Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019, Luminex Corporation's conference call.
At this time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you would need to press star one on your telephone.
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I like to hand, the conference over to your Speaker today, Jeff Christensen Senior director of Investor Relations.
Thank you. Please go ahead Sir.
Thank you good afternoon, everyone I joined Luminex in September and look forward to working with you My contact information is in our financial results release.
Slides of our third quarter 2019 results are available for viewing or download from our Investor Relations website at Investor Day, Luminex core dotcom.
On the call today are Homi, Shamir, President and CEO , Harriss Currie Senior Vice President and CFO .
Well be following are standard agenda today hold me will review our corporate highlights Harris will review the financial performance and after that we will open the call up for your questions.
As a reminder, today's conference call is being recorded.
The conference call a replay on the slides.
We'll be available for six months on the Investor Relations section of our web site.
Certain statements made during the course of today's call.
May not be purely historical in constant currency. Consequently may be forward looking statements within the meeting as a private Securities Litigation Reform Act of 1995.
And the company's claims the projections provided by section 20, Onee of the Securities Exchange Act for such statements.
These forward looking statements speak only as of the date hereof and are based on our current beliefs and expectations.
And are subject to known or unknown risks and uncertainties some of which are beyond the company's control that could cause actual results or plans to differ materially and adversely from those anticipated in the forward looking statements.
Factors that could cause or contribute to such differences are detailed on our Form 10-K for the year ended December 30 Onest.
Our quarterly reports on Form 10-Q filed with the Securities Exchange Commission.
We encourage you to review these documents and we undertake no obligation to update these forward looking statements.
Also certain non-GAAP financial measures as defined by FCC regulation G. Maybe covered on this call.
To the extent that any non-GAAP financial measures are covered a presentation of and reconciliation to the most directly comparable GAAP financial measure will be included in our press release.
Which is available on our website in accordance with regulation G.
I'll now turn the call over to our President and CEO Homi Shamir.
Thank you Jay good afternoon, and once again welcome to all too close to 2019 and earnings call.
Earlier. This afternoon, we posted always old pulled that down for 2019.
As you can see from diesel is old we continued to will be puncture Mosul flow coal businesses, which created.
7 million blog on the call in quote due until two one maybe on revenue impact on our year to date basis.
When is that stability challenges that function isn't it.
Despite the lump Colby function, we grew total revenue by about 9% over that so well through 2013.
Continuing focus in all my local sample to answer portfolio led dog well disclose how do we saw revenue growing by 27% in this product line.
We also demonstrate the continued success, we saw a licensed acknowledging goal, which revenue growth of 7%.
Once the new flow cytometry revenue stream contributed 8.7 million in the top quartile. This was about 3 million on below our expectation Emmys. This well I mean zone, we made solid revenue guidance for the quarter.
Given the timing of fencing. These businesses, we anticipate Q4, two being months longer enabled.
Maybe on.
When we combine our year to date flows since all still deeply me on this will bring us to about 45 million target full value, which is a goal today more than 10% consistent we saw initial objection.
In addition drilling that well too we saw gross margin improvement in now flow cytometry portfolio.
Gross margin once again wedding line, we solve expectation in the mid Fiftys.
This is a reflection of both the globe or something to on some businesses and the replacement of the Iron Mountain Labcorp revenue with the low margin from sample to on sale and flows fulfillment in revenue.
Obviously.
When you mean in place large policy now gross margins any ability, while we generated a loss in the growth do we were as expected cash flow positive.
Overall it was a successful in for that reflect the out of all the organization. These 14 into returning luminex to sustain growth and profitability.
Today, I would like weekly thoughts on Dolby.
Fair an update on all will both for the pipeline and secondly, our longer term expectation for the businesses.
Regarding our pipeline I'm very proud of that focuses we have made with vantage into energies in all my local diagnostic business space as well as the sense. It plex, while next generation and sensing fall off in our life science businesses.
