Luminex Corporation (LMNX) posted impressive third-quarter 2014 results. Adjusted earnings (including stock based compensation) of 22 cents per share were well ahead of the Zacks Consensus Estimate of 10 cents per share.
Earnings per share (EPS) jumped sharply from a penny in the year-ago quarter driven by strong revenue growth and margin expansion.
Revenue Details
Luminex reported revenues of $56.7 million in the third quarter, up 11.6% on a year-over-year basis, primarily on the back of strong growth in assay sales. Revenues were in line with the Zacks Consensus Estimate.
Segment-wise, revenues from Technology and strategic partnerships (TSP) slipped 2.1% to $32.6 million primarily owing to a decline in system and consumable sales, partially offset by increased royalty revenues.
Meanwhile, Assays and related products (ARP) revenues surged 37.8% to $24 million, driven by well-balanced growth across infectious disease and genetic testing assay franchises.
Assay revenues of $22.1 million, escalated 37% driven by continued growth in both the xTAG and MultiCode product lines. Within total assay sales, infectious disease sales comprised approximately 65% while genetic testing sales accounted for 35%.
While revenues from System sales inched up 0.7% in the third quarter, Royalty revenues spiked 7.7% buoyed by higher end-user sales compared to the prior-year quarter.
On the other hand, Consumable sales went down 5.6% owing to a decrease in purchase volumes and revenue from all other sources declined 1.4% to $5.2 million in the quarter under review.
Operational Details
Gross margin expanded 820 basis points (bps) from the year-ago quarter to 68.8% in the third quarter, supported by favorable product mix and the company’s continued strategic focus on cost control.
Research and development expenses, as a percentage of sales, contracted 220 bps on a year-over-year basis to 18.2%, primarily owing to savings and material spending as part of the shift in Luminex’s ARIES system development from alphas to betas.
Selling, general and administrative expenses (SG&A) as percentage of revenues contracted 450 bps from the year-ago quarter to 37.8%.
General and administrative costs were down on a year-over-year basis, as the year-ago quarter cost included bad debt expense related to the bankruptcy of a former customer. This was partially offset by a modest increase in sales & marketing expense, which resulted from higher investment on the company’s direct sales activities.
Total adjusted operating income was $9.3 million as compared with $1.5 million reported in the year-ago quarter. This massive growth was primarily driven by lower operating losses in the ARP segment, partially offset by reduced profitability in the TSP segment.
Financial Position
Luminex exited the third quarter with cash and cash equivalents of $89.1 million, up from $86.7 million as of Jun 30, 2013. Luminex had no long-term debt at the end of the third quarter.
Cash flow from operating activities improved to $11.5 million from $10.2 million at the end of previous quarter. In the first nine months of 2014, cash flow from operations totaled $33.2 million as compared with $17.5 million in the year-ago period.
Outlook
For 2014, Luminex revised down the high-end of its revenue guidance range. The company now expects revenues in the range of $225–$228 million (prior outlook $225 to $240 million). The Zacks Consensus Estimate for the same is currently pegged higher at $230 million.
Our Take
Luminex’s strong performance in the third quarter was primarily driven by balanced growth across all of its major assay product lines. Management continues to develop this business via strategic acquisitions, considerable R&D investments and by building a direct sales force.
Luminex also has two compelling products in its pipeline – the NxTAG Respiratory Pathogen Panel and the ARIES system – which are expected to boost the company’s revenues and market share over time.
However, despite several strategic and operating initiatives during the year, Luminex lowered its 2014 revenue guidance which raises our concern. Moreover, consumable and system sales are expected to be under pressure in the near term.
Luminex faces stiff competition from different players like Affymetrix Inc. (AFFX), Becton, Dickinson and Company (BDX) and Hologic Inc. (HOLX) which are concerns.
Currently, Luminex carries a Zacks Rank #3 (Hold).
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