax Income (“GILTI”) and acquisition-related costs.

For the six months ended July 3, 2022 and July 4, 2021, we recognized income tax provisions of $164.3 million in relation to income before taxes of $663.5 million and $46.3 million in relation to income before taxes of $243.5 million, respectively, resulting in effective tax rates of 25% and 19%, respectively.

The higher tax expense for the six months ended July 3, 2022 compared to the same period in the prior year is primarily a result of a proportionate increase in pre-tax profits, as well as increases in non-deductible executive compensation, GILTI and acquisition-related costs.

Loss on extinguishment of debt was $24.0 million for the nine months ended October 2, 2022, and was related to the extinguishment of the senior notes and former term loans and revolving credit facility of Ortho in connection with the Combinations.

Other Income, Net

Other income, net was $4.2 million and $1.0 million for the three months ended October 2, 2022 and October 3, 2021, respectively.

Other income, net was $2.6 million and $0.4 million for the nine months ended October 2, 2022 and October 3, 2021, respectively.

The increases in Other income, net in the three and nine months ended October 2, 2022 compared to the prior year periods were primarily related to fair value gains on our interest rate caps.

For the three months ended October 2, 2022 and October 3, 2021, we recognized income tax provisions of $12.1 million in relation to income before taxes of $31.3 million, and $65.8 million in relation to income before taxes of $281.5 million, respectively, resulting in effective tax rates of 39% and 23%, respectively.

The lower tax expense for the three months ended October 2, 2022 compared to the same period in the prior year is primarily due to a decrease in pre-tax profits.

For the three months ended October 2, 2022, the effective tax rate was also impacted by operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances.

For the nine months ended October 2, 2022 and October 3, 2021, we recognized income tax provisions of $176.4 million in relation to income before taxes of $694.8 million, and $112.1 million in relation to income before taxes of $525.0 million, respectively, resulting in effective tax rates of 25% and 21%, respectively.

The higher tax expense for the nine months ended October 2, 2022 compared to the same period in the prior year is primarily due to an increase in pre-tax profits and increases in non-deductible executive compensation, Global Intangible Low-Taxed Income and acquisition-related costs.

Indemnification Assets

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The agreement generally provided that Johnson & Johnson retained all income tax liabilities accrued as of the date of the acquisition, including reserves for unrecognized tax benefits.

The indemnification receivable from Johnson & Johnson totaled $17.2 million as of July 3, 2022 and is included as a component of Prepaid expenses and other current assets and Other assets on the unaudited Consolidated Balance Sheet.

We recorded $0.1 million of interest and penalties during the fiscal quarter ended July 3, 2022.

The indemnification receivable from Johnson & Johnson totaled $17.8 million as of October 2, 2022 and is included as a component of Prepaid expenses and other current assets and Other assets on the unaudited Consolidated Balance Sheet.

We recorded $0.3 million and $0.4 million of interest and penalties during the three and nine months ended October 2, 2022, respectively.

Segment Results

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• Total revenues — This measure is discussed in the section entitled “Results of Operations.”

• Adjusted EBITDA — Adjusted EBITDA by reportable segment is used by our management to measure and evaluate the internal operating performance of our segments.

• Adjusted EBITDA — Adjusted EBITDA by reportable segment is used by our management to measure and evaluate the internal operating performance of our reportable segments.

It is also the basis for calculating certain management incentive compensation programs.

We believe that this measurement is useful to investors as a way to analyze the underlying trends in our core business, including at the segment level, consistently across the periods presented and to evaluate performance under management incentive compensation programs.

Adjusted EBITDA consists of Net income before Interest expense, net, Provision for (benefit from) income taxes and depreciation and amortization and eliminates (i) certain non-operating income or expense items, and (ii) impacts of certain noncash, unusual or other items that are included in net income that we do not consider indicative of our ongoing operating performance.

For a reconciliation of Segment Adjusted EBITDA to Income before provision for income taxes, see Note 5 to the unaudited Consolidated Financial Statements.

Adjusted EBITDA consists of Net income before Interest expense, net, Provision for (benefit from) income taxes and depreciation and amortization and eliminates (i) certain non-operating income or expense items, and (ii) impacts of certain noncash, unusual or other items that are included in net income and that we do not consider indicative of our ongoing operating performance.

See Note 5 to the unaudited Consolidated Financial Statements for a reconciliation of Adjusted EBITDA by reportable segment to Income before provision for income taxes.

North America

Total revenues and Adjusted EBITDA for North America were as follows:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021 % Change July 3, 2022 July 4, 2021 % Change

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021 % Change October 2, 2022 October 3, 2021 % Change

Total revenues $ 517.6 $ 466.8 11 % $ 1,917.3 $ 902.2 113 %

Adjusted EBITDA $ 326.3 $ 370.4 (12) % $ 1,356.2 $ 745.2 82 %

Total revenues were $ 438.2 million for the three months ended July 3, 2022, compared to Total revenues of $ 122.0 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $105.4 million to Total revenues.

Excluding the impact of the Combinations, the increase of $210.8 million was driven primarily by demand for the QuickVue SARS Antigen assays, partially offset by a decrease in revenues related to our Lyra SARS Antigen assay.

Total revenues were $ 1,399.7 million for the six months ended July 3, 2022, compared to Total revenues of $ 435.4 million for the six months ended July 4, 2021.

During the six months ended July 3, 2022 , the impact of the Combinations contributed $105.4 million to Total revenues.

Excluding the impact of the Combinations, the increase of $858.9 million was driven primarily by demand for the QuickVue SARS Antigen assays, partially offset by a decrease in revenues for the Lyra SARS Antigen assay.

Adjusted EBITDA was $ 285.0 million for the three months ended July 3, 2022, compared to Adjusted EBITDA of $ 94.4 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $44.4 million to Adjusted EBITDA.

Excluding the impact of the Combinations, the increase of $146.2 million was driven primarily by increased revenues, partially offset by increased distribution and selling costs.

Adjusted EBITDA was $ 1,029.9 million for the six months ended July 3, 2022, compared to Adjusted EBITDA of $ 374.8 million for the six months ended July 4, 2021 .

During the six months ended July 3, 2022 , the impact of the Combinations contributed $44.4 million to Adjusted EBITDA.

Total revenues were $517.6 million for the three months ended October 2, 2022, compared to Total revenues of $466.8 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $251.9 million to Total revenues.

Excluding the impact of the Combinations, the decrease of $201.1 million was driven primarily by lower demand for our Sofia SARS Antigen assays, partially offset by increased revenues for our non-SARS related rapid tests.

Total revenues wer e $1,917.3 million for the nine months ended October 2, 2022, compared to Total revenues of $902.2 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the impact of the Combinations contributed $357.3 million to Total revenues.

Excluding the impact of the Combinations, the increase of $657.8 million was driven primarily by demand for the QuickVue SARS Antigen assays and non-SARS related rapid tests, partially offset by a decrease in revenues for the Sofia SARS Antigen assay.

Adjusted EBITDA was $326.3 million for the three months ended October 2, 2022, compared to Adjusted EBITDA of $370.4 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $114.2 million to Adjusted EBITDA.

Excluding the impact of the Combinations, the decrease of $158.3 million was driven primarily by lower revenues and increased distribution and selling costs.

Adjusted EBITDA was $1,356.2 million for the nine months ended October 2, 2022, compared to Adjusted EBITDA of $745.2 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the impact of the Combinations contributed $158.6 million to Adjusted EBITDA.

Excluding the impact of the Combinations, the increase of $452.4 million was driven primarily by increased revenues, partially offset by increased distribution and selling costs.

Total revenues and Adjusted EBITDA for EMEA were as follows:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021 % Change July 3, 2022 July 4, 2021 % Change

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021 % Change October 2, 2022 October 3, 2021 % Change

Total revenues $ 73.7 $ 14.8 398 % $ 131.0 $ 53.8 143 %

Adjusted EBITDA $ 17.2 $ 4.5 282 % $ 33.5 $ 22.8 47 %

Total revenues were $ 42.1 million for the three months ended July 3, 2022, compared to Total revenues of $ 17.9 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $25.4 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased by $1.2 million, primarily due to lower Point-of-Care revenues, driven primarily by lower BNP sales due to the transition of the BNP Business to Beckman.

