What happened

Shares in Luminex Corporation (NASDAQ:LMNX) are trading 13.5% lower as of 3:05 p.m. EDT on Friday after the company announced the pricing of its offering of $260 million of 3% convertible senior notes due 2025.

So what

The conversion rate on the healthcare company's senior notes is 22.8918 shares of common stock per $1,000 principal amount of convertible notes, which is equivalent to an initial conversion price of $43.68 per share. The offering is expected to result in net proceeds of $218.3 million, after fees and costs associated with bond hedges and warrant transactions designed to potentially reduce dilution associated with converting the notes into equity.

A test tupe with a label that reads "Covid-19"

Image source: Getty Images.

Luminex is using $34.7 million of the proceeds to pay for its hedges and the remaining money will go to its balance sheet for general use. The additional financial flexibility should help it as it launches new diagnostic products and rapidly expands capacity to address growing demand for COVID-19 testing. Exiting March, cash and equivalents totaled just $43 million.

In the first quarter, demand for Luminex's systems and assays for testing were driven by healthcare providers attempting to rule out COVID-19. The company launched its COVID-19 assay in March, and it expects to increase capacity from its current 500,000 tests per month to 800,000 tests per month by June.

Now what

Dilutive offerings aren't something investors love to see, but convertible notes can result in more favorable interest expense than other forms of debt. Therefore, the initial negative reaction to the notes offering may prove temporary, especially given Luminex recently raised its full-year revenue guidance because of demand for COVID-19 testing. Management didn't say exactly how much it expects in sales this year, but it did forecast that revenue will eclipse the top end of its previous outlook for sales of $362 million. For comparison, its total revenue in 2019 was $334.6 million.

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