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Luminex (LMNX) Beats Earnings & Revenue Estimates in Q2

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Headquartered in Austin, TX, Luminex Corporation (LMNX - Free Report) reported earnings of 20 cents per share in the second quarter of 2017, surpassing the Zacks Consensus Estimate of 9 cents by a massive 122.2%. Earnings also increased 23% year over year.

Revenues in the quarter increased almost 19.2% year over year to $76.5 million, ahead of the Zacks Consensus Estimate of $75 million. Luminex has a Zacks Rank #3 (Hold).

Segment Analysis

System Sales: Revenues jumped 10.1% on a year-over-year basis to $9.9 million. Notably, the company shipped 270 multiplexing analyzers in the reported quarter that led to the upside in revenues. Here we note that the systems included MAGPIX, LX and FLEXMAP 3D.

Assay Revenues: Assay revenues grew 45.8% year over year, out of which 12% was organic.

Royalty Revenues: Coming to royalty revenues, sales at this segment declined 4.7% on a year-over-year basis to around $10.8 million. Royalty revenues lacked luster in the reported quarter owing to timing of items like royalty minimums and audit payments.

Consumables Sales: Revenues at the segment declined 0.2% to $13.3 million. Per management, consumable revenue expectations will be adversely impacted by funding challenges owing to a multi-year bulk bead contract by a life science customer.

Quarter Highlights

Positive Tidings on the Regulatory Front: Luminex received its fourth and fifth FDA clearances on the Aries assay platform in the second quarter for ARIES Bordetella and ARIES C. Difficile assays. Luminex also gained CE-IVD marking for Norovirus and C. Difficile.  In fact, the company is on the verge of completing its clinical study for Group A Strep, which will soon be submitted for review by the FDA.

Lastly, Luminex announced that Japan's Central Social Insurance Medical Council has approved the recommendation by the Japanese Ministry of Health, Labor and Welfare (MHLW) to provide reimbursement for its proprietary VERIGENE assays. The approval was for two VERIGENE assays: the Gram-Positive Blood Culture test and the Gram-Negative Blood Culture test. Notably, Luminex is the only company in Japan with a clear automated sample-to-answer solution for blood culture identification.

Molecular Diagnostic Business Solid: Molecular Diagnostics Group jumped 45% to $10.7 million on a year-over-year basis in the second quarter. Solid performance was fueled by growth in automated solutions, VERIGENE and ARIES platforms. Furthermore, the segment got an additional momentum from the recently negotiated group purchasing organization agreements that are adding ARIES platform to their existing VERIGENE agreements, or are establishing new agreements.

Margins Details: Gross margin was 65% in the reported quarter, highlighting a contraction of 300 basis points (bps) year over year. The margins deteriorated on a year-over-year basis owing to an anticipated shift in overall product mix and higher inclusion of lower margin automated sample-to-answer solutions.  

However, gross margin was in line with expectations, courtesy of improvement in margin of Verigene and ARIES-related revenues, stringent cost management of the acquired enterprises, incremental system placements and a continuing flow of new assays.

Operating expenses rose 14% on a year-over-year basis, largely due to the incorporation of Nanosphere. R&D expenses (16% of net revenues) in the quarter were up 6% on a year-over-year basis. Meanwhile, SG&A costs were up 16% year over year. Excluding Nanosphere, SG&A expenses increased only 3%. As a result, operating margin, as a percentage of revenues, was 10% or $7.5 million in the second quarter.

Financial Condition: The company ended the second quarter with approximately $103.7 million in cash and investments, up $17 million from the first quarter.

Guidance

Luminex reiterated its 2017 annual revenue guidance at the band of $300 million to $310 million. This depicts 11% to 14% growth on a year-over-year basis. Luminex expects gross margins for the next few quarters in the mid-60s.

Meanwhile, the company projects third-quarter 2017 revenues in the range of $73 million to $75 million, down from the previously issued band of $74 million to $76 million.

Luminex Corporation Price, Consensus and EPS Surprise

 

Our Take

Luminex’s second quarter saw a strong top line, solid cash flow and profitability. The company’s Assay business will be its key growth driver over the long term. The company also witnessed favorable tidings at the regulatory front in the second quarter. In this regard, the reimbursement approval of VERIGENE assay in Japan and FDA clearance of Bordetella Assay are noteworthy. In fact, Luminex is on the verge of completing its clinical study for Group A Strep and is close to submitting the same for FDA review. On the flipside, the company slashed its third-quarter revenue guidance. Furthermore, low consumable revenues raise concern. Luminex expects revenues at the segment to be impacted by funding challenges related to a multi-year bulk bead contract from a life science customer. Cutthroat competition in the niche space is another headwind.

Key Picks

A few better-ranked stocks in the broader medical sector are Edwards Lifesciences Corporation (EW - Free Report) , Fresenius Medical Care Corporation (FMS - Free Report) and Dextera Surgical Inc. (DXTR - Free Report) .

Notably, Edwards Lifesciences and Fresenius Medical sport a Zacks Rank #1 (Strong Buy), while Dextera has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. Notably, the stock returned 5.9% over the last three months.

Fresenius Medical yielded a strong return of 9.3% year-to-date. The stock has a long-term expected earnings growth rate of 10.1%.

Dextera has a projected sales growth of 54.8% for the current year. The stock promises a long-term expected earnings growth rate of 25%.

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