LETTER TO SHAREHOLDERS
NACHUM “HOMI” SHAMIR
PRESIDENT AND CHIEF EXECUTIVE OFFICER
My Fellow Shareholders,
2019 was definitely a challenging year for Luminex, but one that we
emerged from on solid footing—fully prepared for accelerated growth.
More importantly, we begin 2020 as a transformed company on the
path to double-digit growth, profitability and cash flow generation.
During 2019, in the face of the final headwinds brought on by the
departure of one of our largest customers, our diversified business
performed very well and showcased both our flexibility and creativity.
We fully integrated the flow-cytometry acquisition from Merck/
Millipore, expanded our automated molecular diagnostics franchise
by 20%, completed development of our VERIGENE® II System and
submitted the first VERIGENE® II assay to the FDA, launched our newly
FDA-cleared MRSA assay on the ARIES® System, and prepared for the
launch of our new products in 2020—all while remaining in firm control
of our operating expenses. And then, we were confronted with a global
pandemic unlike anything we’ve ever experienced.
The COVID-19 outbreak has truly shown the capabilities and
responsiveness of our organization. When presented with opportunities
to help detect the SARS-CoV-2 virus and save lives, Luminex rapidly
responded across multiple channels. We developed an assay that
received Emergency Use Authorization (EUA) from the FDA on our
NxTAG® platform and validated the use of our ARIES® technology to
enable the development of Laboratory Developed Tests (LDT) for
detection of this novel coronavirus. As a result of concerted efforts
across our entire organization, we have been able to supply a significant
volume of test kits and instruments to our customers. We also anticipate
receiving an EUA for our ARIES® SARS-COV-2 Assay in the near future.
Longer-term, we are working on adding SARS-CoV-2 detection to our
new VERIGENE II Respiratory Flex® Assay. Our broad portfolio lets
us quickly tailor Luminex’s products to address unmet needs in the
market and provide a comprehensive array of cost-effective solutions
for our customers.
During the first half of 2019, we were laser-focused on the integration of
the flow cytometry business acquired from Merck/Millipore, including
transferring manufacturing and distribution from offshore locations,
incorporating additional operations into our systems, onboarding
employees, and leveraging synergies as we merged the flow business
into our existing operations. Our efforts reduced manufacturing cycle
time, resulting in better than anticipated revenue in the first half of the
year, and we finished the year on-target with $45 million in revenue.
Additionally, because the customer base of the flow business and our
Partners’ research businesses have some degree of overlap, we have
been able to deepen relationships with many long-standing customers
of Luminex. Overall, we look forward to continuing to expand the flow-
cytometry business, with a significant focus on the proprietary, image-
based platforms.
Over the course of 2019, we also expanded our automated molecular
franchise by more than 20%. We placed more than 200 new sample-to-
answer systems under contract, including both ARIES® and VERIGENE
units, increasing the active customer utilization rates by 7% and 12%,
respectively. We continue to hold our prices in line with what our
customers can afford. Given current reimbursement rates, this gives
us a significant competitive advantage, with an average price per assay
that is often well below our competitors’ prices—with comparable
performance. In an environment with ever-increasing pressure to
minimize healthcare costs, we remain well-positioned for success, and
our customers continue to let us know that they appreciate that we view
them as collaborative partners in a joint relationship.
In October of 2019, we completed the development of our next-
generation VERIGENE II System, submitted the first associated assay
to the FDA on October 31, and submitted a second assay in early 2020.
The VERIGENE II System offers a number of significant improvements
over the current system including Flex® Testing, which provides more
cost-effective results. We believe the Flex capability of our assays offers
another significant competitive advantage—by allowing physicians to
customize the test report to view the specific targets that make sense
based on an individual’s symptoms and history, they pay only for what
is necessary. This customization helps healthcare providers align with
dynamic reimbursement guidelines and supports a more cost-effective
evaluation of each patient. The new VERIGENE II System will provide
the company with expanded margin opportunities, and, as the menu
develops, should contribute to increased profitability with volume.
Throughout 2019, we maintained tight control over our operating
expenses in a year where revenue growth was challenged. Although we
added expenses as a product of the flow-cytometry acquisition, our pre-
existing core expenses remained essentially flat, despite the fact that we
conducted three clinical trials—two for VERIGENE II and one for ARIES®.
While this outbreak has certainly placed a heavy burden on healthcare
providers across the globe, and has significantly impacted our daily lives,
I am proud to say that Luminex remains well-positioned to accelerate our
growth towards our target of $500 million in revenue, improved gross
margins and increased profitability. We also will continue to have a solid,
ongoing commitment to R&D. With our new product launches in 2020,
we are working to establish an even stronger foundation for double-
digit growth and margin expansion as the volume in all of our factories
increases. VERIGENE II will provide a significant improvement over the
existing VERIGENE platform. xMAP® INTELLIFLEX, our next-generation
xMAP instrument, will provide improvements and modernization to a
platform that is the gold standard for multiplexing. xMAP Technology
has been well-respected for more than two decades in both the research
and clinical diagnostic space. Overall, we expect our LTG business to
grow at a consistent, mid-to-high single-digit rate over the coming years,
the flow business at or in excess of 10%, and our sample-to-answer
franchise in excess of 20%.
Once again, I would like to thank our shareholders for your continued
support and confidence. Additionally, I would like to acknowledge our
more than 1,300 employees worldwide for their outstanding efforts and
continued dedication to making a positive difference in the lives of the
healthcare providers and patients we serve on a daily basis.
Yours sincerely,
Homi Shamir
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, 2019
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __ to __.
or
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
000-30109
74-2747608
(State or other jurisdiction of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
12212 Technology Blvd., Austin, Texas
(Address of principal executive offices)
78727
(Zip Code)
(512) 219-8020
Registrant’s Telephone Number, Including Area Code
None
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common Stock, $0.001 par value
LMNX
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 every Interactive Data File required to be submitted 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 such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an 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.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
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 Exchange Act).
Yes
No
Based on the closing sale price of common stock on The Nasdaq Global Select Market on June 28, 2019, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was $848,754,179 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 45,168,166 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on February 26, 2020.
Portions of the Registrant’s Proxy Statement for its 2020 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, 2019
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
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
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
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
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PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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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, products including ARIES®, VERIGENE®
NxTAG®, Muse®, Guava®, easyCyte™, InCyte™, Amnis®, ImageStream®, FlowSight® and CellStream®, 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 all 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:
• 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, periodic variability in their
purchasing patterns or practices as a result of internal resource planning challenges, or budget or finance constraints
in the current economic environment;
• risks and uncertainties relating to market demand and acceptance of our products and technologies, including ARIES®,
MultiCode®, NxTAG®, xMAP®, VERIGENE®, Muse®, Guava®, and Amnis® products;
• 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;
• 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 challenge to identify acquisition targets including our ability to obtain financing on acceptable terms;
• our ability to integrate acquired companies or selected assets, including the flow cytometry assets recently acquired
from EMD Millipore, into our consolidated business operations, and the ability to fully realize the benefits of our
acquisitions;
• 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 assays;
• 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 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;
• implementation, including any modification, of our strategic operating plans;
• uncertainty regarding the outcome or expense of any litigation brought against or initiated by us;
• 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;
• budget or finance constraints in the current economic environment, or periodic variability in customer purchasing
patterns or practices as a result of material resource planning challenges; and
• reliance on third party distributors for distribution of specific Luminex-developed and manufactured assay products.
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®, SYNCT™, ARIES®, VERIGENE®, xMAP® INTELLIFLEX,
agPlex-TAG™, and Flex®, Muse®, Guava®, easyCyte™, InCyte™, Amnis®, ImageStream®, FlowSight®, CellStream®,
INSPIRE™, IDEAS®, SpeedBead®, easyCheck™, FlowCellect®, ViaCount™, and Guava Nexin® are trademarks of Luminex
Corporation or one of its subsidiaries. This report also refers to trademarks, service marks and trade names of other organizations.
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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, pharmaceuticals and research. These industries depend on a broad range of tests,
called assays, to perform diagnostic testing, conduct life science research and perform pharmaceutical testing. 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 instrument 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, which generates 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 incorporate
proprietary software to automate data acquisition and analysis in real-time.
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• 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 enzyme-linked immuno-sorbent assay (ELISA) or real-time polymerase chain
reaction (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 an 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 Amnis/Guava® Technologies
Due to our acquisition of EMD Millipore Corporation’s flow cytometry portfolio, which closed on December 31, 2018,
we now have both Amnis® and Guava® technologies. Amnis systems are a family of imaging flow cytometry products for cell-
based analysis. With the proprietary Amnis charge-coupled device detection and time-delayed integration (CCD-TDI) technology,
CellStream® provides fluorescence and small particle sensitivity in a highly customizable flow cytometer. FlowSight® and
ImageStream® Imaging Flow Cytometers combine the speed and sensitivity of flow cytometry with the functional detail and spatial
information of microscopy. The Guava portfolio of products, which are versatile, easy-to-use cytometry systems based on
microcapillary fluidics technology, include the Muse® Cell Analyzer, a simple, compact, and affordable system for absolute cell
counting, viability, and basic cell health analyses, and the Guava easyCyte™ System, a versatile benchtop platform for additional,
multi-dimensional cell health and biological assessments.
This acquisition expanded Luminex’s existing offering of flow-based detection systems, which is centered around our
innovative xMAP® multiplexing technology, with approximately 17,000 xMAP systems sold worldwide, some of which may be
retired or otherwise not in use. The results of operations for this acquisition have been included in Luminex’s consolidated financial
statements beginning January 1, 2019.
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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 also 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.
Our ARIES® Technology
The ARIES® System is our sample to answer platform for our MultiCode®-RTx technology, including In Vitro Diagnostic
(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 PCR, 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 short turn around testing (STAT) and batch testing. The ARIES® System can run both IVD and MultiCode® Analyte
Specific Reagents (ASRs) simultaneously with a common Universal Assay Protocol.
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 pathogens, 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 includes 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 combination of the ARIES® and VERIGENE platforms, 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 instruments, including the VERIGENE Processor SP, which is a modular
benchtop 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 primarily 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 answer
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.
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In addition to our menu of infectious disease tests, we are currently developing a next generation VERIGENE System,
VERIGENE II, that we expect will deliver an improved user experience. This next generation system is designed to provide a
reduced time to result, an improved user interface and a room temperature cartridge, all in a fully automated sample to answer
system with an optimized footprint. In addition, customers using this system will have the ability to select both individual and
groups of targets on assays using Flex pricing. This approach to target selection allows customers to save money by only paying
for the targets they wish to see, which will often align with healthcare standard of care guidelines, where applicable. If these results
do not provide a conclusive diagnosis, additional targets that were tested for but not released can immediately be viewed for an
incremental charge.
Market Approach / Sales and Marketing
Our three primary focus areas for continued revenue growth, as well as our sales and marketing strategies to achieve
such growth, is as follows:
1. Molecular Diagnostics: the development and sale of molecular diagnostic assays utilizing our proprietary MultiCode®,
xMAP and VERIGENE technologies for use on our installed base of automated and non-automated systems. Our molecular
diagnostic assay sales and marketing strategy is to expand the installed base and utilization of xMAP, xTAG, NxTAG®, ARIES®
and VERIGENE product lines. 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 our sales and marketing strategy to
launch innovative products such as VERIGENE Systems, NxTAG Respiratory Pathogen Panel (RPP) and ARIES® Systems. In
addition, we market and sell our clinical diagnostics products to group purchasing organizations (GPOs) and integrated healthcare
delivery networks. 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. Our assays are primarily focused on multiplexed applications
for the human molecular clinical diagnostics market and are also focused on three segments of the molecular diagnostic testing
market: infectious disease, human genetics and personalized medicine.
2. Licensed Technologies Group (LTG): the sustained expansion of our partnership revenues through the introduction of
an innovative new xMAP system and continued fulfillment of our partners needs in their respective fields of use. Our LTG sales
and marketing strategy 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. Our strategic partners
include immune/clinical diagnostics, protein diagnostic, pharmaceutical and life sciences companies that develop applications
and/or provide testing services using our xMAP technology platforms. Some partners also distribute xMAP Systems to their
customers.
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 below. 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 us. Certain strategic partners also perform testing services for third parties using our xMAP
products, which also result in royalty revenue. We also contract with distributors to purchase and resell xMAP Systems and
consumables in geographic or application-specific areas not covered by strategic partners.
We update our LTG listing regularly to reflect partner consolidations resulting from mergers and acquisitions, commercial
sales inactivity, as well as termination or expiration of existing non-performing partner agreements. As of December 31, 2019, we
had 82 strategic partners, compared to 74 strategic partners as of December 31, 2018. During 2019, we had 55 strategic partners
with commercialized products utilizing xMAP Technology submitting royalties. Of these 55 strategic partners, 30 principally serve
the clinical diagnostics market and 25 principally serve the life science research market. Revenues from these 55 commercialized,
royalty-submitting, strategic partners constituted 43% of total revenue for 2019. 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 original equipment manufacturer (OEM) 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. Luminex and these partners
have sold approximately 17,000 xMAP-based instruments in laboratories worldwide as of December 31, 2019, some of which
may be retired or otherwise not in use.
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3. Flow Cytometry: the continued innovation of our proprietary image based flow cytometry technology. Our flow
cytometry sales and marketing strategy is to become a global leader in flow cytometry, competing in all markets with disruptive
and differentiated solutions by expanding our position in the research markets, building our diagnostic capabilities and increasing
content generation. We expect that the growth of our flow cytometry business will be driven by our pipeline of new product
launches and expanding our positions in the pharma, academic, diagnostics and industrial markets, which should grow our recurring
revenue in service, research and clinical reagents, and clinical trial solutions. In turn, we expect these accomplishments will drive
geographic expansion in both established and developing markets.
We sell the Amnis and Guava Flow Cytometry Systems through a direct sales channel in developed markets in North
America, Europe, the Middle East, Africa and the Asia-Pacific region, and through distribution partners in emerging markets in
Southeast Asia, Africa, and Latin America. The near-term goals of this business line are to strengthen the flow cytometry direct
sales channel through integration into the Luminex sales function and expand our distribution networks in emerging markets. Our
flow cytometry business has built healthy relationships with its customer base and has a reputation for quality customer support
through its sales team and field application scientists, as well as technical service and instrument repair teams. We anticipate
continuing to leverage these strengths to expand our installed base of instruments and concomitant recurring sales of reagents,
software licenses and services.
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The following systems and assays are available on the market as of December 31, 2019:
FDA
CE-IVD MARK
Clearance
Commercial Launch Declaration
Commercial Launch
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
ARIES® MRSA 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
2019 - Q3
2016 - Q1
2012 - Q4
2014 - Q4
2015 - Q4
2014 - Q2
2012 - Q4
2013 - Q4
2011 - Q2
2009 - Q4
2010 - Q1
2013 - Q1
2008 - Q1
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 assays to regulatory authorities in 2020, 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
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• 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
Sequencing
BioChips/Microarrays
Automated Immunoassays
Gels and blots
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
Physical separation of molecules or analytes for
visualization
PCR methods
Tests which use PCR technology to test DNA and RNA
Microfluidics chips
Miniaturized liquid handling system on chips
Microtiter-plate based assays
Plastic trays with discrete wells in which different types
of assays are performed, usually ELISA tests
Genotyping technologies
DNA primers or probes designed to identify small
differences between DNA targets
Gene expression technologies
Mass Spectrometry
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
The table below briefly describes our key systems and technologies:
MARKETS SERVED
Biomedical research and
clinical diagnostics
Biomedical research and
clinical diagnostics
Clinical diagnostics
Biomedical research
and clinical diagnostics
Nucleic acid testing in
clinical diagnostics and
biomedical research
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
SYSTEMS
Luminex® 100/200™
FLEXMAP® 3D
MAGPIX®
ARIES® and ARIES® M1
VERIGENE®
Amnis® FlowSight®
Amnis® ImageStream®
Amnis® CellStream®
Guava easyCyte™
Muse® Cell Analyzer
TECHNOLOGIES
xMAP Technology
xMAP Technology
xMAP Technology
xTAG® and MultiCode Technologies
NanoGrid Technology
Amnis CCD-TDI Technology
Amnis CCD-TDI Technology
Amnis CCD-TDI Technology
Guava Microcapillary Technology
Guava Microcapillary Technology
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Business Strategy
Our Company’s current focus is both on solidifying our leadership position as a provider of effective tools for diagnostic
and research use, as well as establishing 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 goals in our key market segments: (i) expanding usage of our automated molecular
infectious disease testing, (ii) enabling and expanding end markets for our xMAP technologies through our partnership
arrangements, and (iii) developing and expanding the image-based flow cytometry market. We will continue to employ
a combination of a partnership-driven business model and a product-driven sales model focused on selected market
segments and assay applications to achieve our goals.
• Develop and deliver market-leading molecular diagnostic platforms and assays
Our research and development and our acquisition activity have 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 assays 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 have developed, offers 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, and universal assay protocols that enable
true walkaway automation and the 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 infectious disease testing, human genetic testing and personalized medicine 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 initiated clinical studies on the system and its
first assay in 2018 and currently expect to commercially launch the VERIGENE II System by the middle of 2020. We
are also developing the next generation Guava System (Guava Next Gen System). We currently believe the Guava
Next Gen System will commercially launch in 2020.
In the fourth quarter of 2015, we launched our sample to answer platform, ARIES® System. We have also received
FDA clearance for seven assays that run on the ARIES® System.
In addition, we are collaborating with industry participants, biomedical research institutions and government entities
to develop additional products on our platforms. 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 version of
our multiplex PCR technology. This 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 Pathogen Panel (RPP), 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 chemistry are expected to have the
convenience of room temperature shipping and storage. 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.
We are working on the development of a next generation bead-based multiplexing instrument, xMAP INTELLIFLEX.
This new system will 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. We currently expect to have a commercial
launch mid-2020.
• Actively pursue 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, Nanosphere, which is the foundation of the VERIGENE
System and EMD Millipore Corporation’s flow cytometry portfolio. We actively evaluate opportunities to enhance our
capabilities or our access to targeted markets and technologies, to 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, 2019, 55 of our 82 strategic partners have developed and commercialized xMAP-based assays
and are paying royalties to us. We also have strategic partners who distribute Luminex products. During 2019, the 55
strategic partners who have commercialized xMAP based assays accounted for approximately 42% of our total revenue
and all of our strategic partners represented approximately 43% 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 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™. Luminex 100/200 Systems are compact analyzers that integrate fluidics, optics and digital signal
processing to measure up to 100 analytes 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 the life sciences,
diagnostics, and associated markets. 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
analyses of proteins and nucleic acids in a variety of sample matrices. This system can measure up to 50 analytes in a single
reaction volume, reducing sample input, reagents and labor, while simultaneously improving productivity. The MAGPIX System
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 FLEXMAP 3D and Luminex 100/200 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. In addition, it can run traditional hydrolysis probe technology for LDTs using the
ARIES® Exo+ Ready Mix. 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.
The ARIES® System is also able to run up to 6 different assays in different sample types in a random batch via Universal Assay
Protocol, including LDTs.
VERIGENE® Reader and Processor SP. The VERIGENE System is a semi-automated, multiplex, molecular analysis
system for the clinical diagnostics market. The VERIGENE System consists of a microfluidics processor, 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 (if required for the assay). 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 novel Flex® Software capability associated with the Respiratory Flex assay allows the user to select and
pay for only the targets of interest, reducing overall cost. The reader is also web-enabled to allow remote access to results and
reports.
Amnis® FlowSight® Imaging Flow Cytometer. The FlowSight Imaging Flow cytometer provides high-sensitivity flow
cytometry and imagery with up to twelve 20X multi-color images of every cell, including side scatter and brightfield, at up to
5,000 events per second. It is upgradeable to 4 lasers, offers automated sample loading for walk-away operations and is supported
with image analysis software with fluorescence compensation and analysis wizards.
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Amnis® ImageStream® Mark II Imaging Flow Cytometer. The ImageStream System is a benchtop, multispectral,
imaging flow cytometer designed for the acquisition of up to 12 channels of cellular imagery at up to 60X magnification. By
collecting large numbers of digital images per sample and providing a numerical representation of image-based features, the
ImageStream System combines the per cell information content provided by standard microscopy with the statistical significance
afforded by large sample sizes common to standard flow cytometry. With the ImageStream System, fluorescence intensity
measurements are acquired as with a conventional flow cytometer; however, the best applications for the ImageStream System
take advantage of the system’s imaging abilities to locate and quantify the distribution of signals on, in or between cells.
Amnis® CellStream®. The new CellStream Flow Cytometer delivers high sensitivity and flexibility for cell and particle
analysis. This compact system may be configured with up to seven lasers to adapt to a wide range of analytical requirements. With
highly sensitive and configurable optics, researchers benefit from multiparameter detection capabilities, while maintaining the
flexibility to tailor and expand the system according to their research needs and budget.
Guava easyCyte™ Benchtop Flow Cytometer. The Guava easyCyte line includes compact benchtop flow cytometer
models that offer up to 3 lasers and 14 parameters with excellent sensitivity and optional high throughput auto-sampling capabilities.
Guava easyCyte Systems use patented, microcapillary, laser-based technology capable of detecting mammalian and microbial
cells, particles and beads. A sample of fluorescently labeled cells is aspirated into a uniquely proportioned microcapillary flow
cell providing direct absolute counting of cells without reference beads. Forward and side scatter characteristics are detected by
photodiode, and fluorophores excited by the violet, blue or red laser emit signals that are spectrally filtered to resolve up to 10
fluorophores simultaneously. The instruments are supported by a line of 13 reagent FlowCellect® Kits and elegant InCyte™
acquisition and analysis software.
Muse® Cell Analyzer. The Muse Cell Analyzer is a simple, compact, easy-to-use benchtop device that uses patented
miniaturized fluorescent detection and microcapillary technology to deliver accurate, precise and quantitative cell analysis. It is
versatile enough to analyze both suspension and adherent cells 2–60 ?m in diameter and includes a user-friendly touchscreen
interface, intuitive software and optimized “Mix-and-Read” assays.
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.
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.
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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 touchscreen 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.
TDAS®. Our TDAS Software is an analysis program designed to complement our xTAG® Technology, which uses a
proprietary universal tag system that allows for the development and optimization of nucleic acid assays. TDAS Software simplifies
workflow and increases productivity by helping to accurately identify pathogens associated with infectious diseases and genetic
mutations. TDAS Software produces non-subjective results, which can be viewed in the software, integrated with LIS, and exported
or printed into reports.
SYNCTTM. Our SYNCT data management software solution can compile data from multiple ARIES® Systems, or multiple
MAGPIX Systems (NxTag-enabled), assisting laboratories to better leverage their data to decrease laboratory costs and improve
patient care. In addition, SYNCTTM Standard Curve Analysis Software enables labs to create quantitative LDTs.
IDEAS®. Our IDEAS image analysis software for our Amnis Flow Cytometers provides detailed analysis of intensity,
location and co-location of probes. IDEAS offers powerful tools for high content, statistically robust analysis of images, as well
as standard flow cytometry graphing tools and statistics for hundreds of morphological features in addition to intensity.
Clinical Diagnostic Assay Product Families
A product family consists of two or more assays 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 26, 2020, 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. xTAG infectious disease IVD products enable
our laboratory end users to identify the causative agent for respiratory and gastrointestinal infections, which are major causes of
illness and mortality globally. xTAG Assays 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 and are an OEM of instrumentation for certain of our customers.
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 analysis 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® GBS Assay, ARIES® Group A Strep Assay, ARIES® Bordetella Assay, and ARIES® C. difficile Assay. In addition, we
launched an FDA-cleared ARIES® MRSA Assay in 2019.
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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 and CE-marked 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 next generation assays in development.
Customers
In 2019, only one partner accounted for more than 10% of our total revenues. Thermo Fisher Scientific Inc. accounted
for 12%, 14% and 15% of our total revenues in 2019, 2018 and 2017, respectively. LabCorp accounted for 5%, 15% and 20% of
our total revenues in 2019, 2018 and 2017, respectively. No other customer or partner accounted for more than 10% of our total
revenues in 2019, 2018 or 2017; however, Bio-Rad Laboratories, Inc., a partner, accounted for 5%, 6% and 6% of our total revenues
in 2019, 2018 and 2017, respectively. The loss of any of these customers or partners could have a material adverse effect on our
business, financial condition and results of operations.
International Operations
We currently ship 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, 2019, 2018 and 2017, foreign shipments to
customers totaled $82.3 million, $54.1 million and $49.7 million, respectively, representing 25%, 17% and 16%, respectively, of
our total revenues for such periods. We have foreign subsidiaries in Canada, the Netherlands, the United Kingdom, Germany,
France 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.
Customer Operations
Our Customer Operations Group provides technical support, field service and assistance to our customers, our distributors,
our strategic partners and their customers. Most of our customer 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
We offer 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, Texas, Northbrook, Illinois, European, Chinese
or Japanese offices.
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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,
2019, 2018 and 2017, was $56.2 million, $47.2 million and $45.7 million, respectively.
Our current research and development projects include:
• New platform and technology development
We are working on the development of the next generation, sample to answer, molecular diagnostic, automated
VERIGENE II platform. This involves the final design and development of the instrument, consumables and software
as well as the development of a menu of assays for this system. We currently expect to commercially launch the
VERIGENE II System in 2020.
• New sample to answer menu development
We have a pipeline of new syndromic assays for use on the next generation VERIGENE II platform. These automated
assays are primarily in the area of infectious disease testing.
• xMAP® INTELLIFLEX system
Our Next-Generation xMAP system is nearing testing with partners and we expect will be ready for commercial launch
by the middle of 2020. Among other activities, our partners will need to validate the backward capability of previously
developed kits and plan their launches of new kits that will be able to take advantage of the increased sensitivity of
this next generation xMAP System.
• Guava Next Gen
Our flow cytometry research and development group has been working on a next generation Guava instrument that
will provide researchers with simplified benchtop flow cytometry combined with an easy to use software interface.
This new instrument will allow researchers to perform basic to advanced analysis with a consistent and reliable platform
on the benchtop. These researchers will be in academia, pharma, government and biotechnology segments, and will
be conducting research in areas such as immunology, cancer, bacteria, and others. This product will be a research use
only product but is expected to launch worldwide by the middle of 2020.
Manufacturing
We have approximately 134,000 square feet of leased manufacturing space, including space located at our principal
executive offices in Austin, Texas (74,000 square feet), in Madison, Wisconsin (12,000 square feet), in Toronto, Canada (11,700
square feet), in Northbrook, Illinois (26,300 square feet) and in Seattle, Washington (10,000 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 in each
applicable year 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).
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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 and 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, 2019, approximately 17,000 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, Northbrook, Illinois, or Seattle, Washington. 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.
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.
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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.
Flow cytometry is a well-established field that has grown into a multi-billion dollar market, including research and clinical
systems and applications. Competition for our flow cytometry systems is expanding as established competitors consolidate their
positions and new competitors and technologies enter and grow within the field. BD Biosciences and Beckman Coulter are long-
time leaders in the field and hold the majority of the market share. Mid-term competitors include Miltenyi Biotec, Bio-Rad, Sony
Biotechnology, and Attune (part of ThermoFisher Scientific). Newer competitors include ACEA Biosciences and Cytek
Biosciences. Our imaging flow cytometry systems cross over into both imaging and microscopy areas and face a number of
competitors in these fields, as well as new competitors developing imaging-in-flow systems.
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 770 issued patents worldwide directed to various aspects and applications of our
products and technology, including 238 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, the Netherlands, Canada, Hong Kong, China and South Korea. Our patent portfolio also includes 160
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 fluorescently dyed,
magnetically responsive microspheres. In addition, multiple granted patents and pending applications describe aspects of MultiCode
technology, xTAG technology, nanoparticle technology, the ARIES® and VERIGENE Systems, NxTAG technology, imaging flow
cytometry technology and capillary flow cytometry technology.
The source code for our proprietary software is protected as a trade secret and/or as a copyrighted work. Aspects of the
software also are covered by issued patents.
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.”
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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
In general, the products that we manufacture are considered to be medical devices and are subject to regulation in the
United States by the FDA. We also manufacture versions of the Luminex instruments for use with diagnostic assay kits that are
available through our strategic partners. For FDA purposes, Luminex systems 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 requirements and other FDA regulations.
The FDA classifies medical devices into one of three classes on the basis of the intended use of the device, the risk
associated with the use of the device for that indication, as determined by the FDA, and on the controls deemed by the FDA to be
necessary to reasonably ensure their safety and effectiveness. Class I devices, which have the lowest level of risk associated with
them, are subject to general controls. Class II devices are subject to general controls and special controls, including performance
standards. Class III devices, which have the highest level of risk associated with them, are subject to general controls and premarket
approval. Most Class I devices and some Class II devices are exempt from a requirement that the manufacturer submit a premarket
notification, or 510(k), and receive clearance from the FDA which is otherwise a premarketing requirement for a Class II device.
Class III devices may not be commercialized until a premarket approval application (PMA) is submitted to and approved by the
FDA.
510(k) Clearance Pathway
To obtain 510(k) clearance, a sponsor must submit to the FDA a premarket notification demonstrating that the device is
substantially equivalent (SE) to a device legally marketed in the U.S. for which a PMA was not required. The FDA is supposed
to make a SE determination within 90 days of FDA’s receipt of the 510(k), but it often takes longer if the FDA requests additional
information. After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness,
or that would constitute a major change in its intended use, will require a new clearance or possibly a pre-market approval.
De Novo Classification
Medical device types that the FDA has not previously classified as Class I, II or III are automatically classified into Class
III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997 established a new route
to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate
device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure.
This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-
classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than
requiring the submission and approval of a PMA application. Prior to the enactment of the Food and Drug Administration Safety
and Innovation Act of 2012 (FDASIA), a medical device could only be eligible for de novo classification if the manufacturer first
submitted a 510(k) premarket notification and received a determination from the FDA that the device was not substantially
equivalent. FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification
directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent
determination. Under FDASIA, the FDA is required to classify the device within 120 days following receipt of the de novo
application. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special
controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. In addition,
the FDA may reject the reclassification petition if it identifies a legally marketed predicate device that would be appropriate for
a 510(k) or determines that the device is not low to moderate risk or that general controls would be inadequate to control the risks
and special controls cannot be developed.
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Premarket Approval Pathway
A PMA must be submitted if a new device cannot be cleared through the 510(k) process or downclassified by the de novo
pathway described above. The PMA process is generally more complex, costly and time consuming than the 510(k) process or de
novo processes. A PMA must be supported by extensive data including, but not limited to, technical, preclinical, clinical trials,
manufacturing and labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its intended use.
After a PMA is sufficiently complete, the FDA will accept the application for filing and begin an in depth review of the submitted
information. By statute, the FDA has 180 days to review the accepted application, although review of the application generally
can take between one and three years. During this review period, the FDA may request additional information or clarification of
information already provided. Also, during the review period, an advisory panel of experts from outside the FDA may be convened
to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. Although
the FDA is not bound by the advisory panel decision, the panel’s recommendations are important to the FDA’s overall decision
making process. In addition, the FDA will conduct a preapproval inspection of the manufacturing facility to ensure compliance
with its quality system regulations (QSRs). New premarket approval applications or premarket approval application supplements
are also required for product modifications that affect the safety and efficacy of the device.
Clinical Trials
Clinical trials are usually required to support a PMA and are sometimes required for a 510(k). In the U.S., if the device
is determined to present a “significant risk,” the manufacturer may not begin a clinical trial until it submits an investigational
device exemption application (IDE) and obtains approval of the IDE from the FDA. These clinical trials are also subject to the
review, approval and oversight of an institutional review board (IRB) at each clinical trial site. The clinical trials must be conducted
in accordance with the FDA’s IDE regulations and good clinical practices. A clinical trial may be suspended by FDA, the sponsor
or an IRB at its institution at any time for various reasons, including a belief that the risks to the study participants outweigh the
benefits of participation in the trial. Even if a clinical trial is completed, the results may not demonstrate the safety and efficacy
of a device to the satisfaction of the FDA, or may be equivocal or otherwise not be sufficient to obtain approval of a device.
FDA Enforcement
After a medical device is placed on the market, numerous regulatory requirements apply. These include among other
things:
• establishment registration and device listing;
• the QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control,
documentation and other quality assurance procedures during all aspects of the manufacturing process;
• labeling regulations and the FDA prohibitions against the promotion of products for uncleared, unapproved or “off-
label” uses and other requirements related to promotional activities;
• medical device reporting regulations, which require that manufacturers report to the FDA if their device may have
caused or contributed to a death or serious injury, or if their device malfunctioned and the device or a similar device
marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction
were to recur;
• corrections and removal reporting regulations, which require that manufacturers report to the FDA field corrections or
removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the Federal Food, Drug
and Cosmetic Act (FDC Act) that may present a risk to health; and
• post market surveillance regulations, which apply to certain Class II or III devices when necessary to protect the public
health or to provide additional safety and effectiveness data for the device.
To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance
and periodic, pre scheduled and unannounced inspections by the FDA. Failure to comply with applicable regulatory requirements
can result in enforcement action by the FDA, which may include sanctions, including but not limited to, warning letters; fines,
injunctions, consent decrees and civil penalties; recall or seizure of the device; operating restrictions, partial suspension or total
shutdown of production; refusal to grant 510(k) clearance or PMA approvals of new devices; withdrawal of 510(k) clearance or
PMA approvals; and civil or criminal prosecution.
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Research Use Only Products
Some of our products are currently intended for research use only (RUO) applications, although our customers may use
our products to develop their own products that are separately subject to regulation by the FDA. Although most products intended
for RUO are not currently subject to clearance or approval by the FDA, RUO products fall under the FDA’s jurisdiction if they
are used for clinical rather than research purposes. Consequently, these products are labeled “For Research Use Only.”
On November 25, 2013, the FDA issued Final Guidance for Industry and Food and Drug Administration Staff on
“Distribution of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only,” (the RUO/IUO
Guidance). The purpose of an FDA guidance document is to provide the FDA’s current thinking on when IVD products are properly
labeled for RUO or for Investigational Use Only (IUO), but as with all FDA guidance documents, this guidance does not establish
legally enforceable responsibilities and should be viewed as recommendations unless specific regulatory or statutory requirements
are cited. The RUO/IUO Guidance explains that the FDA will review the totality of the circumstances when evaluating whether
equipment and testing components are properly labeled as RUO. Merely including a labeling statement that a product is intended
for research use only will not necessarily exempt the device from the FDA’s 510(k) clearance, premarket approval, or other
requirements, if the circumstances surrounding the distribution of the product indicate that the manufacturer intends its product
to be used for clinical diagnostic use. These circumstances may include written or verbal marketing claims or links to articles
regarding a product’s performance in clinical applications, a manufacturer’s provision of technical support for clinical validation
or clinical applications, or solicitation of business from clinical laboratories, all of which could be considered evidence of intended
uses that conflict with RUO labeling. Consequently, these Luminex products are labeled “For Research Use Only” and meet the
intent of the RUO/IUO Guidance.
Clinical Laboratory Improvement Amendments of 1988
Laboratories that purchase certain of our products are subject to extensive regulation under the Clinical Laboratory
Improvement Amendments of 1988 (CLIA), which applies to all clinical laboratory testing performed on humans in the United
States (with the exception of clinical trials and basic research). A clinical laboratory is defined by CLIA as any facility that performs
laboratory testing on specimens obtained from humans for the purpose of providing information for health assessment or for the
diagnosis, prevention, or treatment of disease. CLIA 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. Certification through the CLIA program is generally a prerequisite to be eligible to bill state and federal health care
programs, as well as many private insurers, for laboratory testing services. As a condition of CLIA certification, laboratories are
subject to survey and inspection every other year, in addition to being subject to additional random inspections. The biennial survey
is conducted by the Centers for Medicare & Medicaid Services (CMS), a CMS agent (typically a state agency), or a CMS approved
accreditation organization. High complexity, CLIA-certified laboratories frequently develop testing procedures to provide
diagnostic results to customers.
These tests have been traditionally offered by nearly all complex laboratories for the last few decades as LDTs, which
are subject to CMS oversight through its enforcement of CLIA. The FDA also has claimed that it has regulatory authority over
LDTs, but has not exercised enforcement with respect to most LDTs offered by high complexity laboratories, and not sought to
require these laboratories to comply with FDA regulations regarding medical devices. During 2010, the FDA publicly announced
that it has decided to exercise regulatory authority over these LDTs, and that it plans to issue guidance to the industry regarding
its regulatory approach. At that time, the FDA indicated that it would use a risk-based approach to regulation and would direct
more resources to tests with wider distribution and with the highest risk of injury, but that it will be sensitive to the need to not
adversely impact patient care or innovation. In September 2014, the FDA announced its framework and timetable for implementing
this guidance. On November 18, 2016, the FDA announced it would not release final guidance at this time and instead would
continue to work with stakeholders, the new administration and Congress to determine the right approach. On January 3, 2017,
the FDA released a discussion paper outlining a possible risk-based approach for FDA and CMS oversight of LDTs. Later in 2017,
the FDA indicated that Congress should enact legislation to address improved oversight of diagnostics, including LTDs, rather
than the FDA addressing the issue through administrative proposals. Several legislative proposals have been described in separate
bills (including, for example, the Diagnostic Accuracy and Innovation Act (DAIA) in 2017 and the Verifying Accurate, Leading-
edge IVCT Development (VALID) Act in 2018), but none of these legislative approaches have been enacted. We cannot predict
the ultimate timing or form of any such guidance or regulation or their potential impact. If adopted, such a regulatory approach
by the FDA may lead to an increased regulatory burden, including additional costs and delays in introducing new tests. While the
ultimate impact of the FDA’s approach is unknown, it may be extensive and may result in significant change.
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Radiological Health Regulations
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
Our products are also subject to approval and regulation by foreign regulatory and safety agencies. For example, the
European Union (EU) has adopted the EU Medical Device Regulation (the 2017/745 MDR) and the In Vitro Diagnostic Regulation
(the EU IVDR), each of which impose stricter requirements for the marketing and sale of medical devices, including in the area
of clinical evaluation requirements, quality systems and post-market surveillance. Manufacturers of currently approved medical
devices will have until May 2020 to meet the requirements of the EU MDR and until May 2022 to meet the EU IVDR. Complying
with the requirements of these regulations may require us to incur significant expenditures. Failure to meet these requirements
could adversely impact our business in the EU and other regions that tie their product registrations to the EU requirements.
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.
We produce CE marked products, which are subject to a number of different 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.
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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 upon 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.
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.
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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, the Eliminating Kickbacks in Recovery Act of 2018, 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 or impacted by patient and
consumer 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, and similar state laws;
• 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.
Health Care Reform
Over the last decade, the U.S. Congress and certain state legislatures have introduced and passed a large number of laws
and regulations designed to make major changes in the healthcare system, including changes intended to increase access to health
insurance. The most prominent of these efforts, the Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act of 2010 (Affordable Care Act), has resulted in extensive changes across the healthcare system
and affects how healthcare services are covered, delivered and reimbursed. However, there is substantial uncertainty regarding
the future of the Affordable Care Act. The law has been subject to legislative and regulatory changes and court challenges, and
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. Effective January 2019, Congress eliminated the financial
penalty associated with the individual mandate to maintain health insurance coverage. As a result of this change, a federal court
in Texas ruled that the individual mandate was unconstitutional, and determined that the rest of the law was, therefore, invalid. In
December 2019, the Fifth Circuit Court of Appeals upheld this decision with respect to the individual mandate, but remanded for
further consideration of how this affects the rest of the law. The law remains in place pending appeal. It is possible that the
Affordable Care Act, uncertainty regarding its repeal, the ultimate outcome and impact of court challenges, significant changes
to the law or other health reform efforts, such as single-payor proposals, 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 26, 2020 and December 31, 2019, respectively, we had a total of 1,247 and 1,257 employees and contract
employees, as compared with 988 as of December 31, 2018. The year over year increase is primarily the result of the flow cytometry
acquisition, which was completed on December 31, 2018. 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.
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Financial information relating to our business for the years ended December 31, 2019, 2018 and 2017 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.”
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 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 (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 on the SEC’s website at www.sec.gov. The SEC’s
website contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC.
Luminex was incorporated under the laws of the State of Texas in May 1995 and reincorporated in the State of Delaware
in February 2000.
Information About Our Executive Officers
Name
Nachum Shamir
Harriss T. Currie
Todd C. Bennett
Chuck Collins
Nancy M. Fairchild
Randall J. Myers
Richard W. Rew II
Eric S. Shapiro
Age
66
58
50
43
66
58
52
56
Position
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
Senior Vice President, Global Marketing
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 Strata Skin Sciences, Inc. (Nasdaq: SSKN), a medical technology company which focuses on the
dermatology market. 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.
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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.
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 Senior 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.
Eric S. Shapiro. Mr. Shapiro joined Luminex in October 2015 as the Vice President of Global Marketing, and was promoted
to Senior Vice President, Global Marketing in February 2018. Prior to joining the Company on a full-time basis, Mr. Shapiro was
the Principal at ESS Strategic Consulting, LLC, which he founded in 2014. In his role there, he worked on a variety of global
strategic and operational projects, including serving as the General Manager for the Market Launch of ARIES® and NxTAG® RPP,
from May 2015 to September 2015. Mr. Shapiro has previously served as a Vice President of Marketing for Given, from 2009 to
2014, and held numerous leadership positions at Kinetic Concepts, Inc., from 1993 to 2007, including Vice President of Marketing,
Vice President of Patient Administration, Director of Corporate Development, and Director of Mergers and Acquisitions. Mr.
Shapiro began his career working in both office and hospital-based Sales positions with Merrell Dow and Marion Merrell Dow.
Mr. Shapiro holds a B.S. degree from Syracuse University, with an emphasis in Marketing and Telecommunications Management,
and an M.B.A. from the J.L. Kellogg Graduate School of Management, with an emphasis in Marketing, Healthcare, Organizational
Behavior, and Economics.
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ITEM 1A. RISK FACTORS
The life sciences and diagnostics 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 and diagnostics 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, Danaher Corporation, 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 and offer a broad
range of competing products, including increasing adoption of competitive products based on mass spectrometry and next
generation sequencing test technologies.
There are also a number of companies that provide flow cytometry instruments and reagents for research and clinical
flow cytometry applications. BD Biosciences and Beckman Coulter sell systems for cell analysis and cell sorting in both the
clinical and research markets. Miltenyi Biotec markets systems focused on cell separation, some of which integrate their magnetic
separation technology for cell enrichment/depletion. Bio-Rad sells flow analyzers and sorters designed and manufactured by Propel
Labs. Attune (part of ThermoFisher Scientific) markets flow cytometers that use acoustic focusing for high cell throughput for
rare event analysis. Sony Biotechnology sells cell sorters and analyzers and has recently developed a spectral flow cytometry
system that expands the detection of simultaneous fluorescent parameters. Cytek Biosciences has grown from a third-party field
service provider to launch its own spectral flow cytometry system. ACEA Biosciences is a relatively new provider of benchtop
flow cytometry analyzers. A few companies are reportedly working on systems to compete directly with our Amnis imaging flow
cytometers. We anticipate additional competitors will emerge in the future who will offer a broad range of competing products,
which will likely both increase awareness and adoption of spectral flow cytometry and imaging flow cytometry.
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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.
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.
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;
• 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;
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• we may be unable to realize the anticipated benefits and synergies from acquisitions, such as our flow cytometry
acquisition, 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 effectively enhance acquired technologies and products to develop new products relating to the acquired
businesses;
• 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;
• we may fail to successfully manage relationships with customers, distributors and suppliers of our acquired businesses;
• 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
• the costs of unsuccessful acquisition efforts may adversely affect our financial performance.
Other risks of integration of acquired businesses include:
• 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.
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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:
• 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
• 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.
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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 770 issued patents worldwide, including 238 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, China and South Korea, amongst others. In
addition, our patent portfolio includes 160 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
assays as well as our ARIES® and VERIGENE Systems, NxTAG technology imaging flow cytometry technology and capillary
flow cytometry 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 ownership rights, 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 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.
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.
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We require collaboration with other organizations in obtaining relevant biomarkers, and 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.
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.
Furthermore, there are a variety of other state, national, foreign, and international laws and regulations that apply to the
collection, use, retention, protection, security, disclosure, transfer, and other processing of personal data. California has passed
the California Consumer Privacy Act of 2018 (CCPA), which took effect January 1, 2020. The CCPA applies broadly to information
that identifies or is associated with any California household or individual, and compliance with the CCPA requires that we
implement several operational changes, including processes to respond to individuals’ data access and deletion requests. In addition,
many foreign data privacy regulations (including the General Data Protection Regulation (GDPR), which became effective in the
European Union on May 25, 2018), can be more stringent than those in the United States. Each of the GDPR and the CCPA confer
a private right of action on certain individuals and associations. These laws and regulations are rapidly evolving and changing,
and could have an adverse effect on our operations. The costs of compliance with, and the other burdens imposed by, these and
other laws and regulatory actions may increase our operational costs.
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 due to items such as business email
compromise. We may be at increased risk if we outsource certain services or functions of our business or otherwise rely on third
parties to store and use portions of sensitive data. A break or attack affecting any of these third parties could harm our business.
While we continue to implement additional protective measures to reduce the risk of, and to 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,
unauthorized use, 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, monetary losses, disruption
of our operations, damage to our reputation or customers’ willingness to transact business with us and subject us to additional
costs and liabilities, any of which could adversely affect our business.
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 widespread adoption
of our systems 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;
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• 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;
• 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.
In the molecular diagnostics sector, we must recognize significant market uptake in order to gain operational efficiencies
and reduce costs based on increased volume.
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.
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.
Thermo Fisher Scientific Inc. (a partner), LabCorp (a customer), and Bio-Rad Laboratories, Inc. (a partner), accounted
for 22% of total revenue (12%, 5% and 5%, respectively) in the twelve months ended December 31, 2019. For comparative
purposes, these same three companies accounted for 35% of total revenue (14%, 15% and 6%, respectively) in the twelve months
ended December 31, 2018 and 41% of total revenue (15%, 20% and 6%, respectively) in the twelve months ended December 31,
2017. No other customer accounted for more than 5% of total revenue during the twelve months ended December 31, 2019. In
total, for the years ended December 31, 2019 and 2018, our top five customers accounted for 30% and 42%, 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.
Epidemic diseases could negatively affect various aspects of our business, make it more difficult to meet our obligations to our
customers, and could result in reduced demand from our customers. These could have a material adverse effect on our business,
financial condition, results of operations, or cash flows.
Our business could be adversely affected by the effects of a widespread outbreak of contagious disease, including the
recent outbreak of respiratory illness caused by a novel coronavirus (COVID-19) first identified in Wuhan, China. We have
operations in China related to the sale and servicing of our products. In an effort to halt the outbreak of COVID-19, the Chinese
government has placed significant restrictions on travel within China, leading to extended business closures. These travel restrictions
and business closures could adversely impact our operations in China, including our ability to sell or distribute our products, as
well as cause temporary closures of our offices, or the facilities of our suppliers or customers. Any disruption of our suppliers or
customers could impact our global sales and operating results. We cannot at this time accurately predict what effects these conditions
will have on our operations, including due to uncertainties relating to the ultimate geographic spread of the virus, the severity of
the disease, the duration of the outbreak, and the length of the travel restrictions and business closures imposed by the Chinese
government and governments of other impacted countries. In addition, a significant outbreak of contagious diseases in the human
population could result in a widespread health crisis that could adversely affect the economies and financial markets of many
countries, resulting in an economic downturn that could affect demand for our products and likely impact our operating results.
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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. As a result of regulations
issued pursuant to the Protecting Access to Medicare Act, payment rates for most tests included in the Clinical Laboratory Fee
Schedule used by Medicare are based on commercial insurance rates, which certain laboratories are required to report. The payment
reductions resulting from this revised reimbursement methodology are capped at 10% for 2020 and 15% for each of 2021 through
2023. 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. Efforts by group purchasing organizations and other large purchasers to reduce costs may also result in lowered
prices or deeper discounts on 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.
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.
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If the quality or delivery 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, manufacturing and delivery 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.
Uncertain economic conditions and outlook may adversely impact our business, results of operations, financial condition, and
liquidity.
Global economic conditions, including but not limited to effects resulting from the 2020 elections in the United States,
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 sufficient quantities
of customized components in a timely manner, thereby impairing our ability to manufacture on schedule and at commercially
reasonable costs.
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 has been and will continue to be
critical to establishing an installed base of satisfied customers. To the extent that these customers do not continue to adopt the
menu of ARIES® Assays that have been a significant focus of our research and development efforts over the last five years, there
is a significant risk that our investment in these assays may not pay off. Additionally, we have made a significant investment in
our customer service, support and direct sales force to support the launches of ARIES® Systems. Our ability to service, support
and sell the ARIES® and VERIGENE Systems directly, and not through a partner, may also fail to meet ongoing market expectations,
which could have a material adverse effect on our business, financial condition and results of operations.
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We expect our operating results to continue to fluctuate from quarter to quarter.
The sale of our instruments and assays 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 assays 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) has had and is expected to continue to have a material adverse
effect or our business, financial condition and results of operations.
The seasonality of some of our assay offerings results in quarter to quarter fluctuations in the percentage of our quarterly
revenues derived from our highest margin items (i.e., consumables, royalties and assays), as some customers make infrequent
bulk purchases of $100,000 or more to address this demand. 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.
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.
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.
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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 will 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 developing and marketing 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.
Our products are subject to extensive regulation by the FDA, including the requirement to obtain premarket approval and the
requirement to report adverse events and violations of the FDC Act that could present significant risk of injury to patients.
Even though we have received FDA 510(k) clearances to commercially market our products, we will continue to be subject to
extensive FDA regulatory oversight.
Our products are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental
authorities. The process of obtaining regulatory clearances to market a medical device can be costly and time consuming, and we
may not be able to obtain these clearances or approvals on a timely basis, if at all. In general, the FDA permits commercial
distribution of a new medical device only after the device has received clearance under Section 510(k) of the FDC Act, or is the
subject of an approved PMA, unless the device is specifically exempt from those requirements. The FDA will clear marketing of
a lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product is substantially
equivalent to other pre-amendment, 510(k)-exempt, 510(k) cleared products, or PMA-approved products that have subsequently
been down-classified. If the FDA determines that the device is not “substantially equivalent” to a predicate device, or if the device
is automatically classified into Class III, the device sponsor must then fulfill the much more rigorous premarketing requirements
of the PMA approval process, or seek reclassification of the device through the de novo process. Pursuant to amendments to the
statute in 2012, a manufacturer can also submit a petition for a direct de novo review if the manufacturer is unable to identify an
appropriate predicate device and the new device or new use of the device presents a moderate or low risk.
High risk devices deemed to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or
devices not deemed substantially equivalent to a previously cleared device, require the approval of a PMA. The PMA process is
more costly, lengthy and uncertain than the 510(k) clearance process. A PMA application must be supported by extensive data,
including, but not limited to, technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s
satisfaction the safety and efficacy of the device for its intended use. Currently, all of our products requiring FDA clearance or
approval are Class II and have been cleared through the 510(k) process.
Our failure to comply with U.S. federal, state and foreign governmental regulations could lead to the issuance of warning
letters or untitled letters, the imposition of injunctions, suspensions or loss of regulatory clearance or approvals, product recalls,
termination of distribution, product seizures or civil penalties. In the most extreme cases, criminal sanctions or closure of our
manufacturing facilities are possible.
Our products are also subject to approval and regulation by foreign regulatory and safety agencies. For example, the EU
has adopted the EU Medical Device Regulation 2017/745 (the MDR) and the In Vitro Diagnostic Regulation (the EU IVDR), each
of which impose stricter requirements for the marketing and sale of medical devices, including in the area of clinical evaluation
requirements, quality systems and post-market surveillance. Manufacturers of currently approved medical devices will have until
May 2020 to meet the requirements of the EU MDR and until May 2022 to meet the EU IVDR. Complying with the requirements
of these regulations may require us to incur significant expenditures. Failure to meet these requirements could adversely impact
our business in the EU and other regions that tie their product registrations to the EU requirements.
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Foreign governmental authorities that regulate the manufacture and sale of medical devices have become increasingly
stringent and, to the extent we market and sell our products internationally, we may be subject to rigorous international regulation
in the future. In these circumstances, we would rely significantly on our foreign independent distributors to comply with the
varying regulations, and any failures on their part could result in restrictions on the sale of our products in foreign countries.
Modifications to our marketed products may require new 510(k) or de novo clearances or PMA approvals, or may require us
to cease marketing or recall the modified products until clearances or approvals are obtained.
Modifications to our products may require new regulatory approvals or clearances, including 510(k) or de novo clearances
or premarket approvals, or require us to recall or cease marketing the modified devices until these clearances or approvals are
obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a modification
requires a new approval, supplement or clearance. For example, a manufacturer may determine that a modification does not
significantly affect safety or efficacy and does not represent a major change in its intended use, so that no new 510(k) clearance
is necessary. However, the FDA can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative
determine that a new clearance or approval is required. We have made modifications to our products in the past and may make
additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA
disagrees and requires new clearances or approvals for the modifications, we may be required to recall or to stop marketing our
products as modified, which could require us to redesign our products and harm our operating results. In these circumstances, we
may be subject to significant enforcement actions.
For those products sold in the European Union, we must notify our EU Notified Body if significant changes are made to
the products or if there are substantial changes to our quality assurance systems affecting those products. Obtaining clearances
and approvals can be a time consuming process, and delays in obtaining required future clearances or approvals would adversely
affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
If our products contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device
reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA
information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that
would likely cause or contribute to death or serious injury if the malfunction of the device were to recur. As required per the FDA
Code of Federal Regulations (21 CFR) Part 803, we have established procedures and processes for documentation and evaluation
of all complaints relative to reporting requirements. As with all device manufacturers, we have 30 days from “becoming aware”
of an incident to submit to the FDA a medical device report for an event that reasonably suggests that a device has or may have
caused or contributed to the incident, or five work days for an event designated by FDA or an event that requires remedial action
to prevent an unreasonable risk of substantial harm to the public health. If we fail to report these events to the FDA within the
required timeframes, or at all, the FDA could take enforcement action against us. Any adverse event involving our products also
could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection
or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, would
require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and
financial results.
If we or our suppliers fail to comply with ongoing FDA or foreign regulatory authority requirements, or if we experience
unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain clearance, and the manufacturing processes, reporting requirements, post-market clinical
data and promotional activities for such product, is subject to continued regulatory review, oversight and periodic inspections by
the FDA and other domestic and foreign regulatory bodies. In particular, we and our strategic partners who manufacture medical
devices are required to comply with the QSR. The QSR covers the methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. Compliance with applicable
regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. If
we, or our strategic partners, fail to adhere to QSR requirements in the United States or experience delays in obtaining necessary
regulatory approvals or clearances, this could delay production of our products and lead to fines, difficulties in obtaining regulatory
approvals or clearances, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which
could, in turn, have a material adverse effect on our financial condition and results of operations.
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In addition, the FDA audits compliance with the QSR through periodic announced and unannounced inspections of
manufacturing and other facilities. Any failure to comply with applicable statutes and regulations administered by the FDA, or
the failure to timely and adequately respond to any adverse inspection observations or product safety issues, could result in any
of the following enforcement actions:
• untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
• unanticipated expenditures to address or defend such actions;
• customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
• operating restrictions, partial suspension or total shutdown of production;
• refusing or delaying our requests for regulatory approvals or clearances of new products or modified products;
• refusal to grant export approval for our products; or
• criminal prosecution.
Any of these sanctions could have a material adverse effect on our reputation, business, results of operations and financial
condition. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all
applicable regulatory requirements, which could result in a failure to produce our products on a timely basis and in the required
quantities, if at all.
Our products and operations are required to comply with standards set by foreign regulatory bodies, and those standards,
types of evaluation and scope of review differ among foreign regulatory bodies. If we fail to comply with any of these standards
adequately or if changes to our manufacturing or supply practices require additional regulatory approval, a foreign regulatory
body may take adverse actions or cause delays within their jurisdiction similar to those within the power of the FDA. Any such
action or circumstance may harm our reputation and business, and could have an adverse effect on our business, results of operations
and financial condition.
Our products may in the future be subject to product recalls that could harm our reputation, business and financial results.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products
in the event of material deficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall
must be based on an FDA finding that there is a reasonable probability that the device would cause serious injury or death. In
addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies
or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in
a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component
failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would
divert managerial and financial resources and have an adverse effect on our financial condition and results of operations. The FDA
requires that certain classifications of recalls be reported to FDA within 10 working days after the recall is initiated. Companies
are required to maintain certain records of recalls, even if they are not reportable to the FDA. We may initiate voluntary recalls
involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our
determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation
with customers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls
when they were conducted.
U.S. legislative, FDA or global regulatory reforms may make it more difficult and costly for us to obtain regulatory approval
of our product candidates and to manufacture, market and distribute our products after approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions
governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. Any new
regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of future
products. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly
affect our business and our products. It is impossible to predict whether legislative changes will be enacted or FDA regulations,
guidance or interpretations changed, and what the impact of such changes, if any, may be.
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Moreover, leadership, personnel and structural changes within the FDA as well as recent and future federal election
outcomes could result in significant legislative and regulatory reforms impacting the FDA’s regulation of our products. Any change
in the laws or regulations that govern the clearance and approval processes relating to our current and future products could make
it more difficult and costly to obtain clearance or approval for new products, or to produce, market and distribute existing products.
Significant delays in receiving clearance or approval, or the failure to receive clearance or approval, for our new products would
have an adverse effect on our ability to expand our business.
In addition, on May 25, 2017, the new MDR entered into force for medical devices marketed in the EU. Following its
entry into application on May 26, 2020, the MDR will introduce substantial changes to the obligations with which medical device
manufacturers must comply in the EU. High risk medical devices will be subject to additional scrutiny during the conformity
assessment procedure. Specifically, the MDR repeals and replaces the EU Medical Devices Directive. Unlike directives, which
must be implemented into the national laws of the European Economic Area (EEA) Member States, the regulations would be
directly applicable, i.e., without the need for adoption of EEA Member State laws implementing them, in all EEA Member States
and are intended to eliminate current differences in regulation of medical devices among EEA Member States. The MDR, among
other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EEA for
medical devices to ensure a high level of safety and health while supporting innovation. The MDR will become applicable in May
2020. Once applicable, the new regulations will among other things:
• strengthen the rules on placing devices on the market and reinforce surveillance once they are available;
• establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety
of devices placed on the market;
• improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique
identification number;
• set up a central database to provide patients, healthcare professionals and the public with comprehensive information
on products available in the EU; and
• strengthen rules for the assessment of certain high-risk devices which may have to undergo an additional check by
experts before they are placed on the market.
Once applicable, the MDR may impose increased compliance obligations for us to access the EU market.
In addition the EU has adopted the EU IVDR and currently approved medical devices will have until May 2022 to meet
the EU IVDR. Complying with the requirements of these regulations may require us to incur significant expenditures.
In order to continue to sell our products in Europe, we must maintain our CE marks and continue to comply with certain
EU directives and, beginning in May 2020, with the MDR. Our failure to continue to comply with applicable foreign regulatory
requirements, including those administered by authorities of the EEA countries, could result in enforcement actions against us,
including refusal, suspension or withdrawal of our CE Certificates of Conformity by our EU Notified Body, which could impair
our ability to market products in the EEA in the future. Any changes to the membership of the EU, such as the departure of the
United Kingdom (Brexit), may impact the regulatory requirements for the impacted countries and impair our business operations
and our ability to market products in such countries.
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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 2019, approximately 25% of our revenue was derived from sales to non-U.S. customers, with approximately
11% of revenue from sales to customers in Europe and approximately 10% of revenue from sales to customers in Asia. Continued
concerns about the systemic impact of potential long-term and wide-spread recession and geopolitical issues have contributed to
increased market volatility and diminished expectations for economic growth around the world. Uncertainty about global economic
conditions, particularly in emerging markets and countries with government-sponsored healthcare systems, may cause decreased
demand for our products and services and increased competition, which could result in lower sales volume and downward pressure
on the prices for our products, longer sales cycles, and slower adoption of new technologies. 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. A weakening of macroeconomic conditions may also
adversely affect our suppliers, which could result in interruptions in supply. 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;
• 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;
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• 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; and
• the burden of complying with applicable international laws governing privacy and data security, such as the European
Union General Data Protection Regulation.
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.
Changes in policy in the U.S. and other countries regarding international trade, including import and export regulation
and international trade agreements, could also negatively impact our business. In 2018 and 2019, the U.S. imposed tariffs on goods
imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional
tariffs or further retaliatory trade measures taken by China or other countries in response, could affect the demand for our products
and services, impact the competitive position of our products, prevent us from being able to sell products in certain countries or
otherwise adversely impact our results of operations. The implementation of more restrictive trade policies, such as more detailed
inspections, higher tariffs or new barriers to entry, could negatively impact our business, results of operations and financial
condition.
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.
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.
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. This data is published in a publicly searchable database. 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 EU, 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 redesign 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 position in the markets in which we compete and also decrease satisfaction and confidence levels
with our partners.
In addition, our operations in the United States are subject to federal, state, and local laws addressing, among other issues,
fraud and abuse, privacy and security, and environmental protection. These laws may impact our operations directly or indirectly
through our customers and may affect, for example, our sales and marketing programs. We are also subject to laws in foreign
jurisdictions, including those that prohibit commercial bribery and certain activities with customers or potential customers. If we
fail to comply with applicable laws and regulations, we may be subject to criminal penalties and civil sanctions, including restrictions
on our ability to contract with Medicare and Medicaid providers. Evolving interpretations or enforcement of these laws and
regulations could subject our current practices to allegations of impropriety or illegality or could require us to make changes to
our operations. For further discussion of these matters, see “Government Regulation - Other Government Regulations” in Part I
of this Form 10-K.
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 assays, 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 unable 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.
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The capital spending policies of our customers have a significant effect on the demand for our products.
Our customers include clinical diagnostic, pharmaceutical, biotechnological, research institutions, 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, government funding, grants, spending priorities among
various types of analytical equipment manufacturers 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.
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 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, 2019, goodwill and other intangible
assets with indefinite lives represented approximately 38% 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.
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, Toronto and Seattle. 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.
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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.
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.
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.
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.
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We hold cash and cash equivalents at various foreign subsidiaries that may not be readily available to meet domestic
cash requirements.
Currently a 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.
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.
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. 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.
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;
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• 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, including, but not limited to, effects resulting from the 2020
elections in the United States, and the ongoing and possible escalation of unrest internationally, 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.
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 198,600 square feet of leased space pursuant to lease agreements which expire between June 30, 2022
and April 30, 2025. We have options to renew these lease agreements in Austin, Texas. 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, approximately 64,000 square
feet of leased office and manufacturing space in Northbrook, Illinois, approximately 28,000 square feet of leased office and
manufacturing space in Seattle, Washington and approximately 5,500 square feet of leased office and research space in Hayward,
California. 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, 2019.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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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.”
Holders
As of February 26, 2020, we had 411 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 2019, the Company paid dividends on common stock as follows:
2019
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividend
per share
$0.06
$0.06
$0.09
$0.09
Payment Date
April 11, 2019
July 11, 2019
October 17, 2019
January 15, 2020
On February 18, 2020, we announced that our Board declared a quarterly cash dividend of $0.09 per share of common
stock to be paid to shareholders of record as of the close of business on March 19, 2020 with a payment date of April 9, 2020.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities of Luminex during the twelve months ended December 31, 2019.
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Performance Graph
The following graph compares the change in Luminex’s cumulative total stockholder return on its common shares with
the Nasdaq Composite Index and the Nasdaq Biotechnology Index.
Luminex Corporation
Nasdaq Composite
Nasdaq Biotechnology
12/14
100.00
100.00
100.00
12/15
114.02
106.96
111.77
12/16
107.84
116.45
87.91
12/17
106.30
150.96
106.92
12/18
125.87
146.67
97.45
12/19
127.85
200.49
121.92
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Issuer Purchases of Equity Securities
The stock repurchase activity for the fourth quarter of 2019 was as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number
of Shares
Purchased(1)
Average Price
Paid per Share ($)
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
366
$
—
—
20.95
—
—
— $
—
—
—
—
—
Period
10/1/2019 - 10/31/2019
11/1/2019 - 11/30/2019
12/1/2019 - 12/31/2019
Total Fourth Quarter
20.95
(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.
— $
366
—
$
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, 2019, 2018 and 2017 and the consolidated balance sheet data at
December 31, 2019 and 2018 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, 2016 and 2015 and the
consolidated balance sheet data at December 31, 2017, 2016 and 2015 are derived from audited consolidated financial statements
not included in this Annual Report on Form 10-K.
Year Ended December 31,
2019
2018
2017
2016
2015
Consolidated Results of Operations Data:
(in thousands, except per share data)
Total revenue
Gross profit
(Loss) income from operations
Net (loss) income
Net (loss) income per common share, basic
Shares used in computing net (loss) income per
common share (basic)
Net (loss) income per common share, diluted
Shares used in computing net (loss) income per
common share (diluted)
$ 334,638
$ 315,818
$ 306,571
$ 270,639
$ 237,708
182,739
(12,079)
(3,838) $
(0.09) $
195,491
199,046
179,655
168,707
27,846
18,508
0.42
$
$
37,153
29,423
0.67
$
$
20,986
13,814
0.32
$
$
37,357
36,861
0.88
44,148
43,727
43,173
42,584
42,091
(0.09) $
0.41
$
0.67
$
0.32
$
0.86
44,148
44,291
43,300
43,013
42,637
$
$
$
Consolidated Balance Sheet Data:
(in thousands)
At December 31,
2019
2018
2017
2016
2015
Cash and cash equivalents
Short-term investments
Long-term investments
Working capital
Total assets
Total long-term debt
Total stockholders’ equity
Dividends declared per share
$
59,173
$
76,441
$ 127,112
$
93,452
$ 128,546
—
—
144,401
543,729
—
—
—
151,369
525,175
—
—
—
179,393
490,516
—
—
—
133,537
450,716
—
11,988
7,459
182,294
402,556
—
464,860
467,656
437,907
403,679
368,536
$
0.30
$
0.24
$
0.24
$
— $
—
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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, pharmaceuticals and research. These industries depend on a broad range of tests,
called assays, to perform diagnostic testing, conduct life science research and perform pharmaceutical testing.
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 LTG, 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 instruments and our proprietary xMAP microspheres and sell xMAP-
based assays and/or xMAP-based testing services, which run on the xMAP instruments, 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, 2019, Luminex had 82 strategic partners, of which 55 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, our VERIGENE
readers and processors and our flow cytometers and cellular analysis instruments.
• 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) 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 Polymerase Chain Reaction (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.
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• Other revenue consists of items such as training, shipping, parts sales, license revenue, grant revenue, contract research
and development fees, milestone revenue, amounts paid to global purchasing organizations (which are accounted for
as a reduction in revenue) and other items that individually amounted to less than 1.5% of total revenue in 2019.
2019 Highlights
• Consolidated revenue was $334.6 million for 2019, representing a 6% increase over revenue for 2018.
• Assay revenue of $132.0 million for 2019, representing a decline of 16% over 2018. Excluding sales to LabCorp (see
“Material Customer Activity” below), assay revenue increased 6% from 2018.
• Sample to answer assay revenue increased for 2019 by $11.3 million, or 20%, from 2018.
• Royalty revenue reflecting over $595.7 million of base royalty-bearing end user sales on our technology for 2019, an
increase of over 10% from 2018.
• Cumulative life-to-date multiplexing analyzer shipments of approximately 17,000 (some of which may be retired or
otherwise not in use).
• Integration of the acquisition of EMD Millipore Corporation’s flow cytometry business has been successfully completed.
• Submitted VERIGENE® II Gastrointestinal Flex Assay to the FDA in the fourth quarter of 2019.
2018 Acquisition of EMD Millipore Corporation’s flow cytometry portfolio
On December 31, 2018, Luminex completed its acquisition of EMD Millipore Corporation’s flow cytometry portfolio
for $75 million, consisting of $69.9 million paid under a Share and Asset Purchase Agreement (the Purchase Agreement) and $5.1
million in committed inventory purchases, both of which were subject to adjustment. Following a purchase price reconciliation
in the quarter ended March 31, 2019, the purchase price was reduced by $1.9 million. The committed inventory purchases were
completed in the third quarter of 2019. Luminex financed the acquisition with cash on hand, and acquired 100% of the shares and
equity of Amnis Corporation, a Washington corporation (Amnis), a wholly owned subsidiary of EMD Millipore Corporation, a
Massachusetts corporation (itself an affiliate of Merck KgaA), and certain other assets owned by other affiliates of Merck KgaA
(MilliporeSigma).
The acquisition expanded Luminex’s existing offering of flow-based detection systems, which is centered around our
innovative xMAP® multiplexing technology, with approximately 17,000 xMAP Systems sold worldwide (some of which may be
retired or otherwise not in use). The results of operations for the acquisition have been included in Luminex’s consolidated financial
statements beginning January 1, 2019.
Material Customer Activity
As previously stated in our recent annual and quarterly filings, LabCorp has elected to develop the next iteration of its
women’s health products with another party and has indicated its ultimate intention to cease purchasing our CF products. While
LabCorp extended its CF purchase commitment through 2021, we have experienced the loss of the women’s health portfolio and
the loss or significant reduction of certain other products traditionally sold to LabCorp. These losses could have a material adverse
effect on our growth and future results of operations if we are unable to effectively attract new customers, increase our sales with
existing customers and/or add new products to our existing portfolio. During 2019, we experienced an aggregate reduction of
revenue from LabCorp of approximately $32 million as compared to fiscal 2018. We anticipate the loss of LabCorp revenue will
negatively impact our total revenue by between 2-3% in 2020 as compared to 2019.
Consumable Sales and Royalty Revenue Trends
We have experienced significant fluctuations in consumable revenue in the past. Year-over-year changes in consumable
revenue have been a decrease of $1.6 million, an increase of $0.8 million, and an increase of $0.7 million, in 2019, 2018, and
2017, respectively. While the changes over the past two years have not been significant, fluctuations can manifest through periodic
changes in volume from our largest purchasing partners. These partners account for more than 69% 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.
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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 VERIGENE II sample to answer diagnostic
system;
• increasing the growth of our LTG revenue through enrichment of our existing partner relationships and the addition of
new partners;
• completing development and commercialization of the next generation sample to answer system, VERIGENE II, our
next generation xMAP System, xMAP INTELLIFLEX, and our next generation Guava instrument, Guava Next Gen;
• 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;
• 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
items (assays, consumables and
royalties). Additionally, we believe that a sustained investment in research and development is necessary in order to meet the needs
of our marketplace and to 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.
in our higher margin
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 and Performance Obligations: 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 when the customer obtains control of the Company’s product, which typically occurs upon shipment
or delivery to the customer depending upon the shipping terms. We treat shipping and handling costs performed after a customer
obtains control of the good as a fulfillment cost. Our customers do not typically have any contractual rights of return outside of
our warranty provisions. The Company has allowed few returns to date and believes that returns of its products will be minimal.
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Royalties: For arrangements that include sales-based royalties, including minimum payments, the Company recognizes
revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation, to which some or all of the royalty
has been allocated, has been satisfied. This was a change in 2018 from how the Company has historically treated royalty payments,
by recognizing royalty revenue when our strategic partners reported end-user sales to the Company, and is primarily the basis for
our cumulative adjustment as of January 1, 2018 to retained earnings of $10.6 million before related tax impacts or $8.1 million
net of related tax impacts. Royalty payments are typically received when our strategic partners report end-user sales to the Company.
Reagent Rentals: 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 assays. Revenue is recognized over the defined contract term as assays
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. The Company began reclassifying 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 does not have any impact on top line revenue and the Company does not anticipate any material effects to its
revenue categorization.
Warranties: The Company provides a limited, assurance-type warranty, typically for twelve months from installation for
the systems sold to end customers and fifteen months for the systems sold to partners. The Company accrues 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.
License Revenues: The Company enters into out-licensing agreements, under which it licenses certain rights to its
technology to third parties. These licenses are typically not distinct, as the customer cannot benefit from the license on its own,
and do not have significant standalone functionality, but represent single performance obligations together with the sales of our
consumables, systems and assays. The terms of these arrangements typically include payment to the Company of non-refundable,
up-front license fees. Some of our current agreements range through 2027 and can be extended for up to twenty years. Each of
these payments results in license revenues which are recognized ratably over time and are included in other revenues, except for
revenues from royalties on net sales of licensed products, which are classified as royalty revenues. Deferred revenues related to
these out-licensing agreements are shown in contract liabilities in the table included in Note 18, “Revenue Recognition,” in our
Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Service Agreements: Revenue from extended service agreements is deferred when payment is received in advance of the
performance obligation being satisfied or completed. Luminex provides an integrated service of maintenance and related activities
for equipment sold to customers, where the nature of the overall promise is to provide a stand-ready service. As such, the performance
obligation is recognized as a series of distinct service periods and the service revenue is recognized ratably over the term of the
agreement. The extended service agreements typically range from one to four years and payment is typically received up-front.
Reserves for Variable Consideration: Revenues from product sales are recorded at the net sales price (transaction price),
which includes estimates of variable consideration for which reserves are established and which result from discounts and any
other allowances that are offered within contracts between the Company and its customers relating to the Company’s sales of its
products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of
revenue and accounts receivable. Where appropriate, these estimates take into consideration a range of possible outcomes which
are probability-weighted for relevant factors such as the Company’s historical experience, current contractual requirements,
industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates
of the amount of consideration to which it is entitled based on the terms of each contract. The amount of variable consideration
which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is
probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual
amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from
the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the
period when such variances become known.
We adopted new revenue accounting guidance effective January 1, 2018, which impacted the amount and timing of our
future revenue recognition. For further discussion, see Note 18, “Revenue Recognition”, in our Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
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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.
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. In 2019
and 2018, the Company estimated the fair value of the reporting unit using a fair-value approach based on the market
capitalization. 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 2019 or 2018 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.
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.
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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. The 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.
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.
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
Total operating expenses
Income from operations
Other income, net
Income taxes
Net income
Year Ended December 31,
2019
2018
2017
100 %
45 %
55 %
17 %
38 %
3 %
58 %
(4)%
1 %
2 %
(1)%
100 %
38 %
62 %
15 %
35 %
3 %
53 %
9 %
— %
(3)%
6 %
100 %
35 %
65 %
15 %
35 %
3 %
53 %
12 %
— %
(3)%
10 %
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Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Income from operations
Net income
2019
$
$
$
$
$
334,638
182,739
55%
194,818
(12,079)
(3,838)
$
$
$
$
$
Variance
2018
(dollars in thousands)
315,818
195,491
18,820
(12,752)
$
$
62%
(7)%
167,645
27,846
18,508
$
$
$
27,173
(39,925)
(22,346)
Variance (%)
6 %
(7)%
N/A
16 %
(143)%
(121)%
Total revenue increased by 6% to $334.6 million for 2019 from $315.8 million in 2018. The Company experienced
increases in system sales, service sales, and royalty revenue in 2019, mainly attributable to the addition of our acquired flow
cytometry business, which comprised approximately 14% of total revenue in 2019. Excluding the impact of the flow cytometry
acquisition, revenue decreased 8% from the prior year, primarily driven by the decrease in LabCorp sales in non-automated assays
of $31.9 million in 2019. Assay revenue declined 16% overall, driven by decreases in our non-automated assay revenue, partially
offset by increases in our automated assay revenue.
The following table presents our revenues disaggregated by revenue source for the years ended December 31, 2019 and
2018:
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2019
2018
(dollars in thousands)
Variance
Variance (%)
$
$
70,276
48,542
53,562
132,028
22,413
7,817
334,638
$
$
39,986
50,144
49,394
156,714
12,159
7,421
315,818
$
$
30,290
(1,602)
4,168
(24,686)
10,254
396
18,820
76 %
(3)%
8 %
(16)%
84 %
5 %
6 %
We continue to have revenue concentration in a limited number of customers; however, revenue concentration has trended
down significantly over the past several years. In 2019, the top five customers, by revenue, accounted for 30% of total revenue,
down from 42% of total revenue in 2018 and 48% in 2017. In particular, our two largest customers by revenue accounted for 17%
of 2019 total revenue (12% and 5%, respectively), a decrease from 29% of 2018 total revenue ( 14% and 15%, respectively). This
decrease is mainly attributable to the reduction of LabCorp sales as discussed under "Material Customer Activity". No other
customer accounted for more than 6% of total revenue in 2019 or 2018. In 2019, approximately 25% of our revenue was derived
from sales to non-U.S. customers, with approximately 11% of revenue from sales to customers in Europe and approximately 10%
of revenue from sales to customers in Asia. This compares to approximately 17% of our 2018 revenue being derived from sales
to non-U.S. customers, with approximately 7% of revenue from sales to customers in both Europe and Asia. This growth in the
percentage of sales to non-U.S. customers has been driven primarily by the addition of the flow cytometry business.
Revenue from the sale of systems and peripheral components increased 76% to $70.3 million for 2019 from $40.0 million
in 2018, primarily as a result of the flow cytometry acquisition, which contributed $32 million of system revenue for 2019. Also
included in system revenue is a portion of reagent rental revenue reclassified from assay revenue, which grew 62% or $1.6 million
in 2019 from 2018. These increases were partially offset by lower system placements of multiplexing analyzers in 2019, primarily
driven by large purchase orders by our partners in the prior year period, which did not repeat at the same level in 2019. We sold
990 multiplexing analyzers in 2019, as compared to 1,131 multiplexing analyzers sold in 2018, bringing total multiplexing analyzer
shipments since inception to approximately 17,000 as of year-end 2019, some of which may be retired or otherwise not in use.
For 2019, our five highest selling partners accounted for 787 systems, or 79%, of total multiplexing analyzers sold, whereas our
five highest selling partners in 2018 accounted for 882, or 78%, of total multiplexing analyzers sold.
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Consumable sales, comprised of microspheres and sheath fluid, decreased 3% to $48.5 million in 2019 from $50.1 million
in 2018, primarily driven by lower aggregate bulk purchases from certain large partners. During 2019, we had 73 bulk purchases
of consumables totaling approximately $36.2 million (74% of total consumable revenue), ranging from $0.1 million to $3.0 million,
as compared with 74 bulk purchases totaling approximately $38.8 million (77% of total consumable revenue) in 2018. We expect
fluctuations in consumable sales on an ongoing basis. Partners who reported royalty-bearing sales accounted for $34.0 million,
or 70%, of consumable sales in 2019 compared to $32.8 million, or 65%, of the total consumable sales for 2018.
Royalty revenue, which results when our partners sell products or testing services incorporating our technology, increased
8% to $53.6 million for 2019 from $49.4 million for 2018. This increase is primarily the result of higher base royalties of $5.6
million, in addition to a favorable mix of royalty rates, which was partially offset by lower royalty minimums, audit findings and
other adjustments of $2.5 million. We believe this 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.
Assay revenue decreased 16% to $132.0 million for 2019 from $156.7 million for 2018. This decline was primarily
attributable to reduced sales to LabCorp, whose assay sales declined by $31.9 million to $13.3 million in 2019 from 2018. Excluding
LabCorp's impact, assay revenue increased 6% for 2019 compared to 2018, driven in part by the flow cytometry acquisition, which
made up 37% of this increase. Our sample to answer assay revenue, which consists of VERIGENE and ARIES® assay sales, grew
20% to $67.7 million for 2019 from $56.4 million in 2018. Revenue for our non-automated testing assays declined by 39% to
$61.7 million for 2019, primarily driven by the reduction in LabCorp sales, which made up more than 80% of this reduction.
LabCorp, our largest assay customer by revenue, accounted for 10% of total assay revenue for 2019 compared to 29% for 2018.
No other customer accounted for more than 4% of total assay revenue during those periods. As discussed above under “Material
Customer Activity” and previously disclosed in our prior annual and quarterly reports, our largest assay customer, LabCorp, has
developed the next iteration of their women’s health portfolio with another party, which negatively impacted our assay revenue
in 2018 and 2019.
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 84% to $22.4 million during 2019 from
$12.2 million in 2018. This increase was primarily driven by the flow cytometry acquisition, which contributed $9.1 million of
service revenue during 2019. Absent the impact of the flow cytometry acquisition, service revenue increased 9% for 2019 from
2018, primarily driven by an increase in the number of systems covered under extended service agreements. At December 31,
2019, we had 2,533 Luminex systems covered under extended service agreements and $6.7 million in deferred revenue related to
those contracts. At December 31, 2018, we had 2,311 Luminex systems covered under extended service agreements and $5.3
million in deferred revenue related to those contracts. On a consolidated basis, total deferred revenue was $8.7 million at
December 31, 2019, and included 529 flow cytometry systems covered under extended service agreements, which were primarily
gained through the flow cytometry acquisition.
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, increased to $7.8 million for 2019, compared
to $7.4 million for 2018.
Gross Profit. Gross profit decreased to $182.7 million for 2019, as compared to $195.5 million for 2018. Gross margin
(gross profit as a percentage of total revenue) decreased to 55% for 2019, from 62% for 2018. This decrease in gross margin is
primarily attributable to: (i) the decline in LabCorp’s assay purchases, which typically carry a higher gross margin, (ii) the absorption
of the flow cytometry acquisition and the related acquisition accounting adjustments, which included expenses of $1.1 million for
the step-up in inventory to fair value and $0.8 million of acquisition adjustments for the acquired deferred service revenue, (iii)
the absorption of higher manufacturing expenses for 2019, and (iv) the increase in sample to answer assay revenue, which historically
carries a lower gross margin. 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. Our acquired flow cytometry
margins were approximately 43% for 2019. However, we anticipate these margins will improve, as the related acquisition accounting
adjustments mentioned above and one-time integration costs will not recur.
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Research and Development Expense. Research and development expense increased to $56.2 million, or 17% of total
revenue, for 2019 from $47.2 million, or 15% of total revenue, in 2018. The increase in research and development expense was
primarily a result of the addition of the acquired flow cytometry personnel and related expenses, in addition to higher direct material
expenses driven by the development of VERIGENE II assays, xMAP INTELLIFLEX and the Guava Next Gen Systems. Research
and development headcount as of December 31, 2019 was 216, as compared to 196 as of December 31, 2018. The focus of our
research and development activities is the development and commercialization of the VERIGENE II and its associated assays,
the development of xMAP INTELLIFLEX, and the development of the Guava Next Gen System.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization
of acquired intangible assets, increased to $127.2 million for 2019 from $111.8 million for 2018. The increase was predominantly
attributable to the addition of the acquired flow cytometry personnel and related expenses, which were not included in 2018. This
increase was partially offset by lower acquisition related expenses of $2.7 million incurred in late 2018, which did not repeat in
2019. Selling, general and administrative headcount at December 31, 2019 was 495, as compared to 385 at December 31, 2018.
As a percentage of revenue, selling, general and administrative expense, excluding the amortization of acquired intangible assets,
was 38% for 2019 and 35% for 2018.
Other Income, net. Other income, net, increased $2.6 million in 2019 over 2018. This increase resulted primarily from
an additional investment made in Combinati during the quarter ended December 31, 2019, and the subsequent remeasurement
based on the fair value prior to the additional investment. As a result, a gain of approximately $3.2 million was recorded in Other
income, net in the Consolidated Statements of Comprehensive Income for the year ended December 31, 2019. This increase was
partially offset by (i) a nonrecurring dividend payment of $0.4 million from one of our minority interest investments in 2018 that
did not recur in 2019, and (ii) an impairment of $0.2 million of one of our investments which was recorded in 2019. See Note 3
- Investments and Other Assets for further details regarding our minority interest and equity investments.
Income taxes. Our effective tax rate for 2019 was a benefit of 60%, or $5.7 million, as compared to an effective tax rate
of 35%, or $9.8 million, for 2018. The tax benefit for 2019 is primarily driven by a reduction in unrecognized tax benefits related
to the U.S. transition tax of $6.6 million as a result of a ruling for certain aspects of the earnings and profits (E&P) calculation of
our Canadian subsidiary. The tax expense for 2018 reflects the impact of 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 Company
completed its accounting for all of the enactment-date income tax effects of the Tax Act and recorded a net tax benefit of $1.3
million primarily attributable to a reduction of a deferred tax liability for withholding taxes related to our Canadian entity, offset
by an increase to the transition tax. In 2018, the Company also recorded tax expense totaling $1.4 million based on the results of
a Canadian income tax audit. Other rate impacts are due to our research tax credit benefit and global intangible low-tax income
(GILTI).
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. The Company also expects to generate annual research tax credit benefits. 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 30% range over the next several years, absent any other significant discrete items. We continue to assess our business model
and its impact in various tax jurisdictions.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Year Ended December 31,
Revenue
Gross profit
Gross margin percentage
Operating expenses
Income from operations
Net income
2018
$
$
$
$
$
315,818
195,491
62%
167,645
27,846
18,508
$
$
$
$
$
57
Variance
2017
(dollars in thousands)
306,571
199,046
$
$
9,247
(3,555)
65%
(3)%
161,893
37,153
29,423
$
$
$
5,752
(9,307)
(10,915)
Variance (%)
3 %
(2)%
N/A
4 %
(25)%
(37)%
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Total revenue increased by 3% to $315.8 million for 2018 from $306.6 million in 2017. This increase was driven primarily
by an increase in our automated assays, royalty and system revenue. Automated assay revenue, which is comprised of VERIGENE
and ARIES® assays, grew 36% to more than $56 million for 2018 from the prior year. These increases were partially offset by a
reduction in our non-automated assay revenue, mainly attributable to the decrease in LabCorp sales.
The following table presents our revenue disaggregation by revenue source for the years ended December 31, 2018 and
2017:
System sales
Consumable sales
Royalty revenue
Assay revenue
Service revenue
Other revenue
Year Ended December 31,
2018
2017
(dollars in thousands)
Variance
Variance (%)
$
$
39,986
50,144
49,394
156,714
12,159
7,421
315,818
$
$
38,651
49,319
44,704
154,907
11,470
7,520
306,571
$
$
1,335
825
4,690
1,807
689
(99)
9,247
3 %
2 %
10 %
1 %
6 %
(1)%
3 %
We continued to have revenue concentration in a limited number of customers in 2018. In 2018, the top five customers,
by revenue, accounted for 42% of total revenue, down from 48% of total revenue in 2017. In particular, our two largest customers
by revenue accounted for 29% of 2018 total revenue (15% and 14%, respectively), a decrease from 35% of 2017 total revenue
(20% and 15%, respectively). This decrease was mainly attributable to the reduction of LabCorp sales . No other customer accounted
for more than 6% of total revenue in 2018 or 2017.
Under the revenue recognition guidance effective January 1, 2018, the system portion of reagent rental revenue is
recognized in system revenue. Revenue from the sale of systems and peripheral components increased 3% to $40.0 million for
the 2018 from $38.7 million for 2017. This increase was primarily the result of higher sample to answer reagent rental system
placements for 2018, which grew 61% over the prior year, and resulted in a $2.5 million reclassification of revenue from assay to
system revenue in 2018. This was partially offset by a change in customer sales mix, which lowered the average sales price of
system units. We sold 1,131 multiplexing analyzers in 2018, as compared to 1,066 multiplexing analyzers sold in 2017. For 2018,
our five highest selling partners accounted for 882 systems, or 78%, of total multiplexing analyzers sold, whereas, our five highest
selling partners in 2017 accounted for 779, or 73%, of total multiplexing analyzers sold.
Consumable sales, comprised of microspheres and sheath fluid, increased 2% to $50.1 million in 2018 from $49.3 million
in 2017. During 2018, we had 74 bulk purchases of consumables totaling approximately $38.8 million (77% of total consumable
revenue), ranging from $0.1 million to $3.8 million, as compared with 70 bulk purchases totaling approximately $37.3 million
(76% of total consumable revenue) in 2017. The modest increase in bulk purchases in 2018 was the primary driver to the increase
in consumable revenue from the prior year. Partners who reported royalty-bearing sales accounted for $32.8 million, or 65%, of
consumable sales for 2018 compared to $34.7 million, or 70%, of the total consumable sales for 2017.
Royalty revenue, which results when our partners sell products or testing services incorporating our technology, increased
10% to $49.4 million for 2018 from $44.7 million for 2017. This increase was the result of higher royalty minimums, audit findings
and other adjustments of $2.5 million (collectively) and higher base royalties of $2.2 million, which we believe was mainly the
result of menu expansion and increased utilization of our partners’ assays on our technology.
Assay revenue increased 1% to $156.7 million for 2018 from $154.9 million for 2017, primarily attributable to an increase
in our sample to answer assay revenue, which consists of VERIGENE and ARIES® assay sales. Our sample to answer assay
revenue grew 36% to $56.4 million for 2018 from $41.4 million in 2017. These increases were partially offset by reductions in
our non-automated testing assays. Revenue for non-automated infectious disease testing products decreased by 11%. This was
driven mainly by (i) the reduction in LabCorp’s non-CF related sales to $36.9 million, from $49.9 million in 2017, and (ii) genetic
testing assays decreasing by 12% in 2018 from 2017. The decrease in revenue from our genetic testing products was attributable
to pricing and reimbursement challenges within the pharmacogenetic market segment, in addition to declining sales of CF assays
from LabCorp of $0.8 million for 2018. Our largest customer, by revenue, accounted for 29% of total assay revenue for 2018
compared to 38% for 2017. No other customer accounted for more than 10% of total assay revenue during those periods. The loss
of LabCorp women’s health portfolio negatively impacted our assay revenue in 2018. Excluding LabCorp sales, assay revenue
increased 9% in 2018 as compared to 2017.
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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 $12.2 million during 2018 from $11.5
million in 2017, primarily driven by the increase in the number of systems covered under extended service agreements. At
December 31, 2018, we had 2,311 Luminex systems covered under extended service agreements and $5.3 million in deferred
revenue related to those contracts. 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.
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 $7.4 million for 2018 compared
to $7.5 million for 2017, primarily driven by an increase in amounts paid towards global purchasing organizations, which are
accounted for as a reduction of revenue.
Gross Profit. Gross profit decreased to $195.5 million for 2018, as compared to $199.0 million for 2017. Gross margin
(gross profit as a percentage of total revenue) decreased to 62% for 2018, from 65% for 2017. This decrease in gross margin was
primarily attributable to the decline in LabCorp’s assay purchases, which typically carry a higher gross margin, and the absorption
of higher manufacturing expenses for 2018. These impacts were partially offset by a favorable change in sales mix from other
higher margin items, most notably, royalty and consumable revenue. Concentration of sales in our higher margin items (assays,
consumables and royalties) was 81% of revenue for each of 2018 and 2017.
Research and Development Expense. Research and development expense increased to $47.2 million for 2018 from $45.7
million in 2017, but as a percentage of total revenue remained constant at 15%. The increase in research and development expense
was primarily a result of the focus of our efforts in 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.
Research and development headcount as of December 31, 2018 was 196, as compared to 175 as of December 31, 2017.
Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization
of acquired intangible assets, increased to $111.8 million for 2018 from $107.3 million for 2017. The increase was primarily
attributable to flow cytometry acquisition related expenses of $2.7 million incurred in late 2018, in addition to higher personnel
costs and material expenses stemming from potential customer validations. Selling, general and administrative headcount at
December 31, 2018 was 385, as compared to 358 at December 31, 2017. As a percentage of revenue, selling, general and
administrative expense, excluding the amortization of acquired intangible assets, remained flat at 35% for 2018 and 2017.
Other Income, net. We received a nonrecurring dividend payment of $0.4 million from one of our investments in 2018.
See Note 3 - Investments and Other Assets for further details regarding our investments.
Income taxes. Our effective tax rate for 2018 was 35%, or $9.8 million, as compared to a an effective tax rate of 21%,
or $7.7 million, for 2017. The incurred tax expense for 2018 and 2017 was primarily driven by the impact of this tax legislation.
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 amounts in 2018 and 2017 related to the enactment date effects of the Tax Act. At December 31, 2018 the Company
completed its accounting for all of the enactment-date income tax effects of the Tax Act and recorded a tax benefit of $741,000
for provisional adjustments comprised of (i) increase of $1.9 million to the transition tax related to the Tax Act; (ii) a revaluation
of deferred tax assets of $74,000 based upon the future tax rates; and (iii) a reduction of a deferred tax liability for withholding
taxes related to our Canadian entity of $2.5 million. In 2018, the Company also recorded approximately $2.1 million of tax expense
under the GILTI provisions of the Tax Act which became effective January 1, 2018, and tax expense totaling $1.4 million based
on the results of a Canadian income tax audit. In 2017, the Company recorded provisional tax expense totaling $12.6 million
related to the effects of the Tax Act, 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. These tax legislation effects
were offset by the valuation allowance release on our Canadian deferred tax assets of $12.5 million in the third quarter of 2017.
Other rate impacts are due to the current rate differential between the U.S. and Canada and our research credit benefit.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents
December 31, 2019 December 31, 2018
(in thousands)
59,173
76,441
$
$
At December 31, 2019, we held cash and cash equivalents of $59.2 million and had working capital of $144.4 million.
At December 31, 2018, we held cash and cash equivalents of $76.4 million and had working capital of $151.4 million. Cash, and
cash equivalents decreased by $17.3 million during 2019. The decrease in cash and cash equivalents from the prior year is primarily
attributable to the purchases of property, plant and equipment of $16.2 million, dividends of $12.2 million, and the additional
investment of $7.0 million in Combinati Incorporated (Combinati), a private company, made during the quarter ended December 31,
2019. See Note 3 - Investments and Other Assets for further details regarding our equity investment. These outflows were partially
offset by operating cash flows of $13.5 million and $3.8 million of proceeds from employee stock plans and exercises of stock
options.
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 $13.5 million for the 2019, as compared with cash provided by operations of $50.9
million for 2018. This decrease was primarily attributable to higher operating expenses and lower gross profit in the current year
as compared to the year ended December 31, 2018. Cash used in investing activities was $20.6 million for 2019, a decrease from
$93.5 million for 2018. The change in cash flows of investing activities from 2018 to 2019 was primarily attributable to the
acquisition of EMD Millipore’s flow cytometry business in 2018. 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, and continued strategic
investments or acquisitions.
Cash used in financing activities increased to $10.5 million for 2019, from cash used in financing activities of $8.4 million
for 2018. This change in cash flows used in financing activities was primarily attributable to an increase in dividends from $0.06
per share to $0.09 per share, which was announced in the third quarter and paid in the fourth quarter of 2019.
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 acquisition and 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 2020.
Our short-term projects that are expected to require significant capital to complete are development of the next generation
xMAP System, xMAP INTELLIFLEX, our current in-process research and development of the next generation VERIGENE
System, VERIGENE II, and our in-process research and development of the Guava Next Gen system. We currently anticipate
xMAP INTELLIFLEX, VERIGENE II and Guava Next Gen will all launch commercially in 2020. The estimated aggregate cost
to complete these projects, including completion of development of the systems, cartridge, software and the initial assay, validation,
verification, clinical trials and regulatory submission, is approximately $1.1 million and is included in our research and development
budget for 2020. 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. See also the “Safe Harbor Cautionary Statement”
and risk factors of this report.
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In February 2017, the Board of Directors initiated a cash dividend program 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 February 18, 2020, we announced that our Board declared a quarterly cash dividend of $0.09 per share of common stock to
be paid to shareholders of record as of the close of business on March 19, 2020 with a payment date of April 9, 2020.
As described elsewhere in this report, LabCorp elected to develop the next iteration of one of its women’s health products
with another party. We previously negotiated significant minimum requirements of women’s health purchases from LabCorp,
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. During the quarter ended June 30, 2018, LabCorp met its purchase requirements under that agreement and
indicated it would not make further purchases from us of the women’s health products covered by such agreement. However,
based on an extension agreement entered into in the third quarter of 2017, the Company continued to sell its CF products to
LabCorp through the end of 2019. In the first quarter of 2019, we completed an additional extension agreement and the Company
will continue to sell its CF products to LabCorp through at least the end of 2021. The loss of the women’s health LabCorp business,
and the anticipated future loss of other products traditionally sold to LabCorp (which we expect to occur with products other than
CF, as discussed above), could have a material adverse effect on our growth and future results of operations.
During 2019, LabCorp represented total revenue of $15.5 million. That revenue was categorized as follows: women’s
health - $2.5 million; CF related - $11.9 million; and all other ancillary products - $1.1 million. During 2018, LabCorp represented
total revenue of $47.2 million, categorized as follows: women’s health - $23.2 million; CF related - $12.4 million; and all other
ancillary products - $11.6 million. As noted above, LabCorp met its purchase commitment for women’s health products and will
no longer be placing material orders for the women’s health portfolio.
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 continued profitability of our Canadian subsidiary, in future years we have and
may continue to 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 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.
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Contractual Obligations
As of December 31, 2019, we had approximately $36.7 million in non-cancellable purchase obligations for the next 12
months. These obligations are included in our estimated cash usage during 2020. The following table reflects our total current
non-cancellable obligations by period as of December 31, 2019 (in thousands):
Contractual Obligations
Payment Due By Period
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
$
$
25,232
Non-cancellable rental obligations
Non-cancellable purchase obligations (1)
Minimum royalty commitments (2)
Insurance premiums
Total (3)
63,048
(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 payable on net sales of products incorporating licensed technology and subject to a minimum annual
42,274
10,897
36,678
34,819
12,649
1,705
1,002
7,133
6,429
6,974
1,002
992
136
932
94
—
—
24
47
—
65
—
60
$
$
$
$
$
$
$
$
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,
2019, Luminex is unable to make reasonably reliable estimates of the timing of cash settlement with the respective taxing authority. Therefore,
$3.4 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
See Note 17 to our Consolidated Financial Statements contained in Item 8 of this Annual Report.
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, 2019 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, 2019, 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 a statement of comprehensive income impact of approximately $1.3 million on foreign currency denominated asset and
liability balances as of December 31, 2019. As a result of our efforts to expand globally, in the future we will be exposed to
additional foreign currency risk in multiple currencies. We regularly assess the market to determine if additional strategies are
appropriate to mitigate future risks.
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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 $432,000 was included in determining our
consolidated results for the year ended December 31, 2019.
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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
65
67
68
69
70
71
72
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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, 2019
and 2018, the related consolidated statement of comprehensive income, changes in stockholders’ equity and cash flows for each
of the three years in the period ended December 31, 2019, 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 at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2019, 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, 2019, 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 27, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 17 to the consolidated financial statements, the Company changed its method for accounting for leases in
2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters
or on the accounts or disclosures to which they relate.
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Description of the
matter
How we addressed the
matter in our audit
Description of the
matter
How we addressed the
matter in our audit
Revenues with variable considerations
As described in Note 1 to the consolidated financial statements, revenues from product sales typically
include variable consideration based on volume of sales during a designated time period. Revenue
from customers is recorded based on a transaction price which includes estimates of variable
consideration based on multiple data points including customer contractual tiered pricing, specific
known market events and trends as well as historical and forecasted customer buying patterns which
must be evaluated and updated as pricing terms and industry conditions change. For the year ended
December 31, 2019, the Company recorded $334.6 million of product revenues which included such
variable consideration.
Auditing the Company’s recognition of revenue related to variable consideration was complex due to
the volume of transactions and incremental procedures performed to test the accuracy of the variable
prices charged to customers and recorded as revenue. Each customer contract contains unique terms
which must be evaluated to ensure the appropriate price is applied based on actual cumulative volume
sales or forecasted sales levels to ensure the amount to be recognized in any given period is accurate.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s process to approve, review and execute pricing changes within the accounting
system. For example, we tested controls over management’s monitoring and evaluation of the accuracy
of pricing changes, including the appropriateness of the individuals authorizing and making the changes
to pricing. We also tested the operating effectiveness of controls over the Company’s process to approve
customer pricing and to ensure that the correct customer pricing based on contractual terms is utilized
by the Company in determining variable consideration, including controls over management’s
forecasting of sales volumes.
Our audit procedures over the Company’s estimates of variable consideration included, among others,
reviewing contracts which included tiered pricing based on volume of sales and comparing such terms
to historic sales and forecasted sales volumes to ensure pricing provided to the customer during the year
was in line with the terms of the contract. We also analyzed credit memos to evaluate if there were any
pricing adjustments and performed a look-back analysis to evaluate the historical accuracy of
management’s sales volume forecasts. In addition, we performed correlation analyses between revenue,
accounts receivable and cash to identify unusual or unexpected relationships.
Realizability of inventories
The Company’s inventories totaled $77.1 million as of December 31, 2019, representing 14% of total
assets. As explained in Note 1 of the consolidated financial statements, inventories are stated at the
lower of cost or net realizable value, which includes considerations for inventory becoming obsolete
or having quantities in inventory in excess of anticipated usage based upon the Company’s assumptions
about future demand for products and other market conditions.
Auditing management’s estimate of inventory reserves involved subjective auditor judgment because
management’s assessment of whether a write down is required and the measurement of any excess cost
over net realizable value is judgmental and is sensitive to changes in assumptions, including
management’s assumptions over future product demand and product expiration dates which may be
impacted by, among other things, future market and economic conditions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls
over the Company’s inventory process and the related calculation of inventory reserves, including
management’s assessment of the assumptions and data underlying the excess and obsolete inventory
valuation such as forecasted usage of inventories.
Our audit procedures included, among others, evaluating the assumptions used by the Company to
estimate future product demand, including assumptions surrounding forecasted sales or usage and testing
the completeness and accuracy of the underlying data used in its calculations including product
expiration or end of life dates, quantities on hand and inventory pricing. For example, we compared the
estimated usage rates with the actual usage results of prior periods as well as management’s consideration
of expected timing of estimated usage rates as compared to product expiration dates, and we performed
a gross margin analysis by product type.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1998.
Austin, Texas
February 27, 2020
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders 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, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019, and the related notes and our report dated February 27, 2020 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 27, 2020
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LUMINEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaids and other
Total current assets
Property and equipment, net
Intangible assets, net
Deferred income taxes
Goodwill
Right-of-use assets
Other
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue - current portion
Total current liabilities
Deferred revenue
Lease liabilities
Other long-term liabilities
Total liabilities
Stockholders’ equity:
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding:
44,325,369 shares at December 31, 2019; 43,899,210 shares at December 31, 2018
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,
2018
2019
$
$
$
59,173
55,815
77,084
10,398
202,470
65,515
90,336
27,702
118,145
20,439
19,122
543,729
17,983
31,872
8,214
58,069
1,633
17,182
1,985
78,869
76,441
53,396
63,250
9,657
202,744
66,288
105,148
21,470
118,127
—
11,398
525,175
14,504
26,772
10,099
51,375
1,079
—
5,065
57,519
44
44
—
380,304
(1,380)
85,892
464,860
543,729
$
—
365,349
(1,127)
103,390
467,656
525,175
$
$
$
$
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.
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LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Year Ended December 31,
2019
2018
2017
Revenue
Cost of revenue
Gross profit
Operating expenses:
Research and development
Selling, general and administrative
Amortization of acquired intangible assets
Total operating expenses
(Loss) income from operations
Other income (expense), net
Loss from equity method investment
(Loss) income before income taxes
Income tax benefit (expense)
Net (loss) income
Net (loss) income attributable to common stock holders
Basic
Diluted
Net (loss) income per share attributable to common stock holders
Basic
Diluted
Weighted-average shares used in computing net (loss) income per share
Basic
Diluted
Dividends declared per share
Other comprehensive (loss) income:
Foreign currency translation adjustments
Other comprehensive (loss) income
Comprehensive (loss) income
$
$
$
$
$
$
$
$
334,638
151,899
182,739
56,228
127,183
11,407
194,818
(12,079)
3,100
(523)
(9,502)
5,664
(3,838) $
$
315,818
120,327
195,491
47,164
111,816
8,665
167,645
27,846
465
—
28,311
(9,803)
18,508
$
$
$
$
306,571
107,525
199,046
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
(3,773) $
(3,775)
18,196
18,197
(0.09) $
(0.09) $
44,148
44,148
0.42
0.41
43,727
44,291
0.30
$
0.24
$
0.24
(253)
(253)
(4,091) $
(502)
(502)
18,006
$
1,067
1,067
30,490
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.
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LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation
Deferred income tax (benefit) expense
Loss on sale or disposal of assets
(Earnings) loss on equity method investment (1)
Other
Changes in operating assets and liabilities:
Accounts receivable, net
Inventories, net
Other assets
Accounts payable
Accrued liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Business acquisition consideration, net of cash acquired
Proceeds from net working capital adjustments related to business
acquisition
Issuance of note receivable
Purchase of equity affiliate
Proceeds from (payments to) cost method investment
Proceeds from sale of assets and investments
Acquired technology rights
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock
Shares surrendered for tax withholding
Dividends paid
Net cash used in financing activities
Effect of foreign currency exchange rate on cash
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
$
Year Ended December 31,
2018
2017
2019
$
(3,838) $
18,508
$
29,423
28,529
13,198
(7,444)
641
(2,719)
(329)
(2,440)
(13,559)
4,789
3,370
(5,630)
(1,031)
13,537
(16,249)
—
1,916
—
(6,980)
734
—
(40)
(20,619)
3,750
(2,095)
(12,153)
(10,498)
312
(17,268)
76,441
59,173
$
23,674
12,226
8,159
730
—
(1,369)
(1,569)
(6,827)
(3,319)
4
103
579
50,899
(21,292)
(65,381)
—
(1,000)
—
(1,782)
2
(4,000)
(93,453)
4,570
(2,312)
(10,654)
(8,396)
279
(50,671)
127,112
76,441
$
22,641
12,478
6,383
964
—
1,531
(8,265)
(8,668)
(83)
4,469
(2,657)
(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
(1) The (earnings) loss on equity method affiliate is shown net of the $3.2 million non-cash gain recognized in the fourth quarter 2019, resulting from the
remeasurement of our equity method investment. See Note 3 - Investments and Other Assets for further details.
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.
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LUMINEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock
Number of
Shares
Amount
42,802,480
163,579
$
345,978
—
92,456
—
—
—
—
43,404,493
157,754
253,152
—
83,811
—
—
—
—
43,899,210
95,097
217,620
—
113,442
—
—
—
—
44,325,369
$
$
$
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss)
Retained
Earnings
Total
Stockholders’
Equity
$
336,431
2,684
$
(1,692) $
—
$
68,898
—
403,679
2,684
(2,350)
12,409
1,591
—
—
69
—
350,834
2,814
(2,312)
12,187
1,740
—
—
86
—
365,349
1,698
(2,095)
13,198
2,030
—
—
124
—
380,304
$
$
$
$
$
$
—
—
—
—
1,067
—
—
(625) $
—
—
—
—
—
(502)
—
—
(1,127) $
—
—
—
—
—
—
—
—
29,423
—
(10,666)
—
87,655
—
—
—
—
18,508
—
(10,796)
8,023
103,390
—
—
—
—
(3,838)
$
$
(2,349)
12,409
1,591
29,423
1,067
(10,597)
—
437,907
2,814
(2,311)
12,187
1,740
18,508
(502)
(10,710)
8,023
467,656
1,698
(2,095)
13,198
2,030
(3,838)
(253)
—
—
(1,380) $
—
(13,660)
—
85,892
$
(253)
(13,536)
—
464,860
42
—
1
—
—
—
—
—
—
43
—
1
—
—
—
—
—
—
44
—
—
—
—
—
—
—
—
44
Balance at December 31, 2016
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Foreign currency translation
adjustments
Dividends
Other
Balance at December 31, 2017
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Foreign currency translation
adjustments
Dividends
Other
Balance at December 31, 2018
Exercise of stock options
Issuances of restricted stock, net of
shares withheld for taxes
Stock compensation
Issuance of common shares under
ESPP
Net income
Foreign currency translation
adjustments
Dividends
Other
Balance at December 31, 2019
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.
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LUMINEX CORPORATION
NOTES TO CONDENSED 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 life sciences industries by marketing products, including our specific testing equipment
and assays, to various types of testing laboratories. As of December 31, 2019, the Company had 82 strategic partners, 55 of which
have released commercialized reagent-based products utilizing the Company’s technology. Luminex and these partners have sold
approximately 17,000 xMAP-based instruments in laboratories worldwide as of December 31, 2019, some of which may be retired
or otherwise not in use. The Company’s remaining partners are in various stages of development and commercialization of products
incorporating the Company’s 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 assays are currently focused on three segments of the molecular diagnostic testing market: infectious
disease, personalized medicine and human genetics.
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.
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.
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Investments
The Company determines the appropriate classification of its investments in 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. Held-to-maturity securities are stated at amortized cost, which approximates fair value of these
investments. 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.
In addition, the Company made an equity investment in a private company. The Company does not have majority control
of the entity in which the investment was made, but has the ability to exercise significant influence over operating and financial
policies; therefore, the Company accounts for this investment using the equity method. The Company's proportionate share of
income or loss of approximately 28.4% is recorded in other income (expense), net in the Consolidated Statement of Comprehensive
Income. This non-marketable equity investment is recorded at cost minus impairment, if any, plus or minus changes resulting from
qualifying observable price changes. The Company periodically reviews this equity investment for other-than-temporary declines
in fair value based on the specific identification method and writes down the investment to its fair value when it determines that
an other-than-temporary decline has occurred.
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, equity-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, 2019 and 2018. See Note 6 for further details concerning fair
value measurements.
Supplemental Cash Flow Statement Information (in thousands)
Year Ended December 31,
2018
2019
2017
Cash paid during the period for taxes
Cash paid during the period for interest and penalties
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 liabilities, 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
$
$
1,206
29
$
2,214
17
1,393
57
2,657
(1,915)
18
609
731
(4,016)
(1,916)
—
(1,916) $
13,262
(5,082)
32,647
26,797
(4,433)
6,703
69,894
4,513
65,381
$
$
—
—
—
—
—
—
—
—
—
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.
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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.
Thermo Fisher Scientific Inc. accounted for 12%, 14% and 15% of our total revenues in 2019, 2018 and 2017, respectively.
LabCorp accounted for 15% and 20% of our total revenues in 2018 and 2017, respectively. No other customer accounted for more
than 10% of our total revenues in 2019, 2018 or 2017.
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 above the lower of cost or net
realizable value, 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.
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’s 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, 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, 2019. In 2019 and 2018, 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 2019, 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 2019, 2018 or 2017.
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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
Performance Obligations: 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 when
the customer obtains control of the Company’s product, which typically occurs upon shipment or delivery to the customer depending
upon the shipping terms. We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment
cost. Our customers do not typically have any contractual rights of return outside of our warranty provisions. The Company has
allowed few returns to date and believes that returns of its products will be minimal in the future.
Royalties: For arrangements that include sales-based royalties, including minimum payments, the Company recognizes
revenue at the later of: (i) when the related sales occur, or (ii) when the performance obligation, to which some or all of the royalty
has been allocated, has been satisfied. This was a change from how the Company treated royalty payments prior to 2018, by
recognizing royalty revenue when our strategic partners reported the end-user sales to the Company, and is primarily the basis for
our cumulative adjustment, made as of January 1, 2018, to retained earnings of $10.6 million before related tax impacts or $8.1
million net of related tax impacts. Royalty payments are typically received when our strategic partners report the end-user sales
to the Company.
Reagent Rentals: The Company provides systems and certain other hardware to customers through reagent rental
agreements, under which the customers commit to purchasing minimum quantities of assays 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 assays. Revenue is recognized over the defined contract term as assays 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. Under
the guidance, the Company reclassified 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 did not have any impact on top line revenue and the Company has not experienced any material effects to its revenue
categorization.
Warranties: The Company provides a limited, assurance-type warranty, typically for twelve months from installation for
the systems sold to end customers and fifteen months for the systems sold to partners. The Company accrues 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. While the Company 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 the
Company’s estimates, revisions to the estimated warranty liability would be required. Warranty expenses are evaluated and adjusted
periodically.
License Revenues: The Company enters into out-licensing agreements, under which it licenses certain rights to its
technology to third parties. These licenses are typically not distinct, as the customer cannot benefit from the license on its own,
and do not have significant standalone functionality, but represent single performance obligations together with the sales of our
consumables, systems and assays. The terms of these arrangements typically include payment to the Company of non-refundable,
up-front license fees and can extend up to twenty years. Each of these payments results in license revenues which are recognized
ratably over time and are included in other revenues, except for revenues from royalties on net sales of licensed products, which
are classified as royalty revenues. Deferred revenues related to these out-licensing agreements are shown in contract liabilities in
Note 18, “Revenue Recognition”.
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Service Agreements: Revenue from extended service agreements is deferred when payment is received in advance of the
performance obligation being satisfied or completed. Luminex provides an integrated service of maintenance and related activities
for equipment sold to customers, where the nature of the overall promise is to provide a stand-ready service. As such, the performance
obligation is recognized as a series of distinct service periods and the service revenue is recognized ratably over the term of each
agreement. The extended service agreements typically range from one to four years and payment is typically received up-front.
Reserves for Variable Consideration: Revenues from product sales are recorded at the net sales price (transaction price),
which includes estimates of variable consideration for which reserves are established and which result from discounts and any
other allowances that are offered within contracts between the Company and its customers relating to the Company’s sales of its
products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of
accounts receivable. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-
weighted for relevant factors such as the Company’s historical experience, current contractual requirements, industry data and
forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of
consideration to which it is entitled based on the terms of each contract. The amount of variable consideration which is included
in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant
reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration
ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates,
the Company will adjust these estimates, which would affect net product revenue and earnings in the period when such variances
become known.
Allowance for Doubtful Accounts: 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 guidance on financial instruments and related credit losses effective January 1, 2020, which will impact
the timing of the measurement and recognition of expected credit losses. 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 $3.5 million, $2.8 million and $2.4 million for 2019, 2018 and 2017, 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.
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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.
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NOTE 2 — BUSINESS COMBINATIONS
On December 31, 2018, the Company completed its acquisition of EMD Millipore Corporation’s flow cytometry portfolio
for $75 million, consisting of approximately $69.9 million paid under a Share and Asset Purchase Agreement (the Purchase
Agreement) and approximately $5.1 million in committed inventory purchases, both of which were subject to adjustment. Following
a purchase price reconciliation in the quarter ended March 31, 2019, the purchase price was reduced by $1.9 million. This adjustment
resulted in a revised amount of $68.0 million paid under the Purchase Agreement. The committed inventory purchases were
completed in the third quarter of 2019. The Company financed the acquisition with cash on hand. Luminex acquired 100% of the
shares and equity of Amnis Corporation, a Washington corporation (Amnis), a wholly owned subsidiary of EMD Millipore
Corporation, a Massachusetts corporation (itself an affiliate of Merck KgaA), and certain other assets owned by other affiliates
of Merck KgaA (MilliporeSigma).
The acquisition expands Luminex’s existing offering of flow-based detection systems, which is centered around its
innovative xMAP® multiplexing technology, with approximately 17,000 xMAP systems sold worldwide, some of which may be
retired or otherwise not in use. MilliporeSigma’s flow cytometry portfolio includes Amnis, a family of imaging flow cytometry
products for cell-based analysis, as well as their Guava and Muse portfolio of products, which are economical systems based on
microcapillary technologies. The purchase price was in excess of the fair value of the net assets acquired and, as a result, the
Company recorded goodwill. A portion of the goodwill is deductible for tax purposes. The Company recorded approximately $2.7
million of acquisition-related costs during fiscal 2018. The impact of the acquisition on our liquidity is more fully described under
“Liquidity and Capital Resources.”
The following table summarizes the estimated fair values of assets acquired and liabilities assumed in connection with
the acquisition at December 31, 2018 and adjusted and finalized as of September 30, 2019 (in thousands):
Net tangible assets assumed as of December 31, 2018
Intangible assets subject to amortization
Deferred tax liabilities
Goodwill
Total purchase price
$
$
8,922
30,094
(3,702)
32,664
67,978
The Company finalized the purchase price allocation for the acquisition in the quarter ended September 30, 2019. If
information later becomes available which would indicate adjustments are required to the purchase price allocation, such
adjustments will be recognized in the Consolidated Statements of Comprehensive Income. Such adjustments have been included
in the purchase price allocations retrospectively through revisions to the net tangible assets assumed, fair values of the intangible
assets, deferred tax assets and liabilities and resulting goodwill recorded. The excess of the purchase price over the fair value of
the tangible net assets, liabilities and intangible assets acquired was recorded to goodwill.
NOTE 3 — INVESTMENTS AND OTHER ASSETS
Marketable Securities
The Company determines the appropriate classification of any investments in debt and equity securities at the time of
purchase and re-evaluates such determinations at each balance sheet date. As of December 31, 2019, the Company had no short
or long-term investments, since those funds were used to pay for acquisitions.
Available-for-sale securities consisted of the following as of December 31, 2019 (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
Losses in
Accumulated Other
Comprehensive
Income
Estimated Fair Value
$
$
707
707
—
707
$
$
78
— $
—
—
— $
— $
—
—
— $
707
707
—
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Available-for-sale securities consisted of the following as of December 31, 2018 (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
Losses in
Accumulated Other
Comprehensive
Income
Estimated Fair Value
$
$
704
704
—
704
$
$
— $
—
—
— $
— $
—
—
— $
704
704
—
704
There were no proceeds from the sales of available-for-sale securities for the years ended December 31, 2019 and
December 31, 2018. 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. There were no available-
for-sale debt securities as of December 31, 2019 or December 31, 2018.
Non-Marketable Securities and Other-Than-Temporary Impairment
During the year ended December 31, 2018, the Company made a $1.8 million investment in Combinati, a private company.
Subsequently, on October 1, 2019, the Company made an additional $7.0 million investment in Combinati, bringing the Company's
ownership to approximately 28.4% of the voting interest of Combinati. Effective October 1, 2019, the Company accounted for its
investment in Combinati under the equity method, given the Company's significant influence over the investee due to its larger
ownership percentage and its seat on the Board of Directors. The Company does not have unilateral decision making power, and
therefore will not consolidate the investee. In the fourth quarter of 2019, we remeasured the existing, minority interest investment
based on the fair value prior to the additional investment and recorded a gain of approximately $3.2 million in Other income, net
in the Consolidated Statements of Comprehensive Income. The minority interest investment in Combinati was reclassified to
equity method investments to distinguish it from other minority interest investments that take the fair value alternative.
As of December 31, 2019, the carrying value of the Company’s total investment in Combinati was $11.5 million, which
exceeded the Company’s share of Combinati’s net assets by $8.2 million and is not amortized. For the year ended December 31,
2019, the Company recorded the allocable share of Combinati’s net income in its Consolidated Statement of Comprehensive
Income and as an adjustment to the invested balance.
In August 2018, the Company exercised its purchase option on a second private company and acquired 100% of its capital
stock in a non-cash transaction involving (i) a prior investment of $2.0 million being applied to the purchase option, (ii) the
forgiveness and application of a $2.4 million note and related interest receivable to the purchase option and (iii) a tax impact of
$0.1 million. This acquisition was accounted for as an asset acquisition rather than a business combination, as substantially all of
the fair value of the gross assets acquired is concentrated in a single identifiable asset, a next generation technology. The Company
recorded the $4.3 million asset acquisition as a defensive, in-process research and development (IP R&D) intangible asset. There
were no gains or losses recognized as part of this transaction.
The Company owns a minority interest in another private company based in the U.S. through its initial investment of
$1.0 million in the third quarter of 2012. We have been informed that this private company will be dissolving and ceasing operations
in the first quarter of 2020. We received cash representing the majority of our investment in the fourth quarter of 2019 and recorded
an impairment of $205,000 in Other income, net in the Consolidated Statements of Comprehensive Income during 2019 based
upon these circumstances and communication from this private company. We received the final cash payment for the remainder
of this minority interest in the first quarter of 2020. As of December 31, 2019, this remaining portion is included at cost in other
short-term assets on the Company’s Consolidated Balance Sheets as of December 31, 2019 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.
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These minority interest investments do not have readily determinable fair values. Therefore, the Company has elected
the measurement alternative for its minority interests and the investments are recorded at cost, less any impairment, including
changes resulting from observable price changes. The Company regularly evaluates the carrying value of its investment for
impairment and whether any events or circumstances are identified that would significantly harm the fair value of the investment.
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 less than the investment’s carrying value, the Company will record
an impairment charge in Other income, net in the Consolidated Statements of Comprehensive Income. Other than the $205,000
impairment in 2019 discussed above, the Company has not recorded any impairment charges related to these non-marketable
investments.
As the inputs utilized for the Company’s periodic impairment assessment are not based on observable market data, the
determination of fair value of its investments is classified within Level 3 of the fair value hierarchy. See Note 6 - Fair Value
Measurement to our Condensed Consolidated Financial Statements for further information on the fair value hierarchy and the
three classification levels. 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, an investment’s fair value is not estimated as there are no identified events or changes in the circumstances. There have
been no unrealized gains or losses related to these Level 3 minority interest investments.
Other long-term assets consisted of the following at December 31 (in thousands):
Purchased technology rights (net of accumulated amortization of $8,300 and $7,633 in 2019 and
2018, respectively)
Minority interest and equity method investments
Other
2019
2018
$
$
6,027
11,501
1,594
19,122
$
$
6,653
2,782
1,963
11,398
For the years ended December 31, 2019 and 2018, the Company recognized amortization expense related to the
amortization of purchased technology rights of approximately $667,000 and $621,000, respectively. Future amortization expense
is estimated to be $572,000 in 2020, $540,000 in 2021, $522,000 in 2022, $505,000 in 2023, $500,000 in 2024 and $3,388,000
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):
Accounts receivable
Less: Allowance for doubtful accounts
2019
2018
$
$
56,956
(1,141)
55,815
$
$
54,239
(843)
53,396
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The following table summarizes the changes in the allowance for doubtful accounts (in thousands):
Balance at December 31, 2016
Net increases charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2017
Net increases charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2018
Net recoveries charged to costs and expenses
Write-offs of uncollectible accounts
Balance at December 31, 2019
NOTE 5 — INVENTORIES, NET
Inventories consisted of the following at December 31 (in thousands):
Parts and supplies
Work-in-progress
Finished goods
$
$
419
1,312
(386)
1,345
(437)
(65)
843
400
(102)
1,141
2019
2018
$
$
45,459
15,532
16,093
77,084
$
$
39,873
11,847
11,530
63,250
The Company has non-cancellable purchase commitments with certain of its component suppliers in the amount of
approximately $36.7 million at December 31, 2019. 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,
2019.
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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, 2019 and 2018 (in thousands):
Assets:
Money Market funds
Minority interest investments - short-term
Equity investment
Fair Value Measurements as of December 31, 2019 Using
Level 1
Level 2
Level 3
Total
$
$
$
707
$
— $
— $
— $
— $
— $
— $
$
22
$
11,501
707
22
11,501
Fair Value Measurements as of December 31, 2018 Using
Level 1
Level 2
Level 3
Total
Assets:
Money Market funds
Minority interest investments - long-term
$
$
$
704
— $
— $
— $
— $
$
2,782
704
2,782
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
2019
2018
$
$
60,486
43,471
3,916
22,621
5,924
28,946
—
165,364
(99,849)
65,515
$
$
58,330
39,289
3,322
22,141
5,874
24,259
846
154,061
(87,773)
66,288
Depreciation expense was $16.5 million and $14.4 million for the years ended December 31, 2019 and 2018, respectively.
NOTE 8 — GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill during the period are as follows (in thousands):
December 31, 2019 December 31, 2018
85,481
$
32,646
$
118,127
$
118,127
18
118,145
$
$
$
Balance at beginning of period
Flow cytometry acquisition
Balance at end of period
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A portion of 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):
Finite-lived
Indefinite-
lived
Technology,
trade secrets
and know-
how
Customer
lists and
contracts
Other
identifiable
intangible
assets
IP R&D
Total
2018
Balance as of December 31, 2017
$
81,385
$
19,097
$
5,664
$
12,982
$
119,128
Flow cytometry acquisition
Asset acquisition
Balance as of December 31, 2018
Less: accumulated amortization:
Accumulated amortization balance as of
December 31, 2017
Amortization expense
Accumulated amortization balance as of
December 31, 2018
Net balance as of December 31, 2018
Weighted average life (in years)
2019
17,084
—
98,469
4,722
—
23,819
(34,414)
(6,087)
(7,037)
(1,999)
(40,501)
57,968
$
$
(9,036)
14,783
$
11
10
6,703
4,328
24,013
33,500
4,328
156,956
—
—
—
$
24,013
$
(43,143)
(8,665)
(51,808)
105,148
4,991
—
10,655
(1,692)
(579)
(2,271)
8,384
10
Balance as of December 31, 2018
$
98,469
$
23,819
$
10,655
$
24,013
$
156,956
Flow cytometry acquisition purchase price
allocation adjustments
Balance as of December 31, 2019
Less: accumulated amortization:
Accumulated amortization balance as of
December 31, 2018
Amortization expense
Accumulated amortization balance as of
December 31, 2019
Net balance as of December 31, 2019
Weighted average life (in years)
(116)
98,353
(428)
23,391
1,154
11,809
(4,016)
19,997
(3,406)
153,550
(40,501)
(7,784)
(9,036)
(2,428)
(48,285)
50,068
$
(11,464)
11,927
$
$
11
10
(2,271)
(1,194)
(3,465)
8,344
10
—
—
—
$
19,997
$
(51,808)
(11,406)
(63,214)
90,336
The Company currently has three IP R&D projects. The first relates to the development of the next generation VERIGENE®
System, VERIGENE II. The Company believes the VERIGENE II will launch commercially in 2020. The second is a defensive
IP R&D project related to the Company’s next generation xMAP® System, xMAP INTELLIFLEX, which the Company believes
will launch commercially in 2020. The third relates to the development of the next generation Guava System, acquired as part of
the acquisition (Guava Next Gen System). The Company believes the Guava Next Gen System will launch in 2020.
The estimated aggregate amortization expense for the next five fiscal years and thereafter is as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
$
$
11,406
11,048
9,801
9,452
9,452
19,180
70,339
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NOTE 9 — OTHER COMPREHENSIVE LOSS
Comprehensive loss 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 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 loss, net of tax (in
thousands):
Balance as of December 31, 2018
Other comprehensive loss
Net current-period other comprehensive loss
Balance as of December 31, 2019
Accumulated Other
Comprehensive Loss Items -
Foreign Currency
$
$
(1,127)
(253)
(253)
(1,380)
There are no tax benefits or expenses related to the other comprehensive loss for the twelve months ended December 31,
2019.
NOTE 10 — ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31 (in thousands):
Compensation and employee benefits
Dividends payable
Income and other taxes
Warranty costs
Royalties payable
Current operating lease liabilities
Other
2019
2018
$
17,011
$
18,086
4,104
1,538
1,641
1,335
5,053
1,190
2,703
1,014
1,901
1,373
—
1,695
$
31,872
$
26,772
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.
The following table summarizes the changes in the warranty accrual (in thousands):
Accrued warranty costs at December 31, 2016
Warranty services provided
Accrual for warranty costs
Accrued warranty costs at December 31, 2017
Warranty services provided
Accrual for warranty costs
Accrued warranty costs at December 31, 2018
Warranty services provided
Accrual for warranty costs
Accrued warranty costs at December 31, 2019
84
$
$
675
(2,049)
2,682
1,308
(2,159)
2,752
1,901
(2,868)
2,608
1,641
Table of Contents
NOTE 11 — INCOME TAXES
The components of income before income taxes for the years ended December 31 are as follows (in thousands):
Domestic
Foreign
Total
2019
(31,314) $
21,812
(9,502) $
$
$
2018
2017
7,242
21,069
28,311
$
$
18,436
18,713
37,149
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 expense (benefit)
Deferred:
Federal
Foreign
State
Total deferred (benefit) expense
Total (benefit) provision for income taxes
2019
2018
2017
$
$
$
821
951
(163)
1,609
$
$
(3,318) $
515
600
(2,203) $
(10,179)
4,597
(1,691)
(7,273)
(5,664) $
6,351
5,271
384
12,006
9,803
$
3,149
295
883
4,327
14,970
(9,267)
(2,304)
3,399
7,726
The (benefit) provision for income taxes differs from the amount computed by applying the statutory federal rate to pretax
income as follows (in percentages):
Year Ended December 31,
2018
2017
2019
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
Remeasurement U.S. deferreds
Transition tax
Foreign earnings withholding tax
Global intangible low-taxed income
Other measurement period Tax Act adjustments
Canadian income tax audit
Other
21.0 %
9.6 %
(1.6)%
(11.7)%
18.9 %
0.8 %
67.3 %
0.0 %
(5.3)%
6.6 %
(44.4)%
0.0 %
0.0 %
(1.0)%
60.2 %
21.0 %
3.0 %
2.6 %
3.4 %
(8.7)%
0.4 %
24.7 %
(0.3)%
(16.6)%
(7.9)%
5.7 %
2.6 %
4.8 %
(0.1)%
34.6 %
35.0 %
(1.4)%
0.5 %
(5.7)%
(4.6)%
(37.6)%
0.5 %
7.3 %
18.1 %
8.6 %
0.0 %
0.0 %
0.0 %
0.1 %
20.8 %
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.
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Table of Contents
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
Leases
Stock compensation and other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Accrued liabilities and other
Deferred revenue
Depreciation and amortization
Leases
Equity method investment
Total deferred tax liabilities
$
$
$
2019
2018
4,577
52,141
1,023
5,023
7,791
70,555
(17,906)
52,649
$
$
5,646
54,167
—
—
6,525
66,338
(21,354)
44,984
(1,287) $
—
(18,443)
(4,550)
(667)
(24,947)
(2,204)
(358)
(20,952)
—
—
(23,514)
Net deferred tax assets
$
27,702
$
21,470
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
$3.4 million in 2019 from 2018. This decrease in the valuation allowance had minimal impact on the effective tax rate as this
change in the valuation allowance was primarily due to certain deferred tax assets related to state net operating losses that expired
and were fully offset by a valuation allowance. As such, the Company removed the expired deferred tax asset and released the
corresponding valuation allowance.
At December 31, 2019, the Company had gross federal, state and foreign net operating loss carryforwards of approximately
$60.7 million, $311.1 million, and $6.3 million, respectively. These losses expire beginning in 2020. Federal and state net operating
losses of approximately $59.0 million and $300.5 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 $8.2 million, $3.6 million, and $11.4 million, respectively. These credits begin to expire in 2022,
except for approximately $1.5 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 $250,000 which are potentially subject
to refund under the Tax Act have been reflected as deferred tax assets. In addition, the Company has state research credits of
approximately $1.2 million which have an indefinite carryforward period.
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 $22.5 million at December 31, 2019, $3.8 million at December 31,
2018 and $7.4 million at December 31, 2017. Since the Company does not intend to permanently reinvest portions of its previously
taxed Canadian earnings, it has recorded a deferred tax liability of $33,000 related to federal 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, with certain exceptions. 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. Determination of the amount of the unrecognized deferred
tax liability on these unremitted earnings is not practicable.
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As of December 31, 2019 and 2018, the Company had recorded gross unrecognized tax benefits of approximately $3.4
million and $9.7 million, respectively. All of the unrecognized tax benefits as of December 31, 2019, 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, 2019 and 2018, the Company recognized approximately $1,000 and
$104,000 in tax related interest and penalties, respectively. Reserves for interest and penalties as of December 31, 2019 and 2018
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
Balance at end of year
2019
2018
$
$
9,721
342
398
(7,038)
3,423
$
$
2,777
749
6,605
(410)
9,721
The Company recorded a reduction in unrecognized tax benefits related to the U.S. transition tax and a related income
tax benefit of $6.6 million as a result of a ruling for certain aspects of the E&P calculation of its Canadian subsidiary. As of
December 31, 2019, there were no unrecognized tax benefits that we expect 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 2013 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 2013 tax year and make adjustments to these net operating loss carryforwards. We are currently under audit in the United States
for our 2016 tax year. Although we do not expect a material adjustment, the outcome of the audit is not known at this time. We
are not under audit in any other major taxing jurisdiction at this time.
NOTE 12 — EARNINGS PER SHARE
A reconciliation of the denominators used in computing per share net income (EPS) is as follows (in thousands, except
per share amounts):
Basic:
Net (loss) income
Less: allocation to participating securities
Net (loss) income attributable to common stockholders
Weighted average common stock outstanding
Net (loss) income per share attributable to common stockholders
Diluted:
Net (loss) income
Less: allocation to participating securities
Net (loss) 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 (loss) income per share
Year Ended December 31,
2019
2018
2017
$
$
$
$
$
$
$
$
$
$
65
(3,838) $ 18,508
(312)
(3,773) $ 18,196
43,727
44,148
(0.09) $
0.42
63
(3,838) $ 18,508
(311)
(3,775) $ 18,197
43,727
44,148
—
564
44,148
44,291
29,423
(529)
28,894
43,173
0.67
29,423
(529)
28,894
43,173
127
43,300
0.67
Net (loss) income per share attributable to common stockholders
$
(0.09) $
0.41
$
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Table of Contents
Basic net (loss) income per share is computed by dividing the net (loss) income for the period by the weighted average
number of common shares outstanding during the period. Diluted net (loss) income per share is computed by dividing the net
(loss) 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 1,271,248 shares, 619,113 shares, and 2,182,404 shares for
the years ended December 31, 2019, 2018 and 2017, 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, 2019 and
2018, there was no preferred stock issued and outstanding.
Dividends
In February 2017, the Board of Directors initiated a cash dividend program under which the Company began paying a
regular quarterly cash dividend. The following table shows cash dividends declared, recorded, and paid (or to be paid) in the
periods shown:
Twelve Months Ending
Date Declared
Date Payable
Date Paid or
To Be Paid
Dividends Declared
per Share
December 31, 2017
December 31, 2018
December 31, 2019
February 21, 2017
May 24, 2017
March 24, 2017
June 23, 2017
April 14, 2017
July 14, 2017
September 12, 2017
September 22, 2017
October 13, 2017
December 7, 2017
December 22, 2017
January 12, 2018
January 24, 2018
May 18, 2018
March 23, 2018
June 22, 2018
April 13, 2018
July 13, 2018
September 11, 2018
September 21, 2018
October 12, 2018
December 11, 2018
December 22, 2018
January 10, 2019
$
$
$
$
$
$
$
$
February 8, 2019
May 21, 2019
March 21, 2019
June 20, 2019
April 11, 2019 $
July 11, 2019 $
July 31, 2019
September 26, 2019
October 17, 2019
December 6, 2019
December 19, 2019
January 15, 2020
$
$
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.06
0.09
0.09
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.
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Stock-Based Compensation
At December 31, 2019, the Company has one stock-based employee compensation plan pursuant to which grants may
be made: the Luminex Corporation 2018 Equity Incentive Plan (Equity Incentive Plan) which was approved at the Company’s
Annual Meeting on May 17, 2018. No further grants shall be made pursuant to the 2000 Long-Term Incentive Plan (2000 Plan),
the 2001 Broad-Based Stock Option Plan (2001 Plan) or the 2006 Equity Incentive Plan (2006 Plan). In addition, at December 31,
2019, 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 and, the 2006 Plan, certain employees, consultants and non-employee
directors have been granted RSAs, restricted stock 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.
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, 2019,
there were approximately 3.8 million shares authorized for future issuance under the Company’s Equity Incentive Plan and
approximately 210,000 shares eligible for purchase pursuant to the terms and conditions of the ESPP as more fully described
below.
The Equity Incentive Plan, the 2006 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.
On each of February 21, 2019 and 2018, the Compensation Committee approved awards 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 for each of 2019 and 2018, 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 12, 2019 and 2018, respectively) and expire seven years from the date of grant. The Performance Options were measured
over a one-year performance period ending on December 31, 2019 and 2018, respectively. Following the end of the applicable
fiscal year, the Committee determined the number of Performance Options which were eligible to vest based upon the level of
achievement of an established Company performance goal (the Company Financial Goal). If the Company failed to meet the
threshold performance for the performance period, no Performance Options would be eligible to vest. Minimum vesting for
minimum threshold performance started at 30% of the target value for the Company Financial Goal. If the Company’s performance
exceeded 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 83% and 115% of the number
of target Performance Options granted for 2019 and 2018, respectively. The Performance Options that are 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.
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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
2019
2018
2017
0.9%
0.4
2.6%
7 years
4.88 years
1.2%
0.4
2.7%
7 years
4.88 years
1.3%
0.5
2.0%
7 years
4.87 years
$
7.69
$
8.23
$
6.66
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.
The Company’s stock option activity for the year ended December 31, 2019 is as follows:
Stock Options
Outstanding at December 31, 2018
Granted
Exercised
Canceled or expired
Outstanding at December 31, 2019
Vested at December 31, 2019 and expected to vest
Exercisable at December 31, 2019
Shares
(in thousands)
3,323
976
(95)
(411)
3,793
3,746
1,927
Weighted Average
Exercise Price
Weighted
Average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic
Value (in
thousands)
$
$
$
$
19.05
24.43
17.85
21.74
20.17
20.13
18.31
4.13
$
4.11 $
$
3.00
12,636
12,593
9,380
During the years ended December 31, 2019, 2018 and 2017, the total exercise intrinsic value of stock options exercised
was $0.4 million, $1.3 million and $0.7 million, respectively, and the total fair value of stock options that vested was $11.9 million,
$12.7 million and $12.7 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
$6.5 million of total unrecognized compensation costs related to stock options at December 31, 2019 that are expected to be
recognized over a weighted-average period of 2.29 years.
The Company’s restricted share activity for the year ended December 31, 2019 is as follows:
Restricted Stock Awards
Non-vested at December 31, 2018
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2019
Shares
(in thousands)
724
414
(261)
(67)
810
Weighted Average
Grant Price
$
$
20.27
24.07
19.67
21.74
22.28
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Restricted Stock Units
Non-vested at December 31, 2018
Granted
Vested
Cancelled or expired
Non-vested at December 31, 2019
Vested at December 31, 2019 and expected to vest
Exercisable at December 31, 2019
Shares
(in thousands)
Weighted Average
Remaining Contractual
Life (in years)
Aggregate
Intrinsic Value
(in thousands)
468
120
(45)
(21)
522
515
356
1.07
1.01
0.00
$
$
$
12,088
11,927
8,240
As of December 31, 2019, there was $17.4 million of unrecognized compensation cost related to RSAs and RSUs. That
cost is expected to be recognized over a weighted average-period of 2.18 years. The total fair value of restricted shares vested
during the year ended December 31, 2019, 2018 and 2017 was $6.0 million, $6.7 million and $8.8 million, respectively.
RSAs and RSUs may be granted at the discretion of the Compensation Committee 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, 2019, the Company awarded 413,967 shares of RSAs, which had a fair value at the date of grant ranging
from $20.04–$24.43. During the year ended December 31, 2018, the Company awarded 387,436 shares of RSAs, which had a
fair value at the date of grant ranging from $20.33–$29.33. 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,
2019, the Company awarded 120,498 shares of RSUs and dividend equivalents, which had a fair value at the date of grant ranging
from $21.01–$24.43. During the year ended December 31, 2018, the Company awarded 95,127 shares of RSUs and dividend
equivalents, which had a fair value at the date of grant ranging from $21.98–$26.39. 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.
Compensation under these RSAs and RSUs was charged to expense over the restriction period and amounted to $8.2 million, $6.2
million, and $7.2 million in 2019, 2018 and 2017, respectively. There were no significant stock compensation costs capitalized
into assets as of December 31, 2019, 2018 or 2017.
The Company received $1.7 million, $2.8 million and $2.8 million for the exercise of stock options during the years
ended December 31, 2019, 2018 and 2017, 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, the 2006 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 (loss) income
Employee Stock Purchase Plan
Year Ended December 31,
2018
2017
2019
$
$
2,028
1,635
9,535
13,198
$
$
1,715
1,409
9,102
12,226
$
$
1,561
2,039
8,878
12,478
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, 2019, 2018 and 2017, 631,553 shares, 518,111 shares and 434,400
shares, respectively had been issued out of the ESPP. The related stock-based compensation expense was $0.7 million, $0.6 million
and $0.5 million for 2019, 2018 and 2017, respectively.
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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
2019
2018
2017
2.55%
0.5 years
0.35
0.942%
2.1%
0.5 years
0.44
1.2%
1.07%
0.5 years
0.45
1.3%
At December 31, 2019 and 2018, the Company had reserved 8,349,808 and 8,925,957 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, 2019:
Equity Incentive Plan
ESPP
Employee Savings Plans and Other Benefit Plans
Options and
RSUs
Outstanding
Shares Available
for Future
Issuance
4,326,593
—
4,326,593
3,813,024
210,191
4,023,215
Total Shares
Reserved
8,139,617
210,191
8,349,808
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 2019, 2018 and
2017, each employee could contribute a percentage of compensation up to a maximum of $19,000, $18,500, and $18,500 per year,
respectively, 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 2019, 2018 and 2017 were $5.1 million, $4.0 million and $3.8 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.
NOTE 14 — COMMITMENTS AND CONTINGENCIES
Leases
We have leased all of our research, manufacturing and office space and have entered into various other leases in conducting
our business. Our leases have remaining lease terms of one year to six years, and some of our leases include options to extend the
leases for up to ten years, tenant improvement allowances, rent holidays and rent escalation clauses. At inception, we determine
whether an agreement represents a lease and at commencement we evaluate each lease agreement to determine whether the lease
is an operating or financing lease. As described below under “Note 17 - Recent Accounting Pronouncements - Recently adopted
accounting guidance,” the Company adopted the new lease guidance as of January 1, 2019.
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Pursuant to the new lease guidance, all of the Company’s leases outstanding on January 1, 2019 continued to be classified
as operating leases. With the adoption of the new lease guidance, the Company recorded an operating lease right-of-use asset and
an operating lease liability on its balance sheet. Right-of-use lease assets represent the Company’s right to use the underlying asset
for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the
lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining
lease payments over the lease term. As the Company’s leases do not provide an implicit rate, we have used an estimated incremental
borrowing rate of 5.75%, based on the information available at the commencement date in determining the present value of lease
payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives.
The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations
regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all lease
agreements we combine lease and non-lease components. Leases with an initial term of twelve months or less are not recorded
on the balance sheet.
The components of the lease expense were as follows (in thousands):
Twelve Months Ended December 31,
2018
2019
2017
Operating lease cost(a)
(a) Includes short-term lease expense costs, which were immaterial in the years ended December 31, 2019, 2018 and 2017
9,434
$
$
7,032
Supplemental cash flow information related to leases was as follows (in thousands):
Lease liabilities arising from obtaining right to use assets
Operating leases recorded upon lease standard adoption
Cash paid for amounts included in the measurement of lease liabilities
Supplemental balance sheet information related to leases was as follows (in thousands):
Operating leases:
Operating lease right-of-use assets
Operating lease liabilities
Weighted Average Remaining Lease Term
Weighted Average Discount Rate
$
6,583
Twelve Months
Ended
December 31, 2019
$
$
24,922
6,547
December 31, 2019
$
$
20,439
22,235
4.36 years
5.75%
Minimum annual lease commitments as of December 31, 2019 under non-cancellable leases for each of the next five
years and in the aggregate were as follows (in thousands):
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Lease liabilities at December 31, 2019
93
Operating Leases
$
$
6,429
6,225
4,672
4,007
2,967
932
25,232
(2,997)
22,235
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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, 2019 the Company had approximately $36.7 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 2019, and purchases under these arrangements were $0.8 million, $2.2 million and
$1.8 million for the years ended December 31, 2019, 2018 and 2017, 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.
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
2018
$ 261,726
2017
$ 256,834
2019
$ 252,381
36,625
32,220
5,293
8,119
$ 334,638
21,672
21,603
4,775
6,042
$ 315,818
20,378
20,134
4,386
4,839
$ 306,571
94
Property and Equipment, net
2017
2018
2019
54,623
63,382
63,180
$
$
178
442
1,715
—
65,515
$
394
519
1,993
—
66,288
$
809
741
2,077
8
58,258
$
$
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The Company’s aggregate foreign currency transaction losses of $432,000, $487,000 and $134,000 were included in
determining the consolidated results for the years ended December 31, 2019, 2018 and 2017, respectively.
NOTE 17 — RECENT ACCOUNTING PRONOUNCEMENTS
Recently adopted accounting guidance
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. On January 1, 2019, the Company elected to adopt this
new lease guidance using a simplified transition option that allows companies to initially apply the new lease standard at the
adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company also elected to adopt the package of practical expedients permitted in the new lease guidance. Accordingly,
the Company is continuing to account for its existing operating leases as operating leases under the new lease guidance, without
reassessing whether the contracts contain a lease under the new lease guidance or whether classification of the operating leases
would be different under the new lease guidance. All of our leases at the adoption date were operating leases, primarily for facilities,
and did not include any non-lease components.
With the implementation of the new lease standard, the Company recognized right-of-use assets of $24.9 million, lease
liabilities for operating leases of approximately $26.8 million, and eliminated deferred rent of $1.9 million. The Company did not
have a cumulative adjustment impacting retained earnings. There are no changes to our previously reported results prior to January
1, 2019. Lease expense is not expected to change materially as a result of the adoption of the new lease standard.
In May 2014, the FASB issued a new standard on revenue recognition (the Standard) 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. We adopted the Standard effective January 1, 2018, using the
modified retrospective approach. Under this method, we recorded a cumulative adjustment increasing retained earnings of $10.6
million before related tax impacts or $8.1 million net of related tax impacts. See Note 18, “Revenue Recognition” for additional
discussion related to the Company’s adoption of the Standard. Under the Standard, 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 strategic partner; with
reconciliation made upon submission of the royalty report by the partner indicating actual royalties owed in the following quarter.
In addition, we began 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 as system revenue rather than assay revenue effective January 1, 2018.
This change has not and is not expected to have any impact on top line revenue and we do not anticipate any material effects to
our revenue categorization.
