Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve material risks and uncertainties. This discussion should be read in conjunction with the section entitled “Future Uncertainties and Forward-Looking Statements” on page 4 and the “Risk Factors” starting on page 25 of this Annual Report. In addition, our discussion of QuidelOrtho’s financial condition and results of operation
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s in this Item 7 should be read in conjunction with our Consolidated Financial Statements and the related Notes included elsewhere in this Annual Report.
Overview
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 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. We operate globally with manufacturing facilities in the U.S. and U.K. and with sales centers, administrative offices and warehouses located throughout the world.
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 (Immunohematology and Donor Screening product categories), Point of Care and Molecular Diagnostics. We also generate non-core revenue, including through our contract manufacturing business and certain business collaborations, which accounted for $94.2 million, $125.0 million and $73.1 million for fiscal years ended 2024, 2023 and 2022, respectively.
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. Our Consolidated Financial Statements for fiscal years ended 2024 and 2023 each include a full year of Ortho operations. For additional information about the Combinations, refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 2. Business Combination.”
For fiscal year ended 2024, Total revenues decreased by 7% to $2,782.9 million as compared to the prior year. For fiscal year ended 2023, Total revenues decreased by 8% to $2,997.8 million as compared to the prior year. These decreases were primarily driven by variability of our U.S. respiratory products. Currency exchange rates had an unfavorable impact of approximately 60 basis points and 100 basis points on our growth rates for fiscal years ended 2024 and 2023, respectively. Our revenues can be highly concentrated over a small number of products, including certain of our respiratory products. For fiscal years ended 2024, 2023 and 2022, revenues related to our respiratory products accounted for approximately 18%, 24% and 57% 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. 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. The winding down of the U.S. donor screening portfolio, as compared to prior years, contributed to the decline in revenue with a margin lower than our overall margin. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 4. Revenue” for more information. The wind-down of our U.S. donor screening portfolio is expected to be substantially complete by the end of 2025.
Supply Chains
We obtain raw materials from reputable outside suppliers and believe our business relationships with them are good. Some of our raw materials are available from a limited number of sources. While we encountered increasing pressures on raw material pricing during fiscal years ended 2023 and 2022, inflationary impacts during fiscal year ended 2024 lessened and returned closer to pre-COVID-19 pandemic levels. To help mitigate these supply chain challenges, we (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, (iii) create redundancy in our global supply chain and (iv) insource activity where it makes strategic and financial sense. In addition, we routinely evaluate our supply chain for potential gaps and continue to take other steps intended to help address continuity.
Outlook
Our financial performance and results of operations will depend on future developments and other factors that are highly uncertain, continuously evolving and unpredictable, including the occurrence, spread, severity, duration and emergence of new variants of respiratory diseases, including flu, strep, RSV and COVID-19, as well as ongoing supply, production and logistics challenges.
Demand for our respiratory products, which includes our COVID-19 products, declined in 2024 compared to 2023 due to the decreased occurrence and duration of COVID-19 in an endemic environment and a COVID-19 government award in 2023 that
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did not occur in 2024. 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 season, which are typically more prevalent during the fall and winter.
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 efficiencies. 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 our respiratory products to be affected by the seasonal demands of the respiratory season, we intend to continue our focus on prudently managing our business and delivering improved financial results, while at the same time striving to introduce new products and services into the market.
Results of Operations
Comparison of fiscal years ended 2024, 2023 and 2022
Our fiscal year is the 52 or 53 weeks ending the Sunday closest to December 31. Fiscal years ended 2024, 2023 and 2022 were 52 weeks.
Revenues
The following table compares Total revenues by business unit for fiscal years ended 2024, 2023 and 2022:
Fiscal Year Ended
(1) For presentation purposes, as a result of the wind-down of the U.S. donor screening portfolio, the previously reported Transfusion Medicine business unit is shown in its two product categories: Immunohematology and Donor Screening. Prior periods have been revised to align with the current period presentation.
For fiscal year ended 2024, Total revenues decreased to $2,782.9 million from $2,997.8 million for the prior year. The increase in Labs revenue was primarily related to growth in reagents, consumables and services, partially offset by decreased COVID-19 and non-core revenue compared to the prior year. Immunohematology revenue increased 2% compared to the prior year period, primarily due to reagent growth. Donor Screening revenue decreased 15% compared to the prior year period, primarily due to the wind-down of the U.S. donor screening business. The Point of Care business unit contributed to revenue decline, driven by a decrease of $188.6 million in sales of QuickVue SARS Antigen assays, primarily due to a COVID-19 government award in the prior year period, and a decrease of $5.8 million in sales of Sofia SARS Antigen assays. Molecular Diagnostics sales decreased by $7.7 million, primarily driven by lower demand. Currency exchange rates had an unfavorable impact of approximately 60 basis points on the growth rate for fiscal year ended 2024.
For fiscal year ended 2023, Total revenues decreased to $2,997.8 million from $3,266.0 million for the prior year. The increases in Labs, Immunohematology and Donor Screening revenues were primarily related to incremental revenues from the Combinations. Additionally, the increase in Labs revenue included a $19.2 million settlement award from a third party related to one of our collaboration agreements. The Point of Care business unit contributed to revenue decline, driven by decreases of $846.0 million in sales of QuickVue SARS Antigen assays and $219.1 million in sales of Sofia SARS Antigen assays. Molecular Diagnostics revenue decreased by $65.0 million, primarily driven by lower demand for the Lyra SARS Antigen assay due to the end of the public health emergency in the U.S. Currency exchange rates had an unfavorable impact of approximately 100 basis points on the growth rate for fiscal year ended 2023.
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Cost of Sales, Excluding Amortization of Intangible Assets
Cost of sales, excluding amortization of intangible assets, was $1,496.4 million, or 53.8% of Total revenues, for fiscal year ended 2024, compared to $1,500.7 million, or 50.1% of Total revenues, for fiscal year ended 2023. The increase in cost of sales, excluding amortization of intangible assets as a percentage of revenue, was driven primarily by product mix, partially offset by a prior year period COVID-19 government award, along with the corresponding inventory reserve release of $39 million.
Cost of sales, excluding amortization of intangible assets, increased to $1,500.7 million, or 50.1% of Total revenues, for fiscal year ended 2023, compared to $1,329.8 million, or 40.7% of Total revenues, for fiscal year ended 2022. The increase in cost of sales, excluding amortization of intangible assets as a percentage of revenue, was primarily driven by incremental revenues in the Labs, Immunohematology and Donor Screening business units as a result of the Combinations and a decrease in sales of respiratory products. We also recorded $60.6 million of expense related to the unwind of the inventory fair value adjustment related to the Combinations during fiscal year ended 2022.
Operating Expenses
The following table summarizes operating expenses for fiscal years ended 2024, 2023 and 2022:
Fiscal Year Ended
Goodwill impairment charge 1,822.6 N/M — N/M — N/M
Asset impairment charge 56.9 N/M 4.5 N/M 2.8 N/M
* N/M - Not meaningful
Selling, Marketing and Administrative Expenses
Selling, marketing and administrative expenses for fiscal year ended 2024 increased by $3.6 million, or 0.5%, to $766.8 million from $763.2 million for the prior year, primarily due to higher incentive-based employee compensation costs, partially offset by compensation costs related to cost-savings initiatives and lower advertising costs.
Selling, marketing and administrative expenses for fiscal year ended 2023 increased by $142.2 million, or 22.9%, to $763.2 million from $621.0 million for the prior year, primarily due to the incremental impact of the Combinations, partially offset by freight expense due to lower sales and shipment volume and lower employee compensation costs.
Research and Development Expense
Research and development expense for fiscal year ended 2024 decreased by $26.3 million, or 10.7%, to $218.7 million from $245.0 million for the prior year, primarily due to lower employee compensation costs and costs of outside services.
Research and development expense for fiscal year ended 2023 increased by $57.1 million, or 30.4%, to $245.0 million from $187.9 million for the prior year, primarily due to the incremental impact of the Combinations, as well as increased costs related to the development of Savanna, QuickVue OTC assays and Sofia products.
Amortization of Intangible Assets
Amortization of intangible assets for fiscal years ended 2024, 2023 and 2022 was $203.4 million, $204.8 million and $132.5 million, respectively. The increase in amortization expense in fiscal year ended 2023 compared to fiscal year ended 2022 was primarily due to the Combinations.
Acquisition and Integration Costs
Acquisition and integration costs were $127.2 million, $113.4 million and $136.0 million for fiscal years ended 2024, 2023 and 2022, respectively. The increase in costs in fiscal year ended 2024 compared to fiscal year ended 2023 was primarily due to employee compensation related charges and consulting costs. The decrease in costs in fiscal year ended 2023 compared to fiscal
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year ended 2022 was primarily due to acquisition costs attributable to the Combinations, partially offset by higher integration-related costs.
Goodwill Impairment Charge
During fiscal year ended 2024, we recognized a non-cash goodwill impairment charge of $1.8 billion. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 9. Goodwill and Intangible Assets, Net” for more information.
Asset Impairment Charge
During fiscal year ended 2024, we recognized an impairment charge of $56.9 million related to the long-lived assets classified as assets held for sale. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 8. Assets Held for Sale” for more information. Asset impairment charges were $4.5 million and $2.8 million for fiscal years ended 2023 and 2022, respectively.
Other Operating Expenses
Other operating expenses were $51.8 million, $27.1 million and $12.3 million for fiscal years ended 2024, 2023 and 2022, respectively, which were primarily related to the profit share expense for our Joint Business with Grifols and, in fiscal year ended 2024, a $20.0 million write off of the tax assessment refund. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 5. Segment and Geographic Information” for more information.
