Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Fourth Quarter and Full Year 2017 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. 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 2017 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 21 for a period of 24 hours. Please note in the earnings release due to the acquisition of the Triage and BNP Businesses, Quidel modified its classification of product revenue in the fourth quarter of 2017 to reflect the Company’s significant product categories. In association with the change, revenues of the recently acquired Triage and BNP Businesses will be reported within the Company’s Cardiac Immunoassay category. Quidel’s legacy immunoassay business represented by QuickVue, Sofia as well as the Eye Health businesses will be reported within the Company’s Rapid Immunoassay category. The Company’s legacy molecular products under the Solana, AmpliVue and Lyra brands will be reported in the Company’s Molecular Diagnostics category. Quidel’s Diagnostic Hybrids, or DHI virology products, Thyretain and the Specialty Products Group, which represents our bone health and human complement products as well as other revenues, which includes grant and royalty revenues will be reported in the Company’s Specialized Diagnostics category. 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 21. Quidel undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. Today, Quidel released financial results for the 3 and 12 months ended December 31, 2017. 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 turn 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 2017 was $114.9 million, 118% increase from the fourth quarter of the prior year. Due to three factors: first, the incremental $47 million from the acquired Triage and BNP Businesses that closed on October 6; second, $10.2 million in incremental Influenza sales; and third, $4.9 million in incremental non-flu revenues from the legacy Quidel business. The fourth quarter overall was very busy and very productive for us driven by the markets receptivity of Sofia 2 with early read times for Sofia Influenza and connectivity to Virena, and the FDA reclassification of rapid influenza assays, Sofia placements were 8,226 our largest quarterly placement rate ever. Receiving 510(k) clearance in CLIA waiver from the FDA for Strep A plus for use on Sofia 2 was timely and helpful as well. And we received 510(k) clearance for Sofia Lyme, well in advance of the Lyme disease season the summer. Molecular assay revenues were $4.9 million in Q4, driven mostly by Solana Group A Strep, which continues to grow. In the quarter, we received 510(k) clearances for Sofia – excuse me, our Solana Group B Strep and Solana RSV and Human Metapneumovirus bringing the number of assays available on Solana to 7. And, of course, early in the fourth quarter, we closed the acquisition of the Alere assets. In that regard, the integration is going very well. To summarize our achievements thus far, we’ve transitioned 472 employees in the United States. We’ve successfully implemented order-to-cash within the U.S. and 24 direct export markets. We’ve restructured our North…

Thank you, Doug. Good afternoon again everyone. As Doug mentioned, total revenues for the fourth quarter of 2017 were $114.9 million as compared to $52.8 million in the fourth quarter of 2016. The 118% increase in revenue was primarily due to the revenue from the acquired Triage and BNP Businesses. We did realize revenue growth in the other product categories as well, Rapid Immunoassay, Molecular Diagnostics and Specialized Diagnostics solutions. Rapid Immunoassay product revenues increased 35% to $49.1 million in the fourth quarter of 2017 as compared to $36.5 million last year. Within this category, Sofia products grew 65% from the fourth quarter of 2016 to $29 million. QuickVue product revenues were relatively flat at $19 million. Total Influenza revenue grew 44% in the quarter to $33.5 million. The influenza Rapid Immunoassay revenue split was $23.4 million from Sofia versus $6.8 million from QuickVue. Also within this category, Strep revenue was up 28%, RSV was up 27%. Cardiac Immunoassay revenues at $47 million represented the revenue contribution of the acquired Triage and BNP Businesses. The performance met expectations considering we closed on October 6, thus one year, one week short of a full quarter and China revenue in the quarter was short by approximately $8 million. As we have discussed previously, the shortfall was based on our desire to reduce the amount of inventory at China’s distribution partners. In the fourth quarter, we achieved our objective of ramping up our international commercial team, as well as realigning our U.S. commercial team and support of these products. Revenue in the specialized diagnostic solutions category increased 5% in the fourth quarter to $14.2 million. We realized 7% growth in Thyretain in the quarter. Our Molecular Diagnostic Solutions category increased 67% in the quarter to $4.5 million, due to a 221% growth in…

[Operator Instructions] Our first question comes from the line of Nicholas Jansen with Raymond James. Your line is now open.

