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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-04 · 168 added, 279 removed, 109 unchanged (80% of the section changed)

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

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.

In this Quarterly Report on Form 10-Q (the “Quarterly Report”), all references to “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 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 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.

Investors are warned that actual results may differ from management’s expectations.

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 our Quarterly Report on Form 10-Q for the quarter ended July 3, 2022.

This Quarterly Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These statements include any statements contained herein that are not strictly historical, including, but not limited to, certain statements under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and located elsewhere herein regarding our commercial and other strategic goals, industry prospects, our expected results of operations or financial position, and future plans, objectives, strategies, expectations and intentions.

Without limiting the foregoing, the words “may,” “will,” “would,” “should,” “might,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “goal,” “project,” “strategy,” “future,” “continue” or similar words, expressions or the negative of such terms or other comparable terminology are intended to identify forward-looking statements.

Such statements are based on the beliefs and expectations of our management as of the date of this Quarterly Report and are subject to significant known and unknown risks and uncertainties.

Actual results or outcomes may differ significantly from those set forth or implied in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth or implied in the forward-looking statements:

the challenges and costs of integrating, restructuring and achieving anticipated synergies as a result of the Combinations (as defined in this Quarterly Report);

the ability to retain key employees;

and other economic, business, competitive and/or regulatory factors affecting our business generally, including those discussed under Part II, Item 1A, “Risk Factors” of this Quarterly Report and Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 1, 2023.

Investors should not rely on forward-looking statements as predictions of future events because these statements are based on assumptions that may not come true and are speculative by their nature.

We undertake no obligation to update any of the forward-looking information or time-sensitive information included in this Quarterly Report, whether as a result of new information, future events, changed expectations or otherwise, except as required by law.

All forward-looking statements are based on information currently available to us and speak only as of the date of this Quarterly Report.

Information Available on Our Website

This Quarterly Report and each of our other periodic and current reports, including any amendments thereto, are available, free of charge, on our website, www.quidelortho.com, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).

From time to time, we may use our website as a channel of distribution of material information related to the Company.

Financial and other material information regarding the Company is routinely posted on and accessible at https://ir.quidelortho.com/.

The information contained on or connected to our website is not deemed to be incorporated by reference into this Quarterly Report or filed with the Securities and Exchange Commission (the “SEC”).

Our mission is to develop and manufacture accurate and affordable diagnostic testing technologies across the continuum of healthcare testing needs to create better patient outcomes.

Our expertise in clinical chemistry, immunoassay and molecular testing helps clinicians and patients make better informed decisions across the globe.

The information contained on or connected to our website is provided for convenience and is not deemed to be incorporated by reference into this Quarterly Report or filed with or furnished to the SEC and should not be considered part of this Quarterly Report.

Our mission is to develop and manufacture intelligent diagnostic solutions that transform the power of diagnostics into a healthier future for everyone.

Our expertise in immunoassay and molecular testing, clinical chemistry and transfusion medicine helps clinicians and patients make better informed decisions across the globe.

Our global infrastructure and commercial reach support our customers across more than 130 countries and territories with quality diagnostics, a broad test portfolio and market-leading service.

Beginning in the second quarter of 2022, in connection with the Combinations and in order to manage our business to better align with the market dynamics of the specific geographic regions in which we operate, we changed the manner in which we review our performance and allocate resources.

As a result, we changed from one reportable segment to the following three geographically-based reportable segments:

North America, EMEA and China.

We operate globally with manufacturing facilities in the U.S.

and with sales centers, administrative offices and warehouses located throughout the world.

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, other point-of-care settings, blood banks and donor centers, as well as for individual, non-professional, over-the-counter use.

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

We manage our business geographically to better align with the market dynamics of the specific geographic regions in which we operate, with our reportable segments being North America;

Europe, the Middle East and Africa (“EMEA”);

Latin America, Japan and Asia Pacific are immaterial operating segments that are not considered reportable segments and are included in “Other.” We generate our revenue primarily in the following business units:

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

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 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

On May 27, 2022, pursuant to the BCA, Quidel and Ortho consummated the Combinations and each of Quidel and Ortho became a wholly owned subsidiary of QuidelOrtho.

For additional information about the Combinations, see Note 1 to the unaudited Consolidated Financial Statements under the section “Organization and Business” and Note 2 to the unaudited Consolidated Financial Statements.

The Combinations were completed for total consideration of approximately $4.3 billion (which is based on the May 26, 2022 closing price of $99.60 per share of Quidel common stock), including $1.7 billion of cash, funded through cash on our balance sheet and incremental borrowings.

The Combinations have been accounted for as a business combination using the acquisition method of accounting in conformity with ASC Topic 805, Business Combinations .

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 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.

For additional information about the Combinations, see Note 2 to the unaudited Consolidated Financial Statements.

For the three months ended April 2, 2023, Total revenues decreased by 16% to $846.1 million as compared to the same period in the prior year.

Currency exchange rates had a favorable impact of 100 basis points on our growth rate.

Our revenues can be highly concentrated over a small number of products, including certain of our respiratory products.

For the three months ended April 2, 2023 and April 3, 2022, revenues related to our respiratory products accounted for approximately 31% and 93% of our Total revenues, respectively, driven by sales of our COVID-19 products.

For the three months ended April 2, 2023, one of our customers exceeded 10% of our Total revenues.

For the three months ended April 3, 2022, two of our customers, including one of our distributors, exceeded 10% of our Total revenues.

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.

The severity and duration of the pandemic and economic repercussions of the virus remain uncertain and will ultimately depend on many factors, including the speed of global dissemination, effectiveness of the vaccination and containment efforts throughout the world, the duration and spread of the virus, including variants or new outbreaks, as well as potential seasonality.

We continue to evaluate the extent to which COVID-19 may impact our business and operations and adjust risk mitigation planning and business continuity activities as needed.

SARS-CoV-2 Diagnostic Products

As a leader in Point-of-Care diagnostics and with established expertise in respiratory infectious disease products, we were and remain well-positioned to respond to the COVID-19 pandemic.

We have and continue to work closely with national and local governments, agencies, and industry partners to develop, manufacture and supply critical diagnostic products to support testing initiatives to help curb the spread of the SARS-CoV-2 virus.

In particular, we developed molecular and antigen products to diagnose the SARS-CoV-2 virus.

We also committed significant resources toward the expansion of our production capacity to manufacture and supply these products.

We have experienced significant volatility in demand for these products since their launch, with periods of significant demand and periods where we experienced dramatic decreases in demand.

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

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

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.

are subject to operating restrictions consistent with applicable health guidelines.

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, 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.

As the COVID-19 pandemic reaches an endemic state, the degree to which it continues to impact our business operations, strategy, financial condition and results of operations will depend on future developments that are uncertain and difficult to predict.

We continue to evaluate the nature and extent to which COVID-19 may impact our business and operations and adjust risk mitigation planning and business continuity activities as needed.

Supply Chains

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.

As a result of the COVID-19 pandemic and other macroeconomic 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 experienced shortages and delays in receiving certain raw materials and other components for our products and have experienced logistics and distribution challenges, as well as challenges in labor availability and rising labor costs, 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 raw materials and components, cost inflation, shipping delays, labor availability constraints and rising labor costs, have impacted, and we expect will largely continue for some period of time to impact, our results of operations.

Some of our raw materials are available from a limited number of sources.

During 2022 and the first quarter of 2023, we encountered some increasing pressures on raw material pricing.

To mitigate these supply chain challenges, we continue to (i) partner with suppliers to invest in additional capacity and raw material inventory, (ii) diversify our supply base, where possible, to minimize reliance on a single source of supply for key raw materials and components and (iii) create redundancy in our global supply chain.

In addition, we routinely evaluate our supply chain for potential gaps and continue to take other steps intended to help address continuity.

In our distribution operations, we are investing in automation capabilities to help improve accuracy and timeliness of customer shipments.

We continue to monitor these developments, as well as other international developments, including the Russia-Ukraine conflict, rising tensions between China and Taiwan 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 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.

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, 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.

However, we 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 disruptions and challenges have materially affected and could further materially affect our ability to timely manufacture and distribute our products and could unfavorably impact our results of operations depending on the nature and duration of such disruptions and 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 occurrence, spread, severity, duration and emergence of new variants of respiratory diseases, including flu, strep, respiratory syncytial virus (RSV) and COVID-19, as well as the ongoing supply, production and logistics challenges.

Demand for our COVID-19 testing products declined in the first quarter of 2023 compared to both the fourth quarter of 2022 and the first quarter of 2022, which may indicate a transition to an endemic environment.

For the remainder of the year, we expect demand for our COVID-19 testing products to continue to fluctuate and pricing pressures to persist 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.

to return to more normal practices.

We would expect any such normalized demand to continue to experience fluctuations, which may be significant, similar to what we experience with other respiratory product demand.

With respect to our core products, excluding respiratory products, we anticipate revenue growth for the remainder of 2023.

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.

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In addition, we expect to continue to evaluate strategic opportunities to expand our product lines and services, production capabilities, technologies and geographic footprint and address other business challenges and opportunities.

While the revenues and financial results from our COVID-19 products are uncertain, we intend to continue our focus on prudently managing our business and delivering improved financial results, while at the same time striving to introduce new products and services into the market.

While the revenues and financial results from our COVID-19 products remain uncertain, we intend to continue our focus on prudently managing our business and delivering improved financial results, while at the same time striving to introduce new products and services into the market.

Results of Operations

In connection with the Combinations, we reorganized our former product categories into four business units.

Revenues from our former Specialized Diagnostic Solutions product category have been included in a new Labs business unit described below.

Our former Rapid Immunoassay and Cardiometabolic Immunoassay product categories now represent our Point-of-Care business unit.

The Molecular Diagnostics business unit represents the former Molecular Diagnostic Solutions product category.

In addition, we added a Transfusion Medicine business unit.

Following the Combinations, we generate product revenue in the following business units:

• Labs—Focused on (i) clinical chemistry laboratory instruments and tests, which measure target chemicals in bodily fluids for the evaluation of health and the clinical management of patients, (ii) immunoassay laboratory instruments and tests, which measure proteins as they act as antigens in the spread of disease, antibodies in the immune response spurred by disease, or markers of proper organ function and health, (iii) testing to detect and monitor disease progression across a broad spectrum of therapeutic areas, (iv) other product revenues primarily from contract manufacturing, (v) specialized diagnostic solutions and (vi) collaboration and license agreements pursuant to which we derive collaboration and royalty revenues.

• Transfusion Medicine—Focused on (i) immunohematology instruments and tests used for blood typing to help ensure patient-donor compatibility in blood transfusions and (ii) donor screening instruments and tests used for blood and plasma screening for infectious diseases for customers primarily in the U.S.

• Point-of-Care—Focused on tests to provide rapid results across a broad continuum of point-of-care settings, including tests for professional healthcare providers and tests that can be taken at home.

Includes (i) tests for a range of benchtop analyzers and (ii) tests that can be visually read.

• 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 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

The following table compares Total revenues by business unit for the three months ended April 2, 2023 and April 3, 2022:

Three Months Ended

(Dollars in millions) April 2, 2023 April 3, 2022 % Change

Labs $ 370.7 $ 13.3 2,687 %

Transfusion Medicine 163.1 — N/A 231.3 — N/A

Transfusion Medicine 155.9 — N/A

Point of Care 308.1 943.0 (67) %

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Total revenues $ 846.1 $ 1,002.3 (16) %

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 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.

For the three months ended April 2, 2023, Total revenues decreased to $846.1 million from $1,002.3 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 $894.7 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.

Additionally, the increase in Labs revenue also included a $20.7 million settlement award from a third party related to one of our collaboration agreements.

The Point of Care business unit contributed to revenue decline, driven by decreases of $468.5 million in sales of QuickVue SARS Antigen assays and $168.4 million of Sofia ® assays.

Molecular Diagnostics sales decreased by $34.6 million, driven primarily by lower demand for the Lyra ® SARS Antigen assay.

Currency exchange rate had a favorable impact of approximately 100 basis points on the growth rate for the three months ended April 2, 2023.

Cost of Sales, Excluding Amortization of Intangible Assets

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.

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 business units as a result of the Combinations.

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.

Cost of sales, excluding amortization of intangible assets, increased to $397.5 million, or 47.0% of Total revenues, for the three months ended April 2, 2023, compared to $260.3 million, or 26.0% of Total revenues, for the three months ended April 3, 2022.

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

Operating Expenses

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

The following table summarizes operating expenses for the three months ended April 2, 2023 and April 3, 2022:

Three Months Ended

(Dollars in millions) April 2, 2023 % of

Total Revenues April 3, 2022 % of

Total Revenues

Selling, marketing and

administrative $ 204.2 26.1 % $ 63.0 12.4 % $ 407.4 17.0 % $ 165.9 15.6 %

Selling, marketing and administrative $ 202.4 23.9 % $ 84.8 8.5 %

Research and development 62.3 7.4 % 26.4 2.6 %

Amortization of intangible

assets 50.5 6.4 % 6.9 1.4 % 78.6 3.3 % 20.5 1.9 %

Acquisition and integration

costs 26.4 3.4 % — — % 109.6 4.6 % 1.8 0.2 %

Amortization of intangible assets 50.8 6.0 % 7.1 0.7 %

Acquisition and integration costs 29.7 3.5 % 3.0 0.3 %

Other operating expense, net 3.8 0.4 % — — %

Selling, Marketing and Administrative Expenses

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.

Selling, marketing and administrative expenses for the three months ended April 2, 2023 increased by $117.6 million, or 138.7%, to $202.4 million from $84.8 million for the same period in the prior year, driven primarily by the Combinations which contributed $144.4 million in increased expense, partially offset by a decrease in freight expense of approximately $20 million due to lower sales and shipment volume.

Research and Development Expense

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.

Research and development expense for the three months ended April 2, 2023 increased by $35.9 million, or 136.0%, to $62.3 million from $26.4 million for the same period in the prior year, primarily due to the Combinations which contributed $36.3 million in increased expense.

Amortization of Intangible Assets

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.

Amortization of intangible assets for the three months ended April 2, 2023 and April 3, 2022 was $50.8 million and $7.1 million, respectively.

The increase in amortization expense in the three months ended April 2, 2023 compared to the prior year period was primarily due to the Combinations.

Acquisition and Integration Costs

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.

Acquisition and integration costs were $29.7 million and $3.0 million for the three months ended April 2, 2023 and April 3, 2022, respectively.

The increase in costs in the three months ended April 2, 2023 was primarily due to acquisition and integration-related costs attributable to the Combinations.

Costs in the prior year period were primarily related to the pending Combinations.

Other Operating Expense, Net

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.

Other operating expense, net was $3.8 million for the three months ended April 2, 2023, which was related to the profit share expense for our Joint Business with Grifols (acquired in connection with the Combinations) and other operating expenses.

Non-operating Expenses

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

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

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

Interest Expense, Net

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 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

On January 16, 2014, Ortho entered into a stock and asset purchase agreement of (i) certain assets and liabilities, and (ii) all of the equity interests and substantially all of the assets and liabilities of certain entities, which, together with their subsidiaries, comprised the Ortho business from Johnson & Johnson.

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 $17.8 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.

Interest expense, net was $36.7 million and $1.0 million for the three months ended April 2, 2023 and April 3, 2022, respectively.

The increase in interest expense, net in the three months ended April 2, 2023 compared to the prior year period was primarily related to the Term Loan under the Credit Agreement entered into in connection with the Combinations.

See Note 8 to the unaudited Consolidated Financial Statements for more information related to our Term Loan.

Other Expense (Income), Net

Other expense (income), net was $2.9 million and $(0.9) million for the three months ended April 2, 2023 and April 3, 2022, respectively.

Other expense, net in the three months ended April 2, 2023 compared to income in the three months ended April 3, 2022 was primarily related to net foreign currency losses.

For the three months ended April 2, 2023 and April 3, 2022, we recognized income tax provisions of $11.2 million in relation to income before taxes of $60.0 million, and $140.7 million in relation to income before taxes of $620.6 million, respectively, resulting in effective tax rates of 18.7% and 22.7%, respectively.

For the three months ended April 2, 2023, the effective tax rate was impacted by income tax benefits related to non-U.S.

earnings being taxed at rates that are different than the U.S.

statutory rate, R&D credits, foreign tax credits, and foreign exchange losses, partially offset by income taxes owed in U.S.

states and Global Intangible Low-Tax Income.

Segment Results

In the quarter ended July 3, 2022, following the completion of the Combinations, we changed the manner in which we evaluate performance and allocate resources.

As a result, we began to operate under three geographically-based reportable segments:

North America, EMEA and China.

Our operations in Latin America, Japan and Asia Pacific are immaterial operating segments that are not considered reportable segments and are included in “Other.” Prior periods have been revised to align with the current period presentation.

We operate under three geographically-based reportable segments:

North America;

Our operations in Latin America, Japan and Asia Pacific are immaterial operating segments that are not considered reportable segments and are included in “Other.”

The key indicators that we monitor are as follows:

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in millions) April 2, 2023 April 3, 2022 % Change

Total revenues $ 582.8 $ 961.5 (39) %

Adjusted EBITDA $ 278.4 $ 713.4 (61) %

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 wer e $582.8 million for the three months ended April 2, 2023, compared to Total revenues of $961.5 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the impact of the Combinations contributed $283.6 million to Total revenues.

The remaining decrease of $662.3 million was driven primarily by decreased demand for the QuickVue SARS Antigen assays and the Sofia SARS Antigen assay.

Adjusted EBITDA was $278.4 million for the three months ended April 2, 2023, compared to Adjusted EBITDA of $713.4 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the impact of the Combinations contributed $111.7 million to Adjusted EBITDA.

The remaining decrease of $546.7 million was driven primarily by decreased COVID-19 revenues, partially offset by decreased distribution and selling costs.

Total revenues and Adjusted EBITDA for EMEA were as follows:

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in millions) April 2, 2023 April 3, 2022 % Change

Total revenues $ 81.3 $ 15.2 435 %

Adjusted EBITDA $ 7.2 $ 3.5 106 %

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.

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 were $81.3 million for the three months ended April 2, 2023, compared to Total revenues of $15.2 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the increase primarily related to the impact of the Combinations, which contributed $66.1 million to Total revenues.

Adjusted EBITDA was $7.2 million for the three months ended April 2, 2023, compared to Adjusted EBITDA of $3.5 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the Combinations were the primary driver of the increase, which contributed $2.9 million to Adjusted EBITDA.

Total revenues and Adjusted EBITDA for China were as follows:

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in millions) April 2, 2023 April 3, 2022 % Change

Total revenues $ 70.6 $ 8.7 711 %

Adjusted EBITDA $ 28.5 $ 3.8 650 %

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 $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 were $70.6 million for the three months ended April 2, 2023, compared to Total revenues of $8.7 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the increase primarily related to the impact of the Combinations, which contributed $61.5 million to Total revenues.

Adjusted EBITDA was $28.5 million for the three months ended April 2, 2023, compared to Adjusted EBITDA of $3.8 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the Combinations were the primary driver of the increase, which contributed $24.7 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 Nine Months Ended

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

Three Months Ended

(Dollars in millions) April 2, 2023 April 3, 2022 % Change

Total revenues $ 111.4 $ 16.9 559 %

Adjusted EBITDA $ 21.8 $ 9.5 129 %

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.

Total revenues w ere $111.4 million for the three months ended April 2, 2023, compared to Total revenues of $16.9 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the impact of the Combinations contributed $105.0 million to Total revenues.

The remaining decrease of $10.5 million was primarily due to lower Point of Care revenues, driven primarily by lower demand for QuickVue SARS Antigen and Sofia assays.

Adjusted EBITDA was $21.8 million for the three months ended April 2, 2023, compared to Adjusted EBITDA of $9.5 million for the three months ended April 3, 2022.

During the three months ended April 2, 2023, the impact of the Combinations contributed $19.8 million to Adjusted EBITDA.

The remaining decrease of $7.5 million was driven primarily by lower revenues.

Liquidity and Capital Resources

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,

As of April 2, 2023 and January 1, 2023, the principal sources of liquidity consisted of the following:

(Dollars in millions) April 2, 2023 January 1, 2023

Cash and cash equivalents $ 353.9 $ 292.9

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Working capital including cash and cash equivalents and marketable securities, current $ 591.1 $ 568.1

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.

On May 27, 2022, we completed the Combinations for total consideration of $4,291.1 million (which is based on the May 26, 2022 closing price of $99.60 per share of Quidel common stock), including $1,511.4 million of cash, net of cash and restricted cash acquired, funded through cash on our balance sheet and incremental borrowings.

The incremental borrowings, described below, were also used to repay substantially all of Ortho’s then-outstanding indebtedness.

As of April 2, 2023, we had $353.9 million in Cash and cash equivalents, a $61.0 million increase from January 1, 2023.

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

We believe our organizational structure allows us the necessary flexibility to move funds throughout our subsidiaries to meet our operational working capital needs.

Debt Capitalization

On May 27, 2022, we entered into the Credit Agreement by and among us, as borrower, Bank of America, as administrative agent and swing line lender, and the other Lenders party thereto.

Pursuant to the Credit Agreement and in connection with the consummation of the Combinations, the Lenders provided us with a $2,750.0 million Term Loan and a $750.0 million Revolving Credit Facility.

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

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).

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.

The Term Loan is subject to quarterly amortization of the principal amount on the last business day of each of our fiscal quarters (commencing on September 30, 2022) in such amounts as are set forth in the Credit Agreement.

Our Credit Agreement consists of a $2,750.0 million Term Loan and an $800.0 million Revolving Credit Facility.

As of April 2, 2023, letters of credit issued under the Revolving Credit Facility totaled $13.0 million, which reduced the available amount under the Revolving Credit Facility to $787.0 million.

The Term Loan is subject to quarterly amortization of the principal amount on the last business day of each of our fiscal quarters.

The required quarterly payments are 1.875% of the aggregate initial principal amount of the Term Loan through the fiscal second quarter of 2024, and 1.250% thereafter.

The final remaining principal installment is due on the maturity date.

The Term Loan and the Revolving Credit Facility will mature on May 27, 2027.

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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 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.

In connection with the closing of the Combinations, Quidel terminated its previous $175.0 million revolving credit facility and related credit agreement on May 27, 2022, which did not have an outstanding balance.

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 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.

We were in compliance with the financial covenants as of April 2, 2023.

In connection with the acquisition of the BNP Business, we paid the final installment payment of $40.0 million subsequent to April 2, 2023.

As of April 2, 2023, the remaining payment was recorded at fair value as deferred consideration of $39.8 million.

On March 31, 2023, the Company entered into an amendment to its existing receivables purchase agreement (the “RPA”), by and among Ortho-Clinical Diagnostics US FinanceCo I, LLC (“Ortho FinanceCo I”), as Seller, a wholly owned receivables financing subsidiary of the Company, Wells Fargo Bank, N.A., as administrative agent (the “Agent”), Ortho-Clinical Diagnostics, Inc., as the Master Servicer and as an Originator (“Ortho Inc.”), Quidel Corporation, as an Originator, and certain Purchasers.

Under the RPA, as amended, Ortho FinanceCo I may sell receivables in amounts up to a $150.0 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.

Ortho Inc., 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 Inc.

of its obligations as Master Servicer.

Cash Flow Summary

Nine Months Ended

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

Three Months Ended

(In millions) April 2, 2023 April 3, 2022

Net cash provided by operating activities:

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(68.9) (24.7)

Net cash provided by (used for) financing activities:

283.7 (172.2)

Net cash used for financing activities:

Effect of exchange rates on cash 0.6 (0.1)

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

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.

Net increase in cash, cash equivalents and restricted cash $ 61.0 $ 472.7

Three Months Ended April 2, 2023

Cash provided by operating activities was $188.9 million for the three months ended April 2, 2023, and reflected net income of $48.8 million and non-cash adjustments of $125.7 million, primarily associated with depreciation and amortization and stock-based compensation expense.

In addition, we benefited from collections on accounts receivables, which contributed $187.2 million to Cash provided by operating activities, partially offset by other changes in working capital.

Cash used for investing activities was $68.9 million for the three months ended April 2, 2023, primarily due to $66.0 million purchases of property, plant, equipment and intangibles.

We also purchased $31.6 million and sold $28.4 million of marketable securities during the three months ended April 2, 2023.

Cash used for financing activities was $59.6 million for the three months ended April 2, 2023 and was primarily related to payments on long-term borrowings of $51.9 million and payments of tax withholdings related to vesting of stock-based awards of $9.5 million.

Three Months Ended April 3, 2022

Cash provided by operating activities was $500.9 million for the three months ended April 3, 2022, and reflected net income of $479.9 million and non-cash adjustments of $34.6 million, primarily associated with depreciation and amortization, stock-based compensation expense, net change in operating lease right-of-use assets and liabilities, and accretion of interest on deferred consideration.

