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 March 31,June 30, 2022.

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 001-16537

ORASURE TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

 

36-4370966

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer Identification No.)

220 East First Street, Bethlehem, Pennsylvania

 

18015

(Address of Principal Executive Offices)

 

(Zip code)

Registrant’s telephone number, including area code: (610) 882-1820

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.000001 par value per share

OSUR

The NASDAQ Stock Market LLC

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, or 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 checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of MayAugust 5, 2022, the registrant had 72,455,50772,619,055 shares of common stock, $.000001 par value per share, outstanding.


PART I. FINANCIAL INFORMATION

 

 

Page
No.

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at March 31,June 30, 2022 and December 31, 2021

3

Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2022 and 2021

4

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 31,June 30, 2022 and 2021

5

Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2022 and 2021

6

Notes to the Consolidated Financial Statements

7

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

1719

Item 3. Quantitative and Qualitative Disclosures About Market Risk

2531

Item 4. Controls and Procedures

2531

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

2531

Item 1A. Risk Factors

2531

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

2632

Item 3. Defaults Upon Senior Securities

2632

Item 4. Mine Safety Disclosures

2632

Item 5. Other Information

2632

Item 6. Exhibits

2733

Signatures

2834


Item 1. FINANCIAL STATEMENTS

ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except per share amounts)

March 31, 2022

 

 

December 31, 2021

 

June 30, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

70,721

 

 

$

116,762

 

$

66,159

 

 

$

116,762

 

Short-term investments

 

41,503

 

 

 

36,279

 

 

29,625

 

 

 

36,279

 

Accounts receivable, net of allowance for doubtful accounts of $3,789 and $3,418

 

59,671

 

 

 

45,323

 

Accounts receivable, net of allowance for doubtful accounts of $3,222 and $3,418

 

62,886

 

 

 

45,323

 

Inventories

 

61,536

 

 

 

53,138

 

 

71,304

 

 

 

53,138

 

Prepaid expenses

 

8,906

 

 

 

7,939

 

 

5,477

 

 

 

7,939

 

Other current assets

 

26,027

 

 

 

28,990

 

 

31,855

 

 

 

28,990

 

Total current assets

 

268,364

 

 

 

288,431

 

 

267,306

 

 

 

288,431

 

Noncurrent Assets:

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

97,572

 

 

 

88,164

 

 

93,697

 

 

 

88,164

 

Operating right-of-use assets, net

 

12,169

 

 

 

9,056

 

 

16,451

 

 

 

9,056

 

Finance right-of-use assets, net

 

2,240

 

 

 

2,493

 

 

1,887

 

 

 

2,493

 

Intangible assets, net

 

13,692

 

 

 

14,343

 

 

12,851

 

 

 

14,343

 

Goodwill

 

40,389

 

 

 

40,279

 

 

36,038

 

 

 

40,279

 

Long-term investments

 

 

 

 

17,009

 

 

 

 

 

17,009

 

Other noncurrent assets

 

1,106

 

 

 

1,215

 

 

1,024

 

 

 

1,215

 

Total noncurrent assets

 

167,168

 

 

 

172,559

 

 

161,948

 

 

 

172,559

 

TOTAL ASSETS

$

435,532

 

 

$

460,990

 

$

429,254

 

 

$

460,990

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

$

27,057

 

 

$

28,024

 

$

36,226

 

 

$

28,024

 

Deferred revenue

 

2,906

 

 

 

2,936

 

 

2,660

 

 

 

2,936

 

Accrued expenses and other current liabilities

 

21,911

 

 

 

33,778

 

 

23,165

 

 

 

33,778

 

Finance lease liabilities

 

1,699

 

 

 

939

 

 

1,182

 

 

 

939

 

Operating lease liabilities

 

1,815

 

 

 

2,181

 

 

2,054

 

 

 

2,181

 

Acquisition-related contingent consideration obligation

 

199

 

 

 

206

 

 

199

 

 

 

206

 

Total current liabilities

 

55,587

 

 

 

68,064

 

 

65,486

 

 

 

68,064

 

Noncurrent Liabilities:

 

 

 

 

 

 

 

 

 

 

Finance lease liabilities

 

1,207

 

 

 

1,952

 

 

1,445

 

 

 

1,952

 

Operating lease liabilities

 

10,727

 

 

 

7,202

 

 

14,978

 

 

 

7,202

 

Acquisition-related contingent consideration obligation

 

117

 

 

 

354

 

 

117

 

 

 

354

 

Other noncurrent liabilities

 

552

 

 

 

651

 

 

489

 

 

 

651

 

Deferred income taxes

 

2,456

 

 

 

2,234

 

 

2,547

 

 

 

2,234

 

Total noncurrent liabilities

 

15,059

 

 

 

12,393

 

 

19,576

 

 

 

12,393

 

TOTAL LIABILITIES

 

70,646

 

 

 

80,457

 

 

85,062

 

 

 

80,457

 

Commitments and contingencies (Note 11)

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Preferred stock, par value $.000001, 25,000 shares authorized, NaN issued

 

 

 

 

 

 

 

 

 

 

Common stock, par value $.000001, 120,000 shares authorized, 72,307 and 72,069 shares issued and outstanding

 

0

 

 

 

0

 

Common stock, par value $.000001, 120,000 shares authorized, 72,572 and 72,069 shares issued and outstanding

 

0

 

 

 

0

 

Additional paid-in capital

 

513,553

 

 

 

511,063

 

 

515,928

 

 

 

511,063

 

Accumulated other comprehensive loss

 

(8,247

)

 

 

(10,077

)

 

(12,514

)

 

 

(10,077

)

Accumulated deficit

 

(140,420

)

 

 

(120,453

)

 

(159,222

)

 

 

(120,453

)

Total stockholders' equity

 

364,886

 

 

 

380,533

 

 

344,192

 

 

 

380,533

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

435,532

 

 

$

460,990

 

$

429,254

 

 

$

460,990

 

See accompanying notes to the consolidated financial statements.

3


ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

 

 

Three Months Ended March 31,

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

NET REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

$

65,236

 

$

56,579

 

 

$

79,167

 

 

$

55,741

 

 

$

144,403

 

 

$

112,320

 

Other

 

 

2,471

 

 

 

2,003

 

 

 

1,064

 

 

 

1,866

 

 

 

3,535

 

 

 

3,869

 

 

67,707

 

58,582

 

 

 

80,231

 

 

 

57,607

 

 

 

147,938

 

 

 

116,189

 

COST OF PRODUCTS AND SERVICES SOLD

 

 

43,435

 

 

 

20,256

 

 

 

52,647

 

 

 

26,934

 

 

 

96,082

 

 

 

47,190

 

Gross profit

 

 

24,272

 

 

 

38,326

 

 

 

27,584

 

 

 

30,673

 

 

 

51,856

 

 

 

68,999

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

8,413

 

8,992

 

 

 

9,068

 

 

 

7,682

 

 

 

17,481

 

 

 

16,674

 

Sales and marketing

 

12,717

 

9,530

 

 

 

11,684

 

 

 

10,420

 

 

 

24,401

 

 

 

19,950

 

General and administrative

 

19,156

 

10,188

 

 

 

17,579

 

 

 

10,993

 

 

 

36,735

 

 

 

21,181

 

Loss on impairment

 

 

10,542

 

 

 

 

 

 

10,542

 

 

 

 

Change in the estimated fair value of acquisition-related contingent consideration

 

 

(36

)

 

 

(806

)

 

 

 

 

 

(220

)

 

 

(36

)

 

 

(1,026

)

 

 

40,250

 

 

 

27,904

 

 

 

48,873

 

 

 

28,875

 

 

 

89,123

 

 

 

56,779

 

Operating income (loss)

 

(15,978

)

 

10,422

 

 

 

(21,289

)

 

 

1,798

 

 

 

(37,267

)

 

 

12,220

 

OTHER INCOME (LOSS)

 

 

(53

)

 

 

(119

)

OTHER INCOME

 

 

1,318

 

 

 

448

 

 

 

1,265

 

 

 

329

 

Income (loss) before income taxes

 

(16,031

)

 

10,303

 

 

 

(19,971

)

 

 

2,246

 

 

 

(36,002

)

 

 

12,549

 

INCOME TAX EXPENSE

 

 

3,936

 

 

 

6,529

 

INCOME TAX EXPENSE (BENEFIT)

 

 

(1,169

)

 

 

3,610

 

 

 

2,767

 

 

 

10,139

 

NET INCOME (LOSS)

 

$

(19,967

)

 

$

3,774

 

 

$

(18,802

)

 

$

(1,364

)

 

$

(38,769

)

 

$

2,410

 

INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

$

(0.28

)

 

$

0.05

 

 

$

(0.26

)

 

$

(0.02

)

 

$

(0.54

)

 

$

0.03

 

DILUTED

 

$

(0.28

)

 

$

0.05

 

 

$

(0.26

)

 

$

(0.02

)

 

$

(0.54

)

 

$

0.03

 

SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

72,194

 

 

 

71,878

 

 

 

72,496

 

 

 

71,983

 

 

 

72,361

 

 

 

71,931

 

DILUTED

 

 

72,194

 

 

 

72,766

 

 

 

72,496

 

 

 

71,983

 

 

 

72,361

 

 

 

72,683

 

See accompanying notes to the consolidated financial statements.

4


ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

 

Three Months Ended March 31,

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

NET INCOME (LOSS)

 

$

(19,967

)

 

$

3,774

 

 

$

(18,802

)

 

$

(1,364

)

 

$

(38,769

)

 

$

2,410

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

1,756

 

1,352

 

 

 

(4,349

)

 

 

1,403

 

 

 

(2,593

)

 

 

2,755

 

Unrealized gain on marketable securities

 

 

74

 

 

 

21

 

Unrealized gain (loss) on marketable securities

 

 

82

 

 

 

(122

)

 

 

156

 

 

 

(101

)

COMPREHENSIVE INCOME (LOSS)

 

$

(18,137

)

 

$

5,147

 

 

$

(23,069

)

 

$

(83

)

 

$

(41,206

)

 

$

5,064

 

See accompanying notes to the consolidated financial statements.

5


ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

Three Months Ended March 31,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(19,967

)

 

$

3,774

 

 

$

(38,769

)

 

$

2,410

 

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

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

Stock-based compensation

 

3,524

 

1,464

 

 

 

6,804

 

 

 

2,937

 

Depreciation and amortization

 

3,682

 

2,489

 

 

 

7,464

 

 

 

5,144

 

Loss on impairment

 

 

10,542

 

 

 

 

Other non-cash amortization

 

80

 

138

 

 

 

313

 

 

 

380

 

Provision for doubtful accounts

 

347

 

598

 

 

 

(152

)

 

 

747

 

Inventory reserve

 

1,092

 

129

 

 

 

1,989

 

 

 

1,168

 

Unrealized foreign currency (gain) loss

 

169

 

(100

)

Unrealized foreign currency gain

 

 

(62

)

 

 

(364

)

Interest expense on finance leases

 

32

 

14

 

 

 

55

 

 

 

35

 

Deferred income taxes

 

200

 

(94

)

 

 

361

 

 

 

(218

)

Loss on disposal of fixed assets

 

710

 

 

 

 

718

 

 

 

 

Change in the estimated fair value of acquisition-related contingent consideration

 

(36

)

 

(806

)

 

 

(36

)

 

 

(1,026

)

Payment of acquisition-related contingent consideration

 

 

(142

)

 

 

 

 

 

(142

)

Changes in assets and liabilities

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

(15,295

)

 

2,188

 

 

 

(18,646

)

 

 

3,680

 

Inventories

 

(9,374

)

 

(8,511

)

 

 

(20,385

)

 

 

(17,233

)

Prepaid expenses and other assets

 

(736

)

 

(766

)

 

 

(4,416

)

 

 

154

 

Accounts payable

 

4,398

 

(253

)

 

 

11,942

 

 

 

4,400

 

Deferred revenue

 

(44

)

 

(262

)

 

 

(252

)

 

 

(630

)

Accrued expenses and other liabilities

 

 

(4,603

)

 

 

(4,253

)

 

 

(2,959

)

 

 

(4,914

)

Net cash used in operating activities

 

 

(35,821

)

 

 

(4,393

)

 

 

(45,489

)

 

 

(3,472

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Purchases of investments

 

 

 

 

 

(10,428

)

Proceeds from maturities and redemptions of investments

 

12,135

 

33,745

 

 

 

23,017

 

 

 

43,745

 

Purchases of property and equipment

 

(20,219

)

 

(11,061

)

 

 

(25,440

)

 

 

(22,929

)

Purchase of property and equipment under government contracts

 

(28,188

)

 

 

 

 

(33,803

)

 

 

 

Proceeds from funding under government contract

 

26,333

 

 

 

 

33,962

 

 

 

 

Other investing activities

 

 

 

 

 

(19

)

 

 

 

 

 

(18

)

Net cash (used in) provided by investing activities

 

 

(9,939

)

 

 

22,665

 

 

 

(2,264

)

 

 

10,370

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Cash payments for lease liabilities

 

(153

)

 

(282

)

 

 

(392

)

 

 

(510

)

Proceeds from exercise of stock options

 

15

 

92

 

 

 

15

 

 

 

121

 

Payment of acquisition-related contingent consideration

 

(208

)

 

(264

)

 

 

(208

)

 

 

(264

)

Repurchase of common stock

 

 

(1,049

)

 

 

(1,730

)

 

 

(1,954

)

 

 

(1,877

)

Net cash used in financing activities

 

 

(1,395

)

 

 

(2,184

)

 

 

(2,539

)

 

 

(2,530

)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

 

1,114

 

786

 

 

 

(311

)

 

 

(7,050

)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(46,041

)

 

16,874

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(50,603

)

 

 

(2,682

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

116,762

 

 

 

160,802

 

 

 

116,762

 

 

 

160,802

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

70,721

 

 

$

177,676

 

 

$

66,159

 

 

$

158,120

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

3,570

 

$

3,671

 

 

$

9,107

 

 

$

10,329

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

 

 

Accrued property and equipment purchases

 

 

642

 

4,267

 

 

 

1,900

 

 

 

896

 

Accrued property and equipment purchases under government contracts

 

 

1,905

 

 

 

 

2,023

 

 

 

 

Unrealized gain on marketable securities

 

 

74

 

21

 

Unrealized gain (loss) on marketable securities

 

 

156

 

 

 

(101

)

See accompanying notes to the consolidated financial statements.

