Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Fourth Quarter and Full Year 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later, instructions will be given for the question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Mr. Randy Steward, Quidel’s Chief Financial Officer. Please go ahead.

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. Our fourth quarter and full year 2016 earnings release is now available on ir.quidel.com, our Investor Relations website. We will also post our prepared remarks on the Presentations tab of our IR website following the conclusion of this call, on February 8th, for a period of 24 hours. On January 23rd, Quidel announced a modification of its revenue reporting categories to reflect how management thinks about the strategic components of its business. In association with the change, the revenues of QuickVue and Sofia businesses will be reported within the company’s Immunoassay category, and the revenues of Solana, AmpliVue and Lyra products will be reported in the company’s Molecular category. Quidel's Thyretain and Diagnostic Hybrids, or DHI, revenues will be reported in the company's Virology category, and the Specialty Products Group, or SPG, revenues will be reported in the company's Specialty Products category. To view the original press release document describing this change, please visit Quidel's Investor Relations website at ir.quidel.com. 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 February 8, 2017. 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 three and 12 months ended December 31, 2016. If you have not received our news release, or if you would like to be added to the company's distribution list, please contact Ruben at 858-646-8023. Following Doug's comments, I will briefly discuss our financial results and then we’ll open the call for your questions. I’ll now hand the call over to Doug for his comments.

Thank you, Randy. And good afternoon, everyone. For today’s call I’ll give you my thoughts on the fourth quarter, I’ll provide some insight into the ongoing influenza season, based on our Virena data; and I’ll conclude with comments on our longer term growth initiatives. Total revenue for Q4 2016 was $52.8 million, within the range of $52 to $53 million that we had suggested prior to our attendance at the JPMorgan Healthcare Conference in early January, and essentially flat to the fourth quarter of 2015. Although the CDC’s ILI data indicated a slower start by three weeks than the 2014, 2015 influenza season, and similar to last year’s start, I think now, armed with our Virena data and graphs by state, that the current season looks to have started reasonably on time, earlier in some states, and later in others, and what we experienced was not so much a late start to the season, but untimely ordering by our distribution partners, driven perhaps by a couple factors. First, distributors appear to rely heavily on ILI data, which don’t provide an indication of either volume of patient tests or prevalence. And second, and perhaps more important, given last year’s milder season, our distribution partners may have been somewhat hesitant, understandably, to purchase significant inventory in December, and may have still been hesitant even if we had given them access to Virena’s real-time test data. And of course, they didn’t purchase significant inventory. In fact, inventories at distribution of our influenza products were roughly two-thirds of what they were at the end of 2015. Except for shipments of our influenza products to distribution in the last few weeks of December, our performance in the quarter was actually slightly better than we had anticipated. Sofia placements were on track, and we ended the…

Thank you, Doug. As we reported earlier today, total revenues for the fourth quarter of 2016 were $52.8 million, this compares to $52.4 million in the fourth quarter of 2015. Two important items to point out in the quarter, first, the fourth quarter of 2015 had 14 weeks in the quarter, as compared to 13 weeks in 2016. If you added a week to the end of the period, we might have realized an incremental $5 million to $8 million in revenue. Second, the fourth quarter of 2015 had $1.9 million of grant revenue, while the fourth quarter of 2016 had no grant revenue. As we mentioned in our third quarter call, we received the final milestone based cash payment from the Bill & Melinda Gates Foundation in the third quarter of 2016, thus recording all remaining Grant Revenue associated with that arrangement at that time. Immunoassay product revenues, which include all QuickVue and Sofia lateral flow products, increased 5% to $36.5 million in the fourth quarter of 2016, as compared to $34.8 million in the previous year. Within this category, Sofia products grew 17% from the fourth quarter of 2015 to $17.5 million, while QuickVue revenue decreased 4% to $19 million. Influenza revenue in the quarter was $23.3 million, as compared to $22.9 million last year, and this quarter's mix of Influenza revenue between Sofia and QuickVue was 65% to 35% respectively. We anticipate the trend toward more Sofia Influenza revenue to continue as we move forward. Revenue in the Virology category, which includes products from Diagnostic Hybrids, decreased by 12% in the fourth quarter to $10 million. We are seeing some of the Virology products shifting to molecular solutions, including our own. We realized 2% growth in Thyretain in the quarter. Going forward, we believe that with a…

Thank you. [Operator Instructions] And our first question comes from Nicholas Jansen with Raymond James. Your line is open,

Hey, guys. Thanks for the questions. First, thanks for all the detail on the Virena patient tests results thus far and I just wanted to kind of better understand or maybe conceptualize what those results mean in terms of ordering pattern from distributors? Have you seen January kind of pick back up as we think about the near term revenue growth trends, I know you don’t like to provide any sort of topline guidance, but it would be helpful to kind of better understand how those numbers would result in, in kind of near term revenue?

Thanks, Nick. First, starting with distributor inventories at year end. They exited the year with roughly one third less inventory than the prior year, which is probably about a weeks worth of inventory. So having seen some demand demonstrated by the out sales, I presume that triggered the ordering that begin in the first week of January. And so through the first five weeks of the quarter, I would say that ordering has – by our distribution partners has been significant.

That’s very helpful. And then, it was interesting to hear that the update on kind of Lyme and Vitamin D, you guys made significant progress there, I just wanted to kind of get your thoughts on the timeline of commercialization and how we should be thinking about that as a contributor either in the back half of '16, '17 or certainly as to 2018?

To be concise, both of those products are expected to make some contribution in the back half of the year. We think we're on pretty good footing at the moment. The products both look pretty good and I don't see any reason why we wouldn’t be commercializing the product in the back half.

And then my last question, just in terms of your balance sheet. You guys have done a great job of delivering a cash flow, you raised the money a couple a years ago, its still sitting there. I just wanted to get your thoughts on M&A landscape as we sit here on desires to accelerate diversification, any change in kind of market multiples, just your broader thoughts on kind of the M&A outlook would be helpful? Thank you.

We continue to look at target Nick as we've said before, we see a number of opportunities that are in the smaller end and I have pursued some of those not always with the result that we had hoped for. But we have a pipeline, things that we're looking at. And I would say that we've never been more aggressive at looking then we are today.

I'll hope back in queue. Thanks, guys.

You're welcome, Nick.

Thank you. Our next question comes from Jack Meehan with Barclays. Your line is open.

Hi, thanks. Good afternoon, guys.

Hi, Jack.

Hi. I want to start with Sofia 2, you know, Dough, what gives you the conviction in the pending approval you know, what do you think is – whether the delay with the FDA and then once it's out do we need to wait until next flu season really start pushing it with customers?

We are anticipating Sofia 2, so I can't really comment further. But I would just say we're anticipating clearance and I would be surprised if we didn’t get clearance soon. In the meantime, we still continue to play Sofia. We're training the sales team, as I mentioned on Sofia 2 next week, more manufacturing Sofia 2 instruments now. I think that would suggest that we're somewhat confident as well Jack. We anticipate doing the cut over this quarter, but when it happens within a few weeks either way, I don't think we'll have any real bearing on revenue or a forecast for the year. And no I don't think we'll be waiting for the next influenza season to introduce the product in the market. What we see now is a reasonably good influenza season and provided that moves forward for the next few weeks, I think our guys are going to be out there with Sofia 2.

That's great. And then I want to stick with Sofia and just talk about the retail relationship that went live in the fourth quarter, could you maybe discuss the experience there and how Virena worked, do you think - what do you think the potential is and to expand that relationship and other retail relationships in 2017?

Well, I tend and maybe inappropriately, but I tend to lump all the alternate sites into one. So there is retail, there is pharmacy, there is urgent care and I would say that Virena certainly has been has important in that segment and I see from our perspective that we need to do perhaps a better job of making sure all the routers were on, even after we install. But for the most part I think we're doing well in that segment. Recently I visited a very large urgent care chain and I can tell you that they look at the data routinely on myarena.com [ph] and they use it in a number of different ways, including inventory, but then also including comparing themselves to market, including understanding how and when the next staffing decisions, et cetera. So we're seeing probably a more demand for the data on their alternate site than we have necessarily at the sufficient level so far. Did that answer your question?

It does. Thank you. And then just the last one and I'll wrap up, you know, as you reflect on the Solana launch and how things are going. Could you maybe just give some data around how system utilization is been, just you know maybe the number of tests that will get run in a run. If you have that available. And then with some of the new menu that's been extended in the second half of last year, how the cross-selling and the menu for customers is going? Thank you.

So far it’s going well. We've had a few large network closes early on those within obviously or predominately our initial Group A Strep product. And our weekly reagent revenue run rate has picked up as a result of some of those going online. It's hard really Jack to give averages or I could give averages, but I am not sure they are meaningful because we have physician offices that have a Solana or two and then we have very large customers. One of the larger customers for example, does all the contract is for 80,000 Group A Strep test per year and that particular customer has six Solana’s. Another situation we have across the entire network, some of the sites are high volumes, some are low-volumes, but they will have Solana. So the ones with low volume obviously are not very indicative. With Strep complete, and HSV/VZV, the cross-selling that you're talking about Jack, we think that we're uniquely positioned at the moment, and that no other manufacturer has those products. And I am excited to see what those two assays will do for us moving forward. The ability to batch in the low total cost of ownership have also been helpful. And I expect that to be even more important moving forward. Its not a clear to me yet that there is a great deal of cross-selling or cross-selling or cross- purchasing quite yet, because of course, a couple of that just got FDA clearance. So stay tuned on going to our national and global sales meeting next week, we'll be talking about all this and it will be an important part of what we're doing in terms of the two or three things that we're focused on commercially.

Great. Thank you.

You're welcome.

Thank you. Our next question comes form Bill Quirk with Piper Jaffray. Your line is open.

Great. Thanks. Good afternoon, everyone. This is Alex Nowak calling for Bill today. So I was just wondering if there is anyways to normalize the impact that the distributor orders in the quarter, just quick math from me suggest that’s around $3 million to $4 million impact, I am just curious if that was in the ballpark?

I am not sure Alex, what you mean, $3 million to $4 million…

With inventory about one third lower, than what it normally is Q4 – were X in Q4, would that be considered about $3 million to $4 million revenue impact….

A little higher than that. So I'll give you the – little bit more detail. So instead of 1.5 million test, last year they had 1 million test and so 1.5 million just to do easy math, at $10, that should be little about in the low side, right. But that’s about 5 million, right. So it’s in that neighborhood. That’s…

Okay…

As good as I can do Alex without a calculator.

That’s fine. Thank you. I appreciate it. And then the second question, using the - using your Virena data as well you might have some higher flu seasons, can you say how this flu season compares to other season, do you think its equivalent to 2014, 2015 season or do you think its closer to 2015, 2016 season?

You know, what I've learned now is every season is a little bit different and we try to describe normal. And it's not really been good for us. We were hoping that 2014, '15 would be normal moving forward and clearly last year it proved that that was not the case. Here, we see that, you know, its really ILI data which tells you that looks like last year, but when I looked at the state and actually thought test data and positivity rates. So I could tell early on that this was different than last year. And so the question then becomes Alex, how long this keeps going. We've seen years where typically in the middle of February most of the states to start peeking in terms of positivity rate and that it would start to fall off and hopefully ordering into March to some degree, but at the same time if you are a large distributor, you're not necessarily interested in building inventory in market. So we also see our distribution partners lined out ordering, typically at some point in March. So just the question is how long does it go before it starts to fall off. Right now we see some states, a couple of these where it appears to have peaked a little bit, but for the most part, we still see most are actually in the climbing phase.

Okay. Thank you. And just last question, I'll jump back in the queue. Gross margins are typically higher in Q4 and Q1, but I noticed that the margin income it did come down year-over-year. So I was just curious what's driving the margin pressures of largely around the influenza business and stocking and distributors?

It is - it’s around influenza. I would say, Randy, help me there, I think gross margin we say is typically north of 75%.

For the full product…

For the full product, yeah. And so that drives a lot of our average.

Okay. Perfect. Thank you.

You're welcome.

Thank you. And our next question comes from Brian Weinstein with William Blair. Your line is open.

Hey, guys. Thanks for taking my questions. So my question is really around, first one is around market expansion efforts. You guys sort of tried to push the idea of increasing fluctuation testing, Virena is part of that, you've done some other marketing pushes. Can you talk either quantitatively or qualitatively about how you view those market expansion efforts, has the market expanded irrespective of kind of what we're seeing in the season and then also can you give us an update on where you think that your market share is within this fluctuation category? Thanks.

That’s a bunch Brian. Just taking a note to make sure I hit all those points. First of all, I do think it’s pretty clear that we have expanded the market, I don't think it's just us, I think this to be fair BDs introduction of their estimate was helpful. I can think its pretty clear given our cannibalization rate from QuickVue, if that has been okay. Of course, we'd like to see moving forward an acceleration of a cannibalization of QuickVue, but through last year, I think Randy we were still around 30% cannibalization, which says that that the $50.9 million or whatever it is and Sofia, a bunch of that’s been there, you know, because it can't all be share gain, because we don't really see huge share gain that would be noticeable, its very hard for us to calculate precisely what market share is, there is too many ins and out. In some of years we've said, we thought we were able to gain as much as 4% to 6% market share. I mean, that would give you an example. At this point, overall, all market included, I don't think we have probably more than 40% to 50% in that range, I mean, that would be a wide range. But you know, I am sure I can't be a whole lot more precise from that. We have some direct business form the distribution, it’s very difficult for us to figure out precisely where we're at. And in terms of Virena, I do think Virena is very helpful for us in terms of expanding market, that – that’s certainly true and I think we will be moving forward with other products like Lyme. I think we heard recently at our Scientific Advisory Board that it would be very useful to have speed test data going through our cloud, so that could see across the network where certain populations had issues with data. Did I leave anything out, Brian, you asked me several on a row, I hope I got them all.

No, I think it is. Thank you for all that. And then second question is around molecular general, can you talk about was there any kind of stocking or anything going on - as you're sort of building up a little bit of the Solana. You signed a couple of big deals I know. And then what does the funnel look like, specifically for molecular next year, do you have a good read as to what the potential account closures are at this point or does that take a longer time to develop that funnel? Thank you.

First, on the stocking, I would say you know, we actually attempted to get our distributors to take on boy a little bit inventory, when we had first launched flu A+B and unfortunately at this point we're just basically shipping where customers are ordering. There still may be a minor amount of inventory build at least one or more distributors I've noticed, but it’s not meaningful. So what we're seeing right now is basically very closely tied to customer orders. Our biggest concern right now Brian is when we install Solana for example, we want to install and all the QC and all that done and we want it up and running and we want – and then we want re-orders. And so our biggest challenge right now is what I would call order to cash, can I tighten that up little bit. In terms of order flow, I would say it’s a bit chunky. We recently had our largest single instrument close, in other words, number of instruments. We had an account that ordered 86, right, and then we thought before about some other large orders in terms of the reagent trail as well. But again, getting 86 of instruments installed, getting them up and running you know, that right now is our biggest challenge and its – if I am critical, I would say we've got a little bit to go still tighten all that up, because its going more productively and smoothly. But overall I think we're comfortable with the order. Our issue is not orders.

Okay. Thank you, guys.

Sure.

Thank you. [Operator Instructions] And our next question comes from Tycho Peterson with JPMorgan. Your line is open.

Hey, Thanks. Doug, on Sofia 2, can you maybe just talk a little bit about a couple things, how you think about the install base of Sofia instruments now, what level of cannibalization you guys are kind of modeling over next year or two? Where you think the consumable [indiscernible] goes on Sofia? And then have you worked through the things you needed to work through year end, I think at conference you talked about some of the timelines being around certifying wireless, so is that all been addressed?

I'll go back where all those things are being addressed and they are necessary for us to launch and we're getting to the end of that process, including FDA clearance. So it’s true that it became a complex product when we included the wireless, that’s part of the program and a great deal of learning there which will be useful moving forward. So that’s for the most part behind us. In terms of Sofia 2 and cannibalization, there will be some cannibalization, but it will be opportunistic. And one example is I have a customer who is a large Sofia customer, perhaps in the network decides they really do want to send data into the cloud as they access a prevalence data, should I ship them router or would it be better to shift them to Sofia 2, because the Sofia 2, including all is less than the router. So it would be more opportunistic than by design. Now eventually, obviously we will have assays that require Sofia 2 and require the horsepower if you will Sofia 2 and it would be at that time that we would probably still ship additional instruments in. Randy, points out, we're about a year away from that. And then you asked about size, we're still moving towards that magical $10,000 loss per box year and we think that adding other assays other flu is, its certainly going to help us get there.

Okay. And then maybe switching gears, virology is continued to decline, where should we think about the spending goring forward where you think the balance of the year?

Again, it’s a such small number of customers when you lose customers that tends to be an issue, some of the time, you know, obviously, we would prefer that those customers moved our own molecular method. But what we're seeing is some level of those assays, the VHI [ph] assays moving up with the molecular. It has flattened a bit, but its no secret, initially we did have some customers to make decision to move over to molecular. And certainly with Solana we're making it easier for them because we've got /VZV combined which they were running both of those by us. And we could certainly do it at a level that that’s economic for our customer.

Okay. And then I know, you had a question earlier on kind of share dynamics, can you maybe just talk about the broader point of care market, and obviously they [indiscernible]?

With our Solana product Tycho?

Yes.

Yes, we believe so. I can't tell you it’s in a great way of fashion yet, but do already see customers who are running strep who are now also running flu and that’s been helpful. And we have some customers in larger settings that were waiting for it before they started strep. So sometimes it’s hard to launch an instrument platform of just one analyte and that certainly was the case – with launching Group A Strep. But now we're – we are fixed now, Strep products are complete and then four other, right. So with the expanding menu I think that that should be helpful, with that influenza business.

Okay. Thank you.

You're welcome.

Thank you. This is all the time we have today. Please proceed with your presentation or any closing remarks.

Thanks everyone for your support and of course for your interest in Quidel. In my view, we had another productive quarter, and I believe that we are well-positioned to achieve our growth objectives in 2017. All the best.

Ladies and gentlemen, we thank you for your participation, and ask that you please disconnect your lines. Good-bye.