Item 1. Financial Statements (Unaudited)
Item 1. FINANCIAL STATEMENTS
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited · in thousands, except per share amounts
| Line item | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| NET REVENUES: | ||||
| Products and services | ||||
| Other | ||||
| COST OF PRODUCTS AND SERVICES SOLD | ||||
| Gross profit | ||||
| OPERATING EXPENSES: | ||||
| Research and development | ||||
| Sales and marketing | ||||
| General and administrative | ||||
| Loss on impairments | ||||
| Change in the estimated fair value of acquisition-related contingent consideration | () | () | ||
| Operating (loss) income | () | () | ||
| OTHER INCOME | ||||
| (Loss) income before income taxes | () | () | ||
| INCOME TAX EXPENSE | ||||
| LOSS ON EQUITY INVESTMENT | () | () | ||
| NET (LOSS) INCOME | $() | $() | ||
| (LOSS) INCOME PER SHARE: | ||||
| BASIC | $() | $() | ||
| DILUTED | $() | $() | ||
| WEIGHTED-AVERAGE SHARES OUTSTANDING: | ||||
| BASIC | ||||
| DILUTED |
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Unaudited · in thousands
| Line item | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| NET (LOSS) INCOME | $() | $() | ||
| OTHER COMPREHENSIVE (LOSS) INCOME | ||||
| Currency translation adjustments | () | () | ||
| Unrealized gain on marketable securities | ||||
| COMPREHENSIVE (LOSS) INCOME | $() | $() |
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited · in thousands
| Line item | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|
| OPERATING ACTIVITIES: | ||
| Net (loss) income | $() | |
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||
| Stock-based compensation | ||
| Depreciation and amortization | ||
| Loss on impairments | ||
| Other non-cash amortization | (569) | 3 |
| Provision for credit losses | () | |
| Unrealized foreign currency gain | () | () |
| Interest expense on finance leases | 20 | 42 |
| Loss on equity investment | ||
| Deferred income taxes | () | |
| Loss on sale of fixed assets | () | |
| Change in the estimated fair value of acquisition-related contingent consideration | () | |
| Payment of acquisition-related contingent consideration | — | (19) |
| Changes in assets and liabilities: | ||
| Accounts receivable | ||
| Inventories | ||
| Prepaid expenses and other assets | ||
| Accounts payable | () | () |
| Deferred revenue | () | |
| Accrued expenses and other liabilities | () | () |
| Net cash provided by operating activities | ||
| INVESTING ACTIVITIES: | ||
| Purchases of short-term investments | () | () |
| Investment in equity method investee | () | |
| Proceeds from maturities and redemptions of short-term investments | ||
| Purchases of property and equipment | () | () |
| Purchase of property and equipment under government contracts | () | |
| Proceeds from funding under government contract | ||
| Net cash (used in) provided by investing activities | () | |
| FINANCING ACTIVITIES: | ||
| Cash payments for lease liabilities | () | () |
| Proceeds from exercise of stock options | ||
| Payment of acquisition-related contingent consideration | () | |
| Repurchase of common stock | () | () |
| Net cash used in financing activities | () | () |
| EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH | () | |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | () | |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | ||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | ||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
| Cash (refunds) paid for income taxes | $() | |
| Non-cash investing and financing activities | ||
| Accrued property and equipment purchases | ||
| Accrued property and equipment purchases under government contracts | — | $2 |
See accompanying notes to the consolidated financial statements.
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
- Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The accompanying interim unaudited consolidated financial statements include the accounts of OraSure Technologies, Inc. (“OraSure”) and its wholly-owned subsidiaries, DNA Genotek Inc. (“DNAG”), Diversigen, Inc. (“Diversigen”), and Novosanis NV (“Novosanis”). All intercompany transactions and balances have been eliminated. References herein to “we,” “us,” “our,” or the “Company” mean OraSure and its consolidated subsidiaries, unless otherwise indicated. The unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the Company's financial position and results of operations for these interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of operations expected for the full year.
Summary of Significant Accounting Policies
There have been no changes to the Company's significant accounting policies described in 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 and related notes except as discussed herein.
Cash Equivalents & Short-Term Investments
The Company considers all investments in debt securities to be available-for-sale securities. These securities consist of guaranteed investment certificates purchased with maturities greater than ninety days. Securities with maturities ninety days or less are considered cash equivalents. Available-for-sale securities are carried at fair value, based upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders’ equity as a component of accumulated other comprehensive loss.
The Company had available-for-sale securities as of September 30, 2024 and December 31, 2023.
Fair Value of Financial Instruments
As of September 30, 2024 and December 31, 2023, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature.
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 the Company's guaranteed investment certificates are measured as Level 1 instruments as of September 30, 2024.
Included in cash and cash equivalents at September 30, 2024 and December 31, 2023 was $42.5 million and $71.7 million, respectively, of guaranteed investment certificates.
Also included in cash and cash equivalents at September 30, 2024 and December 31, 2023 was $117.1 million and $112.7 million, respectively, invested in money market funds. These money market funds have investments in U.S. government securities and are measured as Level 1 instruments.
The Company offers a nonqualified deferred compensation plan for certain eligible employees and members of its 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 September 30, 2024 and December 31, 2023 was million and million, respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 financial instruments. The fair value of plan assets is included in both current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.
Equity Method Investee
In January 2024, the Company lead the Series B financing and entered into 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 tests and molecular sample management solutions to the Company's customers globally. As of September 30, 2024, the Company had funded million for its interest in Sapphiros. The Company recorded the investment using the equity method in accordance with Accounting Standards Codification ("ASC") Topic 323, Investments—Equity Method and Joint Ventures—Overall. In accordance with the equity method, the Company's equity investment is presented net of its share of any gains or losses of the investee. The Company has elected as its accounting policy to recognize its share of any income or loss in Sapphiros on a three-month lag. The investment in Sapphiros of million as of September 30, 2024 is included in the investment in equity method investee line of the Company's balance sheet and is measured as a Level 3 investment. The Company has no unconditional obligations or guarantees to, or in support of, its equity method investee and its operations. In conjunction with the preparation of the Company's September 30, 2024 financial statements, the Company considered whether the carrying value of the investment in Sapphiros was impaired and concluded that no such impairment existed. There was no similar investment as of December 31, 2023.
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 operations were $() million and $() million for the three months ended September 30, 2024 and 2023, respectively. Net foreign exchange gains and (losses) resulting from foreign currency transactions for the nine months ended September 30, 2024 and 2023 were million and $() million, 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 reasonable period of time.
During the first quarter of 2024, the Company 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, given the Company's decision to initiate a strategic plan to transition away from the microbiome molecular sequencing services business and close its Belgian operations. The Company performed an undiscounted cash flow analysis and determined the carrying values of the property, plant and equipment and ROU assets could not be recovered through the sum of the undiscounted future cash flows and were impaired. During the nine months ended September 30, 2024 the Company recognized aggregate pre-tax impairment charges of million and $0.3 million to its operating and finance ROU assets, respectively. These charges
are reported in the Company's consolidated statement of operations. The impact of the impairments on the Company's property, plant, equipment for the nine months ended September 30, 2024 is discussed further in Note 4.
Accumulated Other Comprehensive Loss
Change in accumulated other comprehensive loss by component is listed below (in thousands):
| Line item | Foreign Currency | Total |
|---|---|---|
| Balance at December 31, 2023 | $(14,941) | $(14,941) |
| Other comprehensive loss | (2,259) | () |
| Balance at September 30, 2024 | $(17,200) | $(17,200) |
Recent Accounting Pronouncements
In March 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2024-01, Compensation—Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards. 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 amendments 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 impact on the Company's consolidated financial statements.
- Government Capital Contracts
In September 2021, the Company entered into an agreement for $109.0 million in funding from the U.S. Department of Defense (the "DOD"), in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for its InteliSwab® COVID-19 Rapid Test as part of the nation’s pandemic preparedness plan. In accordance with the milestone payment schedule, 15% of the total was not billed and funded 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 has received $109.0 million as of December 31, 2023. In connection with the completion of the contract in the fourth quarter of 2023, all funds were received.
Activity for these capital contracts was 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 type of transaction. Funding received in relation to capital-related costs incurred for government contracts was recorded as a reduction to the cost of property, plant and equipment and reflected within investing activities in the consolidated statements of cash flows; and associated unpaid liabilities and government proceeds receivable were considered non-cash changes in such balances within the operating section of the 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 such income during the three and nine months ended September 30, 2024. The Company recognized million and million of such income during the three and nine months ended September 30, 2023, respectively.
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 recognized such costs during the three and nine months ended September 30, 2024. The Company recognized million and million of such costs during the three and nine months ended September 30, 2023, respectively.
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):
| Line item | December 31, | December 31, |
|---|---|---|
| 2023 | ||
| Cost of assets, cumulative | ||
| Reduction for funding received to date | () | |
| Total property, plant and equipment, net | $ |
- Inventories (in thousands)
| Line item | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Raw materials | ||
| Work in process | ||
| Finished goods | ||
- Property, Plant and Equipment, net (in thousands)
| Line item | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Land | $1,118 | $1,118 |
| Buildings and improvements | 34,003 | 34,606 |
| Machinery and equipment | 58,618 | 64,156 |
| Computer equipment and software | 11,680 | 17,739 |
| Furniture and fixtures | 3,334 | 3,748 |
| Construction in progress | 8,952 | 9,196 |
| Accumulated depreciation | () | () |
During the first quarter of 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 of Diversigen and Novosanis' property, plant, and equipment were not recoverable and recorded an aggregate pre-tax asset impairment charge of $1.8 million during the nine months ended September 30, 2024.
During the second quarter of 2024, the Company determined a manufacturing line will no longer be utilized. 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 impairment charge of $1.1 million during the nine months ended September 30, 2024.
During the nine months ended September 30, 2023, the Company determined several manufacturing lines would no longer be utilized due to changes in forecasted demand for the products the equipment was intended to produce. Additionally, the Company elected not to proceed with certain leasehold improvements to its research and development laboratories. As a result of these decisions, the Company determined that the carrying values of the equipment and leasehold improvements made to date were not recoverable and recorded an aggregate pre-tax asset impairment charge of $1.3 million during the nine months ended September 30, 2023.
Due to the extremely specialized nature of the property, plant, and equipment in each triggering event noted above and due to various market data points, the estimated fair value of all assets was determined to be zero. These charges are reported within loss on impairments in the consolidated statements of operations.
- Accrued Expenses and Other Current Liabilities (in thousands)
| Line item | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Payroll and related benefits | ||
| Professional fees | ||
| Sales tax payable | ||
| Other | ||
- Termination Benefits
2023 Reduction in Workforce
During the first and second quarters of 2023, the Company executed a reduction in workforce. This was accounted for pursuant to 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):
| 2023 | |
| Cost of products and services sold | $369 |
| Research and development | 566 |
| Sales and marketing | 1,542 |
| General and administrative | 787 |
| $3,264 |
As of September 30, 2024 the Company has fully paid the $3.3 million related to the reduction in workforce. No additional expense associated with the 2023 reduction in workforce was incurred during the nine months ended September 30, 2024. This plan was completed as of June 30, 2024.
Q1 2024 Reduction in Workforce
During the first quarter of 2024, the Company executed a reduction in workforce largely affecting its COVID-19 manufacturing workforce. This was accounted for pursuant to 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):
| Line item | For the Nine Months Ended September 30, | For the Nine Months Ended September 30, |
|---|---|---|
| 2024 | ||
| Cost of products and services sold | $231 | |
| Research and development | 87 | |
| Sales and marketing | 69 | |
| General and administrative | 17 | |
| $404 |
As of September 30, 2024 the Company had $6.0 thousand accrued and had paid $0.4 million related to the reduction in workforce. No additional expense associated with the Q1 2024 reduction in workforce was incurred during the three months ended September 30, 2024. The Company expects this plan to be completed by December 31, 2024.
Q2 2024 Reduction in Workforce
During the second quarter of 2024, the Company executed an additional reduction in workforce as the Company notified employees of its intention to consolidate its Novosanis site in Belgium into other locations by the end of December 31, 2024, discontinue the Diversigen molecular services line of business by the end of June 30, 2024, and consolidate facilities by bringing third-party manufacturing activities into its Pennsylvania facilities by the end of the third quarter of 2025. This was accounted for pursuant to 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):
| Line item | For the Three Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2024 |
|---|---|---|
| Cost of products and services sold | — | $889 |
| Research and development | — | 478 |
| Sales and marketing | — | 125 |
| General and administrative | — | 160 |
| — | $1,652 |
As of September 30, 2024 the Company had $0.9 million accrued and had paid $0.7 million related to the reduction in workforce. No additional expense associated with the Q2 2024 reduction in workforce was incurred during the three months ended September 30, 2024. The Company expects this plan to be completed by September 2025.
Q3 2024 Reduction in Workforce
During the third quarter of 2024, the Company executed a reduction in workforce largely as the Company notified certain employees of its intention to discontinue its risk assessment business. Additional employees were notified in the fourth quarter of 2024 and additional severance costs will be incurred. This was accounted for pursuant to 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):
| Line item | For the Three Months Ended September 30, | For the Three Months Ended September 30, |
|---|---|---|
| 2024 | ||
| Cost of products and services sold | $7 | |
| Research and development | — | |
| Sales and marketing | 346 | |
| General and administrative | — | |
| $353 |
As of September 30, 2024 the Company had $0.3 million accrued and had paid $7.1 thousand related to the reduction in workforce. The Company expects this plan to be completed by January 2026.
- Revenues
Revenues by product line. The following table represents total net revenues by product line (in thousands):
| Line item | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| HIV | ||||
| COVID-19 (1) | ||||
| Molecular Sample Management Solutions (2) | ||||
| HCV | ||||
| Risk assessment testing (3) | ||||
| Other product and service revenues (4) | ||||
| Molecular Services | ||||
| Net product and services revenues | 39,652 | 89,014 | 147,380 | 326,666 |
| Non-product and services revenues (5) | ||||
| Net revenues |
(1) Includes COVID-19 Diagnostics and COVID-19 Molecular revenues.
(2) Includes Genomics, Microbiome and Novosanis product revenues.
(3) Includes substance abuse testing products revenues.
(4) Includes Syphilis revenues.
(5) Includes funded research and development contracts, royalty income and grant revenues.
Revenues by geographic area. The following table represents total net revenues by geographic area, based on the location of the customer (in thousands):
| Line item | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| United States | ||||
| Europe | ||||
| Other regions | ||||
Customer and Vendor Concentrations. The following table represents the concentration risk.
| Revenue Concentration | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| Commercial customer (1) | 11% | NA | NA | NA |
| Commercial customer (1) | 10% | NA | NA | NA |
| Non-Commercial customer (2) | NA | 56% | 26% | 66% |
| September 30, | December 31, | |||
| Accounts Receivable | 2024 | 2023 | ||
| Commercial customer (1) | 21% | NA | ||
| Non-Commercial customer (2) | NA | 40% |
(1) Each commercial customer is different.
(2) Same non-commercial customer.
The Company currently purchases certain products and critical components of its products from sole-supply vendors. If these vendors are unable or unwilling to supply the required components and products, the Company could be subject to increased costs and substantial delays in the delivery of its products to its customers. Third-party suppliers also manufacture certain products. The Company's inability to have a timely supply of any of these components and products could have a material adverse effect on its business, as well as its financial condition and results of operations.
Deferred Revenue. The Company records deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of September 30, 2024 and December 31, 2023 included customer prepayments of $1.6 million and $1.2 million, respectively. Deferred revenue as of December 31, 2023 also included $0.4 million associated with a long-term contract that had variable pricing based on volume. The average price over the life of the contract was determined and revenue was recognized at that average price. The $0.4 million associated with the long-term contract at December 31, 2023 met the criteria to be recognized as revenue during the nine months ended September 30, 2024, and as such there was no equivalent balance remaining in deferred revenue at September 30, 2024. Deferred revenue recognized for the three months ended September 30, 2024 and 2023, was million and million, respectively. Deferred revenue recognized for the nine months ended September 30, 2024 and 2023, was million and million, respectively.
- Income Taxes
The components of income tax expense (benefit) are as follows (in thousands):
| Line item | For the Three Months Ended September 30, 2024 | For the Three Months Ended September 30, 2023 | For the Nine Months Ended September 30, 2024 | For the Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| State income tax expense (benefit) | $18 | $1,131 | $(209) | $2,388 |
| Foreign income tax expense (benefit) | () | |||
During the three months ended September 30, 2024 and 2023, the Company recorded income tax expense of million and million, respectively. The three months ended September 30, 2024 net tax expense decrease is due to having a U.S. pretax loss and foreign pretax income in 2024 compared to a U.S. and foreign pretax income for the three months ended September 30, 2023. During the nine months ended September 30, 2024 and 2023, the Company recorded income tax expense of million and million, respectively. Foreign pre-tax income increased during the nine months ended September 30, 2024 compared to a foreign pre-tax loss during the nine months ended September 30, 2023. In addition, there was lower state pre-tax income for nine months ended September 30, 2024 compared to 2023.
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 September 30, 2024 and at December 31, 2023 relate to the tax effects of the basis difference 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 September 30, 2024 and December 31, 2023.
- Income (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, unvested restricted stock or performance stock units, unless the impact is antidilutive. The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period. Basic and dilutive computations of net loss per share are the same in periods in which a net loss exists as the dilutive effects of excluded items would be anti-dilutive.
For the three and nine months ended September 30, 2024, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 389 shares and 999 shares, respectively, were excluded from the computation of diluted loss per share.
For the three and nine months ended September 30, 2023, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 2,027 and 2,048 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.
- Stockholders’ Equity
Reconciliation of the changes in stockholders' equity for the three and nine months ended September 30, 2024 and 2023:
| Line item | Common StockShares | Common StockAmount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
|---|---|---|---|---|---|---|
| Balance at December 31, 2023 | 73,528 | — | $529,543 | $(14,941) | $(83,931) | |
| Common stock issued upon exercise of options | 32 | — | 214 | — | — | |
| Vesting of restricted stock and performance stock units | 593 | — | — | — | — | — |
| Purchase and retirement of common shares | (194) | — | (1,462) | — | — | () |
| Stock-based compensation | — | — | 2,968 | — | — | |
| Net loss | — | — | — | — | (3,584) | () |
| Currency translation adjustments | — | — | — | (2,556) | — | () |
| Balance at March 31, 2024 | 73,959 | — | $531,263 | $(17,497) | $(87,515) | |
| Vesting of restricted stock and performance stock units | 1,033 | — | — | — | — | — |
| Purchase and retirement of common shares | (424) | — | (1,984) | — | — | () |
| Stock-based compensation | — | — | 3,322 | — | — | |
| Net loss | — | — | — | — | (615) | () |
| Currency translation adjustments | — | — | — | (1,134) | — | () |
| Balance at June 30, 2024 | 74,568 | — | $532,601 | $(18,631) | $(88,130) | |
| Vesting of restricted stock and performance stock units | 44 | — | — | — | — | — |
| Purchase and retirement of common shares | (19) | — | (87) | — | — | () |
| Stock-based compensation | — | — | 2,888 | — | — | |
| Net loss | — | — | — | — | (4,507) | () |
| Currency translation adjustments | — | — | — | 1,431 | — | |
| Balance at September 30, 2024 | 74,593 | — | $535,402 | $(17,200) | $(92,637) |
| Line item | Common StockShares | Common StockAmount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total |
|---|---|---|---|---|---|---|
| Balance at December 31, 2022 | 72,734 | — | $520,446 | $(18,435) | $(137,586) | |
| Common stock issued upon exercise of options | 12 | — | 66 | — | — | |
| Vesting of restricted stock and performance stock units | 737 | — | — | — | — | — |
| Purchase and retirement of common shares | (229) | — | (1,203) | — | — | () |
| Stock-based compensation | — | — | 2,655 | — | — | |
| Net income | — | — | — | — | 27,219 | |
| Currency translation adjustments | — | — | — | 797 | — | |
| Unrealized gain on marketable securities | — | — | — | 220 | — | |
| Balance at March 31, 2023 | 73,254 | — | $521,964 | $(17,418) | $(110,367) | |
| Vesting of restricted stock and performance stock units | 241 | — | — | — | — | |
| Purchase and retirement of common shares | (82) | — | (460) | — | — | () |
| Stock-based compensation | — | — | 2,357 | — | — | |
| Net loss | — | — | — | — | (4,796) | () |
| Currency translation adjustments | — | — | — | 2,859 | — | |
| Balance at June 30, 2023 | 73,413 | — | $523,861 | $(14,559) | $(115,163) | |
| Common stock issued upon exercise of options | 2 | — | 10 | — | — | |
| Vesting of restricted stock and performance stock units | 99 | — | — | — | — | — |
| Purchase and retirement of common shares | (31) | — | (200) | — | — | () |
| Stock-based compensation | — | 2,590 | — | — | ||
| Net income | — | — | — | — | 11,159 | |
| Currency translation adjustments | — | — | — | (2,813) | — | () |
| Balance at September 30, 2023 | 73,483 | — | $526,261 | $(17,372) | $(104,004) |
- Commitments and Contingencies
Litigation
From time to time, the 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 the Company's future financial position or results of operations.
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 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. The Company appealed the grant of summary judgment to the Court of Appeals on June 8, 2023. The Company is pursuing the appeal with respect to the first patent, with oral argument expected in the first quarter of 2025. 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. 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 13, 2025. On July 2, 2024, the Company filed a Motion to Amend the claims of the third patent, which remains pending.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with (i) the Company's unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) the Company's audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 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, the Company's actual results or timing of certain events could differ materially from the results or timing described in, or implied by, these forward-looking statements.
Business Overview
The Company's business consists of the development, manufacture, marketing and sale of simple, easy to use diagnostic products and specimen collection devices using the Company's proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. These products include tests for diseases including COVID-19, HIV, Hepatitis C, and Syphilis that are performed on a rapid basis at the point of care, and tests for drugs of abuse that are processed in a laboratory. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. The Company's COVID-19 and HIV products are also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S. and, in the case of the HIV product, as a self-test to individuals in a number of other countries, 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 from sample management solutions are derived from product sales to commercial customers and sales 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 focuses 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, through its Diversigen subsidiary, the Company offered laboratory and bioinformatics services for both genomics and microbiome customers. These services were primarily provided to pharmaceutical, biotech companies, and research institutions. During the first quarter of 2024, the Company initiated steps to wind down and exit this line of business. Diversigen contributed $1.7 million to revenues during the nine months ended September 30, 2024 and contributed $4.5 million to revenues for the full year of 2023. In October 2024, the Company announced the discontinuance of the sales of its risk assessment product line which is expected to be completed by end of year. Sales of its risk assessment products contributed $6.3 million to revenues during the nine months ended September 30, 2024 and contributed $9.7 million to revenues for the full year of 2023.
Results of Operations
For the three months ended September 30, 2024 compared to September 30, 2023.
CONSOLIDATED NET REVENUES
The table below shows an outline of total consolidated net revenues (dollars in thousands) for the three months ended September 30, 2024 and 2023:
| Line item | For the Three Months Ended September 30, · Dollars2024 | For the Three Months Ended September 30, · Dollars2023 | For the Three Months Ended September 30,% Change | For the Three Months Ended September 30, · Percentage of Total Net Revenues2024 | For the Three Months Ended September 30, · Percentage of Total Net Revenues2023 |
|---|---|---|---|---|---|
| Diagnostics (1) | 22,023 | 19,551 | 13% | 55% | 22% |
| Molecular Sample Management Solutions (2) | 12,806 | 15,238 | (16) | 32 | 17 |
| COVID-19 Diagnostics | 2,155 | 50,145 | (96) | 5 | 56 |
| Risk assessment testing (3) | 1,911 | 2,554 | (25) | 5 | 3 |
| Other products and services | 748 | 638 | 17 | 2 | 1 |
| Molecular Services | 9 | 834 | (99) | — | 1 |
| COVID-19 Molecular Products | — | 54 | (100) | — | — |
| Net product and services revenues | 39,652 | 89,014 | (55) | 99 | 100 |
| Non-product and services revenues (4) | 263 | 173 | 52 | 1 | — |
| Net revenues | $39,915 | $89,187 | (55)% | 100% | 100% |
(1) Includes HIV, HCV and Syphilis product revenues.
(2) Includes Genomics, Microbiome and Novosanis product revenues.
(3) Includes substance abuse testing product revenues.
(4) Includes funded research and development contracts, royalty income and grant revenues.
Product and Services Revenues
Consolidated net revenues decreased 55% to $39.9 million for the three months ended September 30, 2024 from $89.2 million for the three months ended September 30, 2023.
Sales of the Company's Diagnostics products increased 13% to $22.0 million for the three months ended September 30, 2024 from $19.6 million for the three months ended September 30, 2023. This increase in revenues is largely due to higher international HIV revenues of approximately $2.4 million primarily driven by customer ordering patterns of sales in Africa.
Molecular Sample Management Solutions revenues decreased 16% to $12.8 million for the three months ended September 30, 2024 from $15.2 million for the three months ended September 30, 2023. Sales of the Company's Molecular Products are being impacted by reduced consumer demand for products in which our genomics collection devices are used, economic pressures, and the overall decline in the microbiome market.
COVID-19 Diagnostics revenues decreased by 96% to $2.2 million for the three months ended September 30, 2024 compared to $50.1 million for the three months ended September 30, 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 the remainder of 2024 and for the foreseeable future due to the fulfillment of these contracts and lower overall demand for COVID-19 testing.
Risk assessment revenue decreased 25% due to the loss of customers to competing products. The Company has announced that it will discontinue this line of business by the end of 2024.
Molecular Services revenues, which are derived from the Company's microbiome molecular sequencing services, decreased 99% to $9 thousand for the three months ended September 30, 2024 from $0.8 million for the three months ended September 30, 2023. The decrease in services revenues was due to the decision to exit this line of business. We expect minimal molecular services revenues in the remainder of 2024.
Non-Product and Services Revenues
Non-product and services revenues increased 52% to $0.3 million for the three months ended September 30, 2024 from $0.2 million for the three months ended September 30, 2023 due to recognizing royalty income in the third quarter of 2024 and none in the third quarter of 2023.
CONSOLIDATED OPERATING RESULTS
Consolidated gross profit margin decreased to 42.8% for the three months ended September 30, 2024 from 49.7% for the three months ended September 30, 2023. The largest driver of the margin decline was due to the lower volume in InteliSwab® sales driven by less units produced and sold and a lower average selling price based on contractual pricing. Furthermore, the lower units produced resulted in lower overhead absorption of fixed costs as compared to the prior year period. Gross margin was also negatively impacted by the increased sales of international product which generate lower margins coupled with the lower margins contributed by genomics products. The decline in gross margins was partially offset by the impact of the exit of the Molecular Services business which historically caused a drag on consolidated gross margin.
Consolidated operating loss for the three months ended September 30, 2024 was $6.0 million, a decline from the $10.9 million operating income reported for the three months ended September 30, 2023. The operating income reported in the third quarter of 2023 was largely a result of higher revenues and gross margins generated by the Company's InteliSwab® product and was partially offset by the inclusion of $6.2 million in impairment loss. In 2023, the Company began implementing cost cutting measures and has benefited from this in the three months ended September 30, 2024 with a $4.2 million reduction in operating expense compared to the three months ended September 30, 2023.
Research and development expenses decreased 34% to $5.6 million for the three months ended September 30, 2024 from $8.5 million for the three months ended September 30, 2023 largely due to a decrease in employee costs associated with a reduction in headcount, decrease in spend on COVID-19 product development, and no related project management fees for our $109 million manufacturing expansion contract which ended during the fourth quarter of 2023.
Sales and marketing expenses decreased 13% to $7.6 million for the three months ended September 30, 2024 from $8.7 million for the three months ended September 30, 2023 due to lower employee costs associated with a decrease in headcount, decreased bad debt expense and consulting fees and lower amortization expense partially offset by an increase in severance expense due to the third quarter 2024 reduction in workforce.
General and administrative expenses decreased 2% to $9.8 million for the three months ended September 30, 2024 from $10.1 million for the three months ended September 30, 2023 largely due lower employee costs due to a reduction in headcount, partially offset by an increase in legal fees and in non-cash stock compensation expense.
All of the above contributed to the Company's operating loss of $6.0 million for the three months ended September 30, 2024, which included non-cash charges of $3.0 million for depreciation and amortization, and non-cash charges of $2.9 million for stock-based compensation. The Company's operating income of $10.9 million for the three months ended September 30, 2023 included a non-cash impairment charge of $6.2 million, non-cash charges of $3.4 million for depreciation and amortization, and $2.6 million for stock-based compensation.
OTHER INCOME
Other income for the three months ended September 30, 2024 was $2.8 million compared to $2.6 million for the three months ended September 30, 2023. This increase is due to higher interest income partially offset by the absence of profit earned under our manufacturing expansion contract with the U.S. government which ended at the end of 2023.
CONSOLIDATED INCOME TAXES
The Company continues to believe the full valuation allowance established against its 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, 2024 and 2023, the Company recorded U.S. state income tax expense of $18.0 thousand and $1.1 million, respectively and foreign tax expense of $0.7 million and $1.2 million, respectively.
Results of Operations
For the nine months ended September 30, 2024 compared to September 30, 2023.
CONSOLIDATED NET REVENUES
The table below shows an outline of total consolidated net revenues (dollars in thousands) for the nine months ended September 30, 2024 and 2023:
| Line item | For the Nine Months Ended September 30, · Dollars2024 | For the Nine Months Ended September 30, · Dollars2023 | For the Nine Months Ended September 30,% Change | For the Nine Months Ended September 30, · Percentage of Total Net Revenues2024 | For the Nine Months Ended September 30, · Percentage of Total Net Revenues2023 |
|---|---|---|---|---|---|
| Diagnostics (1) | $57,162 | $56,475 | 1% | 39% | 17% |
| COVID-19 Diagnostics | 44,186 | 215,876 | (80) | 30 | 65 |
| Molecular Sample Management Solutions (2) | 36,237 | 41,230 | (12) | 24 | 13 |
| Risk assessment testing (3) | 6,265 | 7,540 | (17) | 4 | 2 |
| Other products and services | 1,802 | 1,739 | 4 | 1 | 1 |
| Molecular Services | 1,692 | 3,567 | (53) | 1 | 1 |
| COVID-19 Molecular Products | 36 | 239 | (85) | — | — |
| Net product and services revenues | 147,380 | 326,666 | (55) | 99 | 99 |
| Non-product and services revenues (4) | 1,002 | 2,925 | (66) | 1 | 1 |
| Net revenues | $148,382 | $329,591 | (55)% | 100% | 100% |
(1) Includes HIV, HCV and Syphilis product revenues.
(2) Includes Genomics, Microbiome and Novosanis product revenues.
(3) Includes substance abuse testing product revenues.
(4) Includes funded research and development contracts, royalty income and grant revenues.
Product and Services Revenues
Consolidated net product and services revenues decreased 55% to $148.4 million for the nine months ended September 30, 2024 from $329.6 million for the nine months ended September 30, 2023.
Sales of the Company's Diagnostics products increased 1% to $57.2 million for the nine months ended September 30, 2024 from $56.5 million for the nine months ended September 30, 2023. This increase in revenue was primarily driven by higher HIV and HCV revenues in international markets of $1.4 million as a result of customer ordering patterns. Also contributing to the diagnostic revenue increase is a combined increase in HCV domestic and Syphilis revenues of $1.4 million. A decline in our HIV domestic revenue resulting from funding delays or reductions in funding for HIV products and customer order patterns partially offset the increased revenues from the other product lines.
COVID-19 Diagnostics revenues decreased 80% to $44.2 million for the nine months ended September 30, 2024 compared to $215.9 million for the nine months ended September 30, 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 for the remainder of 2024 and for the foreseeable future due to the fulfillment of these contracts and lower overall demand for COVID-19 testing.
Molecular Sample Management Solutions revenues decreased 12% to $36.2 million for the nine months ended September 30, 2024 from $41.2 million for the nine months ended September 30, 2023. Sales of the Company's Molecular Sample Management Solutions Products are being impacted by reduced consumer 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 the overall decline in the microbiome market.
Risk assessment revenue decreased 17%, due to the loss of customers to competing products. The Company has announced that it will discontinue this line of business by the end of 2024.
Molecular Services revenues, which are largely derived from the Company's laboratory services, decreased 53% to $1.7 million for the nine months ended September 30, 2024 from $3.6 million for the nine months ended September 30, 2023.
The decrease in services revenues was due to the decision to exit this line of business. We expect minimal molecular services revenues in the remainder of 2024.
Non-Product and Services Revenues
Non-product and services revenues decreased 66% to $1.0 million for the nine months ended September 30, 2024 from $2.9 million for the nine months ended September 30, 2023 as a result of 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 waiver of our InteliSwab® tests. The Company has communicated to BARDA that it does not intend to pursue further development of this clearance. Further contributing to the decline in non-product revenues is lower royalty income in 2024 as one of the Company's royalty agreements for sample collection kits expired in June 2023.
CONSOLIDATED OPERATING RESULTS
Consolidated gross profit margin increased to 44.4% for the nine months ended September 30, 2024 from 41.4% for the nine months ended September 30, 2023. Gross margins in 2023 included $7.0 million of accelerated depreciation associated with the wind-down of InteliSwab® manual assembly in Thailand as the Company began to on-shore and automate manufacturing of this product at its Pennsylvania facilities. In addition, reduced salary and benefits due to the reduction in workforce experienced in 2023 and 2024 contributed to improved overhead absorption. Lastly, lower product scrap expense helped to increase margins for the nine months ended September 30, 2024. These improvement in margins were partially offset by the decline in InteliSwab® revenues and a shift in product mix of increased revenues from lower margin product. Other non-product revenues which contribute 100% to gross margins also declined for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.
Consolidated operating loss for the nine months ended September 30, 2024 was $15.8 million, compared to $28.8 million operating income reported for the nine months ended September 30, 2023. Results for the nine months ended September 30, 2024 were negatively impacted by the decrease in revenues and were positively impacted by reduced operating expense. Results for the nine months ended September 30, 2024 included $4.4 million of impairment losses compared to $7.5 million for the nine months ended September 30, 2023.
Operating expenses for the nine months ended September 30, 2024, excluding the impairment charge, decreased 22.9% to $77.3 million from $100.2 million for the nine months ended September 30, 2023 reflecting the impact of the Company's cost saving measures and headcount reductions.
Research and development expenses decreased 25% to $20.0 million for the nine months ended September 30, 2024 from $26.7 million for the nine months ended September 30, 2023, largely due to lower staffing costs due to a decrease in headcount and no related project management fees for our $109 million manufacturing expansion contract which ended during the fourth quarter of 2023, and a decrease in spend on COVID-19 product development. This overall decrease in spend is partially offset by an increase in severance costs for those employees impacted by the Company's decisions to exit the molecular services business offered by its Diversigen subsidiary and wind-down of operations located in Belgium.
Sales and marketing expenses decreased 18% to $24.0 million for the nine months ended September 30, 2024 from $29.4 million for the nine months ended September 30, 2023 primarily due to decreased employee costs associated with the reduction in headcount and lower advertising, consulting, and amortization expense.
General and administrative expenses decreased 25% to $33.3 million for the nine months ended September 30, 2024 from $44.2 million for the nine months ended September 30, 2023 largely due to lower legal fees relating to the Spectrum litigation (discussed further in Part II. Other Information, Item 1. Legal Proceedings, below) and lower employee costs associated with reduced headcount partially offset by an increase in non-cash stock compensation expense.
All of the above contributed to the Company's operating loss of $15.8 million for the nine months ended September 30, 2024, which included non-cash impairment charges of $4.4 million, non-cash charges of $8.4 million for depreciation and amortization, and $9.2 million for stock-based compensation. The Company's operating income of $28.8 million for the nine months ended September 30, 2023 included a non-cash impairment charge of $7.5 million, non-cash charges of $17.4 million for depreciation and amortization, and $7.6 million for stock-based compensation.
OTHER INCOME
Other income for the nine months ended September 30, 2024 was $9.3 million compared to $6.8 million for the nine months ended September 30, 2023. This increase is largely due to higher interest income offset by absence of profit earned under our manufacturing expansion contract with the U.S. government which ended at the end of 2023.
CONSOLIDATED INCOME TAXES
The Company continues to believe the full valuation allowance established against its 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, 2024 and 2023, the Company recorded U.S. state tax benefit and expense of $0.2 million and $2.4 million, respectively. For the nine months ended September 30, 2024 and 2023, the Company recorded foreign tax expense and benefit of $1.3 million and $0.4 million, respectively.
Liquidity and Capital Resources
in thousands
| Line item | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Cash and cash equivalents | $278,571 | $290,407 |
| Working capital | 322,367 | 346,923 |
The Company's cash and cash equivalents decreased to $278.6 million at September 30, 2024 from $290.4 million at December 31, 2023. $93.7 million or 34% of the $278.6 million in cash and cash equivalents is held by DNAG, the Company's Canadian subsidiary.
The Company's working capital decreased to $322.4 million at September 30, 2024 from $346.9 million at December 31, 2023. The decrease in cash and cash equivalents and working capital was primarily due to the investment in Sapphiros of $30.0 million during the nine months ended September 30, 2024.
Analysis of the Company's Cash Flows
Operating Activities
During the nine months ended September 30, 2024, net cash provided by operating activities was $27.3 million. Cash flows from operations can be significantly impacted by factors such as timing of receipt from customers, inventory purchases, and payments to vendors. The Company's net loss of $8.7 million included non-cash charges of depreciation and amortization expense of $8.4 million, stock-based compensation expense of $9.2 million, impairment losses of $4.4 million, and loss on equity investment of $1.2 million. Cash provided by the working capital accounts included a decrease in accounts receivable of $12.7 million largely associated with lower overall sales and collections of balances due, a decrease in inventory of $8.7 million as the Company fulfilled demand for its InteliSwab® product, and a decrease in prepaid expense and other current assets of $2.6 million. Uses of cash included a decrease in accounts payable of $3.4 million due to lower inventory purchases and timing of vendor invoice payments and a decrease in accrued expenses of $7.6 million as the Company paid out year-end bonuses in March 2024.
Investing Activities
Net cash used in investing activities was $33.5 million for the nine months ended September 30, 2024, which reflects proceeds from the maturities of investments of $53.1 million, offset by $53.2 million in purchases of investments. Investing activities also include a $30.0 million investment in Sapphiros, and $3.3 million to acquire property and equipment to support the normal operations of the business.
Financing Activities
Net cash used in financing activities was $4.1 million for the nine months ended September 30, 2024, which is largely comprised of $3.5 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to the Company's employees.
Resources
The Company expects existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements over the next twelve months. The Company's cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the scope and timing of future strategic acquisitions, the progress of its research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures, changes in existing and potential relationships with business partners, the timing and cost of obtaining regulatory approvals, the timing and cost of future stock purchases, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, market acceptance of new products, competing technological and market developments, the impact of the current economic environment and other factors.
A summary of the Company's obligations to make future payments under contracts existing at December 31, 2023 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of its Annual Report on Form 10-K for the year ended December 31, 2023. As of September 30, 2024, there were no significant changes to this information.
Critical Accounting Policies and Estimates
A more detailed review of the Company's critical accounting policies is contained in its Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC. No material changes have been made to such critical accounting policies during the nine months ended September 30, 2024.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company'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 year ended December 31, 2023.
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, 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, 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, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the 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 the 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 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. The Company appealed the grant of summary judgment to the Court of Appeals on June 8, 2023. The Company is pursuing the appeal with respect to the first patent, with oral argument expected in the first quarter of 2025. 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. 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 13 2025. On July 2, 2024, the Company filed a Motion to Amend the claims of the third patent, which remains pending.
Item 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in Item 1A, entitled “Risk Factors,” in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
| Period | Total number ofshares purchased | Average pricepaid per Share | Total number ofshares purchasedas part of publiclyannounced plansor programs | Maximum number (orapproximate dollar value)of shares that may yet berepurchased under the plansor programs (1, 2) |
|---|---|---|---|---|
| July 1, 2024 - July 31, 2024 | — | — | — | 11,984,720 |
| August 1, 2024 - August 31, 2024 | 19,118 | $4.59 | — | 11,984,720 |
| September 1, 2024 - September 30, 2024 | — | — | — | 11,984,720 |
| 19,118 | — |
(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
None
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Item 5. OTHER INFORMATION
Rule 10b5-1 Trading Plans
The disclosure set forth in Part II - Item 2 above is incorporated herein by reference.
During the three months ended September 30, 2024, none of our directors or officers adopted, amended, or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. EXHIBITS
Exhibit Number Exhibit
31.1* Certification of Carrie Eglinton-Manner required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 31.2* Certification of Kenneth J. McGrath required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended. 32.1*+ Certification of Carrie Eglinton-Manner required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2*+ Certification of Kenneth J. McGrath required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document – the Instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (104) Cover Page from Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in exhibits 101).
*Filed herewith
+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.