6


ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

(in thousands, except per share amounts, unless otherwise indicated)

1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation. The accompanying interim unaudited consolidated financial statements include the accounts of OraSure Technologies, Inc. (“OraSure”) and its wholly-owned subsidiaries, DNA Genotek Inc. (“DNAG”), Diversigen, Inc. (“Diversigen”), and Novosanis NV (“Novosanis”). All intercompany transactions and balances have been eliminated. References herein to “we,” “us,” “our,” or the “Company” mean OraSure and its consolidated subsidiaries, unless otherwise indicated. The unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of our financial position and results of operations for these interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Results of operations for the three and six months ended March 31,June 30, 2022 are not necessarily indicative of the results of operations expected for the full year.

Summary of Significant Accounting Policies. There have been no changes to the Company's significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 that have had a material impact on the consolidated financial statements and related notes except as discussed herein.

Investments. We consider all investments in debt securities to be available-for-sale securities. These securities consist of guaranteed investment certificates and corporate bonds purchased with purchased maturities greater than ninety days. Available-for-sale securities are carried at fair value, based upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders’ equity as a component of accumulated other comprehensive loss.

We record an allowance for credit loss for our available-for-sale securities when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. During the threesix months ended March 31,June 30, 2022, we recognized a provision for expected credit losses for our available-for-sale securities of $6572.

The following is a summary of our available-for-sale securities as of March 31,June 30, 2022 and December 31, 2021:

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

March 31, 2022

 

 

 

 

 

 

 

 

 

June 30, 2022

 

 

 

 

 

 

 

 

 

Guaranteed investment certificates

 

$

33,578

 

 

$

 

 

$

 

 

$

33,578

 

 

$

24,860

 

 

$

 

 

$

 

 

$

24,860

 

Corporate bonds

 

 

8,285

 

 

 

 

 

 

(360

)

 

 

7,925

 

 

 

5,043

 

 

 

 

 

 

(278

)

 

 

4,765

 

Total available-for-sale securities

 

$

41,863

 

 

$

 

 

$

(360

)

 

$

41,503

 

 

$

29,903

 

 

$

 

 

$

(278

)

 

$

29,625

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed investment certificates

 

$

33,249

 

 

$

 

 

$

 

 

$

33,249

 

 

$

33,249

 

 

$

 

 

$

 

 

$

33,249

 

Corporate bonds

 

 

20,473

 

 

 

 

 

 

(434

)

 

 

20,039

 

 

 

20,473

 

 

 

 

 

 

(434

)

 

 

20,039

 

Total available-for-sale securities

 

$

53,722

 

 

$

 

 

$

(434

)

 

$

53,288

 

 

$

53,722

 

 

$

 

 

$

(434

)

 

$

53,288

 

At March 31, 2022, maturities of our available-for-sale
securities were as follows:

 

 

 

 

 

 

 

 

 

At June 30, 2022, maturities of our available-for-sale
securities were as follows:

 

 

 

 

 

 

 

 

 

Less than one year

 

$

41,863

 

 

$

 

 

$

(360

)

 

$

41,503

 

 

$

29,903

 

 

$

 

 

$

(278

)

 

$

29,625

 

Greater than one year

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Fair Value of Financial Instruments. As of March 31,June 30, 2022 and December 31, 2021, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

7


Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

All of our available-for-sale debt securities are measured as Level 2 instruments as of March 31,June 30, 2022 and December 31, 2021. Our available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of March 31,June 30, 2022 and December 31, 2021.

Included in cash and cash equivalents at March 31,June 30, 2022 and December 31, 2021, was $2,3865,636 and $1,160 invested in government money market funds. These funds have investments in government securities and are measured as Level 1 instruments.

We offer a nonqualified deferred compensation plan for certain eligible employees and members of our Board of Directors. The assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in mutual funds and company stock. The fair value of the plan assets as of March 31,June 30, 2022 and December 31, 2021 was $1,6601,576 and $1,763, respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 instruments. The fair value of plan assets is included in both current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.

Property, Plant and Equipment. Property, plant and equipment are stated at cost. Additions or improvements are capitalized, while repairs and maintenance are charged to expense. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Buildings are depreciated over twenty years, while computer equipment, machinery and equipment, and furniture and fixtures are depreciated over two to ten years. Building improvements are amortized over their estimated useful lives. When assets are sold, retired, or discarded, the related property amounts are relieved from the accounts, and any gain or loss is recorded in the consolidated statements of operations. Accumulated depreciation of property, plant and equipment as of March 31,June 30, 2022 and December 31, 2021 was $63,98466,468 and $61,157, respectively.

Intangible Assets. Intangible assets consist of customer relationships, patents and product rights, acquired technology and tradenames. Patents and product rights consist of costs associated with the acquisition of patents, licenses, and product distribution rights. Intangible assets are amortized using the straight-line method over their estimated useful lives of five to fifteen years. Accumulated amortization of intangible assets as of March 31,June 30, 2022 and December 31, 2021 was $31,14230,988 and $30,412, respectively. The decrease in intangible assets from $14,343 as of December 31, 2021 to $13,69212,851 as of March 31,June 30, 2022 was due to $5681,120 in amortization expense and foreign currency translation losses of $83372.

Impairment of Long-Lived Assets. Long-lived assets, which include property and equipment and definite-lived intangible assets, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. We assess the recoverability of our long-lived assets by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future cash flows generated from the use and eventual disposition of the asset. If indicators of impairment exist, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based on the present value of the expected future cash flows associated with the use of the assets. Expected future cash flows reflect our assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time.

During the three months ended June 30, 2022, management decided to move three idle manufacturing cells to storage due to changes in forecasted demand for the products the cells are intended to produce. As a result of this decision, we determined that the carrying values of the equipment is not recoverable and recorded an aggregate pre-tax asset impairment charge of $6,938 during the three months ended June 30, 2022 to write the assets down their estimated fair values. This charge is reported within loss on impairments in the consolidated statement of operations.

We estimated the fair value of the impaired long-lived assets using a market approach, which required us to estimate the value that would be received for the equipment in the principal or most advantageous market for that equipment in an orderly transaction between market participants. Due to the extremely specialized nature of the manufacturing equipment and various market data points, the estimated fair value was not significant. Our fair value estimates were representative of Level 3 measurements within the fair value hierarchy due to the significant level of estimation involved and the lack of transparency as to the inputs used.

Foreign Currency Translation. The assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates as of the balance sheet date, and revenues and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other comprehensive loss, which is a separate component of stockholders’ equity.

Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than a functional currency are included in our consolidated statements of incomeoperations in the period in which the change occurs. Net foreign exchange lossesgains resulting from

8


foreign currency transactions that are included in other income (loss) in our consolidated statements of incomeoperations were $729783 and $576198 for the three months ended March 31,June 30, 2022 and 2021, respectively. Net foreign exchange gains (losses) were $54 and $(379) for the six months ended June 30, 2022 and 2021, respectively.

Accumulated Other Comprehensive Loss. We classify items of other comprehensive loss by their nature and disclose the accumulated balance of other comprehensive loss separately from accumulated deficit and additional paid-in capital in the stockholders’ equity section of our consolidated balance sheets.

We have defined the Canadian dollar as the functional currency of our Canadian subsidiary, DNAG, and we have defined the Euro as the functional currency of our Belgian subsidiary, Novosanis. The results of operations for those subsidiaries are translated into U.S. dollars, which is the reporting currency of the Company. Accumulated other comprehensive loss at March 31,June 30, 2022 consisted of $7,88812,236 of currency translation adjustments and $359278 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investment portfolio. Accumulated other comprehensive loss at December 31, 2021 consists of $9,643 of currency translation adjustments and $434 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investments portfolio.

Recent Accounting Pronouncements.

In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The purpose of this update is to provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide

8


optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are elective and areASU were effective upon issuance and could be applied prospectively through December 31, 2022. The FASB issued a proposed amendment to the ASU in April 2022 which, if approved, will extend the date for all entities.prospective application to December 31, 2024. Management is evaluating the impact ofhas evaluated this ASU and doesconcluded that it will not expect this update to have a material impact on the Company's Consolidated Financial Statements.

2. Government Capital Contracts

In September 2021, we entered into an agreement for $109,000 in funding from the U.S. Department of Defense (the “DOD”), in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for our InteliSwab® COVID-19 Rapid Tests as part of the nation’s pandemic preparedness plan. Funding will be paid to the Company based on achievement of milestones through March 2024 for the design, acquisition, installation, qualification and acceptance of the manufacturing equipment, as set forth in the agreement. In accordance with the milestone payment schedule, 15% of the total will not be funded until the completion of the final equipment validation, which is scheduled to occur in late 2023 or early 2024. We began making payments to vendors for the capital project during the fourth quarter of 2021 and began receiving funds from the DOD in January 2022.

 

Additionally, during 2021, we received $531 in funding from the Commonwealth of Pennsylvania, acting through the Department of Community and Economic Development, for the purchase of machinery and equipment as part of an expansion of manufacturing operations in Pennsylvania. All related purchases were completed in 2021.



Activity for these capital contracts is accounted for pursuant to International Accounting Standard ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance. Funding earned in relation to capital-related costs incurred for government contracts is recorded as a reduction to the cost of property, plant and equipment and reflected within investing activities in the consolidated statements of cash flows; and associated unpaid liabilities and government proceeds receivable are considered non-cash changes in such balances within the operating section of the consolidated statements of cash flows. Amounts earned in excess of our expected cost of the project for project management are recognized straight-line in other income over the term of the government contract. We recognized $561 and $1,123of such income for the three and six months ended June 30, 2022, respectively, which is reported as other income (loss) in our consolidated statement of operations for the three months ended March 31, 2022.operations.

 

The balances corresponding to government contracts included in our consolidated balance sheet are as follows:

 

9

 

March 31, 2022

 

 

December 31, 2021

 

Other current assets:

 

 

 

 

 

Billed receivables

$

-

 

 

$

9,913

 

Unbilled receivables

 

16,857

 

 

 

9,716

 

Total other current assets

 

16,857

 

 

 

19,629

 

Property, plant and equipment, net:

 

 

 

 

 

Cost of assets

 

41,588

 

 

 

11,495

 

Reduction for funding earned, not yet received

 

(14,724

)

 

 

(10,964

)

Reduction for funding received

 

(26,864

)

 

 

(531

)

Total property, plant and equipment, net

 

 

 

 

0

 

Accrued expenses and other current liabilities

 

(788

)

 

 

(8,103

)


 

June 30, 2022

 

 

December 31, 2021

 

Other current assets:

 

 

 

 

 

Billed receivables

$

 

 

$

9,913

 

Unbilled receivables

 

15,748

 

 

 

9,716

 

Total other current assets

 

15,748

 

 

 

19,629

 

Property, plant and equipment, net:

 

 

 

 

 

Cost of assets, cumulative

 

47,321

 

 

 

11,495

 

Reduction for funding earned to date, not yet received

 

(12,828

)

 

 

(10,964

)

Reduction for funding received to date

 

(34,493

)

 

 

(531

)

Total property, plant and equipment, net

 

 

 

 

0

 

Accrued expenses and other current liabilities

 

(620

)

 

 

(8,103

)

3. Inventories

 

March 31, 2022

 

 

December 31, 2021

 

 

June 30, 2022

 

 

December 31, 2021

 

Raw materials

 

$

40,211

 

 

$

33,168

 

 

$

37,292

 

 

$

33,168

 

Work in process

 

 

2,507

 

 

 

2,252

 

 

 

2,348

 

 

 

2,252

 

Finished goods

 

 

18,818

 

 

 

17,718

 

 

 

31,664

 

 

 

17,718

 

 

$

61,536

 

 

$

53,138

 

 

$

71,304

 

 

$

53,138

 

4. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, unvested restricted stock or performance stock units, unless the impact is antidilutive. The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were

9


vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period. Basic and dilutive computations of net loss per share are the same in periods in which a net loss exists as the dilutive effects of excluded items would be anti-dilutive.

The computations of basic and diluted earnings (loss) per share are as follows:

 

Three Months Ended March 31,

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(19,967

)

 

$

3,774

 

 

 

$

(18,802

)

 

$

(1,364

)

 

$

(38,769

)

 

$

2,410

 

Weighted-average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

72,194

 

71,878

 

 

 

72,496

 

 

 

71,983

 

 

 

72,361

 

 

 

71,931

 

Dilutive effect of stock options, restricted stock, and performance stock units

 

 

 

 

 

888

 

 

 

 

 

 

 

 

 

 

 

 

 

752

 

Diluted

 

 

72,194

 

 

 

72,766

 

 

 

 

72,496

 

 

 

71,983

 

 

 

72,361

 

 

 

72,683

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.28

)

 

$

0.05

 

 

 

$

(0.26

)

 

$

(0.02

)

 

$

(0.54

)

 

$

0.03

 

Diluted

 

$

(0.28

)

 

$

0.05

 

 

 

$

(0.26

)

 

$

(0.02

)

 

$

(0.54

)

 

$

0.03

 

For the three months ended March 31,June 30, 2022, three months ended June 30, 2021 and six months ended June 30, 2022, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 463226, 603, and 381 shares, respectively, were excluded from the computation of diluted loss per share. For the threesix months ended March 31,June 30, 2021, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 421604 shares were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

510


.

