Washington, D.C. 20549
(Former name, former address and former fiscal year, if changed since last report)
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
Note 1. Summary of Significant Accounting Policies
Note 2. Computation of Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS is computed based on the sum of the weighted averageweighted-average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock options and unvested restricted stock units (“RSUs”) and, for the 2020 periods, the 3.25% Convertible Senior Notes.. Potentially dilutive common shares from outstanding stock options and unvested RSUs are determined using the average share price for each period under the treasury stock method.
Potentially dilutive shares excluded from the calculation above represent stock options when the combined exercise price and unrecognized stock-based compensation are greater than the average market price for the Company’s common stock because their effect is anti-dilutive.
Note 3. Balance Sheet Account Details
Note 4. Income Taxes
The Company is subject to periodic audits by domestic and foreign tax authorities. Due to the carryforward of unutilized credits, the Company’s federal tax years from 2012 and forward are subject to examination by the U.S.US authorities. The Company’s state and foreign tax years for 2001 and forward are subject to examination by applicable tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax laws applied to the facts of each matter.
Note 5. Revolving Credit Facility
The Revolving Credit Facility is guaranteed by certain material domestic subsidiaries of the Company (the “Guarantors”) and is secured by liens on substantially all of the assets of the Company and the Guarantors, excluding real property and certain other types of excluded assets, and contains affirmative and negative covenants that are customary for credit agreements of this nature. The negative covenants include, among other things, limitations on asset sales, mergers, indebtedness, liens, dividends and other distributions, investments and transactions with affiliates. The Credit Agreement contains 2 financial covenants: (i) maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) as of the last day of each fiscal quarter of 3.50 to 1.00, which ratio may be increased to 4.50 to 1.00 in case of certain qualifying acquisitions; and (ii) a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.25 to 1.00 as of the end of any fiscal quarter for the most recently completed four fiscal quarters. The Company was in compliance with all financial covenants as of June 30, 2021.March 31, 2022.
Interest expense recognized, including amortization of deferred issuance cost, was $0.1 million and $0.3$0.2 million for each of the three and six months ended June 30, 2021March 31, 2022 and $0.2 million and $0.4 million for the three and six months ended June 30, 2020.2021.
Note 6. Stockholders’ Equity
The fair value of RSUs is determined based on the closing market price of the Company’s common stock on the grant date. The weighted-average fair value of RSUs granted during the sixthree months ended June 30,March 31, 2022 and 2021 was $103.60 and 2020 was $204.50 and $85.34,$238.20, respectively.
Compensation expense capitalized to inventory and compensation expense related to the Company’s ESPP were not material for the three and six months ended June 30, 2021March 31, 2022 or 2020.2021.
Note 7. Industry and Geographic Information
Note 8. Commitments and Contingencies
Leases
We lease administrative, research and development, sales and marketing and manufacturing facilities and certain equipment under various non-cancelable lease agreements. Facility leases generally provide for periodic rent increases, and may contain clauses for rent escalation, renewal options or early termination.
Summers Ridge Lease — The Company leases 3 of the 4 buildings that are located on the Summers Ridge Propertyproperty in San Diego, California with an initial term through January 2033 with options to extend the lease for 2 additional five-year terms upon satisfaction of certain conditions, which have not been included in the determination of the lease term. The lease is subject to must-take provisions related to one1 additional building, which will have the same lease term as the 3 buildings originally leased. The remaining building is subject to the expiration of the lease with its current tenant in October 2022, subject to an option to renew for a two-year period.
McKellar Court Lease — During 1999, the Company completed a sale and leaseback transaction of its San Diego facility at McKellar Court to a partnership for which the Company is a limited partner. The partnership is deemed to be a variable interest entity (VIE). The Company is not, however, the primary beneficiary of the VIE as it does not have the power to direct the activities of the partnership and does not have the obligation to absorb losses or receive benefits of the partnership that could potentially be significant to the partnership. The Company made lease payments to the partnership of approximately $0.5 millionthe six months ended June 30, 2021.
Rutherford Lease — During January 2021, the Company entered into a lease agreement for a manufacturing facility in Carlsbad, California and recorded a right-of-use asset and a corresponding lease liability of $39.4 million. The initial lease term is 15 years with options to extend the lease for 2 additional five-year periods.
Litigation and Other Legal Proceedings
In Beckman Coulter, Inc. v. Quidel Corporation, which was filed in the Superior Court for the County of San Diego,
California, on November 27, 2017, Beckman Coulter, Inc. (“Beckman Coulter”) alleged that a provision of an agreement between Quidel and Beckman Coulter violated state antitrust laws. Our acquisition of the B-type Naturietic Peptide assay business (“BNP Business”) in October 2017 consisted of assets and liabilities relating to a contractual arrangement with Beckman Coulter (the “BNP Supply Agreement”) for the supply of antibodies and other inputs related to, and distribution of, the Triage® B-type Naturietic Peptide Test (“BNP Test”) for the Beckman Coulter Access Family of Immunoassay Systems. In the lawsuit, Beckman Coulter asserted that an exclusivity provision violated certain state antitrust laws and was unenforceable. From the inception of the lawsuit, the lawsuit was subject to numerous motions, rulings, appellate reviews and opinions. The matter was scheduled for trial starting April 15, 2022. On July 24, 2021, the Company and Beckman Coulter entered into a Master Agreement (the “Master Agreement”) pursuant to which, among other matters, Quidel’s business of selling and distributing the BNP Test for the BNP Business will be transitioned to Beckman Coulter. Concurrent with entering into the Master Agreement, Quidel and Beckman Coulter entered into a Settlement Agreement to resolve all disputes relating to the existing BNP Supply Agreement, among other matters. On August 3, 2021, the lawsuit was dismissed with prejudice. See Note 11 for further discussion of the agreements with Beckman Coulter.
From time to time, the Company is involved in other litigation and other legal proceedings, including matters related to product liability claims, commercial disputes and intellectual property claims, as well as regulatory, employment, and other claims related to our business. The Company accrues for legal claims when, and to the extent that, amounts associated with the claims become probable and are reasonably estimable. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. For those matters as to which we are not able to estimate a possible loss or range of loss, we are not able to determine whether the loss will have a material adverse effect on our business, financial condition or results of operations or liquidity. No accrual has been recorded as of June 30, 2021March 31, 2022 and December 31, 20202021 related to such matters as they are not probable and/or reasonably estimable.
Management believes that all such current legal actions, in the aggregate, will not have a material adverse effect on the Company. However, the resolution of, or increase in any accruals for, one or more matters may have a material adverse effect on the Company’s results of operations and cash flows. The Company also maintains insurance, including coverage for product liability claims, in amounts that management believes are appropriate given the nature of its business.
