QuidelOrtho Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative quarter ended April 2, 2023. Figures are unaudited and in U.S. dollars.
Business context and results
QuidelOrtho develops and sells diagnostic products through Labs, Transfusion Medicine, Point of Care and Molecular Diagnostics business units. It reports geographically across North America, EMEA and China, with other regions included in “Other.” Revenue fell 16%, primarily reflecting lower U.S. respiratory-product sales and the prior-year COVID-19 government award.
| Metric | Q1 2024 | Prior-year quarter |
|---|---|---|
| Revenue | $711.0 million | $846.1 million |
| Gross profit, calculated as revenue less cost of sales | $332.1 million; 46.7% margin | $448.6 million; 53.0% margin |
| Operating income (loss) | $(1,758.0) million | $99.6 million |
| Net income (loss) | $(1,706.0) million | $48.8 million |
| Diluted earnings (loss) per share | $(25.50) | $0.73 |
| Cash from operating activities | $(0.7) million | $188.9 million |
| Cash and cash equivalents at quarter-end | $78.5 million | $118.9 million at year-end 2023 |
| Total borrowings at quarter-end | $2,402.1 million | $2,414.6 million at year-end 2023 |
The quarter’s $1,743.9 million non-cash goodwill impairment drove the reported operating and net losses. Excluding that charge alone, operating loss would have been $14.1 million; this is a simple calculation, not a company-reported adjusted measure. Interest expense, net was $39.0 million, up from $36.7 million. The income tax benefit was $92.9 million, with a 5.2% effective tax rate; the rate was affected by nondeductible goodwill impairment.
Revenue and material changes
- By business unit, Labs revenue was $356.9 million, down 4%; Transfusion Medicine was $160.3 million, up 3%; Point of Care was $186.6 million, down 39%; and Molecular Diagnostics was $7.2 million, down 37%.
- Point of Care’s decline principally reflected a $156.4 million decrease in QuickVue SARS Antigen sales versus the prior-year period, partly offset by $35.2 million higher Sofia SARS Antigen sales. The prior-year period also included a $20.7 million collaboration-related settlement in Labs and a COVID-19 government award with a related $39 million inventory release.
- Respiratory products contributed 19% of revenue, compared with 31% a year earlier. Foreign exchange reduced the reported growth rate by approximately 100 basis points.
- North America revenue declined 26% to $433.9 million; EMEA increased 4% to $84.8 million; China increased 8% to $76.1 million; and Other increased 4% to $116.2 million.
Cash, debt and liquidity
Operating cash flow was nearly breakeven, compared with $188.9 million provided in the prior-year quarter. Collections on receivables contributed $26.4 million, while inventory growth used $37.7 million. Investing activities used $20.2 million, including $66.1 million for property, equipment, investments and intangibles, partly offset by $63.1 million of marketable-security sales. Financing activities used $18.5 million, including $51.9 million of long-term debt payments and $40.0 million of net revolving-facility borrowings.
Quarter-end working capital was $432.6 million. The company reported $747.0 million available under its $800 million revolving credit facility after outstanding borrowings and letters of credit. Management stated that cash, expected operating cash flows and revolver availability should fund near-term needs for at least 12 months. Total borrowings were $2.402 billion, including $2.369 billion of term-loan principal before financing costs. The company was in compliance with its financial covenants at March 31, 2024.
Outlook, risks and unusual items
- No specific numerical revenue or earnings guidance was provided. Management expects demand to fluctuate, continued pricing pressure, and respiratory-product seasonality; it plans to maintain R&D investment and continue product and platform development.
- In February 2024, the company began winding down its U.S. VIP platform and microplate donor-screening assays, citing lower growth and margins. It intends to support existing customers and honor contractual commitments; the change does not affect its donor-screening portfolio outside the U.S.
- The $1.7 billion goodwill impairment fully wrote off North America goodwill. Management cited sustained declines in stock price and market capitalization, faster-than-expected declines in COVID-19 and flu markets, and delayed expected commercialization of Savanna. Revised North America revenue and EBITDA forecasts were the primary impairment drivers. No North America long-lived-asset impairment was recorded.
- On April 25, 2024, the company amended its credit agreement, including leverage-covenant limits. Investors should review the amendment and its implications alongside the company’s debt and outlook.
- Two shareholder lawsuits filed in April 2024 concern statements about COVID-19 test sales and the Savanna RVP4 assay submission. The company considers the claims without merit, but says outcomes are uncertain and it cannot estimate a possible loss or range of loss.
- Other stated uncertainties include respiratory-disease trends and seasonality, competition and pricing, supply and logistics challenges, integration and synergy execution, and product-development and commercialization risks.
Important facts for investors to verify
- Whether weaker North America forecasts and respiratory-market declines persist, and whether Savanna commercialization timing changes further.
- Revenue, margins and cash generation as COVID-related comparisons normalize, including performance by business unit and region.
- Debt service, covenant headroom and the effects of the April 25 credit-agreement amendment.
- Progress and costs associated with the U.S. donor-screening wind-down, product launches, manufacturing investment and reagent-rental placements.
- Developments in the shareholder lawsuits and any eventual estimate or disclosure of potential exposure.