QuidelOrtho Corporation (QDEL) Q1 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation First Quarter 2019 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'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 first quarter 2019 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 May 8th, 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, May 8, 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 ended March 31, 2019. 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. The three topics that I would like to cover with you today are first, our financial performance, both for the full year and for the quarter; second, the status of products in development; and, finally the status of the Danaher litigation. And of course, I'm happy to answer your questions as well, following Randy's remarks. About our financial performance, I'll begin by saying that we had another good quarter, consistent with our internal expectations, and, importantly, are in very good shape to achieve the goals for the full year that we've communicated previously. There is a gap with analyst consensus for Q1 that we will address today, but again, our financial performance for the period was fine. Here are a few details on our expectations for the full year and on the recent quarter. For the year, there is good news. Our goal for the year, upon which our management team is accountable to our board of directors and its incentive is based, is unchanged. With Q1's performance, we expect to meet or exceed our 2019 Annual Operating Plan. Flu was better than we expected, and China cardiovascular revenue strength offset cardiovascular softness in the United States, most of which appears to be due to timing. Last year during the Analyst Day meeting in April, we expected revenues of up to $520 million as our target. Later in the year, we raised it to over $520 million. This year, in early May, with Q1 behind us, we believe that a target of $535 million on a constant currency basis seems appropriate. Absent Flu and rapid strep, this would represent 8% revenue growth, year over year. For Q1 our total revenue performance, at $150 million on a constant currency basis, was spot on our Annual Operating Plan. There was $2.2 million in unfavorable FX due almost entirely to the cardiovascular business, which brought our net revenue to $148 million. Now that we are off the TSA agreements in Europe and China, we have implemented a hedging policy, and Randy can walk you through the details on what we are doing moving forward during the Q&A. In Q1, the two larger drivers to our financial performance were the respiratory disease products and cardiovascular, as expected. For Influenza, I think it's safe to say that most of us overcalled the year-over-year downside. Our influenza revenue for the quarter was $47.2 million, which makes Q1 2019 our second highest quarter ever for flu, behind last year's monster Q1, and better than we planned by $5 million. Getting quarterly flu right has always been a challenge, and now, because of the magnitude of the cardiovascular franchise, forecasting this business well is equally important. We advised our shareholders to expect $276 million in revenue for the year, and an overall growth rate for the year of just under 4%, driven by introductions in the back half of the year of the new toxicology panel globally and high sensitivity Troponin in Europe. We said, further, that they should expect to see from $64 million to $69 million in the early quarters, given variability in distributor orders in any given quarter. In Q1 2018, last year's first quarter, we did $68 million, which included a $1.5 million swing between the two quarters. In other words, we did $66.5 million. We advised shareholders on several occasions that the ongoing cardiovascular business, all things normalized, felt more like $65 million per quarter. For Q1 2019 cardiovascular revenues were $68 million in constant currency, or $65.9 million with $2.1 million in unfavorable FX. We did what we said we would do in any given quarter before the new products are launched and are still comfortable with our overall full year revenue forecast, assuming a normal Q4 respiratory season start. Non-GAAP EPS for the quarter, was $0.91. On a constant currency basis, it was $0.94, which was precisely on our Annual Operating Plan. Two unplanned factors had a negative impact on EPS. First, gross margin in the quarter on legacy rapid diagnostic products was depressed due to factory absorption at our McKellar facility, where those products are still made, as we burned through influenza inventory that we were carrying over from Q4. In addition, cardiovascular price was lower due to mix, as sales in China at lower prices offset sales in the U.S. at higher prices. And second, we had unplanned, short-term spending increases in a couple areas: Savanna expenses with third parties involved in cartridge and instrument manufacturing, and litigation expenses. If not for the expense increase, EPS would have been $0.03 higher. Regarding product development, I will be brief, and you can ask for clarification if you like during the Q&A. Our R&D teams had another very productive quarter, and the news here on this topic is again very positive. First, Strep 98 is in clinical trials in the U.S., and the data thus far are encouraging. Second, the six Sofia GI products expected in the next 12 to 18 months are progressing nicely, and the Sofia C. diff toxin/GDH product performance in beta trials was outstanding. Third, the technology that will enable multiplexing on Sofia test cartridges has proven to be robust and we should be able to manufacture in large volumes; therefore, Sofia Tier 2 Lyme which will replace western blot as a confirmatory assay and Sofia RVP look increasingly possible. And finally, assay development for six Savanna mini-panel multiplexed cartridges is on schedule, and we are at last getting to cartridge design freeze in advance of instrument system integration, and a firmer timeline. Regarding the Danaher/Beckman litigation matter, I will also be brief, but will not be taking questions today. Most recently, the Court of Appeal issued an order agreeing to hear our writ petition on the merits of the case and has stayed the trial court's December 7th order. We are pleased that the court of appeal has agreed to hear the merits of our challenge of the trial court's decision. The timing for hearing oral arguments, is likely to be this summer or early fall, with a decision from the court to follow no more than 90 days from when the court hears the matter. Our position remains unchanged. We view Beckman's claims as meritless, and in opposition to Beckman's longstanding strategy of honoring the Supply Agreement with its previous partners, Alere and BioSite, over the last 15 years. We remain confident in our position and confident in the outcome of the matter on appeal and ultimately at trial, as the matter progresses. In summary, we had another solid quarter, and we achieved what we said that we would. I must add that I'm pleased with our overall forecasting accuracy. But in fairness, having more levers than just influenza helps significantly, and it should get increasingly easier as we continue to grow, both organically and through acquisition. I've said this so many times over the last year that it's beginning to feel redundant, but our focus as an organization is on leveraging several assets, our significant Sofia installed base and brand; our cardiovascular and toxicology franchises; our R&D skill, talent, expertise and know-how; our manufacturing and automation competence; our global infrastructure and footprint; and our customer and distributor relationships and leveraging those to the greatest extent possible. Randy?

Thanks Doug. Good afternoon everyone. As we reported earlier today, total revenues for the first quarter of 2019 were $148 million dollars, as compared to $169.1 million dollars in the first quarter of 2018, a decrease of 13%. On a constant currency basis, revenue would have been $150.2 million dollars in the quarter. The negative currency impact of $2.2 million dollars was mostly driven by weakness in the Euro and Chinese Yuan. From a product perspective, $2.1 million dollars of the $2.2 million dollars impacted Cardiac revenue. As expected, the year-over-year decline in total revenue was due to an 18% decline from the Legacy business, due in large part to the record flu season that we experienced in the record first quarter of 2018. Beyond flu, we also saw revenue declines from other seasonal tests that trend with a stronger or weaker respiratory season, such as Strep A and RSV. Moving on to the major product categories, Rapid Immunoassay revenue declined 23%, or $18.2 million dollars, from the first quarter of 2018, primarily due to a $17.4 million-dollar difference in flu revenue from Q1 2018. Total flu revenue was $47.2 million dollars, above our internal estimates. Sofia revenue was $42.9 million dollars, as compared to $58.1 million dollars in Q1 of the prior year, and QuickVue revenue was $18.4 million dollars, as compared to $21.4 million dollars in Q1 of 2018. Consistent with a weaker respiratory season than in 2018, within this immunoassay business, Strep A declined 10% and RSV declined 2%, rapid Immunoassay unit inventory at distribution is down 25% from the same quarter last year, and down 32% sequentially. Specific to flu, inventories are down 36% versus last year's first quarter. In the Cardiac Immunoassay category, revenue totaled $65.9 million dollars in the quarter versus $68.4 million in the same period last year. As mentioned previously, FX had a $2.1 million dollar negative impact on Cardiac revenue, and on a constant currency basis, revenue was $68 million, just slightly below the reported number last year. Triage revenue was $35.6 million dollars, which declined 10% from the first quarter of 2018. On a constant currency basis, Triage revenue was down 6% versus last year. Regionally, Triage saw revenue declines in North America, EMEA and Latin America, which was partially offset by 6% growth in China. On the Beckman BNP side, revenue increased 4% over the first quarter of 2018 to $30.3 million. On a constant currency basis, BNP was up 7%. Regionally, China was the biggest contributor to revenue growth, which was partially offset by revenue declines in North America and the EMEA region. Overall, we believe that 4% growth from Cardiac is achievable, and is partly contingent upon revenue contribution from newly-launched TriageTrue troponin in Europe and the anticipated launch of our next generation Toxicology assay. Revenue in the Specialized Diagnostic Solutions category decreased 7% in the first quarter of 2018 to $13.9 million dollars, primarily due to a decrease in our respiratory and general virology cell culture products. Our Molecular Diagnostic Solutions category increased 12% in the quarter to $5.7 million dollars, due to 24% growth from Solana assay revenue. Gross Profit in the first quarter of 2019 decreased $15.3 million dollars, primarily the result of lower sales of Rapid Immunoassays in the quarter. Gross margin in the first quarter of 2019 was approximately 61%, as compared to 63% in the first quarter of 2018. Lower factory absorption related to lower production impacted the legacy business, while currency and geographic mix had a negative impact on the Cardiac gross profit and margin. For the full year, we are estimating gross margin improvement over 2018. R&D expense increased by $1.3 million dollars in the first quarter as compared to the same period last year, this increase is due to the incremental expense associated with the Savanna molecular diagnostic platform and Sofia gastrointestinal assays. This was partially offset by decreased spend in the Triage business. We believe that our R&D expense is tracking to our expectations and estimates that for the year the R&D spend will be in the range of $52 million dollars to $55 million dollars. Sales and Marketing expense was $29.6 million dollars in the quarter, an increase of $1 million dollars, as compared to the first quarter last year. This increase was largely due to higher word-of-mouth marketing and product promotional costs than in the prior year. For the full year 2019, we continue to expect Sales and Marketing expense to be in the range of 50 to 100 basis points lower than last year, as a percent of revenue. G&A expense increased by $2.9 million dollars in the quarter, primarily due to increased infrastructure investments to support our global business, and increased professional fees. Acquisition and Integration costs in the first quarter were $2.8 million dollars, as we completed the integration for China and Italy. Interest expense for the quarter was $4.6 million dollars, and includes $1 million dollars relating to the Convertible Senior Notes, $0.5 million dollars relating to the Senior Credit Facility, and $2.3 million dollars relating to the deferred and contingent consideration associated with the purchase of the BNP business. The $3.3 million decrease in interest expense over last year was due to the reduction in debt of approximately $196.6 million dollars over the last twelve months, and this includes the deferred and contingent consideration. In the quarter, we recorded $1.7 million in income tax expense. The low effective tax rate for the quarter is due to discrete tax benefits for excess stock-based compensation expense. We believe our effective tax rate for 2019 should be in a range of 19% to 21% of pre-tax income before consideration for discrete tax items. The impact of the 2017 Tax Cuts and Jobs Act regulations are yet to be finalized and it will impact where we fall in this range. We continue to strengthen our balance sheet. In the quarter, we generated $28 million dollars in positive cash flow after spending $5 million dollars in capital expenditures, and paid off another $20 million dollars on the revolving Senior Credit Facility. In the quarter, we had depreciation of $4.7 million dollars and amortization of $7 million dollars. As of March 31, 2019, the Company had $56.9 million dollars in cash on the balance sheet, $58.5 million dollars in principal amount outstanding relating to the Convertible Notes, and $33.2 million dollars outstanding on the Revolving Credit Loan. Additionally, in April we made our second $48 million-dollar payment to Abbott, and the outstanding principal balance on deferred and contingent consideration for the acquired Cardiac assets is now approximately $184 million dollars. And with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions.

[Operator Instructions] Your first question comes from the line of Jack Meehan with Barclays.

Doug, could you maybe help us with pacing of cardiac immunoassay growth throughout the year? And what was driving some of the weakness that you were seeing in the U.S.? Is there any change in the competitive environment or just described a little more the timing issues you talked about?

Specifically, in the U.S., there are a handful of customers and maybe 70 or so that we expect a reorder but didn't. So that was the principal cause of most. And that would be for the BNP assay running Beckman's analyzer, so larger customers. We expect them to reorder so therefore, that's why I described it as timing. That was offset, of course by pretty significant uptick in sales in China. And so overall, I think we actually came in pretty close what we thought we would do for the business in Q1 and we're expecting similar performance in Q2. And as we said before, we expect to see lots of toxicology products in Q3. We've already launched a high sensitivity component in Europe, and are just now shipping product there. So back half of the years, when we expected to see an uptick and hence the bottoms of forecasts that arrived at a number of $276 million for the full year.

Do you still think the second quarter number is a touch below 70? Or what where should we see penciling it then?

Well, again, I'll say, I don't know how many times now. We're pretty comfortable that the quarters feel like 65. Therefore, we gave a range of 64 to 69 before. I would be shocked if it doesn't fall in there somewhere and the reason for that size of the ranges that we've got a lot distributor ins and outs, and it's really hard to figure out exactly when people are going to order. So makes a little bit more difficult forecasts, of course. But the underlying fundamental fundamentals of the business are pretty much in change.

And then on the molecular side maybe just how did that come in relative to expectations? Can you talk about the marketing behind Solana now? And do you think you can still grow that over 20% for the year?

We actually had a pretty good quarter and we exceeded actually our own internal plan. I using this is a dynamic in some of the systems where there is an advantage that Solana has on the front end of the BioFire, and we've seen a number of closes so far that are driven by a couple of factors, one of which is just cost. So, we're finally seeing that the cost advantage that Selena has to offer is becoming more widely known. And so, your question does the 20% growth still feel good and I would say, yes. It, one quarter in is one quarter in and then, first we don't manage the business quarter by quarter, we try to look at it on an annualized basis. I would say 20% for the year looks good.

Then last one, I think I heard firmer timeline for Savanna. I would love any additional color you can offer around the cartridge design and just getting into trials.

We certainly see all that being locked down by this quarter. And the third party folks that are involved with us, and not only cartridge manufacturing, but also instrument manufacturers are sorry, instrument manufacturing, are engaged. And we're so comfortable that at the end of the day, that will have FDA clearance on the instrument by the end of 2020. That's still the goal. I think it's super achievable. And as I said before, that doesn't mean we're launching at that time, because I'm emphatic that we're not going to launch until we have an offering this meaningful for the customer that's compelling. And so we think that only incurs we have four or five different purchase products that we can offer at the same time. But in terms of in terms of FDA clearance by the end of 2020, we still think that's possible that I'm laughing a little bit at myself because when we have a significant accomplishment in R&D, the guys always have a cake. And we told them FDA clearance of Savanna at the end of 2015 doesn't give them the cake. So they get they get the cake when we get the other 4 or 5 assays out.

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

So, first question just with the TSA agreements expiring, anything meaningful left on the integration or anything you'd like to call out?

Yes, go ahead Randy.

Yes, really, the only meaningful thing left is we have India and Brazil and Japan are the only countries left which are less about 3% of our revenue. From order-to-cash is from well complete. The only thing we have left is to get North American distribution into our distribution system and the effect of date on that is July 1.And then we will basically pretty much have completion of all the TSA agreements. So we're tracking well, internally, and we're really looking forward to Q3 where we really own 100% of this business.

Perfect.

I was just going to add that. We're not stopping now. We have a business transformation group now headed by a senior vice president and we expect to continue with the process improvement projects and manufacturing cost synergies. We believe there is quite a bit more still to harvest. But yes, in terms of order to cash and the ERP and all that. And the other thing just to add more color is because we involved the system ex-U.S. into a cloud-based system which is far better, we think for the Company. We're now merging U.S. system into that newer system. So that's -- its' not a new thing, but it's the merger on the once system with the entire globe. So that should be helpful. And then what else were you going to ask, Bill?

I was just going to ask just about Europe in particular, it's been somewhat mixed this quarter for a number of companies. So I'm just curious as to what you're seeing there, any concerns or impact for Brexit. And anything, any additional color you could add would be quite helpful?

No major macro issues, although we talked a little bit about the FX issues. That hasn't obviously effect on all companies but other than that, no macro issues on a country by country basis. I think our team has done a really nice job. The pretty excited about the new products vitamin D, Lyme has now launched there. And, I can talk a little bit more about the T2 products, the next generation Triage product, but we are now shifting product there as well. So I've got a pretty motivated commercial organization. They're doing pretty well. I was just reviewing before the call here. Our U.S. forecast and they're suggesting that they've got upside in Europe and in Asia. So I would say overall, really good, notwithstanding any some big macro surprises that we don't see quite there.

Your next question comes from the line personally with Mark Massaro with Canaccord Genuity.

Doug, maybe just zero in on the Cardiac business for a second. If you annualized mathematically just take 65 multiply times 4, you get to 260. Your guide is for 276. The difference is 16. So I guess my question is. Do you expect the 16 to come from the new products like Troponin in tox? Or do you expect obviously if you take 69 times 4 you get all the way into 276? I guess I'm really just trying to ask you. How much contribution do you expect from the new cardiac assay?

I'm expecting a reasonable shot. But let me, before I get into a specific number, let me say that. I think I learned a long time ago and I have to say, take a single data point and extrapolate. If I were going to start from a single data point, though, do I started 68. 68 is the number notwithstanding the FX issue. I'm just saying that I think 65 is a bass line below which we're not expecting to see. 64 to 69 is the range, you could take 64 if you wanted to and multiply times 4 or you can take 69 times 4, if you want to be given all that. And what we told you before it was, we didn't just pick a percentage and multiply times a run rate. We said, who are the customers by country where are we going to launch, toxicology is easier for us because we can name the customers that we expect to there is a product to for the most product. So we're really comfortable that and what would you say Randy, that number is about 5 million in toxicology that we're expecting. And then Troponin is a wildcard, it could be smaller. And -- but let's see what happens, we're just not shipping products. It's a high sense Troponin is important in Europe. Yes, so we'll see, we're not exactly making it available widely either we're having somewhat of a limited launch. So, overall, I still, as we go through with the guys individually by customer and build the bottoms up, we still think the 276 in total or constant currency basis makes sense.

And then, thanks for the comments on the Beckman litigation matter. I guess my question is. It looks like there will be a decision within 90 days of hearing the oral arguments. So that presumably would take us into the fall, call it September, maybe October timeframe, if I have that right. And I guess, can I get a sense of your confidence that this could be resolved, potentially ahead of going before a judge and a verdict would be reached about in the court?

Are you asking is there an opportunity to settle? Is that what you're asking?

Yes, it is. There is a probability of a settlement versus taking us all the way in court.

Yes. So, I'm going to give you an answer, that's same answer, but it won't be entirely satisfactory, I'm afraid, Mark. But settlement between the parties is always an option and clearly depends on the willingness of each party to compromise.

Understood. My final question, if I can. Can you just speak to opportunities in alternate retail stores and any types of new business development that you've seen that would give you maybe more satisfaction or less in this opportunity?

Yes, last count, I believe we were at around 4,700 urgent care centers as our customer. It's clearly an area of focus for us. 2 categories that our product line you would expect to do well and we do, we compete very nicely in the segment. Lyme is not hurting us, of course, being the only company with the clear ways, Lyme asking, they can be done on a finger-stick in 12 minutes. I think and the nursing care setting doesn't hurt as much. And I think as you look forward, the next generation Strep product will be helpful that segment as well, the Strep 98. So you can imagine we spent a lot of time looking at the category pretty closely. So what else can I say, we like it, we're doing well. And it continues to grow. I see deals every week to come across my desk. So that's good category. So it's freestanding, these smaller hospitals. We like testing closer to where the patient live.

Your next question comes from the line of Tycho Peterson from JP Morgan.

This is Julie on for Tycho. So first off, just a follow-up on BNP, I know you said you had expected BNP reorder which did not happen. Do you expect to recapture any of that in the second quarter?

Yes.

The entire amount or…

What I can tell you is. Our commercial team can name the accounts. Okay, so, we have month by month who's ordering when they're ordering. I don't see any gaps in terms of customers going away. I see customers who are ordering this month, next month, or following month et cetera. So, there is not huge market share shifts in the space. What you're talking about is people who have very large labs, with very large clinical chemistry systems, and amino acid analyzers. So when they order for those, when they see those instruments, sometimes there is a quarterly or sometimes it's a monthly order, depending on the account. So it's a little lumpy. I suppose you could ask me why we don't have all these things in standing orders. I don't know if it's done anymore, I'm kind of ancient. But any hope, there is we tried standing orders as a way it's smoothing things out. But our commercial team has got a very good handle on who's ordering and when they expect to order the next. So whether that all happens of completely in the second quarter, I can't really answer that.

Okay, that's helpful. And then on Rapid Immunoassay, I mean, it looks like excluding through the revenue also decline and I know you've called out Strep and RSV. Is that just tied to the general flu seasonality? Or are there other sort of high single volume dynamics that you like to call out?

No, that's entirely right. You got it, right, Julie [ph]. So, Strep is affected by the season and the magnitude of the season so as RSV. Not necessarily always as big as the variation with flu. Nevertheless, you see big swings. And that's why when I try to ask the finance guys to tell me what the underlying growth rate is, if I normalized for flu and those other products. I got a swing of about eight -- the underlying growth is about 8%.

And then lastly, regarding I mean, other if you're making up with your outlook. Just curious, how much of Lyme contribution are you currently embedding in your guidance?

Well, we've got a number into Lyme and actually our own internal LBE we recently took up. The benefit of Lyme, we're not seeing quite yet because it's not Lyme season, if you will. We do expect to see some sales in this quarter and we are. We do track our closes pretty closely and I think we're on track to achieve what we had set out to the surprise in it, which is actually a little bit of a little bit of an upside for us is that it appears in the last report that I read the 80%. Now, each of the new Lyme disease customers is coming with flu and Strep the other products. So -- and those, the sum total of those additional products is actually larger than the Lyme close. So, I've got a lot of customers who have signed up for Lyme, but they don't really know how many tests are going to do, right. So it's natural that we would say, well, don't worry about how many you're going to order there. Let's just order the whole thing, the things that you can count. And we'll make that part of the, I'll say it anyway out of the bundle.

Your next question comes from the line of John Hsu with Raymond James.

Hey, Doug, if we could just go back to that extra second, could you help us think about, you obviously give us a 1Q impact, but can you think help us think about the 2Q impact and what you have baked in for the year both on the top end and bottom line?

Well, we're anticipating and continued kind of like with the Chinese Yuan that there will be continued weakness in there. So baked in there as Doug said, the 535 is in a constant currency basis off of the Q1 numbers. So, it depends on where you things the Chinese Yuan is going to be at the end of the year, correct. I mean, as I said, the 535, we've given as far as guidance is constant currency based. So there is a reservoir opportunity, if it moves off to where we are at the end of Q1.

Got it. And I guess just finished on my numbers, it looks like, and also similar to other companies reporting, obviously, the Yuan is a big impact for you, but also the euro. So can you just help me think about relative to the 2 million in the 1Q, at least in my model, I would expect to be a similar impact maybe just slightly smaller in the 2Q. Is that a fair way to frame it? How you're thinking about it, at least for the 2Q?

Yes, I would say probably a little less, and Q2, probably, millions of $2 million range.

Okay, great. And then just as you walk through the year, can you just help us think about anything else to think about from a saving perspective, you obviously gave some good color on cardiac, but for instance, impact of Eastern into 2Q, is there any kind of a selling day impact there? Just help us think about any kind of saving items as we move throughout the year?

Well, I think and certainly the back half of the year, you're going to see a benefit when we move distribution from a TSA arrangement with Abbott into our own distribution system into our Summers Ridge facility. So, we'll get a benefit there. We're continuing to see the synergy benefit. I think Doug indicated that we plan on exiting 2019 at a 15 million plus benefit with Summers Ridge with the cardiac business excluding the distribution capability. So, there is some opportunities there. Obviously, toxicology revenue, the back half of the year, we think has the most side as well as with the Lyme revenue.

And then last one for me, I'm sure you guys are sick about talking about flu. But nonetheless, I will ask the question. This is -- last year was obviously a very strong flu season. This season was the longest that we've seen in a decade. So, how are you thinking about the flu tracking to your expectations in the 2Q?

Well, we did have a little bit of a benefit admittedly, so in Q2, not huge so, and so it's helpful, it's helpful in terms of the flu numbers.

Okay, great.

Yes, I mean, historically in Q2, it's been in the $5 million to $10 million range. So, I think that's probably a good range. You did, as I mentioned, this inventory distribution is at a pretty low level, which obviously would be in somewhat beneficial as we go through the rest of the year.

And last one for me, I apologize if I missed it, but can you give us an update on kind of where you stand for overall Sofia placements? And then maybe how many systems are up on Virena now?

Well, we said, as we always do a JP Morgan that we were on the 35,000 number globally. And I don't have a recent Virena place, but I thought it was right around 11,000. It may be higher than that now. Obviously, we're now into -- well, it has to be. But when we announced the 35,000, I think we -- John, we're at 11,000 at that time.

[Operator Instructions] And your next question comes from the line of Alex Nowak from Craig Hallum Capital.

Jumping between a few calls here, so apologies, if this was already covered in their prepared remarks or in the Q&A. But I believe you said earlier, you exited your internal estimates on flow. The data out there certainly suggest the more flat season than what you've posted. So just curious now, did you see -- maybe going back to the data, did you see potentially some bigger stocking in Q4 than you originally thought? Or do you believe you saw any noticeable share losses due to new molecular entrants into market?

Let me help and then I have to ask you to clarify. But we've built in inventory in Q4 because we ran a program that was particular to larger urgent cares that might need product, depending on the size of the, well, depending how many flu patients we're going to see. So, yes, so we've built more in Q4 than we normally would just because we wanted to make sure that we didn't backward. So that's the impact there. I'm not fully understanding, what you mean by the magnitude of the flu season and I presume you're talking about Q1.

Yes. So, I mean, if you look at some of the reports out there, there is "double wave flu season" where you saw, you know, an A&B strand actually take hold at two time point. So, I'm just curious, why necessarily didn't see the benefits from the D strand later in Q1?

Well, we did. So, I'm not sure how, what news report you're listening to. But what we saw that was driving most of the volume was in H3 and 2 that was of a different clayed than was in the vaccine. And this particular H3 into was particularly morbid in other words, it was causing people to get off the couch and go see the doctor. And so, that was driving your patient volume. When you look at Virena data, you also see that in several states the people that were feeling bad a high percentage of them were due to influenza. In other words, our positivity rates were quite high in several states. So, the double wave, you know, I saw the ILI data, it fell off for a lot of week or something and then kept along back. Yes, so, you have to be careful there, Alex, because the ILI is a percentage of office visits. It doesn't tell you how many office visits there actually were. So, it's one data point. It's an interesting data point, but it doesn't really tell you anything. I would be reluctant to call this last season, a double wave. The last time we saw two peaks, two real peaks was in 2009.

No, I don't think Virena data showed that.

No, our Virena data absolutely didn't show two peaks.

Okay, interesting. That's helpful. Thanks for clarifying that. And you continue to pay debt off your leverage ratio continues to come down. So just any updates around M&A where does it make sense to bring some assets then?

Well, it's just simply around [fits]. So, we've built infrastructure globally, customer service centers there, and we're working on one here as well. And so, things that fit our infrastructure also fit. Things that fit with our commercial people do where they go in there and who they see. Those make a lot of sense. And so, there are a number of things that we're looking at. But obviously, I can't tell you a whole lot more than that at this stage. But we want to working, we obviously pay down a lot of debt, we have borrowing capacity and we have cash. So, if we can find something that truly sets then we'll do it. But we're going to be just like we were before. We're going to be pretty judicious in our approach to it.

Your next question comes from the line of Brian Weinstein with William Blair.

Hey, guys. I am just the last guy. I was running there on multiple calls, so this may have been answered, but I don't think in explicit detail maybe. So, on the Triage business, can you just go back and just go through again, why that business was down 10%? And then the second question is. On the loss revenues that somebody else had talked about in the lack of ordering from a 70 customers. Did you quantify the impact of that? And we're already kind of the first week of May. So, I think you tried to dress before, but any sign of that would be coming back in the second quarter now that we're almost halfway through it. Thanks.

I'll answer them in reverse order and kind of repeat what I said before and that is that. Our commercial team can name the customers and they track it monthly. There's very little share shift going on in that space. When it does happen, we know about it, right. So, we're able to tell you if we lost a customer or not. So there is a timing element. Some customers are quarterly. Some are monthly. So, some are more frequently than that. So, is it softened U.S.? Yes. Is it -- some of it still into BNP, some of it to obviously the Triage as well; and as I pointed out, some of it is frankly due to timing. Now, on the first part of the question, the 10% I don't get where you're coming from there. When you look at Q1 2018, so if you look at Q1 to Q1, Q1 2018 had nominal $68 million. But as we said before, we had some ins and outs there and that really was more like 66.5, right. Here, constant currency, we actually did 68. So even though we didn't have some softness in the U.S., it was offset by China and Europe. So, 68 is the number. We did have FX, obviously, this time that we didn't have before when we move those products to the TSA. So, it's not actually a nominal basis, not declining at all. And even as you throw FX in there, it's not significantly different. So, it's not really a decline versus to Q1 2018.

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

Well, great. Thanks everyone for your support and of course for you're interested in Quidel. You know a little bit of disconnects in terms of the forecasting, but from our perspective, spot on our annual operating plan. And I don't think we've ever internally forecasted as closely as and as well as we get. I believe we're well positioned to achieve the growth objectives. We did give now a target for year end and hopefully, that is helpful for everybody as they model. Take care everybody.

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