Luminex Corporation
Q1 2015 Earnings Call Transcript

Published: 5 May 2015

[Operator:]

Good day, ladies and gentlemen. And welcome to Luminex Corporation First Quarter 2015 Earnings Conference Call. My name is [Caddie] [ph], 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 Matt Norman, Manager of Investor Relations for opening remarks. Please proceed.

[Matt Norman:]

Good afternoon. And welcome to Luminex Corporation’s conference call for the first quarter 2015 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 will be following our standard agenda today. Homi will review our first quarter 2015 corporate highlights. Harriss will review the financial performance and our guidance update. And after that we will 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 maybe 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 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, 2014, 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, maybe 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 2015 earnings call. 2015 evolve to a promising start. I am very pleased with the significant progress achieved with ARIES and NxTAG in the first quarter. Our continue momentum heading into the second quarter, we achieved revenue of $57.7 million, primarily driven by 17% growth in assay sales. We also maintained our trend of strong gross margin, reporting approximately 70%. In addition, GAAP net income for the quarter was $7.5 million or $0.18 per diluted share. Although, overall, revenue grew by only 2%, consumable orders from our largest partner were approximately $4 million lower than the previous year, which impacted consolidate results. Excluding consumable orders from our largest partner in both periods, our consolidated growth rate would have been around 10% on adjusted basis. Harriss, our CFO will discuss our financial results in more detail in his prepared remarks shortly. Now, transitioning to our corporate highlights, the start of 2015 represented our strongest quarter in assay sales in the history of the company, a $25.4 million. Given our growing focus on Molecular Diagnostic business we are pleased with this performance. During the quarter, we made significant progress in our pipeline product and started clinical trial for the ARIES system in HSV Assay on schedule. We are excited to report that testing of the clinical trial site for the HSV Assay is now complete. As such, we are highly confident in our ability to maintain the current timeline with the initial FDA submission targeted for late summer. We are also recently initiated clinical trial for the C. diff assay which is the next assay in the ARIES pipeline. We anticipated submitting our 510(k) for the C. diff assay in the fourth quarter of this year. As previously communicated, we expect FDA submission for the ARIES launch menu to obtain for us the rest of 2015 and into 2016. The customers feedback for the trial site and our early access program has been very encouraging consistently these customers expressing their excitement for the system, particularly highlighting the intuitive design and ease-of-use. In the first quarter, we also initiated clinical trials for our new multiplexing assay NxTAG RPP and launched the research use-only version of the product early in the second quarter. As a reminder, NxTAG RPP will follow a similar timeline to ARIES with FDA clearance targeted for the fourth quarter of 2015. I recently returned from a trade show where we showcased NxTAG RPP and ARIES. The growing enthusiastic response from this customer makes us even more confident that this product will be successful. Our solid start for 2015 give us great confidence in our ability to execute well on our goals for the year. 2015 is a key transitional year for Luminex as we prepare for the launch of the ARIES and NxTAG in the fourth quarter. Everyone in the company is motivated and focused on executing according to our timelines. We are excited about the significant growth opportunities ahead of us with the upcoming launch of the ARIES platform which will considerably expand our addressable market in years to come. And importantly, within the first six months of ARIES commercial availability, we will offer a broad menu of assays, strategically positioning us for success in the market. Previously, we communicated that our cystic fibrosis business could be done a few million dollars in the second half of the year due to the planned conversion to a competitive technology at our largest customer. Recently, we were informed the intent to continue using our product through the end of 2015 thus removing this headwind in the near term. Now, Harriss, our CFO will review the financial data and afterwards I will conclude with some closing comments.

[Harriss Currie:]

Thanks Homi. Let’s begin the financial review with a look at revenue. Total revenue for the first quarter increased by 2% over the prior year period. The quarterly growth was predominantly attributable to growth in our assay product portfolio, which grew 17% for the quarter and growth in royalty revenue, which grew by 6%, offset by contraction in consumables that I’ll discuss in a bit. For the quarter, infectious disease assay sales comprised approximately 64% of total assay sales with genetic testing sales comprising 36%, a similar distribution to the prior year. First quarter assay growth reflects continued momentum in our infectious disease franchise. In our genetic assay franchise, our pharmacogenomic -- pharmacogenetic’s business grew by over 200% from the prior year. We continue to experience success with our IBD line of PGX test and our lab developed test strategy in this market as highlighted by our agreement with Assurex Health, a leader in the important and growing field of personalized medicine. Consumable revenues were down 22% for the quarter, primarily as a function of the inventory management challenges at our largest partner that we’ve discussed previously. However, excluding consumables from our largest partner for both periods, consumable from our remaining partners has grown by 14%. Royalty revenues were up for the quarter by 6%, primarily as a result of increased end user sales, which grew by 14%. Base royalties excluding minimums, royalty audit findings and other nonrepetitive items were up at a rate equivalent to our growth rate in reported end-user sales. The prior year included significant minimum royalty payments, which were not present in the current year total. In addition, royalties from our largest partner increased by 12% over the prior year, demonstrating continued growth in end-user demand for their products, which are primarily in the HLA market. In the aggregate, our higher margin items, consumables, royalties and assays comprised 80% of current quarter revenue in line with the prior year. System revenues were down 7% for the quarter, largely driven by the timing of partner orders. To provide some additional context, we received a large order from one of our partners, near the end of the quarter, which we were unable to ship by quarter end. We’ve incorporated the effect of this order into our second quarter expectations. And we now expect to be near the upper end of our quarterly system range of 200 to 250 system placements for the second quarter. As a reminder, the first quarter of each year is typically our lightest placement quarter anyway. Although system shipments for the quarter were lower than our historical quarterly range, we remain comfortable with our expected range of 200 to 250 quarterly system placements. Gross margin for the quarter was 70%, down slightly from 71% in the prior year, largely due to a shift in our sales mix within assay revenue, coupled with lower revenue from consumables, which carry a higher margin. As a function of our higher margin items representing a consistently high portion of our total revenue, we remain confident in our ability to sustain gross margins in the strategic range, high 60% to low 70%. GAAP operating expenses decreased 4% for the quarter. R&D expenses declined 8% from prior year period and represented 18% of the revenue for the quarter, primarily the result of savings and materials spending associated with advancement in the ARIES and NxTAG development phases. Given our scheduled of multiple clinical trials for ARIES assays in the current year, we currently expect consolidated R&D expenditures for the full year 2015 to be around 20% of revenue, based on our current revenue guidance range. SG&A costs were essentially flat compared to the prior year period and represented 34% of revenue for the quarter. While we did experience an unfavorable impact from approximately $0.5 million due to the effects of foreign exchange, our currency exposure is relatively limited as the impact was less than 1% of our revenue for the quarter. For the first quarter, GAAP operating margin was 17%, a 3 percentage point increase over the prior year. Non-GAAP operating margin was 22% flat for 2014 non-GAAP results. The effective tax rate for the first quarter was 28% compared to 27% in the prior year. As a reminder, we will record income tax expense on profits generated in our Canadian subsidiary over the near-term and as a result expect our consolidated effective tax rate to be in the 25% to 35% range over the next several years, absent any other significant discrete items. For the quarter, we achieved GAAP net income of $7.5 million or $0.18 per diluted share compared with income of $6 million or $0.14 per diluted share in the first quarter of 2014. On a non-GAAP basis, we generated net income of $9.6 million or $0.23 per diluted share compared to $9.9 million or $0.24 per diluted share in the prior period. Now turning to the balance sheet. We ended the quarter with $110.9 million in cash and investments, up from $107.7 million at December 31st. We generated $10.9 million in operating cash flow during the quarter, offset by capital expenditures of $8.9 million which included among other items automation equipment for the ARIES Cassette Manufacturing. At March 31st, both DSO on accounts receivable and DPO on accounts payable were favorable at 39 days and 56 days respectively. We reaffirm our 2015 revenue guidance of between $230 million and $236 million. As Homi mentioned in his commentary, the conversion by our largest customer of the CF testing through a competitive technology is now scheduled to occur next year in 2016. As a result, our current expectation is that we will be above the midpoint of our annual guidance range as the CF variability that was fully contemplated in our guidance range for the year has been tempered. With respect to assays, we expect assay revenue to grow in the low to mid teens in 2015. This growth is driven by continued adoption of our GPP product, continued expansion of our PGX franchise and further expansion of our MultiCode franchise. And given our run rate for assay revenue over the last four quarters, coupled with our expectations for growth, it would be reasonable to expect that assay revenue could approach or exceed $100 million for 2015. In addition, recall that our guidance range assumes only minimal contributions from ARIES systems and consumables in 2015, even though we expect an RUO version to be available in the third quarter. While we manage our business for the long term, we want to provide a bit more color on the second quarter. For modeling purposes, we expect total revenues for the second quarter to be between $56 million and $58 million. I will now turn the call back over to Homi for some final comments.

[Homi Shamir:]

We are off to a great start to 2015 as we continue to execute effectively in the marketplace. We at Luminex are very excited about the future of the company, as we prepare for the launch of ARIES and NxTAG later this year. We are focused on execution and delivering our pipelines, products to the market on time. We remain on track towards our goals and transforming the company into a key player in the molecular diagnostics space. We look forward to visiting with many of you in the near future. This ends our formal comments. Operator, please open the line for questions?

[Operator:]

[Operator Instructions] Our first question comes from the line of Tycho Peterson of J.P. Morgan. Your line is open.

[Tycho Peterson:]

Hey. Thanks. Homi, maybe I will just start with a question for you since you’ve kind of stepped in and taken over. Can you maybe just talk about any underlying changes you’ve made in the business? Obviously, you’ve been very clear about the timelines around both the new assays and ARIES rollout but just wondering where you’ve seen opportunities since stepping into Luminex.

[Homi Shamir:]

As I said earlier, Tycho, first, we need to build our trust and built basically our step, building the ARIES into the market space. So, I think as we’ve done in the past, we are shifting more resources into making this product available as fast as we can. Hopefully, before the end of this year we will get a clearance from the FDA. We are shifting more resources out of the Toronto operation to develop more assays. And we are really focusing, everybody including myself in the company focusing on how to execute and deliver our goals for the year. It’s not only our financial goal, mainly our goals on launching the ARIES. We are all excited about the product. We think it’s going to be successful product. But we need to build the more assay. Just to remind all of you on the line, we said that we will have five assays and cleared by the FDA by the middle of next year. But we are trying to accelerate this timeline and every week to us that we gain. I think you guys have seen we announced about ending in basically the clinical part of the clinical trial of the HSV. I think we have done it earlier than we anticipate. So, we are trying to gain momentum here.

[Tycho Peterson:]

And I know you talked about the CF headwind no longer being there and I know you, Harriss, you said you thought guidance would be above the midpoint of the range. I mean, why couldn’t there be more upside given that this seems to be a big point factor for you?

[Harriss Currie:]

Well, you really, Tycho, need to look at it as sort of individual item. So, we mentioned that CF was contemplated as a potential less than $5 million, more than $2 million headwind for the current year, given the timing of the previously expected changeover. So today, we’ve eliminated the variability that would be contemplated in at the bottom end of the range. So when you add that back, the one message I send is that was a pretty significant part of the variability in our range. And so we have more confidence now given that nothing else yet has resolved itself in our other items of potential variability that would be in the top half of the range.

[Tycho Peterson:]

Okay. And then you previously talked about a $10 million step-down in cystic fibrosis in ’16. Should we still be thinking about a step-down in that range?

[Homi Shamir:]

I think it’s really dependent on our customer. They have not told us -- they will not do it. I think we should all wait till the September, October timeframe, when we will have discussion with them about their expectation for next year. And as you know, as we keep you updated all the time on any chances either to the right or the left here, we will continue to do it here. We honestly don’t know yet if they will continue into 2016 of what is their plan yet. So as soon as we know, we will -- I think at least, we are trying to give you the full visibility into what’s going on into this business.

[Tycho Peterson:]

Okay. Thanks. I will let others hop on with questions.

[Homi Shamir:]

Thank you, Tycho.

