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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 4, 2021

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 001-39956

 

Ortho Clinical Diagnostics Holdings plc

(Exact name of registrant as specified in its charter)

 

 

England and Wales

98-1574150

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

1001 Route 202

Raritan, New Jersey

08869

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: 908-218-8000

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Ordinary shares, $0.00001 par value per ordinary share

 

OCDX

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 3, 2021, the registrant had 234,915,016 ordinary shares outstanding ($0.00001 par value per share).

 

 

 


 

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Statements of Operations

1

 

Consolidated Statements of Comprehensive Income (Loss)

2

 

Consolidated Balance Sheets

3

 

Consolidated Statement of Changes in Stockholders’ Equity (deficit)

4

 

Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

37

PART II.

OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

 

38

 

 

 

i


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Ortho Clinical Diagnostics Holdings plc

Consolidated Statements of Operations

(Unaudited)

(In millions, except per share data)

 

 

Fiscal First Quarter Ended

 

 

April 4, 2021

 

 

March 29, 2020

 

Net revenue

$

506.8

 

 

$

407.9

 

Cost of revenue, excluding amortization of intangible assets

 

248.2

 

 

 

213.2

 

Gross profit

 

258.6

 

 

 

194.7

 

Selling, marketing and administrative expenses

 

131.5

 

 

 

117.4

 

Research and development expense

 

28.9

 

 

 

23.6

 

Amortization of intangible assets

 

33.4

 

 

 

33.0

 

Other operating expense, net

 

7.4

 

 

 

8.8

 

Income from operations

 

57.4

 

 

 

11.9

 

Interest expense, net

 

43.4

 

 

 

52.2

 

Tax indemnification income, net

 

(0.2

)

 

 

(2.5

)

Other expense, net

 

50.0

 

 

 

59.3

 

Loss before provision for income taxes

 

(35.8

)

 

 

(97.1

)

Provision for income taxes

 

3.3

 

 

 

4.1

 

Net loss

$

(39.1

)

 

$

(101.2

)

Basic and diluted net loss per ordinary share

$

(0.19

)

 

$

(0.69

)

Basic and diluted weighted-average ordinary shares outstanding

 

206.2

 

 

 

146.3

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

1


 

Ortho Clinical Diagnostics Holdings plc

Consolidated Statements of Comprehensive Loss

(Unaudited)

(In millions)

 

 

 

Fiscal First Quarter Ended

 

 

 

April 4, 2021

 

 

March 29, 2020

 

Net loss

 

$

(39.1

)

 

$

(101.2

)

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

Foreign currency derivatives

 

 

3.6

 

 

 

4.9

 

Interest rate derivatives

 

 

12.4

 

 

 

(43.9

)

Foreign currency translation adjustments

 

 

(8.8

)

 

 

(10.8

)

Other comprehensive income (loss), before tax

 

 

7.2

 

 

 

(49.8

)

Income tax provision related to items of other comprehensive loss

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

 

7.2

 

 

 

(49.8

)

Comprehensive loss

 

$

(31.9

)

 

$

(151.0

)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2


 

Ortho Clinical Diagnostics Holdings plc

Consolidated Balance Sheets

(Unaudited)

(In millions, except share and per share data)

 

 

 

April 4, 2021

 

 

January 3, 2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

153.8

 

 

$

132.8

 

Accounts receivable (net of allowance for doubtful accounts of $9.6 and

   $9.8, respectively)

 

 

324.1

 

 

 

318.7

 

Inventories

 

 

291.1

 

 

 

278.7

 

Other current assets

 

 

150.8

 

 

 

127.0

 

Total current assets

 

 

919.8

 

 

 

857.2

 

Property, plant and equipment, net

 

 

805.6

 

 

 

832.0

 

Goodwill

 

 

576.1

 

 

 

580.1

 

Intangible assets, net

 

 

983.4

 

 

 

1,016.7

 

Deferred income taxes

 

 

7.8

 

 

 

8.0

 

Other assets

 

 

99.8

 

 

 

107.5

 

Total assets

 

$

3,392.5

 

 

$

3,401.5

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

130.3

 

 

$

146.2

 

Accrued liabilities

 

 

260.9

 

 

 

284.7

 

Deferred revenue

 

 

34.3

 

 

 

35.5

 

Current portion of borrowings

 

 

139.4

 

 

 

160.0

 

Total current liabilities

 

 

564.9

 

 

 

626.4

 

Long-term borrowings

 

 

2,240.3

 

 

 

3,558.5

 

Employee-related obligations

 

 

38.9

 

 

 

39.3

 

Other liabilities

 

 

103.8

 

 

 

120.8

 

Deferred income taxes

 

 

68.0

 

 

 

67.3

 

Total liabilities

 

 

3,015.9

 

 

 

4,412.3

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

 

 

Preferred redeemable shares, $1.39 nominal value per share, 50,000 shares issued and outstanding as of April 4, 2021

 

 

0.1

 

 

 

 

Ordinary shares, $0.00001 par, 1,000,000,000 shares authorized, 234,843,052

   and 147,295,511 shares issued and outstanding as of April 4, 2021

   and January 3, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

2,394.3

 

 

 

975.1

 

Accumulated deficit

 

 

(1,956.6

)

 

 

(1,917.5

)

Accumulated other comprehensive loss

 

 

(61.2

)

 

 

(68.4

)

Total stockholders’ equity (deficit)

 

 

376.6

 

 

 

(1,010.8

)

Total liabilities and stockholders’ equity (deficit)

 

$

3,392.5

 

 

$

3,401.5

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3


 

Ortho Clinical Diagnostics Holdings plc

Consolidated Statement of Changes in Stockholders’ Equity (Deficit)

(Unaudited)

(In millions, except share data)

 

 

 

Ordinary

shares issued

 

 

Ordinary

share

par value

 

 

Preferred redeemable

shares issued

 

 

Preferred redeemable

shares

par value

 

 

Additional

paid-in

capital

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

loss

 

 

Total

 

Balance as of January 3, 2021

 

 

147,295,511

 

 

$

 

 

 

 

 

$

 

 

$

975.1

 

 

$

(1,917.5

)

 

$

(68.4

)

 

$

(1,010.8

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(39.1

)

 

 

 

 

 

(39.1

)

Issuance of ordinary shares upon completion of initial public offering, net of commissions, underwriting discounts and offering costs

 

 

87,400,000

 

 

 

 

 

 

 

 

 

 

 

 

1,414.7

 

 

 

 

 

 

 

 

 

1,414.7

 

Issuance of incorporation shares consisting of ordinary share and preferred redeemable shares

 

 

1

 

 

 

 

 

 

50,000

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

Exercise of stock options

 

147,540

 

 

 

 

 

 

 

 

 

 

 

 

1.0

 

 

 

 

 

 

 

 

 

1.0

 

Recognition of stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.5

 

 

 

 

 

 

 

 

 

3.5

 

Foreign currency derivatives, net of tax of $0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.6

 

 

 

3.6

 

Interest rate derivatives, net of tax of $0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12.4

 

 

 

12.4

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8.8

)

 

 

(8.8

)

Balance as of April 4, 2021

 

 

234,843,052

 

 

$

 

 

 

50,000

 

 

$

0.1

 

 

$

2,394.3

 

 

$

(1,956.6

)

 

$

(61.2

)

 

$

376.6

 

 

 

 

Ordinary

shares issued

 

 

Ordinary

share

par value

 

 

Preferred redeemable

shares issued

 

 

Preferred redeemable

shares

par value

 

 

Additional

paid-in

capital

 

 

Accumulated

deficit

 

 

Accumulated

other

comprehensive

loss

 

 

Total

 

Balance as of December 29, 2019

 

 

146,437,546

 

 

$

 

 

 

 

 

$

 

 

$

964.7

 

 

$

(1,705.6

)

 

$

(71.9

)

 

$

(812.8

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101.2

)

 

 

 

 

 

(101.2

)

Exercise of stock options

 

 

89,223

 

 

 

 

 

 

 

 

 

 

 

 

0.2

 

 

 

 

 

 

 

 

