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spk02: Good day, and thank you for standing by. Welcome to the OraShore Technologies Earnings Call. At this time, participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to Scott Gleason, Head of Investor Relations. Please go ahead.
spk00: Thanks, Amanda, and good afternoon. Welcome to Orrishire's first quarter 2023 earnings call. I am Scott Gleason, the SVP of Investor Relations and Communications. Presenting with me today for Orrishire is Kerry Agleton-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 call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share, and other financial performance, product development, performance, shipment and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different. Factors that could affect results are discussed more fully in the company's SEC filings, including its registration statement, its annual report on Form 10-K for the year ended December 31st, 2022, its quarterly reports on Form 10-Q, and its other SEC filings. Although forward-looking statements help to provide complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on the information available to management as of today. The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call. With that, I'm pleased to turn the call over to Carrie.
spk04: Thanks, Scott, and thank you to everyone for joining us today. We are pleased to report on the progress we continue to make in our strategic transformation, beginning with strengthening our foundation for growth, allowing us to elevate our core growth, and then to accelerate profitable growth. This quarter, we strengthened our foundation and bolstered our cash position, with meaningful potential to unlock working capital moving forward. We saved on costs, we delivered on COVID-19 with record and teleswap volumes, and we completed our business unit integration while culturally reinforcing our mantra, innovating and operating with disciplined execution and accountability. We also grew sequentially in our core. Equally important, we are focusing on our innovation roadmap with organic and inorganic opportunities, including strategic partnerships, which we believe can provide fuel for growth. Starting with the detail on our cost savings, we implemented headcount reductions in February. Those affected 11% of our non-production workforce, as we had previously shared with you. In addition, in teleswap volumes, began to taper in Q2, and we have taken further steps to reduce our cost structure, starting with manufacturing and operational headcount. As a part of these changes, we're shutting down manual assembly operations overseas for IntelliSwap to fully leverage our automation capabilities that we've built in the U.S. We will continue to align our cost structure with COVID-19 demand and deliver additional cost savings as we work to achieve break-even in cash flow from operations, in 2024. Furthermore, in order to improve gross margins via product cost reduction, we completed our IntelliSwab packaging redesign in March, one month ahead of schedule, and began to ship products in the new configuration in the quarter. We believe these changes will save over 50 cents per test. We're looking at the opportunities to translate these learnings and their benefits more broadly across our product portfolio in an effort to drive longer-term gross margin improvements while also positively contributing to sustainability. IntelliSWAT volumes set a new record this quarter, with over $118 million in total sales for our COVID-19 diagnostic testing. As I previously mentioned, we expect IntelliSWAT volumes to taper in Q2, and we saw lower demand in April, consistent with disease incidents in the U.S. We are currently working with our public health partners on a path to ensure worm-based manufacturing and readiness for potential infectious disease outbreaks that utilize previously appropriated funds under existing IntelliSwab contracts. Part of these discussions include the potential to extend the timeframe under which orders for tests could be fulfilled similar to what occurred last year. The cash generated from IntelliSwab in addition to our cost savings, is critical to fund business investments, innovation, and our future growth opportunities. To this end, we've been working to elevate our core portfolio with a longer-term goal to drive sustainable core growth. On our core, we grew sequentially this quarter in diagnostic tests outside of COVID-19, as well as in molecular products. In our HIV and HCV franchises, there were a number of catalysts in Q1. First, we began shipping the first products of our partnership with Emory University under the Let's Stop HIV Together program, funded by the CDC, which focuses on outreach testing to rural and disadvantaged communities where HIV and its comorbidities are most prevalent in the United States. The early success of this program could potentially lead to its expansion. For HCV, we are also encouraged by the recent White House plan to eliminate HCV, which was highlighted in a recent JAMA article by Dr. Francis Collins, the former head of the National Institutes of Health. UNITAID also made a $31 million investment in preventing HCV in high-risk individuals, such as injectable