Earnings Call: Q3 2019

Oct 30, 2019

Ladies and gentlemen, thank you for standing by. Welcome to the Quidel Corporation Third 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. I'd now like to turn the call over to Mr. Ruben Argueta, Quidel's Director, Investor Relations. Please go ahead. Thank you, operator. Good afternoon, everyone, and thank you for joining today's call. With me today are our President and Chief Executive Officer, Doug Bryant and Randy Stewart, our Chief Financial Officer. Our Q3 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 new IR website following the conclusion of this call on October 30, 2019 for a period of 30 days. 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 ks, 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, October 30, 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 3 months ended September 30, 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. Thanks, Ruben, and good afternoon, everyone. As you saw in the press release, Quidel's 3rd quarter financial performance was solid and in line with our expectations. Total revenue was $126,500,000 up 8% over the prior year quarter. Total Triage at $66,800,000 including Triage METERPRO cardiac and toxicology assays and Triage BNP was once again in the quarterly range of $64,000,000 to $69,000,000 that we've suggested is appropriate for the business in advance of the impact of new product launches. Total influenza revenue for the quarter, which includes all immunoassay and molecular platforms, grew 36% to $29,300,000 driven mainly by influenza test cartridge sales on existing as well as new Sofia placements. Sofia placements at under 2,000 in Q3 were typical for a non flu quarter aided a bit by a couple 100 or so instruments shipped to new Sofia Lime customers. Regarding earnings for the quarter, as Randy will describe in more detail, there were no significant spending surprises. The overall gross margin profile was a little elevated due to the increase in flu sales and the fall through to EPS was as anticipated given slightly higher revenue and favorable product and geographic mix. Moving forward, we expect modest traction in the Q4 in Europe with high sensitivity troponin as we await the publication of a major study that demonstrates the clinical performance of our point of care high sensitivity assay. We also expect to see progress with the launch of the new Triage toxicology panel, although admittedly our launch was delayed by about 1 quarter and sales in Q4 will not be as we had anticipated. I have no doubt that we will be as successful with this product as we had planned, but we did have what I would call a self inflicted wound with the launch of this product as our commercial organization in the U. S. Was simply not ready to execute. They are executing now, however, and I can explain more about this during the Q and A if you like. The big questions for the Q4 are when the RSV and flu seasons will start and will the flu season be early and severe enough to cause distributors to reorder product as they would typically do during the last 3 weeks of the quarter. At this point, I can't call it. In early October, we saw hints in our Virena data of the approaching respiratory season as test rates began to increase, but the increases in test rates, which were across every region of the U. S, were largely due to RSV and other viruses that mimic influenza and that often precede influenza by 6 to 8 weeks. We have seen increased testing and positivity rates for RSV in Florida, which has reached epidemic levels. But to be clear, the volume of RSV test data collected by Virena is not robust enough to be predictive in the way that millions of flu data points are across the season. At this point, we are continuing to model a normal season in terms of influenza revenue for the next two quarters. Shifting gears, I will proudly provide the final update on the status of the integration of the Elear assets. After just 2 years from the close of the transaction, we have effectively completed our integration process. On July 1, we went live with the integration of our warehouse operations at our Summers Ridge facility, moving off Abbott's ordering and distribution system and realizing $2,600,000 in annualized synergies. We also successfully migrated India and Brazil to our ERP on August 1, completing the order to cash process for 88 of 89 countries. Japan, the final country goes live November 1, which gives us control of 100 percent of the business. At this point, we are on track to deliver $20,400,000 in synergies by year end, slightly better than we had planned. Let's talk for a couple of minutes about product development and pipeline. Never in my 10 years with this company has the opportunity for revenue growth been as exciting. At last, not only do we hear the wind blowing, but we can see the trees moving. Finally, we've become a product development company of significance, one with the potential for revenue and margin growth driven in large part by the introduction of numerous new products. In the first half of twenty twenty, we expect to introduce several new Sofia assays for C. Diff toxins, Lyme Tier 2, a single fourplex Sofia cartridge for flu RSV and human metanumoviruses and simpler, faster bioassays for TSI and TBI, assays for Graves' and Hashimoto's diseases. In the middle of the year, we plan to launch 5 more Sofia assays for lactoferrin, h. Pylori, parasites, shigatoxin and campylobacter. Before year end, we expect to introduce SOPHIA Strep 98, which has demonstrated superb analytical performance and studies thus far, and Sofia assays for the 2 commonly seen community acquired pneumonia infectious agents, Strep pneumo and Legionella. Then we'll head into 2021 anticipating the launch of Savanna, which could be the most important product introduction in our history. And there's still more in the pipeline to come. Overall, it was a solid quarter both financially and operationally. And although Q4 will provide the usual challenges we face every year, we'll end the year in good shape, very well positioned for 2020 2021. Randy? Thank you, Doug. Good afternoon, everyone. As we reported earlier today, revenues for the Q3 of 2019 were $126,500,000 This compares to $117,400,000 in the Q3 of 2018, an increase of 8%. On a constant currency basis, revenue growth was also 8%, reflecting the minimal negative impact of foreign exchange of $500,000 in the quarter. Rapid immunoassay revenue increased 20 percent to $42,500,000 from the Q3 of 2018 due to strong results from our Sofia franchise, which grew 35%. Flu revenue for the Rapid category was $26,600,000 an increase of 37%, while Strep A increased 6% and RSV increased 10%. For the Q3, Sofia revenue was $28,700,000 compared to $21,200,000 in Q3 of the prior year, and QuickVue revenue was $12,700,000 as compared to $13,100,000 in Q3 of 2018. Rapid immunoassay inventory at distribution is up 7% from the Q3 of last year. More specifically, influenza inventories at distribution are up 28% versus last year's Q3 and up 12% versus Q3 of 2017. In the cardiac immunoassay category, revenue totaled $66,800,000 in the quarter versus $65,300,000 in the same period last year, a 2% increase. On a constant currency basis, cardiac revenue for the 3rd quarter was up 3%. Within the category, Triage revenue was $33,800,000 a decline of 2% from the Q3 of 2018. On a constant currency basis, Triage revenue was down 1% versus last year. As reported, on a geographic basis, Triage realized 6% revenue growth in North America, growth in Asia Pacific and Latin America, which was offset by declines in China and Europe, Middle East, Africa. On the Beckman BNP side, revenue increased 7% over the Q3 of 2018 to $33,000,000 and on a constant currency basis, BNP was up 8%. Geographically, revenue growth for the Betton business was realized in all geographies except for North America, which was down slightly by 2%. Revenue in the Specialized Diagnostic Solutions category increased 1% in the 3rd quarter to $12,500,000 as our cell culture business declined by 2% and our MicroView Bone Health and Complement business grew a combined 17% in the quarter. Our Molecular Diagnostic Solutions category increased 5% to $4,700,000 driven by 20% growth from Solana assay revenue. Amplivu revenue declined 25% in the quarter as we continue to migrate the C. Difficile and HSV customers over to the Solana platform. Gross profit in the quarter of 2019 increased $6,200,000 to $75,900,000 and was driven by higher sales volumes, improved product mix and lower scrap, partially offset by lower overhead factory absorption and a negative FX impact. Gross margin in the Q3 of 2019 was approximately 60% compared to 59% in the Q3 of 2018. The increase was due to the factors described within the net gross profit improvement. Based on product mix and the prevalence of influenza, we estimate our Q4 gross margin to be in the range of 61% to 62%. R and D expense decreased by $1,100,000 in the 3rd quarter as compared to the same period last year. This decrease was due primarily to lower spending on projects related to cardiovascular and Solana platforms as they were largely completed in 20 McQuarter, primarily due to increased facility costs from the expansion required to integrate the acquired cardiovascular business and professional service fees incurred in the period, partially offset by lower transition service fees. Acquisition and integration costs in the 3rd quarter were $4,500,000 up from $2,500,000 in the Q3 last year, primarily due to the non cash impairment loss recorded for a facility lease as we move our company headquarters over to our Summers Ridge facility in November, as well as increase in professional service fees. Interest expense for the quarter was $3,200,000 and includes $300,000 related to the convertible senior notes, $300,000 related to the senior credit facility and $1,900,000 related to the deferred consideration associated with the purchase of the BNP business. On a trailing 12 month basis, as compared to the prior period, we realized an $11,600,000 reduction in interest expense due to the reduction in debt of approximately $168,400,000 Over the last 12 months, we paid down our revolving credit facility by $75,000,000 reduced our convertible note by $45,400,000 and paid $48,000,000 on the deferred and contingent consideration. In the quarter, we recorded $1,300,000 in an income tax provision. The expense for the quarter was favorably impacted by excess tax benefits from stock based compensation. We believe our effective tax rate full year 2019 should be within the range of 18% to 20% of pretax income before consideration for discrete tax items. And we continue to strengthen our balance sheet. In the quarter, we generated $6,400,000 in free cash flow after spending $6,900,000 in capital expenditures. We used a portion of the cash to pay down another $10,000,000 on the revolving credit facility. Additionally, the remaining $8,200,000 balance of the revolving credit facility was paid in full in October 2019. In the quarter, we had depreciation of $4,800,000 and amortization of $7,000,000 As of September 30, the company had $28,900,000 in cash on the balance sheet and 13 point in for the acquired cardiac assets remains at approximately $184,000,000 And with that, we conclude our formal comments for today. Operator, we're now ready to open the call for questions. Your first question comes from Brian Weinstein with William Blair. Your line is open. Hey guys, thanks for taking the question. I guess, Doug, I'll take you up on the opportunity to follow-up on the comment related to the delay on tox. If you can just give us a little bit more on the self inflicted wounds and kind of what's going on there and how you're dealing with those? And then I'll ask a second question in a second. Sure, of course. This is pretty straightforward. We trained the sales organization on toxicology very early in the year. Then due to the delay in the product launch, we made a commercial decision to train ourselves one more time. And so instead of launching in the Q3 as we normally would with the new product, some of the guys were working on other things and waited till after their training to actually send their reps out to the field. So I would say that's a pretty good definition of a self inflicted wound. And the reason I mentioned it is because with all the 2020 products that we have queued up, we can't launch products like that. We can't have guys waiting for a couple of months to be trained in order to go out and start talking to customers. So we've had recently a pretty lengthy couple of days meetings where we discussed all that. And I think we have a pretty good understanding how we're going to get that done. So I don't know how many product launches, I didn't count them up, but I think it's at least 5 or 6 that we're going to do next year. And obviously, we can't wait to have an all hands on deck sort of sales training before we go out and start talking to customers. So it's pretty straightforward, Brian. Got it. Okay. And then with respect to influenza and the levels of distribution, Randy, I think you gave some numbers that indicated that it was meaningfully higher at this point versus last year and even 2017. How should we think about what that might mean for the Q4? Because the flu numbers were obviously a little bit stronger than we thought here. Should we be taking some out of the Q4 and still thinking about the overall season roughly the same? Any thoughts on that would be appreciated. Yes. I'll have Randy chime in as well if he likes. But as we exited the second quarter, we had fairly low I don't know if it's the lowest ever, but fairly low distributor inventory. So it was natural that they order some, but I think some distributors ordered more product than they normally would, anticipating a large season. There was a lot of rumors about Fluid Australia and etcetera. And I do think that there's at least a couple of $1,000,000 swing in any quarter that can move from 1 quarter to another. And I think what we have in this case is probably a couple of 1,000,000 more in Q3 than we might normally have. Although when you look year over year, it's only about 8% more versus Q3 last year that was ordered in. So you want to add something, Randy? No, I think that's right. That's kind of where we're at. So yes, we probably you never know going into the last 3 weeks of the year whether all that inventory will be depleted, which would necessitate an order from particularly the bigger distributors. So I shouldn't say fingers crossed we're hoping for more flu. But if we don't see an acceleration of flu, which sometimes happens, I could see how we might be $1,000,000 or so heavy in Q4. Okay. Sounds great. We'll let some others jump in. Thank you. Sure. Thanks, Ryan. Your next question comes from Bill Quirk with Piper Jaffray. Your line is open. Hi, this is Rachel on for Bill. Thanks for taking the questions. So do you have any thoughts on potential antigen mismatch between the vaccines and possible strains this year? We've seen a few press stories as of late about it. So I was wondering your thoughts on that. And then I have a follow-up. Well, even in the best year, immunologists would tell you the effectivity of the flu vaccine is only about 30%. So it's not that I would not recommend that everybody get a flu vaccination. I certainly got mine. I think there is a concept of herd immunity that's helpful. So please get your vaccination. But whether we call the strains right or not doesn't seem to have a great deal of impact really, although there's a lot written about it. You certainly heard about the mismatch last year on one of the strains. That's probably not super helpful, Rachel, but that's the reality is that the vaccination rates and how precise the vaccine is against the viruses that are circulating doesn't seem to have a real big impact on severity of the season or on the volume of testing. That's helpful. And then last question, can you just give us an update on the Beckman Coulter litigation and where you guys are at with that and any next steps that you foresee? Sure. So regarding the Beckman litigation matter, I'll just provide a quick update. And then probably will not take will not probably I won't be taking follow-up questions. Where we are is the Court of Appeal issued a written order regarding our writ petition, Quidel's writ petition on August 29 of this year, ruling in our favor. Beckman then petitioned for rehearing by the same court, and that petition was denied on September 13. Beckman then filed a petition for review with the California Supreme Court, challenging the Court of Appeals order that granted Quidel's writ petition. Quidel has filed its answer and we expect the court to decide whether to take the case by the end of the year. Because of certain developments in another case regarding the same business law, we understand that there is a significant possibility the court will grant review to clarify the law in this area. If that happens, we remain confident that we will prevail. If the court on the other hand does not grant the review, we will return to the trial court where we also are highly confident that we will prevail. Great. Thank you. You're welcome. Your next question comes from Jack Meehan with Barclays. Your line is open. Thank you. Good afternoon. Doug, appreciate all the excitement on the new product development. I was wondering if you could give us mark to market on the Savanna cartridge design and when you expect to start clinical trials? Yes. We're in great shape with Savanna now. I'm happy to report. We have 7 panels, assay panels that are well on their way. Many are close to being ready to move into the cartridge. We do have a cartridge design that we are highly confident we can manufacture in 1,000,000 of tests at very high yield. And now we're in the process of moving through the instrument development phase. So we should have instrument and at least 1 or more cartridge types ready for submission toward the end of next year just as we previously had said. And we're still anticipating being in the market in the United States in 2021. So compared with last quarter, I would say our confidence level has gone up significantly. And do you still expect to take yet, but Pardon? Do you still expect clinical trials to start by the end of the year beginning of next year? This year? Yes. No, no, no, no. We will be ready with a cartridge and the instrument toward the end of next year. Sorry, I was referring to clinical trials. Well, the instrument is not developed yet. So we won't be in clinical trials until the end of 20. Okay. And then I was wondering if you could maybe just give us a review of the Lyme season and how much that contributed to Sofia and what that was doing in terms of placement rates over the summer? Well, just overall, I would say where we're at with Lyme is we're busy growing and developing a physician office segment that doesn't exist today to include the urgent care space for a Tier 1 assay. And I believe we'll get even more help with the introduction of the Tier 2 assay, which would be effectively a confirmatory assay and also a replacement for Western blot, all of which could be done in the physician's office while the patient waits. So we think that that will add some value. We did ship a couple of 100 Sofias in Q3 to Lime customers, 70% of which included flu and RSV on their contracts. We have hundreds of contracts right now, mainly in the Northeast, but we're in the 100, not the 1,000 yet. So it's still early days. Didn't really think it was going to be an instant market. I knew we'd have to spend some time developing the market. We have allocated several $1,000,000 towards a number of marketing campaigns designed to create awareness in those areas of the country that have some level of prevalence. And so far, I'd say we're reasonably pleased with what's going on although it's back to the wind blowing and the trees moving. So we hear the wind blowing, but the trees Jack are not moving yet at this point. Sounds good. Thanks, Doug. Your next question comes from Mark Massaro with Canaccord Genuity. Your line is open. Hey, thanks guys for the questions. Looking back at what I would call the mother of all flu seasons, this is 2017 into 2018. And then looking back at other flu seasons in the last, call it, 7 years, typically Q4 has flu revenue of at least $5,000,000 to $10,000,000 of revenue above the Q3 level just on a sequential basis. Yet you just reported a pretty big beat on flu here in Q3. So I guess the simple question is do you expect a sequential increase in flu revenue in Q4? And do you think it can be similar to that range of estimates I just mentioned? The short answer, Mark, it depends. I'll let Randy chime in a second. But let me give you a snapshot. As of today of our Virena data. We look across the nation right now, we're running less than 15% positivity virtually every region except for the Southeast and Louisiana and parts of Texas. If you were to go on map.quidel.com, you'll actually see the flu map and you can see where things are happening. So it has started and what you see is a pretty good beginning of a flu season there in Florida. Miami right now reporting positivity rates of 24%. So Miami actually is in a flu season now. Tampa is at 19% and so they're just about right on the cusp of being an epidemic range as well. And Louisiana actually has spots as well as the 2 big markets in Texas. So I don't know what's going to happen. It's got to go more than that obviously, but when it does go, it will ramp up quickly. If it does ramp up before the last 3 weeks of the year, again, those distributors are going to reorder. So we've had years where 70%, 80% of the quarter were in the last 3 weeks of December. And we've had years where that was absolutely not the case. So I get how you're trying to model going from 1 quarter and sequentially going to the next. I would say normally you would be right, Mark. And I'm not telling you something different. I'm just telling you what we see so far. We do see flu. We see it ramping up to epidemic proportions in a small number of areas. And just to add on to that, Mark, consistently Q4 and Q1 have been somewhere between 65%, 75% of full flu season. So as you know, it can shift a little bit between Q4 and Q1 as well. And certainly, for the last 5 Q3, the flu revenue has been $20,000,000 or north in any event. So we're kind of aligning the same way we have in several of the other previous years. Thank you. That's helpful. And then If it were normal, Mark, and we're saying normal, if it were normal, it's going to be sequentially higher, yes. Okay. A question on the guidance, I don't think you addressed it, but earlier in the year, you talked about a constant currency basis revenue guide for the year of 535,000,000 With what you've discussed with the toxicology delay, are you still on track to hit that? No. And that was about $4,000,000 in the 4th quarter. So we're short there. We've got obviously some FX headwinds, but you're allowing me to not to count that by your question asking for constant currency. But so we've got what we said we would do minus FX, minus that toxicology delay. Okay. And then maybe on a reported basis, would that look something similar to 530,000,000 dollars Got about $5,000,000 in FX. Okay. I want to go back to the question that Brian asked about the just the rationale for the delay. So based on my understanding of your comments, Doug, you talked about how you did 2 trainings. You trained them early in the year, then you trained them again. I could maybe use some clarification as to why they were trained a second time and why they didn't go out the first time? Because of the delay, there was too much time between the training and when we launched. So I was actually at arguably our best region of the country and one that I'm expecting to perform at a very high level. I went to their meeting. They hadn't been they were trained at that meeting and they hadn't started making calls yet. So I was a little bit what's the right word? Disappointed. No, that doesn't sound strong enough, does it? I was not happy. So because that shouldn't happen. We were trained once. I do understand let's have a big splash and all that, but at the same time there was so much going on in Q3 that these people prospect their meetings to when they could get it done and etcetera, etcetera, etcetera. I'm just I share with you all that detail because it's easily fixable and I don't expect it to affect the longer term prospects for the product, but it was definitely a self inflicted wound. Okay. And then just one last one for me. You talked a lot about the trees moving. Can you speak whether or not the trees are moving on the M and A front? You've recently talked about 3 to 5 targets potentially on your plate with the goal of acquiring $150,000,000 to 2 $50,000,000 of revenue. So should we think about achieving that potentially with 1 or 2 deals? Or do you see a larger number of smaller deals? It's certainly easier to do deals that would have bigger chunks of that 150. The integration of a smaller company is not any easier than a larger one. And so I would say a smaller number would be preferred, Mark. Okay. Thank you. It's a lot of timing Your next question comes from Alex Nowak with Craig Hallum Capital. Your line is open. Great. Good afternoon, everyone. Doug, just kind of following up on that. With toxicology being delayed to next year, can you kind of ballpark what the contribution here could be from new products including tox, Lyme, troponin, plus all the NuSofia assays that you mentioned? What sort of contribution those can have in 2020? That's a terrific question. We have done a first pass of our 2020 plan, but we're still modeling and forecasting. We'll present to our Board here in a few weeks. And so probably would be bad form if I gave you a number now before I ran it by my Board. But certainly, we will be prepared to discuss the impact of those new products when we present at JPMorgan in January. Okay. Got it. Understood. And then just kind of going back to one of the core tenants here of the Triage acquisition now 2 years removed. One of the things was moving legacy Quidel products into the markets outside the U. S. So I would say, as you mentioned, all the infrastructure is now in place. You're launching a number of tests here over the next 12 months. How should we be thinking about that potential expansion into new geographies? We just got approval for are you whispering to me Randy? Sorry. So we just got approval in China for Sofia, for example. We've got a couple of things we're working on in Japan as another example. Plus we're actually leveraging the infrastructure we've put in place. If you look at China right now, we're up 84% Q3 2019 over Q3 2018 in China with our legacy products in part because we've got a larger commercial organization representing those products. And then we've got the infrastructure there. So I'm not telling you we're hitting out of the park yet, but we clearly are taking advantage of the infrastructure that we're putting in place and have put in place across the globe. Okay, got it. And just lastly, can you provide some detail on the Cirrocep and Tereq Bio deal that was announced a couple of weeks ago? I didn't see a press release from you, but looks like you will be commercializing or being distributing their GI assay through your channel. Just curious how that's going to compete with the Sofia GI test that you're developing? Well, this is a different segment than anything else we do today. It's more in line with how we go to market with our Lyra products where we're targeted at the larger institution that has a high complexity lab. And so the number of facilities out there is fewer. Therefore, we're mainly using our molecular sales force, a small team there to represent the product. We do have a model. Obviously, we wouldn't have done the deal without a model. But we're using the team now to explore actually what opportunities are out there that are actionable in the 2020 timeframe. And we'll be putting those numbers into our plan for 2020. And we should have a forecast for that shortly. But I couldn't really speak to the magnitude at this point. I would say though that with each of the ones that I know about that we've been talking to, the opportunities are fairly significant. So then the question becomes, which account actually is going to close and when are they going to close in 2020? And it should be reasonably easy to model, but it's also reasonably easy to get wrong, if you model some big account and you don't get it. So standby, we think it's an interesting opportunity. We think it's an interesting segment and I'm glad we did the deal. Okay, understood. Thank you. Your next question comes from Tycho Peterson with JPMorgan. Your line is open. Hi, thanks. This is Eleni on for Tycho. Going back to your questions on triage, I was wondering, you called out some declines in China, the Middle East and Africa. Could you talk about the dynamics you're seeing there? Go ahead, Randy. Yes. Kind of some I mean, there's nothing significantly different from prior quarters. Again, in China, we're going through 37 different distributors and stuff. So you kind of see quarter to quarter some variances. Overall, I think in China, we're seeing on the Triage business mid single digit growth on a year to date basis. So that continues to be a good growth area for us. Europe, Middle East, Africa, we always spend pretty flat for the year, and that kind of continues plus or minus 1%, 2%. Okay. And Triage, if I could just add on China too. The Triage business is what it is, but on the Triage B and P portion, they're actually growing quite rapidly. So it's a bit of a mix right now in China. Okay. That's helpful. And then in terms of Sofia placements, you saw strong placements this quarter, and you mentioned aided by 100 or so from new Sofia line customers. I was wondering how we should expect the cadence going forward? Well, I'm hoping we get somewhat of a stair step move when we introduce the product in some of the larger urgent care centers in the Northeast and in the upper Midwest. I don't see it as sort of a linear progression. And I think also with word-of-mouth, I'm certainly hoping for a big jump in awareness. And instead of going from a couple of 100 in a quarter to maybe double that the next quarter, etcetera, I expect that we'll hit an inflection point and then there'll be 1,000 that will go from 100 to 1,000 pretty quickly if we're successful. I think that's more in line with what we would expect. We certainly saw it when we introduced SOPHIA initially. We were, I don't know, moving along quite slowly, then boom, we had awareness and it jumped. So I'm hoping we see the same thing, Alina. Okay. And then going back to your comments on contributions from toxicology and Troponin in the second half of this year, you had previously mentioned $3,000,000 to $5,000,000 I know you said because of the delays that will impact, you probably won't see contributions in this range. But I was just wondering given the pent up demand and the large customer list you mentioned for particularly toxicology last quarter, if there is any potential upside there? Sure. There's upside. I suppose we're guilty of being somewhat conservative. I think that's probably our reputation. But all things being equal, if we don't see a jump from a couple of very large customers, you might end up being down by about $4,000,000 relative to what we had forecasted. But could we do better than that? Possibly. But there's not a lot of time between now and the end of the year. Makes sense. Thank you. You're welcome. Your next question comes from John Hsu with Raymond James. Your line is open. Good afternoon. So staying on SOPHIA, can you give us a sense of snapshot of where you are in terms of placements at this point and maybe just a level set on kind of the annualized annuity for placement? Sure. That's a great question. We were just asking ourselves this morning where are we going to be at the end of the year. I think we're going to exceed 40,000. So you don't have to wait to JPMorgan for me to say that. We're going to beat 40,000. Okay, great. And then on the annuity replacement, I think you said at different times that you're kind of tracking in that 4,000 dollars range or so annualized. Is that a good way to think about kind of where we are now as we level set for next year with all the new menu coming on? Yes. It's hard and I hope you're not modeling by taking the number of boxes times and trying to figure it out because we can't do it that way. What's happening is we're moving into different segments with different products. Urgent care, you can end up with big numbers, but at the same time realizing that the cost of a Sofia II is dramatically less than originally the Sofia I. We're now moving into smaller accounts that we weren't in before. So and those are less than the 4,000. So I would say over time, we would hope to have Sofia placements more decentralized, which would mean that on a per unit basis, the pricing would be higher, but it might be lower volumes. So I would suggest it's probably going to move down from 4,000. Okay, got it. And then, it sounds like the integration is largely complete here, with the last country coming on in November. Can you just remind us what's left in cost synergies that's I think there's a tail end to 2020? And then clearly the team has done a very nice job. Are there other projects that you can outline for us as we think about margin expansion from here looking into 2020? Well, what we said was we'd be at $20,000,000 by year 3 and it's year 2 and we're already at $20,000,000 So I know that you're hopeful, but I would suggest that we've gotten to where we thought we were going to be approximately a year earlier. And I'm looking at Randy and he's saying, please don't tell them that there's more. Sorry, John. So I don't know where we would get it, doesn't mean it's not there. We do have what we call a business transformation group that's looking for lots of different ways that we can improve the way we do things. I'll give you just an example. We're looking at our cost to process an order globally. We think we're a little high and we think there's things that we can do to get that down. But I would say that's more business transformation across the entirety of the business. Now that I've got the infrastructure that did the integration, we're now repurposing those same people to continue to look for other things. So that's a very long answer to say. I think there's more to do, but it wouldn't be directly related to that recent acquisition, if that makes sense. Yes. That's great. Thank you so much. Sure. That is all the time we have today. Please proceed with your presentation or any closing remarks. Well, thanks everyone for your support and of course your interest in Quidel. Q3 was another solid quarter and we're in good shape as we finish out the year and head into 2020. Thanks again, everybody. Ladies and gentlemen, we thank you for your participation and ask that you please disconnect your lines. Goodbye.