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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-23 · 206 added, 251 removed, 203 unchanged (69% of the section changed)

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s in this Item 7 should be read in conjunction with our Consolidated Financial Statements and the related Notes included elsewhere in this Annual 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.

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

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

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

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

North America;

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, EMEA and China.

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

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

For fiscal year 2022, Total revenues increased by 92% to $3,266.0 million as compared to the prior year.

Currency exchange rates had an unfavorable impact of 300 basis points on our growth rate.

For fiscal year 2021 , Total revenues increased by 2% to $1,698.6 million as compared to the prior year.

Currency exchange rates had a minimal impact on the growth rate.

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

For fiscal years 2022, 2021 and 2020, sales of our COVID-19 products accounted for approximately 44%, 75% and 70% of our Total revenues, respectively.

For fiscal years 2022, 2021 and 2020, sales of our influenza products accounted for 11%, 4% and 8% of our Total revenues , respectively.

Two of our customers, including one of our distributors, exceeded 10% of our Total revenues for fiscal year 2022.

In fiscal year 2021, one distributor exceeded 10% of our Total revenues.

In fiscal year 2020, four of our distributors exceeded 10% of our Total revenues.

Recent Developments

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

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

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

The Combinations have been accounted for as a business combination using the acquisition method of accounting in conformity with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations .

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

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

Impact of the COVID-19 Pandemic

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

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.

Although COVID-19 infection rates and severity have decreased recently, the occurrence, spread, severity and duration of any new outbreaks or resurgences, including the emergence and spread of new variants of COVID-19, actions taken to contain the resurgences or variants, and economic repercussions of the virus remain uncertain.

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.

SARS-CoV-2 Diagnostic Products

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

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

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

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

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

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

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

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

Operations and Employee Safety

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

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

For example, lockdowns in China have impacted our business operations in that country.

The adverse impacts of these measures were not material to our results of operations for the fiscal year ended January 1, 2023.

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

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

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

are subject to operating restrictions consistent with applicable health guidelines.

Our Consolidated Financial Statements for 2023 include a full year of Ortho operations.

For additional information about the Combinations, see Part II, Item 8, “Financial Statements and Supplementary Data—Note 2.

Business Combination.”

For fiscal year 2023, Total revenues decreased by 8% to $2,997.8 million as compared to the prior year.

For fiscal year 2022 , Total revenues increased by 92% to $3,266.0 million as compared to the prior year.

Currency exchange rates had an unfavorable impact of 100 basis points and 300 basis points on our growth rate for fiscal years 2023 and 2022, respectively.

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

For fiscal years 2023, 2022 and 2021, revenues related to our respiratory products accounted for approximately 24%, 57% and 81% of our Total revenues, respectively, primarily driven by sales of our COVID-19 products .

Planned Wind-Down of U.S.

Donor Screening Portfolio

In February 2024, we initiated a wind-down plan to transition out of the U.S.

donor screening portfolio.

Specifically, we plan to wind-down only the VIP platform and microplate assays, which are only sold in the U.S., and have a lower growth and margin profile than other parts of our Transfusion Medicine business.

This wind-down will not affect any donor screening portfolio outside of the U.S.

While our goal is to wind-down this U.S.

donor screening portfolio, we will continue to support our existing customers and honor our contractual commitments.

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 continue for some period of time to impact, our results of operations.

While we have made notable improvements in 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.

However, the significance and frequency of such impact have lessened during the fourth quarter of 2023.

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

During 2022, we encountered some increasing pressures on raw material pricing.

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

During 2023 and 2022, we encountered some increasing pressures on raw material pricing, though they were less severe in fiscal year 2023 than in 2022.

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

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

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

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

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 macroeconomic and geopolitical developments and the impact of such factors on our business.

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

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

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

Our financial performance and results of operations will depend on future developments and other factors that are highly uncertain, continuously evolving and unpredictable, including the occurrence, spread, severity and duration of any new outbreaks and resurgences of COVID-19, the emergence and spread of new variants of COVID-19, and the ongoing supply, production and logistics challenges.

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

For 2023, we expect demand for our COVID-19 testing products to fluctuate and pricing pressures to continue as a result of a number of factors, including increased supply, emergence and spread of new variants, effectiveness of global containment efforts and other mitigation efforts.

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

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

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

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

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

Our financial performance and results of operations will depend on future developments and other factors that are highly uncertain, continuously evolving and unpredictable, including the occurrence, spread, severity, duration and emergence of new variants of respiratory diseases, including flu, strep, RSV and COVID-19, as well as ongoing supply, production and logistics challenges.

Demand for our respiratory products, which includes our COVID-19 products, declined in 2023 compared to 2022 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.

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 respiratory seasons, which are typically more prevalent during the fall and winter.

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

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

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

While we expect the revenues and financial results from our respiratory products to be affected by the seasonal demands of the respiratory 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

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Our fiscal year is the 52 or 53 weeks ending the Sunday closest to December 31.

Fiscal years 2022 and 2021 were 52 weeks and fiscal year 2020 was 53 weeks.

Fiscal years 2023, 2022 and 2021 were 52 weeks.

The following table compares Total revenues by business unit for fiscal years 2023, 2022 and 2021:

Fiscal Year Ended

(Dollars in millions) 2022 2021 2020 % Change 2022 vs.

(Dollars in millions) 2023 2022 2021 % Change

% Change 2022 vs.

Labs $ 1,425.4 $ 820.2 $ 44.8 74 % 1,731 %

Transfusion Medicine 393.8 — — N/A N/A

Transfusion Medicine 648.5 393.8 — 65 % N/M

Point of Care 892.2 1,955.3 1,453.3 (54) % 35 %

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Total revenues $ 2,997.8 $ 3,266.0 $ 1,698.6 (8) % 92 %

* N/M - Not meaningful

For fiscal year 2023, Total revenues decreased to $2,997.8 million from $3,266.0 million for the prior year.

