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 completed in the second quarter of 2025. Sales of its risk assessment products contributed $0.4 million and $2.3 million to revenues during the three months ended June 30, 2025 and 2024, respectively. Sales of its risk assessment products contributed $1.9 million and $4.4 million to revenues during the six months ended June 30, 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. 25 Table of Contents Results of Operations For the three months ended June 30, 2025 compared to June 30, 2024. CONSOLIDATED NET REVENUES The table below shows total consolidated net revenues (dollars in thousands) for the three months ended June 30, 2025 and 2024: For the Three Months Ended June 30, Dollars % Change Percentage of Total Net Revenues 2025 2024 2025 2024 Diagnostics (1) $ 19,222 $ 18,746 3 % 62 % 35 % Sample Management Solutions (2) 9,855 12,609 (22) 32 23 Risk Assessment Testing (3) 446 2,308 (81) 1 3 Other products and services (4) 296 542 (45) 1 1 COVID-19 Diagnostics 28 18,934 (100) — 35 Molecular Services — 810 (100) — 1 Net product and services revenues 29,847 53,949 (45) 96 98 Non-product and services revenues (5) 1,395 386 261 4 2 Net revenues $ 31,242 $ 54,335 (43) % 100 % 100 % (1) Includes HIV, HCV, Syphilis, and SureQuick ® 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 43% to $31.2 million for the three months ended June 30, 2025 from $54.3 million for the three months ended June 30, 2024. Sales of the Company's Diagnostics products increased 3% to $19.2 million for the three months ended June 30, 2025 from $18.7 million for the three months ended June 30, 2024. This increase in revenues is largely due to higher international HIV revenues of approximately $1.3 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 partially offset by decrease in domestic revenues of the Company's HIV product and a decline in international HCV revenues. Sample Management Solutions revenues decreased 22% to $9.9 million for the three months ended June 30, 2025 from $12.6 million for the three months ended June 30, 2024. Sales of the Company's genomics products are being impacted by a large customer's bankruptcy proceedings. Risk assessment revenue decreased 81% to $0.4 million for the three months ended June 30, 2025 from $2.3 million for the three months ended June 30, 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 100% to $0.03 million for the three months ended June 30, 2025 compared to $18.9 million for the three months ended June 30, 2024 due to decreased sales of the Company's InteliSwab ® tests through its U.S. government procurement contracts. We expect this level of 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 June 30, 2025 compared to $0.8 million during the three months ended June 30, 2024. The decrease in services revenues was due to the Company's decision to exit this line of business in 2024. 26 Table of Contents Non-Product and Services Revenues Non-product and services revenues increased 261% to $1.4 million for the three months ended June 30, 2025 from $0.4 million for the three months ended June 30, 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 42.1% for the three months ended June 30, 2025 from 45.4% for the three months ended June 30, 2024. The largest driver of the margin decline was a negative product mix driven by lower InteliSwab® sales that generate higher gross margins, lower genomics sales that also generate higher gross margins, and higher international product sales which generate lower margins. The termination of the microbiome molecular sequencing services business which historically dragged down the gross margin rate helped to improve the gross margin rate during the quarter. Higher scrap expense also contributed to the lower margins in the quarter but was partially offset by improved overhead absorption as the Company brings more production in-house to its Opus Way facility. Consolidated operating loss for the three months ended June 30, 2025 was $18.0 million, a $15.3 million increase from the operating loss reported for the three months ended June 30, 2024. The increase in the operating loss reported in the second 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 June 30, 2025 coupled with the increase spend on clinical trials. Results for the three months ended June 30, 2025 included change in the estimated fair value of acquisition-related contingent consideration of $0.7 million. Research and development expenses increased 73% to $11.4 million for the three months ended June 30, 2025 from $6.6 million for the three months ended June 30, 2024 largely due to higher spend incurred for clinical trials associated with the Chlamydia Trachomatis (CT) and Neisseria Gonorrhoeae (NG) device and additional R&D expense layered in from the newly acquired Sherlock companies. Sales and marketing expenses decreased 20% to $6.4 million for the three months ended June 30, 2025 from $7.9 million for the three months ended June 30, 2024 due to decreased bad debt expense, lower employee costs associated with a decrease in headcount and a decrease in consulting costs. General and administrative expenses increased 7% to $12.7 million for