Notes to the Consolidated Financial Statements
(Unaudited)
(in
thousands, except per share amounts, unless otherwise indicated)
We develop, manufacture, market and sell diagnostic products and specimen collection devices using our proprietary technologies, as well as
other diagnostic products, including immunoassays and other
in vitro
diagnostic tests that are used on other specimen types. Our diagnostic products include tests that are performed on a rapid basis at the point-of-care, tests that are
processed in a laboratory, and a rapid point-of-care HIV test approved for use in the domestic consumer retail or over-the-counter (OTC) market. We also manufacture and sell oral fluid collection devices used to collect, stabilize,
transport and store samples of genetic material for molecular testing in the consumer genetic, clinical genetic, academic research, pharmacogenomic, personalized medicine, microbiome and animal genetic markets. Lastly, we manufacture and sell
medical devices used for the removal of benign skin lesions by cryosurgery, or freezing. Our products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, public
health organizations, research and academic institutions, distributors, government agencies, physicians offices, commercial and industrial entities, retail pharmacies and mass merchandisers, and to consumers over the internet.
2.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation and Basis of Presentation
.
The consolidated financial statements include the accounts of OraSure
Technologies, Inc. (OraSure) and its wholly-owned subsidiary, DNA Genotek, Inc. (DNAG). All intercompany transactions and balances have been eliminated. References herein to we, us, our, or
the Company mean OraSure and its consolidated subsidiary, unless otherwise indicated.
The accompanying consolidated financial statements are
unaudited and, in the opinion of management, include all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of our financial position and results of operations for these interim periods. These
financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Results of operations for the three months ended
March 31, 2016 are not necessarily indicative of the results of operations expected for the full year.
Use of Estimates
.
The
preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. These estimates and underlying
assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. Such estimates include the valuation of accounts receivable and inventories and
assumptions utilized in impairment testing for intangible assets and goodwill, as well as calculations related to contingencies and accruals, among others. These estimates and assumptions are based on managements best estimates and judgment.
Management evaluates its estimates and assumptions on an ongoing basis, using historical experience and other factors which management believes to be reasonable under the circumstances, including the current economic environment. We adjust such
estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity and foreign currency markets, reductions in government funding, and declines in consumer spending have combined to increase the uncertainty
inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in those estimates resulting from continuing changes in the
economic environment and other factors will be reflected in the financial statements in those future periods.
Short-Term Investments
.
We
consider all short-term investments to be available-for-sale securities. These securities are comprised of guaranteed investment certificates with purchased maturities greater than ninety days. Available-for-sale securities are carried at fair
value, based upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders equity as a component of accumulated other comprehensive income (loss).
-7-
Our available-for-sale securities as of March 31, 2016 and December 31, 2015 consisted of guaranteed
investment certificates with amortized cost and fair value of $7,689 and $7,225, respectively.
Fair Value of Financial Instruments
.
As of
March 31, 2016 and December 31, 2015, the carrying values of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values based on their short-term nature.
Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and
disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which
are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation
techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Included in cash and cash equivalents at March 31, 2016 and December 31, 2015, was $66,892 and $65,509 invested in a government money market fund.
This fund has investments in government securities and is a Level 1 instrument.
We offer a nonqualified deferred compensation plan for certain eligible
employees and members of our Board of Directors. The assets of the plan are held in the name of the Company at a third-party financial institution. Separate accounts are maintained for each participant to reflect the amounts deferred by the
participant and all earnings and losses on those deferred amounts. The assets of the plan are held in mutual funds and Company stock. The fair value of the plan assets as of March 31, 2016 and December 31, 2015 was $1,625 and $1,324,
respectively, and was calculated using the quoted market prices of the assets as of those dates. All investments in the plan are classified as trading securities and measured as Level 1 instruments. The fair value of plan assets is included in other
assets with the same amount included in other liabilities in the accompanying consolidated balance sheets.
All of our available-for-sale securities are
measured as Level 1 instruments as of March 31, 2016 and December 31, 2015.
Inventories
.
Inventories are stated at the lower of
cost or market determined on a first-in, first-out basis and are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Raw materials
|
|
$
|
6,244
|
|
|
$
|
7,895
|
|
Work in process
|
|
|
971
|
|
|
|
333
|
|
Finished goods
|
|
|
5,110
|
|
|
|
5,014
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,325
|
|
|
$
|
13,242
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment
.
Property and equipment are stated at cost. Additions or improvements are capitalized,
while repairs and maintenance are charged to expense. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets. Buildings are depreciated over twenty to forty years, while
computer equipment, machinery and equipment, and furniture and fixtures are depreciated over two to ten years. Building improvements are amortized over their estimated useful lives. When assets are sold, retired, or discarded, the related property
amounts are relieved from the accounts, and any gain or loss is recorded in the consolidated statement of operations. Accumulated depreciation of property and equipment as of March 31, 2016 and December 31, 2015 was $33,701 and $33,013,
respectively.
-8-
Intangible Assets
. Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
Amortization
Period (Years)
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer list
|
|
10
|
|
$
|
9,633
|
|
|
$
|
(4,292
|
)
|
|
$
|
5,341
|
|
Patents and product rights
|
|
10
|
|
|
5,400
|
|
|
|
(3,471
|
)
|
|
|
1,929
|
|
Acquired technology
|
|
7
|
|
|
7,482
|
|
|
|
(4,691
|
)
|
|
|
2,791
|
|
Tradename
|
|
15
|
|
|
3,692
|
|
|
|
(1,137
|
)
|
|
|
2,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,207
|
|
|
$
|
(13,591
|
)
|
|
$
|
12,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Amortization
Period (Years)
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Customer list
|
|
10
|
|
$
|
9,051
|
|
|
$
|
(3,818
|
)
|
|
$
|
5,233
|
|
Patents and product rights
|
|
10
|
|
|
5,400
|
|
|
|
(3,358
|
)
|
|
|
2,042
|
|
Acquired technology
|
|
7
|
|
|
7,030
|
|
|
|
(4,172
|
)
|
|
|
2,858
|
|
Tradename
|
|
15
|
|
|
3,469
|
|
|
|
(1,011
|
)
|
|
|
2,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
24,950
|
|
|
$
|
(12,359
|
)
|
|
$
|
12,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
.
Goodwill represents the excess of the purchase price we paid over the fair value of the net tangible
and identifiable intangible assets acquired and liabilities assumed in our acquisition of DNAG in August 2011. Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment
exist. Current U.S. generally accepted accounting principles permit us to make a qualitative evaluation about the likelihood of goodwill impairment. If we conclude that it is more likely than not that the fair value of a reporting unit is greater
than its carrying amount, then we would not be required to perform the two-step quantitative impairment test. Otherwise, performing the two-step impairment test is necessary. The first step of the two-step quantitative impairment test involves
comparing the fair values of the applicable reporting unit with its aggregate carrying value, including goodwill. If the carrying value of a reporting unit exceeds the reporting units fair value, we perform the second step of the test to
determine the amount of the impairment loss, if any. The second step involves measuring any impairment by comparing the implied fair values of the affected reporting units goodwill and intangible assets with the respective carrying values.
We performed our last annual impairment assessment as of July 31, 2015 utilizing a qualitative evaluation and concluded that it was more likely than
not that the fair value of our DNAG reporting unit is greater than its carrying value. We believe we have made reasonable estimates and assumptions to calculate the fair value of our reporting unit. If actual future results are not consistent with
managements estimates and assumptions, we may have to take an impairment charge in the future related to our goodwill. Future impairment tests will continue to be performed annually in the fiscal third quarter, or sooner if a triggering event
occurs. As of March 31, 2016, we believe no indicators of impairment exist.
The change in goodwill from $18,250 as of December 31, 2015 to
$19,422 as of March 31, 2016 is a result of foreign currency translation.
Revenue Recognition
.
We recognize product revenues when
there is persuasive evidence that an arrangement exists, the price is fixed or determinable, title has passed and collection is reasonably assured. Product revenues are recorded net of allowances for any discounts or rebates. Other than for sales of
our OraQuick
®
In-Home HIV test to the retail trade, we do not grant price protection or product return rights to our customers except for warranty returns. Historically, returns arising from
warranty issues have been infrequent and immaterial. Accordingly, we expense warranty returns as incurred.
-9-
Our net revenues recorded on sales of the OraQuick
®
In-Home HIV test represent total gross revenues, less an allowance for expected returns, and customer allowances for cooperative advertising, discounts, rebates, and chargebacks. Some of these allowances are estimates established by management,
based upon currently available information, and are adjusted to reflect known changes in the factors that impact those estimates. These allowances are recorded as a reduction of gross revenue when recognized in our statements of operations.
We record shipping and handling charges billed to our customers as product revenue and the related expense as cost of products sold. Taxes assessed by
governmental authorities, such as sales or value-added taxes, are excluded from product revenues.
On June 10, 2014, we entered into a Master Program
Services and Co-Promotion Agreement with AbbVie Bahamas Ltd., a wholly-owned subsidiary of AbbVie Inc. (AbbVie), to co-promote our OraQuick
®
HCV test in the United States. The
product is used to test individuals at-risk for the hepatitis C virus (HCV). We are responsible for manufacturing and selling the product into all markets covered by this agreement.
Pursuant to the Co-Promotion Agreement, we have granted exclusive co-promotion rights for the
OraQuick
®
HCV test in certain markets to AbbVie and we have agreed to develop, implement, administer and maintain a patient care database for the exclusive use of AbbVie. This patient care
database is being used to compile patient information regarding new individuals who have tested positive for HCV using our OraQuick
®
HCV test. We have also jointly agreed with AbbVie to
co-promote our OraQuick
®
HCV test in certain market segments.
Under the terms of this agreement,
which runs through December 31, 2019, we are eligible to receive up to $75,000 in aggregate payments. We are recognizing this revenue ratably on a monthly basis over the term of the agreement. During the first quarter of 2016, $3,362 in
exclusivity revenue was recognized. In addition, if certain performance-based milestones are achieved, we may be eligible to receive additional milestone payments. These payments would be based upon the aggregate number of new patients enrolled in
the patient care database, in a given calendar year, after exceeding a baseline threshold, and could range from $3,500 to $55,500 annually over the term of the agreement. The first performance-based milestone period ended on December 31, 2015
and we did not achieve the milestone for that period. The agreement also contains certain termination, indemnification and other provisions, typical of agreements of this type. Under certain circumstances, either party may terminate the agreement
before its expiration and such a termination could occur as early as December 31, 2016. Amounts related to this agreement are recorded as other revenue in our statements of operations.
On June 12, 2015, we were awarded a grant for up to $10,400 in total funding from the U.S. Department of Health and Human Services (HHS)
Office of the Assistant Secretary for Preparedness and Responses Biomedical Advanced Research and Development Authority (BARDA) related to the development of our OraQuick
®
Ebola Rapid Antigen test. The three-year, multi-phased grant includes an initial commitment of $1,800 and options for up to an additional $8,600 to fund certain clinical and regulatory activities. In September 2015, BARDA exercised an option to
provide $7,200 in additional funding for the development of our OraQuick
®
Ebola Rapid Antigen test. Amounts related to this grant are recorded as other revenue in our statement of operations
as the activities are being performed and the related costs are incurred. During the first quarter of 2016, $482 was recognized in connection with this grant.
Customer Sales Returns and Allowances
.
We do not grant return rights to our customers for any product, except for our OraQuick
®
In-Home HIV test. Accordingly, we have recorded an estimate of expected returns as a reduction of gross OraQuick
®
In-Home HIV product
revenues in our consolidated statements of operations. This estimate reflects our historical sales experience to retailers and consumers, as well as other retail factors, and is reviewed regularly to ensure that it reflects potential product
returns. As of March 31, 2016 and December 31, 2015, the reserve for sales returns and allowances was $329 and $310, respectively. If actual product returns differ materially from our reserve amount, or if a determination is made that this
products distribution would be discontinued in whole or in part by certain retailers, then we would need to adjust our reserve. Should the actual level of product returns vary significantly from our estimates, our operating and financial
results could be materially affected.
Deferred Revenue
.
We record deferred revenue when funds are received prior to the recognition of the
associated revenue. Deferred revenue as of March 31, 2016 and December 31, 2015 includes customer prepayments of $1,647 and $784, respectively. Deferred revenue as of March 31, 2016 and December 31, 2015 also includes $5,589 and
$8,951, respectively, from AbbVie, which represents the excess of the payments received from AbbVie over the amounts earned and recognized ratably in our consolidated statement of operations.
-10-
Customer and Vendor Concentrations
.
One of our customers accounted for approximately 10% of our
accounts receivable as of March 31, 2016. We had no significant concentrations in accounts receivable as of December 31, 2015. Another customer accounted for approximately 12% of our net revenues for the three months ended March 31,
2016 and 2015.
We currently purchase certain products and critical components of our products from sole-supply vendors. If these vendors are unable or
unwilling to supply the required components and products, we could be subject to increased costs and substantial delays in the delivery of our products to our customers. Also, our subsidiary, DNAG, uses two third-party suppliers to manufacture its
products. Our inability to have a timely supply of any of these components and products could have a material adverse effect on our business, as well as our financial condition and results of operations.
Earnings Per Share
.
Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock
outstanding during the period. Diluted earnings per share is computed in a manner similar to basic earnings per share except that the weighted average number of shares outstanding is increased to include incremental shares from the assumed vesting
or exercise of dilutive securities, such as common stock options and unvested restricted stock, unless the impact is antidilutive. The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested
restricted shares were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period.
The computations of basic and diluted earnings per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
2,446
|
|
|
$
|
113
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
55,451
|
|
|
|
56,343
|
|
Dilutive effect of stock options and restricted stock
|
|
|
628
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
56,079
|
|
|
|
57,173
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.04
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.04
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
For the three-month periods ended March 31, 2016 and 2015, outstanding common stock options and unvested restricted stock
representing 4,843 and 2,702 shares, respectively, were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.
Foreign Currency Translation
. The assets and liabilities of our foreign operations are translated into U.S. dollars at current exchange rates as
of the balance sheet date, and revenues and expenses are translated at average exchange rates for the period. Resulting translation adjustments are reflected in accumulated other comprehensive loss, which is a separate component of
stockholders equity.
Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than
functional currency are included in statement of operations in the period in which the change occurs. Net
-11-
foreign exchange gains (losses) resulting from foreign currency transactions that are included in other income (expense) in our consolidated statement of operations were $(346) and $588 for the
three months ended March 31, 2016 and 2015, respectively.
Accumulated Other Comprehensive Loss
.
We classify items of other
comprehensive loss by their nature and disclose the accumulated balance of other comprehensive loss separately from accumulated deficit and additional paid-in capital in the stockholders equity section of our balance sheet.
We have defined the Canadian dollar as the functional currency of our Canadian subsidiary, DNAG, and as such, the results of its operations are translated
into U.S. dollars, which is the reporting currency of the Company. The $2,867 and $(3,811) currency translation adjustments recorded in the first three months of 2016 and 2015, respectively, are largely the result of the translation of our Canadian
operations balance sheets into U.S. dollars.
Recent Accounting Pronouncements
.
In May 2014, the Financial Accounting Standards Board
(FASB) issued converged guidance on recognizing revenue in contracts with customers, ASU 2014-09
Revenue from Contracts with Customers
. The intent of the new standard is to improve financial reporting and comparability of revenue
globally. The core principle of the standard is for a company to recognize revenue in a manner that depicts the transfer of goods or services to customers in an amount that reflects the consideration which the company expects to receive in exchange
for those goods or services. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017, with early adoption permitted. We are still evaluating the effects, if any, which
adoption of this guidance will have on our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
Simplifying the Measurement
of Inventory
, which requires an entity that uses the first-in, first-out method for inventory measurement to report inventory cost at the lower of cost and net realizable value versus the current measurement principle of lower of cost or market.
The ASU requires prospective adoption for inventory measurements for fiscal years beginning after December 15, 2016. Early adoption is permitted. We are evaluating the effect that ASU 2015-11 may have on our consolidated financial statements
and related disclosures.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which requires entities to begin recording assets and liabilities
from leases on the balance sheet. The new guidance will also require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. The standard will be effective for the first interim period within annual
reporting periods beginning after December 15, 2018, using a modified retrospective approach. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 may have on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued authoritative guidance under ASU 2016-09,
Compensation-Stock Compensation (Topic 718) Improvements to Employee
Share-Based Payment Accounting
. ASU 2016-09 provides for simplification of several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and
classification on the statement of cash flows. The Company is required to adopt this new authoritative guidance in the first quarter of fiscal 2018. Early adoption is permitted. The Company is currently evaluating the potential impact of adoption of
this standard on its consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Payroll and related benefits
|
|
$
|
3,386
|
|
|
$
|
6,311
|
|
Professional Fees
|
|
|
1,639
|
|
|
|
1,014
|
|
Royalties
|
|
|
719
|
|
|
|
819
|
|
Other
|
|
|
2,077
|
|
|
|
2,268
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,821
|
|
|
$
|
10,412
|
|
|
|
|
|
|
|
|
|
|
-12-
Stock-Based Awards
We grant
stock-based awards under the OraSure Technologies, Inc. Stock Award Plan, as amended and restated (the Stock Plan). The Stock Plan permits stock-based awards to employees, outside directors and consultants or other third-party advisors.
Awards which may be granted under the Stock Plan include qualified incentive stock options, nonqualified stock options, stock appreciation rights, restricted awards, performance awards and other stock-based awards. We recognize compensation expense
for stock option and restricted stock awards issued to employees and directors on a straight-line basis over the requisite service period of the award. To satisfy the exercise of options or vesting of restricted stock and performance awards, we
issue new shares rather than purchase shares on the open market.
Commencing in 2016, we have granted to certain executives performance-based restricted
stock units (PSUs). Vesting of these PSUs is dependent upon our achievement of a performance-based metric during a one-year or three-year period, from the date of grant. Assuming achievement of each performance-based metric, the
executive must also remain in our service for three years, commencing with the grant date. Performance during the one-year period will be based on a one-year earnings per share target. Upon achievement of the one-year target, the PSUs will then vest
three years from grant date. Performance during the three-year period will be based on achievement of a three-year compound annual growth rate for consolidated product revenues. Upon achievement of the three-year target, the corresponding PSUs will
vest in full. PSUs are converted into shares of our common stock once vested. Upon grant of the PSUs, the Company recognizes compensation expense related to these awards based on assumptions as to what percentage of each target will be achieved. The
Company evaluates these target assumptions on a quarterly basis and adjusts compensation expense related to these awards, as appropriate.
Total
compensation cost related to stock options for the three months ended March 31, 2016 and 2015 was $733 and $822, respectively. Net cash proceeds from the exercise of stock options were $0 and $121 for the three months ended March 31, 2016
and 2015, respectively. As a result of the Companys net operating loss carryforward position, no actual income tax benefit was realized from stock option exercises during these periods.
The following table summarizes the stock option activity for the first three months ended March, 31, 2016:
|
|
|
|
|
|
|
Options
|
|
Outstanding on January 1, 2016
|
|
|
6,216
|
|
Granted
|
|
|
297
|
|
Exercised
|
|
|
|
|
Expired
|
|
|
(292
|
)
|
Forfeited
|
|
|
(7
|
)
|
|
|
|
|
|
Outstanding on March 31, 2016
|
|
|
6,214
|
|
|
|
|
|
|
Compensation cost of $719 and $653 related to restricted shares was recognized during the three months ended March 31,
2016 and 2015, respectively. In connection with the vesting of restricted shares and exercise of stock options during the three months ended March 31, 2016 and 2015, we purchased and immediately retired 98 and 112 shares with aggregate values
of $527 and $772, respectively, in satisfaction of minimum tax withholding and exercise obligations.
-13-
The following table summarizes restricted stock award activity for the three months ended March, 31, 2016:
|
|
|
|
|
|
|
Shares
|
|
Issued and unvested, January 1, 2016
|
|
|
697
|
|
Granted
|
|
|
525
|
|
Vested
|
|
|
(298
|
)
|
Forfeited
|
|
|
(2
|
)
|
|
|
|
|
|
Issued and unvested, March 31, 2016
|
|
|
922
|
|
|
|
|
|
|
During the three months ended March 31, 2016, we granted 417 PSUs. No compensation cost related to the PSUs was
recognized during the three months ended March 31, 2016.
Stock Repurchase Program
On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $25,000 of our
outstanding common shares. During the three months ended March 31, 2016, we purchased and retired 423 shares of common stock at an average price of $6.29 per share for a total cost of $2,660. No shares were purchased and retired during the
three months ended March 31, 2015, under this share repurchase program.
During the three months ended March 31, 2016 and 2015, we recorded foreign tax expense of $61 and $5, respectively. Foreign taxes
during the three months ended March 31, 2016 includes $(18) of deferred tax benefits and $79 of current tax expense associated with amounts payable for provincial taxes. Foreign taxes during the three months ended March 31, 2015 includes
$5 of deferred tax expense.
Deferred income taxes reflect the tax effects of temporary differences between the basis of assets and liabilities recognized
for financial reporting and tax purposes, and net operating loss and tax credit carryforwards. The significant components of our total deferred tax liability as of March 31, 2016 relate to the tax effects of the basis differences between the
intangible assets acquired in the DNAG acquisition for financial reporting and tax purposes.
In 2008, we established a full valuation allowance against
our U.S. deferred tax asset. Management believes the full valuation allowance is still appropriate as of both March 31, 2016 and December 31, 2015 since the facts and circumstances necessitating the allowance have not changed. As a result,
no U.S. federal or state income tax benefit was recorded for the three months ended March 31, 2016 and 2015.
6.
|
Commitments and Contingencies
|
From time to time, we are involved in certain legal actions arising in the ordinary course of business. In managements opinion,
based upon the advice of counsel, the outcomes of such actions are not expected, individually or in the aggregate, to have a material adverse effect on our future financial position or results of operations.
7.
|
Business Segment Information
|
We operate our business within two reportable segments: our OSUR business, which consists of the development, manufacture and
sale of diagnostic products, specimen collection devices and medical devices; and our molecular collection systems or DNAG business, which primarily consists of the manufacture, development and sale of oral fluid collection devices that
are used to collect, stabilize and store samples of genetic material for molecular testing. OSUR revenues are derived primarily from products sold in the United States and internationally to various clinical laboratories, hospitals, clinics,
community-based organizations, public health organizations, distributors, government agencies, physicians offices, commercial and industrial entities, retail pharmacies, mass merchandisers, and to consumers over the internet. OSUR also derives
other revenues, including exclusivity payments for co-promotion
-14-
rights and other licensing and product development activities. DNAG revenues result primarily from products sold into the commercial market which consists of customers engaged in consumer
genetics, clinical genetic testing, pharmacogenomics, personalized medicine, animal and livestock genetic testing, and microbiome testing. DNAG products are also sold into the academic research market, which consists of research laboratories,
universities and hospitals.
We organized our operating segments according to the nature of the products included in those segments. The accounting
policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). We evaluate performance of our operating segments based on revenue and operating income (loss). We do not allocate interest
income, interest expense, other income, other expenses or income taxes to our operating segments. Reportable segments have no inter-segment revenues and inter-segment expenses have been eliminated.
The following table summarizes operating segment information for the three months ended March 31, 2016 and 2015, and asset information as of
March 31, 2016 and December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
22,199
|
|
|
$
|
20,371
|
|
DNAG
|
|
|
6,890
|
|
|
|
6,717
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,089
|
|
|
$
|
27,088
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
1,608
|
|
|
$
|
(1,521
|
)
|
DNAG
|
|
|
1,091
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,699
|
|
|
$
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
639
|
|
|
$
|
726
|
|
DNAG
|
|
|
715
|
|
|
|
683
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,354
|
|
|
$
|
1,409
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
447
|
|
|
$
|
76
|
|
DNAG
|
|
|
1,146
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,593
|
|
|
$
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
Total assets:
|
|
|
|
|
|
|
|
|
OSUR
|
|
$
|
133,785
|
|
|
$
|
137,082
|
|
DNAG
|
|
|
54,694
|
|
|
|
52,239
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
188,479
|
|
|
$
|
189,321
|
|
|
|
|
|
|
|
|
|
|
Our products are sold principally in the United States and Europe.
-15-
The following table represents total revenues by geographic area, based on the location of the customer:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
22,170
|
|
|
$
|
20,416
|
|
Europe
|
|
|
3,879
|
|
|
|
4,374
|
|
Other regions
|
|
|
3,040
|
|
|
|
2,298
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,089
|
|
|
$
|
27,088
|
|
|
|
|
|
|
|
|
|
|
The following table represents total long-lived assets by geographic area:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
United States
|
|
$
|
15,601
|
|
|
$
|
15,660
|
|
Canada
|
|
|
4,594
|
|
|
|
4,415
|
|
Other regions
|
|
|
9
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,204
|
|
|
$
|
20,083
|
|
|
|
|
|
|
|
|
|
|
-16-