Luminex Corporation
Q2 2018 Earnings Call Transcript

Published: 7 Aug 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to Luminex Corporation’s Second Quarter 2018 Earnings Conference Call. My name is Brian and I will be your coordinator for today. Today's call is being recorded. [Operator Instructions] I would now like to turn the conference over to Harriss Currie, Senior Vice President and Chief Financial Officer for opening remarks. Please proceed.

[Harriss Currie:]

Good afternoon and welcome to Luminex Corporation's conference call to discuss our second quarter 2018 financial and operational results. On our call today – with me today is Homi Shamir, President and Chief Executive Officer. We’ll be following our standard agenda. Homi will review our corporate highlights, I'll review the financial performance and after that, we’ll open the call up for your questions. As a reminder, today’s conference call is being recorded and a replay will be available for six months on the Investor Relations section of our website. Certain statements made during the course of today's call may not be purely historical and consequently may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the company claims the protections provided by Section 21E for the Securities Exchange Act for such statements. These forward-looking statements speak only as of the date hereof and are based on our current beliefs and expectations and are subject to known or unknown risks and uncertainties, some of which are beyond the company’s control that could cause actual results or plans to differ materially and adversely from those anticipated in the forward-looking statements. Factors that could cause or contribute to such differences are detailed in our Form 10-K for the year-ended December 31, and our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. We encourage you to review these documents and we undertake no obligation to update these forward-looking statements. Also, certain non-GAAP financial measures, as defined by SEC Regulation G, may be covered in this call. To the extent that any non-GAAP financial measures are covered, a presentation of and reconciliation to the most directly comparable GAAP financial measure will be included in our earnings release, which is available on our website in accordance with Regulation G. I’ll now turn the call over to our President and CEO, Homi Shamir.

[Homi Shamir:]

Thank you, Harriss. Good afternoon and welcome to our second quarter 2018 earnings call. Earlier this afternoon, we posted our results for the second quarter of 2018. We are certainly pleased with the performance of our diversified businesses. Our growth in Q2 was led by the continued success of our molecular diagnostic franchise, our sample-to-answer portfolio which grew by 33% in the quarter led the way. We are very pleased to have closed another 65 contracts on new sample-to-answer systems during this quarter, which will support our continued growth trajectory, bringing our active customer base to more than 500. Further, our annual VERIGENE per ordering customer continued to range nicely and currently stands at $108,000 per year. Based on our track record and continued momentum during Q2, we continue to be on target to achieving our goal of 100 million annual sample-to-answer run rate by the end of 2019. Our LTG revenue stream was healthy. Results were in line with the expectation incorporated into our Q2 guidance assumption. We were up 1% compared to Q2 of 2017 in the face of another challenging consumable quarter, as previously communicated. Notably, we achieved Luminex highest system placement number in our history with 361 xMAP system placement and we are well on track to exceed 2017 placement. Additionally, our royalty grew by 7% for the quarter and by 6% for the year to date period. As a reminder, royalties increased as a result of growth in end user sales, which are the primary indicator of the use of our technology in the marketplace. We still expect the LTG revenue stream to grow in the mid-single digit for the full year. Today, I would like to quickly touch on three topics. One, the initiation of VERIGENE 2 clinical trials. Two, the confirmed departure of LabCorp Women's Health businesses. And three, progress in our R&D pipeline. First, an update on our clinical trials. We mentioned in our previous earning calls that we expect clinical trials for our VERIGENE 2 system to commence by the end of the second quarter of 2018. I'm happy to say that clinical trial testing for the system and it’s fair to say the enteric or GI panel has begun. We anticipate submission to the FDA by late this year or in early 2019. At this time, we have more than 10 sites participating in our VERIGENE 2 enteric trial. The enteric clinical trial will be followed by a respiratory panel trial, beginning during the upcoming flu season. As we have said previously, we plan to launch those two panels as close together as possible in 2019 to generate maximum market impact with the goal being to bring our blood culture panels to market shortly after there. Secondly, as we mentioned in our first quarter earning call, LabCorp has confirmed that their last order from NuSwab product, the foundation of their women’s health portfolio was placed in the second quarter. LabCorp made the 18 months minimum commitment of 63.1 million related to those products for the period of January 2017 to June 2018. Finally, we continue to be extremely excited about our product pipeline, which we believe will reposition Luminex at the forefront of innovation in our industry. We have communicated our commitment to introduce a next generation xMAP platform and are well on our way to providing a new system to the market in the second half of 2019 that deliver increased sensitivity, dynamic rates and automation capability with backward compatibility. Also providing all the features and benefits that has made xMAP technology a market leader in life science industry for the last 20 years with approximately 15,500 systems installed to date. In fact, we displayed a prototype of this new technology at AACC last week and it was very well received. One advantage we have at Luminex is our ability to provide both lower plex targeted solution with our risk platform and higher flex syndromic solution with our VERIGENE and forthcoming VERIGENE 2 systems. Now that clinical trials have started on VERIGENE 2, we are shifting our R&D resources to combine the strength of those two technologies to leverage the best features of both systems and assay capabilities. The new VERIGENE 2 plus module which increases the power flexibility of the VERIGENE 2 instrument will be incorporated into the VERIGENE 2 system and will allow for faster turnaround times, offer expanded real time chemistry option, be backward compatible with our VERIGENE 2 menu and enable quantitative assays to be performed. The combination of the VERIGENE 2 and the VERIGENE 2 plus module in the same system will allow the user to perform law plex, higher plex and quantitative assay, all at the same time on the same system. The VERIGENE 2 plus module will also be interchangeable with the standard VERIGENE 2 module. We also demonstrated this breakthrough technology at AACC last week and received great feedback with respect to our overall VERIGENE strategy. As a result of the strong performance across our portfolio, while also taking the departure of LabCorp NuSwab into account, we remain confident in our 2018 revenue guidance of between 310 million to 360 million. Now, Harriss will review the financial data and afterwards, I will return with some final thoughts.

[Harriss Currie:]

Thanks, Homi. As Homi mentioned, we had another good quarter, with consolidated second quarter revenues up 4% over the prior year. Our molecular diagnostic revenue stream was 42 million for the quarter, up 7%. Performance here was driven by the continued success of our sample-to-answer franchise, which was up 33% for the quarter. For our sample-to-answer products, both the number of active customers and the utilization per customer has continued to increase each quarter. For the second quarter, the annual utilization rate per customer for our VERIGENE products increased to 108,000, up 16% from the prior year quarter and for ARIES, average annual utilization was 53,000, up 46%. Our LTG revenue stream was 36.7 million for the quarter, up against our internal plan and up 1% compared to the prior year quarter, driven by a 17% increase in system sales to our licensees, partially offset by select order timing of consumables that favored the first half of 2017. A couple of very important items to keep in mind when thinking about LTG revenue. First, you'll recall that in 2017, we had a higher concentration of revenue in the first half as a result of the concentrated consumable purchases. In the current year, we expect that LTG revenues will be weighted towards the second half of the year with approximately 55% of the total coming in the back half of this year, a much more normalized presentation. Finally, LTG revenues were up 6% sequentially from the first quarter of 2018, driven by almost 50% increase in system sales. Turning to our revenue line item, during the second quarter, we sold or placed 361 multiplex systems, which do not include ARIES and VERIGENE system placements, above the high end of our communicated arranged of between 225 and 275 per quarter. This is a record quarterly high and we're on track to deliver similar or higher xMAP system sales for 2018, relative to last year. Included in system revenues are sales of our xMAP systems, sales of both our ARIES and VERIGENE systems and reagent rental allocations for those placed under reagent rental. In line with our prior communication, consumable revenues were down 18% for the quarter, driven primarily by lower bulk purchases by a large partner compared to the prior year quarter. Royalty revenue grew 7% over the prior year, reflecting an increase in royalty minimums, audit findings and other adjustments in addition to an increase in base royalties. End user sales reported by our partners for the quarter were up 3%. As a reminder, growth of end user sales is the primary indicator of use and adoption of our technology in the marketplace. Assay revenues were up 6% for the quarter with a 35% increase in our automated products. One thing to keep in mind with respect to assay revenues going forward, as Homi confirmed previously, LabCorp has confirmed that their last order for their proprietary women's health panel, the foundation of their women's health portfolio was placed in the second quarter. LabCorp met the 18-month minimum commitment of 63.1 million related to these products for the period January 2017 through June 2018. For reference, during 2017, LabCorp contributed total revenue of 61.1 million. Revenue was broken down as follows. Women's health approximately 36 million, cystic fibrosis approximately 13 million and all other ancillary products approximately 12 million. As I said previously, LabCorp will no longer be placing orders for their proprietary panel and by year end, the remainder of the Women's Health Products will most likely also be transitioned out. Orders for other ancillary products are expected to continue through at least the end of 2018 with a potential material reduction in 2019. LabCorp orders for our CF products are expected to continue on contract to at least the end of 2019. We posted gross margins of 62% for the quarter, down 3 percentage points from the second quarter of 2017. The primary reason for this decrease can be attributed to product mix with a decline in consumable revenue, and increase in system sales as discussed previously. We continue to focus on improvement of our sample-to-answer margins through both volume increases and cost efficiency. We continue to control our operating expenses with declines in both SG&A and R&D expenses in the quarter. Overall, OpEx was down 3% over the prior year quarter. Operating profit was 7.9 million, which translates to a 10% operating margin. Our effective tax rate for the second quarter of 2018 was 28% as compared to 26% in the second quarter of 2017. The 28% included the street expense item related to the results of the Canadian income tax audit. Our estimated full year consolidated tax rate for 2018 is 25% to 30%, including the new 21% federal rate and GILTI or Global Intangible Low Tax Income, but this full year rate is expected to be approximately 19% to 21% after incorporating other discrete items related to quarter four 2017 tax reform updates. Our balance sheet remains strong with no debt and 139 million in cash and investments. As Homi mentioned, we begun to deploy resources for licensing agreements and have made investments in technologies that can help enhance our portfolio of products. Year-to-date, we’ve made investments or obtain new technology license for over $5 million. You’ll also note an increase in our DSO due to the adoption of the new revenue recognition standard, which required us to record an estimated receivable for unbilled royalties each quarter to more closely coincide with the timing of the end user sale by the partner. Prior to the revenue recognition changes, we had no royalties in our accounts receivable as they were recognized when paid. We generated 10.3 million of cash in the quarter, inclusive of dividends paid in the quarter of 2.7 million. Finally, a little visibility in to the third quarter of 2018. Third quarter revenues are expected to fall between 72.5 million and 74.5 million and we reaffirm our full year guidance of between 310 million and 316 million. Now, I’d like to turn it back over to Homi for some final comments.

[Homi Shamir:]

Thanks, Harriss. In closing, Luminex continues to demonstrate the power of the diversifying businesses. Our model continues to drive meaningful growth and we remain committed to investing wisely in product pipeline development across our entire businesses. This commitment was reinforced by the excellent feedback we received in our product pipeline at the American Association of Clinical Chemistry conference last week. As I’ve said many times, continued growth will be achieved through both organic and inorganic means. We’re never losing focus on the bottom line. In addition to our existing R&D pipeline, we carry a strong balance sheet that continues to allow us to sales for attractive and synergetic M&A opportunities to further accelerate our current organic growth projection. This ends our formal comments. Operator, please open the line for questions.

[Operator:]

[Operator Instructions] And our first question will come from the line of Sung Ji Nam with BTIG.

[Sung Ji Nam:]

Homi or Harriss, could you maybe talk about the strong xMAP system placement this quarter? I know that tended to be lumpy, but it seems very high. You talked about that being a record number and so could you maybe talk about what drove that and was it attributable to one or a few customers or was it pretty broad based in terms of strength.

[Harriss Currie:]

So, Sung Ji, thanks for the question. It actually was reasonably broad with some concentration -- some foreign concentration, especially in in China with some system questions for us, but for the most part, it was broadly based. A lot of our partners continue to invest in a technology, certainly go through replacement cycles from time to time and we're not overly surprised that the number was that big. It was mostly up above where we thought it would land, but for the most part, it was evenly distributed across our partner base.

[Homi Shamir:]

And we still believe, at the moment, our focus today is showing that we will be either the same or above last year, which we believe we achieved close to 1100 systems. So that’s what we were talking about last week in AACC. I mean, the partner business continue to place more and more system and continue to be good for us.

[Sung Ji Nam:]

And then just as a follow-up, wondering for the second half, if you might be able to give us kind of a ballpark number for gross margins, given the LabCorp business is going away?

[Harriss Currie:]

Sure. So it wouldn't be surprising to us if gross margins drop just below 60%, however, as the margins on the sample-to-answer product line continue to grow as a result of the volume increases and the partnership business gets stronger in the back half, as I mentioned, with more consumable and obviously more royalty revenues, it continues to grow, we certainly would expect that to rise back to the levels where we were at the -- during this year.

[Operator:]

And our next question will come from the line of Tycho Peterson with J.P. Morgan.

[Tycho Peterson:]

I guess a couple on VERIGENE and VERIGENE 2. So as we think about kind of the upgrade path here, we require a greater reagent rental commitment exchange for swapping out VERIGENE 2 with VERIGENE 2 plus and maybe start with that.

[Harriss Currie:]

So let me first Tycho clarify something is that, VERIGENE 2 plus is a module within the VERIGENE 2 system. So the system would stay and you remove an embedded module and replace it with the VERIGENE 2 plus module that has a fluorometer. So likely if we did that, we would be in a situation where the 2 plus module certainly would command incremental increases to the reagent rental agreement, but since the modules also backwards compatible with VERIGENE 2 assays, you’d be in a situation where they could run everything that they could run at that point, plus have the ability to run the VERIGENE plus 2 assay.

[Tycho Peterson:]

Okay. And then for VERIGENE 2 plus, can you just provide the clinical trial timelines, how we should be thinking about that?

[Homi Shamir:]

We have no, Tycho, a foot up the timeline. At the moment, we are concentrating fierce to complete. Obviously, we are now in the clinical, in the enteric, we start the flu season, we start with the flu respiratory module this coming flu season, then blood culture. So I assume that the beginning of next year, we will start as we make progress in those two major clinical trial and also we are planning to start MRCA very shortly. So -- and we are not planning to add more people into the clinical trial team and et cetera. So I do some realistic at the beginning of next year, we’ll start providing timelines for the VERIGENE 2 plus clinical and we are still working there also to try to define what will be the base station we go to, what we call the fast tube or STI or fast tube or respiratory. So, we’re still debating which is the best to us to start with.

[Tycho Peterson:]

And I guess just lastly on utilization then, as we think about VERIGENE today, you’re at $108,000 pull through, where do you see that heading in light of the upgrade path here and was there any flu impact that you called out in the quarter.

[Harriss Currie:]

So second quarter was not a big flu quarter and so we didn't see a significant contribution at all from our respiratory assays. In fact, the respiratory volumes fell off pretty significantly from the first to the second quarter. Utilization number you’re talking about is obviously just for everybody's reference is utilization per active customer, there are 400 VERIGENE customers that ordered in the second quarter. We certainly could see that utilization as the VERIGENE 2 menu items are launched and as we continue to gain additional GPO placements, we should see that number creep up a little bit, it’s grown consistently over the past couple of years. In fact, since acquisition, it has. We've both added accounts and the volumes in those accounts, as those accounts come up and get to a full year's worth of utilization, that number's risen. So to help you a little bit with the math is that, you have customers in there that started in the first and second quarters of this year that don't have a full year of activity under their belt yet and what it is, it’s the average over the past 12 months. So that number, we expect to continue to drift upwards, possibly up into the 120s, maybe the 130s over time.

[Operator:]

And our next question will come from the line of Dan Leonard with Deutsche Bank.

[Dan Leonard:]

Just want to clarify the comments on LabCorp. So previously, we were thinking about the headwind as about a $40 million annual number and were you signaling on the call today that the headwind is actually closer to a $50 million annual number, because there's some other revenue going away?

[Harriss Currie:]

Yeah. I mean in the first half of this year. So one important thing to consider is in the first half of this year, LabCorp, in total, did about just over $30 million of total revenue. Of the women's health portfolio, they did little over $21 million, which includes all the women's health components, both the proprietary components and the non-proprietary components. As we move into the back half of the year, that 21 million -- the piece that’s attributable to the proprietary panel is gone and that's a $15 million or so number. There are other components of women’s health that are not proprietary that they will continue to order in the back half of this year that are most likely, we were heading, will go away by the end of the year and then there are other components of their ordering. CF obviously, just over $5 million a quarter stay. It’s not going to go anywhere until the end of next year and then we'll see what happens, we will see. There is another $3 million or $4 million of miscellaneous stuff that LabCorp has that we are planning for it ultimately to fade away in order to be the utmost conservative and not build expectations where they shouldn't be. And as a result, the falloff would be the women's health plus a modest amount of those other products.

[Homi Shamir:]

What we are trying to say there is the women health component, we have a commitment for a demand, with the CF, we have like 24 months or till the end of 2019. The rest of the product is standard operation there, which is three months renewal. At this stage, I'm not willing to bet that they will stay behind the 2018 or they will continue to buy. At the moment, we are tied with them until 2018, but it's not something that, if they decide not to buy, I will be shedding a tear. That’s really not important to us as a business. So, we just wanted to allude to everybody that we’re looking at that as a -- in the past, our bio difference business. It’s nice to have, but it's not must to have. And we are concentrated on the business as we keep saying all along is building it around our sample-to-answer business in our basically our LTG.

[Dan Leonard:]

And then my final follow-up question on the strength in multiplexing analyzer. So do you think there was anything, we've heard from a couple of other companies this earnings season of some pre-buying in advance of tariffs occurring in China. Do you think there was anything related to that in your strength multiplexing analyzers? And if you do, do you have any idea how to quantify it?

[Homi Shamir:]

Could be, but maybe it's 5% in there. Okay. So again, we're growing well and it's not because of that. I think relative to remind everybody, Q1 wasn’t the strongest in instrument and now we offer toolkit and as I keep saying, we’re seeing the end of the year when we look at the focus, we have in front of us to instrument from all our partner, we thought it was going to be a good year, a very good year. But we are not going to – either we exceed or will be similar like 1100 system. If we end up at 1150, that’s again – it will be a record year, but I don’t think that China is influencing here, but again China is only a small part of our overall business in there. But nevertheless, it’s just showing and by the way, I can flip it to the other side then, you can see that all the life science company this quarter reported a very strong quarter. Okay. I think each of them had a better than anticipated. So it’s meaning the environment is strong and we can see it also in the royalty. Look at the royalty, royalty grow up 7% this quarter and I think 6% for the six months. So those are good numbers.

[Operator:]

And our next question will come from the line of Brian Weinstein with William Blair.

[Andrew Brackmann:]

This is actually Andrew Brackmann on for Brian. I wanted to start on the sample-to-answer growth this quarter of 33%. I think in the past, you had talked about a 2018 goal of around 50%. Does that still stand? Thanks.

[Homi Shamir:]

No. I think our goal was and we keep saying that we would like to reach a running rate of $100 million by the end of next year. So that's the goal that we are targeting. I think the 33% growth plus what we have in the first quarter, we have close to 50% growth. We’re growing to probably bring us around the $64 million to $66 million this year, for the full year in sample-to-answer and I think we’re talking to that. So that's where we are targeting, but obviously our biggest target is the running rate of close to $100 million by the end of next year.

[Andrew Brackmann:]

And then on the Next Gen xMAP system, could you maybe talk a little bit about the market for that? What percentage of your installed base right now would be eligible for that upgrade?

[Homi Shamir:]

We have an installed base of close to 15,000 instruments. Obviously, it will be new offering. So whoever want to buy it, will be. But we are not obliged to upgrading the, it’s basically our partner can take the new instrument and they are seeking a new instrument to take to the field and I mean, upgrade their existing installed base. So if you ask me, there is still customer, they’re using 15 years technology. So it’s given them a great opportunity to go and upgrade installed base and again going and reflecting what we’re seeing at the life science, it's still a very strong business. Most of our partner continue to perform well and developing new assay on the instrument. So we are very happy the way this continues to develop and I think a new instrument like we show in AACC, it’s going to accelerate the growth to us in this year.

[Operator:]

And our next question will come from the line of Dan Arias with Citigroup.

[Dan Arias:]

Homi or Harriss, what was the VERIGENE system placement number this quarter? You said 65 sample-to-answer. Just curious what the VERIGENE number specifically was? And then just to clarify, is that 65 installs, you mentioned that was closing the contract on that number and I think that's how you phrase the last quarter on the 60 from 1Q. So just making sure I have it right in terms of placements versus orders.

[Homi Shamir:]

Yeah. I think the majority was VERIGENE obviously, you can -- over two third at least where VERIGENE system and again we have to remember, when we said placement is, contract, system under contract that we have a commitment for few years on the annuity business or we have a very small amount, really small amount that’s been purchased and mainly the purchase coming out of the USA in Asia, but we are very, very pleased with the number actually.

[Dan Arias:]

Okay. And then maybe Harriss, can we get an update on the GPP franchise, if we’re just thinking about the changes over the next year or so that you will have with your GI offerings, what kind of revenue run rate are you looking at these days, what does that user base look like at this point?

[Harriss Currie:]

Yeah. So Dan, you’re talking about the xMAP technology for GPP.

[Dan Arias:]

Yeah. Correct.

[Harriss Currie:]

So those sales remain strong year-over-year. They’re actually up a tiny bit from last year to this year. They’re primarily applicable for pandemics, that’s where they work the best in a situation where you get a lot of patients that present it once and you need to run a lot of samples at once. That typically happens in emergency rooms and others during in the summer in the United States as people go outside and leave food out and get sick and who knows what happened. So as a result, the GPP franchise remains strong. It's not growing at the rate that the sample-to-answer franchise is and I think that in situations where people present more – one at a time a sample-to-answer based technology, it obviously works a lot better. But we're not losing ground there.

[Homi Shamir:]

And we’re trying to develop for this market and actually I think we’re in final stages now in Japan to get approval on the product there. On the GPP, on the respiratory, we're working in China. So we're going to concentrate in large opportunity whenever there is epidemic and they need something that can move high quantity in a very low cost, that will be positioned with the product. It’s a great product.

[Operator:]

And our next question will come from the line of Brandon Couillard with Jefferies.

[Brandon Couillard:]

Harriss, could you help us sort of think through the trajectory of the consumables business in the back half of the year and whether you still think mid-single digit growth for that line is still relevant for the full year?

[Harriss Currie:]

You broke up there, I lost the last half of our question. Can you repeat it please?

[Brandon Couillard:]

Yeah. I was saying, just think it through the consumables trends through the back half of the year and whether you still think that mid-single digit growth for that line is still relevant for the full year.

[Harriss Currie:]

We do. We certainly expect the back half to be – to carry more revenue than the front half, as I said a more normalized presentation where you see some growth in the back half. It’s certainly possible that it’s choppy between the third and fourth quarters, if it’s consumable revenue by its nature is choppy as a result of that bulk purchase phenomenon, but we still believe that mid-single digit growth rate applies.

[Brandon Couillard:]

And then lastly with respect to the NuSwab roll off in the back half of the year, I think you previously mentioned that gross margins were slightly above the corporate average. Is it fair to take about a 60% gross margin on that and drop it through in terms of thinking through the EBIT impact from those revenues rolling off in the back half.

[Harriss Currie:]

The margins for the women’s health product are higher than our corporate averages. So, you take more than 60% obviously of the revenue loss down. Now one thing just to keep in mind is that I mentioned earlier that LabCorp in the first half of this year did about a little over $30 million of revenue. In the back half of this year, that number is going to be about half of what it was in the front half. So for the back half of the year, you have a profitability impact of modestly above corporate margin effect on gross margins and absolutely operating profit with a loss of that revenue. Now, it’s not necessarily going to be even in the third and fourth quarters of the year, LabCorp moves through the back half of the year, but the expectations currently are that their back half is about half of what it was in the front half.

[Operator:]

[Operator Instructions] And our next question will come from the line of Bill Quirk with Piper Jaffray.

[Bill Quirk:]

I apologize, I jumped on a little late here, so if you already addressed these, that's fine, we can cover it in the follow up. But just I guess, any update to the competitive dynamic in the highly multiplex space?

[Homi Shamir:]

Nothing changed. BioFire is the leader and we see them and competes against them, but at the same time, we continue to also new customer. So that’s a competitor.

[Harriss Currie:]

Bill, our presence in all of the top five GPOs has given us a significant amount of runway to place a lot of systems, that’s where a lot of our success is coming from. So, we unlike others, GenMark, BioFire and others are listed in all the top five and so it gives us a modest advantage.

[Bill Quirk:]

And then just in terms of, I guess, the test preference or the reason for bringing VERIGENE and is it still predominantly blood or are you starting to see some people look at, or I should say, using some of the other tests in the menu to help drive those initial installations?

[Homi Shamir:]

No. We’ve been for long time – the business is driven by RPP and GPP or enteric, okay? Not only by blood culture. So definitely, the capability of having a RP and GP together with the salesforce and we have an integrated salesforce that selling also our low-plex system is bringing the successful assay. And that’s why the business continues to accelerate. So, yeah, blood culture is, we continue to grow there as well, but the majority of the growth coming from RP and GP and that’s why we are focusing that on the VERIGENE 2, when we roll it up to make sure a year from now, we’re rolling almost with 2 assay together to our customers.

[Harriss Currie:]

And Bill, more than half of our total VERIGENE revenue comes from enteric and respiratory, not blood culture.

[Bill Quirk:]

And then lastly the comments around the Palmetto potential, it's a draft change as I should say to reimbursement, should be finished, presumably we should get some sort of final declaration on that, you're relatively soon, just curious where you're hearing.

[Homi Shamir:]

We don't hear anything that you don't hear. We expect, like anybody else from them to hear shortly, but we really don't have any information but as I keep mentioning in the last couple of calls, whatever decisions they will make, it would be good to Luminex, because if they decided to go with the flex pricing, obviously, we have a flex pricing and the VERIGENE 2, every assay is going to be a flex pricing. If they decided not to with your pricing or go to the flex I say, there is not a reason why we launch VERIGENE 2, we will not increase our prices there. So from our point of view, whatever the decision they will make, it will be a good decision.

[Operator:]

Thank you. And I'm showing no further questions in the queue. So now, it's my pleasure to hand the conference back over to Mr. Homi Shamir for any closing comments or remarks.

[Homi Shamir:]

Thank you, Brian and thank you everyone for your attendance on our earnings call today. We look forward to seeing you in person in the very near future. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and you may all disconnect. Everybody, have a wonderful day.