QuidelOrtho Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended July 2, 2023 (13 and 26 weeks, respectively). Amounts are in millions of dollars unless otherwise stated. The May 2022 combination with Ortho makes comparisons less like-for-like: prior-year periods include only partial post-combination results.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $665.1 (+8%) | $613.4 | $1,511.2 (-6%) | $1,615.7 |
| Operating income (loss) | $(26.9) | $79.7 | $72.7 | $700.4 |
| Net income (loss) | $(53.2) | $19.3 | $(4.4) | $499.2 |
| Diluted EPS | $(0.80) | $0.36 | $(0.07) | $10.47 |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $158.3 | $725.6 |
- Revenue mix shifted sharply: first-half Labs revenue was $732.1 and Transfusion Medicine $319.2, while Point of Care fell to $442.3 from $1,310.1 and Molecular Diagnostics declined to $17.6 from $66.7. Lower demand for COVID-19-related assays drove much of the decrease; combination-related sales supported Labs and Transfusion Medicine.
- Cost of sales, excluding intangible amortization, was 55.4% of revenue in Q2 versus 45.0%; for the first half it was 50.7% versus 33.2%. Higher acquisition-related product mix contributed. Selling, marketing and administrative and R&D expenses also rose, primarily reflecting the combination and development spending.
- Net interest expense increased to $36.5 in Q2 and $73.2 in the first half, largely due to acquisition-related term debt. First-half 2022 also included a $24.0 debt extinguishment loss; acquisition and integration costs were lower in 2023.
- Cash from operations fell to $158.3 for the first half. Investing used $111.2, including $117.3 of property, equipment and intangible purchases; financing used $159.3, including $123.8 of debt payments. Cash, cash equivalents and restricted cash decreased $114.3 to $179.6. Operating cash flow less those purchases was approximately $41.0.
- At July 2, cash and marketable securities totaled $248.4; working capital, including cash and current marketable securities, was $518.1. Borrowings totaled $2,515.9, including $207.4 current and $2,308.5 long-term. The $800.0 revolving facility had no borrowings and $787.1 available; the company reported compliance with debt covenants.
Changes, outlook and risks
- Respiratory products represented 13% of Q2 revenue and 23% of first-half revenue, down from 54% and 78% in the corresponding 2022 periods. Management attributed weaker respiratory demand to the transition of COVID-19 to an endemic environment, the end of the U.S. public health emergency, and demand pulled into late 2022.
- Management anticipated revenue growth in core products excluding respiratory products for the remainder of 2023. It expected respiratory demand to fluctuate and pricing pressure to persist, with seasonal cold, flu and RSV demand likely concentrated in fall and winter. No numerical full-year guidance was provided.
- Management cited supply and logistics constraints, raw-material cost inflation, labor availability and costs, and geopolitical and foreign-exchange uncertainty. It noted that disruptions could continue to affect manufacturing, distribution and results. Respiratory seasonality and continued integration of Ortho are additional uncertainties.
- Unusual items include a $19.2 third-party settlement award included in first-half Labs revenue and an approximately $39 inventory reserve reduction from changes in obsolescence estimates. The company also paid the final $40.0 installment for the BNP business during Q2.
- Legal matters include product liability, commercial, intellectual property, regulatory and other claims. Management did not expect current matters in aggregate to have a material adverse effect, but noted that resolution or increased accruals could materially affect results or cash flows.
Important facts for investors to verify
- Whether core-business growth can offset continued declines or pricing pressure in respiratory products, and how seasonal demand develops.
- How much of revenue and earnings changes reflect the Ortho combination versus underlying organic performance; prior-year comparisons are affected by partial-period inclusion.
- Whether the approximately $39 inventory reserve adjustment affects comparability of reported cost of sales and inventory quality.
- Debt repayment capacity, interest costs, covenant headroom and the availability of revolving credit as cash balances decline.
- Execution of integration, product development and reagent-rental expansion plans; management said current liquidity sources should cover near-term needs for at least 12 months.