10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended June 30, 2021.

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 001-16537

 

ORASURE TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

Delaware

 

36-4370966

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer Identification No.)

 

 

 

 

220 East First Street, Bethlehem, Pennsylvania

 

18015

(Address of Principal Executive Offices)

 

(Zip code)

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.000001 par value per share

 

OSUR

 

The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

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).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

 

 

 

 

 

Large accelerated filer

 

 

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  ☐    No  

As of August 1, 2021, the registrant had 72,008,941 shares of common stock, $.000001 par value per share, outstanding.

 

 

 


 

PART I. FINANCIAL INFORMATION

 

 

 

 

Page
No.

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

Consolidated Balance Sheets at June 30, 2021 and December 31, 2020

3

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020

4

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020

5

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020

6

 

 

Notes to the Consolidated Financial Statements

7

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

 

 

Item 4. Controls and Procedures

28

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

28

 

 

Item 1A. Risk Factors

28

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

Item 3. Defaults Upon Senior Securities

29

 

 

Item 4. Mine Safety Disclosures

29

 

 

Item 5. Other Information

29

 

 

Item 6. Exhibits

29

 

 

Signatures

31

 

 

 

 

 


 

Item 1. FINANCIAL STATEMENTS

ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except per share amounts)

 

 

June 30, 2021

 

 

December 31, 2020

 

ASSETS

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

158,120

 

 

$

160,802

 

Short-term investments

 

35,185

 

 

 

48,599

 

Accounts receivable, net of allowance for doubtful accounts of $4,458 and $3,654

 

35,259

 

 

 

38,835

 

Inventories

 

48,170

 

 

 

31,863

 

Prepaid expenses

 

5,370

 

 

 

3,860

 

Other current assets

 

2,946

 

 

 

4,934

 

Total current assets

 

285,050

 

 

 

288,893

 

Noncurrent Assets:

 

 

 

 

 

Property, plant and equipment, net

 

72,034

 

 

 

51,860

 

Operating right-of-use assets, net

 

10,140

 

 

 

4,461

 

Finance right-of-use assets, net

 

2,484

 

 

 

1,312

 

Intangible assets, net

 

16,241

 

 

 

17,904

 

Goodwill

 

40,810

 

 

 

40,351

 

Long-term investments

 

36,131

 

 

 

47,718

 

Other noncurrent assets

 

2,159

 

 

 

1,973

 

Total noncurrent assets

 

179,999

 

 

 

165,579

 

TOTAL ASSETS

$

465,049

 

 

$

454,472

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

$

22,119

 

 

$

17,407

 

Deferred revenue

 

4,240

 

 

 

4,811

 

Accrued expenses and other current liabilities

 

16,899

 

 

 

22,227

 

Finance lease liability

 

1,017

 

 

 

517

 

Operating lease liability

 

2,078

 

 

 

1,125

 

Acquisition-related contingent consideration obligation

 

219

 

 

 

402

 

Total current liabilities

 

46,572

 

 

 

46,489

 

Noncurrent Liabilities:

 

 

 

 

 

Finance lease liability

 

1,569

 

 

 

895

 

Operating lease liability

 

8,274

 

 

 

3,591

 

Acquisition-related contingent consideration obligation

 

800

 

 

 

2,049

 

Other noncurrent liabilities

 

2,010

 

 

 

1,682

 

Deferred income taxes

 

1,008

 

 

 

1,195

 

Total noncurrent liabilities

 

13,661

 

 

 

9,412

 

TOTAL LIABILITIES

 

60,233

 

 

 

55,901

 

Commitments and contingencies (Note 11)

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

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

 

 

 

 

 

Common stock, par value $.000001, 120,000 shares authorized, 72,008 and 71,738 shares
   issued and outstanding

 

 

 

 

 

Additional paid-in capital

 

506,304

 

 

 

505,123

 

Accumulated other comprehensive loss

 

(6,443

)

 

 

(9,097

)

Accumulated deficit

 

(95,045

)

 

 

(97,455

)

Total stockholders' equity

 

404,816

 

 

 

398,571

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

465,049

 

 

$

454,472

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

NET REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

$

55,741

 

 

$

28,337

 

 

$

112,320

 

 

$

59,223

 

Other

 

 

1,866

 

 

 

922

 

 

 

3,869

 

 

 

1,632

 

 

 

57,607

 

 

 

29,259

 

 

 

116,189

 

 

 

60,855

 

COST OF PRODUCTS AND SERVICES SOLD

 

 

26,934

 

 

 

11,995

 

 

 

47,190

 

 

 

27,460

 

Gross profit

 

 

30,673

 

 

 

17,264

 

 

 

68,999

 

 

 

33,395

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,682

 

 

 

6,924

 

 

 

16,674

 

 

 

12,568

 

Sales and marketing

 

 

10,420

 

 

 

10,121

 

 

 

19,950

 

 

 

17,490

 

General and administrative

 

 

10,993

 

 

 

10,280

 

 

 

21,181

 

 

 

20,334

 

Change in the estimated fair value of acquisition-related contingent consideration

 

 

(220

)

 

 

(660

)

 

 

(1,026

)

 

 

450

 

 

 

28,875

 

 

 

26,665

 

 

 

56,779

 

 

 

50,842

 

Operating income (loss)

 

 

1,798

 

 

 

(9,401

)

 

 

12,220

 

 

 

(17,447

)

OTHER INCOME

 

 

448

 

 

 

216

 

 

 

329

 

 

 

1,646

 

Income (loss) before income taxes

 

 

2,246

 

 

 

(9,185

)

 

 

12,549

 

 

 

(15,801

)

INCOME TAX EXPENSE

 

 

3,610

 

 

 

1,309

 

 

 

10,139

 

 

 

2,021

 

NET INCOME (LOSS)

 

$

(1,364

)

 

$

(10,494

)

 

$

2,410

 

 

$

(17,822

)

INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

$

(0.02

)

 

$

(0.16

)

 

$

0.03

 

 

$

(0.28

)

DILUTED

 

$

(0.02

)

 

$

(0.16

)

 

$

0.03

 

 

$

(0.28

)

SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

71,983

 

 

 

64,745

 

 

 

71,931

 

 

 

63,335

 

DILUTED

 

 

71,983

 

 

 

64,745

 

 

 

72,683

 

 

 

63,335

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

NET INCOME (LOSS)

 

$

(1,364

)

 

$

(10,494

)

 

$

2,410

 

 

$

(17,822

)

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

1,403

 

 

 

3,726

 

 

 

2,755

 

 

 

(5,495

)

Unrealized gain (loss) on marketable securities

 

 

(122

)

 

 

791

 

 

 

(101

)

 

 

349

 

COMPREHENSIVE INCOME (LOSS)

 

$

(83

)

 

$

(5,977

)

 

$

5,064

 

 

$

(22,968

)

 

See accompanying notes to the consolidated financial statements.

 

5


 

ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$

2,410

 

 

$

(17,822

)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation

 

 

2,937

 

 

 

4,048

 

Depreciation and amortization

 

 

5,144

 

 

 

4,494

 

Other non-cash amortization

 

 

380

 

 

 

106

 

Provision for doubtful accounts

 

 

747

 

 

 

1,365

 

Unrealized foreign currency (gain) loss

 

 

(364

)

 

 

5

 

Interest expense on finance leases

 

 

35

 

 

 

39

 

Deferred income taxes

 

 

(218

)

 

 

(146

)

Change in the estimated fair value of acquisition-related contingent consideration

 

 

(1,026

)

 

 

450

 

Payment of acquisition-related contingent consideration

 

 

(142

)

 

 

(496

)

Changes in assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

3,680

 

 

 

9,311

 

Inventories

 

 

(16,065

)

 

 

(4,693

)

Prepaid expenses and other assets

 

 

154

 

 

 

369

 

Accounts payable

 

 

4,400

 

 

 

(605

)

Deferred revenue

 

 

(630

)

 

 

1,311

 

Accrued expenses and other liabilities

 

 

(4,914

)

 

 

80

 

Net cash used in operating activities

 

 

(3,472

)

 

 

(2,184

)

INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of investments

 

 

(10,428

)

 

 

(66,309

)

Proceeds from maturities and redemptions of investments

 

 

43,745

 

 

 

87,616

 

Purchases of property and equipment

 

 

(22,929

)

 

 

(6,037

)

Proceeds from escrow associated with business acquisitions

 

 

 

 

 

126

 

Purchase price adjustment related to business acquisition

 

 

(18

)

 

 

 

Purchase of patent and product rights

 

 

 

 

 

(2,250

)

Net cash provided by investing activities

 

 

10,370

 

 

 

13,146

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Cash payments for lease liabilities

 

 

(510

)

 

 

(354

)

Payment of acquisition-related contingent consideration

 

 

(264

)

 

 

(3,004

)

Issuance of common stock in connection with public offering, net

 

 

 

 

 

95,036

 

Proceeds from exercise of stock options

 

 

121

 

 

 

560

 

Repurchase of common stock

 

 

(1,877

)

 

 

(2,064

)

Net cash (used in) provided by financing activities

 

 

(2,530

)

 

 

90,174

 

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

 

 

(7,050

)

 

 

(2,977

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(2,682

)

 

 

98,159

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

160,802

 

 

 

75,715

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

158,120

 

 

$

173,874

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid for income taxes

 

$

10,329

 

 

$

1,557

 

Non-cash investing and financing activities

 

 

 

 

 

 

Accrued property and equipment purchases

 

$

896

 

 

$

704

 

Unrealized gain (loss) on marketable securities

 

$

(101

)

 

$

349

 

 

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 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. 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 began developing a rapid antigen self-test for COVID-19 and a COVID-19 antibody enzyme-linked immunosorbent assay (“ELISA”) for use in laboratory settings. In June 2021, we received three Emergency Use Authorizations ("EUA") from the U.S. Food and Drug Administration ("FDA") for our InteliSwabTM COVID-19 Rapid Antigen Tests for non-prescription over-the-counter ("OTC"), professional point-of-care and prescription use. Following discussions with the FDA and their de-prioritization of antibody testing in the U.S., we have decided to no longer pursue EUAs for the ELISA test. We will, however, continue to offer the product for research use only to labs and other parties interested in COVID antibody surveillance and research applications.

 

Our Molecular Solutions business is operated by our subsidiaries, DNA Genotek Inc. (“DNAG”), Diversigen, Inc. (“Diversigen”), and Novosanis NV (“Novosanis”). In our DNAG 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. Three of our collection devices are 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 and six months ended June 30, 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.

 

 

7


 

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 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 June 30, 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 June 30, 2021 and December 31, 2020:

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Fair Value

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed investment certificates

 

$

33,874

 

 

$

 

 

$

 

 

$

33,874

 

Corporate bonds

 

 

37,891

 

 

 

31

 

 

 

(480

)

 

 

37,442

 

Total available-for-sale securities

 

$

71,765

 

 

$

31

 

 

$

(480

)

 

$

71,316

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed investment certificates

 

$

25,132

 

 

$

 

 

$

 

 

$

25,132

 

Corporate bonds

 

 

71,533

 

 

 

135

 

 

 

(483

)

 

 

71,185

 

Total available-for-sale securities

 

$

96,665

 

 

$

135

 

 

$

(483

)

 

$

96,317

 

At June 30, 2021, maturities of our available-for-sale
   securities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$

35,567

 

 

$

31

 

 

$

(413

)

 

$

35,185

 

Greater than one year

 

$

36,198

 

 

$

 

 

$

(67

)

 

$

36,131

 

 

Fair Value of Financial Instruments. As of June 30, 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 June 30, 2021 and December 31, 2020. Our available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of June 30, 2021 and December 31, 2020.

Included in cash and cash equivalents at June 30, 2021 and December 31, 2020, was $53,590 and $71,489 invested in government money market funds. These funds have investments in government securities and are measured as Level 1 instruments.

We offer a nonqualified deferred compensation plan for certain eligible employees and members of our Board of Directors. The assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in mutual funds. The fair value of the plan assets as of June 30, 2021 and December 31, 2020 was $2,486 and $2,565, respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 instruments. The fair value of plan assets is included in both current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.

 

 

8


 

Accounts Receivable. Accounts receivable have been reduced by an estimated allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of specific balances as they become past due, the financial condition of our customers and our historical experience related to write-offs.

 

Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of our inventories are subject to expiration dating, which can be extended in certain circumstances. We continually evaluate quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete inventories, based on prior experience as well as estimated forecasts of product sales. 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 twenty to forty years, while computer equipment, machinery and equipment, and furniture and fixtures are depreciated over two to ten years. Building improvements are amortized over their estimated useful lives. When assets are sold, retired, or discarded, the related property amounts are relieved from the accounts, and any gain or loss is recorded in the consolidated statements of operations. Accumulated depreciation of property, plant and equipment as of June 30, 2021 and December 31, 2020 was $56,992 and $53,604, respectively.

 

Intangible Assets. Intangible assets consist of customer relationships, patents and product rights, acquired technology and tradenames. Patents and product rights consist of costs associated with the acquisition of patents, licenses, and product distribution rights. Intangible assets are amortized using the straight-line method over their estimated useful lives of five to fifteen years. Accumulated amortization of intangible assets as of June 30, 2021 and December 31, 2020 was $29,237 and $27,107, respectively. The decrease in intangibles from $17,904 as of December 31, 2020 to $16,241 as of June 30, 2021 is due to $1,643 in amortization expense and foreign currency translation losses of $20.  

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 $40,351 as of December 31, 2020 to $40,810 as of June 30, 2021 is a result of an adjustment of $441 associated with foreign currency translation and a purchase price adjustment of $18 related to a business acquisition.

 

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 $198 and $(200) for the three months ended June 30, 2021 and 2020, respectively. Net foreign exchange gains (losses) were $(379) and $493 for the six months ended June 30, 2021 and 2020.

 

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 June 30, 2021 consists of $5,994 of currency translation adjustments and $449 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investment portfolio. Accumulated other comprehensive loss at December 31, 2020 consists of $8,749 of currency translation adjustments and $348 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investments portfolio.

 

Recent Accounting Pronouncements.

 

9


 

 

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.

 

 

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 $3,000, adjusted for certain transaction costs, indebtedness, and holdback amounts, and was funded with cash on hand. A portion of the purchase price was deposited into an escrow account for a limited period after closing, pursuant to indemnification obligations under the merger agreement.

 

During the six months ended June 30, 2020, we incurred acquisition related costs of $343 including accounting, legal, and other professional fees, all of which were expensed and reported as a component of general and administrative expense in the consolidated statement of operations. No such costs were incurred for the six months ended June 30, 2021.

 

Pursuant to our merger agreement, we may pay up to an additional $28,000 of contingent consideration over the next three years based on the achievement of certain performance criteria as defined under the agreements, including generating certain revenue dollars, and the achievement of certain clinical milestones associated with the development of certain new technology. The Company, with the assistance of an independent valuation specialist, determines the estimated fair value of the contingent consideration. The fair value is determined using a probability-weighted model based on our assessment of the likelihood that the benchmarks will be achieved. The probability-weighted payments were then discounted using a discount rate based on an internal rate of return analysis using the probability-weighted cash flows. The fair value measurement is based on significant inputs, including the likelihood of the achievement of clinical milestones and revenue forecasts, not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. 

 

The following table represents the change in contingent consideration:

 

Balance as of December 31, 2020

$

2,451

 

Payments made during the period

 

(406

)

Change in fair value during the period

 

(1,026

)

Balance as of June 30, 2021

$

1,019

 

 

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

 

 

 

June 30,
2021

 

 

December 31,
2020

 

Raw materials

 

$

21,896

 

 

$

15,425

 

Work in process

 

 

3,287

 

 

 

2,572

 

Finished goods

 

 

22,987

 

 

 

13,866

 

 

 

$

48,170

 

 

$

31,863

 

 

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

 

10


 

shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period. Basic and dilutive computations of net loss per share are the same in periods in which a net loss exists as the dilutive effects of excluded items would be anti-dilutive.

The computations of basic and diluted earnings (loss) per share are as follows:

 

 

Three Months

 

 

Six Months

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,364

)

 

$

(10,494

)

 

$

2,410

 

 

$

(17,822

)

Weighted-average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

71,983

 

 

 

64,745

 

 

 

71,931

 

 

 

63,335

 

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

 

 

 

 

 

 

 

 

752

 

 

 

 

Diluted

 

 

71,983

 

 

 

64,745

 

 

 

72,683

 

 

 

63,335

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02

)

 

$

(0.16

)

 

$

0.03

 

 

$

(0.28

)

Diluted

 

$

(0.02

)

 

$

(0.16

)

 

$

0.03

 

 

$

(0.28

)

 

For the three months ended June 31, 2021 and 2020, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 603 and 1,078 shares, respectively, were excluded from the computation of diluted loss per share. For the six months ended June 30, 2021, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 604 shares were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. For the six months ended June 30, 2020, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 704 shares were excluded from the computation of diluted loss per share.

 

6. Revenues

Revenues by product. The following table represents total net revenues by product line:

 

 

 

Three Months Ended June 30,

Six Months Ended June 30,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

Infectious disease testing

 

$

15,534

 

 

$

8,737

 

 

$

26,732

 

 

$

23,400

 

 

Risk assessment testing

 

 

2,629

 

 

 

1,533

 

 

 

4,591

 

 

 

4,533

 

 

Genomics

 

 

19,582

 

 

 

6,471

 

 

 

30,646

 

 

 

14,863

 

 

Microbiome

 

 

2,853

 

 

 

853

 

 

 

4,941

 

 

 

2,430

 

 

COVID-19

 

 

11,580

 

 

 

8,472

 

 

 

39,142

 

 

 

8,866