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Luminex Up on Q2 Earnings Beat, Revs Up on Higher TSP Sales

Zacks Equity Research

Luminex Corporation (LMNX) posted a 16.7% rise in adjusted earnings to 14 cents per share for the second quarter of 2014 from 12 cents per share in the same quarter of 2013. With this, earnings per share exceeded the Zacks Consensus Estimate of 12 cents per share.

The company’s adjusted earnings in the reported quarter exclude amortization of acquired intangible assets, costs associated with legal proceedings and restructuring costs.

On a reported basis, net earnings augmented 27.9% to $4.7 million from $3.7 million in the second quarter of 2013. Reported net earnings per share increased 22.2% to 11 cents from 9 cents posted a year ago.

Revenues edged up 2.5% to $55.6 million in the second quarter, however, it fell shy of the Zacks Consensus Estimate of $57.0 million. The rise in revenues was driven by growth across systems, consumables and royalty revenues.

Following the earnings release, shares of Luminex climbed 8.1% to close at $19.00 yesterday.

Expenses and Margins

Gross profit inched up 0.2% to $38.1 million in the reported quarter. However, gross margin slid 150 basis points (bps) to 68.6% from 70.1% in the year-ago quarter.

Research and development expenses fell 4.1% to $11.3 million, primarily due to savings and material spending as a part of the shift in Luminex’s ARIES system development from alphas to betas.

Selling, general and administrative expenses went up 3.8% to $21.0 million in the quarter. While general and administrative costs were essentially flat year over year, sales and marketing expenses grew modestly as a result of some incremental resource investments in the company’s direct sales activities.

Adjusted operating income for the quarter increased 5.4% to $7.1 million from $6.7 million in the year-ago quarter while adjusted operating margin rose 40 bps to 12.7% from 12.3% in the second quarter of 2013.

Segment Results

Revenues from Technology and strategic partnerships (TSP.V) stood at $33.4 million, up 7.2% from $31.1 million in the second quarter of 2013. The upside was driven by growth across all major components of the business – consumable sales, system sales, royalty and services.

Operating income from this segment escalated 34.8% to $8.6 million while operating margin expanded 530 bps to 25.8% from 20.5% a year ago.

Assays and related products (ARP) revenues declined 3.9% to $22.2 million from $23.1 million in the year-ago quarter. The decline was primarily attributable to the bankruptcy of a previous customer and irregularity in the timing of other assay revenue components.

Operating loss at this segment widened 184.6% to $3.9 million while operating (loss) margin expanded significantly by 1,150 bps to 17.3% from 5.8% in the second quarter of 2013.

Segment Revenues in Detail

Consumable sales went up 7.5% to $12.6 million in the quarter driven by higher purchase volumes from Luminex's largest customers. Bulk purchases by 14 customers during the quarter comprised 77% of total consumable revenues, amounting to $9.7 million.

Revenues from System sales increased 8.6% to $8.3 million, boosted by a system mix with a higher concentration of LX and FLEXMAP 3D systems instead of MAGPIX systems in the prior-year quarter. The upside was modestly offset by a reduction in sales of automated punching systems from Luminex's Australian subsidiary that resulted from the restructuring announced in late 2013.

Royalty revenues spiked 10.5% to $9.5 million in the quarter buoyed by higher end-user sales compared to the prior-year period, partially mitigated by a fall in minimal royalty and one-time payments.

Assay revenues declined 8.4% to $19.9 million in the second quarter of 2014. Within total assay sales, infectious disease sales comprised 67% while genetic testing sales accounted for 33% compared with 68% and 32%, respectively, in the second quarter of 2013.

Revenue from all other sources climbed 15.7% to $5.3 million in the second quarter.

Financial Position

Luminex had cash and cash equivalents of $86.7 million as of Jun 30, 2014, up 27.7% from $67.9 million at the end of 2013. As of Jun 30, 2014, Luminex had no long-term debt as compared with $1.7 million as of Dec 31, 2013.

In the first half of 2014, cash flow from operations totaled $21.7 million, up significantly by 240.7% from $6.4 million in the comparable year-ago period. Capital expenditures stood at $6.2 million, down 24.1% from the first half of 2013.

Guidance Reiterated

For 2014, Luminex reaffirmed its revenues guidance in the range of $225 to $240 million, reflecting an increase of 5 to 12% over 2013. The Zacks Consensus Estimate of $230 million lies within the guided range.

Zacks Rank

Luminex presently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the medical instruments industry include Accuray Incorporated (ARAY), RTI Surgical Inc. (RTIX) and Heartware International Inc. (HTWR). While Accuray and RTI Surgical sport a Zacks Rank #1 (Strong Buy), Heartware International carries a Zacks Rank #2 (Buy).

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