Ladies and gentlemen, thank you for standing by. Welcome to Quidel Corporation Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Mr. Ruben Argueta, Quidel's Director of Investor Relations. 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 Randy Steward, our Chief Financial Officer. Our fourth quarter and full year 2018 earnings release is now available on ir.quidel.com, on 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 13 for a period of 24 hours. 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, February 13, 2019. 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 months and full year ended December 31, 2018. If you have not received our news release or if you would like to be added to the company's distribution list, please contact me at 858-646-8023. Following Doug's comments, Randy will briefly discuss our financial results, then we'll open the call to your questions. I'll now hand the call over to Doug for his comments.

Thank you, Ruben, and good afternoon, everyone. Thanks for listening in on the call. We have a lot to do this year 2019 and there are many great exciting opportunities ahead of us. So I won't spend too much time today looking in a rear view mirror. Having said that, Q4 2018 was a solid quarter for us and 2018 overall, was extraordinary. Early in the year, at our Analyst Day in Chicago, we communicated several milestones and several expectations for the year. We said first that our commercial leadership in their teams could fully absorb the larger sales and marketing responsibilities establishing a solid revenue baseline for the acquired Triage products. While continuing to grow our legacy amino assay and molecular businesses as we had in the past. We said that we would do this by recruiting and installing the necessary people, and infrastructure internationally but would not need to add significant resources for the U.S. We said that we believed that we would reach $250 million for the combined Triage businesses globally; instead we did $267 million in revenue for the year. We said that we would deliver 10% in revenue growth for the base driven by new Sofia and Solana replacements; instead we did 11%. In terms of the integration of the newly acquired assets, we said that by the end of the year 95% of ordered cash for the Triage businesses would be under our control, and that we would achieve $10 million in annual of run rate savings. By the end of Q1 2019, when the Chinese business goes live, we will be at 96%; and at the end of 2018, our cost savings run rate was at $13.3 million. And finally, in terms of financial performance, we said that we plan to reach 32%…

Thank you, Doug. Good afternoon, everyone. As we reported earlier today, total revenues for the fourth quarter of 2018 were $132.6 million, this compares to $114.9 million in the fourth quarter of 2017. The 15% increase was primarily due to a 34% increase in Cardiac Immunoassay revenue, 30% growth in Molecular Diagnostic Solutions, and 3% growth in Rapid Immunoassay. These increases were slightly offset by a 6% decline in our Specialized Diagnostic Solutions. Cardiac Immunoassay revenue was $62.9 million, a growth of 34% in the fourth quarter of 2018. Revenue growth for Cardiac was mostly due to the incremental revenue in China as we returned to more consistent ordering patterns from our customers. Also, in Q4 2017, we minimized shipments to China in order to reduce the amount of inventory at distribution. The total year-over-year Cardiac revenue improvement in China was approximately $14 million. Of the $62.9 million in Cardiac revenue, the split was $35.9 million for the Triage business, and $27 million for the Beckman BNP business. First, let's talk about Triage. From a geographical perspective, Triage revenue grew approximately $8 million in China from the fourth quarter of the prior year, due to the discussed normalized ordering patterns. The U.S. grew 17% from the fourth quarter of the prior year, and Europe was down approximately 5%. With regard to the $27 million Beckman BNP business, this product category grew 28%, or $6 million as compared to last year, again driven by China. In the quarter, both the U.S., Europe, Middle East Africa was down 1%. For the year, Cardiac Immunoassay revenue grew to $266.5 million. Included in this amount, total Triage business revenue was $148.1 million, and the geographic split for this Triage revenue was $65.5 million in the U.S., $33.6 million in China, and Europe, Middle East…

Thank you. [Operator Instructions] Our first question comes from John Chu from Raymond James. Your line is now open.

Good afternoon.

Hi John.

Hi, if we could just start right with the 2019 guidance. I apologize if I missed this I got the growth of at least 20% in molecular then obviously the 4% growth in the cardiac business altogether but can you can you just maybe break that apart a little bit as far as what your spectrum for the BNP versus the Triage assets and then for Immunoassay or for the legacy business, I might have missed it but do you have any thoughts around -- what your expectation is there?

Yes. So, this is Doug I'll give you the overall and then Randy can break it down by… So, our marketing guys basically reviewed ongoing run rates looked at gains and losses instrument placement rates and we rolled up the number that effectively for the year is about $276 million. Whether that's an accurate number or not Jon honestly if we hit it precisely, I probably will promote all the marketing guys. But so, it's going to be either slightly into that or slightly over that but right now I can tell you that just in January alone we placed more Triage instruments in North America that we did in any previous quarter. So, we're pretty confident that what we're seeing in terms of demand is real and we're seeing similar experience across the globe and so we're pretty comfortable that the 276 is a reasonable stab and what we think we're going to do in and 2019 and, we don't know each other that well John so I don't know if I can joke with you or not but we didn't employ the Goldilocks method of calculation, we didn't say well 3% too low and 5% too high and 4% is just right. What we did instead as we rolled up bottoms up, we said 276 is our number and then we divided that by the 267 that we did in 2018 and that happens to be 4%. There's no magic to 4 it's just a matter of dividing 276 by 267. And again, I can tell you for sure that the marketing guys are precisely on the number it would be the first time in my 33, what about 35 years.

Trying to put forecast together.

But I think we have a reasonable number that we forecasted and Randy why don’t you break out the growth rates by the category.

Sure. So, for the Triage we're looking at mid-single digits. We see growth both within the US and in Europe. We see China being pretty stable on year-over-year basis within the BNP business, we see that up approximately around 3% again growth in the US and in China. Europe we are predicting a slight decline that's mostly due to kind of change in over from a direct to get through distribution to a certain degree. So that’s kind of the geographic drivers for 2019. Your mentioned molecular I think the other one is in the rap Immunoassay as we said we anticipate you know a 10% growth that's somewhat offset by what your estimate is in Q1 of 2019 for year-over-year flow which obviously I you know is pretty significant the consensus is pretty is less versus Q1 2018. Those are those are the pieces John.

Okay. Great that's a very helpful. I guess just if we could switch gears to synergies congratulations you hit on most of your target $13.3 million run rate obviously better than even a $11 million that you'd been expecting so how do we think about what to do and maybe how the synergies roll in and maybe could there be potentially some upside to that $20 million number?

So the $20 million is by 2020 as we exit this year as we explained initially at the Analysts Day we expect the run rate as we exit 2019 to be up $15.5 million again that's some pretty serious forecasting accuracy. But you know we're still working very hard in the factory to improve yields and most of that will come from there.

Okay. Great and then just last one for me. You obviously gave some updated thoughts around the Beckman litigation. Just to be clear within the numbers that you provided specifically to the cardiac business is there change or any impact to the 2019 operating plan associated with litigation?

No, when we did the call earlier I said very specifically that we are not making the change to our 2019 targets.

Okay. Very clear.

Thanks John.

Our next question comes from Jack Meehan from Barclays. Your line is now open.

Good afternoon, I agree. Congrats on a great year. I have a multi-part question I want to start with on the cardiac side and appreciate all the granular detail you provided. The fourth quarter was a little lighter than we were expecting at $63 million. So, my question is there any seasonal factors which drove the revenues below the recent baseline we’ve seen in previous quarter and then the 4% forecasting for 2019 just what pacing should we expect and what contribution from the new - assay are you building in?

Okay. I think I can remember all of that. I think the end of the line actually on the $63 million specifically there are couple drivers I’ll let Randy address that. But they are not demand related, they are distribution related. So Randy?

Yes. Yes exactly, as I mentioned in Europe we gained control in Europe in August and they had a go to direct market strategy we were pretty much used to going through distribution. So that's about a 10% hair cut on that European business that we realized in Q4. The other piece as we did have a distributor in the US that we ended up shipping direct because of some shelf life and need for product we ended up shipping direct that had a slight impact downward and US business for Q4 as well.

