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Item 2. Management’s Discussion and Analysis

2024-08-01 compared with 2024-05-09 · 124 added, 81 removed, 183 unchanged (53% of the section changed)

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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.

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, our cost-savings initiatives, 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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Labs, Transfusion Medicine, Point of Care and Molecular Diagnostics.

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.

For the six months ended June 30, 2024, Total revenues decreased by 11% to $1,348.0 million as compared to the same period in the prior year, primarily driven by variability of our U.S.

respiratory products.

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

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.

For the six months ended June 30, 2024 and July 2, 2023, revenues related to our respiratory products accounted for approximately 14% and 23% of our Total revenues, respectively.

Planned Wind-Down of U.S.

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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.

Specifically, we plan to wind-down only the ORTHO VERSEIA ® Integrated Processor 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.

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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.

In addition, we expect to continue to evaluate strategic opportunities to (i) expand our product lines and services, production capabilities, technologies and geographic footprint and address other business challenges and opportunities, and (ii) rationalize and consolidate facilities with the goal to improve our long term results.

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.

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Results of Operations

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

The following table compares Total revenues by business unit for the three and six months ended June 30, 2024 and July 2, 2023:

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2024 July 2, 2023 % Change June 30, 2024 July 2, 2023 % Change

Labs $ 354.2 $ 361.4 (2) % $ 711.1 $ 732.1 (3) %

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Total revenues $ 637.0 $ 665.1 (4) % $ 1,348.0 $ 1,511.2 (11) %

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.

For the three months ended June 30, 2024, Total revenues decreased to $637.0 million from $665.1 million for the same period in the prior year.

Labs revenue decreased 2% compared to the prior year period, primarily due to a decline in instrument revenue, partially offset by growth in recurring revenue, which includes reagents, consumables and services in our Labs revenue.

Transfusion Medicine revenue decreased 1% compared to the prior year period, primarily due to the wind-down of the U.S.

donor screening business.

The decrease in Point of Care revenue of $17.1 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 $1.8 million compared to the prior year period.

Currency exchange rates had an unfavorable impact of approximately 100 basis points on our growth rate for the three months ended June 30, 2024.

For the six months ended June 30, 2024, Total revenues decreased to $1,348.0 million from $1,511.2 million for the same period in the prior year.

Labs revenue decreased by $21.0 million, primarily due to a $19.2 million settlement award from a third party related to one of our collaboration agreements in the prior year period.

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Molecular Diagnostics sales decreased by $6.0 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.

Currency exchange rates had an unfavorable impact of approximately 100 basis points on our growth rate for the six months ended June 30, 2024.

Cost of Sales, Excluding Amortization of Intangible Assets

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.

Cost of sales, excluding amortization of intangible assets, decreased to $361.0 million, or 56.7% of Total revenues, for the three months ended June 30, 2024, compared to $368.6 million, or 55.4% of Total revenues, for the three months ended July 2, 2023.

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

Cost of sales, excluding amortization of intangible assets, decreased to $739.9 million, or 54.9% of Total revenues, for the six months ended June 30, 2024, compared to $766.1 million, or 50.7% of Total revenues, for the six months ended July 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 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

The following table summarizes operating expenses for the three and six months ended June 30, 2024 and July 2, 2023:

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2024 % of

Total Revenues July 2, 2023 % of

Total Revenues June 30, 2024 % of

Total Revenues July 2, 2023 % of

Total Revenues

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

Selling, marketing and

administrative $ 188.2 29.5 % $ 179.1 26.9 % $ 392.9 29.1 % $ 381.5 25.2 %

Research and development 56.3 8.8 % 62.4 9.4 % 115.5 8.6 % 124.2 8.2 %

Amortization of intangible assets 51.9 8.1 % 51.4 7.7 % 103.6 7.7 % 102.2 6.8 %

Acquisition and integration costs 22.6 3.2 % 29.7 3.5 %

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

Integration related costs 30.9 4.9 % 24.2 3.6 % 53.5 4.0 % 53.9 3.6 %

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

Asset impairment charge 56.9 N/M 0.5 N/M 56.9 N/M 1.0 N/M

Other operating expenses 9.3 1.5 % 5.8 0.9 % 17.3 1.3 % 9.6 0.6 %

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Selling, Marketing and Administrative Expenses

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.

Selling, marketing and administrative expenses for the three months ended June 30, 2024 increased by $9.1 million, or 5.1%, to $188.2 million from $179.1 million for the same period in the prior year, primarily due to employee compensation costs.

Selling, marketing and administrative expenses for the six months ended June 30, 2024 increased by $11.4 million, or 3.0%, to $392.9 million from $381.5 million for the same period in the prior year, primarily due to employee compensation costs.

Research and Development Expense

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.

Research and development expense for the three months ended June 30, 2024 decreased by $6.1 million, or 9.8%, to $56.3 million from $62.4 million for the same period in the prior year, primarily due to lower compensation costs and outside services.

Research and development expense for the six months ended June 30, 2024 decreased by $8.7 million, or 7.0%, to $115.5 million from $124.2 million for the same period in the prior year, primarily due to lower compensation costs and outside services.

Amortization of Intangible Assets

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 $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.

Amortization of intangible assets was $51.9 million and $103.6 million for the three and six months ended June 30, 2024, respectively, and $51.4 million and $102.2 million for the three and six months ended July 2, 2023, respectively.

Integration Related Costs

Integration related costs were $30.9 million and $53.5 million for the three and six months ended June 30, 2024, respectively, and $24.2 million and $53.9 million for the three and six months ended July 2, 2023, respectively.

The increase in costs for the three months ended June 30, 2024 compared to the prior year period was primarily due to increases in compensation related charges, partially offset by decreases in consulting costs.

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.

During the six months ended June 30, 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.

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Goodwill and Intangible Assets, Net” for more information.

Asset Impairment Charge

During the three and six months ended June 30, 2024, we recognized an impairment charge of $56.9 million related to the long-lived assets classified as assets held for sale.

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

Assets Held for Sale” for more information.

Asset impairment charge was $0.5 million and $1.0 million for the three and six months ended July 2, 2023, respectively.

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 $9.3 million and $17.3 million for the three and six months ended June 30, 2024, respectively, and $5.8 million and $9.6 million for the three and six months ended July 2, 2023, respectively.

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

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Interest Expense, Net

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.

Interest expense, net was $41.0 million and $80.0 million for the three and six months ended June 30, 2024, respectively, and $36.5 million and $73.2 million for the three and six months ended July 2, 2023, respectively.

Refer to Item 1, “Financial Statements—Note 9.

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.

Other expense, net was $4.4 million and $6.3 million for the three and six months ended June 30, 2024, respectively, and $1.0 million and $3.9 million for the three and six months ended July 2, 2023, respectively.

The increases from prior year periods were primarily related to the Credit Agreement amendment fees.

Refer to Item 1, “Financial Statements—Note 9.

Borrowings” for more information.

For the three months ended June 30, 2024, we recognized an income tax benefit of $15.2 million in relation to loss before income taxes of $162.9 million, resulting in an effective tax rate of 9.3%.

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

For the three months ended June 30, 2024, the effective tax rate differed from the U.S.

federal statutory rate primarily due to Subpart F income and the Base Erosion and Anti-Abuse Tax liability.

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

federal statutory rate primarily due to non-U.S.

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

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

For the six months ended June 30, 2024, we recognized an income tax benefit of $108.1 million in relation to loss before income taxes of $1,961.8 million, resulting in an effective benefit tax rate of 5.5%.

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

For the six months ended June 30, 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.

For the six months ended July 2, 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 U.S.

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

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

states and Global Intangible Low-Tax Income.

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

Segment Results

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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 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.

Adjusted EBITDA consists of Net loss before Interest expense, net, Benefit from 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 and that we do not consider indicative of our ongoing operating performance.

Refer to Item 1, “Financial Statements—Note 4.

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

North America

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

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2024 July 2, 2023 % Change June 30, 2024 July 2, 2023 % Change

Total revenues $ 350.1 $ 378.8 (8) % $ 784.0 $ 961.6 (18) %

Adjusted EBITDA $ 173.9 $ 176.3 (1) % $ 392.7 $ 454.7 (14) %

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.

Total revenues were $350.1 million for the three months ended June 30, 2024, compared to $378.8 million for the three months ended July 2, 2023.

The decrease was primarily driven by lower demand for QuickVue SARS Antigen assays, partially offset by an increase in revenues for Sofia SARS Antigen assays.

Total revenues were $784.0 million for the six months ended June 30, 2024, compared to $961.6 million for the six months ended July 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.

Adjusted EBITDA was $173.9 million for the three months ended June 30, 2024, which decreased slightly compared to $176.3 million for the three months ended July 2, 2023.

Adjusted EBITDA was $392.7 million for the six months ended June 30, 2024, compared to $454.7 million for the six months ended July 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

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

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2024 July 2, 2023 % Change June 30, 2024 July 2, 2023 % Change

Total revenues $ 81.1 $ 80.6 1 % $ 165.9 $ 161.9 2 %

Adjusted EBITDA $ 11.4 $ 5.3 115 % $ 24.2 $ 12.5 94 %

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 were $81.1 million for the three months ended June 30, 2024, which increased slightly compared to $80.6 million for the three months ended July 2, 2023.

Total revenues were $165.9 million for the six months ended June 30, 2024, compared to $161.9 million for the six months ended July 2, 2023, primarily driven by an increase in Labs and Transfusion Medicine revenues.

Adjusted EBITDA was $11.4 million for the three months ended June 30, 2024, compared to $5.3 million for the three months ended July 2, 2023.

The increase was primarily driven by higher Transfusion Medicine revenues, product mix and lower operating expenses.

Adjusted EBITDA was $24.2 million for the six months ended June 30, 2024, compared to $12.5 million for the six months ended July 2, 2023, primarily driven by an increase in Labs and Transfusion Medicine revenues and product mix.

Total revenues and Adjusted EBITDA for China were as follows:

Three Months Ended

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

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2024 July 2, 2023 % Change June 30, 2024 July 2, 2023 % Change

Total revenues $ 81.6 $ 81.3 0 % $ 157.7 $ 151.9 4 %

Adjusted EBITDA $ 35.8 $ 30.2 19 % $ 60.5 $ 58.7 3 %

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 were $81.6 million for the three months ended June 30, 2024, which increased slightly compared to $81.3 million for the three months ended July 2, 2023 driven by an increase in Labs revenues, offset by a decrease in Point of Care revenue.

Total revenues were $157.7 million for the six months ended June 30, 2024, compared to $151.9 million for the six months ended July 2, 2023, primarily driven by an increase in Labs revenues.

Adjusted EBITDA was $35.8 million for the three months ended June 30, 2024, compared to $30.2 million for the three months ended July 2, 2023.

The increase was primarily driven by higher Labs revenues and the impact from changes in product mix.

Adjusted EBITDA was $60.5 million for the six months ended June 30, 2024, compared to $58.7 million for the six months ended July 2, 2023.

The increase was primarily driven by higher Labs revenues and 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

Three Months Ended Six Months Ended

(Dollars in millions) June 30, 2024 July 2, 2023 % Change June 30, 2024 July 2, 2023 % Change

Total revenues $ 124.2 $ 124.4 0 % $ 240.4 $ 235.8 2 %

Adjusted EBITDA $ 34.1 $ 36.3 (6) % $ 66.1 $ 58.1 14 %

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.

Total revenues were $124.2 million for the three months ended June 30, 2024, which decreased slightly compared to $124.4 million for the three months ended July 2, 2023.

Total revenues were $240.4 million for the six months ended June 30, 2024, compared to $235.8 million for the six months ended July 2, 2023, primarily driven by an increase in Labs revenues.

Adjusted EBITDA was $34.1 million for the three months ended June 30, 2024, compared to $36.3 million for the three months ended July 2, 2023.

The decrease was primarily driven by higher operating expenses.

Adjusted EBITDA was $66.1 million for the six months ended June 30, 2024, compared to $58.1 million for the six months ended July 2, 2023, primarily driven by an increase in Labs revenues and product mix.

Liquidity and Capital Resources

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

As of June 30, 2024 and December 31, 2023, our principal sources of liquidity consisted of the following:

(Dollars in millions) June 30, 2024 December 31, 2023

Cash and cash equivalents $ 107.0 $ 118.9

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Working capital including cash and cash equivalents and marketable securities, current $ 408.9 $ 476.7

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

As of June 30, 2024, we had $107.0 million in Cash and cash equivalents, a $11.9 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,

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

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.

Availability under the Revolving Credit Facility, after deducting letters of credit of $13.0 million and $253.0 million borrowings outstanding, was $534.0 million as of June 30, 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 amended 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.

We were in compliance with the financial covenants as of June 30, 2024.

Capital Expenditures

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

Capital expenditures, including investments, were $101.4 million for the six months ended June 30, 2024.

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

Cash Flow Summary

Three Months Ended

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

Six Months Ended

(In millions) June 30, 2024 July 2, 2023

Net cash (used for) provided by operating activities $ (98.6) $ 158.3

Net cash used for investing activities (55.5) (111.2)

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

Net cash provided by (used for) financing activities 144.0 (159.3)

Effect of exchange rates on cash (1.9) (2.1)

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.

Net decrease in cash, cash equivalents and restricted cash $ (12.0) $ (114.3)

Six Months Ended June 30, 2024

Cash used for operating activities was $98.6 million for the six months ended June 30, 2024, and reflected a net loss of $1,853.7 million and non-cash adjustments of $1,971.1 million, primarily associated with a goodwill impairment charge and change in deferred tax assets and liabilities as well as depreciation and amortization, asset impairment charge and stock-based compensation expense.

In addition, we benefited from collections on accounts receivables, which contributed cash inflows of $24.2 million, offset by other changes in working capital, including $95.2 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.

Cash used for investing activities was $55.5 million for the six months ended June 30, 2024, and was primarily related to $101.4 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.

Cash provided by financing activities was $144.0 million for the six months ended June 30, 2024, and was primarily related to net proceeds from the Revolving Credit Facility of $253.0 million, partially offset by payments on long-term borrowings of $103.7 million.

Six Months Ended July 2, 2023

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

We benefited from collections on accounts receivables of $214.5 million, primarily due to a COVID-19 government award, offset by other changes in working capital.

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

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

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.

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

Liquidity Outlook

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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 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.

During the six months ended June 30, 2024, we transferred $69.2 million of instrument inventories from Inventories to Property, plant and equipment, net, further increasing our investment in property, plant and equipment.

Long-term Liquidity Outlook

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Recent Accounting Pronouncements

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.

There have been no accounting pronouncements issued or adopted during the six months ended June 30, 2024 that are expected to have a material impact on the Company’s financial statements.

Critical Accounting Estimates

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A comprehensive discussion of our critical accounting estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

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:

Other than the following, there have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 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.

During the first quarter of 2024, we concluded that (i) the sustained decline in our stock price and market capitalization occurred during the first quarter of 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.

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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-Q

Item 2. Management’s Discussion and Analysis