Company Quick10K Filing
Quick10K
Quidel
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$60.52 40 $2,410
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-06-20 Officers
8-K 2019-06-04 Sale of Shares, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-05-08 Earnings, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2019-02-06 Officers, Exhibits
8-K 2019-01-07 Earnings, Regulation FD, Exhibits
8-K 2018-12-19 Regulation FD
8-K 2018-12-18 Officers, Regulation FD
8-K 2018-12-07 Regulation FD
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-08-31 Enter Agreement, Leave Agreement, Off-BS Arrangement
8-K 2018-08-07 Earnings, Exhibits
8-K 2018-05-31 Sale of Shares, Exhibits
8-K 2018-05-15 Officers, Shareholder Vote
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-03-29 Officers
8-K 2018-03-08 Sale of Shares, Exhibits
8-K 2018-02-26 Other Events
8-K 2018-02-21 Earnings, Exhibits
8-K 2018-01-29 Officers
8-K 2018-01-16 Officers, Exhibits
8-K 2018-01-05 Enter Agreement, M&A, Off-BS Arrangement, Other Events, Exhibits
TDG TransDigm 25,160
CWK Cushman & Wakefield 3,890
AVA Avista 2,800
ODT Online Disruptive Technologies 553
ARCT Arcturus Therapeutics 73
HDHC High Desert Holding 0
RXR Northstar/RXR New York Metro Real Estate 0
HBKA Highlands Bankshares 0
CACA China Crawfish 0
AEI22 AEI Income & Growth Fund XXII 0
QDEL 2019-06-30
Part I Financial Information
Item 1. Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Computation of Earnings (Loss) per Share
Note 3. Balance Sheet Account Details
Note 4. Income Taxes
Note 5. Debt
Note 6. Stockholders' Equity
Note 7. Industry and Geographic Information
Note 8. Commitments and Contingencies
Note 9. Fair Value Measurements
Note 10. Derivatives and Hedging
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 qdel-ex31120190630xq21.htm
EX-31.2 qdel-ex31220190630xq21.htm
EX-32.1 qdel-ex32120190630xq21.htm

Quidel Earnings 2019-06-30

QDEL 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________________________________
FORM 10-Q
  ____________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 0-10961
 ____________________________________________________________________________ 
QUIDEL CORPORATION
(Exact name of registrant as specified in its charter)
  ____________________________________________________________________________
Delaware
 
94-2573850
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
12544 High Bluff Drive, Suite 200, San Diego, California 92130
(Address of principal executive offices, including zip code)
(858552-1100
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 Par Value
QDEL
NASDAQ Global Market
____________________________________________________________________________ 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      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
Non-accelerated filer
 
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 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  
As of July 31, 2019, 41,441,467 shares of the registrant’s common stock were outstanding.
 



INDEX
 
 
 
 


2


PART I    FINANCIAL INFORMATION
 
ITEM 1.    Financial Statements
QUIDEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value; unaudited)
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
28,554

 
$
43,695

Accounts receivable, net
44,643

 
58,677

Inventories
64,622

 
67,379

Prepaid expenses and other current assets
19,693

 
23,646

Total current assets
157,512

 
193,397

Property, plant and equipment, net
76,909

 
73,901

Right-of-use assets
84,368

 

Goodwill
337,021

 
337,021

Intangible assets, net
161,137

 
175,029

Deferred tax asset—non-current
22,675

 
22,192

Other non-current assets
6,559

 
4,831

Total assets
$
846,181

 
$
806,371

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
24,837

 
$
25,171

Accrued payroll and related expenses
13,917

 
19,210

Current portion of operating lease liabilities
5,474

 

Current portion of contingent consideration
5,759

 
3,983

Current portion of deferred consideration
42,000

 
44,000

Convertible Senior Notes
12,431

 
54,379

Other current liabilities
7,694

 
12,992

Total current liabilities
112,112

 
159,735

Operating lease liabilities
82,386

 

Revolving Credit Facility
18,188

 
53,188

Deferred consideration - non-current
105,662

 
143,158

Contingent consideration - non-current
9,948

 
15,129

Other non-current liabilities
7,922

 
9,577

Commitments and contingencies (Note 8)

 

Stockholders’ equity:
 
 
 
Preferred stock, $.001 par value per share; 5,000 shares authorized; none issued or outstanding at June 30, 2019 and December 31, 2018

 

Common stock, $.001 par value per share; 97,500 shares authorized; 41,418 and 39,386 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
41

 
39

Additional paid-in capital
421,996

 
363,921

Accumulated other comprehensive income (loss)
49

 
(139
)
Retained earnings
87,877

 
61,763

Total stockholders’ equity
509,963

 
425,584

Total liabilities and stockholders’ equity
$
846,181

 
$
806,371

See accompanying notes.

3


QUIDEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data; unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Total revenues
$
108,252

 
$
103,155

 
$
256,220

 
$
272,298

Cost of sales
49,073

 
45,487

 
106,114

 
108,359

Gross profit
59,179

 
57,668

 
150,106

 
163,939

Research and development
11,723

 
13,284

 
25,653

 
25,905

Sales and marketing
26,926

 
27,545

 
56,515

 
56,103

General and administrative
12,876

 
11,500

 
26,307

 
22,032

Acquisition and integration costs
1,836

 
4,935

 
4,660

 
8,402

Total operating expenses
53,361

 
57,264

 
113,135

 
112,442

Operating income
5,818

 
404

 
36,971

 
51,497

Other expense, net
 
 
 
 
 
 
 
Interest expense, net
(4,505
)
 
(6,839
)
 
(9,087
)
 
(14,689
)
Loss on extinguishment of debt
(748
)
 
(2,398
)
 
(748
)
 
(6,965
)
Total other expense, net
(5,253
)
 
(9,237
)
 
(9,835
)
 
(21,654
)
Income (loss) before income taxes
565

 
(8,833
)
 
27,136

 
29,843

(Benefit) provision for income taxes
(705
)
 
(5,757
)
 
1,022

 
(1,039
)
Net income (loss)
$
1,270

 
$
(3,076
)
 
$
26,114

 
$
30,882

Basic earnings (loss) per share
$
0.03

 
$
(0.08
)
 
$
0.65

 
$
0.84

Diluted earnings (loss) per share
$
0.03

 
$
(0.08
)
 
$
0.65

 
$
0.81

Shares used in basic per share calculation
40,209

 
37,925

 
39,957

 
36,586

Shares used in diluted per share calculation
41,429

 
37,925

 
42,315

 
42,255

See accompanying notes.


4


QUIDEL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands; unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
1,270

 
$
(3,076
)
 
$
26,114

 
$
30,882

Other comprehensive (loss) income
 
 
 
 
 
 
 
Changes in cumulative translation adjustment, net of tax
94

 
(14
)
 
(154
)
 
6

Changes in unrealized gains (losses) from cash flow hedges:
 
 
 
 
 
 
 
Net unrealized gains on derivative instruments
164

 

 
454

 

Reclassification of net realized gains on derivative instruments included in net income (loss)
(112
)
 

 
(112
)
 

Total change in unrealized gains (losses) realized from cash flow hedges, net of tax
52

 

 
342

 

Comprehensive income (loss)
$
1,416

 
$
(3,090
)
 
$
26,302

 
$
30,888

See accompanying notes.


5


QUIDEL CORPORATION
CONSOLIDATED STATEMENTS OF 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, 2018
39,386

 
$
39

 
$
363,921

 
$
(139
)
 
$
61,763

 
$
425,584

Issuance of common stock under equity compensation and benefit 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 (loss), 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

Issuance of common stock under equity compensation and benefit plans
122

 

 
1,433

 

 

 
1,433

Stock-based compensation expense

 

 
3,309

 

 

 
3,309

Issuance of shares in exchange for Convertible Senior Notes
1,497

 
1

 
86,427

 

 

 
86,428

Tax impact from the conversion of Convertible Senior Notes

 

 
590

 

 

 
590

Reduction for equity component of Convertible Senior Notes exchanged

 

 
(43,516
)
 

 

 
(43,516
)
Repurchases of common stock
(7
)
 

 
(395
)
 

 

 
(395
)
Other comprehensive gain (loss), net of tax

 

 

 
146

 

 
146

Net income

 

 

 

 
1,270

 
1,270

Balance at June 30, 2019
41,418

 
$
41

 
$
421,996

 
$
49

 
$
87,877

 
$
509,963














6



QUIDEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY--(continued)
(in thousands; unaudited)

 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Par
 
Additional
paid-in
capital
 
Accumulated
other
comprehensive income
 
Retained
earnings (accumulated
deficit)
 
Total
stockholders’
equity
Balance at December 31, 2017
34,540

 
$
35

 
$
239,489

 
$

 
$
(12,420
)
 
$
227,104

Issuance of common stock under equity compensation and benefit plans
516

 

 
5,652

 

 

 
5,652

Stock-based compensation expense

 

 
2,936

 

 

 
2,936

Issuance of shares in exchange for Convertible Senior Notes
2,428

 
2

 
118,073

 

 

 
118,075

Reduction for equity component of Convertible Senior Notes exchanged

 

 
(53,867
)
 

 

 
(53,867
)
Repurchases of common stock
(73
)
 

 
(3,232
)
 

 

 
(3,232
)
Changes in cumulative translation adjustment, net of tax

 

 

 
20

 

 
20

Net income

 

 

 

 
33,958

 
33,958

Balance at March 31, 2018
37,411

 
37

 
309,051

 
20

 
21,538

 
330,646

Issuance of common stock under equity compensation and benefit plans
326

 

 
3,898

 

 

 
3,898

Stock-based compensation expense

 

 
2,579

 

 

 
2,579

Issuance of shares in exchange for Convertible Senior Notes
1,270

 
2

 
82,108

 

 

 
82,110

Reduction for equity component of Convertible Senior Notes exchanged

 

 
(46,860
)
 

 

 
(46,860
)
Repurchases of common stock
(6
)
 

 
(375
)
 

 

 
(375
)
Changes in cumulative translation adjustment, net of tax

 

 

 
(14
)
 

 
(14
)
Net loss

 

 

 

 
(3,076
)
 
(3,076
)
Balance at June 30, 2018
39,001

 
$
39

 
$
350,401

 
$
6

 
$
18,462

 
$
368,908



7


QUIDEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
Net income
$
26,114

 
$
30,882

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization and other
24,458

 


Stock-based compensation expense
6,960

 
6,415

Amortization of debt discount and deferred issuance costs
1,151

 
2,714

Change in fair value of acquisition contingencies
626

 
745

Accretion of interest on deferred consideration
4,504

 
5,401

Amortization of inventory step-up to fair value

 
3,650

Loss on extinguishment of debt
748

 
6,965

Changes in assets and liabilities:
 
 
 
Accounts receivable
13,997

 
22,342

Inventories
2,704

 
3,710

Prepaid expenses and other current and non-current assets
2,139

 
(12,816
)
Accounts payable
(808
)
 
(5,070
)
Accrued payroll and related expenses
(4,037
)
 
(1,505
)
Other current and non-current liabilities
(5,125
)
 
(590
)
Net cash provided by operating activities:
73,431

 
62,843

INVESTING ACTIVITIES:
 
 
 
Acquisitions of property and equipment
(11,784
)
 
(13,577
)
Proceeds from sale of Summers Ridge Property

 
146,644

Net cash (used for) provided by investing activities:
(11,784
)
 
133,067

FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of common stock
8,233

 
9,549

Payments on Revolving Credit Facility
(35,000
)
 
(10,000
)
Payments on finance lease obligation
(157
)
 
(60
)
Repurchases of common stock
(1,871
)
 
(3,607
)
Payments of acquisition contingent consideration
(4,031
)
 
(3,017
)
Payments of deferred consideration
(44,000
)
 
(46,000
)
Payments of Term Loan

 
(161,813
)
Transaction costs related to debt exchange

 
(2,002
)
Net cash used for financing activities:
(76,826
)
 
(216,950
)
Effect of exchange rates on cash
38

 
10

Net (decrease) increase in cash and cash equivalents
(15,141
)
 
(21,030
)
Cash and cash equivalents, beginning of period
43,695

 
36,086

Cash and cash equivalents, end of period
$
28,554

 
$
15,056

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Purchase of property and equipment by incurring current liabilities
$
1,351

 
$
1,752

Reduction of other current liabilities upon issuance of restricted share units
$
2,018

 
$

Extinguishment of Convertible Senior Notes through issuance of common stock
$
86,428

 
$
200,185

See accompanying notes.

8


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 June 30, 2019, and for the three and six months ended June 30, 2019 and 2018, is unaudited. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s 2018 Annual Report on Form 10-K. Operating results for any quarter are historically seasonal in nature and are not necessarily indicative of the results expected for the full year.
For 2019 and 2018, the Company’s fiscal year will end or has ended on December 29, 2019 and December 30, 2018, respectively. For 2019 and 2018, the Company’s second quarter ended on June 30, 2019 and July 1, 2018, respectively. For ease of reference, the calendar quarter end dates are used herein. The three and six-month periods ended June 30, 2019 and 2018 each included 13 and 26 weeks, respectively.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Accounting Standards Update (“ASU”) 2016-02 and ASU 2018-11 (collectively, “ASC 842”) require a lessee to recognize a lease liability for the obligation to make lease payments and a right-of-use (“ROU”) asset representing the right to use the underlying asset for the lease term on the balance sheet. Deferred rent, previously recorded in other current liabilities and other non-current liabilities, is derecognized. The Company adopted ASC 842 as of January 1, 2019 using the alternative transition method to apply the guidance. The Company elected the package of practical expedients which, among other things, allows the Company to carry forward its historical lease classifications.
The following table presents the effect of the change in accounting principle on the Company’s Consolidated Balance Sheets as of January 1, 2019:
Consolidated Balance Sheet (in thousands)
January 1,
2019
 
Effect of Change in Accounting Principle
 
After change in Accounting Principle
ASSETS
 
 
 
 
 
Operating lease right-of-use asset
$

 
$
87,086

 
$
87,086

Total assets
$
806,371

 
$
87,086

 
$
893,457

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
Current portion of operating lease liability
$

 
$
5,290

 
$
5,290

Other current liabilities
12,992

 
(448
)
 
12,544

Total current liabilities
159,735

 
4,842

 
164,577

Operating lease liability

 
84,866

 
84,866

Other non-current liabilities
9,577

 
(2,622
)
 
6,955

Total liabilities and stockholders’ equity
$
806,371

 
$
87,086

 
$
893,457



9


In January 2017, the Financial Accounting Standards Board (“FASB”) issued guidance codified in ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment. 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 Company adopted the guidance during the first quarter of 2019 with no impact to the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The standard is effective for the Company beginning in the first quarter of 2020, with early adoption permitted. We are currently evaluating the expected impact of ASU 2016-13 on our consolidated financial statements.
Significant Accounting Policies
During the six months ended June 30, 2019, there have been no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 except as described below and in Note 10. Derivatives and Hedging.
Leases - Lease liabilities represent the obligation to make lease payments and ROU assets represent the right to use the underlying asset during the lease term. Lease liabilities and ROU assets are recognized at the commencement date of the lease based on the present value of lease payments over the lease term at the commencement date. When the implicit rate is unknown, an incremental borrowing rate based on the information available at the commencement date is used in determining the present value of the lease payments. Options to extend or terminate the lease are included in the determination of the lease term when it is reasonably certain that the Company will exercise such options.
For certain classes of assets, the Company accounts for lease and non-lease components as a single lease component. Variable lease payments, including those related to changes in the consumer price index, are recognized in the period in which the obligation for those payments are incurred and are not included in the measurement of the ROU assets or lease liabilities. Short-term leases are excluded from the calculation of the ROU assets and lease liabilities.
Operating leases are included in right-of-use assets, current portion of operating lease liabilities and operating lease liabilities in the Consolidated Balance Sheet. Finance leases are included in property and equipment, net, other current liabilities and other non-current liabilities.
Note 2. Computation of Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding, including restricted stock units (“RSUs”) vested during the period. Diluted 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. Potentially dilutive shares from the Convertible Senior Notes are determined using the if-converted method. Under the provisions of the if-converted method, the Convertible Senior Notes are assumed to be converted and included in the denominator of the EPS calculation and the interest expense, net of tax, recorded in 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 June 30, 2019.

10


The following table reconciles net income (loss) and the weighted-average shares used in computing basic and diluted earnings (loss) per share (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
Net income (loss) used for basic earnings per share
$
1,270

 
$
(3,076
)
 
$
26,114

 
$
30,882

Interest expense on Convertible Senior Notes, net of tax (1)

 

 
1,489

 
3,361

Net income (loss) used for diluted earnings per share, if-converted method (1)
$
1,270

 
$
(3,076
)
 
$
27,603

 
$
34,243

 
 
 
 
 
 
 
 
Basic weighted-average common shares outstanding
40,209

 
37,925

 
39,957

 
36,586

Potentially dilutive shares issuable from Convertible Senior Notes (1)
6

 

 
1,062

 
3,881

Potentially dilutive shares issuable from stock options and unvested RSUs
1,214

 

 
1,296

 
1,788

Diluted weighted-average common shares outstanding, if-converted (1)
41,429

 
37,925

 
42,315

 
42,255

Potentially dilutive shares excluded from calculation due to anti-dilutive effect (2)
227

 
167

 
183

 
183


(1) The if-converted method was not applicable for the three months ended June 30, 2019 and 2018 due to its anti-dilutive impact. For the three months ended June 30, 2019, the number of potentially dilutive shares issuable from Convertible Senior Notes under the if-converted method was 1.6 million shares. For the three months ended June 30, 2018, the number of potentially dilutive shares issuable from Convertible Senior Notes under the if-converted method and stock options and unvested RSUs were 2.8 million shares and 1.8 million shares, respectively.
(2) 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.     
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 (in thousands):
 
June 30,
2019
 
December 31,
2018
Raw materials
$
23,725

 
$
24,292

Work-in-process (materials, labor and overhead)
20,413

 
21,280

Finished goods (materials, labor and overhead)
20,484

 
21,807

Total inventories
$
64,622

 
$
67,379


Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
 
June 30,
2019
 
December 31,
2018
Receivables under transition service agreements
$
9,735

 
$
15,507

Income taxes receivable
2,698

 
2,703

Prepaid expenses
4,850

 
4,508

Other
2,410

 
928

Total prepaid expenses and other current assets
$
19,693

 
$
23,646



11


Other Current Liabilities
Other current liabilities consist of the following (in thousands)
 
June 30,
2019
 
December 31,
2018
Customer incentives
$
1,988

 
$
7,516

Income and other taxes payable
1,284

 
1,962

Customer deposits
1,787

 

Accrued interest
26

 
347

Other
2,609

 
3,167

Total other current liabilities
$
7,694

 
$
12,992


Note 4. Income Taxes
The Company calculates its interim income tax provision in accordance with Accounting Standards Codification (“ASC”) 270, Interim Reporting, and ASC 740, Accounting for Income Taxes (together, “ASC 740”). At the end of each interim period, the Company estimates its annual effective tax rate and applies that rate to its ordinary quarterly earnings to calculate the tax related to ordinary income. The tax effects for other items that are excluded from ordinary income are discretely calculated and recognized in the period in which they occur.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into legislation, which includes a broad range of provisions affecting businesses. The Tax Act significantly revised how companies compute their U.S. corporate tax liability by, among other provisions, reducing the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, implementing a territorial tax system, and requiring a mandatory one-time tax on U.S.-owned undistributed foreign earnings and profits known as the transition tax.
The Company recognized income tax benefit of $0.7 million and $5.8 million for the three months ended June 30, 2019 and 2018, respectively, which represents an effective tax rate of (125)% and 65%, respectively. The Company’s (125)% effective tax rate for the three months ended June 30, 2019 differed from the federal statutory rate of 21% primarily due to the discrete impact of excess tax deductions from stock-based compensation, the benefit from research and development (“R&D”) credits and corporate deductions attributable to Foreign Derived Intangible Income (“FDII”). The Company recognized income tax expense of $1.0 million and income tax benefit of $1.0 million for the six months ended June 30, 2019 and 2018, respectively, which represents an effective tax rate of 4% and (3)%, respectively. The Company’s 4% effective tax rate for the six months ended June 30, 2019 differed from the federal statutory rate of 21% primarily due to the tax benefit recorded for excess tax benefits of stock-based compensation, the benefit from R&D credits and corporate deductions attributable to FDII.
The Company is subject to periodic audits by domestic and foreign tax authorities. Due to the carryforward of unutilized credit carryovers, the Company’s federal tax years from 2009 and forward are subject to examination by the U.S. authorities. The Company’s state and foreign tax years for 2001 and forward are subject to examination by applicable tax authorities. The Company believes that it has appropriate support for the income tax positions taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors, including past experience and interpretations of tax laws applied to the facts of each matter.
Note 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 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. The implied interest rate of the Convertible Senior Notes was 6.9%, assuming no conversion option. The Convertible Senior Notes mature on December 15, 2020.

12


The Convertible Senior Notes are convertible into cash, shares of common stock, or a combination of cash and shares of common stock based on an initial conversion rate, subject to adjustment, of 31.1891 shares per $1,000 principal amount of the Convertible Senior Notes (which represents an initial conversion price of approximately 32.06 per share) 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 5 consecutive business day period following any 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. 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.
During the second quarter of 2019, the last reported sales price of the Company’s common stock was greater than 130% of the Convertible Senior Notes conversion price for 20 or more of the 30 consecutive trading days preceding the quarter-end. Consequently, the Convertible Senior Notes were convertible as of June 30, 2019. If the Convertible Senior Notes were converted as of June 30, 2019, the if-converted amount would exceed the principal by $0.4 million. The Convertible Senior Notes may be settled at the Company’s option in cash or a combination of cash and shares of common stock. Because the settlement could be in cash, the Convertible Senior Notes have been classified as short-term debt as of June 30, 2019.
During the three months ended June 30, 2019, the Company entered into separate, privately negotiated exchange agreements with certain holders of the Convertible Senior Notes. To measure the resulting loss as of the settlement dates, the applicable interest rates were estimated using Level 2 observable inputs and applied to the Convertible Senior Notes using the same methodology as in the issuance date valuation. The following table summarizes information about the settlement of the Convertible Senior notes (in thousands).
 
June 30,
2019
Principal amount settled
$
45,372

Number of shares of common stock issued
1,497

Loss on extinguishment of debt
$
748


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. During the six months ended June 30, 2019, the Company recorded total interest expense of $1.8 million related to the Convertible Senior Notes, of which $0.9 million related to the amortization of the debt discount and issuance costs and $0.9 million related to the coupon due semi-annually. During the six months ended June 30, 2018, the Company recorded total interest expense of $4.2 million related to the Convertible Senior Notes of which $2.2 million related to the amortization of the debt discount and issuance costs and $2.0 million related to the coupon due semi-annually. 

13


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 price and is a Level 2 measurement.
 
June 30,
2019
 
December 31,
2018
Principal amount outstanding
$
13,131

 
$
58,503

Unamortized discount of liability component
(617
)
 
(3,637
)
Unamortized debt issuance costs
(83
)
 
(487
)
Net carrying amount of liability component
$
12,431

 
$
54,379

Carrying value of equity component, net of issuance costs
$
2,265

 
$
10,092

Fair value of outstanding Convertible Senior Notes
$
25,356

 
$
85,999

Remaining amortization period of discount on the liability component
1.5 years

 
2.0 years

Credit Agreement
On August 31, 2018, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) which provides the Company with a $175.0 million Revolving Credit Facility. The balance outstanding under the Revolving Credit Facility as of June 30, 2019 was $18.2 million and is due upon maturity on August 31, 2023.
The Credit Agreement matures on August 31, 2023. Loans will bear interest at a rate equal to (i) the London Interbank Offered Rate (“LIBOR”) plus the “applicable rate” or (ii) the “base rate” (defined as the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus one-half of one percent and (c) LIBOR plus one percent) plus the “applicable rate.” The initial applicable rate was 1.00% per annum for base rate loans and 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 1.75% to 2.50% per annum for LIBOR rate loans and from 0.75% to 1.50% per annum for base rate loans. In addition, the Company pays a commitment fee on the unused portion of the Credit Agreement based on the Company’s Consolidated Leverage Ratio ranging from 0.15% to 0.30% per annum.
The Credit Agreement is guaranteed by certain material domestic subsidiaries of the Company (the “Guarantors”) and is secured by liens on substantially all of the assets of the Company and the Guarantors, excluding real property and certain other types of excluded assets, and contains affirmative and negative covenants that are customary for credit agreements of this nature. The negative covenants include, among other things, limitations on asset sales, mergers, indebtedness, liens, dividends and other distributions, investments and transactions with affiliates. The Credit Agreement contains two financial covenants: (i) maximum Consolidated Leverage Ratio (as defined in the Credit Agreement) as of the last day of each fiscal quarter of 3.50 to 1.00, 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 June 30, 2019
Interest expense recognized under the Credit Agreement including amortization of deferred issuance cost was $0.5 million and $1.1 million, respectively, for the three and six months ended June 30, 2019 and $1.8 million and $4.2 million, respectively, for the three and six months ended June 30, 2018.
Note 6. Stockholders’ Equity
Issuances of Common Stock
A summary of the status of stock option activity for the six months ended June 30, 2019 is as follows (in thousands, except price data):

14


 
Shares
 
Weighted-average
exercise price
per share
Outstanding at December 31, 2018
1,877

 
$
21.53

Granted
169

 
59.18

Exercised
(427
)
 
17.54

Cancelled
(3
)
 
42.29

Outstanding at June 30, 2019
1,616

 
$
26.50


A summary of the status of restricted stock unit activity for the six months ended June 30, 2019 is as follows (in thousands, except price data):

 
Shares
 
Weighted-average
grant date fair value
Non-vested at December 31, 2018
676

 
$
30.75

Granted
253

 
59.19

Vested
(118
)
 
25.28

Forfeited
(4
)
 
47.80

Non-vested at June 30, 2019
807

 
$
40.37


During the six months ended June 30, 2019, the Company issued 21,600 shares of common stock in connection with the Company’s employee stock purchase plan (the “ESPP”).
Stock-Based Compensation
The expense related to the Company’s stock-based compensation plans included in the accompanying Consolidated Statements of Income was as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
Cost of sales
$
262

 
$
265

 
$
542

 
$
496

 
Research and development
544

 
601

 
1,109

 
1,193

 
Sales and marketing
904

 
717

 
2,023

 
1,513

 
General and administrative
1,662

 
1,897

 
3,286

 
3,213

 
Total stock-based compensation expense
$
3,372

 
$
3,480

 
$
6,960

 
$
6,415


As of June 30, 2019, total unrecognized compensation expense was $28.8 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years.
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.
 
Six Months Ended
June 30,
 
2019
 
2018
Risk-free interest rate
2.51
%
 
2.49
%
Expected option life (in years)
5.7

 
6.3

Volatility rate
39
%
 
36
%
Dividend rate
0
%
 
0
%
Weighted-average grant date fair value
$
23.67

 
$
18.76


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 six months ended June 30, 2019 and 2018 was $59.19 and $48.45, respectively.

15


Compensation expense capitalized to inventory and compensation expense related to the Company’s ESPP were not material for the three and six months ended June 30, 2019 or 2018.
Note 7. Industry and Geographic Information
The Company operates in one reportable segment. Sales to customers outside the U.S. represented $87.7 million (34%) and $84.6 million (31%) of total revenue for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019 and December 31, 2018, accounts receivable due from foreign customers were $19.7 million and $23.4 million, respectively.
The Company had sales to individual customers in excess of 10% of total revenues, as follows:
 
Six Months Ended
June 30,
 
2019
 
2018
Customer:
 
 
 
A
16
%
 
18
%
B
14
%
 
13
%
C
13
%
 
13
%
Total:
43
%
 
44
%

As of June 30, 2019 and December 31, 2018, accounts receivable from customers with balances due in excess of 10% of total accounts receivable totaled $17.2 million and $33.3 million, respectively.
Consolidated net revenues by product category for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Rapid Immunoassay
$
21,772

 
$
16,689

 
$
84,266

 
$
97,374

Cardiac Immunoassay
67,982

 
69,850

 
133,854

 
138,294

Specialized Diagnostic Solutions
14,286

 
12,694

 
28,140

 
27,565

Molecular Diagnostic Solutions
4,212

 
3,922

 
9,960

 
9,065

Total revenues
$
108,252

 
$
103,155

 
$
256,220

 
$
272,298


Note 8. Commitments and Contingencies
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.

16


The components of lease expense and supplemental cash flow information related to leases were as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2019
 
June 30, 2019
Finance lease ROU asset amortization
$
84

 
$
147

Finance lease interest expense
211

 
420

Total finance lease costs
295

 
567

Operating lease costs
2,502

 
5,007

Total lease costs
$
2,797

 
$
5,574

 
 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities:
 
 
 
Operating cash flows from operating leases
$
2,304

 
$
4,584

Operating cash flows from finance leases
$
211

 
$
420

Right-of-use assets obtained in exchange for new lease liabilities:
 
 
 
Operating leases
$

 
$
328

Finance leases
$
43

 
$
1,369


Commitments for minimum rentals under non-cancelable leases as of June 30, 2019 are as follows (dollars in thousands):
Years ending December 31,
 
Operating
 
Finance
2019
 
$
4,610

 
$
628

2020
 
9,333

 
1,264

2021
 
9,570

 
1,272

2022
 
8,562

 
1,283

2023
 
8,182

 
1,293

Thereafter
 
76,566

 
3,203

Total lease payments
 
116,823

 
8,943

Less: imputed interest
 
(28,963
)
 
(3,879
)
Total
 
87,860

 
5,064

Less: current portion
 
(5,474
)
 
(443
)
Non-current portion
 
$
82,386

 
$
4,621

 
 
 
 
 
Weighted average remaining lease term
 
12.5 years

 
6.1 years

Weighted average discount rate
 
4
%
 
18
%

Summers Ridge Lease The Company leases two of the four buildings that are located on the Summers Ridge Property in San Diego, California with an initial term of 15 years beginning as of January 2018. Such lease includes options to extend the lease for two 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 certain must-take provisions related to the remaining two additional buildings that may create significant rights and obligations. The lease for one such building is expected to commence in the fourth quarter of 2019 and has minimum lease payments of $18.3 million during its lease term. The lease for the remaining building is subject to the expiration of the lease with the current tenant of such building, for which the date is not yet known.
McKellar Court Lease — In 1999, the Company completed a sale and leaseback transaction of its San Diego facility at McKellar Court to a partnership for which the Company is a 25% limited partner. The partnership is deemed to be a variable interest entity (VIE). The Company is not, however, the primary beneficiary of the VIE as it does not absorb the majority of the partnership’s expected losses or receive a majority of the partnership’s residual returns. The McKellar Court lease ends in December 2020 and contains options to extend the lease for three additional five-year periods, of which one five-year period is included in the determination of the lease term.

17


Litigation and Other Legal Proceedings
In Beckman Coulter Inc. v. Quidel Corporation, which was filed in the Superior Court for the County of San Diego, California, on November 27, 2017, Beckman Coulter (“Beckman”) alleges that a provision of an agreement between Quidel and Beckman violates state antitrust laws. Our acquisition of the B-type Naturietic Peptide assay business (“BNP Business”) consisted of assets and liabilities relating to a contractual arrangement with Beckman (the “Beckman Agreement”) for the supply of antibodies and other inputs related to, and distribution of, the Triage® BNP Test for the Beckman Coulter Access Family of Immunoassay Systems. The Beckman Agreement further provides that Beckman, for a specified period, cannot research, develop, manufacture or sell an assay for use in the diagnosis of cardiac diseases that measures or detects the presence or absence of BNP or NT-pro-BNP (a related biomarker) (the “Exclusivity Provision”). In the lawsuit, Beckman asserts that this provision violates certain state antitrust laws and is unenforceable. Beckman contends that it has suffered damages due to this provision and seeks a declaration that this provision is void.
On December 7, 2018, the trial court granted a motion by Beckman for summary adjudication, holding that the Exclusivity Provision is void under California law (the “December 7 Order”). On December 18, 2018, the trial court stayed the effect of the December 7 Order pending a decision on a writ petition Quidel intended to file with the Court of Appeal. Quidel filed its writ petition on January 18, 2019, asking the Court of Appeal to review and reverse the December 7 Order. On February 7, 2019, the trial court stayed all the remaining litigation pending the outcome of the writ petition and vacated all deadlines in the case.
On March 14, 2019, the Court of Appeal issued an order to show cause why the relief sought in Quidel’s petition should not be granted. The Court also stayed the December 7 Order pending a further order from the Court of Appeal. Oral argument has been scheduled in the matter on August 13, 2019. The Court of Appeal will likely issue a written decision on the writ petition within 90 days of oral argument.
Quidel denies that the Exclusivity Provision is unlawful, denies any liability with respect to this matter, and intends to vigorously defend itself. There are multiple factors that prevent us from being able to estimate the amount of loss, if any, that may result from this matter including: (1) we are vigorously defending ourselves and believe that we have a number of meritorious legal defenses; (2) there are unresolved questions of law and fact that could be important to the ultimate resolution of this matter, some of which are before the Court of Appeal on Quidel’s writ petition; and (3) discovery is ongoing. Accordingly, at this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations or liquidity.
From time to time, the Company is involved in other litigation and proceedings, including matters related to product liability claims, commercial disputes and 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 as to which we are not able to estimate a possible loss or range of loss, we are not able to determine whether the loss will have a material adverse effect on our business, financial condition or results of operations or liquidity. No accrual has been recorded as of June 30, 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 that management believes are appropriate given the nature of its business.

18


Note 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):
 
June 30, 2019
 
December 31, 2018