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OraSure Technologies (OSUR 0.57%)
Q1 2019 Earnings Call
May. 08, 2019, 5:00 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon, everyone, and welcome to the OraSure Technologies 2019 first-quarter financial results conference call and simultaneous webcast. As a reminder, today's conference is being recorded. [Operator instructions] OraSure Technologies issued a press release at approximately 4 p.m. Eastern Time today regarding its 2019 first-quarter financial results and certain other matters.

The press release is available on our website at www.orasure.com or by calling (610) 882-1820. If you go to our website, the press release can be found by opening the Investor Relations page and clicking on the link for press releases. With us today are Dr. Stephen Tang, president and chief executive officer; and Mr.

Roberto Cuca, chief financial officer. Dr. Tang and Mr. Cuca will begin with opening statements, which will be followed with a question-and-answer session.

Before I turn the call over to Dr. Tang, you should 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 the company's SEC filings, including its registration statements, its annual report on Form 10-K for the year ended December 31, 2018, its quarterly reports on Form 10-Q, and its other SEC filings.

Although forward-looking statements help to provide complete information about future prospects, listeners should keep in mind that forward-looking statements are based solely on information available to management as of today. The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after this call. With that, I would like to turn the call over to Dr. Stephen Tang.

Stephen Tang -- President and Chief Executive Officer

Thank you, Jeanne. Good afternoon, everyone, and welcome to our call. I'm pleased to report that our first-quarter revenues and bottom-line performance fell within the financial guidance we announced during our last earnings call and represent a good starting point for the second quarter and full-year 2019. Our innovation-driven growth strategy is working and delivering many positive developments during the quarter that we'll detail later in the call.

We remain confident in our strategy and our ability to execute against our strategic priorities. During our last call, we reported that a large consumer genetics customer had recently adopted a new promotional strategy, and as a result, reduced its purchase forecast for the year. While that unfortunate development had a measurable effect on our Q1 results, it's important that we not let the event obscure the significant positive progress underlying our business. For example, apart from that large customer, our genomics business showed year-over-year growth in Q1, and we expect this growth to continue for the foreseeable future.

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Looking at accounts other than this one customer, we expect the genomics business to grow by healthy double digits in 2019. Genetic testing is at a much earlier stage in the Asia-Pacific market, and we are well positioned to serve the needs of this market. We see it as a significant growth opportunity which is already contributing to our financial results. The microbiome market is also in an early stage, and the potential is enormous for a company with our position in the market.

Our microbiome sales are growing robustly each quarter and should also contribute double-digit growth for the year. The addition of CoreBiome has enabled us to expand and strengthen our microbiome offerings with cutting-edge laboratory and bioinformatic analysis and services. Multiomics is an emerging approach to evaluating health that's also a significant growth potential. This relatively new field provides a multi-factorial examination of our health.

Our ability to provide customers both genomic and microbiome products and services is an important foundation for OraSure to become a leading source for multiomics tools and analytics. In our infectious disease testing business, we expect another strong year of growth, particularly for our HIV self-test, although this growth may not be distributed evenly over the year due to timing of orders. Despite this choppiness, we project double-digit revenue growth for our global HIV franchise this year. Our HCV business also grew during the quarter on both the domestic and international fronts.

We believe that additional funding is driving this growth and that funding will continue to be available. Finally, we demonstrate our ability to execute against our acquisition growth strategy with the CoreBiome and Novosanis transactions in Q1. After only a few months, these acquisitions are already expanding our market reach with new products and services. We see these acquisitions as just the beginning, as we plan to remain very active pursuing additional transactions.

So, there's more to come because of our very strong balance sheet and our considerable focus on business development. As you can see, we are enthusiastic about this quarter and our future. The foundations of our business are strong, and we're seeing growth in the areas which we've targeted and invested. Importantly, we are on the right path with our innovation growth strategy, despite the negative effect on near-term revenue by the new market approach of a large customer.

Looking ahead, we expect the underlying strength of our infectious disease testing and our molecular solutions segments will become more fully demonstrated as the year progresses. Turning briefly to the quarter, the decline in our revenues compared to the first-quarter 2018 was primarily the result of the reduced purchases by that large customer I mentioned earlier, and some unevenness in the timing of customer orders for our OraQuick HIV Self-Test in international markets. Nonetheless, we delivered Q1 results within our expectations. Beyond the first quarter, we expect strong molecular growth outside of the one large customer -- genetic customer.

We expect sales to this customer will be consistent with its annual minimum contractual purchase obligation. This, combined with continued growth in our global infectious disease testing business, will drive solid financial results and gives us the confidence to issue full-year guidance. Our guidance for Q2 and the full year reflects the continuing success we anticipate as we further execute on our growth strategy. With that, let me now turn things over to Roberto for his financial review.

I will then follow up with some additional insight into the trends and factors that help validate our strategy and that are expected to benefit our business for the remainder of 2019 and beyond.

Roberto Cuca -- Chief Financial Officer

Thanks, Steve, and good afternoon, everyone. Our first-quarter net revenues decreased 28% to $30.1 million from $41.9 million reported in the first quarter of 2018. Our net product revenues decreased 26% to $28.3 million, compared to $38.3 million in the prior-year period. As Steve just described, much of this decrease was driven by the changed market approach of a single large consumer genetics customer and the uneven distribution due to ordering patterns of the strong international HIV sales we expect over the course of this year.

Our molecular net revenues, including other revenues, decreased 40% to $11.1 million in the first quarter, compared to $20.0 million in 2018. Royalty income declined 32% to $1.1 million in the first quarter of 2019 from $1.6 million in the same period of 2018. Molecular product revenues decreased 42% to $10.6 million in the first quarter of 2019, compared to $18.4 million in the first quarter of 2018. Sales of our genomic products declined 53% to $8.1 million, largely due to the lower sales to a large consumer genomics -- genetics customer, as previously described.

Microbiome sales increased 83% to $2.3 million, up from $1.3 million in the first quarter of last year, due both to organic growth, as well as the inclusion of lab services revenues generated by our newly acquired subsidiary, CoreBiome. Domestic HIV sales decrease 14% to $4.3 million in the first quarter of 2019, compared to $5.0 million in the first quarter of 2018, largely due to decreased sales of our OraQuick In-Home test and lower sales of our professional product as a result of continued product and price competition. International HIV sales decreased 30% to $4.0 from $5.7 million in the first quarter of 2018 due to customer ordering patterns, partially offset by higher sales of our HIV Self-Test into Asia. Quarter-to-quarter variability in volume is expected, as the programs utilizing our self-test continue to create awareness and assess and respond to ongoing demand.

Domestic HCV sales increased 12% in the first quarter of 2019 to $1.8 million from $1.6 million in the prior-year period, largely due to increased government funding that is allowing for the expansion of existing HCV testing and treatment programs and the creation of new programs. International HCV sales in the first quarter of 2019 increased 119% to $1.5 million from $665,000 in the same period of 2018, primarily due to continued growth in Asia, as well as customer ordering patterns. Other revenues were $1.8 million in the current quarter, compared to $3.7 million in the prior year. The decrease is largely due to lower royalty income and decreases in BARDA funding, and cost reimbursement under our charitable support agreement with the Gates Foundation.

The reduced BARDA funding is an indication that we are wrapping up the work under this program and rotating R&D resources to projects that are aligned with our long-term growth strategy. Gross profit percentage for the first quarter of 2019 was 60%, compared to 58% reported for the first quarter of 2018. Gross profit percentage for the current quarter benefited from improved product mix associated with an increase in higher gross profit percentage product sales and lower royalty expense, partially offset by the decrease in other revenues, which contribute 100% to the gross profit percentage. Our operating expenses for the first quarter of 2019 were $21.9 million, compared to $25.0 million in the comparable period of 2018.

Operating expense in the first quarter of 2019 included $1.3 million of noncash acquisition-related contingent consideration costs, the incremental operating expenses of CoreBiome and Novosanis, and $597,000 of acquisition-related transaction costs. There were no similar acquisition-related costs in the first quarter of 2018. The first quarter of 2018 included $6.4 million of transition costs associated with executive management changes that occurred during that period. There were no material transition costs in the first quarter of 2019.

In the first quarter of 2019, we recorded an income tax benefit of $29,000, compared to income tax expense of $2 million in the same period last year. The decline in tax expense reflects the lower pre-tax earnings generated by our Canadian subsidiary and the results generated by Novosanis. We reported a net loss of $3.3 million, or $0.05 per share, for the first quarter of 2019, compared to a net loss of $2.1 million, or $0.03 per share, for the first quarter of 2018. We continue to maintain a solid cash and liquidity position.

Our cash and investments balance at March 31st, 2019, was $183.6 million, compared to $201.3 million at December 31st, 2018. During the first quarter of 2019, we used $13.3 million of cash to acquire CoreBiome and Novosanis. Cash generated by operating activities for the first quarter of 2019 was $528,000, compared to $7.6 million in the same period of 2018. Turning to guidance, for the second quarter of 2019, we are projecting revenues of $40.0 to $42.0 million and net income of approximately $0.02 per share.

For the full year of 2019, we are projecting revenues of $170 million to $175 million, and net income of $0.22 to $0.24 per share. These projections do not account for the impact of changes in the fair value of acquisition-related contingent considerations or potential business development transaction costs since the full extent of these items cannot be determined at this time. And with that, I'll now turn the call back to Steve.

Stephen Tang -- President and Chief Executive Officer

Thanks, Roberto. I'd now like to share with you some key market trends in our molecular and infectious disease businesses that substantiate our strategy and support our guidance. Let me first start our discussion with the molecular business, which will continue to be a key driver of our overall business. The genetic testing market has been the largest component of our overall molecular business for some time and continues to evolve.

Given the importance of the genetic testing market to our business, I would like to describe some of the trends we're seeing, based on a combination of data analysis, customer feedback, and market research, which we recently conducted. Of most interest are the market dynamics affecting two areas within genetic testing. They are ancestry and disease risk management. Ancestry testing consists primarily of genetic tests to provide consumers with genealogical information.

This is the largest and most developed component of the genetic testing market. Historically, the growth in ancestry testing seems to have been strongly tied to advertising spending and promotional pricing offered by the leading direct-to-consumer companies. It appears that the ancestry market in the United States is maturing. As such, we expect to see the growth rate of that subsector of the overall genetic testing market slowing and likely leveling off in the next couple of years.

Outside the U.S., however, we are seeing and expect to continue to see significant growth in genetic testing. As previously noted, the Asia-Pacific market is at a much earlier stage than the U.S. market. Our market analysis suggests that it may be as much as five years behind the domestic market, so there is much room for us to grow.

In Q1, although the dollar amount is relatively low, we saw our sales increase 231% in Asia when compared to the first quarter of 2018. This type of growth reflects increased product offerings, new market entrants, and expansion of existing customers, like WeGene, in the new geographies in Asia. Given the early stage of this market, we expect continued robust growth for the foreseeable future. The other key submarket of genetic testing is disease risk management, which encompasses genetic tests that provide information about an individual's genetic health risk.

Examples include an individual's predisposition to diseases, such as cancer and carrier status. Pharmacogenomics and companion diagnostics are also included in this submarket. We are seeing a steady increase in the number of new customers in this area and consistent growth as companies are adding to their test menus and increasing their test volumes. We believe that uptake in this market will be highly dependent on practitioner awareness and consumer awareness of emerging patient-initiated testing models.

Given the increased focus on personalized medicine, we see much potential for growth in disease risk management. We currently count several pioneering companies in this space as customers. One example of such customers is Helix, which recently announced an increased focus on enabling population-based health studies, such as the Healthy Nevada project. This study, which has enrolled over 35,000 participants since its launch two years ago, has just been expanded to the entire state of Nevada, with the goal of becoming a nationwide model.

We are proud of our relationship with Helix and believe we are uniquely qualified to serve this market, thanks to our leadership position in DNA collection, our focus on high quality products, and our FDA and other global regulatory clearances. Moreover, with the addition of Novosanis's Colli-Pee collection device, which is designed to collect first-void urine samples, we are now able to expand the type of specimen collection kits we offer to serve new markets, including the sexually transmitted infection and cancer screening markets. An increased number of testing guidelines are including first-void urine as a recommended specimen type. In particular, urinary human papilloma virus, HPV detection, is an alternate sampling method to improve cervical cancer screening participation.

All these trends are already positively affecting our genomics business. For example, we added more than 40 new genetic testing customers in the first quarter, continuing the trend of new customer addition seen in prior periods. Our collection device unit sales to customers, other than that large consumer genomics customers, grew 72% in Q1 compared to the comparable quarter in 2018. There are now two customers in Asia and 12 disease risk management customers in our list of top 20 customers, based on a trailing 12-month sales.

And sales to disease management accounts within our top 20 accounts for the last 12 months were up over 505% compared to the prior 12-month period. Finally, there are other parts of the consumer genetic testing market that are expected to grow, but today are only small contributors to our business. These include lifestyle testing, which uses genetic tests to provide lifestyle information around metabolism, fitness, health traits and entertainment, and companion animal genetic testing. We believe these areas, as well as others, will undoubtedly emerge and could become meaningful contributors to our business.

If you're been following OraSure, you know that we've highlighted the similarities between the trends in the microbiome research market and the early days of genetic testing. That similarity continues. In the microbiome market, we delivered another record performance, with the first-quarter revenues up 83% when compared to 2018. This represents a 30% increase in sample collection kits shipped, and a 56% increase in first-time purchasers of our kits, when compared to the prior-year quarter.

Both of these metrics support our view that the recent strong growth in this market is likely to continue for the foreseeable future. As we have learned from our human genomics experience, new customers tend to start with small volumes of devices, as they validate their study and lab protocols, then expand their studies as new funding becomes available. Diversification of our microbiome offerings remains a key focus. We intend to continue expanding our collection kit offerings to include different specimen types, such as skin, in addition to stool, for microbiome analysis.

With the acquisition of CoreBiome, additional opportunities are also opening for our microbiome analysis, including not just human microbiome tests but also environmental and agricultural testing. Approximately 60% of CoreBiome's customers are currently in the area of pharmaceutical discovery and clinical trials. We expect that pharmaceutical customers will continue to be important early adopters of advanced multiomic data analysis. In fact, during the first quarter, CoreBiome entered into a contract with a significant new customer to provide advanced machine learning for biomarker discovery.

This type of discovery is expected to help advance our understanding of optimal disease treatments. We're also thrilled with the recent addition of Dr. Rob Knights -- excuse me, Dr. Rob Knight to CoreBiome's scientific advisory board.

Dr. Knight is professor and director for the Center of Microbiome Innovation at the University of California, San Diego, and one of the most widely cited scientists in the microbiome field. He was a key contributor the National Institutes of Health Human Microbiome Project and is also a thought leader who developed many of the foundational tools underlying microbiome science. His involvement as an advisor to our business exemplifies how we're working with field experts in our key growth areas and further demonstrates our commitment to driving innovation in the microbiome community.

As previously noted, we continue to see nice synergies within our molecular business, as more of our existing human genomics customers start to move toward multiomics by introducing a microbiome component to their studies and offering. In particular, we saw a 33% increase in customers who are using both genomics and microbiome kits during the first quarter of 2019, compared to the prior-year quarter. We see this trend continuing. We'll continue to evolve our multiomics strategy in order to maximize the potential for this emerging area of human health.

Turning now to infectious disease, our global HIV revenues were down in Q1 compared to 2018, primarily as a result of the timing of orders for our OraQuick HIV Self-Test. In particular, lower sales in Africa were only partially offset by growth in Asia. As indicated in prior calls, the quarterly volume of self-test sales can be a bit choppy, as individual countries determine their utilization of product. This is part of the normal development cycle within this market that involves the start-up of new testing programs, where awareness needs to be created and routine utilization is being determined.