Hey guys, congrats on a good finish to 2017. A couple of questions. First, just in terms of the Triage integration, thanks for all the color with regards to kind of the revenue in China and all that, though five months since the deal closed is kind of where do you think we stand in terms of your understanding of all the key geographies? What needs to be done from kind of a technology road map perspective? And how do we think about the synergy capture? Are you kind of on plan for that $10 million ahead of schedule? Just kind of your broad brush strokes on the integration thus far. Thanks.

I think we’re in good shape internationally. I think we have a pretty good understanding. We had a knowledge gap initially on how much inventory was being held by various distribution partners in China, but we now fully understand that. And for the first quarter, we’re very much on track with what we had envisioned for international revenue. In terms of synergy, as you know, Nick, a lot of the synergies that we’ve identified were in operations. And as I commented, we’re very much on track to achieve the $10 million by year-end in terms of run rate. I would say – what do you think Randy? We’re probably 60% to 70% of the way in terms of identifying how we’re going to get there?

Yes, exactly all the projects. We’d like 42 projects within that operations group. So we got teams on every single one of them. So I think we have a very well-executed plan at this point.

Okay, that’s helpful color. And then just in terms of how we should be thinking about the strength of the flu season thus far in January and February, everyone knows it’s kind of reached its climax maybe a week-or-so ago. But just trying to get your thoughts on immunoassay revenue, sequentially. Certainly you face a more difficult comp in 1Q versus 4Q from a growth perspective because when the flu season happened last year. But just your thoughts on kind of sequential revenue so we make sure our models are appropriately aligned for flu? Thanks.

That was a hard one to predict at this stage because what happens is I tried to describe is that we have a plateauing of positivity out there. And then at the same time, we’ll see a switch from Influenza A, which is a little bit on the decline at the moment, offset by Influenza B. What happens though is because B is less morbid, we’ll see fewer patient visits. When that happens, of course, fewer patients get tested and then our distribution partners will start to be concerned about how much inventory they have in the channel at the moment. So it will drop off precipitously. And as I pointed out, that could happen in the near term. But for the moment, in terms of what we’ve shipped actually and then what we have on order, it still is quite significant. Whether all of those open orders will be filled over the next couple of weeks and moving forward into March, it’s just really hard to predict, Nick, at this stage. Sequentially, if you were to guess that we would be 10% to 15% higher than we were than the previous quarter, that would be certainly a good place to start. But to be honest, it’s a pretty wild guess…

Q1 2017.

Yes, from Q1 2017, right.

Great. That’s very helpful. And then lastly, just on molecular, I certainly understand that the flu is a driver to the sequential revenue there. But just any of your thoughts on where we stand on kind of Solana placements end of 2017? What’s hit and what’s missed? And how do we think about the path to the $20 million run rate or so for 2018 acknowledging the seasonality component with molecular?

That’s another difficult question, Nick. Because right now, if you were to look at our run rate, it’s a – boy, you should make it easily. But you have to recognize there’s a great deal of Strep, which is influenced by the respiratory season and then augmented also by Influenza and RSV. So the run rate today is quite high and would very easily go way past the $20 million that Randy mentioned. But we won’t really have a good flavor for what the ongoing business is until we get into Q2 when we don’t have so much respiratory product that we’re shipping. Nevertheless, we do now have seven assays, we have more and more Solana customers coming online, and so my confidence in the $20 million is pretty darn high.

Thanks, guys. Congrats again.

Thanks, Nick.

Thank you. And our next question comes from the line of Bill Quirk with Piper Jaffray. Your line is now open.

Great. Good afternoon, everybody. So first question for me, Doug, you mentioned that you saw a nice uptick on competitive takeaways starting in January following FDA removing some Rapid competitive products. I guess, one, can you elaborate on that? And then, two, given that in many cases you’re placing – or in all cases, excuse me, you’re placing a Sofia 2, is it reasonable to assume that these customers have kind of fully converted to Quidel? Or do you see them as potentially somewhat transitory where they are going shift back to their old suppliers, when and if those products are available again? Thanks.

Sure, Bill. One competitor, in fact, our chief competitor, had already previously announced that they would not be supplying product moving forward after January 12. So there was already a lot of movements that began in Q3 and into Q4 away from that particular product. I think that competitor assumes that some of that product could go to their molecular point of care offering, which apparently, it did not, at least to the extent that they had hoped. And further to that, they had another product that potentially could have been in the market at the time, but we understand that they had difficulty manufacturing the volumes required to actually launch the product. So we were the beneficiaries of that, of course. The Sofia 2s that were placed into the market though, you should be aware that those are on contract for a three to five-year period of time. And so they’re – it’s not a onetime transaction per se. It’s a pricing agreement that enables the customer to have the price they have for an agreement to have that analyzer in their facility for a period of time. And again, I’m guessing that most of those are around the three-year agreement period.

Okay, got it. And then, Doug, maybe just thinking a little bit about the OUS side of the business. Certainly as you noted on a couple of occasions, you’re getting a much larger geographic footprint as a result of Alere. Can you speak a little bit to the plans about bringing some legacy Quidel products into those sales people’s bags? Thanks.

We have products at regulatory agencies on a number of countries, ex U.S., at the moment, and we would expect some of those to be in the market beginning this year and then into the following year as well. We’re also contemplating the development of product for specific markets, as we did when we developed Sofia Strep, Pneumo and Legionella for the European market. There’s clearly demand for community-acquired pneumonia sort of products or pneumococcal products for places like China and the Far East. But overall, I would say that we will look each market and what those market needs are. And to the extent that we can develop products that are suitable for those markets, we think we can and we should. Obviously, once we have the infrastructure in place, it makes launching those products a great deal easier.

No arguments from me. Thanks, I appreciate it.

Thanks, Bill.

Thank you. And our next question comes from the line of Jack Meehan with Barclays. Your line is now open.

Thanks. This is Andrew Wald on for Jack. Could you provide an update on new tests and then your expectations for 2018? Specifically updates on Sofia pregnancy and Vitamin D and Triage would be helpful.

Sure. We are focused on a number of products. One is Vitamin D, which is still under development. We’re looking forward to that product moving forward on Sofia 2, which we think is a better platform for it. We’re also anticipating a CLIA-waved Lyme product to be launched this summer. For hCG right now, we’re on hold with that product because we’ve made some tradeoffs for some other things that we’re working on that we think are significantly more important. I can detail some of that for you on April 3 when we go through what those products are. But when you are to size the opportunity for some of the things that we’re looking at, they are obviously, things that we should be working on. And so we can manage around 20 R&D projects currently pretty effectively and efficiently. And of course, like any company, we make tradeoffs from time to time and that’s what we’ve done there. In terms of Triage, of course, we have the next-generation toxicology product that we’re working on. And we are also looking at when we might start the clinical trial for the next-gen Troponin product.

Great. And could you provide any early feedback on the revenue synergy potential of cross- selling Triage with Sofia? And what is your 2018 revenue outlook for Triage/BNP? Thank you.

We’ve not modeled a significant upside with either Sofia or Triage. I would say that there are obviously some efficiencies that come with parking your car in the same place and making multiple calls. What I have seen is increased opportunity in places that we’re not focused on previously by Alere. I’ll give you an example there. I think there’s more of an urgent-care opportunity with Triage than what’s fully explored before, and we are seeing some of that already. And there is some benefit in some of the places where we do have Triage and creating a bundle that does include Sofia. But at this stage, we’ve not really done a lot of modeling on that. I want to see how it goes as we run the business over the next couple of quarters before I can really comment on what I think the actual synergies would be.

Great, thank you.

Thank you. And our next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open.

Hey, guys. This is actually Julia on for Tycho. Thanks for taking the question and I congrats again on the solid quarter. First one is regarding flu. Just wondering, what are you guys seeing in terms of distributor inventory level and the implications of that for your 1Q flu outlook? Thank you.

Yes, thanks for the question. We are shipping everything that we can. And I can tell you that our read is that inventory levels at distribution right now are quite low as evidenced by the size of the orders that they’re placing. We will endeavor to ship the product as they need it. And at some stage though, they’re going to start going through that inventory and they’ll stop ordering. But for right now, I think the distributors are living hand to mouth.

Got it. And then next one on Solana. Honestly, very strong momentum this quarter. Just wondering what’s driving the strong momentum there besides Strep A? Could you actually provide an update on the thought base? And also I believe you previously mentioned the longer than expected customer utilization of [indiscernible] is that fully behind you now?

Well, I’ll answer in reverse order. I think the gap between placing the order and actual – actually seeing revenue has been reduced somewhat. We’re working on that, but we still have ways to go. We did launch HSV/VZV, we’ve seen some success there. Of course, we launched C. diff as well, which is a much larger market. That’s been helpful. We’ve had some dedicated time from the commercial organizations, at least of one of our major distributors, which has also been helpful. And again, to your earlier point, some of the really big Group A Strep customers have started to come online in a more meaningful way, and that’s helpful. So it’s a little bit of a perfect storm. We’re bringing onboard customers who have already committed, but we’re also adding assays to those same customer sites. I think RSV, Human Metapneumo will be helpful to those customers that we’re looking to start influenza with us once they have both. Those would be examples of where having more menu actually is very helpful.

Got it. And on a related note, could you give us an update on the current poster levels on Sofia and Solana? I think the last update that you gave was 4,000 run rate on Sofia. So what is the most updated rate on Sofia and Solana? And given the ongoing menu expansion, how should we think about the upside potential there?

I want to make sure I’m answering the right question. Are you asking for our Sofia shipment run rate?

The consumable…

The dollars per box.

The dollars per – are you talking about the dollars per box? And that’s where you had mentioned the 4,000?

Yes.

Yes. We’re obviously, with the flu season, we’re going to see that spike a little bit. But as Doug mentioned, as we add a couple other assays under the Sofia platform, longer term, we still believe that 10,000 per instrument makes a lot of sense or does work for us. As you look at Solana, we’re still in the early stages and it’s really hard to define. As Doug mentioned, we now have seven assays on that instrument. So we really like to go through another year of cycle before we get more of a better read. But certainly, it’s – so far in the last couple of quarters, it’s kind of aligned with what our thoughts are more on a long-term basis.

Yes, we were just – our weekly run rate divided by the number of boxes right now, it would be really big. But again, it’s…

Strep and Flu.

Yes, I don’t want people modeling that because you need to see what it looks like in quarters where we don’t have Strep and Flu.

Great, thank you.

Thank you. Our and next question comes from the line of Mark Massaro with Canaccord Genuity. Your line is now open.

Hey, guys. Congrats on the quarter and thanks for taking the question. My first question is on the combined company EBITDA target. Can you comment if there’s any change from the metrics you’ve provided initially?

No. There’s no real change. We’re obviously experiencing a very opportunistic period, and that certainly will be helpful. In terms of the total EBITDA for the year, it will be helpful, in terms of cash as well. But I still think that original estimate of $150 million, $160 million for the combined company is not a bad target for us.

Great. And then can you also comment on your expectations for growth in your Triage platform? I think you’ve talked about hoping for a return to mid-single-digit growth, would be curious on your outlook there.

Yes. We’ve said flat in the past. I would tell you though that based on what’s happening in this quarter that we feel a lot more comfortable with that – what we had modeled as appropriate. I do think we’ll see some growth on the back half of the year. And I have anecdotal evidence based on what I hear from time to time about events happening in the field, and I’m pretty comfortable in saying we’re going to see some growth. It would be pretty hard to estimate what that might look like at this point. I think, Randy, we’ve said 3% to 4% is what we would look like going in the back half. I’m pretty comfortable that we’re going to do that.

Great. And you indicated you’re making tremendous progress with Sofia with record placements, you’re shipping as many as you can make. Now that you have the FDA reclass, can you just maybe clarify, shouldn’t we be thinking of this reclass as QuickVue being incremental to the overall run rate of flu given that, of course, we don’t know exactly how long the flu season is going to play out. But would you agree that the QuickVue flu business should be viewed as incremental to the Sofia business?

It could be to the extent that we could make it at the levels that we would normally have manufactured in a given year. I can see how you think that, Mark. But what we had was a small number of kits on hand when the FDA advised us that we could begin shipping product again. And then we had probably another 13,000 kits that were in some stage but mainly needing swabs. And we spent some time trying to acquire the number of swabs to go in those kits. So I do understand why you would say what you have said. It would be great had we been able to just flip the switch and be up at our full capacity immediately but that takes some time. And I would say, it is incremental but it’s modest.

Okay. And if I could sneak one last one and maybe for Randy. There are a few moving parts now that gross margins given the mix delta between Triage, BNP and Legacy. But how should we be thinking about gross margins playing out even in the back half of 2018? We’re just trying to get a sense for keeping our models aligned.

Well, I think you saw in Q4 that it was pretty consistent. The businesses were running pretty consistent with what we kind of have provided our previous guidance on. You will see improvement as we go forward. Obviously, flu has the highest gross profit margins, won’t have such a significant impact in Q2 and Q3, but we will also see synergies. So as we said, as we exit Q4, probably 60% – 60%, 70% of that synergies is driven in the operations group so that will help you expand the gross profit margin as well.

Great. Thank you so much.

You’re welcome.

Thank you. [Operator Instructions] And our next question comes from the line of David Westenberg with CL King. Your line is now open.

Hey, thanks for taking the question. So just – Randy, can you give a little bit more clarity on what you mean by 60% of the way there in identifying the road map to synergy? Just a little bit more color in terms of context of what you mean by that.

Well, what we said is we’re going to exit 2018 with approximately $10 million in synergy run rate. So about $6 million of that will be in the gross profit or cost reduction initiatives. So that will help benefit the gross profit margins in the Triage and BNP business.

Okay, thank you. And then just kind of a continuation of the prior questions about what you’re seeing in these new adopted customers in Sofia 2. You had a really great year – I mean, a great quarter in terms of placements. So, what – so far of what you’ve seen, what do you anticipate in terms of menu adoption on that relative to what you saw in Sofia 1?

Well, I certainly think that we will aim to ensure that all of our flu customers also run Strep and RSV with us, I think that’s a pretty natural add. That, of course, is where we’d like to be, we’re not quite there yet. Moving forward, however, we’re going to launch Lyme in the summer and perhaps later this year, Vitamin D. Then I think that many of the sites there in either GPs or pediatricians’ offices will be looking at those assays as well.

Thank you and congratulations.

Thanks, Dave.

Thanks, David.

Thank you. And I’m showing no further questions. So please proceed with your presentation or any closing remarks.

Great, thank you. Thanks everyone for your support and of course, for your interest in Quidel. We did have a transformative year, and I believe that we’re well positioned to achieve all the growth projections that we had hoped for. I will look forward to seeing many of you at our Analyst Day event in Chicago in April. Thanks again.

Ladies and gentlemen, we thank you for your participation, and ask that you please disconnect your lines. Goodbye. And have a great day.