Total revenues were $ 57.3 million for the six months ended July 3, 2022, compared to Total revenues of $ 39.0 million for the six months ended July 4, 2021.

During the six months ended July 3, 2022 , the impact of the Combinations contributed $25.4 million to Total revenues.

Total revenues were $73.7 million for the three months ended October 2, 2022, compared to Total revenues of $14.8 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $59.5 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased by $0.6 million, primarily due to lower Point-of-Care revenues, driven by lower BNP sales due to the transition of the BNP Business to Beckman.

Adjusted EBITDA was $ 12.8 million for the three months ended July 3, 2022, compared to Adjusted EBITDA of $ 7.3 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $8.0 million to Adjusted EBITDA.

Excluding the impact of the Combinations, Adjusted EBITDA decreased $2.5 million, driven primarily by lower revenues and higher selling costs.

Adjusted EBITDA was $ 16.3 million for the six months ended July 3, 2022, compared to Adjusted EBITDA of $ 18.3 million for the six months ended July 4, 2021 .

During the six months ended July 3, 2022, the impact of the Combinations contributed $8.0 million to Adjusted EBITDA.

Total revenues were $131.0 million for the nine months ended October 2, 2022, compared to Total revenues of $53.8 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the impact of the Combinations contributed $84.9 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased by $7.7 million, primarily due to lower Point-of-Care revenues, driven by lower BNP sales due to the transition of the BNP Business to Beckman.

Adjusted EBITDA was $17.2 million for the three months ended October 2, 2022, compared to Adjusted EBITDA of $4.5 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $14.9 million to Adjusted EBITDA.

Excluding the impact of the Combinations, Adjusted EBITDA decreased $2.2 million, driven primarily by lower revenues.

Adjusted EBITDA was $33.5 million for the nine months ended October 2, 2022, compared to Adjusted EBITDA of $22.8 million for the nine months ended October 3, 2021 .

During the nine months ended October 2, 2022, the impact of the Combinations contributed $22.9 million to Adjusted EBITDA.

Excluding the impact of the Combinations, Adjusted EBITDA decreased $12.2 million, driven primarily by lower revenues and increased selling and distribution costs.

Total revenues and Adjusted EBITDA for China were as follows:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021 % Change July 3, 2022 July 4, 2021 % Change

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021 % Change October 2, 2022 October 3, 2021 % Change

Total revenues $ 80.8 $ 12.1 568 % $ 163.1 $ 46.8 249 %

Adjusted EBITDA $ 44.9 $ 4.7 855 % $ 83.6 $ 20.1 316 %

Total revenues were $ 73.6 million for the three months ended July 3, 2022, compared to Total revenues of $ 17.8 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $38.7 million to Total revenues.

Excluding the impact of the Combinations, the increase of $17.1 million was primarily due to increased Point-of-Care revenues, partially offset by lower BNP sales due to the transition of the BNP Business to Beckman.

Total revenues were $ 82.3 million for the six months ended July 3, 2022, compared to Total revenues of $ 31.3 million for the six months ended July 4, 2021.

During the six months ended July 3, 2022 , the impact of the Combinations contributed $38.7 million to Total revenues.

Total revenues were $80.8 million for the three months ended October 2, 2022, compared to Total revenues of $12.1 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $72.2 million to Total revenues.

Excluding the impact of the Combinations, the decrease of $3.5 million was primarily due to lower Point-of-Care revenues, driven by lower BNP sales due to the transition of the BNP Business to Beckman.

Total revenues were $163.1 million for the nine months ended October 2, 2022, compared to Total revenues of $46.8 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the impact of the Combinations contributed $110.9 million to Total revenues.

Excluding the impact of the Combinations, the increase of $5.4 million was primarily due to increased Point-of-Care revenues, partially offset by lower BNP sales due to the transition of the BNP Business to Beckman.

Adjusted EBITDA was $ 35.4 million for the three months ended July 3, 2022, compared to Adjusted EBITDA of $ 9.3 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $22.1 million to Adjusted EBITDA.

Excluding the impact of the Combinations, the increase of $4.0 million was driven primarily by increased revenues.

Adjusted EBITDA was $ 38.7 million for the six months ended July 3, 2022, compared to Adjusted EBITDA of $ 15.4 million for the six months ended July 4, 2021 .

During the six months ended July 3, 2022, the impact of the Combinations contributed $22.1 million to Adjusted EBITDA.

Excluding the impact of the Combinations, the increase of $1.2 million was driven primarily by increased revenues.

Adjusted EBITDA was $44.9 million for the three months ended October 2, 2022, compared to Adjusted EBITDA of $4.7 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $41.3 million to Adjusted EBITDA.

Excluding the impact of the Combinations, the decrease of $1.1 million was driven primarily by lower revenues, partially offset by decreased selling costs.

Adjusted EBITDA was $83.6 million for the nine months ended October 2, 2022, compared to Adjusted EBITDA of $20.1 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the Combinations were the primary driver of the increase, which contributed $63.4 million to Adjusted EBITDA.

Total revenues and Adjusted EBITDA for Other, which includes our Latin America, Japan and Asia Pacific operating segments, were as follows:

Three Months Ended Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021 % Change July 3, 2022 July 4, 2021 % Change

Three Months Ended Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021 % Change October 2, 2022 October 3, 2021 % Change

Total revenues $ 111.7 $ 16.1 594 % $ 188.1 $ 58.9 219 %

Adjusted EBITDA $ 29.8 $ 7.6 292 % $ 63.9 $ 35.7 79 %

Total revenues were $ 59.5 million for the three months ended July 3, 2022, compared to Total revenues of $ 18.9 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the impact of the Combinations contributed $44.2 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased $3.6 million, primarily due to lower Point-of-Care revenues.

Total revenues were $ 76.4 million for the six months ended July 3, 2022, compared to Total revenues of $ 46.2 million for the six months ended July 4, 2021.

During the six months ended July 3, 2022 , the impact of the Combinations contributed $44.2 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased $14.0 million, primarily due to lower Point-of-Care revenues.

Adjusted EBITDA was $ 24.5 million for the three months ended July 3, 2022, compared to Adjusted EBITDA of $ 7.9 million for the three months ended July 4, 2021.

During the three months ended July 3, 2022, the Combinations were the primary driver of the increase, which contributed $15.1 million to Adjusted EBITDA.

Adjusted EBITDA was $ 34.1 million for the six months ended July 3, 2022, compared to Adjusted EBITDA of $ 28.1 million for the six months ended July 4, 2021 .

During the six months ended July 3, 2022, the impact of the Combinations contributed $15.1 million to Adjusted EBITDA.

Total revenues were $111.7 million for the three months ended October 2, 2022, compared to Total revenues of $16.1 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $103.1 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased $7.5 million, primarily due to lower Point-of-Care revenues, driven primarily by lower demand for SARS assays.

Total revenues w ere $188.1 million for the nine months ended October 2, 2022, compared to Total revenues of $58.9 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the impact of the Combinations contributed $147.3 million to Total revenues.

Excluding the impact of the Combinations, Total revenues decreased $18.1 million, primarily due to lower Point-of-Care revenues, driven primarily by lower demand for SARS assays.

Adjusted EBITDA was $29.8 million for the three months ended October 2, 2022, compared to Adjusted EBITDA of $7.6 million for the three months ended October 3, 2021.

During the three months ended October 2, 2022, the impact of the Combinations contributed $25.6 million to Adjusted EBITDA.

Excluding the impact of the Combinations, Adjusted EBITDA decreased $3.4 million, driven primarily by lower revenues.

Adjusted EBITDA was $63.9 million for the nine months ended October 2, 2022, compared to Adjusted EBITDA of $35.7 million for the nine months ended October 3, 2021.

During the nine months ended October 2, 2022, the impact of the Combinations contributed $40.7 million to Adjusted EBITDA.

Excluding the impact of the Combinations, Adjusted EBITDA decreased $12.5 million, driven primarily by lower revenues.

Liquidity and Capital Resources

As of July 3, 2022 and January 2, 2022, the principal sources of liquidity consisted of the following:

(dollars in millions) July 3,

As of October 2, 2022 and January 2, 2022, the principal sources of liquidity consisted of the following:

(dollars in millions) October 2,

2022 January 2,

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Working capital including cash and cash equivalents and marketable securities, current $ 572.5 $ 1,116.8

As of July 3, 2022, we had $379.0 million in Cash and cash equivalents, a $423.8 million decrease from January 2, 2022.

As of October 2, 2022, we had $212.2 million in Cash and cash equivalents, a $590.6 million decrease from January 2, 2022.

Our cash requirements fluctuate as a result of numerous factors, such as cash generated from operations, progress in R&D, capital expansion projects and acquisition and business development activities.

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Effective August 4, 2022, pursuant to the Increase Joinder No.

1 to the Credit Agreement, the Revolving Credit Facility increased by $50.0 million to $800.0 million.

1 to the Credit Agreement, the Revolving Credit Facility was increased by $50.0 million to $800.0 million.

The Financing is guaranteed by the Guarantors and is secured by liens on substantially all of our and the Guarantors’ assets, excluding real property and certain other types of excluded assets.

Loans under the Credit Agreement will bear interest at a rate per annum equal to the Term SOFR or Base Rate plus the Applicable Rate (each as defined in the Credit Agreement).

On the closing date of the Credit Agreement, we borrowed the entire amount of the Term Loan, and the effective interest rate as of July 3, 2022 was 2.97%.

Letters of credit issued under the Revolving Credit Facility totaled $18.2 million, which reduced the available amount under the Revolving Credit Facility to $781.8 million.

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and (ii) a minimum Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) of 3.00 to 1.00 as of the end of any fiscal quarter for the most recently completed four fiscal quarters.

We were in compliance with the financial covenants as of July 3, 2022.

The Credit Agreement was entered into in connection with the Combinations in order to fund a portion of the cash portion of the purchase price as well as repay substantially all of Ortho’s then-outstanding indebtedness.

We were in compliance with the financial covenants as of October 2, 2022.

The Credit Agreement was entered into in connection with the Combinations in order to fund a portion of the cash portion of the purchase price as well as to repay substantially all of Ortho’s then-outstanding indebtedness.

See Note 2 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report for further discussion of the Combinations.

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In connection with the acquisition of the BNP Business, we had an annual installment payment of $48.0 million payable in 2022 and have an annual installment payment of $40.0 million payable in 2023.

As of July 3, 2022, the remaining payment was recorded at fair value as contingent consideration of $0.1 million and deferred consideration of $38.1 million.

As of October 2, 2022, the remaining payment was recorded at fair value as contingent consideration of $0.1 million and deferred consideration of $38.7 million.

In connection with the Combinations, the Company acquired a receivables purchase agreement (the “RPA”), entered into on June 11, 2021, by and among Ortho-Clinical Diagnostics US FinanceCo I, LLC (“Ortho FinanceCo I”), a wholly owned receivables financing subsidiary of the Company, Wells Fargo Bank, N.A., as administrative agent (the “Agent”), Ortho-Clinical Diagnostics, Inc.

(“Ortho”, the “Master Servicer”), and certain Purchasers, as amended on July 20, 2022 (the “RPA Amendment”).

Under the RPA, Ortho FinanceCo I may sell receivables in amounts up to a $75.0 million limit, subject to certain conditions, including that, at any date of determination, the aggregate capital paid to Ortho FinanceCo I does not exceed a “capital coverage amount,” equal to an adjusted net receivables pool balance minus a required reserve.

Ortho FinanceCo I has guaranteed the prompt payment of the sold receivables, and to secure the prompt payment and performance of such guaranteed obligations, Ortho FinanceCo I has granted a security interest to the Agent, for the benefit of the Purchasers, in all assets of Ortho FinanceCo I.

Ortho, in its capacity as Master Servicer under the RPA, is responsible for administering and collecting the receivables and has made customary representations, warranties, covenants and indemnities.

The Company has also provided a performance guaranty for the benefit of Ortho FinanceCo I to cause the due and punctual performance by Ortho of its obligations as Master Servicer.

The RPA Amendment resulted in a net 50 basis-point reduction of fees and revision of the base interest rate from 1-month LIBOR to 1-month SOFR.

Stock Repurchases

On August 17, 2022, the Company’s board of directors (the “Board”) authorized a stock repurchase program, allowing the Company to repurchase up to $300.0 million of its common stock through August 17, 2024 (the “Stock Repurchase Program”).

During the three months ended October 2, 2022, the Company repurchased 953,468 shares of outstanding common stock under our Stock Repurchase Program for approximately $74.3 million.

The repurchased shares were retired and returned to the status

of authorized but unissued shares of our common stock.

As of October 2, 2022, we had approximately $225.7 million available under the Stock Repurchase Program.

Cash Flow Summary

Six Months Ended

(dollars in millions) July 3, 2022 July 4, 2021

Nine Months Ended

(dollars in millions) October 2, 2022 October 3, 2021

Net cash provided by operating activities:

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Net (decrease) increase in cash, cash equivalents and restricted cash $ (589.6) $ 88.5

Six Months Ended July 3, 2022

Cash provided by operating activities of $725.6 million for the six months ended July 3, 2022 reflects net income of $499.2 million and non-cash adjustments of $123.3 million, primarily associated with depreciation and amortization, stock-based compensation expense, net change in operating lease right-of-use assets and liabilities, accretion of interest on deferred consideration, and loss on extinguishment of debt.

In addition, we benefited from collections on accounts receivables, which contributed $232.3 million to Cash provided by operating activities.

Our investing activities used $1,555.1 million of cash during the six months ended July 3, 2022, primarily related to the Combinations.

We purchased $48.7 million of property, equipment, investments and intangibles, and we also purchased $33.6 million and sold $28.2 million of available-for-sale securities during the six months ended July 3, 2022.

Refer to Note 2 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report for further discussion of the Combinations.

Cash provided by financing activities was $409.7 million for the six months ended July 3, 2022, primarily related to proceeds from long-term borrowings, net of debt issuance costs of $2,734.8 million, payments on long-term borrowings of $2,284.4 million and payments of $37.6 for contingent and deferred consideration.

Six Months Ended July 4, 2021

Cash provided by operating activities of $407.5 million for the six months ended July 4, 2021 reflects net income of $197.2 million and non-cash adjustments of $35.7 million, primarily associated with depreciation and amortization, stock-based compensation and the payment of accretion of interest on deferred consideration.

In addition, we realized a net working capital increase of $174.6 million driven by a decrease in accounts receivable, partially offset by a decrease in income taxes payable and an increase in product inventory.

Our investing activities used $130.3 million of cash during the six months ended July 4, 2021, primarily related to investments in manufacturing equipment, building improvements, Sofia ® , Solana and Triage ® instruments available for lease and scientific equipment, partially offset by government proceeds received to fund such investments.

Cash used for financing activities was $174.0 million for the six months ended July 4, 2021, primarily related to repurchases of common stock of $103.4 million, payments of tax withholdings for vesting of stock-based awards of $35.4 million, and payment of deferred and contingent consideration of $39.8 million, partially offset by proceeds of $4.9 million from the issuance of common stock under our Amended and Restated 1983 Employee Stock Purchase Plan (“ESPP”) and pursuant to stock option exercises.

Nine Months Ended October 2, 2022

Cash provided by operating activities was $715.9 million for the nine months ended October 2, 2022, and reflects net income of $518.4 million and non-cash adjustments of $270.0 million, primarily associated with depreciation and amortization, stock-based compensation expense, net change in operating lease right-of-use assets and liabilities, accretion of interest on contingent and deferred consideration, loss on extinguishment of debt and amortization of the inventory fair value step up initially recorded in connection with the Combinations.

In addition, we benefited from collections on accounts receivables, which contributed $181.6 million to Cash provided by operating activities, partially offset by net cash outflows related to inventories, accounts payable and other current and non-current liabilities.

Cash used for investing activities was $1,584.9 million for the nine months ended October 2, 2022, and was primarily related to the Combinations.

We purchased $79.2 million of property, equipment, investments and intangibles and received $15.8 million of proceeds from government assistance allocated to fixed assets.

We also purchased $49.4 million and sold $39.3 million of marketable securities during the nine months ended October 2, 2022.

Refer to Note 2 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report for further discussion regarding the Combinations.

Cash provided by financing activities was $283.7 million for the nine months ended October 2, 2022, and was primarily related to proceeds from long-term borrowings, net of debt issuance costs of $2,734.5 million, payments on long-term borrowings and extinguishment costs of $2,336.1 million, repurchases of common stock of $74.3 million and payments of $37.6 million for contingent and deferred consideration.

Nine Months Ended October 3, 2021

Cash provided by operating activities was $484.5 million for the nine months ended October 3, 2021, and reflects net income of $412.9 million and non-cash adjustments of $57.7 million, primarily associated with depreciation and amortization, stock-based compensation expense and accretion of interest on deferred consideration.

In addition, we realized a net working capital increase driven by a decrease in accounts receivable, partially offset by a decrease in income taxes payable and an increase in product inventory.

Cash used for investing activities was $223.5 million for the nine months ended October 3, 2021, and was primarily related to investments in manufacturing equipment, building improvements, Sofia, Solana ® and Triage ® instruments available for lease and scientific equipment, partially offset by government proceeds received to fund such investments.

Cash used for financing activities was $172.2 million for the nine months ended October 3, 2021, and was primarily related to repurchases of common stock of $103.4 million, payments of tax withholdings for vesting of stock-based awards of $36.0 million, and the payment of deferred and contingent consideration of $39.8 million, partially offset by proceeds of $7.3 million from the issuance of common stock under our Amended and Restated 1983 Employee Stock Purchase Plan (“ESPP”) and pursuant to stock option exercises.

Liquidity Outlook

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• potential strategic acquisitions and investments.

The primary purposes for our capital expenditures are to invest in manufacturing capacity expansion, acquire Savanna ® , Sofia, Solana and Triage instruments, acquire scientific equipment, purchase or develop IT and implement facility improvements.

The primary purposes of our capital expenditures are to invest in manufacturing capacity expansion, acquire Savanna, Sofia, Solana and Triage instruments, acquire scientific equipment, purchase or develop IT and implement facility improvements.

We plan to fund the capital expenditures with the cash on our balance sheet.

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We believe that the shift in our sales strategy will grow our installed base, thereby increasing sales of higher-margin assays, reagents and other consumables over the life of the customer contracts and enhancing our recurring revenue and cash flows.

During the six months ended July 3, 2022, we transferred $12.1 million of instrument inventories from Inventories to Property, plant and equipment, net, further increasing our investment in property, plant and equipment.

During the nine months ended October 2, 2022, we transferred $48.6 million of instrument inventories from Inventories to Property, plant and equipment, net, further increasing our investment in property, plant and equipment.

Long-term Liquidity Outlook

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• our entry into strategic collaborations with other companies or acquisitions of other companies or technologies to enhance or complement our product and service offerings.

Sales of our respiratory products are subject to, and significantly affected by, the seasonal demands of the cold and flu seasons, prevalent during the fall and winter.

Sales of our respiratory products are subject to, and significantly affected by, the seasonal demands of the cold and flu seasons, typically prevalent during the fall and winter.

H istorically, sales of our influenza products have varied from year to year based, in large part, on the severity, length and timing of the onset of the cold and flu season.

The impact of sales of our COVID-19 products combined with a very mild flu season diminished the seasonal effects in the first six months of 2022.

Recent Accounting Pronouncements

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A comprehensive discussion of our critical accounting estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Quidel’s 2021 Annual Report on Form 10-K.

There were no material changes to our critical accounting estimates during the six months ended July 3, 2022, except as noted below.

There were no material changes to our critical accounting estimates during the nine months ended October 2, 2022, except as noted below.

Accounting for Business Combinations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis