Q2 2019 Earnings Call
Ladies and gentlemen, please standby your orasure technologies 2019 second quarter financial results Conference call I will begin momentarily.
Again, please standby thank you.
After the speakers remarks, there will be a question and answer period. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
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To allow time for as many questions as possible questioners are asked to limit themselves to only a single question with no more than one follow up question related to the same topic. Once the follow up is completed the questioner can rejoin the queue for further questions.
We're sure technologies issued a press release at approximately four PM Eastern time today regarding its 2019 second quarter financial results and certain other matters.
The press release is available on our website at Www Dot orasure dotcom or by calling 610 821 820. If you go to our website. The press release can be found by opening the Investor Relations page and clicking on the link for press releases.
With us today are Dr., Stephen Wright, President and Chief Executive Officer, and Mr., Alberto Kuka, Chief Financial Officer, Dr. Chang Mr. Cooper will begin with an opening statement, which will be followed with a question and answer session.
Before I turn the call over to Dr. Chang 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 shipments and markets.
Business plans regulatory filings and approvals expectations and strategies actual results could be significantly different factors that could affect results are discussed more fully in the companys FCC filings, including its registration statements. Its annual report on Form 10-K for the year ended December 31st 2018, its quarterly reports on Form 10-Q , and its other SEC filings.
Although forward looking statements help to provide complete information about future prospects listeners should keep in mind that forward looking statements are based solely on information available to management as of today.
The company undertakes no obligation to update any forward looking statements to reflect events or circumstances after the call.
With that I would like to turn the call over to Dr. Stephen tank.
Thank you James Good afternoon, everyone and welcome to our call.
Our second quarter revenues were lower than expected due in part to the changing dynamics of the consumer genomics market.
And to the translation effect of an approximately $1 million delayed HIV self test shipments that slipped into the third quarter.
Nonetheless, we delivered a very strong bottom line for the second quarter of 2019.
In addition, we continue to execute against our innovation driven growth strategy with much attention focused on evaluating potential business development opportunities.
Overall and despite some headwinds in the consumer genomics market, we remain confident in our business.
The opportunities before us are abundant and we are well positioned to execute against our strategic priorities.
In past calls we've described the market changes that are affecting the consumer genomics business as companies in that market are changing their approach to direct to consumer testing.
These trends impacted our second quarter performance and will likely continue to evolve in the near term.
Nevertheless, the rest of our business remains largely on track.
Outside of the single large customer our consumer genomics business is healthy.
It grew by strong double digits in the second quarter, excluding that customer and we still expect it to grow by double digits for the full year 2019, again, excluding that customer.
The micro biomarker remains a very bright spot with robust growth in enormous potential.
We expect this revenue line to grow at double digits in both organic sales and including the acquisition of core volume over the full year.
The integration of our recent acquisitions, Nova Santas and core bio.
Also continues to go well.
Core by him in particular is helping to strengthen our microbiome business with recent customer wins for its cutting edge laboratory and violent for that informatics services.
We have previously mentioned multiomics as an emerging approach to evaluating help that offers significant growth potential.
We continue to achieve success in cross selling our genomic and microbiome products as we stick out a leadership position in this important in emerging market.
And infectious disease, our HIV self test business remains strong although our second quarter performance was negatively affected by the slippage of a 1 million dollar order I just mentioned from the last week of June ended the first days of July .
Notwithstanding inter quarter variability of ordering patterns in the international markets that can change from year to year. We continue to project double digit revenue growth for our global HIV franchise in 2019, primarily due to our self test business.
Our HCV business through domestically during the quarter as a result of additional funding that we expect will likely continue in future periods, while international revenues were down for the quarter. This was largely a timing issue and the entire global HCV business showed strong growth for the first six months of the year compared to the prior year period.
Our balance sheet is very strong with nearly $187 million in cash, which equates to over $3 per share of our stock price.
So despite some challenges our overall business remains strong and we are growing and are strategically targeted areas.
We continue to believe that the strength of our businesses and the prospects for both our infectious disease testing molecular solutions segments, and we remain committed to bring our customers and the people. They serve the tools services and data driven insights they need to get reliable actionable results in their most critical scientific and health care questions.
