What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-09 compared with 2023-05-04 · 150 added, 109 removed, 168 unchanged (61% of the section changed)

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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 reached 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;

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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.

For the six months ended July 2, 2023, Total revenues decreased by 6% to $1,511.2 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

For the six months ended July 2, 2023 and July 3, 2022, revenues related to our respiratory products accounted for approximately 23% and 78% of our Total revenues, respectively, primarily driven by sales of our COVID-19 products.

For the six months ended July 2, 2023, no customers individually accounted for more than 10% of our Total revenues.

For the six months ended July 3, 2022, one customer and one distributor each represented more than 10% of our Total revenues.

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.

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.

On April 10, 2023, H.J.Res.

7 was signed into law, which terminated the national emergency in the U.S.

related to the COVID-19 pandemic.

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

Supply Chains

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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.

During 2022 and through the second 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.

In our distribution operations, we have been investing in and implementing 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.

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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.

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 continue

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.

Demand for our respiratory products, which includes our COVID-19 products, declined in the first half of 2023 compared to prior periods due to the end of the U.S.

public health emergency regarding COVID-19, the transition of COVID-19 from a pandemic to an endemic environment, and the early onset of the respiratory season that pulled certain 2023 demand for our respiratory products into the fourth quarter of 2022.

For the remainder of the year, we expect demand for our respiratory products to continue to fluctuate and pricing pressures on certain products to persist as a result of a number of factors, including

increased supply, emergence and spread of new variants, and the seasonal demands of the cold, flu and RSV, which are typically more prevalent during the fall and winter.

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

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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 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.

While we expect the revenues and financial results from our respiratory products to be affected by the seasonal demands of the cold, flu and RSV seasons, 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

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

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

Three Months Ended Six Months Ended

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

Labs $ 361.4 $ 157.4 130 % $ 732.1 $ 170.7 329 %

Transfusion Medicine 155.9 — N/A

Transfusion Medicine 163.3 68.2 139 % 319.2 68.2 368 %

Point of Care 134.2 367.1 (63) % 442.3 1,310.1 (66) %

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Total revenues $ 665.1 $ 613.4 8 % $ 1,511.2 $ 1,615.7 (6) %

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.

For the three months ended July 2, 2023, Total revenues increased to $665.1 million from $613.4 million for the same period in the prior year.

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

The decrease in Point of Care was driven primarily by lower demand for QuickVue SARS Antigen assays.

Molecular Diagnostics sales decreased by $14.5 million, primarily driven by decreased demand for the Lyra ® SARS Antigen assay.

Currency exchange rate did not significantly impact the growth rate for the three months ended July 2, 2023.

For the six months ended July 2, 2023, Total revenues decreased to $1,511.2 million from $1,615.7 million for the same period in the prior year.

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

Additionally, the increase in Labs revenue also included a $19.2 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.

The Point of Care business unit contributed to revenue decline, driven by decreases of $698.1 million in sales of QuickVue SARS Antigen assays and $169.7 million in sales of Sofia ® assays.

Molecular Diagnostics sales decreased by $49.1 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.

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

Cost of Sales, Excluding Amortization of Intangible Assets

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.

Cost of sales, excluding amortization of intangible assets, increased to $368.7 million, or 55.4% of Total revenues, for the three months ended July 2, 2023, compared to $275.9 million, or 45.0% of Total revenues, for the three months ended July 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 lower sales of QuickVue SARS Antigen assays.

Cost of sales, excluding amortization of intangible assets, increased to $766.2 million, or 50.7% of Total revenues, for the six months ended July 2, 2023, compared to $536.2 million, or 33.2% of Total revenues, for the six months ended July 3, 2022.

Operating Expenses

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

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

Three Months Ended Six Months Ended

(Dollars in millions) July 2, 2023 % of

Total Revenues July 3, 2022 % of

Total Revenues July 2, 2023 % of

Total Revenues July 3, 2022 % of

Total Revenues

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

Selling, marketing and

administrative $ 179.1 26.9 % $ 118.4 19.3 % $ 381.5 25.2 % $ 203.2 12.6 %

Research and development 62.8 9.4 % 34.2 5.6 % 125.1 8.3 % 60.6 3.8 %

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Selling, Marketing and Administrative Expenses

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.

Selling, marketing and administrative expenses for the three months ended July 2, 2023 increased by $60.7 million, or 51.3%, to $179.1 million from $118.4 million for the same period in the prior year, primarily due to the incremental impact of the Combinations.

Selling, marketing and administrative expenses for the six months ended July 2, 2023 increased by $178.3 million, or 87.7%, to $381.5 million from $203.2 million for the same period in the prior year, primarily driven by the incremental impact of the Combinations, partially offset by a decrease in freight expense due to lower sales and shipment volume.

Research and Development Expense

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.

Research and development expense for the three months ended July 2, 2023 increased by $28.6 million, or 83.6%, to $62.8 million from $34.2 million for the same period in the prior year, primarily due to the incremental impact of the Combinations, as well as increased costs related to our Savanna ® development.

Research and development expense for the six months ended July 2, 2023 increased by $64.5 million, or 106.4%, to $125.1 million from $60.6 million for the same period in the prior year, primarily due to the incremental impact of the Combinations, as well as increased costs related to the development of our Savanna, QuickVue OTC assays and Sofia products.

Amortization of Intangible Assets

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.

Amortization of intangible assets was $51.4 million and $102.2 million for the three and six months ended July 2, 2023, respectively, and $21.0 million and $28.1 million for the three and six months ended July 3, 2022, respectively.

The increase in amortization expense in the three and six months ended July 2, 2023 compared to the prior year periods was primarily due to the Combinations.

Acquisition and Integration Costs

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.

Acquisition and integration costs were $24.2 million and $53.9 million for the three and six months ended July 2, 2023, respectively, and $80.2 million and $83.2 million for the three and six months ended July 3, 2022, respectively.

The decrease in costs in the three and six months ended July 2, 2023 was primarily due to acquisition costs attributable to the Combinations in the prior year periods.

Other Operating Expense, Net

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.

Other operating expense, net was $5.8 million and $9.6 million for the three and six months ended July 2, 2023, respectively, and $4.0 million for each of the three and six months ended July 3, 2022.

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

Non-operating Expenses

Interest Expense, Net

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.

Interest expense, net was $36.5 million and $10.3 million for the three months ended July 2, 2023 and July 3, 2022, respectively.

Interest expense, net was $73.2 million and $11.3 million for the six months ended July 2, 2023 and July 3, 2022, respectively.

The increase in interest expense, net in the three and six months ended July 2, 2023 compared to the prior year

periods 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.

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 satisfaction and discharge of the senior notes and termination of the former term loans and revolving credit facility of Ortho, which occurred in connection with the consummation of the Combinations.

Other Expense, Net

Other expense, net was $1.0 million and $2.5 million for the three months ended July 2, 2023 and July 3, 2022, respectively, and $3.9 million and $1.6 million for the six months ended July 2, 2023 and July 3, 2022, respectively.

Other expense, net in the three and six months ended July 2, 2023 and July 3, 2022 was primarily related to net foreign currency losses.

For the three months ended July 2, 2023, we recognized an income tax benefit of $11.2 million in relation to loss before income taxes of $64.4 million, resulting in an effective benefit tax rate of 17.4%.

For the three months ended July 3, 2022, we recognized a provision for income taxes of $23.6 million in relation to income before income taxes of $42.9 million, resulting in an effective tax rate of 55.0%.

For the three months ended July 2, 2023, the effective tax rate for the period differs from the U.S.

federal statutory rate primarily due 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.

statutory rate, operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances, R&D credits and foreign tax credits, partially offset by foreign exchange losses and Global Intangible Low-Tax Income.

For the three months ended July 3, 2022, the effective tax rate was impacted primarily by income taxes owed in U.S.

For the six months ended July 2, 2023, the recognized amount of income tax benefit was not material in relation to loss before income taxes of $4.4 million, resulting in an effective benefit tax rate of 0.7%.

For the six months ended July 3, 2022, the Company recognized a provision for income taxes of $164.3 million in relation to income before income taxes of $663.5 million, resulting in an effective tax rate of 24.8%.

For the six months ended July 2, 2023, the effective tax rate for the period differs from the U.S.

federal statutory rate primarily due to net operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances and Global Intangible Low-Tax Income, partially offset by U.S.

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

statutory rate, R&D credit, Foreign Tax Credits and foreign exchange losses.

For the six months ended July 3, 2022, the effective tax rate was primarily impacted by income taxes owed in the U.S.

Segment Results

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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.”

Our operations in Latin America, Japan and Asia Pacific are immaterial operating segments that are not considered reportable segments and are included in “Other.” In the fourth quarter of 2022, we revised the internal allocation of certain global costs primarily between the North America segment and Corporate to better align costs that impact the Company as a whole.

Prior periods have been revised to align with the current period presentation.

The key indicators that we monitor are as follows:

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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 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.

Adjusted EBITDA consists of Net (loss) 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 (loss) 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 (Loss) income before provision for income taxes.

North America

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

Three Months Ended

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

Three Months Ended Six Months Ended

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

Total revenues $ 378.8 $ 438.2 (14) % $ 961.6 $ 1,399.7 (31) %

Adjusted EBITDA $ 176.3 $ 239.2 (26) % $ 454.7 $ 952.6 (52) %

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 were $378.8 million for the three months ended July 2, 2023, compared to Total revenues of $438.2 million for the three months ended July 3, 2022.

The decrease was primarily driven by lower demand for the QuickVue SARS Antigen assays, which was partially offset by incremental revenues of $150.2 million from the Combinations.

Total revenues wer e $961.6 million for the six months ended July 2, 2023, compared to Total revenues of $1,399.7 million for the six months ended July 3, 2022.

The decrease was primarily driven by decreased demand for the QuickVue SARS Antigen assays and the Sofia SARS Antigen assay, partially offset by incremental revenues of $433.8 million from the Combinations.

Adjusted EBITDA was $176.3 million for the three months ended July 2, 2023, compared to Adjusted EBITDA of $239.2 million for the three months ended July 3, 2022.

The decrease was primarily driven by decreased COVID-19 revenues, partially offset by decreased distribution and selling costs and approximately $50 million of incremental impact of the Combinations.

Adjusted EBITDA was $454.7 million for the six months ended July 2, 2023, compared to Adjusted EBITDA of $952.6 million for the six months ended July 3, 2022.

The decrease was primarily driven by lower COVID-19 revenues, partially offset by decreased distribution and selling costs and approximately $160 million of incremental impact of the Combinations.

Total revenues and Adjusted EBITDA for EMEA were as follows:

Three Months Ended

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

Three Months Ended Six Months Ended

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

Total revenues $ 80.6 $ 42.1 91 % $ 161.9 $ 57.3 183 %

Adjusted EBITDA $ 5.3 $ 12.7 (58) % $ 12.5 $ 16.2 (23) %

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 were $80.6 million for the three months ended July 2, 2023, compared to Total revenues of $42.1 million for the three months ended July 3, 2022.

The increase was primarily driven by incremental revenues of $44.0 million from the Combinations, partially offset by a decrease in Point of Care revenues, driven by lower sales of the Sofia SARS Antigen assay.

Total revenues were $161.9 million for the six months ended July 2, 2023, compared to Total revenues of $57.3 million for the six months ended July 3, 2022.

The increase was primarily driven by incremental revenues of $110.1 million from the Combinations, partially offset by a decrease in Point of Care revenues, driven by lower sales of the Sofia SARS Antigen assay.

Adjusted EBITDA was $5.3 million for the three months ended July 2, 2023, compared to Adjusted EBITDA of $12.7 million for the three months ended July 3, 2022.

The decrease was primarily driven by lower Point of Care revenues and the impact of the Combinations.

Adjusted EBITDA was $12.5 million for the six months ended July 2, 2023, compared to Adjusted EBITDA of $16.2 million for the six months ended July 3, 2022.

The decrease was primarily driven by lower Point of Care revenues.

Total revenues and Adjusted EBITDA for China were as follows:

Three Months Ended

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

Three Months Ended Six Months Ended

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

Total revenues $ 81.3 $ 73.6 10 % $ 151.9 $ 82.3 85 %

Adjusted EBITDA $ 30.2 $ 35.4 (15) % $ 58.7 $ 39.2 50 %

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 were $81.3 million for the three months ended July 2, 2023, compared to Total revenues of $73.6 million for the three months ended July 3, 2022.

The increase was primarily driven by incremental revenues of $33.5 million from the Combinations, partially offset by lower Point of Care revenues, driven by decreased demand for the QuickVue SARS Antigen assays.

Total revenues were $151.9 million for the six months ended July 2, 2023, compared to Total revenues of $82.3 million for the six months ended July 3, 2022.

The increase was primarily driven by incremental revenues of $95.0 million from the Combinations, partially offset by lower Point of Care revenues, driven by decreased demand for the QuickVue SARS Antigen assays.

Adjusted EBITDA was $30.2 million for the three months ended July 2, 2023, compared to Adjusted EBITDA of $35.4 million for the three months ended July 3, 2022.

The decrease was primarily driven by lower Point of Care revenues, partially offset by favorable product mix, decreased selling costs and approximately $4 million of incremental impact of the Combinations.

Adjusted EBITDA was $58.7 million for the six months ended July 2, 2023, compared to Adjusted EBITDA of $39.2 million for the six months ended July 3, 2022.

The increase was primarily driven by approximately $29 million of incremental impact of the Combinations, favorable product mix and decreased selling costs, partially offset by lower Point of Care revenues.

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

Three Months Ended

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

Three Months Ended Six Months Ended

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

Total revenues $ 124.4 $ 59.5 109 % $ 235.8 $ 76.4 209 %

Adjusted EBITDA $ 36.3 $ 24.8 46 % $ 58.1 $ 34.3 69 %

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.

Total revenues were $124.4 million for the three months ended July 2, 2023, compared to Total revenues of $59.5 million for the three months ended July 3, 2022.

The increase was primarily driven by incremental revenues of $72.1 million from the Combinations, partially offset by lower sales of the Sofia SARS Antigen and Solana® SARS assays.

Total revenues w ere $235.8 million for the six months ended July 2, 2023, compared to Total revenues of $76.4 million for the six months ended July 3, 2022.

The increase was primarily driven by incremental revenues of $177.1 million from the Combinations, partially offset by lower Point of Care revenues, driven primarily by lower demand for QuickVue SARS Antigen and Sofia assays, and lower sales of Solana SARS assay.

Adjusted EBITDA was $36.3 million for the three months ended July 2, 2023, compared to Adjusted EBITDA of $24.8 million for the three months ended July 3, 2022.

The increase was primarily driven by approximately $18 million of incremental impact of the Combinations, partially offset by lower Point of Care and Molecular Diagnostics revenues.

Adjusted EBITDA was $58.1 million for the six months ended July 2, 2023, compared to Adjusted EBITDA of $34.3 million for the six months ended July 3, 2022.

The increase was primarily driven by approximately $37 million of incremental impact of the Combinations, partially offset by lower Point of Care revenues.

Liquidity and Capital Resources

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

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

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

Cash and cash equivalents $ 178.6 $ 292.9

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Working capital including cash and cash equivalents and marketable securities, current $ 518.1 $ 568.1

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

As of July 2, 2023, we had $178.6 million in Cash and cash equivalents, a $114.3 million decrease 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.

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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.

As of July 2, 2023 and January 1, 2023, there were no amounts outstanding under the Revolving Credit Facility.

As of July 2, 2023, letters of credit issued under the Revolving Credit Facility totaled $12.9 million, which reduced the available amount under the Revolving Credit Facility to $787.1 million.

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

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We must prepay loans outstanding under the Credit Agreement in an amount equal to the Net Cash Proceeds from (i) certain property dispositions and (ii) the receipt of certain other amounts not in the ordinary course of business, such as certain insurance proceeds and condemnation awards, in each case, if not reinvested within a specified time period as contemplated in the Credit Agreement.

During the six months ended July 2, 2023, we made $123.1 million in payments on our Term Loan, including a voluntary prepayment of $20.0 million.

The Credit Agreement contains affirmative and negative covenants that are customary for credit agreements of this nature.

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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 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.

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

In connection with the acquisition of the BNP Business, we paid the final installment payment of $40.0 million during the three months ended July 2, 2023.

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.

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Cash Flow Summary

Three Months Ended

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

Six Months Ended

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

Net cash provided by operating activities:

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(111.2) (1,555.1)

Net cash used for financing activities:

Net cash (used for) provided by financing activities:

(159.3) 409.7

Effect of exchange rates on cash (2.1) (2.4)

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.

Net decrease in cash, cash equivalents and restricted cash $ (114.3) $ (422.2)

Six Months Ended July 2, 2023

Cash provided by operating activities was $158.3 million for the six months ended July 2, 2023, and reflected a net loss of $4.4 million and non-cash adjustments of $243.7 million, primarily associated with depreciation and amortization, stock-based compensation expense and accretion of interest on deferred consideration.

In addition, we benefited from collections on accounts receivables, which contributed $214.5 million to Cash provided by operating activities, offset by other changes in working capital.

Cash used for investing activities was $111.2 million for the six months ended July 2, 2023, and was primarily related to $117.3 million in purchases of property, plant, equipment and intangibles.

We also purchased $50.6 million and sold $53.9 million of marketable securities.

Cash used for financing activities was $159.3 million for the six months ended July 2, 2023 and was primarily related to payments on long-term borrowings of $123.8 million, payments for deferred consideration of $30.3 million and payments of tax withholdings related to vesting of stock-based awards of $12.5 million.

Six Months Ended July 3, 2022

Cash provided by operating activities was $725.6 million for the six months ended July 3, 2022, and reflected 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.

Cash used for investing activities was $1,555.1 million for the six months ended July 3, 2022, and was primarily related to the Combinations.

Additionally, 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.

Cash provided by financing activities was $409.7 million for the six months ended July 3, 2022, and was 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 million for contingent and deferred consideration.

Liquidity Outlook

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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 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.

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 2, 2023, we transferred $67.3 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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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.

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.

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

Sales of our respiratory products are subject to, and significantly affected by, the seasonal demands of the cold, flu and RSV seasons, typically more 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, flu and RSV season.

Recent Accounting Pronouncements

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.

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

Critical Accounting Estimates

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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 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.

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

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