Earnings Call Transcript - OSUR Q4 2025

Operator, Operator

Good day, and thank you for joining us. Welcome to the OraSure Technologies 2025 Fourth Quarter Earnings Conference Call. Please note that today's conference is being recorded. I will now hand it over to Jason Plagman, Vice President of Investor Relations. Please proceed.

Jason Plagman, Vice President of Investor Relations

Good afternoon, and welcome to OraSure Technologies Fourth Quarter 2025 Earnings Call. Participating in the call today for OTI are Carrie Eglinton Manner, our President and Chief Executive Officer; and Kenneth 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.

Carrie Eglinton Manner, CEO

Thanks, Jason, and thank you to everyone for joining us today. I'll discuss some highlights from Q4 and our key priorities for 2026 and beyond. As we've discussed previously, 2025 was a transition year, and we supported our customers in navigating a challenging and uncertain funding environment. As we enter 2026, we are seeing increasing signs of stability in key segments, including improved visibility to funding for important testing and research programs, and we are excited by several near-term catalysts for growth, including our two product launches planned for midyear. One, our rapid molecular self-test for chlamydia and gonorrhea, also known as CT/NG; and two, our Colli-Pee at-home urine collection device for sexually transmitted infections. Our submission of these two separate applications to the U.S. FDA in December represents significant milestones on our innovation roadmap as we move into the next phase of our multiyear strategic transformation to deliver profitable growth and to create value for our customers and shareholders. Looking at our Q4 results, total revenue was $26.8 million and core revenue was $26.7 million, which was above the midpoint of our guidance range. In our International Diagnostics business, order trends are stabilizing as national health programs adapt to revised funding structures, including framework agreements that have been signed between the U.S. and more than a dozen countries in Africa that incentivize greater levels of local investment in order to build more resilient and durable health systems. To that end, we are well underway establishing closer relationships with some of our existing distribution partners in Africa, including their in-country value-added assembly and manufacturing, also known as nearshoring. We believe that this trend represents an important opportunity in rebuilding health program momentum in countries around the globe and expect these expanded local relationships in Africa to begin to contribute revenue in Q1 and throughout 2026. We also expanded OTI's presence in Canada with the recent launch of our OraQuick HIV Self-Test following its receipt of a license from Health Canada. This test is Canada's first oral HIV self-test, and we are excited to work with St. Michael's Hospital, Unity Health Toronto, as the exclusive distributor of this test in Canada. Continuing with our international business. Our integration of BiMedomics is off to a good start following the close of the acquisition in November. We are seeing strong demand from existing customers for the Sickle SCAN Sickle test, which is a rapid point-of-need test for sickle cell disease or SCD. Our team is also building momentum with our initiatives to expand the reach and adoption of Sickle SCAN by leveraging our international sales channels and our existing relationships with national health programs, particularly in Africa, where more than 385,000 babies are born each year with SCD as well as in Latin America with its moderately high incidence of SCD and lack of newborn screening programs. In our U.S. Diagnostics business, demand for our rapid test from public health customers is stabilizing as those organizations adapt to the current funding environment at the federal and state level. We are also seeing consistent demand for our over-the-counter HIV self-tests from telehealth and direct-to-consumer online platforms that want to offer a reliable FDA-approved self-test that is authorized for use with oral fluid and is designed to meet the needs of individuals who wish to test themselves privately and painlessly at home. Switching gears to sample management. We remain confident that the sample management business is positioned to deliver growth in 2026 and beyond as genomic end segments continue to stabilize and gradually return to stronger growth, driven by clinical adoption of precision medicine. We also anticipate modest contributions to SMS revenue growth from the academic and government segments as NIH funding returns to a more regular cadence from international markets and from progress with our blood proteomic solution that we launched in mid-2025. Next, I'll transition to our innovation and product pipeline, which includes several important near-term catalysts for growth in attractive markets as well as our pipeline of earlier-stage opportunities in high-value growth markets that we discussed last quarter. Starting with Sherlock. We submitted our rapid molecular self-test for CT/NG to the FDA in late December. As we've discussed previously, OTI's rapid self-test for CT/NG is built on the Sherlock molecular diagnostics platform and is designed to provide the results in approximately 30 minutes in a disposable over-the-counter format. The test uses a self-selected swab, and results are intended to be read directly on the handheld testing device without the need for an electrical connection, enhancing accessibility and ease of use. OTI estimates the testing for CT/NG represents a total addressable market of more than $1.5 billion. Today, the vast majority of CT/NG tests in the U.S. are processed in centralized laboratories, creating an opportunity for meaningful market expansion through the introduction of a convenient, private, and affordable rapid self-test. Also in December, OTI submitted a separate application to the FDA for clearance of our Colli-Pee device for sexually transmitted infections or STIs. The Colli-Pee device, which includes its proprietary stabilization chemistry, is designed for at-home urine collection and is aligned with patient preferences for private and convenient diagnostic testing. The submission covers multiple STI indications and is being pursued in collaboration with a leading diagnostics platform provider. Receipt of clearance for the Colli-Pee device for these indications would be in addition to the research use-only products and is expected to expand access to testing while further strengthening OTI's leadership position in novel collection devices and chemistries. We anticipate that revenue from our product launches will ramp in the second half of the year. And these two submission milestones reflect meaningful progress on our innovation roadmap and demonstrate how we are advancing our vision to help decentralize diagnostics and connect people to care that is more accessible, convenient, affordable, and private. With that, I'll turn the call over to Ken to discuss our financial results and guidance.

Kenneth McGrath, CFO

Thanks, Carrie. Total revenue in the fourth quarter was $26.8 million. Core revenue, which excludes COVID-19 products, was $26.7 million. Diagnostic Products generated $15.1 million of revenue in Q4, and Sample Management Solutions revenue was $9.1 million, and both were consistent with our expectations. Our GAAP gross margin in the fourth quarter was 41% compared to 36.2% in Q4 2024, and non-GAAP gross margin was 41.4% compared to 40.1% in Q4 '24. Looking at GAAP operating expenses in Q4. R&D expense was $11.4 million, sales and marketing expense was $6.6 million, and general administrative expense was $9.8 million. Noncash stock compensation expense in the fourth quarter was $1.5 million, and depreciation and amortization expense was $2.4 million. Our GAAP operating loss in Q4 was $20.1 million, and our non-GAAP operating loss was $15.2 million. Moving to our balance sheet. We ended the year with zero debt and total cash and cash equivalents of $199 million. During the fourth quarter, we deployed $5 million to repurchase 1.9 million shares of our common stock. For the full year 2025, we returned $15 million of capital to shareholders through the repurchase of 5.3 million shares. Consistent with our balanced capital deployment strategy, we also continue to evaluate organic and inorganic opportunities that can accelerate our growth. As we discussed in November, we invested approximately $4 million during Q4 to acquire BiMedomics in order to expand our portfolio of rapid diagnostic tests that we can sell to our international customers. Operating cash flow in the fourth quarter was negative $9 million, which was consistent with our expectations given our investments in the Sherlock platform, clinical trials for our molecular CT/NG test and Colli-Pee, and other innovation projects. We expect to return to breakeven from an operating cash flow standpoint as we enter 2027, driven by our expected return to revenue growth, including contributions from our anticipated product launches as well as our continued focus on delivering incremental cost savings through operating efficiencies. For the first quarter, we are guiding to revenue of $26 million to $29 million, which includes a negligible amount of revenue for COVID-19 testing. We expect our gross margin in the first quarter to be in the low 40% range. On a sequential basis, we expect that our Q1 gross margin will improve slightly compared to Q4 2025. Overall, we remain focused on disciplined execution that aligns our organization and cost structure with our revenue growth and continued profitability improvement. Recently, we eliminated a number of nonproduction roles and continue to take actions that increase operating efficiencies, which are partially offset by targeted commercial investments supporting anticipated product launches as well as one-time costs related to severance and other nonrecurring items. With that, I'll turn the call back to Carrie to conclude.

Carrie Eglinton Manner, CEO

Thanks, Ken. A year ago, we entered 2025 with the strength to withstand what turned out to be multiple external headwinds, and we are proud to have supported our customers in navigating that environment while we continued to invest in our future and further streamlined our business. We made significant progress in advancing our innovation pipeline and ended the year with two major product submissions to the FDA. Now here in 2026, we are already seeing signs of market stabilization, and we are also well-positioned to capitalize on the growth opportunities that our near-term product roadmap can unlock. With that, I'm pleased to turn the call over to the operator for Q&A. Lisa?

