UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q



þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2019
	~~June 30, 2018~~or	or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ~~____~~__ to ~~____.~~__.

Commission File No. 000-30109

_______________

LUMINEX CORPORATION

(Exact name of registrant as specified in its charter)



DELAWARE		~~72-2747608~~74-2747608
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
12212 TECHNOLOGY BLVD., AUSTIN, TEXAS		78727
(Address of principal executive offices)		(Zip Code)

(512) 219-8020

Registrant’s Telephone Number, Including Area Code

None

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

___________________



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

	þ Yes	¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

	þ Yes	¨ No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	þ		Accelerated filer	¨
Non-accelerated filer	¨	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	¨
			Emerging growth company	¨



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
	¨ Yes	þ No

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.001 par value	LMNX	The Nasdaq Global Select Market

There were ~~44,608,397~~44,977,354 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on ~~August~~May 6, ~~2018.~~2019.

LUMINEX CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

TABLE OF CONTENTS



	~~Page~~
			PAGE
PART I.		FINANCIAL INFORMATION

Item 1.		Financial Statements

Condensed Consolidated Balance Sheets as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018			1

Condensed Consolidated Statements of Comprehensive Income for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~			2

Condensed Consolidated Statements of Cash Flows for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017~~			3

Condensed Consolidated Statement of Changes in ~~Stockholders’~~Stockholders' Equity for the Three Months ended March 31, 2019 and ~~Six Months Ended June 30,~~ 2018			4

Notes to Condensed Consolidated Financial Statements			5

Item 2. ~~Management’s~~		Management's Discussion and Analysis of Financial Condition and ~~Results~~Result of Operations	1916

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	3128

Item 4. ~~Controls and Procedures~~		32Controls and Procedures	29

PART II.		OTHER INFORMATION

Item 1. ~~Legal Proceedings~~		32Legal Proceedings	30

Item 1A. ~~Risk Factors~~		32Risk Factors	30

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3330

Item 6. ~~Exhibits~~		33Exhibits	30

~~SIGNATURES~~	34

~~Exhibit 10.2~~SIGNATURES
~~Exhibit 10.3~~31
~~Exhibit 10.4~~
~~Exhibit 10.5~~
~~Exhibit 10.6~~
~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 32.2~~

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

													LUMINEX CORPORATION	CONDENSED CONSOLIDATED BALANCE SHEETS	(in thousands, except share amounts)

	June 30, 2018			December 31, 2017			March 31,			December 31,
	(unaudited)						2019			2018
ASSETS							(unaudited)
Current assets:
Cash and cash equivalents	$	138,996		$	127,112		$	61,689		$	76,441
Accounts receivable, net	46,778			40,648			62,652			53,396
Inventories, net	52,085			49,478			64,027			63,250
Prepaids and other	7,984			7,403			8,917			9,657
Total current assets	245,843			224,641			197,285			202,744
Property and equipment, net	59,642			58,258			65,630			66,288
Intangible assets, net	71,653			75,985			98,891			105,148
Deferred income taxes	32,538			37,552			28,334			21,470
Goodwill	85,481			85,481			118,293			118,127
Right of use assets							23,824			—
Other	15,071			8,599			11,244			11,398
Total assets	$	510,228		$	490,516		$	543,501		$	525,175
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,599		$	14,537		$	18,138		$	14,504
Accrued liabilities	18,236			25,990			22,728			26,772
Deferred revenue	5,546			4,721
Deferred revenue - current portion							8,521			10,099
Total current liabilities	36,381			45,248			49,387			51,375
Deferred revenue	1,326			1,498			3,038			1,079
Lease liabilities							20,792			—
Other	6,992			5,863			1,827			5,065
Total liabilities	44,699			52,609			75,044			57,519
Stockholders’ equity:
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding: 43,830,115 shares at June 30, 2018; 43,404,493 shares at December 31, 2017	44			43
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding: 44,120,133 shares at March 31, 2019; 43,899,210 shares at December 31, 2018							44			44
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding	—			—			—			—
Additional paid-in capital	357,076			350,834			366,049			365,349
Accumulated other comprehensive loss	(944		)	(625		)	(1,260		)	(1,127		)
Retained earnings	109,353			87,655			103,624			103,390
Total stockholders’ equity	465,529			437,907			468,457			467,656
Total liabilities and stockholders’ equity	$	510,228		$	490,516		$	543,501		$	525,175

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
Consolidated Financial Statements.							Consolidated Financial Statements.

																			LUMINEX CORPORATION	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	(in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
	(unaudited)						(unaudited)						(unaudited)
Revenue	$	79,578		$	76,457		$	162,240		$	154,236		$	82,408		$	82,662
Cost of revenue	30,272			26,396			59,346			51,389			36,601			29,074
Gross profit	49,306			50,061			102,894			102,847			45,807			53,588
Operating expenses:
Research and development	11,672			12,260			21,998			24,680			15,048			10,326
Selling, general and administrative	27,610			28,153			53,440			52,150			31,491			25,830
Amortization of acquired intangible assets	2,166			2,166			4,332			4,523			2,852			2,166
Total operating expenses	41,448			42,579			79,770			81,353			49,391			38,322
Income from operations	7,858			7,482			23,124			21,494
Other income (expense), net	8			1			457			(5		)
Income before income taxes	7,866			7,483			23,581			21,489
Income tax expense	(2,197		)	(1,939		)	(4,515		)	(6,714		)
Income (loss) from operations													(3,584		)	15,266
Other income, net													60			449
Income (loss) before income taxes													(3,524		)	15,715
Income tax benefit (expense)													6,484			(2,318		)
Net income	$	5,669		$	5,544		$	19,066		$	14,775		$	2,960		$	13,397

Net income attributable to common stock holders
Basic	$	5,571		$	5,441		$	18,741		$	14,499		$	2,904		$	13,192
Diluted	5,571			5,441			18,742			14,499			2,904			13,192
Net income per share attributable to common stock holders
Basic	$	0.13		$	0.13		$	0.43		$	0.34		$	0.07		$	0.30
Diluted	$	0.13		$	0.13		$	0.43		$	0.34		$	0.07		$	0.30
Weighted-average shares used in computing net income per share
Basic	43,734			43,160			43,599			43,030			43,949			43,462
Diluted	44,246			43,259			43,871			43,128			44,546			43,633

Dividends declared per share	$	0.06		$	0.06		$	0.12		$	0.12		$	0.06		$	0.06

Other comprehensive income:
Foreign currency translation adjustments	(711		)	339			(319		)	602			(133		)	392
Other comprehensive income (loss)	(711		)	339			(319		)	602			(133		)	392
Comprehensive income	$	4,958		$	5,883		$	18,747		$	15,377		$	2,827		$	13,789

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
Consolidated Financial Statements.													Consolidated Financial Statements.

																			LUMINEX CORPORATION	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	(in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
	(unaudited)						(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	5,669		$	5,544		$	19,066		$	14,775		$	2,960		$	13,397
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,130			5,651			12,023			11,270			6,889			5,893
Stock-based compensation	3,547			4,026			4,808			4,748			2,449			1,261
Deferred income tax expense	2,308			4,332			3,761			7,267
Deferred income tax (benefit) expense													(8,087		)	1,453
Loss on sale or disposal of assets	111			—			111			—			94			—
Other	(1,158		)	478			(1,127		)	922			(242		)	31
Changes in operating assets and liabilities:
Accounts receivable, net	(503		)	3,911			5,053			(758		)	(7,342		)	5,556
Inventories, net	133			(3,417		)	(2,602		)	(6,304		)	(486		)	(2,735		)
Other assets	(353		)	(1,892		)	(556		)	(1,197		)	2,272			(203		)
Accounts payable	(1,981		)	1,337			(1,661		)	(2,369		)	4,117			320
Accrued liabilities	3,366			2,661			(8,073		)	(7,411		)	(10,400		)	(11,439		)
Deferred revenue	231			(547		)	653			(350		)	680			422
Net cash provided by operating activities	17,500			22,084			31,456			20,593
Net cash (used in) provided by operating activities													(7,096		)	13,956
Cash flows from investing activities:
Purchase of property and equipment	(4,968		)	(2,970		)	(9,036		)	(6,403		)	(3,823		)	(4,068		)
Issuance of note receivable	(500		)	—			(1,000		)	—			—			(500		)
Purchase of investment	(1,782		)	(500		)	(1,782		)	(1,000		)
Acquired technology rights	—			—			(4,000		)	—			—			(4,000		)
Net cash used in investing activities	(7,250		)	(3,470		)	(15,818		)	(7,403		)	(3,823		)	(8,568		)
Cash flows from financing activities:
Proceeds from issuance of common stock	2,290			1,495			3,416			2,229			802			1,126
Shares surrendered for tax withholding	(13		)	(40		)	(2,016		)	(2,096		)	(2,072		)	(2,003		)
Dividends paid	(2,678		)	(2,636		)	(5,302		)	(2,636		)	(2,696		)	(2,624		)
Net cash used in financing activities	(401		)	(1,181		)	(3,902		)	(2,503		)	(3,966		)	(3,501		)
Effect of foreign currency exchange rate on cash	492			(194		)	148			(434		)	133			(344		)
Change in cash and cash equivalents	10,341			17,239			11,884			10,253			(14,752		)	1,543
Cash and cash equivalents, beginning of period	128,655			86,466			127,112			93,452			76,441			127,112
Cash and cash equivalents, end of period	$	138,996		$	103,705		$	138,996		$	103,705		$	61,689		$	128,655

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
Consolidated Financial Statements.													Consolidated Financial Statements.

																																LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY																CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)																															(unaudited)

	Common Stock															Common Stock
	Number of Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss)			Retained Earnings			Total Stockholders' Equity			Number of Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total Stockholders’ Equity
Balance at December 31, 2017	43,404,493	$	43	$	350,834		$	(625	)	$	87,655		$	437,907
Balance at December 31, 2018																43,899,210	$	44	$	365,349		$	(1,127	)	$	103,390		$	467,656
Exercise of stock options	40,142	—		697			—			—			697			16,707	—		298			—			—			298
Issuances of restricted stock, net of shares withheld for taxes	222,534	1		(2,003		)	—			—			(2,002		)	204,216	—		(2,072		)	—			—			(2,072		)
Stock compensation	—	—		1,235			—			—			1,235			—	—		2,449			—			—			2,449
Issuance of common shares under ESPP	—	—		—			—			—			—
Net income	—	—		—			—			13,397			13,397			—	—		—			—			2,960			2,960
Foreign currency translation adjustments	—	—		—			392			—			392			—	—		—			(133		)	—			(133		)
Dividends	—	—		47			—			(2,690		)	(2,643		)	—	—		25			—			(2,726		)	(2,701		)
Other	—	—		—			—			8,023			8,023
Balance at March 31, 2018	43,667,169	$	44	$	350,810		$	(233	)	$	106,385		$	457,006
Exercise of stock options	102,976	—		1,874			—			—			1,874
Issuances of restricted stock, net of shares withheld for taxes	12,670	—		(13		)	—			—			(13		)
Stock compensation	—	—		3,563			—			—			3,563
Issuance of common shares under ESPP	47,300	—		854			—			—			854
Net income	—	—		—			—			5,669			5,669
Foreign currency translation adjustments	—	—		—			(711		)	—			(711		)
Dividends	—	—		(12		)	—			(2,701		)	(2,713		)
Other	—	$	—	$	—		$	—		$	—		$	—
Balance at June 30, 2018	43,830,115	$	44	$	357,076		$	(944	)	$	109,353		$	465,529
Balance at March 31, 2019																44,120,133	$	44	$	366,049		$	(1,260	)	$	103,624		$	468,457

See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.
Consolidated Financial Statements.																Consolidated Financial Statements.



LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (cont.)
(in thousands, except share data)
(unaudited)

	Common Stock
	Number of Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss)			Retained Earnings			Total Stockholders’ Equity
Balance at December 31, 2017	43,404,493	$	43	$	350,834		$	(625	)	$	87,655		$	437,907
Exercise of stock options	40,142	—		697			—			—			697
Issuances of restricted stock, net of shares withheld for taxes	222,534	1		(2,003		)	—			—			(2,002		)
Stock compensation	—	—		1,235			—			—			1,235
Net income	—	—		—			—			13,397			13,397
Foreign currency translation adjustments	—	—		—			392			—			392
Dividends	—	—		47			—			(2,690		)	(2,643		)
Other	—	—		—			—			8,023			8,023
Balance at March 31, 2018	43,667,169	$	44	$	350,810		$	(233	)	$	106,385		$	457,006

See the accompanying notes which are an integral part of these
Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared by Luminex Corporation (the Company or Luminex) in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring entries) considered necessary for a fair presentation have been included. Operating results for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018~~.2019. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (the ~~2017~~2018 10-K).

NOTE 2 — BUSINESS COMBINATIONS

On December 31, 2018, the Company completed its acquisition (the Acquisition) of EMD Millipore Corporation’s flow cytometry portfolio for $75 million, consisting of approximately $69.9 million paid under a Share and Asset Purchase Agreement (the Purchase Agreement) and approximately $5.1 million in committed inventory purchases, both of which are subject to adjustment. A purchase price reconciliation was completed in the quarter ended March 31, 2019 resulting in a decrease of the purchase price by $1.9 million. This adjustment resulted in a revised amount of $68.0 million paid under the Purchase Agreement. The Company financed the acquisition with cash on hand. Luminex acquired 100% of the shares and equity of Amnis Corporation, a Washington corporation (Amnis), a wholly owned subsidiary of EMD Millipore Corporation, a Massachusetts corporation (itself an affiliate of Merck KgaA), and certain other assets owned by other affiliates of Merck KgaA (MilliporeSigma).

The Acquisition expands Luminex’s existing offering of flow-based detection systems, which is centered around its innovative xMAP^® multiplexing technology, with more than 16,000 xMAP systems sold worldwide (some of which may be retired or otherwise not in use). MilliporeSigma’s flow cytometry portfolio included Amnis^®, a family of imaging flow cytometry products for cell-based analysis, as well as their Guava^® and Muse^® portfolio of products, which are economical systems based on microcapillary technologies. The purchase price was in excess of the fair value of the net assets acquired and, as a result, the Company recorded goodwill. A portion of the goodwill is deductible for tax purposes. The Company recorded approximately $2.7 million of acquisition-related costs during fiscal 2018. The impact of the Acquisition on our liquidity is more fully described under “Liquidity and Capital Resources.”

The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed in connection with the Acquisition at December 31, 2018 and adjusted as of March 31, 2019 (in thousands):




Net tangible assets assumed as of December 31, 2018	$	8,725
Intangible assets subject to amortization	30,094
Deferred tax liabilities	(3,653		)
Goodwill	32,812
Total purchase price	$	67,978

The Company is in the process of obtaining third-party valuations of certain intangible assets and finalizing the calculations of the deferred tax assets and liabilities related to the Acquisition; thus the provisional measurement of net tangible assets assumed, intangible assets, deferred tax assets and liabilities and goodwill are subject to change. Information that existed prior to December 31, 2018 has become available that indicates adjustments are required to the purchase price allocation. Such adjustments have been included in the purchase price allocations retrospectively through revisions to the net tangible assets assumed, fair values of the intangible assets, deferred tax assets and liabilities and resulting goodwill recorded.

NOTE 23 — INVESTMENTS AND OTHER ASSETS

Marketable Securities

The Company determines the appropriate classification of ~~its~~any investments in debt and equity securities at the time of purchase and re-evaluates such determinations at each balance sheet date. Marketable securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized in earnings. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates the fair value of these investments. Debt securities for which the Company does not have the intent or ability to hold to maturity are classified as available-for-sale. Debt and marketable equity securities not classified as held-to-maturity or as trading are classified as available-for-sale, and are carried at fair market value, with the unrealized gains and losses included in the determination of comprehensive income and reported in stockholders’ equity. As of ~~June 30, 2018 and December~~March 31, 2017, all of the Company’s marketable securities were classified as available-for-sale. Marketable securities are recorded as either short-term or long-term on the balance sheet based on the contractual maturity date. The fair value of all securities is determined by quoted market prices, market interest rate inputs, or other than quoted prices that are observable either directly or indirectly (as of the end of the reporting period). Declines in fair value below the Company’s carrying value deemed to be other than temporary are charged against net earnings. As of June 30, 2018,2019, the Company had no short or long-term ~~investments.~~investments, since those funds were used to pay for acquisitions.

Available-for-sale securities consisted of the following as of ~~June 30, 2018~~March 31, 2019 (in thousands):



	Amortized Cost		Gains in Accumulated Other Comprehensive Income		Losses in Accumulated Other Comprehensive Income		Estimated Fair Value
Current:
Money market funds	$	705	$	—	$	—	$	705
Total current securities	705		—		—		705
Noncurrent:
Total noncurrent securities	—		—		—		—
Total available-for-sale securities	$	705	$	—	$	—	$	705

Amortized Cost Gains in Accumulated Other Comprehensive Income Losses in Accumulated Other Comprehensive Income Estimated Fair Value
Current:
Cash equivalents $ 702
$ —
$ —
$ 702
Total current securities 702
—
—
702
Noncurrent:

Total noncurrent securities —
—
—
—
Total available-for-sale securities $ 702
$ —
$ —
$ 702

Available-for-sale securities consisted of the following as of December 31, ~~2017~~2018 (in thousands):



	Amortized Cost		Gains in Accumulated Other Comprehensive Income		Losses in Accumulated Other Comprehensive Income		Estimated Fair Value
Current:
Money market funds	$	704	$	—	$	—	$	704
Total current securities	704		—		—		704
Noncurrent:
Total noncurrent securities	—		—		—		—
Total available-for-sale securities	$	704	$	—	$	—	$	704

Amortized Cost Gains in Accumulated Other Comprehensive Income Losses in Accumulated Other Comprehensive Income Estimated Fair Value
Current:
Cash equivalents $ 701
$ —
$ —
$ 701
Total current securities 701
—
—
701
Noncurrent:

Total noncurrent securities —
—
—
—
Total available-for-sale securities $ 701
$ —
$ —
$ 701

There were no proceeds from the sales of available-for-sale securities ~~during~~for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and the year ended December 31, 2018.Realized gains and losses on sales of investments are determined using the specific identification ~~method. Realized gains~~method and ~~losses~~ are included in ~~Other Income, net~~other income (expense) in the Condensed Consolidated Statements of Comprehensive Income. There were no available-for-sale debt securities as of March 31, 2019 or December 31, 2018. All of the ~~Company's~~Company’s available-for-sale securities with gross unrealized ~~holding~~ losses as of ~~June 30, 2018 and December~~March 31, ~~2017 have~~2019 had been in a loss position for less than 12 months.

~~There were no available-for-sale debt securities as of June 30, 2018 and December 31, 2017.~~

~~Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.~~

Non-Marketable Securities and Other-Than-Temporary Impairment

During the ~~three months~~year ended ~~June 30,~~December 31, 2018, the Company made a $1.8 million investment in a private company. Based in the U.S. ~~and not publicly traded,~~, this minority investment is included at cost in other long-term assets of the Company’s Consolidated Balance Sheets. The Company does not have significant influence over the investee since the Company owns less than 20% of the voting equity in the investee. Further, the Company does not participate in policy-making processes or interchange managerial personnel.

~~During each of the years ended December 31, 2017 and December 31, 2016,~~In August 2018, the Company ~~made a $1.0 million minority interest investment (an aggregate of $2.0 million), in~~exercised its purchase option on a second private company ~~based~~and acquired 100% of its capital stock in a non-cash transaction involving (i) a prior investment of $2.0 million being applied to the ~~U.S. that~~purchase option, (ii) the forgiveness and application of a $2.4 million note and related interest receivable to the purchase option and (iii) a tax impact of $0.1 million. This acquisition was accounted for as an asset acquisition rather than a business combination, as substantially all of the fair value of the gross assets acquired is ~~focused on development of~~concentrated in a single identifiable asset, a next generation ~~technologies. This minority interest is included at cost in other long-term assets on the Company’s Consolidated Balance Sheets as the Company does not have significant influence over the investee.~~technology. The Company ~~owns less than 20%~~has recorded the $4.3 million asset acquisition as a defensive, in-process research and development (IP R&D) intangible asset. There were no gains or losses recognized as part of ~~the voting equity in the investee, which is not publicly traded, and the Company does not participate in policy-making processes. Although we may invest further in~~ this entity over the course of the next several quarters, we do not anticipate our ownership interest to exceed 20% in the short-term. During the year ended December 31, 2017, the Company also entered into a $1.4 million promissory note with this same private company. The promissory note is payable at the annual interest rate of 1.95% with a maturity date of 5 years from the date of issuance. The Company loaned an additional $1.0 million to the private company in the six months ended June 30, 2018, resulting in a notes receivable balance of $2.4 million as of June 30, 2018.transaction.

The Company owns a minority interest in ~~a third~~another private company based in the U.S. through its investment of $1.0 million in the third quarter of 2012. This minority interest is included at cost in other long-term assets on the Company’s Consolidated Balance Sheets as the Company does not have significant influence over the investee, ~~since~~as the Company owns less than 20% of the voting equity ~~in the investee~~ and the investee is not publicly traded. ~~Further, the Company does not participate in policy-making processes or interchange managerial personnel.~~

These investments do not have readily determinable fair values. Therefore, the Company has elected the measurement alternative for ~~these~~its minority interests and the investments are recorded at cost, less any impairment, including changes resulting from observable price changes. The Company regularly evaluates the carrying value of its investment for impairment and whether any events or circumstances are identified that would significantly harm the fair value of the investment. The primary indicators the Company utilizes to identify these events and circumstances are the ~~investee's~~investee’s ability to remain in business, such as the ~~investee's~~investee’s liquidity and rate of cash use, and the investee’s ability to secure additional funding and the value of that additional funding. In the event a decline in fair value is less than the ~~investment's~~investment’s carrying value, the Company will record an impairment charge in Other Income, net in the Consolidated Statements of Comprehensive Income. As of ~~June 30, 2018,~~March 31, 2019, the Company has not recorded any impairment charges related to the investments discussed above.

As the inputs utilized for the ~~Company's~~Company’s periodic impairment assessment are not based on observable market data, the determination of fair value of ~~this investment~~its investments is classified within Level 3 of the fair value hierarchy. See Note 45 - Fair Value Measurement to our Condensed Consolidated Financial Statements for further information on the fair value hierarchy and the three classification levels. To determine the fair value of these investments, the Company uses all available financial information related to the entities, including information based on recent or pending third-party equity investments in these entities. In certain instances, an ~~investment's~~investment’s fair value is not estimated as there are no identified events or changes in the ~~circumstances that may~~circumstances. There have ~~a significant adverse effect on the fair value of the investments and~~been no unrealized gains or losses related to ~~do so would be impractical.~~these Level 3 minority interest investments.

Other long-term assets consisted of the following (in thousands):



	March 31, 2019		December 31, 2018
Purchased technology rights (net of accumulated amortization of $7,795 and $7,633 in March 31, 2019 and December 31, 2018, respectively)	$	6,491	$	6,653
Minority interest investments	2,782		2,782
Other	1,971		1,963
	$	11,244	$	11,398

June 30, 2018 December 31, 2017
Purchased technology rights (net of accumulated amortization of $7,305 and $7,012 as of June 30, 2018 and December 31, 2017, respectively) $ 6,856
$ 3,149
Investments 4,782
3,000
Notes receivable ⁽¹⁾
2,400
1,400
Other 1,033
1,050
$ 15,071
$ 8,599

⁽¹⁾ During the six months ended June 30, 2018, the Company increased the principal amount of the promissory note with a private company, in which it made an aggregate $2.0 million minority interest investment, as discussed above.

For the ~~six~~three months ~~ending June 30,~~ended March 31, 2019 and 2018, ~~and year ended December 31, 2017,~~ the Company recognized amortization ~~expense~~expenses related to the amortization of purchased technology rights of approximately ~~$293,000~~$162,000 and ~~$559,000,~~$127,000, respectively. Future amortization ~~expense is~~expenses are estimated to be ~~$302,000~~$486,000 in the ~~two~~ remaining ~~quarters~~nine months of ~~2018, $603,000~~2019, $547,000 in ~~2019,~~2020, $515,000 in 2021, $497,000 in ~~2020, $470,000 in 2021, $464,000 in~~ 2022, ~~$456,000~~$481,000 in 2023 and ~~$3,712,000~~$3,965,000 thereafter.

NOTE 34 — INVENTORIES, NET

Inventories are stated at the lower of cost or net realizable value, with cost determined according to the standard cost method, which approximates the first-in, first-out method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company routinely assesses its on-hand inventory for timely identification and measurement of obsolete, slow-moving or otherwise impaired inventory. Net inventories consisted of the following (in thousands):



	March 31, 2019		December 31, 2018
Parts and supplies	$	40,640	$	39,873
Work-in-progress	12,740		11,847
Finished goods	10,647		11,530
	$	64,027	$	63,250

June 30, 2018 December 31, 2017
Parts and supplies $ 31,458
$ 29,266
Work-in-progress 9,895
8,712
Finished goods 10,732
11,500
$ 52,085
$ 49,478

NOTE 45 — FAIR VALUE MEASUREMENT

~~The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB)~~ Accounting Standards Codification (ASC) 820 “Fair Value Measurement” (ASC 820) defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ~~The~~ ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable:


~~Level 1 –~~	~~Quoted prices in active markets for identical assets or liabilities.~~


~~Level 2 –~~	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


~~Level 3 –~~	~~Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company determines the fair value of its investment portfolio assets by obtaining non-binding market prices from its third-party portfolio managers on the last day of the quarter, whose sources may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. There were no transfers between Level 1, Level 2 or Level 3 measurements for the ~~six-month~~three-month period ended ~~June 30, 2018~~.March 31, 2019.

The ~~Company's~~following table represents the Company’s fair value hierarchy for its financial assets and liabilities ~~were all Level 1 money market fund assets and were~~ measured at fair value on a recurring ~~basis. These Level 1 assets were $0.7 million~~basis as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~

2018 (in thousands):



	Fair Value Measurements as of March 31, 2019 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	705	$	—	$	—	$	705
Minority interest investments	$	—	$	—	$	2,782	$	2,782

Fair Value Measurements as of June 30, 2018 Using
Level 1 Level 2 Level 3 Total
Assets:
Money Market funds $ 702
$ —
$ —
$ 702



	Fair Value Measurements as of December 31, 2018 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	704	$	—	$	—	$	704
Minority interest investments	$	—	$	—	$	2,782	$	2,782

Fair Value Measurements as of December 31, 2017 Using
Level 1 Level 2 Level 3 Total
Assets:
Money Market funds $ 701
$ —
$ —
$ 701

NOTE 56 — GOODWILL AND OTHER INTANGIBLE ASSETS

~~Goodwill is reviewed for impairment at least annually at~~On December 31, 2018, the ~~beginning~~Company completed the Acquisition. As a result of the ~~fourth quarter, or more frequently if impairment indicators arise.~~Acquisition, the Company recorded approximately $32.8 million of goodwill and $30.1 million of other identifiable intangible assets. The ~~Company's~~goodwill is derived from expected synergies from combining operations of the Company and the business acquired in connection with the Acquisition. The purchase price allocation is preliminary as the Company’s determination of the fair values of the assets acquired and liabilities assumed is still in progress. A portion of the Company’s goodwill is not expected to be deductible for tax purposes. ~~There were no~~The changes in the carrying amount of ~~the Company’s~~ goodwill during the ~~six months ended June 30, 2018 and twelve months ended December 31, 2017~~period are as follows (in thousands):



	March 31, 2019		December 31, 2018
Balance at beginning of period	$	118,127	$	85,481
Flow cytometry acquisition	$	166	$	32,646
Balance at end of period	$	118,293	$	118,127

June 30, 2018 December 31, 2017
Balance at beginning of year $ 85,481
$ 85,481
Balance at end of period $ 85,481
$ 85,481

The Company’s intangible assets are reflected in the table below (in thousands, except weighted average lives):



	Finite-lived									Indefinite-lived
	Technology, trade secrets and know-how			Customer lists and contracts			Other identifiable intangible assets			IP R&D			Total
2018
Balance as of December 31, 2017	$	81,385		$	19,097		$	5,664		$	12,982		$	119,128
Flow cytometry acquisition	17,084			4,722			4,991			6,703			33,500
Asset acquisition	—			—			—			4,328			4,328
Balance as of December 31, 2018	98,469			23,819			10,655			24,013			156,956
Less: accumulated amortization:
Accumulated amortization balance as of December 31, 2017	(34,414		)	(7,037		)	(1,692		)	—			(43,143		)
Amortization expense	(6,087		)	(1,999		)	(579		)	—			(8,665		)
Accumulated amortization balance as of December 31, 2018	(40,501		)	(9,036		)	(2,271		)	—			(51,808		)
Net balance as of December 31, 2018	$	57,968		$	14,783		$	8,384		$	24,013		$	105,148
Weighted average life (in years)	11			10			10

2019
Balance as of December 31, 2018	$	98,469		$	23,819		$	10,655		$	24,013		$	156,956
Flow cytometry acquisition purchase price allocation adjustments	(116		)	(428		)	1,154			(4,016		)	(3,406		)
Balance as of March 31, 2019	98,353			23,391			11,809			19,997			$	153,550
Less: accumulated amortization:
Accumulated amortization balance as of December 31, 2018	(40,501		)	(9,036		)	(2,271		)	—			(51,808		)
Amortization expense	(1,946		)	(606		)	(299		)	—			(2,851		)
Accumulated amortization balance as of March 31, 2019	(42,447		)	(9,642		)	(2,570		)	—			(54,659		)
Net balance as of March 31, 2019	$	55,906		$	13,749		$	9,239		$	19,997		$	98,891
Weighted average life (in years)	10			10			10

Finite-lived Indefinite-lived
Technology, trade secrets and know-how Customer lists and contracts Other identifiable intangible assets IP R&D Total
2017
Balance as of December 31, 2016 $ 81,385
$ 19,097
$ 5,664
$ 12,982
$ 119,128
Balance as of December 31, 2017 81,385
19,097
5,664
12,982
119,128
Less: accumulated amortization:

Accumulated amortization balance as of December 31, 2016 (28,137 ) (5,038 ) (1,112 ) —
(34,287 )
Amortization expense (6,277 ) (1,999 ) (580 ) —
(8,856 )
Accumulated amortization balance as of December 31, 2017 (34,414 ) (7,037 ) (1,692 ) —
(43,143 )
Net balance as of December 31, 2017 $ 46,971
$ 12,060
$ 3,972
$ 12,982
$ 75,985
Weighted average life (in years) 11
10
10

2018

Balance as of December 31, 2017 $ 81,385
$ 19,097
$ 5,664
$ 12,982
$ 119,128
Balance as of June 30, 2018 81,385
19,097
5,664
12,982
119,128
Less: accumulated amortization:

Accumulated amortization balance as of December 31, 2017 (34,414 ) (7,037 ) (1,692 ) —
(43,143 )
Amortization expense (3,044 ) (999 ) (289 ) —
(4,332 )
Accumulated amortization balance as of June 30, 2018 (37,458 ) (8,036 ) (1,981 ) —
(47,475 )
Net balance as of June 30, 2018 $ 43,927
$ 11,061
$ 3,683
$ 12,982
$ 71,653
Weighted average life (in years) 11
10
10

The ~~in-process research and development (IP~~Company currently has three IP R~~&D) project is~~&D projects. The first relates to the development of the next generation VERIGENE^® ~~system,~~ System, VERIGENE II, on which wethe Company began clinical trials in May 2018. ~~We believe~~The Company believes the VERIGENE II will launch commercially in 2019. The second is a defensive IP R&D project related to the Company’s next generation xMAP^® System, SENSIPLEX™, which the Company believes will launch commercially in 2020. The third relates to the development of the next generation Guava System, acquired as part of the Acquisition (Guava Next Gen System). The fair value of the Guava Next Gen System IP R&D project was determined using the income approach. The discount rate applied to the projected cash flows was 13.0%, which reflects the engineering and technical risks related to the projects. The allocation of the purchase price is preliminary and subject to change, based on the finalization of income tax matters. The Company believes the Guava Next Gen System will launch by the end of 2019. The estimated ~~cost~~costs to complete ~~this project is less than $1.0~~these IP R&D projects are approximately $9.1 million.

The estimated aggregate amortization expense for the next five fiscal years and thereafter is as follows (in thousands):



2019 (nine months)	$	8,556
2020	11,406
2021	11,048
2022	9,801
2023	9,452
Thereafter	28,631
	$	78,894

2018 (six months) $ 4,333
2019 8,666
2020 8,666
2021 8,307
2022 7,060
Thereafter 21,639
$ 58,671
IP R&D 12,982
$ 71,653

NOTE 67 — OTHER COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

~~Other comprehensive income (loss)~~Comprehensive loss represents a measure of all changes in equity that result from recognized transactions and other economic events other than those resulting from investments by, and distributions to shareholders. Other comprehensive ~~income (loss)~~loss for the Company includes foreign currency translation ~~adjustments.~~adjustments and net unrealized holding gains and losses on available-for-sale investments.

The following table presents the changes in each component of accumulated other comprehensive loss, net of tax (in thousands):



	Foreign Currency Items			Accumulated Other Comprehensive Loss Items
Balance as of December 31, 2018	$	(1,127	)	$	(1,127	)
Other comprehensive loss	(133		)	(133		)
Net current-period other comprehensive loss	(133		)	(133		)
Balance as of March 31, 2019	$	(1,260	)	$	(1,260	)

Foreign Currency Items Available-for-Sale Investments Accumulated Other Comprehensive Income (Loss) Items
Balance as of December 31, 2017 $ (625 ) $ —
$ (625 )
Other comprehensive income before reclassifications (319 ) —
(319 )
Net current-period other comprehensive loss (319 ) —
(319 )
Balance as of June 30, 2018 $ (944 ) $ —
$ (944 )

~~The following table presents~~There are no tax benefits or expenses related to the ~~tax expense allocated to each component of~~ other comprehensive ~~income (loss) (in thousands):~~

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Before Tax Tax Benefit Net of Tax Before Tax Tax Benefit Net of Tax
Foreign currency translation adjustments $ (711 ) $ —
$ (711 ) $ (319 ) $ —
$ (319 )
Unrealized gains on available-for-sale investments —
—
—
—
—
—
Other comprehensive loss $ (711 ) $ —
$ (711 ) $ (319 ) $ —
$ (319 )
loss for the three months ended March 31, 2019.

NOTE 78 — EARNINGS PER SHARE

A reconciliation of the denominators used in computing per share net income (EPS) is as follows (in thousands, except per share amounts):



	Three Months Ended March 31,
	2019			2018
Basic:
Net income	$	2,960		$	13,397
Less: allocation to participating securities	(56		)	(205		)
Net income attributable to common stockholders	$	2,904		$	13,192
Weighted average common stock outstanding	43,949			43,462
Net income per share attributable to common stockholders	$	0.07		$	0.30

Diluted:
Net income	$	2,960		$	13,397
Less: allocation to participating securities	(56		)	(205		)
Net income attributable to common stockholders	$	2,904		$	13,192
Weighted average common stock outstanding	43,949			43,462
Effect of dilutive securities: stock options and awards	597			171
Weighted-average shares used in computing net income per share	44,546			43,633
Net income per share attributable to common stockholders	$	0.07		$	0.30

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Basic:
Net income $ 5,669
$ 5,544
$ 19,066
$ 14,775
Less: allocation to participating securities (98 ) (103 ) (325 ) (276 )
Net income attributable to common stockholders $ 5,571
$ 5,441
$ 18,741
$ 14,499
Weighted average common stock outstanding 43,734
43,160
43,599
43,030
Net income per share attributable to common stockholders $ 0.13
$ 0.13
$ 0.43
$ 0.34

Diluted:

Net income $ 5,669
$ 5,544
$ 19,066
$ 14,775
Less: allocation to participating securities (98 ) (103 ) (324 ) (276 )
Net income attributable to common stockholders $ 5,571
$ 5,441
$ 18,742
$ 14,499
Weighted average common stock outstanding 43,734
43,160
43,599
43,030
Effect of dilutive securities: stock options and awards 512
99
272
98
Weighted-average shares used in computing net income per share 44,246
43,259
43,871
43,128
Net income per share attributable to common stockholders $ 0.13
$ 0.13
$ 0.43
$ 0.34

Basic net income per share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common and common equivalent shares outstanding during the period. ~~Stock~~Restricted stock awards (RSAs) and stock options to acquire ~~approximately 0.8 million~~672,007 and ~~2.5 million~~2,190,395, shares for the three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and 2017, and 0.6 million and 2.0 million shares for the six months ended June 30, 2018 and 2017,~~ respectively, were excluded from the computations of diluted ~~EPS~~earnings per share because the effect of including ~~those~~the RSAs and stock options would have been anti-dilutive.

We apply the two-class method of computing ~~EPS,~~earnings per share, which requires the calculation of separate ~~EPS~~earnings per share amounts for our non-vested, time-based restricted stock awards with non-forfeitable dividends and for our common stock. Our non-vested, time-based restricted stock awards with non-forfeitable dividends are considered securities which participate in undistributed earnings with common stock. Under the two-class computation method, net losses are not allocated to participating securities unless the holder of the security has a contractual obligation to share in the losses. Our non-vested, time-based restricted stock awards with non-forfeitable dividends do not have such an obligation so they are not allocated losses.

NOTE 89 — STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

Dividends

On ~~May 18, 2018,~~February 8, 2019, the Board of Directors declared a cash ~~dividend~~dividends on the Company’s common stock of $0.06 per share. The dividend declared in February was payable to stockholders of record as of ~~June 22, 2018~~March 21, 2019 and was paid on ~~July 13, 2018.~~April 11, 2019. The Company’s current intent is to pay a continuing dividend on a quarterly basis. However, future declarations of dividends are subject to the final determination of the Company’s Board of Directors.

Stock-Based Compensation

The Company’s stock option activity for the ~~six~~three months ended ~~June 30, 2018~~ ~~was~~March 31, 2019 is as follows:



Stock Options	Shares (in thousands)		Weighted Average Exercise Price
Outstanding at December 31, 2018	3,323		$	19.05
Granted	977		24.43
Exercised	(17	)	17.85
Canceled or expired	(320	)	21.98
Outstanding at March 31, 2019	3,963		$	20.14

Stock Options (shares in thousands) Shares Weighted Average Exercise Price
Outstanding as of December 31, 2017 3,086
$ 18.10
Granted 761
22.06
Exercised (143 ) 17.96
Cancelled or expired (372 ) 18.48
Outstanding as of June 30, 2018 3,332
$ 19.01

The Company had ~~$14.1~~$14.8 million of total unrecognized compensation costs related to stock options ~~as of June 30, 2018. These costs~~at March 31, 2019 that are expected to be recognized over a ~~weighted average~~weighted-average period of ~~2.64~~3.02 years.

The Company’s restricted share activity for the ~~six~~three months ended ~~June 30, 2018~~ ~~was~~March 31, 2019 is as follows:


Restricted Stock Awards (shares in thousands)	Shares		Weighted Average Grant Price
Non-vested as of December 31, 2017	715		$	18.46
Restricted Stock Awards (RSAs)					Shares (in thousands)		Weighted Average Grant Price
Non-vested at December 31, 2018					724		$	20.27
Granted	383		22.14		395		24.24
Vested	(284	)	18.47		(247	)	19.34
Cancelled or expired	(39	)	19.25		(10	)	21.21
Non-vested as of June 30, 2018	775		$	20.24

Restricted Stock Units (in thousands)	Shares
Non-vested as of December 31, 2017	423
Granted	92
Vested	(49	)
Cancelled or expired	(3	)
Non-vested as of June 30, 2018	463
Non-vested at March 31, 2019					862		$	22.34



Restricted Stock Units (RSUs)	Shares (in thousands)
Non-vested at December 31, 2018	468
Granted	72
Vested	(45	)
Cancelled or expired	(2	)
Non-vested at March 31, 2019	493

As of ~~June 30, 2018,~~March 31, 2019, there were ~~$15.6~~$20.2 million and ~~$3.2~~$3.4 million of ~~total~~ unrecognized compensation costs related to ~~Restricted Stock Awards (RSAs)~~RSAs and ~~Restricted Stock Units (RSUs),~~RSUs, respectively. These costs are expected to be recognized over a weighted ~~average period~~average-period of ~~2.82~~3.09 years for the RSAs and ~~2.40~~2.63 years for the RSUs. The Company issues a small number of ~~cash settled~~cash-settled RSUs pursuant to the ~~Company's~~Company’s equity incentive plan in certain foreign countries. These grants do not result in the issuance of common stock and are considered immaterial by the Company.

The following are the stock-based compensation costs recognized in the Company’s ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~comprehensive income~~Comprehensive Income (in thousands):



	Three Months Ended March 31,
	2019			2018
Cost of revenue	$	460		$	410
Research and development	(14		)	(337		)
Selling, general and administrative	2,027			1,188
Stock-based compensation costs reflected in net income	$	2,473		$	1,261

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Cost of revenue $ 406
$ 402
$ 816
$ 737
Research and development 537
759
200
597
Selling, general and administrative 2,604
2,865
3,792
3,414
Stock-based compensation costs reflected in net income $ 3,547
$ 4,026
$ 4,808
$ 4,748

NOTE 910 — ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):



	March 31, 2019		December 31, 2018
Compensation and employee benefits	$	10,024	$	18,086
Dividends payable	2,726		2,703
Income and other taxes	886		1,014
Warranty costs	1,746		1,901
Current operating lease liabilities	4,941		—
Other	2,405		3,068
	$	22,728	$	26,772

June 30, 2018 December 31, 2017
Compensation and employee benefits $ 11,149
$ 18,218
Dividends payable 2,701
2,671
Income and other taxes 215
1,070
Warranty costs 1,334
1,308
Other 2,837
2,723
$ 18,236
$ 25,990

The following table summarizes the changes in the warranty accrual (in thousands):



Accrued warranty costs as of December 31, 2018	$	1,901
Warranty adjustments/settlements	397
Accrual for warranty costs	(552		)
Accrued warranty costs as of March 31, 2019	$	1,746

Accrued warranty costs as of December 31, 2017 $ 1,308
Warranty adjustments/settlements (991 )
Accrual for warranty costs 1,017
Accrued warranty costs as of June 30, 2018 $ 1,334

NOTE 1011 — REVENUE RECOGNITION

On January 1, 2018, the Company adopted the a new standard on revenue recognition, Accounting ~~Standards~~Standard Codification 606 (the Standard), using the modified retrospective transition method consistent with the guidance issued by the ~~FASB~~Financial Accounting Standards Board (FASB) in May 2014. Under this method, the Company applied the guidance retrospectively, only to those contracts which were not completed as of the date of initial application, and recognized the cumulative effect of initially applying the Standard as an adjustment to the opening balance of retained earnings as of January 1, 2018. ~~The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.~~

The Standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under the Standard, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of the Standard, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of the Standard, the Company assesses the goods or services promised within each contract, identifies the performance obligations and assesses whether each promised good or service is distinct. The Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling ~~prices~~price of the promised ~~goods~~good or service underlying each performance obligation and recognizes this as revenue when such performance obligation is satisfied.

Revenue is generated primarily from the sale of the Company’s products and related services, which are primarily support and maintenance services on the Company's systems. The Company recognizes product revenue when the Customer obtains control of the Company’s product, which typically occurs upon shipment or delivery to the Customer depending upon the shipping terms. We treat shipping and handling costs performed after a customer obtains control of the good as a fulfillment cost. Our customers do not typically have any contractual rights of return outside of our warranty provisions. The Company has allowed few returns to date and believes that returns of its products will be minimal.

~~Royalties:~~ For arrangements that include sales-based royalties, including minimum payments, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation, to which some or all of the royalty has been allocated, has been satisfied. This is a change from how the Company has historically treated royalty payments, by recognizing royalty revenue when our strategic partners reported the end-user sales to the Company, and is primarily the basis for our cumulative adjustment to retained earnings of $10.6 million before related tax impacts or $8.1 million net of related tax impacts. Royalty payments are typically received when our strategic partners report the end-user sales to the Company.

~~Reagent Rentals:~~ The Company provides systems and certain other hardware to customers through reagent rental agreements under which the customers commit to purchasing minimum quantities of disposable products at a stated price over a defined contract term, which is normally two to three years. Instead of rental payments, the Company recovers the cost of providing the system and other hardware in the amount charged for assays. Revenue is recognized over the defined contract term as assays are shipped. The depreciation costs associated with the system and other hardware are charged to cost of sales on a straight-line basis over the estimated life of the system. The costs to maintain these instruments in the field are charged to cost of sales as incurred. Under the Standard, the Company has reclassified the portion of reagent rental revenue associated with the recovery of the cost of providing the system and other hardware in reagent rental agreements from assay revenue to system revenue effective January 1, 2018. This change will not have any impact on top line revenue and the Company does not anticipate any material effects to its revenue categorization.

~~Warranties:~~ The Company provides a limited, assurance-type warranty, typically for twelve months from installation for the systems sold to end customers and fifteen months for the systems sold to partners. The Company accrues for the estimated cost of initial product warranties at the time revenue is recognized. The actual warranty expense could differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted periodically.

~~License Revenues:~~ The Company enters into out-licensing agreements which are within the scope of the Standard, under which it licenses certain rights to its technology to third parties. These licenses are typically not distinct, as the customer cannot benefit from the license on its own, and do not have significant standalone functionality, but represent single performance obligations together with the sales of our consumables, systems and assays. The terms of these arrangements typically include payment to the Company of non-refundable, up-front license fees and can extend up to twenty years, although some of our current agreements extend through 2027. Each of these payments results in license revenues which are recognized ratably over time and are included in other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. Deferred revenues related to these out-licensing agreements are shown in contract liabilities in the table below.

~~Performance Obligations:~~ Revenue from extended service agreements is deferred when payment is received in advance of the performance obligation being satisfied or completed. Luminex provides an integrated service of maintenance and related activities for equipment sold to customers, where the nature of the overall promise is to provide a stand-ready service. As such, the performance obligation is recognized as a series of distinct service periods and the service revenue is recognized ratably over the term of the agreement. The extended service agreements typically range from one to four years and payment is typically received up-front.

~~Reserves for Variable Consideration~~: Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from discounts and any other allowances that are offered within contracts between the Company and its customers relating to the Company’s sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual requirements, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of each contract. The amount of variable consideration which is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period when such variances become known.

Contract assets are included within ~~Accounts~~accounts receivables, net and contract liabilities are included in ~~Deferred~~deferred revenue on the ~~Company's~~Company’s Balance Sheet. The following table presents the opening and closing balances of the Company’s contract assets and liabilities ~~for the six months ended June 30, 2018~~as of March 31, 2019 (in thousands):


	Balance at Beginning of Period		Balance at End of Period		Balance at Beginning of Period		Balance at End of Period
Contract assets:
Unbilled receivables - Royalties	$	10,643	$	10,962	$	10,805	$	12,004

Contract liabilities - short-term:
Deferred revenue - Service	$	4,438	$	5,048
Contract liabilities - Short-term:
Deferred revenue - Service ⁽¹⁾					$	9,476	$	7,473
Deferred revenue - Licenses	246		241		227		220
Deferred revenue - Instruments					—		315
Deferred revenue - Other	37		257		396		513
Total Contract liabilities - short-term	$	4,721	$	5,546

Contract liabilities - long-term:
Deferred revenue - Service	$	315	$	262
Total contract liabilities - Short-term					$	10,099	$	8,521
Contract liabilities - Long-term:
Deferred revenue - Service ⁽¹⁾					$	207	$	2,220
Deferred revenue - Licenses	1,099		981		872		818
Deferred revenue - Other	83		83
Total Contract liabilities - long-term	$	1,497	$	1,326
Total contract liabilities - Long-term					$	1,079	$	3,038

(1) 2019 contract liabilities includes $4.2 million of deferred service revenue ($2.0 million and $2.2 million classified in long-term and short-term liabilities, respectively) which was acquired through the acquisition of EMD Millipore Corporation’s flow cytometry portfolio on December 31, 2018.

During the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company recognized the following revenues as a result of changes in the contract asset and contract liability balances in the period (in thousands):



	Three Months Ended March 31, 2019
Revenue recognized in the period:
Amounts included as contract liabilities at the beginning of the period		$	2,287
Performance obligations satisfied in previous periods		-

Six Months Ended June 31,
Revenue recognized in the period from: 2018
Amounts included as contract liabilities at the beginning of the period $ 3,412
Performance obligations satisfied in previous periods -

~~In accordance with the Standard, the disclosure of the impact of adoption on our consolidated income statement and balance sheet was as follows (in thousands):~~

Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Income Statement As Reported in this Quarterly Report Amounts Before Adoption of the Standard Net Effect of Adoption of the Standard As Reported in this Quarterly Report Amounts Before Adoption of the Standard Net Effect of Adoption of the Standard
System sales $ 11,820
$ 11,215
$ 605
$ 19,751
$ 18,723
$ 1,028
Consumable sales 10,967
10,967
—
22,839
22,839
—
Royalty revenue 11,567
11,677
(110 ) 23,806
23,390
416
Assay revenue 40,174
40,889
(715 ) 86,015
87,138
(1,123 )
Other revenue 5,050
5,050
—
9,829
9,829
—
Revenue 79,578
79,798
(220 ) 162,240
—
161,919
321
Gross profit 49,306
49,526
(220 ) 102,894
103
102,573
321
Income from operations 7,858
8,078
(220 ) 23,124

22,803
321
Income tax benefit (expense) (2,197 ) (2,250 ) 53
(4,515 ) (4,438 ) (77 )
Net Income 5,669
5,836
(167 ) 19,066
19
18,822
244

As of June 30, 2018
Balance Sheet As Reported in this Quarterly Report Balances Before Adoption of ASC 606 Effect of Adoption of the Standard
ASSETS
Accounts receivable, net 46,778
35,814
10,964
Deferred income taxes 32,538
35,169
(2,631 )

LIABILITIES AND STOCKHOLDERS' EQUITY
Retained earnings 109,353
101,020
8,333

NOTE 1112 — INCOME TAXES

At the end of each interim reporting period, an estimate is made of the effective tax rate expected to be applicable for the full year. The estimated full year’s effective tax rate is used to determine the income tax rate for each applicable interim reporting period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period of the enactment date. The effective tax rate for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~19.2%~~a benefit of 184%, including amounts recorded for discrete events. This differs from the statutory rate of 21% primarily as a result of a reduction in unrecognized tax benefit liability and the ~~worldwide mix~~effect of consolidated earnings and losses before taxes and changes to provisional amounts recorded for certain aspects of the Tax Cuts and Jobs Act (the Tax Act). The Company currently expects a 2018 full year effective tax rate of 25% to 30%, excluding amounts recorded for discrete events.foreign operations. The Company’s tax expense reflects the full federal, various state, and foreign blended statutory rates. The Company currently expects a 2019 full year effective tax rate of 10% to 20%, excluding amounts recorded for discrete events. The Company will be subject to ~~the Tax Act~~ provisions regarding U.S. federal taxation of foreign intangible income and has included in its estimate of income tax the effects of this tax. ~~The effect of this estimate is still under evaluation as the Company gains a more thorough understanding of these provisions and changes may materially impact income tax expenses.~~ The Company is utilizing its net operating losses (NOLs) and tax credits in the U.S., Canada and the Netherlands and, therefore, cash taxes to be paid are expected to be less than 10% of book tax expense.

~~The Tax Act~~

In the first quarter of 2019, U.S. tax legislation was enacted which provided guidance on ~~December 22, 2017. The Tax Act includes, among other things, a~~the U.S. federal ~~corporate income tax rate decrease from 35% to 21%, requires companies to pay a one-time~~ transition tax on earnings of ~~certain~~ foreign subsidiaries ~~that were previously tax deferred,~~ and ~~creates new taxes on certain foreign sourced earnings. On December 22, 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when~~as a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company is applying the guidance in SAB 118 when accounting for the enactment-date effect of the Tax Act. As of June 30, 2018,result, the Company ~~has not completed~~revised its ~~accounting for all of the tax effects of the Tax Act; however, the Company has made a reasonable estimate of the effects. During the three month period ended March 31, 2018~~Earnings and for the six month period ended June 30, 2018, the Company recognized adjustments totaling $2.2 million to the provisional amounts recorded at December 31, 2017 and included these adjustments as a component of income tax expense from continuing operations. The Company will continue to make and refine its calculations as additional analysis is completed. These changes could be material to income tax expense.

~~Deferred tax assets and liabilities.~~ The Company remeasured certain deferred tax assets and liabilities based on the tax rates at which they are expected to reverse to in the future, which is generally 21%. The Company recorded a provisional amount of $2.7 million at December 31, 2017 related to the remeasurement of certain deferred tax balances. Upon further analyses of certain aspects of the Tax Act and refinement of its calculations during the three month period ended March 31, 2018 and included in the six months ended June 30, 2018, the Company increased its provisional amount by $164,000, which is included as a component of income tax expense from continuing operations. Due to the continued refinement of itsProfits (E&P) calculations for the transition tax, certain aspects of deferred compensation, and the effect these calculations may have on the measurement of NOLs and other carryforwards, the Company will continue to analyze and refine its calculations related to the measurement of these balances. As of June 30, 2018, the Company's deferred tax assets and liabilities continue to have provisional amounts recorded for remeasurement.

~~Foreign tax effects~~

~~One-time transition tax.~~ The one-time transition tax is based on the Company's total post-1986 earnings and profits (E&P), which the Company had deferred from U.S. income taxes under previous U.S. law. The Company originally recorded a provisional amount for its one-time transition tax liability of $6.7 million at December 31, 2017. Upon further analysis of certain aspects of the E&P of its Canadian subsidiary and ~~refinement of its calculations for its foreign subsidiaries during the six months ended June 30, 2018, the Company decreased this provisional amount by $1.3 million, which was~~ recorded during the three month period ended March 31, 2018 and is included as a component of income tax expense from continuing operations. As of June 30, 2018, the Company continues to have provisional amounts recorded for the one-time tax liability. As the Company continues to refine its E&P analysis, the Company will refine its calculations of the one-time transitions tax, which could affect the measurement of this liability.

~~Deferred tax liabilities for withholding tax.~~ The excess of financial reporting basis over tax basis of the Company’s foreign subsidiaries is considered permanently reinvested with the exception of certain earnings of the Canadian subsidiary. The Company originally recorded a provisional amount of deferred tax liability for withholding and state income taxes associated with the ultimate repatriation from Canada to the U.S. of these certain earnings of $3.2 million at December 31, 2017. Upon further analysis of its calculations of the Canadian withholding tax during the six months ended June 30, 2018, the Company decreased its provisional amount by $2.5 million, which was recorded during the three month period ended March 31, 2018 and is included as a component of income tax expense from continuing operations. The deferred tax liabilities for withholding tax are still provisional as of June 30, 2018 as the Company’s permanent reinvestment assertions for foreign earnings associated with certain aspects of the Tax Act are not yet finalized.

~~In June 2018, the Company recorded an~~discrete income tax expense of ~~$1.3 million based primarily on~~$464,000 for the results of a Canadian income tax audit. The expense recorded is the net result of reductions to the scientific research and experimental development expenditure pool and investment tax credit carryforward balances and an increase to non-capital carryforward losses.U.S. transition tax.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, Australia, Canada, China, Hong Kong, Japan, the Netherlands, and various U.S. states. Due to net operating losses, the U.S., Canadian and ~~Australian tax returns dating back to 2011 can still be reviewed by the taxing authorities. The~~ Netherlands tax returns dating back to 2015, 2007, and 2013, respectively, can still be reviewed by the taxing authorities. For the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, the Company recorded a reduction in unrecognized tax ~~benefits~~benefit liability related to the U.S. transition tax ~~on earnings~~and a related income tax benefit of $6.6 million as a result of a ruling for certain ~~foreign subsidiaries and deferred tax liabilities for withholding tax~~aspects of ~~$1.3 million and $140,000, respectively, were recorded.~~the E&P calculation of its Canadian subsidiary. The Company does not expect any material changes to the unrecognized tax benefit liability within the next 12twelve months. The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes.

NOTE ~~12 -~~13 �� COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Company is subject to claims, lawsuits and legal proceedings. When ~~and if~~ it appears probable in ~~management's~~management’s judgment, and based upon consultation with outside counsel, that we will incur monetary damages or other costs in connection with any claims or proceedings, and such costs can be reasonably estimated, we record the estimated liability in the financial statements. If only a range of estimated losses can be estimated, we record an amount within the range that, in ~~management's~~management’s judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we record the liability at the low end of the range of estimates. Any such accrual would be charged to expense in the appropriate period. We disclose significant contingencies when the loss is not probable and/or the amount of the loss is not estimable, when we believe there is at least a reasonable possibility that a loss has been incurred. We recognize costs associated with legal proceedings in the period in which the services were provided.

Leases

We have leased all of our research, manufacturing and office space and have entered into various other agreements in conducting our business. Our leases have remaining lease terms of 1 year to 6 years, and some of our leases include options to extend the leases for up to 10 years, tenant improvement allowances, rent holidays and rent escalation clauses. At inception, we determine whether an agreement represents a lease and at commencement we evaluate each lease agreement to determine whether the lease is an operating or financing lease. As described below under “Note 14 - Recent Accounting Pronouncements - Recently adopted accounting guidance,” the Company adopted the new lease guidance as of January 1, 2019.

Pursuant to the new lease guidance, all of the Company’s leases outstanding on January 1, 2019 continued to be classified as operating leases. With the adoption of the new lease guidance, the Company recorded an operating lease right-of-use asset and an operating lease liability on its balance sheet. Right-of-use lease assets represent the Company’s right to use the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. Right-of-use lease assets and obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term. As the Company’s leases do not provide an implicit rate, we have used an estimated incremental borrowing rate of 5.75%, based on the information available at the commencement date in determining the present value of lease payments. The right-of-use lease asset includes any lease payments made prior to commencement and excludes any lease incentives. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all lease agreements we combine lease and non-lease components. Leases with an initial term of twelve months or less are not recorded on the balance sheet.

The components of the lease expense were as follows (in thousands):



	Three Months Ended March 31,
	2019
Operating lease cost	$	2,345

Supplemental cash flow information related to leases was as follows (in thousands):



	Three Months Ended March 31,
	2019
Lease liabilities arising from obtaining right to use assets
Operating leases recorded upon lease standard adoption	$	24,922

Supplemental balance sheet information related to leases was as follows (in thousands):



	March 31, 2019
Operating leases:
Operating lease right-of-use assets	$	23,824
Operating lease liabilities	$	25,733

Weighted Average Remaining Lease Term	4.98 years
Weighted Average Discount Rate	5.75		%

Maturities of lease liabilities for the next five fiscal years and thereafter are as follows (in thousands):



	Operating Leases
2019 (nine months)	$	4,934
2020	6,365
2021	6,067
2022	4,535
2023	3,927
Thereafter	3,888
Total lease payments	29,716
Less: imputed interest	(3,983		)
Lease liabilities at March 31, 2019	$	25,733

NOTE 1314 — RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting guidance

In May 2014, the FASB issued ~~the Standard~~a new standard on revenue recognition, which outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the Standard effective January 1, 2018, using the modified retrospective approach. Under this method, the Company recorded a cumulative adjustment increasing retained earnings of $10.6 million before related tax impacts or $8.1 million net of related tax impacts. See Note ~~10,~~11, “Revenue Recognition” for additional discussion related to the Company’s adoption of the Standard. Under the Standard, estimated royalty revenue will be recorded each quarter on an accrual basis to more closely coincide with the timing of the end user sale by the strategic partner; with reconciliation made upon submission of the royalty report by the partner indicating actual royalties owed in the following quarter. In addition, the Company began recording the portion of reagent rental revenue associated with the recovery of the cost of providing the system and other hardware in reagent rental agreements as system revenue rather than assay revenue effective January 1, 2018. This change has not and is not expected to have any impact on top line revenue and the Company does not anticipate any material effects to its revenue categorization.

In January 2016, the FASB issued guidance that amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. This guidance was effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. The Company adopted this standard during the quarter ended March 31, 2018. The adoption of this new standard resulted in a change to the Company’s accounting policy; however, adoption did not have a material impact on its consolidated financial position or results of operations.

In August 2016, the FASB issued specific guidance on eight cash flow classification issues that are not currently addressed by current U.S. GAAP and thereby reduce the current diversity in practice. This guidance is effective for annual periods beginning after December 15, 2017. The Company adopted this standard during the quarter ended March 31, 2018, and its adoption did not have a material impact on its consolidated financial statements.

In October 2016, the FASB issued guidance on income taxes which requires companies to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the income statement as income tax expense (or benefit) in the period in which the transfers occur. The new standard became effective for the Company on January 1, 2018. The Company has adopted this new standard using the modified retrospective method through a cumulative-effect adjustment, based on currently enacted tax rates, directly to retained earnings as of the beginning of that date. The adoption of this new standard resulted in a change to the Company's accounting policy; however, adoption did not have a material impact on the Company’s consolidated financial position or results of operations.

On January 10, 2018, the FASB issued guidance on the accounting for tax on the global intangible low-taxed income (GILTI) provisions of the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. Effective January 1, 2018, the Company recognizes the tax on GILTI as a period expense in the period the tax is incurred. Under this policy, the Company has not provided deferred taxes related to temporary differences that upon their reversal will affect the amount of income subject to GILTI in the period.

In January 2018, the FASB issued guidance related to reporting comprehensive income, which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Act related to items in Additional Other Comprehensive Income (AOCI) that the FASB refers to as having been “stranded” in AOCI. The guidance is effective for annual and interim periods beginning after December 15, 2018, and is applicable to the Company in fiscal year 2019; however, early adoption is permitted. The Company does not have any tax effects resulting from the Tax Act that are stranded in AOCI and therefore this guidance has no impact on its consolidated financial statements. The Company has early adopted this guidance and established the accounting policy for reclassifying to retained earnings any tax effects resulting from the Tax Act that are stranded in AOCI.

In June 2018, the FASB issued guidance which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. For public business entities, the guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods, however, early adoption is permitted. Although nonemployee directors do not satisfy the definition of employee, under FASB guidance, the Company's nonemployee directors acting in their role as members of a board of directors are treated as employees as those directors were elected by the Company's shareholders. Therefore, awards granted to these nonemployee directors for their services as directors already were accounted for as employee awards. The Company has early adopted this guidance, which did not have a material impact on its consolidated financial statements.

~~Recent accounting guidance not yet adopted~~

In January 2017, the FASB issued guidance on intangibles, including goodwill, which simplifies how companies calculate goodwill impairments by eliminating Step 2 of the impairment test. The guidance requires companies to compare the fair value of a reporting unit to its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The guidance is effective for annual periods beginning after December 15, 2019, and is applicable to the Company in fiscal year 2020; however, early adoption is permitted. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases, with the exception of short-term leases. ~~The effective date of~~On January 1, 2019, the Company elected to adopt this new lease guidance using a simplified transition option that allows companies to initially apply the new ~~guidance is for the Company's first quarter of fiscal year 2019; however, early adoption is permitted. The FASB has approved an optional, alternative method to adopt the~~ lease standard ~~by recognizing~~at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ~~While~~

The Company also elected to adopt the package of practical expedients permitted in the new lease guidance. Accordingly, the Company is continuing to ~~assess~~account for its existing operating leases as operating leases under the ~~effects~~new lease guidance, without reassessing whether the contracts contain a lease under the new lease guidance or whether classification of the operating leases would be different under the new lease guidance. All of our leases at the adoption ~~we believe that we will use this alternative transition method.~~date were operating leases, primarily for facilities, and did not include any non-lease components.

With the implementation of the new lease standard, the Company recognized right-to-use assets of $24.9 million, lease liabilities for operating leases of approximately $26.8 million, and eliminated deferred rent of $1.9 million. The Company ~~continues~~did not have a cumulative adjustment impacting retained earnings. There are no changes to ~~evaluate the impact~~our previously reported results prior to January 1, 2019. Lease expense is not expected to change materially as a result of the adoption of ~~this requirement~~the new lease standard.

Recent accounting guidance not yet adopted

In June 2016, the FASB issued guidance on ~~its consolidated~~ financial ~~statements, has completed an inventory~~instruments and related credit losses. The guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The statement of comprehensive income reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the ~~Company's leases,~~reported amount. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security. The updated guidance is effective for annual periods beginning after December 15, 2019, and is applicable to the Company in fiscal 2020. Early adoption is permitted. The Company does not anticipate that ~~adoption of~~ this guidance will have a material impact on its consolidated financial ~~statements except for the addition of the right-of-use asset and a lease liability to the consolidated balance sheet.~~statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Report, and the “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the ~~201710-K.~~year ended December 31, 2018 (the 2018 10-K).

SAFE HARBOR CAUTIONARY STATEMENT

This quarterly report on Form 10-Q contains statements that are forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide our current expectations of forecasts of future events. All statements other than statements of current or historical fact contained in this quarterly report, including statements regarding our future financial position, business strategy, impact of the reimbursement landscape, products including ARIES^®, VERIGENE^® ~~and~~, NxTAG^®, Muse^®, Guava^®, easyCyte™, InCyte™, Amnis^®, ImageStream^®, FlowSight^®andCellStream^®, assay sales, ~~consumables~~consumable sales patterns and bulk purchases, budgets, system sales, anticipated gross margins, liquidity, cash flows, projected costs and expenses, taxes, deferred tax assets, regulatory approvals or the impact of laws or regulations applicable to us, plans and objectives of management for future operations, and impact of prior acquisitions or future ~~acquisition impacts and~~acquisitions, integration and the expected benefit of our ~~future~~ acquisitions are all forward-looking statements. The words “anticipate,” “believe,” “continue,” “should,” “estimate,” “expect,” “intend,” “may,” “plan,” “projects,” “will” and similar expressions as they relate to us, are intended to identify forward-looking statements. These statements are based on our current plans and actual future activities, and our financial condition and results of operations may be materially different from those set forth in the forward-looking statements as a result of known or unknown risks and uncertainties, including, among other things:

concentration of our revenue in a limited number of direct customers and strategic partners, some of ~~which~~whom may experience decreased demand for their products utilizing or incorporating our technology, budget or finance constraints in the current economic environment, or periodic variability in their purchasing patterns or practices as a result of ~~material~~internal resource planning challenges;


•	risks and uncertainties relating to market demand and acceptance of our products and ~~technology,~~technologies, including ARIES^®, MultiCode^®, NxTAG^®, xMAP^®, VERIGENE^®, Muse^®, Guava^®, and Amnis^®~~and VERIGENE~~^®;products;

the impact on our growth and future results of operations as a result of the loss of the LabCorp women's health business in June 2018 and the potential future loss of other products traditionally sold to LabCorp, other than our Cystic Fibrosis (CF) products;

our ability to scale manufacturing operations and manage operating expenses, gross margins and inventory levels;

our ability to obtain and enforce intellectual property protections on our products and technologies;

the impact on our growth and future results of operations with respect to the loss of the LabCorp women’s health business;

our ability to successfully launch new products in a timely manner;

~~our~~ dependence on strategic partners for development, commercialization and distribution of products;

risks and uncertainties associated with implementing our acquisition strategy, and our ~~ability~~challenge to identify acquisition targets, including our ability to obtain financing on acceptable ~~terms,~~ terms;

our ability to integrate acquired companies or selected assets, including the flow cytometry assets recently acquired from EMD Millipore, into our consolidated business operations, and the ability to fully realize the benefits of our acquisitions;

~~the~~ timing of and process for regulatory approvals;

competition and competitive technologies utilized by our competitors;

fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, fluctuations in bulk purchases of consumables, fluctuations in product mix and the seasonal nature of some of our ~~assays, and the variability of operating expense timing;~~assays;

our ability to comply with applicable laws, regulations, policies and procedures;

the impact of the ongoing uncertainty in global finance markets and changes in government and government agency funding, including its effects on the capital spending policies of our partners and end users and their ability to finance purchases of our products;

~~changes in interpretation, assumptions and expectations regarding the Tax Act, including additional guidance that may be issued by federal and state taxing authorities;~~

changes in principal members of our management staff;

potential shortages, or increases in costs, of components or other disruptions to our manufacturing operations;

our increasing dependency on information technology to enable us to improve the effectiveness of our operations and to monitor financial accuracy and efficiency;

~~the~~ implementation, including any ~~modifications,~~modification, of our strategic operating plans;

~~the~~ uncertainty regarding the outcome or expense of any litigation brought against or initiated by us; ~~and~~

risks relating to our foreign operations, including fluctuations in exchange rates, tariffs, customs and other barriers to importing/exporting materials and products in a cost-effective and timely manner; difficulties in accounts receivable collections; our ability to monitor and comply with foreign and international laws and treaties; and our ability to comply with changes in international taxation ~~policies.~~policies;

budget or finance constraints in the current economic environment, or periodic variability in customer purchasing patterns or practices as a result of material resource planning challenges; and

reliance on third party distributors for distribution of specific Luminex-developed and manufactured assay products.

Many of these risks, uncertainties and other factors are beyond our control and are difficult to predict. Any or all of our forward-looking statements in this quarterly report may turn out to be inaccurate. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. New factors could also emerge from time to time that could adversely affect our business. The forward-looking statements herein can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and assumptions, including the risks, uncertainties and assumptions outlined above and described in the ~~2017~~2018 10-K. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this quarterly report including in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in our other annual and periodic reports.

Our forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Luminex,” the “Company,” “we,” “us” and “our” refer to Luminex Corporation and its subsidiaries.

OVERVIEW

We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the life sciences industries, including diagnostics, pharmaceutical and research. These industries depend on a broad range of tests, called assays, to perform diagnostic testing and conduct life science research. We have established a position in several segments of the life sciences industries by developing and delivering products that satisfy a variety of customer needs in specific market segments, including multiplexing, accuracy, precision, sensitivity, specificity, reduction of labor and ability to test for proteins and nucleic acids. These needs are addressed by our proprietary technologies.

Multiplexing, the foundation of our Company, allows the end user in a laboratory to generate multiple laboratory results from a single sample with a single assay. This is important because our end user customers, which include laboratory professionals performing discovery and research, and clinical laboratories performing tests on patients as ordered by physicians and other laboratories, have a fundamental need to perform high quality testing as efficiently as possible. Until the availability of multiplexing technology, the laboratory ~~professionals~~professional had to perform one assay at a time in a sequential manner, and if additional testing was required on a sample, a second assay would be performed to generate the second result, and so on until all the necessary tests were performed.

Our xMAP Technology

Our xMAP technology is an open architecture, multiplexing technology that combines existing biological testing techniques with illumination, advanced digital signal processing, detection and proprietary software. With our technology, discrete assays are performed on the surface of color-coded microspheres. These microspheres are read in a compact analyzer that utilizes lasers or light emitting diodes (LEDs), detectors, charge-coupled device imaging and high-speed digital signal processing to simultaneously identify the assay and measure the individual assay results. The key features of xMAP technology include the following:

Multi-analyte/multi-format

xMAP technology has been designed to simultaneously perform up to 500 distinct assays in a single tube or well of a microtiter plate using only a small amount of sample. Moreover, unlike most existing technologies that are dedicated to only one type of assay, xMAP can perform multiple types of assays including enzymatic, genetic and immunologic tests on the same instrument platform.

Flexibility/scalability

xMAP technology allows for flexibility in customizing test panels. Panels can be modified to include new assays in the same tube by adding additional microsphere sets. It is also scalable, meaning that there is no change in the manufacturing process and only minimal changes to the labor required to produce a small or large number of microsphere-based tests.

Both protein and nucleic acid applications on a single platform

xMAP technology has an advantage due to its ability to analyze both proteins and nucleic acids. This allows customers to utilize a single platform to evaluate samples across more biological parameters and generate a more complete assessment of these samples. Alternative technologies are typically restricted to either proteins or nucleic acid, requiring customers to use two or more technologies from other vendors to get the same information.

High throughput

Our technology can perform up to 500 tests in a single well, permitting up to 96,000 tests to be detected in approximately one hour with only a small amount of sample. Rapid sample analysis permits efficient use for high-throughput applications.

Ease of use

Most xMAP-based assays are simple to perform. A test sample is added to a solution containing microspheres that have been coated with reagents. The solution is then processed through one of our xMAP systems which incorporate proprietary software to automate data acquisition and analysis in real-time.

Cost-effective

By performing multiple assays at one time, xMAP technology is designed to be cost-effective for customers compared to competitive techniques such as ELISA and real-time PCR. By analyzing only those assays in which a customer is interested, xMAP is also more cost-effective than most competing microarray technologies. In addition, microsphere-based assays are inexpensive compared to other technologies, such as chip-based microarrays.

Two types of microspheres, polystyrene microspheres and polystyrene magnetic microspheres, are both fundamental components of our xMAP technology. We purchase and manufacture microspheres and, in a proprietary process, dye them with varying intensities of proprietary dyes to achieve up to 500 distinct colors. The specific dye proportions permit each color-coded microsphere to be readily identified based on its distinctive fluorescent signature. Our customers create assays by attaching different biochemical reactants to each distinctly colored microsphere set. These unique reactants bind, or capture, specific substances present in the test sample. The microsphere sets can then be combined in test panels as required by the user, with a maximum of 500 tests per panel. Customers can order either standard microspheres or magnetic microspheres.

To perform an assay using xMAP technology on our systems, a researcher attaches biomarker detectors such as antibodies or nucleic acid oligos to one or more sets of color-coded microspheres, which are then mixed with a test sample. This mixture is injected into the xMAP analyzer, such as the Luminex 200 instrument, where the microspheres pass single-file in a fluid stream through two laser beams. The first laser excites the internal dyes that are used to identify the color of the microsphere and the test being performed on the surface of the microsphere. The second laser excites a fluorescent dye captured on the surface of the microspheres that is used to detect the result of the assay taking place. Our proprietary optics, digital signal processors and software record the fluorescent signature of each microsphere and compare the results to the known identity of that color-coded microsphere set. The results are analyzed and displayed in real-time with data stored on the computer database for reference, evaluation and analysis.

Our xMAP technology is currently being used within various segments of the life sciences industries, including the fields of drug discovery and development, and for clinical diagnostics, bio-defense, food safety and biomedical research.

We have a full range of instruments using our xMAP ~~technology:~~Technology: our LUMINEX^® 100/200™ Systems offer 100-plex testing; our FLEXMAP 3D^® System is our high-throughput, 500-plex testing system; and our MAGPIX^® System provides 50-plex testing at a lower cost using imaging rather than flow cytometry. By using our xMAP technology, end users are able to be more efficient by generating multiple simultaneous results per sample. We believe that this technology may also offer advantages in other industries, such as in food safety, animal health and bio-defense/bio-threat markets. Using the xMAP products Luminex has available today, up to 500 simultaneous analyte results can be determined from a single sample.

Our Amnis/Guava^® Technologies

We recently acquired EMD Millipore Corporation’s flow cytometry portfolio (the Acquisition) on December 31, 2018, including the Amnis^® and Guava^® Technologies. Amnis Systems are a family of imaging flow cytometry products for cell-based analysis. With the proprietary Amnis^® charge-coupled device detection and time-delayed integration (CCD-TDI) technology, the CellStream^®provides fluorescence and small particle sensitivity in a highly customizable flow cytometer. FlowSight^®and ImageStream^®imaging flow cytometers combine the speed and sensitivity of flow cytometry with the functional detail and spatial information of microscopy. The Guava^® portfolio of products, which are versatile, easy-to-use cytometry systems based on microcapillary fluidics technology, include the Muse^®Cell Analyzer, a simple, compact, and affordable system for absolute cell counting, viability, and basic cell health analyses, and the Guava easyCyte™ System, a versatile benchtop platform for additional, multi-dimensional cell health and biological assessments.

The Acquisition expanded Luminex’s existing offering of flow-based detection systems, which is centered around our innovative xMAP^® multiplexing technology, with more than 16,000 xMAP systems sold worldwide (some of which may be retired or otherwise not in use). The results of operations for the Acquisition have been included in Luminex’s consolidated financial statements beginning January 1, 2019.

Our Non-Automated Technologies

Our xTAG technology consists of several components, including multiplexed polymerase chain reaction (PCR) or target identification primers, DNA Tags, xMAP microspheres and data analysis software. xTAG technology permits the development of molecular diagnostic assays for clinical use by hospital and reference laboratories. xTAG technology has also been applied to human genetic assays, pharmacogenetic assays and infectious disease assays.

Our MultiCode technology is based upon a unique assay chemistry that is a flexible platform for both real-time PCR and multiplex PCR-based applications. MultiCode-based PCR assays are primarily used for the detection of infectious diseases and genetic-based conditions. We have multiple molecular diagnostic (MDx) assays based on the MultiCode chemistry. MultiCode products are based upon the unique MultiCode bases, isoC and isoG. The synthetic isoC:isoG DNA base pair differs from the naturally occurring base pairs in its hydrogen bonding pattern. As a result, the MultiCode bases, isoC and isoG, can only pair with each other, but can co-exist with naturally occurring nucleotide pairs. This property enables site-specific incorporation of the isobases during amplification. The MultiCode base pair is recognized by naturally occurring enzymes and can be used for the specific placement of reporter molecules and to increase the molecular recognition capabilities of hybridization-based assays. The MultiCode base pair enables solutions to complex molecular challenges that were previously not possible with natural nucleic acid alone.

We have multiple assay development activities ongoing and these activities are focused onin the areas of infectious disease, human genetics and pharmacogenomics.

Our ARIES^® Technology

The ARIES^® System is our sample-to-answer platform for our MultiCode^®-RTx technology, including In Vitro Diagnostic (IVD) assays. The ARIES^® System is a clinical test system which automates and integrates extraction of nucleic acid from a clinical sample, performs real-time PCR, and detects multiple signals generated by target-specific probes. The ARIES^® ~~system~~ System is used with specific assays to measure multiple analytes indicative of infectious disease. The ARIES^® System uses internal barcode scanning and other advanced features to minimize operator errors. Each independent module supports from one to six cassettes, allowing for both STAT and batch testing. The ARIES^® System can run both IVD and MultiCode^® Analyte Specific Reagents (ASRs) simultaneously with a common Universal Assay Protocol.

Our VERIGENE Technology

Our offering in the molecular diagnostic market segment includes proprietary diagnostic tools that enable rapid and accurate detection of respiratory, gastrointestinal and bloodstream infections. Our U.S. Food and Drug Administration (FDA) cleared VERIGENE^® Gram-Positive Blood Culture (BC-GP) and Gram-Negative Blood Culture (BC-GN) test panels for the early detection of pathogens associated with bloodstream infections are leading products in the high-growth bloodstream infection testing segment. In addition to detecting bacteria, these panels also detect yeast and identify antibiotic resistance markers. In contrast to traditional methodologies, which can take several days, these assays enable physicians to identify pathogens, including any associated resistance markers, and prescribe the most appropriate antibiotic regimen, all within 2.5 hours after identification of a positive blood culture. The ability for clinicians to make earlier, better informed therapeutic decisions results in improved patient outcomes and lower healthcare costs. Our VERIGENE product offering also includes FDA-cleared products for the detection of gastrointestinal and respiratory infections. These consist of a targeted product for the detection of C. difficile, as well as highly multiplexed molecular enteric, blood and respiratory pathogen panels which test for a wide spectrum of microorganisms often associated with these types of infections. With the combination of the ARIES^® and VERIGENE platforms, Luminex offers customers automated molecular platforms for both syndromic and targeted molecular diagnostic testing.

The VERIGENE System is an automated multiplex-capable system that rapidly and accurately detects infectious pathogens and drug resistance markers. The VERIGENE System consists of: (i) VERIGENE Test Cartridges, which are single-use, self-contained test units, and (ii) VERIGENE instrumentation, including the VERIGENE Processor SP, which is a modular bench-top analyzer, that combines automated nucleic acid extraction, purification, amplification (if needed), and hybridization in each module, as well as the VERIGENE Reader, which manages sample information and reads results from processed cartridges. Tests that run on the VERIGENE System are primarily designed to identify infections in the bloodstream, respiratory tract, and gastrointestinal tract.

The VERIGENE System utilizes advanced automation and proprietary chemistry to enable rapid sample to result detection of nucleic acid and protein targets. NanoGrid Technology, a unique gold nanoparticle probe chemistry, is the driving force behind all VERIGENE tests, providing a foundation for the VERIGENE System’s menu of clinically meaningful diagnostics.

In addition to our menu of infectious disease tests, we are currently developing a next generation VERIGENE System, VERIGENE II, that we expect will deliver an improved user experience. This next generation system is designed to provide a reduced time to result, an improved user interface and a room temperature cartridge, all in a fully automated sample to result system with an optimized footprint. In addition, customers using this system will have the ability to select both individual and groups of targets on assays using Flex pricing. This approach to target selection allows customers to save money by only paying for the targets they wish to see, which will often align with ~~society~~healthcare standard of care guidelines, when available. If these results ~~don't~~do not provide a conclusive diagnosis, additional targets that were tested for but not released can immediately be viewed for an incremental charge.

Our Market Approach

We primarily serve the life sciences industries by marketing products, including our specific testing equipment and assays, to various types of testing laboratories. We have a large base of installed systems that has grown primarily from the following:

Placements made by customers within our Licensed Technologies Group (LTG) in which customers either:

license our xMAP technology and develop products that incorporate our xMAP technology into products that they then sell to end users, or

purchase our proprietary xMAP laboratory instrumentation and our proprietary xMAP microspheres and sell xMAP-based ~~assay products~~assays and/or xMAP-based testing services, which run on the xMAP instrumentation, and pay a royalty to us; and

A direct sales force that focuses on the sale of molecular diagnostic assays that run on our systems.

As of ~~June 30, 2018,~~March 31, 2019, Luminex had 7273 strategic partners, of which 5152 have released commercialized reagent-based products utilizing our technology. Our remaining partners are in various stages of development and commercialization of products that incorporate our technology. Luminex and these partners have sold approximately 16,000 xMAP-based instruments in laboratories worldwide as of March 31, 2019 (some of which may be retired or otherwise not in use). Our remaining LTG customers are in various stages of development and commercialization of products incorporating our technology.

A primary focus for our growth is the development and sale of molecular diagnostic assays utilizing our proprietary MultiCode^® and VERIGENE technologies for use on our installed base of systems. We utilize a direct sales model for sales of these products, which is intended to take advantage of our increasing installed base of instruments. Our assays are primarily focused on multiplexed applications for the human molecular clinical diagnostics market. Our ~~assay products~~assays are also currently focused on three segments of the molecular diagnostic testing market: human genetics, personalized medicine and infectious diseases.

The following systems and assays are available on the market as of ~~June 30, 2018:~~March 31, 2019:



	FDA		CE-IVD MARK
	Clearance	Commercial Launch	Declaration	Commercial Launch
ARIES^®HSV 1&2 Assay	þ	2015 - Q4	þ	2016 - Q1
ARIES^®Flu A/B & RSV Assay	þ	2016 - Q2	þ	2016 - Q2
ARIES^®Group B Streptococcus (GBS) Assay	þ	2017 - Q1	þ	2016 - Q4
ARIES^®Bordetella Assay	þ	2017 - Q2	þ	2017 - Q3
ARIES^®Norovirus Assay			þ	2017 - Q2
ARIES^® C. Difficile Assay	þ	2017 - Q3	þ	2017 - Q3
ARIES^® Group A Strep Assay	þ	2017 - Q4	þ	2017 - Q4
NxTAG^® Respiratory Pathogen Panel (RPP)	þ	2016 - Q1	þ	2015 - Q4
VERIGENE^®Clostridium Difficile Test (CDF)	þ	2012 - Q4	þ	2013 - Q2
VERIGENE^® Enteric Pathogens Test (EP)	þ	2014 - Q4	þ	2015 - Q4
VERIGENE^® Respiratory Pathogens Flex Test (RP Flex)	þ	2015 - Q4	þ	2015 - Q2
VERIGENE^® Gram-Negative Blood Culture Test (BC-GN)	þ	2014 - Q2	þ	2013 - Q1
VERIGENE^® Gram-Positive Blood Culture Test (BC-GP)	þ	2012 - Q4	þ	2012 - Q1
xTAG^® CYP2C19 Kit v3	þ	2013 - Q4	þ	2013 - Q4
xTAG^® CYP2D6 Kit v3	þ	2011 - Q2	þ	2013 - Q2
xTAG^® Cystic Fibrosis (CFTR) 39 Kit v2	þ	2009 - Q4	þ	2012 - Q1
xTAG^® Cystic Fibrosis (CFTR) 60 Kit v2	þ	2010 - Q1
xTAG^® Cystic Fibrosis (CFTR) 71 Kit v2			þ	2009 - Q3
xTAG^® Gastrointestinal Pathogen Panel (GPP)	þ	2013 - Q1	þ	2011 - Q2
xTAG^® Respiratory Viral Panel (RVP)	þ	2008 - Q1	þ	2007 - Q4
xTAG^® Respiratory Viral Panel (RVP) FAST v2			þ	2011 - Q4

~~Second~~We have plans to submit additional assays to regulatory authorities in 2019, including the FDA and foreign equivalents, for market authorization in order to comply with established guidelines across the jurisdictions in which we participate.

First Quarter ~~2018~~2019 Highlights

~~Consolidated~~Total sample-to-answer revenue ~~was $79.6~~growth increased 16% for the quarter ended March 31, 2019 over the first quarter of 2018.

Royalty bearing sales on base end user sales increased approximately 10% to $149.0 million for the quarter ended ~~June 30, 2018, representing a 4% increase~~March 31, 2019 over ~~revenue for~~ the ~~second~~first quarter of ~~2017.~~2018.

~~Assay~~Royalty revenue was ~~$40.2~~$14.2 million for the quarter ended ~~June 30, 2018,~~March 31, 2019, representing a ~~6% increase over assay revenue for the second quarter of 2017.~~

~~Sample-to-answer product revenue growth increased by 35% for the quarter ended June 30, 2018 from the second quarter of 2017.~~

~~Royalty revenue was~~ ~~$11.6 million~~ ~~for the quarter ended June 30, 2018, representing a 7%~~16% increase over royalty revenue for the ~~second~~first quarter of ~~2017.~~

2018.


•	~~Initiated clinical trials for the VERIGENE~~^® ~~II Gastrointestinal Assay~~

Integration of the Acquisition is underway and on track to be substantially complete by July 2019.

Reached an agreement with LabCorp whereby LabCorp has agreed to extend its commitment to our CF product line through December 31, 2021.

2018 Acquisition of EMD Millipore Corporation’s flow cytometry portfolio

On December 31, 2018, we completed our acquisition of EMD Millipore Corporation’s flow cytometry portfolio. The Acquisition expands Luminex’s existing offering of flow-based detection systems, which is centered around our innovative xMAP^® multiplexing technology, with more than 16,000 xMAP systems sold worldwide (some of which may be retired or otherwise not in use). MilliporeSigma’s flow cytometry portfolio includes Amnis, a family of imaging flow cytometry products for cell-based analysis, as well as the Guava and Muse portfolio of products, which are economical systems based on microcapillary technologies. The results of operations for the Acquisition have been included in Luminex’s consolidated financial statements beginning January 1, 2019.

As we integrate the Acquisition in our systems and processes, we expect the gross margins on the acquired portfolio to negatively impact our consolidated gross margins; however, we expect synergies realized from the Acquisition, increased sales volumes and commercialization of the next generation Guava System to increase these gross margins in the long-term.

Material Customer Activity

As previously stated ininto our ~~Annual Report on Form 10-K for the year ended December 31, 2017,~~recent annual and quarterly filings, LabCorp has elected to develop the next iteration of ~~one of~~ its ~~women's~~women’s health products with another party. We previously negotiated significant minimum women's health purchases from LabCorp, pursuant to which LabCorp committed to acquire no less than $63.1 million of our women's health products from January 1, 2017 through June 30, 2018. LabCorp has met its purchase requirements under that agreementparty and has indicated ~~it will not make further~~its intention to cease purchasing CF products from us. While LabCorp extended its CF purchases through 2021, we have experienced the loss of the ~~women's~~women’s health products covered by such agreement. However, based on an extension agreement entered into in the third quarter of 2017, the Company will continue to sell its Cystic Fibrosis (CF) products to the Company’s largest customer, LabCorp, through at least the end of 2019. The loss of that LabCorp business and ~~the anticipated future loss of~~certain other products traditionally sold to ~~LabCorp (which we expect to occur with products other than CF, as discussed above),~~LabCorp. This loss could have a material adverse effect on our growth and future results of ~~operations.~~

operations if we are unable to effectively attract new customers and/or increase our sales with existing customers. During ~~2017,~~2019, we expect a reduction of revenue from LabCorp ~~represented total revenue~~ of ~~$61.1 million. That revenue~~approximately $35 million as compared to fiscal 2018, of which $11 million was broken down as follows: women's health - $36.1 million; CF - $13.3 million, and all other ancillary products - $11.7 million. As noted above, LabCorp has met its purchase commitment for women's health products and will no longer be placing orders forrealized in the majority of the women's health portfolio. By year end, the remainder of the women's health products purchased by LabCorp will likely be transitioned to another party. Orders by LabCorp 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 through at least the end ofthree months ended March 31, 2019.

Consumables Sales and Royalty Revenue Trends

We have experienced significant fluctuations in consumable revenue over the past several years. Overall, the fluctuations were partially due to periodic changes in volume from our largest purchasing customers. On a quarterly basis, our largest customers account for approximately 70% of our total consumable sales volume. We expect these fluctuations to continue as the ordering patterns and inventory levels of our largest bulk purchasing partners remain variable. Additionally, even though we experience variability in consumable revenue, the key indicator of the success of our partners’ commercialization efforts is the rising level of royalties and reported ~~royalty bearing~~royalty-bearing sales.

Future Operations

We expect our areas of focus over the next twelve months to be:

delivering on our revenue growth goals;

accelerating development and commercialization of the assays on our ~~sample-to-answer~~sample to answer diagnostic systems;

integrating the flow cytometry business we acquired from EMD Millipore Corporation and ensuring that we retain and recruit talent, including for support functions and key positions not included with this acquisition;

increasing the growth of our LTG revenue through enrichment of our existing partner relationships and the addition of new partners;

completing development of and ~~commercializing~~commercialization of the next generation ~~sample-to-answer~~sample to answer system, VERIGENE ~~II;~~II, our next generation xMAP System, SENSIPLEX, and our next generation Guava instrument, Guava Next Gen;


•	improvement of ARIES^®and VERIGENE gross margins;


•	placements of our VERIGENE and ARIES^® Systems, our ~~sample-to-answer~~sample to answer platforms and assays;

maintenance and improvement of our existing products and the timely development, completion and successful commercial launch of our pipeline products;

adoption and use of our platforms and consumables by our customers for their testing services;

expansion and enhancement of our installed base of systems and our market position within our identified target market segments; and

monitoring and mitigating the effect of the ongoing uncertainty in global finance markets and changes in government funding on planned purchases by end users.

We anticipate continued revenue concentration in our higher margin items (assays, consumables and royalties) ~~contributing to favorable, but variable, gross margin percentages.~~. Additionally, we believe that a sustained investment ~~by the Company~~ in research and development is necessary in order to meet the needs of our marketplace and provide a sustainable new product pipeline. We may experience volatility in research and development expenses as a percentage of revenue on a quarterly basis as a result of the timing of development expenses, clinical validation and clinical trials in advance of the commercial launch of our new products.

CRITICAL ACCOUNTING POLICIES ~~AND ESTIMATES~~

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with ~~U.S. GAAP~~United States generally accepted accounting principles for interim financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.

Management believes there have been no significant changes during the quarter ended ~~June 30, 2018~~March 31, 2019 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the ~~2017~~2018 10-K, with the exception toof the adoption of ~~ASU 2014-09~~the new lease standard in the first quarter of ~~2018,~~2019, which is described in Note 1013 - ~~Revenue Recognition.~~Commitments and Contingencies and Note 14 - Recent Accounting Pronouncements.

RESULTS OF OPERATIONS

THREE MONTHS ENDED ~~JUNE 30,~~ ~~2018~~MARCH 31, 2019 COMPARED TO THREE MONTHS ENDED ~~JUNE 30,~~ ~~2017~~MARCH 31, 2018

Selected consolidated financial data for the three months ended ~~June 30~~, ~~2018~~March 31, 2019 and ~~2017~~2018 is as follows (dollars in thousands):


												Three Months Ended March 31,
	Three Months Ended June 30,											2019			2018			Variance			Variance (%)
	2018			2017			Variance			Variance (%)		(dollars in thousands)
Revenue	$	79,578		$	76,457		$	3,121		4	%	$	82,408		$	82,662		$	(254	)	—	%
Gross profit	$	49,306		$	50,061		(755		)	(2	)%	$	45,807		$	53,588		$	(7,781	)	(15	)%
Gross margin percentage	62		%	65		%	(3		)%	N/A		56		%	65		%	(9		)%	N/A
Operating expenses	$	41,448		$	42,579		(1,131		)	(3	)%	$	49,391		$	38,322		$	11,069		29	%
Income from operations	$	7,858		$	7,482		376			5	%	$	(3,584	)	$	15,266		$	(18,850	)	(123	)%
Net income												$	2,960		$	13,397		$	(10,437	)	(78	)%

Total revenue ~~increased 4% to $79.6~~was $82.4 million for the three months ended ~~June 30, 2018~~March 31, 2019, down slightly from ~~$76.5~~$82.7 million for the comparable period in ~~2017. This increase was primarily driven by growth~~2018. The Company experienced a decrease in ~~(i)~~ our ~~sample-to-answer~~non-automated assay revenue, mainly attributable to the decrease in LabCorp sales. These decreases were largely offset by the addition of our newly acquired flow cytometry business, which comprised ~~31%~~14% of total revenue in the first quarter of 2019, as well as increases in our automated assay revenue. Non-automated assay revenue comprised 48% of total assay revenue for the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~25%~~68% for the comparable period in ~~2017, and (ii) systems~~2018. Automated assay revenue, which ~~increased 19% as compared~~consists of VERIGENE and ARIES^® assays, grew 15% to ~~the prior year quarter. This increase was partially offset by lower consumable sales in the second quarter 2018, which declined $2.3~~more than $17.1 million ~~or 18% as compared to the prior year quarter. Excluding LabCorp sales, total revenue increased 5%~~ for the three months ended ~~June 30, 2018 as compared to~~March 31, 2019 from the ~~prior year quarter.~~comparable period in 2018.

The following table presents our revenues disaggregated by revenue source for the three months ended ~~June 30,~~March 31, 2019 and 2018 ~~and 2017 (dollars in thousands):~~as follows:


										Three Months Ended March 31,
	Three Months Ended June 30,									2019		2018		Variance			Variance (%)
	2018		2017		Variance			Variance (%)		(dollars in thousands)
System sales	$	11,820	$	9,905	$	1,915		19	%	$	15,671	$	7,931	$	7,740		98	%
Consumable sales	10,967		13,310		(2,343		)	(18	)%	10,724		11,872		(1,148		)	(10	)%
Royalty revenue	11,567		10,813		754			7	%	14,170		12,239		1,931			16	%
Assay revenue	40,174		37,753		2,421			6	%	34,813		45,841		(11,028		)	(24	)%
Service revenue	3,041		2,795		246			9	%	5,394		2,878		2,516			87	%
Other revenue	2,009		1,881		128			7	%	1,636		1,901		(265		)	(14	)%
	$	79,578	$	76,457	$	3,121		4	%	$	82,408	$	82,662	$	(254	)	—	%

We continue to ~~experience~~have revenue concentration in a limited number of customers. Five customers accounted for ~~47% (two~~30% of ~~whom were 20% and 11%, respectively, and no other customer exceeded 7%) of consolidated~~ total revenue in the ~~second~~first quarter of 2019, down from 44% in the first quarter of 2018. ~~For comparative purposes, these top five~~In particular, our two largest customers by revenue accounted for ~~47% (two~~18% of ~~whom were 21%~~2019 first quarter revenue (12% and ~~15%~~6%, ~~respectively,~~respectively), a decrease from 32% of 2018 first quarter revenue (13% and no19%, respectively). This decrease is mainly attributable to the reduction of LabCorp sales and we anticipate this trend to continue as discussed above under “Material Customer Activity.” No other customer ~~exceeded~~accounted for more than 5%) of first quarter total ~~consolidated~~ revenue in ~~the second quarter of 2017.~~2019 or 2018.

Revenue from the sale of systems and peripheral components increased ~~19%~~98% to ~~$11.8~~$15.7 million for the three months ended ~~June 30, 2018~~March 31, 2019, from ~~$9.9~~$7.9 million for the three months ended ~~June 30, 2017. This increase is~~March 31, 2018, primarily the result of ~~an increase~~the Acquisition, which contributed more than $8.0 million of revenue in ~~total~~the three months ended March 31, 2019. This was partially offset by lower system placements and a change in sales mix of multiplexing ~~analyzer placements,~~analyzers, with higher sales of ~~LUMINEX~~MAGPIX and lower sales of Luminex 100/200 and ~~MAGPIX systems, partially offset by lower sales of~~ FLEXMAP 3D ~~Systems.~~systems. We sold ~~361~~210 multiplexing analyzers in the ~~second quarter of 2018,~~three months ended March 31, 2019, as compared to ~~270~~218 multiplexing analyzers ~~for~~sold in the ~~corresponding prior year period.~~comparable period in 2018, bringing total multiplexing analyzer shipments since inception to more than 16,000 as of March 31, 2019, some of which may be retired or otherwise not in use. For the three months ended ~~June 30, 2018,~~March 31, 2019, our five ~~of our~~highest selling partners accounted for ~~274 multiplexing analyzers,~~166 systems, or ~~76%~~79%, of total multiplexing analyzers sold, ~~as compared to~~whereas, our five ~~of our~~highest selling partners ~~accounting~~in the comparable period in 2018 accounted for ~~214 multiplexing analyzers,~~185, or ~~79%~~85%, of total multiplexing analyzers ~~sold, for the three months ended June 30, 2017.~~sold.

Consumable sales, comprised of microspheres and sheath fluid, decreased ~~18%~~$1.1 million to ~~$11.0~~$10.7 million ~~for~~in the three months ended ~~June 30, 2018~~March 31, 2019 from ~~$13.3~~$11.9 million ~~for the three months ended~~ ~~June 30, 2017~~.in March 31, 2018. During the ~~three months ended June 30, 2018,~~first quarter of 2019, we had 1614 bulk purchases of consumables totaling approximately ~~$7.9~~$7.5 million ~~(72%~~(70% of total consumable revenue), ranging from $0.1 million to ~~$1.5~~$3.0 million, as compared with 1718 bulk purchases totaling approximately ~~$10.3~~$8.9 million ~~(78%~~(75% of total consumable revenue)~~, ranging from $0.1 million to $4.0 million, for~~ in the ~~three months ended June 30, 2017.~~comparable period in 2018. The decrease in ~~revenue from~~ bulk purchases in the ~~three months ended June 30, 2018 is~~first quarter of 2019 was the primary ~~reason for~~driver of the decrease in consumable revenue ~~in the first quarter of 2018~~ from the prior year ~~period.~~quarter. We expect fluctuations in consumable sales on an ongoing basis. Partners who reported ~~royalty bearing~~royalty-bearing sales accounted for ~~$7.0~~$6.8 million, or ~~64%~~63%, of consumable sales for the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~$8.4~~$8.7 million, or ~~63%~~73%, of the total consumable sales for the three months ended ~~June 30, 2017.~~March 31, 2018.

Royalty revenue, which results ~~when~~from our partners ~~sell~~selling products or testing services ~~incorporating~~that incorporate our technology, increased 7%16% to ~~$11.6~~$14.2 million for the three months ended ~~June 30, 2018~~March 31, 2019, from ~~$10.8~~$12.2 million for the three months ended ~~June 30, 2017.~~March 31, 2018. This increase iswas primarily ~~attributable to an increase in~~the result of higher base royalties of $1.2 million and a favorable mix of average royalty ~~minimums, audit findings~~rates, which we believe was mainly the result of menu expansion and ~~other adjustments~~increased utilization of ~~approximately $0.5 million, in addition to an increase in base royalties.~~our partners’ assays on our technology. We expect modest fluctuations in the royalties submitted quarter to quarter based upon the varying contractual terms, differing reporting and payment requirements, and the addition of new partners. Our partners’ end user sales may reflect volatility from quarter to quarter and, therefore, that same volatility is reflected in our reported royalty revenues on a quarterly basis.

Assay revenue ~~increased 6%~~decreased 24% to ~~$40.2~~$34.8 million for the three months ended ~~June 30, 2018~~March 31, 2019, from ~~$37.8~~$45.8 million for the three months ended ~~June 30, 2017, driven~~March 31, 2018, primarily ~~by an~~attributable to the anticipated decline in LabCorp sales. Excluding this impact, assay revenue remained at prior year levels and included a modest increase due to the Acquisition in ~~our~~the first quarter of 2019. Our sample-to-answer assay revenue, which consists of VERIGENE and ARIES^® assay sales, grew 15%, in ~~addition~~spite of a lighter respiratory season, to ~~increased sales of our non-automated infectious disease testing assays. Revenue for our sample-to-answer products increased by 35%~~$17.1 million for the three months ended ~~June 30, 2018~~March 31, 2019, from ~~the second quarter of 2017. Revenue for~~$14.9 million on March 31, 2018. These increases were offset by reductions in our non-automated ~~infectious disease~~ testing ~~products increased by 5% while our genetic testing assay products~~assays, which decreased by ~~28%~~46%, driven mainly by the reduction in LabCorp’s sales of approximately $11.0 million to $4.0 million in the three months ended March 31, 2019, from $15.0 million in the comparable period in 2017. This decrease in genetic testing assay products was attributable to continued pricing and reimbursement challenges within the pharmacogenetic market segment, causing us to shift our focus towards infectious disease testing.three months ended March 31, 2018. Our largest customer, by revenue, accounted for ~~39%~~13% of total assay revenue for the three months ended ~~June 30, 2018~~March 31, 2019 compared to ~~41%~~34% for the three months ended ~~June 30, 2017.~~March 31, 2018. No other customer accounted for more than ~~10%~~5% of total assay revenue during ~~these~~those periods. As discussed above under “Material Customer Activity” and previously disclosed in our prior quarterly reports, our largest assay customer, LabCorp, has developed the next iteration of their ~~women's~~women’s health portfolio with another party, which ~~will~~negatively impacted our assay revenue in 2018 and is expected to continue to negatively impact our assay revenue inthrough the ~~second~~first half of ~~2018 and beyond. Excluding LabCorp sales, assay revenue increased 9% for the three months ended June 30, 2018 as compared to the prior year quarter.~~2019.

Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract and time and materials for billable service work not under an extended warranty contract, increased 9% to $3.0 million for the second quarter of ~~2018~~ from $2.8 million for the second quarter of 2017. As of June 30, 2018, we had 2,174 Luminex systems covered under extended service agreements and $5.3 million in deferred revenue related to these contracts. As of June 30, 2017, we had 1,930 Luminex systems covered under extended service agreements and $4.9 million in deferred revenue related to these contracts.

Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales and amortized license fees, increased 7% to $2.0 million for the three months ended June 30, 2018 compared to $1.9 million for the three months ended June 30, 2017.

~~Gross Profit~~. Gross profit decreased to $49.3 million, or 2%, for the three months ended June 30, 2018, as compared to $50.1 million for the three months ended June 30, 2017. Gross margin (gross profit as a percentage of total revenue) was 62% for the three months ended June 30, 2018, a decrease from the prior year quarter's gross margin of 65%. The decrease in gross margin is primarily attributable to a change in product sales mix between higher versus lower margin items, with lower sales of consumables and higher sales of systems. Sales of consumables, one of our high-margin items, represented 14% of total sales in the three months ended June 30, 2018, down from 17% in the comparable period in 2017. Sales of our systems, which carry lower margins, represented 15% of total sales in the three months ended June 30, 2018 as compared to 13% for the three months ended June 30, 2017. We anticipate continued fluctuation in gross margin and related gross profit primarily as a result of variability in revenue mix and seasonality effects inherent in our assay revenue.

~~Research and Development Expense.~~ Research and development expense decreased to $11.7 million, or 15% of total revenue, for the three months ended June 30, 2018 from $12.3 million, or 16% of total revenue, for the three months ended June 30, 2017. The decrease in research and development expense was primarily driven by the timing of outside service expenses related to VERIGENE II and ARIES^® assay development. Research and development headcount was 195 as of June 30, 2018 and 2017. The focus of our research and development activities is the development and commercialization of a pipeline of assays for the ARIES^® ~~Systems and the development and commercialization of the next generation VERIGENE System, VERIGENE II, and related assays.~~

~~Selling, General and Administrative Expense~~. Selling, general and administrative expenses, excluding the amortization of acquired intangible assets, was $27.6 million for the three months ended June 30, 2018, a decrease of 2% from the three months ended June 30, 2017. The decrease was primarily attributable to lower personnel costs, driven by one-time employee separation costs of $0.5 million in the prior year which did not repeat in 2018. Selling, general and administrative headcount as of June 30, 2018 was 371 as compared to 365 as of June 30, 2017. As a percentage of revenue, selling, general and administrative expense, excluding the amortization of acquired intangible assets, was 35% in the second quarter of 2018, down from 37% in the second quarter of 2017.

~~Amortization of Acquired Intangible Assets.~~ ~~Amortization of acquired intangible assets remained constant at $2.2 million for the three months ended June 30, 2018 and 2017.~~

~~Income taxes~~. Our effective tax rate for the three months ended June 30, 2018 was 28%, or $2.2 million, compared to 26%, or $1.9 million, for the three months ended June 30, 2017. The 28% rate includes a $1.3 million discrete income tax expense primarily related to the results of a Canadian income tax audit. We expect our consolidated full year effective tax rate to be 25% to 30%, absent any other significant discrete items. We continue to assess our business model and its impact in various tax jurisdictions.

~~SIX MONTHS ENDED JUNE 30, 2018 COMPARED TO SIX MONTHS ENDED JUNE 30, 2017~~

~~Selected consolidated financial data for the six months ended June 30, 2018 and 2017 is as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 Variance Variance (%)
Revenue $ 162,240
$ 154,236
$ 8,004
5 %
Gross profit $ 102,894
$ 102,847
47
— %
Gross margin percentage 63 % 67 % (4 )% N/A
Operating expenses $ 79,770
$ 81,353
(1,583 ) (2 )%
Income from operations $ 23,124
$ 21,494
1,630
8 %

Total revenue increased by 5% to $162.2 million for the six months ended June 30, 2018 from $154.2 million for the comparable period in 2017. The increase was primarily attributable to higher assay, system, and royalty revenue, which was partially offset by a decrease in consumable sales revenue. Excluding LabCorp sales, total revenue increased 4% for the six months ended June 30, 2018 as compared to the same period in the prior year.

~~A breakdown of revenue for the six months ended June 30, 2018 and 2017 is as follows (dollars in thousands):~~

Six Months Ended June 30,
2018 2017 Variance Variance (%)
System sales $ 19,751
$ 18,406
$ 1,345
7 %
Consumable sales 22,839
28,695
(5,856 ) (20 )%
Royalty revenue 23,806
22,374
1,432
6 %
Assay revenue 86,015
75,160
10,855
14 %
Service revenue 5,919
5,700
219
4 %
Other revenue 3,910
3,901
9
— %
$ 162,240
$ 154,236
$ 8,004
5 %

We continue to experience revenue concentration in a limited number of customers. Five customers accounted for 45% (two of whom were 20% and 12%, respectively, and no other customer exceeded 6%) of consolidated total revenue in the six months ended June 30, 2018. For comparative purposes, these top five customers accounted for 49% (two of whom were 19% and 17%, respectively, and no other customer exceeded 6%) of total revenue in the six months ended June 30, 2017.

Revenue from the sale of systems and peripheral components increased 7% to $19.8 million for the six months ended June 30, 2018 from $18.4 million for the six months ended June 30, 2017. This increase is primarily the result of an increase in total multiplexing analyzer placements, with greater sales of LUMINEX 100/200 systems, partially offset by fewer sales of FLEXMAP 3D and MAGPIX systems. We sold 579 multiplexing analyzers in the six months ended June 30, 2018, as compared to 512 multiplexing analyzers sold for the corresponding prior year period. For the six months ended June 30, 2018, five of our partners accounted for 456, or 79%, of total multiplexing analyzers sold. Five of our partners accounted for 388, or 76%, of total multiplexing analyzers sold for the six months ended June 30, 2017.

Consumable sales decreased 20% to $22.8 million for the six months ended June 30, 2018 compared to $28.7 million for the six months ended June 30, 2017. We had 34 bulk purchases of consumables totaling approximately $16.9 million (74% of total consumable revenue), ranging from $0.1 million to $3.8 million, during the six months ended June 30, 2018, as compared with 35 bulk purchases totaling approximately $22.7 million (79% of total consumable revenue), ranging from $0.1 million to $6.4 million, for the six months ended June 30, 2017. The decrease in revenue from bulk purchases in the six months ended June 30, 2018 is the primary reason for the decrease in consumable revenue from the prior year period. We expect fluctuations in consumable sales on an ongoing basis. Partners who reported royalty bearing sales accounted for $15.7 million, or 69%, of consumable sales for the six months ended June 30, 2018 compared to $20.7 million, or 72%, of total consumable sales for the six months ended June 30, 2017.

Royalty revenue increased 6% to $23.8 million for the six months ended June 30, 2018 from $22.4 million for the six months ended June 30, 2017, primarily attributable to an increase in base royalties of approximately $1.1 million. We expect modest fluctuations in the royalties submitted quarter to quarter based upon the varying contractual terms, differing reporting and payment requirements, and the addition of new partners. Our partners’ end user sales may reflect volatility from quarter to quarter and, therefore, that same volatility is reflected in our reported royalty revenues on a quarterly basis.

Assay revenue increased 14% to $86.0 million for the six months ended June 30, 2018 from $75.2 million for the six months ended June 30, 2017, driven primarily by an increase in our sample-to-answer assay revenue, which consists of VERIGENE and ARIES^®assay sales, in addition to increased sales of our non-automated infectious disease testing assays. Revenue for our sample-to-answer products increased by 42% for the six months ended June 30, 2018 from the comparable period in 2017. Revenue for our non-automated infectious disease testing products increased by 14% while our genetic testing assay products decreased by 24% from the six months ended June 30, 2017. This decrease in genetic testing assay products was attributable to continued pricing and reimbursement challenges within the pharmacogenetic market segment, causing us to shift our focus towards infectious disease testing. Our largest customer, by revenue, accounted for 36% of total assay revenue for the six months ended June 30, 2018 compared to 38% for the comparable period in 2017. No other customer accounted for more than 10% of total assay revenue during those periods. As discussed under “Material Customer Activity” and previously disclosed in our prior quarterly reports, our largest assay customer, LabCorp, has developed the next iteration of their women's health portfolio with another party, which will negatively impact our assay revenue in the second half of 2018 and beyond. Excluding LabCorp sales, assay revenue increased 17% for the six months ended June 30, 2018 as compared to the same period in the prior year.

Service revenue, comprised of extended warranty contracts earned ratably over the term of a contract and time and materials for billable service work not under an extended warranty contract, increased 4%87% to ~~$5.9~~$5.4 million during the three months ended March 31, 2019, from $2.9 million in the three months ended March 31, 2018. This increase was primarily driven by the Acquisition, which contributed more than $2.0 million of service revenue in the first quarter of 2019. Absent the impact of the Acquisition, service revenue increased 11% for the three months ended March 31, 2019 from the comparable period in 2018, primarily driven by an increase in the number of systems covered under extended service agreements. On March 31, 2019, we had approximately 2,500 Luminex systems covered under extended service agreements and $5.5 million in deferred revenue related to those contracts. On March 31, 2018, we had approximately 2,000 Luminex systems covered under extended service agreements and $5.1 million in deferred revenue related to those contracts. On a consolidated basis, including approximately 1,000 flow cytometry systems covered under extended service agreements gained through the Acquisition, total deferred revenue was $10.5 million for the ~~six~~three months ended ~~June 30, 2018 compared to $5.7 million for the six months ended June 30, 2017.~~March 31, 2019.

Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, ~~and~~ amortized license fees, ~~remained constant at $3.9~~milestone payments and revenue from agreements with U.S. government agencies, decreased to $1.6 million for the ~~six~~three months ended ~~June 30, 2018 and 2017.~~

~~Gross Profit. Gross profit increased modestly~~March 31, 2019 compared to ~~$102.9~~$1.9 million for the ~~six~~three months ended ~~June 30,~~March 31, 2018, primarily driven by an increase in amounts paid towards global purchasing organizations, which are accounted for as a reduction in revenue.

Gross Profit. Gross profit decreased to $45.8 million for the three months ended March 31, 2019, as compared to ~~$102.8~~$53.6 million for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. Gross margin (gross profit as a percentage of total revenue) ~~was 63%~~decreased to 56% for the ~~six~~three months ended ~~June 30, 2018, a decrease of four percentage points~~March 31, 2019, from 65% for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. This decrease in gross margin was primarily attributable to: (i) the decline in LabCorp’s assay purchases, which typically carry a higher gross margin, (ii) the absorption of the Acquisition and the related acquisition accounting adjustments, which included additional expenses of $1.1 million for the step-up in inventory to fair value, and $0.2 million of lower ~~expenses recorded~~revenue for the purchase accounting of the acquired deferred service revenue in the ~~prior year resulting from inventory adjustments related to~~three months ended March 31, 2019, and (iii) the increase in sample-to-answer assay revenue, which historically carries a lower gross margin, as a percent of total revenue. These impacts were partially offset by a favorable change in ~~manufacturing standards which did not repeat in the current year, (ii) a change in product~~ sales mix ~~between~~from higher ~~versus lower~~royalty revenue, and modest margin ~~items, with lower sales of consumables and higher sales of~~improvements in systems and ~~sample-to-answer assays, which carry lower margins, and (iii) absorption of higher manufacturing overhead expenses for the six months ended June 30, 2018.~~consumable products. We anticipate continued fluctuation in gross margin and related gross profit primarily as a result of variability in consumable and system purchases and seasonality effects inherent in our assay revenue. Our acquired flow cytometry margins were approximately 35% for the three months ended March 31, 2019. However, we expect these margins should improve significantly in the balance of the year, as the related acquisition accounting adjustments mentioned above and one-time integration costs will not recur.

Research and Development Expense. Research and development expense ~~decreased~~increased to ~~$22.0~~$15.0 million, or ~~14%~~18% of total revenue, for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019, from ~~$24.7~~$10.3 million, or ~~16%~~12% of total revenue, ~~for~~in the ~~six months ended June 30, 2017.~~comparable period in 2018. The ~~decrease~~increase in research and development ~~expense was~~expenses reflects the addition of the acquired flow cytometry personnel and related expenses, higher direct material expenses driven primarily ~~driven~~ by the ~~timing of direct materials purchases and outside service expenses related to~~ VERIGENE II ~~and ARIES~~^®assay development, ~~in addition to lower personnel costs, mainly driven by lower salary~~ and ~~bonus expenses.~~development of the SENSIPLEX and the Guava Next Gen systems. Research and development headcount ~~was 195~~ as of ~~June 30, 2018 and 2017.~~March 31, 2019 was 228, including 29 flow cytometry employees, as compared to 178 as of March 31, 2018. The focus of our research and ~~development~~developments activities is the development and commercialization of ~~a pipeline~~the VERIGENE II, and associated assays, the development of ~~assays for~~ the ~~ARIES~~^® ~~System~~SENSIPLEX, and the development ~~and commercialization~~ of the ~~next generation VERIGENE System, VERIGENE II, and related assays.~~Guava Next Gen system.

Selling, General and Administrative ~~Expense~~.Expense. Selling, general and administrative expenses, excluding the amortization of acquired intangible assets, increased to ~~$53.4~~$31.5 million for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019, from ~~$52.2~~$25.8 million for the ~~six months ended June 30, 2017.~~comparable period in 2018. The increase was primarily attributable to the addition of the acquired flow cytometry expenses, in addition to higher ~~marketing~~personnel, as a result of merit increases, and ~~outside services expenses, partially offset by one-time employee separation costs of $0.6 million~~stock compensation expense in the ~~prior year, which did not repeat in 2018.~~current quarter. Selling, general and administrativeheadcount ~~as of June 30, 2018~~at March 31, 2019 was ~~371~~452, including 66 flow cytometry employees, as compared to ~~365 as of June 30, 2017.~~360 on March 31, 2018. As a percentage of revenue, selling, general and administrative expense, excluding the amortization of acquired intangible assets, was ~~33%~~38% for the three months ended March 31, 2019, up from 31% in the ~~first six months~~comparable period in 2018.

Other Income, net. We received a nonrecurring dividend payment of ~~2018, compared to 34%~~$0.4 million from one of our cost-method investments in the ~~first six months of 2017.~~

~~Amortization of Acquired Intangible Assets.~~ ~~Amortization of acquired intangible assets decreased to $4.3 million for the six~~three months ended ~~June 30,~~March 31, 2018 ~~from $4.5 million for the six months ended June 30, 2017.~~that did not recur in 2019.

Income ~~taxes~~.taxes. Our effective tax rate for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 was ~~19%~~184%, reflecting a ~~$4.5~~$6.5 million ~~expense,~~benefit, as compared to ~~31%~~an expense of 15%, or ~~a $6.7~~$2.3 million, ~~expense,~~ for the ~~six~~three months ended ~~June 30, 2017.~~March 31, 2018. The ~~19% rate~~184% benefit includes a ~~$2.5~~$6.6 million discrete ~~benefit~~ item from the first quarter of ~~2018,~~2019, for a reduction in unrecognized tax benefits related to the U.S. transition tax as a ~~change in our provisional estimate~~result of ~~deferred tax liability~~an IRS ruling for ~~withholding tax on~~ certain ~~amounts~~aspects of ~~undistributed earnings~~the calculation of our Canadian ~~subsidiary. The 19% rate also includes a $1.3 million~~subsidiary’s earnings. Absent significant discrete ~~tax expense item from the second quarter of 2018, primarily related to the results of a Canadian income tax audit. We~~items, we expect our consolidated full year effective tax rate to be ~~25%~~10% to ~~30%, absent any other significant discrete items.~~20%. We continue to assess our business model and its impact in various tax jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

June 30, 2018 December 31, 2017
(in thousands)
Cash and cash equivalents $ 138,996
$ 127,112



	March 31, 2019		December 31, 2018
	(in thousands)
Cash and cash equivalents	$	61,689	$	76,441

AsOn March 31, 2019, we held cash and cash equivalents of ~~June 30,~~$61.7 million and had working capital of $147.9 million. On December 31, 2018, we held cash and cash equivalents of ~~$139.0~~$76.4 million and had working capital of ~~$209.5~~$151.4 million. ~~At December 31, 2017, we held cash~~Cash, and cash equivalents ~~of $127.1~~decreased by $14.8 million ~~and had working capital of $179.4 million.~~during the three months ended March 31, 2019. The ~~$11.9 million increase~~decrease in cash and cash equivalents from the prior year is primarily attributable to ~~an increase~~the decrease in operating cash flows of the Company in the amount of $31.5 million for the six months ended June 30, 2018 driven primarily by net income of $19.1 million. These operating cash flows were partially offset by capital expenditures of $9.0 million,accrued liabilities due to annual payments made, purchases of ~~content licenses~~property, plant and equipment of ~~$4.0~~$3.8 million and dividends ~~paid~~ of ~~$5.3~~$2.7 million.

Cash provided by operations was $31.5 million for the six months ended June 30, 2018. Cash used in investing and financing activities was $15.8 million and $3.9 million, respectively, for the six months ended June 30, 2018.

We have funded our operations to date primarily through cash generated from operations and the issuance of equity securities (in conjunction with an initial public offering in 2000, subsequent option exercises, and our ~~secondary~~follow-on public offering in 2008). Our cash reserves are ~~typically~~ held directly or indirectly in a variety of short-term, interest-bearing instruments, including non-government sponsored debt securities. We do not have any investments in asset-backed commercial paper, auction rate securities, or ~~mortgage backed~~mortgage-backed or sub-prime style investments.

Cash used in operations, investing and financing activities was $7.1 million, $3.8 million and $4.0 million, respectively for the three months ended March 31, 2019.

Our future capital requirements will depend on a number of factors, including our success in developing and expanding markets for our products, payments under possible future strategic arrangements, continued progress of our research and development of potential products, the timing and outcome of regulatory approvals, the need to acquire licenses to new technology, costs associated with strategic acquisitions including acquisition and integration costs and assumed liabilities, the status of competitive products and potential costs associated with both protecting and defending our intellectual property. Additionally, actions taken as a result of the ongoing internal ~~evaluations~~evaluation of our business could result in expenditures not currently contemplated in our estimates for ~~2018.~~2020.

~~One of our~~Our short-term projects that isare expected to require significant capital to complete isare development of the next generation xMAP System, SENSIPLEX, our current in-process research and development of the next generation VERIGENE System, VERIGENE II, on which we began clinical trials in May ~~2018.~~2018 and our in-process research and development of the Guava Next Gen System. We believe ~~the~~SENSIPLEX, VERIGENE II and Guava Next Gen will launch commercially in ~~2019.~~2020, 2019 and 2019, respectively. The estimated aggregate cost to complete ~~this project,~~these projects, including completion of development of the ~~VERIGENE II System,~~systems, cartridge, software and the initial assay, validation, verification, clinical trials and regulatory submission, is ~~less than $1.0~~approximately $9.1 million and is included in our research and development budget for ~~2018~~2019 and ~~2019.~~2020. We believe that our existing cash and cash equivalents are sufficient to fund our operating expenses, capital equipment requirements and other expected liquidity requirements for the coming twelve months. Additionally, we could incur quarterly losses over the next several quarters but expect to return to profitability and growth by the end of 2019. Factors that could affect our capital requirements, in addition to those listed above, include, without limitation: (i) continued collections of accounts receivable consistent with our historical experience; (ii) our ability to manage our inventory levels consistent with past practices; (iii) volatility in our key ~~partners'~~partners’ consumable purchasing patterns; (iv) execution of partnership agreements that include significant up-front license fees; (v) execution of our stock repurchase and dividend programs from time to time and (vi) executing strategic investment or acquisition agreements requiring significant cash consideration. See also the ~~"Safe~~“Safe Harbor Cautionary ~~Statement" of~~Statement” included in this report and the risk factors in the ~~2017~~2018 10-K and our other filings with the SEC.

In February 2017, the Board of Directors initiated a cash dividend program ~~under which the Company currently intends~~ to pay a regular quarterly cash dividend. The timing and amount of future dividends and stock repurchases will vary based on a number of factors, including future capital requirements for strategic transactions, the availability of financing on acceptable terms, debt service requirements, changes to applicable tax laws orand corporate laws, changes to our business model and periodic determination by our Board of Directors that cash dividends are in the best interests of stockholders and are in compliance with applicable laws and agreements of the Company. On ~~January 24, 2018,~~February 8, 2019, we announced for the ninth consecutive quarter that our Board declared a quarterly cash dividend of $0.06 per share of common stock ~~payable~~which was paid to shareholders of record as of the close of business on March ~~23, 2018 with a payment date of~~21, 2019 on April 13, 2018. On May 18, 2018, our Board declared a quarterly cash dividend of $0.06 per share of common stock payable to shareholders of record as of the close of business on June 22, 2018, with a payment date of July 13, 2018.11, 2019.

As previously ~~disclosed, the Company's largest customer,~~stated in our recent annual and quarterly filings, LabCorp has ~~informed us that they have~~ elected to develop the next iteration of ~~one of their women's~~its women’s health products with another party. We previously negotiated significant minimum women's health purchases through June 2018, pursuant to which LabCorp committed to acquire no less than $63.1 million of our women's health products from January 1, 2017 through June 30, 2018. LabCorp has met such purchase requirementsparty and has indicated ~~it will not make further~~its intention to cease purchasing CF products from us. While LabCorp extended its CF purchases through 2021, we have experienced the loss of the ~~women's~~women’s health and certain other products ~~covered by such agreement. However, based upon an extension agreement entered into in the third quarter~~traditionally sold to LabCorp. This loss could have a material adverse effect on our growth and future results of ~~2017, the Company will continue~~operations if we are unable to ~~sell its CF products to~~effectively attract new customers and/or increase our sales with existing customers. During 2019, we expect a reduction of revenue from LabCorp ~~through the end~~ of ~~2019. CF product sales to LabCorp represent~~ approximately ~~$10~~$35 million ~~in annual revenue. Loss of the LabCorp women's health revenue stream will result in a significant reduction in cash flow generation~~as compared to ~~previous quarters.~~

~~During 2017, LabCorp represented total revenue~~fiscal 2018, of ~~$61.1 million. That revenue was broken down as follows: women's health - $36.1 million; CF - $13.3~~which $11 million ~~and all other ancillary products - $11.7 million. As noted above, LabCorp~~ has met its purchase commitment for women's health products and will no longer be placing orders for the majority of the women's health portfolio. By year end, the remainder of the women's health products will likely be transitioned to another party. Orders by LabCorp for other ancillary products are expected to continue through at least the end of 2018, with a potential material reductionbeen realized in ~~2019. LabCorp orders for our CF products are expected to continue through at least the end of~~three months ended March 31, 2019.

We hold cash and cash equivalents at various foreign subsidiaries. As a result of reductions to the U.S. taxation of dividends from foreign subsidiaries under the Tax Cuts and Jobs Act and ~~increased~~continued profitability of our Canadian subsidiary, ~~beginning this year~~in future years we may repatriate earnings of our Canadian subsidiary. The cash and cash equivalents held by this subsidiary may be more readily available to meet domestic cash requirements ~~beginning this~~in the next year, but will continue to be subject to foreign withholding tax that would be incurred upon repatriation. We anticipate that cash and cash equivalents held by all other foreign subsidiaries will continue to be permanently reinvested and may not be readily available to meet domestic cash requirements.

To the extent our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds to continue the development and deployment of our technologies, or to supplement our position through strategic acquisitions. There can be no assurance that debt or equity funds will be available on favorable terms, if at all. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in dilution to our stockholders. Moreover, incurring debt financing could result in a substantial portion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness, could render us more vulnerable to competitive pressures and economic downturns and could impose restrictions on our operations. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds through entering into agreements on unattractive terms.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. Our interest income is sensitive to changes in the general level of domestic interest rates, particularly since our investments are in ~~short-term~~long-term instruments available-for-sale. A 50 basis point fluctuation from average investment returns ~~as of June 30, 2018~~at March 31, 2019 would yield a less than 0.5% variance in overall investment return, which would not have a material adverse effect on our financial condition.

Foreign Currency Risk. Our international business is subject to risks, including, but not limited to: foreign exchange rate volatility, differing tax structures, unique economic conditions, other regulations and restrictions and changes in political climate. Accordingly, our future results could be materially and adversely impacted by changes in these and other factors.

As of ~~June 30, 2018~~,March 31, 2019, as a result of our foreign operations, we have costs, assets and liabilities that are denominated in foreign currencies, primarily Canadian dollars and to a lesser extent the Euro, Renminbi ~~Hong Kong dollar~~ and Yen. For example, some fixed asset purchases and certain expenses ~~in our Canadian subsidiary~~ are denominated in Canadian dollars while sales of products are primarily denominated in U.S. dollars. ~~Transactions~~All transactions in our Netherlands ~~Japanese~~ and ~~Hong Kong~~Japanese subsidiaries are ~~primarily~~ denominated in Euros and Yen, ~~and Hong Kong dollars,~~ respectively. ~~The majority of~~All transactions, with the exception of our initial capital investment, in our Chinese subsidiary are denominated in Renminbi. As a consequence, movements in exchange rates could cause our foreign currency denominated expenses to fluctuate as a percentage of net revenue, affecting our profitability and cash flows. A significant majority of our revenues are denominated in U.S. dollars. The impact of foreign exchange ~~rates~~ on foreign denominated balances will vary in relation to changes between the U.S. dollar, Canadian dollar, Euro, Yen ~~Renminbi~~ and ~~Hong Kong dollar~~Renminbi exchange rates. A 10% change in all of these exchange rates in relation to the U.S. dollar would result in ana statement of comprehensive income ~~statement~~ impact of approximately ~~$1.1~~$2.1 million on foreign currency denominated asset and liability balances as of ~~June 30, 2018~~.March 31, 2019. As a result of our efforts to expand globally, in the future we will be exposed to additional foreign currency risk in multiple currencies; however, at this time, our exposure to foreign currency fluctuations is not material. We regularly assess the market to determine if additional strategies are appropriate to mitigate future risks.

In addition, the indirect effect of fluctuations in interest rates and foreign currency exchange rates could have a material adverse effect on our business financial condition and results of operations. For example, currency exchange rate fluctuations could affect international demand for our products. In addition, interest rate fluctuations could affect our customers’ buying patterns. Furthermore, interest rate and currency exchange rate fluctuations may broadly influence the United States and foreign economies resulting in a material adverse effect on our business, financial condition and results of operations. As a result, we cannot give any assurance as to the effect that future changes in foreign currency rates will have on our consolidated financial position, results of operations or cash flows. Our aggregate foreign currency transaction loss of ~~approximately $172,000~~$190,000 was included in determining our consolidated results for the ~~quarter~~year ended ~~June 30, 2018~~.March 31, 2019.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on the evaluation and criteria of these disclosure controls and procedures, ~~our~~the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at a reasonable assurance level and designed to ensure that material information relating to the Company and its subsidiaries would be made known to such officers on a timely basis.

Changes in Internal Control ~~over~~Over Financial Reporting

~~There were~~We are in the process of integrating the Acquisition into our system of internal controls over financial reporting. Other than the foregoing, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) during the quarter ended ~~June 30, 2018~~March 31, 2019 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~In the normal course of business, the Company is subject to claims, lawsuits and legal proceedings.~~ When and if it appears probable in ~~management's~~management’s judgment, and based upon consultation with outside counsel, that we will incur monetary damages or other costs in connection with any claims or proceedings, and such costs can be reasonably estimated, we record the estimated liability in the financial statements. If only a range of estimated losses can be estimated, we record an amount within the range that, in ~~management's~~management’s judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we record the liability at the low end of the range of estimates. Any such accrual would be charged to expense in the appropriate period. We disclose significant contingencies when the loss is not probable and/or the amount of the loss is not estimable, when we believe there is at least a reasonable possibility that a loss has been incurred. We recognize costs associated with legal proceedings in the period in which the services were provided.

No material legal proceedings are known to be pending as of March 31, 2019.

ITEM 1A. RISK FACTORS

Reference is made to the factors set forth under the caption “Safe Harbor Cautionary Statement” in Part I, Item 2 of this report and other risk factors described in Part I, Item 1A of the ~~2017~~ ~~10-K, which are incorporated herein by reference.~~2018 10-K. There have been no material changes from the risk factors previously disclosed in the ~~2017~~2018 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The stock repurchase activity for the ~~second~~first quarter of ~~2018~~2019 was as follows:

ISSUER PURCHASES OF EQUITY SECURITIES
Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/18 - 4/30/18 120
$ 22.18
—
$ —
5/1/18 - 5/31/18 —
—
—
—
6/1/18 - 6/30/18 342
29.53
—
—
Total Second Quarter 462
$ 27.62
—
$ —
⁽¹⁾ Total shares purchased are attributable to the withholding of shares by Luminex to satisfy the payment of tax obligations related to the vesting of restricted shares.



ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share ($)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
1/1/2019 - 1/31/2019	—	$	—	—	$	—
2/1/2019 - 2/28/2019	—	—		—	—
3/1/2019 - 3/31/2019	69,541	24.18		—	—
Total First Quarter	69,541	$	24.18	—	$	—

⁽¹⁾ Total shares purchased includes shares attributable to the withholding of shares by Luminex to satisfy the payment of tax obligations related to the vesting of restricted shares.

ITEM 6. EXHIBITS

The following exhibits are filed herewith:



~~Exhibit~~ ~~Number~~ EXHIBIT NUMBER		~~Description of Documents~~ DESCRIPTION OF DOCUMENT

~~10.1#~~31.1		~~Luminex Corporation 2018 Equity Incentive Plan (Previously filed~~Certification by CEO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as ~~Annex A~~adopted pursuant to Section 302 of the ~~Company’s Proxy Statement for its Annual Meeting~~Sarbanes-Oxley Act of ~~Stockholders held on May 17, 2018).~~2002.

~~10.2#~~31.2		~~Form~~Certification by CFO pursuant to Securities and Exchange Act Rules 13a-14(a) and 15d - 14(a), as adopted pursuant to Section 302 of ~~Restricted Share Award Agreement for Directors for~~ the ~~Luminex Corporation 2018 Equity Incentive Plan.~~Sarbanes-Oxley Act of 2002.

~~10.3#~~32.1		~~Form of Restricted Share Unit Agreement for Directors for the Luminex Corporation 2018 Equity Incentive Plan.~~

~~10.4#~~		~~Form of Non-Qualified Stock Option Agreement for the Luminex Corporation 2018 Equity Incentive Plan.~~

~~10.5#~~		~~Form of Restricted Share Award Agreement for the Luminex Corporation 2018 Equity Incentive Plan.~~

~~10.6#~~		~~Form of Restricted Share Unit Agreement the Luminex Corporation 2018 Equity Incentive Plan.~~

~~31.1~~		~~Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~32.1~~		Certification by CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification by CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Luminex ~~Corporation's~~Corporation’s Quarterly Report on Form 10-Q for the three ~~and six~~ months ended ~~June 30, 2018,~~March 31, 2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Condensed Consolidated Statement of Cash Flows; and (iv) Notes to Condensed Consolidated Financial Statements.

#		~~Management contract or compensatory plan or arrangement.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this ~~Report~~report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~Date:~~ ~~August 7, 2018~~

LUMINEX CORPORATION

Date: May 7, 2019 By: /s/ Harriss T. Currie

Harriss T. Currie

Chief Financial Officer, Senior Vice President of Finance

(Principal Financial Officer)



	June 30, 2018		December 31, 2017
Balance at beginning of year	$	85,481	$	85,481
Balance at end of period	$	85,481	$	85,481



2018 (six months)	$	4,333
2019	8,666
2020	8,666
2021	8,307
2022	7,060
Thereafter	21,639
	$	58,671
IP R&D	12,982
	$	71,653



	Foreign Currency Items			Available-for-Sale Investments		Accumulated Other Comprehensive Income (Loss) Items
Balance as of December 31, 2017	$	(625	)	$	—	$	(625	)
Other comprehensive income before reclassifications	(319		)	—		(319		)
Net current-period other comprehensive loss	(319		)	—		(319		)
Balance as of June 30, 2018	$	(944	)	$	—	$	(944	)



	Three Months Ended June 30, 2018								Six Months Ended June 30, 2018
	Before Tax			Tax Benefit		Net of Tax			Before Tax			Tax Benefit		Net of Tax
Foreign currency translation adjustments	$	(711	)	$	—	$	(711	)	$	(319	)	$	—	$	(319	)
Unrealized gains on available-for-sale investments	—			—		—			—			—		—
Other comprehensive loss	$	(711	)	$	—	$	(711	)	$	(319	)	$	—	$	(319	)



Stock Options (shares in thousands)	Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2017	3,086		$	18.10
Granted	761		22.06
Exercised	(143	)	17.96
Cancelled or expired	(372	)	18.48
Outstanding as of June 30, 2018	3,332		$	19.01



Accrued warranty costs as of December 31, 2017	$	1,308
Warranty adjustments/settlements	(991		)
Accrual for warranty costs	1,017
Accrued warranty costs as of June 30, 2018	$	1,334



	Six Months Ended June 31,
Revenue recognized in the period from:	2018
Amounts included as contract liabilities at the beginning of the period	$	3,412
Performance obligations satisfied in previous periods	-



	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
Income Statement	As Reported in this Quarterly Report			Amounts Before Adoption of the Standard			Net Effect of Adoption of the Standard			As Reported in this Quarterly Report				Amounts Before Adoption of the Standard			Net Effect of Adoption of the Standard
System sales	$	11,820		$	11,215		$	605		$	19,751			$	18,723		$	1,028
Consumable sales	10,967			10,967			—			22,839				22,839			—
Royalty revenue	11,567			11,677			(110		)	23,806				23,390			416
Assay revenue	40,174			40,889			(715		)	86,015				87,138			(1,123		)
Other revenue	5,050			5,050			—			9,829				9,829			—
Revenue	79,578			79,798			(220		)	162,240			—	161,919			321
Gross profit	49,306			49,526			(220		)	102,894			103	102,573			321
Income from operations	7,858			8,078			(220		)	23,124				22,803			321
Income tax benefit (expense)	(2,197		)	(2,250		)	53			(4,515		)		(4,438		)	(77		)
Net Income	5,669			5,836			(167		)	19,066			19	18,822			244



	As of June 30, 2018
Balance Sheet	As Reported in this Quarterly Report	Balances Before Adoption of ASC 606	Effect of Adoption of the Standard
ASSETS
Accounts receivable, net	46,778	35,814	10,964
Deferred income taxes	32,538	35,169	(2,631	)

LIABILITIES AND STOCKHOLDERS' EQUITY
Retained earnings	109,353	101,020	8,333



ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
4/1/18 - 4/30/18	120	$	22.18	—	$	—
5/1/18 - 5/31/18	—	—		—	—
6/1/18 - 6/30/18	342	29.53		—	—
Total Second Quarter	462	$	27.62	—	$	—
⁽¹⁾ Total shares purchased are attributable to the withholding of shares by Luminex to satisfy the payment of tax obligations related to the vesting of restricted shares.