Which is oh, we fail to all known Mdx business generally includes all MPG and flows fulfillment the portfolio.
This next generation platforms and implement when significant technology advancement in every major area of our diversified businesses.
We are managing to I'm excited to say, that's all very gentle jiajiaoban on has now been submitted to the if the a and I'm happy to let you know that we also expect to some meat vantage and tools off but that we can find on by the end of DC.
As I've said previously we are planning on launching those too but now its next few as a closer look at that as possible to generate maximum marketing big once we receive if the fluid.
In addition to those stores say, we have also actively working on the development or five gram positive gram negative and east blood culture panels to expand the menu or no vintaging to seize them.
As I remind the Virgin tool is luminex snake generation multiplex fully automate that some people to on sit Ivy. This system that begins on the success of that Colin Verigene system.
Feed show expended panels and fully integrated some purposes, so he the and that honor license.
The unique flex capability of this thing gave off advantages in the call, including basement, the environment and allow used to send to the bolt only do thoughtful jensen of interest.
Hosting cost effective clinically relevant diesel.
Lastly, you know MPX segment, we received FDA clearance football as these say, it's saying on September 23.
This represents the eight disease, the say to be clear globally and the seven in the U.S.
You likely know by now they are these system is a sample to on sale and so I mean supplement that came along both ifidie and lot development.
Designed to increase Lapa fully efficiency and show you sold the accuracy and feed simply if into the model Lapa tolling. They are these system pulls the level of building work flow winding showing lobbied actionable patient results.
Luminex today remains the only company offering both targeted and Syndromic testing for its customers.
In our life Sciences businesses, we have previously communicated all playing to include youth and next generation X. and be platform to the market in the second half 2020 .
This new system means the next termination of Luminex multiplex.
I mean basically this is leverage our market, leading excellent technology, which is supported by more than 16000 system shape over the last 20 years.
We have excited to launch and more than compact instrument that offered a non performance.
The complete the exit be a same menu this race backward compatibility and introduce new and exciting features such as a secondary both in China to spot because these 15 innovation.
Well, my making solving bull case in meeting development milestone and they've received positive feedback from our positive.
We are focusing positive in the development both systems and show that both look we believe the market will meet the needs of their customer was the backbone of all businesses.
We're also excited about outflow. So tell me think pipeline, we expect that launches of both walk on next generation and sense thin file and I mean that Steve.
We are focusing those systems the immense theme, which is a completely different handshake that technology, we snow Colin competition out technology images said inflow and now visual validation of scientific claims and for using statistically then.
And imaging his old with an ability to see then population that other imaging technology cannot.
In time of folks, but they should have out business as we continue to expect letting the next fall to fight for years, we wouldn't go luminex from more than five on that mainly on the menu on Guy can you just go smile turn it on six people, saying and open thinking margin near 20.
All the revenue growth contemplate that to get there you still got me with any future acquisition opportunity being incremental to the speed gifts.
We expect all my local franchise, both automated the known automate that to go and 115 to 20 people, saying Oh publishing business. The goal in the ice single digit and outflows supplement their businesses to girl in the low double digits.
Revenue growth, coupled with margin expansion, resulting from economy of scale, we've seen manufacturing should provide the expected level of gross margin.
Continued strong control of Opex, including <unk> R&D spending when it off to increase our open end margin thoughtful objects that Lincoln.
No as I just want to review the financial dropped off and afterwards I will he turned me some fine unfolds.
Thanks Homi.
So let me mention consolidated revenue for the third quarter was 78.7 million up approximately 9% for the quarter, while absorbing the decline in Labcorp revenues of approximately 7 million.
This reflects the addition of our new flow cytometry business, which contributed 8.7 million for the quarter.
Well cytometry revenue for the third quarter did fall short of our expectations Andas Homi mentioned this is the primary driver to our missed revenue guidance for the quarter. However on a year to date basis. The flow cytometry business is on track with our full year expectations with over 10% growth in revenue.
Over the revenue reported in the Merck financials on a year to date basis last year, we still expect to flow revenue to meet our 45 million dollar target for the year, which maintains our growth rate above 10%.
Our LTG revenue stream was 38.7 million, representing a 7% growth over the prior year quarter, mainly driven by growth in both consumable and royalty revenues for total molecular diagnostic revenue stream, which includes both automated and non automotive products was up 6% excluding the.
Back to the Labcorp reduction in the current quarter, but the comparable was down 15% for the quarter with the Labcorp results reflected.
At another strong quarter with our sample to answer portfolio, which increased 27% over the prior year quarter.
The annual utilization rate per customer for our Verigene products increased 16% to approximately a 121000 per annum from the prior year and for our Aries product line. The annual utilization rate remained roughly flat to the prior year quarter at approximately 55000 per year.
We placed 31 additional sample sample to answer systems under contract in the quarter light by our own standards, but which as discussed previously continues to support growth in future assay revenue interestingly in the first two weeks of the fourth quarter, we close contracts on almost 20.
Additional systems.
We expect to finish the year with a total of approximately 200 additional systems under contract.
Turning to our revenue line items system revenue grew 52% in the third quarter of 2019 as compared to the prior year driven.
The acquisition of the flow cytometry business remember that the flow revenue streams are 90 plus percent system revenue and service.
During the quarter replaced 255 multiplex systems, not including Aries and Verigene systems compared to 284 in the prior year quarter.
Current quarter placements were within our previously communicated expectations of 225 to 275 multiplex systems per quarter.
Consumable revenue increased 15% from the prior year quarter, driven primarily by higher bulk purchases from some of our large partners.
Royalty revenue grew 8% for the quarter.
As a reminder, total royalty revenue includes base royalties.
Coupled with audit findings self reported shortfalls and accrual adjustments base end user sales reported by our partners were up more than 10% for the quarter 249 million.
Similar to our molecular diagnostics revenue stream assay revenue decreased 13% in the third quarter, primarily driven by the expected departure of Labcorp revenues, which declined 6.9 million from the prior year quarter. Excluding this impact essay revenue grew approximately 11% over.
The prior year and included a small amount of flow reagents as well.
Now turning to the income statement.
Gross margin for the quarter was 53%.
Lower by eight percentage points from a third quarter of 2018. This decline was primarily driven by the 6.9 million reduction in Labcorp assay sales and a change in sales mix weighted towards.
Weighted heavier towards lower gross margin items.
Excluding the amortization of intangibles Opex was up 6.4 million or 17% relative to the prior year and included approximately 6.5 million flow cytometry related expenses not present in the prior year figures.
We incurred an operating loss of 5.7 million.
Merely due to the aforementioned gross margin compression and the operating expenses from the flow addition.
Our effective tax rate for the third quarter of 2019 was a benefit of 8%, reflecting the projected taxable losses in the U.S. and the third quarter of 2019. This compares to the prior year effective tax rate of 54%, which included impacts from the tax act provisions for the U.S. federal tax.
Jason a foreign intangible income and our mix of earnings in the U.S. and Canadian jurisdictions.
Absent significant discreet items, we expect our consolidated full year effective tax rate to be 10% to 20%, which incorporates adjustments to the onetime impacts of the U.S. tax reform of the current quarter and adjustments to our overall tax expectations based on jurisdictional distribution of revenues and expenses.
We continue to assess our business model that is impact in various tax jurisdictions.
Our balance sheet remains strong with over 66 million in cash and investments.
After absorbing the recent purchase of the flow cytometry business.
During the quarter, we generated 9.4 million and cash from operations incurred capital expenditures of 5 million unpaid dividends of 2.7 million.
This continued generation of cash in the face of modest losses is a great indicator of the residual strengths of strength of our business.
After labcorp and shows our business models capacity to adapt and to continue to fund operations on an organic basis and finally, some visibility into how we expect to finish the year.
As we've indicated in our press release, we're adjusting our full year expectations to a range of between 334 and 337 million.
For some additional clarification into our adjustment please consider that at the midpoint of our previous range of $340 million, we contemplated a more robust flu season of which we have seen little impact so far relative to initial expectations. As a reminder, in the first half of this year.
At the end of the 2018 19 season, we saw a reduced volume of respiratory presentations in the current season, we're seeing slight elevation compared with last year.
We also took into account a slightly higher rate of growth within flow cytometry goes validated by our first half success, which was growing in excess of 30%.
All these factors have been incorporated into our modified range with an obvious narrowing as we approach the ended the year.
With respect to our particular revenue streams currently for 2019, we expect more strengthen our LTG that initially contemplated.
Sure in prior calls Weve call for total LTG revenues to be slightly down.
We now believe that we could benefit from LTG revenues coming in flat to slightly up.
Secondly, it as we've mentioned previously we expect our flow revenues to recover in the fourth quarter and to deliver approximately 45 million for the year a growth rate in excess of 10% as initially expected.
And with respect to our molecular revenue, we expect our sample to answer revenue to be up in the mid twentys for the full year, but obviously when labcorp revenue is factored into consolidated molecular revenue. We expect total molecular revenue to be down in the mid teens.
One important factor to keep in mind.
Is that we've experienced a lower than average respiratory season.
The strength of the respiratory season, and how it presents in the fourth quarter is the primary factor and how we might move from the bottom to the top of our range.
With respect to profitability, we anticipate that when we deliver on the significant revenue growth anticipated in the fourth quarter relative to the third quarter that we could be breakeven or better with continue control of our overall expense position.
Now I'd like to turn it back over to hold me for some final comments.
Thanks.
As we said at the beginning of the FY 2019 was going to be in physician for Luminex. We have on the majority of the financial impact associated with local deposits show, which has impacted our revenue growth and I'll bottom line and cash flow DC. However.
The company I'm proud to say that we have weathered the storm and entering a new and Tom formative at all for Luminex, which months longer diversified company that we'd be offsetting exciting opportunities and new platform at cost each will file for that flying.
In fact.
So you wouldnt be defense timing Luminex east fully well, we are launching the exciting new platform across all of our portfolio and on pension money very excited for walk is going to be happening either luminex over the 2020 and beyond.
These and I'll formal comments alternate though please open the line for questions.
As a reminder to ask a question you would need to press star one on your telephone.
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Our first question comes from Suji NAMSA BTI Ji. Please go ahead.
Since your line is open.
Hi, sorry about that thanks for taking the questions.
I'm juggling multiple calls years. This apologies if I missed this but.
Going back to your sample to answer a molecular.
Platform for the quarter on and for the year I think I'm. Just curious are you still expecting roughly 100 million.
Hi, everyone may exiting the year worries that has happened now be high given the at your expectations for lighter.
Yes, so sungy certainly.
Let me actually start off by my apologize and everybody on the call. Our press release actually got out on the worried about 15 minutes early before market close and we're working with our a provider to determine exactly what happened. So I want to I want to number one apologize, thereby not a turn back to your question.
Is that yes, the hundred meet our run rate, obviously contemplated what I'll call a normal flu season.
As of right now were hardly seeing anything you were hearing bits and pieces of people seeing modest upticks in different regions around the country, but to be honest with you.
Here in United States anyway, we're just we're just not seeing much and as a result that number certainly could be lower than the $25 million that we projected in the fourth quarter.
Possibly 20 122 million, yes, yes.
Sundry when we set up these targets we set the pay about two and not feels that goal and I believe the first couple of fee and we grow the business very nicely in the range of over 30 something percent hopefully.
Earlier, when we came a DCIO as Eric mentioned knees Skinny, we did nothing jolie slow less but those C zone in the beginning of the need that we have seen needs. So far we assume it's slightly elevated compared to last Steve.
But it's not justify a wide.
Although it is on why we are going to be in the 25 million dollar for the quarter and that's really the main these on loss to John .
And.
Guidance for me.
Because we'd been impacted by day.
I hope that's on so the question.
Yes, hi, guys. Thank you.
You also maybe talk about was there any impact potentially impact from given that Youre verigene.
Q is launching.
Very well is there any impact from that in terms of your potential customers delaying their purchasing decisions yeah actually not I actually indicated in my comments it for the quarter. We placed just over 30 systems and why by our standards that we placed another 15 or so in the.
First half of or the first yeah, the first half.
October as of today.
We've almost matched what we placed in the prior quarter only a month ended the quarter. So so you're worry is that were cannibalizing sales or people are waiting to buy verging too because we because we filed in their wedding, they're not waiting they actually continue to sign up customers and we continue to see success there.
Also just to remind all fee equal when we have saying that we place when we say places can talk that its main somebody the paying full day until some of these and committed tool basically aliso viejo into agreement full menus and actually we.
We believe will be very close stall due to on let's see stay in a similar to the non bank conducted last Dan So the business in this will spend going with.
Im also expect than maybe we get some may all day and before the end of the unfolding dimension markets full development tool.
But again I don't think that say the big impact on number.
Okay, Great and then lastly from me just on your gross margins in the quarter.
If I remember correctly I believe you guys guided Q AG slight sequential increase.
This quarter versus last quarter, and then given.
A lot of the shortfall and he had a significant portion of the shortfall is due to.
It looks like kind of business was curious as to what we said kind of big driver.
And though with an expected gross margin on it and well if you look yes, you look at the components.
Gross margin and you look at the concentration of system revenue.
In the.
Additional concentration the incremental concentration of assay revenue I wish the majority of that is sample to answer revenue that.
All three of those carry gross margins that are significantly less than where we fall. It becomes a mixed challenge for us. So so as sample to answer increases until sample to answer revenues, which are the fastest growing component of all our revenues get up to the level in the aggregate, both Aries and Verigene combined where we.
We sit today increase their faster than any place else is going to create a modest drag on margins that are being offset by economies of scale as we grow so it's sort of a push as they grow but as they increase in concentration. It just the math pulls the margins down a little bit we're not worried were where they think they're going to be right.
We have plenty of opportunity to increase margins. Both you know sample to answer revenues, but also within flow and also to be honest so that LTG in some of the systems are producing and with the launch a sense of plex, we have opportunities to launch a system that should curious significantly better margins in the multiplex systems that we offer today. So overall.
I think you would expect is Homi mentioned in his in his five year targets you'd expect to see gross margins moving incrementing towards that 60% level and beyond.
Does that help.
Yes. Thank you so much.
You bet.
Thank you. Our next question comes from Brian Weinstein from William Blair. Please go ahead.
Hey, guys just to clarify couple other the gross margin questions that were just ask so where are you guys right now as it relates to sample to answer and slow on gross margins and I recognize what you said our incentive plans could carry higher gross margins, but.
Homi you would I'd had a discussion about verigene too in the impact is that could potentially have as well. So can you give us an idea when that products launched what that gross margin trajectory would look like as well. Thanks, Josh. So let me start now at home, we talked a little bit about about since it's like so so our aggregate flow margins are less than.
Our reported margins today that are in the.
Mid to low fiftys, so our flow margins are down in the Fortys, we're working those up.
But theres a high concentration of equipment as you know in May and most businesses that are equipment heavy gross margins are typically as high as where theres a significant cuts consumable stream behind them Weve.
Committed to finding ways to find a recurring revenue stream, there and drive those margins up in our sample to answer portfolio is still.
Startup business like and those margins, although they do continue to increment upwards in the aggregate Aries and Verigene margins added together are also.
Down in the low Fortys and so as a result, the significant concentration of those margins coupled with the aggregate system margins on our X map systems. When you add all those up.
The the math ends up getting into margins at fall, where we are today, but with opportunities absent mix shifts.
We continue to improve on those as volumes increase across each of those portfolios.
Joe Hill.
Yes, it does end.
How many can you talk a little bit about the opportunity, but to verigene to an essential question, what those potentially will look like from a margin standpoint, when you launch them and what the trajectory of those could look like as well.
Yes, obviously was managing tools of is less complement the plus the place packaging et cetera. So we have believed that the margin will have a mold and couple of points compared to the vantage in one and I know they say I mentioned that we out in the adult assumption to answer the on difficulties obviously.
The Virgin Juan.
A little bit above that will fully down a little bit these industries, but nevertheless, we think the vintage until we will gain mold and couple of phones.
In the gross margin however.
Initial launch it's all about volume and as you know every day, we will have to one initially to lines. We will have to continue to support vetted June one as well is launching Virgin tool. So I expect makes the we wouldn't be conduct.
Remaining in this kind of similar.
Small Jan.
When the volume on Virgin tool would stalled exceeding managing won then we'll see a significant improvement in the gross margin now sensing flex and again.
We oh.
All being and I'd say gulping, because we have not to newly released advice to our thoughts now, but we are thinking in the pull all the gross margin should be audio compared to what we are doing in the Lx, two on rates and FMTV, which aldag vehicle and kind of technology.
We are planning to do a launch it into this space. So yes, we are at least at this stage contemplate think.
Gross margin and goes I can also like week walled about the flow supplementing.
Most of them into business is a if you look at the equipment is divided almost equally between the midstream, which currently actually a fairly large gross margin over 60% those many units, helping solve between a quarter of $2 million too often million dollar and they carry a very ft gross margin.
The lower end of the end, we change is a mall dig Rob.
And.
The mules Kennedy and lower gross margin. So it's again, depending on the mix of the product and et cetera.
For a while overall benefit.
If we continue tool that today that we add to actually almost in the last two quote and last wheels. They loyalties continue to goal nicely to us and all of them out thing in the lastly is at least in average the goal 5% to 7% on annual basis, and I think one.
We will each when although the fiftys a DCIO that's also as being in the gross margin. So overall I think as I said in my.
My opening remarks I think.
The storm is behind Us and we are coming now to a much wider.
Well too.
And I think we I'll just for me as I just moving forward.
Almost to the bombings Len.
[laughter] I like the analogy there.
You got the.
And then as a follow up I just want to make sure I heard your comment appropriately you, obviously talked about the respiratory season I hear you there, but did you say that even the slow business must maybe a little bit lower or little bit lighter than what you guys.
Initially potentially expected based off of what you would seen early on can you first did I hear that comment right and if I did just what some of those variances might be.
Relative to what's your initial expectations were thanks guys.
So Brian the weighted let me give you a way to another way to think about it as it at the midpoint of our range our expectations for flow obviously, you're a range as are the ranges that we provided at the midpoint of our range. Our expectations were that flow would produce a little more than the 45 million that we've talked about obviously the.
GAAP and that would have been higher as the bottom in who had been a lot closer to almost exactly 45. So as we adjusted our range. We had a number one pull that out but the strength of the flow business remains.
Our ability to manufacture there remains the primary contributor to the low number to the third quarter was purely around order timing and our expectation is home. We said was to rebound back into the fourth quarter back up to that $12 million or so level, which is where we were in the in the prior to Q.
Peter So animal that for me as anything okay. So that's really and I think thats, that's what's going on there flow. The business is strong it's healthy the salesforce is engaged the customers want what we have to offer the image based flow cytometers are being sold well and carry high margins and overall as it continues.
To be a good business for us.
That's good clarification. Thank you guys.
You bet. Thank you.
Thank you next question comes from Tycho Peterson from JP Morgan. Please go ahead.
Hi, Thanks, Jerry I'll tackle.
Just a honing in on margins and then a bed.
I believe last quarter, you cash flow cytometry gross margin of 43% and this quarter you were expecting and improvement has you basically you know.
Ran through the inventory.
The inventory headwinds so just wondering why you're seeing a deterioration in the both margin bad contrary to pre it prior to that Pete Dan has there been any pricing deterioration.
On the product from outside of the mix dynamic you talked about and also very gene I believe several quarters legal you actually caught out gross margin improvement there to the above.
50% already and obviously now with.
Margins at low Fortys as you talked about just wondering you know.
Has there been any surprising stagnation on the banking fund, yes. So let me let me help you understand let's start with Virgin first so what I said or the aggregate sample to answer margins were in the low fortys that includes Verigene thats well below 40.
And I'm, sorry, Verigene, that's above 40, and Aries, that's well below 40, you average, though you bring those two together and you end up with aggregate flow Oh, sorry, Verigene to gross margins that are just above 40 with respect to flow flow margins actually incremented.
In the current quarter, they actually improved.
And what they didn't do as improve up to the level, where our gross margins were for the quarter. So as a result, you end up with a downward pull in averaging down if you all mathematically.
That pulls the aggregate margin down as both sample to answer and flow or higher contributors to the total revenue mix and they've been.
Historically does that help.
Okay got it.
Regarding the sample to answer placement of 31 systems.
Are you seeing any sort of changes in the mix of any.
Most of the aging.
As we sort of Smith yet.
The placement sort of key that is obviously this year, we'll continue to see it sent down versus last year. So just I mean, we appreciate that you talked about the placement so far for Q that just wondering in general are you seeing any changes in the competitive dynamics.
Are you changing any asking any changes in your win rate and as we look at their age into I still targeting a multiplex launched once you have all the panel that have approved.
And now that you're targeting the RP panel approval by year end. It does look like your mix most of the flu season, and Meanwhile, our young new competitor and turns out their IP approval.
So Julio hang on hang on let me stop you, let us let US answer. The this is a really long complicated question. Obviously, so let's let's let me let me answer the first one and then as the second half. Your question, we'll start over again your question, yes, some of things game sales and let's say the only and we anticipate thing they seem to have.
A similar system on the comp up as last season. So we have not seen a competitive and I've seen the Solvay, you say and about one of our competitor recently, but no we have not seen any a any changing dynamic in the market.
Neither the mix, Okay, and actually we are very very supplies about that because a all vintaging. One is as we said it's not the fully automated system like some of our competitor, though and we believe we just advantage and so as a matter of fact, we can gain even the market channel show because it's a fully competitive.
Fully comes a competitive.
Since then and capable of funding flex Spicing gives us say secondly, I wasn't clear to me what you asking the FDA, we submit that recently today of the algae bundled and we are planning to sub made to the FDA before the end of the than us, but don't need as.
No. There's the that can get at least 90 day still we view so we're not planning to and last but the only thing before the end of the CEO and delayed the seats can be it's can be by Dan, but the first Walter 2020 . We are all this new also hoping to we seem to be folded respiratory did that.
But in all that we just meet the late last month.
Got it got it.
Second part of my question was actually related to that so I mean given.
The new answering your competitor they had their RP panel soup early this year, how concerned are you with your competitor start running you.
For placement during the upcoming season.
I mean, so far we continue to roll.
Performed very well in the say the ads, we delivered a 27% gold so I'm not seeing any differently in this environment and we know all main competitors, all but I think we have a big advantage compared to them, we saw pricing and flex pricing.
And then all of this business as I said, they almost goal at those people send blas, even the last three years and so it's we continued to be there and we believe actually the vet engine tool will be fully automated system ways at full.
Hey, flex capability in pricing will continue to gain market share so.
That's only think I can say.
Got it thank you.
Thank you bet.
Thank you as a reminder to ask a question you would need to press star one on your telephone so when you're on your question press the pound key.
Your next question comes from Brandon Couillard from Jefferies. Please go ahead.
Hey, Thanks, good afternoon.
Hey, Ryan.
A couple of clarifications on the fourth quarter guide.
Harris if you would are you assuming that all 3 million of that flow order that was pushed out gets recaptured in the fourth quarter can give us a little more color on whether that's just a couple of imaging instruments are at or a handful of guava systems.
Number two just confirm the Labcorp headwind I think is maybe another 4 million in the fourth quarter and then thirdly are you assuming what seems to suggest about 70 sample to answer placements in the fourth quarter. Yes. So let me help you with a couple of things number one the question you're asking is how do you get from 78.7 up to.
88 or above to to deliver into our into our guidance range and the answer there is number one our expectations are that flow shifts.
From the higher rates up to 12, plus in the quarter and it wasn't a delay of and order because remember there is lots of orders that go into a three plus million dollar number it's the timing of the closing.
Of orders.
That we can then manufacturing fulfill given that everything with us is pretty much manufactured on on an order basis. So custom manufacturing because the system configurations are very different. So so we can prebuild a lot, but not everything so as a result because of the time. It takes from initial engagement of a customer to close which.
Can be six 912 months the timing of when you finally close an order can vary we found ourselves in the third quarter this year, where because we've accelerated or sped up our manufacturing process, yes, we could deliver faster, but our backlog coming into the quarter, obviously was reduced a little bit in the orders we had to fulfill.
So we're a little lower than expected, but that's all filled back up. So now the expectations are we moved back up to 12, So we get three or four the other 10 million our growth that we're talking about the balance of that comes from growth in the molecular diagnostics portfolio from both flu revenues and incremental.
All contracted systems that we've talked about that we've said many times there seems to be a little confusion here between a placement in a contracted system, but last quarter. We placed 31 contracted system. Just your systems that were were.
Part of the contract with committed reagent utilization over the next three to five years. We also sold some systems to don't get me wrong, we placed more than 31, we just haven't talked about about those in the aggregate because were primarily concerned with the contracting because those theres, what I'll call guaranteed recurring revenue there.
In the first two weeks of this.
Quarter, we placed an order we closed another 15 in the first month of this quarter, we were almost 30, but then.
Hey, say youre right about you will not but we are targeting to be about 70 system on the phone talk.
The Qualcomm.
Okay, that's what's going to bring us that lend them.
Okay. Thanks, and then just one.
For you help me understand you may not be positioned to really talk to openly about guidance for next year, but you had kind of talked about maybe a double digit revenue gross number next year, given all the new product.
Hello.
Do you still think thats viable at this point is the labcorp headwinds kind of anniversary next year.
Yes organically at Sweeny, I'll get things will be and.
Below.
The low double digit organic funny, but we have to remember we still have some small impact of flub coal ash for next season, but can being between two to three.
I will send.
But the overall, yes, and we also planning concerning Opex.
To all the Opex on those similar led van if 2019 of 2020 is so we will all the all banks. So all the idea is that next CEO , we will have a strong organic growth as I say that earlier in my dad, we start the improving okay.
Oh operating portrayed by basically.
Auditing opex and generating more revenue an awfully, we'll start seeing goes like today was the gross margin climbing one or two points, mainly because of efficiency more volume and as I say, though it may be we'll be getting more loyalty coming to the makes it better implementing the amount of gen, especially if you.
About seeing margin coming out of the managing to seize them that buying us before so all of them. So I really feeling very goal that they they.
They really they love Colby pouches and.
Well, it's created to a company relative small company when you add something we so 50 million dollar revenue defaulting and me such high gross margin, we survive it very nicely and I fitting Lilly goal that we now.
If you fall even D.C. you.
We are stepping now to the new Luminex, we sold than usual wave product line calming them et cetera. There's no reason why we should start seeing.
All those improvement there has been guys with the Dol bottom line and gross margin, so and cash flow from August .
Great. Thank you.
Thank you.
This concludes our Tunis session at this time I like to turn the call over to the President and CEO Homi Shamir for closing remarks. Thank you all of a toll and thank you everyone formula attendance on all entering school, we look forward to seeing you in both of them individually immune future aggregate evening.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect good day.