What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-02 · 158 added, 209 removed, 106 unchanged (78% of the section changed)

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

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

In this Quarterly Report, all references to “we,” “our” and “us” refer to QuidelOrtho Corporation and its subsidiaries.

Future Uncertainties and Forward-Looking Statements

This Quarterly Report contains “forward-looking statements” within the meaning of 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 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.

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, and Section 21E of the Exchange Act.

These statements are 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, integration 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.

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

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

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.

the challenges and costs of integrating, restructuring and achieving anticipated synergies as a result of the Combinations;

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.

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Information Available on Our Website

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

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

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

The information contained on or connected to our website is 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.

The information contained on or connected to our website 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 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.

With our expertise in immunoassay and molecular testing, clinical chemistry and transfusion medicine, we aim to support clarity for 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 point-of-care settings, blood banks and donor centers, as well as for individual, non-professional, over-the-counter use.

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

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

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

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

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 and JPAC (Japan and Asia Pacific) are immaterial operating segments that are not considered reportable segments and are included in “Other.” We generate our revenue in the following business units:

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

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 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.

For the three months ended March 31, 2024, Total revenues decreased by 16% to $711.0 million as compared to the same period in the prior year, primarily driven by variability of our U.S.

respiratory products .

Currency exchange rates had an unfavorable 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 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 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 ended the national emergency in the U.S.

related to the COVID-19 pandemic.

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

Supply Chains

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 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.

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 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 and localization efforts, and the impact of such factors on our business.

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

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

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

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

Demand for our 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.

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.

For the three months ended March 31, 2024 and April 2, 2023, revenues related to our respiratory products accounted for approximately 19% and 31% of our Total revenues, respectively.

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.

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.

We expect overall demand for our non-respiratory and 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 we expect the revenues and financial results from our respiratory products to be affected by the seasonal demands of the cold, flu and RSV seasons, we intend to continue our focus on prudently managing our business and delivering improved financial results, while at the same time striving to introduce new products and services into the market.

While we expect the revenues and financial results from our non-respiratory and respiratory products to be affected by the highly competitive environment and 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.

Revenues from 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.

Historically, revenues from 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.

In addition, the SARS-CoV-2 virus may have similar seasonal demands and impacts on our revenues in the future.

Results of Operations

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

The following table compares Total revenues by business unit for the three months ended March 31, 2024 and April 2, 2023:

Three Months Ended

(Dollars in millions) March 31, 2024 April 2, 2023 % Change

Labs $ 356.9 $ 370.7 (4) %

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Total revenues $ 711.0 $ 846.1 (16) %

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

For the three months ended March 31, 2024, Total revenues decreased to $711.0 million from $846.1 million for the same period in the prior year.

Labs revenue decreased by $13.8 million, primarily due to a $20.7 million settlement award from a third party related to one of our collaboration agreements in the prior year period.

The Point of Care business unit contributed to revenue decline, driven by a decrease of $156.4 million in sales of QuickVue SARS Antigen assays primarily due to a COVID-19 government award in the prior year period, partially offset by an increase of $35.2 million in sales of Sofia SARS Antigen assays.

Molecular Diagnostics sales decreased by $4.2 million, driven primarily by lower demand.

Currency exchange rates had an unfavorable impact of approximately 100 basis points on the growth rate for the three months ended March 31, 2024.

Cost of Sales, Excluding Amortization of Intangible Assets

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.

Cost of sales, excluding amortization of intangible assets, decreased to $378.9 million, or 53.3% of Total revenues, for the three months ended March 31, 2024, compared to $397.5 million, or 47.0% of Total revenues, for the three months ended April 2, 2023.

The decrease in cost of sales, excluding amortization of intangible assets, was driven primarily by a prior year period COVID-19 government award, along with the corresponding inventory release of $39 million, partially offset by an increase in sales of Sofia SARS Antigen assays.