5. Revenues

Revenues by product line. The following table represents total net revenues by product line:

 

Three Months Ended March 31,

 

Three Months Ended June 30,

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

COVID-19 (1)

 

$

31,032

 

$

27,972

 

 

$

43,378

 

 

$

12,070

 

 

$

74,411

 

 

$

40,215

 

Genomics (1)

 

15,093

 

10,818

 

 

 

15,486

 

 

 

19,498

 

 

 

30,578

 

 

 

30,316

 

HIV

 

8,166

 

8,778

 

 

 

10,357

 

 

 

10,944

 

 

 

18,523

 

 

 

19,722

 

HCV

 

3,257

 

2,367

 

 

 

3,691

 

 

 

4,300

 

 

 

6,948

 

 

 

6,668

 

Substance abuse

 

2,560

 

1,962

 

 

 

2,630

 

 

 

2,629

 

 

 

5,191

 

 

 

4,591

 

Microbiome (1)

 

1,990

 

1,751

 

 

 

1,832

 

 

 

2,447

 

 

 

3,822

 

 

 

4,198

 

Laboratory services

 

1,733

 

2,497

 

 

 

1,204

 

 

 

3,114

 

 

 

2,938

 

 

 

5,611

 

Other product and service revenues

 

 

1,405

 

 

 

434

 

 

 

 

589

 

 

 

739

 

 

 

1,992

 

 

 

999

 

Net product and services revenues

 

 

65,236

 

 

 

56,579

 

 

 

 

79,167

 

 

 

55,741

 

 

 

144,403

 

 

 

112,320

 

Royalty income

 

685

 

1,261

 

 

 

642

 

 

 

875

 

 

 

1,326

 

 

 

2,136

 

Other non-product revenues

 

 

1,786

 

 

 

742

 

 

 

 

422

 

 

 

991

 

 

 

2,209

 

 

 

1,733

 

Other revenues

 

 

2,471

 

 

 

2,003

 

 

 

 

1,064

 

 

 

1,866

 

 

 

3,535

 

 

 

3,869

 

Net revenues

 

$

67,707

 

 

$

58,582

 

 

 

$

80,231

 

 

$

57,607

 

 

$

147,938

 

 

$

116,189

 

(1) 2021 COVID-19, Genomics and Microbiome revenues were reclassified to reflect the correct classification of the product line sales. The reclassification increased (decreased) the product line revenues for the three months ended March 31,June 30, 2021 by $583490, $(24684) and $(337406), respectively. The reclassification increased (decreased) the product line revenues for the six months ended June 30, 2021 by $1,073, $(330) and $(743), respectively.

Revenues by geographic area. The following table represents total net revenues by geographic area, based on the location of the customer:

 

Three Months Ended March 31,

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

United States

 

$

57,987

 

$

49,100

 

 

$

70,320

 

 

$

47,601

 

 

$

128,307

 

 

$

96,700

 

Europe

 

4,286

 

4,552

 

 

 

2,436

 

 

 

3,325

 

 

 

6,722

 

 

 

7,877

 

Other regions

 

 

5,434

 

 

 

4,930

 

 

 

 

7,475

 

 

 

6,681

 

 

 

12,909

 

 

 

11,612

 

 

$

67,707

 

 

$

58,582

 

 

 

$

80,231

 

 

$

57,607

 

 

$

147,938

 

 

$

116,189

 

Customer and Vendor Concentrations. At March 31,June 30, 2022, one non-commercial customer accounted for 2148% of our accounts receivable and another commercial customer accounted for 10% of our accounts receivable. No customers accounted for more than 10% of our accounts receivable as of December 31, 2021. One non-commercial customer accounted for 1856% and 39% of net consolidated revenues for the three and six months ended June 30, 2022. One customer accounted for 14% of net consolidated revenues for the three months ended March 31, 2022.June 30, 2021. Another customer accounted for 1710% and 14%, respectively, of net consolidated revenues for the three and six months ended March 31,June 30, 2021.

10


We currently purchase certain products and critical components of our products from sole-supply vendors. If these vendors are unable or unwilling to supply the required components and products, we could be subject to increased costs and substantial delays in the delivery of our products to our customers. Third-party suppliers also manufacture certain products. Our inability to have a timely supply of any of these components and products could have a material adverse effect on our business, as well as our financial condition and results of operations.

Deferred Revenue. We record deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of March 31,June 30, 2022 and December 31, 2021 includes customer prepayments of $1,9001,746 and $1,843, respectively. Deferred revenue as of March 31,June 30, 2022 and December 31, 2021 also includes $1,006914 and $1,093, respectively, associated with a long-term contract that has variable pricing based on volume. The average price over the life of the contract was determined and revenue is recognized at that average price.

6.Goodwill

The following table represents the changes in goodwill by operating segment for the six months ended June 30, 2022:

11


 

 

June 30, 2022

 

 

 

Diagnostics

 

 

Molecular Solutions

 

Balance as of January 1

 

$

3,604

 

 

$

36,675

 

Impairment

 

 

(3,604

)

 

 

 

Change related to foreign currency translation

 

 

 

 

 

(637

)

Balance as of June 30

 

$

 

 

$

36,038

 

We perform an annual goodwill impairment assessment as of July 31 each year by comparing the estimated fair values of our reporting units to their respective carrying values. A more frequent evaluation is performed if an event occurs or circumstances change between annual tests that could more likely than not reduce the fair value of a reporting unit below its carrying amount.

During the three months ended June 30, 2022, we determined that a triggering event occurred in relation to the depressed market price of the Company's common stock and corresponding significant decline in our market capitalization. As a result, we performed an interim goodwill impairment test and concluded that the carrying value of our Diagnostics reporting unit exceeded its estimated fair value and the goodwill balance for that segment was fully impaired. Thus, we recognized a pre-tax impairment charge of $3.6 million during the three months ended June 30, 2022, which is reported in loss on impairments in our condensed consolidated statement of operations.

We estimated fair values of both of our reporting units using a combined income-based approach and market-based approach. Our income approach utilized projected future cash flows that were discounted at a rate of 22% for the Diagnostic reporting unit and 20% for the Molecular Solutions reporting unit based on a weighted-average cost of capital analysis that reflected current market conditions. The market comparable approach primarily considered earnings, revenue and other multiples of comparable companies and applied those multiples to certain key drivers of the reporting units. This market approach utilized a revenue multiple weighted by year for the Diagnostics reporting unit and both a revenue and EBITDA multiple for the Molecular Solutions reporting unit. We assigned a weight of 75% to the results of our income-based approach and 25% to the results from the market-based approach for estimation of the reporting units' fair value. Our fair value estimates utilize significant unobservable inputs and thus represent Level 3 fair value measurements.

7. Accrued Expenses and other current liabilities

 

 

 

 

 

 

 

 

March 31,
2022

 

 

December 31,
2021

 

 

June 30,
2022

 

 

December 31,
2021

 

Payroll and related benefits

 

$

11,279

 

$

15,570

 

 

$

11,636

 

 

$

15,570

 

Commitment to purchase under government contract

 

 

8,103

 

 

 

 

 

 

8,103

 

Deferred income for government contract

 

788

 

 

 

 

620

 

 

 

 

Professional fees

 

3,537

 

3,335

 

 

 

3,799

 

 

 

3,335

 

Sales tax payable

 

1,725

 

2,227

 

 

 

1,807

 

 

 

2,227

 

Other

 

 

4,582

 

 

 

4,543

 

 

 

5,303

 

 

 

4,543

 

 

$

21,911

 

 

$

33,778

 

 

$

23,165

 

 

$

33,778

 

8. Leases

7. Leases

We determine whether an arrangement is a lease at inception. We have operating and finance leases for corporate offices, warehouse space and equipment (including vehicles). As of March 31,June 30, 2022, we are the lessee in all agreements. Our leases have remaining lease terms of 1 to 11 years, some of which include options to extend the leases based on agreed upon terms, and some of which include options to terminate the leases within 1 year.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

We have lease agreements that contain both lease and non-lease components (e.g., common-area maintenance). For these agreements, we account for lease components separate from non-lease components.

12


The components of lease expense are as follows:

 

 

Three Months Ended March 31,

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating lease cost

 

$

699

 

$

420

 

 

$

811

 

 

$

499

 

 

$

1,510

 

 

$

919

 

Variable and short-term lease cost

 

75

 

 

 

 

152

 

 

 

 

 

 

227

 

 

 

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of use assets

 

385

 

127

 

 

 

306

 

 

 

212

 

 

 

691

 

 

 

339

 

Interest on lease liabilities

 

 

32

 

 

 

14

 

 

 

 

23

 

 

 

21

 

 

 

55

 

 

 

35

 

Total finance lease cost

 

 

417

 

 

 

141

 

 

 

 

329

 

 

 

233

 

 

 

746

 

 

 

374

 

Total lease cost

 

$

1,191

 

 

$

561

 

 

 

$

1,292

 

 

$

732

 

 

$

2,483

 

 

$

1,293

 

Supplemental cash flow information related to leases is as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,027

 

 

$

416

 

 

$

2,213

 

 

$

824

 

Operating cash flows from financing leases

 

 

23

 

 

 

21

 

 

 

55

 

 

 

35

 

Financing cash flows from financing leases

 

 

239

 

 

 

228

 

 

 

392

 

 

 

510

 

Non-cash activity:

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for operating lease obligations

 

 

5,131

 

 

 

7,205

 

 

 

8,797

 

 

 

7,834

 

Right-of-use assets obtained in exchange for finance lease obligations

 

 

-

 

 

 

 

 

 

117

 

 

 

 

11


 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,186

 

 

$

408

 

 

Operating cash flows from financing leases

 

 

32

 

 

 

14

 

 

Financing cash flows from financing leases

 

 

153

 

 

 

282

 

 

Non-cash activity:

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for operating lease obligations

 

 

3,666

 

 

 

629

 

 

Right-of-use assets obtained in exchange for finance lease obligations

 

 

117

 

 

 

 

 

Supplemental balance sheet information related to leases is as follows:

 

 

 

 

 

 

 

March 31, 2022

 

 

December 31, 2021

 

 

June 30, 2022

 

 

December 31, 2021

 

Operating Leases

 

 

 

 

 

 

 

 

 

 

Right-of-use assets

 

$

12,169

 

$

9,056

 

 

$

16,451

 

 

$

9,056

 

Lease liabilities:

 

 

 

 

 

 

 

 

 

 

Current lease liabilities

 

1,815

 

2,181

 

 

 

2,054

 

 

 

2,181

 

Non-current lease liabilities

 

 

10,727

 

 

 

7,202

 

 

 

14,978

 

 

 

7,202

 

Total operating lease liabilities

 

$

12,542

 

 

$

9,383

 

 

$

17,032

 

 

$

9,383

 

Finance Leases

 

 

 

 

 

 

 

 

 

 

Right-of-use assets

 

$

2,240

 

$

2,493

 

 

$

1,887

 

 

$

2,493

 

Lease liabilities:

 

 

 

 

 

 

 

 

 

 

Current lease liabilities

 

1,699

 

939

 

 

 

1,182

 

 

 

939

 

Non-current lease liabilities

 

 

1,207

 

 

 

1,952

 

 

 

1,445

 

 

 

1,952

 

Total finance lease liabilities

 

$

2,906

 

 

$

2,891

 

 

$

2,627

 

 

$

2,891

 

 

Weighted Average Remaining Lease Term

 

 

 

 

 

 

 

 

 

 

Weighted-average remaining lease term—operating leases

 

6.86 years

 

 

5.26 years

 

 

7.73 years

 

 

5.26 years

 

Weighted-average remaining lease term—finance leases

 

2.04 years

 

 

2.21 years

 

 

1.82 years

 

 

2.21 years

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate—operating leases

 

4.09

%

 

3.90

%

 

 

4.27

%

 

 

3.90

%

Weighted-average discount rate—finance leases

 

3.54

%

 

3.57

%

 

 

3.52

%

 

 

3.57

%

13


As of March 31,June 30, 2022, minimum lease payments by period are expected to be as follows:

 

Finance

 

 

Operating

 

 

Finance

 

 

Operating

 

2022 (excluding the three months ended March 31, 2022)

 

 

951

 

1,936

 

2022 (excluding the six months ended June 30, 2022)

 

$

710

 

 

$

1,496

 

2023

 

 

1,285

 

1,729

 

 

 

1,283

 

 

 

1,879

 

2024

 

 

742

 

2,337

 

 

 

740

 

 

 

2,969

 

2025

 

 

20

 

1,968

 

 

 

19

 

 

 

2,619

 

2026

 

 

12

 

1,750

 

 

 

11

 

 

 

2,422

 

Thereafter

 

 

 

 

 

4,871

 

 

 

 

 

 

9,021

 

Total minimum lease payments

 

 

3,010

 

14,591

 

 

 

2,763

 

 

 

20,406

 

Less: imputed interest

 

 

(104

)

 

 

(2,049

)

 

 

(136

)

 

 

(3,374

)

Present value of lease liabilities

 

$

2,906

 

 

$

12,542

 

 

$

2,627

 

 

$

17,032

 

12


8.9. Stockholders’ Equity

 

Reconciliation of the changes in stockholders' equity for the three months ended March 31, 2022 and 2021

 

Reconciliation of the changes in stockholders' equity for the three and six months ended June 30, 2022 and 2021

Reconciliation of the changes in stockholders' equity for the three and six months ended June 30, 2022 and 2021

 

 

Common Stock

 

 

Additional
Paid-in

 

Accumulated
Other
Comprehensive

 

Accumulated

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

Accumulated
Other
Comprehensive

 

Accumulated

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance at December 31, 2021

 

72,069

 

$

 

$

511,063

 

$

(10,077

)

 

$

(120,453

)

 

$

380,533

 

 

 

72,069

 

 

$

 

 

$

511,063

 

 

$

(10,077

)

 

$

(120,453

)

 

$

380,533

 

Common stock issued upon exercise of options

 

2

 

 

15

 

 

 

15

 

 

 

2

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Vesting of restricted stock and performance stock units

 

352

 

 

 

 

 

 

 

 

352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common shares

 

(116

)

 

 

(1,049

)

 

 

 

(1,049

)

 

 

(116

)

 

 

 

 

 

(1,049

)

 

 

 

 

 

 

 

 

(1,049

)

Stock-based compensation

 

 

 

3,524

 

 

 

3,524

 

 

 

 

 

 

 

 

 

3,524

 

 

 

 

 

 

 

 

 

3,524

 

Net loss

 

 

 

 

 

(19,967

)

 

(19,967

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,967

)

 

 

(19,967

)

Currency translation adjustments

 

 

 

 

1,756

 

 

1,756

 

 

 

 

 

 

 

 

 

 

 

 

1,756

 

 

 

 

 

 

1,756

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

74

 

 

 

 

 

 

74

 

Balance at March 31, 2022

 

 

72,307

 

 

$

 

 

$

513,553

 

 

$

(8,247

)

 

$

(140,420

)

 

$

364,886

 

 

 

72,307

 

 

$

 

 

$

513,553

 

 

$

(8,247

)

 

$

(140,420

)

 

$

364,886

 

Vesting of restricted stock and performance stock units

 

 

407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common shares

 

 

(142

)

 

 

 

 

 

(905

)

 

 

 

 

 

 

 

 

(905

)

Stock-based compensation

 

 

 

 

 

 

 

 

3,280

 

 

 

 

 

 

 

 

 

3,280

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,802

)

 

 

(18,802

)

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

(4,349

)

 

 

 

 

 

(4,349

)

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

 

 

82

 

Balance at June 30, 2022

 

 

72,572

 

 

$

 

 

$

515,928

 

 

$

(12,514

)

 

$

(159,222

)

 

$

344,192

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance at December 31, 2020

 

 

71,738

 

 

$

 

 

$

505,123

 

 

$

(9,097

)

 

$

(97,455

)

 

$

398,571

 

Common stock issued upon exercise of options

 

 

11

 

 

 

 

 

 

92

 

 

 

 

 

 

 

 

 

92

 

Vesting of restricted stock and performance stock units

 

 

318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common shares

 

 

(111

)

 

 

 

 

 

(1,730

)

 

 

 

 

 

 

 

 

(1,730

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,464

 

 

 

 

 

 

 

 

 

1,464

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,774

 

 

 

3,774

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

1,352

 

 

 

 

 

 

1,352

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

21

 

Balance at March 31, 2021

 

 

71,956

 

 

$

 

 

$

504,949

 

 

$

(7,724

)

 

$

(93,681

)

 

$

403,544

 

14


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance at December 31, 2020

 

 

71,738

 

 

$

 

 

$

505,123

 

 

$

(9,097

)

 

$

(97,455

)

 

$

398,571

 

Common stock issued upon exercise of options

 

 

11

 

 

 

 

 

 

92

 

 

 

 

 

 

 

 

 

92

 

Vesting of restricted stock and performance stock units

 

 

318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common shares

 

 

(111

)

 

 

 

 

 

(1,730

)

 

 

 

 

 

 

 

 

(1,730

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,464

 

 

 

 

 

 

 

 

 

1,464

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,774

 

 

 

3,774

 

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

1,352

 

 

 

 

 

 

1,352

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

21

 

Balance at March 31, 2021

 

 

71,956

 

 

$

 

 

$

504,949

 

 

$

(7,724

)

 

$

(93,681

)

 

$

403,544

 

Common stock issued upon exercise of options

 

 

3

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Vesting of restricted stock and performance stock units

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase and retirement of common shares

 

 

(15

)

 

 

 

 

 

(147

)

 

 

 

 

 

 

 

 

(147

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,473

 

 

 

 

 

 

 

 

 

1,473

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,364

)

 

 

(1,364

)

Currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

1,403

 

 

 

 

 

 

1,403

 

Unrealized loss on marketable securities

 

 

 

��

 

 

 

 

 

 

 

(122

)

 

 

 

 

 

(122

)

Balance at June 30, 2021

 

 

72,008

 

 

$

 

 

$

506,304

 

 

$

(6,443

)

 

$

(95,045

)

 

$

404,816

 

Stock-Based Awards

We grant stock-based awards under the OraSure Technologies, Inc. Stock Award Plan, as amended (the “Stock Plan”). The Stock Plan permits stock-based awards to employees, outside directors and consultants or other third-party advisors. Awards which may be granted under the Stock Plan include qualified incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. We account for stock-based compensation to employees and directors using the fair value method. We recognize compensation expense for stock option and restricted stock awards issued to employees and directors on a straight-line basis over the requisite service period of the award. We recognize compensation expense related to performance-based restricted stock units based on assumptions as to what percentage of each performance target will be achieved. We evaluate these target assumptions on a quarterly basis and adjust compensation expense related to these awards, as appropriate. To satisfy the exercise of options, issuance of restricted stock, or redemption of performance-based restricted stock units, we issue new shares rather than shares purchased on the open market.

Total compensation expense related to stock options for the threesix months ended March 31,June 30, 2022 and 2021 was $348879 and $250521, respectively.

The following table summarizes the stock option activity for the threesix months ended March 31,June 30, 2022:

Options

Outstanding on January 1, 2022

1,410

Granted

589

Exercised

(2

)

Expired

(620

)

Forfeited

(95173

)

Outstanding on March 31,June 30, 2022

1,804

1,896

13


Compensation expense of $2,7065,071 and $1,0362,066 related to restricted shares was recognized during the threesix months ended March 31,June 30, 2022 and 2021, respectively.

The following table summarizes time-vested restricted stock award and restricted stock unit activity for the threesix months ended March 31,June 30, 2022:

15


Units

Issued and unvested, January 1, 2022

701

Granted

2,782

1,332

Vested

(243571

)

Forfeited

(120249

)

Issued and unvested, March 31,June 30, 2022

2,663

1,670

We grant performance-based restricted stock units (“PSUs”) to certain executives. Vesting of these PSUs is dependent upon achievement of certain performance-based metrics during a one-year or three-year period from the date of grant. Assuming achievement of each performance-based metric, the executive must also generally remain employed for three years from the grant date. If the one-year target is achieved, the PSUs will then vest three years from grant date. If the three-year target is achieved, the corresponding PSUs will then vest three years from grant date. PSUs are converted into shares of our common stock once vested.

Compensation expense of $470854 and $178350 related to PSUs was recognized during the threesix months ended March 31,June 30, 2022 and 2021, respectively.

The following table summarizes the PSU activity for the threesix months ended March 31,June 30, 2022:

Units

Issued and unvested, January 1, 2022

622

Granted (1)

532

206

Performance adjustment (2)

36

Vested

(109188

)

Forfeited

(152171

)

Issued and unvested, March 31,June 30, 2022

831

603

(1) Grant activity for all PSUs disclosed at target

(2) Reflects the performance adjustment based on actual performance measured at the end of the performance period

Stock Repurchase Program

On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $25,000 of our outstanding common shares. NaN shares were purchased and retired during the threesix months ended March 31,June 30, 2022 and 2021.

9.10. Transition costs

On December 31, 2021, the Company's Board of Directors approved the termination of Stephen S. Tang, the Company’s former President and Chief Executive Officer, without cause under his existing employment agreement with the Company, with such termination effective as of March 31, 2022. On January 2, 2022, Dr. Tang and the Company entered into a transition agreement ("Transition Agreement") providing for the terms of the cessation of Dr. Tang’s employment with the Company, including the cessation of his service as President and Chief Executive Officer of the Company and as a member of the Board. Dr. Tang’s service to the Company in all capacities ended on March 31, 2022.

Pursuant to the Transition Agreement, Dr. Tang received severance of $1,569, which was accrued in the consolidated financial statements at December 31, 2021 and paid in April 2022. Additionally, in accordance with his Transition Agreement, certain of his unvested time-vesting restricted stock awards and unvested PSUs that were outstanding at March 31, 2022 vested on April 8, 2022. His remaining unvested time-vesting restricted stock awards and PSUs totaling were forfeited on March 31, 2022. These payments, rights and benefits are substantially similar to the severance benefits contemplated by his previous employment agreement in respect to a termination without cause thereunder. In aggregate, we recognized a net $1,380128 and $1,508 of expense in relation to Dr. Tang's stock compensation during the three and six months ended March 31, 2022.June 30, 2022, respectively.

On April 1, 2022 the Company's Board of Directors appointed Nancy J. Gagliano, M.D., M.B.A., to serve as the Company’s Interim Chief Executive Officer. In connection therewith, the Company and Dr. Gagliano entered into an employment agreement, dated as of March 21, 2022 (the “Employment Agreement”). Pursuant to the Employment Agreement, starting on April 1, 2022, Dr. Gagliano began receiving a monthly base salary of $56 per month. Additionally, shemonth and was also granted a one-time award of fully vested shares of the Company’s common stock with a

14


grant date fair value of $100 and. Additionally, she was granted a one-time restricted stock unit award with a grant date fair value of $670, which scheduled to vest in twelve equal monthly installments (withstarting in April through her employment term, of which $168 vested during the first installment vesting on Aprilthree months ended June 30, 2022 and subsequent installments vesting on the last dayremainder was forfeited when her employment ceased in June 2022.

16


On May 20, 2022, the Company entered into an employment agreement with Carrie Eglinton Manner, and in connection therewith, the Company's Board of Directors appointed Ms. Eglinton Manner as the following eleven calendar months), subject to Dr. Gagliano’s continued employment as InterimCompany’s President and Chief Executive Officer, througheffective June 4, 2022 (the “Effective Date”). Pursuant to the Employment Agreement, Ms. Eglinton Manner’s initial annual base salary is $700 and she will participate in the Company’s annual incentive plan with a target annual incentive amount of at least 100% of her annual base salary. Additionally, she received inducement grants comprised of (i) a restricted stock unit award with a grant date fair value of $4,000, which vests on the second anniversary of the Effective Date (ii) a restricted stock award with a grant date fair value of $1,600, which vests annually starting on the first anniversary of the Effective Date and (iii) a PSU award with a grant date fair value of $1,600, which will be subject to the same vesting and performance conditions as are applicable vesting dates.to the 2022 performance-based restricted stock unit awards granted to the Company’s other executive officers.

10.11. Income Taxes

During the three and six months ended March 31,June 30, 2022, and 2021, we recorded an income tax expense (benefit) of $$(3,9361,169) and $6,5292,767, respectively. Tax expense for 2022 includes $1,702 of withholding tax due on the repatriation of $65,000 of unremitted earnings from Canada to the United States. The remaining balancetax expense for the first half of 2022 is comprised of U.S. state income taxes of $2,234400 forand foreign taxes of $665. During the first quarterthree and six months ended June 30, 2021, we recorded income tax expense of 2022$3,610 and $10,139, which primarily consisted of foreign tax expense. Income taxes for the first quarter of 2021 also primarily consistedconsists of foreign tax expense.

Tax expense reflects taxes due to the taxing authorities and the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting and tax purposes, and net operating loss and tax credit carryforwards. The significant components of our total deferred tax liability as of March 31,June 30, 2022 and December 31, 2021 relate to the tax effects of the basis difference between the intangible assets acquired in our acquisitions for financial reporting and for tax purposes along with basis differences arising from accelerated tax depreciation of fixed assets.

In 2008, we established a full valuation allowance against our U.S. deferred tax asset. Management believes the full valuation allowance is still appropriate at both March 31,June 30, 2022 and December 31, 2021 since the facts and circumstances necessitating the allowance have not changed.

11.12. Commitments and Contingencies

Litigation

From time to time, we are involved in certain legal actions arising in the ordinary course of business. In management’s opinion, the outcomes of such actions, either individually or in the aggregate, are not expected to have a material adverse effect on our future financial position or results of operations.

In March 2021, we filed a complaint against Spectrum Solutions, LLC ("Spectrum") in the United States District Court for the Southern District of California alleging that certain saliva collection devices manufactured and sold by Spectrum infringe a patent held by DNAG. Spectrum has filed an answer to the initial complaint, asserting that its device does not infringe our patent and that our patent is invalid. In August 2021, we amended our complaint to add a second patent to this litigation. Spectrum responded to our amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation. DNAG filed a motion to dismiss Spectrum’s counterclaims in October 2021, which was denied by the Court on March 30, 2022. On April 8, 2022, the Court assigned a new judge to preside over the matter, which vacated all datesThe final pretrial conference is set for the trial. We await new dates to be set by the Court.September 7, 2023.

12.13. Business Segment Information

Our business consists of 2 segments: our “Diagnostics” business, which primarily consists of the development, manufacture, and sale of rapid diagnostic tests used to determine if a person has a variety of infectious diseases including, HIV, HCV, and COVID-19. The Diagnostic business also manufactures and sells oral fluid substance abuse testing products. Our “Molecular Solutions” business is operated by our wholly-owned subsidiaries DNAG, Diversigen, and Novosanis. This segment of the business consists of the development, manufacture, and sale of kits that are used to collect, stabilize, transport and store a biological sample of genetic material for molecular testing. In addition, our Molecular Solutions business provides microbiome laboratory services.

We organized our operating segments according to the nature of the products included in those segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). We evaluate performance of our operating segments based on revenue and operating income. We do not allocate interest income, interest expense, other income, other expenses or income taxes to our operating segments. Reportable segments have no inter-segment revenues and inter-segment expenses have been eliminated.

1517


The following table summarizes operating segment information for the three and six months ended March 31,June 30, 2022 and 2020,2021, and asset information as of March 31,June 30, 2022 and December 31, 2021:

 

Three Months Ended March 31,

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diagnostics

 

$

38,310

 

$

14,546

 

 

$

60,455

 

 

$

19,311

 

 

$

98,765

 

 

$

33,857

 

Molecular Solutions

 

 

29,397

 

 

 

44,036

 

 

 

 

19,776

 

 

 

38,296

 

 

 

49,173

 

 

 

82,332

 

Total

 

$

67,707

 

 

$

58,582

 

 

 

$

80,231

 

 

$

57,607

 

 

$

147,938

 

 

$

116,189

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diagnostics

 

$

(19,787

)

 

$

(12,118

)

 

 

$

(11,776

)

 

$

(11,850

)

 

$

(31,563

)

 

$

(23,967

)

Molecular Solutions

 

 

3,809

 

 

 

22,540

 

 

 

 

(9,513

)

 

 

13,648

 

 

 

(5,704

)

 

 

36,187

 

Total

 

$

(15,978

)

 

$

10,422

 

 

 

$

(21,289

)

 

$

1,798

 

 

$

(37,267

)

 

$

12,220

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diagnostics

 

$

1,727

 

$

890

 

 

$

1,903

 

 

$

939

 

 

$

3,630

 

 

$

1,829

 

Molecular Solutions

 

 

1,955

 

 

 

1,599

 

 

 

 

1,879

 

 

 

1,716

 

 

 

3,834

 

 

 

3,315

 

Total

 

$

3,682

 

 

$

2,489

 

 

 

$

3,782

 

 

$

2,655

 

 

$

7,464

 

 

$

5,144

 

Loss on impairment:

 

 

 

 

 

 

 

 

 

Diagnostics

 

$

8,517

 

 

$

 

 

$

8,517

 

 

$

 

Molecular Solutions

 

 

2,025

 

 

 

 

 

 

2,025

 

 

 

 

Total

 

$

10,542

 

 

$

 

 

$

10,542

 

 

$

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diagnostics(1)

 

$

19,132

 

$

7,637

 

 

$

4,302

 

 

$

8,513

 

 

$

23,434

 

 

$

16,150

 

Molecular Solutions

 

 

1,087

 

 

 

3,424

 

 

 

 

919

 

 

 

3,355

 

 

 

2,006

 

 

 

6,779

 

Total

 

$

20,219

 

 

$

11,061

 

 

 

$

5,221

 

 

$

11,868

 

 

$

25,440

 

 

$

22,929

 

(1) Excludes $28,188$5,615 and $33,803 for purchases of property and equipment under government contracts for the three and six months ended March 31, 2022.June 30, 2022, respectively.

 

March 31,
2022

 

 

December 31,
2021

 

 

June 30,
2022

 

 

December 31,
2021

 

Total assets:

 

 

 

 

 

 

 

 

 

 

Diagnostics

 

$

245,961

 

$

209,674

 

 

$

249,123

 

 

$

209,674

 

Molecular Solutions

 

 

189,571

 

 

 

251,316

 

 

 

180,131

 

 

 

251,316

 

Total

 

$

435,532

 

 

$

460,990

 

 

$

429,254

 

 

$

460,990

 

1618


Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements below regarding future events or performance are “forward-looking statements” within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings, losses, expenses, or other financial performance, future product performance or development, expected regulatory filings and approvals, planned business transactions, expected manufacturing performance, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. Forward-looking statements are not guarantees of future performance or results. Known and unknown factors that could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to:

risk that our exploration of strategic alternatives may not result in any definitive transaction or enhance stockholder value and may create a distraction or uncertainty that may adversely affect operating results, business or investor perceptions.
the diversion of management’s attention from our ongoing business and regular business responsibilities and due to our exploration of strategic alternatives;
our ability to market and sell products, whether through our internal, direct sales force or third parties;
Ourour ability to fulfill our commitments under our contracts with the U.S. government for InteliSwab® COVID-19 Rapid Tests;
the impact of significant customer concentration in the genomics business;
our ability to successfully scale-up our manufacturing for InteliSwab®COVID-19 Rapid Tests;
failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products;
our ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;
our ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products;
our ability to comply with applicable regulatory requirements;
our ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S. Food and Drug Administration (or “FDA”), or other regulators;
the impact of the COVID-19 pandemic on our business and labor force;
the impact of COVID-19 on ourforce and supply chain;
our ability to successfully develop new products, validate the expanded use of existing collector products, receive necessary regulatory approvals and authorizations, transport work-in-process goods and finished products and commercialize such products for COVID-19 testing;
changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements;
our ability to meet increased demand for our products;
our ability to diversify our customer base;
the impact of replacing distributors on our business;
inventory levels at distributors and other customers;
our ability to achieve our financial and strategic objectives and continue to increase our revenues, including the ability to expand international sales;
the impact of competitors, competing products and technology changes on our business;
reduction or deferral of public funding available to customers;
competition from new or better technology or lower cost products;
our ability to develop, commercialize and market new products;
market acceptance of oral fluid or urine testing, collection or other products;
market acceptance and uptake of microbiome informatics, microbial genetics technology and related analytics services;

17


changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention, or (the “CDC”) or other agencies; ability to fund research and development and other products and operations;
our ability to obtain and maintain new or existing product distribution channels;
our reliance on sole supply sources for critical products and components;

19


the availability of related products produced by third parties or products required for use of our products;
the impact of contracting with the U.S. government on our business;
the impact of negative economic conditions on our business; including as a result of inflation, hostilities or war;
our ability to achieve and maintain sustained profitability;
our ability to increase our gross margins;
theour ability to utilize net operating loss carry forwards or other deferred tax assets;
the volatility of our stock price;
uncertainty relating to patent protection and potential patent infringement claims;
uncertainty and costs of litigation relating to patents and other intellectual property;
the availability of licenses to patents or other technology;
our ability to enter into international manufacturing agreements;
obstacles to international marketing and manufacturing of products;
our ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms;
adverse movements in foreign currency exchange rates;
loss or impairment of sources of capital;
our ability to attract and retain qualified personnel;
our exposure to product liability and other types of litigation;
changes in international, federal or state laws and regulations;
customer consolidations and inventory practices;
equipment failures and ability to obtain needed raw materials and components;
the impact of terrorist attacks, civil unrest, hostilities and war; and
general political, business and economic conditions.

These and other factors that could affect our results are discussed more fully in our Securities and Exchange Commission (“SEC”) filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2021, Quarterly Reports on Form 10-Q, and other filings with the SEC. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements are made as of the date of this Report, and we undertake no duty to update these statements.

Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of OraSure.

The following discussion should be read in conjunction with our consolidated financial statements contained herein and the notes thereto, along with the Section entitled “Critical Accounting Policies and Estimates,” set forth below.

1820


Overview and Business Segments

The overall goal of our Company is to empower the global community to improve health and wellness by providing access to accurate essential information. Our business consists of two segments: our “Diagnostics” segment and our “Molecular Solutions” segment.

Our Diagnostics business primarily consists of the development, manufacture, marketing and sale of simple, easy to use diagnostic products and specimen collection devices using our proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. The Diagnostics business includes tests for diseases including COVID-19, HIV and Hepatitis C that are performed on a rapid basis at the point of care, and tests for drugs of abuse that are processed in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. Our COVID-19 and HIV products are also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S. and, in the case of the HIV product, as a self-test to individuals in a number of other countries. Through our Diagnostics business we are also developing and commercializing products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP,("PrEP"), the daily medication to prevent HIV, and anti-retroviral medications to suppress HIV. These products include laboratory-based tests that can measure levels of the medications in a patient’s urine or blood, as well as point-of-care products currently in development. We began recording revenues on the sales of our InteliSwab® COVID-19 Rapid Tests during the third quarter of 2021.

 

Our Molecular Solutions business is operated by our wholly-owned subsidiaries, DNA Genotek, Inc. ("DNAG"), Diversigen, Inc. ('Diversigen"), and Novosanis NV ("Novosanis"). Our Molecular Solutions business sells its products and services directly to its customers, primarily through its internal sales force in the U.S. domestic market, and in many international markets, also through distributors. Our products primarily consist of collection kits and services used by clinical laboratories, direct-to-consumer laboratories, researchers, pharmaceutical companies, and animal health service and product providers. Most of our Molecular Solutions revenues are derived from product sales to commercial customers and sales into the academic and research markets. A significant portion of our total sales is from repeat customers in both markets. Molecular Solutions customers span the disease risk management, diagnostics, pharmaceutical, biotech, companion animal and environmental markets.

We have expanded the market focus of our Molecular Solutions business by selling existing collection products for use with COVID-19 tests. Demand for COVID-19 PCR testing has declined driven by the availability of antigen tests and the wider availability of vaccines, thereby negatively impacting the sales of the collection products. We have also developed new collection devices for the emerging microbiome market, which focuses on studying microbes and their effect on human health. Our primary product offering in the microbiome market, OMNIgene®OMNIgene® • GUT, is focused on the human gut microbiome (microbes living in human stool). In 2021, the OMNIgene®OMNIgene® • GUT collection device (OMD-200) was granted “FDA De Novo classification for the preservation and stabilization of the relative abundance of microbial nucleic acids in clinical samples.” We leverage our existing sales force and global research connections to engage microbiome customers worldwide to establish ourselves among the leaders in ease-of-collection, stabilization, and transport of this challenging sample type.

 

Our Molecular Solutions segment includes the Colli-Pee®Colli-Pee® device, developed and sold by our Novosanis subsidiary, for the volumetric collection of first void urine. This product is in its early stages, and initial sales are occurring primarily through distributors and collaborations in the liquid biopsy and sexually transmitted disease markets. Our Molecular Solutions business also offers laboratory and analytical services for both genomics and microbiome customers to more fully meet their needs. These services are primarily provided to pharmaceutical, biotech companies, and research institutions.

Recent Developments

Impact of COVID-19

As COVID-19 continues to impact the economy of the United States and other countries around the world, we are committed to being a part of the response to this unprecedented challenge. We have made substantial investments to expand our operations in order to manufacture product used for COVID-19 testing in the United States.

Due to COVID-19, we have experienced volatility, including periods of material decline compared to prior year periods in testing volume of our base business (which excludes COVID-19 testing) and periods of significant demand for our COVID-19 testing product, with demand generally fluctuating in line with changes in prevalence of the virus and related variants. It is difficult for us to predict the duration or magnitude of the outbreak’s effects on our business or results of operations.

Appointment of New CEO

Carrie Eglinton Manner was appointed President and Chief Executive Officer, effective June 4, 2022. Ms. Eglinton Manner also joined the OraSure Board of Directors (the "Board"). She succeeded Dr. Nancy Gagliano, who was appointed interim CEO in March 2022. Dr. Gagliano continues to serve on the OraSure Board.

21


Ms. Eglinton Manner, age 48, has years of leadership experience across multiple disciplines. Prior to joining the Company, Ms. Eglinton Manner served as Senior Vice President, Advanced & General Diagnostic and Clinical Solutions at Quest Diagnostics since January 2017. Prior to Quest, Ms. Eglinton Manner spent over 20 years in various leadership roles in healthcare businesses at GE Healthcare. From 2009 through 2016, she served as President & CEO of four distinct GE Healthcare global businesses in the areas of diagnostic imaging, lab services and medical devices. She has served as a director of Repligen Corporation since June 2020. Ms. Eglinton Manner holds a B.S. in mechanical engineering from the University of Notre Dame.

Exploration of Strategic Alternatives

The COVID-19 pandemic has provided us an opportunityMs. Eglinton Manner’s appointment as CEO came in tandem with a decision by the OraSure Board to fundamentally transform into a higher growth, more innovative and efficient organization with broader customer reach, both within and outside the United States. We believe we are well positioned to address current public health challenges and capitalize on diagnostic trends in the market and enhanceconclude its operational and competitive profile. Against this backdrop, our Board of Directors is exploring and evaluating a broad rangepreviously announced review of strategic alternatives and for the Company to move forward under her leadership. Market conditions and the Board’s belief in the Company’s ability to further build upon recent operational successes with Ms. Eglinton Manner’s leadership were factors in the goal of maximizing value for stockholders.decision.

19


There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms.

CEO Recruitment

We have hired an external search firm and are in the process of looking for a permanent full time Chief Executive Officer. Nancy J. Gagliano has been appointed as interim President and CEO by our Board of Directors but is not a candidate for the full-time position.

Current Consolidated Financial Results

During the threesix months ended March 31,June 30, 2022, our consolidated net revenues increased 16%27% to $67.7$147.9 million, compared to $58.6$116.2 million for the threesix months ended March 31,June 30, 2021. Net product and services revenues during the threesix months ended March 31,June 30, 2022 increased 15%29% when compared to the same period of 2021, largely due to the inclusion of $22.1$65.3 million of InteliSwab® COVID-19 rapid test revenues. We began selling this product in August of 2021 resulting in no comparable revenues in the first quarterhalf of 2021. Also contributing to the increase in revenues was higher genomics sales and increased international sales of our HIV product. Declines in sales of our molecular sample collection kits for COVID-19 testing, lower laboratory services revenues, and a decline in domestic sales of our HIV products partially offset thesethis positive driversdriver of revenue. Other revenues for the threesix months ended March 31,June 30, 2022 were $2.5$3.5 million compared to $2.0$3.9 million in the same period of 2021. This increasedecrease was largely due to research and development funding for 510(k) clearance and CLIA waiver of our InteliSwab® COVID-19 rapid test partially offset by lower royalty income.

Our consolidated net loss for the threesix months ended March 31,June 30, 2022 was $20.0$38.8 million, or $(0.28)$0.54 per share on a fully diluted basis, compared to consolidated net income of $3.8$2.4 million, or $0.05$0.03 per share on a fully diluted basis, for the threesix months ended March 31,June 30, 2021. Results for the threesix months ended March 31,June 30, 2022 were impacted by lower gross margins rates caused by an unfavorable product mix of higher sales of lower margin products, increases in inventory reserves associated with excess inventory levels and manufacturing inefficiencies that occurred in the first quarter of 2022, lower absorption of labor costs and the absence of the Gates subsidy which expired in June 2021. Also contributing to our net loss is an increase in operating expense as a result of impairment charges taken in the second quarter of 2022 on idle manufacturing lines and goodwill, severance charges and accelerated stock compensation expense associated with our CEO transition and termination of our general counsel, and nonrecurring costs associated with our strategic alternatives process and our CEO transition.process.

Cash used in operating activities during the threesix months ended March 31,June 30, 2022 was $35.8$45.5 million. Cash used in operating activities during the threesix months ended March 31,June 30, 2021 was $4.4$3.5 million. During the first quarterhalf of 2022, our cash flow used in operating activities increased significantly as a result of our net loss increased receivables due from the U.S government for end of quarter shipments, and increased investment in building InteliSwab® inventory levelsworking capital requirements we scale our InteliSwab® manufacturing capacity to support expectedmeet higher demand. As of March 31,June 30, 2022, we had $112.2$95.8 million in cash, cash equivalents and available-for-sale securities.

Results of Operations

Three months ended March 31,June 30, 2022 compared to March 31,June 30, 2021

CONSOLIDATED NET REVENUES

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the three months ended March 31,June 30, 2022 and 2021.

 

For the Three Months Ended March 31,

 

 

 

For the Three Months Ended June 30,

 

 

 

Dollars

 

 

 

 

Percentage of Total Net Revenues

 

 

 

Dollars

 

 

 

 

Percentage of Total Net Revenues

 

 

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

Diagnostics

 

$

36,396

 

$

13,333

 

173

 

%

 

54

 

%

 

23

 

%

 

$

59,976

 

 

$

18,252

 

 

 

229

 

%

 

 

75

 

%

 

 

32

 

%

Molecular Solutions

 

 

28,840

 

 

 

43,246

 

 

(33

)

 

 

 

43

 

 

 

 

74

 

 

 

 

19,191

 

 

 

37,489

 

 

 

(49

)

 

 

 

24

 

 

 

 

65

 

 

Net product and services revenues

 

65,236

 

56,579

 

15

 

 

 

97

 

 

 

97

 

 

 

 

79,167

 

 

 

55,741

 

 

 

42

 

 

 

 

99

 

 

 

 

97

 

 

Other

 

 

2,471

 

 

 

2,003

 

 

23

 

 

 

 

3

 

 

 

 

3

 

 

 

 

1,064

 

 

 

1,866

 

 

 

(43

)

 

 

 

1

 

 

 

 

3

 

 

Net revenues

 

$

67,707

 

 

$

58,582

 

 

16

 

%

 

 

100

 

%

 

 

100

 

%

 

$

80,231

 

 

$

57,607

 

 

 

39

 

%

 

 

100

 

%

 

 

100

 

%

Consolidated net product and services revenues increased 15%42% to $65.2$79.2 million for the three months ended March 31,June 30, 2022 from $56.6$55.7 million for the three months ended March 31,June 30, 2021. The increase in revenues is largely due to the inclusion of $22.1$43.1 million of InteliSwab® COVID-19 rapid test revenues. We began selling this product in August of 2021 resulting in no comparable revenues in the firstsecond quarter of 2021. Also contributing to the increase in revenues was higher genomics sales and increased international sales of our HIV product. Declines in sales of our molecular sample collection kits for COVID-19 testing and in domestic sales of our HIV products

22


revenues across all other product line partially offset thesethis positive driversdriver of revenue. Other revenues for the three months ended March 31,June 30, 2022 increased 23%decreased 43% to $2.5$1.1 million from $2.0$1.9 million for the three months ended March 31,June 30, 2021 due to lower research and development funding for 510(k) clearance and CLIA waiverassociated with the development of our InteliSwab® COVID-19 rapid test partially offset byand lower royalty income.

20


Consolidated net revenues derived from products sold to customers outside of the United States were $9.7$9.9 million and $9.5$10.0 million, or 14%12% and 16%17% of total net revenues, for the three months ended March 31,June 30, 2022 and 2021, respectively. Because the majority of our international sales are denominated in U.S. dollars, the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues.

Net Revenues by Segment

Diagnostics Segment

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the three months ended March 31,June 30, 2022 and 2021.

 

For the Three Months Ended March 31,

 

 

 

For the Three Months Ended June 30,

 

 

 

Dollars

 

 

 

 

Percentage of Total Net Revenues

 

 

 

Dollars

 

 

 

 

Percentage of Total Net Revenues

 

 

Market

 

2022

 

 

2021

 

 

% Change

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

2021

 

 

% Change

 

 

 

2022

 

 

2021

 

 

Infectious disease testing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COVID-19

 

$

22,136

 

$

-

 

NM

 

%

 

58

 

%

 

0

 

%

 

$

43,114

 

 

$

89

 

 

NM

 

%

 

 

71

 

%

 

 

0

 

%

Other

 

 

11,700

 

 

 

11,371

 

 

3

 

 

30

 

 

 

78

 

 

 

 

14,232

 

 

 

15,534

 

 

 

(8

)

 

 

23

 

 

 

80

 

 

Total infectious disease testing

 

33,836

 

11,371

 

198

 

88

 

78

 

 

 

57,346

 

 

 

15,623

 

 

 

267

 

 

 

95

 

 

 

81

 

 

Substance abuse testing

 

 

2,560

 

 

 

1,962

 

 

30

 

 

 

 

7

 

 

 

 

13

 

 

 

 

2,630

 

 

 

2,629

 

 

 

0

 

 

 

 

4

 

 

 

 

14

 

 

Net product revenues

 

36,396

 

13,333

 

173

 

 

 

95

 

 

 

91

 

 

 

 

59,976

 

 

 

18,252

 

 

 

229

 

 

 

 

99

 

 

 

 

95

 

 

Other

 

 

1,914

 

 

 

1,213

 

 

58

 

 

 

 

5

 

 

 

 

9

 

 

 

 

479

 

 

 

1,059

 

 

 

(55

)

 

 

 

1

 

 

 

 

5

 

 

Net revenues

 

$

38,310

 

 

$

14,546

 

 

163

 

%

 

 

100

 

%

 

 

100

 

%

 

$

60,455

 

 

$

19,311

 

 

 

213

 

%

 

 

100

 

%

 

 

100

 

%

NM - not meaningful

Infectious Disease Testing Market

COVID-19 revenues were $22.1$43.1 million for the three months ended March 31,June 30, 2022, driven by sales of our InteliSwab® COVID-19 rapid test. We first began selling this product in August of 2021 and there are no comparable sales in the firstsecond quarter of 2021.

Sales to the other infectious disease testing markets increased 3%decreased 8% to $11.7$14.2 million for the three months ended March 31,June 30, 2022 from $11.4$15.5 million for the three months ended March 31,June 30, 2021. This increasedecrease resulted from higher internationallower worldwide OraQuick® HIV and world-wideinternational OraQuick® HCV product sales, partially offset by lower domestic OraQuick® HIV sales.

The table below shows a breakdown of our total net OraQuick® HIV and HCV product revenues (dollars in thousands) during the three months ended March 31,June 30, 2022 and 2021.

 

For the Three Months Ended March 31,

 

 

 

For the Three Months Ended June 30,

 

 

Market

 

2022

 

 

2021

 

 

% Change

 

 

 

2022

 

 

2021

 

 

% Change

 

 

Domestic HIV

 

$

3,765

 

$

5,293

 

(29

)

%

 

$

3,741

 

 

$

4,135

 

 

 

(10

)

%

International HIV

 

 

4,401

 

 

 

3,486

 

 

26

 

 

 

6,616

 

 

 

6,809

 

 

 

(3

)

 

Net HIV revenues

 

 

8,166

 

 

 

8,779

 

 

(7

)

 

 

 

10,357

 

 

 

10,944

 

 

 

(5

)

 

Domestic HCV

 

2,036

 

1,182

 

72

 

 

 

2,537

 

 

 

2,571

 

 

 

(1

)

 

International HCV

 

 

1,221

 

 

 

1,184

 

 

3

 

 

 

1,154

 

 

 

1,729

 

 

 

(33

)

 

Net HCV revenues

 

 

3,257

 

 

 

2,366

 

 

38

 

 

 

3,691

 

 

 

4,300

 

 

 

(14

)

 

Net OraQuick® revenues

 

$

11,423

 

 

$

11,145

 

 

2

 

%

 

$

14,048

 

 

$

15,244

 

 

 

(8

)

%

Domestic OraQuick® HIV sales decreased 29%10% to $3.8$3.7 million for the three months ended March 31,June 30, 2022 from $5.3$4.1 million for the three months ended March 31,June 30, 2021, primarily as a result of a large firstsecond quarter 2021 order of our OraQuick® In-Home HIV test shipped to the Center for Disease Control and Prevention ("CDC")CDC and used in an initiative to drive increased in-home HIV testing. A similar order did not occur in the firstsecond quarter of 2022.

International sales of our OraQuick® HIV tests increased 26%decreased 3% to $4.4$6.6 million for the three months ended March 31,June 30, 2022 from $3.5$6.8 million for the three months ended March 31,June 30, 2021 due to customer ordering patterns and increased sales into Africa as the COVID-19 impact lessens. These increases to revenues were partially offset by the absence of the Gates Foundation subsidy which expired in June 2021 and is not included in revenues in the first quarter of 2022.

Domestic OraQuick® HCV sales increased 72% to $2.0 million for the three months ended March 31, 2022 from $1.2 million for the three months ended March 31, 2021, driven by the timing of certain orders which occurred in the firstsecond quarter of 2022, compared toinitial stocking orders into Asia that did not recur in 2022, and the second quarterimpact of 2021.the Russian and Ukraine war. These decline in revenues were partially offset by increased sales into Africa as the COVID-19 impact lessens.

2123


InternationalDomestic OraQuick® HCV sales remained largely flat at $1.2$2.5 million for both the three months ended March 31,June 30, 2022 andcompared to $2.6 million for the three months ended June 30, 2021.

International OraQuick® HCV sales decreased 33 % to $1.2 million for the three months ended June 30, 2022 compared to $1.7 million for the three months ended June 30, 2021 due to a stock order into Korea which did no repeat in 2022.

Substance Abuse Testing Market

Sales to the substance abuse testing assessment market increased 30% toremained flat at $2.6 million for both the three months ended March 31,June 30, 2022 compared to $2.0 million for the three months ended March 31, 2021 due to market share gains.and 2021.

Other Revenues

Other revenues for the three months ended March 31,June 30, 2022 increaseddecreased 55% to $1.9 million$479,000 from $1.2$1.1 million for the three months ended March 31,June 30, 2021, due to lower research and development funding for 510(k) clearance and CLIA waiver ofassociated with our InteliSwab® COVID-19 rapid test partially offset by lower royalty income.test.

Molecular Solutions Segment

The table below shows a breakdown of our total net revenues (dollars in thousands) during the three months ended March 31,June 30, 2022 and 2021.

 

For the Three Months Ended March 31,

 

 

 

For the Three Months Ended June 30,

 

 

Market

Market

2022

 

 

2021

 

 

% Change

 

 

Market

2022

 

 

2021

 

 

% Change

 

 

Genomics

 

$

15,093

 

$

10,818

 

40

 

%

 

$

15,486

 

 

$

19,498

 

 

 

(21

)

%

Microbiome

 

1,990

 

1,751

 

14

 

 

 

 

1,832

 

 

 

2,447

 

 

 

(25

)

 

COVID-19

 

8,896

 

27,972

 

(68

)

 

 

 

264

 

 

 

11,981

 

 

 

(98

)

 

Laboratory services

 

1,733

 

2,497

 

(31

)

 

 

 

1,204

 

 

 

3,114

 

 

 

(61

)

 

Other product and service revenues

 

 

1,128

 

 

 

208

 

 

442

 

 

 

 

405

 

 

 

449

 

 

 

(10

)

 

Net molecular product and services revenues

 

$

28,840

 

43,246

 

(33

)

 

 

$

19,191

 

 

 

37,489

 

 

 

(49

)

 

Other

 

 

557

 

 

 

790

 

 

(29

)

 

 

 

585

 

 

 

807

 

 

 

(28

)

 

Net molecular revenues

 

$

29,397

 

 

$

44,036

 

 

(33

)

%

 

$

19,776

 

 

$

38,296

 

 

 

(48

)

%

Sales of our genomics products increased 40%decreased 21% to $15.1$15.5 million for the three months ended March 31,June 30, 2022, compared to $10.8$19.5 million for the three months ended March 31,June 30, 2021, as result of increased sales to several commercial customers due to customer ordering patterns, organic growth, and a return to pre-COVID-19 ordering levels.patterns.

Microbiome kit sales increased 14% to $2.0 million for the three months ended March 31, 2022 compareddecreased 25% to $1.8 million for the three months ended March 31,June 30, 2022 compared to $2.4 million for the three months ended June 30, 2021, due to lower sales to certain Clinical Research Organizations ("CROs") as the company has expanded the numbera result of customers anddelays in microbiome clinical research studies it is supporting.studies.

Sales of our molecular sample collection kits for COVID-19 testing decreased 68%98% to $8.9 million$264,000 for the three months ended March 31,June 30, 2022 compared to $28.0$12.0 million during the comparable period in 2021 due to lower COVID-19 PCR testing sales to our core customers, driven by the availability of antigen tests, the wider availability of vaccines and high inventory levels held by some of those customers.customers and the termination of public funding for PCR testing.

Laboratory services revenues declined 31%61% to $1.7$1.2 million for the three months ended March 31,June 30, 2022 compared to $2.5$3.1 million for the three months ended March 31,June 30, 2021 as the business continues to be impacted by delays ina result of a large customer clinical trialsceasing its operations and due to COVID-19.timing of clinical trials.

Other product and service revenues increased 442% to $1.1 million forremained largely unchanged at $405,000 in the three months ended March 31,second quarter of 2022 compared to $208,000 for$449,000 in the three months ended March 31, 2021 largely due to increased sales by our Novosanis subsidiary.second quarter of 2021.

Other revenues for the three months ended March 31,June 30, 2022 decreased 29%28% to $557,000$585,000 from $790,000$807,000 for the three months ended March 31,June 30, 2021, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

Consolidated gross profit margins were 36%34% for the three months ended March 31,June 30, 2022 compared to 65%53% for the three months ended March 31,June 30, 2021. The decrease in gross profit margins was primarily due to a less favorable product mix and increased scrap expense lower absorption of labor, and no subsidiesassociated with reserves for the international sale of our HIV Self-Test under the charitable support agreement with the Gates Foundation which expired in June 2021.excess inventory.

Consolidated operating loss for the three months ended March 31,June 30, 2022 was $16.0$21.3 million, a $26.4$23.1 million decrease from the $10.4$1.8 million operating income reported for the three months ended March 31,June 30, 2021. Results for the three months ended March 31,June 30, 2022 were negatively impacted by the

24


lower gross profit margin described above coupled with an increase in operating expenses as described below.

22


below, including an aggregate impairment charge of $10.5 million.

OPERATING INCOME (LOSS) BY SEGMENT

We evaluate performance of our operating segments based on revenue and operating income. Reportable segments have no inter-segment revenue and inter-segment expenses are eliminated in consolidation, including the fees associated with an intercompany service agreement between the U.S. and Canadian entities.

Diagnostics Segment

The gross profit margin for the Diagnostics segment was 19%36% for the three months ended March 31,June 30, 2022 compared to 43%34% for the three months ended March 31,June 30, 2021. This decreaseincrease is due to inefficiencies in our InteliSwab® manufacturing process including high scrap rates at the beginning of 2022 and under-absorption of labor costs as well a less favorableimproved product mix andof higher margin product sales partially offset by the June 2021 expiration of subsidies under the support agreement with the Gates Foundation. The inefficiencies in our InteliSwab® manufacturing process were largely corrected by the end of the first quarter of 2022.

Research and development expenses decreased 16%increased 26% to $5.5$6.3 million for the three months ended March 31,June 30, 2022 compared to $5.0 million for the three months ended June 30, 2021 largely due to increased staffing costs associated with higher head count, increased clinical study activities related to obtaining CE mark for our InteliSwab® rapid test and higher subscription costs associated with our new quality system. Sales and marketing expenses increased 19% to $7.8 million for three months ended June 30, 2022 from $6.6 million for the three months ended March 31,June 30, 2021 largely due to clinical study activities in the first quarter of 2021 related to our InteliSwab® rapid test which did not repeat in the first quarter of 2022 as we received EUA authorization in June 2021. Sales and marketing expenses increased 30% to $8.1 million for three months ended March 31, 2022 from $6.2 million for the three months ended March 31, 2021 due to an increase in spend associated with our InteliSwab® test, increased staffing costs associated with higher head count and increased travel, trade show, and annual meetings expenses as travel hasand in person events have resumed as COVID-19 restrictions have been lifted. These increases in spend were partially offset by a decline in reserves for uncollectible accountsadvertising and market research costs associated with our InteliSwab.® test. General and administrative expenses increased 112%54% to $13.7$11.0 million for the three months ended March 31,June 30, 2022 from $6.4$7.1 million for the three months ended March 31,June 30, 2021 largely due to severance costs and accelerated stock compensation expense associated with our former general counsel's employment and termination agreements, stock compensation costs associated with restricted stock awards granted to certain board members with immediate vesting provisions, and higher legal, accounting, and information technologies contract fees.

