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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017.

March 31, 2024.

OR

oTRANSITION 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)

Delaware36-4370966
Delaware36-4370966

(State or Other Jurisdiction of


Incorporation or Organization)

(IRS Employer Identification No.)

220 East First Street, Bethlehem, Pennsylvania18015
(Address of Principal Executive Offices)(Zip code)

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

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange on which registered
Common Stock, $0.000001 par value per shareOSURThe 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  x    No  

o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  

o

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 fileroAccelerated filerx
Non-accelerated filero☐  (Do not check if a smaller reporting company)Smaller reporting companyo
Emerging growth companyo

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.    

o

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

Numberx

As of May 2, 2024, the registrant had 73,959,289 shares of Common Stock,common stock, $0.000001 par value $.000001 per share, outstandingoutstanding.


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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 the 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 the 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.
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:
Market acceptance of, and the Company's ability to market and sell, its products and services, whether through its internal, direct sales force or third parties;
Failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for the Company's products;
Significant customer concentrations that exist or may develop in the future;
The Company's ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;
The Company's ability to achieve the anticipated cost savings as a result of its business restructuring, including from in-sourcing third party manufacturing and exiting microbiome services;
The 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;
The 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;
Changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements;
The Company's ability to meet increased demand for its products;
The impact of replacing distributors on the Company's business;
Inventory levels at distributors and other customers;
The Company's ability to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales;
The impact of competitors, competing products and technology changes on the Company's business;
Reduction or deferral of public funding available to customers;
Competition from new or better technology or lower cost products;
The Company's ability to develop, commercialize and market new products;
The Company's ability to fulfill its commitments under its contract with the U.S. government for InteliSwab® COVID-19 Rapid Tests;


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Changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (the "CDC") or other agencies; ability to fund research and development and other products and operations;
The Company's ability to obtain and maintain new or existing product distribution channels;
Reliance on sole supply sources for critical products and components;
Availability of related products produced by third parties or products required for use of the Company's products;
The impact of contracting with the U.S. government on the Company's business;
The impact of negative economic conditions on the Company's business;
The Company's ability to maintain sustained profitability;
The Company's ability to increase its gross margins;
The Company's ability to utilize net operating loss carry forwards or other deferred tax assets;
Volatility of the Company's stock price;
Uncertainty relating to patent protection and potential patent infringement claims;
Uncertainty and costs of litigation relating to patents and other intellectual property;
Availability of licenses to patents or other technology;
Ability to enter into international manufacturing agreements;
Obstacles to international marketing and manufacturing of products;
The impact of changes in international funding sources and testing algorithms on international sales;
Adverse movements in foreign currency exchange rates;
Loss or impairment of sources of capital;
The Company's ability to attract and retain qualified personnel;
The Company's exposure to product liability and other types of litigation;
Changes in international, federal or state laws and regulations;
Customer consolidations and inventory practices;
Equipment failures and ability to obtain needed raw materials and components;
The impact of terrorist attacks and civil unrest;
The impact of cybersecurity incidents and other disruptions involving our computer systems or those of our third-party IT service providers; and
General political, business and economic conditions, including interest rates and inflationary pressures.
These and other factors that could affect the 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 the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange


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Commission (the “SEC”) on March 11, 2024, 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 November 3, 2017: 60,648,324 shares.

the date of this report and the Company undertakes no duty to update these statements, unless it is required to do so by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make updates with respect to other forward-looking statements or that it will make any further updates to those forward-looking statements at any future time.

Investors should also be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company's policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the 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.


PART I. FINANCIAL INFORMATION

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Item 1.FINANCIAL STATEMENTS

Item 1.    FINANCIAL STATEMENTS
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except per share amounts)

   September 30, 2017  December 31, 2016 

ASSETS

   

CURRENT ASSETS:

   

Cash and cash equivalents

  $76,770  $107,959 

Restricted cash

   1,840   1,831 

Short-term investments

   83,372   11,160 

Accounts receivable, net of allowance for doubtful accounts of $494 and $484

   28,099   19,827 

Inventories

   16,859   11,799 

Prepaid expenses

   1,189   1,722 

Other current assets

   1,206   2,143 
  

 

 

  

 

 

 

Total current assets

   209,335   156,441 

PROPERTY AND EQUIPMENT, net

   21,496   20,033 

INTANGIBLE ASSETS, net

   8,972   10,337 

GOODWILL

   20,257   18,793 

LONG TERM INVESTMENTS

   18,290   —   

OTHER ASSETS

   3,909   2,331 
  

 

 

  

 

 

 
  $282,259  $207,935 
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

CURRENT LIABILITIES:

   

Accounts payable

  $9,624  $4,633 

Deferred revenue

   1,186   1,388 

Accrued expenses

   15,813   11,314 
  

 

 

  

 

 

 

Total current liabilities

   26,623   17,335 
  

 

 

  

 

 

 

OTHER LIABILITIES

   3,928   2,304 
  

 

 

  

 

 

 

DEFERRED INCOME TAXES

   2,194   2,446 
  

 

 

  

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 7)

   

STOCKHOLDERS’ EQUITY

   

Preferred stock, par value $.000001, 25,000 shares authorized, none issued

   —     —   

Common stock, par value $.000001, 120,000 shares authorized, 60,631 and 56,001 shares issued and outstanding

   —     —   

Additional paid-in capital

   385,978   350,528 

Accumulated other comprehensive loss

   (9,638  (14,220

Accumulated deficit

   (126,826  (150,458
  

 

 

  

 

 

 

Total stockholders’ equity

   249,514   185,850 
  

 

 

  

 

 

 
  $282,259  $207,935 
  

 

 

  

 

 

 

March 31, 2024December 31, 2023
ASSETS
Current Assets:
Cash and cash equivalents$247,145 $290,407 
Short-term investments16,627 — 
Accounts receivable, net of allowance of $1,065 and $1,21634,037 40,171 
Inventories43,180 47,614 
Prepaid expenses4,691 6,041 
Other current assets2,825 2,226 
Total current assets348,505 386,459 
Noncurrent Assets:
Property, plant and equipment, net of accumulated depreciation of $86,332 and $85,14342,597 45,420 
Operating right-of-use assets, net10,570 12,270 
Finance right-of-use assets, net158 576 
Intangible assets, net of accumulated amortization of $33,261 and $33,6491,010 1,206 
Goodwill35,172 35,696 
Investment in equity method investee28,333 — 
Other noncurrent assets1,213 1,218 
Total noncurrent assets119,053 96,386 
TOTAL ASSETS$467,558 $482,845 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable$12,683 $13,151 
Deferred revenue1,597 1,559 
Accrued expenses and other current liabilities12,715 22,710 
Finance lease liability517 539 
Operating lease liability1,593 1,577 
Total current liabilities29,105 39,536 
Noncurrent Liabilities:
Finance lease liability204 226 
Operating lease liability10,676 11,162 
Other noncurrent liabilities727 696 
Deferred income taxes595 554 
Total noncurrent liabilities12,202 12,638 
TOTAL LIABILITIES41,307 52,174 
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, 73,959 and 73,528 shares issued and outstanding— — 
Additional paid-in capital531,263 529,543 
Accumulated other comprehensive loss(17,497)(14,941)
Accumulated deficit(87,515)(83,931)
Total stockholders' equity426,251 430,671 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$467,558 $482,845 

See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

OPERATIONS

(Unaudited)

(in thousands, except per share amounts)

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2017   2016   2017  2016 

NET REVENUES:

       

Product

  $41,157   $25,460   $111,771  $78,286 

Other

   1,157    6,791    3,265   14,413 
  

 

 

   

 

 

   

 

 

  

 

 

 
   42,314    32,251    115,036   92,699 

COST OF PRODUCTS SOLD

   17,670    9,576    44,605   28,626 
  

 

 

   

 

 

   

 

 

  

 

 

 

Gross profit

   24,644    22,675    70,431   64,073 
  

 

 

   

 

 

   

 

 

  

 

 

 

OPERATING EXPENSES:

       

Research and development

   3,228    3,196    9,536   8,547 

Sales and marketing

   7,162    6,428    21,541   22,531 

General and administrative

   6,935    6,907    21,777   19,803 

Gain on litigation settlement

   —      —      (12,500  —   
  

 

 

   

 

 

   

 

 

  

 

 

 
   17,325    16,531    40,354   50,881 
  

 

 

   

 

 

   

 

 

  

 

 

 

Operating income

   7,319    6,144    30,077   13,192 

OTHER INCOME (EXPENSE)

   113    498    676   (34
  

 

 

   

 

 

   

 

 

  

 

 

 

Income before income taxes

   7,432    6,642    30,753   13,158 

INCOME TAX EXPENSE

   1,669    400    7,121   634 
  

 

 

   

 

 

   

 

 

  

 

 

 

NET INCOME

  $5,763   $6,242   $23,632  $12,524 
  

 

 

   

 

 

   

 

 

  

 

 

 

EARNINGS PER SHARE:

       

BASIC

  $0.10   $0.11   $0.40  $0.23 
  

 

 

   

 

 

   

 

 

  

 

 

 

DILUTED

  $0.09   $0.11   $0.39  $0.22 
  

 

 

   

 

 

   

 

 

  

 

 

 

SHARES USED IN COMPUTING EARNINGS PER SHARE:

       

BASIC

   60,090    55,653    58,511   55,549 
  

 

 

   

 

 

   

 

 

  

 

 

 

DILUTED

   62,172    56,530    60,569   56,273 
  

 

 

   

 

 

   

 

 

  

 

 

 

For the Three Months Ended March 31,
20242023
NET REVENUES:
Products and services$53,779 $152,914 
Other353 2,049 
54,132 154,963 
COST OF PRODUCTS AND SERVICES SOLD30,067 89,148 
Gross profit24,065 65,815 
OPERATING EXPENSES:
Research and development7,738 10,560 
Sales and marketing8,448 12,142 
General and administrative11,634 17,711 
Loss on impairments3,338 1,105 
Change in the estimated fair value of acquisition-related contingent consideration— (24)
31,158 41,494 
Operating income (loss)(7,093)24,321 
OTHER INCOME3,491 2,673 
Income (loss) before income taxes(3,602)26,994 
INCOME TAX BENEFIT(18)(225)
NET INCOME (LOSS)$(3,584)$27,219 
INCOME (LOSS) PER SHARE:
BASIC$(0.05)$0.37 
DILUTED$(0.05)$0.37 
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC73,947 73,112 
DILUTED73,947 73,966 
See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

(Unaudited)

(in thousands)

   Three Months Ended September 30,  Nine Months Ended September 30, 
   2017  2016  2017  2016 

NET INCOME

  $5,763  $6,242  $23,632  $12,524 

OTHER COMPREHENSIVE INCOME

     

Currency translation adjustments

   2,570   (729  4,882   2,501 

Unrealized loss on marketable securities

   (245  —     (300  —   
  

 

 

  

 

 

  

 

 

  

 

 

 

COMPREHENSIVE INCOME

  $8,088  $5,513  $28,214  $15,025 
  

 

 

  

 

 

  

 

 

  

 

 

 

For the Three Months Ended March 31,
20242023
NET INCOME (LOSS)$(3,584)$27,219 
OTHER COMPREHENSIVE INCOME
Currency translation adjustments(2,556)797 
Unrealized gain on marketable securities— 220 
COMPREHENSIVE INCOME (LOSS)$(6,140)$28,236 
See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

   Nine Months Ended September 30, 
   2017  2016 

OPERATING ACTIVITIES:

   

Net income

  $23,632  $12,524 

Adjustments to reconcile net income to net cash provided by operating activities:

   

Stock-based compensation

   5,213   4,438 

Depreciation and amortization

   4,589   4,152 

Unrealized foreign currency loss

   (246  75 

Deferred income taxes

   (425  (205

Changes in assets and liabilities

   

Accounts receivable

   (7,706  3,818 

Inventories

   (4,886  1,236 

Prepaid expenses and other assets

   1,616   1,186 

Accounts payable

   4,593   (125

Deferred revenue

   (212  (1,829

Accrued expenses and other liabilities

   4,193   (90
  

 

 

  

 

 

 

Net cash provided by operating activities

   30,361   25,180 
  

 

 

  

 

 

 

INVESTING ACTIVITIES:

   

Purchases of investments

   (132,177  (22,966

Proceeds from maturities and redemptions of investments

   42,613   22,966 

Purchases of property and equipment

   (3,462  (3,512
  

 

 

  

 

 

 

Net cash used in investing activities

   (93,026  (3,512
  

 

 

  

 

 

 

FINANCING ACTIVITIES:

   

Payments for debt issue costs

   —     (367

Proceeds from exercise of stock options

   31,402   894 

Repurchase of common stock

   (1,234  (3,311
  

 

 

  

 

 

 

Net cash provided by (used in) financing activities

   30,168   (2,784
  

 

 

  

 

 

 

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

   1,317   558 

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

   (31,180  19,442 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD

   109,790   94,094 
  

 

 

  

 

 

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD

  $78,610  $113,536 
  

 

 

  

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

   

Cash paid for income taxes

  $4,317  $812 
  

 

 

  

 

 

 

Noncash investing activities (accrued property and equipment purchases)

  $437  $241 
  

 

 

  

 

 

 

Noncash unrealized losses on marketable securities

  $(300 $—   
  

 

 

  

 

 

 

For the Three Months Ended March 31,
20242023
OPERATING ACTIVITIES:
Net income (loss)$(3,584)$27,219 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation2,968 2,655 
Depreciation and amortization2,725 3,696 
Loss on impairments3,338 1,105 
Other non-cash amortization— 
Provision for credit losses(85)(67)
Unrealized foreign currency (gain) loss(119)44 
Interest expense on finance leases15 
Deferred income taxes53 — 
Change in the estimated fair value of acquisition-related contingent consideration— (24)
Payment of acquisition-related contingent consideration— (19)
Changes in assets and liabilities:
Accounts receivable6,199 (36,613)
Inventories4,337 18,540 
Prepaid expenses and other assets603 5,299 
Accounts payable(68)(12,097)
Deferred revenue47 (279)
Accrued expenses and other liabilities(9,688)(3,472)
Net cash provided by operating activities6,738 6,002 
INVESTING ACTIVITIES:
Purchases of short-term investments(25,850)(22,330)
Purchase of equity method investee(28,333)— 
Proceeds from maturities and redemptions of short-term investments9,234 27,304 
Purchases of property and equipment(1,579)(1,191)
Purchase of property and equipment under government contracts— (2,767)
Net cash provided by (used in) investing activities(46,528)1,016 
FINANCING ACTIVITIES:
Cash payments for lease liabilities(50)(148)
Proceeds from exercise of stock options215 66 
Payment of acquisition-related contingent consideration— (46)
Repurchase of common stock(1,462)(1,203)
Net cash used in financing activities(1,297)(1,331)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH(2,175)527 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(43,262)6,214 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD290,407 83,980 
CASH AND CASH EQUIVALENTS, END OF PERIOD$247,145 $90,194 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash (refunds) paid for income taxes$592 $(10)
Non-cash investing and financing activities
Accrued property and equipment purchases$471 $733 

See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

(Unaudited)

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

1.The Company

We develop, manufacture, market and sell diagnostic products and specimen collection devices using our proprietary technologies, as well as other diagnostic products, including immunoassays and otherin vitro diagnostic tests that are used on other specimen types. Our diagnostic products include tests that are performed on a rapid basis at the point-of-care, tests that are processed in a laboratory, a rapid point-of-care HIV in-home test approved for use in the domestic consumer retail or over-the-counter (“OTC”) market and a rapid point-of-care HIV self-test used in certain international markets. We also manufacture and sell devices used to collect, stabilize, transport and store samples

1.    Summary of genetic material for molecular testing in the consumer genetic, clinical genetic, academic, research, pharmacogenomic, personalized medicine, microbiome and animal genetic markets. Lastly, we manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery, or freezing. Our products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, public health organizations, research and academic institutions, distributors, government agencies, physicians’ offices, commercial and industrial entities, retail pharmacies and mass merchandisers, and to consumers over the internet.

2.Summary of Significant Accounting Policies

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 subsidiary,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 subsidiary,subsidiaries, unless otherwise indicated.

The accompanying consolidatedunaudited financial statements, are unaudited and, 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, 2016.2023. Results of operations for the three and nine months ended September 30, 2017March 31, 2024 are not necessarily indicative of the results of operations expected for the full year.

Use

Summary of Estimates.The preparation ofSignificant Accounting Policies
There have been no changes to the Company's significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that have had a material impact on the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable and inventories and assumptions utilized in impairment testing for intangible assets and goodwill,related notes except as well as calculations related to contingencies, accruals, and performance-based compensation expense, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis, using historical experience and other factors, which management believes to be reasonable under the circumstances, including the current economic environment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the economic environment and other factors will be reflected in the financial statements in those future periods.

discussed herein.

Cash Equivalents & Short-Term Investments.We consider
The Company considers all investments in debt securities to be available-for-sale securities. These securities are comprisedconsist of guaranteed investment certificates and corporate bondspurchased with purchased 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.

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The following is a summary of ourthe Company's available-for-sale securities at September 30, 2017 and(in thousands):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
March 31, 2024
Guaranteed investment certificates$16,627 $— $— $16,627 
Total$16,627 $— $— $16,627 
At March 31, 2024, maturities of the Company's available-for-sale securities were as follows:
Less than one year$16,627 $— $— $16,627 
Greater than one year$— $— $— $— 
The Company had no available-for-sale securities as of December 31, 2016:

   Amortized
Cost
   Gross
Unrealized
Gains
   Gross
Unrealized
Losses
  Fair Value 

September 30, 2017

       

Guaranteed investment certificates

  $16,039   $—     $—    $16,039 

Corporate bonds

   85,923    —      (300  85,623 
  

 

 

   

 

 

   

 

 

  

 

 

 

Total available-for-sale securities

  $101,962   $—     $(300 $101,662 
  

 

 

   

 

 

   

 

 

  

 

 

 

December 31, 2016

       

Guaranteed investment certificates

  $11,160   $—     $—    $11,160 
  

 

 

   

 

 

   

 

 

  

 

 

 

Total available-for-sale securities

  $11,160   $—     $—    $11,160 
  

 

 

   

 

 

   

 

 

  

 

 

 

At September 30, 2017 maturities of our available-for-sale securities were as follows:

       

Less than one year

  $83,582   $—     $(210 $83,372 
  

 

 

   

 

 

   

 

 

  

 

 

 

Greater than one year

  $18,380   $—     $(90 $18,290 
  

 

 

   

 

 

   

 

 

  

 

 

 

2023.

Fair Value of Financial Instruments.
As of September 30, 2017March 31, 2024 and December 31, 2016,2023, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature.

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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;

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

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

All of our available-for-sale securitiesthe Company's guaranteed investment certificates are measured as Level 1 instruments as of September 30, 2017 and DecemberMarch 31, 2016.

2024.

Included in cash and cash equivalents at September 30, 2017March 31, 2024 and December 31, 2016,2023 was $33,633$114.1 million and $83,704$112.7 million, respectively, invested in government money market funds. These money market funds holdhave investments in U.S. government securities and are measured as Level 1 instruments.

We Included in cash and cash equivalents at March 31, 2024 and December 31, 2023 was $53.6 million and $71.7 million, respectively, of guaranteed investment certificates, which are also measured as Level 1 instruments.

In January 2024, the Company lead the Series B financing and have entered wide-ranging strategic distribution agreements with KKR Sapphiros L.P. ("Sapphiros"), a privately held consumer diagnostic portfolio company and certain of its related entities. Through this relationship, the Company expects to be able to offer a more comprehensive range of low-cost diagnostic test and molecular sample management solutions to the Company's customers globally. The Company has funded $28.3 million for an interest in Sapphiros, with an aggregate commitment of up to $30.0 million to be funded by June 2024, contingent on certain terms and conditions being met. The Company has recorded the investment using the equity method in accordance with Accounting Standards Codification Topic 323, Investments-Equity Method and Joint Ventures - Overall. The investment in Sapphiros L.P. of $28.3 million as of March 31, 2024 is included in the equity method investee line of the Company's balance sheet and is measured as Level 3 investments. There is no similar investment as of December 31, 2023.
The 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 Companycompany stock. The fair value of the plan assets as of September 30, 2017both March 31, 2024 and December 31, 20162023 was $3,670 and $1,980, respectively,$0.8 million 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 otherboth current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.

In 2017, we purchased certificates

Foreign Currency Transactions
Net foreign exchange gains and (losses) resulting from foreign currency transactions that are included in other income in the Company's consolidated statements of deposit (“CDs”)operations were $0.2 million and $(0.05) million for the three months ended March 31, 2024 and 2023, respectively.
Impairment of Long-Lived Assets
Long-lived assets, which include property, plant and equipment, definite-lived intangible assets, as well as right-of-use assets (ROU assets) of operating and finance leases, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company assesses the recoverability of the Company's long-lived assets by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset. If indicators of impairment exist, the Company measures 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 the Company's assumptions about selling prices, volumes, costs and market conditions over a commercial bank. reasonable period of time.
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The CDs bear interest at rates rangingCompany identified a triggering event to test for the recoverability of all the property, plant, and equipment and ROU assets of both the Diversigen and Novosanis subsidiaries during the three months ended March 31, 2024, given the Company's decision to initiate a strategic plan to transition away from 0.86% to 0.94%the microbiome molecular sequencing services business and mature periodically through January 15, 2018.close its Belgian operations. The Company performed an undiscounted cash flow analysis and determined the carrying values of the CDs

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approximate their fair value. These CDs serve as collateral for certain standby letters of credit and are reported as restricted cash on the accompanying consolidated balance sheets. Also see Note 7 – Commitments and Contingencies.

Inventories.Inventories are stated at the lower of cost or net realizable value determined on a first-in, first-out basis and are comprised of the following:

   September 30,
2017
   December 31,
2016
 

Raw materials

  $8,252   $5,399 

Work in process

   1,746    1,034 

Finished goods

   6,861    5,366 
  

 

 

   

 

 

 
  $16,859   $11,799 
  

 

 

   

 

 

 

Property and Equipment.Property 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 to forty years, while computer equipment, machineryproperty, plant and equipment and furnitureROU assets could not be recovered through the sum of the undiscounted future cash flows and fixtureswere impaired. During the three months ended March 31, 2024 the Company recognized aggregate pre-tax impairment charges of $1.2 million and $0.3 million to its operating and finance ROU assets, respectively. These charges 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 recordedreported in the Company's consolidated statementsstatement of income. Accumulated depreciation of property and equipment as of September 30, 2017 and December 31, 2016 was $38,689 and $36,067, respectively.

Intangible Assets. Intangible assets consist of a customer list, 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 seven to fifteen years. Accumulated amortization of intangible assets as of September 30, 2017 and December 31, 2016 was $18,129 and $15,197, respectively.operations. The change in intangibles from $10,337 as of December 31, 2016 to $8,972 as of September 30, 2017 is a result of $1,984 in amortization expense and $619 in foreign currency translation gains.

Goodwill.Goodwill represents the excessimpact of the purchase price we paid overimpairments on the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed in our acquisition of DNAG in August 2011. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Current U.S. generally accepted accounting principles permit us to make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the carrying value of a reporting unit is greater than its fair value, then we would be required to recognize an impairment chargeCompany's property, plant, equipment for the amountthree months ended March 31, 2024 is discussed further in Note 4.

Accumulated Other Comprehensive Loss
Change in accumulated other comprehensive loss by whichcomponent is listed below (in thousands):
Foreign CurrencyTotal
Balance at December 31, 2023$(14,941)$(14,941)
Other comprehensive loss(2,556)(2,556)
Balance at March 31, 2024$(17,497)$(17,497)
Recent Accounting Pronouncements
In March 2024, the carrying amount exceedsFinancial Accounting Standards Board (FASB) issued Accounting Standard Update ("ASU") No. 2024-01, Topic 718, Compensation-Stock Compensation. The purpose of this update was to provide illustrative examples to demonstrate how an entity should apply guidance to determine whether profits interests and similar awards should be accounted for in accordance with Topic 718. For public business entities, the reporting unit’s fair value, providedamendments in this ASU are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal periods. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. Management is evaluating the impairment charge does not exceedimpact on the total amount of goodwill allocated toCompany's consolidated financial statements.

2.    Government Capital Contracts
In September 2021, the reporting unit.

We performed our last annual impairment assessment as of July 31, 2017 utilizing a qualitative evaluation and concluded that it was more likely than not that the fair value of our DNAG reporting unit is greater than its carrying value. We believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting unit. If actual future results are not consistent with management’s estimates and assumptions, we may have to take an impairment charge in the future related to our goodwill. Future impairment tests will continue to be performed annually in the fiscal third quarter, or sooner if a triggering event occurs. As of September 30, 2017, we believe no indicators of impairment exist.

The increase in goodwill from $18,793 as of December 31, 2016 to $20,257 as of September 30, 2017 is a result of foreign currency translation.

Revenue Recognition. We recognize product revenues when there is persuasive evidence that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are recorded net of allowances for any discounts or rebates. Other than for sales of our OraQuick® In-Home HIV test to the retail trade, we do not grant price protection or product return rights to our customers except for warranty

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returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred.

Our net revenues recorded on sales of the OraQuick® In-Home HIV test represent total gross revenues, less an allowance for expected returns, and customer allowances for cooperative advertising, discounts, rebates, and chargebacks. The allowance for expected returns is an estimate established by management, based upon currently available information, and is adjusted to reflect known changes in the factors that impact this estimate. Other customer allowances are at contractual rates and are recorded as a reduction of gross revenue when recognized in our consolidated statements of income.

We record shipping and handling charges billed to our customers as product revenue and the related expense as cost of products sold. Taxes assessed by governmental authorities, such as sales or value-added taxes, are excluded from product revenues.

In June 2014, weCompany entered into a Master Program Services and Co-Promotion Agreement with AbbVie Bahamas Ltd., a wholly-owned subsidiary of AbbVie Inc. (“AbbVie”), to co-promote our OraQuick® HCV testan agreement for $109.0 million in the United States. On June 30, 2016, we mutually agreed to terminate our agreement with AbbVie effective December 31, 2016. Accordingly, during the third quarter and first nine months of 2017 we did not record any revenue from this co-promotion agreement. During the third quarter and first nine months of 2016, $6,114 and $12,837, respectively, of exclusivity revenue was recognized and recorded as other revenue in our consolidated statements of income.

In June 2015, we were awarded a grant for up to $10,400 in total funding from the U.S. Department of Defense (the "DOD"), in coordination with the Department of Health and Human Services, (“HHS”) Officeto build additional manufacturing capacity in the United States for its InteliSwab® COVID-19 Rapid Tests as part of the Assistant Secretary for Preparednessnation’s pandemic preparedness plan. In accordance with the milestone payment schedule, 15% of the total was not billed and Response’s Biomedical Advanced Researchfunded until the completion of the final validation testing, which occurred in October 2023. The Company began receiving funds from the DOD in January 2022 and Development Authority (“BARDA”) related to our OraQuick® Ebola rapid antigen test. The three-year, multi-phased grant includes an initial commitmenthas received $109.0 million as of $1,800 and options for up to an additional $8,600 to fund certain clinical and regulatory activities.December 31, 2023. In September 2015 and July 2017, BARDA exercised an option to provide $7,200 and $1,330, respectively, in additional funding for our OraQuick® Ebola test. Amounts related to this grant are recorded as other revenue in our consolidated statements of income as the activities are being performed and the related costs are incurred. During the third quarter and first nine months of 2017, $386 and $1,260, respectively, was recognized in connection with the completion of the contract in the fourth quarter of 2023, all funds were received.

Activity for these capital contracts is accounted for pursuant to International Accounting Standards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance, as there is not direct US GAAP guidance for this grant. During the third quarter and first nine monthstype of 2016, $474 and $1,373 respectively, was recognized in connection with this grant.

In August 2016, we were awarded a contract for up to $16,600 in total funding from BARDA related to our rapid Zika test. The six-year, multi-phased contract includes an initial commitment of $7,000 and options for up to an additional $9,600 to fund the evaluation of additional product enhancements, and clinical and regulatory activities. In May 2017, BARDA exercised an option to provide $2,600 in additional funding for our rapid Zika test.transaction. Funding received under this contract is recorded as other revenue in our consolidated statements of income as the activities are being performed and the relatedrelation to capital-related costs are incurred. During the third quarter and first nine months of 2017, $553 and $1,787, respectively, was recognized as other revenue in connection with this grant. During the third quarter and first nine months of 2016, $203 was recognized as other revenue in connection with this grant.

In June 2017, we entered into a four-year Charitable Support Agreement with the Bill & Melinda Gates Foundation (“Gates Foundation”) that will enable us to offer our OraQuick® HIV self-test at an affordable price in 50 developing countries with funding from the Gates Foundation. The funding will consist of support payments tied to volume of product sold by us and reimbursement of certain related costs. The funding from the Gates Foundation will be in an aggregate amount not to exceed $20,000 over the four-year term or $6,000 each year of the agreement. Funding received under this agreement in the form of support paymentsincurred for product purchasesgovernment contracts is recorded as a componentreduction to the cost of product revenue. During the third quarterproperty, plant and first nine months of 2017, $458 of support payments were recognized in product revenue in connection with this agreement. Funding receivedequipment and reflected within investing activities in the form of reimbursement of certain related costs is recorded as other revenue in our consolidated statements of income. Duringcash flows; and associated unpaid liabilities and government proceeds receivable are considered non-cash changes in such balances within the third quarter and first nine monthsoperating section of 2017, $218 was recognized in other revenue in connection with this agreement.

Customer Sales Returns and Allowances. We do not grant return rights to our customers for any product, except for our OraQuick® In-Home HIV test. Accordingly, we have recorded an estimate of expected returns as a reduction of gross OraQuick® In-Home HIV product revenues in ourthe consolidated statements of cash flows.

Amounts earned for the Company's guaranteed profit which covered project management costs were recognized straight-line in other income over the term of the government contract. The Company recognized no such income during the three months ended March 31, 2024 and $0.6 million during the three months ended March 31, 2023.
The DOD also reimbursed the Company for certain engineering consulting costs. These expenses are reflected in research and development expenses as incurred with the corresponding amount presented in other income. The Company
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recognized no such costs during the three months ended March 31, 2024 and $1.1 millionduring the three months ended March 31, 2023.
The activity corresponding to the government contracts included in the Company's consolidated statements of cash flows for the cumulative period ended December 31, 2023 is as follows (in thousands):
December 31,
2023
Cost of assets, cumulative$86,993 
Reduction for funding received to date(86,993)
Total property, plant and equipment, net$— 
3.    Inventories (in thousands)
March 31,December 31,
20242023
Raw materials$17,621 $20,727 
Work in process1,340 1,900 
Finished goods24,219 24,987 
$43,180 $47,614 
4.    Property, Plant and Equipment, net (in thousands)
March 31,December 31,
20242023
Land$1,118 $1,118 
Buildings and improvements35,013 34,606 
Machinery and equipment62,308 64,156 
Computer equipment and software17,681 17,739 
Furniture and fixtures3,468 3,748 
Construction in progress9,341 9,196 
128,929 130,563 
Accumulated depreciation(86,332)(85,143)
$42,597 $45,420 
During the three months ended March 31, 2024, the Company initiated a strategic plan to transition away from the microbiome molecular sequencing services business and to exit operations at its Belgium location. As a result of these decisions, the Company determined that the carrying values of all the property, plant, and equipment of its Diversigen and Novosanis subsidiaries were not recoverable and recorded an aggregate pre-tax asset impairment charge of $1.8 million during the three months ended March 31, 2024.
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 value of the equipment was not recoverable and recorded an aggregate pre-tax asset impairment charge of $1.1 million during the three months ended March 31, 2023.
Due to the extremely specialized nature of the equipment and various market data points, the estimated fair value was zero. These charges are reported within loss on impairments in the consolidated statements of operations.
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5.    Accrued Expenses and Other Current Liabilities (in thousands)
March 31,December 31,
20242023
Payroll and related benefits$5,475 $14,654 
Professional fees1,980 2,827 
Sales tax payable1,268 1,245 
Other3,992 3,984 
$12,715 $22,710 
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6.    Termination Benefits
2023 Reduction in Workforce
During the first and second quarters of 2023, the Company executed a reduction in workforce. This estimate reflects our historical sales experiencewas accounted for pursuant to retailers and consumers,Accounting Standards Codification ("ASC") 420, Exit or Disposal Cost Obligations. The charges for termination benefits included in the Company's consolidated statements of operations are as well as other retail factors, and is reviewed regularly to

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ensure that it reflects potential product returns. follows (in thousands):

For the Three Months Ended March 31,
20242023
Cost of products and services sold$— $35 
Research and development— 566 
Sales and marketing— 1,448 
General and administrative— 586 
$— $2,635 
As of March 31, 2024 the Company had $0.1 million accrued and had paid $3.2 million related to the reduction in workforce. No additional expense was incurred during the three months ended March 31, 2024. The Company expects this plan to be completed by September 30, 20172024.
Q1 2024 Reduction in Workforce
During the three months ended March 31, 2024, the Company executed a reduction in workforce largely affect its COVID-19 manufacturing workforce. This was accounted for pursuant to Accounting Standards Codification ("ASC") 420, Exit or Disposal Cost Obligations. The charges for termination benefits included in the Company's consolidated statements of operations are as follows (in thousands):
For the Three Months Ended March 31,
2024
Cost of products and services sold$231 
Research and development87 
Sales and marketing69 
General and administrative17 
Total$404 
As of March 31, 2024 the Company had $0.3 million accrued and had paid $0.1 million related to the reduction in workforce. The Company expects this plan to be completed by December 31, 2016,2024.
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7.    Revenues
Revenues by product line. The following table represents total net revenues by product line (in thousands):
Three Months Ended March 31,
20242023
COVID-19 (1)
$23,128 $118,409 
HIV13,380 13,904 
Molecular Sample Management Solutions (2)
10,822 12,942 
HCV3,000 3,186 
Risk assessment testing (3)
2,080 2,628 
Molecular Services873 1,379 
Other product and service revenues496 466 
Net product and services revenues53,779 152,914 
Non-product and services revenues (4)
353 2,049 
Net revenues$54,132 $154,963 
(1)Includes COVID-19 Diagnostics and COVID-19 Molecular Products.
(2)Includes Genomics, Microbiome and Novosanis product revenues.
(3)Includes substance abuse testing products.
(4)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 reserve for sales returns and allowances was $186 and $217, respectively. If actual product returns differ materially from our reserve amount, or if a determination is made that this product’s distribution would be discontinued in whole or in part by certain retailers, then we would need to adjust our reserve. Should the actual level of product returns vary significantly from our estimates, our operating and financial results could be materially affected.

Deferred Revenue. We record deferred revenue when funds are received prior to the recognitionlocation of the associated revenue. Deferred revenue as of September 30, 2017 and December 31, 2016 was comprised of customer prepayments of $1,186 and $1,388, respectively.

(in thousands):

Three Months Ended March 31,
20242023
United States$45,211 $145,019 
Europe1,602 1,852 
Other regions7,319 8,092 
$54,132 $154,963 
Customer and Vendor Concentrations. One of our customers At March 31, 2024, one non-commercial customer accounted for 21%29% of ourthe Company's consolidated accounts receivable. The same non-commercial customer accounted for 40% of the Company's consolidated accounts receivable as of September 30, 2017. AnotherDecember 31, 2023. The same non-commercial customer also accounted for 14%40% and 15%78% of our accounts receivable as of September 30, 2017 and December 31, 2016, respectively. One of our customers accounted for approximately 25% and 19% of our net consolidated revenues for the three and nine months ended September 30, 2017, respectively. For the three and nine months ended September 30, 2016, this same customer accounted for approximately 19% and 14% of our net consolidated revenues, respectively. Another customer accounted for 11% and 10% of our net consolidated revenues for the three months ended March 31, 2024 and nine months ended September 30, 2017,2023, respectively. This customer notified us in October 2017 that our supply contract for HCV rapid test will not be renewed at this time. It is unclear whether this customer will fulfill the remaining $4 million of purchase obligations under our existing contract.

We

The Company currently purchasepurchases certain products and critical components of ourits products from sole-supply vendors. If these vendors are unable or unwilling to supply the required components and products, wethe Company could be subject to increased costs and substantial delays in the delivery of ourits products to ourits customers. Also, our subsidiary, DNAG, uses two third-partyThird-party suppliers toalso manufacture itscertain products. OurThe Company's inability to have a timely supply of any of these components and products could have a material adverse effect on ourits business, as well as ourits financial condition and results of operations.

Earnings

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, 2024 and December 31, 2023 included customer prepayments of $1.3 million and $1.2 million, respectively. Deferred revenue as of March 31, 2024 and December 31, 2023 also included $0.3 million and $0.4 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. Deferred revenue recognized for the three months ended March 31, 2024, and 2023, was $0.7 million and $0.9 million, respectively.
13

8.    Income Taxes
The components of income tax expense (benefit) are as follows (in thousands):
Three Months Ended March 31,
20242023
State income tax expense (benefit)$(230)$(225)
Foreign income tax expense (benefit)212 — 
Foreign withholding tax— — 
$(18)$(225)
During the three months ended March 31, 2024 and 2023, the Company recorded an income tax benefit of $0.0 million and $0.2 million, respectively. The income tax benefit for the three months ended March 31, 2024and 2023 is primarily composed of a U.S. state tax benefit.
Income 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, 2024 and at December 31, 2023 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 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, 2024 and December 31, 2023.
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 averageweighted-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 reporting period.

The Basic and dilutive computations of basic and diluted earningsnet loss per share are the same in periods in which a net loss exists as follows:

   Three Months   Nine Months 
   Ended September 30,   Ended September 30, 
   2017   2016   2017   2016 

Net income

  $5,763   $6,242   $23,632   $12,524 
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares of common stock outstanding:

        

Basic

   60,090    55,653    58,511    55,549 

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

   2,082    877    2,058    724 
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   62,172    56,530    60,569    56,273 
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

        

Basic

  $0.10   $0.11   $0.40   $0.23 
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $0.09   $0.11   $0.39   $0.22 
  

 

 

   

 

 

   

 

 

   

 

 

 

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the dilutive effects of excluded items would be anti-dilutive.

For the three-month periodsthree months ended September 30, 2017 and 2016,March 31, 2024, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 81,697 shares, were excluded from the computation of diluted loss per share. For the three months ended March 31, 2023 outstanding common stock options, unvested restricted stock, and 2,130unvested performance stock units representing 2,237 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, 2017 and 2016, outstanding common stock options, unvested restricted stock and unvested performance units representing 238 and 2,837 shares, respectively, were similarly excluded from the computation
14

Table of diluted earnings per share.

Foreign Currency Translation. The assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates asContents

10.    Stockholders’ Equity
Reconciliation of the balance sheet date, and revenues and expenses are translated at average exchange rateschanges in stockholders' equity 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 functional currency are included in our consolidated statements of income in the period in which the change occurs. Net foreign exchange (losses) gains resulting from foreign currency transactions that are included in other income (expense) in our consolidated statements of income were $(638) and $84 for the three months ended September 30, 2017March 31, 2024 and 2016, respectively. Net foreign exchange losses were $(1,256)2023 :

Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
SharesAmount
Balance at December 31, 202373,528$— $529,543 $(14,941)$(83,931)$430,671 
Common stock issued upon exercise of options32— 214 — — 214 
Vesting of restricted stock and performance stock units593— — — — — 
Purchase and retirement of common shares(194)— (1,462)— — (1,462)
Stock-based compensation— 2,968 — — 2,968 
Net loss— — — (3,584)(3,584)
Currency translation adjustments— — (2,556)— (2,556)
Unrealized gain on marketable securities— — — — — 
Balance at March 31, 202473,959$— $531,263 $(17,497)$(87,515)$426,251 
Common StockAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
SharesAmount
Balance at December 31, 202272,734$— $520,446 $(18,435)$(137,586)$364,425 
Common stock issued upon exercise of options12— 66 — — 66 
Vesting of restricted stock and performance stock units737— — — — — 
Purchase and retirement of common shares(229)— (1,203)— — (1,203)
Stock-based compensation— 2,655 — — 2,655 
Net income— — — 27,219 27,219 
Currency translation adjustments— — 797 — 797 
Unrealized gain on marketable securities— — 220 — 220 
Balance at March 31, 202373,254$— $521,964 $(17,418)$(110,367)$394,179 
11.    Commitments and $(564) for the nine months ended September 30, 2017 and 2016, respectively.

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

We have defined the Canadian dollar as the functional currency of our Canadian subsidiary, DNAG, and as such, the results of its operations are translated into U.S. dollars, which is the reporting currency of the Company. Accumulated other comprehensive loss at September 30, 2017 consists of $9,338 of currency translation adjustments and $300 of net unrealized losses on marketable securities.

Recent Accounting Pronouncements.In May 2014, the Financial Accounting Standards Board (“FASB”) issued converged guidance on recognizing revenue in contracts with customers, ASU 2014-09,Revenue from Contracts with Customers. The intent of the new standard is to improve financial reporting and comparability of revenue globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange for those goods or services. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, at which point we plan to adopt the standard.

The FASB allows two adoption methods under ASU 2014-09. We plan to adopt the standard using the “modified retrospective method.” Under that method, we will apply the rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effective of the change and providing additional disclosures comparing results to those under the previous accounting standard.

Upon initial evaluation, we believe the key changes in the standard that impact our revenue recognition relate to the allocation of the transaction price to performance obligations related to our drug testing kits. This revenue stream amounts to less than 1% of total consolidated revenues. We will continue to evaluate the impact that the adoption of ASU 2014-09 will have on our consolidated financial statements and related disclosures, but do not anticipate the adoption will have a material impact on our financial results.

In July 2015, the FASB issued ASU 2015-11,Simplifying the Measurement of Inventory, which requires an entity that uses the first-in, first-out method for inventory measurement to report inventory cost at the lower of cost and net realizable value versus the current measurement principle of lower of cost or market. The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016. We adopted ASU 2015-11 on January 1, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU 2016-02,Leases, which requires entities to begin recording assets and liabilities from leases on the balance sheet. The new guidance will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. The standard will be effective for the first

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interim period within annual reporting periods beginning after December 15, 2018, using a modified retrospective approach. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 may have on our consolidated financial statements and related disclosures.

In March 2016, the FASB issued authoritative guidance under ASU 2016-09,Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted ASU 2016-09 on January 1, 2017. Since we have a full valuation allowance against our U.S. net deferred tax assets, the adoption of this standard for recognition of the tax effect of deductions for employee share awards in excess of compensation costs (“windfall”) did not have a material impact on our consolidated financial statements and related disclosures. See Note 6 – Income Taxes, for additional information. Should our full valuation allowance be reversed in future periods, the adoption of this new guidance will introduce more volatility in the calculation of our effective tax rate, depending on the Company’s share price at exercise or vesting of share-based awards as compared to grant date. The other provisions of ASU 2016-09 did not have a material impact on our consolidated financial statements and related disclosures.

In August 2016, the FASB issued ASU 2016-15,Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance related to cash flows presentation and is effective for annual reporting periods beginning after December 15, 2017, subject to early adoption. The majority of the guidance in ASU 2016-15 is consistent with our current cash flow classifications and we do not expect the adoption of this standard will have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which requires an entity to no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. This update will be effective for annual and interim periods in fiscal years beginning after December 15, 2019. Early adoption is permitted. We adopted ASU 2017-04 in the second quarter of 2017. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures.

In March 2017, the FASB issued ASU 2017-08,Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which shortens the premium amortization period for purchased non-contingently callable debt securities. Shortening the amortization period is generally expected to more closely align the interest income recognition with the expectations incorporated in the market pricing on the underlying securities. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2017-08 may have on our consolidated financial statements and related disclosures.

3.Accrued Expenses

   September 30,
2017
   December 31,
2016
 

Payroll and related benefits

  $8,684   $7,685 

Income taxes payable (receivable)

   3,303    (39

Professional fees

   688    982 

Royalties

   659    715 

Other

   2,479    1,971 
  

 

 

   

 

 

 
  $15,813   $11,314 
  

 

 

   

 

 

 

4.Credit Facility

On September 30, 2016, we entered into a credit agreement (the “Credit Agreement”) with a commercial bank. The Credit Agreement provides for revolving extensions of credit in an initial aggregate amount of up to $10,000 (inclusive of a letter of credit subfacility of $2,500), with an option to request, prior to the second anniversary of the

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closing date, that the lender, at its election, provide up to $5,000 of additional revolving commitments. Obligations under the Credit Agreement are secured by a first priority security interest in certain eligible accounts receivable, 65% of the equity of our subsidiary, DNAG, and certain related assets. There were no borrowings outstanding under the Credit Agreement at September 30, 2017 and December 31, 2016.

Borrowings under the Credit Agreement are subject to compliance with borrowing base limitations tied to eligibility of accounts receivable. Interest under the Credit Agreement is payable at the London Interbank Offered Rate for one, two, three or six-month loans, as selected by the Company, plus 2.50% per year. The Credit Agreement is subject to an unused line fee of 0.375% per year on the unused portion of the commitment under the Credit Agreement during the revolving period. The maturity date of the Credit Agreement is September 30, 2019.

In connection with the Credit Agreement, under certain circumstances, we must comply with a minimum fixed charge coverage ratio of 1.10 to 1.00, measured as of the last day of each fiscal month and for the twelve-fiscal month period ending on such date. As of September 30, 2017 and December 31, 2016, we were in compliance with all applicable covenants in the Credit Agreement.

5.Stockholders’ Equity

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 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 or to issue restricted stock, or redeem performance-based restricted stock units, we issue new shares rather than purchase shares on the open market.

Total compensation cost related to stock options for the three months ended September 30, 2017 and 2016 was $547 and $646, respectively. Total compensation cost related to stock options for the nine months ended September 30, 2017 and 2016 was $1,554 and $2,033, respectively. Net cash proceeds from the exercise of stock options were $31,402 and $894 for the nine months ended September 30, 2017 and 2016, respectively. As a result of the Company’s net operating loss carryforward position, no actual income tax benefit was recognized in the consolidated statements of income from stock option exercises during these periods.

Compensation cost of $667 and $736 related to restricted shares was recognized during the three months ended September 30, 2017 and 2016, respectively. Compensation cost of $2,022 and $2,137 related to restricted shares was recognized during the nine months ended September 30, 2017 and 2016, respectively. In connection with the vesting of restricted shares during the nine months ended September 30, 2017 and 2016, we purchased and immediately retired 122 and 117 shares with aggregate values of $1,234 and $651, respectively, in satisfaction of minimum tax withholding obligations.

Commencing in 2016, we granted performance-based restricted stock units (“PSUs”) to certain executives. Vesting of these PSUs is dependent upon achievement of 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 remain in our service for three years from the grant date. Performance during the one-year period will be based on a one-year earnings per share target. If the one-year target is achieved, the PSUs will then vest three years from grant date. Performance during the three-year period will be based on achievement of a three-year compound annual growth rate for consolidated product revenues. 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. Upon grant of the PSUs, we recognize compensation expense related to these awards based on assumptions as to what percentage of each target will be achieved. The Company evaluates these assumptions on a quarterly basis and adjusts compensation expense related to these awards, as appropriate. Compensation cost of $368 and $114 related to PSUs

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was recognized during the three months ended September 30, 2017 and 2016, respectively. Compensation cost of $1,637 and $268 related to PSUs was recognized during the nine months ended September 30, 2017 and 2016, respectively.

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. No shares were purchased and retired during the nine months ended September 30, 2017. During the nine months ended September 30, 2016, we purchased and retired 423 shares of common stock at an average price of $6.29 per share for a total cost of $2,660 under this share purchase agreement.

6.Income Taxes

During the three and nine months ended September 30, 2017, we recorded tax expense of $1,669 and $7,121, respectively. During the three and nine months ended September 30, 2016, we recorded tax expense of $400 and $634, respectively.

Tax expense reflects taxes due to state and Canadian 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 September 30, 2017 relate to the tax effects of the basis difference between the intangible assets acquired in the DNAG acquisition for financial reporting and tax purposes. Tax expense in the first nine months of 2017 reflects an increase in earnings and additional Canadian taxes due as a result of the $12,500 gain from the settlement of our patent infringement and breach of contract litigation against Ancestry.com DNA LLC and its contract manufacturer.

In 2008, we established a full valuation allowance against our U.S. deferred tax asset. Management believes the full valuation allowance is still appropriate as of both September 30, 2017 and December 31, 2016 since the facts and circumstances necessitating the allowance have not changed. As a result, no U.S. federal or state deferred income tax expense or benefit was recorded for the three and nine-month periods ended September 30, 2017 and 2016.

The new accounting guidance under ASU 2016-09 allows for the recognition of excess tax benefits regardless of whether the deduction reduces taxes payable. On January 1, 2017, we recorded a cumulative-effect adjustment to retained earnings of $3,391 to recognize the increase in our net operating loss carryforwards from the cumulative excess tax benefits not recognized in periods prior to January 1, 2017. A corresponding $3,391 increase to our valuation allowance associated with this tax benefit was also recorded to retained earnings thereby resulting in a net impact to retained earnings of $0.

7.Commitments and Contingencies

Standby Letters of Credit

We established standby letters of credit in the aggregate amount of $1,840, naming international customers as the beneficiaries. These letters of credit were required as a performance guarantee of our obligations under our product supply contracts with those customers and are collateralized by certificates of deposit maintained at a commercial bank.

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.

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8.Business Segment Information

We operate our business within two reportable segments: our “OSUR” business, which consists of


In March 2021, the development, manufacture and sale of diagnostic products, specimen collection devices and medical devices; and our molecular collection systems or “DNAG” business, which primarily consists of the manufacture, development and sale of oral fluid collection devices that are used to collect, stabilize and store samples of genetic material for molecular testing. OSUR revenues are derived primarily from products soldCompany 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 internationally to various clinical laboratories, hospitals, clinics, community-based organizations, public health organizations, distributors, government agencies, physicians’ offices, commercial and industrial entities, retail pharmacies and mass merchandisers, and to consumers over the internet. OSUR also derives other revenues, including exclusivity payments for co-promotion rights and other licensing and product development activities. DNAG revenues result primarily from products sold into the commercial market which consists of customers engaged in consumer genetics, clinical genetic testing, pharmacogenomics, personalized medicine, microbiome, animal genetic testing and research. DNAG products are also sold into the academic research market, which consists of research laboratories, universities and hospitals.

We organized our operating segments accordingby Spectrum infringe a patent held by DNAG. Spectrum filed an answer to the natureinitial 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 products includedpatents in those segments. The accounting policiesthe litigation and subsequently filed a request for review of the segmentssecond patent at the Patent and Trademark Office ("PTO"), which was granted by the PTO. The District Court issued 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 appealed the same as those describedgrant of summary judgment to the Court of Appeals on June 8, 2023. The appeal is pending, with oral argument expected in the second half of 2024. Second, the Court denied Spectrum’s motion to supplement its allegations of alleged antitrust violations, finding that if such an amendment were allowed,

15

Table of Contents
Spectrum’s claims would not survive a motion for summary judgment. Spectrum thereafter withdrew its antitrust and inequitable conduct counterclaims. Spectrum did not appeal the District Court's denial of significant accounting policies (see Note 2). We evaluate performanceits motion to amend. On February 7, 2024, the PTO issued a Final Written Decision regarding the second patent in the litigation, holding that claims 1, 3-8, 11 and 12 of our operating segments based on revenue and operating income. We do not allocate interest income, interest expense, other income, other expenses or income taxes to our operating segments. Reportable segments have no inter-segment revenues and inter-segment expenses have been eliminated.

The following table summarizes operating segment informationU.S. Patent No. 11,002,646 B2 are unpatentable. On March 8, 2024, the Company filed a Request for Rehearing by the three and nine months ended September 30, 2017 and 2016, and asset information as of September 30, 2017 and December 31, 2016:

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   Three Months Ended September 30,   Nine Months Ended September 30, 
   2017   2016   2017   2016 

Net revenues:

        

OSUR

  $23,762   $23,924   $69,720   $69,050 

DNAG

   18,552    8,327    45,316    23,649 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $42,314   $32,251   $115,036   $92,699 
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss):

        

OSUR

  $(453  $4,571   $(235  $9,098 

DNAG

   7,772    1,573    30,312    4,094 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $7,319   $6,144   $30,077   $13,192 
  

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization:

        

OSUR

  $855   $688   $2,189   $2,003 

DNAG

   843    726    2,400    2,149 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,698   $1,414   $4,589   $4,152 
  

 

 

   

 

 

   

 

 

   

 

 

 

Capital expenditures:

        

OSUR

  $1,156   $283   $2,493   $1,406 

DNAG

   739    500    969    2,106 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $1,895   $783   $3,462   $3,512 
  

 

 

   

 

 

   

 

 

   

 

 

 
   September 30,
2017
   December 31,
2016
         

Total assets:

        

OSUR

  $192,298   $151,719     

DNAG

   89,961    56,216     
  

 

 

   

 

 

     

Total

  $282,259   $207,935     
  

 

 

   

 

 

     

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

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2017   2016   2017   2016 

United States

  $29,063   $26,302   $78,871   $72,493 

Europe

   3,204    2,171    8,765    9,006 

Other regions

   10,047    3,778    27,400    11,200 
  

 

 

   

 

 

   

 

 

   

 

 

 
  $42,314   $32,251   $115,036   $92,699 
  

 

 

   

 

 

   

 

 

   

 

 

 

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PTO of the Final Written Decision. On March 27, 2024, the Company's Request for Rehearing was denied. The following table represents total long-lived assets by geographic area:

   September 30,
2017
   December 31,
2016
 

United States

  $16,644   $15,737 

Canada

   4,767    4,286 

Other regions

   85    10 
  

 

 

   

 

 

 
  $21,496   $20,033 
  

 

 

   

 

 

 

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Company is considering its appellate options. On September 15, 2023, Spectrum filed a separate petition for inter partes review of a third patent, which DNAG did not assert in the District Court. On March 26, 2024, the PTO issued a Decision Granting Institution of Inter Partes Review and scheduled oral argument for January 14, 2025.

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Table of Contents
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

Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Federal securities laws. These may include statements about our expected revenues, earnings/loss per share, net income (loss), expenses, cash flow or otherCompany's financial performance or developments, clinical trial or development activities, expected regulatory filingscondition 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 orshould be read in conjunction with (i) the Company's unaudited condensed consolidated financial position. These statements often includeand related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. Forward-lookingCompany's audited consolidated financial statements are not guaranteesand related notes and management’s discussion and analysis of future performance or results. Knownfinancial condition and unknown factors that could cause actual performance or results to be materially different from those expressed or impliedof operations included in these statements include, but are not limited to: ability to market and sell products, whether through our internal, direct sales force or third parties; ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements; 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; ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S. Food and Drug Administration (“FDA”) or other regulators; changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements; ability to meet increased demand for our products; impact of increased reliance on U.S. government contracts; failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products; impact of replacing distributors; inventory levels at distributors and other customers; ability of the Company to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of competitors, competing products and technology changes; impact of negative economic conditions, high unemployment levels and poor credit conditions; reduction or deferral of public funding available to customers; competition from new or better technology or lower cost products; ability to develop, commercialize and market new products; market acceptance of oral fluid testing or other products; changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (“CDC”) or other agencies; ability to fund research and development and other products and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical products and components; availability of related products produced by third parties or products required for use of our products; history of losses and ability to achieve sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of the Company’s stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty and costs of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms; ability to successfully renew contracts or enter into new contracts with existing customers; adverse movements in foreign currency exchange rates; loss or impairment of sources of capital; ability to meet financial covenants in credit agreements; ability to attract and retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks and civil unrest; and general political, business and economic conditions. These and other factors are discussed more fully in our Securities and Exchange Commission (“SEC”) filings, including our registration statements,Company's Annual Report on Form 10-K for the year ended December 31, 2016,2023 filed with the Securities and Exchange Commission on March 11, 2024. 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 the Company's plans and strategy for its business and impact and potential impacts on its 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2023 and the “Risk Factors” section of subsequent Quarterly Reports on Form 10-Q, and other filings with the SEC. AlthoughCompany'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 help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. statements.
Business Overview
The forward-looking statements are made asCompany's business consists of the datedevelopment, manufacture, marketing and sale of this Report, and we undertake no dutysimple, easy 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

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financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of OraSure.

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

Overview

We develop, manufacture, market and selluse diagnostic products and specimen collection devices using ourthe Company's proprietary technologies, as well as other diagnostic products including immunoassays and otherin vitro diagnostic tests that are used on other specimen types. Our diagnosticThese products include tests for diseases including COVID-19, HIV and Hepatitis C that are performed on a rapid basis at the point-of-care,point of care, and tests for drugs of abuse that are processed in a laboratory, a rapid point-of-care HIV test approved for use in the domestic consumer retail or over-the-counter (“OTC”) market and a rapid point-of-care HIV self-test used in certain international markets. We also manufacture and sell collection devices used to collect, stabilize, transport and store samples of genetic material for molecular testing in the consumer genetic, clinical genetic, academic, research, pharmacogenomic, personalized medicine, microbiome and animal genetic markets. Lastly, we manufacture and sell medical devices used for the removal of benign skin lesions by cryosurgery, or freezing. Ourlaboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, public health organizations, research and academic institutions, distributors, government agencies, physicians’ offices, commercial and industrial entities, retail pharmacies and mass merchandisers, and to consumers over the internet.

Recent Developments

In 2016, we entered into a contract to supply a foreign government with $18 million of product, primarily to support a nationwide HCV testing and treatment program. To date, we have supplied $14.0 million of product to this customer under the contract. The contract includes a renewal option under which the government may purchase up to 100% of the original quantities of product on the same terms and conditions contained in the contract. During the past several months, we have engaged in renewal discussions with this customer, including with respect to specific quantities of product to be supplied. During these discussions, we were advised that the contract would likely be renewed at quantities substantially in excess of the original quantities under the contract. However, we were recently informed that the government has decided to move to an all laboratory testing solution and that another party had been selected to provide that solution based on cost. As a result, it is our expectation that our supply contract with this customer for rapid tests will not be renewed at this time. In light of these developments, it is unclear whether this government will fulfill the remaining purchase obligations under our existing contract.

Current Consolidated Financial Results

During the nine months ended September 30, 2017, our consolidated net revenues were $115.0 million, compared to $92.7 million for the nine months ended September 30, 2016. Net product revenues during the nine months ended September 30, 2017 increased 43% when compared to the first nine months of 2016, primarily due to higher sales of our molecular and OraQuick® HCV products and increased international sales of our OraQuick® HIV self-test. Partially offsetting these increases were lower domestic sales of our professional OraQuick® HIV product and lower domestic and OTC sales of our cryosurgical products. Other revenues for the first nine months of 2017 were $3.3 million compared to $14.4 million in the same period of 2016. Other revenues in the first nine months of 2017 largely represent revenue recognized in connection with funding received from the U.S. Department of Health and Human Services Office of the Assistant Secretary for Preparedness and Response’s Biomedical Advanced Research and Development Authority (“BARDA”) related to our Ebola and Zika products. Other revenues in the first nine months of 2016 included $1.6 million of BARDA funding and $12.8 million of exclusivity revenues recognized under our HCV co-promotion agreement with AbbVie, which terminated on December 31, 2016.

Our consolidated net income for the nine months ended September 30, 2017 was $23.6 million, or $0.39 per share on a fully-diluted basis, compared to consolidated net income of $12.5 million, or $0.22 per share on a fully-diluted basis for the nine months ended September 30, 2016. Results for the current nine month period include a pre-tax gain of $12.5 million associated with the settlement of our litigation against Ancestry.com DNA LLC and its contract manufacturer in the first quarter of 2017.

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Cash provided by operating activities for the nine months ended September 30, 2017 was $30.4 million and included the $12.5 million litigation settlement noted above. Cash provided by operating activities during the nine months ended September 30, 2016 was $25.2 million. As of September 30, 2017, we had $180.3 million in cash (including restricted cash), cash equivalents, and available-for-sale securities, compared to $120.9 million at December 31, 2016.

Business Segments

We operate our business within two reportable segments: our “OSUR” business, which consists of the development, manufacture and sale of diagnostic products, specimen collection devices, and medical devices, and our “DNAG” or molecular collection systems business, which consists primarily of the development, manufacture and sale of oral fluid collection devices that are used to collect, stabilize, transport, and store samples of genetic material for molecular testing. OSUR revenues are derived primarily from products sold into the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations,other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities, retail pharmacies, mass merchandisersentities. The Company's COVID-19 and consumers overHIV products are also sold in a consumer-friendly format in the internet. DNAGover-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, including as an oral swab in-home test for HIV-1 and HIV-2 in Europe.

The Company's business also includes molecular sample management solutions and services that are used by clinical laboratories, direct-to-consumer laboratories, researchers, pharmaceutical companies, and animal health service and product providers. The revenues result primarily from products sold into thesample management solutions are derived from product sales to commercial market, which consists of customers engaged in consumer genetics, clinical genetic testing, pharmacogenomics, personalized medicine, microbiome, animal genetic testing and research, as well as products soldsales into the academic and research markets. Customers span the disease risk management, diagnostics, pharmaceutical, biotech, companion animal and environmental markets. The Company has also developed collection devices for the emerging microbiome market, which consistsfocuses on studying microbiomes and their effect on human and animal health. The Company also has a urine collection device 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. Additionally, the Company offers laboratory and bioinformatics services for both genomics and microbiome customers. These services are primarily provided to pharmaceutical, biotech companies, and research laboratories, universitiesinstitutions.
Recent Developments
Novosanis
During the three months ended March 31, 2024, the Company made a strategic decision to commence wind-down of its operations at its Novosanis subsidiary located in Belgium. The Company intends to continue to sell and hospitals.

manufacture its Colli-Pee® product under the DNAG product line of collection devices. In addition, during the three months ended March 31, 2024, the Company initiated steps to wind down and exit the molecular services business offered by its Diversigen subsidiary while providing transition continuity for clients. This business contributed $0.9 million to revenues during the three months ended March 31, 2024 and contributed $4.5 million for the full year of 2023.

Sapphiros
In January 2024, the Company announced that it is leading the Series B financing and have entered wide-ranging strategic distribution agreements with KKR Sapphiros L.P. ("Sapphiros"), a privately held consumer diagnostics portfolio company based in Boston, and certain of its related entities. Through this strategic relationship, the Company expects to be able to
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offer a more comprehensive range of low-cost diagnostic tests and molecular sample management solutions to the Company's customers globally.

The Company has funded approximately $28.3 million an interest in Sapphiros, with an aggregate commitment of up to $30.0 million to be funded by June 2024, contingent on certain terms and conditions being met.
Results of Operations

Three

For the three months ended September 30, 2017March 31, 2024 compared to September 30, 2016

March 31, 2023.

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 for the three months ended September 30, 2017March 31, 2024 and 2016.

   Three Months Ended September 30, 
   Dollars      Percentage of Total
Net Revenues
 
   2017   2016   %
Change
  2017  2016 

OSUR

  $22,605   $17,133    32  53  53

DNAG

   18,552    8,327    123   44   26 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net product revenues

   41,157    25,460    62   97   79 

Other

   1,157    6,791    (83  3   21 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net revenues

  $42,314   $32,251    31  100  100
  

 

 

   

 

 

    

 

 

  

 

 

 

Consolidated net product revenues increased 62% to $41.2 million in the third quarter of 2017 from $25.5 million in the comparable period of 2016. Higher sales of our molecular and OraQuick® HCV products and higher international sales of our OraQuick® HIV self-test were partially offset by lower domestic sales of our professional OraQuick® HIV product and lower domestic and OTC sales of our cryosurgical products. In the third quarter of 2017, we recognized $939,000 in other revenues in connection with funding from BARDA related to our Ebola and Zika products and $218,000 in reimbursement of certain costs under our charitable support agreement with the Bill & Melinda Gates Foundation (“Gates Foundation”). Other revenues in the third quarter of 2016 were $6.8 million and included $6.1 million in exclusivity payments received under our HCV co-promotion agreement with AbbVie and $676,000 in BARDA funding. Our co-promotion agreement with AbbVie was terminated effective as of December 31, 2016 and no further revenues were recognized under this agreement after that time.

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Consolidated net revenues derived from products sold to customers outside of the United States were $13.3 million and $5.9 million, or 31% and 18% of total net revenues, in the third quarters of 2017 and 2016, 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

OSUR Segment

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our OSUR segment.

   Three Months Ended September 30, 
   Dollars      Percentage of Total
Net Revenues
 

Market

  2017   2016   %
Change
  2017  2016 

Infectious disease testing

  $16,577   $10,412    59  70  43

Risk assessment testing

   3,149    3,481    (10  13   15 

Cryosurgical

   2,879    3,240    (11  12   14 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net product revenues

   22,605    17,133    32   95   72 

Other

   1,157    6,791    (83  5   28 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net revenues

  $23,762   $23,924    (1)%   100  100
  

 

 

   

 

 

    

 

 

  

 

 

 

Infectious Disease Testing Market

Sales to the infectious disease testing market increased 59% to $16.6 million in the third quarter of 2017 from $10.4 million in the third quarter of 2016. This increase resulted from higher sales of our OraQuick® HCV product and higher international sales of our OraQuick® HIV self-test, partially offset by a decline in domestic sales of our professional OraQuick® HIV product.

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The table below shows a breakdown of our total net OraQuick®2023:

Three Months Ended March 31,
Dollars% ChangePercentage of Total Net Revenues
2024202320242023
COVID-19 Diagnostics$23,097 $118,254 (80)%43 %76 %
Diagnostics (1)
16,380 17,090 (4)30 11 
Molecular Sample Management Solutions (2)
10,822 12,942 (16)20 
Other products and services (3)
2,576 3,094 (17)
Molecular Services873 1,379 (37)
COVID-19 Molecular Products31 155 (80)— — 
Net product and services revenues53,779 152,914 (65)99 99 
Non-product and services revenues (4)
353 2,049 (83)
Net revenues$54,132 $154,963 (65)%100 %100 %
(1)Includes HIV and HCV product revenues.
(2)Includes Genomics, Microbiome and Novosanis product revenues.
(3)Includes Risk assessment testing and other product and services revenues.
(4)Non-product and services revenues (dollars in thousands) during the third quarters of 2017include funded research and 2016.

   Three Months Ended September 30, 

Market

  2017   2016   % Change 

Domestic HIV

  $3,622   $4,858    (25)% 

International HIV

   3,069    1,110    176 

Domestic OTC HIV

   1,515    1,311    16 
  

 

 

   

 

 

   

Net HIV revenues

   8,206    7,279    13 
  

 

 

   

 

 

   

Domestic HCV

   1,889    1,529    24 

International HCV

   6,154    1,293    376 
  

 

 

   

 

 

   

Net HCV revenues

   8,043    2,822    185 
  

 

 

   

 

 

   

Net OraQuick® HIV and HCV product revenues

  $16,249   $10,101    61
  

 

 

   

 

 

   

Domestic OraQuick® HIV salesdevelopment contracts, royalty income and grant revenues.

Product and Services Revenues
Consolidated net revenues decreased 25%65% to $3.6$54.1 million for the three months ended September 30, 2017March 31, 2024 from $4.9$155.0 million for the three months ended September 30, 2016.March 31, 2023.
COVID-19 Diagnostics revenues decreased by 80% to $23.1 million for the three months ended March 31, 2024 compared to $118.3 million in three months ended March 31, 2023 due to decreased sales of the Company's InteliSwab® tests through its U.S. government procurement contracts. We expect this decline in revenue to continue throughout 2024 due to the fulfillment of these contracts and lower overall demand for COVID-19 testing.
Sales of the Company's Diagnostics products decreased 4% to $16.4 million for the three months ended March 31, 2024 from $17.1 million for the three months ended March 31, 2023. This reductiondecrease in revenues was primarily the result of competitive losses tied to pricing and the Centers for Disease Control and Prevention (“CDC”) testing guidelines recommending the use of competing fourth generation automated HIV immunoassays performed in a laboratory. Sales in the current quarter were also negatively impacteddriven by customer ordering patterns,patterns.
Molecular Sample Management Solutions revenues decreased 16% to $10.8 million for the three months ended March 31, 2024 from $12.9 million for the three months ended March 31, 2023. Sales of the Company's Molecular Products are being impacted by reduced governmentconsumer demand for products in which our genomics collection devices are used, economic pressures and reduction on funding for programs in which our collection devices are used, and athe overall decline in orders placed by those customers located in geographic areas severely impacted by recent weather events. We anticipate that future domestic sales of our professional HIV product will continuethe microbiome market.
Other products and services revenues decreased 17% to be negatively affected as a result of$2.6 million for the CDC testing guidelines, changes in government funding and continued product and price competition.

International sales of our OraQuick® HIV test during the third quarter of 2017 rose 176% tothree months ended March 31, 2024 from $3.1 million for the three months ended September 30, 2017March 31, 2023.

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Molecular Services revenues, which are derived from the Company's microbiome molecular sequencing services, decreased 37% to $0.9 million for the three months ended March 31, 2024 from $1.4 million for the three months ended March 31, 2023. The decrease in services revenues was largely due to discontinuance of customer's clinical trial projects.

Non-Product and Services Revenues
Non-product and services revenues decreased 83% to $0.4 million for the three months ended March 31, 2024 from $2.0 million for the three months ended March 31, 2023 as a result lower funding for research and development activities largely as a result of the end of our agreement with Biomedical Advanced Research Authority ("BARDA") which provided funding to obtain clearance of a premarket notification ("510(k)") and Clinical Laboratory Improvement Amendments of 1988 ("CLIA") waiver of our InteliSwab® tests. The Company has communicated to BARDA that it does not intend to pursue further development of this clearance.
CONSOLIDATED OPERATING RESULTS
Consolidated gross profit margin increased to 44.5% for the three months ended March 31, 2024 from 42.5% for the three months ended March 31, 2023. This increase in margins was driven by increased average selling price on InteliSwab® sales and lower scrap expense. These improvement in margins were partially offset by a decrease in non-product revenues which contribute 100% to gross margin.
Consolidated operating loss for the three months ended March 31, 2024 was $7.1 million, a $31.4 million decline from the $24.3 million operating income reported for the three months ended March 31, 2023. Results for the three months ended March 31, 2024 were negatively impacted by lower revenues and higher impairment losses offset by increased gross profit margins and lower operating expense spend. Results for the three months ended March 31, 2024 included $3.3 million of impairment losses compared to $1.1 million for the three months ended September 30, 2016. This increase was largely due to increased sales of our OraQuick® HIV self-test into Africa. The majority of tests shipped into Africa duringMarch 31, 2023. Impairment losses in the current quarter were subject to support payments under our charitable support agreement with the Gates Foundation. Product revenues during the thirdfirst quarter of 2017 included approximately $458,0002024 were comprised of support paymentsthe impairment of Novosanis and Diversigen property plant and equipment, including leased assets while impairment losses in 2023 were associated with this agreement.

Sales of our OraQuick® In-Home HIV test duringidle manufacturing lines.

Operating expenses in the thirdfirst quarter of 2017 increased 16%2024, excluding the impairment charge, decreased $12.6 million compared to $1.5 million from $1.3 million in the thirdfirst quarter of 2016 largely as a result of additional shelf placement2023 reflecting the impact of the product inCompany's cost saving measures and headcount reductions.
Research and development expenses decreased 27% to $7.7 million for the home diagnostic section of certain retail pharmacies.

Domestic OraQuick® HCV sales increased 24% to $1.9three months ended March 31, 2024 from $10.6 million infor the third quarter of 2017 from $1.5 million in the third quarter of 2016 primarily due to increased HCV testing by a global nonprofit provider of infectious disease prevention, testing and healthcare services and higher sales to non-acute healthcare offices. International OraQuick® HCV sales increased 376% to $6.1 million in the third quarter of 2017 from $1.3 million in the third quarter of 2016, largely due to continued product shipments to a foreign government to support a nationwide HCV testing and treatment program, partially offset by the loss of a multi-national humanitarian organization customer who switched to a competitive product due to pricing. As discussed above, we were recently notified that our supply contract with the foreign government will not be renewed, which will negatively affect our international HCV sales in future periods.

Risk Assessment Market

Sales to the risk assessment market decreased 10% to $3.1 million in the third quarter of 2017 compared to $3.5 million in the third quarter of 2016three months ended March 31, 2023 largely due to a changedecrease in inventoryemployee costs associated with a reduction in headcount, decrease in spend on COVID-19 product development, and no related project management by one offees for our larger customers.

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Cryosurgical Market

Sales of our cryosurgical products decreased 11% to $2.9$109 million inmanufacturing expansion contract which ended during the thirdfourth quarter of 2017 from $3.2 million in the third quarter of 2016.

The table below shows a breakdown of our total net cryosurgical revenues (dollars in thousands) generated in each market during the third quarters of 2017 and 2016.

   Three Months Ended September 30, 

Market

  2017   2016   % Change 

Domestic professional

  $1,426   $1,456    (2)% 

International professional

   179    162    10 

Domestic OTC

   325    339    (4

International OTC

   949    1,283    (26
  

 

 

   

 

 

   

Net cryosurgical revenues

  $2,879   $3,240    (11)% 
  

 

 

   

 

 

   

Third quarter 2017 sales of our domestic and international Histofreezer® product sold to physicians’ offices and our private-label wart removal product sold in the U.S. retail market remained consistent with the level of sales recorded in the third quarter of 2016.

Sales of our international OTC cryosurgical products during the third quarter of 2017 decreased 26% to $949,000 compared to $1.3 million in the third quarter of 2016 due to customer ordering patterns in Latin America and Europe.

Other revenues

Other revenues in the third quarter of 2017 decreased 83% to $1.2 million from $6.8 million in the third quarter of 2016. Other revenues in the third quarter of 2016 included $6.1 million of AbbVie exclusivity revenues. There are no similar revenues in the third quarter of 2017 due to the termination of the AbbVie co-promotion agreement on December 31, 2016. Revenue from BARDA funding increased to $939,000 in the third quarter of 2017 compared to $676,000 in the third quarter of 2016. Other revenues in the third quarter of 2017 also included $218,000 in reimbursement of certain costs under our charitable support agreement with the Gates Foundation.

DNAG Segment

Molecular Market

Net molecular revenues increased 123% to $18.6 million in the third quarter of 2017 from $8.3 million in the third quarter of 2016. Sales of our Oragene® product in the commercial market rose 157% in the third quarter of 2017 compared to the third quarter of 2016, largely as a result of higher customer demand, primarily from a large customer in the consumer genetics market. Sales of our Oragene® product in the academic market increased 46% in the third quarter of 2017 compared to the third quarter of 2016 largely due to higher customer demand and customer ordering patterns. The higher revenues in the third quarter of 2017 also included $776,000 in sales of our microbiome product compared to $362,000 in the same period of 2016. We believe interest in our microbiome product offering continues to grow with both new and existing customers.

CONSOLIDATED OPERATING RESULTS

Consolidated gross margin was 58% for the third quarter of 2017 compared to 70% for the third quarter of 2016. Gross margin in the third quarter of 2017 was negatively impacted by the absence of exclusivity revenues under our HCV co-promotion agreement with AbbVie, an increase in lower margin product sales and higher scrap and spoilage costs.

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Consolidated operating income for the third quarter of 2017 was $7.3 million, a $1.2 million improvement from the $6.1 million of operating income reported in the third quarter of 2016. Operating income for the third quarter of 2017 benefited from higher product revenues as compared to the same period last year, partially offset by higher sales and marketing expense in the current period and the absence of AbbVie revenues from the prior year.

OPERATING INCOME (LOSS) BY SEGMENT

OSUR Segment

OSUR’s gross margin was 55% in the third quarter of 2017 compared to 71% in the third quarter of 2016. OSUR’s gross margin in the third quarter of 2017 was negatively impacted by the absence of exclusivity revenues under our AbbVie co-promotion agreement ($6.1 million was recorded in the third quarter of 2016 versus none in 2017), an increase in lower margin product revenues as a result of higher international sales, and higher scrap and spoilage costs incurred during the quarter.

Research and development expenses increased 12% to $2.5 million in the third quarter of 2017 from $2.3 million in the third quarter of 2016, largely due to increased staffing and product registration costs. 2023.

Sales and marketing expenses grew 3%decreased 30% to $4.8$8.4 million infor the third quarter of 2017three months ended March 31, 2024 from $4.7$12.1 million infor the third quarter of 2016 largelythree months ended March 31, 2023 due to increased external commissions to be paid to our international distributors partially offset by lower call centeremployee costs associated with our OraQuick® In-Home HIV test. a decrease in headcount, and decreased spend on advertising and consulting fees.
General and administrative expenses increased 14%decreased 34% to $6.2$11.6 million infor the third quarter of 2017three months ended March 31, 2024 from $5.5$17.7 million infor the third quarter of 2016three months ended March 31, 2023 largely due to higherlower legal fees and lower staffing costs which includes an increasedue to a reduction in accrued bonuses as a result of Company performance partially offset by lower consulting costs.

headcount.

All of the above contributed to OSUR’s third quarter 2017the Company's operating loss of $453,000,$7.1 million for the three months ended March 31, 2024, which included a non-cash impairment charge of $3.3 million, non-cash charges of $855,000$2.7 million for depreciation and amortization, and $1.4non-cash charges of $3.0 million for stock-based compensation.

DNAG Segment

DNAG’s gross margin was 62% in the third quarter of 2017 compared to 69% in the third quarter of 2016. This decline was attributable to an increase in lower margin product sales in the third quarter of 2017 compared to the third quarter of 2016.

Research and development expenses decreased 26% to $681,000 in the third quarter of 2017 from $924,000 in the third quarter of 2016. Research and development expenses in the third quarter of 2016 included costs associated with field studies required to achieve World Health Organization (“WHO”) endorsement of our OMNIgene® • Sputum product for tuberculosis. There were no similar expenses in the third quarter of 2017. Sales and marketing expenses rose 33% to $2.3 million in the third quarter of 2017 from $1.8 million in the third quarter of 2016 due to an increase in our allowance for uncollectible accounts and higher staffing costs. General and administrative expenses decreased 52% to $696,000 in the third quarter of 2017 compared to $1.4 million in the third quarter of 2016 primarily due to lower legal and staffing expenses.

All of the above contributed to DNAG’s third quarter 2017 The Company's operating income of $7.8$24.3 million whichfor the three months ended March 31, 2023 included a non-cash impairment charge of $1.1 million, non-cash charges of $843,000$3.7 million for depreciation and amortization, and $170,000$2.7 million for stock-based compensation.

OTHER INCOME
Other income for the three months ended March 31, 2024 was $3.5 million compared to $2.7 million for the three months ended March 31, 2023. This increase is due to higher interest income.
CONSOLIDATED INCOME TAXES

We continue


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The Company continues to believe the full valuation allowance established in 2008 against OSUR’sits total U.S. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed. For the three months ended September 30, 2017, noMarch 31, 2024 and 2023, the Company recorded a U.S. state income tax expense was recorded as compared to $200,000 inbenefit of $0.2 million. For the three months ended September 30, 2016. Canadian incomeMarch 31, 2024 the state tax benefit was partially offset by foreign tax expense of $1.7 million and $200,000 was$0.2 million. No foreign taxes were recorded infor the third quarters of 2017 and 2016, respectively.

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Ninethree months ended September 30, 2017 comparedMarch 31, 2023 due to September 30, 2016

CONSOLIDATED NET REVENUES

The table below showsit being more likely than not that the Canadian subsidiary would not produce sufficient income to receive a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segmentstax benefit for the nine months ended September 30, 2017year to date loss.

Liquidity and 2016.

   Nine Months Ended September 30, 
   Dollars      Percentage of Total
Net Revenues
 
   2017   2016   %
Change
  2017  2016 

OSUR

  $66,455   $54,637    22  58  59

DNAG

   45,316    23,649    92   39   25 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net product revenues

   111,771    78,286    43   97   84 

Other

   3,265    14,413    (77  3   16 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net revenues

  $115,036   $92,699    24  100  100
  

 

 

   

 

 

    

 

 

  

 

 

 

Consolidated net product revenues increased 43%Capital Resources

March 31, 2024December 31, 2023
(in thousands)
Cash and cash equivalents$247,145 $290,407 
Short-term investments16,627 — 
Working capital319,400 346,923 
The Company's cash and cash equivalents and short-term investments decreased to $111.8$263.8 million at March 31, 2024 from $290.4 million at December 31, 2023. $84.5 million or 32% of the $263.8 million in cash and cash equivalents and short-term investments is held by DNAG, the first nine months of 2017Company's Canadian subsidiary.
The Company's working capital decreased to $319.4 million at March 31, 2024 from $78.3$346.9 million in the comparable period of 2016. Higher sales of our molecular and OraQuick® HCV products and higher international sales of our OraQuick® HIV self-test were partially offset by lower domestic sales of our professional OraQuick® HIV product and lower domestic and OTC sales of our cryosurgical products. In the first nine months of 2017, we recognized $3.3 million as other revenues largely in connection with funding from BARDA related to our Ebola and Zika products. Other revenues in the first nine months of 2016 were $14.4 million and included $12.8 million in exclusivity payments received under our AbbVie co-promotion agreement and $1.6 million in BARDA funding. Our co-promotion agreement with AbbVie was terminated onat December 31, 2016 and no further revenues were recognized under this agreement.

Consolidated net revenues derived from products sold to customers outside of the United States were $36.2 million and $20.2 million, or 31% and 22% of total net revenues, during the nine months ended September 30, 2017 and 2016, 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

OSUR Segment

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our OSUR segment.

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   Nine Months Ended September 30, 
   Dollars      Percentage of Total
Net Revenues
 

Market

  2017   2016   %
Change
  2017  2016 

Infectious disease testing

  $47,822   $34,729    38  68  50

Risk assessment testing

   9,517    9,746    (2  14   14 

Cryosurgical systems

   9,116    10,162    (10  13   15 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net product revenues

   66,455    54,637    22   95   79 

Other

   3,265    14,413    (77  5   21 
  

 

 

   

 

 

    

 

 

  

 

 

 

Net revenues

  $69,720   $69,050    1  100  100
  

 

 

   

 

 

    

 

 

  

 

 

 

Infectious Disease Testing Market

Sales to the infectious disease testing market increased 38% to $47.8 million in the first nine months of 2017 from $34.7 million in the first nine months of 2016. This increase resulted from higher sales of our OraQuick® HCV product and higher international sales of our OraQuick® HIV self-test, partially offset by a decline in domestic sales of our professional OraQuick® HIV product.

The table below shows a breakdown of our total net OraQuick® HIV and HCV product revenues (dollars in thousands) during the nine months ended September 30, 2017 and 2016.

   Nine Months Ended September 30, 

Market

  2017   2016   %
Change
 

Domestic HIV

  $12,401   $16,446    (25)% 

International HIV

   7,738    3,934    97 

Domestic OTC HIV

   4,951    4,574    8 
  

 

 

   

 

 

   

Net HIV revenues

   25,090    24,954    1 
  

 

 

   

 

 

   

Domestic HCV

   5,980    5,218    15 

International HCV

   15,817    3,722    325 
  

 

 

   

 

 

   

Net HCV revenues

   21,797    8,940    144 
  

 

 

   

 

 

   

Net OraQuick® revenues

  $46,887   $33,894    38
  

 

 

   

 

 

   

Domestic OraQuick® HIV sales2023. Working capital decreased 25% to $12.4 million for the nine months ended September 30, 2017 from $16.4 million for the nine months ended September 30, 2016. This reduction was primarily the result of competitive losses tied to pricing and the CDC’s testing guidelines recommending the use of competing fourth generation automated HIV immunoassays performed in a laboratory, reduced government funding and customer ordering patterns. We anticipate that future domestic sales of our professional HIV product will continue to be negatively affected by the CDC testing guidelines, changes in government funding, and continued product and price competition.

International sales of our OraQuick® HIV products during the first nine months of 2017 rose 97% to $7.7 million from $3.9 million in the first nine months of 2016. This increase was largely due to the continued shipment of product in support of a HIV self-testing program in Africa and higher sales into the Middle East and Asia. Funding under the charitable support agreement with the Gates Foundation began in the third quarter of 2017. Sales to certain

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regions in Africa during the quarter were subject to support payments under this agreement. Product revenues during the third quarter of 2017 included approximately $458,000 of such support payments.

Sales of our OraQuick® In-Home HIV test during the first nine months of 2017 of $4.9 million increased 8% compared to $4.6 million in the first nine months of 2016 largely due to expansion of public health programs that use our In-Home test and additional shelf placement of the product in the home diagnostic section of certain retail pharmacies.

Domestic OraQuick® HCV sales increased 15% to $6.0 million in the first nine months of 2017 from $5.2 million in the first nine months of 2016 primarily due to an increase in sales to our U.S. public health customers related to HCV testing program expansion and higher sales to non-acute healthcare offices, partially offset by customer ordering patterns. International OraQuick® HCV sales increased 325% to $15.8 million in the first nine months of 2017 from $3.7 million in the first nine months of 2016, largely due to continued product shipments to a foreign government to support a nationwide HCV testing and treatment program and increased sales in Asia and Africa partially offset by the loss of a multi-national humanitarian organization customer who switched to a competitive product due to pricing. As discussed above, we were recently notified that our supply contract with the foreign government will not be renewed, which will negatively affect our international HCV sales in future periods.

Risk Assessment Market

Sales to the risk assessment market decreased slightly to $9.5 million in the first nine months of 2017 compared to $9.7 million in the first nine months of 2016.

Cryosurgical Market

Sales of our cryosurgical products decreased 10% to $9.1 million in the first nine months of 2017 from $10.2 million in the first nine months of 2016.

The table below shows a breakdown of our total net cryosurgical revenues (dollars in thousands) generated in each market during the nine months ended September 30, 2017 and 2016.

   Nine Months Ended
September 30,
 

Market

  2017   2016   %
Change
 

Domestic professional

  $4,368   $4,155    5

International professional

   552    607    (9

Domestic OTC

   957    1,062    (10

International OTC

   3,239    4,338    (25
  

 

 

   

 

 

   

Net cryosurgical systems revenues

  $9,116   $10,162    (10)% 
  

 

 

   

 

 

   

Sales of our Histofreezer® product to physicians’ offices in the United States increased 5% to $4.4 million in the first nine months of 2017 from $4.2 million in the first nine months of 2016, primarily due to the continued recoverydecrease in cash and cash equivalents. Working capital is primarily a function of business previously lost to competition. International sales, of our Histofreezer® product decreased to $552,000 in the first nine months of 2017 from $607,000 in the first nine months of 2016.

Sales of our private-label wart removal product in the U.S. retail market decreased to $957,000 in the first nine months of 2017 from $1.1 million in the first nine months of 2016. Sales volume in 2016 was higher as a result of initial stocking orders for a new large pharmacy customer during that period.

Sales of our international OTC cryosurgical products during the first nine months of 2017 decreased 25% to $3.2 million compared to $4.3 million in the first nine months of 2016, largely due to lower sales into Europe as a result

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of customer ordering patternspurchase volumes, inventory requirements, and competitive pressures and lower sales in Latin America due to customer ordering patterns and the economic instabilityvendor payment terms.

Analysis of the countries into which we sell.

Other revenues

Other revenues inCompany's Cash Flows

Operating Activities
During the first ninththree months of 2017 decreased 77% to $3.3 millionended March 31, 2024, net cash provided by operating activities was $6.7 million. Cash flows from $14.4 million in the first nine months of 2016. Other revenues in 2016 included AbbVie exclusivity revenues of $12.8 million. There are no similar revenues in 2017 due to the termination of our AbbVie co-promotion agreement on December 31, 2016. Revenues related to funding from BARDA increased to $3.1 million in the first nine months of 2017 compared to $1.6 million in the first nine months of 2016. Revenues in the first nine months of 2017 also include $218,000 in reimbursement of certain costs under our charitable support agreement with the Gates Foundation.

DNAG Segment

Molecular Market

Net molecular revenues increased 92% to $45.3 million in the first nine months of 2017 from $23.6 million in the first nine months of 2016. Sales of our Oragene® product in the commercial market rose 134% in the first nine months of 2017 compared to the first nine months of 2016, largely as a result of higher customer demand primarily from a large customer in the consumer genetics market. Sales of our Oragene® product in the academic market increased 5% in the first nine months of 2017 compared to the first nine months of 2016 largely due to higher customer demand and customer ordering patterns. The higher revenues in the first nine months of 2017 also included $2.4 million in sales of our microbiome product compared to $742,000 in the same period of 2016. We believe interest in our microbiome product offering continues to grow with both new and existing customers.

CONSOLIDATED OPERATING RESULTS

Consolidated gross margin was 61% for the first nine months of 2017 compared to 69% for the first nine months of 2016. Gross margin in the first nine months of 2017 was negativelyoperations can be significantly impacted by the absencefactors such as timing of exclusivity revenues under our HCV co-promotion agreement with AbbVie, an increase in lower margin product sales,receipt from customers, inventory purchases, and higher scrap and spoilage costs.

Consolidated operating income for the first nine months of 2017 was $30.1 million, a $16.9 million improvement from $13.2 million of operating income reported in the first nine months of 2016.payments to vendors. The operating income for the first nine months of 2017 benefited from the Ancestry litigation settlement gain, increased product revenues, and lower sales and marketing costs, partially offset by theCompany's net loss of AbbVie exclusivity revenues recorded in the prior year and higher research and development and general and administrative expenses in the current year.

OPERATING INCOME (LOSS) BY SEGMENT

OSUR Segment

OSUR’s gross margin was 59% in the first nine months of 2017 compared to 69% in the first nine months of 2016. OSUR’s gross margin in the first nine months of 2017 was negatively impacted by the absence of exclusivity revenues under our AbbVie agreement ($12.8$3.6 million was recorded in the first nine months of 2016 versus none in 2017), an increase in lower margin product revenue as a result of higher international sales, and an increase in scrap and spoilage costs.

Research and development expenses increased 18% to $7.5 million in the first nine months of 2017 from $6.4 million in the first nine month of 2016, largely due to increased staffing expenses and higher supply costs associated with the development of our Ebola and Zika products. Sales and marketing expenses decreased 9% to $14.7 million in the first nine months of 2017 from $16.1 million in the same period of 2016. This decrease was primarily the result of the termination of our AbbVie agreement on December 31, 2016 and lower staffing costs, partially offset by higher external commissions to be paid to our international distributors. General and administrative expenses increased 20% to $19.3 million in the first nine months of 2017 from $16.0 million in the first nine months of 2016 due to higher staffing costs, which includes an increase in accrued bonuses as a result of Company performance.

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All of the above contributed to OSUR’s operating loss of $235,000 in the first nine months of 2017, which included non-cash charges of $2.2 million for depreciation and amortization and $4.8 million for stock-based compensation.

DNAG Segment

DNAG’s gross margin was 64% in the first nine months of 2017 compared to 70% in the first nine months of 2016. This decline was attributable to an increase in lower margin sales in the first nine months of 2017 compared to the same period of 2016.

Research and development expenses decreased 8% to $2.0 million in the first nine months of 2017 from $2.2 million in the first nine months of 2016. Research and development expenses in first nine months of 2016 included costs associated with field studies required to achieve WHO endorsement of our OMNIgene® • Sputum product for tuberculosis. No similar expenses were recorded in 2017. Partially offsetting these cost savings were higher staffing costs in the first nine months of 2017. Sales and marketing expenses increased 7% to $6.9 million in the first nine months of 2017 from $6.4 million in the first nine months of 2016 due to higher staffing costs. General and administrative expenses decreased 35% to $2.5 million in the first nine months of 2017 compared to $3.8 million in the first nine months of 2016 primarily due to lower legal costs. Operating expenses in the first nine months of 2017 were offset by the $12.5 million pre-tax gain associated with the settlement of our litigation with Ancestry.com DNA, LLC and its contract manufacturer.

All of the above contributed to DNAG’s operating income of $30.3 million in the first nine months of 2017, which included non-cash charges of $2.4 million for depreciation and amortization and $430,000 for stock-based compensation.

CONSOLIDATED INCOME TAXES

We continue to believe the full valuation allowance established in 2008 against OSUR’s total U.S. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed. For the nine months ended September 30, 2017, we recorded state income tax expense of $31,000 compared to $250,000 in the nine months ended September 30, 2016. Canadian income tax expense of $7.1 million and $384,000 was recorded in the first nine months of 2017 and 2016, respectively. Canadian taxes in the first nine months of 2017 included the additional taxes due as a result of the $12.5 million Ancestry litigation settlement gain and DNAG’s increased pre-tax income.

Liquidity and Capital Resources

   September 30,
2017
   December 31,
2016
 
   (In thousands) 

Cash, cash equivalents and restricted cash

  $78,610   $109,790 

Available-for-sale securities

   101,662    11,160 

Working capital

   182,712    139,106 

Our cash, cash equivalents, restricted cash and available-for-sale securities increased to $180.3 million at September 30, 2017 from $120.9 million at December 31, 2016. Our working capital increased to $182.7 million at September 30, 2017 from $139.1 million at December 31, 2016.

During the first nine months of 2017, we generated $30.4 million in cash from operating activities. Our net income of $23.6 million benefitted from non-cash stock-based compensation expense of $5.2 million and depreciation and amortization expense of $4.6$2.7 million, partially offsetstock-based compensation expense of $3.0 million, and impairment losses of $3.3 million. Cash provided by the working capital accounts included a net reduction of other non-cash charges of $671,000. Additional sources of cash included an increasedecrease in accounts payablereceivable of $4.6$6.2 million largely associated with lower overall sales and collections of balances due, toa decrease in inventory purchases that were invoiced atof $4.3 million as the end of the quarter, an increase in accrued expenses and other liabilities of $4.2 million largely due to an increase in our Canadian income taxes payable,Company fulfilled demand for its InteliSwab® product, and a decrease in prepaid and other assetsaccrued expenses of $1.6 million largely due to the receipt of $1.4$9.7 million as payment of a claim from one of our raw material

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suppliers. This settlement was recorded as a receivable at December 31, 2016. Uses of cashthe Company paid out year end bonuses in operating activities during the period include an increase in accounts receivable of $7.7 million largely resulting from the increase in orders placed near the end of the current quarter and an increase in inventory balances of $4.9 million required to meet expected demand.

March 2024.

Investing Activities
Net cash used in investing activities was $93.0$46.5 million for the ninethree months ended September 30, 2017,March 31, 2024, which reflects $132.2proceeds from the maturities of investments of $9.2 million, used to purchase investmentsoffset by $25.9 million in purchases of investments. Investing activities also include a $28.3 million investment in Sapphiros, and $3.4$1.6 million to acquire property and equipment partially offset by $42.6 million in proceeds fromto support the maturities and redemptionsnormal operations of investments.

the business.

Financing Activities
Net cash provided byused in financing activities was $30.2$1.3 million for the ninethree months ended September 30, 2017,March 31, 2024, which resulted from $31.4 million in proceeds received from the exerciseis largely comprised of stock options partially offset by $1.2$1.5 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares.

On September 30, 2016, we entered into a credit agreement (the “Credit Agreement”) with a commercial bank. The Credit Agreement provides for revolving extensions of credit in an initial aggregate amount of up to $10.0 million (inclusive of a letter of credit subfacility of $2.5 million), with an option to request, priorshares awarded to the second anniversary of the closing date, that lenders, at their election, provide up to $5.0 million of additional revolving commitments. Obligations under the Credit Agreement are secured by a first priority security interest in certain eligible accounts receivable, 65% of the equity of our subsidiary, DNAG, and certain related assets. There were no borrowings outstanding at September 30, 2017 or December 31, 2016.

Borrowings under the Credit Agreement are subject to compliance with borrowing base limitations tied to eligibility of accounts receivable. Interest under the Credit Agreement is payable at the London Interbank Offered Rate for one, two, three or six-month loans, as selected by theCompany's employees.

Resources
The Company plus 2.50% per year. The Credit Agreement will be subject to an unused line fee of 0.375% per annum on the unused portion of the commitment under the Credit Agreement during the revolving period. The maturity date of the Credit Agreement is September 30, 2019.

In connection with the Credit Agreement, under certain circumstances, we must comply with a minimum fixed charge coverage ratio of 1.10 to 1.00, measured as of the last day of each fiscal month and for the twelve-fiscal month period ending on such date. As of September 30, 2017 and December 31, 2016, we were in compliance with all applicable covenants under the Credit Agreement.

Our current balances ofexpects existing cash and cash equivalents and available-for-sale securities and our available borrowing capacity are expected towill be sufficient to fund our currentits operating expenses and capital needs forexpenditure requirements over the foreseeable future. Ournext 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 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

20

Table of Contents
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, $43.3 million or 24% of our $180.3 million in cash, cash equivalents, restricted cash and available-for-sale securities belongs to our Canadian subsidiary and any repatriation of such cash into the United States could have adverse tax consequences.

Summary of Contractual Obligations

A summary of ourthe Company's obligations to make future payments under contracts existing at December 31, 20162023 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, 2016.2023. As of September 30, 2017,March 31, 2024, there were no significant changes to this information, including the absence of any off-balance sheet arrangements.

information.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally

-31-


accepted in the United States of America. The preparation of these consolidated 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 valuation of accounts receivable, inventories and intangible assets, as well as calculations related to contingencies accruals and the measurement of performance-based restricted stock expense. 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, 20162023 filed with the SEC. During the first nine months of 2017, there were noNo material changes in ourhave been made to such critical accounting policies.

policies during the three months ended March 31, 2024.
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

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material derivative risk to report under this Item.

As of September 30, 2017, 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 4.1% of our total revenues for the nine months ended September 30, 2017. We do have foreign currency exchange risk related to our operating subsidiary in Canada. While the majority of this subsidiary’s revenues are recorded in U.S. dollars, almost all of this subsidiary’s operating expenses are denominated in Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar could affect year-to-year comparability of operating results and cash flows. Our Canadian subsidiary had net assets, subject to translation, of $89.4 million CDN ($71.7 million USD), which are included in the Company’s consolidated balance sheet as of September 30, 2017. A 10% unfavorable change in the Canadian-to-U.S. dollar exchange rate would have decreased our comprehensive income by $7.2 millionCompany's assessment of its sensitivity to market risk since its presentation set forth in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in its Annual Report on Form 10-K for the nine monthsyear ended September 30, 2017.

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December 31, 2023.
Item 4.CONTROLS AND PROCEDURES

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 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 September 30, 2017.March 31, 2024. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2017March 31, 2024 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 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 September 30, 2017March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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21

Table of Contents
PART II. OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

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, the 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 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. The District Court issued 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 appealed the grant of summary judgment to the Court of Appeals on June 8, 2023. The appeal is pending, with oral argument expected in the second half of 2024. Second, the Court denied Spectrum’s motion to supplement its allegations of alleged antitrust violations, finding that if such an amendment were allowed, Spectrum’s claims would not survive a motion for summary judgment. Spectrum thereafter withdrew its antitrust and inequitable conduct counterclaims. Spectrum did not appeal the District Court's denial of its motion to amend. On February 7, 2024, the PTO issued a Final Written Decision regarding the second patent in the litigation, holding that claims 1, 3-8, 11 and 12 of U.S. Patent No. 11,002,646 B2 are unpatentable. On March 8, 2024, the Company filed a Request for Rehearing by the Director of the PTO of the Final Written Decision. On March 27, 2024, the Company's Request for Rehearing was denied. The Company is considering its appellate options. On September 15, 2023, Spectrum filed a separate petition for inter partes review of a third patent, which DNAG did not assert in the District Court. On March 26, 2024, the PTO issued a Decision Granting Institution of Inter Partes Review and scheduled oral argument for January 14, 2025.
Item 1A.RISK FACTORS

Item 1A.    RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A.,1A, entitled “Risk Factors,” in ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2016.

2023.




22

Table of Contents
Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period

  Total number
of shares
purchased
  Average price
paid per
Share
   Total number of
shares purchased
as part of publicly
announced plans
or programs
   Maximum number (or
approximate dollar
value) of shares that
may yet be repurchased
under the plans or
programs(1, 2)
 

July 1, 2017 - July 31, 2017

   1,440(3)  $17.75    N/A    11,984,720 

August 1, 2017 - August 31, 2017

   —     —     $—      11,984,720 

September 1, 2017 - September 30,  2017

   —     —      —      11,984,720 
     

 

 

   
   1,440     —     
  

 

 

    

 

 

   

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

Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
PeriodTotal number of
shares purchased
Average price
paid per Share
Total number of
shares purchased
as part of publicly
announced plans
or programs
Maximum number (or
approximate dollar value)
of shares that may yet be
repurchased under the plans
or programs (1, 2)
January 1, 2024 - January 31, 202459,151 (3)$8.19 — $11,984,720 
February 1, 2024 - February 29, 202455,620 (3)$7.40 — $11,984,720 
March 1, 2024 - March 31, 202478,707 (3)$7.18 — $11,984,720 
193,478
(1)On August 5, 2008, the Company's Board of Directors approved a share repurchase program pursuant to which the Company is permitted to acquire up to $25.0 million of outstanding shares. This share repurchase program may be discontinued at any time.
(2)This column represents the amount that remains available under the $25.0 million repurchase plan, as of the period indicated. The Company has made no commitment to purchase any shares under this plan.
(3)Pursuant to the OraSure Technologies, Inc. Stock Award Plan, and in connection with the vesting of restricted and performance shares, these shares were retired to satisfy minimum tax withholdings.
Item 3.DEFAULTS UPON SENIOR SECURITIES

Item 3.    DEFAULTS UPON SENIOR SECURITIES
None

ITEM 4.MINE SAFETY DISCLOSURES

Item 4.    MINE SAFETY DISCLOSURES
Not applicable

ITEM 5.OTHER INFORMATION

Item 5.    OTHER INFORMATION
None

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23

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Item 6.    EXHIBITS

Exhibit
Number
Exhibit

Exhibit

Number

Exhibit

31.1*
  31.1*
31.2*
32.1*+
32.2*+
101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Labels Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page from Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in exhibits 101).

______________________
*Filed herewith

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+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.
24

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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/ Ronald H. SpairKenneth J. McGrath
Date: NovemberMay 9, 20172024Ronald H. SpairKenneth J. McGrath
Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer)
/s/Mark L. KunaMichele M. Anthony
Date: NovemberMay 9, 20172024Mark L. KunaMichele M. Anthony
Senior Vice President, FinanceController and ControllerChief Accounting Officer
(Principal Accounting Officer)

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25