What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-08 · 118 added, 198 removed, 289 unchanged (52% of the section changed)

FINANCIAL STATEMENTS

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ORASURE TECHNOLOGIES, INC.

2 unchanged sentences

(in thousands, except per share amounts)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Current Assets:

14 unchanged sentences

Goodwill 35,172 35,696

Deferred tax asset 47 —

Investment in equity method investee 28,333 —

Other noncurrent assets 1,213 1,218

8 unchanged sentences

Operating lease liability 1,593 1,577

Acquisition-related contingent consideration obligation — 65

Total current liabilities 29,105 39,536

2 unchanged sentences

Operating lease liability 10,676 11,162

Acquisition-related contingent consideration obligation — 99

Other noncurrent liabilities 727 696

12 unchanged sentences

See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC.

2 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

For the Three Months Ended March 31,

NET REVENUES:

14 unchanged sentences

Income (loss) before income taxes ( 3,602 ) 26,994

INCOME TAX (BENEFIT) EXPENSE 2,347 ( 1,143 ) 1,956 1,624

INCOME TAX BENEFIT ( 18 ) ( 225 )

NET INCOME (LOSS) $ ( 3,584 ) $ 27,219

6 unchanged sentences

See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC.

2 unchanged sentences

(in thousands)

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

For the Three Months Ended March 31,

NET INCOME (LOSS) $ ( 3,584 ) $ 27,219

4 unchanged sentences

See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

For the Three Months Ended March 31,

OPERATING ACTIVITIES:

Net income (loss) $ ( 3,584 ) $ 27,219

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

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

Stock-based compensation 2,968 2,655

3 unchanged sentences

Provision for credit losses ( 85 ) ( 67 )

Unrealized foreign currency gain ( 66 ) ( 396 )

Unrealized foreign currency (gain) loss ( 119 ) 44

Interest expense on finance leases 7 15

Deferred income taxes 53 —

Loss on sale of fixed assets — 729

Change in the estimated fair value of acquisition-related contingent consideration — ( 24 )

7 unchanged sentences

Accrued expenses and other liabilities ( 9,688 ) ( 3,472 )

Net cash provided by (used in) operating activities 100,217 ( 29,190 )

Net cash provided by operating activities 6,738 6,002

INVESTING ACTIVITIES:

Purchases of short-term investments ( 25,850 ) ( 22,330 )

Purchase of equity method investee ( 28,333 ) —

Proceeds from maturities and redemptions of short-term investments 9,234 27,304

1 unchanged sentence

Purchase of property and equipment under government contracts — ( 2,767 )

Proceeds from funding under government contract 24,290 37,756

Net cash provided by (used in) investing activities ( 46,528 ) 1,016

13 unchanged sentences

Accrued property and equipment purchases $ 471 $ 733

Accrued property and equipment purchases under government contracts $ 2 $ 2,374

Unrealized gain on marketable securities $ — $ 167

See accompanying notes to the consolidated financial statements.

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ORASURE TECHNOLOGIES, INC.

11 unchanged sentences

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, 2023 are not necessarily indicative of the results of operations expected for the full year.

Results of operations for the three months ended March 31, 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.

See Note 11 for the discussion regarding the change in business segments.

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 and corporate bonds purchased with maturities greater than ninety days.

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 records an allowance for credit loss for its available-for-sale securities when a decline in investment market value is due to credit-related factors.

When evaluating an investment for impairment, the Company reviews 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.

The following is a summary of the Company's available-for-sale securities (in thousands):

Losses Fair Value

September 30, 2023

Guaranteed investment certificates $ 7,358 $ — $ — $ 7,358

Corporate bonds — — — —

Total $ 7,358 $ — $ — $ 7,358

December 31, 2022

March 31, 2024

Guaranteed investment certificates $ 16,627 $ — $ — $ 16,627

Corporate bonds 4,978 — ( 220 ) 4,758

Total $ 16,627 $ — $ — $ 16,627

At September 30, 2023, maturities of the Company's available-for-sale securities were as follows:

At March 31, 2024, maturities of the Company's available-for-sale securities were as follows:

Less than one year $ 16,627 $ — $ — $ 16,627

Greater than one year $ — $ — $ — $ —

The Company had no available-for-sale securities as of December 31, 2023.

