ORASURE TECHNOLOGIES INC 10-Q

Item 1. FINANCIAL STATEMENTS ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except per share amounts) September 30, 2024 December 31, 2023 ASSETS Current Assets: Cash and cash equivalents $ 278,571 $ 290,407 Accounts receivable, net of allowance of $ 1,237 and $ 1,216 26,954 40,171 Inventories 38,870 47,614 Prepaid expenses 3,038 6,041 Other current assets 2,718 2,226 Total current assets 350,151 386,459 Noncurrent Assets: Property, plant and equipment, net of accumulated depreciation of $ 79,562 and $ 85,143 38,143 45,420 Operating right-of-use assets, net 9,904 12,270 Finance right-of-use assets, net 157 576 Intangible assets, net of accumulated amortization of $ 33,711 and $ 33,649 665 1,206 Goodwill 35,287 35,696 Investment in equity method investee 28,829 — Other noncurrent assets 949 1,218 Total noncurrent assets 113,934 96,386 TOTAL ASSETS $ 464,085 $ 482,845 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 9,581 $ 13,151 Deferred revenue 1,619 1,559 Accrued expenses and other current liabilities 15,013 22,710 Finance lease liability 41 539 Operating lease liability 1,530 1,577 Total current liabilities 27,784 39,536 Noncurrent Liabilities: Finance lease liability 124 226 Operating lease liability 9,412 11,162 Other noncurrent liabilities 529 696 Deferred income taxes 671 554 Total noncurrent liabilities 10,736 12,638 TOTAL LIABILITIES 38,520 52,174 Commitments and contingencies (Note 11) STOCKHOLDERS' EQUITY Preferred stock, par value $ 0.000001 , 25,000 shares authorized, none issued — — Common stock, par value $ 0.000001 , 120,000 shares authorized, 74,593 and 73,528 shares issued and outstanding — — Additional paid-in capital 535,402 529,543 Accumulated other comprehensive loss ( 17,200 ) ( 14,941 ) Accumulated deficit ( 92,637 ) ( 83,931 ) Total stockholders' equity 425,565 430,671 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 464,085 $ 482,845 See accompanying notes to the consolidated financial statements. 3 Table of Contents ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 NET REVENUES: Products and services $ 39,651 $ 89,014 $ 147,379 $ 326,666 Other 264 173 1,003 2,925 39,915 89,187 148,382 329,591 COST OF PRODUCTS AND SERVICES SOLD 22,845 44,847 82,558 193,065 Gross profit 17,070 44,340 65,824 136,526 OPERATING EXPENSES: Research and development 5,623 8,516 19,960 26,737 Sales and marketing 7,615 8,736 23,994 29,413 General and administrative 9,831 10,051 33,310 44,186 Loss on impairments — 6,183 4,392 7,503 Change in the estimated fair value of acquisition-related contingent consideration — ( 40 ) — ( 99 ) 23,069 33,446 81,656 107,740 Operating (loss) income ( 5,999 ) 10,894 ( 15,832 ) 28,786 OTHER INCOME 2,781 2,612 9,338 6,752 (Loss) income before income taxes ( 3,218 ) 13,506 ( 6,494 ) 35,538 INCOME TAX EXPENSE 678 2,347 1,041 1,956 LOSS ON EQUITY INVESTMENT ( 611 ) — ( 1,171 ) — NET (LOSS) INCOME $ ( 4,507 ) $ 11,159 $ ( 8,706 ) $ 33,582 (LOSS) INCOME PER SHARE: BASIC $ ( 0.06 ) $ 0.15 $ ( 0.12 ) $ 0.46 DILUTED $ ( 0.06 ) $ 0.15 $ ( 0.12 ) $ 0.45 WEIGHTED-AVERAGE SHARES OUTSTANDING: BASIC 74,583 73,453 74,330 73,298 DILUTED 74,583 74,349 74,330 74,197 See accompanying notes to the consolidated financial statements. 4 Table of Contents ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (in thousands) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 NET (LOSS) INCOME $ ( 4,507 ) $ 11,159 $ ( 8,706 ) $ 33,582 OTHER COMPREHENSIVE (LOSS) INCOME Currency translation adjustments 1,431 ( 2,813 ) ( 2,259 ) 843 Unrealized gain on marketable securities — — — 220 COMPREHENSIVE (LOSS) INCOME $ ( 3,076 ) $ 8,346 $ ( 10,965 ) $ 34,645 See accompanying notes to the consolidated financial statements. 5 Table of Contents ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) For the Nine Months Ended September 30, 2024 2023 OPERATING ACTIVITIES: Net (loss) income $ ( 8,706 ) $ 33,582 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Stock-based compensation 9,178 7,602 Depreciation and amortization 8,380 17,372 Loss on impairments 4,392 7,503 Other non-cash amortization ( 569 ) 3 Provision for credit losses 521 ( 75 ) Unrealized foreign currency gain ( 154 ) ( 66 ) Interest expense on finance leases 20 42 Loss on equity investment 1,171 — Deferred income taxes 165 ( 490 ) Loss on sale of fixed assets ( 121 ) — Change in the estimated fair value of acquisition-related contingent consideration — ( 99 ) Payment of acquisition-related contingent consideration — ( 19 ) Changes in assets and liabilities: Accounts receivable 12,658 17,468 Inventories 8,659 36,425 Prepaid expenses and other assets 2,622 10,530 Accounts payable ( 3,431 ) ( 25,122 ) Deferred revenue 66 ( 449 ) Accrued expenses and other liabilities ( 7,586 ) ( 3,990 ) Net cash provided by operating activities 27,265 100,217 INVESTING ACTIVITIES: Purchases of short-term investments ( 53,244 ) ( 74,652 ) Investment in equity method investee ( 30,000 ) — Proceeds from maturities and redemptions of short-term investments 53,052 94,980 Purchases of property and equipment ( 3,341 ) ( 4,517 ) Purchase of property and equipment under government contracts — ( 4,501 ) Proceeds from funding under government contract — 24,290 Net cash (used in) provided by investing activities ( 33,533 ) 35,600 FINANCING ACTIVITIES: Cash payments for lease liabilities ( 746 ) ( 835 ) Proceeds from exercise of stock options 214 76 Payment of acquisition-related contingent consideration — ( 46 ) Repurchase of common stock ( 3,533 ) ( 1,863 ) Net cash used in financing activities ( 4,065 ) ( 2,668 ) EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH ( 1,503 ) 404 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 11,836 ) 133,553 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 290,407 83,980 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 278,571 $ 217,533 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash (refunds) paid for income taxes $ 1,637 $ ( 5,733 ) Non-cash investing and financing activities Accrued property and equipment purchases $ 103 $ 155 Accrued property and equipment purchases under government contracts $ — $ 2 See accompanying notes to the consolidated financial statements. 6 Table of Contents ORASURE TECHNOLOGIES, INC. AND SUBSIDIARIES Notes to the Consolidated Financial Statements (Unaudited) 1. Summary of Significant Accounting Policies Principles of Consolidation and Basis of Presentation The accompanying interim unaudited consolidated financial statements include the accounts of OraSure Technologies, Inc. (“OraSure”) and its wholly-owned subsidiaries, DNA Genotek Inc. (“DNAG”), Diversigen, Inc. (“Diversigen”), and Novosanis NV (“Novosanis”). All intercompany transactions and balances have been eliminated. References herein to “we,” “us,” “our,” or the “Company” mean OraSure and its consolidated subsidiaries, unless otherwise indicated. The unaudited financial statements, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the Company's financial position and results of operations for these interim periods. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results of operations expected for the full year. Summary of Significant Accounting Policies There have been no changes to the Company's significant accounting policies described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 that have had a material impact on the consolidated financial statements and related notes except as discussed herein. Cash Equivalents & Short-Term Investments The Company considers all investments in debt securities to be available-for-sale securities. These securities consist of guaranteed investment certificates purchased with maturities greater than ninety days. Securities with maturities ninety days or less are considered cash equivalents. Available-for-sale securities are carried at fair value, based upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders’ equity as a component of accumulated other comprehensive loss. The Company had no available-for-sale securities as of September 30, 2024 and December 31, 2023. Fair Value of Financial Instruments As of September 30, 2024 and December 31, 2023, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature. Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity). All of the Company's guaranteed investment certificates are measured as Level 1 instruments as of September 30, 2024. Included in cash and cash equivalents at September 30, 2024 and December 31, 2023 was $ 42.5 million and $ 71.7 million, respectively, of guaranteed investment certificates. 