the three months ended June 30, 2025 from $11.8 million for the three months ended June 30, 2024 largely due an increase in legal fees and severance expense associated with an executive's departure. During the three months ended June 30, 2025, the Company recorded a non-cash adjustment of $0.7 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 $18.0 million for the three months ended June 30, 2025, which included non-cash charges of $3.2 million for stock-based compensation, $2.5 million for depreciation and amortization, and $0.7 million of change in the estimated fair value of acquisition-related contingent consideration. The Company's operating loss of $2.7 million for the three months ended June 30, 2024 included a non-cash impairment charge of $1.1 million, non-cash charges of $2.6 million for depreciation and amortization, and $3.3 million for stock-based compensation. OTHER INCOME Other income for the three months ended June 30, 2025 was $1.1 million compared to $3.1 million for the three months ended June 30, 2024 due to lower interest income and higher foreign currency losses. 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 June 30, 2025 and 2024, the Company recorded income tax expense of $2.0 million and $0.4 million, respectively. The increase in the income tax expense is largely due to recording an uncertain tax position for certain tax matters, including penalties and interest. 27 Table of Contents Results of Operations For the six months ended June 30, 2025 compared to June 30, 2024. CONSOLIDATED NET REVENUES The table below shows an outline of total consolidated net revenues (dollars in thousands) for the six months ended June 30, 2025 and 2024: For the Six Months Ended June 30, Dollars % Change Percentage of Total Net Revenues 2025 2024 2025 2024 Diagnostics (1) $ 36,911 $ 35,139 5 % 60 % 32 % Sample Management Solutions (2) 18,965 23,431 (19) 31 22 Risk Assessment Testing (3) 1,866 4,352 (57) 3 4 Other products and services (4) 617 1,092 (43) 1 1 COVID-19 Diagnostics 485 42,031 (99) 1 39 Molecular Services — 1,683 (100) — 2 Net product and services revenues 58,844 107,728 (45) 96 99 Non-product and services revenues (5) 2,329 739 215 4 1 Net revenues $ 61,173 $ 108,467 (44) % 100 % 100 % (1) Includes HIV, HCV, Syphilis, and SureQuick ® 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 product and services revenues decreased 45% to $58.8 million for the six months ended June 30, 2025 from $107.7 million for the six months ended June 30, 2024. Sales of the Company's Diagnostics products increased 5% to $36.9 million for the six months ended June 30, 2025 from $35.1 million for the six months ended June 30, 2024. This increase in revenue was primarily driven by higher HIV and HCV revenues in international markets of $1.9 million as a result of customer ordering patterns. Also contributing to the diagnostic revenue increase is a combined increase in HCV domestic and Syphilis revenues of $0.9 million. A decline in our HIV domestic revenue resulting from funding delays or reductions in funding for HIV products and customer order patterns partially offset the increased revenues from the other product lines. Sample Management Solutions revenues decreased 19% to $19.0 million for the six months ended June 30, 2025 from $23.4 million for the six months ended June 30, 2024. Sales of the Company's Sample Management Solutions Products are being impacted by customer bankruptcy and economic pressures. Risk assessment revenues decreased 57% to $1.9 million for the six months ended June 30, 2025, compared to $4.4 million for the six months ended June 30, 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 99% to $0.5 million for the six months ended June 30, 2025 compared to $42.0 million for the six months ended June 30, 2024 due to decreased sales of the Company's InteliSwab® tests through its U.S. government procurement contracts. We expect this level of revenue to continue for 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 were largely derived from the Company's laboratory services, were zero for six months ended June 30, 2025 compared to $1.7 million for the six months ended June 30, 2024. The decrease in service revenues was due to the Company's decision to exit this line of business in 2024. 28 Table of Contents Non-Product and Services Revenues Non-product and services revenues increased 215% to $2.3 million for the six months ended June 30, 2025 from $0.7 million for the six months ended June 30, 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 of 2024. The increase is also due to funded R&D contracts with BARDA which did not commence until after the first half of 2024. CONSOLIDATED OPERATING RESULTS Consolidated gross profit margin decreased to 41.6% for the six months ended June 30, 2025 from 44.9% for the six months ended June 30, 2024. The largest driver of the margin decline was a negative product mix driven by lower InteliSwab® sales that generate higher gross margins, lower genomics sales that also generate higher gross margins, and higher international product sales which generate lower margins. The termination of the microbiome molecular sequencing services business which historically dragged down the gross margin rate helped to improve the gross margin rate during the period along with the higher non-product revenues which contribute 100% to gross margin. Lastly, improved overhead absorption helped to offset the negative impact to margins as the Company brings more production in-house to its Opus Way facility. Consolidated operating loss for the six months ended June 30, 2025 was $35.8 million, compared to $9.8 million operating loss reported for the six months ended June 30, 2024. Results for the six months ended June 30, 2025 were negatively impacted by the decrease in revenues and lower gross margins generated on sales of the Company's products coupled with higher clinical trial spend. Results for the six months ended June 30, 2025 included change in the estimated fair value of acquisition-related contingent consideration of $1.2 million offset by gain on sale of assets of $1.0 million. Research and development expenses increased 47% to $21.0 million for the six months ended June 30, 2025 from $14.3 million for the six months ended June 30, 2024, largely due to higher spend incurred for clinical trials for the Chlamydia Trachomatis (CT) and Neisseria Gonorrhoeae (NG) device and additional R&D expense layered in from the newly acquired Sherlock companies. Sales and marketing expenses decreased 19% to $13.2 million for the six months ended June 30, 2025 from $16.4 million for the six months ended June 30, 2024 primarily due to decreased employee costs associated with the reduction in headcount, lower consulting spend, and a decrease in bad debt expense. General and administrative expenses increased 14% to $26.8 million for the six months ended June 30, 2025 from $23.5 million for the six months ended June 30, 2024 largely due an increase in legal and accounting fees and the additional general and administrative costs associated with the newly acquired Sherlock companies. All of the above contributed to the Company's operating loss of $35.8 million for the six months ended June 30, 2025, which included non-cash charges $5.9 million for stock-based compensation, $5.3 million for depreciation and amortization, and $1.2 million for change in the estimated fair value of acquisition-related contingent consideration. The Company's operating loss of $9.8 million for the six months ended June 30, 2024 included a non-cash impairment charge of $4.4 million, non-cash charges of $6.3 million for stock-based compensation and non-cash charges of $5.3 million for depreciation and amortization. OTHER INCOME Other income for the six months ended June 30, 2025 was $2.9 million compared to $6.6 million for the six months ended June 30, 2024. This decrease is largely due to lower interest income and higher foreign currency losses. 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 six months ended June 30, 2025 and 2024, the Company recorded income expense of $1.5 million and $0.4 million, respectively. The increase in the income tax expense is largely due to recording an uncertain tax position for certain tax matters, including penalties and interest. 29 Table of Contents Liquidity and Capital Resources June 30, 2025 December 31, 2024 (in thousands) Cash and cash equivalents $ 234,578 $ 267,763 Working capital 259,088 299,737 The Company's cash and cash equivalents decreased to $234.6 million at June 30, 2025 from $267.8 million at December 31, 2024. The Company's Canadian subsidiary, DNAG, held $85.1 million or 36% of the $234.6 million in cash and cash equivalents. The Company's working capital decreased to $259.1 million at June 30, 2025 from $299.7 million at December 31, 2024. Analysis of the Company's Cash Flows Operating Activities During the six months ended June 30, 2025, net cash used in operating activities was $30.0 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 $35.7 million included non-cash charges of stock-based compensation expense of $5.9 million and depreciation and amortization expense of $5.3 million, and other net non-cash losses of $1.0 million mostly consisting of the non-cash adjustment to the contingent consideration liabilities and the loss on equity investment. Cash used by the working capital accounts included a decrease in accrued expenses of $3.1 million largely consisting of the payment of year-end bonuses in March 2025, an increase in accounts receivable of $1.6 million largely due to timing of shipments at the end of the quarter, and a decrease in accounts payable of $1.5 million. Cash provided by working capital accounts included a decrease in inventory of $1.0 million due to the lower revenues. Investing Activities Net cash used in investing activities was $1.6 million for the six months ended June 30, 2025, associated with 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 $6.8 million for the six months ended June 30, 2025, which was largely comprised of $5.0 million of repurchase of common stock and $1.7 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 June 30, 2025, there were no significant changes to this information. 30 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 six months ended June 30, 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.