UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________________________

FORM 10-Q

____________________________________________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 0-10961

____________________________________________________________________________

QUIDEL CORPORATION

(Exact name of registrant as specified in its charter)

____________________________________________________________________________



Delaware		94-2573850
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12544 High Bluff Drive, Suite 200, San Diego, California 92130

(Address of principal executive offices, including zip code)

(858) 552-1100

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	QDEL	NASDAQ Global Market

____________________________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	¨	Accelerated filer	x
				¨
Non-accelerated filer	¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨
			Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the ~~Securities~~Exchange Act.				¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~October 27, 2017, 33,996,891~~May 3, 2019, 39,817,679 shares of the ~~registrant's~~registrant’s common stock were outstanding.

~~Table of Contents~~

INDEX



PART I—FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018	3
Consolidated Statements of ~~Operations~~Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	4
Consolidated Statements of Comprehensive ~~Loss~~Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	5
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018	6
Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	67
Notes to Consolidated Financial Statements	8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1819
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk	2523
ITEM 4. Controls and Procedures	2623
PART II—OTHER INFORMATION
ITEM 1. Legal Proceedings	2623
ITEM 1A. Risk Factors	2623
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	3024
ITEM 3. Defaults Upon Senior Securities	3024
ITEM 4. Mine Safety Disclosures	3024
ITEM 5. Other Information	3024
ITEM 6. Exhibits	3125
Signatures	3226

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUIDEL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value; unaudited)


	September 30, 2017			December 31, 2016			March 31, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	172,994		$	169,508		$	56,938		$	43,695
Accounts receivable, net	41,575			24,990			69,234			58,677
Inventories	23,429			26,045			66,647			67,379
Prepaid expenses and other current assets	6,477			4,851			18,823			23,646
Total current assets	244,475			225,394			211,642			193,397
Property, plant and equipment, net	50,035			50,858			75,356			73,901
Right-of-use assets							85,907			—
Goodwill	91,433			83,834			337,019			337,021
Intangible assets, net	27,364			27,639			168,120			175,029
Deferred tax asset—non-current							22,102			22,192
Other non-current assets	514			525			5,709			4,831
Total assets	$	413,821		$	388,250		$	905,855		$	806,371
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,657		$	16,047		$	26,827		$	25,171
Accrued payroll and related expenses	9,771			9,642			10,969			19,210
Current portion of lease obligation	122			98
Current portion of operating lease liabilities							5,385			—
Current portion of contingent consideration	4,324			2,826			3,971			3,983
Current portion of deferred consideration							44,000			44,000
Current portion of Convertible Senior Notes							54,880			54,379
Other current liabilities	9,061			4,999			13,521			12,992
Total current liabilities	38,935			33,612			159,553			159,735
Long-term debt	148,469			144,340
Lease obligation, net of current portion	3,885			3,979
Contingent consideration—non-current	356			2,349
Deferred tax liability—non-current	166			58
Income taxes payable	1,124			1,045
Deferred rent	1,685			1,965
Operating lease liabilities							83,818			—
Revolving Credit Facility							33,188			53,188
Deferred consideration							145,501			143,158
Contingent consideration							15,129			15,129
Other non-current liabilities	317			272			7,968			9,577
Commitments and contingencies (see Note 9)
Commitments and contingencies (see Note 8)
Stockholders’ equity:
Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or outstanding at September 30, 2017 and December 31, 2016	—			—
Common stock, $.001 par value per share; 97,500 shares authorized; 33,984 and 32,897 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	34			33
Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or outstanding at March 31, 2019 and December 31, 2018							—			—
Common stock, $.001 par value per share; 97,500 shares authorized; 39,806 and 39,386 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively							40			39
Additional paid-in capital	226,186			204,905			374,148			363,921
Accumulated other comprehensive loss	(4		)	(53		)	(97		)	(139		)
Accumulated deficit	(7,332		)	(4,255		)
Retained earnings							86,607			61,763
Total stockholders’ equity	218,884			200,630			460,698			425,584
Total liabilities and stockholders’ equity	$	413,821		$	388,250		$	905,855		$	806,371

See accompanying notes.

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME

(in thousands, except per share data; unaudited)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Total revenues $ 50,894
$ 49,341
$ 162,853
$ 138,795
Costs and expenses
Cost of sales (excludes amortization of intangible assets of $1,877, $1,590, $5,122 and $4,770, respectively) 19,391
17,728
60,716
54,295
Research and development 7,468
8,801
22,970
31,164
Sales and marketing 12,898
11,853
38,813
36,376
General and administrative 6,580
6,364
20,483
19,964
Amortization of intangible assets from acquired businesses and technology 2,503
2,273
7,184
6,782
Acquisition and integration costs 4,591
197
7,022
568
Total costs and expenses 53,431
47,216
157,188
149,149
Operating (loss) income (2,537 ) 2,125
5,665
(10,354 )
Interest expense, net (2,784 ) (3,006 ) (8,387 ) (8,619 )
Loss before income taxes (5,321 ) (881 ) (2,722 ) (18,973 )
Provision (benefit) for income taxes 204
(309 ) 355
(7,115 )
Net loss $ (5,525 ) $ (572 ) $ (3,077 ) $ (11,858 )
Basic and diluted loss per share $ (0.16 ) $ (0.02 ) $ (0.09 ) $ (0.36 )
Shares used in basic and diluted per share calculation 33,913
32,673
33,538
32,645



	Three months ended March 31,
	2019			2018
Total revenues	$	147,968		$	169,143
Cost of sales	57,041			62,872
Gross profit	90,927			106,271
Research and development	13,930			12,621
Sales and marketing	29,589			28,558
General and administrative	13,431			10,532
Acquisition and integration costs	2,824			3,467
Total operating expenses	59,774			55,178
Operating income	31,153			51,093
Other expense, net:
Interest expense, net	(4,582		)	(7,850		)
Loss on extinguishment of debt	—			(4,567		)
Total other expense, net	(4,582		)	(12,417		)
Income before income taxes	26,571			38,676
Provision for income taxes	1,727			4,718
Net income	$	24,844		$	33,958
Basic earnings per share	$	0.63		$	0.96
Diluted earnings per share	$	0.60		$	0.86
Shares used in basic per share calculation	39,704			35,236
Shares used in diluted per share calculation	42,907			41,948

See accompanying notes.

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME

(in thousands; unaudited)

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Net loss $ (5,525 ) $ (572 ) $ (3,077 ) $ (11,858 )
Other comprehensive income (loss), net of tax
Changes in cumulative translation adjustment 14
3
49
1
Comprehensive loss $ (5,511 ) $ (569 ) $ (3,028 ) $ (11,857 )



	Three months ended March 31,
	2019			2018
Net income	$	24,844		$	33,958
Changes in cumulative translation adjustment, net of tax	(248		)	20
Change in fair value of cash flow hedges, net of tax	290			—
Comprehensive income	$	24,886		$	33,978

See accompanying notes.

QUIDEL CORPORATION

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(in thousands; unaudited)

Nine months ended
September 30,
2017 2016
OPERATING ACTIVITIES:
Net loss $ (3,077 ) $ (11,858 )
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation, amortization and other 17,813
17,597
Stock-based compensation expense 5,938
5,820
Amortization of debt discount and deferred issuance costs 4,129
4,266
Change in deferred tax assets and liabilities 101
(7,375 )
Change in fair value of acquisition contingencies —
(589 )
Gain on extinguishment of Convertible Senior Notes —
(421 )
Changes in assets and liabilities:
Accounts receivable (16,582 ) (7,464 )
Inventories 2,751
3,544
Income taxes receivable (1,123 ) (248 )
Prepaid expenses and other current and non-current assets (667 ) (1,047 )
Restricted cash —
63
Accounts payable 2,128
984
Accrued payroll and related expenses 982
(1,867 )
Income taxes payable 78
(12 )
Deferred grant revenue —
(3,658 )
Other current and non-current liabilities 4,013
(2,541 )
Net cash provided by (used for) operating activities: 16,484
(4,806 )
INVESTING ACTIVITIES:
Acquisitions of property, equipment and intangibles (12,767 ) (7,860 )
Acquisition of businesses, net of cash acquired (14,388 ) (5,061 )
Net cash used for investing activities: (27,155 ) (12,921 )
FINANCING ACTIVITIES:
Payments on lease obligation (70 ) (433 )
Repurchases of common stock (541 ) (20,096 )
Repurchases of Convertible Senior Notes —
(4,459 )
Proceeds from issuance of common stock 15,246
4,821
Payments on acquisition contingencies (498 ) (207 )
Net cash provided by (used for) financing activities: 14,137
(20,374 )
Effect of exchange rates on cash 20
(7 )
Net increase (decrease) in cash and cash equivalents 3,486
(38,108 )
Cash and cash equivalents, beginning of period 169,508
191,471
Cash and cash equivalents, end of period $ 172,994
$ 153,363



	Common Stock
	Shares		Par		Additional paid-in capital			Accumulated other comprehensive (loss) income			Retained earnings		Total stockholders’ equity
Balance at December 31, 2018	39,386		$	39	$	363,921		$	(139	)	$	61,763	$	425,584
Issuance of common stock under equity compensation plans	444		1		8,816			—			—		8,817
Stock-based compensation expense	—		—		2,887			—			—		2,887
Repurchases of common stock	(24	)	—		(1,476		)	—			—		(1,476		)
Changes in cumulative translation adjustment, net of tax	—		—		—			(248		)	—		(248		)
Change in fair value of cash flow hedges, net of tax	—		—		—			290			—		290
Net income	—		—		—			—			24,844		24,844
Balance at March 31, 2019	39,806		$	40	$	374,148		$	(97	)	$	86,607	$	460,698

Nine months ended
September 30,
2017 2016
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 3,279
$ 3,331
Income taxes paid $ 1,259
$ 459
NON-CASH INVESTING ACTIVITIES:
Purchase of property, equipment and intangibles by incurring current liabilities
$ 653
$ 1,866
NON-CASH FINANCING ACTIVITIES:
Reduction of other current liabilities upon issuance of restricted share units $ 903
$ 539



	Common Stock
	Shares		Par		Additional paid-in capital			Accumulated other comprehensive income		Retained earnings (accumulated deficit)			Total stockholders’ equity
Balance at December 31, 2017	34,540		$	35	$	239,489		$	—	$	(12,420	)	$	227,104
Issuance of common stock under equity compensation plans	516		—		5,652			—		—			5,652
Stock-based compensation expense	—		—		2,936			—		—			2,936
Issuance of shares in exchange for Convertible Senior Notes	2,428		2		118,073			—		—			118,075
Reduction for equity component of Convertible Senior Notes exchanged	—		—		(53,867		)	—		—			(53,867		)
Repurchases of common stock	(73	)	—		(3,232		)	—		—			(3,232		)
Changes in cumulative translation adjustment, net of tax	—		—		—			20		—			20
Net income	—		—		—			—		33,958			33,958
Balance at March 31, 2018	37,411		$	37	$	309,051		$	20	$	21,538		$	330,646



QUIDEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands; unaudited)
	Three months ended March 31,
	2019			2018
OPERATING ACTIVITIES:
Net income	$	24,844		$	33,958
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other	11,971			12,075
Stock-based compensation expense	3,588			2,936
Amortization of debt discount and deferred issuance costs	602			1,671
Accretion of interest on deferred consideration	2,343			2,793
Amortization of inventory step-up to fair value	—			3,650
Loss on extinguishment of debt	—			4,567
Changes in assets and liabilities:
Accounts receivable	(10,682		)	(25,205		)
Inventories	682			5,471
Prepaid expenses and other current and non-current assets	3,995			(1,842		)
Accounts payable	1,802			(595		)
Accrued payroll and related expenses	(6,969		)	(5,988		)
Other current and non-current liabilities	721			2,323
Net cash provided by operating activities:	32,897			35,814
INVESTING ACTIVITIES:
Acquisitions of property and equipment	(4,993		)	(4,949		)
Proceeds from sale of Summers Ridge Property	—			146,644
Net cash (used for) provided by investing activities:	(4,993		)	141,695
FINANCING ACTIVITIES:
Proceeds from issuance of common stock	6,847			5,652
Payments on Revolving Credit Facility	(20,000		)	(10,000		)
Payments on finance lease obligation	(38		)	(29		)
Repurchases of common stock	(1,476		)	(3,232		)
Payments of acquisition contingent consideration	(12		)	(1,017		)
Payments of Term Loan	—			(101,813		)
Transaction costs related to debt exchange	—			(1,357		)
Net cash used for financing activities:	(14,679		)	(111,796		)
Effect of exchange rates on cash	18			13
Net increase in cash and cash equivalents	13,243			65,726
Cash and cash equivalents, beginning of period	43,695			36,086
Cash and cash equivalents, end of period	$	56,938		$	101,812



SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Purchase of property and equipment by incurring current liabilities	$	1,728	$	2,067
NON-CASH FINANCING ACTIVITIES:
Reduction of other current liabilities upon issuance of restricted share units	$	1,970	$	—
Extinguishment of Convertible Senior Notes through issuance of common stock	$	—	$	118,075

See accompanying notes.

Quidel Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of Quidel Corporation and its subsidiaries (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation (consisting of normal recurring accruals) have been included.

The information at ~~September 30, 2017,~~March 31, 2019, and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, is unaudited. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2018 included in the Company’s ~~2016~~2018 Annual Report on Form 10-K. Operating results for any quarter are historically seasonal in nature and are not necessarily indicative of the results expected for the full year.

For ~~2017~~2019 and ~~2016,~~2018, the Company’s fiscal year will end or has ended on December ~~31, 2017~~29, 2019 and ~~January 1, 2017,~~December 30, 2018, respectively. For ~~2017~~2019 and ~~2016,~~2018, the Company’s ~~third~~first quarter ended on ~~October~~March 31, 2019 and April 1, ~~2017 and October 2, 2016,~~2018, respectively. For ease of reference, the calendar quarter end dates are used herein. The ~~three and nine month~~three-month periods ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 each included 13 ~~and 39 weeks, respectively.~~

~~Comprehensive Loss~~

~~Comprehensive loss includes foreign currency translation adjustments excluded from the Company’s Consolidated Statements of Operations.~~weeks.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires ~~the Company~~management to make estimates and ~~judgments~~assumptions that affect the reported amounts of assets and liabilities ~~revenues~~ and ~~expenses, and related disclosure~~disclosures of contingent assets and ~~liabilities. On an on-going basis, management evaluates its estimates, including those related to customer programs~~liabilities at the date of the financial statements and ~~incentives, bad debts, inventories, intangible assets, income taxes, stock-based compensation, contingencies~~the reported amounts of revenues and ~~litigation. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under~~expenses during the ~~circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.~~reporting period. Actual results ~~may~~could differ from ~~these~~those estimates.

~~Revenue Recognition~~

The Company records revenues primarily from product sales. These revenues are recorded net of rebates and other discounts. These rebates and discounts are estimated at the time of sale, and are largely driven by various customer program offerings, including special pricing agreements, promotions and other volume-based incentives. Revenues from product sales are recorded upon passage of title and risk of loss to the customer. Passage of title to the product and recognition of revenue occurs upon delivery to the customer when sales terms are free on board (“FOB”) destination and at the time of shipment when the sales terms are FOB shipping point and there is no right of return.

A portion of product sales includes revenues for diagnostic kits, which are utilized on leased instrument systems under the Company’s “reagent rental” program. The reagent rental program provides customers the right to use the instruments at no separate cost to the customer in consideration for a multi-year agreement to purchase annual minimum amounts of consumables (“reagents” or “diagnostic kits”). When an instrument is placed with a customer under a reagent rental agreement, the Company retains title to the equipment and it remains capitalized on the Company’s Consolidated Balance Sheets as property and equipment. The instrument is depreciated on a straight-line basis over the life of the instrument. Depreciation expense is recorded in cost of sales included in the Consolidated Statements of Operations. The reagent rental agreements represent one unit of accounting as the instrument and consumables (reagents) are interdependent in producing a diagnostic result and neither has a stand-alone value with respect to these agreements. No revenue is recognized at the time of instrument placement. All revenue is recognized when the title and risk of loss for the diagnostic kits have passed to the customer.

~~Royalty revenue from the grant of license rights is recognized during the period in which the revenue is earned and the amount is determinable from the licensee.~~

The Company earns income from grants for research and commercialization activities. On November 6, 2012, the Company was awarded a milestone-based grant totaling up to $8.3 million from the Bill and Melinda Gates Foundation to develop, manufacture and validate a quantitative, low-cost, nucleic acid assay for HIV drug treatment monitoring on the integrated Savanna MDx platform for use in limited resource settings. Upon execution of the grant agreement, the Company received $2.6 million to fund subsequent research and development activities and received milestone payments totaling $2.5 million in 2013. On September 10, 2014, the Company entered into an amended grant agreement with the Bill and Melinda Gates Foundation for additional funding of up to $12.6 million in order to accelerate the development of the Savanna MDx platform in the developing world. Upon execution of the amended grant agreement, the Company received $10.6 million in cash. The Company received payments of $2.4 million in April 2015 and $2.8 million in July 2016 based on milestone achievements for both the original and the amended grant agreements. Under the original and amended grant agreements, the Company recognized grant revenue on the basis of the lesser of the amount recognized on a proportional performance basis or the amount of cash payments that were non-refundable as of the end of each reporting period. The Company recognized $3.8 million and $6.5 million as grant revenue for the three and nine months ended September 30, 2016, respectively. Cash payments received were restricted as to use until expenditures contemplated in the grant were incurred or committed. As of September 30, 2016 all payment related milestones were achieved and all of the grant revenue of $20.9 million was fully recognized. As such, the Company recognized no grant revenue during the nine months ended September 30, 2017.

~~Fair Value Measurements~~

~~The Company uses the fair value hierarchy established in Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures,~~ ~~whichrequires that the valuation of assets and liabilities subject to fair value measurements be classified and disclosed by the Company in one of the following three categories:~~

~~Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;~~

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

~~Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).~~

~~The carrying amounts of the Company’s financial instruments, including cash, receivables, accounts payable and accrued liabilities approximate their fair values due to their short-term nature.~~

~~Reclassifications~~

The Company recorded immaterial reclassifications of acquisition and integration costs totaling $0.2 million and $0.6 million for three and nine months ended September 30, 2016, respectively, from general and administrative expense as previously reported in the Consolidated Statements of Operations to conform to current year presentation. The Company believes these reclassifications provide greater clarity and insight into the consolidated financial statements for the periods presented. The reclassification did not impact the net loss as previously reported or any prior amounts reported on the Consolidated Balance Sheets, Statements of Cash Flows or Statements of Comprehensive Loss.

Recent Accounting Pronouncements

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance codified in~~ Accounting Standards Update (“ASU”) ~~2014-09,~~ ~~Revenue from Contracts with Customers, which amends the guidance in former~~ ~~ASC 605, Revenue Recognition~~ (“2016-02 and ASU ~~2014-09”~~2018-11 (collectively, “ASC 842”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under current authoritative guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The FASB has issued several amendments to the new standard, which include clarification of accounting guidance related to identification of performance obligations, intellectual property licenses and principal vs. agent

~~considerations. The standard will be effective for public entities for annual reporting periods beginning after December 15, 2017, including interim periods therein.~~

The Company has assigned internal resources to assist in the adoption of the new standard and is evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company has begun the process of identifying, categorizing and analyzing its various revenue streams, but has not yet completed its assessment of the impact. The Company will continue to evaluate the future impact and method of adoption of ASU 2014-09 and related amendments on the Consolidated Financial Statements and related disclosures throughout the remainder of 2017. The Company will adopt the new standard beginning January 2018.

~~In February 2016, the FASB issued guidance codified in ASU 2016-02 (Topic 842),~~ ~~Leases. The guidance~~ requires a lessee to recognize a lease liability for the obligation to make lease payments and a ~~right-to-use~~ROU asset representing the right to use the underlying asset for the lease term on the balance sheet. ~~The guidance~~Deferred rent, recorded in other current liabilities and other non-current liabilities, is effective for fiscal years beginning after December 15, 2018 including interim periods therein, with early adoption permitted. The Company is currently evaluating the impact of this guidance and expects to adopt the standard in the first quarter of 2019.

~~In March 2016, the FASB issued guidance codified in ASU 2016-09 (Topic 718),~~ ~~Improvements to Employee Share-Based Payment Accounting~~ ~~(“ASU 2016-09”)~~. This guidance includes provisions to simplify several aspects of accounting for share-based payment transactions, including income tax consequences, accounting for forfeitures, classification of awards as either equity or liability and classification on the statement of cash flows. ASU 2016-09 includes a requirement that the tax effect related to the settlement of share-based awards be recorded within income tax expense or benefit in the income statement. The simplification of income tax accounting for share-based payment transactions also impacts the computation of weighted-average diluted shares outstanding under the treasury stock method.derecognized. The Company adopted ~~ASU 2016-09 in~~ASC 842 as of January 1, 2019 using the ~~first quarter~~alternative transition method to apply the guidance. The Company elected the package of ~~2017 and~~practical expedients which, among other things, allows the ~~impact~~Company to carry forward its historical lease classifications.

The following table presents the effect of the ~~adoption resulted~~change in ~~the following:~~

Upon adoption, the balance of the unrecognized excess tax benefits of $1.8 million was recorded as an increase to deferred tax assets and a corresponding increase to the valuation allowance, resulting in no impact to retained earnings.

Excess tax benefits from share-based arrangements are to be classified within cash flow from operating activities, rather than as cash flow from financing activities. The Company applied this provision on a retrospective basis and the prior period statement of cash flows was adjusted. This adoption did not have a material impactaccounting principle on the Company’s ~~cash flows.~~Consolidated Balance Sheets as of January 1, 2019:

The Company elected to continue to estimate the number of awards expected to be forfeited and adjust the estimate when appropriate, as is currently required. This adoption did not have a material impact on the Company’s consolidated results of operations, financial condition or cash flows.

~~There was no material impact on the computation of weighted-average diluted shares outstanding.~~



Consolidated Balance Sheet (in thousands)	January 1, 2019		Effect of Change in Accounting Principle			After change in Accounting Principle
ASSETS
Operating lease right-of-use asset	$	—	$	87,086		$	87,086
Total assets	$	806,371	$	87,086		$	893,457

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current portion of operating lease liability	$	—	$	5,290		$	5,290
Other current liabilities	12,992		(448		)	12,544
Total current liabilities	159,735		4,842			164,577
Operating lease liability	—		84,866			84,866
Other non-current liabilities	9,577		(2,622		)	6,955
Total liabilities and stockholders’ equity	$	806,371	$	87,086		$	893,457

In January 2017, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued guidance codified in ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). Under this new guidance, an entity will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. Instead, an entity will compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting ~~unit's~~unit’s fair value. The Company adopted the guidance during the three months ended March 31, 2019 with no impact to the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The standard is effective for ~~fiscal years~~the Company beginning ~~after December 15, 2019 including interim periods therein, with early adoption permitted. The Company is currently evaluating the impact of this guidance and expects to adopt the standard~~ in the first quarter of ~~2020.~~2020, with early adoption permitted. We are currently evaluating the expected impact of ASU 2016-13 on our consolidated financial statements.

Significant Accounting Policies

During the three months ended March 31, 2019, there have been no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 except as described below and in Note 10. Derivatives and Hedging.

Leases - Lease liabilities represent the obligation to make lease payments and right-of-use (“ROU”) assets represent the right to use the underlying asset during the lease term. Lease liabilities and ROU assets are recognized at the commencement date of the lease based on the present value of lease payments over the lease term at the commencement date. When the implicit rate is unknown, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value of the lease payments. Options to extend or terminate the lease are included in the determination of the lease term when it is reasonably certain that the Company will exercise such options.

For certain classes of assets, the Company accounts for lease and non-lease components as a single lease component. Variable lease payments, including those related to changes in the consumer price index, are recognized in the period in which the obligation for those payments are incurred and are not included in the measurement of the ROU assets or lease liabilities. Short-term leases are excluded from the calculation of the ROU assets and lease liabilities.

Operating leases are included in operating lease ROU assets, current portion of operating lease liabilities and operating lease liabilities in the Consolidated Balance Sheet. Finance leases are included in property and equipment, other current liabilities and other non-current liabilities.

Note 2. Computation of Earnings ~~(Loss)~~ Per Share

Basic earnings ~~(loss)~~ per share (“EPS”) is computed by dividing net ~~earnings (loss)~~income by the weighted-average number of common shares outstanding, including restricted stock units (“RSUs”) vested during the period. Diluted ~~earnings per share (“EPS”)~~EPS is computed based on the sum of the weighted average number of common shares and potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of shares issuable from stock options, unvested RSUs and the 3.25% Convertible Senior Notes due 2020 (“Convertible Senior Notes”). Potentially dilutive common shares from outstanding stock options and unvested RSUs are determined using the average share price for each period under the treasury stock method. ~~As discussed in Note 6, it is~~Potentially dilutive shares from the ~~Company’s intent and policy to settle conversions through combination settlement, which essentially involves repayment of an amount of cash equal to~~Convertible Senior Notes are determined using the ~~“principal portion” and delivery~~if-converted method. Under the provisions of the ~~“share amount”~~if-converted method, the Convertible Senior Notes are assumed to be converted and included in ~~excess~~the denominator of the ~~conversion value over~~EPS calculation and the ~~principal portion~~interest expense, net of tax, recorded in ~~cash or shares of common stock (“conversion premium”).~~ connection with the Convertible Senior Notes is added back to net income.

The Convertible Senior Notes have a dilutive impact when the average market price of the Company’s common stock exceeds the applicable conversion price of the notes. The Senior Convertible Notes became convertible on March 31, 2018 and remained convertible through March 31, 2019.

The following table reconciles net income and the weighted-average shares used in computing basic and diluted earnings ~~(loss)~~ per share in the respective periods (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Shares used in basic loss per share (weighted-average common shares outstanding) 33,913
32,673
33,538
32,645
Effect of potentially dilutive shares issuable from stock options, restricted stock units and Convertible Senior Notes —
—
—
—
Shares used in diluted loss per share calculation 33,913
32,673
33,538
32,645
Potentially dilutive shares excluded from calculation due to anti-dilutive effect —
1,856
1,121
2,892



	Three months ended March 31,
	2019		2018
Numerator:
Net income used for basic earnings per share	$	24,844	$	33,958
Interest expense on Convertible Senior Notes, net of tax	791		2,144
Net income used for diluted earnings per share, if-converted method	$	25,635	$	36,102

Basic weighted-average common shares outstanding	39,704		35,236
Potentially dilutive shares issuable from Convertible Senior Notes, if-converted	1,825		4,957
Potentially dilutive shares issuable from stock options and unvested RSUs	1,378		1,755
Diluted weighted-average common shares outstanding, if-converted	42,907		41,948
Potentially dilutive shares excluded from calculation due to anti-dilutive effect	149		193

Potentially dilutive shares excluded from the calculation above represent stock options when the combined exercise price and unrecognized stock-based compensation are greater than the average market price for the Company’s common stock because their effect is anti-dilutive.

Additionally, the number of potentially dilutive shares issuable under the stock options, RSUs and Convertible Senior Notes that would have been included in the diluted EPS calculation if the Company had earnings amounted to 1.8 million and 1.2 million for the three and nine months ended September 30, 2017, respectively. The number of stock options and RSUs that would have been included in the diluted EPS calculation if the Company had earnings amounted to 0.9 million and 0.8 million for the three and nine months ended September 30, 2016, respectively. No conversion premium existed on the Convertible Senior Notes as of September 30, 2016; therefore, there was no dilutive impact from the Convertible Senior Notes to diluted EPS during the three and nine months ended September 30, 2016.

Note 3. Balance Sheet Account Details

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or net realizable value. Inventories consisted of the following ~~net of reserves of $0.4 million and $0.7 million~~ at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively (in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Raw materials	$	9,533	$	9,297	$	24,783	$	24,292
Work-in-process (materials, labor and overhead)	7,839		7,990		20,860		21,280
Finished goods (materials, labor and overhead)	6,057		8,758		21,004		21,807
Total inventories	$	23,429	$	26,045	$	66,647	$	67,379

Prepaid Expenses and Other Current Assets

~~Note 4.~~ Prepaid expenses and other current assets consist of the following (in thousands):



	March 31, 2019		December 31, 2018
Receivables under transition service agreements	$	9,192	$	15,507
Income taxes receivable	2,703		2,703
Prepaid expenses	5,375		4,508
Other	1,553		928
Total prepaid expenses and other current assets	$	18,823	$	23,646

Other Current Liabilities

Other current liabilities consist of the following (in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Customer incentives	$	6,256	$	3,766	$	5,778	$	7,516
Accrued interest	1,586		227		690		347
Other	1,219		1,006		7,053		5,129
Total other current liabilities	$	9,061	$	4,999	$	13,521	$	12,992

Note 5.4. Income Taxes

The Company calculates its interim income tax provision in accordance with Accounting Standards Codification (“ASC”) 270, Interim Reporting, and ASC 740, Accounting for Income Taxes (together, “ASC 740”). At the end of each interim period, the Company estimates its annual effective tax rate and applies that rate to its ordinary quarterly earnings to calculate the tax related to ordinary income. The tax effects for other items that are excluded from ordinary income are discretely calculated and recognized in the period in which they occur.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into legislation, which includes a broad range of provisions affecting businesses. The Tax Act significantly revised how companies compute their U.S. corporate tax liability by, among other provisions, reducing the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, implementing a territorial tax system, and requiring a mandatory one-time tax on U.S.-owned undistributed foreign earnings and profits known as the transition tax.

The Company recognized income tax expense of ~~$0.2~~$1.7 million and ~~an income tax benefit of $0.3~~$4.7 million for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. The Company recognized income tax expense of $0.4 million and an income tax benefit of $7.1 million for the nine months ended September 30, 2017 and 2016, respectively. For the three and nine months ended September 30, 2017, the Company recorded income tax expense compared to an income tax benefit in the same periods of 2016 as no tax benefit was provided for losses incurred in United States Federal and certain state jurisdictions

~~because those losses are offset by a full valuation allowance and the Company has recorded tax expense for foreign jurisdictions and certain state jurisdictions during this time period.~~

~~In interim periods when a small change in forecasted information results in a significant change to the estimated annual~~Company’s 6% effective tax rate for the three months ended March 31, 2019 differed from the federal statutory rate of 21% due to the discrete impact of excess tax deductions from stock-based compensation and the ~~income tax expense or~~ benefit ~~for an interim period, a discrete~~from corporate deductions attributable to Foreign Derived Intangible Income (“FDII”). The Company’s 12% effective tax rate ~~method may provide a more reliable estimate than applying~~for the ~~annual effective tax~~three months ended March 31, 2018 differed from the federal statutory rate ~~method~~of 21% due to the ~~year-to-date loss. The discrete method~~projected impact to the Company’s valuation allowance from utilization of ~~calculating~~deferred tax assets shielding its tax liability, the ~~Company's estimated effective~~ tax ~~rate~~benefit recorded for excess tax benefits of stock-based compensation, and ~~income tax expense or~~the benefit ~~uses actual results for the interim period(s), instead of forecasted information. For the third quarter of 2017, the Company used the discrete effective tax rate method~~from corporate deduction attributable to ~~calculate the income tax expense.~~FDII.

The Company is subject to periodic audits by domestic and foreign tax authorities. Due to the carryforward of unutilized ~~net operating loss and~~ credit carryovers, the ~~Company's~~Company’s federal tax years from 2009 and forward are subject to examination by the U.S. authorities. The ~~Company's~~Company’s state and foreign tax years for 2001 and forward are subject to examination by applicable tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax laws applied to the facts of each matter.

Note 6.5. Debt

Convertible Senior Notes

In December 2014, the Company issued $172.5 million aggregate principal amount of its 3.25% Convertible Senior Notes. Debt issuance costs of approximately $5.1 million were primarily comprised of underwriters fees, legal, accounting and other professional fees, of which $4.2 million were ~~capitalized and are~~ recorded as a reduction to long-term debt and are being amortized using the effective interest method to interest expense over the six-year term of the Convertible Senior Notes. The remaining $0.9 million of debt issuance costs were allocated as a component of equity in additional paid-in capital. ~~Deferred issuance costs related to~~The implied interest rate of the Convertible Senior Notes ~~were $2.3 million and $2.8 million as of September 30, 2017 and~~was 6.9%, assuming no conversion option. The Convertible Senior Notes mature on December ~~31, 2016, respectively.~~15, 2020.

The Convertible Senior Notes ~~will be~~are convertible into cash, shares of common stock, or a combination of cash and shares of common stock based on an initial conversion rate, subject to adjustment, of 31.1891 shares per $1,000 principal amount of the Convertible Senior Notes (which represents an initial conversion price of approximately $32.06 per share). The conversion will occur in the following circumstances and to the following extent: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2015, if the last reported sales price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the

calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the notes in effect on each applicable trading day; (2) during the five consecutive business day period following any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Senior Notes for each such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such day; or (3) upon the occurrence of specified events described in the indenture for the Convertible Senior Notes. On or after September 15, 2020 until the close of business on the second scheduled trading day immediately preceding the stated maturity date, holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances.

It is the Company’s intent and policy to settle conversions through combination settlement, which essentially involves repayment of an amount of cash equal to the “principal portion” and delivery of the “share amount” in excess of the principal portion in shares of common stock or cash. In general, for each $1,000 in principal, the “principal portion” of cash upon settlement is defined as the lesser of $1,000, or the conversion value during the 25-day observation period as described in the indenture for the Convertible Senior Notes. The conversion value is the sum of the daily conversion value, which is the product of the effective conversion rate divided by 25 days and the daily volume weighted-average price (“VWAP”) of the Company’s common stock. The “share amount” is the cumulative “daily share amount” during the observation period, which is calculated by dividing the daily VWAP into the difference between the daily conversion value (i.e., conversion rate x daily VWAP) and $1,000.

The Company pays 3.25% interest per annum on the principal amount of the Convertible Senior Notes semi-annually in arrears in cash on June 15 and December 15 of each year. The Convertible Senior Notes mature on December 15, 2020. During the nine months ended September 30, 2017 and 2016, the Company recorded total interest expense of $8.2 million related to the Convertible Senior Notes, of which $4.1 million related to the amortization of the debt discount and issuance costs and $4.1 million related to the coupon due semi-annually.

If a fundamental change, as defined in the indenture for the Convertible Senior Notes, such as an acquisition, merger or liquidation of the Company, occurs prior to the maturity date, subject to certain limitations, holders of the Convertible Senior Notes may require the Company to repurchase all or a portion of their Convertible Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

~~The Company accounts separately for~~During the ~~liability and equity components~~first quarter of 2019, the last reported sales price of the Company’s common stock was greater than 130% of the Convertible Senior Notes ~~in accordance with authoritative guidance~~conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end. Consequently, the Convertible Senior Notes were convertible ~~debt instruments that~~as of March 31, 2019. If the Convertible Senior Notes were converted as of March 31, 2019, the if-converted amount would exceed the principal by $1.7 million. The Convertible Senior Notes may be settled at the Company’s option in cash ~~upon conversion.~~ or a combination of cash and shares of common stock. Because the settlement could be in cash, the Convertible Senior Notes have been classified as short-term debt as of March 31, 2019.

The ~~guidance requires~~Company pays 3.25% interest per annum on the ~~carrying~~principal amount of the ~~liability component to be estimated by measuring~~Convertible Senior Notes semi-annually in arrears in cash on June 15 and December 15 of each year. During the ~~fair value of a similar liability that does not have an associated conversion feature. Because~~three months ended March 31, 2019, the Company ~~had no outstanding non-convertible public debt, the Company determined that senior, unsecured corporate bonds traded on the market represent a similar liability~~recorded total interest expense of $1.0 million related to the Convertible Senior Notes, ~~without~~of which $0.5 million related to the ~~conversion option. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in~~amortization of the ~~same industry with similar credit ratings~~debt discount and ~~with similar maturity,~~issuance costs and $0.5 million related to the coupon due semi-annually. During the three months ended March 31, 2018, the Company ~~estimated the implied~~recorded total interest ~~rate~~expense of its Convertible Senior Notes to be 6.9%, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, which were defined as Level 2 observable inputs. The estimated implied interest rate was applied$2.6 million related to the Convertible Senior Notes of which ~~resulted in a fair value~~$1.3 million related to the amortization of the liability component of $141.9 million upon issuance, calculated as the present value of implied future payments based on the $172.5 million aggregate principal amount. The $30.7 million difference between the cash proceeds of $172.5 million and the estimated fair value of the liability component was recorded in additional paid-in capital, net of taxdebt discount and issuance costs asand $1.3 million related to the ~~Convertible Senior Notes were not considered redeemable.~~

During the nine months ended September 30, 2016, the Company repurchased and retired $5.2 million in principal amount of the outstanding Convertible Senior Notes. The aggregate cash used for the transaction was $4.5 million. The repurchase resulted in a reduction in debt of $4.4 million and a reduction in additional paid-in capital of $0.5 million with a gain on extinguishment of Convertible Senior Notes of $0.4 million included in interest expense, net in the Consolidated Statements of Operations. The Company made no repurchases in principal amount of the outstanding Convertible Senior Notes during the nine months ended September 30, 2017.coupon due semi-annually.

The following table summarizes information about the equity and liability components of the Convertible Senior Notes (dollars in thousands). The fair values of the respective notes outstanding were measured based on quoted market ~~prices.~~price and is a Level 2 measurement.


	September 30, 2017			December 31, 2016			March 31, 2019			December 31, 2018
Principal amount of Convertible Senior Notes outstanding	$	167,314		$	167,314
Principal amount outstanding							$	58,503		$	58,503
Unamortized discount of liability component	(16,587		)	(20,221		)	(3,195		)	(3,637		)
Unamortized debt issuance costs	(2,258		)	(2,753		)	(428		)	(487		)
Net carrying amount of liability component	148,469			144,340			54,880			54,379
Less: current portion	—			—			(54,880		)	(54,379		)
Long-term debt	$	148,469		$	144,340		$	—		$	—
Carrying value of equity component, net of issuance costs	$	29,211		$	29,211		$	10,092		$	10,092
Fair value of outstanding Convertible Senior Notes	$	253,765		$	165,223		$	119,767		$	85,999
Remaining amortization period of discount on the liability component	3.3 years			4.0 years			1.8 years			2.0 years

As a policy election under applicable guidance related to the calculation of diluted net EPS, the Company elected the combination settlement method as its stated settlement policy and applied the treasury stock method in the calculation of dilutive impact of the Convertible Senior Notes. The Convertible Senior Notes were not convertible as of September 30, 2017 and 2016; therefore there was no dilutive impact during the three and nine months ended September 30, 2017 and 2016. If the Convertible Senior Notes were converted as of September 30, 2017, the if-converted value would not exceed the principal amount.

~~Senior~~ Credit Agreement

On ~~October 6, 2017,~~August 31, 2018, the Company entered into aan Amended and Restated Credit Agreement (the “Credit Agreement”), which ~~provided~~provides the Company with a ~~$245.0~~$175.0 million ~~senior secured term loan facility (the “Term Loan”) and a $25.0 million revolving credit facility (the “Revolving~~Revolving Credit ~~Facility”), together (the “Senior Credit Facility”).~~Facility. The ~~Term Loan and~~balance outstanding under the Revolving Credit Facility ~~will mature~~as of March 31, 2019 was $33.2 million and is due upon maturity on ~~October 6, 2022. On the closing date of the Credit Agreement, the Company borrowed the entire~~

amount of the Term Loan and $10.0 million under the Revolving Credit Facility. The Company used the proceeds of the Term Loan along with its cash on hand, to pay (i) the consideration for the cardiovascular and toxicology Triage® MeterPro business (“Triage Business”) and (ii) the fees and expenses incurred in connection with the acquisition of the Triage Business and the Triage® BNP Test for the Beckman Coulter Access Family of Immunoassay Systems (the “BNP Business”). See Note 12 for further discussion of the acquisition of the Triage Business and BNP Business.August 31, 2023.

The Credit Agreement includes an accordion feature that allows the facility to be increased by $50.0 million upon the satisfaction of certain conditions. The Financing is guaranteed by certain material domestic subsidiaries of the Company (the “Guarantors”) and is secured by liensmatures on substantially all of the assets of the Company and the Guarantors, excluding real property and certain other types of excluded assets. If the Company does not consummate a sale leaseback transaction with respect to the Summers Ridge property acquired as part of the Triage Business within 180 days of the closing of the Credit Agreement, the Company will also be required to grant the Lenders a mortgage on the real property associated with the Summers Ridge property.

August 31, 2023. Loans ~~under the Credit Agreement~~ will bear interest at a rate equal to (i) the London Interbank Offered Rate (“LIBOR”) plus the “applicable rate” or (ii) the “base rate” (defined as the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus one-half of one percent and (c) LIBOR plus one percent) plus the “applicable rate.” The initial applicable rate ~~will be 2.50%~~was 1.00% per annum for base rate loans and ~~3.50%~~2.00% per annum for LIBOR rate loans, and thereafter will be determined in accordance with a pricing grid based on the Company’s Consolidated Leverage Ratio (as defined in the Credit Agreement) ranging from ~~2.50%~~1.75% to ~~3.50%~~2.50% per annum for LIBOR rate loans and from ~~1.50%~~0.75% to ~~2.50%~~1.50% per annum for

base rate loans. In addition, the Company ~~will pay~~pays a commitment fee on the unused portion of the Credit Agreement based on the Company’s Consolidated Leverage Ratio ranging from ~~0.10%~~0.15% to ~~0.50%~~0.30% per annum.

The ~~Term Loan~~Credit Agreement is ~~subject to quarterly amortization of the principal amount on the last business day of each fiscal quarter~~guaranteed by certain material domestic subsidiaries of the Company ~~(commencing~~(the “Guarantors”) and is secured by liens on ~~March 30, 2018) in such amounts as are set forth in~~substantially all of the ~~Credit Agreement. The Term Loan~~assets of the Company and the Revolving Credit Facility will mature on October 6, 2022, provided that if any of the Company’s 3.25% Convertible Senior Notes due 2020 (the “Convertible Senior Notes”) remain outstanding on the date that is 91 days prior to the maturity date of the Convertible Senior NotesGuarantors, excluding real property and the Company has not satisfied certain Refinancing Conditions (as defined in the Credit Agreement), then the maturity date for the Term Loan and the Revolving Credit Facility will be the date that is 91 days prior to the maturity date of the Convertible Senior Notes.

The Company must prepay loans outstanding under the Credit Agreement in an amount equal to 50% of Excess Cash Flow (as defined in the Credit Agreement) for each fiscal year (commencing with fiscal 2018) less any amount voluntarily prepaid during such fiscal year, but only if the Consolidated Senior Secured Leverage Ratio (as defined in the Credit Agreement) as of the last day of such fiscal year is greater than or equal to 1.25 to 1.00. The Company must also prepay loans outstanding under the Credit Agreement in an amount equal to 100% of the Net Cash Proceeds (as defined in the Credit Agreement) from (i) certain property dispositions and (ii) the receipt of certain other ~~amounts not in the ordinary course~~types of ~~business, in each case, if not reinvested within a specified time period as contemplated in the Credit Agreement,~~excluded assets, and with a carve out of up to 30% of the Net Cash Proceeds of the contemplated sale leaseback transaction relating to the Company’s Summers Ridge property to the extent the excluded amounts are used for specified purposes.

~~The Credit Agreement~~ contains affirmative and negative covenants that are customary for credit agreements of this nature. The negative covenants include, among other things, limitations on asset sales, mergers, indebtedness, liens, dividends and other distributions, investments and transactions with affiliates. The Credit Agreement contains two financial covenants: (i) a maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) as of the last day of each fiscal quarter ~~for the most recently completed four fiscal quarters~~ of ~~(a) 5.00 to 1.00 for the fiscal quarter ending December 31, 2017, (b) 4.25 to 1.00 for the fiscal quarters ending March 31, 2018 through December 31, 2018 and (c)~~ 3.50 to 1.00, ~~for the fiscal quarter ending March 31, 2019 and each fiscal quarter thereafter;~~which ratio may be increased to 4.50 to 1.00 in case of certain qualifying acquisitions; and (ii) a minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of 1.25 to 1.00 as of the end of any fiscal quarter for the most recently completed four fiscal quarters. The Company was in compliance with all financial covenants as of March 31, 2019.

Interest expense recognized under the Credit Agreement for the three months ended March 31, 2019 and 2018 totaled $0.5 million and $2.1 million, respectively, for the stated interest and commitment fee. Amortization of debt issuance costs associated with the Credit Agreement was $0.1 million and $0.3 million, respectively for the three months ended March 31, 2019 and 2018 and was recorded to interest expense in the Company’s Consolidated Statements of Income.

Note 7.6. Stockholders’ Equity

Issuances ~~and Repurchases~~ of Common Stock

~~The~~A summary of the status of stock option activity for the three months ended March 31, 2019 is as follows (in thousands, except price data):



	Number of Shares		Weighted- average exercise price per share
Outstanding at December 31, 2018	1,877		$	21.53
Granted	168		59.18
Exercised	(355	)	17.77
Cancelled	(2	)	37.37
Outstanding at March 31, 2019	1,688		$	26.06

A summary of the status of restricted stock unit activity for the three months ended March 31, 2019 is as follows (in thousands, except price data):



	Shares		Weighted-average grant date fair value
Non-vested at December 31, 2018	676		$	30.75
Granted	220		59.45
Vested	(68	)	21.45
Forfeited	(2	)	42.51
Non-vested at March 31, 2019	826		$	39.11

During the three months ended March 31, 2019, the Company issued ~~99,669 shares of common stock in conjunction with the vesting and release of RSUs, 954,527 shares of common stock upon the exercise of stock options and 58,099~~21,600 shares of common stock in connection with the Company’s employee stock purchase plan (the “ESPP”), resulting in net proceeds to the Company of approximately $15.2 million during the nine months ended September 30, 2017. The Company repurchased no shares of common stock under its previously announced share repurchase program during nine months ended September 30, 2017. The Company withheld.

25,079 shares of outstanding common stock in connection with payment of minimum tax withholding obligations for certain employees relating to the lapse of restrictions on certain RSUs of approximately $0.5 million during the nine months ended September 30, 2017. The Company repurchased 1,152,386 shares of common stock under its previously announced share repurchase program for approximately $19.6 million during the nine months ended September 30, 2016. The Company withheld 25,699 shares of outstanding common stock in connection with payment of minimum tax withholding obligations for certain employees relating to the lapse of restrictions on certain RSUs of approximately $0.4 million during the nine months ended September 30, 2016. As of September 30, 2017, there was $35.0 million available under the Company’s share repurchase program.

Stock-Based Compensation

The ~~compensation~~ expense related to the Company’s stock-based compensation plans included in the accompanying Consolidated Statements of ~~Operations~~Income was as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2017 2016 2017 2016
Cost of sales $ 117
$ 129
$ 354
$ 498
Research and development 396
365
1,212
1,006
Sales and marketing 434
376
1,341
645
General and administrative 932
864
3,031
3,671
Total stock-based compensation expense $ 1,879
$ 1,734
$ 5,938
$ 5,820



	Three months ended March 31,
	Three months ended March 31,
	2019		2018
Cost of sales	$	280	$	231
Research and development	565		592
Sales and marketing	1,119		796
General and administrative	1,624		1,317
Total stock-based compensation expense	$	3,588	$	2,936

Total compensation expense recognized for the three and nine months ended September 30, 2017 includes $1.0 million and $3.1 million related to stock options and $0.9 million and $2.8 million related to RSUs. Total compensation expense recognized for the three and nine months ended September 30, 2016 includes $1.1 million and $3.5 million related to stock options and $0.6 million and $2.3 million related to RSUs. As of ~~September 30, 2017,~~March 31, 2019, total unrecognized compensation expense ~~related to non-vested stock options~~ was $5.3 million, which is expected to be recognized over a weighted-average period of approximately 2.1 years. As of September 30, 2017, total unrecognized compensation expense related to non-vested restricted stock was $6.1$30.3 million, which is expected to be recognized over a weighted-average period of approximately 2.4 years. ~~Compensation expense capitalized to inventory and compensation expense related to the Company’s ESPP were not material for the three and nine months ended September 30, 2017 or 2016.~~

The estimated fair value of each stock option was determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for the option grants.

Nine months ended September 30,

2017 2016
Risk-free interest rate 2.31 % 1.47 %
Expected option life (in years) 6.63
6.59
Volatility rate 36 % 36 %
Dividend rate — % — %



	Three months ended March 31,
	2019			2018
Risk-free interest rate	2.51		%	2.49		%
Expected option life (in years)	5.68			6.29
Volatility rate	39		%	36		%
Dividend rate	—		%	—		%
Weighted-average grant date fair value	$	23.67		$	18.76

The weighted-average fair value of stock options granted during the nine months ended September 30, 2017 and 2016 was $8.71 and $5.97, respectively. The Company granted 253,844 and 670,733 stock options during the nine months ended September 30, 2017 and 2016, respectively. The fair value of RSUs is determined based on the closing market price of the Company’s common stock on the grant date. The weighted-average fair value of RSUs granted during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 was ~~$21.61~~$59.45 and ~~$16.06,~~$46.48, respectively. ~~The Company granted 335,716~~

Compensation expense capitalized to inventory and ~~182,425 shares of restricted stock during~~compensation expense related to the ~~nine~~Company’s ESPP were not material for the three months ended ~~September 30, 2017 and 2016, respectively.~~March 31, 2019 or 2018.

Note 8.7. Industry and Geographic Information

The Company operates in one reportable segment. Sales to customers outside the U.S. represented ~~$21.6~~$41.5 million ~~(13%~~(28%) and ~~$23.1~~$41.9 million ~~(17%~~(25%) of total revenue for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016,~~2018, respectively. As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016, balances~~2018, accounts receivable due from foreign customers were ~~$4.7~~$23.1 million and ~~$6.8~~$23.4 million, respectively.

The Company had sales to individual customers in excess of 10% of total revenues, as follows:

Nine months ended September 30,

2017 2016
Customer:
A 21 % 16 %
B 21 % 14 %
C 13 % 13 %
55 % 43 %



	Three months ended March 31,
	2019		2018
Customer:
A	17	%	16	%
B	17	%	20	%
C	13	%	13	%
	47	%	49	%

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled ~~$34.2~~$37.6 million and ~~$13.9~~$33.3 million, respectively.

Consolidated net revenues by product category for the three months ended March 31, 2019 and 2018 are as follows (in thousands):



	Three months ended March 31,
	2019		2018
Rapid Immunoassay	$	62,494	$	80,685
Cardiac Immunoassay	65,872		68,444
Specialized Diagnostic Solutions	13,854		14,871
Molecular Diagnostic Solutions	5,748		5,143
Total revenues	$	147,968	$	169,143

Note 9.8. Commitments and Contingencies

~~Legal~~Leases

We lease administrative, research and development, sales and marketing and manufacturing facilities and certain equipment under various non-cancelable lease agreements. Facility leases generally provide for periodic rent increases, and may contain clauses for rent escalation, renewal options or early termination.

The components of lease expense and supplemental cash flow information related to leases were as follows (in thousands):



	Three months ended
	March 31, 2019
Finance lease ROU asset amortization	$	63
Finance lease interest expense	209
Total finance lease costs	272
Operating lease costs	2,505
Total lease costs	$	2,777

Cash paid for amounts included in the measurement of operating lease liabilities
Operating cash flows from operating leases	$	2,280
Operating cash flows from finance leases	$	209
Right-of-use assets obtained in exchange for new lease liabilities
Operating leases	$	328
Finance leases	$	1,326

Commitments for minimum rentals under non-cancelable leases as of March 31, 2019 are as follows (dollars in thousands):



Years ending December 31,	Operating			Finance
2019	$	6,918		$	989
2020	9,340			1,262
2021	9,576			1,270
2022	8,568			1,281
2023	8,184			1,291
Thereafter	76,566			3,129
Total lease payments	119,152			9,222
Less: imputed interest	(29,949		)	(4,076		)
Total	$	89,203		$	5,146
Less: current portion of operating lease liability	(5,385		)	(478		)
Non-current portion of operating lease liability	$	83,818		$	4,668

Weighted average remaining lease term (in years)	12.7			6.3
Weighted average discount rate	4		%	18		%

Summers Ridge Lease —The Company leases two of the four buildings that are located on the Summers Ridge Property in San Diego, California with an initial term of 15 years beginning January 2018. Such lease includes options to extend the lease for two additional 5-year terms upon satisfaction of certain conditions, which have not been included in the determination of the lease term. The lease is subject to certain must-take provisions related to the remaining two additional buildings that may create significant rights and obligations. The lease for one such building is expected to commence in the fourth quarter of 2019 and has minimum lease payments of $18.4 million during its lease term. The lease for the remaining building is subject to the expiration of the lease with the current tenant of such building, for which the date is not yet known.

McKellar Court Lease — In 1999, the Company completed a sale and leaseback transaction of its San Diego facility at McKellar Court to a partnership for which the Company is a 25% limited partner. The partnership is deemed to be a variable interest entity (VIE). The Company is not, however, the primary beneficiary of the VIE as it does not absorb the majority of the partnership’s expected losses or receive a majority of the partnership’s residual returns. The McKellar Court lease ends in December 2020 and contains options to extend the lease for three additional five-year periods, of which one five-year period is included in the determination of the lease term.

Litigation and Other Legal Proceedings

In Beckman Coulter Inc. v. Quidel Corporation, which was filed in the Superior Court for the County of San Diego, California, on November 27, 2017, Beckman Coulter (“Beckman”) alleges that a provision of an agreement between Quidel and Beckman violates state antitrust laws. Our acquisition of the B-type Naturietic Peptide assay business (“BNP Business”) consisted of assets and liabilities relating to a contractual arrangement with Beckman (the “Beckman Agreement”) for the supply of antibodies and other inputs related to, and distribution of, the Triage® BNP Test for the Beckman Coulter Access Family of Immunoassay Systems. The Beckman Agreement further provides that Beckman, for a specified period, cannot research, develop, manufacture or sell an assay for use in the diagnosis of cardiac diseases that measures or detects the presence or absence of BNP or NT-pro-BNP (a related biomarker) (the “Exclusivity Provision”). In the lawsuit, Beckman asserts that this provision violates certain state antitrust laws and is unenforceable. Beckman contends that it has suffered damages due to this provision and seeks a declaration that this provision is void.

On December 7, 2018, the trial court granted a motion by Beckman for summary adjudication, holding that the Exclusivity Provision is void under California law (the “December 7 Order”). On December 18, 2018, the trial court stayed the effect of the December 7 Order pending a decision on a writ petition Quidel intended to file with the Court of Appeal. Quidel filed its writ petition on January 18, 2019, asking the Court of Appeal to review and reverse the December 7 Order. On February 7, 2019, the trial court stayed all the remaining litigation pending the outcome of the writ petition and vacated all deadlines in the case.

On March 14, 2019, the Court of Appeal issued an order to show cause why the relief sought in Quidel’s petition should not be granted. The Court also stayed the December 7 Order pending a further order from the Court of Appeal. Oral argument has not been scheduled in the matter but is anticipated to take place in the summer of 2019. The Court of Appeal will likely

issue a written decision on the writ petition within 90 days of oral argument.

Quidel denies that the Exclusivity Provision is unlawful, denies any liability with respect to this matter, and intends to vigorously defend itself. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from this matter including: (1) we are vigorously defending ourselves and believe that we have a number of meritorious legal defenses; (2) there are unresolved questions of law and fact that could be important to the ultimate resolution of this matter, some of which are before the Court of Appeal on Quidel’s writ petition; and (3) discovery is ongoing. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.

From time to time, the Company is involved in ~~various~~other litigation and proceedings, including matters related to product liability claims, commercial disputes and ~~litigation~~intellectual property claims, as well as regulatory, employment, and other claims related to our business. The Company accrues for legal claims when, and to the extent that, amounts associated with the claims become probable and are reasonably estimable. The actual costs of resolving legal claims may be substantially higher or lower than the amounts accrued for those claims. For those matters ~~from time~~as to ~~time in~~which we are not able to estimate a possible loss or range of loss, we are not able to determine whether the ~~ordinary course~~loss will have a material adverse effect on our business, financial condition or results of ~~business.~~ operations or liquidity. No accrual has been recorded as of March 31, 2019 and December 31, 2018 related to such matters as they are not probable and/or reasonably estimable.

Management believes that all such current legal actions, in the aggregate, will not have a material adverse effect on the Company. However, the resolution of, or increase in any accruals for, one or more matters may have a material adverse effect on the Company’s results of operations and cash flows.

The Company also maintains insurance, including coverage for product liability claims, in amounts ~~which~~that management believes are appropriate given the nature of its business. ~~No accruals have been recorded as of September 30, 2017 or as of December 31, 2016 related to such matters as they are not probable and/or reasonably estimable.~~

~~Licensing Arrangements~~

The Company has entered into various licensing and royalty agreements, which largely require payments by the Company based on specified product sales as well as the achievement of specified milestones. The Company had royalty and license expenses relating to those agreements of approximately $0.2 million and $0.1 million for the three months ended September 30, 2017 and 2016, respectively. The Company had royalty and license expenses relating to those agreements of approximately $0.5 million and $0.6 million for the nine months ended September 30, 2017 and 2016, respectively.

~~Research and Development Agreements~~

The Company has entered into various research and development agreements that provide it with rights to develop, manufacture and market products using the intellectual property and technology of its collaborative partners. Under the terms of certain of these agreements, the Company is required to make periodic payments based on achievement of certain milestones or resource expenditures. These milestones generally include achievement of prototype assays, validation lots and clinical trials. As of September 30, 2017 and December 31, 2016, total future commitments under the terms of these agreements are estimated at $0.4 million and $2.3 million, respectively. The commitments will fluctuate as the Company agrees to new phases of development under the existing arrangements.

Note ~~10.~~9. Fair Value Measurements

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of the following periods (in thousands):


	September 30, 2017								December 31, 2016								March 31, 2019								December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	—	$	—	$	—	$	—	$	133,540	$	—	$	—	$	133,540
Derivative assets																	$	—	$	361	$	—	$	361	$	—	$	—	$	—	$	—
Total assets measured at fair value	$	—	$	—	$	—	$	—	$	133,540	$	—	$	—	$	133,540	$	—	$	361	$	—	$	361	$	—	$	—	$	—	$	—
Liabilities:
Contingent consideration	—		—		4,680		4,680		—		—		5,175		5,175		$	—	$	—	$	19,100	$	19,100	$	—	$	—	$	19,112	$	19,112
Deferred consideration																	—		189,501		—		189,501		—		187,158		—		187,158
Total liabilities measured at fair value	$	—	$	—	$	4,680	$	4,680	$	—	$	—	$	5,175	$	5,175	$	—	$	189,501	$	19,100	$	208,601	$	—	$	187,158	$	19,112	$	206,270

There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 categories of the fair value hierarchy during the ~~three and nine month~~three-month periods ended ~~September 30, 2017~~March 31, 2019 and the year ended December 31, ~~2016.~~2018.

~~The~~Derivative financial instruments are based on observable inputs that are corroborated by market data. Observable inputs include broker quotes and daily market foreign currency rates and forward pricing curves.

In connection with the acquisition of the BNP Business, the Company ~~used Level 1 inputs~~pays annual installments of $40.0 million each in deferred consideration and up to ~~determine the~~$8.0 million each in contingent consideration through April 2023. The fair value of ~~its cash equivalents, which primarily consist of funds held in government money market accounts and commercial paper. As such,~~ the ~~carrying~~deferred consideration is calculated based on the net present value of cash equivalents approximates fair value. During the third quarter of 2017, the Company converted all cash equivalents to cash, and therefore, had no cash equivalents as of September 30, 2017. As of December 31, 2016, the carrying value of cash equivalents was $133.5 million.

In conjunction with the acquisitions of BioHelix Corporation in May 2013, AnDiaTec GmbH & Co. KG in August 2013 and Immutopics, Inc. in March 2016, the Company has recorded contingent consideration of $4.7 million as of September 30, 2017 and $5.2 million as of December 31, 2016.payments using an estimated borrowing rate based on a quoted price for a similar liability. The Company ~~assesses~~recorded $2.3 million for the accretion of interest on the deferred consideration during the three months ended March 31, 2019. The fair value of contingent consideration ~~to be settled in cash related to acquisitions~~is calculated using a discounted ~~revenue~~probability weighted valuation model. Significant assumptions used in the measurement include revenue projections and discount ~~rates. This fair value measurement of contingent consideration is based on significant inputs~~rates that are not observed in the market and thus represent Level 3 measurements.

Changes in estimated fair value of contingent consideration liabilities from December 31, ~~2016~~2018 through ~~September 30, 2017~~March 31, 2019 are as follows (in thousands):

Contingent consideration liabilities
(Level 3 measurement)
Balance at December 31, 2016 $ 5,175
Cash payments (498 )
Unrealized loss on foreign currency translation 3
Balance at September 30, 2017 $ 4,680



	Contingent consideration liabilities (Level 3 measurement)
Balance at December 31, 2018	$	19,112
Cash payments	(12		)
Balance at March 31, 2019	$	19,100

Note ~~11. Acquisition~~10. Derivatives and Hedging

~~On May 16, 2017~~In the normal course of business, the Company ~~acquired~~is exposed to gains and losses resulting from fluctuations in foreign currency exchange rates. As part of its strategy to manage the ~~InflammaDry®~~level of exposure to the risk of fluctuations in foreign currency exchange rates, the Company uses designated cash flow hedges in the form of foreign currency forward contracts to mitigate the impact of foreign currency translation on transactions that are denominated primarily in the Euro. All hedging relationships for all derivative hedges and ~~AdenoPlus® diagnostic businesses~~the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions are formally documented. The Company does not use any derivative financial instruments for trading or other speculative purposes.

Such forward foreign currency contracts are carried at fair value in other current assets or other current liabilities depending on the realized and unrealized gain or loss position of the hedged contract as of the balance sheet date. Changes in the value of the derivatives are recorded to other comprehensive income (loss) until the underlying hedged item is recognized in earnings, or the derivative no longer qualifies as a highly effective hedge. The cash flows from ~~RPS Diagnostics (“RPS”), a developer~~derivatives treated as hedges are classified in the Consolidated Statements of Cash Flows in the same category as the item being hedged.

The notional principal amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and ~~manufacturer~~do not represent the amount of ~~rapid, point-of-care (“POC”) diagnostic tests~~our exposure to credit or market loss. Credit risk represents our gross exposure to potential accounting loss on derivative instruments that are outstanding or unsettled if all counterparties failed to perform according to the terms of the contract, based on then-current currency exchange rates at each respective date. We generally enter into master netting arrangements, which reduces credit risk by permitting net settlement of transactions with the same counterparty. We present our derivative assets and derivative liabilities at their net fair values. We did not have any derivative instruments with credit-risk related contingent features that would require us to post collateral.

The following table summarizes the fair value and notional amounts of the foreign currency forward contracts as of March 31, 2019 (in thousands):



	March 31, 2019
	Notional Amount		Fair Value, Net
Prepaid expenses and other current assets	$	14,121	$	361

Total gain recognized in other comprehensive income for the ~~eye health and primary care markets, for approximately $13.7~~three months ended March 31, 2019 was $0.3 million, in cash. The purchase price has been preliminarily allocated as follows: $6.1 million to purchased technology and $7.6 million to goodwill. The acquisition has been accounted for in conformity with ASC Topic 805, ~~Business Combinations. The InflammaDry and AdenoPlus products are rapid, lateral-flow based, POC products~~net of tax. There were no reclassifications from other comprehensive income into total revenues for the detection of infectious and inflammatory diseases and conditions of the eye. Revenues for these products are reflected in the Company’s Immunoassay revenue category. The purchase price allocation related to this acquisition is preliminary as the Company obtains additional information related to working capital items.three months ended March 31, 2019.

~~Note 12. Subsequent Events~~

~~Acquisition of Triage and BNP Businesses~~

On October 6, 2017, the Company acquired the Triage Business and BNP Business from Alere Inc. In connection with the acquisition of the Triage Business, the Company paid $400.0 million in cash (subject to certain inventory related adjustments set forth in the Amended and Restated Triage Purchase Agreement) and assumed certain liabilities. These acquisitions significantly enhance the Company's revenue profile and expands the Company's geographic and product diversity. The Company used proceeds from the Term Loan of $245.0 million and cash on hand to pay (i) the consideration for the Triage Business and (ii) fees and expenses incurred in connection with the acquisition of the Triage Business and BNP Business. In connection with the acquisition of the BNP Business, the Company will: (i) pay (subject to certain inventory related adjustments set forth in the Amended and Restated BNP Purchase Agreement) (A) up to $40.0 million in cash, payable in five annual installments of $8.0 million, the first of which will be paid on April 30, 2018, and (B) $240.0 million in cash, payable in six annual installments of $40.0 million each, the first of which will be paid on April 30, 2018; and (ii) assume certain liabilities. See Note 6 for further discussion of the Senior Credit Agreement entered into on October 6, 2017.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Quarterly Report, all references to “we,” “our” and “us” refer to Quidel Corporation and its subsidiaries.

Future Uncertainties and Forward-Looking Statements

This Quarterly Report on Form 10-Q 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, the risks set forth in Part II, Item 1A of this Form 10-Q; our reliance on development of new technologies, 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,limitation: 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, 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, 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, acquisition and protection of proprietary technology rights; our development of new technologies, products and markets; our reliance on a limited number of key distributors; our ~~reliance on sales of our influenza diagnostics tests; our ability~~exposure to ~~manage our growth strategy,~~claims and litigation that could result in significant expenses and could ultimately result in an unfavorable outcome for us, including ~~our ability to effect strategic acquisitions~~the ongoing litigation between us and ~~to integrate companies or technologies we have acquired or may acquire including our ability to achieve anticipated synergies and process improvements;~~Beckman Coulter, Inc.; intellectual property risks, including but not limited to, infringement litigation; our inability to settle conversions of our Convertible Senior Notes in cash; the effect on our operating results from the trigger of the conditional conversion feature of our Convertible Senior Notes; 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; our ability to generate cash, including to service our debt; 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~~failures or delays in receipt of 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;~~clearances or other adverse actions by regulatory authorities; changes in government policies; costs of and adverse operational impact from failure to comply with government regulations in addition to FDA regulations; compliance with ~~other~~ government regulations ~~such as safe working conditions, manufacturing practices, environmental protection, fire hazard~~relating to the handling, storage and disposal of hazardous substances; third-party reimbursement ~~policies;~~policies and potential cost constraints; 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~~insurance; costs and disruptions from failures in our information technology and storage systems; our exposure to ~~other litigation claims; interruption to our computer systems;~~data corruption, cyber-based attacks, security breaches and privacy violations; competition for and loss of management and key personnel; international risks, including but not limited to, compliance with product registration requirements, compliance with legal requirements, tariffs, 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, social, political and economic instability, increased financial accounting and reporting burdens and complexities, 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 our acquisition and integration of the Triage MeterPro Cardiovascular and toxicology business and B-type Naturietic Peptide assay business (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 and deferred payment obligations; our ability to generate sufficient cash to meet our debt service and deferred contingent payment obligations and our ability to repay, renew or extend, our outstanding debt and its impact on our operations and our ability to obtain financing; that our Senior Credit Facility is secured by substantially all of our assets; the agreements for our indebtedness place operating and financial restrictions on us and our ability to operate our business; that an event of default could trigger acceleration of our outstanding indebtedness; 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.~~dividends; and our ability to identify and successfully acquire and integrate potential acquisition targets. 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. Forward-looking statements in this Quarterly Report include, among others, statements concerning: our outlook for the remainder of 2019 regarding our strategy, revenue growth, gross margins and earnings, including the sources of expected growth; that we expect to continue to make substantial expenditures for research and development activities; projected capital expenditures for the remainder of ~~the 2017 fiscal year~~2019 and our source of funds for such expenditures; the sufficiency of our liquidity and capital resources; our strategy, goals, initiatives and objectives; ~~anticipated new product~~our exposure to, and ~~development results; future commitments under existing research development~~defenses against, claims and litigation; the sufficiency of our liquidity and our short-term needs

for capital; our use of foreign currency hedging agreements; the impact and timing of expected adoption of new accounting standards; that we will continue to make substantial expenditures for sales and marketing, manufacturing and research and development activities; that we may ~~enter into~~incur additional ~~foreign currency exchange risk sharing arrangements; our exposure to claims and litigation;~~debt or issue additional equity; and our intention to continue to evaluate ~~new~~technology, product lines ~~technology~~ and acquisition opportunities. The risks described under “Risk Factors” in Item 1A of ~~this Quarterly Report on Form 10-Q and~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, and elsewhere herein and 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 Quarterly Report.

~~The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto beginning on page 3 of this Quarterly Report.~~ 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.

The following should be read in conjunction with the Consolidated Financial Statements and Notes thereto beginning on page 3 of this Quarterly Report.

Overview

We have a leadership position in the development, manufacturing and marketing of rapid diagnostic testing solutions. These diagnostic testing solutions are separated into our four product ~~categories, including: immunoassays,~~categories: rapid immunoassay, cardiac immunoassay, specialized diagnostic solutions and molecular ~~assays, virology and specialty products.~~diagnostic solutions. We sell our products directly to end users and distributors, in each case, for professional use in physician offices, hospitals, clinical laboratories, reference laboratories, urgent care clinics, leading universities, retail clinics, pharmacies and wellness screening centers. We market our products ~~in the U.S.~~ through a network of ~~national~~distributors and ~~regional distributors and~~through a direct sales force. ~~Internationally, we sell primarily through distributor arrangements.~~

~~Recent Developments~~

On October 6, 2017, the Company acquired the cardiovascular and toxicology Triage® MeterPro business (“Triage Business”) and Beckman Coulter Access Family of Immunoassay Systems (the “BNP Business”) from Alere Inc. In connection with the acquisition of the Triage Business, the Company paid $400.0 million (subject to certain inventory related adjustments set forth in the Amended and Restated Triage Purchase Agreement) in cash and assumed certain liabilities. The Company ~~used proceeds from its new Term Loan of $245.0 million~~operates in one business segment that develops, manufactures and cash on hand to pay (i) the consideration for the Triage Business and (ii) fees and expenses incurred in connection with the acquisition of the Triage Business and the BNP Business. In connection with the acquisition of the BNP Business, the Company will: (i) pay (subject to certain inventory related adjustments set forth in the Amended and Restated BNP Purchase Agreement) (A) up to $40.0 million in cash, payable in five annual installments of $8.0 million, the first of which will be paid on April 30, 2018, and (B) $240.0 million in cash, payable in six annual installments of $40.0 million each, the first of which will be paid on April 30, 2018; and (ii) assume certain liabilities. See Note 12 of the Notes to the Consolidated Financial Statements for additional information.

Also on October 6, 2017 the Company entered into a Credit Agreement (the “Credit Agreement”), which provided the Company with a $245.0 million senior secured term loan facility (the “Term Loan”) and a $25.0 million revolving credit facility (the “Revolving Credit Facility”), together (the “Senior Credit Facility”). On the closing date of the Credit Agreement, the Company borrowed the entire amount of the Term Loan and $10.0 million under the Revolving Credit Facility. The Company used the proceeds of the Term Loan along with its cash on hand, to pay the consideration for Triage Business. See Note 6 of the Notes to the Consolidated Financial Statements for additional information.markets our four product categories.

Outlook

We ~~continue~~anticipate revenue to ~~realize expansion~~grow during the remainder of 2019 and a related positive impact on gross margin and earnings. This growth is expected to be driven primarily by sales of our ~~footprint for~~Cardiac Immunoassays, Sofia Immunoassays and molecular products. In addition, we expect continued and significant investment in research and development activities as we develop our next generation immunoassay and molecular platforms. ~~For the remainder of 2017, we~~We will continue our focus on ~~integrating the Triage and BNP Businesses and continue to focus on~~prudently managing our business and delivering ~~long-term sustainable growth through~~solid financial results, while at the ~~creation of a broader-based diagnostic company serving our existing customers as well as targeting larger and faster growing markets. We will~~same time striving to continue to ~~invest in~~introduce new products to the market and maintaining our emphasis on research and development ~~focused on expansion of our immunoassay and molecular programs. In addition,~~investments for longer term growth. Finally, we ~~continue to invest in our commercial organization and related marketing programs, in support of recent product launches. We~~ will ~~also~~ continue to evaluate opportunities to acquire new product lines, technologies and ~~companies that would enable us to expand more quickly.~~companies.

Three months ended ~~September 30, 2017~~March 31, 2019 compared to the three months ended ~~September 30, 2016~~March 31, 2018

Total Revenues

The following table compares total revenues for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (in thousands, except percentages):

For the three months ended
September 30, Increase (Decrease)
2017 2016 $ %
Immunoassays $ 36,458
$ 30,573
$ 5,885
19 %
Molecular 2,781
2,469
312
13 %
Virology 8,830
9,354
(524 ) (6 )%
Specialty products 2,557
2,721
(164 ) (6 )%
Royalties, grants and other 268
4,224
(3,956 ) (94 )%
Total revenues $ 50,894
$ 49,341
$ 1,553
3 %



	Three months ended March 31,				Increase (Decrease)
	2019		2018		$			%
Rapid Immunoassay	$	62,494	$	80,685	$	(18,191	)	(23	)%
Cardiac Immunoassay	65,872		68,444		(2,572		)	(4	)%
Specialized Diagnostic Solutions	13,854		14,871		(1,017		)	(7	)%
Molecular Diagnostic Solutions	5,748		5,143		605			12	%
Total revenues	$	147,968	$	169,143	$	(21,175	)	(13	)%

For the three months ended ~~September 30, 2017,~~March 31, 2019, total revenue ~~increased~~decreased to ~~$50.9~~$148.0 million from ~~$49.3~~$169.1 million in the prior period. The ~~Company realized increases~~decrease in ~~immunoassay~~total revenues was primarily driven by lower Rapid Immunoassay sales as compared with the robust respiratory season in the prior year. The Cardiac business declined slightly from the prior year due to ~~growth~~the currency impact of a strengthening US dollar, less favorable geographic mix and lower selling prices as we transition portions of the global business to distribution. The decrease in ~~Influenza, Strep A and RSV products, as well as the addition of InflammaDry® and AdenoPlus® diagnostic products acquired from RPS. The increase in our molecular revenues~~Specialized Diagnostic Solutions was driven primarily by ~~continued gains on our Solana platform. These increases were partially offset by a decline in grant revenues~~lower sales of ~~approximately $3.8 million as~~respiratory products from the ~~amended Bill and Melinda Gates Foundation grant was fully recognized by the third quarter of 2016.~~Virology segment.

~~Cost of Sales~~Gross Profit

~~Cost of sales was $19.4~~Gross profit decreased to $90.9 million, or ~~38%~~61% of ~~total revenues,~~revenue for the three months ended ~~September 30, 2017~~March 31, 2019, compared to ~~$17.7~~$106.3 million, or ~~36%~~63% of ~~total revenues,~~revenue for the three months ended ~~September 30, 2016.~~March 31, 2018. The ~~increase in cost of sales~~decreased gross profit was driven by ~~higher revenues. In addition, costs increased associated with the integration~~lower Rapid Immunoassay revenue, currency fluctuation, less favorable geographic mix and lower Cardiac Immunoassay selling prices as a result of the ~~InflammaDry and AdenoPlus diagnostic businesses acquired from RPS and higher depreciation expense related~~transition to distribution. This was partially offset by the inventory step-up amortization during the three months ended March 31, 2018, which did not recur during the three months ended March 31, 2019. Gross margin declined compared to the ~~increased number of Sofia and Solana instrument placements. These increases also contributed~~same period in the prior year due to the ~~increased cost of sales as a percentage of total revenues. Additionally, the decrease in grant revenue contributed to the increase in cost of sales as a percentage of total revenues.~~same factors.

Operating Expenses

The following table compares operating expenses for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018 (in thousands, except percentages):


	For the three months ended September 30,													Three months ended March 31,
	2017				2016									2019				2018
	Operating expenses		As a % of total revenues		Operating expenses		As a % of total revenues		Increase (Decrease)					Operating expenses		As a % of total revenues		Operating expenses		As a % of total revenues		Increase (Decrease)
	Operating expenses		As a % of total revenues		Operating expenses		As a % of total revenues		$			%		Operating expenses		As a % of total revenues		Operating expenses		As a % of total revenues		$			%
Research and development	$	7,468	15	%	$	8,801	18	%	$	(1,333	)	(15	)%	$	13,930	9	%	$	12,621	7	%	$	1,309		10	%
Sales and marketing	$	12,898	25	%	$	11,853	24	%	$	1,045		9	%	$	29,589	20	%	$	28,558	17	%	$	1,031		4	%
General and administrative	$	6,580	13	%	$	6,364	13	%	$	216		3	%	$	13,431	9	%	$	10,532	6	%	$	2,899		28	%
Amortization of intangible assets from acquired businesses and technology	$	2,503	5	%	$	2,273	5	%	$	230		10	%
Acquisition and integration costs	$	4,591	9	%	$	197	0	%	$	4,394		2,230	%	$	2,824	2	%	$	3,467	2	%	$	(643	)	(19	)%

Research and Development Expense

Research and development expense for the three months ended ~~September 30, 2017 decreased~~March 31, 2019 increased from ~~$8.8~~$12.6 million to ~~$7.5~~$13.9 million due primarily to ~~a decrease in outside service spending in support of~~increased third-party spend for the Savanna ~~MDx and Sofia platforms.~~molecular diagnostic platform.

Research and development expenses include direct external costs such as fees paid to third-party contractors and consultants, and internal direct and indirect costs such as compensation and other expenses for research and development personnel, supplies and materials, clinical trials and studies, facility costs and depreciation.

Sales and Marketing Expense

Sales and marketing expense for the three months ended ~~September 30, 2017~~March 31, 2019 increased ~~$1.0~~from $28.6 million to ~~$12.9~~$29.6 million ~~due~~ primarily todriven by higher salaries and related costs as we complete the ~~increased personnel~~globalization of our commercial team, product promotion costs and ~~consulting costs associated with the InflammaDry and AdenoPlus diagnostic businesses acquired from RPS during the second quarter of 2017.~~professional service fees, partially offset by lower transition service fees.

General and Administrative Expense

General and administrative expense for the three months ended ~~September 30, 2017~~March 31, 2019 increased from ~~$6.4~~$10.5 million ~~last~~to $13.4 million compared with the prior year period primarily due to ~~$6.6 million this year,~~increased compensation costs due ~~primarily~~ to ~~higher incentive and stock based compensation expense. General and administrative expense primarily includes personnel~~international expansion, facilities costs ~~information technology, facilities~~ and professional service ~~fees.~~

~~Amortization of Intangible Assets from Acquired Businesses and Technology~~

~~Amortization of intangible assets from acquired businesses and technology for~~fees in the ~~three months ended September 30, 2017 increased from $2.3 million to $2.5 million due primarily to additional amortization of purchased technology associated~~

with the InflammaDry and AdenoPlus diagnostic businesses acquired from RPS during the second quarter of 2017. Amortization expense consists of customer relationships, purchased technology and patents and trademarks acquired in connection with our previous and current year acquisitions.period.

Acquisition and Integration Costs

Acquisition and integration costs for the three months ended ~~September 30, 2017 increased~~March 31, 2019 decreased from ~~$0.2~~$3.5 million to $4.6 million compared with the prior year period. This increase is primarily attributable to due diligence and integration costs related to the acquisitions of the Triage and BNP Businesses on October 6, 2017.

~~Interest Expense, net~~

Interest expense primarily relates to accrued interest for the coupon and accretion of the discount on our 3.25% Convertible Senior Notes due 2020 (“Convertible Senior Notes”) issued in December 2014 and interest paid on our lease obligation associated with our San Diego McKellar facility. Interest expense was $2.8 ~~million and $3.0 million for the three months ended September 30, 2017 and 2016, respectively.~~

~~Income Taxes~~

We recognized income tax expense of $0.2 million and an income tax benefit of $0.3 million for the three months ended September 30, 2017 and 2016, respectively. The effective tax rate was lower for the three months ended September 30, 2017 as no tax benefit was provided for losses incurred in United States Federal and certain state jurisdictions because those losses are offset by a full valuation allowance. The Company also has recorded tax expense for foreign jurisdictions and certain state jurisdictions during this time period.

~~Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016~~

~~Total Revenues~~

~~The following table compares total revenues for the nine months ended September 30, 2017 and 2016 (in thousands, except percentages):~~

For the nine months ended
September 30, Increase (Decrease)
2017 2016 $ %
Immunoassays $ 115,974
$ 84,924
$ 31,050
37 %
Molecular 9,148
6,813
2,335
34 %
Virology 28,044
30,055
(2,011 ) (7 )%
Specialty products 8,212
8,387
(175 ) (2 )%
Royalties, grants and other 1,475
8,616
(7,141 ) (83 )%
Total revenues $ 162,853
$ 138,795
$ 24,058
17 %

For the nine months ended September 30, 2017, total revenue increased to $162.9 million from $138.8 million in the prior year. The Company realized increases in immunoassay revenues due primarily to growth in Influenza and Strep A products,

bolstered by a robust cold and flu season. In addition, the immunoassay category increased with the addition of InflammaDry and AdenoPlus diagnostic products acquired from RPS. The increase in our molecular revenues was driven by continued gains on our Solana platform. These increases were partially offset by a decrease in virology product revenues as we continue to see customers moving to the molecular platforms. Royalties, grants and other revenue decreased as Bill and Melinda Gates Foundation grant was fully recognized by the third quarter of 2016.

~~Cost of Sales~~

Cost of sales was $60.7 million, or 37% of total revenues, for the nine months ended September 30, 2017 compared to $54.3 million, or 39% of total revenues, for the nine months ended September 30, 2016. The increase in cost of sales was due to higher revenues and the decrease in cost of sales as a percentage of total revenues was primarily driven by favorable product mix, with higher Influenza and molecular product sales in the same period as compared to the prior year.

~~Operating Expenses~~

~~The following table compares operating expenses for the nine months ended September 30, 2017 and 2016 (in thousands, except percentages):~~

For the nine months ended September 30,
2017 2016
Operating
expenses As a % of
total
revenues Operating
expenses As a % of
total
revenues
Increase (Decrease)
$ %
Research and development 22,970
14 % 31,164
22 % $ (8,194 ) (26 )%
Sales and marketing 38,813
24 % 36,376
26 % $ 2,437
7 %
General and administrative 20,483
13 % 19,964
14 % $ 519
3 %
Amortization of intangible assets from acquired businesses and technology 7,184
4 % 6,782
5 % $ 402
6 %
Acquisition and integration costs 7,022
4 % 568
0 % $ 6,454
1,136 %

~~Research and Development Expense~~

Research and development expense for the nine months ended September 30, 2017 decreased from $31.2 million to $23.0 million due primarily to a decrease in development spending for the Savanna MDx platform and lower spend on clinical trial activities.

Research and development expenses include direct external costs such as fees paid to consultants, and internal direct and indirect costs such as compensation and other expenses for research and development personnel, supplies and materials, clinical trials and studies, facility costs and depreciation.

~~Sales and Marketing Expense~~

~~Sales and marketing expense for the nine months ended September 30, 2017 increased $2.4 million to $38.8~~ million compared with the prior year period, ~~due~~as more of the global operations become fully integrated into the business.

Other Expense, Net

Interest expense, net primarily relates to accretion of interest on the deferred consideration related to the ~~increased personnel~~BNP Business, coupon and ~~consulting~~accretion interest related to our Convertible Senior Notes and interest and amortization of deferred financing costs associated with the ~~InflammaDry and AdenoPlus diagnostic businesses acquired from RPS as well as higher incentive and stock-based compensation.~~

~~General and Administrative Expense~~

~~General and administrative~~Credit Agreement. The decrease in interest expense ~~for the nine months ended September 30, 2017 increased from $20.0~~of $3.3 million ~~to $20.5 million compared with~~over the prior year ~~period,~~quarter was primarily due ~~primarily~~ to ~~higher incentive compensation expense. General~~lower debt balances under the Company’s Credit Agreement and ~~administrative expense primarily includes personnel costs, information technology, facilities and professional service fees.~~Convertible Senior Notes. See further discussion in Note 5 of the Notes to the Consolidated Financial Statements in this Quarterly Report.

~~Amortization of Intangible Assets from Acquired Businesses and Technology~~

~~Amortization of intangible assets from acquired businesses and technology for~~During the ~~nine~~three months ended ~~September 30, 2017 increased from $6.8~~March 31, 2018, the Company recorded loss on extinguishment of debt of $4.6 million to $7.2 million due primarily to additional amortization of purchased technology associated with the InflammaDry and AdenoPlus diagnostic businesses acquired from RPS during the second quarter of 2017. Amortization expense consists of customer relationships, purchased technology and patents and trademarks acquired in ~~connection with our previous and current year acquisitions.~~

~~Acquisition and Integration Costs~~

Acquisition and integration costs for the nine months ended September 30, 2017 increased from $0.6 million last year to $7.0 million this year. This increase is primarily attributable to due diligence and integration costs related to the ~~acquisitions~~$100.0 million early payment on the Company’s previous Term Loan and the extinguishment of ~~the Triage and BNP Businesses on October 6, 2017.~~

~~Interest Expense, net~~

~~Interest expense primarily relates to accrued interest for the coupon and accretion~~$70.2 million in aggregate principal of the ~~discount on our~~ Convertible Senior Notes ~~issued~~ in ~~December 2014 and interest paid on our lease obligation associated with our San Diego McKellar~~

~~facility. Interest expense was $8.4 million and $8.6 million~~exchange for the ~~nine months ended September 30, 2017 and 2016, respectively.~~Company's common stock.

Income Taxes

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016, we recognized~~2018 respectively, the income tax expense ~~of $0.4~~was $1.7 million and ~~an income tax benefit of $7.1 million, respectively. For the nine months ended September 30, 2017, the effective tax rate was~~$4.7 million. The lower ~~as no tax benefit was provided for losses incurred in United States Federal and certain state jurisdictions because those losses are offset by a full valuation allowance. The Company also has recorded~~ tax expense for ~~foreign jurisdictions~~the three months ended March 31, 2019 compared to income tax expense for the same period in the prior year is a result of lower pre-tax profits, increased benefits from the FDII provisions of the Tax Act, removal of the Company’s valuation allowance at the end of 2018 and ~~certain state jurisdictions during this time period.~~higher discrete tax benefits recorded in 2019 for excess tax benefits of stock-based compensation.

Liquidity and Capital Resources

As of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the principal sources of liquidity consisted of the following (in thousands):


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
Cash and cash equivalents	$	172,994	$	169,508	$	56,938	$	43,695
Amount available to borrow under the Revolving Credit Facility					$	141,812	$	121,812
Working capital including cash and cash equivalents	$	205,540	$	191,782	$	52,089	$	33,662
Adjusted working capital (1)					$	106,969	$	88,041

(1) The Convertible Senior Notes of $54.9 million and $54.4 million as of March 31, 2019 and December 31, 2018 respectively are excluded from the adjusted working capital amount as such notes may be settled at the Company’s option in cash or a combination of cash and shares of common stock.

As of ~~September 30, 2017,~~March 31, 2019, we had ~~$173.0~~$56.9 million in cash and cash equivalents, a ~~$3.5~~$13.2 million increase from December 31, ~~2016.~~2018. Our cash requirements fluctuate as a result of numerous factors, such as ~~the extent to which we generate~~ cash generated from operations, progress in research and development projects, ~~competition and~~asset acquisitions, technological ~~developments~~development spend and the time and expenditures required to obtain governmental approval of our ~~products as well as asset acquisitions.~~products. In addition, we intend to continue to evaluate candidates for new product lines, company or technology acquisitions or technology licensing. If we decide to proceed with any such transactions, we may need to incur additional debt, or issue additional equity, to successfully complete ~~the~~such transactions.

Our primary source of liquidity, other than our holdings of cash and cash equivalents, has been cash flows from ~~operations.~~operations, debt financings and proceeds from issuance of common stock. Cash generated from operations provides us with the financial flexibility we need to meet normal operating, investing and financing needs. We anticipate that our current cash and cash equivalents, together with cash provided by operating activities as well as access to funds from our Revolving Credit Facility will be sufficient to fund our ~~near term~~near-term capital and operating needs for at least the next 12 months. Normal operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our primary short-term needs for capital, which are subject to change, include expenditures related to:

support of commercialization efforts related to our current and future products, including support of our direct sales force and field support resources both in the United States and abroad;

interest on and repayments of our Convertible Senior Notes, ~~Senior~~Revolving Credit Facility, deferred consideration, contingent consideration and lease obligations;

the continued advancement of research and development efforts;

acquisitions of equipment and other fixed assets for use in our current and future manufacturing and research and development facilities;

the integration of our recent ~~strategic acquisitions and investments;~~acquisitions; and

potential strategic acquisitions and investments.

~~In December 2014, we issued~~Our Convertible Senior Notes due in ~~the aggregate principal amount of $172.5 million. The Convertible Senior Notes~~2020 have a coupon rate of 3.25% and are ~~due 2020. The Convertible Senior Notes were not~~ convertible as of ~~September 30, 2017. For detailed information~~March 31, 2019. The principal balance outstanding as of ~~the terms~~March 31, 2019 was $58.5 million. Our Revolving Credit Facility has a principal balance outstanding of ~~the Convertible Senior Notes, see~~$33.2 million and is due upon maturity on August 31, 2023. See Note 65 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report ~~which is incorporated by reference herein.~~for further discussion of the Convertible Senior Notes and the Revolving Credit Facility.

As of ~~September 30, 2017,~~March 31, 2019, we have ~~$4.7~~$208.6 million in fair value of deferred and contingent considerations associated with prior acquisitions to be settled in future periods.

In January 2016, our board of directors authorized an amendment to replenish the amount available to repurchase up to an aggregate of $50.0 million in shares of common stock or Convertible Senior Notes under our share repurchase program. Approximately $35.0 million remains under the share repurchase program as of September 30, 2017.

On October 6, 2017, the Company entered into the Credit Agreement, which provided the Company with a $245.0 million Term Loan and a $25.0 million Revolving Credit Facility. The Term Loan and the Revolving Credit Facility will mature on October 6, 2022. On the closing date of the Credit Agreement, the Company borrowed the entire amount of the Term Loan and $10.0 million under the Revolving Credit Facility. The Company used the proceeds of the Term Loan along with its cash on hand, to pay (i) the consideration for the Triage Business and (ii) the fees and expenses incurred in connection with the acquisition of the Triage Business and the BNP business.

We expect our revenue and operating expenses will significantly impact our cash management decisions. Our future capital requirements and the adequacy of our available funds to service our long-term debt and to fund working capital expenditures and business development efforts will depend on many factors, including:

our ability to successfully integrate our recently acquired ~~businesses and~~businesses;

our ability to realize revenue growth from our new technologies and create innovative products in our markets;

our outstanding debt and covenant restrictions;

~~leveraging~~our ability to leverage our operating expenses to realize operating profits as we grow revenue;

competing technological and market developments; and

the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.

Cash Flow Summary

Nine months ended September 30,
2017 2016
Net cash provided by (used for) operating activities: $ 16,484
$ (4,806 )
Net cash used for investing activities: (27,155 ) (12,921 )
Net cash provided by (used for) financing activities: 14,137
(20,374 )
Effect of exchange rates on cash 20
(7 )
Net increase (decrease) in cash and cash equivalents $ 3,486
$ (38,108 )



	Three months ended March 31,
	2019			2018
Net cash provided by operating activities:	$	32,897		$	35,814
Net cash (used for) provided by investing activities:	(4,993		)	141,695
Net cash used for financing activities:	(14,679		)	(111,796		)
Effect of exchange rates on cash	18			13
Net increase in cash and cash equivalents	$	13,243		$	65,726

Cash provided by operating activities ~~was $16.5~~of $32.9 million during the ~~nine~~three months ended ~~September 30, 2017. The add back~~March 31, 2019 reflects net income of $24.8 million and non-cash ~~items~~adjustments of $18.5 million primarily associated with depreciation, amortization, stock-based compensation and accretion of interest on deferred consideration. In addition, we used cash to fund our working capital requirements of $11.2 million, primarily driven by an increase in accounts receivable and a decrease in accrued payroll and related expenses, partially offset by a decrease in prepaid expenses and other current and non-current assets primarily driven by a change in receivables related to our transition services agreements. For the three months ended March 31, 2018, cash provided by operating activities of $35.8 million reflected net income of $34.0 million and non-cash adjustments of $27.7 million associated with depreciation, amortization, loss on extinguishment of debt, amortization of inventory step-up to fair value, accretion of interest on deferred consideration, and stock-based ~~compensation contributed $27.9 million to operating cash flows during the nine months ended September 30, 2017.~~compensation. Offsetting this ~~were a net loss of $3.1 million and~~was a net working capital use of $8.4 million. For the nine months ended September 30, 2016, cash used by operating activities was $4.8 million. The major contributors to the use of cash during the nine months ended September 30, 2016 were a net loss $11.9$28.2 million, ~~a change in deferred tax assets and liabilities of $7.4 million and a net working capital use of $9.7 million. Offsetting this use of cash was the add back of non-cash items of $27.7 million~~primarily related to ~~depreciation, amortization and stock based compensation.~~an increase in accounts receivable.

Our investing activities used ~~$27.2~~$5.0 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 primarily to fund building improvements and the purchase of production equipment, and Sofia, Solana and Triage instruments available for lease. Our investing activities provided $141.7 million during the ~~acquisition~~three months ended March 31, 2018 primarily due to sales of the ~~InflammaDry and AdenoPlus diagnostic businesses from RPS, as more fully described in Note 11 in the Notes to the Consolidated Financial Statements~~Summers Ridge property for approximately ~~$13.7~~$146.6 million. Additionally, we used ~~$12.8~~$4.9 million on production equipment, building improvements, Sofia and Solana instruments available for lease and intangible assets. Our investing activities used $12.9 million during the nine months ended September 30, 2016, with $5.1 million of net cash used for the acquisition of Immutopics, Inc. In addition, we used cash for investing activities associated with the acquisition of production equipment, building improvements and Sofia and Solana instruments available for ~~lease.~~lease and intangible assets.

We are currently planning approximately ~~$5.0~~$31.0 million in capital expenditures for the remainder of ~~2017.~~2019. The primary purpose for our capital expenditures is to acquire manufacturing and scientific equipment, to purchase or develop information technology, to acquire Sofia, Solana and ~~Solana~~Triage instruments and to implement facility improvements. We plan to fund these capital expenditures with the cash on our balance sheet.

Cash ~~provided~~used by financing activities was ~~$14.1~~$14.7 million during the ~~nine~~three months ended ~~September 30, 2017 and was~~March 31, 2019 primarily related to ~~proceeds from~~ the ~~issuance~~payments on the Revolving Credit Facility of ~~common stock of $15.2~~$20.0 million ~~partially offset by~~and repurchases of common stock of ~~$0.5~~$1.5 million, ~~and payments on acquisition-related contingencies~~partially offset by proceeds from issuance of ~~$0.5 million.~~stock of $6.8 million from stock option exercises. Cash used by financing activities was ~~$20.4~~$111.8 million during the ~~nine~~three months ended ~~September 30, 2016, of which $20.1 million~~March 31, 2018 and was ~~used for repurchases of common stock~~ primarily related to ~~our share repurchase program,~~payments on the Company’s previous Term Loan of $101.8 million and ~~$4.5 million was used for~~payments on the ~~repurchase~~Revolving Credit Facility of ~~Convertible Senior Notes. These amounts were partially offset by proceeds from the issuance of common stock of $4.8~~$10.0 million.

Seasonality

Sales of our ~~infectious disease~~respiratory products are subject to, and significantly affected by, the seasonal demands of the cold and flu seasons, prevalent during the fall and winter. As a result of these seasonal demands, we typically experience lower sales volume in the second and third quarters of the calendar year, and typically have higher sales in the first and fourth quarters of the

calendar year. Historically, sales of our ~~infectious disease~~respiratory products have varied from year to year based, in large part, on the severity, length and timing of the onset of the cold and flu ~~seasons.~~season.

Off-Balance Sheet Arrangements

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Recent Accounting Pronouncements

Information about recently adopted and proposed accounting pronouncements is included in Note 1 of the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report under the heading “Recent Accounting Pronouncements” and is incorporated herein by ~~reference herein.~~reference.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related ~~disclosure~~disclosures of contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to customer programs and incentives, ~~bad debts, inventories,~~stock-based compensation, goodwill and intangible assets, business combinations, income taxes, ~~stock-based compensation, contingencies~~ and ~~litigation.~~convertible debt. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A comprehensive discussion of our critical accounting policies and management estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. There were no material changes to our critical accounting policies and estimates during the three months ended March 31, 2019.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We are not subject to interest rate risk on our Convertible Senior Notes as the notes have a fixed interest ~~rate.~~rate of 3.25%. For fixed rate debt, changes in interest rates will generally affect the fair value of the debt instrument, but not our earnings or cash flows. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.

Our Senior Credit Facility debt is subject to interest rate risk as a portion of the interest rate fluctuates based on the LIBOR. We had $33.2 million outstanding under our Senior Credit Facility at March 31, 2019. The weighted average interest rate on these borrowings is 4.38% as of March 31, 2019. A hypothetical 100 basis point adverse move in interest rates along the entire interest rate yield curve would increase our annual interest expense by approximately $0.3 million. Based on our market risk sensitive instruments outstanding at March 31, 2019, we have determined that there was no material market risk exposure from such instruments to our consolidated financial position, results of operations or cash flows as of such date.

Our current investment policy with respect to our cash and cash equivalents focuses on maintaining acceptable levels of interest rate risk and liquidity. Although we periodically evaluate our placement of investments, as of ~~September 30, 2017,~~March 31, 2019, we did not have any cash and cash equivalents placed in funds held in government money market accounts and commercial paper.

Foreign Currency Exchange Risk

We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation

of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign

subsidiaries and transactions denominated in currencies other than a location’s functional currency.

During the three months ended March 31, 2019, we generated approximately $29.5 million in revenue denominated in

currencies other than the U.S. dollar. The ~~majority~~major currencies to which our revenues are exposed are the Euro and the Chinese

Yuan. A 100-basis point move in the average exchange rates (assuming a simultaneous and immediate 100 basis point change

for the relevant period) would have resulted in an increase or decrease in our reported revenue for the three months ended March 31, 2019 as follows (in thousands):



	Three months ended March 31,
Currency	2019
Chinese Yuan	$	146
Euro	$	111

While our results of operations have been impacted by the effects of currency fluctuations, the revenue and expenses relating to our international ~~sales~~operations are ~~negotiated for and paid~~generally denominated in ~~U.S. dollars. Nonetheless, these sales are subject~~local currency, which reduces our economic exposure to foreign exchange risk in those jurisdictions.

Effective fiscal year 2019, the Company has initiated a foreign currency ~~risks, since changes~~management policy which permits the use of

derivative instruments, such as forward contracts, to reduce volatility in ~~the values~~our results of operations resulting from foreign ~~currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These~~

exchange rate fluctuations could negatively impact international sales of our products, as could changes in the general economic conditions in those markets. Continued change in the values of the Euro, the Japanese Yen and other foreign currencies could have an impact on our business, financial condition and results of operations.fluctuations. We do not ~~currently hedge against exchange rate fluctuations, which means that we are fully exposed to exchange rate changes. In~~

~~addition, we have certain agreements whereby we share the~~enter into foreign currency ~~exchange fluctuation risk. We may,~~derivative instruments for trading purposes or to engage in

speculative activity. See further discussion in Note 10 to the ~~future, enter into similar~~Notes to the Consolidated Financial Statements for additional information related to such ~~arrangements.~~forward contracts.

ITEM 4. Controls and Procedures

Evaluation of disclosure controls and procedures: We have performed an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017~~March 31, 2019 at a reasonable assurance level to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in internal control over financial reporting: There was no change in our internal control over financial reporting during the quarter ended ~~September 30, 2017~~March 31, 2019 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

The information set forth in the section entitled ~~“Legal”~~“Litigation and Other Legal Proceedings” under Note 98 of the Notes to the Consolidated Financial Statements, included in Part I, Item I of this Quarterly Report, is incorporated herein by reference.

ITEM 1A. Risk Factors

~~Except as described below, there~~There has been no material change in our risk factors as previously disclosed in our ~~Quarterly Reports on Form 10-Q for the periods ended September 30, 2017 and June 30, 2017 and our~~ Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. For a detailed description of our risk factors, refer to ~~Part II,~~ Item 1A, “Risk ~~Factors,” of our Quarterly Reports on Form 10-Q for the periods ended September 30, 2017 and June 30, 2017 and Part I, Item 1A, “Risk Factors,”~~Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

~~Our acquisition of Alere’s Triage® and BNP businesses may present certain risks to our business and operations.~~

On On October 6, 2017, we acquired the Triage Business and the BNP Business from Alere, Inc. The acquisition of these businesses, and the transition and integration process related thereto, present certain risks to our business and operations, including, among other things, risks that:

~~we may be unable to successfully transition and integrate the businesses, and we may experience business interruptions during transition and integration;~~

~~we may not realize the anticipated benefits of the acquisitions, including those anticipated to arise from reducing costs, making product and process improvements and developing new products;~~

~~we may lose management personnel and other key employees and be unable to attract and retain such personnel and employees;~~

~~management's attention and our other resources may be focused on integration activities instead of on day-to-day management activities, including pursuing other beneficial opportunities;~~

~~we may incur substantial unexpected integration or transition related costs;~~

the deferred consideration payable to Alere for the BNP Business will be payable even if BNP sales are significantly reduced, or even terminate, whether as a result of the introduction of a competing product or otherwise, and such payment obligations may significantly exceed the revenues from such business;

~~we may not be able to successfully or efficiently manage our foreign expansion, and the acquired businesses will increase our exposure and risks related to foreign markets;~~

we may be subject to claims, litigation, other legal proceedings and liabilities and damages in connection with the businesses and assets acquired in the acquisitions, some of which may not be covered in full, if at all, by the indemnification provisions provided for in the acquisition agreements, and even if indemnified, may be disruptive to our business;

we may not be able to receive required regulatory approvals or clearances relating to the acquired businesses, the acquired products, or may lose previously received regulatory approvals or clearances;

in certain international markets, the marketing authorizations to sell the acquired products will continue to be held by Alere post-closing until the authorizations can be transferred to us through the applicable regulatory process, and such deferred closings have additional risks, including:

~~we may not timely receive such authorizations, if at all, or may encounter unexpected difficulties and costs in receiving the authorizations;~~

~~we may have less control over the acquired businesses until the deferred closings;~~

completion of the acquisitions may trigger assignment or other provisions in certain commercial contracts to which Alere was a party, such that counterparties may potentially have the right to terminate the contracts; and

~~launching branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers.~~

Alere may fail to perform under various transition agreements that were executed as part of our acquisition of the Triage Business and the BNP Business and we may fail to have necessary systems and services in place when certain of the transition agreements expire.

In connection with the acquisition of the Triage Business and the BNP Business, we entered into a number of agreements with Alere, including transition services agreements and a manufacturing and supply agreement. Certain of these agreements will provide for the performance of services by each company for the benefit of the other for a period of time after the closing of the acquisitions of the Triage Business and the BNP Business. If Alere is unable or unwilling to satisfy its payment or performance obligations under these agreements, we could incur operational difficulties or losses which could have a material adverse effect on our profitability and business. In addition, if the costs that we must pay for the services under these agreements significantly increase this could affect our profitability. Moreover, if we do not have our own systems and services in place, or if we do not have agreements in place with other providers of these services when the term of a particular transition service terminates (whether at the end of the term or as a result of an early termination), we may not be able to operate our business effectively, and the cost of such systems and services may be greater than what is provided under the transition services.

As we build our information technology infrastructure and transition the Triage Business and BNP Business to the Company’s own systems, we could incur substantial additional costs and experience temporary business interruptions.

We are installing and implementing information technology infrastructure to support critical business functions relating to the Triage Business and BNP Business, including accounting and reporting, customer service, inventory control and distribution, billing and receivables collection, as well as order entry, warehousing, and other administrative services. Under the transition services agreements with Alere, Alere is required to provide services both inside and outside the United States, including back office services, for up to two years following the closings of the acquisitions of the Triage Business and BNP Business. The services provided include information technology, billing and receivables collection, as well as order entry, warehousing, and certain other administrative services. These transition services agreements allow the Company to operate the Triage Business and BNP Business prior to establishing its back office infrastructure and information technology systems to accommodate the Triage Business and BNP Business. The Company’s failure to avoid operational interruptions as it implements the new systems and information technology could disrupt its integration of the Triage Business and the BNP Business and have a material adverse effect on its profitability.

~~Risk Factors Related to our Indebtedness~~

~~Our substantial debt could materially adversely affect our financial condition and results of operations.~~

On October 6, 2017, we entered into a $270.0 million five-year senior secured credit facility (the “Senior Credit Facility”), consisting of a $245.0 million Term Loan, all of which was borrowed at the closing, and a $25.0 million Revolving Credit Facility, $10.0 million of which was borrowed at the closing. The Senior Credit Facility includes an accordion feature that allows the borrowings under the Senior Credit Facility to be increased by $50 million upon the satisfaction of certain conditions. See Note 6 of the Notes to the Consolidated Financial Statements for a more detailed description of the Credit Agreement. We also have outstanding indebtedness under our Convertible Senior Notes described in Note 6 of the Notes to the Consolidated Financial Statements, and may incur other indebtedness from time to time.

~~The degree to which we are leveraged could have important consequences to our potential and current investors, including:~~

~~our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate purposes may be impaired;~~

a significant portion of our cash flow from operating activities must be dedicated to the payment of our debt, which reduces the funds available to us for our operations and may limit our ability to engage in acts that may be in our long-term best interests;

~~some of our debt is and will continue to be at variable rates of interest, which may result in higher interest expense in the event of increases in market interest rates;~~

our debt agreements may contain, and any agreements to refinance our debt likely will contain, financial and restrictive covenants, and our failure to comply with them may result in an event of default which if not cured or waived, could have a material adverse effect on us;

~~our level of indebtedness will increase our vulnerability to, and reduce our flexibility to respond to, general economic downturns and adverse industry and business conditions;~~

~~as our long-term debt ages, we may need to renegotiate or repay such debt or seek additional financing;~~

~~to the extent the debt we incur requires collateral to secure such indebtedness, our assets could be at risk and our flexibility related to such assets could be limited;~~

~~our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and industry; and~~

~~our level of indebtedness may place us at a competitive disadvantage relative to less leveraged competitors.~~

We may not be able to generate sufficient cash flow to meet our debt service obligations, and any inability to repay our debt when due would have a material adverse effect on our business, financial condition and results of operations.

Our ability to generate sufficient cash flow from operating activities to make scheduled or other required payments on our debt obligations and maintain a desired level of capital expenditures depends on our future performance, which is subject to economic, financial, competitive and other factors, many of which are beyond our control. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to undertake these activities may also be restricted by the terms of our various debt instruments then in effect. In addition, our ability to refinance our indebtedness or issue additional equity capital will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. Any such default on our debt obligations could materially adversely affect our business, financial condition and results of operations.

~~The Senior Credit Facility is secured by substantially all of our assets and those of our subsidiary guarantors.~~

Borrowings under the Senior Credit Facility are guaranteed by certain of our material domestic subsidiaries and are secured by liens on substantially all of our assets and those of the guarantor subsidiaries, other than real property and certain other types of excluded assets. Under the Senior Credit Facility, the Company is required to use commercially reasonable efforts to effect a sale leaseback transaction with respect to its Summers Ridge property (the “Summers Ridge Sale Leaseback”). If we cannot effect such Summers Ridge Sale Leaseback within 180 days of the closing of the Senior Credit Facility, we must grant a security interest in that property as additional collateral for the Senior Credit Facility. If we default under our secured indebtedness, including our Senior Credit Facility, the holders of such debt could proceed against the collateral securing that indebtedness, which could materially adversely affect our business, financial condition and results of operations.

The Senior Credit Facility contains certain prepayment requirements that will limit our ability to use our cash flow from operations and the proceeds of certain assets sales or other monies for other corporate purposes.

Subject to certain limitations, the Company is required to prepay loans outstanding under the Senior Credit Facility out of its excess cash flow and out of the net cash proceeds of property dispositions and certain other amounts received not in the ordinary course of business, such as certain insurance proceeds and condemnation awards. For example, the Company is required to use a substantial portion of the proceeds of the Summers Ridge Sale Leaseback to repay amounts under the Senior Credit Facility. These requirements to prepay the Senior Credit Facility with excess monies will limit the flexibility of the Company to utilize those monies for other purposes that may be in the best interests of the Company.

~~Borrowings under the Senior Credit Facility will be accelerated if certain conditions are not met prior to the maturity of the Convertible Senior Notes.~~

Although the regular maturity date for the Senior Credit Facility is October 6, 2022, the maturity will be accelerated and all borrowings under the Senior Credit Facility will become due and payable on the date that is 91 days prior to the maturity of the Convertible Senior Notes, if any of the Convertible Senior Notes remain outstanding on that date and certain liquidity and

refinancing conditions are not satisfied. If the Senior Credit Facility is accelerated under this provision, the Company may not be able to refinance the facility on acceptable terms, and could be forced to sell assets or issue stock in order to obtain money to repay the Senior Credit Facility. Any failure to repay the Senior Credit Facility when due would have a material adverse effect on the Company and its liquidity and financial position.

~~The agreements relating to our indebtedness contain terms that restrict our ability to operate our business, and as a result may materially adversely affect our results of operations.~~

Our Senior Credit Facility contains, and other of our debt agreements may include from time to time, a number of restrictive covenants that impose significant operating and financial restrictions on us and our subsidiaries. Such restrictive covenants significantly limit our ability to:

~~incur additional debt, including guarantees;~~

~~allow other liens on our property;~~

~~make certain investments and acquisitions;~~

~~sell or otherwise dispose of assets;~~

~~engage in mergers or consolidations or allow a change in control to occur;~~

~~make distributions to our stockholders;~~

~~engage in restructuring activities;~~

~~enter into transaction with affiliates;~~

~~prepay or amend other indebtedness;~~

~~engage in certain sale and leaseback transactions; and~~

~~issue or repurchase stock or other securities.~~

Such agreements also require us to satisfy other requirements, including maintaining certain financial ratios. Our ability to meet these requirements can be affected by events beyond our control and we may be unable to meet them. To the extent we fail to meet any such requirements and are in default under our debt obligations, our financial condition may be materially adversely affected. These restrictions may limit our ability to engage in activities that could otherwise benefit us. To the extent that we are unable to engage in activities that support the growth, profitability and competitiveness of our business, our results of operations may be materially adversely affected.

An event of default under any agreement relating to our outstanding indebtedness or other event that could require outstanding debt to be prepaid or purchased by the Company could cross default other indebtedness, which could have a material adverse effect on our business, financial condition and results of operations.

If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately, which default or acceleration of debt could cross default other indebtedness. Our Senior Credit Facility could also be cross defaulted as a result of other events that could require outstanding indebtedness to be prepaid or purchased by the Company. Any cross default with respect to any of our indebtedness would put immediate pressure on our liquidity and financial condition and would amplify the risks described above with regards to being unable to repay our indebtedness when due and payable. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default, and, as described above, any inability to repay our debt when due would have a material adverse effect on our business, financial condition and results of operations.

~~If interest rates increase, our debt service obligations under our variable rate indebtedness could increase significantly, which would have a material adverse effect on our results of operations.~~

Borrowings under certain of our facilities from time to time, including under our Senior Credit Facility, are at variable rates of interest and as a result expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. To the extent the risk materializes and is not fully mitigated, the resulting increase in interest expense could have a material adverse effect on our results of operations.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information regarding repurchases of our common stock by us during the three months ended ~~September 30, 2017.~~March 31, 2019.

Period
Total number
of shares
purchased (1)

Average
price paid
per share

Total number
of shares purchased
as part of publicly
announced plans or programs

Approximate dollar
value of shares that
may yet be
purchased
under the plans or programs (2)
July 3, 2017 - July 30, 2017 —
$ —
—
$ 35,006,981
July 31, 2017 - August 27, 2017 1,500
35.04
—
35,006,981
August 28, 2017 - October 1, 2017 —
—
—
35,006,981
Total 1,500
$ 35.04
—
$ 35,006,981



Period	Total number of shares purchased (1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (2)
December 31, 2018 - January 27, 2019	1,573	$	52.99	—	$	50,000,000
January 28, 2019 - February 24, 2019	20,262	60.01		—	50,000,000
February 25, 2019 - March 31, 2019	2,625	67.16		—	50,000,000
Total	24,460	$	60.33	—	$	50,000,000

(1) We withheld ~~1,500~~24,460 shares of common stock from employees in connection with payment of minimum tax withholding obligations relating to the lapse of restrictions on certain RSUs during the three months ended ~~September 30, 2017.~~March 31, 2019.

(2) On ~~January 25, 2016, we announced that~~December 12, 2018, the ~~Company's~~ Board of Directors authorized ~~an amendment to the Company's previously announced~~a new stock repurchase program, pursuant to (i) replenish the amount available for repurchase under the program back to the previously authorized repurchase amount of $50.0 million, (ii) approve the addition of repurchases of the Company's Convertible Senior Notes under the program and (iii) extend the expiration date of the program to January 25, 2018. Under the amended program, the Company may repurchase, in the aggregate,which up to $50.0 million inof the Company’s shares of ~~its~~ common stock ~~and/or its Convertible Senior Notes.~~may be purchased through December 12, 2020. The ~~amounts provided in this column give effect to~~ Company announced

the stock repurchase ~~of our Convertible Senior Notes that are in addition to the repurchases of our common stock shown in this table.~~program on December 18, 2018.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

ITEM 6. Exhibits




3.1		Restated Certificate of Incorporation of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on February 27, 2015.)
3.2		Certificate of Amendment to the Restated Certificate of Incorporation of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on May 6, 2015.)
3.3		Amended and Restated Bylaws of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on February 27, 2015.)
4.1		Certificate of Designations of Series C Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010.)
~~10.1~~10.1(1)*		~~Amended~~Agreement Re: Change in Control, entered into on February 11, 2019 between the Registrant and ~~Restated Triage Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on September 18, 2017.)~~
~~10.2~~		~~Amended and Restated BNP Purchase Agreement (Incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed on September 18, 2017.)~~
~~10.3~~		Commitment Letter dated July 15, 2017 by and among the Company, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as the Initial Lenders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated (or any of its designated affiliates) and JPMorgan, as the Lead Arrangers. (Incorporated by reference to Exhibit 10.3 to the Registrant's Form 8-K filed on July 17, 2017.)Karen Gibson.
31.1*		Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by Principal Financial Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certifications by Principal Executive Officer and Principal Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Label Linkbase Document
101.PRE*		XBRL Taxonomy Presentation Linkbase Document

___________________________

* Filed herewith.

** Furnished herewith.

(1) Indicates a management plan or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




Date: ~~November 2, 2017~~May 8, 2019	QUIDEL CORPORATION

	/s/ DOUGLAS C. BRYANT
	Douglas C. Bryant
	President and Chief Executive Officer (Principal Executive Officer)

	/s/ RANDALL J. STEWARD
	Randall J. Steward
	Chief Financial Officer (Principal Financial Officer)

Exhibit Index



Exhibit Number
3.1		Restated Certificate of Incorporation of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on February 27, 2015.)
3.2		Certificate of Amendment to the Restated Certificate of Incorporation of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on May 6, 2015.)
3.3		Amended and Restated Bylaws of Quidel Corporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on February 27, 2015.)
4.1		Certificate of Designations of Series C Junior Participating Preferred Stock. (Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-Q for the quarter ended September 30, 2010.)
~~10.1~~10.1(1)*		~~Amended~~Agreement Re: Change in Control, entered into on February 11, 2019 between the Registrant and ~~Restated Triage Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K filed on September 18, 2017.)~~
~~10.2~~		~~Amended and Restated BNP Purchase Agreement (Incorporated by reference to Exhibit 10.2 to the Registrant's Form 8-K filed on September 18, 2017.)~~
~~10.3~~		Commitment Letter dated July 15, 2017 by and among the Company, Bank of America, N.A. and JPMorgan Chase Bank, N.A., as the Initial Lenders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated (or any of its designated affiliates) and JPMorgan, as the Lead Arrangers. (Incorporated by reference to Exhibit 10.3 to the Registrant's Form 8-K filed on July 17, 2017.)Karen Gibson.
31.1*		Certification by Principal Executive Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by Principal Financial Officer of Registrant pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certifications by Principal Executive Officer and Principal Financial Officer of Registrant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Label Linkbase Document
101.PRE*		XBRL Taxonomy Presentation Linkbase Document

___________________________

* Filed herewith.

** Furnished herewith.

(1) Indicates a management plan or compensatory plan or arrangement.

3327



	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Total revenues	$	50,894		$	49,341		$	162,853		$	138,795
Costs and expenses
Cost of sales (excludes amortization of intangible assets of $1,877, $1,590, $5,122 and $4,770, respectively)	19,391			17,728			60,716			54,295
Research and development	7,468			8,801			22,970			31,164
Sales and marketing	12,898			11,853			38,813			36,376
General and administrative	6,580			6,364			20,483			19,964
Amortization of intangible assets from acquired businesses and technology	2,503			2,273			7,184			6,782
Acquisition and integration costs	4,591			197			7,022			568
Total costs and expenses	53,431			47,216			157,188			149,149
Operating (loss) income	(2,537		)	2,125			5,665			(10,354		)
Interest expense, net	(2,784		)	(3,006		)	(8,387		)	(8,619		)
Loss before income taxes	(5,321		)	(881		)	(2,722		)	(18,973		)
Provision (benefit) for income taxes	204			(309		)	355			(7,115		)
Net loss	$	(5,525	)	$	(572	)	$	(3,077	)	$	(11,858	)
Basic and diluted loss per share	$	(0.16	)	$	(0.02	)	$	(0.09	)	$	(0.36	)
Shares used in basic and diluted per share calculation	33,913			32,673			33,538			32,645



	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Shares used in basic loss per share (weighted-average common shares outstanding)	33,913	32,673	33,538	32,645
Effect of potentially dilutive shares issuable from stock options, restricted stock units and Convertible Senior Notes	—	—	—	—
Shares used in diluted loss per share calculation	33,913	32,673	33,538	32,645
Potentially dilutive shares excluded from calculation due to anti-dilutive effect	—	1,856	1,121	2,892



	Contingent consideration liabilities (Level 3 measurement)
Balance at December 31, 2016	$	5,175
Cash payments	(498		)
Unrealized loss on foreign currency translation	3
Balance at September 30, 2017	$	4,680



	For the three months ended
	September 30,				Increase (Decrease)
	2017		2016		$			%
Immunoassays	$	36,458	$	30,573	$	5,885		19	%
Molecular	2,781		2,469		312			13	%
Virology	8,830		9,354		(524		)	(6	)%
Specialty products	2,557		2,721		(164		)	(6	)%
Royalties, grants and other	268		4,224		(3,956		)	(94	)%
Total revenues	$	50,894	$	49,341	$	1,553		3	%



	For the nine months ended
	September 30,				Increase (Decrease)
	2017		2016		$			%
Immunoassays	$	115,974	$	84,924	$	31,050		37	%
Molecular	9,148		6,813		2,335			34	%
Virology	28,044		30,055		(2,011		)	(7	)%
Specialty products	8,212		8,387		(175		)	(2	)%
Royalties, grants and other	1,475		8,616		(7,141		)	(83	)%
Total revenues	$	162,853	$	138,795	$	24,058		17	%



	For the nine months ended September 30,
	2017			2016
	Operating expenses	As a % of total revenues		Operating expenses	As a % of total revenues		Increase (Decrease)
	Operating expenses	As a % of total revenues		Operating expenses	As a % of total revenues		$			%
Research and development	22,970	14	%	31,164	22	%	$	(8,194	)	(26	)%
Sales and marketing	38,813	24	%	36,376	26	%	$	2,437		7	%
General and administrative	20,483	13	%	19,964	14	%	$	519		3	%
Amortization of intangible assets from acquired businesses and technology	7,184	4	%	6,782	5	%	$	402		6	%
Acquisition and integration costs	7,022	4	%	568	0	%	$	6,454		1,136	%