OraSure Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results; financial amounts below are in U.S. dollars.
Business context and financial performance
OraSure operates Diagnostics and Molecular Solutions businesses, including rapid diagnostic tests, sample-collection products, and laboratory services. Q3 growth was driven primarily by InteliSwab COVID-19 test sales; Molecular Solutions revenue declined.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $116.5 million | $53.9 million | $264.4 million | $170.1 million |
| Gross profit | $46.2 million | $21.5 million | $98.0 million | $90.5 million |
| Gross margin | 40% | 40% | 37% | 53% |
| Operating income (loss) | $0.9 million | $(13.0) million | $(36.4) million | $(0.8) million |
| Net income (loss) | $5.3 million | $(15.0) million | $(33.5) million | $(12.6) million |
| Diluted earnings (loss) per share | $0.07 | $(0.21) | $(0.46) | $(0.18) |
Cash, liquidity, and obligations
- Cash and cash equivalents were $75.2 million and available-for-sale investments were $26.4 million at September 30, 2022, totaling $101.6 million, down from $170.1 million at December 31, 2021. Working capital was $208.0 million.
- Operating cash use was $29.2 million for the first nine months, versus $22.6 million a year earlier. Investing cash use was $4.5 million and financing cash use was $3.0 million. Cash declined by $41.6 million, including a $4.9 million adverse foreign-exchange effect.
- Inventory increased to $78.8 million from $53.1 million at year-end; accounts receivable rose to $61.3 million from $45.3 million. Management cited capacity ramp-up and working-capital needs, including product shipped to the U.S. government.
- The filing reports no conventional borrowings. Lease liabilities totaled $18.6 million ($16.4 million operating and $2.2 million finance). Management stated available cash and investments were expected to fund current operating and capital needs for at least 12 months.
- Approximately 74% of cash, cash equivalents, and investments was held by the Canadian subsidiary. A $65.0 million repatriation earlier in 2022 incurred about $1.7 million in Canadian withholding tax; further repatriation could have tax consequences.
Changes versus comparable periods
- Q3 revenue more than doubled year over year, led by COVID-19 rapid-test revenue of $79.9 million versus $13.9 million. Nine-month COVID-19 rapid-test revenue was $154.3 million versus $54.1 million.
- Nine-month Diagnostics revenue increased sharply, while Molecular Solutions revenue fell about 40%, reflecting reduced COVID-19 PCR collection-kit demand and declines in genomics and laboratory services.
- Nine-month gross margin fell to 37% from 53%. Management attributed the decline to product mix, excess-inventory reserves, first-half manufacturing inefficiencies and lower labor-cost absorption, as well as the end of a Gates Foundation subsidy.
- Q3 returned to net income, but nine-month net loss widened. The nine-month results included $17.1 million in impairment charges and higher operating expenses, including legal, staffing, severance, CEO-transition and strategic-process costs.
Outlook, commentary, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management cautioned that interim results are not necessarily indicative of full-year results and identified uncertainty in COVID-19 demand.
- The company has a $109 million Department of Defense contract to expand U.S. InteliSwab manufacturing capacity, with milestone funding through March 2024; 15% is tied to final equipment validation, scheduled for late 2023 or early 2024.
- In September 2022, BARDA agreed to provide up to $8.6 million to develop a second-generation Ebola test. OraSure was also selected to supply up to 1 million in-home HIV tests over five years under a CDC-supported program.
- Impairments included $6.6 million in Q3 for idle manufacturing-line assets and $17.1 million in total for the first nine months. The Diagnostics reporting unit’s goodwill was fully impaired in Q2, resulting in a $3.6 million charge.
- Customer concentration is significant: one non-commercial customer represented 69% of Q3 revenue, 53% of nine-month revenue, and 47% of accounts receivable at September 30. Changes in its orders or payment patterns could materially affect results and cash flow.
- The company cites risks including the ability to scale and fulfill government COVID-19 contracts, demand volatility, sole-source suppliers, regulatory and quality requirements, competition, and foreign-exchange exposure. A 10% unfavorable move in the Canadian dollar and euro would have reduced nine-month comprehensive income by an estimated $11.7 million.
- After quarter-end, OraSure terminated a York, Pennsylvania warehouse lease effective October 31, 2022, with no termination fee; management estimated ongoing annual cash savings of about $0.7 million.
- Management reported effective disclosure controls as of September 30, 2022, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether InteliSwab demand, government contract orders, manufacturing yields, and reimbursement milestones support the expanded production capacity and inventory levels.
- How customer concentration and the large government-related receivable develop, including collection timing and any change in ordering patterns.
- Whether margins recover after the first-half manufacturing issues and inventory reserves, and whether Molecular Solutions revenue stabilizes.
- The assumptions underlying impairment assessments and the potential for additional charges if demand, utilization, or market valuations weaken.
- Cash use, capital spending, and the availability and tax cost of funds held by foreign subsidiaries.
- Developments in the Spectrum patent litigation and the outcome and economics of the new BARDA and CDC-supported programs.