[Harriss Currie:]

Thanks, Tycho

[Operator:]

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

[Bill Quirk:]

Hey. Thanks and good afternoon, everybody.

[Homi Shamir:]

Thank you, Bill.

[Bill Quirk:]

So first question for me is just, as we think about the upcoming launch of ARIES, how are you guys thinking about the support team, both kind of sales as well as application people? Do you expect that you might have to add to this group to support that?

[Homi Shamir:]

Yes. Bill, we probably will add more people in the second part of the year. I’m willing to share with you a number. We never disclosed it in the past but in our MPX business and the assay business, which we are expecting this year to generate close to $100 million. We currently have about 17 dedicated sales people including some management and we probably will have to add there -- and we are going to add close to 7 to 10 people before the end of the year. We needed in order to have better coverage of the territories. So again, it’s all matter of timing for this year. I don’t think it will make any impact on us on our P&L significantly. But obviously when we provide and we talk about 2016 it will add some 7 to 10 people. But we believe by the way that will give us a good coverage going into 2016 and almost until the end of 2016. That’s in the USA. We have to see what -- it depends what we need to do in Europe and less extent is in the Far East.

[Bill Quirk:]

Got it. Thank you for that. And then additionally as we think about pricing for ARIES, can you help us think a little bit about the anticipated ASP of the instruments, how should we think about the ASP to the HSV Assay relative to where it currently is? Would you expect to be able to get some sort of premium due to the automation of the system? Just kind of conceptually help us think about that?

[Harriss Currie:]

So when you think about pricing, the one thing to consider is that it is highly likely that the majority of the systems in place will be under Reagent Rental. So the systems themselves will be sold pure times when they are placed under a Reagent Rental and obviously with those Reagent Rental, there will be certain minimum volume requirements in order to acquire a system that enable us to maintain an appropriate margin profile. If you look at the system by itself, you certainly would expect that a system sold out right would be a low six digit system. So you are talking in $10,000 range if you bought it flat out. But the likelihood that there will be a significant number of those type of placements are low. Now, pricing given that we are still six months away from launch or haven’t yet been fully established, so these are all just sort of ways to think about it and there they have nothing written in stone yet around pricing.

[Bill Quirk:]

Okay. And then just on the assay side? So if I were to say for example, purchasing instrument outright, how would my HSV pricing compare to current ASPs? Again, conceptually, are you thinking that you are going to try to charge a premium here because there is going to be associated labor savings from lab or are you looking at prevailing prices?

[Harriss Currie:]

Yeah. Conceptually, as we’ve talked historically, as it sort of the average price of the basket of assays that we are introducing is in the $35 test range. Our intent is not to getting a raise to the bottom. So certainly, we are not going to offer significant discounting there. If there is an opportunity for premium, for instances on particular bundle, the inclusion of laboratory developed chest component of the bundled, et cetera that there maybe some opportunity for premium pricing. But our primary intent conceptually is not to shrink the size of the market, not to getting the raise to the bottom. But don’t go into accounts where replacement of an instrument is a compelling alternative to what’s available today and be successful in that manner.

[Bill Quirk:]

You are going to lead as value now with price. Got it. Thanks guys.

[Homi Shamir:]

Thank you, Bill.

[Operator:]

Thank you. Our next question comes from the line of Brian Weinstein of William Blair. Your line is open.

[Brian Weinstein:]

Hi. Thanks for taking the question, guys.

[Homi Shamir:]

Brian, how are you?

[Brian Weinstein:]

Good. So you’re talking about, Homi I think you said you’re over at ECCMID and you had positive feedback. Can you talk a little bit about the specific feedback that you’re getting? What type of institutions were you hearing from over there? And what was that they were particularly focused on, was it the LBT capability, was it kind of specific assays in the menu, what do you think was really driving that excitement?

[Homi Shamir:]

First my comment about ECCMID was more into the NxTAG RPP. I had a chance to talk with major customers, who are current user but also potential customers, who are trying the system. They all like in the simplicity of the use. We cut them some of the procedures that they are using currently assay and also they like very much the sensitivity, okay. So they’re very, very impressed in what they got and compare also to either competitor of our previews or the people that. So again I am not a clinician, but from what they presented and they presented it on the stage of or presented it later on in a private event and I had a chance to talk with them. They were impressed with the system and also on the floor when we show both the NxTAG and we show there is a people who are very, very impressed with the system can going back what is impression, the impression on there is one of them and depend which country. But if you look at country like in Holland, Belgium and few other country where LBT are ongoing is a major use on a daily basis. We are giving them a perfect solution. So they look at the system and said, that’s perfectly what we needed. So again, it was to me a very impressive show.

[Brian Weinstein:]

Okay. And as a follow-up. On the manufacturing side, can you refresh us on what components of the manufacturing you guys are doing in-house versus outsourcing and you made the necessary investments on that side. I know Bill asked about the kind of more sales and marketing side, but what do you need to do to ramp up commercially from manufacturing?

[Homi Shamir:]

We mentioned in the call, we used substantial amount of cash. And by the way, you are all invited to come in and see. We’re in opening give almost semi-automation that eventually will become a full automation line for the cassettes. We are going to do everything in-house. So we invested in clean rooms, we invested in the machinery, and it really looks impressive. And hopefully in the next couple of months you all guys can come and see, but it’s also beyond the impression of the line. It’s giving us a competitive edge in the cost of manufacturing. I mentioned earlier that we not in this call, but previously that we are -- we bought also on Board a very seasonal guy that will combine all our three operations side. It came from a plate material and we are putting basically a very, very strong team in manufacturing in order to drive our operational benefit and obviously shifting, we’re traditionally manufacturing beat, some assay and some boxes. We are looking now to manufacture million of cassettes in the future. So it’s made a little bit different skill, but again it’s very impressive. What we said is automation in the manufacturing.

[Harriss Currie:]

And Brian to be clear that the real basic stuff like sheet in the plastic parts are being done offsite. We are doing the assembly and filling of those and I say construction and the mixing of the reagents and such here onsite, but the more mundane things like molding plastic and stuff is being done offsite.

[Brian Weinstein:]

Okay. Thanks, guys.

[Operator:]

Our next question comes from the line of Shaun Rodriguez of Cowen and Co.

[Shaun Rodriguez:]

Hi, guys. Good afternoon. Thanks for taking the question. First one, Harriss, can you just clarify what’s the impact from the large customer step down on 2015 guidance, what’s actually embedded, is it the $10 million in guidance for this year?

[Harriss Currie:]

Are you talking about the consumable number?

[Shaun Rodriguez:]

Correct, yes.

[Harriss Currie:]

Yes. The consumable step-down from the 2014 actual is expected to be about $10 million in 2015 in the current year and the average.

[Shaun Rodriguez:]

Right. Okay. So then after Q1, the best estimate is still for another $6 million for the balance of the year. Is there anything that you can help us out with in terms of kind of the cadence of that? Is it on a year-over-year basis? Again, is it -- should we think about it as the $6 million pretty evenly distributed from this point forward?

[Harriss Currie:]

Yes. That would be a good assumption to use today. That’s as good as we know obviously with that significant of a step-down any cadence is better than none. And at this point, we believe that’s how we are looking at it, so that’s a reasonable way to look at it.

[Shaun Rodriguez:]

Okay. Thank you. And on the largest CS customer delaying their plans to transition, can you provide any color on why that delay in their plans, at least it sounds like less of a 2015, more of a 2016 but just any color on what Dave shared as far as the motivation for that I think would be helpful?

[Homi Shamir:]

I have nothing to share. As they came to use and told us initially they wanted to switch, they came back to us and said that they are not ready to switch. So we got it as if there is and said thank you. And as we said, we will meet with them, some of more in the September, October as every year we are meeting with them couple of time but normally in September, October we are sitting with them and working on the plan for next year. And as soon as we know, we will update you guys.

[Harriss Currie:]

Yes. The one thing to consider and might be the other half of your question is, given our lack of visibility on looking forward when the change takes place, what’s the likelihood that it happens earlier than we expect. And that’s very unlikely given our requirement with them to let us know at a minimum how long they will be with us, so that we can protect our inventory position so we are not in a position. We have to write off manufactured product. And so we feel highly confident, more than highly confident in the fact that we are good for the current year. And as Homi mentioned next year is again sort of in out in the far right now but as we get updated on we will let you know what we find out.

[Shaun Rodriguez:]

Okay. And then lastly on RVP so with another flu season behind you and therefore some updated perspectives on the market and competitive dynamics there. When you look forward to the next season with NxTAG RPP out there and you sound incrementally positive on the positioning of that product, how do you think about the impact on that franchise overall? Would you expect an acceleration next year, or are you viewing it more as confidence in descending the base that you have?

[Harriss Currie:]

Little bit of both. The number one, it is certainly confidence and defending the base. It allows us to as we already had another cases where we have had customers that have left our classic RPP products and come back because of the reliability even in the more complex asset use. We believe that some of the people that remain on the fence will be able to bring in. So there should be some modest growth there and others we believe there is a significant opportunity to recapture customers that left because of modestly other products that are easy to use what they find is that the throughput is not there. Our advantage remains the throughput that our product and our technology provides and we believe that that’s compelling, especially given the products hands-on has been reduced by 75%, five steps to two significantly easier to use and that historically has been one of the highest level complaint issues of the product and so we are excited about the opportunities that product provides.

[Shaun Rodriguez:]

Thanks, guys.

[Homi Shamir:]

You bet.

[Operator:]

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

[Brandon Couillard:]

Thanks. Good afternoon.

[Homi Shamir:]

Hi, Brandon.

[Brandon Couillard:]

Harriss, could you quantify the size of the large system order that’s shifting into the second quarter and perhaps the other part for Homi. Are there things you can do to avoid that type of activity or smooth out the ordering patterns? And or perhaps enhance the gross margin of those types of large orders?

[Homi Shamir:]

Brandon, let me with start and Harriss will answer the next one. One of the things actually to improve our operation and smooth, that’s exactly what happened there this quarter and we are trying to avoid it. When we get [indiscernible] there, we are not running two in the last week and building it like crazy. And not only we’re working over time, it’s getting more costly and et cetera. And so we are trying also to train our largest customer who use to do it to us in the past or thus say way till the last week of the quarter and send it. So now we’re getting all that, we are trying to smooth it to build it during either a quarter or two and not to rush madness to do it and that was impacting us. Obviously, we wanted to ship more than 200 but it was the large order and I let Harriss discuss it. But we are trying to smooth it because to us smoothing it up and getting better margin and cost stability, that’s our goals here.

[Harriss Currie:]

Smoothing production actually helps in a couple of ways. Number one, it allows for an orderly transition between different products that you make. It allows for an orderly storage and shipment of products throughout the quarter. Large orders are coming at the end of the quarter that as Homi mentioned, if we sort of break our next to assemble, that actually infringes on margin because of things like overtime and other things that are involved in trying to rush the production, the system. So by actually not electing to break our backs to get these out at the end of the quarter in last couple of days a quarter, we actually did protect our margins by doing that. And so we can do it in a more methodical thoughtful basis. And then our partners on the other hand, their pricing is contractually stipulated, so whether we deliver a lot at once or spread them out over time, it doesn’t affect sort of the standard cost of the system nor the pricing they pay. So in that instance, margins remain roughly the same, no matter how they come in. So the avoidance of over time rush fees in all the rest is really the true savings for these kind of things and training our partners to hopefully get their orders in a more timely manner, is a great way to do it. Now the size of the order, it was an access of 30 systems. And as we mentioned in our -- as I mentioned in my comments, expectations are that our systems places in the current quarter because of that carryover and some other positives in the quarter, there are total system placements for the quarter will be around that upper end of the system placement range as opposed to where we were covering around the lower end this time around.

[Brandon Couillard:]

Thanks. It’s helpful. And then Harriss, what is the guidance factor for FX headwind for the year? Is that incrementally worse than where you were starting the year? And then could you give us a feel for what CapEx is likely to shake out for the full year?

[Harriss Currie:]

So let me help you a little bit on guidance and then on the FX and there’s something that people sometimes don’t think about. Our overall FX effect in our financial statements was around a $0.5 million. 40% of that was with respect to balance sheet revaluation and only -- and another 40% was associated with revenue and the last 10% -- 20% is associated with expenses. So from a revenue headwind, even on an annualized basis, you’re talking less than a $1 million of headwind from the FX effect that we experienced in the first quarter. So it’s really nominal relative to our overall $230 million to $236 million worth of revenue. I hope that helps. Hope it does?

[Brandon Couillard:]

No. That’s helpful. Any view around the CapEx for the year?

[Harriss Currie:]

Yeah. I mean, as Homi mentioned, we did spend a lot in the first quarter. Majority of that was spend around the automation initiative that we have for our ARIES Cassette Manufacturing that we believe we need because of what we believe is going to be significant demand for this product, when it launches or going to be ready for that. The rest of the year certainly will not be a repeat of the first quarter for the next three quarters. I would estimate that over the next three quarters, we’re going to return to a more normalize rate that we’ve experienced in prior years on a quarterly basis.

[Brandon Couillard:]

Okay. Thank you.

[Harriss Currie:]

You bet.

[Operator:]

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

[Dan Arias:]

Afternoon, guys. Thanks. Homi, I think you started off by saying that momentum in Q1 continue through to the second quarter, was that a comment pertaining it, although, to order trends in April or was that just more related to sentiment on ARIES and operational progress, et cetera?

[Homi Shamir:]

Its mainly, because we don’t want to talk about the financial of Q2, but the momentum is with the ARIES and NxTAG development, that's what we meant here. So, that's -- but overall we are feeling very confident and very positive the way things are rolling for us.

[Dan Arias:]

Okay. Then wondering if I could just ask about GPP and the contribution there, anything you can help us with in terms of where revenues might be there on an annualized basis? I guess, maybe Homi, can you just sort of give us an updated view on how you think the potential of that product looks at this point?

[Homi Shamir:]

Yeah. Harriss will give you the numbers, but yeah, we continue to grow today the business. It’s again not a significant amount, not what Luminex initially talked, but it’s still going very nicely, and I’ll pass it to Harriss.

[Harriss Currie:]

Yeah. So GPP is a -- today in excess of a $1 million a quarter as you might expect growing at significant double-digit rates. And so we -- its certainly is a contributor to the growth in 2015, that will be modestly offset by the numbers that we talked about earlier the -- primarily the consumable headwind in 2015. But it certainly is a growth driver. Its one of our most significant assay products today, not the most significant, obviously, it significantly trails funds like CF and our pharmacogenomics business, but it is significant and it’s a growth engine and we are excited about it.

[Dan Arias:]

Okay. Great. Maybe just one more on the FLEXMAP placements for the quarter, can you just sort of comment on what those customers look like at this point? Is there something in particular that those labs have in common, I guess, maybe what's the outlook for things at the higher throughput end of the portfolio?

[Homi Shamir:]

Yeah. I think the reflection of the system now you see the biggest customer we have in this space of organ transplant using it in their new system and its looked promising for the continuation of the year. We know that they are going to continue to hold the rate and actually we are hoping that we will see a nice uptake in this system compared to previous year.

[Dan Arias:]

Okay. Great. Thank you.

[Harriss Currie:]

You bet.

[Operator:]

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

[Dan Leonard:]

Thank you. Just a couple of clarifications, first off, I just want to clarify, there were no actions on your part to delay the technology changeover from your cystic fibrosis customer, no pricing or otherwise?

[Homi Shamir:]

No.

[Dan Leonard:]

Okay.

[Harriss Currie:]

We did absolutely nothing, Dan. We have conveyed their communication to us to you.

[Dan Leonard:]

And then my follow up, Homi, could you address the capacity of your regulatory team to move so many products through the FDA at the same time, I believe, historically, Luminex had cleared products much less frequently?

[Homi Shamir:]

No. We have a good team. We focus the team here, many of the USA, while we start adding resources in outside the USA, mainly in Japan, in Asia-Pacific, too many consultant or one or two people on the ground. But again when you submit one assay, the rest of the assay should be very similar submission to the FDA, again the filling is the same except the statistical. Well, you need a little bit more way people on the ground than we already address. It is in the clinical side, okay. So we will run at least five, six, seven clinical trial in one year at a time with the assay. So we need that. But, again, its -- when you get this machine, getting into routine, its start working and getting much more efficiency out of that. But again when you like the first submission to the FDA of HSV then to do the second then the next one it’s really almost cut and paste except the statistical. Again, I would not like to take so easy with my regulatory team, but we are addressing it.

[Harriss Currie:]

And one thing to consider, Dan, is it, a multiplexed regulatory submission is a significantly more complicated submission than is a very low plex submission, like our ARIES, that have one, two maybe three items in the panels. So you are talking about an easier, simpler submission relative to others and a regulatory group that is intimately familiar with highly complex submissions and so these shorter submissions will be a lot easier.

[Dan Leonard:]

Got it.

[Homi Shamir:]

And also just to add there, we also decided that we are getting also some additional help here to a major law firm in Washington that’s helping us to make sure everything is going online on time and hopefully, we’ll get a quick program there.

[Dan Leonard:]

That’s helpful color. Thank you.

[Homi Shamir:]

You bet.

[Operator:]

[Operator Instructions] Our next question comes from the line of Zarak Khurshid of Wedbush. Your line is open.

[Zarak Khurshid:]

Hi there. Good afternoon, everybody. Thanks for taking the questions. How much if at all, did CF customer changeover delay improved the Q1 results versus your prior expectations?

[Harriss Currie:]

None.

[Homi Shamir:]

None.

[Harriss Currie:]

The improvement will be solely in the back half of the year. There is no change at all really in the first half of this year, expected it all from that change.

[Zarak Khurshid:]

Got it. Thanks for that. And then just curious, if you could comment on that customer just in terms of the other menu they are utilizing today and what’s your sense for their long-term commitment to the platform?

[Homi Shamir:]

I mean, we explained why they are thinking about the CF and why CF we believe is suspected or have the chance to be replaced by NGS technology. But none of this and we’ve there any subject to either a view or concern that they will be replaced by a competing technology.

[Harriss Currie:]

Yeah. So if you look at our 10-K, you see that our largest customer, any customer is LabCorp. And LabCorp is primarily assay revenue and they represent probably less than half of our total assay revenue and a lot of that is not CF revenue. And they are significantly committed with the technology. They like the technology for what it does well. And they still belief that transitioning CF over to another technology makes sense for them, but they haven’t indicated anything else that makes sense for change. So, we’re pretty comfortable with the remaining portfolio of business that we have with them.

[Zarak Khurshid:]

Make sense. I was asking the question in actually more of a positive way thinking, what’s the opportunity for them to maybe be an ARIES customer overtime?

[Harriss Currie:]

There is certainly an opportunity.

[Homi Shamir:]

They were one of our clinical trials.

[Harriss Currie:]

Yeah.

[Homi Shamir:]

I mean that’s public. You could look at the FDA website, clinical trial.gov. They were one of the three clinical trials that use our system.

[Zarak Khurshid:]

Got it. Okay. And then maybe a last one for you Harriss. You mentioned the CapEx. Could you just maybe speak to the free cash flow for this year and maybe next?

[Harriss Currie:]

Yeah. So current year expectations are -- in spite of the revenue headwinds, in spite of the significant amount of expenditures in the current year related to automation initiatives and others that we still expect free cash flow to be pretty positive, certainly not the level that it was last year but likely, maybe half of what you saw last year in the current year. But there is also consideration and Homi’s mentioned previously about investment in the additional -- different ARIES assays, if we can justify it to possible use some of the incremental resources that we generate to further accelerate the launch of ARIES assays. The goal is as you mentioned is to have five out by the middle of next year. If we can accelerate that further to make even a more compelling menu available faster or certainly going to consider doing at it if it makes sense.

[Zarak Khurshid:]

Thanks.

[Homi Shamir:]

You bet.

[Operator:]

Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Homi Shamir, President and CEO for closing remarks.

[Homi Shamir:]

Thank you, Operator, and thank you everyone for your attendance on our meeting’s call today. We look forward to seeing you in person in the very near future. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect.