Good day ladies and gentlemen and welcome to the OraSure Technologies Inc. Third Quarter 2013 Earning Conference Call. At this time, all participants are in a listen-only mode. Later we’ll have a question-and-answer session and instructions will follow at that time. (Operator Instructions). And as a reminder today’s conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today. Ms. Judy, ma’am you may begin.

Good afternoon everyone and welcome to OraSure Technologies 2013 third quarter financial results conference call and simultaneous webcast. As a reminder, today’s conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer period. (Operator Instructions) OraSure Technologies issued a press release at approximately 4:00 PM Eastern Time regarding its 2013 third quarter results and certain other matters. The press release is available to you on our website at www.orasure.com or by calling 610-882-1820. 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. This call is also available real time on our website and will be archived there for seven days. Alternatively, you can listen to an archive of this call until midnight November 13, 2013, by calling 855-859-2056 for domestic or 404-537-3406 for international. The access code is 87563319. With us today are Doug Michels, President and Chief Executive Officer; Ron Spair, Chief Operating Officer and Chief Financial Officer and Kathy Weber, Senior Vice President and General Manager Consumer Products. Doug and Ron will begin with opening statements, which will be followed with a question-and-answer session. Before I turn the call over to Doug, 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, and regulatory filings and approvals. Actual results could be significantly different. Factors that could affect results are discussed more fully in the company’s SEC filings including its registration statements, its annual report on Form 10-K for the year ended December 31, 2012, 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 may not be reliable. The company undertakes no obligation to update any forward-looking statements to reflect the events or circumstances after this call. With that, I would like to turn the call over to Doug Michels.

Okay, thank you, Judy. And good afternoon everyone and welcome to our call. The company delivered strong overall results for the third quarter. Consolidated net revenues reached record high growing 12% over the third quarter of 2012. The principal drivers of this growth were a 48% increase in DNA Genotek revenues and a 20% increase in our infectious disease business. Our molecular collection systems business continues to deliver record results driven by higher sales to commercial customers. Our infectious disease revenue has also increased nicely driven by sales of our OraQuick In-Home HIV Test and higher international sales of OraQuick HCV Test. During the third quarter we also launched the new promotional campaign for our OraQuick In-Home HIV Test and I will provide additional insight into how this campaign is progressing and certain other business items later in the call. So with that, let me turn the call over to Ron for a more detailed financial review.

Okay. Thanks, Doug and good afternoon everyone. Our third quarter 2013 consolidated revenues were $24.7 million compared to $22.1 million reported in 2012. Our consolidated product revenues increased 13% as a result of the record sales from our molecular collection systems segment and higher sales of our infectious disease testing products. These increases were partially offset by lower sales of our substance abuse testing, cryosurgical systems and insurance risk assessment products. Our molecular collection systems revenues primarily representing sales of the Oragene product line increased to $5 million in the third quarter of 2013 compared to $3.4 million in 2012. This 48% increase was the result of higher sales in the commercial marketplace. Our infectious disease testing revenues were $12.9 million in the third quarter of 2013 compared to $10.7 million in the third quarter of 2012. The overall 20% increase was primarily a result of $1.8 million in net sales of our OraQuick In-Home HIV Tests which we began selling in the fourth quarter of 2012. Q3 sales of our professional HIV and HCV tests in the international markets also increased. During the current quarter, gross sales of our OraQuick In-Home HIV Test were $1.9 million which were offset by $172,000 in customer allowances including cooperative advertising, cash discounts and other allowances. Net sales of this product included approximately $217,000 of direct sales of our OraQuick In-Home HIV Test to public health customers. In addition to the increase in net revenues from our OraQuick In-Home HIV Test, sales of our OraQuick HIV and HCV professional products in the international market increased 31% and 283% respectively. International sales of our professional HIV tests in the third quarter of 2013 increased to $1.2 million from $884,000 in the same period last year, primarily due to sales in support of a significant…

Okay. Thanks Ron. As mentioned on our last call, we intentionally reduced our marketing activities related to the OraQuick In-Home HIV Test during the third quarter, as we prepared for and ultimately launched our new promotional campaign. Consequently third quarter sales of this product declined about 12% compared to the second quarter. During the third quarter, our OTC marketing team assessed what practices and strategies prove to be most effective during the first nine months of the launch and develop new marketing activities based on that analysis. This retooled campaign has already launched and elements will continue to be added through the first quarter of next year. Importantly our OraQuick In-Home HIV Test maintains a strong rating at major retailers. For example, the product holds top ten positions in the categories in which it is merchandized at both Wallgreens and CVS. In addition, internet or dot com sales now represent 8% of total brand retail sales and grew 1% from the second quarter. Interest from public health customers and advocacy groups also remained strong. The sales of the product to these entities approximating $200,000 in Q3. Our new marketing campaign entitled Life As We Know It was officially launched in late September in conjunction with Gay Men’s HIV Awareness Day. As previously communicated, this new campaign is designed to address several key elements of our analysis from the first nine months of product availability. Of most significance was the need to significantly increase brand awareness among key consumer target groups such as MSM or men who have sex with man and the African American women. Our new campaign focuses on the importance of urban high prevalence markets and incorporates influential and trusted spokes people from within the target communities we serve. The campaign also addresses some of the sensitivities involved…

(Operator Instructions). Our first question comes from Jeff Frelick from Canaccord. Your line is open.

Good afternoon folks. Could you give us a sense of maybe Doug just your expectations for HCV testing in the New York State following the recent requirement law that was passed as we move into 2014? Does that start impacting that show up in kind of early ‘14 or what kind of things you have to build?

It’s difficult to project how quickly that's going to build. The law that was passed recommends one-time testing for baby boomers which was estimated to be approximately 5.1 million in New York State alone. Census data shows New York has the third largest baby boomer population in the country. And obviously we’re working on multiple fronts to drive education of healthcare workers on a value of rapid testing we’re going to certainly leverage our strong position in public health. And obviously we've got a influenced physician behavior so that's all the process. But we’re very excited about this and we’re hearing from other states and jurisdictions that they are interested in possibly considering the same kind of legislation. So we can use the HIV model going back several years when that law was first passed. And we did see a gradual uptick of that law in the State of New York. In the first year, we saw overall HIV testing increased about 10% that included both rapid and laboratory-based testing.

Okay. And then just my follow-up, maybe for Ron, you talked about the change in revenue recognition. And so at the retail level, are inventories getting low and we should expect to see some replenishment of inventory there in the fourth quarter?

So, Jeff we are, we have been replenishing inventory all along here and what we are seeing is that the replenishments are now approximating the consumption although there are some retailers that have pockets of inventory that may be a little bit higher than ideal and that may affect some of the purchasing particularly in the early part of 2014 as we move to this sell-in model. So I think again that’s another excellent point that we should all keep in mind as we’re thinking about revenues for early 2014.

Okay, thanks. I will jump back in queue.

Yeah. Thanks Jeff.

Thank you. Our next question comes from Amit Bhalla from Citi. Your line is open.

Hi, good afternoon. This is Nick Nolan in for Amit today. Maybe first talking about the fourth quarter guidance, just to clarify you did mention this new accounting changes going could potentially out of the $2 million in revenue. Is that revenue number that you gave it’s probably about a little over $2 million - $2.5 million higher than where consensus or where we would have thought it would be. Is that all due to this accounting change or is it some acceleration in the HCV front and also in the DNA Genotek that’s also in that assumption?

Nick there is definitely, the major part of it is related to the revenue recognition change. And so if you go back and you think about where consensus estimates are going into the call in and around the $25.3 million mark you are talking about here now an increase of $2 million approximately or so for the revenue recognition change which brings you up to the lower-end of our guidance number. That said, there are some movements around within the other parts of the business. As Doug indicated, we are expecting DNA Genotek to have sequentially up revenues. We are again expecting HCV to be up. So there are some movements around and in the various other components which gets you to the guidance range of $27.5 million to $28 million. But to your point, a large chunk of that is related to the revenue recognition change.

Okay. And then one more on the HIV front and the advertising spend and the ads, it seems like the third quarter spend was little less than our expectations coming in. What was your assumption of why wouldn’t to make the HIV spend more fourth quarter backlog. What were some of the initial, what were some of the things that you came about and thought it’d be best to push that to backlog into the fourth quarter?

So I am going to refer to Kathy on that.

Hi Nick. It was the readiness of the whole campaign and as you’ve probably seen and heard us talk about, there are multiple elements to the campaign or celebrity endorsers, there is digital programming, there is radio and it’s very much a content driven strategy. We were capturing content that’s really relevant and sharable by consumers. And to get that all launched in an organized fashion, we decided really the best strategy was to launch at the very end of the month of September, the very end of the third quarter around National HIV Gay Men’s Awareness Day. And we picked that because we know that anchoring our launches and our programs to these key dates around HIV and AIDS really works well for us. So that was the decision to make sure everything was ready, the creative was ready, we had a good approach to roll out the different elements and we could anchor it on that date. So we took some of the media that we had originally planned for September and moved it into the fourth quarter.

Okay, great. I will get back in the queue.

Thanks Nick.

Thank you. Our next question comes from Shaun Rodriguez from Cowen and Company. Your line is open.

Hi guys, good afternoon. Thanks for taking the question.

Hi Shaun.

Hey Shaun.

So O-US HCV was much bigger than we expected and we already expected a pretty big sequential jump there because the NGO you called out. So is the degree of the, because the degree of the sequential was more than I thought would be coming from that NGO at least initially did they end up doing more than expected right out of the gate or is the delta just reflecting more of a broad-based demand there?

No, their delivery in Q3 was consistent with our expectations. I think we'll see that marginally a little bit in Q4 and we expect substantial growth in the domestic number in Q4. If you kind of look year-to-date even though Q3 was skewed more towards international as a result of this contribution from the NGO, actually year-to-date most of our revenues continue to be driven out of the domestic market about 55% versus 45% international. And so we expect good performance out of the domestic business and we expect a good portion of that international business to repeat in Q4 as well.

Okay. And actually related to that last point, O-US HIV was I think a bigger quarter than, it's probably the biggest quarter you had in several years. So I think you related it to some African program. Is there any relation between that program and the international NGO that's been supporting on the HCV side or is this completely independent?

No, it is completely independent. And to your point, our HIV international business through the first nine months is up approximately 7.3%, domestic is down approximately 5% overall total consolidated at least on the OraQuick front is down little shy of 4% consistent with how we thought about the business coming into 2013 that there would be relatively flattish up or down in the low single-digit percentage range. We're pleased with the performance really across each one of the different segments based on our original projections for the year.

And then one last one before I jump into queue, can you just provide an update on business development discussions with potential HCV therapeutics partners?

Well I appreciate you asking the question, it’s been asked on numerous calls obviously and we continue to be engaged with potential partners. Obviously it’s clear to us and I believe clear to the likes of the Gilead’s and the J&J’s and AbbVie’s that there is potential benefit in working together to expand diagnosis and the benefits of a rapid test enable patients to receive their result and enables physicians to direct them to the next level of care as quickly as possible. So those discussions continue, I don’t have anything formal to announce at this point in time. But we will continue to engage with those potential partners and at such time that we've got more to say about it you can be sure we will.

Our next question comes from Brandon Couillard from Jefferies. Your line is open.

Doug, the October data out at Nielsen suggested modest decline in the OTC HIV of sell-through in October, could you remind us what the typical lag time is between awareness and end users actually pulling the trigger, divide the test? And then secondly, I know it maybe early but a preliminary view on how we should expect the OTC HIV marketing budget to trend next year would be helpful?

Yeah. I’ll flip the majority of this over to Kathy, but I do want to reemphasize that this campaign kicked off in late September and in October and elements of the campaign continue to deploy and actually they are going to continue to deploy through the fourth quarter and into the first quarter of 2014. We believe the new campaign will have a significant impact and of course we’re going to continue to monitor every component of that and everything that we possibly can to evaluate effectiveness. But I will, like I said, put that to Kathy to talk about her views on the timing of the impact and how these things roll out.

Brandon, it really depends on the type of the consumer, so we've done a lot of work understanding when you make someone aware when they decide to purchase the product and it’s different. So the MSM consumers much more aware of HIV testing, comfortable with testing behavior and our product is really a supplement largely to a behavior that already exists. So the MSM consumer, we expect once we make them aware, they will purchase relatively short term with the one exception that they have just tested them only a few months the next test and just trying to what Doug was saying most of the impressions against the MSM target really started to hit at the end of October. We have a very focused out-of-home plan. We have a print advertising plan. We have a public relations plan really targeting the MSM consumer and a lot of that, really the bulk it hit very, very late in October and then we roll out November, December. So we should see that awareness still and the pickup from the MSM consumer start. The African-American consumer is a little bit different. There is less acceptance of the behavior. There is more stigma in the community and reluctance to talk about it. So our marketing approach is very different and we actually just launched. If you go to our website today, you will see some of the new campaign materials targeting the African-American consumer, but we expect that there will be a little more of a lag there. When we reach her with our messaging, we need to talk to her a few times to get her to adopt the product. So that will also as those elements of the campaign rollout ultimately result in purchase but it will take a little longer for her.

And Brandon I think you asked about spend levels and what I will say to that is obviously we are committed to supporting the campaign at the level that Ron described in the fourth quarter and future spending decisions will obviously depend on how the campaign is going and what kind of results are being realized and based on that you can be sure that we are going to make adjustments as appropriate. So I don’t want to make a commitment now to what those future spending levels are going to be. We are very enthusiastic about this campaign. We are eager to see its impact and we will be monitoring those results very carefully.

Thanks. And then quick two part follow- up for Ron, what drove the positive operating cash flow experience in the third quarter? And then just to make sure I understand this correct, the revenue recognition change for OTC HIV is effectively a one-time catch up in nature, is that how we should think about that?

Yeah, certainly, let’s view the latter one first, and certainly think about the revenue recognition change as a one-timer and we are expecting that to positively contribute to total revenues of somewhere in the neighborhood of $2 million plus or minus and obviously the gross margin effect and the operating income effect from that. And then we will move over to the selling model which I think hope some more familiar with for our consumer products based initiative. And as I mentioned earlier to previous question, we will see some volatility there in the early part of the year as a result of moving to this methodology, which could affect our revenues because of the fact that they are pockets of inventory in some of the distribution centers, in some of the retailers that when need to be work through before consumption nears selling perfectly. But we expect to get there, this maybe a little bit of a less predictable start than what we see now with the precise consumption data that is being tracked. Now with respect to your earlier part question, where the first part on driving positive cash flow, clearly the DNA Genotek contributed a significant portion proportionally anyway to the operating income driving about to $2.7 million or so of positive cash flow from operations and also technologies drove the rest of it. We saw good performance on receivables as well as slight reduction in inventory, so it’s just a good performance across the board.

Thank you.

(Operator Instructions). Our next question comes from Peter Lawson from Mizuho Securities. Your line is open.

Just before the (inaudible) in the DNA Genotek business, what was the capacity utilization?

I missed the first part of that, Peter I'm sorry.

Just the capacity utilization in the DNA Genotek business, what was the pre build out?

Well, the actual build out, if I'm interpreting your question correctly, that additional capacity won't be available until the early part of 2014 here or coming up right. So that's the additional manufacturing equipment which is going to effectively triple our existing capacity. Right now I can assure you that we have sufficient capacity to meet all the demands that are being placed on us, both commercially and academically at DNA Genotek. We just want to certainly anticipate the future growth and provide for that.

And so you are below kind of 50% utilization of…

Of the existing, I know we’re north of that, we're well north of that.

Got you. And just if you give an update around the DNA Genotek businesses, I knew new customers signed up and have the 23andMe and Ancestry customers?

Yeah, actually our commercial customers including 23andMe and Ancestry were strong contributors to third quarter revenues as well as if you just look at our top 25 customers, they represent in excess of 50% of total revenue contribution. But as we mentioned we are capturing new customers in the commercial space on the international front and we remain very enthusiastic about the opportunities in the academic research space despite the challenges in funding on a global level. We've seen nice growth actually in some of our rest of world activities in the academic research space and we're eagerly looking to get the product licensed or approve for sale in some additional geographies like Russia which we believe represents significant opportunity for the company. So really across all segments the business is performing quite well.

Great. Thank you so much.

Our next question comes from Nicholas Jansen from Raymond James. Your line is open.

I think Doug you may be mentioned in your discussions about HCV domestically perhaps bouncing back in the fourth quarter nicely and I just wanted to get your feedback on why that’s the case, you've seen in the last couple of quarters be a little bit more choppy on that end. So maybe how much visibility do you have in terms of a bounce back in the fourth quarter? And then secondly on the international HCV front, how sustainable do you think you have one NGO buying now, but what your pipeline look for others to kind of think about the contribution for next year on the international front?

Right. So on the domestic front, we see a number of drivers to increased revenues. Certainly the fact that the birth cohort screening opportunities we believe are going to be realized. Those recommendations take effect in January, but we believe different providers both physicians as well as on the public health front are beginning to prepare for that. We are very focused on integration opportunities with our HIV leadership position. SAMHSA Grantees, the Substance Abuse and Mental Health Services Grantees awards for their HCV screening programs were actually made in September and all of those awards were for rapid hepatitis C testing and the CDC grants for this year are expected to be made in the fourth quarter. So take all of those things together and you can see why we’re bullish on our domestic business in the fourth quarter into 2014 and we have pretty good visibility on those opportunities and their contribution to the fourth quarter.

And then just on the international front, the pipeline with other NGOs?

Yeah. So on the international front, obviously this NGO that we captured this year, we expect is going to continue to be a customer. We are seeing increased interest in hepatitis C testing driven largely by the enthusiasm over the new therapies around the world and we’re pursuing a number of different opportunities across multiple geographies.

And then Ron maybe regarding your comments with regards to the first quarter of ‘14, I acknowledged the 4Q revenue guidance includes kind of say 2 million to one-time or then historically 1Q declines by $1 million to $2 million sequentially, anything else that we should be thinking about there in terms of maybe framing the magnitude of the sequential decline that you might be trying to get out to the street?

I think you touched on the relevant points. One is that the one-time nature of the adjustment that we put through for the revenue recognition change. So if you start with the basis of the 25.3 that you had for consensus estimate for the fourth quarter and then you look at a sequential decline as you move into the first quarter of 2014 which we have seen historically be in the range of couple million dollars or so you start to get into what might be a reasonable neighborhood for revenues for the first quarter of 2014, particularly when we still had to gain some visibility as to exactly how that revenue recognition policy change is going to affect the first quarter as we spoke about. So that’s pretty much the color I would share with you here at this point in time Nick.

And I think you can go back and look at the quarterly splits and the revenue make up going back 2012 and the early part of this year and you can see primarily in the infectious disease and CRIO space like Ron talked about previously that those businesses tend to be lower in the first quarter and that would be our expectation for Q1 of ‘14.

Okay. Maybe if I can squeeze one more in on gross margins, I think they were a little bit better than what we were anticipating and certainly a good performance relative to the year to-date trends. Remind us how we should be thinking about that going forward and maybe just the opportunities longer term with HCV growth and with the earlier royalties going away in ‘15?

That’s a big one, the latter one that you mentioned Nick and that obviously will roll off in February of 2015 and we certainly are looking forward to that. I do believe that continued growth in DNA Genotek as well as continued uptick in HCV will be positive contributors to our gross margin as well as more efficient effect of manufacturing operations and we do scrap and spoilage which we have been enjoying as of late. So, all positive contributors to our margin. That said obviously the mix issue continues to be there and to be present, particularly as you sell more of our prior OTC products, that definitely has a disastrous effect on gross margins in the quarter and which we load that up.

Thanks guys. Nice quarter.

Thank you. There are being no further questions. I will turn the conference back to Mr. Doug Michels for closing remarks.

Okay. Once again, I want to thank everybody for being on the call this afternoon, look forward to a strong finish to 2013 and look forward to speaking to you again next quarter. Have a good afternoon everybody.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect at this time.