ORASURE TECHNOLOGIES INC

(in thousands, except per share amounts, unless otherwise indicated)

1. THE COMPANY:

OraSure Technologies transforms health through actionable insight by powering the shift that connects people to healthcare wherever they are. In February 2023, the Company announced a corporate restructuring to combine the commercial and innovation teams acrosstwo segments, being the “Diagnostics” segment and the “Molecular Solutions” segment, intoone business unit with sales, marketing, product development, and research teams covering multiple product lines. This change is intended to accelerate innovation, enhance customer experience and result in operational synergies. As a result, all products and services reside underone reporting hierarchy.

The Company's product portfolio is broadly divided into diagnostics products and molecular sample management solutions. The Company's business consists of the development, manufacture, marketing and sale of simple, diagnostic products and specimen collection devices designed to detect certain infectious diseases including COVID-19, HIV and Hepatitis C that are performed on a rapid basis at the point of care, and tests for drugs of abuse that are processed in a laboratory. The Company's business also includes molecular sample management solutions and molecular services that are used by clinical laboratories, direct-to-consumer laboratories, researchers, pharmaceutical companies, and animal health service and product providers.

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 subsidiaries, DNAG, Diversigen, and Novosanis. All intercompany transactions and balances have been eliminated. References herein to “we”, “us”, “our”, or the “Company” mean OraSure and its consolidated subsidiaries, unless otherwise indicated.

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 property, plant and equipment, intangible assets and goodwill, as well as estimates related to taxes, contingent consideration, and performance-based compensation expense. These estimates and assumptions are based on management’s 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. 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.

Employee Retention Credit

In December 2021, the Company applied for the Employee Retention Credit for payroll taxes paid in the first and second quarters of 2021 as provided by the Coronavirus Aid, Relief and Economic Security Act. The amount due from the Internal Revenue Service of $5.7 million was recorded in other current assets in the Company's consolidated balance sheet as of December 31, 2022. The amount was received in 2023. The credit is reported in the Company's consolidated statement of operations for the year ended December 31, 2021 within cost of products and services sold, research and development, sales and marketing and general and administrative costs in the amounts of $2.5 million, $1.1 million, $0.9 million, and $1.2 million, respectively.

Supplemental Cash Flow Information

The Company received income tax refunds of $4.9 million in 2023, and paid income taxes of $9.4 million and $13.7 million in 2022 and 2021, respectively.

The Company had account receivable write-offs of $0.7 million, $2.3 million, and $0.1 million in 2023, 2022, and 2021, respectively.

As of December 31, 2023, 2022 and 2021, the Company had accruals for purchases of property and equipment of $0.2 million, $0.2 million and $8.2 million, respectively.

Cash Equivalents & Short-Term Investments

The Company considers all investments in debt securities to be available-for-sale securities. These securities are comprised of guaranteed investment certificates and corporate bonds with purchased maturities greater than ninety days. Securities with maturities ninety days or less are considered cash equivalents. 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 loss.

The Company records an allowance for credit loss for the Company's available-for-sale securities when a decline in investment market value is due to credit-related factors. When evaluating an investment for impairment, the Company reviews factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value, and the probability that the scheduled cash payments will continue to be made.

The Company had no available-for-sale debt securities as of December 31, 2023. The following is a summary of the Company's available-for-sale securities as of December 31, 2022:

Fair Value of Financial Instruments

As of December 31, 2023 and 2022, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses 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).

The Company had no available-for-sale debt securities as of December 31, 2023. All of the Company's available-for-sale debt securities as of December 31, 2022 are measured as Level 2 instruments. The Company's guaranteed investment certificates are measured as Level 1 instruments as of December 31, 2022.

Included in cash and cash equivalents at December 31, 2023 and 2022, was $112.7 million and $1.7 million, respectively, invested in government money market funds. These funds have investments in United States government securities and are measured as Level 1 instruments. Included in cash and cash equivalents at December 31, 2023 was $71.7 million of guaranteed investment certificates which are also measured as Level 1 instruments.

The Company offers a nonqualified deferred compensation plan for certain eligible employees and members of the Company's 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. The fair value of the plan assets as of December 31, 2023 and 2022 was $0.8 million and $0.7 million, 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 both current assets and other noncurrent assets with the same amounts included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.

Contingent consideration obligations are measured as Level 3 liabilities due to the unobservable inputs that are required to measure the fair value of these obligations. The Company had no contingent consideration obligations outstanding as of December 31, 2023.

Accounts Receivable

Accounts receivable has been reduced by an estimated allowance for amounts that may become uncollectible in the future. This estimated allowance is based primarily on management’s evaluation of specific balances as they become past due, the financial condition of the Company's customers and the Company's historical experience related to write-offs.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead. The majority of the Company's inventories are subject to expiration dating, which can be extended in certain circumstances. The Company continually evaluates quantities on hand and the carrying value of the Company's inventories to determine the need for net realizable value adjustments for excess and obsolete inventories, based primarily on prior experience with consideration of expected changes in the business and estimated forecasts of product sales. The Company reserves for unidentified scrap or spoilage based on historical write-off rates. The Company also considers items identified through specific identification procedures in assessing the adequacy of the Company's reserve. Although the Company makes every effort to ensure the accuracy of expected changes in the business and of its forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the carrying value of its inventories and reported operating results.

Property, Plant and Equipment

Property, plant 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 typically depreciated over twenty years, while computer equipment and software, machinery and equipment, and furniture and fixtures are depreciated overtwo toten 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 statements of operations.

Intangible Assets

Intangible assets consist of customer relationships, patents and product rights, acquired technology and trade names. Patents and product rights consist of costs associated with the acquisition of patents, licenses and product distribution rights. Intangible assets are amortized using the straight-line method over their estimated useful lives offive tofifteen years.

Impairment of Long-Lived Assets

Long-lived assets, which include property, plant and equipment and definite-lived intangible assets, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company assesses the recoverability of the Company's long-lived assets by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future cash flows generated from the use and eventual disposition of the asset. If indicators of impairment exist, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, which is generally determined based on the present value of the expected future cash flows associated with the use of the assets. Expected future cash flows reflect the Company's assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time. See Notes 5 and 6 for discussion of property, plant and equipment and intangible asset impairments, respectively, recorded for the year ended December 31, 2023.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired. Goodwill is not amortized but rather is tested annually for impairment or more frequently if the Company believes that indicators of impairment exist. Current generally accepted accounting principles permit the Company to make a qualitative evaluation about the likelihood of goodwill impairment. If the Company concludes that it is more likely than not that the carrying value of a reporting unit is greater than its fair value, then the Company would be required to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

The Company has historically performed an annual goodwill impairment assessment as of July 31. On July 31, 2023, the Company performed a quantitative goodwill impairment test which concluded that the carrying value was below fair value indicating there was no impairment. During the three months ended December 31, 2023, the Company changed the date of its the annual impairment assessment to November 30, to better align with the Company's annual forecasting process. As of November, 30, 2023, the Company performed a qualitative analysis that concluded it was more likely than not that the fair value of the Company's reporting units is greater than their carrying value.

A more frequent evaluation is performed if an event occurs or circumstances change between annual tests that could more likely than not reduce the fair value of a reporting unit below its carrying amount.

Revenue

Product sales. Revenue from product sales is recognized upon transfer of control of a product to a customer based on an amount that reflects the consideration the Company is entitled to, net of allowances for any discounts or rebates.

The Company generally does not grant product return rights to its customers, except for warranty returns and return rights on sales of the Company's OraQuick® In-Home HIV test to retail trade customers, and InteliSwab® products to retail trade and certain other customers.

Historically, returns arising from warranty issues have been infrequent and immaterial. Accordingly, the Company expenses warranty returns as incurred.

The Company records shipping and handling charges billed to the Company's customers as product revenue and the related expense as cost of products sold.

Service revenues. Service revenues represent microbiome laboratory testing and analytical services. The Company recognizes revenues when the Company satisfies its performance obligations for services rendered.

Arrangements with multiple-performance obligations. In arrangements involving more than one performance obligation, which largely applies to the Company's service revenue stream, each required performance obligation is evaluated to determine whether it qualifies as a distinct performance obligation based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the arrangement is then allocated to each separate distinct performance obligation based on their respective relative stand-alone selling price. The estimated selling price of each performance obligation is determined using an observable cost plus margin approach. The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred for the related goods or services or when the performance obligation has been satisfied.

Other revenues. Other revenues consist primarily of royalty income and funding from grants of research and development efforts. For the year ended December 31, 2021, other revenue also included cost reimbursements under a charitable support agreement which ended in June 2021. Royalties from licensees are based on third-party sales of licensed products and are recorded when the related third-party product sale occurs. Research and development grant revenue is recognized pursuant to International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance ("IAS 20"). The expenses are recorded in research and development expense and the reimbursements are recorded in other revenue. Funding of research and development efforts and charitable support reimbursements are recorded as the activities are performed in accordance with the respective agreements.

Deferred revenue. The Company records deferred revenue when funds are received prior to the recognition of the associated revenue. Deferred revenue as of December 31, 2023 and 2022 included customer prepayments of $1.2 million and $1.5 million, respectively. Deferred revenue as of December 31, 2023 and 2022 also included $0.4 million and $0.7 million, respectively, associated with a long-term contract that has variable pricing based on volume. The average price over the life of the contract was determined and revenue is recognized at that average price.

Financing and payment. The Company's payment terms vary by the type and location of the customer and products or services offered. Payment terms differ by jurisdiction and customer, but payment is generally required in a term ranging from 30 to 120 days from date of shipment or satisfaction of the performance obligation.

For certain products or services and customer types, the Company may require payment before the products are delivered or services are rendered to the customer.

Practical expedients and exemptions. Taxes assessed by governmental authorities, such as sales or value-added taxes, are excluded from product revenues.

Sales commissions are expensed when incurred if the amortization period isone year or less. These costs are recorded in sales and marketing expense in the consolidated statements of operations. If the amortization period exceeds one year, the Company defers the cost of the commission and expenses it over the life of the related sales contract.

Revenues by product. The following table represents total net revenues by product line:

(1) Includes COVID-19 Diagnostics and COVID-19 Molecular Products.

(2) Includes Genomics, Microbiome and Novosanis product revenues.

(3)Non-product and services revenues include funded research and development contracts, royalty income and grant revenues.

Revenues by geographic area. The following table represents total net revenues by geographic area, based on the location of the customer:

Customer and vendor concentrations. The Company had one customer that accounted for more than 40% of the Company's consolidated accounts receivable as of December 31, 2023 and 57% as of December 31, 2022. The same customer accounted for approximately 63% of the Company's consolidated net revenues for the year ended December 31, 2023 and 58% for the year ended December 31, 2022. The Company had no customers that accounted for more than 10% of the Company's consolidated net revenues for the year ended December 31, 2021.

The Company currently purchases certain products and critical components of the Company's products from sole-supply vendors. If these vendors are unable or unwilling to supply the required components and products, the Company could be subject to increased costs and substantial delays in the delivery of the Company's products to its customers. Third-party suppliers also manufacture certain products. The Company's inability to have a timely supply of any of these components and products could have a material adverse effect on the Company's business, as well as the Company's financial condition and results of operations.

Research and Development

Research and development expenses consist of costs incurred in performing research and development activities, including salaries and benefits, facilities expenses, overhead expenses, clinical trial and related clinical manufacturing expenses, contract services and other outside expenses. Research and development costs are charged to expense as incurred.

Advertising Expenses

Advertising costs are charged to expense as incurred. During 2023, 2022, and 2021, the Company incurred $1.6 million, $4.8 million, and $5.1 million, respectively, in advertising expenses.

Stock-Based Compensation

The Company accounts for stock-based compensation to employees and directors using the fair value method. The Company recognizes 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. The Company recognizes compensation expense related to performance-based restricted stock units based on assumptions as to what percentage of each performance target will be achieved. The Company evaluates these target assumptions on a quarterly basis and adjusts compensation expense related to these awards, as appropriate. To satisfy the exercise of stock options, issuance of restricted stock, or redemption of performance-based restricted stock units, the Company issues new shares rather than purchase shares in the open market.

Income Taxes

The Company follows the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax basis of assets and liabilities, as well as operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates for the respective taxing jurisdiction that are expected to apply to taxable income in the years in which those temporary differences and operating loss and credit carryforwards are expected to be recovered, settled or utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company assesses the realizability of its net deferred tax assets on a quarterly basis. If, after considering all relevant positive and negative evidence, it is more likely than not that some portion or all of the net deferred tax assets will not be realized, the Company reduces its net deferred tax assets by a valuation allowance. The realization of the net deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the Company's net operating loss carryforwards.

Foreign Currency Translation

The assets and liabilities of the Company's 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 the Company's consolidated statements of operations in the period in which the change occurs. Net foreign exchange gains (losses) resulting from foreign currency transactions included in other income in the Company's consolidated statements of operations were $(0.1) million, $1.6 million, and $(0.7) million for the years ended December 31, 2023, 2022, and 2021, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) 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, unvested restricted stock or performance stock units, unless the impact is anti-dilutive. The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units 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. Basic and dilutive computations of net loss per share are the same in periods in which a net loss exists as the dilutive effects of excluded items would be anti-dilutive.

For the year ended December 31, 2023, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 1,778 shares were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive. For the years ended December 31, 2022, and 2021 outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 436, and 769 shares, respectively, were excluded from the computation of diluted loss per share.

Accumulated Other Comprehensive Loss

The Company classifies items of other comprehensive income (loss) by their nature and discloses the accumulated balance of other comprehensive loss separately from accumulated deficit and additional paid-in capital in the stockholders’ equity section of the Company's consolidated balance sheets.

The Company has defined the Canadian dollar as the functional currency of the Company's Canadian subsidiary, DNAG, and the Company has defined the Euro as the functional currency of the Company's Belgian subsidiary, Novosanis. The results of operations are translated into U.S. dollars, which is the reporting currency of the Company. Changes in accumulated other comprehensive loss by component is listed below:

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The purpose of the update was to improve financial reporting by requiring disclosures of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted and requires retrospective application to all periods presented in the consolidated financial statements. Management is evaluating the impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The purpose of the update was to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and incomes taxes paid information. The amendments in this ASU are effective for annual periods beginning after December 15, 2024. The amendments may be applied prospectively or retrospectively, and early adoption is permitted. Management is evaluating the impact on the Company's consolidated financial statements.

Immaterial Correction of Errors

In the first quarter of 2023, the Company identified an immaterial error that was corrected in its consolidated financial statements. Inventories, accounts payable and cost of products and services were reduced by $0.5 million, $1.3 million and $0.8 million, respectively, as of and for the year ended December 31, 2022 to correct for the accounting of a vendor rebate earned in 2022. Furthermore, stockholder's equity at December 31, 2022 increased $0.8 million to reflect the reduction in cost of products and services sold. The tax impact of the vendor rebate was negligible. This correction was deemed to be immaterial to the consolidated financial statements as of and for the year ended December 31, 2022. The respective operating activities on the consolidated statement of cash flows for the year ended December 31, 2022 have also been adjusted.

3. GOVERNMENT CAPITAL CONTRACTS:

In September 2021, the Company entered into an agreement for $109.0 million in funding from the DOD, in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for its InteliSwab® COVID-19 Rapid Tests as part of the nation’s pandemic preparedness plan. In accordance with the agreement, funding was paid to the Company based on achievement of milestones for the design, acquisition, installation, qualification and acceptance of the manufacturing equipment, as set forth in the agreement. In accordance with the milestone payment schedule,15% of the total was not billed and funded until the completion of the final validation testing, which occurred in October 2023. The Company began making payments to vendors for the capital project during the fourth quarter of 2021. The Company began receiving funds from the DOD in January 2022 and has received $109.0 million as of December 31, 2023. In connection with the completion of the contract in the fourth quarter of 2023, all funds were received.

Activity for these capital contracts is accounted for pursuant to International Accounting Standards ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance. Funding received in relation to capital-related costs incurred for government contracts is recorded as a reduction to the cost of property, plant and equipment and reflected within investing activities in the consolidated statements of cash flows and associated unpaid liabilities and government proceeds receivable are considered non-cash changes in such balances within the operating section of the consolidated statements of cash flows.

Amounts earned for the Company's guaranteed profit which covered project management costs were recognized straight-line in other income over the term of the government contract. The Company recognized $2.8 million, $2.2 million and

$0.6 million of such income, which is reported as other income in the Company's consolidated statement of operations for the years ended December 31, 2023, 2022 and 2021, respectively. Additionally, in connection with the completion of the contract, the Company recognized $12.8 million in excess of the guaranteed profit in other income in the Company's consolidated statement of operations for the year ended December 31, 2023, which reflects the difference in overall spend compared to the firm fixed price contract amount of $109.0 million.

The DOD also reimbursed the Company for certain engineering consulting costs. These expenses are reflected in research and development expenses as incurred with the corresponding amount presented in other income. For the years ended December 31, 2023 and 2022, $2.0 million and $1.4 million was recorded in research and development expenses and other income, respectively.

Additionally, during 2021, the Company received $0.5 million in funding from the Commonwealth of Pennsylvania, acting through the Department of Community and Economic Development, for the purchase of machinery and equipment as part of an expansion of manufacturing operations in Pennsylvania. All related purchases were completed in 2021.

The balances corresponding to government contracts included in the Company's consolidated balance sheet are as follows:

The activity corresponding to the government contracts included in the Company's consolidated statements of cash flows is as follows:

4. INVENTORIES:

During the years ended December 31, 2023, 2022, and 2021, the Company recorded adjustments to inventory which had a cost of $8.9 million, $15.6 million, and $13.4 million, respectively. The adjustments in 2021 included a write-off of $3.0 million of COVID-19 antibody inventory, which the Company did not believe it could sell as a result of the decision to no longer pursue an emergency use authorization for the enzyme-linked immunosorbent assay ("ELISA") antibody test. Additionally, a significant portion of the Company's 2022 and 2021 adjustments were related to production and tech-transfer issues associated with the Company's COVID-19 rapid test. The year ended December 31, 2023 adjustments were primarily related to reduction in COVID-19 demand and the need to reserve for excess inventory levels.

5. PROPERTY, PLANT AND EQUIPMENT:

During the year ended December 31, 2023, the Company determined several manufacturing lines would not be utilized due to changes in forecasted demand for the products the lines are intended to produce. Additionally, the Company elected not to proceed with certain leasehold improvements to its research and development laboratories. As a result of these decisions, the Company determined that the carrying values of the equipment and leasehold improvements are not recoverable and recorded aggregate pre-tax asset impairment charges of $2.3 million for the year ended December 31, 2023.

During the year ended December 31, 2022, the Company determined several manufacturing lines and associated supporting assets would not be utilized due to changes in forecasted demand for the products the lines are intended to produce. As a result of this decision, the Company determined that the carrying values of the equipment and supporting assets were not recoverable and recorded aggregate pre-taxasset impairment charges of $13.5 million for the year ended December 31, 2022. Due to the extremely specialized nature of the equipment and various market data points, the estimated fair value was zero. These charges are reported within loss on impairments in the consolidated statement of operations.

During the second quarter of 2023, the Company shortened the useful lives of machinery and equipment utilized for InteliSwab® production in Thailand. This reduction in useful lives resulted in $6.9 million of accelerated depreciation during the second quarter of 2023, recorded in cost of products and services sold. During the fourth quarter of 2023, the Company shortened the useful lives of leasehold improvements and equipment due a lease termination. This reduction in useful lives resulted in $0.5 million of accelerated depreciation during the fourth quarter of 2023, recorded in cost of products and services sold.

Depreciation expense for 2023, 2022, and 2021 was $17.9 million, $11.7 million, and $7.5 million, respectively.

6. GOODWILL AND OTHER INTANGIBLE ASSETS:

Changes in goodwill are as follows:

On July 31, 2023, the Company performed a quantitative goodwill impairment test which concluded that the carrying value of its reporting units were below fair value indicating there was no impairment. The Company performed a quantitative goodwill impairment test due to the depressed market price of the Company's common stock and concluded no impairment of goodwill.

During the second quarter of 2022, the Company determined that a triggering event occurred in relation to the depressed market price of the Company's common stock and corresponding decline in the Company's market capitalization. As a result, the Company performed an interim quantitative goodwill impairment test and concluded that the carrying value of the Company's Diagnostics reporting unit exceeded its estimated fair value and the goodwill balance for that segment was fully impaired. The Company recognized a pre-tax impairment charge of $3.6 million during the year ended December 31, 2022, which is reported in loss on impairments in the Company's consolidated statement of operations.

Intangible assets consist of the following:

During the third quarter of 2023, the Company identified a triggering event to test for the recoverability of intangible assets given the decline in the Company's market capitalization leading up to and as of its annual goodwill impairment testing date. The Company performed an undiscounted cash flow analysis and determined the carrying value of the developed technology, trade names, and customer relationships intangible assets could not be recovered through the sum of the undiscounted future cash flows. The Company used an income approach to determine the fair value of the developed technology and customer relationships intangible assets and the relief from royalty method for the trade names. As a result of this analysis, the Company determined the intangible assets associated with Diversigen and Novosanis were impaired as the fair value of the developed technology, trade names, and customer relationships did not exceed their carrying value. The Company recognized a pre-tax impairment charge of $6.2 million during the year ended December 31, 2023, which is reported in loss on impairments in the Company's consolidated statement of operations.

During the fourth quarter of 2023, the Company determined that its remaining developed technology intangible asset was fully impaired. As a result of failed stability studies, the Company decided to no longer pursue the technology. The Company recognized a pre-tax impairment charge of $2.4 million during the year ended December 31, 2023, which is reported in loss on impairments in the Company's consolidated statement of operations.

Amortization expense for 2023, 2022, and 2021 was $2.0 million, $2.3 million, and $3.3 million, respectively.

Amortization expense for each of the five succeeding fiscal years and beyond is estimated as follows:

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

8. TERMINATION BENEFITS:

During the first and second quarters of 2023, the Company executed a reduction in workforce. This was accounted for pursuant to Accounting Standards Codification ("ASC") 420, Exit or Disposal Cost Obligations.

The expense included in the Company's consolidated statements of operations are as follows:

As of December 31, 2023 the Company had $0.4 million accrued and had paid $2.9 million related to the reduction in workforce.

9. LEASES:

The Company determines whether an arrangement is a lease at inception. The Company has operating and finance leases for corporate offices, warehouse space and equipment (including vehicles). As of December 31, 2023, the Company is the lessee in all lease agreements. The Company's leases have remaining lease terms of 1 to 10 years, some of which include options to extend the leases based on agreed upon terms, and some of which include options to terminate the leases within 1 year. The Company presents the operating right-of-use asset amortization and the change in operating lease liabilities on the other non-cash amortization line item of the consolidated statements of cash flows.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

The Company has lease agreements that contain both lease and non-lease components (e.g., common-area maintenance). For these agreements, the Company accounts for lease components separately from non-lease components.

The components of lease expense are as follows:

Supplemental cash flow information related to leases is as follows:

Supplemental balance sheet information related to leases is as follows:

As of December 31, 2023, minimum lease payments by period are expected to be as follows:

10. INCOME TAXES:

Income (loss) before income tax expense consists of the following:

The components of income tax expense (benefit) are as follows:

For the years ended December 31, 2023, 2022, and 2021 the Company recorded net foreign income tax expense of $0.7 million, $0.5 million, and $13.5 million, respectively. The Company's 2022 foreign income tax expense includes $1.7 million of Canadian withholding taxes paid on the repatriation of Canadian earnings offset by a foreign income tax benefit of $1.2 million associated with the Company's Canadian subsidiary. For the years ended December 31, 2023, 2022, and 2021 the Company recorded U.S. state tax expense of $1.9 million, $1.0 million, and $0.2 million respectively.

Thereconciliation of the statutory United States federal income tax rate to the Company's effective tax rate is as follows:

Deferred income taxes reflect the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting purposes and tax purposes, and net operating loss and tax credit carryforwards. Significant components of the Company's deferred tax assets (liabilities) are as follows:

In assessing the realizability of the Company's deferred tax asset, the Company considers all relevant positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent upon several factors, including the generation of sufficient taxable income, to realize the NOL carryforwards. In 2008, the Company established a full valuation allowance against the Company's U.S. deferred tax asset, and although the Company has achieved another year of U.S. pre-tax earnings based on a rolling three year window the Company has not achieved a level of sustained profitability that would, in the Company's judgement, support the release of the valuation allowance. Management believes the full valuation allowance is still appropriate as of December 31, 2023 and 2022. As a result, no U.S. federal income tax benefit was recorded for the years ended December 31, 2023, 2022, and 2021.

The Company's federal NOL carryforwards of $100.0 million have no expiration date.

The Tax Reform Act of 1986 contains provisions under Internal Revenue Code (“IRC”) Section 382 that limit the annual amount of federal and state NOL carryforwards that can be used in any given year in the event a significant change in ownership. The Company does not believe that there is a Section 382 limitation that will impair the Company's future ability to utilize NOLs to offset the Company's future taxable income. The Company continues to review ownership changes on an annual basis and the Company does not believe it has had a subsequent ownership change that would impact the NOLs.

In January 2022, approximately $65.0 million was repatriated from the Company's Canadian subsidiary as a one-time event. Associated with this repatriation the Company paid $1.7 million in Canadian withholding tax which is included in the Company's foreign income tax expense within the table further above. It is still the Company's intention to continue to permanently reinvest the historical undistributed earnings of the Company's foreign subsidiary to the extent that the Company will not incur any additional tax expense associated with foreign withholding or other local tax expense on the future cash transfers. As such, deferred taxes have not been recorded on the unremitted earnings of the foreign subsidiary as of December 31, 2023.

As of December 31, 2023, the Company's gross unrecognized tax benefits totaled $0.3 million, and based upon the valuation allowance for the Company's U.S. operations, the recognition of any tax benefit would not impact the Company's effective tax rate. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. Interest and penalties were immaterial in 2023, 2022, and 2021. As a result of the Company's net operating loss carryforward position, the Company is subject to audit by the Internal Revenue Service since the Company's inception, as well as by several jurisdictions for the years ended September 30, 1998 through December 31, 2023.

Thereconciliation of the Company's unrecognized tax benefits is as follows:

11. STOCKHOLDERS’ EQUITY:

Stock-Based Awards

The Company grants stock-based awards under the OraSure Technologies, Inc. Stock Award Plan, as amended (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.

As of December 31, 2023,4,581 shares were available for future grants under the Stock Plan.

Under the terms of the Stock Plan, nonqualified stock options may be granted to eligible employees, including the Company's officers at a price not less than 75 percent of the fair market value of a share of common stock on the date of grant. The option term and vesting schedule of such awards may be either unlimited or have a specified period in which to vest and be exercised. To date, options generally have been granted withten-year exercise periods and an exercise price not less than the fair market value on the date of grant. Options generally vest over four years, with one quarter of the options vestingone year after grant and the remainder vesting on a monthly basis over the next three years.

The fair value of each stock option was estimated on the date of the grant using the Black-Scholes option-pricing model using the following weighted-average assumptions:

(1)Based on the constant maturity interest rate of U.S. Treasury securities whose term is consistent with the expected life of the Company's stock options.

(2)Based upon historical experience.

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2023, 2022, and 2021 was $3.24, $4.15 and $6.14, respectively.

Compensation expense recognized in the financial statements related to stock options was $1.3 million, $1.5 million, and $1.1 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2023, 2022, and 2021 (the amount by which the market price of the stock on the date of exercise exceeded the exercise price) was $43.0 thousand, $4.0 thousand, and $130.0 thousand, respectively.

The following table summarizes the stock option activity under the Stock Plan:

As of December 31, 2023, there was $2.6 million of unrecognized compensation expense related to unvested option awards that is expected to be recognized over a weighted-average period of 2.6 years.

Net cash proceeds from the exercise of stock options were $0.3 million, $0.02 million and $0.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. As a result of the Company's net operating loss carryforward position, no actual income tax benefit was realized from stock option exercises for these periods.

The following table summarizes information about stock options outstanding as of December 31, 2023:

The Stock Plan also permits the Company to grant restricted shares and restricted units of the Company's common stock to eligible employees, including officers, and the Company's outside directors. Generally, these shares or units are nontransferable until vested and are subject to vesting requirements and/or forfeiture, as determined by the Company's Compensation Committee or Board of Directors. The market value of these shares and units at the date of grant is recognized on a straight-line basis over the period during which the vesting restrictions lapse. Compensation cost of $7.6 million, $9.2 million and $4.1 million related to restricted shares was recognized during the years ended December 31, 2023, 2022, and 2021, respectively.

The following table summarizes restricted stock award and restricted stock units activity under the Stock Plan:

As of December 31, 2023, there was $7.7 million of unrecognized compensation expense related to unvested restricted stock awards and unvested restricted stock units that is expected to be recognized over a weighted average period of 1.5 years.

In connection with the vesting of restricted shares during the years ended December 31, 2023, 2022, and 2021, the Company purchased and immediately retired 262,241 and 107 shares with aggregate values of $1.4 million, $1.6 million and $1.4 million, respectively, in satisfaction of minimum tax withholding and exercise obligations.

The Company grants performance-based restricted stock units (“PSUs”) to certain executives. Vesting of these PSUs is dependent upon achievement of certain performance-based metrics during aone-year orthree-year period, from the date of grant. Assuming achievement of each performance-based metric, the executive must also generally remain in the Company's service forthree years from the grant date. Performance shares were granted based on the achievement ofthree-year cumulative revenue metrics with a market-based condition, or a total shareholder return modifier. PSUs are converted into shares of the Company's common stock once vested and the number of shares actually earned at the end of the performance period will vary, based on actual performance, from 0% to 150% of the target number of performance share units granted. 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.

Compensation cost of $1.8 million, $0.9 million and $2.7 million related to the PSUs was recognized during the years ended December 31, 2023, 2022, and 2021, respectively.

The following table summarizes PSU activity under the Stock Plan:

(1)Grant activity for all PSUs disclosed at target.

(2)Reflects the performance adjustment based on actual performance measured at the end of the performance period.

As of December 31, 2023, there was $4.4 million of unrecognized compensation expense related to unvested performance stock units that is expected to be recognized over a weighted average period of 1.9 years.

In connection with the vesting of performance stock units during the year ended December 31, 2023, 2022 and 2021, the Company purchased and immediately retired 86,88, and 46 shares with aggregate values of $0.5 million, $0.6 million and $0.7 million, respectively.

Share Repurchase Program

On August 5, 2008, the Company's Board of Directors approved a share repurchase program pursuant to which the Company is permitted to acquire up to $25.0 million of the Company's outstanding common shares. No shares were purchased and retired in 2023, 2022, and 2021.

12. TRANSITION COSTS

On December 31, 2021, the Company's Board of Directors approved the termination of Stephen S. Tang, the Company’s President and Chief Executive Officer, without cause under his existing employment agreement with the Company, with such termination effective as of March 31, 2022. On January 2, 2022, Dr. Tang and the Company entered into a Transition Agreement providing for the terms of the cessation of Dr. Tang’s employment with the Company, including the cessation of his service as President and Chief Executive Officer of the Company and as a member of the Board. Under the Transition Agreement, Dr. Tang’s service to the Company in all capacities ended on March 31, 2022.

Pursuant to the Transition Agreement, Dr. Tang received severance of $1.6 million, which was accrued in the consolidated financial statements at December 31, 2021 and paid in April 2022. Additionally, in accordance with his Transition Agreement, certain of his unvested time-vesting restricted stock awards and unvested PSUs that were outstanding at March 31, 2022 vested on April 8, 2022. His remaining unvested time-vesting restricted stock awards and PSUs were forfeited on March 31, 2022. These payments, rights and benefits are substantially similar to the severance benefits contemplated by his previous employment agreement in respect to a termination without cause thereunder. In aggregate, the Company recognized $1.5 million of expense in relation to Dr. Tang's stock compensation for the year ended December 31, 2022.

13. BUSINESS SEGMENT INFORMATION:

The Company is organized on the basis of products and services under a new organizational structure. All products and services reside under the same reporting hierarchy. Historically there was separate management leading the Company's Diagnostics and Molecular Solutions businesses. In February 2023, the Company announced a corporate restructuring to combine the commercial and innovation teams across the Diagnostics and Molecular Solutions segments intoone operating segment with sales, marketing, product development and research teams covering all product lines and reporting to a Chief Product Officer. Resources are allocated and performance is assessed on a consolidated basis by the Company's Chief Executive Officer, whom the Company has determined to be its Chief Operating Decision Maker ("CODM"). The CODM reviews the business based on individual product success. Therefore, the Company's historical reportable segments - Diagnostics and Molecular Solutions - are consideredone reportable segment and there is no longer is a distinction between Diagnostics and Molecular Solutions, only the Company holistically.

The following table represents total long-lived assets by geographic area:

14. COMMITMENTS AND CONTINGENCIES:

Purchase Commitments

As of December 31, 2023, the Company had manufacturing agreements with certain third party vendors, in which minimum purchase commitments are required. If the minimum commitments are not achieved, the Company will be required to make annual penalty payments over the next three years. Based on current forecasts, these penalties aggregate to approximately $1.0 million and are accrued for in the consolidated balance sheet. These estimated penalties can fluctuate based on changes in forecasted demand. The table below represents an estimate of future purchases under those agreements.

Litigation

From time to time, the Company is involved in certain legal actions arising in the ordinary course of business. In management’s 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 the Company's future financial position or results of operations.

Spectrum Patent Litigation

In June 2021, the Company filed a complaint against Spectrum Solutions, LLC (“Spectrum”) in the United States District Court for the Southern District of California alleging that certain saliva collection devices manufactured and sold by Spectrum infringe a patent held by DNAG. Spectrum filed an answer to the initial complaint, asserting that its device does not infringe the Company’s patent and that the Company’s patent is invalid. In August 2021, the Company amended its complaint to add a second patent to this litigation. Spectrum responded to the Company's amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation and subsequently filed a request for review of the second patent at the Patent and Trademark Office (“PTO”), which was granted by the PTO. The District Court issued multiple pretrial orders, resolving the infringement, antitrust, and inequitable conduct claims without trial. First, the District Court granted Spectrum’s motion for summary judgment of noninfringement, holding that Spectrum’s saliva collection devices are not “kits for collecting and preserving a biological sample,” among other rulings. The Company appealed the grant of summary judgment to the Court of Appeals on June 8, 2023. The appeal is pending, with oral argument expected in the second half of 2024. Second, the Court denied Spectrum’s motion to supplement its allegations of alleged antitrust violations, finding that if such an amendment were allowed, Spectrum’s claims would not survive a motion for summary judgment. Spectrum thereafter withdrew its antitrust and inequitable conduct counterclaims. Spectrum did not appeal the District Court's denial of its motion to amend. On February 7, 2024, the PTO issued a Final Written Decision regarding the second patent in the litigation, holding that claims 1, 3–8, 11, and 12 of U.S. Patent No. 11,002,646 B2 are unpatentable. The Company is considering its appellate options. On September 15, 2023, Spectrum filed a separate petition forinter partes review of a third patent, which DNAG did not assert in the District Court. The Company filed a preliminary patent owner response on December 28, 2023. That petition remains pending.

15. RETIREMENT PLANS:

Substantially all of the Company's U.S. employees are eligible to participate in the OraSure Technologies, Inc. 401(k) Plan (the “401(k) Plan”). The 401(k) Plan permits voluntary employee contributions to be excluded from an employee’s current taxable income under provisions of Internal Revenue Code Section 401(k) and the regulations thereunder. The 401(k) Plan also provides for the Company to match employee contributions up to $4 thousand per year. The Company contributed $1.6 million, $1.8 million and $1.3 million to the 401(k) Plan, net of forfeitures, in 2023, 2022, and 2021, respectively.

In addition to the Company's 401(k) plan, the Company offers a nonqualified deferred compensation plan to permit eligible directors and highly compensated employees of the Company to defer receipt and taxation of their compensation each year.

The Company also may make discretionary contributions to the accounts of the participating employees in any amount either in cash or stock. Participants in the plan may not purchase OraSure stock as an investment vehicle. As of December 31, 2023 and 2022, the value of the assets associated with this plan was $0.8 million and $0.7 million, respectively, and is included in current assets and other assets in the Company's consolidated balance sheets. The Company's obligation related to the deferred compensation plan is included in accrued expenses and other liabilities in the Company's consolidated balance sheets. As of December 31, 2023 and 2022, the Company's total obligation under this plan was $0.8 million and $0.7 million, respectively.

Substantially all regular full-time Canadian employees are eligible to participate in the DNA Genotek Registered Retirement Savings Plan (the “RRSP”). The RRSP permits voluntary employee contributions to be excluded from an employee’s current taxable income and receive tax preferred treatment with Canada Revenue Agency. The RRSP also provides for DNAG to match employee contributions up to $4 thousand CAD per year. The Company contributed $0.4 million, $0.5 million and $0.4 million to the RRSP in 2023, 2022, and 2021, respectively.

16. SUBSEQUENT EVENTS:

In January 2024, the Company announced that it is leading the Series B financing and has entered wide-ranging strategic distribution agreements with Sapphiros, a privately held consumer diagnostics portfolio company based in Boston, and certain of its related entities. Through this strategic relationship, the Company expects to be able to offer a more comprehensive range of low-cost diagnostic tests and molecular sample management solutions to its customers globally.

On January 2, 2024 and on February 13, 2024, the Company invested $10.0 million and $18.3 million, respectively in Sapphiros for a minority interest, which will be accounted for using the cost basis of accounting. There are future investment commitments of $1.7 million to be paid by June 2024, contingent on certain terms and conditions being met.