Good afternoon, everyone, and welcome to the OraSure Technologies 2019 Fourth Quarter Financial Results Conference call and Simultaneous Webcast. As a reminder, today's conference is being recorded. [Operator Instructions]. OraSure Technologies issued a press release at approximately 4:00 p.m. Eastern Time today, regarding its 2019 fourth quarter financial results and certain other matters. The press release is available 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. With us today are Dr. Stephen Tang, President and Chief Executive Officer; and Mr. Roberto Cuca, Chief Financial Officer. Dr. Tang and Mr. Cuca will begin with opening statements, which will be followed with a question-and-answer session. Before I turn the call over to Dr. Tang, you should note 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 the company's SEC filings, including its registration statements, its annual report on Form 10-K for the year ended December 31, 2018, 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 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 would like to turn the call over to Dr. Stephen Tang.

Thank you, Gene. Good evening, everyone, and welcome to our call. We are pleased to report solid financial performance for the fourth quarter of 2019. These results are evidence of the momentum that our innovation-driven growth strategy continues to generate. Revenues were the third highest of any quarter in the company's history and brought a close to a very productive year for OraSure. I'd like to take a minute to mention a few highlights from 2019. We advanced our innovation growth strategy with the acquisition of 2 leading microbiome laboratory services pioneers. CoreBiome and Diversigen and Novosanis with its first-void urine collection technology. These acquisitions increased our product and service offerings to capture and expand new market opportunities, which will contribute to our future growth. We divested our cryosurgery systems product line in order to better align with our strategy and focus our efforts on the high-priority growth opportunities. We received several important regulatory approvals, including a generic 510(k) clearance of our Oragene family of molecular collectors, 510(k) clearance of our rapid Ebola test and approval to use our WHO prequalified OraQuick HIV professional and Self-Test products for pediatric testing. These approvals will substantially improve the competitive positioning of these products. During Q4 and throughout the year, we saw continued strong growth in international sales of our OraQuick HIV Self-Test and dramatic growth in our microbiome business, including both products and services. We expect these trends to continue in 2020. Despite the challenges we've seen in the consumer genomics market, in particular, in the Ancestry testing market, our overall business remains strong, as demonstrated by our Q4 financial performance. Q4 net revenues came in at $49.7 million and marked the third highest revenue quarter in the company's history. We achieved these revenues despite the absence of our cryosurgical product line,…

Thanks, Steve, and good evening, everyone. Our fourth quarter net revenues decreased 1% to $49.7 million from $50.2 million reported in the fourth quarter of 2018. Our net product and services revenues increased 5% to $47.2 million compared to the prior year period. Notably, the fourth quarter of 2018 included cryosurgical revenue of $2.9 million, which did not recur in 2019 since we sold this line of business in August of 2019. Excluding these sales dollars from fourth quarter 2018 revenues, would result in an aggregate product and service revenue increase of 12% in the fourth quarter of 2019. As Steve mentioned, international HIV sales increased 123% to $9.8 million from $4.4 million in the fourth quarter of 2018 due to higher sales of our HIV Self-Test into Africa and Latin America and increased sales of our professional HIV product into Asia, partially offset by lower sales in Europe. Domestic HCV sales increased 7% in the fourth quarter of 2019 to $2.2 million from $2.1 million in the prior year period, largely due to higher sales into the public health and physician office's markets, principally caused by the ongoing opioid crisis and its impact on HCV infections. International HCV sales in the fourth quarter of 2019 decreased to 19% to $1.3 million from $1.6 million in the same period of 2018, primarily due to lower sales into Africa, partially offset by sales growth in Asia. Our total molecular revenues, including other revenues, decreased 8% to $27.8 million in the fourth quarter compared to $30.2 million in 2018. Royalty income declined 55% to $2.2 million in the fourth quarter of 2019 from $4.8 million in the same period of 2018. This reflects the continuing challenges faced in the consumer genomics Ancestry market. Molecular product revenues remained largely flat at $25.5 million…

Thanks, Roberto. Starting first with our molecular solutions business segment. As we've shared on previous calls, the commercial genomics market has been undergoing a major evolution that has created headwinds for our molecular business. We see this trend continuing into 2020. However, we are optimistic that opportunities in other critical growth areas within genomic -- the genomic market will help offset this trend. We have always categorized our primary genomics market is either academic or commercial. In 2019, we started to more closely examine the submarkets within our commercial category and are classifying opportunities into Ancestry, animal, lifestyle and disease risk management testing. Typically, the Ancestry, animal and lifestyle submarkets are consumer-led with vendors offering services directly via the web. In contrast, the disease risk management submarket currently requires some form of medical practitioner or genetic counselor support. We expect that the Ancestry or genealogical testing submarket will continue to decline as we've seen in prior periods. The primary factors driving this are the change in promotional and business strategies of the major players in this market. As you will recall, we first started seeing the impact of this trend in early 2019 when a large consumer genomics customer unexpectedly told us of a change in promotional strategy and a reduction in forecasted purchases. We took several actions in 2019 to respond to these marketplace changes: first, we reduced our expectations regarding royalty payments from a third-party as well as orders from our large customer in this area. In 2019, this large customer accounted for 15% of overall revenue; second, towards the end of the year, we renegotiated and amended our contract with a large customer that has most affected our performance by extending the agreement for 2 additional years. This had the effect of reducing the annual minimum requirements…

[Operator Instructions]. And our first question comes from the line of John Hsu with Raymond James.

Maybe if we could start with the 2020 outlook. Just philosophically, given the choppiness that we saw quarter-to-quarter in 2019, did you approach the guidance process any differently? And then maybe just as a follow-up, can you just walk us through the high level drivers, puts and takes on both the revenue line as well as EPS?

Thanks for the question, John. So we did not approach the -- philosophically, any differently our buildup of our expectations for 2020. We did include into our guidance range our expectations around how end of quarter shipments might affect our total revenues. And for the full year, because we try to get many of our shipments done before the end of year holidays, the fourth quarter is somewhat less affected by that. So although Steve pointed out that we do expect to see some variance in quarter-to-quarter shipments for the full year, we feel pretty comfortable about getting the orders in under the wire. With regard to our overall expectations for 2020, I'll start with revenues. So we're expecting high-teens growth for our global HIV franchise and strong growth from global HCV. We expect that risk assessment will be flat to potentially slightly up ahead of our seeking regulatory approval of the next-generation product in 2021. We're expecting triple-digit growth from microbiome services in 2020. And then outside of the largest customer and of the third-party royalty payer, we expect double-digit growth from the remainder of our molecular collection products. We expect that in 2020, the largest customer will buy at their new annual minimum, as Steve described, that has been reset due to the extension of the contract and that new annual minimum will be about half of what they purchased in 2019, which in 2019, represented about 15% of total revenues. And then we've included the royalty payment only in the first quarter of 2020, although we have no precise insight into when the royalty payer might switch to the new product. So there is some upside potential in the remainder of the year from that product. With regard to expenses, we do expect R&D to step up over 2019 as a result of the Thermo work that we're doing to develop the next-generation risk assessment testing product as well as from the annualization and growth in R&D activity from our 3 acquisitions in 2019. We expect SG&A to increase more moderately there, driven primarily by the annualization of acquisitions and specifically of Diversigen. And then what we'd expect is that to the extent that revenues vary within the range that we've given, we would adjust our spending somewhat to preserve the bottom line.

Okay. Great. If I could just ask a quick follow-up on that large customer. Just to clarify, by my math, I think the amount remaining on the prior contract with something around, call it, $65 million, $66 million. And so it sounds like that's been extended out by a couple of years. But did I hear you correctly that you expect them to return to growth from the new level in 2020 that's half of the 2019 level? And again, to be clear, whatever is remaining on that contract is the amount that's extended out through the end of 2023?

Correct. So under the current contract, the remainder of the amount that's pending under the contract is extended to the end of 2023, as you said. And we do expect -- so the annual minimum is structured such that there is a step-up from 2020 to 2021, so purchasing at those minimums, we should see growth.

And our next question comes from the line of Brandon Couillard with Jefferies.

If I look at the '20 guidance, if I take the two pieces that you called out in terms of, number one, the contract negotiation and then the Ancestry royalty loss, seems to be a hole of about $15 million, you're basically guiding the full year to be about flat. So on an adjusted basis, kind of, pointing to about 10% growth to get to the full year number. Can you just sort of speak to the level of conservatism that may be built into that assumption? And understanding that you're now sort of shifting to just an annual guidance view moving away from a quarterly approach, can you help us think about the phasing between the first half and second half, perhaps as far as the full year revenue goes?

Sure. So thanks for the question. So regarding conservatism, Steve did describe this as a rebuilding year. We are setting the base for what we do expect to be significant growth post this year. And we established our guidance as numbers that we expect to be able to hit. We incorporated into our thinking all of the potential risks and expect that as we go into the year, we may be able to improve the range or tighten the range if we do see some favorability. And on your second question, if you can remind me.

Yes, just anything, in particular, that can help us out with in terms of how we're thinking about the phasing of the annual revenues, if there's anything to be aware of, sort of, between first half and second half of the year?

Sure. So we expect to see phasing of the revenues in 2020 that's similar to what we experienced in 2019. One of the big drivers of that is that we expect the big customer with the annual minimum to do most of the purchasing of that annual minimum in the second half of the year. And so you can imagine that, that would end up replicating the skew that we saw in 2019.

Okay. And then just conceptually, in terms of...

Sorry, Brandon. Another contributor to that -- the greater revenues in the second half than the first half would be growth from the higher growing acquisitions and then to a smaller extent, the introduction of new product offerings in molecular diagnostics, for example.

Okay. And then just in terms of the contract negotiation itself, why you can go about that? Like, what did you actually get out of it? It seems that the value is the same. You give them extra two years to buy. Are they on better terms at all? Do you get better margins? What do you actually get out of the renegotiation?

So there are two things that we got out of the contract renegotiation. The first is we extended the period of exclusivity during which the customer can only buy from us. And the contract terms also prevent the customer from developing or investigating a competing product so that exclusivity does have value. And we maintained relationships with a customer that we expect to continue to -- we would expect to continue working with even close to the contract term. So we -- during the final years of this contract, we'll look into negotiating either on extension or a new contract. And so maintaining a good relationship with that customer was a value to us.

Thank you. And that brings an end to the Q&A session of today's call. We'd now like to turn the call over to Dr. Tang for closing remarks.

Operator, can you check the queue again, please?

Sure. We do have a question. We do have two follow-ups from John Hsu with the Raymond James.

Yes. So just if we could quickly touch on HIV Self-Test. You talked about some upcoming registrations that give you confidence in the pipeline. Are there any specific countries to note that could have an outsized impact in that pipeline? And then just overall, is the business kind of trending in line with your expectations to scale longer term? I believe you're looking to reach a point where the margin profile can be supported without any benefit from Bill & Melinda Gates by 2022. So kind of longer term, how are you tracking to that?

Yes, John. We are tracking very closely on all aspects that you mentioned. I mentioned that we currently are registered to sell our product in 20 countries, and there are 15 countries in queue. I think the most significant thing about 2020 is that our projected sales for 2020 are based on countries for which we already have registration. In the prior years, we had to rely on registrations happening during that year and then building sales from there. So I think we're in a much stronger position to scale in existing countries who have already begun and we'll continue to pursue additional countries where we haven't begun. And I think you are absolutely correct that the margin profile was designed for the Gates subsidy to improve over time in anticipation of the Gates subsidy going away. And we are well on schedule to reducing the cost of goods sold for that product in order to compete on our own without the subsidy. So I think all elements are in place. We are seeing the ramp-up that we projected and that the World Health Organization has projected over time, and this will be an incredibly strong year for HIV Self-Test.

And our next follow-up question comes from the line of Brandon Couillard with Jefferies.

Just sticking with HV Self-Test, kind of, follow-up to that question. I mean the 20 registrations that you have in place, understanding that there are some quarter-to-quarter variability with that business inherently. But do you have visibility in terms of the order volumes from all of those 20 countries? Just trying to figure out the degrees of potential risk that may be embedded in some of those existing terms or variability that could be [indiscernible] registrations [indiscernible] but thinking about the orders?

Certainly. We have learned a lot since we began the STAR pilots in 2017. The STAR pilots are now over. And so we've had effectively 1.5 years or so of experience on our own in product to customer, the processes in those countries. So while I did say that quarter-by-quarter, sales could be choppy. I think we know now better than we ever have on how countries are scaling their products. And so therefore, the risk mitigation that you're referring to, I think, is better for us than it ever has been. We now know, which countries are likely to scale quicker. And we can address our sales and operation planning accordingly. So I think we believe we are in a very strong position, having learned what we've learned so far, and we'll continue to get better.

Okay. And then as far as the fourth quarter HIV Self-Test or OUS HIV revenue spike of about $9.5 million, did that include the $2 million of order delays from the third quarter. Is that the right way to think about it? Was that a positive contributor?

So those orders would have come in at some point. That -- I don't know that it was those orders specifically. But we do expect that those orders will come in during 2020. At least during 2020.

Okay. And then anything that you could share with us, the M&A revenue contribution in the fourth quarter? Just trying to think about the microbiome organic growth in the fourth quarter for the base business relative to the acquired assets.

Sure. So for the two businesses that we acquired at the beginning of 2019, that would be CoreBiome and Novosanis. At the beginning of the year, we said that we expected them to contribute $4 million to $7 million over the course of the year. They, in fact, contributed $5.2 million for the full year. We didn't break that out by quarters. And that doesn't include the contribution from Diversigen, which we acquired in November and so which we owned for only about 6 weeks.

Okay. And then maybe one more for you, Roberto. As far as the fourth quarter cash flow goes, it looks like it was slightly negative. Can you just speak to the spike in accounts receivable in the fourth quarter, whether that was timing or some specific factor behind that?

That was really end of quarter shipments that we -- because if you see there's a large volume of them, but it was end of quarter shipments going out that just increased accounts receivable.

Thank you. And that brings an end to the Q&A session of today's call. I would now like to turn the call back to Dr. Tang for any closing remarks.

Thank you for participating in today's call and for your continued interest in OraSure. Have a good evening or afternoon. Thank you.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.