Luminex Corporation
Q1 2017 Earnings Call Transcript

Published: 2 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to Luminex Corporation's First Quarter 2017 Earnings Conference Call. My name is Shannon, and I will be your coordinator for today. Today's call is being recorded. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Matthew Scalo, Senior Director of Investor Relations, for opening remarks. Please proceed.

[Matthew Scalo:]

Thanks Shannon. Good afternoon, and welcome to Luminex Corporation's conference call for the first quarter 2017 financial and operational results. On the call today are Homi Shamir, President and Chief Executive Officer; and Harriss Currie, Senior Vice President and Chief Financial Officer. We'll be following our standard agenda today. Homi will review our corporate highlights. Harriss will review the financial performance, and after that, we'll open the call 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 of the Securities Exchange Act for such statements. These forward-looking statements speak only as of the today 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 SEC. 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 measures is 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, Matt. Good afternoon, and welcome to our first quarter 2017 earnings call. We just announced another great quarter for Luminex, revenue of $78 million and growth of 23%. This growth was fueled across our entire business model. We saw our partner business growing 10% and our molecular diagnostic business growing 39%. This growth was driven by our automated sample to answer technology, which grew almost 70% year-over-year on a pro forma basis. We also generated strong profitability this quarter, reporting earnings of $0.21 per share. This was driven by 68% gross margin in our continued focus on managing operating expenses. Since LabCorp first informed us back in 2014 of their planned early 2015 departure from our CF products, we have continually updated investor regarding this plan transition. To that end, LabCorp recently committed to order our CF product at least to the end of 2017, three years from the original announcement. Our automated sample to answer solution generated revenue of approximately $11 million in the first quarter. This represents our pro forma growth of almost 70% from the $6.5 million in the prior year period. We are firmly on track to reach our $45 million revenue target for this product line. This product line should continue to expand aggressively for the next few years due to the market's continued adaptation the Verigene and ARIES platforms and the expanding portfolio of both syndromic and targeted panel. We are already realizing the cross-selling benefits from our 100% combined sales and support team. Our partner business grew 10% in Q1. As we mentioned to you previously, we are very confident this business will grow 6% to 8% during 2017 and beyond. Due to the nature of this group focused both internally and externally, we now refer to the partner business as the Licensed Technology Group. Due to our strong first quarter performance and the expansion of the CF business with LabCorp, we are raising our 2017 revenue guidance by $5 million. Our new revenue guidance range is between $300 million to $310 million, or between 11% to 14% growth over 2016. Now Harriss will review the financial data, and afterwards I will return with some closing comments.

[Harriss Currie:]

Thanks Homi. As Homi mentioned, we had a great quarter. To summarize, revenue grew by 23%, 7 percentage points were organic and 16 percentage points can be directly attributed to the acquisition of Nanosphere in June of 2016. Our partner revenues grew by 10%, bolstered by double-digit consumable growth and the return of One Lambda to more normalized buying patterns. Our molecular diagnostics group grew by 39%, supported by growth of our automated solutions, Verigene and ARIES, which contributed 36 percentage points of total growth, and which grew 12% on a pro forma basis. System revenues, which includes system sales to our licensees and both automated and non-automated system sales within our molecular diagnostics group, were up 2% for the quarter. Included in this figure were 242 of our multiplexing analyzers, well within our 225 to 275 quarterly range, in addition to automated system placements. First quarter consumable revenues grew 30% compared to the prior year, attributable to healthy demand across our partner base and select order timing, which favored the first quarter. As we look ahead, and as in prior years, we expect consumable revenues to be up modestly for the year and to be weighted towards the first half of the year, with about 55% of the total, coming in the first half of this year. I want to stress that while our view of consumable revenue for the full-year is positive and unchanged, shifts in quarterly distribution is in direct response to our partners' needs. Aggregate assay revenue grew 38%, of which 3% was organic. Royalty revenues were flat with the prior year but base royalties, or royalties not including items like royalty minimums and audit payments, were up 4% this quarter, in line with our expectations of mid-to high single-digit growth. Now let's look at the income statement. A highlight of our income statement our robust gross margins of 68% in excess of our previously communicated expectations of low to mid-60s. This improvement can be attributed to several discrete factors. The first is favorable improvement in the gross margins of our Verigene-related revenues of several points, as a result of the focus on managing the cost of the acquired enterprise and overall volume increases. We've exerted a lot of effort to improve the gross margins of our Verigene-related sales and are pleased with the results so far. The second factor is a favorable mix within our base business, which yielded gross margins in excess of 70%. We remain confident that the margins on our base business will remain at or around 70%, as a result of our focus on cost management. In recent quarters, we stated that our expectation was to see gross margins temper in the short-term and begin to rise as our sample to answer assay volumes and margins increase. Clearly product mix favored the first quarter performance, but we do anticipate gross margins for the next few quarters to hover in the mid-60s as a percentage of the entire automated sample to answer molecular portfolio of products increase as a percentage of total sales. Operating expenses increased 17% for the quarter, with the incorporation of Nanosphere as the largest driver of this growth. For the rest of the year, our expectations are that any material increases in operating expenses, will be primarily driven by initiation of clinical trials, incremental employee-related costs, execution of the consolidated system integration and the timing of discrete sales and marketing activities. R&D expenses for the quarter were up 13% over the prior year and represented 16% of revenue. SG&A costs were up 18% for the quarter from quarter one 2016. Excluding Nanosphere, SG&A expenses grew approximately 4%. First quarter operating margin was 18% or $14 million. In absolute dollars, this is a record for the company that can be attributed to healthy revenue growth, improved gross margins and a continued focus on control of OpEx. Our consolidated effective tax rate for the quarter was 34%, higher than we posted previously reflecting a higher concentration of revenue derived from U.S. operations. The company is utilizing its net operating losses and tax credits in the U.S., Canada and the Netherlands, and therefore, cash taxes to be paid are expected to continue to be less than 15% of booked tax expense. For the quarter, we posted net income of $9.2 million, or $0.21 per diluted share. With respect to Nanosphere accretion, we previously committed to accretion no later than the end of 2017. As a result of our focus on effective management of the business, we now believe that the acquisition of Nanosphere and its related integration will be accretive to the company's consolidated revenue, profitability and cash flow by the beginning of the fourth quarter of this year, one quarter earlier than initially communicated. Now quickly turning to cash flow. We ended the quarter with approximately $86.5 million in cash in investments, down $7 million from our December 31 balance. If we take a close look at the cash flow statement, you'll note a reduction in accrued liabilities of $10.1 million, increases in accounts receivable of $4.7 million and decreases in accounts payable of $3.2 million. Within accrued liabilities are items like year-end bonuses and commissions, payments of which occur once a year and won't repeat for the rest of this year. The buildup of accounts receivable and reduction of accounts payable are purely timing related. As a result, we anticipate that we will return to generating positive cash flow on a quarterly basis for the rest of the year. Now let's turn to revenue guidance. As Homi mentioned, primarily due to LabCorp's extension, the CF purchases through at least the end of this year, which eliminates one of the variables contained in our initial guidance, coupled with the overall strength of the start of the year, we are raising our full-year 2017 revenue guidance range by $5 million to between $300 million and $310 million. Lastly we want to provide revenue guidance for the second quarter of 2017 of between $74 and $76 million. I'll now turn the call back over to Homi for some final comments.

[Homi Shamir:]

Thanks Harriss. Luminex started 2017 in record fashion with continued focus on driving meaningful strategic growth, while improving efficiency that produced strong profitability. Exceptional performance has allowed us to initiate a quarterly cash dividend while returning our future flexibility with potential acquisition opportunities. Since 2016, we spent approximately $15 million in R&D and clinical trials, and we continue to invest heavily in this area. Such investments, along with our strong balance sheet and our experienced integrated sales and support teams, have us well-positioned for ongoing success. This ends our formal comments. Operator, please open the line for questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from the line of Tycho Peterson of JP Morgan.

[Tycho Peterson:]

Hi, thanks. Question on guidance. You beat by $4 million. You are rising by $5 million. Can you maybe just talk to whether - it implies only $1 million from the LabCorp extension. Can you maybe talk about whether there are offsets against that?

[Harriss Currie:]

The comments I made this point is it like in prior years we have the consolidation of consumable purchase often times within first couple of quarters of the year, and so the consumable balance that we posted in the current quarter isn't necessarily representative of our balances we expect going forward and that's a component there. The LabCorp CF added obviously little more than $1 million but it's a contributor to increasing the guidance. In fact it's almost a sole contributor to the increase in the number. The rest is that distribution of consumer revenues that our partners take when they need them as a result of extended manufacturing and development runs.

[Homi Shamir:]

Also Tycho, normally Q1, it's too early to raise guidance, and we would like to be conservative, but obviously we keep updating you guys all the time about the LabCorp and the CF and the women health, so we felt that we need to now increase the guidance but would like to be conservative still as the year progress towards the second part of the year. Nevertheless we are feeling very good about the year.

[Tycho Peterson:]

And then, Verigene revenues have been strong. Can you maybe talk to how much of what you saw this past quarter was flu-related versus just incremental non-flu sales and anything you can comment in terms of next steps in ARIES development and how that product should go [ph]?

[Homi Shamir:]

Yes, I can - as we look at the number and come back to you. But just overall it was a good quarter in the mix. I think both the flu - if I'm not mistaken, flu and enteric assay were actually more than the blood culture this time. Normally it's used to be the blood culture used to be 60%, 70%. Till this time it was like 50-50. And as we can dive into the number, at those timeline remained the same. We are planning to start the clinical trial before the - at the end of this quarter. Just to remind all of us that due to the fact that we need to use 50% for the sample, most of the ramp up of the clinical will be more on the fall - not fall, even autumn fall of this year. So we will start it. We start running with that and we'll start, I think, we will have about 13 sites - ready for 13 sites enrolling, but on the same time we see that majority of the sample will come during the second part of this year.

[Tycho Peterson:]

Okay. And then one last one on the dividend. Interesting twist. Anything we should read into that vis-à-vis other users of capital, the M&A opportunity set or growing this, do buybacks?

[Homi Shamir:]

Normally we keep saying we would like to also the M&A [ph] we like, and we continue to look for some acquisition but really the motive to dividend is to try to reach with the potential new shareholder and we have actually interesting meeting with potential new shareholders, some of them became some shareholder. We have to see all the filing coming up now. But it was just boarding the reach of reaching the shareholder in this environment. Harriss you want…

[Harriss Currie:]

Yes, so Tycho, what Homi said is absolutely right. The higher concentration of the blood screen infection revenues wasn't as predominant as it had been previously, although blood screen, enteric and respiratory, all grew at very high double-digit rates. It just happens that the respiratory and enteric panels grew at significantly higher rates than did the blood screen infections panels, so they sort of caught up a little bit. But nonetheless great growth across the entire previously Nanosphere, now Verigene portfolio.

[Tycho Peterson:]

Great. I appreciate the color. Thanks.

[Harriss Currie:]

You bet.

[Operator:]

Thank you. Our next question comes from the line of Dan Arias with Citi. Your line is now open.

[Dan Arias:]

Good afternoon guys. Thanks. Homi on the LabCorp arrangement for CF. I'm curious what specifically those guys are saying at this point? Are they planning for a phase-out in 2018, or is this sort of their version on continued resolution that just keep things going indefinitely?

[Homi Shamir:]

You should ask them. We're just laughing. What else I can say? Two years ago, they told us they are phasing out. In every year or even less than a year, they are coming and saying we want to extend. And because I'm not managing LabCorp, I can't comment about that. We just - when we get it, get it. And if one day we'll decide that that we don't want to supply, that's a different issue. But because we are growth in the other CF customer and we are supplying that to CF customer similar products, we're just furthering more this product. So we don't have a compliant about that. We wish them to stay as long as they wish.

[Dan Arias:]

Okay. I think when you were talking about the issue last year, you mentioned that you took on some additional CF customers and that was a bit of offset.

[Homi Shamir:]

Yes.

[Dan Arias:]

Will that business repeat this year?

[Homi Shamir:]

Yes, that's actually growing very nicely because now we have been through the full-year.

[Harriss Currie:]

It will actually annualize this year, Dan. So there is a component of growth. Our CF revenue actually year-over-year we don't report it separately, but I'll tell you, it grew at double-digit rates this quarter over the first quarter last year.

[Dan Arias:]

Okay. And then, it sounds like you're pretty happy with Nanosphere at this point. Can you just touch on Verigene placements during the quarter? How much were they up sequentially, and then how are you thinking about installations across the quarters of the years, should we expect those to ramp even further [ph]?

[Homi Shamir:]

That's a question I don't want to go for a number of system and I'm trying to avoid because we internally start debating how to start on reporting unit of Nanosphere. Eventually the ATLAS will be completely different or what we call, the relative dual will be one boats with six [indiscernible], and obviously with the rates we have, there is many and there is - so it start confusing all of us. So I rather if you look on the overall number we are getting from our business and the numbers speak for themselves. We are growing this business 70%. I can tell you there was tremendous amount of new customer and converting customer and the Nanosphere business, as well as on the ARIES. So we are very pleased - and by the way, we cannot achieve those number of growth without adding additional new customer but it's so confusing, I don't want to confuse you and confuse ourselves and start reporting because especially with the Nanosphere now, what is the read there, how many process are and eventually when we migrating to the Verigene 2, it would be completely chaos. So I rather report of the overall number and answer the way I'm answering to you now.

[Harriss Currie:]

Yes. Dan, we actually look at it about contracts added because as you know, we, unlike Nanoshpere, have the ability to reagent rent, sell. We can place systems in a number of different ways and sometimes they go in early for evaluation, so it creates this quagmire of data that would be very difficult to provide in a clear way in a conference call. It take a equivalent of one of your launch notes to get that information out there. So for us we think the best indicator of the success of that platform is that the revenues and utilization continues to rise.

[Homi Shamir:]

Another interesting point - and I think I mentioned is discrete - you see more and more cross-selling, okay. So it's not - okay, so in account that we have Nanosphere in the past, now we manage to put ARIES or vice-versa, so we had amazing success story of fully when report them shortly. But we are very pleased in the cross-selling. And then again you want to identify the customer that already been a customer of Luminex and now they are buying a different platform. So I think again let's concentrate the overall number because that would benefit us the best.

[Dan Arias:]

Okay. Thanks very much for that. I appreciate it.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from line of Brian Weinstein of William Blair. Your line is now open.

[Brian Weinstein:]

Hi, guys. Thanks for taking the question. So you talked about Verigene, but can you give us an update on ARIES. It sounds like it did the about $0.5 million in the quarter. Can you talk about how that's tracking relative to your expectations, as well as giving us an update on menu and where that is going at this point and anything we should be looking for in the second half for the year there?

[Homi Shamir:]

Yes, ARIES actually came from zero for last year. But yes, I think that ARIES will achieve over $5 million this year and we are on track to - because we can start seeing the Q2 numbers and what we have in the pipeline and some of the success story is that we didn't share yet with you how they are going to materialize. But for the pipeline, we are expecting those to tell any day. Okay, we, I think told at the end of this week, we reach our 90 days and I'm expecting any day. In the CBs [ph], we are going to provide - submit to the FDA around the middle of this month, so we think two weeks, three weeks, it will be in the hands of NDA. In Group A Strep, we are just finalizing the end of the clinical and somewhere in the summer we'll submit it to the FDA. And also norovirus, we probably will get May-June timeframe we'll get CE Mark. We are not planning to take it to the FDA. The norovirus is not justified for market penetration. In MRCA, we are planning to start clinical trial towards the September-October this year. So that's really the list of the ARIES. And as I said, we are feeling very good where we are going with the product. But again, just remember we are starting from zero number, so it's a little bit harder to compare to the Verigene.

[Brian Weinstein:]

Okay. And then, Harriss, for you on royalties. I know you said up 4% when you back some stuff out on minimums and whatnot, that is at the lower end of the range that you guys had typically provided. So can you just give us an update on royalties and how that looks going forward? Thank you.

[Harriss Currie:]

So our expectations, as we said, as our partner business was going to grow 6% to 8%. Royalties obviously would closely mirror that as we move forward throughout the year. There are timing differences often times as in royalties that some of the fields in which our partners play generate higher royalties in future quarters throughout this year. I think we also have some moving pieces within our royalties. We have - I'd like to give you great examples that we had a royalty submission in the current quarter. As a result, there was a monthly royalty but as a result of somebody going on vacation and submitted early so that you go on vacation. And so you end up with these type of these ebbs and flows within royalties that cause sequential variations but year-over-year the growth is still there. We still have, on an annual basis, over $0.5 billion of sales by our partners. That number is growing. Obviously One Lambda, now Thermo has the largest portion of that. But Bio-Rad has a really big portion. Millipore and others are big contributors and all are growing. So we are more than comfortable with the expected growth rate of our royalties in the mid-to high-single digits this year.

[Brian Weinstein:]

Okay, thanks.

[Harriss Currie:]

Sure.

[Operator:]

Thank you. Our next question comes from the line of Brandon Couillard of Jefferies. Your line is now open.

[Brandon Couillard:]

Thanks. Good afternoon. Harriss or Homi, could you elaborate on some of the gross margin improvements you've been able to make at the base Nanosphere business? I know they are working on a number of manufacturing initiatives. Just curious what should be able to tackle there, and exactly why we should expect gross margins to actually taking step back in the context of what sounds like pretty good improvements in the Nanosphere business there?

[Harriss Currie:]

Sure. We'll consider that the base business I mentioned had gross margins in excess of 70%. So if you look back at our quarterly results prior to the acquisition of Nanosphere, although there were several quarters that were above 70%, the majority fell at 70% or 68% to 70%. And so to expect a 72% annual for the rest of the year, especially in quarters upcoming with the beat revenues not expected to be as strong, beat revenue is 90%-plus gross margin revenue, you would expect some tampering of the gross margins of the base business. Now in the Nanosphere business, even the ARIES business as well that is here in Austin. Because of the increasing in volume to the factory, you get better absorption so the cost per part goes down obviously. The fixed cost remain the same, so overall your margins given cost and selling prices get better over that. So that's one component. The other component is you may remember in the fourth quarter, we did a realignment of the business. There were costs all across the company that were taken into account there where we were able to save a little amount of money. The majority of that was in R&D but there were other cost elsewhere. We've put very efficient cost managers within our factory. They have been tasked of driving cost out. We've eliminated waste. We've increased the production flow-through. We've increased the use of the use of materials we have - well, waste comes in two ways, right. One is raw materials you buy and that you never use it. The other is assay components that you make that reach shelf life and you have to throw them out, right, finish, because you have to throw out. We have cut down all of that, so there is a lot of components there. The management of the Nanosphere business that we've able to improve on the cost, and so as those volumes increase, the expectations are that those gross margins primarily through absorption moving forward, that will begin - will continue to increase as the volumes increase.

[Homi Shamir:]

And then just something that will contribute in the future, just something that makes space of the facilities to be part of that manufacturing. So we are streamlining the manufacturing workflow, which was a mess. We've got more professional people and so we are doing exactly what we say. Therefore by the way this company that used to be as volatile company with $20 million-something in a year is going to be profitable by the end of this quarter, so end of the third quarter. So we have done a lot to improve the efficiency of this organization even by continued investment in the facilities, so more automation, and as I said, better workflow in the product. So we feel good that where we can continue to grow the business and eventually automated more and more and have a better workflow for the product, we will see a continuous improvement in gross margin. Obviously Verigene 2 is a complete different story how we are going to continue also there, improve the overall gross margin.

[Brandon Couillard:]

Excellent. One more just on the consumables business. Do you think you can split out the benefit from timing in the first quarter and perhaps what the base business grew ex-One Lambda?

[Harriss Currie:]

Well, that would be difficult because we would - that would be really difficult to do because One Lambda has sort of a base level that they go to, so as a result that would be just hard to do. What I can tell you is that we talked about 55/45 weighting. The consumables across the rest of our business grew at positive rates in the single digits but they grew year-over-year. The One Lambda, that was large and they will continue to buy. They just won't buy at the same level they bought in the first quarter.

[Homi Shamir:]

And we are out of the One Lambda inventory to remember, so especially going forward in year to come, this business will start growing and growing year-over-year. It could be certain quarter it will be lower but overall year-over-year it will continue to grow mainly because also not One Lambda is installing our new technology. It was a record quarter for FM3D. Majority of them went to One Lambda. So there is not a reason why this big business will not continue. And by the way, we are signing new partner globally, especially in Asia, and that start giving here another 1% or 2% but that's where we say, we would like to 6% to 8% growth in this business. And I think in the last, six, seven, eight quarter, we delivered higher than 10% growth on the partner business in spite of them having One Lambda issue. So we are very happy about the momentum in this business.

[Brandon Couillard:]

Super. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Dan Leonard of Deutsche Bank. Your line is now open.

[Dan Leonard:]

Thank you. So first question - appreciate the update on LabCorp. Should we infer anything about LabCorp's plans with the women's health assay transfer from the equivalent CF or are those different animals?

[Homi Shamir:]

I think it's much difficult animal because in the CF, they have the solution. They have the sequence. They have the equipment there. They are familiar with the Illumina [indiscernible] et cetera. Here they need to develop everything from ground zero. But again just - I don't want there to speculate what I personally think or not. I give you the fact, okay, and the fact is they extended this year as they continued to extend it in the last three years and we signed an agreement with them for [indiscernible] which they normally sign an agreement only three months with each of their suppliers, so that's standard operating to them. So with us, they signed a year enough. If they need more and they will be in a dire straits, so then we'll decide what to do and probably we'll supply them under another long-term agreement. But that's really what it is. But again I don't want to speculate it. I want to give you the fact and you can read it the way you want to read it.

[Dan Leonard:]

Okay, appreciate that. And then my follow-up question, Homi. Does the new name for the partnership business, the Licensing Technology Group, does that imply anything about the level of resources you are devoting to the business or no?

[Homi Shamir:]

No, by all means we are planning to continue to invest in this business. We put more resources into that. As I said, this is a business that may be in the last couple of years, Luminex management previously was more shifting into them. Yes, so I think it's a business that overall giving us a greater velocity and balance. And by the way, if you find some potential acquisition there onto it some product, then I go back to that in a second. We have gone to invest in that, so that's where we wanted to refresh the name and refresh to people what is the business because when you say partner, every customer is a partner of ours. So I just wanted to more emphasize because this is more licensed business. We continue to add a lot of license customer to us, and on the same time, as I mentioned earlier, we are planning to invest. One of them is we are looking to develop on working on the development or from new platform to replace the current platform, which will give us, I think, a huge potential to upgrade our current install base of the LX, MAGPIX and even FM3D, but it's mainly would be MAGPIX and LX. But it will open up the capability that we're putting into this unit, will help us to penetrate some new market that we recently licensed. See partner that currently we are not playing major roles. At this stage, I don't want to go into this detail because it's now in the lab. I think in the next, during the end of this year, we will know that we have a product and then we start talking that more often and obviously getting you to familiar with that. So that's what they are doing. We think there is a long way to go on developing this License Technology Group.

[Dan Leonard:]

Okay. Appreciate all that color. Thank you.

[Homi Shamir:]

Thanks.

[Operator:]

Thank you and our next question comes from the line of Bill Quirk of Piper Jaffray. Your line is now open.

[Bill Quirk:]

Great. thanks. Good afternoon, everybody.

[Harriss Currie:]

Hi Bill.

[Bill Quirk:]

First question, and it was touched on a little bit earlier. But the change in your guidance, $5 million, but now adding back LabCorp, which if memory serves is about $8 million relative to the guidance of '17, and so I guess just bridging that delta guys, is that a function of the fact that it's the first quarter and the bias here is that to be on a more conservative side?

[Harriss Currie:]

Yes. That's absolutely right. Homi mentioned that earlier. What - we are sitting here in May, right, and reporting a quarter of the first three months of the year, we got a long way to go to back any major adjustments in guidance other than the discrete items that we were aware of. And so we have to be - we would like to be careful here.

[Bill Quirk:]

Fair point, Harriss. Secondly just thinking a little bit, I guess, about some of the market dynamics around the Nanosphere business, certainly appreciating that we had a pretty good flu season, particularly late in the season. That said, one your competitors, Biofire, also just put up a pretty good first quarter print too and certainly there appears to be some fairly strong momentum in the marketplace for having multiplex task, so if you just talk, I guess, a bigger picture about what you're seeing in terms of some of the industry dynamics?

[Homi Shamir:]

Again we are on track to deliver our $45 million for something to answer year and we - I believe we are on a very good track. We saw the potential FDA clearance for the ARIES, as well as eventually what we call, Verigene 2, into reaching $100 million year by 2019. But I think what we can see is that Luminex's position extremely uniquely to provide syndromic and targeted solution to our customer. We start seeing it to customer accepting it in the field, the synergy, and that's what by the way the synergy with talk all the time that's why we bought Nanosphere is to give the customer the synergy that they can trust one company or providing the syndromic and targeted solution. Just to remind you, nobody else can do it in the field, and beyond that we can also the non-automated solution. So we had a great success story and I think that's what you see the dynamic. Obviously we see more and more interest in the market in the syndromic assay. I think every things by the Biofire, or by what we are doing in the field, will continue to drive it and that's really how I think.

[Harriss Currie:]

Just to provide some additional context, Bill, is that all of - ARIES is not surprising, like the ARIES Flu A/B RSV product grown year-over-year. As Homi mentioned, that was coming almost from zero. But also, the higher plex B-based non-automated respiratory solution grew high-double digits year-over-year, as did the respiratory products of Verigene on the Verigene product grew as well. So all of our respiratory products grew year-over-year. Now we are not a flu company, right. So that's obviously not anywhere close to the total of growth but all were contributors to the growth of the company this quarter.

[Bill Quirk:]

Okay, got it. And then just an accounting question for you, Harriss. You know that the change in stock-based comp sequentially appear to be of a more significant magnitude than what we've seen in previous 1Q over 4Q. Anything changed there or maybe you could just add a little bit of color on that? Thanks.

[Harriss Currie:]

Well, what I know we do, do in the first quarter where we use is in any - I guess, what you saw is it went down a lot, not went up a lot.

[Bill Quirk:]

That's correct, yes.

[Harriss Currie:]

So the reductions typically for anybody that departs during the year - there is a note that will be filed in our 10-Q tomorrow that effectively anybody that leaves the company, for instance, all of the terminations associated with the restructuring in the fourth quarter, or anybody else that left during the rest of the year, all of the vested stock - the unvested stock comp is been expensed reverses at the next vest date. That next vest date typically because we issue every March, falls in the first quarter, and as a result, all those forfeited issuances were credited, were backed out in the first quarter of this year. So as a result, you have the headcount reductions that we talked about and the restructuring. For several people that left for the year that are well credited, if you will, in the first quarter.

[Bill Quirk:]

Thank you. Appreciate the color.

[Harriss Currie:]

You bet.

[Operator:]

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Homi Shamir for closing remarks.

[Homi Shamir:]

Thank you, Nicole, and thank you, everyone, for your attendance on our earning calls 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 participating in today's conference. It does conclude today's program. You may disconnect. Everyone have a great day.