What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-09 · 148 added, 151 removed, 167 unchanged (64% of the section changed)

3 unchanged sentences

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.

These statements include any statement contained herein that is 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.

3 unchanged sentences

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.

supply chain, production, logistics, distribution and labor disruptions and challenges;

and other macroeconomic, geopolitical, market, 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

3 unchanged sentences

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 vision is to advance diagnostics to power a healthier future.

With our expertise in immunoassay and molecular testing, clinical chemistry and transfusion medicine, we aim to provide clarity to clinicians and patients to help create better health outcomes.

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.

8 unchanged sentences

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 2 to the unaudited Consolidated Financial Statements.

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.

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

For the nine months ended October 1, 2023, Total revenues decreased by 6% to $2,255.2 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 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.

For the nine months ended October 1, 2023 and October 2, 2022, revenues related to our respiratory products accounted for approximately 24% and 63% of our Total revenues, respectively, primarily driven by sales of our COVID-19 products.

For the nine months ended October 1, 2023, no customers individually accounted for more than 10% of our Total revenues.

For the nine months ended October 2, 2022, one customer and one distributor each represented 10% or more 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.

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

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

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

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

related to the COVID-19 pandemic.

1 unchanged sentence

Supply Chains

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.

During the last few years, 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.

While we have made notable improvements throughout 2023, these supply, production, logistics, distribution and labor disruptions and challenges have impacted, and we expect will continue for some period of time to impact, our operations.

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

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

During 2022 and through the third quarter of 2023, we have 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.

1 unchanged sentence

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.

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

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

2 unchanged sentences

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 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.

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.

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

public health emergency regarding COVID-19 and the transition of COVID-19 from a pandemic to an endemic environment.

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 seasons, 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.

4 unchanged sentences

Results of Operations

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

The following table compares Total revenues by business unit for the three and nine months ended October 1, 2023 and October 2, 2022:

Three Months Ended Nine Months Ended

(Dollars in millions) October 1, 2023 October 2, 2022 % Change October 1, 2023 October 2, 2022 % Change

Labs $ 341.4 $ 334.8 2 % $ 1,073.5 $ 505.5 112 %

3 unchanged sentences

Total revenues $ 744.0 $ 783.8 (5) % $ 2,255.2 $ 2,399.5 (6) %

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.

For the three months ended October 1, 2023, Total revenues decreased to $744.0 million from $783.8 million for the same period in the prior year.

Labs and Transfusion Medicine revenue increased 1% compared to the prior year.

The decrease in Point of Care revenue of $37.4 million was driven primarily by lower demand for QuickVue SARS Antigen assays, partially offset by an increase in sales of Sofia SARS Antigen assays.

Molecular Diagnostics sales decreased by $9.8 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.

Currency exchange rates did not significantly impact the growth rate for the three months ended October 1, 2023.

For the nine months ended October 1, 2023, Total revenues decreased to $2,255.2 million from $2,399.5 million for the same period in the prior year.

The increases in Labs and Transfusion Medicine revenue 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 $698.1 million in sales of QuickVue SARS Antigen assays and $169.7 million in sales of Sofia ® assays.

The Point of Care business unit contributed to revenue decline, driven by decreases of $783.0 million in sales of QuickVue SARS Antigen assays and $121.2 million in sales of Sofia SARS Antigen assays.

Molecular Diagnostics sales decreased by $58.9 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 six months ended July 2, 2023.

Currency exchange rates had a favorable impact of approximately 100 basis points on the growth rate for the nine months ended October 1, 2023.

Cost of Sales, Excluding Amortization of Intangible Assets

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.

Cost of sales, excluding amortization of intangible assets, decreased to $375.9 million, or 50.5% of Total revenues, for the three months ended October 1, 2023, compared to $376.3 million, or 48.0% of Total revenues, for the three months ended October 2, 2022.

Cost of sales, excluding amortization of intangible assets, was impacted by revenue decline and a shift in product mix.

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

Cost of sales, excluding amortization of intangible assets, increased to $1,142.1 million, or 50.6% of Total revenues, for the nine months ended October 1, 2023, compared to $912.5 million, or 38.0% of Total revenues, for the nine months ended October 2, 2022.

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

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.

Operating Expenses

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

The following table summarizes operating expenses for the three and nine months ended October 1, 2023 and October 2, 2022:

Three Months Ended Nine Months Ended

(Dollars in millions) October 1, 2023 % of

Total Revenues October 2, 2022 % of

Total Revenues October 1, 2023 % of

Total Revenues October 2, 2022 % of

Total Revenues

6 unchanged sentences

Selling, Marketing and Administrative Expenses

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.

Selling, marketing and administrative expenses for the three months ended October 1, 2023 decreased by $10.1 million, or 4.9%, to $194.1 million from $204.2 million for the same period in the prior year, primarily due to employee compensation costs.

Selling, marketing and administrative expenses for the nine months ended October 1, 2023 increased by $168.2 million, or 41.3%, to $575.6 million from $407.4 million for the same period in the prior year, primarily due to the incremental impact of the Combinations, partially offset by freight expense due to lower sales and shipment volume and employee compensation costs.

Research and Development 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.

Research and development expense for the three months ended October 1, 2023 decreased by $3.2 million, or 4.9%, to $62.4 million from $65.6 million for the same period in the prior year, primarily due to lower costs related to outside services.

Research and development expense for the nine months ended October 1, 2023 increased by $61.3 million, or 48.6%, to $187.5 million from $126.2 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 the development of our Savanna, QuickVue OTC assays and Sofia products.

Amortization of Intangible Assets

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.

Amortization of intangible assets was $51.4 million and $153.6 million for the three and nine months ended October 1, 2023, respectively, and $50.5 million and $78.6 million for the three and nine months ended October 2, 2022, respectively.

The increase in amortization expense in the nine months ended October 1, 2023 compared to the prior year period was primarily due to the Combinations.

Acquisition and Integration Costs

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.

Acquisition and integration costs were $26.5 million and $80.4 million for the three and nine months ended October 1, 2023, respectively, and $26.4 million and $109.6 million for the three and nine months ended October 2, 2022, respectively.

The decrease in costs in the nine months ended October 1, 2023 compared to the prior year period was primarily due to acquisition costs attributable to the Combinations.

Other Operating Expense, Net

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 $7.4 million and $17.0 million for the three and nine months ended October 1, 2023, respectively, and $4.0 million and $8.0 million for the three and nine months ended October 2, 2022, respectively.

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.

1 unchanged sentence

Interest Expense, Net

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.

Interest expense, net was $37.7 million and $29.7 million for the three months ended October 1, 2023 and October 2, 2022, respectively.

Interest expense, net was $110.9 million and $41.0 million for the nine months ended October 1, 2023 and October 2, 2022, respectively.

The increase in interest expense, net in the three and nine months ended October 1, 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 Consolidated Financial Statements for more information related to our Term Loan.

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.

Loss on extinguishment of debt was $24.0 million for the nine months ended October 2, 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 (Income), Net

Other expense (income), net was an expense of $4.1 million and $8.0 million for the three and nine months ended October 1, 2023, respectively, and income of $4.2 million and $2.6 million for the three and nine months ended October 2, 2022, respectively.

Other expense (income), net in the three and nine months ended October 1, 2023 and October 2, 2022 was primarily related to net foreign currency losses.

For the three months ended October 1, 2023, we recognized an income tax benefit of $2.8 million in relation to loss before income taxes of $15.5 million, resulting in an effective benefit tax rate of 18.1%.

For the three months ended October 2, 2022, we recognized a provision for income taxes of $12.1 million in relation to income before income taxes of $31.3 million, resulting in an effective tax rate of 38.7%.

For the three months ended October 1, 2023, the effective tax rate differed from the U.S.

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

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

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.

statutory rate, R&D credits, foreign tax credits and foreign exchange losses.

For the three months ended October 2, 2022, the effective tax rate was impacted primarily by income taxes owed in certain U.S.

For the nine months ended October 1, 2023, we recognized an income tax benefit of $2.8 million in relation to loss before income taxes of $19.9 million, resulting in an effective benefit tax rate of 14.1%.

For the nine months ended October 2, 2022, the Company recognized a provision for income taxes of $176.4 million in relation to income before income taxes of $694.8 million, resulting in an effective tax rate of 25.4%.

For the nine months ended October 1, 2023, the effective tax rate differed from the 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.

statutory rate, R&D credits, foreign tax credits and foreign exchange losses.

For the nine months ended October 2, 2022, the effective tax rate was primarily impacted by income taxes owed in certain U.S.

Segment Results

8 unchanged sentences

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 (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.

Adjusted EBITDA consists of Net (loss) income before Interest expense, net, (Benefit from) provision for 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 Consolidated Financial Statements for a reconciliation of Adjusted EBITDA by reportable segment to (Loss) income before income taxes.

North America

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) October 1, 2023 October 2, 2022 % Change October 1, 2023 October 2, 2022 % Change

Total revenues $ 465.2 $ 517.6 (10) % $ 1,426.8 $ 1,917.3 (26) %

Adjusted EBITDA $ 253.4 $ 293.5 (14) % $ 708.1 $ 1,246.1 (43) %

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 were $465.2 million for the three months ended October 1, 2023, compared to Total revenues of $517.6 million for the three months ended October 2, 2022.

The decrease was primarily driven by lower demand for QuickVue and Lyra SARS Antigen assays, partially offset by increased sales of Sofia SARS Antigen assays.

Total revenues wer e $1,426.8 million for the nine months ended October 1, 2023, compared to Total revenues of $1,917.3 million for the nine months ended October 2, 2022.

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

Adjusted EBITDA was $253.4 million for the three months ended October 1, 2023, compared to Adjusted EBITDA of $293.5 million for the three months ended October 2, 2022.

The decrease was primarily driven by lower demand for QuickVue SARS Antigen assays, partially offset by decreased distribution and selling costs.

Adjusted EBITDA was $708.1 million for the nine months ended October 1, 2023, compared to Adjusted EBITDA of $1,246.1 million for the nine months ended October 2, 2022.

The decrease was primarily driven by lower demand for QuickVue SARS Antigen assays, 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 Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) October 1, 2023 October 2, 2022 % Change October 1, 2023 October 2, 2022 % Change

Total revenues $ 74.5 $ 73.7 1 % $ 236.4 $ 131.0 80 %

Adjusted EBITDA $ 10.2 $ 17.2 (41) % $ 22.7 $ 33.4 (32) %

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 were $74.5 million for the three months ended October 1, 2023, which increased slightly compared to Total revenues of $73.7 million for the three months ended October 2, 2022.

Total revenues were $236.4 million for the nine months ended October 1, 2023, compared to Total revenues of $131.0 million for the nine months ended October 2, 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 revenue.

Adjusted EBITDA was $10.2 million for the three months ended October 1, 2023, compared to Adjusted EBITDA of $17.2 million for the three months ended October 2, 2022.

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

Adjusted EBITDA was $22.7 million for the nine months ended October 1, 2023, compared to Adjusted EBITDA of $33.4 million for the nine months ended October 2, 2022.

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

Total revenues and Adjusted EBITDA for China were as follows:

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) October 1, 2023 October 2, 2022 % Change October 1, 2023 October 2, 2022 % Change

Total revenues $ 81.1 $ 80.8 — % $ 233.0 $ 163.1 43 %

Adjusted EBITDA $ 37.3 $ 45.0 (17) % $ 96.0 $ 84.2 14 %

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 were $81.1 million for the three months ended October 1, 2023, which increased slightly compared to Total revenues of $80.8 million for the three months ended October 2, 2022.

Total revenues were $233.0 million for the nine months ended October 1, 2023, compared to Total revenues of $163.1 million for the nine months ended October 2, 2022.

The increase was primarily driven by incremental revenues of $95.0 million from

the Combinations, partially offset by lower Point of Care revenue, primarily related to decreased demand for QuickVue SARS Antigen assays.

Adjusted EBITDA was $37.3 million for the three months ended October 1, 2023, compared to Adjusted EBITDA of $45.0 million for the three months ended October 2, 2022.

The decrease was primarily driven by a shift in product mix.

Adjusted EBITDA was $96.0 million for the nine months ended October 1, 2023, compared to Adjusted EBITDA of $84.2 million for the nine months ended October 2, 2022.

The increase was primarily driven by approximately $29 million of incremental impact of the Combinations, partially offset by lower Point of Care revenue and a shift in product mix.

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine Months Ended

(Dollars in millions) October 1, 2023 October 2, 2022 % Change October 1, 2023 October 2, 2022 % Change

Total revenues $ 123.2 $ 111.7 10 % $ 359.0 $ 188.1 91 %

Adjusted EBITDA $ 31.2 $ 29.8 5 % $ 89.3 $ 64.1 39 %

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.

Total revenues were $123.2 million for the three months ended October 1, 2023, compared to Total revenues of $111.7 million for the three months ended October 2, 2022.

The increase was primarily driven by higher Labs revenue.

Total revenues w ere $359.0 million for the nine months ended October 1, 2023, compared to Total revenues of $188.1 million for the nine months ended October 2, 2022.

The increase was primarily driven by incremental revenues of $177.1 million from the Combinations, partially offset by lower Point of Care revenue.

Adjusted EBITDA was $31.2 million for the three months ended October 1, 2023, compared to Adjusted EBITDA of $29.8 million for the three months ended October 2, 2022.

The increase was primarily driven by higher Labs revenue.

Adjusted EBITDA was $89.3 million for the nine months ended October 1, 2023, compared to Adjusted EBITDA of $64.1 million for the nine months ended October 2, 2022.

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

Liquidity and Capital Resources

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

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

(Dollars in millions) October 1, 2023 January 1, 2023

Cash and cash equivalents $ 149.3 $ 292.9

4 unchanged sentences

Working capital including cash and cash equivalents and marketable securities, current $ 511.3 $ 568.1

As of July 2, 2023, we had $178.6 million in Cash and cash equivalents, a $114.3 million decrease from January 1, 2023.

As of October 1, 2023, we had $149.3 million in Cash and cash equivalents, a $143.6 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.

2 unchanged sentences

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

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.

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

As of October 1, 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.

1 unchanged sentence

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.

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

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.

During the nine months ended October 1, 2023, we made $174.7 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.

3 unchanged sentences

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

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

We were in compliance with the financial covenants as of October 1, 2023.

On March 31, 2023, we entered into an amendment to our existing receivables purchase agreement (the “RPA”), by and among Ortho-Clinical Diagnostics US FinanceCo I, LLC (“Ortho FinanceCo I”), as Seller, our wholly owned receivables financing subsidiary, 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.

1 unchanged sentence

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.

We have 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

Six Months Ended

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

Nine Months Ended

(In millions) October 1, 2023 October 2, 2022

Net cash provided by operating activities $ 199.8 $ 715.9

$ 158.3 $ 725.6

Net cash used for investing activities (132.5) (1,584.9)

(111.2) (1,555.1)

Net cash (used for) provided by financing activities (208.0) 283.7

(159.3) 409.7

Effect of exchange rates on cash (3.3) (4.3)

Net decrease in cash, cash equivalents and restricted cash $ (144.0) $ (589.6)

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.

Nine Months Ended October 1, 2023

Cash provided by operating activities was $199.8 million for the nine months ended October 1, 2023, and reflected a net loss of $17.1 million and non-cash adjustments of $366.6 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 $124.1 million to Cash provided by operating activities, offset by other changes in working capital, including $146.0 million cash outflows for inventories.

Cash used for investing activities was $132.5 million for the nine months ended October 1, 2023, and was primarily related to $160.7 million in purchases of property, plant, equipment, investments and intangibles.

We also purchased $50.6 million and sold $68.3 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.

Cash used for financing activities was $208.0 million for the nine months ended October 1, 2023, and was primarily related to payments on long-term borrowings of $175.7 million, payments for deferred consideration of $30.3 million and payments of tax withholdings related to vesting of stock-based awards of $13.0 million.

Nine Months Ended October 2, 2022

Cash provided by operating activities was $715.9 million for the nine months ended October 2, 2022, and reflected 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.

Additionally, 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.

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.

Liquidity Outlook

21 unchanged sentences

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 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.

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 1, 2023, we transferred $105.8 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

7 unchanged sentences

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 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.

This lease is expected to commence during the fourth quarter of 2023 or the first quarter of 2024 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, which are 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 seasons.

Recent Accounting Pronouncements

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.

There have been no accounting pronouncements issued or adopted during the nine months ended October 1, 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.

Our discussion and analysis of our financial condition and results of operations are based on our 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 disclosure of contingent assets and liabilities.

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

On an on-going basis, we evaluate our estimates, including those related to reserve for contractual rebates, returns, 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.

1 unchanged sentence

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 six months ended July 2, 2023.

Other than the change in accounting estimates described in Note 1 to our Consolidated Financial Statements, there were no material changes to our critical accounting estimates during the nine months ended October 1, 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