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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
__________________________________________________________ 
FORM 10-Q
 
 __________________________________________________________ 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2023
or 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-36214
__________________________________________________________ 
HOLOGIC, INC.
(Exact name of registrant as specified in its charter)
 __________________________________________________________
Delaware 04-2902449
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
250 Campus Drive, 
Marlborough,
Massachusetts
01752
(Address of principal executive offices) (Zip Code)
(508) 263-2900
(Registrant’s telephone number, including area code)
 __________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueHOLXNASDAQ
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer 
Non-accelerated filer 
  Smaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 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 January 25, 2024, 234,731,521 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.


HOLOGIC, INC.
INDEX
 
 Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
EXHIBITS


2

PART I – FINANCIAL INFORMATION
 
Item 1.    Financial Statements (unaudited)
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(In millions, except number of shares, which are reflected in thousands, and per share data)
 Three Months Ended
 December 30,
2023
December 31,
2022
Revenues:
Product$828.1 $886.3 
Service and other185.0 187.9 
1,013.1 1,074.2 
Costs of revenues:
Product307.2 296.2 
Amortization of acquired intangible assets45.5 55.6 
Service and other92.9 104.5 
Gross profit567.5 617.9 
Operating expenses:
Research and development66.8 74.8 
Selling and marketing148.9 163.5 
General and administrative111.8 108.5 
Amortization of acquired intangible assets13.3 7.6 
Impairment of intangible asset
4.3  
Contingent consideration - fair value adjustment
1.7  
Restructuring charges22.5 1.1 
369.3 355.5 
Income from operations198.2 262.4 
Interest income27.9 20.6 
Interest expense(26.0)(28.1)
Other expense, net
(8.8)(15.8)
Income before income taxes191.3 239.1 
Provision (benefit) for income taxes
(55.2)51.7 
Net income
$246.5 $187.4 
Net income per common share:
Basic$1.03 $0.76 
Diluted$1.03 $0.75 
Weighted average number of shares outstanding:
Basic238,627 247,319 
Diluted240,214 249,281 
See accompanying notes.

3

HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 Three Months Ended
 December 30,
2023
December 31,
2022
Net income
$246.5 $187.4 
Changes in foreign currency translation adjustment43.0 113.8 
Changes in value of hedged interest rate swaps, net of tax of $(4.5) for the three months ended December 30, 2023 and $(0.9) for the three months ended December 31, 2022.
Loss recognized in other comprehensive income
(14.2)(2.9)
Other comprehensive income
28.8 110.9 
Comprehensive income
$275.3 $298.3 
See accompanying notes.



4

HOLOGIC, INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and par value)
 
December 30,
2023
September 30,
2023
ASSETS
Current assets:
Cash and cash equivalents$1,932.1 $2,722.5 
Accounts receivable, less reserves670.9 625.6 
Inventory
633.6 617.6 
Prepaid expenses and other current assets155.8 175.3 
Prepaid income taxes101.8 31.6 
Assets held-for-sale - current assets 11.9 
Total current assets3,494.2 4,184.5 
Property, plant and equipment, net527.0 517.0 
Intangible assets, net832.7 888.6 
Goodwill3,305.9 3,281.3 
Other assets309.7 267.9 
Total assets$8,469.5 $9,139.3 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$37.4 $287.0 
Accounts payable183.8 175.2 
Accrued expenses484.0 534.6 
Deferred revenue190.6 199.2 
Finance lease obligations3.2 3.1 
Assets held-for-sale - current liabilities 8.2 
Total current liabilities899.0 1,207.3 
Long-term debt, net of current portion2,522.7 2,531.2 
Finance lease obligations, net of current portion14.7 15.3 
Deferred income tax liabilities19.8 20.2 
Deferred revenue, net of current portion14.2 13.8 
Other long-term liabilities345.3 334.6 
Stockholders’ equity:
Preferred stock, $0.01 par value – 1,623 shares authorized; 0 shares issued
  
Common stock, $0.01 par value – 750,000 shares authorized; 300,496 and 299,940 shares issued, respectively
3.0 3.0 
Additional paid-in-capital6,058.7 6,141.2 
Retained earnings2,302.8 2,056.3 
Treasury stock, at cost – 65,952 and 58,231 shares, respectively
(3,591.9)(3,036.0)
Accumulated other comprehensive loss(118.8)(147.6)
Total stockholders’ equity4,653.8 5,016.9 
Total liabilities and stockholders’ equity$8,469.5 $9,139.3 
See accompanying notes.

