Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LMNX > SEC Filings for LMNX > Form 10-K on 26-Feb-2014All Recent SEC Filings

Show all filings for LUMINEX CORP

Form 10-K for LUMINEX CORP


Annual Report


The following information should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes included below in Item 8 and "Risk Factors" included above in Item 1A of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.


We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the life sciences industry. This industry depends on a broad range of tests, called bioassays, to perform diagnostic tests and conduct life science research. Our xMAP technology, an open architecture, multiplexing technology, allows simultaneous analysis of up to 500 bioassays from a small sample volume, typically a single drop of fluid, by reading biological tests on the surface of microscopic polystyrene beads called microspheres. xMAP technology combines this miniaturized liquid array bioassay capability with small lasers, digital signal processors and proprietary software to create a system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is currently being used within various segments of the life sciences industry which includes the fields of drug discovery and development, and for clinical diagnostics, genetic analysis, bio-defense, food safety and biomedical research. In addition to our xMAP technology, our other offerings include our proprietary MultiCode technology, used for real-time PCR and multiplexed PCR assays, as well as automation and robotics in the field of dry sample handling.

Our end user customers and partners, which include laboratory professionals performing research, clinical laboratories performing tests on patients as ordered by physicians and other laboratories, have a fundamental need to perform high quality testing as efficiently as possible. Luminex has adopted a business model built, in part, around strategic partnerships. We have licensed our xMAP technology to partner companies, which in turn then develop products that incorporate the xMAP technology into products that our partners sell to end users. We develop and manufacture the proprietary xMAP laboratory instrumentation and the proprietary xMAP microspheres and sell these products to our partners. Our partners then sell xMAP instrumentation and xMAP-based reagent consumable products, which run on the instrumentation, to the end user laboratory. As of December 31, 2013, Luminex had 58 strategic partners, of which 48 have released commercialized reagent-based products utilizing our technology.

Luminex has several forms of revenue that result from our business model:

• System revenue is generated from the sale of our xMAP multiplexing analyzers and peripherals and automated punching

laboratory instruments.

• Consumable revenue is generated from the sale of our dyed polystyrene microspheres and sheath and drive fluid. Our larger commercial and development partners often purchase these consumables in bulk to minimize the number of incoming qualification events and to allow for longer development and production runs.

• Royalty revenue is generated when a partner sells our proprietary microspheres to an end user; a partner sells a kit incorporating our proprietary microspheres to an end user or when a partner utilizes a kit to provide a testing result to a user. End users can be facilities such as testing labs, development facilities and research facilities that buy prepared kits and have specific testing needs or testing service companies that provide assay results to pharmaceutical research companies or physicians.

• Assay revenue is generated from the sale of our kits which are a combination of chemical and biological reagents and our proprietary xMAP bead technology used to perform diagnostic and research assays on samples as well as real-time PCR and multiplexed PCR assays using our proprietary MultiCode technology.

• Service revenue is generated when a partner or other owner of a system purchases a service contract from us after the standard warranty has expired or pays us for our time and materials to service instruments. Service contract revenue is amortized over the life of the contract and the costs associated with those contracts are recognized as incurred.

• Other revenue consists of items such as training, shipping, parts sales, license revenue, grant revenue, contract research and development fees, milestone revenue and other items that individually amount to less than 5% of total revenue.

Table of Contents

2013 Highlights

• Consolidated revenue was $213.4 million for 2013, representing a 5% increase over revenue for 2012.

• System shipments of 1,078 multiplexing analyzers, which included 495 MAGPIX systems, resulting in cumulative life-to-date multiplexing analyzer shipments of 10,737, up 11% from a year ago.

• Partners reported over $443 million of royalty bearing end user sales on xMAP technology for the year, a 12% increase over 2012, contributing to the 19% increase in royalty revenue over the prior year.

• Realized a gain of $5.4 million from the liquidation of our minority interest investment in a private company that was acquired by a third party in July 2013.

• Announced a restructuring plan focused on ARP segment's Newborn Screening Group and our Brisbane, Australia office to drive operational excellence and improve focus on the molecular diagnostics market.

• Received FDA and European Clearance for an Updated Version of Comprehensive Genotyping Assay, xTAG® CYP2D6 Kit and a New Personalized Medicine Genotyping Assay, xTAG® CYP2C19 Kit.

• Received FDA clearance for the MAGPIX instrument and the xTAG Gastrointestinal Pathogen Panel.

• Signed an agreement with Merck & Co. Inc. to develop a companion diagnostic that will help screen patients into Merck's lead investigational candidate drug study for Alzheimer's disease.

• As part of the completion of our transition to a direct assay distribution model, we finalized the termination of our molecular diagnostics distribution agreements resulting in an expense of $7.0 million recorded in selling, general and administrative expenses in the first quarter of 2013.

Reimbursement Landscape

The molecular diagnostic market is experiencing what we believe to be a temporary deceleration in the utilization of molecular assays, particularly in the human genetics segment, driven by administrative issues related to reimbursement associated with the new molecular diagnostic code system established by the Centers for Medicare and Medicaid Services ("CMS") on January 1, 2013. A number of our lab customers have experienced Medicare fee schedule reductions, delays in pricing and implementation of key molecular codes, denials of coverage for existing tests and delays in payment for tests performed by some payers after implementation of recently adopted pathology codes, all of which are resulting in lower than anticipated testing volumes for our customers and as a result decreased assay revenues for our ARP segment. Our lab customers are exerting efforts towards resolution, but the deceleration could continue to impact our sales, margins and cash flows until resolution. However, we believe these reimbursement headwinds will subside in 2014.

Consumables Sales and Royalty Revenue Trends

We have experienced significant fluctuations in consumable revenue over the past three years. Overall, the fluctuations manifested themselves through periodic changes in volume from our largest bulk purchasing partners. From the first quarter of 2010 through the fourth quarter of 2013, we had quarterly bulk purchases varying from $7.0 million to $16.1 million and representing between 75% and 88% of total consumable revenue. We expect these fluctuations to continue as the ordering pattern of our largest bulk purchasing partner remains variable; however, our other bulk purchasing customers are less variable in their ordering patterns. Additionally, even though we experience variability in consumable revenue, the key indicator of the success of our partners' commercialization efforts is the rising level of royalties and reported royalty bearing sales during the past several years.

Change in Cash Position

Our cash, cash equivalents and investments increased by approximately $13.0 million for the year ended December 31, 2013 to $72.4 million from $59.4 million at December 31, 2012. The increase in cash, cash equivalents and investments is primarily attributable to strong operating cash flows of $26.9 million, coupled with $8.7 million in proceeds from our employee stock purchase plan (ESPP) and stock option exercises and $9.6 million in proceeds from the sale of the ALL equity investment, which funded the majority of our stock repurchases of $14.6 million and capital expenditures of $18.1 million.

Table of Contents

Segment Information

Luminex has two reportable segments: the technology and strategic partnerships (TSP) segment and the assays and related products (ARP) segment. The TSP segment, which is our original, base business, consists of system sales to partners and end customers, raw bead sales, royalties, service and support of the technology, and other miscellaneous items. The ARP segment is primarily involved in the development and sale of assays on xMAP and MultiCode technology for use on Luminex's installed base of systems.

Future Operations

We expect our areas of focus over the next twelve months to be:

• development of the next generation sample-to-answer platform for our MultiCode-RTx technology;

• development of the next generation multiplex platform;

•          continued successful execution of our direct sales strategy, including
           the infrastructure necessary to support our sales force and decreasing
           reliance on our distributors.

• commercialization, regulatory clearance and market adoption of products from our ARP segment;

• adoption and use of our platforms and consumables by our customers for testing services;

• expansion and enhancement of our installed base and our market position within our identified target market segments;

•          maintenance and improvement of our existing products and the timely
           development, completion and successful commercial launch of our
           pipeline products;

•          monitoring and mitigating the effect of the ongoing uncertainty in
           global finance markets and changes in government funding on planned
           purchases by end users; and

• continued adoption and development of partner products incorporating Luminex technology through effective partner management.

We anticipate continued revenue concentration in our higher margin items (assays, consumables and royalties) contributing to favorable, but variable, gross margin percentages. Additionally, we believe that a sustained investment in research and development is necessary in order to meet the needs of our marketplace and provide a sustainable new product pipeline. We may experience volatility in research and development expenses as a percentage of revenue on a quarterly basis.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following is a discussion of our most critical accounting policies used in the preparation of our financial statements, and the judgments and estimates involved under each. We also have other significant accounting policies that do not involve critical accounting estimates because they do not generally require us to make estimates and judgments that are difficult or subjective. These are described in Note 1 of our Consolidated Financial Statements provided herein in Item 8. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.

Table of Contents

Revenue Recognition. Revenue is generated primarily from the sale of our products and related services, which are primarily support and maintenance services on our systems. We recognize product revenue at the time the product is shipped provided there is persuasive evidence of an agreement, no right of return exists, the fee is fixed or determinable and collectability is probable. There is no customer right of return in our sales agreements. If the criteria for revenue recognition are not met at the time of shipment, the revenue is deferred until all criteria are met.

We regularly enter into arrangements for system sales that are multiple-element arrangements, including services such as installation and training, and multiple products. These products or services are primarily delivered within a short time frame, approximately three to six months, of the agreement execution date and can also be performed by one of our third-party partners. Based on the terms and conditions of the sale, we believe that these services can be accounted for separately from the delivered system as our delivered products have value to our customers on a stand-alone basis. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis. Accordingly, the estimated selling price of services or products not yet performed or delivered at the time of system shipment are deferred and recognized as revenue as such services are performed. We have typically been able to determine the selling price of each deliverable in a multiple-element arrangement based on the price for such deliverable when it is sold separately. If vendor specific objective evidence (VSOE) is not determinable and when third-party evidence is not available, we use the estimated selling price of a deliverable which is determined based upon our pricing policies, expected margin of the deliverable, geographical location and information gathered from customer negotiations.

Within the diagnostic portion of our ARP segment, we provide systems and certain other hardware to customers through reagent rental agreements under which the customers commit to purchasing minimum quantities of disposable products at a stated price over a defined contract term, which is normally two to three years. Instead of rental payments, we recover the cost of providing the system and other hardware in the amount we charge for our diagnostic assays and other disposables. Revenue is recognized over the defined contract term as assays and other disposable products are shipped. The depreciation costs associated with the system and other hardware are charged to cost of sales on a straight-line basis over the estimated life of the system. The costs to maintain these instruments in the field are charged to cost of sales as incurred.

Revenue from extended service agreements is deferred and recognized ratably over the term of the agreement. We may also be entitled to milestone payments that are contingent upon our achieving a predefined objective. We follow the milestone method of recognizing revenue from milestones and milestone payments are recorded as revenue in full upon achievement of the milestone. Revenues from royalties related to agreements with strategic partners are recognized when such amounts are reported to the Company; therefore, the underlying end user sales may be related to prior periods.

Additional revenue is derived from cost-type contracts with the U.S. government. Revenue and profit under cost-plus service contracts is recognized as costs are incurred plus negotiated fees. Fixed fees on cost-plus service contracts are recognized ratably over the contract performance period as services are performed. Contract costs include labor and related employee benefits, subcontracting costs and other direct costs, as well as allocations of allowable indirect costs. For contract change orders, claims or similar items, judgment is required for estimating the amounts, assessing the potential for realization, and determining whether realization is probable. From time to time, facts develop that require revisions of revenue recognized or cost estimates. To the extent that a revised estimate affects the current or an earlier period, the cumulative effect of the revision is recognized in the period in which the facts requiring the revision become known. Reimbursements of certain costs, including certain hardware costs or out-of-pocket expenses are included in revenue with corresponding costs included in cost of revenue as costs are incurred.

Inventory. Inventories are valued at the lower of cost or market value, with cost determined according to the standard cost method. Inventories have been written down through an allowance for excess and obsolete inventories. The two major components of the allowance for excess and obsolete inventory are (i) a specific write-down for inventory items that we no longer use in the manufacture of our products or that no longer meet our specifications and (ii) a write-down against slow moving items for potential obsolescence. Inventory is reviewed on a regular basis and adjusted based on management's review of inventories on hand compared to estimated future usage and sales. While management believes that adequate write-downs for inventory obsolescence have been made in the consolidated financial statements, scientific and technological advances will continue and we could experience additional inventory write-downs in the future. However, we do not believe this estimate is subject to significant variability.

Warranties. We provide for the estimated cost of initial product warranties at the time revenue is recognized. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. While management believes that adequate reserve has been made in the consolidated financial statements for product warranties, should actual product failure rates, material usage or service delivery costs differ from our estimates, revisions to the estimated warranty liability would be required. However, we do not believe this estimate is subject to significant variability.

Table of Contents

Purchase Price Allocation, Intangibles and Goodwill. The purchase price allocation for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired, including in-process research and development, and liabilities assumed based on their respective fair values. Intangible assets with definite lives are amortized over the assets' estimated useful lives using the straight-line method. We periodically review the estimated useful lives of our identifiable intangible assets, taking into consideration any events or circumstances that might result in a diminished fair value or revised useful life.

Goodwill represents the excess of the cost over the fair value of the assets of the acquired business. We evaluate the carrying value of goodwill on a reporting unit level annually or more frequently if there is evidence that certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. All of our goodwill relates to one reporting unit, our ARP segment, for goodwill impairment testing. We have historically estimated the fair value of our ARP segment reporting unit using a discounted cash flow (DCF) analysis ("step one" analysis) of our projected future results or using a more qualitative analysis ("step zero" analysis) under the accounting guidance which allows an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In fiscal 2011 and 2012, we used the "step zero" analysis in our annual impairment analysis for goodwill. In performing the impairment test in the fourth quarter of 2013, we used the "step one" analysis. This analysis requires a comparison of the carrying value of the reporting unit to the estimated fair value of the reporting unit. Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and assumptions. Our annual test, performed on the first day of the fourth quarter, did not result in an impairment charge for 2013 as the estimated fair value of the ARP segment reporting unit continues to exceed the carrying value by a significant enough amount that any reasonably likely change in the assumptions used in the analysis would not cause the carrying value to exceed the estimated fair value for the reporting unit as determined under our "step one" analysis.

We utilize an income approach based on a DCF analysis to determine fair value estimates, and then use market comparisons as a reasonableness check to ensure that neither the income approach nor the market comparisons yielded significantly different results. The income approach calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Our estimates are based on revenue projections by product line, and include judgment based on historical growth and scheduled product approvals by the various governmental authorities. We believe our assumptions are consistent with the plans and estimates used to manage the underlying businesses. The most significant assumptions used in the DCF methodology are the discount rate, based upon the estimated weighted average cost of capital (WACC), and the terminal growth rate, based upon strategic studies we commissioned and our own internal analysis. We used a WACC rate of 15% and a terminal growth rate of 2.9% in our 2013 analysis. To determine our WACC rate, we performed a peer company analysis and considered the weighted average return on debt and equity, the updated risk-free interest rate, beta, equity risk premium, and entity specific size risk premium.

Our analysis yielded an estimated fair value in excess of the carrying value by over 25% for 2013. Concurrent with the above analysis, we performed a sensitivity analysis based upon reasonably likely changes to determine if our DCF analysis would result in impairment if the following changes were made to our assumptions: i) assumed the fair value of the reporting unit was lower by 10% or ii) future revenue was 75% of our projections in the DCF model. Neither of these sensitivity analyses resulted in an estimated fair value less than the carrying amount of the reporting unit.

Accounting for Income Taxes. We calculate our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in our financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical income, projected future income, the expected timing of the reversals of existing temporary differences and the implementation of tax-planning strategies. Undistributed earnings of our foreign subsidiaries are considered permanently reinvested and, accordingly, no provision for U.S. federal or state income taxes has been provided thereon.

Table of Contents

The GAAP guidance requires recognition of the impact of a tax position in our financial statements only if that position is more likely than not to be sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense. Determining the consolidated provision for income taxes involves judgments, estimates and the application of complex tax regulations. We are required to provide for income taxes in each of the jurisdictions where we operate, including estimated liabilities for uncertain tax positions. Although we believe that we have provided adequate liabilities for uncertain tax positions, the actual liability resulting from examinations by taxing authorities could differ from the recorded income tax liabilities and could result in additional income tax expense having a material impact on our consolidated results of operations. Changes of estimates in our income tax liabilities are reflected in our income tax provision in the period in which the factors resulting in the change to our estimate become known to us. We benefit from the tax credit incentives under the U.S. research and experimentation tax credit extended to taxpayers engaged in qualified research and experimental activities while carrying on a trade or business. The tax credit expired on December 31, 2013, and if not renewed under similar terms as in prior years, the result could have a material impact on our financial results.

We recognize excess tax benefits associated with share-based compensation to stockholders' equity only when realized. When assessing whether excess tax benefits relating to share-based compensation have been realized, we follow the with-and-without approach, excluding any indirect effects of the excess tax deductions. Under this approach, excess tax benefits related to share-based compensation are not deemed to be realized until after the utilization of all other tax benefits available to us.

In March 2010, significant reforms to the healthcare system were adopted as law in the U.S. The law includes provisions that, among other things, imposes new and/or increased taxes. Specifically, the law requires the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax on U.S. sales of certain medical devices effective January 1, 2013. Our products which have received FDA approval fall under the government classification and will be subject to the excise tax.

Stock compensation. All stock-based compensation cost, including grants of stock options, restricted stock units and shares issued under the Company's employee stock purchase plan, is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period. The fair value . . .

  Add LMNX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LMNX - All Recent SEC Filings
Copyright © 2015 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.