S-1/A
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As filed with the Securities and Exchange Commission on January 19, 2021.

Registration No. 333-251875

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

Ortho Clinical Diagnostics Holdings plc

(Exact name of registrant as specified in its charter)

 

 

 

England and Wales   2835  

98-1574150

(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

 

1001 Route 202

Raritan, New Jersey 08869

908-218-8000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Michael A. Schlesinger

Executive Vice President, General Counsel and Secretary

Ortho Clinical Diagnostics Holdings plc

1001 Route 202

Raritan, New Jersey 08869

908-218-8000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With copies to:

 

Patrick H. Shannon

Jason M. Licht

Latham & Watkins LLP

555 Eleventh Street, NW—Suite 1000

Washington, D.C. 20004

Tel: (202) 637-2200

Fax: (202) 637-2201

 

William J. Miller

Noah B. Newitz

Cahill Gordon & Reindel LLP

32 Old Slip

New York, New York 10005

Tel: (212) 701-3000

Fax: (212) 269-5420

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.   ¨

CALCULATION OF REGISTRATION FEE

 

 

Title of each class

of securities to be registered

 

Amount to
be registered(1)

 

Proposed

maximum

aggregate

offering price
per share(2)

 

Proposed

maximum

aggregate

offering price

(1)(2)

 

Amount of

registration fee(3)

Ordinary shares, $0.00001 par value per ordinary share

  80,500,000   $23.00  

$1,851,500,000

  $201,998.65

 

 

 

(1)   Includes 10,500,000 additional ordinary shares that may be purchased by the underwriters.
(2)   Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3)   Of this amount, $10,910 was previously paid in connection with the initial filing of this registration statement on January 4, 2021.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting offers to buy the securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated January 19, 2021

Prospectus

70,000,000 Shares

Ortho Clinical Diagnostics Holdings plc

Ordinary shares

This is Ortho Clinical Diagnostics Holdings plc’s initial public offering. We are selling 70,000,000 of our ordinary shares.

We expect the initial public offering price of our ordinary shares to be between $20.00 and $23.00 per ordinary share. Prior to this offering, no public market existed for our ordinary shares. After pricing of the offering, we expect that our ordinary shares will trade on the NASDAQ Stock Market (“Nasdaq”) under the symbol “OCDX.”

Investing in our ordinary shares involves risks that are described in the “Risk Factors” section beginning on page 21 of this prospectus.

 

     
      Per share      Total  

Public offering price

   $        $                

Underwriting discount(1)

   $        $    

Proceeds, before expenses, to us

   $                    $    

 

(1)   See “Underwriting (Conflicts of Interest)” for a description of the compensation payable to the underwriters.

The underwriters may also exercise their option to purchase up to an additional 10,500,000 shares from us, at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The ordinary shares will be ready for delivery on or about                , 2021.

 

J.P. Morgan   BofA Securities   Goldman Sachs & Co. LLC
Barclays     Morgan Stanley
Citigroup   Credit Suisse    UBS Investment Bank
Evercore ISI    

Piper Sandler

ING   Macquarie Capital   Nomura    
TCG Capital Markets L.L.C.
 
 
Drexel Hamilton   H.C. Wainwright & Co.   Ramirez & Co., Inc.     Siebert Williams Shank  

The date of this prospectus is                , 2021.


Table of Contents

Table of contents

 

     Page  

Prospectus summary

     1  

Risk factors

     21  

Special note regarding forward-looking statements

     63  

Use of proceeds

     66  

Dividend policy

     67  

Capitalization

     68  

Dilution

     70  

Selected consolidated financial data

     72  

Management’s discussion and analysis of financial condition and results of operations

     75  

Business

     114  

Management

     142  

Executive compensation

     150  

Certain relationships and related party transactions

     170  

Principal shareholders

     173  

Description of share capital and articles of association

     175  

Shares eligible for future sale

     193  

Material tax considerations

     195  

Underwriting (Conflicts of interest)

     203  

Legal matters

     212  

Experts

     212  

Where you can find additional information

     213  

Enforcement of judgments

     213  

Index to consolidated financial statements

     F-1  

 

 

Through and including                 , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses that we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the ordinary shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of the ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

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For investors outside the United States: We and the underwriters have not done anything that would permit a public offering of our ordinary shares or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ordinary shares and the distribution of this prospectus outside of the United States.

 

 

Basis of presentation

Unless otherwise indicated or the context otherwise requires, references in this prospectus to:

 

 

the term “2025 Notes” refers to the $400.0 million in aggregate principal amount of 7.375% Senior Notes due 2025 issued by the Lux Co-Issuer and the U.S. Co-Issuer;

 

 

the term “2025 Notes Indenture” refers to the indenture governing the 2025 Notes, as amended, supplemented or otherwise modified from time to time;

 

 

the term “2028 Notes” refers to the $675.0 million in aggregate principal amount of 7.250% Senior Notes due 2028 issued by the Lux Co-Issuer and the U.S. Co-Issuer;

 

 

the term “2028 Notes Indenture” refers to the indenture governing the 2028 Notes, as amended, supplemented or otherwise modified from time to time;

 

 

the term “Acquisition” refers to the acquisition by Bermuda Holdco pursuant to a stock and asset purchase agreement, dated January 16, 2014 (the “Acquisition Agreement”), of (i) certain assets and liabilities and (ii) all of the equity interests and substantially all of the assets and liabilities of certain entities which, together with their subsidiaries, comprised the Ortho Clinical Diagnostics business from Johnson & Johnson;

 

 

the term “assay” refers to an investigative (analytic) procedure in laboratory medicine, pharmacology, environmental biology and molecular biology for qualitatively assessing or quantitatively measuring the presence or amount or the functional activity of a target entity (the analyte), which can be a drug or biochemical substance or a cell in an organism or organic sample;

 

 

the term “Bermuda Holdco” refers to Ortho-Clinical Diagnostics Bermuda Co. Ltd., a Bermuda exempted limited liability company. As part of the Reorganization Transactions, the existing ordinary shares of Bermuda Holdco will be contributed to UK Holdco in exchange for ordinary shares of UK Holdco, following which we expect that Bermuda Holdco will be dissolved;

 

 

the term “consumables” refers to miscellaneous items such as calibrators, pipettes and controls, which are run on our instruments in conjunction with and in support of assays and reagents;

 

 

the term “Credit Agreement” refers to that certain credit agreement governing our Senior Secured Credit Facilities;

 

 

the term “emerging markets” refers to all countries where we operate other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States and certain other developed countries;

 

 

the term “GAAP” refers to the generally accepted accounting principles in the United States of America;

 

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the term “Holdings” refers to Ortho-Clinical Diagnostics Holdings Luxembourg S.à r.l., a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, having its registered office at 89C, rue Pafebruch, L-8308 Capellen, Grand Duchy of Luxembourg and registered with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés de Luxembourg) under number B185679 and, following the Reorganization Transactions, a direct, wholly owned subsidiary of UK Holdco;

 

 

the term “Joint Business” refers to a long-term collaboration agreement with Grifols Diagnostic Solutions, Inc. that encompasses certain Clinical Laboratories and Donor Screening products;

 

 

the term “laboratories,” when we refer to our customers, refers to testing sites that process and provide results for in vitro diagnostic tests within hospitals, independent reference labs, physician office labs or physician clinics;

 

 

the term “Lux Co-Issuer” refers to Ortho-Clinical Diagnostics S.A., a société anonyme organized under the laws of the Grand Duchy of Luxembourg, having its registered office at 89C, rue Pafebruch, L-8308 Capellen Luxembourg and registered with the Luxembourg trade and companies register (Registre de Commerce et des Sociétés de Luxembourg) under number B 185693 and, following the Reorganization Transactions, an indirect, wholly owned subsidiary of UK Holdco;

 

 

the terms “Principal Shareholder” and “Carlyle” refer to The Carlyle Group Inc. and its affiliates;

 

 

the term “reagent” refers to a substance that is added during a test in order to bring about a reaction. The resulting reaction is used to confirm the presence of another substance. Our reagents are used to identify different properties of blood;

 

 

the term “Reorganization Transactions” refers to the transactions described under “—Reorganization transactions”;

 

 

the term “Senior Notes” refers, collectively, to the 2025 Notes and the 2028 Notes;

 

 

the term “Senior Secured Credit Facilities” refers to (a) the senior secured term loan facility in an original amount of $2,175.0 million, as increased by the incremental term loan (the “Incremental Term Loan”) of $200 million (collectively, the “Dollar Term Loan Facility”), (b) the euro-denominated senior secured term loan facility in an amount equal to 337.4 million (the “Euro Term Loan Facility” and, together with the Dollar Term Loan Facility, the “Term Loan Facilities”), and (c) the multi-currency senior secured revolving facility with commitments of $350.0 million (the “Revolving Credit Facility”);

 

 

the term “throughput” refers to the number of tests performed during a certain time period;

 

 

the term “UK Holdco” refers to Ortho Clinical Diagnostics Holdings plc, a public limited company incorporated under the laws of England and Wales. As part of the Reorganization Transactions, the existing ordinary shares of Bermuda Holdco will be contributed to UK Holdco in exchange for ordinary shares of UK Holdco, following which we expect that Bermuda Holdco will be dissolved;

 

 

the term “U.S. Co-Issuer” refers to Ortho-Clinical Diagnostics, Inc., a corporation incorporated under the laws of the State of New York and, following the Reorganization Transactions, an indirect, wholly owned subsidiary of UK Holdco;

 

 

the terms “we,” “us,” “our,” “its,” our “Company” and “Ortho” refer to UK Holdco and its consolidated subsidiaries after giving effect to the Reorganization Transactions.

 

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References to a year refer to our fiscal years ended on the Sunday nearest December 31 of the specified year and consist of 52 weeks (for example, the terms “2019” and “fiscal 2019” refer to our fiscal year ended December 29, 2019, the terms “2018” and “fiscal 2018” refer to our fiscal year ended December 30, 2018 and the terms “2017” and “fiscal 2017” refer to our fiscal year ended December 31, 2017).

References to our customers mean those customers we directly sell our products and services to, such as hospitals, clinics and our distributors. References to our end-customers mean customers who use our products, which include hospitals and clinics.

Reorganization transactions

UK Holdco is a public limited company incorporated under the laws of England and Wales for purposes of becoming the new holding company of Bermuda Holdco and its subsidiaries and has an initial share capital of one ordinary share and 50,000 preferred redeemable shares (“Incorporation Shares”). Prior to the consummation of the Reorganization Transactions, UK Holdco will have no subsidiaries or operations. In connection with the consummation of the offering and prior to effectiveness of the Registration Statement of which this prospectus forms a part, Carlyle and all other shareholders of Bermuda Holdco will contribute all of their outstanding equity interests in Bermuda Holdco to UK Holdco in exchange for ordinary shares of UK Holdco on a 1-for-1 basis (the “Reorganization Transactions”). Following the Reorganization Transactions, the Incorporation Shares held by Carlyle will be deferred, with no economic or voting rights attributable to such shares.

Following the consummation of this offering, we expect that Bermuda Holdco will be dissolved and UK Holdco will directly own all outstanding equity interests of Holdings and will indirectly own all outstanding equity interests of Holdings’ subsidiaries. Prior to the Reorganization Transactions, UK Holdco will have no operations and no material assets or liabilities. As a result of the Reorganization Transactions, UK Holdco will supersede Bermuda Holdco as the ultimate parent of Ortho and succeed to the business and operations of Bermuda Holdco. UK Holdco’s historical financial statements will be substantially identical to those of Bermuda Holdco and this change will not have any effect on the presentation of the financial statements and does not constitute a business combination under ASC 805. Accordingly, the historical financial information presented in this prospectus is that of Bermuda Holdco.

 

 

Trademarks and service marks

We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In addition, our names, logos and website names and addresses are our service marks or trademarks. Other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners. The trademarks we own or have the right to use include, among others, ORTHO®, ORTHO CLINICAL DIAGNOSTICS®, ORTHO VISION, BIOVUE® and VITROS®. Solely for convenience, in some cases, the trademarks, service marks and trade names referred to in this prospectus are listed without the applicable ® and symbols, but we will assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names.

 

 

Market, industry and other data

Throughout this prospectus, we refer to our market position or market share in various markets or regions. These references represent our best estimates of our market share at the time of this prospectus and are based

 

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on management’s knowledge of the industry and the market data and other statistical information obtained from independent industry publications, reports by market research firms or other published independent sources. We confirm that such information has been accurately reproduced and that, so far as we are aware, and are able to ascertain from information published by publicly available sources and other publications, no facts have been omitted which would render the reproduced information inaccurate or misleading. Industry publications, reports and other published data generally state that the information contained therein has been obtained from sources believed to be reliable. Certain other market and industry data included in this prospectus, including the size of certain markets, are based on estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate.

Unless specifically noted otherwise, information presented in this prospectus with respect to our position relative to other industry participants is based on information or sources for the year ended December 31, 2019. Market size and market growth information presented in this prospectus reflects estimates of market sizes and growth in such markets for the year ended December 31, 2020 and for the years ended December 31, 2020 through 2024, respectively. In each such case, management believes such information presented represents the most recent data available to the Company.

Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables and charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

 

 

Use of non-GAAP financial measures

Adjusted EBITDA, Management EBITDA, Adjusted Net Income and Core revenue constant currency growth rate are our key non-GAAP financial measures. For more information about how we use these non-GAAP financial measures in our business, the limitations of these measures and a reconciliation of these measures to the most directly comparable GAAP measures, see “Prospectus summary—Summary consolidated financial data.” Adjusted EBITDA consists of net loss before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization and eliminates (i) non-operating income or expense and (ii) impacts of certain non-cash, unusual or other items that are included in net loss that we do not consider indicative of our ongoing operating performance. Management EBITDA consists of Adjusted EBITDA plus certain other management adjustments. Adjusted Net Income consists of net loss before amortization and the elimination of (i) non-operating income or expense and (ii) impacts of certain non-cash, unusual or other items that are included in net loss that we do not consider indicative of our ongoing operating performance. Core revenue constant currency growth rate refers to the growth rate of revenue generated in our Clinical Laboratories and our Transfusion Medicine lines of business, which historically make up more than 95% of our net revenue, with any local currency revenue for all reporting periods translated into U.S. dollars using the same comparable foreign currency exchange rates.

We use these financial measures in the analysis of our financial and operating performance because they assist in the evaluation of underlying trends in our business. Additionally, Management EBITDA is the basis we use for assessing the profitability of our geographic-based reportable segments and is also utilized as a basis for calculating certain management incentive compensation programs. In the case of Adjusted EBITDA and Adjusted Net Income, we believe that making such adjustments provides management and investors meaningful information to understand our operating performance and ability to analyze financial and business trends on a

 

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period-to-period basis. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance. We use certain of these financial measures for business planning purposes and measuring our performance relative to that of our competitors.

Other companies in our industry may calculate Adjusted EBITDA, Management EBITDA, Adjusted Net Income and Core revenue constant currency growth rate differently than we do. As a result, these financial measures have limitations as analytical and comparative tools and you should not consider these items in isolation, or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA, Management EBITDA and Adjusted Net Income should not be considered as measures of discretionary cash available to us to invest in the growth of our business. In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to have been inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in the presentation of these metrics included in this prospectus. Our presentation of Adjusted EBITDA, Management EBITDA and Adjusted Net Income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Adjusted EBITDA, Management EBITDA, Adjusted Net Income and Core revenue constant currency growth rate have important limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations include the fact that:

 

 

Adjusted EBITDA and Management EBITDA:

 

   

do not reflect the significant interest expense on our debt, including the Senior Secured Credit Facilities, the 2025 Notes and the 2028 Notes;

 

   

eliminate the impact of income taxes on our results of operations; and

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Management EBITDA do not reflect any cash requirements for such replacements;

 

 

Adjusted Net Income eliminates the effects of amortization related to purchased intangibles; and

 

 

Core revenue constant currency growth rate eliminates the effects of foreign currency exchange rate fluctuations.

We compensate for these limitations by relying primarily on our GAAP results and using these financial measures only as a supplement to our GAAP results. For an explanation of the components of Core revenue constant currency growth rate, see footnotes (2) and (3) in “Prospectus summary—Summary consolidated financial data,” and for an explanation of the components of Adjusted EBITDA, Management EBITDA and Adjusted Net Income, see footnotes (4) and (5) in “Prospectus summary—Summary consolidated financial data.”

In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to have been inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of these metrics should not be construed as an inference that our future results will not be affected by unusual or non-recurring items or changes in our customer base. Additionally, our presentation of Adjusted EBITDA may differ from that included in the Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture for purposes of covenant calculation.

 

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Prospectus summary

This summary highlights information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our ordinary shares, you should carefully read this entire prospectus, including our financial statements and the related notes included elsewhere in this prospectus, and the information set forth under “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations.”

Unless otherwise indicated in this prospectus, references to the “Company,” “we,” “us” and “our” refer to UK Holdco and its consolidated subsidiaries after giving effect to the Reorganization Transactions. References to “underwriters” refer to the firms listed on the cover page of this prospectus.

Our company

We are a pure-play in vitro diagnostics (“IVD”) business driven by our credo, “Because Every Test is A Life.” This guiding principle reflects the crucial role diagnostics play in global health and guides our priorities as an organization. As a leader in IVD, we impact approximately 800,000 patients every day. We are dedicated to improving outcomes for these patients and saving lives through providing innovative and reliable diagnostic testing solutions to the clinical laboratory and transfusion medicine communities. Our global infrastructure and commercial reach allow us to serve these markets with significant scale. We have an intense focus on the customer. We support our customers with high quality diagnostic instrumentation, a broad test portfolio and market leading service. Our products deliver consistently fast, accurate and reliable results that allow clinicians to make better-informed treatment decisions. Our business model generates significant recurring revenues and strong cash flow streams from ongoing sales of high margin consumables. In 2019, these consumables contributed more than 90% of our total revenue and approximately 93% of our core revenue. We maintain close connectivity with our customers through our global presence, with more than 4,500 employees, including approximately 2,200 commercial sales, service and marketing teammates. This global organization allows us to support our customers across more than 130 countries and territories.

We have been pioneering life-impacting advances in diagnostics for over 80 years, from our earliest work in blood typing, to our innovation in infectious diseases and our latest developments in laboratory solutions. In 2014, we were acquired by The Carlyle Group from Johnson & Johnson and became an independent organization, solely focused on delivering high quality IVD products and service to our diagnostic customer base. At the time of the separation, our business had global scale, a reputation for high quality products, a strong quality management system and a research and development team with extensive scientific expertise. Over the past six years, we have significantly invested in our business with the objective of creating a highly efficient, innovative and lean organization capable of scaling to meet our customers’ needs. These investments included the following focus areas:

 

 

Infrastructure:    We invested over $500 million in IT, finance, supply chain and other support functions to build out our infrastructure and capabilities as a standalone business and drive long-term, profitable growth.

 

 

Research and development:    We increased our focus on innovation by investing approximately $550 million in research and development to enhance our existing capabilities and develop new instruments and assays to supplement our portfolio.

 

 

Commercial:    We redesigned our go-to-market strategy across all key regions, expanded our sales force, implemented new customer information systems and launched ORTHOCARE to enhance our service capabilities.

 

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Operations:    We consolidated and streamlined our manufacturing capabilities and other global functions to improve profitability and cash flow, achieving more than $200 million in savings since our acquisition by Carlyle.

 

 

Leadership:    To capitalize on these investments, we recruited a highly qualified management team of experienced diagnostic and healthcare leaders focused on our customers and accelerated growth.

With these investments, we have reinvigorated our portfolio, transformed our commercial model and emerged as a focused leader in the IVD market, which we believe positions our business for future growth.

IVD testing is a critical tool in evaluating health in many different settings around the world. IVD is a core component of routine health care check-ups for those who are presenting with symptoms or require procedures, and it influences up to 70% of critical healthcare clinical decision-making. Consequently, our IVD solutions have a profound impact on the assessment of health and the delivery of care. IVD is also critical in monitoring the transmission and spread of infectious disease outbreaks, where Ortho’s longstanding excellence in infectious disease testing is particularly relevant. Our solutions are central to the operations of hospitals, clinics, blood banks and donor centers around the world, where they are used to help diagnose certain conditions, such as cancer or heart attacks, and infectious diseases, such as hepatitis, HIV, and most recently, COVID-19, where we have launched two antibody tests and an antigen test, and we are actively expanding our menu of tests to address the global pandemic.

We operate in an approximately $26 billion addressable market, which is expected to grow at a compound annual growth rate (“CAGR”) of approximately 5% from 2020 to 2024. We compete in the two largest IVD markets, Immunoassay and Clinical Chemistry, which together comprise our Clinical Laboratories business and represent approximately $24 billion of our current addressable market. We expect our Clinical Laboratories business will be favorably impacted by an aging population, an increased need for testing of chronic conditions, the expansion of access to healthcare services, the emergence of new disease states and other macro trends. We are also the global leader in Transfusion Medicine, which includes hospital-based Immunohematology and Donor Screening for blood and plasma at hospitals and other donation centers. Transfusion Medicine represents approximately $2 billion of our current addressable market. We expect our Transfusion Medicine business will be favorably impacted by increases in the number and type of surgical procedures, an aging population and other macro trends. There is significant overlap in our customer base given we currently sell to about 70% of the hospitals in the United States, and we are often able to leverage our leadership within Transfusion Medicine to cross-sell our Clinical Laboratories solutions. Because we focus primarily on acute or critical care diagnostics that are core to therapeutic decisions in hospitals, our markets are relatively resilient across business cycles. We offer our products and services globally, with distinct offerings targeted to the needs of customers in developed and emerging markets.

Today, we operate two lines of business, Clinical Laboratories and Transfusion Medicine, which together generate our core revenue:

 

 

Clinical Laboratories:    Comprised of Clinical Chemistry, which is the measurement of target chemicals in bodily fluids for the evaluation of health and the clinical management of patients, and Immunoassay, which is the measurement of proteins as they act as antigens in the spread of disease, antibodies in the immune response spurred by disease, or markers of proper organ function and health.

 

 

Transfusion Medicine:    Comprised of Donor Screening, where blood and plasma is screened at donation for blood type and target diseases, and Immunohematology, where blood is typed and screened at the hospital blood bank before being transfused into the patient.

Our broad offerings allow us to support our customer base and maximize the opportunity to provide each of our customers with a comprehensive array of products and services over time. We refer to this mutually beneficial

 

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approach as focusing on Lifetime Customer Value (“LCV”). Our focus on LCV underpins everything we do, from the design and execution of our commercial and service model, to our instrument and assay innovation, to the composition of our global footprint. Our approach has informed our choice to focus on medium- to high-volume laboratories, which in turn has helped us become a focused leader in our selected markets and transformed our financial profile. We intend to continue to invest in and evolve our LCV framework to best support our customers and maximize our financial results.

As an example, we may begin a Clinical Laboratories customer relationship by providing a standalone instrument (often a clinical chemistry analyzer) and a set of assays that are relevant to that customer’s specific testing needs. As the customer and its testing needs grow, we look to migrate the customer, where appropriate, to an integrated analyzer that performs both clinical chemistry and immunoassay testing. This migration helps us increase our customers’ testing capabilities as well as the revenue we generate from customers. For our larger customers, we ultimately may expand their testing throughput by installing automation tracks that connect multiple analyzers along the automation track, while providing the full suite of our ever-expanding assay menu. As we have significantly expanded our test menu offering, our integrated analyzers are now more often where our Clinical Laboratories relationship starts. In Transfusion Medicine, the life cycle is similar, as customers graduate from manual testing processes to semi-automated capabilities to fully-automated blood and plasma screening instrumentation as their testing volumes and technical competencies grow over time. We focus on building long-term customer relationships and continuing to enhance both our offering and the customer’s ability to care for their patients—ultimately deepening our commercial relationship and driving our financial model.

We believe that the strong clinical performance of our assays, our instruments’ ease-of-use and reliability, our best-in-class customer service and low total cost of ownership contribute to our high revenue retention rate of approximately 99% in 2019. We have longstanding relationships with customers, with an average Clinical Laboratories customer relationship of almost 13 years and an average Transfusion Medicine customer relationship of almost 15 years. Our customer relationships are particularly strong in the medium- to high-volume laboratories (our “Focus Markets”), which compares to the broader market that includes low- and ultra high-volume laboratories. In addition, our dry slide technology has an environmentally friendly profile as it doesn’t require water system plumbing, it reduces hazardous waste and it requires less space for liquid storage. All of these attributes resonate particularly well with customers who are pursuing environmental goals or customers who operate in regions with scarce water supply.

Our revenue is driven by a “razor-razor blade” business model. Through this model, we generally sell or place instruments under long-term contracts, which support the ongoing sale of our assays, reagents and consumables. Our instruments are closed systems, requiring customers to purchase the assays, reagents and consumables from us. These sales generate a high proportion of recurring revenues. As of September 27, 2020, we had an installed base of approximately 20,000 instruments, which increased approximately 5% since September 2019. We also generate non-core revenue, including through our contract manufacturing business and certain business collaborations, which accounted for approximately 3% of our net revenue during the fiscal year ended December 29, 2019. During the fiscal year ended December 29, 2019, we recorded net revenue of $1.8 billion, net loss of $157 million and Adjusted EBITDA of $478 million. During the fiscal nine months ended September 27, 2020, we recorded net revenue of $1,250 million, net loss of $171 million and Adjusted EBITDA of $322 million. As of September 27, 2020, we had total indebtedness of $3,713.7 million, and for the fiscal nine months ended September 27, 2020, our interest expense was $148.6 million. We note that our net revenue for the fiscal nine months ended September 27, 2020 was approximately 5.9% lower as compared to the prior year period, primarily due to decreased shipments to customers as a result of the global COVID-19 pandemic. However, during the three months ended September 27, 2020, we began to experience a rebound towards the positive quarterly trajectory we saw prior to the beginning of the pandemic. As an example of such quarterly

 

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trajectory, during the four quarters prior to the second fiscal quarter of 2020, our quarterly core revenue (excluding local HCV) was growing in the range of approximately 3.8% to 5.8% on a constant currency basis as compared to the relevant prior year period. As a result of the COVID-19 pandemic, during the fiscal three months ended June 28, 2020, we experienced significantly reduced testing volumes and a 12.2% decline in core revenue (excluding local HCV) on a constant currency basis as compared to the fiscal three months ended June 30, 2019. However, for the fiscal three months ended September 27, 2020, our core revenue (excluding local HCV) increased approximately 3.7% on a constant currency basis as compared to the fiscal three months ended September 29, 2019, which growth rate is more consistent with the trend we experienced prior to the COVID-19 pandemic. For example, during the three months ended September 27, 2020, our core recurring revenue in North America increased by approximately 11.1% and our core revenue in Greater China increased by approximately 7.9%, in each case, as compared to the prior year period.

Our competitive strengths

We believe we are well-positioned to drive sustained and profitable growth through our relentless focus on LCV. This customer-centric approach informs the execution of our commercial and service model and underpins our go-to-market strategy. Our customer focus allows us to retain and grow our customers by providing a superior customer experience driven by unparalleled quality of service, continuous innovation and access to a diverse product portfolio. We are able to leverage our global footprint to gain differentiated and leading positions across our Focus Markets. This intense focus on our customers has resulted in an attractive business model with high recurring revenues that allows us to continue to invest to reinforce our competitive strengths, which include:

 

 

Intense customer focus enabled by our broad portfolio and market leading positions

 

 

Superior customer experience and brand loyalty resulting in high customer retention and win rates

 

 

Highly compelling solutions supported by our leading and innovative research and development capabilities

 

 

Extensive and balanced global commercial footprint with reinvigorated focus on growth

 

 

Disciplined approach to streamline operations and optimize our cost structure

 

 

Deeply committed leadership team with broad experience in healthcare and diagnostics.

Our growth strategy

Our heritage and strength lie in our long-term customer relationships and trusted brand, which create a steady base of recurring revenue and a foundation for future growth. By focusing on LCV, we identify ways in which we can utilize product innovation and impactful customer service and solutions to deepen these partnerships and add value over time. We plan to grow our business by broadening our existing relationships, winning new customers and targeting high-growth end markets and adjacencies. We are focused on sustainable long-term growth through commercial excellence that maximizes LCV, strengthens existing relationships through superior service and delivers innovative products for our customers and their patients. The key elements of our strategy to accelerate and sustain revenue growth and operating leverage include:

 

 

Focusing relentlessly on maximizing LCV, which is designed to produce and maintain a growing and recurring, high margin, durable financial profile and contributes to growth

 

 

Providing an unparalleled customer experience to retain and attract existing and new customers

 

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Leveraging our global footprint to deliver innovative solutions to meet our customers’ needs in both developed and emerging markets

 

 

Creating meaningful product innovation through menu expansion, development of novel instruments and enhancement of automation and informatics

 

 

Continuing to identify operating efficiencies to allow for reinvestment in growth and improve margins

 

 

Pursuing business development opportunities, partnerships and strategic acquisitions to enter adjacencies or expand our current business units.

Our products and services

Clinical Laboratories

Our Clinical Laboratories business focuses on clinical chemistry and immunoassay instruments and tests to detect and monitor disease progression across a broad spectrum of therapeutic areas. Our flagship Clinical Laboratories platform is the VITROS family of instruments, which includes a series of clinical chemistry, immunoassay, integrated (combined chemistry and immunoassay) systems and automation and middleware solutions. VITROS instruments are placed in centralized, higher-throughput testing sites (hospitals and laboratories) and decentralized, lower-throughput sites (physician offices, clinics and specialty settings).

 

 

LOGO

 

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Transfusion Medicine

Immunohematology

Within Transfusion Medicine, our Immunohematology business is focused on immunohematology instruments and tests used for blood typing to ensure patient-donor compatibility in blood transfusions. Our flagship Immunohematology analyzers are the ORTHO VISION and ORTHO VISION Max systems that automate blood typing and serology disease screening for blood banks. In addition, we sell the semi-automated ORTHO Workstation for blood bank customers that have lower volumes or need for test automation.

 

 

LOGO

Donor Screening

Our Donor Screening business is focused on instruments and tests used for blood and plasma screening for infectious diseases for customers, which include some of the largest donor testing institutions, primarily in the United States. In Donor Screening, our core instrument offering is the ORTHO VERSEIA Integrated Processor—an automated pipetting and processing system that brings together the ORTHO VERSEIA pipettor and ORTHO Summit Processor to enable end-to-end pipetting and processing.

Our services

In addition to the products we provide, ORTHOCARE Services are a critical element of how we deliver value to our customers. As of September 2020, we have approximately 900 service teammates globally. We employ highly trained service professionals including over 340 laboratory specialists with advanced qualifications. For example, more than 95% of our U.S. laboratory specialists have medical technician degrees.

Estimated preliminary results

Set forth below are certain preliminary results for the fiscal year ended January 3, 2021. We have provided ranges, rather than specific amounts, because these results are preliminary and subject to change. These ranges are based on the information currently available to us as of the date of this prospectus. Our actual financial results for the fiscal year ended January 3, 2021 are not yet available, and our closing procedures for the fiscal year ended January 3, 2021 are not yet completed. Our actual results may vary from the estimated preliminary results and other data presented here and will not be finalized until after the completion of this offering.

 

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These are forward-looking statements and are not guarantees of future performance and may differ from actual results. The estimated preliminary results below should not be viewed as a substitute for our full annual financial statements prepared in accordance with GAAP. There can be no assurance that the estimated preliminary results or other data will be realized, and estimates are subject to risks and uncertainties. Please refer to “Risk factors” and “Special note regarding forward-looking statements.” The estimated preliminary results below should be read in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements included elsewhere in this prospectus.

The preliminary financial results included in this prospectus have been prepared by, and are the responsibility of, our management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled, or applied agreed-upon procedures with respect to the preliminary financial results. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

 

     Fiscal year ended  
($ in millions)    January 3, 2021     December 29, 2019  
     Low     High        

Selected financial data:

      

Net revenue

   $ 1,764     $ 1,769     $ 1,801.5  

Core revenue

     1,732       1,737       1,740.3  

Income from operations

     86       89       85.5  

Adjusted EBITDA

     453       459       477.5  

Net revenue change

     (2.1 )%      (1.8 )%   

Core revenue change

     (0.5 )%      (0.2 )%   

Income from operations change

     0.6     4.1  

Adjusted EBITDA change

     (5.1 )%      (3.9 )%   

Consolidated balance sheet data:

      

Cash and cash equivalents

   $ 132     $ 134     $ 72.0  

Total debt

     3,715       3,720       3,599.1  

The following table reconciles Income from operations (the most directly comparable GAAP measure reasonably available to us at this time) to Adjusted EBITDA for the periods presented:

 

     Fiscal year ended  
     January 3, 2021      December 29, 2019  
($ in millions)    Low      High         

Income from operations(a)

   $ 86      $ 89      $ 85.5  

Depreciation and amortization

     326        326        327.5  

Restructuring and severance related costs(b)

     11        12        36.0  

Stock-based compensation(c)

     9        9        18.6  

Other adjustments(d)

     21        23        9.9  
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 453      $ 459      $ 477.5  
  

 

 

    

 

 

    

 

 

 

 

(a)  

Income from operations does not reflect interest expense, net, tax indemnification expense, other expense, net and benefit from income taxes. For the fiscal year ended January 3, 2021, we expect to report interest expense, net in the range of $195 million to $197 million, representing a decrease of 15.7% to 14.9%, respectively, compared to the fiscal year ended December 29, 2019. The expected decrease in interest expense, net was primarily related to lower interest rates on the Dollar Term Loan Facility. For the fiscal year ended January 3, 2021, we expect to report other expense, net in the range of $82 million to $88 million, representing an increase of $76.3 million to $82.3 million, respectively, compared to the

 

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fiscal year ended December 29, 2019. The expected increase in other expense, net, was primarily related to net unrealized foreign currency losses, mainly related to intercompany loans denominated in currencies other than the functional currency of the affected subsidiaries, and loss on early extinguishment of the 2022 Notes of $12.6 million.

 

(b)   Represents restructuring and severance costs related to several discrete initiatives intended to strengthen operational performance and to support building our commercial capabilities.

 

(c)   Represents stock-based compensation expense including the $14.7 million modification impact of a 2019 amendment to our stock option agreement, where performance-based options that did not previously vest based on applicable minimum earnings targets have vested or will vest over a specified future period of time.

 

(d)   Represents miscellaneous other adjustments related to unusual items impacting our results including the elimination of management fees, non-cash derivative mark-to-market (gain) loss and certain asset write-downs.

For the fiscal year ended January 3, 2021, we expect to report net revenue in the range of $1,764 million to $1,769 million, representing a decrease of 2.1% to 1.8%, respectively, compared to the fiscal year ended December 29, 2019. For the fiscal year ended January 3, 2021, we expect to report core revenue in the range of $1,732 million to $1,737 million, representing a decrease of 0.5% to 0.2%, respectively, compared to the fiscal year ended December 29, 2019. The decrease in net revenue and core revenue for the full year, which includes a negative impact of approximately $ 12 million from foreign currency fluctuations, was mainly driven by lower revenues in our Clinical Laboratories business in the EMEA, Greater China and other regions due primarily to the global COVID-19 pandemic and lower local HCV revenue in the Japan region of approximately $18 million due to the timing of shipments, as well as lower revenues in our Transfusion Medicine business in all regions due primarily to the global COVID-19 pandemic. These decreases were partially offset by increases in our Clinical Laboratories business in the North America region related to sales of our COVID-19 antibody tests and other assays, instrument sales and grant revenue related to development of our COVID-19 antibody and antigen tests. The decrease in net revenue was also impacted by lower other product revenue due to the reduction and timing of certain performance obligations in a contract manufacturing arrangement.

For the fiscal year ended January 3, 2021, we expect to report income from operations in the range of $86 million to $89 million, representing an increase of 0.6% to 4.1%, respectively, primarily driven by lower operating expenses during the fiscal year ended January 3, 2021 as compared to the fiscal year ended December 29, 2019 for the low and high estimated preliminary results, respectively. For the fiscal year ended January 3, 2021, we expect to report Adjusted EBITDA in the range of $453 million to $459 million, representing a decrease of 5.1% to 3.9%, respectively, compared to the fiscal year ended December 29, 2019. The decrease in Adjusted EBITDA was primarily driven by lower revenues, as discussed above, partially offset by lower operating expenses during the fiscal year ended January 3, 2021 as compared to the fiscal year ended December 29, 2019 for the low and high estimated preliminary results, respectively.

As of January 3, 2021, we estimate that we had an installed base in the range of approximately 20,000 instruments, as compared to approximately 19,000 instruments as of December 29, 2019.

 

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Risks related to our business

Investing in our ordinary shares involves a high degree of risk. You should carefully consider these risks before investing in our ordinary shares, including the risks related to our business and industry described under “Risk factors” elsewhere in this prospectus. In particular, the following considerations, among others, may offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of our ordinary shares and result in a loss of all or a portion of your investment:

 

 

the ongoing global coronavirus (COVID-19) pandemic;

 

 

increased competition;

 

 

manufacturing problems or delays or failure to develop and market new or enhanced products or services;

 

 

adverse developments in global market, economic and political conditions;

 

 

our ability to obtain additional capital on commercially reasonable terms may be limited or non-existent;

 

 

our inability to implement our strategies for improving growth or to realize the anticipated benefits of any acquisitions and divestitures, including as a result of difficulties integrating acquired businesses with, or disposing of divested businesses from, our current operations;

 

 

a need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets;

 

 

our ability to operate according to our business strategy should our collaboration partners fail to fulfill their obligations;

 

 

risk that the insurance we will maintain may not fully cover all potential exposures;

 

 

product recalls or negative publicity may harm our reputation or market acceptance of our products;

 

 

decreases in the number of surgical procedures performed, and the resulting decrease in blood demand;

 

 

fluctuations in our cash flows as a result of our reagent rental model;

 

 

terrorist acts, conflicts, wars and natural disasters that may materially adversely affect our business, financial condition and results of operations;

 

 

the outcome of legal proceedings instituted against us and/or others;

 

 

risks associated with our non-U.S. operations, including currency translation risks, the impact of possible new tariffs and compliance with applicable trade embargoes;

 

 

the effect of the United Kingdom’s withdrawal from the European Union;

 

 

our inability to deliver products and services that meet customers’ needs and expectations;

 

 

failure to maintain a high level of confidence in our products;

 

 

significant changes in the healthcare industry and related industries that we serve, in an effort to reduce costs;

 

 

reductions in government funding and reimbursement to our customers;

 

 

price increases or interruptions in the supply of raw materials, components for our products, and products and services provided to us by certain key suppliers and manufacturers;

 

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our ability to recruit and retain the experienced and skilled personnel we need to compete;

 

 

work stoppages, union negotiations, labor disputes and other matters associated with our labor force;

 

 

consolidation of our customer base and the formation of group purchasing organizations;

 

 

unexpected payments to any pension plans applicable to our employees;

 

 

our inability to obtain required clearances or approvals for our products;

 

 

failure to comply with applicable regulations, which may result in significant costs or the suspension or withdrawal of previously obtained clearances or approvals;

 

 

the inability of government agencies to hire, retain or deploy personnel or otherwise prevent new or modified products from being developed, cleared or approved or commercialized in a timely manner;

 

 

disruptions resulting from President Trump’s invocation of the Defense Production Act;

 

 

our inability to maintain our data management and information technology systems;

 

 

data corruption, cyber-based attacks, security breaches and privacy violations;

 

 

our inability to protect and enforce our intellectual property rights or defend against intellectual property infringement suits against us by third parties;

 

 

risks related to changes in income tax laws and regulations;

 

 

risks related to our substantial indebtedness, which includes $2,200.0 million outstanding under our Dollar Term Loan Facility, $390.4 million outstanding under our Euro Term Loan Facility, $400.0 million aggregate principal amount of 2025 Notes outstanding and $675.0 million aggregate principal amount of 2028 Notes outstanding, in each case, as of September 27, 2020;

 

 

our ability to generate cash flow to service our substantial debt obligations;

 

 

risks related to this offering and ownership of our ordinary shares, including the fact that, after completion of this offering, we are expected to be a “controlled company” within the meaning of the corporate governance standards of Nasdaq; and

 

 

other factors set forth under “Risk factors” in this prospectus.

Reorganization Transactions

UK Holdco is a public limited company incorporated under the laws of England and Wales for purposes of becoming the new holding company of Bermuda Holdco and its subsidiaries and has an initial share capital of one ordinary share and 50,000 preferred redeemable shares. Prior to the consummation of the Reorganization Transactions, UK Holdco will have no subsidiaries or operations. In connection with the consummation of the offering and prior to effectiveness of the Registration Statement of which this prospectus forms a part, Carlyle and all other shareholders of Bermuda Holdco will contribute all of their outstanding equity interests in Bermuda Holdco to UK Holdco in exchange for ordinary shares of UK Holdco on a 1-for-1 basis. Following the Reorganization Transactions, the Incorporation Shares held by Carlyle will be deferred, with no economic or voting rights attributable to such shares.

Following the consummation of this offering, we expect that Bermuda Holdco will be dissolved and UK Holdco will directly own all outstanding equity interests of Holdings and will indirectly own all outstanding equity interests of Holdings’ subsidiaries.

 

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Corporate structure

The following chart summarizes our corporate structure after giving effect to the Reorganization Transactions. This chart is provided for illustrative purposes only and does not represent all legal entities affiliated with, or all subsidiaries of, the Company:

 

 

LOGO

 

(1)   After completion of the offering, Carlyle is expected to own approximately 66.2% of our outstanding ordinary shares (or 63.2%, if the underwriters exercise in full their option to purchase additional ordinary shares). As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. As a result, we may elect not to comply with certain corporate governance requirements. See “Risk factors—Risk related to this offering and ownership of our ordinary shares—We will be a “controlled company” within the meaning of Nasdaq rules and the rules of the SEC. As a result, we will qualify for exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.”

 

(2)   The Lux Co-Issuer and the U.S. Co-Issuer are co-borrowers under our Senior Secured Credit Facilities as well as co-issuers of $400.0 million in aggregate principal amount of 2025 Notes and $675.0 million in aggregate principal amount of 2028 Notes. Our Senior Secured Credit Facilities consist of (a) our $2,375.0 million Dollar Term Loan Facility, (b) our 337.4 million Euro Term Loan Facility and (c) our $350.0 million Revolving Credit Facility. Although there can be no assurances we will be able to do so, substantially contemporaneously with this offering, we expect to increase commitments under our Revolving Credit Facility to $500.0 million and extend the maturity thereof until at least 2025. The restrictions imposed by the terms of our substantial indebtedness could adversely affect our financial condition, limit our ability to raise additional capital to fund our operations and prevent us from fulfilling our obligations under our indebtedness. See “Risk factors—Risks associated with our indebtedness.”

 

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Our Principal Shareholder

Our Principal Shareholder is an investment fund affiliated with Carlyle. Carlyle acquired us from Johnson & Johnson in 2014 for aggregate consideration of $3,893.1 million, including debt financing consisting of $2,175.0 million of term loans pursuant to the Credit Agreement and $1,300.0 million of senior unsecured notes, all of which has since been refinanced. Affiliates of Carlyle currently hold approximately $93.1 million of indebtedness under the Dollar Term Loan Facility and approximately $53.2 million of indebtedness under the Euro Term Loan Facility. We intend to use the proceeds from this offering to, among other things, repay a portion of our indebtedness under the Dollar Term Loan Facility. See “Use of proceeds.” In connection with the Reorganization Transactions, we expect to enter into the Shareholders Agreement with Carlyle, pursuant to which Carlyle will have the right to designate nominees to our board of directors and to cause us to file registration statements under the Securities Act covering resales of our ordinary shares held by Carlyle, subject to certain exceptions. See “Certain relationships and related party transactions—Shareholders agreement.”

Founded in 1987, Carlyle is a global investment firm and one of the world’s largest global private equity firms with approximately $230 billion of assets under management across 397 investment vehicles as of September 30, 2020. Carlyle invests across four segments—Corporate Private Equity, Real Assets, Global Credit, and Investment Solutions—in North America, South America, Europe, the Middle East, Africa, Asia and Australia. Carlyle has expertise in various industries, including aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrials & transportation, technology & business services and telecommunications & media. Carlyle employs more than 1,800 employees, including more than 675 investment professionals, in 30 offices across six continents.

Carlyle is one of the leading private equity investors in the healthcare sector, having completed 73 total healthcare transactions representing approximately $16 billion in equity invested since inception. Recent transactions include Grand Rounds (tech-enabled expert medical opinion and healthcare quality and clinical navigation provider), TriNetX (a global health research network optimizing clinical research), Sedgwick (a global multiline claims management firm), One Medical (technology-enabled primary care provider), CorroHealth (a business service provider for healthcare companies), Millicent (a pharmaceutical company), MedRisk (a physical therapy-focused workers’ compensation solutions company), Albany Molecular Research (a pharmaceutical contract development and manufacturing organization), WellDyneRx (an independent pharmacy benefit manager), Rede D’Or São Luiz S.A. (a leading hospital provider in Brazil) and Pharmaceutical Product Development (a global contract research organization).

Corporate information

UK Holdco is a public limited company incorporated under the laws of England and Wales with the legal name Ortho Clinical Diagnostics Holdings plc and with the company number 13084624 for purposes of becoming the new holding company of Bermuda Holdco and its subsidiaries. Our principal executive offices are located at 1001 Route 202, Raritan, New Jersey 08869. Our telephone number at this address is 908-218-8000. UK Holdco’s registered address is 11-12 St. James’s Square, Suite 1, 3rd Floor, London, United Kingdom SW1Y 4LB. Our website address is www.orthoclinicaldiagnostics.com. Information contained on, or that can be accessed through, our website does not constitute part of this prospectus, and inclusions of our website address in this prospectus are inactive textual references only. You should rely only on the information contained in this prospectus when making a decision as to whether to invest in the ordinary shares.

 

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The offering

 

Ordinary shares offered by us

70,000,000 shares.

 

Ordinary shares to be outstanding immediately after this offering

216,584,566 shares.

 

Option to purchase additional ordinary shares

The underwriters have been granted an option to purchase up to 10,500,000 additional ordinary shares from us at any time within 30 days from the date of this prospectus to cover over-allotments.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $1,424.7 million, based on the assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus.

 

  We intend to use the net proceeds from this offering (i) to redeem $160.0 million in aggregate principal amount of 2025 Notes, plus accrued and unpaid interest thereon and $11.6 million of redemption premium, (ii) to redeem $270.0 million in aggregate principal amount of 2028 Notes, plus accrued and unpaid interest thereon and $19.9 million of redemption premium, (iii) to repay $854.0 million in aggregate principal amount of borrowings under our Dollar Term Loan Facility, and (iv) for working capital and general corporate purposes, which may include further repayment of indebtedness under the Credit Agreement. See “Use of proceeds.”

 

  A $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $66.9 million, assuming the number of ordinary shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the assumed underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 100,000 ordinary shares from the expected number of ordinary shares to be sold by us in this offering, assuming no change in the assumed initial public offering price per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) our net proceeds from this offering by $2.1 million. Such increase (decrease) in net proceeds will correspondingly increase (decrease) the amount of borrowings under our Dollar Term Loan Facility we intend to repay and/or the amount used for working capital and general corporate purposes, which may include an increase (decrease) in the repayment of other indebtedness under the Credit Agreement.

 

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Conflicts of Interest

Affiliates of Carlyle beneficially own in excess of 10% of our issued and outstanding ordinary shares. Because TCG Capital Markets L.L.C., an affiliate of Carlyle, is an underwriter, this offering is being made in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Pursuant to that rule, the appointment of a “qualified independent underwriter” is not required in connection with this offering as TCG Capital Markets L.L.C. is not primarily responsible for managing this offering. TCG Capital Markets L.L.C. will not confirm sales of the securities to any account over which it exercises discretionary authority without the specific written approval of the account holder. See “Underwriting (Conflicts of interest).”

 

Risk factors

See “Risk factors” and the other information included in this prospectus for a discussion of the factors you should consider carefully before deciding to invest in our ordinary shares.

 

Dividend policy

We currently do not intend to declare any dividends on our ordinary shares in the foreseeable future. Our ability to pay dividends on our ordinary shares may be limited by the covenants contained in the agreements governing the Senior Notes and the Senior Secured Credit Facilities and applicable law. See “Dividend policy.”

 

Proposed stock exchange symbol

“OCDX.”

Except as otherwise indicated, all information in this prospectus:

 

 

assumes the effectiveness, at the time of this offering, of our articles of association, the form of which is filed as an exhibit to the Registration Statement of which this prospectus is a part;

 

 

assumes the completion of a bonus issue of 0.5934 of a share for every ordinary share of Bermuda Holdco outstanding, rounded up to the nearest whole share, which was effectuated on January 18, 2021 (the “1.5934-for-1 stock split”);

 

 

assumes the consummation of the Reorganization Transactions;

 

 

assumes no exercise by the underwriters of their option to purchase up to 10,500,000 additional ordinary shares from us;

 

 

assumes an initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the cover of this prospectus;

 

 

does not reflect 16,174,834 ordinary shares issuable upon the exercise of options outstanding as of September 27, 2020 with a weighted average exercise price of $9.50 per ordinary share; and

 

 

does not reflect 7,967,000 ordinary shares initially available for future issuance under our new Incentive Award Plan (the “2021 Incentive Award Plan”), which we intend to adopt in connection with this offering.

 

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Summary consolidated financial data

The following tables summarize the consolidated financial data of Bermuda Holdco for the periods and dates indicated. The summary historical consolidated financial data as of and for each of the fiscal years ended December 29, 2019, December 30, 2018, December 31, 2017, January 1, 2017 and January 3, 2016 have been prepared in accordance with GAAP. The balance sheet data as of September 27, 2020 and the statement of operations and cash flow data for the nine months ended September 27, 2020 and September 29, 2019 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The statement of operations and cash flow data for the years ended December 29, 2019, December 30, 2018 and December 31, 2017 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The statement of operations and cash flow data for the years ended January 1, 2017 and January 3, 2016 have been derived from our audited consolidated financial statements not included in this prospectus. In the opinion of management, the unaudited financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of such financial data.

Our historical financial data is not necessarily indicative of our future performance. The summary consolidated financial data set forth below should be read in conjunction with “Risk factors,” “Capitalization,” “Dilution,” “Selected consolidated financial data,” “Management’s discussion and analysis of financial condition and results of operations” and our unaudited consolidated financial statements and audited consolidated financial statements included elsewhere in this prospectus.

 

       
    Fiscal nine months ended    

 

    Fiscal year ended  
($ in millions, except per
share data)
  September 27,
2020
    September 29,
2019
          December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                      

Statement of operations data:

               

Net revenue

  $ 1,249.6     $ 1,327.8       $ 1,801.5     $ 1,787.3     $ 1,781.7     $ 1,695.6     $ 1,543.4  

Cost of revenue, excluding amortization of intangible assets

    650.2       684.0         922.4       930.5       897.7       906.3       842.2  
 

 

 

 

Gross profit

    599.4       643.8         879.1       856.8       884.0       789.3       701.2  
 

 

 

 

Operating expenses:

               

Selling, marketing and administrative expenses

    347.9       379.5         515.1       491.6       499.8       531.5       484.7  

Research and development expense

    82.1       73.7         98.0       98.7       96.4       99.9       107.1  

Amortization of intangible assets

    98.7       98.7         131.7       128.8       162.0       159.6       154.5  

Intangible asset impairment charge

                              11.0              

Gain on bargain purchase of Day 2 Countries

                                    1.0       (32.5

Other operating expense, net

    22.8       36.7         48.8       71.2       79.5       53.3       33.7  
 

 

 

 

Total operating expenses

    551.5       588.6         793.6       790.3       848.7       845.3       747.5  
 

 

 

 

 

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    Fiscal nine months ended    

 

    Fiscal year ended  
($ in millions, except per
share data)
  September 27,
2020
    September 29,
2019
          December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                      

Income (loss) from operations

    47.9       55.2         85.5       66.5       35.3       (56.0     (46.3

Other expense (income):

               

Interest expense, net

    148.6       177.7         231.4       235.6       239.8       216.9       210.8  

Tax indemnification expense (income)

    11.6       31.4         29.2       (13.1     (124.1     5.5       (1.3

Other expense (income), net

    61.1       34.5         5.7       61.6       (66.1     109.3       61.1  
 

 

 

 

Total other expense

    221.3       243.6         266.3       284.1       49.6       331.7       270.6  
 

 

 

 

Loss before (benefit from) provision for income taxes

    (173.4     (188.4       (180.8     (217.6     (14.3     (387.7     (316.9

(Benefit from) provision for income taxes

    (2.4     (29.9       (23.9     31.2       102.0       3.0       13.7  
 

 

 

 

Net loss

  $ (171.0   $ (158.5     $ (156.9   $ (248.8   $ (116.3   $ (390.7   $ (330.6
 

 

 

 

Per share data:

               

Basic and diluted net loss per share attributable to common stockholders

  $ (1.17   $ (1.09     $ (1.08   $ (1.72   $ (0.80   $ (2.71   $ (2.29

Basic and diluted weighted-average common shares outstanding

    146.4       145.6         145.5       145.1       144.8       144.4       144.2  

 

 

 

       
    Fiscal nine months ended    

 

    Fiscal year ended  
($ in millions)   September 27,
2020
    September 29,
2019
          December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                      

Cash flow data:

               

Net cash (used in) provided by:

               

Operating activities

  $ (48.6   $ 97.0       $ 143.0     $ 69.6     $ 68.0     $ (59.9   $ (46.5

Investing activities

    (27.5     (47.5       (68.5     (87.1     (118.0     (187.4     (31.4

Financing activities

    71.3       (51.9       (64.4     (8.2     84.9       159.0       0.9  

Cash paid for interest

    155.5       120.0         189.7       218.8       222.3       201.8       211.3  

Cash paid for income taxes, net

    13.7       6.0         8.4       13.4       9.1       20.6       15.9  

 

 

 

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Table of Contents
   
    As of  
($ in millions)   September 27,
2020
        December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                    

Consolidated balance sheet data:

             

Cash and cash equivalents

  $ 68.6       $ 72.0     $ 56.4     $ 93.3     $ 60.8     $ 152.7  

Total assets

    3,334.6         3,589.2       3,687.4       3,936.8       3,865.7       4,230.8  

Working capital(1)

    234.7         138.7       188.8       234.0       79.0       278.0  

Total liabilities

    4,361.6         4,402.0       4,342.1       4,353.5       4,195.4       4,169.3  

Accumulated deficit

    (1,876.6       (1,705.6     (1,548.9     (1,312.0     (1,195.7     (805.0

Total stockholders’ (deficit) equity

    (1,027.0       (812.8     (654.7     (416.7     (329.7     61.5  

 

 

 

       
    Fiscal nine months ended         Fiscal year ended  
($ in millions)   September 27,
2020
    September 29,
2019
        December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
 
    (Unaudited)                              

Other financial and operating data

             

Net revenue—Clinical Laboratories

  $ 819.2     $ 845.5       $ 1,142.3     $ 1,102.5     $ 1,097.9     $ 1,008.5  

Net revenue—Transfusion Medicine

    414.5       439.6         598.0       616.1       598.7       611.0  

Core revenue(2)

    1,233.7       1,285.1         1,740.3       1,718.6       1,696.6       1,619.5  

Core revenue growth rate(2)

    (4.0)%       0.8%         1.3%       1.3%       4.8%       10.7%  

Core revenue constant currency growth
rate(2)(3)

    (2.7)%       2.9%         2.9%       1.0%       4.8%       N/A  

Adjusted EBITDA(4)(5)

    322.4       348.4         477.5       467.8       477.6       445.5  

Adjusted EBITDA margin(4)(5)(6)

    25.8%       26.2%         26.5%       26.2%       26.8%       26.3%  

Adjusted Net Income(4)(5)

    22.1       12.6         32.7       6.7       39.9       N/A  

 

 

 

(1)   We define working capital as current assets less current liabilities. Refer to our consolidated financial statements included elsewhere in this prospectus for further details regarding our current assets and current liabilities.

 

(2)   Core revenue refers collectively to revenue generated in our Clinical Laboratories and our Transfusion Medicine lines of business which historically make up more than 95% of our net revenue.

 

(3)   When we use the term “constant currency,” it means that we have translated local currency revenues for all reporting periods into U.S. dollars using the same comparable foreign currency exchange rates. This additional non-GAAP financial information is not meant to be considered in isolation from or as substitute for financial information prepared in accordance with GAAP. The following table reconciles core revenue to core revenue constant currency growth rate for the periods presented:

 

       
    Fiscal nine months ended         Fiscal year ended  
($ in millions)   September 27,
2020(b)
    September 29,
2019(b)
        December 29,
2019(b)
    December 30,
2018
    December 31,
2017(a)
 
    (Unaudited)                        

Core revenue

    1,233.7       1,285.1         1,740.3       1,718.6       1,696.6  

Foreign currency translation

    14.9       (1.7)         0.2       (27.2     (21.7)  

Core revenue constant currency

    1,248.6       1,283.4         1,740.5       1,691.4       1,674.9  

Core revenue constant currency growth rate

    (2.7)%       2.9%         2.9%       1.0%       4.8%  

 

 

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

 

(a)   Core revenue and Core revenue constant currency does not include revenue from Day 2 Countries (as defined herein) prior to their respective acquisition dates.

 

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(b)   Core revenue constant currency by quarter for fiscal 2019 and 2020 is as follows:

 

   
    Fiscal three months ended  
($ in millions)   September 27,
2020
    June 28,
2020
    March 29,
2020
    December 29,
2019
    September 29,
2019
    June 30,
2019
    March 31,
2019(i)
 
    (Unaudited)  

Core revenue constant currency

  $ 446.7     $ 393.4     $ 408.5     $ 457.1     $ 437.5     $ 440.9     $ 405.0  

Less: Local HCV

    3.3       14.4       2.7       5.9       9.8       9.4       17.8  

Core revenue constant currency (excl. local HCV)

    443.4       379.0       405.8       451.2       427.7       431.5       387.2  

Core revenue constant currency annual growth rate

    2.1%       (10.8)%       0.9%       2.9%       5.5%       3.7%       (0.5)%  

Core revenue constant currency annual growth rate (excl. local HCV)

    3.7%       (12.2)%       4.8%       4.3%       5.8%       3.8%       (3.0)%  

 

(i)   During the fiscal three months ended March 31, 2019 we signed a new supply agreement in Japan related to our HCV business. As a result of the new supply agreement, we recognized increased revenue during the fiscal three months ended March 31, 2019 and September 29, 2019. Revenue recognition is based on the timing of periodic shipments which may create unusual year-over-year variances in certain quarters.

 

(4)   Adjusted EBITDA consists of net loss before interest expense, net, provision for (benefit from) income taxes and depreciation and amortization and eliminates (i) non-operating income or expense and (ii) impacts of certain non-cash, unusual or other items that are included in net loss that we do not consider indicative of our ongoing operating performance. Management EBITDA consists of Adjusted EBITDA plus certain other management adjustments and is the basis we use for assessing the profitability of our geographic-based reportable segments. Additionally, Management EBITDA is utilized as a basis for calculating certain management incentive compensation programs. Adjusted Net Income consists of net loss before amortization and the elimination of (i) non-operating income or expense and (ii) impacts of certain non-cash, unusual or other items that are included in net loss that we do not consider indicative of our ongoing operating performance. In the case of Adjusted EBITDA and Adjusted Net Income, we believe that making such adjustments provides management and investors meaningful information to understand our operating performance and ability to analyze financial and business trends on a period-to-period basis.

 

(5)   Adjusted EBITDA, Management EBITDA, Adjusted Net Income and Core revenue constant currency growth rate are not calculated or presented in accordance with GAAP and other companies in our industry may calculate Adjusted EBITDA, Management EBITDA, Adjusted Net Income and Core revenue constant currency growth rate differently than we do. As a result, these financial measures have limitations as analytical and comparative tools and you should not consider these items in isolation, or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA, Management EBITDA and Adjusted Net Income should not be considered as measures of discretionary cash available to us to invest in the growth of our business. In calculating these financial measures, we make certain adjustments that are based on assumptions and estimates that may prove to have been inaccurate. In addition, in evaluating these financial measures, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation. Our presentation of Adjusted EBITDA, Management EBITDA and Adjusted Net Income should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. For additional information regarding, Adjusted EBITDA, Management EBITDA, Adjusted Net Income and Core revenue constant currency growth rate and our use and presentation of those measures and the related risks, see “Use of non-GAAP financial measures.” For more information about Management EBITDA, see “Management’s discussion and analysis of financial condition and results of operations.”

Adjusted Net Income is not available for the fiscal year ended January 1, 2017.

 

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The following tables reconcile net loss to Adjusted EBITDA, Management EBITDA and Adjusted Net Income for the periods presented:

 

     
    Fiscal nine months ended     Fiscal year ended  
($ in millions)   September 27,
2020
    September 29,
2019
    December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
 

Net loss

  $ (171.0   $ (158.5   $ (156.9   $ (248.8   $ (116.3   $ (390.7

Interest expense, net

    148.6       177.7       231.4       235.6       239.8       216.9  

Provision for (benefit from) income taxes

    (2.4     (29.9     (23.9     31.2       102.0       3.0  

Depreciation and amortization

    239.6       245.2       327.5       332.2       333.3       302.4  

Unrealized foreign currency exchange losses (gains)(a)

    46.0       15.3       (19.6     46.5       (58.8     116.1  

Restructuring and severance-related costs(b)

    9.3       23.5       36.0       38.3       51.5       148.0  

Debt refinancing costs and loss on extinguishment of debt

    12.6                   20.6       2.0        

Stock-based compensation(c)

    6.2       16.2       18.6       5.9       4.4       5.1  

Tax indemnification expense (income), net(d)

    11.6       31.4       29.2       (13.1     (124.1     5.5  

Quotient upfront payment(e)

    7.5                                

Impairment of equity investment

                            20.2        

Intangible asset impairment charge

                            11.0        

Impact of acquisition accounting and acquisition-related costs

                            2.4       14.1  

Other adjustments(f)

    14.4       27.5       35.2       19.4       10.2       25.1  
 

 

 

 

Adjusted EBITDA

    322.4       348.4       477.5       467.8       477.6       445.5  

Management adjustments and realized foreign exchange losses (gains)(g)

    44.3       13.2       25.1       17.7       9.4       (13.5)  

Management EBITDA

  $ 366.7     $ 361.6     $ 502.6     $ 485.5     $ 487.0     $ 432.0  

 

 
       
    Fiscal nine months ended     Fiscal year ended        
($ in millions)   September 27,
2020
    September 29,
2019
    December 29,
2019
    December 30,
2018
    December 31,
2017
       

Net loss

  $ (171.0   $ (158.5   $ (156.9   $ (248.8   $ (116.3  

Intangible amortization

    98.7       98.7       131.7       128.8       162.0    

Unrealized foreign currency exchange losses (gains)(a)

    46.0       15.3       (19.6     46.5       (58.8  

Restructuring and severance-related costs(b)

    9.3       23.5       36.0       38.3       51.5    

Debt refinancing costs and loss on extinguishment of debt

    12.6                   20.6       2.0    

Stock-based compensation(c)

    6.2       16.2       18.6       5.9       4.4    

Impairment of equity investment

                            20.2    

Intangible asset impairment charge

                            11.0    

Quotient upfront payment(e)

    7.5                            

Impact of acquisition accounting and acquisition-related costs

                            2.4    

Other adjustments(f)

    14.4       27.5       35.2       19.4       10.2    
 

 

 

   

Total adjustments

    194.7       181.2       201.9       259.5       204.9    

Tax effect of reconciling items(h)

    (6.3)       (6.2)       (10.2)       (9.0)       (14.2)    

Discrete tax items (i)

    4.7       (3.9)       (2.1)       5.0       (34.5)    
 

 

 

   

Adjusted Net Income

  $ 22.1     $ 12.6     $ 32.7     $ 6.7     $ 39.9    

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)   Represents noncash unrealized gains and losses resulting from the remeasurement of transactions denominated in foreign currencies primarily related to intercompany loans.

 

(b)   Represents restructuring and severance costs related to several discrete initiatives intended to strengthen operational performance and to support building our commercial capabilities including a project announced in fiscal year ended January 3, 2016 to outsource equipment manufacturing operations in Rochester, New York and a project announced in fiscal year ended December 30, 2018 to transfer certain production lines among facilities.

 

(c)   Represents stock based compensation expense including the $14.7 million modification impact of a 2019 amendment to our stock option agreement, where performance-based options that did not previously vest based on applicable minimum earnings targets will vest over a specified future period of time.

 

(d)   Represents the reversal of the impact of tax indemnification income with Johnson & Johnson, primarily related to certain state tax matters, for which we recorded a tax reserve and indemnification. These state tax matters primarily include the taxability of the sale of our assets on the Acquisition date from Johnson & Johnson. Additionally, during the second quarter ended June 30, 2019, we recorded indemnification expense related to the release of certain tax reserves upon the settlement of certain state tax matters that were settled for an amount lower than what we had estimated.

 

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(e)   Represents an initial, non-refundable upfront payment made to Quotient Ltd. (“Quotient”), one of our partners and suppliers. See note 11 to our unaudited consolidated financial statements and note 14 to our audited consolidated financial statements for further discussion of the Quotient relationship.

 

(f)   Represents miscellaneous other adjustments related to unusual items impacting our results including the elimination of management fees, non-cash derivative mark-to-market (gain) loss and certain asset write-downs. See information below:

 

     
     Fiscal nine months ended      Fiscal year ended  
($ in millions)    September 27,
2020
    September 29,
2019
     December 29,
2019
     December 30,
2018
     December 31,
2017
     January 1,
2017
 

Principal Shareholder management fee

   $ 2.3     $ 2.3      $ 3.1      $ 3.0      $ 3.1      $ 3.2  

Noncash losses on property, plant and equipment disposals

     0.5       0.9        2.5        2.9        2.1        3.7  

EU Medical device regulation transition costs

     3.3       2.1        3.2        0.6                

Derivative mark-to-market (gain) loss

     (0.7     14.8        16.0        2.7                

Other

     9.0       7.4        10.4        10.2        5.0        18.2  
  

 

 

 

Total Other Adjustments

   $ 14.4     $ 27.5      $ 35.2      $ 19.4      $ 10.2      $ 25.1  

 

 

 

(g)   Represents realized foreign currency losses (gains), impact from adoption of accounting standards, costs in connection with COVID-19 and other immaterial management adjustments.

 

(h)   Non-GAAP adjustments were tax effected based on the nature of the expense and related jurisdiction, many of which are impacted by valuation allowances resulting in little to no tax impact.

 

(i)   We exclude deferred tax resulting from changes in tax law and expiration of statutes, adjustments for uncertain tax positions, and other unusual items not related to current operating results.

 

(6)   Adjusted EBITDA margin is defined as Adjusted EBITDA as a percentage of net revenue.

 

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Risk factors

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the following risk factors together with other information in this prospectus, including our consolidated financial statements and related notes included elsewhere in this prospectus, before deciding whether to invest in our ordinary shares. The occurrence of any of the events described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the trading price of our ordinary shares may decline and you may lose all or part of your investment.

Risks related to our business, operations and growth strategies

We have significant international sales and operations and face risks related to health epidemics, including the ongoing global pandemic related to a novel coronavirus (“COVID-19”). The COVID-19 pandemic has significantly and adversely affected our consolidated results of operations, financial position and cash flows, and may continue to do so.

Any significant outbreak of contagious diseases and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, financial condition and results of operations. For example, in March 2020, the World Health Organization characterized a novel strain of coronavirus (COVID-19) as a pandemic amidst a rising number of confirmed cases and thousands of deaths worldwide. Many countries, including the United States, have taken steps to restrict travel and temporarily close businesses, schools and other public gathering spaces, and almost all states in the United States have previously or currently issued orders and directives requiring residents to stay in their homes. It remains unclear how long such measures will remain in place and when the COVID-19 pandemic will abate. The global COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, including restrictions on manufacturing, shipping and the movement of employees. As a result of such restrictions, we have experienced some supply-chain disruptions and some restrictions on our ability to efficiently distribute products in the regions affected. In addition, we have seen a decline in overall testing volume and shipments to our customers, which has adversely impacted our revenues. We have also seen an increase in idle facility costs and freight and distribution costs. Any prolonged and significant supply-chain disruptions or inability to provide products in countries adversely impacted by the COVID-19 pandemic would continue to impact our revenues in the affected region, increase our costs and negatively affect our business relationships and reputation, as well as our operating results. Although we started to ship COVID-19 antibody tests during the fiscal second quarter of 2020, the duration and level of the demand for COVID-19 antibody tests is uncertain. It is also possible that we will experience an adverse impact on collections and timing of cash receipts as a result of the impact of the COVID-19 pandemic. We could experience significant fluctuations in our cash flows from period to period during the pandemic and in the periods that follow the end of the COVID-19 pandemic.

We maintain a commercial presence in more than 130 countries and territories, with a direct presence in 35 countries, including in countries that have been severely impacted by the COVID-19 pandemic. Government imposed travel restrictions and local statutory quarantines, as well as potential impact to personnel, to the extent our employees become ill, may result in direct operational and administrative disruptions. We may also face increased risks of disputes with our business partners, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19. The COVID-19 pandemic has resulted, and future significant outbreaks of contagious diseases in the human population could result, in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products and services and likely impact our operating results.

 

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Health regulatory agencies globally may also experience disruptions in their operations as a result of the COVID-19 pandemic. The U.S. Food and Drug Administration (“FDA”) and comparable foreign regulatory agencies may have slower response times or be under-resourced and, as a result, review and approval of product registrations may be materially delayed. For example, as health authorities have redeployed resources to focus on the management of the pandemic, there is a reduction in available capacity for the review and approval of other less-critical product submissions. As a result, manufacturers may incur a delay in obtaining product registrations.

The extent to which the COVID-19 pandemic, in particular, impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity and duration of the COVID-19 pandemic and the actions to contain it or treat its impact, among others.

To the extent the COVID-19 pandemic adversely affects our business and financial results or those of our customers, it may also have the effect of heightening many of the other risks described in this “Risk factors” section. The ultimate impact of the COVID-19 outbreak on our business, financial condition and results of operations depends on many factors, including those discussed above, that are not within our control.

We face significant competition, and our failure to compete effectively could adversely affect our sales and results of operations.

The markets in which we and our competitors operate are rapidly evolving, and developments are expected to continue at a rapid pace. Competition in these markets is intense and expected to increase as new products, services and technologies become available and as new competitors enter the market. We face competition from diagnostics divisions of large multinational healthcare companies and conglomerates. Some of our existing or potential competitors have substantially greater research and development capabilities, clinical, manufacturing, regulatory and marketing experience and financial and managerial resources than we do. Some of these competitors are divisions or subsidiaries of corporations with substantial resources. Our sales and results of operations may be adversely affected by:

 

 

customers’ perceptions of the comparative quality of our competitors’ products or services;

 

 

our ability to manufacture, in a cost-effective way, sufficient quantities of our products to meet customer demand;

 

 

the ability of our competitors to develop products, services and technologies that are more effective than ours or that render ours obsolete;

 

 

our competitors’ ability to obtain patent protection or other intellectual property rights that would prevent us from offering competing products or services;

 

 

the ability of our competitors to obtain regulatory approval for the commercialization of products or services more rapidly or effectively than we do; and

 

 

competitive pricing by our competitors.

We expect competition to intensify in the future as more companies enter our markets. Increased competition and potential new entrants in these industries may result in lower prices and volumes, higher costs for resources and lower profitability for us. Moreover, competitive and regulatory conditions in many markets in which we and our competitors operate restrict our ability to fully recover through price increases, higher costs of acquired goods and services resulting from inflation and other drivers of cost increases. We may not be able to supply customers with products and services that they deem superior and at competitive prices, and we may

 

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lose business to our competitors. We also face risks related to customers finding alternative methods for testing, which could result in lower demand for our products. If we are unable to compete successfully in these highly competitive industries, it could have a material effect on our business, financial condition and results of operations.

We may experience difficulties that delay or prevent our development, introduction or marketing of new or enhanced products or services.

Our success depends on our ability to effectively introduce new and competitive products and services. The development of new or enhanced products or services is a complex, costly and uncertain process and is becoming increasingly complex and uncertain in the United States. Furthermore, developing and manufacturing new products and services requires us to anticipate customers’ and patients’ needs and emerging technology trends accurately. We may experience research and development, manufacturing, regulatory, marketing and other difficulties that could delay or prevent our introduction of new or enhanced products and services, including the timelines for the introduction of new products as described in this prospectus. The research and development process in the healthcare industry generally takes a significant amount of time from design stage to product launch. This process is conducted in various stages, and each stage presents the risk that we will not achieve our goals. In addition, innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursements. In the event of such failure, we may have to abandon a product in which we have invested substantial resources. We cannot be certain that:

 

 

any of our products or services under development will prove to be safe and effective in clinical trials;

 

 

we will be able to obtain, in a timely manner or at all, necessary regulatory approvals;

 

 

the products and services we develop can be manufactured or provided at acceptable cost and with appropriate quality; or

 

 

these products and services, if and when approved, can be successfully marketed.

These factors, as well as manufacturing or distribution problems or other factors beyond our control, could delay the launch of new products or services. Any delay in the development, approval, production, marketing or distribution of a new product or service could materially and adversely affect our competitive position, our branding and our results of operations. Additionally, customers could adopt alternative technologies, instead of our technology, which could result in lower demand for our products.

Global market, economic and political conditions may adversely affect our operations and performance.

The growth of our business and demand for our products is affected by changes in the health of the overall global economy and, in particular, of the healthcare industry. Demand for our products and services could change more dramatically than in previous years based on activity, funding reimbursement constraints and support levels from governments, universities, hospitals and the private industry, including laboratories. Our global business is adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending, increases in unemployment rates and budgeting constraints of governmental entities. Disruptions in the United States, Europe or in other economies, or weakening of emerging markets, including China, could adversely affect our sales, profitability and/or liquidity.

We cannot assure you that there will not be a future deterioration in financial markets or confidence in major economies. These economic developments affect businesses such as ours in a number of ways. A tightening of credit in financial markets could adversely affect the ability of our customers and suppliers to obtain financing for significant purchases and operations, could result in a decrease in or cancellation of orders for our products

 

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and services and could impact the ability of our customers to make payments. Similarly, a tightening of credit may adversely affect our supplier base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy.

Our financial position, results of operations and cash flows could be materially adversely affected by difficult conditions and volatility in the capital, credit and commodities markets. Difficult conditions in these markets or in the overall economy could affect our business in a number of ways. For example:

 

 

under such conditions, we cannot assure you that borrowings under our Revolving Credit Facility will be available or sufficient, and in such a case, we may not be able to obtain additional financing on reasonable terms or at all; and

 

 

in order to respond to market conditions, we may need to seek waivers of various provisions in our Credit Agreement, and we might not be able to obtain such waivers on reasonable terms, if at all.

Our ability to obtain additional capital on commercially reasonable terms may be limited or non-existent.

Although we believe our cash, cash equivalents and short-term investments, as well as future cash generated from operations and availability under our Revolving Credit Facility, provide adequate resources to fund ongoing debt service and working capital requirements, capital expenditures and transition costs for the foreseeable future, we may need to seek additional financing to compete effectively.

If we are unable to obtain capital on commercially reasonable terms, or at all, it could:

 

 

result in reduced funds available to us for purposes such as working capital, capital expenditures, research and development, strategic acquisitions and other general corporate purposes;

 

 

restrict our ability to introduce new services or products or exploit business opportunities;

 

 

increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and

 

 

place us at a competitive disadvantage.

We may engage in acquisitions and divestitures, and may encounter difficulties integrating acquired businesses with, or disposing of divested businesses from, our current operations; therefore, we may not realize the anticipated benefits of these acquisitions and divestitures.

We may seek to grow through strategic acquisitions. Our due diligence reviews of our acquisition targets may not identify all of the material issues necessary to accurately estimate the cost or potential loss contingencies with respect to a particular transaction, including potential exposure to regulatory sanctions resulting from an acquisition target’s previous activities as well as potential vulnerability to cybersecurity risks. We may incur unanticipated costs or expenses, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, litigation and other liabilities. We also may encounter difficulties in integrating acquisitions with our operations, applying our internal controls processes to these acquisitions, retaining key technical and management personnel, complying with regulatory requirements or in managing strategic investments. Additionally, we may not achieve the benefits we anticipate when we first enter into a transaction in the amount or timeframe anticipated. Any of the foregoing could adversely affect our business and results of operations. In addition, accounting requirements relating to business combinations, including the requirement to expense certain acquisition costs as incurred, may cause us to experience greater earnings volatility and generally lower earnings during periods in which we acquire new businesses. Furthermore, we may make strategic divestitures from time to time. These divestitures may result in continued financial involvement in the divested businesses, such as through guarantees, indemnity obligations or other financial arrangements,

 

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following those transactions. Under these arrangements, nonperformance by those divested businesses could result in financial obligations imposed upon us and could affect our future financial results.

It may be difficult for us to implement our strategies for improving growth.

We plan to continue expanding our commercial capabilities and scope of our business, both domestically and internationally, while maintaining our commercial operations and administrative activities. For example, we intend to pursue the following growth strategies: (i) maximize LCV to produce and maintain a growing and recurring, high margin, durable financial profile; (ii) provide an unparalleled customer experience to retain and attract existing and new customers; (iii) leverage our global footprint to deliver innovative solutions to meet our customers’ needs in both developed and emerging markets; (iv) create meaningful product innovation through menu expansion, development of novel instruments and enhancement of automation and informatics; (v) continue to identify operating efficiencies to allow for reinvestment in growth and improve margins; and (vi) pursue business development opportunities, partnerships and strategic acquisitions to enter adjacencies or expand our current business units. However, our ability to manage our business and conduct our global operations while also pursuing the aforementioned growth strategies requires considerable management attention and resources. Furthermore, it is subject to the challenges of supporting a growing business on a global basis.

Our failure to implement these strategies in a cost-effective and timely manner could have an adverse effect on our business, results of operations and financial condition.

We may need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets.

Under the acquisition method of accounting for business combinations, the net assets acquired are recorded at their fair value as of the date of the acquisition, with any excess purchase price recorded as goodwill. The Acquisition resulted in significant balances of goodwill and identified intangible assets. As of December 29, 2019, the balance of goodwill and identified intangible assets was $567.3 million and $1,134.5 million, respectively. We are required to test goodwill and any other intangible asset with an indefinite life for possible impairment on the same date each year and on an interim basis if there are indicators of a possible impairment. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment.

There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or impairment in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge would be determined based on the estimated fair value of the assets and any such impairment charge could have a material adverse effect on our results of operations and financial position.

We may be unable to achieve some or all of the operational cost improvements and other benefits that we expect to realize.

We estimate that we will be able to achieve approximately $45 million of aggregate cost savings in fiscal years 2020 and 2021 as a result of certain initiatives, particularly by pursuing a number of operational cost improvements associated with procurement, manufacturing, a field service organization, distribution and logistics, quality and regulatory and other general and administrative, not including certain related one-time costs necessary to achieve such operational cost improvements, which may be material. We have announced several initiatives to strengthen our operational performance and have begun to execute certain of these

 

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initiatives. However, we cannot be certain that we will be able to successfully realize all the expected benefits of these initiatives. A variety of risks could cause us not to realize some or all of the expected benefits. These risks include, among others, higher than expected standalone overhead expenses, delays in the anticipated timing of activities related to such initiatives, increased difficulty and cost in establishing ourselves as a standalone business and the incurrence of other unexpected costs associated with operating the business. Moreover, our continued implementation of these initiatives may disrupt our operations and performance and our estimated cost savings from these initiatives are based on several assumptions that may prove to be inaccurate and, as a result, we cannot assure you that we will realize these cost savings. If, for any reason, the benefits we realize are less than our estimates or our improvement initiatives adversely affect our operations or cost more or take longer to implement than we project, or if our assumptions prove inaccurate, our results of operations may be materially adversely affected.

