| Summary of Significant Accounting Policies | 2.
Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of OraSure Technologies, Inc. (“OraSure”) and its wholly-owned subsidiaries, DNAG, CoreBiome, Novosanis and Diversigen. All intercompany transactions and balances have been eliminated. References herein to “we,” “us,” “our,” or the “Company” mean OraSure and its consolidated subsidiaries, unless otherwise indicated. 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 fair value of assets acquired and liabilities assumed for business combinations, the valuation of accounts receivable and inventories and assumptions utilized in impairment testing for intangible assets and goodwill, as well as calculations related to accruals, taxes, contingent consideration 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. Supplemental Cash Flow Information In 2019, 2018 and 2017, we paid income taxes of $10,611, $17,126 and $4,309, respectively. In 2019, 2018 and 2017, we recorded through the consolidated statements of income an increase (decrease) in our allowance for doubtful accounts of $2,231, $(27) and $172, respectively. We had $110, $11 and $200 in write-offs against the allowance for doubtful accounts in 2019, 2018, and 2017, respectively. As of December 31, 2019, 2018 and 2017, we had accruals for purchases of property and equipment of $660 $ Investments We consider all investments in debt securities to be available-for-sale securities. These securities are comprised of guaranteed investment certificates and corporate bonds 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. The following is a summary of our available-for-sale securities as of December 31, 2019 and 2018:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
December 31, 2019
Guaranteed investment certificates
$
24,632
$
—
$
—
$
24,632
Corporate bonds
89,525
271
(385
)
89,411
Total available-for-sale securities
$
114,157
$
271
$
(385
)
$
114,043
December 31, 2018
Guaranteed investment certificates
$
23,096
$
—
$
—
$
23,096
Corporate bonds
90,707
—
(917
)
89,790
Total available-for-sale securities
$
113,803
$
—
$
(917
)
$
112,886
At December 31, 2019, maturities of our available- for-sale securities were as follows:
Less than one year
$
80,754
$
163
$
(294
)
$
80,623
Greater than one year
$
33,403
$
108
$
(91
)
$
33,420
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 net realizable value, with cost 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, which can be extended in certain circumstances. 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 on prior experience as well as estimated forecasts 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 based on historical write-off rates. Property, Plant and Equipment 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 income. Intangible Assets Intangible assets consist of customer relationships, patents and product rights, developed technology and tradenames. Patents and product rights consist of costs associated with the acquisition of patents, licenses and product distribution rights. Intangible assets are amortized using the straight-line method over their estimated useful lives of five to fifteen years. Impairment of Long-Lived Assets We assess the recoverability of our long-lived assets, which include property and equipment and definite-lived 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. Expected future cash flows reflect our assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time. 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, CoreBiome, Novosanis and Diversigen. All acquired goodwill has been allocated to our DNAG segment. 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 charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit. We performed our annual impairment assessment as of July 31, 2019 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, 2019, we believe no indicators of impairment exist. Revenue In January 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, Upon adoption, we recorded a reduction of $75 to the opening balance of accumulated deficit as of January 1, 2018. This adjustment is related to the change in revenue recognition associated with our drug testing kit sales. Sales of our drug testing kits include two performance obligations: sales of the device and laboratory services. Under this new accounting standard, we adjusted the allocation of the transaction price to the performance obligations and the estimate of unexercised rights (“breakage”) associated with the contracts. Prior to the adoption of the new guidance, we used the residual value method to allocate the transaction prices. With the adoption of ASU 2014-09, we allocated transition prices based upon the stand-alone selling price, or fair value method. This change in methodology also impacted our estimated breakage amount. The following table summarizes the impact of the new revenue standard adjustment on our opening balance sheet:
Balance at
New Revenue
Balance at
December 31, 2017
Standard Adjustment
January 1, 2018
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenue
1,314
75
1,389
STOCKHOLDERS' EQUITY
Accumulated deficit
(119,510
)
(75
)
(119,585
) The adoption of this new standard had an immaterial impact on our 2018 reported total revenues and operating income, as compared to what would have been reported under the prior standard. We expect the impact of adoption in future periods to continue to be immaterial. Our accounting policies under the new standard were applied prospectively and are described below. Product sales Revenue from product sales is recognized upon transfer of control of a product to a customer based on an amount that reflects the consideration we are entitled to, net of allowances for any discounts or rebates. Our net revenues recorded for sales of the OraQuick ® In-Home HIV test represent total gross revenues, less an allowance for expected returns, and customer allowances for cooperative advertising and discounts. 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 operations. Other than for sales of our OraQuick® In-Home HIV test to the retail trade and under the terms of a long-term contract with a genomics customer, we generally do not grant product return rights to our customers except for warranty returns. Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred. As a result of the return rights granted to our customers for our OraQuick® In-Home HIV test, we have recorded an estimate of expected returns as a reduction of gross OraQuick® In-Home HIV product revenues in our consolidated statements of operations. This estimate reflects our historical sales experience to retailers and consumers, as well as other retail factors, and is reviewed regularly to ensure that it reflects potential product returns. We record shipping and handling charges billed to our customers as product revenue and the related expense as cost of products sold. Service revenues. Service revenues represent microbiome laboratory testing and analytical services. We recognize revenues and satisfy our performance obligation for services rendered when the testing is complete and the associated results are reported Arrangements with multiple-performance obligations . In arrangements involving more than one performance obligation, which largely applies to our service revenue stream, each required performance obligation is evaluated to determine whether it qualifies as a distinct performance obligation based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or services is separately identifiable from other promises in the contract. The consideration under the arrangement is then allocated to each separate distinct performance obligation based on their respective relative stand-alone selling price. The estimated selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis or using an observable cost plus margin approach if selling price on a stand-alone basis is not available. The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred for the related goods or services or when the performance obligation has been satisfied. Other revenues . Other revenues consist primarily of royalty income, funding of research and development efforts and cost reimbursements under a charitable support agreement. Royalties from licensees are based on third-party sales of licensed products and are recorded when the related third-party product sale occurs. Funding and charitable support reimbursements are recorded as the activities are being performed in accordance with the respective agreements. Deferred Revenue We record deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of December 31, 2019 and 2018 includes customer prepayments of $1,904 and $2,057, respectively. Deferred revenue as of December 31, 2019 and 2018 also included $1,809 and $1,464, respectively, associated with a long-term contract that has variable pricing based on volume. The average price over the life of contract was determined and revenue is recognized at that rate when the product is delivered to the customer. Financing and Payment . Our payment terms vary by the type and location of our customer and products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 120 days from date of shipment or satisfaction of the performance obligation. For certain products or services and customer types, we may require payment before the products are delivered or services are rendered to the customer. Practical expedients and exemptions . Taxes assessed by governmental authorities, such as sales or value-added taxes, are excluded from product revenues. Sales commissions are expensed when incurred if the amortization period is one year or less. These costs are recorded in sales and marketing expense in the consolidated statements of operations. If the amortization period exceeds one year, we defer the cost of the commission and expense it over the life of the related sales contract. Revenues by product. The following table represents total net revenues by product line:
Year Ended December 31,
2019
2018
2017
OraQuick®
$
56,064
$
53,851
$
60,558
Oragene®
46,701
69,798
67,232
ORAcollect®
10,651
6,052
1,952
Intercept®
8,105
7,709
8,125
Microbiome laboratory services
6,104
1,563
1,223
Histofreezer® (through August 16, 2019)
5,702
8,983
10,312
OMNIgene® • GUT
5,226
4,193
2,072
Other products
9,520
13,279
10,514
Net product and service revenues
148,073
165,428
161,988
Royalty income
5,116
9,653
—
Research and development funding
851
4,951
4,387
Charitable support reimbursement
261
1,711
689
Grant funding
304
—
—
Other revenues
6,532
16,315
5,076
Net revenues
$
154,605
$
181,743
$
167,064
Revenues by geographic area . The following table represents total net revenues by geographic area, based on the location of the customer:
December 31,
2019
2018
2017
United States
$
107,279
$
136,847
$
121,458
Europe
11,752
11,062
11,827
Other regions
35,574
33,834
33,779
$
154,605
$
181,743
$
167,064 Customer and Vendor Concentrations One of our customers accounted for 19% and 7% of our accounts receivable as of December 31, 2019 and 2018, respectively. The same customer accounted for approximately 15%, 24% and 25% of our net consolidated revenues for the year ended December 31, 2019, 2018, and 2017 respectively. 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. Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases . The standard requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. We adopted this standard on January 1, 2019 on a modified retrospective basis and have not restated comparative amounts. Also, we elected the practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and our initial direct costs for any leases that exist prior to adoption of the new standard. Leases with an initial term of 12 months or less are not recognized on the balance sheet and the associated lease payments are included in the consolidated statements of operations on a straight-line basis over the lease term. As a result, on January 1, 2019, we recorded right-of-use assets of $4,027 and lease liabilities of $4,263 on our consolidated balance sheet . Business Combinations and Contingent Consideration Acquired businesses are accounted for using the acquisition method of accounting, which requires that the purchase price be allocated to the net assets acquired at their respective fair values. Any excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Amounts allocated to contingent consideration are recorded to the balance sheet at the date of acquisition based on their relative fair values. The purchase price allocation requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. We account for contingent consideration in accordance with applicable guidance provided within the business combination accounting standard. As part of our consideration for the CoreBiome, Novosanis, and Diversigen acquisitions, we are contractually obligated to pay certain consideration resulting from the outcome of future events. Therefore, we are required to update our underlying assumptions each reporting period, based on new developments, and record such contingent consideration liabilities at fair value until the contingency is resolved. Changes in the fair value of the contingent consideration liabilities are recognized each reporting period and included in our consolidated statements of operations. Our estimates of fair value are based on assumptions we believe to be reasonable, but the assumptions are uncertain and involve significant judgment by management. Updates to these assumptions could have a significant impact on our results of operations in any given period and any updates to the fair value of the contingent consideration could differ materially from the previous estimates. Examples of critical estimates used in valuing certain intangible assets and contingent consideration include:
•
future expected cash flows from sales and acquired developed technologies;
•
the acquired company's trade name and customer relationships as well as assumptions about the period of time the acquired trade name and customer relationships will continue to be used in the combined company's portfolio;
•
the probability of meeting the future events; and
•
discount rates used to determine the present value of estimated future cash flows. 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 2019, 2018, and 2017, we incurred $524, $763, and $717, 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, issuance of restricted stock, or redemption of performance-based restricted stock units, we issue new shares rather than purchase shares in 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 income 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 income were $(1,339), $831, and $(1,442) for the years ended December 31, 2019, 2018, and 2017, respectively. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in a manner similar to basic earnings per share except that the weighted-average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, unvested restricted stock or performance stock units, unless the impact is antidilutive. The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period. The computations of basic and diluted earnings per share are as follows:
Year ended December 31,
2019
2018
2017
Net income
$
16,656
$
20,396
$
30,948
Weighted average shares of common stock outstanding:
Basic
61,675
61,112
59,050
Dilutive effect of stock options, restricted stock, and performance stock units
495
1,420
1,974
Diluted
62,170
62,532
61,024
Earnings per share:
Basic
$
0.27
$
0.33
$
0.52
Diluted
$
0.27
$
0.33
$
0.51
For the years ended December 31, 2019, 2018, and 2017, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 768, 291, and 180 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. Accumulated Other Comprehensive 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 sheets. We have defined the Canadian dollar as the functional currency of our Canadian subsidiary, DNAG, and we have defined the Euro as the functional currency of our Belgian subsidiary, Novosanis. The results of operations are translated into U.S. dollars, which is the reporting currency of the Company. Accumulated other comprehensive loss at December 31, 2019 consists of $12,022 of currency translation adjustments and $114 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investments portfolio. Accumulated other comprehensive loss at December 31, 2018 consists of $17,789 of currency translation adjustments and $917 of net unrealized losses on marketable securities. Fair Value of Financial Instruments As of December 31, 2019 and 2018, 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). All of our available-for-sale debt securities are measured as Level 2 instruments as of December 31, 2019 and 2018. Included in cash and cash equivalents at December 31, 2019 and 2018, was $1,624 and $21,631 invested in government money market funds. These funds have investments in government securities and are measured as Level 1 instruments. We offer a nonqualified deferred compensation plan for certain eligible employees and members of our Board of Directors. The assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in mutual funds and Company stock. The fair value of the plan assets as of December 31, 2019 and 2018 was $3,519 and $3,884, respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 instruments. The fair value of plan assets is included in both current assets and other noncurrent assets with the same amounts included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets. Recent Accounting Pronouncements In June 2016, the FASB issued guidance on the measurement of credit losses, which requires measurement and recognition of expected credit losses for financial assets, including trade receivables and capital lease receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The method to determine a loss is different from the existing guidance, which requires a credit loss to be recognized when it is probable. The guidance is effective beginning in fiscal year 2020, with early adoption permitted beginning in fiscal year 2019. We have determined that this new guidance will not have a material impact on our consolidated financial statements. In February 2018, the FASB issued guidance allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. The guidance is effective in fiscal year 2020, with early adoption permitted, including adoption in an interim period. If elected, the reclassification can be applied in either the period of adoption or retrospectively to the period of the enactment of the U.S. Tax Cuts and Jobs Act (i.e., our first quarter of fiscal year 2018). We have determined that this new guidance will not have a material impact on our consolidated financial statements. In August 2018, the FASB issued guidance related to fair value measurement disclosures. This guidance removes the requirement to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, the policy for determining that a transfer has occurred, and valuation processes for Level 3 fair value measurements. Additionally, this guidance modifies the disclosures related to the measurement uncertainty for recurring Level 3 fair value measurements (by removing the requirement to disclose sensitivity to future changes) and the timing of liquidation of investee assets (by removing the timing requirement in certain instances). The guidance also requires new disclosures for Level 3 financial assets and liabilities, including the amount and location of unrealized gains and losses recognized in other comprehensive income/(loss) and additional information related to significant unobservable inputs used in determining Level 3 fair value measurements. This guidance is effective beginning in fiscal year 2020. We have determined that this new guidance will not have a material impact on our consolidated financial statements. In August 2018, the FASB issued guidance related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This guidance also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This guidance will be effective beginning in the first quarter of our fiscal year 2020. This guidance may be adopted either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We will prospectively adopt this guidance and have determined that |
