ou
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 June 30,March 31, 20222023.
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 August 5, 2022,May 3, 2023, the registrant had 72,619,05573,262,370 shares of common stock, $.000001$0.000001 par value per share, outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings/losses per share, net income (loss), expenses, cash flow or other financial performance, or developments, clinical trial or development activities, expected regulatory filings and approvals, planned business transactions, 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:
These and other factors that could affect our results are discussed more fully under the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, if any, in Part I, Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 3, 2023, and in other SEC filings. 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, unless we are required to do so by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make updates with respect to other forward-looking statements or that we will make any further updates to those forward-looking statements at any future time.
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.
PART I. FINANCIAL INFORMATION
Page | |
Item 1. Financial Statements (Unaudited) | |
Consolidated Balance Sheets at | 3 |
4 | |
5 | |
6 | |
7 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
| |
PART II. OTHER INFORMATION | |
| |
| |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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| |
| |
| |
| |
|
Item 1. FINANCIAL STATEMENTS
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
| June 30, 2022 |
|
| December 31, 2021 |
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
| ||||
Current Assets: |
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents | $ | 66,159 |
|
| $ | 116,762 |
| $ | 90,194 |
|
| $ | 83,980 |
|
Short-term investments |
| 29,625 |
|
|
| 36,279 |
|
| 22,178 |
|
|
| 26,867 |
|
Accounts receivable, net of allowance for doubtful accounts of $3,222 and $3,418 |
| 62,886 |
|
|
| 45,323 |
| |||||||
Accounts receivable, net of allowance of $2,297 and $2,365 |
| 107,445 |
|
|
| 70,797 |
| |||||||
Inventories |
| 71,304 |
|
|
| 53,138 |
|
| 77,189 |
|
|
| 95,704 |
|
Prepaid expenses |
| 5,477 |
|
|
| 7,939 |
|
| 6,161 |
|
|
| 6,273 |
|
Other current assets |
| 31,855 |
|
|
| 28,990 |
|
| 40,428 |
|
|
| 41,569 |
|
Total current assets |
| 267,306 |
|
|
| 288,431 |
|
| 343,595 |
|
|
| 325,190 |
|
Noncurrent Assets: |
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment, net |
| 93,697 |
|
|
| 88,164 |
| |||||||
Property, plant and equipment, net of accumulated depreciation of $72,400 and $69,881 |
| 57,343 |
|
|
| 59,413 |
| |||||||
Operating right-of-use assets, net |
| 16,451 |
|
|
| 9,056 |
|
| 9,922 |
|
|
| 10,399 |
|
Finance right-of-use assets, net |
| 1,887 |
|
|
| 2,493 |
|
| 1,136 |
|
|
| 1,293 |
|
Intangible assets, net |
| 12,851 |
|
|
| 14,343 |
| |||||||
Intangible assets, net of accumulated amortization of $31,732 and $31,077 |
| 11,184 |
|
|
| 11,694 |
| |||||||
Goodwill |
| 36,038 |
|
|
| 40,279 |
|
| 35,204 |
|
|
| 35,104 |
|
Long-term investments |
| — |
|
|
| 17,009 |
| |||||||
Other noncurrent assets |
| 1,024 |
|
|
| 1,215 |
|
| 1,031 |
|
|
| 1,087 |
|
Total noncurrent assets |
| 161,948 |
|
|
| 172,559 |
|
| 115,820 |
|
|
| 118,990 |
|
TOTAL ASSETS | $ | 429,254 |
|
| $ | 460,990 |
| $ | 459,415 |
|
| $ | 444,180 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
| ||||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable | $ | 36,226 |
|
| $ | 28,024 |
| $ | 27,396 |
|
| $ | 38,020 |
|
Deferred revenue |
| 2,660 |
|
|
| 2,936 |
|
| 1,989 |
|
|
| 2,273 |
|
Accrued expenses and other current liabilities |
| 23,165 |
|
|
| 33,778 |
|
| 22,673 |
|
|
| 25,762 |
|
Finance lease liabilities |
| 1,182 |
|
|
| 939 |
| |||||||
Operating lease liabilities |
| 2,054 |
|
|
| 2,181 |
| |||||||
Finance lease liability |
| 1,229 |
|
|
| 1,179 |
| |||||||
Operating lease liability |
| 1,761 |
|
|
| 1,764 |
| |||||||
Acquisition-related contingent consideration obligation |
| 199 |
|
|
| 206 |
|
| 75 |
|
|
| 65 |
|
Total current liabilities |
| 65,486 |
|
|
| 68,064 |
|
| 55,123 |
|
|
| 69,063 |
|
Noncurrent Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||
Finance lease liabilities |
| 1,445 |
|
|
| 1,952 |
| |||||||
Operating lease liabilities |
| 14,978 |
|
|
| 7,202 |
| |||||||
Finance lease liability |
| 472 |
|
|
| 503 |
| |||||||
Operating lease liability |
| 8,623 |
|
|
| 9,101 |
| |||||||
Acquisition-related contingent consideration obligation |
| 117 |
|
|
| 354 |
|
| — |
|
|
| 99 |
|
Other noncurrent liabilities |
| 489 |
|
|
| 651 |
|
| 609 |
|
|
| 581 |
|
Deferred income taxes |
| 2,547 |
|
|
| 2,234 |
|
| 409 |
|
|
| 408 |
|
Total noncurrent liabilities |
| 19,576 |
|
|
| 12,393 |
|
| 10,113 |
|
|
| 10,692 |
|
TOTAL LIABILITIES |
| 85,062 |
|
|
| 80,457 |
|
| 65,236 |
|
|
| 79,755 |
|
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, 72,572 and 72,069 shares issued and outstanding |
| 0 |
|
|
| 0 |
| |||||||
Preferred stock, par value $.000001, 25,000 shares authorized, none issued |
| — |
|
|
| — |
| |||||||
Common stock, par value $.000001, 120,000 shares authorized, 73,254 and 72,734 shares issued and outstanding |
| — |
|
|
| — |
| |||||||
Additional paid-in capital |
| 515,928 |
|
|
| 511,063 |
|
| 521,964 |
|
|
| 520,446 |
|
Accumulated other comprehensive loss |
| (12,514 | ) |
|
| (10,077 | ) |
| (17,418 | ) |
|
| (18,435 | ) |
Accumulated deficit |
| (159,222 | ) |
|
| (120,453 | ) |
| (110,367 | ) |
|
| (137,586 | ) |
Total stockholders' equity |
| 344,192 |
|
|
| 380,533 |
|
| 394,179 |
|
|
| 364,425 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 429,254 |
|
| $ | 460,990 |
| $ | 459,415 |
|
| $ | 444,180 |
|
r
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 June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
NET REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Products and services |
| $ | 79,167 |
|
| $ | 55,741 |
|
| $ | 144,403 |
|
| $ | 112,320 |
|
| $ | 152,914 |
|
| $ | 65,236 |
|
Other |
|
| 1,064 |
|
|
| 1,866 |
|
|
| 3,535 |
|
|
| 3,869 |
|
|
| 2,049 |
|
|
| 2,471 |
|
|
|
| 80,231 |
|
|
| 57,607 |
|
|
| 147,938 |
|
|
| 116,189 |
|
|
| 154,963 |
|
|
| 67,707 |
|
COST OF PRODUCTS AND SERVICES SOLD |
|
| 52,647 |
|
|
| 26,934 |
|
|
| 96,082 |
|
|
| 47,190 |
|
|
| 89,148 |
|
|
| 43,408 |
|
Gross profit |
|
| 27,584 |
|
|
| 30,673 |
|
|
| 51,856 |
|
|
| 68,999 |
|
|
| 65,815 |
|
|
| 24,299 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Research and development |
|
| 9,068 |
|
|
| 7,682 |
|
|
| 17,481 |
|
|
| 16,674 |
|
|
| 10,560 |
|
|
| 8,634 |
|
Sales and marketing |
|
| 11,684 |
|
|
| 10,420 |
|
|
| 24,401 |
|
|
| 19,950 |
|
|
| 12,142 |
|
|
| 12,717 |
|
General and administrative |
|
| 17,579 |
|
|
| 10,993 |
|
|
| 36,735 |
|
|
| 21,181 |
|
|
| 17,711 |
|
|
| 19,156 |
|
Loss on impairment |
|
| 10,542 |
|
|
| — |
|
|
| 10,542 |
|
|
| — |
| ||||||||
Loss on impairments |
|
| 1,105 |
|
|
| — |
| ||||||||||||||||
Change in the estimated fair value of acquisition-related contingent consideration |
|
| — |
|
|
| (220 | ) |
|
| (36 | ) |
|
| (1,026 | ) |
|
| (24 | ) |
|
| (36 | ) |
|
|
| 48,873 |
|
|
| 28,875 |
|
|
| 89,123 |
|
|
| 56,779 |
|
|
| 41,494 |
|
|
| 40,471 |
|
Operating income (loss) |
|
| (21,289 | ) |
|
| 1,798 |
|
|
| (37,267 | ) |
|
| 12,220 |
|
|
| 24,321 |
|
|
| (16,172 | ) |
OTHER INCOME |
|
| 1,318 |
|
|
| 448 |
|
|
| 1,265 |
|
|
| 329 |
|
|
| 2,673 |
|
|
| 168 |
|
Income (loss) before income taxes |
|
| (19,971 | ) |
|
| 2,246 |
|
|
| (36,002 | ) |
|
| 12,549 |
|
|
| 26,994 |
|
|
| (16,004 | ) |
INCOME TAX EXPENSE (BENEFIT) |
|
| (1,169 | ) |
|
| 3,610 |
|
|
| 2,767 |
|
|
| 10,139 |
| ||||||||
INCOME TAX (BENEFIT) EXPENSE |
|
| (225 | ) |
|
| 3,936 |
| ||||||||||||||||
NET INCOME (LOSS) |
| $ | (18,802 | ) |
| $ | (1,364 | ) |
| $ | (38,769 | ) |
| $ | 2,410 |
|
| $ | 27,219 |
|
| $ | (19,940 | ) |
|
|
|
|
|
| |||||||||||||||||||
INCOME (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
BASIC |
| $ | (0.26 | ) |
| $ | (0.02 | ) |
| $ | (0.54 | ) |
| $ | 0.03 |
|
| $ | 0.37 |
|
| $ | (0.28 | ) |
DILUTED |
| $ | (0.26 | ) |
| $ | (0.02 | ) |
| $ | (0.54 | ) |
| $ | 0.03 |
|
| $ | 0.37 |
|
| $ | (0.28 | ) |
SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
WEIGHTED-AVERAGE SHARES OUTSTANDING: |
|
|
|
|
| |||||||||||||||||||
BASIC |
|
| 72,496 |
|
|
| 71,983 |
|
|
| 72,361 |
|
|
| 71,931 |
|
|
| 73,112 |
|
|
| 72,194 |
|
DILUTED |
|
| 72,496 |
|
|
| 71,983 |
|
|
| 72,361 |
|
|
| 72,683 |
|
|
| 73,966 |
|
|
| 72,194 |
|
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 June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
|
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
|
| ||||||
NET INCOME (LOSS) |
| $ | (18,802 | ) |
| $ | (1,364 | ) |
| $ | (38,769 | ) |
| $ | 2,410 |
|
| $ | 27,219 |
|
| $ | (19,940 | ) |
|
OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
| ||||||||||||||||
OTHER COMPREHENSIVE INCOME |
|
|
|
|
| ||||||||||||||||||||
Currency translation adjustments |
|
| (4,349 | ) |
|
| 1,403 |
|
|
| (2,593 | ) |
|
| 2,755 |
|
|
| 797 |
|
|
| 1,756 |
|
|
Unrealized gain (loss) on marketable securities |
|
| 82 |
|
|
| (122 | ) |
|
| 156 |
|
|
| (101 | ) | |||||||||
Unrealized gain on marketable securities |
|
| 220 |
|
|
| 74 |
|
| ||||||||||||||||
COMPREHENSIVE INCOME (LOSS) |
| $ | (23,069 | ) |
| $ | (83 | ) |
| $ | (41,206 | ) |
| $ | 5,064 |
|
| $ | 28,236 |
|
| $ | (18,110 | ) |
|
See accompanying notes to the consolidated financial statements.
5
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
| For the Three Months Ended March 31, | |||||||
|
| 2023 |
|
| 2022 |
|
| ||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
| ||
Net income (loss) |
| $ | 27,219 |
|
| $ | (19,940 | ) |
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
| ||
Stock-based compensation |
|
| 2,655 |
|
|
| 3,524 |
|
|
Depreciation and amortization |
|
| 3,696 |
|
|
| 3,682 |
|
|
Loss on impairments |
|
| 1,105 |
|
|
| — |
|
|
Other non-cash amortization |
|
| — |
|
|
| 80 |
|
|
Provision for credit losses |
|
| (67 | ) |
|
| 347 |
|
|
Unrealized foreign currency loss |
|
| 44 |
|
|
| 169 |
|
|
Interest expense on finance leases |
|
| 15 |
|
|
| 32 |
|
|
Deferred income taxes |
|
| — |
|
|
| 200 |
|
|
Loss on sale of fixed assets |
|
| — |
|
|
| 710 |
|
|
Change in the estimated fair value of acquisition-related contingent consideration |
|
| (24 | ) |
|
| (36 | ) |
|
Payment of acquisition-related contingent consideration |
|
| (19 | ) |
|
| — |
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
| ||
Accounts receivable |
|
| (36,613 | ) |
|
| (15,295 | ) |
|
Inventories |
|
| 18,540 |
|
|
| (8,198 | ) |
|
Prepaid expenses and other assets |
|
| 5,299 |
|
|
| (736 | ) |
|
Accounts payable |
|
| (12,097 | ) |
|
| 4,287 |
|
|
Deferred revenue |
|
| (279 | ) |
|
| (44 | ) |
|
Accrued expenses and other liabilities |
|
| (3,472 | ) |
|
| (4,603 | ) |
|
Net cash provided by (used in) operating activities |
|
| 6,002 |
|
|
| (35,821 | ) |
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
| ||
Purchases of investments |
|
| (22,330 | ) |
|
| — |
|
|
Proceeds from maturities and redemptions of investments |
|
| 27,304 |
|
|
| 12,135 |
|
|
Purchases of property and equipment |
|
| (1,191 | ) |
|
| (20,219 | ) |
|
Purchase of property and equipment under government contracts |
|
| (2,767 | ) |
|
| (28,188 | ) |
|
Proceeds from funding under government contract |
|
| — |
|
|
| 26,333 |
|
|
Net cash provided by (used in) investing activities |
|
| 1,016 |
|
|
| (9,939 | ) |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
| ||
Cash payments for lease liabilities |
|
| (148 | ) |
|
| (153 | ) |
|
Proceeds from exercise of stock options |
|
| 66 |
|
|
| 15 |
|
|
Payment of acquisition-related contingent consideration |
|
| (46 | ) |
|
| (208 | ) |
|
Repurchase of common stock |
|
| (1,203 | ) |
|
| (1,049 | ) |
|
Net cash used in financing activities |
|
| (1,331 | ) |
|
| (1,395 | ) |
|
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH |
|
| 527 |
|
|
| 1,114 |
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 6,214 |
|
|
| (46,041 | ) |
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| 83,980 |
|
|
| 116,762 |
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 90,194 |
|
| $ | 70,721 |
|
|
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
| ||
Cash paid for income taxes |
| $ | (10 | ) |
| $ | 3,570 |
|
|
Non-cash investing activities |
|
|
|
|
|
|
| ||
Accrued property and equipment purchases |
| $ | 733 |
|
| $ | 642 |
|
|
Accrued property and equipment purchases under government contracts |
| $ | — |
|
| $ | 1,905 |
|
|
|
| Six Months Ended June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | (38,769 | ) |
| $ | 2,410 |
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
| ||
Stock-based compensation |
|
| 6,804 |
|
|
| 2,937 |
|
Depreciation and amortization |
|
| 7,464 |
|
|
| 5,144 |
|
Loss on impairment |
|
| 10,542 |
|
|
| — |
|
Other non-cash amortization |
|
| 313 |
|
|
| 380 |
|
Provision for doubtful accounts |
|
| (152 | ) |
|
| 747 |
|
Inventory reserve |
|
| 1,989 |
|
|
| 1,168 |
|
Unrealized foreign currency gain |
|
| (62 | ) |
|
| (364 | ) |
Interest expense on finance leases |
|
| 55 |
|
|
| 35 |
|
Deferred income taxes |
|
| 361 |
|
|
| (218 | ) |
Loss on disposal of fixed assets |
|
| 718 |
|
|
| — |
|
Change in the estimated fair value of acquisition-related contingent consideration |
|
| (36 | ) |
|
| (1,026 | ) |
Payment of acquisition-related contingent consideration |
|
| — |
|
|
| (142 | ) |
Changes in assets and liabilities |
|
|
|
|
|
| ||
Accounts receivable |
|
| (18,646 | ) |
|
| 3,680 |
|
Inventories |
|
| (20,385 | ) |
|
| (17,233 | ) |
Prepaid expenses and other assets |
|
| (4,416 | ) |
|
| 154 |
|
Accounts payable |
|
| 11,942 |
|
|
| 4,400 |
|
Deferred revenue |
|
| (252 | ) |
|
| (630 | ) |
Accrued expenses and other liabilities |
|
| (2,959 | ) |
|
| (4,914 | ) |
Net cash used in operating activities |
|
| (45,489 | ) |
|
| (3,472 | ) |
INVESTING ACTIVITIES: |
|
|
|
|
|
| ||
Purchases of investments |
|
| — |
|
|
| (10,428 | ) |
Proceeds from maturities and redemptions of investments |
|
| 23,017 |
|
|
| 43,745 |
|
Purchases of property and equipment |
|
| (25,440 | ) |
|
| (22,929 | ) |
Purchase of property and equipment under government contracts |
|
| (33,803 | ) |
|
| — |
|
Proceeds from funding under government contract |
|
| 33,962 |
|
|
| — |
|
Other investing activities |
|
| — |
|
|
| (18 | ) |
Net cash (used in) provided by investing activities |
|
| (2,264 | ) |
|
| 10,370 |
|
FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
Cash payments for lease liabilities |
|
| (392 | ) |
|
| (510 | ) |
Proceeds from exercise of stock options |
|
| 15 |
|
|
| 121 |
|
Payment of acquisition-related contingent consideration |
|
| (208 | ) |
|
| (264 | ) |
Repurchase of common stock |
|
| (1,954 | ) |
|
| (1,877 | ) |
Net cash used in financing activities |
|
| (2,539 | ) |
|
| (2,530 | ) |
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH |
|
| (311 | ) |
|
| (7,050 | ) |
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
| (50,603 | ) |
|
| (2,682 | ) |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| 116,762 |
|
|
| 160,802 |
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 66,159 |
|
| $ | 158,120 |
|
|
|
|
|
|
|
| ||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
| ||
Cash paid for income taxes |
| $ | 9,107 |
|
| $ | 10,329 |
|
Non-cash investing and financing activities |
|
|
|
|
|
| ||
Accrued property and equipment purchases |
|
| 1,900 |
|
|
| 896 |
|
Accrued property and equipment purchases under government contracts |
|
| 2,023 |
|
|
| — |
|
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 ourthe Company's 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 ourthe Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022. Results of operations for the three and six months ended June 30, 2022March 31, 2023 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 ourits Annual Report on Form 10-K for the fiscal year ended December 31, 20212022 that have had a material impact on the consolidated financial statements and related notes except as discussed herein. See Note 11 for the discussion regarding the change in business segments.
Investments. We considerThe Company considers all investments in debt securities to be available-for-sale securities. These securities consist of guaranteed investment certificates and corporate bonds purchased with 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 recordThe Company records an allowance for credit loss for ourits available-for-sale securities when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, we reviewthe Company reviews 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 six months ended June 30, 2022, we recognized a provision for expected credit losses for our available-for-sale securities of $72.
The following is a summary of ourthe Company's available-for-sale securities as of June 30, 2022 and December 31, 2021:securities:
|
| Amortized |
|
| Gross |
|
| Gross |
|
| Fair Value |
|
| Amortized |
|
| Gross |
|
| Gross |
|
| Fair Value |
| ||||||||
June 30, 2022 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Guaranteed investment certificates |
| $ | 24,860 |
|
| $ | — |
|
| $ | — |
|
| $ | 24,860 |
|
| $ | 22,178 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,178 |
|
Corporate bonds |
|
| 5,043 |
|
|
| — |
|
|
| (278 | ) |
|
| 4,765 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total available-for-sale securities |
| $ | 29,903 |
|
| $ | — |
|
| $ | (278 | ) |
| $ | 29,625 |
| ||||||||||||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total |
| $ | 22,178 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,178 |
| ||||||||||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Guaranteed investment certificates |
| $ | 33,249 |
|
| $ | — |
|
| $ | — |
|
| $ | 33,249 |
|
| $ | 22,109 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,109 |
|
Corporate bonds |
|
| 20,473 |
|
|
| — |
|
|
| (434 | ) |
|
| 20,039 |
|
|
| 4,978 |
|
|
| — |
|
|
| (220 | ) |
|
| 4,758 |
|
Total available-for-sale securities |
| $ | 53,722 |
|
| $ | — |
|
| $ | (434 | ) |
| $ | 53,288 |
| ||||||||||||||||
At June 30, 2022, maturities of our available-for-sale |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total |
| $ | 27,087 |
|
| $ | — |
|
| $ | (220 | ) |
| $ | 26,867 |
| ||||||||||||||||
At March 31, 2023, maturities of the Company's available-for-sale securities were as follows: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Less than one year |
| $ | 29,903 |
|
| $ | — |
|
| $ | (278 | ) |
| $ | 29,625 |
|
| $ | 22,178 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,178 |
|
Greater than one year |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Fair Value of Financial Instruments. As of June 30, 2022March 31, 2023 and December 31, 2021,2022, 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.
7
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 ourthe Company's available-for-sale debt securitiescorporate bonds are measured as Level 2 instruments as of June 30, 2022 and December 31, 2021. Our2022. The Company's available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of June 30, 2022March 31, 2023 and December 31, 2021.2022.
Included in cash and cash equivalents at June 30, 2022March 31, 2023 and December 31, 2021,2022, was $5,6366,846 and $1,1601,730 invested in government money market funds. These money market funds have investments in government securities and are measured as Level 1 instruments.
We offerThe Company offers a nonqualified deferred compensation plan for certain eligible employees and members of ourits 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 June 30, 2022March 31, 2023 and December 31, 20212022 was $1,576678 and $1,763747, 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 June 30, 2022 and December 31, 2021 was $66,468 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 June 30, 2022 and December 31, 2021 was $30,988 and $30,412, respectively. The decrease in intangible assets from $14,343 as of December 31, 2021 to $12,851 as of June 30, 2022 was due to $1,120 in amortization expense and foreign currency translation losses of $372.
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 operations in the period in which the change occurs. Net foreign exchange gains and (losses) resulting from
8
foreign currency transactions that are included in other income (loss) in ourthe Company's consolidated statements of operations were $$(78350) and $198729 for the three months ended June 30,March 31, 2023 and 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 ofChanges in Accumulated other comprehensive loss by their naturecomponent is listed below.
|
| Foreign Currency |
|
| Marketable Securities |
|
| Total |
| |||
Balance at December 31, 2022 |
| $ | (18,215 | ) |
| $ | (220 | ) |
| $ | (18,435 | ) |
Other comprehensive gain |
|
| 797 |
|
|
| 220 |
|
|
| 1,017 |
|
Balance at March 31, 2023 |
| $ | (17,418 | ) |
| $ | 0 |
|
| $ | (17,418 | ) |
Immaterial Correction of Errors. Inventories, accounts payable and disclosecost of products and services were reduced by $528, $1,329 and $801, respectively, as of and for the accumulated balanceyear ended December 31, 2022 to correct for the accounting of other comprehensive loss separately from accumulated deficit and additional paid-in capitala vendor rebate earned 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.2022. The results of operations for those subsidiaries are translated into U.S. dollars, which is the reporting currencytax impact of the Company. Accumulated other comprehensive loss at June 30, 2022 consistedvendor rebate was negligible. This correction was deemed to be immaterial to the consolidated financial statements as of $12,236 of currency translation adjustments and $278 of net unrealized losses on marketable securities, which representsfor the fair market value adjustment for our investment portfolio. Accumulated other comprehensive loss atyear ended December 31, 2021 consists2022. For the three months ended March 31, 2022, cost of products and services sold was reduced by $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 Reporting27. The purposerespective operating activities on the consolidated statement of this update iscash flows for the three months ended March 31, 2022 has also been adjusted. Furthermore, stockholder's equity at March 31, 2022 has been adjusted to provide optional guidancereflect the reduction in cost of products and services sold.
Reclassification. Certain prior period amounts have been reclassified to conform to current year presentations.For the three months ended March 31, 2022, $221 of research and development expenses were reclassed to other income in relation to the U.S. Department of Defense (the “DOD”) engineering consulting costs further described in Note 2. This reclassification was made to conform to the presentation in our Annual Report on Form 10-K 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 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 ASU were effective upon issuance and could be applied prospectively throughyear ended December 31, 2022. The FASB issued a proposed amendment to the ASU in April 2022 which, if approved, will extend the date for prospective application to December 31, 2024. Management has evaluated this ASU and concluded that it will not have a material impact on the Company's Consolidated Financial Statements.
2. Government Capital Contracts
In September 2021, wethe Company entered into an agreement for $109,000 in funding from the U.S. Department of Defense (the “DOD”),DOD, in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for ourits 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 2024December 2023 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 testing, which is scheduled to occur in late 2023 or early 2024. We2023. The Company began making payments to vendors for the capital project during the fourth quarter of 2021 and 2021. The Company
8
began receiving funds from the DOD in January 2022.
Additionally, during 2021, we2022 and has received $53160,862, as of March 31, 2023. The remaining $48,138 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.is expected to be collected during 2023.
Activity for these capital contracts is accounted for pursuant to International Accounting StandardStandards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance.Assistance. Funding earnedreceived 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.
The DOD also reimburses the Company for certain engineering consulting costs. These expenses are reflected in research and development as incurred with the corresponding reimbursement presented in other income. For the three months ended March 31, 2023 and 2022, $1,051 and $221, respectively, were recorded in research and development and other income. Amounts earned in excess of ourthe Company's expected cost ofcosts for the project for project management are recognized straight-line in other income over the term of the government contract. WeThe Company 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 ourthe Company's consolidated statement of operations.operations for both the three months ended March 31, 2023 and 2022.
The balances corresponding to government contracts included in ourthe Company's consolidated balance sheet are as follows:
|
| March 31, |
|
| December 31, |
| ||
Other current assets: |
|
|
|
|
|
| ||
Billed receivables |
| $ | 17,792 |
|
| $ | — |
|
Unbilled receivables |
|
| 13,604 |
|
|
| 27,013 |
|
Total other current assets |
|
| 31,396 |
|
|
| 27,013 |
|
Accrued expenses and other current liabilities |
| $ | (679 | ) |
| $ | (318 | ) |
The activity corresponding to the government contracts included in the Company's consolidated statements of cash flows is as follows:
|
| March 31, |
|
| December 31, |
| ||
Cost of assets, cumulative |
| $ | 86,126 |
|
| $ | 83,359 |
|
Reduction for funding earned to date, not yet received |
|
| (25,264 | ) |
|
| (22,497 | ) |
Reduction for funding received to date |
|
| (60,862 | ) |
|
| (60,862 | ) |
Total property, plant and equipment, net |
| $ | — |
|
| $ | — |
|
3. Inventories
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Raw materials |
| $ | 35,607 |
|
| $ | 42,445 |
|
Work in process |
|
| 2,182 |
|
|
| 2,335 |
|
Finished goods |
|
| 39,400 |
|
|
| 50,924 |
|
|
| $ | 77,189 |
|
| $ | 95,704 |
|
4. Property, Plant and Equipment, net
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 1,118 |
|
| $ | 1,118 |
|
Buildings and improvements |
|
| 35,626 |
|
|
| 35,582 |
|
Machinery and equipment |
|
| 61,827 |
|
|
| 60,725 |
|
Computer equipment and software |
|
| 16,917 |
|
|
| 16,681 |
|
Furniture and fixtures |
|
| 4,068 |
|
|
| 4,064 |
|
Construction in progress |
|
| 10,187 |
|
|
| 11,124 |
|
|
| 129,743 |
|
|
| 129,294 |
| |
Accumulated depreciation |
|
| (72,400 | ) |
|
| (69,881 | ) |
| $ | 57,343 |
|
| $ | 59,413 |
|
9
| 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 | ) |
During the three months ended March 31, 2023, the Company determined several manufacturing lines will not be utilized due to changes in forecasted demand for the products the equipment is intended to produce. As a result of this decision, the Company determined that the carrying values of the equipment is not recoverable and recorded an aggregate pre-tax asset impairment charge of $1,105 during the three months ended March 31, 2023. This charge is reported within loss on impairments in the consolidated statement of operations.
The Company estimated the fair value of the impaired long-lived assets using a market approach, which required the Company 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 zero.
5.Accrued Expenses and other current liabilities
|
| March 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Payroll and related benefits |
| $ | 7,989 |
|
| $ | 14,103 |
|
Professional fees |
|
| 7,981 |
|
|
| 4,685 |
|
Sales tax payable |
|
| 1,512 |
|
|
| 1,519 |
|
Other |
|
| 5,191 |
|
|
| 5,455 |
|
|
| $ | 22,673 |
|
| $ | 25,762 |
|
3. Inventories
6.Termination Benefits
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Raw materials |
| $ | 37,292 |
|
| $ | 33,168 |
|
Work in process |
|
| 2,348 |
|
|
| 2,252 |
|
Finished goods |
|
| 31,664 |
|
|
| 17,718 |
|
|
| $ | 71,304 |
|
| $ | 53,138 |
|
On February 14, 2023, the Company announced a reduction in its non-production workforce. This was accounted for pursuant to Accounting Standards Codification ("ASC") 420, Exit or Disposal Cost Obligations.
The expense included in the Company's consolidated statements of operations are as follows:
| Three Months Ended March 31, 2023 |
| |
Cost of products and services sold | $ | 35 |
|
Research and development |
| 566 |
|
Sales and marketing |
| 1,448 |
|
General and administrative |
| 586 |
|
Total | $ | 2,635 |
|
As of March 31, 2023, the Company had $1,894 accrued and had paid $741 related to the reduction in workforce.
7. Revenues
Revenues by product line. The following table represents total net revenues by product line:
|
| Three Months Ended March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
COVID-19 (1) |
| $ | 118,409 |
|
| $ | 31,032 |
|
HIV |
|
| 13,904 |
|
|
| 8,166 |
|
Molecular Products (2) |
|
| 12,942 |
|
|
| 17,933 |
|
HCV |
|
| 3,186 |
|
|
| 3,257 |
|
Risk assessment testing |
|
| 2,628 |
|
|
| 2,560 |
|
Molecular Services |
|
| 1,379 |
|
|
| 1,733 |
|
Other product and service revenues |
|
| 466 |
|
|
| 555 |
|
Net product and services revenues |
|
| 152,914 |
|
|
| 65,236 |
|
Other non-product revenues (3) |
|
| 2,049 |
|
|
| 2,471 |
|
Net revenues |
| $ | 154,963 |
|
| $ | 67,707 |
|
10
(1) Includes COVID-19 Diagnostics and COVID-19 Molecular Products.
(2) Includes Genomics and Microbiome and Novosanis Products.
(3) Other non-product and services revenues include funded research and development contracts, royalty income, and grant revenues.
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, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
United States |
| $ | 145,019 |
|
| $ | 57,987 |
|
Europe |
|
| 1,852 |
|
|
| 4,286 |
|
Other regions |
|
| 8,092 |
|
|
| 5,434 |
|
|
| $ | 154,963 |
|
| $ | 67,707 |
|
4. EarningsCustomer and Vendor Concentrations. At March 31, 2023, one non-commercial customer accounted for 77% of the Company's consolidated accounts receivable. The same non-commercial customer accounted for more than 57% of the Company's consolidated accounts receivable as of December 31, 2022. The same non-commercial customer also accounted for 78% and 18% of net consolidated revenues for the three months ended March 31, 2023 and 2022, respectively.
The Company currently purchases certain products and critical components of its products from sole-supply vendors. If these vendors are unable or unwilling to supply the required components and products, the Company could be subject to increased costs and substantial delays in the delivery of its products to its customers. Third-party suppliers also manufacture certain products. The Company's inability to have a timely supply of any of these components and products could have a material adverse effect on its business, as well as its financial condition and results of operations.
Deferred Revenue. The Company records deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of March 31, 2023 and December 31, 2022 included customer prepayments of $1,358 and $1,180, respectively. Deferred revenue as of March 31, 2023 and December 31, 2022 also included $631 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.
8.Income Taxes
During the three months ended March 31, 2023 and 2022, the Company recorded income tax expense (benefit) of $(225) and $3,936, respectively. Income taxes for 2023 is comprised of a U.S. state tax benefit. Income taxes for the first quarter of 2022 are primarily comprised of Canadian withholding tax on the repatriation of $65,000 of unremitted earnings from Canada to the United States with the remainder of tax primarily consisted of foreign tax expense. The decline in foreign tax expense in 2023 compared to 2022 is a result of the decrease in projected income before taxes expected to be generated by the Company's Canadian subsidiary.
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 the Company's total deferred tax liability as of March 31, 2023 and December 31, 2022 relate to the tax effects of the basis difference between the intangible assets acquired in its acquisitions for financial reporting and for tax purposes along with basis differences arising from accelerated tax depreciation of fixed assets.
A valuation allowance is recorded to the extent it is more likely than not that the some portion or all of the deferred tax assets will not be realized. A full valuation allowance was recorded on the Company’s U.S. deferred tax assets as of March 31, 2023 and December 31, 2022.
9. Income (Loss) Per Share
Basic earningsincome (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 vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the
11
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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | (18,802 | ) |
| $ | (1,364 | ) |
| $ | (38,769 | ) |
| $ | 2,410 |
|
Weighted-average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 72,496 |
|
|
| 71,983 |
|
|
| 72,361 |
|
|
| 71,931 |
|
Dilutive effect of stock options, restricted stock, and performance stock units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 752 |
|
Diluted |
|
| 72,496 |
|
|
| 71,983 |
|
|
| 72,361 |
|
|
| 72,683 |
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.26 | ) |
| $ | (0.02 | ) |
| $ | (0.54 | ) |
| $ | 0.03 |
|
Diluted |
| $ | (0.26 | ) |
| $ | (0.02 | ) |
| $ | (0.54 | ) |
| $ | 0.03 |
|
For the three months ended June 30, 2022, three months ended June 30, 2021 and six months ended June 30,March 31, 2022, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 226, 603, and 381463 shares, respectively, were excluded from the computation of diluted loss per share. For the sixthree months ended June 30, 2021,March 31, 2023, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 6042,237 shares were excluded from the computation of diluteddilute earnings per share as their inclusion would have been anti-dilutive.
10
5. Revenues
Revenues by product line. The following table represents total net revenues by product line:
|
| Three Months Ended June 30, | Six Months Ended June 30, |
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
COVID-19 (1) |
| $ | 43,378 |
|
| $ | 12,070 |
|
| $ | 74,411 |
|
| $ | 40,215 |
|
Genomics (1) |
|
| 15,486 |
|
|
| 19,498 |
|
|
| 30,578 |
|
|
| 30,316 |
|
HIV |
|
| 10,357 |
|
|
| 10,944 |
|
|
| 18,523 |
|
|
| 19,722 |
|
HCV |
|
| 3,691 |
|
|
| 4,300 |
|
|
| 6,948 |
|
|
| 6,668 |
|
Substance abuse |
|
| 2,630 |
|
|
| 2,629 |
|
|
| 5,191 |
|
|
| 4,591 |
|
Microbiome (1) |
|
| 1,832 |
|
|
| 2,447 |
|
|
| 3,822 |
|
|
| 4,198 |
|
Laboratory services |
|
| 1,204 |
|
|
| 3,114 |
|
|
| 2,938 |
|
|
| 5,611 |
|
Other product and service revenues |
|
| 589 |
|
|
| 739 |
|
|
| 1,992 |
|
|
| 999 |
|
Net product and services revenues |
|
| 79,167 |
|
|
| 55,741 |
|
|
| 144,403 |
|
|
| 112,320 |
|
Royalty income |
|
| 642 |
|
|
| 875 |
|
|
| 1,326 |
|
|
| 2,136 |
|
Other non-product revenues |
|
| 422 |
|
|
| 991 |
|
|
| 2,209 |
|
|
| 1,733 |
|
Other revenues |
|
| 1,064 |
|
|
| 1,866 |
|
|
| 3,535 |
|
|
| 3,869 |
|
Net revenues |
| $ | 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 June 30, 2021 by $490, $(84) and $(406), 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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
United States |
| $ | 70,320 |
|
| $ | 47,601 |
|
| $ | 128,307 |
|
| $ | 96,700 |
|
Europe |
|
| 2,436 |
|
|
| 3,325 |
|
|
| 6,722 |
|
|
| 7,877 |
|
Other regions |
|
| 7,475 |
|
|
| 6,681 |
|
|
| 12,909 |
|
|
| 11,612 |
|
|
| $ | 80,231 |
|
| $ | 57,607 |
|
| $ | 147,938 |
|
| $ | 116,189 |
|
Customer and Vendor Concentrations. At June 30, 2022, one non-commercial customer accounted for 48% 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 56% 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 June 30, 2021. Another customer accounted for 10% and 14%, respectively, of net consolidated revenues for the three and six months ended June 30, 2021.
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 June 30, 2022 and December 31, 2021 includes customer prepayments of $1,746 and $1,843, respectively. Deferred revenue as of June 30, 2022 and December 31, 2021 also includes $914 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. GoodwillStockholders’ Equity
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
|
|
|
| |||||
|
| June 30, |
|
| December 31, |
| ||
Payroll and related benefits |
| $ | 11,636 |
|
| $ | 15,570 |
|
Commitment to purchase under government contract |
|
| — |
|
|
| 8,103 |
|
Deferred income for government contract |
|
| 620 |
|
|
| — |
|
Professional fees |
|
| 3,799 |
|
|
| 3,335 |
|
Sales tax payable |
|
| 1,807 |
|
|
| 2,227 |
|
Other |
|
| 5,303 |
|
|
| 4,543 |
|
|
| $ | 23,165 |
|
| $ | 33,778 |
|
Reconciliation of the changes in stockholder's equity for the three months ended March 31, 2023 and 2022. |
| |||||||||||||||||||||||
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
| ||||||
Balance at December 31, 2022 |
|
| 72,734 |
|
| $ | — |
|
| $ | 520,446 |
|
| $ | (18,435 | ) |
| $ | (137,586 | ) |
| $ | 364,425 |
|
Common stock issued upon exercise |
|
| 12 |
|
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 66 |
|
Vesting of restricted stock and performance stock units |
|
| 737 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase and retirement of common shares |
|
| (229 | ) |
|
| — |
|
|
| (1,203 | ) |
|
| — |
|
|
| — |
|
|
| (1,203 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,655 |
|
|
| — |
|
|
| — |
|
|
| 2,655 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27,219 |
|
|
| 27,219 |
|
Currency translation adjustments |
|
| ��� |
|
|
| — |
|
|
| — |
|
|
| 797 |
|
|
| — |
|
|
| 797 |
|
Unrealized gain on marketable securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 220 |
|
|
| — |
|
|
| 220 |
|
Balance at March 31, 2023 |
|
| 73,254 |
|
| $ | — |
|
| $ | 521,964 |
|
| $ | (17,418 | ) |
| $ | (110,367 | ) |
| $ | 394,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at December 31, 2021 |
|
| 72,069 |
|
|
|
|
| $ | 511,063 |
|
| $ | (10,077 | ) |
| $ | (120,453 | ) |
| $ | 380,533 |
| |
Common stock issued upon exercise |
|
| 2 |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Vesting of restricted stock and performance stock units |
|
| 352 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase and retirement of common shares |
|
| (116 | ) |
|
| — |
|
|
| (1,049 | ) |
|
| — |
|
|
| — |
|
|
| (1,049 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,524 |
|
|
| — |
|
|
| — |
|
|
| 3,524 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,940 | ) |
|
| (19,940 | ) |
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,756 |
|
|
| — |
|
|
| 1,756 |
|
Unrealized gain on marketable securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| 74 |
|
Balance at March 31, 2022 |
|
| 72,307 |
|
| $ | — |
|
| $ | 513,553 |
|
| $ | (8,247 | ) |
| $ | (140,393 | ) |
| $ | 364,913 |
|
8. Leases11. Business Segments
We determine whether an arrangement
The Company is organized on the basis of products and services under a lease at inception. Wenew organizational structure. All products and services reside under the same reporting hierarchy. Historically there was separate management leading the Company's Diagnostics and Molecular Solutions businesses. In February 2023 the Company announced a corporate restructuring to combine the commercial and innovation teams across the Diagnostics and Molecular Solutions segments into one operating segment with sales, marketing, product development and research teams covering all product lines and reporting to a Chief Product Officer. Resources are allocated and performance is assessed on a consolidated basis by our Chief Executive Officer, whom we have operating and finance leases for corporate offices, warehouse space and equipment (including vehicles)determined to be our Chief Operating Decision Maker ("CODM"). As of June 30, 2022, we areThe CODM reviews the lessee in all agreements. Our leases have remaining lease terms of 1 to 11 years, some of which include options to extend the leasesbusiness based on agreed upon terms,individual product success. Therefore, our historical reportable segments, Diagnostics and some of which includeMolecular Solutions are now considered options to terminateone reportable segment and there will no longer be a distinction between Diagnostics and Molecular Solutions, only the leases within Company holistically.
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 June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Operating lease cost |
| $ | 811 |
|
| $ | 499 |
|
| $ | 1,510 |
|
| $ | 919 |
|
Variable and short-term lease cost |
|
| 152 |
|
|
| — |
|
|
| 227 |
|
|
| — |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of right-of use assets |
|
| 306 |
|
|
| 212 |
|
|
| 691 |
|
|
| 339 |
|
Interest on lease liabilities |
|
| 23 |
|
|
| 21 |
|
|
| 55 |
|
|
| 35 |
|
Total finance lease cost |
|
| 329 |
|
|
| 233 |
|
|
| 746 |
|
|
| 374 |
|
Total lease cost |
| $ | 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 |
|
|
| — |
|
Supplemental balance sheet information related to leases is as follows:
|
|
|
| |||||
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Operating Leases |
|
|
|
|
|
| ||
Right-of-use assets |
| $ | 16,451 |
|
| $ | 9,056 |
|
Lease liabilities: |
|
|
|
|
|
| ||
Current lease liabilities |
|
| 2,054 |
|
|
| 2,181 |
|
Non-current lease liabilities |
|
| 14,978 |
|
|
| 7,202 |
|
Total operating lease liabilities |
| $ | 17,032 |
|
| $ | 9,383 |
|
Finance Leases |
|
|
|
|
|
| ||
Right-of-use assets |
| $ | 1,887 |
|
| $ | 2,493 |
|
Lease liabilities: |
|
|
|
|
|
| ||
Current lease liabilities |
|
| 1,182 |
|
|
| 939 |
|
Non-current lease liabilities |
|
| 1,445 |
|
|
| 1,952 |
|
Total finance lease liabilities |
| $ | 2,627 |
|
| $ | 2,891 |
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
| ||
Weighted-average remaining lease term—operating leases |
| 7.73 years |
|
| 5.26 years |
| ||
Weighted-average remaining lease term—finance leases |
| 1.82 years |
|
| 2.21 years |
| ||
|
|
|
|
|
|
| ||
Weighted Average Discount Rate |
|
|
|
|
|
| ||
Weighted-average discount rate—operating leases |
|
| 4.27 | % |
|
| 3.90 | % |
Weighted-average discount rate—finance leases |
|
| 3.52 | % |
|
| 3.57 | % |
13
As of June 30, 2022, minimum lease payments by period are expected to be as follows:
|
| Finance |
|
| Operating |
| ||
2022 (excluding the six months ended June 30, 2022) |
| $ | 710 |
|
| $ | 1,496 |
|
2023 |
|
| 1,283 |
|
|
| 1,879 |
|
2024 |
|
| 740 |
|
|
| 2,969 |
|
2025 |
|
| 19 |
|
|
| 2,619 |
|
2026 |
|
| 11 |
|
|
| 2,422 |
|
Thereafter |
|
| — |
|
|
| 9,021 |
|
Total minimum lease payments |
|
| 2,763 |
|
|
| 20,406 |
|
Less: imputed interest |
|
| (136 | ) |
|
| (3,374 | ) |
Present value of lease liabilities |
| $ | 2,627 |
|
| $ | 17,032 |
|
9.Stockholders’ Equity
Reconciliation of the changes in stockholders' equity for the three and six months ended June 30, 2022 and 2021 |
| |||||||||||||||||||||||
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
|
|
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
| ||||||
Balance at December 31, 2021 |
|
| 72,069 |
|
| $ | — |
|
| $ | 511,063 |
|
| $ | (10,077 | ) |
| $ | (120,453 | ) |
| $ | 380,533 |
|
Common stock issued upon exercise of options |
|
| 2 |
|
|
| — |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Vesting of restricted stock and performance stock units |
|
| 352 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Purchase and retirement of common shares |
|
| (116 | ) |
|
| — |
|
|
| (1,049 | ) |
|
| — |
|
|
| — |
|
|
| (1,049 | ) |
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 3,524 |
|
|
| — |
|
|
| — |
|
|
| 3,524 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,967 | ) |
|
| (19,967 | ) |
Currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,756 |
|
|
| — |
|
|
| 1,756 |
|
Unrealized gain on marketable securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| 74 |
|
Balance at March 31, 2022 |
|
| 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 |
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| 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 six months ended June 30, 2022 and 2021 was $879and $521, respectively.
The following table summarizes the stock option activity for the six months ended June 30, 2022:
| |||||
|
| ||||
|
| ||||
|
|
| |||
|
|
| |||
|
|
| |||
|
|
Compensation expense of $5,071and $2,066 related to restricted shares was recognized during the six months ended June 30, 2022 and 2021, respectively.
The following table summarizes time-vested restricted stock award and restricted stock unit activity for the six months ended June 30, 2022:
15
| |||||
|
| ||||
|
| ||||
|
|
| |||
|
|
| |||
|
|
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 $854 and $350 related to PSUs was recognized during the six months ended June 30, 2022 and 2021, respectively.
The following table summarizes the PSU activity for the six months ended June 30, 2022:
| |||||
|
| ||||
|
| ||||
|
| ||||
|
|
| |||
|
|
| |||
|
|
(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 six months ended June 30, 2022 and 2021.
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 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 $128 and $1,508 of expense in relation to Dr. Tang's stock compensation during the three and six months ended 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, on April 1, 2022, Dr. Gagliano began receiving a monthly base salary of $56 per month and was also granted a one-time award of fully vested shares of the Company’s common stock with a grant date fair value of $100. Additionally, she was granted a one-time restricted stock unit award with a grant date fair value of $670 scheduled to vest in twelve equal monthly installments starting in April through her employment term, of which $168 vested during the three months ended June 30, 2022 and the remainder 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 Company’s President and Chief Executive Officer, effective 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 to the 2022 performance-based restricted stock unit awards granted to the Company’s other executive officers.
11.Income Taxes
During the three and six months ended June 30, 2022, we recorded an income tax expense (benefit) of $(1,169) and $2,767, 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 tax expense for the first half of 2022 is comprised of U.S. state income taxes of $400 and foreign taxes of $665. During the three and six months ended June 30, 2021, we recorded income tax expense of $3,610 and $10,139, which primarily consists 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 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 June 30, 2022 and December 31, 2021 since the facts and circumstances necessitating the allowance have not changed.
12. Commitments and Contingencies
Litigation
From time to time, we arethe Company is 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 ourthe Company's future financial position or results of operations.
In March 2021, wethe Company 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 ourthe Company's patent and that ourthe Company's patent is invalid. In August 2021, wethe Company amended ourits complaint to add a second patent to this litigation. Spectrum responded to ourthe Company's amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation. DNAGlitigation and subsequently filed a request for review of the second patent at the Patent and Trademark Office ("PTO"), which was granted by the PTO. On May 2, 2023, the District Court issued two orders. First, the District Court granted Spectrum’s motion for summary judgment of noninfringement, holding that Spectrum’s saliva collection devices are not “kits for collecting and preserving a biological sample,” among other rulings. The Company intends to appeal the Court’s grant of summary judgment. Second, the Court denied Spectrum’s motion to dismiss Spectrum’ssupplement its allegations of alleged antitrust violations. A separate motion by Spectrum to amend its counterclaims in October 2021, which was denied byremains pending. An inter partes review is currently pending before the Court on March 30, 2022.PTO regarding the second asserted patent. The final pretrial conference in the District Court is set for September 7,October 26, 2023.
13.Business Segment Information Subsequent Events
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 toIn May 2023, the nature ofCompany announced a reduction in its workforce and estimates the products included in those segments. The accounting policies of the segments are the same as those describedexpense will be in the summaryrange of significant accounting policies (see Note 1)$500 to $600. We evaluate performance of our operating segments based on revenue and operating income. We do not allocate interest income, interest expense, other income, other expensesThis will be accounted for pursuant to ASC 420, Exit or income taxes to our operating segments. Reportable segments have no inter-segment revenues and inter-segment expenses have been eliminated.Disposal Cost Obligations.
17
The following table summarizes operating segment information for the three and six months ended June 30, 2022 and 2021, and asset information as of June 30, 2022 and December 31, 2021:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diagnostics |
| $ | 60,455 |
|
| $ | 19,311 |
|
| $ | 98,765 |
|
| $ | 33,857 |
|
Molecular Solutions |
|
| 19,776 |
|
|
| 38,296 |
|
|
| 49,173 |
|
|
| 82,332 |
|
Total |
| $ | 80,231 |
|
| $ | 57,607 |
|
| $ | 147,938 |
|
| $ | 116,189 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diagnostics |
| $ | (11,776 | ) |
| $ | (11,850 | ) |
| $ | (31,563 | ) |
| $ | (23,967 | ) |
Molecular Solutions |
|
| (9,513 | ) |
|
| 13,648 |
|
|
| (5,704 | ) |
|
| 36,187 |
|
Total |
| $ | (21,289 | ) |
| $ | 1,798 |
|
| $ | (37,267 | ) |
| $ | 12,220 |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Diagnostics |
| $ | 1,903 |
|
| $ | 939 |
|
| $ | 3,630 |
|
| $ | 1,829 |
|
Molecular Solutions |
|
| 1,879 |
|
|
| 1,716 |
|
|
| 3,834 |
|
|
| 3,315 |
|
Total |
| $ | 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) |
| $ | 4,302 |
|
| $ | 8,513 |
|
| $ | 23,434 |
|
| $ | 16,150 |
|
Molecular Solutions |
|
| 919 |
|
|
| 3,355 |
|
|
| 2,006 |
|
|
| 6,779 |
|
Total |
| $ | 5,221 |
|
| $ | 11,868 |
|
| $ | 25,440 |
|
| $ | 22,929 |
|
(1)Excludes $5,615 and $33,803 for purchases of property and equipment under government contracts for the three and six months ended June 30, 2022, respectively.
|
| June 30, |
|
| December 31, |
| ||
Total assets: |
|
|
|
|
|
| ||
Diagnostics |
| $ | 249,123 |
|
| $ | 209,674 |
|
Molecular Solutions |
|
| 180,131 |
|
|
| 251,316 |
|
Total |
| $ | 429,254 |
|
| $ | 460,990 |
|
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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
The following discussion and analysis 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 filingscondition 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 orshould be read in conjunction with (i) our unaudited condensed consolidated 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:
19
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, 2021,2022 filed with the Securities and Exchange Commission on March 3, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and impact and potential impacts on our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including, without limitation, those factors set forth in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 and the “Risk Factors” section of subsequent Quarterly Reports on Form 10-Q, and other filings withour actual results or timing of certain events could differ materially from the SEC. Althoughresults or timing described in, or implied by, these 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.Business Overview
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.
20
Overview and Business Segments
The overall goal of ourthe Company is to empower the global community to improve health and wellness by providing access to accurate essential information. Ourinformation through effortless tests, collection kits and services. In 2022, our business consistspreviously consisted of two segments: our “Diagnostics” segment, and our “Molecular Solutions” segment. In February 2023, we announced a corporate restructuring to combine the commercial and innovation teams across the two segments into one business unit with sales, marketing, product development and research teams covering multiple product lines. This change is intended to accelerate innovation, enhance customer experience and result in operational synergies.
Our DiagnosticsThe Company's business primarily consists of the development, manufacture, marketing and sale of simple, easy to use diagnostic products and specimen collection devices using ourthe Company's 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 businessCompany's diagnostic products 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. OurThe Company's 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 ("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 SolutionsThe Company's 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 ofincludes molecular 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 SolutionsThese 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 customersCustomers 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 The Company 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 microbesmicrobiomes and their effect on human and animal health. Our primary product offering in the microbiome market, OMNIgene® • GUT, is focused on the human gut microbiome (microbes living in human stool). In 2021, the OMNIgene® • GUTThe Company also has a urine 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® device, developed and sold by our Novosanis subsidiary,which allows 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 alsoAdditionally, the Company 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.
2114
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
Ms. Eglinton Manner’s appointment as CEO came in tandem with a decision by the OraSure Board to conclude its previously 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 decision.
Current Consolidated Financial Results
During the six months ended June 30, 2022, our consolidated net revenues increased 27% to $147.9 million, compared to $116.2 million for the six months ended June 30, 2021. Net product and services revenues during the six months ended June 30, 2022 increased 29% when compared to the same period of 2021, 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, lower laboratory services revenues, and a decline in domestic sales of our HIV products partially offset this positive driver of revenue. Other revenues for the six months ended June 30, 2022 were $3.5 million compared to $3.9 million in the same period of 2021. This decrease was largely due to lower royalty income.
Our consolidated net loss for the six months ended June 30, 2022 was $38.8 million, or $0.54 per share on a fully diluted basis, compared to consolidated net income of $2.4 million, or $0.03 per share on a fully diluted basis, for the six months ended June 30, 2021. Results for the six months ended 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.
Cash used in operating activities during the six months ended June 30, 2022 was $45.5 million. Cash used in operating activities during the six months ended June 30, 2021 was $3.5 million. During the first half of 2022, our cash flow used in operating activities increased significantly as a result of our net loss and increased working capital requirements we scale our InteliSwab® manufacturing capacity to meet higher demand. As of June 30, 2022, we had $95.8 million in cash, cash equivalents and available-for-sale securities.
Results of Operations
Three months ended June 30, 2022March 31, 2023 compared to June 30, 2021March 31, 2022
CONSOLIDATED NET REVENUES
The table below shows a breakdownan outline of total consolidated net revenues (dollars in thousands) generated by each of our business segments duringfor the three months ended June 30, 2022March 31, 2023 and 2021.2022:
|
| For the Three Months Ended June 30, |
|
| |||||||||||||||||||
|
| Dollars |
|
|
|
|
|
| Percentage of Total Net Revenues |
|
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| % Change |
|
|
| 2022 |
|
|
| 2021 |
|
| |||||
Diagnostics |
| $ | 59,976 |
|
| $ | 18,252 |
|
|
| 229 |
| % |
|
| 75 |
| % |
|
| 32 |
| % |
Molecular Solutions |
|
| 19,191 |
|
|
| 37,489 |
|
|
| (49 | ) |
|
|
| 24 |
|
|
|
| 65 |
|
|
Net product and services revenues |
|
| 79,167 |
|
|
| 55,741 |
|
|
| 42 |
|
|
|
| 99 |
|
|
|
| 97 |
|
|
Other |
|
| 1,064 |
|
|
| 1,866 |
|
|
| (43 | ) |
|
|
| 1 |
|
|
|
| 3 |
|
|
Net revenues |
| $ | 80,231 |
|
| $ | 57,607 |
|
|
| 39 |
| % |
|
| 100 |
| % |
|
| 100 |
| % |
|
| Three Months Ended March 31, |
|
| |||||||||||||||||
|
| Dollars |
|
|
|
|
| Percentage of Total Net Revenues |
|
| |||||||||||
|
| 2023 |
|
| 2022 |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| |||||
COVID-19 Diagnostics |
| $ | 118,254 |
|
| $ | 22,136 |
|
|
| 434 |
| % |
| 76 |
| % |
| 33 |
| % |
Diagnostics (1) |
|
| 17,090 |
|
|
| 11,423 |
|
|
| 50 |
|
|
| 11 |
|
|
| 17 |
|
|
Molecular Products |
|
| 12,942 |
|
| 17,933 |
|
|
| (28 | ) |
|
| 8 |
|
| 26 |
|
| ||
Other products and services (2) |
|
| 3,094 |
|
|
| 3,115 |
|
|
| (1 | ) |
|
| 2 |
|
|
| 5 |
|
|
Molecular Services |
|
| 1,379 |
|
| 1,733 |
|
|
| (20 | ) |
|
| 1 |
|
| 3 |
|
| ||
COVID-19 Molecular Products |
|
| 155 |
|
|
| 8,896 |
|
|
| (98 | ) |
|
| 1 |
|
|
| 12 |
|
|
Net product and services revenues |
|
| 152,914 |
|
| 65,236 |
|
|
| 134 |
|
|
| 99 |
|
| 96 |
|
| ||
Non-product and services revenues |
|
| 2,049 |
|
|
| 2,471 |
|
|
| (17 | ) |
|
| 1 |
|
|
| 4 |
|
|
Net revenues |
| $ | 154,963 |
|
| $ | 67,707 |
|
|
| 129 |
| % |
| 100 |
| % | $ | 100 |
| % |
(1) Includes HIV and HCV product revenues.
(2) Includes Risk assessment testing and other product and services revenues.
Product and Services Revenues
Consolidated net product and services revenues increased 42%134% to $79.2$152.9 million for the three months ended June 30, 2022March 31, 2023 from $55.7$65.2 million for the three months ended June 30, 2021.March 31, 2022. The increase inCompany expects total net product and services revenues is largely due to the inclusion of $43.1 million of InteliSwab®taper off throughout 2023 as demand for its COVID-19 rapid test revenues. We began selling thisDiagnostic product in August of 2021 resulting in no comparable revenues in the second quarter of 2021. Declines inhas declined.
22
COVID-19 Diagnostics revenues across all other product line partially offset this positive driver of revenue. Other revenues for the three months ended June 30, 2022 decreased 43%increased by 434% to $1.1 million from $1.9 $118.3 million for the three months ended June 30, 2021March 31, 2023 compared to $22.1 million in the three months ended March 31, 2022 due to lower research and development funding associated withincreased sales of the development of ourCompany's InteliSwab® COVID-19 rapid test and lower royalty income.tests through its government procurement contracts.
Consolidated net revenues derived from products sold to customers outside
Sales of the United States were $9.9 million and $10.0 million, or 12% and 17% of total net revenues, for the three 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 materialCompany's Diagnostics products increased 50% 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 June 30, 2022 and 2021.
|
| For the Three Months Ended June 30, |
|
| |||||||||||||||||||
|
| Dollars |
|
|
|
|
|
| Percentage of Total Net Revenues |
|
| ||||||||||||
Market |
| 2022 |
|
| 2021 |
|
| % Change |
|
|
| 2022 |
|
|
| 2021 |
|
| |||||
Infectious disease testing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
COVID-19 |
| $ | 43,114 |
|
| $ | 89 |
|
| NM |
| % |
|
| 71 |
| % |
|
| 0 |
| % | |
Other |
|
| 14,232 |
|
|
| 15,534 |
|
|
| (8 | ) |
|
|
| 23 |
|
|
|
| 80 |
|
|
Total infectious disease testing |
|
| 57,346 |
|
|
| 15,623 |
|
|
| 267 |
|
|
|
| 95 |
|
|
|
| 81 |
|
|
Substance abuse testing |
|
| 2,630 |
|
|
| 2,629 |
|
|
| 0 |
|
|
|
| 4 |
|
|
|
| 14 |
|
|
Net product revenues |
|
| 59,976 |
|
|
| 18,252 |
|
|
| 229 |
|
|
|
| 99 |
|
|
|
| 95 |
|
|
Other |
|
| 479 |
|
|
| 1,059 |
|
|
| (55 | ) |
|
|
| 1 |
|
|
|
| 5 |
|
|
Net revenues |
| $ | 60,455 |
|
| $ | 19,311 |
|
|
| 213 |
| % |
|
| 100 |
| % |
|
| 100 |
| % |
NM - not meaningful
Infectious Disease Testing Market
COVID-19 revenues were $43.1$17.0 million for the three 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 second quarter of 2021.
Sales to the other infectious disease testing markets decreased 8% to $14.2March 31, 2023 from $11.4 million for the three months ended June 30, 2022 from $15.5March 31, 2022. This increase in revenues was primarily driven by higher sales of the Company's OraQuick® In-Home HIV tests in support of the CDC's "Together Take Me Home" HIV self-test program which commenced during the first quarter of 2023 and higher sales of the Company's OraQuick® HIV Self-Test in the international markets due to customer ordering patterns.
Molecular Products revenues decreased 28% to $12.9 million for the three months ended June 30, 2021. This decrease resultedMarch 31, 2023 from lower worldwide OraQuick® HIV and international OraQuick® HCV product 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 June 30, 2022 and 2021.
|
| For the Three Months Ended June 30, |
|
| |||||||||
Market |
| 2022 |
|
| 2021 |
|
| % Change |
|
| |||
Domestic HIV |
| $ | 3,741 |
|
| $ | 4,135 |
|
|
| (10 | ) | % |
International HIV |
|
| 6,616 |
|
|
| 6,809 |
|
|
| (3 | ) |
|
Net HIV revenues |
|
| 10,357 |
|
|
| 10,944 |
|
|
| (5 | ) |
|
Domestic HCV |
|
| 2,537 |
|
|
| 2,571 |
|
|
| (1 | ) |
|
International HCV |
|
| 1,154 |
|
|
| 1,729 |
|
|
| (33 | ) |
|
Net HCV revenues |
|
| 3,691 |
|
|
| 4,300 |
|
|
| (14 | ) |
|
Net OraQuick® revenues |
| $ | 14,048 |
|
| $ | 15,244 |
|
|
| (8 | ) | % |
Domestic OraQuick® HIV sales decreased 10% to $3.7$17.9 million for the three months ended June 30,March 31, 2022. Sales of the Company's Molecular Products are being impacted by macro-economic factors in the markets in which its customers operate. One of the Company's largest customer scaled down purchasing after they reorganized their business in the second half of 2022 from $4.1and certain other customers placed large orders in Q1 2022 which did not repeat in the first quarter of 2023. Furthermore revenues are impacted by customer ordering patterns whereby customers purchased at the end of 2022 and did not require further inventory in the first quarter of 2023.
Other products and services revenues were largely flat at $3.1 million for the three months ended June 30, 2021, primarily as a result of a large second quarter 2021 order of our OraQuick® In-Home HIV test shipped to the CDCMarch 31, 2023 and used in an initiative to drive increased in-home HIV testing. A similar order did not occur in the second quarter of 2022.
International sales of our OraQuick
® HIV testsMolecular Services revenues, which are largely derived from the Company's laboratory services, decreased 3%20% to $6.6$1.4 million for the three months ended June 30, 2022March 31, 2023 from $6.8$1.7 million for the three months ended June 30, 2021 due toMarch 31, 2022. The decline in services revenues was the absencedirect result of the Gates Foundation subsidy which expiredloss of two large customers in June 2021 and is not included in revenues in the second quarter of 2022, initial stocking orders into Asia that did not recur2022. One customer ceased operations in 2022 and the impactother deprioritized microbiome studies.
Sales of the Russian and Ukraine war. TheseCompany's COVID-19 Molecular Products collection kits decreased significantly by 98% to $0.2 million for the three months ended March 31, 2023 from $8.9 million for the three months ended March 31, 2022 due to decline in revenues were partially offset by increased sales into Africa asdemand for COVID PCR testing given the COVID-19 impact lessens.availability of rapid antigen tests.
23Non-product and Services Revenues
15
Domestic OraQuick® HCV sales remained largely flat atNon-product and services revenues decreased 17% to $2.0 million for the three months ended March 31, 2023 from $2.5 million for the three months ended June 30,March 31, 2022 comparedas a result the timing of activities under the Company's funded research and development agreements for the development of a second generation Ebola test and to $2.6 millionobtain 510(k) clearance and CLIA waiver for our InteliSwab® test coupled with lower royalty income.
CONSOLIDATED OPERATING RESULTS
Consolidated gross profit margin increased to 42.5% for the three months ended June 30, 2021.
International OraQuick® HCV sales decreased 33 % to $1.2 millionMarch 31, 2023 and 2022 from 36% for the three months ended June 30,March 31, 2022. This improvement in margins was driven by InteliSwab® sales which generated higher margins due to reduced costs associated with the correction of manufacturing inefficiencies which occurred during the first quarter of 2022, a packaging change implemented during the first quarter of 2023, and lower freight charges. These improved margins were partially offset by lower COVID-19 Molecular Products revenue which historically generated higher margins. Lower scrap expense in the first quarter of 2023 compared to $1.7 millionthe first quarter of 2022 also contributed to the improved margins.
Consolidated operating income 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 remained flat at $2.6 million for both the three months ended June 30, 2022 and 2021.
Other Revenues
Other revenues for the three months ended June 30, 2022 decreased 55% to $479,000 from $1.1 million for the three months ended June 30, 2021, due to lower research and development funding associated with our InteliSwab® COVID-19 rapid test.
Molecular Solutions Segment
The table below shows a breakdown of our total net revenues (dollars in thousands) during the three months ended June 30, 2022 and 2021.
|
| For the Three Months Ended June 30, |
|
| |||||||||
Market | 2022 |
|
| 2021 |
|
| % Change |
|
| ||||
Genomics |
| $ | 15,486 |
|
| $ | 19,498 |
|
|
| (21 | ) | % |
Microbiome |
|
| 1,832 |
|
|
| 2,447 |
|
|
| (25 | ) |
|
COVID-19 |
|
| 264 |
|
|
| 11,981 |
|
|
| (98 | ) |
|
Laboratory services |
|
| 1,204 |
|
|
| 3,114 |
|
|
| (61 | ) |
|
Other product and service revenues |
|
| 405 |
|
|
| 449 |
|
|
| (10 | ) |
|
Net molecular product and services revenues |
| $ | 19,191 |
|
|
| 37,489 |
|
|
| (49 | ) |
|
Other |
|
| 585 |
|
|
| 807 |
|
|
| (28 | ) |
|
Net molecular revenues |
| $ | 19,776 |
|
| $ | 38,296 |
|
|
| (48 | ) | % |
Sales of our genomics products decreased 21% to $15.5 million for the three months ended June 30, 2022, compared to $19.5 million for the three months ended June 30, 2021, as result of customer ordering patterns.
Microbiome kit sales decreased 25% to $1.8 million for the three months ended 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 a result of delays in microbiome clinical studies.
Sales of our molecular sample collection kits for COVID-19 testing decreased 98% to $264,000 for the three months ended June 30, 2022 compared to $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 and the termination of public funding for PCR testing.
Laboratory services revenues declined 61% to $1.2 million for the three months ended June 30, 2022 compared to $3.1 million for the three months ended June 30, 2021 as a result of a large customer ceasing its operations and due to timing of clinical trials.
Other product and service revenues remained largely unchanged at $405,000 in the second quarter of 2022 compared to $449,000 in the second quarter of 2021.
Other revenues for the three months ended June 30, 2022 decreased 28% to $585,000 from $807,000 for the three 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 34% for the three months ended June 30, 2022 compared to 53% for the three months ended June 30, 2021. The decrease in gross profit marginsMarch 31, 2023 was primarily due to a less favorable product mix and increased scrap expense associated with reserves for excess inventory.
Consolidated operating loss for the three months ended June 30, 2022 was $21.3$24.3 million, a $23.1$40.5 million decreaseincrease from the $1.8$16.2 million operating incomeloss reported for the three months ended June 30, 2021.March 31, 2022. Results for the three months ended June 30, 2022March 31, 2023 were negativelypositively impacted by the
24
lower increase in revenues and gross profit marginmargins 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 36% for the three months ended June 30, 2022 compared to 34% for the three months ended June 30, 2021.This increase is due to improved product mix of higher margin product saleswere partially offset by the June 2021 expirationimpairment charges of subsidies under the support agreement with the Gates Foundation.$1.1 million taken for idle manufacturing lines.
Operating expenses in the first quarter of 2023, excluding the impairment charge, remained largely flat compared to the first quarter of 2022. Research and development expenses increased 26%22% to $6.3$10.6 million for the three months ended June 30, 2022 compared to $5.0March 31, 2023 from $8.6 million for the three months ended June 30, 2021March 31, 2022 largely due to increased staffing costs associated with higher head count, increasedan increase in clinical study activities related to obtaining CE mark510(k) clearance and CLIA waiver for our InteliSwab®InteliSwab® rapid test, and higher subscriptionseverance costs associated with our new quality system. reduction in workforce that occurred during the quarter and higher costs incurred under our DOD expansion contract. Increased spend in research and development was offset by lower sales and marketing and general and administrative costs.
Sales and marketing expenses increased 19%decreased 5% to $7.8 million for three months ended June 30, 2022 from $6.6$12.1 million for the three months ended June 30, 2021 due to increased staffing costs associated with higher head count and increased travel, trade show, and annual meetings expenses as travel and in person events have resumed as COVID-19 restrictions have been lifted. These increases in spend were partially offset by a decline in advertising and market research costs associated with our InteliSwab® test. General and administrative expenses increased 54% to $11.0March 31, 2023 from $12.7 million for the three months ended June 30,March 31, 2022 from $7.1due to a decrease in our reserve for expected credit losses and lower consulting fees offset by severance cost related to our reduction in workforce. General and administrative expenses decreased 8% to $17.7 million for the three months ended June 30, 2021March 31, 2023 from $19.2 million for the three months ended March 31, 2022 largely due to severance costslower consulting fees, stock compensation expense and acceleratedrecruitment fees. In the first quarter of 2022, the company incurred high stock compensation expense associated with the accelerated vesting of shares under our former general counsel'sCEO's employment agreement and termination agreements, stock compensationhigher recruitment expense associated with the new CEO search. These decreases in expense were partially offset by increased legal fees and severance 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 declinereduction 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.workforce.
All of the above contributed to the Diagnostics segment’sCompany's operating lossincome of $11.8$24.3 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,March 31, 2023, which included the non-cash impairment charge of $2.0$1.1 million related to equipment that will no longer be used in production, non-cash charges of $1.9$3.7 million for depreciation and amortization and $529,000$2.7 million for stock-based compensation. The Company's operating loss of $16.2 million for the three months ended March 31, 2022 included non-cash charges of $3.7 million for depreciation and amortization and $3.5 million for stock-based compensation.
Other income for the three months ended March 31, 2023 was $2.7 million compared to $0.2 million for the months ended March 31, 2022. This increase is largely due to the reimbursement of costs incurred under our DOD expansion contract which are presented in research and development expenses as discussed above.
CONSOLIDATED INCOME TAXES
25
We continueThe Company continues to believe the full valuation allowance established against ourits 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,March 31, 2023, the Company recorded a U.S. state tax benefit of $0.2 million compared to $3.9 million of tax expense for the three months ended March 31, 2022. The 2022 we recordedtax expense is comprised of 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$0.2 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 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 $31.6 million for the six months ended June 30, 2022, which included the non-cash impairment charge of $8.5 million, non-cash charges of $3.6 million for depreciation and amortization and $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 $1.0 million benefit recorded in the first half of 2021.
Molecular Solutions Segment
The gross profit margin for the Molecular Solutions segment was 47% for the six months ended June 30, 2022 compared to 68% for the six 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 and a less favorable product mix.
Research and development expenses increased 11% to $5.7 million for the six months ended June 30, 2022 from $5.1 million for the six months ended June 30, 2021 due to higher staffing costs. Sales and marketing expenses increased 18% to $8.5 million for the six months ended June 30, 2022 from $7.2 million for the six months ended 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 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 58% to $12.1 million for the six months ended June 30, 2022 from $7.6 million for the six months ended 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 loss of $5.7 million for the six months ended June 30, 2022, which included the non-cash impairment charge of $2.0 million, $3.8 million for depreciation and amortization and $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 six months ended June 30, 2022, we recorded U.S. state tax expense of $400,000 compared to $115,000 of state income tax expense for the six months ended June 30, 2021. Additionally, in the first half 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 six months ended June 30, 2022, we recorded foreignStates, and Canadian income tax expense of $665,000 compared to$2.0 million. No foreign tax expense of $10.0 milliontaxes were recorded for the sixthree months ended June 30, 2021. This overall decrease in foreignMarch 31, 2023 due to it being more likely than not that the Canadian subsidiary will not produce sufficient income to receive a tax expense is largely a result ofbenefit for the decrease in income before taxes generated by our Canadian subsidiary.year to date loss.
16
Liquidity and Capital Resources
|
| June 30, |
|
| December 31, |
|
| March 31, |
|
| December 31, |
| ||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||
Cash and cash equivalents |
| $ | 66,159 |
|
| $ | 116,762 |
|
| $ | 90,194 |
|
| $ | 83,980 |
|
Available for sale securities |
|
| 29,625 |
|
|
| 53,288 |
| ||||||||
Available-for-sale securities |
|
| 22,178 |
|
|
| 26,867 |
| ||||||||
Working capital |
|
| 201,820 |
|
|
| 220,367 |
|
|
| 288,472 |
|
|
| 256,127 |
|
OurThe Company's cash and cash equivalents and available-for-sale securities decreasedincreased to $95.8$112.4 million at June 30, 2022March 31, 2023 from $170.1$110.8 million at December 31, 2021. Our2022. $72.8 million or 65% of the $112.4 million in cash, cash equivalents and available-for-sale securities is held by DNAG, the Company's Canadian subsidiary. In 2022, the Company repatriated $65.0 million of cash into the United States and incurred $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 still the Company's intention going forward to continue to permanently reinvest the historical undistributed earnings of our foreign subsidiaries.
The Company's working capital decreasedincreased to $201.8$288.5 million at June 30, 2022March 31, 2023 from $220.4$256.1 million at December 31, 2021.2022. Working capital increased primarily due to increased accounts receivable of $36.6 million. Working capital is primarily a function of sales, purchase volumes, inventory requirements, and vendor payment terms.
Analysis of Our Cash Flows
Operating Activities
During the sixthree months ended June 30, 2022,March 31, 2023, net cash used inprovided by operating activities was $45.5$6.0 million. OurCash flows from operations can be significantly impacted by factors such as timing of receipt from customers, inventory purchases, and payments to vendors. The Company's net lossincome of $38.8$27.2 million included non-cash charges of $10.5 million associated with impairment charges taken against idle manufacturing lines and goodwill, depreciation and amortization expense of $7.5$3.7 million, stock-based compensation expense of $6.8 million, an inventory reserve of $2.0$2.7 million, and other non-cash expenseimpairment charges taken for idle equipment of $1.2$1.1 million. Cash used to fund ourthe 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 $18.6$36.6 million largely associated with product shipped to the U.S. government at the end of the first quarter 2023, a $4.1decreases in accounts payable of $12.1 million increase in prepaid expensesdue to reduced inventory purchasing and other assets associated with tax installmentsthe timing of payments made to the Canadian Revenue Agencyand invoices received, and a $2.9 million decrease in accrued expenses and other liabilitiesof $3.5 million largely due toassociated with the payment of our 2021 bonuses and severance payments to our former CEO.the Company's 2022 year-end bonuses. Offsetting these uses of cash was a $11.9decrease in inventory of $18.5 million increaseas demand for the Company's InteliSwab® COVID-19 rapid test is declining, and a $5.3 million decrease in accounts payable due toprepaid and other assets as the timingCompany received payment of invoices received and payments made.its Employee Retention Credit filed for in 2021.
Investing Activities
Net cash used in investing activities was $2.3$1.0 million for the sixthree months ended June 30, 2022,March 31, 2023, which reflects proceeds from the maturities and redemptions of investments of $23.0 million. This was$27.3 million offset by $25.4$22.3 million used to purchase investments, $2.8 million to build additional manufacturing capacity as required by the $109 million agreement with the DOD and, $1.2 million to acquire property and equipment largely to increase our manufacturing capacity.support the normal operations of the business.
Financing Activities
Net cash used in financing activities was $2.5$1.3 million for the sixthree months ended June 30, 2022,March 31, 2023, which is largely comprised of $2.0$1.2 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to ourthe Company's employees.
We expect current balances ofResources
The Company expects existing cash and cash equivalents and available-for-sale securities towill be sufficient to fund our currentits operating expenses and capital needs as well as those arisingexpenditure requirements over the next twelve months. OurThe Company's cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the timing of reimbursement under ourits $109 million DOD contract, the scope and timing of future strategic acquisitions, the progress of ourits 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, $74.7 million or 78% of our $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 ourthe Company's obligations to make future payments under contracts existing at December 31, 20212022 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of ourits Annual Report on Form 10-K for the year ended December 31, 2021.2022. As of June 30, 2022,March 31, 2023, there were no significant changes to this information.
17
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 ourthe Company's critical accounting policies is contained in ourits Annual Report on Form 10-K for the year ended December 31, 20212022 filed with the SEC. NoExcept as presented below, no material changes have been made to such critical accounting policies during the sixthree months ended June 30, 2022.March 31, 2023.
GoodwillCAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS
GoodwillThis Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. Some of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “projects,” “plans,” “estimates,” or the negative of these words and other comparable terminology. The discussion of financial trends, strategy, plans, assumptions, or intentions may also include forward-looking statements. Readers should not place undue reliance on forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by law, we undertake no obligation to update or revise our forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated, or implied. Although it is not amortized,possible to predict or identify all such risks and uncertainties, they include, but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Current generally accepted accounting principles permit usare not limited 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 recognizedfactors described in the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amountRisk Factors discussion in Item 1A of goodwill allocated to the reporting unit.
The processPart I 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.our most recently filed Annual Report.
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
There has been no material derivative risk to report under this Item.
As of 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 3.5% of our total revenues for the six months ended 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 $130.9 million in U.S. Dollars, which are included in the Company’s consolidated balance sheet as of June 30, 2022. A 10% unfavorable change in the Canadian-to-U.S. dollarCompany's assessment of its sensitivity to market risk since its presentation set forth in Item 7A, "Quantitative and Euro-to-U.S. dollar exchange rates would have decreased our comprehensive income by approximately $13.1 millionQualitative Disclosures About Market Risk," in its Annual Report on Form 10-K for the six monthsyear ended June 30,December 31, 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 June 30, 2022.March 31, 2023. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022March 31, 2023 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 June 30, 2022March 31, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
18
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we arethe Company is 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 ourthe Company's future financial position or results of operations.
Spectrum Patent Litigation
In March 2021, wethe Company 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 ourthe Company's patent and that ourthe Company's patent is invalid. In August 2021, wethe Company amended ourits complaint to add a second patent to this litigation. Spectrum responded to ourthe Company's amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation. DNAGlitigation and subsequently filed a request for review of the second patent at the Patent and Trademark Office ("PTO"), which was granted by the PTO. On May 2, 2023, the District Court issued two orders. First, the District Court granted Spectrum’s motion for summary judgment of noninfringement, holding that Spectrum’s saliva collection devices are not “kits for collecting and preserving a biological sample,” among other rulings. The Company intends to appeal the Court’s grant of summary judgment. Second, the Court denied Spectrum’s motion to dismiss Spectrum’ssupplement its allegations of alleged antitrust violations. A separate motion by Spectrum to amend its counterclaims remains pending. An inter partes review is currently pending before the PTO regarding the second asserted patent. The final pretrial conference in the District Court is set for 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.26, 2023.
Item 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A, entitled “Risk Factors,” in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2021,2022, other than as set forth below.
Conditions in the banking system and financial markets, including the failure of banks and financial institutions, could have an adverse effect on our operations and financial results.
Customer Concentration Creates Risk for Our Business.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and
One non-commercial customer accounted for 56%39%may in the future lead to market-wide liquidity problems. For example, on March 10 and March 12, 2023, the Federal Deposit Insurance Corporation took control and was appointed receiver of net consolidated revenues forSilicon Valley Bank, and Signature Bank and Silvergate Capital Corp, respectively, after each bank was unable to continue their operations. Since then, additional financial institutions have experienced similar failures and have been placed into receivership. It is possible that other banks will face similar difficulty in the three and six months ended June 30, 2022. Wefuture.
31
expectAlthough we do not maintain any deposit accounts, credit agreements or letters of credit with any financial institution currently in receivership, we are unable to predict the extent or nature of the impacts of these evolving circumstances at this time. If, for example, other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened. While it is not possible at this time to predict the extent of the impact that sales to the large non-commercial customer will continue to be a significant contributor to our net consolidated revenue. Certain partsfailure of these financial institutions or the high market volatility and instability of the banking sector could have on economic activity and our business may continuein particular, the failure of other banks and financial institutions and the measures taken by governments, businesses and other organizations in response 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 orthese events could adversely impact our 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 revenuesfinancial condition and results of operations could be adversely affected.operations.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Period |
| Total number of |
|
|
| Average price |
|
| Total number of |
|
| Maximum number (or |
| ||||
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 |
|
|
|
|
|
|
| — |
|
|
|
|
Period |
| Total number of |
|
|
| Average price |
|
| Total number of |
|
| Maximum number (or |
| ||||
January 1, 2023-January 31, 2023 |
|
| 158,726 |
| (3) |
| $ | 5.64 |
|
|
| — |
|
|
| 11,984,720 |
|
February 1, 2023-February 28, 2023 |
|
| 70,685 |
| (3) |
|
| 5.14 |
|
|
| — |
|
|
| 11,984,720 |
|
March 1, 2023-March 31, 2023 |
|
| — |
| (3) |
|
| — |
|
|
| — |
|
|
| 11,984,720 |
|
|
|
| 229,411 |
|
|
|
|
|
|
| — |
|
|
|
|
19
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Item 5. OTHER INFORMATION
None
3220
Item 6. EXHIBITS
Exhibit Number | Exhibit | |
| ||
| ||
31.1* | ||
31.2* | ||
32.1*+ | ||
32.2*+ | ||
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 |
*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.
3321
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/ | |||
Date: |
| ||
| |||
(Principal Financial Officer) | |||
/s/Michele M. | |||
Date: | Michele M. | ||
Senior Vice President, Controller and Chief Accounting Officer | |||
(Principal Accounting Officer) |
3422