Our collaboration arrangements may not operate according to our business strategy if our collaboration arrangement partners fail to fulfill their obligations.

As part of our business, we have entered into collaboration arrangements with other companies, including the Joint Business with Grifols, which is structured as a license, research and supply agreement, and we may enter into additional collaboration arrangements in the future.

The nature of a collaboration arrangement requires us to share control over significant decisions with unaffiliated third parties. Since we may not exercise exclusive control over our current or future collaboration arrangements, we may not be able to require our collaboration arrangement partners to take actions that we believe are necessary to implement our business strategy. Additionally, differences in views among collaboration arrangement partners may result in delayed decisions or failures to agree on major issues. Disputes between us and our collaboration arrangement partners could also result in litigation, which can be expensive and time-consuming. If these differences cause our collaboration arrangements to deviate from our business strategy, our results of operations could be materially adversely affected.

If we deliver products with defects, we may be subject to product recalls or negative publicity, our credibility may be harmed, market acceptance of our products may decrease and we may be exposed to liability.

The manufacturing and marketing of professional and consumer diagnostics involve an inherent risk of product liability claims. For example, a defect in one of our diagnostic products could lead to a false positive or false negative result, affecting the eventual diagnosis. Our product development and production are extremely complex and could expose our products to defects. Our Immunohematology business in particular is subject to the risk of product liability claims, as even the slightest inaccuracies in a specimen’s analysis can lead to critical outcomes in the life of a patient, thereby leaving little to no room for error in the precision and accuracy of such testing. Manufacturing and design defects could lead to recalls (either voluntary or required by the FDA or other government authorities) and could result in the removal of a product from the market. Depending on the corrective action we take to redress a product’s deficiencies, we may be required to obtain new clearances or approvals before we may market or distribute the corrected device. Defects in our products could also harm our reputation, lead to negative publicity and decrease sales of our products, and we could also face additional regulatory enforcement action, including FDA warning letters, untitled letters, product seizure, injunctions, administrative penalties, or civil or criminal fines.

In addition, our marketing of monitoring services may cause us to be subjected to various product liability or other claims, including, among others, claims that inaccurate monitoring results lead to injury or death, or, in the case of our toxicology monitoring services, the imposition of criminal sanctions. Any product liability or other claim brought against us, regardless of merit, could be costly to defend and could result in an increase to our insurance premiums. If we are held liable for a claim, that claim could materially affect our business and financial condition.

 

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A decrease in the number of surgical procedures performed, and the resulting decrease in blood demand, could negatively impact our financial results.

Our Immunohematology and Donor Screening products are frequently used in connection with the testing of blood prior to transfusion, which is typically associated with surgical procedures. A decrease in the number of surgeries being performed in the markets in which we operate could result in decreased demand for blood for transfusions, which would in turn result in lower testing volumes and, therefore, decreased sales of our products. For example, we believe the market in developed countries has, at times, seen a decrease in the number of surgical procedures and lower demand for blood in recent years. A decrease in the number of surgical procedures performed could result from a variety of factors, such as fewer elective procedures and the improved efficacy and popularity of non-surgical treatments. In addition to lower surgical volumes, blood demand could also be negatively affected by more efficient blood utilization by hospitals. Blood is a large expense for hospital laboratories and pressure on hospital budgets due to macroeconomic factors and healthcare reform could force changes in the ways in which blood is used. Fewer surgeries and lower blood demand could negatively impact our revenue, profitability and cash flows.

Our reagent rental model reduces our cash flows during the initial part of the applicable contract, which causes our cash flows to fluctuate from quarter to quarter.

Leases, rather than sales, of instruments under our reagent rental model have the effect of reducing cash flows during the initial part of the applicable contract as we support those commercial transactions until we are able to recover our investment over the life of the contract. The use of cash in connection with this model causes our cash flows to fluctuate from quarter to quarter and may have a negative effect on our financial condition.

Johnson & Johnson’s historical and future actions, or failure to comply with its indemnification obligations, may materially affect our business and operating results.

Although we are an independent company as a result of the Acquisition, Johnson & Johnson’s historical and future actions may still have a material impact on our business and operating results. In connection with the Acquisition, we entered into certain agreements with Johnson & Johnson, including the Acquisition Agreement and certain other transitional services agreements. In addition, Johnson & Johnson has, subject to certain exceptions and exclusions, agreed to indemnify us under the Acquisition Agreement for certain liabilities relating to historical litigation matters and divestiture agreements, tax liabilities existing at the date of the Acquisition and certain employee-related liabilities. We could incur material additional costs if Johnson & Johnson fails to meet its obligations or if we otherwise are unable to recover costs associated with such liabilities.

Risks related to our international operations

As a global business, we are subject to risks associated with our non-U.S. operations where such risks are not present in the United States.

We conduct our business on a global basis, with sales outside the United States constituting approximately 52% of our total revenue for the fiscal year ended December 29, 2019 and a significant number of employees and contractors located in foreign countries. We anticipate that international sales will continue to represent a substantial portion of our revenue and that our strategy for continued growth and profitability will entail further international expansion, particularly in emerging markets. Conducting business outside the United States subjects us to numerous risks, including:

 

 

lost revenue as a result of macroeconomic developments;

 

 

decreased liquidity resulting from longer accounts receivable collection cycles typical of foreign countries;

 

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lower productivity resulting from difficulties we encounter in staffing and managing sales, support and research and development operations across many countries;

 

 

difficulties associated with enforcing agreements and collecting receivables through foreign legal systems;

 

 

disputes with third-party distributors of our products or from third parties claiming distribution rights to our products;

 

 

difficulties associated with navigating foreign laws and legal systems;

 

 

difficulties in identifying potential third-party distributors or distribution channels;

 

 

the imposition by foreign governments of trade barriers such as tariffs, quotas, preferential bidding and import restrictions;

 

 

import or export licensing requirements, both by the United States and foreign countries;

 

 

acts of war, terrorism, theft or other lawless conduct or other economic, social or political instability in or affecting foreign countries in which we sell our products or operate;

 

 

international sanctions regimes;

 

 

adverse effects resulting from changes in foreign regulations, rules, policies or other laws affecting sales of our products or our foreign operations;

 

 

tax liability resulting from international tax laws;

 

 

increased financial accounting and reporting burdens and complexities;

 

 

increased costs to comply with changes in legislative or regulatory requirements;

 

 

failure of laws to protect our intellectual property rights; and

 

 

delays in obtaining import or export licenses, transportation difficulties and delays resulting from inadequate local infrastructure.

The occurrence of any of these, or other factors over which we do not have control, could lead to reduced revenue and profitability.

Currency translation risk and currency transaction risk may adversely affect our financial condition, results of operations and cash flows.

We derive a significant portion of our revenue from outside the United States (approximately 52% for the fiscal year ended December 29, 2019), and we conduct our business and incur costs in the local currency of most countries in which we operate. Because our financial statements are presented in U.S. dollars, we must translate earnings as well as assets and liabilities into U.S. dollars at exchange rates in effect during or at the end of each reporting period, as applicable. Therefore, increases or decreases in the value of the U.S. dollar against other currencies in countries where we operate will affect our results of operations and the value of balance sheet items denominated in foreign currencies. Furthermore, many of our local businesses generate revenues and incur costs in a currency other than their functional currency, which can impact the operating results for these operations if we are unable to mitigate the impact of foreign currency fluctuations. Additionally, in order to fund the purchase price for certain assets of Ortho and the capital stock of certain other non-U.S. entities, a combination of equity contributions and intercompany loans were utilized to capitalize certain non-U.S. subsidiaries. In many instances, the intercompany loans are denominated in currencies other than the functional currency of the affected subsidiaries. Where intercompany loans are not a

 

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component of permanently invested capital of the affected subsidiaries, increases or decreases in the value of the subsidiaries’ functional currency against other currencies will affect our results of operations. We cannot accurately predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. Accordingly, our profitability could be affected by fluctuations in foreign exchange rates. Given the volatility of exchange rates, we may not be able to effectively manage our currency transaction and/or translation risks, and any volatility in currency exchange rates may have an adverse effect on our financial condition, results of operations and cash flows. We have entered into hedging agreements to address certain of our currency risks and intend to utilize local currency funding of expansions when appropriate. We do not intend to hold financial instruments for trading or speculative purposes.

New tariffs and other trade measures could adversely affect our business and financial results.

Governments sometimes impose additional taxes on certain imported products. Any such new import tariffs or restrictions, or other changes in U.S. trade policy, could trigger retaliatory actions by affected countries. For instance, the United States and China have announced import tariffs and retaliatory tariffs on certain categories of goods, including from time to time some of our reagent products sold in China. These tariffs, depending upon their ultimate scope, how they are implemented and if and when they are declared effective, could negatively impact our business by increasing our costs and by making our products less cost competitive in China. While it is not possible to predict whether or when any additional changes will occur or what form they may take, the imposition of additional tariffs by the United States could result in the adoption of additional tariffs by China and other countries, as well as further retaliatory actions by any affected country, which could negatively impact our financial performance.

The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our ordinary shares.

We are a multinational company with worldwide operations, including significant business operations in Europe. Following a national referendum in which a majority of voters in the United Kingdom elected to withdraw from the European Union and the enactment of legislation by the government of the United Kingdom, the United Kingdom formally withdrew from the European Union on January 31, 2020. On 24 December 2020, the United Kingdom and the European Commission reached an agreement on the terms of its future cooperation with the European Union (the “UK-EU Trade and Cooperation Agreement”). On 30 December 2020, the UK Parliament provided its approval of the European Union (Future Relationship) Bill. Significant political and economic uncertainty remains about whether the terms of the relationship will differ materially in practice from the terms before withdrawal.

These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit ratings have been and may continue to be subject to increased market volatility. Lack of clarity about future United Kingdom laws and regulations as the United Kingdom determines which European Union laws to replace or replicate could depress economic activity and restrict our access to capital. The tax implications of the United Kingdom’s departure from the European Union are not certain as of the date of this prospectus.

Any of these factors could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our ordinary shares.

 

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Risks related to our employees, customers and suppliers

We must deliver products and services that meet customers’ needs and expectations or our business and results of operations will be adversely impacted.

Our ability to retain customers, attract new customers, grow our business and enhance our brand depends on our success in delivering products and services that meet our customers’ needs and expectations. If we are unable to deliver reliable products in a timely manner, promptly respond to and address quality issues, provide expected levels of customer service, develop and maintain cross-functional communication within our company and comply with applicable regulations and rules, our ability to deliver products that meet our customers’ needs and expectations, our competitive position, our branding and our results of operations may be adversely and materially affected. Furthermore, any improvement in the perception of the quality of our competitors’ products or services relative to the quality of our products and services could adversely and materially affect our ability to retain our customers and attract new customers. Additionally, the introduction of counterfeit products into the markets we serve may have the effect of eroding confidence in our products or in our industry as a whole.

The success of many of our products depends heavily on acceptance by directors of clinical laboratories, blood banks and hospitals, and our failure to maintain a high level of confidence in our products could adversely affect our business.

We maintain customer relationships with numerous directors of clinical laboratories, blood banks and hospitals. We believe that sales of our products depend significantly on our customers’ confidence in, and recommendations of, our products. In addition, our success depends on technicians’ acceptance and confidence in the effectiveness and ease-of-use of our products, including our new products. In order to achieve acceptance by healthcare professionals, we seek to educate the healthcare community as to the distinctive characteristics, perceived benefits, clinical efficacy and cost-effectiveness of our products compared to alternative products, including the products offered by our competitors. Acceptance of our products also requires effective training of healthcare professionals in the proper use and application of our products. Failure to effectively educate and train our technician end-users and failure to continue to develop relationships with leading healthcare professionals could result in less frequent recommendations of our products, which may adversely affect our sales and profitability.

The healthcare industry and related industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, which could adversely affect our business, financial condition and results of operations.

The healthcare industry and related industries that we serve have undergone, and are in the process of undergoing, significant changes in an effort to reduce costs, including the following:

 

 

Many of our customers, and the end-customers to whom our customers supply products, rely on government funding of and reimbursement for healthcare products and services and research activities. The PPACA, healthcare austerity measures in Europe and other potential healthcare reform changes and government austerity measures may reduce the amount of government funding or reimbursement available to customers or end-customers of our products and services and/or the volume of medical procedures using our products and services. Global economic uncertainty or deterioration can also adversely impact government funding and reimbursement.

 

 

The PPACA imposed a 2.3% excise tax on any entity that manufactures or imports medical devices offered for sale in the United States as well as reporting and disclosure requirements on medical device manufacturers, the impact of which is reflected in our audited financial statements included elsewhere in this prospectus.

 

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Under the Consolidated Appropriations Act of 2016 and subsequent legislation, the excise tax was suspended as of January 1, 2016, and repealed altogether on December 20, 2019.

 

 

Governmental and private healthcare providers and payors around the world are increasingly utilizing managed care for the delivery of healthcare services, forming group purchasing organizations to improve their purchasing leverage and using competitive bid processes to procure healthcare products and services.

 

 

Health insurance premiums, co-payments and deductibles have generally increased in recent years. These increases may cause individuals to forgo health insurance, as well as medical attention. This behavior may reduce the number of lives managed by our health information solutions, including our health improvement programs.

These changes have increased tax costs and may cause participants in the healthcare industry to purchase fewer of our products and services, reduce the prices they are willing to pay for our products or services, reduce the amounts of reimbursement and funding available for our products or services from governmental agencies or third-party payors, reduce the volume of medical procedures that use our products and services and increase our compliance and other costs. In addition, we may be unable to enter into contracts with group purchasing organizations and integrated health networks on terms acceptable to us, and even if we do enter into such contracts, they may be on terms that negatively affect our current or future profitability. All of the factors described above could adversely affect our business, financial condition and results of operations.

Reductions in government funding and reimbursement to our customers could negatively impact our sales and results of operations.

Many of our customers rely on government funding and on prompt and full reimbursement by Medicare and Medicaid and equivalent programs outside of the United States. Global economic uncertainty can result in lower levels of government funding or reimbursement. A reduction in the amount or types of government funding or reimbursement that affect our customers could have a negative impact on our sales. Additionally, the PPACA, which was enacted in 2010, substantially changed the way healthcare is financed by both governmental and private insurers in the United States and expanded Medicaid program eligibility and access to commercial health insurance coverage. Since its enactment, there have been judicial and Congressional challenges to certain aspects of the PPACA, as well as efforts by the current administration to repeal or replace certain aspects of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the PPACA. Most recently, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was enacted, which, among other things, removes the penalties for not complying with the PPACA’s individual mandate to carry health insurance. On December 14, 2018, a U.S. district court judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the PPACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the PPACA are invalid as well. This decision was subsequently appealed, and on December 18, 2019, the U.S. Court of Appeals for the Fifth Circuit affirmed the decision of the district court that the individual mandate, as amended by the TCJA, was unconstitutional. The Fifth Circuit remanded the case to the district court to consider a remedy, including to consider and explain which provisions of the PPACA are inseverable and invalid. On March 2, 2020, the U.S. Supreme Court granted the petitions for writ of certiorari to review this case, and it heard oral arguments in the matter in November 2020. A decision in the case is expected in 2021. It is unclear how this litigation or other efforts to challenge, repeal or replace the PPACA will impact the PPACA and our business. There may be additional challenges and amendments to the PPACA in the future. In addition, Congress could consider subsequent legislation to replace repealed elements of the PPACA. At this time, the full effect of the PPACA and any future litigation, subsequent legislation or related regulatory actions on our business remains unclear.

Some of our customers receive Medicare reimbursement for our products under the Medicare Physician Fee Schedule, which is updated on an annual basis. The Medicare Access and CHIP Reauthorization Act of 2015

 

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(“MACRA”) repealed the formula by which Medicare made annual physician payment adjustments and replaced the former formula with a long-term schedule of Medicare payment adjustments for physicians. MACRA extended existing payment rates under the Physician Fee Schedule through June 30, 2015, with a 0.5% payment increase for the period between July 1, 2015 and December 31, 2015, and for each calendar year thereafter through 2019. The Bipartisan Budget Act of 2018 subsequently reduced this increase in 2019 to 0.25%. After 2019, there will be a 0% annual update each year through 2025. In addition, MACRA established the Merit-Based Incentive System (“MIPS”), under which physicians may receive performance-based payment incentives and reductions, effective beginning in 2019, that are based on physicians’ performance with respect to clinical quality, resource use, clinical improvement activities and meaningful use of electronic health records. MACRA also requires CMS to provide incentive payments to physicians and other eligible professionals that participate in alternative payment models, such as accountable care organizations, that emphasize quality and value over the traditional fee-for-service model.

On January 1, 2018, CMS implemented certain provisions of the Protecting Access to Medicare Act of 2014 (“PAMA”), which made substantial changes to the way in which clinical laboratory services are paid under Medicare. Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the CLFS or the Physician Fee Schedule are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for “advanced diagnostics laboratory tests”), private payer payment rates and volumes for their tests. Laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties. CMS uses the data to calculate a weighted median payment rate for each test, which is used to establish a revised Medicare reimbursement rate. Under PAMA, the revised Medicare reimbursement rates were scheduled to apply to clinical diagnostic laboratory tests furnished on or after January 1, 2018. The revised reimbursement methodology is expected to generally result in relatively lower reimbursement under Medicare for clinical diagnostic lab tests that has been historically available. Any reduction to payment rates resulting from the new methodology is limited to 10% per test per year in 2018 through 2020, and to 15% per test per year in 2021 through 2023. For clinical diagnostic laboratory tests that are assigned a new or substantially revised Healthcare Common Procedure Coding System (“HCPCS”) code, initial payment rates for clinical diagnostic laboratory tests that are not advanced diagnostic laboratory tests will be assigned by the cross-walk or gap-fill methodology. Initial payment rates for new advanced diagnostic laboratory tests will be based on the actual list charge for the laboratory test. The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was signed into law on March 27, 2020, amended the timeline for reporting private payer payment rates and delayed by one year the payment reductions scheduled for 2021.

In addition to the CARES Act, Congress has enacted other laws in response to the COVID-19 pandemic to provide financial relief to healthcare providers and suppliers, including diagnostic laboratories, and encourage implementation of diagnostic testing and treatment for COVID-19. For instance, the Families First Coronavirus Response Act (“FFCRA”), enacted on March 18, 2020, requires certain governmental and commercial insurance plans to provide coverage of COVID-19 diagnostic testing services without imposing cost-sharing (e.g., copays, deductibles or coinsurance) or other utilization management requirements. The CARES Act and the Paycheck Protection Program and Health Care Enhancement Act (“PPPHCEA”), enacted on April 24, 2020, each appropriated approximately $100 billion to provide financial relief for certain healthcare providers and to expand treatment and diagnostic testing capacity for COVID-19. The Consolidated Appropriations Act of 2021 (“CAA”), which was enacted on December 27, 2020 and included further pandemic relief measures, temporarily increased payment rates under the Medicare Physician Fee Schedule by 3.75% beginning January 1, 2021 through December 31, 2021. The CARES Act, as subsequently amended by the CAA, also suspended, for the period from May 1, 2020 to March 31, 2021, the 2% payment reduction created under the sequestration required by the Budget Control Act of 2011 (as amended by the American Taxpayer Relief Act of 2012), and extended the sequester by one year, through 2030.

 

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It is unclear what impact new quality and payment programs, such as MACRA, or new pricing structures, such as those adopted under PAMA, the CARES Act, or other legislative measures enacted in response to the COVID-19 pandemic, may have on our business, financial condition, results of operations or cash flows.

We rely on certain suppliers and manufacturers for raw materials, components for our products and services, and fluctuations in the availability and price of such materials, products and services may interfere with our ability to meet our customers’ needs.

For certain of our products, including finished products, we are dependent on a small number of key suppliers and manufacturers. We also depend on key suppliers for critical raw materials and components. As a result, our ability to obtain, enter into and maintain contracts with these manufacturers and suppliers is important to our business. We cannot assure you that we will be able to obtain, enter into or maintain all such contracts in the future, and difficulty in obtaining such products or raw materials could affect our ability to achieve anticipated production levels. On occasion, we have been forced to revalidate the raw materials and components of products when a supplier of critical raw materials or components terminated its contract or no longer made the materials or components available to us. Stringent requirements of the FDA and other regulatory authorities regarding the manufacture of our products may prevent us from quickly establishing additional or replacement sources for the raw materials, products, components or manufacturing services that we use, or from doing so without excessive cost. Further, our suppliers may be subject to regulation by the FDA and other regulatory authorities that could hinder their ability to produce necessary raw materials, products and components. As a result, a reduction or interruption in supply or an inability to secure alternative sources of raw materials, products, components or manufacturing services could have a material adverse effect on our business, result of operations, financial condition and cash flows. If we are unable to achieve anticipated production levels and meet our customers’ needs, our operating results could be adversely affected. In addition, our results of operations may be significantly impacted by unanticipated increases in the cost of labor, raw materials, freight, utilities and other items needed to develop, manufacture and maintain our products and operate our business. For example, we may be disadvantaged when negotiating contract terms with our suppliers, which could increase costs and reduce our margins. Suppliers may also deliver products, components or materials that do not meet specifications, preventing us from manufacturing or supplying products that meet our design specifications or customer needs.

We may not be able to recruit and retain the experienced and skilled personnel we need to compete.

Our future success depends on our ability to attract, retain, develop and motivate highly skilled personnel. We must have talented personnel to succeed and competition for senior management in our industry is intense. Our ability to meet our performance goals depends upon the personal efforts and abilities of the principal members of our senior management who provide strategic direction, develop our business, manage our operations and maintain a cohesive and stable work environment and upon their ability to work effectively as a team. We cannot assure you that we will retain or successfully recruit senior executives, or that their services will remain available to us.

Additionally, as part of their ongoing effort to maximize our performance, Carlyle and our board of directors regularly evaluate our senior management capabilities in light of, among other things, our business strategy, changes to our capital structure, developments in our industry and markets and our ongoing financial performance, and will consider, where appropriate, supplementing, changing or otherwise enhancing our senior management team and operational and financial management capabilities in order to maximize our performance. Accordingly, our organizational structure and senior management team may change in the future, which could result in a material business interruption and the incurrence of material costs, including as a result of severance or other termination payments.

We rely on qualified managers and skilled employees, such as scientists, engineers and laboratory technicians, with technical expertise in operations, scientific knowledge, engineering and quality management experience in

 

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order to operate our business successfully. From time to time, there may be a shortage of skilled labor, which may make it more difficult and expensive for us to attract and retain qualified employees. If we are unable to attract and retain sufficient numbers of qualified individuals or our costs to do so increase significantly, our operations could be materially adversely affected. Additionally, if we were to lose a sufficient number of our research and development scientists and were unable to replace them or satisfy our needs for research and development through outsourcing, it could adversely affect our business.

Consolidation of our customer base and the formation of group purchasing organizations could materially adversely affect our sales and results of operations.

Consolidation among healthcare providers and the formation of buying groups and, with respect to our international operations, government-sponsored tendering processes, have put pressure on pricing and sales of our products, and in some instances, required payment of fees to group purchasing organizations or providing lower pricing in the tendering process. Our success in these areas depends partly on our ability to enter into contracts with integrated health networks and group purchasing organizations. If we are unable to enter into contracts with these group purchasing organizations and integrated health networks on terms acceptable to us or fail to have our pricing terms accepted in the tendering process, our sales and results of operations may be adversely affected. Even if we are able to enter into these contracts, or have our pricing terms accepted in the tendering process, they may be on terms that negatively affect our current or future profitability. Furthermore, given the average industry contract length of 5 to 7 years, if we are unable to enter into a contract with a new customer or renew a given contract with an existing customer, it may be several years before we have an opportunity to acquire or reacquire, as applicable, such customer’s business, which may have a material adverse effect on our results of operations in the interim period.

We may experience manufacturing or warehousing problems or delays due to, among other reasons, our volume and specialized processes, and any interruption in supply from certain of our contract manufacturers, suppliers of raw materials and other third party vendors, which could result in decreased revenue or increased costs.

The global supply of our products depends on the uninterrupted efficient operation of our manufacturing facilities, and the continued performance of our contract manufacturers, suppliers of raw materials and other third party vendors under our contractual arrangements. Many of our manufacturing processes are complex and involve sensitive scientific processes involving the use of unique and often proprietary antibodies and other raw materials that cannot be replicated or acquired through alternative sources without undue delay or expense. Other processes present difficult technical challenges to obtain the manufacturing yields necessary to operate profitably. In addition, our manufacturing processes may require complex and specialized equipment, which can be expensive to repair or replace with required lead times of up to a year.

The manufacturing of certain of our products is concentrated in one or more of our plants, with limited alternate facilities. Any event that negatively impacts our manufacturing facilities, our manufacturing systems or equipment, or the facilities, systems or equipment of our contract manufacturers or suppliers, could delay or suspend shipments of products or the release of new products or could result in the delivery of inferior products. Our revenue from the affected products would decline and we could incur losses until such time as we or our contract manufacturers are able to restore our or their production processes or we are able to put in place alternative contract manufacturers or suppliers. Similarly, given the specialized storage requirements for our supplies and our products, any disruption to one of our two primary warehouse facilities in Memphis, Tennessee and Strasbourg, France could result in decreased revenue or increased costs given the challenge in finding suitable alternative facilities.

We also rely on contract manufacturers to manufacture certain of our products, such as the instruments for our Transfusion Medicine and Clinical Laboratories businesses, as well as suppliers of raw materials and other third party vendors. Any change in our relationship with our contract manufacturers, suppliers of raw materials and

 

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other third party vendors or changes to contractual terms of our agreements with any of them could adversely affect our financial condition and results of operations. Our reliance on a small number of contract manufacturers and a large number of single and sole source suppliers makes us vulnerable to possible capacity constraints, reduced control over product availability, delivery schedules and costs and reduced ability to monitor compliance with our product manufacturing specifications.

If our current contract manufacturers, suppliers of raw materials and other third party vendors were unable or unwilling to manufacture or supply our products or requirements for raw materials in required volumes and at required quality levels or renew existing terms under supply agreements, we may be required to replace such manufacturers, suppliers and vendors and we may be unable to do so in a timely or cost-effective manner, or at all. Any interruption of supply or any increase in price of the instruments or raw materials and other key products produced by such contract manufacturers or raw materials supplied by such suppliers and vendors could adversely affect our profitability.

Risks related to government regulation

If we are unable to obtain required clearances or approvals for the commercialization of our products in the United States, we would not be able to sell those products in the United States.

Our future performance depends on, among other matters, the timely receipt of necessary regulatory clearances and approvals for our products. Regulatory clearance and approval can be a lengthy, expensive and uncertain process. In addition, regulatory processes are subject to change, and new or changed regulations can result in increased costs and unanticipated delays.

In the United States, clearance or approval to commercially distribute new medical devices is received from the FDA through clearance of a Premarket Notification under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (a “510(k)”), or through approval of a Premarket Approval application (a “PMA”). Approval to commercially distribute biologics is received from the FDA through approval of a Biologics License Application (a “BLA”) and may also require state licensing for the movement of biologics products in interstate commerce. The FDA may deny 510(k) clearance because, among other reasons, it determines that our product is not substantially equivalent to another U.S. legally marketed device. The FDA may deny approval of a PMA or BLA because, among other reasons, it determines that our product is not sufficiently safe or effective. Failure to obtain FDA clearance or approval would preclude commercialization in the United States, which could materially and adversely affect our future results of operations.

Modifications or enhancements to a cleared or approved product that could significantly affect safety or effectiveness, or that constitute a major change in the intended use of the product, could require new 510(k) clearances or possibly approval of a new PMA or BLA, or a supplement to those applications. The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review a manufacturer’s decision not to seek a new 510(k). We have made modifications to some of our products since receipt of initial 510(k) clearance. With respect to several of these modifications, we filed new 510(k)s or PMAs; however, we determined that submission was not necessary for all of the modifications. The FDA may not agree with any of our determinations not to submit a new 510(k), PMA or PMA supplement, or BLA or BLA supplement for any modifications made to our products. If the FDA requires us to submit a new 510(k), PMA or PMA supplement, or BLA or BLA supplement for any product modification, we may be prohibited from marketing the modified products until the new submission is cleared or approved by the FDA. In that case, we may be required to recall and stop marketing our products as modified, which could require us to redesign our products, conduct clinical studies to support any modifications, and we could be subject to enforcement action.

 

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If the results of clinical studies required to gain regulatory approval to sell our products are not available when expected, or do not demonstrate the safety and effectiveness of those products, we may be unable to sell those products.

Before we can sell certain of our products, we must conduct clinical studies intended to demonstrate that those products are safe and effective and perform as expected. The results of these clinical studies (which are experiments involving human patients having the diseases or medical conditions that the product is trying to evaluate or diagnose) are used to obtain regulatory clearance or approval from government authorities, such as the FDA. Conducting clinical studies is a complex, time-consuming and expensive process. In some cases, we may spend several years completing the necessary clinical studies.

If we fail to adequately manage our clinical studies, those clinical studies and corresponding regulatory clearances or approvals may be delayed or we may fail to gain clearance or approval for our products altogether. Even if we successfully manage our clinical studies, we may not obtain favorable results and may not obtain regulatory clearance or approval. If we are unable to market and sell our new products or are unable to obtain clearances or approvals in the timeframe needed to execute our product strategies, our business and results of operations would be materially and adversely affected.

We are subject to the regulatory approval requirements of the foreign countries in which we sell our products, and these requirements may prevent or delay us from marketing our products in those countries.

We are subject to the regulatory approval requirements for each foreign country in which we sell our products. The process for complying with these approval requirements can be lengthy and expensive. Any changes in foreign approval requirements and processes may cause us to incur additional costs or lengthen review times of our products. We may not be able to obtain foreign regulatory approvals on a timely basis, if at all, and any failure to do so may cause us to incur additional costs or prevent us from marketing our products in foreign countries, which may have a material adverse effect on our business, financial condition and results of operations.

Our business is subject to substantial regulatory oversight, and our failure to comply with applicable regulations may result in significant costs or, in certain circumstances, the suspension or withdrawal of previously obtained clearances or approvals.

Our businesses are extensively regulated by the FDA and other federal, state and foreign regulatory agencies. These regulations impact many aspects of our operations, including development, manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, physician interaction and record-keeping.

The FDA and corresponding foreign regulatory agencies may require post-market testing and surveillance to monitor the performance of cleared or approved products or may place conditions on any product clearances or approvals that could restrict the commercial applications of those products. The discovery of problems with a product may result in restrictions on the product, including withdrawal of the product from the market. In addition, in some cases we may sell products or provide services which are reliant on the use or commercial availability of products of third parties, including medical devices or equipment, and regulatory restrictions placed upon any such third-party products could have a material adverse impact on the sales or commercial viability of our related products or services.

We are subject to routine inspection by the FDA and other agencies for compliance with the FDA’s requirements applicable to our products, including, without limitation, the Quality System Regulation and Medical Device Reporting requirements in the United States, and other applicable regulations worldwide. Our manufacturing facilities and those of our suppliers and distributors also are, or can be, subject to periodic regulatory inspections.

 

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We are also subject to laws relating to matters such as privacy, safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. We may incur significant costs to comply with these laws and regulations. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products or injunctions against our distribution of products, termination of our service agreements by our customers, disgorgement of money, operating restrictions and criminal prosecution.

Changes in applicable laws, changes in the interpretation or application of such laws, or any failure to comply with existing or future laws, regulations or standards could have a material adverse effect on our results of operations, financial condition, business and prospects. Moreover, new laws may be enacted, or regulatory agencies may impose new or enhanced standards, that would increase our costs, as well as expose us to risks associated with non-compliance. Over the last several years, the FDA has proposed reforms to its 510(k) clearance process, and such proposals could include increased requirements for clinical data and a longer review period, or could make it more difficult for manufacturers to utilize the 510(k) clearance process for their products. For example, in November 2018, FDA officials announced forthcoming steps that the FDA intends to take to modernize the premarket notification pathway under Section 510(k) of the Federal Food, Drug, and Cosmetic Act. Among other things, the FDA announced that it plans to develop proposals to drive manufacturers utilizing the 510(k) pathway toward the use of newer predicates. These proposals include plans to potentially sunset certain older devices that were used as predicates under the 510(k) clearance pathway, and to potentially publish a list of devices that have been cleared on the basis of demonstrated substantial equivalence to predicate devices that are more than 10 years old. In May 2019, the FDA solicited public feedback on these proposals. These proposals have not yet been finalized or adopted, and the FDA may work with Congress to implement such proposals through legislation. Accordingly, it is unclear the extent to which any proposals, if adopted, could impose additional regulatory requirements on us that could delay our ability to obtain new 510(k) clearances, increase the costs of compliance, restrict our ability to maintain our current clearances, or otherwise create competition that may negatively affect our business.

More recently, in September 2019, the FDA finalized guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA intends to develop and maintain a list of device types appropriate for the “safety and performance based” pathway and will continue to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as the testing methods recommended in the guidance documents, where feasible. The FDA may establish performance criteria for classes of devices for which we or our competitors seek or currently have received clearance, and it is unclear the extent to which such performance standards, if established, could impact our ability to obtain new 510(k) clearances or otherwise create competition that may negatively affect our business.

In addition, certain policies of the current administration may impact our business and industry. Namely, the current administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance and review and approval of marketing applications. If the implementation of executive actions imposes constraints on the FDA’s ability to engage in oversight and day-to-day regulatory activities in the normal course, our business may be negatively impacted.

 

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We are subject to extensive regulatory requirements in connection with the EUAs that we have received from the FDA for our COVID-19 antibody tests. If we fail to comply with these requirements, or if the FDA otherwise determines that the conditions no longer warrant such authorization, we will be unable to market our products pursuant to this authorization and our business may be harmed.

We have received emergency use authorizations (“EUAs”) from the FDA authorizing us to market our Anti-SARS-CoV-2 IgG Antibody test, Anti-SARS-CoV-2 Total Antibody test and related calibrators and controls on our VITROS analyzers. These EUAs allow us to market and sell these products to health care professionals for the detection of certain SARS-CoV-2 antibodies to aid in identifying individuals with an adaptive immune response to SARS-CoV-2, without the need to obtain premarket clearance or approval under the FDA’s standard review pathways, for the duration of the COVID-19 public health emergency. The FDA has also established certain conditions which must be met in order to maintain authorization under these EUAs. The requirements that apply to the manufacture and sale of these products may be unclear and are subject to change.

The FDA has the authority to issue an EUA during a public health emergency if it determines that based on the totality of the scientific evidence that it is reasonable to believe that the product may be effective, that the known and potential benefits of a product outweigh the known and potential risks, that there is no adequate, approved and available alternative and if other regulatory criteria are met. These standards for marketing authorization are lower than if the FDA had reviewed our test under its traditional marketing authorization pathways, and we cannot assure you that our test would be cleared or approved under those more onerous clearance and approval standards. Moreover, the FDA’s policies regarding EUAs can change unexpectedly, and the FDA may revoke an EUA where it determines that the underlying health emergency no longer exists or warrants such authorization or if problems are identified with the authorized product. We cannot predict how long our authorization will remain in place. FDA policies regarding diagnostic tests, therapies and other products used to diagnose, treat or mitigate COVID-19 remain in flux as the FDA responds to new and evolving public health information and clinical evidence. Changes to FDA regulations or requirements could require changes to our authorized tests, necessitate additional measures or make it impractical or impossible for us to market our test. The termination of an EUA for our products could adversely impact our business, financial condition and results of operations.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared or approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new medical devices and biologics or modifications to approved or cleared medical devices and biologics to be reviewed and/or cleared or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone most inspections of foreign manufacturing facilities and products, and on March 18, 2020, the FDA temporarily postponed routine surveillance inspections of domestic manufacturing facilities. Subsequently, on

 

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July 10, 2020, the FDA announced its intention to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

We may face business disruption and related risks resulting from President Trump’s invocation of the Defense Production Act, which could have a material adverse effect on our business.

In response to the COVID-19 pandemic, President Trump invoked the Defense Production Act, codified at 50 U.S.C. §§ 4501 et seq. (the “Defense Production Act”). Pursuant to the Defense Production Act, the federal government may, among other things, require domestic industries to provide essential goods and services needed for the national defense. While we have not experienced any impact on our business as a result of such actions, we continue to assess the potential impact that the invocation of the Defense Production Act may have on our ability to effectively conduct our business operations as planned, either as a result of becoming directly subject to the requirements of the Defense Production Act, our suppliers becoming so subject and diverting deliveries of raw materials elsewhere, or otherwise. There can be no assurance that we will not be impacted by any action taken by the federal government under the Defense Production Act, and any resulting disruption on our ability to conduct business could have a material adverse effect on our financial condition and results or operations.

We could incur costs complying with environmental and health and safety requirements, or as a result of liability for contamination or other potential environmental harm or liability caused by our operations.

Our operations and facilities are subject to various foreign, federal, state and local environmental, health and safety laws, rules, regulations and other requirements, including those governing the generation, use, manufacture, handling, transport, storage, treatment and disposal of, or exposure to, regulated materials, discharges and emissions to air and water, the cleanup of contamination and occupational health and safety matters. Noncompliance with these laws, rules, regulations and other requirements can result in fines or penalties or limitations on our operations or liability for remediation costs, as well as claims alleging personal injury, property, natural resource or environmental damages. We believe that our operations and facilities are operated in compliance in all material respects with existing environmental, health and safety requirements, including the operating permits required thereunder.

Our research and development and manufacturing processes involve the use of regulated materials subject to environmental, health and safety regulations. We may incur liability as a result of any contamination or injury arising from a release of or exposure to such regulated materials. Under some environmental laws and regulations, we could also be held responsible for costs relating to any contamination at our past or present facilities and at third-party disposal sites where we have sent wastes for treatment or disposal. Liability for contamination at contaminated sites may be imposed without regard to whether we knew of, or caused, the release or disposal of such regulated substances and, in some cases, liability may be joint or several. Any such future expenses or liability could have a negative impact on our financial condition and results of operations. The enactment of stricter laws or regulations, the stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at our current or former facilities or at third-party sites where we have sent waste for treatment or disposal may require us to make additional expenditures or subject us to additional liability or claims.

 

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In addition, our workers, properties and equipment may be exposed to potential operational hazards such as fires, process safety incidents, releases of regulated materials, malfunction of equipment, accidents and natural disasters, which could result in personal injury or loss of life, damage to or destruction of property and equipment or environmental damage, and could potentially result in a suspension of operations, harm to our reputation and the imposition of civil or criminal fines or penalties, all of which could adversely affect our business. See “Business–Health, safety and environmental.”

We are subject to healthcare regulations that could result in liability, require us to change our business practices and restrict our operations in the future.

We are subject to healthcare fraud and abuse regulation and enforcement by both the federal government and the governments of states and foreign countries in which we conduct our business. In the United States, these healthcare laws and regulations include, for example:

 

 

the federal Anti-Kickback Law, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, where one purpose is to induce either the referral of an individual for, or the purchase order or recommendation of, any item or services for which payment may be made under a federal healthcare program such as the Medicare and Medicaid programs. Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations can also result in criminal penalties, including criminal fines of up to $100,000 and imprisonment of up to ten years. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid;

 

 

federal false claims laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent, and which may apply to entities like us to the extent that our interactions with customers may affect their billing or coding practices. When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; and

 

 

state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payor, including commercial insurers.

If our operations are found to be in violation of any of the laws described above, similar laws of the international jurisdictions in which we operate or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs, corporate integrity agreements and the curtailment or restructuring of our operations. Any penalties, damages, fines, exclusions, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of these laws are broad and their provisions are open to a variety of interpretations. Further, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”), amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the government or an individual acting on behalf of the government through a qui tam action may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.

 

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Further, the PPACA included provisions known as the Physician Payment Sunshine Act, which require certain applicable manufacturers of drugs, biologics, devices and medical supplies for which payment is available under a federal healthcare program such as Medicare, Medicaid or the Children’s Health Insurance Program to record and annually report to the Centers for Medicare and Medicaid Services (“CMS”) any transfers of value to U.S. physicians, certain other healthcare providers and U.S. teaching hospitals (or entities or individuals at the request of, or designated by U.S. physicians or teaching hospitals). Applicable manufacturers must also disclose ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers will be required to report such information regarding payments and transfers of value provided, as well as ownership and investment interests held, during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists and certified nurse-midwives. Failure to submit the required information may result in civil monetary penalties for any payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission, and may result in liability under other federal laws or regulations. Manufacturers are required to collect and report data annually to CMS by the ninetieth day of each calendar year. Several states in the United States have implemented similar reporting requirements, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals. These laws have imposed administrative costs and compliance burdens on us. If we are found to be in violation of any of these laws and other applicable state and country laws, we may be subject to penalties, including fines.

Our failure to comply with the anti-corruption laws of the United States and various international jurisdictions could negatively impact our reputation and results of operations.

Doing business on a worldwide basis requires us to comply with the laws and regulations of the U.S. government and those of various international and sub-national jurisdictions, and our failure to successfully comply with these rules and regulations may expose us to liabilities. These laws and regulations apply to companies, individual directors, officers, employees and agents, and may restrict our operations, trade practices, investment decisions and partnering activities. In particular, our international operations are subject to U.S. and foreign anti-corruption laws and regulations, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”), as well as anti-corruption laws of the various jurisdictions in which we operate. The FCPA and other laws prohibit us, and our officers, directors, employees and agents acting on our behalf, from corruptly offering, promising, authorizing or providing anything of value to foreign officials or entities for the purposes of influencing official decisions or obtaining or retaining business or otherwise obtaining favorable treatment. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of the FCPA. We are subject to the jurisdiction of various governments and regulatory agencies outside of the United States, which may bring our personnel into contact with foreign officials responsible for issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. Our global operations expose us to the risk of violating, or being accused of violating, the foregoing or other anti-corruption laws, including similar anti-corruption laws, rules and regulations of the various jurisdictions in which we operate. Such violations could be punishable by criminal fines, imprisonment, civil penalties, disgorgement of profits, injunctions and debarment from government contracts, as well as other remedial measures. Investigations of alleged violations can be very expensive and disruptive. Additionally, we face a risk that our distributors and manufacturers may potentially violate the FCPA or similar laws, rules or regulations of the various jurisdictions in which we operate. Though these distributors and manufacturers are not our affiliated legal entities, such violations could expose us to FCPA liability or liabilities under similar laws of the various jurisdictions in which we operate and/or our reputation may potentially be harmed by the distributors and manufacturers’ violations and resulting sanctions and fines.

 

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Our international operations require us to comply with anti-terrorism laws and regulations and applicable trade embargoes.

We are subject to trade and economic sanctions laws and other restrictions on international trade. The United States and other governments and their agencies impose sanctions and embargoes on certain countries, their governments and designated parties. In the United States, the economic and trade sanctions programs are principally administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). Currently, OFAC maintains comprehensive trade and economic sanctions against the following countries and territories: Cuba, Iran, Syria, North Korea and the Crimea region of Ukraine. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, financial condition and results of operations.

We cannot predict the nature, scope or effect of future regulatory requirements to which our international sales and manufacturing operations might be subject or the manner in which existing laws might be administered or interpreted. Future regulations could limit the countries in which some of our products may be manufactured or sold, or could restrict our access to, or increase the cost of obtaining, products from foreign sources. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

Our collection, use and disclosure of personal information, including health information, is subject to federal and state privacy and security regulations, as well as data privacy and security laws outside the United States, including in the European Economic Area (the “EEA”) and the United Kingdom, and our failure to comply with those laws and regulations or to adequately secure the information we hold could result in significant liability or reputational harm.

The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their implementing regulations (collectively referred to as “HIPAA”) as well as numerous other federal and state laws and regulations, govern the collection, dissemination, use, privacy, security, confidentiality, integrity and availability of personally identifiable information (“PII”), including protected health information (“PHI”). HIPAA applies national privacy and security standards for PHI to covered entities, including certain types of health care entities and their service providers that access PHI, known as business associates. HIPAA requires covered entities and business associates to maintain policies and procedures governing PHI that is used or disclosed, and to implement administrative, physical and technical safeguards to protect PHI, including PHI maintained, used and disclosed in electronic form. These safeguards include employee training, identifying business associates with whom covered entities need to enter into HIPAA-compliant contractual arrangements and various other measures. While we undertake substantial efforts to secure the PHI we maintain, use and disclose in electronic form, a cyber-attack or other intrusion that bypasses our information security systems causing an information security breach, loss of PHI, PII or other data subject to privacy laws or a material disruption of our operational systems could result in a material adverse impact on our business, along with potentially substantial fines and penalties. Ongoing implementation and oversight of these security measures involves significant time, effort and expense.

HIPAA requires covered entities and their business associates to report breaches of unsecured PHI to affected individuals without unreasonable delay and in no case later than 60 days after the discovery of the breach by the covered entity or its agents. Notification must also be made to the U.S. Department of Health and Human Services (“HHS”) and, in certain situations involving large breaches, to the media. The HIPAA rules created a presumption that all non-permitted uses or disclosures of unsecured PHI are breaches unless the covered entity establishes that there is a low probability the information has been compromised. A data breach affecting sensitive personal information, including health information, also could result in significant legal and financial exposure and reputational damages that could potentially have an adverse effect on our business.

 

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HIPAA also authorizes state attorneys general to bring civil actions seeking either an injunction or damages in response to violations of HIPAA privacy and security regulations that threaten the privacy of state residents. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA’s requirements, its standards have been used as a basis for the duty of care in state civil suits, such as those for negligence or recklessness in the handling of PHI. In addition, HIPAA mandates that the Secretary of HHS conduct periodic compliance audits of covered entities and business associates.

In addition, many states in which we operate may impose laws that are more protective of the privacy and security of PII than HIPAA. Where these state laws are more protective than HIPAA, we may have to comply with their stricter provisions. Not only may some of these state laws impose fines and penalties upon violators, but some may afford private rights of action to individuals who believe their PII has been misused.

Both state and federal laws and regulations are subject to modification or enhancement of privacy and security protections at any time. Our business will continue to remain subject to any federal and state privacy-related laws and regulations that are more restrictive than the privacy regulations issued under HIPAA. Sweeping privacy measures in certain states such as the California Consumer Privacy Act impose European-like standards for the protection of personal data and allow for a private right of action. These statutes vary and could impose additional requirements on us and more severe penalties for disclosures of confidential health information. New health and consumer information standards could have a significant effect on the manner in which we do business, and the cost of complying with new standards could be significant. We may not remain in compliance with the diverse privacy and security requirements in all of the jurisdictions in which we do business. If we fail to comply with such state laws, we could incur substantial civil monetary or criminal penalties.

We are also subject to data privacy and security laws in jurisdictions outside of the United States. For example, in the EEA and the United Kingdom, we are subject to the General Data Protection Regulation 2016/679 (the “GDPR”), which could limit our ability to collect, control, process, share, disclose and otherwise use personal data (including health and medical information which are subject to strict requirements). Complying with the GDPR could cause our compliance costs to increase, ultimately having an adverse impact on our business. We are implementing measures to comply with these laws as part of our comprehensive compliance program with input from external advisors to address our compliance with these obligations under GDPR. Failure to comply with the GDPR may result in fines up to the greater of 20 million or 4% of total annual revenue. In addition to the foregoing, a breach of the GDPR could result in regulatory investigations, reputational damage, orders to cease or change our processing of our data, enforcement notices or assessment notices (for a compulsory audit). We may also face civil claims including representative actions and other class action type litigation (where individuals have suffered harm), potentially amounting to significant compensation or damages liabilities, as well as associated costs, diversion of internal resources and reputational harm. In addition, beginning in 2021 when the transitional period following Brexit expires, we will be required to comply with both the GDPR and the U.K. GDPR, with each regime having the ability to fine up to the greater of 20 million (in the case of the GDPR) or £17 million (in the case of the U.K. GDPR) and 4% of total annual revenue. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear including, for example, how data transfers between EU member states and the United Kingdom will be treated and the role of the Information Commissioner’s Office following the end of the transitional period. These changes could lead to additional costs and increase our overall risk exposure.

We are also subject to European Union rules with respect to cross-border transfers of personal data out of the EEA and the United Kingdom. Recent legal developments in Europe have created complexity and uncertainty regarding transfers of personal data from the EEA to the United States. For instance, on July 16, 2020, the Court of Justice of the European Union (the “CJEU”) invalidated the EU-U.S. Privacy Shield Framework (the “Privacy Shield”) under which personal data could be transferred from the EEA to U.S. entities who had self-certified under the Privacy Shield scheme.

 

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While the CJEU did not invalidate standard contractual clauses (a standard form of contract approved by the European Commission as an adequate personal data transfer mechanism, and potential alternative to the Privacy Shield), it made clear that reliance on them alone may not necessarily be sufficient in all circumstances. We currently rely on the standard contractual clauses among other data transfer mechanisms allowed pursuant to the GDPR to transfer personal data outside the EEA or the United Kingdom, including to the United States. These recent developments will require us to review and consider amending the legal mechanisms by which we make and receive personal data transfers to the United States. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints, regulatory investigations or fines, and if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services and the geographical location or segregation of our relevant systems and operations, which could adversely affect our financial results.

We depend on a number of third parties in relation to the operation of our business, a number of which process personal data on our behalf. With each such third party, we attempt to mitigate the associated risks of using third parties by performing applicable security assessments and detailed due diligence, entering into contractual arrangements to require that providers only process personal data according to our instructions, and that they have sufficient technical and organizational security measures in place. Where we transfer personal data outside the EEA or the United Kingdom to such third parties, we do so in compliance with the relevant data export requirements, as described above. There is no assurance that these contractual measures and our own privacy and security-related safeguards will fully protect us from the risks associated with the third-party processing. Any violation of data or security laws by our third party processors could have a material adverse effect on our business and result in the fines and penalties outlined below.

We are also subject to evolving privacy laws on cookies and e-marketing. In the European Union, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive will be replaced by an EU regulation known as the ePrivacy Regulation which will significantly increase fines for non-compliance. While the text of the ePrivacy Regulation is still under development, a recent European court decision and regulators’ recent guidance are driving increased attention to cookies and tracking technologies. In the United States, the Federal Trade Commission and many state laws have increasingly focused on the collection and use of behavioral data including geolocation and biometric information. As regulators start to enforce a strict approach (which has already started in Germany), this could lead to substantial costs, require significant systems changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs and subject us to additional liabilities.

Recently many countries have enacted legislation to strengthen privacy laws to protect their residents’ personal data. Some countries’ laws have been modeled on GDPR, including fines and penalties such as Brazil’s enacted data protection law and similar pending legislation in Chile. We are currently monitoring the evolving data protection landscape so that we can comply with the requirements in the countries in which we do business.

Data compliance in other countries outside EEA, the United Kingdom and the United States are even more complex and varied making it difficult to comply with them all. China’s legislation and regulation of the health care industry involves multiple pieces of legislation prescribing complex regulatory requirements governing different types of data across a continuum of care, and various supervisory authorities frequently conduct inspections and investigations. Any collection, use, transfer and storage of personal information of a Chinese citizen should be based on the three principles of China’s Cybersecurity Law (legitimacy, justification and necessity) and requires the consent of the data subject. The rules, purposes, methods and ranges of such collection should also be disclosed to the data subject. China’s data localization requirements are expensive for

 

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multinational companies as they have strict requirements regarding storage of health care data including big data and human genetic information in local, secured and trusted servers.

Risks related to our information technology and intellectual property

Our data management and information technology systems are critical to maintaining and growing our business.

Our business is dependent on the effective use of information technology and, consequently, technology failure or obsolescence may negatively impact our business. In addition, data acquisition, data quality control, data privacy, data security and data analysis are intense and complex processes subject to error. Untimely, incomplete or inaccurate data, flawed analysis of data or our inability to properly integrate, implement, protect and update systems could have a material adverse impact on our business and results of operations. We expect that we will need to continue to improve and further integrate our information technology systems on an ongoing basis in order to effectively run our business. If we fail to successfully manage our information technology systems, our business and operating results could be adversely affected.

Our ability to protect our information systems and electronic transmissions of sensitive data from data corruption, cyber-based attacks, security breaches or privacy violations is critical to the success of our business.

We are highly dependent on information technology networks and systems, including our office networks, operational environment, special purpose networks, systems and software used to operate our instruments and devices and those networks and systems managed by vendors or third parties, to securely process, transmit and store electronic information (including sensitive data such as trade secrets, confidential business information and personally identifiable data relating to employees, customers and business partners). Like any large corporation, from time to time the information systems on which we rely, including those controlled and managed by third-parties, may be subject to computer viruses, malicious software, attacks by hackers and other forms of cyber intrusions or unauthorized access, any of which can create system disruptions, shutdowns or unauthorized disclosure of sensitive data. In addition, a security breach that leads to disclosure of information protected by privacy laws (including PII or PHI) could compel us to comply with breach notification requirements under U.S. state laws and HIPAA regulations or other local country government requirements outside the United States, potentially resulting in litigation or regulatory action, or otherwise subjecting us to liability under laws that protect personal data.