Operating Expenses

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

The following table summarizes operating expenses for the three months ended March 31, 2024 and April 2, 2023:

Three Months Ended

(Dollars in millions) March 31, 2024 % of

Total Revenues April 2, 2023 % of

Total Revenues

Selling, marketing and

administrative $ 194.1 26.1 % $ 204.2 26.1 % $ 575.6 25.5 % $ 407.4 17.0 %

Selling, marketing and administrative $ 204.7 28.8 % $ 202.4 23.9 %

Research and development 59.2 8.3 % 62.3 7.4 %

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Acquisition and integration costs 22.6 3.2 % 29.7 3.5 %

Other operating expense, net 7.4 1.0 % 4.0 0.5 % 17.0 0.8 % 8.0 0.3 %

Goodwill impairment charge 1,743.9 N/M — N/M

Other operating expenses 8.0 1.1 % 3.8 0.4 %

* N/M - Not meaningful

Selling, Marketing and Administrative Expenses

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.

Selling, marketing and administrative expenses for the three months ended March 31, 2024 increased by $2.3 million, or 1.1%, to $204.7 million from $202.4 million for the same period in the prior year.

Research and Development Expense

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.

Research and development expense for the three months ended March 31, 2024 decreased by $3.1 million, or 5.0%, to $59.2 million from $62.3 million for the same period in the prior year.

Amortization of Intangible Assets

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.

Amortization of intangible assets was $51.7 million and $50.8 million for the three months ended March 31, 2024 and April 2, 2023, respectively.

Acquisition and Integration Costs

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 $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.

Acquisition and integration costs were $22.6 million and $29.7 million for the three months ended March 31, 2024 and April 2, 2023, respectively.

The decrease in costs in the three months ended March 31, 2024 compared to the prior year period was primarily due to decreases in consulting costs and compensation related charges.

Goodwill Impairment Charge

During the three months ended March 31, 2024, we identified a triggering event requiring an interim goodwill impairment assessment for our reporting units.

As a result, we recognized a non-cash goodwill impairment charge of $1.7 billion for the North America reporting unit.

Refer to Item 1, "Financial Statements—Note 7.

Goodwill and Intangible Assets, Net” for more information.

Other Operating Expenses

Other operating expenses were $8.0 million and $3.8 million for the three months ended March 31, 2024 and April 2, 2023, respectively.

Other operating expenses were primarily related to the profit share expense for our Joint Business with Grifols.

Non-operating Expenses

Interest Expense, Net

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 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, 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.

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 non-U.S.

Interest expense, net was $39.0 million and $36.7 million for the three months ended March 31, 2024 and April 2, 2023, respectively.

See Item 1, "Financial Statements—Note 8.

Borrowings” for more information.

Other Expense, Net

Other expense, net was $1.9 million and $2.9 million for the three months ended March 31, 2024 and April 2, 2023, respectively.

For the three months ended March 31, 2024, we recognized an income tax benefit of $92.9 million in relation to loss before income taxes of $1,798.9 million, resulting in an effective benefit tax rate of 5.2%.

For the three months ended April 2, 2023, we recognized a provision for income taxes of $11.2 million in relation to income before income taxes of $60.0 million, resulting in an effective tax rate of 18.7%.

For the three months ended March 31, 2024, the effective tax rate differed from the U.S.

federal statutory rate primarily due to goodwill impairment charges that are nondeductible for tax purposes.

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

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

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

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

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

states and Global Intangible Low-Tax Income.

Segment Results

We operate under three geographically-based reportable segments:

North America;

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

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

North America, EMEA and China.

Our operations in Latin America and JPAC (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 (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.

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 Item 1, "Financial Statements—Note 4.

Segment and Geographic Information” 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 Nine Months Ended

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

Three Months Ended

(Dollars in millions) March 31, 2024 April 2, 2023 % Change

Total revenues $ 433.9 $ 582.8 (26) %

Adjusted EBITDA $ 218.8 $ 278.4 (21) %

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 were $433.9 million for the three months ended March 31, 2024, compared to $582.8 million for the three months ended April 2, 2023.

The decrease was primarily driven by a COVID-19 government award in the prior year period, partially offset by an increase in revenues for Sofia SARS Antigen assays.

Adjusted EBITDA was $218.8 million for the three months ended March 31, 2024, compared to $278.4 million for the three months ended April 2, 2023.

The decrease was primarily driven by a prior year period COVID-19 government award, along with the corresponding inventory release of $39 million, partially offset by an increase in revenues for Sofia SARS Antigen assays.

Total revenues and Adjusted EBITDA for EMEA were as follows:

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in millions) March 31, 2024 April 2, 2023 % Change

Total revenues $ 84.8 $ 81.3 4 %

Adjusted EBITDA $ 12.8 $ 7.2 78 %

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 were $84.8 million for the three months ended March 31, 2024, compared to $81.3 million for the three months ended April 2, 2023, primarily driven by an increase in Labs and Transfusion Medicine revenues.

Adjusted EBITDA was $12.8 million for the three months ended March 31, 2024, compared to $7.2 million for the three months ended April 2, 2023, primarily driven by an increase in Labs and Transfusion Medicine revenues.

Total revenues and Adjusted EBITDA for China were as follows:

Three Months Ended Nine Months Ended

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

Three Months Ended

(Dollars in millions) March 31, 2024 April 2, 2023 % Change

Total revenues $ 76.1 $ 70.6 8 %

Adjusted EBITDA $ 24.7 $ 28.5 (13) %

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 Nine Months Ended

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

Total revenues were $76.1 million for the three months ended March 31, 2024, compared to $70.6 million for the three months ended April 2, 2023, primarily driven by an increase in Labs revenues.

Adjusted EBITDA was $24.7 million for the three months ended March 31, 2024, compared to $28.5 million for the three months ended April 2, 2023.

The decrease was primarily driven by the impact from changes in product mix.

Total revenues and Adjusted EBITDA for Other were as follows:

Three Months Ended

(Dollars in millions) March 31, 2024 April 2, 2023 % Change

Total revenues $ 116.2 $ 111.4 4 %

Adjusted EBITDA $ 32.0 $ 21.8 47 %

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.

Total revenues w ere $116.2 million for the three months ended March 31, 2024, compared to $111.4 million for the three months ended April 2, 2023, primarily driven by an increase in Labs revenues.

Adjusted EBITDA was $32.0 million for the three months ended March 31, 2024, compared to $21.8 million for the three months ended April 2, 2023, primarily driven by an increase in Labs revenues and product mix.

Liquidity and Capital Resources

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

As of March 31, 2024 and December 31, 2023, our principal sources of liquidity consisted of the following:

(Dollars in millions) March 31, 2024 December 31, 2023

Cash and cash equivalents $ 78.5 $ 118.9

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Working capital including cash and cash equivalents and marketable securities, current $ 432.6 $ 476.7

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.

As of March 31, 2024, we had $78.5 million in Cash and cash equivalents, a $40.4 million decrease from December 31, 2023.

Our cash requirements fluctuate as a result of numerous factors, including cash generated from operations, progress in R&D,

capital expansion projects and acquisition and business development activities.

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

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

As of 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.

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.

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 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.

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 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.

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 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.

Availability under the Revolving Credit Facility, after deducting letters of credit of $13.0 million and $40.0 million borrowings outstanding, was $747.0 million as of March 31, 2024.

On April 25, 2024, we entered into the Amendment, by and among us, the lenders party thereto, and Bank of America, N.A., as administrative agent, which amends the Credit Agreement.

The Amendment sets a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) for the applicable measurement period as of the last day of each fiscal quarter of (a) 4.50 to 1.00 on or prior to June 30, 2023, (b) 4.00 to 1.00 after June 30, 2023 and on or prior to June 30, 2024, (c) 4.25 to 1.00 after June 30, 2024 and on or prior to December 31, 2024, (d) 4.00 to 1.00 after December 31, 2024 and on or prior to June 30, 2025 and (e) 3.75 to 1.00 each fiscal quarter after June 30, 2025.

The Credit Agreement contains 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 March 31, 2024.

Capital Expenditures

Capital expenditures, including investments, were $66.1 million for the three months ended March 31, 2024.

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

Cash Flow Summary

Nine Months Ended

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

Net cash provided by operating activities $ 199.8 $ 715.9

Three Months Ended

(In millions) March 31, 2024 April 2, 2023

Net cash (used for) provided by operating activities $ (0.7) $ 188.9

Net cash used for investing activities (20.2) (68.9)

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

Net cash used for financing activities (18.5) (59.6)

Effect of exchange rates on cash (1.1) 0.6

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

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 $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.

Net (decrease) increase in cash, cash equivalents and restricted cash $ (40.5) $ 61.0

Three Months Ended March 31, 2024

Cash used for operating activities was $0.7 million for the three months ended March 31, 2024, and reflected a net loss of $1,706.0 million and non-cash adjustments of $1,791.6 million, primarily associated with a goodwill impairment charge and change in deferred tax assets and liabilities as well as depreciation, amortization and stock-based compensation expense.

In addition, we benefited from collections on accounts receivables, which contributed cash inflows of $26.4 million, offset by other changes in working capital, including $37.7 million cash outflows for inventories.

Cash used for investing activities was $20.2 million for the three months ended March 31, 2024, and was primarily related to $66.1 million in purchases of property, plant, equipment, investments and intangibles.

We also sold $63.1 million of marketable securities.

Cash used for financing activities was $18.5 million for the three months ended March 31, 2024, and was primarily related to net proceeds from the Revolving Credit Facility of $40.0 million and payments on long-term borrowings of $51.9 million.

Three Months Ended April 2, 2023

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

We benefited from collections on accounts receivables of $187.2 million, primarily due to a COVID-19 government award, partially offset by other changes in working capital.

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

We also purchased $31.6 million and sold $28.4 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.

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

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;

• 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;

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

During the 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.

During the three months ended March 31, 2024, we transferred $37.8 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

Our future capital requirements and the adequacy of our available funds to service any long-term debt outstanding and to fund working capital expenditures and business development efforts will depend on many factors, including:

• our ability to successfully integrate the recently acquired Ortho business and realize cross-selling revenue synergies;

• our ability to successfully integrate the Ortho business and realize cross-selling revenue synergies;

• our ability to realize revenue growth from our new technologies and create innovative products in our markets;

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

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

This lease is expected to commence during the 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.

On March 1, 2024, our lease for warehouse space in the U.S.

Information regarding the lease is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Recent Accounting Pronouncements

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.

There have been no accounting pronouncements issued or adopted during the three months ended March 31, 2024 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 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, 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.

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

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

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.

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.

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.

Other than the following, there have been no significant changes to our critical accounting policies and estimates during the three months ended March 31, 2024:

Goodwill Impairment

We test goodwill for impairment on an annual basis on the first day of the fourth quarter and monitor throughout the year for impairment triggering events that indicate that the carrying value of one or more of our reporting units exceeds its fair value.

During the three months ended March 31, 2024, we concluded that (i) the sustained decline in our stock price and market capitalization occurred during the three months ended March 31, 2024, (ii) the faster than expected decline in COVID-19 and flu markets, and (iii) the recent delay in the timing of expected commercialization for Savanna were triggering events requiring an interim goodwill impairment assessment for all reporting units.

Based on our interim goodwill impairment assessment, we concluded that the North America reporting unit’s carrying value exceeded its estimated fair value.

As a result, we recorded a non-cash goodwill impairment charge of $1.7 billion in the first quarter of 2024 for the North America reporting unit, which represented a full impairment of the goodwill allocated to the North America reporting unit.

The decline in the estimated fair value of the North America reporting unit and the resulting impairment was primarily driven by revised short-term and mid-term forecasts for revenue and EBITDA expectations in North America.

The estimated fair values of our EMEA, Latin America and JPAC reporting units as of the interim testing date exceeded their respective carrying values.

The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) ranged from approximately 30% to 150%.

Due to the significant excess of fair value over carrying value of these reporting units, they are less sensitive to changes in forecast assumptions.

To evaluate the sensitivity of the fair value calculations used in the interim goodwill impairment test for the EMEA, Latin America and JPAC reporting units, we 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 25% to 140%.

The quantitative goodwill impairment assessment for all reporting units consisted of a fair value calculation that combines an income approach, using a discounted cash flow method, and a market approach, using the guideline public company method.

The quantitative goodwill impairment assessment requires the application of a number of significant assumptions, including estimates of future revenue growth rates, EBITDA margins, discount rates and market multiples.

The projected future revenue growth rates and EBITDA margins, and the resulting projected cash flows are based on historical experience and internal annual operating plans reviewed by management, extrapolated over the forecast period.

Discount rates are determined using a weighted average cost of capital adjusted for risk factors specific to the reporting units.

Market multiples are based on the guideline public company method using comparable publicly traded company multiples of revenue and EBITDA for a group of benchmark companies.

We believe the assumptions that were used in the quantitative goodwill impairment assessment are reasonable and consistent with assumptions that would be used by other marketplace participants.

Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our exposure to market risk from that described in "Item 7A.

Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report.

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