OraSure Technologies, Inc. (OSUR)
Q1 2010 Earnings Call Transcript
May 5, 2010 5:00 pm ET
Judy Clarke – IR
Doug Michels – President & CEO
Ron Spair – COO & CFO
Sameer Harish – Needham & Company
Caroline Corner – William Smith & Company
Jeff Frelick – ThinkEquity
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Good day everyone, and welcome to OraSure Technologies 2010 first 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 speakers’ remarks, there will be a question-and-answer period. (Operator instructions) To allow time for as many questions as possible, questioners are asked to limit themselves to only a single question with no more than one follow-up question related to the same topic. Once the follow-up is completed, a questioner can rejoin the queue for further questions.
For opening remarks and introductions, I would now turn the call over to Judy Clarke at OraSure Technologies. Please go ahead.
Thank you. Good afternoon everyone and thank you for joining us today. I would like to begin by telling you that OraSure Technologies issued a press release at approximately 4:00 PM Eastern Time today regarding our 2010 first quarter financial results and certain other matters. The press release is available to you on 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 news 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 May 12th, 2010, by calling 800-642-1687 for domestic or 706-645-9291 for international. The access code is 69378968.
With us today are Doug Michels, President and Chief Executive Officer; and Ron Spair, Chief Operating Officer and Chief Financial Officer. 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, I must also remind you that this call may contain certain forward-looking statements including statements with respect to revenues, expenses, profitability, earnings 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 SEC filings of OraSure Technologies including its registration statements, its annual report on Form 10-K for the year ended December 31st, 2009, 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 events or circumstances after this call.
With that, I would like to turn the call over to Doug Michels.
Thank you, Judy, and good afternoon everyone. I will start today’s call with an update on several recent developments including our first quarter performance. Ron will then follow with a more detailed overview of our first quarter results and our guidance for the second quarter. I will conclude the call with a brief discussion of our major clinical programs and certain other business developments, and we will then open the floor for your questions.
As I indicated in our press release, revenues for the first quarter were $17.9 million. This represents an increase over the comparable period of 2009, but fell below our topline guidance for the quarter. Despite the lower-than-expected revenues, we exceeded our guidance on the bottom line. The revenue shortfall was driven primarily by lower-than-expected domestic sales of our OraQuick Advance HIV tests and international sales of our over-the-counter cryosurgical wart removal product.
Continuing economic challenges have had a greater-than-expected impact on some of our OraQuick customers. Funding cuts at both the state and local levels resulted in lower sales during the quarter, primarily in the public health segment, which depends heavily on public funding. Reduced funding also impacted our OraQuick sales to hospitals but to a lesser degree.
Funding challenges are not new and we built our 2010 plan and first quarter forecast anticipating their impact. However, it is becoming more apparent that the extent and timing of the reductions and their impact on our business can be very difficult to predict with precision. For example, during the first quarter, several large customers unexpectedly reduced their purchases from committed levels previously communicated to us.
In fact, one state’s reduction did not occur until after an early March meeting of the state legislature which focused on reducing expenditures by the Department of Health. Several other jurisdictions were unable to expand their HIV testing programs in the first quarter as they had previously planned. Funding issues were more pronounced where customers had accumulated higher levels of product inventory. As you may recall, we reported strong results in the third and fourth quarters of 2009, in part because several public health customers made large purchases of OraQuick tests during those periods. This is not unusual as customers often try to spend unused funds prior to September 30
or December 31
ends of their respective fiscal years.
However because of continued funding cuts associated with testing initiatives, some of these customers were unable to deploy their purchased inventory that what would have been normal or expected rates, and this in turn adversely affected their first quarter purchases. Reduced funding has also placed increased pressure on pricing for our OraQuick HIV tests, and while we continue to maintain a premium on price compared to our competitors and our 2010 forecast did reflect a lower average selling price, the price degradation during the first quarter was somewhat greater than expected.