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

Additionally, the increase in Labs revenue 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 $846.0 million in sales of QuickVue SARS Antigen assays and $219.1 million in sales of Sofia SARS Antigen assays.

Molecular Diagnostics revenue decreased by $65.0 million, primarily driven by lower demand for the Lyra SARS Antigen assay due to the end of the public health emergency in the U.S.

Currency exchange rates had an unfavorable impact of approximately 100 basis points on the growth rate for fiscal year 2023.

For fiscal year 2022, Total revenues increased to $3,266.0 million from $1,698.6 million for the prior year.

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

The Point of Care business unit contributed to revenue growth, driven primarily by an increase of $586.1 million in sales of QuickVue SARS Antigen assays, partially offset by lower sales of Sofia assays and $46.7 million lower BNP sales due to the transition of the BNP Business to Beckman.

The Point of Care business unit contributed to revenue growth, primarily driven by an increase of $586.1 million in sales of QuickVue SARS Antigen assays, partially offset by lower sales of Sofia assays and $46.7 million lower BNP sales due to the transition of the BNP Business to Beckman.

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

Molecular Diagnostics sales decreased by $103.8 million, driven primarily by lower demand and pricing of the Lyra SARS Antigen assay.

Currency exchange rate had an unfavorable impact of approximately 300 basis points on the growth rate for fiscal year 2022.

For fiscal year 2021, Total revenues increased to $1,698.6 million from $1,661.7 million for the prior year.

The Point of Care business unit was the largest contributor to revenue growth, driven by sales of the QuickVue SARS Antigen assay.

Additionally, sales of our other products within our Point of Care business unit increased over the prior year as COVID-19 restrictions began to be lifted and sales of our Triage products approached pre-pandemic levels.

Growth in our Triage business was partially offset by lower revenues recognized for the Beckman BNP products due to the transition of this business to Beckman in August 2021.

Molecular Diagnostics sales decreased by $22.5 million, driven primarily by decreased pricing for the Lyra SARS Antigen assay, partially offset by higher sales of the Solana SARS Antigen assay.

The decrease in Labs sales over the prior year was driven by lower sales of our cell culture products, primarily due to the lack of a respiratory season in early 2021.

Favorable currency exchange rate impact for fiscal year 2021 had a minimal impact on the growth rate.

Molecular Diagnostics revenue decreased by $103.8 million, primarily driven by lower demand and pricing of the Lyra SARS Antigen assay.

Currency exchange rates had an unfavorable impact of approximately 300 basis points on the growth rate for fiscal year 2022.

Cost of Sales, Excluding Amortization of Intangible Assets

Cost of sales, excluding amortization of intangible assets, increased to $1,503.4 million, or 50.2% of Total revenues, for fiscal year 2023, compared to $1,330.0 million, or 40.7% of Total revenues, for fiscal year 2022.

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

We also recorded $60.6 million of expense related to the amortization of the inventory fair value adjustment related to the Combinations during fiscal year 2022.

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

The increase in cost of sales, excluding amortization of intangible assets as a percentage of revenue, was primarily driven by incremental revenues in the Labs and Transfusion Medicine business units as a result of the Combinations and a decrease in sales of respiratory products.

We also recorded $60.6 million of expense related to the unwind of the inventory fair value adjustment related to the Combinations during fiscal year 2022.

Cost of sales, excluding amortization of intangible assets, increased to $1,330.0 million, or 40.7% of Total revenues, for fiscal year 2022, compared to $420.3 million, or 24.7% of Total revenues, for fiscal year 2021.

The increase in cost of sales, excluding amortization of intangible assets, was driven primarily by a shift in product mix from Sofia SARS products to QuickVue SARS products and lower selling prices for our SARS products in fiscal year 2021.

Increases in supply chain and other indirect manufacturing costs were more than offset by increased absorption driven by higher production volumes.

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

We also recorded $60.6 million of expense related to the unwind of the inventory fair value adjustment related to the Combinations during fiscal year 2022.

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

Operating Expenses

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Acquisition and integration costs 113.4 3.8 % 136.0 4.2 % 9.6 0.6 %

Other operating expense, net 12.3 0.4 % — — % — — %

Other operating expenses 27.1 0.9 % 12.3 0.4 % — — %

Selling, Marketing and Administrative Expenses

Selling, marketing and administrative expenses for fiscal year 2022 increased by $381.4 million, or 159.2%, to $621.0 million from $239.6 million for the prior year, driven primarily by the Combinations which contributed $326.5 million in increased expense, freight expense due to higher sales volume and expedited shipping, product promotional spend associated with the QuickVue At-Home OTC COVID-19 test, professional fees and employee-related costs.

Selling, marketing and administrative expenses for fiscal year 2021 increased by $58.9 million, or 32.6%, to $239.6 million from $180.7 million for the prior year, driven primarily by higher freight expense from greater shipment volumes, higher promotional spending associated with the launch of the QuickVue At-Home OTC COVID-19 test, higher labor costs and increased travel and meeting costs as COVID-19 related travel restrictions eased, partially offset by reduced bad debt expense.

The increase was also related to higher compensation costs from increased headcount to support the growth of the business experienced during fiscal year 2021, and higher charitable contributions and stock compensation expense.

Selling, marketing and administrative expenses for fiscal year 2023 increased by $142.2 million, or 22.9%, to $763.2 million from $621.0 million for 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 lower employee compensation costs.

Selling, marketing and administrative expenses for fiscal year 2022 increased by $381.4 million, or 159.2%, to $621.0 million from $239.6 million for the prior year, primarily driven by the Combinations which contributed $326.5 million in increased expense, freight expense due to higher sales volume and expedited shipping, product promotional spend associated with the QuickVue At-Home OTC COVID-19 test, professional fees and higher employee-related costs.

Research and Development Expense

Research and development expense for fiscal year 2023 increased by $56.3 million, or 29.6%, to $246.8 million from $190.5 million for the prior year, primarily due to the incremental impact of the Combinations, as well as increased costs related to the development of Savanna, QuickVue OTC assays and Sofia products.

Research and development expense for fiscal year 2022 increased by $94.8 million, or 99.1%, to $190.5 million from $95.7 million for the prior year, primarily due to the Combinations which contributed $86.0 million in increased expense, as well as increased costs related to SARS, Sofia and Savanna projects, and increased costs related to compensation driven by increased headcount and clinical trials.

Research and development expense for fiscal year 2021 increased by $11.4 million, or 13.5%, to $95.7 million from $84.3 million for the prior year, primarily due to increased costs related to the Savanna and QuickVue OTC projects, partially offset by decreased spending on Sofia projects.

We also incurred higher labor, materials and clinical trials costs as a result of the COVID-19 product development.

Amortization of Intangible Assets

Amortization of intangible assets for fiscal years 2023, 2022 and 2021 was $204.8 million, $132.5 million and $27.4 million, respectively.

The increase in amortization expense in fiscal year 2022 compared to the prior year periods was primarily due to the Combinations.

The increases in amortization expense in fiscal year 2023 compared to fiscal year 2022 and fiscal year 2022 compared to fiscal year 2021 were primarily due to the Combinations.

Acquisition and Integration Costs

Acquisition and integration costs were $113.4 million, $136.0 million and $9.6 million for fiscal years 2023, 2022 and 2021, respectively.

The increase in costs in fiscal year 2022 was primarily due to transaction and integration-related costs attributable to the Combinations.

Costs in the prior year periods were primarily related to the evaluation of new business development opportunities, including the Combinations.

Other Operating Expense, Net

Other operating expense, net was $12.3 million for fiscal year 2022, which was related to the profit share expense for our Joint Business with Grifols acquired in connection with the Combinations.

The decrease in costs in fiscal year 2023 compared to fiscal year 2022 was primarily due to acquisition costs attributable to the Combinations, partially offset by higher integration-related costs.

The increase in costs in fiscal year 2022 compared to fiscal year 2021 was primarily due to acquisition and integration-related costs attributable to the Combinations.

Costs for fiscal year 2021 were primarily related to the evaluation of new business development opportunities, including the Combinations.

Other Operating Expenses

Other operating expenses were $27.1 million and $12.3 million for fiscal years 2023 and 2022, respectively, which were primarily related to the profit share expense for our Joint Business with Grifols acquired in connection with the Combinations.

Non-operating Expenses

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Fiscal Year Ended

(Dollars in millions) 2022 2021 2020 % Change 2022 vs.

(Dollars in millions) 2023 2022 2021 % Change

% Change 2022 vs.

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Loss on extinguishment of debt — 24.0 — (100.0) % N/M

Other expense (income), net 8.1 (0.1) 1.1 N/M N/M

Other expense (income), net 20.6 8.1 (0.1) 154.3 % N/M

* N/M - Not meaningful

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Interest expense, net was $147.6 million, $75.7 million and $5.8 million for fiscal years 2023, 2022 and 2021, respectively.

The increase in interest expense, net in fiscal year 2022 compared to the prior year periods was primarily related to the new 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.

Interest expense, net prior to the Combinations primarily related to accretion of interest on the deferred consideration, coupon and accretion of interest related to our 3.25% Convertible Senior Notes due 2020 (“Convertible Notes”) (in fiscal year 2020) and interest and amortization of deferred financing costs associated with our previous credit agreement.

Interest expense, net for fiscal year 2021 decreased to $5.8 million from $8.5 million for the prior year.

The decrease compared to the prior year was primarily due to the maturity of our Convertible Notes in December 2020 and lower deferred consideration liability outstanding during fiscal year 2021.

The increases in interest expense, net in fiscal year 2023 compared to fiscal year 2022 and fiscal year 2022 compared to fiscal year 2021 were primarily related to the Term Loan under the Credit Agreement entered into in connection with the Combinations.

See Part II, Item 8, “Financial Statements and Supplementary Data—Note 8.

Borrowings” for more information related to our Term Loan.

Loss on Extinguishment of Debt

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

Loss on extinguishment of debt was $10.4 million for fiscal year 2020, and was related to the extinguishment of $5.9 million in aggregate principal amount of the Convertible Notes, which were converted and settled in cash during the period.

Loss on extinguishment of debt was $24.0 million for fiscal year 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 $20.6 million, $8.1 million and $(0.1) million for fiscal years 2023, 2022 and 2021, respectively.

Other expense, net in fiscal year 2022 compared to income in fiscal year 2021 was primarily related to net foreign currency losses and loss on investment, partially offset by fair value gains in interest rate caps.

Other expense, net during fiscal year 2020 was primarily related to an unfavorable change in fair value of derivative liabilities associated with the Convertible Notes conversion in fiscal year 2020.

For fiscal years 2022 and 2021, we recognized income tax provisions of $187.2 million in relation to income before taxes of $735.9 million, and $196.1 million in relation to income before taxes of $900.3 million, respectively, resulting in effective tax rates of 25.4% and 21.8%, respectively.

The lower tax expense for fiscal year 2022 compared to the prior year was primarily due to a decrease in pre-tax profits and state taxes, foreign income taxed at rates other than the applicable U.S.

rate, and an increased deduction for foreign derived intangible income (FDII), partially offset by increases in non-deductible executive compensation, Global Intangible Low-Taxed Income and acquisition-related costs.

The increase in Other expense (income), net in fiscal year 2023 compared to fiscal year 2022 was primarily related to (i) the release of tax reserves upon the settlement of certain U.S.

federal tax matters, with an offsetting benefit recorded to income tax expense and (ii) net foreign currency losses.