5

Hologic, Inc.
Consolidated Statements of Stockholders’ Equity
(In millions, except number of shares, which are reflected in thousands)
 Common StockAdditional
Paid-in-
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury StockTotal
Stockholders’
Equity
 Number of
Shares
Par ValueNumber of
Shares
Amount
Balance at September 24, 2022298,533 $3.0 $6,042.6 $1,600.3 $(238.2)51,401 $(2,531.5)$4,876.2 
Exercise of stock options267 — 10.3 — — — — 10.3 
Vesting of restricted stock units, net514 — (23.0)— — — — (23.0)
Common stock issued under the employee stock purchase plan171 — 10.2 — — — — 10.2 
Stock-based compensation— — 20.5 — — — — 20.5 
Net income— — — 187.4 — — — 187.4 
Other comprehensive income activity— — — — 110.9 — — 110.9 
Repurchase of common stock— — — — — 1,539 (100.0)(100.0)
Balance at December 31, 2022299,485 $3.0 $6,060.6 $1,787.7 $(127.3)52,940 $(2,631.5)$5,092.5 
Exercise of stock options173 — 7.9 — — — — 7.9 
Vesting of restricted stock units, net18 — (0.2)— — — — (0.2)
Stock-based compensation— — 23.2 — — — — 23.2 
Net income— — — 218.5 — — — 218.5 
Other comprehensive income activity— — — — 8.9 — — 8.9 
Repurchase of common stock— — — — — 626 (50.0)(50.0)
Balance at April 1, 2023299,676 $3.0 $6,091.5 $2,006.2 $(118.4)53,566 $(2,681.5)$5,300.8 
Exercise of stock options64 — 3.3 — — — — 3.3 
Vesting of restricted stock units, net15 — (0.5)— — — — (0.5)
Common stock issued under the employee stock purchase plan177 11.3 11.3 
Stock-based compensation— — 16.9 — — — — 16.9 
Net loss— — — (40.5)— — — (40.5)
Other comprehensive income activity— — — — 4.8 — — 4.8 
Repurchase of common stock(1)
— — — — — 1,424 (114.1)(114.1)
Balance at July 1, 2023299,932 $3.0 $6,122.5 $1,965.7 $(113.6)54,990 $(2,795.6)$5,182.0 
Vesting of restricted stock units, net8 — (0.3)— — — — (0.3)
Stock-based compensation— — 19.0 — — — — 19.0 
Net income
— — — 90.6 — — — 90.6 
Other comprehensive income activity— — — — (34.0)— — (34.0)
Repurchase of common stock(1)
— — — — — 3,241 (240.4)(240.4)
September 30, 2023
299,940 $3.0 $6,141.2 $2,056.3 $(147.6)58,231 $(3,036.0)$5,016.9 
Exercise of stock options124 — 5.0 — — — — 5.0 
Vesting of restricted stock units, net432 — (16.2)— — — — (16.2)
Stock-based compensation— — 28.7 — — — — 28.7 
Net income
— — — 246.5 — — — 246.5 
Other comprehensive income activity— — — — 28.8 — — 28.8 
Repurchase of common stock(1)
— — — — — 2,161 (155.9)(155.9)
Accelerated share repurchase agreement
(100.0)5,560 (400.0)(500.0)
December 30, 2023
300,496 $3.0 $6,058.7 $2,302.8 $(118.8)65,952 $(3,591.9)$4,653.8 
(1) Includes excise tax on share repurchases
See accompanying notes.

6


HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Three Months Ended
 December 30,
2023
December 31,
2022
OPERATING ACTIVITIES
Net income $246.5 $187.4 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation29.6 22.7 
Amortization of acquired intangible assets58.8 63.2 
Stock-based compensation expense28.7 20.5 
Deferred income taxes(17.6)(26.2)
Intangible asset impairment charge
4.3  
Other adjustments and non-cash items27.5 29.1 
Changes in operating assets and liabilities, excluding the effect of acquisitions and dispositions:
Accounts receivable(38.2)(45.0)
Inventories(13.0)(47.0)
Prepaid income taxes(70.1)17.9 
Prepaid expenses and other assets2.6 26.2 
Accounts payable7.2 1.5 
Accrued expenses and other liabilities(35.7)0.8 
Deferred revenue(10.6)2.3 
Net cash provided by operating activities220.0 253.4 
INVESTING ACTIVITIES
Sale of business, net of cash disposed
(31.3) 
Capital expenditures(22.7)(15.8)
Increase in equipment under customer usage agreements(15.3)(13.3)
Purchase of strategic equity investments
(34.5)(10.0)
Other activity(0.4)(1.9)
Net cash used in investing activities(104.2)(41.0)
FINANCING ACTIVITIES
Repayment of long-term debt(259.4)(3.8)
Payment of deferred acquisition consideration (0.8)
Repurchases of common stock(676.8)(100.0)
Proceeds from issuance of common stock pursuant to employee stock plans9.5 15.1 
Payment of minimum tax withholdings on net share settlements of equity awards(16.2)(23.0)
Payments under finance lease obligations(0.9)(1.0)
Net cash used in financing activities(943.8)(113.5)
Effect of exchange rate changes on cash and cash equivalents4.4 2.9 
Net (decrease) increase in cash and cash equivalents
(823.6)101.8 
Cash and cash equivalents, beginning of period*
2,755.7 2,339.5 
Cash and cash equivalents, end of period$1,932.1 $2,441.3 
*Includes $33.2 million of cash recorded in assets held-for-sale - current assets as of September 30, 2023.
See accompanying notes.

7

HOLOGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All tabular amounts in millions, except number of shares, which are reflected in thousands, and per share data)

(1) Basis of Presentation

The unaudited consolidated financial statements of Hologic, Inc. (“Hologic” or the “Company”) presented herein have been prepared pursuant to the rules of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and disclosures required by U.S. generally accepted accounting principles (“GAAP”) for annual financial statements. These unaudited financial statements should be read in conjunction with the consolidated financial statements and related notes for the fiscal year ended September 30, 2023 included in the Company’s annual report on Form 10-K filed with the SEC on November 21, 2023. In the opinion of management, the unaudited financial statements and notes contain all adjustments (consisting of normal recurring accruals and all other necessary adjustments) considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates if past experience or other assumptions do not turn out to be substantially accurate. Operating results for the three months ended December 30, 2023 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 28, 2024. Fiscal 2023 was a 53-week fiscal year, and the additional week was included in the first quarter of fiscal 2023 consistent with the Company’s historical fiscal calendar.

Subsequent Events Consideration

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that may require additional disclosure. Subsequent events have been evaluated as required. There were no material recognized or unrecognized subsequent events affecting the unaudited consolidated financial statements as of and for the three months ended December 30, 2023.


8

(2) Revenue

The Company accounts for revenue pursuant to ASC 606, Revenue from Contracts with Customer (ASC 606) and generates revenue from the sale of its products, primarily medical imaging systems and related components and software, diagnostic tests and assays and surgical disposable products, and related services, which are primarily support and maintenance services on its medical imaging systems, and to a lesser extent installation, training and repairs. In addition, the Company generates service revenue from performing laboratory testing services through its Biotheranostics CLIA laboratory, which is included in its Molecular Diagnostics business. The Company’s products are sold primarily through a direct sales force, and within international markets, there is more reliance on distributors and resellers. Revenue is recorded net of sales tax. The following tables provide revenue from contracts with customers by business and geographic region on a disaggregated basis:    

Three Months Ended December 30, 2023
Business (in millions)
United StatesInternationalTotal
Diagnostics:
Cytology & Perinatal$69.8 $50.2 $120.0 
Molecular Diagnostics247.6 72.2 319.8 
Blood Screening8.0  8.0 
Total$325.4 $122.4 $447.8 
Breast Health:
Breast Imaging$228.4 $73.0 $301.4 
Interventional Breast Solutions61.1 15.2 76.3 
Total$289.5 $88.2 $377.7 
GYN Surgical$125.1 $37.1 $162.2 
Skeletal Health$13.7 $11.7 $25.4 
$753.7 $259.4 $1,013.1 


Three Months Ended December 31, 2022
Business (in millions)
United StatesInternationalTotal
Diagnostics:
Cytology & Perinatal$78.2 $48.6 $126.8 
Molecular Diagnostics328.2 97.0 425.2 
Blood Screening7.3  7.3 
Total$413.7 $145.6 $559.3 
Breast Health:
Breast Imaging$212.2 $52.2 $264.4 
Interventional Breast Solutions57.8 12.0 69.8 
Total$270.0 $64.2 $334.2 
GYN Surgical$123.1 $31.0 $154.1 
Skeletal Health$16.8 $9.8 $26.6 
$823.6 $250.6 $1,074.2 


9

Three Months Ended
Geographic Regions (in millions)
December 30, 2023December 31, 2022
United States$753.7 $823.6 
Europe142.8 147.4 
Asia-Pacific63.8 63.8 
Rest of World52.8 39.4 
$1,013.1 $1,074.2 

The following table provides revenue recognized by source:

Three Months Ended
Revenue by type (in millions)
December 30, 2023December 31, 2022
Disposables$628.9 $727.8 
Capital equipment, components and software199.2 158.5 
Service178.8 183.3 
Other6.2 4.6 
$1,013.1 $1,074.2 

The Company considers revenue to be earned when all of the following criteria are met: the Company has a contract with a customer that creates enforceable rights and obligations; promised products or services are identified; the transaction price, or the amount the Company expects to receive, including an estimate of uncertain amounts subject to a constraint to ensure revenue is not recognized in an amount that would result in a significant reversal upon resolution of the uncertainty, is determinable; and the Company has transferred control of the promised items to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. The transaction price for the contract is measured as the amount of consideration the Company expects to receive in exchange for the goods and services expected to be transferred. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, control of the distinct good or service is transferred. Transfer of control for the Company’s products is generally at shipment or delivery, depending on contractual terms, but occurs when title and risk of loss transfers to the customer which represents the point in time when the customer obtains the use of and substantially all of the remaining benefits of the product. As such, the Company’s performance obligation related to product sales is satisfied at a point in time. Revenue from support and maintenance contracts, extended warranty, and professional services for installation, training and repairs is recognized over time based on the period contracted or as the services are performed as these methods represent a faithful depiction of the transfer of goods and services.

The Company recognizes a receivable when it has an unconditional right to payment, which represents the amount the Company expects to collect in a transaction and is most often equal to the transaction price in the contract. Payment terms are typically 30 days in the U.S. but may be longer in international markets. The Company treats shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost and records these costs within costs of product revenue when the corresponding revenue is recognized.

The Company also places instruments (or equipment) at customer sites but retains title to the instrument. The customer has the right to use the instrument for a period of time, and the Company recovers the cost of providing the instrument through the sales of disposables, namely tests and assays in Diagnostics and handpieces in GYN Surgical. These types of agreements include an embedded lease, which is generally an operating lease, for the right to use an instrument and no instrument revenue is recognized at the time of instrument delivery. The Company recognizes a portion of the revenue allocated to the embedded lease concurrent with the sale of disposables over the term of the agreement.