Operating expenses for the Diagnostic segment also include an impairment charge of $4.9 million associated with an idle manufacturing line for which it has no projected cash flow and minimal resale or salvage value. Diagnostic operating expenses also included a goodwill impairment charge of $3.6 million. The decline in the Company's stock price was identified as a triggering event which required the Company to perform an quantitative goodwill impairment analysis. The results of this analysis indicated the Diagnostic segment's goodwill was impaired and was written down to $0.

All of the above contributed to the Diagnostics segment’s operating loss of $11.8 million for the three months ended June 30, 2022, which included the non-cash impairment charges of $8.5 million, non-cash charges of $1.9 million for depreciation and amortization and $2.8 million for stock-based compensation. The Diagnostics segment operating loss in the second quarter of 2021 included a $220,000 non-cash pre-tax benefit associated with the change in the fair value of acquisition-related contingent consideration. There was no similar benefit recorded in the second quarter of 2022.

Molecular Solutions Segment

The gross profit margin for the Molecular Solutions segment was 31% for the three months ended June 30, 2022 compared to 63% for the three months ended June 30, 2021. This decrease was due to an increase in reserves for excess inventory as result of a forecasted decline in demand of certain products used in COVID PCR testing and a less favorable product mix.

Research and development expenses remained relatively flat at $2.8 for the three months ended June 30, 2022 from $2.7 million for the three months ended June 30, 2021 . Sales and marketing expenses also remained flat at $3.9 million for the three months ended June 30, 2022 and 2021. General and administrative expenses increased 70% to $6.6 million for the three months ended June 30, 2022 from $3.9 million for the three months ended June 30, 2021 due to increased legal fees.

Operating expenses for the Molecular segment also include an impairment charge of $2.0 million for the three months ended June 30, 2022 associated with two idle manufacturing lines for which there are no projected cash flow and minimal resale or salvage value.

All of the above contributed to the Molecular Solutions segment’s operating loss of $9.5 million for the three months ended June 30, 2022, which included the non-cash impairment charge of $2.0 million, non-cash charges of $1.9 million for depreciation and amortization and $529,000 for stock-based compensation.

CONSOLIDATED INCOME TAXES

25


We continue to believe the full valuation allowance established against our total U.S. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed. For the three months ended June 30, 2022, we recorded U.S. state tax expense of $183,000 compared to $54,000 of state income tax benefit for the three months ended June 30, 2021. For the three months ended June 30, 2022, we recorded a foreign tax benefit of $1.3 million compared to foreign tax expense of $3.7 million for the three months ended June 30, 2021. This overall decrease in foreign tax expense is largely a result of the decrease in income before taxes generated by our Canadian subsidiary.

Six months ended June 30, 2022 compared to June 30, 2021

CONSOLIDATED NET REVENUES

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the six months ended June 30, 2022 and 2021.

 

 

For the Six Months Ended June 30,

 

 

Dollars

 

 

 

 

 

Percentage of Total Net Revenues

 

 

 

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

 

2021

 

 

Diagnostics

 

$

96,372

 

 

$

31,585

 

 

 

205

 

%

 

65

 

%

 

 

27

 

%

Molecular Solutions

 

 

48,031

 

 

 

80,735

 

 

 

(41

)

 

 

33

 

 

 

 

69

 

 

Net product and services revenues

 

 

144,403

 

 

 

112,320

 

 

 

29

 

 

 

98

 

 

 

 

96

 

 

Other

 

 

3,535

 

 

 

3,869

 

 

 

(9

)

 

 

2

 

 

 

 

4

 

 

Net revenues

 

$

147,938

 

 

$

116,189

 

 

 

27

 

%

 

100

 

%

 

 

100

 

%

Consolidated net product and services revenues increased 29% to $144.4 million for the six months ended June 30, 2022 from $112.3 million for the six months ended June 30, 2021. The increase in revenues is largely due to the inclusion of $65.3 million of InteliSwab® COVID-19 rapid test revenues. We began selling this product in August of 2021 resulting in no comparable revenues in the first half of 2021. Declines in sales of our molecular sample collection kits for COVID-19 testing partially offset this positive driver of revenue. Other revenues for the six months ended June 30, 2022 decreased 9% to $3.5 million from $3.9 million for the six months ended June 30, 2021 largely due to lower royalty income.

Consolidated net revenues derived from products sold to customers outside of the United States were $19.6 million and $19.5 million, or 13% and 17% of total net revenues, for the six months ended June 30, 2022 and 2021, respectively. Because the majority of our international sales are denominated in U.S. dollars, the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues.

Net Revenues by Segment

Diagnostics Segment

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the six months ended June 30, 2022 and 2021.

 

 

For the Six Months Ended June 30,

 

 

 

 

Dollars

 

 

 

 

 

 

Percentage of Total Net Revenues

 

 

Market

 

2022

 

 

2021

 

 

% Change

 

 

 

2021

 

 

 

2020

 

 

Infectious disease testing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COVID-19

 

$

65,250

 

 

$

262

 

 

NM

 

%

 

 

66

 

%

 

 

0

 

%

Other

 

 

25,931

 

 

 

26,732

 

 

 

(3

)

 

 

 

25

 

 

 

 

79

 

 

Total infectious disease testing

 

 

91,181

 

 

 

26,994

 

 

 

238

 

 

 

 

92

 

 

 

 

80

 

 

Substance abuse testing

 

 

5,191

 

 

 

4,591

 

 

 

13

 

 

 

 

5

 

 

 

 

14

 

 

Net product revenues

 

 

96,372

 

 

 

31,585

 

 

 

205

 

 

 

 

97

 

 

 

 

94

 

 

Other

 

 

2,393

 

 

 

2,272

 

 

 

5

 

 

 

 

3

 

 

 

 

6

 

 

Net revenues

 

$

98,765

 

 

$

33,857

 

 

 

192

 

%

 

 

100

 

%

 

 

100

 

%

NM - not meaningful

Infectious Disease Testing Market

COVID-19 revenues were $65.3 million for the six months ended June 30, 2022, driven by sales of our InteliSwab® COVID-19 rapid test. We first began selling this product in August of 2021 and there are no comparable sales in the first half of 2021.

26


Sales to the other infectious disease testing markets decreased 3% to $25.9 million for the six months ended June 30, 2022 from $26.7 million for the six months ended June 30, 2021. This decrease resulted from lower domestic OraQuick® HIV and international OraQuick® HCV product sales, partially offset by higher international OraQuick® HIV and domestic OraQuick® HCV sales.

The table below shows a breakdown of our total net OraQuick® HIV and HCV product revenues (dollars in thousands) during the six months ended June 30, 2022 and 2021.

 

 

Six Months Ended June 30,

 

 

Market

 

2022

 

 

2021

 

 

% Change

 

 

Domestic HIV

 

$

7,506

 

 

$

9,050

 

 

 

(17

)

%

International HIV

 

 

11,017

 

 

 

10,672

 

 

 

3

 

 

Net HIV revenues

 

 

18,523

 

 

 

19,722

 

 

 

(6

)

 

Domestic HCV

 

 

4,574

 

 

 

3,754

 

 

 

22

 

 

International HCV

 

 

2,374

 

 

 

2,914

 

 

 

(19

)

 

Net HCV revenues

 

 

6,948

 

 

 

6,668

 

 

 

4

 

 

Net OraQuick® revenues

 

$

25,471

 

 

$

26,390

 

 

 

(3

)

%

Domestic OraQuick® HIV sales decreased 17% to $7.5 million for the six months ended June 30, 2022 from $9.1 million for the six months ended June 30, 2021, primarily as a result of a large order fulfilled in the first half of 2021 for our OraQuick® In-Home HIV test shipped to the CDC and used in an initiative to drive increased in-home HIV testing. A similar order did not occur in the first half of 2022.

International sales of our OraQuick® HIV tests increased 3% to $11.0 million for the six months ended June 30, 2022 from $10.7 million for the six months ended June 30, 2021 due to increased sales into Africa as the COVID-19 impact lessens. This increase to revenues was partially offset by the absence of the Gates Foundation subsidy, which expired in June 2021 and is not included in revenues in the first quarter of 2022, as well as the impact of the Russia and Ukraine war.

Domestic OraQuick® HCV sales increased 22% to $4.6 million for the six months ended June 30, 2022 from $3.8 million for the six months ended June 30, 2021, driven by new funding granted by certain state governments, increased legislation regarding drug testing and rise in drug use requiring more testing.

International OraQuick® HCV sales decreased 19% to $2.4 million for the six months ended June 30, 2022 from $2.9 million for the six months ended June 30, 2021 due to large stock ordering shipped to Korea that did not repeat in 2022.

Sales to the substance abuse testing assessment market increased 13% to $5.2 million for the six months ended June 30, 2022 compared to $4.6 million for the six months ended June 30, 2021 due to market share gains.

Other Revenues

Other revenues for the six months ended June 30, 2022 increased minimally to $2.4 million from $2.3 million for the six months ended June 30, 2021, due to research and development funding for 510(k) clearance and CLIA waiver of our InteliSwab® COVID-19 rapid test partially offset by lower royalty income.

Molecular Solutions Segment

The table below shows a breakdown of our total net revenues (dollars in thousands) during the six months ended June 30, 2022 and 2021.

 

 

Six Months Ended June 30,

 

 

Market

2022

 

 

2021

 

 

% Change

 

 

Genomics

 

$

30,578

 

 

$

30,316

 

 

 

1

 

%

Microbiome

 

 

3,822

 

 

 

4,198

 

 

 

(9

)

 

COVID-19

 

 

9,161

 

 

 

39,953

 

 

 

(77

)

 

Laboratory services

 

 

2,938

 

 

 

5,611

 

 

 

(48

)

 

Other product revenues

 

 

1,532

 

 

 

657

 

 

 

133

 

 

Net molecular product and services revenues

 

$

48,031

 

 

$

80,735

 

 

 

(41

)

 

Other

 

 

1,142

 

 

 

1,597

 

 

 

(28

)

 

Net molecular product and services revenues

 

$

49,173

 

 

$

82,332

 

 

 

(40

)

%

27


Sales of our genomics products remained largely flat and increased only 1% to $30.6 million for the six months ended June 30, 2022, compared to $30.3 million for the six months ended June 30, 2021.

Microbiome kit sales decreased 9% to $3.8 million for the six months ended June 30, 2022 compared to $4.2 million for the six months ended June 30, 2021, due to a decline in revenues to CROs driven by the timing of microbiome clinical studies.

Sales of our molecular sample collection kits for COVID-19 testing decreased 77% to $9.2 million for the six months ended June 30, 2022 compared to $40.0 million during the comparable period in 2021 due to lower COVID-19 PCR testing sales to our core customers, driven by the availability of antigen tests, the wider availability of vaccines, lower public funding for PCR testing, and high inventory levels held by some of those customers.

Laboratory services revenues declined 48% to $2.9 million for the six months ended June 30, 2022 compared to $5.6 million for the six months ended June 30, 2021 as a result of a large customer ceasing its operations and a slowdown in clinical trials.

Other product and service revenues increased 133% to $1.5 million for the six months ended June 30, 2022 compared to $657,000 for the six months ended June 30, 2021 largely due to increased sales by our Novosanis subsidiary.

Other revenues for the six months ended June 30, 2022 decreased 28% to $1.1 million from $1.6 million for the six months ended June 30, 2021, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

Consolidated gross profit margins were 35% for the six months ended June 30, 2022 compared to 59% for the six months ended June 30, 2021. The decrease in gross profit margins was caused by an unfavorable product mix of higher sales of lower margin product, increases in inventory reserves associated with excess inventory levels and manufacturing inefficiencies that occurred in the first quarter of 2022, lower absorption of labor costs and the absence of the Gates subsidy which expired in June 2021.

Consolidated operating loss for the six months ended June 30, 2022 was $37.3 million, a $49.5 million decrease from the $12.2 million operating income reported for the six months ended June 30, 2021. Results for the six months ended June 30, 2022were negatively impacted by the lower gross profit margin described above coupled with an increase in operating expenses as described below, including an aggregate impairment charge of $10.5 million.

OPERATING INCOME (LOSS) BY SEGMENT

We evaluate performance of our operating segments based on revenue and operating income. Reportable segments have no inter-segment revenue and inter-segment expenses are eliminated in consolidation, including the fees associated with an intercompany service agreement between the U.S. and Canadian entities.

Diagnostics Segment

The gross profit margin for the Diagnostics segment was 29% for the six months ended June 30, 2022 compared to 38% for the six months ended June 30, 2021.This decrease is due to inefficiencies in our InteliSwab® manufacturing process experienced in the beginning of the year causing high scrap rates, under-absorption of labor costs, and the June 2021 expiration of subsidies under the support agreement with the Gates Foundation, and a less favorable product mix.

Research and development expenses increased 2% to $11.8 million for the six months ended June 30, 2022 compared to $11.5 million for the six months ended June 30, 2021 largely due to higher staffing costs associated with increased head count offset by lower product development activities related to our InteliSwab® rapid test which did not repeat in the first half of 2022 as we received EUA authorization in June 2021. Sales and marketing expenses increased 25% to $15.9 million for six months ended June 30, 2022 from $12.8 million for the six months ended June 30, 2021 due to increased staffing costs associated with higher head count, increased travel and annual meetings expenses as travel and in person events have resumed as COVID-19 restrictions have been lifted, increased consultant costs, higher advertising and market research expenses and higher subscription costs associated with our new CRM system. This increase in spending was partially offset by a decline in our reserve for uncollectible accounts, lower recruiting fees and a decrease in commission expense. General and administrative expenses increased 82% to $24.7 million for the six months ended June 30, 2022 from $13.6 million for the six months ended June 30, 2021 largely due to increased consulting costs, higher stock compensation expense associated with accelerated vesting of shares under our former CEO's and general counsel's employment agreement, increased legal costs,agreements, higher staffing costs associated with increased head count, increased legal costs, severance costs associated with our former general counsel, increased accounting fees, and higher recruitment expense largely associated with our CEO search.

28


Operating expenses for the Diagnostic segment also include an impairment charge of $4.9 million associated with an idle manufacturing line for which it has no projected cash flow and minimal resale or salvage value. Diagnostic operating expenses also included a goodwill impairment charge of $3.6 million. The decline in the Company's stock price was identified as a triggering event which required the Company to perform an quantitative goodwill impairment analysis. The results of this analysis indicated the Diagnostic segment's goodwill was impaired and was written down to $0.

