Q1 2023 OraSure Technologies Inc Earnings Call
Okay.
Okay.
Yeah.
Yeah.
Good day, and thank you for standing by.
Come to the or short technologies earnings call. At this time participants are in listen only mode. After the speaker presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
We've been advised that today's conference is being recorded I would like to hand, the conference over to Scott Gleason head of Investor Relations. Please go ahead.
Thanks, Amanda and good afternoon, welcome to Orasure is first quarter 2023.
Earnings call I am Scott Gleason, VP of Investor Relations and communications.
With me today for sure as carriers with a manner, our president and Chief Executive Officer, and Ken Mcgrath, Our Chief Financial Officer. As a reminder, today's webcast is being recorded and the recording can be found in our investor at our Investor Relations website.
Before we begin you should know that this call may contain certain forward looking statements, including statements with respect to revenues.
Answers profitability earnings or loss per share and other financial performance product development performance shipments in markets business plans regulatory filings and approvals expectations and strategies actual results could be significantly different factories.
Factors that could affect our results are discussed more fully in the company's SEC filings, including its registration statement. Its annual report on Form 10-K for the year ended December 31, 2022, its quarterly reports on Form 10-Q.
And its other SEC filings, although forward looking statements help to provide complete information about future prospects.
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 Gary.
Thanks, Scott and thank you to everyone for joining US today. We are pleased to report on the progress we continue to make in our strategic transformation, beginning with strengthening our foundation for growth.
Well enough to elevate our core growth and then to accelerate profitable growth. This quarter, we strengthened our foundation and bolstered our cash position with meaningful potential to unlock working capital moving forward. We saved on costs, we delivered on COVID-19, with a record in telecom volumes and we.
Equally important we are focusing on our innovation roadmap with organic and inorganic opportunities, including strategic partnerships, which we believe can provide fuel for growth.
Starting with the detail on our cost savings, we implemented headcount reductions in February .
Began to taper in Q2, and we have taken further steps to reduce our cost structure, starting with manufacturing and operational head count.
As a part of these changes we're shutting down manual assembly operations ever Steve for and tell us what to fully leverage our automation capabilities that we've built in the U S. We will continue to align our cost structure with COVID-19 demand and deliver additional cost savings as we work to achieve breakeven and cash flow from opera.
In 2024.
Furthermore, we are in order to improve gross margins to be a product cost reduction we completed our telephone packaging redesign in March one month ahead of schedule and began to ship product in the new configuration in the quarter. We believe these changes will save over 50 cents per test.
We're looking at the opportunities to translate these learnings and their benefits more broadly across our product portfolio in an effort to drive longer term gross margin improvement well also positively contributing to sustainability.
And tell us what volumes set a new record this quarter with over $118 million in total sales for our COVID-19 diagnostic testing as I previously mentioned, we expect and tell us what volume to taper in Q2, and we saw lower demand in April consistent with disease incidence in the U S. We are currently.
Working with our public health partners on a path to ensure warm based manufacturing and readiness for a potential infectious disease outbreaks that utilized previously appropriated funds under existing Intel swap contracts.
Part of these discussions include the potential to extend the timeframe under which orders for test could be fulfilled.
Or to what occurred last year.
Cash generated from and tell US what in addition to our cost savings is critical to fund business investment innovation and our future growth opportunities.
We've been working to elevate our core portfolio with a longer term goal to drive sustainable core growth.
On our core we grew sequentially this quarter and diagnostic tests outside of COVID-19, as well as in molecular products.
And our HIV and HCV franchises, there were a number of catalysts in Q1.
First we began shipping the first product of our partnership with Emory University under the what stopped HIV together program funded by the CDC, which focuses on outreach task into rural and disadvantaged communities, where HIV and its comorbidities are most prevalent in the United States. The early.
The success of this program could potentially lead to its expansion for HIV HCV. Sorry. We are also encouraged by the recent White house plan to eliminate HCV, which was highlighted in a recent Jama article by Dr. Francis Collins, the former head of the National Institutes of Health UNITAID also made a 30.
$1 million investment in preventing HCV and high risk individuals such as injectable drug users and prisoners were up to 25% of these populations have an active H D. D infection. Both of these initiatives demonstrate the priority to increase H D D surveillance.
Well as data collection through outreach testing.
Overall, the focus on HIV, and HCV and public health align with our strengths in both our product offerings themselves as well as in our distributions for two important sexually transmitted infections that effect at risk populations. It's a really good example of why sexual health as a priority within our innovation roadmap.
Shifting to molecular products. We also grew sequentially in Q1 at 7%, we signed three new important commercial partnerships in the quarter. Following our recent quest diagnostics and crippled announcements each of these deals highlight precision health companies looking to leverage the expanded patient access.
And reliability that our saliva collection devices can provide the first deal is with enriched Dx. This deal as a co promotion using our colleague <unk> device to develop liquid biopsy applications using first void urine, which has enriched biomarkers for cancer and STI testing.
The second is with the wagon, a French biotech company and commercializing Zelig Enzo test.
Breakthrough innovation using sell a very micro RNA to diagnose endometriosis this painful condition, which on average takes eight years to diagnose impact quality of life and in some cases fertility or the estimated 190 million women in the world who suffer from it.
The third deal is with Novozymes, a global Biotechnology company and leader in bio solutions to provide a full service offering in support of their biome FX product biomet acts as a personalized health microbiome tests, which leverages insights from the gut and vaginal microbiome to empower participants.
To lead healthier lives.
Service launched last month, and microbiome samples will be collected using the sample collection kits from our DNA <unk> subsidiary and microbiome sequencing and analytic services provided by diverse again. These collaborations build upon our other recent commercial partnerships in precision health.
Mentioned that our partnership supporting quests genomic sequencing services group test offerings, and our collaboration with cripple that supports alpha one testing for patients at risk for COPD and other lung disorders.
Also on our molecular product portfolio, we made clinical progress this quarter with colleagues like Cali P. Recently, a team of researchers from Manchester University, and Aquarius population health a UK based organization have authorized a manuscript that has just been accepted for publication in a peer.
Viewed journal entitled and economic evaluation of two self sampling strategies for HPV primary cervical cancer screening compared with clinician collected sampling.
Our model compared the cause and effects.
Three sampling strategies for HPV primary screening, including routine clinician collected cervical sample self collected first void urine using our colleague to your device and self collected vaginal swab and 10000 women who are eligible for the.
NHS cervical screening program.
Notably the study concluded that self sampling for routine HPV cervical cancer screening with colleagues device could provide a less costly alternative to clinician collected sampling and other self sampling approaches that's got support expanding the reach of affordable.
Call It <unk> mediated cervical cancer screening to underserved women at scale in the UK and possibly elsewhere.
Through ongoing in prior studies that demonstrate the value of the colleague collection products as an easy to use noninvasive.
Sampling device Orasure is committed to an evidence based affordable solution with improved patient experience for women around the globe.
Beyond our current offerings, we are working to accelerate profitable growth through innovation as we focus on pipeline expansion, we are advancing both organic and inorganic opportunities across each of our portfolios.
And molecular products, we are exploring the potential to build additional functionality for our customer that will further extend our leadership position. We believe that these technologies could provide meaningful compliment to our strength and sample collection and stabilization and they could be long term differentiation.
<unk> for us.
And our diagnostics portfolio, we anticipate sharing more regarding new infectious disease and sexual health tests later in the year.
In diagnostics and across our portfolio. We are also actively evaluating partnership to meaningfully extend our product pipeline and growth opportunities.
Ultimately the goal of our innovation is to reignite core growth and leverage our unique capabilities to power or the shift in health care that meet patients where they are with effortless solutions and point of care and self test diagnostics and sample collection and stabilization and then our services.
<unk>.
As we look to the future. We will also look for ways to accelerate profitable growth by deploying capital through M&A and further evaluating our long term capital structure.
Our strengths today, well position us as a partner and collaborator now and for the future and with that.
I'm pleased to turn the call over to Ken to talk about our financial results and guidance.
Thanks Carey.
To discuss our financial results for the first quarter and provide updates on our financial outlook.
First from a top line perspective, we delivered total revenue of $155 million in the first quarter, which was another record for the company representing year over year growth of 129%.
Looking at the components of growth in <unk> was the largest contributor with over $118 million in total sales compared to $22 million last year, representing 434%.
Our diagnostic products, excluding COVID-19 grew 50% year over year.
The strong growth was driven by significant domestic HIV sales bolstered by the let's stop HIV together program.
We also saw strong international demand despite typical negative seasonality in the first quarter, primarily due to order a carryover from the fourth quarter.
Looking at our molecular products and services total revenue declined 48% year over year. However, the first quarter of last year included approximately $9 million of COVID-19 collection kit revenue. Excluding COVID-19 collection kits are molecular products and services declined 27% year over year.
On a sequential basis, our molecular products grew 7% showing modest improvement.
While we remain embolden around the long term trends with our molecular products business and with the high level of innovation industry wide, which supports decentralized sample collection, we continue to see some disruptions with top customers this quarter.
We are optimistic our molecular products business will be positioned for improved growth trends as we look to the second half of this calendar year.
From a gross margin perspective, our GAAP gross margins in the quarter were 42, 5% and our non-GAAP gross margins in the quarter were 42, 8% compared to 49% last quarter.
Despite pricing pricing headwinds with new COVID-19 tests contracts and mixed headwinds with higher diagnostic test revenue, we showed meaningful positive progress on a sequential basis.
As Kelly already mentioned this quarter, we completed our <unk> packaging redesign transition in March one month ahead of schedule.
We believe these changes will save approximately 50 per test leading to improved in Tulsa have gross margins looking ahead.
We are also looking at material procurement product standardization packaging reductions in labor efficiencies with our new facilities in automation at future drivers of margin expansion.
This is expected to improve margins as our U S based production process eliminates overseas shipping and is highly automated and more efficient.
In spite of our packaging improvements one factor that will negatively impact second quarter margins is the mix between our two impella swap contracts, our expectation being that the preponderance of tests could fall under our lower priced contract, which means that we anticipate some gross margin headwinds on a sequential basis.
Followed by continued improvement by the above factors in the second half of the year.
Moving on to our operating expenses, our GAAP operating expenses in the quarter were $41 $5 million.
While our non-GAAP operating expenses were $33 6 million and increased modestly relative to fourth.
Looking forward, we plan to realize additional efficiencies beginning in the second quarter beyond the $15 million in annualized operating expenses, we highlighted during the first quarter earnings.
Some of these savings are attributable to the scale down of support functions for our impulse, while production, which is accounted for in SG&A as well as other identified savings.
These savings are critical as we look to utilize our cash for growth investments and as we are committed to achieve cash flow breakeven and our core business. Excluding <unk> revenue by the end of 2024.
This quarter, our GAAP operating income was $24 $3 million, our non-GAAP operating income was $32 7 million, representing 76% sequential growth and a dramatic improvement from our $6 6 million operating loss in the first quarter of calendar year 2022.
From a cash perspective, we ended the quarter with total cash and cash equivalents of $112 million, representing a modest improvement from last quarter. We once again saw significant increases in working capital, which we believe will convert to cash hasnt tell swap revenues taper in the future.
We also continue to expect to generate positive cash flow from our $109 million Department of defense contract.
Majority of the cash tied to this expansion has now been spent and we have $48 $1 million in remaining milestone payments to recruit from the government as of the end of the first quarter.
Turning to our guidance as Terry mentioned previously our April orders from the government for the school program declines compared to ordering levels seen in the first quarter.
Consequently, we are guiding to total and tell us Rob revenue of $25 million to $30 million in the second quarter versus $118 million in sales we saw in the first quarter.
As Terry discussed earlier, we are in ongoing discussions with the government.
Consequently, we are guiding to a total second quarter revenues of $62 million to $67 million.
Our goal with Intel Swab has been to optimize cash generation for future growth investments and as we work down existing inventory collect on our significant receivable balance that meet the remaining milestones on our $109 million Department of defense facility contract, we expect to Jennifer generate meaningful cash flow from operations.
With that I'll turn the call back over to Kerry to conclude.
Thanks, Ken and in summary, we continue to make meaningful progress on our strategic transformation priorities and in creating a culture that innovates and operates with disciplined execution and accountability in order to deliver shareholder value. We are highly focused on continuing to improve organizational.
Structural and manufacturing efficiencies optimizing the <unk> cash generation opportunity and bolstering future core growth through strategic partnerships.
And internal development to expand our pipeline of innovation. We also continue to believe that our foundational capabilities and strength.
Help power the shift in health care delivery meeting people patients, where they are to increase access affordability and quality of care. We look forward to updating you on our progress as we continued to execute on our transformation journey and with that I'm pleased to turn the call back over to Scott for Q&A.
Thanks, Carrie operator, we're now ready to begin the Q&A portion of the call.
Thank you limit your questions to one question and one follow up to ensure broad participation.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Our first question comes from the line of Patrick Donnelly from Citi. Your line is now open.
Hi, Lindsay.
Altra Patrick Thanks for taking my question. So I guess first on the pull forward of the international dial.
Quantify by how much.
How much of that was part of of this quarter.
Okay.
Yes, thanks for the question.
I think when you look at the total international orders in the quarter. They were approximately $10 million this quarter.
And when you look at last quarter, we saw similar amount.
When we think about the fourth quarter typically we see positive seasonality in the fourth quarter because the orders are placed by Ngos and other non governmental organizations and so what you did see this quarter is probably some carryover we talked about that on our fourth quarter earnings call.
Debt.
There were some of the demand that we weren't able to completely fill and so we had guided obviously and so we didn't quantify exactly how much more do you think about the size with $10 million gives you a good idea of how much you might've seen okay.
Just to add to that as a reference you can look at Q1 revenue last year.
<unk> business with the guideline of that seasonality.
Understood. Thank you and then great to see the 50 cent cost savings for tests on a tall swap I think that was up from 45.
You guys discussed last quarter.
I'm just wondering with some of those cost initiatives being implemented to watch other tests I think you may have touched on this and if so is that something that we can expect to hear about this year.
Just wondering.
<unk> will also be applied.
That's it for me.
Yes.
I heard your question was can we leverage the opportunity in cost savings from entellus mob on the other product lines in the business short answer is yes, what we did develop with Intel US Bob was automation capabilities that we are leveraging on our other existing products and product lines think of HIV HCV that we will be leveraging those going forward.
Sure.
And specifically regarding the packaging redesign if thats a product.
Sorry, an opportunity we look at product by product because that doesn't involve resubmission to the FDA. So we're looking at lessons learned to the benefits of those and and arent prepared to share anything specifically byproduct or on timing, but I think it really does inform our development and opportunities moving forward.
Okay.
Great. Thank you.
Great. Thank you questions.
Great. Please standby as we get our next question ready.
Okay.
Okay.
Our next question comes from Alexandra.
Evercore ISI. Please go ahead.
Hi, Thanks for taking my question one.
One on gross margins here in Europe year on year and sequentially can you just talk about the progression that you're expecting for the rest of the year.
Yes, if you think about gross margins there are several drivers right. There is the product mix and pricing mix. So one of the headwinds the headwinds that we mentioned earlier in the prepared remarks was around the mix of Intel is swap contracts as we've shared before in previous calls we have three contracts with the government.
First one the original is and I think we've shared this in the past is approximately $5. The second one is approximately $3. What we're expecting in Q2 is the preponderance of our volume to come from that second contract. So that'll be a headwind the offsetting offsetting tailwind as we mentioned.
As the packaging redesign, which will help us drive efficiency as well as some of the other efficiencies. We mentioned in automation that we continue to drive and so that's how I would think about it as you're modeling it going forward and we expect Q2 to be a temporary compression based on that mix to then recover in the second half.
Right I think we've shared okay.
Sorry, I was just going to ask a follow up wondering if you could just talk about sort of between and tell us what the base business like how we should think about margins between those two segments.
Yes, I think Alexander what we've kind of shared there is when you look at our key business units. The biggest mix drivers that we've seen is the.
The amount of revenue that's associated with our diagnostic products and the amount.
Associated with our molecular products and services.
When you look at the last year. The trend is obviously been for diagnostics to increase dramatically.
The highest margin portion of our business is our molecular products.
So as the mix begins to shift in one of the drivers as we look at the back half of the year as the mix begins to shift.
Increasingly.
Again back towards molecular products and that will actually be a positive driver of our gross margins in the second half of the year and just to add to what Scott said and build off of what Scott said one of the items that we have even tell us what we've seen over the last year or so is the improved gross margins of adult swab.
At a point now where it's actually above our overall weighted average for gross margins.
Yes.
Great. Thanks.
Thanks Alexandra.
Thank you.
Our next question comes from Casey Woodring from J P. Morgan.
Hi, guys. Thanks.
Thanks for taking my questions.
So just on the <unk> guide on the non Covid side at the midpoint. It looks like growth will be flat year over year and sequentially can you just talk about what's embedded for growth in both molecular in the core diagnostics business and that <unk> got.
Yes, Casey I think when you look at the different components, obviously, we have the diagnostics business.
The first piece there is we obviously had elevated international sales in the first quarter. So we are expecting that to taper. Some and then with our molecular products business. What we said on the call was that.
We're not expecting a huge change in the second quarter, but we're optimistic as we look towards the second half of the year that we could start to see some improvement there and so that's really what's factored in when you look at the two pieces and relatively flat sequential core business implied by the guidance and to build on what Scott said Theyre also to add to it in Q1.
The diagnostics side, we saw an increase from our HIV program with with Emory and we saw significant increase in Q1, we are promise going forward, but.
That's one of the areas that we felt was a little bit more sequentially flat going forward.
Got it that's helpful.
Wanted to touch on the milestone payments you mentioned I think it was $48 million worth.
What do you need to do to receive those and do you expect.
To receive them this year.
Glad to see it.
Almost.
Yes, definitely thats a great question, so of the $48 million I still have to spend a few dollars left so think of that a net $40 million. When you think about the dollars we have to spend.
Going forward and then what we collected 48.
We expect to receive it all by the end of the year.
Land has to prove our ability to deliver.
That amount of capacity to the government and go through their regulations right. Now the plan is to have that completed in Q4 at that point, we will receive the full full.
Full payments of $48 million.
And we're well on track and we're well on track for that absolutely.
Got it that's helpful.
And then last one from me just carry you talked a lot about call. It on the call I guess, maybe more so than previous calls. So can you just remind us how big that business is today.
With all of those catalysts, you kind of talked about here. How do you think that product can grow maybe this year and then over the next several thank you.
Yeah Katy thanks.
Well it call. It is not big enough for us to have called out yet we are excited about it because of the potential to unlock liquid biopsy in urine, both through oncology biomarker insights as well as stis. So I think what you hear us encouraged by it.
Is that.
Progress in clinical proof and the fact that we have CE mark today for a variety of different product.
<unk> and <unk>.
And Chemistries. So there are different chemistries between the oncology on the STI.
Applications and so with the with CE Mark today, we think theres opportunity and we'll be working that the path to U S regulatory clearance, but I'd say not immaterial in terms of current volume, but with real long term potential that we were not guiding to yet, but we want to stop.
At this stage with the clinical progress.
Okay.
Okay.
Thanks Casey.
Okay.
And our final question.
It's from.
Andrew Cooper.
From Raymond James Please go ahead.
Hi, This is Liam on for Andrew. Thank you for taking my question.
Hi, Gary Hi, Gary you talked about kind of further cost savings from that $15 million you called out before.
Can you kind of walk me through how that might look for the rest of the year. Thanks.
Yeah.
Yes.
Not ready yet.
We didn't quantify those.
The savings are significant.
Some of it.
As yet to be fully completed and so we're working through that.
Right now and we would look to quantify that for you later on.
So I think look for an update on that on future calls.
Put it in context, I think of it from a modeling perspective. This remember our call our stated.
Target is to be cash flow from operations breakeven on our core business by the end of 2024.
Great. That's helpful. Thank you.
And then just on one other thing as well.
Together take me home HIV program.
Nice to see a little bump there was wondering how the back half might look.
Can we see incremental growth there and then also on the molecular side what products should we think about raising that for and three in <unk>. Thanks.
Yes, I mean, we haven't guided specifically to any individual product when you think about the laptop HIV together program.
Three year program, where funds have been allocated we would expect.
That under the under the program you would see orders over time.
It's a little bit difficult to predict exactly what the timing of that looks like it could be.
Somewhat lumpy from quarter to quarter.
But yes, we have we're not guiding to any specific product in terms of.
Overall dollars, yes, Scott I think we've said in the past.
Is that five years at about 200000 units.
Per year.
And then the average price you could think about as our typical price that we've had for our HIV test.
And what you heard us describe is the launch of the program in Q1 got off to a very good start with very strong adoption within communities and so that momentum.
It's just always a positive sign and as we have more to share on that with any potential changes to that ordering we will we will share that as well, where we're pleasantly surprised but not surprised but encouraged by the channel and the usefulness of that channel and or from a public health partners.
Great. Thanks.
Great. Thank you.
Amanda is that are those.
All the questions.
That is all the questions I'm turning it over to you Carey for closing remarks.
Excellent.
Thank you to everyone for participating in today's call. Thank you for your continued interest in <unk>.
Have a good afternoon, and evening and stay safe and be well. Thank you so much.
That will close.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
[music].
Hum.
Okay.
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Yes.
[music].
Yeah.
No.
Hmm.
[music].
Okay.
[music].
Sure.
Okay.
[music].
Hum.
Okay.
Okay.
Okay.
[music].
Okay.
[music].
Yes.
[music].
Yes.
[music].
No.
Hum.
[music].
Okay.
[music].
Yes.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Yes.
[music].
Hum.
[music].
Okay.
Hum.
[music].
Yes.
[music].
Okay.
[music].
Okay.
Yes.
[music].
Yeah.
Okay.
[music].
Yes.
Hum.
[music].
Okay.
Hum.
[music].
Okay.
[music].
Okay.