Earnings Call: Q1 2019

May 8, 2019

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 a question and answer session. I would 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 Stewart, our Chief Financial Officer. Our Q1 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 8 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 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, 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 3 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 3 topics that I'd 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's 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 in the quarter 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 $520,000,000 as our target. Later in the year, we raised it to over $520,000,000 This year, in early May, with Q1 behind us, we believe that a target of $535,000,000 on a constant currency basis seems appropriate. Absent flu and rapid strep, this would represent 8% growth year over year. For Q1, our total revenue performance at $150,000,000 on a constant currency basis was actually spot on our annual operating plan. There was $2,200,000 in unfavorable FX due almost entirely to the cardiovascular business, which brought our net revenue to $148,000,000 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're doing moving forward during the Q and A. In Q1, the 2 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 $47,200,000 which makes Q1 2019 our 2nd highest quarter ever for flu, behind last year's monster Q1 and better than we had planned by $5,000,000 Getting quarterly flu right has always been a challenge and now because the magnitude of the cardiovascular franchise, forecasting this business well is equally important. We advised our shareholders to expect $276,000,000 in revenue for the entire 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 $64,000,000 to $69,000,000 in the early quarters given variability in distributor orders in any given quarter. In Q1 2018, last year's Q1, we did $68,000,000 which included a $1,500,000 swing between the two quarters. In other words, we did effectively $66,500,000 We advised shareholders on several occasions that the ongoing cardiovascular business, all things normalized, felt more like $65,000,000 per quarter. For Q1 2019, cardiovascular revenues were $68,000,000 in constant currency or $65,900,000 with $2,100,000 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 per share. On a constant currency basis, it was $0.94 which was precisely on our annual operating plan. 2 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 United States at higher prices. And second, we had unplanned short term spending increases in a couple areas. Savanna expenses with 3rd parties involved in cartridge and instrument manufacturing and litigation expenses. If not for the expense increase, EPS would have been another 3% or excuse me, another $0.03 higher. Regarding product development, I will be brief as you can ask for clarification if you like during the Q and A. Our R and 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. 2nd, the 6 Sofia GI products expected in the next 12 to 18 months are progressing nicely and the Sofia C. Diff toxinGDH product performance in beta trials was outstanding. 3rd, the technology that will enable multiplexing on SOPHIA test cartridges has proven to be robust, and we should be able to manufacture in large volumes. Therefore, Sofia Tier II Lyme, which will replace Western blot as a confirmatory assay and Sofia RVP look increasingly possible. And finally, assay development for 6 Savanna mini panel multiplex 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 DanaherBeckman 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 written petition on the merits of the case and has stayed the trial court's December 7 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 the 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 long standing strategy of honoring the supply agreement with its previous partners, Aleer and BioSight, 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 and 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, Todd. Good afternoon, everyone. As we reported earlier today, total revenues for the Q1 of 2019 were $148,000,000 as compared to $69,100,000 in the Q1 of 2018, a decrease of 13%. On a constant currency basis, revenue would have been $150,200,000 in the quarter. The negative currency impact of $2,200,000 was mostly driven by weakness in the euro and the Chinese yuan. From a product perspective, dollars 2,100,000 of the $2,200,000 impacted the cardiac business. 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 Q1 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 revenues declined 23% or $18,200,000 from the Q1 of 2018, primarily due to a $17,400,000 difference in flu revenue from Q1 of 2018. Total flu revenue was $47,200,000 and as Doug mentioned, above our internal estimates. Sofia revenue was $42,900,000 as compared to $58,100,000 in Q1 of the prior year, and QuickVue revenue was $18,400,000 as compared to $21,400,000 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, the inventories at distribution are down 36% versus last year's Q1. In the cardiac immunoassay category, revenue totaled $65,900,000 in the quarter versus $68,400,000 in the same period last year. As we mentioned previously, FX had a negative impact of $2,100,000 on cardiac revenue. And on a constant currency basis, revenue was $68,000,000 just slightly below the reported number last year. Triage revenue was $35,600,000 which declined 10% from Q1 of 2018. On a constant currency basis, Triage revenue was down 6% versus last year. Regionally, Triage saw revenue declines in North America, Europe, Middle East, Africa and Latin America and was partially offset by 6% growth in China. On the Beckman BNP side, revenue increased 4% over the Q1 of 2018 to $30,300,000 On a constant currency basis, BMP was up 7%. Regionally, China was the biggest contributor to revenue growth and this was partially offset by declines in both North America and Europe, Middle East, Africa. Overall, we believe the 4% growth from cardiac is achievable and is partly contingent upon revenue contribution from newly launched Triage Troponin in Europe and the anticipated launch of our next generation toxicology assay. Revenue in the Specialized Diagnostic Solutions category decreased 7% in the Q1 to $13,900,000 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 $5,700,000 due to 24% growth from Solana assay revenue. Gross profit in the 1st quarter decreased $15,300,000 primarily the result of lower sales of rapid immunoassays in the quarter. Gross margin in the Q1 was approximately 61%. This compares to 63% in the Q1 of 2018. Lower factory absorption relating 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 full year 2018. R and D expense increased by $1,300,000 in the Q1 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 and D expense is tracking to our expectations and thus make that for the full year, the R and D spend will be in the range of $52,000,000 to $55,000,000 Sales and marketing expense was $29,600,000 in the quarter, an increase of $1,000,000 as compared to Q1 last year. This increase was largely due to higher word-of-mouth marketing and product promotional costs versus the prior year. For the full year in 2019, we continue to expect sales and marketing expenses to be in the range of 50 basis points to 100 basis points lower than last year as a percent of revenue. G and A expense increased by $2,900,000 in the quarter, primarily due to increased infrastructure investments to support our global business and increased professional fees. Acquisition and integration costs in the Interest expense for the quarter was $4,600,000 and includes $1,000,000 relating to the convertible senior notes, $500,000 relating to the senior credit facility and $2,300,000 relating to the preferred and contingent consideration associated with purchase of the cardiac business. The $3,300,000 decrease in interest expense over last year was due to the reduction in debt of approximately $196,000,000 over the last 12 months, and this includes the deferred and contingent consideration. In the quarter, we recorded $1,700,000 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 the 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's regulations are yet to be finalized and they will impact where we fall in this range. We continue to strengthen our balance sheet. In the quarter, we generated $28,000,000 in positive cash flow after spending $5,000,000 on capital expenditures, and we paid off another $20,000,000 on our revolving senior credit facility. In the quarter, we had depreciation of $4,700,000 and amortization of $7,000,000 As of March 31, the company had $56,900,000 in cash on the balance sheet, dollars 58,500,000 in principal amount outstanding relating to the convertible notes and $33,200,000 outstanding on the revolving credit loan. Additionally, in April, we made our 2nd $48,000,000 payment to Abbott and the outstanding principal balance on deferred and contingent consideration for the acquired cardiac assets is now approximately $184,000,000 And with that, we conclude our formal comments for today. Operator, we are now ready to open the call for questions. Your first question comes from the line of Jack Meehan with Barclays. Thank you. Good afternoon. Doug, could you maybe help us with the 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 describe a little more of the timing issues you talked about. Specifically in the U. S, there are a handful of customers, maybe 70 or so that we expect to reorder that didn't. So that was the principal cause of most and that would be for the BNP assay run on Beckman's analyzers, 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 to what we thought we would do for the business in Q1, and we're expecting to see the launch of toxicology products in Q3. We've already launched the high sensitivity troponin in Europe and are just now shipping product there. So back half of the year is when we expected to see an uptick and hence the bottoms up forecast that arrived at a number of $276,000,000 for the full year. Okay. Do you still think the 2nd quarter number is a touch below 70% or what where should we be penciling it in? 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. It's I would be shocked if it doesn't fall in there somewhere. And the reason for that size of the range is that we've got a lot of distributor ins and outs, and it's really hard to figure out exactly when people are going to order. So makes it a little bit more difficult to forecast, of course. But the underlying fundamentals of the business are pretty much unchanged. Okay. That's fair. 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 do think there's 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 Solana has to offer is becoming more widely known. And so your question, does the 20% growth still feel good? And I would say, yes. 1 quarter in is 1 quarter in. And of course, we don't manage the business quarter by quarter. We try to look at it on an annualized basis. I would say percent for the year looks good. Okay. And then last one. I think I heard firmer time line for SAVANNAH. So 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 3rd party folks that are involved with us in not only cartridge manufacturing but also instrument manufacturers are I'm sorry, instrument manufacturing are engaged. And we're still comfortable that at the end of the day, that we'll have FDA clearance on the instrument by the end of 2020. That's still the goal. I think it's still achievable. And as I've 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 that's meaningful for the customer that's compelling. And so we think that only occurs if we have 4 or 5 different cartridge products that we can offer at the same time. But in terms of FDA clearance by the end of 2020, we still think that's possible, but I'm laughing a little bit at myself because when we have a significant accomplishment in R and D, the guys always have a cake. And we've told them FDA clearance of Savanna at the end of 2020 doesn't get them the the cake. So they get the cake when we get the other 4 or 5 assays out. Okay. Save me a slice. Thanks. Sure. Your next question comes from the line of Bill Quirk with Piper Jaffray. Great. Thanks. Good afternoon, everybody. Hi, Bill. Thank you, Bill. Hi. Hi, guys. 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 pretty well complete. The only thing we have left is to get North America distribution into our distribution system and the effective 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. And then just on the sorry, go ahead, Doug. No, I was just going to add that we're not stopping, though. 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's 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 evolved the system ex U. S. Into a cloud based system, which is far better, we think, for the newer system. So that's it's not a new thing, but it's newer system. So that's it's not a new thing, but it's a merger on the one system for 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 from Brexit? And anything any additional color you could add would be helpful. Thank you. No major macro issues, although we talked a little bit about the FX issues. But that has obviously an effect on all companies. But other than that, no macro issues. On a country by country basis, I think our team there has done a really nice job. They're pretty excited about the new products, vitamin D, Lyme is now launched there. And I can talk a little bit more about the T2 product, the next generation Triage product, but we are now shipping 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 the our out of 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 yet. Thank you, Bill. Your next question comes from the line of Mark Massaro with Canaccord Genuity. Hey, guys. Thanks for the questions. I guess, Doug, maybe just to 0 in on the cardiac business for a second. If you annualize mathematically, just take 65 multiply it 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 and TOX? Or do you expect, obviously, if you take 69 times 4, you get all the way to 276. I guess I'm really just trying to ask you how much contribution do you expect from the new cardiac assays? No, I'm expecting a reasonable chunk. But let me before I get into a specific number, let me say that I think I learned a long time ago not to say pick a single data point and extrapolate. If I were going to start from a single data point though, do I start at 68? 68 is the number, notwithstanding the FX issue. I'm just saying that I think $65,000,000 is a baseline 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, you could take 69 times 4 if you wanted to be given all of that. And what we told you before was we didn't just pick a percentage and multiply it 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 ship product to for the most part. So we're really comfortable that and what would you say, Randy, that number is about $5,000,000 in toxicology that we're expecting. And then troponin is a wild card. It could be smaller and but let's see what happens. We're just not shipping product. It's in Hisense troponin, is it important in Europe? Yes. So we'll see. We're not exactly making it available widely either. We have somewhat of a limited launch. So overall, I still as we go through with the guys individually by customer and build it bottom ups, we still think the $276,000,000 in total on a constant currency basis makes sense. Okay. That's helpful. 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 in the court? Are you asking is there an opportunity to settle? Is that what you're asking, Yes, it is. The probability of a settlement versus taking this all the way in court? Yes. So I'm going to give you an answer that's an 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. At 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. It's a category that our product lineup you would expect to do well and we do. We compete very nicely in the segment. Lime is not hurting us, of course. Being the only company with a CLIA waived, Lyme assay that can be done on a finger stick in 12 minutes, I think, in a nursing care setting doesn't hurt as much. And I think as you look forward, the next generation Strep product will be helpful in that segment as well, the Strep 98. So you can imagine we spend a lot of time looking at the category pretty closely. So what else can I say? We like it. We're doing well in it, and it continues to grow. I see deals every week that come across my desk. So that's a good category. So is freestanding EDs, so is smaller hospitals. We like testing closer to where the patient lives. That's it for me. Thanks. Thanks, Mark. Thanks, Mark. Your next question comes from the line of Tycho Peterson with JPMorgan. This is Julie on for Tycho. So first off, just a follow-up on the BNP. I know you said you had expected some BNP reorders, which did not happen. Do you expect to recapture any of that in the Q2? 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, the following month, etcetera. So there's not huge market share shifts in this space. What you're talking about is people who have very large labs with very large clinical chemistry systems and immunoassay analyzers. So when they order for those when they feed those instruments, sometimes there's a quarterly order, 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 on standing orders. I don't know if that's done anymore. I'm kind of ancient. But in the whole days, we tried standing orders as a way of smoothing things out. But our commercial team has got a very good handle on who's ordering and when they expect to order next. So whether that all happens offset completely in the Q2, I can't really answer that. Okay. That's helpful. And then on rapid immunoassay, I mean, it looks like excluding flu, the revenue also declined. And I know you called out strep and R3. Is that just tied to the general flu seasonality? Or are there other sort of pricing or volume dynamics that you like to call out? No, that's entirely right. You got it right, Julius. So strep is affected by the season and the magnitude of the season, so is 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 normalize for flu and those other products, I got a swing of about 8 well, the underlying growth is about 8%, right? Okay. And then lastly regarding I mean obviously you're maintaining a full year outlook. Just curious how much of Lyme contribution are you currently embedding in your guidance? Well, we've got a number in for 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 an upside for us is that it appears in the last report that I read that 80% now of each of the new Lyme disease customers is coming with flu and strep and 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 they're 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. Great. Thank you. Sure. Your next question comes from the line of John Hsu with Raymond James. Hey, John. Good afternoon. Hey, Doug. If we could just go back to FX for a second, could you help us think about you obviously gave us the 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 and bottom line? Well, we're anticipating a continued kind of like with the Chinese yuan that there will be continued weakness in there. So baked in there, as Doug said, the $535,000,000 is in a constant currency basis off of the Q1 numbers. You it depends on where you think the Chinese yuan is going to be at the end of the year, correct? I mean, as I said, the $535,000,000 we've given as far as guidance is constant currency based. So there is some risk or opportunity if it moves off of where we are at the end of Q1. Got it. And I guess just based 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 $2,000,000 in the 1Q, at least in my model, I would expect to be a similar impact, maybe slightly smaller in the 2Q. Is that a fair way to frame it? How are you thinking about it, at least for the 2Q? Yes. I would say probably it's a little less than Q2, probably in the $1,000,000 to $2,000,000 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 phasing perspective? You obviously gave some good color on cardiac. But for instance, impact of Easter in the 2Q, is there any kind of a selling day impact there? Just help us think about any kind of phasing items as we move throughout the year? Well, I think in 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 $15,000,000 plus benefit with Summers Ridge and with the cardiac business excluding the distribution capability. So there's some opportunities there. Obviously, toxicology revenue in the back half of the year, we think, has some upside as well as with the Lyme revenue. Okay, great. 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, though. And so it's helpful. It's helpful in terms of flu number. Okay, great. Yes. I mean historically in Q2, it's been in the $5,000,000 to $10,000,000 range. So I think that's probably a good range. You did as I mentioned, inventory distribution is at a pretty low level, which obviously would be somewhat beneficial as we go through the rest of the year. Great. And last one from 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 at JPMorgan, that we were around the 35,000 number globally. And I don't have a recent Parena 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, were at 11,000 at that time. And your next question comes from the line of Alex Nowak with Craig Hallum Capital. Great. Good afternoon, everyone. Jumping between a few calls here, so apologies if this was already covered in their prepared remarks or in the Q and A. But I believe you said earlier, you exceeded your internal estimates on flu. The data out there certainly suggest a more flat season than what you posted. So just curious, 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 the market? Okay. Let me help and then I have to ask you to clarify. But we 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 on how many flu patients we're going to see. So yes, so we built more in Q4 than we normally would just because we wanted to make sure that we didn't back order. 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. I mean, if you look at some of the reports out there, there is a double wave flu season where you saw an A and B strain actually take hold at 2 different time points. So I'm just curious why necessarily didn't see the benefit from the B strain 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 an H3N2 that was of a different clade than was in the vaccine. And this particular H3N2 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, I saw the ILI data, it fell off for a week or something and then kept going 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. I think the last time we saw 2 peaks, 2 real peaks was in 2,009. I don't think our Virena data showed that. No, our Virena data absolutely didn't show 2 peaks. Okay, interesting. That's helpful. Thanks for clarifying that. And you continue to pay debt off here, leverage ratio continues to come down. So just any updates around M and A? Where does it make sense to bring some assets in? Well, it's just simply around fit. 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 what our commercial people do, where they go and who they see, those make a lot of sense. And so there are a number of things we're looking at, but obviously I can't tell you a whole lot more than that at this stage. But we're looking. We obviously have paid down a lot of debt. We have borrowing capacity and we have cash. So if we can find something that truly fits, 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. Okay, understood. Thank you. Your next question comes from the line of Brian Weinstein with William Blair. Hey, Brian. Hey, guys. Hey, Doug. How are you doing? Just like the last guy, I was running around 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 lost revenues that somebody else talked about in the lack of ordering from those 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 adjust before, but any sign that, that would be coming back in the second quarter now that we're almost halfway through it? Thanks. Well, 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 soft in the U. S? Yes. Is it some of it's due to BNP, some of it's due to, obviously, to 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're looking Q1 to Q1, Q1 2018 had a nominal $68,000,000 But as we've said before, we had some ins and outs there and that really was more like $66,500,000 right? Here, constant currency, we actually did 68%. So even though we did 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 Abbott had the we moved those products through the TSA. So it's not actually on a nominal basis, not declining at all. And even if you throw FX in there, it's not significantly different. So it's not really a decline versus Q1 2018. All right, great. Thanks guys. Thanks, Brian. 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 your interest in Quidel. A little bit of a disconnect 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 it as closely as and as well as we did. 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. Ladies and gentlemen, we thank you for your participation and ask that