So theoretically, the damage in the quarter with $2 million like that. So remember when initially we were talking about this we said $60 million to $62 million a quarter that was our stab at the time based on what we have available to us and then we started seeing some quarters that were higher than that and I believe I said that boy it feels like even though we had just shipped I think $68 million in the first quarter, no it really doesn't feel like 68 feels more to me like 65. Again, we do our best to forecast based on the information we have and then in the second quarter we did even more which would make me by 65 also look bad. And then we had in Q3 Q4 offsets due to some distribution ordering patterns and effectively instead of doing 65 a quarter we ended up doing just about 67 per quarter on average and some of that could have been in the quarter at any time we do feel like we have a handle on why the quarters look the way they do but again my 65 was not right. We actually did something like 66.75 I think on average and this is your point also Jack I can't really fully predict every quarter that it's going to be shipped to the way we think it's going to be shipped to our distribution partners based on their orders in their inventory levels. But based on the underlying demand for instruments, and starting from a customer, individual customer up and adding that all accounting the losses and offset by gains with new instrument placements I'm pretty comfortable that we're going to get to 276. The timing of each quarter is not exactly under our control. So, I don't like that quite yet at least I understand that in our point right now we're simply focused on how to grow the demand for the product with most we can grow in a pretty place of for actually as I said before we're actually shipping more instruments in North America or at least through this quarter. We've already shipped more than we have in the other previous quarter and that's it through January. So, I'm pretty pleased how we are doing I hope that we have under called the number. Too much.

And in terms of building out that demand just an update on the timing of the talk's approval with the FDA you still think the second quarter in within the 4% growth what contribution is linked in the back half?

I can't speak specifically to FDA timing, I think our guys are confident that we’ll be through the process in the March-April timeframe and that I know the guys in our factory are gearing up to manufacture kits and the labeling and all that at this time. So, I think we're pretty comfortable with that first half as we said before.

Great. And then last one Savannah I agree with you I prefer flawless launch maximum potential, but I have to ask where do we stand with the cartridge design in preparation for the clinical trials do you think they will start by mid-2019?

It's a great question because that's the key of the [indiscernible] So right now we've got to finish the final cartridge design for manufacture ability and we've got to start make a lot of cartridges. Because with each of the assays we’re thinking we need in total tens of thousands of cartridges and so we got to get started soon. And if that slips a little bit it’s fine. But I think my point that I'm trying to make Jack is that there is a tendency in companies to say I'm going to meet my timeline, I’m going to get an instrument with one assay cleared by the FDA and I'm going to count that as launch. We're not going to do that, I'm not going to actually start selling products and so I have four or more things that I can immediately ship to customers and if that causes us to move back a month or so in order to do that because I didn't get enough cartridges out for the clinical trials early on or we have some issue with respect to the FDA, I'm going to make that trade off any day because I know that - it’s so critical when you're launching a new instrument system to make a big impact within the first 120 days and that's pretty hard to do when you only have one thing on the analyzer. So that’s enough I've been going on for too many minutes here on that topic, but I feel pretty passionately about the idea that we want four or five things on the instrument launch and I am hopeful that we can certainly see the market but if I don't have the product I'm not going to launch.

Our next question comes from Brian Weinstein with William Blair. Your line is now open.

To keep on the cardiology theme here can you talk about what spurred growth here it really kind of going forward are you kind of interesting in the last question but specifically are there competitive wins here is it new account utilization and then with your comment about shipping more instruments in January than any other quarter what specifically is going on that’s driving that at this point is it sort of a new marketing campaign I think you talked to me about a little bit of weakness in their business very taking advantage of that so little bit more color and all that would be great?

Sure about two-thirds of our business actually for Triage is on the hospital segment and we continue to do well in the small hospital. So that's a factor but the other side I was actually a little bit surprised as you might be to Brian that a third of the business is an out, we group as POL and in the POL category we include version here. And so, right now. I think that’s what I said just the other day that we were in 4700 urgent cares and most of those have a Triage. So we're doing extremely well and that's probably the segment there and I don't know about other competitors and what they're doing and what they're not doing. But we're pretty competitive in that space.

Okay. And then on [indiscernible] I want to make sure I heart this comment right, did you say the last 4 weeks had shown an unprecedented acceleration, I just want make sure that I heard that right?

Yes you heard it right. I was just looking at the chart this morning I was a little bit surprised, so if you look at even last year that was a phenomenal flu season and you look at out-sales in the same week. They were higher those out sales for that period of time but the slope of the weeks is pretty vertical right now and but that's to be fair that's offsetting a pretty slow start right so I'm not changing our number for the quarter but I do feel pretty comfortable we're going to get you a number. And I think that's most important thing. Now the other factor is anytime you see a chart for flu you also realize the next week could be going back the other way so and it is Valentine's week. I don't know what that means but the last couple years this week it started going back the other way. So, if it does start going back the other way I still think that we're going to make a number for the first quarter of but I would prefer to see a couple weeks for it to go on because at the end of the day I need obviously distribution partners to feel like their inventories are getting too low. And I need them to feel that before we get too close to the end of March because towards the end of March normally they are our products so I think you know that.

Yes absolutely. Great. Thanks for answering the questions.

Our next question comes from Tycho Peterson from JP Morgan. Your line is now open.

Question I guess on margin Triage gross margin down a bit that the 53% I think for 57% can you maybe just touch on that and what you're kind of expectation for Triage margin for 19?

Can you repeat that Tycho, we had a little problem on our end?

Question on Triage gross margin which tick down a bit can you maybe touch on that and then what it embedded in guidance for Triage margins for 19?

Yes. It was it's more of just factory absorption little more volume in Q3 than Q4 as a result of the holidays or something but nothing other than that. As Doug mentioned we exceeded our synergy number which more than half of that was driven from factory yield, so we anticipate for 2019 to see an incremental improvement in our gross margin over 2018. Driven by new products as well as the continued yield improvements in the cardio vascular business.

Okay. And then Doug on Sofia, can you talk on Lyme how the roll out has gone there what’s kind of embedded in the outlook for this year and if we think about kind of pull through to get to the 10,000 pull through target how important is Lyme to getting there in Sofia?

I think it's pretty critical that we maximize the Lyme launch. The timing of approval wasn't ideal but as we had in the summer particularly with activity in the north-east, we’re hopeful that we can gain some noticeable traction. The other thing that pointed out previously is that interestingly with each new Lyme disease close that we experience thus far about 90% also came with flu and strap and RSV. So, it's interesting that the collateral benefit of the Lyme close if you will is larger in terms of revenue and margin than the Lyme. So, right now I have to say that just in the last few weeks I'm thinking about how can I resource this launch to an even greater extent and so we're going to be focused on it and I do think we have a pretty good chance of making a noticeable impact. And that makes us a lot more comfortable that moving towards that $10,000 per account is reasonable.

Okay. And then last one on flu, I appreciate all the real time color here. As we think about market share, can you maybe touch on how you think about your market share versus last year? I know with the FDA you picked up some share so how are some of their share gains that you experienced last year in your view?

I think that’s sticky because many of them were in large integrated delivery networks or urgent care centers where they value data. So, I think that stickiness is quite good. It's hard for us to forecast at this stage believe it or not we’re actually being as it's probably and the modestly I could say probably in the 3% to 5% share gain. It would actually surprise me if it's more than that. But it's very difficult for us to get enough data to actually judge what our share is previous years we spent a lot of dollars doing fourth -- doing surveys to customer to try to estimate but we stopped doing that because I'm not sure how accurate you are.

Okay. Thank you.

Our next question comes from William Quirk from Piper Jaffray. Your line is now open.

Great. Thanks. Just sticking on I guess kind of building off Tycho’s last question, if we look at flu for the fourth quarter it was up 4% look at the [indiscernible] data was down about 13% for the quarter. So, I guess help us parse that out a little bit between clearly some of that was share gains but was there any kind of weird behavior going on with the distributors at all in the quarter? Thanks.

No, not really not really but you're addressing an interesting perspective and it's because of my inability to answer the market share question. If we were shipping directly to every end user, I'd know what my market share is. We figure it out and here because the timing of orders and all that it's really hard for us to know precisely. But having said all that, we didn't see anything unusual on how our distribution partners or product last year.

Okay. Okay understood thank you. And then a couple of additional ones from me Randy thanks for your comments regarding all of the debt repayment and also the comment regarding would look at smaller deals I guess can help us think about some of those capital priorities at this point is it pretty much majority focused on additional transactions and if so kind of what’s the status of the potential deal flow that you guys are looking at present?

Well, I'll give the debt side and then I’ll let Doug talk about potential M&A stuff. From a capital perspective we have a $48 million payment due on April to Abbott, we still have a debt so short term in the next two to three quarters. But certainly it does give us significantly more leverage than we had last year relating to potential M&A deals.

We continue to look at things that fit, I think what we learned in the earlier asset acquisitions is that fit probably is the most important criterion. We're we were able to fold in things two asset categories into the existing infrastructure in North America and then we used the cash and all that to build the infrastructure in our international team. So now moving forward things that would fit into those two, the international and North American channels makes a lot of sense to us. So, we continue to look at a lot of things and there are a couple things that look interesting. I'll just say that but obviously if we are further down the path then what I just expressed we couldn’t talk about it. So, but there are certain things that we think do fit and I think we prove that with the earlier asset acquisition that fit matters.

Okay, got it. So that's a little bit like younger [indiscernible] and scoring in the champions league it's rare that you're close on a deal but obviously not unheard of thank you. At last probably the question, thinking about Doug you've talked historically about the legacy talks business at bio site and the level that that was running at prior to those assets coming off the market how are you thinking given the FDA filing and how long it'll take you to get back to those levels? Thanks guys.

Thanks Bill. To be specific we've modeled that fourth year revenue will be in the third. So, can we get there faster than that maybe. So, I think we can do pretty well the next couple years because we think that there is pent up demand for the product. Our customer demand that we could address before. So conservatively, I would say fourth year revenue post launch should be in the thirties.

Thanks guys. Appreciate it.

Our next question comes from Alex Nowak from Craig Hallum Capital. Your line is now open.

Hi. Good afternoon everyone. Just to add on to Bill’s and Tycho’s question was there more inventory in the channel exiting 2018 compared to the end of 2017. You quantified this on other quarter, but I don’t believe you mentioned that on this call particular?

Yes, I know we did not mention it. My oversight but it's pretty consistent with where it was in Q4 2017. So, no significant changes and actually doing strap RSV and or flu.

Okay. That's helpful and then Doug I just want to make sure I got the timelines right to the Beckman. Are we still one you're expecting to hear next on the original case and then if you look here you can either be done in parallel or could be done after that main case and we’ll know about that here in March or April?

Yes, thanks for clarifying I did mention that date is no longer applicable and so let me just walk through a couple things that might be useful. First of all, the courts’ decision to stay in the litigation and that's what we are talking about here was not surprising. Because courts typically stay litigation if they're waiting to hear from an appellate court. If they think it would be more efficient to do it that way. Courts typically vacate the trial date upon entry of the stay and that's what happened here they vacated the trial date. So, there is no trial date right now. This is normal. The stay does not affect our petition to the court of appeal. So, if anything it actually enhances the likelihood that the court of appeal will consider the merits of the petition. In it's application, Beckman stated it's -- we'll urge the Court of Appeal to accept the petition for a review. So Beckman has joined us in the idea that hearing us sooner rather than later is a good idea. The impact of course, if any, will be minimal, so if the Court of Appeal decides to hear the petition now, the order will have no effect because Quidel is in favor of the state in that circumstance, and if the court of appeal denies our petition, the only effect of the order is a slight delay in the trial date which is going to happen in our subsequent appeal, and we do not believe this delay will be lengthy. And again, we're confident the Court of Appeal will agree with our position whether they hear the appeal now or whether they hear it after the trial. So I've over-answered your question.

No, I think I got this. I think just to summarize, the next thing we'll hear will probably come in March or April, and we should know more on the next path at that point.

That's right.

And our final question comes from Mark Massaro from Canaccord Genuity.

This is Max [ph] on for Mark. So, it's been about three months since [indiscernible] for large respiratory panels became effective. I know that for the last two years you've been operating under the assumption that this will be the case. I guess, how do you feel that the market is responding to the decision if anything versus your expectations?

I don't think I have an opinion quite yet. I mean, I really haven't looked at it, so I shouldn't opine on something, I shouldn't speculate. As we get closer to launch, of course, we're going to know about what customers are doing and then I'll add. So I apologize, I don't really have a good answer for you.

No problem. So you have indicated you see the potential for 70,000 to 80,000 total Sofia placements overtime, and I guess for the remaining 35,000 to 45,000 potential placements, what geographical regions would you be honing in on, and is there a particular type of customer you will be targeting?

Well, the U.S. and Europe for sure, are good markets for us. And I think China, once we're approved there. The next wave of things that we're launching will be gastrointestinal related, and we have again plan that have I think 5 or 6 new targets done within the next couple of years. So that I think is going to be helpful for us.

And that is all the questions we have for today. Please proceed with your presentation or any closing remarks.

Thanks everyone for your support and for your interest in Quidel. We had a great year, and we're in terrific shape to achieve our growth objectives over the next few years. We know what to do from here, and we have the right people to get the job done. Thanks again for being on the call.

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