QuidelOrtho (US:QDEL)2023-05-04 20:09PART I—FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for QuidelOrtho Corporation for the quarterly period ended April 2, 2023, including various statements and detailed notes on accounting policies Consolidated Balance Sheets The Consolidated Balance Sheet as of April 2, 2023, shows total assets of $8.79 billion, a slight decrease from $8.86 billion at the beginning of the year, with total liabilities decreasing to $3.79 billion from $3.92 billion, and total stockholders' equity increasing to $5.00 billion from $4.93 billion Consolidated Balance Sheet Highlights (in millions) | Account | April 2, 2023 | January 1, 2023 | | :--- | :--- | :--- | | Total Assets | $8,787.1 | $8,855.8 | | Total Current Assets | $1,498.9 | $1,575.1 | | Goodwill | $2,491.3 | $2,476.8 | | Intangible assets, net | $3,078.5 | $3,123.8 | | Total Liabilities | $3,790.6 | $3,921.2 | | Total Current Liabilities | $907.8 | $1,007.0 | | Long-term borrowings | $2,379.6 | $2,430.8 | | Total Stockholders' Equity | $4,996.5 | $4,934.6 | Consolidated Statements of Income For the three months ended April 2, 2023, total revenues were $846.1 million, a decrease from $1,002.3 million in the prior-year period, leading to a significant decline in net income to $48.8 million from $479.9 million Consolidated Statement of Income (in millions, except per share data) | Metric | Three Months Ended April 2, 2023 | Three Months Ended April 3, 2022 | | :--- | :--- | :--- | | Total revenues | $846.1 | $1,002.3 | | Operating income | $99.6 | $620.7 | | Net income | $48.8 | $479.9 | | Diluted earnings per share | $0.73 | $11.31 | Consolidated Statements of Cash Flows For the first three months of 2023, net cash provided by operating activities was $188.9 million, a decrease from $500.9 million in the same period of 2022, resulting in a net increase in cash of $61.0 million Cash Flow Summary (in millions) | Activity | Three Months Ended April 2, 2023 | Three Months Ended April 3, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $188.9 | $500.9 | | Net cash used for investing activities | $(68.9) | $(24.7) | | Net cash used for financing activities | $(59.6) | $(3.4) | | Net increase in cash | $61.0 | $472.7 | Notes to Consolidated Financial Statements The notes provide detailed explanations of the company's accounting policies and financial results, covering topics such as the Ortho business combination, revenue recognition, segment information, and long-term borrowings - The business combination with Ortho Clinical Diagnostics Holdings plc was completed on May 27, 2022, with Quidel considered the accounting and legal acquirer. The total consideration was approximately $4.3 billion3132 - For the three months ended April 2, 2023, sales of COVID-19 products accounted for 26% of total revenues, a significant decrease from 83% in the same period of 202242 - The company entered into a credit agreement on May 27, 2022, which includes a $2.75 billion senior secured term loan and an $800.0 million revolving credit facility64 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's Q1 2023 financial performance, highlighting a 16% revenue decrease due to declining COVID-19 testing demand, the impact of the Ortho business combination, and the outlook for core product growth Overview and Outlook The company's Q1 2023 revenue decreased by 16% year-over-year, primarily due to a sharp decline in respiratory product sales, with an outlook anticipating fluctuating COVID-19 test demand but growth in core non-respiratory products - Total revenues for Q1 2023 decreased by 16% to $846.1 million compared to the prior year100 - Revenues from respiratory products accounted for approximately 31% of total revenues in Q1 2023, down from 93% in Q1 2022100 - The company expects demand for COVID-19 testing products to continue to fluctuate, but anticipates revenue growth for its core products (excluding respiratory) for the remainder of 2023106107 Results of Operations Total revenues for Q1 2023 fell 16% to $846.1 million, driven by decreased Point of Care and Molecular Diagnostics sales, partially offset by growth in Labs and Transfusion Medicine units due to the Ortho combination, leading to a sharp drop in operating income Revenues by Business Unit (in millions) | Business Unit | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Labs | $370.7 | $13.3 | 2,687% | | Transfusion Medicine | $155.9 | — | N/A | | Point of Care | $308.1 | $943.0 | (67)% | | Molecular Diagnostics | $11.4 | $46.0 | (75)% | | Total revenues | $846.1 | $1,002.3 | (16)% | - Cost of sales increased to 47.0% of total revenues, compared to 26.0% in the prior year, driven by new product sales from the Combinations111 - Operating expenses increased significantly, with Selling, marketing and administrative expenses up 138.7% and R&D expenses up 136.0%, primarily due to the business combination113114 Segment