Revenue from laboratory testing services, which is generated by the Company’s Biotheranostics business, is recognized based upon contracted amounts with payors and historical cash collection experience for the same test or same payor group. Revenue is recognized once the laboratory services have been performed, the results have been delivered to the ordering physician, the payor has been identified, and insurance has been verified. The estimated timeframes for cash collection are three months for Medicare payors, six months for Medicare Advantage payors, and nine months for commercial payors.

Generally, the contracts for capital equipment include multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using its best estimate of

10

the standalone selling price of each distinct good or service in the contract. The Company determines its best estimate of standalone selling price using average selling prices over 3- to 12-month periods of data depending on the products or nature of the services coupled with current market considerations. If the product or service does not have a history of sales or if sales volume is not sufficient, the Company relies on prices set by its pricing committees or applicable marketing department adjusted for expected discounts.

Variable Consideration

The Company exercises judgment in estimating variable consideration, which includes volume discounts, sales rebates, product returns and other adjustments. These amounts are recorded as a reduction to revenue and classified as a current liability. The Company bases its estimates for volume discounts and sales rebates on historical information to the extent it is reasonable to be used as a predictive tool of expected future rebates. To the extent the transaction price includes variable consideration, the Company applies judgment in constraining the estimated variable consideration due to factors that may cause reversal of revenue recognized. The Company evaluates constraints based on its historical and projected experience with similar customer contracts. The Company’s contracts for the sale of capital equipment and related components, and assays and tests typically do not provide the right to return product, however, its contracts for the sale of its GYN Surgical and Interventional Breast Solutions surgical handpieces provide for a right of return for a limited period of time. In general, estimates of variable consideration and constraints are not material to the Company’s financial statements.

Remaining Performance Obligations

As of December 30, 2023, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $808.9 million. These remaining performance obligations primarily relate to support and maintenance obligations and extended warranty in the Company’s Breast Health and Skeletal Health reportable segments. The Company expects to recognize approximately 37% of this amount as revenue in fiscal 2024, 33% in fiscal 2025, 18% in fiscal 2026, 8% in fiscal 2027, and 4% thereafter. As permitted, the Company does not include remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.

Contract Assets and Liabilities

The Company discloses accounts receivable separately in the Consolidated Balance Sheets at their net realizable value. Contract assets primarily relate to the Company’s conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were immaterial.

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. The Company records a contract liability, or deferred revenue, when it has an obligation to provide service, and to a much lesser extent product, to the customer and payment is received or due in advance of performance. Deferred revenue primarily relates to support and maintenance contracts and extended warranty obligations within the Company’s Breast Health and Skeletal Health reportable segments. Contract liabilities are classified as other current liabilities and other long-term liabilities in the Consolidated Balance Sheets. The Company recognized revenue of $64.4 million and $66.8 million in the three months ended December 30, 2023 and December 31, 2022, respectively, that was included in the contract liability balance at September 30, 2023 and September 24, 2022, respectively.

Practical Expedients
The Company applies a practical expedient to expense costs to obtain a contract with a customer as incurred when the amortization period would have been one year or less. These costs solely comprise sales commissions and typically the commissions are incurred at the time of shipment of product and upon billings for support and maintenance contracts.


11

(3) Leases

Lessor Activity - Leases where Hologic is the Lessor

Certain assets, primarily diagnostics instruments, are leased to customers under contractual arrangements that typically include an operating lease and performance obligations for disposables, reagents and other consumables. These contractual arrangements are subject to termination provisions which are evaluated in determining the lease term for lease accounting purposes. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where instruments are provided under operating lease arrangements, some portion or the entire lease revenue may be variable and subject to subsequent non-lease component (e.g., reagent) sales. Sales-type leases are immaterial. The allocation of revenue between the lease and non-lease components is based on stand-alone selling prices. Lease revenue represented less than 3% of the Company’s consolidated revenue for all periods presented.

(4) Fair Value Measurements

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The Company has investments in derivative instruments comprised of interest rate swaps and forward foreign currency contracts, which are valued using analyses obtained from independent third-party valuation specialists based on market observable inputs, representing Level 2 assets. The fair values of these derivative contracts represent the estimated amounts the Company would receive or pay to terminate the contracts. Refer to Note 11 for further discussion and information on derivative contracts. In addition, the Company has contingent consideration liabilities that are recorded at fair value, which is based on Level 3 inputs. The contingent consideration liability as of December 30, 2023 and December 31, 2022 was primarily related to the Acessa acquisition.

Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at December 30, 2023: 

  Fair Value at Reporting Date Using
 Balance as of December 30, 2023Quoted Prices in
Active Market for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Assets:
Interest rate swaps$8.2 $ $8.2 $ 
Total$8.2 $ $8.2 $ 
Liabilities:
Contingent consideration$3.7 $ $ $3.7 
Forward foreign currency contracts4.1  4.1  
Total$7.8 $ $4.1 $3.7 

Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of contingent consideration liabilities, during the three month periods ended December 30, 2023 and December 31, 2022 were as follows:

Three Month Ended
December 30, 2023December 31, 2022
Balance at beginning of period$2.0 $23.4 
Contingent consideration recorded at acquisition  
Fair value adjustments1.7  
Payments  
Balance at end of period$3.7 $23.4 


12

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company remeasures the fair value of certain assets and liabilities upon the occurrence of certain events. Such assets are comprised of equity investments and long-lived assets, including property, plant and equipment, intangible assets, and goodwill. During the first quarter of fiscal 2024, the Company recorded a $12.5 million impairment charge for right of use lease assets related to the expected closure of facilities in the Diagnostics division (see Note 8 for further discussion). In addition, during the first quarter of fiscal 2024, the Company recorded a $4.3 million impairment charge for an in-process research and development project from the Mobidiag acquisition, reducing the fair value of this asset to $22.4 million. There were no other remeasurements in the three months ended December 30, 2023 and December 31, 2022.

Disclosure of Fair Value of Financial Instruments

The Company’s financial instruments mainly consist of cash and cash equivalents, accounts receivable, equity investments, interest rate swaps, forward foreign currency contracts, insurance contracts, accounts payable and debt obligations. The carrying amounts of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company’s interest rate swaps and forward foreign currency contracts are recorded at fair value. The carrying amount of the insurance contracts are recorded at the cash surrender value, as required by U.S. GAAP, which approximates fair value. The Company believes the carrying amounts of its equity investments approximate fair value.

Amounts outstanding under the Company’s 2021 Credit Agreement of $1.2 billion aggregate principal as of December 30, 2023 are subject to variable rates of interest based on current market rates, and as such, the Company believes the carrying amount of these obligations approximates fair value. The Company’s 4.625% Senior Notes due 2028 (the “2028 Senior Notes”) and 3.250% Senior Notes due 2029 (the “2029 Senior Notes”) had fair values of $386.3 million and $858.0 million, respectively, as of December 30, 2023 based on their trading prices, representing a Level 1 measurement. Refer to Note 9 for the carrying amounts of the various components of the Company’s debt.

(5) Business Combinations

Fiscal 2023 Acquisitions

JW Medical

On July 3, 2023, the Company completed the acquisition of assets from JW Medical Corporation (“JW Medical”) for a purchase price of $6.7 million. JW Medical was a long-standing distributor of the Company’s Breast Health products in South Korea. The majority of the purchase price was allocated to a customer relationship intangible asset with a useful life of 5 years.

Normedi

On April 3, 2023, the Company completed the acquisition of Normedi Nordic AS (“Normedi”) for a purchase price of $7.7 million. Normedi was a long-standing distributor of the Company’s Surgical products in the Nordics region of Europe. The purchase price includes $1.1 million for contingent consideration based on incremental revenue growth over a 2-year measurement period. The Company allocated $3.0 million of the purchase price to a customer relationships intangible asset with a useful life of 5 years, and the excess of the purchase price over the net assets acquired was recorded to goodwill.

Contingent Consideration

The Company’s contingent consideration liability is primarily related to its acquisition of Acessa Health, Inc. (“Acessa”), which was acquired in August 2020. Acessa developed the ProVu laparoscopic radiofrequency ablation system. The Company estimated the fair value of this liability to be $81.8 million as of the acquisition date. The contingent payments were based on a multiple of annual incremental revenue growth over a three-year period ending annually in December of each of 2021, 2022, and 2023. There was no maximum earnout. Pursuant to ASC 805, Business Combinations (ASC 805), the Company recorded its estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of Acessa, revenue growth rates of comparable companies, implied volatility and applying a risk adjusted discount rate. Each quarter the Company was required to remeasure the fair value of the liability as assumptions change, and such adjustments were recorded in operating expenses. This fair value measurement was based on significant inputs not observable in the market and thus represented a Level 3 measurement as defined in ASC 820, Fair Value Measurements. This fair value measurement was directly impacted by the Company’s estimate of future incremental revenue growth of the business. Accordingly, if actual revenue growth were higher or lower than the estimates within the fair value measurement, the Company

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would record additional charges or gains. During the three months ended December 30, 2023, the third and final measurement period was completed, and the Company recorded a loss of $1.7 million to increase the contingent consideration liability to fair value based on actual revenue results in the final earn-out period. As of December 30, 2023, the contingent consideration liability related to Acessa was $2.6 million and the payment is expected to be made during the second quarter of fiscal 2024.

(6) Strategic Investment

Maverix Medical

On November 13, 2023, the Company entered into an agreement with KKR Comet, LLC, an affiliate of KKR & Co. Inc. (“KKR Comet”), to form a legal entity to develop and acquire innovative technologies and commercial operations within the lung cancer space. The new entity, named Maverix Medical LLC (“Maverix”), will be managed by Ajax Health. As part of this strategic investment, the Company contributed $24.5 million in return for 45% ownership in the Class A Common units of Maverix, and both the Company and KKR Comet have committed to make additional capital contributions in proportion to the ownership percentages upon meeting certain objectives and as approved by the Maverix board. In accordance with ASC 810, Consolidation, and ASC 323, Investments - Equity Method and Joint Ventures, the Company determined that this investment should be accounted for under the equity method, which requires the Company to record its proportional share of the entity’s net income (loss). This investment is recorded within Other assets in the Consolidated Balance Sheets, and the Company’s proportionate share of Maverix’s loss for the three months ended December 30, 2023 was immaterial.

(7) Disposition

Sale of SuperSonic Imagine Ultrasound Imaging Business

On September 29, 2023, the Company executed an agreement to sell its SSI ultrasound imaging business to SSH Holdings Limited for a sales price of $1.9 million in cash. Under the terms of the contract, the Company agreed to fund the SSI business with $33.2 million of cash. The sale was completed on October 3, 2023. The Company also agreed to provide certain transition services for up to one year, depending on the nature of the service. The SSI ultrasound imaging asset group met the criteria to be classified as assets held-for-sale in the fourth quarter of fiscal 2023. As a result, the Company recorded a charge of $51.7 million in the fourth quarter of fiscal 2023 to record the asset group to its fair value less costs to sell pursuant to ASC 360, Property, Plant and Equipment-Impairment or Disposal of Long-Lived Assets.

The assets and liabilities of the disposed business at the date of disposition were as follows:

Assets:
Cash$33.2 
Accounts receivable4.5
Inventory16.2
Prepaid expenses and other assets8.6
Valuation allowance(50.6)
Total assets disposed of
$11.9 
Liabilities:
Accounts payable$3.1 
Accrued expenses5.1
Total liabilities disposed of
$8.2 

The valuation allowance of $50.6 million was recorded to appropriately reflect the assets held-for-sale classification in the Consolidated Balance Sheet in the fourth quarter of fiscal 2023 relative to the loss recorded and the net tangible assets disposed.

The Company has determined that this disposal did not qualify as a discontinued operation as the sale of the SSI ultrasound imaging business was deemed to not be a strategic shift having or that will have a major effect on the Company’s operations and financial results.

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(8) Restructuring

During the first quarter of fiscal 2024, as a result of a change in strategy for a certain business within Diagnostics, including the discontinuation of the sale of certain products and expected closure of facilities, the Company determined certain fixed assets lives should be shortened and lease assets were impaired at the affected facilities. As such, the Company recorded accelerated depreciation of $7.2 million and a lease asset impairment charge of $12.5 million. The Company has initiated discussions with the respective Works Councils. In addition, the Company recorded the minimum statutory severance benefit for the affected employee groups of $1.8 million pursuant to ASC 712, Compensation Nonretirement Postemployment Benefits. The Company expects total severance benefits related to this action will be approximately $4.0 million to $8.0 million. This action is expected to be completed by the end of calendar 2024.

During the first quarter of fiscal 2022, the Company finalized its decision to close its Danbury, Connecticut facility where it manufactures its Breast Health capital equipment products. The manufacturing of the Breast Health capital equipment products and all other support services are in the process of being transferred to the Company’s Newark, Delaware facility. In addition, research and development, sales and services support and administrative functions are also transferring to the Newark, Delaware and Marlborough, Massachusetts facilities. The transition is expected to be completed by the third quarter of fiscal 2025. The employees were notified of the closure during the first quarter of fiscal 2022, and the majority of employees located in Danbury were given the option to relocate to the new locations. The Company is recording severance benefits ratably over the required service period pursuant to ASC 420, Exit or Disposal Cost Obligations (ASC 420). As a result, the Company recorded severance and benefits charges of $0.5 million and $0.7 million during the three months ended December 30, 2023 and December 31, 2022, respectively. The Company estimates that total severance charges, including retention, will be approximately $5.9 million. In addition, in the first quarter of fiscal 2024, as part of exiting the building, the Company recorded facility restoration costs of $0.5 million.



(9) Borrowings and Credit Arrangements

The Company’s borrowings consisted of the following: 

December 30,
2023
September 30,
2023
Current debt obligations, net of debt discount and deferred issuance costs:
Term Loan$37.4 $287.0 
Total current debt obligations$37.4 $287.0 
Long-term debt obligations, net of debt discount and issuance costs:
Term Loan1,186.4 1,195.6 
2028 Senior Notes397.0 396.8 
2029 Senior Notes939.3 938.8 
Total long-term debt obligations$2,522.7 $2,531.2 
Total debt obligations$2,560.1 $2,818.2 

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2021 Credit Agreement

On September 27, 2021, the Company refinanced its then existing term loan and revolving credit facility with Bank of America, N.A. in its capacity as Administrative Agent, Swing Line Lender and L/C Issuer, and certain other lenders (the “2018 Credit Agreement”) by entering into a Refinancing Amendment (the “2021 Credit Agreement”). On August 22, 2022, the Company further amended the 2021 Credit Agreement to address the planned phase out of LIBOR by the UK Financial Conduct Authority. Under this amendment, the interest rates applicable to the loans under the 2021 Credit Agreement denominated in U.S. dollars were converted to a variant of the secured overnight financing rate (“SOFR”), as established from time to time by the Federal Reserve Bank of New York, plus a corresponding spread.

The 2021 Credit Agreement provided a $1.5 billion secured term loan facility (the “2021 Term Loan”) and a $2.0 billion revolving credit facility (the “2021 Revolver”). As of December 30, 2023, the principal amount outstanding under the 2021 Term Loan was $1.2 billion, and the interest rate was 6.46% per annum. No amounts were outstanding under the 2021 Revolver, and the full amount was available to be borrowed by the Company. During the first quarter of fiscal 2024, the Company made a $250.0 million voluntary prepayment on the 2021 Term Loan.

Interest expense, weighted average interest rates, and the interest rate at the end of period under the 2021 Credit Agreement were as follows: 

Three Months Ended
December 30, 2023December 31, 2022
Interest expense$22.6 $20.4 
Weighted average interest rate6.44 %4.63 %
Interest rate at end of period6.46 %5.43 %

The Company’s effective interest rate swap agreements, the first of which fixed the SOFR component of the variable interest rate on $1.0 billion of aggregate principal under the 2021 Term Loan at 1.23% and terminated on December 17, 2023, and the second of which fixes the SOFR component of the variable interest rate on $500 million of aggregate principal under the 2021 Term Loan at 3.46% commencing on December 17, 2023 and terminating on December 27, 2024, resulted in the Company receiving $9.7 million and $6.6 million during the three months ended December 30, 2023 and December 31, 2022, respectively, which was recorded as a reduction to interest expense.

The 2021 Credit Agreement contains two financial covenants; a total leverage ratio and an interest coverage ratio, both of which are measured as of the last day of each fiscal quarter. These terms, and calculations thereof, are defined in further detail in the 2021 Credit Agreement. As of December 30, 2023, the Company was in compliance with these covenants.

2028 Senior Notes
    
As of December 30, 2023, the Company had 4.625% Senior Notes due 2028 (the “2028 Senior Notes”) outstanding in the aggregate principal balance of $400 million. The 2028 Senior Notes are general senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by certain of the Company’s domestic subsidiaries and mature on February 1, 2028.

2029 Senior Notes

As of December 30, 2023, the Company had 3.250% Senior Notes due 2029 (the “2029 Senior Notes”) outstanding in the aggregate principal balance of $950 million. The 2029 Senior Notes are general senior unsecured obligations of the Company and are guaranteed on a senior unsecured basis by certain of the Company’s domestic subsidiaries and mature on February 15, 2029.


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Interest expense for the 2029 Senior Notes and 2028 Senior Notes was as follows:

Three Months Ended
Interest RateDecember 30, 2023December 31, 2022
2028 Senior Notes4.625 %4.8 5.2 
2029 Senior Notes3.250 %8.2 8.9 
Total$13.0 $14.1 

(10) Trade Receivables and Allowance for Credit Losses

The Company applies ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) to its trade receivables and allowances for credit losses, which requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The expected credit losses are developed using an estimated loss rate method that considers historical collection experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The estimated loss rates are applied to trade receivables with similar risk characteristics such as the length of time the balance has been outstanding and the location of the customer. In certain instances, the Company may identify individual trade receivable assets that do not share risk characteristics with other trade receivables, in which case the Company records its expected credit losses on an individual asset basis. For example, potential adverse changes to customer liquidity, such as the ongoing and possible future effects of global challenges including macroeconomic uncertainties, such as inflation, rising interest rates and availability of capital markets, and other economic disruptions. To date, the Company has not experienced significant customer payment defaults, or identified other significant collectability concerns. In connection with assessing credit losses for individual trade receivable assets, the Company considers significant factors relevant to collectability including those specific to the customer such as bankruptcy, length of time an account is outstanding, and the liquidity and financial position of the customer. If a trade receivable asset is evaluated on an individual basis, the Company excludes those assets from the portfolios of trade receivables evaluated on a collective basis.

The following is a rollforward of the allowance for credit losses as of December 30, 2023 compared to December 31, 2022:

Balance at
Beginning
of Period
Credit LossWrite-offs,
Payments and Foreign Exchange
Balance at
End of
Period
Three Months Ended
December 30, 2023$38.5 $4.9 $(0.3)$43.1 
December 31, 2022$37.7 $1.2 $0.2 $39.1 

(11) Derivatives

Interest Rate Swaps - Cash Flow Hedge

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposure to some of its interest rate risk through the use of interest rate swaps, which are derivative financial instruments. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income (“AOCI”) to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings.

In fiscal 2019, the Company entered into an interest rate swap contract with an effective date of December 23, 2020 and a termination date of December 17, 2023 to hedge a portion of its variable rate debt. On August 25, 2022, the interest rate swap agreement was restructured (consistent with the 2021 Credit Agreement) to convert the benchmark interest rate from LIBOR to the SOFR rate effective September 23, 2022 with a termination date of December 17, 2023. The Company applied the practical and optional expedients in ASC 848, Reference Rate Reform, in evaluating the impact of modifying the contract, which resulted in no change to the accounting for this derivative contract. The notional amount of this swap was $1.0 billion. The restructured interest rate swap fixed the SOFR component of the variable interest rate on $1.0 billion of the notional amount under the 2021 Credit Agreement at 1.23%. The critical terms of the restructured interest rate swap were designed to mirror the terms of the Company’s SOFR-based borrowings under the 2021 Credit Agreement and therefore were highly effective at offsetting the cash flows being hedged. The Company designated this derivative as a cash flow hedge of the variability of the SOFR-based interest

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payments on $1.0 billion of principal. Therefore, changes in the fair value of the swap were recorded in AOCI. The contract ended during the first quarter of fiscal 2024 and as a result the fair value of this derivative was $0.0 million as of December 30, 2023.

On March 23, 2023, the Company entered into two consecutive interest rate swap contracts with the first contract having an effective date of December 17, 2023 and terminating on December 27, 2024, and the second contract having an effective date of December 27, 2024 and terminating on September 25, 2026. The notional amount of these swaps is $500 million, and the first interest rate swap fixes the SOFR component of the variable interest rate at 3.46%, and the second interest rate swap fixes the SOFR component of the variable interest rate at 2.98%. The critical terms of the interest rate swaps are designed to mirror the terms of the Company’s SOFR-based borrowings under the 2021 Credit Agreement and therefore are highly effective at offsetting the cash flows being hedged. The Company designated this derivative as a cash flow hedge of the variability of the SOFR-based interest payments on $500 million of principal. Therefore, changes in the fair value of the swap are recorded in AOCI. The fair value of these swaps was an asset position of $8.2 million as of December 30, 2023.

Forward Foreign Currency Exchange Contracts and Foreign Currency Option Contracts

The Company enters into forward foreign currency exchange contracts and foreign currency option contracts to mitigate certain operational exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s cash and operations that are denominated in currencies other than the U.S. dollar, primarily the Euro, the UK Pound, the Australian dollar, the Canadian dollar, the Chinese Yuan and the Japanese Yen. These foreign currency contracts are entered into to support transactions made in the ordinary course of business and are not speculative in nature. The contracts are generally for periods of one year or less. The Company did not elect hedge accounting for these contracts; however, the Company may seek to apply hedge accounting in future scenarios. As of December 30, 2023 the notional amount was $282.3 million. The change in the fair value of these contracts is recognized directly in earnings as a component of other income (expense), net.

Realized and unrealized gains and losses from these contracts, which were the only derivative contracts not designated for hedge accounting, for the three months ended December 30, 2023 and December 31, 2022, respectively, were as follows:

Three Months Ended
December 30, 2023December 31, 2022
Amount of realized gain (loss) recognized in income
Forward foreign currency contracts$1.3 $(2.4)
Foreign currency option contracts (0.2)
$1.3 $(2.6)
Amount of unrealized gain (loss) recognized in income
Forward foreign currency contracts$(12.5)$(13.8)
Foreign currency option contracts (8.3)
$(12.5)$(22.1)
Amount of gain (loss) recognized in income
Total$(11.2)$(24.7)


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Financial Instrument Presentation

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of December 30, 2023:

Balance Sheet LocationDecember 30, 2023September 30, 2023
Assets:
Derivative instruments designated as a cash flow hedge:
Interest rate swap contractsPrepaid expenses and other current assets$6.0 $16.2 
Interest rate swap contractsOther assets2.2 10.7 
$8.2 $26.9 
Derivatives not designated as hedging instruments:
Forward foreign currency contractsPrepaid expenses and other current assets$ $8.4 
$ $8.4 
Liabilities:
Derivatives not designated as hedging instruments:
Forward foreign currency contractsAccrued expenses$4.1 $ 

The following table presents the unrealized gain (loss) recognized in AOCI related to interest rate swaps for the following reporting periods:

Three Months Ended
December 30, 2023December 31, 2022
Amount of (loss) gain recognized in other comprehensive income, net of taxes:
Interest rate swaps$(14.2)$(2.9)
Total$(14.2)$(2.9)

(12) Commitments and Contingencies

Litigation and Related Matters

On November 4, 2022, a product liability complaint was filed against the Company in Massachusetts state court by a group of plaintiffs who claim they sustained injuries caused by the BioZorb 3D Bioabsorbable Marker, and additional complaints were subsequently filed alleging similar claims. The BioZorb device is an implantable three-dimensional marker that helps clinicians overcome certain challenges presented by breast conserving cancer surgery (lumpectomy). The complaints allege that the plaintiffs suffered side effects that were not disclosed in the BioZorb instructions for use and make various additional claims related to the design, manufacture and marketing of the device. Complaints have been filed on behalf of 84 plaintiffs, one pending in Massachusetts state court, which has set a tentative November 2025 trial date, and the remainder in United States District Court for the District of Massachusetts. which has not set a trial date. Discovery is ongoing. While the Company believes it has valid defenses and plans to vigorously defend its position, litigation can be costly and unpredictable, and at this early stage the Company cannot reasonably assess the outcome of this matter.
    
The Company is a party to various other legal proceedings and claims arising out of the ordinary course of its business. The Company believes that except for those matters described above there are no other proceedings or claims pending against it, the ultimate resolution of which could have a material adverse effect on its financial condition or results of operations. In all cases, at each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies (ASC 450). Legal costs are expensed as incurred.


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(13) Net Income Per Share

A reconciliation of basic and diluted share amounts is as follows:

 Three Months Ended
 December 30,
2023
December 31,
2022
Basic weighted average common shares outstanding238,627 247,319