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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 September 30, 2020.

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 November 1, 2020, the registrant had 71,732,752 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 September 30, 2020 and December 31, 2019

3

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

4

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019

5

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

6

 

 

Notes to the Consolidated Financial Statements

7

 

 

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

20

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

31

 

 

Item 4. Controls and Procedures

31

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

32

 

 

Item 1A. Risk Factors

32

 

 

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

32

 

 

Item 3. Defaults Upon Senior Securities

32

 

 

Item 4. Mine Safety Disclosures

33

 

 

Item 5. Other Information

33

 

 

Item 6. Exhibits

34

 

 

Signatures

35

 

 

 

-2-


 

Item 1.

FINANCIAL STATEMENTS

ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except per share amounts)

 

 

September 30, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

162,859

 

 

$

75,715

 

Short-term investments

 

72,961

 

 

 

80,623

 

Accounts receivable, net of allowance for doubtful accounts of $3,751 and $2,666

 

30,638

 

 

 

36,948

 

Inventories

 

30,488

 

 

 

23,155

 

Prepaid expenses

 

2,527

 

 

 

2,433

 

Other current assets

 

3,504

 

 

 

5,676

 

Total current assets

 

302,977

 

 

 

224,550

 

Noncurrent Assets:

 

 

 

 

 

 

 

Property, plant and equipment, net

 

39,056

 

 

 

30,339

 

Operating right-of-use assets, net

 

4,682

 

 

 

4,996

 

Finance right-of-use assets, net

 

1,462

 

 

 

1,951

 

Intangible assets, net

 

18,111

 

 

 

14,674

 

Goodwill

 

39,480

 

 

 

36,201

 

Long-term investments

 

27,841

 

 

 

33,420

 

Other noncurrent assets

 

2,801

 

 

 

3,164

 

Total noncurrent assets

 

133,433

 

 

 

124,745

 

TOTAL ASSETS

$

436,410

 

 

$

349,295

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

$

14,377

 

 

$

9,567

 

Deferred revenue

 

5,311

 

 

 

3,713

 

Accrued expenses and other current liabilities

 

15,147

 

 

 

14,288

 

Finance lease liability

 

536

 

 

 

613

 

Operating lease liability

 

1,092

 

 

 

1,032

 

Acquisition-related contingent consideration obligation

 

764

 

 

 

3,500

 

Total current liabilities

 

37,227

 

 

 

32,713

 

Noncurrent Liabilities:

 

 

 

 

 

 

 

Finance lease liability

 

1,025

 

 

 

1,372

 

Operating lease liability

 

3,848

 

 

 

4,206

 

Acquisition-related contingent consideration obligation

 

3,176

 

 

 

112

 

Other noncurrent liabilities

 

2,493

 

 

 

2,848

 

Deferred income taxes

 

749

 

 

 

899

 

Total noncurrent liabilities

 

11,291

 

 

 

9,437

 

TOTAL LIABILITIES

 

48,518

 

 

 

42,150

 

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, 71,611 and 61,731 shares

  issued and outstanding

 

 

 

 

 

Additional paid-in capital

 

502,802

 

 

 

401,814

 

Accumulated other comprehensive loss

 

(15,595

)

 

 

(12,136

)

Accumulated deficit

 

(99,315

)

 

 

(82,533

)

Total stockholders' equity

 

387,892

 

 

 

307,145

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

436,410

 

 

$

349,295

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

NET REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

$

46,749

 

 

$

35,299

 

 

$

105,972

 

 

$

100,898

 

Other

 

 

1,262

 

 

 

690

 

 

 

2,894

 

 

 

4,039

 

 

 

 

48,011

 

 

 

35,989

 

 

 

108,866

 

 

 

104,937

 

COST OF PRODUCTS AND SERVICES SOLD

 

 

17,722

 

 

 

14,343

 

 

 

45,182

 

 

 

40,193

 

Gross profit

 

 

30,289

 

 

 

21,646

 

 

 

63,684

 

 

 

64,744

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,007

 

 

 

4,619

 

 

 

20,575

 

 

 

13,525

 

Sales and marketing

 

 

7,849

 

 

 

8,955

 

 

 

25,339

 

 

 

23,937

 

General and administrative

 

 

10,108

 

 

 

7,556

 

 

 

30,442

 

 

 

23,748

 

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

 

 

(60

)

 

 

(2,387

)

 

 

390

 

 

 

(843

)

Gain on sale of business

 

 

 

 

 

(10,149

)

 

 

 

 

 

(10,149

)

 

 

 

25,904

 

 

 

8,594

 

 

 

76,746

 

 

 

50,218

 

Operating income (loss)

 

 

4,385

 

 

 

13,052

 

 

 

(13,062

)

 

 

14,526

 

OTHER INCOME

 

 

314

 

 

 

1,195

 

 

 

1,960

 

 

 

2,243

 

Income (loss) before income taxes

 

 

4,699

 

 

 

14,247

 

 

 

(11,102

)

 

 

16,769

 

INCOME TAX EXPENSE

 

 

3,659

 

 

 

1,169

 

 

 

5,680

 

 

 

2,551

 

NET INCOME (LOSS)

 

$

1,040

 

 

$

13,078

 

 

$

(16,782

)

 

$

14,218

 

INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

$

0.01

 

 

$

0.21

 

 

$

(0.25

)

 

$

0.23

 

DILUTED

 

$

0.01

 

 

$

0.21

 

 

$

(0.25

)

 

$

0.23

 

SHARES USED IN COMPUTING INCOME (LOSS) PER SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

71,537

 

 

 

61,726

 

 

 

66,088

 

 

 

61,656

 

DILUTED

 

 

72,662

 

 

 

62,143

 

 

 

66,088

 

 

 

62,172

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

NET INCOME (LOSS)

 

$

1,040

 

 

$

13,078

 

 

$

(16,782

)

 

$

14,218

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

1,953

 

 

 

(1,557

)

 

 

(3,542

)

 

 

3,151

 

Unrealized gain (loss) on marketable securities

 

 

(266

)

 

 

194

 

 

 

83

 

 

 

877

 

COMPREHENSIVE INCOME (LOSS)

 

$

2,727

 

 

$

11,715

 

 

$

(20,241

)

 

$

18,246

 

 

See accompanying notes to the consolidated financial statements.

-5-


ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(16,782

)

 

$

14,218

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

5,913

 

 

 

3,283

 

Depreciation and amortization

 

 

7,051

 

 

 

5,532

 

Provision for doubtful accounts

 

 

1,141

 

 

 

2,083

 

Unrealized foreign currency (gain) loss

 

 

(41

)

 

 

272

 

Interest expense on finance leases

 

 

56

 

 

 

23

 

Deferred income taxes

 

 

(764

)

 

 

(291

)

Loss on sale of fixed assets

 

 

104

 

 

 

145

 

Gain on sale of business

 

 

 

 

 

(10,149

)

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

 

 

390

 

 

 

(843

)

Payment of acquisition-related contingent consideration

 

 

(496

)

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,228

 

 

 

5,730

 

Inventories

 

 

(7,425

)

 

 

(3,255

)

Prepaid expenses and other assets

 

 

2,420

 

 

 

1,438

 

Accounts payable

 

 

3,269

 

 

 

(1,042

)

Deferred revenue

 

 

1,664

 

 

 

348

 

Accrued expenses and other liabilities

 

 

468

 

 

 

(6,654

)

Net cash provided by operating activities

 

 

2,196

 

 

 

10,838

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(90,137

)

 

 

(92,173

)

Proceeds from maturities and redemptions of investments

 

 

102,616

 

 

 

91,451

 

Purchases of property and equipment

 

 

(11,234

)

 

 

(7,961

)

Proceeds from escrow associated with business acquisitions

 

 

126

 

 

 

 

Proceeds from sale of business

 

 

 

 

 

12,000

 

Acquisition of businesses, net of cash acquired

 

 

(3,037

)

 

 

(13,217

)

Purchase of patent and product rights

 

 

(2,250

)

 

 

 

Net cash used in investing activities

 

 

(3,916

)

 

 

(9,900

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Repayments of loans

 

 

 

 

 

(724

)

Cash payments for lease liabilities

 

 

(521

)

 

 

(253

)

Payment of acquisition-related contingent consideration

 

 

(3,004

)

 

 

 

Issuance of common stock in connection with public offering, net

 

 

95,036

 

 

 

 

Proceeds from exercise of stock options

 

 

2,115

 

 

 

169

 

Repurchase of common stock

 

 

(2,076

)

 

 

(3,711

)

Net cash provided by (used in) financing activities

 

 

91,550

 

 

 

(4,519

)

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

 

 

(2,686

)

 

 

608

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

87,144

 

 

 

(2,973

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

75,715

 

 

 

88,438

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

162,859

 

 

$

85,465

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

3,888

 

 

$

7,470

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Accrued property and equipment purchases

 

$

2,093

 

 

$

477

 

Unrealized gain on marketable securities

 

$

83

 

 

$

877

 

 

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

Our business consists of two segments: our “OSUR business” primarily consists of the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary technologies, other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. Our molecular products and services business, or “DNAG business” consists of the manufacture and sale of kits that are used to collect, stabilize, transport and store 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 DNAG business provides microbiome laboratory and bioinformatics services.

The OSUR 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, 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 OSUR business includes the operations of UrSure, Inc. (“UrSure”), which was acquired in July 2020. UrSure is developing and commercializing products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP, the daily medication to prevent HIV. UrSure’s products include laboratory-based tests that can measure levels of the medication in a patient’s urine or blood, as well as several additional point of care products currently in development. We also previously manufactured and sold medical devices used for the removal of benign skin lesions by cryosurgery or freezing. We sold the assets associated with our cryosurgical systems business to a third party in August 2019.

Our DNAG business is operated by our subsidiaries, DNA Genotek Inc. (“DNAG”), Diversigen, Inc. (“Diversigen”), CoreBiome Inc. (“CoreBiome”) and Novosanis NV (“Novosanis”). DNAG’s specimen collection devices provide all-in-one systems for the collection, stabilization, transportation and storage of nucleic acids from human saliva and other sample types for genetic and microbiome applications. CoreBiome and Diversigen provide laboratory and bioinformatics services in the microbiome market. Novosanis’ Colli-Pee collection device is designed for the volumetric collection of first-void urine for use in research, screening and diagnostics for the liquid biopsy and sexually transmitted infection markets. We also sell research use only sample collection products into the microbiome market and we offer our customers a suite of genomics and microbiome services, which range from package customization and study design optimization to extraction, analysis and reporting services. We serve customers worldwide in the research, healthcare, pharmaceutical and agricultural communities 

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 Technologies, Inc. (“OraSure”) and its wholly-owned subsidiaries, DNAG, Diversigen, CoreBiome, Novosanis, and UrSure. 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, 2019. Results of operations for the three and nine months ended September 30, 2020 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, 2019 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 upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders’ equity as a component of accumulated other comprehensive loss.

 

-7-


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 September 30, 2020, 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 September 30, 2020 and December 31, 2019:

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed investment certificates

 

$

24,019

 

 

$

 

 

$

 

 

$

24,019

 

Corporate bonds

 

 

76,814

 

 

 

269

 

 

 

(300

)

 

 

76,783

 

Total available-for-sale securities

 

$

100,833

 

 

$

269

 

 

$

(300

)

 

$

100,802

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Guaranteed investment certificates

 

$

24,632

 

 

$

 

 

$

 

 

$

24,632

 

Corporate bonds

 

 

89,525

 

 

 

271

 

 

 

(385

)

 

 

89,411

 

Total available-for-sale securities

 

$

114,157

 

 

$

271

 

 

$

(385

)

 

$

114,043

 

At September 30, 2020, maturities of our available-for-sale

   securities were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$

72,947

 

 

$

228

 

 

$

(214

)

 

$

72,961

 

Greater than one year

 

$

27,886

 

 

$

41

 

 

$

(86

)

 

$

27,841

 

 

Fair Value of Financial Instruments. As of September 30, 2020 and December 31, 2019, the carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values based on their short-term nature.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

All of our available-for-sale debt securities are measured as Level 2 instruments as of September 30, 2020 and December 31, 2019.

Included in cash and cash equivalents at September 30, 2020 and December 31, 2019, was $95,254 and $1,624 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 September 30, 2020 and December 31, 2019 was $3,360 and $3,519, 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.

 

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.

 

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,

-8-


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 September 30, 2020 and December 31, 2019 was $51,807 and $46,882, 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 September 30, 2020 and December 31, 2019 was $25,393 and $23,420, respectively. The increase in intangibles from $14,674 as of December 31, 2019 to $18,111 as of September 30, 2020 is a result of the developed technology acquired in our acquisition of UrSure of $3,400, the acquisition of patent and product rights of $2,250, and foreign currency translation gains of $148 offset by $2,361 in amortization expense.  

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 U.S. generally accepted accounting principles permit us to make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the carrying value of a reporting unit is greater than its fair value, then we would be required to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

The increase in goodwill from $36,201 as of December 31, 2019 to $39,480 as of September 30, 2020 is a result of the additional goodwill associated with our acquisition of UrSure of $3,739 offset by a purchase price adjustment related to our Diversigen acquisition of $(126), and an adjustment of $(334) associated with foreign currency translation.

 

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 operations in the period in which the change occurs. Net foreign exchange gains resulting from foreign currency transactions that are included in other income in our consolidated statements of income were $70 and $50 for the three months ended September 30, 2020 and 2019, respectively. Net foreign exchange gains (losses) were $563 and $(875) for the nine months ended September 30, 2020 and 2019.

 

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 September 30, 2020 consists of $15,564 of currency translation adjustments and $31 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, 2019 consists of $12,022 of currency translation adjustments and $114 of net unrealized losses on marketable securities.

 

Recent Accounting Pronouncements.  In June 2016, the FASB issued guidance on the measurement of credit losses, which requires measurement and recognition of expected credit losses for financial assets, including trade receivables and capital lease receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The method to determine a loss requires a credit loss to be recognized when it is probable. We adopted this guidance in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors. The Company will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses. In addition, the new guidance requires us to record an allowance for credit loss when a decline in investment market value is due to credit-related factors. As of January 1, 2020, there was no material decline in the market value of available-for-sale investments due to credit-related factors.

In February 2018, the FASB issued guidance allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act. If elected, the reclassification can be applied in either the period of adoption or retrospectively to the period of the enactment of the U.S. Tax Cuts and Jobs Act (i.e., our first quarter of fiscal year 2018). We adopted this guidance in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements.

In August 2018, the FASB issued guidance related to fair value measurement disclosures. This guidance removes the requirement to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, the policy for determining that a transfer has occurred, and valuation processes for Level 3 fair value measurements. Additionally, this guidance modifies the disclosures related to the measurement uncertainty for recurring Level 3 fair value measurements (by removing the requirement to disclose sensitivity to future changes) and the timing of liquidation of invested assets (by removing the timing requirement in certain instances). The guidance also requires new disclosures for Level

-9-


3 financial assets and liabilities, including the amount and location of unrealized gains and losses recognized in other comprehensive income(loss) and additional information related to significant unobservable inputs used in determining Level 3 fair value measurements. We adopted this guidance in the first quarter of 2020 and the impact of the adoption was not material to the Company's consolidated financial statements.

3.   Business Combinations

 

UrSure

On July 22, 2020, the Company acquired all of the outstanding 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.

 

Pursuant to our acquisition agreements, we may pay up to an additional $28,000 of contingent consideration over the next four years based on the achievement of certain performance criteria as defined under the agreements, including generating certain revenue dollars, and the development of certain new technology. The Company, with the assistance of an independent valuation specialist, determined the estimated acquisition-date fair value of the acquisition-related contingent consideration of $3,440. The simulation calculated the probability-weighted payments 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 was based on significant inputs, including revenue forecasts, not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. There has been no material change in the fair value of the contingent consideration obligation changed from the acquisition date to September 30, 2020.

During the nine months ended September 30, 2020, we incurred a total of $393 of acquisition related costs, 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 income for the nine months ended September 30, 2020.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date:

Assets Acquired

 

 

 

 

Accounts receivable

 

$

285

 

Other current assets

 

 

24

 

Other assets

 

 

6

 

Intangibles

 

 

3,400

 

  Goodwill

 

 

3,739

 

Total assets acquired

 

 

7,454

 

Liabilities Assumed

 

 

 

 

Current liabilities

 

 

212

 

Deferred tax liability

 

 

642

 

Deferred revenue

 

 

123

 

Total liabilities assumed

 

 

977

 

Net Assets Acquired

 

$

6,477

 

Estimated fair value of contingent consideration

 

 

(3,440

)

Net Cash Paid (net of cash acquired of $111)

 

$

3,037

 

 

The purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their acquisition-date estimate fair values. The identifiable intangible assets principally included developed technology, which is subject to amortization on a straight-line basis and is being amortized over a ten year estimated useful life.

 

The Company, with the assistance of an independent valuation specialist, assessed the fair value of the assets of UrSure. The income approach was used to value the acquired intangibles and the fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 fair value measurements. The income approach estimates fair value for an asset based on the present value of cash flows projected to be generated by the asset.  Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows and the time value of money.

The useful lives of the intangible assets were estimated based on the expected future economic benefit of the assets and are being amortized over the estimated useful life in proportion to the economic benefits consumed using the straight-line method.  

The amortization of intangible assets is not deductible for income tax purposes.

-10-


Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. We believe the goodwill related to the acquisition was a result of gaining a complementary service and product offering that will enable us to leverage those services and products with existing and new customers.  The goodwill is not deductible for income tax purposes.  All of the goodwill identified above has been allocated to our OSUR segment.

We continue to evaluate the fair value of certain assets acquired and liabilities assumed, related to the acquisition. Additional information that existed as of the acquisition date, but was at that time unknown to us, may become known during the remainder of the measurement period. Changes to amounts recorded as a result of the final determination may result in a corresponding adjustment to these assets and liabilities, including goodwill. The determination of the estimated fair values of all assets acquired is expected to be completed within one year from the date of acquisition.

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 OSUR segment. 

CoreBiome and Novosanis

On January 4, 2019, the Company acquired all of the outstanding stock of CoreBiome, pursuant to the terms of a merger agreement. Also on January 4, 2019, the Company, through a wholly-owned subsidiary, acquired all of the outstanding stock of Novosanis, pursuant to a share purchase agreement. The aggregate purchase price for both of these transactions was $13,320 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 escrow accounts for a limited period after closing, in order to secure the potential payment of certain indemnification obligations of the selling stockholders under each agreement noted above. See Note 3 set forth in the Company’s audited financial statements included as part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for additional information on the CoreBiome and Novosanis acquisitions.

During the nine months ended September 30, 2019, we incurred a total of $597 of acquisition-related costs in connection with these acquisitions, including success-based investment banking fees and accounting, legal and other professional fees, related to both acquisitions, all of which were expensed and reported as a component of general and administrative expenses in the consolidated statement of operations for the nine months ended September 30, 2019.

Pursuant to our acquisition agreements, we were to pay up to an additional $32,400 of contingent consideration over three years based on the achievement of certain performance criteria as defined under the agreements, including generating certain revenue dollars, the achievement of a large customer contract, and the development of certain new technology. The Company, with the assistance of an independent valuation specialist, utilized a Monte Carlo simulation to determine the estimated acquisition-date fair value of the acquisition-related contingent consideration of $4,350. The simulation calculated the probability-weighted payments 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 was based on significant inputs, including revenue forecasts, not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration obligation changed from $4,350 as of the acquisition date to $3,424 as of September 30, 2019 as a result of changes in our estimated revenue forecasts.  The fair value of the contingent consideration obligation changed from $3,612 as of December 31, 2019 to $500 as of September 30, 2020.  This change is a result of a $3,500 payment made in the first quarter of 2020, changes in our estimated revenue forecasts and an amendment to one of the agreements.  Pursuant to the amendment, which was entered into in March 2020, the terms of the contingent consideration provisions associated with one of the acquisitions were modified and are expected to be paid during the first quarter of 2021. As of September 30, 2020, we may pay up to an additional $22,500 of contingent consideration through July 2021.  

Revenues from CoreBiome primarily consist of fees paid for microbiome laboratory services that utilize optimal analytical algorithms to deliver speed and scalability in the lab with precise analytics.  Revenues from Novosanis primarily consist of the sale of its Colli-Pee collection device which was designed for the standard collection of first-void urine used in the liquid biopsy and sexually transmitted infection screening market. Effective as of January 4, 2019, the financial results of CoreBiome and Novosanis are included in our DNAG segment.       

Diversigen

 

On November 8, 2019, the Company acquired all of the outstanding stock of Diversigen pursuant to the terms of a merger agreement. The aggregate purchase price for this transaction was $12,000, 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 noted above. See Note 3 set forth in the Company’s audited financial statements included as part of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for additional information on the Diversigen acquisition.

 

During the nine months ended September 30, 2019, we did not incur any acquisition related costs associated with this transaction.

-11-


Pursuant to the merger agreement, we were to pay up to an additional $1,500 of contingent consideration in 2020 based on the achievement of certain 2019 revenue metrics as defined under the agreements which did not occur. 

Revenues from Diversigen primarily consist of fees paid for microbiome laboratory services that provide metagenomics sequencing, bioinformatics and statistical analysis for the study of the microbiome. Effective as of November 8, 2019, the financial results of Diversigen are included in our DNAG segment.     

Unaudited Pro Forma Financial Information

The unaudited pro forma results presented below include the results of the CoreBiome, Diversigen, Novosanis and UrSure acquisitions as if they had been consummated as of January 1, 2019. The unaudited pro forma results include the amortization associated with acquired intangible assets and the estimated tax effect of adjustments to income before income taxes but do not include changes in the fair value of our contingent consideration obligations. Material nonrecurring charges, directly attributable to the transactions, including direct acquisition costs, are also excluded. In addition, the unaudited pro forma results do not include any expected benefits of the acquisitions. Accordingly, the unaudited pro forma results are not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions been consummated as of January 1, 2019.

 

 

Three Months ended September 30,

 

 

Nine Months ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

48,073

 

 

$

37,695

 

 

$

109,708

 

 

$

105,703

 

Net income (loss)

 

 

1,009

 

 

 

12,340

 

 

 

(17,179

)

 

 

12,531

 

Net income (loss) per share, basic and diluted

 

 

0.01

 

 

 

0.20

 

 

 

(0.27

)

 

 

0.20

 

 

 

4.   Inventories

 

 

September 30,

2020

 

 

December 31,

2019

 

Raw materials

 

$

15,913

 

 

$

14,168

 

Work in process

 

 

1,277

 

 

 

643

 

Finished goods

 

 

13,298

 

 

 

8,344

 

 

 

$

30,488

 

 

$

23,155

 

 

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 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:

-12-


 

 

Three Months

 

 

Nine Months

 

 

 

Ended September 30,

 

 

Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,040

 

 

$

13,078

 

 

$

(16,782

)

 

$

14,218

 

Weighted-average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

71,537

 

 

 

61,726

 

 

 

66,088

 

 

 

61,656

 

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

 

 

1,125

 

 

 

417

 

 

 

 

 

 

516

 

Diluted

 

 

72,662

 

 

 

62,143

 

 

 

66,088

 

 

 

62,172

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

 

$

0.21

 

 

$

(0.25

)

 

$

0.23

 

Diluted

 

$

0.01

 

 

$

0.21

 

 

$

(0.25

)

 

$

0.23

 

For the nine months ended September 30, 2020, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 917 shares were excluded from the computation of diluted loss per share as their inclusion would have been anti-dilutive. For the three months ended September 30, 2020 and 2019, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 136 and 909 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.  For the nine months ended September 30, 2019, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 709 shares were excluded from the computation of diluted earnings per share.   

6.

Revenues

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

 

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Infectious disease testing

 

$

13,224

 

 

$

13,588

 

 

$

36,625

 

 

$

39,284

 

 

Risk assessment testing

 

 

2,316

 

 

 

3,312

 

 

 

6,848

 

 

 

9,246

 

 

Cryosurgical systems

 

 

 

 

 

961

 

 

 

 

 

 

7,054

 

 

Genomics

 

 

8,519

 

 

 

13,647

 

 

 

23,381

 

 

 

35,438

 

 

Microbiome

 

 

1,828

 

 

 

1,878

 

 

 

4,259

 

 

 

5,325

 

 

COVID-19

 

 

18,441

 

 

 

 

 

 

27,307

 

 

 

 

 

Laboratory services

 

 

2,418

 

 

 

1,617

 

 

 

7,472

 

 

 

3,947

 

 

Other product revenue

 

 

3

 

 

 

296

 

 

 

80

 

 

 

604

 

 

Net product and services revenues

 

 

46,749

 

 

 

35,299

 

 

 

105,972

 

 

 

100,898

 

 

Royalty income

 

 

450

 

 

 

758

 

 

 

1,623

 

 

 

2,956

 

 

Other non product revenues

 

 

812

 

 

 

(68

)

 

 

1,271

 

 

 

1,083

 

 

Other revenues

 

 

1,262

 

 

 

690

 

 

 

2,894

 

 

 

4,039

 

 

Net revenues

 

$

48,011

 

 

$

35,989