Note 9. Fair Value Measurements
The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the following periods (in thousands): | | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | | | | | | | | | Assets: | | | | | | | | | | | | | | | |
Cash equivalents (money market funds) | $ | 200,013 | | | $ | 0 | | | $ | 0 | | | $ | 200,013 | | | $ | 200,003 | | | $ | 0 | | | $ | 0 | | | $ | 200,003 | | |
Cash equivalents | | Cash equivalents | $ | 204,603 | | | $ | 4,857 | | | $ | — | | | $ | 209,460 | | | $ | 204,672 | | | $ | 6,649 | | | $ | — | | | $ | 211,321 | |
Marketable securities | | Marketable securities | — | | | 64,996 | | | — | | | 64,996 | | | — | | | 63,610 | | | — | | | 63,610 | |
Derivative assets | Derivative assets | 0 | | | 361 | | | 0 | | | 361 | | | 0 | | | 24 | | | 0 | | | 24 | | Derivative assets | — | | | 257 | | | — | | | 257 | | | — | | | 84 | | | — | | | 84 | |
Total assets measured at fair value | Total assets measured at fair value | $ | 200,013 | | | $ | 361 | | | $ | 0 | | | $ | 200,374 | | | $ | 200,003 | | | $ | 24 | | | $ | 0 | | | $ | 200,027 | | Total assets measured at fair value | $ | 204,603 | | | $ | 70,110 | | | $ | — | | | $ | 274,713 | | | $ | 204,672 | | | $ | 70,343 | | | $ | — | | | $ | 275,015 | |
Liabilities: | Liabilities: | | | | | | | | | | | | | | | | Liabilities: | | | | | | | | | | | | | | | |
| Derivative liabilities | Derivative liabilities | $ | 0 | | | $ | 597 | | | $ | 0 | | | $ | 597 | | | $ | 0 | | | $ | 3,061 | | | $ | 0 | | | $ | 3,061 | | Derivative liabilities | $ | — | | | $ | 29 | | | $ | — | | | $ | 29 | | | $ | — | | | $ | 269 | | | $ | — | | | $ | 269 | |
| Contingent consideration | Contingent consideration | 0 | | | 0 | | | 5,967 | | | 5,967 | | | 0 | | | 0 | | | 11,896 | | | 11,896 | | Contingent consideration | — | | | — | | | 6,044 | | | 6,044 | | | — | | | — | | | 6,073 | | | 6,073 | |
Deferred consideration | Deferred consideration | 0 | | | 76,509 | | | 0 | | | 76,509 | | | 0 | | | 115,951 | | | 0 | | | 115,951 | | Deferred consideration | — | | | 79,418 | | | — | | | 79,418 | | | — | | | 78,436 | | | — | | | 78,436 | |
Total liabilities measured at fair value | Total liabilities measured at fair value | $ | 0 | | | $ | 77,106 | | | $ | 5,967 | | | $ | 83,073 | | | $ | 0 | | | $ | 119,012 | | | $ | 11,896 | | | $ | 130,908 | | Total liabilities measured at fair value | $ | — | | | $ | 79,447 | | | $ | 6,044 | | | $ | 85,491 | | | $ | — | | | $ | 78,705 | | | $ | 6,073 | | | $ | 84,778 | |
There were no transfers of assets or liabilities betweeninto or out of Level 1, Level 2 and Level 3 categories of the fair value hierarchy during the three and six-monththree-month period ended June 30, 2021March 31, 2022 and the year ended December 31, 2020.2021.
Cash equivalents consist of funds held in money market accounts that are valued using quoted prices in active markets for identical instruments.instruments and highly liquid corporate debt securities with maturities within three months from purchase. Marketable securities consist of investment-grade corporate debt securities, corporate asset-backed securities and commercial paper. Derivative financial instruments are measured based on observable inputs that are corroborated by market data. Observable inputs include broker quotes, daily market foreign currency rates and forward pricing curves.
In connection with the acquisition of the B-type Natriuretic Peptide (“BNP”) assay business (“BNP Business,Business”) from Alere Inc., the Company has anwill pay annual installment payment payable in 2022installments of up to $48.0 million and an annual installment payment of $40.0 million payable in 2023 remaining as of June 30, 2021.each year through April 2023. The
fair value of the payments treated as deferred consideration is calculated based on the net present value of cash payments using an estimated borrowing rate based on a quoted price for a similar liability. The fair value of the payments treated as contingent consideration is calculated using a discounted probability weighted valuation model. Discount rates used in such calculation isare a significant assumption that isare not observed in the market and, therefore, the resulting fair value represents a Level 3 measurement. The discount rate of 2.9% used as of June 30, 2021 was based on estimated borrowing rate for a similar liability.
Changes in estimated fair value of contingent consideration liabilities from December 31, 20202021 through June 30, 2021March 31, 2022 were as follows (in thousands): | | | | | |
| Contingent consideration liabilities (Level 3 measurement) |
Balance at December 31, 20202021 | $ | 11,8966,073 | |
Cash payments | (6,030)(29) | |
Change in estimated fair value, recorded in general and administrative expenses | 101 | |
| |
| |
Balance at June 30, 2021March 31, 2022 | $ | 5,9676,044 | |
Note 10. Foreign Currency Hedges
In the normal course of business, the Company is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates. As part of its strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses designated cash flow hedges in the form of foreign currency forward contracts to mitigate the impact of foreign currency translation on transactions that are denominated primarily in the Euro and the Chinese Yuan. The Company also uses non-designated forward contracts to hedge non-functional currency denominated balance sheet assets. Hedging relationships for all derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions are formally documented. The Company does not use any derivative financial instruments for trading or other speculative purposes.
Such forward foreign currency forward contracts are carried at fair value in prepaid expenses and other current assets or other current liabilities depending on the unrealized gain or loss position of the hedged contract as of the balance sheet date. Changes in the value of the derivatives are recorded to other comprehensive income (loss) until the underlying hedged item is recognized in earnings, or the derivative no longer qualifies as a highly effective hedge. The cash flows from derivatives treated as hedges are classified in the Consolidated Statements of Cash Flows in the same category as the item being hedged.
The notional principal amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of ourthe Company’s exposure to credit or market loss. Credit risk represents ourthe Company’s gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency exchange rates at each respective date. WeThe Company generally enterenters into master netting arrangements which reducesthat reduce credit risk by permitting net settlement of transactions with the same counterparty. We present ourThe Company presents its derivative assets and derivative liabilities at their net fair values. We didThe Company does not have any derivative instruments with credit-risk related contingent features that would require usit to post collateral.
The following table summarizes the fair value and notional amounts of designated and non-designated foreign currency forward contracts as of June 30, 2021March 31, 2022 and December 31, 20202021 (in thousands): | | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
| | Notional Amount | | Fair Value, Net | | Notional Amount | | Fair Value, Net | | Notional Amount | | Fair Value, Net | | Notional Amount | | Fair Value, Net |
Designated cash flow hedges: | Designated cash flow hedges: | | | | | | | | Designated cash flow hedges: | | | | | | | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | $ | 3,481 | | | $ | 158 | | | $ | 0 | | | $ | 0 | | Prepaid expenses and other current assets | $ | 4,593 | | | $ | 219 | | | $ | — | | | $ | 84 | |
Other current liabilities | Other current liabilities | $ | 7,173 | | | $ | 588 | | | $ | 38,435 | | | $ | 2,819 | | Other current liabilities | $ | 2,409 | | | $ | 29 | | | $ | 17,629 | | | $ | 139 | |
| Non-designated forward contracts: | Non-designated forward contracts: | | Non-designated forward contracts: | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | $ | 16,430 | | | $ | 203 | | | $ | 18,160 | | | $ | 24 | | Prepaid expenses and other current assets | $ | 22,548 | | | $ | 38 | | | $ | — | | | $ | — | |
Other current liabilities | Other current liabilities | $ | 1,442 | | | $ | 9 | | | $ | 23,120 | | | $ | 242 | | Other current liabilities | $ | — | | | $ | — | | | $ | 15,809 | | | $ | 130 | |
Note 11. Pending Business Combination
On December 22, 2021, the Company entered into a Business Combination Agreement (the “BCA”) with Ortho Clinical Diagnostics Holdings plc (“Ortho”), Coronado Topco, Inc. (“Topco”), Orca Holdco, Inc. (“US Holdco Sub”), Laguna Merger Sub, Inc. (“US Merger Sub”) and Orca Holdco 2, Inc. (“US Holdco Sub 2”). Under the terms of the BCA, the Company is entering into a business combination with Ortho under Topco, a new holding company (the “Combinations”). The Combinations are expected to be implemented by way of (i) a scheme of arrangement to be undertaken by Ortho under Part 26 of the UK Companies Act 2006 (the “Ortho Scheme”), pursuant to which each issued and outstanding share of Ortho (the “Ortho Shares”) will be acquired by a nominee of Topco, such that Ortho will become a wholly owned subsidiary of Topco, and (ii) a merger (the “Quidel Merger”) of US Merger Sub with and into the Company immediately following consummation of the Ortho Scheme, with the Company surviving the merger as a wholly owned subsidiary of Topco.
At the effective time of the Ortho Scheme, each Ortho Share will be acquired by a nominee on behalf and for the benefit of Topco in exchange for 0.1055 shares of common stock of Topco (the “Topco Shares”) and $7.14 in cash. At the effective time of the Quidel Merger, each share of the Company’s common stock (each, a “Quidel Share”) will be converted into the right to receive 1 Topco Share. Ortho will be acquired for total consideration of approximately $4.3 billion (which is based on the April 26, 2022 closing price of $100.12 per Quidel Share), including $1.7 billion of cash, funded through cash on the Company’s balance sheet and expected incremental borrowings. Following the closing of the Combinations, Ortho’s current net debt of $2.0 billion is expected to continue to be outstanding. The Combinations are expected to be completed in the second quarter of 2022.
If the Combinations are completed, Ortho shareholders are expected to own approximately 38% of Topco on a fully diluted basis and the Company’s stockholders are expected to own approximately 62% of Topco on a fully diluted basis, based on the respective capitalizations of Ortho and the Company as of the date of the BCA. The parties intend to list the Topco Shares to be issued in the Combinations on Nasdaq.
Note 11. Subsequent Events
On July 24, 2021, the Company and Beckman Coulter entered into a Master Agreement pursuant to which, among other matters, Quidel’s business of selling and distributing the BNP Test for the BNP Business will be transitioned to Beckman Coulter. Pursuant to the Master Agreement, on a country by country basis, the Company will discontinue offering its Triage® BNP assay and Beckman Coulter will offer its own branded BNP assay to the market. Prior to Beckman Coulter introducing its own branded product to the market, in certain countries, the Company will grant Beckman Coulter exclusive rights to distribute the Triage® BNP assay in such countries. The parties are targeting the initial commercial transition, including in the US, to be completed by late August 2021. Prior to the initial commercial transition to Beckman Coulter, Quidel will continue to operate the Triage® BNP Business.
As consideration for the arrangements during each of calendar years 2022 through and including 2029, Quidel will receive a minimum payment of $70 million and a maximum payment of $75 million. Such maximum payments will be pro-rated for 2021, based on the period commencing on the date of the initial commercial transition to Beckman Coulter, through December 31, 2021.
In addition, the parties entered into other related agreements under the Master Agreement, including a Transition Services Agreement, pursuant to which the parties will provide various transitional services, a Supply Agreement for the supply by Quidel of the Quidel antibody and other components used in the manufacture of the BNP assay, and a Distribution Agreement, granting Beckman Coulter the right to sell and distribute the Triage® BNP assay as described above.
Concurrent with entering into the Master Agreement, Quidel and Beckman Coulter entered into a Settlement Agreement to resolve all disputes relating to the existing BNP Supply Agreement, among other matters. See further discussion in Note 8 under the heading Litigation and Other Legal Proceedings.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Quarterly Report, all references to “we,” “our” and “us” refer to Quidel Corporation and its subsidiaries.
Future Uncertainties and Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 21E of the federal securities lawsSecurities Exchange Act of 1934, as amended (the “Exchange Act”). For this purpose, any statements contained herein that involve material risks, assumptionsare not statements of historical fact, including without limitation certain statements under Part I, Item 2, “Management’s Discussion and uncertainties. Many possible eventsAnalysis of Financial Condition and Results of Operations” and Part II, Item 1A, “Risk Factors” and located elsewhere herein regarding industry prospects and our results of operations or factors could affect our future financial results and performance, such that our actual results and performance may differ materially from those thatposition, may be described or implied in thedeemed to be forward-looking statements. As such, no forward-looking statement can be guaranteed. Differences in actual results and performance may arise as a result of a number of factors including, without limitation:Without limiting the impact offoregoing, the novel virus (words COVID-19) global pandemic; competition; our development of new technologies, products and markets; our reliance on sales of our influenza and COVID-19 diagnostic tests; our reliance on a limited number of key distributors; the financial soundness of our customers and suppliers; acceptance of our products among physicians and other healthcare providers; the reimbursement system currently in place and future changes to that system; our ability to meet demand for our products; interruptions or shortages in our supply of raw materials and other components; costs and disruptions from failures in our information technology and storage systems and our exposure to data corruption, cyber-based attacks, security breaches and privacy violations; international risks, including but not limited to, compliance with product registration requirements, compliance with legal requirements, tariffs, exposure to currency exchange fluctuations and foreign currency exchange risk, longer payment cycles, lower selling prices and greater difficulty in collecting accounts receivable, reduced protection of intellectual property rights, social, political and economic instability, increased financial accounting and reporting burdens and complexities, taxes, and diversion of lower priced international products into U.S. market; worldwide political and social uncertainty, including tariffs, trade wars or social tensions; our development, acquisition and protection of proprietary technology rights; intellectual property risks, including but not limited to, infringement litigation, loss of our Emergency Use Authorization from the U.S. Food and Drug Administration (the “FDA”) for our COVID-19 products; failures or delays in receipt of new product reviews or related to currently-marketed products by FDA or other regulatory authorities or loss of any previously received regulatory approvals or clearances or other adverse actions by regulatory authorities; funding and compliance risks relating to government contracts, including the ability to meet key deliverables and milestones under our NIH RADx ATP contract; product defects; compliance with government regulations relating to the handling, storage and disposal of hazardous substances; our ability to identify and successfully acquire and integrate potential acquisition targets; our need for additional funds to finance our capital or operating needs; competition for and loss of management and key personnel; our exposure to claims and litigation that could result in significant expenses and could ultimately result in an unfavorable outcome for us; business risks not covered by insurance; changes in tax rates and exposure to additional tax liabilities or assessments; and provisions in our charter documents and Delaware law that might delay or impede stockholder actions with respect to business combinations or similar transactions. Forward-looking statements typically are identified by the use of terms such as “may,“may,” “will,” “should,” “might,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “goal,” “project,” “strategy,” “future,” and similar words although someare intended to identify forward-looking statements are expressed differently. Forward-looking statements instatements. Our business is subject to a number of risks, including those discussed under Part II, Item 1A, “Risk Factors” of this Quarterly Report include, among others, statements concerning: our outlook for the remainder of 2021 including the sources of expected growthon Form 10-Q and the sustainability of demand for COVID-19 testing; our initiatives for the remainder of 2021, including research and development activities and emphasis and our production capacity expansion; the expected timing of commencement of operations at our Carlsbad facility; that we expect to continue to make substantial expenditures for research and development activities; the nature and amount of projected capital expenditures for the remainder of 2021 and our source of funds for such expenditures; the sufficiency of our liquidity and capital resources, including the impact of COVID-19 thereon; our strategy, goals, initiatives and objectives; our strategy, exposure to, and defenses against, claims and litigation; the sufficiency of our liquidity and our short-term needs for capital; that we may incur additional debt or issue additional equity; and our intention to continue to evaluate technology, product lines and acquisition and licensing opportunities. The risks described underPart I, Item IA, “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, and elsewhere2021, that could cause actual results to differ materially from those indicated by forward-looking statements made herein and in reports and registration statements that we file with the Securities and Exchange Commission (the “SEC”)presented elsewhere by management from time to time, should be carefully considered. You are cautioned not to place undue reliance on thesetime. Such forward-looking statements which reflectrepresent management’s analysis only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to publicly release thecurrent expectations and are inherently uncertain. Investors are warned that actual results of any revision or update of these forward-looking statements, whether as a result of new information, future events or otherwise.may differ from management’s expectations.
The following should be read in conjunction with the Consolidated Financial Statements and Notesnotes thereto beginning on page 3 of this Quarterly Report.
Overview
Our primary mission is to advance diagnostics to improve human health. We have a leadership position in the development, manufacturing and marketing of rapid diagnostic testing solutions. We separate these into our four product categories: rapid immunoassay, cardiometabolic immunoassay, molecular diagnostic solutions and specialized diagnostic solutions. We currently sell our products directly to end users and distributors, in each case, for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, urgent care clinics, leading universities, retail clinics, pharmacies and wellness screening centers.centers, as well as for individual, non-professional, over-the-counter (“OTC”) use. More recently, we have begun to reach significant new markets as we introduced our QuickVue® At-Home OTC COVID-19 Test for reopening schools, and for health departments, employers, entertainment centers and many other locations. We market our products through a network of distributors and through a direct sales force. We operate in one business segment that develops, manufactures and markets our products globally.
For the three months ended March 31, 2022, total revenues increased 167% to $1,002.3 million as compared to the same period in the prior year, and currency exchange rates had a minimal impact on growth rate. Our revenues can be highly concentrated over a small number of products. For the three months ended March 31, 2022 and 2021, sales of our COVID-19 products accounted for 83% and 72% of our total revenue, respectively. For the three months ended March 31, 2022 and 2021, sales of our influenza products accounted for 9% and 4% of our total revenue, respectively. Additionally, a significant portion of our total revenue is from a relatively small number of customers. Approximately 60% and 34% of our total revenue for the three months ended March 31, 2022 and 2021, respectively, were related to sales to our three largest customers.
Recent Developments
On December 22, 2021, we entered into the BCA with Ortho, Topco, US Holdco Sub, US Merger Sub and US Holdco Sub 2. Under the terms of the BCA, we are entering into the Combinations with Ortho under Topco, a new holding company. The Combinations are expected to be implemented by way of (i) the Ortho Scheme, pursuant to which each issued and outstanding Ortho share will be acquired by a nominee of Topco, such that Ortho will become a wholly owned subsidiary of Topco, and (ii) the Quidel Merger immediately following consummation of the Ortho Scheme, with us surviving the merger as a wholly owned subsidiary of Topco.
At the effective time of the Ortho Scheme, each Ortho Share will be acquired by a nominee on behalf and for the benefit of Topco in exchange for 0.1055 Topco Shares and $7.14 in cash. At the effective time of the Quidel Merger, each Quidel Share will be converted into the right to receive one Topco Share. Ortho will be acquired for total consideration of approximately $4.3 billion (which is based on the April 26, 2022 closing price of $100.12 per Quidel Share), including $1.7 billion of cash, funded through cash on our balance sheet and expected incremental borrowings. Following the closing of the Combinations, Ortho’s current net debt of $2.0 billion is expected to continue to be outstanding. The Combinations are expected to be completed in the second quarter of 2022.
If the Combinations are completed, Ortho shareholders are expected to own approximately 38% of Topco on a fully diluted basis and our stockholders are expected to own approximately 62% of Topco on a fully diluted basis, based on Ortho’s capitalization and our capitalization as of the date of the BCA. The parties intend to list the Topco Shares to be issued in the Combinations on Nasdaq. For additional information about the pending Combinations and the preliminary unaudited pro forma financial information, see Topco’s prospectus, filed with the Securities and Exchange Commission (the “SEC”) on April 11, 2022.
Impact of COVID-19 Pandemic
Events surrounding the SARS-CoV-2 virus that emerged in late 2019 and the ensuing global pandemic has had a dramatic impact on businesses globally and our business as well. The severity and duration of the pandemic and economic repercussions of the virus and government actions in response to the pandemic remain uncertain and will ultimately depend on many factors, including the speed of global dissemination and effectiveness of the vaccination and containment efforts throughout the world, the duration and spread of the virus, as well as potential seasonality, variants or new outbreaks.
In the United States, federal, state and local government directives and policies have beenwere put in place to manage public health concerns and address the economic impacts, including reduced business activity increased unemployment, and overall uncertainty presented by this new healthcare challenge. Similar actions have been taken by governments around the world. While all our sites are currentlyfacilities remain operational globally, our facilities could be required to temporarily curtail production levels or temporarily cease operations based on government mandates or as a result of the pandemic. To mitigate risks, we continue to evaluate the extent to which COVID-19 may impact our business and operations and adjust risk mitigation planning and business continuity activities as needed.
New SARS-CoV-2 Diagnostic Products
As a leader in point-of-care diagnostics and with established expertise in respiratory infectious disease products, we arewere and remain well-positioned to respond to the COVID-19 pandemic. We work closely with national and local governments, agencies, and industry partners to develop, manufacture and supply critical diagnostic products to support testing initiatives to help curb the spread of the SARS-CoV-2 virus. In particular, we developed new molecular and antigen products to diagnose the SARS-CoV-2 virus. We have experienced exceptional demand for such products. In response, we committed significant resources toward the expansion of our production capacity.
We expect demand for our molecular and antigen assays and instruments to continue for the near-term, especially in the United States. At the same time, we also have observed decreasedfluctuating demand for certain of our other diagnostic products in connection with customers closing or decreasing their operations and/or patients deferring treatment.products. The extent to which COVID-19 will impact demand for our products depends on future developments, which are highly uncertain and very difficult to predict, including new information that may emerge concerning the severity of the coronavirus,COVID-19, regulatory changes in any of the markets in which we serve, impact of new SARS-CoV-2 variants and actions to contain and treat its impacts,their impact, including the vaccination programs now beingthat have been implemented.
Operations and Employee Safety
While many governments implemented lockdown and shelter-in-place orders, requiring non-essential businesses to shut down operations, our business is deemed “essential” and we continued to operate, manufacture and distribute products to customers. We implemented preparedness plans designed to help protect the safety of our employees and maintain operational continuity with an emphasis on manufacturing, product distribution and product development during this crisis. To date, we have been able to maintain our operations without significant interruption and have been able to develop and quickly scale manufacturing capacity for new products related to the COVID-19 pandemic.
To mitigate the pandemic’s impact, we implemented preventative protocols intended to help safeguard our on-site employees and maintain business continuity. These measures have created additional burdens on our infrastructure and information technology systems and may result in decreased productivity and increased operating costs. However, the various responses we have put in place have to date resulted in limited disruption to our normal business operations.
Supply Chains
As a result of the COVID-19 pandemic, and other economic and geopolitical conditions, we have seen delays in receipts forreceiving certain raw materials and components for our products. Such delays can result in disruption to our business operations. In response, we have increased safety stock of certain critical components and finished goods for which we have seen extraordinary demand. We are continuously evaluating our supply chain to identify potential gaps and take steps intended to help ensure continuity. We have considered potential political, legal or regulatory actions that could be taken as a result of the pandemic in jurisdictions where we manufacture, source or distribute products that could impact our supply of products to our customers or the availability of raw materials and components from our suppliers. We cannot currently predict the frequency, duration or scope of these government actions and any supply disruptions, and the availability of various products is dependent on our suppliers, their location and the extent to which they are impacted by the COVID-19 pandemic, among other factors. We arecontinue to proactively workingwork with manufacturers, industry partners and government agencies to help meet the needs of our customers during the pandemic.these supply chain constraints.
Our inventory levels may fluctuate due to supply chain variability in conjunction with larger and more frequent customer orders. In response, we have added alternate suppliers for certain critical components and instruments, increased inventory of raw materials needed in our operations, increased manufacturing capacity and continue to explore opportunities for further expansion in our Athens, Ohio, and San Diego, California facilities. In January 2021, we significantly expanded our capacity by entering into a long-term lease for an additional manufacturing facility inand Carlsbad, California. This facility is expected to begin operations in the second half of 2021.California facilities.
We are seeking to minimize the impact of delays and secure allocations of vital raw materials to meet demand for our products. However, dependent on thedespite our mitigation efforts, and vaccination roll outs, we may continue to experience some sort of interruptioninterruptions to our supply chains, and such an interruptioninterruptions could materially affect our ability to timely manufacture and distribute our products and unfavorably impact our results of operations depending on the nature and duration of such interruption.interruptions.
Outlook
Our financial performance and results of operations will depend on future developments and other factors that are highly uncertain, continuously evolving and cannot be predicted,unpredictable, including the duration, of the COVID-19 outbreak, the severity and continuation of outbreak surges of the COVID-19 pandemic and actions to contain the spread of the virus such as mask wearing, social distancing and vaccination efforts globally, and the impact of these and other factors onglobally. While demand for COVID-19 testing demand. Whilecan fluctuate dramatically, as we have seen a decrease in demand from the extremely high levels experienced in the fourth quarter of 2020,2021, we continue to believe that for at least the remainder of 2021, some level of COVID-19 testing demand is sustainable.will be sustainable through at least 2022. We believe thissome level of ongoing COVID-19 testing will be required as communities attempt a return to more normal practices in schools, the workplace and entertainment venues. With respect to our core products, we anticipate revenue growth, for these products for the second half of 2021, assuming a normalized respiratory season.
We expect to continue to invest heavily in research and development activities for our next generation immunoassay and molecular platforms, as well as additional assays to be launched on our current platforms. Additionally, we are making substantial investments in the expansion of our production capacity, whilecapacity. While initially this expansion was to address the testing demand driven by the COVID-19 pandemic, longer-termin the long-term, we expect this capacityexpansion to provide increased flexibility to address opportunities for new products and to address new markets globally. We intend to continue our focus on prudently managing our business and delivering improved financial results (excluding the effects of revenues from COVID-19 products), while at the same time striving to introduce new products into the market and maintain our emphasis on research and development investments for longer termlonger-term growth. Finally, we expect to continue to evaluate strategic opportunities to acquire new product lines, technologies and companies.
Three months ended June 30, 2021March 31, 2022 compared to the three months ended June 30, 2020March 31, 2021
Total Revenues
The following table compares total revenues for the three months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands, except percentages): | | | Three Months Ended June 30, | | Increase (Decrease) | | Three Months Ended March 31, | | Increase (Decrease) |
| | 2021 | | 2020 | | $ | | % | | 2022 | | 2021 | | $ | | % |
Rapid Immunoassay | Rapid Immunoassay | $ | 60,070 | | | $ | 80,606 | | | $ | (20,536) | | | (25) | % | Rapid Immunoassay | $ | 892,810 | | | $ | 237,670 | | | $ | 655,140 | | | 276 | % |
Cardiometabolic Immunoassay | Cardiometabolic Immunoassay | 71,666 | | | 54,191 | | | 17,475 | | | 32 | % | Cardiometabolic Immunoassay | 50,153 | | | 66,552 | | | (16,399) | | | -25 | % |
Molecular Diagnostic Solutions | Molecular Diagnostic Solutions | 34,456 | | | 55,177 | | | (20,721) | | | (38) | % | Molecular Diagnostic Solutions | 45,989 | | | 60,263 | | | (14,274) | | | -24 | % |
Specialized Diagnostic Solutions | Specialized Diagnostic Solutions | 10,418 | | | 11,780 | | | (1,362) | | | (12) | % | Specialized Diagnostic Solutions | 13,307 | | | 10,853 | | | 2,454 | | | 23 | % |
Total revenues | Total revenues | $ | 176,610 | | | $ | 201,754 | | | $ | (25,144) | | | (12) | % | Total revenues | $ | 1,002,259 | | | $ | 375,338 | | | $ | 626,921 | | | 167 | % |
For the three months ended June 30, 2021,March 31, 2022, total revenue decreasedrevenues increased to $176.6$1,002.3 million from $201.8$375.3 million for the same period in the prior period.year. The Rapid Immunoassay andcategory was the largest contributor to revenue growth, primarily driven by an increase of $652.6 million in sales of QuickVue SARS Antigen assays. Cardiometabolic Immunoassay sales decreased by $16.4 million largely driven by lower BNP sales due to the transition of the BNP Business to Beckman Coulter, Inc. Molecular Diagnostic Solutions categories were the largest contributors to revenue decline,sales decreased by $14.3 million driven primarily by decreased pricing on the Lyra® Antigen assay. The increase in Specialized Diagnostic Solutions sales was driven primarily by increased demand for cell culture respiratory products in 2022 as there was no cold and flu season in the Sofia SARS Antigen assayfirst quarter of 2021. For the three months ended March 31, 2022 and Lyra SARS-CoV-2 assays. This was partially offset by increased2021, sales of the QuickVue SARS Antigenour influenza products were $89.1 million and Solana SARS assays. Cardiometabolic Immunoassay sales increased $17.5$16.4 million, as COVID-19 restrictions have begun to lift globally and sales are returning to pre-pandemic levels.respectively. Currency exchange rate impact for the quarterthree months ended March 31, 2022 was favorableunfavorable by $2.8$1.0 million, which had a 1.6%1.7% impact on the growth rate.
Gross Profit
Gross profit decreasedincreased to $106.2 million, or 60% of revenue for the three months ended June 30, 2021, compared to $148.8$740.0 million, or 74% of revenue for the three months ended June 30, 2020.March 31, 2022, compared to $302.0 million, or 80% of revenue for the three months ended March 31, 2021. The decreasedincreased gross profit was drivendue to higher sales volumes in the current period, partially offset by changes in product mix and lower selling prices for our SARS products and unfavorable product mix due to lower demand for SARS products and increased demand for Cardiometabolic Immunoassay products. Increases in supply chain and other indirect manufacturing costs also contributed to lower gross profit inwere offset by increased absorption driven by higher production volumes. Gross margin for the period. Gross marginthree months ended March 31, 2022 declined as compared to last year due to the same factors.period in the prior year driven primarily by product mix and lower selling prices.
Operating Expenses
The following table compares operating expenses for the three months ended June 30,March 31, 2022 and 2021 and 2020 (in thousands, except percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | |
| 2021 | | 2020 | | | | |
| Operating expenses | | As a % of total revenues | | Operating expenses | | As a % of total revenues | | Increase (Decrease) |
| $ | | % |
Research and development | $ | 22,614 | | | 13 | % | | $ | 20,970 | | | 10 | % | | $ | 1,644 | | | 8 | % |
Sales and marketing | $ | 38,100 | | | 22 | % | | $ | 27,567 | | | 14 | % | | $ | 10,533 | | | 38 | % |
General and administrative | $ | 21,138 | | | 12 | % | | $ | 15,679 | | | 8 | % | | $ | 5,459 | | | 35 | % |
Acquisition and integration costs | $ | 1,028 | | | 1 | % | | $ | 872 | | | — | % | | $ | 156 | | | 18 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | |
| 2022 | | 2021 | | | | |
| Operating expenses | | As a % of total revenues | | Operating expenses | | As a % of total revenues | | Increase (Decrease) |
| $ | | % |
Research and development | $ | 26,368 | | | 3 | % | | $ | 23,304 | | | 6 | % | | $ | 3,064 | | | 13 | % |
Sales and marketing | $ | 65,388 | | | 7 | % | | $ | 34,233 | | | 9 | % | | $ | 31,155 | | | 91 | % |
General and administrative | $ | 24,508 | | | 2 | % | | $ | 19,507 | | | 5 | % | | $ | 5,001 | | | 26 | % |
Acquisition and integration costs | $ | 3,037 | | | 0 | % | | $ | 726 | | | 0 | % | | $ | 2,311 | | | 318 | % |
Research and Development Expense
Research and development expense for the three months ended June 30, 2021 was heavily focused on Savanna instrument and cartridge development and clinical work, Sofia Serology and Gastrointestinal assay chemicals and next generation platform development. Research and development expensesMarch 31, 2022 increased to $26.4 million from $21.0$23.3 million to $22.6 millionfor the same period in the prior year, primarily due primarily to increased costs related to the Savanna® development, partially offset by lower spending on the Savanna instrumentQuickVue OTC assays and cartridge development in preparation for clinical trials.
Research and development expenses includeexpense includes direct external costs such as fees paid to third-party contractors and consultants, and internal direct and indirect costs such as compensation and other expenses for research and development personnel, supplies and materials, clinical trials and studies, facility costs and depreciation.
Sales and Marketing Expense
Sales and marketing expense for the three months ended June 30, 2021March 31, 2022 increased to $65.4 million from $27.6$34.2 million for the same period in the prior year, primarily driven by higher freight expense due to $38.1 million due primarily tohigher sales volume, higher product promotional spend associated with the launch of the QuickVue At HomeAt-Home OTC COVID-19 Test as well asand higher compensation costs driven by increased travel and meetings as COVID-19 related travel restrictions ease.headcount.
General and Administrative Expense
General and administrative expense for the three months ended June 30, 2021March 31, 2022 increased to $24.5 million from $15.7$19.5 million to $21.1 million compared withfor the same period in the prior year primarily due to increased spend on IT projects and higher compensation costs driven by increased headcount to supportimproved performance during the growth of the business.current period.
Acquisition and Integration Costs
Acquisition and integration costs were $1.0of $3.0 million and $0.9$0.7 million for the three months ended June 30,March 31, 2022 and 2021, and 2020, respectively, primarily related to the evaluation of new business development opportunities.pending Combinations with Ortho.
Interest and Other Expense, Net
Interest and other expense, net primarily relates to accretion of interest on the deferred consideration coupon and accretion of interest related to our Convertible Senior Notes and interest and amortization of deferred financing costs associated with our Credit Agreement. Interest and other expense, net for the three months ended June 30, 2021March 31, 2022 decreased from $3.5 million to $1.6by $2.4 million compared withto the same period in the prior year, primarily due primarily to the maturity of the Company’s Convertible Senior Notes in December 2020, including an unfavorable $1.1 million change in fair value of derivative liabilities associated with a Convertible Senior Notes conversion. Additionally,decreased interest expense decreased due toas a result of a lower deferred consideration liability outstanding duringin 2022 compared to 2021.
Income Taxes
TheFor the three months ended March 31, 2022 and 2021, the Company recognized income tax provisions of $2.6$140.7 million in relation to income before taxes of $21.7$620.6 million and $12.5$43.7 million in relation to income before taxes of $80.2$221.8 million, respectively, resulting in effective tax rates of 12%23% and 16% for the three months ended June 30, 2021 and 2020,20%, respectively. The lowerhigher tax expense for the three months ended June 30, 2021March 31, 2022 compared to the same period in the prior year is primarily a result of lower pre-tax profits.
Six months ended June 30, 2021 compared to the six months ended June 30, 2020
Total Revenues
The following table compares total revenues for the six months ended June 30, 2021 and 2020 (in thousands, except percentages): | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Increase (Decrease) |
| 2021 | | 2020 | | $ | | % |
Rapid Immunoassay | $ | 297,740 | | | $ | 176,536 | | | $ | 121,204 | | | 69 | % |
Cardiometabolic Immunoassay | 138,218 | | | 108,092 | | | 30,126 | | | 28 | % |
Molecular Diagnostic Solutions | 94,719 | | | 63,540 | | | 31,179 | | | 49 | % |
Specialized Diagnostic Solutions | 21,271 | | | 28,239 | | | (6,968) | | | (25) | % |
Total revenues | $ | 551,948 | | | $ | 376,407 | | | $ | 175,541 | | | 47 | % |
For the six months ended June 30, 2021, total revenue increased to $551.9 million from $376.4 milliona proportionate increase in the prior year. The Rapid Immunoassay category was the largest contributor to revenue growth, driven by sales of the Sofia SARS Antigen assays. Molecular Diagnostic Solutions sales grew $31.2 million over prior year, driven by the sales of Lyra SARS-CoV-2 assays. Cardiometabolic Immunoassay sales increased $30.1 million as COVID-19 restrictions have begun to lift and sales
return to pre-pandemic levels. The decrease in Specialized Diagnostic Solutions sales was driven primarily by a decline in demand for the cell culture respiratory products as there was no cold and flu season in the first quarter of 2021. Currency exchange rate impact for the first half was favorable by $4.8 million, which had a 1.7% impact on the growth rate.
Gross Profit
Gross profit increased to $408.1 million, or 74% of revenue for the six months ended June 30, 2021, compared to $263.7 million, or 70% of revenue for the six months ended June 30, 2020. The increased gross profit was due to higher sales volumes in the current period as well as improved product mix driven by continued demand for our SARS assays. The gains were partially offset by higher indirect manufacturing costs. Gross margin improved as compared to the same period in the prior year driven primarily by improved product mix.
Operating Expenses
The following table compares operating expenses for the six months ended June 30, 2021 and 2020 (in thousands, except percentages): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | |
| 2021 | | 2020 | | | | |
| Operating expenses | | As a % of total revenues | | Operating expenses | | As a % of total revenues | | Increase (Decrease) |
| $ | | % |
Research and development | $ | 45,918 | | | 8 | % | | $ | 37,349 | | | 10 | % | | $ | 8,569 | | | 23 | % |
Sales and marketing | $ | 72,333 | | | 13 | % | | $ | 58,305 | | | 15 | % | | $ | 14,028 | | | 24 | % |
General and administrative | $ | 40,645 | | | 7 | % | | $ | 30,011 | | | 8 | % | | $ | 10,634 | | | 35 | % |
Acquisition and integration costs | $ | 1,754 | | | — | % | | $ | 2,786 | | | 1 | % | | $ | (1,032) | | | (37) | % |
Research and Development Expense
Research and development expense for the six months ended June 30, 2021 increased from $37.3 million to $45.9 million. Development costs for the year primarily consisted of spending on the Savanna instrument and cartridge and Sofia SARS and QuickVue At Home OTC COVID-19 Test. Increases over prior year were driven primarily by Savanna development in preparation for clinical trials.
Research and development expenses include direct external costs such as fees paid to third-party contractors and consultants, and internal direct and indirect costs such as compensation and other expenses for research and development personnel, supplies and materials, clinical trials and studies, facility costs and depreciation.
Sales and Marketing Expense
Sales and marketing expense for the six months ended June 30, 2021 increased $14.0 million to $72.3 million compared with the prior year, primarily due to product promotional spend associated with the launch of QuickVue At Home OTC COVID-19 Test, higher compensation costs driven by increased headcount and increased travel, meeting and trade show costs as COVID-19 related travel restrictions ease.
General and Administrative Expense
General and administrative expense for the six months ended June 30, 2021 increased from $30.0 million to $40.6 million compared with the prior year due to increased spend on IT projects and higher compensation costs driven by increased headcount to support the growth of the business.
Acquisition and Integration Costs
Acquisition and integration costs of $1.8 million and $2.8 million for the six months ended June 30, 2021 and 2020, respectively, primarily related to the evaluation of new business development opportunities.
Other Expense, net
Interest and other expense, net primarily relates to accretion of interest on the deferred consideration, coupon and accretion of interest related to our Convertible Senior Notes and interest and amortization of deferred financing costs associated with our Credit Agreement. Interest and other expense, net for the six months ended June 30, 2021 decreased from $6.3 million to $4.0 million compared with the prior year due primarily to the maturity of the Company’s Convertible Senior Notes in December 2020, including an unfavorable $1.1 million change in fair value of derivative liabilities associated with Convertible Senior Notes conversionin the second quarter of 2020. Additionally, interest expense decreased due to lower deferred consideration liability outstanding during 2021.
Income Taxes
For the six months ended June 30, 2021 and 2020, the Company recognized income tax provision of $46.3 million and $21.1 million, respectively, in relation to income before taxes of $243.5 million and $129.0 million. The higher tax expense for the six months ended June 30, 2021 compared to the same period in the prior year is a result of higher pre-tax profits, as well as a proportional decrease in tax deductions from stock-based compensation.
Liquidity and Capital Resources
As of June 30, 2021March 31, 2022 and December 31, 2020,2021, the principal sources of liquidity consisted of the following (in thousands): | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 593,224 | | | $ | 489,941 | |
Amount available to borrow under the Revolving Credit Facility | $ | 175,000 | | | $ | 175,000 | |
Working capital including cash and cash equivalents | $ | 708,420 | | | $ | 805,441 | |
| | | |
| | | |
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 1,275,536 | | | $ | 802,751 | |
Marketable securities, current | 44,270 | | | 25,758 | |
Marketable securities, non-current | 20,726 | | | 37,852 | |
Total cash, cash equivalents and marketable securities | $ | 1,340,532 | | | $ | 866,361 | |
Amount available to borrow under the Revolving Credit Facility | $ | 175,000 | | | $ | 175,000 | |
Working capital including cash and cash equivalents and marketable securities, current | $ | 1,620,994 | | | $ | 1,116,790 | |
| | | |
| | | |
As of June 30, 2021,March 31, 2022, we had $593.2$1,275.5 million in cash and cash equivalents, a $103.3$472.8 million increase from December 31, 2020.2021 driven primarily by cash generated from operations. Our cash requirements fluctuate as a result of numerous factors, such as cash generated from operations, progress in research and development, or capital expansion projects and integrationacquisition and business development activities. In addition,On December 22, 2021, we intendentered into the BCA, pursuant to which we will be entering into the Combinations with Ortho under Topco, a new holding company. Ortho will be acquired for total consideration of approximately $4.3 billion (which is based on the April 26, 2022 closing price of $100.12 per Quidel Share), including $1.7 billion of cash, funded through cash on our balance sheet and expected incremental borrowings. Following the closing of the Combinations, Ortho’s current net debt of $2.0 billion is expected to continue to evaluate candidates for new product lines, company or technology acquisitions or technology licensing. If we decide to proceed with any such transactions, we may need to incur additional debt or issue additional equity to successfully complete the transactions.be outstanding.
Our primary source of liquidity, other than our holdings of cash and cash equivalents, has been cash flows from operations and our Revolving Credit Facility.operations. Cash generated from operations provides us with the financial flexibility we need to meet normal operating, investing and financing needs. We do not currently expect the impacts of the COVID-19 pandemic to adversely affect our liquidity and capital resources or our ability to meet financial commitments. We anticipate that our current cash and cash equivalents, together with cash provided by operating activities and incremental borrowings will be sufficient to fund our near-term capital and operating needs for at least the next 12 months.
Normal operating needs include the planned costs to operate our business, including amounts required to fund working capital, research and development, and capital expenditures. Our primary short-term needs for capital, which are subject to change, include expenditures related to:
•acquisitions of equipment and other fixed assets in support and expansion of our manufacturing facility expansion;
•the continued advancement of research and development efforts;
•support of commercialization efforts related to our current and future products, including support of our direct sales force and field support resources;
•interest on and repayments of our deferred consideration, contingent consideration and lease obligations; and
•potential strategic acquisitions and investments.
The Amended and Restated Credit Agreement provides us with a Revolving Credit Facility of $175.0 million and there iswas no balance outstanding as of June 30, 2021.March 31, 2022. The Revolving Credit Facility matures on August 31, 2023. See Note 5 ofto the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report for further discussion of the Revolving Credit Facility.
In connection with the acquisition of the BNP Business, the Company has an annual installment payment of $48.0 million payable in 2022 of up to $48.0 million and an annual installment payment of $40.0 million payable in 2023. As of June 30, 2021,March 31, 2022, these payments arewere recorded at fair value as contingent consideration of $5.8$5.9 million and deferred consideration of $76.5$79.4 million.
On December 12, 2018, our Board of Directors (the “Board”) authorized a stock repurchase program, allowing the Company to purchaserepurchase up to $50.0 million of the Company’s shares ofits common stock. On August 28, 2020, we announcedthe Board approved an amendment to the stock repurchase program to purchasethat authorized repurchases of an additional $150.0 million of our shares of common stock through August 28, 2022. As of March 31, 2022, and as of June 30, 2021, the Companywe had approximately $52.9 million available under the stock repurchase program.
We expect our revenue and operating expenses will significantly impact our cash management decisions. Our future capital requirements and the adequacy of our available funds to service ourany long-term debt outstanding and to fund working capital expenditures and business development efforts will depend on many factors, including:
•our ability to realize revenue growth from our new technologies and create innovative products in our markets;
•our ability to manage our recent significant growth and facility expansions;
•outstanding debt and covenant restrictions;
•our ability to leverage our operating expenses to realize operating profits as we grow revenue;
•competing technological and market developments; and
•our entry into strategic collaborations with other companies or acquisitions of other companies or technologies to enhance or complement our product and service offerings.
Cash Flow Summary | | | Six Months Ended June 30, | | Three Months Ended March 31, |
(In thousands) | (In thousands) | 2021 | | 2020 | (In thousands) | 2022 | | 2021 |
Net cash provided by operating activities: | Net cash provided by operating activities: | $ | 407,433 | | | $ | 120,177 | | Net cash provided by operating activities: | $ | 500,972 | | | $ | 585,457 | |
Net cash used for investing activities: | Net cash used for investing activities: | (130,273) | | | (13,388) | | Net cash used for investing activities: | (24,670) | | | (64,569) | |
Net cash used for financing activities: | Net cash used for financing activities: | (173,969) | | | (87,019) | | Net cash used for financing activities: | (3,408) | | | (29,648) | |
Effect of exchange rates on cash | Effect of exchange rates on cash | 92 | | | 44 | | Effect of exchange rates on cash | (109) | | | (129) | |
Net increase in cash and cash equivalents | Net increase in cash and cash equivalents | $ | 103,283 | | | $ | 19,814 | | Net increase in cash and cash equivalents | $ | 472,785 | | | $ | 491,111 | |
Cash provided by operating activities of $407.4$501.0 million duringfor the sixthree months ended June 30, 2021March 31, 2022 reflects net income of $197.2$479.9 million and non-cash adjustments of $36.0$34.6 million primarily associated with depreciation, amortization, stock-based compensation, net change in operating lease right-of-use assets and the payment ofliabilities, and accretion of interest on deferred consideration. In addition, the companyCompany realized a net working capital contributionuse of $174.1$1.4 million primarily driven by a decreasean increase in accounts receivable, partially offset by a decreasean increase in income taxes payable and an increase in product inventory.accounts payable. For the sixthree months ended June 30, 2020,March 31, 2021, cash provided by operating activities of $120.2$585.5 million reflects net income of $107.9$178.1 million and non-cash adjustments of $39.3$21.3 million primarily associated with depreciation, amortization, stock-based compensation and accretion of interest on deferred consideration. Partially offsetting these inflows wasIn addition, we realized a net working capital useincrease of cash of $23.3$373.6 million driven by increasesa decrease in accounts receivable, and product inventory, partially offset by an increaseincreases in income taxes payable.product inventory.
Our investing activities used $130.3$24.7 million during the sixthree months ended June 30,March 31, 2022 primarily related to investments in manufacturing equipment, building improvements, Sofia, Solana® and Triage® instruments available for lease and scientific equipment. Additionally, we purchased $15.9 million and sold $13.7 million of available-for-sale securities during the three months ended March 31, 2022. Our investing activities used $64.6 million during the three months ended March 31, 2021 primarily related to investments in manufacturing equipment, and building improvements, Sofia, Solana and Triage instruments available for lease, building improvements and purchases of scientific equipment, partially offset by government proceeds received to fund such investments. Our investing activities used $13.4 million during the six months ended June 30, 2020 primarily related to payments for manufacturing equipment, computer equipment, building improvements, and Sofia, Solana and Triage instruments available for lease.
We are currently planning approximately $120$127.6 million in capital expenditures for the remainder of 2021.2022. The primary purposepurposes for our capital expenditures isare to invest in manufacturing capacity expansion, to acquire Savanna, Sofia, Solana and Triage instruments, to acquire scientific equipment, to purchase or develop information technology and to implement facility improvements. We plan to fund the capital expenditures with the cash on our balance sheet.
Cash used by financing activities was $174.0$3.4 million duringfor the sixthree months ended June 30, 2021March 31, 2022 primarily related to repurchases of common stock of $103.4 million, payments of tax withholdings for vesting of stock-based awards of $35.4 million, and payment on deferred and contingent consideration of $39.9$6.8 million, partially offset by proceeds of $3.5 million from the issuance of common stock under the ESPP and pursuant to stock option exercises of $4.9 million.exercises. Cash used by financing activities was $87.0$29.6 million duringfor the sixthree months ended June 30, 2020March 31, 2021 primarily related to repurchases of common stock of $42.2 million, payment on
deferred and contingent consideration of $48.0 million, and payments of tax withholdings for vesting of stock-based awards of $2.7$33.9 million, partially offset by proceeds from the issuance of common stock under ESPP and stock option exercises of $6.1$4.4 million.
Seasonality
Sales of our respiratory products are subject to, and significantly affected by, the seasonal demands of the cold and flu seasons, prevalent during the fall and winter. As a result of these seasonal demands, we typically experience lower sales volume in the second and third quarters of the calendar year, and typically have higher sales in the first and fourth quarters of the calendar year. The COVID-19 pandemic and impact of sales of our COVID-19 products combined with a very mild flu season diminished the seasonal effects in the first quarter of 2022. Historically, sales of our influenza products have varied from year to year based, in large part, on the severity, length and timing of the onset of the cold and flu season.The COVID-19 pandemic combined with no flu season diminished the seasonal effects for our influenza products in the first half of 2021.
Off-Balance Sheet ArrangementsRecent Accounting Pronouncements
At June 30, 2021Information about recently adopted and December 31, 2020, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referredproposed accounting pronouncements is included in Note 1 to as structured finance or special purpose entities, which would have been established for the purposeConsolidated Financial Statements in Part I, Item 1 of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.this Quarterly Report under the heading “Recent Accounting Pronouncements” and is incorporated herein by reference.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations isare based on our consolidated financial statements,Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, management evaluates itswe evaluate our estimates, including those related to reserves for contractual rebates, goodwill and intangiblesintangible assets and income taxes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.estimates.
A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s“Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. There were no material changes to our critical accounting policies and estimates during the sixthree months ended June 30, 2021.March 31, 2022.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.
Our current investment policy with respect to our cash and cash equivalents focuses on maintaining acceptable levels of interest rate risk and liquidity. Although we continually evaluate our placement of investments, our cash equivalents as of June 30, 2021March 31, 2022 consisted primarily of prime money market funds. TheThese funds provide daily liquidity and may be subject to interest rate risk and falldecrease in value if market interest rates increase. We do not expect our operating results or cash flows to be affected to any significant degree by a sudden change in market interest rates.
Foreign Currency Exchange Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany balances with foreign subsidiaries and transactions denominated in currencies other than a location’sthe functional currency.
currency of the local jurisdiction.DuringFor the sixthree months ended June 30, 2021,March 31, 2022, total revenues were $551.9$1,002.3 million, of which approximately $96.6$74.0 million in revenue waswere denominated in currencies other than the U.S.US dollar. We believe constant currency revenue and the related constant currency changefluctuation rate, which are non-GAAP measures, enhance the comparison of our financial performanceresults from period-to-period and to that of our competitors.competitors because they present our operating performance without the effect of exchange rate variances. Constant currency revenue excludes the impact from foreign currency fluctuations, which was favorable $4.8unfavorable by $1.0 million f foror the sixthree months ended June 30, 2021,March 31, 2022, and is calculated by (i) translating current period revenues using prior period exchange rates net ofand (ii) excluding any hedging effect recognized in the current period. ConstantThe constant currency revenue changefluctuation rate (expressed as a percentage) is calculated by determining the change in current period constant currency revenues overrevenue compared to prior period revenues.revenue.
The major currencies to which our revenues are exposed are the Canadian Dollar, the Euro and the Chinese Yuan. A 100-basis point move in the average exchange rates (assuming a simultaneous and immediate 100 basis100-basis point change for the relevant period) would have resulted in an increase or decrease in our reported revenue for the sixthree months ended June 30, 2021March 31, 2022 as follows (in thousands): | | | | | | |
| | SixThree Months Ended
June 30,March 31, |
Currency | | 20212022 |
Canadian Dollar | | $ | 6,004 | |
Chinese Yuan | | $ | 2,092892 | |
Euro | | $ | 1,7541,218 | |
| | |
| | |
Our foreign currency management policy permits the use of derivative instruments, such as forward contracts, to reduce volatility in our results of operations resulting from foreign exchange rate fluctuations. We do not enter into foreign currency derivative instruments for trading purposes or to engage in speculative activity. See further discussion in Note 10 to the Notes to the Consolidated Financial Statements for additional information related to such forward contracts, which information is incorporated herein by reference.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures: We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).Act. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2021March 31, 2022 at a reasonable assurance level to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.forms of the SEC.
Changes in internal control over financial reporting: There was no change in our internal control over financial reporting during the quarter ended June 30, 2021March 31, 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings
The information set forth in the section entitled “Litigation and Other Legal Proceedings” under Note 8 to the Notes to the Consolidated Financial Statements, included in Part I, Item I of this Quarterly Report, is incorporated herein by reference.
ITEM 1A. Risk Factors
There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. For a detailed description of our risk factors, refer to Part I, Item IA, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.2021.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The table below sets forth information regarding repurchases of our common stock by us during the three months ended June 30, 2021.March 31, 2022. | | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased (1) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs (2) |
April 4, 2021 - May 2, 2021 | | 4,982 | | | $ | 130.01 | | | — | | | $ | 156,313,465 | |
May 3, 2021 - May 30, 2021 | | 4,233 | | | 120.26 | | | — | | | 156,313,465 | |
May 31, 2021 - July 4, 2021 | | 959,875 | | | 108.08 | | | 957,239 | | | 52,894,442 | |
Total | | 969,090 | | | $ | 108.25 | | | 957,239 | | | $ | 52,894,442 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total number of shares purchased (1) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs (2) |
January 3, 2022 - January 30, 2022 | | 28,723 | | | $ | 114.99 | | | — | | | $ | 52,894,442 | |
January 31, 2022 - February 27, 2022 | | 25,412 | | | 99.58 | | | — | | | 52,894,442 | |
February 28, 2022 - April 3, 2022 | | 9,016 | | | 109.26 | | | — | | | 52,894,442 | |
Total | | 63,151 | | | $ | 107.97 | | | — | | | $ | 52,894,442 | |
(1) Includes shares surrendered, if any, to the Company to satisfy the payment of minimum tax withholding obligations.
(2) On December 18, 2018, the Company announced a stock repurchase program to repurchase up to $50.0 million of the Company’s shares of common stock, which was authorized by the Board of Directors (the “Board”) on December 12, 2018. On August 28, 2020, the Board authorized an increase of an additional $150.0 million to the Company’s existing stock repurchase program authorization, which was announced on September 1, 2020. The Board also extended the stock repurchase authorizationprogram through August 28, 2022. During the three months ended June 30, 2021, the Company repurchased 957,239 shares of outstanding common stock under this program for approximately $103.4 million.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
ITEM 6. Exhibits | | | | | | | | |
| | |
3.1 | | |
3.2 | | |
3.3 | | |
4.1 | | |
10.110.1(1) | | |
10.210.2(1) | | |
10.3(1) | | |
10.4(1) | | |
10.5(1) | | |
10.6(1) | | |
31.1* | | |
31.2* | | |
32.1** | | |
101 | | The following financial statements from the Company'sRegistrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
|
104 | | The cover page from the Company'sRegistrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL (included as Exhibit 101).
|
_________________________
(1)Indicates a management plan or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| |
Date: August 5, 2021May 4, 2022 | QUIDEL CORPORATION |
| |
| /s/ DOUGLAS C. BRYANT |
| Douglas C. Bryant |
| President and Chief Executive Officer (Principal Executive Officer) |
| |
| /s/ RANDALL J. STEWARD |
| Randall J. Steward |
| Chief Financial Officer (Principal Financial Officer) |
Exhibit Index
| | | | | | | | |
Exhibit Number | | |
3.1 | | |
3.2 | | |
3.3 | | |
4.1 | | |
10.110.1(1) | | |
10.2(1) | | |
10.210.3(1) | | |
10.4(1) | | |
10.5(1) | | |
10.6(1) | | |
31.1* | | |
31.2* | | |
32.1** | | |
101 | | The following financial statements from the Company'sRegistrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
104 | | The cover page from the Company'sRegistrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021,March 31, 2022, formatted in Inline XBRL (included as Exhibit 101). |
___________________________
(1)Indicates a management plan or compensatory plan or arrangement.
* Filed herewith.
** Furnished herewith.