Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Luminex Corp (DE) (NASDAQ:LMNX)
Q3 2019 Earnings Call
Nov 4, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 Luminex Corp Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jeff Christensen, Senior Director of Investor Relations. Thank you. Please go ahead, sir.

Jeff Christensen -- Senior Director, Investor Relations

Thank you and good afternoon, everyone. I joined Luminex in September and look forward to working with you. My contact information is in our financial results release. The slides of our third quarter 2019 results are available for viewing or download from our Investor Relations website at investor.luminexcorp.com. On the call today are Homi Shamir, President and CEO; Harriss Currie, Senior Vice President and CFO. We'll be following our standard agenda today. Homi will review our corporate highlights. Harriss will review the financial performance and after that we will open the call up for your questions. As a reminder, today's conference call is being recorded. The conference call replay and the slides will be available for six months on the Investor Relations section of our website.

Certain statements made during the course of today's call may not be purely historical and consequently may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and the Company's claims that projections provided by Section 21E of the Securities Exchange Act for such statements. These forward-looking statements speak only as of the date here of and are based on our current beliefs and expectations and are subject to known or unknown risk and uncertainties, some of which are beyond the Company's control that could cause actual results or plans to differ materially and adversely from those anticipated in the forward-looking statements.

Factors that could cause or contribute to such differences are detailed on our Form 10-K for the year ended December 31 and our quarterly reports on Form 10-Q filed with the Securities Exchange Commission. We encourage you to review these documents and we undertake no obligation to update these forward-looking statements.

Also, certain non-GAAP financial measures as defined by SEC Regulation G, may be covered on this call. To the extent that any non-GAAP financial measures are covered, a presentation of and reconciliation to the most directly comparable GAAP financial measure will be included in our press release which is available on our website in accordance with regulation G. I'll now turn the call over to our President and CEO, Homi Shamir.

Nachum Homi Shamir -- President and Chief Executive Officer

Thank you, Jeff. Good afternoon. And once again, welcome to our third quarter 2019 earnings call. Earlier this afternoon, we posted our results for the third quarter of 2019. As you can see from this result, we continue to work through the departure of most of LabCorp businesses, which created a $7 million drag on the current quarter and $31 million revenue impact on our year-to-date basis, as well as the profitability challenges that their departure presented. Despite the LabCorp departure, we grew total revenue by about 9% over the third quarter of 2018, continued progress in our Molecular sample-to-answer portfolio, led our growth this quarter with revenue growing by 27% in this product line.

We also demonstrated continued success with our license technology growth with revenue growth of 7%. While the new flow cytometry revenue stream contributed $8.7 million in the third quarter. This was about $3 million below our expectation and is the primary reason we missed our revenue guidance for the quarter.

Given the timing of sales in these businesses. We anticipate Q4 to be much stronger in the neighborhood of $12 million. When we combine our year-to-date flow sales of $33 million. This will bring us to about $45 million target for the year, which is a growth rate of more than 10% consistent with our initial projection.

In addition, during the third quarter, we saw gross margin improvement in our flow cytometry portfolio. Gross margin, once again, were in line with our expectation in the mid-50s. This is a reflection of both the growth of our sample-to-answer businesses and the replacement of the high-margin LabCor revenue with the lower margin from sample-to-answer and flow cytometry revenue, obviously revenue mix still plays a large part in our gross margin variability while we generated a loss in the quarter, we were as expected cash flow positive. Overall, it was a successful quarter that reflects the hard work the organization is putting into returning Luminex to sustained growth and profitability.

Today, I would like quickly to touch on two topics. First, an update on our robust product pipeline. And secondly, our longer-term expectation for the businesses. Regarding our pipeline, I'm very proud of the progresses we have made with VERIGENE II and ARIES in our molecular diagnostics businesses as well as with the SENSIPLEX Guava next generation and CellStream Flow [Phonetic] in our life science businesses, which is how we refer to our non-MDx business generally and includes our LTG and flow cytometry portfolio. This next-generation platforms represent significant technology advancement in every major area of our diversified businesses. With VERIGENE II, I'm excited to say that our VERIGENE II GI panel has now been submitted to the FDA and I'm happy to let you know that we also expect to submit VERIGENE II respiratory tract panel by the end of this year.

As I've said previously, we are planning on launching those two panels next year as close together as possible to generate maximum market impact once we receive FDA clearance. In addition to those two assay, we are also actively working on the development of our gram-positive, gram-negative and yeast blood culture panels to expand the menu on our VERIGENE II system.

As a reminder, VERIGENE II is Luminex next generation multiplex, fully automated sample-to-answer IVD system that builds on the success of the equivalent [Phonetic] VERIGENE system. It features expanded panels and fully integrated sample processor, reader and data analyzer. The unique flex capability of the system give us advantages in the current reimbursement environment and allow user to test and report only dead [Phonetic] pathogens of interest resulting in cost effective clinical relevant results. Lastly, in our MDx segment, we received FDA clearance for our ARIES MRSA Assay on September 25. This represent the eighth ARIES assay to be cleared globally and the seven in the US. As you likely know by now, the ARIES system is a sample-to-answer real time instrument that can run both IVD and lab development tests. Designed to increase laboratory efficiency and show result accuracy and fit seemingly into the modern laboratory, the ARIES system improves the laboratory workflow while ensuring rapid actionable patient results. Luminex today remains the only company offering both targeted and syndromic testing for its customers. In our life sciences businesses, we have previously communicated our plans to introduce a next generation xMAP platform to the market in the second half of 2020. This new system is the next generation of Luminex multiplex bead-based reader, it leverage our market-leading xMAP technology, which is supported by more than 16,000 system shipped over the last 20 years.

We are excited to launch a modern compact instrument that offer enhanced performance, supports the complete xMAP same menu, this -- with backward compatibility and introduce new and exciting features such as the second reporter channel to SPARC Research Innovation. We are making solid progress in meeting development milestone and have received positive feedback from our partners. We are involving partner in the development process to ensure that the product we bring to the market will meet the needs of their customers while as a backbone of our businesses.

We are also excited about our Flow Cytometry pipeline with expected launches of both Guava next generation and CellStream Flow early next year. We are focusing results on the ImageStream, which is a completely differentiated technology with no current competition. Our technology images cells in flow allowing visual validation of scientific claims and producing statistically relevant imaging results with an ability to see rare population that other imaging technologies cannot. In term of our expectation of our businesses, we continue to expect within the next four years to five years, we will grow Luminex to more than $500 million in annual revenue with gross margin around 60% and operating margin near 20%. All the revenue growth contemplated together is organic, with any future acquisition opportunity being incremental to this figures.

We expect our molecular franchise both automated and non-automated to grow around 15% to 20%, our acquisition business to grow in the high single-digit and our Flow Cytometry businesses to grow in the low double digits.

This revenue growth coupled with margin expansion resulting from economy of scale within manufacturing should provide the expected level of gross margin and continued strong control of our OpEx, including our R&D spending will allow us to increase our operating margin to our projected level. Now Harriss will review the financial data and afterwards, I will return with some final thoughts.

Harriss T. Currie -- President and Chief Executive Officer

Thanks, Homi. As Homi mentioned, consolidated revenue for the third quarter was $78.7 million, up approximately 9% for the quarter, while absorbing the decline in LabCorp revenues of approximately $7 million. This reflects the addition of our new Flow Cytometry business, which contributed $8.7 million for the quarter.

Flow Cytometry revenue for the third quarter did fall short of our expectations and as Homi mentioned, this is the primary driver to our missed revenue guidance for the quarter. However, on a year-to-date basis, the Flow Cytometry business is on track with our full year expectations with over 10% growth in revenue over the revenue reported in the Merck financials on a year-to-date basis last year. We still expect the flow revenue to meet our $45 million target for the year which maintains our growth rate above 10%. Our LTG revenue stream was $38.7 million representing a 7% growth over the prior year quarter mainly driven by growth in both consumable and royalty revenues.

Our total molecular diagnostic revenue stream, which includes both automated and non-automated products was up 6% excluding the impact of LabCorp reduction in the current quarter, but the comparable was down 15% for the quarter with the LabCorp results reflected. We had another strong quarter with our sample-to-answer portfolio, which increased 27% over the prior year quarter.

The annual utilization rate per customer for our VERIGENE products increased 16% to approximately 121,000 per annum from the prior year and for our ARIES product line, the annual utilization rate remain roughly flat to the prior year quarter at approximately 55,000 per year.

We placed 31 additional sample-to-answer systems under contract in the quarter, liked by our own standards, but which as discussed previously continues to support growth in future assay revenue. Interestingly, in the first two weeks of the fourth quarter, we closed contracts on almost 20 additional systems.

We expect to finish the year with a total of approximately 200 additional systems under contract. Turning to our revenue line items, system revenue grew 52% in the third quarter of 2019 as compared to the prior year driven by the acquisition of the Flow Cytometry business. Remember that the flow revenues are 90% plus system revenue and service. During the quarter, we placed 255 multiplex systems, not including ARIES and VERIGENE systems compared to 284 in the prior year quarter.

Current quarter placements were within our previously communicated expectations of 225 to 275 multiplex systems per quarter. Consumable revenue increased 15% from the prior year quarter, driven primarily by higher bulk purchases from some of our large partners. Royalty revenue grew 8% for the quarter.

As a reminder, total royalty revenue includes the base royalties coupled with audit findings, self-reported shortfalls and accrual adjustments. Base end user sales reported by our partners were up more than 10% for the quarter to $149 million. Similar to our molecular diagnostics revenue stream, assay revenue decreased 13% in the third quarter, primarily driven by the expected departure of LabCorp revenues, which declined $6.9 million from the prior year quarter.

Excluding this impact, assay revenue grew approximately 11% over the prior year and included a small amount of flow reagents as well. Now turning to the income statements. Gross margin for the quarter was 53% lower by 8 percentage points from the third quarter of 2018.

This decline was primarily driven by the $6.9 million reduction in LabCorp assay sales and a change in sales mix weighted toward -- weighted heavier toward lower gross margin items. Excluding the amortization of intangibles, OpEx was up $6.4 million or 17% relative to the prior year and included approximately $6.5 million of Flow Cytometry related expenses not present in the prior year figures. We incurred an operating loss of $5.7 million, primarily due to the aforementioned gross margin compression and the operating expenses from the flow addition.

Our effective tax rate for the third quarter of 2019 was a benefit of 8% reflecting the projected taxable losses in the US in the third quarter of 2019. This compares to the prior year effective tax rate of 54%, which included impacts from the Tax Act provisions for the US federal taxation of foreign intangible income and our mix of earnings in the US and Canadian jurisdictions. Absent significant discrete items, we expect our consolidated full-year effective tax rate to be 10% to 20%, which incorporates adjustments to the one-time impacts of the US tax reform in the current quarter and adjustments to our overall tax expectations based on jurisdictional distribution of revenues and expenses. We continue to assess our business model and its impact in various tax jurisdictions. Our balance sheet remains strong with over $66 million in cash and investments after absorbing the recent purchase of the Flow Cytometry business. During the quarter, we generated $9.4 million in cash from operations, incurred capital expenditures of $5 million and paid dividends of $2.7 million.

This continued generation of cash in the face of modest losses is a great indicator of the residual strengths of -- strength of our business after LabCorp and shows our business models' capacity to adapt and to continue to fund operations on an organic basis. And finally, some visibility into how we expect to finish the year. As we've indicated in our press release, we are adjusting our full year expectations to a range of between $334 million and $337 million. For some additional clarification into our adjustment, please consider that at the midpoint of our previous range of $340 million, we contemplated a more robust flu season of which we have seen little impact so far relative to initial expectations.

As a reminder, in the first half of this year at the end of the 2018-'19 season, we saw reduced volume of respiratory presentations. In the current season, we're seeing slight elevation compared with last year. We also took into account a slightly higher rate of growth within Flow Cytometry those validated by our first half success which was growing in an excess of 30%. All these factors have been incorporated into our modified range with an obvious narrowing as we approach the end of the year.

With respect to our particular revenue streams, currently for 2019, we expect more strength in our LTG than initially contemplated. And where in prior calls, we've called for total LTG revenues to be slightly down. We now believe that we could benefit from LTG revenues coming in flat to slightly up.

Secondly, and as we've mentioned previously, we expect our flow revenues to recover in the fourth quarter and to deliver approximately $45 million for the year, a growth rate in excess of 10% as initially expected. And with respect to our molecular revenue, we expect our sample-to-answer revenue to be up in the mid-20s for the full year, but obviously when LabCorp revenue is factored into consolidated molecular revenue, we expect total molecular revenue to be down in the mid teens.

One important factor to keep in mind is that we've experienced a lower than average respiratory season. The strength of the respiratory season and how it presents in the fourth quarter is the primary factor in how we might move from the bottom to the top of our range. With respect to profitability, we anticipate that when we deliver on the significant revenue growth anticipated in the fourth quarter relative to the third quarter that we could be breakeven or better with continued control of our overall expense position.

Now, I'd like to turn it back over to Homi for some final comments.

Nachum Homi Shamir -- President and Chief Executive Officer

Thanks, Harriss. As we said at the beginning of this year, 2019 was going to be a transition year for Luminex. We have all the majority of the financial impact associated with LabCorp departure, which has impacted our revenue growth and our bottom line and cash flow this year.

However, as a Company, I'm proud to say that we have weathered the storm and are entering a new and transformative era for Luminex which much stronger, diversified company that will be offering exciting opportunities and new platform across each of our product lines. In fact, next year will be the first time in Luminex's history, where we are launching three exciting new platform across all of our portfolio. And I'm personally very excited for what is going to be happening here at Luminex over 2020 and beyond. This end our formal comments. Operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Sung Ji Nam from BTIG. Please go ahead. Sung Ji, your line is open.

Sung Ji Nam -- BTIG. -- Analyst

Hi. Sorry about that. Thanks for taking the questions. I'm juggling multiple calls here. So apologies if I miss this, but going back to your sample-to-answer molecular platform for the quarter and for the year, I think, just curious, are you still expecting roughly $100 million run rate exiting the year or is that, has that been now revised given the -- your expectations for a lighter flu season.

Harriss T. Currie -- President and Chief Executive Officer

Yes. So Sung Ji certainly, let me actually start off by by apologizing to everybody on the call. Our press release, actually got out on the wire about 15 minutes early before market close and we're working with our provider to determine exactly what happened. So I want to -- I want to number one, apologize, everybody. Now to turn back to your question, is it? Yes, the $100 million run rate obviously contemplated what I'll call a normal flu season. As of right now, we're hardly seeing anything. We're hearing bits and pieces of people seeing modest upticks in different regions around the country, but to be honest with you. We're -- here in the United States, anyway, we're just not seeing much and as a result that number certainly could be lower than the $25 million that we projected in the fourth quarter, possibly $21 million, $22 million.

Nachum Homi Shamir -- President and Chief Executive Officer

Yes. Sung ji, when we set up this target, we set it up about 2.5 years ago. And I believe the first couple of year, we grow the business very nicely in the range of over 30% something year-over-year. Earlier when we came, this year, as Harriss mentioned in his script, we did not enjoy a strong respiratory season in the beginning of the year neither we have seen any, so far we have seen it slightly elevated compared to last year, but it's not justify the why or the reason why we are going to be in the $25 million for the quarter.

And that's really the main reason to us to adjust guidance for the year because we have been impacted by that. I hope that answer the question.

Sung Ji Nam -- BTIG. -- Analyst

Yes, it does. Thank you. Could you also maybe talk about was there any impact -- potential impacts from given that your VERIGENE II is launching very soon. Was there any impact from that in terms of your potential customer is delaying their purchasing decisions.

Harriss T. Currie -- President and Chief Executive Officer

Yes, actually not. I actually indicated in my comments, that for the quarter, we placed just over 30 systems and while by our standards that we placed another 15 systems or so in the first half of the or the first -- yeah the first half of October. As of today, we've almost matched what we placed in the prior quarter only a month into the quarter. So -- so your worry is that we're cannibalizing sales or people are waiting to buy VERIGENE II because we -- because we filed and they're waiting. They're not waiting. They actually continue to sign up customers and we -- continue to see success there.

Nachum Homi Shamir -- President and Chief Executive Officer

Yes. I may also, just to remind all of you, when we are saying that we place, when we say place, is contracted. It mean somebody they are paying for there to somebody is committed to basically a leasehold, reagent agreement for many use. And actually, we believe will be very close to 200 system. Similar to the number contracted last year. So the business in this respect going well. I'm also expecting that maybe we get some order before the end of the year for the international markets for the VERIGENE II, but again I don't think, that's a big impact to our number.

Sung Ji Nam -- BTIG. -- Analyst

Okay, great. And then lastly from me, just on your gross margins in the quarter, if I remember correctly, I believe you guys guided to slight sequential increase this quarter versus last quarter. And then given a lot of the shortfall. I think, the second portion of the shortfall is due to the Flow Cytometry business. I was curious as to what was the kind of the driver of the lower than expected gross margin performance? Thank you.

Harriss T. Currie -- President and Chief Executive Officer

Yeah, if you look at the components of gross margin and you look at the concentration of system revenue. And the additional concentration of the incremental concentration of assay revenue, of which the majority of that is sample-to-answer revenue that all three of those carry gross margins that are significantly less than where we fall, it becomes a mix challenge for us. So as sample-to-answer increases, until sample-to-answer revenues, which are the fastest growing component of all of our revenues get up to the level in the aggregate both ARIES and VERIGENE combined, where we sit today increase there faster than any place else is going to create a modest drag on margins that are being offset by economies of scale as we grow. So it's sort of a push as they grow. But as they increase in concentration, it just -- the math pulls the margins down a little bit. We're not worried where they think they're going to be. We think we have plenty of opportunity to increase margins both in our sample-to-answer revenues but also within flow.

And also, to be honest within LTG, in some of the systems we're producing and with the launch of SENSIPLEX, we have opportunities to launch a system that should carry significantly better margins in the multiplex systems that we offer today.

So overall, I think you would expect, as Homi mentioned in his five year targets, you'd expect to see gross margins moving incrementing toward that 60% level and beyond. Does that help?

Sung Ji Nam -- BTIG. -- Analyst

Yes, thank you, so much.

Harriss T. Currie -- President and Chief Executive Officer

You bet.

Operator

Thank you. Our next question comes from Brian Weinstein from William Blair. Please go ahead.

Brian Weinstein -- William Blair -- Analyst

Hey guys, just to clarify a couple of the gross margin questions that were just asked. So where are you guys right now as it relates to sample-to-answer and flow on gross margins and I recognize what you said on SENSIPLEX could carry higher gross margins, but Homi, you and I had a discussion about VERIGENE II and the impact of that could potentially have as well. So can you give us an idea when that products launched, what that gross margin trajectory would look like as well? Thanks.

Nachum Homi Shamir -- President and Chief Executive Officer

Yes, so let me start now and, Homi talk to you little bit about SENSIPLEX. So our aggregate flow margins are less than our reported margins today that are in the mid to low-50s. So our flow margins are down in the 40s. We're working those up. But there is a high concentration of equipment, as you know in most businesses that are equipment heavy gross margins aren't typically as high as where there is a significant consumable stream behind them and what we've committed to finding ways to find a recurring revenue stream there and drive those margins up.

In our sample-to-answer portfolio, is still start-up business like and those margins, although they do continue to increment upwards in the aggregate, ARIES and VERIGENE margins added together are also down in the low 40s. And so as a result, the significant concentration of those margins coupled with the aggregate system margins on our xMAP systems. When you add all those up, the math ends up getting you at a margins that fall where we are today, but with opportunities absent mix shifts to continue to improve on those as the volumes increase across each of those portfolios. Does that help?

Brian Weinstein -- William Blair -- Analyst

Yes, it does and, Homi, if you could talk a little bit about the opportunity with the VERIGENE II and the SENSIPLEX and what those potentially will look like from a margin standpoint when you launch them and what the trajectory of those could look like as well?

Nachum Homi Shamir -- President and Chief Executive Officer

Yes, obviously with VERIGENE II, there is less component of plus the less packaging etc. So we believe that the margin will have more than couple of points compared to the VERIGENE I. And when Harriss mentioned that we are in the total sample-to-answer around the 40s, obviously VERIGENE I is a little bit above that, where we have pulled down a little bit is in the ARIES.

But nevertheless, we think with the VERIGENE II, we will gain more than couple of points in the gross margin. However, initial launch, it's all about volume. And as you know, we will have to one, initially two lines, we will have to continue to support VERIGENE I as well as launching VERIGENE II. So I expect next year, we will be kind of remaining in this kind of the similar gross margin.

But when the volume on VERIGENE II will start exceeding VERIGENE I, then we'll see a significant improvement in the gross margin. Now SENSIPLEX and again, we are hoping, and I think hoping because we have not really released the prices to our partner, but we are taking an approach that the gross margin should be higher compared to what we are doing in the LX200 and FM3-D, which are the equivalent kind of technology we are planning to do a -- launch it into the sale space. So yes, we are at least at this stage contemplating higher gross margin in those item. Also a quick word about the Flow Cytometry. So Flow Cytometry business is if you look at the equipment is divided almost equally between ImageStream which carry actually a fairly large gross margin over 60%. Those units have been sold between $0.25 million to $0.5 million and they carry very hefty gross margin. The lower end of that which is more the Guava, the Muse carry a lower gross margin.

So it's again depending on the mix of the product and etc. For our overall benefit if we continue to the trend that we had actually almost in the last two quarter -- last two years, the royalties continue to grow nicely to us and all of them. I think in the last two years, at least in average they grew 5% to 7% on annual basis, and I think that our royalty will reach well over the 50s this year. That's also helping in the gross margin.

So overall, I think as I said in our -- my opening remarks, I think the storm is behind us. And we are coming now to a much quieter water and I think, we are just from here, just moving forward almost to the promise land.

Brian Weinstein -- William Blair -- Analyst

I like the analogy there.

Nachum Homi Shamir -- President and Chief Executive Officer

Yeah, you got it.

Brian Weinstein -- William Blair -- Analyst

And then as a follow-up. I just want to make sure I heard your comment appropriately, you obviously talked about the respiratory season. I hear you there. But did you say that even the flow business was maybe a little bit lower or little bit lighter than what you guys had initially potentially expected based on what you would seen early on.

Can you -- first, did I hear that comment, right. And if I did just what some of those variances might be relative to what your initial expectations were. Thanks, guys.

Harriss T. Currie -- President and Chief Executive Officer

Yes. So, Brian. The way to -- let me give you a way to -- another way to think about it, is it at the midpoint of our range. Our expectations for flow obviously were a range as are the ranges that we provide. At the midpoint of our range, our expectations were that flow would produce a little more than the $45 million that we've talked about, obviously the top end that would have been higher.

At the bottom end, it would been a lot closer to almost exactly $45 million. So as we adjusted our range. We had to number one, pull that out, but the strength of the flow business remains. Our ability to manufacture there remains. The primary contributor to the low number in the third quarter was purely around order timing and our expectation as Homi said was to rebound back into the fourth quarter back up to that $12 million or so level, which is where we were in the prior two quarters. So I don't know, I will let, if Homi has anything to -- OK. So that's really it. I think that's what's going on there in flow.

The business is strong. It's healthy. The sales force is engaged. The customers want what we have to offer. The image-based flow cytometers are being sold well and carry high margins and overall, it continues to be a good business for us.

Brian Weinstein -- William Blair -- Analyst

That's a good clarification. Thank you, guys.

Harriss T. Currie -- President and Chief Executive Officer

You bet.

Nachum Homi Shamir -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Tycho Peterson from JP Morgan. Please go ahead.

Julia -- JPMorgan -- Analyst

Hi, thanks. This is Julia [Phonetic] on for Tycho. So maybe just to hone in on margins a little bit. At least last quarter, you had Flow Cytometry gross margin of 43% and this quarter, you were expecting an improvement because you basically, you know, ran through the inventory, the inventory headwind, so I just wondering why you're seeing a deterioration in the gross margin there contrary to prior expectations. And has there been any pricing deterioration on the product front outside of the mix dynamics that you talked about. And also on VERIGENE, I believe several quarters ago, you actually cut out [ Phonetic] the gross margin improvement there to be above 50% already and obviously now with margins at low 40s as you talked about just wondering, has there been any sort of pricing deterioration on the VERIGENE front as well.

Harriss T. Currie -- President and Chief Executive Officer

Yes, so let me help you understand. Let's start with VERIGENE first. So what I said or the aggregate sample-to-answer margins were in the low 40s that includes VERIGENE that's well below 40% and -- I'm sorry VERIGENE that's above 40% and ARIES that's well below 40%. You average out, you bring those two together and you end up with aggregate flow. I'm sorry, VERIGENE II gross margins that are just above 40%. With respect to flow, flow margins actually incremented up in the current quarter. They actually improved. But what they didn't do is improve up to the level where our gross margins were for the quarter. So as a result, you end up with a downward pull and averaging down if you will, mathematically that pulls the aggregate margin down as both sample-to-answer and flow are higher contributors to the total revenue mix than they've been historically, does that help.

Julia -- JPMorgan -- Analyst

Okay, got it. And then regarding the sample-to-answer placement the 31 systems. Are you seeing any sort of changes in the mix of areas versus VERIGENE and as we sort of look at the placements sort of cadence, obviously this year will continue to see a trend down versus last year. So just, I mean we appreciate that you talked about the placement so far in 4Q. But just wondering, in general, are you seeing any changes in the competitive dynamics, are you changing any -- seeing any changes in your win rate.

And as we look at VERIGENE II, are you still targeting a multiplex launch, once you have all the panels sort of approved. And now that you're targeting the RP panel approval by year-end. It does look like you will miss most of the flu season and meanwhile, your new competitor -- entrants out there RP approval early --

Harriss T. Currie -- President and Chief Executive Officer

So, Julia, hang on, hang on, let me stop you. Let us, let us answer the, this is a really long complicated question obviously. So let's, let's, let me, let Homi answer the first one and then you ask the second half of your question. We'll start off with a new question.

Nachum Homi Shamir -- President and Chief Executive Officer

Yes, couple of things. First, as I said earlier, we anticipating this year to have a similar system under contract, as last year. So we have not seen a competitive and I've seen the Solvay, you saying about, one of our competitor recently, but no, we have not seen any, any change in the dynamic, in the market, neither the mix. Okay.

And actually, we are very, very surprised about it, because our VERIGENE I is as we said, it's not a fully automated system, like some of our competitor and we believe with the VERIGENE II, as a matter of fact we can gain even a market share, because it's a fully competitive -- fully competitive system and capable of running flex pricing as I said.

Secondly, it wasn't clear to me what you ask about the FDA, we submitted recently to the FDA, our GI panel and we are planning to submit to the FDA before the end of the year, the respiratory. As you know, the FDA taking at least 90 days to review it. So we are not planning to have respiratory to before the end of this year. At the latest, it can be, it can be by the end of the first quarter of 2020.

We are obviously also open to receive before the respiratory, the GI panel that we just submit late last month.

Julia -- JPMorgan -- Analyst

Got it, got it. The second part of my question was actually related to that. So I mean, given the new entrant, your competitor, they had their RP panel approved early this year, how concerned are you with your competitor front running you for placement during the upcoming flu season.

Nachum Homi Shamir -- President and Chief Executive Officer

I mean, so far we continue to perform very well in this that we deliver a 27% growth. So I'm not seeing any different in this environment. We know our main competitor, but I think, we have a big advantage compared to them with our pricing and flex pricing. And you know this business, as I said almost grow 30% plus year-over-year in the last three years. And so it will continue to be there and we believe actually the VERIGENE II will be a fully automated system with a full flex capability in pricing will continue to gain market share.

So that's the only thing I can say, Julia

Julia -- JPMorgan -- Analyst

Got it. Thank you.

Nachum Homi Shamir -- President and Chief Executive Officer

Thank you.

Harriss T. Currie -- President and Chief Executive Officer

You bet.

Operator

[Operator Instructions] Our next question comes from Brandon Couillard from Jefferies. Please go ahead.

Brandon Couillard -- Jefferies. -- Analyst

Hey, thanks, good afternoon,

Harriss T. Currie -- President and Chief Executive Officer

Hey, Brandon

Brandon Couillard -- Jefferies. -- Analyst

A couple of clarifications on the fourth quarter guide, Harriss, if you would. Are you assuming that all $3 million of that flow order that was pushed out it, gets recaptured in the fourth quarter. Can you give us a little more color on whether that's just a couple of imaging instruments or a handful of Guava systems. Number two, just confirm, the LabCorp headwind. I think it was maybe another $4 million in the fourth quarter. And then thirdly, are you assuming what seems to suggest about 70 sample-to-answer placements in the fourth quarter.

Harriss T. Currie -- President and Chief Executive Officer

Yes, so let me help you with a couple of things. Number one, the question you're asking is, how do you get from $78.7 million up to to $88 million or above to deliver into our guidance range. And the answer there is number one, our expectations are that flow shifts from the high $8 million up to $12 million [Phonetic] plus in the quarter and it wasn't a delay of an order because remember, there is lots of orders that go into a $3 million plus number. It's the timing of the closing of orders that we can then manufacturer and fulfill given that everything with us is pretty much manufactured on an ordered basis. So custom manufacturing because the system configurations, are very different.

So -- so we can pre-build a lot but not everything. And so as a result, because of the time it takes from initial engagement of a customer to close, which can be six months, nine months , 12 months. The timing of when you finally close an order can vary. We found ourselves in the third quarter this year or, because we've accelerated or sped up our manufacturing process. Yes, we could deliver faster but our backlog coming into the quarter obviously was reduced a little bit and the orders we had to fulfill were a little lower than expected, but that's all filled back up.

So now the expectations are we move back up to $12 million. So we get $3 million or $4 million of the $10 million growth that we're talking about. The balance of that comes from growth in the molecular diagnostics portfolio from both flu revenues and incremental contracted systems that we've talked about that we said many times. There seems to be a little confusion here between a placement and a contracted system, but last quarter, we placed 31 contracted systems which were systems that were part of a contract with committed reagent utilization over the next three year to five years.

We also sold some systems too. Don't get me wrong, we placed more than 31 systems. We just haven't talked about about those in the aggregate, because we're primarily concerned of the contract. I think it was those -- there's what I'll call guaranteed recurring revenue there. In the first two weeks of this quarter we placed -- now we closed another 15 systems in the first month of this quarter, we were almost at 30 systems.

Nachum Homi Shamir -- President and Chief Executive Officer

Yes. But then, the idea is, you're right about your number. We are targeting to be about 70 system under contract for the quarter. And that's what's going to bring us there, Brandon.

Brandon Couillard -- Jefferies. -- Analyst

Okay, thanks. And then just one for you, Homi, understand you may not be in a position to really talk too openly about guidance for next year, but you had kind of talked about maybe a double-digit revenue growth number next year given all the new product flow. You still think that's viable at this point as the LabCorp headwinds kind of anniversary next year.

Nachum Homi Shamir -- President and Chief Executive Officer

Yes. Organically, yes, we are targeting to be in the low, the low-double digit organically, but we have to remember, we still have some small impact of LabCorp for next year that can be between 2% to 3%. But overall, yes, we also planning concerning OpEx to hold the OpEx under similar level if 2019 of 2020.

So we will hold the OpEx. So our idea is that next year, we will have a strong organic growth, as I said earlier in my -- that we start improving our operating profit by basically holding OpEx and generating more revenue. And hopefully, we'll start seeing also a trend with the gross margin climbing 1 point or 2 points mainly because of efficiency, more volume and as I said, there maybe, we will be getting more royalty coming to the mix, a better improvement in the margin and especially if you start seeing margin coming out of the VERIGENE II system that Brian asked before. So all of that -- so I really feeling very good that the -- really the -- that LabCorp departure and what its created to a company, relative small company when you have somebody with a $50 million revenue departing with such high gross margin, we survive it very nicely.

And I feeling really good that we now are really for Q4 even this year, we are assessing now to as the new Luminex with all the new product line coming and etc, there is no reason why we should not start seeing all those improvement helping us with the top, bottom line, and gross margin.

So and cash flow, obviously.

Brandon Couillard -- Jefferies. -- Analyst

Great, thank you.

Operator

Thank you. This concludes our Q&A session. At this time, I'd like to turn the call over to the President and CEO, Homi Shamir for closing remarks.

Nachum Homi Shamir -- President and Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Jeff Christensen -- Senior Director, Investor Relations

Nachum Homi Shamir -- President and Chief Executive Officer

Harriss T. Currie -- President and Chief Executive Officer

Sung Ji Nam -- BTIG. -- Analyst

Brian Weinstein -- William Blair -- Analyst

Julia -- JPMorgan -- Analyst

Brandon Couillard -- Jefferies. -- Analyst

More LMNX analysis

All earnings call transcripts

AlphaStreet Logo