If we experience a significant technology incident, such as a serious product vulnerability, security breach or a failure of a system that is critical for the operations of our business, it could impair our ability to operate our business, including our ability to provide maintenance and support services to our customers. If this happens, our revenues could decline and our business could suffer, and we may need to make significant further investments to protect data and infrastructure. An actual or perceived vulnerability, failure, disruption or breach of our network or privileged account security in our systems also could adversely affect the market perception of our products and services, as well as our perception among new and existing customers. Additionally, a significant security breach could subject us to potential liability, litigation and regulatory or other government action. If any of the foregoing were to occur, our business may suffer.

We attempt to mitigate the above risks by employing a number of measures, including monitoring and testing of our security controls, employee training and maintenance of protective systems and contingency plans. Further, our contractual arrangements with service providers aim to ensure that third-party cybersecurity risks are appropriately mitigated. We also maintain insurance relating to cybersecurity incidents, which we cannot guarantee will be adequate. It is impossible to eliminate all cybersecurity risk and thus our systems, products and services, as well as those of our service providers, remain potentially vulnerable to known or unknown

 

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threats. Additionally, our information technology systems may also be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power outages and system failures. Any system outages or security breaches, whether caused intentionally or unintentionally, can interrupt our operations, delay production and shipments, result in theft of trade secrets and intellectual property, damage our reputation, result in defective products or services, give rise to legal proceedings, liabilities and penalties, and cause us to incur increased costs for insurance premiums, security, remediation, and regulatory compliance.

Information security risks have generally increased in recent years because of the increased proliferation, sophistication and availability of complex malware and hacking tools to carry out cyber-attacks. As cyber threats continue to evolve, we may be required to expend additional resources to mitigate new and emerging threats while continuing to enhance our information security capabilities or to investigate and remediate security vulnerabilities.

In addition, the interpretation and application of data protection and security laws in the United States, Europe and elsewhere are often uncertain, contradictory and in flux. For instance, California enacted the California Consumer Privacy Act (“CCPA”) on June 28, 2018, which went into effect on January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private right of action with statutory damages of up to $7,500 per person for certain data breaches which is expected to increase data breach litigation as well as the privacy and security obligations of entities handling certain personal data. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. Further, the European Union enacted stricter data protection laws under the GDPR, which took effect in May 2018 and replaced Directive 95/46/EC. The obligations under the GDPR may conflict with the requirements of privacy laws and regulations in other jurisdictions and our practices relating to personal data may differ globally in response to local requirements. This may result in government-imposed fines or orders requiring that we change our data practices, which could have an adverse effect on our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

Our inability to protect and enforce our intellectual property rights could adversely affect our financial results.

Intellectual property rights both in the United States and in foreign countries, including patents, trade secrets, proprietary information, trademarks and trade names, are important to our business and will be critical to our ability to grow and succeed in the future. We make strategic decisions on whether to apply for intellectual property protection and what kind of protection to pursue based on a cost-benefit analysis. While we endeavor to protect our intellectual property rights in certain jurisdictions in which our products are produced or used and in jurisdictions into which our products are imported, the decision to file for intellectual property protection is made on a case-by-case basis. Because of the differences in foreign trademark, patent and other laws concerning proprietary rights, our intellectual property rights may not receive the same degree of protection in foreign countries as they would in the United States. Additionally, certain of our intellectual property rights are held through our license agreements and collaboration arrangements with third parties. Because of the nature of these licenses and arrangements, we cannot assure you that we would be able to retain all of these intellectual property rights upon termination of such licenses and collaboration arrangements. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations and financial condition.

We have applied for patent protection relating to certain existing and proposed products, processes and services in certain jurisdictions. While we generally consider applying for patents in those countries where we intend to make, have made, use or sell patented products, we may not accurately assess all of the countries

 

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where patent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing so at a later date. Furthermore, we cannot assure you that our pending patent applications will not be challenged by third parties or that such applications will eventually be issued by the applicable patent offices as patents. We also cannot assure you that the patents issued as a result of our foreign patent applications will have the same scope of coverage as our U.S. patents. It is possible that only a limited number of the pending patent applications will result in issued patents, which may have a materially adverse effect on our business and results of operations.

The patents we own could be challenged, invalidated or circumvented by others and may not be of sufficient scope or strength to provide us with any meaningful protection or commercial advantage. Furthermore, our existing patents are subject to challenges from third parties which may result in invalidations and will all eventually expire, after which we will not be able to prevent our competitors from using our previously patented technologies, which could materially adversely affect our competitive advantage stemming from those products and technologies. We also cannot assure you that competitors will not infringe our patents, or that we will have adequate resources to enforce our patents.

We also license third parties to use our patents and know-how. In an effort to preserve our intellectual property rights, we enter into license agreements with these third parties, which govern the use of our patents, know-how and other confidential, proprietary information. Although we make efforts to police the use of our intellectual property by our licensees, we cannot assure you that these efforts will be sufficient to ensure that our licensees abide by the terms of their licenses. In the event that our licensees fail to do so, our intellectual rights could be impaired.

We also rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. To protect our trade secrets and other proprietary information, we require certain employees, consultants, advisors and collaborators to enter into confidentiality agreements as we deem appropriate. We cannot assure you that we will be able to enter into these confidentiality agreements or that these agreements will provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we could be materially adversely affected.

We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or applied to register many of these trademarks. We cannot assure you that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, we cannot assure you that competitors will not infringe our trademarks, or that we will have adequate resources to enforce our trademarks.

Risks related to taxation

Legislative or taxation changes or HMRC enforcement actions may have a material adverse impact on our business, results of operations and financial condition.

We are subject to the laws of England and Wales and the taxation rules administered by HM Revenue & Customs (“HMRC”) and we are required to certify to HMRC that we have appropriate tax accounting arrangements in place. Changes in legislation or regulations and actions by regulators, including changes in administration and enforcement policies, could from time to time require operational improvements or modifications, the conduct

 

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of reviews and audits or the cessation of certain business practices or income streams that could result in higher costs or restrict our ability to operate our business and, as a result, have a material adverse effect on our business, results of operations and financial condition. HMRC may also take enforcement actions against us which may result in fines, penalties and/or interest charges being imposed on us which may have a material adverse effect on our business, results of operations and financial condition.

If we are classified as a passive foreign investment company for U.S. federal income tax purposes, U.S. Holders may incur adverse tax consequences.

Based on the nature and composition of our income, assets and operations and the income, assets and operations of our subsidiaries, we do not believe that we are currently a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”), and we do not expect to be a PFIC in the foreseeable future. However, this is a factual determination that depends on, among other things, the nature and composition of our income and assets, and the market value of our shares and assets, including the nature and composition of income and assets and the market value of shares and assets of our subsidiaries, from time to time, and thus the determination can only be made annually after the close of each taxable year. Therefore, no assurance can be given that we will not be classified as a PFIC for the current taxable year or any future taxable year.

If we are considered a PFIC at any time that a U.S. Holder (as defined under “Material tax considerations—Material U.S. federal income tax considerations”) holds the ordinary shares, U.S. Holders may suffer material adverse tax consequences, including with respect to any “excess distribution” received from us and any gain from a sale or other taxable disposition of the ordinary shares.

Certain elections may be available that would result in alternative treatments (such as qualified electing fund treatment or mark-to-market treatment) of our ordinary shares if we are considered a PFIC. We do not intend to provide the information necessary for U.S. Holders of our ordinary shares to make qualified electing fund elections, which, if available, would result in tax treatment different from the general tax treatment for an investment in a PFIC described above. If we are treated as a PFIC with respect to a U.S. Holder for any taxable year, the U.S. Holder will be deemed to own shares in any of our subsidiaries that are also PFICs. However, an election for mark-to-market treatment would likely not be available with respect to any such subsidiaries.

U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an investment in the ordinary shares and the potential consequences related thereto. See “Material tax considerations—Material U.S. federal income tax considerations—Taxation of disposition of the ordinary shares—Passive foreign investment company rules.

If a United States person is treated as owning at least 10% of our ordinary shares, such holder may be subject to adverse U.S. federal income tax consequences.

If a United States person is treated as owning (directly, indirectly, or constructively) at least 10% of the value or voting power of our ordinary shares, such person may be treated as a “United States shareholder” with respect to each “controlled foreign corporation” in our group. Because our group includes U.S. subsidiaries, certain of our non-U.S. subsidiaries could be treated as controlled foreign corporations (regardless of whether or not UK Holdco is treated as a controlled foreign corporation). A United States shareholder of a controlled foreign corporation may be required to report annually and include in its U.S. taxable income its pro rata share of “Subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by controlled foreign corporations, regardless of whether we make any distributions. An individual that is a United States shareholder with respect to a controlled foreign corporation generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a United States shareholder that is a U.S. corporation. Failure to comply with these reporting obligations may subject a United States shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s

 

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U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurances that we will assist investors in determining whether we are or any of our non-U.S. subsidiaries is treated as a controlled foreign corporation or whether any investor is treated as a United States shareholder with respect to any such controlled foreign corporation or furnish to any United States shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. A U.S. investor should consult its advisors regarding the potential application of these rules to an investment in our ordinary shares.

Changes in our tax rates or exposure to additional tax liabilities or assessments could affect our profitability, and audits by tax authorities could result in additional tax payments for prior periods.

We are affected by various U.S. and non-U.S. taxes, including direct and indirect taxes imposed on our global activities, such as corporate income, withholding, customs, excise, value-added, sales and other taxes. Significant judgment is required in determining our provisions for taxes, and there are many transactions and calculations where the ultimate tax determination is uncertain.

The amount of income tax we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. tax authorities. If audits result in payments or assessments different from our reserves, our future results may include unfavorable adjustments to our tax liabilities, and our financial statements could be adversely affected. Any significant changes to the tax system in the United States or in other jurisdictions could adversely affect our business, financial condition and results of operations.

Our ability to use our net operating loss carry forwards to offset future taxable income may be subject to certain limitations and we could be subject to tax audits or examinations that could result in a loss of our net operating losses and/or cash tax exposures.

As of December 29, 2019, we had net operating loss carryforwards (“NOLs”) of approximately $740 million in the United States (this amount has been adjusted to include the impact of the Coronavirus, Aid, Relief and Security Act (“CARES Act”), which was enacted on March 27, 2020) and approximately $445 million in Luxembourg due to prior period losses. In addition, we had approximately $404 million of U.S. carryforward interest expense as of December 29, 2019. Certain of these carryforwards, if not utilized, will begin to expire through 2037. Realization of these carryforwards depends on future income, and there is a risk that our existing carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our cash flows.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. This offering, as well as future changes in our stock ownership, could result in an ownership change under Section 382 of the Code. Our NOLs may also be impaired under state laws. There is also a risk that due to regulatory changes, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Furthermore, any available NOLs would have value only to the extent there is income in the future against which such NOLs may be offset. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

We are periodically subject to audits or examinations by taxing authorities, and are currently in the early stages of responding to an inquiry from taxing authorities in Luxembourg relating to certain intercompany transactions. If any such audits or examinations are resolved in a manner that is unfavorable to us, it could potentially result in a loss of NOLs and/or cash tax exposures, which could adversely affect our cash flows.

 

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Risks associated with our indebtedness

Our substantial indebtedness could adversely affect our financial condition, limit our ability to raise additional capital to fund our operations and prevent us from fulfilling our obligations under our indebtedness.

We have a significant amount of indebtedness. As a result of our substantial indebtedness, a significant amount of our cash flows will be required to pay interest and principal on our outstanding indebtedness, and we may not generate sufficient cash flows from operations, or have future borrowings available under the Revolving Credit Facility, to enable us to repay our indebtedness or to fund our other liquidity needs. As of September 27, 2020, we had total indebtedness of $3,713.7 million and we had availability under our Revolving Credit Facility of $314.4 million (net of $35.6 million of outstanding letters of credit) and no availability under our three-year accounts receivable program (the “Financing Program”).

Subject to the limits contained in the Credit Agreement, the 2028 Notes Indenture, the 2025 Notes Indenture, the Financing Program and our other debt instruments, we may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt would increase. Specifically, our high level of debt could have important consequences to you, including:

 

 

making it more difficult for us to satisfy our obligations with respect to our debt, and if we fail to comply with these obligations, an event of default could result;

 

 

limiting our ability to obtain additional financing to fund future working capital, capital expenditures, investments or acquisitions or other general corporate requirements;

 

 

requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes;

 

 

increasing our vulnerability to general adverse economic and industry conditions;

 

 

exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under the Senior Secured Credit Facilities, are at variable rates of interest;

 

 

limiting our flexibility in planning for and reacting to changes in the industry in which we compete and to changing business and economic conditions;

 

 

restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;

 

 

impairing our ability to obtain additional financing in the future;

 

 

preventing us from raising the funds necessary to repurchase all Senior Notes tendered to us upon the occurrence of certain changes of control, which failure to repurchase would constitute an event of default under the 2025 Notes Indenture or the 2028 Notes Indenture;

 

 

placing us at a disadvantage compared to other, less leveraged competitors and affecting our ability to compete; and

 

 

increasing our cost of borrowing.

The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations and ability to satisfy our obligations in respect of our outstanding debt.

Furthermore, borrowings under our Senior Secured Credit Facilities are at variable rates of interest and expose us to interest rate risk. Recent interest rates have been at historically low levels. If interest rates increase, our

 

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debt service obligations on the variable rate indebtedness will increase even though the amount borrowed may remain the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As of September 27, 2020, $2,200.0 million in aggregate principal amount of indebtedness under our Term Loan Facilities is subject to variable interest rates subject to the London interbank offered rate (“LIBOR”). Assuming no prepayments of our Term Loan Facilities and that our Revolving Credit Facility is fully drawn (and to the extent that the LIBOR is in excess of the 0.00% floor rate applicable to our Senior Secured Credit Facilities), each one-eighth percent change in interest rates, prior to the impact of derivative instruments, would result in a $3.7 million change in annual interest expense on the indebtedness under our Senior Secured Credit Facilities. In addition, certain of our variable rate indebtedness uses LIBOR as a benchmark for establishing the rate. LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted, but could include an increase in the cost of our variable rate indebtedness. We have entered into a series of interest rate cap and interest rate swap agreements to hedge our interest rate exposures related to our variable rate borrowings under the Senior Secured Credit Facilities. However, it is possible that these interest rate cap and interest rate swap agreements or any future interest rate cap agreements or swaps we enter into may not fully or effectively mitigate our interest rate risk and we may decide not to maintain interest rate swaps in the future.

In addition, amounts drawn under our Senior Secured Credit Facilities may bear interest rates in relation to LIBOR, depending on our selection of repayment options. On July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Broad Treasury Financing Rate, calculated with a broad set of short-term repurchase agreements backed by treasury securities. If LIBOR ceases to exist, we may need to renegotiate certain provisions of our Senior Secured Credit Facilities and may not be able to do so with terms that are favorable to us. The overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market or the inability to renegotiate our Senior Secured Credit Facilities with favorable terms could have a material adverse effect on our business, financial position, operating results and cash flows.

We may not be able to generate sufficient cash flows from operating activities to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our business, financial position and results of operations and our ability to satisfy our debt obligations.

Additionally, if we cannot make scheduled payments on our debt we will be in default, and holders of the Senior Notes could declare all outstanding principal and interest to be due and payable, the lenders under the Senior Secured Credit Facilities could terminate their commitments to loan additional money to us, the lenders could foreclose against the assets securing their borrowings and we could be forced into bankruptcy or liquidation. All of these events could result in your losing all or a part of your investment.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory and other factors beyond our control. We might not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

 

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If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. In addition, our cash flows may be negatively impacted if we are required to pay back borrowing under the Financing Program sooner than anticipated if there is a reduction in the borrowing base. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture restrict our ability to dispose of assets and use the proceeds from such dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. Because of these restrictions, we may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

In addition, we conduct substantially all of our operations through our subsidiaries, some of which are not guarantors of our indebtedness. Accordingly, repayment of our indebtedness is dependent on the generation of cash flows by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are guarantors of our indebtedness, our subsidiaries do not have any obligation to pay amounts due on our indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or may not be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each subsidiary is a distinct legal entity, and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

The terms of the Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture impose restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests and may limit our ability to make payments on our indebtedness.

The Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability, and the ability of our subsidiaries, to:

 

 

incur additional indebtedness and guarantee indebtedness;

 

 

pay dividends or make other distributions in respect of, or repurchase or redeem, capital stock;

 

 

prepay, redeem or repurchase certain indebtedness;

 

 

make loans and investments;

 

 

sell, transfer or otherwise dispose of assets;

 

 

incur liens;

 

 

enter into transactions with affiliates;

 

 

enter into new lines of business or alter the businesses we conduct;

 

 

designate any of our subsidiaries as unrestricted subsidiaries;

 

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enter into agreements restricting our subsidiaries’ ability to pay dividends; and

 

 

consolidate, merge, transfer or sell all or substantially all of our assets or the assets of our subsidiaries.

As a result of all of these restrictions, we may be:

 

 

limited in how we conduct our business;

 

 

unable to raise additional debt or equity financing to operate during general economic or business downturns; or

 

 

unable to compete effectively or to take advantage of new business opportunities.

These restrictions might hinder our ability to grow in accordance with our strategy.

While we believe that they have not historically done so, these covenants could materially and adversely affect our ability to finance our future operations or capital needs. Furthermore, they may restrict our ability to expand, pursue our business strategies and otherwise conduct our business. Our ability to comply with these covenants may be affected by circumstances and events beyond our control, such as prevailing economic conditions and changes in regulations, and we cannot assure you that we will be able to comply with such covenants. These restrictions also limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general. In addition, complying with these covenants may also cause us to take actions that are not favorable to holders of our ordinary shares and may make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.

In addition, the financial covenant in the Credit Agreement requires the maintenance of a maximum first lien leverage ratio, which ratio will be tested at the end of any quarter when borrowings under the Revolving Credit Facility (including swingline loans and any unreimbursed drawings under any letters of credit to the extent not cash-collateralized but excluding any guarantees and performance or similar bonds issued under our Revolving Credit Facility) exceed $105 million at such date. As of September 27, 2020, we had no borrowings outstanding under the Revolving Credit Facility and were therefore not subject to the financial covenant. Due to the current economic and business uncertainty resulting from the ongoing COVID-19 pandemic, we anticipate that we will maintain increased cash on hand in order to preserve financial flexibility and that, as a result, we may continue to borrow from our Revolving Credit Facility, if needed, for the remainder of fiscal year 2020. Our ability to meet the financial covenant could be affected by events beyond our control.

A breach of the covenants under the Credit Agreement, the 2025 Notes Indenture or the 2028 Notes Indenture could result in an event of default under the applicable indebtedness. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, an event of default under the Credit Agreement would permit the lenders under our Senior Secured Credit Facilities to terminate all commitments to extend further credit under the facilities. Furthermore, if we were unable to repay the amounts due and payable under our Senior Secured Credit Facilities, those lenders could proceed against the collateral securing such indebtedness. In the event our lenders or holders of the Senior Notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

Despite our level of indebtedness, we and our subsidiaries may still incur substantially more debt. This could further exacerbate the risks to our financial condition described above and impair our ability to operate our business.

We and our subsidiaries may incur significant additional indebtedness in the future. Although the Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture contain restrictions on the incurrence of

 

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additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, including with respect to our ability to incur additional senior secured debt. The additional indebtedness we may incur in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. In addition, as of September 27, 2020, our Revolving Credit Facility provides for unused commitments of $314.4 million (net of $35.6 million of outstanding letters of credit). Additionally, our Senior Secured Credit Facilities may be increased by an amount equal to (x) a dollar amount of $375.0 million (which amount was utilized in connection with our incurrence of the Euro Term Loan Facility), plus (y) an unlimited amount so long as on a pro forma basis our consolidated first lien total debt ratio (as set forth in the Credit Agreement) does not exceed 4.00 to 1.00 plus (z) an amount equal to all voluntary prepayments of term loans borrowed under the Credit Agreement and revolving loans under the Credit Agreement to the extent accompanied by a permanent reduction in the commitments therefor, subject to certain conditions. If new debt is added to our current debt levels, the related risks that we now face would increase.

Risks related to this offering and ownership of our ordinary shares

No market currently exists for our ordinary shares, and an active, liquid trading market for our ordinary shares may not develop, which may cause our ordinary shares to trade at a discount from the initial offering price and make it difficult for you to sell the ordinary shares you purchase.

Prior to this offering, there has not been a public market for our ordinary shares. We cannot predict the extent to which investor interest in us will lead to the development of a trading market on Nasdaq or otherwise or how active and liquid that market may become. If an active and liquid trading market does not develop or continue, you may have difficulty selling any our ordinary shares that you purchase. The initial public offering price for the ordinary shares has been determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. The market price of our ordinary shares may decline below the initial offering price, and you may not be able to sell your our ordinary shares at or above the price you paid in this offering, or at all.

You will incur immediate dilution in the net tangible book value of the ordinary shares you purchase in this offering.

The initial public offering price of our ordinary shares is higher than the net tangible book value per ordinary share of outstanding ordinary shares prior to completion of this offering. Based on our net tangible book deficit as of September 27, 2020 and upon the issuance and sale of 70,000,000 ordinary shares by us at an assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, if you purchase our ordinary shares in this offering, you will suffer immediate dilution of approximately $27.24 per ordinary share in net tangible book value. Dilution is the amount by which the offering price paid by purchasers of our ordinary shares in this offering will exceed the net tangible book value per ordinary share of our ordinary shares upon completion of this offering. If the underwriters exercise their option to purchase additional ordinary shares, you will experience further dilution. A total of 7,967,000 ordinary shares have initially been reserved for future issuance under the 2021 Incentive Award Plan, which amount will increase on the first day of the fiscal year for up to 10 years by an amount equal to 3% of the shares outstanding on the last day of the prior fiscal year or such lesser amount as may be determined by our board of directors. You may experience additional dilution upon future equity issuances or the exercise of stock options to purchase ordinary shares granted to our directors, officers and employees under our current and future stock incentive plans, including the 2021 Incentive Award Plan. See “Dilution.”

Our share price may change significantly following this offering, and you may not be able to resell our ordinary shares at or above the price you paid or at all, and you could lose all or part of your investment as a result.

The trading price of our ordinary shares is likely to be volatile. The stock market has experienced extreme volatility. This volatility often has been unrelated or disproportionate to the operating performance of

 

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particular companies. We and the underwriters have negotiated to determine the initial public offering price. You may not be able to resell your ordinary shares at or above the initial public offering price due to a number of factors such as those listed in other portions of this “Risk factors” section and the following:

 

 

results of operations that vary from the expectations of securities analysts and investors;

 

 

results of operations that vary from those of our competitors;

 

 

changes in expectations as to our future financial performance, including financial estimates and investment recommendations by securities analysts and investors;

 

 

declines in the market prices of stocks generally;

 

 

strategic actions by us or our competitors;

 

 

announcements by us or our competitors of significant contracts, new products, acquisitions, joint marketing relationships, joint ventures, other strategic relationships or capital commitments;

 

 

changes in general economic or market conditions or trends in our industry or markets;

 

 

changes in business or regulatory conditions;

 

 

additions or departures of key management personnel;

 

 

future sales of our ordinary shares or other securities by us or our existing shareholders, or the perception of such future sales;

 

 

investor perceptions of the investment opportunity associated with our ordinary shares relative to other investment alternatives;

 

 

the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

 

announcements relating to litigation;

 

 

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

 

 

the development and sustainability of an active trading market for our ordinary shares;

 

 

changes in accounting principles; and

 

 

other events or factors, including those resulting from natural disasters, war, acts of terrorism or responses to these events.

These broad market and industry fluctuations may materially adversely affect the market price of our ordinary shares, regardless of our actual operating performance. In addition, price volatility may be greater if the public float and trading volume of our ordinary shares are low.

In the past, following periods of market volatility, shareholders have instituted securities class action litigation. If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of executive management from our business regardless of the outcome of such litigation.

Our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors, which could materially adversely affect the price of our ordinary shares.

Our operating results have fluctuated from quarter to quarter at points in the past, and they may do so in the future. Therefore, results of any one fiscal quarter are not a reliable indication of results to be expected for any

 

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other fiscal quarter or for any year. If we fail to increase our results over prior periods, to achieve our projected results or to meet the expectations of securities analysts or investors, the price of our ordinary shares may decline, and the decrease in the price of our ordinary shares may be disproportionate to the shortfall in our financial performance. Results may be affected by various factors, including those described in these risk factors. We maintain a forecasting process that seeks to align expenses to backlog conversion. If we do not control costs or appropriately adjust costs to actual results, or if actual results differ significantly from our forecast, our financial performance could be materially adversely affected.

We are a holding company with no operations and may not have access to sufficient cash to meet our financial obligations.

We are a holding company and have limited direct operations. Our most significant assets are the equity interests we directly and indirectly hold in our subsidiaries. As a result, we are dependent upon dividends and other payments from our subsidiaries to generate the funds necessary to meet our outstanding debt service and other obligations and such dividends may be restricted by law or the instruments governing our indebtedness, including the Credit Agreement, the 2028 Notes Indenture, the 2025 Notes Indenture or other agreements of our subsidiaries. Our subsidiaries may not generate sufficient cash from operations to enable us to meet our financial obligations. In addition, our subsidiaries are separate and distinct legal entities and may be legally or contractually prohibited or restricted from paying dividends or otherwise making funds available to us. In addition, payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings. Additionally, we may be limited in our ability to cause any future collaborative arrangements under which our subsidiaries distribute their earnings to us. Subject to certain qualifications, our subsidiaries are permitted, under the terms of our indebtedness, to incur additional indebtedness that may restrict payments from those subsidiaries to us. We cannot assure you that agreements governing the current and future indebtedness of our subsidiaries will permit those subsidiaries to provide us with sufficient cash to fund our financial obligations.

We currently do not intend to declare dividends on our ordinary shares in the foreseeable future and, as a result, your only opportunity to achieve a return on your investment is if the price of our ordinary shares appreciates.

We currently do not expect to declare any dividends on our ordinary shares in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, to support our operations and to finance the growth and development of our business. Any determination to declare or pay dividends in the future will be at the discretion of our board of directors, subject to applicable laws and dependent upon a number of factors, including our earnings, capital requirements and overall financial conditions. In addition, because we are a holding company, our ability to pay dividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under the covenants of the Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture, and may be further restricted by the terms of any future debt or preferred securities. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our ordinary shares appreciates and you sell your ordinary shares at a profit. The market price for our ordinary shares may never exceed, and may fall below, the price that you pay for such ordinary shares.

Future sales, or the perception of future sales, by us or our existing shareholders in the public market following this offering could cause the market price for our ordinary shares to decline.

After this offering, the sale of our ordinary shares in the public market, or the perception that such sales could occur, could harm the prevailing market price of our ordinary shares. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

 

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Upon consummation of this offering, we will have a total of 216,584,566 ordinary shares outstanding. All shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act of 1933 (the “Securities Act”), except for any ordinary shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including certain of our directors, executive officers and other affiliates (including the Principal Shareholder), which may be sold only in compliance with the limitations described in “Shares eligible for future sale.”

The 146,584,566 ordinary shares held by the Principal Shareholder and certain of our directors, officers, employees and other shareholders immediately following the consummation of this offering will represent approximately 67.7% of our total outstanding ordinary shares following this offering, based on the number of ordinary shares outstanding as of September 27, 2020 (after giving effect to the Reorganization Transactions). Such ordinary shares will be “restricted securities” within the meaning of Rule 144 and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration such as Rule 144, as described in “Shares eligible for future sale.”

In connection with this offering, we, our directors and executive officers, and holders of substantially all of our ordinary shares prior to this offering have each agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their ordinary shares or securities convertible into or exchangeable for ordinary shares during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of certain representatives of the underwriters. See “Underwriting (Conflicts of interest)” for a description of these lock-up agreements.

Upon the expiration of the contractual lock-up agreements pertaining to this offering, up to an additional 144,443,194 ordinary shares will be eligible for sale in the public market, all of which are held by directors, executive officers and other affiliates and will be subject to volume, manner of sale and other limitations under Rule 144. Following completion of this offering, ordinary shares covered by registration rights would represent approximately 66.7% of our outstanding ordinary shares (or 63.6%, if the underwriters exercise in full their option to purchase additional ordinary shares). Registration of any of these outstanding ordinary shares would result in such ordinary shares becoming freely tradable without compliance with Rule 144 upon effectiveness of the registration statement. See “Shares eligible for future sale.”

As restrictions on resale end or if these shareholders exercise their registration rights, the market price of our ordinary shares could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings of our ordinary shares or other securities.

In addition, our ordinary shares reserved for future issuance under the 2021 Incentive Award Plan will become eligible for sale in the public market once those ordinary shares are issued, subject to provisions relating to various vesting agreements, lock-up agreements and Rule 144, as applicable. A total of 7,967,000 ordinary shares have initially been reserved for future issuance under the 2021 Incentive Award Plan, which amount will increase on the first day of the fiscal year for up to 10 years by an amount equal to 3% of the shares outstanding on the last day of the prior fiscal year or such lesser amount as may be determined by our board of directors.

In the future, we may also issue our securities in connection with investments or acquisitions. The amount of our ordinary shares issued in connection with an investment or acquisition could constitute a material portion of our then-outstanding ordinary shares. Any issuance of additional securities in connection with investments or acquisitions may result in additional dilution to you.

 

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Provisions in our organizational documents could delay or prevent a change of control.

Certain provisions of our articles of association and shareholders agreement may have the effect of delaying or preventing a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a shareholder might consider to be in its best interest, including attempts that might result in a premium over the market price of our ordinary shares.

Subject to the provisions of the U.K. Companies Act 2006, these provisions provide for, among other things:

 

 

the division of our board of directors into three classes, as nearly equal in size as possible, with directors in each class serving three-year terms and with terms of the directors of only one class expiring in any given year;

 

 

the reappointment of any member of our board of directors initially appointed by the Principal Shareholder in the event such director is removed in accordance with our articles of association and pursuant to the UK Companies Act 2006;

 

 

the ability of our board of directors to issue one or more series of preferred shares with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change of control;

 

 

advance notice for nominations of directors by shareholders and for shareholders to include matters to be considered at shareholder meetings;

 

 

the right of the Principal Shareholder and certain of its respective affiliates to appoint the majority of the members of our board of directors for so long as the Principal Shareholder beneficially owns at least 25% of our ordinary shares, and such appointed members will serve as directors without standing for election by our shareholders;

 

 

certain limitations on convening special shareholder meetings; and

 

 

that certain provisions of our articles of association may be amended only with the consent of the Principal Shareholder for so long as the Principal Shareholder beneficially owns at least 5% of our ordinary shares.

These provisions could make it more difficult for a third party to acquire us, even if the third-party’s offer may be considered beneficial by many of our shareholders. As a result, our shareholders may be limited in their ability to obtain a premium for their ordinary shares. See “Description of share capital and articles of association.”

Private equity investment funds affiliated with the Principal Shareholder own substantially all of our equity and their interests may not be aligned with yours.

After giving effect to the Reorganization Transactions, the Principal Shareholder will own substantially all of the fully diluted equity of UK Holdco, and, therefore, has the power to control our affairs and policies. The Principal Shareholder also controls, to a large degree, the election of directors, the appointment of management, the entry into mergers, sales of substantially all of our assets and other extraordinary transactions. The directors so elected have authority to issue additional shares, implement stock repurchase programs, declare interim dividends and recommend final dividends, and make other decisions. The interests of the Principal Shareholder could conflict with your interests. For example, the Principal Shareholder may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in its judgment, could enhance its equity investments. Additionally, the Principal Shareholder is in the business of making investments in companies, and may from time to time acquire interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours.

 

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We will be a “controlled company” within the meaning of Nasdaq rules and the rules of the SEC. As a result, we will qualify for exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

After completion of this offering, the Principal Shareholder will continue to own a majority of our outstanding ordinary shares. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

 

the requirement that a majority of our board of directors consist of “independent directors” as defined under the rules of Nasdaq;

 

 

the requirement that we have a compensation committee that is composed entirely of directors who meet the Nasdaq independence standards for compensation committee members; and

 

 

the requirement that our director nominations be made, or recommended to our full board of directors, by our independent directors or by a nominations committee that consists entirely of independent directors.

Following this offering, we intend to utilize certain of these exemptions. As a result, we may not have a majority of independent directors, our nominations committee and compensation committee will not consist entirely of independent directors and such committees may not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq.

Failure to comply with requirements to design, implement and maintain effective internal controls could have a material adverse effect on our business and the price of our ordinary shares.

As a privately-held company, we were not required to evaluate our internal control over financial reporting in a manner that meets the standards of publicly traded companies required by Section 404(a) of the Sarbanes-Oxley Act of 2002 (“Section 404” and the “Sarbanes-Oxley Act,” respectively). As a public company, we will have significant requirements for enhanced financial reporting and internal controls. Our internal control over financial reporting is currently managed by a third party service provider. The process of designing and implementing effective internal controls that we will manage is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. If we are unable to establish or maintain appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our consolidated financial statements and harm our results of operations. In addition, we will be required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of our internal controls over financial reporting in the second annual report following the completion of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal controls over financial reporting. The rules governing the standards that must be met for our management to assess our internal controls over financial reporting are complex and require significant documentation, testing and possible remediation. Testing internal controls may divert our management’s attention from other matters that are important to our business. Our independent registered public accounting firm may be required to issue an attestation report on effectiveness of our internal controls following the completion of this offering.

In connection with the implementation of the necessary procedures and practices related to internal controls over financial reporting, we may identify deficiencies that we may not be able to remediate in time to meet the

 

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deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the remediation of any deficiencies identified by our independent registered public accounting firm in connection with the issuance of their attestation report.

Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. A material weakness in internal controls could result in our failure to detect a material misstatement of our annual or quarterly consolidated financial statements or disclosures. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in our reported financial information, which could have a material adverse effect on the trading price of our ordinary shares.

Our board of directors will be authorized to issue and designate preferred shares in additional series without shareholder approval.

Our articles of association will authorize our board of directors, without the approval of our shareholders, to issue preferred shares, subject to limitations prescribed by applicable law, rules and regulations and the provisions of our articles of association, as preferred shares in series, to establish from time to time the number of preferred shares to be included in each such series and to fix the designation, powers, preferences and rights of the preferred shares of each such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these additional series of preferred shares may be senior to or on parity with our ordinary shares, which may reduce their value.

Our articles of association include exclusive jurisdiction and forum selection provisions, which may impact the ability of shareholders to bring actions against us or increase the costs of bringing such actions.

Our articles of association provide that the courts of England and Wales shall have exclusive jurisdiction to determine any and all disputes brought by a shareholder in their capacity as a shareholder against us, our officers or our board of directors arising out of or in connection with our articles of association or any non-contractual obligations arising out of or in connection with our articles of association. In addition, our articles of association provide that if a court were to find such provision invalid or unenforceable with respect to any complaint asserting a cause of action arising under the Securities Act, the federal courts of the United States will be the exclusive forum for resolving any such complaint. These limitations on the forum in which shareholders may initiate action against us may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable and could increase the costs and inconvenience of pursing claims or otherwise adversely affect a shareholder’s ability to seek monetary or other relief.

A court could decline to enforce these exclusive jurisdiction and forum provisions. If a court were to find these provisions to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

General risk factors

The insurance we maintain may not fully cover all potential exposures.

Our product liability, property, business interruption, cybersecurity, casualty and other insurance may not cover all risks associated with the operation of our business and may not be sufficient to offset the costs of any losses, lost sales or increased costs experienced during business interruptions. For some risks, we may not obtain insurance if we believe the cost of available insurance is excessive related to the risks presented. As a

 

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result of market conditions, premiums and deductibles for certain insurance policies can increase substantially and, in some instances, certain insurance policies may become unavailable or available only for reduced amounts of coverage. As a result, we may not be able to renew our insurance policies or procure other desirable insurance on commercially reasonable terms, if at all. Losses and liabilities from uninsured or underinsured events and delay in the payment of insurance proceeds could have a material adverse effect on our financial condition and results of operations.

Terrorist acts, conflicts, wars and natural disasters may materially adversely affect our business, financial condition and results of operations.

As a multinational company with a large international footprint, we are subject to increased risk of damage or disruption to us, our employees, facilities, partners, suppliers, distributors, resellers or customers due to terrorist acts, conflicts, wars, adverse weather conditions, natural disasters, power outages, pandemics or other public health crises and environmental incidents, wherever located around the world. The potential for future terrorist attacks and natural disasters, the national and international responses to such attacks and natural disasters or perceived threats to national security and other actual or potential conflicts or wars may create economic and political uncertainties. In addition, as a multinational company with headquarters and significant operations located in the United States, actions against or by the United States could result in a decrease in demand for our products, make it difficult or impossible to deliver products to our customers or to receive components from our suppliers, create delays and inefficiencies in our supply chain and pose risks to our employees, resulting in the need to impose travel restrictions. Any interruption in production capability could require us to make substantial capital expenditures to remedy the situation, which could negatively affect our profitability and financial condition.

We are subject to work stoppages, union negotiations, labor disputes and other matters associated with our labor force, which may adversely impact our operations and cause us to incur incremental costs.

We have more than 4,500 employees located around the world consisting of commercial, supply chain, quality, regulatory and compliance, research and development and general administrative personnel. Approximately 20% of our associates globally participate in a union or works council. Historically we have not experienced work stoppages; however, in the future, we may be subject to potential union campaigns, work stoppages, union negotiations and other potential labor disputes. Additionally, future negotiations with unions or works councils in connection with existing labor agreements may (i) result in significant increases in our cost of labor, (ii) divert management’s attention away from operating our business or (iii) break down and result in the disruption of our operations. The occurrence of any of the preceding outcomes could impair our ability to manufacture our products and result in increased costs and/or decreased operating results. Further, we may be subject to work stoppages at our suppliers or customers that are beyond our control.

If we are required to make unexpected payments to any pension plans applicable to our employees, our financial condition may be adversely affected.

Some of our current and former employees participate or participated in defined benefit pension plans and we assumed certain foreign underfunded and unfunded pension liabilities in relation to these plans. Several of these plans are unfunded and, while we do not believe the liabilities in relation to these plans are significant, they will need to be satisfied as they mature from our cash provided by operating activities. In jurisdictions where the defined benefit pension plans are intended to be funded with assets in a trust or other funding vehicle, we expect that, while not significant, the liabilities will exceed the corresponding assets in each of the plans. Various factors, such as changes in actuarial estimates and assumptions (including in relation to life expectancy, discount rates and rate of return on assets), as well as actual return on assets, can increase the expenses and liabilities of the defined benefit pension plans. The assets and liabilities of the plans must be

 

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valued from time to time under applicable funding rules and as a result we may be required to increase the cash payments we make in relation to these defined benefit pension plans.

We could also be required in some jurisdictions to make accelerated payments up to the full buy-out deficit in our defined benefit pension plans, which would likely be far higher than the normal ongoing funding cost of the plans. Our operations and financial condition may be adversely affected to the extent that we are required to (i) make any additional payments to any relevant defined benefit pension plans in excess of the amounts assumed in our current projections and assumptions or (ii) report higher pension plan expenses under relevant accounting rules.

If we are sued for infringing intellectual property rights of third parties, it will be costly and time-consuming, and an unfavorable outcome in any litigation would harm our business.

We cannot assure you that our activities will not, unintentionally or otherwise, infringe on the patents or other intellectual property rights owned by others. Significant litigation regarding patent rights exists in our industry. Our competitors in both the United States and foreign countries, many of which have substantially greater resources and have made substantial investments in competing technologies, may have applied for or obtained, or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make and sell our products. We may spend significant time and effort and incur significant litigation costs if we are required to defend ourselves against intellectual property rights claims brought against us, regardless of whether the claims have merit. If we are found to have infringed on the patents or other intellectual property rights of others, we may be subject to substantial claims for damages, which could materially impact our cash flow, business, financial condition and results of operations. We may also be required to cease development, use or sale of the relevant products or processes, or we may be required to obtain a license on the disputed rights, which may not be available on commercially reasonable terms, if at all, or may require us to re-design our products or processes.

If securities analysts do not publish research or reports about our business or if they downgrade our ordinary shares or our sector, the price of our ordinary shares and trading volume could decline.

The trading market for our ordinary shares will rely in part on the research and reports that industry or financial analysts publish about us or our business or industry. We do not control these analysts. Furthermore, if one or more of the analysts who do cover us downgrade our ordinary shares or our industry, or the stock of any of our competitors, or publish inaccurate or unfavorable research about our business or industry, the price of our ordinary shares could decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market, which in turn could cause the price of our ordinary shares or trading volume to decline.

We will incur increased costs as a result of operating as a publicly traded company, and our management will be required to devote substantial time to new compliance initiatives.

As a publicly traded company, we will incur additional legal, accounting and other expenses that we did not previously incur. Although we are currently unable to estimate these costs with any degree of certainty, they may be material in amount. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules of the SEC, and the stock exchange on which our ordinary shares are listed, have imposed various requirements on public companies. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives as well as investor relations. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur additional costs to maintain the same or similar coverage.

 

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Special note regarding forward-looking statements

Statements made in this prospectus that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements and should be evaluated as such. Forward-looking statements include information concerning possible or assumed future results of operations, including descriptions of our business plan and strategies. These statements often include words such as “anticipate,” “expect,” “suggest,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “targets,” “projections,” “should,” “could,” “would,” “may,” “might,” “will,” and other similar expressions. These forward-looking statements are contained throughout this prospectus, including the sections entitled “Prospectus summary,” “Risk factors,” “Capitalization,” “Management’s discussion and analysis of financial condition and results of operations” and “Business.”

We base these forward-looking statements or projections on our current expectations, plans and assumptions, which we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances and at this time. As you read and consider this prospectus, you should understand that these statements are not guarantees of performance or results. The forward-looking statements and projections contained herein are subject to and involve risks, uncertainties and assumptions, and therefore you should not place undue reliance on these forward-looking statements or projections. Although we believe that these forward-looking statements and projections are based on reasonable assumptions at the time they are made, you should be aware that many factors could affect our actual financial results, and therefore actual results might differ materially from those expressed in the forward-looking statements and projections. Factors that might materially affect such forward-looking statements and projections include:

 

 

the ongoing global coronavirus (COVID-19) pandemic;

 

 

increased competition;

 

 

failure to develop and market new or enhanced products or services;

 

 

adverse developments in global market, economic and political conditions;

 

 

our ability to obtain additional capital on commercially reasonable terms may be limited or non-existent;

 

 

our inability to realize the anticipated benefits of any acquisitions and divestitures, including as a result of difficulties integrating acquired businesses with, or disposing of divested businesses from, our current operations;

 

 

our ability to implement our strategies for improving growth;

 

 

a need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets;

 

 

our inability to achieve some or all of the operational cost improvements and other benefits that we expect to realize;

 

 

our ability to operate according to our business strategy should our collaboration partners fail to fulfill their obligations;

 

 

risk that the insurance we will maintain may not fully cover all potential exposures;

 

 

product recalls or negative publicity may harm our reputation or market acceptance of our products;

 

 

decreases in the number of surgical procedures performed, and the resulting decrease in blood demand;

 

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fluctuations in our cash flows as a result of our reagent rental model;

 

 

terrorist acts, conflicts, wars and natural disasters that may materially adversely affect our business, financial condition and results of operations;

 

 

the outcome of legal proceedings instituted against us and/or others;

 

 

risks associated with our non-U.S. operations that are not present in the United States;

 

 

currency translation risk and currency transaction risk;

 

 

the impact of possible new tariffs;

 

 

the effect of the United Kingdom’s withdrawal from the European Union;

 

 

our inability to deliver products and services that meet customers’ needs and expectations;

 

 

failure to maintain a high level of confidence in our products;

 

 

significant changes in the healthcare industry and related industries that we serve, in an effort to reduce costs;

 

 

reductions in government funding and reimbursement to our customers;

 

 

price increases or interruptions in the supply of raw materials, components for our products, and products and services provided to us by certain key suppliers and manufacturers;

 

 

our ability to recruit and retain the experienced and skilled personnel we need to compete;

 

 

work stoppages, union negotiations, labor disputes and other matters associated with our labor force;

 

 

consolidation of our customer base and the formation of group purchasing organizations;

 

 

manufacturing problems or delays;

 

 

unexpected payments to any pension plans applicable to our employees;

 

 

our inability to obtain required clearances or approvals for our products;

 

 

results of clinical studies, which may be delayed or fail to demonstrate the safety and effectiveness of our products;

 

 

failure to comply with applicable regulations, which may result in significant costs or the suspension or withdrawal of previously obtained clearances or approvals;

 

 

the inability of government agencies to hire, retain or deploy personnel or otherwise prevent new or modified products from being developed, cleared or approved or commercialized in a timely manner;

 

 

disruptions resulting from President Trump’s invocation of the Defense Production Act;

 

 

costs to comply with environmental and health and safety requirements, or costs related to liability for contamination or other potential environmental harm;

 

 

healthcare fraud and abuse regulations that could result in liability, require us to change our business practices and restrict our operations in the future;

 

 

failure to comply with the anti-corruption laws of the United States and various international jurisdictions;

 

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failure to comply with anti-terrorism laws and regulations and applicable trade embargoes;

 

 

failure to comply with the requirements of federal and state laws pertaining to the privacy and security of health information;

 

 

our inability to maintain our data management and information technology systems;

 

 

data corruption, cyber-based attacks, security breaches and privacy violations;

 

 

our inability to protect and enforce our intellectual property rights;

 

 

intellectual property infringement suits against us by third parties;

 

 

risks related to changes in income tax laws and regulations;

 

 

risks related to our substantial indebtedness;

 

 

risks related to this offering and ownership of our ordinary shares;

 

 

other factors disclosed in this prospectus; and

 

 

other factors beyond our control.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Other sections of this prospectus may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Before investing in our ordinary shares, investors should be aware that the occurrence of the events described under the caption “Risk factors” and elsewhere in this prospectus could have a material adverse effect on our business, results of operations and future financial performance.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

 

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Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $1,424.7 million, based on the assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus. If the underwriters’ over-allotment option to purchase additional ordinary shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $1,640.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use the net proceeds from this offering (i) to redeem $160.0 million in aggregate principal amount of 2025 Notes, plus accrued and unpaid interest thereon and $11.6 million of redemption premium, (ii) to redeem $270.0 million in aggregate principal amount of 2028 Notes, plus accrued and unpaid interest thereon and $19.9 million of redemption premium, (iii) to repay $854.0 million in aggregate principal amount of borrowings under our Dollar Term Loan Facility and (iv) for working capital and general corporate purposes, which may include further repayment of indebtedness under the Credit Agreement. As of September 27, 2020, $400.0 million in aggregate principal amount of the 2025 Notes, $675.0 million in aggregate principal amount of the 2028 Notes and $2,200.0 million in aggregate principal amount under the Dollar Term Loan Facility was outstanding. The 2025 Notes were issued on June 11, 2020 and the net proceeds of such issuance were used (i) to redeem all of the $300.0 million in aggregate principal amount of 6.625% Senior Notes due 2022 (the “2022 Notes”) issued by the Lux Co-Issuer and U.S. Co-Issuer, (ii) to pay related fees and expenses and (iii) for general corporate purposes. The 2025 Notes mature on June 1, 2025 and bear interest at a rate of 7.375% per annum. The 2028 Notes mature on February 1, 2028 and bear interest at a rate of 7.250% per annum. Our Dollar Term Loan Facility matures on June 30, 2025 and, for the fiscal nine months ended September 27, 2020, borrowings thereunder bore interest at a variable rate that averaged 4.02% for the period. For further description of our indebtedness, see “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Debt capitalization.” Affiliates of Carlyle currently hold approximately $93.1 million of indebtedness under the Dollar Term Loan Facility and, as a result, may receive a portion of the proceeds from this offering. In addition, certain of the underwriters and/or certain of their affiliates may hold a position in the 2025 Notes, the 2028 Notes or the Dollar Term Loan Facility and, as a result, may receive a portion of the net proceeds from this offering.

A $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $66.9 million, assuming the number of ordinary shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the assumed underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 100,000 ordinary shares from the expected number of ordinary shares to be sold by us in this offering, assuming no change in the assumed initial public offering price per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) our net proceeds from this offering by $2.1 million. Such increase (decrease) in net proceeds will correspondingly increase (decrease) the amount of borrowings under our Dollar Term Loan Facility we intend to repay and/or the amount used for working capital and general corporate purposes, which may include an increase (decrease) in the repayment of other indebtedness under the Credit Agreement.

 

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Dividend policy

We currently do not expect to declare any dividends on our ordinary shares in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used to provide working capital, support our operations, finance the growth and development of our business and reduce our net debt. Any determination to declare dividends in the future will be at the discretion of our board of directors, subject to applicable laws, and will be dependent on a number of factors, including our earnings, capital requirements and overall financial condition. Upon completion of the offering, we will be controlled by the Principal Shareholder, who will have the ability to appoint a majority of the members of our board of directors and therefore control the payment of dividends. See “Risk factors—Risks related to this offering and ownership of our ordinary shares—Private equity investment funds affiliated with the Principal Shareholder own substantially all of our equity and their interests may not be aligned with yours.” In addition, because we are a holding company, our ability to pay dividends on our ordinary shares may be limited by restrictions on our ability to obtain sufficient funds through dividends from subsidiaries, including restrictions under the covenants of the Credit Agreement, the 2025 Notes Indenture and the 2028 Notes Indenture, and may be further restricted by the terms of any future debt or preferred securities. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Debt capitalization” for more information about our Senior Secured Credit Facilities and our Senior Notes.

 

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Capitalization

The following table sets forth the cash and restricted cash and total capitalization as of September 27, 2020:

 

 

of Ortho-Clinical Diagnostics Bermuda Co. Ltd. on an actual basis;

 

 

of Ortho Clinical Diagnostics Holdings plc on an as adjusted basis, giving effect to the Reorganization Transactions, this offering and the use of proceeds therefrom as set forth under the heading “Use of proceeds.”

You should read this table together with “Use of proceeds,” “Selected consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations” and our unaudited consolidated financial statements and the related notes included elsewhere in this prospectus.

 

   
     As of September 27, 2020  
($ in millions)    Ortho-Clinical
Diagnostics
Bermuda Co.  Ltd.
actual
    Ortho Clinical
Diagnostics
Holdings plc
as adjusted(1)
 

Cash and cash equivalents

   $ 68.6     $ 170.8  

Debt:

    

Senior Secured Credit Facilities, consisting of the following(2):

    

Dollar Term Loan Facility

   $ 2,200.0     $ 1,346.0  

Euro Term Loan Facility(3)

     390.4       390.4  

Revolving Credit Facility(4)

            

Finance Leases and Other

     7.3       7.3  

Accounts Receivable Financing

     75.0       75.0  

Sale & Leaseback Financing and Other

     20.5       20.5  

2028 Notes

     675.0       405.0  

2025 Notes

     400.0       240.0  
  

 

 

 

Total debt

   $ 3,768.2     $ 2,484.2  
  

 

 

 

Pre-IPO Ortho-Clinical Diagnostics Bermuda Co. Ltd. stockholders’ deficit:

    

Common stock, $0.00001 par value per common share, 1,000,000,000 shares authorized, 146,584,566 shares issued and outstanding, actual

        

Additional paid-in capital

     971.1    

Accumulated deficit

     (1,876.6  

Accumulated other comprehensive loss

     (121.5  
  

 

 

   

Total pre-IPO shareholders’ deficit

   $ (1,027.0  
  

 

 

   

Post-IPO Ortho Clinical Diagnostics Holdings plc shareholders’ deficit:

    

Ordinary shares, $0.00001 par value per ordinary share, 1,000,000,000 shares authorized, as adjusted, 216,584,566 shares issued and outstanding, as adjusted

        

Preferred redeemable shares, £1.00 par value per preferred redeemable share, 50,000 shares authorized, as adjusted, 50,000 shares issued and outstanding, as adjusted

        

Additional paid-in capital

       2,395.8  

Accumulated deficit

       (1,927.6

Accumulated other comprehensive loss

       (121.5
    

 

 

 

Total post-IPO shareholders’ equity

     $ 346.7  
  

 

 

 

Total capitalization

   $ 2,741.2     $ 2,830.9  

 

 

 

(1)  

A $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $66.9 million, assuming the

 

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number of ordinary shares offered by us, as set forth on the front cover of this prospectus, remains the same and after deducting the assumed underwriting discounts and commissions and estimated offering expenses payable by us. An increase (decrease) of 100,000 ordinary shares from the expected number of ordinary shares to be sold by us in this offering, assuming no change in the assumed initial public offering price per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) our net proceeds from this offering by $2.1 million. Such increase (decrease) in net proceeds will correspondingly increase (decrease) the amount of borrowings under our Dollar Term Loan Facility we intend to repay and/or the amount used for working capital and general corporate purposes, which may include an increase (decrease) in the repayment of other indebtedness under the Credit Agreement.

 

(2)   The Senior Secured Credit Facilities consist of (a) the $350 million Revolving Credit Facility maturing on June 30, 2023, (b) the $2,375.0 million Dollar Term Loan Facility maturing on June 30, 2025 and (c) the 337.4 million Euro Term Loan Facility maturing on June 30, 2025. Although there can be no assurances we will be able to do so, substantially contemporaneously with this offering, we expect to increase commitments under our Revolving Credit Facility to $500.0 million and extend the maturity thereof until at least 2025.