See Part II, Item 8, “Financial Statements and Supplementary Data—Note 6.

Income Taxes” for more information related to our indemnification assets.

The change in Other expense (income), net in fiscal year 2022 compared to fiscal year 2021 was primarily related to net foreign currency losses and loss on investment, partially offset by fair value gains in interest rate caps.

For fiscal years 2023 and 2022, we recognized income tax benefits of $19.0 million in relation to loss before taxes of $29.1 million and income tax provisions of $187.2 million in relation to income before taxes of $735.9 million, resulting in effective tax rates of 65.3% and 25.4%, respectively.

For fiscal year 2023, the effective tax rate differed from the U.S.

federal statutory rate primarily due to a decrease in our pre-acquisition U.S.

federal reserves for uncertain tax positions due to settlement of certain tax matters partially offset by net operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances and Global Intangible Low-Taxed Income (“GILTI”).

For fiscal year 2022, the effective tax rate was primarily impacted by income taxes owed in certain U.S.

states, foreign income taxed at rates other than the applicable U.S.

rate, and the deduction for foreign derived intangible income (“FDII”).

We recognized an income tax provision of $187.2 million, resulting in an effective tax rate of 25.4% for fiscal year 2022.

This effective tax rate is comparable to the effective tax rate of 21.8% for fiscal year 2021.

In both years, the effective tax rate differed from the federal statutory rate of 21% due to increases from the state tax provision, slightly offset by tax benefits from the foreign-derived intangible income deduction, excess stock-based compensation deductions and federal and state research credits.

Indemnification Assets

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

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

The indemnification receivable from Johnson & Johnson totaled $16.8 million as of January 1, 2023 and is included as a component of Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheet.

We recorded $0.4 million of interest and penalties during fiscal year 2022.

The lower tax expense for fiscal year 2022 compared to the prior year was primarily due to a decrease in pre-tax profits and state taxes, foreign income taxed at rates other than the applicable U.S.

rate, and an increased deduction for FDII, partially offset by increases in non-deductible executive compensation, GILTI and acquisition-related costs.

The Company will treat any U.S.

tax on foreign earnings under GILTI as a current period expense when incurred.

Segment Results

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

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

North America;

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 us as a whole.

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

We operate under three geographically-based reportable segments:

North America, EMEA and China.

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

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 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, (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 non-cash, unusual or other items that are included in Net (loss) income and that we do not consider indicative of our ongoing operating performance.

See Part II, Item 8, “Financial Statements and Supplementary Data—Note 5.

Segment and Geographic Information” for a reconciliation of Adjusted EBITDA by reportable segment to (Loss) income before income taxes.

North America

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Fiscal Year Ended

(Dollars in millions) 2022 2021 2020 % Change 2022 vs.

(Dollars in millions) 2023 2022 2021 % Change

% Change 2022 vs.

1 unchanged sentence

Adjusted EBITDA $ 949.2 $ 1,614.6 $ 1,028.5 (41) % 57 %

Total revenues wer e $2,536.5 million for fiscal year 2022, compared to Total revenues of $1,500.2 million for fiscal year 2021.

Total revenues were $1,877.1 million for fiscal year 2023, compared to $2,536.5 million for fiscal year 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.

Total revenues wer e $2,536.5 million for fiscal year 2022, compared to $1,500.2 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $607.3 million to Total revenues.

The remaining increase of $429.0 million was driven primarily by increased demand for the QuickVue SARS Antigen assays and non-SARS related rapid tests, partially offset by a decrease in revenues for the Sofia SARS Antigen assay.

Total revenues wer e $1,500.2 million for fiscal year 2021, compared to Total revenues of $1,460.7 million for fiscal year 2020.

The increase of $39.5 million was driven primarily by increased demand for the QuickVue SARS Antigen assays, offset by a decrease in revenues for the Sofia SARS Antigen assay.

Adjusted EBITDA was $1,614.6 million for fiscal year 2022, compared to Adjusted EBITDA of $1,028.5 million for fiscal year 2021.

The remaining increase of $429.0 million was primarily driven by increased demand for QuickVue SARS Antigen assays and non-SARS related rapid tests, partially offset by a decrease in revenues for the Sofia SARS Antigen assay.

Adjusted EBITDA was $949.2 million for fiscal year 2023, compared to $1,614.6 million for fiscal year 2022.

The decrease was primarily driven by lower demand for QuickVue and Sofia SARS Antigen assays, partially offset by decreased distribution costs and approximately $160 million of incremental impact of the Combinations.

Adjusted EBITDA was $1,614.6 million for fiscal year 2022, compared to $1,028.5 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $260.7 million to Adjusted EBITDA.

The remaining increase of $325.4 million was driven primarily by increased revenues, partially offset by increased distribution and selling costs.

Adjusted EBITDA was $1,028.5 million for fiscal year 2021, compared to Adjusted EBITDA of $1,205.2 million for fiscal year 2020.

The decrease of $176.7 million was driven primarily by increased distribution and selling costs.

The remaining increase of $325.4 million was primarily driven by increased revenues, partially offset by increased distribution and selling costs.

Total revenues and Adjusted EBITDA for EMEA were as follows:

Fiscal Year Ended

(Dollars in millions) 2022 2021 2020 % Change 2022 vs.

(Dollars in millions) 2023 2022 2021 % Change

% Change 2022 vs.

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Adjusted EBITDA $ 58.3 $ 31.7 $ 28.1 84 % 13 %

Total revenues were $206.8 million for fiscal year 2022, compared to Total revenues of $69.6 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $146.2 million to Total revenues.

The remaining decrease of $9.0 million was primarily driven by lower Point of Care revenues due to lower BNP sales from the transition of the BNP Business to Beckman.

Total revenues were $69.6 million for fiscal year 2021, compared to Total revenues of $92.9 million for fiscal year 2020.

