Good day, and thank you for standing by. Welcome to the OraSure Technologies, Inc. 2025 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jason Plagman, VP of Investor Relations. Please go ahead.

Good afternoon, and welcome to OraSure Technologies First Quarter 2025 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 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 OTI's SEC filings, its annual report on Form 10-K for the year ended December 31, 2024, its quarterly reports on Form 10-Q, and its other SEC filings. 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. With that, I am 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 OraSure is making on the three pillars of our transformation: one, strengthening our foundation two, elevating our core growth and three, accelerating profitable growth. Today, I'll discuss a few highlights from Q1 and our progress on key priorities for 2025. A few notable developments during the first quarter include: the strength of OTI as demonstrated in our ability to navigate continued uncertainty due to external market factors. And examples of that are: we reported revenue in Q1 that was in the top half of our guidance range for both total revenue and core revenue. The preference for our differentiated products across our customer base, which we continue to expand and diversify. We are also making good progress in advancing our innovation roadmap, including multiple new product milestones expected in 2025, as I'll describe in a few minutes. Integration of Sherlock Biosciences is off to a good start with a talented team of scientists and other professionals who are helping expand OTI's product pipeline with molecular diagnostics innovation, including a low-cost disposable platform on which we're advancing the clinical study for chlamydia and gonorrhea or CT/NG as its initial test with others to follow. Solid execution providing seamless continuity for our customers as we in source manufacturing of our SMS products from contract manufacturers to our facilities in Bethlehem, Pennsylvania. We expect to have this transition substantially complete by the end of Q2, which is months ahead of the expected timeline when we initiated this project in early 2024. In late March, our Board authorized the repurchase of up to $40 million of our common stock over the next two years from the authorization date, which will be funded from…

Thanks, Carrie. I'm happy to discuss our first quarter results and financial outlook. Total revenue in Q1 was $29.9 million. Core revenue, which excludes COVID-19 products and the molecular services business that we exited was $29.5 million and decreased 2% compared to the prior year period. As Carrie mentioned, core revenue in the first quarter was flat on a year-over-year basis after adjusting for the impact of our decision to exit the risk assessment testing business. Within core revenue, diagnostic products generated $17.7 million of revenue in Q1 and grew 8% year-over-year. Sample management revenue in the first quarter was $9.1 million and decreased 16% compared to the prior year period. As Carrie mentioned and as we have previewed on our last earnings call, the year-over-year decline in SMS revenue was due to the disruption at a customer in consumer genomics. Excluding that headwind, sample management revenue from the rest of our customer base grew on a year-over-year basis in Q1. COVID-19 products contributed $500,000 of revenue in the first quarter, which was consistent with our expectations. Revenue in Q1 from the risk assessment testing business was $1.4 million We divested certain assets related to the risk assessment product line at the end of Q1, and we expect to complete our exit from that business in Q2. Our GAAP gross margin in the first quarter was 41.1%. Non-GAAP gross margin was 41.7%, which was consistent with our expectations. GAAP operating expenses in the quarter were $30 million which includes $2.7 million of non-cash stock compensation expense, a $1 million gain on the sale of fixed assets and a $478,000 expense related to an increase in the estimated fair value of acquisition related contingent consideration. Our GAAP operating loss in Q1 was $17.8 million and our non-GAAP operating loss was $15.3…

Thanks, Ken. While most organizations are navigating market turbulence, many of us in health care share passion for this industry's purpose, to help deliver better care, outcomes, quality of life for more people. We rally around health care's meaningful purpose with the stamina to weather uncertainty. And in OTI, our stamina is bolstered by a very healthy balance sheet. We've worked hard to build it and will continue to thoughtfully manage it and deploy our capital for long-term value creation. We are well positioned. In diagnostics, we are well positioned with differentiated proven products that deliver high-quality rapid results and our multiproduct syndemic approach is resonating with customers. We are building momentum with Diagnostics Direct's syphilis health check and we have good progress with our Sherlock molecular diagnostics platform. With our CT/NG clinical trial for our initial test that is currently ramping to planned submission by the end of the year and with our increasing pipeline of diagnostic tests. In SMS, we are well positioned with market leading products today and an expanding portfolio, adding more sample types, analytes and applications. In 2025, we have planned product launches with microbiome extraction kits and blood proteomics sample stabilization and we are extending our leadership position into new sample types such as urine with Colli-Pee and blood with our proteomics offering, plus our entrance into the small volume self-collected blood segment later this year through our partnership with Satio, who submitted SatioDot for regulatory clearance in April. In addition to our product portfolio, we continue to expand and diversify market segments, geographies and our customer base, strengthening relationships with existing customers such as Myriad Genetics and Fulgent Genetics, while also cultivating many new ones. Overall, we are confident that OTI has the capabilities, products, customer relationships, commercial channels and strong balance sheet to emerge from the current environment as a stronger enterprise, one that thrives while delivering on the purpose that motivates us. With that, I'm pleased to turn the call over to the operator for Q&A. Gigi?

Thank you. [Operator Instructions] Our first question comes from the line of Patrick Donnelly from Citi.

Hi. This is Brendan on for Patrick. To start, I want to talk about the guys, specifically the international revenue. How have conversations been like with possible alternative funding sources. And then specifically on the HIV testing, how should we think about those testing demands kind of moving forward given the funding uncertainty there?

Yes. So hi, Brendan. Thanks for that. We talked in February about the USAID and PEPFAR funded programs. And the impact that we had called out was just under $1 million of revenue that we saw moving. We have very close conversations with multiple funding sources, whether it be the U.S. funding sources or quite frankly countries themselves, their departments of health. Those are going well and what we're seeing is movements that had sort of stopped for a while, but that is restarting, and it's why we refer to it as, I'd say, steady but flat. So I think a little bit better than we'd expected. And then on that, the global funding, multilateral funding sources, again, we see more stability there because they come from multiple countries. So I'd describe it as we were on a trajectory of 2023 being the biggest year in international, then it was 2024 and we really saw that continuing into 2025 until the uncertainty that we've been talking about. And that's where you kind of see it flattish, and flattish from Q1 and Q2. So that's how I describe both international broadly and really that represents that HIV portfolio that you asked about.

And just to build on what Carrie is saying, we have 10 years of a proven track record with a product that's easier to administer. It's a rapid test, oral test and we have strong relationships within international. And recall that for some of these funding cuts, one of the things that was waived were testing and treat. So now it's a matter of yes, there's some disruption in getting the product there, but because our product is a self-test, it's oral and rapid, it's easier to distribute and the infrastructure required isn't as significant.

Got it. And then sticking with the international piece. In the quarter, did you guys see any pull forward in demand ahead of any possible tariffs being put in place? And are there any like indicators you guys are really watching to see just how to track like future ordering trends?

We didn't see pull forward. We were monitoring the tariff situation really closely, having a manufacturing facility that we've been transitioning from Canada to the U.S. And having made a big insourcing decision from around the world prior to that. So I don't know if I'm asking the question -- I'm sorry, if I'm answering it exactly how you meant it, Brendan, but we didn't see pull forward. And I say the tariff situation for us, we're seeing minimal impact at this point because we're so heavily concentrated in the U.S. with that Canadian insourcing having already started.

Yes. To Carrie's point, the only impact you may see from us is we did a little bit of a buildup of inventory at the end of Q1 just as we were withholding some shipments just with some of the uncertainty, but that was about it for us. But because preparation.

Preparation, April, beginning of April.

Correct, in the preparation. But to the point, as you recall, right, our strategy over a year and a half ago was to bring in in-source manufacturing into Bethlehem, Pennsylvania. So we've been, I guess, ahead of this curve as far as getting manufacturing within The United States and specifically within Bethlehem, Pennsylvania.

Got it. Thank you. Appreciate it. Congrats on the quarter.

Thanks, Brendan.

Thank you. One moment for our next question. Our next question comes from the line of Vijay Kumar from Evercore ISI.

Hey, this is Daniel on for Vijay. Thank you for taking the questions. The first one I wanted to ask on the Together, Take Me Home initiative. It sounds like that's a $4 million headwind here in fiscal 2025. Does that assume no contribution in 4Q given the September termination? And then you also talked about alternative avenues once the work is terminated. If you could discuss those, that would be really helpful too.

Yes. So you're correct in your statement some of your statements, let me go through it. So what we said was about $4 million for the year, about $1,5 million in Q1 and the remaining split between Q2 and Q3. And then as far as the ending of the program, it is at the end of Q3 as they end the end of funding. And now to your point about alternatives, obviously, we believe that the program has demonstrated value in identifying positive patients with HIV. So we think there is value there within the program and what's been established. So yes, we are exploring alternatives to continuing that program.

Got it. Thank you. That's helpful. And then for my follow-up, I was curious on the SMS genomics customer, the lumpy one that was called out. What are you seeing in terms of their inventory levels and ordering activity? I know you said lower here in the second quarter, but any read through to the second half based on conversations and order activity?

Yes. So you are correct in that we called out no volume in Q2 is what we anticipate. We don't have good visibility to any future ordering potential. So what I'd say is, they're a very good partner. We stay very close and we'll share any of that as we have it. But it's not just low volume, we have called out no volume for Q2 and while we don't have visibility beyond that, we stay very connected to them and we'll share any of that as we have it. We normally don't provide guidance -- full year guidance anyway, but I think we'll share what we have when we have it.

And from a positive kind of financial perspective and a small positive financial, we don't have any outstanding ARs. There's no collection risk or uncertainty associated with that.

Yes. And Dan, you didn't ask, but I will point out without that disruption, the business did grow year-over-year. So while that is significant disruption at a single customer, we've spent the last couple of years really diversifying and expanding that customer base to ensure that those green shoots could help feed the business broadly. And so we absolutely see that and it's why we called out without that there was growth in SMS.

Right, right. Okay. That's really helpful and encouraging to hear. The last one I had and then I'll get in the back of the queue is on PEPFAR and some of the funding disruptions. I think you were looking for a $1 million headwind in 1Q, and you said it came in a little bit better. Just if you could quantify that. And then what should we expect in 2Q and going forward? Is it like a $1 million type headwind a reasonable assumption to make?

So just to state what came in better. So it materialized as we thought. So the PEPFAR impact for Q1 was a combination. It was about $750 million of PEPFAR and we called out another $150 million of NIH. That materialized in Q1 to be around $1 million as we had thought. What's come in a little bit better than we anticipated based on that was Q2 being at around the same amount. So we had called out PEPFAR volumes in case that continued to accelerate rather than accelerate, Daniel, we see that hold steady. So we would call that out as around the same level for Q2.

Very helpful. Thank you so much.

Thank you, Daniel.

Thank you. One moment for our next question. Our next question comes from the line of Andrew Cooper from Raymond James.

Hi, everyone. This is Noah on for Andrew. Thanks for taking the question. I guess first one, it's good to see your buyback program, I think it was $40 million Do you have any like timeline over the next two years that you want to deploy that? Is it going to be more this year or are you kind of waiting to see the stock at a certain level from here?

Yes. So some of the details and what we said was $40 million over two years. And last when we talked about last, we mentioned that you can think of it as evenly being spread. So think about eight quarters divided by 40 kind of thing, so $5 million a quarter. And just for Q1, because we initiated it at the end of Q1 and there's a 30-day cooling off period, we didn't do any purchases in Q1.

Okay, awesome. And then kind of sticking on the capital deployment end, you still have a pretty significant cash balance. Are you still looking at assets in the market? Are you still focused on the Sherlock investments? Other players in the space have called out maybe dislocation on the M&A end where there's better valuation. So just trying to get a feel for what you're thinking on that end and if there's a particular area you would like to target.

Yes, you nailed it, Noah, with where we're focused. M&A and the potential to accelerate innovation and our growth through innovation into the strong portfolio we have, the customer channel we have, the manufacturing capacity and capabilities we've built. So we're very much focused on M&A opportunities as well as delivering on the opportunities of Sherlock. So we called out those investments, bringing that molecular diagnostics platform and our first test being CT/NG, the clinical trial that's underway, that is a clear priority in the business as well. So you hear us talk about the investment and innovation both internally, with Sherlock and beyond the other product launches we've talked about this year and submission to FDA as well as M&A.

Awesome. Thank you. I'll hop back in queue.

Great. Thanks, Noah.

Thank you. At this time, I would now like to turn the conference back over to Carrie Eglinton Manner, CEO, for closing remarks.

Thank you, Gigi, and thank you to everyone for participating in today's call. We appreciate your continued interest in OTI and wish each of you a great week. Thanks.

[Operator Closing Remarks]