QuidelOrtho Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended January 1, 2023 (52 weeks). This is an annual report, not a standalone Q4 report. Quidel and Ortho completed their combination on May 27, 2022; FY2022 includes Ortho only from that date, so reported year-over-year comparisons are not like-for-like.
Business context and results
QuidelOrtho develops and sells in vitro diagnostic products across Labs, Transfusion Medicine, Point of Care and Molecular Diagnostics. Its products serve customers in more than 130 countries. The combination expanded its product portfolio and geographic reach; management reorganized reporting into North America, EMEA, China and Other.
| Metric | FY2022 | Comparable period / change |
|---|---|---|
| Revenue | $3,266.0 million | Up 92% from $1,698.6 million in FY2021; reported comparison includes Ortho only after acquisition |
| Operating income | $843.7 million | Down from $906.0 million |
| Net income | $548.7 million | Down from $704.2 million |
| Diluted EPS | $9.56 | Down from $16.43 |
| Operating cash flow | $885.3 million | Up from $805.9 million |
| Cash and cash equivalents | $292.9 million | Down from $802.8 million; total cash, cash equivalents and marketable securities was $366.0 million |
| Total borrowings | $2,638.3 million | Primarily the new term loan related to the combination |
Cost of sales, excluding intangible amortization, was $1,330.0 million, or 40.7% of revenue, implying a 59.3% gross margin on that basis. Operating margin was approximately 25.8% and net margin approximately 16.8%. These calculated margins are affected by the acquisition and its accounting impacts.
Point of Care revenue rose 35% to $1,955.3 million, primarily from higher QuickVue COVID-19 antigen sales. Labs generated $820.2 million and Transfusion Medicine $393.8 million, largely reflecting acquired Ortho operations. Molecular Diagnostics revenue fell 52% to $96.7 million, mainly due to lower demand and pricing for the Lyra SARS antigen assay. COVID-19 products represented 44% of revenue versus 75% in FY2021; influenza products represented 11% versus 4%.
Material changes and unusual items
- The combination had approximately $4.3 billion of total consideration, including $1.75 billion cash. Acquired Ortho contributed $1,165.2 million of revenue and a $126.2 million net loss from closing through year-end.
- Acquisition and integration costs were $136.0 million; acquired-intangible amortization was $132.5 million. The $60.6 million inventory fair-value step-up expense also reduced FY2022 earnings.
- Interest expense rose to $75.7 million from $5.8 million, principally due to combination financing. The company also recorded a $24.0 million loss on extinguishment of debt.
- Cash used in investing was $1,644.2 million, primarily reflecting the combination, including $1,511.4 million net cash used for business acquisitions. Financing provided $252.0 million net, including new borrowings and debt repayments.
- Year-end working capital, including cash and current marketable securities, was $568.1 million, down from $1,116.8 million. The $800 million revolving facility had $786.9 million available after letters of credit.
Outlook, risks and contingencies
- Management expected 2023 revenue growth in core products excluding respiratory products. It expected COVID-19 test demand to fluctuate and pricing pressure to continue; no numerical revenue or earnings guidance was provided.
- Management cited integration execution, realizing synergies, retaining employees, supply-chain constraints, inflation, shipping delays and labor costs as important uncertainties. COVID-19 demand was declining in the second half of 2022, and the company warned that lower COVID-19 or influenza sales could disproportionately affect results because those products generally carry higher gross margins.
- The company expected cash, operating cash flow and revolving-credit availability to cover near-term needs for at least 12 months. The term loan and revolving facility mature May 27, 2027; the company reported compliance with financial covenants at year-end. Borrowings are variable-rate, with interest-rate swaps in place to hedge some exposure.
- Other disclosed risks include customer and distributor concentration, regulatory approvals and EUAs for COVID-19 products, product liability, cybersecurity and privacy, foreign currency, and execution of long-term reagent-rental contracts. Two customers each exceeded 10% of FY2022 revenue; the largest represented 20%.
- No accrual was recorded for the disclosed legal matters because losses were not considered probable and reasonably estimable; management said current matters in aggregate were not expected to have a material adverse effect. The filing also disclosed $40.0 million of uncertain tax positions and $247.8 million of purchase obligations, most expected in FY2023.
The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective as of year-end. The assessment excluded Ortho’s internal controls; Ortho represented 22% of consolidated assets and 36% of FY2022 revenue.
Most important facts for investors to verify
- Whether post-combination results, including integration costs and Ortho’s contribution, support expected synergies and improve profitability; reported FY2022 and FY2021 results are not directly comparable.
- How quickly revenue and margins adjust to lower, volatile COVID-19 demand and seasonal influenza sales, and whether core non-respiratory growth offsets that exposure.
- Debt-service capacity, variable-rate exposure, covenant headroom and the planned $207.5 million of FY2023 principal payments.
- Supply-chain performance and customer concentration, including the sustainability of significant distributor and government-related demand.
- Acquisition accounting and controls: acquired intangible valuations and amortization, inventory step-up effects, and integration of Ortho’s financial controls.