Operator, Operator

Our first question for the day will come from Mac Etoch of Stephens.

Steven Etoch, Analyst

Maybe just a couple for me. I appreciate all the color on the call. Given that you've submitted this application for Colli-Pee and the CT/NG test, I think on average, you were calling out roughly $7 million to $8 million a quarter for R&D associated expenses. How should we anticipate R&D tapering off or continuing from here? And do you anticipate redeploying those funds towards other R&D efforts?

Kenneth McGrath, CFO

Yes. Thanks, Mac. Great question. We are anticipating over the full year, lower R&D expense for the full year, referencing kind of what you talked about in clinical trials. However, there is some continuation of clinical trials to capture some additional data that supports our performance claims in support of the launches. So there will be some continuing in Q1, but we will see lower R&D throughout the year to reference to what you pointed out around clinical trial spend.

Steven Etoch, Analyst

Appreciate that. I think international HIV performed better in 2024 compared to some disruptions in 2025 caused by PEPFAR and USA implementation issues. I would like to understand whether the ordering cadence has returned to normal at this point.

Carrie Eglinton Manner, CEO

Yes, you accurately described the situation in 2024 and 2025. We are noticing better clarity as countries in Africa are not only securing their funding but also working on implementation. Both the U.S. and the countries have previously emphasized the critical nature of these life-saving test and treat programs. We remain fully committed to testing and consumables, and we still have financial resources available. However, all personnel involved in implementing these programs had been removed. As we look into the first and second quarters, we are observing a recovery as these countries begin to resolve their funding issues and invest more on their own. We noted that 14 African countries have signed memorandums of understanding with the government, focused on targeted local investment that aligns with these bilateral agreements, which are encouraging signs of stabilization.

Kenneth McGrath, CFO

Yes. In addition to build on that, Carrie mentioned during the scripted remarks around nearshoring opportunity and that we're excited about that opportunity. It's an opportunity for us to partner with some of these countries starting in Africa, which we think can be meaningful revenue dollars in the future.

Carrie Eglinton Manner, CEO

And that's really about local manufacturing assembly in countries that can meet local demand in a more effective way.

Operator, Operator

And our next question is coming from the line of Patrick Donnelly of Citi.

Unknown Analyst, Analyst

This is Brendan on for Patrick. I want to ask a little bit about the two product launches in midyear. What kind of latest you've heard from the FDA visibility into launching into the second half? And I know you guys only typically guide quarterly, but any additional insight we can get on potentially what that ramp in the second half could look like?

Carrie Eglinton Manner, CEO

Yes, Brendan, we're still aiming for the midyear launch and the revenue increase in the second half, just as you mentioned. We want to highlight that there is always some uncertainty in the regulatory review process. If we provided any specific timing, it would be inaccurately precise, but we will keep you updated as we have more information to share. I want to emphasize that we are still working towards the midyear launch and the revenue ramp. As you pointed out, we do not provide guidance beyond the quarter, but we will communicate more when we can.

Unknown Analyst, Analyst

Appreciate it. And then I believe on the last call, you guys talked about expanding beyond the public health setting into more like the clinical such as like the urgent cares and hospitals, specifically for the hep C test. Would you be able to talk about how traction has kind of evolved since the call? And any other opportunities really come about since then?

Carrie Eglinton Manner, CEO

Yes. We are both encouraged by the progress in expanding our customer segments. This stabilization is reflected in the increased focus not just on public health but also in clinical settings. We have observed significant developments in our syndromic approach, particularly the overlap of epidemics involving HIV, HCV, and syphilis, which is gaining attention in emergency rooms and urgent care facilities. We are pleased with this progress. While we appreciate the self-funding space in public health, we are optimistic about the opportunities for market and segment expansion beyond that.

Operator, Operator

And our next question will be coming from the line of Andrew Cooper of Raymond James.

Andrew Cooper, Analyst

Maybe start with Sample Management. I would love if you could share to some degree, how you view the growth when you look back at '25 ex the large customer headwind that you've talked about, meaning what does that underlying look like? And when you talk about a gradual improvement there, just a little more color for what that looks like and what some of the drivers are as we move through 2026 and beyond.

Kenneth McGrath, CFO

Yes. No, thanks, Andrew. When you look at the full year for Sample Management and to your point, when you exclude that one large customer, for the full year, we did see growth year-over-year, and that encourages us, driven by a lot of things, right? Some could be driven by market, but also driven by our diversification of our customer base, which we think now starts paying off benefits as we look at multiple customers and multiple avenues for growth.

Andrew Cooper, Analyst

Okay. That's helpful. And then maybe just another one for you, Ken, on the guide. Presumably, on the gross margin side, there's a pretty big difference in absorption at least between the bottom end of the revenue range and the top end of the revenue range, just given the kind of breadth of the guide. So just would love how we should think about gross margins, both in 1Q, but also as revenues hopefully ramp, what that trend can look like on the margin side?

Kenneth McGrath, CFO

In the first quarter, we anticipate some sequential improvement and have guided to the low 40s. You are correct regarding absorption. We are currently operating at approximately 30% capacity, so as we increase revenue and volume, we will benefit from not having to add fixed costs related to that volume. This will result in a natural improvement in gross margin. Additionally, we recently completed a project consolidating some manufacturing to our Bethlehem facilities. We moved HIV testing from Thailand to our Opus Way facility, which allows us to leverage absorption, and it is actually more cost-effective due to automation. We also consolidated some of our sample management business volume from contractors in Canada into our Bethlehem facility, with about 95% of that transition completed. As we ramp up operations, we will see additional benefits. Initially, you may not notice improvements due to some transaction transfer costs related to this transition, but once we achieve the same efficiency levels, the benefits will become apparent.

Andrew Cooper, Analyst

Okay. Helpful. And then if I can sneak maybe just one last one in. I guess when we think about '26 and the comment at least in the press release and I think some in the call here, this expectation to get back to better growth, how much of '26 is just normalizing from a 2025 where you saw spend come out of the system versus end market growth that you would expect to be more durable as opposed to comp-oriented?

Kenneth McGrath, CFO

Yes, that's a great question. What we know is that our core business is expected to experience some growth. We anticipate accelerating that growth with product launches in the second half of the year. Regarding core growth, we are observing stabilization and some growth in sample management in 2025, and we see stabilization in both international and U.S. funding. We are particularly excited about the international opportunities, especially with nearshoring, which Carrie mentioned. We are starting to partner with several African countries and plan to expand into Latin America and Central Asia. As these countries become more self-sufficient, we will work with them on-site to do some assembly and become their provider going forward. We see this as an exciting opportunity that adds to our existing sales rather than cannibalizing them.

Carrie Eglinton Manner, CEO

Yes, Ken provided a good overview of that. Regarding your question about the recovery related to funding versus growth in end markets, it varies by portfolio and segment. SMS is primarily influenced by end market growth, while the core diagnostics, such as HIV, HCV, and syphilis testing, is more focused on recovery. The significant impact in 2025 was due to public health funding cuts. The growth isn't entirely about funding reduction, but rather that this type of testing is vital for life-saving test-to-treat programs, prompting efforts to continue providing these essential services. Sample management primarily reflects end market recovery, while diagnostics emphasize a return to core growth as those segments navigate funding, develop programs, and make necessary trade-offs. Additionally, we are introducing product launches in both portfolios. We are integrating molecular into diagnostics and adding Colli-Pee into sample management, which are organic growth drivers aligned with customer trends towards self-collection, privacy, and affordable access.

Kenneth McGrath, CFO

Then you factor in our ability to win in those markets like syphilis, where we've been driving good growth over the years.

Operator, Operator

And this does conclude today's Q&A session. I would like to go ahead and turn the call back over to Carrie for closing remarks. Please go ahead, Carrie.

Carrie Eglinton Manner, CEO

Thank you, Lisa, and thank you for everyone who participated in our call today and for your continued interest in OTI. Thank you so much. Bye-bye.

Operator, Operator

This does conclude today's program. You may all disconnect.