 

(3)   Represents the aggregate dollar equivalent of our Euro Term Loan Facility as of September 27, 2020.

 

(4)   As of September 27, 2020, we would have had $314.4 million of capacity under the Revolving Credit Facility, net of $35.6 million of outstanding letters of credit.

The number of our ordinary shares to be outstanding immediately after this offering is based on              ordinary shares outstanding as of September 27, 2020 and excludes:

 

 

16,174,834 ordinary shares issuable upon the exercise of options outstanding as of September 27, 2020 with a weighted average exercise price of $9.50 per ordinary share; and

 

 

7,967,000 ordinary shares initially available for future issuance under our 2021 Incentive Award Plan, which we intend to adopt in connection with this offering.

Additionally, the information presented above assumes:

 

 

an initial public offering price of $21.50 per share, which is the midpoint of the range set forth on the cover page of this prospectus;

 

 

the adoption of our articles of association immediately prior to the closing of this offering; and

 

 

the completion of the 1.5934-for-1 stock split.

 

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Dilution

If you invest in our ordinary shares in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per ordinary share and the net tangible book value per ordinary share of our ordinary shares as adjusted to give effect to this offering. Dilution results from the fact that the per ordinary share offering price of the ordinary shares is substantially in excess of the book value per ordinary share attributable to the ordinary shares held by existing shareholders.

Our net tangible book deficit as of September 27, 2020 was approximately $(2,616.8) million or $(17.85) per ordinary share. We calculate net tangible book value per ordinary share by taking the amount of our total tangible assets, reduced by the amount of our total liabilities, and then dividing that amount by the total number of ordinary shares outstanding.

After giving effect to our sale of the ordinary shares in this offering at an assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us and after giving effect to the application of the net proceeds from this offering as described under “Use of Proceeds,” our as adjusted net tangible book deficit as of September 27, 2020, after giving effect to this offering, would have been $(1,243.1) million, or $(5.74) per ordinary share. This amount represents an immediate increase in net tangible book value of $12.11 per ordinary share to existing shareholders and an immediate dilution in net tangible book deficit of $27.24 per ordinary share to new investors purchasing ordinary shares in this offering at the initial public offering price.

The following table illustrates this dilution on a per ordinary share basis:

 

     

Initial public offering price per ordinary share

     $ 21.50  

Historical net tangible book deficit per ordinary share as of September 27, 2020

   $ (17.85  

Increase in net tangible book value per ordinary share attributable to new investors purchasing ordinary shares in this offering

     12.11    
  

 

 

 

Net tangible book deficit per ordinary share as adjusted to give effect to this offering

       (5.74
  

 

 

 

Dilution per ordinary share to new investors in this offering

     $ 27.24  

 

 

Dilution is determined by subtracting as adjusted net tangible book value per ordinary share after giving effect to this offering, from the initial public offering price per ordinary share.

The following table summarizes, as of September 27, 2020, the differences between the number of ordinary shares purchased from us, the total consideration paid to us, and the average price per ordinary share paid by existing shareholders and by new investors. As the table shows, new investors purchasing ordinary shares in this offering will pay an average price per ordinary share substantially higher than our existing shareholders paid. The table below is based on 216,584,566 ordinary shares outstanding immediately after the consummation of this offering and does not give effect to ordinary shares issuable upon exercise of outstanding options to purchase our ordinary shares outstanding as of September 27, 2020 or the ordinary shares reserved for future issuance under the 2021 Incentive Award Plan. A total of 16,174,834 ordinary shares have been issued under our existing 2014 Equity Incentive Plan. A total of 7,967,000 ordinary shares have been reserved for future issuance under the 2021 Incentive Award Plan. The table below is based on an assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover

 

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of this prospectus, for ordinary shares purchased in this offering and excludes underwriting discounts and commissions and estimated offering expenses payable by us:

 

       
     Ordinary shares
purchased
     Total
consideration
     Average  
      Number      Percent      Amount      Percent      Price per
ordinary
share
 
            (thousands)         

Existing shareholders

     146,584,566        67.7%      $ 920,738        38.0%      $ 6.28  

New investors

     70,000,000        32.3%        1,505,000        62.0%        21.50  
  

 

 

    

 

 

    

 

 

    

 

 

    

Total

     216,584,566        100.0%      $ 2,425,738        100.0%     

 

 

If the underwriters were to fully exercise the underwriters’ option to purchase 10,500,000 additional ordinary shares, the percentage of ordinary shares held by existing shareholders would be 64.6% and the percentage of ordinary shares held by new investors would be 35.4%.

Assuming the number of ordinary shares offered by us, as set forth on the front cover of this prospectus, remains the same, excluding assumed underwriting discounts and estimated commissions and offering expenses payable by us, a $1.00 increase (decrease) in the assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) total consideration paid by new investors and total consideration paid by all shareholders by approximately $70.0 million.

 

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Selected consolidated financial data

The following tables set forth the selected consolidated financial data of Bermuda Holdco for the periods and dates indicated. The selected historical consolidated financial data as of and for each of the fiscal years ended December 29, 2019, December 30, 2018, December 31, 2017, January 1, 2017 and January 3, 2016 have been prepared in accordance with GAAP. The balance sheet data as of September 27, 2020 and the statement of operations and cash flow data as of September 27, 2020 and September 29, 2019 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of September 29, 2019 have been derived from our unaudited consolidated financial statements not included in this prospectus. The balance sheet data as of December 29, 2019 and December 30, 2018 and the statement of operations and cash flow for the years ended December 31, 2017, December 30, 2018 and December 29, 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The balance sheet data as of December 31, 2017, January 1, 2017 and January 3, 2016 and the statement of operations and cash flow data for the years ended January 1, 2017 and January 3, 2016 have been derived from our audited consolidated financial statements not included in this prospectus. In the opinion of management, the unaudited financial statements include all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of such financial data.

Our historical financial data is not necessarily indicative of our future performance. The selected consolidated financial data set forth below should be read in conjunction with “Risk factors,” “Capitalization,” “Dilution,” “Management’s discussion and analysis of financial condition and results of operations” and our unaudited consolidated financial statements and audited consolidated financial statements included elsewhere in this prospectus.

 

       
    Fiscal nine months ended         Fiscal year ended  
($ in millions, except
per share data)
  September 27,
2020
    September 29,
2019
        December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                    

Statement of operations data:

               

Net revenue

  $ 1,249.6     $ 1,327.8       $ 1,801.5     $ 1,787.3     $ 1,781.7     $ 1,695.6     $ 1,543.4  

Cost of revenue, excluding amortization of intangible assets

    650.2       684.0         922.4       930.5       897.7       906.3       842.2  
 

 

 

     

 

 

 

Gross profit

    599.4       643.8         879.1       856.8       884.0       789.3       701.2  
 

 

 

     

 

 

 

Operating expenses:

               

Selling, marketing and administrative expenses

    347.9       379.5         515.1       491.6       499.8       531.5       484.7  

Research and development expense

    82.1       73.7         98.0       98.7       96.4       99.9       107.1  

Amortization of intangible assets

    98.7       98.7         131.7       128.8       162.0       159.6       154.5  

Intangible asset impairment charge

                              11.0              

Gain on bargain purchase of Day 2 Countries

                                    1.0       (32.5

Other operating expense, net

    22.8       36.7         48.8       71.2       79.5       53.3       33.7  
 

 

 

     

 

 

 

Total operating expenses

    551.5       588.6         793.6       790.3       848.7       845.3       747.5  
 

 

 

     

 

 

 

 

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    Fiscal nine months ended         Fiscal year ended  
($ in millions, except
per share data)
  September 27,
2020
    September 29,
2019
        December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                    

Income (loss) from operations

    47.9       55.2         85.5       66.5       35.3       (56.0     (46.3

Other expense (income):

               

Interest expense, net

    148.6       177.7         231.4       235.6       239.8       216.9       210.8  

Tax indemnification expense (income)

    11.6       31.4         29.2       (13.1     (124.1     5.5       (1.3

Other expense (income), net

    61.1       34.5         5.7       61.6       (66.1     109.3       61.1  
 

 

 

     

 

 

 

Total other expense

    221.3       243.6         266.3       284.1       49.6       331.7       270.6  
 

 

 

     

 

 

 

Loss before (benefit from) provision for income taxes

    (173.4     (188.4       (180.8     (217.6     (14.3     (387.7     (316.9

(Benefit from) provision for income taxes

    (2.4     (29.9       (23.9     31.2       102.0       3.0       13.7  
 

 

 

     

 

 

 

Net loss

  $ (171.0   $ (158.5     $ (156.9   $ (248.8   $ (116.3   $ (390.7   $ (330.6
 

 

 

     

 

 

 

Per share data:

               

Basic and diluted net loss per share attributable to common stockholders

  $ (1.17   $ (1.09     $ (1.08   $ (1.72   $ (0.80   $ (2.71   $ (2.29

Basic and diluted weighted-average common shares outstanding

    146.4       145.6         145.5       145.1       144.8       144.4       144.2  

 

 

 

       
    Fiscal nine months ended         Fiscal year ended  
($ in millions)   September 27,
2020
    September 29,
2019
        December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
    (Unaudited)                                    

Cash flow data:

               

Net cash (used in) provided by:

               

Operating activities

  $ (48.6   $ 97.0       $ 143.0     $ 69.6     $ 68.0     $ (59.9   $ (46.5

Investing activities

    (27.5     (47.5       (68.5     (87.1     (118.0     (187.4     (31.4

Financing activities

    71.3       (51.9       (64.4     (8.2     84.9       159.0       0.9  

 

 

 

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    As of  
   

September 27,
2020

   

September 29,
2019

        December 29,
2019
    December 30,
2018
    December 31,
2017
    January 1,
2017
    January 3,
2016
 
($ in millions)   (Unaudited)                                    

Consolidated balance sheet data:

               

Cash, cash equivalents and marketable securities

  $ 68.6     $ 54.2       $ 72.0     $ 56.4     $ 93.3     $ 60.8     $ 152.7  

Total assets

    3,334.6       3,558.4         3,589.2       3,687.4       3,936.8       3,865.7       4,230.8  

Total liabilities

    4,361.6       4,383.6         4,402.0       4,342.1       4,353.5       4,195.4       4,169.3  

Accumulated deficit

    (1,876.6     (1,707.2       (1,705.6     (1,548.9     (1,312.0     (1,195.7     (805.0

Total stockholders’ (deficit) equity

    (1,027.0     (825.2       (812.8     (654.7     (416.7     (329.7     61.5  

 

 

 

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Management’s discussion and analysis

of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with the “Selected consolidated financial data” section of this prospectus, our consolidated financial statements and the related notes thereto and our consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. You should read the “Risk factors” and “Special note regarding forward-looking statements” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a pure-play in IVD business driven by our credo, “Because Every Test is A Life.” This guiding principle reflects the crucial role diagnostics play in global health and guides our priorities as an organization. As a leader in IVD, we impact approximately 800,000 patients every day. We are dedicated to improving outcomes for these patients and saving lives through providing innovative and reliable diagnostic testing solutions to the clinical laboratory and transfusion medicine communities. Our global infrastructure and commercial reach allow us to serve these markets with significant scale. We have an intense focus on the customer. We support our customers with high quality diagnostic instrumentation, a broad test portfolio and market leading service. Our products deliver consistently fast, accurate and reliable results that allow clinicians to make better-informed treatment decisions. Our business model generates significant recurring revenues and strong cash flow streams from ongoing sales of high margin consumables. These consumables contribute more than 90% of our total revenue. We maintain close connectivity with our customers through our global presence, with more than 4,500 employees, including approximately 2,200 commercial sales, service and marketing teammates. This global organization allows us to support our customers across more than 130 countries and territories.

Key components of results of operations

Net revenue

We operate on a “razor/razor blade” model whereby we offer our customers a selection of automated instruments under long-term contracts along with the assays, reagents and other consumables that are used by these instruments to generate test results. This business model allows us to generate predictable recurring revenue and strong cash flow streams from ongoing sales of high-margin assays, reagents and other consumables and services, sales of which represented greater than 90% of our core revenue during the fiscal year ended December 29, 2019. We also employ a “closed system” strategy with our instruments, which allows only our assays, reagents and other consumables to be used by our instruments and further strengthens the predictability of our revenue. Finally, our typical customer contract length is approximately five years and we have benefitted from a good customer retention rate in recent years.

We manage our business geographically to better align with the market dynamics of the specific geographic region with our reportable segments being North America, EMEA and Greater China. We generate revenue primarily in the following lines of business:

Core:

 

 

Clinical Laboratories—Focused on clinical chemistry and immunoassay instruments and tests to detect and monitor disease progression across a broad spectrum of therapeutic areas, including grant revenue related to development of our COVID-19 antibody and antigen tests.

 

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Transfusion Medicine—Focused on (i) immunohematology instruments and tests used for blood typing to ensure patient-donor compatibility in blood transfusions and (ii) donor screening instruments and tests used for blood and plasma screening for infectious diseases for customers primarily in the United States.

Non-core:

 

 

Other Product Revenue—Our other product revenue includes revenues primarily from contract manufacturing.

 

 

Collaboration and Other Revenue—We have entered into collaboration and license agreements pursuant to which we derive collaboration and royalty revenues.

All non-core revenue is recorded in the North America segment for all periods presented.

Cost of revenue, excluding amortization of intangible assets and gross profit

The primary components of our cost of revenue are purchased materials, the overhead costs related to our manufacturing operations and direct labor associated with the manufacture of our instruments, assays, reagents and other consumables and depreciation of customer leased instruments.

Selling, marketing and administrative expenses

The primary components of our selling, marketing and administrative expenses are employee-related costs in our sales, marketing and administrative and support functions, marketing costs, distribution costs and an allocation of facility and information technology costs and other overhead costs. Employee-related costs include compensation and benefits, including stock-based compensation expense and commissions, employee recruiting and relocation expenses, employee training costs, travel and entertainment costs.

Research and development expense

The primary components of our research and development expense are costs related to clinical trials and regulatory-related spending, as well as employee-related costs in these functions, and an allocation of facility and information technology costs and other overhead costs.

Amortization of intangible assets

Amortization of intangible assets consists solely of the amortization of intangible assets related to the Acquisition.

Other operating expense, net

The primary components of other operating expense, net, are profit share expense related to our Joint Business and restructuring charges.

Interest expense, net

The primary components of interest expense, net are interest charges and amortization of deferred financing charges related to our borrowings.

Tax indemnification expense (income), net

The primary components of tax indemnification expense (income), net are gains and losses related to certain federal, state and foreign tax matters that relate to the period prior to the Acquisition and for which we have

 

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indemnification agreements. We are subject to income tax in approximately 34 jurisdictions outside the United States. Our most significant operations outside the United States are located in China, France, Japan and the United Kingdom. For these jurisdictions for which we have significant operations, the statute of limitations varies by jurisdiction, with 2010 being the oldest tax year still open. We are currently under audit in certain jurisdictions for tax years under the responsibility of Johnson & Johnson. Pursuant to the Acquisition Agreement, all tax liabilities related to these tax years will be indemnified by Johnson & Johnson.

Other expense (income), net

The primary components of other expense (income), net are foreign currency related gains and losses, including unrealized gains and losses on intercompany loans denominated in currencies other than the functional currency of the affected subsidiaries, and losses related to early extinguishment of certain borrowings.

Day 1 / Day 2 presentation

The Acquisition Agreement whereby the Principal Shareholder acquired the Ortho business from Johnson & Johnson provided for an initial closing with respect to certain assets, liabilities and equity interests of certain target entities located in certain jurisdictions (the “Day 1 Countries) that were acquired from Johnson & Johnson on June 30, 2014 (the “Day 1 Closing Date”) and, subject to receipt of appropriate regulatory approvals and certain other conditions discussed below, closings on the remaining assets, liabilities and equity interests of certain target entities located in certain jurisdictions (the “Day 2 Countries”). On various dates from 2015 through July 3, 2017, we completed the acquisition of all Day 2 Countries. The results of operations for these Day 2 Countries are included in the consolidated financial statements from the respective acquisition dates (each such date, a “Day 2 Closing Date”).

The consideration for the purchase of all of the Day 1 Countries and the Day 2 Countries was paid on the Day 1 Closing Date. As a result of the Acquisition and the accounting for the Acquisition, our assets and liabilities were adjusted to their estimated fair values as of the Day 1 Closing Date, with respect to the assets and liabilities of the Day 1 Countries, and as of the applicable Day 2 Closing Date, with respect to the Day 2 Countries. The fair value adjustments resulted in a decrease in service revenue resulting from the decrease in deferred service revenue and an increase in our operating expenses, cost of revenue and amortization expense related to the increase in value of our fixed assets, inventory and identifiable intangible assets. Additionally, the excess of the total purchase consideration with respect to the Day 1 Countries and the Day 2 Countries over the estimated fair value of our assets and liabilities as of the Day 1 Closing Date, with respect to the assets and liabilities of the Day 1 Countries, and as of the applicable Day 2 Closing Date, with respect to the Day 2 Countries, was recorded as goodwill.

Following the Day 1 Closing Date, the operating results of each Day 2 Country were not included within our results of operations until the applicable Day 2 Closing Date for each Day 2 Country. Accordingly, we agreed to implement an arrangement with Johnson & Johnson on the Day 1 Closing Date whereby we received from Johnson & Johnson EBITDA less local income taxes, if such amount was positive, or we paid to Johnson & Johnson EBITDA less local income taxes, if such amount was negative, for each Day 2 Country between the Day 1 Closing Date until the applicable Day 2 Closing Date (such payment, a “Day 2 Country Payment”). For additional information regarding Day 2 Country Payments for the fiscal year ended December 31, 2017 see footnote (7) under “Prospectus summary—Summary consolidated financial data.” There were no Day 2 Country Payments during the fiscal years ended December 29, 2019 and December 30, 2018.

The initial allocation of consideration transferred included an amount which was reflected as prepaid consideration on the audited consolidated balance sheet related to the value of the Day 2 Countries that did not

 

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close on the Day 1 Closing Date. The Day 2 Country Payments were accounted for financial reporting purposes as a decrease in the prepaid consideration asset. At the time of the closing of each Day 2 Country, any remaining prepaid consideration asset was included in the calculation of consideration paid in the application of acquisition accounting for the Day 2 Countries. The change in consideration resulting from the Day 2 Country Payments resulted in a change to goodwill at the time of any or all Day 2 Closing Dates. See note 4 to our audited consolidated financial statements included elsewhere in this prospectus for further details related to the accounting for these Day 2 Country acquisitions.

Impact of the initial public offering

Impact of debt extinguishment

Assuming net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, of approximately $1,424.7 million based on an assumed initial public offering price of $21.50 per ordinary share, which is the midpoint of the price range set forth on the front cover of this prospectus, we plan to repay approximately $1,284.0 million of our outstanding indebtedness. See “Use of proceeds.”

Incremental public company expenses

Following our initial public offering, we will incur significant expenses on an ongoing basis that we did not incur as a private company, including increased director and officer liability insurance expense, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal and investor and public relations expenses. These costs will generally be included in selling, marketing and administrative expenses.

Stock-based compensation expense

In connection with this offering, we expect to incur a one-time stock-based compensation expense related to liquidity/realization event-based options held by certain members of management.

In connection with this offering, we expect to implement a new long-term equity incentive plan during 2021 to align our equity compensation program with public company plans and practices.

Impact of COVID-19 pandemic

During the fiscal first quarter ended March 29, 2020, as the global COVID-19 pandemic began to affect certain countries, we began to see a decrease in the number of tests run in China in February, which spread to certain countries in Europe, the Middle East and Africa (“EMEA”) and Asia Pacific (“ASPAC”) in early March and resulted in a worldwide decrease in the number of tests run globally by the end of March. In many countries, we experienced a lag between the timing of the decrease in number of tests run and the decrease in shipments of additional products to our customers. The decrease in shipments to our customers began to occur during the fiscal second quarter ended June 28, 2020 in many countries, including the United States, and as a result we have experienced decreased revenues, incurred idle or underutilized facilities costs, higher freight and higher distribution costs compared to the prior year for the fiscal nine months ended September 27, 2020. During the fiscal third quarter ended September 27, 2020, we did experience some recovery in the base business of our core revenue, further supplemented with sales of our COVID-19 antibody tests, mainly in the North America region. We believe that the decrease in the number of tests run by medical institutions is a result of government-imposed lockdown or stay at home orders and delays in elective medical procedures and we expect this will continue to negatively impact our revenues and Adjusted EBITDA during the remainder of fiscal year 2020. We believe that once these government measures are lifted or relaxed, demand will begin to slowly return.

 

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In response to the global COVID-19 pandemic, we mobilized our research and development teams in order to bring to market COVID-19 antibody and antigen tests. We have received a combination of Emergency Use Authorization (“EUA”) from the FDA, authority to affix a CE Mark for sale in the European Union and various other regulatory approvals globally for our COVID-19 antibody and antigen tests. We continue to work on gaining further regulatory approvals to sell the tests in other markets worldwide. Our COVID-19 antibody tests detect whether a patient has been previously infected by COVID-19 and our COVID-19 antigen test detects whether a patient is currently infected by COVID-19. All three of our COVID-19 antibody and antigen tests run on our existing instruments.

We are continually monitoring our business continuity plans due to the global COVID-19 pandemic. Due to the fact that our products and services are considered to be medically critical, our manufacturing and research and development sites are generally exempt from governmental orders in the United States and other countries requiring businesses to cease operations. For these sites, we have taken steps to protect our employees, and the majority of our office-based work is being conducted remotely. We have also implemented strict travel restrictions, which has reduced our travel-related operating expenses.

As the global COVID-19 pandemic is an ongoing matter, our future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to our consolidated financial statements in future reporting periods.

Results of operations

The following discussion should be read in conjunction with the information contained in the accompanying consolidated financial statements included elsewhere in this prospectus. Our historical results of operations may not necessarily reflect what will occur in the future.

Fiscal nine months ended September 27, 2020 compared with fiscal nine months ended September 29, 2019

Overview of results

During the fiscal nine months ended September 27, 2020, reported net loss of $171.0 million increased by $12.5 million compared with the fiscal nine months ended September 29, 2019. Our results were materially impacted by the global COVID-19 pandemic, as net revenue for fiscal nine months ended September 27, 2020 decreased by $78.2 million compared with the fiscal nine months ended September 29, 2019. This decrease included operational net revenue declines of 4.6% and a negative impact of 1.3% from foreign currency fluctuations. We also incurred higher idle or underutilized facilities costs, higher freight costs and higher distribution costs, which were partially offset by cost containment measures to incur lower employee-related costs and lower travel-related costs. Our results were also affected by a research and development upfront payment of $7.5 million, higher foreign currency losses, primarily unrealized, and losses on early extinguishment of our 2022 Notes, partially offset by lower interest expense.

Net revenue

Net revenue for the fiscal nine months ended September 27, 2020 decreased by $78.2 million, or 5.9%, compared with the fiscal nine months ended September 29, 2019. Revenues for the fiscal nine months ended September 27, 2020 included operational net revenue declines of 4.6% and a negative impact of 1.3% from foreign currency fluctuations, which was primarily driven by the strengthening of the U.S. Dollar against a variety of currencies. The decrease in revenues for the fiscal nine months ended September 27, 2020, excluding the impact of foreign currency exchange, was mainly driven by lower revenues in our Clinical Laboratories

 

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business in the EMEA, Greater China, Japan, Latin America (“LATAM”) and ASPAC regions, lower revenues in our Transfusion Medicine business in all regions due primarily to decreased shipments to customers as a result of the global COVID-19 pandemic, and lower Other Product revenues due to the reduction and timing of certain performance obligations in a contract manufacturing arrangement. These decreases in revenues were partially offset by increases in our Clinical Laboratories business in the North America region related to sales of our COVID-19 antibody tests, instrument sales and grant revenue related to development of our COVID-19 antibody and antigen tests.

The following table shows total net revenue by line of business:

 

   
     Fiscal nine months ended  

($ in millions)

  

September 27, 2020

    

September 29, 2019

    

% Change

 

Clinical Laboratories

     819.2        845.5        (3.1)%  

Transfusion Medicine

     414.5        439.6        (5.7)%  
  

 

 

 

Core Revenue

     1,233.7        1,285.1        (4.0)%  

Other Product Revenue

     3.7        26.6        (86.1)%  

Collaboration and Other Revenue

     12.2        16.1        (24.2)%  
  

 

 

 

Non-Core Revenue

     15.9        42.7        (62.8)%  
  

 

 

 

Net Revenue

     1,249.6        1,327.8        (5.9)%  

 

 

Core revenue

Clinical Laboratories revenue for the fiscal nine months ended September 27, 2020 decreased by $26.3 million, or 3.1%, compared with the fiscal nine months ended September 29, 2019. This decrease included operational net revenue declines of 1.4% and a negative impact of 1.7% from foreign currency fluctuations. Clinical Laboratories revenue decreased in the EMEA, Greater China, Japan, LATAM and ASPAC regions due to decreased shipments to customers primarily as a result of the global COVID-19 pandemic as well as a decline in revenues of $15.8 million in our HCV business to $20.4 million, primarily related to a supply agreement in Japan, as compared to $36.2 million of HCV revenues for the fiscal nine months ended September 29, 2019. These decreases were partially offset by increases in North America related to reagent sales of our COVID-19 antibody tests, instrument sales and grant revenue related to development of our COVID-19 antibody and antigen tests.

Transfusion Medicine revenue for the fiscal nine months ended September 27, 2020 decreased by $25.1 million, or 5.7%, compared with the fiscal nine months ended September 29, 2019. This decrease included operational net revenue declines of 5.0% and a negative impact of 0.7% from foreign currency fluctuations. The decrease in Transfusion Medicine revenue was primarily driven by decreased shipments to customers in all regions as a result of the global COVID-19 pandemic.

Non-core revenue

Other product revenue, related to our contract manufacturing business, decreased by $22.9 million, or 86.1%, for the fiscal nine months ended September 27, 2020 compared with the fiscal nine months ended September 29, 2019, due to the reduction and timing of certain performance obligations in a contract manufacturing arrangement.

Collaboration and other revenue for the fiscal nine months ended September 27, 2020 decreased by $3.9 million, or 24.2%, compared with the fiscal nine months ended September 29, 2019. The decrease was primarily due to lower revenues related to our HCV/HIV license agreements.

 

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Cost of revenue, excluding amortization of intangible assets and gross profit

 

   
     Fiscal nine months ended  
($ in millions)    September 27, 2020      % of net revenue      September 29, 2019      % of net revenue  

Cost of revenue, excluding amortization of intangible assets

   $ 650.2        52.0%      $ 684.0        51.5%  

Gross profit

   $ 599.4        48.0%      $ 643.8        48.5%