SEC Filing | Ortho-Clinical Diagnostics

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10-Q

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 3, 2022


☐	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.

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 April 29, 2022, the registrant had 237,734,877 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 Statements of Changes in Shareholders’ 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	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	34
PART II.	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37

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 Quarter Ended
	April 3, 2022			April 4, 2021
Net revenue	$	500.1		$	506.8
Cost of revenue, excluding amortization of intangible assets		249.5			248.2
Selling, marketing and administrative expenses		129.5			131.5
Research and development expense		32.2			28.9
Amortization of intangible assets		33.2			33.4
Other operating expense, net		8.6			7.4
Income from operations		47.1			57.4
Interest expense, net		32.5			43.4
Tax indemnification income, net		(0.2	)		(0.2	)
Other (income) expense, net		(3.5	)		50.0
Income (loss) before income taxes		18.3			(35.8	)
Provision for income taxes		3.5			3.3
Net income (loss)	$	14.8		$	(39.1	)
Basic net income (loss) per ordinary share	$	0.06		$	(0.19	)
Basic weighted-average ordinary shares outstanding		237.2			206.2
Diluted net income (loss) per ordinary share	$	0.06		$	(0.19	)
Diluted weighted-average ordinary shares outstanding		242.0			206.2

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

Ortho Clinical Diagnostics Holdings plc

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In millions)


	Fiscal Quarter Ended
	April 3, 2022			April 4, 2021
Net income (loss)	$	14.8		$	(39.1	)
Other comprehensive income, before tax:
Foreign currency derivatives		(2.8	)		3.6
Interest rate derivatives		21.4			12.4
Foreign currency translation adjustments		(6.6	)		(8.8	)
Other comprehensive income, before tax		12.0			7.2
Income tax provision related to items of other comprehensive income		—			—
Other comprehensive income, net of tax		12.0			7.2
Comprehensive income (loss)	$	26.8		$	(31.9	)

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

Ortho Clinical Diagnostics Holdings plc

Consolidated Balance Sheets

(Unaudited)

(In millions, except share and per share data)


	April 3, 2022			January 2, 2022
Assets
Current assets:
Cash and cash equivalents	$	281.1		$	309.7
Accounts receivable (net of allowance for credit losses of $8.9 and $8.6, respectively)		241.0			257.2
Inventories		316.7			305.4
Other current assets		150.8			139.4
Total current assets		989.6			1,011.7
Property, plant and equipment, net		784.2			791.4
Goodwill		572.8			573.6
Intangible assets, net		840.7			879.2
Deferred income taxes		9.7			9.7
Other assets		119.4			98.2
Total assets	$	3,316.4		$	3,363.8
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	169.5		$	181.0
Accrued liabilities		259.5			299.6
Deferred revenue		30.5			34.5
Current portion of borrowings		63.2			63.4
Total current liabilities		522.7			578.5
Long-term borrowings		2,177.1			2,186.7
Employee-related obligations		36.9			37.1
Other liabilities		67.4			78.9
Deferred income taxes		69.0			72.1
Total liabilities		2,873.1			2,953.3
Commitments and contingencies (Note 14)
Shareholders’ Equity:
Preferred redeemable shares, $1.39 nominal value per share, 50,000 shares issued and outstanding as of both April 3, 2022 and January 2, 2022, respectively		0.1			0.1
Ordinary shares, $0.00001 par value, 1,000,000,000 shares authorized, 237,612,459 and 237,203,879 shares issued and outstanding as of April 3, 2022 and January 2, 2022, respectively		—			—
Additional paid-in capital		2,431.9			2,425.9
Accumulated deficit		(1,957.0	)		(1,971.8	)
Accumulated other comprehensive loss		(31.7	)		(43.7	)
Total shareholders’ equity		443.3			410.5
Total liabilities and shareholders’ equity	$	3,316.4		$	3,363.8

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

Ortho Clinical Diagnostics Holdings plc

Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

(Unaudited)

(In millions, except share data)


	Preferred redeemable shares issued		Preferred redeemable shares par value		Ordinary shares issued		Ordinary share par value		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Total
Balance as of January 2, 2022		50,000	$	0.1		237,203,879	$	—	$	2,425.9	$	(1,971.8	)	$	(43.7	)	$	410.5
Net income		—		—		—		—		—		14.8			—			14.8
Exercise of stock options, net of shares retained for taxes		—		—		405,544		—		3.4		—			—			3.4
Restricted stock grant, net of shares retained for taxes		—		—		3,036		—		—		—			—			—
Recognition of stock-based compensation		—		—		—		—		2.6		—			—			2.6
Foreign currency derivatives, net of tax of $0.0		—		—		—		—		—		—			(2.8	)		(2.8	)
Interest rate derivatives, net of tax of $0.0		—		—		—		—		—		—			21.4			21.4
Foreign currency translation adjustments		—		—		—		—		—		—			(6.6	)		(6.6	)
Balance as of April 3, 2022		50,000	$	0.1		237,612,459	$	—	$	2,431.9	$	(1,957.0	)	$	(31.7	)	$	443.3


	Preferred redeemable shares issued		Preferred redeemable shares par value		Ordinary shares issued		Ordinary share 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		50,000		0.1		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		50,000	$	0.1		234,843,052	$	—	$	2,394.3	$	(1,956.6	)	$	(61.2	)	$	376.6

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

Ortho Clinical Diagnostics Holdings plc

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in millions)


	Fiscal Quarter Ended
	April 3, 2022			April 4, 2021
Cash Flows from Operating Activities:
Net income (loss)	$	14.8		$	(39.1	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization		79.4			82.7
Unrealized foreign exchange (gains) losses, net		(10.1	)		22.0
Loss on extinguishment of debt		—			50.3
Amortization of deferred financing costs and original issue discount		2.0			2.4
Stock-based compensation		2.6			3.5
Deferred tax (benefit) provision		(0.8	)		1.0
Change in allowance for credit losses		0.6			0.3
Other, net		0.6			(15.9	)
Changes in operating assets and liabilities:
Accounts receivable		13.7			(10.3	)
Inventories		(35.8	)		(41.7	)
Other current and non-current assets		(25.2	)		(15.0	)
Accounts payable and accrued liabilities		(39.8	)		(56.5	)
Deferred revenue		(3.9	)		(1.0	)
Other current and non-current liabilities		(2.1	)		7.4
Cash used in operating activities		(4.0	)		(9.9	)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment		(27.0	)		(13.4	)
Proceeds from cross currency swaps		—			2.4
Milestone payments and other, net		(0.2	)		0.3
Cash used in investing activities		(27.2	)		(10.7	)
Cash Flows from Financing Activities:
Proceeds from initial public offering		—			1,426.4
Payment of initial public offering costs		—			(5.0	)
Payments on long-term borrowings		(1.3	)		(1,375.9	)
Payments on short-term borrowings, net		—			(5.4	)
Proceeds from exercise of stock options		3.4			1.0
Cash provided by financing activities		2.1			41.1
Effect of exchange rate changes on cash		0.5			(0.2	)
(Decrease) increase in cash, cash equivalents and restricted cash		(28.6	)		20.3
Cash, cash equivalents and restricted cash at beginning of period		311.6			144.2
Cash, cash equivalents and restricted cash at end of period	$	283.0		$	164.5

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

Ortho Clinical Diagnostics Holdings plc

Notes to unaudited consolidated financial statements

April 3, 2022

(Dollars in millions, unless otherwise stated)

(1) General and description of the business

Ortho Clinical Diagnostics Holdings plc and its consolidated subsidiaries (“Ortho” or “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 (“U.S.”) and the United Kingdom (“U.K.”) and with sales centers, administrative offices and warehouses located throughout the world.

Business Combination with Quidel

On December 22, 2021, the Company, Coronado Topco, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Coronado Topco”), Laguna Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Topco (“U.S. Merger Sub”), Orca Holdco, Inc., a Delaware corporation and a wholly owned subsidiary of Topco (“U.S. Holdco Sub”), Orca Holdco 2, Inc., a Delaware corporation and a wholly owned subsidiary of U.S. Holdco Sub (“U.S. Holdco Sub 2”) and Quidel Corporation, a Delaware corporation (“Quidel”) entered into a Business Combination Agreement (the “Business Combination Agreement,” and the transactions contemplated thereby, the “Combinations”), pursuant to which, among other things and subject to the terms and conditions contained therein, (i) under a scheme of arrangement under UK corporate law, each issued and outstanding share of the Company will be acquired by a depository nominee (or transferred within the depository nominee) on behalf of Coronado Topco in exchange for (x) 0.1055 shares of common stock of Coronado Topco and (y) $7.14 in cash (the “Ortho Scheme”) and (ii) immediately after the consummation of the Ortho Scheme, U.S. Merger Sub will merge with and into Quidel, pursuant to which each issued and outstanding share of Quidel common stock will be converted into one share of Coronado Topco common stock, with Quidel surviving as a wholly owned subsidiary of Coronado Topco. The boards of directors of both the Company and Quidel have unanimously approved the terms of the Business Combination Agreement, which is expected to close during the first half of fiscal year 2022. Upon completion of the Combinations, which requires shareholder approval, the Company's shareholders are expected to own approximately 38% of Coronado Topco and Quidel stockholders are expected to own approximately 62% of Coronado Topco on a fully diluted basis, based on the respective capitalizations of the Company and Quidel as of the date the parties entered into the Business Combination Agreement.

In the event that the Business Combination Agreement is terminated by Ortho as a result of the occurrence of certain terms and conditions as specified therein, the Company must pay Quidel a termination fee of approximately $46.9 million, less any expenses reimbursable by Quidel pursuant to the Business Combination Agreement. If the Business Combination Agreement is terminated by Quidel as a result of the occurrence of certain terms and conditions as specified therein, the Company will receive approximately $207.8 million, less any expenses reimbursable by Ortho pursuant to the Business Combination Agreement.

Costs incurred related to the proposed transaction, including integration-related activities, were $5.7 million during the fiscal quarter ended April 3, 2022 and were recorded to Other operating expenses, net in the consolidated statement of operations.

(2) Basis of presentation of the unaudited consolidated financial statements

These unaudited consolidated financial statements for the Company include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. These unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and Regulation S-X. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation have been included. Results for the fiscal quarter ended April 3, 2022 should not be considered indicative of results for the fiscal year ending January 1, 2023. These unaudited consolidated financial statements do not represent complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and footnotes thereto for the fiscal year ended January 2, 2022 in the Company’s most recent Annual Report on Form 10-K.

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.

Amounts reported in millions have been calculated based on underlying, unrounded amounts. Amounts presented in tables may not total due to rounding. Percentages have been calculated using underlying, unrounded amounts.

These unaudited 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 unaudited consolidated financial statements, the Company has total Cash and cash equivalents of $281.1 million and an Accumulated deficit of $1,957.0 million as of April 3, 2022. The Company reported Net income of $14.8 million and Cash used in operating activities of

Ortho Clinical Diagnostics Holdings plc

Notes to unaudited consolidated financial statements

April 3, 2022

(Dollars in millions, unless otherwise stated)

$4.0 million during the fiscal quarter ended April 3, 2022. 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 that governs its Senior Secured Credit Facilities (as defined in Note 7–Borrowings, the “Credit Agreement”) has a financial covenant referred to as the First Lien Net Leverage Ratio, (as defined in the Credit Agreement, not to exceed 5.5-to-1, subject to a 50 basis point step-down on September 30, 2022) that is tested when borrowings and letters of credit issued under the Revolving Credit Facility (as defined in Note 7–Borrowings) exceed 30% of the committed amount at any period end reporting date. As of April 3, 2022, the Company had no outstanding borrowings under its Revolving Credit Facility and letters of credit issued under the Revolving Credit Facility totaled $43.7 million. As of April 3, 2022, the Company was in compliance with the financial covenant. 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 unaudited consolidated financial statements. Based on this evaluation, management believes that the Company’s financial position, Cash provided by operating activities combined with Cash and cash equivalents, and borrowing capacity available under its Revolving Credit Facility, will be sufficient to fund its current obligations, capital spending, debt service requirements and working capital requirements for a period of at least the next 12 months from the issuance of these unaudited 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.

(3) Recent accounting pronouncements

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments, which amends the accounting for lease contracts that have variable lease payments that do not depend on a reference index or rate, and which would have resulted in the recognition of a loss at lease commencement if classified as a sales-type or direct financing lease. Upon adoption, lessors will classify and account for leases with variable payments that do not depend on a reference index or rate as an operating lease if the lease would have been classified as a sales-type or direct financing lease, and if the lessor would have otherwise recognized a loss at lease commencement. The guidance in ASU 2021-05 is effective for fiscal years beginning after December 15, 2021 and can be applied either prospectively or retrospectively for reporting entities that have adopted Topic 842 prior to the issuance date of this amendment. The Company adopted this guidance prospectively on January 3, 2022, and the adoption did not have a material impact on its unaudited consolidated financial statements.

(4) Net income (loss) per share

Basic net income (loss) per ordinary share is based on the weighted-average number of ordinary shares outstanding during the period. Diluted net income (loss) per ordinary share is based on the weighted-average number of ordinary shares and ordinary share equivalents, calculated using the treasury stock method, outstanding during the period. The Company excludes potential ordinary share equivalents from the calculation if the effect would be anti-dilutive. For the fiscal quarter ended April 4, 2021, during which the Company incurred a Net loss, it excluded potential ordinary share equivalents from the calculations of Diluted net loss per ordinary share because the effect was anti-dilutive. The weighted-average number of ordinary shares used in the computation of Basic and Diluted net income (loss) per share were as follows:


	Fiscal Quarter Ended
(In millions)	April 3, 2022		April 4, 2021
Basic weighted-average ordinary shares outstanding		237.2		206.2
Effect of stock options, unvested restricted shares and restricted stock units		4.8		—
Diluted weighted-average ordinary shares		242.0		206.2

Ortho Clinical Diagnostics Holdings plc

Notes to unaudited consolidated financial statements

April 3, 2022

(Dollars in millions, unless otherwise stated)

The following table provides the total outstanding ordinary share equivalents, unaffected by the treasury stock method weighted-average calculation, as of the end of each period below:


	Fiscal Quarter Ended
(In millions)	April 3, 2022	April 4, 2021