September 30, 2023. INC. Delaware 36-4370966 (State or Other Jurisdiction of (IRS Employer Identification No.) 220 East First Street, 18015 (Address of Principal Executive Offices) (Zip code) Title of each class Trading Name of each exchange on which registered Common Stock, $0.000001 par value per share OSUR The NASDAQ Stock Market LLC o o Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company o Emerging growth company o o March 31, 2023 December 31, 2022 ASSETS Current Assets: Cash and cash equivalents $ 90,194 $ 83,980 Short-term investments 22,178 26,867 Accounts receivable, net of allowance of $2,297 and $2,365 107,445 70,797 Inventories 77,189 95,704 Prepaid expenses 6,161 6,273 Other current assets 40,428 41,569 Total current assets 343,595 325,190 Noncurrent Assets: Property, plant and equipment, net of accumulated depreciation of $72,400 and $69,881 57,343 59,413 Operating right-of-use assets, net 9,922 10,399 Finance right-of-use assets, net 1,136 1,293 Intangible assets, net of accumulated amortization of $31,732 and $31,077 11,184 11,694 Goodwill 35,204 35,104 Other noncurrent assets 1,031 1,087 Total noncurrent assets 115,820 118,990 TOTAL ASSETS $ 459,415 $ 444,180 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 27,396 $ 38,020 Deferred revenue 1,989 2,273 Accrued expenses and other current liabilities 22,673 25,762 Finance lease liability 1,229 1,179 Operating lease liability 1,761 1,764 Acquisition-related contingent consideration obligation 75 65 Total current liabilities 55,123 69,063 Noncurrent Liabilities: Finance lease liability 472 503 Operating lease liability 8,623 9,101 Acquisition-related contingent consideration obligation — 99 Other noncurrent liabilities 609 581 Deferred income taxes 409 408 Total noncurrent liabilities 10,113 10,692 TOTAL LIABILITIES 65,236 79,755 Commitments and contingencies (Note 12) STOCKHOLDERS' EQUITY 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 521,964 520,446 Accumulated other comprehensive loss (17,418 ) (18,435 ) Accumulated deficit (110,367 ) (137,586 ) Total stockholders' equity 394,179 364,425 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 459,415 $ 444,180 Three Months Ended March 31, 2023 2022 NET REVENUES: Products and services $ 152,914 $ 65,236 Other 2,049 2,471 154,963 67,707 COST OF PRODUCTS AND SERVICES SOLD 89,148 43,408 Gross profit 65,815 24,299 OPERATING EXPENSES: Research and development 10,560 8,634 Sales and marketing 12,142 12,717 General and administrative 17,711 19,156 Loss on impairments 1,105 — Change in the estimated fair value of acquisition-related contingent consideration (24 ) (36 ) 41,494 40,471 Operating income (loss) 24,321 (16,172 ) OTHER INCOME 2,673 168 Income (loss) before income taxes 26,994 (16,004 ) INCOME TAX (BENEFIT) EXPENSE (225 ) 3,936 NET INCOME (LOSS) $ 27,219 $ (19,940 ) INCOME (LOSS) PER SHARE: BASIC $ 0.37 $ (0.28 ) DILUTED $ 0.37 $ (0.28 ) WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC 73,112 72,194 DILUTED 73,966 72,194 Three Months Ended March 31, 2023 2022 NET INCOME (LOSS) $ 27,219 $ (19,940 ) OTHER COMPREHENSIVE INCOME Currency translation adjustments 797 1,756 Unrealized gain on marketable securities 220 74 COMPREHENSIVE INCOME (LOSS) $ 28,236 $ (18,110 ) 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 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 the 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 the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Results of operations for the three and nine months ended Cash Equivalents & Short-Term Investments. The 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. Securities with maturities ninety days or less are considered cash equivalents. 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. The following is a summary of the Company's available-for-sale Amortized Gross Gross Fair Value March 31, 2023 Guaranteed investment certificates $ 22,178 $ — $ — $ 22,178 Corporate bonds — — — — Total $ 22,178 $ — $ — $ 22,178 December 31, 2022 Guaranteed investment certificates $ 22,109 $ — $ — $ 22,109 Corporate bonds 4,978 — (220 ) 4,758 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 $ 22,178 $ — $ — $ 22,178 Greater than one year $ — $ — $ — $ — Fair Value of Financial Instruments. As of Included in cash and cash equivalents at September 30, 2023 was $14.7 million of guaranteed investment certificates which are also measured as Level 1 instruments. Foreign Currency Translation. Net foreign exchange gains and (losses) resulting from foreign currency transactions that are included in other income in the Company's consolidated statements of operations were There was no impairment of property, plant and equipment for the three months ended September 30, 2023 related to this triggering event. See Note 4 for discussion of equipment impairments recorded in the first half of 2023. 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 cost of products and services were reduced by began receiving funds from the DOD in January 2022 and has received The balances corresponding to government contracts included in the Company's consolidated balance sheet are as 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 ) 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 $ — $ — 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 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 6.Termination Benefits The expense included in the Company's consolidated statements of operations are as 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 Revenues by product line. The following table represents total net revenues by product 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 Revenues by geographic area. The following table represents total net revenues by geographic area, based on the location of the 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 Customer and Vendor Concentrations. At Deferred Revenue. The Company records deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of 8.Income Taxes 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. 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 12. Commitments and Contingencies September 30, 2022. 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 % Non-product and services revenues include funded research and development contracts, royalty income and grant revenues. genetic testing markets. equipment. spending on lab supplies. headcount, and lower project management fees related to our $109 million manufacturing expansion contract. lower foreign currency gains offset by higher interest income. higher expected US earnings. March 31, December 31, 2023 2022 (In thousands) Cash and cash equivalents $ 90,194 $ 83,980 Available-for-sale securities 22,178 26,867 Working capital 288,472 256,127 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 — 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 Cover Page from ORASURE TECHNOLOGIES, INC. /s/ Kenneth J. McGrath Date: Kenneth J. McGrath Chief Financial Officer (Principal Financial Officer) /s/Michele M. Anthony Date: Michele M. Anthony Senior Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer)☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 March 31, 2023.☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 INC.Delaware36-4370966
Incorporation or Organization), Bethlehem,, Pennsylvania(610) (610) 882-1820
Symbol(s)Yesx ☒ No ☐Yesx ☒ No ☐☐☒☐☐☐☐☐o No ☒xMay 3,October 31, 2023, the registrant had 73,262,37073,484,272 shares of common stock, $0.000001 par value per share, outstanding.ourthe Company's 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 ourthe Company's 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.OurThe Company's ability to market and sell products, whether through ourits internal, direct sales force or third parties;OurThe Company's ability to fulfill ourits commitments under our contractsits contract with the U.S. government for InteliSwab® COVID-19 Rapid Tests;ourthe Company's products;future:future;OurThe Company's ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;OurThe Company's ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements;OurThe Company's ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S. Food and Drug Administration or other regulators;ourthe Company's business, supply chain and workforce;OurThe Company's ability to meet increased demand for ourits products;ourthe Company's business;OurThe Company's ability to achieve ourits financial and strategic objectives and continue to increase ourits revenues, including the ability to expand international sales;ourthe Company's business;OurThe Company's ability to develop, commercialize and market new products;OurThe Company's ability to obtain and maintain new or existing product distribution channels;ourthe Company's products;ourthe Company's business;ourthe Company's business;OurThe Company's ability to maintain sustained profitability;OurThe Company's ability to increase ourits gross margins;ourthe Company's stock price;OurThe Company's ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms;OurThe Company's ability to attract and retain qualified personnel;OurThe Company's exposure to product liability and other types of litigation;The impactGeopolitical tensions or the outbreak of terrorist attackshostilities or war, including from the Russia-Ukraine conflict and civil unrest;the evolving events in Israel and Gaza;ourthe Company's 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 ourthe Company's 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 undertakethe Company undertakes no duty to update these statements, unless we areit is required to do so by law. If we dothe Company does update one or more forward-looking statements, no inference should be drawn that weit will make updates with respect to other forward-looking statements or that weit will make any further updates to those forward-looking statements at any future time.we do,the Company does, from time to time, communicate with securities analysts, it is against ourthe Company's policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agreethe Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we havethe Company has 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.September 30, 2023 December 31, 2022 ASSETS Current Assets: Cash and cash equivalents $ 217,533 $ 83,980 Short-term investments 7,358 26,867 Accounts receivable, net of allowance of $2,289 and $2,365 53,402 70,797 Inventories 59,264 95,704 Prepaid expenses 6,423 6,273 Other current assets 12,484 41,569 Total current assets 356,464 325,190 Noncurrent Assets: Property, plant and equipment, net of accumulated depreciation of $84,168 and $69,881 48,027 59,413 Operating right-of-use assets, net 13,302 10,399 Finance right-of-use assets, net 793 1,293 Intangible assets, net of accumulated amortization of $27,336 and $31,077 3,793 11,694 Goodwill 35,033 35,104 Deferred tax asset 47 — Other noncurrent assets 973 1,087 Total noncurrent assets 101,968 118,990 TOTAL ASSETS $ 458,432 $ 444,180 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 14,966 $ 38,020 Deferred revenue 1,824 2,273 Accrued expenses and other current liabilities 21,140 25,762 Finance lease liability 1,000 1,179 Operating lease liability 2,017 1,764 Acquisition-related contingent consideration obligation — 65 Total current liabilities 40,947 69,063 Noncurrent Liabilities: Finance lease liability 247 503 Operating lease liability 11,758 9,101 Acquisition-related contingent consideration obligation — 99 Other noncurrent liabilities 595 581 Deferred income taxes — 408 Total noncurrent liabilities 12,600 10,692 TOTAL LIABILITIES 53,547 79,755 Commitments and contingencies (Note 12) STOCKHOLDERS' EQUITY Preferred stock, par value $0.000001, 25,000 shares authorized, none issued — — Common stock, par value $0.000001, 120,000 shares authorized, 73,483 and 72,734 shares issued and outstanding — — Additional paid-in capital 526,261 520,446 Accumulated other comprehensive loss (17,372) (18,435) Accumulated deficit (104,004) (137,586) Total stockholders' equity 404,885 364,425 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 458,432 $ 444,180 rThree Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 NET REVENUES: Products and services $ 89,014 $ 112,821 $ 326,666 $ 257,224 Other 173 3,642 2,925 7,177 89,187 116,463 329,591 264,401 COST OF PRODUCTS AND SERVICES SOLD 44,847 69,949 193,065 165,791 Gross profit 44,340 46,514 136,526 98,610 OPERATING EXPENSES: Research and development 8,516 10,088 26,737 28,185 Sales and marketing 8,736 13,474 29,413 37,875 General and administrative 10,051 15,527 44,186 52,262 Loss on impairments 6,183 6,559 7,503 17,101 Change in the estimated fair value of acquisition-related contingent consideration (40) — (99) (36) 33,446 45,648 107,740 135,387 Operating income (loss) 10,894 866 28,786 (36,777) OTHER INCOME 2,612 3,586 6,752 5,467 Income (loss) before income taxes 13,506 4,452 35,538 (31,310) INCOME TAX (BENEFIT) EXPENSE 2,347 (1,143) 1,956 1,624 NET INCOME (LOSS) $ 11,159 $ 5,595 $ 33,582 $ (32,934) INCOME (LOSS) PER SHARE: BASIC $ 0.15 $ 0.08 $ 0.46 $ (0.45) DILUTED $ 0.15 $ 0.08 $ 0.45 $ (0.45) WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC 73,453 72,616 73,298 72,448 DILUTED 74,349 72,785 74,197 72,448 Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 NET INCOME (LOSS) $ 11,159 $ 5,595 $ 33,582 $ (32,934) OTHER COMPREHENSIVE INCOME Currency translation adjustments (2,813) (9,828) 843 (12,421) Unrealized gain on marketable securities — 11 220 167 COMPREHENSIVE INCOME (LOSS) $ 8,346 $ (4,222) $ 34,645 $ (45,188) Nine Months Ended September 30, 2023 2022 OPERATING ACTIVITIES: Net income (loss) $ 33,582 $ (32,934) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Stock-based compensation 7,602 9,100 Depreciation and amortization 17,372 11,391 Loss on impairments 7,503 17,101 Other non-cash amortization 3 411 Provision for credit losses (75) 974 Unrealized foreign currency gain (66) (396) Interest expense on finance leases 42 74 Deferred income taxes (490) 542 Loss on sale of fixed assets — 729 Change in the estimated fair value of acquisition-related contingent consideration (99) (36) Payment of acquisition-related contingent consideration (19) — Changes in assets and liabilities: Accounts receivable 17,468 (19,152) Inventories 36,425 (26,240) Prepaid expenses and other assets 10,530 (5,990) Accounts payable (25,122) 15,315 Deferred revenue (449) (312) Accrued expenses and other liabilities (3,990) 233 Net cash provided by (used in) operating activities 100,217 (29,190) INVESTING ACTIVITIES: Purchases of short-term investments (74,652) (22,873) Proceeds from maturities and redemptions of short-term investments 94,980 47,415 Purchases of property and equipment (4,517) (28,081) Purchase of property and equipment under government contracts (4,501) (38,705) Proceeds from funding under government contract 24,290 37,756 Net cash provided by (used in) investing activities 35,600 (4,488) FINANCING ACTIVITIES: Cash payments for lease liabilities (835) (826) Proceeds from exercise of stock options 76 15 Payment of acquisition-related contingent consideration (46) (208) Repurchase of common stock (1,863) (2,008) Net cash used in financing activities (2,668) (3,027) EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 404 (4,852) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 133,553 (41,557) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 83,980 116,762 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 217,533 $ 75,205 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash (refunds) paid for income taxes $ (5,733) $ 9,400 Non-cash investing and financing activities Accrued property and equipment purchases $ 155 $ 1,463 Accrued property and equipment purchases under government contracts $ 2 $ 2,374 Unrealized gain on marketable securities $ — $ 167 (in thousands, except per share amounts, unless otherwise indicated)March 31,September 30, 2023 are not necessarily indicative of the results of operations expected for the full year.securities:
Cost
Unrealized
Gains
Unrealized
LossesAmortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair Value September 30, 2023 Guaranteed investment certificates $ 7,358 $ — $ — $ 7,358 Corporate bonds — — — — Total $ 7,358 $ — $ — $ 7,358 December 31, 2022 Guaranteed investment certificates $ 22,109 $ — $ — $ 22,109 Corporate bonds 4,978 — (220) 4,758 Total $ 27,087 $ — $ (220) $ 26,867 At September 30, 2023, maturities of the Company's available-for-sale securities were as follows: Less than one year $ 7,358 $ — $ — $ 7,358 Greater than one year $ — $ — $ — $ — March 31,September 30, 2023 and December 31, 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.as of December 31, 2022. Theand the Company's available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of March 31,September 30, 2023 and December 31, 2022.March 31,September 30, 2023 and December 31, 2022 was$6,846 $37.1 million and $1,730$1.7 million, respectively, invested in money market funds. These money market funds have investments in government securities and are measured as Level 1 instruments.March 31,September 30, 2023 and December 31, 2022 was $678$0.6 million and $747,$0.7 million, respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 instruments. The fair value of plan assets is included in both current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.$(50)$(0.1) million and $729$2.3 million for the three months ended March 31,September 30, 2023 and 2022, respectively. Net foreign exchange gains and (losses) resulting from foreign currency transactions for the nine months ended September 30, 2023 and 2022 were $(0.7) million and $2.4 million, respectively.Accumulatedaccumulated other comprehensive loss by component is listed below.below (in thousands):Foreign Currency Marketable Securities Total Balance at December 31, 2022 $ (18,215) $ (220) $ (18,435) Other comprehensive gain 843 220 1,063 Balance at September 30, 2023 Balance at September 30, 2023 $ (17,372) $ — $ (17,372) $528, $1,329$0.5 million, $1.3 million and $801,$0.8 million, respectively, as of and for the year ended December 31, 2022 to correct for the accounting of a vendor rebate earned in 2022. The tax impact of the vendor rebate was negligible. This correction was deemed to be immaterial to the consolidated financial statements as of and for the year ended December 31, 2022. For the three and nine months ended March 31,September 30, 2022, cost of products and services sold was reduced by $27.$0.3 million and $0.6 million, respectively. The respective operating activities on the consolidated statement of cash flows for the threenine months ended March 31,September 30, 2022 has also been adjusted. Furthermore, stockholder's equity at March 31,September 30, 2022 has been adjusted to reflect the reduction in cost of products and services sold.March 31,September 30, 2022, $221$0.3 million and $0.9 million of research and development expenses were reclassedreclassified 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 ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2022.$109,000$109.0 million in funding from the DOD, in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for its 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 December 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%15% of the total will not be billed and funded until the completion of the final validation testing, which is scheduled to occuroccurred in lateOctober 2023. The Company began making payments to vendors for the capital project during the fourth quarter of 2021. The Company8$60,862,$84.6 million, as of March 31,September 30, 2023. The remaining $48,138 is expected to be collected during$24.4 million was received in October 2023.March 31,September 30, 2023 and 2022, $1,051$0.4 million and $221,$0.3 million, respectively, were recorded in research and development and other income. Amounts earned in excess ofFor the Company's expected costs for the project for project management are recognized straight-line in other income over the term of the government contract. The Company recognized $561 of such income, which is reported as other income in the Company's consolidated statement of operations for both the threenine months ended March 31,September 30, 2023 and 2022.2022, $2.0 million and $0.9 million, respectively, were recorded in research and development and other income.follows:
2023
2022September 30, December 31, 2023 2022 Other current assets: Billed receivables $ 4,365 $ — Unbilled receivables 5,956 27,013 Total other current assets 10,321 27,013 Accrued expenses and other current liabilities $ — $ (318) follows:
2023
2022September 30, December 31, 2023 2022 Cost of assets, cumulative $ 86,993 $ 83,359 Reduction for funding earned to date, not yet received (1,841) (22,497) Reduction for funding received to date (85,152) (60,862) Total property, plant and equipment, net $ — $ — September 30, December 31, 2023 2022 Raw materials $ 26,115 $ 42,445 Work in process 2,459 2,335 Finished goods 30,690 50,924 $ 59,264 $ 95,704 September 30, December 31, 2023 2022 Land $ 1,118 $ 1,118 Buildings and improvements 35,714 35,582 Machinery and equipment 65,371 60,725 Computer equipment and software 17,352 16,681 Furniture and fixtures 4,079 4,064 Construction in progress 8,561 11,124 132,195 129,294 Accumulated depreciation (84,168) (69,881) $ 48,027 $ 59,413 9threenine months ended March 31,September 30, 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. Additionally, the Company elected not to proceed with certain leasehold improvements to its research and development laboratories. As a result of these decisions, the Company determined that the carrying values of the equipment and leasehold improvements made to date are not recoverable and recorded aggregate pre-tax asset impairment charges of $1.3 million during the nine months ended September 30, 2023. No property, plant and equipment impairment charges were recorded during the three months ended September 30, 2023.isand supporting assets were not recoverable and recorded an aggregate pre-tax asset impairment charge of $1,105charges during the three and nine months ended March 31, 2023. This charge is reported within loss on impairments in the consolidated statementSeptember 30, 2022 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. $6.6 million and $13.5 million, respectively. manufacturing equipment and various market data points, the estimated fair value was zero.zero. These charges are reported within loss on impairments in the consolidated statement of operations.September 30, December 31, 2023 2022 Payroll and related benefits $ 12,213 $ 14,103 Professional fees 2,730 4,685 Sales tax payable 1,344 1,519 Other 4,853 5,455 $ 21,140 $ 25,762 On February 14,During the first and second quarters of 2023, the Company announcedexecuted a reduction in its non-production workforce. This was accounted for pursuant to Accounting Standards Codification ("ASC") 420, Exit or Disposal Cost Obligations.follows:Nine Months Ended
September 30, 2023Cost of products and services sold $ 369 Research and development 566 Sales and marketing 1,543 General and administrative 787 Total $ 3,265 March 31,September 30, 2023 the Company had $1,894$0.9 million accrued and had paid $741$2.4 million related to the reduction in workforce. No additional expense was incurred during the three months ended September 30, 2023.line:line (in thousands):10Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 $ 50,199 $ 79,920 $ 216,115 $ 154,331 HIV 16,650 9,054 46,518 27,577 15,238 15,829 41,230 51,344 HCV 2,901 3,234 9,957 10,182 Risk assessment testing 2,554 2,595 7,540 7,786 Molecular Services 834 1,957 3,567 4,895 Other product and service revenues 638 232 1,739 1,109 Net product and services revenues 89,014 112,821 326,666 257,224 173 3,642 2,925 7,177 Net revenues $ 89,187 $ 116,463 $ 329,591 $ 264,401 and Microbiome and Novosanis Products.product revenues. Other non-productNon-product and services revenues include funded research and development contracts, royalty income and grant revenues.customer:customer (in thousands):Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 United States $ 77,925 $ 108,941 $ 296,815 $ 237,248 Europe 1,992 2,207 6,297 8,929 Other regions 9,270 5,315 26,479 18,224 $ 89,187 $ 116,463 $ 329,591 $ 264,401 March 31,September 30, 2023, one non-commercial customer accounted for 77%52% of the Company's consolidated accounts receivable. The same non-commercial customer accounted for more than 57%57% of the Company's consolidated accounts receivable as of December 31, 2022. The same non-commercial customer also accounted for 78%56% and 18%69% of net consolidated revenues for the three months ended March 31,September 30, 2023 and 2022, respectively. The same non-commercial customer also accounted for 66% and 53% of net consolidated revenues for the nine months ended September 30, 2023 and 2022, respectively.March 31,September 30, 2023 and December 31, 2022 included customer prepayments of $1,358$1.4 million and $1,180,$1.5 million, respectively. Deferred revenue as of March 31,September 30, 2023 and December 31, 2022 also included $631$0.4 million and $1,093,$0.7 million, 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.During the three months ended March 31, 2023 and 2022, the Company recorded(benefit) of $(225) and $3,936, respectively. Income taxes for 2023 is comprised of a U.S. state tax benefit. (benefits) are as follows (in thousands):Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 State income tax expense (benefit) $ 1,131 $ (40) $ 2,388 $ 379 Foreign income tax expense (benefit) 1,216 (1,103) (432) (438) Foreign withholding tax — — — 1,683 $ 2,347 $ (1,143) $ 1,956 $ 1,624 first quarter ofnine months ended September 30, 2022 are primarily comprisedincludes $1.7 million of Canadian withholding tax on the repatriation of $65,000$65.0 million of unremitted earnings from Canada to the United States with the remainder of tax primarily consisted of foreign tax expense.States. The declineincrease in foreignincome tax expense for three months ended September 30, 2023 is due to an increase in 2023 compared to 2022 is a result of the decrease in projected income before taxes expected to be generated byfor both the Company'sU.S. and Canadian subsidiary.Taxentities.liabilityasset as of March 31,September 30, 2023 andrelate to foreign net operating losses. The significant components of the Company's total deferred tax liability at 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. 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,September 30, 2023 and December 31, 2022.11March 31,September 30, 2023 outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 2,027 shares and 2,048 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. For the nine months ended September 30, 2022 outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 4631,734 shares, were excluded from the computation of diluted loss per share.share as their inclusion would have beenthreenine months ended March 31, 2023,September 30, 2022, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing, 2,237 shares383 were excluded from the computation of dilute earningsdiluted loss per share as their inclusion would have been anti-dilutive.share.10.10. Stockholders’ EquityCommon Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal Shares Amount Balance at December 31, 2022 72,734 $ — $ 520,446 $ (18,435) $ (137,586) $ 364,425 Common stock issued upon exercise of options 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 Vesting of restricted stock and performance stock units 241 — — — — — Purchase and retirement of common shares (82) — (460) — — (460) Stock-based compensation — — 2,357 — — 2,357 Net loss — — — — (4,796) (4,796) Currency translation adjustments — — — 2,859 — 2,859 Balance at June 30, 2023 73,413 $ — $ 523,861 $ (14,559) $ (115,163) $ 394,139 Common stock issued upon exercise of options 2 — 10 — — 10 Vesting of restricted stock and performance stock units 99 — — — — — Purchase and retirement of common shares (31) — (200) — — (200) Stock-based compensation — — 2,590 — — 2,590 Net income — — — — 11,159 11,159 Currency translation adjustments — — — (2,813) — (2,813) Balance at September 30, 2023 73,483 $ — $ 526,261 $ (17,372) $ (104,004) $ 404,885
Paid-in
Other
ComprehensiveCommon Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal
of optionsShares Amount Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
LossAccumulated
DeficitTotal Balance at December 31, 2021 72,069 $ —
of optionsCommon 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 — — — — (19,940) (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 Vesting of restricted stock and performance stock units Vesting of restricted stock and performance stock units 407 — — — — — Purchase and retirement of common shares Purchase and retirement of common shares (142) — (905) — — (905) Stock-based compensation Stock-based compensation — — 3,280 — — 3,280 Net loss Net loss — — — — (18,589) (18,589) Currency translation adjustments Currency translation adjustments — — — (4,349) — (4,349) Unrealized gain on marketable securities Unrealized gain on marketable securities — — — 82 — 82 Balance at June 30, 2022 Balance at June 30, 2022 72,572 $ — $ 515,928 $ (12,514) $ (158,982) $ 344,432 Vesting of restricted stock and performance stock units Vesting of restricted stock and performance stock units 66 — — — — — Purchase and retirement of common shares Purchase and retirement of common shares (19) — (54) — — (54) Stock-based compensation Stock-based compensation — — 2,296 — — 2,296 Net income Net income — — — — 5,595 5,595 Currency translation adjustments Currency translation adjustments — — — (9,828) — (9,828) Unrealized gain on marketable securities Unrealized gain on marketable securities — — — 11 — 11 Balance at September 30, 2022 Balance at September 30, 2022 72,619 $ — $ 518,170 $ (22,331) $ (153,387) $ 342,452 ourthe Company's Chief Executive Officer, whom we havethe Company has determined to be ourits Chief Operating Decision Maker ("CODM"). The CODM reviews the business based on individual product success. Therefore, ourthe Company's historical reportable segments, Diagnostics and Molecular Solutions are now considered one reportable segment and there will no longer be a distinction between Diagnostics and Molecular Solutions, only the Company holistically. has filed an answer to the initial complaint, asserting that its device does not infringe the Company's patent and that the Company's patent is invalid. In August 2021, the Company amended its complaint to add a second patent to this litigation. Spectrum responded to the Company's amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation 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, theThe District Court issued two orders.multiple pretrial orders, resolving the infringement, antitrust, and inequitable conduct claims without trial. 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 appealhas appealed the Court’s grant of summary judgment.judgment to the Court of Appeal on June 8, 2023. Second, the District Court denied Spectrum’s motion to supplementamend its allegations of alleged antitrust violations. A separateviolations, finding that if such an amendment were allowed, Spectrum’s claims would not survive a motion byfor summary judgment. Spectrum thereafter withdrew its antitrust and inequitable conduct counterclaims. Spectrum did not appeal the District Court's denial of its motion to amendamend. Both parties have filed motions seeking sanctions in the District Court. Those motions remain pending. DNAG filed its counterclaims remains pending.opening appellate brief on September 28, 2023. Spectrum’s responsive appellate brief is due December 22, 2023. Oral argument in the appeal has not been scheduled. An inter partes review is currently pending before the PTO regarding the second asserted patent. The final pretrial conferenceOral argument in the inter partes review is currently scheduled for November 14, 2023. On September 15, 2023, Spectrum filed a petition for inter partes review of a third patent, which DNAG did not assert in the District CourtCourt. An optional preliminary patent owner response is set for October 26,due in December 2023.13. Subsequent EventsIn May 2023, the Company announced a reduction in its workforce and estimates the expense will be in the rangeTable of $Contents500 to $600. This will be accounted for pursuant to ASC 420, Exit or Disposal Cost Obligations.13ourthe Company's financial condition and results of operations should be read in conjunction with (i) ourthe Company's unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) ourthe Company's audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 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 ourthe Company's plans and strategy for ourits business and impact and potential impacts on ourits 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 ourthe Company's 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, ourthe Company's actual results or timing of certain events could differ materially from the results or timing described in, or implied by, these forward-looking statements.The overall goal of the Company is to empower the global community to improveand wellnessthrough powerful insight by providing access to accurate, essential information through effortless tests, collection kits and services.information. In 2022, ourthe Company's business previously consisted of two segments: ourits “Diagnostics” segment, and ourits “Molecular Solutions” segment. In February 2023, wethe Company 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.(“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.March 31,September 30, 2023 compared to March 31, 2022March 31,September 30, 2023 and 2022:Three Months Ended September 30, Dollars % Change Percentage of Total Net Revenues 2023 2022 2023 2022 COVID-19 Diagnostics $ 50,145 $ 79,559 (37) % 56 % 68 % 19,551 12,288 59 22 11 15,238 15,829 (4) 17 14 3,192 2,827 13 4 2 Molecular Services 834 1,957 (57) 1 2 COVID-19 Molecular Products 54 361 (85) — — Net product and services revenues 89,014 112,821 (21) 100 97 173 3,642 (95) — 3 Net revenues $ 89,187 $ 116,463 (23) % 100 % 100 % product and services revenues increased 134%decreased 23% to $152.9$89.2 million for the three months ended March 31,September 30, 2023 from $65.2$116.5 million for the three months ended March 31,September 30, 2022. The Company expects total net product and services revenues to taper off throughout 2023 as demand for its COVID-19 Diagnostic product has declined.increaseddecreased by 434%37% to $118.3 $50.1 million for the three months ended March 31,September 30, 2023 compared to $22.1$79.6 million in the three months ended March 31,September 30, 2022 due to increaseddecreased sales of the Company's InteliSwab® tests through its U.S. government procurement contracts. We expect this decline in revenue to continue in the fourth quarter but at a lower rate.50%59% to $17.0$19.6 million for the three months ended March 31,September 30, 2023 from $11.4$12.3 million for the three months ended March 31,September 30, 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.28%4% to $12.9$15.2 million for the three months ended March 31,September 30, 2023 from $17.9$15.8 million for the three months ended March 31,September 30, 2022. Sales of the Company's Molecular Products are being impacted by macro-economic factors in the markets in which its customers operate. Oneoperate and as a result, one of the Company's largest customerlarger customers scaled down purchasing after they reorganized their businessbusiness. These declines in revenues were partially offset by new customer sales in the second half of 2022animal and 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.were largely flat at $3.1increased 13% to $3.2 million for the three months ended March 31,September 30, 2023 andfrom $2.8 million for the three months ended September 30, 2022.20%57% to $1.4$0.8 million for the three months ended March 31,September 30, 2023 from $1.7$2.0 million for the three months ended March 31,September 30, 2022. The declinedecrease in services revenues was the direct resultlargely due to completion of lossa large customer's clinical trial project and increased competition.significantly by 98%85% to $0.2$0.05 million for the three months ended March 31,September 30, 2023 from $8.9$0.4 million for the three months ended March 31,September 30, 2022 due to decline in demand for COVID PCR testing given the availability of rapid antigen tests.Non-product1517%95% to $2.0$0.2 million for the three months ended March 31,September 30, 2023 from $2.5$3.6 million for the three months ended March 31,September 30, 2022 as a result the timing of activities under the Company's fundedlower funding for research and development agreements for the development of a second generation Ebola testactivities and to obtain 510(k) clearance and CLIA waiver for our InteliSwab® test coupled with lower royalty income.42.5%49.7% for the three months ended March 31,September 30, 2023 and 2022 from 36%39.9% for the three months ended March 31,September 30, 2022. This improvementincrease 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,efficiencies and a packaging change implemented during the first quarter of 2023. Also contributing to improved margins is lower product scrap expense, and lower freight charges.improved overhead absorption. These improvedimprovement in margins were partially offset by lower COVID-19 Molecular Products revenuea decrease in non-product revenues which historically generated higher margins. Lower scrap expensecontribute 100% to gross margin. Gross margins in the firstfourth quarter of 2023 compared to are expected to moderate and not remain at this level due to product mix shifts, including the first quarter of 2022 also contributed to the improved margins.anticipated reduction in InteliSwab volumeMarch 31,September 30, 2023 was $24.3$10.9 million, a $40.5$10.0 million increaseimprovement from the $16.2$0.9 million operating lossincome reported for the three months ended March 31,September 30, 2022. Results for the three months ended March 31,September 30, 2023were positively impacted by lower operating expense and impairment losses. Results for the increasethree months ended September 30, 2022 included $6.6 million of impairment losses compared to $6.2 million for the three months ended September 30, 2023. Impairment losses in revenues and gross margins described above andthe third quarter of 2023 were partially offset bycomprised of intangible impairments whereas impairment chargesin the third quarter of $1.1 million taken for2022 was associated with idle manufacturing lines.firstthird quarter of 2023, excluding the impairment charge, remained largely flatdecreased $11.8 million compared to the firstthird quarter of 2022. 2022 reflecting the impact of the Company's cost saving measures and headcount reductions.increased 22%decreased 16% to $10.6$8.5 million for the three months ended March 31,September 30, 2023 from $8.6$10.1 million for the three months ended March 31,September 30, 2022 largely due to an increasea decrease in clinical study activities related to obtaining 510(k) clearance and CLIA waiver for our InteliSwab® rapid test, severancespend on COVID-19 product development, a decrease in employee costs associated with oura reduction in workforce that occurred during the quarterheadcount, 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.5%35% to $12.1$8.7 million for the three months ended March 31,September 30, 2023 from $12.7$13.5 million for the three months ended March 31,September 30, 2022 due to lower employee costs associated with a decrease in headcount, decreased spend on advertising and consulting fees and a decrease in our reserveprovision for expected credit losses and lower consulting fees offset by severance cost related to our reduction in workforce. uncollectible accounts.8%35% to $17.7$10.1 million for the three months ended March 31,September 30, 2023 from $19.2$15.5 million for the three months ended March 31,September 30, 2022 largely due to lower consulting fees, stock compensation expense and recruitment fees. In the first quarter of 2022, the company incurred high stock compensation expense associated with the accelerated vesting of shares under our former CEO's employment agreement and higher recruitment expense associated with the new CEO search. These decreasesa decrease in expense were partially offset by increased legal fees and severanceas well as lower sales tax penalties, lower staffing costs associated with thedue to a reduction in workforce.$24.3$10.9 million for the three months ended March 31,September 30, 2023, which included thea non-cash impairment charge of $1.1$6.2 million, related to equipment that will no longer be used in production, non-cash charges of $3.7$3.4 million for depreciation and amortization, and $2.7$2.6 million for stock-based compensation. The Company's operating lossincome of $16.2$0.9 million for the three months ended March 31,September 30, 2022 included a non-cash impairment charge of $6.6 million, non-cash charges of $3.7$3.9 million for depreciation and amortization, and $3.5$2.3 million for stock-based compensation.March 31,September 30, 2023 was $2.7$2.6 million compared to $0.2$3.6 million for the three months ended March 31,September 30, 2022. This increasedecrease 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.March 31,September 30, 2023, the Company recorded a U.S. state income tax benefitexpense of $0.2$1.1 million compared to $3.9 million of tax expense$40.0 thousand benefit for the three months ended March 31,September 30, 2022 and a foreign tax expense of $1.2 million for the three months ended September 30, 2023 compared to $1.1 million benefit for the three months ended September 30, 2022. The 2022overall increase in tax expense is comprisedassociated with a projected increase in earnings in both the U.S. and in Canada.Nine Months Ended September 30, Dollars % Change Percentage of Total Net Revenues 2023 2022 2023 2022 COVID-19 Diagnostics $ 215,876 $ 144,809 49 % 65 % 55 % 56,475 37,759 50 18 14 41,230 51,344 (20) 13 19 9,279 8,895 4 3 3 Molecular Services 3,567 4,895 (27) 1 2 COVID-19 Molecular Products 239 9,522 (97) — 4 Net product and services revenues 326,666 257,224 27 99 97 2,925 7,177 (59) 1 3 Net revenues $ 329,591 $ 264,401 25 % 100 % 100 % $0.2$2.4 million, and a foreign tax benefit of $0.4 million. For the the nine months ended September 30, 2022, the Company recorded U.S. state tax expense of $0.4 million, a foreign tax benefit of $0.4 million, and foreign withholding tax of $1.7 million of withholding taxes associated with ourthe Company's repatriation of $65.0 million of cash from Canada to the United States, and Canadian incomeStates. The 2023 U.S. state tax expense of $2.0 million. No foreign taxes were recorded for the three months ended March 31, 2023is higher due to it being more likely than not that the Canadian subsidiary will not produce sufficient income to receive a tax benefit for the year to date loss.16September 30, 2023 December 31, 2022 (in thousands) Cash and cash equivalents $ 217,533 $ 83,980 Available-for-sale securities 7,358 26,867 Working capital 315,517 256,127 $112.4$224.9 million at March 31,September 30, 2023 from $110.8 million at December 31, 2022. $72.8$78.9 million or 65%35% of the $112.4$224.9 million in cash and 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 ourthe Company's foreign subsidiaries.$288.5$315.5 million at March 31,September 30, 2023 from $256.1 million at December 31, 2022. Working capital increased primarily due to increasedthe increase in cash and cash equivalents and lower accounts receivable of $36.6 million.payable balances. Working capital is primarily a function of sales, purchase volumes, inventory requirements, and vendor payment terms.Ourthe Company's Cash Flowsthreenine months ended March 31,September 30, 2023, net cash provided by operating activities was $6.0$100.2 million. Cash 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 income of $27.2$33.6 million included non-cash charges of depreciation and amortization expense of $3.7$17.4 million, stock-based compensation expense of $2.7$7.6 million, and impairment charges taken for idle equipment and intangible assets of $1.1$7.5 million and a non-cash deferred tax benefit of $0.5 million.used to fundprovided by the working capital accounts included an increase in accounts receivable of $36.6 million largely associated with product shipped to the U.S. government at the end of the first quarter 2023, a decreases in accounts payable of $12.1 million due to reduced inventory purchasing and the timing of payments made and invoices received, and a decrease in accrued expenses of $3.5 million largely associated with the payment of the Company's 2022 year-end bonuses. Offsetting these uses of cash was a decrease in inventory of $18.5$36.4 million as the Company fulfilled demand for its InteliSwab® product, a decrease in accounts receivable of $17.5 million largely associated with collections of monies due from the Company'sU.S. government for InteliSwab® COVID-19 rapid test is declining, andshipments, a $5.3$10.5 million decrease in prepaid and other assets as the Company received payment of its Employee Retention Credit filed for in 2021.2021 and taxes refunds associated with Canadian income tax returns. Offsetting these increases in cash is a decrease in accounts payable of $25.1 million associated with the timing of payment of vendor invoices and a decrease in accrued expenses of $4.0 million.used inprovided by investing activities was $1.0$35.6 million for the threenine months ended March 31,September 30, 2023, which reflects proceeds from the maturities of investments of $27.3$95.0 million, $24.3 million in reimbursement received under the Company's $109 million contract with the U.S. government offset by $22.3 million used to purchase$74.7 in purchases of investments, $2.8$4.5 million to build additional manufacturing capacity as required by the $109 million agreement with the DODcontract, and $1.2$4.5 million to acquire property and equipment to support the normal operations of the business.$1.3$2.7 million for the threenine months ended March 31,September 30, 2023, which is largely comprised of $1.2$1.9 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to the Company's employees. and available-for-sale securities will be sufficient to fund its operating expenses and capital expenditure requirements over the next twelve months. The 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 its $109 million DOD contract, the scope and timing of future strategic acquisitions, the progress of its 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.March 31,September 30, 2023, there were no significant changes to this information.17threenine months ended March 31,September 30, 2023.CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTSThis 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 possible to predict or identify all such risks and uncertainties, they include, but are not limited to, factors described in the Risk Factors discussion in Item 1A of Part I of our most recently filed Annual Report.The Company’sWe maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and Rule 15d-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarizedthe Company’sour Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of March 31,September 30, 2023. Based on thatthe evaluation the Company’s management, including such officers, concluded that the Company’sof our disclosure controls and procedures were effective as of March 31,September 30, 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 theour Chief Executive Officer and Chief Financial Officer concluded that as of such date, our disclosure controls and procedures were not effective due to allow timely decisions regarding required disclosurethe existence of the material weakness described below. However, our management, including our Chief Executive Officer and was recorded, processed, summarized,our Chief Financial Officer, has concluded that, notwithstanding the identified material weakness in our internal control over financial reporting, the financial statements in this Quarterly Report fairly present, in all material respects, our financial position, results of operations and reported withincash flows for the time periods specifiedpresented in conformity with U.S. GAAP.rulesrevenue recognition process. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A control related to the validation of accurate pricing in customer sales orders did not operate effectively to detect an error in prices, which resulted in the recognition of revenue at an inaccurate price during the six months ended June 30, 2023. Although the resulting error was not material to those financial statements, we concluded that the control deficiency represents a material weakness. The financial statements for the nine months ended September 30, 2023 were not impacted by this material weakness and forms of the Securities and Exchange Commission.are not misstated. A remediation plan is being put in place to correct this control deficiency.(b)There was no changeExcept for the identification of and ongoing steps to remediate the material weakness in the Company’sour internal control over financial reporting as described above, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended March 31, 2023period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, the Company’sour internal control over financial reporting. has filed an answer to the initial complaint, asserting that its device does not infringe the Company's patent and that the Company's patent is invalid. In August 2021, the Company amended its complaint to add a second patent to this litigation. Spectrum responded to the Company's amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation 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, theThe District Court issued two orders.multiple pretrial orders, resolving the infringement, antitrust, and inequitable conduct claims without trial. 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 appealhas appealed the Court’s grant of summary judgment.judgment to the Court of Appeal on June 8, 2023. Second, the District Court denied Spectrum’s motion to supplementamend its allegations of alleged antitrust violations. A separateviolations, finding that if such an amendment were allowed, Spectrum’s claims would not survive a motion byfor summary judgment. Spectrum thereafter withdrew its antitrust and inequitable conduct counterclaims. Spectrum did not appeal the District Court's denial of its motion to amendamend. Both parties have filed motions seeking sanctions in the District Court. Those motions remain pending. DNAG filed its counterclaims remains pending.opening appellate brief on September 28, 2023. Spectrum’s responsive appellate brief is due December 22, 2023. Oral argument in the appeal has not been scheduled. An inter partes review is currently pending before the PTO regarding the second asserted patent. The final pretrial conferenceOral argument in the inter partes review is currently scheduled for November 14, 2023. On September 15, 2023, Spectrum filed a petition for inter partes review of a third patent, which DNAG did not assert in the District CourtCourt. An optional preliminary patent owner response is set for October 26,due in December 2023.Conditionsbanking systemfuture could result in material misstatements in our financial statements or cause us to fail to meet our periodic reporting obligations.markets, includingreporting. The rules governing the standards that must be met for management to determine the adequacy of our internal control over financial reporting are complex and require significant documentation, testing, and possible remediation if a deficiency is identified. Annually, we perform activities that include reviewing, documenting, and testing our internal control over financial reporting. If we fail to maintain the adequacy of our internal control over financial reporting, we will not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with legal requirements. Any failure to achieve and maintain an effective internal control environment could result in materially misstated consolidated financial statements and a failure to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could result in significant expenses to remediate any internal control deficiency and lead to a decline in our stock price.banksthe material weakness as of September 30, 2023. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The materialinstitutions,statements. Moreover, other material weaknesses or deficiencies may develop or be identified in the future. If we are unable to correct material weaknesses or deficiencies in internal controls in a timely manner, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC, will be adversely affected. This failure could negatively affect the market price and trading liquidity of our common stock, cause investors to lose confidence in our reported financial information, subject us to civil and criminal investigations and penalties, and otherwise have ana material adverse effect on our consolidated balance sheet, results of operations or our stock price.financial results.Procures of Part II in this Quarterly report on Form 10-Q.Actualinvolving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companieschanges in the financial services industrybusiness environment have occurred which indicate that goodwill may be impaired. For example, a significant decline in the closing share price of the Company's common stock and market capitalization may suggest that the fair value of the Company's reporting unit has fallen below its carrying amount, indicating that an interim goodwill impairment test is required. The Company monitors changes in its stock price during interim periods between annual goodwill impairment tests and consider overall stock market conditions, the underlying reasons for the decline in the Company's stock price, the significance of the decline, and the duration of time that the Company's securities have been trading at a lower value.the financial services industry generally,our third-party IT service provider’s systems and, if successful, misappropriate personal or concerns or rumors about any events of these kinds or other similar risks,confidential information. We have in the past and may in the future experience phishing and other security incidents, and such attacks are an ongoing threat. Due to the nature of some of these attacks, there is a risk that they may remain undetected for a period of time. If successful, these activities could lead to market-wide liquidity problems. For example, on March 10 and March 12, 2023,service interruptions, extortion, theft of confidential, personal or proprietary information, the Federal Deposit Insurance Corporation took control and was appointed receivercompromise of Silicon 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 difficultydata integrity or unauthorized information disclosure. Any technology service interruption or breach of our systems could adversely affect our business operations and/or result in the future.loss of personal data, confidential information or intellectual property. Such incidents could require disclosure to government authorities and/or regulators and could require notification to impacted individuals and any incident could result in financial, legal, business and reputational harm to us. We maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.Althoughmaintainrecognized until launched against a target or, in some cases, are designed not to be detected and, in fact, may not be detected. Any such compromise of our or our third party’s IT service providers’ data security and access, public disclosure, or loss of personal or confidential business information, could result in legal claims and proceedings, liability under laws to protect privacy of personal information, and regulatory penalties, and could disrupt our operations, require significant management attention and resources to remedy any deposit accounts, credit agreements or lettersdamages that result, and damage our reputation and customers willingness to transact business with us, any of credit with any financial institution currently in receivership,which could adversely affect our business. 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 timesubject to predictadditional laws which impose further restrictions on the extenttransfer, access, use, and disclosure of the impact that the failure of these financial institutions or the high market volatility and instability of the banking sector could have on economic activity and our business in particular, the failure of other banks and financial institutions and the measures taken by governments, businesseshealth and other organizations in response to these events could adverselypersonal information which may impact our business financial conditioneither directly or indirectly. Our failure to comply with applicable privacy or security laws or significant changes in these laws could significantly impact our business and results of operations.future business plans.
shares purchased
paid per Share
shares purchased
as part of publicly
announced plans
or programs
approximate dollar value)
of shares that may yet be
repurchased under the plans
or programs (1, 2)19Period Total number of
shares purchasedAverage price
paid per ShareTotal number of
shares purchased
as part of publicly
announced plans
or programsJuly 1, 2023 - July 31, 2023 597 (3) $ 4.57 — 11,984,720 August 1, 2023 - August 31, 2023 29,562 (3) $ 6.49 — 11,984,720 September 1, 2023 - September 30, 2023 1,062 (3) $ 5.71 — 11,984,720 31,221 — 20Exhibit
NumberExhibit ExhibitNumberExhibit 3.1*Second Amended and Restated Bylaws of OraSure Technologies, Inc., as of May 9, 2023. 31.1*Exhibit 104the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2021 has been formattedInteractive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Inline XBRLexhibits 101).** Management contract or compensatory plan or arrangement.May 10,November 7, 2023May 10,November 7, 202322