OraSure Technologies, Inc. Aktie

Good day, and thank you for standing by. Welcome to the OraSure Technologies, Inc. 2026 First Quarter Earnings Conference Call. [Operator Instructions] Be advised that today's conference call is being recorded.

I would now like to hand the conference over to your first speaker today, Jason Plagman, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to OraSure Technologies' First Quarter 2026 Earnings Call. Participating in the call today for OTI are Carrie Eglinton Manner, our President and Chief Executive Officer; and Ken McGrath, our Chief Financial Officer.

As a reminder, today's webcast is being recorded and the recording can be found on our Investor Relations website. Before we begin, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share, and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations, and strategies. Actual results could be significantly different.

Factors that could affect results are discussed more fully in OTI's SEC filings, its annual report on Form 10-K for the year ended December 31, 2025, its quarterly reports on Form 10-Q, and its other SEC filings. Although forward-looking statements help to provide more complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. OTI undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call.

With that, I'm pleased to turn the call over to Carrie.

Thanks, Jason, and thank you to everyone for joining us today. Today, I'll discuss some highlights from Q1 and provide updates on our key priorities for 2026.

Overall, we continue to advance our strategic transformation and execute with discipline as we focus on driving growth in 2026 and beyond. We have delivered meaningful progress over the last few years and continue strengthening our foundation, including leveraging our manufacturing capabilities and capacity to drive gross margin expansion while also streamlining our cost structure.

We're also elevating our core growth by expanding and diversifying our product portfolio and customer relationships while several of our key end markets adapt to an evolving funding environment. Ultimately, we're accelerating profitable growth through investments in R&D, targeting high-value growth markets, as well as acquisitions and partnerships that leverage our existing capabilities, and provide an attractive risk-adjusted ROI.

We're also preparing for several near-term catalysts for growth, including our 2 product launches planned for mid-year. One, our rapid molecular self-test for chlamydia and gonorrhoeae, also known as CT/NG. And two, our Colli-Pee at-home urine collection device for sexually transmitted infections or STIs.

Looking at our Q1 results, total revenue was $27.9 million, which was above the midpoint of our guidance range, and we generated solid gross margin expansion. In our International Diagnostics business, we made significant progress on our initiatives to establish closer relationships with some of our distribution partners in Africa and their in-country value-added assembly and manufacturing, also known as near-shoring.

During Q1, we delivered on initial orders to one of our near-shoring partners. We anticipate initial orders from other partners in the second half of the year, and we believe this trend represents a significant opportunity in rebuilding momentum in health program implementation in countries around the globe.

Additionally, our international team is building positive momentum with the integration of BioMedomics into our sales channels and in expanding the reach of SickleSCAN into new markets through our relationships with national health programs.

In our U.S. Diagnostics business, our public health customers are stabilizing, as they adapt to the current budget environment. In general, HIV testing programs remain a key priority for state and local public health agencies to control the spread of the virus and to manage downstream costs in the healthcare system.

We are also seeing traction in demand resulting from our syndemic approach that leverages our portfolio of rapid tests across multiple conditions, including HIV, HCV, and syphilis to deliver value and ease of use for customers.

Switching gears to Sample Management solutions. We are seeing gradual improvement with commercial customers, including advanced genetic testing labs, driven by increasing utilization of precision medicine that leverages genetic insights to identify risk factors for cancer and other conditions as well as diagnosis of rare diseases.

During Q1, growth in commercial segments was offset by muted demand in academic and government markets related to the continued slow pace of NIH research grant funding. That said, we remain confident that the Sample Management business is positioned to deliver growth in 2026 and beyond as genomic end segments gradually return to stronger growth.

Next, I'll transition to our innovation and product pipeline, which includes several important near-term catalysts for growth in attractive markets, as well as our pipeline of earlier-stage opportunities in high-value growth markets. From a regulatory standpoint, our 2 applications for FDA clearances are in the review process. We continue to anticipate midyear clearances and expect that revenue from product launches will ramp in the second half of the year.

As a reminder, our 2 submissions were for our over-the-counter rapid self-test for CT/NG that is built on the Sherlock molecular diagnostics platform and our Colli-Pee device for STIs. The Colli-Pee submission, which includes its proprietary stabilization chemistry, covers multiple STI indications, and is being pursued in collaboration with a leading diagnostics platform provider.

These 2 submissions with their potential clearances, reflect our progress on our innovation roadmap and demonstrate how we are advancing our vision to help decentralize diagnostics and connect people to care that is more accessible, convenient, affordable, and private.

With that, I'll turn the call over to Ken to discuss our financial results and guidance.

Thanks, Carrie. Total revenue in the first quarter was $27.9 million and grew 4% on a sequential basis. Diagnostic products generated $16.9 million of revenue in Q1 with a fairly even split between U.S. and international revenue. Diagnostics revenue grew 12% on a sequential basis. Sample Management Solutions revenue in Q1 was $9.1 million, which was basically flat on a sequential basis.

Our GAAP gross margin in the first quarter was 42.3%, compared to 41.1% in Q1 2025. And non-GAAP gross margin in Q1 increased to 43.4%, compared to 41.7% in Q1 2025.

Gross margin expansion was driven by operating efficiencies, largely related to our initiatives to in-source production from third-party contract manufacturers into our Pennsylvania facilities. This transition leverages our advanced manufacturing capabilities and capacity developed during the COVID pandemic.

Looking at GAAP operating expenses in Q1. R&D expense was $13.7 million, sales and marketing expense was $6.8 million, and general and administrative expense was $14.6 million. The increase in R&D was primarily driven by investments in activities related to launch preparation and production readiness for our CT/NG test and our Colli-Pee device, including studies gathering data that we believe will position us for successful commercial go-to-market launch. We expect our R&D expense to taper down during Q2 and Q3.

Looking at G&A expense. The sequential increase in Q1 was primarily driven by nonrecurring items, including severance expense related to a reduction in force in February, professional services related to our proxy, and the annual reset of accruals for performance-based incentive compensation programs. We expect G&A expense to decline to more normalized levels beginning in Q3 following the conclusion of the nonrecurring items I mentioned.

Noncash stock compensation expense in the first quarter was $2.8 million, and depreciation and amortization expense was $2.3 million. Our GAAP operating loss in Q1 was $23.3 million, and our non-GAAP operating loss was $19 million.

Moving to our balance sheet. We ended the quarter with 0 debt and total cash and cash equivalents of $177 million. During the first quarter, we deployed $5 million to repurchase 1.8 million shares of our common stock. Over the last 4 quarters, we have returned $20 million of capital to shareholders through the repurchase of 7.1 million shares.

Consistent with our balanced capital deployment strategy, we continue to evaluate organic and inorganic opportunities that can accelerate our profitable growth in high-value markets and leverage our existing capabilities.

Operating cash flow in the first quarter was negative $14 million, which was consistent with our expectations. As we discussed in February, we expect to return to breakeven from an operating cash flow standpoint as we enter 2027. This view is supported by our outlook for revenue growth, including contributions from our anticipated product launches, as well as our continued focus on delivering cost savings and operating efficiencies.

Moving to guidance. We expect revenue in the second quarter of $27 million to $30 million, which includes a negligible amount of revenue for COVID-19 testing. We expect our gross margin in Q2 to be similar to Q1. We anticipate our operating expense will be in the high $20 million range in Q2, which includes non-run rate expenses and excludes stock compensation. Then we expect operating expenses to decline further to the mid-$20 million in Q3 as non-run rate expenses wind down.

With that, I'll turn the call back to Carrie to conclude.

Thanks, Ken. As we move through 2026, OraSure is positioned to accelerate our growth as we approach a series of regulatory and commercial milestones, and we continue to transform our business as we deliver on our strategy to decentralize diagnostics. We are excited about all of our opportunities, near-term and long-term, to expand our portfolio with our innovative product pipeline and our ability to leverage our manufacturing capabilities and capacity as we work to create value for our customers and all shareholders.

With that, I'm pleased to turn the call over to the operator for Q&A. Tyler?

[Operator Instructions] Our first question comes from the line of Patrick Donnelly from Citi.

This is [ Brendan ] on for Patrick. And congrats on the quarter. I want to start on the near-shoring initiatives. It's great to see orders kind of start to come through there. I was wondering if you'd be able to size those and down the line as more are added, what those could potentially turn into from a revenue standpoint? And then also along those lines, can you talk about what the pipeline kind of looks like to add more sites to that program?

Sure. Thanks, Brendan. So as far as near-shoring, we're really excited about the opportunity. And just for background, this is something that we've been working with these countries for several years to put in place.

We did -- we said it was significant. We haven't given an exact number as far as dollars, but you can imagine in the millions is significant for us. And not all will be -- all relationships will be in that range, but we are seeing good progress as we continue to advance conversations and initiate near-shoring opportunities with other countries as well.

And then to touch on the margins, we view that -- it's great to see the first quarter kind of come in ahead of expectations. Should we kind of view this as a new baseline for gross margins? And is there more internal like in-sourcing initiatives that you guys are planning on implementing to kind of further that margin expansion?

Yes. And yes, so what we said is Q2 will be similar to Q1. What we're seeing as far as tailwinds for improving our margins is our operation efficiency, which you may recall, we've talked about in the past where we consolidated our manufacturing into some core operation facilities.

As we take advantage of that operating efficiency overall on our improved absorption, and in addition, as we increase our volumes, we will continue to see improvements in our gross margin. That could be offset, obviously, time to time by mix and other dynamics that play out within our margins. But we're encouraged by the strong tailwinds that we have.

One moment for our next question. The next question comes from the line of Mac Etoch from Stephens.

Thank you for view on the outlook for the CT/NG test. As you approach the launch of these products, I assume the commercial teams are already advancing discussions around the agreements and partnerships. So what progress have you made on that front so far? And how should we think about the early commercialization traction there?

Hello, Mac. You're right in that, when you have the product launch expectation, everybody starts gearing up. There is an important distinction to be made, of course, as you well know, in FDA, with FDA-cleared products, unlike research use only, you really can't premarket.

We do, of course, well understand market interest and opportunity in infectious disease, in STIs, in sample collection, and urine collection because we have such strong portfolios there today. So we've done good market research. We stay very connected to these customers. We're thinking about the kinds of conversations you can have ahead of time, which is really about how the whole test-to-treat system would work upon clearance.

And so I'd say, it's those dialogues that are all within bounds that really give a sense for the enthusiasm and interest to make STI testing, private, convenient, affordable, accessible, and that make urine self-collection something that can be done outside of a doctor's office. So yes, I kind of frame it that way. But with the FDA process, we're also very smart and compliant around not premarketing.

And then maybe following up on the margin question. I appreciate the color that you gave, Ken. But just thinking about the launch of some of these products that you have in the pipeline, should we expect any maybe near-term volatility or decremental margins just as we think about near-term margin progression?

Yes. I'll tell you what we said in the past, and then -- and will be answering your question as I go through that. So what we've said for CT/NG is in the fullness of time, it will be accretive to our overall margins. But to your point, there's a ramp-up of that. When your volumes start out lower, you don't have as large -- as good margins. So we will experience some of that as we ramp up.

For our Colli-Pee device, similar, we expect margins in the fullness of time to be equal or accretive to our overall current margins, but there is that ramp-up time that takes place, to your point, as we ramp up the volumes and kind of get that full absorption over time.

I am showing no further questions at this time. I would now like to turn it back to Carrie for closing remarks.

Thanks, Tyler, and just thank you to everyone for joining us. We hope you have a great day. And with that, we'll close the call. Thanks.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the OraSure Technologies 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker for today, Jason Plagman, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to OraSure Technologies Fourth Quarter 2025 Earnings Call. Participating in the call today for OTI are Carrie Eglinton Manner, our President and Chief Executive Officer; and Kenneth McGrath, our Chief Financial Officer. As a reminder, today's webcast is being recorded, and the recording can be found on our Investor Relations website.

Before we begin, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies.

Actual results could be significantly different. Factors that could affect results are discussed more fully in OTI's SEC filings, its annual report on Form 10-K for the year ended December 31, 2024, its quarterly reports on Form 10-Q and its other SEC filings. Although forward-looking statements help to provide more complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. OTI undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call.

With that, I am pleased to turn the call over to Carrie.

Thanks, Jason, and thank you to everyone for joining us today. I'll discuss some highlights from Q4 and our key priorities for 2026 and beyond. As we've discussed previously, 2025 was a transition year, and we supported our customers in navigating a challenging and uncertain funding environment. As we enter 2026, we are seeing increasing signs of stability in key segments, including improved visibility to funding for important testing and research programs, and we are excited by several near-term catalysts for growth, including our two product launches planned for midyear. One, our rapid molecular self-test for chlamydia and gonorrhea, also known as CT/NG; and two, our Colli-Pee at-home urine collection device for sexually transmitted infections. Our submission of these two separate applications to the U.S. FDA in December represents significant milestones on our innovation road map as we move into the next phase of our multiyear strategic transformation to deliver profitable growth and to create value for our customers and shareholders.

Looking at our Q4 results, total revenue was $26.8 million and core revenue was $26.7 million, which was above the midpoint of our guidance range. In our International Diagnostics business, order trends are stabilizing as national health programs adapt to revised funding structures, including framework agreements that have been signed between the U.S. and more than a dozen countries in Africa that incentivize greater levels of local investment in order to build more resilient and durable health systems.

To that end, we are well underway establishing closer relationships with some of our existing distribution partners in Africa, including their in-country value-added assembly and manufacturing, also known as nearshoring. We believe that this trend represents an important opportunity in rebuilding health program momentum in countries around the globe and expect these expanded local relationships in Africa to begin to contribute revenue in Q1 and throughout 2026. We also expanded OTI's presence in Canada with the recent launch of our OraQuick HIV Self-Test following its receipt of a license from Health Canada. This test is Canada's first oral HIV self-test, and we are excited to work with St. Michael's Hospital, Unity Health Toronto, as the exclusive distributor of this test in Canada.

Continuing with our international business. Our integration of BiMedomics is off to a good start following the close of the acquisition in November. We are seeing strong demand from existing customers for the Sickle SCAN Sickle test, which is a rapid point-of-need test for sickle cell disease or SCD. Our team is also building momentum with our initiatives to expand the reach and adoption of Sickle SCAN by leveraging our international sales channels and our existing relationships with national health programs, particularly in Africa, where more than 385,000 babies are born each year with SCD as well as in Latin America with its moderately high incidence of SCD and lack of newborn screening programs.

In our U.S. Diagnostics business, demand for our rapid test from public health customers is stabilizing as those organizations adapt to the current funding environment at the federal and state level. We are also seeing consistent demand for our over-the-counter HIV self-tests from telehealth and direct-to-consumer online platforms that want to offer a reliable FDA-approved self-test that is authorized for use with oral fluid and is designed to meet the needs of individuals who wish to test themselves privately and painlessly at home.

Switching gears to sample management. We remain confident that the sample management business is positioned to deliver growth in 2026 and beyond as genomic end segments continue to stabilize and gradually return to stronger growth, driven by clinical adoption of precision medicine. We also anticipate modest contributions to SMS revenue growth from the academic and government segments as NIH funding returns to a more regular cadence from international markets and from progress with our blood proteomic solution that we launched in mid-2025.

Next, I'll transition to our innovation and product pipeline, which includes several important near-term catalysts for growth in attractive markets as well as our pipeline of earlier-stage opportunities in high-value growth markets that we discussed last quarter. Starting with Sherlock. We submitted our rapid molecular self-test for CT/NG to the FDA in late December. As we've discussed previously, OTI's rapid self-test for CT/NG is built on the Sherlock molecular diagnostics platform and is designed to provide the results in approximately 30 minutes in a disposable over-the-counter format.

The test uses a self-selected swab and results are intended to be read directly on the handheld testing device without the need for an electrical connection, enhancing accessibility and ease of use. OTI estimates the testing for CT/NG represents a total addressable market of more than $1.5 billion. Today, the vast majority of CT/NG Tests in the U.S. are processed in centralized laboratories, creating an opportunity for meaningful market expansion through the introduction of a convenient, private and affordable rapid self-test. Also in December, OTI submitted a separate application to the FDA for clearance of our Colli-Pee device for sexually transmitted infections or STIs. The Colli-Pee device, which includes its proprietary stabilization chemistry, is designed for at-home urine collection and is aligned with patient preferences for private and convenient diagnostic testing.

The submission covers multiple STI indications and is being pursued in collaboration with a leading diagnostics platform provider. Receipt of clearance for the Colli-Pee device for these indications would be in addition to the research use-only products and is expected to expand access to testing while further strengthening OTI's leadership position in novel collection devices and chemistries.

We anticipate that revenue from our product launches will ramp in the second half of the year. And these two submission milestones reflect meaningful progress on our innovation road map and demonstrate how we are advancing our vision to help decentralize diagnostics and connect people to care that is more accessible, convenient, affordable and private.

With that, I'll turn the call over to Ken to discuss our financial results and guidance.

Thanks, Carrie. Total revenue in the fourth quarter was $26.8 million. Core revenue, which excludes COVID-19 products, was $26.7 million. Diagnostic Products generated $15.1 million of revenue in Q4, and Sample Management Solutions revenue was $9.1 million, and both were consistent with our expectations. Our GAAP gross margin in the fourth quarter was 41% compared to 36.2% in Q4 2024, and non-GAAP gross margin was 41.4% compared to 40.1% in Q4 '24.

Looking at GAAP operating expenses in Q4. R&D expense was $11.4 million, sales and marketing expense was $6.6 million and general administrative expense was $9.8 million. Noncash stock compensation expense in the fourth quarter was $1.5 million, and depreciation and amortization expense was $2.4 million. Our GAAP operating loss in Q4 was $20.1 million, and our non-GAAP operating loss was $15.2 million.

Moving to our balance sheet. We ended the year with 0 debt and total cash and cash equivalents of $199 million. During the fourth quarter, we deployed $5 million to repurchase 1.9 million shares of our common stock. For the full year 2025, we returned $15 million of capital to shareholders through the repurchase of 5.3 million shares. Consistent with our balanced capital deployment strategy, we also continue to evaluate organic and inorganic opportunities that can accelerate our growth.

As we discussed in November, we invested approximately $4 million during Q4 to acquire BiMedomics in order to expand our portfolio of rapid diagnostic tests that we can sell to our international customers. Operating cash flow in the fourth quarter was negative $9 million, which was consistent with our expectations given our investments in the Sherlock platform, clinical trials for our molecular CT/NG test in Colli-Pee and other innovation projects.

We expect to return to breakeven from an operating cash flow standpoint as we enter 2027, driven by our expected return to revenue growth, including contributions from our anticipated product launches as well as our continued focus on delivering incremental cost savings through operating efficiencies.

For the first quarter, we are guiding to revenue of $26 million to $29 million, which includes a negligible amount of revenue for COVID-19 testing. We expect our gross margin in the first quarter to be in the low 40% range. On a sequential basis, we expect that our Q1 gross margin will improve slightly compared to Q4 2025.

Overall, we remain focused on disciplined execution that aligns our organization and cost structure with our revenue growth and continued profitability improvement. Recently, we eliminated a number of nonproduction roles and continue to take actions that increase operating efficiencies, which are partially offset by targeted commercial investments supporting anticipated product launches as well as onetime costs related to severance and other nonrecurring items.

With that, I'll turn the call back to Carrie to conclude.

Thanks, Ken. A year ago, we entered 2025 with the strength to withstand what turned out to be multiple external headwinds, and we are proud to have supported our customers in navigating that environment while we continue to invest in our future and further streamlined our business. We made significant progress in advancing our innovation pipeline and ended the year with two major product submissions to the FDA.

Now here in 2026, we are already seeing signs of market stabilization, and we are also well positioned to capitalize on the growth opportunities that our near-term product road map can unlock.

With that, I'm pleased to turn the call over to the operator for Q&A. Lisa?

[Operator Instructions] Our first question for the day will be coming from the line of Mac Etoch of Stephens.

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

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

Appreciate that. And then I think international HIV was a little bit more of a record in 2024 than slightly disrupted in 2025 due to the PEPFAR and USA implementation issues. So I just kind of wanted to get a clear picture of maybe the -- whether or not the ordering cadence is normalized at this point?

Yes. You described the history '24 and '25 accurately. And what we are seeing is improved visibility to countries within Africa figuring out not only their funding, but also the implementation. So you'll remember that in many cases, both the U.S. and the countries themselves said these are the most important test to treat life-saving programs we have. We're totally committed to the testing and consumables, we still have money for, but they had removed all of the people on the programs to implement them.

What we're seeing is -- at least what we're looking at into the Q1, Q2 is a recovery where those countries are figuring out the funding and the programs, they're investing more themselves. We mentioned 14 countries in Africa that have signed MOUs with the government, and it really is about your targeted focus, local investment that matches in these bilateral agreements and what we're seeing as part of the encouraging signs of stabilization.

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

And that's really -- I'm sure folks know the term nearshoring, but it's really for local manufacturing assembly in country that makes that available in a more meaningful way with the local demand.

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

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

Yes. [ Brendan ] we're still working toward that midyear launch and the revenue ramp in the second half, exactly as you described. What we'd say is that there's always uncertainty in the regulatory review process. To give you anything -- in terms of timing, we'd be giving you false precision, but we'll clearly keep the -- provide that information as we have more to share. But I'd just reiterate, still working toward midyear launch, still working toward a revenue ramp. And as you noted, we don't do guidance beyond the quarter, but we'll share more when we do.

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

Yes. We are both encouraged by the progress in our expansion of customer segments. That's part of the stabilization that we've been encouraged by is the pickup and not just public health, but that clinical setting. And so we have seen in the syndromic approach, we've talked about a number of times, but that's the occurrence of the sort of the synergy of epidemics amongst HIV, HCV and syphilis that there is a focus on that in emergency rooms, there is a focus on that in urgent care and we do have -- we are encouraged by the progress. We love the public health self-funding space, but we're encouraged by the market and segment expansion beyond it.

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

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

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

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

Yes. So what we did say is that in Q1, we expect sequentially some improvement, and we guided to the low 40s. But you're right on as far as the absorption part of it. What we said before is that we're probably operating at around 30% capacity. So you can imagine, as we add volume -- as we add revenue and add volume, we get the benefit from not having to add the fixed costs associated with that volume. So you will see a natural improvement in gross margin. The other thing you may recall is we had a project where we were consolidating some manufacturing to our Bethlehem facilities. And all of that has been done at this point. And we had two areas. One was moving some of our HIV testing From Thailand to our Opus Way facility in Bethlehem and to leverage, like you said, some of that absorption -- overhead absorption. And actually, it was cheaper because when you run it on automation, it's actually cheaper than what we were getting in Thailand.

The other aspect was consolidating or internalizing some of our volume from our sample management business from contractors that we had in Canada. And we've essentially completed all but some cats and dogs, like 95% or 97% of all that volume has been brought into our Bethlehem facility. So as you can imagine, as we kind of ramp up that, we will get the benefit as well. There is some initial -- the reason you don't see the benefit initially is there is some initial kind of transaction transfer costs that are associated with that transition. But once you get that through and you start getting at the same efficiency rates, you will see that benefit.

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

Yes. That's a great question. I think -- I'll say what we know and then we can elaborate as we go from there. And what we do believe is that our core business, we will be seeing some growth at the core business. And then we think we expect to accelerate that growth with the product launches in the second half of the year. So kind of start with that framework. Then as far as that core growth, we are seeing stabilization, right? Like we said, we saw stabilization and some growth in sample management in 2025.

And we are seeing stabilization, both international as well as U.S. when it comes to funding. The area where we do, we are getting excited in international, and Carrie mentioned it was around this nearshoring opportunity, where we are partnering with -- and we're starting in Africa with some African countries, and then we'll expand it beyond that into Latin America and Central Asia. But we're partnering with these countries as they become more self-sufficient, we're partnering with them to help them be able to on-site, be able to do some assembly where we can work with them and be their provider going forward. And we think that's an exciting opportunity. And it's not an opportunity that's cannibalizing existing. It's in addition to existing sales.

Yes. And Ken provided a nice overview of that. Just giving thoughts to your distinction around what sort of recovery from where funding came out versus what's growth in end markets. I'd say it's obviously different by portfolio and segment. And SMS is sort of more driven by end market growth, where the core of diagnostics, where you're talking HIV, HCV syphilis, I do think it is more about recovery. The huge impact in '25 was public health funding cuts. So part of that growth is -- it's not necessarily that the funding is completely cutting back, but it's that this type of testing is so critical in test-to-treat life-saving program that people are figuring out how to provide those services because they just save lives.

So I think it's different -- sample management is more about end market recovery. Diagnostics is more about a return to core growth based on those segments figuring out funding, figuring out the programs and making trade-offs. And then we layer in product launches onto both portfolios. We layer molecular into diagnostics. We layer Colli-Pee into sample management, and those are organic growth drivers that I think very much align with trends that are clear customer-driven trends around self-collection, around privacy, access that's affordable.

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

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

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

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

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the OraSure Technologies, Inc. 2025 Third Quarter Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Jason Plagman, VP of Investor Relations. You may begin.

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

As a reminder, today's webcast is being recorded, and the recording can be found on our Investor Relations website. Before we begin, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies. Actual results could be significantly different.

Factors that could affect results are discussed more fully in OTI's SEC filings its annual report on Form 10-K for the year ended December 31, 2024, its quarterly reports on Form 10-Q and its other SEC filings. Although forward-looking statements help to provide more complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. OTI undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call.

With that, I'm pleased to turn the call over to Carrie.

Thanks, Jason, and thank you to everyone for joining us today. Today, I will discuss some highlights from Q3 and our progress on key priorities for 2025 and beyond. Overall, we continue to significantly advance our strategic transformation and execute with discipline as we position OraSure for a return to growth in 2026. We have delivered meaningful progress and continued strengthening our foundation. We're also elevating our core growth by expanding and diversifying our product portfolio and customer relationships plus we're accelerating profitable growth through investments in internal R&D as well as acquisitions and partnerships that leverage our existing capabilities and to offer an attractive risk-adjusted ROI.

Looking at our Q3 results, total revenue was $27.1 million, and core revenue was $27.0 million, which included Diagnostics revenue of $14.5 million and Sample Management revenue of $10.3 million. Broadly speaking, our key end markets remain mixed, and we continue to partner with customers that are navigating an environment with elevated levels of uncertainty related to funding for public health programs and research as well as the government shutdown in the U.S. That said, we view 2025 as a transition year, and we're excited about pipeline opportunities in attractive markets that align with our strengths to drive growth in 2026 and beyond. In our International Diagnostics business, we discussed on our last earnings call that we anticipated a slower pace of orders for our HIV test in the second half of the year as our in-country partners work through their existing inventory and national health programs adapt to changes in the funding environment. That trend played out as expected in Q3 and thus far in Q4.

For the full year 2025, we now expect that revenue from our International Diagnostics business will be in the low to mid-$30 million range, representing a decline of approximately 20% compared to 2024, which was a record year for International Diagnostics.

Staying with our International business, we are pleased to share that OTI signed a definitive agreement to acquire BioMedomics. This tuck-in acquisition expands OTI's Diagnostic portfolio by adding Sickle SCAN, a rapid point-of-need test for sickle cell disease that is sold outside the U.S. The global sickle cell testing market, particularly in high burden regions in developing markets, is underserved and fragmented. We believe Sickle SCAN addresses this need with a high-quality, affordable rapid point-of-care test and there is support from government agencies and global health organizations to increase access to sickle cell testing at the point of need.

We see an opportunity to expand the reach and adoption of Sickle SCAN by leveraging OTI's strength including our international sales channels and our existing relationships with national health programs, particularly in Africa and Latin America. Furthermore, many of our international customers and partners have expressed interest in a reliable, low-cost, rapid diagnostic test for sickle cell disease.

Transitioning to our U.S. Diagnostics business. Our public health customers are adapting to significant reductions in staffing at HHS, CDC, SAMHSA and other federal agencies that support public health programs, along with budgetary uncertainty and challenges related to the federal government shutdown.

We are continuing, however, to see traction with our syndemic approach that leverages our portfolio of rapid tests across multiple conditions. And we are expanding our customer base in nonpublic health markets such as urgent care, hospital emergency rooms and correctional facilities for rapid hepatitis C testing plus online channels specializing in consumer-initiated testing. Overall, for the full year 2025, we expect our U.S. Diagnostics business to generate revenue in the low to mid-$30 million range representing a low single-digit percentage decline compared to 2024. We also wanted to provide an update on Together Take Me Home, a collaboration funded by the federal government that makes HIV self-test available through the mail in order to advance the President's goal of ending the HIV epidemic.

We are pleased to share that this highly effective life-saving program was renewed by the Trump administration with strong bipartisan support in Congress. As a result, Together Take Me Home is continuing for program year 4, which runs from October 2025 to the end of September 2026. We expect to recognize approximately $1.8 million of revenue from Together Take Me Home in Q4 and anticipate a similar pace of quarterly revenue in 2026.

Switching gears to our Sample Management business. The overall trend continues to be mixed. SMS revenues increased on a quarter-over-quarter basis in Q3, but we anticipate a sequential decline in Q4, which is consistent with the typical seasonal ordering pattern for this business. For the full year, we expect revenue from Sample Management products in the high $30 million range, which would be approximately flat compared to 2024, if you exclude the impact of the decline in orders from a large consumer genetics customer.

Looking ahead, we are confident that the Sample Management business is positioned to return to growth in 2026 and beyond. As genomic end segments gradually return to stronger growth driven by clinical adoption of precision medicine. Our confidence is also supported by continued scientific and technological advancements such as the increasing utilization of short-read and long-read genomic sequencing, the decline in unit costs for sequencing and analysis and advancements in areas such as proteomics.

We are also seeing early signs of positive trends in some international markets, such as the Middle East, that are planning to invest in population health studies using novel sample collection devices in order to accelerate precision health and life sciences research in the region.

We're also pleased to share that the ENDO 100 projects has selected multiple kits from our OMNIgene and Colli-Pee product lines for the collection and stabilization of a variety of sample types, including saliva, urine, stool and vaginal swab. The ENDO 1000 project is a United Kingdom wide initiative aimed at accelerating discovery and advancing data-driven research into the diagnostics and personalized treatment of endometriosis.

By collecting biological samples and lifestyle data from participants over 2 years, the study seeks to uncover patterns that can inform more effective individualized care strategies. The inclusion of our sample collection kits in this landmark study underscores their value in enabling high-quality research and positions us for continued growth in the Precision Health and Clinical Research segment.

Now I'll transition to our exciting pipeline of innovation, including an update on several products targeting attractive markets. Midyear, we launched a blood collection tube with stabilization chemistry for research use only, or RUO, markets in the burgeoning field of proteomics. We also anticipate near-term milestones for Colli-Pee urine collection, initially for sexually transmitted infection, or STI, indications and future expansion in the liquid biopsy. And our Sherlock Molecular Diagnostics Rapid Test platform whose first assay is expected to serve the large and growing chlamydia and gonorrhea, or CT/NG, segments of STI. As we discussed last quarter, our HEMAcollect PROTEIN product launched in July 2025 in the RUO market, like I just mentioned.

Since this launch, we've received positive and insightful feedback from our customers and early adopters that will help inform our road map as we enhance our proteomics product line and build additional momentum in 2026. Additionally, OTI is presenting at the upcoming Human Proteome Organization World Congress to highlight HEMAcollect PROTEIN's proprietary stabilization capabilities and its performance across a range of proteomics technology platforms.

Moving to our Colli-Pee device, which is designed for first-void urine collection. We plan to submit clinical trial data to the FDA for STI indications by late 2025 or early 2026. Receipt of approvals for these applications subject to regulatory review, would be in addition to our existing Colli-Pee RUO product and is expected to further strengthen our competitive position in novel urine collection.

Our analytical and clinical studies are demonstrating strong performance and flexibility across multiple target analytes. We're in advanced discussions with leading diagnostics platform providers that are interested in enabling self-collected noninvasive testing across large and growing markets, including STIs, HPV and other disease states.

Next in product innovation. Regarding our Sherlock over-the-counter Molecular Diagnostics self-test platform and its first assay for CT/NG, we are making good progress in our clinical trial and our plan for submission to the FDA in late 2025 or early 2026. We anticipate gaining momentum for our product launches for innovation, and it's the work we've done in transforming our enterprise that also allows us to invest in creating a pipeline of earlier-stage opportunities in high-value growth markets that fit well with our strengths and our product platforms where we can compete and win.

Examples include categories where we already have a presence like in infectious disease and STIs plus in newer ones like liquid biopsy or say antimicrobial resistance, where rapid tests and differentiated chemistries have outsized potential to create and add value. We look forward to sharing more details as new product opportunities progress through our development process.

With that, I'll turn the call over to Ken to discuss our financial results and guidance.

Thanks, Carrie. Total revenue in the third quarter was $27.1 million. Core revenue, which excludes COVID-19 products and the molecular services and the risk assessment testing businesses that we exited was $27 million. Diagnostic products generated $14.5 million of revenue in Q3, and Sample Management Solutions revenue was $10.3 million. Excluding the headwind from the consumer genomic -- genetics customer, Sample Management revenue from the rest of our customer base grew on a year-over-year basis in Q3. Our GAAP gross margin in the third quarter was 43.5% and non-GAAP gross margin was 44.2%, which was slightly better than our expectations due to lower scrap expenses.

GAAP operating expenses in the third quarter were $27.9 million, which includes $2.8 million of noncash stock compensation expense and $376,000 of expense related to an increase in the estimated fair value of acquisition-related contingent consideration. Depreciation expense was $2.6 million in the quarter. Our GAAP operating loss in Q3 was $16.1 million, and our non-GAAP operating loss was $12.7 million.

Looking at our balance sheet. We ended Q3 with 0 debt and total cash and cash equivalents of $216 million. Operating cash flow in the third quarter was negative $10 million, which was consistent with Q2 and our expectations given our investments in the Sherlock platform, the CT/NG clinical trial as its first assay and other innovation projects.

We deployed $5 million during the third quarter to repurchase approximately 1.5 million shares of our common stock. Consistent with our capital deployment strategy, we also continue to evaluate organic and inorganic growth opportunities. As Carrie mentioned, we have signed a definitive agreement to acquire BioMedomics as a tuck-in commercial stage acquisition for $4 million upfront and potential contingent consideration upon achievement of revenue milestones. BioMedomics is currently approaching $1 million of annual revenue, and we believe OTI has the potential to grow back to several million dollars of annual revenue over the next few years. BioMedomics is expected to be cash flow breakeven with a path to a very attractive ROI as revenue grows over the next few years.

We anticipate minimal incremental operating expense for OTI given that BioMedomics can be plugged into OTI's international commercial organization and leverage our administrative and regulatory capabilities to expand availability and adoption of the Sickle SCAN rapid test.

Turning to guidance. We are guiding to fourth quarter revenue of $25 million to $28 million, which includes less than $100,000 of COVID-19 testing revenues. Our guidance also assumes continued disruption in ordering patterns from our SMS customer in the consumer genetics industry. This customer represents approximately $4 million of revenue in Q4 last year. We expect our gross margin percentage in Q4 to be in the low 40% range, which is slightly lower than third quarter due to typical seasonality and a greater mix of international revenue as a percentage of total revenue in Q4.

Moving to operating expenses. In Q4, we expect core operating expenses of approximately $20 million, plus $10 million of investments in innovation, which includes $7 million to $8 million of investments related to Sherlock. With that, I'll turn the call back to Carrie to conclude.

Thanks, Ken. We'll plan to exit the transition year of 2025 and head into 2026 with important near-term catalyst for growth as we advance into the next phase of our multiyear strategy. We've done the work in the last 3 years that gives us the confidence and the capabilities we need to achieve our goals. We have delivered cost productivity at the business level and product level, develop our people and infuse new talent in the organization, leveraged our commercial strength to diversify our customer base and implemented enterprise-wide rigor and built a strategic innovation road map, strengthened our cash flow profile while maintaining a strong balance sheet that has allowed us to invest in attractive innovation pipeline opportunities, including internal product development along with M&A.

We've also refreshed our Board with the addition of 3 new independent directors over the last 3 years, including last week's announcement, adding Steven K. Boyd as a Director and appointing Jack Kenny as Chair of the Board. Also, we'd like to thank Mara Aspinall, who has decided to step down after over 8 years of service to pursue new opportunities. We're grateful for her many contributions and wish her the very best.

Our foundation is strong, but our work is not done. We recognize that in order to capitalize on the many opportunities ahead of us, we must continue to execute on our priorities and deliver more innovation. Our entire team is working with urgency and is aligned in purpose to decentralize diagnostics and connect people to care that is more accessible, convenient, private and personalized to create long-term value for customers and shareholders. We're confident in the path ahead. With that, I'm pleased to turn the call over to the operator for Q&A. Operator?

[Operator Instructions]

Our first question comes from Mac Etoch from Stephens Inc.

I appreciate you taking my questions. just a few for me, and I'll let others ask some. But maybe could you just discuss this bio -- sorry, apologize if I am pronouncing incorrectly, BioMedomics acquisition and what attracted you to that asset just to start, and I'll follow up on that.

Yes. It's a really nice tuck-in that aligns precisely with our portfolio internationally. So rapid diagnostic testing for underserved markets -- the strength we have in Africa, including -- we don't talk as much about Latin America. But for low-cost tests that identify pressing health care challenges whether it's the infectious disease success we've had in HIV or HCV, sickle cell is one of those opportunities where the populations in those underserved regions are often undiagnosed. So we had heard that need. We've been talking with BioMedomics for many years and working with them. And so the opportunity to bring that -- to tap that into our portfolio, leverage the strength of our relationships, our commercial distribution and reach and just put it right into the portfolio made a ton of sense. So a very promising potential for what we think are smart capital deployment.

And Mac, we also -- we think it has a strong return on invested capital. You noticed in the deal structure, we said it's a small upfront with some contingent considerations if they achieve certain milestones, 3 to 5 years out. We believe that structure allows us to really deliver value. We mentioned also that it will be breakeven cash flow. And what that -- as Kerry mentioned, it's leveraging a lot of our capabilities. So we really don't need to add a lot to deliver this and to put it into our channel. And then as we grow the revenue, we'll be able to leverage and be accretive going forward.

I appreciate the context there. And then secondly, pretty good cost management on your part, both at the gross margin level and in terms of OpEx. Just given where revenues fell, can you just highlight some of the puts and takes around gross margins and then given the in-sourcing was completed in 2Q, are there any lingering costs that might have fallen into the quarter?

Yes, that's a great question. Yes, for gross margins, we did do a little bit better than guided than expected. A lot of that was driven by our lower scrap than expected, which is really a complement to our operations team and their continued automation and operational efficiencies. As far as OpEx, that was in line with our spend. And really, our core business essentially is breakeven and what we -- where we do choose to spend our dollars beyond that are on innovation. And in this case, innovation focused on delivering our Sherlock CT/NG clinical trial submission as well as internal innovation.

And then a little bit other benefits of gross margins, there was a little bit of a mix benefit in Q3. And we did mention we guided in Q4 that will be a little bit below Q3. Part of that is the mix, seasonality and the mix change where we expect to see a little bit more international revenue in Q4 as a mix, which will lower the margins a bit.

[Operator Instructions]

There are no further questions at this time. I would now like to turn the call back over to Carrie Eglinton Manner for closing remarks.

Thank you, Mac, for your questions and everybody for participating today. We appreciate your continued interest in OTI. And with that, we'll close the call. Thank you.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good day, and thank you for standing by. Welcome to the OraSure Technologies Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to Jason Plagman, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to OraSure Technologies Second Quarter 2025 Earnings Call. Participating in the call today for OTI are Carrie Eglinton Manner, our President and Chief Executive Officer; and Ken McGrath, our Chief Financial Officer. As a reminder, today's webcast is being recorded, and the recording can be found on our Investor Relations website.

Before we begin, you should know that this call may contain certain forward-looking statements, including statements with respect to revenues, expenses, profitability, earnings or loss per share and other financial performance, product development, performance, shipments and markets, business plans, regulatory filings and approvals, expectations and strategies.

Actual results could be significantly different. Factors that could affect results are discussed more fully in OTI's SEC filings, its annual report on Form 10-K for the year ended December 31, 2024, its quarterly reports on Form 10-Q and its other SEC filings. Although forward-looking statements help to provide more complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. OTI undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call.

With that, I am pleased to turn the call over to Carrie.

Thanks, Jason, and thank you to everyone for joining us today. We are pleased to provide an update on the progress OTI is making on the 3 pillars of our strategic transformation: one, strengthening our foundation; two, elevating our core growth; and three, accelerating profitable growth.

Today, I'll discuss some highlights from Q2 and our progress on our key priorities for 2025 and beyond. A few notable developments include. We reported revenue in Q2 that was in the top half of our guidance range for both total revenue and core revenue. We continue to advance our innovation road map in order to expand our portfolio with new products. To that end, we launched our HEMAcollect PROTEIN offering in July in an effort to meet the evolving needs of proteomic researchers. This product also expands our Sample Management Solutions into a new sample type, blood.

Next, Anne Messing joined OTI this week as Chief Commercial Officer. She will be responsible for sales, marketing and product management and will help shape the vision and management of our product portfolio with the aim to expand market leadership and drive sustainable accelerated growth. And as we previewed last quarter, during Q2, we substantially completed the transition from external contract manufacturing of our SMS products outside of the U.S. to our internal capabilities in Pennsylvania.

Looking at Q2. Core revenue of $30.8 million was above the midpoint of our guidance range. Diagnostics grew 3% year-over-year and Sample Management revenue decreased 22% year-over-year, with the decline attributable to a large customer in the Consumer Genetics segment, as we've discussed on prior calls. Excluding the impact of that customer, Sample Management revenue growth would have been positive on a year-over-year basis in Q2 and overall core revenue growth would have been 5% compared to the prior year.

Broadly speaking, our key end markets remain mixed, and we are staying closely aligned with our customers as they navigate an environment with improving but still elevated levels of uncertainty related to funding for public health programs as well as for research.

In our international Diagnostics business, we delivered year-over-year revenue growth in Q2 and the first half of 2025 despite unprecedented disruption due to USAID funding freezes for local distribution and implementation partners in many markets. Due to that disruption, the pace of deployment of HIV tests to end users in those geographies slowed considerably over the last 6 months, as also recently referenced by other industry suppliers.

We now expect a slower pace of international orders for our HIV test in the second half of the year as our in-country partners work through their existing inventory and national health programs adapt to changes in the funding environment. Longer-term, we remain confident in our competitive positioning in the international HIV testing market due to several important factors.

First, our unique oral fluid-based rapid test is preferred by patients. It's easy to use and interpret at the point of need, and it requires fewer resources and clinical support than tests that are lab-based or require collection of a blood sample. And second, OTI has a history of proven success with 10 years of consistent leadership and strong enduring relationships with customers and partners. Of course, we are closely monitoring the situation and actively engaging across the ecosystem in order to deliver on life-saving test-to-treat programs that remain critical to improving global health.

In our U.S. Diagnostics business, revenue has been relatively steady, declining 1% year-over-year in the first half of 2025. Many of our public health customers are dealing with elevated uncertainty given potential cuts to their budgets and significant reductions in staffing at HHS, CDC and other agencies that administer health programs.

In May, we discussed the pending wind down of Together Take Me Home, a federal program with strong bipartisan support in Congress that makes HIV self-tests available through the mail. Since then, program administrators have received a rescission of the closeout letter and Together Take Me Home may continue beyond the end of the federal fiscal year on September 30.

That said, program funding levels have not yet been communicated, and we continue to actively monitor the situation, which remains fluid. We expect to recognize approximately $0.5 million of revenue from Together Take Me Home in Q3 compared to $2 million in Q2 due to the timing of orders.

We are hopeful that we will be able to continue our work with our partners in the program, which has delivered significant benefits since it launched 3 years ago, including reaching at-risk populations who had not previously understood their HIV status and are now engaged in testing and prevention or treatment that improves their quality of life and helps end the HIV epidemic.

Switching gears to our Sample Management business. Our Commercial segment, which includes advanced diagnostic labs, pharma and biotech, and animal health companies, amongst others, grew in the first half of 2025, excluding the disruption we've experienced with our consumer genetics customer. In the Academic and Research segment, some of our customers have been negatively impacted by reductions in NIH funding as we discussed last quarter.

Looking ahead, we see continued stability in SMS revenue in Q3 and Q4. And specific to our large consumer genetics customer, we view the recent resolution of their ownership as a positive for everyone. Consistent with what we've shared, we do not anticipate any significant revenue from this customer in the second half of the year, and we think orders are more likely to resume in 2026.

As we described last quarter, we continue to believe it's a matter of time, when, not if, genomics end segments return to consistently stronger growth, driven by scientific advancements and greater clinical adoption of precision medicine. At the same time, we remain focused on maintaining strong customer relationships while cultivating new ones. As an example, we're pleased to announce the renewal of our agreement with GeneDx, a valued and long-standing customer.

Our ORAcollect kits help enable early diagnosis of rare pediatric diseases through the use of GeneDx's exome and genome analysis. We're also pleased to highlight one of our newer relationships with targeted genomics, the developer of GlutenID, the first and only U.S. FDA-cleared direct-to-consumer test for celiac disease genetics. Celiac disease, the most common intestinal autoimmune disease worldwide is triggered by dietary gluten in people who carry certain celiac risk genes. Individuals who test negative for these genes have less than a 1% chance for developing celiac disease.

GlutenID assesses all 15 possible genetic combinations of the risk genes using DNA isolated from saliva and collected with our ORAcollect Dx device. This test allows for at-home collection of saliva samples, simplifying the test process so patients can get actionable answers and ultimately relief. OTI is proud to collaborate with targeted genomics to make celiac disease screening more accessible and convenient for at-risk individuals and their families.

In addition to expanding our customer relationships, we also continue to advance our innovation road map. As planned in July, we launched our HEMAcollect PROTEIN product. This blood collection device and chemistry has the potential to transform proteomic research and discovery through extended protein stabilization at room temperature and a simplified workflow, and it is anticipated that use of the device for sample collection will deliver operational and financial efficiencies to researchers.

The HEMAcollect PROTEIN collection kit is compatible with a broad range of proteomic technologies, including mass spec, immunoassays and high-throughput affinity-based platforms. We believe our HEMAcollect PROTEIN offering represents a significant advancement in sample collection for proteomics and that it can support research and laboratory developed tests in rapidly growing applications such as oncology, neurology, cardiology, metabolic disorders and beyond.

Moving to our Colli-Pee device, which is designed for first void urine collection. We're making strong progress toward our planned goal of a 2025 FDA submission. We're in active discussions with leading diagnostics platform providers seeking to expand into self-collected non-invasive testing across large and growing markets, including sexually transmitted infections, HPV and other disease states.

These segments represent multibillion-dollar global TAM, and we see significant growth opportunities for Colli-Pee, driven by patient preference for less invasive sample collection and increased demand for convenient, accessible and private diagnostic options. For HPV specifically, Colli-Pee also addresses long-standing challenges with urine-based testing by enabling assay sensitivity and specificity comparable to invasive swabs, opening the door to broader, more inclusive screening programs.

Meanwhile, oncology and liquid biopsy applications are also gaining momentum with urine emerging as a powerful new matrix for early cancer detection. Coupled with our proprietary DNA, RNA stabilization chemistry, Colli-Pee is uniquely positioned to power the next generation of high-impact patient-centric diagnostics.

Next in product innovation, our clinical study for Sherlock's first over-the-counter molecular self-test for chlamydia and gonorrhea or CT/NG is progressing well. We remain on track to submit data to the FDA by the end of 2025. As a reminder, CT/NG testing is the largest market within STIs, and it requires molecular technology.

Sherlock CT/NG test is truly disposable at-home test designed to deliver lab-like clinical performance with a rapid turnaround time at what we believe will be an attractive price point. Of the tens of millions of CT/NG tests performed in the U.S. each year, the vast majority are currently processed in a centralized lab. We are confident that the introduction of an affordable over-the-counter test has the potential to drive incremental market adoption through improved access to convenient private testing options in a segment where privacy is a key priority.

As I've described today, our team is making meaningful progress in advancing our innovation road map in order to expand our portfolio through new product launches, and we are also expanding and diversifying our client relationships in new segments. We expect our momentum to accelerate under the leadership of our new Chief Commercial Officer, Anne Messing. Anne brings more than 25 years of commercial leadership experience in life sciences, diagnostics and clinical laboratory services. Prior to joining OTI, she was Vice President and General Manager of the U.S. region for Becton Dickinson, BD Biosciences. And Anne's prior experience at Danaher, Quest Diagnostics, Siemens and in hospital labs is both valuable and relevant for OTI and for our customers. Anne has a proven track record of driving growth, building high-performing sales teams and transforming strategic vision into demonstrable results and sustainable success. We are excited to welcome Anne to our business and leadership team.

With that, I'll turn the call over to Ken to discuss our financial results and guidance.

Thanks, Carrie. Total revenue in the second quarter was $31.2 million. Core revenue, which excludes COVID-19 products and the molecular services and risk assessment testing businesses that we exited was $30.8 million. As Carrie mentioned, core revenue growth in Q2 would have been positive on a year-over-year basis if you exclude the decline in revenue from the large consumer genetics customer.

Diagnostic products generated $19.2 million of revenue in Q2 and grew 3% year-over-year. Sample Management Solutions revenue in the second quarter was $9.9 million. Excluding the headwind from the consumer genetics customer, sample management revenue from the rest of our customer base grew on a year-over-year basis in Q2. COVID-19 and risk assessment testing products contributed $474,000 of revenue combined in the second quarter, which was consistent with our guidance, and we completed our exit from the risk assessment testing business during Q2.

Our GAAP gross margin in the second quarter was 42.1% and non-GAAP gross margin was 43.2%, which was better than our expectations. GAAP operating expenses in the quarter were $31.2 million, which includes $3.2 million of non-cash stock compensation expense, $751,000 of severance expense, $733,000 of expense related to an increase in the estimated fair value of acquisition-related contingent consideration. Our GAAP operating loss in Q2 was $18 million, and our non-GAAP operating loss was $13.2 million.

Looking at our balance sheet. We ended Q2 with 0 debt and total cash and cash equivalents of $235 million. Operating cash flow in the second quarter was negative $10 million, which was consistent with our expectations given our investments in the Sherlock platform, the CT/NG clinical trial as its first assay and other innovative products.

Switching to capital deployment. We deployed $5 million during the second quarter to repurchase 1.8 million shares of our common stock. Consistent with our capital deployment strategy, we also continue to evaluate inorganic growth opportunities that would expand our product portfolio, especially with commercialized innovation and accelerate near-term revenue.

Turning to guidance. We are guiding to third quarter revenue of $27 million to $30 million, which includes less than $100,000 of COVID testing revenues. On a sequential basis, our Q3 revenue outlook is influenced by the international order trends in our diagnostic business that Carrie described as well as the timing of orders from the Together Take Me Home program in the U.S.

Our guidance also assumes continued disruption in ordering patterns from our SMS customer in the consumer genetics industry. This customer represented approximately $4 million of revenue in Q3 2024. And as Carrie mentioned, we don't expect significant revenue from them this year. We expect our gross margin percentage in Q3 to be consistent with the second quarter.

As we previewed last quarter, we have substantially completed the transition from external contract manufacturing of our Sample Management Solutions products to our internal capabilities in Pennsylvania. This project was completed months ahead of the expected timeline when we initiated the project in early 2024. We expect that our operating efficiencies from the transition to in-house manufacturing will gradually ramp up in the second half of 2025 and gain additional momentum in 2026, which we can optimize further with increasing volume.

Moving to operating expenses. In Q3, we expect core operating expenses of approximately $20 million plus $10 million of investments in innovation, which includes $7 million to $8 million of investments related to Sherlock.

With that, I'll turn the call back to Carrie to conclude.

Thanks, Ken. As we've discussed today, we delivered Q2 results that were on the higher end of our guidance range across many key metrics despite a challenging external environment where uncertainty remains through 2025.

That said, we are confident that OTI is positioned to return to growth in 2026 as our end segments and customers adapt to the new normal environment and as we continue to focus on providing differentiated solutions that our customers value, like HEMAcollect PROTEIN as well as exciting new product launches that are on the near-term horizon.

Our work over the last 3 years to strengthen our foundation, including fortifying our balance sheet and instilling an enterprise-wide focus on innovating and operating with disciplined execution and accountability, allows us to make investments in new products that we believe can deliver strong returns beginning in 2026, such as our Colli-Pee urine collection as well as Sherlock low-cost molecular diagnostics.

We are focused on deploying our capital for long-term value creation. And we are confident that OTI has the expertise, capabilities, customer relationships and product road map to methodically build a stronger enterprise.

With that, I'm pleased to turn the call over to the operator for Q&A. Liz?

[Operator Instructions] Our first question comes from Patrick Donnelly with Citi.

This is [ Brendan ] on for Patrick. I wanted to start on the 3Q guide. I definitely appreciate the color you guys gave there. But I was wondering if you can go into the specifics between like the HIV and HCV platforms. And then on the margin line, if you can go into a little bit more color on like how much more additional leverage you guys can get for 2025, moving the manufacturing in-house.

Yes. Thank you, Brendan. I'll start with the margins from -- and as we guided to, we guided to Q3 being relatively consistent with Q2. And what we are expecting now and with project of transferring or transitioning our manufacturing from in-house from contract manufacturing, we have substantially completed that transition. And so now we are expecting as -- it also depends on volume, volume dependent. We are expecting the benefits of that transition to start in the second half and then ramp up in 2026.

And then the second part of it is around Q3 revenue. So Brendan, while we don't provide sort of segment guidance, what we would say is we would call out what we called out in our prepared remarks, which was the Together Take Me Home change of expectation where we would typically expect a run rate more in the $2 million a quarter range where what we have in the plan is $0.5 million.

We do have and -- the potential for that program to continue. The current appropriations bill that will be voted on in the house has bipartisan support that includes that HIV moving forward. But I don't think that changes the expectations around Q3. Q3 really is at the volumes we've talked about, we think that's kind of the line of sight we have, and there is uncertainty beyond that. But we think with real potential for that program to continue, funding hasn't been shared, but it's definitely a real potential.

And then related, I think you were asking about HIV and HCV. For HCV, we expect that to be relatively stable on a quarter-over-quarter basis. For HIV, for international, we do expect a slower pace of the orders in Q3 as -- and we talked about a little bit of the dynamics in the past calls around some of the disruption from USAID funding, where the disruption was really in the infrastructure portion. And where we saw was that countries were building up inventory, and now they're working through that as they work through and build up that infrastructure again, they're working through the existing inventories. So we do expect a slower pace in Q3 in the second half of the year to kind of bleed through that event.

So it's part of international, it's part U.S., and that's really a big driver of that quarter-over-quarter change.

Got it. And then also, I just wanted to touch on the blood proteomics, definitely understand that it's early in kind of the launch, but what's kind of the initial traction been like or feedback from customers been? And then if you could kind of remind us on what -- are there any specific areas you guys are kind of targeting and what the potential opportunity looks like there?

Yes. Thanks, Brendan. We've had enthusiastic customer engagement around the launch of HEMAcollect PROTEIN. As a stabilization device, we think it's uniquely positioned to help researchers in the operational efficiency and workflow with stabilizing proteins for up to 7 days at room temperature and really high-quality analysis potential on multiple types of technologies, including next-gen proteomics technologies.

So this is an emerging space. There are a lot of platform providers making headway in this space as well. And I think the opportunity here with an RUO launch and research is really to be a part of that exploration. We've called out clinical opportunities that range from oncology, neurology, cardiology, cardiometabolic disorders. And I think there's -- the applications are broad because proteomics is so broadly applicable in clinical disease growth and opportunities. So -- and we think momentum, we've talked about gaining momentum with that product launch into '26, but I think off to a really good start.

Our next question comes from Andrew Cooper with Raymond James.

This is Noah on for Andrew. First question for me. Kind of going back to the gross margin, thing that Brendan was asking about. In the quarter, you brought things back from Canada or moved things from the external contract manufacturing back into Bethlehem. Was there any impact to -- I think you called out packaging improvements, maybe some technological improvements. I don't think you mentioned any volume, but just trying to get some of the moving pieces there because you came in a little above our number this quarter. Was it purely the manufacturing? Or was there a little bit more at play there?

It was a combination of some of the manufacturing. So the improvements that we talked about in prior quarters around packaging, around internalization of reagents and areas there, a lot of that is volume dependent. And as we ramp up volume, we take advantage of those benefits. But as far as -- and those are more long-term opportunities as -- again, as the volume ramps up. In this particular quarter, again, like you said, mostly driven by the improvements from manufacturing. We did have a little bit lower scrap in this quarter in Q2 than prior quarters. But you got it -- you nailed it on the head there.

Okay. Awesome. And then Diagnostics came in a little bit better as well versus our numbers. And I know you called out some of the international growth despite the headwinds. I'm just kind of curious, like what are you seeing in the clinical setting? I think you called out in 1Q. So how is that trajectory gone? And then also, I would just want to know if there's been any like pull forward from tariffs on that end that might be causing a little bit of the strength.

Yes. From Diagnostics, part of it was, Carrie mentioned, Together Take Me Home and some of the timing of the patterns there. And what we are expecting in Q3 is a little bit of a slowdown there for Together Take Me Home. So Q2 saw some of the benefit of pulling ahead there.

From international, and we've talked about this in the past there, it's a little bit the timing of some of these big orders. And we did see timing -- positive timing in Q2. We are expecting a little bit of a slowdown in Q3 and the second half. And as we described earlier with Brendan, part of that is just where the countries -- with the disruption, the countries have built up some inventory within -- particularly in Africa, and they are now bleeding out that inventory. So we're seeing a little bit of a slowdown in the second half and then expect somewhat return going forward.

And the only thing I'd add, Ken hit it right on, but the only thing I'd add is that we are intentionally expanding across customer types in domestic diagnostics as well to hit more of the clinical health care settings, emergency rooms, clinics and beyond to try and offset some of the challenges in public health, quite frankly, programs, both in the U.S. and international as well as bringing the Syphilis offering in, which is our -- in partnership with Diagnostics Direct with Syphilis Health Check and selling that side-by-side with HIV and HCV. So there's some momentum, but I'd say those are really the offsets to what have remained kind of this mixed domestic public health and international public health.

That concludes today's question-and-answer session. I'd like to turn the call back to Carrie Eglinton Manner for closing remarks.

Thanks, Liz. We just want to thank everyone for participating in today's call and for your continued interest in OTI. And with that, we'll close out. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.