Q2 2024 OraSure Technologies Inc Earnings Call

August 6, 2024

Unnamed Speaker: Shipments and markets, business plans, regulatory filings and approvals, expectations, and strategies. However, actual results could be significantly different.

Shipments and markets business plans regulatory filings and approvals expectations and strategies.

Actual results could be significantly different.

Oti: Factors that could affect results are discussed more fully in Oti's SEC filings. It's annual report on Form 10-K for the year ended December 31 2023.

Unnamed Speaker: Factors that could affect results are discussed more fully in OTI's SEC filings, its annual report on Form 10-K for the year ended December 31, 2023, its quarterly reports on Form 10-Q, and its other SEC filings. However, although forward-looking statements help to provide more 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. OTI undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call.

Its quarterly reports on Form 10-Q, and its other SEC filings.

Speaker Change: Forward looking statements help to provide more 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 OTI undertakes no obligation to update any forward looking statements to reflect events or circumstances. After this call with that.

Jason Plagman: With that, I'm pleased to turn the call over to Carrie. Thanks, Jason, and thank you to everyone for joining us today. We are pleased to provide an update on the progress.

Speaker Change: I am pleased to turn the call over to Kerry.

Carrie Manner: Thanks, Jason, and thank you to everyone for joining us today. We are pleased to provide an update on the progress OraSure is making on the three pillars of our strategic transformation, strengthening our foundation, accelerating our core growth, and accelerating profitable growth. A few notable highlights during the second quarter include that we delivered Q2 revenue that was near the top of our guidance ranges for both core revenue and for COVID-19 products, where we successfully fulfilled the remaining portion of our largest contract with the federal government.

Kerry: Thanks, Jason and thank you to everyone for joining us today.

Carrie Manner: In product extensions, we earned World Health Organization prequalification for our OraQuick HCV self-test, representing the first hepatitis C self-test to achieve this designation. OraSure is proud to add the WHO PQ milestone to our legacy of firsts in the diagnostics industry, and we look forward to working with the global health community to expand market access and bring this test to populations in need. We launched new FDA-cleared packaging and labeling for our OraQuick HIV self-test, which is expected to increase shipping efficiencies and reduce shelf space and plastic usage. Sorry about that.

Kerry: We're pleased to provide an update on the progress of our Ishares, making on three pillars of our strategic transformation.

Carrie Manner: The new labeling also removes the contraindication for users on PrEP, potentially expanding access for a population that is recommended to test four times per year. We are seeing positive momentum with Syphilis Health Check following our launch of this key sexual health portfolio product at the end of Q1. We broadened relationships with several leading oncology companies to expand or collect DX collection devices into saliva-based liquid biopsy. We expanded our agreement to become a supplier of saliva collection devices for exact sciences. Our OraCollect DX saliva collection device will be utilized in exact hereditary cancer and therapy selection tests.

Kerry: <unk>, our foundation, elevating our core growth and accelerating profitable growth a.

Carrie Manner: And with our healthy balance sheet, we continue investing in our innovation roadmap and opportunities to leverage our existing strengths in order to position OTI for sustainable, profitable growth. Starting with operating efficiency, we continue to strengthen our foundation and drive operational improvements. As we discussed in May, we launched several new initiatives to further rebalance our cost structure, consolidate our footprint to leverage our centers of excellence, and focus on our core strengths. We made significant progress on each of these programs during the last three months, and Ken will provide additional details in a few minutes.

Carrie Manner: Overall, these important steps, as well as our enterprise-wide focus on continuous improvement, give us confidence in achieving our target to break even in operating cash flow from our core business by the end of 2024. Our work in the past two years has allowed OTI to deliver a strong return on the COVID-19 opportunity, and it's well positioned us for the future. Moving to IntelliSwap.

Carrie Manner: We had shared that we would fulfill the remaining portion of our largest contract with the U.S. government during Q2, and we did that, closing strong with $19 million in revenue in the quarter. Moving forward, it's all about our core business. Q2 core revenue of $35.4 million was near the top of our guidance range; performance in both diagnostics and sample management solutions was consistent with the outlook embedded in our guidance. Within our diagnostics portfolio, we are seeing good momentum with Syphilis Health Check, following our launch of Diagnostics Direct's product at the end of Q1, and are receiving strong interest from both existing and new customers.

Carrie Manner: And more broadly, we are having success with multi-product sales across our portfolio of HIV, HCV, and syphilis tests, as healthcare providers and public health organizations, such as the National Coalition of STD Directors, recognize the need for a syndemic approach to rapid testing, given the significant overlap in patients at risk for these infections. Additionally, organizations such as the CDC and SAMHSA have already started to ease restrictions on existing funding streams to increase syndemic testing programs rather than focus solely on HIV-related purchasing.

Speaker Change: Started to ease restrictions on existing funding streams to increase the endemic testing programs rather than focusing solely on HIV related purchasing.

Carrie Manner: This evolution is well aligned with our infectious disease product portfolio and our sexual health strategy aimed at expanding our menu of diagnostic tests serving more people. For HIV, during Q2, we received FDA clearance for a new packaging configuration with updated labeling for our OraQuick HIV self-test, which is expected to increase shipping efficiencies, conserve shelf space, and reduce plastic waste. In addition to sustainability improvements, our product is also now labeled with appropriate warnings for use in individuals on PrEP instead of the original contraindication, a change which has the potential to open up a new segment for our offerings as individuals on PrEP are recommended to test for HIV multiple times a year.

Kerry: This evolution is well aligned with our infectious disease product portfolio and our sexual health strategy aimed at expanding our menu of diagnostic tests serving more people.

Kerry: In HIV during Q2, we received FDA clearance for a new packaging configuration with updated labeling for our or quick HIV self test, which is expected to increase shipping efficiencies conserve shelf space and reduce plastic waste and <unk>.

Kerry: <unk> to sustainability improvements our product is also now labeled with appropriate warnings for used an individual's on prep instead of the original contra indication.

<unk>, which has potential to open up a new segment for our offerings as individuals' Unproper recommended to test for HIV multiple times a year.

Carrie Manner: We have received very positive feedback from our customers, including public health organizations, as well as retailers, regarding the potential benefits of the product extensions for our leading HIV self-test. As another example of product extension innovation in our sexual health portfolio, we are proud to share that, in July, we earned the first pre-qualification for any hepatitis C self-test from the World Health Organization. We are excited to bring our OraQuick HCV self-test to the global health community while adding its important WHO PQ designation to OTI's legacy of first in the diagnostic industry.

Kerry: We have received very positive feedback from our customers, including public health organizations as well as retailers regarding the potential benefits of the product extensions for our leading HIV self test.

Kerry: And another example of product extension innovation and our sexual health portfolio. We are proud to share that in July we earned the first pre qualification for any hepatitis C. Self tests from the World Health organization. We are excited to bring our or a quick HCV self test to the <unk>.

Kerry: Global Health community.

Carrie Manner: We are confident in our hepatitis C self-test potential to expand service for populations in need, including the 50 million people living with HCV and the 1 million individuals who acquire HCV each year, and to help stem its spread.

Carrie Manner: This opportunity is closely aligned with our strengths in delivering high-quality, affordable tests to enable access to more people at scale. Furthermore, we believe our HIV and HCV product extension launches are great examples of OTI's leadership in not just developing rapid diagnostic tests but also in innovation that enables ongoing market expansion opportunities over a product's life cycle. I'll share a few more examples of product extension innovation and its potential to fuel market expansion after I finish summarizing Q2.

Carrie Manner: Moving to sample management solutions, we are currently seeing stabilization and early signs of a still gradual recovery in the market as genetic testing and research segments adapt to the post-COVID environment and an evolving regulatory environment for diagnostic labs. Additionally, we are seeing increasing interest in our sample collection devices from customers and emerging growth segments like liquid biopsy, animal health, and others. Overall, we remain confident in our strength in leading the market and as the only 510k cleared collection and stabilization devices in several categories.

Carrie Manner: We are also pleased to announce progress in broadening our relationships with several leading oncology companies. We have signed an agreement to become a supplier of saliva collection devices for Exact Sciences, a company dedicated to helping eradicate cancer through prevention, early detection, and personalized treatment. Our OraCollect DX saliva collection device will be utilized in XactScience's Hereditary Cancer and Therapy Selection test. We believe these two tests offer important advancements in precision oncology by providing actionable insights that empower patients and doctors to make informed decisions about treatment options.

Carrie Manner: As the field of precision oncology continues to expand, we are committed to strengthening our partnerships and supporting the advancement of this promising frontier in cancer detection and care. We are also proud to share that we have expanded our relationship with Variantix, a commercial laboratory specializing in genetic testing for rare genetic disorders, reproductive health, and precision oncology. We believe their whole genome platform stands out for its high-resolution detection and characterization of all clinically relevant variant types, providing a comprehensive report from a single sample.

Carrie Manner: Notably, our Orogene DX and OraCollect DX saliva collection kits play a crucial role in Variantix's suite of more than 30 tests. Advancing genetic science and precision medicine through patient-centric solutions that offer easy, accessible, and efficient saliva sample collection. It is our goal to power sample collection and management for every molecular diagnostics innovator, to contribute to progress in precision medicine, and to help provide actionable insights that guide critical treatment decisions for physicians, patients, and families.

Carrie Manner: We continue to highlight that the strengthening of our balance sheet in the last two years is allowing us to invest in innovation for our next phase of accelerated growth. These investments range in innovation from new products and technologies to market-expansing product extensions.

Carrie Manner: The vitality of our product lifecycle is key to our near and long-term growth strategy. Product extensions include areas of innovation like these I just shared—achieving the first WHO prequalification of our HCV self-tests for global markets and clearing with the FDA our HIV packaging improvements and labeling updates. Another example is our recently submitted request to the FDA to expand the range of our HIV self-test to include adolescents. Today, our HIV self-test is labeled for use by patients 17 or older.

Carrie Manner: In working with our partners, we identified a critical public health risk for youth, which translates to an important opportunity to expand access to HIV testing for a broader segment of vulnerable populations, in this case, extending to include 6.4 million sexually active 13 to 16-year-olds in the US each year. In our sample management business, we have additional areas of expansion, such as in the application for saliva-based liquid biopsy. As noted, we have several customers using our current clear devices for work in oncology, and we are poised to expand our commercial footprint as these markets gain momentum.

Carrie Manner: Also in sample management, we continue to make innovation progress on our Coli-P self-collected urine device. Building on our existing EU clearances, the potential for Coli P leverages clinical studies, which are required for regulatory clearance, and translates those into adoption for future clinical practice. We previously talked about our colipy studies in Europe, which show that people prefer self-collected urine versus swab, whether self-collected swab or physician-collected swab. For STI testing, there are four main reasons for this. It's private, it's painless, it's simple to use, and it's convenient to perform at home.

Kerry: Paul.

Carrie Manner: And beyond preference for the device, enabling self-collected urine, another key aspect of ColiP innovation is stabilizing and preserving the sample. On this front, we recently filed for a new patent for proprietary chemistry to preserve both DNA and RNA and STI applications, which marries urine collection with ambient preservation capability. We've demonstrated success with this strategy in saliva, and Colipy intends to do the same in urine.

Kerry: And beyond preference for the device, enabling self collected urine. Another key aspect of colleague P innovation is stabilizing and preserving the sample.

Kerry: On this front, we recently filed for a new patent for proprietary chemistry to preserve both DNA and RNA and S. T I applications, which marries urine collection with ambient preservation capability.

Cali: We've demonstrated success with this strategy and saliva and Cali intends to do the same in urine.

Carrie Manner: Regulated health care innovation is a multi-year process, and these examples demonstrate why it's worth it. ColiP has the potential to expand meaningful market opportunities in large and growing clinical segments, such as STIs. We plan to submit to the FDA for ColiP's STI application before the end of 2025.

Cali: Regulated health care innovation is a multi year process and these examples demonstrate why it's worth it Cali P has the potential to expand meaningful market opportunities in large and growing clinical segments such as Sci.

Cali: We plan to submit to the FDA for Cali piece STI application before the end of 2025.

Carrie Manner: Before I conclude, I also want to discuss the strengths of our assets and capabilities and highlight some of the elements that give us confidence in our ability to leverage them to drive sustainable, profitable growth. First, OTI has high-quality, differentiated products that are recognized as category leaders. Our investments in innovation, both new products and product extensions, have allowed us to maintain our leadership in our core product lines and position us to further expand our product portfolio with additional tests for more people in diagnostics and additional sample types, analytes, and applications in sample management.

Cali: Before I conclude I also wanted to discuss the strength of our assets and capabilities and highlight some of the elements that give us confidence in our ability to leverage them to drive sustainable profitable growth.

Cali: First OTI has high quality differentiated products that are recognized as category leaders.

Cali: Our investments in innovation, both new and product extensions have allowed us to maintain our leadership in our core product lines and position us to further expand our product portfolio with additional tests for more people in diagnostics and additional sample types analytes and applications and sample management.

Carrie Manner: The strength of our products and our experienced sales team has allowed us to build long-term, durable relationships with our customers. Plus, our multi-year investments in our quality and regulatory programs have further enhanced our internal expertise and our external credibility around the globe. These capabilities allow us to successfully navigate increasingly complex and rigorous regulatory review and approval processes and to reliably partner with clients subject to the same stringent requirements. Our balance sheet is strong, and our collaboration with the government during the pandemic has allowed us to significantly expand our automation capabilities and capacity across multiple product lines.

Cali: The strength of our products and our experienced sales team has allowed us to build long term durable relationships with our customers.

Cali: Plus our multiyear investments in our quality and regulatory programs have further enhanced our internal expertise and.

Cali: And our external credibility around the globe. These capabilities allow us to successfully navigate increasingly complex and rigorous regulatory review and approval processes.

Cali: And to reliably partner with clients subject to the same stringent requirements are.

Cali: Our balance sheet is strong and our collaboration with the governments. During the pandemic has allowed us to significantly expand our automation capabilities and capacity across multiple product lines.

Carrie Manner: Finally, our focus on instilling an enterprise-wide focus on continuous improvement has provided our organization with the tools to drive meaningful operating leverage as our end markets recover and return to growth. With that, I'd like to turn the call over to Ken to discuss our financial results and guidance. Thank you.

Cali: Finally, our focus on instilling an enterprise wide focus on continuous improvement has provided our organization with the tools to drive meaningful operating leverage as our end markets recover and return to growth with that I'd like to turn the call over to Ken to discuss our financial result.

Ken: And guidance.

Kenneth McGrath: Thanks, Carrie. I'm happy to discuss our results for the second quarter of 2024 and provide updates on our financial outlook. In Q2, we delivered a total revenue of $54.3 million. Core revenue, which excludes COVID-19 products, was $35.4 million in the second quarter. Within core revenue, our diagnostic products generated $18.7 million of revenue in Q2 and decreased 5% year-over-year. Sample management revenue in the second quarter was $12.6 million and decreased 3% year-over-year.

Ken: Thanks, Gary I'm happy to discuss our results for the second quarter of 2024 and provide updates on our financial outlook.

Ken: In Q2, we delivered total revenue of $54 3 million.

Ken: Core revenue, which excludes COVID-19 products was $35 4 million in the second quarter.

Ken: Within core revenue, our diagnostic products generated $18 7 million of revenue in Q2 and decreased 5% year over year.

Ken: Sample management revenue in the second quarter was $12 6 million and decreased 3% year over year.

Kenneth McGrath: Total core revenue growth declined 7% on a year-over-year basis in Q2 and was impacted by a 40% decrease in revenues from the Diversagen Molecular Sequencing Services business that we are examining, as well as a decline in non-product and services revenue. COVID-19 products, predominantly Intelliswap, contributed $18.9 million of revenue in the second quarter. As anticipated, we fulfilled the remaining $17 million of our largest contract with the U.S. government during the quarter.

Ken: Total core revenue growth declined 7% on a year over year basis in Q2 and was impacted by a 40% decrease in revenues from the diverse igen molecular sequencing services business that we're exiting.

Ken: As well as a decline in non product and services revenue.

Ken: COVID-19 products predominantly until Schwab contributed $18 9 million of revenue in the second quarter.

Ken: As anticipated we fulfilled the remaining $17 million of our largest contract with the U S government during the quarter.

Kenneth McGrath: Our GAAP gross margin in the second quarter was 45.4%, and non-GAAP gross margin was 47.4%. Gross margin was at the high end of our expectations and was driven by continued progress in our operational efficiency initiatives and our investments in automation. GAAP operating expenses in the quarter were $27.4 million, which included $3.1 million of non-cash stock compensation expenses, $1.1 million for impairment of absence, and $763,000 for reduction in workforce sever

Ken: Our GAAP gross margin in the second quarter was 45, 4% and non-GAAP gross margin was 47, 4%.

Ken: Gross margin was at the high end of our expectations and was driven by continued progress in our operational efficiency initiatives and our investments in automation.

Ken: Our GAAP operating expenses in the quarter were 20, $27 4 million.

Ken: Which includes $3 1 million of noncash stock compensation expense $1 1 million for impairment of assets and 763000 for a reduction in workforce.

Ken: Our GAAP operating loss in Q2.

Kenneth McGrath: Our gap operating loss in Q2 was negative $2.7 million, and non-GAAP operating income was $3.3 million. As we discussed last quarter, as part of our transformation journey, we initiated several additional actions to rebalance our cost-sharing, consolidate our operational footprint, and streamline our portfolio of offerings to focus on strength, on our strength. We have made good progress on these three initiatives over the last three months. For Diversagen, we have been transitioning customers and expect to complete our exit from the sequencing services business by the end of the third quarter. In Belgium, we will close our site by the end of 2024 and finish integrating those activities into our teams in the U.S. and Canada.

Ken: Negative $2 7 million.

Ken: Our non-GAAP operating income was $3 3 million.

Ken: As we discussed last quarter as part of our transformation journey.

Ken: She waited several additional actions to rebalance our cost structure consol.

Ken: Consolidator operational footprint and streamline our portfolio of offerings to focus on shrink so on our strengths.

Ken: We have made good progress on these three initiatives over the last three months.

Ken: For diverse Jim we've been transitioning customers and expect to complete our exit from the sequencing services business by the end of the third quarter.

Ken: In Belgium, we will close our site by the end of 2024, and finishing integrating those activities into our teams in the U S and Canada.

Kenneth McGrath: In our sample management portfolio, we are insourcing production of certain sample management products from external contractors into our own manufacturing center of excellence in Bethlehem, Pennsylvania over the next 15 months. As we discussed last quarter, internalizing these activities is expected to improve our operating efficiency and further leverage our existing infrastructure. In total, we continue to expect the actions that we announced in May will result in more than $15 million of annual expense reduction following completion, which is an important step in our plan to achieve our target to break even in operating cash flow from our core business by the end of 2024. These initiatives are in addition to our ongoing enterprise-wide focus on operational efficiency and continuous improvement.

Ken: And our sample management portfolio, we are in sourcing production of certain sample amount of our products from external contractors into our own manufacturing center of excellence in Bethlehem, Pennsylvania over the next 15 months.

Ken: As we discussed last quarter internalizing. These activities is expected to improve our operation operating efficiency and further leverage our existing infrastructure.

Ken: In total we continue to expect we expect the actions that we announced in May will result in more than $15 million with annual expense reduction following completion.

Ken: Which is an important step in our plan to achieve our targets to breakeven and operating cash flow from our core business by the end of 2024.

Ken: These initiatives are in addition to our ongoing enterprise wide focus on operational efficiency and continuous improvement.

Kenneth McGrath: Moving to our balance sheet, we ended the second quarter with zero debt and total cash, cash equivalents, and short-term investments of $267 million. During the quarter, we generated $7.8 million of operating cash flow, and we invested $1.6 million in CapEx. Turning to Revenue Guidance, we are guiding to third quarter total revenue of $37 to $41 million, which includes core revenue of $36 to $39 million and IntelliSwap revenue of $1 to $2 million.

Ken: Moving to our balance sheet, we ended the second quarter with zero debt.

Ken: Total cash cash equivalents and short term investments of $267 million.

Ken: During the quarter, we generated $7 8 million of operating cash flow and we invested $1 6 million for Capex.

Speaker Change: Turning to revenue guidance, we are guiding to third quarter total revenue of 37% to $41 million, which includes core revenue of $36 million to $39 million and <unk> revenue of $1 million to $2 million.

Kenneth McGrath: Our Q3 guidance does not include any revenue from the diversity molecular services business that we are. Within our Q3 revenue outlook, we expect international diagnostics to drive most of the sequential increase in revenue from Q2 to Q3. Looking at the fourth quarter, we expect core revenue to moderate compared to our Q3 outlook, which is consistent with the seasonal ordering patterns that we have observed in 2022 and 2023. Moving the Gross Margin.

Ken: Our Q3 guidance does not include any revenue from a diverse molecular services business that we're exiting.

Ken: Within our Q3 revenue outlook, we expect the international diagnostics will drive most of the sequential increase in revenue from Q2 Q3.

Ken: Looking at the fourth quarter, we expect core revenue will moderate compared to our Q3 outlook.

Ken: Which is consistent with the seasonal ordering patterns that we've observed in 2022 and 2023.

Ken: Moving to gross margin.

Kenneth McGrath: We expect our gross margin in Q3 to be in the low 40% range, followed by a return to the mid 40% range in Q4. Our Q3 gross margin outlook is impacted by two short-term factors. First, the expected increase in international diagnostic revenue for Q3, that I mentioned earlier, which carries gross margins that are lower than our blended corporate average. And second, wind-down costs associated with our exit from the Diversigen Molecular Sequencing Services business, which we expect to fully exit by the end of Q3.

Ken: We expect our gross margin in Q3 to be in the low 40% range.

Ken: Follow by a return to mid 40% range in Q4.

Ken: Our Q3 gross margin outlook is impacted by two short term factors first the expected increase in international diagnostic revenue in Q3 that I mentioned earlier, which carries gross margins that are lower than our blended corporate average in second wind down costs associated with our exit from the diverse the gym molecular sequencing services.

Ken: Business that we expect to fully exit by the end of Q3.

Ken: From a long term perspective, we continue to believe we can drive additional gross margin expansion and operating leverage by delivering efficiencies across our enterprise, including consolidated operations into our center of excellence and further leveraging our automation capabilities.

Kenneth McGrath: From a long-term perspective, we continue to believe we can drive additional gross margin expansion and operating leverage by delivering efficiencies across our enterprise, including consolidating operations into our center of excellence and further leveraging our automation capability. With that, I'll turn the call back to Carrie.

Speaker Change: With that I'll turn the call back to the carry to conclude.

Carrie Manner: And, as we detail today, we continue to make solid progress on our strategic transformation. This quarter, we generated positive operating cash flow, and we continue to streamline our operations and unlock efficiency gains. In our core business, we are seeing positive momentum with the launch of Syphilis, along with product extensions and enhancements that expand access to our products and address the needs of patients and our customers. And we continue to strengthen our existing customer relationships while adding new customers.

Carrie: Thanks, Ken.

Speaker Change: As we detailed today, we continue to make solid progress on our strategic transformation. This quarter, we generated positive operating cash flow and we continued to streamline our operations and unlock efficiency gains.

Speaker Change: In our core business, we are seeing positive momentum with the launch of Sip was along with product extensions and enhancements that expand access to our products and address the needs of patients and our customers.

Carrie: And we continue to strengthen our existing customer relationships, while adding new customers.

Carrie Manner: Overall, we are confident that OTI is well positioned to leverage the strengths of its differentiated assets and organizational capabilities to drive sustainable, profitable, long-term growth as key end segments recover in 2025 and beyond. With that, I'm pleased to turn the call over to the operator for Q&A. Thank you.

Speaker Change: Overall, we are confident that OTI is well positioned to leverage the strength of our differentiated assets and the organizational capabilities to drive sustainable profitable long term growth and key end segments further recover in 2025 and beyond.

Operator: Thank you. Thank you. 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 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 once again. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from the line of Jacob Johnson from Stevens Incorporated. Your line is now open.

Speaker Change: With that I'm pleased to turn the call over to the operator for Q&A.

Carrie: Hayley.

Hayley: Thank you.

Hayley: 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.

Speaker Change: To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.

Carrie: Okay.

Speaker Change: Thank you. Our first question comes from the line of Jacob Johnson from Stephens incorporated your line is now open.

Matthew Stanton: Good afternoon. It's Mac on for Jacob today. Oh, hi Mac. How are you doing? Appreciate the color around the margin progression and 3Q. I think you cited a low 40% given the efforts there, but I was curious how that should progress in 4Q and maybe into 2025 as we start to roll off some of these, you know, these different costs that are kind of feeding into the..., the P&L at the moment.

Jacob Johnson: Hey, Jack.

Kenneth McGrath: Yeah, thanks, Mac. I appreciate the question.

Carrie: Good afternoon, it's mark on for Jacob Today Oh.

Speaker Change: Okay Alright.

Speaker Change: Hi, How're you doing.

Speaker Change: I appreciate the color around.

Speaker Change: The margin progression in <unk>.

Speaker Change: I think you cited low 40% given.

Carrie: The efforts there, but I was curious how that should progress in <unk> and maybe into 2025 as we.

Carrie: Start to roll off some of these these are.

Carrie: These different costs or kind of feeding into the.

Carrie: The P&L at the moment.

Kenneth McGrath: Yeah, so just to reiterate, our drivers for Q2 to Q3 margins, the first is that we expect to have a higher percentage of international revenue. And as you know, that carries with it a little bit below our average of our gross margin, so not all the negative drawback on the margins. Also, we're still going to remain having divergent expenses in Q3. So, as far as we progress to Q4, we expect to get a benefit from the overall mix, the mix between international and domestic.

Speaker Change: Yes, Thanks, Matt I appreciate the question Yeah. So just to reiterate our drivers for Q2 to Q3.

Carrie: Margins.

Carrie: First is that we expect to have a higher percentage of international revenue and as you know that carries with it a little bit below our average of our gross margin.

Carrie: A negative drag on the margins also were still going to remaining having diversity in expenses in Q3.

Carrie: So as far as we progress to Q4, we expect to get a benefit from the overall mix.

Carrie: The mix between international and domestic that we will be eliminating those diversity and expenses. So that will help us in Q4. In addition, we're continuing our operational efficiencies.

Kenneth McGrath: We'll be eliminating those diversagen expenses, so that'll help us in Q4. In addition, we're continuing our operational efficiencies. I think we said last quarter about our version two packaging improvements and our footprint consolidations. We're continuing to progress in those areas, which drive overall efficiency.

Carrie: I think we said last quarter about our version two packaging improvements our footprint consolidations, we're continuing to progress in those areas, which drive overall efficiencies.

Speaker Change: I appreciate the color there.

Kenneth McGrath: Appreciate the color there. And just in light of the improvements and the overall backdrop and funding of some of your end markets, I think you called out sample management as one that's gradually recovering, but can you highlight any particular areas of strength and weakness that you are currently seeing? Yeah, Mac, in sample management, we...

Speaker Change: And just in light of the improvements in the overall backdrop in funding.

Speaker Change: Some of your end markets.

Speaker Change: I think you called out sample management as a as one that is gradually recovering but can you highlight any particular areas of strength and weakness that you're currently seeing.

Kenneth McGrath: Yeah, in sample management, we are seeing a strong volume of new customer entities. And what we've talked about in prior quarters is the offset of some of our largest customers while we add a high volume of new customers, new applications for those customers, new segments. It's part of the reason that we've highlighted liquid biopsy applications, and animal health applications.

Speaker Change: Yeah, Nick in sample management, we are seeing that.

Speaker Change: Strong volume of new customer entities, and what we've talked about in prior quarters is the offset of some of our.

Speaker Change: Largest customers, while we add a high volume of new customers new applications for those customers new segments. It's part of the reason that we've highlighted liquid biopsy applications animal health applications, and we continue to share that <unk>.

Kenneth McGrath: And we continue to share that strength in those green shoots of the volume of those customers. What we're really looking for is for their growth to, you know, that trajectory to change. And with that, we believe we're very well positioned to grow with them. We don't think we're losing share. We actually think, you know, we remain really strong, adding net customers, and that it's about that market turning, a matter of, you know, when, not if, is what we believe. And, you know, lots of segments, many customers, and really just well positioned to grow as they grow.

Speaker Change: <unk> in those green shoots of the volume of those customers. What we're really looking for is for their growth.

Speaker Change: That trajectory to change and with that we believe we're very well positioned to grow with them.

Operator: Our next question comes from the line of Patrick Donnelly from Citi. Go ahead.

Speaker Change: We don't think we're losing share we actually think we are.

Speaker Change: We remain really strong, adding net customers and that it's it's about that market turn a matter of when not if it is what we are we believe and.

Speaker Change: Lots of segments, many customers and really just well positioned to grow as they grow.

Speaker Change: I appreciate the color. Thank you for taking my questions.

Max: Thanks Max.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Comes from the line of Patrick Donnelly from Citi Go ahead.

Jordan Adler: Hi, you have Brendan on for Patrick. To start off, it was good to see an sequential step up within the diagnostics segment. Can you walk through some of the moving pieces within that and different trends that you may have seen? Were there any tests that were really driving growth and revenue there? Yeah, we thought...

Brendan: Are you above Brendan on for Patrick to start off.

Speaker Change: Good CNS sequential step up within diagnostics segment can you walk through some of the moving pieces within that and different.

Speaker Change: Trends that you may have seen were there any tests are really driving growth in revenue there.

Kenneth McGrath: Yeah, we saw some several areas of improvement quarter over quarter. We saw HCV increase in some of our contracts with the Department of Health and in several states. In addition, as we mentioned last year, last quarter, we launched our syphilis test, which we are starting to see growth there. So those are two of the areas. And then internationally, we saw growth in HIV.

Speaker Change: Yes, we saw some several areas of improvement quarter over quarter we.

Speaker Change: We saw an HCV increase.

Speaker Change: Some of our contracts with the department of Health and several states. In addition, as we mentioned last year. We are last quarter, we've launched our syphilis test.

Speaker Change: Which we are starting to see growth. There. So those are two of the areas and then internationally we saw growth.

Speaker Change: In HIV.

Kenneth McGrath: Got it. Thank you for the color on that. And I'm actually on HP, so it's great to hear about the WHO pre-qualification there. Can you kind of talk about the opportunity that kind of presents for the company, both kind of in the near term and long term? Yeah.

Speaker Change: Got it.

Speaker Change: Thank you for the color on that and then I'm actually on the each piece with great to hear about the.

Speaker Change: WHI pre qualification there could you kind of talk about like the opportunity of that kind of presents for the company and both kind of in the near term and long term.

Speaker Change: Yeah.

Carrie Manner: Yes, we love to be a leader in WHO PQ, and for those who know the global markets, that's really about future procurement by UN agencies, and it is a key designation that really can help open up donor funding. I would describe that as quite a lengthy process, which can definitely take many months.

Speaker Change: We love to be a leader in H W. H O PQ and for those who know the global markets.

Speaker Change: It's really about future procurement for Bayou and agencies and it is a key designation that really can open up help open up donor funding I would describe that as quite a lengthy.

Carrie Manner: We never conjecture on the timing, but just to sort of give a range, that can be 12, 24 months onward. But WHO PQ is a really important qualification to be on the list that opens up donor funding. So, you know, terrific news on the potential market access expansion. We're not sizing it right now, other than to point out that there are 50 million individuals living with HCV around the globe. It affects a million individuals who acquire it each year, and there is more funding for treatments being available. That's actually one of the drivers internationally.

Speaker Change: The process.

Speaker Change: Ken can definitely take many months.

Speaker Change: We never.

Speaker Change: Conjecture on the timing, but just to sort of give a range that can be 12, 24 months months onwards, but <unk> is a really important qualification to be on the list that open up donor funding so.

Speaker Change: Terrific news on the potential market access expansion, we're not sizing it right now other than to point out it's 50 million individuals living with HCV around the globe, It's a million individuals who acquire at each year. There is more funding for treatments being available that is actually one of them.

Speaker Change: The drivers internationally in that.

Carrie Manner: And Ken mentioned our HCV strength in Q2. And with that increase in funding comes a desire for more diagnostic testing. So, timing TBD, but I think it's obviously great news to become the first HCV self-test with the designation, and it, you know, opens up some global market expansion possibilities.

Speaker Change: And Ken mentioned, our HCV strength in Q2 and with that increase in funding comes a desire for more diagnostic testing so timing.

Ken: Timing TBD, but I think obviously, great news to become the first.

Speaker Change: <unk> self test with the designation and it opens up some global market expansion possibilities.

Speaker Change: Great. Thanks, again for the color and congrats again on the quarter.

Operator: Great. Thanks again for the color and congrats again on the quarter.

Speaker Change: Great. Thanks Brendan.

Speaker Change: Thank you. Our next question comes from the line of Casey Woodring from Jpmorgan. Your line is now open.

Casey Woodring: Thank you. Our next question comes from the line of Casey Woodring from J.P. Morgan. Your line is now open.

Casey Woodring: Great. Thanks for fitting me in so just a question can you.

Casey Woodring: Great, thanks for fitting me in. So, I just have a question, can you please explain the international revenue step up in the back half that you called out? You know, where is that coming from? What sort of visibility do you have? And just any more color on what your expectations are there internationally?

Speaker Change: Hi.

Casey Woodring: So can you just elaborate on the international revenue step up in the back half that you called out Where's that coming from what sort of visibility do you have.

Speaker Change: Any more color on what your expectations are there internationally.

Kenneth McGrath: Yeah, we had international, we were continuing to have another strong year, just like we did last year. Part of it is the timing that happens within international, where the orders are set are fairly large relative to other books of business. And so some of it happens with timing, and what we are expecting to see in Q3 is a step up relative to Q2 orders and Q4 orders. But really, it's about, you know, the offerings that we have.

Speaker Change: Yes, we have internationally, we were continuing to have another strong year, just like we did last year.

Speaker Change: Part of it is timing that happens within internationally, where the orders are.

Speaker Change: A fairly large relative to other books of business and so some of that happens with timing and what we are expecting to see in Q3 is a step up relative to Q2 orders in Q4 quarters, but really it's about the offerings that we have our HIV testing our oral fluid testing.

Kenneth McGrath: Our HIV testing, our oral fluid testing, is preferred versus other blood testing. In addition, we have good relationships with a lot of our public health distributors. And so those are driving the preference for our products internationally. But the Q3 step up is really driven by timing of orders. But overall, we're seeing another strong full year in 2024 versus, in addition, just like we did in 2023.

Speaker Change: As preferred versus other blood testing.

Speaker Change: In addition, we have we have good relationships with a lot of our public health distributors and.

Speaker Change: So those are driving the preference for our products internationally.

Speaker Change: The Q3 step up.

Speaker Change: Is really driven by timing of orders, but overall, we're seeing another strong full year in 2020 for versa. In addition, just like we did in 2023 and that's exactly right and we said this in the scripted comments, but it is similar to 2023 and 2022 in terms of that that seasonality.

Kenneth McGrath: And that's exactly right, and we said it in the scripted comments, but it is similar to 2023 and 2022 in terms of that seasonality. So, a strong year in total, Q3 particularly strong.

Speaker Change: So a strong year in total Q3 are particularly strong.

Kenneth McGrath: Okay, got it. That's helpful. And then maybe just one follow-up. Apologize if I missed it. Thank you. Yeah, thanks, Casey. Well, while we aren't calling out the segments,

Speaker Change: Okay got it that's helpful.

Speaker Change: Then maybe just one follow up.

Speaker Change: I apologize if I missed it in the script drug late but what are you guys expecting in terms of revenue contribution from syphilis and <unk> and then I.

Speaker Change: I guess just generally how are you seeing that test ramp overtime. Thank you.

Speaker Change: Yeah, Thanks, Casey well, while we arent.

Kenneth McGrath: While we aren't calling out the segment yet for syphilis, what we're highlighting is a really strong launch. You know, we launched that product in Q1.

Speaker Change: Calling out the segments yet.

Speaker Change: Our syphilis, what we're highlighting is a really strong launch we launched that.

Speaker Change: Product in Q1, we have strong spend dimick's testing the trends, which is the HIV HCV syphilis testing and the overlap and the vulnerable populations for that so our <unk>.

Kenneth McGrath: We have strong pandemic testing trends, which is HIV, HCV, and syphilis testing and the overlap in the vulnerable populations for that. So our public health partners, in the private markets as well, have really been asking for that syphilis test. So to be able to bring that first FDA cleared, CLIA waived test to market has just been a great opportunity. We'll continue to share more, but that's an important part of our diagnostics portfolio and really goes hand in hand with those HIV and HCV tests.

Speaker Change: Public health partners are in private markets as well.

Speaker Change: <unk> really been asking for that.

Speaker Change: Blood tests, so to be able to bring that up.

Speaker Change: First FDA cleared CLIA waived.

Speaker Change: Test to market has just been a great opportunity. So we'll continue to share more but that's the important part of our diagnostics portfolio and really goes hand in hand with that those HIV and HCV test.

Casey Woodring: Thanks Casey.

Casey Woodring: Thank you.

Operator: All right, our next question that comes from the line of... One moment while we compare the Q&A roster. All right. Our next question comes from the line of Andrew Cooper from Raymond Jones. Your line is now open.

Speaker Change: Our next question comes from the line Uh Huh.

Speaker Change: One moment, while we compile the Q&A roster.

Speaker Change: Alright. Our next question comes from the line of Andrew Cooper from Raymond Jones. Your line is now open.

Andrew Cooper: Hey, everybody. Thanks for the question. Hi, maybe just first. Thinking about new products, you know, I think back to, I think it was, the Saffros deal. You talked about adding two points of growth in 25. Can you just give an update on, you know, that as we think about both those products and what the progress is and then, you know, what things like syphilis, etc., maybe are doing relative to your prior expectations and how you think about that, you know, beyond 2024?

Speaker Change: And I would answer the questions.

Speaker Change: Alright.

Speaker Change: Maybe just first.

Speaker Change: Thinking about new products I think back to your I think it was the staffers Neal you talked about adding two points of growth in 'twenty five can you just.

Speaker Change: Give an update on on that as we think about both of those products and what the progress is and then what things like Cfos et cetera, maybe R. R.

Speaker Change: Are doing relative to your prior expectations and how you think about that beyond 2024.

Speaker Change: Yeah.

Speaker Change: It's great to talk about our partnership in SAP rose as well as their products. So you've got a couple of things layered in I'll start I'll start with the start of your question, which was a fabric.

Carrie Manner: We've got a couple things layered in. I'll start with the beginning of your question, which was Safros.

Speaker Change: Partnership is off to a very good start our teams are collaborating and yeah. We are co development opportunities.

Speaker Change: Across multiple product portfolios, both in diagnostics and sample management as we shared when we talked about the strategic partnership.

Carrie Manner: The partnership is off to a very good start. Our teams are collaborating, and we have co-development opportunities across multiple product portfolios, both in diagnostics and sample management. As we shared when we talked about the strategic partnership, we are not expecting a meaningful revenue contribution, just as a reminder, in 2024. And as you mentioned, we did call out growth in 2025. We still expect that modest contribution to growth from Safros next year.

Speaker Change: We are not expecting a meaningful revenue contribution just as a reminder, in 2024 and you referenced we did call out on <unk>.

Speaker Change: Growth in 2025, we still expect that modest.

Carrie Manner: We will describe more about the technology roadmap. What we have shared so far is the first product we expect, in sample management. Aligning with our strategy to add more sample types, the first product is for small volume self-collected blood. And that's the Satio product line. We, you know, I should say Satio small volume self-collected blood. In 25, we are expecting to also be adding diagnostic testing progress, and we'll talk more about that as we get closer.

Speaker Change: Contribution to growth from <unk> next year.

Speaker Change: We will describe more about the technology roadmap, what we have shared so far is the first product we expect.

Speaker Change: Is in sample management and aligned with our strategy to add more sample type. The first product is for small volume self collected blood and that's the ACO product line.

Speaker Change: Yeah.

Speaker Change: I should say the ACO small volume self collected book blood.

Speaker Change: In 25, but we are expecting to also be adding a diagnostic testing progress and we'll talk more about that as we get closer so on track.

Carrie Manner: So on track, you know, still expecting the contribution in 25, did not expect a 24 impact, and I think just the excitement around the partnership and what, you know, we've gotten off to a good launch with them.

Speaker Change: Still expecting the contribution in 'twenty five did not expect a 24 impact.

Speaker Change: And I think just excitements around the partnership.

Speaker Change: We've gotten off to a good launch with them.

Andrew: Was there another part of your question Andrew.

Andrew Cooper: No, that was the bulk of it. Maybe just to shift gears then with a follow-up. That's gross margin timing. I mean, you've got revenue stepping up, but gross margins are kind of stepping down and doing the opposite. I know the OUS piece ways, but can you size how much of that headwind is Diversagen, just because we end up with a second half that looks like it'll be a little bit lower than at least what you just did in the second quarter?

Speaker Change: No that was the bulk of it.

Speaker Change: Maybe just to shift gears, then with a follow up.

Andrew: That's the gross margin timing I mean, you've got revenue stepping up but gross margins kind of stepping down and doing the opposite I know the O U S piece.

Speaker Change: Ways, but can you size how much of that headwind is diverse as Jim just because we end up with the second half that looks like it'll be a little bit lower than at least what you just did in the second quarter.

Andrew Cooper: And I would think that that international timing is really something that washes out over the course of a broader year. So just would love a little bit more color on kind of what normal is, at least now that IntelliSwap is sort of at a new normal.

Speaker Change: And I would think that that international timing is really something that washes out over the course of the.

Speaker Change: Router year, So just would love a little bit more color on kind of what normal is at least now that.

Speaker Change: That entellus, Rob is sort of a new normal.

Speaker Change: Yeah, no. It's a great question. Thank you, yes, just reiterate kind of what we said just for context. So international is driving most of it typically our international is about $20 to 25% of our core revenue our total core revenue at.

Kenneth McGrath: Yeah, no, it's a great question. Thank you.

Kenneth McGrath: Yeah, just to reiterate kind of what we said just for context. So international is driving most of it. Typically, international is about 20 to 25% of our core revenue, our total core revenue. And in Q3, we expect it to be at a higher range than that, getting up into the mid-30s range of total core revenue. So it is a significant contributor in that sense.

Speaker Change: In Q3, we expect it to be at a higher range than that.

Speaker Change: Getting up into the mid Thirty's range of total core revenue.

Kenneth McGrath: As far as our versogen, we do have some remaining expenses, which will contribute probably 100 or so basis points in that range of headwinds to the gross margins. But overall, going forward, once we remove that and continue operating efficiencies, we're expecting Q4 in the mid-40s. And then our plan is to get into the 50s long term. That is our plan as we progress with our operational efficiencies that we've driven as well as as the mix balances out, and we see growth in other parts of the business. Okay.

Speaker Change: So it is a significant contributor in that in that sense.

Speaker Change: As far as diverse adjourn.

Speaker Change: We do have some remaining expenses, which will contribute.

Speaker Change: Probably 100 or so basis points in that range.

Speaker Change: <unk>.

Speaker Change: Headwinds.

Speaker Change: <unk> gross margins, but overall going forward once we remove that and continue operating efficiencies. We're expecting Q4 in the mid Forty's and then our plan is to get into the fifties long term.

Speaker Change: That is our plan as we progress with our operational efficiencies that we've driven as well as as the mix balances out and we see growth in other parts of the business.

Andrew Cooper: Okay, great. I will stop there. Thanks again. Thanks, Andrew.

Speaker Change: Okay, Great I will stop there thanks again.

Andrew: Thanks, Andrew.

Operator: Thank you. Our next question comes from the line of Vijay Kumar from Evercore ISI.

Speaker Change: Thank you. Our next question comes from the line of a J Kumar from Evercore ISI.

Speaker Change: Your line is now open.

Kevin: Hello, this is Kevin on behalf of VJ. Just a clarifying question on the 3Q margin out. You talked about international diagnostics and diversity, but was there any contribution from COVID revenues dropping off there? This is one of the first cores in a while with this Melon Telescope. Yeah, no, great question. Yeah, so for the impact

Andrew: Oh.

Andrew: This is Kevin on for P. J, just a clarifying question on the <unk>.

Speaker Change: <unk> margin outlook.

Speaker Change: You talked about international diagnostics and diverse Gen, but was there any contribution from <unk>.

Speaker Change: Colbert revenues dropping off there.

Speaker Change: This is one of the first quarters in a while it is of no entellus swaps, though.

Speaker Change: Some color there.

Kenneth McGrath: Yeah, no, great question. Yeah, so for the impact of IntelliSwap, we've known this drop-off several quarters in advance given the timing of the purchase orders. So we've been planning accordingly and driving out operational efficiencies, and improving automation. So yeah, it has some impact, but not as much as you'd expect because we've been planning for this for the last several quarters.

Speaker Change: Yes, great question.

Speaker Change: So for for the impact of Entellus Schwab.

Speaker Change: We've known this drop off several quarters in advance given the timing of the purchase orders. So we've been planning accordingly.

Speaker Change: And by driving out operational efficiencies improving automation.

Speaker Change: Yes, it has some impact but not as much as you'd expect because we've been planning for this for the last several quarters now.

Speaker Change: Thank you.

Speaker Change: Alright.

Operator: I am seeing no further questions at this time. I would like to turn the call back over to Carrie for closing remarks.

Speaker Change: I am seeing no further questions at this time I would like to turn the call back over to Kerry for closing remarks.

Kerry: Thank you Haley and thank you for everyone. Joining we appreciate your interest in OTI and we look forward to talking again with you next quarter.

Carrie Manner: Thank you, Haley, and thank you to everyone who joined us. We appreciate your interest in OTI, and we look forward to talking again with you next quarter. With that, we'll close the call. wonderful Thank you for participating in today's conference. This concludes our program. You may now disconnect.

Speaker Change: With that we'll close the call.

Operator: Wonderful. Thank you for participating in today's conference. This concludes our program. You may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Good day and thank you for standing by.

Operator: Welcome to the OraSure Technologies Incorporated 2020-2024 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 once again. Please be advised that today's conference is being recorded. I would now like to hand the conference call over to your first speaker today, Jason Plagman, VP of Investor Relations.

Speaker Change: On the call. Thank you for participating in today's conference. This concludes our program you may now disconnect.

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Speaker Change: Good day and thank you for standing by welcome to the RF Technologies incorporated 2000, 2024 second quarter earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to answer your questions during the session Johnny depress.

Speaker Change: Star one one on your telephone.

Speaker Change: Then here an automated message advising your hand is right.

Speaker Change: So draw your question. Please press star one one again.

Speaker Change: Please be advised today's conference is being recorded.

Jason pregnant: I'll now like to hand, the conference call over to your first speaker today, Jason pregnant VP of Investor Relations.

Jason Plagman: Good afternoon, and welcome to OraSure Technologies' second quarter 2024 earnings call. Participating in the call today for OTI are Carrie Eglinton-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 on our Investor Relations website. Before we begin, you should know that this column may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share, and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations, and strategies. However, actual results could be significantly different.

Jason: Good afternoon, and welcome to <unk> Technologies' second quarter 2024 earnings call.

Speaker Change: <unk> in the call today for OTI or Carrie Eglinton 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 on our Investor Relations website.

Speaker Change: Before we begin you should know that 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.

Speaker Change: Shipments and markets business plans regulatory filings and approvals.

Speaker Change: Expectations and strategies actual results could be significantly different.

Speaker Change: Factors that could affect results are discussed more fully in Oti's SEC filings. It's annual report on Form 10-K for the year ended December 31 2023.

Speaker Change: Its quarterly reports on Form 10-Q, and its other SEC filings.

Speaker Change: Although forward looking statements help to provide more 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.

Speaker Change: <unk> undertakes no obligation to update any forward looking statements to reflect events or circumstances. After this call.

Jason Plagman: With that, I'm pleased to turn the call over to Carrie. Thanks, Jason. And thank you to everyone for joining us today. We are pleased to provide an update on the progress

Speaker Change: With that I am pleased to turn the call over to Kerry.

Jason Plagman: Thanks, Jason, and thank you to everyone for joining us today. We are pleased to provide an update on the progress OraSure is making on the three pillars of our strategic transformation. Strengthening our foundation, accelerating our core growth, and accelerating profitable growth. A few notable highlights during the second quarter include that we delivered Q2 revenue that was near the top of our guidance ranges for both core revenue and for COVID-19 products, where we successfully fulfilled the remaining portion of our largest contract with the federal government.

Kerry: Thanks, Jason and thank you to everyone for joining US today, we're pleased to provide an update on the progress are assured making on three pillars of our strategic transformation.

Jason Plagman: In product extensions, we earned World Health Organization prequalification for our OraQuick HCV self-test, representing the first hepatitis C self-test to achieve this designation. OraSure is proud to add the WHO PQ milestone to our legacy of firsts in the diagnostics industry, and we look forward to working with the global health community to expand market access and bring this test to populations in need. We launched new FDA-cleared packaging and labeling for our OraQuick HIV self-test, which is expected to increase shipping efficiencies and reduce shelf space and plastic usage. Sorry about that.

Kerry: Strengthening our foundation elevating our core growth and accelerating profitable growth.

Speaker Change: Notable highlights during the second quarter include that we delivered Q2 revenue that was near the top of our guidance ranges for both core revenue and for COVID-19 products, where we successfully fulfilled the remaining portion of our largest contract with the federal government and.

Kerry: And product extensions, we earned World Health organization pre prequalification for our or quick HBV self test.

Speaker Change: Presenting the first hepatitis C self test to achieve this designation.

Speaker Change: <unk> is proud to add the WHI PQ milestone to our legacy of burst in the diagnostics industry and we look forward to working with the global health community to expand market access and bring this task of populations in need.

Speaker Change: We launched new FDA cleared packaging and labeling for our or quick HIV self test, which is expected to increase shipping efficiencies and reduced shelf space and plastic usage, the new radio labeling.

Speaker Change: No.

Speaker Change: Great.

Speaker Change: Hang on.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sorry about that the new labeling also removes the contra indication for users on prep potentially expanding access for a population that is recommended to test four times per year.

Speaker Change: We are seeing positive momentum with Cipla health checks following our launch of this key sexual health portfolio product at the end of Q1, we broadened relationships with several leading oncology companies to expand or collect Dx collection devices into saliva based liquid biopsy.

Speaker Change: We expanded our agreement to become a supplier of saliva collection devices for exact sciences.

Speaker Change: Our Oracle <unk> Dx saliva collection device will be utilized and exact hereditary cancer and therapy selection tests.

Speaker Change: And with our healthy balance sheet, we continue investing in our innovation roadmap and opportunities to leverage our existing strengths in order to position OTI for sustainable profitable growth.

Speaker Change: Starting with operating efficiency, we continued to strengthen our foundation and drive operational improvements as we discussed in May we launched several new initiatives to further rebalance our cost structure consolidate our footprint to leverage our centers of excellence and focus on our core strengths.

Speaker Change: Made significant progress on each of these programs during the last three months and Ken will provide additional details in a few minutes overall.

Ken: Overall, these important steps as well as our enterprise wide focus on continuous improvement give us confidence in achieving our targets to breakeven and operating cash flow from our core business by the end of 2020 for our work in the past two years has both allowed OTI to deliver a strong return.

Speaker Change: On the COVID-19 opportunity and its well positioned us for the future.

Carrie Manner: We had shared that we would fulfill the remaining portion of our largest contract with the U.S. government during Q2, and we did that, closing strong with $19 million in revenue in the quarter. Moving forward, it's all about our core business. Q2 core revenue of $35.4 million was near the top of our guidance range; performance in both diagnostics and sample management solutions was consistent with the outlook embedded in our guidance. Within our Diagnostics Portfolio, we are seeing good momentum with syphilis health checks following our launch of Diagnostics Direct's product at the end of Q1, and are receiving strong interest from both existing and new customers.

Speaker Change: Moving to entellus swap we had shared that we would fulfill the remaining portion of our largest contract with the U S. Government. During Q2, and we did that closing is strong with $19 million of revenue in the quarter.

Speaker Change: Moving forward, it's all about our core business.

Speaker Change: Q2 core revenue of $35 $4 million was near the top of our guidance range.

Speaker Change: Performance in both diagnostics and sample management solutions was consistent with the outlook embedded in our guidance.

Speaker Change: Within our diagnostics portfolio, we are seeing good momentum with triplets health checks following our launch of diagnostics <unk> product at the end of Q1 and are receiving strong interest from both existing and new customers and more broadly we are having success with multi product sales across our portfolio.

Speaker Change: <unk> HIV HCV and simplest path.

Speaker Change: As health care providers and public health organizations, such as the National Coalition of STB directors.

Speaker Change: We recognize the need for a <unk> approach to rapid testing given the significant overlap in patients at risk for these infections.

Speaker Change: Additionally organizations, such as the CDC and Samsung have already started to ease restrictions on existing funding streams to increase pandemic testing programs, rather than focusing solely on HIV related purchasing.

Speaker Change: This evolution is well aligned with our infectious disease product portfolio and our sexual health strategy aimed at expanding our menu of diagnostic tests serving more people.

Speaker Change: In HIV during Q2, we received FDA clearance for a new packaging configuration with updated labeling for our or a quick HIV self test, which is expected to increase shipping efficiencies conserve shelf space and reduce plastic waste and <unk>.

Speaker Change: <unk> to sustainability improvements our product is also now labeled with appropriate warnings for Houston individuals on prep instead of the original contra indication of <unk>.

Speaker Change: Change, which has potential to open up a new segment for our offerings as individuals on PREPA recommended to test for HIV multiple times a year.

Carrie Manner: We've received very positive feedback from our customers, including public health organizations, as well as retailers, regarding the potential benefits of the product extensions for our leading HIV self-test. As another example of product extension innovation in our sexual health portfolio, we are proud to share that, in July, we earned the first pre-qualification for any hepatitis C self-test from the World Health Organization. We are excited to bring our OraQuick HCV self-test to the global health community while adding its important WHO PQ designation to OTI's legacy of firsts in the diagnostic industry.

Speaker Change: We have received very positive feedback from our customers, including public health organizations as well as retailers regarding the potential benefits of the product extension for our leading HIV self test.

Speaker Change: And another example of product extension innovation and our sexual health portfolio. We are proud to share that in July we earned the first qualification for any hepatitis B cell tests from the World Health organization. We are excited to bring our or a quick HCV self test to the <unk>.

Speaker Change: Global Health community.

Speaker Change: Adding its importance W. H O PQ designation to Oti's legacy of first in the diagnostic industry. We are confident in our hepatitis C self test potential to expand service for populations in need, including the 50 million people living with HCV and the one.

Speaker Change: Individuals who acquire HCV each year and to help stem. It spread this opportunity is closely aligned with our strengths and delivering high quality affordable test to enable access for more people at scale.

Speaker Change: Furthermore, we believe our HIV and HCV product extension launches are great. Examples of OTI leadership and not just developing rapid diagnostic tests, but also on the innovation that enables ongoing market expansion opportunities over our product's lifecycle I'll share a few more examples.

Speaker Change: A product extension innovation.

Speaker Change: And its potential to fuel market expansion after I finish summarizing Q2.

Carrie Manner: Moving to sample management solutions, we are currently seeing stabilization and early signs of a still gradual recovery in the market as genetic testing and research segments adapt to the post-COVID environment and an evolving regulatory environment for diagnostic labs. Additionally, we are seeing increasing interest in our sample collection devices from customers and emerging growth segments like liquid biopsy, animal health, and others. Overall, we remain confident in our strengths in leading the market and as the only 510k cleared collection and stabilization devices in several categories.

Speaker Change: Shifting to the sample management solutions. We are currently seeing a stabilization and early signs of a still gradual recovery in the market environment as genetic testing and research segments adapt to the post COVID-19 environment.

Speaker Change: And an evolving regulatory environment for diagnostic labs. Additionally, we are seeing increasing interest in our sample collection devices from customers in emerging growth segments like liquid biopsy animal health and others. Overall, we remain confident in our strengths leading the market and is the only $5.

Speaker Change: 10-K cleared collection and stabilization devices in several categories.

Carrie Manner: We are also pleased to announce progress in broadening our relationships with several leading oncology companies. We have signed an agreement to become a supplier of saliva collection devices for ExactSciences, a company dedicated to helping eradicate cancer through prevention, early detection, and personalized treatment. Our OraCollect DX Saliva Collection Device will be utilized in XactSciences Hereditary Cancer and Therapy Selection. We believe these two tests offer important advancements in precision oncology by providing actionable insights that empower patients and doctors to make informed decisions about treatment options.

Speaker Change: We are also pleased to announce progress in broadening our relationships with several leading oncology company.

Speaker Change: We have signed an agreement to become a supplier of saliva collection devices for exact sciences, a company dedicated to helping eradicate cancer through prevention early detection and personalized treatment.

Speaker Change: Our order collect Dx saliva collection device will be utilized and exact sciences hereditary cancer and therapy selection tests we.

Speaker Change: We believe these two tests offer important advancements in precision oncology by providing actionable insights that empower patients and doctors to make informed decisions about treatment options and the field of precision oncology continues to expand we are committed to strengthening our partnerships and <unk>.

Speaker Change: Supporting the advancement of this promising frontier in cancer detection and care.

Speaker Change: We are also proud to share that we have expanded our relationship with very antics, a commercial laboratory specializing in genetic testing for rare genetic disorders reproductive health and precision oncology, we believe their whole genome platform stands out for its high resolution detection.

Speaker Change: And characterization of all clinically relevant variant types, providing a comprehensive report from a single sample, notably our oral <unk> and oral collect Dx saliva collection kits play a crucial role and very and Texas fleet of more than 30 test.

Carrie Manner: Notably, our OriginDx and OraCollectDx saliva collection kits play a crucial role in Variantix's suite of more than 30 tests. Advancing genetic science and precision medicine through patient-centric solutions that offer easy, accessible, and efficient saliva sample collection. It is our goal to power sample collection and management for every molecular diagnostics innovator, to contribute to progress in precision medicine, and to help provide actionable insights that guide critical treatment decisions for physicians, patients, and families.

Speaker Change: Advancing genetic science and precision medicine through patient centric solutions that offer easy accessible and efficient saliva sample collection. It is our goal to power sample collection and management.

Speaker Change: Every molecular diagnostics innovator taken.

Speaker Change: To contribute to progress in precision medicine and to help provide actionable insights to guide critical treatment decisions for physicians patients and families.

Speaker Change: We continue to highlight that the strengthening of our balance sheet in the last two years is allowing us to invest in innovation for our next phase of accelerated growth.

Speaker Change: These investments range.

Speaker Change: In innovation from new products and technologies to market expanding product extensions the vitality of our product lifecycle is key to our near and long term growth strategy.

Speaker Change: Product extensions include areas innovation like these I just shared achieving the first WHI prequalification of our HCV self test for global markets and clearing with the FDA, our HIV packaging improvements and labeling update.

Speaker Change: Another example.

Speaker Change: Is our recently submitted request to the FDA to expand the range on our HIV self test to include adolescents.

Speaker Change: Today, our HIV self test is labeled for use by patients 17 or older.

Speaker Change: And working with our partners, we identified a critical public health risk reuse.

Speaker Change: Which translates to an important opportunity to expand access to HIV testing for a broader segment of vulnerable populations in this case.

Speaker Change: Tending to include $6 4 million sexually active 13 to 16 year olds in the U S. Each year.

Speaker Change: And our sample management business, we have additional areas of expansion such as in the application for saliva based liquid biopsy.

Speaker Change: As noted we have several customers using our current cleared devices for work in oncology and are poised to expand our commercial footprint as these markets gain momentum.

Carrie Manner: Also in sample management, we continue to make innovation progress on our Coli-P self-collected urine device. Building on our existing EU clearances, the potential for Coli P leverages clinical studies, which are required for regulatory clearance, and translates those into adoption for future clinical practice. We previously talked about our Collipu studies in Europe, which show that people prefer self-collected urine versus swabs, whether self-collected swab or physician-collected swab. For STI reasons, sorry, for STI testing, there are four main reasons for this.

Speaker Change: Also in sample management, we continued to make innovation progress on our Cali P self collected urine device.

Speaker Change: Building on our existing EU clearance is the potential for <unk> Leverages clinical studies, which are required for regulatory clearance and translates those into adoption for future clinical practice.

Speaker Change: We've previously talked about our colleague <unk> studies in Europe, which showed that people prefer self collected urine versus swap whether self collected swab or physician collected swap for STI reasons I'm sorry for STI testing there are four main reasons for that.

Carrie Manner: It's private, it's painless, it's simple to use, and it's convenient to perform at home. And beyond the preference for the device, enabling self-collected urine, another key aspect of the ColiP innovation is stabilizing and preserving the sample. On this front, we recently filed for a new patent for proprietary chemistry to preserve both DNA and RNA in STI applications, which marries urine collection with ambient preservation capability. We've demonstrated success with this strategy in saliva, and Colipy intends to do the same in urine.

Speaker Change: It's private it's painless, it's simple to use and it's convenient to perform at home and.

Speaker Change: And beyond preference for the device, enabling self collected urine. Another key aspect of colleague innovation is stabilizing and preserving the sample.

Speaker Change: On this front, we recently filed for a new patent for proprietary chemistry to preserve both DNA and RNA in STI applications, which marries urine collection with ambient preservation capability. We've demonstrated success with this strategy and saliva.

Speaker Change: Cali intends to do the same in urine.

Carrie Manner: Regulated healthcare innovation is a multi-year process, and these examples demonstrate why it's worth it. ColiP has the potential to expand meaningful market opportunities in large and growing clinical segments, such as STIs. We plan to submit to the FDA for ColiP's STI application before the end of 2025.

Speaker Change: Regulated healthcare innovation is a multiyear process and these examples demonstrate why it's worth it call. It <unk> has the potential to expand meaningful market opportunities in large and growing clinical segments, such as Sci we plan to submit to the FDA for <unk> STI.

Speaker Change: Application before the end of 2025.

Carrie Manner: Before I conclude, I also want to discuss the strengths of our assets and capabilities and highlight some of the elements that give us confidence in our ability to leverage them to drive sustainable, profitable growth. First, OTI has high-quality differentiated products that are recognized as category leaders. Our investments in innovation, both new products and product extensions, have allowed us to maintain our leadership and our core product lines and position us to further expand our product portfolio with additional tests for more people in diagnostics and additional sample types, analytes, and applications in sample management.

Speaker Change: Before I conclude I also wanted to discuss the strength of our assets and capabilities and highlight some of the elements that give us confidence in our ability to leverage them to drive sustainable profitable growth.

Speaker Change: First OTI has high quality differentiated products that are recognized as category leaders.

Speaker Change: Our investments in innovation, both new and product extensions have allowed us to maintain our leadership in our core product lines and position us to further expand our product portfolio with additional tests for more people in diagnostics and additional sample types analytes and applications and sample management.

Speaker Change: The strength of our products and our experienced sales team has allowed us to build long term durable relationships with our customers.

Speaker Change: Plus our multi year investments in our quality and regulatory programs have further enhanced our internal expertise.

Speaker Change: And our external credibility around the globe. These capabilities allow us to successfully navigate increasingly complex and rigorous regulatory review and approval processes.

Speaker Change: And to reliably partner with clients subject to the same stringent requirements.

Speaker Change: Our balance sheet is strong and our collaboration with the governments. During the pandemic has allowed us to significantly expand our automation capabilities and capacity across multiple product lines.

Speaker Change: Finally, our focus on instilling an enterprise wide focus on continuous improvement has provided our organization with the tools to drive meaningful operating leverage as our end markets recover and return to growth with that I'd like to turn the call over to Ken to discuss our financial result.

Kenneth McGrath: Thanks, Carrie. I'm happy to discuss our results for the second quarter of 2024 and provide updates on our financial outlook. In Q2, we delivered total revenue of $54.3 million. Core revenue, which excludes COVID-19 products, was $35.4 million in the second quarter. Within core revenue, our diagnostic products generated $18.7 million of revenue in Q2 and decreased 5% year-over-year. Sample management revenue in the second quarter was $12.6 million and decreased 3% year-over-year.

Ken: And guidance.

Ken: Thanks, Carey I'm happy to discuss our results for the second quarter of 2024 and provide updates on our financial outlook.

Ken: In Q2, we delivered total revenue of $54 3 million.

Ken: Core revenue, which excludes COVID-19 products was $35 4 million in the second quarter.

Ken: Within core revenue, our diagnostic products generated $18 7 million of revenue in Q2 and decreased 5% year over year.

Speaker Change: Sample management revenue in the second quarter was $12 6 million and decreased 3% year over year.

Kenneth McGrath: Total core revenue growth declined 7% on a year-over-year basis in Q2 and was impacted by a 40% decrease in revenues from the Diversagen Molecular Sequencing Services business that we are examining, as well as a decline in non-product and services revenue. COVID-19 products, predominantly in Teleswap, contributed $18.9 million of revenue in the second quarter. As anticipated, we fulfilled the remaining $17 million of our largest contract with the U.S. government during the quarter.

Ken: Total core revenue growth declined 7% on a year over year basis in Q2 and was impacted by a 40% decrease in revenues from the Diversely Gen molecular sequencing services business that we're exiting.

Ken: As well as a decline in non product and services revenue.

Ken: COVID-19 products predominantly Intel swab contributed $18 9 million of revenue in the second quarter.

Ken: As anticipated we fulfilled the remaining $17 million of our largest contract with the U S government during the quarter.

Kenneth McGrath: Our GAAP gross margin in the second quarter was 45.4%, and non-GAAP gross margin was 47.4%. Gross margin was at the high end of our expectations and was driven by continued progress in our operational efficiency initiatives and our investments in automation. GAAP operating expenses in the quarter were $27.4 million, which included $3.1 million of non-cash stock compensation expenses. $1.1 million for impairment of assets and $763,000 for reduction in workforce spending. Our gap operating loss in Q2 was negative $2.7 million, and non-GAAP operating income was $3.3 million.

Ken: Our GAAP gross margin in the second quarter was 45, 4% and non-GAAP gross margin was 47, 4% grew.

Ken: Gross margin was off a high end of our expectations and was driven by continued progress in our operational efficiency initiatives and our investments in automation.

Ken: Our GAAP operating expenses in the quarter were 20 of $27 4 million.

Ken: Which includes $3 1 million of noncash stock compensation expense $1 1 million for impairment of assets and 763000 a reduction in workforce.

Ken: Our GAAP operating loss in Q2.

Ken: Was negative $2 7 million.

Ken: Our non-GAAP operating income was $3 3 million.

Kenneth McGrath: As discussed last quarter, as part of our transformation journey, we initiated several additional actions to rebalance our costs, consolidate our operational footprint, and streamline our portfolio of offerings to focus on our strengths. We have made good progress on these three initiatives over the last three months. For Diversagen, we have been transitioning customers and expect to complete our exit from the sequencing services business by the end of the third quarter. In Belgium, we will close our site by the end of 2024 and finish integrating those activities into our teams in the U.S. and Canada.

Ken: As we discussed last quarter as part of our transformation journey.

Ken: This unit at several additional actions to rebalance our cost structure Consol.

Ken: Consolidator operational footprint and streamline our portfolio of offerings to focus on shrink, but our strengths.

Ken: We have made good progress on these three initiatives over the last three months.

Ken: For diverse Jim we have been transitioning customers and expect to complete our exit from the sequencing services business by the end of the third quarter.

Ken: In Belgium, we will close our site by the end of 2024 and finished integrating those activities into our teams in the U S and Canada.

Ken: In our sample management portfolio, we are in sourcing production of certain sample amount of our products from external contractors into our own manufacturing center of excellence in Bethlehem, Pennsylvania over the next 15 months.

Ken: As we discussed last quarter internalizing. These activities is expected to improve our operation operating efficiency and further leverage our existing infrastructure.

Ken: In total we continue to expect we expect the actions that we announced in May will result in more than $15 million of annual expense reduction following completion.

Ken: Which is an important step in our plan to achieve our targets to breakeven and operating cash flow from our core business by the end of 2024.

Ken: These initiatives are in addition to our ongoing enterprise wide focus on operational efficiency and continuous improvement.

Ken: Moving to our balance sheet, we ended the second quarter with zero debt.

Ken: Total cash cash equivalents and short term investments of $267 million.

During the quarter, we generated $7 8 million of operating cash flow and we invested $1 6 million for Capex.

Speaker Change: Turning to revenue guidance, we are guiding to third quarter total revenue of 37% to $41 million, which includes core revenue of $36 million to $39 million in entellus swab revenue over $1 million to $2 million.

Speaker Change: Our Q3 guidance does not include any revenue from the diversity molecular services business that we're exiting.

Speaker Change: Within our Q3 revenue outlook, we expect the international diagnostics will drive most of the sequential increase in revenue from Q2 Q3.

Speaker Change: Looking at the fourth quarter, we expect core revenue will moderate compared to our Q3 outlook.

Speaker Change: Which is consistent with the seasonal ordering patterns that we have observed in 2022 and 2023.

Speaker Change: Moving to gross margin.

Kenneth McGrath: We expect our gross margin in Q3 to be in the low 40 percent, followed by a return to the mid 40% range in Q4. Our Q3 gross margin outlook is impacted by two short-term factors. First, the expected increase in international diagnostic revenue for Q3, that I mentioned earlier, which carries gross margins that are lower than our blended corporate average. And second, wind-down costs associated with our exit from the Diversigen Molecular Sequencing Services business, which we expect to fully exit by the end of Q3.

Speaker Change: We expect our gross margin in Q3 to be in the low 40% range.

Speaker Change: <unk> returned to mid 40% range in Q4.

Speaker Change: Our Q3 gross margin outlook is impacted by two short term factors first the expected increase in international diagnostic revenue in Q3 that I mentioned earlier, which carries gross margins that are lower than our blended corporate average.

Speaker Change: Second wind down costs associated with our exit from the diverse the gym molecular sequencing services business that we expect to fully exit by the end of Q3.

Speaker Change: From a long term perspective, we continue to believe we can drive additional gross margin expansion and operating leverage by delivering efficiencies across our enterprise, including consolidating operations into our center of excellence and further leveraging our automation capabilities.

Carrie: With that I'll turn the call back to the carry to crude.

Carrie Manner: And, as we detail today, we continue to make solid progress on our strategic transformation. This quarter, we generated positive operating cash flow, and we continue to streamline our operations and unlock efficiency gains. In our core business, we are seeing positive momentum with the launch of Sybilis, along with product extensions and enhancements that expand access to our products and address the needs of patients and our customers. And we continue to strengthen our existing customer relationships while adding new customers.

Carry: Thanks, Ken.

Speaker Change: We contained to strengthen our existing customer relationships, while adding new customers.

Overall, we are confident that OTI is well positioned to leverage the strength of our differentiated asset and organizational capabilities to drive sustainable profitable long term growth and key end segments further recover in 2025 and beyond.

Operator: Thank you. Back to you.

Speaker Change: With that I'm pleased to turn the call over to the operator for Q&A.

Speaker Change: Hayley.

Hayley: Thank you <unk>.

Operator: 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 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 once again. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from the line of Jacob Johnson from Stevens Incorporated. Your line is now open.

Speaker Change: To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.

Speaker Change: Okay.

Thank you. Our first question comes from the line of Jacob Johnson from Stephens incorporated your line is now open.

Jacob Johnson: Hey, Jack.

Matthew Stanton: Good afternoon. It's Mac on for Jacob today. Oh, hi Mac. Hi, how are you doing? Appreciate the color around the margin progression and 3Q. I think you cited a low 40% given the efforts there, but I was curious how that should progress in 4Q and maybe into 2025 as we start to roll off some of these, you know, these different costs that are kind of feeding into the..., the P&L at the moment.

Jacob Johnson: Hi, Good afternoon, it's Matt on for Jacob today.

Speaker Change: So any color.

Speaker Change: Okay Alright.

Speaker Change: How're you doing.

Speaker Change: I appreciate the color around.

The margin progression in <unk>.

Speaker Change: Thank you sited low 40% given.

Speaker Change: The efforts there, but I was curious how that should progress in <unk> and maybe into 2025 as we.

Speaker Change: Start to roll off some of these needs.

Speaker Change: The different costs or kind of feeding into the.

Speaker Change: The P&L at the moment.

Kenneth McGrath: Yeah, thanks, Mac. I appreciate the question.

Speaker Change: Yes, Thanks, Matt I appreciate the question, yes, so just to reiterate our drivers for Q2 to Q3.

Speaker Change: Margins.

Speaker Change: First is that we expect to have a higher percentage of international revenue and as you know that carries with it a little bit below our average of our gross margin. So that all of the negative drag on the margins also were still going to remaining having diversity in expenses in Q3. So.

Speaker Change: So as far as we progress to Q4, we expect to get a benefit from the overall mix.

The mix between international and domestic that we will be eliminating those diversity and expenses. So that will help us in Q4. In addition, we're continuing our operational efficiencies.

Kenneth McGrath: We'll be eliminating those diversagen expenses, so that'll help us in Q4. In addition, we're continuing our operational efficiencies. I think we said last quarter about our version 2 packaging improvements and our footprint consolidations. We're continuing to progress in those areas, which drive overall efficiency.

Speaker Change: I think we said last quarter about our version two packaging improvements our footprint consolidations, we're continuing to progress in those areas, which drive overall efficiencies.

Speaker Change: I appreciate the color there.

Speaker Change: And just in light of the improvements in the overall backdrop in funding.

Speaker Change: Some of your end markets.

Speaker Change: I think you called out sample management as a as.

Speaker Change: It was one that is gradually recovering but can you highlight any particular areas of strength and weakness that you're currently seeing.

Kenneth McGrath: Yeah, Mac, in sample management, we are seeing a strong volume of new customer entities. And what we've talked about in prior quarters is the offset of some of our largest customers while we add a high volume of new customers, new applications for those customers, new segments. It's part of the reason that we've highlighted liquid biopsy applications, and animal health applications.

Yeah, Nick in sample management, we are seeing that.

Speaker Change: Strong volume of new customer entities, and what we've talked about in prior quarters is the offset of some of our.

Nick: Largest customers, while we add a high volume of new customers new applications for those customers new segments. It's part of the reason that we've highlighted liquid biopsy applications animal health applications, and we continue to share that.

Nick: And those green shoots of the volume of those customers. What we're really looking for is for their growth.

Nick: Is.

Nick: That trajectory to change and with that we believe we're very well positioned to grow with them.

Operator: Our next question comes from the line of Patrick Donnelly from Citi. Go ahead.

Nick: We don't think we're losing share we actually think we are.

Nick: We remain really strong, adding net customers and that it's it's about that market turn a matter of when not if it is what we are we believe and.

Nick: Lots of segments, many customers and really just well positioned to grow as they grow.

Speaker Change: I appreciate the color. Thank you for taking my questions.

Max: Thanks Max.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Comes from the line of Patrick Donnelly from Citi Go ahead.

Jordan Adler: Hi, you have Brendan on for Patrick. To start off, it was good to see a nice sequential step up within the diagnostics segment. Can you walk through some of the moving pieces within that and different trends that you may have seen? Were there any tests that were really driving growth and revenue there? Yeah, we thought

Speaker Change: Hi, you have Brendan on for Patrick just start off.

Brendan: Good to see a nice sequential step up with the diagnostics segment can you walk through some of the moving pieces within that and different.

Speaker Change: Trends that you may have seen were there any tests are really driving growth in revenue there.

Kenneth McGrath: Yeah, we saw some several areas of improvement quarter over quarter. We saw HCV increase in some of our contracts with the Department of Health and in several states. In addition, as we mentioned last year, in the last quarter, we launched our syphilis test, which we are starting to see growth there. So those are two of the areas. And then internationally, we saw growth in HIV.

Speaker Change: Yes, we saw several areas of improvement quarter over quarter we.

Speaker Change: We saw HCV increase.

Speaker Change: Some of our contracts with both department of Health and in several states. In addition, as we mentioned last year, we last quarter, we launched our syphilis test.

Speaker Change: Which we are starting to see growth. There. So those are two of the areas and then internationally we saw growth.

Speaker Change: In HIV.

Speaker Change: Got it.

Speaker Change: Thank you for the color on that and then actually on the each piece with great to hear about the.

Speaker Change: WHI pre qualification there could you kind of talk about like the opportunity that presents for the company both kind of in the near term and long term.

Carrie Manner: Yeah, you know, we love to be a leader in WHO PQ. And for those who know the global markets, you know, that's really about future procurement by UN agencies. And it is a key designation that can really help open up donor funding. I would describe that as, you know, quite a lengthy process. You know, it can definitely take many months. We never, you know, conjecture on the timing, but just to sort of give a range, you know, that could be 12, 24 months onward. But the WHO PQ is a really important qualification to be on the list that opens up donor funding. So, you know.

Yeah.

Speaker Change: We love to be a leader in H W. H O PQ and for those who know the global markets.

Speaker Change: It's really about future procurement for Bayou and agencies and it is a designation that really can open up help open up donor funding I would describe that as you know.

Speaker Change: Quite a lengthy process.

Speaker Change: Ken can definitely take many months.

We never know.

Speaker Change: Conjecture on the timing, but just to sort of give a range that can be 12, 24 months months onwards, but W. H O. PQ is a really important qualification to be on the list that open up donor funding so.

Carrie Manner: Terrific news on potential market access and expansion. We're not sizing it right now, other than to point out there are 50 million individuals living with HCV around the globe. There are a million individuals who acquire it each year. There is more funding for treatments being available. That's actually one of the drivers internationally.

Speaker Change: Rivers' internationally in it.

Carrie Manner: And Ken mentioned our HCV strength in Q2. And with that increase in funding comes a desire for more diagnostic testing. So, timing TBD, but I think it is obviously great news to become the first HCV self-test with the designation. And it, you know, opens up some global market expansion possibilities.

Ken: And Ken mentioned, our HCV strength in Q2 and with that increase in funding comes a desire for for more diagnostic testing so tiny.

Speaker Change: Timing TBD, but I think obviously, great news to become the first.

Speaker Change: <unk> self test with the designation and it.

Speaker Change: Opens up some global market expansion possibilities.

Operator: Great. Thanks again for the color and congrats again on the quarter.

Great. Thanks, again for the color and congrats again on the quarter.

Speaker Change: Great. Thanks Brendan.

Casey Woodring: Thank you. Our next question comes from the line of Casey Woodring from J.P. Morgan. Your line is now open.

Speaker Change: Thank you. Our next question comes from the line of Casey Woodring from J P. Morgan. Your line is now open.

Casey Woodring: Great, thanks for sitting me in. So, I just have a question, can you please Hi, hi. Can you just elaborate on the international revenue step up in the back half that you called out? You know, where is that coming from? What sort of visibility do you have? And just any more color on what your expectations are there internationally?

Casey Woodring: Great. Thanks for fitting me in.

Casey Woodring: So just a question can you.

Speaker Change: Hi, Hi.

Casey Woodring: So can you just elaborate on the international revenue step up in the back half that you called out where is that coming from what sort of visibility do you have and just any more color on what your expectations are there internationally.

Speaker Change: Yes, we are internationally, we were continuing to have another strong year, just like we did last year.

Speaker Change: Part of it is timing that happens within internationally, where the orders are set are.

Fairly large relative to other books of business and so some of it happens with timing and what we are expecting to see in Q3 is a step up relative to Q2 orders in Q4 quarters, but really it's about the offerings that we have our HIV testing our oral fluid testing is really is preferred.

Speaker Change: Versus other blood testing.

Speaker Change: In addition, we have we have good relationships with a lot of our public health distributors.

Speaker Change: And so those are driving the preference for our products internationally, but the Q3 step up.

Speaker Change: So a strong year in total Q3 are particularly strong.

Kenneth McGrath: Okay, got it. That's helpful. And then, maybe just one follow-up.

Speaker Change: Okay got it that's helpful. And then maybe just one follow up.

Speaker Change: Apologize if I missed it in the script drug late but what are you guys expecting in terms of revenue contribution from syphilis and <unk>.

Speaker Change: I guess just generally how are you seeing that test ramp over time. Thank you.

Kenneth McGrath: Apologize if I missed it. Thank you. Yeah, thanks, Casey. Well, while we aren't pulling out the segment,

Speaker Change: Yeah, Thanks, Casey well, while we arent.

Kenneth McGrath: So, we aren't calling out the segment yet for syphilis. What we're highlighting is a really strong launch. You know, we launched that product in Q1.

Speaker Change: Calling out the segment yet quarter for syphilis, what we're highlighting is a really strong launch we launched that.

Speaker Change: In Q1, we have strong spend dimick's testing the trends, which is b HIV HCV syphilis testing and the overlap and the vulnerable populations for that so our public health partners are in private markets as well.

Kenneth McGrath: We have strong pandemic testing trends, which is HIV, HCV, and syphilis testing and the overlap in the vulnerable populations for that. So, our public health partners in the private markets as well have really been asking for that syphilis test. So, to be able to bring that first FDA-cleared, CLIA-waived test to market has just been a great opportunity. We'll continue to share more, but that's an important part of our diagnostics portfolio and really goes hand-in-hand with those HIV and HCV tests.

Speaker Change: On have really been asking for that.

<unk> test so to be able to bring that.

Speaker Change: First FDA cleared CLIA waived.

Speaker Change: As the market has just been a great opportunity. So we'll continue to add to share more but that's the important part of our diagnostics portfolio and really goes hand in hand with that those HIV and HCV test.

Casey Woodring: Thanks Casey.

Casey Woodring: Thank you.

Operator: All right, our next question comes from the line of... One moment while we compare the Q&A roster. All right. Our next question comes from the line of Andrew Cooper from Raymond Jones. Your line is now open.

Speaker Change: Our next question comes from the line Uh Huh.

Speaker Change: One moment, while we compile the Q&A roster.

Speaker Change: Yeah.

Speaker Change: Alright. Our next question comes from the line of Andrew Cooper from Raymond Jones. Your line is now open.

Speaker Change: Hey, thanks for the questions.

Speaker Change: Alright.

Speaker Change: Maybe just first.

Speaker Change: Thinking about new products I think back to your I think it was the <unk> deal you talked about adding two points of growth in 'twenty five can you just.

Speaker Change #100: Give an update on on that as we think about both of those products and what the progress is and then what things like Cfos et cetera, maybe are.

Speaker Change #101: We are doing relative to your prior expectations and how you think about that beyond 2024.

Speaker Change #101: Yeah.

Speaker Change #102: It's great to talk about our partnership in that growth as well as new products that you've got a couple of things layer dental start I'll start with the start of your question, which was that growth partnership is off to a very good start our teams are collaborating and yeah. We are co development opportunities across.

Carrie Manner: I'll start with the start of your question, which was Saffros. Partnership is off to a very good start. Our teams are collaborating, and we have co-development opportunities across multiple product portfolios, both in diagnostics and sample management. However, as we shared when we talked about the strategic partnership, we are not expecting a meaningful revenue contribution. This is a reminder that in 2024, and you mentioned this, we did call out growth in 2025. We still expect that modest contribution to growth from Saffros next year.

Speaker Change #102: Multiple product portfolios, both in diagnostics and sample management as we shared when we talked about the strategic partnership.

Speaker Change #103: We are not expecting a meaningful revenue contribution just as a reminder, in 2024 and you referenced we did call out.

Speaker Change #102: <unk>.

Speaker Change #102: Growth in 2025, we still expect that modest contribution to growth from fab next year.

Carrie Manner: We will describe more about the technology roadmap. What we have shared so far is the first product we expect, which is in sample management and aligned with our strategy to add more sample types. The first product is for small volume self-collected blood, and that's the Satio product line. We, you know, I should say Satio for small volume self-collected blood. In 25, we are expecting to also be adding diagnostic testing progress, and we'll talk more about that as we get closer.

Speaker Change #104: Well describe more about the technology roadmap, what we have shared so far is the first product we expect.

Speaker Change #105: Is in sample management and aligned with our strategy to add more sample type. The first product is for small volume self collected blood and that's the ACO product line.

Speaker Change #104: Yeah.

Speaker Change #104: I should say to Asia small volume self collected blood.

Speaker Change #104: In 25, but we are expecting to also be adding a diagnostic testing progress and we'll talk more about that as we get closer so on track.

Carrie Manner: So, on track, you know, still expecting the contribution in 25, did not expect a 24 impact, and, you know, I think just excitement around the partnership and what, you know, we've gotten off to a good launch with them.

Speaker Change #104: Still expecting the contribution in 'twenty five did not expect 24 impact.

Speaker Change #106: And al I think just excitements around the partnership and why.

Speaker Change #106: We've gotten off to a good launch with them.

Was there another part of your question Andrew.

Andrew Cooper: No, that was the bulk of it. Maybe just to shift gears then with a follow-up. Back to gross margin timing. I mean, you've got revenue stepping up, but gross margins are kind of stepping down and doing the opposite. I know the OUSP ways, but can you size how much of that headwind is divergences just because we end up with a second half that looks like it'll be a little bit lower than at least what you just did in the second quarter?

Speaker Change #107: No that was the bulk of it.

Speaker Change #108: Maybe just to shift gears and take a follow up.

Andrew Cooper: That's the gross margin timing I mean, you've got revenue stepping up but gross margins kind of stepping down and doing the opposite I know USP.

Jim: Waves, but can you size how much of that headwind is diverse as Jim just because we end up with the second half that looks like it'll be a little bit lower than at least what you just did in the second quarter.

Speaker Change #111: And I would think that that international timing is really something that washes out over the course of the.

Speaker Change #112: Router years, So just would love a little bit more color on kind of what normal is at least now that.

Speaker Change #113: That and tell us what is sort of at a new normal.

Kenneth McGrath: Yeah, no, it's a great question. Thank you.

Speaker Change #113: Dan It's a great question. Thank you yeah, just reiterate kind of what we said just for context. So international is driving most of it typically our international is about 20% to 25% of our core revenue our total core revenue.

Kenneth McGrath: Yeah, just reiterate kind of what we said just for context. So, international is driving most of it. Typically, international is about 20 to 25% of our core revenue, our total core revenue. And in Q3, we expect it to be at a higher range than that, getting up into the mid-thirties range of total core revenue. So, it is a significant contributor in that sense.

Speaker Change #113: In Q3, we expect it to be at a higher range than that getting up into the mid Thirty's range of total core revenue.

Speaker Change #113: So it is a significant contributor in that in that sense.

Speaker Change #114: As far as diverse adjourn.

Kenneth McGrath: As far as diversiGEN is concerned, we do have some remaining expenses, which will contribute probably a hundred or so basis points in that range of headwinds to the gross margins. But overall, going forward, once we remove that and continue operating efficiencies, we're expecting Q4 in the mid-forties. And then our plan is to get into the fifties long term. That is our plan as we progress with our operational efficiencies that we've driven, as well as as the mix balances out, and we see growth in other parts of the business. Okay.

Speaker Change #115: We do have some remaining expenses, which will contribute.

Speaker Change #116: Probably 100 or so basis points in that range.

Speaker Change #115: <unk>.

Speaker Change #115: Headwinds.

Speaker Change #115: <unk> gross margins, but overall going forward once we remove that and continue operating efficiencies. We're expecting Q4 in the mid <unk> and then our plan is to get into the <unk> long term.

Speaker Change #115: That is our plan as we progress with our operational efficiencies that we've driven as well as as the mix balances out and we see growth in other parts of the business.

Andrew Cooper: Okay, great. I will stop there. Thanks again. Thanks, Andrew.

Speaker Change #117: Okay, Great I will stop there thanks again.

Andrew Cooper: Thanks, Andrew.

Operator: Thank you. Our next question comes from the line of Vijay Kumar from Evercore ISI.

Andrew Cooper: Thank you. Our next question comes from the line of a J Kumar from Evercore ISI.

Speaker Change #118: Your line is now open.

Kevin: Hello, this is Kevin on behalf of VJ. Just a clarifying question on the 3Q margin out. You talked about international diagnostics and diversity, but was there any contribution from COVID revenues dropping off there? This is one of the first quarters in a while where there's no IntelliStream. Yeah, no, great question. Yeah, so for the impact

Speaker Change #118: Oh.

Speaker Change #118: This is Kevin on for P. J, just a clarifying question on the margin outlook.

Speaker Change #119: You talked about international diagnostics first Gen, but was there any contribution from.

Speaker Change #119: <unk> revenues dropping off there.

Speaker Change #121: This is one of the first quarters in a while it is of no entellus Fob so.

Some color there.

Kenneth McGrath: Yeah, no, great question. Yeah, so for the impact of IntelliSwap, we've known this drop off several quarters in advance, given the timing of the purchase orders. So we've been planning accordingly and driving out operational efficiencies, and improving automation. So, yeah, it has some impact, but not as much as you'd expect, because we've been planning for this for the last several quarters.

Speaker Change #122: Yes, great question, yes.

Speaker Change #122: Yes, so for for the impact of Intel a swab.

Speaker Change #122: None this drop off several quarters in advance given the timing of the purchase orders. So we've been planning accordingly.

Speaker Change #122: And by driving out operational efficiencies improving automation. So yes. It has some impact but not as much as you would expect because we've been planning for this for the last several quarters.

Speaker Change #123: Thank you.

Speaker Change #123: Alright.

Speaker Change #123: Seeing no further questions at this time I would like to turn the call back over to Kerry for closing remarks.

Operator: I am seeing no further questions at this time. I would like to turn the call back over to Carrie for closing remarks.

Kerry: Thank you Haley and thank you for everyone. Joining we appreciate your interest in OTI and we look forward to talking again with you next quarter.

Carrie Manner: Thank you, Haley, and thank you to everyone who joined us. We appreciate your interest in OTI, and we look forward to talking again with you next quarter.

Speaker Change #124: With that we'll close the call.

Operator: wonderful. Thank you for participating in today's conference. This concludes our program. You may now disconnect.

Speaker Change #125: On the call. Thank you for participating in today's conference. This concludes our program you may now disconnect.

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