During fiscal year 2021, Total revenues decreased by $23.3 million, primarily due to lower Molecular Diagnostics and Point of Care revenues, driven by lower Lyra SARS Antigen assay sales.

Adjusted EBITDA was $31.7 million for fiscal year 2022, compared to Adjusted EBITDA of $28.1 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $18.1 million to Adjusted EBITDA.

The remaining decrease of $14.5 million was driven primarily by lower revenues and increased selling costs.

Adjusted EBITDA was $28.1 million for fiscal year 2021, compared to Adjusted EBITDA of $55.5 million for fiscal year 2020.

During fiscal year 2021, Adjusted EBITDA decreased $27.4 million, driven primarily by lower revenues.

Total revenues were $327.3 million for fiscal year 2023, compared to $206.8 million for fiscal year 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.

Total revenues were $206.8 million for fiscal year 2022, compared to $69.6 million for fiscal year 2021.

The increase was primarily driven by the impact of the Combinations, which contributed $146.2 million to Total revenues, partially offset by lower Point of Care revenue due to lower BNP sales from the transition of the BNP Business to Beckman.

Adjusted EBITDA was $58.3 million for fiscal year 2023, compared to $31.7 million for fiscal year 2022.

The increase was primarily driven by incremental revenues from the Combinations, partially offset by lower Point of Care revenue and increased selling and distribution costs.

Adjusted EBITDA was $31.7 million for fiscal year 2022, compared to $28.1 million for fiscal year 2021.

The increase was primarily driven by the impact of the Combinations, which contributed approximately $18 million to Adjusted EBITDA, partially offset by lower revenues and increased selling costs.

Total revenues and Adjusted EBITDA for China were as follows:

Fiscal Year Ended

(Dollars in millions) 2022 2021 2020 % Change 2022 vs.

(Dollars in millions) 2023 2022 2021 % Change

% Change 2022 vs.

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Adjusted EBITDA $ 129.1 $ 104.1 $ 24.1 24 % 332 %

Total revenues were $220.0 million for fiscal year 2022, compared to Total revenues of $58.0 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $161.3 million to Total revenues.

The remaining increase of $0.7 million was primarily driven by increased Point of Care revenues, partially offset by lower BNP sales due to the transition of the BNP Business to Beckman.

Total revenues were $58.0 million for fiscal year 2021, compared to Total revenues of $62.4 million for fiscal year 2020.

The decrease of $4.4 million was primarily due to decreased Point of Care revenues, driven by lower BNP sales due to the transition of the BNP Business to Beckman.

Adjusted EBITDA was $104.1 million for fiscal year 2022, compared to Adjusted EBITDA of $24.1 million for fiscal year 2021.

During fiscal year 2022, the Combinations were the primary driver of the increase, which contributed $80.7 million to Adjusted EBITDA.

Adjusted EBITDA was $24.1 million for fiscal year 2021, compared to Adjusted EBITDA of $30.5 million for fiscal year 2020.

During fiscal year 2021, Adjusted EBITDA decreased $6.4 million, driven primarily by lower revenues.

Total revenues were $310.1 million for fiscal year 2023, compared to $220.0 million for fiscal year 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.

Total revenues were $220.0 million for fiscal year 2022, compared to $58.0 million for fiscal year 2021.

The increase was primarily driven by the impact of the Combinations, which contributed $161.3 million to Total revenues.

Adjusted EBITDA was $129.1 million for fiscal year 2023, compared to $104.1 million for fiscal year 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.

Adjusted EBITDA was $104.1 million for fiscal year 2022, compared to $24.1 million for fiscal year 2021.

The increase was primarily driven by the impact of the Combinations of approximately $81 million.

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

Fiscal Year Ended

(Dollars in millions) 2022 2021 2020 % Change 2022 vs.

(Dollars in millions) 2023 2022 2021 % Change

% Change 2022 vs.

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Adjusted EBITDA $ 116.3 $ 92.7 $ 43.0 25 % 116 %

Total revenues w ere $302.7 million for fiscal year 2022, compared to Total revenues of $70.8 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $250.5 million to Total revenues.

The remaining decrease of $18.6 million was primarily due to lower Point of Care revenues, driven primarily by lower demand for QuickVue SARS Antigen and Sofia assays.

Total revenues w ere $70.8 million for fiscal year 2021, compared to Total revenues of $45.7 million for fiscal year 2020.

During fiscal year 2021, Total revenues increased $25.1 million, primarily due to higher Point of Care revenues, driven by higher demand for QuickVue SARS Antigen and Sofia assays.

Adjusted EBITDA was $92.7 million for fiscal year 2022, compared to Adjusted EBITDA of $43.0 million for fiscal year 2021.

During fiscal year 2022, the impact of the Combinations contributed $62.9 million to Adjusted EBITDA.

The remaining decrease of $13.2 million was driven primarily by lower revenues.

Adjusted EBITDA was $43.0 million for fiscal year 2021, compared to Adjusted EBITDA of $28.0 million for fiscal year 2020.

During fiscal year 2021, Adjusted EBITDA increased $15.0 million, driven primarily by higher revenues.

Total revenues w ere $483.3 million for fiscal year 2023, compared to $302.7 million for fiscal year 2022.

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

Total revenues w ere $302.7 million for fiscal year 2022, compared to $70.8 million for fiscal year 2021.

The increase was primarily driven by the impact of the Combinations, which contributed $250.5 million to Total revenues, partially offset by lower Point of Care revenue, driven by lower demand for QuickVue SARS Antigen and Sofia assays.

Adjusted EBITDA was $116.3 million for fiscal year 2023, compared to $92.7 million for fiscal year 2022.

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

Adjusted EBITDA was $92.7 million for fiscal year 2022, compared to $43.0 million for fiscal year 2021.

The increase was primarily driven by the impact of the Combinations, which contributed approximately $63 million to Adjusted EBITDA, partially offset by lower revenues.