drug users and prisoners, where up to 25% of these populations have an active HCV infection. Both of these initiatives demonstrate the priority to increase HCV surveillance as well as data collection through outreach testing. Overall, the focus on HIV and HCV in public health align with our strengths in both our product offerings themselves as well as in our distribution for two important sexually transmitted infections that affect at-risk populations. It's a really good example of why sexual health is a priority within our innovation roadmap. Shifting to molecular products, we also grew sequentially in Q1 at 7%. We signed three new important commercial partnerships in the quarter following our recent Quest Diagnostics and Grifols announcements. Each of these deals highlight precision health companies looking to leverage the expanded patient access and reliability that our saliva collection devices can provide. The first deal is with EnrichDx. This deal is a co-promotion using our ColiP device to develop liquid biopsy applications using first void urine which has enriched biomarkers for cancer and STI testing. The second is with ZWIG, a French biotech company commercializing ZWIG endotests, a breakthrough innovation using salivary microRNA to diagnose endometriosis. This painful condition, which on average takes eight years to diagnose, impacts quality of life and in some cases fertility for the estimated 190 million women in the world who suffer from it. The third deal is with Novazyme, a global biotechnology company and leader in biosolutions, to provide a full service offering in support of their BiomeFX product. BiomeFX is a personalized health microbiome test which leverages insights from the gut and vaginal microbiome to empower participants to lead healthier lives. The service launched last month, and microbiome samples will be collected using sample collection kits from our DNA Genotech subsidiary, and microbiome sequencing and analytic services provided by Diversagen. These collaborations build upon our other recent commercial partnerships in precision health. And I mentioned this, our partnership supporting Quest, Genomic Sequencing Services Group, test offerings, and our collaboration with GRIPPLS that supports Alpha-1 testing for patients at risk for COPD and other lung disorders. Also in our molecular products portfolio, we made clinical progress this quarter with Colipi. Recently, a team of researchers from Manchester University and Aquarius Population Health, a UK-based organization, have authorized a manuscript that has just been accepted for publication in a peer-reviewed journal entitled An Economic Evaluation of Two Self-Sampling Strategies for HPV Primary Cervical Cancer Screening compared with clinician-collected sampling. The model compared the cost and effects of three sampling strategies for HPV primary screening, including routine clinician-collected cervical sample, self-collected first void urine using our ColiP device, and self-collected vaginal swab in 10,000 women who were eligible for the NHS cervical screening program. Notably, the study concluded that self-sampling for routine HPV cervical cancer screening with Coli-P device could provide a less costly alternative to clinician-collected sampling and other self-sampling approaches. This could support expanding the reach of affordable Coli-P-mediated cervical cancer screening to underserved women at scale in the UK and possibly elsewhere. through ongoing and prior studies that demonstrate the value of the Coli-P Collection product as an easy-to-use, non-invasive, self-sampling device, Orasur is committed to an evidence-based, affordable solution with improved patient experience for women around the globe. Beyond our current offerings, we are working to accelerate profitable growth through innovation. As we focus on pipeline expansion, we are advancing both organic and inorganic opportunities across each of our portfolios. In molecular products, we are exploring the potential to build additional functionality for our customer that will further extend our leadership position. We believe that these technologies could provide meaningful complements to our strengths in sample collection and stabilization, and they could be long-term differentiators for us. In our diagnostics portfolio, we anticipate sharing more regarding new infectious disease and sexual health tests later in the year. In diagnostics and across our portfolio, we are also actively evaluating partnerships to meaningfully extend our product pipeline and growth opportunities. Ultimately, the goal of our innovation is to reignite core growth and leverage our unique capabilities to power the shift in healthcare that meets patients where they are, with effortless solutions in point of care and self-test diagnostics, in sample collection and stabilization, and in our services solutions. As we look to the future, we will also look for ways to accelerate profitable growth by deploying capital through M&A and further evaluating our long-term capital structure. Our strengths today well position us as a partner and collaborator now and for the future, And with that, I'm pleased to turn the call over to Ken to talk about our financial results and guidance.
spk09: Thanks, Carrie. I'm pleased to discuss our financial results for the first quarter and provide updates on our financial outlook. First, from a top-line perspective, we delivered total revenue of $155 million in the first quarter, which was another record for the company, representing year-over-year growth of 129%. Looking at the components of growth, IntelliSwab is the largest contributor with over $118 million in total sales compared to $22 million last year, representing 434% growth. Our diagnostic products, excluding COVID-19, grew 50% year over year. The strong growth is driven by significant domestic HIV sales bolstered by the Let's Stop HIV Together program. We also saw strong international demand despite typical negative seasonality in the first quarter, primarily due to order carryover from the fourth quarter. Looking at our molecular products and services, total revenue declined 48% year over year. However, the first quarter of last year included approximately $9 million of COVID-19 collection kit revenue. Excluding COVID-19 collection kits, our molecular products and services declined 27% year over year. On a sequential basis, our molecular products grew 7%, showing modest improvement. While we remain emboldened around the long-term trends with our molecular products business and with the high level of innovation industry-wide, which supports decentralized sample collection, we continue to see some disruptions with top customers this quarter. We are optimistic our molecular products business will be positioned for improved growth trends as we look to the second half of this calendar year. From a gross margin perspective, our GAAP gross margins in the quarter were 42.5% and our non-GAAP gross margins in the quarter were 42.8% compared to 40.9% last quarter. Despite pricing headwinds with new COVID-19 test contracts and mixed headwinds with higher diagnostic test revenue, we showed meaningful positive progress on a sequential basis. As Kerry already mentioned, This quarter we completed our IntelliSwap packaging redesign transition in March, one month ahead of schedule, which will have a positive impact on gross margins going forward. We believe these changes will save approximately 50 cents per test leading to improved IntelliSwap gross margins looking ahead. We remain focused on our site consolidation with plans to further utilize new automation at our Opus facility for other products in the future. We are also looking at material procurement product standardization, packaging reductions, and labor efficiencies with our new facilities and automation as future drivers of margin expansion. Additionally, as Kerry mentioned, we are closing our overseas and telesoft production lines, which were highly manual in nature. This is expected to improve margins as our U.S.-based production process eliminates overseas shipping and is highly automated and more efficient. In spite of our packaging improvements, one factor that will negatively impact second quarter margins is the mix between our two IntelliSwap contracts. Our expectation being that the preponderance of tests could fall under our lower price contract, which means that we anticipate some gross margin headwinds on a sequential basis, followed by continued improvement by the above factors in the second half of the year. Moving on to our operating expenses. Our GAAP operating expenses in the quarter were $41.5 million, while our non-GAAP operating expenses were $33.6 million and increased modestly relative to the quarter. This was primarily attributable to the expense timing with our higher litigation spend in the quarter, while we did receive some benefit from our headcount reductions in February. Looking forward, we plan to realize additional efficiencies beginning in the second quarter beyond the $15 million in annualized operating expenses we highlighted during first quarter earnings. Some of these savings are attributable to the scale down of support functions for our Intelliswap production, which is accounted for in SG&A, as well as other identified savings. These savings are critical as we look to utilize our cash for growth investments and as we are committed to achieve cash flow, break even in our core business, excluding IntelliSoft revenue by the end of 2024. This quarter, our GAAP operating income was $24.3 million. Our non-GAAP operating income was 32.7 million, representing 76% sequential growth and a dramatic improvement from our 6.6 million operating loss in the first quarter of calendar year 2022. From a cash perspective, we ended the quarter with total cash and cash equivalents of $112 million, representing a modest improvement from last quarter. We once again saw significant increases in working capital, which we believe will convert to cash as IntelliSwap revenues taper in the future. We also continue to expect to generate positive cash flow from our $109 million Department of Defense contract. The majority of the cash tied to this expansion has now been spent, and we have $48.1 million in remaining milestone payments to recoup from the government as of the end of the first quarter. Turning to our guidance, as Kari mentioned previously, our April orders from the government for the school program declined compared to ordering levels seen in the first quarter. Consequently, we are guiding to total and teleswap revenue of $25 to $30 million in the second quarter versus $118 million in sales we saw in the first quarter. As Kerry discussed earlier, we are in ongoing discussions with the government. Consequently, we are guiding to a total second quarter revenues of $62 to $67 million. Our goal with Intellislab has been to optimize cash generation for future growth investments. And as we work down existing inventory, collect on our significant receivable balance, and meet the remaining milestones on our $109 million Department of Defense facility contract, We expect to generate meaningful cash flow from operations. With that, I'll turn the call back over to Carrie to conclude.
spk04: Thanks, Ken. And in summary, we continue to make meaningful progress on our strategic transformation priorities and in creating a culture that innovates and operates with disciplined execution and accountability in order to deliver shareholder value. We are highly focused on continuing to improve organizational, structural and manufacturing efficiencies, optimizing the IntelliSwap cash generation opportunity, and bolstering future core growth through strategic partnerships and internal development to expand our pipeline of innovation. We also continue to believe that our foundational capabilities and strengths can help power the shift in healthcare delivery, meeting people, patients, where they are, to increase access, affordability, and quality of care. We look forward to updating you on our progress as we continue to execute on our transformation journey. And with that, I'm pleased to turn the call back over to Scott for Q&A.
spk00: Thanks, Carrie. Operator, we're now ready to begin the Q&A portion of the call. We would ask that you limit your questions to one question and one follow-up to ensure broad participation.
spk02: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Patrick Donnelly from Citi. Your line is now open.
spk03: Hi. You have been the author, Patrick. Thanks for taking my question. So I guess first,
spk00: on the pull forward of the international diagnostic orders are able to quantify that you know how much you know how much of that was part of of this quarter yeah thanks for the question you know i think when you look at the total international orders in the quarter they're approximately 10 million dollars this quarter and when you look at last quarter we saw similar amounts When we think about the fourth quarter, typically we see positive seasonality in the fourth quarter because the orders are placed by NGOs and other non-governmental organizations. And so what you did see this quarter is probably some carryover. We talked about that on our fourth quarter earnings call, that there was some of the demand that we weren't able to completely fill. And so we had guided, obviously. And so we didn't quantify exactly how much, but when you think about the size with 10 million, you know, it gives you a good idea of, you know, about how much you might have seen.
spk09: And just to add to that, as a reference, you can look at Q1 revenue last year for international business as a guideline of that seasonality.
spk03: Understood. Thank you. And then, great to see the 50-cent cost savings for tests on a teleswap. I think that was up to 40 cents that you guys discussed last quarter. I'm just wondering, can some of those cost initiatives be implemented towards other tests? I think you may have touched on this. And if so, is that something that we can expect to hear about this year? I'm just wondering how else it could be applied. And thanks, that's it for me.
spk09: Yeah, and I think I heard your question was, can we leverage the opportunities and cost savings from IntelliSwab on the other product lines in the business? Short answer is yes. What we did develop with IntelliSwab was automation capabilities that we are leveraging on our other existing products and product lines. Think of HIV, HCV, that we will be leveraging those going forward.
spk04: And specifically regarding the packaging redesign, that's a product, I'm sorry, an opportunity we look at product by product because that does involve resubmission to the FDA. So we're looking at lessons learned, the benefits of those, and aren't prepared to share anything specifically by product or on timing. But I think it really does inform our development and opportunities moving forward. Great.
spk03: Thank you.
spk05: Great. Thank you.
spk02: No questions. Great. Please stand by as we get our next question ready. Our next question comes from Alexandra. from Evercore IFI. Please go ahead.
spk06: Hi, thanks for taking my question. I just have one on gross margins. You know, you're up year on year and sequentially. Can you just talk about the progression that you're expecting for the rest of the year?
spk09: Yeah, if you think about gross margins, there's several drivers, right? There's the product mix and pricing mix. So one of the headwinds that we mentioned earlier in the prepared remarks was around the mix of IntelliSwab contracts, As we've shared before in previous calls, we have three contracts with the government. The first one, the original is, and I think we've shared this in the past, is approximately $5. The second one is approximately $3. What we're expecting in Q2 is the preponderance of our volume that come from that second contract. So that'll be a headwind. The offsetting tailwind, as we mentioned, is the packaging redesign, which will help us drive efficiency as well as some of the other efficiencies we mentioned in automation that we continue to drive. So that's how I would think about it as your model is going forward.
spk04: And we expect Q2 to be a temporary compression based on that mix to then recover in the second half.
spk09: That's right. I think we've shared.
spk07: Sorry, I was just going to ask a follow-up on if you could just talk about sort of between IntelliSwap and the base business, like how we should think about margins between those two segments.
spk00: Yeah, I think, Alexander, what we've kind of shared there is when you look at our two business units, the biggest mixed driver that we've seen is the amount of revenue that's associated with our diagnostic products and the amount that's associated with our molecular products and services. When you look at the last year, the trend has obviously been for diagnostics to increase dramatically. The highest margin portion of our business is our molecular products. And so as the mix begins to shift, and one of the drivers as we look at the back half of the year, as the mix begins to shift increasingly, again, back towards molecular products, that will actually be a positive driver of our gross margins in the second half of the year.
spk09: And just to add to what Scott said and build off of what Scott said, one of the items that we had in IntelliSwab that we've seen over the last year or so is the improved gross margins of IntelliSwab. to the point now where it's actually above our overall weighted average for gross margins.
spk05: Great, thanks. Thanks, Alexandra.
spk02: Thank you. Our next question comes from Kathy Woodring from J.P. Morgan.
spk08: Hi, Kathy. Hi, guys. Thanks. Yeah, hi. Thanks for taking my questions. So just on the 2Q guide on the non-COVID side, at the midpoint, it looks like growth will be flat year over year and sequentially. Can you just talk about what's embedded for growth in both molecular and the core diagnostics business in that 2Q guide?
spk00: Yeah, Casey, I think when you look at the different components, you know, obviously we have the diagnostic business. You know, the first piece there is we obviously had elevated international sales in the first quarter. So we are expecting that to taper some. And then with our molecular products business, what we said on the call was that we're not expecting a huge change in the second quarter, but we're optimistic as we look towards the second half of the year that we could start to see some improvement there. And so that's really what's factored in when you look at the two pieces and a relatively flat sequential core business implied by the guidance.
spk09: And to build on what Scott said there also to add to it, in Q1 on the diagnostic side, we saw an increase from our HIV program with Emory. and we saw a significant increase in Q1. We are promised going forward, but that's one of the areas that we felt was a little bit more sequentially flat going forward.
spk08: Got it. That's helpful. I wanted to touch on the milestone payments. You mentioned I think it was $48 million worth. What do you need to do to receive those, and do you expect to receive them this year? Yeah, definitely.
spk09: That's a great question. So of the $48 million, we still have to spend a few dollars left. So think about a net $40 million when you think about the dollars we have to spend going forward and then what we collect of the $48. We expect to receive it all by the end of the year. The plan is to prove our ability to deliver a set amount of capacity to the government and go through their regulations. Right now, the plan is to have that completed in Q4. At that point, we will receive the full payments of $48 million.
spk04: And we're well on track.
spk09: And we're well on track for that, absolutely.
spk08: Got it. That's helpful. And then the last one from me, just, Carrie, you talked a lot about call EP on the call, I guess maybe more so than previous calls. So can you just remind us how big that business is today? With all those catalysts you kind of talked about here, how do you think that product can grow maybe this year and then over the next several? Thank you.
spk04: Yeah, Casey, thanks. Well, Coli-T is not big enough for us to have called out yet. We are excited about it because of the potential to unlock liquid biopsy in urine, both through oncology biomarker insights as well as STIs. So I think what you hear us encouraged by is the sort of progress in clinical proof and the fact that we have CE-MARC today for a variety of different product volumes and chemistries. So there are different chemistries between the oncology and the STI applications. And so with CE-MARC today, we think there's opportunity and we'll be working the path to U.S. regulatory clearance. But I'd say not, you know, immaterial in terms of current volume, but with real long-term potential that we're not diving to yet, but we want to set the stage with the clinical progress.
spk05: Thanks, Casey.
spk02: Okay. And our final question is from Andrew Cooper. from Raymond James. Please go ahead.
spk01: Hi, this is Liam on for Andrew. Thank you for taking my question. Carrie, you talked about kind of further cost savings from that $15 million you called out before. Can you kind of walk me through how that might look for the rest of the year? Thanks.
spk00: Liam, we're not ready yet, and we didn't quantify those, but the savings are significant. You know, some of it, you know, has yet to be fully completed, and so we're working through that right now. And we will look to quantify that, you know, for you later on. And so I'd look for an update on that, you know, on future calls.
spk09: Yeah, and to put it in context, I think of it from a modeling perspective. Just remember our stated target is to be cash flow from operations break even on our core business by the end of 2024.
spk01: Great. That's helpful. Thank you. And just on one other thing as well, the Together Take Me Home HIV program, you know, nice to see a little bump there. I was wondering how the back half might look. Can we see incremental growth there? And then also on the molecular side, what products should we think about raising that in 3 and 4Q? Thanks.
spk00: Yeah, we haven't guided specifically to any individual product, Liam. You know, when you think about the Let's Stop HIV Together program, you know, it's a three-year program where funds have been allocated. You know, we would expect that under the program, you know, you would see orders over time. It's a little bit difficult to predict exactly, you know, what the timing of that looks like. It could be, you know, somewhat lumpy from quarter to quarter. But, yeah, we're not guiding to any, you know, specific product in terms of overall dollars.
spk09: Yeah, Scott, I think we've said in the past is that we're with the five years at about 200,000 units per year. And then the average price you could think about is our typical price that we've had for our HIV test.
spk04: And what you heard us describe is the launch of the program in Q1 got off to a very good start with very strong adoption within communities. And so that momentum is just always a positive sign. And as we have more to share on that with any potential changes to that ordering, we will share that as well.
spk09: Yeah, where we're pleasantly surprised, we're not surprised, but encouraged is by the channel and the usefulness of that channel from our public health partners.
spk05: Great, thanks. Great, thank you. Amanda, are those all the questions?
spk02: That is all the questions. Turning it over to you, Carrie, for closing remarks.
spk04: Excellent. Thank you to everyone for participating in today's call. Thank you for your continued interest in Orrisher. Have a good afternoon and evening, and stay safe and do well. Thank you so much. That will close. Great. Thank you for your participation in today's conference.
spk02: This does conclude the program. You may now disconnect.
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