Q2 2022 OraSure Technologies Inc Earnings Call
I will be starting in two minutes. Once again thanks for standing by we'll be starting in two minutes.
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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 0 1 on your touchstone phone. As a reminder this conference is being recorded. I will now turn the call over to Scott Gleason. Scott you may begin.
Thanks, Daryl. Good afternoon and welcome to Orr-Sher Technologies second quarter 22 earnings call. I'm Scott Gleason, the SVP of Investor Relations and Communications.
Presenting with me today for sure is Carrie Eggleston-Mannar, our President and Chief Executive Officer, Ken McGrath, our newly appointed Chief Financial Officer, Lisa Neibauer, our President of Diagnostics, and Kathleen Weber, our President of Molecular Solutions.
As a reminder, today's webcast is being recorded and the recording along with the slide presentation accompanying the webcast can be found on the Investor Relations website.
Before we begin, you should know 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, shipment and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different. Factors that could affect the results are discussed more fully in the company's SEC filings, including its registration statements, its annual reports on Form 10K for the year ended December 31, 2021.
its quarterly reports on Form 10Q, and its other SEC filings. Although forward-looking statements 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'm pleased to turn the call over to Kerry.
Appreciate it, Scott, and thank you to everyone for joining us. It's a real pleasure here on my first earnings call to share that today we announced very strong second quarter results, which are reflective of the tremendous work our employees are doing across the organization. We set a new record for revenue growth, and on an adjusted basis, our gross margins saw meaningful sequential improvement, despite the significant mix change, along with some headwinds in our base business.
We made good progress, decreasing our cash burn on our path to profitability. And while we still have more to do, I am very proud of our team's work and we're fully committed to consistently delivering results.
In June , we launched our strategic transformation to define our path back to profitability, to drive long-term growth, position the company for segment leadership, and create shareholder value. The three elements of transformation are to strengthen our foundation, elevate our existing lines of business, and accelerate growth. It's also simultaneously about innovating and operating with disciplined execution and accountability.
We will reset our cost structure, translate COVID-19 lessons learned across our core capabilities, and improve communications and transparency internally and externally. We have already made significant progress, including implementing targeted operating expense reductions, which still enable our ability to grow and innovate.
Another area of progress is in our manufacturing efficiency. Historically, our diagnostic test manufacturing has been compartmentalized and very manual. In transitioning to automated manufacturing, as well as our work on logistics, packaging, and material sourcing, we believe we can unlock additional value in the coming years. Lisa and Kathy will detail more specific areas of progress as well as future plans.
In strengthening our foundation, we are also focused on disciplined execution across the organization, which includes a return to providing quarterly revenue guidance. Concurrent with resetting the base of our organization, we will elevate our existing lines of business with further cost reductions, capability building across our enterprise, and driving innovation in our R&D pipelines. I believe in the great potential of partnerships as well, whether in novel development, access to technology, or an expanding segment.
Zach Wert, our new Senior Vice President of Operations, who has substantial medical device and diagnostic experience in high volume production. We believe that Zach's expertise, leadership, and strengths are the right elements to build on the momentum we've already gained in our manufacturing evolution.
We're also actively recruiting a senior vice president of quality and regulatory to partner in driving continuous improvement across our enterprise. Finally, today we also announced the employment of Ken McGrath as our new chief financial officer. Ken is a seasoned finance operating executive and partner who joins us from Quest Diagnostics, where he had finance responsibility for over $7 billion in revenue. And his experience spans from accelerating growth and improving profitability to improving
profitability.
I believe in the increasing importance of decentralized testing and patient access in our healthcare system.
And that OraShore is very well positioned to serve and capitalize on these shifts in health care delivery.
I look forward to meeting a number of you in the near future.
And I agree with you, Ken. We are well positioned, our opportunities are great, and our challenges are addressable. Both require hard work, which our teams are capable and motivated to do. Our company's fundamental strengths enable increased access to care with diagnostic testing, sample collection, and services. With that, I am pleased to turn the call over to Lisa Neibauer to discuss the first of those, the significant progress we have made in our diagnostic business segment.
Thanks, Carrie. I would first like to provide a quick overview of our core diagnostics business, followed by an update on our progress with Intelliswap.
For the second quarter, the overall diagnostic business unit revenue was $60.4 million and grew 213% relative to the same quarter last year.
This growth this quarter was driven by Intelliswab, with our core business declining 10% year over year.
A large portion of this core business decline was due to international HCD tests as customers placed restock orders in Q2 of 2021, following a COVID peak and the reopening of clinics.
The remainder of this year-over-year decline was due mostly to the lapping of the Bill and Melinda Gates HIV International self-test subsidy and the impact of the CDC Let's Stop HIV Together OTC program, which didn't repeat this quarter.
Removing the impact of the GATE subsidy and the lapping of the CDC HIV OTC program from last year, the core business declined 5% in Q2, but is up 11% year to date versus the same period prior year.
Additionally, as a reminder, the CDC recently issued a $41 million grant opportunity notification specifically for the mass mailing of HIV self-tests to persons disproportionately affected by HIV in the US, renewing the Let's Stop HIV Together program for the next five years.
Given that Orishore has the only FDA-approved OTC HIV test in the United States, we would expect to benefit from this award via the partners bidding on its execution and could begin seeing revenue under this award towards the end of this fiscal year.
Now I would like to discuss Intelliswab and our operational progress in the quarter which was once again significant.
We now have the capacity to produce approximately 1.6 million tests per week given our installed equipment and current staffing, and we expect this capacity to nearly double in 2023.
Part of this expansion is the opening of our new production facility, funded in part by the Department of Defense capital contract in late 2022.
This will represent the start of our super factory concept and will employ lean production concepts and automation allowing us to become significantly more efficient as a producer of lateral flow tests.
We continue to make dramatic progress on increasing our efficiencies. Our gross margins for Intelliswap increased over 2,000 basis points sequentially in the quarter, and we're relatively in line with our overall company margins as we continue to approve our production processes with significant focus on how to optimize efficiency.
Weekly production output for Intelliswap has increased nearly 14 times since the beginning of production based on dozens of processing step enhancements and statistical process control which have dramatically improved yield.
We also are introducing new automation in Vision Systems which will eliminate the need for manual processing steps.
And these improvements will become even more significant as we move to a more automated semi-continuous production at our new facilities versus our current facilities which are more compartmentalized and batch oriented.
While we have made dramatic changes to our gross margins for Intelliswab, some of the most significant improvements are still to come.
Some examples of additional margin improvements will come from a transition from air to ocean freight and continued savings across all transportation modes post the COVID log logistics increases.
In addition, we will be revising our IntelliSwap package size, stand, and IFU, which will significantly reduce both our packaging material costs and our shipping and storage costs as we optimize the pallet configuration.
Finally, next year we plan to automate the last manual steps in our process.
As we start the initial phase of our DoD funded capacity expansion and in-source key processes that will further reduce our cost structure.
From a demand perspective, we continue to receive large weekly orders from the U.S. government and they have indicated to us that the size of these orders could increase going forward as we fully satisfy the U.S. school testing program.
Participating in this program has strategic benefits as teachers and parents experience our product and get to see first-hand our design, which focuses on providing an extremely simple to use testing solution.
On this note, we have now received over $400 million in delivery orders from the U.S. Defense Logistics Agency under the company's procurement contract supporting the U.S. Department of Health and Human Services needs.
Given that the funds for our contract have been appropriated and these delivery orders have been provided, we have been informed that the government can continue ordering Intelliswab under this contract beyond the contract expiration date in September and into future fiscal years.
As of the end of the second quarter, we have only fulfilled a small portion of this total contract amount.
In conclusion, we have dramatically increased our production capacity, have strong visibility on test demand into 2023, continue to expand the customers and channels for our products, and are making substantial gains in production efficiency that are translating to improved profitability and future cash flow.
We are excited by the opportunities in front of us and strongly believe that the role for easy-to-use tests in point-of-care and home settings is growing as our healthcare system evolves to continue to empower patients and consumers.
With that, I am pleased to turn the call over to Kathy to discuss our Molecular Solutions Business Unit.
Thank you, Lisa. I'll start with an update on our largest segment, our core collection kits, which includes Artrenomic and Microbiome kits.
As we communicated last quarter, we anticipated relatively flat core collection kit revenue this quarter given our high growth in Q1, order timing from some of our largest customers, and possible impact due to our IVDR transition in May. We performed in line with this expectation, with core kit revenue growing 1% sequentially. Over the course of this year, we secured over 200 new customers and signed deals, including a consumer DTC skincare company.
positive reimbursement coverage decisions and clinical data supporting the use of urine as an appropriate sample type for HPV and prostate cancer screening continue to be released.
We continue to work with our customers in anticipating possible implementation of the VALID Act this fall, which bodes well for the use of validated, cleared kits such as ours.
Despite this progress and momentum, we do expect to be impacted by the headwinds we're seeing in the biotech and consumer genomic markets, as a few of our largest customers revise their strategies.
and project some conservatism in the back half forecast as concerns of a recession and its impact on discretionary purchasing looms.
Importantly, we continue to advance the launch of our new collection and service offerings, including emerging areas and unmet needs in multiomics.
This quarter, we began shipping our new 510K-cleared OmgineGut DX and new OmgineGut RNA-DNA collection kits.
This research use only product based on the Amigene Gut DNA kit incorporates a newly developed reagent to stabilize microbial DNA and RNA from human fecal samples.
We also have worked to advance key partnerships, such as our marketing activities with Illumina, around our Gut Meditranscriptome service launch, which includes invited speaking engagements, most recently at the American Society for Microbiology Conference as part of the Illumina program, and joint webinars with Illumina guests.
Additionally, we've recently been awarded by Mitacs an extension to our multiyear grant supporting a collaboration with the Metabolomics Innovation Center at University of Alberta on tools and methods to stabilize and process gut metabolites.
The new grant extends our collaboration through at least April 2024.
Finally, we've had one new patent granted this quarter, won several challenges against competitors infringing our IP globally, and have filed multiple new technology patents covering new devices and chemistries supporting our Multi-Omic Strategy.
Within our Diversigen subsidiary, we launched our new metatranscriptome service.
This quarter, we saw softer revenue at Diversigen, reflecting a shift in timing of microbiome-based clinical studies, a lingering impact of COVID-related timing delays, and shifts in research funding.
That said, we've observed recent positive trends in both venture and NIH funding in the microbiome space through the first half of the year.
With the first microbiome-based BLA, or Biologics License Application, of over 13 in Phase III trials expected to receive approval next year, we expect to see a resumption of microbiome-based research activity in the back half of the year, positively impacting both our diverseogen and our microbiome collection kit businesses.
Our COVID-19-based kid styles saw significant declines this quarter, driven by a broad move away from laboratory PCR-based testing to rapid point-of-care testing.
Given changes in reimbursement, along with the transition of testing programs to rapid antigen testing, we are seeing much lower demand from our strategic partners for COVID-19 oral fluid collection kits.
We anticipate current lower demand levels through the back half of the year with revenues tied largely to research-based activities.
That said, we are well equipped to handle a surge in demand should the need arise.
As we mentioned last quarter, we also continue to pursue COGS improvement and overall OPEX improvement initiatives.
In the short term, these will take the form of some level of site consolidation, a new hybrid workplace in Ottawa for our DNA Genotec subsidiary, and further integration of our subsidiaries into the core or assure DNA Genotec infrastructure.
Over the medium to longer term, we are looking at several opportunities to reduce material and logistics costs across our product lines. 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 second quarter and provide updates on our Financial Outlook.
First, from a top line perspective, we delivered total revenue of $80.2 million in the second quarter, which is another new record for the company, representing year over year growth of 39%.
As we previously mentioned, Intelliswap drove our year-over-year growth in the quarter.
Before we discuss our expenses, I wanted to highlight that this quarter the company is making the transition to include non-GAAP presentation in our quarterly earnings releases in order to give investors a better depiction of the true ongoing cost of the business.
In our non-GAAP financial measures, we will exclude certain non-cash charges, such as stock-based compensation and non-cash amortization tied to our acquisitions, along with certain one-time charges.
In our press release, we have included a gap to non-gap reconciliation for both the first and second quarters of calendar year 2022, as well as a gap to non-gap reconciliation for 2021, which can be found on our website.
Turning to our gross margin percentage in the first quarter, our gap gross margin was 34.4%. This quarter, we had a one-time inventory reserve for molecular COVID-19 collection kits with limited shelf life remaining, totaling $3.8 million, which negatively impacted the gross margins for our molecular solutions business.
Excluding this charge and the other one-time transformation costs, our non-GAAP gross margins of the quarter were 40.1% and improved 250 base points sequentially.
We believe this change is impressive given a number of headwinds we face sequentially in the quarter. First, the overall mix shift between our historically lower gross margin diagnostic business and historically higher gross margin molecular solutions business was significant in the quarter, with approximately 75% of revenue coming from diagnostics in the quarter versus 57% last quarter.
Furthermore, we saw lower IntelliSwap pricing in the quarter given the preponderance of the revenue came from the government.
In the last two quarters, commercial revenue made up a significant portion of our overall mix.
Despite these headwinds, we were able to make significant progress on the gross margin front. And as Lisa mentioned earlier in the call, our IntelliSwap gross margin has improved by over 2,000 basis points sequentially.
We definitely have significant work to continue to do going forward and have line of sight to additional significant margin expansion programs including our Intelliswab air to ocean freight transition, packaging reconfiguration, and the implementation of additional planned automation which will begin to come to fruition in 2023.
Beyond these enhancements, we are looking to a number of other areas to improve our diagnostic test production as we transition to our super factory concept which will be discussed in more detail in the future.
Furthermore, we have also identified significant improvements to our molecular solutions production process, are looking at material sourcing for other major components, and are looking for ways to better implement technology to further lower our cost structure, such as greater ERP integration and overall process improvement, which could reduce our DNA and overhead. Overall, we are optimistic about our ability to drive improved gross margins over both the near term and long term.
Moving to our operating expenses, our non-GAAP operating expenses increased modestly sequentially at $33.6 million versus $32.1 million in the first quarter.
We had a number of significant non-cash one-time items in the quarter, including a $3.6 million goodwill impairment charge relating to the diagnostic business.
Given our market capitalization decreased below our book value in the quarter, we are required to assess goodwill on our balance sheet for potential impairment.
We also had a 6.9 million equipment write down associated with our manufacturing line purchased to produce our COVID-19 antibody detection tests, which we no longer anticipate marketing, along with two lines associated with the production of our COVID-19 molecular collection kits.
As Keri indicated in her prepared remarks, we have identified significant savings to our operating expense run rate. As our executive team looks at areas to save, we are focused on areas that will not detrimentally impact our ability to grow and innovate.
Some of the areas that we've looked at include site consolidation, vendor consolidation, and product support in areas for simplification.
Importantly, none of these expenses overlap with our planned COGS improvement program, and we have a number of additional programs we are evaluating that we have not been able to fully scope the potential impact so they are not included in this target. Consequently, we ultimately hope to outperform on expense reduction in the future and create a culture of continuous improvement and efficiency across the organization.
From a cash perspective, we ended the second quarter with $96 million in cash equivalents. As of June 30th, we had approximately $15.7 million due from the government associated with our $109 million Department of Defense contract to build additional manufacturing capacity. So our pro forma cash position was $111 million.
As anticipated, most of our cash use in the quarter was tied to working capital increases as we continue to scale IntelliSquad. We expect working capital increases to begin to moderate in the second half of the year as IntelliSquad scales and we make enhancements to our collection activities.
Consequently, we now anticipate having positive cash flow from operations beginning in the fiscal fourth quarter.
We once again are providing quarterly financial guidance this quarter. For the third quarter, we expect total revenue of 90 to 95 million, representing 67 to 76 percent year-over-year growth and 13 percent to 19 percent sequential growth, as we anticipate sequential growth in both IntelliSwap revenue and our four businesses.
We also anticipate continued improvements in our gross margins and a further reduction in cash utilization.
With that, I'm pleased to turn the call back over to Carrie for conclusion remarks.
Thanks, Scott. I am truly proud of the rapid progress by our team and the significant turnaround in our financial performance that we delivered in the quarter. We really are well underway in our strategic transformation and of course we continue to have a lot of work to do as we innovate and operate with disciplined execution.
Many of you have asked me about my strategic vision and plans for the business. I came to Orisher because I am a strong believer that our capabilities can help power where healthcare is going, meeting people, patients, where they are and providing innovation and care at the lowest possible level of acuity. We have the products, expertise and talent to be a real player in this ongoing shift. And as we look to our diagnostic business, COVID-19 has provided us with the opportunity to optimize our manufacturing.
We will share more on our strategic plans, our transformation, and overall progress along the way. With that, I'm pleased to turn the call back over to Scott for Q&A.
Thanks, Kerry. Operator, we are now ready to begin the Q&A portion of the call. We ask that you limit your questions to one question and one follow-up to ensure broad participation. Please line up.
Thank you. We will now begin the question and answer session. If you have a question, please press 01 on your touch tone phone. If you wish to be removed from the queue, please press 02. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touch tone phone.
And I'm standing by for questions.
And our first question comes from Casey Woodring from JP Morgan. Go ahead Casey
Hi guys, thanks for taking my questions. So just wanted to touch on the new capacity guidance that you gave today. So that $400 million order comment, can we assume that you're selling everything you can manufacture at this point? And then along those lines with capacity of 1.6 million tests per week, that's around 19 to 20 million tests next quarter manufactured. Is that the right way to think about it or will capacity kind of gradually step up week to week resulting in maybe?
those numbers being a bit too low for 3Q. Yeah, hey Casey, thanks for the question and we really appreciate it. You know, right now our orders, you know, as we've indicated, are largely coming from the school testing program and those orders can fluctuate on a week-to-week basis. So I don't think it's necessarily a good assumption to assume that, you know, we're utilizing our full capacity from a production standpoint. You know, to some extent we're, you know, creating capacity.
that will meet demand to efficiently use resources from an expense standpoint. And I'll let Lisa provide a little more detail on that.
Yeah, yeah, thanks Scott. As I stated in the remarks, we have $400 million of delivery orders in hand from the federal government. Those orders will come in week by week and will depend upon demand as the school testing program rolls out. I did say in the prepared remarks we expect to see some increase in those orders, particularly with school coming back. But those are fairly good and solid as we move forward.
Those delivery orders also extend past the contract expiry date, which is September of this year because they've already been issued and appropriated.
So I think as you think about our production capacity as Scott said we are basically tailoring our production capacity to meet the demand from the federal government and others and that's how I would think about it.
I had one on the base business. I was curious if you can elaborate on the expectations for microbiome and the lab services diverse agent business. You talked about trials in the quarter being impacted by biotech funding slowdowns. But you are bullish on the back half of the year NIH funding coming through. Can you walk us through how you are thinking about microbiome and diverse agent in the context of the macro backdrop? Thank you.
Yes, sure, Casey. This is Kathy. I'm happy to talk to that. When we think about the microbiome market, it's important to remember that it is an emerging market, and as such, it has a certain level of volatility. In the short term, as we said, we have seen COVID contribute to that volatility, as well as some changes and shifts in research and venture funding in the space. That said, two of the leading microbiome-based therapeutics have now cleared their Phase III trials, and it's been one of our top cities in the world.
and we fully expect approval of the first microbiome-based BLA in the next 6 to 12 months.
This, along with an increasing understanding of the role the microbiome plays in influencing the effectiveness of therapies, the impact on nutrition, everything from pet health to cosmetics, we believe will drive renewed focus on the market. So we continue to invest in new collection products and services that will assist both the research community and clinicians in understanding and capturing the opportunity around the space. In the short term, we are, as we said, experiencing directly some of that market volatility in our own customer base.
but we're working to bring in new customers and diversify into some of those new verticals I mentioned, companion pet, DTC offerings that are a little more insulated from some of the funding and venture capital and NIH funding trends. So to that point, we are expecting a modest step up in the business in the second half of the year. We are expecting a modest step up in the second half of the year.
Gotcha. And maybe if I can just sneak one more in. On the IntelliSwab customers, commercial versus government, I appreciate that most of the sales are to the government now. Just wondering how you're thinking about the commercial market over the longer term. Is there any sort of room for upside there or maybe a move into expanding your commercial test menu over the longer term? Thank you.
Yeah, thank you. This is Lisa. I can address that. So yeah, of course, actually we work very hard to continue to expand our commercial business outside of the government for Intelliswab. I think this disease has proven to be fairly unpredictable. So I don't hazard to even try to predict what its trajectory is going to be. I think the one thing that has been clear for most experts is that it will continue to exist in our population. So I think the need commercially for tests.
such as ours to be available to consumers is still there. We are currently sold through walmart.com and are in discussions with many other retailers and there's certainly other outlets as well, including employers and even public health. Interestingly, our Intelliswap test is really very, very easy to use and it enables outreach testing and that's exactly the benefit that our HIV test provides..
for the public health market in the United States. So we see a lot of synergy there from a commercial selling perspective and certainly are going after all of that. And we also have distribution contracts currently with Fisher, Henry, Scheidt and McKesson as well.
And our next question comes from Jacob Johnson from Steven. Go ahead Jacob.
Hello everyone, this is Mack on for Jacob. Just a quick one for me. I think you kind of touched on this in your prepared remarks, but as we think about cash burn, can you talk about where your balance sheet stands today and how long this cash will last and any areas where you could...
focus your reduction of cash burn.
Yeah, Mack, we're doing a lot on the cash front, obviously, and I think one of the key themes of our call here is with expense reduction, whether it be on the cost of production or in the operating expense lines. We talked about having $96 million in cash still on hand. We talked about from a guidance perspective that in the third quarter, we expect our cash burn to moderate significantly. And then we've talked and guided to being cash flow positive in the fourth quarter.
And so that's kind of the progress that we're looking at as we go through the year. In terms of the longer term, you know, we would provide that guidance maybe in the future, but I think that's what we feel comfortable with right now providing and, you know, we'll give additional information as it's warranted.
That's the end of the webinar. Thank you for taking my question.
And our next question comes from Andrew Cooper from Raymond James. Go ahead Andrew.
Hey everybody, thanks for the question. Maybe first just following up on that, I think it's important to get your assumptions. Scott, if I can try just one more way of asking, presumably by saying that.
the government contracts are going to last beyond the expiration date. That means into the fourth quarter. You're talking about operating cash flow positivity in the fourth, beginning in the fourth quarter. So to what degree does that rely on elevated levels of COVID volumes, whether government or commercial, and how do we think about the durability of that should that level of testing decline longer term?
Yeah, I think there's a few important things to think about there, Andrew. One thing we have seen as we've ramped in Teleswap is a significant use of cash from a working capital standpoint. And so I think the first thing I would say is if we were to see a decline in Teleswap for any reason, you would get a significant cash windfall from working capital as your inventory levels and your receivable balance is declined associated with that. We're obviously doing a lot on the collection side to improve the timing.
long-term production, our longer-term margin goals. And so we're not ready to provide guidance, obviously, for next year, for 2023, but I think that we are optimistic about our ability to positively impact our cost structure going forward, and then also our ability to continue to improve our production process. And I think that's kind of where we stand today.
Okay, great. And then if I can ask just one more back to the base business.
Can you give us a sense for sort of pacing and the actual, you know, realizable amount of that larger CDC HIV over-the-counter program that you mentioned? I think you said five years, but how much of that dollar amount is maybe actually to the testing manufacturer, and then how should we think about what that annual opportunity could look like based on the pilot we saw previously?
Yeah, hi, it's Lisa. I can answer that question. So the award that's going to come out and be awarded, the target date is in September , is over five years. That's what's come from the CDC. The total amount is $41 million. The exact sort of split of how much of that would be tests versus the mailing, shipping, they're going to be running a website. There's counseling, I think, as a follow-up as well. That has yet to be determined.
So I don't think I would hazard to guess at what that proportion would be, even based on the pilot that we had previously with the CDC. So I think we're just going to need to wait until the September award to better understand how much of that will come to our HIV OTC test and what that exact timing will be as well. But we're certainly prepared from a production standpoint to be able to serve those expected orders that will be coming.
Yeah, and I think it's exciting, Andrew, because it's an expansion from the last time that we saw the program. And it's also evidence that the government can take a more active role in testing and helping with a public health crisis like HIV.
Great, I'll stop there. Thanks again.
Our next question comes from Lizzie Spire
Hi, thanks for taking my questions. I'm on for Patrick Donnelly. I was just wondering if you could talk a little bit more about the impact on margins for the E&T health law manufacturing and labor expansion.
How many people are you planning on hiring and you know, what's your manufacturing footprint gonna look like? And I guess what do you think the margin trajectory is based on you know, the increasing revenue along with like the increasing cost that comes along with it. Thank you.
Yeah, Lizzie, thanks for the question. We're not gonna get into all the details on hiring trends, but we've already hired a substantial number of people. What we would expect to see going forward is as our volumes increase and as we have more testing, you're actually gonna be able to leverage your overhead, which would actually have a positive impact on our overall margin profile. Some of that you saw this quarter as we obviously ramped up in Teleswab, but we would expect that trend to continue as we scale up from here. But Liza can provide some more detail as well.
Yeah, yeah. And I would just add that we have a $109 million Department of Defense capital contract to build a new factory, essentially. And this additional capacity can be used for Intelliswab, certainly, for other rapid tests that we make, like HIV, hepatitis C, or for even new tests that we would come up with for this platform. So I think, you know, as we think about it, that's kind of the vision that's part of this super factory concept.
that we talked about today, and certainly that's what we're looking to do as we move forward. Yeah, and I think the other thing, Lizzie, I would just point out is, you know, we saw 2,000 basis points of margin expansion over 2,000 this quarter. You know, some of the biggest changes that we still expect to happen, you know, we referenced on the call to come, which are the, some of the logistics changes, some of the packaging reconfiguration changes, some of the additional automation that we plan to implement. So we have a lot of room to go in terms of progress there, and we're doing a lot of work behind the scenes to continue to improve that.
And thank you ladies and gentlemen. This concludes today's conference. Thank you for
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