Non-operating Expenses
Interest Expense, Net
Interest expense, net was $163.5 million, $147.6 million and $75.7 million for fiscal years ended 2024, 2023 and 2022, respectively. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 10. Borrowings” for more information.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was $24.0 million for fiscal year ended 2022, and was related to the satisfaction and discharge of the senior notes and termination of the former term loans and revolving credit facility of Ortho, which occurred in connection with the consummation of the Combinations.
Other Expense, Net
Other expense, net was $7.1 million, $20.6 million and $8.1 million for fiscal years ended 2024, 2023 and 2022, respectively. The decrease in Other expense, net in fiscal year ended 2024 compared to fiscal year ended 2023 was primarily related to (i) a prior year release of tax reserves upon the settlement of certain U.S. federal tax matters, with an offsetting benefit recorded to income tax expense, and (ii) Credit Agreement amendment fees, partially offset by loss on investments in the prior year period. The increase in Other expense, net in fiscal year ended 2023 compared to fiscal year ended 2022 was primarily related to (i) the release of tax reserves upon the settlement of certain U.S. federal tax matters, with an offsetting benefit recorded to income tax expense and (ii) net foreign currency losses. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 6. Income Taxes” for more information.
Income Taxes
For fiscal years ended 2024 and 2023, we recognized income tax benefits of $79.5 million in relation to loss before taxes of $2,131.5 million and $19.0 million in relation to loss before taxes of $29.1 million, resulting in effective tax rates of 3.7% and 65.3%, respectively. For fiscal year ended 2024, the effective tax rate differed from the U.S. federal statutory rate primarily due to goodwill impairment charges that were nondeductible for tax purposes. For fiscal year ended 2023, the effective tax rate differed from the U.S. federal statutory rate primarily due to a decrease in our pre-acquisition U.S. federal reserves for uncertain tax positions due to settlement of certain tax matters partially offset by net operating losses in certain subsidiaries not being benefited due to the establishment of valuation allowances and Global Intangible Low-Taxed Income.
We recognized an income tax benefit of $19.0 million, resulting in an effective tax rate of 65.3% for fiscal year ended 2023, compared to an income tax provision of $187.2 million, resulting in an effective tax rate of 25.4% for fiscal year ended 2022. For fiscal year ended 2022, the effective tax rate differed from the U.S. federal statutory rate, primarily due to income taxes owed in certain U.S. states, foreign income taxed at rates other than the applicable U.S. rate, and the deduction for foreign derived intangible income.
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Segment Results
We operate under three geographically-based reportable segments: 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.” In the fourth quarter of 2024, we revised the internal allocation of certain global costs primarily between the North America segment and Corporate to better align costs that impact us as a whole. Prior periods have been revised to align with the current period presentation.
The key indicators that we monitor are as follows:
•Total revenues — This measure is discussed in the section entitled “Results of Operations.”
•Adjusted EBITDA — Adjusted EBITDA by reportable segment is used by our management to measure and evaluate the internal operating performance of our reportable segments. It is also the basis for calculating certain management incentive compensation programs. 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. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 5. Segment and Geographic Information” for a reconciliation of Adjusted EBITDA by reportable segment to (Loss) income before income taxes.
North America
Total revenues and Adjusted EBITDA for North America were as follows:
Fiscal Year Ended
Total revenues were $1,619.8 million for fiscal year ended 2024, compared to $1,877.1 million for fiscal year ended 2023. The decrease was primarily driven by (i) a decrease in Point of Care revenue, primarily due to a COVID-19 government award in the prior year period, (ii) the wind-down of the U.S. donor screening business and (iii) the settlement award from a third party related to one of our collaboration agreements in the prior year period.
Total revenues were $1,877.1 million for fiscal year ended 2023, compared to $2,536.5 million for fiscal year ended 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 $892.1 million for fiscal year ended 2024, compared to $1,025.2 million for fiscal year ended 2023. The decrease was primarily driven by (i) a COVID-19 government award in the prior year period, along with the corresponding inventory reserve release of $39 million, (ii) the wind-down of the U.S. donor screening business and (iii) the settlement award from a third party related to one of our collaboration agreements in the prior year period, partially offset by a decrease in employee compensation costs and other operating expenses.
Adjusted EBITDA was $1,025.2 million for fiscal year ended 2023, compared to $1,689.2 million for fiscal year ended 2022. The decrease was primarily driven by lower demand for QuickVue and Sofia SARS Antigen assays, partially offset by decreased distribution costs and approximately $160 million of incremental impact of the Combinations.
EMEA
Total revenues and Adjusted EBITDA for EMEA were as follows:
Fiscal Year Ended
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Total revenues were $335.8 million for fiscal year ended 2024, compared to $327.3 million for fiscal year ended 2023. The increase was primarily driven by increases in Immunohematology and Point of Care revenues.
Total revenues were $327.3 million for fiscal year ended 2023, compared to $206.8 million for fiscal year ended 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 $46.5 million for fiscal year ended 2024, compared to $41.0 million for fiscal year ended 2023. The increase was primarily driven by increases in Immunohematology and Point of Care revenues.
Adjusted EBITDA was $41.0 million for fiscal year ended 2023, compared to $31.4 million for fiscal year ended 2022. The increase was primarily driven by incremental revenues from the Combinations, partially offset by lower Point of Care revenue and increased selling and distribution costs.
China
Total revenues and Adjusted EBITDA for China were as follows:
Fiscal Year Ended
Total revenueswere $325.0 million for fiscal year ended 2024, compared to $310.1 million for fiscal year ended 2023. The increase was primarily driven by an increase in Labs revenue, partially offset by a decrease in Point of Care revenue.
Total revenueswere $310.1 million for fiscal year ended 2023, compared to $220.0 million for fiscal year ended 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 $130.5 million for fiscal year ended 2024, compared to $127.2 million for fiscal year ended 2023. The increase was primarily driven by an increase in Labs revenue, partially offset by a decrease in Point of Care revenue and the impact from changes in product mix.
Adjusted EBITDA was $127.2 million for fiscal year ended 2023, compared to $99.4 million for fiscal year ended 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.
Other
Total revenues and Adjusted EBITDA for Other were as follows:
Fiscal Year Ended
Total revenues were $502.3 million for fiscal year ended 2024, compared to $483.3 million for fiscal year ended 2023. The increase was primarily driven by an increase in Labs revenue, partially offset by a decrease in Point of Care revenue.
Total revenues were $483.3 million for fiscal year ended 2023, compared to $302.7 million for fiscal year ended 2022. The increase was primarily driven by incremental revenues of $177.1 million from the Combinations and higher Labs revenue, partially offset by lower Point of Care revenue.
Adjusted EBITDA was $133.5 million for fiscal year ended 2024, compared to $115.3 million for fiscal year ended 2023. The increase was primarily driven by an increase in Labs revenue and a decrease in operating expenses, partially offset by a decrease in Point of Care revenue.
Adjusted EBITDA was $115.3 million for fiscal year ended 2023, compared to $91.2 million for fiscal year ended 2022. The increase was primarily driven by approximately $37 million of incremental impact of the Combinations, partially offset by lower Point of Care revenue.
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Liquidity and Capital Resources
As of December 29, 2024 and December 31, 2023, our principal sources of liquidity consisted of the following:
Cash and cash equivalents $ 98.3 $ 118.9
Marketable securities, current — 48.4
Marketable securities, non-current — 7.4
Total cash, cash equivalents and marketable securities $ 98.3 $ 174.7
Amount available to borrow under the Revolving Credit Facility $ 589.0 $ 787.1
As of December 29, 2024, we had $98.3 million in Cash and cash equivalents, a $20.6 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.
Debt Capitalization
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 $198.0 million borrowings outstanding, was $589.0 million as of December 29, 2024.
On April 25, 2024, we entered into Amendment No. 2 to the Credit Agreement, by and among us, the lenders party thereto, and Bank of America, N.A., as administrative agent. 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 December 29, 2024.
Receivables Purchase Agreement
On March 31, 2023, we entered into an amendment to our existing 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.
Stock Repurchases
On August 17, 2022, our Board authorized the Stock Repurchase Program, allowing us to repurchase up to $300.0 million of our common stock, which expired on August 17, 2024. We did not repurchase any shares of our common stock during fiscal year ended 2024 through the expiration date. For the fiscal year ended 2023, we repurchased 120,000 shares of outstanding common stock under the Stock Repurchase Program for approximately $7.2 million.
Capital Expenditures
Annual capital expenditures, including investments, net of proceeds from government assistance allocated to fixed assets, were approximately $195 million, $196 million and $123 million in fiscal years ended 2024, 2023 and 2022, respectively. We
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continue to make capital expenditures in connection with the expansion of our manufacturing capabilities and other facility-related activities.
Cash Flow Summary
Fiscal Year Ended
Net cash provided by operating activities $ 83.0 $ 280.2 $ 885.3
Net cash provided by (used for) financing activities 48.8 (265.8) 252.0
Effect of exchange rates on cash (2.9) (1.2) (2.0)
Fiscal Year Ended December 29, 2024
Cash provided by operating activities was $83.0 million for fiscal year ended 2024, and reflected a net loss of $2,052.0 million and non-cash adjustments of $2,293.7 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. Cash provided by operating activities was also driven by $134.1 million of cash outflows for inventories.
Cash used for investing activities was $149.9 million for fiscal year ended 2024, and was primarily related to $195.1 million in purchases of property, equipment, investments and intangibles, partially offset by $9.3 million in net proceeds from the sale of the McKellar, San Diego, CA facility. We also purchased $7.2 million and sold $63.1 million of marketable securities during fiscal year ended 2024.
Cash provided by financing activities was $48.8 million for fiscal year ended 2024, and was primarily related to net proceeds from the Revolving Credit Facility of $198.0 million, partially offset by payments on long-term borrowings of $143.0 million.
Fiscal Year Ended December 31, 2023
Cash provided by operating activities was $280.2 million for fiscal year ended 2023, and reflected a net loss of $10.1 million and non-cash adjustments of $485.2 million, primarily associated with depreciation and amortization, stock-based compensation expense, change in deferred tax assets and liabilities and accretion of interest on deferred consideration. In addition, we benefited from collections on accounts receivables, which contributed $160.0 million to Cash provided by operating activities, offset by other changes in working capital, including $211.6 million of cash outflows for inventories.
Cash used for investing activities was $187.6 million for fiscal year ended 2023, and was primarily related to $209.3 million in purchases of property, equipment, investments and intangibles and $13.5 million in proceeds from government assistance allocated to fixed assets. We also purchased $60.1 million and sold $78.3 million of marketable securities during fiscal year ended 2023.
Cash used for financing activities was $265.8 million for fiscal year ended 2023, and was primarily related to payments on long-term borrowings of $228.0 million, payments of deferred consideration of $30.3 million and payments of tax withholdings related to vesting of stock-based awards of $13.5 million.
Fiscal Year Ended January 1, 2023
Cash provided by operating activities was $885.3 million for fiscal year ended 2022, and reflected net income of $548.7 million and non-cash adjustments of $389.8 million, primarily associated with depreciation and amortization, stock-based compensation expense, change in deferred tax assets and liabilities, loss on extinguishment of debt and the unwind of the inventory fair value step up initially recorded in connection with the Combinations. In addition, we benefited from collections on accounts receivables, which contributed $150.2 million to Cash provided by operating activities, offset by other changes in working capital, including $116.9 million of cash outflows for inventories.
Cash used for investing activities was $1,644.2 million for fiscal year ended 2022, and was primarily related to the Combinations. We purchased $140.9 million of property, equipment, investments and intangibles and received $18.4 million in proceeds from government assistance allocated to fixed assets. We also purchased $63.7 million and sold $53.4 million of marketable securities during 2022. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 2. Business Combination” for further discussion regarding the Combinations.
Cash provided by financing activities was $252.0 million for fiscal year ended 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
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costs of $2,388.3 million, repurchases of common stock of $74.3 million and payments of $37.7 million for contingent and deferred consideration.
Liquidity Outlook
Short-term Liquidity Outlook
Our primary source of liquidity, other than our holdings of Cash and cash equivalents, has been cash flows from operations. Cash generated from operations provides us with the financial flexibility we need to meet normal operating, investing and financing needs. We anticipate that our current Cash and cash equivalents, together with cash provided by operating activities and amounts available under our Revolving Credit Facility, will be sufficient to fund our near-term capital and operating needs for at least the next 12 months.
Normal operating needs include the planned costs to operate our business, including amounts required to fund working capital, R&D and capital expenditures. 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 and lease obligations;
•acquisitions of property, equipment and other fixed assets in support of our manufacturing facility expansions;
•the continued advancement of R&D efforts;
•our integration of the Ortho business arising from the Combinations;
•support of commercialization efforts related to our current and future products, including support of our direct sales force and field support resources; and
•potential strategic acquisitions and investments.
Due to the risks inherent in the product development process, we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization. Our R&D costs may be substantial as we move product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development.
The primary purposes of our capital expenditures are to invest in manufacturing capacity expansion, acquire certain of our instruments,acquire scientific equipment, purchase or develop IT and implement facility improvements. We plan to fund the capital expenditures with the cash on our balance sheet.
We are focused on expanding the number of instruments placed in the field and solidifying long-term contractual relationships with customers. In order to achieve this goal, in certain jurisdictions where it is permitted, we have leveraged a reagent rental model that has been recognized as more attractive to certain customers. In this model, we lease, rather than sell, instruments to our customers. Over the term of the contract, the purchase price of the instrument is embedded in the price of the assays and reagents. Going forward, we intend to increase the number of reagent rental placements in developed markets, a strategy that we believe is beneficial to our commercial goals because it lowers our customers’ upfront capital costs and therefore allows purchasing decisions to be made at the lab manager level. For these same reasons, the reagent rental model also benefits our commercial strategy in emerging markets. We believe that the shift in our sales strategy will grow our installed base, thereby increasing sales of higher-margin assays, reagents and other consumables over the life of the customer contracts and enhancing our recurring revenue and cash flows. During fiscal year ended 2024, we transferred $148.9 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 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;
•outstanding debt and covenant restrictions;
•our ability to leverage our operating expenses to realize operating profits as we grow revenue;
•competing technological and market developments; and
•our entry into strategic collaborations with other companies or acquisitions of other companies or technologies to enhance or complement our product and service offerings.
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Contractual Obligations and Off-Balance Sheet Arrangements
In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. Information regarding our obligations relating to debt, income taxes, lease arrangements, purchase obligations and licensing arrangements are provided in Part II, Item 8, “Financial Statements and Supplementary Data—Note 10. Borrowings,” “—Note 6. Income Taxes,” “—Note 11. Leases” and “—Note 14. Commitments and Contingencies,” respectively.
We do not have any off-balance sheet arrangements that are material or reasonably likely to become material to our financial condition or results of operations.
Recent Accounting Pronouncements
Information about recently adopted and proposed accounting pronouncements is included in Part II, Item 8, “Financial Statements and Supplementary Data—Note 1. Basis of Presentation and Summary of Significant Accounting Policies.”
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses. Our critical accounting estimates are those that significantly affect our financial condition and results of operations and require the most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain. Because of this uncertainty, actual results may vary from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Allowance for Contractual Rebates
We record revenues primarily from product sales. These revenues are recorded net of rebates that are estimated at the time of sale, and are largely driven by various customer program offerings, including special pricing agreements and promotions. Rebates are calculated based on historical experience, estimated distributor inventory balances, contractual and statutory requirements and other relevant information, and are recorded as a reduction of sales. These rebates are presented as either an offset to trade accounts receivable or a liability based on forms of settlement. The allowance for contractual rebates involves estimating adjustments to revenue based on a high volume of data including inputs from third-party sources. In addition, the determination of such adjustments includes estimating rebate percentages which are dependent on estimated end-user sales mix and customer contractual terms, which vary across customers, the related balance of which was $39.8 million of our rebate reserves at December 29, 2024.
Goodwill and Intangible Assets
The useful lives of intangible assets with definite lives are based on the expected number of years the asset will generate revenue or otherwise be used by us and the related amortization is based on the straight-line method. Goodwill, which has an indefinite life, is not amortized but instead is tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include:
•the asset’s ability to continue to generate income from operations and positive cash flow in future periods;
•any volatility or significant decline in our stock price and market capitalization compared to our net book value;
•loss of legal ownership or title to an asset;
•significant changes in our strategic business objectives and utilization of our assets; and
•the impact of significant negative industry or economic trends.
If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported results would increase.
For goodwill, the entity has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The quantitative impairment test compares the fair value of a reporting unit with the carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is recorded.
As a result of the identification of indicators of impairment during the first quarter of 2024, we performed an interim impairment test that resulted in a non-cash goodwill impairment charge of $1.7 billion for the North America reporting unit. For our annual evaluation for impairment of goodwill as of September 30, 2024, we bypassed the qualitative assessment and
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proceeded directly to the quantitative goodwill impairment test for all reporting units. This quantitative analysis required us to make estimates and assumptions in order to calculate the fair value of our reporting units. We utilized the values separately derived from both income and market approach valuation techniques to develop an overall estimate of reporting unit fair values. Under the income approach, we calculated the fair value of our reporting units based on estimated future discounted cash flows which required significant assumptions surrounding projected revenue growth rates, projected EBITDA margins and discount rates. Under the market approach, we estimated the fair value based on market multiples of our revenue and EBITDA. We concluded that the China and JPAC reporting units’ carrying values exceeded their respective estimated fair values. As a result, we recorded non-cash goodwill impairment charges of $17.3 million and $61.4 million in the fourth quarter of 2024 for the China and JPAC reporting units, respectively.
The estimated fair values of the EMEA and Latin America reporting units exceeded their respective carrying values and consequently did not result in an impairment. The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) was approximately 8% and 45%, respectively. To evaluate the sensitivity of the fair value calculations used in the interim goodwill impairment test for the EMEA and Latin America reporting units, we applied a hypothetical 5% decrease to the fair value of each reporting unit and compared that hypothetical value to the reporting unit’s carrying value. 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) was approximately 3% and 37% for the EMEA and Latin America reporting units, respectively.
Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 9. Goodwill and Intangible Assets, Net” for more information on the goodwill impairment recognized in 2024.
Income Taxes
Significant judgment is required in determining our provision for income taxes, current tax assets and liabilities, deferred tax assets and liabilities, and our future taxable income, both as a whole and in various tax jurisdictions, for purposes of assessing our ability to realize future benefit from our deferred tax assets. A valuation allowance may be established to reduce our deferred tax assets to the amount that is considered more likely than not to be realized through the generation of future taxable income and other tax planning opportunities. As of December 29, 2024, we had a valuation allowance of $142.4 million, which represents the portion of our deferred tax assets that management believes is not more likely than not to be realized. We will continue to assess the need for a valuation allowance on our deferred tax assets by evaluating both positive and negative evidence that may exist.
