LETTER TO STOCKHOLDERS
NACHUM “HOMI” SHAMIR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dear Stockholders,
2017 was an exciting year for Luminex. Our balanced business model
consisting of our Licensed Technologies and Molecular Diagnostics groups
continued to perform very well. We posted double-digit growth across
our molecular diagnostic platforms, achieved solid contributions from
our Licensed Technologies Group, significantly expanded our molecular
diagnostic menu, and created a sustained pipeline of innovative technology
--- all while maintaining profitability and generating consistent cash flow.
to drive standardization of the use of our sample-to-answer platforms
within large hospital networks and regional buying groups. Because
GPOs effectively serve as the gatekeepers for major health care providers,
we were able to accelerate the placement rate of our automated molecular
sample-to-answer solutions and position ourselves for strong future growth.
Finally, we extended LabCorp’s commitment to the xMAP® Cystic Fibrosis
product line through at least the end of 2019, securing annual, high margin
revenues of $10-12 million per year.
2017 FINANCIAL RESULTS
OUR VISION MOVING FORWARD
In 2017, we generated approximately $307 million in annual revenue, a 13%
increase over 2016. These results reflect both contributions from our core
businesses and the full integration of the Nanosphere acquisition, which has
further supported the growth of our molecular diagnostic franchise. More
specifically, our molecular diagnostic business grew 26% over 2016. Our
molecular diagnostic sales efforts benefited from a full-year contribution
from the acquired Nanosphere infectious disease testing solutions, three
new U.S. regulatory clearances for our ARIES® platform, and a newly
adopted portfolio approach to selling. We now have 10 FDA cleared assays
available on our sample-to-answer platforms and can offer our customers a
rapidly expanding family of flexible molecular sample-to-answer automated
solutions, including both our ARIES® and VERIGENE® Systems and Assays
to meet their needs. While our partner-related revenue grew only 3%
for the year, longer-term trends continue to support healthy demand for our
unique, patented technology and favorable growth of our key
strategic partners.
We believe our strong momentum will continue in 2018, as we leverage
our balanced business model. The strength of this business model, and
our financial discipline, allows us to both remain profitable and return cash
to our stockholders through quarterly cash dividends. Beyond 2018,
we intend to continue to meaningfully grow revenue by expanding both
our existing business and by continuing to invest in strategic acquisitions
and partnerships.
2017 SIGNIFICANT ACCOMPLISHMENTS
In June of 2016, when we acquired Nanosphere, we saw an opportunity
to expedite the path to market for our next generation sample-to-answer
system. Nanosphere provided a critical path for Luminex to accelerate the
introduction of our next generation sample-to-answer system by more than
two years. Upon closing, we immediately applied financial discipline, made
tactical adjustments to our consolidated R&D portfolio and leveraged our
market knowledge and awareness to optimize resources and integrate the
company as quickly as possible. As a result, we were able to fully integrate
and reach accretive status by June of 2017, only twelve months after
closing. Additionally, through the end of 2017, we replaced more than half
of the cash utilized during the acquisition and further established Luminex
as a leader in the molecular diagnostics marketplace.
During 2017, we were also able to secure contracts with most of the major
Group Purchasing Organizations (GPOs) in the United States. Additionally,
we added dedicated resources to work across the GPO customer base
Our outlook for 2018 is driven by the strength of our balanced business
model and incorporates the planned reduction in our Women’s Health
revenue stream in the second half of the year. We expect single-digit
overall growth for 2018 that would otherwise be approaching double-digit
growth, if not for the impact of the reduction in Women’s Health sales.
We also expect continued solid contributions from our Licensed
Technologies Group, sustained cash flow and profitability, an expansive
portfolio of assays being run on our automated molecular platforms, and
a robust research and development pipeline.
With our balanced growth strategy, increased adoption of our molecular
diagnostics solutions, and the new products we are developing, our future
looks very bright. We have numerous opportunities to expand our presence
in the market, enhance the quality of our products, and solidify many of
our competitive advantages. As we expand and transform our business,
our goal is to achieve revenue of $500 million by 2022. With the expected
consistent growth of our partner revenue stream in the mid-to-high single
digits, and the sustained double-digit growth of our combined molecular
diagnostic solutions, we believe that this goal is very achievable, even
while fully incorporating the reductions in Women’s Health. We currently
estimate that we will achieve a $100 million revenue run-rate for our
automated molecular diagnostic solutions by the end of 2019. For Luminex,
execution is all about meeting our established timelines, continuing to listen
to our customers, and identifying unmet needs in the marketplace that we
can satisfy with our imaginative solutions. Throughout our history, we have
demonstrated the ability to develop innovative products with high value
that solve problems for customers at a very reasonable cost.
I would like to thank our stockholders for their continued support and
confidence. Additionally, I would like to acknowledge our more than 900
employees worldwide for their outstanding efforts and continued dedication
to making a positive difference in the lives of the healthcare providers and
the patients we serve on a daily basis.
Sincerely,
Homi Shamir
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2017 or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____.
Commission File No. 000-30109
_______________
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
(Address of principal executive offices)
74-2747608
(I.R.S. Employer Identification No.)
78727
(Zip Code)
(512) 219-8020
(Registrant’s telephone number, including area code)
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company) Smaller reporting company
Emerging growth company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
Based on the closing sale price of common stock on The Nasdaq Global Select Market on June 30, 2017, the aggregate market value of the
voting stock held by non-affiliates of the Registrant was $867,659,303 as of such date, which assumes, for purposes of this calculation only, that
all shares of common stock beneficially held by officers and directors are shares owned by “affiliates.”
There were 44,124,802 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on February 23, 2018.
Portions of the Registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
LUMINEX CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures and Certifications
PART IV
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibit 10.44
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
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S- 1
Safe Harbor Cautionary Statement
This annual report on Form 10-K contains statements that are forward-looking statements under the Private Securities
Litigation Reform Act of 1995. Forward-looking statements provide our current expectations of forecasts of future events. All
statements other than statements of current or historical fact contained in this annual report, including statements regarding our
future financial position, business strategy, impact of the reimbursement landscape, new products including ARIES®, VERIGENE®
and NxTAG®, assay sales, consumables sales patterns and bulk purchases, budgets, system sales, anticipated gross margins,
liquidity, cash flows, projected costs and expenses, taxes, deferred tax assets, regulatory approvals or the impact of laws or
regulations applicable to us, plans and objectives of management for future operations, and impact of prior acquisitions or future
acquisitions, integration and the expected benefit of our acquisitions are forward-looking statements. The words “anticipate,”
“believe,” “continue,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “projects,” “will” and similar expressions as they
relate to us, are intended to identify forward-looking statements. These statements are based on our current plans and actual future
activities, and our financial condition and results of operations may be materially different from those set forth in the forward-
looking statements as a result of known or unknown risks and uncertainties, including, among other things:
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concentration of our revenue in a limited number of direct customers and strategic partners, some of which may
experience decreased demand for their products utilizing or incorporating our technology, budget or finance constraints
in the current economic environment, or periodic variability in their purchasing patterns or practices as a result of
material resource planning challenges;
risks and uncertainties relating to market demand and acceptance of our products and technology, including ARIES®,
MultiCode®, NxTAG®, xMAP® and VERIGENE®;
our ability to scale manufacturing operations and manage operating expenses, gross margins and inventory levels;
our ability to obtain and enforce intellectual property protections on our products and technologies;
the impact on our growth and future results of operations with respect to the loss of the LabCorp women's health
business anticipated in 2018;
our ability to successfully launch new products in a timely manner;
dependence on strategic partners for development, commercialization and distribution of products;
risks and uncertainties associated with implementing our acquisition strategy, our ability to identify acquisition targets
including our ability to obtain financing on acceptable terms, our ability to integrate acquired companies or selected
assets into our consolidated business operations, and the ability to fully realize the benefits of our acquisitions;
the timing of and process for regulatory approvals;
competition and competitive technologies utilized by our competitors;
fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, fluctuations in bulk purchases of
consumables, fluctuations in product mix, and the seasonal nature of some of our assay products;
our ability to comply with applicable laws, regulations, policies and procedures;
the impact of the ongoing uncertainty in global finance markets and changes in government and government agency
funding, including its effects on the capital spending policies of our partners and end users and their ability to finance
purchases of our products;
changes in interpretation, assumptions and expectations regarding the Tax Cuts and Jobs Act, including additional
guidance that may be issued by federal and state taxing authorities;
changes in principal members of our management staff;
potential shortages, or increases in costs, of components or other disruptions to our manufacturing operations;
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our increasing dependency on information technology to enable us to improve the effectiveness of our operations and
to monitor financial accuracy and efficiency;
the implementation, including any modification, of our strategic operating plans;
the uncertainty regarding the outcome or expense of any litigation brought against or initiated by us; and
risks relating to our foreign operations, including fluctuations in exchange rates, tariffs, customs and other barriers to
importing/exporting materials and products in a cost effective and timely manner; difficulties in accounts receivable
collections; our ability to monitor and comply with foreign and international laws and treaties; and our ability to comply
with changes in international taxation policies.
Many of these risks, uncertainties and other factors are beyond our control and are difficult to predict. Any or all of our
forward-looking statements in this annual report may turn out to be inaccurate. We have based these forward-looking statements
largely on our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs. New factors could also emerge from time to time that could
adversely affect our business. The forward-looking statements herein can be affected by inaccurate assumptions we might make
or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties and assumptions outlined above
and described in Item 1A “Risk Factors” below. In light of these risks, uncertainties and assumptions, the forward-looking events
and circumstances discussed in this annual report may not occur and actual results could differ materially from those anticipated
or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind
these risk factors and other cautionary statements in this annual report including in Item 7 “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and in Item 1A “Risk Factors.”
Our forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise forward-
looking statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-
looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained in this annual report.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Luminex,” the “Company,” “we,”
“us” and “our” refer to Luminex Corporation and its subsidiaries.
___________________
Luminex®, xMAP®, xTAG®, NxTAG®, Luminex® 100/200™, Luminex® SD™, FLEXMAP 3D®, MicroPlex®, MAGPIX®,
MagPlex®, SeroMAP™, xPONENT®, LumAvidin®, MultiCode®, EraGen®, SYNCT™, ARIES® and VERIGENE® are trademarks
of Luminex Corporation or one of its subsidiaries. This report also refers to trademarks, service marks and trade names of other
organizations.
ITEM 1. BUSINESS
Overview
PART I
We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the
life sciences industries, including diagnostics, pharmaceutical and research. These industries depend on a broad range of tests,
called assays, to perform diagnostic testing and conduct life science research. We have established a position in several segments
of the life sciences industries by developing and delivering products that satisfy a variety of customer needs in specific market
segments, including multiplexing, accuracy, precision, sensitivity, specificity, reduction of labor and ability to test for proteins and
nucleic acids. These needs are addressed by our proprietary technologies.
Multiplexing, the foundation of our Company, allows the end user in a laboratory to generate multiple laboratory results from
a single sample with a single assay. This is important because our end user customers, which include laboratory professionals
performing discovery, research and 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. Until the availability of multiplexing technology,
the laboratory professional had to perform one assay at a time in a sequential manner, and if additional testing was required on a
sample, a second assay would be performed to generate the second result, and so on until all the necessary tests were performed.
Our xMAP Technology
Our xMAP technology is an open architecture, multiplexing technology that combines existing biological testing techniques
with illumination, advanced digital signal processing, detection and proprietary software. With our technology, discrete assays are
performed on the surface of color-coded microspheres. These microspheres are read in a compact analyzer that utilizes lasers or
light emitting diodes (LEDs), detectors, charge-coupled device imaging and high-speed digital signal processing to simultaneously
identify the assay and measure the individual assay results. The key features of xMAP technology include the following:
• Multi-analyte/multi-format
xMAP technology has been designed to simultaneously perform up to 500 distinct assays in a single tube or well of a microtiter
plate using only a small amount of sample. Moreover, unlike most existing technologies that are dedicated to only one type
of assay, xMAP can perform multiple types of assays including enzymatic, genetic and immunologic tests on the same
instrumentation platform.
•
Flexibility/scalability
xMAP technology allows flexibility in customizing test panels. Panels can be modified to include new assays in the same tube
by adding additional microsphere sets. It is also scalable, meaning that there is no change in the manufacturing process and
only minimal changes to the labor required to produce a small or large number of microsphere-based tests.
• Both protein and nucleic acid applications on a single platform
xMAP technology has an advantage due to its ability to analyze both proteins and nucleic acids. This allows customers to
utilize a single platform to evaluate samples across more biological parameters and generate a more complete assessment of
these samples. Alternative technologies are typically restricted to either proteins or nucleic acid, requiring customers to use
two or more technologies from other vendors to get the same information.
• High throughput
Our technology can perform up to 500 tests in a single well, permitting up to 96,000 tests to be detected in approximately one
hour with only a small amount of sample. Rapid sample analysis permits efficient use for high-throughput applications.
• Ease of use
Most xMAP-based assays are simple to perform. A test sample is added to a solution containing microspheres that have been
coated with reagents. The solution is then processed through one of our xMAP systems which incorporates proprietary software
to automate data acquisition and analysis in real-time.
1
• Cost effective
By performing multiple assays at one time, xMAP technology is designed to be cost effective for customers compared to
competitive techniques such as ELISA or real-time PCR. By analyzing only those assays in which a customer is interested,
xMAP is also more cost effective than most competing microarray technologies. In addition, microsphere-based assays are
inexpensive compared to other technologies, such as chip based microarrays.
Two types of microspheres, polystyrene microspheres and polystyrene magnetic microspheres, are both fundamental
components of the xMAP technology. We purchase and manufacture microspheres and, in a proprietary process, dye them with
varying intensities of proprietary dyes to achieve up to 500 distinct colors. The specific dye proportions permit each color-coded
microsphere to be readily identified based on its distinctive fluorescent signature. Our customers create assays by attaching different
biochemical reactants to each distinctly colored microsphere set. These unique reactants bind, or capture, specific substances
present in the test sample. The microsphere sets can then be combined in test panels as required by the user, with a maximum of
500 tests per panel. Customers can order either standard microspheres or magnetic microspheres.
To perform an assay using xMAP technology on our systems, a researcher attaches biomarker detectors such as antibodies or
nucleic acid oligos to one or more sets of color-coded microspheres, which are then mixed with a test sample. This mixture is
injected into the xMAP analyzer, such as the Luminex 200 instrument, where the microspheres pass single-file in a fluid stream
through two laser beams. The first laser excites the internal dyes that are used to identify the color of the microsphere and the test
being performed on the surface of the microsphere. The second laser excites a fluorescent dye captured on the surface of the
microspheres that is used to detect the result of the assay taking place. Our proprietary optics, digital signal processors and software
record the fluorescent signature of each microsphere and compare the results to the known identity of that color-coded microsphere
set. The results are analyzed and displayed in real-time with data stored on the computer database for reference, evaluation and
analysis.
Our xMAP technology is currently being used within various segments of the life sciences industries, including the fields of
drug discovery and development, and for clinical diagnostics, bio-defense, food safety and biomedical research.
We have a full range of instruments using our xMAP Technology: our LUMINEX® 100/200™ Systems offer 100-plex testing;
our FLEXMAP 3D® System is our high-throughput, 500-plex testing system; and our MAGPIX® System provides 50-plex testing
at a lower cost using imaging rather than flow cytometry. By using our xMAP technology, the end users are able to be more
efficient by generating multiple simultaneous results per sample. We believe that this technology may also offer advantages in
other industries, such as in food safety, animal health and bio-defense/bio-threat markets. Using the xMAP products Luminex has
available today, up to 500 simultaneous analyte results can be determined from a single sample.
Our Non-Automated Technologies
Our xTAG technology consists of several components including multiplexed PCR or target identification primers, DNA Tags,
xMAP microspheres and data analysis software. xTAG technology permits the development of molecular diagnostic assays for
clinical use by hospital and reference laboratories. xTAG technology has been applied to human genetic assays, pharmacogenetic
assays and infectious disease assays.
Our MultiCode technology is based upon a unique assay chemistry that is a flexible platform for both real-time PCR and
multiplex PCR-based applications. MultiCode-based PCR assays are primarily used for the detection of infectious diseases and
genetic-based conditions. We have multiple molecular diagnostic (MDx) assays based on the MultiCode chemistry. MultiCode
products are based upon the unique MultiCode bases, isoC and isoG. The synthetic isoC:isoG DNA base pair differs from the
naturally occurring base pairs in its hydrogen bonding pattern. As a result, the MultiCode bases, isoC and isoG, can only pair with
each other, but can co-exist with naturally occurring nucleotide pairs. This property enables site-specific incorporation of the
isobases during amplification. The MultiCode base pair is recognized by naturally occurring enzymes and can be used for the
specific placement of reporter molecules and to increase the molecular recognition capabilities of hybridization-based assays. The
MultiCode base pair enables solutions to complex molecular challenges that were previously not possible with natural nucleic
acid alone.
We have multiple assay development activities ongoing and these activities are focused in the areas of infectious disease,
human genetics, and pharmacogenomics.
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The ARIES® system is our sample-to-answer platform for our MultiCode®-RTx technology, including In Vitro Diagnostics
(IVD) assays. The ARIES® system is a clinical test system which automates and integrates extraction of nucleic acid from a clinical
sample, performs real-time polymerase chain reaction, and detects multiple signals generated by target specific probes. The ARIES®
system is used with specific assays to measure multiple analytes indicative of infectious disease. The ARIES® system uses internal
barcode scanning and other advanced features to minimize operator errors. Each independent module supports from one to six
cassettes, allowing both STAT and Batch testing. The ARIES® system can run both IVD and MultiCode® Analyte Specific Reagents
(ASRs) simultaneously with a common Universal Assay Protocol. The ARIES® system was commercially launched in the fourth
quarter of 2015.
Our VERIGENE Technology
Our offering in the molecular diagnostic market segment includes proprietary diagnostic tools that enable rapid and accurate
detection of respiratory, gastrointestinal and bloodstream infections. Our U.S. Food and Drug Administration (FDA) cleared
VERIGENE® Gram-Positive Blood Culture (BC-GP) and Gram-Negative Blood Culture (BC-GN) test panels for the early detection
of pathogens associated with bloodstream infections are leading products in the high-growth bloodstream infection testing segment.
In addition to detecting bacteria, these panels also detect yeast and identify antibiotic resistance markers. In contrast to traditional
methodologies, which can take several days, these assays enable physicians to identify the pathogen, including any associated
resistance markers, and prescribe the most appropriate antibiotic regimen, all within 2.5 hours after identification of a positive
blood culture. The ability for clinicians to make earlier, better informed therapeutic decisions results in improved patient outcomes
and lower healthcare costs. Our VERIGENE product offering also include FDA-cleared products for the detection of gastrointestinal
and respiratory infections. These consist of a targeted product for the detection of C. difficile, as well as highly multiplexed
molecular enteric, blood and respiratory pathogen panels which test for a wide spectrum of microorganisms often associated with
these types of infections. With the addition of the VERIGENE platform, Luminex offers customers automated molecular platforms
for both syndromic and targeted molecular diagnostic testing.
The VERIGENE System is an automated multiplex-capable system that rapidly and accurately detects infectious pathogens
and drug resistance markers. The VERIGENE System consists of: i) VERIGENE Test Cartridges, which are single-use, self-
contained test units, and ii) VERIGENE instrumentation, including the VERIGENE Processor SP, which is a modular bench-top
analyzer that combines automated nucleic acid extraction, purification, amplification (if needed), and hybridization in each module,
as well as the VERIGENE Reader, which manages sample information and reads results from processed cartridges. Tests that run
on the VERIGENE System are designed to identify infections in the bloodstream, respiratory tract, and gastrointestinal tract.
The VERIGENE System utilizes advanced automation and proprietary chemistry to enable rapid sample to result detection
of nucleic acid and protein targets. NanoGrid Technology, a unique gold nanoparticle probe chemistry, is the driving force behind
all VERIGENE tests, providing a foundation for the VERIGENE System’s menu of clinically meaningful diagnostics.
In addition to our menu of infectious disease tests, we are currently developing a next generation VERIGENE System that
will deliver improved user experience. This next generation system is designed to provide a reduced time to result and an improved
user interface, including a room temperature cartridge, all in a fully automated sample to result system with an optimized footprint.
Our Market Approach
We primarily serve the life sciences industries by marketing products, including our specific testing equipment and assays,
to various types of testing laboratories. We have a large base of installed systems that has grown primarily from the following:
•
Placements made by customers within our Licensed Technologies Group (LTG), previously referred to as our "Partner
Business," which customers either:
•
•
license our xMAP technology and develop products that incorporate our xMAP technology into products that
they then sell to end users, or
purchase our proprietary xMAP laboratory instrumentation and our proprietary xMAP microspheres and sell
xMAP-based assay products and/or xMAP-based testing services, which run on the xMAP instrumentation, and
pay a royalty to us; and
•
In addition, we utilize a direct sales force that focuses on the sale of molecular diagnostic assays that run on our systems.
As of December 31, 2017, we had 73 strategic partners, 53 of which have released commercialized reagent-based products
utilizing our technology. Luminex and these partners have sold approximately 14,848 xMAP-based instruments in laboratories
worldwide as of December 31, 2017. Our remaining LTG customers are in various stages of development and commercialization
of products incorporating our technology.
3
A primary focus for our growth is the development and sale of molecular diagnostic assays utilizing our proprietary MultiCode®
and VERIGENE technologies for use on our installed base of systems. We utilize a direct sales model for sales of these products,
which is intended to take advantage of our increasing installed base of instruments. Our assays are primarily focused on multiplexed
applications for the human molecular clinical diagnostics market. Our assay products are currently focused on three segments of
the molecular diagnostic testing market: human genetics, personalized medicine and infectious disease.
The following systems and assays are on market as of December 31, 2017:
FDA
CE-IVD MARK
Clearance
Commercial Launch Declaration
ARIES® HSV 1&2 Assay
ARIES® Flu A/B & RSV Assay
ARIES® Group B Streptococcus (GBS) Assay
ARIES® Bordetella Assay
ARIES® Norovirus Assay
ARIES® C. difficile Assay
ARIES® Group A Strep Assay
NxTAG® Respiratory Pathogen Panel (RPP)
VERIGENE® Clostridium Difficile Test (CDF)
VERIGENE® Enteric Pathogens Test (EP)
VERIGENE® Respiratory Pathogens Flex Test
(RP Flex)
VERIGENE® Gram-Negative Blood Culture Test
(BC-GN)
VERIGENE® Gram-Positive Blood Culture Test
(BC-GP)
xTAG® CYP2C19 Kit v3
xTAG® CYP2D6 Kit v3
xTAG® Cystic Fibrosis (CFTR) 39 Kit v2
xTAG® Cystic Fibrosis (CFTR) 60 Kit v2
xTAG® Cystic Fibrosis (CFTR) 71 Kit v2
xTAG® Gastrointestinal Pathogen Panel (GPP)
xTAG® Respiratory Viral Panel (RVP)
xTAG® Respiratory Viral Panel (RVP)
FAST v2
2015 - Q4
2016 - Q2
2017 - Q1
2017 - Q2
2017 - Q3
2017 - Q4
2016 - Q1
2012 - Q4
2014 - Q4
2015 - Q4
2014 - Q2
2012 - Q4
2013 - Q4
2011 - Q2
2009 - Q4
2010 - Q1
2013 - Q1
2008 - Q1
Commercial Launch
2016 - Q1
2016 - Q2
2016 - Q4
2017 - Q3
2017 - Q2
2017 - Q3
2017 - Q4
2015 - Q4
2013 - Q2
2015 - Q4
2015 - Q2
2013 - Q1
2012 - Q1
2013 - Q4
2013 - Q2
2012 - Q1
2009 - Q3
2011 - Q2
2007 - Q4
2011 - Q4
We have plans to submit additional assay products to regulatory authorities in 2018, including the FDA and foreign equivalents,
for market authorization in order to comply with established guidelines across the jurisdictions in which we participate.
Industry Background
The life sciences industries use assays to detect the presence and characteristics of certain biochemicals, proteins or nucleic
acids in a sample. Drug discovery, genetic analysis, pharmacogenomics, clinical diagnostics and general biomedical research all
use assays. For example, assays can be used to:
• measure the presence and quantity of substances such as infectious agents, antigens for histocompatibility, hormones,
cancer markers and other proteins in a patient’s blood, other body fluid or tissue to assist physicians in diagnosing, treating
or monitoring disease conditions;
•
detect genetic variations, such as single nucleotide polymorphisms or genetic mutations present in inherited diseases;
• measure the response to a compound or dosage by measuring cellular activity to assist in drug discovery and development;
and
4
•
assist physicians in prescribing or dosing the appropriate drug therapy based on the patient’s genetic makeup, a field
known as pharmacogenetics.
The life sciences customer can purchase assays in the form of complete off-the-shelf kits, develop them from scratch or utilize
a customized service to meet the customer's specific needs.
The table below briefly describes the key assay technologies in the life sciences industries:
KEY TECHNOLOGIES
DESCRIPTION
MARKETS SERVED
Sequencing
BioChips/Microarrays
Automated Immunoassays
Gels and blots
PCR methods
Microfluidics chips
Microtiter-plate based assays
Genotyping technologies
Gene expression technologies
Mass Spectrometry
Instruments which “read” the nucleotide
sequence of DNA or ribonucleic acid
(RNA) by a variety of methods
including Next Generation Sequencing
methods
High-density arrays of DNA fragments
or proteins attached to a flat glass or
silicon surface
Automated test tube-based instruments
used for detecting antibodies, proteins
and other analytes
Biomedical research and clinical
diagnostics
Biomedical research and clinical
diagnostics
Clinical diagnostics
Physical separation of molecules or
analytes for visualization
Biomedical research and clinical
diagnostics
Tests which use PCR technology to test
DNA and RNA
Nucleic acid testing in clinical
diagnostics and biomedical research
Miniaturized liquid handling system on
a chip
Plastic trays with discrete wells in which
different types of assays are performed,
usually Enzyme-Linked Immuno-
Sorbent Assay (ELISA) tests
DNA primers or probes designed to
identify small differences between DNA
targets
DNA primers or probes designed to
measure the degree of transcriptional
activity of a specific gene, indicating
how active the cells are in making the
protein encoded by that gene
Analytical technique and type of
instrument used to identify the mass of
ionized molecules or molecular
fragments
Biomedical research and clinical
diagnostics
Drug discovery, clinical diagnostics
and biomedical research
Drug discovery, clinical diagnostics
and biomedical research
Drug discovery, clinical diagnostics
and biomedical research
Blood culture identification,
pathogen fingerprinting
The table below briefly describes our key systems, technologies and our related revenue streams:
SYSTEMS
TECHNOLOGIES
REVENUE STREAM
Luminex® 100/200™
FLEXMAP® 3D
MAGPIX®
ARIES® and ARIES® M1
VERIGENE®
xMAP Technology
xMAP Technology
xMAP Technology
xTAG® and MultiCode Technologies
NanoGrid Technology
LTG / MDx
LTG / MDx
LTG / MDx
MDx
MDx
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Business Strategy
Our Company’s current focus is the transition from a technology-based tools company to a market-based diagnostic company
and the establishment of Luminex as a market leader in the molecular diagnostic market. To achieve these objectives, we have
implemented and are pursuing the following strategies:
•
Focus on key markets
We have identified the following key market segments: (i) molecular infectious disease, (ii) genetic or inherited disease, (iii)
human leukocyte antigen (HLA) transplant diagnostics, (iv) immunodiagnostics and (v) life sciences research. We will continue
to employ a combination of a partnership-driven business model and a product-driven business model focused on selected
market segments and assay applications.
• Develop and deliver market-leading molecular diagnostic platforms and assays
Our research and development and our acquisition activity has expanded the breadth of technology and solutions we offer our
customers to meet their needs. We acquired the MultiCode RTx real-time PCR technology for both quantitative and qualitative
low-plex real-time PCR assays and the GenturaDx IDbox sample to answer platform, which is compatible with our MultiCode
RTx technology, to provide our customers with a complete system for their real-time PCR assays. The GenturaDx IDbox was
further developed and launched as the ARIES® System. A key focus currently is the development of additional assay products
for our ARIES® System. The ARIES® System, when combined with our proprietary real-time PCR chemistry and a new menu
of highly automated assays that we are developing, is designed to offer a differentiated, easy to use diagnostic solution. The
ARIES® System is designed to help clinical diagnostic laboratories overcome their daily challenges: minimizing healthcare
cost increases while maintaining the overall quality of healthcare, the scarcity of highly trained laboratory personnel and
limited lab bench space. The ARIES® System offers barcode-based data entry, an efficient workflow, a slim design that occupies
minimal bench space, universal assay protocols that enable true walkaway automation and ability to simplify laboratory
developed tests (LDTs).
The VERIGENE System offers automated, cost-effective multiplex capabilities that rapidly and accurately detect infectious
pathogens and drug resistance markers, without relying on time-consuming culture methods. We currently offer assays on
the VERIGENE platform in the categories of Bloodstream Infection Tests, Gastrointestinal Infection Tests and a Respiratory
Infection Test. The VERIGENE Bloodstream Infection Tests provide cost-effective bacterial identifications and antibiotic
resistance determinations directly from positive blood culture bottles up to 48 hours faster than conventional methods. The BC-
GP test provides 15 different targets, and the BC-GN test provides 14 different targets. VERIGENE enables an earlier shift
from empiric to targeted antibiotic treatment and differentiates potential blood culture contaminants. As a result, the
VERIGENE System delivers better outcomes, improved patient care, and true antibiotic stewardship, all at a lower cost.
Testing for gastrointestinal pathogens has traditionally been labor-intensive, unpleasant for technologists to perform, has low
sensitivity, and can take as long as five to seven days to produce definitive results. The VERIGENE C. difficile Test for
healthcare-acquired diarrhea with 027 hypervirulent strain differentiation and VERIGENE Enteric Pathogens Test for
community-acquired diarrhea with nine bacterial and viral targets require less than five minutes of user hands-on time and
deliver comprehensive results directly from a stool sample in less than two hours. As a result, the VERIGENE System provides
earlier optimization for patient treatment and improved laboratory and hospital efficiency.
Influenza is highly contagious and affects up to 20% of the U.S. population each year. It is responsible for more than 200,000
hospitalizations, and as many as 49,000 deaths, each year depending on the severity of the season. Influenza can lead to
serious complications such as pneumonia, bronchitis, sinus infections, and a general worsening of chronic conditions.
Respiratory pathogens are responsible for more than one billion annual cases of the common cold and other related illnesses.
They are recognized as a serious contributor to respiratory ailments in children, the elderly, and the immunocompromised and
are commonly mistreated with unnecessary antibiotics due to delays in diagnosis. The VERIGENE Respiratory
Pathogens Flex (RP Flex) provides viral identification information clinicians need to select appropriate treatment for their
patients. VERIGENE RP Flex can limit misuse and overuse of antibiotics, which are ineffective and not indicated for viral
infections, and it can provide results within two hours.
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• Develop next generation products
We have developed a full range of multiplexing instruments and consumables to cover a broad range of customer applications
and budgets. We have developed, and continue to improve, our proprietary chemistries for our multiplex assays in areas such
as human genetic testing, personalized medicine testing and infectious disease testing. All of these technology solutions provide
our customers with a breadth of innovative solutions to meet their many testing needs.
We have continued the development of the VERIGENE II System. We currently expect to initiate clinical studies on the
system and its first assay in 2018 and commercially launch the VERIGENE II System in 2019.
In the fourth quarter of 2015, we launched our sample to answer platform, ARIES® System. We also received FDA clearance
for a number of assays that run on the ARIES® System as noted on page 4. We have plans to submit additional assay products
to regulatory authorities in 2018, including the FDA and foreign equivalents, for market authorizations.
In addition, we are collaborating with industry participants, biomedical research institutions and government entities to develop
additional products on our platform. We continuously consider other adjacent markets where our platform and assay offerings
would be beneficial.
We have improved the simplicity and ease of use of our multiplex products through the development of a new version of our
multiplex PCR technology. This new NxTAG chemistry enables customers to experience streamlined workflow without
sacrificing throughput. We recognize that the crucial aspect of our current technology that we want to preserve for our larger
customers is the ability to process samples from 1 to 96 patients in a single batch. This throughput flexibility and capacity is
a crucial aspect for tests like our xTAG Respiratory Viral Panel (RVP), in which seasonality and local outbreaks can cause
testing volumes to surge unpredictably. We offer the convenience of a one-step workflow with the throughput of a batch-based
system. In addition, products using this new chemistry are expected to have the convenience of room temperature shipping
and storage. We released our NxTAG RPP product in 2015. Additionally, we continue pursuing projects such as the development
of consumables, automation, software and the expansion and enhancement of our multiplexing capabilities to advance our
technologies and market acceptance.
In the second half of 2016, we began investigation into development of a next generation bead-based multiplexing instrument.
This new system would provide the opportunity to address both expanding and evolving market needs, plus an opportunity
for existing users to upgrade to a refreshed version of bead-based multiplexing. After determining requisite performance
criteria, we commenced the development of this new system utilizing third party resources. We currently expect to have a
prototype in the first half of 2018 and a commercial launch in 2019.
• Actively pursuing acquisitions that could accelerate our business strategies
We utilize analytical tools and an evaluation template to assess potential acquisition targets to accelerate our business strategies
in the key markets described above. This approach led to several successful acquisitions historically, including GenturaDx,
which is the foundation of our ARIES® System, and the acquisition of Nanosphere, which is the foundation of the VERIGENE
System. We actively evaluate opportunities to enhance our capabilities or our access to targeted markets or technologies, or
provide us other advantages in executing our business strategies in our key markets.
• Continue to develop the partnership channel focused in select key markets
As of December 31, 2017, 53 of our 73 strategic partners have developed and commercialized xMAP based assay products
and are paying royalties to us. We also have strategic partners who distribute Luminex products. During 2017, the 53 strategic
partners who have commercialized xMAP based assay products accounted for approximately 58% of our total revenue and
all of our strategic partners represented approximately 61% of our total revenue. We intend to continue pursuing opportunities
to expand market acceptance of xMAP technology through development, marketing and distribution partnerships with leading
companies in the life sciences markets. By leveraging our strategic partners’ market positions and utilizing their distribution
channels and marketing infrastructure, we believe we can continue to expand our installed instrument base. Furthermore, our
partners’ investments in research and development for xMAP applications provide Luminex xMAP customers with more assay
product options than any one company or Luminex could develop and commercialize individually.
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We continue to focus our commercialization efforts through our strategic partners covering large sectors of the life science
research market, where Luminex believes it has competitive advantages over alternative technologies and approaches. We
define strategic partners as those companies in the life sciences markets that develop and distribute assays and tests on xMAP
technology or may only distribute our xMAP technology based systems and consumables. With our partners’ support and
through our direct commercial efforts in the molecular diagnostics clinical laboratory segment, we have targeted major
pharmaceutical companies, large clinical laboratories, research institutions and major medical institutions for our principal
marketing efforts. We believe that these customers provide the greatest opportunity for maximizing the use of xMAP based
products and that continued adoption by these industry leaders will promote wider market acceptance of our xMAP technology.
Products
Instruments
Luminex® 100/200™. The Luminex 100/200 Systems are compact analyzers that integrate fluidics, optics and digital signal
processing to perform up to 100 assays simultaneously in a single tube or well of a microtiter plate using only a small amount of
sample. By combining lasers with digital signal processors and microcontrollers, these systems perform rapid, multi-analyte profiles
under the control of a Windows-based personal computer and our proprietary software.
FLEXMAP® 3D. The FLEXMAP 3D System is intended for use as a general laboratory instrument in markets, including but
not limited to life science research and diagnostics. This device can simultaneously measure up to 500 analytes from a single
sample and offers increased speed and enhanced ease-of-use and serviceability. Like our Luminex 100/200 Systems, the FLEXMAP
3D System combines lasers with digital signal processors and microcontrollers and these systems perform rapid, multi-analyte
profiles under the control of a Windows-based personal computer and our proprietary software.
MAGPIX®. The MAGPIX System is a versatile multiplexing analyzer capable of performing qualitative and quantitative
analysis of proteins and nucleic acids in a variety of sample matrices. This system can perform up to 50 tests in a single reaction
volume, reducing sample input, reagents and labor while improving productivity. MAGPIX is based on an innovative detection
mechanism that uses LEDs and a charge-coupled device (CCD) imaging system, rather than the lasers and detection mechanisms
used in our flow cytometry-based instruments.
ARIES®. The ARIES® System is a sample to answer real-time PCR platform. The ARIES® System uses internal barcode
scanning and other advanced features to minimize operator errors. Two independent modules each support from one to six cassettes,
allowing for both STAT and Batch testing. The ARIES® System can run both IVD assays and MultiCode® ASRs simultaneously
with a common Universal Assay Protocol. An integrated touchscreen computer eliminates the need for a separate computer, stand-
alone keyboard and mouse; thus maximizing valuable bench space.
ARIES® M1. The ARIES® M1 System is a single-module version of the ARIES® System. It shares the same cassette-based
sample to answer molecular diagnostic workflow as the ARIES® System, reducing hands-on time and simplifying operations. Like
its predecessor, the ARIES® M1 System is also able to run up to 6 different assays in different sample types in a random batch via
Universal Assay Protocol, including laboratory developed tests (LDT).
VERIGENE®. The VERIGENE System consists of a microfluidics processor, a touchscreen reader and disposable test
cartridges. The microfluidics processor interacts with and manipulates various functional components of the test cartridge,
accomplishing a number of necessary steps, including target binding to the nucleic acid, gold nanoparticle probe hybridization,
intermediate washes and signal amplification. The reader houses the optical detection module that illuminates the test slide and
automated spot recognition software analyzes the resulting signal intensities and provides the test results. The reader also serves
as the control station for the VERIGENE System and features a simple and intuitive touchscreen interface that allows users to
track samples and test cartridges, initiate and monitor test processing, analyze results and generate reports. The reader is web-
enabled to allow remote access to results and reports.
Consumables
MicroPlex® Microspheres. Our Luminex 100/200, FLEXMAP 3D and MAGPIX systems use polystyrene microspheres that
are approximately 5.6 microns in diameter. We dye the microspheres in sets with varying intensities of a red and a near infrared
dye to achieve up to 100 distinct color sets. Each microsphere can be coupled with proteins, nucleic acids or other molecules to
enable biological assays.
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MagPlex® Microspheres. These microspheres feature super-paramagnetic properties that make them ideal for running
automated xMAP-based assays. We dye the microspheres in sets with varying intensities of a red and a near infrared dye to achieve
up to 500 distinct color sets. These microspheres can be moved or held in place by a magnetic field. Many automated systems
utilize magnetic properties to automate the performance of the assay. Automating sample testing using MagPlex microspheres on
a robotic sample preparation system decreases hands-on technician time, improves precision and streamlines workflow.
xTAG® Microspheres. These dyed microspheres are linked to a set of 100 proprietary nucleic acid capture sequences providing
a “universal array” for DNA and RNA work. They are designed for conducting genotyping and other nucleic acid-based experiments
in the life sciences, pharmaceutical and clinical diagnostic markets. When used in conjunction with our Luminex systems, xTAG
microspheres are designed to simplify the molecular assay development process and increase assay flexibility. xTAG microspheres
may be used by customers to develop LDT assays and are used in Luminex's xTAG assay kits.
SeroMAP™ Microspheres. These 100 distinct sets of microspheres are designed for specific protein-based serological
applications. Certain Luminex partners use this product for enhanced sensitivity in serum-based assays.
Calibration and Control Microspheres. Calibration microspheres are microspheres of known fluorescent light intensities
used to calibrate the settings for the classification and reporter channel for the Luminex systems. Control microspheres are
microspheres that are used to verify the calibration and optical integrity for both the classification and reporter channels for the
various systems.
Software
xPONENT®. Our xPONENT software is included in all of our xMAP instruments and enhances both ease-of-use and
automation capabilities expanding xMAP functionality in our core markets. The software suite incorporates important features,
all designed to simplify laboratory workflow and increase productivity, including enhanced security (21 CFR Part 11 compliance
and electronic signatures), integration capabilities that allow customers to transmit and receive data from Laboratory Information
Systems (LIS/LIMS), integration with the most popular automated sample preparation systems, the ability to run magnetic bead
applications and touch-screen capability. xPONENT is sold on new Luminex 100/200, FLEXMAP 3D, and MAGPIX Systems
and is available as an upgrade to existing Luminex systems in the marketplace.
SYNCTTM. Our SYNCT data management software solution compiles data from multiple ARIES® and xMAP Systems
assisting laboratories to better leverage their data to decrease laboratory costs and improve patient care.
Clinical Diagnostic Assay Product Families
A product family consists of two or more assay products that are focused on similar or related markets. Each assay consists
of a combination of chemical and biological reagents and our proprietary technologies used to perform diagnostic and research
assays on samples. As of February 23, 2018, the following product families are commercially available:
xTAG Assays and Product Family
This family of products includes infectious disease panels and genetic testing panels that utilize Luminex xMAP bead-based
detection platforms in combination with proprietary molecular chemistries. The xTAG infectious disease IVD products enable our
laboratory end users to identify the causative agent for respiratory and gastrointestinal infections, which are major cause of illness
and mortality globally. The xTAG Assay Products for genetic testing include several IVD kits for cystic fibrosis (CF) genotyping
and a number of pharmacogenetic assays that may be used to profile genetic mutations related to drug metabolism.
MultiCode Assays and Product Family
This product family includes our FDA-cleared HSV 1&2 Assay as well as a number of ASRs and other products. These
products are generally designed to detect infectious agents in clinical samples using our proprietary MultiCode RTx real-time PCR
chemistry. We carry a diverse portfolio of bacterial, viral, fungal, and protozoan pathogen primers for global laboratory
professionals.
9
ARIES® Assays and Product Family
ARIES® Cassettes. ARIES® cassettes are self-contained assay consumables designed to run a fully automated, sample to
answer molecular assay on the ARIES® System. The cassettes make use of proprietary injection-molded parts, as well as MultiCode
and other reagents, to perform automated extraction, purification, elution, amplification and testing of nucleic acid testing from a
variety of different sample types.
This product family includes our FDA-cleared and CE-marked ARIES® HSV 1&2 Assay, ARIES® Flu A/B & RSV Assay,
ARIES® Group B Strep Assay, ARIES® Group A Strep Assay, ARIES® Bordetella Assay, and ARIES® C. difficile Assay.
Additional ARIES® assays are in development.
VERIGENE Assays and Product Family
VERIGENE Cartridges. VERIGENE test cartridges are single-use, self-contained test units comprised of i) a reagent pack,
which is a microfluidic cassette that contains all of the hybridization reagents needed for a single test that also captures the waste
materials generated during test processing, and ii) a substrate holder, which contains a glass slide that serves as a solid support for
the microarray used to capture targeted nucleic acids. Each test cartridge is designed for multiplex analyses of one patient sample.
This product family includes our FDA-cleared VERIGENE Bloodstream Infection tests, VERIGENE Gastrointestinal
Infection tests, including the VERIGENE C. difficile Test and the VERIGENE Enteric Pathogens Test, and the VERIGENE
Respiratory Pathogens Flex Test, as well as other VERIGENE and next generation assays in development.
In addition to the commercially available assays, we are an original equipment manufacturer (OEM) of custom reagents and
instrumentation for certain of our customers.
Sales and Marketing
Our molecular diagnostic sales and marketing strategy is to expand the installed base and utilization of xMAP, xTAG, NxTAG,
ARIES® and VERIGENE product lines. Our LTG is focused on generating recurring revenues from the sale of Luminex developed
assays, microspheres and other consumables, as well as from royalties on kits and testing services developed or performed by
partners. We have two key elements to our sales and marketing strategy: i) marketing internally developed assays directly to end
users and ii) building and maintaining long-term relationships with Luminex’s strategic partners. Luminex's strategic partners
include immune/clinical diagnostic, protein diagnostic, pharmaceutical and life sciences companies that develop applications and/
or perform testing using our technology platforms. Some partners also distribute xMAP systems to their customers.
We sell the xTAG, NxTAG, MultiCode, ARIES® and VERIGENE product lines primarily through a direct sales channel.
Building a direct relationship with customers is a critical component of Luminex's sales and marketing strategy to launch new,
innovative products such as NxTAG RPP, the ARIES® Systems and VERIGENE Systems. In addition, we market and sell our
clinical diagnostics products at the Group Purchasing Organization (GPO) and Integrated Healthcare Delivery Network (IDN)
levels. These efforts support and enable our selling efforts to individual laboratories, for example by contracting with GPOs to
provide standardized pricing and terms for member hospitals.
The ARIES® System program began with the acquisition of GenturaDx to secure a real-time PCR system for the previously
acquired EraGen® MultiCode product line. After the acquisition of GenturaDx, we obtained customer feedback that ultimately
transformed the GenturaDx IDbox into the ARIES® System for targeted testing. Customer feedback was critically important and
resulted in a system designed to better meet customer needs, including eliminating the external computer in lieu of an integrated
touchscreen. ARIES® Systems take up less bench space than competitive systems. In addition, the unique cassette design and off
instrument user defined protocol application enables customers to run LDTs and ASRs along with their IVD assays. Finally,
SYNCTTM, an innovative data management software solution that compiles data from multiple ARIES® and xMAP Systems, was
released at the end of 2015. Enabling user defined protocols will help accelerate Luminex's menu pipeline, and SYNCT meets
customer needs in the laboratory, assisting laboratories to better leverage their data to decrease laboratory costs and improve patient
care.
10
The acquisition of Nanosphere and its VERIGENE System allowed us to move into syndromic testing in three clinical high-
impact areas: infections in the bloodstream, respiratory tract, and gastrointestinal tract. In all three areas, determination of infectious
agent(s) has to be accomplished with speed from a long list of potential candidates. The VERIGENE System offers automated,
cost-effective multiplex capabilities that rapidly and accurately detect infectious pathogens and drug resistance markers, without
relying on time-consuming culture methods. In addition, the VERIGENE System enables a unique flex approach to ordering and
billing that allows laboratories the flexibility to use and pay for only the specific tests needed for each patient. Delivery of this
time-critical information enables clinicians to provide targeted patient care more quickly, potentially leading to improved patient
outcomes, lower costs, optimized antibiotic therapy, reduced spread of antibiotic resistance, and most importantly, saved lives.
The introduction of the ARIES® and VERIGENE Systems allows us access to moderate-complexity laboratories, including
microbiology labs, increasing our overall market opportunity as these Systems can perform both high and low multiplexed assays.
Outside of Luminex's direct molecular diagnostic business, we continue to work with strategic partners as the primary
distribution channel for our xMAP systems, and we will continue to pursue new partnerships focusing on partners with market
presence in the key partner segments described above. Some of our strategic partners develop application-specific kits for use on
our xMAP systems that they, in turn, sell to their customers, thereby generating royalties for Luminex. Certain strategic partners
also perform testing services for third parties using our xMAP products, which also results in royalty revenue. Luminex also
contracts with distributors to purchase and resell the xMAP systems and consumables in geographic or application-specific areas
not covered by strategic partners.
We update our LTG listing regularly to reflect results of partner consolidations due to mergers and acquisitions, commercial
sales inactivity, as well as termination or expiration of existing non-performing partner agreements. As of December 31, 2017, we
had 73 strategic partners, compared to 75 strategic partners as of December 31, 2016. During 2017, 53 strategic partners with
commercialized products utilizing xMAP technology submitted royalties. As of December 31, 2017, 53 of these strategic partners
with commercialized products remain, of which 32 companies principally serve the clinical diagnostics market and 21 companies
principally serve the life science research market. Revenues through these commercialized, royalty-submitting, strategic partners
constituted 58% of our revenues for 2017. We also believe our strategic partners provide us with complementary capabilities in
product development, regulatory expertise and sales and marketing. By leveraging our strategic partners’ assay development
capabilities, customer relationships and distribution channels, we believe that we can continue to achieve measurable market
penetration and product adoption. Our current partners are in various stages of development and commercialization of products
that incorporate our technology.
We also serve as an OEM provider for certain strategic partners that choose to sell components of the xMAP product line as
an embedded system under their own branding and marketing efforts.
Customers
In each of the last three years, two customers or partners each accounted for more than 10% of our total revenues. LabCorp
accounted for 20%, 20% and 24% of our total revenues and Thermo Fisher Scientific Inc. accounted for 15%, 13% and 13% of
our total revenues in 2017, 2016 and 2015, respectively. No other customer or partner accounted for more than 10% of our total
revenues in 2017, 2016 or 2015; however, Bio-Rad Laboratories, Inc. accounted for 6%, 7% and 8% of our total revenues in 2017,
2016 and 2015, respectively. The loss of any of these customers or partners (including LabCorp’s decision to move to an alternative
vendor for women’s health products in 2018 discussed further on Page 23) could have a material adverse effect or our business,
financial condition and results of operations.
International Operations
We currently ship our products to a number of customers outside the United States, primarily including customers in Canada,
Europe and the Asia-Pacific region. For the annual periods ended December 31, 2017, 2016 and 2015, foreign shipments to
customers totaled $49.7 million, $47.9 million, and $37.3 million, respectively, representing 16%, 18% and 16%, respectively, of
our total revenues for such periods. We have foreign subsidiaries in Canada, the Netherlands, the People’s Republic of China,
Japan, and Hong Kong, which increase our international support, service and marketing capabilities. Sales to territories outside
of the U.S. are primarily denominated in U.S. dollars. We believe that our activities in some countries outside the U.S. involve
greater risk than our domestic business due to foreign economic conditions, exchange rate fluctuations, local commercial and
economic policies and political uncertainties. See Note 16 to our Consolidated Financial Statements.
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Technical Operations
Our Technical Operations Group provides technical assistance to our customers, our distributors, our strategic partners and
their customers. Most of our technical operations personnel have experience as biologists, biochemists or electrical engineers and
have extensive experience in academic, industrial and commercial settings. Cross training is a major focus, as is empowering group
members to solve problems outside of their primary assignment.
Remote Support
Our technical support department assists users primarily through a toll-free hotline, internet interface and e-mail
communications. We deliver “24/7” remote technical support with our staff based at our Austin, Northbrook and Toronto locations
and from our European, Chinese and Japanese subsidiaries to better serve our customer base. Personnel assist our distributors,
strategic partners and customers in inquiry and complaint management related to Luminex products, system implementation and
development of their assays. A comprehensive software and database system is utilized to track customer interactions, follow
trends and measure utilization. The information is categorized and presented to management for regular review.
Training
Luminex offers comprehensive programs in basic system training, advanced assay development, instrument field service and
technical support functions. A portion of our training material is web-based and available online. Customers have the option to
receive training on-site at their location or locally, with our staff based at our Austin, Northbrook, European, Chinese or Japanese
offices.
Field Support
We currently have field service and field application personnel based across North America, Europe, China and Japan in areas
of our more significant system concentration. In addition, several of our distributors and strategic partners provide their own field
service and field application support. As we continue to expand our installed base, we believe a strong, reliable, efficient field
support organization is crucial to maintaining a high level of customer satisfaction.
Research and Development
Our research and development groups work to develop next generation systems, chemistries, assays and software to provide
new, innovative products to our customers. Our research and development expense for the years ended December 31, 2017, 2016
and 2015, was $45.7 million, $48.7 million and $42.7 million, respectively, including customer-sponsored research funding of
$0.0 million, $0.0 million and $0.4 million, respectively.
Our current research and development projects include:
• New platform and technology development
Our research and development group has been working on the development of the next generation, sample-to-answer,
molecular diagnostic, automated VERIGENE II System. This involves the final design and development of the instrument,
consumables and software as well as the development of a menu of assay products for that system. We currently expect
to initiate clinical studies on the system and its first assay in 2018.
• New sample to answer menu development
Our research and development group has been working on a pipeline of new targeted and syndromic assays for use on
the ARIES®, VERIGENE and the next generation VERIGENE II Systems. These automated assays are primarily in the
area of infectious disease testing.
• Partnership projects
Luminex has invested in a small early stage company, which, if successful, could provide an updated xMAP platform.
Luminex on occasion collaborates on other partnered research programs.
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Manufacturing
Luminex has approximately 109,600 square feet of leased manufacturing space, including space located at our principal
executive offices in Austin, Texas (59,600 square feet), in Madison, Wisconsin (12,000 square feet), in Toronto, Canada (11,700
square feet), and in Northbrook, Illinois (26,300 square feet).
We initially certified our Quality Management System (QMS) to the ISO 9001:2000 standard and in 2010 updated our
certification to ISO 9001:2008. ISO is an internationally recognized standard for quality management systems. Subsequent audits
by the registrar have been and will continue to be carried out at regular intervals to ensure we are maintaining our system in
compliance with ISO standards. Recertification is required every three years and we have been successfully recertified since
obtaining our original ISO certification. Also, we have our QMS certified to the ISO 13485:2012 Quality Management Standard
and the Canadian Medical Devices Regulation (CMDR). These standards include a special set of requirements specifically related
to the supply of medical devices and related services. Additionally, we manufacture to current FDA "Good Manufacturing Practice"
requirements and our QMS is implemented in accordance with FDA Quality System Regulations (21 CFR 820).
Supply Chain
We have historically purchased many of the components and raw materials used in our products from numerous suppliers
worldwide. For reasons of quality assurance, sole source availability or cost effectiveness, certain components and raw materials
used in the manufacture of our products are available only from one supplier. We have worked closely with our suppliers to develop
contingency plans to assure continuity of supply while maintaining high quality and reliability, and in some cases, we have
established long-term supply contracts with our suppliers. Due to the high standards and FDA requirements applicable to the
manufacturing of our products, we may not be able to quickly establish additional or replacement sources for certain components
or materials. In the event that we are unable to obtain sufficient quantities of raw materials or components on commercially
reasonable terms or in a timely manner, our ability to manufacture our products on a timely and cost-competitive basis may be
compromised, which may have a material adverse effect on our business, financial condition and results of operations.
Instruments
Component suppliers and contract manufacturers provide certain components and component assemblies of our xMAP and
ARIES® Systems. The remaining assembly and manufacturing of our systems are performed at our facilities in Austin, Texas and
Northbrook, Illinois. The quality control and quality assurance protocols are all performed at our facilities. Parts and component
assemblies that comprise our technology systems are obtained from a number of sources. We have identified alternate sources of
supply for several of our strategic parts and component assemblies. Additionally, we have entered into supply agreements with
most of our suppliers of strategic parts and component subassemblies to help ensure component availability and flexible purchasing
terms with respect to the purchase of such components. As of December 31, 2017, a total of 14,848 Luminex multiplexing analyzers
have been shipped since 1999, some of which may be retired or otherwise not in use.
Microspheres
We procure our undyed, standard Microplex microspheres and manufacture our magnetic Magplex carboxylated polystyrene
microspheres. We synthesize our dyes and manufacture our dyed microspheres using a proprietary method in our Austin, Texas
manufacturing facility in large lots. We dye the microspheres with varying intensities of red and near infrared dyes to produce our
distinctly colored microsphere sets. We currently purchase the standard polystyrene microspheres from one supplier, in accordance
with a supply agreement. We believe this agreement will help ensure microsphere availability and flexible purchasing terms with
respect to the purchase of such microspheres. While we believe the microspheres will continue to be available from our supplier
in quantities sufficient to meet our production needs, we believe our in-house manufacturing capabilities along with other potential
suppliers would provide sufficient microspheres for us if given adequate lead-time to manufacture the microspheres to our
specifications.
Assays and Reagents
Component suppliers and contract manufacturers produce certain components of our developed reagents. The remaining
assembly and manufacturing of our on-market kits are performed at one of our facilities in Austin, Texas, Toronto, Canada, Madison,
Wisconsin, or Northbrook, Illinois. The quality control and quality assurance protocols are all performed at our facilities. Reagents,
consumables and other raw material that comprise our kits are obtained from a number of sources.
13
In addition to developed assay kits, increasing regulatory requirements coupled with rising demand for new clinical applications
are driving demand for laboratory developed tests. Our proprietary technologies and platforms offer a unique combination of
flexibility and throughput, as our systems' open architecture, software and standard protocols allow our customers the ability to
use our proprietary reagents to validate and verify a new test, while being able to utilize the same system to handle increasing
volumes once the assay is commercialized.
Competition
We design our xMAP systems and consumables for use by customers across the various segments of the life sciences,
pharmaceutical and clinical diagnostic industries. Our xTAG, NxTAG, MultiCode, ARIES® and VERIGENE products are developed
specifically for the molecular diagnostic segment. Our competition includes companies marketing conventional testing products
based on established technologies such as ELISA, real-time PCR, mass spectrometry, gene sequencing, biochips, arrays and flow-
based technologies as well as next generation sequencing and companies developing their own advanced testing technologies.
The pharmaceutical industry is a large market for the genomic, protein and high-throughput screening applications supported
by xMAP technology. In each application area, Luminex faces a different set of competitors. Genomic and protein testing can be
performed by products available from Affymetrix, Inc. (a Thermo Fisher Scientific Inc. brand), Life Technologies Corporation (a
Thermo Fisher Scientific Inc. brand), Becton, Dickinson and Company, Illumina, Inc., Qiagen N.V., Meso Scale Discovery (a
division of Meso Scale Diagnostics LLC), Quanterix Corporation, PerkinElmer, Inc., Bio-Rad Laboratories, Inc., and others.
Our diagnostic market competitors include, among others, Abbott Laboratories, Life Technologies Corporation (a Thermo
Fisher Scientific Inc. brand), BioFire Diagnostics, LLC (a bioMérieux company), Cepheid (a Danaher Corporation company),
GenMark Dx, Roche Diagnostics, Siemens Medical Solutions, Hologic, Inc., Alere (now part of Abbott Laboratories), Quidel
Corporation, Focus Diagnostics (DiaSorin S.p.A), T2 Biosystems, Inc., Accelerate Diagnostics, Inc., Meridian Bioscience, Inc.,
and Illumina, Inc. Some of these companies have technologies that can run a variety of established assays. In addition, certain of
these companies offer integrated systems and laboratory automation that are designed to meet the need for improved work
efficiencies in the clinical laboratory.
Competition within the academic biomedical research market is highly fragmented. There are hundreds of suppliers to this
market including, among others, Amersham Pharmacia Biotech, a part of GE Healthcare, Life Technologies Corporation (a Thermo
Fisher Scientific Inc. brand) and Becton, Dickinson and Company.
Intellectual Property
To establish and protect our proprietary technologies and products, we rely on a combination of patent, copyright, trademark
and trade secret laws and confidentiality agreements. We have filed for registration or obtained registration for trademarks used
with our products and key technologies.
We have implemented a strategy designed to optimize our intellectual property rights. For core intellectual property, we are
pursuing patent coverage in the United States and those foreign countries that correspond to the majority of our current and
anticipated customer base. We currently own 585 issued patents worldwide directed to various aspects and applications of our
products and technology, including 178 issued patents in the United States. Other countries in which we have issued patents directed
to various aspects and applications of our products and technology include, among others, France, Germany, the United Kingdom,
Australia, Japan, Netherlands, Canada, Hong Kong and China. Our patent portfolio also includes 156 pending patent applications
in the United States and other foreign jurisdictions. We believe our patents and pending patent applications provide, or will provide,
protection for systems and technologies that allow real-time multiplexed analytical techniques for the detection and quantification
of many analytes from a single sample. We also hold patents covering the precision-dyeing process used in the manufacture of
our fluorescent microspheres and patents covering digital over-sampling to measure the area of a fluorescence pulse instead of
“peak detection,” giving increased sensitivity with no lost events. In addition, multiple granted patents and pending applications
describe aspects of Multicode technology, xTAG technology, nanoparticle technology, the ARIES® and VERIGENE Systems and
NxTAG technology.
The source code for our proprietary software is protected as a trade secret and/or as a copyrighted work. Aspects of this
software also are covered by an issued patent.
14
We also rely on trade secret protection of our intellectual property. We attempt to protect our trade secrets by entering into
confidentiality agreements with strategic partners, third parties, employees and consultants. Our employees and third-party
consultants also sign agreements requiring that they assign to us their interests in inventions and original works of expression and
any corresponding patents and copyrights arising from their work for us. See Item 1A, Risk Factors - "The property rights we rely
upon to protect the technologies underlying our products may not be adequate to maintain market exclusivity. Inadequate intellectual
property protection could enable third parties to exploit our technologies or use very similar technologies and could reduce our
ability to distinguish our products in the market."
Government Regulation
Our products are generally considered medical devices and are subject to regulation by numerous government agencies,
including the FDA and similar agencies outside the United States. To varying degrees, each of these agencies require us to comply
with laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our medical
devices. Our business is also affected by the United States and foreign patient privacy laws, cost containment initiatives and
environmental health and safety laws and regulations. The primary laws and regulations that are particularly relevant to our business
are described below.
Food and Drug Administration
The development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising and labeling of our
products is subject to regulation in the United States by the FDA. FDA regulations require that certain products have pre-marketing
clearance or approval by the FDA and require certain products to be manufactured in accordance with the FDA’s “Good
Manufacturing Practice” requirements. This requires that some products be extensively tested, and all to be properly labeled to
disclose test results, performance claims and limitations. Unless an exemption applies, before we can introduce a new product
into the U.S. market, we must obtain FDA clearance by premarket notification 510(k) or similar pathway, or obtain premarket
approval (PMA).
If we can establish that our product is “substantially equivalent” to a pre-amendment or previously cleared device for which
the FDA has not called for premarket approvals, we may seek clearance from the FDA to market the product by submitting a
510(k). The 510(k) requires the support of appropriate data, including, in some cases, clinical data establishing the claim of
substantial equivalence to the satisfaction of the FDA. A number of 510(k) clearances for our products have been obtained.
Where a product is not deemed as substantially equivalent to a pre-amendment or previously cleared device, a more rigorous
PMA process is required. This PMA process requires us to independently demonstrate that the new medical device product is safe
and effective by collecting data regarding design, materials and human clinical data. Only if the FDA determines there is reasonable
assurance that the medical device is safe and effective, will the FDA authorize the device’s commercial release. The PMA process
is much more detailed, time-consuming and expensive than the 510(k) process.
Numerous post-marketing regulatory requirements apply for our products, including, certain record keeping and reporting
requirements, such as FDA’s medical device and corrections/removal reporting regulations. The FDA enforces its requirements
by inspection and market surveillance. FDA has authority to take various administrative and legal actions against us if we or our
products fail to comply with relevant legal or regulatory requirements. Such could include warning letters, product seizures, product
recalls or withdrawals and/or other civil or criminal sanctions.
15
We manufacture versions of the Luminex instruments for use with diagnostic assay kits that are available through our strategic
partners. For FDA purposes, the Luminex systems are IVD cleared and are considered components of our partners’ kit products.
Kits manufactured by our strategic partners used in conjunction with our technology, may be subject to clearance or approval
before they can be marketed and sold and are generally subject to FDA requirements such as Good Manufacturing Practices and
others. Our partners are also subject to a number of other requirements in the Food, Drug, and Cosmetic Act and its regulations,
such as Good Clinical Practice requirements, Device Registration and Listing, and compliance with the FDA's current Good
Manufacturing Practice regulations. These regulations, also known as the Quality System Regulations, govern the methods used
in, and the facilities and controls used for, the design, manufacture, packaging, labeling, servicing, installation and distribution of
all finished medical devices intended for human use. Our strategic partners are also subject to other pre-market and post-market
controls such as labeling, complaint handling, medical device reporting, corrections and removals reporting and record keeping
requirements. Upon evidence of non-compliance with applicable regulations, FDA can detain or seize products, request or, in
certain circumstances, require a recall, impose operating restrictions, enjoin future violations, recommend criminal prosecution to
the Department of Justice and/or assess civil and criminal penalties against our strategic partner, us, or our officers and our
employees. Other regulatory agencies may have similar powers. In addition, various federal and state statutes and regulations
govern or influence the manufacturing, safety, storage of our products and components as well as our record-keeping. There can
be no assurance that such requirements will always be met without interruption, or that the FDA will file, clear or approve our
strategic partners’ submissions.
We also manufacture kit products intended for Research Use Only applications (not for diagnostic use), kits that are IVD
cleared for diagnostic use (currently regulatory classification of Class I and II), and Investigational Use Only or clinical applications.
Although certain products intended for research use only are not currently subject to clearance or approval by the FDA, research
use only products fall under the FDA’s jurisdiction if they are used for clinical rather than research purposes. Further, even where
a product is not otherwise subject to clearance or approval by the FDA, the FDA, in order to limit sales to those who use the
products for research only, can determine the manner in which we can market and sell our products and/or the types of customers
to which we can market and sell our products.
Consideration of Research Use Only products, including genetic analysis tools, and the process and extent of regulating
Laboratory Developed tests in which our technology may be used, is presently underway at the Agency. The nature and extent of
rule changes and policy initiatives, and its effects on present and future products, and impact on our business in this area cannot
be predicted.
Laboratories that purchase certain of our products are subject to extensive regulation under the Clinical Laboratory
Improvement Amendments of 1988 (CLIA), which requires laboratories to meet specified standards in areas such as personnel
qualifications, administration, participation in proficiency testing, patient test management, quality control, quality assurance and
inspections. Adverse interpretations of current CLIA regulations or future changes in CLIA regulations could have an adverse
effect on sales of any affected products.
Certain of our instruments use lasers to detect assay results. Therefore, we are required to ensure that these products comply
with FDA regulations pertaining to the performance of laser products. The Radiation Control for Health and Safety Act, administered
by the FDA, imposes performance standards and record keeping, reporting, product testing and product labeling requirements for
devices that emit radiation. These regulations are intended to ensure the safety of laser products by establishing standards to
prevent exposure to excessive levels of laser radiation. There can be no assurance that the FDA will agree with our interpretation
and implementation of these regulations.
Foreign Jurisdictions
Medical device laws and regulations are also in effect in many countries outside of the United States ranging from
comprehensive pre-approval requirements for medical products, to simpler requests for product data or certification. The number
and scope of these requirements is increasing. There can be no assurance that we, and our strategic partners, will be able to obtain
any approvals that may be required to market xMAP or other technology products outside the United States. In addition, we may
incur significant initial and/or ongoing costs in obtaining or maintaining our foreign regulatory approvals. Further, the export by
us of products that have not yet been cleared for domestic commercial distribution is subject to FDA and other export requirements
and/or restrictions.
We have agreements relating to the sale of our products to government entities and, as a result, we are subject to various
statutes and regulations that apply to companies doing business with the government. A failure to comply with these regulations
could result in suspension of these contracts, or administrative or other penalties, and could have a material adverse effect on our
ability to compete for future government contracts and programs.
16
We produce CE marked products, which are subject to a number of different European Union (EU) Directives, including, but
not limited to, the In Vitro Diagnostic Devices Directive (98/79/EC) (IVDD). CE marking of our products is currently by self-
declaration, not issued by a third party, based on the intended uses of our products. A product that is not CE marked is automatically
considered to be non-compliant. The law is enforced through market surveillance by appointed national enforcement
agencies. Imported products are checked for compliance at customs offices.
No in vitro device or accessory may be placed on the market or put into service unless it satisfies the essential requirements
set forth in the IVDD. Devices considered to meet the essential requirements must bear the CE marking of conformity, placed by
the manufacturer, when introduced on the market. A manufacturer placing devices on the market in its name must notify its national
competent authorities.
There can be no assurance that the EU member states will agree with our interpretation and implementation of these regulations
as it pertains to classification of our products. The failure by us or our strategic partners to comply with the IVDD could have a
material adverse effect on our business.
The State Food and Drug Administration, P.R. China (SFDA), is the government regulation authority in charge of safety
management of drug, food, health food and cosmetics for the People’s Republic of China. The SFDA issues certificates that are
required for registration and approval to import our products into China. Certificates are also subject to periodic recertification
requirements. We have received certificates for the “Luminex System,” which combines the Luminex 100 and Luminex 200 into
one product, and for our MAGPIX System.
Failure by us, or our strategic partners, to comply with applicable current federal, state and foreign medical product laws and
regulations could have a material adverse effect on our business. Federal, state and foreign regulations regarding the manufacture
and sale of medical devices and components of such devices are continually subject to future changes. We cannot predict what
impact, if any, such changes might have on our business, but any such change could have a material impact.
WEEE
The European Community Council Directive 2002/96/EC on Waste Electrical and Electronic Equipment (WEEE) outlines
the responsibility for the disposal of waste electrical and electronic equipment. Compliance with WEEE is placed with the
manufacturers of such equipment. Those manufacturers are required to establish an infrastructure for collecting WEEE, in such a
way that users of electrical and electronic equipment from private households should have the ability of returning WEEE at least
free of charge. All Luminex-manufactured equipment is in compliance with this directive. Since August 13, 2005, we have been
in compliance with the requirements regarding the labeling and disposal of our products containing electronic devices in each of
the EU member states where our regulated products are distributed.
RoHS
RoHS stands for “The Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment” and
implements EU Directive 2002/95, which bans the placing on the EU market of new electrical and electronic equipment containing
more than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl and polybrominated diphenyl
ether flame retardants.
The Directive directly affects producers who manufacture or assemble electrical or electronic equipment in the EU, importers
of electrical or electronic equipment from outside the EU and companies that re-brand electric producers as their own. The Directive
applies to electrical and electronic equipment falling under the categories 1, 2, 3, 4, 5, 6, 7 and 10 set out in Annex IA of the WEEE
Directive (2002/96/EC). Equipment categories 8 and 9 defined in the WEEE Directive are currently outside the scope of the RoHS
Directive. Luminex IVD equipment is classified as category 8 (Medical Devices) in Annex IA of the WEEE Directive, which is
not covered within the scope of the RoHS Directive. Luminex research equipment is classified as category 9 (Monitoring and
Control Instruments) in Annex IA of the WEEE Directive, which is not covered within the scope of the RoHS Directive.
17
Environmental
We are subject to federal, state and local laws and regulations relating to the protection of human health and the environment.
In the course of our business, we are involved in the handling, storage and disposal of certain chemicals and biohazards. The laws
and regulations applicable to our operations include provisions that regulate the discharge of materials into the environment. Some
of these environmental laws and regulations impose “strict liability,” rendering a party liable without regard to negligence or fault
on the part of such party. Such environmental laws and regulations may expose us to liability for environmental contamination,
including remediation costs, natural resource damages and other damages as a result of the conduct of, or conditions caused by,
us or others or for acts that were in compliance with all applicable laws at the time such acts were performed. In addition, where
contamination may be present, it is not uncommon for neighboring landowners and other third parties to file claims for personal
injury, property damage and recovery of response costs. Although it is our policy to use generally accepted operating and disposal
practices in accordance with applicable environmental laws and regulations, hazardous substances or wastes may have been
disposed or released on, under or from properties owned, leased or operated by us or on, under or from other locations where such
substances or wastes have been taken for disposal. These properties may be subject to investigation, remediation and monitoring
requirements under federal, state and local environmental laws and regulations. We believe that our operations are in substantial
compliance with applicable environmental laws and regulations. However, failure to comply with these environmental laws and
regulations may result in the imposition of administrative, civil and criminal penalties or other liabilities. We do not believe that
we have been required to expend material amounts in connection with our efforts to comply with environmental requirements or
that compliance with such requirements will have a material adverse effect upon our capital expenditures, results of operations or
competitive position. Because the requirements imposed by such laws and regulations may frequently change and new
environmental laws and regulations may be adopted, we are unable to predict the cost of compliance with such requirements in
the future, or the effect of such laws on our capital expenditures, results of operations or competitive position. Moreover, the
modification or interpretation of existing environmental laws or regulations, the more vigorous enforcement of existing
environmental laws or regulations or the adoption of new environmental laws or regulations may also negatively impact our
strategic partners, which in turn could have a material adverse effect on us and other similarly situated component companies.
Other Government Regulations
Our operations in the United States are subject to various federal and state fraud and abuse laws, including, without limitation,
the federal Anti-Kickback Statute and state and federal marketing compliance laws. These laws may impact our operations directly
or indirectly through our customers and may impact, among other things, our proposed sales, marketing and education programs.
In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct
our business. We are also subject to statutes in foreign jurisdictions that prohibit commercial bribery and certain activities with
customers or potential customers. The laws that may affect our ability to operate include the following foreign laws, federal laws
and their counterparts at the state level in addition to various implementing regulations:
• the federal Anti-Kickback Statute and state anti-kickback prohibitions;
• the federal physician self-referral prohibition, commonly known as the Stark Law, and state equivalents;
• the federal Health Insurance Portability and Accountability Act of 1996, as amended, and implementing privacy, security
and breach notification regulations;
• the Civil Monetary Penalties Law and related exclusion provisions;
• the federal False Claims Act and state equivalents;
• the U. K. Bribery Act of 2010;
• the Foreign Corrupt Practices Act, which applies to our international activities; and
• the Physician Payment Sunshine Act.
Other
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010
(Affordable Care Act), provides for a medical device excise tax of 2.3% of the sale price on non-exempt medical devices. The
Internal Revenue Service implemented this tax on manufacturers, producers and importers in 2013, but the tax was subject to a
moratorium beginning in 2016 which Congress has effectively extended through December 31, 2019. The medical device tax has
not had, nor do we expect it to have, a material impact on our operations.
18
The Affordable Care Act resulted in extensive changes across the healthcare system, affecting coverage, delivery and
reimbursement of services. However, there is substantial uncertainty regarding the future of the Affordable Care Act. The
presidential administration and certain members of Congress have expressed their intent to repeal or make significant changes to
the Affordable Care Act, its implementation or its interpretation. It is possible that the Affordable Care Act, uncertainty regarding
its repeal or significant changes to the law or other health reform efforts will adversely affect our customers and strategic partners,
which could cause them to reduce or delay the purchase of our systems or to demand reduced fees.
Employees
As of February 23, 2018 and December 31, 2017, respectively, we had a total of 922 and 896 employees and contract employees,
as compared with 936 as of December 31, 2016. The year over year decrease is primarily the result of the realization of synergies
from the Nanosphere acquisition, which was completed on June 30, 2016. None of our employees are represented by a collective
bargaining agreement, and we have not experienced any work stoppage. We believe that relations with our employees are good.
Seasonality
Worldwide sales, including U.S. sales, do not reflect any significant degree of seasonality; however, sales of our Respiratory
Viral products have demonstrated seasonal fluctuations consistent with the onset and decline of influenza-like illnesses.
Financial information relating to our business for the years ended December 31, 2017, 2016 and 2015 can be found in Item
7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements
and Supplementary Data.”
2016 Reorganization
The Company conducted a reorganization in December 2016 following the acquisition of Nanosphere on June 30, 2016, and
to better focus on the Company's core business. The reorganization included a headcount reduction of approximately 40 employees,
a reallocation of responsibilities within the research and development organization and a significant reduction of biodefense efforts.
As a result of the organizational change, the Company eliminated approximately 4% of its aggregate workforce. The Company
recognized a charge of approximately $2.5 million in the fourth quarter of 2016 in conjunction with these activities.
Available Information
Our shares of common stock are traded on the Nasdaq Global Select Market under the symbol “LMNX.” Our principal
executive offices are located at 12212 Technology Blvd., Austin, Texas 78727, and our telephone number is (512) 219-8020. Our
website address is www.luminexcorp.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, are available free of charge through our website as soon as reasonably practicable after such material is electronically
filed with, or furnished to, the Securities and Exchange Commission, or the SEC. Information contained or accessible on our
website is not incorporated by reference into this report and such information should not be considered to be part of this report
except as expressly incorporated herein. The public may read and copy these materials at the SEC’s public reference room at 100
F Street, N.E., Washington, D.C. 20549 or on the SEC’s website at www.sec.govU. The SEC’s website contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC. Questions regarding the
public reference room may be directed to the SEC at 1-800-732-0330.
Luminex was incorporated under the laws of the State of Texas in May 1995 and reincorporated in the State of Delaware in
February 2000.
19
Executive Officers of the Registrant as of February 23, 2018
Name
Age
Position
Nachum Shamir
Harriss T. Currie
Todd C. Bennett
Chuck Collins
Nancy M. Fairchild
Randall J. Myers
Richard W. Rew II
64
56
48
41
64
56
50
President and Chief Executive Officer
Chief Financial Officer, Senior Vice President, Finance and Treasurer
Senior Vice President, Global Sales and Customer Operations
Senior Vice President, Research and Development
Senior Vice President, Human Resources
Senior Vice President, Global Manufacturing and Quality
Senior Vice President, General Counsel and Corporate Secretary
Nachum Shamir. Mr. Shamir joined the Company on October 14, 2014 as President and Chief Executive Officer and was
elected to our Board. From 2006 to 2014, Mr. Shamir was the President, Chief Executive Officer and Director of Given Imaging
Ltd. ("Given"), a developer of the PillCam capsule and manufacturer and marketer of diagnostic products for the visualization and
detection of disorders of the gastrointestinal tract, which was acquired by Covidien PLC in early 2014. Mr. Shamir currently serves
on the board of directors of Invendo Medical GmbH, a manufacturer and distributor of a single use and computer-assisted
colonoscopy system. Mr. Shamir holds a Bachelor of Science from the Hebrew University of Jerusalem and a Masters of Public
Administration from Harvard University.
Harriss T. Currie. Mr. Currie served the Company as Vice President, Finance, Treasurer and Chief Financial Officer since
October of 2002 and was appointed Senior Vice President, Finance (as well as Chief Financial Officer and Treasurer) of the
Company in March 2013. Since joining the Company in November of 1998, Mr. Currie previously served in the capacities of
Controller and Treasurer. Prior to joining us, he was employed as the chief financial officer, secretary and treasurer of SpectraCell
Laboratories, a specialized clinical testing laboratory company, from 1993 to 1998 where he also served as vice president of finance
for two subsidiary companies. Mr. Currie earned his B.B.A. from Southwestern University and his M.B.A. in Finance and Marketing
from the University of Texas at Austin. Prior to returning to graduate school for his M.B.A., Mr. Currie was a certified public
accountant with Deloitte & Touche LLP.
Todd C. Bennett. Mr. Bennett joined the Company in October 2012 as General Manager, Americas. Mr. Bennett was
promoted to Vice President, Global Sales and Customer Operations in July 2015 and to Senior Vice President, Global Sales and
Customer Operations in November 2016. From January 2007 through March 2012, Mr. Bennett was the Vice President of Sales
and then promoted to Vice President of Commercial Operations at Immucor, Inc., a provider of transfusion and transplantation
products, where he was responsible for Commercial Operations (Sales, Global Marketing, Customer Service functions). Prior to
Immucor, Mr. Bennett held various commercial leadership roles at Roche Diagnostics and Abbott Laboratories dating to 1994.
Mr. Bennett holds a B.S. in Business Administration with an emphasis in finance from the Max M. Fisher College of Business
at The Ohio State University in Columbus, Ohio.
Chuck Collins. Dr. Collins joined the Company in January 2006 as Senior Scientist. Dr. Collins was promoted to Director,
Advanced Technology Group in January of 2008, and to Senior Director, Advanced Technology Group in August 2010. Dr.
Collins then expanded his role with a promotion to Vice President, Systems R&D in May of 2012 and to Senior Vice President,
R&D in January 2018. From August 2002 to January 2006, Dr. Collins was a Research Scientist at The U.S. Army Research
Laboratory, developing ultraviolet LEDs, laser diodes, and photodetectors. Dr. Collins earned his BS in Electrical Engineering
from Trinity University and received his Masters and PhD degrees in Electrical Engineering from The University of Texas at
Austin.
20
Nancy M. Fairchild. Ms. Fairchild joined the Company as Senior Director, Human Resources in March 2010. She was
promoted to Vice President, Human Resources in August 2012 and to Senior Vice President, Human Resources in January 2015.
Prior to joining the Company, Ms. Fairchild served from 2006 to 2010 as Chief Administrative Officer and Vice President of
Human Resources and Organizational Development for the Electric Reliability Council of Texas which provides the energy grid
services for Texas. In this role she managed Strategic Planning, Project Management, Facilities and Human Resources. Earlier in
her career, she served as Vice President, Human Resources for Esoterix, Inc., an international healthcare company specializing in
laboratory services, from 2001 to 2006, the Senior Vice President of Human Resources for Southern Union Company, a large
natural gas conglomerate, from 1989 to 2001, and President of EnergyWorX, a training subsidiary, from 1996 to 2000. Ms. Fairchild
is currently a member of the Board of Directors and Chair of the Audit Committee for Workforce Solutions, a local workforce
development board in Texas, representing the biotech sector. She graduated with highest honors from Texas State University with
a B.S. degree in Math Education and an M.S. degree in Counseling.
Randall J. Myers. Mr. Myers joined the Company as Senior Vice President, Global Manufacturing and Quality, in March
2015. Prior to joining the Company, Mr. Myers accepted an early retirement from Applied Materials, Inc. (Applied Materials), a
supplier of equipment services and software to enable the manufacture of semiconductor, flat panel display, glass, WEB and solar
products, in 2012 and had been consulting in supply chain and manufacturing operations since that time. Prior to his retirement
from Applied Materials, Mr. Myers held various positions at Applied Materials in manufacturing and operations from 1995-2012.
In his final position with Applied Materials, Mr. Myers was Vice President of the Silicon Systems Group Global Planning &
Business Operations. Mr. Myers attended Kettering University where he obtained a B.S. in Electrical Engineering.
Richard W. Rew II. Mr. Rew joined the Company as Vice President, General Counsel and Corporate Secretary in March 2015.
Prior to joining the Company, Mr. Rew served as Senior Vice President, General Counsel and Secretary at ArthroCare Corporation
(ArthroCare), a medical device company, from December 2008 until it was acquired by Smith & Nephew in 2014. Mr. Rew joined
ArthroCare in 2006 as its Vice President, Legal Affairs. Mr. Rew previously served as General Counsel of Activant Solutions Inc.
from 2000 to 2006 and as General Counsel of EZCORP, Inc. from 1996 to 2000. Mr. Rew earned a B.A. in the Plan II Honors
Program from the University of Texas at Austin and a J.D. from the University of Oklahoma College of Law. Mr. Rew is a member
of the State Bar of Texas.
21
ITEM 1A. RISK FACTORS
The life sciences industries are highly competitive and subject to rapid technological change, and we may not have the
technologies and resources necessary to compete successfully.
We compete with companies in the United States and abroad that are engaged in the development and production of similar
products. We will continue to face intense competition from existing competitors and other companies seeking to develop and
commercialize new technologies. Many of our competitors have access to greater financial, technical, scientific, research,
marketing, sales, distribution, service and other resources than we do and may have longer operating histories or more recognizable
brand names. These companies may develop technologies that are superior alternatives to our technologies or may be more effective
at commercializing their technologies in products.
The life sciences industries are characterized by rapid and continuous technological innovation. We may need to develop new
technologies for our products to remain competitive. One or more of our current or future competitors could render our present
or future products or those of our partners obsolete or uneconomical by technological advances, including the introduction or
existence of, competing products or technologies that may be more effective, cheaper or easier to use than our products and
technologies. In addition, the introduction or announcement of new products by us or others could result in a delay of or decrease
in sales of existing products as we await regulatory approvals, while customers evaluate these new products, or if customers choose
to purchase the new products instead of legacy products. We may also encounter other problems in the process of delivering new
products to the marketplace such as problems related to design, development, supply chain or manufacturing of such products,
and as a result we may be unsuccessful in selling such products. Our future success depends on our ability to compete effectively
against current technologies, as well as to respond effectively to technological advances by developing and marketing products
that are competitive in the continually changing technological landscape.
Several companies provide systems and reagents for DNA amplification or detection. Life Technologies Corporation (a Thermo
Fisher Scientific Inc. brand) and F. Hoffman-La Roche Ltd. (Roche) sell systems integrating DNA amplification and detection
(sequence detection systems) to the commercial market. Life Technologies Corporation (a Thermo Fisher Scientific Inc. brand),
Roche, Abbott Laboratories, Becton Dickinson and Company, Qiagen N.V., Hologic, Inc., Meridian Bioscience, Inc., bioMérieux
S.A., Illumina, Inc. and Quidel Corporation sell sequence detection systems, some with separate robotic batch DNA purification
systems, and they also sell reagents to the clinical diagnostics market. Other companies offer molecular diagnostic tests.
Additionally, we anticipate that in the future, additional competitors will emerge that offer a broad range of competing products,
including increasing adoption of competitive products based on mass spectrometry and next generation sequences test technologies.
If we do not introduce new products in a timely manner, we may lose market share and be unable to achieve revenue growth
targets.
We sell many of our products in industries characterized by rapid technological change, frequent new product and service
introductions and evolving customer needs and industry standards. Many of the businesses competing with us in these industries
have significant financial and other resources to invest in new technologies, substantial intellectual property portfolios, substantial
experience in new product development, regulatory expertise, manufacturing capabilities and established distribution channels to
deliver products to customers. Our products could become technologically obsolete over time, or we may invest in technologies
that do not lead to revenue growth or continue to sell products for which the demand from our customers is declining, in which
case we may lose market share or not achieve our revenue growth targets. The success of our new product offerings will depend
upon several factors, including our ability to:
• accurately anticipate customer needs;
• innovate and develop new technologies and applications;
• obtain required regulatory clearances;
• successfully commercialize new technologies in a timely manner;
• price our products competitively, and manufacture and deliver our products in sufficient volumes and on time; and
• differentiate our offerings from our competitors' offerings.
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Many of our products are used by our customers to develop, test and manufacture their products. We must anticipate industry
trends and consistently develop new products to meet our customers' expectations. In developing new products, we may be required
to make significant investments before we can determine the commercial viability of the new product. If we fail to accurately
foresee our customers' needs and future activities, we may invest heavily in research and development of products that do not lead
to significant revenue. We may also suffer a loss in market share and potential revenue if we are unable to commercialize our
products in a timely and efficient manner.
Currently, a limited number of direct customers and strategic partners account for a significant portion of our revenue and
the loss of any one of these or their inability to perform to expectations could have a material adverse effect on our business,
financial condition, and results of operations. Our success depends significantly on the establishment and maintenance of
successful relationships with our direct customers and strategic partners.
LabCorp, Thermo Fisher Scientific Inc., and Bio-Rad Laboratories, Inc., accounted for 41% of total revenue (20%, 15% and
6%, respectively) in the twelve months ended December 31, 2017. For comparative purposes, these same three companies
accounted for 40% of total revenue (20%, 13% and 7%, respectively) in the twelve months ended December 31, 2016 and 45%
of total revenue (24%, 13% and 8%, respectively) in the twelve months ended December 31, 2015. No other customer accounted
for more than 5% of total revenue during the twelve months ended December 31, 2017. In total, for the years ended December 31,
2017 and 2016, our top five customers accounted for 48% and 49%, respectively, of our total revenue. The loss of any of our
significant direct customers, strategic partners, or the loss of a material portion of the sales to these customers or partners could
have a material adverse effect on our growth and future results of operations.
Based upon an extension agreement entered into in the third quarter of 2017, the Company will continue to sell its CF products
to the Company’s largest customer, LabCorp, through the end of 2019, after which LabCorp may transfer its CF business to an
alternative technology. Also, as previously stated in our Annual Report on Form 10-K for the year ended December 31, 2016,
LabCorp has elected to develop the next iteration of one of their women's health products with another party. We have negotiated
significant minimum women's health purchases from LabCorp through June 2018, pursuant to which LabCorp committed to
acquire no less than $63.1 million of our women's health products from January 1, 2017 through June 30, 2018. In 2017, LabCorp
acquired approximately $36 million of our women's health products. The anticipated future loss of the LabCorp business could
have a material adverse effect on our growth and future results of operations if we are unable to effectively attract new customers
and/or increase sales with existing customers.
Delays in implementation, delays in obtaining regulatory approval, changes in strategy, or the financial difficulty of our strategic
partners for any reason could have a material adverse effect on our business, financial condition, and results of operations.
Our ability to enter into agreements with additional strategic partners depends in part on convincing them that our products
can help achieve and accelerate their goals or efforts. We expend substantial funds and management efforts with no assurance that
any additional strategic relationships will result. We cannot guarantee that we will be able to negotiate additional strategic
agreements in the future on acceptable terms, if at all, or that current or future strategic partners will not pursue or develop alternative
technologies either on their own or in collaboration with others. Some of the companies we are targeting as strategic partners offer
products competitive with our xMAP technology, which may hinder or prevent strategic relationships. Delays in implementation
of new products by our strategic partners, changes in their strategy, financial difficulties they experience, or delays in obtaining
or their inability to obtain regulatory approval for their products could negatively affect our business. Termination of strategic
relationships, the failure to enter into a sufficient number of additional strategic relationships on favorable terms, or disputes with
our partners could reduce sales of our products, lower margins on our products and limit the market demand for and acceptance
of our products.
As we pursue the development and registration of products, regulation by governmental authorities in the United States and
other countries will be a significant factor in the development, testing, production, and marketing of such products. Products that
we develop in the molecular diagnostic markets will be regulated as medical devices by the FDA and other global governmental
authorities and may require receipt of clearance following a pre-market notification process prior to marketing. Obtaining the
requisite regulatory approvals can be expensive and may involve considerable delay. Changes to the current regulatory framework,
including additional or new regulations, could arise at any time during the development or marketing of our products, which may
negatively affect our ability to obtain regulatory approval of our products.
23
As we continue to expand our business, we may experience problems in scaling our manufacturing operations, or delays or
component shortages that could limit the growth of our revenue.
As we continue to expand our manufacturing capabilities in order to meet our growth objectives, we may not be able to
produce sufficient quantities of products or maintain consistency between differing lots of consumables. If we encounter difficulties
in scaling our manufacturing operations as a result of, among other things, quality control and quality assurance issues and
availability of components and raw material supplies, we will likely experience reduced sales of our products, increased repair or
re-engineering costs due to product returns and defects and increased expenses due to switching to alternate suppliers, any of
which could reduce our revenues and gross margins.
We presently outsource certain aspects of the assembly of our systems to contract manufacturers. Because of a long lead-time
to delivery, we are required to place orders for a variety of items well in advance of scheduled production runs. We have increased
our flexibility to purchase strategic components within shorter lead times by entering into supply agreements with the suppliers
of these components. Although we attempt to match our parts inventory and production capabilities to estimates of marketplace
demand, to the extent system orders materially vary from our estimates, we may experience continued constraints in our systems
production and delivery capacity, which could adversely impact revenue in a given fiscal period. Should our need for raw materials
and components used in production continue to fluctuate, we could incur additional costs associated with either expediting or
postponing delivery of those materials. In an effort to control costs we have implemented a lean production system. Managing the
change from discrete to continuous flow production requires time and management commitment. Lean initiatives and limitations
in our supply chain capabilities may result in parts shortages that delay shipments and cause fluctuations in revenue.
We currently purchase certain key components of our product line from a limited number of outside sources and, in the case
of some components, a single source, and these components may only be available through a limited number of providers. We do
not have agreements with all of our suppliers. While we currently believe that we will be able to satisfy our forecasted demand
for our products, the failure to find alternative suppliers in the event of any type of supply failure at any of our current vendors at
reasonably comparable prices could have a material adverse effect on our business, financial condition and results of
operations. Additionally, we have entered into supply agreements with most of our suppliers of strategic reagents and component
subassemblies to help ensure component availability, and flexible purchasing terms with respect to the purchase of such
components. If our suppliers discontinue production of a key component, we will be required to revalidate an affected product
and may be required to resubmit a previously cleared product. Our reliance on our suppliers and contract manufacturers exposes
us to risks including:
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the possibility that one or more of our suppliers or our assemblers that do not have supply agreements with us could
terminate their services at any time without penalty;
natural disasters such as earthquakes, tsunamis and floods that impact our suppliers;
the potential obsolescence and/or inability of our suppliers to obtain required components;
the potential delays and expenses of seeking alternate sources of supply or manufacturing services;
the inability to qualify alternate sources without impacting performance claims of our products;
reduced control over pricing, quality and timely delivery due to the difficulties in switching to alternate suppliers or
assemblers; and
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increases in prices of raw materials and key components.
Consequently, in the event that supplies of components or work performed by any of our assemblers are delayed or interrupted,
our ability to produce and supply our products could be impaired.
24
The property rights we rely upon to protect the technologies underlying our products may not be adequate to maintain market
exclusivity. Inadequate intellectual property protection could enable third parties to exploit our technologies or use very similar
technologies and could reduce our ability to distinguish our products in the market.
Our success depends, in part, on our ability to obtain, protect and enforce patents on our technologies and products and to
protect our trade secrets, including the intellectual property of entities we may acquire. Any patents we own may not afford full
protection for our technologies and products. Other parties may challenge the validity of our patents and, as a result, our patents
could be narrowed or invalidated in administrative or judicial proceedings. In addition, our current and future patent applications
may not result in the issuance of patents in the United States or foreign countries. Competitors may develop products that are not
covered by our patents. Furthermore, there is a substantial backlog of patent applications at the U.S. Patent and Trademark Office
and certain patent offices in foreign jurisdictions, and the approval or rejection of patent applications may take several years.
We currently own 585 issued patents worldwide, including 178 issued patents in the United States. Other countries in which
we have issued patents directed to various aspects and applications of our products and technologies include France, Germany,
the United Kingdom, Australia, Japan, Netherlands, Canada, Hong Kong and China, amongst others. In addition, our patent
portfolio includes 156 pending patent applications in the United States and other foreign jurisdictions. We also have patents
covering key aspects of MultiCode technology, xTAG technology, and nanoparticle technology, utilized in our assay products as
well as our ARIES® and VERIGENE Systems and NxTAG technology.
We seek to require employees, consultants, strategic partners and other third parties to execute confidentiality agreements.
Our employees and third-party consultants also sign agreements requiring that they assign to us their interests in inventions and
original expressions and any corresponding patents and copyrights arising from their work for us. In addition, we have implemented
a patent process to file patent applications on our key technologies. However, we cannot guarantee that these agreements or this
patent process will provide us with adequate protection against improper use of our intellectual property or disclosure of confidential
information. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with
whom our employees, consultants or advisers have prior employment or consulting relationships. Further, others may independently
develop substantially equivalent proprietary technologies, techniques and products or counterfeit versions of our products or
otherwise gain access to our trade secrets. Our failure to protect our proprietary information and techniques may inhibit or limit
our ability to distinguish our products in the market.
In order to protect or enforce our patent rights, we may have to initiate legal proceedings against third parties, such as
infringement suits or interference proceedings. These legal proceedings could be expensive, take significant time and/or divert
management’s attention from other business concerns. These proceedings may cause us to lose the benefit of some of our intellectual
property rights, the loss of which may inhibit or preclude our ability to distinguish our products in the market. These proceedings
also may provoke these third parties to assert claims against us. Moreover, a series of recent decisions from the Supreme Court
of the United States have arguably weakened United States patent rights, including the Impression Products v. Lexmark case,
which expands the scope of the patent exhaustion doctrine to sales of patented products outside of the United States and limits a
patent holder's ability to enforce post-sale restrictions under patent law. The patent position of companies like ours generally is
highly uncertain, involves complex legal and factual questions and has recently been the subject of much litigation. No consistent
policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree
of protection afforded under patents like ours.
If our current products and our products under development do not become widely used in the life sciences and clinical
diagnostics industries, we may not be able to maintain or increase profitability.
Life sciences and clinical diagnostic service provider companies have historically conducted biological tests using a variety
of technologies, including bead-based analysis. The commercial success of our products depends upon their widespread adoption
as methods to perform assays. In order to be successful, we must convince potential partners and customers to utilize our systems
instead of other competing products. Market acceptance depends on many factors, including our ability to:
• timely and successfully launch our products under development;
• manage trends relating to, or the introduction or existence of, competing products or technologies that may be more
effective, cheaper or easier to use than our products and technologies;
• operate in a highly competitive marketplace, including in the presence of competing products sold by companies with
longer operating histories, more recognizable names and more established distribution networks;
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• convince prospective strategic partners and customers that our products are an attractive alternative to others for research,
clinical, biomedical and genetic testing and analysis;
• encourage these partners to develop and market products using our technologies;
• manufacture products in sufficient quantities with acceptable quality and at an acceptable cost;
• obtain and maintain sufficient pricing and royalties from partners on such Luminex products; and
• place and service sufficient quantities of our products at the level of service required in the life science and clinical
diagnostics market segments.
Because of these and other factors, our products may not gain or sustain sufficient market acceptance to maintain or increase
profitability. Additionally, we may have to write off excess or obsolete inventory if sales of our products are not consistent with
our expectations or if the demand for our products changes.
In the molecular diagnostics sector, we must recognize significant market uptake in order to gain operational efficiencies and
reduce costs based on increased volume.
We may be unsuccessful in implementing our acquisition strategy. We may face difficulties integrating acquired entities with
our existing businesses. Our business may be harmed by prior or future acquisitions.
Acquisitions of assets or entities designed to accelerate the implementation of our strategic plan are an important element of
our long-term strategy. We may be unable to identify and complete appropriate future acquisitions in a timely manner, or at all,
and no assurance can be provided that the market price of potential business acquisitions will be acceptable. In addition, many of
our competitors have greater financial resources than we have and may be willing to pay more for these businesses or selected
assets. In the future, should we identify suitable acquisition targets, we may be unable to complete acquisitions or obtain the
financing, if necessary, for these acquisitions on terms favorable to us. Potential acquisitions pose a number of risks, including,
among others, that:
• we may not be able to accurately estimate the financial effect of acquisitions on our business;
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future acquisitions may require us to incur debt or other obligations, issue additional securities, incur large and immediate
write-offs, issue capital stock potentially dilutive to our stockholders or spend significant cash, or may negatively affect
our operating results and financial condition;
if we spend significant funds or incur additional debt or other obligations, our ability to obtain financing for working capital
or other purposes could decline, and we may be more vulnerable to economic downturns and competitive pressures;
technological advancement or worse than expected performance of acquired businesses may result in the impairment of
intangible assets;
• we may be unable to realize the anticipated benefits and synergies from acquisitions as a result of inherent risks and
uncertainties, including difficulties integrating acquired businesses or retaining their key personnel, partners, customers or
other key relationships, entering market segments in which we have no or limited experience, and risks that acquired entities
may not operate profitably or that acquisitions may not result in improved operating performance;
• we may fail to successfully obtain appropriate regulatory approval or clearance for products under development of our
acquired businesses;
• we may be assuming liability for unresolved regulatory risks of our acquired businesses;
• we may fail to successfully manage relationships with customers, distributors and suppliers of our acquired businesses;
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our customers may not accept products of our acquired businesses;
• we may fail to effectively coordinate sales and marketing efforts of our acquired businesses;
• we may fail to combine product offerings and product lines of our acquired businesses quickly and effectively;
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• we may fail to effectively enhance acquired technology and products to develop new products relating to the acquired
businesses;
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an acquisition may involve unexpected costs or liabilities, including as a result of pending and future shareholder lawsuits
relating to acquisitions or exercise by shareholders of their statutory appraisal rights, or the effects of purchase accounting
may be different from our expectations;
an acquisition may involve significant contingent payments that may adversely affect our future liquidity or capital resources;
acquisitions and subsequent integration of these companies may disrupt our business and distract our management from
other responsibilities; and
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the costs of unsuccessful acquisition efforts may adversely affect our financial performance.
Other risks of integration of acquired businesses include:
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disparate information technology, internal control, financial reporting and record-keeping systems;
differences in accounting policies, including those requiring judgment or complex estimation processes;
new partners or customers who may operate on terms and programs different than ours;
additional employees not familiar with our operations;
unanticipated additional transaction and integration-related costs;
our current and prospective customers and suppliers may experience uncertainty associated with an acquisition, including
with respect to current or future business relationships with us, and may attempt to negotiate changes in existing business;
facilities or operations of acquired businesses in remote locations or potentially foreign jurisdictions and the inherent risks
of operating in unfamiliar legal and regulatory environments; and
new products, including the risk that any underlying intellectual property associated with such products may not have been
adequately protected or that such products may infringe on the proprietary rights of others.
Our success depends partly on our ability to operate without infringing on or misappropriating the proprietary rights of others.
We have been (and from time to time we may be) notified that third parties consider their patents or other intellectual property
relevant to our products. We may be sued for infringing the intellectual property rights of others, including claims with respect to
intellectual property of entities we may acquire. In addition, we may find it necessary, if threatened, to initiate a lawsuit seeking
a declaration from a court that we do not infringe on the proprietary rights of others or that their rights are invalid or unenforceable.
Intellectual property litigation is costly, and, even if we prevail, the cost of such litigation could affect our profitability. Furthermore,
litigation is time-consuming and could divert management’s attention and resources away from our business. If we do not prevail
in any litigation, we may have to pay damages and could be required to stop the infringing activity or obtain a license. Any required
license may not be available to us on acceptable terms, if at all. Moreover, some licenses may be nonexclusive, and therefore our
competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design
around a patent, we may be unable to sell some of our products, which could have a material adverse effect on our business,
financial condition and results of operations.
We require collaboration with other organizations in obtaining relevant biomarkers, access to oligonucleotides and enzymes
that are patented or controlled by others. If we cannot continue to obtain these items or identify freedom to operate opportunities,
our business, financial condition and results of operations could be negatively affected.
27
Security breaches, including with respect to cybersecurity, and other disruptions could compromise our information, products,
and services and expose us to liability and harm our reputation and business.
In the ordinary course of our business we collect and store sensitive data, including intellectual property, personal information,
our proprietary business information and that of our customers, suppliers and business partners and personally identifiable
information of our customers and employees in our data centers and on our networks. The secure maintenance and transmission
of this information is critical to our operations and business strategy. We rely on commercially available systems, software, tools
and domestically available monitoring to provide security for processing, transmitting and storing this sensitive data. As a
participant in the molecular diagnostic market, we may face cyber-attacks that attempt to penetrate our network security, including
our data centers, sabotage or otherwise disable our research, products and services, including instruments at our customers’ sites,
which may include personally identifiable information, or cause interruptions of our internal systems.
If successful, hackers may misappropriate personal or confidential business information. In addition, an associate, contractor
or other third party with whom we do business may attempt to circumvent our security measures in order to obtain such information,
and may purposefully or inadvertently cause a breach involving such information. While we continue to implement additional
protective measures to reduce the risk of and detect cyber incidents, cyber-attacks are becoming more sophisticated and frequent,
and the techniques used in such attacks change rapidly. Despite our cybersecurity measures (including employee and third-party
training, monitoring of networks and systems and maintenance of backup and protective systems) which are continuously reviewed
and upgraded, the Company’s information technology networks and infrastructure may still be vulnerable to damage, disruptions
or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses,
telecommunication or utility failures, systems failures, natural disasters or other catastrophic events. Any such compromise of
our, or our third party IT service providers' data security and any access, public disclosure or loss of personal or confidential
business information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information,
regulatory penalties, disrupt our operations, damage our reputation and customers’ willingness to transact business with us and
subject us to additional costs and liabilities, any of which could adversely affect our business.
Our success depends on our ability to service and support our products directly or in collaboration with our strategic partners.
To the extent that we or our strategic partners fail to maintain a high quality level of service and support for xMAP products,
there is a risk that the perceived quality of our xMAP products will be diminished in the marketplace. Likewise, we may fail to
provide the level, quantity or quality of service expected by the marketplace. This could result in slower adoption rates and lower
than anticipated utilization of xMAP products, which could have a material adverse effect on our business, financial condition
and results of operations.
If third-party payors continue to increasingly restrict payments for healthcare expenses or fail to adequately pay for multi-
analyte testing, we may experience reduced sales, which would hurt our business and our business prospects.
Third-party payors, government-sponsored healthcare programs (e.g., Medicare, Medicaid and Tricare), health maintenance
organizations, preferred provider organizations and other private or commercial insurers are continually seeking to reduce
healthcare expenses. Payors are challenging the utilization of, and prices charged for, medical services, including clinical diagnostic
tests. The federal government has implemented cost-cutting strategies for government-sponsored healthcare programs, including
coverage limitations and reimbursement rate reductions required by the Affordable Care Act. In 2016, the Centers for Medicare
& Medicaid Services (CMS) issued a final rule that significantly revised the reimbursement methodology under the Clinical
Diagnostic Laboratory Test Payment System required by the Protecting Access to Medicare Act. Beginning January 1, 2018,
payment rates for most tests included in the Clinical Laboratory Fee Schedule are based on commercial insurance rates, which
certain laboratories are required to report. The market-based reimbursement rates published for 2018 are generally lower than the
2017 Medicare rates, and further reductions will be phased in through 2022. We expect reimbursement rates to trend down over
time. Coverage and reimbursement from commercial payors may also reflect these reductions.
Further cost containment initiatives by governmental or educational entities or programs may reduce funding for genetic
research and development activities and slow the growth of the genetic testing market. Lack of adequate coverage or reimbursement
for our products could affect consumer demand, reducing volumes or adding additional cost pressures, resulting in lowered prices
for our products. Reduced sales or margins by us, or our direct customers, and strategic partners, would adversely affect our
business, profitability and business prospects. In addition, failure to secure appropriate reimbursement in foreign jurisdictions
could severely limit our ability to expand sales within these markets.
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We expect our operating results to continue to fluctuate from quarter to quarter.
The sale of our instrumentation and assay products typically involves a significant technical evaluation and commitment of
capital by us, our partners and end users. Accordingly, the sales cycle associated with our products is typically lengthy and subject
to a number of significant risks, much of which is beyond our control, including partners’ budgetary constraints, inventory
management practices, regulatory approval and internal acceptance reviews. As a result of this lengthy and unpredictable sales
cycle, our operating results have historically fluctuated significantly from quarter to quarter. We expect this trend to continue for
the foreseeable future.
The vast majority of our system sales are made to our strategic partners. Our partners typically purchase instruments in three
phases during their commercialization cycle: first, instruments necessary to support internal assay development; second,
instruments for sales force demonstrations; and finally, instruments for resale to their customers. As a result, most of our system
placements are highly dependent on the continued commercial success of our strategic partners and can fluctuate from quarter to
quarter as our strategic partners move from phase to phase. We expect this trend to continue for the foreseeable future.
Our assay products are sometimes sold to large customers. The ordering and consumption patterns of these customers can
fluctuate, affecting the timing of shipments and revenue recognition. In addition, certain products assist in the diagnosis of illnesses
that are seasonal, and customer orders can fluctuate for this reason. The loss of any of these customers (including LabCorp’s
decision to move to an alternative vendor for women’s health products in 2018) could have a material adverse effect or our business,
financial condition and results of operations.
Because of the effect of bulk purchases, defined as the purchase of $100,000 or more of consumables in a quarter, and the
introduction of seasonal components to our assay menus, we experience fluctuations in the percentage of our quarterly revenues
derived from our highest margin items: consumables, royalties and assays. Our gross margin percentage is highly dependent upon
the mix of revenue components each quarter. These fluctuations contribute to the variability and lack of predictability of both
gross margin percentage and total gross profit from quarter to quarter. We expect this trend to continue for the foreseeable future.
Due to the early stage of the market for molecular tests, projected growth scenarios for our assays are highly volatile and are
based on a number of underlying assumptions that may or may not prove to be valid, including our ability to be successful with
our direct assay sales strategy.
In most of our strategic partnerships we have granted non-exclusive rights with respect to commercialization of our products
and technologies.
We expect that a significant portion of our future revenues will come from sales of our systems and the development and sale
of kits utilizing our xMAP consumables by our strategic partners and from use of our xMAP products by our strategic partners in
performing services offered to third parties. We believe that our strategic partners will have economic incentives to develop and
market these products, but we cannot accurately predict future sales and royalty revenues because some of our existing strategic
partner agreements do not include minimum purchase requirements or minimum royalty commitments. Some of our existing
strategic partner agreements contain minimum purchase requirements for certain years, but unless renegotiated, these minimum
purchase requirements could and do expire. In addition, we have no control with respect to our strategic partners’ sales personnel
and how they prioritize products based on xMAP technology, nor can we control the timing of the development or release of
products by our strategic partners. The amount of these revenues depends on a variety of factors that are outside our control,
including the amount and timing of resources that current and future strategic partners devote to develop and market products
incorporating our technology. Furthermore, the development and marketing of certain kits will require our strategic partners to
obtain governmental approvals, which could delay or prevent their commercialization efforts. If our current or future strategic
partners do not successfully develop and market products based on our technology and obtain necessary government approvals,
our revenues from product sales and royalties could be significantly reduced.
29
If the governmental laws and regulations change in ways that we do not anticipate or if we fail to comply with existing laws
and regulations that affect our business, we could be subject to enforcement actions, injunctions and civil and criminal penalties
or otherwise be subject to increased costs that could delay or prevent marketing of our products.
The production, testing, labeling, marketing and distribution of our products for some purposes, including products based on
our technology are subject to governmental regulation by the FDA and by similar agencies in other countries. Some of our products,
including those based on our technologies for in vitro diagnostic purposes, are subject to clearance by the FDA prior to marketing
for commercial use. To date, seven strategic partners have obtained such clearances. Others are anticipated. The process of obtaining
necessary FDA clearances can be time-consuming, expensive and uncertain. Further, clearance may place substantial restrictions
on the indications for which products may be marketed or to whom they may be marketed. In addition, because some of our
products employ laser technology, we are also required to comply with FDA requirements relating to radiation performance safety
standards.
Periodically the FDA issues guidance documents that represent the FDA’s current thinking on a topic. These issues are initially
issued in draft form prior to final rule, generally with enforcement discretion for some grace period of time. Changes made through
this process may impact the release status of products offered and our ability to market those products affected by the change. For
example, on September 14, 2007, the FDA released the final document “Guidance for Industry and FDA Staff Commercially
Distributed Analyte Specific Reagents (ASRs): Frequently Asked Questions.” This guidance may limit or delay distribution of
assays on our platform, including assays that we developed internally and distributed, to the extent additional regulatory clearance
is required prior to distribution.
Cleared medical device products are subject to continuing FDA requirements relating to, among other issues, manufacturing
quality control and quality assurance, maintenance of records and documentation, registration and listing, import/export, adverse
event and other reporting, distribution, labeling and promotion and advertising of medical devices. Our inability or the inability
of our strategic partners to obtain required regulatory approval or clearance on a timely or acceptable basis could harm our business.
In addition, failure to comply with applicable regulatory requirements could subject us or our strategic partners to regulatory
enforcement action, including warning letters, product seizures, recalls, withdrawal of clearances, restrictions on or injunctions
against marketing our products or products based on our technology and civil and criminal penalties.
Medical device laws and regulations are in effect within the United States and also in many countries outside the United
States. These range from comprehensive device clearance requirements for some or all of our medical device products to requests
for product data or certifications regarding the hazardous material content of our products. As a device manufacturer, we are
required to report annually to the CMS any payments or transfers of value we have made to physicians and teaching hospitals and
any physician ownership or investment interest in the company. As part of the European Council Directive 2002/96 of February 13,
2003, we are expected to comply with certain requirements regarding the collection, recycling and labeling of our products
containing electronic devices in each of the EU member states where our regulated products are distributed. While we are taking
steps to comply with the requirements of WEEE, we cannot be certain that we will comply with the national stage implementation
of WEEE in all member states. We continue to evaluate the necessary steps for compliance with regulations as they are enacted.
These regulations include, for example, the Registration, Evaluation, Authorization and Restriction of Chemical substances, the
RoHS Directive and the WEEE Directive enacted in the European Union, which regulate the use of certain hazardous substances
in, and require the collection, reuse and recycling of waste from, certain products we manufacture. This and similar legislation
that has been or is in the process of being enacted in various countries may require us to re-design our products to ensure compliance
with the applicable standards. These redesigns may impact the performance of our products, add greater testing lead-times for
product introductions or have other similar effects. We believe we comply with all such legislation where our products are sold
and we will continue to monitor these laws and the regulations being adopted under them to determine our responsibilities. In
addition, the State of California adopted the Electronic Waste Recycling Act, effective January 1, 2007, which requires the California
Department of Toxic Substances Control to adopt regulations to prohibit the sale of electronic devices in California if they are
also prohibited from sale in the EU under the RoHS Directive because they contain certain heavy metals. The number and scope
of these requirements are increasing and we will likely become subject to similar laws in other jurisdictions. Failure to comply
with applicable federal, state and foreign medical device laws and regulations may harm our business, financial condition and
results of operations. We are also subject to a variety of other laws and regulations relating to, among other things, environmental
protection and workplace health and safety.
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Our strategic partners and customers expect our organization to operate on an established quality management system compliant
with FDA Quality System Regulations and industry standards, the In Vitro Diagnostic Directive 98/79/EC of 27 October 1998
(Directive) as implemented nationally in the EU member states and industry standards, such as ISO 9000. We became ISO
9001:2000 certified in March 2002 and self-declared our Luminex 100/200, FLEXMAP 3D and MAGPIX instruments to the
Directive. Our devices are in conformity with Article 1, Article 9, Annex I (Essential Requirements), Annex III and the additional
provisions of the Directive as of December 7, 2003. Subsequent audits are carried out annually to ensure we maintain our system
in substantial compliance with ISO and other applicable regulations and industry standards. We became ISO 13485:2003 and
Canadian Medical Devices Conformity Assessment System (CMDCAS) certified in July 2005. Failure to maintain compliance
with FDA, CMDCAS and EU regulations and other medical device laws, or to obtain applicable registrations where required,
could reduce our competitive advantage in the markets in which we compete and also decrease satisfaction and confidence levels
with our partners.
Our success depends on our ability to attract and retain our management and staff.
We depend on the principal members of our management and scientific staff, including our chief executive officer, Nachum
Shamir, and our operations, marketing, research and development, technical support, technical service and sales staff. The loss of
services of key members of management could delay or reduce our product development, marketing and sales and technical support
efforts. In addition, recruiting and retaining qualified scientific and other personnel to perform research and development, technical
support, technical service and marketing and sales work will be critical to our success. There is a shortage in our industry of
qualified management and scientific personnel, and competition for these individuals is intense. There can be no assurance that
we will be able to retain existing and attract additional personnel necessary to achieve our business objectives.
Our reliance on strategic partnerships makes forecasting difficult.
As a result of our reliance on our strategic relationships, it can be difficult to accurately forecast future operating results.
Estimating the timing and amount of sales of our products is particularly difficult for the following reasons (among others):
• we do not control the timing or extent of product development, marketing or sale of our products by our strategic partners;
• we do not control the incentives provided by our strategic partners and distributors to their sales personnel;
• we utilize a limited number of geographically focused distributors for a portion of our sales, including sales of several of
our key assay products, and the loss of or nonperformance by these distributors could harm our revenues in the territories
serviced by these distributors;
•
•
•
a significant number of our strategic partners intend to produce clinical diagnostic applications that may need to be approved
by the FDA or other regulatory bodies in jurisdictions outside of the United States;
certain strategic partners may have unique requirements for their applications and systems. Assisting the various strategic
partners may strain our research and development and manufacturing resources. To the extent that we are not able to timely
assist our strategic partners, the commercialization of their products will likely be delayed;
certain strategic partners may fail to deliver products that satisfy market requirements, or such products may fail to perform
properly;
• we have limited access to partner and distributor confidential corporate information. A sudden unexpected change in
ownership or strategy or other material event due to information of which we are not currently aware could adversely impact
partner purchases of our products; and
•
partners tend to order in bulk prior to the production of new lots of their products and prior to major product development
initiatives. The frequency of these bulk purchases is difficult to predict and may cause large fluctuations in microsphere
sales quarter to quarter.
31
If the quality of our products does not meet our customers’ expectations, our reputation could suffer and ultimately our sales
and operating earnings could be negatively impacted.
In the course of conducting our business, we must adequately address quality issues associated with our products and services,
including defects in our engineering, design and manufacturing processes, as well as defects in third-party components included
in our products. Because our instruments and consumables are highly complex, the occurrence of defects may increase as we
continue to introduce new products and services and as we rapidly scale up manufacturing to meet increased demand for our
products and services. Although we have established internal procedures to minimize risks that may arise from product quality
issues, there can be no assurance that we will be able to eliminate or mitigate occurrences of these issues and associated liabilities.
In addition, identifying the root cause of quality issues, particularly those affecting reagents and third-party components, may be
difficult, which increases the time needed to address quality issues as they arise and increases the risk that similar problems could
recur. Finding solutions to quality issues can be expensive and we may incur significant costs or lost revenue in connection with,
for example, shipment holds, product recalls and warranty or other service obligations. In addition, quality issues can impair our
relationships with new or existing customers and adversely affect our brand image, and our reputation as a producer of high quality
products could suffer, which could adversely affect our business, financial condition or results of operations.
If we become subject to product liability claims, we may be required to pay damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the testing, production, marketing and sale
of biotechnological, human diagnostic and therapeutic products. Although we believe that we are reasonably insured against these
risks and we generally have limited indemnity protections in our supplier agreements, there can be no assurance that we will be
able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. A
product liability claim in excess of our insurance coverage or a claim that is outside of or exceeds our indemnity protections in
our supplier agreements or a recall of one of our products would have to be paid out of our cash reserves.
If our direct selling efforts for our products are less successful than anticipated, our business expansion plans could suffer
and our ability to generate revenues could be diminished.
If our direct sales force is not successful, or additions to our sales team fail to gain traction among our customers, we may
not be able to increase market awareness and sales of our products, or to maintain historical sales levels. If we fail to establish our
systems in the marketplace, it could have a negative effect on our ability to sell subsequent systems and hinder the planned
expansion of our business.
The commercial launch of the ARIES® System was the first Luminex system launch that was not channeled through a partner.
The successful execution of our product launch and adoption by our direct customers is critical to establishing an installed base
of satisfied customers. To the extent that these customers do not adopt the current and forthcoming menu of ARIES® assays that
have been a significant focus of Luminex's research and development efforts over the last four years, there is a significant risk
that our investment in these assays may not pay off. Additionally, we have made a significant investment in the Luminex customer
service, support and direct sales force to support the ARIES® Systems launches. The ability of Luminex to service, support and
sell the ARIES® and VERIGENE Systems directly, and not through a partner, may also fail to meet market expectations, which
could have a material adverse effect on our business, financial condition and results of operations.
The capital spending policies of our customers have a significant effect on the demand for our products.
Our customers include clinical diagnostic, pharmaceutical, biotechnological, chemical and industrial companies, and the
capital spending policies of these companies can have a significant effect on the demand for our products. These policies are based
on a wide variety of factors, including general or local economic conditions, governmental regulation or price controls, resources
available for purchasing research equipment, spending priorities among various types of analytical equipment and policies regarding
capital expenditures during recessionary periods. Any decrease in capital spending by life sciences companies could cause our
revenues to decline. As a result, we are subject to significant volatility in revenue. Therefore, our operating results can be materially
affected (negatively and positively) by the spending policies and priorities of our customers.
32
If we become subject to claims relating to improper handling, storage or disposal of hazardous materials, we could incur
significant cost and time to comply.
Our research and development processes involve the controlled storage, use and disposal of hazardous materials, including
biological hazardous materials. We are subject to foreign, federal, state and local regulations governing the use, manufacture,
storage, handling and disposal of materials and waste products. We may incur significant costs complying with both existing and
future environmental laws and regulations. In particular, we are subject to regulation by the Occupational Safety and Health
Administration (OSHA) and the Environmental Protection Agency (EPA), and to regulation under the Toxic Substances Control
Act and the Resource Conservation and Recovery Act in the United States. OSHA or the EPA may adopt regulations that may
affect our research and development programs. We are unable to predict whether any agency will adopt any regulations that would
have a material adverse effect on our operations.
The risk of accidental contamination or injury from hazardous materials cannot be eliminated completely. In the event of an
accident, we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage
of our workers’ compensation insurance. We may not be able to maintain insurance on acceptable terms, if at all.
We may incur impairment charges on our goodwill and intangible assets which would reduce our earnings.
We are subject to Accounting Standards Codification (ASC) 350 “Goodwill and Other” (ASC 350) which requires that goodwill
and other intangible assets that have an indefinite life be tested at least annually for impairment. Goodwill and other intangible
assets with indefinite lives must also be tested for impairment between the annual tests if a triggering event occurs that would
likely reduce the fair value of the asset below its carrying amount. As of December 31, 2017, goodwill and other intangible assets
with indefinite lives represented approximately 32% of our total assets. In the future, if we determine that there has been impairment,
our financial results for the relevant period would be reduced by the amount of the impairment, net of tax effects, if any.
Uncertain economic conditions and outlook may adversely impact our business, results of operations, financial condition, or
liquidity.
Global economic conditions could adversely affect our results of operations. The credit markets and the financial services
industry continue to experience volatility, both domestically and internationally. These conditions not only limit our access to
capital but also make it extremely difficult for our customers, our vendors and us to accurately forecast and plan future business
activities, and they could cause U.S. and foreign businesses and consumers to slow spending on our products and services, which
would delay and lengthen sales cycles. Some of our customers rely on government research grants to fund technology purchases. If
negative trends in the economy affect the government’s allocation of funds to research, there may be less grant funding available
for certain of our customers to purchase technologies like those Luminex sells. Certain of our partners and their and our customers
may face challenges gaining timely access to sufficient credit or may otherwise be faced with budget constraints, which could
result in decreased purchases of, or development of products based on, our products or in an impairment of their ability to make
timely payments to us. If our partners and our customers do not make timely payments to us, we may be required to assume
greater credit risk relating to those customers, increase our allowance for doubtful accounts and our days sales outstanding would
be negatively impacted. Although we maintain allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments, and such losses have historically been within our expectations and the provisions
established, we may not continue to experience the same loss rates that we have in the past given the current condition of the
worldwide economy. Additionally, these economic conditions and market turbulence may also impact our suppliers causing them
to be unable to supply in a timely manner sufficient quantities of customized components, thereby impairing our ability to
manufacture on schedule and at commercially reasonable costs.
If a catastrophe strikes our manufacturing or warehousing facilities, we may be unable to manufacture or distribute our
products for a substantial amount of time and we may experience inventory shortfalls, which would cause us to experience
lost revenues.
Our manufacturing facilities are located in Austin, Madison, Northbrook and Toronto. Although we have business interruption
insurance, our facilities and some pieces of manufacturing equipment are difficult to replace and could require substantial
replacement lead time. Various types of disasters, including tornadoes, fires, floods and acts of terrorism, may affect our
manufacturing facilities. In the event our existing manufacturing facilities or equipment are affected by man-made or natural
disasters, we may be unable to manufacture products for sale or meet customer demands or sales projections. If our manufacturing
operations were curtailed or ceased, it would seriously harm our business.
33
There can be no assurance that we will continue to pay dividends.
In February 2017, the Board of Directors initiated a cash dividend program under which the Company will pay a regular
quarterly cash dividend. The declaration, amount and timing of such dividends are subject to capital availability and determinations
by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective
laws and our agreements applicable to the declaration and payment of cash dividends. Our continuing ability to pay dividends
will depend upon, among other factors, our cash balances and potential future capital requirements for strategic transactions,
including acquisitions, debt service requirements, results of operations, financial condition and other factors beyond our control
that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments, or our dividend program
could have a negative effect on our stock price.
Our operations in foreign countries expose us to certain risks inherent in doing business internationally, which may adversely
affect our business, financial condition, and results of operations.
We expect that revenue from U.S. sales will continue to represent the majority of our total revenue, but our future profitability
will depend in part on our ability to grow and ultimately maintain our product sales in foreign markets, particularly in Asia and
Europe. In fiscal 2017, approximately 16% of our revenue was derived from sales to non-U.S. customers, with approximately
7% of revenue from sales to customers in Europe. As such, a significant slowdown in these foreign economies or lower investments
in new infrastructure could have a negative impact on our sales. We also purchase a portion of the materials included in our products
from overseas sources. As a result of acquisitions and organic growth, we have operations and manufacturing facilities in foreign
countries that expose us to certain risks. For example, fluctuations in exchange rates may affect our revenues, expenses and results
of operations, as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other
types of risks, including the following:
•
•
•
•
•
•
•
•
•
changes in or interpretations of foreign law that may adversely affect our ability to sell our products, perform services or
repatriate profits to the United States;
tariffs, customs and other barriers to importing/exporting materials and products in a cost effective and timely manner;
hyperinflation or economic or political instability in foreign countries;
imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign
subsidiaries;
conducting business in places where business practices and customs are unfamiliar and unknown;
difficulties in staffing and managing international operations;
the burden of complying with complex and changing foreign regulatory requirements;
difficulties in accounts receivable collections;
the imposition of restrictive trade policies, including export restrictions;
• worldwide political conditions;
•
•
•
•
•
•
•
the imposition of inconsistent laws or regulations;
reduced protection of intellectual property rights and trade secrets in some foreign countries;
the imposition or increase of investment requirements and other restrictions by foreign governments;
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute;
uncertainties relating to foreign laws, including labor laws, and legal proceedings;
the burden of complying with foreign and international laws and treaties;
significant currency fluctuations;
34
•
•
•
the burden of complying with and changes in international taxation policies;
the burden of complying with a variety of U.S. laws, including the Foreign Corrupt Practices Act; and
the burden of complying with U.S. export control regulations and policies that restrict our ability to communicate with non-
U.S. employees and to supply foreign affiliates, partners and customers.
Our international sales and purchases are subject to numerous U.S. and foreign laws and regulations, including, without
limitation, tariffs, trade barriers, regulations relating to import-export control, technology transfer restrictions, the International
Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott
provisions of the U.S. Export Administration Act. If we fail to comply with these laws and regulations, we could be liable for
administrative, civil or criminal liabilities, and in the extreme case, we could be suspended or debarred from government contracts
or have our export privileges suspended, which could have a material adverse effect on our business.
International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations,
collection issues and taxes. Our international sales are subject to variability as our selling prices become less competitive in
countries with currencies that are declining in value against the U.S. dollar and more competitive in countries with currencies that
are increasing in value against the U.S. dollar. In addition, our international purchases can become more expensive if the U.S. dollar
weakens against the foreign currencies in which we are billed.
We have not entered into any foreign currency derivative financial instruments; however, we may choose to do so in the future
in an effort to manage or hedge our foreign exchange rate risk.
Our success depends on building and sustaining our technology infrastructure.
We are increasingly dependent on information technology to enable us to improve the effectiveness of our operations and to
maintain financial accuracy and efficiency. If we do not allocate and effectively manage the resources necessary to build, implement
and sustain the proper technology infrastructure, we could be subject to transaction errors, the inability to properly support and
service our customers, processing inefficiencies, loss of customers, business disruptions or loss of or damage to intellectual property
through security breach or cyber-attack, each of which could materially and adversely affect our business.
We rely on the innovation and resources of larger industry participants and public programs in our partnership business to
advance genomic research and educate physicians/clinicians on genetic diagnostics.
The linkages between genetic anomalies that our products detect and the underlying disease states are not always fully medically
correlated. Additionally, the availability of correlated genetic markers is dependent on significant investment in genomic research,
often funded through public programs, for which there are no assurances of ongoing support. Should any government limit patent
rights to specific genetic materials, private investment in this area could also be significantly curtailed. In addition, the adoption
of genetic diagnostics is dependent to a great extent on the education and training of physicians and clinicians. We do not have
the resources to undertake such training, and are relying on larger industry participants and professional medical colleges to
establish, communicate and educate physicians and clinicians on best practices related to genetic diagnostics.
We are subject to evolving legislative, regulatory, judicial and ethical standards on use of technology and biotechnology.
The adoption of genetic testing is occurring within the broader context of a myriad of decisions related to genetic patenting
and genotyping. Issues associated with health insurance, data access, intellectual property protection, national and international
legislative and regulatory initiatives and other variables may have a significant impact on the widespread adoption of genetic
testing or on specific segments or tests within the genetic testing market, which could in turn impact our business.
35
Our effective tax rate may fluctuate and we may incur obligations in tax jurisdictions in excess of amounts that have been
accrued.
We are subject to income taxes in the United States and various foreign jurisdictions. Our effective tax rate may be lower or
higher than experienced in the past due to numerous factors, including a change in the mix of our profitability from country to
country, the establishment or release of valuation allowances against our deferred tax assets, and changes in tax laws. In addition,
we have recorded gross unrecognized tax benefits in our financial statements that, if recognized, would impact our effective tax
rate. We are subject to tax audits in various jurisdictions, including the United States, and tax authorities may disagree with certain
positions we have taken and assess additional taxes. There can be no assurance that we will accurately predict the outcomes of
these audits, and the actual outcomes could have a material impact on our net income or financial condition. Any of these factors
could cause us to experience an effective tax rate significantly different from previous periods or our current expectations, which
could have an adverse effect on our business and results of operations. 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.
Changes in tax laws or tax rulings, or changes in interpretations of existing laws, could materially impact our effective tax
rate. Significant reform to U.S. tax laws was enacted in the fourth quarter of 2017 which includes, among other things, changes
to tax rates, limitations on the ability to defer U.S. taxation on earnings outside of the United States, and new taxes on profits
earned in foreign jurisdictions. These changes to the taxation of our activities could adversely affect the tax treatment of our
foreign earnings and impact our worldwide effective tax rate.
We hold cash and cash equivalents at various foreign subsidiaries that may not be readily available to meet domestic
cash requirements.
Currently a substantial majority of our cash and cash equivalents is held by our various foreign subsidiaries, in particular our
subsidiary in Canada; however, any cash balances held outside the United States may not be readily available, or may not be
available without an additional tax burden, to meet our domestic cash requirements. We require a substantial amount of cash in
the United States for operating requirements, purchases of property and equipment, and for potential future acquisitions. If we are
unable to meet our domestic cash requirements using domestic cash flows from operations, domestic cash and cash equivalents,
by settling loans receivable with our foreign subsidiaries, or by domestic borrowing, it may be necessary for us to consider
repatriation of earnings. Recent changes to U.S. tax laws may allow for reductions to the potential tax burden on repatriation of
foreign cash; however, such actions would require us to record additional income tax expense and remit additional taxes, which
could have a material adverse effect on our results of operations, cash flows and financial condition.
The "conflict minerals" rule of the SEC has caused us to incur additional expenses, could limit the supply and increase the
cost of certain metals used in manufacturing our products, and could make us less competitive in our target markets.
On August 22, 2012, the SEC adopted a rule requiring disclosure of specified minerals, known as conflict minerals, that are
necessary to the functionality or production of products manufactured or contracted to be manufactured by public companies. The
rule requires companies to obtain sourcing data from suppliers, engage in supply chain due diligence, and file annually with the
SEC a specialized disclosure report. The rule could limit our ability to source at competitive prices and to secure sufficient quantities
of certain minerals used in the manufacture of our products, specifically tantalum, tin, gold and tungsten, as the number of suppliers
that provide conflict-free minerals may be limited. We may incur material costs associated with complying with the disclosure
requirements, such as costs related to the determination of the origin, source and chain of custody of the minerals used in our
products, the adoption of conflict minerals-related governance policies, processes and controls, and possible changes to products
or sources of supply as a result of such activities. Within our supply chain, we may not be able to sufficiently verify the origins
of the relevant minerals used in our products through the data collection and due diligence procedures that we have implemented,
which may harm our reputation. Furthermore, we may encounter challenges in satisfying those customers who require that all of
the components of our products be certified as conflict free, and if we cannot satisfy these customers, they may choose a competitor’s
products. We continue to investigate the presence of conflict materials within our supply chain.
36
Anti-takeover provisions in our certificate of incorporation, bylaws and Delaware law could make a third party acquisition of
us difficult.
Our certificate of incorporation and bylaws contain provisions that could make it more difficult for a third party to acquire
us, even if doing so would be beneficial to our stockholders. We are also subject to certain provisions of Delaware law that could
delay, deter or prevent a change in control of us. These provisions could limit the price that investors might be willing to pay in
the future for shares of our common stock.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock has been and is likely to continue to be highly volatile and subject to wide fluctuations
in price. This volatility is in response to various factors, many of which are beyond our control, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in quarterly operating results from historical results or estimates of results prepared by
securities analysts;
developments in patents or other intellectual property rights and litigation;
new, or changes in, recommendations, guidelines or studies that could affect the use of our products;
announcements of technological innovations or new products or services by us or our competitors;
announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
developments in relationships with our partners, customers and suppliers;
additions or departures of key personnel;
conditions or trends in the life science, biotechnology and pharmaceutical industries, including the regulatory environment;
published studies and reports relating to the comparative efficacy of products and markets in which we participate;
changes in financial estimates by securities analysts;
general worldwide economic conditions and interest rates;
the success or lack of success of integrating our acquisitions;
instability in the United States and other financial markets and the ongoing and possible escalation of unrest in the Middle
East, other armed hostilities or further acts or threats of terrorism in the United States or elsewhere;
sales of our common stock; and
the potential adverse impact of the secondary trading of our stock on foreign exchanges, without our permission, which
exchanges are subject to less regulatory oversight than the Nasdaq Global Select Market, and the activity of the market
makers of our stock on such exchanges, including the risk that such market makers may engage in naked short sales and/
or other deceptive trading practices which may artificially depress or otherwise affect the price of our common stock on
the Nasdaq Global Select Market.
In addition, the stock market in general, and the Nasdaq Global Select Market and the market for technology companies in
particular, has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the
operating performance of those companies. Further, there has been particular volatility in the market prices of securities of life
sciences companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless
of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities
class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential
liabilities and the diversion of management’s attention and resources.
37
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal research and development, manufacturing and administrative facilities are located in Austin, Texas, and consist
of approximately 184,000 square feet of leased space pursuant to lease agreements which expire between April 30, 2020 and June
30, 2022. We have options to renew these lease agreements in Austin. We maintain 20,000 square feet of leased office space in
The Netherlands, approximately 34,700 square feet of leased office and manufacturing space in Toronto, Canada, approximately
35,000 square feet of leased office and manufacturing space in Madison, Wisconsin, and approximately 64,000 square feet of
leased office and manufacturing space in Northbrook, Illinois. In addition, we maintain approximately 7,500 square feet and
approximately 2,100 square feet of leased office space in Shanghai and Beijing, respectively, People's Republic of China,
approximately 600 square feet of lease office space in Hong Kong and approximately 4,000 square feet of leased office space in
Tokyo, Japan.
ITEM 3. LEGAL PROCEEDINGS
When and if it appears probable in management's judgment, and based upon consultation with outside counsel, that we
will incur monetary damages or other costs in connection with any claims or proceedings, and such costs can be reasonably
estimated, we record the estimated liability in the financial statements. If only a range of estimated losses can be estimated, we
record an amount within the range that, in management's judgment, reflects the most likely outcome; if none of the estimates
within that range is a better estimate than any other amount, we record the liability at the low end of the range of estimates. Any
such accrual would be charged to expense in the appropriate period. We disclose significant contingencies when the loss is not
probable and/or the amount of the loss is not estimable, when we believe there is at least a reasonable possibility that a loss has
been incurred. We recognize costs associated with legal proceedings in the period in which the services were provided. No
material legal proceedings are known to be pending as of December 31, 2017.
ITEM 4. MINE SAFETY DISCLOSURES
None.
38
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “LMNX.”
The following table sets forth the range of high and low sale prices on The Nasdaq Global Select Market, as applicable, for
each quarter during 2017 and 2016. On February 23, 2018, the last reported sale price of our common stock was $20.35 per share.
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
21.38
22.27
21.32
22.42
High
21.01
21.00
23.75
23.62
$
$
$
$
$
$
$
$
17.68
17.70
18.78
19.60
Low
17.29
18.05
20.19
17.64
As of February 23, 2018, we had 396 holders of record of our common stock. Because many of our shares are held by brokers
and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented
by these record holders.
Dividends
In February 2017, the Board of Directors initiated a cash dividend program under which the Company anticipates paying a
regular quarterly cash dividend. Future declarations of quarterly dividends and the establishment of future record and payment
dates are subject to the final determination of the Company's Board of Directors. Our ability to declare dividends may also from
time to time be limited by the terms of any applicable credit facility. Luminex does not currently have a credit facility.
During 2017, the Company paid dividends on common stock as follows:
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividend
per share
$0.06
$0.06
$0.06
$0.06
Payment Date
April 14, 2017
July 14, 2017
October 13, 2017
January 12, 2018
On January 24, 2018, we announced that our Board declared a quarterly cash dividend of $0.06 per share of common stock
to be paid to shareholders of record as of the close of business on March 23, 2018 with a payment date of April 13, 2018.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities of Luminex during the twelve months ended December 31, 2017.
39
Performance Graph
The following graph compares the change in Luminex’s cumulative total stockholder return on its common shares with the
Nasdaq Composite Index and the Nasdaq Biotechnology Index.
Luminex Corporation
Nasdaq Composite
Nasdaq Biotechnology
12/12
100.00
100.00
100.00
12/13
115.49
141.63
174.05
12/14
111.68
162.09
230.33
12/15
127.33
173.33
244.29
12/16
120.43
187.19
194.95
12/17
118.71
242.29
228.29
40
Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2017 was as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number
of Shares
Purchased (1)
Average Price
Paid per Share ($)
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
Period
10/1/2017 - 10/31/2017
11/1/2017 - 11/30/2017
12/1/2017 - 12/31/2017
11,049
$
—
118
Total Fourth Quarter
11,167
$
20.55
—
20.54
20.55
— $
—
—
— $
—
—
—
—
(1) Total shares purchased includes shares attributable to the withholding of shares by Luminex to satisfy the payment of
tax obligations related to the vesting of restricted shares.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with the Consolidated Financial Statements
and Notes thereto and with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and other financial data included elsewhere in this Annual Report on Form 10-K. The consolidated statement of comprehensive
income data for the years ended December 31, 2017, 2016 and 2015 and the consolidated balance sheet data at December 31,
2017 and 2016 are derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form
10-K. The consolidated results of operations data for the years ended December 31, 2014 and 2013 and the consolidated balance
sheet data at December 31, 2015, 2014 and 2013 are derived from audited consolidated financial statements not included in this
Annual Report on Form 10-K.
Consolidated Results of Operations Data:
Total revenue
Gross profit
Income from operations
Net income
Net income per common share, basic
Shares used in computing net income per common
share (basic)
Net income per common share, diluted
Shares used in computing net income per common
share (diluted)
Year Ended December 31,
2017
2016
2015
2014
2013
(in thousands, except per share data)
$ 306,571
$ 270,639
$ 237,708
$ 226,983
$ 213,423
199,046
179,655
168,707
159,852
143,626
$
$
$
37,153
29,423
0.67
$
$
20,986
13,814
0.32
$
$
37,357
36,861
0.88
$
$
28,137
39,043
0.94
$
$
4,767
7,096
0.17
43,173
42,584
42,091
41,558
40,799
0.67
$
0.32
$
0.86
$
0.93
$
0.17
43,300
43,013
42,637
42,156
41,986
At December 31,
2017
2016
2015
2014
2013
Consolidated Balance Sheet Data:
(in thousands)
Cash and cash equivalents
Short-term investments
Long-term investments
Working capital
Total assets
Total long-term debt
Total stockholders' equity
$ 127,112
$
93,452
$ 128,546
$
91,694
$
67,924
—
—
179,393
490,516
—
—
—
133,537
450,716
—
11,988
7,459
182,294
402,556
—
—
15,975
146,654
357,526
—
4,517
—
117,874
306,046
463
437,907
403,679
368,536
319,994
269,620
41
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
Overview
We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the
life sciences industries, including diagnostics and research. These industries depend on a broad range of tests, called assays, to
perform diagnostic testing and conduct life science research.
We primarily serve the life sciences industries by marketing products, including our specific testing equipment, called systems,
and assays, to various types of testing laboratories. We have a large base of installed systems that has grown primarily from the
following:
•
placements made by customers within our Licensed Technologies Group (LTG), previously referred to as our "Partner
Business", which customers either:
•
•
license our xMAP technology and develop products that incorporate our xMAP technology into products that
they then sell to end users, or
purchase our proprietary xMAP laboratory instrumentation and our proprietary xMAP microspheres and sell
xMAP-based assay products and/or xMAP-based testing services, which run on the xMAP instrumentation, and
pay a royalty to us; and
•
in addition, we utilize a direct sales force that focuses on the sale of molecular diagnostic assays that run on our systems.
As of December 31, 2017, Luminex had 73 strategic partners, of which 53 have released commercialized reagent-based
products utilizing our technology. Our remaining LTG customers are in various stages of development and commercialization of
products that incorporate our technology.
Luminex has a number of forms of revenue that result from our business model:
•
System revenue is generated from the sale of our xMAP multiplexing analyzers and peripherals and our VERIGENE
readers and processors.
• Consumable revenue is generated from the sale of our dyed polystyrene microspheres, along with 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, when 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 an end 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 primarily from four sources: i) the sale of our branded 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, ii) real-time PCR and multiplexed PCR assays using our proprietary MultiCode technology, iii)
ARIES® cassettes designed to run a fully automated, sample-to-answer molecular assay on the ARIES® System, and
iv) VERIGENE test cartridges, a sample to answer molecular assay designed to target infections in the bloodstream,
respiratory tract, and gastrointestinal tract on the VERIGENE System.
•
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.
42
• 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 amounted to less than 2.5% of total revenue
in 2017.
2017 Highlights
• Consolidated revenue was $306.6 million for 2017, representing a 13% increase over revenue for 2016.
• Assay revenue of $154.9 million for 2017, representing a 27% increase over 2016.
•
System shipments of 1,066 multiplexing analyzers, which included Luminex® 100/200TM Systems, MAGPIX Systems
and FLEXMAP 3D Systems, resulting in cumulative life-to-date multiplexing analyzer shipments of 14,848, up 8%
from a year ago.
•
Sample-to-answer product revenue increased for 2017 by $26.4 million, or 176%, from 2016.
• Royalty revenue reflecting over $511.8 million of royalty-bearing end user sales on our technology for 2017, a 1%
increase over 2016.
• Received FDA clearance for the ARIES® C. difficile Assay for detection of both toxin A and B.
• Reached an agreement with LabCorp to extend its commitment to the Luminex Cystic Fibrosis (CF) product line by
maintaining its current volume of Luminex CF testing through December 31, 2019.
• Received FDA clearance for the ARIES® Bordetella Assay for direct detection and identification of Bordetella pertussis
and Bordetella parapertussis.
• Received CE-IVD marking for the ARIES® Norovirus Assay, a sample-to-answer test for the detection of norovirus
genogroup I and II.
• Received FDA Clearance for ARIES® GBS Assay for antepartum detection of GBS colonization in pregnant women.
2016 Acquisition of Nanosphere
We completed our acquisition (the Acquisition) of Nanosphere, a publicly-held molecular diagnostic company based in
Northbrook, Illinois on June 30, 2016. The Acquisition was an all cash transaction that was undertaken to expand the Company's
access to the high-growth molecular microbiology market and to Nanosphere's portfolio of molecular testing solutions. In
connection with closing the Acquisition, we retired Nanosphere's $25.4 million of debt and paid transaction and debt prepayment
expenses of approximately $4.7 million. The results of operations for Nanosphere are included in the Company’s consolidated
financial statements beginning July 1, 2016.
Luminex acquired Nanosphere with the intention of accelerating the introduction of a higher-plexed, sample-to-answer based
solution to the market. This decision followed a series of internal analyses and included input from an external consulting firm
on how best to address the sample-to-answer, multiplexing market and the importance of time-to-market in pursuing that
opportunity. Additionally, we anticipate research, development and clinical trial costs savings as a result of the Acquisition. The
Acquisition provided revenue generating technology as opposed to incurring the risk of significant system development.
Nanosphere has a portfolio with meaningfully lower gross margins than the pre-existing Luminex business and we expect
the gross margins on the acquired portfolio to continue to negatively impact our consolidated gross margins in the near term;
however, we expect synergies realized from the Acquisition, increased sales volumes and the commercialization of the next
generation VERIGENE System, VERIGENE II, to increase these gross margins in the long term.
43
2016 Reorganization
Following the Acquisition, and to better focus on the Company's core business, the Company conducted a reorganization in
December, 2016. The reorganization included a headcount reduction of approximately 40 people, a reallocation of responsibilities
within the research and development organization and a significant reduction of biodefense efforts. As a result of the organizational
change, the Company eliminated approximately 4% of its aggregate workforce. The Company recognized a charge of approximately
$2.5 million in the fourth quarter of 2016 in conjunction with these activities.
Material Partner Activity
Based upon an extension agreement entered into in the third quarter of 2017, the Company will continue to sell its CF products
to the Company’s largest customer, LabCorp, through the end of 2019. Also, as previously stated in our Annual Report on Form
10-K for the year ended December 31, 2016, LabCorp elected to develop the next iteration of one of its women's health products
with another party. We have negotiated significant minimum women's health purchases from LabCorp through June 2018, pursuant
to which LabCorp committed to acquire no less than $63.1 million of our women's health products from January 1, 2017 through
June 30, 2018; of which in 2017, LabCorp acquired approximately $36 million of our women's health products. The anticipated
future loss of the LabCorp business could have a material adverse effect on our growth and future results of operations if we are
unable to effectively attract new customers and/or increase sales with existing customers.
Consumables Sales and Royalty Revenue Trends
We have experienced significant fluctuations in consumable revenue over the past three years. Year-over-year changes in
consumable revenue have been an increase of $0.7 million, an increase of $5.3 million, and a reduction of $5.0 million in 2017,
2016, and 2015 respectively. Overall, the fluctuations manifested themselves through periodic changes in volume from our largest
purchasing partners. These partners account for more than 65% of our total consumable sales volume. We expect these fluctuations
to continue as the ordering patterns and inventory levels of our largest bulk purchasing partners remain variable. 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.
Growth in Inventory
Our inventory has increased from $40.8 million as of December 31, 2016 to $49.5 million as of December 31, 2017, primarily
as the result of increases in systems and VERIGENE cassette inventory. Based upon the increased demand for our systems and
VERIGENE assays that we have experienced over the past twelve months, we are building both our finished good inventory and
parts and supplies inventory related to our systems and VERIGENE cassettes to be able to meet both expected and unanticipated
demand.
Future Operations
We expect our areas of focus over the next twelve months to be:
•
•
•
•
•
•
delivering on our revenue growth goals;
accelerating development and commercialization of the assays on our sample-to-answer diagnostics systems;
increasing the growth of our LTG business through enrichment of our existing partner relationships and the addition
of new partners;
completing development and commercializing the next generation system for VERIGENE, VERIGENE II;
improvement of ARIES® and VERIGENE gross margins;
placements of our VERIGENE and ARIES® systems, our sample-to-answer platforms and assays;
• maintenance and improvement of our existing products and the timely development, completion and successful
commercial launch of our pipeline products;
•
adoption and use of our platforms and consumables by our customers for their testing services;
44
•
expansion and enhancement of our installed base of systems and our market position within our identified target
market segments; and
• monitoring and mitigating the effect of the ongoing uncertainty in global finance markets and changes in
government funding on planned purchases by end users.
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 as a result of the timing
of development expenses, clinical validation and clinical trials in advance of the commercial launch of our new products.
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 U.S. 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.
Revenue Recognition. Revenue is generated primarily from the sale of our systems, consumables, assays 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 may enter into arrangements for system sales that are multiple-element arrangements, including services such as installation
and multiple products. When such arrangements include installation, no revenue is generally recognized until installation and
delivery is complete. When such arrangements include multiple products, all of the products are generally shipped at the same
time. As a result, we generally do not need to defer revenue for any undelivered elements. However, in situations where revenue
is deferred for an undelivered element, 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.
Within the diagnostic portion of our business, 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. All of these reagent rental agreements are operating leases.
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.
We adopted new revenue accounting guidance effective January 1, 2018, which will impact the amount and timing of our
future revenue recognition. For further discussion, see Note 17, “Recent Accounting Pronouncements”, in our consolidated financial
statements included in Part II, Item 8 of this Annual Report on Form 10-K.
45
Inventory. Inventories are valued at the lower of cost and net realizable value. Cost is determined according to the standard
cost method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. 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.
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, on October 1st of each year, 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. Since 2013, we have
estimated the fair value of our reporting unit using a “step one” analysis using a fair-value-based approach based on the market
capitalization or a discounted cash flow (DCF) analysis of our projected future results to determine if it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. 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 including, without limitation, use of estimates of future prices and volumes
for the Company’s products, capital needs, economic trends and other factors which are inherently difficult to forecast. Our annual
test, performed on the first day of the fourth quarter, did not result in an impairment charge for 2017 or 2016 as the estimated fair
value of our reporting unit exceeded 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 analysis.
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. The excess of financial reporting basis over tax basis of our foreign subsidiaries are considered permanently reinvested,
with the exception of the Canadian subsidiary. Accordingly, provision for withholding taxes on certain earnings has only been
provided for this subsidiary.
46
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 research tax credit incentives in the U.S. and Canada extended to taxpayers engaged in qualified research
and experimental activities while carrying on a trade or business.
Significant reform of the Internal Revenue Code was signed into legislation on December 22, 2017 pursuant to the Tax Cuts
and Jobs Act (“the Tax Act”). This legislation includes, among other things, changes to U.S. federal tax rates and the migration
from a “worldwide” system of taxation to a territorial system. However, U.S. tax reform modifications to the taxation of foreign
profits and changes to deductibility of U.S operational expenses will have an ongoing impact to the tax estimates in our financial
statements and may not be beneficial. Currently, there is substantial uncertainty regarding the interpretation and application of
the Tax Act. These uncertainties could materially impact our tax estimates reflected in the financial statements and could be adverse
in future years.
In addition, the Affordable Care Act includes tax-related provisions. Specifically, the law requires manufacturers, producers
and importers of medical devices to pay a 2.3% excise tax on U.S. sales of certain medical devices as of January 1, 2013. Our
products that have received FDA approval fall under the government classification and are subject to the excise tax. However, a
moratorium on the tax took effect on January 1, 2016 and has been extended through December 31, 2019.
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 of our stock options is estimated using the Black-Scholes option pricing model. The Black-Scholes valuation calculation
requires us to estimate key assumptions such as expected volatility, expected term and risk-free rate of return. Calculation of
expected volatility is based on historical volatility. The expected term is calculated using the contractual term of the options as
well as an analysis of our historical exercises of stock options. The estimate of the risk-free rate of return is based on the U.S.
Treasury yield curve in effect at the time of grant. The dividend yield is based on our history and expectation of dividend payouts
at the time of grant.
The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the
awards that are ultimately expected to vest. As part of the requirements of ASC 718 "Stock Compensation", the Company is
required to estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of
forfeitures is based on historical forfeiture performance and will be adjusted over the requisite service period to the extent that
actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through
a cumulative catch-up adjustment in the period of evaluation and will also impact the amount of stock compensation expense to
be recognized in future periods. Ultimately, the actual expense recognized over the vesting period will only be for those awards
that vest, except for the limited number of market based awards under long term incentive plans. If we use different assumptions
for estimating stock-based compensation expense in future periods or if actual forfeitures differ materially from our estimated
forfeitures, the change in our stock-based compensation expense could materially affect our operating income, net income and
net income per share.
47
Consolidated Results of Operations
The following table sets forth the percentage of total revenue of certain items in the Consolidated Results of Operations. The
financial information and the discussion below should be read in conjunction with the Consolidated Financial Statements and
Notes thereto.
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development expense
Selling, general and administrative expense
Amortization of acquired intangible assets
Restructuring
Total operating expenses
Income from operations
Interest expense from long-term debt
Other income, net
Settlement of litigation
Income taxes
Net income
Year Ended December 31,
2017
2016
2015
100 %
35 %
65 %
15 %
35 %
3 %
— %
53 %
12 %
— %
— %
— %
(3)%
10 %
100 %
34 %
66 %
18 %
37 %
3 %
1 %
59 %
8 %
— %
— %
— %
(2)%
5 %
100 %
29 %
71 %
18 %
36 %
2 %
— %
55 %
16 %
— %
— %
(2)%
2 %
16 %
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Income from operations
Net income
2017
$
$
$
$
$
306,571
199,046
65%
161,893
37,153
29,423
$
$
$
$
$
Variance
2016
(dollars in thousands)
270,639
179,655
35,932
19,391
$
$
66%
(1)%
158,669
20,986
13,814
$
$
$
3,224
16,167
15,609
Variance (%)
13%
11%
N/A
2%
77%
113%
Total revenue increased by 13% to $306.6 million for the year ended December 31, 2017 from $270.6 million in 2016. This
increase was driven primarily by the Acquisition on June 30, 2016, which contributed approximately 72% of the 13% increase
stemming from the full year of activity in 2017 versus a half a year of activity in 2016. The Acquisition's most significant revenue
contribution is with respect to the assay revenue component of our business.
48
A breakdown of revenue for the years ended December 31, 2017 and 2016 is as follows:
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2017
2016
(dollars in thousands)
Variance
Variance (%)
$
$
38,651
49,319
44,704
154,907
11,470
7,520
306,571
$
$
37,416
48,596
44,045
122,064
10,816
7,702
270,639
$
$
1,235
723
659
32,843
654
(182)
35,932
3 %
1 %
1 %
27 %
6 %
(2)%
13 %
We continue to have revenue concentration in a limited number of customers. In 2017, the top five customers, by revenue,
accounted for 48% of total revenue down from 49% of total revenue in 2016. In particular, our two largest customers by revenue
accounted for 35% of 2017 total revenue (20% and 15%, respectively) an increase from 33% of 2016 total revenue (20% and
13%, respectively). No other customer accounted for more than 10% of total revenue in 2017 or 2016.
Revenue from the sale of systems and peripheral components increased 3% to $38.7 million for the year ended December 31,
2017 from $37.4 million for the year ended December 31, 2016. This results primarily from the inclusion of a full year of
VERIGENE System sales in 2017, which accounted for more than 70% of the 3% increase, as well as a more favorable mix in
sales of multiplexing analyzers with fewer sales of LUMINEX 100/200 Systems in 2017 and by more sales of FLEXMAP 3D
Systems whose average sales price is higher than the LUMINEX 100/200 Systems. We sold 1,066 multiplexing analyzers in 2017,
as compared to 1,098 multiplexing analyzers sold in 2016, bringing total multiplexing analyzer shipments since inception to 14,848
as of December 31, 2017, some of which may be retired or otherwise not in use. For the year ended December 31, 2017, our five
highest selling partners accounted for 779 systems, or 73%, of total multiplexing analyzers sold, whereas, our five highest selling
partners in 2016 accounted for 776, or 68%, of total multiplexing analyzers sold.
Consumable sales, comprised of microspheres and sheath fluid, increased 1% to $49.3 million in 2017 from $48.6 million in
2016. During the year ended December 31, 2017, we had 70 bulk purchases of consumables totaling approximately $37.3 million
(76% of total consumable revenue), ranging from $0.1 million to $6.4 million, as compared with 78 bulk purchases totaling
approximately $37.5 million (77% of total consumable revenue) in the year ended December 31, 2016. The increase in non-bulk
purchases in 2017 is the primary driver to the increase in consumable revenue from the prior year. We expect fluctuations in
consumable sales on an ongoing basis. Partners who reported royalty-bearing sales accounted for $34.7 million, or 70%, of
consumable sales for the year ended December 31, 2017 compared to $33.3 million, or 68%, of the total consumable sales for the
year ended December 31, 2016.
Royalty revenue, which results when our partners sell products or testing services incorporating our technology, increased
1% to $44.7 million for the year ended December 31, 2017 from $44.0 million for the year ended December 31, 2016. This
increase is primarily the result of an increase in base royalties of $0.5 million, which we believe is mainly the result of menu
expansion and increased utilization of our partners’ assays on our technology. We expect modest fluctuations in the royalties
submitted quarter to quarter based upon the varying contractual terms, differing reporting and payment requirements, and the
addition of new partners. Our partners’ end user sales may reflect volatility from quarter to quarter and, therefore, that same
volatility is reflected in our reported royalty revenues on a quarterly basis.
49
Assay revenue increased 27% to $154.9 million for the year ended December 31, 2017 from $122.1 million for the year ended
December 31, 2016, primarily attributable to an increase in our sample-to-answer assay revenue, which consists of VERIGENE
and ARIES® assay sales, in addition to increased sales of our non-automated infectious disease testing assays. The increase in our
sample-to-answer assay revenue accounted for 80% of the 27% increase, driven primarily by the inclusion of a full year of
VERIGENE assay sales in 2017. Revenue for our non-automated infectious disease testing products increased by 15% while our
genetic testing assay products decreased by 15% from 2016. The decrease in revenue from our genetic testing products was
attributable to pricing and reimbursement challenges within the pharmacogenetic market segment and the departure of a significant
customer, causing us to shift our focus towards infectious disease testing. The VERIGENE assay revenue stream represents
approximately 25% of total assay revenue for the year ended December 31, 2017, and consisted primarily of our sample-to-answer
clinical tests. Our largest customer, by revenue, accounted for 38% of total assay revenue for the year ended December 31, 2017
compared to 43% for the year ended December 31, 2016. No other customer accounted for more than 10% of total assay revenue
during those periods. As previously disclosed, CF revenue from our largest assay customer, LabCorp, is expected to transition to
a competing technology. Based upon an extension agreement entered into in the third quarter of 2017, the Company will continue
to sell its CF products to LabCorp through the end of 2019. This represents approximately $10 million annually. As discussed in
the Overview and Risk Factor sections above, LabCorp has informed us that they plan on developing the next iteration of their
women's health portfolio with another party, which is currently expected to negatively impact our assay revenue in 2018.
Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract and time and materials
for billable service work not under an extended warranty contract, increased 6% to $11.5 million during 2017 from $10.8 million
in 2016. This increase is primarily attributable to the Acquisition and having a full year of service activity reflected in 2017. At
December 31, 2017, we had 1,989 Luminex systems covered under extended service agreements and $4.8 million in deferred
revenue related to those contracts. At December 31, 2016, we had 1,940 Luminex systems covered under extended service
agreements and $5.2 million in deferred revenue related to those contracts.
Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, amortized license fees, milestone
payments and revenue from agreements with U.S. government agencies, decreased to $7.5 million for the year ended December 31,
2017 compared to $7.7 million for the year ended December 31, 2016, primarily driven by a reduction in government contract
revenue. We expect this trend to continue in the near term as our focus has shifted away from government contract opportunities.
Gross Profit. Gross profit increased to $199.0 million for the year ended December 31, 2017, as compared to $179.7 million
for the year ended December 31, 2016. However, gross margin (gross profit as a percentage of total revenue) was 65% for the
year ended December 31, 2017, down from 66% for the year ended December 31, 2016. The decrease in gross margin percentage
is primarily attributable to the Acquisition. We expect the gross margins on the acquired portfolio to continue to negatively impact
our consolidated gross margins in the near term; however, we expect synergies realized from the Acquisition, fixed overhead
absorption benefit from increased sales volumes and the commercialization of the next generation VERIGENE System to increase
these gross margins in the longer term. Concentration of sales in our higher margin items (assays, consumables and royalties)
was 81% of revenue for the year ended December 31, 2017 compared to 79% for the year ended December 31, 2016. We anticipate
continued fluctuation in gross margin and related gross profit primarily as a result of variability in consumable and system purchases
and seasonality effects inherent in our assay revenue.
Research and Development Expense. Research and development expense decreased to $45.7 million, or 15% of total revenue,
for the year ended December 31, 2017 from $48.7 million, or 18% of total revenue, for the year ended December 31, 2016. The
decrease in research and development expense was primarily a result of savings from the reorganization in December 2016, which
was partially offset by a full year of Nanosphere related expenses in 2017. Research and development headcount as of December 31,
2017 was 175, as compared to 199 as of December 31, 2016. The focus of our research and development activities is the development
and commercialization of a pipeline of assays for the ARIES® System and the development and commercialization of the next
generation VERIGENE System, VERIGENE II, and assays.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of
acquired intangible assets, increased to $107.3 million for the year ended December 31, 2017 from $99.5 million for the year
ended December 31, 2016. The increase was primarily attributable to the inclusion of a full year of Nanosphere related expenses,
in addition to higher personnel costs, partially resulting from one-time employee separation costs. This was partially offset by
Acquisition-related transaction costs of $3.2 million incurred in 2016, which did not repeat in 2017. Selling, general and
administrative headcount at December 31, 2017 was 358, as compared to 364 at December 31, 2016. As a percentage of revenue,
selling, general and administrative expense, excluding the amortization of acquired intangible assets, declined to 35% for 2017
compared to 37% in 2016.
50
Reorganization costs. We recorded no reorganization charges in 2017 as compared with total pre-tax reorganization charges
of $2.5 million in 2016 pertaining to certain employee separation costs, of which $2.3 million was recorded to reorganization costs
in our operating expenses and $0.2 million to cost of revenue.
Other Income, net. We incurred $1.5 million in debt retirement fees in 2016 in connection with the payoff of Nanosphere's
debt following the Acquisition.
Income taxes. Our effective tax rate for the year ended December 31, 2017 was 21%, or $7.7 million, as compared to a an
effective tax rate of 30%, or $5.8 million, for the year ended December 31, 2016. Significant reform of the Internal Revenue Code
was enacted on December 22, 2017 pursuant to the Tax Cuts and Jobs Act ("the Tax Act"). The Tax Act includes, among other
things, changes to the U.S. federal tax rates and the migration from a worldwide system of taxation to a territorial system. The
incurred tax expense for 2017 is primarily driven by the impact of this tax legislation, offset by the valuation allowance release
on our Canadian deferred tax assets of $12.5 million in the third quarter of 2017. On December 22, 2017, Staff Accounting Bulletin
No. 118 (SAB 118) was issued to address the application of GAAP in situations when a registrant does not have the necessary
information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of the Tax Act. In accordance with SAB 118, the Company recorded provisional tax expense totaling $12.6
million, comprised of: (i) a transition tax of $6.7 million related to the Tax Act; (ii) a revaluation of deferred tax assets of $2.7
million based upon the future tax rates; and (iii) establishment of a deferred tax liability for withholding taxes related to our
Canadian entity based upon our change in reinvestment assertions of $3.2 million. Other rate impacts are due to the current rate
differential between the U.S. and Canada, our research credit benefit and valuation allowance releases on the deferred tax assets
of our Netherlands subsidiary and certain U.S. states. The tax expense for 2016 reflects increases for valuation allowances recorded
against U.S. research credits and Dutch net operating losses, in addition to non-deductible costs related to the Acquisition. These
tax expense increases were partially offset by tax benefits from not recording a valuation allowance on our Canadian deferred tax
assets generated in 2016, from generating new U.S. research credits in 2016, and from the inclusion of book losses for Nanosphere
in the U.S. federal consolidated income tax return.
We expect our worldwide mix of earnings will mainly be taxed in jurisdictions with a top statutory tax rate of 25% in the near
term. However, the Tax Act's modifications to the taxation of foreign profits and changes to deductibility of U.S. operational
expenses will have an ongoing impact to the tax estimates in our financial statements and may not be beneficial. As a result, we
expect our consolidated effective tax rate to be in the 25% to 35% range over the next several years, absent any other significant
discrete items. Currently there is substantial uncertainty regarding the interpretation and application of the Tax Act. These
uncertainties could materially impact our tax estimates reflected in the financial statements and could be adverse in future years.
We continue to assess our business model and its impact in various tax jurisdictions.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Income from operations
Net income
2016
$
$
$
$
$
270,639
179,655
66%
158,669
20,986
13,814
$
$
$
$
$
Variance
2015
(dollars in thousands)
237,708
168,707
32,931
10,948
$
$
71%
(5)%
131,350
37,357
36,861
$
$
$
27,319
(16,371)
(23,047)
Variance (%)
14 %
6 %
N/A
21 %
(44)%
(63)%
Total revenue increased by 14% to $270.6 million for the year ended December 31, 2016 from $237.7 million in 2015. This
increase was driven primarily by the Acquisition on June 30, 2016, which contributed approximately 51% of the 14% increase,
as well as by higher sales of assay, consumables and system revenue. The Acquisition's most significant revenue contribution is
with respect to the assay revenue component of our business.
51
A breakdown of revenue for the years ended December 31, 2016 and 2015 is as follows:
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2016
2015
(dollars in thousands)
Variance
Variance (%)
$
$
37,416
48,596
44,045
122,064
10,816
7,702
270,639
$
$
30,676
43,282
41,513
101,216
9,551
11,470
237,708
$
$
6,740
5,314
2,532
20,848
1,265
(3,768)
32,931
22 %
12 %
6 %
21 %
13 %
(33)%
14 %
In 2016, the top five customers, by revenue, accounted for 49% of total revenue down from 54% of total revenue in 2015.
In particular, our two largest customers by revenue accounted for 33% of 2016 total revenue (20% and 13%, respectively) down
from 37% of 2015 total revenue (24% and 13%, respectively). No other customer accounted for more than 10% of total revenue
in 2016 or 2015.
Revenue from the sale of systems and peripheral components increased 22% to $37.4 million for the year ended December
31, 2016 from $30.7 million for the year ended December 31, 2015, primarily due to the increase in the total multiplexing analyzer
placements, as well as due to the Acquisition, which accounted for 5% of the 22% increase. We sold 1,098 multiplexing analyzers
in 2016, as compared to 997 multiplexing analyzers sold in 2015, bringing total multiplexing analyzer shipments since inception
to 13,782 as of December 31, 2016. For the year ended December 31, 2016, our five highest selling partners accounted for 776,
or 68%, of total multiplexing analyzers sold, whereas our five highest selling partners in 2015 accounted for 769, or 77%, of total
multiplexing analyzers sold.
Consumable sales, comprised of microspheres and sheath fluid, increased 12.3% to $48.6 million during 2016 from $43.3
million in 2015. During the year ended December 31, 2016, we had 78 bulk purchases of consumables totaling approximately
$37.5 million (77% of total consumable revenue), ranging from $0.1 million to $3.4 million, as compared with 66 bulk purchases
totaling approximately $31.7 million (73% of total consumable revenue) in the year ended December 31, 2015. The increase in
bulk purchases in 2016 was the primary driver in the increase in consumable revenue from the year ended December 31, 2015.
Partners who reported royalty-bearing sales accounted for $33.3 million, or 68%, of consumable sales for the year ended December
31, 2016 compared to $30.1 million, or 70%, of the total consumable sales for the year ended December 31, 2015.
Royalty revenue, which results when our partners sell products or testing services incorporating our technology, increased
6% to $44.0 million for the year ended December 31, 2016 from $41.5 million for the year ended December 31, 2015. This increase
was primarily the result of an increase in base royalties of $2.0 million, which we believe was mainly the result of menu expansion
and increased utilization of our partners’ assays on our technology.
Assay revenue increased 21% to $122.1 million for the year ended December 31, 2016 from $101.2 million for the year
ended December 31, 2015. The increase in assay revenue was driven primarily by the Acquisition, which accounted for 14% of
the 21% increase, in addition to increased sales of infectious disease testing assays. Revenue for our primary assay portfolios
increased in infectious disease testing products by 32% while revenue from our genetic testing assay products decreased by 7%
from 2015. The decrease in revenue from our genetic testing portfolio was attributable to pricing and reimbursement challenges
within the pharmacogenetic market segment and the departure of a key customer, causing us to shift our focus towards infectious
disease testing. Additionally, infectious disease testing and genetic testing assay products represented 73% and 26%, respectively,
of total assay revenue in 2016, compared to 67% and 33%, respectively, in 2015. The acquired assay revenue for Nanosphere
represented approximately 14% of total assay revenue for the year ended December 31, 2016, and consisted primarily of infectious
disease testing assay products. Our largest customer, by revenue, accounted for 43% of total assay revenue for the year ended
December 31, 2016 compared to 52% for the year ended December 31, 2015. No other customer accounted for more than 10%
of total assay revenue during those periods.
52
Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract and time and
materials for billable service work not under an extended warranty contract, increased 13% to $10.8 million during 2016 from
$9.6 million in 2015. This increase was primarily attributed to increased penetration of the expanded installed base of systems, as
well as the Acquisition, which accounted for 6% of the 13% increase. At December 31, 2016, we had 1,940 Luminex systems
covered under extended service agreements and $5.2 million in deferred revenue related to those contracts. At December 31, 2015,
we had 1,682 Luminex systems covered under extended service agreements and $4.2 million in deferred revenue related to those
contracts.
Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, amortized license fees,
milestone payments from our development agreement with Merck and revenue from agreements with U.S. government agencies,
decreased to $7.7 million for the year ended December 31, 2016 compared to $11.5 million for the year ended December 31, 2015.
This decrease is primarily attributable to a decline of $2.4 million in government contract revenue, which ended in December
2016, as well as a decline of $1.0 million driven by a milestone payment received in 2015 from our development agreement with
Merck which did not repeat in 2016.
Gross Profit. Gross profit increased to $179.7 million for the year ended December 31, 2016, as compared to $168.7
million for the year ended December 31, 2015. However, gross margin (gross profit as a percentage of total revenue) was 66%
for the year ended December 31, 2016, down from the 71% for the year ended December 31, 2015. The decrease in gross margin
percentage was primarily attributed to the Acquisition, as Nanosphere has a portfolio with meaningfully lower gross margins than
the pre-existing Luminex business. We expect the gross margins on the acquired portfolio to continue to negatively impact our
consolidated gross margins in the near term; however, we expect synergies realized from the Acquisition, fixed overhead absorption
benefit from increased sales volumes and the commercialization of the next generation VERIGENE System to increase these gross
margins in the longer term. Concentration of sales in our higher margin items (assays, consumables and royalties) was 79% of
revenue for the year ended December 31, 2016 compared to 78% for the year ended December 31, 2015.
Research and Development Expense. Research and development expense increased to $48.7 million for the year ended
December 31, 2016 from $42.7 million for the year ended December 31, 2015, and represented 18% of total revenue for both
years. The increase in research and development expense was primarily the result of the addition of Nanosphere's expenses, as
well as higher outside service and personnel costs driven by the expansion of ARIES® assay research and clinical trials. Additionally,
research and development expenses included one-time employee separation costs associated with the reorganization undertaken
in December 2016 and increased material spending and activity associated with the ARIES® M1 System and LX200 product
refresh. Research and development headcount as of December 31, 2016 was 199, including 30 Nanosphere employees, as compared
to 186 as of December 31, 2015. The primary focus of our research and development activities was the development and
commercialization of a pipeline of assays for the ARIES® System and the development and commercialization of the next generation
system for VERIGENE. The majority of the savings anticipated as a result of our fourth quarter, 2016 reorganization are associated
with then current research and development expenses.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization
of acquired intangible assets, increased to $99.5 million for the year ended December 31, 2016 from $84.8 million for the year
ended December 31, 2015. The increase was primarily attributable to the addition of Nanosphere's expenses and Acquisition-
related transaction costs of $3.2 million, in addition to higher personnel costs, partially resulting from increased sales and marketing
headcount and marketing activities in support of the ARIES®
launch. This was partially offset by lower litigation expenditures in
2016 and favorable foreign exchange impacts as compared to 2015. Selling, general and administrative headcount at December
31, 2016 was 364, including 47 Nanosphere employees, as compared to 314 at December 31, 2015. As a percentage of revenue,
selling, general and administrative expense, excluding the amortization of acquired intangible assets, was 37% in 2016 compared
to 36% in 2015.
Reorganization costs. We recorded total pre-tax reorganization charges of $2.5 million in 2016 that pertained to certain
employee separation costs, of which $2.3 million was recorded to restructuring costs in our operating expenses and $0.2 million
to cost of revenue.
Other Income, net. Other income, net decreased to $0.1 million for the year ended December 31, 2016 from income of
$1.0 million for the year ended December 31, 2015. The decrease was primarily the result of the $1.5 million debt retirement fees
incurred in connection with the payoff of Nanosphere's debt in 2016.
53
Settlement of litigation. An expense of $7.1 million was recorded in the second quarter of 2015 associated with the
settlement of litigation with ENZO Life Sciences, Inc. (ENZO). The expense associated with the settlement was for partial
consideration of a license, dismissal of litigation, releases, and covenants granted by ENZO. In October 2015, Luminex settled a
lawsuit that we filed in 2013 against a third party alleging breach of contract and patent infringement in exchange for a $2.0 million
lump sum payment. We received the $2.0 million payment in October 2015 and recorded the settlement as non-operating other
revenue in the fourth quarter of 2015.
Income taxes. Our effective tax rate for the year ended December 31, 2016 was 30%, or $5.8 million, as compared to an
effective tax rate of negative 12%, or $3.8 million, for the year ended December 31, 2015. The tax expense for 2016 was primarily
driven by increases for valuation allowances recorded against U.S. research credits and Dutch net operating losses, in addition to
non-deductible costs related to the Acquisition. These tax expense increases were partially offset by tax benefits from not recording
a valuation allowance on our Canadian deferred tax assets generated in 2016, from generating new U.S. research credits in 2016,
and from the inclusion of book losses for Nanosphere in the U.S. federal consolidated income tax return. The favorable tax benefit
for 2015 reflects an income tax benefit recorded in the fourth quarter resulting from the partial release of the Canadian deferred
tax assets valuation allowance. Further release of the Canadian deferred tax assets valuation allowance will be contingent upon
future projections of profitability of our Canadian subsidiary.
Liquidity and Capital Resources
Cash and cash equivalents
December 31, 2017 December 31, 2016
(in thousands)
$
127,112
$
93,452
At December 31, 2017, we held cash, cash equivalents and long-term investments of $127.1 million and had working capital
of $179.4 million. At December 31, 2016, we held cash and cash equivalents of $93.5 million and had working capital of $133.5
million. Cash, cash equivalents and investments increased by $33.7 million during the year ended December 31, 2017. The
increase in cash and cash equivalents from the prior year is primarily attributable to operating cash flows of $57.4 million and
$4.3 million of proceeds from employee stock plans and exercises of stock options partially offset by purchases of property, plant
and equipment of $14.6 million and dividends of $7.9 million.
We have funded our operations to date primarily through cash generated from operations and the issuance of equity securities
(in conjunction with an initial public offering in 2000, subsequent option exercises, and our follow-on public offering in 2008). Our
cash reserves are held directly or indirectly in a variety of short-term, interest-bearing instruments, including non-government
sponsored debt securities. We do not have any investments in asset-backed commercial paper, auction rate securities, or mortgage
backed or sub-prime style investments.
Cash provided by operations was $57.4 million for the year ended December 31, 2017 as compared with cash provided by
operations of $49.7 million for the year ended December 31, 2016. Cash used in investing activities was $17.1 million for the
year ended December 31, 2017 a decrease from $62.9 million for 2016. The change in cash flows of investing activities from
2016 to 2017 was primarily attributable to the Acquisition. Currently, exclusive of changes in available-for-sale securities, we
expect cash used in investing activities to be primarily for purchases of property and equipment, additional cost-method investments
and continued strategic investments or acquisitions.
Cash used in financing activities decreased to $6.0 million for the year ended December 31, 2017, from cash used in financing
activities of $21.6 million for the year ended December 31, 2016. This change in cash flows used in financing activities was
primarily attributable to the retirement of Nanosphere's debt in 2016 and the payment of $7.9 million in dividends in 2017.
Our future capital requirements will depend on a number of factors, including our success in developing and expanding
markets for our products, payments under possible future strategic arrangements, continued progress of our research and
development of potential products, the timing and outcome of regulatory approvals, the need to acquire licenses to new technology,
costs associated with strategic acquisitions including integration costs and assumed liabilities, the status of competitive products
and potential costs associated with both protecting and defending our intellectual property. Additionally, actions taken as a result
of the ongoing internal evaluation of our business could result in expenditures not currently contemplated in our estimates for
2018.
54
One of our short term projects that is expected to require significant capital to complete is our current in-process research
and development of the next generation VERIGENE system, VERIGENE II, which we currently believe will start clinical trials
in 2018 and to be commercially launched in 2019. The estimated aggregate cost to complete this project, including completion
of development of the VERIGENE II System, cartridge, software and the initial assay, validation, verification, clinical trials and
regulatory submissions is between $6.0 million and $8.0 million and is included in our research and development budget for 2018
and 2019. We believe that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital equipment
requirements and other expected liquidity requirements for the coming twelve months. Factors that could affect our capital
requirements, in addition to those listed above, include, without limitation: (i) continued collections of accounts receivable
consistent with our historical experience; (ii) our ability to manage our inventory levels consistent with past practices; (iii) volatility
in our key partners' consumable purchasing patterns; (iv) execution of partnership agreements that include significant up
front license fees; (v) execution of our stock repurchase and dividend programs from time to time; and (vi) executing strategic
investment or acquisition agreements requiring significant cash consideration.
In February 2017, the Board of Directors initiated a cash dividend program under which the Company currently intends to
pay a regular quarterly cash dividend. The timing and amount of future dividends and stock repurchases will vary based on a
number of factors, including future capital requirements for strategic transactions, the availability of financing on acceptable
terms, debt service requirements, changes to applicable tax laws or corporate laws, changes to our business model and periodic
determination by our Board of Directors that cash dividends are in the best interests of stockholders and are in compliance with
applicable laws and agreements of the Company. On January 24, 2018, we announced that our Board declared a quarterly cash
dividend of $0.06 per share of common stock to be paid to shareholders of record as of the close of business on March 23, 2018
with a payment date of April 13, 2018.
As previously disclosed, the Company's largest customer, LabCorp, has informed us that they have elected to develop the
next iteration of one of their women's health products with another party. The transition time is significant and, as a result, we
have negotiated a significant minimum women's health purchases through June 2018. Pursuant to which, LabCorp has committed
to acquire no less than $63.1 million of our women's health products from January 1, 2017 through June 30, 2018, of which in
2017, LabCorp acquired approximately $36 million of our women's health products. In addition, based upon an extension agreement
entered into in the third quarter of 2017, the Company will continue to sell its CF products to LabCorp through the end of 2019.
Sales of CF products to LabCorp represents approximately $10 million annually.
We hold cash and cash equivalents at various foreign subsidiaries. As a result of reductions to the U.S. taxation of dividends
from foreign subsidiaries under the Tax Act and increased profitability of our Canadian subsidiary, in future years we may repatriate
earnings of our Canadian subsidiary. The cash and cash equivalents held by this subsidiary may be more readily available to meet
domestic cash requirements beginning in the next year, but will continue to be subject to foreign withholding tax that would be
incurred upon repatriation. We anticipate that cash and cash equivalents held by all other foreign subsidiaries will continue to be
permanently reinvested and may not be readily available to meet domestic cash requirements.
To the extent our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds
to continue the development and deployment of our technologies, or to supplement our position through strategic acquisitions.
There can be no assurance that debt or equity funds will be available on favorable terms, if at all. To the extent that additional
capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to
our stockholders. Moreover, incurring debt financing could result in a substantial portion of our operating cash flow being dedicated
to the payment of principal and interest on such indebtedness, could render us more vulnerable to competitive pressures and
economic downturns and could impose restrictions on our operations. If adequate funds are not available, we may be required to
curtail operations significantly or to obtain funds through entering into agreements on unattractive terms.
55
Contractual Obligations
As of December 31, 2017, we had approximately $34.0 million in non-cancellable obligations for the next 12 months. These
obligations are included in our estimated cash usage during 2018. The following table reflects our total current non-cancellable
obligations by period as of December 31, 2017 (in thousands):
Contractual Obligations
Non-cancellable rental obligations
Non-cancellable purchase obligations (1)
Capital lease obligations
Minimum royalty commitments (2)
Insurance premiums
Total (3)
Payment Due By Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
$
17,770
$
5,627
$
7,762
$
3,484
$
897
31,057
27,662
2,912
261
139
454
196
14
454
65
29
—
483
—
96
—
—
—
—
—
$
49,681
$
33,953
$
10,768
$
4,063
$
897
(1) Purchase obligations predominantly relate to contractual arrangements in the form of purchase orders primarily as a
result of normal inventory purchases or minimum payments due resulting when minimum purchase commitments are
not met, as well as other operating commitments.
(2) Amounts represent minimum royalties due on net sales of products incorporating licensed technology and subject to
a minimum annual royalty payment.
(3) Due to the uncertainty with respect to the timing of future cash flows associated with Luminex’s unrecognized tax
benefits at December 31, 2017, Luminex is unable to make reasonably reliable estimates of the timing of cash settlement
with the respective taxing authority. Therefore, $2.8 million of unrecognized tax benefits have been excluded from the
contractual obligations table above. See Note 11 to the Consolidated Financial Statements for a discussion on income
taxes.
Inflation
We do not believe that inflation has had a direct adverse effect on our operations to date. However, a substantial increase in
product and manufacturing costs and personnel related expenses could have an adverse impact on our results of operations in the
event these expenses increase at a faster pace than we can increase our system, consumable and royalty revenue rates.
Recently Adopted Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board (FASB) issued guidance regarding the measurement of inventory.
The guidance requires inventory to be measured at the lower of cost and net realizable value, which is defined as the estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We
adopted this standard during the quarter ended March 31, 2017, and its adoption did not have any impact on our consolidated
financial statements.
Recent Accounting Pronouncements
On January 10, 2018, the FASB issued guidance on the accounting for tax on the global intangible low-taxed income (GILTI)
provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treating
any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. Effective the
first quarter of 2018, we anticipate the Company will elect to treat any potential GILTI inclusions as a period cost.
In January 2017, the FASB issued guidance on intangibles, including goodwill, which simplifies how companies calculate
goodwill impairments by eliminating Step 2 of the impairment test. The guidance requires companies to compare the fair value
of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds
the reporting unit's fair value. The guidance is effective for annual periods beginning after December 15, 2019, and is applicable
for our financial statements in fiscal 2020. Early adoption is permitted. We do not anticipate that this guidance will have a material
impact on our consolidated financial statements.
56
In October 2016, the FASB issued guidance on income taxes which requires companies to recognize the income tax effects
of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in
the period in which the transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017. Early
adoption is permitted. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial position
and results of operations. We do not anticipate that this guidance will have a material impact on our consolidated financial
statements.
In August 2016, the FASB issued specific guidance on eight cash flow classification issues that are not currently addressed
by current GAAP and thereby reduce the current diversity in practice. This guidance is effective for annual periods beginning
after December 15, 2017. Early adoption is permitted. We are currently evaluating the impact of the adoption of this guidance
on its consolidated financial position and results of operations. We do not anticipate that this guidance will have a material impact
on our consolidated financial statements.
In February 2016, the FASB issued guidance requiring lessees to recognize a right-of-use asset and a lease liability on the
balance sheet for all leases with the exception of short-term leases. The effective date of the new guidance is for our first quarter
of fiscal 2019 and early adoption is permitted. The new standard must be adopted using a modified retrospective transition and
requires application of the new guidance at the beginning of the earliest comparative period presented. We are currently evaluating
the impact of the adoption of this requirement on our consolidated financial statements, but do not anticipate that adoption of this
guidance will have a material impact on our consolidated financial statements except for the addition of the right-of-use asset and
a lease liability to the balance sheet.
In January 2016, the FASB issued guidance that changes how entities measure equity investments that do not result in
consolidation and are not accounted for under the equity method. Entities will be required to measure these investments at fair
value at the end of each reporting period and recognize changes in fair value in net income. This guidance also changes certain
disclosure requirements and other aspects of current U.S. GAAP. This guidance is effective for annual periods beginning after
December 15, 2017. Early adoption is permitted. We not anticipate that adoption of this guidance will have a material impact on
our consolidated financial statements as the only potential impact would be related to our cost-method investments discussed in
Note 3 - Investments and Other Assets.
In May 2014, the FASB issued a new standard on revenue recognition which outlines a single comprehensive model to use
in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. In doing so, companies will need to use their judgment and make estimates
more extensively than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
separate performance obligation. The standard is designed to create greater comparability for financial statement users across
industries and jurisdictions and also requires enhanced disclosures. On July 9, 2015, the FASB voted in favor of delaying the
effective date of the new standard by one year, with early adoption permitted as of the original effective date. The guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The new standard permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective
method). We adopted the new standard effective January 1, 2018, using the modified retrospective approach. We have assessed
our various revenue streams to identify performance obligations under this guidance and the key aspects of the standard that will
impact our revenue recognition process. Based upon our assessment, these standards will impact the timing of the recognition of
our royalty revenue as we have historically waited until the partners have reported end user sales to recognize royalty revenue.
With the implementation of the standard, we will record a cumulative adjustment increasing retained earnings which is currently
estimated to be approximately $10.5 to $10.7 million of royalty revenue. After implementation, estimated royalty revenue will
be recorded each quarter on an accrual basis to more closely coincide with the timing of the end user sale by the partner; with
reconciliation made upon submission of the royalty report by the partner indicating actual royalties owed in the following quarter.
We anticipate this could contribute to an increase days sales outstanding by approximately 10 days solely as a result of the timing
of when revenue is recorded, not due to any changes in when payments are received. In addition, the Company will begin recording
the portion of reagent rental revenue associated with the recovery of the cost of providing the system and other hardware in reagent
rental agreements from assay revenue to system revenue effective January 1, 2018. This change will not have any impact on top
line revenue and we do not anticipate any material effects to our revenue categorization.
57
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. Our interest income is sensitive to changes in the general level of domestic interest rates, particularly since
our investments are in long-term instruments available-for-sale. A 50 basis point fluctuation from average investment returns at
December 31, 2017 would yield a less than 0.5% variance in overall investment return, which would not have a material adverse
effect on our financial condition.
Foreign Currency Risk. Our international business is subject to risks, including, but not limited to: foreign exchange rate
volatility, differing tax structures, unique economic conditions, other regulations and restrictions and changes in political
climate. Accordingly, our future results could be materially and adversely impacted by changes in these and other factors.
As of December 31, 2017, as a result of our foreign operations, we have costs, assets and liabilities that are denominated in
foreign currencies, primarily Canadian dollars and to a lesser extent the Euro, Renminbi and Yen. For example, some fixed asset
purchases and certain expenses are denominated in Canadian dollars while sales of products are primarily denominated in U.S.
dollars. All transactions in our Netherlands and Japanese subsidiaries are denominated in Euros and Yen, respectively. All
transactions, with the exception of our initial capital investment, in our Chinese subsidiary are denominated in Renminbi. As a
consequence, movements in exchange rates could cause our foreign currency denominated expenses to fluctuate as a percentage
of net revenue, affecting our profitability and cash flows. A significant majority of our revenues are denominated in U.S. dollars.
The impact of foreign exchange on foreign denominated balances will vary in relation to changes between the U.S. dollar, Canadian
dollar, Euro, Yen and Renminbi exchange rates. A 10% change in all of these exchange rates in relation to the U.S. dollar would
result in an income statement impact of approximately $1.2 million on foreign currency denominated asset and liability balances
as of December 31, 2017. As a result of our efforts to expand globally, in the future we will be exposed to additional foreign
currency risk in multiple currencies; however, at this time, our exposure to foreign currency fluctuations is not material. We
regularly assess the market to determine if additional strategies are appropriate to mitigate future risks.
In addition, the indirect effect of fluctuations in interest rates and foreign currency exchange rates could have a material
adverse effect on our business financial condition and results of operations. For example, currency exchange rate fluctuations
could affect international demand for our products. In addition, interest rate fluctuations could affect our customers’ buying patterns.
Furthermore, interest rate and currency exchange rate fluctuations may broadly influence the United States and foreign economies
resulting in a material adverse effect on our business, financial condition and results of operations. As a result, we cannot give
any assurance as to the effect that future changes in foreign currency rates will have on our consolidated financial position, results
of operations or cash flows. Our aggregate foreign currency transaction loss of $134,000 was included in determining our
consolidated results for the year ended December 31, 2017.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Stockholders’ Equity
Notes to Consolidated Financial Statements
PAGE
60
61
62
63
64
65
66
59
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Luminex Corporation
Opinion on Internal Control over Financial Reporting
We have audited Luminex Corporation’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Luminex Corporation (the Company) maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements
of comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December
31, 2017, and the related notes and our report dated February 26, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Austin, Texas
February 26, 2018
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Luminex Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Luminex Corporation (the “Company”) as of December 31,
2017 and 2016, the related consolidated statements of comprehensive income, changes in stockholders' equity and cash flows,
for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 26, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1998.
Austin, Texas
February 26, 2018
61
LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable (net of allowance for doubtful accounts of $1,345 and $419 at
December 31, 2017 and 2016, respectively)
Inventories, net
Prepaids and other
Total current assets
Property and equipment, net
Intangible assets, net
Deferred income taxes
Goodwill
Other
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Total current liabilities
Deferred revenue
Other
Total liabilities
Stockholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding:
43,404,493 shares at December 31, 2017; 42,802,480 shares at December 31, 2016
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and
outstanding
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
As of December 31,
2016
2017
$
127,112
$
93,452
40,648
49,478
7,403
224,641
58,258
75,985
37,552
85,481
8,599
490,516
14,537
25,990
4,721
45,248
1,498
5,863
52,609
$
$
32,365
40,775
7,145
173,737
57,375
84,841
42,497
85,481
6,785
450,716
12,276
22,804
5,120
40,200
1,875
4,962
47,037
43
43
—
350,834
(625)
87,655
437,907
490,516
$
—
336,430
(1,692)
68,898
403,679
450,716
$
$
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
62
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data)
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Amortization of acquired intangible assets
Restructuring costs
Total operating expenses
Income from operations
Other (expense) income, net
Debt prepayment penalty
Settlement of litigation, net
Income before income taxes
Income tax (expense) benefit
Net income
Net income attributable to common stock holders
Basic
Diluted
Net income per share attributable to common stock holders
Basic
Diluted
Weighted-average shares used in computing net income per share
Basic
Diluted
$
$
$
$
$
Year Ended December 31,
2016
270,639
90,984
179,655
2017
306,571
107,525
199,046
$
$
2015
237,708
69,001
168,707
45,717
107,322
8,854
—
161,893
37,153
(4)
—
—
37,149
(7,726)
29,423
28,894
28,894
0.67
0.67
43,173
43,300
$
$
$
$
48,659
99,511
8,218
2,281
158,669
20,986
129
(1,500)
—
19,615
(5,801)
13,814
13,814
13,814
0.32
0.32
42,584
43,013
$
$
$
$
42,690
84,760
3,900
—
131,350
37,357
987
—
(5,300)
33,044
3,817
36,861
36,861
36,861
0.88
0.86
42,091
42,637
Dividends declared per share
$
0.24
$
— $
—
Other comprehensive income:
Foreign currency translation adjustments
Unrealized gain (loss) on available-for-sale securities, net of tax
Other comprehensive income (loss)
Comprehensive income
1,067
—
1,067
30,490
$
(434)
38
(396)
13,418
$
(531)
(21)
(552)
36,309
$
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
63
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation
Deferred income tax (benefit) expense
Excess income tax benefit from employee stock-based awards
Loss on sale of assets
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories, net
Other assets
Accounts payable
Accrued liabilities
Dividends payable
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of available-for-sale securities
Sales and maturities of available-for-sale securities
Purchases of property and equipment
Business acquisition consideration, net of cash acquired
Issuance of note receivable
Purchase of cost-method investment
Proceeds from sale of assets and investments
Acquired technology rights
Net cash used in investing activities
Cash flows from financing activities:
Payments on debt
Proceeds from employee stock plans and issuance of common stock
Shares surrendered for tax withholdings
Excess income tax benefit from employee stock-based awards
Dividends paid
Net cash (used in) provided by financing activities
Effect of foreign currency exchange rate on cash
Change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
$
Year Ended December 31,
2016
2017
2015
$
29,423
$
13,814
$
36,861
22,641
12,478
6,383
—
964
1,531
(8,265)
(8,668)
(83)
1,798
(2,657)
2,671
(785)
57,431
—
—
(14,635)
—
(1,400)
(1,000)
62
(140)
(17,113)
—
4,305
(2,350)
—
(7,930)
(5,975)
(683)
33,660
93,452
127,112
$
20,131
11,821
3,626
—
265
(1,378)
1,136
(5,484)
1,811
3,460
198
—
281
49,681
—
19,491
(13,130)
(68,098)
—
(1,000)
45
(200)
(62,892)
(25,000)
5,089
(1,719)
—
—
(21,630)
(253)
(35,094)
128,546
93,452
$
13,744
10,855
(5,624)
(10)
385
(252)
(594)
5,476
(968)
(3,943)
1,879
—
(427)
57,382
(7,488)
4,000
(18,706)
—
—
—
893
(852)
(22,153)
—
3,118
(1,603)
10
—
1,525
98
36,852
91,694
128,546
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
64
LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Balance at December 31, 2014
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Tax benefits associated with options
Foreign currency translation
adjustments
Other
Balance at December 31, 2015
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Stock Comp ASU Tax Entry
Foreign currency translation
adjustments
Other
Balance at December 31, 2016
Exercise of stock options, net of
shares withheld for taxes
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Foreign currency translation
adjustments
Common Stock
Number of
Shares
41,805,962
128,751
Amount
$
300,733
—
79,135
—
—
—
—
42,314,581
178,111
$
228,480
—
81,308
—
—
—
—
42,802,480
$
163,579
345,978
—
92,456
—
—
Cash dividends declared on common
stock, $0.24 per share
Balance at December 31, 2017
—
43,404,493
$
42
—
—
—
—
—
—
—
—
42
—
—
—
—
—
—
—
—
42
—
1
—
—
—
—
—
43
(Accumulated
Deficit)
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
$
(744) $
—
Additional
Paid-In
Capital
309,424
1,878
$
(1,604)
10,827
1,122
—
10
—
—
—
—
(16)
—
—
321,657
3,303
$
$
(531)
(5)
(1,296) $
—
(1,718)
11,776
1,413
—
—
—
—
—
—
—
—
—
336,431
$
$
(434)
38
(1,692) $
2,684
(2,350)
12,409
1,591
—
—
—
—
—
—
Total
Stockholders'
Equity
319,994
1,878
$
(1,604)
10,827
1,122
36,861
(6)
(531)
(5)
368,536
3,303
$
(1,718)
11,776
1,413
13,814
6,951
(434)
38
403,679
$
2,684
(2,349)
12,409
1,591
29,423
11,272
—
—
—
—
36,861
—
—
—
48,133
—
—
—
—
13,814
6,951
—
—
68,898
—
—
—
—
29,423
—
1,067
—
1,067
69
350,834
$
$
—
(625) $
(10,666)
87,655
$
(10,597)
437,907
See the accompanying notes which are an integral part of these Consolidated Financial Statements.
65
LUMINEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Luminex Corporation, the “Company” or “Luminex,” develops, manufactures and sells proprietary biological testing
technologies and products with applications throughout the life sciences industries, including diagnostics, pharmaceutical and
research. These industries depend on a broad range of tests, called assays, to perform diagnostic testing and conduct life science
research. The Company established a position in several segments of the life sciences industries by developing and delivering
products that satisfy a variety of customer needs in specific market segments, including multiplexing, accuracy, precision,
sensitivity, specificity, reduction of labor and ability to test for proteins and nucleic acids. These needs are addressed by the
Company's proprietary technologies.
Multiplexing, the foundation of the Company, allows the end user in a laboratory to generate multiple laboratory results from
a single sample with a single assay. This is important because the Company's end user customers, which include laboratory
professionals performing discovery and research and 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. Until the availability of
multiplexing technology, the laboratory professional had to perform one assay at a time in a sequential manner, and if additional
testing was required on a sample, a second assay would be performed to generate the second result, and so on until all the necessary
tests were performed.
The Company primarily serves the diagnostics, pharmaceutical and research industries by marketing products, including the
Company's specific testing equipment and assays, to various types of testing laboratories. The Company has a large base of installed
systems that has grown primarily from the following:
•
placements made by customers within the Company's Licensed Technologies Group (LTG), previously referred to as
the Company's "Partner Business," which customers either:
•
•
license the Company's xMAP technology and develop products that incorporate the Company's xMAP
technology into products that they then sell to end users, or
purchase the Company's proprietary xMAP laboratory instrumentation and the Company's proprietary xMAP
microspheres and sell xMAP-based assay products and/or xMAP-based testing services, which run on the xMAP
instrumentation, and pay a royalty to the Company;
•
In addition, the Company utilizes a direct sales force that focuses on the sale of molecular diagnostic assays that run
on the Company's systems.
As of December 31, 2017, the Company had 73 strategic partners, 53 of which have released commercialized reagent-based
products utilizing the Company's technology. Luminex and these partners have sold approximately 14,848 xMAP-based instruments
in laboratories worldwide as of December 31, 2017. The Company's remaining partners are in various stages of development and
commercialization of products incorporating our technology.
A primary focus for the Company's growth is the development and sale of molecular diagnostic assays utilizing the Company's
proprietary MultiCode® and VERIGENE technologies for use on the Company's installed base of systems. The Company utilizes
a direct sales model for sales of these products, which is intended to take advantage of the Company's increasing installed base
of instruments. Luminex's assays are primarily focused on multiplexed applications for the human molecular clinical diagnostics
market. Luminex's assay products are currently focused on three segments of the molecular diagnostic testing market: human
genetics, personalized medicine and infectious disease.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated upon consolidation.
66
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts and results
could differ from those estimates, and such differences could be material to the financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and highly liquid investments with original maturities of three months or
less when purchased.
Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase
and reevaluates such determinations at each balance sheet date. Marketable securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains
and losses recognized in earnings. Debt securities are classified as held-to-maturity when the Company has the positive intent
and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates fair
value of these investments. Debt securities for which the Company does not have the intent or ability to hold to maturity are
classified as available-for-sale. Debt and marketable equity securities not classified as held-to-maturity or as trading are classified
as available-for-sale, and are carried at fair market value, with the unrealized gains and losses included in the determination of
comprehensive income and reported in stockholders’ equity. Marketable securities are recorded as either short-term or long-term
on the balance sheet based on contractual maturity date. The fair value of all securities is determined by obtaining non-binding
market prices from the Company's third-party portfolio managers on the last day of the quarter, whose sources may use quoted
prices in active markets for identical assets or inputs other than quoted prices that are observable either directly or indirectly in
determining fair value. Declines in fair value below the Company’s carrying value deemed to be other than temporary are charged
against net earnings.
Fair Value of Financial Instruments
The fair values of financial instruments are determined by obtaining non-binding market prices from the Company's third-
party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets
or inputs other than quoted prices that are observable either directly or indirectly in determining fair value. The Company’s financial
instruments include cash and cash equivalents, short-term investments, accounts receivable, cost-method investments, long-term
investments, accounts payable and accrued liabilities. The fair values of these financial instruments were not materially different
from their carrying or contract values at December 31, 2017 and 2016. See Note 6 for further details concerning fair value
measurements.
67
Supplemental Cash Flow Statement Information (in thousands)
Cash paid during the period for taxes
Cash (received) paid during the period for interest and penalties
Cash paid during the period for Nanosphere debt interest
Cash paid during the period for Nanosphere debt prepayment penalty
Effect of acquisitions:
Fair value of tangible assets acquired
Liabilities assumed
Cost in excess of fair value of assets acquired
Acquired identifiable intangible assets
Deferred tax assets, net
In-process research and development
Total purchase price
Less cash and cash equivalents acquired
Net cash paid for business acquisition
Concentration of Credit Risk
Year Ended December 31,
2016
2017
2015
$
$
$
1,393
57
—
—
$
385
(3)
391
1,500
—
—
—
—
—
—
—
—
— $
34,372
(25,391)
35,862
27,595
6,989
12,982
92,409
24,311
68,098
$
578
96
—
—
—
—
—
—
—
—
—
—
—
Financial instruments which potentially subject the Company to concentrations of credit risk consist of short-term and long-
term investments and trade receivables. The Company’s short-term investments consist of investments in high credit quality
financial institutions, non-government sponsored debt securities and corporate issuers.
The Company provides credit, in the normal course of business, to a number of its customers geographically dispersed primarily
throughout the U.S. The Company attempts to limit its credit risk by performing ongoing credit evaluations of its customers and
maintaining adequate allowances for potential credit losses, but the Company does not require collateral.
Laboratory Corporation of America (LabCorp) accounted for 20%, 20% and 24% of our total revenues in 2017, 2016 and
2015, respectively. Thermo Fisher Scientific Inc. accounted for 15%, 13% and 13% of our total revenues in 2017, 2016 and 2015,
respectively. No other customer accounted for more than 10% of our total revenues in 2017, 2016 or 2015.
Inventories
Inventories, consisting primarily of raw materials and purchased components, are stated at the lower of cost or net realizable
value, with cost determined according to the standard cost method, which approximates the first-in, first-out method. Net realizable
value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion,
disposal and transportation. As a developer and manufacturer of high technology medical equipment, the Company may be exposed
to a number of economic and industry factors that could result in portions of inventory becoming either obsolete or in excess of
anticipated usage. These factors include, but are not limited to, technological changes in the Company's markets, ability to meet
changing customer requirements, competitive pressures on products and prices, and reliability and replacement of and the
availability of key components from suppliers. The Company's policy is to establish inventory reserves when conditions exist that
suggest that inventory may be in excess of anticipated demand or is obsolete based upon the Company's assumptions about future
demand for products and market conditions. The Company regularly evaluates the ability to realize the value of inventory based
on a combination of factors including the following: historical usage rates, forecasted sales or usage, product expiration or end of
life dates, estimated current and future market values and new product introductions. Assumptions used in determining the
Company's estimates of future product demand may prove to be incorrect, in which case the provision required for excess and
obsolete inventory would have to be adjusted. If inventory is determined to be overvalued, excess or obsolete, the Company would
be required to record impairment charges within cost of goods sold at the time of such determination. Although considerable effort
is made to ensure the accuracy of forecasts of future product demand, any significant unanticipated changes in demand or expected
usage could have a significant negative impact on the value of inventory and the Company's operating results. When recorded,
reserves are intended to reduce the carrying value of inventory to its net realizable value.
68
Property and Equipment
Property and equipment are carried at cost less accumulated amounts for amortization and depreciation. Property and equipment
are typically amortized or depreciated on a straight-line basis over the useful lives of the assets, which typically range from two
to seven years. Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over the shorter
of the remaining term of the lease or the estimated useful life of the improvements and equipment. The Company classifies the
carrying value of Luminex xMAP, ARIES® and VERIGENE Systems placed within the reagent rental program and the instruments
on loan to customers in property and equipment as "Assets on loan/rental."
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost over the fair value of the assets of the acquired business. In accordance with
Accounting Standards Codification (ASC) 350 “Goodwill and Other” (ASC 350), goodwill is reviewed for impairment at least
annually at the beginning of the fourth quarter, or more frequently if impairment indicators arise, using a two-step impairment
process tested at our sole reporting unit level. Events or circumstances that could trigger an impairment test include, but are not
limited to, a significant adverse change in the business climate, significant changes in our use of the acquired assets, significant
negative industry or economic trends, significant under-performance relative to operating performance indicators and significant
changes in competition. The Company determined that no triggering events occurred during the year ended December 31, 2017.
In 2017 and 2016, the Company estimated the fair value of the reporting unit using a fair-value-based approach based on the
market capitalization. Determining the fair value of goodwill is subjective in nature and often involves the use of estimates and
assumptions including, without limitation, use of estimates of future prices and volumes for the Company’s products, capital
needs, economic trends and other factors which are inherently difficult to forecast. The Company's annual test did not result in
an impairment charge in 2017, as the estimated fair value of the reporting unit continued to exceed the carrying value by a significant
enough amount such 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. No goodwill impairments were recorded in 2017, 2016 or 2015.
Intangible assets are amortized on a straight-line basis over their respective estimated useful lives ranging from 9 to 15 years.
Any in-process research and development will be an indefinite-lived intangible asset until completion or abandonment, at which
point it will be accounted for as a finite-lived intangible asset or written off if abandoned.
Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances
indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the
projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives
against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of
those assets and is recorded in the period in which the determination was made.
Revenue Recognition and Allowance for Doubtful Accounts
Revenue is generated primarily from the sale of the Company’s products and related services, which are primarily support
and maintenance services on the Company's systems. The Company recognizes 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 the Company’s 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.
The Company may enter into arrangements for system sales that are multiple-element arrangements, including services such
as installation and multiple products. When such arrangements include installation, no revenue is generally recognized until
installation and delivery is complete. When such arrangements include multiple products, all of the products are generally shipped
at the same time. As a result, the Company generally does not need to defer revenue for any undelivered elements. However, in
situations where revenue is deferred for an undelivered element, the Company has 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.
69
The Company provides 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, the Company recovers the cost of providing the system and other
hardware in the amount charged for 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. The Company
may also be entitled to milestone payments that are contingent upon achieving a predefined objective. The Company follows 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 are 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.
The Company continuously monitors collections and payments from its customers and maintains allowances for doubtful
accounts based upon its historical experience and any specific customer collection issues that have been identified. While such
credit losses have historically been within the Company’s expectations, there can be no assurance that the Company will continue
to experience the same level of credit losses that it has in the past. A significant change in the liquidity or financial position of any
one of the Company’s significant customers, or a deterioration in the economic environment in general, could have a material
adverse impact on the collectability of the Company’s accounts receivable and its future operating results, including a reduction
in future revenues and additional allowances for doubtful accounts.
We adopted new revenue accounting guidance effective January 1, 2018, which will impact the amount and timing of our
future revenue recognition. For further discussion, see Note 17, “Recent Accounting Pronouncements”.
Product-Related Expenses
The Company provides for the estimated cost of initial product warranties at the time revenue is recognized. While the
Company engages in product quality programs and processes, the Company’s warranty obligation is affected by product failure
rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from the Company’s estimates, revisions to the estimated warranty liability would be
required. Shipping and handling costs associated with product sales are included in cost of sales. Advertising costs are charged
to operations as incurred. The Company does not have any direct-response advertising. Advertising expenses, which include
trade shows and conventions, were approximately $2.4 million, $2.2 million and $2.3 million for 2017, 2016 and 2015, respectively,
and were included in selling, general and administrative expense in the Consolidated Statements of Comprehensive Income.
Research and Development Costs
Research and development costs are expensed in the period incurred. Nonrefundable advance payments for research and
development activities for materials, equipment, facilities and purchased intangible assets that have an alternative future use are
deferred and capitalized. In addition, the Company capitalizes certain internally developed products used for evaluation during
development projects that also have alternative future uses. These internally developed assets are generally depreciated on a
straight-line basis over the useful life of the assets, which range from one to five years.
70
Foreign Currency Translation
The financial statements of the Company’s foreign subsidiaries are translated in accordance with ASC 830, “Foreign Currency
Matters.” The reporting currency for the Company is the U.S. dollar. With the exception of its Canadian subsidiary, whose functional
currency is the U.S. dollar, the functional currency of the Company’s foreign subsidiaries is their local currency. Accordingly,
assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each balance sheet date. Before translation,
the Company re-measures foreign currency denominated assets and liabilities, including inter-company accounts receivable and
payable, into the functional currency of the respective entity, resulting in unrealized gains or losses recorded in selling, general
and administrative expenses in the Consolidated Statement of Comprehensive Income. Revenues and expenses are translated
using average exchange rates during the respective period. Foreign currency translation adjustments are accumulated as a
component of other comprehensive income as a separate component of stockholders’ equity. Gains and losses arising from
transactions denominated in foreign currencies are included in selling, general and administrative expenses in the Consolidated
Statement of Comprehensive Income and to date have not been material.
Incentive Compensation
Management incentive plans are tied to various financial and non-financial performance metrics. Bonus accruals made
throughout the year related to the various incentive plans are based on management’s best estimate of the achievement of the
specific metrics. Adjustments to the accruals are made on a quarterly basis as forecasts of performance are updated. At year-end,
the accruals are adjusted to reflect the actual results achieved.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted
tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period of the enactment date. A
valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that those
assets will be realized.
The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting
for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s financial
statements only if that position is more likely than not of being 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 as a component of
income tax expense.
Earnings Per Share
Basic net income per share is computed by dividing the net income for the period by the weighted average number of common
shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the
weighted average number of common shares and potential common shares from outstanding stock options, restricted stock units
(RSUs) and contingently issuable shares resulting from an award subject to performance or market conditions determined by
applying the treasury stock method. In periods with a net loss, potentially dilutive securities composed of incremental common
shares issuable upon the exercise of stock options and warrants, and common shares issuable on conversion of preferred stock,
would be excluded from historical diluted loss per share because of their anti-dilutive effect.
Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement
provisions of ASC 718 “Stock Compensation” (ASC 718). ASC 718 requires the recognition of compensation expense, using a
fair-value based method, for costs related to all share-based payments including stock options, restricted stock units and shares
issued under the Company’s employee stock purchase plan. Pursuant to ASC 718, stock-based compensation cost is measured at
the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.
71
NOTE 2 — REORGANIZATION
Following the acquisition of Nanosphere, Inc. (Nanosphere), and to better focus on the Company's core business, the Company
conducted a reorganization in December 2016. The reorganization included a headcount reduction of approximately 40 people,
a reallocation of responsibilities within the research and development organization and a significant reduction of biodefense efforts.
The Company measured and accrued the liabilities associated with employee separation costs at fair value as of the date the plan
was announced and terminations were communicated to employees, which primarily included severance pay and other separation
costs such as outplacement services and benefits. As a result of the organizational change, the Company eliminated approximately
4% of its aggregate workforce. The Company recognized a charge of approximately $2.5 million in the fourth quarter of 2016 in
conjunction with these activities.
Rollforward of Accrued Reorganization (in thousands)
December 31, 2017
Balance at beginning of year
Total reorganization charges
Employee separation payments
Balance at end of period
$
$
1,471
—
(1,471)
—
The reorganization accrual balance was paid in January 2017. As such, there is no remaining liability within accrued
liabilities on the consolidated balance sheet as of December 31, 2017.
NOTE 3 – INVESTMENTS AND OTHER ASSETS
Marketable Securities
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase
and re-evaluates such determinations at each balance sheet date. Marketable securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains
and losses recognized in earnings. Debt securities are classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates the fair value
of these investments. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified
as available-for-sale. Debt and marketable equity securities not classified as held-to-maturity or as trading are classified as available-
for-sale, and are carried at fair market value, with the unrealized gains and losses included in the determination of comprehensive
income and reported in stockholders’ equity. As of December 31, 2017 and December 31, 2016, all of the Company’s marketable
securities were classified as available-for-sale. Marketable securities are recorded as either short-term or long-term on the balance
sheet based on the contractual maturity date. The fair value of all securities is determined by quoted market prices, market interest
rate inputs, or other than quoted prices that are observable either directly or indirectly (as of the end of the reporting period).
Declines in fair value below the Company’s carrying value deemed to be other than temporary are charged against net earnings.
As of December 31, 2017, the Company had no short or long term investments, since those funds were used to pay for a portion
of the acquisition of Nanosphere.
Available-for-sale securities consisted of the following as of December 31, 2017 (in thousands):
Current:
Money Market funds
Total current securities
Noncurrent:
Total noncurrent securities
Total available-for-sale securities
Amortized Cost
Gains in
Accumulated Other
Comprehensive
Income (Loss)
Losses in
Accumulated Other
Comprehensive
Income (Loss)
Estimated Fair Value
$
$
701
701
—
701
$
$
— $
—
—
— $
— $
—
—
— $
701
701
—
701
72
Available-for-sale securities consisted of the following as of December 31, 2016 (in thousands):
Current:
Cash equivalents
Total current securities
Noncurrent:
Total noncurrent securities
Total available-for-sale securities
Amortized Cost
Gains in
Accumulated Other
Comprehensive
Income (Loss)
Losses in
Accumulated Other
Comprehensive
Income (Loss)
Estimated Fair Value
$
$
701
701
—
701
$
$
— $
—
—
— $
— $
—
—
— $
701
701
—
701
There were no proceeds from the sales of available-for-sale securities for the year ended December 31, 2017. There were
$19.5 million in proceeds from the sales of available-for-sale securities during the year ended December 31, 2016, which were
used to partially fund the acquisition of Nanosphere. Realized gains and losses on sales of investments are determined using the
specific identification method and are included in other income (expense) in the Consolidated Statement of Comprehensive
Income. Net unrealized holding losses on available-for-sale securities were included in accumulated other comprehensive
income (loss) as of December 31, 2016. There were no available-for-sale debt securities as of December 31, 2017. All of the
Company's available-for-sale securities with gross unrealized losses as of December 31, 2016 had been in a loss position for
less than 12 months.
Non-Marketable Securities and Other-Than-Temporary Impairment
During each of the years ended December 31, 2017 and December 31, 2016, the Company made a $1.0 million minority
interest investment (an aggregate of $2.0 million) in a private company based in the U.S. that is focused on development of next
generation technologies. This minority interest is included at cost in other long-term assets on the Company’s Consolidated Balance
Sheets as the Company does not have significant influence over the investee since the Company owns less than 20% of the voting
equity in the investee and the investee is not publicly traded. Although we may invest further in this entity over the course of the
next several quarters, we do not anticipate our ownership interest to exceed 20% in the short term. During the year ended
December 31, 2017, the Company also entered into a $1.4 million promissory note with the private company, for which it owns
an aggregate of $2.0 million interest. The promissory note is payable at the annual interest rate of 1.95%, with a maturity date of
five years from the date of issuance.
The Company owns a minority interest in another private company based in the U.S. through its investment of $1.0 million
in the third quarter of 2012. This minority interest is included at cost in other long-term assets on the Company’s Consolidated
Balance Sheets as the Company does not have significant influence over the investee, as the Company owns less than 20% of the
voting equity and the investee is not publicly traded.
The Company regularly evaluates the carrying value of cost-method investments for impairment and whether any events or
circumstances are identified that would significantly harm the fair value of the investments. The primary indicators the Company
utilizes to identify these events and circumstances are the investee's ability to remain in business, such as the investee's liquidity
and rate of cash use, and the investee’s ability to secure additional funding and the value of that additional funding. In the event
a decline in fair value is judged to be other-than-temporary, the Company will record an other-than-temporary impairment charge
in other income, net in the Consolidated Statements of Operations. As the inputs utilized for the Company's periodic impairment
assessment are not based on observable market data, these cost-method investments are classified within Level 3 of the fair value
hierarchy. To determine the fair value of these investments, the Company uses all available financial information related to the
entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, a
cost-method investment's fair value is not estimated as there are no identified events or changes in the circumstances that may
have a significant adverse effect on the fair value of the investment and to do so would be impractical.
73
Other long-term assets consisted of the following at December 31 (in thousands):
Purchased technology rights (net of accumulated amortization of $7,012 and $6,453 in 2017 and
2016, respectively)
Cost-method investments
Notes receivable (1)
Other
2017
2016
$
$
3,149
3,000
1,400
1,050
8,599
$
$
3,567
2,000
—
1,218
6,785
(1) During the year ended December 31, 2017, the Company entered into a promissory note with a private company, for which it owns an aggregate
of $2.0 million interest. The promissory note is payable at the annual interest rate of 1.95%, with a maturity date of five years from the date of
issuance.
For the years ended December 31, 2017 and 2016, the Company recognized amortization expense related to the amortization
of purchased technology rights of approximately $559,000 and $394,000, respectively. Future amortization expense is estimated
to be $430,000 in 2018, $418,000 in 2019, $318,000 in 2020, $285,000 in 2021, $268,000 in 2022 and $1,430,000 thereafter.
NOTE 4 — ACCOUNTS RECEIVABLE AND RESERVES
The Company records an allowance for doubtful accounts based upon a specific review of all outstanding invoices, known
collection issues and historical experience. The Company regularly evaluates the collectability of its trade accounts receivables
and performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and its assessment
of the customer’s current creditworthiness. These estimates are based on specific facts and circumstances of particular orders,
analysis of credit memo data and other known factors. Accounts receivable consisted of the following at December 31 (in
thousands):
2017
2016
Accounts receivable
Accounts receivable acquired through the Nanosphere acquisition
Less: Allowance for doubtful accounts
$
$
41,993
—
(1,345)
40,648
The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Balance at December 31, 2014
Recoveries charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2015
Increases charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2016
Increases charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2017
$
$
$
$
$
$
28,181
4,603
(419)
32,365
4,357
456
(4,609)
204
320
(105)
419
1,312
(386)
1,345
74
NOTE 5 — INVENTORIES, NET
Inventories consisted of the following at December 31 (in thousands):
Parts and supplies
Work-in-progress
Finished goods
2017
2016
$
$
29,266
8,712
11,500
49,478
$
$
22,960
6,268
11,547
40,775
The Company has non-cancellable purchase commitments with certain of its component suppliers in the amount of
approximately $31.1 million at December 31, 2017. Should production requirements fall below the level of the Company’s
commitments, the Company could be required to take delivery of inventory for which it has no immediate need or incur an increased
cost per unit going forward.
NOTE 6 — FAIR VALUE MEASUREMENT
ASC 820 "Fair Value Measurement" (ASC 820) defines fair value, establishes a framework for measuring fair value under
U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value
hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered
observable and the last unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets
or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its
third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical
assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in
determining fair value. There were no transfers between Level 1, Level 2 or Level 3 measurements for the year ended December 31,
2017.
The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value
on a recurring basis as of December 31, 2017 and 2016 (in thousands):
Assets:
Money Market funds
Assets:
Money Market funds
Fair Value Measurements at December 31, 2017
Total
Level 1
Level 3
Level 2
$
701
$
— $
— $
701
Fair Value Measurements at December 31, 2016
Total
Level 1
Level 3
Level 2
$
701
$
— $
— $
701
75
NOTE 7 — PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31 (in thousands):
Laboratory equipment
Leasehold improvements
Computer equipment
Purchased software
Furniture and fixtures
Assets on loan/rental
Capital lease equipment
Less: Accumulated depreciation
2017
2016
$
$
52,498
37,155
3,174
22,056
5,842
15,741
962
137,428
(79,170)
58,258
$
$
48,334
34,660
3,672
22,009
5,242
12,517
1,321
127,755
(70,380)
57,375
Depreciation expense was $13.2 million, $11.5 million, and $9.4 million for the years ended December 31, 2017, 2016, and
2015, respectively.
NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill during the period are as follows (in thousands):
Balance at beginning of year
Acquisition of Nanosphere
Balance at end of year
2017
2016
$
$
85,481
—
85,481
$
$
49,619
35,862
85,481
76
The Company's goodwill is not expected to be deductible for tax purposes. The Company’s intangible assets are reflected
in the table below (in thousands, except weighted average lives):
Definite-lived
Indefinite-lived
Technology,
trade secrets
and know-how
Customer
lists and
contracts
Other
identifiable
intangible assets
IP R&D
Total
2016
Balance at December 31, 2015
Completion of IP R&D projects
Balance at December 31, 2016
Less: accumulated amortization:
Accumulated amortization balance at
December 31, 2015
Amortization expense
Accumulated amortization balance at
December 31, 2016
Net balance at December 31, 2016
Weighted average life (in years)
2017
Balance at December 31, 2016
Balance at December 31, 2017
Less: accumulated amortization:
Accumulated amortization balance at
December 31, 2016
Amortization expense
Accumulated amortization balance at
December 31, 2017
Net balance at December 31, 2017
Weighted average life (in years)
$
$
69,102
12,283
81,385
7,797
11,300
19,097
(21,646)
(6,491)
(3,667)
(1,371)
1,652
4,012
5,664
(756)
(356)
(28,137)
53,248
10
$
(5,038)
14,059
10
$
(1,112)
4,552
10
$
—
12,982
12,982
78,551
40,577
119,128
— (26,069)
(8,218)
—
— (34,287)
$ 84,841
12,982
81,385
81,385
19,097
19,097
5,664
5,664
12,982
12,982
119,128
119,128
(28,137)
(6,277)
(5,038)
(1,999)
(34,414)
$
46,971
11
(7,037)
12,060
10
$
(1,112)
(580)
(1,692)
3,972
10
$
— (34,287)
(8,856)
—
— (43,143)
$ 75,985
12,982
The in-process research and development project is the development of the next generation VERIGENE system, VERIGENE
II, which we currently believe will start clinical trials in 2018 and be commercially launched in 2019. The estimated costs to
complete this project are between $6.0 million and $8.0 million.
The estimated aggregate amortization expense for the next five years and thereafter is as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
IPR&D
$
$
$
8,666
8,666
8,666
8,307
7,060
21,638
63,003
12,982
75,985
77
NOTE 9 — OTHER COMPREHENSIVE (LOSS) INCOME
Comprehensive (loss) income represents a measure of all changes in equity that result from recognized transactions and other
economic events other than those resulting from investments by and distributions to shareholders. Other comprehensive (loss)
income for the Company includes foreign currency translation adjustments and net unrealized holding gains and losses on available-
for-sale investments.
The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax
(in thousands):
Balance at December 31, 2016
Other comprehensive loss before reclassifications
Net current-period other comprehensive loss
Balance at December 31, 2017
Foreign
Currency
Items
Available for
Sale
Investments
Accumulated
Other
Comprehensive
Income Items
$
$
(1,692) $
1,067
1,067
(625) $
— $
—
—
— $
(1,692)
1,067
1,067
(625)
There are no tax benefits or expenses related to the other comprehensive loss for the twelve months ended
December 31, 2017.
NOTE 10 — ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31 (in thousands):
Compensation and employee benefits
Income and other taxes
Warranty costs
Dividends payable
Other
2017
2016
$
18,218
$
17,229
1,070
1,308
2,671
2,723
816
675
—
4,084
$
25,990
$
22,804
Sales of certain of the Company’s systems are subject to a warranty. System warranties typically extend for a period of twelve
months from the date of installation or no more than 15 months from the date of shipment. The Company estimates the amount
of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could
differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted
periodically.
78
The following table summarizes the changes in the warranty accrual (in thousands):
Accrued warranty costs at December 31, 2014
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2015
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2016
Warranty expenses
Accrual for warranty costs
Accrued warranty costs at December 31, 2017
NOTE 11 — INCOME TAXES
$
$
488
(859)
924
553
(1,322)
1,444
675
(2,049)
2,682
1,308
The components of income before income taxes for the years ended December 31 are as follows (in thousands):
Domestic
Foreign
Total
2017
2016
2015
$
$
18,436
18,713
37,149
$
$
2,281
17,334
19,615
$
$
7,472
25,572
33,044
The components of the (benefit) provision for income taxes attributable to continuing operations for the years ended December
31 are as follows (in thousands):
Current:
Federal
Foreign
State
Total current
Deferred:
Federal
Foreign
State
Total deferred
Total (benefit) provision for income taxes
2017
2016
2015
$
$
$
3,149
295
883
4,327
14,970
(9,267)
(2,304)
3,399
7,726
$
$
$
1,545
204
449
2,198
(215)
3,813
5
3,603
5,801
$
$
$
490
174
58
722
(13)
(4,422)
(104)
(4,539)
(3,817)
The Tax Cuts and Jobs Act (the Tax Act) was enacted on December 22, 2017 making significant reforms to the Internal
Revenue Code. The reforms include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years
beginning after December 31, 2017, transition of U.S. international taxation from a worldwide tax system to a territorial system,
and a mandatory one-time transition tax on the deemed repatriation of cumulative foreign earnings as of December 31, 2017. On
December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the implication of US GAAP in situations
when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable
detail to complete the accounting for certain income tax effects of the Act and provides a one-year measurement period to complete
the accounting required under ASC 740.
79
In accordance with SAB 118, the Company has calculated its best estimate of the impact of the Tax Act in its year end income
tax provision based on its understanding of the Tax Act and guidance available and as a result has recorded $12.6 million as an
additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional
amount related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to
reverse in the future was $2.7 million. The provisional amount related to the one-time transition tax on the mandatory deemed
repatriation of foreign earnings was $6.7 million. The provisional amount related to withholding taxes on the undistributed earnings
of our Canadian subsidiary, as these amounts are no longer permanently reinvested, was $3.2 million. Additional work is necessary
to conduct a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Any subsequent
adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete. The
Company recorded an additional amount of tax liability related to the one-time transition tax of $2.7 million, after utilization of
certain tax attributes, payable over eight years.
The provision for income taxes differs from the amount computed by applying the statutory federal rate to pretax income as
follows (in percentages):
Statutory tax rate
State taxes, net of federal benefit
Permanent items
Effect of foreign operations
Research and incentive tax credit generated
Valuation allowance
Income tax reserves
Stock compensation deferred
Remeasurement U.S. deferreds
Transition tax
Foreign earnings withholding tax
Other
Year Ended December 31,
2017
2016
2015
35.0 %
(1.4)%
0.5 %
(5.7)%
(4.6)%
(37.6)%
0.5 %
0.0 %
7.3 %
18.1 %
8.6 %
0.1 %
20.8 %
35.0 %
1.5 %
9.5 %
(9.0)%
(14.3)%
5.5 %
1.3 %
0.0 %
0.0 %
0.0 %
0.0 %
0.1 %
29.6 %
35.0 %
(0.2)%
0.6 %
(8.0)%
(3.0)%
(32.1)%
(0.5)%
(3.5)%
0.0 %
0.0 %
0.0 %
0.1 %
(11.6)%
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740 "Income
Taxes" (ASC 740). Under this method, deferred income taxes are recognized for the future tax consequences of differences
between the tax and financial accounting bases of assets and liabilities at the end of each reporting period. Deferred income
taxes are based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to
affect taxable income. A valuation allowance is established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
80
Significant components of the Company’s deferred tax assets and liabilities as of December 31 are as follows (in thousands):
Deferred tax assets:
Accrued liabilities and other
Net operating loss and credit carryforwards
Deferred revenue
Depreciation and amortization
Stock compensation and other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Accrued liabilities and other
Depreciation and amortization
Stock compensation
Acquired intangibles
Total deferred tax liabilities
$
$
$
2017
2016
6,444
67,299
1,541
4,071
5,429
84,784
(21,943)
62,841
$
$
7,582
81,404
2,628
4,980
7,673
104,267
(27,879)
76,388
(4,207) $
(20,155)
—
(927)
(25,289)
(1,333)
(31,631)
—
(927)
(33,891)
Net deferred tax assets
$
37,552
$
42,497
The Company has established a valuation allowance against a portion of its remaining deferred tax assets because it is more
likely than not that certain deferred tax assets will not be realized. In determining whether deferred tax assets are realizable, the
Company considered numerous factors including historical profitability, the amount of future taxable income and the existence
of taxable temporary differences that can be used to realize deferred tax assets. The valuation allowance decreased approximately
$5.9 million in 2017 from 2016 primarily due to releasing valuation allowance of $13.5 million against net deferred tax assets of
our Canadian and Dutch subsidiaries, releasing valuation allowance of $1.0 million against net deferred tax assets of certain state
net operating loss carryforwards, and recording increased valuation allowance on the net deferred tax assets of our state net
operating loss carryforwards of $8.6 million as a result of remeasurement using the new U.S. federal corporate tax rate of 21%.
The Company extended its commitments with its largest customer, LabCorp, and determined that it was more likely than not that
Canadian deferred tax assets would be realized based on increased positive income projections. We expect to utilize portions of
net operating loss carryforwards before statutory expiration dates based on our income projections in the Netherlands, and thus
we determined that it was more likely than not that a portion of the Dutch deferred tax assets would be realized.
At December 31, 2017, the Company had gross federal, state and foreign net operating loss carryforwards of approximately
$69.8 million, $389.9 million, and $9.5 million, respectively. These losses expire beginning in 2018. Federal and state net operating
losses of approximately $69.8 million and $389.9 million, respectively, were acquired as part of the acquisitions of U.S. companies.
These acquired net operating losses are subject to annual limitations due to the "change of ownership" provisions of Section 382
of the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company has federal, state and foreign credit
carryforwards of approximately $7.6 million, $3.7 million, and $15.4 million, respectively. These credits begin to expire in 2018,
except for approximately $3.4 million which have an indefinite carryforward period. Certain of these credits are subject to annual
limitations under the change in ownership provisions. Alternative minimum tax credits of $2.3 million which are potentially subject
to refund under the Act have been reflected as deferred tax assets. In addition, the Company has a gross scientific research and
experimental developmental pool in Canada of approximately $15.4 million which has an indefinite carryforward period.
81
The excess of financial reporting basis over tax basis of the Company's foreign subsidiaries is considered permanently
reinvested with the exception of certain earnings of the Canadian subsidiary. The cumulative amount of excess financial reporting
basis of the Company's non-U.S. subsidiaries was approximately $7.4 million at December 31, 2017, $26.6 million at December 31,
2016 and $17.2 million at December 31, 2015. Since the Company does not intend to permanently reinvest its previously taxed
Canadian earnings, it had recorded a deferred tax liability of $3.2 million related to withholding and state income taxes associated
with the ultimate repatriation from Canada to the U.S. of these previously taxed earnings. Beginning January 1, 2018, the Tax Act
implemented a territorial tax system in the U.S. such that the income earned by the Company’s non-U.S. subsidiaries will be
subject to a 100% dividend received deduction. As such, only potential withholding and state income taxes on the non-permanently
reinvested earnings have a liability recorded. We have not recognized a deferred tax liability related to withholding taxes on the
excess financial reporting basis of our other foreign subsidiaries because the Company currently intends to reinvest earnings of
these subsidiaries in operations outside the U.S. and determination of such liability, if any, is dependent on circumstances existing
if and when remittance occurs.
As of December 31, 2017 and December 31, 2016, the Company had recorded gross unrecognized tax benefits of
approximately $2.7 million and $2.6 million, respectively. All of the unrecognized tax benefits as of December 31, 2017, if
recognized, would impact the effective tax rate. The Company recognizes interest expense and penalties associated with uncertain
tax positions as a component of income tax expense. During the years ended December 31, 2017 and 2016, the Company recognized
approximately $35,400 and $3,000 in tax related interest and penalties, respectively. Reserves for interest and penalties as of
December 31, 2017 and 2016 are not significant as the Company has net operating loss carryovers.
A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):
Balance at beginning of year
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Lapse of statute of limitations
Balance at end of year
2017
2016
2,677
355
—
(103)
(152)
2,777
$
$
2,184
481
12
—
—
2,677
$
$
As of December 31, 2017, there were no unrecognized tax benefits that the Company expects would change significantly
over the next 12 months.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. In the
United States and Canada, the statute of limitations with respect to the federal income tax returns for tax years after 2011 are open
to audit; however, since the Company has net operating losses, the taxing authority has the ability to review tax returns prior to
the 2012 tax year and make adjustments to these net operating loss carryforwards. We are currently under audit in Canada for the
Company’s scientific research and experimental development pool claims for the 2012 through 2013 tax years. We do not expect
a material adjustment as a result of the audit. We are not under audit in any other major taxing jurisdictions at this time.
82
NOTE 12 — NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data):
Year Ended December 31,
2016
2017
2015
Basic:
Net income
Less: allocation to participating securities
Net income attributable to common stockholders
Weighted average common stock outstanding
Net income per share attributable to common stockholders
Diluted:
Net income
Less: allocation to participating securities
Net income attributable to common stockholders
Weighted average common stock outstanding
Effect of dilutive securities: stock options and awards
Weighted-average shares used in computing net income per share
Net income per share attributable to common stockholders
$
$
$
$
$
$
29,423
(529)
28,894
43,173
0.67
29,423
(529)
28,894
43,173
127
43,300
0.67
$
$
$
$
$
$
13,814
—
13,814
42,584
0.32
13,814
—
13,814
42,584
429
43,013
0.32
$
$
$
$
$
$
36,861
—
36,861
42,091
0.88
36,861
—
36,861
42,091
546
42,637
0.86
Basic net income per share is computed by dividing the net income for the period by the weighted average number of common
shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the
weighted average number of common and common equivalent shares outstanding during the period. Restricted stock awards
(RSAs) and stock options to acquire 2,182,000, 2,017,000, and 1,252,000 shares for the years ended December 31, 2017, 2016
and 2015, respectively, were excluded from the computations of diluted earnings per share because the effect of including the
RSAs and stock options would have been anti-dilutive.
We apply the two-class method of computing earnings per share, which requires the calculation of separate earnings per share
amounts for our non-vested, time-based restricted stock awards with non-forfeitable dividends and for our common stock. Our
non-vested, time-based restricted stock awards with non-forfeitable dividends are considered securities which participate in
undistributed earnings with common stock. Under the two-class computation method, net losses are not allocated to participating
securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested, time-based restricted
stock awards with non-forfeitable dividends do not have such an obligation so they are not allocated losses.
NOTE 13 — STOCKHOLDERS' EQUITY, EMPLOYEE BENEFIT PLANS AND STOCK-BASED COMPENSATION
Preferred Stock
The Company’s Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or
the designation of such series, without further vote or action by the Company’s stockholders. At December 31, 2017 and 2016,
there was no preferred stock issued and outstanding.
83
Dividends
In February 2017, the Board of Directors initiated a cash dividend program under which the Company anticipates paying a
regular quarterly cash dividend. On February 21, 2017, May 24, 2017, September 12, 2017 and December 7, 2017 the Board of
Directors declared cash dividends on the Company’s common stock of $0.06 per share, respectively. The dividend declared in
February was payable to stockholders of record as of March 24, 2017 and was paid on April 14, 2017. The dividend declared in
May was payable to stockholders of record as of June 23, 2017 and was paid on July 14, 2017. The dividend declared in September
was payable to stockholders of record as of September 22, 2017 and was paid on October 13, 2017. The dividend declared in
December was payable to stockholders of record as of December 22, 2017 and was paid on January 12, 2018. The Company's
current intent is to pay a continuing dividend on a quarterly basis. However, future declaration of dividends is subject to the final
determination of the Company's Board of Directors.
Stock-Based Compensation
At December 31, 2017, the Company has one stock-based employee compensation plan pursuant to which grants may be
made: the Third Amended and Restated 2006 Equity Incentive Plan (Equity Incentive Plan) which was approved at the Company’s
Annual Meeting on May 25, 2006 and amended at the Company’s Annual Meetings on each of May 21, 2009, May 17, 2012 and
May 14, 2015. No further grants shall be made pursuant to the 2000 Long-Term Incentive Plan (2000 Plan) or the 2001 Broad-
Based Stock Option Plan (2001 Plan). In addition, at December 31, 2017, the Company has one plan pursuant to which discount
purchases may be made by the participants in such plan: the Luminex Corporation Employee Stock Purchase Plan (ESPP), which
was approved at the Company's Annual Meeting on May 17, 2012 and amended at the Company's Annual Meeting on May 18,
2017.
Equity Incentive Plans
Under the Company’s Equity Incentive Plan, certain employees, consultants and non-employee directors have been granted
RSAs, restricted share units (RSUs) and options to purchase shares of common stock. The options, RSAs, and RSUs generally
vest in installments over a three to five year period, and the options expire either seven or ten years after the date of grant. Under
the Equity Incentive Plan, certain employees of, directors of, and consultants to the Company are eligible to be granted RSAs,
RSUs, and options to purchase common stock.
The ESPP provides for the granting of rights to certain employees of the Company to defer an elected percentage, up to 15%,
of their base salary through the purchase of the Company's common stock, discounted by 15%. As of December 31, 2017, there
were approximately 2.4 million shares authorized for future issuance under the Company’s Equity Incentive Plan and approximately
407,000 shares eligible for purchase pursuant to the terms and conditions of the ESPP as more fully described below.
The Equity Incentive Plan and the ESPP are administered by the Compensation Committee of the Board of Directors. The
Compensation Committee has the authority to determine the terms and conditions under which awards will be granted from the
Equity Incentive Plan, including the number of shares, vesting schedule and term, as applicable. Any option exercise prices, as
set forth in the Equity Incentive Plan, will be equal to the fair market value on the date of grant. Under certain circumstances, the
Company may repurchase previously granted RSAs and RSUs.
84
On each of March 22, 2016 and March 10, 2017, the Compensation Committee approved an award of stock options (the
“Performance Options”) to the Company’s named executive officers and certain other executives that vest over four years based
on achievement of certain operating profit and revenue targets in 2016 and 2017, respectively. The Performance Options have an
exercise price equal to the closing market price for the Company’s common stock on the Nasdaq Global Select Market on the date
of grant (March 22, 2016 and March 10, 2017, respectively) and expire seven years from the date of grant. The Performance
Options were measured over a performance period ending on December 31, 2016 and December 31, 2017, respectively. Following
the end of the applicable fiscal year, the Committee will determine the number of Performance Options which remain eligible to
vest based upon the level of achievement of an established Company performance goal (the "Company Financial Goal"). If the
Company fails to meet the threshold performance for the performance period, no Performance Options will be eligible to vest.
Minimum vesting for minimum threshold performance starts at 30% of the target value for the Company Financial Goal. If the
Company’s performance exceeds the target performance, the recipient may receive additional Performance Options above the
target number, subject to a maximum of 200% of the target award. The Company's financial performance resulted in delivery of
140% and 148% of the number of target Performance Options granted for 2016 and 2017, respectively. The Performance Options
that remain eligible to vest after the determination date will vest 25% on each of the first four anniversaries of the grant date. In
the event of a change of control of the Company before the end of the performance period, the Performance Options will
automatically vest based on the greater of actual achievement of the pro-rated Company Financial Goal as of the date of the change
of control or 100% of target performance, as determined by the Committee in its sole discretion. The Performance Options are
exercisable into shares of the Company’s common stock.
Accounting for Stock Compensation
Stock-based compensation costs are generally based on the fair value calculated from the Black-Scholes option-pricing model
on the date of grant for stock options, performance options and market value on the date of grant for RSAs. The fair values of
stock and stock options are amortized as compensation expense on a straight-line basis over the vesting period of the grants.
In accordance with ASC 718, the Company evaluates the assumptions used in the Black-Scholes model at each grant date
using a consistent methodology for computing expected volatility, expected term and risk-free rate of return. Calculation of expected
volatility is based on historical volatility. The expected life is calculated using the contractual term of the options as well as an
analysis of the Company’s historical exercises of stock options and performance options. The estimate of the risk-free rate is
based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on our history and expectation
of dividend payouts at the time of grant. The assumptions used are summarized in the following table:
Dividend yield
Expected volatility
Risk-free rate of return
Expected life of a 10 year contractual term option
Expected life of a 7 year contractual term option
Weighted average fair value at grant date
2017
2016
2015
1.3%
0.5
2.0%
7 years
4.87 years
—%
0.5
1.4%
7 years
4.87 years
—%
0.5
1.6%
7 years
4.87 years
$
6.66
$
7.86
$
6.73
As part of the requirements of ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust
compensation cost recorded accordingly. The estimate of forfeitures is based on historical forfeiture performance and will be
adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates.
Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of evaluation and will
also impact the amount of stock compensation expense to be recognized in future periods.
85
The Company’s stock option activity for the years ended December 31, 2015, 2016 and 2017 is as follows:
Stock Options
Outstanding at December 31, 2014
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2015
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2016
Granted
Exercised
Cancelled or expired
Outstanding at December 31, 2017
Vested at December 31, 2017 and expected to vest
Exercisable at December 31, 2017
Shares
(in thousands)
825
1,023
(129)
(27)
1,692
886
(178)
(220)
2,180
1,406
(172)
(328)
3,086
3,026
834
$
$
$
$
$
$
Weighted Average
Exercise Price
Weighted
Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
18.84
15.98
14.59
16.67
17.47
19.21
18.55
17.83
18.06
18.08
16.50
18.39
18.10
18.10
18.24
5.19
5.18
4.22
$
$
$
5,401
5,307
1,587
During the years ended December 31, 2017, 2016 and 2015, the total exercise intrinsic value of stock options exercised was
$0.7 million, $0.6 million and $0.8 million, respectively, and the total fair value of stock options that vested was $12.7 million,
$1.6 million and $2.5 million, respectively. Exercise intrinsic value represents the difference between the market value of the
Company's common stock at the time of exercise and the price paid by the employee to exercise the options. The Company had
$11.1 million of total unrecognized compensation costs related to stock options at December 31, 2017 that are expected to be
recognized over a weighted-average period of 2.55 years.
The Company’s restricted share activity for the years ended December 31, 2015, 2016 and 2017 is as follows:
Restricted Stock Awards
Non-vested at December 31, 2014
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2015
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2016
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2017
Shares
(in thousands)
Weighted Average
Grant Price
1,098
276
(349)
(190)
836
301
(231)
(96)
810
370
(354)
(112)
715
$
$
$
$
19.63
15.95
19.30
19.19
18.66
19.76
19.75
18.78
18.74
18.22
18.74
18.84
18.46
86
Restricted Stock Units
Non-vested at December 31, 2014
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2015
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2016
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2017
Vested at December 31, 2017 and expected to vest
Exercisable at December 31, 2017
Shares
(in thousands)
Weighted Average
Remaining Contractual
Life (in years)
Aggregate
Intrinsic Value
(in thousands)
658
122
(54)
(224)
501
99
(83)
(61)
457
104
(122)
(16)
423
417
273
1.05
1.01
0.00
$
$
$
8,342
8,219
5,391
As of December 31, 2017, there was $13.5 million of unrecognized compensation cost related to RSAs and RSUs. That cost
is expected to be recognized over a weighted average-period of 2.05 years. The total fair value of restricted shares vested during
the year ended December 31, 2017, 2016 and 2015 was $8.8 million, $7.0 million and $8.5 million, respectively.
RSAs and RSUs may be granted at the discretion of the Board of Directors under the Equity Incentive Plan in connection
with the hiring or retention of key employees and are subject to certain conditions. Restrictions expire at certain dates after the
grant date in accordance with specific provisions in the applicable agreement. During the year ended December 31, 2017, the
Company awarded 369,715 shares of RSAs, which had a fair value at the date of grant ranging from $18.04–$20.80. During the
year ended December 31, 2016, the Company awarded 301,419 shares of RSAs, which had a fair value at the date of grant ranging
from $19.48–$22.59. During the year ended December 31, 2015, the Company awarded 276,271 shares of RSAs, which had a
fair value at the date of grant ranging from $15.93–$16.72. During the year ended December 31, 2017, the Company awarded
104,237 shares of RSUs, which had a fair value at the date of grant ranging from $18.04–$20.80. During the year ended
December 31, 2016, the Company awarded 99,144 shares of RSUs, which had a fair value at the date of grant ranging from $19.48–
$20.62. During the year ended December 31, 2015, the Company awarded 121,802 shares of RSUs, which had a fair value at the
date of grant ranging from $15.93–$16.72. Compensation under these RSAs and RSUs was charged to expense over the restriction
period and amounted to $7.2 million, $7.9 million, and $8.1 million in 2017, 2016 and 2015, respectively. There were no significant
stock compensation costs capitalized into assets as of December 31, 2017, 2016 or 2015.
The Company received $2.8 million, $3.3 million and $1.9 million for the exercise of stock options during the years ended
December 31, 2017, 2016 and 2015, respectively. Cash was not used to settle any equity instruments previously granted. The
Company issued shares pursuant to grants relating to each of the Equity Incentive Plan and 2000 Plan from reserves upon the
exercise of stock options and vesting of RSAs.
The following are the stock-based compensation costs recognized in the Company’s consolidated statements of comprehensive
income (in thousands):
Cost of revenue
Research and development
Selling, general and administrative
Stock-based compensation costs reflected in net income
Year Ended December 31,
2016
2017
2015
$
$
1,561
2,039
8,878
12,478
$
$
1,247
2,658
7,916
11,821
$
$
975
2,422
7,458
10,855
87
Employee Savings Plans and Other Benefit Plans
Effective January 1, 2001, the Company began sponsoring a retirement plan authorized by section 401(k) of the Internal
Revenue Code for the Company’s employees in the United States. In accordance with the 401(k) plan, all employees are eligible
to participate in the plan on the first day of the month following the commencement of full time employment. For 2017, 2016 and
2015, each employee could contribute a percentage of compensation up to a maximum of $18,000 per year, with the Company
matching 50% of each employee’s contributions. Effective January 1, 2010, the Company began contributing to a deferred profit
sharing plan for its Canadian employees. All Canadian employees are eligible to participate in the plan. The Company’s
contributions to these plans for 2017, 2016 and 2015 were $3.8 million, $3.2 million and $2.8 million, respectively.
Several of the Company’s Netherlands employees are covered by a defined benefit plan. The cost and total liability to the
Company is not material. Effective January 1, 2011, all of the Company’s new hires in the Netherlands are eligible to participate
in a defined contribution plan.
Employee Stock Purchase Plan
In May 2012, the Company's stockholders approved the ESPP, which provides for the purchase of up to 500,000 shares of
the Company's common stock by eligible employees. In May 2017, the Company's stockholders approved an amendment to the
ESPP Plan, which increased the shares available under the ESPP by 341,744 shares. The ESPP period is semi-annual and allows
participants to purchase the Company's common stock at 85% of the lesser of (i) the closing market value per share of the common
stock on the first trading date of the option period or (ii) the closing market value per share of the common stock on the last trading
date of the option period. As of December 31, 2017, 2016 and 2015, 434,300 shares, 341,844 shares and 260,536 shares, respectively
had been issued out of the ESPP. The related stock-based compensation expense was $0.5 million, $0.4 million and $0.4 million
for 2017, 2016 and 2015, respectively.
The Company uses the Black-Scholes model to estimate the fair value of shares to be issued under the ESPP as of the grant
date using the following weighted average assumptions:
Assumptions:
Risk-free interest rates
Expected life
Expected volatility
Dividend yield
Reserved Shares of Common Stock
2017
1.07%
0.5 years
.45
1.3%
At December 31, 2017 and 2016, the Company had reserved 6,270,286 and 6,816,465 shares of common stock, respectively,
for the issuance of common stock upon the exercise of options, issuance of RSAs, RSUs, purchase of common stock pursuant to
the ESPP or other awards issued pursuant to the Company’s equity plans and arrangements. The following table summarizes the
reserved shares by plan as of December 31, 2017:
Equity Incentive Plan
ESPP
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Lease Arrangements
Options and
RSUs
Outstanding
Shares Available
for Future
Issuance
3,509,316
—
3,509,316
2,353,526
407,444
2,760,970
Total Shares
Reserved
5,862,842
407,444
6,270,286
The Company has operating leases related primarily to its office and manufacturing facilities with original lease periods of
up to ten years. Rental and lease expense for these operating leases for the years 2017, 2016 and 2015 totaled approximately $6.6
million, $5.8 million and $4.7 million, respectively.
88
Minimum annual lease commitments as of December 31, 2017 under non-cancellable leases for each of the next five years
and in the aggregate were as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
$
$
5,180
4,584
2,708
1,958
1,461
897
16,788
These non-cancellable lease commitments related to facilities include certain rent escalation provisions which have been
included in the minimum annual rental commitments shown above. These amounts are recorded to expense on a straight-line
basis over the life of the lease. In addition, some of the Company’s leases contain options to renew the lease for five to ten years
at the then prevailing market rental rate, right of first refusal to lease additional space that becomes available, or leasehold
improvement incentives.
Non-Cancellable Purchase Commitments
As of December 31, 2017 the Company had approximately $31.1 million in purchase commitments primarily with several
of its inventory suppliers as well as other operating commitments. Certain of our supply agreements require purchase and delivery
of minimum amounts of components through 2018, and purchases under these arrangements were $1.8 million, $2.6 million and
$1.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Employment Contracts
The Company has entered into employment contracts with certain of its key executives. Generally, certain amounts may
become payable in the event the Company terminates the executives’ employment without cause or the executive resigns for good
reason.
Legal Proceedings
In the normal course of business, the Company is subject to claims, lawsuits and legal proceedings. When and if it appears
probable in management's judgment, and based upon consultation with outside counsel, that we will incur monetary damages or
other costs in connection with any claims or proceedings, and such costs can be reasonably estimated, we record the estimated
liability in the financial statements. If only a range of estimated losses can be estimated, we record an amount within the range
that, in management's judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate
than any other amount, we record the liability at the low end of the range of estimates. Any such accrual would be charged to
expense in the appropriate period. We disclose significant contingencies when the loss is not probable and/or the amount of the
loss is not estimable, when we believe there is at least a reasonable possibility that a loss has been incurred. We recognize costs
associated with legal proceedings in the period in which the services were provided.
NOTE 15 — GUARANTEES
The terms and conditions of the Company’s development and supply and license agreements with its strategic partners generally
provide for a limited indemnification of such partners, arising from the sale of Luminex systems and consumables, against losses,
expenses and liabilities resulting from third-party claims based on an alleged infringement on an intellectual property right of such
third party. The terms of such indemnification provisions generally limit the scope of and remedies for such indemnification
obligations to a multiple of amounts paid by such strategic partner to Luminex during the previous annual period(s). To date, the
Company has not had to reimburse any of its strategic partners for any losses arising from such indemnification obligations.
89
NOTE 16 — GEOGRAPHIC INFORMATION
The table below provides information regarding product revenues and property and equipment, net from the Company’s sales
to customers within the United States and in foreign countries for the years ended December 31 (in thousands):
Domestic
Foreign:
Europe
Asia
Canada
Other
Sales to Customers
2016
$ 222,706
2015
$ 200,427
2017
$ 256,834
20,378
20,134
4,386
4,839
$ 306,571
19,211
20,733
3,738
4,251
$ 270,639
17,034
12,794
3,239
4,214
$ 237,708
Property and Equipment, net
2015
2016
2017
43,910
53,283
54,623
$
$
809
741
2,077
8
58,258
$
1,079
730
2,274
9
57,375
$
1,358
429
2,085
14
47,796
$
$
The Company's aggregate foreign currency transaction losses of $134,000, $121,000 and $841,000 were included in
determining the consolidated results for the years ended December 31, 2017, 2016 and 2015, respectively.
NOTE 17 — RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting guidance
In July 2015, the FASB issued guidance regarding the measurement of inventory. The guidance requires inventory to be
measured at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of
business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this standard during
the quarter ended March 31, 2017, and its adoption did not have any impact on its consolidated financial statements.
Recent accounting guidance not yet adopted
On January 10, 2018, the FASB issued guidance on the accounting for tax on the global intangible low-taxed income (GILTI)
provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets
of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any
taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. Effective the first
quarter of 2018, we anticipate the Company will elect to treat any potential GILTI inclusions as a period cost.
In January 2017, the FASB issued guidance on intangibles, including goodwill which simplifies how companies calculate
goodwill impairments by eliminating Step 2 of the impairment test. The guidance requires companies to compare the fair value
of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds
the reporting unit's fair value. The guidance is effective for annual periods beginning after December 15, 2019, and is applicable
to the Company in fiscal 2020. Early adoption is permitted. The Company does not anticipate that this guidance will have a
material impact on its consolidated financial statements.
In October 2016, the FASB issued guidance on income taxes which requires companies to recognize the income tax effects
of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in
the period in which the transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017. Early
adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial
position and results of operations. The Company does not anticipate that this guidance will have a material impact on its consolidated
financial statements.
In August 2016, the FASB issued specific guidance on eight cash flow classification issues that are not currently addressed
by current U.S. GAAP and thereby reduce the current diversity in practice. This guidance is effective for annual periods beginning
after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this
guidance on its consolidated financial position and results of operations. The Company does not anticipate that this guidance will
have a material impact on its consolidated financial statements.
90
In February 2016, the FASB issued guidance requiring lessees to recognize a right-of-use asset and a lease liability on the
balance sheet for all leases with the exception of short-term leases. The effective date of the new guidance is for the Company's
first quarter of fiscal 2019 and early adoption is permitted. The new standard must be adopted using a modified retrospective
transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company
is currently evaluating the impact of the adoption of this requirement on its consolidated financial statements, but does not anticipate
that adoption of this guidance will have a material impact on its consolidated financial statements except for the addition of the
right-of-use asset and a lease liability to the balance sheet.
In January 2016, the FASB issued guidance that changes how entities measure equity investments that do not result in
consolidation and are not accounted for under the equity method. Entities will be required to measure these investments at fair
value at the end of each reporting period and recognize changes in fair value in net income. This guidance also changes certain
disclosure requirements and other aspects of current U.S. GAAP. This guidance is effective for annual periods beginning after
December 15, 2017. Early adoption is permitted. The Company does not anticipate that adoption of this guidance will have a
material impact on its consolidated financial statements as the only potential impact would be related to the Company's cost-
method investments discussed in Note 3 - Investments and Other Assets.
In May 2014, the FASB issued a new standard on revenue recognition which outlines a single comprehensive model to use
in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. In doing so, companies will need to use their judgment and make estimates
more extensively than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract,
estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each
separate performance obligation. The standard is designed to create greater comparability for financial statement users across
industries and jurisdictions and also requires enhanced disclosures. On July 9, 2015, the FASB voted in favor of delaying the
effective date of the new standard by one year, with early adoption permitted as of the original effective date. The guidance is
effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The new standard permits
two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively
with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective
method). The Company adopted the new standard effective January 1, 2018, using the modified retrospective approach. The
Company has assessed its various revenue streams to identify performance obligations under this guidance and the key aspects
of the standard that will impact the Company's revenue recognition process. Based upon the Company's assessment, these standards
will impact the timing of the recognition of the Company's royalty revenue as the Company has historically waited until the partners
have reported end user sales to recognize royalty revenue. With the implementation of the standard, the Company will record a
cumulative adjustment increasing retained earnings, which is estimated to be approximately $10.5 to $10.7 million of royalty
revenue. After implementation, estimated royalty revenue will be recorded each quarter on an accrual basis to more closely
coincide with the timing of the end user sale by the partner; with reconciliation made upon submission of the royalty report by
the partner indicating actual royalties owed in the following quarter. We anticipate this could contribute to an increase days sales
outstanding by approximately 10 days solely as a result of the timing of when revenue is recorded, not due to any changes in when
payments are received. In addition, the Company will begin recording the portion of reagent rental revenue associated with the
recovery of the cost of providing the system and other hardware in reagent rental agreements from assay revenue to system revenue
effective January 1, 2018. This change will not have any impact on top line revenue and the Company does not anticipate any
material effects to its revenue categorization.
91
NOTE 18 — SELECTED QUARTERLY RESULTS (UNAUDITED)
The following table sets forth certain quarterly financial data for the periods indicated (in thousands, except per share data):
Revenue
Gross profit
Income (loss) from operations
Net income (loss)
Basic income (loss) per common share
Diluted income (loss) per common share
Cash dividends per common share
Revenue
Gross profit
Income from operations
Net income (1)
Basic income per common share
Diluted income per common share
Cash dividends per common share
Quarter Ended
March 31,
2017
June 30,
2017
September 30,
2017
December 31,
2017
$
77,779
$
76,457
$
74,136
$
52,786
14,012
9,231
0.21
0.21
0.06
50,061
7,482
5,544
0.13
0.13
0.06
45,819
6,529
17,613
0.40
0.40
0.06
78,199
50,380
9,130
(2,965)
(0.07)
(0.07)
0.06
Quarter Ended
March 31,
2016
June 30,
2016
September 30,
2016
December 31,
2016
$
62,981
$
64,166
$
71,221
$
72,271
44,806
11,801
8,770
0.21
0.21
—
44,921
7,500
5,653
0.13
0.13
—
45,665
4,028
2,751
0.06
0.06
—
44,263
(2,343)
(3,360)
(0.08)
(0.08)
—
(1) Net income in the third quarter of 2017 included an income tax benefit from the release of a portion of the valuation allowance
on deferred tax assets in Canada. See Note 11 – Income Taxes.
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934 (Exchange Act), which are designed to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the
Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this
report. Based on the evaluation and criteria of these disclosure controls and procedures, the Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level
and designed to ensure that material information relating to the Company and its subsidiaries would be made known to such
officers on a timely basis.
92
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2017 based on the 2013 framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of
December 31, 2017. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our independent registered public accounting firm, Ernst & Young LLP, has issued a report on their assessment of the
effectiveness of our internal control over financial reporting, which is provided at Item 8 "Financial Statements and Supplementary
Data," page 60.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting identified in connection with the evaluation
required by Exchange Act Rule 13a-15(d) during the fourth quarter of 2017 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
93
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item concerning our directors, audit committee, and audit committee financial experts, code
of ethics and compliance with Section 16(a) of the Exchange Act is incorporated by reference to information under the captions
“Proposal 1 - Election of Class III Directors”, “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in our definitive proxy statement for our 2018 Annual Meeting of Stockholders to be held on or about May 17, 2018
(Proxy Statement). It is anticipated that our Proxy Statement will be filed with the Securities and Exchange Commission on or
about April 3, 2018.
Pursuant to General Instruction G(3), certain information with respect to our executive officers is set forth under the caption
“Executive Officers of the Registrant as of February 23, 2018" in Item 1 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Executive and
Director Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Security
Ownership of Certain Beneficial Owners and Management.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth, as of December 31, 2017, certain information with respect to shares of our common stock
authorized for issuance under our equity compensation plans.
Plan Category
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options and
Restricted
Stock Units
Weighted-
Average
Exercise Price
of Outstanding
Options
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (A))
(A)
(B) (2)
(C)
Equity compensation plans approved by security holders
(1)
Equity compensation plans not approved by security
holders
Total
3,509,316
$
18.10
— $
—
3,509,316
2,760,970
—
2,760,970
_________________
(1) Includes approximately 407,000 shares that are issuable upon vesting of outstanding restricted stock units. The remaining
balance consists of outstanding stock option grants.
(2) The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding restricted stock
units, which have no exercise price.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by this Item is incorporated by reference to the sections of the Proxy Statement entitled “Certain
Relationships and Related Party Transactions” and “Corporate Governance.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this Item is incorporated by reference to the section of the Proxy Statement entitled “Ratification
of Appointment of Independent Registered Public Accounting Firm.”
94
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
The Financial Statements required by this item are submitted in Part II, Item 8 of this report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements
or in the notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2.1
2.2
2.3
3.1
3.2
10.1#
10.2#
10.3#
10.4
10.5
10.6
10.7
Agreement and Plan of Merger, dated as of May 15, 2016, among Luminex Corporation, Commodore
Acquisition, Inc., and Nanosphere, Inc. (Previously filed as an Exhibit to the Company’s Current Report on
Form 8-K (File No. 000-30109), filed on May 16, 2016).*
First Amendment to the Agreement and Plan of Merger, dated as of May 22, 2016, among Luminex
Corporation, Commodore Acquisition, Inc., and Nanosphere, Inc. (Previously filed as an Exhibit to the
Company’s Current Report on Form 8-K (File No. 000-30109), filed on May 23, 2016).
Second Amendment to the Agreement and Plan of Merger, dated as of June 1, 2016, among Luminex
Corporation, Commodore Acquisition, Inc., and Nanosphere, Inc. (incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K filed by Nanosphere, Inc. with the Securities and Exchange Commission on
June 2, 2016).
Restated Certificate of Incorporation of the Company (Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as amended).
Amended and Restated Bylaws of the Company (Previously filed as an Exhibit to the Company's Current
Report on Form 8-K (File No. 000-30109), filed March 11, 2015).
2000 Long-Term Incentive Plan of the Company, as amended (Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q (File No. 000-30109) for the quarterly period ended March 31, 2002).
Form of Stock Option Award Agreement for the 2000 Long-Term Incentive Plan (Previously filed as an Exhibit
to the Company's Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as
amended).
Form of Indemnification Agreement between the Company and each of the directors and executive officers of
the Company (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed September 16, 2008).
Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex Corporation, as Tenant,
dated October 19, 2001 (Previously filed as an Exhibit to the Company's Quarterly Report on Form 10-Q (File
No. 000-30109) for the quarterly period ended September 30, 2001).
First Amendment to Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex
Corporation, as Tenant, dated July 25, 2002 (Previously filed as an Exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 000-30109) for the quarterly period ended June 30, 2002).
Lease Amendment between McNeil 4 & 5 Investors, LP, as Landlord, and Luminex Corporation, as Tenant,
dated January 27, 2003 (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No.
000-30109) for the fiscal year ended December 31, 2002).
Lease Agreement between PS Business Parks, L.P., as Landlord, and Luminex Corporation, as Tenant, dated
September 30, 2014 (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No.
000-30109) for the fiscal year ended December 31, 2014).
95
10.8#
10.9#
10.10#
10.11#
10.12#
10.13#
10.14#
10.15#
10.16#
10.17#
10.18#
10.19#
10.20#
10.21#
10.22#
10.23#
10.24#
10.25#
10.26#
Employment Agreement, effective as of October 1, 2003, by and between Luminex Corporation and Harriss T.
Currie (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for
the fiscal year ended December 31, 2003).
Luminex Corporation Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the
Company's Current Report on Form 8-K (File No. 000-30109), filed May 21, 2009).
Form of Non-Qualified Stock Option Agreement for the Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May
21, 2009).
Form of Restricted Share Award Agreement for Officers & Employees for the Amended and Restated 2006
Equity Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed May 21, 2009).
Form of Restricted Share Award Agreement for Directors for the Amended and Restated 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed
May 21, 2009).
Form of Restricted Share Unit Agreement for Officers & Employees for the Amended and Restated 2006 Equity
Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed May 21, 2009).
Form of Restricted Share Unit Agreement for Directors for the Amended and Restated 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed
May 21, 2009).
Amendment to Luminex Corporation Amended and Restated 2000 Long-Term Incentive Plan dated as of May
24, 2007 (Previously filed as an Exhibit to the Company's Quarterly Report on Form 10-Q (File No. 000-30109)
for the quarterly period ended June 30, 2007).
Luminex Corporation 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Proxy
Statement (File No. 000-30109) for its Annual Meeting of Shareholders held on May 25, 2006).
Form of Non-Qualified Stock Option Agreement for the 2006 Equity Incentive Plan (Previously filed as an
Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May 25, 2006).
Form of Restricted Share Award Agreement for Officers & Employees for the 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May
25, 2006).
Form of Restricted Share Award Agreement for Directors for the 2006 Equity Incentive Plan (Previously filed as
an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May 25, 2006).
Form of Restricted Share Unit Agreement for the 2006 Equity Incentive Plan (Previously filed as an Exhibit to
the Company's Annual Report on Form 10-K (File No. 000-30109) for the fiscal year ended December 31,
2006).
Form of Amendments to Equity Award Agreements (Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 000-30109) for the quarterly period ended June 30, 2007).
Luminex Corporation Second Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Annex
to the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 17, 2012).
Luminex Corporation Employee Stock Purchase Plan (Previously filed as an Annex to the Company's Proxy
Statement for its Annual Meeting of Stockholders held on May 17, 2012).
Form of Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and its Executives (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
(File No. 000-30109) for the fiscal year ended December 31, 2012).
Employment Agreement, dated October 14, 2014, between Luminex Corporation and Nachum Shamir
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed
October 20, 2014).
Employment Agreement, dated August 14, 2012, by and between Luminex Corporation and Nancy M. Fairchild
(Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2014).
96
10.27#
10.28#
10.29#
10.30#
10.31#
10.32#
10.33#
10.34#
10.35#
10.36#
10.37#
10.38#
10.39#
10.40#
10.41#
10.42#
10.43#
10.44#
21.1
23.1
24.1
Second Amendment to Employment Agreement, effective as of February 6, 2014, by and between Luminex
Corporation and Nancy M. Fairchild (Previously filed as an Exhibit to the Company’s Annual Report on Form
10-K (File No. 000-30109) for the fiscal year ended December 31, 2014).
Third Amendment to Employment Agreement, effective as of January 1, 2015, by and between Luminex
Corporation and Nancy M. Fairchild (Previously filed as an Exhibit to the Company’s Annual Report on Form
10-K (File No. 000-30109) for the fiscal year ended December 31, 2014).
Omnibus Amendment to the Luminex Corporation Restricted Share Unit Award Agreements (2012 and 2013
LTIPs) (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-30109) for
the fiscal year ended December 31, 2014).
First Amendment to the Luminex Corporation Second Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No. 000-30109), filed on
March 11, 2015).
Form of Non-Qualified Stock Option Agreement for the Luminex Corporation Second Amended and Restated
2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q
(File No. 000-30109) for the quarterly period ended March 31, 2015).
Form of Stock Appreciation Rights Agreement for the Luminex Corporation Second Amended and Restated
2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q
(File No. 000-30109) for the quarterly period ended March 31, 2015).
Luminex Corporation Third Amended and Restated 2006 Equity Incentive Plan (Previously filed as Annex A to
the Company’s Proxy Statement for its Annual Meeting of Stockholders held on May 14, 2015).
Form of Restricted Share Award Agreement for Directors for the Luminex Corporation Third Amended and
Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form
10-Q (File No. 000-30109) for the quarterly period ended June 30, 2015).
Form of Restricted Share Unit Agreement for Directors for the Luminex Corporation Third Amended and
Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form
10-Q (File No. 000-30109) for the quarterly period ended June 30, 2015).
Employment Agreement, dated March 4, 2015, by and between Luminex Corporation and Richard Rew
(Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2015).
Employment Agreement, dated March 16, 2015, by and between Luminex Corporation and Randall Myers
(Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2016).
Employment Agreement, dated July 16, 2015, by and between Luminex Corporation and Todd Bennett
(Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2016).
Amended and Restated 2016 Management Incentive Plan (Previously filed as an Exhibit to the Company's
Current Report on Form 8-K (File No. 000-30109), filed March 28, 2016).
Form of Performance-Based Non-Qualified Stock Option Agreement for the Luminex Corporation Third
Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2016).
First Amendment to Employment Agreement, effective March 27, 2017, by and between Luminex Corporation
and Nachum Shamir (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed March 31, 2017).
Amended and Restated 2017 Management Incentive Plan (Previously filed as an Exhibit to the Company's
Current Report on Form 8-K (File No. 000-30109), filed March 31, 2017).
Amended and Restated Luminex Corporation Employee Stock Purchase Plan (Previously filed as Annex A to
the Company's Proxy Statement for its Annual Meeting of Stockholders held on May 18, 2017).
Employment Agreement, dated January 1, 2018, by and between Luminex Corporation and Chuck Collins.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (incorporated in the signature page of this report).
97
31.1
31.2
32.1
32.2
101
Certification by CEO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CFO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
The following materials from Luminex Corporation's Annual Report on Form 10-K for the year ended
December 31, 2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed
Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Statements of Cash Flows;
and (iv) Notes to Condensed Consolidated Financial Statements.
# Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
98
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LUMINEX CORPORATION
By: /s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
Date: February 26, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
Nachum Shamir and Harriss T. Currie, each his true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
S-1
SIGNATURES
TITLE
/s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer, Director
(Principal Executive Officer)
DATE
February 26, 2018
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Senior Vice President of Finance (Principal
Financial Officer and Principal Accounting Officer)
February 26, 2018
/s/ Robert J. Cresci
Robert J. Cresci
/s/ Stephen L. Eck
Stephen L. Eck
/s/ Thomas W. Erickson
Thomas W. Erickson
/s/ Jim D. Kever
Jim D. Kever
Director
Director
Director
Director
/s/ G. Walter Loewenbaum II
G. Walter Loewenbaum II
Chairman of the Board of Directors,
Director
/s/ Kevin M. McNamara
Kevin M. McNamara
/s/ Edward A. Ogunro
Edward A. Ogunro
Director
Director
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
February 26, 2018
S-2
Exhibit 21.1
LIST OF SUBSIDIARIES
Luminex International, Inc., a Delaware corporation
Luminex B.V., a Netherlands Private Company with limited liability
Luminex 2 B.V., a Netherlands Private Company with limited liability
Luminex 3 B.V., a Netherlands Private Company with limited liability
Luminex Debt Holding, LLC, a Delaware limited liability company
Nanosphere, LLC, a Delaware limited liability company
Luminex Molecular Diagnostics, Inc., an Ontario, Canadian corporation
Luminex Trading (Shanghai) Company Limited, a limited liability company under the laws of the PRC
Luminex Japan Corporation Ltd., a Japanese KK
Labpac Pty Ltd, an Australian Proprietary company, limited by shares
Luminex Hong Kong Limited, a Hong Kong company limited by shares
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-218176) pertaining to the Luminex
Corporation Amended and Restated Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No. 333-204170)
pertaining to the Luminex Corporation Third Amended and Restated 2006 Equity Incentive Plan, in the Registration Statement
(Form S-8 No. 333-181485) pertaining to the Luminex Corporation Employee Stock Purchase Plan, in the Registration Statement
(Form S-8 No. 333-181484) pertaining to the Luminex Corporation Second Amended and Restated 2006 Equity Incentive Plan,
in the Registration Statement (Form S-8 No. 333-141042) pertaining to the Tm Bioscience Corporation Share Option Plan, in the
Registration Statement (Form S-8 No. 333-134450) pertaining to the Luminex Corporation 2006 Equity Incentive Plan and the
Luminex Corporation 2006 Management Stock Purchase Plan, in the Registration Statement (Form S-8 No. 333-46686) pertaining
to the 2000 Long-Term Incentive Plan of Luminex Corporation, in the Registration Statement (Form S-8 No. 333-87918) pertaining
to the 2001 Broad-Based Stock Option Plan of Luminex Corporation, in the Registration Statement (Form S-8 No. 333-118772)
pertaining to the Balthrop Non-Qualified Stock Option Agreement of Luminex Corporation, in the Registration Statement (Form
S-8 No. 333-159382) pertaining to the Amended and Restated 2006 Equity Incentive Plan and in the Registration Statement (Form
S-3 No. 333-151691) pertaining to the Automatic Shelf Registration of Securities of Luminex Corporation of our reports dated
February 26, 2018, with respect to the consolidated financial statements of Luminex Corporation, and the effectiveness of internal
control over financial reporting of Luminex Corporation, included in this Annual Report (Form 10-K) for the year ended
December 31, 2017.
/s/ Ernst & Young LLP
Austin, Texas
February 26, 2018
CERTIFICATIONS
Exhibit 31.1
I, Nachum Shamir, certify that:
1. I have reviewed this report on Form 10-K of Luminex Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 26, 2018
By:
/s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Harriss T. Currie, certify that:
1. I have reviewed this report on Form 10-K of Luminex Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 26, 2018
By:
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Senior Vice President of
Finance
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Luminex Corporation (the “Company”) on Form 10-K for the period ended December
31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nachum Shamir, President
and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-
Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ NACHUM SHAMIR
Nachum Shamir
President and Chief Executive Officer
February 26, 2018
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 HAS BEEN PROVIDED TO LUMINEX CORPORATION AND WILL BE RETAINED BY LUMINEX
CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON
REQUEST.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Luminex Corporation (the “Company”) on Form 10-K for the period ended December
31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harriss T. Currie, Senior
Vice President – Finance, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
/s/ HARRISS T. CURRIE
Harriss T. Currie
Chief Financial Officer, Senior Vice President of Finance
February 26, 2018
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 HAS BEEN PROVIDED TO LUMINEX CORPORATION AND WILL BE RETAINED BY LUMINEX
CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON
REQUEST.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K/A
(Amendment No. 1)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2017 or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____.
Commission File No. 000-30109
_______________
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS
(Address of principal executive offices)
74-2747608
(I.R.S. Employer Identification No.)
78727
(Zip Code)
(512) 219-8020
(Registrant’s telephone number, including area code)
_______________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Name of exchange on which registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company) Smaller reporting company
Emerging growth company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
Based on the closing sale price of common stock on The Nasdaq Global Select Market on June 30, 2017, the aggregate market value of the
voting stock held by non-affiliates of the Registrant was $867,659,303 as of such date, which assumes, for purposes of this calculation only, that
all shares of common stock beneficially held by officers and directors are shares owned by “affiliates.”
There were 44,124,802 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on February 23, 2018.
Portions of the Registrant’s Proxy Statement for its 2018 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
The undersigned registrant is filing this Amendment No. 1 to the Annual Report on Form 10-K/A (this “Amendment No.
1”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and
Exchange Commission (the “SEC”) on February 26, 2018 (the “Original Annual Report”). The purpose of this Amendment No.
1 is to amend and restate in its entirety Item 15 of Part IV, solely to furnish hyperlinks to the exhibit list.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, new certifications by the Registrant’s
principal executive officer and principal financial officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934
are being filed as exhibits to this Amendment No. 1; however, paragraphs 3, 4 and 5 of the certifications have been omitted
because this Amendment No. 1 does not contain any financial statements nor does it contain or amend any disclosure with
respect to Items 307 and 308 of Regulation S-K.
Except as expressly described above and as set forth herein, this Amendment No. 1 does not modify the Original Annual
Report in any way, including, without limitation, to reflect events occurring after the date of, or update any of the disclosures
included in, the Original Annual Report. Accordingly, this Amendment No. 1 should be read in conjunction with the Original
Annual Report and with the registrant’s other filings with the SEC subsequent to the Original Annual Report.
1
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Annual Report on Form 10-K:
(1) Financial Statements:
The Financial Statements required by this item are submitted in Part II, Item 8 of this report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown in the Financial Statements
or in the notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
2.1
2.2
2.3
3.1
3.2
10.1#
10.2#
10.3#
10.4
10.5
10.6
10.7
Agreement and Plan of Merger, dated as of May 15, 2016, among Luminex Corporation, Commodore
Acquisition, Inc., and Nanosphere, Inc. (Previously filed as an Exhibit to the Company’s Current Report on
Form 8-K (File No. 000-30109), filed on May 16, 2016).
First Amendment to the Agreement and Plan of Merger, dated as of May 22, 2016, among Luminex
Corporation, Commodore Acquisition, Inc., and Nanosphere, Inc. (Previously filed as an Exhibit to the
Company’s Current Report on Form 8-K (File No. 000-30109), filed on May 23, 2016).
Second Amendment to the Agreement and Plan of Merger, dated as of June 1, 2016, among Luminex
Corporation, Commodore Acquisition, Inc., and Nanosphere, Inc. (incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K filed by Nanosphere, Inc. with the Securities and Exchange Commission on
June 2, 2016).
Restated Certificate of Incorporation of the Company (Previously filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as amended).
Amended and Restated Bylaws of the Company (Previously filed as an Exhibit to the Company's Current
Report on Form 8-K (File No. 000-30109), filed March 11, 2015).
2000 Long-Term Incentive Plan of the Company, as amended (Previously filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q (File No. 000-30109) for the quarterly period ended March 31, 2002).
Form of Stock Option Award Agreement for the 2000 Long-Term Incentive Plan (Previously filed as Exhibit
10.3 to the Company's Registration Statement on Form S-1 (File No. 333-96317), filed February 7, 2000, as
amended).
Form of Indemnification Agreement between the Company and each of the directors and executive officers of
the Company (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed September 16, 2008).
Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex Corporation, as Tenant,
dated October 19, 2001 (Previously filed as an Exhibit to the Company's Quarterly Report on Form 10-Q (File
No. 000-30109) for the quarterly period ended September 30, 2001).
First Amendment to Lease Agreement between Aetna Life Insurance Company, as Landlord, and Luminex
Corporation, as Tenant, dated July 25, 2002 (Previously filed as an Exhibit to the Company's Quarterly Report
on Form 10-Q (File No. 000-30109) for the quarterly period ended June 30, 2002).
Lease Amendment between McNeil 4 & 5 Investors, LP, as Landlord, and Luminex Corporation, as Tenant,
dated January 27, 2003 (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No.
000-30109) for the fiscal year ended December 31, 2002).
Lease Agreement between PS Business Parks, L.P., as Landlord, and Luminex Corporation, as Tenant, dated
September 30, 2014 (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No.
000-30109) for the fiscal year ended December 31, 2014).
2
10.8#
10.9#
10.10#
10.11#
10.12#
10.13#
10.14#
10.15#
10.16#
10.17#
10.18#
10.19#
10.20#
10.21#
10.22#
10.23#
10.24#
10.25#
10.26#
Employment Agreement, effective as of October 1, 2003, by and between Luminex Corporation and Harriss T.
Currie (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for
the fiscal year ended December 31, 2003).
Luminex Corporation Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the
Company's Current Report on Form 8-K (File No. 000-30109), filed May 21, 2009).
Form of Non-Qualified Stock Option Agreement for the Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May
21, 2009).
Form of Restricted Share Award Agreement for Officers & Employees for the Amended and Restated 2006
Equity Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed May 21, 2009).
Form of Restricted Share Award Agreement for Directors for the Amended and Restated 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed
May 21, 2009).
Form of Restricted Share Unit Agreement for Officers & Employees for the Amended and Restated 2006 Equity
Incentive Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed May 21, 2009).
Form of Restricted Share Unit Agreement for Directors for the Amended and Restated 2006 Equity Incentive
Plan (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed
May 21, 2009).
Amendment to Luminex Corporation Amended and Restated 2000 Long-Term Incentive Plan dated as of May
24, 2007 (Previously filed as an Exhibit to the Company's Quarterly Report on Form 10-Q (File No. 000-30109)
for the quarterly period ended June 30, 2007).
Luminex Corporation 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Proxy
Statement (File No. 000-30109) for its Annual Meeting of Shareholders held on May 25, 2006).
Form of Non-Qualified Stock Option Agreement for the 2006 Equity Incentive Plan (Previously filed as an
Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May 25, 2006).
Form of Restricted Share Award Agreement for Officers & Employees for the 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May
25, 2006).
Form of Restricted Share Award Agreement for Directors for the 2006 Equity Incentive Plan (Previously filed as
an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed May 25, 2006).
Form of Restricted Share Unit Agreement for the 2006 Equity Incentive Plan (Previously filed as an Exhibit to
the Company's Annual Report on Form 10-K (File No. 000-30109) for the fiscal year ended December 31,
2006).
Form of Amendments to Equity Award Agreements (Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q (File No. 000-30109) for the quarterly period ended June 30, 2007).
Luminex Corporation Second Amended and Restated 2006 Equity Incentive Plan (Previously filed as Annex A
to the Company's Proxy Statement (filed with the SEC on April 3, 2012; file No. 000-30109) for its Annual
Meeting of Stockholders held on May 17, 2012).
Luminex Corporation Employee Stock Purchase Plan (Previously filed as Annex B to the Company's Proxy
Statement (filed with the SEC on April 3, 2012; file No. 000-30109) for its Annual Meeting of Stockholders
held on May 17, 2012).
Form of Amendment to Employment Agreement, effective as of December 31, 2012, by and between Luminex
Corporation and its Executives (Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
(File No. 000-30109) for the fiscal year ended December 31, 2012).
Employment Agreement, dated October 14, 2014, between Luminex Corporation and Nachum Shamir
(Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No. 000-30109), filed
October 20, 2014).
Employment Agreement, dated August 14, 2012, by and between Luminex Corporation and Nancy M. Fairchild
(Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2014).
3
10.27#
10.28#
10.29#
10.30#
10.31#
10.32#
10.33#
10.34#
10.35#
10.36#
10.37#
10.38#
10.39#
10.40#
10.41#
10.42#
10.43#
10.44#
21.1
Second Amendment to Employment Agreement, effective as of February 6, 2014, by and between Luminex
Corporation and Nancy M. Fairchild (Previously filed as an Exhibit to the Company’s Annual Report on Form
10-K (File No. 000-30109) for the fiscal year ended December 31, 2014).
Third Amendment to Employment Agreement, effective as of January 1, 2015, by and between Luminex
Corporation and Nancy M. Fairchild (Previously filed as an Exhibit to the Company’s Annual Report on Form
10-K (File No. 000-30109) for the fiscal year ended December 31, 2014).
Omnibus Amendment to the Luminex Corporation Restricted Share Unit Award Agreements (2012 and 2013
LTIPs) (Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-30109) for
the fiscal year ended December 31, 2014).
First Amendment to the Luminex Corporation Second Amended and Restated 2006 Equity Incentive Plan
(Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No. 000-30109), filed on
March 11, 2015).
Form of Non-Qualified Stock Option Agreement for the Luminex Corporation Second Amended and Restated
2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q
(File No. 000-30109) for the quarterly period ended March 31, 2015).
Form of Stock Appreciation Rights Agreement for the Luminex Corporation Second Amended and Restated
2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q
(File No. 000-30109) for the quarterly period ended March 31, 2015).
Luminex Corporation Third Amended and Restated 2006 Equity Incentive Plan (Previously filed as Annex A to
the Company’s Proxy Statement (filed with the SEC on March 3, 2015; file No. 000-30109) for its Annual
Meeting of Stockholders held on May 14, 2015).
Form of Restricted Share Award Agreement for Directors for the Luminex Corporation Third Amended and
Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form
10-Q (File No. 000-30109) for the quarterly period ended June 30, 2015).
Form of Restricted Share Unit Agreement for Directors for the Luminex Corporation Third Amended and
Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company’s Quarterly Report on Form
10-Q (File No. 000-30109) for the quarterly period ended June 30, 2015).
Employment Agreement, dated March 4, 2015, by and between Luminex Corporation and Richard Rew
(Previously filed as an Exhibit to the Company’s Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2015).
Employment Agreement, dated March 16, 2015, by and between Luminex Corporation and Randall Myers
(Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2016).
Employment Agreement, dated November 1, 2016, by and between Luminex Corporation and Todd Bennett
(Previously filed as an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for the
fiscal year ended December 31, 2016).
Amended and Restated 2016 Management Incentive Plan (Previously filed as an Exhibit to the Company's
Current Report on Form 8-K (File No. 000-30109), filed March 28, 2016).
Form of Performance-Based Non-Qualified Stock Option Agreement for the Luminex Corporation Third
Amended and Restated 2006 Equity Incentive Plan (Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2016).
First Amendment to Employment Agreement, effective March 27, 2017, by and between Luminex Corporation
and Nachum Shamir (Previously filed as an Exhibit to the Company's Current Report on Form 8-K (File No.
000-30109), filed March 31, 2017).
Amended and Restated 2017 Management Incentive Plan (Previously filed as an Exhibit to the Company's
Current Report on Form 8-K (File No. 000-30109), filed March 31, 2017).
Amended and Restated Luminex Corporation Employee Stock Purchase Plan (Previously filed as Annex A to
the Company's Proxy Statement (filed with the SEC on April 3, 2017; file No. 000-30109) for its Annual
Meeting of Stockholders held on May 18, 2017).
Employment Agreement, dated January 1, 2018, by and between Luminex Corporation and Chuck Collins
(previously filed as Exhibit 10.44# to the Original Annual Report).
Subsidiaries of the Company (previously filed as Exhibit 21.1 to the Original Annual Report).
4
23.1
24.1
31.1
31.2
31.3*
31.4*
32.1
32.2
101
Consent of Independent Registered Public Accounting Firm (previously filed as Exhibit 23.1 to the Original
Annual Report).
Power of Attorney (previously filed as Exhibit 24.1 to the Original Annual Report).
Certification by CEO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (previously filed as Exhibit 31.1 to the Original
Annual Report).
Certification by CFO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (previously filed as Exhibit 31.2 to the Original
Annual Report).
Certification by CEO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CFO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (previously filed as Exhibit 32.1 to the Original Annual Report).
Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002 (previously filed as Exhibit 32.2 to the Original Annual Report).
The following materials from Luminex Corporation's Annual Report on Form 10-K for the year ended
December 31, 2017, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed
Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Statements of Cash Flows;
and (iv) Notes to Condensed Consolidated Financial Statements.
# Management contract or compensatory plan or arrangement.
* Filed herewith.
5
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this Amendment No. 1 to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
LUMINEX CORPORATION
By: /s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
Date: March 1, 2018
6
CERTIFICATIONS
Exhibit 31.3
I, Nachum Shamir, certify that:
1. I have reviewed this Amendment No.1 to Annual Report on Form 10-K of Luminex Corporation; and
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report.
Date: March 1, 2018
By:
/s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
CERTIFICATIONS
Exhibit 31.4
I, Harriss T. Currie, certify that:
1. I have reviewed this Amendment No.1 to Annual Report on Form 10-K of Luminex Corporation; and
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report.
Date: March 1, 2018
By:
/s/ Harriss T. Currie
Harriss T. Currie
Chief Financial Officer, Senior Vice President of
Finance