Fair Value of Financial Instruments

As of September 30, 2023 and December 31, 2022, 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.

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As of March 31, 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:

2 unchanged sentences

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 available-for-sale corporate bonds are measured as Level 2 instruments and the Company's available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of September 30, 2023 and December 31, 2022.

Included in cash and cash equivalents at September 30, 2023 and December 31, 2022 was $ 37.1 million and $ 1.7 million, respectively, invested in money market funds.

These money market funds have investments in government securities and are measured as Level 1 instruments.

Included in cash and cash equivalents at September 30, 2023 was $ 14.7 million of guaranteed investment certificates which are also measured as Level 1 instruments.

All of the Company's guaranteed investment certificates are measured as Level 1 instruments as of March 31, 2024.

Included in cash and cash equivalents at March 31, 2024 and December 31, 2023 was $ 114.1 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.

Included in cash and cash equivalents at March 31, 2024 and December 31, 2023 was $ 53.6 million and $ 71.7 million, respectively, of guaranteed investment certificates, which are also measured as Level 1 instruments.

In January 2024, the Company lead the Series B financing and have entered 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 test and molecular sample management solutions to the Company's customers globally.

The Company has funded $ 28.3 million for an interest in Sapphiros, with an aggregate commitment of up to $ 30.0 million to be funded by June 2024, contingent on certain terms and conditions being met.

The Company has recorded the investment using the equity method in accordance with Accounting Standards Codification Topic 323, Investments-Equity Method and Joint Ventures - Overall.

The investment in Sapphiros L.P.

of $ 28.3 million as of March 31, 2024 is included in the equity method investee line of the Company's balance sheet and is measured as Level 3 investments.

There is no similar investment as of December 31, 2023.

The Company offers a nonqualified deferred compensation plan for certain eligible employees and members of its Board of Directors.

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The assets of the plan are held in mutual funds and company stock.

The fair value of the plan assets as of September 30, 2023 and December 31, 2022 was $ 0.6 million and $ 0.7 million, respectively, and was calculated using the quoted market prices of the assets as of those dates.

The fair value of the plan assets as of both March 31, 2024 and December 31, 2023 was $ 0.8 million 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.

Foreign Currency Translation .

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 $( 0.1 ) million and $ 2.3 million for the three months ended September 30, 2023 and 2022, respectively.

Net foreign exchange gains and (losses) resulting from foreign currency transactions for the nine months ended September 30, 2023 and 2022 were $( 0.7 ) million and $ 2.4 million, respectively.

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 $( 0.05 ) million for the three months ended March 31, 2024 and 2023, respectively.

Impairment of Long-Lived Assets

Long-lived assets, which include property, plant and equipment and definite-lived intangible assets, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

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.

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Expected future cash flows reflect the Company's assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time.

The Company identified a triggering event to test for the recoverability of intangible assets in the third quarter given the decline in the Company's market capitalization leading up to and as of its annual goodwill impairment testing date.

The Company performed an undiscounted cash flow analysis and determined the carrying value of the developed technology, trade names, and customer relationships intangible assets could not be recovered through the sum of the undiscounted future cash flows.

The Company used an income approach to determine the fair value of the developed technology and customer relationship intangible assets and the relief from royalty method for the trade names.

For the three months ended September 30, 2023, the Company determined the developed technology, trade names, and customer relationships intangible assets associated with Diversigen and Novosanis were impaired as the fair value of the intangible assets did not exceed their carrying value.

A full impairment loss of $ 6.2 million is recorded on the consolidated statement of operations for the three months ended September 30, 2023.

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There was no impairment of property, plant and equipment for the three months ended September 30, 2023 related to this triggering event.

See Note 4 for discussion of equipment impairments recorded in the first half of 2023.

Impairment of Goodwill .

During the second quarter of 2022, we determined that a triggering event occurred in relation to the depressed market price of the Company's common stock and corresponding significant decline in our market capitalization.

As a result, we performed an interim goodwill impairment test and concluded that the carrying value of our Diagnostics reporting unit exceeded its estimated fair value and the goodwill balance for that segment was fully impaired.

Thus, we recognized a pre-tax impairment charge of $ 3.6 million during the three months ended June 30, 2022, which is reported in loss on impairments in our condensed consolidated statement of operations.

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 during the three months ended March 31, 2024, 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 three months ended March 31, 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 are reported in the Company's consolidated statement of operations.

The impact of the impairments on the Company's property, plant, equipment for the three months ended March 31, 2024 is discussed further in Note 4.

Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss by component is listed below (in thousands):

Foreign Currency Marketable Securities Total

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 gain 843 220 1,063

Balance at September 30, 2023 $ ( 17,372 ) $ — $ ( 17,372 )

Immaterial Correction of Errors.

Inventories, accounts payable and cost of products and services were reduced by $ 0.5 million, $ 1.3 million and $ 0.8 million, respectively, as of and for the year ended December 31, 2022 to correct for the accounting of a vendor rebate earned in 2022.

The tax impact of the vendor rebate was negligible.

This correction was deemed to be immaterial to the consolidated financial statements as of and for the year ended December 31, 2022.

For the three and nine months ended September 30, 2022, cost of products and services sold was reduced by $ 0.3 million and $ 0.6 million, respectively.

The respective operating activities on the consolidated statement of cash flows for the nine months ended September 30, 2022 has also been adjusted.

Furthermore, stockholder's equity at September 30, 2022 has been adjusted to reflect the reduction in cost of products and services sold.

Reclassification .

Certain prior period amounts have been reclassified to conform to current year presentations.

For the three and nine months ended September 30, 2022, $ 0.3 million and $ 0.9 million of research and development expenses were reclassified to other income in relation to the U.S.

Department of Defense (the “DOD”) engineering consulting costs further described in Note 2.

This reclassification was made to conform to the presentation in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Change in Accounting Estimate.

During the three months ended June 30, 2023, the Company shortened the useful lives of machinery and equipment utilized for InteliSwab® production in Thailand.

This reduction in useful lives resulted in $ 6.9 million of accelerated depreciation during the three months ended June 30, 2023, recorded in cost of products and services sold.

Other comprehensive loss ( 2,556 ) ( 2,556 )

Balance at March 31, 2024 $ ( 17,497 ) $ ( 17,497 )

Recent Accounting Pronouncements

In March 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update ("ASU") No.

2024-01, Topic 718, Compensation-Stock Compensation .

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.

Government Capital Contracts

In September 2021, the Company entered into an agreement for $ 109.0 million in funding from 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 Tests as part of the nation’s pandemic preparedness plan.

Funding will be paid to the Company based on achievement of milestones through December 2023 for the design, acquisition, installation, qualification and acceptance of the manufacturing equipment, as set forth in the agreement.

In accordance with the milestone payment schedule, 15 % of the total will not be billed and funded until the completion of the final validation testing, which occurred in October 2023.

The Company began making payments to vendors for the capital project during the fourth quarter of 2021.

The Company began receiving funds from the DOD in January 2022 and has received $ 84.6 million, as of September 30, 2023.

The remaining $ 24.4 million was received in October 2023.

Activity for these capital contracts is accounted for pursuant to International Accounting Standards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance .

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 Tests 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 is 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 is 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 are considered non-cash changes in such balances within the operating section of the consolidated statements of cash flows.

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Amounts earned for the Company's guaranteed profit which covers project management costs are recognized straight-line in other income over the term of the government contract.

Any amount received in excess of the guaranteed profit discussed above will be recorded in other income at time of payment.

The Company recognized $ 0.6 million of such income, which is reported as other income in the Company's consolidated statement of operations for both the three months ended September 30, 2023 and 2022.

The Company recognized $ 1.7 million of such income, for both the nine months ended September 30, 2023 and 2022.

The DOD also reimburses the Company for certain engineering consulting costs.

These expenses are reflected in research and development as incurred with the corresponding reimbursement presented in other income.

For the three months ended September 30, 2023 and 2022, $ 0.4 million and $ 0.3 million, respectively, were recorded in research and development and other income.

For the nine months ended September 30, 2023 and 2022, $ 2.0 million and $ 0.9 million, respectively, were recorded in research and development and other income.

The balances corresponding to government contracts included in the Company's consolidated balance sheet are as follows (in thousands):

September 30, December 31,

Other current assets:

Billed receivables $ 4,365 $ —

Unbilled receivables 5,956 27,013

Total other current assets 10,321 27,013

Accrued expenses and other current liabilities $ — $ ( 318 )

The activity corresponding to the government contracts included in the Company's consolidated statements of cash flows is as follows (in thousands):

September 30, December 31,

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 months ended March 31, 2024 and $ 0.6 million during the three months ended March 31, 2023.

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.

recognized no such costs during the three months ended March 31, 2024 and $ 1.1 million during the three months ended March 31, 2023.

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):

Cost of assets, cumulative $ 86,993

Reduction for funding earned to date, not yet received ( 1,841 ) ( 22,497 )

Reduction for funding received to date ( 86,993 )

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Inventories (in thousands)

September 30, December 31,

March 31, December 31,

Raw materials $ 17,621 $ 20,727

2 unchanged sentences

$ 43,180 $ 47,614

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Property, Plant and Equipment, net (in thousands)

September 30, December 31,

March 31, December 31,

Land $ 1,118 $ 1,118

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$ 42,597 $ 45,420

During the nine months ended September 30, 2023, the Company determined several manufacturing lines will not be utilized due to changes in forecasted demand for the products the equipment is 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 are not recoverable and recorded aggregate pre-tax asset impairment charges of $ 1.3 million during the nine months ended September 30, 2023.

No property, plant and equipment impairment charges were recorded during the three months ended September 30, 2023.

During the three and nine months ended September 30, 2022, the Company determined several manufacturing lines and associated supporting assets would not be utilized due to changes in forecasted demand for the products the lines are intended to produce.

As a result of this decision, the Company determined that the carrying values of the equipment and supporting assets were not recoverable and recorded aggregate pre-tax asset impairment charges during the three and nine months ended September 30, 2022 of $ 6.6 million and $ 13.5 million, respectively.

During the three months ended March 31, 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 the property, plant, and equipment of its Diversigen and Novosanis subsidiaries were not recoverable and recorded an aggregate pre-tax asset impairment charge of $ 1.8 million during the three months ended March 31, 2024.

During the three months ended March 31, 2023, the Company determined several manufacturing lines will not be utilized due to changes in forecasted demand for the products the equipment is intended to produce.

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 asset impairment charge of $ 1.1 million during the three months ended March 31, 2023.

Due to the extremely specialized nature of the equipment and various market data points, the estimated fair value was zero.

These charges are reported within loss on impairments in the consolidated statement of operations.

These charges are reported within loss on impairments in the consolidated statements of operations.

Accrued Expenses and Other Current Liabilities (in thousands)

September 30, December 31,

March 31, December 31,

Payroll and related benefits $ 5,475 $ 14,654

4 unchanged sentences

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 Accounting Standards Codification ("ASC") 420, Exit or Disposal Cost Obligations .

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The expense included in the Company's consolidated statements of operations are as follows (in thousands):

Nine Months Ended

September 30, 2023

The charges for termination benefits included in the Company's consolidated statements of operations are as follows (in thousands):

For the Three Months Ended March 31,

Cost of products and services sold $ — $ 35

2 unchanged sentences

General and administrative — 586

Total $ 3,265

As of September 30, 2023 the Company had $ 0.9 million accrued and had paid $ 2.4 million related to the reduction in workforce.

No additional expense was incurred during the three months ended September 30, 2023.

As of March 31, 2024 the Company had $ 0.1 million accrued and had paid $ 3.2 million related to the reduction in workforce.

No additional expense was incurred during the three months ended March 31, 2024.

The Company expects this plan to be completed by September 30, 2024.

Q1 2024 Reduction in Workforce

During the three months ended March 31, 2024, the Company executed a reduction in workforce largely affect its COVID-19 manufacturing workforce.

This was accounted for pursuant to Accounting Standards Codification ("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 March 31,

Cost of products and services sold $ 231

Research and development 87

Sales and marketing 69

General and administrative 17

As of March 31, 2024 the Company had $0.3 million accrued and had paid $ 0.1 million related to the reduction in workforce.

The Company expects this plan to be completed by December 31, 2024.

Revenues by product line .

The following table represents total net revenues by product line (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

$ 23,128 $ 118,409

HIV 13,380 13,904

Molecular Products (2)

Molecular Sample Management Solutions (2)

10,822 12,942

5 unchanged sentences

Non-product and services revenues (4)

173 3,642 2,925 7,177

Net revenues $ 54,132 $ 154,963

1 unchanged sentence

(2) Includes Genomics, Microbiome and Novosanis product revenues.

(3) Includes substance abuse testing products.

(4) Non-product and services revenues include funded research and development contracts, royalty income and grant revenues.

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The following table represents total net revenues by geographic area, based on the location of the customer (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

United States $ 45,211 $ 145,019

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Customer and Vendor Concentrations .

At September 30, 2023, one non-commercial customer accounted for 52 % of the Company's consolidated accounts receivable.

At March 31, 2024, one non-commercial customer accounted for 29 % of the Company's consolidated accounts receivable.

The same non-commercial customer accounted for 40 % of the Company's consolidated accounts receivable as of December 31, 2023.

The same non-commercial customer also accounted for 56 % and 69 % of net consolidated revenues for the three months ended September 30, 2023 and 2022, respectively.

The same non-commercial customer also accounted for 66 % and 53 % of net consolidated revenues for the nine months ended September 30, 2023 and 2022, respectively.

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The same non-commercial customer also accounted for 40 % and 78 % of net consolidated revenues for the three months ended March 31, 2024 and 2023, respectively.

The Company currently purchases certain products and critical components of its products from sole-supply vendors.

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The Company records deferred revenue when funds are received prior to the recognition of the associated revenue.

Deferred revenue as of September 30, 2023 and December 31, 2022 included customer prepayments of $ 1.4 million and $ 1.5 million, respectively.

Deferred revenue as of September 30, 2023 and December 31, 2022 also included $ 0.4 million and $ 0.7 million, respectively, associated with a long-term contract that has variable pricing based on volume.

Deferred revenue as of March 31, 2024 and December 31, 2023 included customer prepayments of $ 1.3 million and $ 1.2 million, respectively.

Deferred revenue as of March 31, 2024 and December 31, 2023 also included $ 0.3 million and $ 0.4 million, respectively, associated with a long-term contract that has variable pricing based on volume.

The average price over the life of the contract was determined and revenue is recognized at that average price.

The components of income tax expense (benefits) are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Deferred revenue recognized for the three months ended March 31, 2024, and 2023, was $ 0.7 million and $ 0.9 million , respectively.

The components of income tax expense (benefit) are as follows (in thousands):

Three Months Ended March 31,

State income tax expense (benefit) $ ( 230 ) $ ( 225 )

2 unchanged sentences

$ ( 18 ) $ ( 225 )

Income taxes for the nine months ended September 30, 2022 includes $ 1.7 million of Canadian withholding tax on the repatriation of $ 65.0 million of unremitted earnings from Canada to the United States.

The increase in income tax expense for three months ended September 30, 2023 is due to an increase in the income before taxes for both the U.S.

and Canadian entities.

During the three months ended March 31, 2024 and 2023, the Company recorded an income tax benefit of $ 0.0 million and $ 0.2 million, respectively.

The income tax benefit for the three months ended March 31, 2024 and 2023 is primarily composed of a U.S.

state tax benefit.

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 asset as of September 30, 2023 relate to foreign net operating losses.

The significant components of the Company's total deferred tax liability at December 31, 2022 relate to the tax effects of the basis difference between the intangible assets acquired in its acquisitions for financial reporting and for tax purposes along with basis differences arising from accelerated tax depreciation of fixed assets.

The significant components of the Company's total deferred tax liability as of March 31, 2024 and at December 31, 2023 relate to the tax effects of the basis difference between the intangible assets acquired in its acquisitions for financial reporting and for tax purposes along with basis differences 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, 2023 and December 31, 2022.

deferred tax assets as of March 31, 2024 and December 31, 2023.

Income (Loss) Per Share

3 unchanged sentences

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, 2023 outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 2,027 shares and 2,048 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, 2022 outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 1,734 shares, were excluded from the computation of diluted loss per share as their inclusion would have been

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anti-dilutive.

For the nine months ended September 30, 2022, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing, 383 were excluded from the computation of diluted loss per share.

For the three months ended March 31, 2024, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 1,697 shares, were excluded from the computation of diluted loss per share.

For the three months ended March 31, 2023 outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 2,237 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

Stockholders’ Equity

Reconciliation of the changes in stockholder's equity for the three and nine months ended September 30, 2023 and 2022 (in thousands):

Reconciliation of the changes in stockholders' equity for three months ended March 31, 2024 and 2023 :

Common Stock Additional

9 unchanged sentences

Stock-based compensation — — 2,968 — — 2,968

Net income — — — — 27,219 27,219

Net loss — — — — ( 3,584 ) ( 3,584 )

Currency translation adjustments — — — ( 2,556 ) — ( 2,556 )

1 unchanged sentence

Balance at March 31, 2024 73,959 $ — $ 531,263 $ ( 17,497 ) $ ( 87,515 ) $ 426,251

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

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Common Stock Additional

9 unchanged sentences

Stock-based compensation — — 2,655 — — 2,655

Net loss — — — — ( 19,940 ) ( 19,940 )

Currency translation adjustments — — — 1,756 — 1,756

Unrealized gain on marketable securities — — — 74 — 74

Balance at March 31, 2022 72,307 $ — $ 513,553 $ ( 8,247 ) $ ( 140,393 ) $ 364,913

Vesting of restricted stock and performance stock units 407 — — — — —

Purchase and retirement of common shares ( 142 ) — ( 905 ) — — ( 905 )

Stock-based compensation — — 3,280 — — 3,280

Net loss — — — — ( 18,589 ) ( 18,589 )

Currency translation adjustments — — — ( 4,349 ) — ( 4,349 )

Unrealized gain on marketable securities — — — 82 — 82

Balance at June 30, 2022 72,572 $ — $ 515,928 $ ( 12,514 ) $ ( 158,982 ) $ 344,432

Vesting of restricted stock and performance stock units 66 — — — — —

Purchase and retirement of common shares ( 19 ) — ( 54 ) — — ( 54 )

Stock-based compensation — — 2,296 — — 2,296

Net income — — — — 27,219 27,219

1 unchanged sentence

Unrealized gain on marketable securities — — — 220 — 220

Balance at September 30, 2022 72,619 $ — $ 518,170 $ ( 22,331 ) $ ( 153,387 ) $ 342,452

Business Segments

The Company is organized on the basis of products and services under a new organizational structure.

All products and services reside under the same reporting hierarchy.

Historically there was separate management leading the Company's Diagnostics and Molecular Solutions businesses.

In February 2023, the Company announced a corporate restructuring to combine the commercial and innovation teams across the Diagnostics and Molecular Solutions segments into one operating segment with sales, marketing, product development and research teams covering all product lines and reporting to a Chief Product Officer.

Resources are allocated and performance is assessed on a consolidated basis by the Company's Chief Executive Officer, whom the Company has determined to be its Chief Operating Decision Maker ("CODM").

The CODM reviews the business based on individual product success.

Therefore, the Company's historical reportable segments, Diagnostics and Molecular Solutions are now considered one reportable segment and there will no longer be a distinction between Diagnostics and Molecular Solutions, only the Company holistically.

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Balance at March 31, 2023 73,254 $ — $ 521,964 $ ( 17,418 ) $ ( 110,367 ) $ 394,179

Commitments and Contingencies

7 unchanged sentences

First, the District Court granted Spectrum’s motion for summary judgment of noninfringement, holding that Spectrum’s saliva collection devices are not “kits for collecting and preserving a biological sample,” among other rulings.

The Company has appealed the grant of summary judgment to the Court of Appeal on June 8, 2023.

Second, the District Court denied Spectrum’s motion to amend 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.

The Company appealed the grant of summary judgment to the Court of Appeals on June 8, 2023.

The appeal is pending, with oral argument expected in the second half of 2024.

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.

Both parties have filed motions seeking sanctions in the District Court.

Those motions remain pending.

DNAG filed its opening appellate brief on September 28, 2023.

Spectrum’s responsive appellate brief is due December 22, 2023.

Oral argument in the appeal has not been scheduled.

An inter partes review is currently pending before the PTO regarding the second asserted patent.

Oral argument in the inter partes review is currently scheduled for November 14, 2023.

On September 15, 2023, Spectrum filed a petition for inter partes review of a third patent, which DNAG did not assert in the District Court.

An optional preliminary patent owner response is due in December 2023.

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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.

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.

The Company is considering its appellate options.

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 14, 2025.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements