Shares of Luminex Corp LMNX jumped 11.2% in after-hours trading yesterday, following impressive third-quarter results.
Luminex maintained its earnings beat trend and reported third-quarter 2015 adjusted earnings (including stock-based compensation) of 17 cents per share, which comfortably surpassed the Zacks Consensus Estimate of 10 cents.
However, adjusted earnings per share declined 22.7% on a year-over-year basis.
Quarter in Details
Revenues climbed nearly 6.9% year over year to $60.6 million, which managed to steer ahead of the Zacks Consensus Estimate of $57 million. The year-over-year improvement may be attributed to better system sales and a stellar performance by the company’s assay product portfolio.
System sales jumped 26.2% on a year-over-year basis to $9.6 million. Royalty revenues climbed 5.8% on a year-over-year basis to $10.2 million. Consumables sales fell 9.8% to $10.9 million.
Assay revenues increased 11.7% to $24.6 million, reflecting the successful execution of the company’s molecular diagnostic strategy. Infectious disease assay sales comprised approximately 70% of the total assay sales in the quarter, with genetic testing assays representing 30%.
In the reported quarter, Luminex sold 307 multiplexing analyzers including 164 LX systems, 113 MAGPIX systems and 30 FLEXMAP 3-D systems.
Gross margin improved almost 20 basis points (bps) on a year-over-year basis to 69%.
Adjusted operating margin (including stock-based compensation) expanded 120 bps on a year-over-year basis to 17.5%. The impressive upside can be primarily attributed to higher revenues as well as stringent cost curtailment.
Product Pipeline/Partnerships
In October this year, Luminex received FDA approval for its ARIES System and ARIES HSV 1&2 Assay. The company expects to unveil the product within the next few weeks and launch it at the Association for Molecular Pathology annual meeting, which is scheduled to be held in Austin, TX from Nov 4–7, 2015. Management expects the FDA approval to expand the company’s total addressable market to almost 6,500 labs, 13 times of its current user base.
The company also received CE-IVD marking for its NxTAG Respiratory Pathogen Panel. The Panel has the capability to simultaneously detect 21 clinically-relevant viral and bacterial respiratory pathogens, including the atypical bacteria Chlamydophila pneumoniae, Mycoplasma pneumoniae and Legionella pneumophila.
Luminex also announced the signing of a new supply and distribution agreement with Bio-Techne Corp. TECH, through 2020. The partnership deal involves immunoassay development and commercialization of Bio-Techne biological content using the Luminex testing platform.
Further, under the agreement, Bio-Techne will distribute Luminex multiplexing instrumentation, including the Luminex 200, FLEXMAP 3D and MAGPIX platforms in major markets worldwide.
Luminex also entered a similar deal with Affymetrix AFFX. Under the terms of the agreement, eBioscience, a business division of Affymetrix, will commercialize Luminex’s MAGPIX, Luminex 200 and FLEXMAP 3D multiplexed assay platforms in selected countries in the Americas, Asia and Europe.
Financial Position
Luminex exited the third quarter of 2015 with cash and cash equivalents of $119.6 million. Net cash provided by operating activities in the third quarter amounted to $7.8 million.
Guidance
Luminex raised its 2015 revenue projection. Revenues are now expected to lie in the range of $235–$238 million, as compared with the previous guidance of $232–$236 million. Fourth-quarter revenues are projected in the band of $57.7–$60.7 million.
Luminex expects revenues from molecular diagnostic assay portfolio to grow in the mid teens.
Owing to Luminex’s investments in the development of additional ARIES assays, management expects R&D expenditure for 2015 to range between 18% and 20% of revenues. Management also anticipates SG&A expenses to increase in the fourth quarter of 2015 as the company gears up for the launch of the ARIES platform.
Our Take
We are concerned about the volatility that exists with respect to consumables revenues. However, Luminex’s Assay business continues to act as a primary growth driver for the company with impressive revenue generation. We are also encouraged by the company’s healthy product pipeline.
Luminex’s ARIES system, set to be launched before the end of this year, is expected to be a major revenue opportunity for the company. Additionally, the launch of its NxTAG RPP should help boost the company’s product portfolio.
While ARIES is positioned to target the low-plex testing market, NxTAG RPP eyes the moderate-to-high volume labs in the multiplex market.
We believe that by offering targeted testing on the ARIES system along with syndromic panels through the company’s xTAG and NxTAG product lines, Luminex is poised to enjoy the strategic advantage of being the only company offering a complete testing solution to laboratories.
Zacks Rank & Key Pick
Currently, Luminex carries a Zacks Rank #3 (Hold).
A better-ranked stock in the medical instrument industry that warrants a look is Masimo MASI, which currently sports a Zacks Rank #1 (Strong Buy).
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