We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained during an audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. While we believe that we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcome of examinations by tax authorities in determining the adequacy of our provision for income taxes. Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 6. Income Taxes” for more information on income taxes.
Accounting for Business Combinations
Under the acquisition method of accounting, the cost of an acquired business is assigned to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of the estimated fair values at the date of acquisition. We assess fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, using a variety of methods including, but not limited to, an income approach and a market approach, such as the estimation of future cash flows of the acquired business and current selling prices of similar assets. These valuations require us to make estimates and assumptions, especially with respect to intangible assets.
Fair value of the assets acquired and liabilities assumed, including intangible assets, IPR&D, and contingent payments, are measured based on the assumptions and estimations with regards to variable factors such as the amount and timing of future cash flows for the asset or liability being measured, appropriate risk-adjusted discount rates, nonperformance risk, or other factors that market participants would consider. Upon acquisition, we determine the estimated economic lives of the acquired intangible assets for amortization purposes, which are based on the underlying expected cash flows of such assets. When applicable, adjustments to inventory are based on the fair market value of inventory and are recognized into income based on the period in which the underlying inventory is sold. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that is not individually identified and separately recognized. Actual results may vary from projected results and assumptions used in the fair value assessments.
If the initial accounting for a business combination is incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements. During the measurement period, we adjust the
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provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. We record these adjustments to the provisional amounts with a corresponding offset to goodwill. Any adjustments identified after the measurement period are recorded in the Consolidated Statements of (Loss) Income.
Inventory Valuations
We periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices. In this review, we make assumptions about the future demand for and market value of the inventory and based on these assumptions estimate the amount of any obsolete, unmarketable, slow moving or overvalued inventory. We write down the value of our inventories by an amount equal to the difference between the cost of the inventory and the net realizable value. If actual market conditions are less favorable than those projected by management at the time of the assessment, however, additional inventory write-downs may be required, which could reduce our earnings.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our business and financial results are affected by fluctuations in world financial markets, including interest rates and currency exchange rates. We manage these risks through normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. We have policies governing our use of derivative instruments, and we do not enter into financial instruments for trading or speculative purposes.
Interest Rate Risk
We are subject to interest rate risk in connection with our long-term debt. Our principal interest exposure relates to outstanding amounts under our Credit Agreement. Assuming facilities under the Credit Agreement are fully drawn, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense on our outstanding borrowings under the Credit Agreement by approximately $3.6 million per year before considering the impact of derivative instruments.
We have interest rate swap contracts with a total notional value of $1.8 billion to hedge future interest rate exposures on variable rate debt, including the Revolving Credit Facility and Term Loan.
Foreign Currency Exchange Risk
We are exposed to foreign currency exchange risk by virtue of our international operations. These risks include the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany balances with foreign subsidiaries and transactions denominated in currencies other than the functional currency of the local jurisdiction. We derived approximately 44% of our Total revenues for the fiscal year ended December 29, 2024, from operations outside the U.S. For translation of operations in non-U.S. Dollar currencies, the local currency of most entities is the functional currency.
We have entered into foreign currency forward contracts to manage our exposures on foreign currency denominated firm commitments and forecasted foreign currency denominated intercompany and third-party transactions. We had forward contracts outstanding with a total notional amount of $1.4 billion as of December 29, 2024, with maturity dates through November 2025.
A sensitivity to changes in the value of the U.S. dollar on foreign currency denominated derivatives and investments indicated that if the U.S. dollar uniformly weakened by 10% against all currency exposures of the Company at December 29, 2024, (Loss) income before income taxes would have increased by approximately $7.1 million in fiscal year ended 2024. Because the Company was in a net long (receivable) position relative to its major foreign currencies after consideration of forward contracts, a uniform weakening of the U.S. dollar will yield the largest overall potential net gain in earnings due to exchange. This measurement assumes that a change in one foreign currency relative to the U.S. dollar would not affect other foreign currencies relative to the U.S. dollar. Although not predictive in nature, the Company believes that a 10% threshold reflects reasonably possible near-term changes in the Company’s major foreign currency exposures relative to the U.S. dollar.
The Company also uses forward exchange contracts to hedge a portion of its net investment in foreign operations against movements in exchange rates. The forward contracts are designated as hedges of the net investment in a foreign operation.
Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 16. Derivative Instruments and Hedging Activities” for additional information related to such forward contracts.
Credit Risk
The use of derivative instruments exposes us to credit risk if the counterparty fails to perform when the fair value of a derivative instrument contract is positive. If the counterparty fails to perform, collateral is not required by any party whether derivatives
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are in an asset or liability position. We have a policy of diversifying derivatives with counterparties to mitigate the overall risk of counterparty defaults.
Refer to Part II, Item 8, “Financial Statements and Supplementary Data—Note 16. Derivative Instruments and Hedging Activities” for additional information.
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Item 8. Financial Statements and Supplementary Data
Index of Consolidated Financial Statements and Schedule
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 68
Consolidated Balance Sheets 70
Consolidated Statements of (Loss) Income 71
Consolidated Statements of Comprehensive (Loss) Income 72
Consolidated Statements of Stockholders’ Equity 73
Consolidated Statements of Cash Flows 74
Notes to Consolidated Financial Statements 76
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of QuidelOrtho Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of QuidelOrtho Corporation (the Company) as of December 29, 2024 and December 31, 2023, the related consolidated statements of (loss) income, comprehensive (loss) income, stockholders’ equity and cash flows for each of the three years in the period ended December 29, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 27, 2025 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
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Allowance for contractual rebates
Goodwill impairment assessments
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002.
San Diego, California
February 27, 2025
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QUIDELORTHO CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
ASSETS
Current assets:
Cash and cash equivalents $ 98.3 $ 118.9
Marketable securities — 48.4
Prepaid expenses and other current assets 262.4 262.1
Assets held for sale 42.1 —
Marketable securities — 7.4
Deferred tax assets — 25.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued payroll and related expenses 116.9 84.8
Income tax payable 5.4 11.1
Current portion of borrowings 341.8 139.8
Commitments and contingencies (Note 14)
Stockholders’ equity:
Accumulated other comprehensive loss (36.2) (30.0)
Total liabilities and stockholders’ equity $ 6,423.6 $ 8,563.1
See accompanying notes.
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QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(In millions, except per share data)
Fiscal Year Ended
Cost of sales, excluding amortization of intangibles 1,496.4 1,500.7 1,329.8
Goodwill impairment charge 1,822.6 — —
Asset impairment charge 56.9 4.5 2.8
Loss on extinguishment of debt — — 24.0
(Benefit from) provision for income taxes (79.5) (19.0) 187.2
Basic (loss) earnings per share $ (30.54) $ (0.15) $ 9.66
Diluted (loss) earnings per share $ (30.54) $ (0.15) $ 9.56
Weighted-average shares outstanding - basic 67.2 66.8 56.8
Weighted-average shares outstanding - diluted 67.2 66.8 57.4
See accompanying notes.
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QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In millions)
Fiscal Year Ended
Other comprehensive (loss) income
Changes in cumulative translation adjustment, net of tax (38.4) 50.4 (69.8)
Changes in unrealized gains (losses) from investments, net of tax — 0.5 (0.4)
Changes in unrealized gains (losses) from cash flow hedges, net of tax:
Net unrealized gains on derivative instruments 52.1 12.6 6.7
See accompanying notes.
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QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
Shares Par
Issuance of common stock under equity compensation plans 0.7 — 30.8 — — 30.8
Stock-based compensation expense — — 45.1 — — 45.1
Repurchases of common stock (1.0) — (74.3) — — (74.3)
Other comprehensive loss, net of tax — — — (68.0) — (68.0)
Issuance of common stock under equity compensation plans 0.6 0.1 13.5 — — 13.6
Stock-based compensation expense — — 50.9 — — 50.9
Repurchases of common stock (0.1) — (7.2) — — (7.2)
Other comprehensive income, net of tax — — — 37.6 — 37.6
Issuance of common stock under equity compensation plans 0.7 — 5.4 — — 5.4
Stock-based compensation expense — — 41.0 — — 41.0
Other comprehensive loss, net of tax — — — (6.2) — (6.2)
See accompanying notes.
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QUIDELORTHO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Fiscal Year Ended
OPERATING ACTIVITIES:
Goodwill impairment charge 1,822.6 — —
Asset impairment charge 56.9 4.5 2.8
Stock-based compensation expense 42.1 51.6 48.4
Change in deferred tax assets and liabilities (99.3) (11.6) (44.0)
Net change in operating lease right-of-use assets and liabilities (0.2) — 18.4
Loss on extinguishment of debt — — 24.0
Unwind inventory fair value adjustment — — 60.6
Asset write off 20.0 — —
Other non-cash, net (1.8) (6.8) 6.4
Changes in assets and liabilities:
Prepaid expenses and other current and non-current assets (9.5) (26.9) (26.2)
Accrued payroll and related expenses 35.0 (53.9) 18.2
Other current and non-current liabilities (22.6) (5.9) (75.2)
Net cash provided by operating activities 83.0 280.2 885.3
INVESTING ACTIVITIES
Proceeds from held for sale asset, net of costs to sell 9.3 — —
Proceeds from government assistance allocated to fixed assets — 13.5 18.4
Purchases of marketable securities (7.2) (60.1) (63.7)
Proceeds from sale of marketable securities 63.1 78.3 53.4
FINANCING ACTIVITIES
Proceeds from issuance of common stock 5.0 11.6 26.4
Short-term borrowings, net (1.6) 1.6 —
Revolving credit facility, net 198.0 — —
Proceeds from long-term borrowings, net of debt issuance costs — — 2,734.5
Repurchases of common stock — (7.2) (74.3)
Principal payments of acquisition contingent consideration — — (4.2)
Principal payments of deferred consideration — (30.3) (33.5)
Net cash provided by (used for) financing activities 48.8 (265.8) 252.0
Effect of exchange rates on cash (2.9) (1.2) (2.0)
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Fiscal Year Ended
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 177.5 $ 150.0 $ 95.1
Cash paid during the period for income taxes $ 41.6 $ 86.6 $ 264.8
Transfer of instrument inventories to fixed assets $ 148.9 $ 154.6 $ 73.7
See accompanying notes.
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QuidelOrtho Corporation
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Organization and Business
The Company’s vision is to advance diagnostics to power a healthier future. With its expertise in immunoassay and molecular testing, clinical chemistry and transfusion medicine, the Company aims to support clarity for clinicians and patients to help create better health outcomes. The Company’s global infrastructure and commercial reach support its customers across more than 130 countries and territories with quality diagnostics, a broad test portfolio and market-leading service. The Company operates globally with manufacturing facilities in the U.S. and U.K. and with sales centers, administrative offices and warehouses located throughout the world.
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. As a result of the Combinations, QuidelOrtho became the successor issuer to Quidel. The results of operations of Ortho have been included in the Company’s Consolidated Financial Statements from the date of acquisition. See “—Note 2. Business Combination” for further information regarding the Combinations.
Basis of Presentation
The accompanying Consolidated Financial Statements of the Company have been prepared in accordance with GAAP.
Accounting Periods
The Company follows the concept of a fiscal year that ends on the Sunday nearest to the end of the month of December, and fiscal quarters that end on the Sunday nearest to the end of the months of March, June, and September. For fiscal years ended 2024, 2023 and 2022, the Company’s fiscal years ended on December 29, 2024, December 31, 2023 and January 1, 2023, respectively. Fiscal years ended 2024, 2023 and 2022 were 52 weeks.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and underlying assumptions can impact all elements of the financial statements, including, but not limited to, accounting for deductions from revenues (e.g. rebates, returns, sales allowances and discounts), receivable and inventory valuations, fixed asset valuations, useful lives, impairment of goodwill and tangible and intangible assets, the fair value of assets acquired and liabilities assumed in a business combination and related purchase price allocation, long-term employee benefit obligations, income taxes, environmental matters, litigation and allocations of costs. Estimates are based on historical experience, complex judgments, facts and circumstances available at the time and various other assumptions that are believed to be reasonable under the circumstances but are inherently uncertain and unpredictable. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior periods amounts to conform to the current period presentation. Such amounts include a reclassification of $4.5 million and $2.8 million recognized for fiscal years ended 2023 and 2022, respectively, related to impairment of long-lived assets from (i) Cost of sales, excluding amortization of intangibles (excludes $2.7 million and $0.2 million for fiscal years ended 2023 and 2022, respectively), and (ii) Research and development (excludes $1.8 million and $2.6 million for fiscal years ended 2023 and 2022, respectively), to Asset impairment charge.
The reclassifications did not have an impact on the Company’s previously reported Consolidated Balance Sheets, Consolidated Statements of Comprehensive (Loss) Income, Consolidated Statements of Stockholders' Equity or Consolidated Statements of Cash Flows.
Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers cash equivalents to be highly liquid investments with a maturity at the date of purchase of three months or less. They are carried at cost plus accrued interest, which approximates fair value because of the short-term maturity of these
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instruments. Cash equivalents include money market funds and debt securities of high quality institutions. Cash balances may exceed government insured limits in certain jurisdictions.
Restricted Cash
Restricted cash primarily consists of funds reserved for legal requirements. Restricted cash balances are included in Other assets in the Consolidated Balance Sheets.
Marketable Securities
The Company invests excess cash balances in investment-grade corporate and government debt securities, corporate asset-backed securities and commercial paper. The Company seeks to diversify investments and limits the amount of investment concentrations for individual institutions, maturities and investment types. These marketable securities are classified as available-for-sale and, accordingly, such securities are recorded at fair value. Unrealized gains and losses that are deemed temporary are included in AOCI as a separate component of stockholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, the Company evaluates the extent to which the decline is determined to be other-than-temporary and would mark the security to market through a charge to its Consolidated Statements of (Loss) Income. Marketable securities are classified as non-current when maturities are one year or more.
Accounts Receivable, Allowance for Credit Losses and Concentration of Credit Risk
The Company sells its products directly to physician offices, hospitals, clinical laboratories, reference laboratories, urgent care clinics, leading universities, retail clinics, pharmacies, wellness screening centers, other POC settings, blood banks and donor centers, as well as to individual, non-professional OTC customers, and other distributors in the U.S. and internationally (refer to “—Note 4. Revenue”). The Company periodically assesses the financial strength of these customers and establishes reserves for anticipated losses when necessary, which historically have not been material. The Company establishes a reserve based on historical losses, the age of receivables, customer mix and credit policies, current economic conditions in customers’ country or industry, and expectations associated with reasonable and supportable forecasts, and specific allowances for large or risky accounts. Amounts later determined to be uncollectible are charged or written off against this allowance. The balance of accounts receivable is net of reserves of $99.6 million and $91.8 million at December 29, 2024 and December 31, 2023, respectively.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash equivalents, marketable securities and trade accounts receivable.
Credit losses are identified when cash flows received are not expected to be sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results, with the amount of loss relating to other factors recorded in AOCI.
The Company performs credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary, but generally requires no collateral. Credit quality is monitored regularly by reviewing credit history. The Company believes that the concentration of credit risk in its trade accounts receivables is moderated by its credit evaluation process, relatively short collection terms, the high level of credit worthiness of its customers, and letters of credit issued on the Company’s behalf. Potential credit losses are limited to the gross value of accounts receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. The Company reviews the components of its inventory periodically for excess, obsolete and impaired inventory and records a reduction to the carrying value when identified.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated over the estimated useful lives of the assets using the straight-line method as follows:
Asset type Useful life
Building and building improvements 7-47 years
Machinery and equipment 3-15 years
Customer leased instruments 3-8 years
Computer software 3-5 years
Amortization of leasehold improvements is computed on the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets.
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When assets are surrendered, retired, sold or otherwise disposed of, their gross carrying values and related accumulated depreciation are removed from the accounts and included in determining gain or loss on such disposals. Maintenance and repairs are expensed as incurred; major replacements and improvements that extend the useful life are capitalized.
Assets Held for Sale
The following criteria are considered before concluding assets are classified as held for sale: (i) management’s commitment to a plan to sell, (ii) availability for immediate sale in its present condition, (iii) initiation of an active program to identify a buyer, (iv) probability of a completed sale within one year, (v) actively marketed for sale at a reasonable price in relation to its current fair value, and (vi) likelihood of significant changes to the plan will be made or that the plan will be withdrawn. If all of the criteria are met as of the balance sheet date, the net assets are presented separately in the balance sheet as held for sale at the lower of its carrying amount or fair value less costs to sell and is no longer depreciated or amortized while classified as held for sale. The Company assesses the fair value of a long-lived asset less any costs to sell at each reporting period and until the asset is no longer classified as held for sale.
Goodwill
Goodwill represents the excess of purchase price over the fair values of underlying net assets acquired in an acquisition. The Company assesses goodwill for impairment at the reporting unit level on an annual basis, or whenever events or changes in circumstances occur that indicate that the fair value of a reporting unit is below its carrying amount. The Company’s annual impairment assessment date is the first day of the fourth quarter of the fiscal year.
The CODM reviews the Company’s performance and allocates resources based on five operating segments: North America, EMEA, China, Latin America and JPAC (Japan and Asia Pacific). North America, EMEA and China are the Company’s reportable segments; Latin America and JPAC are immaterial operating segments that are not considered reportable segments and are included in “Other.” Each of these five operating segments is considered a reporting unit for the purpose of allocating goodwill and performing the annual goodwill impairment assessment.
When testing goodwill for impairment, the Company first has an option to assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that impairment exists. Such qualitative factors may include the following: macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant entity-specific events. In the event the qualitative assessment indicates that an impairment is more likely than not, the Company would be required to perform a quantitative impairment test. Under the quantitative goodwill impairment test, the evaluation of impairment involves comparing the current fair value of each reporting unit to its carrying value, including goodwill. The Company estimates the fair value of its reporting units by using forecasts of discounted future cash flows and peer market multiples. If the fair value of a reporting unit is less than its carrying value, impairment will be recognized in the amount by which the carrying value exceeds the fair value.
As a result of the identification of indicators of impairment during the first quarter of 2024, the Company performed an interim impairment test that resulted in a non-cash goodwill impairment charge of $1.7 billion for the North America reporting unit. For the annual impairment test as of the beginning of the fiscal fourth quarter, the Company bypassed the qualitative assessment and proceeded directly to the quantitative goodwill impairment test for all reporting units. The Company concluded that the China and JPAC reporting units’ goodwill were impaired. As a result, the Company recorded non-cash goodwill impairment charges of $17.3 million and $61.4 million in the fourth quarter of 2024 for the China and JPAC reporting units, respectively. Refer to “—Note 9. Goodwill and Intangible Assets, Net” for further information.
Intangible Assets
Intangible assets are recorded at cost and amortized on a straight-line basis over their estimated useful lives, except for indefinite-lived intangibles such as goodwill. Software development costs associated with software to be leased or otherwise marketed are expensed as incurred until technological feasibility has been established. After technological feasibility is established, software development costs are capitalized and amortized on a straight-line basis over the estimated product life.
Long-lived Assets
The process of evaluating the potential impairment of long-lived assets, such as property, plant and equipment and intangible assets, is subjective and requires judgment. The Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of an asset may not be recoverable. If these circumstances exist, recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset group to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
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Revenue Recognition
The Company records revenues primarily from product sales. These revenues are recorded net of rebates and other discounts. These rebates and discounts are estimated at the time of sale, and are largely driven by various customer program offerings, including special pricing agreements, promotions and other volume-based incentives. Rebates and discounts are calculated based on historical experience, estimated discounting levels and estimated distributor inventory balances and recorded as a reduction of sales with offsets to accounts receivable and other current liabilities, respectively.
Transaction price for a contract represents the amount to which the Company is entitled in exchange for providing goods and services to the customer. Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved. Revenue is recognized when control of the products is transferred to the customers in an amount that reflects the consideration the Company expects to receive from the customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract and the contract price, allocating the contract price to the distinct performance obligations in the contract and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. A performance obligation is considered to be satisfied once the control of a product is transferred to the customer or the service is provided to the customer, meaning the customer has the ability to use and obtain the benefit of the goods or service.
The Company generates a portion of its revenue from sales of the QuickVue At-Home OTC COVID-19 tests to retail customers. The Company estimates the transaction price for revenue from sales to retail customers based on historical experience and current trends to evaluate when uncertainties related to right of return provisions are resolved. In fiscal year ended 2022, due to a lack of history on which to base an estimate of products to be returned from the retailers, the Company established a reserve based on an estimate of total inventory remaining at our retailers which was subject to return. During fiscal year ended 2023, the Company concluded that it had developed sufficient historical experience regarding the pattern in customer returns to be able to estimate the amount of consideration to which the Company expects to be entitled, excluding consideration for the products expected to be returned. Amounts received or receivable that are expected to be returned are recognized as a refund liability, which is included in Other current liabilities. The refund liability is estimated utilizing historical sale and return rates over the period during which customers have a right of return, taking into account available information on competitive products and contract changes. The refund liability is remeasured at each reporting period to reflect changes in assumptions about expected returns. Revenues from sales to retail customers amounted to approximately 3% of Total revenues for fiscal year ended 2023. The impact from this change in estimate was approximately $0.3 million and is not material to the Company’s Consolidated Financial Statements.
A portion of product sales includes revenues for diagnostic kits, which are utilized on leased instrument systems under the Company’s “reagent rental” program. The reagent rental program provides customers the right to use the instruments at no separate cost to the customer in consideration for a multi-year agreement to purchase annual minimum amounts of consumables. When an instrument is placed with a customer under a reagent rental agreement, the Company retains title to the equipment and it remains capitalized on the Company’s Consolidated Balance Sheets as Property, plant and equipment, net. The instrument is depreciated on a straight-line basis over the lesser of the lease term or life of the instrument. Depreciation expense is recorded in cost of sales included in the Consolidated Statements of (Loss) Income. Instrument and consumables under the reagent rental agreements are deemed two distinct performance obligations. Though the instrument and consumables do not have any use to customers without one another, they are not highly interdependent because they do not significantly affect each other. The Company would be able to fulfill its promise to transfer the instrument even if its customers did not purchase any consumables and the Company would be able to fulfill its promise to provide the consumables even if customers acquired instruments separately. The contract price is allocated between these two performance obligations based on the relative standalone selling prices. The instrument is considered an operating lease. Variable lease revenue and fixed lease revenue represented approximately 6% and 1%, respectively, of the Company’s Total revenues for fiscal year ended 2024. Variable lease revenue and fixed lease revenue represented approximately 4% and 1%, respectively, of the Company’s Total revenues for fiscal year ended 2023. Revenue allocated to the instrument was not material for fiscal year ended 2022.
Government Assistance
In connection with the Combinations, the Company acquired a previously established agreement between Ortho and BARDA, a division of HHS, which provides funding for Ortho to build manufacturing space and production support equipment to increase COVID-19 assay production capacity, as well as to build a manufacturing facility to produce certain analyzers needed to support COVID-19 testing. Amounts received from BARDA under this grant are recorded as a reduction to the carrying value of the related assets. A portion of the grant is for purposes of reimbursement of certain general and administrative expenses related to the project, which are not capitalized as part of the equipment constructed in connection with the project and are recorded as a reduction to the related expense. The Company received $13.5 million and $18.4 million during fiscal years ended
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2023 and 2022, respectively, which were recorded as reductions to the carrying value of the related assets. No funding was received during fiscal year ended 2024.
Research and Development Costs
R&D costs are charged to operations as incurred. Upfront and milestone payments made to third parties in connection with R&D collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties at or subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.
The Company enters into collaborative arrangements to develop and commercialize intellectual property. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. These collaborations usually involve various activities by one or more parties, including R&D, marketing and selling and distribution. Often, these collaborations require upfront, milestone and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Amounts due from collaborative partners related to development activities are generally reflected as a reduction of R&D expense because the performance of contract development services is not central to the Company’s operations.
Product Shipment Costs
Product shipment costs are included in Selling, marketing and administrative expense in the accompanying Consolidated Statements of (Loss) Income. Shipping and handling costs were $125.4 million, $124.1 million and $104.9 million for fiscal years ended 2024, 2023 and 2022, respectively.
Advertising Costs
Advertising costs are expensed as incurred and included in Selling, marketing and administrative expense in the accompanying Consolidated Statements of (Loss) Income. Advertising costs were $6.2 million, $15.1 million and $26.8 million for fiscal years ended 2024, 2023 and 2022, respectively.
Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The Company’s policy is to recognize the interest expense and penalties related to income tax matters as a component of the income tax provision.
The Company does not intend to permanently reinvest earnings of foreign subsidiaries at this time. Accordingly, the Company provides for income taxes and foreign withholding taxes, where applicable, on undistributed earnings. Any repatriation of undistributed earnings would be done at little or no tax cost.
Fair Value of Financial Instruments
The Company uses the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures, which requires that the valuation of assets and liabilities subject to fair value measurements be classified and disclosed by the Company in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The carrying amounts of cash and cash equivalents, accounts receivables, accounts payable and accrued liabilities approximate their fair values due to their short-term nature.
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Stock-based Compensation
Stock-based compensation, comprised of (i) stock options and (ii) RSUs, which include time-based RSUs, performance-based RSUs and restricted stock awards, to employees and non-employee directors, is measured at fair value on the grant date. Compensation expense is recognized over the requisite service period, which is generally the vesting period, and includes an estimate of the awards that will be forfeited, and an estimate of the level of performance the Company will achieve for performance-based awards.
Leases
Lease liabilities represent the obligation to make lease payments and ROU assets represent the right to use the underlying asset during the lease term. Lease liabilities and ROU assets are recognized at the commencement date of the lease based on the present value of lease payments over the lease term at the commencement date. When the implicit rate is unknown, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value of the lease payments. Options to extend or terminate the lease are included in the determination of the lease term when it is reasonably certain that the Company will exercise such options.
For certain classes of assets, the Company accounts for lease and non-lease components as a single lease component. Variable lease payments, including those related to changes in the consumer price index, are recognized in the period in which the obligation for those payments is incurred and are not included in the measurement of the ROU assets or lease liabilities. Short-term leases are excluded from the calculation of the ROU assets and lease liabilities.
Operating leases are included in ROU assets, operating lease liabilities and operating lease liabilities non-current in the Consolidated Balance Sheets.
Comprehensive (Loss) Income
Comprehensive (loss) income includes unrealized gains and losses that are related to cumulative translation adjustments; unrealized gains and losses on marketable securities; changes in unamortized pension and post-employment actuarial gains and losses; and changes in the fair value of derivatives that are designated and qualify as cash flow hedging instruments excluded from the Consolidated Statements of (Loss) Income.
Business Combinations
The cost of an acquired business is assigned to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of the estimated fair values at the date of acquisition. The Company assesses fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, using a variety of methods including, but not limited to, an income approach and a market approach, such as the estimation of future cash flows of the acquired business and current selling prices of similar assets. Fair value of the assets acquired and liabilities assumed, including intangible assets, IPR&D, and contingent payments, are measured based on the assumptions and estimations with regards to variable factors such as the amount and timing of future cash flows for the asset or liability being measured, appropriate risk-adjusted discount rates, nonperformance risk, or other factors that market participants would consider. Upon acquisition, the Company determines the estimated economic lives of the acquired intangible assets for amortization purposes, which are based on the underlying expected cash flows of such assets. When applicable, adjustments to inventory are based on the fair market value of inventory and are recognized into income based on the period in which the underlying inventory is sold. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that is not individually identified and separately recognized. Actual results may vary from projected results and assumptions used in the fair value assessments.
Defined Benefit Plans and Other Post-Employment Benefits
In connection with the Combinations, the Company assumed Ortho’s defined benefit plans in certain countries and a retiree healthcare reimbursement plan for certain U.S. employees. Defined benefit plans specify an amount of pension benefit that an employee will receive on retirement, usually dependent on factors such as age, years of service and compensation. The net obligation with respect to defined benefit plans is calculated separately for each plan by estimating the amount of the future benefits that employees have earned in return for their service in the current and prior periods. These benefits are then discounted to determine the present value of the obligations and are then adjusted for the impact of any unamortized prior service costs. The net obligation is then determined with reference to the fair value of the plan assets (if any). The discount rate used is the yield on bonds that are denominated in the currency in which the benefits will be paid and that have maturity dates approximating the terms of the obligations. The calculations are performed by qualified actuaries using the projected unit credit method.
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Recent Accounting Pronouncements
Recently Adopted Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, that is intended to improve the disclosures about reportable segments and add more detailed information about a reportable segment’s expenses. The amendments in the ASU require public entities to disclose on an annual and interim basis (i) significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, (ii) other segment items by reportable segment, (iii) the title and position of the CODM and (iv) an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU does not change the definition of a segment, the method for determining segments, the criteria for aggregating operating segments into reportable segments, or the current specifically enumerated segment expenses that are required to be disclosed. The ASU was adopted in the fourth quarter of 2024 and applied retrospectively to all prior periods presented (refer to “—Note 5. Segment and Geographic Information”). The adoption of this ASU did not impact the Company’s results of operations, cash flows or financial condition.
Recently Issued Accounting Standards Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve its income tax disclosure requirements. Under the guidance, entities must annually (i) disclose specific categories in the rate reconciliation and (ii) provide additional information for reconciling items that meet a quantitative threshold. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. Other than the respective disclosures, the ASU is not expected to have an impact to the Company’s Consolidated Financial Statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure, in the notes to the financial statements, of specified information about certain costs and expenses. This ASU is effective for public entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Other than the respective disclosures, the ASU is not expected to have an impact to the Company’s Consolidated Financial Statements.
Note 2. Business Combination
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. As a result of the Combinations, QuidelOrtho became the successor issuer to Quidel. The Combinations enhance the Company’s revenue profile and expand the Company’s geographic footprint and product diversity.
The Combinations were completed for a total consideration of $4.3 billion, which included the fair value of equity issued based on the May 26, 2022 closing price of $99.60 per share of Quidel common stock. Former Ortho stockholders received $7.14 in cash and 0.1055 shares of QuidelOrtho common stock for each Ortho ordinary share. The total purchase consideration was calculated as follows (in millions, except value per share data and Ortho Exchange Ratio):
Total Ortho shares subject to exchange 237.487
Ortho Exchange Ratio 0.1055
QuidelOrtho shares issued 25.055
Fair value of stock consideration $ 2,495.5
Fair value of replacement equity awards (1) 47.9
Total purchase consideration $ 4,291.1
(1) Represents the fair value of replacement stock options (which include options with time-based, performance-based, and both performance- and market-based vesting conditions), RSUs and restricted stock outstanding as of May 27, 2022 that are attributable to service prior to the Combinations. The terms of the replacement awards are substantially similar to the former Ortho equity awards for which they were exchanged. The portion of the fair value of the replacement equity awards attributable to service after the Combinations is $46.6 million and will be recognized as compensation expense based on the vesting terms of the replacement equity awards.
(2) Represents cash consideration of $7.14 per share paid to Ortho stockholders and holders of vested Ortho stock options on the closing date of the Combinations for 237.5 million outstanding Ortho shares and 7.3 million vested Ortho stock options.
The Company funded the cash portion of the purchase price with cash on its balance sheet and a portion of the Term Loan proceeds from the Financing.
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In 2023, the Company recognized measurement period adjustments to Goodwill of $19.9 million resulting from finalization of tax-related matters. The purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the acquisition date based upon their respective fair values summarized below:
(In millions) Purchase Price Allocation
Cash and cash equivalents $ 234.5
Accounts receivable 240.6
Property, plant and equipment 948.9
Prepaid expenses and other assets 270.4
Accounts payable (135.0)
Accrued payroll and related expenses (81.1)
Long-term borrowings, including current portion (2) (2,268.4)
Deferred tax liability (260.1)
Other current and non-current liabilities (369.6)
Total liabilities (3,114.2)
Total purchase consideration $ 4,291.1
(1) Includes an estimated fair value adjustment to inventory of $61.7 million, which was fully recognized in the Consolidated Statements of (Loss) Income in fiscal year ended 2022.
(2) Immediately following the closing of the Combinations, the Company repaid long-term borrowings assumed, which consisted of $1,608.4 million aggregate principal amount related to Ortho’s Dollar Term Loan and Euro Term Loan Facilities, $240.0 million aggregate principal amount of 7.375% Senior Notes due 2025 and $405.0 million aggregate principal amount of 7.250% Senior Notes due 2028. The 7.375% and 7.250% Senior Notes were fully discharged following the Combinations. The Company recorded a $23.5 million loss on extinguishment in connection with the Combinations, representing the difference between the reacquisition value, inclusive of $35.9 million of redemption premium, and the net carrying value of the extinguished debt.
Goodwill represents the excess of the total purchase consideration over the estimated fair value of the net assets acquired, and is primarily attributable to synergies which are expected to expand the Company’s revenue profile and product diversity, as well as Ortho’s assembled workforce. Goodwill is not deductible for tax purposes. Refer to “—Note 9. Goodwill and Intangible Assets, Net” for further information.
The following table sets forth the amounts assigned to the identifiable intangible assets acquired (in millions, except years):
Intangible Asset Amortization Period Fair Value of Assets Acquired
Customer relationships (1) 20 years $ 1,907.0
Developed technology (2) 15 years 888.0
(1) The fair value was estimated using the Multi-Period Excess Earnings Method, which is a form of the income approach. Significant assumptions include: (i) the estimated annual net cash flows, which are a function of expected earnings attributable to the asset, contributory asset charges and the applicable tax rate, and (ii) the discount rate.
(2) The fair value was estimated using the Relief from Royalty Method, which is another form of the income approach. Significant assumptions include: (i) the estimated annual net cash flows, which are a function of expected earnings attributable to the asset, the probability of use of the asset, the royalty rate and the applicable tax rate, and (ii) the discount rate.
Intangible assets are amortized on a straight-line basis over the amortization periods noted above, which reflects the estimated useful life of the underlying assets.
For fiscal year ended 2022, the Company incurred $46.9 million of transaction costs related to the Combinations, which primarily consisted of financial advisory, legal, accounting and valuation-related expenses. These expenses were recorded in Acquisition and integration costs in the Consolidated Statements of (Loss) Income.
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The following supplemental pro forma financial information shows the combined results of operations of the Company as if the Combinations had occurred on January 4, 2021, the beginning of the periods presented:
Fiscal Year Ended
This supplemental pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the Combinations been completed at the beginning of fiscal year ended 2021. In addition, the supplemental pro forma financial information is not a projection of the Company’s future results of operations, nor does it reflect the expected realization of any synergies or cost savings associated with the Combinations. The supplemental pro forma financial information includes adjustments for:
•incremental intangible assets amortization expense based on the preliminary fair values of the identifiable intangible assets acquired;
•incremental cost of sales related to the fair value step-up of inventory;
•decreases in interest expense associated with the issuance of debt to finance the Combinations and to repay Ortho’s then-outstanding indebtedness, including the net impact of the removal of the amortization of the discount on Ortho’s indebtedness and the change in amortization of deferred financing fees;
•the removal of loss on extinguishment of debt from Ortho’s results in fiscal year ended 2021 and the reclassification of loss on extinguishment of debt in fiscal years ended 2021 and 2022;
•the reclassification of expense related to the accelerated vesting of certain stock awards of Ortho’s former CEO; and
•tax impacts related to the above adjustments.
From the acquisition date through January 1, 2023, the acquired results of operations of Ortho contributed total revenues of $1,165.2 million and net loss of $126.2 million to the Company’s consolidated results, which included amortization of acquired intangible assets of $104.7 million and recognition in Cost of sales, excluding amortization of intangibles of the fair value step-up of inventory of $60.6 million.
Note 3. Computation of Earnings Per Share
Basic EPS is computed by dividing Net (loss) income by the weighted-average number of shares of common stock outstanding. Diluted EPS is computed based on the sum of the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares of common stock consist of shares issuable from stock options and unvested RSUs. Potentially dilutive shares of common stock from outstanding stock options and unvested RSUs are determined using the average share price for each period under the treasury stock method.
The following table presents the calculation of the weighted-average shares used in computing basic and diluted EPS in the respective periods:
Fiscal Year Ended
Basic weighted-average shares of common stock outstanding 67.2 66.8 56.8
Dilutive potential shares issuable from stock options and RSUs (1) — — 0.6
Diluted weighted-average shares of common stock outstanding 67.2 66.8 57.4
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(1) In fiscal years ended 2024 and 2023, all potential shares of common stock issuable for stock options and RSUs were excluded from the dilutive calculations above because the effect of including them would have been anti-dilutive. The dilutive effect of potential shares of common stock issuable for stock options and RSUs on the weighted-average number of shares of common stock outstanding would have been as follows:
Fiscal Year Ended
Basic weighted-average shares of common stock outstanding 67.2 66.8
Dilutive potential shares issuable from stock options and RSUs 0.2 0.5
Diluted weighted-average shares of common stock outstanding 67.4 67.3
Stock options and RSUs where the combined exercise price and unrecognized stock-based compensation was greater than the average market price for the Company’s common stock were not included in the computations of diluted weighted-average shares because the effect would have been anti-dilutive under the treasury stock method. These stock options and RSUs represented 1.8 million, 1.6 million and 0.9 million shares of common stock for fiscal years ended 2024, 2023 and 2022, respectively.
Note 4. Revenue
Contract Balances
Timing of revenue recognition may differ from timing of invoicing to customers. The Company records an asset when revenue is recognized prior to invoicing a customer (a “contract asset”). Contract assets are included within Prepaid expenses and other current assets in the Company’s Consolidated Balance Sheets and are transferred to accounts receivable when the right to payment becomes unconditional. The balance of contract assets recorded in the Company’s Consolidated Balance Sheets as of December 29, 2024 and December 31, 2023 was $32.5 million and $46.2 million, respectively.
The contract asset balance consisted of the following components:
•a customer supply agreement under which the difference between the timing of invoicing and revenue recognition resulted in a contract asset of $1.9 million as of December 31, 2023. There was no contract asset remaining as of December 29, 2024;
•contractual arrangements with certain customers under which the Company invoices the customers based on reportable results generated by its reagents; however, control of the goods transfers to the customers upon shipment or delivery of the products, as determined under the terms of the contract. Using the expected value method, the Company estimates the number of reagents that will generate a reportable result. The Company records the revenue upon shipment and an associated contract asset, and relieves the contract asset upon completion of the invoicing. The balance of the contract asset related to these arrangements was $32.5 million and $41.8 million as of December 29, 2024 and December 31, 2023, respectively; and
•one of the Company’s contract manufacturing agreements that recognizes revenue as the products are manufactured resulted in a contract asset of $2.5 million as of December 31, 2023. There was no contract asset remaining as of December 29, 2024.
The Company reviews contract assets for expected credit losses resulting from the collectability of customer accounts. Expected losses are established based on historical losses, customer mix and credit policies, current economic conditions in customers’ country or industry, and expectations associated with reasonable and supportable forecasts. No credit losses related to contract assets were recognized during fiscal years ended 2024 and 2023.
The Company recognizes a contract liability when a customer pays an invoice prior to the Company transferring control of the goods or services (“contract liabilities”). The Company’s contract liabilities consist of deferred revenue primarily related to customer service contracts. The Company classifies deferred revenue as current or non-current based on the timing of the transfer of control or performance of the service. The balance of the Company’s current deferred revenue was $33.5 million and $36.8 million as of December 29, 2024 and December 31, 2023, respectively, and was included in Other current liabilities in the Consolidated Balance Sheets. The Company has one arrangement with a customer where the revenue is expected to be recognized beyond one year. The balance of the deferred revenue included in long-term liabilities was $17.3 million and $13.9 million as of December 29, 2024 and December 31, 2023, respectively, and was included in Other liabilities in the Consolidated Balance Sheets. The amount of deferred revenue as of December 31, 2023 that was recorded in Total revenues during fiscal year ended 2024 was $34.0 million. The amount of deferred revenue as of January 1, 2023 that was recorded in Total revenues during fiscal year ended 2023 was $72.1 million.
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Joint Business with Grifols
The Company has an ongoing Joint Business between Ortho and Grifols, under which Ortho and Grifols agreed to pursue a collaboration relating to Ortho’s Hepatitis and HIV diagnostics business. The governance of the Joint Business is shared through a supervisory board made up of equal representation by Ortho and Grifols, which is responsible for all significant decisions relating to the Joint Business that are not exclusively assigned to either Ortho or Grifols, as defined in the Joint Business agreement. The Company’s portion of the pre-tax net profit shared under the Joint Business was $29.5 million, $47.3 million and $18.6 million during fiscal years ended 2024, 2023 and 2022, respectively. These amounts included the Company’s portion of the pre-tax net profit of $21.1 million, $21.4 million and $11.1 million during fiscal years ended 2024, 2023 and 2022, respectively, on sales transactions with third parties where the Company is the principal. The Company recognized revenues, cost of sales, excluding amortization of intangibles, and operating expenses, on a gross basis on these sales transactions in their respective lines in the Consolidated Statements of (Loss) Income. The Company’s portion of the pre-tax net profit also included revenue from collaboration and royalty agreements of $8.4 million, $26.0 million and $7.5 million during fiscal years ended 2024, 2023 and 2022, respectively, which is presented on a net basis within Total revenues.
Disaggregation of Revenue
The following table summarizes Total revenues by business unit:
Fiscal Year Ended
(1) For presentation purposes, as a result of the wind-down of the U.S. donor screening portfolio, the previously reported Transfusion Medicine business unit is shown in its two product categories: Immunohematology and Donor Screening. Prior periods have been revised to align with the current period presentation.
Concentration of Revenue and Credit Risk
For fiscal year ended 2024, one customer represented 11% of Total revenues in the North America segment. For fiscal year ended 2023, no customer individually accounted for more than 10% of Total revenues. For fiscal year ended 2022, two separate customers accounted for 20% and 11% of Total revenues, in the Other and North America segments, respectively.
Revenue related to the Company’s respiratory products accounted for 18%, 24% and 57% of Total revenues for fiscal years ended 2024, 2023 and 2022, respectively.
As of December 29, 2024 and December 31, 2023, customers with a balance due in excess of 10% of Accounts receivable, net totaled $33.7 million and $63.5 million, respectively.
Note 5. Segment and Geographic Information
The Company operates in three geographically-based reportable segments: North America, EMEA and China. Although all three segments are engaged in the marketing, distribution and sale of diagnostic instruments and assays for hospitals, retailers, distributors, laboratories and/or blood and plasma centers worldwide, each region is managed separately to better align with the market dynamics of the specific geographic region. Latin America and JPAC are immaterial operating segments that are not considered reportable segments and are included in “Other.”
In the fourth quarter of 2024, the Company revised the internal allocation of certain global costs primarily between the North America segment and Corporate to better align costs that impact the Company as a whole. Prior periods have been revised to align with the current period presentation. The following table presents the results of operations of the Company’s reportable segments for fiscal years ended 2024, 2023 and 2022:
86
Fiscal Year Ended 2024
(In millions) North America EMEA China Other Total
Less (1):
Reconciliation of segment Adjusted EBITDA
Depreciation and amortization (453.4)
Interest expense, net (163.5)
Acquisition and integration costs (127.2)
Goodwill impairment charge (1,822.6)
Asset impairment charge (56.9)
Asset write off (3) (20.0)
Amortization of deferred cloud computing implementation costs (14.7)
Employee compensation charges (5.6)
Credit Agreement amendment fees (4.0)
EU medical device regulation transition costs (4) (2.0)
Loss on disposal (5) (1.2)
Gain on investments 0.7
Other adjustments (4.0)
(Loss) income before income taxes $ (2,131.5)
87
Fiscal Year Ended 2023
(In millions) North America EMEA China Other Total
Less (1):
Reconciliation of segment Adjusted EBITDA
Depreciation and amortization (457.2)
Interest expense, net (147.6)
Acquisition and integration costs (113.4)
Asset impairment charge (4.5)
Tax indemnification expense (12.6)
Amortization of deferred cloud computing implementation costs (9.2)
Loss on investments (3.6)
EU medical device regulation transition costs (4) (2.5)
Other adjustments (1.7)
(Loss) income before income taxes $ (29.1)
88
Fiscal Year Ended 2022
(In millions) North America EMEA China Other Total
Less (1):
Reconciliation of segment Adjusted EBITDA
Depreciation and amortization (283.6)
Interest expense, net (75.7)
Loss on extinguishment of debt (24.0)
Acquisition and integration costs (136.0)
Asset impairment charge (2.8)
Unwind inventory fair value adjustment (60.6)
Loss on investments (5.8)
Amortization of deferred cloud computing implementation costs (5.4)
Employee compensation charges (3.2)
EU medical device regulation transition costs (4) (1.5)
Tax indemnification expense (0.3)
Derivative mark-to-market gain 4.4
Other adjustments (0.6)
(Loss) income before income taxes $ 735.9
(1) The significant expense categories and amounts align with the segment-level information that is regularly provided to the CODM.
(2) Primarily consists of costs related to executive and staff functions, including certain finance, human resources, manufacturing and IT functions, which benefit the Company as a whole. These costs are primarily related to the general management of these functions on a corporate level and the design and development of programs, policies and procedures that are then implemented in the individual segments, with each segment bearing its own cost of implementation. The Company’s corporate function also includes debt and stock-based compensation associated with all employee stock-based awards.
(3) Represents the write off of the tax assessment refund related to the Luxembourg net wealth tax, as the weight of available evidence indicated that it is not more likely than not that the position will be sustained during the pendency of an appeal.
(4) Represents incremental consulting costs and R&D manufacturing site costs to align compliance of the Company’s existing, on-market products that were previously registered under the European In Vitro Diagnostics Directive regulatory framework with the requirements under the EU’s In Vitro Diagnostic Regulation, which generally apply from May 2022 onwards.
(5) Represents loss on disposal from the sale of the McKellar, San Diego, CA facility.
The Company’s President and CEO is the Company’s CODM. The CODM reviews the segment adjusted EBITDA results against the forecast to assess segment performance and determine how to allocate resources. The CODM does not review and is not provided capital expenditures, total depreciation and amortization or assets by segment, and therefore this information has been excluded as it does not comprise part of management’s key performance metrics.
89
The following presents long-lived assets (excluding intangible assets) and total net revenue by geographic territory:
Long-lived Assets as of Total Revenues for Fiscal Year Ended
Note 6. Income Taxes
Significant components of the provision for income taxes were as follows:
Fiscal Year Ended
Current: