Q4 2019 Earnings Call
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Orasure technologies issued a press release it at approximately four PM Eastern time today regarding its to 29 team fourth quarter financial results in certain other matters. The press releases are available on our website at www Dot Orchard, dotcom, whereby calling pick 108 to one 820.
If you go through our website. The press release can be found by opening the Investor Relations page clicking on the linked to press releases.
With us today are Dr., Stephen King, President and Chief Executive Officer, and Mr., Burton Kuka, Chief Financial Officer, Dr., carrying and Mr., Google will begin with opening statements, which will be followed with the question and answer session.
Before I turn the call over to Dr. Chang you should note. This call may contain certain forward looking statements, including statements with respect to revenues expenses profitability earnings or loss per share and other financial performance product development performance shipments in markets business plan regulatory filing could approval.
Expectations and strategy.
Actual results could be significantly different factors that could affect results discuss more fully in the company's FCC filings, including with registration statements. Its annual report on form 10-K for the year ended December 31 2018.
Quarterly reports on form 10-Q, and its other FCC Garland.
Although forward looking statements help help to provide complete information about future prospects listeners should keep in mind that forward looking statements are based solely on information available to management as of today. The company undertakes no obligation to update any forward looking statements to reflect events or circumstances. After this call with that.
I'd like to turn the call over Dr. Stephen tank.
Thank you Jane good evening, everyone and welcome to our coal.
We're pleased to report solid financial performance for the fourth quarter of 2019.
These results for evidence of the momentum that our innovation driven growth strategy continues to generate.
Revenue for the third highest if any quarter and the company's history.
They brought to close feel very productive year for orasure.
I'd like to pick a minute dimension a few highlights from 2019.
We advanced our innovation growth strategy with the acquisition of two leading Microbiology laboratory services pioneers.
Core bio and diversification.
No. The sand is whether it's a person board urine collection technology.
These acquisitions increase our product and service offerings to capture and expand new market opportunities, which will contribute to our future future growth.
We divested our quite a surgery systems product line in order to better align with our strategy and focus our efforts on the high priority growth opportunities.
We received several important regulatory approval.
Including a generic five 10-K clearance.
Our aurigene family a molecular collectors.
Five 10-K clearance of our rapid Ebola test.
An approval to use our whr pre qualified for quick HIV professional and self test products for pediatric testing.
These approvals will substantially improved the competitive positioning of these products.
During Q4 throughout the year.
We saw continued strong growth in international sales of our Oraquick HIV self test and dramatic growth in our microbiological quoting both products and services.
We expect these trends to continue and 2020.
Despite the challenges we've seen into consumer genomics market in particular in the ancestry testing market.
Overall business remains strong as demonstrated by our Q4 financial performance.
Q4, net revenues came in at 49.7 million in.
Hey, Mark the third highest revenue quarter in the company's history.
We achieved these revenues despite the absence of our class search will product line, which we sold in August of 2019.
Cryosurgical systems business generated revenue of 2.9 million in Q4 2018.
In an age irrational HIV sales showed robust growth of 123% for the fourth quarter compared to 2018.
Showing the ongoing strength of our HIV self test. This performance continues a trend, which we saw throughout 2019 and as a key driver and the 37% increase in Q4 infectious disease testing revenue compared to 2018.
Our microbiome business continues to be a stellar performer during the fourth quarter.
Including contributions from our new laboratory services subsidiaries or by and diverse engine.
Our microbiome revenues more than doubled in Q4 compared to 28 team.
Our molecular collection systems product and services revenues for Q4 were flat when compared to the fourth quarter 2018. Despite the continued declines in the consumer genomics market.
Looking at it from a different perspective those results showed the underlying strength in other parts of the molecular business, which offset the challenges in the consumer ancestry market.
Our GAAP EPS for the quarter of four cents includes $1 million or two cents of acquisition related transaction costs.
And change in value of contingent consideration for two transactions, we completed in January of 2019.
We continue to prioritize the identification in pursuit of external growth opportunities consistent with our long term innovation growth strategy.
Finally, our cash balances at the end of the year were almost $190 million and should provide sufficient firepower for continued funding our growth priorities.
So we're pleased with the way that 2019 close and are confident that we're on the right track.
Well some ongoing challenges remain we are encouraged our infectious disease and molecular segments are well positioned to capitalize on the respectable growth opportunities.
Our recent acquisitions are generally lining up with expectations, and we're especially excited about future prospects in our emerging Microturbine Laboratory service business.
With that I'll now for Burdeau to provide some financial review for the quarter I will then share some additional thoughts on our business and we'll take your questions.
Thanks, Steve and good evening everyone.
Our fourth quarter net revenues decreased 1% to $49.7 million from $50.2 million reported in the fourth quarter of 2018.
Our net product and services revenues increased 5% to $47.2 million compared to the prior year period.
Notably the fourth quarter of 2018 include Cryosurgical revenue of $2.9 million, which did not recur in 2019 since we sold this line of business in August 2019.
Excluding these sales dollars from fourth quarter 2018 revenues would result in an aggregate product and service revenue increase of 12% in the fourth quarter of 29 team.
As Steve mentioned international HIV sales increased 123% to $9.8 million from $4.4 million in the fourth quarter of 2018 due to higher sales threat HIV self testing to Africa, and Latin America and increased sales of our professional HIV product into Asia Asia, partially offset by lower sales and your.
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Domestic HCV sales increased 7% in the fourth quarter 2000, $19 million to $2.2 million from $2.1 million in the prior year period, largely due to higher sales into the public health and physician offices markets principally caused by the ongoing opioid crisis and its impact on HCV infection.
International HCV sales in the fourth quarter, 2019 decreased 19% to $1.3 million from $1.6 million in the same period of.
2018, primarily due to lower sales into Africa, partially offset by sales growth in Asia.
Our total molecular revenues, including other revenues decreased 8% to $27.8 million in the fourth quarter compared to $30.2 million in 2018.
Royalty income declined 55% to $2.2 million in the fourth quarter of 2019 from $4.8 million in the same period 28.
This reflects the continuing challenges faced in the consumer genomics ancestry market.
Killer product revenues remained largely flat at $25.5 million in the fourth quarter 2019, compared to $25.4 million in the fourth were 22.
Sales of our genomic products declined 11% to $21 million flat largely due to a large order shipped in the fourth quarter of 2018 that did not recur in 2019 and due to the purchase ordering patterns of two other large genomics customers.
Michael by AAM sales increased 133% to $4.4 million from $1.9 million in the fourth quarter of last year, primarily due to the inclusion of lab service revenues generated by our newly acquired subsidiaries core biome and diversity.
Gross profit percentage for the fourth quarter of 29 team with 60% compared to six 9% reported for the fourth quarter of 28.
The decline in gross profit percentage is related to a product mix of higher sales of lower margin products and services, including the absence of higher margin crime surgical product sales and at acquiring and other revenues, which contributed 100% the gross profit percentage.
Our operating expenses for the fourth quarter, 2019 were $25.8 million compared to $22.2 million in the comparable period of 28.
Operating expenses in the fourth quarter 29 can included the incremental operating expenses generated by our subsidiaries acquired in 2019 increased spending on the development of automated oral fluid drug assays.
$197000, a transaction costs related to completed acquisitions and $179000 of noncash acquisition related contingent consideration expenses, partially offset by decline in bonus and stock compensation costs that are directly tied to company performance.
Operating expense in the fourth quarter of 2018 included $1.2 million the transaction costs associated with the acquisitions, which occurred in January of 29 team and $973000 of additional transition costs associated with executive management changes that occurred earlier in that year.
In the fourth quarter of 29, Kenya, we reported income tax expense of $2.1 million compared to $3.8 million in the same period last year.
The decline in tax expense reflects the lower pre tax earnings generated by our Canadian subsidiary age subsidiary DNA Genotek.
We reported net income of $2.4 million worth four cents per share on a fully diluted basis for the fourth quarter 2019, compared to net income of $10.3 million were 16 cents procure share for fourth quarter of 28.
The transaction and transition related expenses amounted to approximately two and four cents in the fourth quarters of 29 team in 2018, respectively.
We continue to maintain solid cash and liquidity position.
Our cash and investments balance at December 31st 2019 was $189.8 million compared to $201.3 million at December 31st 2018.
During the year, we used $23.8 million of cash to acquire poor by notice sammis and diverse engine and we received $12 million from proceeds from the sale of our Cryosurgical systems business.
Cash generated by our operating activities. During the year ended December 31st 2019 was $9.8 million compared to $39.1 million in the same period of 28.
Turning to guidance for full year 2020, we're projecting revenues of 145 million to $155 million and a net loss of seven to 10 cents per share.
These projections do not account for the impact of changes in the fair value of acquisition related contingent consideration or potential business development transaction costs since the full extent of those items cannot be determined at this time.
These estimates reflects two developments about which Steve will provide additional detail shortly.
With that I'll now turn the call back over to Steve for his further business updates.
Thanks, Robert all starting first with our molecular solutions business segment.
As we shared on previous calls to commercial genomics market has been undergoing a major evolution that is created headwinds for molecular business.
We see this trend continuing into 2020. However, we are optimistic that opportunities another critical growth areas within gentlemen, the genomic market will help offset this trend.
We have always categorized our primary genomics markets is either academic or commercial.
In 2019, we started to more closely examined the submarkets within our commercial category and our classifying opportunities into ancestry animal lifestyle and disease risk management testing.
Typically the ancestry animal and lifestyle sub markets, our consumer led with vendors offering services directly via the web.
In contrast, the disease risk management Submarket currently requires some form of medical practitioner, where genetic counselor support.
We expect that the ancestry or genealogical testing Submarket, we'll continue to decline as we've seen in prior periods. The primary factors driving this are the changing promotional and business strategies. Other major players in this market.
As you will recall, we first started seeing the impact of this trend in early 2019, when a large consumer genomics customer unexpectedly told us what a change of promotional strategy and a reduction in forecasted purchases.
We took several actions in 2019 to respond to these marketplace changes.
First we reduced our expectations regarding royalty payments from a third party as well as orders from our large customer in this area.
In 2019, this large customer accounted for 15% of overall revenue.
Second towards the end of the year, we renegotiated and amended our contract with a large customer.
That is most affected our performance by extending the agreement for two additional years.
This had the effect of reducing the annual minimum requirements to reflect the new marketplace dynamics, but did not change the overall aggregate financial commitment of this customer for the life of the contract.
The amendment also aligned the contract years.
And their respective minimums with calendar years.
We believe these actions will improve predictability for this part of our business.
To this and we expect that the customer order at the annual minimum this year, which is approximately half of what it ordered last year.
Yeah, well minimums increased over the remainder of the contract term. So we expect the customer needs to be a contributor to growth again in 2021.
As I've mentioned on previous calls, we expect disease risk management. The next large largest submarket within commercial genomics to continue to grow eventually eclipse ancestry testing.
Disease risk management includes pharmacogenomics testing hereditary disease screening prenatal or carrier screening.
Population health initiatives and other molecular testing test using microbial DNA or human Oren eight for diagnosis of acute disease.
This emerging submarket experienced some volatility in 2019, when the department of Justice or D.O.J. pursued indictments related to legit fraudulent Medicare billing against several companies that offered screening and pharmacogenomics testing.
The fallout from these events has been lab closures and uncertainty regarding DNA regulatory scrutiny in this area.
Both of these factors had a negative impact on demand in this space.
We believed that the D.O.G. actions were a one time event and expect that demand for screening and pharmacogenomics, we'll continue to grow at a rate of seven to 10 per cent per year.
When added to the strong ongoing growth and diversification within disease risk management, we project robust growth in the overall disease risk management market for 2020 and beyond.
We also believe we're well positioned to capitalize on this growth opportunity.
We secured a unique regulatory advantage when the FDA granted a generic five 10-K clearance for our Oragene Dx product.
Our product the first and only sliwa collection device that can be used for prescription or over the counter use.
This Clarence simplifies FDA approvals for genetic testing manufacturers, who wants to add saliva as a sample collection method for their offerings.
Expect this clearance to enable broader use of our devices and the growing disease risk management arena and potentially other markets.
We also secured long term customer contracts with several of the largest players and in disease risk management, including those with patient initiated testing programs and large scale population programs.
Number of companies offering these applications continues to increase.
We're also seeing continued growth within most accounts.
These contracts will provide a good foundation for continued growth in the in this part of the genetic testing market.
Our microbiome business is also in a strong position as evidenced by our Q4 performance.
Thanks to our acquisitions a core by on the diversity and we are now effectively the leader and end to end solutions for microbiome from sample collection through analysis.
We continue to grow our customer base Mer base within the Microbiomes space with double digit sales growth from all microbiome product portfolio for the year.
The number of first time could purchasers in Q4 grew 13% quarter over quarter and revenue for first time purchasers increased 33% for the full year 2019 compared to 2018.
As you expect we're excited about the outlook of our laboratory service business with several trends supporting robust growth expectations.
Including continued expansion of microbiome services as an endpoint in clinical trials and our growing relationships with both established biopharma and innovative biotech startup companies.
We also see direct to consumer wellness applications to the future growth driver as a market matures and leads towards actionable insights and clinical applications.
We recently won I request for proposal for shotgun Embeda genomics and analysis in a large epidemiological study.
Under this study we expect to provide services for both perspective and retrospective clinical trial projects.
We also have a robust and ongoing pipe ongoing pipeline of proposals across commercial and academic opportunities for our service offerings.
Perhaps the best bellwether of the microbiome markets health and potential it's a growing number of scientific studies.
There have been many new seminal studies within the last year, demonstrating that the microbiome field is continuing to move towards clinical applications.
One study offers new evidence that a person's microbiome may determine how well a common drug for treating Parkinson's disease will work I.
Another found evidence that certain micrel microbes can for predict graft versus host disease.
Stem cell transplant patients.
These two studies are among the over 14000 research articles published about the microbiome in 2019, a 29% increase over 2018 and a sign of the rapid acceleration of discovery within this field.
We also continue to make good progress in the integration of core core by on the diversity and into our operations.
Our plan is to consolidate the core bio diversity and businesses into one unified Premier Science led service Lab services company.
Offering validated protocols for best in class lab offerings and superior data analytics.
While both brand names Kerry equity in the marketplace, we will unify our service offering under the diverse engine name.
We will consolidate lot of operation and then Minneapolis, Saint Paul area, where core by on was located.
Construction on a new state of the Art lab facility is expected to be complete by the other 2020.
We've restructured the team to support the stronger unified vision for the company and our investing an expert resources to grow the business.
As we look into the future we continue to see opportunities beyond our genomic and microbiome businesses with significant growth potential in the broader field multiomics.
That's emerging area of life Sciences, and data analytics provides a multi factorial examination of an individual's health by examining the different olmstead, a person, including the microbiome and the genome.
We are seeing continued growth in a number of our existing human genomics customers were also purchasing microphone products and services for their studies and offerings.
But the fourth quarter and the full year 2019, the number of customers who are using both genomic and microbiomes kits increased by more than 30%.
We expect this trend to continue we also are also exploring other development opportunities to expand our product portfolio and into additional sample types satellites are of interest to our customers.
We continue to be optimistic about our Nova saying this column urine collection device, which is increasingly becoming use in clinical trials and validated for use Turkey studies.
This foundational work is imperative in demonstrating the effectiveness of the product and utility of first Ford Europe for key applications within high growth screening opportunities.
The paper presented at George at the year origin conference in 2019 demonstrated that samples collected with Colopy provided non inferior clinical sensitivity when compared to performance with surgical samples.
Preliminary results from the all ongoing those who does study.
Provide a starting point for validating coffee for human Papilloma virus essays.
Similarly assigned Sato, the Belgian Institute for Health is performing a study using colicky device to guide Chlamydia prevention in Belgium.
These and other similar studies will be important for the development in this part of the business.
Turning now to infectious disease.
The fourth quarter was another strong performance for our infectious disease business with revenues, increasing 37 per cent compared to Q4 2018.
The major driver with our HIV franchise, which reported a 57% increase in global revenues when compared to the prior year.
But principally by a 123% increase in revenues from our international HIV business.
We shipped 2.9 million HIV self test in Q4, and all time record for this product.
We expect the recent growth trends in HIV self test sales to continue in 2020, resulting in high teens growth in global revenues for the year.
Our product registration strategy for self that's continues to progress with 20 registrations currently in place in 15 more in progress.
The latest registration we receive was for the Ivory coast.
Each registration opens up a new market for us and expands the opportunity for growth.
We now have all the registrations in place you need to support our 2020 business plan for self test sales.
Importantly, we have continued to grow our self test business and maintain our strong market share position, even though to blood based rapid HIV self test have received W.H.O. prequalification.
One cautionary note is that our quarterly international revenues will likely continue to be a bit choppy as individual countries determine their ongoing utilization of our product.
This is a natural way these markets have developed with order sizes varying as specific in country programs create awareness and assess ongoing demands for HIV self testing.
Our domestic HIV professional business is also also turned in a strong fourth quarter with revenues up 17%, reflecting sales growth the public health hospitals and physician offices.
This growth was primarily driven by the timing of orders as discussed in her last earnings call some product issues experienced by our competitors and competitive wins in certain jurisdictions. This double digit growth is likely to moderate to single digits in future quarters as a competitor issues and competitive wins are absorbed in our ongoing revenue stream.
In prior calls I've mentioned, the U.S. Department of Health and Human services initiative called ending the HIV epidemic a plan for America.
Which has a goal ending HIV in the U.S. within 10 years.
Total $291 million a funding for the for the play the for America was approved late December 2020, and the CDC and state jurisdictions are moving ahead with implementation we.
Specific testing plans to be approved in jurisdictions as the year progresses, which should help drive sales of our HIV testing products.
We are working closely with.
What's CDC on implementation with 57 targeted jurisdictions, many of which are recognizing in home or self testing as an important tool for achieving plan goals.
We expect the opportunities under the plan from error to continue beyond this year as additional funding for this multiyear initiative becomes available.
The recent budget proposed by the administration includes $716 million in funding for a second year of the initiatives.
Which if approved will represent a significant increase in funding for the next fiscal year.
Finally, there have been several recent studies demonstrating the benefit of HIV self testing with our in home HIV test.
One of the most recent reports came from a state department of health, which have longtime customer of ours. This report included data, indicating that HIV self testing reaches those people who are not accessing HIV testing through normal channels.
Reaches those people, whose behavior puts them at elevated risk for HIV infection empowers individuals to know their HIV status by testing more frequency and talking with their peer group about HIV testing more often is popular because it's easy to use provides a sense of confidentiality and puts the user and from control his or her own.
His or her own home health.
And successfully allows HIV positive individuals be linked to care begins receiving treatment in a timely manner.
For all these reason we remain optimistic about the overall long term potential for that or HIV franchise.
Turning briefly to HCV, our performance for the fourth quarter was a bit mix with overall global revenues down 5% compared to the prior year quarter.
Domestic sales for the quarter increased 7%, primarily due to new programs in program expansions.
We are seeing increased rates of age CB affection, resulting from opioid use.
International revenues were down largely as a result of timing issues as two large purchases that occurred in 2018 did not repeat in 2019.
The announcement, the oral fluid drug testing guidelines by the substance abuse and mental health services administration or SASSA last year positively impacted the risk assessment testing portion of our infectious disease business.
As mentioned in prior calls these guidelines will give us access to businesses, where employee drug testing is regulated by the federal government.
This is a large untapped market for us.
The second half of 2819, we amended our development agreement with Thermo Fisher and are now optimizing our intercept collection device and the thermo essays in order to meet these new federal guidelines.
This development work will be a priority through throughout 2020 is expected to drive growth in subsequent years after the appropriate regulatory clearance or obtained.
And a final topic I want to address this the recent arbitration process against answer Sri Dot Com DNA.
As you May recall, we settled patent infringement in breach of contract litigation with ancestry back in late 2017.
The settlement agreement from that litigation process was establish evaluate new DNA collection products developed by ancestry to determine whether they fall within the royalty provisions of agreements.
Because we disagreed with ancestry view of its new collection device, we engage in arbitration to resolve the dispute.
Our surprise the arbitration panel recently issued decision found that the new ancestry product does not infringe on the patents we asserted in the in the arbitration.
As a result, the new product will not be subject to royalties or the settlement agreement once its commercialized.
Although this this decision as final and binding on all on the parties with respect to patents asserted in the arbitration. It does not cover any patent continuations that we may obtain or new patents that we may acquire in this area.
Our strategy is always been to build a strong patent portfolio for DNA collection devices to expand that portfolio, where possible into aggressively defend our intellectual property rights.
And that is exactly the strategy, we've been falling and we'll continue to follow.
In conclusion, we ended 2019 and a good position with solid financial results in the fourth quarter.
During 2019, we had to deal with our fair share challenges as we work work to replace a significant amount of revenue that was lost two due to a dramatic slowdown and our consumer genomics business.
I want to thank all of those if orasure will help navigate that significant headwind to get us back on track and finished the year on solid footing, we made great progress in executing against our long term innovation growth strategy that calls for us to invest in emerging technologies become a leading provider of nm solutions for molecular.
Customers that takes on all the way from sample to answers to that end, we improved our competitive profile expanded our addressable markets with the completion of three acquisitions and the Divesture divestiture of a non strategic business.
Our strong balance sheet affords us the ability to acquire additional products and services to augment our car capabilities are focused on finding and closing such acquisitions will continue with a robust pipeline of acquisition candidates under review.
Our global HIV, and HCV franchises and molecular solutions business will likely continue to be primary drivers of revenue growth in the near term.
With risk assessment testing picking up again in the near future.
Through our acquisitions and investments in our core businesses. We have established a company that drives access to multiple layers of information and data to understand health wellness and disease States. We will build on that foundation as we continue to advance our innovation driven strategy in 2020 and beyond.
And with that we would now like to take your questions. Operator. Please proceed thank.
Thank you.
And as a reminder to ask question you need to press star one on your telephone.
Well Joe Your question. Please press the pound key.
Again, please limit yourself to one question one follow up.
Please standby, what we can probably 20 rushed.
And our first question comes from the line of John Shoes with Raymond James Your line is open.
Good afternoon, even if we could start with the 2020 outlook.
Just philosophically given the choppiness that we saw a quarter to quarter and 29 team did you approached the guidance process any differently and then maybe just as a follow up can you just walk us through the high level drivers puts and takes on both the revenue line as well as well as vps.
Thanks for the question John So we did not approach the.
Philosophically any differently, our buildup of our expectations for 2020.
We.
We did it.
Include into our guidance range, our expectations around how end quarter shipments might affect our total revenues.
And for the full year, because we try to get many of our shipments done before the end of your holidays. The fourth quarter is somewhat less affected by that so although Steve pointed out that we do expect Scott.
Variance in quarter to quarter shipments for the full year, we feel pretty comfortable about getting the orders in.
Under the wire.
With regard to our overall expectations for 2020 I'll start with revenues. So we're expecting high teens growth for our global HIV franchise and strong growth from global HCV.
We expect that risk assessment will be flat to potentially slightly up ahead of our seeking regulatory approval of a next generation product in 2021.
We're expecting triple digit growth from Microbiomes services in 2020.
And then outside of the largest customer and of the third party royalty payer, we expect double digit growth from the remainder of our molecular collection products.
We expect that in 2020, the largest customer will buy at their new annual minimum as Steve described.
That has been reset due to the extension of the contract and that new annual minimum will be about half of what they purchased in 2019, which in 2019 represented about 15% of total revenues.
And then we've included the royalty payments only in the first quarter of 2020, although we have no precise insight into when the royalty payer might switch to the new product. So there is some upside potential in the remainder of the year from that product.
With regard to expenses, we do expect R&D to step up over 2019 as a result of the thermal work that we're doing.
To develop the next generation risk assessment testing products.
As well as from the Annualization and growth in R&D activity from our three X three acquisitions in 2019.
We expect as she needs to increase more moderately.
They're driven primarily by the Annualization of acquisitions, and specifically a diverse again.
And then what we'd expected that to the extent that revenues vary within the range that we've given we would adjust our spending somewhat to preserve the bottom line.
Okay, Great. If I could just ask a quick follow up on that large customer just to clarify.
By my math I think fee.
The amount remaining on on the on the prior contract with something around call. It.
60, 566 million and so it sounds like that's been extended out by a couple of years, but did I hear you correctly that you expect them to return to growth from the new.
Level in 2020, that's half of the 2019 level.
And again to be clear or whatever is remaining on that contract is the amount that is extended out through through the end of 2023.
Correct, so under the current contract.
As the remainder of the amount that's pending in the contracts extended to the end between 23 as he said.
And we did we do expect so the annual minimum is structured such that there is a step up from 2020 to 2021, so purchasing at those minimums, we should see growth.
Okay, great. Thank you very much.
Thanks, John Chuck.
Thank you and our next question comes from the line of Brandon Couillard with Jefferies. Your line is open.
Thanks, Good afternoon.
Yes, if you look at the 20 guidance I think the two pieces that you called out in terms of number one the contract negotiation in the ancestry royalty loss seems to be a whole up about $15 million, you're basically guiding full year to be about flat.
So on an adjusted basis kind of 22 about 10% gross.
Let's get to the for your numbers you just sort of speak to the level of conservatism that may be built in to that assumption and understanding that you're now sort of shifting to just an annual guidance you moving away from accordingly.
Approach can you help us think about the phasing between the first half in second half, perhaps it's farcical your revenue goes.
Sure. So thanks for the question so regarding conservatism.
Steve did described this as a rebuilding year, we are setting the base for what we do expect to be significant growth post this year.
And we established our guidance as numbers that we expect to be able to hit.
We.
You know incorporated into our thinking all of the potential risks.
Expect that as we go into the year, we maybe able to improve the range or tightened the range. If we do see some favorability.
And on your second question.
You can remind me.
Yes, just anything in particular, you can help us out with in terms of I'll be talking about the phasing of the annual revenues, if there's anything to be aware of sort of between first half in second half the year.
Sure. So we expect to see phasing of the revenues in 2020, that's similar to what we experienced in 2019.
One of the big drivers of that is that we expect the the big customer with the annual minimum to do most of the purchasing of that annual minimum in the second half of the year.
And so you can imagine that that would.
End up replicating the skew that we saw in 2019.
Okay. That's just conceptually in terms of.
Sorry, another contributor to that the greater revenues in the second half from the first half would be growth from the higher drilling acquisitions and then two smaller extent the introduction of new product offerings in molecular diagnostics for example.
Okay, and then just in terms of the contract negotiation itself why even go up out there like what what did you actually get out of it it seems that yield the values and save you give them an extra two years to buy are they on better terms at all do you get better margins, what do you actually get out of the renegotiation.
So there there are two things that we got out of the contract renegotiations. The first as we extended the period of exclusivity during which the customer can only buy from us.
And the contract terms also prevent the customer from.
Developing or.
Investigating a competing products.
So that exclusivity does have value and we maintained our relationships with the customer that we expect to continue to.
It would expect continued working with even post the contract term.
So we during the final years of this contract will look into a negotiating either an extension or new contract and so maintaining a good relationship with that customer was a value to us.
All right I'll hop back in queue. Thanks.
Hi, Thanks Brendan.
Thank you.
That brings and into the queue in a session of today's call will like to turn the call over to Dr. Chang for closing remarks.
Operator can can you check the Q again please.
Sure. We do have a question we do have two follow ups from Joe and shoot with Raymond James Your line is open.
Great. Thank you, yes. So just if we could quickly touch on HIV self test you talked about some upcoming registrations that gives you confidence in the pipeline are there any specific countries to note that could have an outsized impact.
You know in that pipeline and then just overall is a business kind of trending in line with your expectations to scale longer term I believe you're looking to to reach a point, where the margin profile can be supported.
Without without any benefit from bill and Melinda gates by by 2022, so kind of longer term how are you tracking tracking to that.
Yes, John.
We are tracking very closely on all aspects that you mentioned I mentioned that we currently are registered to sell our product in 20 countries and there are 15 countries in Q I think the most significant thing about 2020 is that.
Our projected sales for 2020.
Our based on countries for which we already have registration.
In the prior years, we had to rely on registrations happening during that year and then buildings for sales from there. So I think we're in a much stronger position.
To scale.
In existing countries, who have already begun and we'll continue to pursue additional countries, where we haven't begun.
And I think Youre, absolutely correct that the margin profile.
Was designed for the gate subsidy.
Two.
To improve over time.
In anticipation of the gave subsidy going away and we are well on schedule to reducing the cost.
Good sold for that product in order to compete on our own without the subsidy. So I think all elements are in place we are seeing the ramp up that we projected.
And that the World Health organization is projected over time and this will be an incredibly strong year for HIV self test.
Great. Thanks for taking the follow up.
You're welcome.
Thank you.
And our next follow question comes from the line of Brandon Couillard with Jefferies. Your line is open.
Hey, Thanks, So just sticking with HIV self test can follow up to that question I mean, the 20 registrations that you have in place Oh I understand it is there some quarter to quarter variability in that that business inherently.
But do you have visibility in terms of the order volumes from all were based 20 countries just trying to think about the degrees of potential risks that may be.
Embedded in in some of those existing terms or.
Variability that could be.
Registering thing because.
Just thinking about the orders.
Certainly.
We have learned a lot.
Since we began the star pilots in 2017.
Our pilots are now over and so we've had effectively.
A year and a half or so of experience on our own and product the customer.
The.
Yes, the processes and those countries. So while I did say that quarter by quarter sales could be choppy I think we know now better than we ever have on how countries are scaling their products and so therefore, the risk mitigation that you're referring to I think it's better for us than it ever.
Has been we now know which countries are likely to scale quicker and we can address our sales an operation planning accordingly, So I think we believe we aren't very strong position.
Having learned what we've learned so far and we'll continue to get better.
Okay, and then it's towards the fourth quarter HIV self test or a U.S. HIV revenues spikes is about 9 million did that include the 2 million of order delays from the third quarter is that the right way to think about that was that a positive contributor.
So those orders would have come in at some point.
That I don't know that it was those orders specifically, but we we do expect that those orders will come in during 2020.
Exactly.
During 2020.
Okay and then.
Yes, you could share with this the M&A revenue contribution in the fourth quarter.
Just trying to think about the microbiome organic growth in the fourth quarter to the base business relative to the acquired assets.
Sure. So the arm for the two businesses that we acquired the beginning of 2019 that would be call by him and over centers at the beginning of the year, we said that terribly expected them to contribute $4 million to $7 million over the course of the year. They in fact contributed $5.2 million for the full year.
We didn't break that out like quarters.
And that doesn't include the contribution from diverse engine, which which we acquired in November into which we own for only about six weeks.
Okay, maybe one more for you were burdeau.
As far as the fourth quarter cash flow goes we thought it was slightly negative can you just speak to the spike in the accounts receivable in the fourth quarter, whether that was timing were some specific factor behind that.
That was really end of quarter shipments that we because you see there was a large volume of them that it was end of quarter shipments going out that just increase the accounts receivable.
Yes. Thank you.
Thanks Brandon.
Thank you.
And then bringing into the queue in a session of today's call over now, let's turn the call back to Mr. Dr. Chang for any closing remarks.
Thank you for participating in today's call and for your continued interest in orasure have a good evening or afternoon. Thank you.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
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