Edited Transcript of VIVO earnings conference call or presentation 24-Jan-19 2:00pm GMT

The non-GAAP operating income in the quarter was 21.6% or a 330 basis point improvement over first quarter of 2018. On a non-GAAP basis, net earnings of $8.6 million and earnings per share of $0.20 increased 30% -- 31% and 33%, respectively, in the quarter. These results reflect the benefit of the full year -- full phase in of U.S. tax reform in fiscal 2019.

On a GAAP basis, GAAP operating income of $10.6 million included litigation costs of approximately $600,000 in the quarter compared to combined litigation and restructuring charges of approximately $1.5 million in last year's results. GAAP net earnings and earnings per share in the quarter increased 29% and 27%, respectively.

Turning to the next slide, highlighting our operating segment results, both of our business units posted operating income and operating margin improvement compared to the first quarter fiscal 2018, despite soft revenues. First, Diagnostics. As mentioned previously, Diagnostics revenues declined 2% to $36.7 million, predominantly driven by an overall revenue decline of 16% in molecular products, including notably C. diff, which experienced significant volume pressure in the quarter. This pressure combined with pricing related declines in H. pylori drove an 8% revenue decline in GI-related products in diagnostics. Continued growth in lead products, which were up 5% and better availability of certain respiratory products compared to a year ago partially offset these declines.

Diagnostics operating income increased 2.5% to $8.8 million on a non-GAAP basis. As previously mentioned, lower R&D expense from lower clinical trial activity supported the operating expense reduction as well as lower sales commissions and costs associated with regaining lead testing venous blood claims. Operating margins for core Diagnostics in the quarter were 24%, up from 23% a year ago, both on a non-GAAP basis.

On turning to the Life Science side, Life Science revenues were about flat in the quarter at $14.8 million, as strong growth in molecular reagent products offset a year-over-year decline in immunoreagent revenues. Europe had strong demand in the quarter boosted by both new customers and new products. Other regions, particularly China, had softer-than-expected customer order activity after closing out fiscal 2018 on a strong note.

Life Science non-GAAP operating income increased significantly in the quarter to $5.1 million as a result of significantly lower costs overall and the result of restructuring and consolidation activities in fiscal 2018. At 34.6%, Life Science operating margin exceeded 30% for the second consecutive quarter on a non-GAAP basis.

Turning to Slide 7, we discuss our updated guidance for full year fiscal 2019. Our fiscal quarter results did cause -- our first quarter results did cause us to reexamine our outlook for the remainder of fiscal 2019, and we're providing updated guidance based on this reexamination.

We're now providing consolidated revenue guidance of flat to 2% growth based on lower growth expectations in Diagnostics as well as the softer-than-expected order patterns in Q1 in our Life Science business. Revenue guidance is now low single-digit declines in the Diagnostic segment and high single digit to low double-digit revenue growth in the Life Science segment.

In just a minute, Jack will provide a little more color on some of the major underlying factors that are driving these updated expectations.

We're also adjusting our operating margin guidance. GAAP operating margin guidance is now approximately 19%, representing primarily the expectation for litigation expense carryover into fiscal 2019. Non-GAAP operating margin for the company remains in the approximately 20% range. Our guidance in margin contribution between our Diagnostics and Life Science businesses has also been updated with stronger Life Science operating margin performance expected to largely match margin pressure in Diagnostics as the year progresses.

While the tax rate was lower than expected in Q1, a result of mix -- profit mix in low tax jurisdictions, our tax guidance for the balance of the year remains 25.5%, resulting in a full year tax rate of 24.5% to 25%. Accordingly, reflecting the net effect of these changes, our GAAP EPS guidance of $0.72 to $0.74 and our non-GAAP EPS guidance remains at $0.74 to $0.76 per share.

Lastly, it is important to note that strong demand for respiratory related products in the second quarter of fiscal 2018 will make for difficult comparisons, particularly in our Diagnostics business in Q2. As a result, our guidance implies revenue growth that is back-end weighted in the year.

And with that, I'll turn it over to Jack.

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John P. Kenny, Meridian Bioscience, Inc. - CEO, Executive VP of Diagnostics Business Unit & Director [3]

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Thank you, Eric. I'm going to start first with the Diagnostic business and focus on Page 9. As we're in the early stages of our new strategic plan, there is much work to be done to build a stronger, more sustainable Diagnostic business. Working to rebuild the pipeline of products is critical to our long term success, but will not provide significant growth drivers in fiscal '19.

Our R&D investment is underway with significant focus on executing the Curian platform and menu as we speak. This ongoing work will have positive impact in fiscal '20 and '21. As we prepared for fiscal '19, we built specific strategies to drive near-term performance while reestablishing a strong pipeline of products. As we came into fiscal '19, we focused on putting new products into the hands of our sales team. We established partnerships for 2 new products: The addition of calprotectin and Lyme test fit well into our existing product portfolio. In addition, we've internally developed product initiatives to drive near-term revenue in our Diagnostics business.

We recently received approval for our novel molecular CMV assay for newborns and have refocused commercial efforts for our lead care products to drive sales into our IDN and hospital customers. These 2 product areas will help us to drive further relevance with our IDN customers to better manage the health of our children.

In addition to those 4 products, we established a strategic partnership with DiaSorin in fiscal Q1 to drive collaboration commercially and to drive the sales of Meridian's HpSA assay on the DiaSorin LIAISON instrument. This exciting new product is the first fully automated HpSA test on the market and is a highly attractive product offering to reference labs, IDNs and to stand-alone hospitals. These 5 key products were all added to the commercial teams' product offering in Q1 and in early Q2, driving sales of these products as fiscal 2019 continues while protecting the base by contracting strategies and rigorous commercial efforts are key for the fiscal year and to bridge towards further new products for our Diagnostics business.

Moving over to Page 10. I want to take a minute and talk about the Life Science business. As we look at our Life Science business in fiscal -- for fiscal 2019, we continue to see strong growth prospects for the business. This Life Science business has been a good growing business for Meridian on an annual basis. However, we do tend to see more volatility on a quarter-to-quarter basis due to the timing of large bulk orders from our diagnostic manufacturer customers. This currently has greater impact on the immunoassay part of the Life Science business, but we do anticipate over time this will be the case for the molecular business as well, as our new strategy is increasingly focused on selling to molecular manufacturers versus academia.

While we anticipate swings from quarter-to-quarter, we do foresee continued growth for the Life Science business overall and remain extremely optimistic. The business is well positioned for continued growth in 2019 and beyond. We're excited to launch several new products on the Life Science side of the business. Our new AMH Inhibin B product has strong business potential primarily in the China market, which remains a key growth area for our Life Science business. We also continue to see strong customer interest in our new tropical disease products around the globe. Our new TRU Block ULTRA product is building strong customer interest with large diagnostic companies as this is a key ingredient to build great immunoassay tests. And last but not least, our recent launch of our new Lyo-Ready PCR enzymes will enable significant benefits for our molecular diagnostics customers and is generating strong customer interest worldwide.