Q4 2019 Earnings Call
Good day, ladies and gentlemen, and welcome to Luminex Corporation's fourth quarter and full year 2019 earnings conference call.
Mr Women I'll be your conference coordinator for today.
Today's call is being recorded.
This time, all participants are in listen only mode.
The prepared remarks, there will be a question and answer session.
She would like to participate in this portion of the call. Please press star followed by one at anytime during the conference. If assistance is needed at anytime during the call. Please press star followed by zero and a coordinator would be happy to assist you I would now like to turn the call over to Jeff Christiansen Senior director of Investor Relations for opening remarks. Please proceed.
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Good afternoon, and thank you for joining us.
With me today are Homi, Shamir, President and CEO, and Harriss Currie Senior Vice President and CFO.
Following their comments, we'll take your questions.
As a reminder, todays conference call is being recorded.
In a replay will be available for six months on the Investor Relations section of our website.
Certain statements made during the course of today's call may be purely historical.
Consequently may maybe forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
In the company claims the projections provided by section 20 want to eat up the Securities Exchange Act.
Such statements.
These forward looking statements speak only as of the date hereof in are based on our current beliefs and expectations and are subject to known and unknown risk.
And uncertainties.
<unk>, 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 in our form 10-K for the year ended December 31st.
And 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 in this call to the extent that any non-GAAP financial measures are covered a presentation up and reconciliation to the most directly comparable GAAP financial measures is included in our earnings release.
Which is available on our website in accordance with regulation G.
I'll turn the call over to our President and CEO Homi Shamir.
Thanks, Jay we've come a long long cold discount, Oh, well well to well you nation individual.
As we suggest they all know lots element coal we believe there is strong full walked through.
Going but I've been you both sequentially and be able to you we see tend to book stability.
As expected Oh wait did you have you seen finish the on change we could find new you I'm, just hoping I mean, you're.
Supported by strong well you know what these name which is the climate they indicate to well follow Boston at some stage in the marketplace.
We estimate that all positives you didn't you we'd go into me and I seem to beat you Twentytwenty.
Outflow supplement the revenue grew in line, we sophistication closing all do you smoke been pimples, some gold and we sit similar outlook for globe Twentytwenty.
Okay. My local of diagnostic revenue was down, but we'll stay directly affected by the bump true love a woman man and I'll give you liked the bulldog.
<unk> revenue totaling 72 medium full do you.
Adjusting for beloved who'll be called true.
Local longer than you are focusing full deal and from booked once again, you was up 21 person full deal.
As we move into Twentytwenty, which the launch will develop dream to pull duck expected media, we estimate the Trump into onsite revenues, we'd be up approximately 25% hold at you.
Twentytwenty, we'd be at dawn. So maybe you Luminex, we screen you pulled duct lunches supporting as you tell them what celebrate the goal.
As I mentioned the face new Bulldog dissolved bedroom two seats thing Colin fully developed you do see thing and algae on snacks, and say Oh being a view by the end.
We blame me that's supposed to say next week, and then commensurately launch the system and both to say soon after the clearances.
The many improvement that's from the Great Dream to see thing should make hello compelling offering over both the cooling system and competitive products.
The new system provides its fully automated solution featuring warm temperature of storage, we significantly reduce the truebeam equivalent to boot to the cooling verigene system.
It's saying Oh being designed to take advantage was like support which a lot <unk> they only for what they need.
All these new feature toppled, what's feedback from ever use that give us confidence that Todd Cohen local jerks doing something to onto solution. We continue to be school.
The second exciting you pulled up he's all next generation X. Smith. Since then we just need to fail to essentially please.
We'll be launching on that don't feel name it's my Intelliflex.
This new system provides modeling announcement for what is why you can see them today to be the gold standard Lustful Hoot Lake.
We really think exome beach treatment today football team that C 17000 existing these new system provides a significant a big opportunity.
Teleflex willing usually before who's on the full doing such monkey.
What do you get design and mobile remains true acknowledging that the market there is lots to.
Well the Pos when teams.
The boat simple, but system had been completed and we call them people into the post foods and think that she said no significant hold validation of this advice speech insane and we're looking forward to knowledge, it's all to the market.
Sure.
Finally, we see no most would tell me did well.
The global insight makes remote agencies thing the goal they since they used to strengthen our position as a lead to the bench. So most of the told me think space.
We software the advancement.
A human they easier to use the blend into a line we saw little bump before youre well done and memos all did walk away announcement, we look forward to confuse people all newly acquired most the film and TV revenues.
Following this exciting new audition two all portfolio, we'd be additional embedded into once they include the cultural go I'm positive gone negative and needs as well as many junkies and no move outs of opportunities stealing evaluation Lucky.
Excellent forms.
We have confidence in our ability to achieve all guidance range, you don't listen 52 million three ounces from 62 medium based on both the new pool Ducs that I'd mention and Sixtyv execution, we have shown with respect to the Colin portfolio.
No I, we don't obituaries public financial update in all Twentytwenty guidance, and then there'll be some closing comments.
Thanks told me.
Somebody mentioned, we had a strong fourth quarter with growing revenues and a return to profitability.
It's all day to revenue for the fourth quarter was 90.5 million up approximately 12% for the quarter at up 6% for the year.
Excluding labcorps revenue was up 13% for the core and 19% for the year inclusive of flow cytometry revenues.
Our LTG revenue stream was approximately 39 million for the quarter and a 149 million for the year down 7% for the quarter and flat respective to the prior year.
Only consumable revenue was impacted by the timing of purchases from certain partners.
The timing of consumable purchases by our partners provides the largest level variability of our LTG revenue stream.
However for the year, we experienced strong growth in royalty revenue.
Double digit growth from the prior year, which indicates that our partners are having success for our technology in the marketplace for the first time ever royalty revenue has surpassed consumable revenue and we have every reason to believe that trend will continue as more and more of the consumables, we sell to our partners are being used in coverage.
Total application.
For cytometry revenue was up over 10% for the year as expected in comparison to the revenue reported in the Merck financials in the prior year.
As a reminder, our image based flow Cytometers, our big ticket items and as a result, we frequently experienced revenue volatility associated with the sales of these systems.
Our molecular diagnostic revenue stream was approximately 39 million for the quarter at 137 million for the year flat for the quarter and down 16% for the year.
Primarily driven by the Labcorp departure, which impacted the here by 32 million.
Excluding labcorp. This revenue stream was up 1% for the quarter and 4% for the year performance here was driven by the continued success of our sample to answer franchise, which was up 15% for the quarter and 21%.
For our sample to answer products, both the active customers and the utilization per customer have continued to increase for the fourth quarter. The annual utilization rate per customer for our verigene products increased to 122000.
12% from the prior year quarter and for our Aries product line average annual utilization was 57000 up 7% from the prior year.
Turning to our revenue line items system revenue more than doubled in the fourth quarter of 2019 and grew more than 75% for the full year driven by the acquisition of the flow cytometry business.
During the fourth quarter, we placed 306 multiplex systems, not including Aries and Verigene systems above the high end of our communicated expectation of 225 to 275 per quarter.
Included in system revenue or sales of our ex that systems sales at both our Aries and Verigene system at a razor rental allocation for those systems placed under reagent rental agreements.
Consumable revenues were down 25% for the quarter at 3% for the full year.
This revenue stream was impacted by the timing of purchases from our partners.
Royalty revenue was relatively unchanged for the quarter, However was up 8% for the full year.
This reflected an increase in base end user sales reported by our partners and a favorable mix of royalty rates. These increases were partially offset by lower audit findings and adjustments in the current year base end user sales were up more than 10% for both the quarter in year not including all.
And adjustments.
Similar to our molecular diagnostics revenue stream I say revenues were down 2% for the quarter and 16% for the year, primarily driven by the reduction in Labcorp.
Excluding this impact.
Revenue was up modestly for the quarter and up 6% for the full year inclusive of flow cytometry revenue growth that was predominantly driven by our sample to answer assays as previously discussed.
Now turning to the income statement, we posted gross margins of 55% for the quarter and full year down five percentage points for the fourth quarter of 2019, and seven percentage points from the prior full year. This decline is primarily attributable to the reduction in Labcorp assay sales and a change in sales mix weighted heavier.
Sure towards lower gross margin item.
As we continue to focus on improving our sample to answer margins through both volume and cost efficiency, we anticipate margins will improve in 2020.
Excluding the amortization of intangibles Opex was down 3% for the quarter, primarily due to acquisition related expenses in the prior year on a full year basis Opex was up 15% predominantly due to the absorption of ongoing flow cytometry expenses not present in prior year figures operator.
Profit for the quarter was 3 million up 2 million relative to the prior year quarter.
For the year, we incurred operating losses of 12 million, primarily due to the aforementioned gross margin compression and absorption of flow cytometry expenses.
However, our profitability in the fourth quarter is a good indication.
Revenue levels required to achieve profitability and 2020.
Our effective tax rate for the fourth quarter of 29 team was 40%.
That's compared to a whopping, 337% in the fourth quarter of 2018, which incorporated adjustments to the onetime impacts for the U.S. tax reform in the prior year quarter.
Our balance sheet remains strong with over 59 million in cash and investments after absorbing the 75 million dollar purchase of the flow cytometry business.
We generated over 13 million of cash from operations in 2019, while absorbing dividend expenditures and initial losses from a flow cytometry business.
This continued generation of cash in the face a modest losses is a great indicator of the residual strength of our business after labcorp.
And shows our capacity to adapt and to continue to fund operations and our dividend on an organic basis.
As we disclosed in early January we expect revenues for 2020 to be between 352 million and 362 million.
We expect our partnership revenue stream to grow in the mid to high single digits.
Additionally, we expect our flow revenues to grow by about 10% for the year, resulting in mid to high single digit growth for the full year for our total life science and clinical tool.
Additionally, we expect our mdx solutions to grow into mid to high single digits with the sample to answer component growing in the mid Twentys and incorporating the launch of verigene too at or around mid year. We.
We also believe that for the full year 20, Twentys, our operating expenses should be roughly flat with two that 29 team and gross margins should remain in the mid Fiftys, obviously affected on a quarterly basis my mix.
For the full year, we expect revenues to be between 160 575 million at first after the year.
And 180 595 million in the back half a year about a 40 555 split.
The growth in the back half the year results from both our new product launches and the purchase timing of our partner.
Currently first quarter revenues are expected to be between 80 to 84 million, which includes a reduction from the prior year and Labcorp revenue.
Approximately four and a half man.
Two and a half million from women's health and another 2 million coming from so yeah.
This will be the last quarter that Labcorp women's health has a negative impact on our quarterly revenue.
We will continue to be affected by CF declines of approximately 2 million for quarter until the end to the year.
C. F declines are purely the result of the timing of contractual commitments, but we anticipate labcorp CF revenues, increasing 2021 compared to 2020.
We expect 2020 to be a profitable year for luminex as a whole.
But estimate that we require revenues in excess of 87 million to be consistently profitable on a quarterly basis.
We also expect to be cash flow positive for the year.
Now I'd like to turn it back over to hold me for some final comments.
Thanks, Hey.
Like to end by highlighting good game the significant transformation Luminex is accomplished in the boss several years.
Joining my sense fully either luminex in 2015.
Revenue was about ones with insulting medium annually split about 50 50 between mdx in I'll shoot businesses.
We face tremendous revenue concentration disease, slob, cool and I'll Pgx in bio defense Bulldogs, which well known slippage Gi and too good to talk to them over the pills people, saying Oh fall revenue.
Today, we are out of those mistakes and even we solved and the company has gone total revenue by enabling age of eight will say annually.
We are much more but did you see focus we sleep going live and you've seen each with unique features that give us confidence in our ability to achieve all gone well five sounds with me on next few years.
Oh potato please open the lines for questions.
Thank you Sir before we go into the queue in a session I would like to turn the call back to the President and CEO Homi Shamir for some few remarks.
Hey, good afternoon, everybody a game in the last couple of days, we've been ask a lot about the corn a valuable so I want it kind of before where we opened two pure nay to provide a quick update on luminex activity during the call him inside sales in China.
Last week, we submit that day and mix. They go BP to the Chinese of D.A. for emergency use authorization pools.
And Colin plea, we're waiting to daily is phone in the pool.
Additionally, a few weeks ago, we completed a large clinical trial in trying to fill the spoiled dog and theyre playing to submit it to the Chinese that'd be a soon.
I think that would be as 20 targets.
We are full of co owner vitals, however, none of the new warm cool innovation is due but the benefit of this product is Cohen. Please can ed balls out lots, but Dolby infection that I know the new coal one of Bibles beyond they had the Chinese C D C.
I ask us to.
Hey.
The small by now based on the same keurig chemistry or mix. They don't BP and we are developing new multiplex space continue the new corner Bibles also subs and then moms to wanting to talk a little too all mix the Gulf BP as Follies I know, that's probably wouldn't be the only multiplex.
Say, hey solution in the market.
And the big time of the spine.
Hey, full 96 plate wouldn't be <unk> books, admittedly 45, meats and beacons on up the 48 patient well 96 say a place where when and we believe that these days and we should be to see be seen China, we've seen.
Two weeks just to remind you next the Gulf BP being the if the a clear pulled back for many years.
It's become the won't go so the industry when you meet <unk> volume Theres, just a little false.
Concerning the U.S. same market and we have we tested said all they publish flying a primary important design on I'll wait as easily blocked from.
In the we bought published very shortly a white paper on that these design can be old enough to get there. We saw we see ex instruction consent and excellent plus Muslim makes to one is and then the B and we think it's Scott you really can Dan like solution to customers and also the total because values.
Oh, what did you see as these things and they can implement immediately.
One last thing is that we have over a full game between China most of them I've mentioned find machine.
Then safety, we now know traveling all.
Coming to the old fees and most of them out walking into home and we play for the safety. So they they opened eight or can you go into core and the called back to the culinary.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key.
Standby, while we've compiled acuity roster.
Sure first question comes from Brendan called <unk> from Jefferies. Please go ahead.
Thanks, Good afternoon.
Hey, Brian.
Harris in terms of the revenue guidance for the first quarter being flat year over year, if you sort of speak to some of the moving parts. We should be aware of and then secondly hold me any sense you can give us in terms of quantifying the contribution from the new product launches to revenues in 20 is a basket overall.
So the the moving parts that we do expect growth in our.
Electro diagnostic sample to answer products, we expect the partnership business.
To give us some growth that we wished are still.
As I mentioned in my comments, we still have a little bit of.
Oh headwind from Labcorp and this quarter attributed women's health will be the last quarter that we ever have to worry about women's health headwinds and those are about two and half million dollars and there's another $2 million of Labcorp had one is attributable to purely the timing of contractually obligated CF parts.
It is by Labcorp and so as our estimate that over the current year based on the total minimums. There are required to buy from us for 2020 and 2021.
The the majority of those will we bought next year. So we'll have as a current year we have.
Dip in CF purchases of around $10 million and then next year.
Let's see a purchases will rebound back up to around $10 million, we're talking about Oh slipped from 16 to five it back up to 10. So so it's oh, there's some movement. There obviously, we talked about a $2 million a quarter or so of CF headwind, who will experience for the rest of your otherwise.
We are expecting growth across all of our all of our other product lines.
And your other question I think was for home. It was about what contributions of new products later in the year, Yeah, and as I stated the measly mile Kim verging to ease the really cloning to style pushing into the field. The in means zeal, although I.
We can see some sense as soon as we get the portfolio might affect we go it's.
Oh, you all had the phone the few customarily internationally, so but clearly the from urban planning and that said we are planning for the beginning Gulf and that those quota, although it's really.
As I said, we are planning tool Colleen.
Got it is going as Leo aim concerning the new ex impede technology.
Also planning to launching it in the beginning of that don't won't do it seemed the end of the ball, we all the negotiation with them now yeah, I would've gone too long cheap and we are waiting to their feedback.
That's and then one more Harris, so you kind of pointed to mid.
Fiftys gross margin for the year of kinda on par with where you were in 19 feel but just sort of think about some of the positive negative dynamics that kinda contribute to that bridge for the year or be in terms of mix and then the other things you might be doing internally to try to.
Lift profitability productivity on the <unk> on the gross margin I sure. So as our sample to answer portfolio grows the margins. There are improving currently the margins on are simple answer portfolio were slightly below the aggregate corporate reported gross margin. So we see improvement.
But those revenues are becoming a larger percentage of total revenue. So you end up.
With a rough push.
Then we have the obvious fluctuation in mix between the concentration abusing royalties and systems and assays and everything else not obviously can can provide or one or two point swing on a quarterly basis. So what I'm recommending you do is considered the sort of them.
Mid fiftys and around that 55 give or take a point or two as we move throughout the year and then as we move further into obviously 2021 and beyond verging to becomes a bigger part verging too obviously is going to have better margins than does verigene. One is verging to becomes a much bigger component of total revenue you would it.
Spectrum margins to begin to drift upward towards what home you talked about in our half a billion dollar.
Scenario and our plan for five years from now we think we'll be back close to 60.
I just think very much.
You bet. Thanks Bye.
Thank you next question comes from Tycho Peterson from JP Morgan. Please go ahead.
Hey, Thanks, just don't want to focus on the molecular business you know up 1%, even excluding Labcorps can you maybe just talk about some of the gives and takes in the quarter and any you know notable will impact and how should we think about impact during the first quarter as well.
So we added a significant number of customers over the course of the year the utilization per customer increased during the during the year as well what we really were faced with was.
The even though the current the the prior year flu season was.
Not much more of the negligible. The current year was almost nonexistent at least through the through the end of the fourth quarter. One thing you have to keep in mind is it luminex.
We're not like a classic frontline flu company, our patients present in emergency room settings acute care settings in respiratory distress. So were delayed relative to other people that are never frontline faster. So it takes a little longer for us to feel the influx of affection flu season, we hardly felt anything in the fourth.
Core moving into the first quarter this year, even weve, it's evident flowed we haven't seen a lot I wish you a little bit, but but not much. So the primary contributor to that was a lighter than expected flu season in the current year relative to what last year was a.
Right flu season, but nothing near as late as it was this year end, we lost a little bit of the non automated business along the way is and has been happening over the past several years, there's a world moves towards automated testing solutions.
Hope that helps.
That does and then for a whole me I. Appreciate your comments on Corona I guess is we think about the revenue opportunity you know inside China versus out of China you maybe.
Talked how you think about those two dynamics it seems like there's a preference for local suppliers within China and how much revenue contribution you could get.
I I don't know okay cycle.
The moment I'm really concentrating in Evan that pulled off than men trying to save people like okay. I'm, most even thinking well to revenue, which can create to us we knows that the requirement coming from the CDC a city sees the large got supplemental fossil fuel China, yeah, we can providing supplemental like make peaks.
That said, okay. No. It's again name we know the next day, we will then as I said, we've been testing the next thing about BP.
And completed a very large clinical trial, because we think in any case. If you had the cool nobody will so no. It's can increase in the future when we get that move out in China and couple of million dollar I'll leave it just having the same thing the mom kit.
But I'd say, we're waiting for them they approve it now and we know for sure disease like well they've been told like 50 or 60 Chinese company that providing cool enough Bibles say phase, but all of them I'll talk to get there I mean, why one pathogens. It will just seem to see.
Ask us these two dual we used the suvs and and I and the holidays into black and provide them at both the death.
I I cannot really at this stage, giving any indication and obviously, we need to make sure what can be uncle fighting them use that meet the requirements.
I remind you also that we don't ever likes that Steve. So that's why we have to send it to China. They have today state and they have to come back to us and giving us a feedback I would say if anything so.
I have to be careful about to you.
Understood and then just one last one I hate to ask again I know branded asked about new products, but I didn't hear a number from you in terms of what you're actually expecting from Sensorflex news, while the system and beverage into in terms of contributions. This year could you help us just think about how meaningful is gonna be.
Yeah, I mean, they're going to <unk>, so you're talking what we indicated was it given the launch at mid year that verigene to given the time, you'll validation time and such would have a nominal impact in the year, but it sets us up very well for good growth in 2021, so our our core verigene portion.
Oil will grow as expected the Virgin to portfolio would be a much bigger contributor and 2021 with respect as to what's now called Intelliflex with a mid year launches Homi mentioned that the system is already in partner Sands are validating the backwards compatibility and some of the other features one of the mid year launches.
That then the replacement cycle will start and we estimate again in the back half of your one of its one of the reasons that are our current year projections are little heavier in the back half in the front half is it there's a modest contribution there of since my friend quantified it in dollars, but there will be the contribution expectation would be that.
Total placement figures would drift upwards relative to where they are in the first half amendments the third new project to the guava Nexgen, primarily software update easy to use a bunch of easier to use features we think data will help us further establish ourselves as a as a player.
In the mid level, Oh, cytometry business, but again the contribution there won't be something that's overly material, but it solidifies our position in the marketplace, yeah, but they.
The Virginia, too and it's going to give us basically a fully automated sees thing no semi as we have now and we put does is filed its competitive though and we feeling confident that would've been a goal of 25 full saying can it be I you may be the band Hey, I think they did.
So I know that we get that bodes well for them they away expecting to get to provide from day. If they did you yeah. He's very unique all of that meets wouldn't be a flex spicing, which is a huge Jay open if you need to us into space here. So I think we've gained market share and we couldn't globally, they hopefully even faster.
Then there but at the moment, we estimated 25%, let's get the tolling and then they would see outweigh adjusted laid to owning the.
Okay. Thank you.
Thank you.
As a reminder to ask a question you would need to press star one on your telephone. So we're doing a question press the pound key.
I show no questions in the queue at this time I would like to turn the call back over to the President and CEO Homi Shamir for closing remarks.
Thank you all of a toll and thank you everyone. Phony old then then so no ending school, we look forward to see you in Kosovo in developing new future. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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