 

0.2

 

Recognition of stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.6

 

 

 

 

 

 

 

 

 

1.6

 

Foreign currency derivatives, net of tax of $0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.9

 

 

 

4.9

 

Interest rate derivatives, net of tax of $0.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(43.9

)

 

 

(43.9

)

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10.8

)

 

 

(10.8

)

Balance as of March 29, 2020

 

 

146,526,769

 

 

$

 

 

 

 

 

$

 

 

$

966.5

 

 

$

(1,806.8

)

 

$

(121.7

)

 

$

(962.0

)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

4


 

 

Ortho Clinical Diagnostics Holdings plc

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in millions)

 

 

 

Fiscal First Quarter Ended

 

 

 

April 4, 2021

 

 

March 29, 2020

 

Cash Flows from Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(39.1

)

 

$

(101.2

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

82.7

 

 

 

79.8

 

Unrealized foreign exchange losses, net

 

 

22.0

 

 

 

49.9

 

Loss on extinguishment of debt

 

 

50.3

 

 

 

10.0

 

Amortization of deferred financing costs and original issue discount

 

 

2.4

 

 

 

2.7

 

Stock-based compensation

 

 

3.5

 

 

 

1.6

 

Deferred tax provision

 

 

1.0

 

 

 

0.2

 

Provision for doubtful accounts

 

 

0.3

 

 

 

0.3

 

Other non-cash, net

 

 

(15.9

)

 

 

4.5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(10.3

)

 

 

21.6

 

Inventories

 

 

(41.7

)

 

 

(40.9

)

Other current and non-current assets

 

 

(15.0

)

 

 

(3.1

)

Accounts payable and accrued liabilities

 

 

(56.5

)

 

 

(35.7

)

Deferred revenue

 

 

(1.0

)

 

 

(7.0

)

Other current and non-current liabilities

 

 

7.4

 

 

 

(0.2

)

Cash used in operating activities

 

 

(9.9

)

 

 

(17.5

)

Cash Flows from Investing activities:

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(13.4

)

 

 

(18.1

)

Proceeds from cross currency swaps and others, net

 

 

2.7

 

 

 

(0.2

)

Cash used in investing activities

 

 

(10.7

)

 

 

(18.3

)

Cash Flows from Financing activities:

 

 

 

 

 

 

 

 

Proceeds from initial public offering

 

 

1,426.4

 

 

 

-

 

Payments on long-term borrowings

 

 

(1,375.9

)

 

 

(1,015.5

)

Proceeds from (payments on) short-term borrowings, net

 

 

(5.4

)

 

 

299.3

 

Payment of initial public offering costs

 

 

(5.0

)

 

 

-

 

Proceeds from other long-term borrowings

 

 

-

 

 

 

1,032.2

 

Proceeds from exercise of stock options

 

 

1.0

 

 

 

0.2

 

Cash provided by financing activities

 

 

41.1

 

 

 

316.2

 

Effect of exchange rate changes on cash

 

 

(0.2

)

 

 

(2.5

)

Increase in cash, cash equivalents and restricted cash

 

 

20.3

 

 

 

277.9

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

144.2

 

 

 

84.0

 

Cash, cash equivalents and restricted cash at end of period

 

$

164.5

 

 

$

361.9

 

 

 

 

April 4, 2021

 

 

March 29, 2020

 

Reconciliation to amounts within the consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

153.8

 

 

$

349.8

 

Restricted cash included in Other assets

 

 

10.7

 

 

 

12.1

 

Cash, cash equivalents and restricted cash

 

$

164.5

 

 

$

361.9

 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 

5


Ortho Clinical Diagnostics Holdings plc

Notes to consolidated financial statements (unaudited)

April 4, 2021

(Dollars in millions, unless otherwise stated)

 

 

(1)

General and description of the business

Ortho Clinical Diagnostics Holdings plc (“UK Holdco” “we,” “our” or the “Company”), and formerly known as Ortho-Clinical Diagnostics Bermuda Co. Ltd. (“Bermuda Holdco”), is a public limited company incorporated under the laws of England and Wales. UK Holdco became the new holding company of Bermuda Holdco and its subsidiaries and upon incorporation, it had an initial share capital of one ordinary share and 50,000 preferred redeemable shares (“Incorporation Shares”). On January 25, 2021, The Carlyle Group L.P. (“Carlyle”), and all other shareholders of Bermuda Holdco contributed 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”).

UK Holdco is a holding company with no business operations or assets other than cash, intercompany receivables, miscellaneous administrative costs and guarantees of certain obligations of Ortho-Clinical Diagnostics, Inc. (“Ortho U.S.”) and 100% of its ownership interest of Ortho-Clinical Diagnostics Holdings Luxembourg S.à r.l., which itself is a holding company with no operations or assets other than cash, intercompany receivables, miscellaneous administrative costs and its ownership of 100% of the capital stock of Ortho-Clinical Diagnostics S.A. (“LuxCo”).  LuxCo, together with its indirect wholly owned subsidiary, Ortho U.S., are co-borrowers under the Senior Secured Credit Facilities and co-issuers of the Notes (each as defined in Note 7).  The Company’s global operations are conducted by indirect wholly owned subsidiaries.

The Company is a leading global provider of in-vitro diagnostics (“IVD”) solutions to the clinical laboratory and transfusion medicine communities. The Company maintains a commercial presence in more than 130 countries and territories. The Company’s instruments, assays, reagents and other consumables are used in hospitals, laboratories, clinics, blood banks and donor centers worldwide. The Company is globally operated with manufacturing facilities in the United States and the United Kingdom and with sales centers, administrative offices and warehouses located throughout the world.

Both the Company’s domestic and international operations have been and continue to be affected by the ongoing global pandemic of a novel strain of coronavirus (“COVID-19”) and the resulting volatility and uncertainty it has caused in the U.S. and international markets. The Company has a direct commercial presence in more than 30 countries, including many of the regions most impacted by the COVID-19 pandemic. The Company has experienced a recovery in the base business since the lower shipments to customers experienced primarily in the fiscal second and fiscal third quarters of the fiscal year ended January 3, 2021; however through the fiscal first quarter ended April 4, 2021 the Company continues to experience higher distribution costs due to higher shipping rates as a result of the pandemic, which have been partially offset by lower travel-related expenses for our employees due to global travel restrictions.

During the fiscal first quarter ended April 4, 2021, the Company completed its initial public offering (“IPO”) of ordinary shares at a price of $17.00 per share. The Company issued and sold 87,400,000 ordinary shares in the IPO, including 11,400,000 ordinary shares issued pursuant to the full exercise of the underwriters option to purchase additional shares. The ordinary shares sold in the IPO were registered under the Securities Act pursuant to a Registration Statement on Form S-1, which was declared effective by the SEC on January 29, 2021. The offering generated net proceeds of $1,426.4 million after deducting underwriting discounts and commissions.

The Company used a portion of the net proceeds from the IPO (i) to redeem $160.0 million of its 2025 Notes (as defined in Note 7), plus accrued interest thereon and $11.8 million of redemption premium, (ii) to redeem $270.0 million of its 2028 Notes, plus accrued interest thereon and $19.6 million of redemption premium, (iii) to repay $892.7 million in aggregate principal amount of borrowings under its Dollar Term Loan Facility (as defined in Note 7) and (iv) for working capital and general corporate purposes.

The accompanying consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. As shown in the consolidated financial statements, the Company has total cash and cash equivalents of $153.8 million and an accumulated deficit of $1,956.6 million as of April 4, 2021. The Company reported a net loss of $39.1 million and used $9.9 million of cash from operations during the fiscal first quarter ended April 4, 2021. The Company’s primary future cash needs will be to meet debt service requirements, working capital needs and capital expenditures. Management is required to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued and, if so, disclose that fact.

The Company’s debt agreements contain various covenants that may restrict the Company’s ability to borrow on available credit facilities and future financing arrangements and require the Company to remain below a specific credit coverage threshold. The Company’s Credit Agreement (as defined in Note 7) has a financial covenant (First Lien Net Leverage Ratio

6


Ortho Clinical Diagnostics Holdings plc

Notes to consolidated financial statements (unaudited)

April 4, 2021

(Dollars in millions, unless otherwise stated)

 

(as defined in the credit agreement) not to exceed 6-to-1, subject to two 50 basis point step-downs on June 30, 2021 and September 30, 2022) that is tested when borrowings and letters of credit issued under the Revolving Credit Facility exceed 30% of the committed amount at any period end reporting date. As of April 4, 2021, the Company had no outstanding borrowings under its Revolving Credit Facility and letters of credit issued under the Revolving Credit Facility totaled $37.0 million. The Company believes that it has complied and will continue to comply with the financial covenant for the next 12 months. In the event the Company does not comply with the financial covenant of the Revolving Credit Facility, the lenders will have the right to call on all of the borrowings under the Revolving Credit Facility. If the lenders on the Revolving Credit Facility terminate their commitments and accelerate the loans, this would become a cross default to other material indebtedness.

The Company evaluated its liquidity position and ability to comply with financial covenants in its Revolving Credit Facility as of the date of the issuance of these interim consolidated financial statements. Based on this evaluation, management believes that the Company’s financial position, net cash provided by operations combined with cash and cash equivalents, and borrowing availability under its Revolving Credit Facility, will be sufficient to fund its current obligations, capital spending, debt service requirements and working capital requirements over at least the next 12 months from the issuance of these interim consolidated financial statements.

Should it become necessary, the Company may seek to raise additional capital within the next 12 months through borrowings on credit facilities, other financing activities and/or the public or private sale of equity securities. The Company may also need to control discretionary spending, which could impact its planned general and administrative, research and development, or capital spend in an effort to provide sufficient funds to continue its operations or maintain compliance with the financial covenants, and the Company may be subject to adverse business conditions due to the global COVID-19 pandemic, all of which could adversely affect the Company’s business.

(2)

Basis of presentation of the consolidated financial statements

The interim unaudited consolidated financial statements for the Company include the accounts of UK Holdco and its subsidiaries. All intercompany accounts and transactions have been eliminated. These consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and are consistent with Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year or any subsequent period. The interim unaudited consolidated financial statements do not represent complete financial statements and should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended January 3, 2021.

The Company follows the concept of a fiscal year which ends on the Sunday nearest to the end of the month of December, and fiscal quarters which end on the Sunday nearest to the end of the months of March, June, and September. Each fiscal quarter presented in this Quarterly Report on Form 10-Q consists of 13 weeks.

Columns and rows within tables may not add up due to rounding. Percentages have been calculated using actual, non-rounded figures.

Stock Split

On January 18, 2021, the Company approved an issuance of 54,860,691 shares (an additional 0.5934 share for each existing share), which effected a 1.5934-for-1 stock split of its ordinary shares. All references to share and per share amounts in the Company’s consolidated financial statements have been retrospectively revised to reflect the stock split.  

(3)

Summary of significant accounting policies

There have been no material changes to the significant accounting policies previously disclosed in the Company’s consolidated financial statements and in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2021.

 

7


Ortho Clinical Diagnostics Holdings plc

Notes to consolidated financial statements (unaudited)

April 4, 2021

(Dollars in millions, unless otherwise stated)

 

 

Recently adopted pronouncements

Income taxes (Topic 740), simplifying the accounting for income taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance related to intra period tax allocations, interim period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim period tax accounting. The Company adopted this guidance on January 4, 2021 and the adoption did not have a material impact on the Company’s consolidated financial statements.

 

Reference rate reform (Topic 848)

 

In January 2021, the FASB issued ASU 2021-01, Reference rate reform (Topic 848), which clarifies that certain optional expedients and exceptions in Topic 848 apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The guidance in ASU 2021-01 is optional and may be elected over time as reference rate reform activities occur. The optional amendments can be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements are available to be issued. The Company has determined that the optional amendments are not applicable to the derivative instruments held as of the end of the fiscal quarter ended April 4, 2021. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

(4)

Net loss per share

Basic net loss per share attributable to the Company’s ordinary shareholders is based upon the weighted-average number of ordinary shares outstanding during the period, excluding restricted stock that have been issued but are not yet vested. Diluted net loss per share attributable to the Company’s ordinary shareholders is based upon the weighted-average number of ordinary shares outstanding during the period plus additional weighted-average ordinary share equivalents outstanding during the period when the effect is dilutive.  Ordinary share equivalents result from the assumed exercise of outstanding stock options (the proceeds of which are then assumed to have been used to repurchase outstanding stock using the treasury stock method) and the vesting of unvested restricted shares of ordinary shares.  Ordinary share equivalents have not been included in the net loss per ordinary share calculation because the effect would have been anti-dilutive. Total potential gross ordinary share equivalents consisted of the following:

 

 

 

Fiscal First Quarter Ended

 

 

 

April 4, 2021

 

 

March 29, 2020

 

Stock options

 

 

15,895,457

 

 

 

15,534,797

 

Unvested restricted shares and restricted stock units

 

 

1,009,568

 

 

 

341,566

 

 

 

 

16,905,025

 

 

 

15,876,363

 

 

(5)

Revenue

Revenue is recognized when obligations under the terms of a contract with a customer are satisfied; this occurs with the transfer of control of the Company’s goods or services. The Company considers revenue to be earned when all of the following criteria are met: (i) the Company has a contract with a customer that creates enforceable rights and obligations; (ii) promised products or services are identified; (iii) the transaction price, or consideration the Company expects to receive for transferring the goods or providing services, is determinable; and (iv) the Company has transferred control of the promised items to the customer. A promise in a contract to transfer a distinct good or service to the customer is identified as a performance obligation. A contract’s transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The Company generates revenue primarily from the sale of IVD instruments, assays, reagents and other consumables, accessories and service contracts. The Company generally recognizes revenue when the customer obtains control of the

8


Ortho Clinical Diagnostics Holdings plc

Notes to consolidated financial statements (unaudited)

April 4, 2021

(Dollars in millions, unless otherwise stated)

 

products, which occurs at a point in time. For instruments, the Company generally recognizes revenue upon installation and customer acceptance. The Company has determined that the installation services do not constitute a separate performance obligation. For assays, reagents and other consumables, the Company recognizes revenue upon shipment or delivery based on the contractual shipping terms of a contract. Service revenue is generally recognized over time using a time-based model, which is consistent with the pattern in which we provide the services.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. The Company may also enter into transactions that involve multiple performance obligations, such as the sale of products and related services. In accounting for these transactions, the Company allocates the consideration to the deliverables by use of the relative standalone selling price method.

A portion of the Company’s product revenue includes revenue earned under reagent rental programs which provide customers the right to use instruments at no separate cost to the customer in consideration for a multi-year agreement to purchase reagents, assays and consumables. The Company allocates a portion of the revenue from the future consumable sale to the instrument based on the customers’ minimum volume commitment and recognizes revenue at the time of the future sale of reagents, assays and consumables. The cost of the instrument is capitalized within property and equipment, and is charged to cost of revenue on a straight-line basis over the term of the minimum purchase agreement. Revenue earned from operating leases is recognized over the lease term, normally five to seven years. Revenue earned under sales-type leases is recognized at the beginning of the lease, as well as a lease receivable and unearned interest associated with the lease. Revenue is recognized when control has transferred for the reagents, assays and consumables. Costs related to product sales are recognized at time of delivery.

The Company recognizes product revenues at the net sales price, which includes estimates of variable consideration related to rebates and volume discounts. Rights of return are generally not included in the Company’s arrangements with customers. Management’s estimates of rebates and discounts are determined using the expected value method and take into consideration historical experience, contractual and statutory requirements, and other relevant information such as forecasted activity. These reserves reflect the Company’s best estimate of the amount of consideration to which it is entitled. The amount of variable consideration included in the net sales price is limited to the amount that is probable not to result in a significant future reversal of cumulative revenue under the contract.

Contract balances

Timing of revenue recognition may differ from timing of invoicing to customers. The Company records an asset when revenue is recognized prior to invoicing a customer (“contract asset”). Contract assets are included within other current assets or other assets in the Company’s consolidated balance sheet and are transferred to accounts receivable when the right to payment becomes unconditional. The balance of contract assets recorded in our consolidated balance sheets were as follows:

 

 

 

April 4, 2021

 

 

January 3, 2021

 

Other current assets

 

$

49.3

 

 

 

40.4

 

Other assets

 

 

-

 

 

 

2.4

 

Total contract assets

 

$

49.3

 

 

$

42.8

 

 

The contract asset balance consists of the following components:

 

A customer supply agreement under which the difference between the timing of invoicing and revenue recognition resulted in a contract asset of $11.8 million and $15.1 million as of April 4, 2021 and January 3, 2021, respectively, of which $2.4 million was recorded in Other assets as of January 3, 2021.

 

Contractual arrangements with certain customers under which the Company invoices the customers based on reportable results generated by its reagents, however, control of the goods transfers to the customers upon shipment or delivery of the products, as determined under the terms of the contract. Using the expected value method, the Company estimates the number of reagents that will generate a reportable result. The Company records the revenue upon shipment and an associated contract asset, and relieves the contract asset upon completion of the invoicing. The balance of the contract asset related to these arrangements was $35.9 million and $24.3 million as of April 4, 2021 and January 3, 2021, respectively.

9


Ortho Clinical Diagnostics Holdings plc

Notes to consolidated financial statements (unaudited)

April 4, 2021

(Dollars in millions, unless otherwise stated)

 

 

 

One of the Company’s contract manufacturing agreements where revenue is recognized as the products are manufactured. The balance of the contract asset related to this arrangement was $1.6 million and $3.4 million as of April 4, 2021 and January 3, 2021, respectively.

The Company reviews contract assets for expected credit losses resulting from the collectability of customer accounts. Expected losses are established based on historical losses, customer mix and credit policies, current economic conditions in customers’ country or industry, and expectations associated with reasonable and supportable forecasts. No credit losses related to contract assets were recognized during the fiscal quarters ended April 4, 2021 and March 29, 2020, respectively.

The Company recognizes a contract liability when a customer pays an invoice prior to the Company transferring control of the goods or services (“contract liabilities”). The Company’s contract liabilities consist of deferred revenue primarily related to customer service contracts. The Company classifies deferred revenue as current or noncurrent based on the timing of the transfer of control or performance of the service. The balance of the Company’s current deferred revenue was $34.3 million and $35.5 million as of April 4, 2021 and January 3, 2021, respectively. The Company has one arrangement with a customer that is expected to be recognized beyond one year. The balance of the deferred revenue included in long-term liabilities was $6.3 million and $6.6 million as of April 4, 2021 and January 3, 2021, respectively, and was included in Other liabilities in the consolidated balance sheets. The amount of deferred revenue as of January 3, 2021 that was recorded in revenue during the fiscal quarter ended April 4, 2021 was $17.9 million.

Disaggregation of revenue

The Company generates product revenue in the following lines of business:

 

Clinical Laboratories—Focused on clinical chemistry and immunoassay instruments and tests to detect and monitor disease progression across a broad spectrum of therapeutic areas.

 

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.

 

Other Product Revenue—Includes revenues primarily from contract manufacturing.

The Company also enters into collaboration and license agreements pursuant to which the Company derives collaboration and royalty revenues. During the fiscal third quarter ended September 27, 2020, the Company entered into two agreements with the Biomedical Advanced Research and Development Authority (BARDA), a division of the U.S. Department of Health and Human Services (HHS), for two awards of up to $13.6 million to develop and submit Emergency Use Authorizations and 510(k) applications to the U.S. Food and Drug Administration (“FDA”) for our COVID-19 antigen and antibody tests. During the fiscal quarter ended April 4, 2021, the Company recognized $4.0 million of grant revenue related to these grants based upon project milestones completed to date.

The following table summarizes net revenue by line of business for the fiscal quarter ended April 4, 2021 and March 29, 2020:

 

 

 

Fiscal First Quarter Ended

 

 

 

April 4, 2021