Luminex (LMNX) 31 Jul 192019 Q2 Earnings call transcript

Good day, ladies and gentlemen, and welcome to Luminex Corporation’s Second Quarter 2019 Earnings Conference Call. My name is Sonia, and I will be your coordinator for today. Today’s call is being recorded. [Operator Instructions]

I would now like to turn the call over to Harriss Currie, Senior Vice President and Chief Financial Officer, for opening remarks. proceed. Please

Homi welcome XXXX conference On financial with today and our to our Luminex Chief me quarter and second and is to afternoon, call Corporation’s discuss call Executive Good Officer. President Shamir, operational results.

will your our review highlights, questions. performance. after Homi financial the open our that, corporate We’ll be we’ll agenda. call review following And standard I’ll the up for

Relations conference replay months reminder, today’s call of Investor will on available a recorded, a is As and website. six be for the section our being

Certain of during such XXE only be the adversely meaning and Reform based of and are to are anticipated made the to known of These statements speak or expectations and results may differ the statements Litigation call company’s or cause course on in Act plans actual those XXXX, Section our some are statements forward-looking the may purely be date and risks company and Securities the Exchange statements. beliefs of and claims not of control, that forward-looking subject within statements. consequently Securities of which materially today’s the as the Private unknown the historical for could protections and from beyond the Act by hereof, forward-looking provided current uncertainties,

Securities obligation to statements. you the we undertake Factors and with and our XX December these differences to to that on Form are XX-Q review cause update forward-looking the or filed year ended such Commission. XX-K documents, quarterly could Exchange contribute detailed for no We these in our Form and reports encourage

measure To measures extent covered which be SEC a on included our G. to release, is by of are on Regulation and available most GAAP that as in any Also, this certain accordance financial measures with financial financial Regulation comparable G directly non-GAAP website may the reconciliation will our presentation press covered, in non-GAAP be the call. defined

Homi CEO, President call to the over turn Shamir. now our and I’ll

Thank our productive our results. conference call of million of delivering of to discuss top a just you, very successful to million Harriss, year guidance and across lines, to X% prior operational all quarter range our $XX.X the had of $XX above up product revenue second quarter and from $XX the million. welcome and We our

success million, from revenue reduction corresponding revenue greater XX% million up mainly prior prior driven Our was of LabCorp than revenue in reflect which by $XX.X year from increase XX% sample-to-answer the by a year over our flow and assay period, the $XX of quarter.

and much comps the the in sums are Fortunately, improved revenue of reflects quarter smaller business. the LabCorp Gross loss last QX. X margin the it’s approximately margin occur as mid-XXs with behind QX with $X approximately still to margin of the to offset high by were majority us and This margin unfavorable of in Flow million $X XX% and lower flow the from expected. this from points XX% revenue LabCorp million quarter.

a improving modest Our margin future quarter all well. improvement leadership revenue as as in we remains laser-focused and stream, expect on team our result, across

$X into operating and $X and quarter, profitability to again, we sustain work hard under positive cash it successful the still continue to Luminex organization million, of the we growth cash by to the fourth reported we generate the While we just flow to once quarter, return million anticipate a very returning quarter reflect We positive profitability. in will nearly putting will, we that flow. was – Overall, is loss generated that expected. as

the now now processes are margin improvement, our substantially seeing administration. completely with the businesses and our of our businesses, the we complete, is system on under Integration proceeded under flow integration acquired and our well. extremely cytometry with this running is is Consistent business

team, work growth, integration our profitability generation the effort, this we value up that to help to improve outstanding investors opportunity other we flow be on expect. As that cash will and revenue wrap this we and will know redirect to able

with Turning At FDA. ARIES platform. time, submission to filed regularity is this last absent, opportunity MRCA the system, in other submission, as Assay regulatory the we identification Assay our July planned X, reported the meaningful of on on we the the this MRCA

to Although are our ARIES test from with that small with sample-to-answer portfolio both targeted the ARIES company to our being unique and combine and revenue only given down scale and component portfolio, able offering is we approach are of that customer benefit up selling able VERIGENE ECCMID. syndromic both with

quarter, Culture our II R&D And this followed addition, portfolio, other submission exciting our and but Assays are early still fungal panel work gram-negative by enteric to which VERIGENE respiratory FDA anticipate them In in II point. Blood on filing VERIGENE certainly at will later a launched, be bit panel QX. this component. There discuss we our continue to too we have it’s gram-positive,

this is with anticipate ready is testing We of evaluation a development the launch with commercial partner XXXX. and continuing and two research our our multiplex before excited next our are several The year. of for partner expanding also product, our next quarter system, SENSIPLEX with system by the midyear platform we QX full the of bid-based market over in and about market initial opportunity our the evaluation for partner for

finally in that burden current and of we confident fact success accelerated MDx flow return and an in improved are growth our organic stable year-over-year us, the the while Given from benefiting we behind businesses our will new the LabCorp to we innovative pipeline have XXXX, margin and will that a product, LTG, position. comparison gross

was the as billion of least XX% to of of margin at target our it towards gross return dividend. and target years next profit XX%, prudent we operating few felt strive well as we $X.X adjust our in revenue As to of

we per by our generate we $X.XX quarterly have in to confidence our that Given increased continued to our cash, dividend announced XX% share. today ability

return. with very confident Luminex and the increased We shareholder benefit want an and excited our are in of future to immediately

to I turn it that, will With Harriss. over

Thanks, Homi.

second new revenue end in revenue Consolidated In in of expected cytometry million. flow double the range. unexpected offset the second in level This represents flow growth the unlikely $XX.X flow over As reflecting for the the in of business, to was partially our financials but the is this the our quarter year. quarter of mentioned, X% digits cytometry a for stream continue, $XX revenues. the up $XX.X contributed revenue over reported million, still date LabCorp year grow reduction last and the Homi we Merck to basis. quarter, not growth the second This was million upper XX% above quarter revenue on expect year by addition the XX% of to

approximately a for in quarter, and the XX% consumable placements. with flat decline growth multiplexing system stream offset revenue was in royalty was $XX that but by LTG revenue in than XX% sales million expectedly more Our XX% growth

taken revenue when diagnostics for was is that XX% reduction XX%, the down account. molecular Our excluding up the stream but quarter of production, effect LabCorp into the

the $XX,XXX products ARIES Our annual remains $XXX,XXX with at increased XX% X% by utilization strong slightly per the sample-to-answer product products portfolio year. annum, customer year, our quarter up at for line for and VERIGENE from per our and our down prior rate per the

further contract During the augmenting placed under of approximately quarter, Assays. recurring additional the stream systems, sample-to-answer XX revenue we

cytometry of to line revenue are quarter revenue items. XXXX business. our the that prior compared increased service. year second as streams the in revenue flow to Remember, System XX% XX-plus-percent the the and by acquisition Turning driven the revenue system flow of

reminder, quarter we we’re year second our systems, of of of during XXX placed cycle. partners FLEXMAP the quarter. that large orders the Also and XDs approximately as in expecting as is XXX result During less not for from purchase full not multiplexing systems, recur the VERIGENE XXXX, the a in result large Thermo’s year did quarter, prior current mainly year substantial the compared completion ARIES XXX several upgrade a including a prior to This of the several quarter.

purchases XX% year both quarter Royalty sales increase for higher in systems, system and driven rental agreements. ARIES several royalties placed increased of base of VERIGENE our of an under allocation Consumable the sales those systems Included primarily the systems, our of our revenue, reflecting quarter $X.X from XX% prior rental the flow partners. million. by reagent grew and systems our a xMAP revenue reagent of revenue our large for sales bulk in from

includes As with accrual base shortfalls represent million royalties $XXX by adjustments. over of are royalty the revenue XX% our partners, coupled which and audit Base reported nearly a up reported sales findings, self-reported for royalties total reminder, user end quarter.

declined Assay by LabCorp Similar primarily decreased to our XX% million revenues, departure $XX diagnostics from of revenue approximately in revenue molecular year the quarter. quarter, stream, which the second the expected prior driven

over included year impact, prior reagents amount revenue small the this well. Excluding of grew a Assay flow XX% as and

of XXXX. of corporate business, carries mix as flow weighted a changes heavier margin in higher down number gross than $XX much in quarter, gross to to of averages; two, Assays three, margins sample-to-answer And lower This turning percentage and driven gross well. XX% in carry points sales, in cause primarily from Luminex’s the a margins was typically reduction margin income impact Now below sales. which the therefore, second We one; historic sales corporate margins posted LabCorp sample-to-answer our with averages; the a quarter our absorption number carry which the cytometry a relative mix. change statement. by historic X number assay sales decline the million Sample-to-answer margin by gross for gross

an XX% quarter for improvement months Net during ended approximately the integration for X from cytometry three activity percentage related XX, flow XX%. approximately approached have Our of the of March quarter flow acquired margins months the June XXXX, would margins points three XX, XXXX. ended were the

year. total down the LabCorp we sample-to-answer reduction as Additionally, the from business as XX%, incorporated XX% and revenue portfolio gross grew This were unexpected of percentage last a our margin core higher revenue. was margins in not core our

We move integration that in impact and margins $X.X a the the we gross of approximately the in almost million quarter. margin anticipate was improvements in elimination continued one hit little for step and of two COGS quarter primarily driven value as first of Improvements flow fully quarter by flow quarter fair inventory forward. nonrecurring expenses in absorbed in up were that the had

both $X an second due in Our cytometry operating activity. expenses the clinical cytometry million up incremental year to quarter expenses activity over prior to included increase the trial costs. a $X business, of expenses of million $X.X integration and relative for SG&A Overall clinical inclusion the primarily XX% was limited flow and or number flow R&D and related OpEx trial the million to and another showed of related just

and previously, Operating to aforementioned continue improve and as clinical quarter operating sample-to-answer trials gross our from this we the we the in compression on spending on million, were continue. increases flow to activity significantly. clinical the and margins, an back to that of concentrated three during mentioned declined expense benefit for will profit margin primarily we As $XX.X our million that growth the loss streams $X.X do will not quarter trials relative improve anticipate trial operating anticipate operating revenue to engaged of due We complete bring that up, further the addition. clinical margins margins flow level

reflecting expense second XX%, the effective the losses Our XX%, of rate – rate of a a was second tax effective which results the This primarily XXXX million in of $X $XXX,XXX year audit. of sorry, tax the prior projected quarter the quarter Canadian income taxable tax for to XXXX. the of compares the tax included benefit net of related discreet to U.S. in

impacts reform consolidated of and items, tax which significant jurisdictional effective be discrete to overall Absent based XX%, expect XX% tax incorporates one-time to year on of current revenues expectations rate our quarter adjustments expenses. our to tax the to adjustments distribution the in U.S. full the and we

in continue impact its to our model tax business various and assess jurisdictions. We

million million cytometry cash million Our dividends balance of paid of capital sheet strong absorbing the in two generated the of of flow of $XX cash the after quarter We quarter, $X.X recent investments expenditures over $X.X in $X.X million. in and purchase remains with inclusive and business.

Now, XXXX. into some of visibility third the quarter

For total expect quarter, and the between of deliver we $XX revenue third to million. $XX million

XX% than are slightly, with by but to down revenue the flow as derived contribution flow We up elevated from be expect base the business of revenue stream revenue. the from system revenues more system

the expected comparison third We in prior is flat anticipate the revenue be the to royalties of quarter. versus total would year last Consumer quarter modestly be year. to up

accounting the you our findings included royalty given aggregate in rules. changes and adjustments As know, in revenue, accrual recent audit

LabCorp revenue, from we see quarter. $X from expect Assay For third headwind the to million a

profitability, the to at should improvements The of quarter MilliporeSigma agreement the markup third quarter we respect second this from material concluded margin last end quarter the second quarter. of be as the With manufacturing in modest expect service the and headwind. gross its with

fact below the presence primarily in by revenues, factors the sample-to-answer of our gross margins to be will our flow which the above The derived have expected that be our We XXXX for tempered gross both be represent revenue expect of can cash affects growth this franchise is recent compression of do, quarter. total corporate a margin the to however, for flow Obviously, positive averages and the third operating year. overall profitability. from

final of business Luminex, Merck. you The inventory on flow our approximately the acquired, purchase, step of purchase the and this With to the manufactured when will deal. behalf integration we have completed transferred the will flow will manufacturing of recall a deal, officially million by is announced officially $X all to we have and as

causes cash it quarter significant a impact flow. However, on third

further of across steady-state, another the the rise margins we volumes quarter factors added volumes of of entire scale. should the activity unexpected giving economies business, and and to standpoint, completion a benefits flow a business, earnings breakeven the include an overall experience of From Stabilizing of loss. integration in or returning us

We’re paying the we as expenses, we’ll confident and careful of top the margins return end growing priority, to our that committed year. and are attention operating and flow probability to by cash sustainable and

we’d of million guidance $XXX year Finally, of our million. full $XXX reaffirm to like to

for turn like it back comments. over some I’d to final Homi Now to

Harriss. Thanks,

quarter As the about and excited in result, are stronger I earlier, prospect second I’m pleased the mentioned and we company. much for the across our progress future, our beyond continued with company. a as XXXX and emerging

on VERIGENE partner For well this supporting will prepare launch grow continue and focus footprint year, SENSIPLEX for II our portfolio, the the space. and expanding as our the science rest we as in our of of to life sample-to-answer

this flow. of to Luminex cash improved return end and the demonstrate organic growth year, By margin and position and should accelerate a gross increased profitability

achieving with provided I’m in to management remain objective. our our objective. our opportunity company ability to those who employees, share innovative committed the a With in confident investor. has team, great lead delighted our long-term dedicated to achieve Our technology I’m our dividend to success confidence increase outcomes strong our our and and with

This end for the line our open formal comments. please Operator, questions.

question from Nam comes Thank Sung with you. first Instructions] Our Ji [Operator BTIG.

Your line open. is now

for starting here. have curious, before? of taking but strong seeing Maybe you’re Was definitely terms business. kind is you on Congratulations to what questions. you this had the Or growth with my kind the – you flow thanks Hi, might cytometry terms you are are very in rate are insights out? quarter. I Obviously, how the growth and the talked exceeding likely not that here the and of this expectation. there sustainable, you in anticipated of the is be additional adjusting markets have portfolio of playing about,

No. a the the got we QX business customer. product QX, QX especially better we so while a cytometry ship and to flow the on strong, Sung some in control we to it’s to Ji, did told we okay? took QX, be – really have that not benefit manufacturing, the Normally think the Obviously, a and I that manage will ship.

all get ship to them ship that much them and time faster. able to there longer been we’ve So normally take

So that’s one.

think even saying, be be the keep XX% QX, relatively between this to to I QX. slightly then business anything anticipate quarter the to a year. we will we strong going last compared to decline XX% as year Secondly, and flat,

financial, forecast for really But now on know to to example, and for and that target anticipating we’re need we us. enter also do forecast benefit we ever the now et are to to Merck and are controlling cetera we business better, and where – And administrating it. going the we to the think, don’t

really we XX%. from looking was Merck. across it TSA Luminex pay the very to turning street. the gross of margin to forward shipping a that that. So we into gross manufacturing have be Biggest had seeing is – we the to I’m and we again, customer it’s not now to to we got the a improve it that the nice start the some because depleted to still margin started that product start need acquisition. inventory we Merck, But grip integrate better thing probably have without to continue Nevertheless

in product So but additional us. eventually, margin. good for far, in that’s we to very we I maybe, begin start But it also improvement think, when should ship was Austin, gross seeing relax, manufactured been so

is manufacturing, Great. Just side margin a terms volume cetera? improvement margins, on be And is Or point? the Are then in significant maybe sample-to-answer curious. there et for going by to there opportunities the there? on driven headroom still of at this it largely

points. from single-digit Yes, we Think there of point are XXs don’t opportunities of in in – of think improvements of where now. are it it the

So it’s think. not wouldn’t point I are XX – yes, improvement, opportunities but jump, there another for

will early the to And Yes. us. a it’s on. and have less But of for of them day, – The margin for point to seeing VERIGENE look too the volume packaging, to of while to lot when when we and VERIGENE need a you II plastic, doing keep ARIES gain sure, margin at less look not is manufacturing there start, we’re additional of at gross improving, Both of because is it, we wait field, have gain then improve. enveloping will less the I, II. full, start things cannot great you in eventually, VERIGENE but we I VERIGENE end

initially we I VERIGENE to first and of Although, VERIGENE will you the couple II. to – years, for have I remind

have some again, the really them done progress of a pull So margin there. margin the will in but we nice down, yes, gross

me, very you And then a strong just Great. quarter. end-user this bearing royalty from saw lastly sales

driving see have that that? going – sustainable segment curious, was forward well? of you of if so, What customer what’s as do Thank do a as driving type And that growth, you sense be might you.

to single-digit grow sales still in – rate. certainly, expect don’t end-user the our We we high

range. expect over the term long see would those that X% sales growth to end-user you in continued X% in to what is So reported

spread life Now and both diagnostic segment. the quarter reasonably the sciences across evenly was current

So overall, nothing abnormal.

in then our Some partners within on revenue quarter. direct for reported spikes reported are – royalties because sales. that sales current the opposed the in which accruals, to our contribute partners them accrue to end-user the end-user basing is these Remember, royalties we adjustments both quarter by as now

there, moving but parts distributed couple that a overall, there’s relatively serve. So we was it markets evenly the across

Great. so Thank much. you

from JPMorgan. next our question Peterson And with comes Tycho

now Your open. is line

in a is I good one My cytometry, flow XQ Julia today. Thanks mentioned Tycho afternoon. and growth the expect for then This you first Hi, question. for maybe, up flat following that you taking think strong XQ. on

Just you’d out? dynamics are there seasonality? call wondering, that like Or normal other to is one-time that

Yes.

clarify clear, me may what this for let flat not year’s to the So flow that year. not relative expect something relative to is that be flow be flat completely is second cytometry of we last to quarter cytometry

and So Merck will this base a then we given year all We statements, Does in right we second the was year that the from it’s for said. quarter the place of the be of some a $XX year. of that million the between financial last reported as someplace down the from $XX growth $XX million where base for should expect year, $X XX% of between help? off just prior be full that and at XX% in Homi possible growth, it bit reported and million year million

Yes, clear okay. now. It’s

then… and So

flow people a And equipment business QX in of buy trying trying capital the Julia, budget. quarter year. the strong before their They’re normally end use to because to the is

strong anticipate quarter. a to why be that’s very So QX we

typically typically Fourth strong. quarters are are quarters Third lighter.

ship than they mentioned given it Homi our them ever us able as take to orders faster a and – were it advantage. So do to manufacturing previously, our and earlier, gave little ability, ability

would quarter was be the so certainly the quarter. fallen could revenue typically third there second that have And that in in

shifting of that bit well. little bit second little the there a as effect a on there’s and So of quarter had

you the improve you gross for Got then headwinds profile of specifically, when once what you it. expect think in is be gross you. normalized our to do And heard gross behind margin, said margin as flow do more margin inventory are cytometry? a But you I terms

consumable ability the revenue there consumable revenues as For up obviously is further. flow, approaching add to without that step XX%

about we’re talking depending a maybe company, and things. XX%, the mix Again, other on better. For

you’re those you should XX-plus looking long addition talked added, looking further mix the are longer we the of small you today, portion for once consumables. And your out are an at well. years, – the in given XX% we for very and of opportunity flow drift the have consumables flow, think term, flow that’s in in could several company, about about that as the long-term So term you’re a approaching models, without consumables that you’re see

flow in so your And what’s terms for progress cytometry? consumables of introducing

Yes.

We how approach best are do evaluating to is it. the what and

we we will not decision. And but still it see till so competing that our we we’re are partners. need be to – It’s one, the make obviously, evaluating, a with

of focusing – lot So the on the and a that’s our priority launch SENSIPLEX, there. we also are

the lot a there’s So of things here. mix in

Think as two of So don’t consumables year as it now. years think of flow next a or from event. three

what then the finally, you from new X in gross margins product expectation II up it. launch And impact launches? guys gear your VERIGENE SENSIPLEX for Got and is year, these the as next of terms

SENSIPLEX current portfolio. is, product obviously, than xMAP be margin going to better a our

get some that be – and portfolios we’ll have from all should in the margins sets we of actually. will margins product replacing. excess gross both of that systems recurrent of that, There are they’re they think So lifts

But will the you and number as overall marketplace. So in, that for we think those, get we line. of in not those one, off capacity, have the at when accepted margin product advantage believe you think launched a

you. Thank

Thank of you. Couillard next And [Operator Instructions] from Jefferies. question comes Brandon our

Your now open. line is

but quarter, sort the trend. accounts for Can Hey, in XX users half number back the placements thanks. much by if of of sort of you’ve the us only the had XX the And continues at down grew seen sample-to-answer in you which sequentially, of year? you active then Good afternoon. to business, the is trend of I your Homi, placements expectation secondly, the the look on slower for first, trend two-part sort quarter-over-quarter. you placement question give placements, here

you’re help that lost placements? placing have there competitive there of sort more where you can users? you is Or reconcile dynamic may perhaps whether systems some existing So the – a And us delta with there?

competitive lost, seen let’s have with that that. not start We we

XXX say, that from and different to anticipating close are something to We be are not we are placing, repeat we system, let’s the competitor.

buying contracting very basically at look nicely. somebody system. utilization they Currently, It’s committed as review we the that, the continue And years contractual five – have obviously, on are to you or just look We like a that it system, of a something and to grow that. at today. that if we three to mean number

We contract ago, meaning in contracted was Nanosphere, we’re XX the but three talking acquisition we the portfolio have about That’s XXX system months, we last was a since – which that’s it years XXX and we of very Nanosphere systems. say, are system, tremendously, there. XX building months, nice

yes, So see the have. of we some that’s that’s XXX beauty close and VERIGENE, again, good under who contract the in they will ARIES ourselves VERIGENE to either which contract were I or customer have provide And think that, what the our and and don’t portfolio for this to under customer place behind to who system. some Brandon year we unique them asked or that there success a approaching Austin ARIES decide

part really But XX%. the that’s So at Assay success. this quarter during growth-wise of

this and track extremely nicely. to continue we So business call

is the contracting Brandon, talk system mean a active after contracted you necessarily yet The that. it we one on thing, to have consider day one doesn’t system, is about that that

quarters. active customers Those contracted as thing that systems So this the of quarter. will quarter for Same or in have systems we so. become previous over the happened next a number ones

the relatively total I the increase losing we them, up a customers an quarter we the in customer the active certainly, active low, years. contracted that thing active bought direct gone In between three quarter, and for second if recognize since increase past but correlation them back, system in and look as that number our customers. in note, one when that has not mentioned, we’re you’ll not base, there’s number that bought way the every all Homi So customers. is you

confident are we continue. will that, So that

follow-up two-part you very Harriss. That’s Thank helpful. Okay. you. for question, Then

sort can As a about part that of million to implies of you most flow? that the that, quarter to guidance your confidence in up it can what $XX all to of $XX million bump? fourth revenues attributable sequential might sequentially, step of that that level speak the be – And goes, manifest business are areas

No. well. flow. LTG there season Certainly every respiratory of as attributable to about talked spikes that component’s and flatness in in the we attributable see the some increases and to component the in the year revenue. A We beginning LTG is

see increases continued consumable in revenue. in we increases royalty we’ll revenue, The believe. So

all business within So with diagnostic, effectively, sample-to-answer more Brandon, and it’s focus across the molecular flow. in

But QX, if far, quarter. look our you historically, strongest by is that at

that’s You Bigger part have out to it’s of the so all cytometry. remember chunk LTG respiratory of on more QX. the the And that, trending our time Harriss the a coming top and of now flow life really that research that have we season, moment, to the the as in that’s said, there estimate.

quarter? you of rate cash operating think $XXX some actually then by where Okay. for you And that could Harriss, give million ballpark out be you for fourth then still sample-to-answer feel And XXXX? you’ll approaching the comfortable that shakes run us

flow that entire quarter there – and for tell But flow healthy. overall, give quarter that cash to the third are we But, cash think exert and XXXX believe for our portfolio. a instance, increase the you for flow. very built operating into expand the The that, I’m prepared fourth as us. the firm Merck operating be stabilize should big we in return and expenses be that and operating full a to not flow operating third some you. from for exact in we incremental positive. continue as operating breakeven will inventory operating should profitability is continue margins factor close in purchase to number for as quarter We I’m to factors I We to of that There well, year. moving cash cash to That’s $X inventory grip to up the cash, continue prepared for of entire gross they on million that mentioned company, the the for

Thank you. Super.

remarks. conclude to the like and over gentlemen, would to Shamir closing this call our question-and-answer ladies session. now Homi turn any And I does for

thank future. very everyone, earnings and in the We in to for seeing you, forward look person Sonia, you, you in your Thank near our attendance call.

and you today’s program. today’s participating gentlemen, concludes in Ladies thank for conference. This

disconnect. a You Everyone, all great may have day.