All of the above contributed to the Diagnostics segment’s operating loss of $19.8$31.6 million for the threesix months ended March 31,June 30, 2022, which included the non-cash impairment charge of $8.5 million, non-cash charges of $1.7$3.6 million for depreciation and amortization and $3.1$5.9 million for stock-based compensation. The Diagnostics segment operating loss also included a non-cash pre-tax benefit of $36,000 associated with the change in the fair value of acquisition-related contingent consideration. This is in comparison to an $806,000$1.0 million benefit recorded in the first quarterhalf of 2021.

Molecular Solutions Segment

The gross profit marginsmargin for the Molecular Solutions segment was 58%47% for the threesix months ended March 31,June 30, 2022 compared to 73%68% for the threesix months ended March 31,June 30, 2021. This decrease was due to an increase in reserves for excess inventory as result of a forecasted decline in demand and a less favorable product mix.

Research and development expenses increased 20%11% to $2.9$5.7 million for the threesix months ended March 31,June 30, 2022 from $2.4$5.1 million for the threesix months ended March 31,June 30, 2021 due to higher staffing costs. Sales and marketing expenses increased 39%18% to $4.6$8.5 million for the threesix months ended March 31,June 30, 2022 from $3.3$7.2 million for the threesix months ended March 31,June 30, 2021 due to higher staffing costs related to increased head count, increased consulting expense associated with business strategy planning, and an increase in our reserve for uncollectible accounts.travel costs as COVID-19 restrictions are lifted. These increases in expenses were partially offset by lower amortization expense associated with an intangible asset that was fully amortized at the end of 2021. General and administrative expenses increased 47%58% to $5.5$12.1 million for the threesix months ended March 31,June 30, 2022 from $3.7$7.6 million for the threesix months ended March 31,June 30, 2021 due to increased legal fees and staffing costs.

Operating expenses for the Molecular segment also includes an impairment charge of $2.0 million for the six months ended June 30, 2022 associated with two idle manufacturing lines for which there are no projected cash flow and minimal resale or salvage value.

All of the above contributed to the Molecular Solutions segment’s operating incomeloss of $3.8$5.7 million for the threesix months ended March 31,June 30, 2022, which included the non-cash impairment charge of $2.0 million, $3.8 million for depreciation and amortization and $396,000$924,000 for stock-based compensation.

CONSOLIDATED INCOME TAXES

We continue to believe the full valuation allowance established against our total U.S. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed. For the threesix months ended March 31,June 30, 2022, we recorded U.S. state tax expense of $216,000$400,000 compared to $169,000$115,000 of state income tax expense for the threesix months ended March 31,June 30, 2021. Additionally, in the first quarterhalf of 2022, we recorded approximately $1.7 million of withholding taxes due to the Canada Revenue Agency associated with our repatriation of $65.0 million of cash from Canada to the United States. For the threesix months ended March 31,June 30, 2022, we recorded foreign tax expense of $2.0 million$665,000 compared to foreign tax expense of $6.4$10.0 million for the threesix months ended March 31,June 30, 2021. This overall decrease in foreign tax expense is largely a result of the decrease in income before taxes generated by our Canadian subsidiary.

23


Liquidity and Capital Resources

 

March 31,

 

 

December 31,

 

 

June 30,

 

 

December 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(In thousands)

 

 

(In thousands)

 

Cash and cash equivalents

 

$

70,721

 

$

116,762

 

 

$

66,159

 

 

$

116,762

 

Available for sale securities

 

41,503

 

53,288

 

 

 

29,625

 

 

 

53,288

 

Working capital

 

212,777

 

220,367

 

 

 

201,820

 

 

 

220,367

 

Our cash and cash equivalents and available-for-sale securities decreased to $112.2$95.8 million at March 31,June 30, 2022 from $170.1 million at December 31, 2021. Our working capital decreased to $212.8$201.8 million at March 31,June 30, 2022 from $220.4 million at December 31, 2021.

During the threesix months ended March 31,June 30, 2022, net cash used in operating activities was $35.8$45.5 million. Our net loss of $20.0$38.8 million included non-cash charges forof $10.5 million associated with impairment charges taken against idle manufacturing lines and goodwill, depreciation and amortization expense of $3.7$7.5 million, stock-based compensation expense of $3.5$6.8 million, an inventory reserve of $1.1$2.0 million, and other non-cash expense of $1.5$1.2 million. Cash used to fund our working capital accounts included an increase in inventory of $20.4 million to meet

29


anticipated demand to support COVID-19 testing program, an increase in accounts receivable of $15.3$18.6 million largely associated with end of the quarter shipments of product shipped to the U.S. government, ana $4.1 million increase in inventory of $9.4 millionprepaid expenses and other assets associated with tax installments made to meet anticipated demand to support COVD-19 testing programs,the Canadian Revenue Agency and a $4.6$2.9 million decrease in accrued expenses and other liabilities largely due to payment of our 2021 bonuses.bonuses and severance payments to our former CEO. Offsetting these uses of cash was a $4.4$11.9 million increase in accounts payable due to the timing of invoices received and payments made.

Net cash used in investing activities was $9.9$2.3 million for the threesix months ended March 31,June 30, 2022, which reflects proceeds from the maturities and redemptions of investments of $12.1$23.0 million. This was offset by $20.2$25.4 million to acquire property and equipment largely to increase our manufacturing capacity. Cash used in investing activities also reflects net cash used of $1.8 million to build additional manufacturing capacity as required by our $109 million agreement with the U.S. Department of Defense (the “DOD”), which is expected to be reimbursed in the second quarter of 2022.

Net cash used in financing activities was $1.4$2.5 million for the threesix months ended March 31,June 30, 2022, which is largely comprised of $1.0$2.0 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to our employees.

We expect current balances of cash and cash equivalents and available-for-sale securities to be sufficient to fund our current and foreseeable operating and capital needs.needs as well as those arising over the next twelve months. Our cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the timing of reimbursement under our $109 million DOD contract, the scope and timing of future strategic acquisitions, the progress of our research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures, changes in existing and potential relationships with business partners, the timing and cost of obtaining regulatory approvals, the timing and cost of future stock purchases, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, market acceptance of new products, competing technological and market developments, the impact of the current economic environment and other factors. In addition, $72.7$74.7 million or 65%78% of our $112.2$95.8 million in cash, cash equivalents and available-for-sale securities belongs to our Canadian subsidiary. In the first quarter of 2022, we repatriated $65.0 million of cash from Canada into the United States and incurred approximately $1.7 million of Canadian withholding tax. Further repatriation of cash from Canada into the United States could have additional adverse tax consequences. It is our intention going forward to continue to permanently reinvest the historical undistributed earnings of our foreign subsidiaries.

A summary of our obligations to make future payments under contracts existing at December 31, 2021 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2021. As of March 31,June 30, 2022, there were no significant changes to this information.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our judgments and estimates, including those related to the bad debts, customer sales returns, inventories, intangible assets, income taxes, revenue recognition, performance-based compensation, contingencies and litigation. We base our judgments and estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. During the first three months of 2022, there wereExcept as presented below, no material changes have been made to oursuch critical accounting policies.policies during the six months ended June 30, 2022.

Goodwill

Goodwill is not amortized, but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Current generally accepted accounting principles permit us to make a qualitative evaluation about the likelihood of goodwill impairment and If it is determined that it is more likely than not that the fair value does not exceed the carrying amount, then a quantitative test is performed. The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount. An impairment charge is recognized in the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists, and, if necessary, the estimation of the fair value of the applicable reporting unit.
 

24

30


.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item.

As of March 31,June 30, 2022, we did not have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows. Sales denominated in foreign currencies comprised 5.1%3.5% of our total revenues for the threesix months ended March 31,June 30, 2022. We do have foreign currency exchange risk related to our operating subsidiaries in Canada and in Belgium. The principal foreign currencies in which we conduct business are the Canadian dollar and the Euro. Fluctuations in the exchange rate between the U.S. dollar and these foreign currencies could affect year-to-year comparability of operating results and cash flows. Our foreign subsidiaries had net assets, subject to translation, of $139.4$130.9 million in U.S. Dollars, which are included in the Company’s consolidated balance sheet as of March 31,June 30, 2022. A 10% unfavorable change in the Canadian-to-U.S. dollar and Euro-to-U.S. dollar exchange rates would have decreased our comprehensive income by approximately $13.9$13.1 million in the threesix months ended March 31,June 30, 2022.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of March 31,June 30, 2022. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure controls and procedures were effective as of March 31,June 30, 2022 to provide reasonable assurance that material information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 was accumulated and communicated to the Company’s management, including the Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosure and was recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b) Changes in Internal Control Over Financial Reporting. There was no change in the Company’s internal control over financial reporting that occurred during the three months ended March 31,June 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

From time to time, we are involved in certain legal actions arising in the ordinary course of business. In management’s opinion, based upon the advice of counsel, the outcomes of such actions are not expected, individually or in the aggregate, to have a material adverse effect on our future financial position or results of operations.

Spectrum Patent Litigation

In March 2021, we filed a complaint against Spectrum Solutions, LLC ("Spectrum") in the United States District Court for the Southern District of California alleging that certain saliva collection devices manufactured and sold by Spectrum infringe a patent held by DNAG. Spectrum has filed an answer to the initial complaint, asserting that its device does not infringe our patent and that our patent is invalid. In August 2021, we amended our complaint to add a second patent to this litigation. Spectrum responded to our amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation. DNAG filed a motion to dismiss Spectrum’s counterclaims in October 2021, which was denied by the Court on March 30, 2022. On April 8, 2022, the Court assigned a new judge to preside over the matter, which vacated all dates for the trial. We await new dates to be set by the Court.

Item 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A, entitled “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2021.2021, other than as set forth below.

Customer Concentration Creates Risk for Our Business.



One non-commercial customer accounted for 56% and 39% of net consolidated revenues for the three and six months ended June 30, 2022. We

25

31


expect that sales to the large non-commercial customer will continue to be a significant contributor to our net consolidated revenue. Certain parts of our business may continue to have a high customer concentration and depend disproportionately on a few large customers. To the extent that such a large customers fail to meet their purchase commitments, change their ordering patterns or business strategies, or otherwise reduce their purchases or stop purchasing our products, or if we experience difficulty in meeting the high demand by these larger customers for our products, our revenues and results of operations could be adversely affected.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period

 

Total number of
shares purchased

 

 

 

Average price
paid per Share

 

 

Total number of
shares purchased
as part of publicly
announced plans
or programs

 

 

Maximum number (or
approximate dollar value)
of shares that may yet be
repurchased under the plans
or programs
(1, 2)

 

January 1, 2022 - January 31, 2022

 

 

 

(3)

 

$

 

 

 

 

 

 

11,984,720

 

February 1, 2022 - February 28, 2022

 

 

116,149

 

(3)

 

 

8.86

 

 

 

 

 

 

11,984,720

 

March 1, 2022 - March 31, 2022

 

 

636

 

 

 

 

6.92

 

 

 

 

 

 

11,984,720

 

 

 

 

116,785

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total number of
shares purchased

 

 

 

Average price
paid per Share

 

 

Total number of
shares purchased
as part of publicly
announced plans
or programs

 

 

Maximum number (or
approximate dollar value)
of shares that may yet be
repurchased under the plans
or programs
(1, 2)

 

April 1, 2022 - April 30, 2022

 

 

107,316

 

(3)

 

$

7.08

 

 

 

 

 

 

11,984,720

 

May 1, 2022 - May 31, 2022

 

 

21,979

 

(3)

 

 

5.17

 

 

 

 

 

 

11,984,720

 

June 1, 2022 - June 30, 2022

 

 

12,311

 

 

 

 

3.83

 

 

 

 

 

 

11,984,720

 

 

 

 

141,606

 

 

 

 

 

 

 

 

 

 

 

(1)
On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $25.0 million of outstanding shares. This share repurchase program may be discontinued at any time.
(2)
This column represents the amount that remains available under the $25.0 million repurchase plan, as of the period indicated. We have made no commitment to purchase any shares under this plan.
(3)
Pursuant to the OraSure Technologies, Inc. Stock Award Plan, and in connection with the vesting of restricted and performance shares, these shares were retired to satisfy minimum tax withholdings.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

Item 4. MINE SAFETY DISCLOSURES

Not applicable

Item 5. OTHER INFORMATION

None

2632


Item 6. EXHIBITS

Exhibit

Number

 

Exhibit

  10.1**

Transition Agreement dated as of January 2, 2022, betweenAmended and Restated OraSure Technologies, Inc. and Stephen S. Tang, Ph.D.2000 Stock Award Plan is incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed January 6,May 18, 2022.

  10.2**

Employment Agreement dated as of March 21,May 20, 2022, between OraSure Technologies, Inc. and Nancy J. Gagliano, M.D., M..B.A.Carrie Eglinton-Manner is incorporated by reference to ItemExhibit 10.1 to the Company's Current Report on Form 8-K Filed on March 23,filed May 26, 2022.

   10.3

Industrial Lease between Core5 at Laughman Farms Phase 1, LLC as Landlord and OraSure Technologies, Inc. as Tenant, dated January 3, 2022, is incorporated by reference to Exhibit 10.30 to the Company's Annual Report on form 10-K filed March 1, 2022.

  31.1*

Certification of Nancy J. Gagliano, M.D., M.B.A.Carrie Eglinton-Manner required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

  31.2*

Certification of Scott Gleason required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.

  32.1*+

Certification of Nancy J. Gagliano, M.D., M.B.A.Carrie Eglinton-Manner required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2*+

Certification of Scott Gleason a required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

Inline 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.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104

Cover Page from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2021 has been formatted in Inline XBRL

*Filed herewith

** Management contract or compensatory plan or arrangement.

+This certification is deemed not filed for purposes of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

2733


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.

ORASURE TECHNOLOGIES, INC.

/s/ Scott Gleason

Date: May 10,August 9, 2022

Scott Gleason

Interim Chief Financial OfficerSenior Vice President, Investor Relations and Corporate Communications

(Principal Financial Officer)

/s/Michele M. Miller

Date: May 10,August 9, 2022

Michele M. Miller

Senior Vice President, Controller and Chief Accounting Officer

(Principal Accounting Officer)

2834