Ladies and gentlemen, thank you for standing by, and welcome to the Quidel Corporation First Quarter 2014 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Randy Steward, Quidel's Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining today's call. With me today is our President and Chief Executive Officer, Doug Bryant; and Ruben Argueta, Director of Investor Relations. Please note that this conference call will include forward-looking statements within the meaning of federal securities laws. It is possible that actual results and performance could differ significantly from these stated expectations. For a discussion of risk factors, please review Quidel's annual report on Form 10-K, registration statements and subsequent quarterly reports on Form 10-Q as filed with the SEC. Furthermore, this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, today, April 23, 2014. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. Today, Quidel released financial results for the 3 months ended March 31, 2014. If you have not received our news release or if you would like to be added to the company's distribution list, please call Ruben at (858) 646-8023. For today's call, Doug will report on the highlights of the first quarter and provide updates on our product development pipeline. I will then briefly discuss our financial results, and then we'll be happy to open the call up for your questions. I'll now hand the call over to Doug for his comments.

Thank you, Randy. For the call today, I'll comment on 3 topics. First, the latest influenza season; second, progress with new products and product development; and third, a summary of where we stand with respect to our aspirational global targets. Let me start first with the characterization of the flu season generally. The predominant circulating straining season was the 2009 H1N1 subtype. This virus disproportionately affected persons aged 18 to 64 versus last year's predominant H3N2 strain, which disproportionately affected persons over 65 years of age. The current flu season was characterized by a lower and narrower ILI peak than last year's ILI peak, suggesting lower influenza prevalence at least in terms of influenza illness as a percentage of physician office visits and shorter duration of the season. Another characteristic of this flu season was its relative mildness in terms of morbidity. According to the CDC, there was a 27% decrease in the number of laboratory confirmed influenza-associated hospitalizations this season from last year, and the number of pediatric deaths was roughly half the number that occurred in the 2012, 2013 season. Through April 5, the CDC sentinel sites have reported 19% fewer ILI visits for this season versus the prior season. Overall, it was a very mild and shorter respiratory disease season. Consequently, demand for respiratory disease products declined versus the prior year's first quarter, partially offset by Sofia and molecular revenues. Total revenues for the first quarter of 2014 were $46.7 million, a 25% decrease from revenue in the first quarter of 2013. Despite the weakness in the season, we continue to make progress with the launch of Sofia, our next-generation automated immunoassay analyzer. Sofia revenues for Q1 were up 57% over the prior year. And on a 12 -- excuse me, trailing 12-month basis, sales of instruments…

Thank you, Doug. As Doug mentioned in his opening remarks, total revenues for the first quarter of 2014 were $46.7 million as compared to $62 million in the first quarter of 2013. Domestic revenues declined by 27% to $39.6 million, which -- while international revenues declined by 5% to $7.1 million. Global infectious disease revenues, which includes QuickVue, Sofia and molecular products, were $35.8 million in the first quarter as compared to $49.4 million in the first quarter of 2013. The decrease was primarily due to reduced demand for our virology read [ph] influenza and Strep A products. Flu sales in the quarter were $18.3 million, a 37% decline for the first quarter of last year. In the quarter, we did realize a 50% increase in total Sofia revenue versus last year, which partially offsets a decline in total influenza revenue, as the HI respiratory product sales realized a decrease in sales of 6% in the quarter. Revenue for women's health category declined by 6% to $8.1 million, led by a 10% decline in our pregnancy business, the result of one international customer not repeating a Q1 2013 order. This decline was partially offset by a 24% increase in our autoimmune complement and thyroid product line. Our gastrointestinal product category revenues were $1.6 million compared to $1.5 million in the first quarter of last year, driven by increased AmpliVue C. difficile revenue. Gross margin in the first quarter of 2014 was 57% compared to 68% last year. The decrease in gross margin was mostly impacted by product mix and lower influenza test volume this year as compared to last year. Also affecting the margin negatively was the additional absorption cost expense in the quarter due to lower production volume versus last year. Excluding the impact of the Alere royalty amortization…

[Operator Instructions] And your first question comes from the line of Shaun Rodriguez with Cowen Company.

So my first one is really relative to the performance and expectations. So it looks like flu came in $7 million below your base case scenario. But at least relative to where consensus was, the total revenue number was about $17 million below. So I'd like to understand the pieces a bit better. And clearly, there are implications of a weaker flu season outside of the influenza line, but you don't break out some of the other product lines within that where there is a correlation with flu. So can you just give us a better sense for what growth was within and outside the respiratory disease category?

Well, Shaun, we can't really speak on behalf of what consensus was. We did give guidance previously relating to the flu that it was -- the lower end was approximately $20 million. I think $25 million mid-case and a high case. As we indicated, we did see a fall-off of the flu volumes certainly by mid-February, late February time period. Relating to the other products, certainly, on the DHI space -- side that was also -- had implications from the respiratory season. So we did see a slight increase there, although that was offset by what we saw was good growth in our [indiscernible] business. We did see small -- slight growth in hCG, other than a loss of one order on the international side. And as we mentioned, Strep was down slightly from a year ago as well. So I think those are the pieces.

Okay. And next, on AmpliVue. Just a couple questions related to that. So can you give us a sense for how you're tracking on placements towards the 1,000 placement goal you laid out earlier? I apologize if you mentioned that, but I'll just rattle through follow-up here as well. Any notable impact from the recent group B Strep approval on the placement rate or any commentary you could provide on the proportion of sites that are planning to do more than one test using the AmpliVue format? And then lastly, any commentary on average utilization, specifically really within AmpliVue C. diff customers, really just trying to get a sense for what kind of the average volume is for one of your AmpliVue customers.

Well, first, we're still in the low 100 in terms of number of customers, and they're mainly C. difficile customers. I do know that we have a very small number of group B Strep customers. The average size of the customer is in that 600 test per year. That is likely to change in the next few months as some of these larger customers come online, however. So we are seeing a little bit of a difference in the type of customer that we are engaged with. Originally, we were focused very highly on the very small customer. And now we're focused more on the hospital system that would incorporate both hospitals and clinics. And those are the types of closes that are -- that we're seeing more recently. In terms of how we're going to approach the number of customers as we go through the next couple of quarters, we still think 1,000 customers or so is a good target for us. We're very interested in understanding how we will do with the product that we believe is our first unique product offering, and that is AmpliVue HIV (sic) [HSV] 1+2. And we're just launching that product this quarter. None of the competitors, at least in the decentralized form factors, has a product for HSV 1+2 at this time. So the question that we hope to answer soon is how leverageable those newly created customer relationships will be going forward. But the short answer to your question, Shaun, on 1,000 is I think that's still a very viable target for us over the next few quarters.

And your next question comes from the line of Bill Quirk with Piper Jaffray.

First question. Doug, just wanted to, I guess, delve a little bit on Shaun's question regarding the flu season. And I guess, specific to that, the season started fairly slow, but you guys, in part because of some share gains from Sofia and some of the associated minimums, I think put up a much better number than, I think, many of us have been looking for in the fourth quarter. And I guess -- and perhaps incorrectly so, got the sense that Sofia would allow Quidel to kind of, I guess, smooth out some of the seasonal effects of respiratory. And so can you just talk to, I guess, the underlying assumptions there regarding inventory that the customers take on when they purchase Sofia? And then also, I guess, in general, just kind of where inventory is in the channel.

Sure. As we exited Q4, inventories in the channel were low. And so as we went into the first couple of weeks of January, we actually had very large orders. And normally, we would expect then a replenishment of that moving forward. And as Randy stated, as we went into February, it became pretty apparent that we were on a fairly mild influenza season. And our distribution partners, as you would expect, from that point to the end of the quarter managed their inventories down quite well. And so maybe, Randy, you want to comment on what's out there right now at distribution?

Sure. I mean as we look at the period of July through March last year versus this year, you look at our sell-in and our -- and the sell-through we get from our sales report, and they're very identical. So the inventory is pretty consistent as we entered the quarter and as we exited the quarter compared to last year.

Okay. And then just given the magnitude of the impact from flu, why not preannounce the quarter again [ph]?

We published and disclosed at least 3 different opportunities that we had low, a mid and a high case. Relative to the low case, we were reasonably close and therefore, made the decision that preannouncing was not necessary.

Okay, got it. And then just a question for Randy. I'm sorry, I may have missed some of your G&A comments. But can you just help us think about what was the big sequential delta there in G&A, Randy?

Sequential delta. You mean versus last year or the same...

Sorry, versus 4Q. Yes. We see it's -- that's a little bit here that's over the past couple of quarters. I was hoping you could just add a little bit of color there and just help us think about is this the right run rate to think about? Should this come in with your seasonally like quarters, et cetera?

Yes. I think probably the biggest difference is from stock compensation expense we did in the fourth quarter had a slight increase there. But I think as you look at Q1, I would assume that's very consistent with the run rate for the rest of the year. From a salary FTE or anything, there's no changes between 2013 and 2014 assumptions. It's what we have guided [ph].

And your next question comes from the line of Tycho Peterson with JPMorgan. Tejas Savant - JP Morgan Chase & Co, Research Division: This is Tejas in for Tycho. Just wanted to get an update in terms of your Savanna timelines. I mean, I know you said last quarter, you're thinking of introducing it maybe in early 3Q. Is that still correct?

There are a couple key development milestones for this year. First, this summer, we expect to demonstrate that HIV performs well on a fully integrated platform, fully integrated Savanna and to complete the phase of development that we call feasibility. And second, we will build the first set of instruments that we expect to ship to Africa in the fourth quarter. And we are building the initial lower volume cartridge assembly line and plan to transfer that to a molecular manufacturing facility in Ohio in the next few months. And we've also said before that we expect to unveil the product at this year's AACC, which will be in July in Chicago, and that is still true.

And your next question comes from the line of Bill Bonello with Craig-Hallum.

So I'm also going to sort of backtrack to Shaun's questioning but maybe phrased a slightly different way. If we back out just the flu revenue that you report from this quarter and prior quarters, revenue was down both year-over-year and sequentially. And so I am trying to figure out if -- how much of that is because of other respiratory that's not in that flu business. And if you can give us any sense of sort of the underlying growth of the businesses that aren't sort of so seasonably variable.

Sure, Bill. Before I answer, though, I wanted to say to you and I see Matt Errand [ph] is on the line as well, that I was very sorry to hear about Steve. And on behalf of Quidel, we'd like to pass along our condolences.

Thank you very much. That's very kind of you.

Sure, sure. With the exception of our team, there's very little that would drive growth in our closed [ph] business. What we've seen varies a little bit, the ranges and a couple of percent, 4% or 5% across several quarters depending on what point you want to look at. I would add though that with the planned acceleration of molecular, assuming no risks from Sofia Strep A, we estimate growth on a trailing 12-month in Q3 would be about 7%. And we expect that same analysis for Q4 to yield a growth rate of about 13%. Depending on the timing of CLIA or Sofia Strep, obviously, our growth rate would then be slightly higher. So I do understand that you're asking about the underlying business and are there issues there. There are no issues, but it's reasonably low growth.

Sure. Okay, that's extraordinarily helpful. And then the second piece is, and just to have you clarify something you've said, Doug. I just wasn't sure if I was following your map on the new revenue expectations. All in, are you maintaining the total guidance for new revenue expectations or was there a change when we add everything up?

There is no change. But obviously, we're expecting several things to happen in order for that timing to still hold true. But we still see a very clear path to where we'd like to be in terms of new incremental revenue.

Okay. And then just the final question. There's a number of different microbiology conferences coming up over the next couple of months. Anything interesting from your standpoint that we should be looking for at those conferences?

Well, we will be at ASM, which is coming up reasonably soon. We're also, I guess, from this weekend, we'll be at CVS. So there will be a number of papers presented there as we have in years past. Then next, after that would be -- so there's the CVS meeting in Daytona, then there's the ASM in Boston. And then, I guess, the next major show that we would be at would be the AACC in Chicago.

Okay. But do look for some presentations or posters or something at some of those.

Yes, sir.

And your next question comes from the line of Matt Larew with William Blair.

Just one for me here. Is there any additional commentary you can provide on sort of the CLIA waiver progress, both when you expect to submit that third CLIA waiver? And if there have been any hurdles or anything you had to go back and work with the agency on that has led to sort of these increased delays?

The status of CLIA waiver. We have, of course, 3 products, as I mentioned a while ago, 2 of which have been submitted, 1 we expect imminently. The other will follow shortly. And we plan to submit the data on the last product, which is Strep, in the next few months. So there is no concern that we have at this time based on the data that we've collected. So I would say we're reasonably confident that it will happen. But of course, the timing is what we don't have control of.

And your next question comes from the line of Zarak Khurshid with Wedbush Securities.

I guess, Doug, first, could you provide your updated thoughts and clarity on the emerging market strategy, given Sofia is large and growing footprint there globally? Just curious how you're thinking about the menu, the cartridge pricing. And then are you planning on going head-to-head with them in that geography?

Well, what I can say first is that this program was initially driven by our collaboration with Northwestern, which has a clear full-on profit program. Further, we're funded by the Bill and Melinda Gates Foundation to develop a low-cost, fully integrated platform. So I assume based on both Northwestern's desire and the Bill and Melinda Gates Foundation willingness to fund, that there is some need that we will be fulfilling by developing a low-cost integrated analyzer. I don't know about the head-to-head aspect. What I would say is that our cost to goods sold was likely to be significantly less than what we see out there by competitors, including Sofia. We've committed to not only that low cost of goods sold, but then a margin that is reasonably attractive from their perspective. So again, I don't know about the head-to-head part, but we believe that we will have completed the program, the reasonably new term, and that we will have a fairly competitive offering for HIV viral load initially and then potentially TB beyond that.

Great. And then maybe a follow-up for Randy. In terms of the Life Tech expense reimbursement, how should we be thinking about that potentially coming back in the future?

We have one last assay that we're getting 510(k) approval, and we estimate that will occur in Q2, and that will be approximately $400,000 benefit to us. And that will then complete the initial phase of the agreement with Life Technologies.

Great. And then you mentioned the molecular revenues. Just curious if you could break out AmpliVue versus Lyra has won significantly more than the other.

It we certainly take that into consideration. We don't really give guidance on the top line. But certainly, as it becomes more significant, as we break out infectious disease and women's health, we can certainly provide more color on what's driving that growth.

[indiscernible] at 50-50 at this time.

Yes, yes.

And your next question comes from the line of Nicholas Jansen with Raymond James and Associates. Nicholas Jansen - Raymond James & Associates, Inc., Research Division: A quick question regarding your outlook for margins. It looks like '14 is going to be a more transition year as you accelerate R&D spend and you don't have the -- all of these types of new products to have leverage on. So how should we think about 2015 and beyond on a GAAP gross margin as you roll off the Lyra royalty and then kind of benefit from some of these new products? I'm just trying to get the sense, has anything changed relative to prior comments on, let's say, 25% or so of GAAP property margins?

I don't think there's a significant change. Of course, if we do have ongoing increases with R&D, that could affect it. But in terms of gross margin, we pick up about 5...

2 to 3 percentage points.

Across the entirety of the business, right?

Yes.

So for example, Randy, in this quarter, the difference between with or without the amortization is...

Five percentage points.

Is from 57% to 62%, right?

Yes.

I mean, I think, Nick, we're very confident that going into 2015, our gross margins with the new products are certainly accretive to our existing gross margins. So that gives us confidence in our 65% gross margin target. And then, as we said on the operating expense line, we'll invest in our sales organization as we continue to look at market opportunities.

Yes, what I would add to that, Randy, is with the exception of Sofia hCG and Strep A, all the new product gross margins are expected to be flu-like or better.

And your next question comes from the line of Jeff Frelick with Canaccord.

Just on the patient declines in -- with respect to the office visits. Any sense, was that impacted maybe by weather, by reluctance with co-pays, any color that you can shed there, Doug or Randy?

Each of those that you suggest, Jeff, has a possibility. It would be difficult for us though to speculate. I've seen the transcripts of other calls and a bunch of people describe issues as being weather related. Certainly, it is true that fewer people visited physicians in the quarter period. It is also true that hospitalizations as a result of flu, which is not specifically related [indiscernible] was down 27%. So I think it's a combination both of patient visits and just milder flu period.

Okay. And with respect to -- Randy, you called out maybe a sales and marketing increase as you expand the sales force. Would that salesforce -- would that organization be more focused if you had to be more directed towards the POL marketplace or a hospital setting?

I think we're looking really, Jeff, in 2 areas. One is on the molecular side, as we expand that product line and then as well as in the POL, the moderately complex section is also another area we want to focus on.

Okay. And then last question. Sofia placements in the quarter. I know the patient volumes kind of fell off the back half of the quarter. But were replacements for Sofia, were they in line with your target or expectations for -- in the first quarter?

They were approximately what they were first quarter 2013, and they were evenly split between POL and the hospital. So I would say we would have expected more POL placements than we had and fewer hospital. So I don't know how to read that, but that should help the mix fill out. So I would say the answer is it's impossible to tell the extent to which replacement rate was affected by the low prevalence of flu. I would guess it had some dampening effect, but it's really hard to gauge and certainly wasn't significantly different again from Q1 2013.

And your next question comes from the line of Bill Bonello with Craig-Hallum.

So I just wanted to revisit the little bit of color that you gave on how you're thinking about growth over the rest of the year and just to make sure I understood your comments right. And I know it's not formal guidance but -- or guidance at all. But when you talk about trailing 12 potentially being up 7% by Q3, 13% by Q4, is that even including the fact that revenue was down meaningfully this quarter? In other words, you're thinking a pretty meaningful year-over-year growth with the new customer additions? Or is that kind of backing out a flu impact?

That's without flu.

Without the flu. Okay, great. That's really helpful.

And that's all the time we have today. Please proceed with your presentation or any closing remarks.

Well, this concludes the call for today. Thanks, everybody, for your time this afternoon and for your continued support.