ORASURE TECHNOLOGIES INC Q3 FY2024 earnings call

• Strategic transformation on three pillars: strengthening foundation, elevating core growth, accelerating profitable growth.
• Notable developments: Q3 revenue in top half of guidance, initial international orders for OraQuick HCV Self-Test post-WHO prequalification, planned launch of new sample management solution for blood proteomics in 2025, winding down risk assessment testing business by end of 2024, $12.7 million operating cash flow in Q3.
• Operational efficiency: Focus on continuous improvement and automation, progress on in-sourcing sample management production to Bethlehem facility.
• Product innovation: Planned 2025 launch into proteomics space, collaboration with PacBio validating DNA Genotek Saliva collection devices, progress on FDA submission for self-collected volumetric urine and HIV claims expansions.

In Q3, core revenue was $37.8 million, above the midpoint of guidance. Diagnostics revenue was $22 million, up 13% year-over-year. Sample management revenue was $12.8 million, down 16% year-over-year but up sequentially. COVID-19 products contributed $2.2 million. Risk assessment testing generated $1.9 million in Q3. Core revenue excludes COVID-19 products and exited molecular service business. Diagnostics had success with multiproduct sales in HIV, HCV, syphilis; Sample Management Solutions saw gradual recovery; international business had initial orders for OraQuick HCV Self-Test post-WHO prequalification.

• Fourth quarter total revenue guidance: $36 million to $38 million.
• Core revenue guidance: $35 million to $37 million, including $1 million to $2 million from winding down risk assessment business.
• COVID-19 revenue expected to be ~$1 million in Q4, run rate through Q1 2025.
• Q4 gross margin consistent with Q3, slightly lower due to international mix and risk assessment exit winding down.
• Long-term expectation to drive gross margin to mid-50s through efficiency efforts.

• Decline in revenue and slight unprofitability of risk assessment testing business.
• Evolving regulatory environment affecting sample management market recovery.
• International business has lower gross margins than overall corporate average.

Q: Could you update on how long it may take to work through additional gross margin headwinds moving forward?

A: Kenneth McGrath mentioned opportunities to improve gross margins over time, leveraging automation, consolidating manufacturing, with optimism to get back to mid-50s gross margin.

Q: Any more details on Sapphiros partnership timeline or product progress?

A: Carrie Eglinton Manner said they're in regulatory process, planning 2025 launch, with significant opportunities spanning portfolio.

Q: How should we think about capital deployment in near term?

A: Carrie Eglinton Manner said highly focused on innovation, opportunistically working on internal development and external opportunities via partnerships and bolt-ons.

Q: How does risk assessment exit impact P&L from gross margin and operating margin standpoint?

A: Kenneth McGrath said it was slightly declining in revenue and slightly unprofitable, so should improve slightly when pulled out from mix.

Q: Thoughts on consumer genomics end market and OraSure's opportunity?

A: Carrie Eglinton Manner said green shoots exist, with increasing applications in omics, adding customers and opportunities, believing return to growth is a matter of when not if.

Q: Thoughts on go to market strategy for sample management solution and blood proteomics?

A: Carrie Eglinton Manner said starting with research use only, ramping up, with potential for significant TAM in 100s of millions of dollars.

Q: Importance of international growth vectors and margin ramp?

A: Kenneth McGrath said international is healthy portion, excited about growth opportunities and operational efficiency to drive to mid-50s gross margin. Carrie Eglinton Manner added long track record and success in international markets.

Q: Incremental investments for core growth?

A: Carrie Eglinton Manner said leveraging existing strengths, run rate focused, with no large incremental investments expected, but laser focused on innovation.