OraSure Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with Q1 2021 unless otherwise stated. Amounts below are in millions of U.S. dollars, except per-share data.
Business context and results
OraSure operates Diagnostics and Molecular Solutions businesses, selling diagnostic tests, specimen-collection products, and related services. Q1 performance reflected new InteliSwab COVID-19 rapid-test sales, but lower COVID-19 molecular collection-kit demand and weaker gross margins.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $67.7 | $58.6 |
| Gross profit / margin | $24.3 / 36% | $38.3 / 65% |
| Operating income (loss) | $(16.0) | $10.4 |
| Net income (loss) | $(20.0) | $3.8 |
| Diluted EPS | $(0.28) | $0.05 |
| Cash used in operating activities | $35.8 | $4.4 |
Revenue, margins, and material changes
- Revenue increased 16%. InteliSwab contributed $22.1 million, with no comparable Q1 2021 sales; genomics and international HIV sales also grew.
- Diagnostics revenue was $38.3 million, including $22.1 million of COVID-19 test sales. Molecular Solutions revenue was $29.4 million. Segment-note totals include “other” revenue; MD&A also presents product-and-service revenue excluding some other revenue.
- Molecular COVID-19 collection-kit revenue fell 68% to $8.9 million as customers reduced PCR testing, had higher inventories, and had greater access to antigen tests and vaccines. Genomics revenue rose 40% to $15.1 million.
- Gross margin fell to 36%, primarily due to InteliSwab manufacturing inefficiencies and scrap, labor under-absorption, product mix, and expiration of Gates Foundation subsidies for international HIV self-tests. Management said InteliSwab production inefficiencies were largely corrected by quarter-end.
- Operating expenses rose to $40.3 million from $27.9 million, including higher sales and marketing and general and administrative costs. Management cited strategic-alternatives and CEO-transition costs, consulting, legal, recruiting, staffing, and stock compensation.
Cash, liquidity, and obligations
- At March 31, cash and cash equivalents were $70.7 million and available-for-sale securities were $41.5 million, totaling $112.2 million, versus $170.1 million at December 31, 2021. Working capital was $212.8 million, down from $220.4 million.
- Operating cash use was $35.8 million, driven in part by a $15.3 million increase in receivables, largely related to U.S. government shipments, and a $9.4 million inventory increase to support expected COVID-19 testing demand.
- Investing cash use was $9.9 million; the company spent $20.2 million on property and equipment and received $12.1 million from investment maturities. Government-contract capital spending and related funding also affected cash flows.
- The company reported no borrowings. Lease liabilities totaled $15.4 million: $12.5 million operating and $2.9 million finance leases. Management expects cash and investments to fund foreseeable operating and capital needs.
- A $109 million Department of Defense agreement funds U.S. InteliSwab manufacturing capacity through milestones scheduled through March 2024; 15% is not payable until final equipment validation, expected in late 2023 or early 2024. Management said $1.8 million of net Q1 project cash use was expected to be reimbursed in Q2 2022.
- Q1 included $1.7 million of Canadian withholding tax associated with repatriating $65 million from Canada. The company said 65% of its $112.2 million in cash, cash equivalents, and securities remained at its Canadian subsidiary at quarter-end and further repatriation could have adverse tax consequences.
Outlook, commentary, risks, and unusual items
- No specific revenue or earnings guidance was provided. Management cautioned that COVID-19-related demand is volatile and difficult to predict.
- The Board was evaluating strategic alternatives to maximize stockholder value; there is no assurance this process will result in a transaction. The company was searching for a permanent CEO; Nancy Gagliano became interim CEO on April 1, 2022.
- Key disclosed risks include scaling InteliSwab manufacturing and meeting government-contract obligations, demand variability and customer concentration, reliance on sole-source suppliers, regulatory and quality requirements, COVID-19 and supply-chain effects, and foreign-exchange exposure. A 10% unfavorable currency move was estimated to reduce Q1 comprehensive income by about $13.9 million.
- One non-commercial customer represented 18% of Q1 revenue and 21% of quarter-end receivables. The company also disclosed dependence on sole-supply vendors for certain products and components.
- In patent litigation with Spectrum Solutions, the court denied OraSure’s motion to dismiss Spectrum’s counterclaims; a judge change vacated trial dates, and new dates were pending. Management did not expect ordinary-course litigation to materially harm financial position or results.
- Former CEO Stephen Tang’s employment ended March 31. His $1.6 million severance, accrued in 2021, was paid in April 2022; certain awards vested after quarter-end. Q1 also included a $1.4 million net stock-compensation expense related to his transition.
Important facts for investors to verify
- Whether InteliSwab manufacturing improvements persist and support the expected demand, margins, and government-contract milestones.
- Timing and collection of government receivables and reimbursements, and the remaining cash requirements for the $109 million capacity project.
- Whether COVID-19 product demand and molecular-kit declines stabilize, and whether genomics growth continues.
- Cash burn, inventory and receivables conversion, and the effect of cash held abroad and potential repatriation taxes.
- Progress and costs of strategic-alternatives and CEO-search processes, as well as developments in the Spectrum litigation.