In addition, we realized a net working capital use of $1.4 million primarily driven by an increase in accounts receivable, partially offset by an increase in income taxes payable and accounts payable.

Cash used for investing activities was $24.7 million for the three months ended April 3, 2022, and was primarily related to investments in manufacturing equipment, building improvements, Sofia, Solana ® and Triage ® instruments available for lease and scientific equipment.

Additionally, we purchased $15.9 million and sold $13.7 million of available-for-sale securities during the three months ended April 3, 2022.

Cash used for financing activities was $3.4 million for the three months ended April 3, 2022, and was primarily related to payments of tax withholdings for vesting of stock-based awards of $6.8 million, partially offset by proceeds of $3.5 million from the issuance of common stock under our Amended and Restated 1983 Employee Stock Purchase Plan and pursuant to stock option exercises.

Liquidity Outlook

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Cash generated from operations provides us with the financial flexibility we need to meet normal operating, investing and financing needs.

We anticipate that our current Cash and cash equivalents, together with cash provided by operating activities and incremental borrowings will be sufficient to fund our near-term capital and operating needs for at least the next 12 months.

We anticipate that our current Cash and cash equivalents, together with cash provided by operating activities and amounts available under our Revolving Credit Facility, will be sufficient to fund our near-term capital and operating needs for at least the next 12 months.

Normal operating needs include the planned costs to operate our business, including amounts required to fund working capital, R&D and capital expenditures.

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• interest on and repayments of our long-term borrowings, deferred consideration, contingent consideration and lease obligations;

• acquisitions of equipment and other fixed assets in support of our manufacturing facility expansion;

• acquisitions of property, equipment and other fixed assets in support of our manufacturing facility expansions;

• the continued advancement of R&D efforts;

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• potential strategic acquisitions and investments.

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.

Due to the risks inherent in the product development process, we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization.

Our R&D costs may be substantial as we move product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development.

The primary purposes of our capital expenditures are to invest in manufacturing capacity expansion, acquire certain of our 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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For these same reasons, the reagent rental model also benefits our commercial strategy in emerging markets.

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 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.

our recurring revenue and cash flows.

During the three months ended April 2, 2023, we transferred $35.0 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.

In January 2023, we entered into a lease for warehouse space that has not yet commenced, with total lease payments of approximately $36 million.

This lease is expected to commence during the second half of 2023 with a lease term of 5 years.

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.

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Recent Accounting Pronouncements

Information about recently adopted and proposed accounting pronouncements is included in Note 1 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report under the heading “Recent Accounting Pronouncements” and is incorporated herein by reference.

There have been no accounting pronouncements issued or adopted during the three months ended April 2, 2023 that are expected to have a material impact on the Company’s financial statements.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities.

On an on-going basis, we evaluate our estimates, including those related to reserves for contractual rebates, goodwill and intangible assets and income taxes.

We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates.

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 nine months ended October 2, 2022, except as noted below.

Accounting for Business Combinations

Determining the fair value of assets acquired and liabilities assumed in a business combination is considered a critical accounting estimate because the fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions as well as valuations that utilize customary valuation procedures and techniques.

Changes in assumptions or subjective measurements used to allocate fair value are reasonably possible and may have a material impact on our financial position, liquidity or results of operations.

Inventories are stated at the lower of cost and net realizable value on a first-in, first-out method.

Elements of cost include raw materials, direct labor and manufacturing overhead.

We periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices.

In this review, we make assumptions about the future demand for and market value of the inventory and based upon these assumptions estimate the amount of any obsolete, unmarketable, slow moving or overvalued inventory.

We write down the value of our inventories by an amount equal to the difference between the cost of the inventory and the net realizable value.

If actual market conditions are less favorable than those projected by management at the time of the assessment, however, additional inventory write-downs may be required, which could reduce our earnings.

On an on-going basis, we evaluate our estimates, including those related to reserve for contractual rebates, goodwill and intangible assets and income taxes.

We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

A comprehensive discussion of our critical accounting estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2023.

There were no material changes to our critical accounting estimates during the three months ended April 2, 2023.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis