UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
|
|
|
|
|
|
(State or Other Jurisdiction of Incorporation or Organization) |
|
(IRS Employer Identification No.) |
|
|
|
|
|
|
|
|
|
(Address of Principal Executive Offices) |
|
(Zip code) |
Registrant’s telephone number, including area code: (
_________________________
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
|
|
|
The |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
☒ |
|
Accelerated filer |
|
☐ |
|
|
|
|
|
|
|
|
|
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
|
|
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 1, 2021, the registrant had
PART I. FINANCIAL INFORMATION
|
|
|
|
|
Page |
|
|
|
|
Item 1. Financial Statements (Unaudited) |
|
|
|
|
|
Consolidated Balance Sheets at March 31, 2021 and December 31, 2020 |
3 |
|
|
|
|
Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020 |
4 |
|
|
|
|
5 |
|
|
|
|
|
Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 |
6 |
|
|
|
|
7 |
|
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
|
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
23 |
|
|
|
|
23 |
|
|
|
|
|
PART II. OTHER INFORMATION |
|
|
|
|
|
25 |
|
|
|
|
|
25 |
|
|
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
25 |
|
|
|
|
26 |
|
|
|
|
|
26 |
|
|
|
|
|
26 |
|
|
|
|
|
27 |
|
|
|
|
|
28 |
-2-
|
Item 1. |
FINANCIAL STATEMENTS |
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except per share amounts)
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
|
|
|
$ |
|
|
|
Short-term investments |
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $ |
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
|
|
Other current assets |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
Noncurrent Assets: |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
|
|
|
|
|
|
Operating right-of-use assets, net |
|
|
|
|
|
|
|
|
Finance right-of-use assets, net |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
|
|
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
|
|
Total noncurrent assets |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ |
|
|
|
$ |
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
$ |
|
|
|
$ |
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
|
|
|
Finance lease liability |
|
|
|
|
|
|
|
|
Operating lease liability |
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration obligation |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
Noncurrent Liabilities: |
|
|
|
|
|
|
|
|
Finance lease liability |
|
|
|
|
|
|
|
|
Operating lease liability |
|
|
|
|
|
|
|
|
Acquisition-related contingent consideration obligation |
|
|
|
|
|
|
|
|
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
|
|
Total noncurrent liabilities |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Preferred stock, par value $ |
|
|
|
|
|
|
|
|
Common stock, par value $ issued and outstanding |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
( |
) |
|
|
( |
) |
|
Accumulated deficit |
|
( |
) |
|
|
( |
) |
|
Total stockholders' equity |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
|
|
|
$ |
|
|
See accompanying notes to the consolidated financial statements.
-3-
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
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 |
|
|
|
|
|
|
|
|
|
Change in the estimated fair value of acquisition-related contingent consideration |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
( |
) |
|
OTHER INCOME (LOSS) |
|
|
( |
) |
|
|
|
|
|
Income (loss) before income taxes |
|
|
|
|
|
|
( |
) |
|
INCOME TAX EXPENSE |
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
$ |
|
|
|
$ |
( |
) |
|
INCOME (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
BASIC |
|
$ |
|
|
|
$ |
( |
) |
|
DILUTED |
|
$ |
|
|
|
$ |
( |
) |
|
SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
BASIC |
|
|
|
|
|
|
|
|
|
DILUTED |
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
-4-
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
NET INCOME (LOSS) |
|
$ |
|
|
|
$ |
( |
) |
|
OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
|
|
|
|
( |
) |
|
Unrealized gain (loss) on marketable securities |
|
|
|
|
|
|
( |
) |
|
COMPREHENSIVE INCOME (LOSS) |
|
$ |
|
|
|
$ |
( |
) |
See accompanying notes to the consolidated financial statements.
-5-
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Other non-cash amortization |
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
|
|
|
|
|
|
|
Unrealized foreign currency gain |
|
|
( |
) |
|
|
( |
) |
|
Interest expense on finance leases |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
|
Change in the estimated fair value of acquisition-related contingent consideration |
|
|
( |
) |
|
|
|
|
|
Payment of acquisition-related contingent consideration |
|
|
( |
) |
|
|
( |
) |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
( |
) |
|
|
|
|
|
Prepaid expenses and other assets |
|
|
( |
) |
|
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
|
|
|
Accrued expenses and other liabilities |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) provided by operating activities |
|
|
( |
) |
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
|
— |
|
|
|
( |
) |
|
Proceeds from maturities and redemptions of investments |
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from escrow associated with business acquisitions |
|
|
— |
|
|
|
|
|
|
Purchase price adjustment related to business acquisition |
|
|
( |
) |
|
|
— |
|
|
Purchase of patent and product rights |
|
|
— |
|
|
|
( |
) |
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Cash payments for lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Payment of acquisition-related contingent consideration |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
|
|
|
Repurchase of common stock |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH |
|
|
|
|
|
|
( |
) |
|
NET INCREASE 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 paid for income taxes |
|
$ |
|
|
|
$ |
( |
) |
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
Accrued property and equipment purchases |
|
$ |
|
|
|
$ |
|
|
|
Unrealized gain (loss) on marketable securities |
|
$ |
|
|
|
$ |
( |
) |
See accompanying notes to the consolidated financial statements.
-6-
ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Unaudited)
(in thousands, except per share amounts, unless otherwise indicated)
|
1. |
The Company |
The overall goal of OraSure Technologies, Inc. (“OraSure” or “the Company”) is to empower the global community to improve health and wellness by providing access to accurate essential information. Our business consists of
The Diagnostics business includes tests for diseases including HIV and Hepatitis C that are performed on a rapid basis at the point of care and tests 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. Our HIV product is also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S. and as a self-test to individuals in a number of other countries. Our Diagnostics business includes the operations of UrSure, Inc. (“UrSure”), which was acquired and merged into OraSure in 2020. This part of the Diagnostics business develops and commercializes products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP, the daily medication to prevent HIV, and anti-retroviral medications to suppress HIV. These products include laboratory-based tests that can measure levels of the medications in a patient’s urine or blood, as well as point-of-care products currently in development. In 2020, we developed a rapid antigen self-test for COVID-19 and a COVID-19 antibody enzyme-linked immunosorbent assay (“ELISA”) for use in laboratory settings. We are seeking Emergency Use Authorization (“EUA”) from the U.S. Food and Drug Administration “FDA”) for these products.
Our Molecular Solutions business is operated by our subsidiaries, DNA Genotek Inc. (“DNAG”), Diversigen, Inc. (“Diversigen”), and Novosanis NV (“Novosanis”). In this business, we manufacture and sell kits that are used to collect, stabilize, transport and store a biological sample of genetic material for molecular testing. Our products are used for academic research and commercial applications, including ancestry, disease risk management, lifestyle and animal testing. In 2020, three of our collection devices were used in connection with COVID-19 molecular testing. We also sell research-use-only collection products into the microbiome market. We offer our customers a suite of genomics and microbiome services that range from package customization and study design optimization to extraction, analysis and reporting services. The microbiome laboratory and bioinformatics services are provided by Diversigen, which includes the operations of CoreBiome, Inc. (“CoreBiome”), a subsidiary we acquired in early 2019. CoreBiome and Diversigen were merged together in 2020. Novosanis manufactures and sells the Colli-Pee® collection device for the volumetric collection of first-void urine for use in research, screening and diagnostics in the liquid biopsy and sexually transmitted infection markets. Our Molecular Solutions business serves customers in many countries worldwide, including many leading research universities and hospitals.
|
2. |
Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation. The accompanying interim unaudited consolidated financial statements include the accounts of OraSure and its wholly-owned subsidiaries, DNAG, Diversigen and 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 our 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Results of operations for the three months ended March 31, 2021 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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that have had a material impact on the consolidated financial statements and related notes except as discussed herein.
Investments. We consider all investments in debt securities to be available-for-sale securities. These securities consist of guaranteed investment certificates and corporate bonds with purchased maturities greater than ninety days. Available-for-sale securities are carried at fair value, based
-7-
upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders’ equity as a component of accumulated other comprehensive loss.
We record an allowance for credit loss for our available-for-sale securities when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made. As of March 31, 2021, we determined that the decline in the market value of our available-for-sale investment was not due to credit-related factors and as such no allowance for credit-loss was necessary.
The following is a summary of our available-for-sale securities as of March 31, 2021 and December 31, 2020:
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
||||
|
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed investment certificates |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total available-for-sale securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed investment certificates |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total available-for-sale securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
At March 31, 2021, maturities of our available-for-sale securities were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than one year |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Greater than one year |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Fair Value of Financial Instruments. As of March 31, 2021 and December 31, 2020, 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 our available-for-sale debt securities are measured as Level 2 instruments as of March 31, 2021 and December 31, 2020. Our guaranteed investment certificates are measured as Level 1 instruments as of March 31, 2021 and December 31, 2020.
Included in cash and cash equivalents at March 31, 2021 and December 31, 2020, was $
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. The fair value of the plan assets as of March 31, 2021 and December 31, 2020 was $
-8-
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. We reserve for unidentified scrap or spoilage based on historical write-off rates. We also consider items identified through specific identification procedures in assessing the adequacy of our reserve. 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.
Property, Plant and Equipment. Property, plant and equipment are stated at cost. Additions or improvements are capitalized, while repairs and maintenance are charged to expense. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Buildings are depreciated over
Goodwill. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist. Current generally accepted accounting principles (“GAAP”) 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.
The increase in goodwill from $
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 a 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 in our consolidated statements of income were $(
Accumulated Other Comprehensive Income (Loss). We classify items of other comprehensive income (loss) by their nature and disclose the accumulated balance of other comprehensive loss separately from accumulated deficit and additional paid-in capital in the stockholders’ equity section of our consolidated balance 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 for those subsidiaries are translated into U.S. dollars, which is the reporting currency of the Company. Accumulated other comprehensive loss at March 31, 2021 consists of $
Recent Accounting Pronouncements.
In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The purpose of this update is to provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are elective and are effective upon issuance for all entities. Management is evaluating the impact of this ASU and does not expect this update to have a material impact on the Company's Consolidated Financial Statements.
-9-
3. Business Combinations
UrSure
On July 22, 2020, the Company acquired all of the outstanding capital stock of UrSure, Inc. (“UrSure”), pursuant to the terms of a merger agreement. The initial aggregate purchase price of this transaction was $
During the three months ended March 31, 2020, we incurred acquisition related costs of $
Pursuant to our merger agreement, we may pay up to an additional $
The following table represents the change in contingent consideration:
|
Balance as of December 31, 2020 |
$ |
|
|
|
Payments made during the period |
|
( |
) |
|
Change in fair value during the period |
|
( |
) |
|
Balance as of March 31, 2021 |
$ |
|
|
Revenues from UrSure primarily consist of grant money received to fund the development of certain new technology. Effective as of July 22, 2020, the financial results of UrSure are included in our Diagnostics segment.
4. Inventories
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The inventory balance of $
5. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, unvested restricted stock 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
-10-
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.
The computations of basic and diluted earnings (loss) per share are as follows:
|
|
|
Three Months |
|
|||||
|
|
|
Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
Weighted-average shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, restricted stock, and performance stock units |
|
|
|
|
|
|
— |
|
|
Diluted |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
( |
) |
|
Diluted |
|
$ |
|
|
|
$ |
( |
) |
For the three months ended March 31, 2021, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing
|
6. |
Revenues |
Revenues by product. The following table represents total net revenues by product line:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Infectious disease testing |
|
$ |
|
|
|
$ |
|
|
|
Risk assessment testing |
|
|
|
|
|
|
|
|
|
Genomics |
|
|
|
|
|
|
|
|
|
Microbiome |
|
|
|
|
|
|
|
|
|
COVID-19 |
|
|
|
|
|
|
|
|
|
Laboratory services |
|
|
|
|
|
|
|
|
|
Other product and service revenues |
|
|
|
|
|
|
|
|
|
Net product and services revenues |
|
|
|
|
|
|
|
|
|
Royalty income |
|
|
|
|
|
|
|
|
|
Other non-product revenues |
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
|
|
|
$ |
|
|
Revenues by geographic area. The following table represents total net revenues by geographic area, based on the location of the customer:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
United States |
|
$ |
|
|
|
$ |
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
Other regions |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Customer and Vendor Concentrations. We had no significant customer concentrations (greater than
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
-11-
products to our customers. Third-party suppliers also manufacture certain 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.
Deferred Revenue. We record deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of March 31, 2021 and December 31, 2020 includes customer prepayments of $
|
7. |
Accrued Expenses and other current liabilities |
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Payroll and related benefits |
|
$ |
|
|
|
$ |
|
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
Accrued income taxes |
|
|
|
|
|
|
— |
|
|
Sales tax payable |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
8. |
Leases |
We determine whether an arrangement is a lease at inception. We have operating and finance leases for corporate offices, warehouse space and equipment (including vehicles). As of March 31, 2021, we are the lessee in all agreements. Our leases have remaining lease terms of
As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.
We have lease agreements that contain both lease and non-lease components (e.g., common-area maintenance). For these agreements, we account for lease components separate from non-lease components.
The components of lease expense are as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Operating Lease Cost |
|
$ |
|
|
|
$ |
|
|
|
Finance Lease Cost |
|
|
|
|
|
|
|
|
|
Amortization of right-of use assets |
|
|
|
|
|
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
Total Finance Lease Cost |
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information related to leases is as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
$ |
|
|
|
Operating cash flows from financing leases |
|
|
|
|
|
|
|
|
|
Financing cash flows from financing leases |
|
|
|
|
|
|
|
|
|
Non-cash activity: |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations |
|
|
|
|
|
|
— |
|
|
Right-of-use assets obtained in exchange for finance lease obligations |
|
|
— |
|
|
|
— |
|
-12-
Supplemental balance sheet information related to leases is as follows:
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Operating Leases |
|
|
|
|
|
|
|
|
|
Right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current lease liabilities |
|
|
|
|
|
|
|
|
|
Non-current lease liabilities |
|
|
|
|
|
|
|
|
|
Total operating lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
|
|
|
|
Right-of-use assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current lease liabilities |
|
|
|
|
|
|
|
|
|
Non-current lease liabilities |
|
|
|
|
|
|
|
|
|
Total finance lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
Weighted-average remaining lease term—operating leases |
|
|
|
|
|
Weighted-average remaining lease term—finance leases |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
Weighted-average discount rate—operating leases |
|
|
|
% |
|
Weighted-average discount rate—finance leases |
|
|
|
% |
As of March 31, 2021, minimum lease payments by period are expected to be as follows:
|
|
|
|
|
|
|
|
|
|
|
Finance |
|
|
Operating |
|
||
|
2021 (excluding the three months ended March 31, 2021) |
$ |
|
|
|
$ |
|
|
|
2022 |
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
|
2025 |
|
|
|
|
|
|
|
|
Thereafter |
|
— |
|
|
|
|
|
|
Total Minimum Lease Payments |
|
|
|
|
|
|
|
|
Less: imputed interest |
|
( |
) |
|
|
( |
) |
|
Present Value of Lease Liabilities |
$ |
|
|
|
$ |
|
|
9.Stockholders’ Equity
|
Reconciliation of the changes in stockholders' equity for the three months ended March 31, 2021 and 2020 |
|
|||||||||||||||||||||||
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
|
|
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
||||||
|
Balance at December 31, 2020 |
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Common stock issued upon exercise of options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted stock and performance stock units |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchase and retirement of common shares |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Unrealized gain on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance at March 31, 2021 |
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
-13-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional Paid-in |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
|
|
|
||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Loss |
|
|
Deficit |
|
|
Total |
|
||||||
|
Balance at December 31, 2019 |
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Common stock issued upon exercise of options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Vesting of restricted stock and performance stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Purchase and retirement of common shares |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Unrealized loss on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance at March 31, 2020 |
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Stock-Based Awards
We grant stock-based awards under the OraSure Technologies, Inc. Stock Award Plan, as amended (the “Stock Plan”). The Stock Plan permits stock-based awards to employees, outside directors and consultants or other third-party advisors. Awards which may be granted under the Stock Plan include qualified incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. We 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 shares purchased on the open market.
Total compensation cost related to stock options for the three months ended March 31, 2021 and 2020 was $
The following table summarizes the stock option activity for the three months ended March 31, 2021:
|
|
|
Options |
|
|
|
Outstanding on January 1, 2021 |
|
|
|
|
|
Granted |
|
|
|
|
|
Exercised |
|
|
( |
) |
|
Forfeited |
|
|
( |
) |
|
Outstanding on March 31, 2021 |
|
|
|
|
Compensation cost of $
The following table summarizes time-vested restricted stock award and restricted stock unit activity for the three months ended March 31, 2021:
|
|
|
Units |
|
|
|
Issued and unvested, January 1, 2021 |
|
|
|
|
|
Granted |
|
|
|
|
|
Vested |
|
|
( |
) |
|
Forfeited |
|
|
( |
) |
|
Issued and unvested, March 31, 2021 |
|
|
|
|
We grant performance-based restricted stock units (“PSUs”) to certain executives. Vesting of these PSUs is dependent upon achievement of performance-based metrics during a or period from the date of grant. Assuming achievement of each performance-based metric, the executive must also generally remain employed for three years from the grant date. Performance during the one-year period is based on a one-year income before income taxes target. If the one-year target is achieved, the PSUs will then vest three years from grant date.
-14-
Performance during the three-year period will be based on achievement of a three-year compound annual growth rate for consolidated product revenues. If the three-year target is achieved, the corresponding PSUs will then vest three years from grant date. PSUs are converted into shares of our common stock once vested.
Compensation cost of $
The following table summarizes the PSU activity for the three months ended March 31, 2021:
|
|
|
Units |
|
|
|
Issued and unvested, January 1, 2021 |
|
|
|
|
|
Granted |
|
|
|
|
|
Performance adjustment |
|
|
|
|
|
Vested |
|
|
( |
) |
|
Forfeited |
|
|
( |
) |
|
Issued and unvested, March 31, 2021 |
|
|
|
|
Stock Repurchase Program
On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $
|
10. |
Income Taxes |
During the three months ended March 31, 2021 and 2020, we recorded income tax expense of $
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 our total deferred tax liability as of March 31, 2021 and December 31, 2020 relate to the tax effects of the basis difference between the intangible assets acquired in our acquisitions for financial reporting and for tax purposes along with basis differences arising from accelerated tax depreciation of fixed assets.
In 2008, we established a full valuation allowance against our U.S. deferred tax asset. Management believes the full valuation allowance is still appropriate at both March 31, 2021 and December 31, 2020 since the facts and circumstances necessitating the allowance have not changed.
|
11. |
Commitments and Contingencies |
From time to time, we are 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 our future financial position or results of operations.
|
12. |
Business Segment Information |
Our business consists of
We organized our operating segments according to the nature of the products included in those segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). We evaluate performance of our operating segments based on revenue and operating income. We do not allocate interest income, interest expense, other income, other expenses or income taxes to our operating segments. Reportable segments have no inter-segment revenues and inter-segment expenses have been eliminated.
-15-
The following table summarizes operating segment information for the three months ended March 31, 2021 and 2020, and asset information as of March 31, 2021 and December 31, 2020:
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
Diagnostics |
|
$ |
|
|
|
$ |
|
|
|
Molecular Solutions |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
Diagnostics |
|
$ |
( |
) |
|
$ |
( |
) |
|
Molecular Solutions |
|
|
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
Diagnostics |
|
$ |
|
|
|
$ |
|
|
|
Molecular Solutions |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
Diagnostics |
|
$ |
|
|
|
$ |
|
|
|
Molecular Solutions |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
Total assets: |
|
|
|
|
|
|
|
|
|
Diagnostics |
|
$ |
|
|
|
$ |
|
|
|
Molecular Solutions |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
-16-
|
Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statements below regarding future events or performance are “forward-looking statements” within the meaning of the Federal securities laws. These may include statements about our expected revenues, earnings, losses, expenses, or other financial performance, future product performance or development, expected regulatory filings and approvals, planned business transactions, expected manufacturing performance, views of future industry, competitive or market conditions, and other factors that could affect our future operations, results of operations or financial position. These statements often include words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions. Forward-looking statements are not guarantees of future performance or results. Known and unknown factors that could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to: ability to successfully manage and integrate acquisitions of other companies in a manner that complements or leverages our existing business, or otherwise expands or enhances our portfolio of products and our end-to-end service offerings, and the diversion of management’s attention from our ongoing business and regular business responsibilities to effect such integration; the expected economic benefits of acquisitions (and increased returns for our stockholders), including that the anticipated synergies, revenue enhancement strategies and other benefits from the acquisitions may not be fully realized or may take longer to realize than expected and our actual integration costs may exceed our estimates; impact of increased or different risks arising from the acquisition of companies located in foreign countries; ability to market and sell products, whether through our internal, direct sales force or third parties; impact of significant customer concentration in the genomics business; failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products; ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements; ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements; ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S. Food and Drug Administration (“FDA”) or other regulators; the impact of the novel coronavirus (“COVID-19”) pandemic on our business and our ability to successfully develop new products, validate the expanded use of existing collection products, receive necessary regulatory approvals and authorizations and commercialize such products for COVID-19 testing; changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements; ability to meet increased demand for the Company’s products; impact of replacing distributors; inventory levels at distributors and other customers; ability of the Company to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales; ability to identify, complete, integrate and realize the full benefits of future acquisitions; impact of competitors, competing products and technology changes; reduction or deferral of public funding available to customers; competition from new or better technology or lower cost products; ability to develop, commercialize and market new products; market acceptance of oral fluid or urine testing, collection or other products; market acceptance and uptake of microbiome informatics, microbial genetics technology and related analytics services; changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (“CDC”) or other agencies; ability to fund research and development and other products and operations; ability to obtain and maintain new or existing product distribution channels; reliance on sole supply sources for critical products and components; availability of related products produced by third parties or products required for use of our products; impact of contracting with the U.S. government; impact of negative economic conditions; ability to maintain sustained profitability; ability to utilize net operating loss carry forwards or other deferred tax assets; volatility of the Company’s stock price; uncertainty relating to patent protection and potential patent infringement claims; uncertainty and costs of litigation relating to patents and other intellectual property; availability of licenses to patents or other technology; ability to enter into international manufacturing agreements; obstacles to international marketing and manufacturing of products; ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms; adverse movements in foreign currency exchange rates; loss or impairment of sources of capital; ability to attract and retain qualified personnel; exposure to product liability and other types of litigation; changes in international, federal or state laws and regulations; customer consolidations and inventory practices; equipment failures and ability to obtain needed raw materials and components; the impact of terrorist attacks and civil unrest; and general political, business and economic conditions. These and other factors that could affect our results are discussed more fully in our Securities and Exchange Commission (“SEC”) filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2020, Quarterly Reports on Form 10-Q, and other filings with the SEC. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements are made as of the date of this Report, and we undertake no duty to update these statements.
Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of OraSure.
The following discussion should be read in conjunction with our consolidated financial statements contained herein and the notes thereto, along with the Section entitled “Critical Accounting Policies and Estimates,” set forth below.
-17-
Overview and Business Segments
The overall goal of our Company is to empower the global community to improve health and wellness by providing access to accurate essential information. Our business consists of two segments: our “Diagnostics” segment and our “Molecular Solutions” segment. Our Diagnostics business primarily consists of the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. Our Molecular Solutions business consists of the manufacture and sale of kits that are used to collect, stabilize, transport and store biological samples of genetic material for molecular testing in the consumer genetic, clinical genetic, academic research, infectious disease diagnostics, pharmacogenomics, personalized medicine, microbiome and animal genetics markets. Our collection kits are also used for the collection of first-void urine for liquid biopsy in the prostate and bladder cancer markets and in the sexually transmitted infection screening market. In addition, our Molecular Solutions business provides microbiome laboratory and bioinformatics services.
The Diagnostics business includes tests for diseases including HIV and Hepatitis C that are performed on a rapid basis at the point of care and tests 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. Our HIV product is also sold in a consumer-friendly format in the OTC market in the U.S. and as a self-test to individuals in a number of other countries. Our Diagnostics business includes the operations of UrSure, which was acquired and merged into OraSure in 2020. This part of the Diagnostics business develops and commercializes products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP, the daily medication to prevent HIV, and anti-retroviral medications to suppress HIV. These products include laboratory-based tests that can measure levels of the medication in a patient’s urine or blood, as well as point- of-care products currently in development.
Our Molecular Solutions business is operated by our subsidiaries, DNAG, Diversigen and Novosanis. In this business, we manufacture and sell kits that are used to collect, stabilize, transport and store a biological sample of genetic material for molecular testing. Our products are used for academic research and commercial applications, including ancestry, disease risk management, lifestyle and animal testing. Included in the disease risk management area are pharmacogenomics testing, hereditary disease screening, prenatal or cancer screening, population health initiatives and other molecular testing using DNA or RNA for diagnosis of acute disease. We also sell research-use-only collection products into the microbiome market. We offer our customers a suite of genomics and microbiome services that range from package customization and study design optimization to extraction, analysis and reporting services. The microbiome laboratory and bioinformatics services are provided by Diversigen, which includes the operations of CoreBiome, a subsidiary we acquired in early 2019. CoreBiome and Diversigen were merged together in 2020. Novosanis manufactures and sells the Colli-Pee® collection device for the volumetric collection of first-void urine for use in research, screening and diagnostics in the liquid biopsy and sexually transmitted infection markets. Our Molecular Solutions business serves customers in many countries worldwide, including many leading research universities and hospitals.
Recent Developments
Impact of COVID-19
The COVID-19 pandemic continues to impact our business operations and it is not possible for us to predict the duration or magnitude of the outbreak’s effects on our business or results of operations. During 2020, traditional HIV and HCV testing programs and drug testing in the workplace market were reduced or terminated as a result of the various “stay-at-home” orders and social distancing guidelines issued by federal, state and local governments to contain the spread of the COVID-19 pandemic in the United States and we continue to see this impact our business in 2021. On the international front, we have experienced and continue to experience some reductions and stoppages of professional HIV and HCV testing in Europe and Asia due to the COVID-19 pandemic and delays of international shipments due to a reduction of customs and transportation personnel, a reduced number of air flights and shipping congestion. In our molecular segment, COVID-related disruption in clinical and research work during the year, particularly in the academic market, has reduced demand for our products. These trends had a material impact on our results of operations during 2020 and we believe they may continue to have a material and adverse impact on the revenues of certain parts of our business for an indeterminate time period, depending on the duration and severity of the COVID-19 pandemic. We also believe there are potentially significant opportunities for increased revenues as a result of the COVID-19 pandemic. In 2020, we began selling our saliva collection devices for use in molecular COVID-19 testing. In the first quarter of 2021, we generated revenues of approximately $27.4 million from sales of our molecular collection devices related to COVID-19 testing. In the U.S., public health customers are purchasing increased quantities of our OraQuick® In-Home HIV Test in order to permit continued HIV testing while allowing clients and patients to adhere to “stay-at-home” and social distancing requirements. In addition, we are seeing increased demand for our molecular collection products from customers who conduct both saliva and blood-based testing. As it becomes increasingly difficult to collect blood in clinics or healthcare settings, these customers are increasingly relying on the saliva collection alternative. However, the degree to which these and other opportunities will offset the negative trends caused by the COVID-19 pandemic in future periods cannot be predicted with certainty.
In March 2021, we submitted an EUA application to the FDA for our COVID-19 rapid antigen test for both prescription home use and profession use in point-of-care settings. These lateral flow, rapid diagnostic tests are designed to detect active COVID-19 infection with a simple, easy-to-use workflow, using samples self-collected from the lower nostrils. After users swab their lower nostrils, the test stick is swirled in a pre-measured buffer solution. No instrumentation, batteries, smart phone or laboratory analysis is needed to read the result, which
-18-
appears on the test stick a short time later. Subject to receipt of an EUA, we intend to market these COVID-19 tests and have started manufacturing these products as we await receipt of the EUA. We also intend to pursue an over-the-counter indication for the test.
Current Consolidated Financial Results
During the three months ended March 31, 2021, our consolidated net revenues increased 85% to $58.6 million, compared to $31.6 million for the three months ended March 31, 2020. Net product and services revenues during the three months ended March 31, 2021 increased 83% when compared to the same period of 2020, due to higher sales of our molecular sample collection kits for COVID-19 testing, and increased sales of our genomics products and HIV In-Home test. Partially offsetting these increases were lower sales of our international OraQuick® HIV Self-Test, and risk assessment products. Other revenues for the three months ended March 31, 2021 were $2.0 million compared to $710,000 in the same period of 2020. This increase was largely due to higher royalty income and increased research and development funding for the development of our COVID-19 tests and our HIV medication adherence tests.
Our consolidated net income for the three months ended March 31, 2021 was $3.8 million, or $0.05 per share on a fully diluted basis, compared to a consolidated net loss of $7.3 million, or $0.12 per share on a fully diluted basis, for the three months ended March 31, 2020. Results for the three months ended March 31, 2021 included an $806,000 non-cash pre-tax benefit associated with the change in the fair value of acquisition-related contingent consideration which accounted for approximately $0.01 per share. Results for the three months ended March 31, 2020 included a $1.1 million non-cash pre-tax charge associated with the change in the fair value of acquisition-related contingent consideration, which approximated $0.02 per share.
Cash used in operating activities during the three months ended March 31, 2021 was $4.4 million. Cash provided by operating activities during the three months ended March 31, 2020 was $2.5 million. As of March 31, 2021, we had $240.5 million in cash, cash equivalents, and available-for-sale securities, compared to $257.1 million at December 31, 2020.
Results of Operations
Three months ended March 31, 2021 compared to March 31, 2020
CONSOLIDATED NET REVENUES
The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the three months ended March 31, 2021 and 2020.
|
|
|
Three Months Ended March 31, |
|
|
|||||||||||||||||||
|
|
|
Dollars |
|
|
|
|
|
|
|
Percentage of Total Net Revenues |
|
|
|||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
|
2021 |
|
|
|
2020 |
|
|
|||||
|
Diagnostics |
|
$ |
13,333 |
|
|
$ |
17,664 |
|
|
|
(25 |
) |
% |
|
|
23 |
|
% |
|
|
56 |
|
% |
|
Molecular Solutions |
|
|
43,246 |
|
|
|
13,222 |
|
|
|
227 |
|
|
|
|
74 |
|
|
|
|
42 |
|
|
|
Net product and services revenues |
|
|
56,579 |
|
|
|
30,886 |
|
|
|
83 |
|
|
|
|
97 |
|
|
|
|
98 |
|
|
|
Other |
|
|
2,003 |
|
|
|
710 |
|
|
|
182 |
|
|
|
|
3 |
|
|
|
|
2 |
|
|
|
Net revenues |
|
$ |
58,582 |
|
|
$ |
31,596 |
|
|
|
85 |
|
% |
|
|
100 |
|
% |
|
|
100 |
|
% |
Consolidated net product and services revenues increased 83% to $56.6 million for the three months ended March 31, 2021 from $30.9 million for the three months ended March 31, 2020. Higher sales of our molecular sample collection kits for COVID-19 testing and increased sales of our genomics products and HIV In-Home tests were partially offset by lower sales of our international OraQuick® HIV Self-Test and risk assessment products. Other revenues for the three months ended March 31, 2021 increased 182% to $2.0 million from $710,000 for the three months ended March 31, 2020 due to higher royalty income and increased research and development funding for the development of our COVID-19 tests and our HIV medication adherence tests.
Consolidated net revenues derived from products sold to customers outside of the United States were $9.5 million and $10.0 million, or 16% and 32% of total net revenues, in the three months ended March 31, 2021 and 2020, respectively. Because the majority of our international sales are denominated in U.S. dollars, the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues.
-19-
Net Revenues by Segment
Diagnostics Segment
The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the three months ended March 31, 2021 and 2020.
|
|
|
Three Months Ended March 31, |
|
|
|||||||||||||||||||
|
|
|
Dollars |
|
|
|
|
|
|
|
Percentage of Total Net Revenues |
|
|
|||||||||||
|
Market |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
|
2021 |
|
|
|
2020 |
|
|
|||||
|
Infectious disease testing |
|
$ |
11,371 |
|
|
$ |
14,664 |
|
|
|
(22 |
) |
% |
|
|
78 |
|
% |
|
|
82 |
|
% |
|
Risk assessment testing |
|
|
1,962 |
|
|
|
3,000 |
|
|
|
(35 |
) |
|
|
|
13 |
|
|
|
|
17 |
|
|
|
Net product revenues |
|
|
13,333 |
|
|
|
17,664 |
|
|
|
(25 |
) |
|
|
|
91 |
|
|
|
|
99 |
|
|
|
Other |
|
|
1,213 |
|
|
|
128 |
|
|
|
848 |
|
|
|
|
9 |
|
|
|
|
1 |
|
|
|
Net revenues |
|
$ |
14,546 |
|
|
$ |
17,792 |
|
|
|
(18 |
) |
% |
|
|
100 |
|
% |
|
|
100 |
|
% |
Infectious Disease Testing Market
Sales to the infectious disease testing market decreased 22% to $11.4 million for the three months ended March 31, 2021 from $14.7 million for the three months ended March 31, 2020. This decrease resulted from lower international sales of our OraQuick® HIV Self-Test and lower domestic sales of our OraQuick® HCV products partially offset by higher sales of our domestic OraQuick® In-Home HIV tests.
The table below shows a breakdown of our total net OraQuick® HIV and HCV product revenues (dollars in thousands) during the three months ended March 31, 2021 and 2020.
|
|
|
Three Months Ended March 31, |
|
|
|||||||||
|
Market |
|
2021 |
|
|
2020 |
|
|
% Change |
|
|
|||
|
Domestic HIV |
|
$ |
5,293 |
|
|
$ |
4,216 |
|
|
|
26 |
|
% |
|
International HIV |
|
|
3,486 |
|
|
|
6,949 |
|
|
|
(50 |
) |
|
|
Net HIV revenues |
|
|
8,779 |
|
|
|
11,165 |
|
|
|
(21 |
) |
|
|
Domestic HCV |
|
|
1,182 |
|
|
|
1,494 |
|
|
|
(21 |
) |
|
|
International HCV |
|
|
1,184 |
|
|
|
1,097 |
|
|
|
8 |
|
|
|
Net HCV revenues |
|
|
2,366 |
|
|
|
2,591 |
|
|
|
(9 |
) |
|
|
Net OraQuick® revenues |
|
$ |
11,145 |
|
|
$ |
13,756 |
|
|
|
(19 |
) |
% |
Domestic OraQuick® HIV sales increased 26% to $5.3 million for the three months ended March 31, 2021 from $4.2 million for the three months ended March 31, 2020. This increase was primarily the result of higher sales of our OraQuick® In-Home HIV test as a result of Centers for Disease Control and Prevention (“CDC”) guidance recommending the use of an OTC product for testing in lieu of in-person testing as a result of the COVID-19 pandemic, partially offset by the decline of in-person HIV testing at public health agencies, hospitals and physician offices due the impact of COVID-19 on professional point-of-care testing.
International sales of our OraQuick® HIV tests decreased 50% to $3.5 million for the three months ended March 31, 2021 from $6.9 million for the three months ended March 31, 2020. This decrease was primarily due to several shipments of our OraQuick® HIV Self-Test into Africa in the first quarter of 2020 that did not re-occur during the first quarter of 2021.
Domestic OraQuick® HCV sales decreased 21% to $1.2 million for the three months ended March 31, 2021 from $1.5 million for the three months ended March 31, 2020, due to the closure of testing programs as a result of the COVID-19 pandemic and a decline in public health funding as funds were redirected to COVID-19 testing and vaccinations.
International OraQuick® HCV sales increased 8% to $1.2 million for the three months ended March 31, 2021 from $1.1 million for the three months ended March 31, 2020 as sales into certain international markets are starting to return back to pre-pandemic levels.
Risk Assessment Market
Sales to the risk assessment market decreased 35% to $2.0 million for the three months ended March 31, 2021 compared to $3.0 million for the three months ended March 31, 2020 due to higher unemployment and reductions in workplace and insurance testing programs resulting from the COVID-19 pandemic.
Other Revenues
Other revenues for the three months ended March 31, 2021 increased to $1.2 million from $128,000 for the three months ended March 31, 2020, largely due the inclusion of royalty income under the terms of a new licensing agreement related to our proprietary buffer solution used
-20-
for the preservation and stabilization of oral fluid specimens and research and development funding for our COVID-19 and HIV medication adherence tests which was not present in the prior year period.
Molecular Solutions Segment
The table below shows a breakdown of our total net revenues (dollars in thousands) during the three months ended March 31, 2021 and 2020.
|
|
|
Three Months Ended March 31, |
|
|
|||||||||
|
Market |
2021 |
|
|
2020 |
|
|
% Change |
|
|
||||
|
Genomics |
|
$ |
11,064 |
|
|
$ |
8,393 |
|
|
|
32 |
|
% |
|
Microbiome |
|
|
2,088 |
|
|
|
1,577 |
|
|
|
32 |
|
|
|
COVID-19 |
|
|
27,389 |
|
|
|
394 |
|
|
NA |
|
|
|
|
Laboratory services |
|
|
2,497 |
|
|
|
2,415 |
|
|
|
3 |
|
|
|
Other product revenues |
|
|
208 |
|
|
|
443 |
|
|
|
(53 |
) |
|
|
Net molecular product and services revenues |
|
$ |
43,246 |
|
|
$ |
13,222 |
|
|
|
227 |
|
|
|
Other |
|
|
790 |
|
|
|
582 |
|
|
|
36 |
|
|
|
Net molecular product and services revenues |
|
$ |
44,036 |
|
|
$ |
13,804 |
|
|
|
219 |
|
% |
Sales of our genomics products increased 32% to $11.1 million for the three months ended March 31, 2021 compared to $8.4 million for the three months ended March 31, 2020, due to strong organic growth from customers in the academic market and in the disease risk management and commercial animal markets.
Microbiome kit sales increased 32% to $2.1 million for the three months ended March 31, 2021 compared to $1.6 million for the three months ended March 31, 2021 due to new customer orders.
Sales of our molecular sample collection kits for COVID-19 testing were $27.4 million for the three months ended March 31, 2021 compared to $394,000 during the comparable period in 2020. There were limited similar sales in the prior year period as the COVID-19 pandemic had just begun at that time.
Laboratory services revenues increased 3% to $2.5 million for the three months ended March 31, 2021 compared to $2.4 million for the three months ended March 31, 2020, due to customers resuming activities delayed by the COVID-19 pandemic.
Other revenues for the three months ended March 31, 2021 increased 36% to $790,000 from $582,000 the three months ended March 31, 2020 largely as a result of higher royalty income under a litigation settlement agreement.
CONSOLIDATED OPERATING RESULTS
Consolidated gross profit percentage was 65% for the three months ended March 31, 2021 compared to 51% for the three months ended March 31, 2020. Gross profit percentage for the three months ended March 31, 2021 benefited from an improved product mix associated with an increase in higher gross profit percentage product sales and the increase in other revenues which contribute 100% to our gross profit percentage.
Consolidated operating income for the three months ended March 31, 2021 was $10.4 million, an $18.4 million increase from the $8.0 million operating loss reported for the three months ended March 31, 2020. Results for the three months ended March 31, 2021 were positively impacted by the increased revenues and higher gross margins and the inclusion of an $806,000 non-cash benefit related to the fair value change in acquisition-related contingent consideration. Operating income was negatively impacted by the higher research and development and sales and marketing expenses associated with the COVID-19 product development and preparations for sale of product. Results for the three months ended March 31, 2020 included a $1.1 million non-cash charge related to the fair value change in acquisition-related contingent consideration.
OPERATING INCOME (LOSS) BY SEGMENT
We evaluate performance of our operating segments based on revenue and operating income. Reportable segments have no inter-segment revenue and inter-segment expenses are eliminated in consolidation, including the fees associated with an intercompany service agreement between Diagnostics and Molecular Solutions.
Diagnostics Segment
The Diagnostics segment’s gross profit percentage was 43% for both the three months ended March 31, 2021 and 2020.
-21-
Research and development expenses increased 89% to $6.6 million for the three months ended March 31, 2021 from $3.5 million for the three months ended March 31, 2020, largely due to spending associated with COVID-19 product development and the development of an HIV medication adherence test. Sales and marketing expenses increased 35% to $6.2 million for the three months ended March 31, 2021 from $4.6 million for the three months ended March 31, 2020, due to higher market research, consulting and advertising spending to prepare for the sale of the COVID-19 rapid antigen tests, higher staffing costs, and an increase in bad debt allowance. General and administrative expenses decreased 12% to $6.4 million for the three months ended March 31, 2021 compared to $7.3 million for the three months ended March 31, 2020 mainly due to lower legal fees and increased intercompany service fees allocated to the Molecular Solutions segment, partially offset by increased staffing costs.
All of the above contributed to the Diagnostics segment’s operating loss of $12.2 million for the three months ended March 31, 2021, which included non-cash charges of $890,000 for depreciation and amortization and $1.4 million for stock-based compensation. The Diagnostics segment operating loss also included a non-cash pre-tax benefit of $806,000 associated with the change in the fair value of acquisition-related contingent consideration.
Molecular Solutions Segment
The Molecular Solutions segment’s gross profit percentage was 73% for the three months ended March 31, 2021 compared to 61% for the three months ended March 31, 2020. This increase is attributable to an improved product mix of higher gross profit percentage product sales.
Research and development expenses increased 11% to $2.4 million for the three months ended March 31, 2021 from $2.2 million for the three months ended March 31, 2020 due to higher staffing costs. Sales and marketing expenses increased 21% to $3.3 million for the three months ended March 31, 2021 from $2.8 million for the three months ended March 31, 2020 due to higher staffing costs and an increase in bad debt allowance, partially offset by lower travel costs. General and administrative expenses increased 29% to $3.7 million for the three months ended March 31, 2021 from $2.9 million for the three months ended March 31, 2020 due to an increased intercompany service fees allocated from the Diagnostics segment, and higher staffing costs offset by a decline in legal fees.
All of the above contributed to the Molecular Solutions segment’s operating income of $22.6 million for the three months ended March 31, 2021, which included $1.6 million for depreciation and amortization and $82,000 for stock-based compensation.
CONSOLIDATED INCOME TAXES
We continue to believe the full valuation allowance established against our total U.S. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed. For the three months ended March 31, 2021, a U.S. state tax expense of $169,000 was recorded compared to $9,000 of state income tax expense recorded for the three months ended March 31, 2020. For the three months ended March 31, 2021, foreign tax expense of $6.4 million was recorded compared to foreign tax expense of $703,000 recorded for the three months ended March 31, 2020. The overall increase in tax expense is largely a result of the increase in income before taxes generated by our Canadian subsidiary.
Liquidity and Capital Resources
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash and cash equivalents |
|
$ |
177,676 |
|
|
$ |
160,802 |
|
|
Available for sale securities |
|
|
62,786 |
|
|
|
96,317 |
|
|
Working capital |
|
|
247,766 |
|
|
|
242,404 |
|
Our cash and cash equivalents and available-for-sale securities decreased to $240.5 million at March 31, 2021 from $257.1 million at December 31, 2020. Our working capital increased to $247.8 million at March 31, 2021 from $242.4 million at December 31, 2020.
During the three months ended March 31, 2021, net cash used in operating activities was $4.4 million. Our net income of $3.8 million included non-cash charges for depreciation and amortization expense of $2.5 million, stock-based compensation expense of $1.5 million, a provision for doubtful accounts of $598,000, and other non-cash benefits of $42,000. Operating activities also included a benefit for the change in the estimated fair value of acquisition-related contingent consideration of $806,000 and a $142,000 contingent consideration payment representing the excess of the total contingent consideration payment made during the three months ended March 31, 2021 over the fair value of the liability estimated at the time of acquisition. Sources of cash generated from our working capital accounts included a $2.2 million decrease in accounts receivable as a result of the collection of large outstanding balances. Offsetting these sources of cash were an increase in inventory of $8.4 million to meet anticipated demand to support COVID-19 testing programs, a decrease in accrued expenses and other liabilities of $4.3 million largely due to payment of our 2020 management incentive bonuses and payment of outstanding sales tax liabilities offset by an increase in accrued income taxes, an increase in prepaid expenses and other assets of $766,000 due to prepayments made on service contracts, a
-22-
decrease in deferred revenue of $262,000 and a decrease in accounts payable of $253,000 due to the payment of vendor invoices that were outstanding at the end of 2020.
Net cash provided by investing activities was $22.7 million for the three months ended March 31, 2021, which reflects proceeds from the maturities and redemptions of investments of $33.7 million offset by $11.1 million used to acquire property and equipment.
Net cash used in financing activities was $2.2 million for the three months ended March 31, 2021, which reflects $1.7 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to our employees, payments of lease liabilities of $282,000 and $264,000 used for payment of our contingent consideration obligation.
We expect current balances of cash and cash equivalents and available-for-sale securities to be sufficient to fund our current and foreseeable operating and capital needs. Our 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 our research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures including continued investment to expand our capacity to manufacture products for COVID-19 testing, 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. In addition, $114.5 million or 48% of our $240.5 million in cash, cash equivalents and available-for-sale securities belongs to our Canadian subsidiary. Repatriation of such cash into the United States exceeding certain levels could have adverse tax consequences.
A summary of our obligations to make future payments under contracts existing at December 31, 2020 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2020. As of March 31, 2021, there were no significant changes to this information.
Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, we evaluate our judgments and estimates, including those related to the bad debts, customer sales returns, inventories, intangible assets, income taxes, revenue recognition, performance-based compensation, contingencies and litigation. We base our judgments and estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC. During the first three months of 2021, there were no material changes to our critical accounting policies.
|
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item.
As of March 31, 2021, we did not have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows. Sales denominated in foreign currencies comprised 6.7% of our total revenues for the three months ended March 31, 2021. We do have foreign currency exchange risk related to our operating subsidiaries in Canada and in Belgium. The principal foreign currencies in which we conduct business are the Canadian dollar and the Euro. Fluctuations in the exchange rate between the U.S. dollar and these foreign currencies could affect year-to-year comparability of operating results and cash flows. Our foreign subsidiaries had net assets, subject to translation, of $180.7 million in U.S. Dollars, which are included in the Company’s consolidated balance sheet as of March 31, 2021. A 10% unfavorable change in the Canadian-to-U.S. dollar and Euro-to-U.S. dollar exchange rates would have decreased our comprehensive income by approximately $15.1 million in the three months ended March 31, 2021.
|
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 March 31, 2021. Based on that evaluation, the Company’s management, including such officers, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021 to provide reasonable assurance that material information required to be disclosed by the Company in the reports that it files or submits under the
-23-
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 March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
-24-
PART II. OTHER INFORMATION
|
Item 1. |
LEGAL PROCEEDINGS |
From time to time, we are 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 our future financial position or results of operations.
Ancestry Arbitration
On February 6, 2017, DNAG entered into a settlement and license agreement (the “Settlement Agreement”) in order to settle certain patent infringement and breach of contract litigation against Ancestry.comDNA, LLC (“Ancestry”) and its contract manufacturer Spectrum Solutions, LLC (“Spectrum”). This litigation was related to a saliva DNA collection device sold by Ancestry that was similar to products sold by DNAG. Under the terms of the Settlement Agreement, DNAG and Ancestry agreed to certain procedures for considering whether future versions of Ancestry’s saliva DNA collection product are covered by the DNAG patents licensed to Ancestry (the “Licensed Patents”) and thus subject to ongoing royalties under the Settlement Agreement. A dispute arose among the parties regarding whether certain new Ancestry products are covered by the Licensed Patents. Pursuant to the terms of the Settlement Agreement, a binding arbitration proceeding was commenced to resolve the dispute. In February 2020, an arbitration panel issued a decision finding that the future Ancestry products do not infringe the DNAG patents asserted in the arbitration and would no longer be subject to the royalties under the Settlement Agreement.
Following the completion of the arbitration, a new patent issued to DNAG that is a continuation of a patent licensed to Ancestry (the Continuation Patent”) and is thus a Licensed Patent under the Settlement Agreement. DNAG notified Ancestry of this new patent and following discussions between the parties Ancestry initiated a new arbitration proceeding during the third quarter of 2020 with a third party alternative dispute resolution provider pursuant to the Settlement Agreement with respect to the applicability of the Continuation Patent to the future Ancestry products and the validity of that patent. Following the initiation of the arbitration by Ancestry, DNAG filed a statement of defense and an objection to the arbitration on the basis that a dispute between the parties has not yet occurred and therefore the alleged dispute is not sufficiently ripe to arbitrate. An arbitration panel was then appointed.
In March 2021, the parties agreed to settle this matter, pursuant to which the arbitration was terminated and Ancestry agreed to continue paying royalties on its future products for an additional period as provided in the terms of the settlement.
Spectrum Patent Litigation
In March 2021, we filed a complaint against Spectrum in the United States District Court for the Southern District of California alleging that certain DNA saliva collection devices manufactured and sold by Spectrum infringes the Continuation Patent. Spectrum has not yet responded to the complaint. We are seeking injunctive relief and damages in this matter.
|
Item 1A. |
RISK FACTORS |
There have been no material changes to the risk factors disclosed in Item 1A, entitled “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Report on form 10-Q for the quarter ended March 31, 2021.
|
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|
Period |
|
Total number of shares purchased |
|
|
|
Average price paid per Share |
|
|
Total number of shares purchased as part of publicly announced plans or programs |
|
|
Maximum number (or approximate dollar value) of shares that may yet be repurchased under the plans or programs (1, 2) |
|
||||
|
January 1, 2021 - January 31, 2021 |
|
|
— |
|
|
|
$ |
— |
|
|
|
— |
|
|
|
11,984,720 |
|
|
February 1, 2021 - February 28, 2021 |
|
|
111,147 |
|
(3) |
|
|
15.56 |
|
|
|
— |
|
|
|
11,984,720 |
|
|
March 1, 2021 - March 31, 2021 |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
11,984,720 |
|
|
|
|
|
111,147 |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
(1) |
On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $25.0 million of outstanding shares. This share repurchase program may be discontinued at any time. |
|
(2) |
This column represents the amount that remains available under the $25.0 million repurchase plan, as of the period indicated. We have made no commitment to purchase any shares under this plan. |
|
(3) |
Pursuant to the OraSure Technologies, Inc. Stock Award Plan, and in connection with the vesting of restricted shares, these shares were retired to satisfy minimum tax withholdings. |
-25-
|
Item 3. |
DEFAULTS UPON SENIOR SECURITIES |
None
|
Item 4. |
MINE SAFETY DISCLOSURES |
Not applicable
|
Item 5. |
OTHER INFORMATION |
None
-26-
|
Item 6. |
EXHIBITS |
|
|
|
|
|
Exhibit Number |
|
Exhibit |
|
|
|
|
|
|
|
|
|
31.1✝ |
|
|
|
|
|
|
|
31.2✝ |
|
|
|
|
|
|
|
32.1✝ |
|
|
|
|
|
|
|
32.2✝ |
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the Instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
Exhibit 104 |
|
Cover Page from the Company’s Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2020 has been formatted in Inline XBRL |
✝Filed herewith
-27-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
ORASURE TECHNOLOGIES, INC. |
|
|
|
|
|
|
|
|
|
|
/s/ Roberto Cuca |
|
Date: May 6, 2021 |
|
|
Roberto Cuca |
|
|
|
|
Chief Financial Officer |
|
|
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
|
|
/s/Michele M. Miller |
|
Date: May 6, 2021 |
|
|
Michele M. Miller |
|
|
|
|
Vice President, Finance and Controller |
|
|
|
|
(Principal Accounting Officer) |
-28-
Exhibit 31.1
Certification
I, Stephen S. Tang, certify that:
|
1. |
I have reviewed this report on Form 10-Q of OraSure Technologies, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within the entity, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
|
|
Date: May 6, 2021 |
|
|
|
|
|
|
|
|
|
/s/ Stephen S. Tang |
|
|
|
Stephen S. Tang |
|
|
|
President and Chief Executive Officer |
|
|
|
( Principal Executive Officer ) |
Certification
I, Roberto Cuca, certify that:
|
1. |
I have reviewed this report on Form 10-Q of OraSure Technologies, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within the entity, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors: |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
|
|
Date: May 6, 2021 |
|
|
|
|
|
|
|
|
|
/s/ Roberto Cuca |
|
|
|
Roberto Cuca |
|
|
|
Chief Financial Officer |
|
|
|
( Principal Financial Officer ) |
|
|
|
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of OraSure Technologies, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen S. Tang, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Stephen S. Tang
Stephen S. Tang
President and Chief Executive Officer
May 6, 2021
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of OraSure Technologies, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Roberto Cuca, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Roberto Cuca
Roberto Cuca
Chief Financial Officer
May 6, 2021