Liquidity and Capital Resources

As of January 1, 2023 and January 2, 2022, the principal sources of liquidity consisted of the following:

(Dollars in millions) January 1,

As of December 31, 2023 and January 1, 2023, the principal sources of liquidity consisted of the following:

(Dollars in millions) December 31,

2023 January 1,

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Working capital including cash and cash equivalents and marketable securities, current $ 476.7 $ 568.1

As of January 1, 2023, we had $292.9 million in Cash and cash equivalents, a $509.9 million decrease from January 2, 2022.

As of December 31, 2023, we had $118.9 million in Cash and cash equivalents, a $174.0 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.

On May 27, 2022, we completed the Combinations for total consideration of $4,291.1 million (which is based on the May 26, 2022 closing price of $99.60 per share of Quidel common stock), including $1,747.7 million of cash, net of cash and restricted cash acquired, funded through cash on our balance sheet and incremental borrowings.

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

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

Debt Capitalization

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

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

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

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

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

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

As of January 1, 2023, letters of credit issued under the

Revolving Credit Facility totaled $13.1 million, which reduced the available amount under the Revolving Credit Facility to $786.9 million.

The Term Loan is subject to quarterly amortization of the principal amount on the last business day of each of our fiscal quarters (commencing on September 30, 2022).

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

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

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

As of December 31, 2023 and January 1, 2023, there were no amounts outstanding under the Revolving Credit Facility.

As of December 31, 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 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.

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

The negative covenants include, among other things, limitations on asset sales, mergers, indebtedness, liens, investments and transactions with affiliates.

The Credit Agreement contains two financial covenants:

(i) a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) as of the last day of each fiscal quarter of (a) 4.50 to 1.00 for the Initial Measurement Period, (b) 4.00 to 1.00 for the first four fiscal quarters ending after the Initial Measurement Period and (c) 3.50 to 1.00 for each fiscal quarter thereafter;

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 January 1, 2023.

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

See Note 2 to the Consolidated Financial Statements for further discussion of the Combinations.

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

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

As of January 1, 2023, the remaining payment was recorded at fair value as contingent consideration of $0.1 million and deferred consideration of $39.3 million.

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

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

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

In fiscal year 2023, we made $226.7 million in payments on our Term Loan, including a voluntary prepayment of $20.0 million.

Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 8.

Borrowings” for further information.

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.

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

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

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

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

Stock Repurchases

On August 17, 2022, the Board authorized the Stock Repurchase Program, allowing the Company to repurchase up to $300.0 million of its common stock through August 17, 2024.

The Stock Repurchase Program does not obligate the Company to acquire any specific number of shares.

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.

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.

Our Stock Repurchase Program allows us to repurchase up to $300.0 million of our common stock through August 17, 2024.

The Stock Repurchase Program does not obligate us to acquire any specific number of shares.

Under the Stock Repurchase Program, shares of common stock may be repurchased using a variety of methods, including privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act, as part of accelerated stock repurchases and other methods.

The timing, manner, price and amount of any repurchases are determined by the Company in its discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions.

For the fiscal year ended January 1, 2023, the Company repurchased 953,468 shares of outstanding common stock under the Stock Repurchase Program for approximately $74.3 million.

The timing, manner, price and amount of any repurchases are determined by us in our

discretion and depend on a variety of factors, including legal requirements, price and economic and market conditions.

For the fiscal year ended December 31, 2023, we repurchased 120,000 shares of outstanding common stock under the Stock Repurchase Program for approximately $7.2 million.

The repurchased shares were retired and returned to the status of authorized but unissued shares of our common stock.

As of January 1, 2023, we had approximately $225.7 million available under the Stock Repurchase Program.

As of December 31, 2023, we had approximately $218.4 million available under the Stock Repurchase Program.

Refer to Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” for further information.

Our investment portfolio includes marketable debt securities, which are subject to changes in fair value as a result of interest rate fluctuations and other market factors.

Our investment policy establishes limits on the amount and time to maturity of investments with any institution.

The investment policy also requires that investments are only entered into with corporate and financial institutions that meet high credit quality standards.

Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 13.

Fair Value Measurements.”

Capital Expenditures

Annual capital expenditures, net of proceeds from government assistance allocated to fixed assets, were approximately $196 million, $123 million and $256 million in fiscal years 2023, 2022 and 2021, respectively.

We continue to make capital expenditures in connection with the expansion of our manufacturing capabilities and other facility-related activities.

Cash Flow Summary

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Net cash provided by operating activities $ 280.2 $ 885.3 $ 805.9

$ 885.3 $ 805.9 $ 629.7

Net cash used for investing activities (187.6) (1,644.2) (319.5)

(1,644.2) (319.5) (63.3)

Net cash provided by (used for) financing activities:

252.0 (173.1) (130.3)

Net cash (used for) provided by financing activities (265.8) 252.0 (173.1)

Effect of exchange rates on cash (1.2) (2.0) (0.4)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (174.4) $ (508.9) $ 312.9

Fiscal Year Ended December 31, 2023

Cash provided by operating activities was $280.2 million for fiscal year 2023, and reflected a net loss of $10.1 million and non-cash adjustments of $485.2 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 $160.0 million to Cash provided by operating activities, offset by other changes in working capital, including $211.6 million of cash outflows for inventories.

Cash used for investing activities was $187.6 million for fiscal year 2023, and was primarily related to $209.3 million in purchases of property, equipment, investments and intangibles.

We also purchased $60.1 million and sold $78.3 million of marketable securities during fiscal year 2023.

Cash used for financing activities was $265.8 million for fiscal year 2023, and was primarily related to payments on long-term borrowings of $228.0 million, payments of deferred consideration of $30.3 million and payments of tax withholdings related to vesting of stock-based awards of $13.5 million.

