OraSure Technologies, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021; unaudited consolidated results. OraSure operates Diagnostics (including infectious-disease and risk-assessment tests) and Molecular Solutions (specimen-collection products, genomics, microbiome and laboratory services). Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $57.6 | $29.3 | $116.2 | $60.9 |
| Gross profit / margin | $30.7 / 53% | $17.3 / 59% | $69.0 / 59% | $33.4 / 55% |
| Operating income (loss) | $1.8 | $(9.4) | $12.2 | $(17.4) |
| Net income (loss) | $(1.4) | $(10.5) | $2.4 | $(17.8) |
| Diluted EPS | $(0.02) | $(0.16) | $0.03 | $(0.28) |
- Q2 revenue grew 97% year over year. Six-month revenue growth was 91%, driven by COVID-19 sample-collection products and recovering genomics, microbiome and diagnostic sales.
- For the six months, COVID-19 product revenue was $38.9 million; genomics was $30.6 million. Diagnostics segment operating loss was $24.1 million, while Molecular Solutions operating income was $36.3 million.
- Q2 gross margin fell to 53% from 59%, primarily due to higher scrap and manufacturing costs and reduced Gates Foundation support for international HIV self-test sales. Six-month gross margin rose to 59% from 55%, helped by product mix and other revenue.
- Six-month cash used in operations was $3.5 million, compared with $2.2 million used a year earlier. Capital expenditures were $22.9 million, mainly to expand manufacturing capacity. Cash and cash equivalents were $158.1 million; available-for-sale securities totaled $71.3 million.
- Working capital was $238.5 million at June 30, down from $242.4 million at year-end 2020. Lease liabilities totaled $12.9 million; no conventional borrowing balance is presented in the supplied filing text.
- Cash, cash equivalents and available-for-sale securities totaled $229.4 million, including $124.8 million held by the Canadian subsidiary, which the company said could face adverse tax consequences if repatriated above certain levels.
Material changes versus prior comparable periods
- Q2 Diagnostics revenue increased 85% to $19.3 million and Molecular Solutions revenue increased 103% to $38.3 million. HIV and HCV sales recovered as testing programs reopened; genomics and microbiome demand also rebounded.
- COVID-19 molecular collection-kit sales remained significant, but management reported sequentially declining demand in Q2 as vaccines became available and expected that trend to continue.
- Six-month operating results swung to $12.2 million of operating income from a $17.4 million loss. The comparison reflects stronger revenue, partly offset by increased operating expenses.
- Inventory increased to $48.2 million from $31.9 million at December 31, 2020, largely to prepare for expected COVID-19 testing demand. Property and equipment rose to $72.0 million from $51.9 million.
Outlook, risks and unusual items
- The FDA granted three Emergency Use Authorizations in June 2021 for InteliSwab COVID-19 rapid antigen tests: OTC, professional point-of-care and prescription use. No Q2 sales were recorded; management expected sales to begin in Q3. The filing provides no numerical revenue or earnings guidance.
- Management said existing cash and investments should fund current and foreseeable operating and capital needs, while noting that requirements could vary with R&D, acquisitions, litigation, regulatory timing and further capacity investment.
- The Gates Foundation subsidy for international HIV self-test sales expired June 30, 2021. Management cited lower subsidy support, scrap costs and capacity-building costs as pressures on Diagnostics margins.
- Six-month results included a $1.0 million non-cash benefit from a reduction in the estimated fair value of UrSure acquisition contingent consideration. Up to $28.0 million of additional consideration could be payable over three years if specified revenue and clinical milestones are met; its recorded fair value was $1.0 million at June 30.
- COVID-19 disruption continued to affect traditional testing and research markets, with recovery uneven across geographies. Key stated risks include falling COVID-19 testing demand, customer concentration, reliance on sole-source suppliers, manufacturing capacity and quality, regulatory approvals, foreign exchange and the ability to sustain profitability. One customer represented 14% of Q2 revenue; another represented 10% of both Q2 and six-month revenue.
- The company filed patent litigation against Spectrum Solutions alleging infringement; Spectrum denies infringement and challenges patent validity. OraSure seeks injunctive relief and damages. Management said ordinary-course legal matters were not expected to materially affect results.
- Income tax expense was $10.1 million for the first half, primarily foreign tax, despite pretax income of $12.5 million. The company maintained a full valuation allowance on its U.S. deferred tax assets.
Important facts for investors to verify
- Whether InteliSwab sales commenced as expected in Q3 and whether production capacity and supplier commitments support demand.
- The pace and durability of COVID-19 collection-product sales declines, and the recovery in HIV, HCV, genomics and microbiome markets.
- Customer concentration, international HIV self-test ordering patterns, and the margin impact of the expired Gates Foundation subsidy.
- Inventory realization and obsolescence risk, cash conversion, and the return on the substantial manufacturing capital expenditures.
- Foreign tax expense and the location and accessibility of cash held in Canada, as well as contingent consideration and patent-litigation developments.