OraSure Technologies, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; unaudited. OraSure develops and sells diagnostic tests, specimen-collection products, molecular collection systems through DNA Genotek (DNAG), and cryosurgical devices. Financial figures below are in millions of dollars unless noted.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $24.7 | $22.1 | $70.2 | $65.7 |
| Gross profit | $14.9 | $13.9 | $41.5 | $42.3 |
| Gross margin | 61% | 63% | 59% | 64% |
| Operating loss | $(2.1) | $(2.9) | $(18.2) | $(10.1) |
| Net loss | $(1.9) | $(2.4) | $(17.4) | $(9.2) |
| Loss per share | $(0.03) | $(0.04) | $(0.31) | $(0.18) |
- Q3 revenue rose 12%, led by infectious-disease testing and DNAG; nine-month revenue rose 7%. Product revenue increased 9% for the first nine months.
- Q3 operating loss narrowed by $0.9 million, while the nine-month operating loss increased by $8.1 million. Nine-month sales and marketing expense rose $9.7 million, primarily from promotion of the OraQuick In-Home HIV test.
- Cash was $82.6 million at September 30, versus $87.9 million at year-end 2012; working capital was $92.1 million, down from $103.5 million. Operating cash use was $3.1 million for the first nine months, compared with $4.0 million a year earlier. Capital spending was $1.7 million.
- The balance sheet reports no long-term debt; the company reported no interest expense in 2013 and no debt repayments in the nine-month period. Total current liabilities were $19.3 million.
Changes and operating trends
- Q3 DNAG revenue grew 48% to $5.0 million; nine-month DNAG revenue rose 36% to $13.6 million. DNAG reported Q3 operating income of $0.5 million but a nine-month operating loss of $0.2 million.
- OraQuick In-Home HIV sales contributed $5.2 million net revenue in the first nine months. Professional domestic HIV sales fell 5% for the period amid competition, reduced public funding, and customer-order timing.
- Nine-month OSUR revenue grew 2%, but OSUR operating loss widened to $18.0 million. Cryosurgical, substance-abuse testing, and insurance-risk-assessment revenues declined; licensing and development revenue fell 67%.
- Gross margin pressure reflected higher royalties, product mix, and the absence of a $1.0 million HCV collaboration milestone received in 2012. Certain cryosurgical patent royalties ended after related patents expired in August 2013.
Outlook, risks, and unusual items
- Management said available cash should fund current operating and capital needs for at least the next 12 months. No specific revenue or earnings guidance was provided.
- Management warned that government spending cuts and constrained public funding may weaken customer demand. Other cited risks include competition, distributor purchasing and inventory patterns, product acceptance, regulatory requirements, dependence on sole-source suppliers, foreign-exchange movements, and the company’s history of losses.
- OraQuick In-Home HIV revenue is recognized when retailers or distributors sell through to end customers because the company cannot yet reasonably estimate returns. Related deferred revenue was $2.7 million at September 30, including the estimated value of product held by retailers or distributors with return rights.
- The company reported ordinary-course legal matters that management did not expect to materially affect future financial position or results. It reported no significant changes to contractual obligations and no off-balance-sheet arrangements. Management considered goodwill not impaired based on its 2013 qualitative assessment.
- Management stated disclosure controls were adequate and effective and reported no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether In-Home HIV retail sell-through, returns, and customer allowances support a change to shipment-based revenue recognition.
- Whether consumer-test sales can scale while promotional spending declines; nine-month In-Home HIV advertising and promotional costs were $14.2 million.
- Whether growth in DNAG and international infectious-disease sales persists, given customer and public-funding variability.
- Whether cash use, gross-margin pressure, and OSUR operating losses improve as commercialization spending and royalty costs evolve.
- Whether distributor losses, sole-source supply dependencies, and competitive pressure materially affect key product lines.