So with that I'll now turn the call over to Roberta for his financial review then I'll provide some additional commentary on our business and some of the trends were likely to affect the rest of the remainder of this year and beyond.
Thanks, Steve and good afternoon, everyone.
Our second quarter net revenues decreased 11% to $38.8 million from $43.6 million reported in the second quarter of 2018.
Our net product and services revenues decreased 4% to $37.3 million compared to the prior year period.
Our minex molecular is net revenues, including other revenues decreased 4% to $18.5 million in the second quarter compared to $19.3 million in 2018.
Royalty income declined 47% to $1.1 million in the second quarter of 2019 from $2.1 million in the same period of 2018 and showed only 3% growth from the immediately preceding quarter versus 31% growth sequentially from the first quarter to second quarter of 2018.
Molecular product revenues increased 1% to $17.3 million in the second quarter of 2019 compared to $17.2 million in the second quarter of 2018.
Sales of our genomic products declined 7% to $14.2 million largely due to lower customer demand customer demand primarily from a large consumer genomics customer the change to the promotional strategy, which impacted its purchasing patterns, notably excluding the single customer genomic product revenues grew over 20% compared to the second quarter of 2018.
Microbiome sales increased 63% to $3 million from $1.8 million in the second quarter of last year due to the inclusion of lab services revenues generated by our newly acquired subsidiary, we're buying them as well as healthy double digit organic growth.
Domestic HIV sales decreased 14% to $4.5 million in the second quarter of 2019 compared to $5.2 million in the second quarter of 2018, largely due to lower sales of our professional product as a result of previously reported continued product and price competition and customer ordering patterns within the quarter the quarter.
International HIV sales decreased 27% to $5.4 million from $7.4 million in the second quarter of 2018 due to customer ordering patterns and the slippage of an approximately 1 million dollar order from the last week of June the first days of July partially offset by higher sales of our HIV self test into Asia and Europe .
Domestic HCV sales increased 22% in the second quarter of 2000 $19 million to $2.1 million from $1.7 million in the prior year period. Prior year period, largely due to increased government funding that is allowing for the expansion of existing HCV testing and treatment programs and the addition of new programs customer ordering patterns also contributed to this increase.
International HCV sales in the second quarter of 2019 decreased 33% to $1 million from $1.5 million in the same period of 2018, primarily due to the timing of customer orders.
Other revenues were $1.6 million in the current quarter compared to $4.8 million in the prior year.
The decrease is largely due to lower royalty income and decreases in BARDA funding and cost reimbursement under our charitable supporters support agreement with the Gates Foundation.
The reduced BARDA funding reflects the conclusion of our projects under this program in a rotation of R&D resources to projects that are aligned with our long term growth strategy.
Gross profit percentage for the second quarter of 2019 was 64% compared to 59% reported for the second quarter of 2018.
Improved product mix associated with an increase in higher gross profit percentage of product sales and lower royalty expense was partially offset by the decrease in other revenues, which contribute a 100% of the gross profit percentage and by the lower margins generated by core biome and never sent us.
Our operating expenses for the second quarter of 2019 were $19.7 million compared to $20.3 million in the comparable period of 2018.
Operating expense in the second quarter of 2019 included $249000 of non cash acquisition related contingent consideration costs and incremental operating expenses generated by core volume and nervousness. There were no similar acquisition related costs in the second quarter of 2018.
The second quarter of 2018 did include $2.2 million of transition costs associated with executive management changes that occurred during that period. There were no material transition costs in the second quarter of 2019.
In the second quarter of 2019, we reported income tax expense of $1.4 million compared to $2.2 million in the same period last year.
The decline in tax expense reflects the lower pre tax earnings generated by our community Canadian subsidiary and the results generated by Novo centers.
We reported net income of $4.4 million or seven cents per share for the second quarter of 2019 compared to net income of $4.1 million or seven cents per share.
Second quarter 2018.
We continue to maintain a solid cash and liquidity position.
Our cash and investments balance at June Thirtyth, 2019 was $186.6 million compared to $201.3 million at December 30, Onest 2018.
During the first quarter of 2019, we used $13.2 million of cash to acquire core biome Innovus anish.
Cash generated by operating activities for the first six months of 2019 was $4.7 million compared to $13.9 million in the same period of 2018.
Turning to guidance for the third quarter of 2019, we are projecting revenues of $39.0 million to $40.5 million and net income of four cents to five cents per share.
For the full year of 2019, we are projecting revenues of $165 million to $170 million and net income of 24 cents to 26 cents per share up from our previous expectation of 22 cents to 24 cents per share.
These projections do not account for the impact of changes in the fair value of acquisition related contingent consideration or potential business development transaction costs. Since the full extent of these items cannot be determined at this time.
The $5 million downward revision to our full year revenue guidance from $170 million to $175 million for 2019 reflects continued softness in the consumer genomics market, including our expectations for royalties associated with this market.
Despite that and as Steve mentioned earlier, we continue to expect that our global HIV testing revenues, our microbiome revenues in our genomics revenues, excluding the one big genomics customer will all grew by double digits this year compared to 2018.
And with that I'll now turn the call back over to Steve.
Thanks, Robert I think to continue with some further comments on our molecular business and then I will turn towards infectious disease.
The human genomics market has continued to moderate since our last earnings call. Historically ancestry testing has been the largest part of the human genomic market and a key driver of our business. Some of the larger players in this area have reduced promotional support and change their business models to focus either on health offerings or therapeutic discovery and development.
The high cost to compete in this consumer market has also in our view negatively impacted the sub market.
Although our business was specifically impacted by lower revenues from a large consumer genomics customer chasing us promote protocells strategy in ordering patterns. We are now seeing additional consumer genomics customers reevaluate their business models in an effort to be more competitive.
We see these ancestry submarket trends continuing for the foreseeable future.
Nevertheless, other subsets of the genomics market are more robust with higher growth prospects, mainly in the area of disease risk management and companion animal and lifestyle testing.
Disease risk management encompasses genetic test that provide information about an individual's health risk, including individuals' predisposition to diseases, such as cancer and carrier status.
We continue to see a steady increase in the number of customers consumers in this area.
And expect the growth potential in future periods will be significant.
In fact during the second quarter 15 of our top 20 customers based on a trailing 12 month revenues were in disease risk management sub market.
And more than half of the 45, new commercial genomics customers added during the second quarter were in this category.
We're now seeing more customers in the disease risk space moving to patient initiated model, where the test results are given back to the patient through a medical practitioner.
For example, one customer recently announced a patient initiated service to provide.
Consumers with genetic testing along with telemedicine enable clinical guidance and the ability to share the results with the consumers personal physician.
We expect other concern consumers to pursue similar patient initiated offerings.
Another significant part of disease risk management relates to population based studies.
These large cohort studies provide disease risks information back to the persistence.
And are an important opportunity for orasure.
They generally require the use of an FDA cleared collection device, which has significance since our aurigene and or collect devices are the only FDA cleared devices for the collection DNA and saliva.
One customer helix is an example.
As mentioned on our call in May Helix is healthy in Nevada project has enrolled over 35000 participants since its launch two years ago and has expanded to the entire state in Nevada.
Helix is also involved in the recent Florida Health system project through advent health, which will extend to nine other states. Following its successful launch in Florida.
Another population study is a recently launch sequence bio, Canada, New Finland genome project.
This project will leverage new Finland's founder population to study disease in order to generate data for drug development.
The current research plan anticipates the collection of more than 100000 saliva samples.
We're also seeing increased demand in the animal testing and lifestyle lifestyle submarkets with several new customers in these categories added during the second quarter.
Animal testing a larger existing customer recently entered into a new agreement for the use of our performance gene device.
We also also have new customers that are offering lifestyle genetic testing.
They are focused on genetics sensitivity to Canada strains.
Nutrigenomics, which studies the effects of food on gene expression, and how genetic variations affects the nutritional environment and vitamin supplement genetic testing.
In fact, and we now have several customers in the emerging cannabis market. We're conducting research are providing genetic testing that will ultimately lead to individual recommendations on the optimal strain and amount of cannabis for health benefits.
We are working with several other companies were also exploring this area.
While these submarkets are only in their early days, we are excited about the growth potential and our current market position.
Demand for academic researchers and the genomic market is also strong.
And the second quarter, we saw almost 60, new studies initiated by the SEC in the academic research market by our customers with 40% of those studies outside of North America.
Outside the United States genomics represents an important opportunity however, as in the U.S. third challenges, we intend to continue our focus on developing the Asia Pacific and other foreign markets and believe they can be an important growth contributor to our business going forward.
The underlying strength of our genomics business was clearly evident in the second quarter, we added more than 250, new genomics customers in the second quarter continuing in the prior pattern of new customer additions.
Our collection device unit sales to customers other than the large consumer genomics company grew 22% in the second quarter compared to comparable quarter in 2018, and 20% from the first quarter of this year.
Sales of disease risk management accounts for the second quarter were up over 64%.
Compared to second quarter 2018.
In summary, despite the challenges in the genomics market, which were exacerbated by the impact of a large consumer genomics customer. We believe our overall genomics business is healthy and excluding that large customer should generate double digit revenue growth during the remainder of the year.
Consistent with prior periods, the microbiome business delivered another strong quarter.
Second quarter revenues were up 63% when compared to 2018 due to an increase in service revenues and higher kit sales.
Of our top 30, microbiome accounts, which are largely commercial customers 16 have purchased in both the first and second quarter of this year.
Demonstrating momentum and consistency in this market.
Clinical trials continue to be a source of growth in our microbiome business.
Total revenues derived from clinical trials was up 26% in the second quarter versus the second quarter of 2018.
Two of our largest microbiome accounts now have programs transitioning from phase one to phase II clinical trials, therefore, demonstrating the value of our microbiome products and services for the pharmaceutical industry.
Academic interests in our microbiome offerings is also continuing with research customers showing interest in observational and interventional studies at scale.
One example, as an academic customer Fedex is exploring the gut microbiome and the impact of probiotic interventions in a malnourished populations in Kenya.
This customer is also running industry sponsored trial assessing the gut microbiome in connection with inflammatory bowel disease.
Another study called the Michigan Microbiome project is now in its third year and continues to recruit subjects for a multiomics study of dietary fiber and Buda rate production in the guide for the study of DNA and metabolites.
Additionally, core bio is increasing its contribution to our microbiome business or by on signed its first ever direct to consumer or DTC customer is now officially offering services as a back end diagnostics lab for the DTC microbiome market.
Core volume is also providing shotgun metagenomics testing services for a large government sponsored study.
Finally core wireless first academic collaboration publication was originally published in cell host and Mike and microbe and receive coverage in the mainstream media such as discover magazine.
This study showed the value of the shallow shotgun sequencing services provided by core bio.
When analyzing the impact of diet on the gut microbiome.
We continue to see the growth potential in new products and services focused on the microbiome and broader field of Multiomics.
This emerging area of life Science and data analytics provides a multifactorial examination of an individual's health.
As we move towards becoming a leader in this field, we continue to see nice synergies within our current molecular business as more of our existing human genome as customers are introduced the microbiome components to their studies and offerings.
We saw a 100% increase in customers, who are using both genomics and microbiome kits during the second quarter of 2019 compared to the prior year quarter.
This trend will enable us to advance our multiomics strategy in order to maximize the potential for this important an emerging area in human health.
Finally, the acquisition another santas has expanded our collection capability to other specimen types in this case urine.
Nova Sadnesses Collopy urine collection device is designed to allow the collection of first void urine, which due to its analyte rich content can be used in a number of applications.
Since the acquisition Novus and has entered a into a worldwide nonexclusive agreement with Fuji radio.
For the distribution of the copy the collection device for use with Fuji reviews in other Lipa HPV Geno typing extra two assay.
Recent feasibility studies with the Fujimori assay, which can identify up to 32 HBV genotypes showed promising results on samples of self collected first for Europe .
Use of copy is volumetric and standardized urine collection device can help ensure a more accurate detection with the future HBIO assay because first Ford Europe contains higher amounts of HPV, DNA, when compared to random or midstream urine samples.
The color Threed device is also being used with lab developed tests or else. The LDP applications here in the U.S.
What AEP application the coffee device, maybe use with the Exosome Dx, which was recently acquired by biotech.
X. Dx prostate Intel score EPA, EAI test, which allows the physician to predict if a patient presenting for internal biopsy does not have a high grade prostate cancer.
This asset was recently included as a recommended tests the national comprehensive cancer networks clinical practice guidelines in oncology for prostate cancer early detection.
In addition, the National government services, which is the Medicare administrative contractor for excess own Dx posted a draft local coverage decision for biomarker testing prior to initial biopsy for prostate cancer diagnostic which includes proposed coverage for the EPA assay.
We believe this and other LDC applications represent potential significant opportunities for the coffee business.
Turning now to infectious disease.
Our global HIV revenues were down in the second quarter compared to 2018, primarily the result of timing for orders of our Oraquick HIV self test.
We experienced lower sales in Africa that were only partially offset by growth in Asia and Europe .
As I mentioned previously our self test sales can be a bit choppy on a quarter by quarter basis as individual countries deal with factors such as funding issues and uncertainty around product utilization.
This is part of the normal development cycle within a country based market that involves the startup of new testing program, where awareness needs to be created and ongoing demand needs to be assessed so that routine utilization to be determined.
In this case deployment of self test occurred more slowly in the second quarter as country work through these issues.
We still support the projections issued by W. would show that self test demand will increase from 1 million tests. In 2017, 10 average range of 16 million tests per year by the end of 2020 with the high end of that range recent just over 19 million test.
As we've shared in previous calls phase two of the star or self test like Africa program has largely added.
Yet there is still much opportunity for HIV self testing in addition to the star countries deploying test, we continue to see new country registrations.
And demand that we expect to materialize into new orders.
The HIV self test market has continued to develop as countries achieved scale in their programs and begin to reorder product as more countries move from pilot to full scale as a number of country registrations for our product continues to increase.
We are focused on helping to improve efficiency and countries already deploying our self test specifically, we're working with customers to develop methods to deploy the test test faster and more efficiently.
That has been occurring in the past.
We have had discussions with some major stakeholder stakeholders, such as PEPFAR UNITAID and PXI on ways to improve test deployment through additional training and implementation of best practices.
There continues to be strong support for HIV self testing in the in the public health community.
In addition to W. It show the report that I just mentioned the journal of International AIDS Society recently published a comprehensive review that supports HIV self testing as a critical coal response strategy in controlling the academic.
Epidemic more recently in July we attended the International AIDS Conference in Mexico City, Rich I'd be self testing had significant visibility.
In particular presentations were made by the WH show and USAID that express continued support for HIV self testing as a key tool to identify new positive patients.
There was also a recent report published by PXI that presented data, indicating that HIV self testing is more cost effective and identifying new positives than traditional rapid testing and clinics.
Based on what we've seen in our own business combined with information from our actual and potential customers and continued recent market developments, we remain optimistic about the overall long term growth potential for our HIV franchise.
As a result, we still project double digit growth in global HIV revenue for the full year.
Turning briefly to HCV.
This part of the business continues to perform as it has in recent quarters.
Domestic revenues increased for the quarter as a result of the initiation of new programs and expansion of existing programs funded primarily by the centers for disease control and prevention and state jurisdictions.
That are finding new additional funding within their existing budgets.
Internationally revenues were down for the second quarter, primarily due to timing of orders.
We expect to see ongoing international a bit demand in future quarters as noted in the beginning of our call. The global HCV business performed quite well for the first six months of the year and is expected to contribute growth for our infectious disease business going forward.
So in closing.
Despite some continuing disruptions in the consumer genomics market, our overall business is well positioned to compete and succeed.
Our innovation driven growth strategy will serve us well in the coming years.
As we have targeted significant nascent opportunities that have yet to blossom.
Disease risk management microbiome, and Multiomics research are expected to require an enormous amount of genetic testing and we intend to capitalize on those opportunities.
Moreover, our strong balance sheet affords us the opportunity to execute on our steadfast commitment to acquire additional products and services to augment our current capabilities.
Our pipeline of acquisition candidates is replete and robust.
We expect continued growth from our global HIV and HCV franchises in the future and expect those that can best serve the market for molecular solutions will be handsomely rewarded.
These growth platforms give us confidence that our best days are still ahead.
As I noted in the outset of this call we remain committed to bring in new customers and the people. They serve the tools services and data driven insights they need to get reliable actionable answers to their most critical scientific and health care questions and we are confident in the future success of our company and with that we will now take your questions. Operator. Please proceed.
Ladies and gentlemen, if you have a question at this time. Please press star and then the number one on your Touchtone telephone.
Mr question has been answered or you wish to remove yourself from the queue. Please press the pound key.
And our first question comes from the line of Max Mitsubishi from Canaccord. Your line is open.
Hi, good afternoon.
So gross margins came in over 64% above where we were modeling despite 47% decrease in ancestry royalties.
Which come in at 100% gross margin. So can you just dive deeper into some of the the the drivers of the strong gross margins in the quarter and including some of the specific components of the product mix.
Sure.
Thanks for the question Max.
So.
Gross margin percentage for us is driven by mix at both of the business unit level and then at the product level within business units and then at the customer level as well.
So we've talked in the past about how larger customers with whom we have long term supply agreements in exchange for the commitments that they provide for the longer term purchasing get some concessions on price and as those larger customers buy smaller amounts from us during a period, our gross margin percentage will actually go up. So for example, we've also mentioned in the past that academic purchasers, which tend to buy in smaller volumes.
Hey at the higher end of the range of our pricing range. So thats one of the drivers is.
The shift amongst customers at.
For example at the.
Genomics business level.
Another is we've stopped paying royalty or we had an expiration of a royalty for some of our.
Self testing devices.
That that royalty expired around the middle of last year. So we're seeing the annualization of the benefit this year.
And then we have also seen some benefit from Cogs improvement projects.
That have applied across the business, but have had particular impact in the Oraquick line of self testing products.
Great that's helpful.
And next on the guide.
Yes for Q3, what gives you confidence that your Q3 guide includes conservative enough assumptions to achieve at least a low end of the guidance we've seen growth rates bounce around both your segments I guess, how would you judge your visibility into your your different segments today compared to say a year ago.
And then if you could just parse out any specific assumptions embedded in the full year guide that would be great. Thanks.
Sure. So the biggest driver it so I'll start with the full year. The biggest driver of the full year decrease of $5 million from the prior range was really that ongoing softness in the consumer genomics business that you know a number of other participants in this market has been experiencing.
That said.
The way our orders come in the immediately next quarter is for obvious reasons. The one that we have the best visibility into and typically at this point in the quarter since we're already part way through the third quarter, we have a pretty good sense for what the orders are already under our belt and that will be going out towards the remainder of the quarter.
So there's good reason for us to feel good about the third quarter and we believe that with the decrease that we've applied for the full year. We've captured the remaining extent of the softness in that business for the.
For the back part of the year.
I would point out one thing, which is that as Steve mentioned during the prepared remarks, we did have an order that was slated to go out at the very end of June and would have been part of the second quarter.
But that moved into the third quarter due to some shipping constraints to the tune of bed $1 million.
So that was one of the drivers of our results versus our prior second quarter guidance.
We continue to monitor.
Our shipping ability and stand top of those orders.
And expect that the risk of that has been minimized.
Great and then one more if I can squeeze one in.
Total molecular collections jumps over 7 million sequentially is a bit of a surprise to us can you help us understand just the sequential improvement in.
Can you just touch on maybe the level of contribution from core buyer Novus NSS said, so different way can you help us understand what percentage of the 63% growth in microbiome revenues were contributed by Corbeil de Novo status. Thanks.
Some nervousness.
Is not part of microbiome.
But core biome is.
So of the 63% as we said we.
We got healthy double digit growth just from the organic part of the business and then core buy on would have contributed to the remainder of that business.
Another thing I'll point out as far as the growth in our molecular business.
We did say at the beginning of the year that we expected to see a contribution on the order of $4 million to $7 million in revenues from both core volume and microbiome, Clobazam and Novus and us together.
Given the size of that revenue contribution and that they're both growing businesses you would expect to that.
That contribution will ramp up over the course of the year and so you'll see more in the third and fourth quarters that needed in the first and second quarters. So some of that growth is what contributed also to the sequential growth.
For our molecular business.
Great. Thanks for taking my questions.
Thanks Max.
Our next question comes from the line of Q on Q from Raymond James Your line.
Great. Thank you.
I guess just going back to the guide for a second can you help us think about.
Maybe the contribution for the large customer in the quarter.
Maybe the year over year headwind associated with that and then just.
Last one on.
With that large customer are you still expecting them to track kind of closer to the annual minimum commitment.
That's inherent in the contract for this year.
So let me answer that second question first so we do expect them to purchase to their annual minimum.
As we pointed out in the past and as we cautioned in the past the content is their annual minimum is tied to their contract here not to the calendar year.
So they they signed the agreement in November of 2017, so the annual minimum will apply to the November to November .
Contractors that said there next contract year period also has an annual minimum so depending on how they decide to distribute that in the next contract here that could some of that could come in in December of this year.
Or it could be timed out into <unk>.
More of next year.
As far as how much of the revenues came in this quarter from that.
That.
Major customer.
When we release, our Q you will see that 13% of our revenues for the quarter came from that single large customer.
Okay, Great. That's very helpful well I guess just.
Also on the bottom line you actually came in came in better than we were looking for and obviously were able to raise on the bottom line despite lower.
Despite lowering by 5 million on the top line. So I guess just within that embedded within that how are you thinking about the royalty contribution.
Net debt versus prior it sounds like it could be a little bit weaker but.
Should we expect that to trend similar to the $1 million per quarter and the first half.
Just any help on or color on that would be very helpful.
Sure. So we haven't we haven't provided any guidance specifically on our revenue.
Focusing on our royalty expectations for the year, although we.
As we did mention that part of the $5 million reduction in our guidance is attributable to both the general consumer genomics and our expectations for the royalty associated with that.
That said.
One of the reasons for our ability to beat in this quarter and to improve our bottom line expectations for the year has to do with it.
Efficiency projects that we have ongoing.
With.
Some timing around R&D projects and business development projects.
And just overall expectations for rate of things like hiring.
And investments across the business.
But we continue to expect that we are investing into both R&D and sales marketing at rates that are appropriate to help us achieve our longer term goals of double digit revenue growth.
Okay, great. Thank you very much.
Thanks, John .
And again, ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
We have a question from the line of Brandon Couillard from Jefferies. Your line.
Thanks, Good afternoon.
Hi Brown.
Robert I want to come back to the guidance for the full year. It implies a fourth quarter step up of about 40% to 50% sequentially from your third quarter guidance.
Just sort of speak to level of confidence and visibility around that and what the key drivers of that sequential increase would be.
Certainly so a couple of things so as we've mentioned with regard to.
Our international HIV self testing program.
We've we've experienced lumpiness in this year that isn't exactly replicating the lumpiness that we experienced last year. So part of whats driving that is our visibility into ordering around those tests that we expect to come in later in this year based in part on re upping of programs that have already been.
Put in place and based in part on our.
Insight to programs that are.
About to be initiated and guidance from Ministry of health around those.
The second part is that.
As we pointed out in the past in the consumer genomics market much of the purchasing around that is done as gifts for the end of your holidays, and we do expect that notwithstanding a full year over year reduction in the amount of promotion and discounting that we understand to be being done by some of the larger players in that market. We still will be seeing that sort of seasonality that sort of holiday associated buying later in the year.
Hi can you just you get a business with a number of international HIV countries in which you have product registrations as well as those that are pending kind of looking for some of the CPI is there sort of leading indicators that we can point to that might.
Backstop kind of your confidence in a stronger second half.
Alright branded so you'll recall that the bill and Melinda Gates Foundation.
Create eligibility for 55 zero countries in the world.
We currently are registered in 15 countries, we have registrations pending in 17 more and we're pursuing many more so.
If you look at it in terms of current penetration 15 out of 50, and then a total of 34 either.
Registered or in process are registered against the 50, there is considerable upside against that agreement.
And.
You may recall that that.
There is also the star program, which is somewhat overlaps with.
The Gates Foundation.
For 20, or 30 countries and so we feel very strongly that we're getting traction in countries that we've already.
We're already have a presence in my remarks, I said were working about scaling towards bigger goals in those countries, but also broadly speaking across the world. We have a lot more opportunity for the Gates Foundation agreement.
Okay. Thank you.
Thanks Brandon.
Again, ladies and gentlemen, if you would like to ask a question at this time.
Please press the Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press Penske.
That brings us to the end of the kidneys session of today's call I will now turn the call over to Dr. Chang for closing remarks.
Well. Thank you all for your participation on the call and your continued interest in or sharp, we wish you a happy afternoon and evening. Thank you.
Okay.