Market Overview

Quidel Reports Second Quarter 2018 Financial Results

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Quidel Corporation (NASDAQ:QDEL), a provider of rapid diagnostic
testing solutions, cellular-based virology assays and molecular
diagnostic systems, announced today financial results for the second
quarter ended June 30, 2018.

Second Quarter 2018 Highlights

  • Total revenue was $103.2 million as compared to $38.3 million in the
    second quarter of 2017.
  • Cardiac Immunoassay revenue was $69.9 million.
  • Influenza revenue was $5.5 million as compared to $10.1 million in the
    second quarter of 2017.
  • Reduced debt by an additional $98.6 million through convertible note
    exchange and accelerated Senior Credit Facility debt payment.
  • Reported GAAP EPS of $(0.08) per share in the second quarter of 2018,
    as compared to $(0.35) per share in the second quarter of 2017 and
    reported non-GAAP EPS of $0.36 per diluted share in the second quarter
    of 2018, as compared to $(0.12) per share in the second quarter of
    2017.

Second Quarter 2018 Results

Total revenue for the second quarter of 2018 was $103.2 million, versus
$38.3 million for the second quarter of 2017. The 170% increase in sales
from the second quarter of 2018 was driven by incremental revenue from
the acquired Cardiac Immunoassay business, that was partially offset by
a 24% decline in the Rapid Immunoassay business, due to an earlier end
to the Influenza season in 2018 than in 2017.

Cardiac Immunoassay revenue, which includes revenue from the Triage,
Triage Toxicology and Beckman BNP products acquired in October 2017,
totaled $69.9 million in the second quarter of 2018. Rapid Immunoassay
product revenue (which includes QuickVue, Sofia and Eye Health products)
decreased 24% in the second quarter of 2018 to $16.7 million, due in
large part to a $4.5 million decrease in Influenza revenue from the
second quarter of 2017. Molecular Diagnostic Solutions revenue increased
22% to $3.9 million, led by 103% revenue growth from Solana, our
instrumented molecular diagnostic system. Specialized Diagnostic
Solutions revenue, which includes revenue from Virology/DHI, Specialty
and Other, decreased 3% from the second quarter of 2017 to $12.7 million.

"We delivered another successful quarter, marked by strong demand for
our Cardiac Immunoassay products internationally and
better-than-expected performance from our Cardiac business overall. As
anticipated, demand for Respiratory Immunoassay products was lower as
the Influenza season came to an end," said Douglas Bryant, president and
CEO of Quidel Corporation.

"Operationally, we achieved a number of milestones during the second
quarter. First, we shipped our 10,000th Sofia 2 instrument, a testament
to the demand for the new system and the power of the Sofia brand. Sofia
2 now accounts for about a third of all Sofia placements in the field.
Second, integration of the acquired Triage businesses remains on track,
highlighted by the grand opening of our shared service center in Galway,
Ireland, which will support our customers and commercial teams across
the EMEA region, allowing us to roll off transition service agreements
in more than 30 countries and strengthen our international presence.
Third, we further de-levered the business by retiring $38.6 million in
debt through the exchange of convertible notes for shares, and by an
accelerated payment of $60.0 million in cash on our Senior Credit
Facility. We are optimistic as we enter the second half of the year and
remain focused on delivering long-term growth and creating value for our
shareholders."

Gross Profit in the second quarter of 2018 increased to $57.7 million,
driven by the addition of the Cardiac Immunoassay products from the
acquisition of the Triage and BNP Businesses in October 2017. Overall,
gross margin for the quarter was 56% as compared to 49% for the same
period last year, due to improved product mix and increased production
volumes. Amortization of intangibles reduced the gross margin by 2
percentage points, and the Triage/BNP inventory step-up of fair value
did not impact the consolidated gross margin. R&D expense increased by
$5.7 million in the second quarter as compared to the same period last
year, primarily due to incremental expense for the Triage and Beckman
BNP Businesses, as well as increased investment for the Savanna
molecular diagnostic platform. Sales and Marketing expense increased by
$14.5 million in the second quarter of 2018, as compared to the second
quarter of 2017, largely due to incremental personnel costs associated
with the international Triage business. G&A expense increased by $4.7
million in the quarter, primarily due to additional costs associated
with the Triage and BNP Businesses, change in fair value of acquisition
contingencies of $0.7 million, increased compensation costs and legal
fees. Acquisition and Integration Costs were $4.9 million, driven by
integration activities associated with the Triage and BNP Businesses.
The loss on extinguishment of debt includes one-time costs of $1.6
million related to the partial write down of unamortized debt issuance
costs related to the Senior Credit Facility, and $0.8 million loss
associated with the Convertible Senior Note exchange agreements.

Net loss for the second quarter of 2018 was $3.1 million, or $(0.08) per
diluted share, as compared to net loss of $11.8 million, or $(0.35) per
diluted share, for the second quarter of 2017. On a non-GAAP basis, net
income for the second quarter of 2018 was $15.4 million, or $0.36 per
diluted share, as compared to net loss of $4.0 million, or $(0.12) per
diluted share, for the same period in 2017.

Results for the Six Months Ended June 30, 2018

Total revenue for the six-month period ended June 30, 2018 was $272.3
million, versus $112.0 million for the same period in 2017. The 143%
increase in sales was driven by $138.3 million in incremental revenue
from the acquired Cardiac Immunoassay business, as well as 22% revenue
growth from the Rapid Immunoassay business, primarily driven by $70.2
million in sales of Influenza immunoassay products.

Cardiac Immunoassay revenue, which includes revenues from the Triage,
Triage Toxicology and Beckman BNP products acquired in October 2017,
totaled $138.3 million in the six-month period ended June 30, 2018.
Rapid Immunoassay product revenue increased 22% in the six-month period
ended June 30, 2018 to $97.4 million. This was led by a 92% rise in
Sofia revenue, while QuickVue sales declined 32% from the same period of
2017. Molecular Diagnostic Solutions revenue increased 43% to $9.1
million, led by 141% revenue growth from Solana, our instrumented
molecular diagnostic system. Specialized Diagnostic Solutions revenue
increased 6% from the six-month period ended June 30, 2018 to $27.6
million.

Gross Profit in the six-month period ended June 30, 2018 increased to
$163.9 million, the result of increased sales volumes associated with
the acquired Triage and BNP Businesses and Rapid Immunoassay products,
as well as favorable product mix. Gross margin for the six-month period
ended June 30, 2018 was flat to prior year, at 60%. Included in the 2018
gross margin is the one-time impact of the Triage/BNP inventory step-up
of fair value which reduced the consolidated gross margin by 1
additional percentage point. R&D expense increased by $10.4 million in
the six-month period ended 2018 as compared to the same period last
year, primarily due to the acquired Triage business, and additional
investments made on the Savanna molecular diagnostic platform. Sales and
Marketing expense increased by $28.8 million in the six-month period
ended 2018, as compared to the same period in 2017, largely due to
incremental costs associated with the international Triage business, as
well as higher compensation costs associated with improved company
performance. G&A expense increased by $8.1 million, primarily due to
costs associated with Triage and BNP Businesses, higher compensation
costs, and legal fees. Acquisition and Integration Costs were $8.4
million in the period and represented integration costs associated with
the Triage and BNP Businesses. The loss on extinguishment of debt
includes one-time costs of $4.7 million related to the partial write
down of unamortized debt issuance costs related to the Senior Credit
Facility, and $2.3 million loss associated with the Convertible Senior
Note exchange agreements.

Net income for the six-month period ended June 30, 2018 was $30.9
million, or $0.81 per diluted share, as compared to net income of $2.4
million, or $0.07 per diluted share, for the same period in 2017. On a
non-GAAP basis, net income for the six months ended June 30, 2018 was
$69.7 million, or $1.65 per diluted share, as compared to net income of
$11.3 million, or $0.33 per diluted share, for the same period in 2017.

Non-GAAP Financial Information

The Company is providing non-GAAP financial information to exclude the
effect of stock-based compensation, amortization of intangibles,
non-cash interest expense, impact of the valuation allowance for
deferred tax assets and certain non-recurring items on income and net
earnings per share as a supplement to its consolidated financial
statements, which are presented in accordance with generally accepted
accounting principles in the U.S., or GAAP.

Management is providing the adjusted net income (loss) and adjusted net
earnings (loss) per share information for the periods presented because
it believes this enhances the comparison of the Company's financial
performance from period-to-period, and to that of its competitors. This
press release is not meant to be considered in isolation, or as a
substitute for results prepared in accordance with GAAP. A
reconciliation of the non-GAAP financial measures to the comparable GAAP
measures is included in this press release as part of the attached
financial tables.

Conference Call Information

Quidel management will host a conference call to discuss the second
quarter 2018 results as well as other business matters today beginning
at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). During the
conference call, management may answer questions concerning business and
financial developments and trends. Quidel's responses to these
questions, as well as other matters discussed during the conference
call, may contain or constitute material information that has not been
previously disclosed.

To participate in the live call by telephone from the U.S., dial
877-930-5791, or from outside the U.S. dial 253-336-7286, and enter the
audience pass code 485-7326.

A live webcast of the call can be accessed on the Investor Relations
section of the Quidel website (http://ir.quidel.com).
The website replay will be available for 14 days. The telephone replay
will be available for 48 hours beginning at 8:00 p.m. Eastern Time (5:00
p.m. Pacific Time) today by dialing 855-859-2056 from the U.S., or by
dialing 404-537-3406 for international callers, and entering pass code
485-7326.

About Quidel Corporation

Quidel Corporation serves to enhance the health and well-being of people
around the globe through the development of diagnostic solutions that
can lead to improved patient outcomes and provide economic benefits to
the healthcare system. Marketed under the Sofia®, QuickVue®, D3® Direct
Detection, Thyretain®, Triage® and InflammaDry® leading brand names, as
well as under the new Solana®, AmpliVue® and Lyra® molecular diagnostic
brands, Quidel's products aid in the detection and diagnosis of many
critical diseases and conditions, including, among others, influenza,
respiratory syncytial virus, Strep A, herpes, pregnancy, thyroid disease
and fecal occult blood. Quidel's recently acquired Triage® system of
tests comprises a comprehensive test menu that provides rapid,
cost-effective treatment decisions at the point-of-care (POC), offering
a diverse immunoassay menu in a variety of tests to provide healthcare
providers with diagnostic answers for quantitative BNP, CK-MB, d-dimer,
myoglobin, troponin I and qualitative TOX Drug Screen. Quidel's research
and development engine is also developing a continuum of diagnostic
solutions from advanced immunoassay to molecular diagnostic tests to
further improve the quality of healthcare in physicians' offices,
hospital and reference laboratories, and other alternate sites, like
urgent care centers and retail clinics, where healthcare is provided.
For more information about Quidel's comprehensive product portfolio,
visit quidel.com.

This press release contains forward-looking statements within the
meaning of the federal securities laws that involve material risks,
assumptions and uncertainties. Many possible events or factors could
affect our future financial results and performance, such that our
actual results and performance may differ materially from those that may
be described or implied in the forward-looking statements. As such, no
forward-looking statement can be guaranteed. Differences in actual
results and performance may arise as a result of a number of factors
including, without limitation; our reliance on sales of our influenza
diagnostic tests; fluctuations in our operating results resulting from
the timing of the onset, length and severity of cold and flu seasons,
seasonality, government and media attention focused on influenza and the
related potential impact on humans from novel influenza viruses, adverse
changes in competitive conditions in domestic and international markets,
the reimbursement system currently in place and future changes to that
system, changes in economic conditions in our domestic and international
markets, lower than anticipated market penetration of our products, the
quantity of our product in our distributors' inventory or distribution
channels, changes in the buying patterns of our distributors, and
changes in the healthcare market and consolidation of our customer base;
our development and protection of proprietary technology rights; our
development of new technologies, products and markets; our reliance on a
limited number of key distributors; intellectual property risks,
including but not limited to, infringement litigation; our need for
additional funds to finance our capital or operating needs; the
financial soundness of our customers and suppliers; acceptance of our
products among physicians and other healthcare providers; competition
with other providers of diagnostic products; adverse actions or delays
in new product reviews or related to currently-marketed products by the
U.S. Food and Drug Administration (the "FDA") or other regulatory
authorities or loss of any previously received regulatory approvals or
clearances; changes in government policies; our exposure to claims and
litigation, including litigation currently pending against us; costs of
or our failure to comply with government regulations in addition to FDA
regulations; compliance with government regulations relating to the
handling, storage and disposal of hazardous substances; third-party
reimbursement policies; our failure to comply with laws and regulations
relating to billing and payment for healthcare services; our ability to
meet demand for our products; interruptions in our supply of raw
materials; product defects; business risks not covered by insurance; our
exposure to cyber-based attacks and security breaches; competition for
and loss of management and key personnel; international risks, including
but not limited to, compliance with product registration requirements,
exposure to currency exchange fluctuations and foreign currency exchange
risk sharing arrangements, longer payment cycles, lower selling prices
and greater difficulty in collecting accounts receivable, reduced
protection of intellectual property rights, political and economic
instability, taxes, and diversion of lower priced international products
into U.S. markets; changes in tax rates and exposure to additional tax
liabilities or assessments; risks relating to the acquisition and
integration of the Triage and BNP Businesses; Alere's failure to perform
under various transition agreements relating to our acquisition of the
Triage and BNP Businesses; that we may incur substantial costs to build
our information technology infrastructure to transition the Triage and
BNP Businesses; that we may have to write off goodwill relating to our
acquisition of the Triage and BNP Businesses; our ability to manage our
growth strategy; the level of our indebtedness; the amount of, and our
ability to repay, renew or extend, our outstanding debt and its impact
on our operations and our ability to obtain financing; that
substantially the Senior Credit Facility is secured by substantially all
of our assets; our prepayment requirements under the Senior Credit
Facility; the agreements for our indebtedness place operating and
financial restrictions on the Company; that an event of default could
trigger acceleration of our outstanding indebtedness; the effect on our
operating results from the trigger of the conditional conversion feature
of our Convertible Senior Notes; that we may incur additional
indebtedness; increases in interest rate relating to our variable rate
debt; dilution resulting from future sales of our equity; volatility in
our stock price; provisions in our charter documents, Delaware law and
the indenture governing our Convertible Senior Notes that might delay or
impede stockholder actions with respect to business combinations or
similar transactions; and our intention of not paying
dividends. Forward-looking statements typically are identified by the
use of terms such as "may," "will," "should," "might," "expect,"
"anticipate," "estimate," "plan," "intend," "goal," "project,"
"strategy," "future," and similar words, although some forward-looking
statements are expressed differently. The risks described in reports and
registration statements that we file with the Securities and Exchange
Commission (the "SEC") from time to time, should be carefully
considered. You are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as
of the date of this press release. Except as required by law, we
undertake no obligation to publicly release the results of any revision
or update of these forward-looking statements, whether as a result of
new information, future events or otherwise.

QUIDEL CORPORATION

(In thousands, except per share data; unaudited)

 
Three Months Ended June 30,
Consolidated Statements of Operations: 2018   2017
Total revenues $ 103,155 $ 38,267
Cost of sales 45,487   19,441  
Gross profit 57,668   18,826  
Research and development 13,284 7,627
Sales and marketing 27,545 13,064
General and administrative 11,500 6,783
Acquisition and integration costs 4,935   2,379  
Total costs and expenses 57,264   29,853  
Operating income (loss) 404 (11,027 )
Other expense, net:
Interest expense, net (6,839 ) (2,778 )
Loss on extinguishment of debt (2,398 )  
Total other expense, net (9,237 ) (2,778 )
(Loss) income before income taxes (8,833 ) (13,805 )
(Benefit) provision for income taxes (5,757 ) (1,963 )
Net (loss) income $ (3,076 ) $ (11,842 )
 
Basic and diluted loss per share $ (0.08 ) $ (0.35 )
Shares used in basic and diluted per share calculation 37,925 33,500
 
Gross profit as a % of total revenues 56 % 49 %
Research and development as a % of total revenues 13 % 20 %
Sales and marketing as a % of total revenues 27 % 34 %
General and administrative as a % of total revenues 11 % 18 %
 
Consolidated net revenues by product category are as follows:
Rapid Immunoassay $ 16,689 $ 21,983
Cardiac Immunoassay 69,850
Specialized Diagnostic Solutions 12,694 13,070
Molecular Diagnostic Solutions 3,922   3,214  
Total revenues $ 103,155   $ 38,267  
 
Condensed balance sheet data: 6/30/2018 12/31/2017
Cash and cash equivalents $ 38,675 $ 36,086
Accounts receivable, net 44,703 67,046
Inventories 59,714 67,078
Total assets 763,501 935,251
Short-term debt 53,421 20,184
Long-term debt 84,729 381,110
Stockholders' equity 368,908 227,104
 
  Six Months Ended June 30,
Consolidated Statements of Operations: 2018   2017
Total revenues $ 272,298 $ 111,959
Cost of sales 108,359   44,634  
Gross profit 163,939   67,325  
Research and development 25,905 15,502
Sales and marketing 56,103 27,287
General and administrative 22,032 13,903
Acquisition and integration costs 8,402   2,431  
Total costs and expenses 112,442   59,123  
Operating income 51,497 8,202
Other expense, net:
Interest expense, net (14,689 ) (5,603 )
Loss on extinguishment of debt (6,965 )  
Total other expense, net (21,654 ) (5,603 )
Income before income taxes 29,843 2,599
(Benefit) provision for income taxes (1,039 ) 151  
Net income $ 30,882   $ 2,448  
 
Basic earnings per share $ 0.84 $ 0.07
Diluted earnings per share $ 0.81 $ 0.07
Shares used in basic per share calculation 36,586 33,351
Shares used in diluted per share calculation 42,255 34,295
 
Gross profit as a % of total revenues 60 % 60 %
Research and development as a % of total revenues 10 % 14 %
Sales and marketing as a % of total revenues 21 % 24 %
General and administrative as a % of total revenues 8 % 12 %
 
Consolidated net revenues by product category are as follows:
Rapid Immunoassay $ 97,374 $ 79,516
Cardiac Immunoassay 138,294
Specialized Diagnostic Solutions 27,565 26,118
Molecular Diagnostic Solutions 9,065   6,325  
Total revenues $ 272,298   $ 111,959  
 

QUIDEL CORPORATION

Reconciliation of Non-GAAP Financial Information

(In thousands, except per share data; unaudited)

   
Three months ended June 30, Six months ended June 30,
2018   2017 2018   2017
(unaudited) (unaudited)
Net (loss) income - GAAP $ (3,076 ) $ (11,842 ) $ 30,882 $ 2,448
Interest expense on Convertible Senior Notes, net of tax (a)     3,361    
Net (loss) income used for diluted earnings per share, if-converted
method
(3,076 ) (11,842 ) 34,243   2,448  
Add:
Interest expense on Convertible Senior Notes (a) 1,497 1,375 2,741
Non-cash stock compensation expense 3,479 2,138 6,415 4,059
Amortization of intangibles 6,998 2,515 14,859 4,885
Amortization of debt discount and issuance costs on credit facility 284 615
Non-cash interest expense for deferred consideration 2,608 5,401
Loss on extinguishment of Convertible Senior Notes 766 2,304
Loss on extinguishment of Senior Credit Facility 1,631 4,660
Amortization of inventory step-up of fair value 3,650
Change in fair value of acquisition contingencies 745 745
Acquisition and integration costs 4,935 2,379 8,402 2,431
Income tax impact of adjustments (a) (4,355 ) (2,940 ) (8,940 ) (4,940 )
Income tax impact of valuation allowance for deferred tax assets (79 ) 2,359   (2,622 ) (326 )
Adjusted net income (loss) for diluted earnings per share,
if-converted method
$ 15,433   $ (4,016 ) $ 69,732   $ 11,298  
Diluted (loss) earnings per share:

Net (loss) earnings per share - GAAP

$ (0.08 ) $ (0.35 ) $ 0.81 $ 0.07

Adjusted net earnings (loss) per share (b)

  $ 0.36     $ (0.12 )   $ 1.65     $ 0.33  

(a) Due to the net loss incurred in the second quarter of 2018, interest
expense on Convertible Senior Notes and related tax impact are not
adjusted for the purposes of calculating GAAP diluted loss per share as
the Convertible Seniors Notes are anti-dilutive. The if-converted method
was not applicable during 2017 as the Convertible Senior Notes were not
convertible.

(b) Adjusted net earnings per share for the second quarter of 2018 was
calculated using an adjusted diluted weighted average shares outstanding
of 42,562 thousand shares. Adjustments from GAAP diluted weighted
average shares outstanding consisted of 2,817 thousand potentially
dilutive shares issuable from Convertible Senior Notes and 1,820
thousand potentially dilutive shares issuable from stock options and
unvested RSUs.

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