~~Table of Contents~~

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, 2020



¨☐			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,~~9975 Summers Ridge Road, San Diego, California ~~92130~~92121

(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	The NASDAQ Stock 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

☒

Accelerated filer

☐

~~Large accelerated filer~~

~~Accelerated filer~~

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 1, 2020, 41,999,003 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, 2020 and December 31, ~~2016~~2019			3
Consolidated Statements of ~~Operations~~Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			4
Consolidated Statements of Comprehensive ~~Loss~~Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			5
Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019			6
Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019			67
Notes to Consolidated Financial Statements			8
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1817
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			2522
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			3025
ITEM 3. Defaults Upon Senior Securities			3025
ITEM 4. Mine Safety Disclosures			3025
ITEM 5. Other Information			3025
ITEM 6. Exhibits			3126
Signatures			3227

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements

QUIDEL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value; unaudited)


	March 31, 2020		December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	108,770	$	52,775
Accounts receivable, net	102,146		94,496
Inventories	58,708		58,086

Prepaid expenses and other current assets	16,855		16,870
Total current assets	286,479		222,227
Property, plant and equipment, net	79,915		79,762
Right-of-use assets	90,490		92,119
Goodwill	337,017		337,018
Intangible assets, net	141,268		148,112
Deferred tax asset	24,424		24,502
Other non-current assets	7,173		7,127
Total assets	$	966,766	$	910,867
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	33,153	$	26,701
Accrued payroll and related expenses	14,195		17,286
Operating lease liabilities	6,523		6,412
Contingent consideration	5,936		5,969
Deferred consideration	42,000		42,000

Convertible Senior Notes	12,777		12,661

Other current liabilities	21,612		14,862
Total current liabilities	136,196		125,891
Operating lease liabilities - non-current	91,571		93,227



Deferred consideration - non-current	111,277		109,382
Contingent consideration - non-current	10,565		10,566


Other non-current liabilities	11,958		11,981
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 5,000 shares authorized; NaN issued or outstanding at March 31, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value per share; 97,500 shares authorized; 41,996 and 41,868 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	42		42
Additional paid-in capital	430,499		425,557
Accumulated other comprehensive loss	(263)		(463)
Retained earnings	174,921		134,684
Total stockholders’ equity	605,199		559,820
Total liabilities and stockholders’ equity	$	966,766	$	910,867

September 30, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 172,994
$ 169,508
Accounts receivable, net 41,575
24,990
Inventories 23,429
26,045
Prepaid expenses and other current assets 6,477
4,851
Total current assets 244,475
225,394
Property, plant and equipment, net 50,035
50,858
Goodwill 91,433
83,834
Intangible assets, net 27,364
27,639
Other non-current assets 514
525
Total assets $ 413,821
$ 388,250
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 15,657
$ 16,047
Accrued payroll and related expenses 9,771
9,642
Current portion of lease obligation 122
98
Current portion of contingent consideration 4,324
2,826
Other current liabilities 9,061
4,999
Total current liabilities 38,935
33,612
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
Other non-current liabilities 317
272
Commitments and contingencies (see Note 9)
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
Additional paid-in capital 226,186
204,905
Accumulated other comprehensive loss (4 ) (53 )
Accumulated deficit (7,332 ) (4,255 )
Total stockholders’ equity 218,884
200,630
Total liabilities and stockholders’ equity $ 413,821
$ 388,250

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,
	2020		2019
Total revenues	$	174,653	$	147,968
Cost of sales	59,662		57,041
Gross profit	114,991		90,927
Research and development	16,379		13,930
Sales and marketing	30,738		29,589
General and administrative	14,332		13,431
Acquisition and integration costs	1,914		2,824
Total operating expenses	63,363		59,774
Operating income	51,628		31,153



Interest and other expense, net	2,807		4,582
Income before income taxes	48,821		26,571
Provision for income taxes	8,584		1,727
Net income	$	40,237	$	24,844
Basic earnings per share	$	0.96	$	0.63
Diluted earnings per share	$	0.93	$	0.60
Shares used in basic per share calculation	42,056		39,704
Shares used in diluted per share calculation	43,403		42,907

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,
	2020		2019
Net income	$	40,237	$	24,844
Other comprehensive income (loss)
Changes in cumulative translation adjustment, net of tax	(65)		(248)
Changes in unrealized gains (losses) from cash flow hedges:
Net unrealized gains on derivative instruments	406		290
Reclassification of net realized gains on derivative instruments included in net income	(141)		—
Total change in unrealized gains from cash flow hedges, net of tax	265		290
Comprehensive income	$	40,437	$	24,886

See accompanying notes.

QUIDEL CORPORATION

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

(in thousands; unaudited)


	Common Stock
	Shares	Par		Additional paid-in capital		Accumulated other comprehensive (loss) income		Retained earnings		Total stockholders’ equity

























Balance at December 31, 2019	41,868	$	42	$	425,557	$	(463)	$	134,684	$	559,820
Issuance of common stock under equity compensation plans	153	—		3,571		—		—		3,571
Stock-based compensation expense	—	—		3,325		—		—		3,325



Repurchases of common stock	(25)	—		(1,954)		—		—		(1,954)
Other comprehensive gain, net of tax	—	—		—		200		—		200
Net income	—	—		—		—		40,237		40,237
Balance at March 31, 2020	41,996	$	42	$	430,499	$	(263)	$	174,921	$	605,199


	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)
Other comprehensive gain, net of tax	—	—		—		42		—		42
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
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

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


QUIDEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands; unaudited)
	Three Months Ended March 31,
	2020		2019
OPERATING ACTIVITIES:
Net income	$	40,237	$	24,844
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other	12,480		11,971
Stock-based compensation expense	3,878		3,588

Amortization of debt discount and deferred issuance costs	217		602

Accretion of interest on deferred consideration	1,895		2,343

Change in deferred tax assets and liabilities	78		—

Changes in assets and liabilities:
Accounts receivable	(7,737)		(10,682)
Inventories	(602)		682

Prepaid expenses and other current and non-current assets	321		3,995
Accounts payable	6,639		1,802
Accrued payroll and related expenses	(2,860)		(6,969)
Other current and non-current liabilities	6,634		721
Net cash provided by operating activities:	61,180		32,897
INVESTING ACTIVITIES:
Acquisitions of property, equipment and intangibles	(5,884)		(4,993)




Net cash used for investing activities:	(5,884)		(4,993)
FINANCING ACTIVITIES:


Proceeds from issuance of common stock	2,805		6,847

Payments on Revolving Credit Facility	—		(20,000)
Payments on finance lease obligation	(112)		(38)
Repurchases of common stock	(1,954)		(1,476)

Payments of acquisition contingent consideration	(34)		(12)



Net cash provided by (used for) financing activities:	705		(14,679)
Effect of exchange rates on cash	(6)		18
Net increase in cash and cash equivalents	55,995		13,243
Cash and cash equivalents, beginning of period	52,775		43,695
Cash and cash equivalents, end of period	$	108,770	$	56,938




SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:



Purchase of property, equipment and intangibles by incurring current liabilities	$	860	$	1,728

Reduction of other current liabilities upon issuance of restricted share units	$	767	$	1,970

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, 2020, and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, is unaudited. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2019 included in the Company’s ~~2016~~2019 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~~2020 and ~~2016,~~2019, the Company’s fiscal year will end or has ended on January 3, 2021 and December ~~31, 2017 and January 1, 2017,~~29, 2019, respectively. For ~~2017~~2020 and ~~2016,~~2019, the Company’s ~~third~~first quarter ended on ~~October 1, 2017~~March 29, 2020 and ~~October 2, 2016,~~March 31, 2019, 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, 2020 and ~~2016~~2019 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~~Significant Accounting Policies

~~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~~During 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 lossthree months ended March 31, 2020, there have been no changes to ~~the customer. Passage of title to the product and recognition of revenue occurs upon delivery to the customer when sales terms are free~~our significant accounting policies as described in our Annual Report 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 lossForm 10-K for the ~~diagnostic kits have passed to the customer.~~fiscal year ended December 31, 2019.

~~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~~ (“ASU 2014-09”). 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 asset representing the right to use the underlying asset for the lease term on the balance sheet. The guidance 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. The Company adopted ASU 2016-09 in the first quarter of 2017 and the impact of the adoption resulted 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 impact on the Company’s cash flows.

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.~~

~~In January 2017, the 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 fair value. The guidance is effective for fiscal years 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.

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, 2020.

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,
	2020		2019
Numerator:
Net income used for basic earnings per share	$	40,237	$	24,844
Interest expense on Convertible Senior Notes, net of tax	181		791
Net income used for diluted earnings per share, if-converted method	$	40,418	$	25,635

Basic weighted-average common shares outstanding	42,056		39,704
Dilutive potential shares issuable from Convertible Senior Notes	410		1,825
Dilutive potential shares issuable from stock options and unvested RSUs	937		1,378
Diluted weighted-average common shares outstanding, if-converted	43,403		42,907
Potentially dilutive shares excluded from calculation due to anti-dilutive effect	97		149

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 and December 31, 2016, respectively~~ (in thousands):


	March 31, 2020		December 31, 2019
Raw materials	$	22,508	$	23,294
Work-in-process (materials, labor and overhead)	19,662		20,514
Finished goods (materials, labor and overhead)	16,538		14,278
Total inventories	$	58,708	$	58,086

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	March 31, 2020		December 31, 2019
Other receivables	$	8,645	$	7,857
Prepaid expenses	5,952		4,568
Income taxes receivable	—		2,560
Other	2,258		1,885
Total prepaid expenses and other current assets	$	16,855	$	16,870

September 30, 2017 December 31, 2016
Raw materials $ 9,533
$ 9,297
Work-in-process (materials, labor and overhead) 7,839
7,990
Finished goods (materials, labor and overhead) 6,057
8,758
Total inventories $ 23,429
$ 26,045

~~Note 4.~~ Other Current Liabilities

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


	March 31, 2020		December 31, 2019
Customer incentives	$	8,848	$	7,369
Income and other taxes payable	6,783		1,214
Customer deposits	79		1,500

Other	5,902		4,779
Total other current liabilities	$	21,612	$	14,862

September 30, 2017 December 31, 2016
Customer incentives $ 6,256
$ 3,766
Accrued interest 1,586
227
Other 1,219
1,006
Total other current liabilities $ 9,061
$ 4,999

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.

The Company recognized income tax ~~expense~~provisions of ~~$0.2~~$8.6 million and ~~an income tax benefit of $0.3~~$1.7 million for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, 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 18% effective tax rate for the three months ended March 31, 2020 and ~~the income tax expense or benefit for an interim period, a discrete~~6% effective tax rate ~~method may provide a more reliable estimate than applying~~for the ~~annual effective tax~~three months ended March 31, 2019 differed from the federal statutory rate ~~method~~of 21% primarily due to the ~~year-to-date loss. The~~ discrete ~~method~~impact of ~~calculating~~excess tax deductions from stock-based compensation, the ~~Company's estimated effective tax rate~~benefit from research and ~~income tax expense or~~development (“R&D”) credits and 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 deductions attributable to ~~calculate the income tax expense.~~Foreign Derived Intangible Income (“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,~~credits, 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.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted on March 27, 2020. The CARES Act includes, among other things, refundable payroll tax credits, deferment of employer side social security payments and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. These amendments allow for retroactive accelerated income tax depreciation on certain of our leasehold improvement assets. We are currently assessing the impact of these provisions to our financial statements.

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~~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~~5 consecutive business day period following any ~~five~~5 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 2020, 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, 2020. If the Convertible Senior Notes were converted as of March 31, 2020, the if-converted amount would exceed the principal by $0.6 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.

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, 2020, 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 $0.2 million related to the Convertible Senior Notes, ~~without~~of which $0.1 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 $0.1 million related to the coupon due semi-annually. During the three months ended March 31, 2019, 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$1.0 million related to the Convertible Senior Notes of which ~~resulted in a fair value~~$0.5 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 ~~as 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~~related to 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.


	March 31, 2020		December 31, 2019
Principal amount outstanding	$	13,131	$	13,131
Unamortized discount of liability component	(312)		(415)
Unamortized debt issuance costs	(42)		(55)
Net carrying amount of liability component	$	12,777	$	12,661
Carrying value of equity component, net of issuance costs	$	2,265	$	2,265
Fair value of outstanding Convertible Senior Notes	$	38,633	$	30,991
Remaining amortization period of discount on the liability component	0.8 years		1.0 year

September 30, 2017 December 31, 2016
Principal amount of Convertible Senior Notes outstanding $ 167,314
$ 167,314
Unamortized discount of liability component (16,587 ) (20,221 )
Unamortized debt issuance costs (2,258 ) (2,753 )
Net carrying amount of liability component 148,469
144,340
Less: current portion —
—
Long-term debt $ 148,469
$ 144,340
Carrying value of equity component, net of issuance costs $ 29,211
$ 29,211
Fair value of outstanding Convertible Senior Notes $ 253,765
$ 165,223
Remaining amortization period of discount on the liability component 3.3 years
4.0 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 Credit Facility”), together (the “Senior 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~~There is no balance outstanding as 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.

March 31, 2020. The Credit Agreement ~~includes an accordion feature that allows the facility to be increased by $50.0 million upon the satisfaction~~has a term of ~~certain conditions. The Financing is guaranteed by certain material domestic subsidiaries of the Company (the “Guarantors”)~~five years and ~~is secured by liens~~matures 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~~1 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~~2 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, 2020.

Interest expense recognized under the Credit Agreement, including amortization of deferred issuance cost, was $0.2 million for the three months ended March 31, 2020 and $0.6 million for the three months ended March 31, 2019.

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, 2020 is as follows (in thousands, except price data):


	Shares	Weighted-average exercise price per share
Outstanding at December 31, 2019	944	$	30.63
Granted	121	77.16
Exercised	(65)	21.26
Forfeited	(12)	43.34
Outstanding at March 31, 2020	988	$	36.77

A summary of the status of restricted stock unit activity for the three months ended March 31, 2020 is as follows (in thousands, except price data):


	Shares	Weighted-average grant date fair value
Non-vested December 31, 2019	786	$	41.88
Granted	186	77.53
Vested	(60)	18.21
Forfeited	(17)	49.85
Non-vested at March 31, 2020	895	$	50.74

During the three months ended March 31, 2020, 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~~27,826 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 March 31,

	2020		2019
Cost of sales	$	258	$	280
Research and development	642		565
Sales and marketing	1,297		1,119
General and administrative	1,681		1,624
Total stock-based compensation expense	$	3,878	$	3,588

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

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, 2020, total unrecognized compensation expense ~~related to non-vested stock options~~ was ~~$5.3~~$35.7 million, which is expected to be recognized over a weighted-average period of approximately ~~2.1~~2.8 years. As of September 30, 2017, total unrecognized compensation expense related to non-vested restricted stock was $6.1 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.


	Three Months Ended March 31,
	2020			2019
Risk-free interest rate	1.35		%	2.51		%
Expected option life (in years)	5.14			5.68
Volatility rate	39		%	39		%
Dividend rate	0		%	0		%
Weighted-average grant date fair value	$	28.24		$	23.67

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 — % — %

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, 2020 and ~~2016~~2019 was ~~$21.61~~$77.53 and ~~$16.06,~~$59.45, 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, 2020 or 2019.

Note 8.7. Industry and Geographic Information

The Company operates in ~~one~~1 reportable segment. Sales to customers outside the U.S. represented ~~$21.6~~$41.2 million ~~(13%~~(24%) and ~~$23.1~~$41.5 million ~~(17%~~(28%) of total revenue for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016, balances~~2019, accounts receivable due from foreign customers were ~~$4.7~~$24.1 million and ~~$6.8~~$23.0 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,
	2020		2019
Customer:
A	21	%	17	%
B	19	%	17	%
C	10	%	7	%
D	10	%	13	%
Total:	60	%	54	%

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled ~~$34.2~~$73.9 million and ~~$13.9~~$67.4 million, respectively.

Consolidated total revenues by product category for the three months ended March 31, 2020 and 2019 were as follows (in thousands):


	Three Months Ended March 31,
	2020		2019
Rapid Immunoassay	$	95,930	$	62,494
Cardiometabolic Immunoassay	53,901		65,872
Specialized Diagnostic Solutions	16,459		13,854
Molecular Diagnostic Solutions	8,363		5,748
Total revenues	$	174,653	$	147,968

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.

Summers Ridge Lease —The Company leases 3 of the 4 buildings that are located on the Summers Ridge Property in San Diego, California with an initial term through January 2033 with options to extend the lease for 2 additional five-year terms upon satisfaction of certain conditions, which have not been included in the determination of the lease term. The lease is subject to must-take provisions related to one additional building, which will have the same lease term as the three buildings originally leased. The remaining building is subject to the expiration of the lease with its current tenant for which the expiration date is not yet known.

As a result of the relocation of the Company’s headquarters to the Summers Ridge Property, the Company entered into a sublease of its former headquarters building in January 2020, with minimum rent of $2.4 million under the sublease agreement. Lease income for the three months ended March 31, 2020 was $0.1 million.

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 have the power to direct the activities of the partnership and does not have the obligation to absorb losses or receive benefits of the partnership that could potentially be significant to the partnership. The McKellar Court lease ends in December 2020 and contains options to extend the lease for 3 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. On August 29, 2019, the Court of Appeal issued a written decision ruling in Quidel’s favor and overturning the December 7 Order. Beckman challenged the Court of Appeal’s ruling with a petition for rehearing on September 10, 2019, which was denied on September 13, 2019.

On October 1, 2019, Beckman filed a petition for review of the Court of Appeal’s ruling with the Supreme Court of California (the “Supreme Court”). We subsequently filed an answer to Beckman’s petition, Beckman filed a response to our reply and on November 13, 2019, the Supreme Court granted review of the Court of Appeal ruling, with further action in this matter being deferred pending consideration and disposition of a related issue in Ixchel Pharma v. Biogen, or pending further order of the Supreme Court.

On November 22, 2019, the trial court continued the stay at the trial court level and scheduled a status conference for December 11, 2020.

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 subject to review by the Supreme Court; 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 December 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, 2020														December 31, 2019
	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:																	Assets:
Cash equivalents	$	—	$	—	$	—	$	—	$	133,540	$	—	$	—	$	133,540
Cash equivalents (money market funds)																	Cash equivalents (money market funds)	$	70,000	$	—	$	—	$	70,000	$	—	$	—	$	—	$	—
Derivative assets																	Derivative assets	—		458		—		458		—		321		—		321
Total assets measured at fair value	$	—	$	—	$	—	$	—	$	133,540	$	—	$	—	$	133,540	Total assets measured at fair value	$	70,000	$	458	$	—	$	70,458	$	—	$	321	$	—	$	321
Liabilities:																	Liabilities:

Derivative liabilities																	Derivative liabilities	$	—	$	147	$	—	$	147	$	—	$	433	$	—	$	433
Contingent consideration	—		—		4,680		4,680		—		—		5,175		5,175		Contingent consideration	—		—		16,501		16,501		—		—		16,535		16,535
Deferred consideration																	Deferred consideration	—		153,277		—		153,277		—		151,382		—		151,382
Total liabilities measured at fair value	$	—	$	—	$	4,680	$	4,680	$	—	$	—	$	5,175	$	5,175	Total liabilities measured at fair value	$	—	$	153,424	$	16,501	$	169,925	$	—	$	151,815	$	16,535	$	168,350

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, 2020 and the year ended December 31, ~~2016.~~2019.

~~The Company used Level 1 inputs to determine the fair value of its cash~~Cash equivalents ~~which primarily~~ consist of funds held in government money market accounts that are valued using quoted prices in active markets for identical instruments. Derivative financial instruments are measured based on observable inputs that are corroborated by market data. Observable inputs include broker quotes and ~~commercial paper. As such,~~daily market foreign currency rates and forward pricing curves.

In connection with the ~~carrying~~acquisition of the BNP Business, the Company pays annual installments of $40.0 million each in deferred consideration through April 2023 and up to $8.0 million each in contingent consideration through April 2022. The fair

value of the 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 $1.9 million for the accretion of interest on the deferred consideration during the three months ended March 31, 2020. 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. The discount rate of 4.0% used as of March 31, 2020 was based on estimated borrowing rate for a similar liability.

Changes in estimated fair value of contingent consideration liabilities from December 31, ~~2016~~2019 through ~~September 30, 2017 are~~March 31, 2020 were as follows (in thousands):


	Contingent consideration liabilities (Level 3 measurement)
Balance at December 31, 2019	$	16,535
Cash payments	(34)



Balance at March 31, 2020	$	16,501

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

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 and ~~AdenoPlus® diagnostic businesses from RPS Diagnostics (“RPS”), a developer~~the Chinese Yuan. The Company also uses non-designated forward contracts to hedge non-functional currency denominated balance sheet assets. All hedging relationships for all designated derivative hedges and ~~manufacturer~~the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transactions, are formally documented. The duration of ~~rapid, point-of-care (“POC”) diagnostic tests~~these forward contracts are generally less than one year. 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 prepaid expenses and other current assets or other current liabilities depending on the eye health and primary care markets, for approximately $13.7 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 for the detection of infectious and inflammatory diseases and conditions~~unrealized gain or loss position of the ~~eye. Revenues for these products are reflected~~hedged contract as of the balance sheet date. Changes in the ~~Company’s Immunoassay revenue category.~~value of the designated 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. Changes in the value of non-designated derivatives are recorded to other income/expense, net. The ~~purchase price allocation related to this acquisition is preliminary~~cash flows from derivatives treated as hedges are classified in the Consolidated Statements of Cash Flows in the same category as the ~~Company obtains additional information related~~item being hedged.

The notional principal amounts for outstanding derivative instruments provide one measure of the transaction volume outstanding and do not represent the amount of our exposure to ~~working capital items.~~

~~Note 12. Subsequent Events~~

~~Acquisition~~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 ~~Triage and BNP Businesses~~

~~On October 6, 2017,~~ the ~~Company acquired the Triage Business and BNP Business from Alere Inc. In connection~~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 ~~acquisition~~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 Triage Business, the Company paid $400.0 million in cash (subject to certain inventory related adjustments set forth in the Amended~~designated and ~~Restated Triage Purchase Agreement)~~non-designated foreign currency forward contracts as of March 31, 2020 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.December 31, 2019 (in thousands):


	March 31, 2020						December 31, 2019
	Notional Amount		Fair Value, Net		Notional Amount		Fair Value, Net
Designated cash flow hedges:
Prepaid expenses and other current assets	$	23,828	$	429	$	27,944	$	321
Other current liabilities	$	12,157	$	147	$	6,219	$	433

Non-designated forward contracts:
Prepaid expenses and other current assets	$	7,906	$	29	$	—	$	—

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,~~limitation: the ~~risks set forth~~impact of the novel virus (COVID-19) global pandemic; adverse changes in ~~Part II, Item 1A~~competitive conditions, 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 ~~this Form 10-Q;~~our products, our reliance on ~~development~~sales of ~~new technologies,~~our influenza and other respiratory or novel virus 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 other respiratory or novel viruses and the related potential impact on humans from ~~novel influenza~~such viruses, adverse changes in competitive conditions in domestic and international markets, the reimbursement system currently in place and future changes to that system, changes in economic conditions in our domestic and international markets, lower than anticipated market penetration of our products, the quantity of our product in our distributors’ inventory or distribution channels, changes in the buying patterns of our distributors, and changes in the healthcare market and consolidation of our customer base; our development, 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”); that we may have to write off goodwill relating to our acquisitions; our ability to manage our growth strategy and identify and integrate acquired companies or technologies and our ability to obtain financing; the level of our indebtedness and deferred payment obligations; our ability to generate sufficient cash to meet our debt service and deferred and contingent payment obligations; that our Revolving 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 2020 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; the nature and amount of projected capital expenditures for the remainder of ~~the 2017 fiscal year~~2020 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 strategy, exposure to, and ~~development results; future commitments under existing research development agreements;~~defenses against, claims and litigation, including the ~~impact~~pending litigation with Beckman; the sufficiency of our liquidity and ~~timing~~our short-term needs for capital; the sufficiency 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;~~our insurance coverage; 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 and licensing opportunities. The risks described under “Risk Factors” in Item 1A Part II of this ~~Quarterly Report~~quarterly report on Form 10-Q and item 1A of our Annual Report on

Form 10-K for the year ended December 31, ~~2016,~~2019, 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, cardiometabolic 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.~~We operate in one business segment that develops, manufactures and markets our four product categories.

~~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 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.

Outlook

We ~~continue to realize expansion of our footprint for Sofia and molecular platforms. For~~anticipate continued revenue growth during the remainder of ~~2017,~~2020, including a favorable impact from the sale of testing products related to the COVID-19 pandemic, with a positive impact on gross margin and earnings. We expect continued and significant investment in research and development activities as we ~~will~~develop our next generation immunoassay and molecular platforms, including our most recent focus on ~~integrating~~ the ~~Triage and BNP Businesses and~~development of assays to address the COVID-19 pandemic. We will continue toour 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, 2020 compared to the three months ended ~~September 30, 2016~~March 31, 2019

Total Revenues

The following table compares total revenues for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (in thousands, except percentages):


	Three Months Ended March 31,						Increase (Decrease)
	2020		2019		$		%
Rapid Immunoassay	$	95,930	$	62,494	$	33,436	54	%
Cardiometabolic Immunoassay	53,901		65,872		(11,971)		(18)	%
Specialized Diagnostic Solutions	16,459		13,854		2,605		19	%
Molecular Diagnostic Solutions	8,363		5,748		2,615		45	%
Total revenues	$	174,653	$	147,968	$	26,685	18	%

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 three months ended ~~September 30, 2017,~~March 31, 2020, total revenue increased to ~~$50.9~~$174.7 million from ~~$49.3~~$148.0 million in the prior period. The ~~Company realized increases in immunoassay revenues due~~Rapid Immunoassay category was the largest contributor to revenue growth, ~~in Influenza, Strep A and RSV~~primarily resulting from respiratory products, bolstered by a strong respiratory season. Molecular products grew 45% over prior year, driven by continued revenue growth on the Solana platform as well as ~~the addition of InflammaDry® and AdenoPlus® diagnostic products acquired~~sales from ~~RPS.~~our Lyra SARS-CoV-2 assay. The increase in ~~our molecular revenues~~Specialized Diagnostic Solutions was also driven by higher sales of respiratory products. The decrease in Cardiometabolic Immunoassay sales was driven mainly by ~~continued gains~~lower demand resulting from the COVID-19 pandemic. Currency exchange rate impact for the quarter was unfavorable by $0.5 million, which had a minimal impact on ~~our Solana platform. These increases were partially offset by a decline in grant revenues of approximately $3.8 million as~~ the ~~amended Bill and Melinda Gates Foundation grant was fully recognized by the third quarter of 2016.~~growth rate.

~~Cost of Sales~~

~~Cost of sales was $19.4~~Gross Profit

Gross profit increased to $115.0 million, or ~~38%~~66% of ~~total revenues,~~revenue for the three months ended ~~September 30, 2017~~March 31, 2020, compared to ~~$17.7~~$90.9 million, or ~~36%~~61% of ~~total revenues,~~revenue for the three months ended ~~September 30, 2016.~~March 31, 2019. The ~~increase in cost of sales~~increased gross profit was driven by higher ~~revenues. In addition, costs~~sales volumes, favorable product mix, higher manufacturing overhead absorption and improved geographic mix. This was partially offset by increased incentives to our distribution channel partners associated with higher sales volumes in the ~~integration of the InflammaDry and AdenoPlus diagnostic businesses acquired from RPS and higher depreciation expense related~~quarter. Gross margin increased compared to the ~~increased number of Sofia~~same period in the prior year due to higher manufacturing overhead absorption as well as favorable product and Solana instrument placements. These increases also contributed 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.geographic mix.

Operating Expenses

The following table compares operating expenses for the three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (in thousands, except percentages):


	Three Months Ended March 31,
	2020						2019
	Operating expenses		As a % of total revenues		Operating expenses		As a % of total revenues		Increase (Decrease)
													$	%
Research and development	$	16,379	9	%	$	13,930	9	%	$	2,449	18	%
Sales and marketing	$	30,738	18	%	$	29,589	20	%	$	1,149	4	%
General and administrative	$	14,332	8	%	$	13,431	9	%	$	901	7	%
Acquisition and integration costs	$	1,914	1	%	$	2,824	2	%	$	(910)	(32)	%

For the three 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 $ 7,468
15 % $ 8,801
18 % $ (1,333 ) (15 )%
Sales and marketing $ 12,898
25 % $ 11,853
24 % $ 1,045
9 %
General and administrative $ 6,580
13 % $ 6,364
13 % $ 216
3 %
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 %

Research and Development Expense

Research and development expense for the three months ended ~~September 30, 2017 decreased~~March 31, 2020 increased from ~~$8.8~~$13.9 million to ~~$7.5~~$16.4 million due primarily to ~~a decrease in outside service~~higher employee-related costs, increased spending ~~in support of the Savanna MDx~~on clinical trials and Sofia ~~platforms.~~assay and next-generation platform development projects.

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, 2020 increased ~~$1.0~~from $29.6 million to ~~$12.9~~$30.7 million due primarily to ~~the increased personnel and consulting~~higher employee-related costs ~~associated with the InflammaDry and AdenoPlus diagnostic businesses acquired from RPS~~driven by improved performance during the ~~second quarter of 2017.~~current quarter.

General and Administrative Expense

General and administrative expense for the three months ended ~~September 30, 2017~~March 31, 2020 increased from $6.4 million last year to $6.6 million this year, due primarily to higher incentive and stock based compensation expense. General and administrative expense primarily includes personnel 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 the three months ended September 30, 2017 increased from $2.3~~$13.4 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.

~~Acquisition and Integration Costs~~

Acquisition and integration costs for the three months ended September 30, 2017 increased from $0.2 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~~$14.3 million compared with the prior year period ~~due~~ primarily ~~to the increased personnel and consulting 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 expense for the nine months ended September 30, 2017 increased from $20.0 million to $20.5 million compared with the prior year period,~~ due ~~primarily~~ to higher ~~incentive compensation expense. General and administrative expense primarily includes personnel~~employee related 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 the nine months ended September 30, 2017 increased from $6.8 million to $7.2 million due primarily to additional amortization of purchased technology associated with the InflammaDry and AdenoPlus diagnostic businesses acquired from RPSdriven by improved performance 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.~~quarter.

Acquisition and Integration Costs

Acquisition and integration costs of $1.9 million for the ~~nine~~three months ended ~~September 30, 2017 increased from $0.6 million last year~~March 31, 2020 primarily related to ~~$7.0 million this year. This increase is primarily attributable to due diligence~~the evaluation of new business development opportunities. Acquisition and integration costs ~~related to~~of $2.8 million for the ~~acquisitions~~three months ended March 31, 2019 consisted primarily of ~~the Triage and BNP Businesses on October 6, 2017.~~global operation integration costs.

Other Expense, Net

Interest ~~Expense,~~and other expense, net

decreased from $4.6 million to $2.8 million. Interest and other expense, net primarily relates to ~~accrued~~accretion of interest ~~for~~on the deferred consideration, coupon and accretion of ~~the discount on~~interest related to our Convertible Senior Notes ~~issued in December 2014~~ and ~~interest paid on our lease obligation~~amortization of deferred financing costs associated with our ~~San Diego McKellar~~Credit Agreement. The decrease in interest expense of $1.8 million over the prior year was primarily due to lower debt balances under the Company’s Convertible Senior Notes,

~~facility. Interest expense was $8.4 million~~Revolving Credit Facility and ~~$8.6 million for~~lower accretion of interest as the ~~nine months ended September 30, 2017 and 2016, respectively.~~total deferred consideration liability outstanding declined through 2019. See further discussion in Note 5 of the Notes to the Consolidated Financial Statements in this Quarterly Report.

Income Taxes

For the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016, we recognized~~2019 respectively, the income tax expense ~~of $0.4~~was $8.6 million and an income tax benefit of $7.1 million, respectively. For the nine months ended September 30, 2017, the effective tax rate was 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.$1.7 million. The ~~Company also has recorded~~higher tax expense for ~~foreign jurisdictions and certain state jurisdictions during this time period.~~the three months ended March 31, 2020 compared to the same period in the prior year is a result of higher pre-tax profits partially offset by lower discrete tax benefits recorded in 2020 for excess tax benefits of stock-based compensation.

Liquidity and Capital Resources

As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the principal sources of liquidity consisted of the following (in thousands):


	March 31, 2020		December 31, 2019
Cash and cash equivalents	$	108,770	$	52,775
Amount available to borrow under the Revolving Credit Facility	$	175,000	$	175,000
Working capital including cash and cash equivalents	$	150,283	$	96,336

Adjusted working capital (1)	$	163,060	$	108,997

September 30, 2017 December 31, 2016
Cash and cash equivalents $ 172,994
$ 169,508
Working capital including cash and cash equivalents $ 205,540
$ 191,782
(1) The Convertible Senior Notes of $12.8 million and $12.7 million as of March 31, 2020 and December 31, 2019 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, 2020, we had ~~$173.0~~$108.8 million in cash and cash equivalents, a ~~$3.5~~$56.0 million increase from December 31, ~~2016.~~2019. 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 and integration activities, competition and technological developments 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 transactions.

Our primary source of liquidity, other than our holdings of cash and cash equivalents, has been cash flows from ~~operations.~~operations and financing. 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 will be sufficient to fund our ~~near term~~near-term capital and operating needs for at least the next 12 months. As such, we have not applied for and do not anticipate needing to apply for any loans under the Paycheck Protection Program (the “PPP”), which was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

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~~resources;

•interest on and ~~abroad;~~

repayments of our Convertible Senior Notes, ~~Senior 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; and

~~the integration of our recent strategic acquisitions and investments; 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, 2020. The principal balance outstanding as of ~~the terms~~March 31, 2020 was $13.1 million. The Amended and Restated Credit Agreement provides us with a Revolving Credit Facility of ~~the Convertible Senior Notes, see~~$175.0 million and there is no balance outstanding as of March 31, 2020. The Revolving Credit Facility matures 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, 2020, we have ~~$4.7~~$16.5 million in fair value of contingent ~~considerations~~consideration and $153.3 million of deferred consideration associated with ~~prior~~ acquisitions to be settled in future ~~periods.~~periods, of which $48.0 million is payable in April 2020.

On December 12, 2018, the Company’s Board of Directors authorized a stock repurchase program, pursuant to which up

~~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 inof the Company’s shares of common stock ~~or Convertible Senior Notes~~may be purchased through December 12, 2020. There were no

shares repurchased under ~~our share repurchase program. Approximately $35.0 million remains under~~such program during 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.three months ended March 31, 2020.

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~~ 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


								Three Months Ended March 31,
	Nine months ended September 30,							2020		2019
	2017			2016
Net cash provided by (used for) operating activities:	$	16,484		$	(4,806	)
Net cash provided by operating activities:							Net cash provided by operating activities:	$	61,180	$	32,897
Net cash used for investing activities:	(27,155		)	(12,921		)	Net cash used for investing activities:	(5,884)		(4,993)
Net cash provided by (used for) financing activities:	14,137			(20,374		)	Net cash provided by (used for) financing activities:	705		(14,679)
Effect of exchange rates on cash	20			(7		)	Effect of exchange rates on cash	(6)		18
Net increase (decrease) in cash and cash equivalents	$	3,486		$	(38,108	)
Net increase in cash and cash equivalents							Net increase in cash and cash equivalents	$	55,995	$	13,243

Cash provided by operating activities ~~was $16.5~~of $61.2 million during the ~~nine~~three months ended ~~September 30, 2017. The add back~~March 31, 2020 reflects net income of $40.2 million and non-cash ~~items~~adjustments of $18.5 million primarily associated with depreciation, amortization, ~~and~~ stock-based compensation ~~contributed $27.9 million to operating cash flows during the nine months ended September 30, 2017. Offsetting this were a net loss~~and accretion of ~~$3.1 million and~~interest on deferred consideration. Partially offsetting these inflows was a net working capital use of ~~$8.4~~cash of $4.2 million. For the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2019, cash ~~used~~provided 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~~$32.9 million reflected net ~~loss $11.9 million, a change in deferred tax assets and liabilities~~income of ~~$7.4~~$24.8 million and non-cash adjustments of $18.5 million associated with depreciation, amortization, stock-based compensation and accretion of interest on deferred consideration. Partially offsetting these inflows was a net working capital use of ~~$9.7~~cash of $11.2 million. ~~Offsetting this use of cash was the add back of non-cash items of $27.7 million related to depreciation, amortization and stock based compensation.~~

Our investing activities used ~~$27.2~~$5.9 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 primarily related to payments for the acquisition of the InflammaDry and AdenoPlus diagnostic businesses from RPS, as more fully described in Note 11 in the Notes to the Consolidated Financial Statements for approximately $13.7 million. Additionally, we used $12.8 million on productioncomputer equipment, building improvements, Sofia, Solana and ~~Solana~~Triage instruments available for lease and ~~intangible assets.~~manufacturing equipment. Our investing activities used ~~$12.9~~$5.0 million during the ~~nine~~three months ended ~~September 30, 2016, with $5.1 million of net cash used for~~March 31, 2019 primarily to fund building improvements and the ~~acquisition of Immutopics, Inc. In addition, we used cash for investing activities associated with the acquisition~~purchase of production equipment, ~~building improvements~~and Sofia, Solana and ~~Sofia and Solana~~Triage instruments ~~available~~available for lease.

We are currently planning approximately ~~$5.0~~ $40 million in capital expenditures ~~for~~for the remainder of ~~2017.~~2020. The primary purpose for our capital expenditures is to acquire Sofia, Solana and Triage instruments, to acquire manufacturing and scientific equipment, to purchase or develop information technology ~~Sofia and Solana instruments~~ and to implement facility improvements. We plan to fund these capital expenditures with the cash on our balance sheet.

Cash provided by financing activities was ~~$14.1~~$0.7 million during the ~~nine~~three months ended ~~September 30, 2017 and was~~March 31, 2020 primarily related to proceeds from ~~the~~ issuance of ~~common~~ stock of ~~$15.2~~$2.8 million from stock option exercises, partially offset by the repurchases of common stock of ~~$0.5 million and payments on acquisition-related contingencies of $0.5~~$2.0 million. Cash used by financing activities ~~was $20.4~~of $14.7 million during the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2019 primarily related to the payments on the Revolving Credit Facility of ~~which $20.1~~$20.0 million ~~was used for~~and repurchases of common stock ~~primarily related to our share repurchase program, and $4.5~~of $1.5 million, ~~was used for the repurchase of Convertible Senior Notes. These amounts were~~ partially offset by proceeds from ~~the~~ issuance of ~~common~~ stock of ~~$4.8 million.~~ $6.8 million from stock option exercises.

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. Although the impact of COVID-19 on our business is still uncertain, there are early indications that COVID-19 may have some seasonality to its prevalence that could also impact the sales of our respiratory products from quarter to quarter.

Off-Balance Sheet Arrangements

At ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, 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 by reference herein.

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~~revenue recognition, goodwill and ~~incentives, bad debts, inventories, intangible assets,~~intangibles, business combinations and income ~~taxes, stock-based compensation, contingencies and litigation.~~taxes. 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.~~2019. There were no material changes to our critical accounting policies and estimates during the three months ended March 31, 2020.

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~~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 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~~continually evaluate our placement of investments, as of ~~September 30, 2017, we did not have any~~March 31, 2020, our cash and cash equivalents were placed in ~~funds held in~~the Company’s highly liquid operating accounts as well as government money market ~~accounts and commercial paper.~~accounts.

Foreign Currency Exchange Risk

~~The majority~~

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, 2020, total revenues increased 18% to $174.7 million, of which approximately $25.2 million in revenue was denominated in currencies other than the U.S. dollar. On a constant currency basis, revenue growth during the three months ended March 31, 2020 was also 18%. We believe constant currency and constant currency growth rate enhance the comparison of our ~~international sales are negotiated~~financial performance from period-to-period, and to that of our competitors. Constant currency revenue excludes the impact from foreign currency fluctuations, which was an unfavorable $0.5 million for the three months ended March 31, 2020, and ~~paid in U.S. dollars. Nonetheless, these sales are subject to currency risks, since changes~~is calculated by translating current period revenues using prior period exchange rates, net of any hedging effect recognized in the ~~values~~current period. Constant currency revenue growth (expressed as a percentage) is calculated by determining the change in current period constant currency revenues over prior period revenues.

The 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, 2020 as follows (in thousands):


	Three Months Ended March 31,
Currency	2020
Chinese Yuan	$	111
Euro	$	113

The Company has a foreign currency management policy in place that permits the use of ~~foreign currencies relative~~derivative instruments, such as forward contracts, to ~~the value~~reduce volatility in our results of ~~the U.S. dollar can render our products comparatively more expensive. These~~operations resulting from foreign 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, 2020 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, 2020 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~~For a detailed description of our risk factors, refer to Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019. 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. For~~2019 except as described below.

The novel coronavirus (COVID-19) global pandemic could adversely affect our business operations, financial performance and results of operations, the extent of which is uncertain and difficult to predict.

In late 2019, a ~~detailed description~~novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China, which has since spread globally. In March 2020, the World Health Organization declared COVID-19 a global pandemic. Further, the

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COVID-19 outbreak has resulted in government authorities throughout the United States and around the world implementing numerous measures to try to reduce the spread of COVID-19, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. As a result of the COVID-19 outbreak and the related responses from government authorities, our business operations, financial performance and results of operations may be adversely impacted in a number of ways, including, but not limited to, the following:

•a slowdown or stoppage in the supply chain of the raw materials and packaging used to manufacture our products;

•interruptions or delays in global shipping to transport and deliver our products to our distributors and customers;

•interruptions in normal operations of certain end use customers that could result in reductions in demand for non-COVID-19 related healthcare operations and testing;

•disruptions to our operations, including a shutdown of one or more of our facilities or product lines; restrictions on our operations and sales, marketing and distribution efforts; and interruptions to our research and development, manufacturing, clinical/regulatory and other important business activities;

•shutdown or interruption of one or more of our manufacturing facilities due to contamination and costs incurred to clean and disinfect a facility following contamination;

•inefficiencies and increased costs in our production and shipping processes due to premium pay for manufacturing and certain other employees as well as social distancing and personal protective equipment requirements;

•delays in operations arising from limitations in the availability of personal protective equipment and clean room equipment and supplies for certain of our manufacturing personnel;

•limitations on employee resources and availability, including due to sickness, government restrictions, the desire of employees to avoid contact with large groups of people or mass transit disruptions;

•an increase in cyber-attacks given our public profile as a manufacturer of SARS-CoV-2 products;

•a fluctuation in foreign currency exchange rates or interest rates could result from market uncertainties;

•an increase in the cost or the difficulty to obtain debt or equity financing;

•an increase in exposure to credit losses for customers adversely affected by the COVID-19 pandemic;

•an increase in regulatory restrictions or continued market volatility could hinder our ability to execute strategic business activities, including acquisitions; and

•negatively impact our stock price.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

We are continuing to rapidly and significantly expand our manufacturing capacity, including expanding and scaling our infrastructure to support our COVID-19 test products. This rapid expansion can place significant strain on our management, personnel, operations, systems and financial resources. Failure to successfully manage this expansion could negatively affect our operating results, including due to inefficiencies in implementing such expansion or higher costs for materials, technology, equipment and personnel during the intensity of the COVID-19 pandemic. Moreover, we may not realize the revenue growth and profitability we anticipate for our COVID-19 and other respiratory diagnostic products, which could result, among other factors, in a failure to realize the benefits of our manufacturing capacity expansion and the value of those investments being written down or written off.

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Additionally, COVID-19 could negatively affect our internal controls over financial reporting as a portion of our workforce is required to work from home and therefore new processes, procedures, and controls could be required to respond to changes in our business environment. Further, should any key employees become ill from COVID-19 and unable to work, the attention of the management team could be diverted.

The effects of COVID-19 may exacerbate our other 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~~discussed in in Part I, Item 1A, ~~“Risk~~Risk Factors,~~” of~~ in our Annual ~~Report~~report on Form 10-K for the year ended December 31, ~~2016.~~

~~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.

2019. 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~~COVID-19 impacts 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,~~operations, financial ~~condition~~performance 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 capitaloperations will depend on future developments, which are highly uncertain, continuously evolving and cannot be predicted, including, but not limited to, the ~~capital markets~~duration 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~~spread of the ~~guarantor subsidiaries, other than real property~~COVID-19 outbreak, its severity, the actions to contain the virus or treat its impact, how quickly 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 conditionwhat extent normal economic and ~~results of operations.~~

~~The Senior Credit Facility contains certain prepayment requirements that will limit our ability to use our cash flow from operations~~operating conditions can resume 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,~~residual economic and other effects. Because this situation continues to evolve globally, the ultimate impacts to us 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 anyCOVID-19 are uncertain, but 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, whichimpacts 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 liquidityperformance 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.condition.

~~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, 2020.

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 30, 2019 - January 26, 2020	592	$	80.11	—	$	50,000,000
January 27, 2020 - February 23, 2020	23,259	79.44		—	50,000,000
February 24, 2020 - March 29, 2020	670	87.54		—	50,000,000
Total	24,521	$	79.68	—	$	50,000,000

(1) We withheld ~~1,500~~24,521 shares of common stock from employees in connection with payment of minimum tax withholding obligations relating to the ~~lapse~~vesting of ~~restrictions on certain~~ RSUs during the three months ended ~~September 30, 2017.~~March 31, 2020.

(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 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
~~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.~~10-Q for the quarter ended September 30, 2010.)
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~~31.1*		~~Amended 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.)
31.1*	Certification by Principal Executive Officer of ~~Registrant~~Quidel Corporation 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~~Quidel Corporation 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~~ Quidel C orporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*101		~~XBRL Instance Document~~The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCH*104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline 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~~(included as Exhibit 101).

___________________________

* Filed herewith.

** Furnished herewith.

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: May 6, 2020		QUIDEL CORPORATION
~~Date: November 2, 2017~~		~~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.~~10-Q for the quarter ended September 30, 2010.)
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~~31.1*		~~Amended 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.)
31.1*	Certification by Principal Executive Officer of ~~Registrant~~Quidel Corporation p ursuant 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 Quidel Corporation pursuant to Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.232.1*		~~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~~Quidel Corporation pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*101		~~XBRL Instance Document~~The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCH*104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, formatted in Inline 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~~(included as Exhibit 101).

___________________________

* Filed herewith.

** Furnished herewith.



	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



	September 30, 2017			December 31, 2016
Principal amount of Convertible Senior Notes outstanding	$	167,314		$	167,314
Unamortized discount of liability component	(16,587		)	(20,221		)
Unamortized debt issuance costs	(2,258		)	(2,753		)
Net carrying amount of liability component	148,469			144,340
Less: current portion	—			—
Long-term debt	$	148,469		$	144,340
Carrying value of equity component, net of issuance costs	$	29,211		$	29,211
Fair value of outstanding Convertible Senior Notes	$	253,765		$	165,223
Remaining amortization period of discount on the liability component	3.3 years			4.0 years



	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	%