Q4 2021 OraSure Technologies Inc Earnings Call
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Welcome to the <unk> technologies incorporated 2021 fourth quarter earnings Conference call. My name is Daryl and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. During the question and answer session. If you have a question. Please press Star then one on your touch.
<unk> phone I will now turn the call over to Scott Gleason, Scott you may begin.
Good afternoon, and welcome to warfare technologies fourth quarter 'twenty, One 2021 earnings call I am factories on the interim CFO and SVP of Investor Relations and communications presenting with me today for Orchard are Dr. Stephen Tang, our President and Chief Executive Officer, Lisa Neibauer, our president diagnostics, and Kathleen Weber, our President <unk> <unk>.
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As a reminder, today's webcast is being recorded and the recording along with a slide presentation that accompanies the webcast can be found on the Investor Relations section of our website.
Before we begin you should note this call may contain certain forward looking statements.
<unk> statements with respect to revenue.
<unk> profitability earnings or loss per share and other financial performance product development performance shipments and markets business plans regulatory filings and approvals expectations and strategies.
Actual results could be significantly different.
Factors that could affect are discussed more fully in the company that SEC filings, including its registration statement. Its annual report on Form 10-K for the year ended December 31 2021.
Its quarterly reports on Form 10-Q , and other SEC filings.
Although forward looking statements helped to complete information.
How about future prospects listeners should keep in mind that forward looking statements are based solely on the 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 am pleased to turn the call over to Dr. Stephen Tang.
Thank you Scott and thank you to everyone for joining our call today.
In 2021 for sure delivered record revenue for both our diagnostics and molecular solutions businesses.
Total company revenue growing at a 25% compounded annual growth rate since the pre pandemic period in 2019.
Revenue in the fourth quarter. It was 63 point.
$6 billion above our prerelease range and the guidance, we provided in the third quarter.
And a new record for the company.
We achieved total impella swap revenue of $14 $7 million, an increase of 92% on a sequential basis, we're making significant progress scaling up production.
While there's still more to do we believe we are in a position to grow and tell us what robin you've meaningfully throughout the year.
In the fourth quarter, we once again saw outperformance from our molecular solutions business and despite major direct to consumer customers, taking larger inventory positions in the third quarter, we demonstrated sequential growth and had our third straight quarter with revenue exceeding $30 million.
We believe that our multi omics strategy of expanding our sample collection and molecular services businesses.
Coupled with new customer additions positions us well as we look forward to 2022.
Finally, our executive leadership team and our board of directors is focused on maximizing shareholder value and our strategic alternative process is underway.
And until the board reaches a decision we will not be making any comments other than to say we are dedicated to identifying the best path forward for our company to further create value for our shareholders.
In any scenario, we believe we are well positioned to scale the business meaningfully in 2022 with an eye towards driving profitable growth.
With that I'm pleased to turn the call over to Lisa Neibauer for an update on the diagnostics business unit.
Thanks, Steve I would first like to provide a quick overview of our core diagnostic business followed by an update on our progress with him tell us why.
First for the full year 2021, the overall diagnostic business unit revenue was $90 million and grew 38% versus last year.
Our global core diagnostics business, excluding and telecom product revenue grew three 5% versus prior year.
If you exclude the impact of the June 2021, expiry of the Bill and Melinda Gates Foundation subsidy for our international HIV self test.
Core diagnostics business grew eight 6% versus prior year.
In the U S core diagnostics grew 13, 3% for the full year 2021.
This was driven by strong performance across HIV, HCV, and our drug testing business with the reopening of clinics and new employee hiring as well as CDC orders for our HIV OTC tests to mail to homes as part of the Cdc's, Let's stop HIV together program.
Outside the U S. The international diagnostics business declined six 2% versus prior year.
Excluding the gates subsidy impact the business was up three 4%. In addition, we experienced logistical disruptions from the pandemic, all year, which impacted the timing of shipments, including those at year end.
Part of our strategy with our diagnostic business is to accelerate growth by expanding globally and we have made significant strides on that initiative this past year.
In late 2020 , one we received our Thailand free sales certification, which will allow us to register the product in Asia and Latin American countries regions, we were unable to access without this certification from the country of origin.
In addition, early in the first quarter of this year, we launched our HIV self test in six European countries, including the United Kingdom, Germany, France, Spain, and Portugal, where the cast will be available in retail pharmacies.
This year the World Health organization also issued the first guidelines on HCV Seltzer.
W. H O estimates that 58 million people in the world have hepatitis C.
At less than one quarter no they are infected.
That is over 45 million people, who have this disease do not know it.
Importantly, hepatitis C is curable with medication if detected early.
If not detected hepatitis C can result in significant liver damage and possibly death.
And as stated quote W. H O has set a global goal to eliminate HCV is a public health problem by 2030 meeting the school requires innovative approaches and service delivery models for reaching the people who remain unaware of their HCV infection and linking them to treatment and care services.
Self testing is one such approach unquote.
These guidelines represent strong support for the continued need for ease of use self testing biolay users an area, where offshore has a strong product many years of expertise.
In addition, the U S also issued its first viral hepatitis elimination plan also focused on eliminating this disease by 2030.
The expansion of self test is core to our strategy to drive both revenue and gross margin growth moving forward.
Now I would like to discuss and tell us what an important tailwind, which now support further COVID-19 self testing in the United States in particular.
As we previously announced in January while we experienced lower than expected and tell us what sales for the quarter due solely to our supply we are optimistic about the future trajectory.
In January the binding administration announced a federal government commitment to purchase a total of 1 billion COVID-19 rapid antigen tests.
Distribute them free directly to individuals that request them online.
For sure with our existing U S government procurement contract, we'll be able to supply. This program. In addition to other federal programs as dictated by HHS.
In addition to this 1 billion test procurement program in January the binding administration also mandated that commercial insurers as well as Medicare and Medicaid provide reimbursement for OTC COVID-19 rapid test.
Under this program consumers can now purchase up to eight COVID-19 rapid home tests per month per person and receive reimbursement from their insurance provider with no associated co pays or deductibles.
For those insurers, who established preferred retail partners consumers will be able to obtain pest free of charge by showing their insurance card right in store the <unk>.
Payers will then reimbursed retailers at $12 per test or $24 put to park.
If an insured does not establish preferred retail partners then the consumer will need to pay out of pocket and sun receipt to their insurer to receive reimbursement this reimbursement will be at the retail price paid.
Given the almost 300 million individuals in this country with health insurance. We believe this expands the theoretical market opportunity for COVID-19 testing in the U S to over $150 billion.
Furthermore, we would highlight the potential benefits of this may have as we look to the future for self testing as these types of payer models could be used to empower patients and reduce health care cost with other disease States.
As a reminder, the market model, we shared with investors last quarter based on epidemiology had less than a half a billion test assumed as the U S market size in fiscal year 2022.
Now with these new developments and procurement and reimbursement for OTC rapid test, we believe the 2022 COVID-19 rapid test market in the United States will be significantly larger than we anticipated.
Overall these changes also make us more optimistic on the long term durability of the COVID-19 market in the United States.
We plan to scale, our production capacity to over 200 million tests per year.
Yeah.
We also continued to garner data to support and telephone accuracy and to expand indications.
At the start of 2022 we added a number of important label expansion for the test.
First in early January the FDA announced concerned that certain lateral flow tests may not be as accurate with the Omaha Marriott.
As required with our emergency use authorization.
Or initiated studies using live Sars Covid, two omicron virus and an independent third party laboratory to evaluate our testability to detect variance of concern.
Fortunately the data indicates that Impella swab detects omicron at the same level of detection as it did with all other variants of concern and the original Wuhan stream.
Second we also recently announced that her and tell us what tests have been authorized by the U S. FDA for you.
In children ages two to 14.
Prior to this announcement and tell US what was authorized for self testing in adults 18, and older and in children and 15 to 17 when administered by an adult.
This is an important indication expansion, which enables us to provide paths with numerous has to state programs being rolled out in many school districts as well as many other steep testing programs focused on household testing.
Finally, the company recently announced the launch of a new reporting App and tell us what connect which will allow people to see them. It's just of their own results easily report their test results to public health authorities and to also provide results to employers the applebee available on the Apple App store via Google play.
In 2020 to the U S market provides significant demand via both our U S government procurement contract also numerous nongovernment customers.
We will be able to sell all that we can produce.
That said, we are working to create certain packaging configurations, specifically for markets outside the U S and we.
We'll be conducting the necessary studies this year to enable international sales in 2023.
In addition, we have plans to improve gross margins for until the swap with these configuration changes and other savings as we scale.
Lastly, I would like to discuss our manufacturing scale up with until a flop as part of our organizational restructuring I assumed leadership of the diagnostics operations team started the year.
From a background perspective, I'm, a chemical engineer with extensive medical device operations management experience.
I started my career in engineering and plant management and large chemical plant operations and in my most recent role prior to offshore I loved the Becton Dickinson global Vacutainer business as well as Bd's global syringe needle and IV catheter businesses.
Collectively these business manufactured tens of billions of medical devices in numerous production facilities around the world representing billions of dollars in annual revenue.
To further aid in our operational scale up and in addition to other ongoing efforts.
I hired in operations consulting for amused by the National Institute of Health products program with deep expertise and manufacturing scale up in rapid antigen testing.
We've been working on process mapping and identifying major bottlenecks, where resolution can lead to the greatest incremental efficiency.
We also have experts at our contract assembly sites to help identify areas of opportunity for further efficiency.
The team has already identified a number of significant areas for improvement to accelerate our scale up and improve our operational efficiency throughout 2022, and beyond and I am confident in their leadership and ability to assist in our scale up throughout 2022.
Some of the operational improvements the team has recommended will take time to implement and are exacerbated by the challenges we face in terms of the challenging labor market and global logistical and supply shortages as a result of COVID-19.
While we are not providing formal and tell us what guidance where capacity expectations, given our strategic alternative process.
We do expect to its scale and tell us what modestly in the first quarter with more meaningful gains throughout the remainder of fiscal year 2022.
That I am pleased to turn the call over to Cathy to discuss our molecular solutions business here.
Thank you Lisa.
As Steve previously stated our molecular solutions business unit had another exceptional year with total revenue growing 35%. Despite a more modest 7% increase in COVID-19 collection kits year over year.
In the fourth quarter, we saw sequential revenue growth despite changes in the ordering patterns for our major direct to consumer customers, who took the majority of their seasonal holiday inventory in the third quarter earlier than their historical fourth quarter purchasing.
Into 2020 , one we added 650, new customers and extended our multi year contracts with six large existing customers positioning us well for future growth.
This quarter, our diversity in services revenue and our microbiome kits revenue was $5 $9 million for our second highest quarter ever our overall microbiome kits and services business grew at almost 40% in calendar year 2021 and we anticipate this to be a strong source of growth looking forward.
This slide shows a representation of a multi omics strategy.
Our strategy of enabling multi omics discovery and diagnostics is grounded in a strong backdrop of high growth and high growth customer segments, including disease risk management diagnostics research or discovery animal and environmental.
We continue to expand our product and service offerings to extend both patient access and insight to a wider range of samples and analytes of high interest to these customers.
The shaded boxes on this slide show areas, where we currently compete the dashed bars show areas of interest and the stars show planned product or service launches.
In late 2021 we launched our new got meta transcriptome service offering through our diverse and subsidiary.
For those that don't know the meta transcriptome looks at gene expression levels across the met a genome.
Our pharmaceutical and research customers have been highly interested in this technology, which can provide important insight into mechanism of action for IP and regulatory filings. We believe the meta transcriptome will provide a new avenue for growth in both collection kits and services with additional launches planned for this year.
In the fourth quarter. We also received FDA clearance for our omni gene got Dx collection product.
Importantly, this action marks the first time that the FDA has cleared a device specifically for the collection and stabilization of the microbiome for diagnostic or clinical purposes.
This innovation will support our commercial customers as they seek to launch clinical assays based on the microbiome or want the reliability of an FDA cleared device in their therapeutic development programs.
In the second half of 2021 we saw a number of very positive phase two data readouts from industry leaders developing microbiome based therapeutics and disease areas, such as C difficile, ulcerative colitis and cancer.
This progress is a strong leading indicator for the successful clinical use and continued expansion of the microbiome research diagnostic and therapeutic fields.
Finally in late 2020 , one we advance the potential of our urine collection business with the launch of a new preservation chemistry for use with our Cali Pee urine collection device.
This new chemistry, specifically designed to stabilize analyte tenure and critical to oncology applications such as liquid biopsy.
We continue to advance our work toward incorporating Cali P into multiple applications in the infectious disease and oncology fields.
As you can see we are aggressively supporting our vision of enabling multi on like discovery in diagnostics through innovation.
Finally, I would highlight that our COVID-19 collection kit business outperformed expectations in the fourth quarter, given the surge in testing activity around the omicron variant.
As we look forward to 2022, we will be expanding internationally and six target countries in Europe and Asia.
Additionally, we plan to launch a new product format, which we believe will further aid our expansion into viral surveillance and screening.
Despite these positive developments, we continue to anticipate volatility in this segment based on COVID-19 prevalence rates and as the market increasingly transitions to over the counter and point of care testing solutions.
With that I'm pleased to turn the call back over to Scott.
Thanks, Kathy I'm pleased to discuss our financial results for the fourth quarter and provide updates on our financial outlook.
First from a topline perspective, we delivered total revenue of $63 6 million in the fourth quarter of 2021 compared to $62 9 million in the prior year, representing a year over year growth of 1%.
I would highlight a few items.
First as Steve mentioned this quarter was a record revenue quarter for the company and despite the shortfall in total swap revenue relative to expectations, we were able to exceed our financial guidance given the strength across the remainder of the portfolio. Additionally.
Additionally from a growth perspective last year's fourth quarter was a tough comp for a number of reasons.
For the fourth quarter of last year contained $22 8 million in Covid Blecher kit revenue.
It's really offsetting all of the positive growth we received from <unk> in the quarter.
Additionally, the fourth quarter of last year had exceptionally high international HIV sales and different ordering patterns for our direct to consumer customers and our genomics kit business overall.
Overall with the exception of the Intel swap shortfall relative to our expectations were.
Absolutely pleased with the strong fourth quarter results.
Turning to our gross margin our gross margin percentage in the.
Third quarter was $42 seven and improved approximately 290 basis points relative to 39, 8% gross margins we saw in the third quarter, despite the higher until Schwab mix.
Manufacturing efficiencies in the quarter with our scale up process.
This quarter, we did receive a benefit associated with the employee retention credit, which is part of the cares Act, which offsets the payroll tax contribution accounted for a portion of the total sequential improvement.
As we look to Intel Swab, we continue to expect transitory margin pressures as we scale up process and improvement of production efficiency.
This will be driven by higher scrap rate lower overhead absorption labor inefficiencies and as we train new personnel and higher shipping costs associated with the global supply chain crisis.
Additionally, in the near term our margins will be impacted by our government procurement contract.
Tal score, which has pricing below market rate.
These pressures will weigh on our near term gross margin profile, we have line of sight to a number of potential significant improvements until swap gross margins that we believe will begin to manifest throughout 2022 and beyond.
First we expect to become a more and more efficient as we transition through the year from a labor and scrap perspective.
As we grow revenue will be greater overhead absorption.
Second we anticipate a significant reduction in our freight cost and we expect to transition to sea shipments from air shipments in 2023.
Air shipment rates have increased dramatically with the global logistics crisis.
Finally, we expect pricing improvement as our mixed becomes increasingly commercial beginning of the fourth quarter of this fiscal year.
We also are evaluating a number of efficiency programs for himself club and Lisa mentioned, we are working on a package.
Ration change for next year with significant positive cost implications.
Overall, we view efficiencies in our manufacturing processes are strategically important for the company.
Swap scale presents long term opportunities to improve our overall manufacturing efficiency.
Ultimately, we expect to tell us what gross margin to be at or above our gross margins for our overall diagnostic business.
From an expense perspective total operating expenses expenses in the quarter were $36 5 million and increased 6% on a sequential basis.
We have placed a high emphasis on expense control and this quarter operating loss improved by approximately $3 million sequentially.
So you look for efficiencies across the organization as we transition into 2022 with an eye to driving profitable growth looking forward.
From a financial outlook perspective, we are not providing financial guidance as we worked through the strategic alternative process.
Highlight that typically our core business experiences significant seasonality in the first quarter given reductions in international test shipments at the start of the calendar year to our NGL partners.
And seasonality associated with the molecular kits and services business we.
We will look to reinstate financial guidance following the completion of our strategic alternative process.
With that I am pleased to turn the call back over to Steve for concluding remarks.
Thank you Scott as you know this is my last earnings call with offshore.
I'd like to personally thank all of our employees across the globe for the tremendous work they've done and their dedication to our mission.
I also want to thank our investors, who have supported us over the years and our board of directors for the opportunity to serve both as chairman of the board and Chief Executive Officer over the past 11 years I'm extremely.
Confidence in our outlook and the capabilities of our executive leadership team to transform the company in the coming years.
Power and sustainability for sure.
And our focus on smart science made simple.
And I'm firmly convinced that the growth in areas such as point of care testing self testing consumer and clinical genomics.
In new areas of discovery like the microbiome.
Because of these factors I will leave knowing the company has a strong foundation.
As an extremely capable hands.
That I would like to turn the call back to Scott for questions and answers.
Thanks, Steve Operator, we are now ready to begin the Q&A portion of the call. We would ask that you limit your questions to one question and one follow up to ensure broad participation.
Yes.
And if anyone has a question you can press Star then one on your Touchtone phone once again, if you have a question.
Star then one on your Touchtone phone.
And our first question comes from Tycho Peterson.
Hi, guys. This is Casey on for Tycho, Thanks for taking my questions.
First one is last quarter, you gave a purchase order number I think it was 400 million for the Covid tests that you couldn't fill because of supply constraints.
Curious if you could provide us with the number for this quarter.
Sequentially and can you maybe break out the math here between retailers.
And government orders.
Yeah, Thanks, Casey it's Steve.
We aren't going to give a specific number but I think I'll turn it to Lisa who provided I think some great commentary about.
Strong demand so far and the momentum we've had since we announced that 400 million in the third quarter, while Elisa.
Yeah, Thanks, Steve and thanks for the question. We continued to have very strong demand for our cash. We are currently able to sell everything we can make them. Our U S. Government relationship is very strong as you know we have a government contract and we meet with them every week and basically they've told us to prioritize.
Orders for our OTC retailers and nongovernment customers and then they will take whatever we have we tweak them beyond that so that's pretty much what we can share at this point, we do indeed have again more more orders and interest coming in then then we have product to fill correct.
Currently.
Gotcha.
That leads into my next question. So I know you guys are guiding for capacity expectations.
Expectations, but it sounds like the $4 million per month in <unk> 2022 that had been previous guidance you know, it's safe to say that isn't really realistic for this quarter I'm. Just wondering I know that the prior plans were to scale up to 8 million per month by the end of June .
Is that still kind of a realistic number to be modeling or any sort of directional guidance in terms of the cadence.
That's capacity scope would be would be helpful for modeling purposes.
Yeah. So Casey, we're not going to offer specific guidance against those numbers I think we stopped doing that.
And in January with our announcement.
So I think what you can rely on us.
<unk> comments about selling everything we can make and the progress we're making in production, which we have defined as modest for the first quarter and more significant throughout the year.
Okay fair enough.
Maybe my last one before I'll hop back in the queue.
Is around the international HIV business, so the roll off of the Bill and Melinda Gates Foundation subsidies.
Obviously kind of impacting things here.
Just wondering what we can expect in 2022 in terms of revenues.
Relative to 2019 levels there.
Any visibility into maybe a new subsidy agreement in 2022 and.
Anything to kind of talk towards on the international business. Thank you.
Yes. Thanks, Casey So we don't expect a new subsidy agreement in 2022.
Scott, maybe you'd like to just generally comment about the.
Outlook for for HIV.
Yeah. Thanks, Steve Thanks, Casey for the question.
The international HIV Casey.
The roll off of the June quarter of last year and had been declining for some time and so we will fully annualize that subsidy as we get through June this year.
I think importantly from a volume standpoint.
Strong volume growth in the United States.
And so I think.
Annualized net celebrity we should start to see improvement right with our international.
Awesome.
And our next question comes from.
Brandon Couillard from Jefferies go ahead Brendan.
Hey, guys. This is Matt on for Brandon today.
Just quickly can you give kind of your high level pricing outlook I know you talked about the government contracts being a little bit below commercial pricing and mix improving.
This year, but just kind of your high level pricing outlook, both U S and O U S. So any color you can add on your government contracts versus.
Commercial or retail contracts. Thanks.
Yeah, Thanks, Matt Scott do you want to comment.
Yes, Matt we don't we don't give specific pricing information it varies across customers I mean, I think the one area, where you know obviously our pricing is on the government contract which was publicized.
Pricing, there was about $5 test or $10 per OTC kit that.
We supply to the government.
We've seen.
Commercial pricing is the commercial pricing is higher than that but we haven't given any kind of specific information.
I think as we look at the pricing environment, we really haven't seen anything change dramatically, obviously, there's still a supply imbalance where demand exceeds supply.
So I think.
That's about all we can really say at this point.
Okay. Thanks, and then just talking about the restructuring and kind of decided to vertically integrate the business on the Dx side in that block. There are solutions. You know why is now the right time to do that in any way to kind of talk about or quantify some of the benefits you expect to realize from this.
Sure, Matt I'll start I think it's very clear that the needs and capabilities of each business unit for operations is different and that's why we made the change to what we announced in January .
You gave some great commentary in terms of her background and.
Some new capability that she has brought on board but.
It's designed to focus operations to the needs of the specific business units rather than have operations be it corporate function. So.
So we haven't quantified that as yet.
But I think our expectation is it will help overall performance and operations both in quality and quantity.
Inefficiency in productivity for both business units.
Okay, Great and then just last.
Last one I think you said microbiome all in chips and services kind of $6 million in the quarter. So kind of a 25 million run rate business and can you talk about how big this business can kind of get over the next few years.
Youre in a number of clinical trials, how do we think about as those move along as a kind of a hockey stick in phase three or how do we think about.
The contribution to you guys as those move through the clinical pipeline. Thanks.
Of course, we.
We've always viewed microbiome as a high growth business, both from a products and services side, So I'll turn it over to Kathy for some further commentary.
Sure. Thanks for the question.
Steve said microbiome is viewed as a very high growth market. We study all the homes genome microbiome transcriptome and of all of the microbiome is projected to have the highest growth rate over the next five years and our business really benefits in multiple waves to your point the clinical trials that are progressing.
Our revenue for us today, as we support those both with kids and with diversity in services, but also as assays our customers start to look at microbiome based assays and DTC applications in the microbiome field that benefits us as well so a lot of factors driving that high projected growth for the microbiome.
And we're clearly investing in that growth.
And both the kids in the services side.
Matt if I could just add.
Nice part about.
The agreements that we have is a lot of these studies are in the early stages phase one phase two as they advanced into the phase III setting.
The number of samples that you're dealing with expands dramatically so.
So the revenue associated with those contracts as you move into later stage studies also.
Also increases in so that's a trend that we would expect to see over the next few years.
Great. Thank you.
Yeah.
And our next question comes from Patrick Donnelly from Citi Go ahead Patrick.
Hi, This is Lucy on for Patrick Thanks for taking my question is are these first my first question is on the margin impact from Intel. So can you talk about you know you said the impact will be transitory.
How do you plan on improving that margin pressure this year, yes and beyond.
Yeah, Thanks, Leslie I'll turn it over to Scott for that one.
Yeah, Yeah, yeah. Thanks Lindsay for the question, Yes, I think as we look at the install swab gross margin I think you just have to think about kind of the situation, we're in and how that transitions as we go through the year.
First off we obviously have a lot of equipment you know overhead.
That as we increase.
The volume of testing that overhead gets absorbed over a larger volume base.
And so that will provide a benefit from a gross margin standpoint.
Secondly, when we look at equipment labor materials.
The scale up phase as we've discussed.
Youre not using <unk>.
Efficiently and so theres a lot of efficiency gains that we would expect as we transition throughout the year.
I think the third factor that we talked about was the government contract and as we move beyond that government contracts to essentially our assumption is 100%.
<unk> business in the fourth quarter, we will see higher pricing, but obviously, we have a positive margin benefit.
And then there's a number of things.
As we think about.
From a transitory standpoint, we talked about like shipping path eventually we're going to transition from air shipments.
To see shipment these shipments significantly cheaper also we would expect that some of the logistical challenges.
Based on a global basis, we will see cost reductions from a shipping standpoint going forward.
And then there's a number of things from an efficiency standpoint that we're working on.
At least I mentioned packaging configuration on the call, but it's another of other items that we have visibility into longer term and so that's a huge area of focus for the organization and.
And there's a number of drivers we would expect to drive improvement.
Go through the year and beyond.
Great. Thank you and then just as a follow up you guys said that Youre seeing I guess, an improved labor outlook can you just I guess.
Sure sure I guess give a little bit more color on that.
What gives you confidence and just giving up given that the hiring environment is pretty tough right now.
Yes, listen the hiring environment remains tough, but I think we are making good progress overall, we've adjusted our approach to hiring and.
Made our offer is much more market competitive.
In particular in Lehigh Valley, where we do most of the operations associated with Intel us logged in our diagnostic products, that's been a very tight labor market.
Due to the demand for both manufacturing and distribution jobs.
So we monitor that very closely and we just had a call about that today and I think we're seeing an uptick in terms of responsiveness to our offers and filling key positions. So that's what's driving our optimism overall there.
Great. Thanks for taking my questions.
Thank you.
And our next question comes from Andrew Cooper from Raymond James Go ahead, Andrew.
Hi, everybody thanks for the.
Two questions here, maybe first for Scott.
I appreciate the color you've given on the gross margin I guess can you help us think a little bit more in terms of Intel a slop about the timeline of some of these coming in obviously, we are in the government contract component, but some of the repack.
Configuration of packaging efficiency items can.
Can you give a sense for what throughout the year and when you made the comment about reaching.
At least two consolidated gross margin levels is there a timeframe associated with that is that exiting <unk> or how do we think about what it takes to get there.
Yes, Andrew Thanks for the question, we're not providing specific guidance on any of the timelines there as we think about.
Things that we talked about obviously.
Is the timing of the government contract that you said no and yes, I think the.
General as we go through the year as folks become trained and more efficient.
As we.
Aircrafts lessees youre going to see a general trend towards efficiency.
Things like the shipping changes.
We have to strategically time those in there based on studies that have to be completed.
And so that's going to be more of a 2023 phenomenon.
And things like the packaging configuration also it will be more 2023 phenomenon.
And so there is terrific.
This year and then into next year beyond as we continue to make the process more efficient.
So I think the general trend we would expect.
It could be improved over time.
Okay helpful. And then just one more from me, but kind of taking a step back it just feels like you spent.
More energy talking about where some of the innovations are.
In more clear color in terms of quality.
Getting to the FDA.
Approval in microbiome and things like that so with the new kind of split business structure vertically integrated structure, how does that change maybe the way youre thinking about prioritization of R&D and innovation efforts.
Where that energy and effort is going.
Yes, Andrew Thanks. Thanks for the question I think it will only help the speed of innovation and our velocity.
<unk> from R&D to up to manufacturing and operations and that's really what the vertical integration is really designed to do in terms of investment in R&D. Obviously those are viewed on a corporate basis, but both business units have the opportunity to make their case.
For the renovation pipeline and the impact on revenue and profitability over time, So I think the new configuration actually helps innovation overall.
Y as you've noted correctly, we've been talking much more about that over time.
Yes.
Okay, Great I'll stop there thanks again.
Thank you.
We have no more questions at this time I will turn it back to the speakers for closing comments.
Well I, thank everyone for participating in today's call and for your continued interest in offshore.
We wish you a pleasant afternoon or evening stay safe and be well. Thank you.
Yes.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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