OraSure Technologies, Inc. (OSUR) CEO Carrie Manner on Q2 2022 Results - Earnings Call Transcript

Aug. 09, 2022 11:38 PM ETOraSure Technologies, Inc. (OSUR)
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OraSure Technologies, Inc. (NASDAQ:OSUR) Q2 2022 Earnings Conference Call August 9, 2022 5:00 PM ET

Company Participants

Scott Gleason - Senior Vice President of Investor Relations & Corporate Communications

Carrie Manner - President & Chief Executive Officer

Kathleen Weber - President of Molecular Solutions

Ken McGrath - Chief Financial Officer

Lisa Nibauer - President of Diagnostics

Conference Call Participants

Casey Woodring - JPMorgan

Andrew Cooper - Raymond James


Welcome to the OraSure Technologies, Incorporated 2022 Second Quarter Earnings Conference Call. My name is Darryl and I will be your operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded.

I will now turn the call over to Scott Gleason. Scott, you may begin.

Scott Gleason

Thanks, Darryl. Good afternoon and welcome to OraSure Technologies second quarter 2022 earnings call. I'm Scott Gleason, the SVP of Investor Relations and Communications. Presenting with me today for OraSure is Carrie Manner, our President and Chief Executive Officer; Ken McGrath, our newly appointed Chief Financial Officer; Lisa Nibauer, our President of Diagnostics; and Kathleen Weber, our President of Molecular Solutions. As a reminder, today's webcast is being recorded and the recording, along with the slide presentation accompanying the webcast, can be found on our Investor Relations website.

Before we begin, you should know that this call may contain important -- certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development performance, shipment and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different. Factors that could affect our results are discussed more fully in the company's SEC filings, including its registration statements, its annual reports on Form 10-K for the year ended December 31st, 2021, 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'm pleased to turn the call over to Carrie.

Carrie Manner

Appreciate it, Scott and thank you to everyone for joining us. It's a real pleasure here my first earnings call to share that today, we announced very strong second quarter results which are reflective of the tremendous work our employees are doing across the organization. We set a new record for revenue growth and on an adjusted basis, our gross margins saw meaningful sequential improvement despite the significant mix change, along with some headwinds in our base business. We made good progress decreasing our cash burn on our path to profitability. And while we still have more to do, I am very proud of our team's work and we're fully committed to consistently delivering results.

In June, we launched our strategic transformation to define our path back to profitability to drive long-term growth, position the company for segment leadership and create shareholder value. The 3 elements of transformation are to strengthen our foundation, elevate our existing lines of business and accelerate growth. It's also simultaneously about innovating and operating with disciplined execution and accountability. We will reset our cost structure, translate COVID-19 lessons learned across our core and improve communications and transparency internally and externally. We have already made significant progress, including implementing targeted operating expense reductions which still enable our ability to grow and innovate.

Another area of progress is in our manufacturing efficiency. Historically, our diagnostic test manufacturing has been compartmentalized and very manual. In transitioning to automated manufacturing, as well as our work on logistics, packaging and material sourcing, we believe we can unlock additional value in the coming years. Lisa and Kathy will detail more specific areas of progress as well as future plans.

In strengthening our foundation, we are also focused on disciplined execution across the organization which includes a return to providing quarterly revenue guidance. Concurrent with resetting the base of our organization, we will elevate our existing lines of business with further cost reductions, capability building across our enterprise and driving innovation in our R&D pipelines. I believe in the great potential of partnerships as well, whether a novel development, access to technology or an expanding segment reach. Partnerships can also amplify our results and create value. Beyond that, accelerating our growth includes opportunities such as strategic M&A, capital structure optimization and investment in our commercial capabilities and R&D to drive sustained growth.

In our transformation, we've been very focused as well on bringing new critical talent into the organization to complement the great talent we have. And I am pleased to announce that we've hired Zach Wert, our new Senior Vice President of Operations, who has substantial medical device and diagnostic experience in high-volume production. We believe that Zach's expertise, leadership and strengths are the right elements to build on the momentum we've already gained in our manufacturing evolution. We're also actively recruiting a Senior Vice President of Quality and Regulatory to partner in driving continuous improvement across our enterprise.

Finally, today we also announced the appointment of Ken McGrath as our new Chief Financial Officer. Ken is a seasoned finance operating executive and partner who joins us from Quest Diagnostics, where he had finance responsibility for over $7 billion in revenue. And his experience spans from accelerating growth and improving profitability in advanced diagnostics, to helping acquire and integrate acquisitions, to partnering as the finance lead for critical operating functions such as IT, R&D, medical and commercial regions.

We are delighted to have both Ken and Zach join our executive team.

Ken McGrath

Thanks, Carrie. I'm excited to join the talented team here at OraSure and work together to help to lead the strategic transformation and path back to near-term profitability. I believe in the increasing importance of decentralized testing and patient access in our healthcare system and that OraSure is very well positioned to serve and capitalize on these shifts in healthcare delivery. I look forward to meeting a number of you in the near future.

Carrie Manner

And I agree with you, Ken. We are well positioned, our opportunities are great and our challenges are addressable. Both require hard work which our teams are capable and motivated to do. Our company's fundamental strengths enable increased access to care with diagnostic testing, sample collection and services.

With that, I am pleased to turn the call over to Lisa Nibauer to discuss the first of those, the significant progress we have made in our Diagnostic business segment.

Lisa Nibauer

Thanks, Carrie. I would first like to provide a quick overview of our core diagnostics business, followed by an update on our progress with InteliSwab.

For the second quarter, the overall Diagnostics business unit revenue was $60.4 million and grew 213% relative to the same quarter last year. This growth this quarter was driven by InteliSwab, with our core business declining 10% year-over-year. A large portion of this core business decline was due to international HCV tests as customers placed restock orders in Q2 of 2021, following a COVID peak and the reopening of clinics. The remainder of this year-over-year decline was due mostly to the lapping of the Bill & Melinda Gates HIV international self-test subsidy and the impact of the CDC Let's Stop HIV Together OTC program which didn't repeat this quarter. Removing the impact of the Gates subsidy and the lapping of the CDC HIV OTC program from last year, the core business declined 5% in Q2 but is up 11% year-to-date versus the same period prior year.

Additionally, as a reminder, the CDC recently issued a $41 million grant opportunity notification specifically for the mass mailing of HIV self-tests to persons disproportionately affected by HIV in the U.S., renewing the Let's Stop HIV Together program for the next 5 years. Given that OraSure has the only FDA-approved OTC HIV test in the United States, we would expect to benefit from this award via the partners bidding on its execution and could begin seeing revenue under this award towards the end of this fiscal year.

Now, I would like to discuss InteliSwab and our operational progress in the quarter which was once again significant. We now have the capacity to produce approximately 1.6 million tests per week given our installed equipment and current staffing and we expect this capacity to nearly double in 2023. Part of this expansion is the opening of our new production facility, funded in part by the Department of Defense capital contract in late 2022. This will represent the start of our super factory concept and will employ lean production concepts and automation, allowing us to become significantly more efficient as a producer of lateral flow tests.

We continue to make dramatic progress on increasing our efficiencies. Our gross margins for InteliSwab increased over 2,000 basis points sequentially in the quarter and were relatively in line with our overall company margins as we continue to improve our production processes with significant focus on how to optimize efficiency. Weekly production output for InteliSwab has increased nearly 14x since the beginning of production, based on dozens of processing step enhancements and statistical process control which have dramatically improved yield. We also are introducing new automation and vision systems which will eliminate the need for manual processing steps. And these improvements will become even more significant as we move to a more automated, semi-continuous production at our new facilities versus our current facilities which are more compartmentalized and batch oriented.

While we have made dramatic changes to our gross margins for InteliSwab, some of the most significant improvements are still to come. Some examples of additional margin improvements will come from a transition from air to ocean freight and continued savings across all transportation modes post the COVID logistics increases. In addition, we will be revising our InteliSwab package size, stand and IFU which will significantly reduce both our packaging material costs and our shipping and storage costs as we optimize the pallet configuration.

Finally, next year, we plan to automate the last manual steps in our process as we start the initial phase of our DoD funded capacity expansion and in-source key processes that will further reduce our cost structure.

From a demand perspective, we continue to receive large weekly orders from the U.S. Government and they have indicated to us that the size of these orders could increase going forward as we fully satisfy the U.S. school testing program. Participating in this program has strategic benefits as teachers and parents experience our product and get to see firsthand our design which focuses on providing an extremely simple-to-use testing solution.

On this note, we have now received over $400 million in delivery orders from the U.S. Defense Logistics Agency under the company's procurement contract supporting the U.S. Department of Health and Human Services' needs. Given that the funds for our contract have been appropriated and these delivery orders have been provided, we have been informed that the government can continue ordering InteliSwab under this contract beyond the contract expiration date in September and into future fiscal years. As of the end of the second quarter, we have only fulfilled a small portion of this total contract amount.

In conclusion, we have dramatically increased our production capacity, have strong visibility on test demand into 2023, continue to expand the customers and channels for our products and are making substantial gains in production efficiency that are translating to improved profitability and future cash flow. We are excited by the opportunities in front of us and strongly believe that the role for easy-to-use tests in point of care and home settings is growing as our healthcare system evolves to continue to empower patients and consumers.

With that, I am pleased to turn the call over to Kathy to discuss our Molecular Solutions business unit.

Kathleen Weber

Thank you, Lisa. I'll start with an update on our largest segment, our core collection kits which includes our genomic and microbiome kits.

As we communicated last quarter, we anticipated relatively flat core collection kit revenue this quarter, given our high growth in Q1, order timing from some of our largest customers and possible impact due to our IVDR transition in May. We performed in line with this expectation with core kit revenue growing 1% sequentially. Over the course of this year, we secured over 200 new customers and signed deals, including a consumer DTC skin care company for our skin microbiome collection product; a diagnostic company incorporating ORAcollect into a new assay undergoing FDA clearance; and a multiyear biobanking and analysis contract with a leader in the companion pet industry. Our kits are included in several large population health studies recently announced by our customers.

Our customers incorporating Colli-Pee into their oncology-based assays continue to receive positive reimbursement coverage decisions. And clinical data supporting the use of urine as an appropriate sample type for HPV and prostate cancer screening continue to be released. We continue to work with our customers in anticipating possible implementation of the VALID Act this fall which bodes well for the use of validated cleared kits such as ours. Despite this progress and momentum, we do expect to be impacted by the headwinds we’re seeing in the biotech and consumer genomic markets as a few of our largest customers revised their strategies and project some conservatism in the back half forecast as concerns of a recession and its impact on discretionary purchasing looms.

Importantly, we continue to advance the launch of our new collection and service offerings, targeting emerging areas and unmet needs in multiomics. This quarter, we began shipping our new 510(k) cleared OMNIgene GUT Dx and new OMNIgene GUT RNA/DNA collection kits. This research use only product, based on the OMNIgene GUT DNA kit, incorporates a newly developed reagent to stabilize microbial DNA and RNA from human fecal samples.

We also have worked to advance key partnerships, such as our marketing activities with Illumina around our gut metatranscriptome service launch which includes invited speaking engagements, most recently at the American Society for Microbiology Conference as part of the Illumina program and joint webinars with Illumina guests. Additionally, we’ve recently been awarded by Mitacs an extension to our multiyear grant supporting a collaboration with the Metabolomics Innovation Centre at University of Alberta on tools and methods to stabilize and process gut metabolites. The new grant extends our collaboration through at least April 2024.

Finally, we’ve had 1 new patent granted this quarter, won several challenges against competitors infringing our IP globally and have filed multiple new technology patents covering new devices and chemistries supporting our multiomics strategy.

Within our Diversigen subsidiary, we launched our new metatranscriptome service. This quarter, we saw softer revenue at Diversigen, reflecting a shift in timing of microbiome-based clinical studies, a lingering impact of COVID-related timing delays and shifts in research funding. That said, we’ve observed recent positive trends in both venture and NIH funding in the microbiome space through the first half of the year. With the first microbiome-based BLA, or biologics license application, of over 13 in Phase III trials expected to receive approval next year, we expect to see a resumption of microbiome-based research activity in the back half of the year, positively impacting both our Diversigen and our microbiome collection kit businesses.

Our COVID-19-based kit sales saw significant declines this quarter, driven by a broad move away from laboratory PCR-based testing to rapid point-of-care testing. Given changes in reimbursement, along with the transition of testing programs to rapid antigen testing, we are seeing much lower demand from our strategic partners for COVID-19 oral fluid collection kits. We anticipate current lower demand levels through the back half of the year with revenues tied largely to research-based activities. That said, we are well equipped to handle a surge in demand should the need arise.

As we mentioned last quarter, we also continue to pursue COGS improvement and overall OpEx improvement initiatives. In the short term, these will take the form of some level of site consolidation, a new hybrid workplace in Ottawa for our DNA Genotek subsidiary and further integration of our subsidiaries into the core OraSure DNA Genotek infrastructure. Over the medium to longer term, we are looking at several opportunities to reduce material and logistics costs across our product lines.

With that, I’m pleased to turn the call back over to Scott.

Scott Gleason

Thanks, Kathy. I'm pleased to discuss our financial results for the second quarter and provide updates on our financial outlook. First, from a top line perspective, we delivered total revenue of $80.2 million in the second quarter which is another new record for the company, representing year-over-year growth of 39%. As we previously mentioned, InteliSwab drove year-over-year growth in the quarter.

Before we discuss our expenses, I wanted to highlight that this quarter, the company is making the transition to include non-GAAP presentation in our quarterly earnings releases in order to give investors a better depiction of the true ongoing cost of the business. In our non-GAAP financial measures, we will exclude certain non-cash charges, such as stock-based compensation and non-cash amortization tied to our acquisitions, along with certain one-time charges. In our press release, we have included a GAAP to non-GAAP reconciliation for both the first and second quarters of calendar year 2022 as well as a GAAP to non-GAAP reconciliation for 2021 which can be found on our website.

Turning to our gross margin percentage in the first quarter. Our GAAP gross margin was 34.4%. This quarter, we had only one -- we had a one-time inventory reserve from molecular COVID-19 collection kits with limited shelf life remaining, totaling $3.8 million which negatively impacted the gross margins for our Molecular Solutions business. Excluding this charge and the other one-time transformation costs, our non-GAAP gross margins for the quarter were 40.1% and improved 250 basis points sequentially.

We believe this change is impressive given a number of headwinds we faced sequentially in the quarter. First, the overall mix shift between our historically lower gross margin Diagnostics business and historically higher gross margin Molecular Solutions business was significant in the quarter, with approximately 75% of revenue coming from Diagnostics in the quarter versus 57% last quarter. Furthermore, we saw lower InteliSwab pricing in the quarter given the preponderance of revenue came from the government. In the last 2 quarters, commercial revenue made up a significant portion of our overall mix. Despite these headwinds, we were able to make significant progress on the gross margin front. And as Lisa mentioned earlier in the call, our InteliSwab gross margins improved by over 2,000 basis points sequentially.

We definitely have significant work to continue to do going forward and have line of sight to additional significant margin expansion programs, including our InteliSwab air-to-ocean freight transition, packaging reconfiguration and the implementation of additional planned automation which will begin to come to fruition in 2023. Beyond these enhancements, we are looking to a number of other areas to improve our diagnostic test production as we transition to our super factory concept which will be discussed in more detail in the future.

Furthermore, we have also identified significant improvements to our molecular solutions production process, are looking at material sourcing for other major components and are looking for ways to better implement technology to further lower our cost structure, such as greater ERP integration and overall process improvement which could reduce our G&A and overhead. Overall, we are optimistic about our ability to drive improved gross margins over both the near term and long term.

Moving to our operating expenses. Our non-GAAP operating expenses increased modestly sequentially at $33.6 million versus $32.1 million in the first quarter. We had a number of significant non-cash one-time items in the quarter, including a $3.6 million goodwill impairment charge relating to the Diagnostics business. Given our market capitalization decreased below our book value in the quarter, we are required to assess goodwill on our balance sheet for potential impairment. We also had a $6.9 million equipment write-down associated with our manufacturing line purchased to produce our COVID-19 antibody detection tests which we no longer anticipate marketing, along with 2 lines associated with the production of our COVID-19 molecular collection kits.

As Carrie indicated in her prepared remarks, we have identified significant savings to our operating expense run rate. As our executive team looks at areas to save, we are focused on areas that will not detrimentally impact our ability to grow and innovate. Some of the areas that we've looked at include site consolidation, vendor consolidation, product support and areas for simplification. Importantly, none of these expenses overlap with our planned COGS improvement program and we have a number of additional programs we are evaluating that we have not been able to fully scope the potential impact, so they are not included in this target. Consequently, we ultimately hope to outperform on expense reduction in the future and create a culture of continuous improvement and efficiency across the organization.

From a cash perspective, we ended the second quarter with $96 million in cash and cash equivalents. As of June 30, we had approximately $15.7 million due from the government associated with our $109 million Department of Defense contract to build additional manufacturing capacity. So our pro forma cash position was $111 million. As anticipated, most of our cash used in the quarter was tied to working capital increases as we continued to scale InteliSwab. We expect working capital increases to begin to moderate in the second half of the year as InteliSwab scales and we make enhancements to our collection activities. Consequently, we now anticipate having positive cash flow from operations beginning in the fiscal fourth quarter.

We once again are providing quarterly financial guidance this quarter. For the third quarter, we expect total revenue of $90 million to $95 million, representing 67% to 76% year-over-year growth and 13% to 19% sequential growth as we anticipate sequential growth in both InteliSwab revenue and our core business. We also anticipate continued improvements in our gross margins and a further reduction in cash utilization.

With that, I'm pleased to turn the call back over to Carrie for closing remarks.

Carrie Manner

Thanks, Scott. I am truly proud of the rapid progress by our team and the significant turnaround in our financial performance that we delivered in the quarter. We really are well underway in our strategic transformation. And of course, we continue to have a lot of work to do as we innovate and operate with disciplined execution.

Many of you have asked me about my strategic vision and plans for the business. I came to OraSure because I am a strong believer that our capabilities can help power where health care is going, meeting people, patients where they are and providing innovation and care at the lowest possible level of acuity. We have the products, expertise and talent to be a real player in this ongoing shift. And as we look to our Diagnostics business, COVID-19 has provided us with the opportunity to optimize our manufacturing and leverage our new capabilities overall, delivering on what we do best: decentralized testing at the point of care, all the way to the home. Molecular Solutions also has interesting potential to serve the industry and scale up. The market backdrop for this business unit has strong potential and we see an increasing role for the consumer, along with desire for clinical labs to reach patients where they are, including at home and through retail settings. We will share more on our strategic plans, our transformation and overall progress along the way.

With that, I am pleased to turn the call back over to Scott for Q&A.

Scott Gleason

Thanks, Carrie. Operator, we are now ready to begin the Q&A portion of the call. We'd ask that you limit your questions to one question and one follow-up to ensure broad participation.

Question-and-Answer Session


[Operator Instructions] And our first question comes from Casey Woodring from JPMorgan.

Casey Woodring

So just wanted to touch on the new capacity guidance that you gave today. So that $400 million order comment, can we assume that you're selling everything you can manufacture at this point? And then along those lines, with capacity of 1.6 million tests per week, that's around 19 million to 20 million tests next quarter manufactured. Is that the right way to think about it? Or will capacity kind of gradually step up week to week, resulting in maybe those numbers being a bit too low for 3Q?

Scott Gleason

Yes. Casey, thanks for the question and we really appreciate it. Right now, our orders, as we have indicated, are largely coming from the school testing program. And those orders can fluctuate on a week-to-week basis. So I don’t think it’s necessarily a good assumption to assume that we’re utilizing our full capacity from a production standpoint. To some extent, we’re creating capacity that will meet demand to efficiently use resources from an expense standpoint. And I’ll let Lisa provide a little more detail on that.

Lisa Nibauer

Yes. Yes. Thanks, Scott. As I stated in the remarks, we have $400 million of delivery orders in hand from the federal government. Those orders will come in week by week and will depend upon demand as the school testing program rolls out. I did say in the prepared remarks, we expect to see some increase in those orders, particularly with school coming back. But those are fairly good and solid as we move forward. Those delivery orders also extend past the contract expiry date which is September of this year, because they've already been issued and appropriated. So I think as you think about our production capacity, as Scott said, we are basically tailoring our production capacity to meet the demand from the federal government and others and that's how I would think about it.

Casey Woodring

Got it. Then I had one on the base business. I was curious if you can elaborate on the expectations for microbiome and the lab services Diversigen business. You talked about trials in the quarter being impacted by biotech funding slowdowns but you’re sort of bullish on the back half of the year, NIH funding coming through. So can you just sort of walk us through how you’re thinking about microbiome and Diversigen in the context of sort of the macro backdrop?

Kathleen Weber

Sure, Casey. This is Kathy. I'm happy to talk to that. When we think about the microbiome market, it's important to remember that it is an emerging market and as such, it has a certain level of volatility. In the short term, as we said, we have seen COVID contribute to that volatility as well as some changes and shifts in research and venture funding in the space. That said, 2 of the leading microbiome-based therapeutics have now cleared their Phase III trials and we fully expect approval of the first microbiome-based BLA in the next 6 to 12 months. This, along with an increasing understanding of the role the microbiome plays in influencing the effectiveness of therapies, the impact on nutrition, everything from pet health to cosmetics, we believe will drive renewed focus on the market. So we continue to invest in new collection products and services that will assist both the research community and clinicians in understanding and capturing the opportunity around the space.

In the short term, we are, as we said, experiencing directly some of that market volatility in our own customer base but we're working to bring in new customers and diversify into some of those new verticals I mentioned -- companion pet, DTC offerings -- that are a little more insulated from some of the funding and venture capital and NIH funding trends. So to that point, we are expecting a modest step-up in the business in the second half of the year.

Casey Woodring

Got you. And maybe if I can just sneak one more in. On the InteliSwab customers, commercial versus government, I appreciate that most of the sales are to the government now. Just wondering how you’re thinking about the commercial market over the longer term. Is there any sort of room for upside there, or maybe a move into expanding your commercial test menu over the longer term?

Lisa Nibauer

Yes. Thank you. This is Lisa. I can address that. So yes, of course. Actually, we work very hard to continue to expand our commercial business outside of the government for InteliSwab. I think this disease has proven to be fairly unpredictable. So I don't hazard to even try to predict what its trajectory is going to be. I think the one thing that has been clear for most experts is that it will continue to exist in our population. So I think the need commercially for tests such as ours to be available to consumers is still there.

We are currently sold through Walmart.com and are in discussions with many other retailers. And there's certainly other outlets as well, including employers and even public health. Interestingly, our InteliSwab test is really very, very easy to use and it enables outreach testing. And that's exactly the benefit that our HIV test provides for the public health market in the United States. So we see a lot of synergy there from a commercial selling perspective and certainly are going after all of that. And we also have distribution contracts currently with Fisher, Henry Schein and McKesson as well.


And our next question comes from Jacob Johnson from Stephens.

Unidentified Analyst

This is Mack [ph] on for Jacob. Just a quick one for me. I think you guys touched on this in your prepared remarks. But as we think about cash burn, can you talk about where your balance sheet stands today and how long this cash will last? And any areas where you could focus your reduction of cash burn?

Scott Gleason

Yes, Mack. We’re doing a lot on the cash front, obviously. And I think one of the key themes of our call here was expense reduction, whether it be on the cost of production or in the operating expense lines. We talked about having $96 million in cash still on hand. We talked about from a guidance perspective in the third quarter, we expect our cash burn to moderate significantly. And then we’ve talked and guided to being cash flow positive in the fourth quarter. And so that’s kind of the progress that we’re looking at as we go through the year. In terms of the longer term, we would look to provide that guidance maybe in the future. But I think that’s what we feel comfortable with right now providing and we’ll give additional information as is warranted.


And our next question comes from Andrew Cooper from Raymond James.

Andrew Cooper

Maybe first, just following up on that. I think it's important to get your assumptions, Scott, if I can try just one more way of asking. Presumably, by saying that the government contracts are going to last beyond the expiration date, that means into the fourth quarter. You're talking about operating cash flow positivity in the fourth -- beginning in the fourth quarter. So to what degree does that rely on elevated levels of COVID volumes, whether government or commercial? And how do we think about the durability of that should that level of testing decline longer term?

Scott Gleason

Yes. I think there's a few important things to think about there, Andrew. One thing we have seen as we've ramped InteliSwab is a significant use of cash from a working capital standpoint. And so I think the first thing I would say is if we were to see a decline in InteliSwab for any reason, you would get a significant cash windfall from working capital as your inventory levels and your receivable balances decline associated with that. We're obviously doing a lot on the collection side to improve the timing of cash collections also to further improve that as we look at the back half of the year.

As you look into the future, one of the big advantages that we have gotten from InteliSwab is this ability to transition to what we are calling our super factory concept which is -- was referenced on the call. That's ultimately going to make us more efficient, not just for COVID-19 testing but for all of our product lines. And so that's going to be a big advantage as we think about kind of our long-term production and our longer-term margin goals. And so we're not ready to provide guidance obviously for next year, for 2023. But I think that we are optimistic about our ability to positively impact our cost structure going forward and then also our ability to continue to improve our production process. And I think that's kind of where we stand today.

Andrew Cooper

Okay, great. And then, if I can ask just one more, back to the base business. Can you give us a sense for sort of pacing and the actual realizable amount of that larger CDC HIV over-the-counter program that you mentioned? I think you said 5 years. But how much of that dollar amount is maybe actually to the testing manufacturer? And then how should we think about what that annual opportunity could look like based on the pilot we saw previously?

Lisa Nibauer

Yes. It's Lisa. I can answer that question. So the award that's going to come out and be awarded, the target date is in September, is over 5 years. That's what's come from the CDC. The total amount is $41 million. The exact sort of split of what -- how much of that would be tests versus the mailing/shipping, they're going to be running a website, they're counseling, I think, as a follow-up as well, that has yet to be determined. So I don't think I would hazard to guess at what that proportion would be, even based on the pilot that we had previously with the CDC. So I think we're just going to need to wait until the September award to better understand how much of that will come to our HIV OTC test and what that exact timing will be as well. But we're certainly prepared from a production standpoint to be able to serve those expected orders that will be coming.

Scott Gleason

Yes. And I think it’s exciting, Andrew, because it’s an expansion from the last time that we saw the program. And it’s also evidence that the government can take a more active role in testing and helping with a public health crisis like HIV.


Our next question comes from Lizzie [ph] from Citi.

Unidentified Analyst

I'm on for Patrick Donnelly. I was just wondering if you could talk a little bit more about like the impact on margins for the InteliSwab manufacturing and labor expansion. How many people are you planning on hiring? And what's your manufacturing footprint kind of look like? And I guess, what do you think the margin trajectory is based on increasing revenue along with like the increase in cost that comes along with it?

Scott Gleason

Yes. Lizzie, thanks for the question. We’re not going to get into all the details on hiring trends but we’ve already hired a substantial number of people. And what we would expect to see going forward is, as our volumes increase and as we have more testing, you’re actually going to be able to leverage your overhead which would actually have a positive impact on our overall margin profile. Some of that you saw this quarter as we obviously ramped up InteliSwab but we would expect that trend to continue as we scale up from here. But Lisa can provide some more detail as well.

Lisa Nibauer

Yes. Yes. And I would just add that we have a $109 million Department of Defense capital contract to build a new factory, essentially. And this additional capacity can be used for InteliSwab, certainly, for other rapid tests that we make like HIV, hepatitis C or for even new tests that we would come up with for this platform. So I think as we think about it, that's kind of the vision that's part of this super factory concept that we talked about today. And certainly, that's what we're looking to do as we move forward.

Scott Gleason

Yes. And I think the other thing that I would just point out is we saw 2,000 basis points of margin expansion – over 2,000 this quarter. Some of the biggest changes that we still expect to happen, we referenced on the call to come which are the – some of the logistics changes, some of the packaging reconfiguration changes, some of the additional automation that we plan to implement. So we have a lot of room to go in terms of progress there and we’re doing a lot of work behind the scenes to continue to improve that.


[Operator Instructions] And we have no more questions at this time. I'll turn it back to the speakers for final comments.

Scott Gleason

Thanks for participating in today’s call and your continued interest in OraSure. Have a great evening and stay safe and be well.


And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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