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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended
June 30, 2020or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __ to __.

lmnx-20200630_g1.jpg
LUMINEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware000-3010974-2747608
(State or other jurisdiction of incorporation)(Commission File Number)(I.R.S. Employer Identification No.)

12212 Technology Blvd.,Austin,Texas78727
(Address of principal executive offices)(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 classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.001 par valueLMNXThe Nasdaq Global Select Market

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.
YesNo
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).
YesNo

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 filerAccelerated filer
Non-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).
YesNo

There were 46,363,119 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on August 4, 2020.



LUMINEX CORPORATION

FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS
PAGE
 



Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

LUMINEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
June 30,December 31,
 20202019
ASSETS(unaudited)
Current assets:  
Cash and cash equivalents$291,665  $59,173  
Accounts receivable, net60,673  55,815  
Inventories, net92,403  77,084  
Prepaids and other10,206  10,398  
Total current assets454,947  202,470  
Property and equipment, net64,098  65,515  
Intangible assets, net84,633  90,336  
Deferred income taxes25,091  27,702  
Goodwill118,145  118,145  
Right of use assets19,484  20,439  
Other17,779  19,122  
Total assets$784,177  $543,729  
LIABILITIES AND STOCKHOLDERS EQUITY
  
Current liabilities:  
Accounts payable$16,383  $17,983  
Accrued liabilities35,894  31,872  
Deferred revenue - current portion10,510  8,214  
Total current liabilities62,787  58,069  
Deferred revenue1,622  1,633  
Lease liabilities15,556  17,182  
Long-term debt197,947    
Other long-term liabilities2,004  1,985  
Total liabilities279,916  78,869  
Stockholders’ equity:  
Common stock, $0.001 par value, 200,000,000 shares authorized; issued and outstanding: 45,042,051 shares at June 30, 2020; 44,325,369 shares at December 31, 201945  44  
Preferred stock, $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding    
Additional paid-in capital414,851  380,304  
Accumulated other comprehensive loss(1,363) (1,380) 
Retained earnings90,728  85,892  
Total stockholders’ equity504,261  464,860  
Total liabilities and stockholders’ equity$784,177  $543,729  
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.

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Table of Contents

LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
 (unaudited)
Revenue$109,519  $83,056  $199,943  $165,464  
Cost of revenue39,838  37,829  79,916  74,430  
Gross profit69,681  45,227  120,027  91,034  
Operating expenses: 
Research and development13,863  14,985  25,781  30,033  
Selling, general and administrative34,190  33,146  68,125  64,637  
Amortization of acquired intangible assets2,852  2,852  5,704  5,704  
Total operating expenses50,905  50,983  99,610  100,374  
Income (loss) from operations18,776  (5,756) 20,417  (9,340) 
Interest and other expense, net(2,384) (158) (2,383) (98) 
Loss from equity method investment(279)   (893)   
Income (loss) before income taxes16,113  (5,914) 17,141  (9,438) 
Income tax (expense) benefit(3,603) 983  (3,977) 7,467  
Net income (loss)$12,510  $(4,931) $13,164  $(1,971) 
Net income (loss) attributable to common stockholders
Basic$12,260  $(4,896) $12,905  $(1,973) 
Diluted$12,264  $(4,897) $12,906  $(1,974) 
Net income (loss) per share attributable to common stockholders
Basic$0.27  $(0.11) $0.29  $(0.04) 
Diluted$0.27  $(0.11) $0.28  $(0.04) 
Weighted-average shares used in computing net income (loss) per share
Basic44,893  44,157  44,649  44,054  
Diluted46,065  44,157  45,517  44,054  
Dividends declared per share$0.09  $0.06  $0.18  $0.12  
Other comprehensive income (loss):
Foreign currency translation adjustments80  91  17  (42) 
Other comprehensive income (loss)80  91  17  (42) 
Comprehensive income (loss)$12,590  $(4,840) $13,181  $(2,013) 
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.

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Table of Contents

LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
 (unaudited)
Cash flows from operating activities: 
Net income (loss)$12,510  $(4,931) $13,164  $(1,971) 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization7,646  7,104  15,080  13,993  
Amortization of debt issuance costs1,345    1,345    
Stock-based compensation4,026  3,630  6,709  6,079  
Deferred income tax (benefit) expense1,272  (567) 2,325  (8,654) 
Loss on sale or disposal of assets339  78  386  172  
Loss on equity method investment279    893    
Other139  221  1  (21) 
Changes in operating assets and liabilities:
Accounts receivable, net3,211  1,446  (4,864) (5,896) 
Inventories, net(13,783) (5,498) (15,293) (5,985) 
Other assets1,693  1,133  1,192  3,403  
Accounts payable2,694  52  (1,492) 4,169  
Accrued liabilities8,411  2,844  2,277  (7,556) 
Deferred revenue1,494  370  2,337  1,050  
Net cash provided by (used in) operating activities31,276  5,882  24,060  (1,217) 
Cash flows from investing activities: 
Purchase of property and equipment(4,176) (4,299) (8,099) (8,122) 
Proceeds from business acquisition consideration, net of cash acquired  1,915    1,915  
Proceeds from cost method investment    22    
Net cash used in investing activities(4,176) (2,384) (8,077) (6,207) 
Cash flows from financing activities: 
Proceeds from issuance of convertible notes, net of issuance costs252,247    252,247    
Purchase of convertible notes bond hedge(54,626)   (54,626)   
Proceeds from issuance of warrants19,968    19,968    
Proceeds from issuance of common stock8,094  983  9,443  1,786  
Shares surrendered for tax withholding(23) (13) (2,333) (2,085) 
Dividends paid(4,098) (2,699) (8,161) (5,395) 
Net cash provided by (used in) financing activities221,562  (1,729) 216,538  (5,694) 
Effect of foreign currency exchange rate on cash(74) (133) (29) 2  
Change in cash and cash equivalents248,588  1,636  232,492  (13,116) 
Cash and cash equivalents, beginning of period43,077  61,689  59,173  76,441  
Cash and cash equivalents, end of period$291,665  $63,325  $291,665  $63,325  
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.

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Table of Contents

LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except share data)
(unaudited)
 Common Stock    
 Number of SharesAmountAdditional Paid-In CapitalAccumulated Other Comprehensive (Loss) IncomeRetained Earnings
Total Stockholders Equity
Balance at December 31, 201944,325,369  $44  $380,304  $(1,380) $85,892  $464,860  
Exercise of options, net of shares withheld52,604    782      782  
Issuances of restricted stock, net of shares withheld for taxes224,435  1  (2,310)     (2,309) 
Stock compensation—    2,683      2,683  
Net income—        654  654  
Foreign currency translation adjustments—      (63)   (63) 
Dividends—  —  42  —  (4,143) (4,101) 
Balance at March 31, 202044,602,408  $45  $381,501  $(1,443) $82,403  $462,506  
Exercise of stock options, net of shares withheld363,878    7,507      7,507  
Issuances of restricted stock, net of shares withheld for taxes11,665    (22)     (22) 
Stock compensation—    4,026      4,026  
Issuance of common shares under ESPP64,100    1,119      1,119  
Net income—        12,510  12,510  
Foreign currency translation adjustments—      80    80  
Dividends—  —  45  —  (4,185) (4,140) 
Equity component of convertible notes, net of issuance costs—  —  41,950  —  —  41,950  
Purchases of convertible note hedge—  —  (41,243) —  —  (41,243) 
Issuance of warrants—  —  19,968  —  —  19,968  
Balance at June 30, 202045,042,051  $45  $414,851  $(1,363) $90,728  $504,261  
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.


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Table of Contents
LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (cont.)
(in thousands, except share data)
(unaudited)
 Common Stock    
 Number of SharesAmountAdditional Paid-In CapitalAccumulated Other Comprehensive (Loss) IncomeRetained EarningsTotal Stockholders’ Equity
Balance at December 31, 201843,899,210  $44  $365,349  $(1,127) $103,390  $467,656  
Exercise of options, net of shares withheld16,707    298      298  
Issuances of restricted stock, net of shares withheld for taxes204,216    (2,072)     (2,072) 
Stock compensation—    2,449      2,449  
Net income—        2,960  2,960  
Foreign currency translation adjustments—      (133)   (133) 
Dividends—  —  25  —  (2,726) (2,701) 
Balance at March 31, 201944,120,133  $44  $366,049  $(1,260) $103,624  $468,457  
Exercise of stock options, net of shares withheld28,327    499      499  
Issuances of restricted stock, net of shares withheld for taxes11,033    (13)     (13) 
Stock compensation—    3,630      3,630  
Issuance of common shares under ESPP53,865    966      966  
Net income—        (4,931) (4,931) 
Foreign currency translation adjustments—      91    91  
Dividends—  —  27  —  (2,732) (2,705) 
Balance at June 30, 201944,213,358  $44  $371,158  $(1,169) $95,961  $465,994  
See the accompanying notes which are an integral part of these
Consolidated Financial Statements.

5

Table of Contents
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by Luminex Corporation (the Company or Luminex) in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 10-K).

NOTE 2 — 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 June 30, 2020, the Company had no short or long-term investments.

Available-for-sale securities consisted of the following as of June 30, 2020 (in thousands):
 Amortized CostGains in Accumulated Other Comprehensive IncomeLosses in Accumulated Other Comprehensive IncomeEstimated Fair Value
Current:    
Money market funds$707  $—  $—  $707  
Total current securities707  —  —  707  
Total available-for-sale securities$707  $—  $—  $707  

Available-for-sale securities consisted of the following as of December 31, 2019 (in thousands):
 Amortized CostGains in Accumulated Other Comprehensive IncomeLosses in Accumulated Other Comprehensive IncomeEstimated Fair Value
Current:    
Money market funds$707  $—  $—  $707  
Total current securities707  —  —  707  
Total available-for-sale securities$707  $—  $—  $707  

There were no proceeds from the sales of available-for-sale securities for the three and six months ended June 30, 2020 and the year ended December 31, 2019. Realized gains and losses on sales of investments are determined using the specific identification method and are included in Other income, net in the Condensed Consolidated Statements of Comprehensive Income. There were no available-for-sale debt securities as of June 30, 2020 or December 31, 2019. All of the Company’s available-for-sale securities with gross unrealized losses as of June 30, 2020 had been in a loss position for less than 12 months.

6

Table of Contents
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. 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 participation on Combinati’s board of directors. The Company does not have unilateral decision making power, and therefore does not consolidate the investee. In the fourth quarter of 2019, the Company 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 June 30, 2020, the carrying value of the Company’s total investment in Combinati was $10.6 million, which exceeded the Company’s share of Combinati’s net assets by approximately $8.0 million. For the quarter ended June 30, 2020, the Company recorded $0.3 million for its allocable share of Combinati’s net loss in its Consolidated Statement of Comprehensive Income and as an adjustment to the invested balance.

The Company owned 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 were informed that this private company was dissolving and ceasing operations in 2019. We recorded impairments of $160,000 and $45,000 in Other income, net in the Consolidated Statements of Comprehensive Income during the second quarter and fourth quarter of 2019, respectively. We received the final cash payment for the remainder of our investment in the first quarter of 2020, recorded in Cash flows from investing activities in the Consolidated Statements of Cash Flows.

These 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 aggregate $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 5 - 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 (in thousands):
 June 30, 2020December 31, 2019
Purchased technology rights (net of accumulated amortization of $8,601 and $8,300 on June 30, 2020 and December 31, 2019, respectively)$5,725  $6,027  
Minority interest investments10,608  11,501  
Other1,446  1,594  
 $17,779  $19,122  

For the six months ended June 30, 2020 and 2019, the Company recognized amortization expenses related to the amortization of purchased technology rights of approximately $301,000 and $324,000, respectively. Future amortization expenses are estimated to be $271,000 in the remaining six months of 2020, $540,000 in 2021, $522,000 in 2022, $505,000 in 2023, $500,000 in 2024 and $3,387,000 thereafter.

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Table of Contents
NOTE 3 — INVENTORIES, NET

Inventories 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. The Company routinely assesses its on-hand inventory for timely identification and measurement of obsolete, slow-moving or otherwise impaired inventory. Net inventories consisted of the following (in thousands):
 June 30, 2020December 31, 2019
Parts and supplies$58,556  $45,459  
Work-in-progress14,153  15,532  
Finished goods19,694  16,093  
 $92,403  $77,084  

NOTE 4 — ACCOUNTS RECEIVABLE AND RESERVES

The Company adopted the new credit loss standard effective January 1, 2020. The primary impact for the Company was the timing of recording expected credit losses on its trade receivables. The Company’s allowance for doubtful accounts is based upon its expected credit losses, which is based upon its historical loss experience. Management prepared an analysis of partner versus non-partner credit loss experience and noted that its loss experience between partners and non-partners was very comparable. These receivables have been pooled together, as similar risk characteristics exist between them. Accounts receivable consisted of the following (in thousands):
June 30, 2020December 31, 2019
Accounts receivable62,192  56,956  
Less: Allowance for doubtful accounts(1,519) (1,141) 
60,673  55,815  

Balance as of December 31, 2019$1,141  
Net increases charged to costs and expenses638  
Write-offs of uncollectible accounts(260) 
Balance as of June 30, 2020$1,519  

NOTE 5 — FAIR VALUE MEASUREMENT

Accounting Standards Codification (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.

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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 six-month period ended June 30, 2020.

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 June 30, 2020 and December 31, 2019 (in thousands):
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