osur-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024.


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to _________ .

Commission File Number 001-16537

______________________________________

ORASURE TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

______________________________________


Delaware			36-4370966
(State or Other Jurisdiction of Incorporation or Organization)			(IRS Employer Identification No.)


220 East First Street, Bethlehem, Pennsylvania			18015
(Address of Principal Executive Offices)			(Zip code)

Registrant’s telephone number, including area code: (610) 882-1820

______________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, $0.000001 par value per share

OSUR

The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 31, 2024, the registrant had 74,594,154 shares of common stock, $0.000001 par value per share, outstanding.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Federal securities laws. These may include statements about the Company's expected revenues, earnings/losses per share, net income (loss), expenses, cash flow or other financial performance, or developments, clinical trial or development activities, expected regulatory filings and approvals, planned business transactions, views of future industry, competitive or market conditions, and other factors that could affect the Company's future operations, results of operations or financial position. These statements often include words, such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “may,” “will,” “should,” “could,” or similar expressions.

Forward-looking statements are not guarantees of future performance or results. Known and unknown factors that could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to:

•Market acceptance of, and the Company's ability to market and sell, its products and services, whether through its internal, direct sales force or third parties;

•Failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for the Company's products;

•Significant customer concentrations that exist or may develop in the future;

•The Company's ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;

•The Company's ability to achieve the anticipated cost savings as a result of its business restructuring, including from in-sourcing third party manufacturing; exiting microbiome services and exiting its risk assessment business;

•The Company's ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products; ability to comply with applicable regulatory requirements;

•The Company's ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S. Food and Drug Administration or other regulators;

•Changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements;

•The Company's ability to meet increased demand for its products;

•The impact of replacing distributors on the Company's business;

•Inventory levels at distributors and other customers;

•The Company's ability to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales;

•The impact of competitors, competing products and technology changes on the Company's business;

•Reduction or deferral of public funding available to customers;

•Competition from new or better technology or lower cost products;

•The Company's ability to develop, commercialize and market new products;

•The Company's ability to fulfill its commitments under its contract with the U.S. government for InteliSwab® COVID-19 Rapid Tests;

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•Changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (the "CDC") or other agencies;

•The Company's ability to fund research and development and other products and operations;

•The Company's ability to obtain and maintain new or existing product distribution channels;

•Reliance on sole supply sources for critical products and components;

•Availability of related products produced by third parties or products required for use of the Company's products;

•The impact of contracting with the U.S. government on the Company's business;

•The impact of negative economic conditions on the Company's business;

•The Company's ability to achieve and maintain sustained profitability;

•The Company's ability to increase its gross margins;

•The Company's ability to utilize net operating loss carry forwards or other deferred tax assets;

•Volatility of the Company's stock price;

•Uncertainty relating to patent protection and potential patent infringement claims;

•Uncertainty and costs of litigation relating to patents and other intellectual property;

•Availability of licenses to patents or other technology;

•Ability to enter into international manufacturing agreements;

•Obstacles to international marketing and manufacturing of products;

•The impact of changes in international funding sources and testing algorithms on international sales;

•Adverse movements in foreign currency exchange rates;

•Loss or impairment of sources of capital;

•The Company's ability to attract and retain qualified personnel;

•The Company's exposure to product liability and other types of litigation;

•Changes in international, federal or state laws and regulations;

•Customer consolidations and inventory practices;

•Equipment failures and ability to obtain needed raw materials and components;

•The impact of terrorist attacks and civil unrest, hostilities and war;

•The impact of cybersecurity incidents and other disruptions involving our computer systems or those of our third-party IT service providers, suppliers and customers; and

•General political, business and economic conditions, including interest rates and inflationary pressures.

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These and other factors that could affect the Company's results are discussed more fully under the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, if any, in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2024, and in subsequent SEC filings. Although forward-looking statements help to provide information about future prospects, readers should keep in mind that forward-looking statements may not be reliable. Readers are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements are made as of the date of this report and the Company undertakes no duty to update these statements, unless it is required to do so by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make updates with respect to other forward-looking statements or that it will make any further updates to those forward-looking statements at any future time.

Investors should also be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Company's policy to disclose any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of OraSure.

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PART I. FINANCIAL INFORMATION

			Page No.

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets at September 30, 2024 and December 31, 2023			3

Consolidated Statements of Operations for the three and nine months ended Septe mber 30, 2024 and 2023			4

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023			5

Consolidated Statements of Cash Flows for the ni ne months ended September 30, 2024 and 2023			6

Notes to the Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20

Item 3. Quantitative and Qualitative Disclosures About Market Risk			26

Item 4. Controls and Procedures			26

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			27

Item 1A. Risk Factors			27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28

Item 3. Defaults Upon Senior Securities			28

Item 4. Mine Safety Disclosures			28

Item 5. Other Information			28

Item 6. Exhibits			29

Signatures			30

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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	$	—

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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.

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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.

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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.

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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%

Commercial customer (1)

10%

Non-Commercial customer (2)

56%

26%

66%

September 30,

December 31,

Accounts Receivable

2024

2023

Commercial customer (1)

21%

Non-Commercial customer (2)

40%

(1) Each commercial customer is different.

(2) Same non-commercial customer.

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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.

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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

SEC Form 10-Q filed by OraSure Technologies Inc.