On January 10, 2018, the FASB issued guidance on the accounting for tax on the 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. Effective
January 1, 2018, we recognize the tax on GILTI as a period expense in the period the tax is incurred. Under this policy, we have
not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to
GILTI in the period.
Recent accounting guidance not yet adopted
In June 2016, the FASB issued guidance on financial instruments and related credit losses. The guidance requires that
financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses
is a valuation account that is deducted from the amortized cost basis. The statement of comprehensive income reflects the
measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The
measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable
forecasts that affect the collectability of the reported amount. Credit losses relating to available-for-sale debt securities will be
recorded through an allowance for credit losses rather than as a direct write-down to the security. The updated guidance is effective
for annual periods beginning after December 15, 2019, and is applicable to the Company in fiscal 2020. The Company will adopt
the new standard effective January 1, 2020. The primary impact for the Company is the timing of recording expected credit losses
on it trade receivables. The Company does not have a history of significant credit losses and this guidance will not have a material
impact on its consolidated financial statements.
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In December 2019, the FABS issued final guidance that simplifies the accounting for income taxes by eliminating some
exceptions to the general approach in Accounting Standards Codification (ASC) 740, Income Taxes. The guidance amended certain
disclosure requirements that had become redundant, outdated or superseded. Additionally, this guidance includes provisions for
investment company reporting modernization, amends accounting for the interim period effects of changes in tax laws or rates,
and simplifies aspects of the accounting for franchise taxes. The guidance is effective for annual periods beginning after December
15, 2020, and is applicable for the Company in fiscal 2021. Early adoption is permitted. The Company does not anticipate that
this guidance will have a material impact on its consolidated financial statements.
NOTE 18 — REVENUE RECOGNITION
On January 1, 2018, the Company adopted ASC 606 on revenue recognition (the Standard), using the modified
retrospective transition method consistent with the guidance issued by the FASB in May 2014. Under this method, the Company
applied the guidance retrospectively, only to those contracts which were not completed as of the date of initial application, and
recognized the cumulative effect of initially applying the Standard as an adjustment to the opening balance of retained earnings
as of January 1, 2018. The comparative information has not been restated and continues to be reported under the accounting
standards in effect for those periods.
The Standard applies to all contracts with customers, except for contracts that are within the scope of other standards,
such as leases, insurance, collaboration arrangements and financial instruments. Under the Standard, the Company recognizes
revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the
Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the
Company determines are within the scope of the Standard, the Company performs the following five steps: (i) identify the contract(s)
with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when the Company satisfies a
performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will
collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception,
once the contract is determined to be within the scope of the Standard, the Company assesses the goods or services promised
within each contract, identifies the performance obligations and assesses whether each promised good or service is distinct. The
Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone
selling prices of the promised goods or service underlying each performance obligation and recognizes as revenue when such
performance obligation is satisfied.
Contract assets are included within Accounts receivables, net and contract liabilities are included in Deferred revenue on
the Company’s Balance Sheet. The following table presents the opening and closing balances of the Company’s contract assets
and liabilities for the twelve months ended December 31, 2019 (in thousands):
Contract assets:
Unbilled receivables - Royalties
Contract liabilities - short-term:
Deferred revenue - Service (1)
Deferred revenue - Licenses
Deferred revenue - Instruments
Deferred revenue - Other
Total Contract liabilities - short-term
Contract liabilities - long-term:
Deferred revenue - Service
Deferred revenue - Licenses
Total Contract liabilities - long-term
Balance at
December 31, 2019
Balance at
December 31, 2018
$
$
$
$
$
12,257
7,771
207
2
234
8,214
968
665
1,633
$
$
$
$
$
10,805
9,476
227
—
396
10,099
207
872
1,079
(1) Note - 2018 contract liabilities includes $4.4 million of deferred service revenue which was acquired through the acquisition of EMD Millipore
Corporation’s flow cytometry portfolio on December 31, 2018.
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During the twelve months ended December 31, 2019, the Company recognized the following revenues as a result of
changes in the contract asset and contract liability balances in the period (in thousands):
Revenue recognized in the period:
Amounts included as contract liabilities at the beginning of the period
Performance obligations satisfied in previous periods
NOTE 19 — SELECTED QUARTERLY RESULTS (UNAUDITED)
Year Ended
December 31, 2019
$
5,110
-
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 (loss)
Basic income (loss) per common share
Diluted income (loss) per common share
Cash dividends per common share
Quarter Ended
March 31,
2019
June 30,
2019
September 30,
2019
December 31,
2019
$
82,408
$
83,056
$
78,673
$
45,807
(3,584)
2,960
0.07
0.07
0.06
45,227
(5,756)
(4,931)
(0.11)
(0.11)
0.06
41,840
(5,722)
(5,250)
(0.12)
(0.12)
0.09
Quarter Ended
90,501
49,865
2,983
3,383
0.08
0.07
0.09
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
$
82,662
$
79,578
$
72,445
$
53,588
15,266
13,397
0.30
0.30
0.06
49,306
7,858
5,669
0.13
0.13
0.06
44,256
3,754
1,737
0.04
0.04
0.06
81,133
48,341
968
(2,295)
(0.05)
(0.05)
0.06
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.
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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.
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 15 d-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, 2019 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, 2019. 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 change in conditions, or that the degree of the 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 in Item 8 “Financial Statements and Supplementary
Data,” page 64.
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 2019 that have materially affected or are reasonably likely
to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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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 I Directors”, “Corporate Governance” and “Delinquent Section 16(a) Reports” in our
definitive proxy statement for our 2020 Annual Meeting of Stockholders to be held on or about May 21, 2020 (Proxy Statement).
It is anticipated that our Proxy Statement will be filed with the Securities and Exchange Commission on or about April 1, 2020.
Pursuant to General Instruction G(3), certain information with respect to our executive officers is set forth under the
caption “Information about our Executive Officers” 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, 2019, certain information with respect to shares of our common stock
authorized for issuance under our equity compensation plans.
Plan Category
Equity compensation plans approved by security holders(1)
Equity compensation plans not approved by security
holders
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options and
Restricted
Stock Units
(A)
Weighted-
Average
Exercise Price
of Outstanding
Options
(B)(2)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
(C)
4,326,593
$
20.17
4,023,215
— $
—
—
Total
(1) Includes approximately 522,000 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.
4,023,215
4,326,593
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.”
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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
2.1*
2.2
3.1
3.2
4.1
10.1#
10.2
10.3
10.4
10.5
10.6#
10.7#
10.8#
DESCRIPTION OF DOCUMENT
Share and Asset Purchase Agreement made as of October 18, 2018 by and between EMD Millipore Corporation,
and IRIS Biotech Corp. (Previously filed as an Exhibit to the Company’s Current Report on Form 8-K (File No.
000-30109), filed on October 18, 2018).
First Amendment to the Agreement and Plan of Merger, dated as of May 22, 2016, between 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).
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).
Description of the Registrant’s Securities.
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).
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).
100
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EXHIBIT
NUMBER
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#
10.27#
DESCRIPTION OF DOCUMENT
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).
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 Securities and Exchange Commission 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).
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).
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).
101
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EXHIBIT
NUMBER
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#
10.45#
DESCRIPTION OF DOCUMENT
Luminex Corporation Third Amended and Restated 2006 Equity Incentive Plan (Previously filed as Annex A to
the Company’s Proxy Statement (filed with the Securities and Exchange Commission on March 30, 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 (File No. 000-30109) 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 Securities and Exchange Commission 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 an Exhibit to the Company's Annual Report on Form 10-K (File No. 000-30109) for the fiscal
year ended December 31, 2017).
Form of Amendment to Employment Agreement by and between Luminex Corporation and its Executives.
(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, 2018).
Luminex Corporation 2018 Equity Incentive Plan (Previously filed as Annex A to the Company’s Proxy Statement
(filed with the Securities and Exchange Commission (File No. 000-30109) on April 2, 2018) for its Annual Meeting
of Stockholders held on May 17, 2018).
Luminex Corporation 2018 Management Incentive Plan (Previously filed as an Exhibit to the Company’s Current
Report on Form 8-K (File No. 000-30109) filed April 20, 2018).
Form of Restricted Share Award Agreement for Directors for the Luminex Corporation 2018 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, 2018).
Form of Restricted Share Unit Agreement for Directors for the Luminex Corporation 2018 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, 2018).
Form of Non-Qualified Stock Option Agreement for the Luminex Corporation 2018 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, 2018).
102
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EXHIBIT
NUMBER
10.46#
10.47#
10.48
10.49
10.50#
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
104
DESCRIPTION OF DOCUMENT
Form of Restricted Share Award Agreement for Officers and Employees for the Luminex Corporation 2018 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, 2018).
Form of Restricted Share Unit Agreement for Officers and Employees for the Luminex Corporation 2018 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, 2018).
First Amendment to Lease Agreement between PS Business Parks, L.P., as Landlord, and Luminex Corporation,
as Tenant, dated March, 2017 (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, 2018).
Second Amendment to Lease Agreement between PS Business Parks, L.P., as Landlord, and Luminex Corporation,
as Tenant, dated July, 2018 (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, 2018).
Employment Agreement, dated March 1, 2018, by and between Luminex Corporation and Eric Shapiro (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, 2018).
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney (incorporated in the signature page of this 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.
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, 2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements
of Comprehensive Income; (iii) Condensed Consolidated Statements of Cash Flows; (iv) Condensed Consolidated
Statements of Changes in Stockholders’ Equity and (iv) Notes to Condensed Consolidated Financial Statements.
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted
in Inline XBRL (included in Exhibit 101.
# Management contract or compensatory plan or arrangement.
* Schedules, annexes and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. Luminex agrees to furnish a
supplemental copy of omitted schedules to the Securities and Exchange Commission upon request.
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of 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.
LUMINEX CORPORATION
By: /s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
Date: February 27, 2020
103
Table of Contents
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.
President and Chief Executive Officer, Director
(Principal Executive Officer)
Chief Financial Officer, Senior Vice President of Finance (Principal
Financial Officer and Principal Accounting Officer)
February 27, 2020
SIGNATURES
TITLE
/s/ Nachum Shamir
Nachum Shamir
/s/ Harriss T. Currie
Harriss T. Currie
/s/ Stephen L. Eck
Stephen L. Eck
/s/ Thomas W. Erickson
Thomas W. Erickson
/s/ Jim D. Kever
Jim D. Kever
/s/ Dijuana K. Lewis
Dijuana K. Lewis
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
/s/ Kenneth A. Samet
Kenneth A. Samet
Director
Director
Director
104
DATE
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
February 27, 2020
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.1
Luminex Corporation (“Luminex,” “we,” “our,” “us” or the “Company”) is incorporated in the state of Delaware. Our
common stock, par value $.001 per share (“Common Stock”) is registered under Section 12 of the Securities Exchange Act of
1934, as amended. The following description of our Common Stock is a summary and does not purport to be complete. The
description of our Common Stock is subject to and qualified in its entirety by reference to our Restated Certificate of Incorporation
(the “Certificate of Incorporation”), and our Amended and Restated Bylaws (the “Bylaws”), which are incorporated by reference
as Exhibit 3.1 and Exhibit 3.2, respectively, to the Annual Report on Form 10-K of which this Exhibit 4.1 is a part. We encourage
you to read the Certificate of Incorporation, the Bylaws and the applicable provisions of the Delaware General Corporation Law
(the “DGCL”) for additional information.
General
Our Certificate of Incorporation provides that we may issue up to 200,000,000 shares of Common Stock, and
5,000,000 shares of preferred stock, par value $.001 per share.
Common Stock
Each share of Common Stock has identical rights and privileges in every respect. The holders of our Common Stock are
entitled to vote upon all matters submitted to a vote of our stockholders and are entitled to one vote for each share of Common
Stock held. The Common Stock has no cumulative voting rights.
Subject to the prior rights and preferences, if any, applicable to shares of preferred stock or any series of preferred stock,
the holders of Common Stock are entitled to receive such dividends, payable in cash, stock or otherwise, as may be declared by
our Board of Directors (the “Board”) out of any funds legally available for the payment of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the holders of our Common Stock will be entitled to
receive after distribution in full of the preferential amounts, if any, to be distributed to the holders of preferred stock or any series
of preferred stock, all of the remaining assets available for distribution ratably in proportion to the number of shares of Common
Stock held by them. Holders of Common Stock have no preferences or any preemptive, conversion or exchange rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
The Common Stock has no redemption or sinking fund provisions. The rights, preferences, and privileges of the holders
of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred
stock, which we may designate in the future.
Preferred Stock
Our Board of Directors has the authority, within the limitations and restrictions stated in our Certificate of Incorporation,
to authorize the issuance of shares of preferred stock, in one or more classes or series, and to fix the rights, preferences, privileges
and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences,
preemptive rights and the number of shares constituting any series or the designation of such series. The issuance of preferred
stock could have the effect of decreasing the market price of our Common Stock and could adversely affect the voting and other
rights of the holders of our Common Stock. Our Board has the authority to issue shares of preferred stock with terms and conditions
which could have the effect of delaying, deferring or preventing a transaction or a change in control of the Company that might
involve a premium price for holders of our Common Stock or that a stockholder might consider in its best interest. There are no
restrictions on the repurchase or redemption of shares by the registrant while there is any arrearage in the payment of dividends
or sinking fund installments.
Board of Directors
The Certificate of Incorporation provides for a board of directors of eight members, the exact number to be determined
from time to time by resolution adopted by the affirmative vote of a majority of the entire Board, provided that the number so
fixed shall not be less than five nor more than 15 (the number of seats constituting the Board is currently fixed at nine); provided,
however, that no decrease in the number of directors constituting the Board shall shorten the term of any incumbent director, and
no action shall be taken by the directors (whether through amendment to the Bylaws or otherwise) to increase the number of
directors unless at least 75% of the directors then in office shall concur in said action. The Certificate of Incorporation provides
that the Board shall be classified with respect to the time for which they severally hold office into three classes, Class One, Class
Two and Class Three.
Directors of each class are elected for a term expiring at the annual meeting of stockholders held in the third year following
their election and until their respective successor is duly elected and qualifies, and each year one class of directors will be elected
by the stockholders. Holders of shares of our capital stock have no right to cumulative voting in the election of directors.
Consequently, at each annual meeting of stockholders, the holders of a majority of the Common Stock entitled to vote are able to
elect all of the successors of the class of directors whose terms expire at that meeting; provided, however, that if the number of
nominees proposed to be elected for the class of directors whose term expires at that annual meeting of stockholders exceeds the
number of directors determined by the Board to constitute that class of directors, then the persons receiving the greatest number
of votes, up to the number of Board seats open for election, shall be elected.
Any director elected to fill a vacancy shall serve for the remainder of the full term of the class in which the vacancy
occurred and until a successor is elected and qualifies. When one or more directors resign and the resignation is effective at a
future date, a majority of the directors then in office, including those who have so resigned, shall have the sole power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Subject to the
rights of holders of capital stock of the Company pursuant to any valid and binding agreement, any vacancy occurring on the
Board created by reason of newly created directorships resulting from the issuance of any class or series of capital stock of the
Company or newly created directorships resulting from any increase in the number of directors and any vacancy occurring on the
Board resulting from death, resignation, removal or other cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board, or by a sole remaining director. Unless otherwise
provided in the Certificate of Incorporation or the Bylaws, whenever any holders of a class or series of capital stock of the Company
have the right to elect one or more directors pursuant to the Certificate of Incorporation or the provisions of any valid and binding
agreement, vacancies in directorships to which such right relates may be filled by a majority of the directors elected by the holders
of such class or classes or series then in office, or by a sole remaining director so elected.
Subject to provisions of the DGCL and the rights of the holders of any shares of capital stock of the Company, any director
may be removed from office only for cause and only by the affirmative vote of the holders of a majority of the combined voting
power of the then outstanding shares of voting capital stock of the Company, voting together as a single class.
We believe that classification of our Board helps to assure the continuity and stability of our business strategies and
policies as determined by our directors. Our classified board could have the effect of making the replacement of incumbent directors
more time consuming and difficult. At least two annual meetings of stockholders, instead of one, will generally be required to
effect a change in a majority of our Board. Thus, our classified board could increase the likelihood that incumbent directors will
retain their positions. The classified terms of directors may delay, defer or prevent a tender offer or an attempt to change control
of us or another transaction that might involve a premium price for our Common Stock or that a stockholder might consider in its
best interest.
Supermajority Vote
Our Certificate of Incorporation provides that the affirmative vote of at least 75% of the voting power of the outstanding
shares of our capital stock outstanding and entitled to vote is required to amend or repeal, or to adopt any provision inconsistent
with, certain provisions of our Certificate of Incorporation, including certain provisions which could have the effect of delaying,
deferring or preventing a transaction or a change in control of the Company.
Anti-Takeover Effects of Provisions of our Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and Bylaws contain provisions which could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company. Examples of such anti-takeover effects include the following:
•
our Board is divided into three classes of directors with each class serving a staggered three-year term;
•
•
•
our Board is authorized to expand the size of the Board with the consent of 75% of the directors in office and then
fill the vacancies created by such expansion;
notice of stockholder nominations for directors and proposals for other business must be made within a certain
period prior to an annual meeting; and
stockholder action by written consent is prohibited and therefore the power of stockholders to call special meetings
is significantly limited.
These provisions may discourage a third party from making a tender offer or otherwise attempting to obtain control of
us, as it generally makes it more difficult for stockholders to replace a majority of the directors. There is no cumulative voting in
the election of directors.
Anti-Takeover Effects of Delaware Law
Certain Delaware law provisions may make it more difficult for someone to acquire us through a tender offer, proxy
contest or otherwise.
We are subject to the provisions of Section 203 of the DGCL. Section 203 of the DGCL provides that, subject to certain
stated exceptions, an “interested stockholder” is any person (other than the corporation and any direct or indirect majority-owned
subsidiary) who owns 15% or more of the outstanding voting stock of the corporation or is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period
immediately prior to the date of determination, and the affiliates and associates of such person. Under Section 203, we would
generally be prohibited from engaging in any business combination with any interested stockholder for a period of three years
following the time that such stockholder became an interested stockholder unless:
•
•
•
prior to this time, the board of directors of the corporation approved either the business combination or the
transaction that resulted in such stockholder becoming an interested stockholder?
upon consummation of the transaction that resulted in such stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are directors and also officers, and by employee
stock plans in which employee participants do not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer? or
at or subsequent to such time, the business combination is approved by the board of directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested stockholder.
Under Section 203 of the DGCL, a “business combination” includes:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested
stockholder?
any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder, subject to limited exceptions?
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of
any class or series of the corporation beneficially owned by the interested stockholder? or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our Common Stock is Computershare.
National Securities Exchange
Our Common Stock is listed on the Nasdaq Global Select Market under the trading symbol “LMNX.”
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
ChandlerTec, LLC, a Delaware limited liability company
Iris Biotech, LLC, a Delaware limited liability company
Amnis, LLC, a Delaware limited liability company
Luminex London Ltd., a private limited company under the laws of England and Wales
Luminex Munich GmbH, a German limited liability company
Luminex Paris Sas, a French simplified joint stock company
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-225117) pertaining to the Luminex Corporation 2018 Equity Incentive Plan;
(2) Registration Statement (Form S-8 No. 333-218176) pertaining to the Luminex Corporation Amended and Restated
Employee Stock Purchase Plan;
(3) Registration Statement (Form S-8 No. 333-204170) pertaining to the Luminex Corporation Third Amended and Restated
2006 Equity Incentive Plan;
(4) Registration Statement (Form S-8 No. 333-181485) pertaining to the Luminex Corporation Employee Stock Purchase
Plan;
(5) Registration Statement (Form S-8 No. 333-181484) pertaining to the Luminex Corporation Second Amended and Restated
2006 Equity Incentive Plan;
(6) Registration Statement (Form S-8 No. 333-159382) pertaining to the Amended and Restated 2006 Equity Incentive Plan;
(7) Registration Statement (Form S-8 No. 333-141042) pertaining to the Tm Bioscience Corporation Share Option Plan;
(8) 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;
(9) Registration Statement (Form S-8 No. 333-118772) pertaining to the Balthrop Non-Qualified Stock Option Agreement
of Luminex Corporation;
(10) Registration Statement (Form S-8 No. 333-87918) pertaining to the 2001 Broad-Based Stock Option Plan of Luminex
Corporation;
(11) Registration Statement (Form S-8 No. 333-46686) pertaining to the 2000 Long-Term Incentive Plan of Luminex
Corporation;
(12) Registration Statement (Form S-3 No. 333-151691) pertaining to the Automatic Shelf Registration of Securities of
Luminex Corporation
of our reports dated February 27, 2020, 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, 2019.
/s/ Ernst & Young LLP
Austin, Texas
February 27, 2020
Exhibit 31.1
CERTIFICATION
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 27, 2020
By:
/s/ Nachum Shamir
Nachum Shamir
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
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 27, 2020
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, 2019, 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 27, 2020
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, 2019, 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 27, 2020
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.