| Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
OraSure Technologies, Inc. (“OraSure”) and its
wholly-owned subsidiary, DNA Genotek Inc. (“DNAG”). All
intercompany transactions and balances have been eliminated.
References herein to “we,” “us,”
“our,” or the “Company” mean OraSure and
its consolidated subsidiary, unless otherwise indicated.
Use of Estimates
The preparation of 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, as well as
calculations related to contingencies and accruals, 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. We
adjust such estimates and assumptions when facts and circumstances
dictate. Illiquid credit markets, volatile equity and foreign
currency markets, reductions in government funding, and declines in
consumer spending have combined to increase the uncertainty
inherent in such estimates and assumptions. 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.
Supplemental Cash Flow Information
In 2016, 2015 and 2014, we paid income taxes of $1,123, $719 and
$31, respectively.
In 2016, 2015 and 2014, we recorded through the consolidated
statements of operations an increase in our allowance for doubtful
accounts of $40, $341 and $253, respectively. We had $369 in
write-offs against the allowance for doubtful accounts in 2016. We
had no material write-offs against the allowance for doubtful
accounts in 2015 and 2014.
As of December 31, 2016, 2015 and 2014, we had accruals for
purchases of property and equipment of $302, $1,256 and $217,
respectively.
Short-Term Investments
We consider all short-term investments to be available-for-sale
securities. These securities are comprised of guaranteed investment
certificates with purchased maturities greater than ninety days.
Available-for-sale securities are carried at fair value, based upon
quoted market prices, with unrealized gains and losses, if any,
reported in stockholders’ equity as a component of
accumulated other comprehensive loss.
Accounts Receivable
Accounts receivable have been reduced by an estimated allowance for
amounts that may become uncollectible in the future. This estimated
allowance is based primarily on management’s evaluation of
specific balances as they become past due, the financial condition
of our customers and our historical experience related to
write-offs.
Inventories
Inventories are stated at the lower of cost or market determined on
a first-in, first-out basis, and include the cost of raw materials,
labor and overhead. The majority of our inventories are subject to
expiration dating. We continually evaluate quantities on hand and
the carrying value of our inventories to determine the need for
reserves for excess and obsolete inventories, based primarily on
the estimated forecast of product sales. When factors indicate that
impairment has occurred, either a reserve is established against
the inventories’ carrying value or the inventories are
completely written off, as in the case of lapsing expiration dates.
In addition to reserving for these items identified through
specific identification procedures, we also reserve for
unidentified scrap or spoilage under a fixed-formula
methodology.
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, machinery and equipment, and
furniture and fixtures are depreciated over two to ten years.
Building improvements are amortized over their estimated useful
lives. When assets are sold, retired, or discarded, the related
property amounts are relieved from the accounts, and any gain or
loss is recorded in the consolidated statements of operations.
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 one to fifteen years.
Impairment of Long-Lived Assets
We assess the recoverability of the our long-lived assets, which
include property and equipment and intangible assets, by
determining whether the carrying value of such assets can be
recovered through the sum of the undiscounted future cash flows
generated from the use and eventual disposition of the asset. If
indicators of impairment exist, we measure the amount of such
impairment by comparing the carrying value of the assets to the
fair value of these assets, which is generally determined based on
the present value of the expected future cash flows associated with
the use of the assets.
Goodwill
Goodwill represents the excess of the purchase price we paid over
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 fair value of a reporting unit is
greater than its carrying amount, then we would not be required to
perform the two-step quantitative impairment test. Otherwise,
performing the two-step impairment test is necessary. The first
step of the two-step quantitative impairment test involves
comparing the fair values of the applicable reporting unit with its
aggregate carrying value, including goodwill. If the carrying value
of a reporting unit exceeds the reporting unit’s fair value,
we perform the second step of the test to determine the amount of
the impairment loss, if any. The second step involves measuring any
impairment by comparing the implied fair values of the affected
reporting unit’s goodwill and intangible assets with the
respective carrying values.
We performed our annual impairment assessment as of July 31,
2016 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 December 31, 2016, we believe no indicators of
impairment exist.
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 ®
Our net revenues recorded on sales of the OraQuick ®
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.
On June 10, 2014, we entered into a Master Program Services
and Co-Promotion Agreement with AbbVie to co-promote our
OraQuick ® ® ® ®
Under the terms of this agreement, we were eligible to receive up
to $75,000 in aggregate payments. We recognized this revenue
ratably on a monthly basis over the term of the agreement, which
was to terminate on December 31, 2019.
On June 30, 2016, we mutually agreed to terminate our
agreement with AbbVie effective December 31, 2016. Following
the termination of the agreement, AbbVie was relieved of its
co-promotion obligations, including its obligation to detail the
OraQuick ® ®
On June 12, 2015, we were awarded a grant for up to $10,400 in
total funding from the U.S. Department of Health and Human Services
(“HHS”) Office of the Assistant Secretary for
Preparedness and Response’s Biomedical Advanced Research and
Development Authority (“BARDA”) related to our
OraQuick ® ®
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. Funding received under this contract is
recorded as other revenue in our consolidated statements of
operations as the activities are being performed and the related
costs are incurred. During 2016, $616 was recognized in connection
with this grant as other revenue in our consolidated statements of
operations.
Customer Sales Returns and Allowances
We do not grant product return rights to our customers for any
product, except for our OraQuick ® ®
Deferred Revenue
We record deferred revenue when funds are received prior to the
recognition of the associated revenue. Deferred revenue as of
December 31, 2016 and 2015 includes customer prepayments of
$1,388 and $784, respectively. Deferred revenue as of 2015 also
includes $8,951 from AbbVie, which represents the excess of the
exclusivity payments received from AbbVie over the amounts earned
and recognized ratably in our consolidated statements of operations
during that period.
Customer and Vendor Concentrations
One of our customers accounted for 15% of our accounts receivable
as of December 31, 2016. We had no significant concentrations
in accounts receivable as of December 31, 2015. One of our
customers accounted for approximately 15% and 12% of our net
consolidated revenues for the years ended December 31, 2016
and 2015, respectively. We had no significant concentrations in net
consolidated revenues for the year ended December 31,
2014.
We currently purchase certain products and critical components of
our products from sole-supply vendors. If these vendors are unable
or unwilling to supply the required components and products, we
could be subject to increased costs and substantial delays in the
delivery of our products to our customers. Also, our subsidiary,
DNAG, uses two third-party suppliers to manufacture its products.
Our inability to have a timely supply of any of these components
and products could have a material adverse effect on our business,
as well as our financial condition and results of operations.
Research and Development
Research and development expenses consist of costs incurred in
performing research and development activities, including salaries
and benefits, facilities expenses, overhead expenses, clinical
trial and related clinical manufacturing expenses, contract
services and other outside expenses. Research and development costs
are charged to expense as incurred.
Advertising Expenses
Advertising costs are charged to expense as incurred. During 2016,
2015, and 2014, we incurred $626, $623, and $6,910, respectively,
in advertising expenses.
Stock-Based Compensation
We account for stock-based compensation to employees and directors
using the fair value method. We recognize compensation expense for
stock option and restricted stock awards issued to employees and
directors on a straight-line basis over the requisite service
period of the award. We recognize compensation expense related to
performance-based restricted stock units based on assumptions as to
what percentage of each performance target will be achieved. We
evaluate these target assumptions on a quarterly basis and adjust
compensation expense related to these awards, as appropriate. To
satisfy the exercise of options or to issue restricted stock, or
redeem performance based restricted stock units, we issue new
shares rather than purchase shares on the open market.
Income Taxes
We follow the asset and liability method for accounting for income
taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and the respective tax basis of
assets and liabilities, as well as operating loss and credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates for the respective taxing jurisdiction that
are expected to apply to taxable income in the years in which those
temporary differences and operating loss and credit carryforwards
are expected to be recovered, settled or utilized. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
We assess the realizability of our net deferred tax assets on a
quarterly basis. If, after considering all relevant positive and
negative evidence, it is more likely than not that some portion or
all of the net deferred tax assets will not be realized, we reduce
our net deferred tax assets by a valuation allowance. The
realization of the net deferred tax assets is dependent on several
factors, including the generation of sufficient taxable income
prior to the expiration of our net operating loss
carryforwards.
Foreign Currency Translation
The assets and liabilities of our foreign operations are translated
into U.S. dollars at current exchange rates as of the balance sheet
date, and revenues and expenses are translated at average exchange
rates for the period. Resulting translation adjustments are
reflected in accumulated other comprehensive loss, which is a
separate component of stockholders’ equity.
Transaction gains and losses resulting from exchange rate changes
on transactions denominated in currencies other than functional
currency are included in our consolidated statements of operations
in the period in which the change occurs. Net foreign exchange
gains (losses) resulting from foreign currency transactions that
are included in other income (expense) in our consolidated
statements of operations were $(607), $1,005, and $273 for the
years ended December 31, 2016, 2015, and 2014,
respectively.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share is
computed in a manner similar to basic earnings (loss) per share
except that the weighted-average number of shares outstanding is
increased to include incremental shares from the assumed vesting or
exercise of dilutive securities, such as common stock options,
unvested restricted stock, and 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 computations of basic and diluted earnings (loss) per share are
as follows:
Year ended
December 31,
2016 2015 2014
Net income (loss) $ 19,720 $ 8,167 $ (4,614 )
Weighted average number of common shares outstanding:
Basic 55,615 56,397 55,949
Dilutive effect of stock options, restricted stock, and performance
stock units 898 449
—
Diluted 56,513 56,846 55,949
Earnings (loss) per share:
Basic $ 0.35 $ 0.14 $ (0.08 )
Diluted $ 0.35 $ 0.14 $ (0.08 )
For the years ended December 31, 2016, 2015, and 2014,
outstanding common stock options and unvested restricted stock
representing 2,546, 4,314, and 6,447 shares, respectively, were
excluded from the computation of diluted earnings (loss) per share
as their inclusion would have been anti-dilutive.
Accumulated Other Comprehensive Loss
We classify items of other comprehensive loss by their nature and
disclose the accumulated balance of other comprehensive loss
separately from accumulated deficit and additional paid-in capital
in the stockholders’ equity section of our balance sheet.
Our accumulated other comprehensive loss for 2016, 2015, and 2014
consisted of foreign currency translation adjustments.
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. The $1,419, $(7,791) and $(4,051) currency
translation adjustments recorded in 2016, 2015 and 2014,
respectively, are largely the result of the translation of our
Canadian operation’s financial statements into U.S.
dollars.
Fair Value of Financial Instruments
As of December 31, 2016 and 2015, the carrying values of cash
and cash equivalents, accounts receivable, and accounts payable
approximate their respective fair values based on their short-term
nature.
Fair value measurements of all financial assets and liabilities
that are being measured and reported on a fair value basis are
required to be classified and disclosed in one of the following
three categories:
Level 1: Unadjusted quoted prices in active
markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities;
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).
Included in cash and cash equivalents at December 31, 2016 and
2015, was $83,704 and $65,509 invested in government money market
funds. These funds have investments in government securities and
are Level I instruments.
We offer a nonqualified deferred compensation plan for certain
eligible employees and members of our Board of Directors. The
assets of the plan are held in the name of the Company at a
third-party financial institution. Separate accounts are maintained
for each participant to reflect the amounts deferred by the
participant and all earnings and losses on those deferred amounts.
The assets of the plan are held in mutual funds and Company stock.
The fair value of the plan assets as of December 31, 2016 and
2015 was $1,980 and $1,324, respectively, and was calculated using
the quoted market price 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 other assets with the same amount included in other
liabilities in the accompanying consolidated balance sheets.
Our available-for-sale securities as of December 31, 2016 and
2015 consisted of guaranteed investment certificates with amortized
cost and fair value of $11,160 and $7,225, respectively, and are
measured as Level 1 instruments.
In 2016, we purchased certificates of deposit (“CD”)
from a commercial bank. The CDs bear interest at an annual rate
ranging from 0.18% to 0.31% and mature monthly through
February 28, 2018. The carrying values of the CDs 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 12 –
Commitments and Contingencies.
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 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 previous accounting standards.
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 device
and lab services for drug testing. This revenue stream amounts to
less than 1% of total consolidated revenues. We 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 to have a material impact on our
financial results.
In July 2015, the FASB issued ASU 2015-11, Simplifying the
Measurement of Inventory
In February 2016, the FASB issued ASU 2016-02, Leases
In March 2016, the FASB issued authoritative guidance under ASU
2016-09, Compensation-Stock Compensation (Topic 718)
Improvements to Employee Share-Based Payment Accounting
In August 2016, the FASB issued ASU 2016-15, Statement of Cash
Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments |
