Annual Statements Open main menu
  1. Annual Statements
  2. » Companies
  3. » HOLOGIC INC
  4. » Quarter Report: 2023 April (Form 10-Q)

HOLOGIC INC - Quarter Report: 2023 April (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
__________________________________________________________ 
FORM 10-Q
 
 __________________________________________________________ 
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 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 April 25, 2023, 246,118,192 shares of the registrant’s Common Stock, $0.01 par value, were outstanding.

Table of Contents
HOLOGIC, INC.
INDEX
 
 Page
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 6.
EXHIBITS

2
Table of Contents
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 EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
Revenues:
Product$837.4 $1,268.2 $1,723.8 $2,571.6 
Service and other189.1 167.5 376.9 335.3 
1,026.5 1,435.7 2,100.7 2,906.9 
Costs of revenues:
Product292.1 322.6 588.3 640.7 
Amortization of acquired intangible assets52.1 72.3 107.7 147.2 
Service and other96.5 94.2 201.0 186.1 
Gross profit585.8 946.6 1,203.7 1,932.9 
Operating expenses:
Research and development74.0 69.5 148.8 142.3 
Selling and marketing142.4 171.4 305.9 318.7 
General and administrative100.8 100.5 209.3 218.5 
Amortization of acquired intangible assets7.1 11.3 14.7 22.1 
Contingent consideration - fair value adjustments(12.4)— (12.4)(4.1)
Restructuring charges1.8 (0.2)2.9 — 
313.7 352.5 669.2 697.5 
Income from operations272.1 594.1 534.5 1,235.4 
Interest income31.5 0.8 52.1 1.2 
Interest expense(27.2)(22.6)(55.3)(48.3)
Debt extinguishment loss— — — (0.7)
Other income (expense), net2.9 2.1 (12.9)8.7 
Income before income taxes279.3 574.4 518.4 1,196.3 
Provision for income taxes60.8 118.7 112.5 241.4 
Net income$218.5 $455.7 $405.9 $954.9 
Net income per common share:
Basic$0.88 $1.81 $1.64 $3.78 
Diluted$0.87 $1.80 $1.63 $3.75 
Weighted average number of shares outstanding:
Basic247,730 251,574 247,524 252,537 
Diluted249,793 253,658 249,537 254,864 
See accompanying notes.
3
Table of Contents
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
Net income$218.5 $455.7 $405.9 $954.9 
Changes in foreign currency translation adjustment15.3 (34.5)129.1 (72.3)
Changes in value of hedged interest rate swaps, net of tax of $(2.0) and $(2.9) for the three and six months ended April 1, 2023 and $6.5 and $9.1 for the three and six months ended March 26, 2022.
Gain (loss) recognized in other comprehensive income (loss), net(6.4)19.4 (9.3)27.3 
Other comprehensive income (loss)8.9 (15.1)119.8 (45.0)
Comprehensive income$227.4 $440.6 $525.7 $909.9 
See accompanying notes.


4
Table of Contents
HOLOGIC, INC.

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and par value)
 
April 1,
2023		September 24,
2022
ASSETS
Current assets:
Cash and cash equivalents$2,582.2 $2,339.5 
Accounts receivable, less reserves714.0 617.6 
Inventories687.6 623.7 
Prepaid expenses and other current assets187.0 232.2 
Prepaid income taxes40.6 49.0 
Total current assets4,211.4 3,862.0 
Property, plant and equipment, net497.9 481.6 
Intangible assets, net1,202.2 1,280.6 
Goodwill3,296.9 3,236.5 
Other assets240.3 210.5 
Total assets$9,448.7 $9,071.2 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt$26.2 $15.0 
Accounts payable187.4 197.7 
Accrued expenses508.0 535.3 
Deferred revenue230.5 186.5 
Finance lease obligations2.9 3.2 
Total current liabilities955.0 937.7 
Long-term debt, net of current portion2,797.7 2,808.4 
Finance lease obligations, net of current portion17.0 18.0 
Deferred income tax liabilities33.4 90.8 
Deferred revenue, net of current portion12.8 9.4 
Other long-term liabilities332.0 330.7 
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; 299,676 and 298,533 shares issued, respectively
3.0 3.0 
Additional paid-in-capital6,091.5 6,042.6 
Retained earnings2,006.2 1,600.3 
Treasury stock, at cost – 53,566 and 51,401 shares, respectively
(2,681.5)(2,531.5)
Accumulated other comprehensive loss(118.4)(238.2)
Total stockholders’ equity5,300.8 4,876.2 
Total liabilities and stockholders’ equity$9,448.7 $9,071.2 
See accompanying notes.
5
Table of Contents
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 25, 2021297,306 $3.0 $5,965.8 $298.3 $(59.1)43,653 $(1,989.4)$4,218.6 
Exercise of stock options45 — 1.9 — — — — 1.9 
Vesting of restricted stock units, net534 — (22.4)— — — — (22.4)
Stock-based compensation— — 18.7 — — — — 18.7 
Net income— — — 499.2 — — — 499.2 
Other comprehensive income activity— — — — (29.9)— — (29.9)
Repurchase of common stock— — — — — 2,335 (167.0)(167.0)
Balance at December 25, 2021297,885 $3.0 $5,964.0 $797.5 $(89.0)45,988 $(2,156.4)$4,519.1 
Exercise of stock options140 — 5.8 — — — — 5.8 
Vesting of restricted stock units, net14 — (0.1)— — — — (0.1)
Common stock issued under the employee stock purchase plan164 — 9.5 — — — — 9.5 
Stock-based compensation— — 17.8 — — — — 17.8 
Net income— — — 455.7 — — — 455.7 
Other comprehensive income activity— — — — (15.1)— — (15.1)
Repurchase of common stock— — — — — 2,863 (200.0)(200.0)
Balance at March 26, 2022298,203 $3.0 $5,997.0 $1,253.2 $(104.1)48,851 $(2,356.4)$4,792.7 
Exercise of stock options128 — 5.2 — — — — 5.2 
Vesting of restricted stock units, net4 — (0.1)— — — — (0.1)
Stock-based compensation— — 15.3 — — — — 15.3 
Net income— — — 228.4 — — — 228.4 
Other comprehensive income activity— — — — (43.6)— — (43.6)
Balance at June 25, 2022298,335 $3.0 $6,017.4 $1,481.6 $(147.7)48,851 $(2,356.4)$4,997.9 
Exercise of stock options23 — 0.9 — — — — 0.9 
Vesting of restricted stock units, net9 — (0.3)— — — — (0.3)
Common stock issued under the employee stock purchase plan166 — 9.7 — — — — 9.7 
Stock-based compensation— — 14.9 — — — — 14.9 
Net income— — — 118.7 — — — 118.7 
Other comprehensive income activity— — — — (90.5)— — (90.5)
Repurchase of common stock— — — — — 2,550 $(175.1)(175.1)
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 
6
Table of Contents
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 

7
Table of Contents
HOLOGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Six Months Ended
 April 1,
2023		March 26,
2022
OPERATING ACTIVITIES
Net income $405.9 $954.9 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation44.3 44.9 
Amortization of acquired intangible assets122.4 169.2 
Stock-based compensation expense43.7 36.5 
Deferred income taxes(61.6)(41.5)
Contingent consideration - fair value adjustments(12.4)(4.1)
Other adjustments and non-cash items29.6 23.5 
Changes in operating assets and liabilities, excluding the effect of acquisitions:
Accounts receivable(81.8)101.6 
Inventories(56.1)(26.4)
Prepaid income taxes8.3 (6.4)
Prepaid expenses and other assets10.5 355.3 
Accounts payable(13.2)9.1 
Accrued expenses and other liabilities(22.4)2.9 
Deferred revenue42.5 6.9 
Net cash provided by operating activities459.7 1,626.4 
INVESTING ACTIVITIES
Acquisition of business, net of cash acquired— (158.4)
Capital expenditures(34.5)(36.1)
Proceeds from the Department of Defense20.5 58.7 
Increase in equipment under customer usage agreements(26.7)(33.8)
Purchase of equity investment(10.0)— 
Other activity(6.7)5.2 
Net cash used in investing activities(57.4)(164.4)
FINANCING ACTIVITIES
Proceeds from long-term debt, net of issuance costs— 1,491.2 
Repayment of long-term debt(7.5)(1,387.5)
Payment of contingent consideration(7.6)(12.2)
Payment of deferred acquisition consideration(0.8)— 
Repayment of acquired long-term debt— (63.6)
Repurchases of common stock(150.0)(367.0)
Proceeds from issuance of common stock pursuant to employee stock plans28.4 17.3 
Payment of minimum tax withholdings on net share settlements of equity awards(23.2)(22.5)
Payments under finance lease obligations(2.3)(1.7)
Net cash used in financing activities(163.0)(346.0)
Effect of exchange rate changes on cash and cash equivalents3.4 4.5 
Net increase in cash and cash equivalents242.7 1,120.5 
Cash and cash equivalents, beginning of period2,339.5 1,170.3 
Cash and cash equivalents, end of period$2,582.2 $2,290.8 
See accompanying notes.
8
Table of Contents
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 24, 2022 included in the Company’s annual report on Form 10-K filed with the SEC on November 15, 2022. 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 and six months ended April 1, 2023 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year ending September 30, 2023. Fiscal 2023 is a 53-week fiscal year, and the additional week is 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 and six months ended April 1, 2023.

9
Table of Contents
(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 April 1, 2023Three Months Ended March 26, 2022
Business (in millions)
United StatesInternationalTotalUnited StatesInternationalTotal
Diagnostics:
Cytology & Perinatal$69.0 $42.9 $111.9 $72.1 $43.3 $115.4 
Molecular Diagnostics263.0 79.2 342.2 563.8 298.7 862.5 
Blood Screening10.6 — 10.6 9.2 — 9.2 
Total$342.6 $122.1 $464.7 $645.1 $342.0 $987.1 
Breast Health:
Breast Imaging$233.5 $78.0 $311.5 $187.4 $57.6 $245.0 
Interventional Breast Solutions59.8 14.1 73.9 52.1 13.3 65.4 
Total$293.3 $92.1 $385.4 $239.5 $70.9 $310.4 
GYN Surgical$113.6 $31.2 $144.8 $94.0 $23.3 $117.3 
Skeletal Health$19.2 $12.4 $31.6 $13.8 $7.1 $20.9 
$768.7 $257.8 $1,026.5 $992.4 $443.3 $1,435.7 


Six Months Ended April 1, 2023Six Months Ended March 26, 2022
Business (in millions)
United StatesInternationalTotalUnited StatesInternationalTotal
Diagnostics:
Cytology & Perinatal$147.1 $91.5 $238.6 $153.0 $92.9 $245.9 
Molecular Diagnostics591.3 176.2 767.5 1,091.8 584.2 1,676.0 
Blood Screening17.9 — 17.9 15.6 — 15.6 
Total$756.3 $267.7 $1,024.0 $1,260.4 $677.1 $1,937.5 
Breast Health:
Breast Imaging$445.8 $130.1 $575.9 $396.3 $131.0 $527.3 
Interventional Breast Solutions117.5 26.1 143.6 114.3 28.3 142.6 
Total$563.3 $156.2 $719.5 $510.6 $159.3 $669.9 
GYN Surgical$236.7 $62.2 $298.9 $203.3 $48.3 $251.6 
Skeletal Health$36.0 $22.3 $58.3 $30.5 $17.4 $47.9 
$1,592.3 $508.4 $2,100.7 $2,004.8 $902.1 $2,906.9 

10
Table of Contents
Three Months EndedSix Months Ended
Geographic Regions (in millions)
April 1, 2023March 26, 2022April 1, 2023March 26, 2022
United States$768.7 $992.4 $1,592.3 $2,004.8 
Europe151.5 291.2 298.8 586.3 
Asia-Pacific65.2 109.7 129.1 229.4 
Rest of World41.1 42.4 80.5 86.4 
$1,026.5 $1,435.7 $2,100.7 $2,906.9 

The following table provides revenue recognized by source:

Three Months EndedSix Months Ended
Revenue by type (in millions)
April 1, 2023March 26, 2022April 1, 2023March 26, 2022
Disposables$626.5 $1,111.1 $1,354.3 $2,217.5 
Capital equipment, components and software210.9 157.1 369.5 354.1 
Service183.0 162.6 366.2 325.4 
Other6.1 4.9 10.7 9.9 
$1,026.5 $1,435.7 $2,100.7 $2,906.9 

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.

Some of the Company’s contracts have multiple performance obligations. For contracts with multiple performance obligations, the Company allocates the transaction price to each performance obligation using its best estimate of the standalone
11
Table of Contents
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 April 1, 2023, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied was approximately $857.4 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 26% of this amount as revenue in fiscal 2023, 36% in fiscal 2024, 23% in fiscal 2025, 11% in fiscal 2026, 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 $34.5 million and $101.3 million in the three and six months ended April 1, 2023, respectively, that was included in the contract liability balance at September 24, 2022. The Company recognized $30.9 million and $87.3 million in the three and six months ended March 26, 2022, respectively, that was included in the contract liability balance at September 25, 2021.

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.

12
Table of Contents
(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, forward foreign currency contracts and foreign currency option 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 9 for further discussion and information on derivative contracts. In addition, the Company has a contingent consideration liability that is recorded at fair value, which is based on Level 3 inputs. The contingent consideration liability as of April 1, 2023 and March 26, 2022 was related to the Acessa acquisition.

13
Table of Contents
Assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following at April 1, 2023: 

  Fair Value at Reporting Date Using
 Balance as of April 1, 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$27.2 $— $27.2 $— 
Forward foreign currency contracts2.5 — 2.5 — 
Foreign currency option contracts0.3 — 0.3 — 
Total$30.0 $— $30.0 $— 
Liabilities:
Contingent consideration$3.4 $— $— $3.4 
Interest rate swap0.4 — 0.4 — 
Forward foreign currency contracts0.5 — 0.5 — 
Total$4.3 $— $0.9 $3.4 

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 and six month periods ended April 1, 2023 and March 26, 2022 were as follows:

Three Month EndedSix Months Ended
April 1, 2023March 26, 2022April 1, 2023March 26, 2022
Balance at beginning of period$23.4 $71.0 $23.4 $75.1 
Contingent consideration recorded at acquisition— — — — 
Fair value adjustments(12.4)— (12.4)(4.1)
Payments(7.6)(12.2)(7.6)(12.2)
Balance at end of period$3.4 $58.8 $3.4 $58.8 

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 2022, the Company recorded a $4.3 million charge to write-off an equity method investment acquired in the Mobidiag acquisition. There were no other remeasurements in the three and six months ended April 1, 2023 and March 26, 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, foreign currency option 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, forward foreign currency contracts and foreign currency option 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.

14
Table of Contents
Amounts outstanding under the Company’s 2021 Credit Agreement of $1.5 billion aggregate principal as of April 1, 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 $388.9 million and $848.4 million, respectively, as of April 1, 2023 based on their trading prices, representing a Level 1 measurement. Refer to Note 7 for the carrying amounts of the various components of the Company’s debt.

(5) Business Combinations

Fiscal 2022 Acquisition

Bolder Surgical

On November 29, 2021, the Company completed the acquisition of Bolder Surgical Holdings, Inc. (“Bolder”), for a purchase price of $160.1 million. Bolder, located in Louisville, Colorado, is a developer and manufacturer of energy vessel sealing surgical devices used in both laparoscopic and open procedures. Bolder’s results of operations are reported in the Company's GYN Surgical reportable segment from the date of acquisition.

The total purchase price was allocated to Bolder’s tangible and identifiable intangible assets and liabilities based on the estimated fair values as of November 29, 2021, as set forth below.


Cash$1.9 
Accounts receivable1.3 
Inventory3.3 
Other assets3.0 
Accounts payable and accrued expenses(3.2)
Identifiable intangible assets:
Developed technology73.6 
Customer relationship21.7 
Trade names1.4 
Deferred income taxes, net(11.7)
Goodwill68.8 
Purchase Price$160.1 

In performing the purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analysis of historical financial performance and estimates of future performance of Bolder’s business.

As part of the purchase price allocation, the Company determined the identifiable intangible assets were developed technology, customer relationships and trade names. The fair value of the intangible assets was estimated using the income approach, and the cash flow projections were discounted using a 16.0% rate. The cash flows were based on estimates used to price the transaction, and the discount rate applied was benchmarked with reference to the implied rate of return from the transaction model and the weighted average cost of capital.

The developed technology assets are comprised of know-how, patents and technologies embedded in Bolder’s products and relate to currently marketed products. The developed technology assets comprise the primary product families under the JustRight and CoolSeal technology platforms.

The estimate of the weighted average life for the developed technology, customer relationship, and trade name assets is 10 years. The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill. Factors contributing to the recognition of the amount of goodwill were primarily based on anticipated strategic and synergistic benefits that are expected to be realized from the Bolder acquisition. These benefits include expanding the Company’s surgical portfolio and utilizing GYN Surgical’s sales and regulatory expertise to drive adoption and revenue growth. None of the goodwill is expected to be deductible for income tax purposes.
15
Table of Contents

Contingent Consideration

The Company has a contingent consideration liability 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 are 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 is 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 is required to remeasure the fair value of the liability as assumptions change, and such adjustments are 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 is directly impacted by the Company’s estimate of future incremental revenue growth of the business. Accordingly, if actual revenue growth is higher or lower than the estimates within the fair value measurement, the Company would record additional charges or gains. During the year ended September 24, 2022, the Company remeasured the contingent consideration and recorded a gain of $39.5 million to record the liability at fair value. The reduction in fair value was primarily due to a decrease in forecasted revenues over the measurement period and to a much lesser extent an increase in the discount rate driven by market rates. During the three months ended December 25, 2021, the first measurement period was completed, and the Company recorded a gain of $4.1 million to decrease the contingent consideration liability to fair value based on actual revenue results in the first earn-out period. During the second quarter of fiscal 2022, the Company made a payment of $12.2 million for the first earn-out period. During the three months ended December 31, 2022, the second measurement period was completed, resulting in a payment of $7.6 million, which was made in the second quarter of fiscal 2023. During the second quarter of fiscal 2023, the Company updated its forecasted revenue and recorded a gain of $12.4 million to record the liability to fair value. The reduction in fair value was due to a decrease in forecasted revenues over the remaining measurement period. As of April 1, 2023, the contingent consideration liability was $3.4 million.

(6) Restructuring

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 will be moved to the Company’s Newark, Delaware facility. In addition, research and development, sales and services support and administrative functions will be moved to the Newark, Delaware and Marlborough, Massachusetts facilities. The transition is expected to be completed by the third quarter of fiscal 2025. The majority of employees located in Danbury were given the option to relocate to the new locations. As a result of this plan, the Company expects a number of employees to not relocate resulting in their termination. The employees were notified of the closure during the first quarter of fiscal 2022 but were not informed of their termination and related severance benefits until the third quarter of fiscal 2022. The Company is recording severance benefits pursuant to pursuant to ASC 420, Exit or Disposal Cost Obligations (ASC 420), and the severance benefits are being expensed ratably over the required service period. As a result, the Company recorded severance charges of $0.3 million and $1.0 million during the three and six months ended April 1, 2023, respectively, and $1.6 million in fiscal 2022. The Company estimates that total severance charges, including retention, will be approximately $5.5 million.

During the first and second quarters of fiscal 2023, the Company made various decisions to consolidate and close certain offices in Germany and in connection with such actions to terminate certain individuals across all divisions in multiple departments. For the three and six months ended April 1, 2023, the Company recorded $1.5 million and $1.9 million, respectively, primarily for severance benefits related to these actions. These charges were recorded pursuant to ASC 712, Compensation-Nonretirement Postemployment Benefits (ASC 712) or ASC 420, depending on the employee. The Company estimates that total severance charges will be approximately $3.9 million, and the actions will be completed by September 2023.




16
Table of Contents
(7) Borrowings and Credit Arrangements

The Company’s borrowings consisted of the following: 

April 1,
2023		September 24,
2022
Current debt obligations, net of debt discount and deferred issuance costs:
Term Loan$26.2 $15.0 
Total current debt obligations$26.2 $15.0 
Long-term debt obligations, net of debt discount and issuance costs:
Term Loan1,463.6 1,475.7 
2028 Senior Notes396.4 396.1 
2029 Senior Notes937.7 936.6 
Total long-term debt obligations$2,797.7 $2,808.4 
Total debt obligations$2,823.9 $2,823.4 

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 April 1, 2023, the principal amount outstanding under the 2021 Term Loan was $1.5 billion, and the interest rate was 5.91% per annum. No amounts were outstanding under the 2021 Revolver, and the full amount was available to be borrowed by the Company.

Pursuant to ASC 470, Debt (ASC 470), the accounting for the refinancing was evaluated on a creditor-by-creditor basis to determine whether each transaction should be accounted for as a modification or extinguishment. Certain creditors under the 2018 Credit Agreement did not participate in this refinancing transaction and ceased being creditors of the Company. As a result, the Company recorded a debt extinguishment loss of $0.7 million in the first quarter of fiscal 2022 to write-off the pro-rata amount of unamortized debt discount and deferred issuance costs related to these creditors. For the remainder of the creditors, this transaction was accounted for as a modification. Pursuant to ASC 470, third-party costs of $7.0 million were recorded as a reduction to debt representing deferred issuance costs and fees paid directly to the lenders.

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 EndedSix Months Ended
April 1, 2023March 26, 2022April 1, 2023March 26, 2022
Interest expense$22.5 $5.7 $42.9 $11.0 
Weighted average interest rate5.74 %1.13 %5.39 %1.11 %
Interest rate at end of period5.91 %1.46 %5.91 %1.46 %

The Company’s currently effective interest rate swap agreement, which fixes the floating rate on $1.0 billion of aggregate principal under the 2021 Term Loan at 1.23%, resulted in the Company receiving $8.6 million and $15.2 million in the three and six months ended April 1, 2023, respectively, which was recorded as a reduction to interest expense.

17
Table of Contents
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 April 1, 2023, the Company was in compliance with these covenants.

2028 Senior Notes
    
As of April 1, 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 April 1, 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.

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

Three Months EndedSix Months Ended
Interest RateApril 1, 2023March 26, 2022April 1, 2023March 26, 2022
2028 Senior Notes4.625 %4.8 4.8 10.0 9.6 
2029 Senior Notes3.250 %8.2 8.2 17.1 16.4 
Total$13.0 $13.0 $27.1 $26.0 

Accounts Receivable Securitization Program

During April 2022, the Company repaid the outstanding balance of $248.5 million under its accounts receivable securitization program (the “Securitization Program”). On June 10, 2022, the Company amended the agreement governing the Securitization Program temporarily suspending its ability to borrow and the need to comply with covenants for up to a year. On March 31, 2023, the Company terminated the Securitization Program.


(8) 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 from new macroeconomic events, such as the COVID-19 pandemic and inflation, must be taken into consideration. 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 April 1, 2023 compared to March 26, 2022:

18
Table of Contents
Balance at
Beginning
of Period		Credit LossWrite-offs,
Payments and Foreign Exchange		Balance at
End of
Period
Six Months Ended
April 1, 2023$37.7 $1.9 $(0.2)$39.4 
March 26, 2022$40.5 $3.7 $(2.1)$42.1 

(9) 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, to evaluate the impact of modifying the contract, which resulted in no change to the accounting for this derivative contract. The notional amount of this swap is $1.0 billion. The restructured interest rate swap fixes 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 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 $1.0 billion of principal. Therefore, changes in the fair value of the swap are recorded in AOCI. The fair value of this derivative was in an asset position of $26.0 million as of April 1, 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 $1.2 million and a liability position of $0.4 million, respectively, as of April 1, 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 and as of April 1, 2023 the notional amount was $200.3 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 and six months ended April 1, 2023 and March 26, 2022, respectively, were as follows:

19
Table of Contents
Three Months EndedSix Months Ended
April 1, 2023March 26, 2022April 1, 2023March 26, 2022
Amount of realized gain (loss) recognized in income
Forward foreign currency contracts$(0.3)$10.4 $(2.7)$22.8 
Foreign currency option contracts(1.3)— (1.5)— 
$(1.6)$10.4 $(4.2)$22.8 
Amount of unrealized gain (loss) recognized in income
Forward foreign currency contracts$— $(0.1)$(13.8)$6.7 
Foreign currency option contracts0.5 — (7.8)— 
$0.5 $(0.1)$(21.6)$6.7 
Amount of gain (loss) recognized in income
Total$(1.1)$10.3 $(25.8)$29.5 


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 April 1, 2023:

Balance Sheet LocationApril 1, 2023September 24, 2022
Assets:
Derivative instruments designated as a cash flow hedge:
Interest rate swap contractsPrepaid expenses and other current assets$27.1 $31.9 
Interest rate swap contractsOther assets0.1 7.0 
$27.2 $38.9 
Derivatives not designated as hedging instruments:
Forward foreign currency contractsPrepaid expenses and other current assets$2.5 $15.8 
Foreign currency option contractsPrepaid expenses and other current assets0.3 10.6 
$2.8 $26.4 
Liabilities:
Derivative instruments designated as a cash flow hedge:
Interest rate swap contractOther long-term liabilities$0.4 $— 
Derivatives not designated as hedging instruments:
Forward foreign currency contractsAccrued expenses$0.5 $— 

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

20
Table of Contents
Three Months EndedSix Months Ended
April 1, 2023March 26, 2022April 1, 2023March 26, 2022
Amount of (loss) gain recognized in other comprehensive income, net of taxes:
Interest rate swaps$(6.4)$19.4 $(9.3)$27.3 
Total$(6.4)$19.4 $(9.3)$27.3 

(10) Commitments and Contingencies

Litigation and Related Matters

On November 6, 2015, the Company filed a suit against Minerva Surgical, Inc. (“Minerva”) in the United States District Court for the District of Delaware, alleging that Minerva’s endometrial ablation device infringes U.S. Patent 6,872,183 (the '183 patent), U.S. Patent 8,998,898 and U.S. Patent 9,095,348 (the '348 patent). On January 25, 2016, the Company amended the complaint to include claims against Minerva for unfair competition, deceptive trade practices and tortious interference with business relationships. On February 5, 2016, the Company filed a second amended complaint to additionally allege that Minerva’s endometrial ablation device infringes U.S. Patent 9,247,989 (the '989 patent). On March 4, 2016, Minerva filed an answer and counterclaims against the Company, seeking declaratory judgment on the Company’s claims and asserting claims against the Company for unfair competition, deceptive trade practices, interference with contractual relationships, breach of contract and trade libel. On June 2, 2016, the Court denied the Company’s motion for a preliminary injunction on its patent claims and denied Minerva’s request for preliminary injunction related to the Company’s alleged false and deceptive statements regarding the Minerva product. On June 28, 2018, the Court granted the Company’s summary judgment motions on infringement and no invalidity with respect to the ‘183 and ‘348 patents. The Court also granted the Company’s motion for summary judgment on assignor estoppel, which bars Minerva’s invalidity defenses. The Court also denied all of Minerva’s defenses, including its motions for summary judgment on invalidity, non-infringement, no willfulness, and no unfair competition. On July 27, 2018, after a two-week trial, a jury returned a verdict that: (1) awarded the Company $4.8 million in damages for Minerva’s infringement; (2) found that Minerva’s infringement was not willful; and (3) found for the Company regarding Minerva’s counterclaims. Damages continued to accrue as Minerva continues its infringing conduct. On May 2, 2019, the Court issued rulings that denied the parties’ post-trial motions, including the Company’s motion for a permanent injunction seeking to prohibit Minerva from selling infringing devices. Both parties appealed the Court’s rulings regarding the post-trial motions. On March 4, 2016, Minerva filed two petitions at the United States Patent and Trademark Office (“USPTO”) for inter partes review of the '348 patent. On September 12, 2016, the Patent Trial and Appeal Board of the USPTO (“PTAB”) declined both petitions to review patentability of the '348 patent. On April 11, 2016, Minerva filed a petition for inter partes review of the '183 patent. On October 6, 2016, the PTAB granted the petition and instituted a review of the '183 patent. On December 15, 2017, the PTAB issued a final written decision invalidating all claims of the ‘183 patent. On February 9, 2018, the Company appealed this decision to the United States Court of Appeals for the Federal Circuit (“Court of Appeals”). On April 19, 2019, the Court of Appeals affirmed the PTAB’s final written decision regarding the '183 patent. On July 16, 2019, the Court of Appeals denied the Company’s petition for rehearing in the appeal regarding the '183 patent. On April 22, 2020, the Court of Appeals affirmed the district court’s summary judgment ruling in favor of the Company of no invalidity and infringement, and summary judgment that assignor estoppel bars Minerva from challenging the validity of the ‘348 patent. The Court of Appeals also denied the Company’s motion for a permanent injunction and ongoing royalties for infringement of the ‘183 patent. The Court of Appeals denied Minerva’s arguments for no damages or, alternatively, a new trial. On May 22, 2020 both parties petitioned for en banc review of the Court of Appeals decision. On July 22, 2020, the Court of Appeals denied both parties’ petitions for en banc review. On August 28, 2020, the district court entered final judgment against Minerva but stayed execution pending resolution of Minerva’s petition for Supreme Court review. On September 30, 2020, Minerva filed a petition requesting Supreme Court review on the issue of assignor estoppel. On November 5, 2020, the Company filed a cross-petition requesting Supreme Court review on the issue of assignor estoppel. On January 8, 2021, the Supreme Court granted Minerva’s petition to address the issue of assignor estoppel and denied the Company’s petition. Oral argument before the Supreme Court was held on April 21, 2021. On June 29, 2021, the Supreme Court ruled 5-4 to uphold the assignor estoppel but limited its application to situations in which an assignor’s claim of invalidity contradicts a prior representation the assignor made in assigning the patent. The Court also vacated the ruling of the Court of Appeals and remanded the case for further proceedings consistent with its opinion. On August 11, 2022, the Court of Appeals affirmed the district court ruling on the issue of assignor estoppel, which barred Minerva from challenging the validity of the patent rights it assigned to the Company and reinstated its earlier judgment against Minerva on infringement. On September 11, 2022, Minerva petitioned for en banc review of the Court of Appeals decision. The Company filed its response on October 25, 2022, and on November 10, 2022, the Court of Appeals denied Minerva's petition ending the appeals process. During the first quarter of 2023, the Company received a payment for infringement damages in the amount of $7.4 million, which included the original award of $4.8 million plus post-trial damages and interest. This amount was recorded as a credit to general and administrative expenses in the first quarter of fiscal 2023.    
21
Table of Contents

On April 11, 2017, Minerva filed suit against the Company and Cytyc Surgical Products, LLC (“Cytyc”) in the United States District Court for the Northern District of California alleging that the Company’s and Cytyc’s NovaSure ADVANCED endometrial ablation device infringes Minerva’s U.S. patent 9,186,208 (the '208 patent). Minerva is seeking a preliminary and permanent injunction against the Company and Cytyc from selling this NovaSure device as well as enhanced damages and interest, including lost profits, price erosion and/or royalty. On January 5, 2018, the Court denied Minerva’s motion for a preliminary injunction. On February 2, 2018, at the parties’ joint request, this action was transferred to the District of Delaware. On March 26, 2019, the Magistrate Judge issued a claims construction ruling regarding the disputed terms in the patent, which the District Court Judge adopted in all respects on October 21, 2019. On July 27, 2021, the Delaware district court granted the Company’s motion for summary judgment on invalidity of the '208 patent and entered judgment in favor of the Company. On August 24, 2021, Minerva appealed this and the other rulings to the Court of Appeals. On February 15, 2023, the Court of Appeals affirmed the district court’s judgment in favor of the Company and dismissed the other rulings Minerva appealed as moot. On April 18, 2023, the Company entered into a settlement agreement with Minerva to resolve all remaining patent litigation matters, the impact of which was immaterial.
    
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.

(11) Net Income Per Share

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

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
Basic weighted average common shares outstanding247,730 251,574 247,524 252,537 
Weighted average common stock equivalents from assumed exercise of stock options and issuance of restricted stock units2,063 2,084 2,013 2,327 
Diluted weighted average common shares outstanding249,793 253,658 249,537 254,864 
Weighted-average anti-dilutive shares related to:
Outstanding stock options and restricted stock units792 1,129 1,211 999 

(12) Stock-Based Compensation

The following presents stock-based compensation expense in the Company’s Consolidated Statements of Income:

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
Cost of revenues$2.7 $2.6 $5.6 $4.9 
Research and development3.1 2.8 6.5 5.5 
Selling and marketing3.0 2.8 6.3 5.4 
General and administrative14.4 9.6 25.3 20.7 
$23.2 $17.8 $43.7 $36.5 

The Company granted options to purchase 0.5 million and 0.6 million shares of the Company’s common stock during the six months ended April 1, 2023 and March 26, 2022, respectively, with weighted-average exercise prices of $74.59 and $71.10, respectively. There were 4.3 million options outstanding at April 1, 2023 with a weighted-average exercise price of $51.87.

22
Table of Contents
The Company uses a binomial model to determine the fair value of its stock options. The weighted-average assumptions utilized to value these stock options are indicated in the following table:

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
Risk-free interest rate4.3 %1.1 %4.3 %1.1 %
Expected volatility33.9 %34.2 %33.9 %34.2 %
Expected life (in years)4.84.84.84.8
Dividend yield— — — — 
Weighted average fair value of options granted$27.42 $20.80 $25.92 $21.02 

The Company granted 0.6 million and 0.6 million restricted stock units (“RSUs”) during the six months ended April 1, 2023 and March 26, 2022, respectively, with weighted-average grant date fair values of $74.44 and $71.15 per unit, respectively. In addition, the Company granted 0.1 million and 0.1 million performance stock units (“PSUs”) during the six months ended April 1, 2023 and March 26, 2022, respectively, to members of its senior management team, which have a weighted-average grant date fair value of $74.35 and $71.16 per unit, respectively. Each recipient of PSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of a three-year performance period, provided that the Company’s defined Return on Invested Capital metrics are achieved. The Company also granted 0.1 million and 0.1 million of FCF PSUs based on a three-year cumulative free cash flow measure (“FCF PSUs”) to members of its senior management team, which had a grant date fair value of $74.35 and $71.16 per unit during the six months ended April 1, 2023 and March 26, 2022, respectively. Each recipient of FCF PSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of the three-year measurement period. The PSUs and FCF PSUs cliff-vest three years from the date of grant, and the Company recognizes compensation expense ratably over the required service period based on its estimate of the probable number of shares that will vest upon achieving the measurement criteria. If there is a change in the estimate of the number of shares that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. The Company also granted 0.1 million and 0.1 million market-based awards (“MSUs”) to members of its senior management team during the six months ended April 1, 2023 and March 26, 2022, respectively. Each recipient of MSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of a three-year performance period based upon achieving a certain total shareholder return relative to a defined peer group. The MSUs were valued at $97.91 and $75.43 per share using the Monte Carlo simulation model in fiscal 2023 and 2022, respectively. The MSUs cliff-vest three years from the date of grant, and the Company recognizes compensation expense for the MSUs ratably over the service period. At April 1, 2023, there was 1.7 million in aggregate unvested RSUs, PSUs, FCF PSUs and MSUs outstanding.

At April 1, 2023, there was $18.8 million and $77.3 million of unrecognized compensation expense related to stock options and stock units (comprised of RSUs, PSUs, FCF PSUs and MSUs), respectively, to be recognized over a weighted-average period of 2.2 and 1.9 years, respectively.

23
Table of Contents

(13) Other Balance Sheet Information
April 1,
2023		September 24,
2022
Inventories
Raw materials$293.3 $252.9 
Work-in-process65.8 60.1 
Finished goods328.5 310.7 
$687.6 $623.7 
Property, plant and equipment
Equipment$407.6 $394.8 
Equipment under customer usage agreements506.8 486.5 
Building and improvements206.2 196.0 
Leasehold improvements47.1 44.8 
Land41.1 40.9 
Furniture and fixtures19.2 16.7 
Finance lease right of use asset8.4 7.5 
$1,236.4 $1,187.2 
Less – accumulated depreciation and amortization(738.5)(705.6)
$497.9 $481.6 

In September 2020 and October 2020, the Company was awarded grants of $7.6 million and $119.3 million, respectively, from the Department of Defense Joint Acquisition Task Force (“DOD”) to expand production capacity for the Company’s two SARS-CoV-2 assays. These grants were specifically to fund capital equipment and labor investments to increase manufacturing capacity to enable the Company to provide a certain amount of COVID-19 tests per month for the U.S. market. The Company has accounted for the funds received under these grants as a reimbursement of the purchased capital equipment. The Company procured and paid for the capital equipment and necessary resources to build out its facility and construct the manufacturing lines to meet the requirements specified in the grant agreement. Subsequent to the Company paying for the capital equipment, the DOD reimbursed the Company upon it meeting certain requirements. However, the DOD retained title to the assets purchased under the agreement, and title was transferred to the Company upon meeting certain milestones of the manufacturing efforts and obtaining approval from the DOD that the respective milestone had been met. As of the end of fiscal 2022, the Company had completed all milestones under the agreement and was waiting for approval by the DOD. During the second quarter of fiscal 2023, the Company received the final DOD approvals and the final payment from the DOD of $20.5 million, which was recorded as a reduction of the cost basis of the purchased equipment. As of April 1, 2023, no other amounts were awaiting approval and all defined milestones were completed.

(14) Business Segments and Geographic Information

The Company has four reportable segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. The Company measures and evaluates its reportable segments based on segment revenues and operating income adjusted to exclude the effect of non-cash charges, such as intangible asset amortization expense, goodwill and intangible asset impairment charges, transaction and integration expenses for acquisitions, restructuring, consolidation and divestiture charges, litigation charges, and other one-time or unusual items.

24
Table of Contents
Identifiable assets for the reportable segments consist of inventories, intangible assets, goodwill, and property, plant and equipment. The Company fully allocates depreciation expense to its reportable segments. The Company has presented all other identifiable assets as corporate assets. There were no inter-segment revenues during the three and six months ended April 1, 2023 and March 26, 2022. Segment information is as follows:

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
Total revenues:
Diagnostics$464.7 $987.1 $1,024.0 $1,937.5 
Breast Health385.4 310.4 719.5 669.9 
GYN Surgical144.8 117.3 298.9 251.6 
Skeletal Health31.6 20.9 58.3 47.9 
$1,026.5 $1,435.7 $2,100.7 $2,906.9 
Income from operations:
Diagnostics$105.3 $540.6 $256.4 $1,072.4 
Breast Health109.9 49.3 170.4 131.0 
GYN Surgical52.3 5.7 101.0 32.3 
Skeletal Health4.6 (1.5)6.7 (0.3)
$272.1 $594.1 $534.5 $1,235.4 
Depreciation and amortization:
Diagnostics$56.1 $68.2 $116.0 $137.6 
Breast Health12.9 13.1 26.5 28.6 
GYN Surgical11.6 24.6 23.9 47.5 
Skeletal Health0.2 0.2 0.3 0.4 
$80.8 $106.1 $166.7 $214.1 
Capital expenditures:
Diagnostics$20.2 $26.5 $36.1 $57.5 
Breast Health6.9 2.8 14.1 7.0 
GYN Surgical2.8 2.0 6.7 4.1 
Skeletal Health0.1 0.1 0.2 0.2 
Corporate2.1 0.9 4.1 1.1 
$32.1 $32.3 $61.2 $69.9 
 
April 1,
2023		September 24,
2022
Identifiable assets:
Diagnostics$2,940.4 $2,881.7 
Breast Health1,250.9 1,245.8 
GYN Surgical1,464.2 1,461.5 
Skeletal Health22.7 27.5 
Corporate3,770.5 3,454.7 
$9,448.7 $9,071.2 

The Company had no customers that represented greater than 10% of consolidated revenues during the three and six months ended April 1, 2023 and March 26, 2022.

The Company operates in the major geographic areas noted in the below chart. Revenue data is based upon customer location. Other than the United States, no single country accounted for more than 10% of consolidated revenues. The Company’s sales in Europe are predominantly derived from the United Kingdom, Germany, France, Spain, Italy and the Netherlands. The Company’s sales in Asia-Pacific are predominantly derived from China, Australia and Japan. The “Rest of World” designation includes Canada, Latin America and the Middle East.

25
Table of Contents
Revenues by geography as a percentage of total revenues were as follows:
 
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		April 1,
2023		March 26,
2022
United States74.9 %69.1 %75.8 %69.0 %
Europe14.8 %20.3 %14.2 %20.1 %
Asia-Pacific6.4 %7.6 %6.1 %7.9 %
Rest of World3.9 %3.0 %3.9 %3.0 %
100.0 %100.0 %100.0 %100.0 %

(15) Income Taxes

In accordance with ASC 740, Income Taxes, each interim period is considered integral to the annual period, and tax expense is measured using an estimated annual effective tax rate. An entity is required to record income tax expense each quarter based on its annual effective tax rate estimated for the full fiscal year and use that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.

The Company’s effective tax rates for the three and six months ended April 1, 2023 were 21.8% and 21.7%, respectively, compared to 20.7% and 20.2%, respectively, for the corresponding periods in the prior year.

The effective tax rates for the three and six months ended April 1, 2023 were higher than the U.S. statutory tax rate primarily due to income tax reserves, the global intangible low-taxed income inclusion, and state income taxes, partially offset by the impact of the U.S. deduction for foreign derived intangible income, the geographic mix of income earned by the Company’s international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate, and federal and state tax credits.

The effective tax rates for the three and six months ended March 26, 2022 were lower than the U.S. statutory tax rate primarily due to the impact of the U.S. deduction for foreign derived intangible income and the geographic mix of income earned by the Company’s international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate, partially offset by state income taxes.

Non-Income Tax Matters

The Company is subject to tax examinations for value-added, sales-based, payroll, and other non-income tax items. A number of these examinations are ongoing in various jurisdictions. The Company takes certain non-income tax positions in the jurisdictions in which it operates. In the normal course of business, the Company’s positions and conclusions related to its non-income tax positions could be challenged, resulting in assessments by governmental authorities. Pursuant to ASC 450, the Company has recorded loss contingencies with respect to some of these positions. Such amounts were not material for the three and six months ended April 1, 2023 and March 26, 2022. While the Company believes its estimated losses recorded are reasonable, certain audits are still ongoing and additional charges could be recorded in the future.



26
Table of Contents
(16) Intangible Assets

Intangible assets consisted of the following:
 
DescriptionAs of April 1, 2023As of September 24, 2022
Gross
Carrying
Value		Accumulated
Amortization		Gross
Carrying
Value		Accumulated
Amortization
Acquired intangible assets:
Developed technology$4,607.5 $3,574.1 $4,565.6 $3,458.2 
In-process research and development36.8 — 33.0 — 
Customer relationships607.9 547.1 601.9 535.6 
Trade names267.6 209.3 265.2 203.3 
Total acquired intangible assets$5,519.8 $4,330.5 $5,465.7 $4,197.1 
Internal-use software28.5 21.4 26.0 19.9 
Capitalized software embedded in products27.5 21.7 26.5 20.6 
Total intangible assets$5,575.8 $4,373.6 $5,518.2 $4,237.6 

The estimated remaining amortization expense of the Company’s acquired intangible assets as of April 1, 2023 for each of the five succeeding fiscal years was as follows:

Remainder of Fiscal 2023$117.4 
Fiscal 2024$225.2 
Fiscal 2025$210.3 
Fiscal 2026$177.9 
Fiscal 2027$90.9 


(17) Product Warranties

Product warranty activity was as follows:
 
Balance at
Beginning of
Period		ProvisionsSettlements/
Adjustments		Balance at
End of Period
Six Months Ended:
April 1, 2023$8.0 $3.3 $(3.8)$7.5 
March 26, 2022$8.8 $3.7 $(4.1)$8.4 

(18) Accumulated Other Comprehensive Loss

The following tables summarize the changes in accumulated balances of other comprehensive loss for the periods presented:
Three Months Ended April 1, 2023Six Months Ended April 1, 2023
Foreign Currency TranslationPension PlansHedged Interest Rate SwapsTotalForeign Currency TranslationPension PlansHedged Interest Rate SwapsTotal
Beginning Balance$(153.4)$(0.3)$26.4 $(127.3)$(267.2)$(0.3)$29.3 $(238.2)
Other comprehensive income (loss) before reclassifications15.3 — (6.4)8.9 129.1 — (9.3)119.8 
Ending Balance$(138.1)$(0.3)$20.0 $(118.4)$(138.1)$(0.3)$20.0 $(118.4)

27
Table of Contents
Three Months Ended March 26, 2022Six Months Ended March 26, 2022
Foreign Currency TranslationPension PlansHedged Interest Rate SwapsTotalForeign Currency TranslationPension PlansHedged Interest Rate SwapsTotal
Beginning Balance$(80.9)$(1.3)$(6.8)$(89.0)$(43.1)$(1.3)$(14.7)$(59.1)
Other comprehensive income (loss) before reclassifications(34.5)— 19.4 $(15.1)(72.3)— 27.3 (45.0)
Ending Balance$(115.4)$(1.3)$12.6 $(104.1)$(115.4)$(1.3)$12.6 $(104.1)

(19) Share Repurchase

On September 22, 2022, the Board of Directors authorized a stock repurchase program, with a five-year term, to repurchase up to $1.0 billion of the Company’s outstanding common stock, effective as of the close of trading September 23, 2022. This repurchase program replaced the previous $1.0 billion authorization. During the three and six months ended April 1, 2023, the Company repurchased 0.6 million and 2.2 million shares of its common stock for total consideration of $50.0 million and $150.0 million, respectively. As of April 1, 2023, $850.0 million remained available under this authorization.

28
Table of Contents
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENT

Some of the statements contained in this report and documents incorporated by reference herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors which may cause our or our industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements regarding:

•the ongoing and possible future effects of global challenges, including macroeconomic uncertainties, the war in Ukraine, other economic disruptions and U.S. and global recession concerns, on our customers and suppliers and on our business, financial condition, results of operations and cash flows and our ability to draw down our revolver;
•the effect of the worldwide political and social uncertainty and divisions, including the impact on trade regulation and tariffs, that may adversely impact the cost and sale of our products in certain countries, or increase the costs we may incur to purchase materials, parts and equipment from our suppliers;
•the ongoing and possible future effects of supply chain constraints, including the availability of critical raw materials and components, including semiconductor chips, as well as cost inflation in materials, packaging and transportation;
•the possibility of interruptions or delays at our manufacturing facilities, or the failure to secure alternative suppliers if any of our sole source third-party manufacturers fail to supply us;
•the development of new competitive technologies and products;
•our ability to predict accurately the demand for our products, and products under development and to develop strategies to address markets successfully;
•continued demand for our COVID-19 assays;
•the timing, scope and effect of further U.S. and international governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic and any future public health crises;
•potential cybersecurity threats and targeted computer crime;
•the ability to execute and integrate acquisitions and the impact and anticipated benefits of completed acquisitions and acquisitions we may complete in the future;
•the ability to consolidate certain of our manufacturing and other operations on a timely basis and within budget, without disrupting our business and to achieve anticipated cost synergies related to such actions;
•the ability to successfully manage ongoing organizational and strategic changes, including our ability to attract, motivate and retain key employees and maintain engagement and efficiency in remote work environments;
•our ability to obtain regulatory approvals and clearances for our products, including the implementation of the European Union Medical Device and In Vitro Diagnostic Regulation requirements, and maintain compliance with complex and evolving regulations;
•the coverage and reimbursement decisions of third-party payors;
•the uncertainty of the impact of cost containment efforts and federal healthcare reform legislation on our business and results of operations;
•the guidelines, recommendations, and studies published by various organizations relating to the use of our products;
•the effect of consolidation in the healthcare industry;
•our ability to meet production and delivery schedules for our products;
•our ability to protect our intellectual property rights;
•the possibility that products may contain undetected errors or defects or otherwise not perform as anticipated;
•the anticipated development of markets we sell our products into and the success of our products in these markets;
•the anticipated performance and benefits of our products;
•business strategies;
•anticipated trends relating to our financial condition or results of operations, including the impact of interest rate and foreign currency exchange fluctuations;
•estimated asset and liability values;
•the impact of future tax legislation;
29
Table of Contents
•conducting business internationally;
•the impact and costs and expenses of any litigation we may be subject to now or in the future;
•our compliance with covenants contained in our debt agreements; and
•our liquidity, capital resources and the adequacy thereof.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “likely,” “future,” “strategy,” “potential,” “seeks,” “goal” and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. Factors that could cause or contribute to differences in our future financial results include the cautionary statements set forth herein and in our other filings with the Securities and Exchange Commission, including the “Risk Factors” set forth or incorporated by reference in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those described in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022 or any other of our subsequently filed reports. We qualify all of our forward-looking statements by these cautionary statements.

OVERVIEW

We are a developer, manufacturer and supplier of premium diagnostics products, medical imaging systems, and surgical products focused on women’s health and well-being through early detection and treatment. We sell and service our products through a combination of direct sales and service personnel and a network of independent distributors and sales representatives. We operate in four segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health.

Through our Diagnostics segment, we offer a wide range of diagnostic products, which are used primarily to aid in the screening and diagnosis of human diseases. Our primary Diagnostics products include our molecular diagnostic assays, which run on our advanced instrumentation systems (Panther, Panther Fusion and Tigris), our ThinPrep cytology system, and the Rapid Fetal Fibronectin Test. Our Aptima family of molecular diagnostic assays is used to detect, among other things, the infectious microorganisms that cause common sexually transmitted diseases, or STDs, such as chlamydia and gonorrhea, or CTGC; certain high-risk strains of human papillomavirus, or HPV; Trichomonas vaginalis, the parasite that causes trichomoniasis; Mycoplasma genitalium; and Herpes Simplex viruses 1 and 2. We also offer viral load tests for the quantitation of Hepatitis B virus, Hepatitis C virus, human immunodeficiency virus, or HIV, and human cytomegalo virus, or CMV, for use on our Panther instrument system. In addition, we offer bacterial vaginosis and candida vaginitis assays for the diagnosis of vaginitis, a common and complex ailment affecting millions of women a year. Our assay portfolio also includes diagnostic tests for a range of acute respiratory infections, including SARS-CoV-2, various strains of influenza and parainfluenza, and respiratory syncytial virus that are run on the Panther Fusion system, a field upgradeable instrument addition to the base Panther system. In response to the COVID-19 pandemic, we developed and launched the Aptima SARS-CoV-2 assay and the Aptima SARS-CoV-2/Flu assay (each of which runs on our standard Panther system) and the Panther Fusion SARS-CoV-2 assay (which runs on our Panther Fusion system). In May 2022, we CE-marked two new molecular assays, Panther Fusion EBV Quant assay for quantitation of Epstein-Barr virus, and the Panther Fusion BKV Quant assay for quantitation of the BK virus. These two new assays are the first quantitative real-time PCR assays on the Panther Fusion system. These assays, along with the Aptima CMV Quant assay, expand our Panther Fusion menu of transplant monitoring assays. The ThinPrep System is primarily used in cytology applications, such as cervical cancer screening, and the Rapid Fetal Fibronectin Test assists physicians in assessing the risk of pre-term birth. We also generate service revenues from our CLIA-certified laboratory for testing related to breast cancer and all metastatic cancers.

Our Breast Health segment offers a broad portfolio of solutions for breast cancer care primarily in the areas of radiology, breast surgery, pathology and treatment. These solutions include 3D digital mammography systems, image analytics software utilizing artificial intelligence, reading workstations, ultrasound imaging, minimally invasive breast biopsy guidance systems, breast biopsy site markers, localization, specimen radiology, connectivity solutions and breast conserving surgery products. Our most advanced breast imaging platforms, Selenia Dimensions and 3Dimensions, utilize tomosynthesis to produce 3D images that show multiple contiguous slice images of the breast, which we refer to as the Genius 3D Mammography exam.

Our GYN Surgical products include our NovaSure Endometrial Ablation System, or NovaSure, our MyoSure Hysteroscopic Tissue Removal System, or MyoSure, our Fluent Fluid Management system, or Fluent, our Acessa ProVu
30

laparoscopic radiofrequency ablation system, or Acessa ProVu system, as well as our CoolSeal vessel sealing portfolio and our JustRight surgical stapler. The NovaSure portfolio is comprised of the NovaSure CLASSIC and NovaSure ADVANCED devices and most recently, the NovaSure V5 device for the treatment of abnormal uterine bleeding. The MyoSure suite of devices offers four options to provide incision-less removal of fibroids, polyps, and other pathology within the uterus. The Fluent system is a fluid management system that provides liquid distention during diagnostic and operative hysteroscopic procedures. The Acessa ProVu system is a fully integrated system that uses laparoscopic ultrasound, guidance mapping and radio frequency ablation to treat nearly all types of fibroids. The CoolSeal portfolio includes the Trinity, Reveal, and Mini advanced bipolar vessel sealing devices. The JustRight surgical stapler features a smaller instrument profile and is used for laparoscopic general and pediatric surgery.

Our Skeletal Health segment’s products includes the Horizon DXA, a dual energy x-ray system, which evaluates bone density and performs body composition assessments, and the Fluoroscan InSight FD mini C-arm, which assists in performing minimally invasive orthopedic surgical procedures on a patient’s extremities, such as the hand, wrist, knee, foot, and ankle.

Unless the context otherwise requires, references to we, us, Hologic or our Company refer to Hologic, Inc. and its consolidated subsidiaries.

Supply Chain Considerations

The current worldwide supply chain shortages and constraints continue to impact, although to a lesser extent compared to fiscal 2022, our ability to obtain certain critical raw materials and components used primarily in our Breast Health capital equipment products. The supply chain shortages and disruptions primarily affecting our Breast Health manufacturing lines are related to electronic components, primarily semiconductor chips. We are dependent on a small number of semiconductor manufacturers and their allocation of chips to us. Based on our recent experience and current understanding of their allocation of chips to us, we have been able to and expect that we will continue to be able to increase production on a sequential quarterly basis throughout fiscal 2023. If such allocation does not meet our expectations or we are not able to obtain alternative sources of chips, we believe we will not be able to manufacture sufficient quantities of our capital equipment products, primarily 3D Dimension systems, Trident specimen radiography systems and Affirm Prone biopsy systems to meet customer demand and our results of operations would be adversely affected. In addition, the prices of raw materials and components, as well as freight, have been rising due to certain supply chain shortages as well as inflation and could increase the costs further. Our procurement team has and will continue to expend significant time and resources to try to secure sufficient quantities to meet demand.

Trademark Notice

Hologic is a trademark of Hologic, Inc. Other trademarks, logos, and slogans registered or used by Hologic and its divisions and subsidiaries in the United States and other countries include, but are not limited to, the following: 3Dimensions, 3D Mammography, Acessa, Acessa ProVu, Affirm, Amplidiag, Aptima, ATEC, Biotheranostics, Brevera, CoolSeal, Diagenode, Eviva, Faxitron, Fluent, Fluoroscan, Focal, Genius 3D, Genius 3D Mammography, Horizon , InSight, JustRight, Mobidiag, MyoSure, Novodiag, NovaSure, Panther, Panther Fusion, Rapid fFN, Selenia, Selenia Dimensions, Somatex, SuperSonic Imagine, ThinPrep, Tigris, Trident, and Tumark.

All other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Hologic’s use or display of other parties’ trademarks, trade dress or products in this Quarterly Report does not imply that Hologic has a relationship with, or endorsement or sponsorship of, the trademark or trade dress owners.

ACQUISITIONS

Bolder Surgical

On November 29, 2021, we completed the acquisition of Bolder Surgical Holdings, Inc., or Bolder, for a purchase price of $160.1 million. Bolder, located in Louisville, Colorado, is a developer and manufacturer of energy vessel sealing surgical devices used in both laparoscopic and open procedures. Based on our valuation, we allocated $96.7 million of the purchase price to the value of intangible assets and $68.8 million to goodwill. Bolder’s results of operations are reported in our GYN Surgical segment.


31
Table of Contents
RESULTS OF OPERATIONS

All dollar amounts in tables are presented in millions.

Product Revenues
 
 Three Months EndedSix Months Ended
 April 1, 2023March 26, 2022ChangeApril 1, 2023March 26, 2022Change
 Amount% of
Total
Revenue		Amount% of
Total
Revenue		Amount%Amount% of
Total
Revenue		Amount% of
Total
Revenue		Amount%
Product Revenues
Diagnostics$436.6 42.5 %$964.8 67.2 %$(528.2)(54.7)%$968.8 46.1 %$1,894.2 65.2 %$(925.4)(48.9)%
Breast Health234.8 22.9 %173.0 12.1 %61.8 35.7 %417.5 19.9 %393.3 13.5 %24.2 6.2 %
GYN Surgical143.1 13.9 %116.9 8.1 %26.2 22.4 %296.5 14.1 %251.0 8.6 %45.5 18.1 %
Skeletal Health22.9 2.2 %13.5 0.9 %9.4 69.6 %41.0 2.0 %33.1 1.1 %7.9 23.9 %
$837.4 81.6 %$1,268.2 88.3 %$(430.8)(34.0)%$1,723.8 82.1 %$2,571.6 88.4 %$(847.8)(33.0)%

We had a decrease in product revenues in both the current three and six month periods of 34.0% and 33.0%, respectively, compared to the corresponding periods in the prior year. This was primarily due to the decrease in revenues in the Diagnostics business as COVID-19 assay sales declined significantly. These decreases were partially offset by an increase in Breast Health revenue as supply chain constraints begin to ease, an increase in GYN Surgical revenues, as well as an extra week of activity in the current six month period compared to the corresponding period in the prior year due to our fiscal calendar.

Diagnostics product revenues decreased $528.2 million and $925.4 million, or 54.7% and 48.9%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in Molecular Diagnostics of $526.3 million and $920.7 million, respectively, a decrease in Cytology and Perinatal of $3.1 million and $6.9 million, respectively, partially offset by an increase in Blood Screening of $1.3 million and $2.3 million respectively. Molecular Diagnostics product revenue was $316.6 million and $717.0 million, respectively, in the current three and six month periods compared to $842.9 million and $1,637.7 million, respectively, in the corresponding periods in the prior year. The decrease was primarily attributable to a decrease of $512.9 million and $908.8 million, respectively, in sales from our two SARS-CoV-2 assays (primarily the Aptima SARS-CoV-2 assay and to a lesser extent the Panther Fusion SARS-CoV-2 assay) due to lower volumes, which we primarily attribute to lower demand from an improvement in the COVID-19 pandemic compared to the prior year, the increasing use of rapid tests and a decrease in average selling prices in international markets. We expect sales of our SARS-CoV-2 assays to continue to be significantly lower in fiscal 2023 compared to fiscal 2022. We also had a decrease in sales of collection devices as a result of lower assay sales, and lower Panther instruments sales as demand for those instruments has decreased, which we primarily attribute to our significantly expanded install base and the decline in the COVID-19 pandemic in the current year. These decreases were partially offset by an increase in sales of $24.0 million and $44.8 million in the current three and six month periods, respectively, from our Aptima assays, (exclusive of our Aptima SARS-CoV-2 assays), primarily driven by an increase in our CV Candida, Bacterial Vaginosis, and CTGC assay volumes. This increase was primarily due to expanded adoption by our laboratory customers. In addition, we had an increase in sales of our Fusion respiratory assays and Quant Viral assays, primarily HIV sold in Africa. The decrease in Cytology & Perinatal was primarily due to a decrease in sales in China, which we primarily attribute to COVID-19 related shutdowns.

Breast Health product revenues increased $61.8 million and $24.2 million, or 35.7% and 6.2%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in volumes of our digital mammography systems, primarily 3D Dimensions systems and related workstation and workflow products including software, an increase in average selling prices for 3D Dimensions systems, and an increase in Trident systems unit sales. The increase in volume was primarily driven by the ease in supply chain constraints related to electronic components, primarily semiconductor chips, which impacted our ability to manufacture sufficient quantities to meet customer demand in the prior year. The increase in capital equipment sales in the current six month period was partially offset by lower sales of the Affirm Prone biopsy systems. In addition, we had an increase in sales of our interventional breast solutions products in the current three and six month periods compared to the corresponding periods in the prior year primarily driven by Brevera systems and related needles. We also experienced a decrease in revenue from international sales denominated in foreign currencies from the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies.
32
Table of Contents

GYN Surgical product revenues increased $26.2 million and $45.5 million, or 22.4% and 18.1%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to increases in the sales volume of our MyoSure systems, NovaSure systems, and Fluent Fluid Management disposables as procedure rates continue to recover from the impact of the COVID-19 pandemic and to a lesser extent an increase in sales volume of our CoolSeal vessel sealers. These increases were partially offset by a decrease in revenue from international sales denominated in foreign currencies from the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies.

Skeletal Health product revenues increased $9.4 million and $7.9 million, or 69.6% and 23.9%, respectively, in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in sales volume of our Horizon DXA systems, InSight FD Fluoroscan systems, and system upgrades. The sales volume increases were largely associated with the easing of supply chain constraints. These increases were partially offset by a decrease in revenue from international sales denominated in foreign currencies from the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies.

Product revenues by geography as a percentage of total product revenues were as follows:

 Three Months EndedSix Months Ended
 April 1, 2023March 26, 2022April 1, 2023March 26, 2022
United States73.0 %67.2 %74.0 %67.2 %
Europe16.0 %21.7 %15.4 %21.5 %
Asia-Pacific6.6 %7.9 %6.4 %8.2 %
Rest of World4.4 %3.2 %4.2 %3.1 %
100.0 %100.0 %100.0 %100.0 %

In the current three and six month periods compared to the corresponding periods in the prior year, the percentage of product revenue derived from the U.S. increased while Europe and Asia-Pacific decreased, which we primarily attribute to a larger increase in the U.S. for Breast Health capital equipment and related workflow and workstation products including software, Aptima and Fusion assay sales (exclusive of our Aptima SARS-CoV-2 assays), as well as a lesser decline in SARS-CoV-2 assay volume compared to Europe and Asia-Pacific. Product revenue decreased in China, which we primarily attribute to continued surges of COVID-19 and related shutdowns, which primarily impacted the sale of our Diagnostics products (excluding SARS-CoV-2 assays) and digital mammography systems. In addition, the strengthening of the U.S. dollar against a number of currencies contributed to the increase in the percentage of revenue derived from the U.S. compared to revenue derived from the other geographic regions.

Service and Other Revenues

 Three Months EndedSix Months Ended
 April 1, 2023March 26, 2022ChangeApril 1, 2023March 26, 2022Change
 Amount% of
Total
Revenue		Amount% of
Total
Revenue		Amount%Amount% of
Total
Revenue		Amount% of
Total
Revenue		Amount%
Service and Other Revenues$189.1 18.4 %$167.5 11.7 %$21.6 12.9 %$376.9 17.9 %$335.3 11.5 %$41.6 12.4 %

Service and other revenues consist primarily of revenue generated from our field service organization to provide ongoing service, installation, and repair of our products. The majority of these revenues are generated within our Breast Health segment. The increase in service and other revenue in the current three and six month periods compared to the corresponding periods in the prior year was primarily due to the continued conversion of a high percentage of our installed base of digital mammography systems to service contracts upon expiration of the warranty period, an increase in service contract pricing and higher spare parts. In the current six month period, revenues were also higher from the extra week of service contract activity, resulting in $7.9 million of incremental revenue. In our Diagnostics business, service revenue increased as a result of higher lab testing volumes from our Biotheranostics business.

33
Table of Contents
Cost of Product Revenues

 Three Months EndedSix Months Ended
 April 1, 2023March 26, 2022ChangeApril 1, 2023March 26, 2022Change
 Amount% of
Product
Revenue		Amount% of
Product
Revenue		Amount%Amount% of
Product
Revenue		Amount% of
Product
Revenue		Amount%
Cost of Product Revenues$292.1 34.9 %$322.6 25.4 %$(30.5)(9.5)%$588.3 34.1 %$640.7 24.9 %$(52.4)(8.2)%
Amortization of Intangible Assets52.1 6.2 %72.3 5.7 %(20.2)(27.9)%107.7 6.3 %147.2 5.7 %(39.5)(26.8)%
$344.2 41.1 %$394.9 31.1 %$(50.7)(12.8)%$696.0 40.4 %$787.9 30.6 %$(91.9)(11.7)%

Cost of Product Revenues. The cost of product revenues as a percentage of product revenues was 34.9% and 34.1%, respectively, in the current three and six month periods compared to 25.4% and 24.9%, respectively, in the corresponding periods in the prior year. Cost of product revenues as a percentage of revenue increased in the current three and six month periods primarily due to a decrease in sales of our SARS-CoV-2 assays, which have higher gross margins compared to our other diagnostic products, and comprised 8.5% and 11.5%, respectively, of total product revenue in the current three and six month periods compared to 46.0% and 43.0%, respectively, in the corresponding periods in the prior year. Higher product costs from supply chain constraints and inflation also contributed to the increase in the cost of product revenue. This increase was partially offset by higher sales of our digital mammography systems and related software products and a decrease in inventory reserves in the current three month period.

Diagnostics’ product costs as a percentage of revenue increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to lower sales of our SARS-CoV-2 assays, unfavorable manufacturing variances at certain of our manufacturing facilities, an increase in scrap and higher field service costs from our expanded instrument installed base, partially offset by an increase in core Aptima, Fusion, and Quant Viral assay volume, a decrease in inventory reserves and lower freight internationally.

Breast Health’s product costs as a percentage of revenue decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to higher sales volumes of our higher margin products, primarily 3D Dimensions, which also experienced an increase in average selling prices, and improved manufacturing utilization partially offset by a slight decline in average selling prices of our biopsy disposables, higher prices of raw materials and components from supply chain constraints and inflation, an increase in inventory reserves and an increase in freight.

GYN Surgical’s product costs as a percentage of revenue decreased in the current three month period compared to the corresponding period in the prior year primarily due to an increase in volume of higher margin products, primarily MyoSure and NovaSure, as procedure rates continue to recover from the impact of the COVID-19 pandemic. Product costs as a percentage of revenue increased in the current six month period compared to the corresponding period in the prior year primarily due to product mix of higher volumes of lower margin products, mostly attributable to sales of our Fluent Fluid Management systems and CoolSeal vessel sealers, partially offset by higher average selling prices of our NovaSure V5 device.

Skeletal Health’s product costs as a percentage of revenue decreased in the current three month period compared to the corresponding period in the prior year primarily due to an increase in volume of Horizon DXA systems and upgrades as well as an increase in average selling prices of Horizon DXA and Insight FD Fluoroscan systems. Product costs as a percentage of revenue increased in the current six month period compared to the corresponding period in the prior year due to higher component costs from supply chain constraints and inflation partially offset by an increase in volume of Horizon DXA systems and upgrades as well as an increase in average selling prices of Horizon DXA and Insight FD Fluoroscan systems.

Amortization of Intangible Assets. Amortization of intangible assets relates to acquired developed technology, which is generally amortized over its estimated useful life of between 5 and 15 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed. Amortization expense decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to lower amortization of intangible assets acquired in the Cytyc acquisition which became fully amortized in the beginning of the first quarter of fiscal 2023 and to a lesser extent, lower amortization of intangible assets acquired in the Focal and Faxitron acquisitions due to impairments in the prior year, partially offset by an increase from developed technology intangible assets acquired in the Bolder acquisition.

34
Table of Contents
Cost of Service and Other Revenues
 
Three Months EndedSix Months Ended
 April 1, 2023March 26, 2022ChangeApril 1, 2023March 26, 2022Change
 Amount% of
Service
Revenue		Amount% of
Service
Revenue		Amount%Amount% of
Service
Revenue		Amount% of
Service
Revenue		Amount%
Cost of Service and Other Revenue$96.5 51.0 %$94.2 56.2 %$2.3 2.4 %$201.0 53.3 %$186.1 55.5 %$14.9 8.0 %

Service and other revenues gross margin increased to 49.0% and 46.7%, respectively, in the current three and six month periods compared to 43.8% and 44.5%, respectively, in the corresponding periods in the prior year. The increase in the current three and six month periods was primarily due to an increase in lab testing revenue from Biotheranostics, which has higher margins than our legacy service business, and an increase in the average selling prices and attachment rates of our Breast Health service contracts and time and material billings.

Operating Expenses

 Three Months EndedSix Months Ended
 April 1, 2023March 26, 2022ChangeApril 1, 2023March 26, 2022Change
 Amount% of
Total
Revenue		Amount% of
Total
Revenue		Amount%Amount% of
Total
Revenue		Amount% of
Total
Revenue		Amount%
Operating Expenses
Research and development$74.0 7.2 %$69.5 4.8 %$4.5 6.5 %$148.8 7.1 %$142.3 4.9 %$6.5 4.6 %
Selling and marketing142.4 13.9 %171.4 11.9 %(29.0)(16.9)%305.9 14.6 %318.7 11.0 %(12.8)(4.0)%
General and administrative100.8 9.8 %100.5 7.0 %0.3 0.3 %209.3 10.0 %218.5 7.5 %(9.2)(4.2)%
Amortization of intangible assets7.1 0.7 %11.3 0.8 %(4.2)(37.2)%14.7 0.7 %22.1 0.8 %(7.4)(33.5)%
Contingent consideration - fair value adjustment(12.4)(1.2)%— — %(12.4)**(12.4)(0.6)%(4.1)(0.1)%(8.3)202.4 %
Restructuring and Divestiture charges1.8 0.2 %(0.2)— %2.0 **2.9 0.1 %— — %2.9 **
$313.7 30.6 %$352.5 24.6 %$(38.8)(11.0)%$669.2 31.9 %$697.5 24.0 %$(28.3)(4.1)%
** Percentage not meaningful

Research and Development Expenses. Research and development expenses increased 6.5% and 4.6% in the current three and six month periods, respectively, compared to the corresponding periods in the prior year primarily due to a lower credits of $5.3 million and $3.8 million in the current three and six month periods, respectively, compared to the corresponding periods in the prior year, recorded for funds received from the Biomedical Advanced Research and Development Authority (BARDA) grant to obtain FDA approval of our SARS-CoV-2 assays. In addition, the current six month period included an extra week of compensation and benefits. Partially offsetting these increases was a reduction in certain project spend. At any point in time, we have a number of different research projects and clinical trials being conducted and the timing of these projects and related costs can vary from period to period.

Selling and Marketing Expenses. Selling and marketing expenses decreased 16.9% and 4.0% in the current three and six month periods, respectively, compared to the corresponding periods in the prior year. The decrease was primarily due to lower spending on advertising and marketing initiatives as the prior year periods included spend on our Super Bowl commercial and a larger sponsorship amount for the Women’s Tennis Association and grants supporting women’s health initiatives. These decreases were partially offset by higher compensation and benefits primarily from an increase in commissions expense as sales were higher for our Breast Health and Surgical businesses and to a lesser extent an increase in headcount, and an increase in travel and meetings. In the current six month period, the decrease in expenses was also partially offset by an extra week of compensation and benefits and an increase in severance expense.
35
Table of Contents

General and Administrative Expenses. General and administrative expenses increased 0.3% and decreased 4.2% in the current three and six month periods, respectively, compared to the corresponding periods in the prior year. The increase in the current three month period was primarily due to an increase in compensation and benefits from higher expense from our deferred compensation plan due to stock market gains and an increase in stock compensation partially offset by a decrease in non-income tax charges and a decrease in charitable donations of $2.0 million. The decrease in the current six month period was primarily due to a decrease in charitable donations of $12.0 million, a $7.4 million settlement awarded in the Minerva litigation received in the first quarter of fiscal 2023, lower tax project and legal expenses, and a decrease in bad debt expense. These decreases were partially offset by an increase in compensation and benefits from higher expense from our deferred compensation plan due to stock market gains and an increase in stock compensation, an $8.9 million charge to settle a business dispute in connection with terminating the Mobidiag joint venture agreement in China, an increase in reserves for sales and use tax matters, higher travel, an increase in information systems infrastructure costs and higher compensation and benefits from the extra week in the current six month period.

Amortization of Intangible Assets. Amortization of intangible assets primarily results from customer relationships and trade names related to our acquisitions. These intangible assets are generally amortized over their estimated useful lives of between 5 and 30 years using a straight-line method or, if reliably determinable, based on the pattern in which the economic benefits of the assets are expected to be consumed utilizing expected undiscounted future cash flows. Amortization expense decreased in the current year periods primarily due to assets from our Cytyc acquisition becoming fully amortized at the beginning of the first quarter of fiscal 2023.

Contingent Consideration Fair Value Adjustments. In connection with the acquisition of Acessa Health, Inc., or Acessa, we are obligated to make contingent earn-out payments. The payments are based on achieving incremental revenue growth over a three-year period ending annually in December of each of 2021, 2022, and 2023. As of the acquisition date, we recorded a contingent consideration liability for the estimated fair value of the amount we expected to pay to the former shareholders of the acquired business. This liability is not contingent on future employment, and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of Acessa, comparable company revenue growth rates, implied volatility and applying a risk adjusted discount rate. Increases or decreases in the fair value of contingent consideration liability can result from the passage of time, changes in discount rates, and changes in the timing, probabilities and amount of revenue estimates. In the second quarter of fiscal 2023, we recorded a gain of $12.4 million based on a decrease in forecasted revenues over the remaining earn-out period. In the first quarter of fiscal 2022, we recorded a gain of $4.1 million based on actual amounts owed for the first earn-out period being lower than the amount accrued as of September 25, 2021.

Interest Income
 
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Interest Income$31.5 $0.8 $30.7 **$52.1 $1.2 $50.9 **
** Percentage not meaningful

Interest income increased significantly in the current year periods compared to the corresponding periods in the prior year due to the significant increase in interest rates over the past twelve months as the U.S. Federal Reserve began periodically raising its Federal Funds Rate starting in March 2022. To a lesser extent, the increase in interest income was due to higher average cash balances in the current year periods compared to the corresponding periods in the prior year.

Interest Expense
 
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Interest Expense$(27.2)$(22.6)$(4.6)20.4 %$(55.3)$(48.3)$(7.0)14.6 %

36
Table of Contents
Interest expense consists primarily of the cash interest costs and the related amortization of the debt discount and deferred issuance costs on our outstanding debt. Interest expense increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in the variable interest rate, SOFR, under our 2021 Credit Agreement partially offset by amounts received under our interest rate swap, which hedges the benchmark interest rate, versus payments made under the interest rate swap in the prior year period. In addition, the prior year interest expense included debt refinancing costs for our 2021 Credit Agreement, and interest expense related to debt acquired in the Mobidiag acquisition that was paid off in the prior year.

Debt Extinguishment Loss
 
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Debt Extinguishment Loss$— $— $— — %$— $(0.7)$0.7 (100.0)%

In the first quarter of fiscal 2022, we entered into a Refinancing Amendment to our 2021 Credit Agreement with Bank of America, N.A. The proceeds were used to pay off the term loan outstanding under our 2018 Credit Agreement. In connection with this transaction we recorded a debt extinguishment charge of $0.7 million.

Other Income (Expense), net
 
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Other Income (Expense), net$2.9 $2.1 $0.8 38.1 %$(12.9)$8.7 $(21.6)**
**Percentage not meaningful

For the current three month period, this account primarily consisted of a gain of $2.8 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market gains, partially offset by net foreign currency exchange losses of $0.3 million. For the second quarter of fiscal 2022, this account primarily consisted of net foreign currency exchange gains of $3.3 million, primarily from settling hedging transactions, and a $2.4 million gain on life insurance proceeds as a result of the death of a former employee, partially offset by a loss of $3.5 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market losses.

For the current six month period, this account primarily consisted of net foreign currency exchange losses of $18.4 million, primarily from the mark-to-market of foreign currency contracts used to hedge operating results, partially offset by a gain of $5.3 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market gains. For the corresponding six month period in the prior year, this account primarily consisted of net foreign currency exchange gains of $12.6 million, primarily from settling transactions, and a $2.4 million gain on life insurance proceeds, partially offset by a charge of $4.3 million to write off an equity method investment acquired in the Mobidiag acquisition and a loss of $2.2 million from the change in cash surrender value of life insurance contracts related to our deferred compensation plan driven by stock market losses.

Provision for Income Taxes
 
 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Provision for Income Taxes$60.8 $118.7 $(57.9)(48.8)%$112.5 $241.4 $(128.9)(53.4)%

37
Table of Contents
Our effective tax rates for the three and six months ended April 1, 2023 were 21.8% and 21.7%, respectively, compared to 20.7% and 20.2% for the corresponding periods in the prior year.

Our effective tax rates for the three and six months ended April 1, 2023 were higher than the U.S. statutory tax rate primarily due to income tax reserves, the global intangible low-taxed income inclusion, and state income taxes, partially offset by the impact of the U.S. deduction for foreign derived intangible income, the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate, and federal and state tax credits.

Our effective tax rates for the three and six months ended March 26, 2022 were lower than the U.S. statutory tax rate primarily due to the impact of the U.S. deduction for foreign derived intangible income and the geographic mix of income earned by our international subsidiaries, which are taxed at rates lower than the U.S. statutory tax rate, partially offset by state income taxes.

Segment Results of Operations

We operate in four segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health. The accounting policies of the segments are the same as those described in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022. We measure segment performance based on total revenues and operating income. Revenues from product sales of each of these segments are described in further detail above. The discussion that follows is a summary analysis of total revenues and the primary changes in operating income or loss by segment.

Diagnostics

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Total Revenues$464.7 $987.1 $(522.4)(52.9)%$1,024.0 $1,937.5 $(913.5)(47.1)%
Operating Income$105.3 $540.6 $(435.3)(80.5)%$256.4 $1,072.4 $(816.0)(76.1)%
Operating Income as a % of Segment Revenue22.7 %54.8 %25.0 %55.3 %

Diagnostics revenues decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the decrease in product revenues discussed above, partially offset by higher lab testing revenue from our Biotheranostics business.

Operating income for this business segment decreased in the current three and six month periods compared to the corresponding periods in the prior year due to a decrease in gross profit from lower COVID-19 assay sales partially offset by a decrease in operating expenses. Gross margin was 55.0% and 56.6% in the current three and six month periods, respectively, compared to 71.8% and 72.3% in the corresponding periods in the prior year, respectively. The decrease in gross profit in the current three and six month periods was primarily due to lower sales volumes of our SARS-CoV-2 assays which have a higher margin, unfavorable manufacturing variances at certain of our manufacturing facilities, an increase in scrap, and higher field service costs from our expanded instrument installed base, partially offset by increases in core Aptima, Fusion and Quant Viral assay volumes, a decrease in inventory reserves, higher lab testing revenue and a decrease in intangible asset amortization expense and lower freight internationally.

Operating expenses decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in marketing initiatives and allocated advertising and charitable contributions, a decrease in intangible asset amortization expense, and a decrease in commissions. Partially offsetting these decreases was a decrease in the BARDA credit, an increase in research and development project spend, an increase in travel and meeting expenses and an increase in compensation and benefits from the extra week in the current six month period. Also partially offsetting these decreases in the current six month period compared to the corresponding period in the prior year is a settlement charge of $8.9 million related to the termination of the Mobidiag joint venture in China.

38
Table of Contents
Breast Health

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Total Revenues$385.4 $310.4 $75.0 24.2 %$719.5 $669.9 $49.6 7.4 %
Operating Income$109.9 $49.3 $60.6 122.9 %$170.4 $131.0 $39.4 30.1 %
Operating Income as a % of Segment Revenue28.5 %15.9 %23.7 %19.6 %

Breast Health revenues increased in the current three and six month periods compared to the corresponding periods in the prior year due to an increase in product and service revenue discussed above.

Operating income for this business segment increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in product sales, a decrease in operating expenses and an increase in service gross profit. Gross margin was 57.3% and 55.8% in the current three and six month periods, respectively, compared to 53.4% and 54.6% in the corresponding periods in the prior year, respectively. The increase in gross margin is primarily due to higher volumes of our capital equipment and related software sales, and interventional breast solutions devices, an increase in service margin from the continued conversion of digital mammography systems to service contracts and to a lesser extent the extra week in the current six month period, partially offset by higher costs for raw materials and components from supply chain constraints and inflation, an increase in inventory reserves and an increase in freight.

Operating expenses decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in marketing initiatives and allocated advertising and charitable contributions and lower research and development project spend, partially offset by an increase in commission expense from higher sales, an increase in travel and meetings and higher restructuring costs. In addition, there was an increase in compensation and benefits from the extra week in the current six month period.

GYN Surgical

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Total Revenues$144.8 $117.3 $27.5 23.4 %$298.9 $251.6 $47.3 18.8 %
Operating Income$52.3 $5.7 $46.6 817.5 %$101.0 $32.3 $68.7 212.7 %
Operating Income as a % of Segment Revenue36.1 %4.9 %33.8 %12.8 %

GYN Surgical revenues increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the increase in product revenues discussed above.

Operating income for this business segment increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in gross profit and to a lesser extent a decrease in operating expenses. Gross margin was 67.9% and 68.3% in the current three and six month periods, respectively, compared to 56.4% and 59.5% in the corresponding periods in the prior year, respectively. The increase in gross margin was primarily due to a decrease in intangible asset amortization expense and an increase in higher margin product sales in the current three month period, partially offset by an increase in lower margin product sales in the current six month period discussed above.

Operating expenses decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a gain of $12.4 million recorded in the current three month period to decrease the contingent consideration liability to fair value related to the Acessa acquisition compared to a gain of $4.1 million recorded in the prior year six month period, a decrease in intangible asset amortization expense, and lower marketing initiative spend. These decreases were partially offset by an increase in compensation and benefits primarily due to an increase in commissions and higher salaries and an increase in travel and meeting expenses. In addition, in the current six month period we received $7.4
39
Table of Contents
million in infringement damages from the Minerva litigation, which was recorded as a credit to general and administrative expenses.

Skeletal Health

 Three Months EndedSix Months Ended
 April 1,
2023		March 26,
2022		ChangeApril 1,
2023		March 26,
2022		Change
 AmountAmountAmount%AmountAmountAmount%
Total Revenues$31.6 $20.9 $10.7 51.2 %$58.3 $47.9 $10.4 21.7 %
Operating Income$4.6 $(1.5)$6.1 **$6.7 $(0.3)$7.0 **
Operating Income as a % of Segment Revenue14.6 %(7.2)%11.5 %(0.6)%
** Percentage not meaningful

Skeletal Health revenues increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to the increase in product revenues discussed above and to a lesser extent the increase in service contract revenue from the extra week in the current six month period.

Operating income for this business segment increased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to an increase in gross profit and a decrease in operating expenses. Gross margin was 35.6% and 33.0% in the current three and six month periods, respectively, compared to 30.4% and 33.5% in the corresponding periods in the prior year, respectively. The increase in gross margin in the current three month period was primarily due to an increase in product and service revenues partially offset by increased costs from supply chain constraints and inflation. The decrease in gross margin in the current six month period was primarily due to increased costs from supply chain constraints and inflation.

Operating expenses decreased in the current three and six month periods compared to the corresponding periods in the prior year primarily due to a decrease in research and development project spend and marketing initiatives partially offset by an increase in commissions from higher sales.

LIQUIDITY AND CAPITAL RESOURCES

At April 1, 2023, we had $3,256.4 million of working capital and our cash and cash equivalents totaled $2,582.2 million. Our cash and cash equivalents increased by $242.7 million during the first six months of fiscal 2023 primarily due to cash generated from operating activities, partially offset by cash used in investing and financing activities primarily related to repurchases of our common stock and capital expenditures.

In the first six months of fiscal 2023, our operating activities provided cash of $459.7 million, primarily due to net income of $405.9 million, non-cash charges for depreciation and amortization aggregating $166.7 million, and stock-based compensation expense of $43.7 million. These adjustments to net income were partially offset by a decrease in deferred taxes of $61.6 million primarily due to the capitalization of research expenditures under the tax rules and to a lesser extent the amortization of intangible assets. Cash provided by operations included a net cash outflow of $112.2 million from changes in our operating assets and liabilities. The net cash outflow was primarily driven by an increase of $81.8 million in accounts receivable due to the timing of billings for service contracts as well as higher sales of capital equipment in the second quarter of fiscal 2023 in our Breast Health division compared to the fourth quarter of fiscal 2022, an increase in inventory of $56.1 million principally due to the strategic buildup of emergency sourced components for our Breast Health business to hedge against the continuing worldwide supply constraints, a $22.4 million decrease in accrued expenses primarily due to net payments of the annual bonus and commissions partially offset by the timing of income tax and value-added tax payments, and a $13.2 million decrease in accounts payable due to the timing of payments. These cash outflows were partially offset by an increase of $42.5 million in deferred revenue primarily due to billings for annual service contracts, a decrease in prepaid expenses and other assets of $10.5 million primarily due to the Department of Defense reimbursement received in the second quarter partially offset by normal amortization related to the Women’s Tennis Association sponsorship and service and software subscriptions, and a decrease in prepaid income taxes of $8.3 million primarily due to timing of tax payments relative to the provision for income taxes.

In the first six months of fiscal 2023, our investing activities used cash of $57.4 million primarily due to capital expenditures of $61.2 million, which primarily consisted of the placement of equipment under customer usage agreements and
40

purchase of manufacturing equipment and to a lesser extent building improvements, and $10.0 million for the purchase of an equity investment. These uses of cash were partially offset by a final reimbursement of $20.5 million received from the Department of Defense under a grant to increase production capacity of our two SARS-CoV-2 assays.

In the first six months of fiscal 2023, our financing activities used cash of $163.0 million primarily due to $150.0 million for repurchases of our common stock and $23.2 million for the payment of employee taxes withheld for the net share settlement of vested restricted stock units. Partially offsetting these uses of cash were $28.4 million from our equity plans, primarily from the exercise of stock options.
Debt

We had total recorded debt outstanding of $2.82 billion at April 1, 2023, which was comprised of amounts outstanding under our 2021 Credit Agreement of $1.49 billion (principal of $1.5 billion), 2029 Senior Notes of $937.7 million (principal of $950.0 million), and 2028 Senior Notes of $396.4 million (principal of $400.0 million).

2021 Credit Agreement

On September 27, 2021, we refinanced our 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 from time to time party thereto (the “2018 Credit Agreement”) by entering into a Refinancing Amendment (the “2021 Credit Agreement”). Borrowings under the 2021 Credit Agreement are secured by first-priority liens on, and a first priority security interest in, substantially all of our and our Subsidiary Guarantors’ U.S. assets. The credit facilities (the “2021 Credit Facilities”) under the 2021 Credit Agreement consist of:

•A $1.5 billion secured term loan (“2021 Term Loan”) with a stated maturity date of September 25, 2026; and
•A secured revolving credit facility (the “2021 Revolver”) under which the Borrowers may borrow up to $2.0 billion, subject to certain sublimits, with a stated maturity date of September 25, 2026.

As of April 1, 2023, the principal amount outstanding under the 2021 Term Loan was $1.5 billion, no amounts were outstanding under the 2021 Revolver, and the full amount of the 2021 Revolver was available to be borrowed by the Company.
On August 22, 2022, we 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 rate 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”) plus an applicable spread. As of April 1, 2023, the interest rate under the 2021 Term Loan was 5.91% per annum.

We are also required to pay a quarterly commitment fee calculated on a daily basis equal to the Applicable Rate as of such day multiplied by the undrawn committed amount available under the 2021 Revolver. As of April 1, 2023, this commitment fee was 0.15% per annum.

We are required to make scheduled principal payments under the 2021 Term Loan in increasing amounts ranging from $3.75 million per three-month period commencing with the three-month period ended on December 29, 2022 to $18.75 million per three-month period commencing with the three-month period ending on December 26, 2025. The remaining scheduled balance of $1.335 billion (or such lesser aggregate principal amount then outstanding) on the 2021 Term Loan and any amounts outstanding under the 2021 Revolver are due at their respective maturities. In addition, subject to the terms and conditions set forth in the 2021 Credit Agreement, we may be required to make certain mandatory prepayments from the net proceeds of specified types of asset sales (subject to certain reinvestment rights), debt issuances (excluding permitted debt) and insurance recoveries (subject to certain reinvestment rights). Certain of the mandatory prepayments are subject to reduction or elimination if certain financial covenants are met. Subject to certain limitations, we may voluntarily prepay any of the 2021 Credit Facilities without premium or penalty.

The 2021 Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including the requirement that we maintain certain financial ratios. As of April 1, 2023, we were in compliance with these covenants.

41

2028 Senior Notes

The total aggregate principal balance of the 2028 Senior Notes is $400.0 million. The 2028 Senior Notes are general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain of our domestic subsidiaries. The 2028 Senior Notes mature on February 1, 2028 and bear interest at the rate of 4.625% per year, payable semi-annually on February 1 and August 1 of each year. We have the option to redeem the 2028 Senior Notes on or after: February 1, 2023 through February 1, 2024 at 102.312% of par; February 1, 2024 through February 1, 2025 at 101.541% of par; February 1, 2025 through February 1, 2026 at 100.770% of par; and February 1, 2026 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder’s 2028 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

2029 Senior Notes

The total aggregate principal balance of the 2029 Senior Notes is $950.0 million. The 2029 Senior Notes are general senior unsecured obligations and are guaranteed on a senior unsecured basis by certain domestic subsidiaries. The 2029 Senior Notes mature on February 15, 2029 and bear interest at the rate of 3.250% per year, payable semi-annually on February 15 and August 15 of each year. We may redeem the 2029 Senior Notes at any time prior to September 28, 2023 at a price equal to 100% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium set forth in the indenture. We may also redeem up to 40% of the aggregate principal amount of the 2029 Senior Notes with the net cash proceeds of certain equity offerings at any time and from time to time before September 28, 2023, at a redemption price equal to 103.250% of the aggregate principal amount so redeemed, plus accrued and unpaid interest, if any, to the redemption date. We have the option to redeem the 2029 Senior Notes on or after: September 28, 2023 through September 27, 2024 at 101.625% of par; September 28, 2024 through September 27, 2025 at 100.813% of par; and September 28, 2025 and thereafter at 100% of par. In addition, if there is a change of control coupled with a decline in ratings, as provided in the indenture, we will be required to make an offer to purchase each holder’s 2029 Senior Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

Contingent Consideration Earn-Out Payments

Currently, our only contingent consideration liability is related to our Acessa acquisition. We have an obligation to the former Acessa shareholders to make contingent payments based on a multiple of annual incremental revenue growth over a three-year period ending annually in December. There is no maximum earnout. Pursuant to ASC 805, Business Combinations, the contingent consideration was deemed to be part of the purchase price, and we recorded our estimate of the fair value of the contingent consideration liability utilizing the Monte Carlo simulation based on future revenue projections of the business, comparable companies’ revenue growth rates, implied volatility and applying a risk adjusted discount rate. The first earn-out period was completed in December 2021, and we paid $12.2 million to the former shareholders in the second quarter of fiscal 2022. The second earn-out period was completed in December 2022, resulting in a payment amount of $7.6 million in the second quarter of fiscal 2023. During the second quarter of fiscal 2023, we updated our forecasted revenue and recorded a gain of $12.4 million to record the liability to fair value. The reduction in fair value was primarily due to a decrease in forecasted revenues. As of April 1, 2023, the contingent consideration liability was recorded at its fair value of $3.4 million.

Stock Repurchase Program

On September 22, 2022, the Board of Directors authorized a stock repurchase program, with a five-year term, to repurchase up to $1.0 billion of our outstanding common stock, effective as of the close of trading September 23, 2022. This repurchase program replaced the previous $1.0 billion authorization. During the three and six months ended April 1, 2023, we repurchased 0.6 million and 2.2 million shares of our common stock for total consideration of $50.0 million and $150.0 million, respectively. As of April 1, 2023, $850.0 million remained available under this authorization. The timing of the share repurchases will be based upon our continuing analysis of market, financial, and other factors. Repurchases under the authorized share repurchase plan may be made using a variety of methods, which may include, but are not limited to, open market purchases, privately negotiated transactions, accelerated share repurchase agreements, or purchases pursuant to a Rule 10b5-1 plan under the Exchange Act. The authorized share repurchase plan may be suspended, delayed or discontinued at any time.

42

Legal Contingencies

We are currently involved in several legal proceedings and claims. In connection with these legal proceedings and claims, management periodically reviews estimates of potential costs to be incurred by us in connection with the adjudication or settlement, if any, of these proceedings. These estimates are developed, as applicable in consultation with outside counsel, and are based on an analysis of potential litigation outcomes and settlement strategies. In accordance with ASC 450, Contingencies, loss contingencies are accrued if, in the opinion of management, an adverse outcome is probable and such financial outcome can be reasonably estimated. It is possible that future results for any particular quarter or annual period may be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings. Information with respect to this disclosure may be found in Note 10 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

Future Liquidity Considerations

We expect to continue to review and evaluate potential strategic transactions that we believe will complement our current or future business. Subject to the “Risk Factors” set forth or incorporated by reference in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 24, 2022 or any other of our subsequently filed reports, and the general disclaimers set forth in our “Cautionary Statement” regarding forward-looking statements at the outset of this Item 2, we believe that our cash and cash equivalents, cash flows from operations, and the cash available under our 2021 Revolver will provide us with sufficient funds in order to fund our expected normal operations and debt payments over the next twelve months. Our longer-term liquidity is contingent upon future operating performance. We may also require additional capital in the future to fund capital expenditures, repayment of debt, acquisitions, strategic transactions or other investments. As described above, we have significant indebtedness outstanding under our 2021 Credit Agreement, 2028 Senior Notes, and 2029 Senior Notes. These capital requirements could be substantial. For a description of risks to our operating performance and our indebtedness, see the “Risk Factors” set forth or incorporated by reference in Part II, Item 1A of this Quarterly Report on Form 10-Q, as well as those described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 24, 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our interim consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to revenue recognition for multiple element arrangements, allowance for doubtful accounts, reserves for excess and obsolete inventories, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, restructuring and other related charges, stock-based compensation, contingent liabilities, tax reserves and recoverability of our net deferred tax assets and related valuation allowances. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates if past experience or other assumptions do not turn out to be substantially accurate. Any differences may have a material impact on our financial condition and results of operations. For a discussion of how these and other factors may affect our business, see the “Cautionary Statement” regarding forward-looking statements set forth at the outset of this Item 2 and the “Risk Factors” set forth or incorporated by reference in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as those described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 24, 2022 or any other of our subsequently filed reports.

The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our consolidated financial statements presented in this report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022. There have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K for the fiscal year ended September 24, 2022.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

43
Table of Contents
Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments. Financial instruments consist of cash and cash equivalents, accounts receivable, equity investments, foreign currency derivative contracts, interest rate swap agreements, insurance contracts, accounts payable and debt obligations. Except for our outstanding 2028 and 2029 Senior Notes, the fair value of these financial instruments approximate their carrying amount. The fair value of our 2028 and 2029 Senior Notes was approximately $388.9 million and $848.4 million, respectively, as of April 1, 2023. Amounts outstanding under our 2021 Credit Agreement of $1.5 billion aggregate principal as of April 1, 2023 are subject to variable rates of interest based on current market rates, and as such, we believe the carrying amount of these obligations approximates fair value.

Primary Market Risk Exposures. Our primary market risk exposure is in the areas of interest rate risk and foreign currency exchange rate risk. We incur interest expense on borrowings outstanding under our 2028 and 2029 Senior Notes, and 2021 Credit Agreement. The 2028 and 2029 Senior Notes have fixed interest rates. Effective September 25, 2022 (the first day of fiscal 2023), borrowings under our 2021 Credit Agreement bear interest at the SOFR Rate plus SOFR Adjustment of 0.10% plus the applicable margin of 1.00% per annum.

As of April 1, 2023, there was $1.5 billion of aggregate principal outstanding under our 2021 Credit Agreement. Since this debt obligation is a variable rate instrument, our interest expense associated with the instrument is subject to change. A hypothetical 10% adverse movement (increase in the SOFR rate) would increase annual interest expense by approximately $2.4 million, which is net of the impact of our interest rate swap hedge. We previously entered into an interest rate swap agreement to help mitigate the interest rate volatility associated with the variable rate interest on the amounts outstanding under our credit facilities. The critical terms of the interest rate swap were designed to mirror the terms of our SOFR-based borrowings under our 2021 Credit Agreement, and therefore the interest rate swap is highly effective at offsetting the cash flows being hedged. We designated this derivative instrument as a cash flow hedge of the variability of the Term SOFR-based interest payments on $1.0 billion of principal. This interest rate swap contract expires on December 17, 2023. On March 23, 2023, we entered into two new consecutive interest rate swap contracts with the first contract having an effective date of December 17, 2023 and the second contract terminating September 25, 2026. The notional amount of these swaps is $500 million.

The return from cash and cash equivalents will vary as short-term interest rates change. A hypothetical 10% increase in market interest rates would increase annual interest income by approximately $12.7 million.

Foreign Currency Exchange Risk. Our international business is subject to risks, including, but not limited to: unique economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors.

We conduct business worldwide and maintain sales and service offices outside the U.S. as well as manufacturing facilities primarily in Costa Rica and the United Kingdom. Our international sales are denominated in a number of currencies, primarily the Euro, U.S. dollar, UK Pound and Chinese Yuan. The majority of our foreign subsidiaries’ functional currency is the local currency, although certain foreign subsidiaries functional currency is the U.S. dollar based on the nature of their operations or functions. Our revenues denominated in foreign currencies are positively affected when the U.S. dollar weakens against them and adversely affected when the U.S. dollar strengthens. Fluctuations in foreign currency rates could affect our sales, cost of goods and operating margins and could result in exchange losses. In addition, currency devaluations can result in a loss if we hold deposits of that currency. We have executed forward foreign currency contracts and foreign currency option contracts to hedge a portion of results denominated in the Euro, UK Pound, Australian dollar, Japanese Yen, Canadian dollar and Chinese Yuan. These contracts do not qualify for hedge accounting. As a result, we may experience volatility in our Consolidated Statements of Income due to (i) the impact of unrealized gains and losses reported in other income, net on the mark-to-market of outstanding contracts and (ii) realized gains and losses recognized in other income, net, whereas the offsetting economic gains and losses are reported in the line item of the underlying cash flow, for example, revenue.

We believe that the operating expenses of our international subsidiaries that are incurred in local currencies will not have a material adverse effect on our business, results of operations or financial condition. Our operating results and certain assets and liabilities that are denominated in foreign currencies are affected by changes in the relative strength of the U.S. dollar against those currencies. Our expenses, denominated in foreign currencies, are positively affected when the U.S. dollar strengthens against those currencies and adversely affected when the U.S. dollar weakens. However, we believe that the foreign currency exchange risk is not significant. We believe a hypothetical 10% increase or decrease in foreign currencies that we transact in would not have a material adverse impact on our financial condition or results of operations.

44
Table of Contents
Item 4.    Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of April 1, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of April 1, 2023.
An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
45
Table of Contents
PART II – OTHER INFORMATION
Item 1.    Legal Proceedings.

Information with respect to this Item may be found in Note 10 to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

Additional information on our commitments and contingencies can be found in our Annual Report on Form 10-K for our fiscal year ended September 24, 2022.

Item 1A. Risk Factors.

There are no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for our fiscal year ended September 24, 2022 or any of our subsequently filed reports.


46
Table of Contents
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer’s Purchases of Equity Securities
Period of RepurchaseTotal Number of
Shares Purchased
(#) (1)		Average Price
Paid Per Share
($) (1)		Total Number of
Shares Purchased As Part of Publicly
Announced Plans or Programs 
(#) (2)		Average Price Paid Per Share As Part of Publicly Announced Plans or Programs ($) (2)Maximum
Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Our
Programs
(in millions)
($) (2)
January 1, 2023 – January 28, 20232,253 $74.81 — $— $900.0 
January 29, 2023 – February 25, 202386 82.78 188,032 80.59 884.8 
February 26, 2023 – April 1, 2023949 79.06 437,993 79.56 850.0 
Total3,288 $76.25 626,025 $79.87 $850.0 
 ___________________________________
(1)For the majority of restricted stock units granted, the number of shares issued on the date that the restricted stock units vest is net of the minimum statutory tax withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. These repurchases of our common stock were to cover employee income tax withholding obligations in connection with the vesting of restricted stock units under our equity incentive plans.
(2)On September 22, 2022, the Board of Directors authorized a stock repurchase program, with a five-year term, to repurchase up to $1.0 billion of the Company’s outstanding common stock, effective as of the close of trading on September 23, 2022. This stock repurchase authorization replaced the previous $1.0 billion authorization.


47
Table of Contents

Item 6.    Exhibits.
(a) Exhibits
  Incorporated by
Reference
Exhibit
Number		Exhibit DescriptionFormFiling Date/
Period End
Date
10.1*Amendment No. 1 to the Hologic, Inc. Amended and Restated Deferred Compensation Program (1)
10.2Hologic, Inc. Amended and Restated 2008 Equity Incentive Plan (1)8-K3/10/2023
10.3Hologic, Inc. Amended and Restated 2012 Employee Stock Purchase Plan (1)8-K3/10/2023
31.1*
31.2*
32.1**
32.2**
101.INS*XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document.
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF*Inline XBRL Taxonomy Extension Definition.
104*Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
_______________

(1) Indicates management contract or compensatory plan, contract or arrangement.
* Filed herewith.
**    Furnished herewith.






48
Table of Contents
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.
 
 Hologic, Inc.
 (Registrant)
Date:May 2, 2023 /s/    Stephen P. MacMillan        
 Stephen P. MacMillan
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Date:May 2, 2023 /s/    Karleen M. Oberton        
 Karleen M. Oberton
 Chief Financial Officer
(Principal Financial Officer)

49