7 Table of Contents Also included in cash and cash equivalents at September 30, 2024 and December 31, 2023 was $ 117.1 million and $ 112.7 million, respectively, invested in money market funds. These money market funds have investments in U.S. government securities and are measured as Level 1 instruments. The Company offers a nonqualified deferred compensation plan for certain eligible employees and members of its Board of Directors. The assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the participant and all earnings and losses on those deferred amounts. The assets of the plan are held in mutual funds and company stock. The fair value of the plan assets as of September 30, 2024 and December 31, 2023 was $ 0.7 million and $ 0.8 million, respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 financial instruments. The fair value of plan assets is included in both current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets. Equity Method Investee In January 2024, the Company lead the Series B financing and entered into wide-ranging strategic distribution agreements with KKR Sapphiros L.P. ("Sapphiros"), a privately held consumer diagnostic portfolio company, and certain of its related entities. Through this relationship, the Company expects to be able to offer a more comprehensive range of low-cost diagnostic tests and molecular sample management solutions to the Company's customers globally. As of September 30, 2024, the Company had funded $ 30.0 million for its interest in Sapphiros. The Company recorded the investment using the equity method in accordance with Accounting Standards Codification ("ASC") Topic 323, Investments—Equity Method and Joint Ventures—Overall. In accordance with the equity method, the Company's equity investment is presented net of its share of any gains or losses of the investee. The Company has elected as its accounting policy to recognize its share of any income or loss in Sapphiros on a three-month lag. The investment in Sapphiros of $ 28.8 million as of September 30, 2024 is included in the investment in equity method investee line of the Company's balance sheet and is measured as a Level 3 investment. The Company has no unconditional obligations or guarantees to, or in support of, its equity method investee and its operations. In conjunction with the preparation of the Company's September 30, 2024 financial statements, the Company considered whether the carrying value of the investment in Sapphiros was impaired and concluded that no such impairment existed. There was no similar investment as of December 31, 2023. Foreign Currency Transactions Net foreign exchange gains and (losses) resulting from foreign currency transactions that are included in other income in the Company's consolidated statements of operations were $( 0.2 ) million and $( 0.1 ) million for the three months ended September 30, 2024 and 2023, respectively. Net foreign exchange gains and (losses) resulting from foreign currency transactions for the nine months ended September 30, 2024 and 2023 were $ 0.1 million and $( 0.7 ) million, respectively. Impairment of Long-Lived Assets Long-lived assets, which include property, plant and equipment, definite-lived intangible assets, as well as right-of-use assets (ROU assets) of operating and finance leases, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company assesses the recoverability of the Company's long-lived assets by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset. If indicators of impairment exist, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based on the present value of the expected future cash flows associated with the use of the assets. Expected future cash flows reflect the Company's assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time. During the first quarter of 2024, the Company identified a triggering event to test for the recoverability of all the property, plant, and equipment and ROU assets of both the Diversigen and Novosanis subsidiaries, given the Company's decision to initiate a strategic plan to transition away from the microbiome molecular sequencing services business and close its Belgian operations. The Company performed an undiscounted cash flow analysis and determined the carrying values of the property, plant and equipment and ROU assets could not be recovered through the sum of the undiscounted future cash flows and were impaired. During the nine months ended September 30, 2024 the Company recognized aggregate pre-tax impairment charges of $ 1.2 million and $ 0.3 million to its operating and finance ROU assets, respectively. These charges 8 Table of Contents are reported in the Company's consolidated statement of operations. The impact of the impairments on the Company's property, plant, equipment for the nine months ended September 30, 2024 is discussed further in Note 4. Accumulated Other Comprehensive Loss Change in accumulated other comprehensive loss by component is listed below (in thousands): Foreign Currency Total Balance at December 31, 2023 $ ( 14,941 ) $ ( 14,941 ) Other comprehensive loss ( 2,259 ) ( 2,259 ) Balance at September 30, 2024 $ ( 17,200 ) $ ( 17,200 ) Recent Accounting Pronouncements In March 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2024-01, Compensation—Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards . The purpose of this update was to provide illustrative examples to demonstrate how an entity should apply guidance to determine whether profits interests and similar awards should be accounted for in accordance with Topic 718. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal periods. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. Management is evaluating the impact on the Company's consolidated financial statements. 9 Table of Contents 2. Government Capital Contracts In September 2021, the Company entered into an agreement for $ 109.0 million in funding from the U.S. Department of Defense (the "DOD"), in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for its InteliSwab ® COVID-19 Rapid Test as part of the nation’s pandemic preparedness plan. In accordance with the milestone payment schedule, 15 % of the total was not billed and funded until the completion of the final validation testing, which occurred in October 2023. The Company began receiving funds from the DOD in January 2022 and has received $ 109.0 million as of December 31, 2023. In connection with the completion of the contract in the fourth quarter of 2023, all funds were received. Activity for these capital contracts was accounted for pursuant to International Accounting Standards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance, as there is not direct US GAAP guidance for this type of transaction. Funding received in relation to capital-related costs incurred for government contracts was recorded as a reduction to the cost of property, plant and equipment and reflected within investing activities in the consolidated statements of cash flows; and associated unpaid liabilities and government proceeds receivable were considered non-cash changes in such balances within the operating section of the consolidated statements of cash flows. Amounts earned for the Company's guaranteed profit which covered project management costs were recognized straight-line in other income over the term of the government contract. The Company recognized no such income during the three and nine months ended September 30, 2024. The Company recognized $ 0.6 million and $ 1.7 million of such income during the three and nine months ended September 30, 2023, respectively. The DOD also reimbursed the Company for certain engineering consulting costs. These expenses are reflected in research and development expenses as incurred with the corresponding amount presented in other income. The Company recognized no such costs during the three and nine months ended September 30, 2024. The Company recognized $ 0.4 million and $ 2.0 million of such costs during the three and nine months ended September 30, 2023, respectively. The activity corresponding to the government contracts included in the Company's consolidated statements of cash flows for the cumulative period ended December 31, 2023 is as follows (in thousands): December 31, 2023 Cost of assets, cumulative $ 86,993 Reduction for funding received to date ( 86,993 ) Total property, plant and equipment, net $ — 10 Table of Contents 3. Inventories (in thousands) September 30, December 31, 2024 2023 Raw materials $ 19,948 $ 20,727 Work in process 1,435 1,900 Finished goods 17,487 24,987 $ 38,870 $ 47,614 4. Property, Plant and Equipment, net (in thousands) September 30, December 31, 2024 2023 Land $ 1,118 $ 1,118 Buildings and improvements 34,003 34,606 Machinery and equipment 58,618 64,156 Computer equipment and software 11,680 17,739 Furniture and fixtures 3,334 3,748 Construction in progress 8,952 9,196 117,705 130,563 Accumulated depreciation ( 79,562 ) ( 85,143 ) $ 38,143 $ 45,420 During the first quarter of 2024, the Company initiated a strategic plan to transition away from the microbiome molecular sequencing services business and to exit operations at its Belgium location. As a result of these decisions, the Company determined that the carrying values of all of Diversigen and Novosanis' property, plant, and equipment were not recoverable and recorded an aggregate pre-tax asset impairment charge of $ 1.8 million during the nine months ended September 30, 2024. During the second quarter of 2024, the Company determined a manufacturing line will no longer be utilized. As a result of this decision, the Company determined that the carrying value of the equipment was not recoverable and recorded an aggregate pre-tax impairment charge of $ 1.1 million during the nine months ended September 30, 2024. During the nine months ended September 30, 2023, the Company determined several manufacturing lines would no longer be utilized due to changes in forecasted demand for the products the equipment was intended to produce. Additionally, the Company elected not to proceed with certain leasehold improvements to its research and development laboratories. As a result of these decisions, the Company determined that the carrying values of the equipment and leasehold improvements made to date were not recoverable and recorded an aggregate pre-tax asset impairment charge of $ 1.3 million during the nine months ended September 30, 2023. Due to the extremely specialized nature of the property, plant, and equipment in each triggering event noted above and due to various market data points, the estimated fair value of all assets was determined to be zero. These charges are reported within loss on impairments in the consolidated statements of operations. 11 Table of Contents 5. Accrued Expenses and Other Current Liabilities (in thousands) September 30, December 31, 2024 2023 Payroll and related benefits $ 9,320 $ 14,654 Professional fees 1,264 2,827 Sales tax payable 1,228 1,245 Other 3,201 3,984 $ 15,013 $ 22,710 6. Termination Benefits 2023 Reduction in Workforce During the first and second quarters of 2023, the Company executed a reduction in workforce. This was accounted for pursuant to ASC 420, Exit or Disposal Cost Obligations . The charges for termination benefits included in the Company's consolidated statements of operations are as follows (in thousands): For the Nine Months Ended September 30, 2023 Cost of products and services sold $ 369 Research and development 566 Sales and marketing 1,542 General and administrative 787 $ 3,264 As of September 30, 2024 the Company has fully paid the $ 3.3 million related to the reduction in workforce. No additional expense associated with the 2023 reduction in workforce was incurred during the nine months ended September 30, 2024. This plan was completed as of June 30, 2024. Q1 2024 Reduction in Workforce During the first quarter of 2024, the Company executed a reduction in workforce largely affecting its COVID-19 manufacturing workforce. This was accounted for pursuant to ASC 420, Exit or Disposal Cost Obligations . The charges for termination benefits included in the Company's consolidated statements of operations are as follows (in thousands): For the Nine Months Ended September 30, 2024 Cost of products and services sold $ 231 Research and development 87 Sales and marketing 69 General and administrative 17 $ 404 As of September 30, 2024 the Company had $ 6.0 thousand accrued and had paid $ 0.4 million related to the reduction in workforce. No additional expense associated with the Q1 2024 reduction in workforce was incurred during the three months ended September 30, 2024. The Company expects this plan to be completed by December 31, 2024. 12 Table of Contents Q2 2024 Reduction in Workforce During the second quarter of 2024, the Company executed an additional reduction in workforce as the Company notified employees of its intention to consolidate its Novosanis site in Belgium into other locations by the end of December 31, 2024, discontinue the Diversigen molecular services line of business by the end of June 30, 2024, and consolidate facilities by bringing third-party manufacturing activities into its Pennsylvania facilities by the end of the third quarter of 2025. This was accounted for pursuant to ASC 420, Exit or Disposal Cost Obligations . The charges for termination benefits included in the Company's consolidated statements of operations are as follows (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2024 Cost of products and services sold $ — $ 889 Research and development — 478 Sales and marketing — 125 General and administrative — 160 $ — $ 1,652 As of September 30, 2024 the Company had $ 0.9 million accrued and had paid $ 0.7 million related to the reduction in workforce. No additional expense associated with the Q2 2024 reduction in workforce was incurred during the three months ended September 30, 2024 . The Company expects this plan to be completed by September 2025. Q3 2024 Reduction in Workforce During the third quarter of 2024, the Company executed a reduction in workforce largely as the Company notified certain employees of its intention to discontinue its risk assessment business. Additional employees were notified in the fourth quarter of 2024 and additional severance costs will be incurred. This was accounted for pursuant to ASC 420, Exit or Disposal Cost Obligations . The charges for termination benefits included in the Company's consolidated statements of operations are as follows (in thousands): For the Three Months Ended September 30, 2024 Cost of products and services sold $ 7 Research and development — Sales and marketing 346 General and administrative — $ 353 As of September 30, 2024 the Company had $ 0.3 million accrued and had paid $ 7.1 thousand related to the reduction in workforce. The Company expects this plan to be completed by January 2026. 13 Table of Contents 7. Revenues Revenues by product line . The following table represents total net revenues by product line (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 HIV $ 18,347 $ 16,650 $ 45,379 $ 46,518 COVID-19 (1) 2,155 50,199 44,222 216,115 Molecular Sample Management Solutions (2) 12,806 15,238 36,237 41,230 HCV 3,228 2,901 10,962 9,957 Risk assessment testing (3) 1,911 2,554 6,265 7,540 Other product and service revenues (4) 1,196 638 2,623 1,739 Molecular Services 9 834 1,692 3,567 Net product and services revenues 39,652 89,014 147,380 326,666 Non-product and services revenues (5) 263 173 1,002 2,925 Net revenues $ 39,915 $ 89,187 $ 148,382 $ 329,591 (1) Includes COVID-19 Diagnostics and COVID-19 Molecular revenues. (2) Includes Genomics, Microbiome and Novosanis product revenues. (3) Includes substance abuse testing products revenues. (4) Includes Syphilis revenues. (5) Includes funded research and development contracts, royalty income and grant revenues. Revenues by geographic area . The following table represents total net revenues by geographic area, based on the location of the customer (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 United States $ 25,353 $ 77,925 $ 115,055 $ 296,815 Europe 2,126 1,992 5,892 6,297 Other regions 12,436 9,270 27,435 26,479 $ 39,915 $ 89,187 $ 148,382 $ 329,591 Customer and Vendor Concentrations . The following table represents the concentration risk. For the Three Months Ended September 30, For the Nine Months Ended September 30, Revenue Concentration 2024 2023 2024 2023 Commercial customer (1) 11 % NA NA NA Commercial customer (1) 10 % NA NA NA Non-Commercial customer (2) NA 56 % 26 % 66 % September 30, December 31, Accounts Receivable 2024 2023 Commercial customer (1) 21 % NA Non-Commercial customer (2) NA 40 % (1) Each commercial customer is different. (2) Same non-commercial customer. 14 Table of Contents The Company currently purchases certain products and critical components of its products from sole-supply vendors. If these vendors are unable or unwilling to supply the required components and products, the Company could be subject to increased costs and substantial delays in the delivery of its products to its customers. Third-party suppliers also manufacture certain products. The Company's inability to have a timely supply of any of these components and products could have a material adverse effect on its business, as well as its financial condition and results of operations. Deferred Revenue . The Company records deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of September 30, 2024 and December 31, 2023 included customer prepayments of $ 1.6 million and $ 1.2 million, respectively. Deferred revenue as of December 31, 2023 also included $ 0.4 million associated with a long-term contract that had variable pricing based on volume. The average price over the life of the contract was determined and revenue was recognized at that average price. The $ 0.4 million associated with the long-term contract at December 31, 2023 met the criteria to be recognized as revenue during the nine months ended September 30, 2024, and as such there was no equivalent balance remaining in deferred revenue at September 30, 2024. Deferred revenue recognized for the three months ended September 30, 2024 and 2023, was $ 0.5 million and $ 0.4 million , respectively. Deferred revenue recognized for the nine months ended September 30, 2024 and 2023, was $ 3.3 million and $ 2.2 million, respectively. 15 Table of Contents 8. Income Taxes The components of income tax expense (benefit) are as follows (in thousands): For the Three Months Ended September 30, For the Nine Months Ended September 30, 2024 2023 2024 2023 State income tax expense (benefit) $ 18 $ 1,131 $ ( 209 ) $ 2,388 Foreign income tax expense (benefit) 660 1,216 1,250 ( 432 ) $ 678 $ 2,347 $ 1,041 $ 1,956 During the three months ended September 30, 2024 and 2023, the Company recorded income tax expense of $ 0.7 million and $ 2.3 million, respectively. The three months ended September 30, 2024 net tax expense decrease is due to having a U.S. pretax loss and foreign pretax income in 2024 compared to a U.S. and foreign pretax income for the three months ended September 30, 2023. During the nine months ended September 30, 2024 and 2023, the Company recorded income tax expense of $ 1.0 million and $ 2.0 million, respectively. Foreign pre-tax income increased during the nine months ended September 30, 2024 compared to a foreign pre-tax loss during the nine months ended September 30, 2023. In addition, there was lower state pre-tax income for nine months ended September 30, 2024 compared to 2023. Income tax expense reflects taxes due to the taxing authorities and the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting and tax purposes, and net operating loss and tax credit carryforwards. The significant components of the Company's total deferred tax liability as of September 30, 2024 and at December 31, 2023 relate to the tax effects of the basis difference arising from accelerated tax depreciation of fixed assets. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized. A full valuation allowance was recorded on the Company’s U.S. deferred tax assets as of September 30, 2024 and December 31, 2023. 9. Income (Loss) Per Share Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, unvested restricted stock or performance stock units, unless the impact is antidilutive. The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period. Basic and dilutive computations of net loss per share are the same in periods in which a net loss exists as the dilutive effects of excluded items would be anti-dilutive. For the three and nine months ended September 30, 2024, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 389 shares and 999 shares, respectively, were excluded from the computation of diluted loss per share. For the three and nine months ended September 30, 2023, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 2,027 and 2,048 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. 16 Table of Contents 10. Stockholders’ Equity Reconciliation of the changes in stockholders' equity for the three and nine months ended September 30, 2024 and 2023: Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shares Amount Balance at December 31, 2023 73,528 $ — $ 529,543 $ ( 14,941 ) $ ( 83,931 ) $ 430,671 Common stock issued upon exercise of options 32 — 214 — — 214 Vesting of restricted stock and performance stock units 593 — — — — — Purchase and retirement of common shares ( 194 ) — ( 1,462 ) — — ( 1,462 ) Stock-based compensation — — 2,968 — — 2,968 Net loss — — — — ( 3,584 ) ( 3,584 ) Currency translation adjustments — — — ( 2,556 ) — ( 2,556 ) Balance at March 31, 2024 73,959 $ — $ 531,263 $ ( 17,497 ) $ ( 87,515 ) $ 426,251 Vesting of restricted stock and performance stock units 1,033 — — — — — Purchase and retirement of common shares ( 424 ) — ( 1,984 ) — — ( 1,984 ) Stock-based compensation — — 3,322 — — 3,322 Net loss — — — — ( 615 ) ( 615 ) Currency translation adjustments — — — ( 1,134 ) — ( 1,134 ) Balance at June 30, 2024 74,568 $ — $ 532,601 $ ( 18,631 ) $ ( 88,130 ) $ 425,840 Vesting of restricted stock and performance stock units 44 — — — — — Purchase and retirement of common shares ( 19 ) — ( 87 ) — — ( 87 ) Stock-based compensation — — 2,888 — — 2,888 Net loss — — — — ( 4,507 ) ( 4,507 ) Currency translation adjustments — — — 1,431 — 1,431 Balance at September 30, 2024 74,593 $ — $ 535,402 $ ( 17,200 ) $ ( 92,637 ) $ 425,565 17 Table of Contents Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Shares Amount Balance at December 31, 2022 72,734 $ — $ 520,446 $ ( 18,435 ) $ ( 137,586 ) $ 364,425 Common stock issued upon exercise of options 12 — 66 — — 66 Vesting of restricted stock and performance stock units 737 — — — — — Purchase and retirement of common shares ( 229 ) — ( 1,203 ) — — ( 1,203 ) Stock-based compensation — — 2,655 — — 2,655 Net income — — — — 27,219 27,219 Currency translation adjustments — — — 797 — 797 Unrealized gain on marketable securities — — — 220 — 220 Balance at March 31, 2023 73,254 $ — $ 521,964 $ ( 17,418 ) $ ( 110,367 ) $ 394,179 Vesting of restricted stock and performance stock units 241 — — — — — Purchase and retirement of common shares ( 82 ) — ( 460 ) — — ( 460 ) Stock-based compensation — — 2,357 — — 2,357 Net loss — — — — ( 4,796 ) ( 4,796 ) Currency translation adjustments — — — 2,859 — 2,859 Balance at June 30, 2023 73,413 $ — $ 523,861 $ ( 14,559 ) $ ( 115,163 ) $ 394,139 Common stock issued upon exercise of options 2 — 10 — — 10 Vesting of restricted stock and performance stock units 99 — — — — — Purchase and retirement of common shares ( 31 ) — ( 200 ) — — ( 200 ) Stock-based compensation — 2,590 — — 2,590 Net income — — — — 11,159 11,159 Currency translation adjustments — — — ( 2,813 ) — ( 2,813 ) Balance at September 30, 2023 73,483 $ — $ 526,261 $ ( 17,372 ) $ ( 104,004 ) $ 404,885 18 Table of Contents 11. Commitments and Contingencies Litigation From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. In management’s opinion, the outcomes of such actions, either individually or in the aggregate, are not expected to have a material adverse effect on the Company's future financial position or results of operations. In March 2021, the Company filed a complaint against Spectrum Solutions, LLC ("Spectrum") in the United States District Court for the Southern District of California alleging that certain saliva collection devices manufactured and sold by Spectrum infringe a patent held by DNAG. Spectrum filed an answer asserting that its device does not infringe the Company's patent and that the Company's patent is invalid. In August 2021, the Company amended its complaint to add a second patent to this litigation. Spectrum responded to the Company's amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation and subsequently filed a request for review of the second patent at the Patent and Trademark Office ("PTO"), which was granted by the PTO. The District Court issued multiple pretrial orders, resolving the infringement, antitrust, and inequitable conduct claims without trial. First, the District Court granted Spectrum’s motion for summary judgment of noninfringement. The Company appealed the grant of summary judgment to the Court of Appeals on June 8, 2023. The Company is pursuing the appeal with respect to the first patent, with oral argument expected in the first quarter of 2025. Second, the Court denied Spectrum’s motion to supplement its allegations of alleged antitrust violations, finding that if such an amendment were allowed, Spectrum’s claims would not survive a motion for summary judgment. Spectrum thereafter withdrew its antitrust and inequitable conduct counterclaims. Spectrum did not appeal the District Court's denial of its motion to amend. On February 7, 2024, the PTO issued a Final Written Decision regarding the second patent in the litigation, holding that claims 1, 3-8, 11 and 12 of U.S. Patent No. 11,002,646 B2 are unpatentable. On March 8, 2024, the Company filed a Request for Rehearing by the Director of the PTO of the Final Written Decision. On March 27, 2024, the Company's Request for Rehearing was denied. On September 15, 2023, Spectrum filed a separate petition for inter partes review of a third patent, which DNAG did not assert in the District Court. On March 26, 2024, the PTO issued a Decision Granting Institution of Inter Partes Review and scheduled oral argument for January 13, 2025. On July 2, 2024, the Company filed a Motion to Amend the claims of the third patent, which remains pending. 19 Table of Contents