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Oxford Immunotec Global PLC (NASDAQ:OXFD)
Q3 2020 Earnings Call
Nov 3, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. And welcome to the Oxford Immunotec Third Quarter 2020 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Matt McLaughlin, Chief Financial Officer. Good morning, and thank you for joining us to review Oxford Immunotec's financial results for the third quarter of 2020.

Before we begin, I'd like to caution listeners that comments made and financial information provided during this conference call include certain statements that are estimates, beliefs, forward-looking and/or subject to various risks and uncertainties. Any statements made during this call that are not statements of historical or current facts are intended to be forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. We want to emphasize that such forward-looking statements reflect our current expectations, assumptions and currently available data and are neither predictions nor guarantees of future events or performance. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with our business, including those under the heading entitled Risk Factors in our annual report on Form 10-K for the year ended December 31, 2019, and in subsequent reports, including our quarterly reports on Form 10-Q, including the Form 10-Q being filed today and our current reports on Form 8-K.

In addition, today, we will make a number of comments about the impact of COVID-19 on our business. We provide these comments to give investors insight into what we are observing. However, given the dynamic nature of the pandemic, there's a high degree of uncertainty around any forward-looking statements made. The company disclaims any obligation to update or revise any forward-looking statements, except as required by applicable law.

During the call, we'll also refer to certain financial information on a non-GAAP basis. We believe that non-GAAP financial measures taken in conjunction with GAAP financial measures provide useful information for both us and investors to evaluate the company's performance. These include constant currency comparisons, EBITDA and adjusted EBITDA. Reconciliations between certain GAAP and non-GAAP results, such as EBITDA and adjusted EBITDA, are presented in the tables accompanying our earnings release, which can be found in the Investor Relations section of our website.

Further, as a reminder, in November '18, we completed the sale of our U.S. laboratory services business to Quest Diagnostics. As such, the now divested U.S. laboratory services business is shown as discontinued operations in our press release and forthcoming Form 10-Q.

With that, it's my pleasure to turn the call over to Oxford Immunotec's Chief Executive Officer, Peter Wrighton-Smith.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Good morning. On today's call, I'll provide a brief overview of our operating performance for the third quarter of 2020, before turning to an update on our business and our strategic priorities. Matt will then take over to discuss our financials before handing the call back to me to discuss the near-term outlook for the business. And we'll then open up the line to take your questions.

For the third quarter of 2020, we posted revenues of $19.4 million, above the guidance we gave in August due to stronger-than-expected demand. Asia revenues were $13.3 million setting a new sales record for the region and returning to year-over-year growth. U.S. revenue was $4.4 million, a strong bounce back from the low point last quarter, reflecting the recovery and end-user consumption demand for our TB test. Europe and Rest of World revenue was $1.7 million, reflecting recovering demand across the region.

I'd like to take a few moments to talk about the impact of the COVID-19 pandemic on the business and what we're seeing in various countries. Starting first with China, China revenue grew strongly in the quarter compared to last year. Consumption volumes are now returning to normality within our pre-existing accounts, and we're also growing volumes by winning new accounts. In Japan, testing consumption continues to be robust. Test consumption is now back to or slightly above 2019 levels, and we expect to drive test growth from here on out through our sales and marketing activities.

In the U.S., test consumption volumes are recovering and by September, we're running at about 90% of 2019 levels. We currently expect TB consumption volumes to get back to or close to 2019 levels in Q4 or the revenues will lag slightly behind due to the non-recurring C6 Lyme revenues last year.

In Europe and Rest of World, there's clearly a lot of diversity based on each country's epidemiologic situation. In our core European markets, test consumption was on an upward trend in Q3, and we saw public health volumes start to return in the region, including the U.K. NHS tender, which was put on hold now starting to reengage. Some other regions, for example, Russia are still meaningfully impacted by COVID. Nonetheless, the general trajectory in our Europe and Rest of World region is one of recovery. And although we are watching the effects of the second wave in Europe closely, we still currently expect test consumption to continue to improve sequentially.

Obviously, our current views on the business could change rapidly, especially with sizable second peaks of disease and/or the reimposition of significant lockdowns. However, in summary, we are currently seeing demand for our test recovering across the board with Asia leading the way.

Notwithstanding the understandable focus on coronavirus right now, we believe this pandemic will be temporary. And when it abates, we believe that the outlook for TB testing will remain at strong, if not stronger than it was before coronavirus. TB screening is an essential part of controlling what is still the world's biggest killer from infectious disease and just because COVID-19 has arisen as another major killer, it doesn't negate the necessity for TB screening to return. It's understandable that public health resources are focused right now on COVID-19, but that relative neglect of TB prevention will only make the TB problem more severe and the need for remedial action stronger once the COVID-19 pandemic fades. With demand recovering and the need to test for TB is acute and important as ever, we're extremely confident in the demand outlook for our tests.

Given our confidence in the future, while we are being mindful of opex and are conserving capital where appropriate, we are continuing to spend in areas that we believe will maximize our growth and success. We plan to hold an Investor Day in mid-December to give more color on our strategy for growth in the business and how our investments are supporting the long-term growth of the company.

Briefly, we're focused on four key initiatives. Firstly, we're expanding our commercial channel, especially in China, where we've been in transition to a new business model away from our prior exclusive distribution partner to a model whereby we take more direct control over sales, promotional and market developmental activities. We continue to add resources there given the magnitude of the untapped opportunity. We've also been strengthening our resources in targeted Southeast Asian countries. Lastly, we're building up our technical service infrastructure in support of a growing pipeline of equipment installs driven by our automation strategy.

Secondly, we continue to invest in programs to reduce our cost of goods to continue our long-term trend of gross margin expansion. This also gives us more pricing flexibility, which coupled with the benefits of automation, will allow us to improve economics for our customers. In addition, we see this as underpinning future growth as we seek to penetrate additional more price-sensitive markets and segments.

We continue to invest in ways to differentiate and extend our market-leading test performance. One of the consistent strengths of our test and a principal reason our customers choose our test has been its differentiated performance, performance in terms of sensitivity, reproducibility and reliability in immunosuppressed populations, as well as our significant ease-of-use advantages of phlebotomy and sample shipment. We're constantly working to communicate and extend our performance advantage over the alternatives in the market. With that in mind, also another successful PMA supplement submission to the FDA on 13th, we recently obtained U.S. clearance for the T-SPOT.TB test to be used in pediatric populations as young as two years old. That makes us the first and only blood test for TB cleared for use in pediatrics in the U.S. We are ramping up marketing and sales efforts behind our launch in this important high-volume segment of the U.S. market.

Lastly, we are focused on delivering automation to our customers globally. I'm pleased to announce today that we've submitted our PMA supplement to getting clearance from the FDA to sell automation in the U.S. market. Based on typical review timelines, we would expect approval in the second half of 2021. In parallel, we continue to make good progress on platform development and on working toward providing automation in other jurisdictions. We believe that automation changes the game for us, and we will provide more insights into our automation program and how this impacts the market at our upcoming Investor Day.

Underpinning these four key initiatives, we also continue to build solid foundations to support the company's growth. The planned capacity expansions in the Oxford facilities as well as the relocation of our two Massachusetts sites into one new site are progressing well. Taken together, these will give us expanded manufacturing capacity, additional space to automate more of our manufacturing processes, expanded office space for our enlarging [Phonetic] headcount and expanded laboratories both to develop and showcase our automation to customers.

We're also executing on our project to replace our antiquated operating and financial system with a new ERP system, which will once implemented give us new analytics and bring multiple efficiencies to current processes. That continues to be a huge opportunity for growth in the TB space, and it's critical that we continue to execute on the strategic priorities of the business.

I'd now like to shift gears and give an update on our work in SARS-CoV-2. One of the great assets of our company resulting from almost 20 years of work is our expertise and our really powerful technology to measure T cell function at a single cell level. This is our T-SPOT technology platform. As we look to grow the company outside of our core latent TB market, one of the things we're looking to do is to find new clinical outlets to deploy this world-leading technology. SARS-CoV-2 has provided a great opportunity for us to showcase the power of our technology and to establish a new revenue line in a new disease area. We're proceeding on multiple fronts here.

As you may recall, we recently made a research-use-only test available to measure T cell responses against SARS-CoV-2, the virus that causes COVID-19, based on our T-SPOT technology. This test provides a measure of the strength of the T cell response against a wide range of SARS-CoV-2 antigens. We've produced this test because we feel that T cells have an important role to play in the immune response to SARS-CoV-2, and we wanted to be well positioned to move quickly if a clinical use case of measuring T cells emerged. Exciting evidence on the performance of our tests will shortly be published, but we've already learned some key things to support the beliefs that we had when we started this work.

Firstly, the vast majority of people with confirmed SARS-CoV-2 infection produced a measurable T-cell response showing how important T cells are in fighting this infection. Secondly, [Indecipherable] confirmed SARS-CoV-2 infections where serology tests are negative. Thirdly, we now know the T-cell responses against SARS-CoV-2 as measured in our tests are strongly associated with protection against subsequent infection and that this is true even in seronegative patients.

Based on the evidence we're seeing both from our own test and supported evidence being published everyday in the academic literature, we're now confident that T cells have a role to play in our fight against COVID-19. To that end, we have made the decision to advance quickly toward developing an automatable IVD format of our test optimized from the data we've now obtained using the research-use-only version of the test. We plan to submit this T-SPOT COVID test for FDA clearance under the EUA pathway with CE marking in parallel. We will communicate more about our timelines, plans and anticipated use cases at our upcoming Investor Day.

Alongside the clinical use cases from an IVD test, we're convinced that T-cell measurement has a crucial role to play in the evaluation and rollout of vaccines against COVID-19. We're not alone in this. The U.K. government's vaccine task force has recognized that measuring T cell responses is a critical piece of the puzzle, and they wanted to measure T cell responses in a standardized way to allow clear comparison of the different vaccine candidates. They specifically wanted an ELISPOT technology to measure immune responses given its sensitivity and advantages over other methods. We are uniquely placed being the only company in the world offering regulated ELISPOT assays for T cell measurement with approvals around the globe.

We've been selected by the vaccine task force as the sole provider of T cell testing services in support of their work, and we will be providing our research-use T-SPOT discovery SARS-CoV-2 test as well as exploiting our T-cell expertise and service infrastructure to provide additional T cell measurement assays. Work has already begun, and we will start to recognize revenues from this work starting in Q4. We expect this work to last for several quarters. Even once we hopefully have efficacious vaccines available, there will be studies required to look at vaccine efficacy and longevity in different populations.

Using the data we're continually building, we're now working on educating other government programs on the rationale for measuring T cells and believe we're well positioned to serve this market given our unique ability to produce, ship and run large numbers of ELISPOT-based T cell tests in a highly standardized manner.

As will be apparent in the comments I've just made, things are moving very fast for the company, and there are many important developments in the business. In light of this, we feel that taking a deeper dive on the business will be informative to investors. Consequently, we intend to hold an Investor Day in mid-December, which will give a lot more color on how the landscape is changing in the TB space and how the investments we've been making over the past two years have repositioned the company to capitalize on what's a great long-term growth opportunity.

Secondly, we'll be taking a deeper dive into our SARS-CoV-2 plans explaining the role of T cells in the area, the use cases that are emerging and our plans to address those using our T cell expertise and unique T-SPOT technology. Lastly, we'll be commenting on the growth strategy of the company, including how we intend to leverage that T cell expertise and our global commercial channel to build the business over the longer term as well as giving some viewpoints on the future financial trajectory of the business.

I'll now hand over to Matt who'll give you some more detailed comments on our financials in the quarter.

Matthew McLaughlin -- Chief Financial Officer

Thank you, Peter. Our full GAAP results, as shown on our press release issued today, show the comparison of our Q3 2020 with Q3 2019. Total revenues in the third quarter of $19.4 million were down 8% versus the seasonally high revenues of $21.2 million in Q3 2019. Breaking down our reported revenues on a regional basis, Asia revenue was $13.3 million, representing 68% of our revenue. U.S. revenue was $4.4 million, representing 23% of our revenue and Europe/Rest of World revenue was $1.7 million, representing 9% of our revenue.

Turning to volumes, in the third quarter, we sold approximately 250,000 TB tests in the U.S. via kit sales and approximately 750,000 tests in our OUS region, both via kit sales and test process in our U.K. ODL service business. Gross profit for the quarter was $14.9 million and down 4% from gross profit in the prior-year period. Overall gross margin for the quarter was 76.4%, an increase of about 340 basis points from the prior year as volumes recovered in the underlying progress we've been making on COGS once again become apparent in our gross margin numbers. Product gross margins topped 77% in the quarter with service gross margin still below our usual levels, due to lower TB volumes running through our U.K. ODL lab.

Turning to operating expenses, operating expenses decreased 5% from the prior year period to $14.6 million. While we've been very disciplined with discretionary spend throughout the year, we still continue to hire resources to support the future of the business, particularly in sales and marketing and R&D. Sales and marketing expenses decreased to $6.6 million, primarily driven by cost control measures and a reduction in marketing and travel expenses due to the COVID-19 pandemic, which offset continued headcount additions, particularly in Asia.

Research and development expenses increased to $2.6 million, due to our continued investment in automation initiatives, including clinical studies to support regulatory approvals in addition to spend related to our work on the SARS-CoV-2 product.

General and administrative expenses were slightly lower than last year at $5.4 million. Operating expenses for the third quarter included approximately $1.1 million of share-based compensation. As revenues have recovered, so has the bottom line of the company, net loss from continuing operations was just $99,000; EBITDA was $507,000 and adjusted EBITDA, which excludes share-based compensation, unrealized FX gains or losses and unusual items, if any, was $1.7 million for the quarter. Both EBITDA and adjusted EBITDA are non-GAAP measures.

Turning to the balance sheet, we finished the third quarter with a very healthy cash position of approximately $160 million, a reduction of about $5 million from Q2 close. As our revenues have rebounded in Q3, we're back to a normalized level of accounts receivable, which accounted for the majority of the cash movement in the quarter.

I'll now hand it back to Peter, who will discuss our business outlook.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thank you, Matt. We currently expect Q4 revenues to fall between $19 million and $20 million, returning the overall company to growth over pre-pandemic revenues of $18.1 million in Q4 2019, which included $600,000 of now discontinued C6 Lyme revenue. After a record quarter, we're expecting APAC revenues to be lower sequentially, consistent with normal seasonal patterns. However, we do expect APAC to show increasing year-over-year growth versus Q4 last year. We are expecting sequential revenue increases in both our U.S. and Europe/Rest of World regions narrowing the gap to Q4 last year.

That concludes our formal prepared remarks. We'll now open up the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Steve Nam [Phonetic] with Peter [Phonetic] Sandler. Your line is open. Please go ahead.

Steven Mah -- Piper Sandler -- Analyst

Okay. Thanks, Peter. So, nice quarter, congratulations. So just a few questions on the ELISPOT SARS-CoV-2 test, you said it was more sensitive than existing serology test. Could you explain that a bit more? Is that related to the single-cell sensitivity of the technology, or are there other things going on?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Good morning, Steven and thanks for the comments. So, yeah, what I said was that T cells can detect people who have missed by serology and that's not really specifically a sensitivity thing because serological tests are very analytically sensitive. It's a biology thing. And what I mean by that is there are two parts of your adaptive immune response, the T cell side and the antibody side, and they're kind of independent. And so, you can have people's immune response reacting where the T cell side predominates or the antibody side predominates or where both happen together. And what we're saying here is in SARS-CoV-2, there are clearly people where the T cell side is predominating and you can see T cell responses where you can't see an antibody response. I hope that answers your question.

Steven Mah -- Piper Sandler -- Analyst

Yeah, oh, yeah. That helps clarify. Thank you so much. And then you also said revenues would start in Q4. Could you just give us a sense of the contribution in Q4, given your -- you just gave Q4 guidance of $19 million to $20 million?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah. We will start to see some COVID revenues in Q4 from The Vaccine Taskforce contract, but it's not material overall.

Steven Mah -- Piper Sandler -- Analyst

Okay. Got it. And then long term on the ELISPOT, you said the revenue could potentially last several quarters, is there an opportunity to use the test longer term, I see the opportunity to do it for durability of potential vaccine. But is there a potential way to use it to screen people that have been previously exposed to COVID-19 ahead of potential vaccine regimens?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, yes, absolutely, I mean one of the use cases the test would be to understand who's had prior exposure and still has some kind of level of immunity and that need will continue for some considerable period of time, even if as we will hope vaccine starts to become available, particularly as it might well be the case, the vaccines won't have a 100% product -- protective efficacy, and they may not last in terms of duration forever. So clearly, there is I think going to be a fairly good use case of these tests well through 2021 and potentially even beyond that, but I think the other thing that we're very mindful of is that through SARS-CoV-2, we're getting to introduce our technology and our unique capabilities to a whole different audience and that's clearly going to benefit our TB business, but also could introduce our technology for other purposes to other kinds of clients. And so, we see this very much as a play for the longer term as well.

Steven Mah -- Piper Sandler -- Analyst

Okay, great. That's really helpful. And then maybe going back to the quarter performance, I mean this is a question for Matt, was there any backlog effect coming off the severe lockdowns in the prior quarter or any sort of like stockpiling this quarter?

Matthew McLaughlin -- Chief Financial Officer

No. So from a -- just from an inventory management standpoint at our customers and distributors, we talked about it in Q2 and some of the performance in Q2 was really people drawing down inventory. So if you think about Quest for example, we knew that this year they wanted to get from holding a couple of months of inventory to closer to one month, which is how they run their laboratories and they did that in the second quarter. So we didn't see any impact of kind of people stocking up the shipments that we saw are very much in line with end-user consumption and that's how we track it.

Steven Mah -- Piper Sandler -- Analyst

Okay, got it. Okay, that's helpful. All right and then the -- I guess my last question could you shed [Phonetic] a little bit more color on the gross margin improvements year-over-year? What was it primarily driven by?

Matthew McLaughlin -- Chief Financial Officer

Yeah. So if you look at the year-over-year gross margin improvements, there's two things I would point to. One is from a pricing standpoint, pricing was relatively stable in all areas with the exception of China, which is still getting the benefit on the year-over-year comp from shifting from our old distributor to our new distributor. So there was a pricing bump that went into effect partway through Q3 of last year. So that was part of the gross margin improvement. And then, the second piece is just the continued cost-out efforts that we drive in the supply chain. So we continuously have a deck of projects that we're working to drive down cost and that's really the second driver that you're seeing the gross margin improvement year-over-year. Obviously, quarter-over-quarter, some of that is just volume-driven and recall that we had some inventory write-offs in the first half of the year related to the drop in volume and those have now ceased.

Steven Mah -- Piper Sandler -- Analyst

Okay. Great. Thanks. I appreciate it.

Matthew McLaughlin -- Chief Financial Officer

Yeah. Thanks, Steven.

Operator

Thank you. And our next question comes from the line of Sung Ji Nam with BTIG. Your line is open. Please go ahead.

Sung Ji Nam -- BTIG, LLC -- Analyst

Hi, thanks for taking the questions. One second -- sorry. Maybe starting off with T-SPOT Select, your automation platform, just curious how that's trending or tracking in the regions where that's commercially available?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yes, thanks Sung Ji for the question and I hope that coffee -- hope you're OK. So yeah, in terms of T cell Select and automation, it's been available for a little while now in Europe. And we've been really very pleased with the customer receptivity to this and how much they believe it improves their workflow and their throughput. Obviously, COVID has somewhat disrupted sales pipelines and installs just because of the ability to travel. But we remain very encouraged by the customer reception of the automation in the jurisdictions where we've started to talk about it.

Sung Ji Nam -- BTIG, LLC -- Analyst

Okay. Great. And then, my follow-up is back to the T cell response test. Just a clarification there. Are you guys seeing superior metrics in terms of measuring that across the board for COVID-19? Or is it just for certain populations in terms of trying to better understand the immune profile, I guess, of the patient population?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, look, the PCR or molecular or antigen detection methodologies to look for the virus itself will remain the mainstay of acute diagnosis for obvious reasons. They work generally extremely well, but there are some situations where they don't work great. Similarly, serology is a kind of secondary test. It can be helpful for understanding the immune response or part of the immune response to SARS-CoV-2 and also fill in some of the blanks that there are still even with molecular and antigen tests.

What T cells are doing is, A, they're complimentary to those two tests. That gives you additional information that you don't get from those other tests and they can be helpful in a variety of situations. And so, we'll detail that in a lot more clarity in the Investor Day. But just at this point time just view T cells as kind of complimentary and adding additional information that could help us better manage patients and better diagnose the disease and protection from subsequent infection.

Sung Ji Nam -- BTIG, LLC -- Analyst

Great. Thank you. That's all from me. Thanks.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thanks, Sung Ji.

Operator

Thank you. And our next question comes from the line of Chris Lin with Cowen. Your line is open. Please go ahead.

Chris Lin -- Cowen and Company -- Analyst

Hey, Peter, thanks for taking questions. Maybe just to start, can you talk about how Q4 guidance reflects the impact of the resurgence of cases in both Europe and the US? Can you also just provide a bit more specificity on trends you saw exiting October?

Matthew McLaughlin -- Chief Financial Officer

Yeah, OK so -- go ahead Peter.

Peter Wrighton-Smith -- Chief Executive Officer and Director

I'll take this one, so In terms of the guide for Q4, obviously, we are clearly watching the rising cases in Europe and the lockdowns that are starting to roll across Europe. And guidance for every company in the space is going to have to be dynamic based on how the pandemic unfolds. However, we still stand by our guidance given what we're seeing right now. And our Q4 guide reflects the best information as we have it today. In terms of trends specifically coming out of October, we don't have October data for a variety of our markets. So, it's a little difficult to comment on that specifically. And I don't think you'll see it up. Matt, anything else you would add?

Matthew McLaughlin -- Chief Financial Officer

Yeah, the only thing I would add is, as we left Q3, we did see sequentially, July to August, August to September, obviously, heading into October, positive trends really across almost every region. So, that's something we're pretty comfortable with in terms of that trajectory as we were heading into Q4.

Chris Lin -- Cowen and Company -- Analyst

Okay. Maybe moving to China, could you just help us dissect the Q3 China growth in context of volume at existing accounts and new accounts wins? You mentioned those were both factors, but I was hoping you could quantify a bit more. And maybe a bigger picture question, can you provide a bit more detail in how your new direct business model in China is impacting growth?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, so I mean -- I'll answer the second question first. The reasons for going direct in China were manifold. But in short, we just feel that having our own team on the ground and the ability to increase the resources there just gives us the best opportunity to drive growth near to medium term, long term in what is going to become one of the largest markets in the world. And so, we feel this is an important start of a new chapter with our long-term growth in mind. I've been very pleased with how things have gone in the first year or so since we made that transition. We are learning -- our intel from the market is just so much better. Our ability to influence the market is so much better. And as a result of that, we are already starting to win new accounts.

In terms of breaking down the growth specifically, I'm just probably not going to get into that level of granularity for competitive reasons. But the key points really are that test consumption kind of in existing accounts and healthcare seeking behavior is getting back very much to normal in China. That's the kind of first point. And the second point is that we are driving genuine volume growth through winning new accounts. It's not just price increases driving the revenue increase.

Chris Lin -- Cowen and Company -- Analyst

Okay. Speaking of your primary competitor, they recently asserted that they expect 2021 revenue to be at least at the 2019 level. Given your guide for year-over-year growth in Q4, would it be reasonable for us to believe you could actually deliver growth beyond the 2019 level next year?

Peter Wrighton-Smith -- Chief Executive Officer and Director

I'm going to try not to be drawn on 2021 guidance. As is our custom, we will give that on the next call. But I think it's obviously great that we already expect the company overall to get back to growth in Q4.

Chris Lin -- Cowen and Company -- Analyst

Okay, Last question for me, and I appreciate you plan to give more details at your Investor Day. But can you maybe give us a preview on your commercialization plans for T-SPOT Discovery, particularly in the U.S.? Is this a product you anticipate selling through Quest? You just talked about developing an automatable IVD test. Can you leverage automation solutions you have available for T-SPOT TB or is this something you have to start from scratch?

Peter Wrighton-Smith -- Chief Executive Officer and Director

No. On the automation, we will very much follow the automation solutions we have available for T-SPOT TB. It's kind of an almost identical process there. So, it's all about leveraging what we've already developed on the TB side. In terms of channel to market, again, I'd prefer to comment on that in mid-December. But ultimately, if this thing takes off, then we will be looking for all and every channel to deliver capacity into the market, starting obviously with our existing customers as the first port of call.

Chris Lin -- Cowen and Company -- Analyst

Okay. Great. Thanks for taking my questions.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thanks, Chris.

Operator

Thank you. And our next question comes from the line of Tycho Peterson with J.P.Morgan. Your line is open. Please go ahead.

Casey Woodring -- J.P.Morgan -- Analyst

Hi, this is Casey on for Tycho. My first question, how much did -- the FDA clearance for T-SPOT for use in pediatrics, how much did that increase the TAM of T-SPOT and will that be a material growth driver moving forward?

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah. Casey, great question. Yes, so I mean, pediatrics is a meaningful part of the 7.3 million tests we estimate are done in the physician offices every year in the U.S. So, it's well above 1 million tests a year we think. And so, therefore, it does represent a significant market opportunity and one that we clearly believe will be another driver of growth for the company going forward, both in the short, medium and long term.

Casey Woodring -- J.P.Morgan -- Analyst

Got it. And then, as it relates to the advantages of using T-SPOT versus skin in terms of limiting interperson contact during COVID-19, can you point to any new customer wins in the quarter that were maybe driven by this dynamic? And how should we think about this moving forward as volumes are normalized? Thanks.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Yeah, great question. So, I mean, we don't track that as a particular KPI in the company. It's more anecdotal. But, yeah, clearly, anecdotally, that's still a reason why people are choosing to run our blood tests because of the single visit advantage. Ultimately, our general view is once you've convinced someone to change from something they've been doing for 100 years, once they've tried it, they don't go back. So, we have extremely high customer retention rates, and I don't see the situation being any different.

Casey Woodring -- J.P.Morgan -- Analyst

Got it. Thank you.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Thank you.

Operator

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Peter Wrighton-Smith for any further remarks.

Peter Wrighton-Smith -- Chief Executive Officer and Director

Great. Well, thank you all for joining us to discuss our third quarter 2020 results, and we look forward to speaking to you again at our upcoming Investor Day in mid-December. Thanks. Bye for now.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Peter Wrighton-Smith -- Chief Executive Officer and Director

Matthew McLaughlin -- Chief Financial Officer

Steven Mah -- Piper Sandler -- Analyst

Sung Ji Nam -- BTIG, LLC -- Analyst

Chris Lin -- Cowen and Company -- Analyst

Casey Woodring -- J.P.Morgan -- Analyst

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