Fiscal Year Ended January 1, 2023

Cash provided by operating activities was $885.3 million for fiscal year 2022, and reflected net income of $548.7 million and non-cash adjustments of $389.8 million, primarily associated with depreciation and amortization, stock-based compensation expense, deferred income taxes, 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 $150.2 million to Cash provided by operating activities, partially offset by net cash outflows related to inventories, prepaid and other current and non-current assets and liabilities as well as income taxes payable and other current and non-current liabilities.

Cash provided by operating activities was $885.3 million for fiscal year 2022, and reflected net income of $548.7 million and non-cash adjustments of $389.8 million, primarily associated with depreciation and amortization, stock-based compensation expense, deferred income taxes, loss on extinguishment of debt and the unwind 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 $150.2 million to Cash provided by operating activities, offset by net cash outflows related to inventories, prepaid and other current and non-current assets and liabilities as well as income taxes payable and other current and non-current liabilities.

Cash used for investing activities was $1,644.2 million for fiscal year 2022, and was primarily related to the Combinations.

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We also purchased $63.7 million and sold $53.4 million of marketable securities during fiscal year 2022.

See Note 2 to the Consolidated Financial Statements for further discussion regarding the Combinations.

See Part II, Item 8, “Financial Statements and Supplementary Data—Note 2.

Business Combination” for further discussion regarding the Combinations.

Cash provided by financing activities was $252.0 million for fiscal year 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 $2,388.3 million, repurchases of common stock of $74.3 million and payments of $37.7 million for contingent and deferred consideration.

4 unchanged sentences

Additionally, we purchased $67.4 million of available-for-sale securities and sold $3.8 million of our available-for-sale securities during 2021.

Cash used for financing activities was $173.1 million for fiscal year 2021, and was primarily related to repurchases of common stock of $103.5 million, payments of tax withholdings for vesting of stock-based awards of $37.1 million, and the payment of deferred and contingent consideration of $39.8 million, partially offset by proceeds of $7.6 million from the issuance of common stock under the ESPP and pursuant to stock option exercises.

Fiscal Year Ended January 3, 2021

Cash provided by operating activities was $629.7 million for fiscal year 2020, and reflected net income of $810.3 million and non-cash adjustments of $70.6 million, primarily associated with depreciation and amortization, stock-based compensation expense, deferred taxes, loss on extinguishment of debt and accretion of interest on deferred consideration.

Partially offsetting these inflows was a net working capital use of cash of $251.2 million primarily driven by increases in accounts receivable and product inventory, partially offset by increases in income taxes payable and accounts payable.

Cash used for investing activities was $63.3 million for fiscal year 2020, and was primarily related to investments in manufacturing equipment, Sofia, Solana and Triage instruments available for lease, building improvements and purchases of scientific equipment.

Cash used for financing activities was $130.3 million for fiscal year 2020, and was primarily related to repurchases of common stock of $43.7 million, payment of Convertible Notes and derivative liability of $43.4 million, payments of deferred

consideration of $42.0 million and acquisition contingent consideration of $6.0 million, partially offset by proceeds of $9.6 million from the issuance of common stock under the ESPP and pursuant to stock option exercises.

Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 10.

Stockholders’ Equity.”

Liquidity Outlook

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Our primary short-term needs for capital, which are subject to change, include expenditures related to:

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

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

• interest on and repayments of our long-term borrowings and lease obligations;

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

• the continued advancement of R&D efforts;

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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.

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 fiscal year 2023, we transferred $154.6 million of instrument inventories from Inventories to Property, plant and equipment, net, further increasing our investment in property, plant and equipment.

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

Contractual Obligations

Principal payments required on our long-term debt outstanding as of January 1, 2023 are $207.5 million in fiscal year 2023, $310.2 million in fiscal years 2024 to 2025 and $2,131.2 million in fiscal years 2026 to 2027.

See Note 8 to our Consolidated Financial Statements for further discussion of long-term debt.

Interest payments required on long-term debt outstanding as of January 1, 2023 are $172.5 million in fiscal year 2023, $258.1 million in fiscal years 2024 to 2025 and $149.7 million in fiscal years 2026 to 2027.

Future interest payments include commitment fees on the unused portion of the Revolving Credit Facility and interest payments on our Term Loan.

Future interest payments assume January 1, 2023 interest rates will prevail throughout all periods.

Actual interest payment amounts may differ in the future based on changes in market interest rates.

As of January 1, 2023, estimated contractual obligations for operating lease payments were $256.5 million, with $32.7 million due in fiscal year 2023, $55.5 million in fiscal years 2024 to 2025, $45.4 million in fiscal years 2026 to 2027 and $122.9 million in fiscal year 2028 and thereafter.

The amounts reflect future minimum lease obligations on facilities and equipment under operating leases in place as of January 1, 2023.

See Note 9 to our Consolidated Financial Statements for further discussion of operating leases.

We are committed to making annual deferred and contingent consideration payments related to the acquisition of the BNP Business of up to $48 million.

The remaining obligation as of January 1, 2023 was $40 million, which is expected to be paid in fiscal year 2023.

In connection with the Combinations, the Company assumed certain defined benefit plan obligations and acquired related plan assets for employees of non-U.S.

subsidiaries.

We expect to make contributions of $2.0 million to our defined benefit plans in fiscal year 2023.

The amount of any contributions is dependent on the future economic environment and investment returns, and we are unable to reasonably estimate pension contributions beyond fiscal year 2023.

See Note 15 to our Consolidated Financial Statements for further discussion of our defined benefit plans.

As of January 1, 2023, we had approximately $247.8 million of purchase obligations, which include agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including (i) fixed or minimum quantities to be purchased, (ii) fixed, minimum or variable price provisions and (iii) the approximate timing of the transaction, as well as amounts for planned inventory purchases under contractual arrangements.

We expect the majority of the payments related to these purchase obligations to be made during fiscal year 2023.

We have entered into various licensing agreements, which largely require payments based on product sales, as well as the achievement of specific milestones.

Royalty and license expenses under these various royalty and licensing agreements collectively totaled $1.1 million, $2.0 million and $2.4 million as of January 1, 2023, January 2, 2022 and January 3, 2021, respectively.

As of January 1, 2023, we had approximately $40.0 million of liabilities associated with uncertain tax positions.

We cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities, nor the amount of the final cash settlement as of January 1, 2023.

See Note 6 to our Consolidated Financial Statements for further discussion of uncertain tax positions.

In January 2023, we entered into a lease for warehouse space in the U.S.

that has not yet commenced, with total lease payments of approximately $36 million.

This lease is expected to commence during the first half of 2024 with a lease term of five years.

Contractual Obligations and Off-Balance Sheet Arrangements

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future.

Information regarding our obligations relating to debt, income taxes, lease arrangements, purchase obligations and licensing arrangements are provided in Part II, Item 8, “Financial Statements and Supplementary Data—Note 8.

Borrowings,” “—Note 6.

Income Taxes,” “—Note 9.

Leases” and “—Note 12.

Commitments and Contingencies,” respectively.

We do not have any off-balance sheet arrangements that are material or reasonably likely to become material to our financial condition or results of operations.

Recent Accounting Pronouncements

Information about recently adopted and proposed accounting pronouncements is included in Note 1 to our Consolidated Financial Statements set forth in Part II, Item 8 of this Annual Report.

Information about recently adopted and proposed accounting pronouncements is included in Part II, Item 8, “Financial Statements and Supplementary Data—Note 1.

Basis of Presentation and Summary of Significant Accounting Policies.”

Critical Accounting Estimates

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 generally accepted accounting principles in the U.S.

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.

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

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

The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses.

Our critical accounting estimates are those that significantly affect our financial condition and results of operations and require the most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain.

Because of this uncertainty, actual results may vary from these estimates.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

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These revenues are recorded net of rebates that are estimated at the time of sale, and are largely driven by various customer program offerings, including special pricing agreements and promotions.

Rebates are calculated based on historical experie nce, estimated distributor inventory balances, contractual and statutory requirements and other relevant information, and are recorded as a reduction of sales with offsets to trade accounts receivable.

Rebates are calculated based on historical experience, estimated distributor inventory balances, contractual and statutory requirements and other relevant information, and are recorded as a reduction of sales.

These rebates are presented as either an offset to trade accounts receivable or a liability based on forms of settlement.

The allowance for contractual rebates involves estimating adjustments to revenue based on a high volume of data including inputs from third-party sources.

In addition, the determination of such adjustments includes estimating rebate percentages which are dependent on estimated end-user sales mix and customer contractual terms, which vary across customers, the related balance of which was $40.0 million of our rebate reserves at January 1, 2023.

Our total rebate reserve was $73.5 million at January 1, 2023.

In addition, the determination of such adjustments includes estimating rebate percentages which are dependent on estimated end-user sales mix and customer contractual terms, which vary across customers, the related balance of which was $31.3 million of our rebate reserves at December 31, 2023.

Our total rebate reserve was $75.6 million at December 31, 2023.

Goodwill and Intangible Assets

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otherwise, goodwill is impaired and the loss is recorded.

We completed our annual evaluation for impairment of goodwill as of October 2, 2022 and determined that no impairment existed.

For our annual evaluation for impairment of goodwill as of October 2, 2023, we bypassed the qualitative assessment and proceeded directly to the quantitative goodwill impairment test for all reporting units.

This quantitative analysis required us to make estimates and assumptions in order to calculate the fair value of our reporting units.

We utilized the values separately derived from both income and market approach valuation techniques to develop an overall estimate of reporting unit fair values.

Under the income approach, we calculated the fair value of our reporting units based on estimated future discounted cash flows which required significant assumptions surrounding projected revenue growth rates, projected EBITDA margins and discount rates.

Under the market approach, we estimated the fair value based on market multiples of our revenue and EBITDA.

In all instances, the estimated fair values of our reporting units exceeded their carrying values and consequently did not result in an impairment.

The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) for our North America, EMEA, Latin America, Japan and Asia Pacific reporting units as of the testing date ranged from approximately 8% to 70%.

The excess of the estimated fair value over carrying value for our China reporting unit was approximately 170%.

To evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, the Company applied a hypothetical 5% decrease to the fair values of each reporting unit and compared those hypothetical values to the reporting unit carrying values.

Based on this hypothetical 5% decrease, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) for each of our reporting units ranged from approximately 3% to approximately 160%.

Significant judgment is required in determining our provision for income taxes, current tax assets and liabilities, deferred tax assets and liabilities, and our future taxable income, both as a whole and in various tax jurisdictions, for purposes of assessing our ability to realize future benefit from our deferred tax assets.

A valuation allowance may be established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning opportunities.

As of January 1, 2023, we had a valuation allowance of $251.3 million, which represents the portion of our deferred tax assets that management believes is not more likely than not to be realized.

As of December 31, 2023, we had a valuation allowance of $274.7 million, which represents the portion of our deferred tax assets that management believes is not more likely than not to be realized.

We will continue to assess the need for a valuation allowance on our deferred tax assets by evaluating both positive and negative evidence that may exist.

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While we believe that we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcome of examinations by tax authorities in determining the adequacy of our provision for income taxes.

See Note 6 to our Consolidated Financial Statements for more information on income taxes.

See Part II, Item 8, “Financial Statements and Supplementary Data—Note 6.

Income Taxes” for more information on income taxes.

Accounting for Business Combinations

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We record these adjustments to the provisional amounts with a corresponding offset to goodwill.

Any adjustments identified after the measurement period are recorded in the Consolidated Statements of Income.

Any adjustments identified after the measurement period are recorded in the Consolidated Statements of (Loss) Income.

Inventory Valuations

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis