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Luminex Corp (DE) (NASDAQ:LMNX)
Q2 2020 Earnings Call
Aug 4, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Luminex Corporation's Second Quarter 2020 Earnings Conference Call. My name is Sarah, and I will be your coordinator for today. [Operator Instructions]. [Operator Instructions]. [Operator Instructions]

I would now like to turn the call over to Harriss Currie, Senior Vice President and Chief Financial Officer for opening remarks. Please proceed.

Harriss Currie -- Senior Vice President and Chief Financial Officer

Good afternoon, and thank you for joining us. With me today is Homi Shamir, our President and CEO. [Operator Instructions]. [Operator Instructions]. Certain statements made during the course of today's call may not be purely historical and consequently may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and the Company claims the protections provided by Section 21E of the Securities Exchange Act for such statements. These forward-looking statements speak only as of the date hereof and are based on our current beliefs and expectations and are subject to known or unknown risks and uncertainties, some of which are beyond the Company's control, that could cause actual results or plans to differ materially and adversely from those anticipated in the forward-looking statements.

Factors that could cause or contribute to such differences are detailed in our Form 10-K for the year ended December 31, and our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. We encourage you to review these documents, and we undertake no obligation to update these forward-looking statements. Also, certain non-GAAP financial measures as defined by SEC Regulation G maybe covered in this call. To the extent that any non-GAAP financial measures are covered, a presentation of and reconciliation to the most directly comparable GAAP financial measures will be included in our earnings release, which is available on our website in accordance with Regulation G.

I'll now turn the call over to our President and CEO, Homi Shamir.

Nachum Shamir -- President and Chief Executive Officer

Thanks, Harriss, and once again, welcome to our second quarter earnings call. Today, I would like to focus on the great strides we have made in improving our financial position, which has largely been driven by the expansion of our portfolio of products and production capacity for this products. To begin with, Luminex delivered another quarter of record revenue of almost $110 million, an expansion of gross margin to 64%, and improvement in both operating profit and record earnings that demonstrate the potential we have been speaking about for quarter one.

Total revenue grew by 32% with our Molecular Diagnostic revenue stream growing by more than 100%, largely driven by COVID-19-related tailwinds. Total Molecular Diagnostic sales for the quarter were approximately $65 million. In our Life Science and Clinical Tool, we have COVID-19-related headwinds that primarily impacted our flow cytometry business, but also slightly affected our LTG revenue stream. Gross margins improved by approximately 10% point to 64% as a result of economies of scale realized in manufacturing and favorable changes in our product mix.

And with operating expenses flat as expected, operating margin improved dramatically to 17% of revenue and net income improves significantly to more than $12 million, controlling our operating expenses and directing our efforts toward activity that make difference really paid off this quarter. In summary, our team exceptional effort and continued strong financial discipline allowed us to generate approximately $31 million in net cash. You will also recall that we issue convertible debt during the quarter, resulting in additional cash on our balance sheet of approximately $220 million. As a result, our total cash balance was nearly $292 million for the quarter.

We entered the quarter with an order book of approximately $29 million. The majority of this was associated with our sample-to-answer MDx product lines. Overall, from a financial perspective, we are in a great shape and looking forward to the opportunity to put this cash to use in a manner that benefits our shareholders. As you are aware, on June 26, we received a warning letter from the FDA, resulting from a previous inspection related primarily to our VERIGENE I SP instrument. We obviously took this warning letter seriously and provided our responses and additional data to the FDA within the allowed 15 working days.

As a reminder, the warning letter did not restrict the manufacturing, production or shipment of any of the company products, nor did it require the withdrawal of any products from the marketplace. However, we are taking specific field action to address certain issue addressed in the warning letter and are currently waiting for any further response or comments from the FDA. In terms of our portfolio, we have made a great stride in expanding the breadth of our offerings with our new Molecular Diagnostic tests for identifying individuals who are currently infected by COVID-19.

You will recall the EUA clearances we received for our first and second COVID test, NxTAG Extended Panel and our ARIES SARS-CoV-2 assay around the beginning of Q2, which seems like a lifetime ago, both of which contribute to our success in the quarter. As you probably saw, we recently received our third EUA for our xMAP serology assay. This clearance is particularly important for clinician and labs that need the sensitive high throughput option for identifying the presence of antibody in people who has been infected with SARS-CoV-2.

We are very excited about the opportunity for this COVID-19 specific antibody tests in the market. We also submitted our fourth assay to the FDA for EUA clearances a few weeks ago, a new NxTAG RPP plus SARS-CoV-2 consolidated panel. Finally, we continue to work on a number of products in our VERIGENE family. We recently submitted SARS-CoV-2 stand-alone assay on VERIGENE I and planning to submit soon for an EUA for VERIGENE II Respiratory assay with the SARS-CoV-2 target.

We are in the process of expanding our total manufacturing capacity of all MDx assay from approximately 1.8 million tests per quarter to approximately 3 million tests per quarter as a result of significant demand for our product to assist in addressing the COVID-19 pandemic. This work in progress is being done in order to meet the ongoing demand for COVID-19 diagnostic tests and should be completed by mid-August. For reference, we sold approximately 2 million MDx tests on all our platform in the second quarter, more than half, which were COVID-19 related products. This figure do not include our serology manufacturing capacity, which we are already scaling up in anticipation on customer demand.

Obviously, during this challenging time, one of our main area of focus is keeping our employees safe and healthy. We have taken a wide variety of steps to ensure the continued wellbeing of our employees while still developing manufacturing and selling our expanding portfolio of products. All of our employees are essential to helping to bring our lifesaving solution to the customer, who need them. And the entire Luminex team has done a phenomenal job of rising to the challenge.

With that, I would like to turn it over to Harriss to go deeper into the financial results and our guidance for the rest of the year.

Harriss Currie -- Senior Vice President and Chief Financial Officer

Thanks, Homi. As Homi mentioned, we had a record second quarter revenue and profitability again, led by significant revenue growth in our Molecular Diagnostics portfolio. We reported total revenue of $109.5 million, up 32% over the second quarter of 2019 with net income of $12.5 million, 11% of revenue or $0.27 a share, up approximately 350% over the second quarter of 2019. For quite a while, we've been referencing revenue levels beyond which profitability and cash flow would be sustainable with sufficient control of our operating expenses. We believe that this quarter's results demonstrate that promise.

Looking at the respective revenue streams, we reported that our Molecular Diagnostics revenue for the second quarter was $64.9 million more than double the prior year quarter, mainly driven by increased demand from the COVID-19 pandemic. Non-automated Molecular Diagnostics revenue was $34.8 million, up 150% over the second quarter of 2019, and sample-to-answer Molecular Diagnostics revenue was $30.1 million, up 64%. In contrast, the Clinical Tools and Life Science portion of our business continue to be adversely impacted by the COVID-19 pandemic in particular within our flow cytometry sales. Tools and Life Science revenue for the quarter was $42.6 million, down 15% versus the second quarter of 2019, with revenue and our Licensed Technology Group of $35.2 million, which was down 4% for the quarter in part due to the pandemic.

Flow cytometry revenue was $7.4 million, down 44% primarily due to lower system revenue resulting from our inability to access potential customers as well as customer sites where we need to install systems to recognize revenue, all of which was COVID related. As Homi discussed, we ended the quarter with an order book of approximately $29 million, the majority of which was COVID related. This includes both orders we were unable to provide by the end of the quarter and orders placed for future delivery. Prior to the onset of the COVID pandemic, our average order book entering the quarter was approximately $5 million.

Looking at our revenue line items, system revenue was down $3.1 million or 17% compared to the second quarter of 2019, primarily driven by the pressures in flow cytometry placements as a result of the pandemic. This decline was partially offset by increases in our Molecular Diagnostic system revenue in the current quarter where our capital sales increased nearly six fold. The majority of our MDx system placements are via reagent rental agreements and not through capital sales. We placed more than 160 Molecular Diagnostic systems in the quarter with less than half, but still a significant portion via capital sales. Consumable revenue was $11.3 million, down 11% for the quarter due to an aggregate decline in bulk purchases from our partners.

Royalty revenue was $12.1 million, down 6% for the quarter, primarily attributable to an expectation of lower aggregate royalties to be reported by our partners. Some of our partners reports on end-user sales have already indicated declines primarily due to COVID-19. As a reminder, total royalty revenue includes base royalties, coupled with audit findings, self-reported shortfalls and accrual adjustments. Total assay revenue was up 95% to $61.2 million with our combined respiratory-related products up more than 100% as a result of our contributions in helping the battle the coronavirus pandemic. In fact, our respiratory-related products comprised more than 70% of our total assay sales.

Service revenue was $5.5 million, down 8%, while other revenue was up more than 150% to $3.9 million which included approximately $643,000 of revenue from the second BARDA contract we received associated with the development of our ARIES SARS-CoV-2 assay. Gross margins rose 10% points to 64%, primarily reflecting the economies of scale realized from scaled up manufacturing and a favorable price mix. As we stated previously, our operating expenses were expected to be roughly flat with the prior year, and they were primarily driven by lower R&D expenses, which reflects reduced development and clinical trial activity in the current quarter. This reduction was partially offset by higher sales expenses related to our 32% growth in sales.

Our record revenue, expansion of gross margins and operating expense control all contributed to a significant improvement in operating profit, which grew by $24.5 million from the second quarter of 2019 to $18.8 million in the second quarter of 2020 or 17% of revenue. This is an amazing achievement given the addition of only $26 million of revenue over the second quarter of 2019. Our effective tax rate for the quarter ended June 30 was 22% as compared to a benefit of 17% in the prior year quarter, which included projected tax losses in the United States in the second quarter of 2019. Our effective tax rate is significantly affected by the distribution of profit and loss across our worldwide subsidiaries.

We currently expect our consolidated full-year effective tax rate to be approximately 25% compared to the 30% to 40% range estimated in the first quarter of 2020, a result of our ability to claim greater U.S. federal income tax benefits against our foreign sourced income. Cash and investments for the quarter were up nearly $249 million. This includes net cash proceeds of $217.6 million from the issuance of convertible debt in the second quarter and cash flow generation from operations of more than $31 million, while also absorbing the payment of dividends and capex purchases of $4.1 million and $4.2 million, respectively.

With respect to guidance, we'd like to provide some high-level metrics to consider when updating your models. The first is with respect to our full-year. We previously communicated expectations for full-year revenues to exceed the top-end of our initial guidance range of $352 million to $362 million. At midyear, we find ourselves 21% ahead of prior expectations for the first half of 2019, with the prospect of continued success, given the likely continuation of the COVID-19 pandemic. Two primary factors should be taken into account when thinking about the back half of the year. The first is tailwind associated with the pandemic primarily in our Molecular Diagnostics business, but also modestly in our partnership business. The second is a corresponding headwind affecting both our flow revenues and also our partners who operate in the academic research marketplace.

Given the COVID-19 remains with us, the positive results we've achieved so far this year, the related growth of our COVID-19-related portfolio and the relative weakness in other portions of our business associated with the virus, it remains difficult to provide specific guidance. However, we are updating our full-year expectations to be more than $415 million. As I mentioned at midyear, we are already 21% ahead of the first half of 2019, and this guidance assumes a modestly higher increase in our second half versus the prior year. With respect to the upcoming quarter, our expectations are to exceed $100 million in revenue. We anticipate continued strength in Molecular Diagnostics as our products continue to be a key component of our customer strategy to identify and treat COVID affected patients. Molecular Diagnostics revenue is forecasted to be up between 80% to 100% versus the third quarter of 2019.

This could be offset by continued weakness in our flow business as weaknesses in academic research and access to customers continue to present challenges, and additionally, slight weaknesses in our LTG revenues as a result of the same market factors. However, some of the weaknesses within our LTG franchise could be offset somewhat by success with our new serology product. As a reminder, the third quarter of every year is normally a trough in our annual revenues, so the expected slight decline from the second quarter of this year is not a surprise.

Finally, our gross margins are highly dependent upon product mix. Based on the current quarters mix, gross margins should drop slightly in the third quarter. However, operating expenses are expected to remain roughly flat for the rest of the year. Obviously, when we report our third quarter results sometime at the end of October or the first week in November, we'll provide further clarification on our full-year expectations.

With that, I'd like to turn it over to Homi for some final comments.

Nachum Shamir -- President and Chief Executive Officer

Thanks, Harriss. As we continue to navigate through this challenging time, I'm extremely pleased with the way our company has responded to the demands placed on us. We have significantly expanded our manufacturing capacity to meet the increased demand and anticipate further expansion as we continue to strive to meet the requirements of our customers, both existing and new. We have launched several new testing solutions directly targeting the current pandemic and anticipate launching several more in the near-term. At the same time, we continue to invest in and developing our core technologies, including our VERIGENE portfolio, our xMAP Technology and our flow cytometry offering.

We increased our sample-to-answer system installed base in Q2 with more than 160 systems that were either sold or contracted under reagent rental, and now has more than 280 additional revenue generating systems in the market since the beginning of this year. Our profitability has been significantly announced as our level of revenue growth through the profitability threshold that we have discussed previously, and we have demonstrated a strong ability to generate a substantial amount of cash as promised. We couldn't have done all of the -- on a final note, I want to quickly discuss the press release from earlier today, where we announced the retirement of our longtime Chairman, Wally Loewenbaum. On behalf of our Board, our shareholders, our employee, and especially for me personally, I would like to thank Wally for his invaluable service and contribution to Luminex for over 25 years.

Wally joined the Board when the company was very small, had no revenue and was operating out of a single location. He leaves a multinational company with over $400 million in expected annual revenue. Along the way, he has guided the company to many significant milestone and has helped me tremendously as our Chairman, as a mentor and as a friend. We wish him nothing, but the best in his retirement. In connection with Wally retirement, I will assume the responsibility of the Chairman of the Board. I'm pleased to announce that Dr. Ed Ogunro, who has been our Board member for the past 11 years, will assume the role of Lead Independent Director. Ed's contribution to our Board during his tenure has been invaluable. Dr. Ogunro is an accomplished executive in the diagnostic business, having held a number of leadership positions for more than 20 years at Abbott, and served as a Senior VP of R&D and Medical Affairs and Chief Scientific Officer of Hospira. I'm excited about the enhanced leadership position that Dr. Ogunro will hold going forward and believe we will work very well together to build further on the foundation that Wally left for us.

Operator, please open the line for question.

Questions and Answers:

Operator

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

Andrew -- William Blair -- Analyst

Hi, guys. Good afternoon. This is Andrew [Phonetic] on today. Thanks for taking the questions. First, maybe a modeling question as it relates to the third quarter guide. Can you give us a sense of what your assumption is for COVID-19 assay revenue in the third quarter? And I guess along with that, can you also give us some color on sort of the buildup to that with respect to your manufacturing capacity? And I know you've referenced some additional adds to that footprint throughout the quarter. So I'm just trying to get a better sense of what's baked into that guidance?

Harriss Currie -- Senior Vice President and Chief Financial Officer

Sure. It's likely that the COVID-19 revenue remains roughly equivalent to where it was in the second quarter. But the respiratory contribution as we leave the 2019, 2020 flu season and move toward the 2021 flu season, is expected to drop a little bit. So what we'll end up with is an aggregate modest decline in overall Molecular Diagnostic revenue, most likely. We mentioned the potential weakness in the -- or headwinds in the partnership business associated with COVID-related activities. And then as we move into the fourth quarter, obviously, you expect the respiratory season to come back and some of that other -- some of the other strengths to remanifest themselves as we move forward.

Andrew -- William Blair -- Analyst

Okay. Thanks for that color. And then I guess maybe on the demand side of things for the COVID-19 opportunities. Any additional color that you can provide on sort of the underlying demand for those molecular products as you've seen, as we've moved here throughout the summer months, is that sort of accelerating or coming down a bit?

Harriss Currie -- Senior Vice President and Chief Financial Officer

Yes. So let me answer part of this and I'll let Homi jump in, too. Currently, we can pretty much sell everything we can make. So the demand for us is significant and as we've expanded our manufacturing capacity, we have been able to sell that capacity as well.

Nachum Shamir -- President and Chief Executive Officer

Yes. I mean, Harriss is absolutely right, and that's why we introduced during the call that we have an order book of $29 million majority of Molecular Diagnostic that carry us from Q2 to Q3. Just think about that that's alone, almost half of what we delivered in Molecular Diagnostic during the second quarter. The second quarter was like $60-something million on Molecular Diagnostic. So we still have a very strong demand for our products. We all think that manufacturing will ramp up.

We all think that eventually there is manufacturing line that is in overcapacity here, we will be able to upgrade it before the end of the year. We order more automation, molding and etc, so somewhere by the mid of the Q4 it will be in operation. So that will give us excellent capacity. And obviously, we are looking at the VERIGENE line to get EUA approval on those. So there's a lot of things still on the pipelines to revamp production.

Andrew -- William Blair -- Analyst

Got it. Okay. And then, I guess, last one for me. As it relates to those VERIGENE products that you just referenced, anything you can give us on timing expectations for those? I know that you submitted the VERIGENE I assay, but how should we be thinking about timing for the VERIGENE II U.S.? Thanks.

Nachum Shamir -- President and Chief Executive Officer

It's going to be during the summer. The next, hopefully, before the end of the summer, FDA will have VERIGENE II as a full panel from us, a full multiplexing panel.

Andrew -- William Blair -- Analyst

Got it. Okay. Thanks guys.

Harriss Currie -- Senior Vice President and Chief Financial Officer

You bet.

Operator

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

Brandon Couillard -- Jefferies -- Analyst

Thanks. Good afternoon. Harriss, just on the second half revenue outlook. I just want to confirm, have you embedded any new EUA approvals like the multiplex panel or serology, any other stuff that's in the pipeline and pending some regulatory approval in that outlook, or would that be on top of the second half?

Nachum Shamir -- President and Chief Executive Officer

It will be on top. Because, again, we are not in control also with the FDA approval. The only thing we know that, for example, the one that we submitted three weeks ago, the NxTAG RPP combine, it's going to replace either the NxTAG RPP or NxTAG COVID-19, so we combine here. But we have not baked into our numbers, the VERIGENE I or the VERIGENE II.

When we get it, we'll take it to the market. And then as Harriss said, we might eventually when we come with our Q3 result, have to move the guidance further. But Brandon, as you know, we are operating from day-to-day. So we have to digest it when we get it. But definitely we are gearing Chicago to launch those products. And just to remind you, during Q1 and Q2, Chicago was very active in VERIGENE I respiratory solution.

Harriss Currie -- Senior Vice President and Chief Financial Officer

Another way to think about it, Brandon, is that because we didn't provide a guidance range, what we said was $415 million plus. So obviously, the additional new products is baked into that number because the plus is sort of infinity above that, right. So if those new products come at a faster rate than expected, then over exceeding that $415 million even further than we originally thought is possible.

At the base, no new products, modest demand and all the rest were at or above the -- at or modestly above the $415 million. But there's no range, so you have to -- unfortunately, it requires you to estimate a little more as to sort of how big it could be. But for us, we were most comfortable with that $415 million number given the second half, it's up 7.5% over the first half of the year of $215 million plus over $200 million first half.

Brandon Couillard -- Jefferies -- Analyst

Got it. Okay. And then for the 160, I think it's -- for molecular in the second quarter. How many of those were existing customers versus new accounts that maybe didn't have access to before? And then Harriss, do you have the utilization metrics for ARIES and VERIGENE in the second quarter?

Harriss Currie -- Senior Vice President and Chief Financial Officer

Yes. So most were new accounts, most were also reagent rentals. So the customers made long-term commitments to assay purchase rather than buying them in a panic for COVID-related activity. And then when COVID has gone, they turn them off. So the majority were all reagent rental agreements. And to be honest, you cut that number in half, it's equivalent to our prior single quarter numbers on reagent rental. We're actually ahead of that. So we're really comfortable with that.

The utilization rate for our ARIES systems because of COVID, there's a COVID component in here. If you recall, last quarter, we were in the -- I believe, it's about 50,000 -- a little over 50,000. This quarter, we're a little over 80,000, utilization per ordering customer. VERIGENE, you'll recall, was just over 130,000 for ordering customer. This time, we're just -- we're about flat with that number with VERIGENE. But VERIGENE, remember didn't have any COVID-related products. And as a result, VERIGENE utilization wasn't really affected by the COVID pandemic. It was all on ARIES and NxTAG.

Brandon Couillard -- Jefferies -- Analyst

Got it. Okay. Last one, just touch on how long are you thinking things to hold opex down and flat on a year-over-year basis even though you're growing topline double-digits. And is there something structural -- structurally favorable in terms of your cost structure in the new sort of, call it, reality in how you run the business.

Harriss Currie -- Senior Vice President and Chief Financial Officer

So fortunately for us, the large variations in our opex are dependent upon the conduct of clinical trials. And as we sell more revenue, obviously, salespeople earn more. So commissions go up, sales associated bonuses, those kinds of things. Obviously, there are step functions at which we need more accounting people to process the invoices. We need more quality people to process the incoming inventory and such. But most of the quality and inventory-related costs get absorbed and they run through COGS anyway. So what we find is that we have a great opportunity to tightly control opex and continue to generate significant levels of profit.

We haven't foregone any spending in the current quarter other than being able to travel like everybody on the planet has been with respect to COVID. So we're excited about where our opex is relative to the amount of revenue that opex can support. And we continue to make meaningful investments within R&D, so that product pipeline stays full. And the next wave of growth can be fueled by the next wave of products that comes out.

Nachum Shamir -- President and Chief Executive Officer

Yes. And we anticipate opex to remain the same in the level of exactly last year, about the $200 million. And I think it's really a tremendous effort from the organization to keep an expense report. As we said earlier in the year, we don't expect it to increase compared to 2019. And that's really the beauty in our model.

And we keep saying it and we said it earlier in the year, as our revenue grows and continue to grow year-over-year, our profitability is going to improve. And that's exactly what we are doing. And this was a demonstration during this quarter, and we are fairly confident that it's going to continue. As long as the revenue is growing, most of that will go to the bottom line, and we will hold the opex as around $200 million.

Brandon Couillard -- Jefferies -- Analyst

Great. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Tycho Peterson with JPMorgan. Your line is now open.

Eleni -- JPMorgan -- Analyst

Hi. This is Eleni [Phonetic] on for Tycho. Thanks for taking our questions. So first, I was wondering, in terms of the order book, you mentioned $29 million, most of which is COVID-related, just wondering sort of the burn rate on this order book? And how much of this you think you can convert to revenues in 3Q?

Harriss Currie -- Senior Vice President and Chief Financial Officer

So let me first tell you how to think about that order book. What that order book represents is both orders that we were unable to ship in the second quarter. But also a larger portion is orders that were placed, orders placed for future delivery. So what happens typically when you go into a quarter, we have maybe $5 million worth of orders that are placed for future delivery. We don't have any problem shipping. In the current quarter, obviously, I mentioned earlier that we were able to sell everything we can manufacture. So we had some backlog of orders that carry forward into the third quarter that we couldn't supply, but also a lot of other orders that were placed for future delivery.

So the likelihood is that three quarters of that $30 million will be monetized in the third quarter. And there's a small portion that are orders, for instance, that are placed for future delivery, like even out in the fourth quarter that we'll certainly be able to ship there. So we will be able to deliver everything on time for the times that are indicated in our system as of today. And so all of that will be monetized this year and the majority of it will be shipped and placed and revenue recognized in the current quarter. So effectively, we're a third of the way, almost a third of the way through the third quarter out of the gate.

Eleni -- JPMorgan -- Analyst

That's helpful. And then turning to the sample-to-answer system placements, you mentioned over 160, less than half are capital sales, which compares to 20% in the first quarter. Can you talk about sort of what's driving the higher proportion of capital sales, the improvement here and how to think about it heading into the back half of this year?

Analyst

What's driving the capital sales are participants in the COVID pandemic crisis having an immediate need for a solution and not wanting to make a long-term commitment to a technology. And as a result of the issues at these hospitals and clinics are presented with, with patients presenting and no means with which to conduct a test, they buy capital equipment, and so we see that. Obviously, they need a solution. Other manufacturers across the market are limited as well. You hear it every day. And so we all do the best we can to supply whatever we can to these customers.

And for us, we're just fortunate that a significant amount of our overall placements are done under reagent rentals. So not only are we making capital sale with short-term effects, short-term revenue with possibly a conversion to long-term as they realize the ease of use in the system and such. But we also have long-term commitments where people commit to reagent rental agreements for the next three to five years.

Nachum Shamir -- President and Chief Executive Officer

And also, we have seen also in the mix international, and normally international tend to buy compared to rental reagent. So that's also has been increasing the overall number of sales of system. But by the way, just to be upfront, we rather not selling, we rather rental reagent because it's helping our annuity business going forward. And since the beginning of the year, we have 280 systems, so that's tremendously for us.

Eleni -- JPMorgan -- Analyst

Great. That's helpful. And then lastly, can you talk about the xMAP INTELLIFLEX rollout and how it's been progressing relative to your expectations in particular given the COVID environment?

Nachum Shamir -- President and Chief Executive Officer

Yes, interesting question. We roll it out to two partners. They are in evaluation, which is Merck and Thermo Fisher, as well as we ship to couple of KOL, what we call the dual reporting system. We believe that dual reporting will be very instrumental in especially now during the COVID-19 in investigated vaccine, some of the people who are using vaccine are going to use it or some people in the pharma.

So we send it to a couple of those KOL as well. We just send it, and we are waiting to start getting some feedback from them. But again, it's rolling as we plan. And if you recall, we said in the beginning, actually, during your conference that this year, we just anticipate a modest sales for launch of those unit mainly because partners need to get geared to launch it in 2021. But I think what it will do is, especially if those KOL will be very excited about the dual reporting, that should give us actually more acceleration that originally was anticipated.

Eleni -- JPMorgan -- Analyst

Great. Thank you.

Harriss Currie -- Senior Vice President and Chief Financial Officer

You bet.

Operator

Thank you. We have no further questions in the queue at this time. I would now like to turn the call over to Homi Shamir for closing remarks.

Nachum Shamir -- President and Chief Executive Officer

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

Operator

[Operator Closing Remarks].

Duration: 43 minutes

Call participants:

Harriss Currie -- Senior Vice President and Chief Financial Officer

Nachum Shamir -- President and Chief Executive Officer

Andrew -- William Blair -- Analyst

Brandon Couillard -- Jefferies -- Analyst

Eleni -- JPMorgan -- Analyst

Analyst

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