Results North America revenues declined 39% due to lower COVID-19 test demand, while EMEA, China, and Other segments experienced substantial revenue growth of 435%, 711%, and 559% respectively, primarily driven by the Ortho business inclusion Segment Total Revenues (in millions) | Segment | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | North America | $582.8 | $961.5 | (39)% | | EMEA | $81.3 | $15.2 | 435% | | China | $70.6 | $8.7 | 711% | | Other | $111.4 | $16.9 | 559% | Segment Adjusted EBITDA (in millions) | Segment | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | North America | $278.4 | $713.4 | (61)% | | EMEA | $7.2 | $3.5 | 106% | | China | $28.5 | $3.8 | 650% | | Other | $21.8 | $9.5 | 129% | Liquidity and Capital Resources As of April 2, 2023, the company's liquidity included $353.9 million in cash and cash equivalents and $787.0 million available under its Revolving Credit Facility, deemed sufficient to fund operations for at least the next 12 months Sources of Liquidity (in millions) | Source | April 2, 2023 | January 1, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $353.9 | $292.9 | | Total cash, cash equivalents and marketable securities | $430.5 | $366.0 | | Amount available to borrow under Revolving Credit Facility | $787.0 | $786.9 | - The company's Credit Agreement includes a $2.75 billion Term Loan and an $800.0 million Revolving Credit Facility, both maturing on May 27, 2027130131 - The company is focused on expanding instrument placements through a reagent rental model, which lowers upfront customer costs and is expected to grow the installed base and increase sales of higher-margin consumables144 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate fluctuations on variable-rate debt and foreign currency exchange rate volatility, which it manages using derivative instruments for hedging purposes - The company is subject to interest rate risk on its variable rate debt, including a $2.75 billion Term Loan and an $800.0 million Revolving Credit Facility. A 0.125% change in interest rates would impact annual interest expense by approximately $4.2 million before hedges152 - To mitigate interest rate risk, the company has entered into interest rate swap agreements with a total notional value of $1.3 billion through December 2023, increasing to $1.8 billion subsequently154 - Approximately 33% of total revenues for Q1 2023 were derived from operations outside the U.S., exposing the company to foreign currency exchange risk. The company uses foreign currency forward contracts to manage this exposure, with a total notional amount of $970.7 million outstanding as of April 2, 2023156160 Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 2, 2023, with ongoing integration of the acquired Ortho business's internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of April 2, 2023162 - As of April 2, 2023, the company is in the process of integrating the internal controls of the acquired Ortho business163 PART II—OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, but management believes the aggregate outcome of current actions will not have a material adverse effect on the company - The company accrues for legal claims when losses become probable and reasonably estimable. Management does not expect current legal actions to have a material adverse effect on the company7273165 Risk Factors There have been no material changes to the company's risk factors since those disclosed in its Annual Report on Form 10-K for the fiscal year ended January 1, 2023 - No material changes have occurred in the company's risk factors from those previously disclosed in the 2022 Annual Report on Form 10-K166 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company repurchased 107,155 shares of common stock at an average price of $88.07 per share to satisfy tax withholding obligations, with approximately $225.7 million remaining under its stock repurchase program Issuer Purchases of Equity Securities (Q1 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2 - Jan 29, 2023 | 1,988 | $85.69 | | Jan 30 - Feb 26, 2023 | 92,488 | $88.22 | | Feb 27 - Apr 2, 2023 | 12,679 | $87.33 | | Total | 107,155 | $88.07 | - The shares were surrendered to the company to satisfy minimum tax withholding obligations and were not part of a publicly announced repurchase program168 - As of April 2, 2023, approximately $225.7 million remained available for repurchase under the company's stock repurchase program authorized on August 17, 2022168169 Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, new material agreements, and certifications by the Principal Executive Officer and Principal Financial Officer - Exhibits filed include certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act174 - A Special Advisor Agreement with Randall Steward and an Amended and Restated Individual Retirement Program for Werner Kroll are listed as new exhibits174