However, we expect that our HIV global business will show solid double-digit growth for the full year, once again, primarily driven by increased self-test revenues in subsequent quarters. We are continuing to see the HIV Self-Test market develop, as countries with existing programs reorder product, additional countries move from a pilot stage to full scale-up for their programs, and the number of country registrations for our product continues to increase. As previously noted, phase 2 of the STAR, or Self-Testing Africa program, has largely ended, and a majority of our volumes are now coming from non-STAR countries. We expect that trend to continue.

We've also had numerous discussions with major funders of testing programs. Although these discussions do not guarantee additional purchases, these funding organizations have signaled their intention of beginning or increasing their investment in the self-testing market. As you may recall, we previously mentioned that UNITAID will be funding another self-testing project involving the Ivory Coast and other nearby countries. This funding has begun, and initial shipments of our test for that program occurred in Q1.

Although this program will be much smaller than the STAR program, it is a concrete example of how and where additional funding is driving growth in HIV self-testing. Our activities under the support agreement with the Gates Foundation also continue, as expected. We now have product registrations in 15 countries, submissions pending in an additional 17 countries, and other registration applications being prepared. We are gradually expanding our access to the 50 countries covered by the Gates agreement, and our strategy for regulatory submissions and approval reflect how this market is developing and growing.

All this continues to lend support to the robust projections previously announced in a report by UNITAID and the World Health Organization, or WHO, which we discussed in prior calls. That report suggests self-test demand would increase from 1 million tests in 2017 to an average range of 16 million tests by the end of 2020, with the higher end of that range reaching just over 19 million tests per year. Along these lines, in March of this year, the Journal of International AIDS Society published a comprehensive review entitled Realizing the Potential of AIDS -- of HIV Self-Testing for Africa, Lessons Learned from the STAR Project. This report concluded that HIV self-testing has substantially developed in recent years, and it's now considered a critical HIV response strategy in controlling the epidemic.

The report also concluded that a new testing paradigm, based in part on HIV self-testing, is the key part of HIV response over the next decade and will be critical to achieving 95% diagnosis in broad geographic markets during that period. As the first WHO pre-qualified HIV self-test, OraSure is leading the way in self-testing. So with what we're seeing in our own business, coupled with the market developments I've outlined, we are quite optimistic about the continuing growth potential for our HIV global franchise.Turning briefly to our OraQuick HCV business, global revenues grew 43%, with international sales increasing 119% compared to the first quarter of 2018. We are seeing growth primarily in Asia and Eastern Europe with the expansion of existing programs and new customers, and new testing and treatment programs emerging.

Our domestic HCV business is growing, as well, with revenues up 12% for the quarter. This growth was generally derived from the initiation of new programs and the expansion of existing programs. Funding for this growth is coming from the combination of the Centers for Disease Control and Prevention and state jurisdictions that are finding additional funds within their existing budgets. As you may know, the current federal budget includes an additional $5 million in funding to manage the impact of the opioid epidemic on infectious disease, with HCV being one of the diseases specifically mentioned.

In the proposed 2020 federal budget, an additional $291 million is being requested in order to end the HIV epidemic, and another $58 million is being requested to address the infectious disease consequences of the opioid epidemic. So we believe more funding is likely to continue for both HIV and HCV and will help enable the HCV franchise to continue as a growth driver and help stabilize our HIV franchise. So, in closing, despite the headwind from that large consumer genomics customer, our overall business is performing as well as would have been expected or even better in certain areas. Our innovation growth strategy is working, and we expect it to continue to benefit from the large and growing markets we serve.

It should be clear from our second quarter and full-year guidance that we anticipate a strong second half of the year. Our business is well positioned to deliver strong growth in future periods, both through acquisition and strategic execution. We are particularly excited about the prospects for the international genomics market, the growth of disease risk management submarket of genetic testing, particularly around population studies and our microbiome products and services, as well as our unique ability to support the emerging multiomics making. Our infectious disease segment is on track, and we expect significant growth from our global HIV franchise.

In addition, we see our HCV product as an ongoing contributor. Based on our extensive market research and discussions with customers, we are confident that our best days are ahead. We believe that we have the right products, leadership team, balance sheet, and business strategy in place to capitalize on the opportunities before us. It's exciting that the many key markets we serve are very large for a company of our size, and these opportunities are still mostly in their infancy.

I would also emphasize that we're not only adding new customers due to expanded offerings, but we're also increasing the size of our existing relationships. Importantly, we do not have another customer close to the size of the one that changed its purchasing expectations. Therefore, it is safe to assume that another disruption to our top line coming from a single customer is unlikely going forward. Lastly, we are confident that we can deliver on our full-year guidance, and we are committed to using our balance sheet to enhance our already attractive long-term growth prospects.

And with that, we will now take your questions. Operator, please proceed.

Questions & Answers:


[Operator instructions] Your first question comes from the line of Mark Massaro of Canaccord Genuity.

Max Masucci -- Canaccord Genuity -- Analyst

Hi, this is Max on for Mark. So the royalties from ancestry, they came in at about 1.1 million, which is down about 31% year over year. So, I guess, how do you reconcile this with your expectation for double-digit growth outside of the large customer? And for the royalties, do you see a situation where you return to the run rate levels that we saw in Q2 or Q4 of last year?

Stephen Tang -- President and Chief Executive Officer

So, thanks for the question, Max. So with regard to the royalty, one of the things we've been hearing from market participants is that consumers have potentially been trained to wait for holiday periods, when they know that the big consumer suppliers will provide discounts. So what we're expecting from that is that the seasonality that we've seen in the past is likely to become even more amplified going forward, such that the revenues that we expect from the consumer genomics customers are likely to be even more back-loaded. And what we expect happened is that, for the first quarter, some of the demands that otherwise would have been there was drawn into the fourth quarter of 2018, and some of it is likely to be delayed later into the year, around the typical holiday buying periods.

Max Masucci -- Canaccord Genuity -- Analyst

OK. And regarding your full-year guidance, so can you help us understand what gave you the confidence to provide your first full-year guide? Are you now receiving longer-term forecasts from the large DTC customers? I believe you previously communicated that you had 90 days of visibility within DTC. Has this increased at all?

Roberto Cuca -- Chief Financial Officer

So there are a number of drivers of our growing confidence about our ability to forecast. So one is that, as the international HIV market has become larger, the variability in that, on a percentage basis, has become a bit smaller. And the communications that we've set up with existing customers are better and permit us to better forecast demand over the course of the year for those sorts of products. As Steve has pointed out, there's still likely to be some lumpiness from quarter to quarter in our HIV and HCV numbers, but for the year, we have a pretty good sense of where things will come in.

As Steve also mentioned in his prepared remarks, now that that one largest consumer genomics customer has revised their approach to the market and reduced their purchasing closer to their annual minimums, we're able to rely on that contractual provision as a better guide for what that particular customer is likely to be purchasing.

Max Masucci -- Canaccord Genuity -- Analyst

Great, that is helpful. And one more, if I can. Can you just help us understand the assumptions around molecular collections in Q2 and in the full-year guide? Can you just point to any particular factors that help you return to growth in Q4? Thanks.

Stephen Tang -- President and Chief Executive Officer

So, you know, as we stated, we expect that both in the infectious disease business and in molecular -- and in genomics in general, excuse me, excluding the effect of the two acquisitions and the one big customer, we expect double-digit growth year over year. As is probably evident from the combination of the second-quarter guidance and the full-year guidance, a lot of that will be back-loaded in the year, and that reflects, as I just mentioned, what we understand to be happening in the customer end of the market, the consumer end of the market, which is that consumers have learned to delay their purchasing until around holidays when discounting occurs. So, you know, all that put together, we do have a positive view of the full year. We took a bit of a lump in the first quarter here because of that one change due to customer buying patterns, but we expect to see a good, strong growth over the course of the year in those core business lines.

Max Masucci -- Canaccord Genuity -- Analyst

Great. That's it for me. Thanks.

Stephen Tang -- President and Chief Executive Officer

Thanks, Max.


Your next question comes from Brandon Couillard with Jefferies.

Unknown speaker

Hey, guys. This is Mike on for Brandon. Thanks for taking our questions. So I wanted to return to some of the comments you've made previously about that one customer leaving.

I think you've said in the past that you expected some other competitors to kind of fill that void. I was just wondering if you could provide any update or further commentary about that from the first quarter and kind of how you see that playing out.

Stephen Tang -- President and Chief Executive Officer

Sure, thanks for the question, Mike. So as you probably know, our first quarter is historically the lightest quarter for the consumer genomics business. Again, historically, even putting aside this training of consumers to buy even more around holidays, most of the revenues come in later in the year. And so we wouldn't have expected to see much shift from that one large customer to competitors in the first quarter because there's just not as much volume for that to happen in.

We do expect that other competitors will pick up some share. But the other dimension to this is that that big customer had a large marketing and promotional budget and discounting budget, and to the extent that they are pulling that out of the market, they may be driving less demand to the overall market even as some of the remaining demand does shift to competitors. So we'd expect to see that dynamic occur later in the year, if it does in fact transpire, but it could be again blunted by the drawing away of the marketing and promotion budget of that one big customer.

Unknown speaker

Got you, that makes sense. And then, could you just comment on your sense for the level of inventories in the DTC channel? You know, how do you feel about that? Is it looking positive for the rest of the year?

Stephen Tang -- President and Chief Executive Officer

We don't have a whole lot of visibility into that, and one of the challenges for us is that the DTC products are sold through a number of different channels, so via internet sales directly from some of these customers, via internet sales from Amazon, which will hold an inventory. And then, you know, you can walk into drugstores and buy these products, as well, so there are inventories at the retail level, as well. So we don't have a whole lot of insight into it, but based on the orders that we have been seeing from our own customers, we don't believe that there's any unusual build of inventory.

Unknown speaker

Got you. Thanks. That's all for me. Appreciate it.

Stephen Tang -- President and Chief Executive Officer

Thanks, Mike.Operator[Operator instructions] Your next question comes from Matt Philichi with UBS.

Matt Philichi -- UBS -- Analyst

Yes, I have a question. I noticed that they're now doing DNA testing on the border. They're using a cheek-swab-type device. Is that a product that's yours, or is there a royalty being paid to OraSure on that?

Stephen Tang -- President and Chief Executive Officer

So we have a broad range of products that include our Oragene saliva collection kits, as well as our ORAcollect products. We don't have visibility on what exactly is being used at the border, but it's likely that if those samples are going to be preserved, that they would use some version of our test or a licensed test. So I can't answer your question specifically, because we don't know the specific use for our products.

Matt Philichi -- UBS -- Analyst

They're not saving the collection. They're just using it at the moment, and it's a 90-minute test, or something like that.

Stephen Tang -- President and Chief Executive Officer

They could be buccal swabs, which have a minimum amount of DNA. They're for one-use purposes. And buccal swabs are not our product.

Matt Philichi -- UBS -- Analyst

Thank you.

Stephen Tang -- President and Chief Executive Officer



[Operator instructions] That brings to an end the Q&A session of today's call. I will now turn the call over to Dr. Tang for closing remarks.

Stephen Tang -- President and Chief Executive Officer

We thank you very much for participating in today's call and for your continued interest in OraSure. Have a good evening, a good afternoon. Thank you.

Duration: 42 minutes

Call participants:

Stephen Tang -- President and Chief Executive Officer

Roberto Cuca -- Chief Financial Officer

Max Masucci -- Canaccord Genuity -- Analyst

Unknown speaker

Matt Philichi -- UBS -- Analyst

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