ORASURE TECHNOLOGIES INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with (i) the Company's unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) the Company's audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission on March 7, 2025. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to the Company's plans and strategy for its business and impact and potential impacts on its business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including, without limitation, those factors set forth in the “Risk Factors” section of the Company's Annual Report on Form 10-K for the year ended December 31, 2024 and the “Risk Factors” section of subsequent Quarterly Reports on Form 10-Q, the Company's actual results or timing of certain events could differ materially from the results or timing described in, or implied by, these forward-looking statements. Business Overview The Company's business consists of the development, manufacture, marketing and sale of simple, easy to use diagnostic products and specimen collection devices using the Company's proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types. These products include tests for diseases including HIV, Hepatitis C, Syphilis, and COVID-19 that are performed on a rapid basis at the point of care. These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, and other public health organizations, distributors, government agencies, physicians’ offices, and commercial and industrial entities. The Company's HIV and COVID-19 products are also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S. and, in the case of the HIV product, as a self-test to individuals in a number of other countries, including as an oral swab in-home test for HIV-1 and HIV-2 in Europe. The Company's business also includes sample management solutions and services that are used by clinical laboratories, direct-to-consumer laboratories, researchers, pharmaceutical companies, and animal health service and product providers. The revenues from sample management solutions are derived from product sales to commercial customers and sales into the academic and research markets. Customers span the disease risk management, diagnostics, pharmaceutical, biotech, companion animal and environmental markets. The Company has also developed collection devices for the emerging microbiome market, which focuses on studying microbiomes and their effect on human and animal health. The Company also has a urine collection device which allows for the volumetric collection of first void urine. This product is in its early stages, and initial sales are occurring primarily through distributors and collaborations in the liquid biopsy and sexually transmitted disease markets. Recent Developments Risk Assessment Testing In the third quarter of 2024, the Company announced the discontinuance of sales of its risk assessment product line which was expected to be completed in the second quarter of 2025. Sales of its risk assessment products contributed $1.4 million and $2.1 million to revenues during the three months ended March 31, 2025 and 2024, respectively. During the first quarter of 2025, the Company sold certain assets that made up the risk assessment product line including certain intellectual property, contracts, permits, and equipment. 23 Table of Contents Results of Operations For the three months ended March 31, 2025 compared to March 31, 2024. CONSOLIDATED NET REVENUES The table below shows total consolidated net revenues (dollars in thousands) for the three months ended March 31, 2025 and 2024: For the Three Months Ended March 31, Dollars % Change Percentage of Total Net Revenues 2025 2024 2025 2024 Diagnostics (1) $ 17,689 $ 16,380 8 % 59 % 30 % Sample Management Solutions (2) 9,110 10,822 (16) 30 20 Risk Assessment Testing (3) 1,420 2,080 (32) 5 3 COVID-19 Diagnostics 457 23,097 (98) 2 43 Other products and services (4) 321 527 (39) 1 1 Molecular Services — 873 (100) — 2 Net product and services revenues 28,997 53,779 (46) 97 99 Non-product and services revenues (5) 934 353 165 3 1 Net revenues $ 29,931 $ 54,132 (45) % 100 % 100 % (1) Includes HIV, HCV and Syphilis product revenues. (2) Includes Genomics, Microbiome and Colli-Pee product revenues. (3) Includes substance abuse testing product revenues. (4) Includes COVID-19 Sample Management Solutions product revenues. (5) Includes funded research and development contracts, royalty income and grant revenues. Product and Services Revenues Consolidated net revenues decreased 45% to $29.9 million for the three months ended March 31, 2025 from $54.1 million for the three months ended March 31, 2024. Sales of the Company's Diagnostics products increased 8% to $17.7 million for the three months ended March 31, 2025 from $16.4 million for the three months ended March 31, 2024. This increase in revenues is largely due to higher international HIV and HCV revenues of approximately $1.2 million primarily driven by customer ordering patterns. Sales of a syphilis product, which were first sold in the second quarter of 2024 are also partially responsible for the increase. This increase in revenues was offset by decrease in revenues under the CDC "Together Take me Home," HIV self-test program. Sample Management Solutions revenues decreased 16% to $9.1 million for the three months ended March 31, 2025 from $10.8 million for the three months ended March 31, 2024. Sales of the Company's genomics products are being impacted by customer bankruptcy and economic pressures. Risk assessment revenue decreased 32% to $1.4 million for the three months ended March 31, 2025 from $2.1 million for the three months ended March 31, 2024. The Company discontinued this line of business at the end of 2024 and business is winding down in early 2025. COVID-19 Diagnostics revenues decreased 98% to $0.5 million for the three months ended March 31, 2025 compared to $23.1 million for the three months ended March 31, 2024 due to decreased sales of the Company's InteliSwab ® tests through its U.S. government procurement contracts. We expect this decline in revenue to continue throughout the remainder of 2025 and for the foreseeable future due to the fulfillment of these contracts and lower overall demand for COVID-19 testing. Molecular Services revenues, which are derived from the Company's microbiome molecular sequencing services, were zero during the three months ended March 31, 2025 compared to $0.9 million during the three months ended March 31, 2024. The decrease in services revenues was due to the Company's decision to exit this line of business in 2024. 24 Table of Contents Non-Product and Services Revenues Non-product and services revenues increased 165% to $0.9 million for the three months ended March 31, 2025 from $0.4 million for the three months ended March 31, 2024 primarily due to the recognition of revenue under funded R&D contracts that were assumed by the Company as a result of the Sherlock acquisition at the end of 2024. CONSOLIDATED OPERATING RESULTS Consolidated gross profit margin decreased to 41.1% for the three months ended March 31, 2025 from 44.5% for the three months ended March 31, 2024. The largest driver of the margin decline was driven by product mix of lower volume InteliSwab® sales that generate higher gross margins. Gross margin was also negatively impacted by the decrease in genomics sales that also generate higher gross margin coupled with increased international product sales which generate lower margins. This negative impact to gross margin was offset by improved overhead absorption and the termination of the microbiome molecular sequencing services business which historically dragged down the gross margin rate. Consolidated operating loss for the three months ended March 31, 2025 was $17.8 million, a $10.7 million decline from the operating loss reported for the three months ended March 31, 2024. The increase in the operating loss reported in the first quarter of 2025 was largely a result of the lower revenues and lower gross margins generated on sales of the Company's products during the three months ended March 31, 2025. Research and development expenses increased 24% to $9.6 million for the three months ended March 31, 2025 from $7.7 million for the three months ended March 31, 2024 largely due the additional R&D spend incurred by the newly acquired Sherlock companies. Sales and marketing expenses decreased 19% to $6.9 million for the three months ended March 31, 2025 from $8.4 million for the three months ended March 31, 2024 due to lower spend on consulting fees and lower employee costs associated with a decrease in headcount. General and administrative expenses increased 21% to $14.1 million for the three months ended March 31, 2025 from $11.6 million for the three months ended March 31, 2024 largely due an increase in legal fees and the additional general and administrative costs associated with the newly acquired Sherlock companies. As discussed above in Recent Developments, the Company sold certain assets, including certain intellectual property, contracts, permits and equipment during the first quarter of 2025 related to it risk assessment product line. The Company recorded a $0.75 million gain on the sales of those assets in addition to the sale of other assets for an approximately $0.2 million gain. During the first quarter of 2025, the Company recorded a non-cash adjustment of $0.5 million, reflecting the change in the estimated fair value of the Sherlock acquisition-related contingent consideration. The Sherlock acquisition was completed in December 2024 and there is no comparable amount in the first quarter of 2024. All of the above contributed to the Company's operating loss of $17.8 million for the three months ended March 31, 2025, which included non-cash charges of $2.8 million for depreciation and amortization, and non-cash charges of $2.7 million for stock-based compensation. The Company's operating loss of $7.1 million for the three months ended March 31, 2024 included a non-cash impairment charge of $3.3 million, non-cash charges of $2.7 million for depreciation and amortization, and $3.0 million for stock-based compensation. OTHER INCOME Other income for the three months ended March 31, 2025 was $1.8 million compared to $3.5 million for the three months ended March 31, 2024 due to lower interest income and foreign currency gains. CONSOLIDATED INCOME TAXES The Company continues to believe the full valuation allowance established against its total U.S. deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed. For the three months ended March 31, 2025 and 2024, the Company recorded an income tax benefit of $0.5 million and $0.02 million, respectively. The increase in the income tax benefit is largely due to a higher foreign income tax benefit as a result of higher projected foreign losses. 25 Table of Contents Liquidity and Capital Resources March 31, 2025 December 31, 2024 (in thousands) Cash and cash equivalents $ 247,569 $ 267,763 Working capital 288,359 299,737 The Company's cash and cash equivalents decreased to $247.6 million at March 31, 2025 from $267.8 million at December 31, 2024. The Company's Canadian subsidiary, DNAG, held $82.5 million or 33% of the $247.6 million in cash and cash equivalents. The Company's working capital decreased to $288.4 million at March 31, 2025 from $299.7 million at December 31, 2024. Analysis of the Company's Cash Flows Operating Activities During the three months ended March 31, 2025, net cash used in operating activities was $19.7 million. Cash flows from operations can be significantly impacted by factors such as timing of receipt from customers, inventory purchases, and payments to vendors. The Company's net loss of $16.0 million included non-cash charges of depreciation and amortization expense of $2.8 million, stock-based compensation expense of $2.7 million, and other non-cash income of $0.3 million mostly consisting of a gain on the sale of assets offset by the non-cash adjustment to the contingent consideration liabilities. Cash used by the working capital accounts included an increase in inventory of $1.5 million due to the lower revenues and reduced shipments, an increase in prepaid expense and other current assets of $2.1 million due to foreign tax installment payments, and a decrease in accrued expenses of $6.6 million as the Company paid out year-end bonuses in March 2025. Cash provided by the working capital accounts included an decrease in accounts receivable of $2.4 million largely associated with lower overall sales and collections of balances due. Investing Activities Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2025, which was due to proceeds from sale of property and equipment offset by the acquisition of new property and equipment. Financing Activities Net cash used in financing activities was $1.0 million for the three months ended March 31, 2025, which was largely comprised of $0.9 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to the Company's employees. Resources The Company expects existing cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements over the next twelve months. The Company's cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the scope and timing of future strategic acquisitions, the progress of its research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures, changes in existing and potential relationships with business partners, the timing and cost of obtaining regulatory approvals, the timing and cost of future stock purchases, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, market acceptance of new products, competing technological and market developments, the impact of the current economic environment and other factors. A summary of the Company's obligations to make future payments under contracts existing at December 31, 2024 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of its Annual Report on Form 10-K for the year ended December 31, 2024. As of March 31, 2025, there were no significant changes to this information. 26 Table of Contents Critical Accounting Policies and Estimates A more detailed review of the Company's critical accounting policies is contained in its Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC. No material changes have been made to such critical accounting policies during the three months ended March 31, 2025. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation set forth in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," in its Annual Report on Form 10-K for the year ended December 31, 2024.