OraSure Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. OraSure operates Diagnostics and Molecular Solutions businesses, including diagnostic tests, specimen-collection products, and genomics and microbiome services. Amounts below are U.S. dollars; financial statement figures are rounded to millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 or comparison |
|---|---|---|
| Net revenue | $58.6 million | $31.6 million; up 85% |
| Gross profit / margin | $38.3 million / 65% | $16.1 million / 51% |
| Operating income (loss) | $10.4 million | $(8.0) million |
| Net income (loss) | $3.8 million; $0.05 diluted EPS | $(7.3) million; $(0.12) diluted EPS |
| Operating cash flow | $(4.4) million | $2.5 million provided |
| Cash, cash equivalents and available-for-sale securities | $240.5 million | $257.1 million at December 31, 2020 |
| Working capital | $247.8 million | $242.4 million at December 31, 2020 |
Revenue growth was led by Molecular Solutions, with segment revenue of $44.0 million versus $13.8 million; Diagnostics revenue was $14.5 million versus $17.8 million. Molecular Solutions reported $22.6 million of operating income, while Diagnostics reported a $12.2 million operating loss. COVID-19 collection-kit sales were $27.4 million, compared with $0.4 million a year earlier. Genomics revenue rose 32% to $11.1 million; infectious-disease testing revenue fell 22% to $11.4 million and risk-assessment revenue fell 35% to $2.0 million.
Cash used in operations reflected, among other items, an $8.4 million inventory build to support anticipated COVID-19 testing demand and payments of incentive bonuses and sales-tax liabilities. Investing activities provided $22.7 million, primarily from investment maturities, offset by $11.1 million of capital expenditures. Financing activities used $2.2 million. The company reported no conventional borrowings; liabilities included $6.3 million of finance and operating lease obligations. Current balances of cash and securities were expected by management to fund current and foreseeable operating and capital needs.
Material changes and notable items
- Total revenue increased sharply, principally because COVID-19 molecular collection-kit sales expanded. COVID-19 products and royalty/research funding also contributed to other revenue growth.
- Gross margin increased to 65% from 51%, reflecting product mix and other revenues, which management said contribute 100% to gross profit.
- Research and development and sales and marketing costs increased, including spending on COVID-19 product development and preparations for potential launches.
- Income tax expense was $6.5 million, versus $0.7 million, largely reflecting higher income before tax at the Canadian subsidiary. The U.S. deferred-tax-asset valuation allowance remained in place.
- Net income included an $0.8 million noncash benefit from remeasurement of acquisition-related contingent consideration; the prior-year quarter included a $1.1 million noncash charge.
- The company held $2.7 million of pre-launch COVID-19 inventory while FDA authorization remained pending; if approval is not obtained, that inventory may be written off.
Outlook, risks and contingencies
No specific revenue or earnings guidance was provided. Management said cash and securities were expected to be sufficient for foreseeable needs, while noting that requirements could change with product development, regulatory approvals, manufacturing capacity, capital spending, litigation, and other factors. It had submitted an emergency-use authorization application for its rapid COVID-19 antigen test in March 2021 and was manufacturing product while awaiting FDA action; the company also intended to pursue an over-the-counter indication.
Management described continuing pandemic-related disruption to HIV and HCV testing programs, workplace testing, international shipments, and some academic and research activity. It cautioned that the duration and severity of these effects—and whether COVID-related demand would offset weakness elsewhere—were uncertain. Other identified risks include dependence on sole-source suppliers, customer concentration (one customer represented 17% of Q1 revenue), regulatory and commercialization uncertainty, and foreign-exchange exposure. A 10% unfavorable currency movement was estimated to reduce quarterly comprehensive income by approximately $15.1 million. About $114.5 million, or 48%, of cash, cash equivalents and securities was held by the Canadian subsidiary; repatriation above certain levels could have adverse tax consequences.
The company reported that ordinary-course legal matters were not expected to materially affect results. A March 2021 settlement ended an Ancestry arbitration, with Ancestry agreeing to continue royalties on future products for an additional period. OraSure also filed patent litigation against Spectrum in March 2021, seeking injunctive relief and damages; Spectrum had not yet responded. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether FDA authorization is obtained for the COVID-19 antigen test and whether the $2.7 million pre-launch inventory is ultimately saleable.
- How quickly COVID-related collection-kit demand changes, and whether traditional Diagnostics markets recover from pandemic disruption.
- Whether Molecular Solutions growth and margins can be sustained given the quarter’s substantial COVID-19 sales concentration.
- Why the company reported positive net income but negative operating cash flow, including subsequent inventory levels, collections, and working-capital trends.
- The effect of Canadian earnings, foreign-currency movements, and potential cash-repatriation taxes on future results and liquidity.
- Developments in the Spectrum patent litigation and the terms and duration of royalties under the Ancestry settlement.