10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2017
	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 number              000-30109

LUMINEX CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	72-2747608
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

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. Yes þ  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes þ  No o

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

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

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.   o

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes  o   No o

APPLICABLE ONLY TO CORPORATE ISSUERS

There were 44,071,126 shares of the Company’s Common Stock, par value $0.001 per share, outstanding on August 7, 2017.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	1
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016	2
Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2017 and 2016	3
Condensed Consolidated Statement of Changes in Stockholders' Equity for the three and six months ended June 30, 2017	4
Notes to Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	29
Item 1A. Risk Factors	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6. Exhibits	30
SIGNATURES AND EXHIBITS	31
Exhibit 10.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LUMINEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
	June 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	103,705		$	93,452
Accounts receivable, net	33,133			32,365
Inventories, net	47,095			40,775
Prepaids and other	8,208			7,145
Total current assets	192,141			173,737
Property and equipment, net	57,890			57,375
Intangible assets, net	80,318			84,841
Deferred income taxes	35,511			42,497
Goodwill	85,481			85,481
Other	7,611			6,785
Total assets	$	458,952		$	450,716
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	10,456		$	12,276
Accrued liabilities	18,327			22,804
Deferred revenue	4,933			5,120
Total current liabilities	33,716			40,200
Deferred revenue	1,720			1,875
Other	4,929			4,962
Total liabilities	40,365			47,037
Stockholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding: 43,264,509 shares at June 30, 2017; 42,802,480 shares at December 31, 2016	43			43
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding	—			—
Additional paid-in capital	341,290			336,430
Accumulated other comprehensive loss	(1,090		)	(1,692		)
Retained earnings	78,344			68,898
Total stockholders' equity	418,587			403,679
Total liabilities and stockholders' equity	$	458,952		$	450,716
See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

1

LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share amounts)
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Revenue	$	76,457		$	64,166		$	154,236		$	127,147
Cost of revenue	26,396			19,245			51,389			37,420
Gross profit	50,061			44,921			102,847			89,727
Operating expenses:
Research and development	12,260			11,543			24,680			22,562
Selling, general and administrative	28,153			24,190			52,150			44,549
Amortization of acquired intangible assets	2,166			1,688			4,523			3,315
Total operating expenses	42,579			37,421			81,353			70,426
Income from operations	7,482			7,500			21,494			19,301
Other income (expense), net	1			(1,446		)	(5		)	(1,425		)
Income before income taxes	7,483			6,054			21,489			17,876
Income taxes	(1,939		)	(401		)	(6,714		)	(3,453		)
Net income	$	5,544		$	5,653		$	14,775		$	14,423
Net income attributable to common stock holders
Basic	$	5,441		$	5,653		$	14,499		$	14,423
Diluted	5,441			5,653			14,499			14,423
Net income per share attributable to common stock holders
Basic	$	0.13		$	0.13		$	0.34		$	0.34
Diluted	$	0.13		$	0.13		$	0.34		$	0.34
Weighted-average shares used in computing net income per share
Basic	43,160			42,534			43,030			42,440
Diluted	43,259			42,575			43,128			42,440
Dividends declared per share	$	0.06		$	—		$	0.12		$	—
Other comprehensive income:
Foreign currency translation adjustments	339			(31		)	602			179
Unrealized gain (loss) on available-for-sale securities, net of tax	—			(7		)	—			38
Other comprehensive income (loss)	339			(38		)	602			217
Comprehensive income	$	5,883		$	5,615		$	15,377		$	14,640
See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

2

LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(unaudited)						(unaudited)
Cash flows from operating activities:
Net income	$	5,544		$	5,653		$	14,775		$	14,423
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,651			4,276			11,270			8,488
Stock-based compensation	4,026			3,475			4,748			4,655
Deferred income tax expense	4,332			(395		)	7,267			2,931
Loss on sale or disposal of assets	—			4			—			41
Other	478			(17		)	922			(71		)
Changes in operating assets and liabilities:
Accounts receivable, net	3,911			7,221			(758		)	6,673
Inventories, net	(3,417		)	(4,142		)	(6,304		)	(4,040		)
Other assets	(1,892		)	508			(1,197		)	672
Accounts payable	1,337			3,737			(2,369		)	2,724
Accrued liabilities	2,661			1,098			(7,411		)	(6,174		)
Deferred revenue	(547		)	(209		)	(350		)	621
Net cash provided by operating activities	22,084			21,209			20,593			30,943
Cash flows from investing activities:
Sales and maturities of available-for-sale securities	—			19,491			—			19,491
Purchase of property and equipment	(2,970		)	(2,871		)	(6,403		)	(5,719		)
Proceeds from sale of assets	—			3			—			3
Business acquisition consideration, net of cash acquired	—			(66,902		)	—			(66,902		)
Purchase of cost method investment	(500		)	—			(1,000		)	—
Acquired technology rights	—			—			—			(200		)
Net cash used in investing activities	(3,470		)	(50,279		)	(7,403		)	(53,327		)
Cash flows from financing activities:
Payments on debt	—			(25,000		)	—			(25,000		)
Proceeds from issuance of common stock	1,495			1,406			2,229			1,762
Shares surrendered for tax withholding	(40		)	(35		)	(2,096		)	(1,484		)
Dividends	(2,636		)	—			(2,636		)	—
Net cash provided by (used in) financing activities	(1,181		)	(23,629		)	(2,503		)	(24,722		)
Effect of foreign currency exchange rate on cash	(194		)	115			(434		)	278
Change in cash and cash equivalents	17,239			(52,584		)	10,253			(46,828		)
Cash and cash equivalents, beginning of period	86,466			134,302			93,452			128,546
Cash and cash equivalents, end of period	$	103,705		$	81,718		$	103,705		$	81,718
See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

3

LUMINEX CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands, except share data)
	Common Stock
	Number of Shares	Amount		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss)			Retained Earnings			Total Stockholders' Equity
Balance at December 31, 2016	42,802,480	$	43	$	336,430		$	(1,692	)	$	68,898		$	403,679
Exercise of stock options	45,396	—		733			—			—			733
Issuances of restricted stock, net of shares withheld for taxes	243,628	—		(2,056		)	—			—			(2,056		)
Stock compensation	—	—		679			—			—			679
Issuance of common shares under ESPP	—	—		—			—			—			—
Net income	—	—		—			—			9,231			9,231
Foreign currency translation adjustments	—	—		—			263			—			263
Dividends	—	—		—			—			(2,661		)	(2,661		)
Balance at March 31, 2017	43,091,504	$	43	$	335,786		$	(1,429	)	$	75,468		$	409,868
Exercise of stock options	41,648	—		684			—			—			684
Issuances of restricted stock, net of shares withheld for taxes	82,983	—		(39		)	—			—			(39		)
Stock compensation	—	—		4,022			—			—			4,022
Issuance of common shares under ESPP	48,374	—		813			—			—			813
Net income	—	—		—			—			5,544			5,544
Foreign currency translation adjustments	—	—		—			339			—			339
Dividends	—	—		24			—			(2,668		)	(2,644		)
Balance at June 30, 2017	43,264,509	$	43	$	341,290		$	(1,090	)	$	78,344		$	418,587
See the accompanying notes which are an integral part of these
Condensed Consolidated Financial Statements.

4

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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016 (the 2016 10-K).

NOTE 2 — INVESTMENTS

Marketable Securities

The Company determines the appropriate classification of its 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, 2017 and December 31, 2016, 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, 2017, the Company had no short or long term investments, since those funds were used to pay for a portion of the acquisition of Nanosphere, Inc. (Nanosphere).

Available-for-sale securities consisted of the following as of June 30, 2017 (in thousands):

	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

5

Available-for-sale securities consisted of the following as of December 31, 2016 (in thousands):

	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 the three and six months ended June 30, 2017. Realized gains and losses on sales of investments are determined using the specific identification method. Realized gains and losses are included in Other income, net in the Consolidated Statements of Comprehensive Income. All of the Company's available-for-sale securities with gross unrealized holding losses as of June 30, 2017 and December 31, 2016 had been in a loss position for less than 12 months.

There were no available-for-sale debt securities as of June 30, 2017 and December 31, 2016.

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 year ended December 31, 2016, and in the six months ended June 30, 2017, respectively, the Company made a $1.0 million minority interest investment (an aggregate of $2.0 million), in a private company based in the U.S. that is focused on development of 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 since the Company owns less than 20% of the voting equity in the investee and the investee is not publicly traded. 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.

The Company owns a minority interest in a second 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 the Company owns less than 20% of the voting equity in the investee and the investee is not publicly traded.

The Company regularly evaluates the carrying value of its cost-method 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 ability to remain in business, such as the 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 judged to be other-than-temporary, the Company will record an other-than-temporary impairment charge in Other income, net in the Consolidated Statements of Comprehensive Income. As the inputs utilized for the Company's periodic impairment assessment are not based on observable market data, the determination of fair value of this cost-method investment is classified within Level 3 of the fair value hierarchy. See Note 4 - Fair Value Measurement to our Condensed Consolidated Financial Statements for further discussion. To determine the fair value of this investment, 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, a cost-method investment's fair value is not estimated as there are no identified events or changes in the circumstances that may have a significant adverse effect on the fair value of the investment and to do so would be impractical.

6

NOTE 3 — 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):

	June 30, 2017		December 31, 2016
Parts and supplies	$	24,233	$	22,960
Work-in-progress	8,559		6,268
Finished goods	14,303		11,547
	$	47,095	$	40,775

NOTE 4 — FAIR VALUE MEASUREMENT

The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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 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.

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 three or six month period ended June 30, 2017.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 (in thousands):

	Fair Value Measurements as of June 30, 2017 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money Market funds	$	701	$	—	$	—	$	701

	Fair Value Measurements as of December 31, 2016 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money Market funds	$	701	$	—	$	—	$	701

7

NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is reviewed for impairment at least annually at the beginning of the fourth quarter, or more frequently if impairment indicators arise. The Company's goodwill is not expected to be deductible for tax purposes.

The changes in the carrying amount of the Company’s goodwill during the period are as follows (in thousands):

	June 30, 2017		December 31, 2016
Balance at beginning of year	$	85,481	$	49,619
Acquisition of Nanosphere	—		35,862
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
2016
Balance as of December 31, 2015	$	69,102		$	7,797		$	1,652		$	—	$	78,551
Acquisition of Nanosphere	12,283			11,300			4,012			12,982		40,577
Balance as of December 31, 2016	81,385			19,097			5,664			12,982		119,128
Less: accumulated amortization:
Accumulated amortization balance as of December 31, 2015	(21,646		)	(3,667		)	(756		)	—		(26,069		)
Amortization expense	(6,491		)	(1,371		)	(356		)	—		(8,218		)
Accumulated amortization balance as of December 31, 2016	(28,137		)	(5,038		)	(1,112		)	—		(34,287		)
Net balance as of December 31, 2016	$	53,248		$	14,059		$	4,552		$	12,982	$	84,841
Weighted average life (in years)	10			10			10
2017
Balance as of December 31, 2016	$	81,385		$	19,097		$	5,664		$	12,982	$	119,128
Balance as of June 30, 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	(3,234		)	(1,000		)	(289		)	—		(4,523		)
Accumulated amortization balance as of June 30, 2017	(31,371		)	(6,038		)	(1,401		)	—		(38,810		)
Net balance as of June 30, 2017	$	50,014		$	13,059		$	4,263		$	12,982	$	80,318
Weighted average life (in years)	11			10			10

8

The in-process research and development project is the development of the next generation Verigene system, Verigene II, which we believe will be completed in 2018. The estimated cost to complete this project is between $14.0 million and $18.0 million.

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

2017 (six months)	$	4,333
2018	8,666
2019	8,666
2020	8,666
2021	8,307
Thereafter	28,698
	$	67,336
IPR&D	12,982
	$	80,318

NOTE 6 — OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (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) for the Company includes foreign currency translation adjustments.

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

	Foreign Currency Items			Available-for-Sale Investments		Accumulated Other Comprehensive Income (Loss) Items
Balance as of December 31, 2016	$	(1,692	)	$	—	$	(1,692	)
Other comprehensive income before reclassifications	602			—		602
Net current-period other comprehensive income	602			—		602
Balance as of June 30, 2017	$	(1,090	)	$	—	$	(1,090	)

The following table presents the tax (expense) benefit allocated to each component of other comprehensive income (loss) (in thousands):

	Three Months Ended June 30, 2017						Six Months Ended June 30, 2017
	Before Tax		Tax Benefit		Net of Tax		Before Tax		Tax Benefit		Net of Tax
Foreign currency translation adjustments	$	339	$	—	$	339	$	602	$	—	$	602
Unrealized gains on available-for-sale investments	—		—		—		—		—		—
Other comprehensive income (loss)	$	339	$	—	$	339	$	602	$	—	$	602

9

NOTE 7 — EARNINGS PER SHARE

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Basic:
Net income	$	5,544		$	5,653	$	14,775		$	14,423
Less: allocation to participating securities	(103		)	—		(276		)	—
Net income attributable to common stockholders	$	5,441		$	5,653	$	14,499		$	14,423
Weighted average common stock outstanding	43,160			42,534		43,030			42,440
Net income per share attributable to common stockholders	$	0.13		$	0.13	$	0.34		$	0.34
Diluted:
Net income	5,544			$	5,653	$	14,775		$	14,423
Less: allocation to participating securities	(103		)	—		(276		)	—
Net income attributable to common stockholders	$	5,441		$	5,653	$	14,499		$	14,423
Weighted average common stock outstanding	43,160			42,534		43,030			42,440
Effect of dilutive securities: stock options and awards	99			41		98			—
Weighted-average shares used in computing net income per share	43,259			42,575		43,128			42,440
Net income per share attributable to common stockholders	$	0.13		$	0.13	$	0.34		$	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 options to acquire approximately 2.5 million and 0.4 million shares for the three months ended June 30, 2017 and 2016, and 2.0 million and 0.4 million shares for the six months ended June 30, 2017 and 2016, respectively, were excluded from the computations of diluted EPS because the effect of including those stock options would have been anti-dilutive.

We apply the two-class method of computing earnings per share, which requires the calculation of separate 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 8 — STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

Dividends

On February 21, 2017 and May 24, 2017, the Board of Directors declared cash dividends on the Company’s common stock of $0.06 per share, respectively. The dividend declared in February was payable to stockholders of record as of March 24, 2017 and was paid on April 14, 2017. The dividend declared in May was payable to stockholders of record as of June 23, 2017 and was paid on July 14, 2017. The Company's current intent is to pay a continuing dividend on a quarterly basis.

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Stock-Based Compensation

The Company’s stock option activity for the six months ended June 30, 2017 was as follows:

Stock Options (shares in thousands)	Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2016	2,180		$	18.06
Granted	1,406		18.08
Exercised	(96	)	16.46
Cancelled or expired	(169	)	19.79
Outstanding as of June 30, 2017	3,321		$	18.04

The Company had $16.7 million of total unrecognized compensation costs related to stock options as of June 30, 2017, which costs are expected to be recognized over a weighted average period of 3.01 years.

The Company’s restricted share activity for the six months ended June 30, 2017 was as follows:

Restricted Stock Awards (shares in thousands)	Shares		Weighted Average Grant Price
Non-vested as of December 31, 2016	810		$	18.74
Granted	370		18.22
Vested	(322	)	18.53
Cancelled or expired	(47	)	19.03
Non-vested as of June 30, 2017	811		$	18.58
Restricted Stock Units (in thousands)	Shares
Non-vested as of December 31, 2016	457
Granted	101
Vested	(121	)
Cancelled or expired	(10	)
Non-vested as of June 30, 2017	427

As of June 30, 2017, there was $15.3 million and $3.3 million of total unrecognized compensation costs related to Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs), respectively. This cost is expected to be recognized over a weighted average period of 2.60 years for the RSAs and 2.35 years for the RSUs. The Company issues a small number of cash settled RSUs pursuant to the 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 of comprehensive income (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	402	$	320	$	737	$	569
Research and development	759		752		597		1,142
Selling, general and administrative	2,865		2,403		3,414		2,944
Stock-based compensation costs reflected in net income	$	4,026	$	3,475	$	4,748	$	4,655

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NOTE 9 — ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	June 30, 2017		December 31, 2016
Compensation and employee benefits	$	11,380	$	17,229
Dividends payable	2,668		—
Income and other taxes	517		816
Warranty costs	1,212		675
Other	2,550		4,084
	$	18,327	$	22,804

Sales of certain of the Company's systems are subject to a warranty. System warranties typically extend for a period of 12 months from the date of installation not to exceed 24 months from the date of shipment. The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted periodically.

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

Accrued warranty costs as of December 31, 2016	$	675
Warranty adjustments/settlements	258
Accrual for warranty costs	279
Accrued warranty costs as of June 30, 2017	$	1,212

NOTE 10 — 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 months ended June 30, 2017 was 31.2%, including amounts recorded for discrete events. This differs from the statutory rate of 35% primarily because of the worldwide mix of consolidated earnings and losses before taxes. The mix of profits for the 2017 fiscal year is estimated to have a higher concentration in the U.S. than in prior years, which profits are subject to a statutory U.S. federal and blended state rate of 37.5%. The Company’s tax expense reflects the full federal, various state, and foreign blended statutory rates. The Company is utilizing its net operating losses and tax credits in the U.S., Canada and the Netherlands and currently expects a full year effective tax rate of less than 35%. Therefore, cash taxes to be paid are expected to continue to be less than 15% of book tax expense.

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 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 2013 can still be reviewed by the taxing authorities. For the six months ended June 30, 2017, there were no material changes to the total amount of unrecognized tax benefits.  No material changes to this liability are expected within the next 12 months. The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes.

NOTE 11 - 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 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 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.

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NOTE 12 — RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting guidance

In July 2015, the FASB issued guidance regarding the measurement of inventory. The new guidance requires inventory to be measured at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this standard during the quarter ended March 31, 2017, and its adoption did not have any impact on its consolidated financial statements.

Recent accounting guidance not yet adopted

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 transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial position and results of operations. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.

In August 2016, the FASB issued specific guidance on eight cash flow classification issues that are not addressed by current U.S. GAAP and thereby reduced the current diversity in practice.  This guidance is effective for annual periods beginning after December 15, 2017. 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 the new guidance is for the Company's first quarter of fiscal 2019 and early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact of the adoption of this requirement on its consolidated financial statements, but 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 balance sheet.

In January 2016, the FASB issued guidance that changes how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. This guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. This guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that adoption of this guidance will have a material impact on its consolidated financial statements as the only potential impact would be related to the Company's cost-method investments discussed in Note 2 - Investments.

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In May 2014, the FASB issued 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. In doing so, companies will need to use their judgment and make estimates more extensively than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. On July 9, 2015, the FASB voted in favor of delaying the effective date of the new standard by one year, with early adoption permitted as of the original effective date. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company currently anticipates adopting the new standard effective January 1, 2018. The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. The Company has begun assessing its various revenue streams to identify performance obligations under this guidance and the key aspects of the standard that will impact the Company's revenue recognition process. Based upon the Company's preliminary assessments, these standards will impact the timing of the recognition of the Company's royalty revenue as the Company has historically waited until the partners have reported end user sales to recognize royalty revenue. With the implementation of the standard, the Company expects to record a cumulative adjustment increasing retained earnings which is estimated to be approximately one quarter of royalty revenue. After implementation, the Company will begin recording estimated royalty revenue each quarter to coincide with the timing of the end user sale by the partner, with any necessary corrections to the estimates in the following quarter. Given the diversity of its commercial arrangements, the Company is continuing to assess the impact these standards may have on its consolidated results of operation, financial position, cash flows and financial statement disclosures.

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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 the 201610-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, the acquisition impact and continuing integration of Nanosphere, Inc. (Nanosphere), new products including ARIES^®, Verigene^® and NxTAG^®, assay sales, consumables 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 future acquisition impacts and integration and the expected benefit of our future acquisitions are 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:

• risks and uncertainties associated with the integration of Nanosphere and implementing our acquisition strategy, our ability to identify acquisition targets including our ability to obtain financing on acceptable terms, our ability to integrate acquired companies or selected assets into our consolidated business operations, and the ability to fully realize the benefits of our acquisitions;

• concentration of our revenue in a limited number of direct customers and strategic partners, some of which 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 resource planning challenges;

• risks and uncertainties relating to market demand and acceptance of our products and technology, including ARIES^®, MultiCode^®, NxTAG^®, xMAP^® and Verigene^®;

• the impact on our growth and future results of operations with respect to the loss of the Laboratory Corporation of America (LabCorp) women's health business anticipated in 2018;

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

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

• 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 assay products;

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

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

• 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;

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• 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 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; the burden of monitoring and complying with foreign and international laws and treaties; and the burden of complying with and change in international taxation policies.

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 2016 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 diagnostics, pharmaceutical and life sciences industries. 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 industry by developing and delivering products that meet 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 technology, which allows the end user in a laboratory to perform biological testing in a multiplexed format. Multiplexing allows for many different laboratory results to be generated from one sample with a single assay. This is important because our end user customers, which include laboratory professionals performing 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 such as our xMAP^® (Multi-Analyte-Profiling) technology, the laboratory 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.

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We have a full range of instruments using our xMAP 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, the 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 products Luminex has available today, up to 500 simultaneous analyte results can be determined from a single sample.

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

• placements made by customers within our Licensed Technologies Group, previously referred to as our "Partner Business," 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 and/or xMAP-based testing services, which run on the xMAP instrumentation, and pay a royalty to us; and

• our direct sales force, within our Molecular Diagnostics Group, focusing on the sale of molecular diagnostic assays that run on our systems.

As of June 30, 2017, Luminex had 79 strategic partners, of which 51 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.

Following the completion of our acquisition (the Acquisition) of Nanosphere on June 30, 2016, our offering in the molecular diagnostic market segment expanded to include Nanosphere's proprietary diagnostic tools that enable rapid and accurate detection of respiratory, gastrointestinal and bloodstream infections. Nanosphere is a leader in the high-growth bloodstream infection testing segment with its 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. 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 the pathogen, 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. In addition, Nanosphere has FDA-cleared products for the detection of gastrointestinal and respiratory infections. These include 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 addition of the Verigene platform, Luminex offers customers sample to answer molecular platforms for both syndromic and targeted molecular diagnostic testing.

In addition to our menu of infectious disease tests, we are currently developing a next generation Verigene system, Verigene II, that we anticipate will deliver improved user experience. This next generation system is designed to provide a reduced time to result and an improved user interface, including a room temperature cartridge, all in a fully automated sample to result system with an optimized footprint.

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 are currently focused on three segments of the molecular diagnostic testing market: human genetics, personalized medicine and infectious disease.

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The ARIES^® system is our sample to answer platform for our MultiCode^®-RTx technology, including 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 polymerase chain reaction, and detects multiple signals generated by target specific probes. The ARIES^® 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 both STAT and Batch testing. The ARIES^® system can run both In Vitro Diagnostics (IVD) and MultiCode^® Analyte Specific Reagents (ASRs) simultaneously with a common Universal Assay Protocol. The ARIES^® system was commercially launched in the fourth quarter of 2015 and the following systems and assays are on market as of July 31, 2017:

	FDA		CE-IVD MARK
	Clearance	Commercial Launch	Declaration	Commercial Launch
ARIES® System	þ	2015 - Q4	þ	2016 - Q1
ARIES® HSV 1&2 Assay	þ	2015 - Q4	þ	2016 - Q1
ARIES® Flu A/B & RSV Assay	þ	2016 - Q2	þ	2016 - Q2
ARIES® M1 System	þ	2016 - Q2	þ	2016 - Q3
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

Second Quarter 2017 Highlights

• Consolidated revenue was $76.5 million for the quarter ended June 30, 2017, representing a 19% increase over revenue for the second quarter of 2016.

• System revenue was $9.9 million for the quarter ended June 30, 2017, representing a 10% increase over system revenue for the second quarter of 2016.

• Assay revenue was $37.8 million for the quarter ended June 30, 2017, representing a 46% increase over assay revenue for the second quarter of 2016.

• Received FDA clearance for the ARIES^® Bordetella Assay for direct detection and identification of Bordetella pertussis and Bordetella parapertussis.

• Received CE-IVD marking for the ARIES^® Norovirus Assay, a sample to answer test for the detection of norovirus genogroup I and II.

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Acquisition of Nanosphere - June 30, 2016

As previously reported in the 2016 10-K, we completed the Acquisition on June 30, 2016. The Acquisition was an all cash transaction that was undertaken to expand the Company's access to the high-growth molecular microbiology market and to Nanosphere's portfolio of molecular testing solutions. As a result of the dilutive nature of the Acquisition, our profitability and operating cash flows have been lower than our pre-acquisition, historical results through the end of the second quarter of 2017, on a percentage basis. However, we expect to maintain profitability and positive operating cash flows. In addition, Nanosphere has a portfolio with meaningfully lower gross margins than the pre-existing Luminex business and we expect the gross margins on the acquired portfolio to continue to negatively impact our consolidated gross margins in the near term; however, we expect synergies realized from the Acquisition, increased sales volumes and the commercialization of the next generation Verigene System, Verigene II, to increase these gross margins in the long term. The Acquisition and its related integration were accretive to the Company's consolidated revenue and profitability in the second quarter of 2017.

Material Partner Activity

Based upon an agreement entered into in the first quarter of 2017, the Company will continue to sell its CF products to the Company’s largest customer, LabCorp, at least through the end of 2017, when LabCorp is expected to transfer its CF testing to an alternative technology.  Notwithstanding continued sales, we expect revenue contraction of our overall genetic portfolio of approximately $5.0 million in 2017, with the majority of the contraction attributable to declines in our pharmacogenomics (PGx) portfolio.  Also, as previously stated in our 2016 10-K, LabCorp has elected to develop the next iteration of one of their women's health products with another party. The transition time is significant and, as a result, we have negotiated significant minimum women's health purchases from LabCorp through June 2018. LabCorp has committed to acquire no less than $63.1 million of our women's health products from January 1, 2017 through June 30, 2018. This is in comparison to 2016 purchases of approximately $39.3 million. The anticipated future loss of the LabCorp business could have a material adverse effect on our growth and future results of operations, if we are unable to effectively attract new customers and/or increase sales with existing customers.

Consumables Sales and Royalty Revenue Trends

We have experienced significant fluctuations in consumable revenue over the past three years. Overall, the fluctuations manifested themselves through 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 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 diagnostics systems;

• increasing the growth of our partner business through enrichment of our existing partner relationships and the addition of new partners;

• completing development and commercializing the next generation system for Verigene, Verigene II;

• realizing the anticipated synergies of the Acquisition and associated integration, including the effective incorporation of our combined sales force in the marketplace;

• improvement of ARIES^® and Verigene gross margins;

• placements of our ARIES^® system, our sample to answer platform for our MultiCode^®-RTx technology, including IVD assays;

• market acceptance of our Respiratory Viral Panel line of IVD assays;

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• commercialization, regulatory clearance and market adoption of products, including commercialization of MultiCode^® analyte specific reagents outside of the United States;

• 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 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 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, 2017 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 2016 10-K.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2017 COMPARED TO THREE MONTHS ENDED JUNE 30, 2016

Selected consolidated financial data for the three months ended June 30, 2017 and 2016 is as follows (dollars in thousands):

	Three Months Ended June 30,
	2017			2016			Variance			Variance (%)
Revenue	$	76,457		$	64,166		$	12,291		19	%
Gross profit	$	50,061		$	44,921		5,140			11	%
Gross margin percentage	65		%	70		%	(5		)%	N/A
Operating expenses	$	42,579		$	37,421		5,158			14	%
Income from operations	$	7,482		$	7,500		(18		)	—	%

Total revenue increased by 19% to $76.5 million for the three months ended June 30, 2017 from $64.2 million for the comparable period in 2016. This increase was driven primarily by the Acquisition on June 30, 2016, which contributed approximately 80% of the 19% increase. The Acquisition's most significant revenue contribution is attributable to an increase in assay revenue for the three months ended June 30, 2017 compared to the same period in 2016. Excluding the impact of the Acquisition, revenue increased by 4% for the three months ended June 30, 2017 from the comparable period in 2016.

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A breakdown of revenue for the three months ended June 30, 2017 and 2016 is as follows (dollars in thousands):

	Three Months Ended June 30,
	2017		2016		Variance			Variance (%)
System sales	$	9,905	$	8,993	$	912		10	%
Consumable sales	13,310		13,334		(24		)	—	%
Royalty revenue	10,813		11,352		(539		)	(5	)%
Assay revenue	37,753		25,885		11,868			46	%
Service revenue	2,795		2,547		248			10	%
Other revenue	1,881		2,055		(174		)	(8	)%
	$	76,457	$	64,166	$	12,291		19	%

We continue to experience revenue concentration in a limited number of customers. Five customers accounted for 50% (two of whom were 21% and 15%, respectively, and no other customer exceeded 6%) of consolidated total revenue in the second quarter of 2017. For comparative purposes, these top five customers accounted for 49% (two of whom were 19% and 14%, respectively, and no other customer exceeded 8%) of total consolidated revenue in the second quarter of 2016.

Revenue from the sale of systems and peripheral components increased 10% to $9.9 million for the three months ended June 30, 2017 from $9.0 million for the three months ended June 30, 2016, resulting primarily from the inclusion of Verigene system sales, as well as a more favorable mix in sales of multiplexing analyzers with fewer sales of LUMINEX 100/200 systems, partially offset by more sales of FLEXMAP 3D systems whose average sales price is higher than the LUMINEX 100/200 systems. Excluding the impact of the Acquisition, revenue from the sale of systems and peripheral components increased by 2% for the three months ended June 30, 2017 from the comparable period in 2016. We sold 270 multiplexing analyzers in the second quarter of 2017, as compared to 277 multiplexing analyzers sold for the corresponding prior year period. For the three months ended June 30, 2017, five of our partners accounted for 214 multiplexing analyzers, or 79%, of total multiplexing analyzers sold, as compared to five of our partners accounting for 200 multiplexing analyzers, or 72%, of total multiplexing analyzers sold for the three months ended June 30, 2016.

Consumable sales, comprised of microspheres and sheath fluid, remained constant at $13.3 million for the three months ended June 30, 2017 and the three months ended June 30, 2016. During the three months ended June 30, 2017, we had 17 bulk purchases of consumables totaling approximately $10.3 million (78% of total consumable revenue), ranging from $0.1 million to $4.0 million, as compared with 24 bulk purchases totaling approximately $10.7 million (80% of total consumable revenue), ranging from $0.1 million to $2.2 million, for the three months ended June 30, 2016. We expect fluctuations in consumable sales on an ongoing basis. Partners who reported royalty bearing sales accounted for $8.4 million, or 63%, of consumable sales for the three months ended June 30, 2017 compared to $7.3 million, or 55%, of the total consumable sales for the three months ended June 30, 2016.

Royalty revenue, which results when our partners sell products or testing services incorporating our technology, decreased by 5% to $10.8 million for the three months ended June 30, 2017 from $11.4 million for the three months ended June 30, 2016.  This decrease is the result of a decrease in minimum royalty payments and royalty audit findings and other adjustments of approximately $0.5 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. 

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Assay revenue increased 46% to $37.8 million for the three months ended June 30, 2017 from $25.9 million for the three months ended June 30, 2016, driven primarily by the inclusion of Verigene revenue, which accounted for 74% of the 46% increase, in addition to increased sales of ARIES and infectious disease testing assays. Excluding the impact of the Acquisition, assay revenue increased by 12% for the three months ended June 30, 2017 from the comparable period in 2016. Additionally, infectious disease testing assay products and genetic testing assay products represented 81% and 19%, respectively, of total assay revenue in the second quarter of 2017, compared to 66% and 34%, respectively, in the second quarter of 2016. Revenue for our primary assay portfolios increased in infectious disease testing products by 79%, driven predominantly by the addition of Verigene assays, for the three months ended June 30, 2017 from the second quarter of 2016. This was partially offset by a decline in our genetic testing assay products of 18% for the three months ended June 30, 2017 from the comparable period in 2016. This decrease in genetic testing assay products was attributable to pricing and reimbursement challenges within the pharmacogenetic market segment and the departure of a key customer, causing us to shift our focus towards infectious disease testing. The Verigene assay revenue stream represents approximately 23% of total assay revenue for the three months ended June 30, 2017, and consisted primarily of our sample to answer clinical tests. Our largest customer, by revenue, accounted for 41% of total assay revenue for the three months ended June 30, 2017 compared to 45% for the three months ended June 30, 2016. No other customer accounted for more than 10% of total assay revenue during those periods. As disclosed previously, cystic fibrosis revenue from our largest assay customer is expected to transition to a competing technology and, although timing is uncertain, the loss of a significant portion of that revenue is now expected in early 2018. As discussed under "Material Partner Activity" and previously disclosed in our prior quarterly report, the same assay customer informed us that they plan on developing the next iteration of their women's health portfolio with another party, which could negatively impact our assay revenue in 2018 and beyond.

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 $0.2 million, or 10%, to $2.8 million for the second quarter of 2017 compared to $2.5 million in the second quarter of 2016. This increase is attributable to the inclusion of Verigene service revenue, which accounted for more than 10% of total service revenue for the second quarter of 2017.  Excluding the impact of the Acquisition, service revenue decreased by 2% for the three months ended June 30, 2017 from the comparable period in 2016. As of June 30, 2017, we had 1,930 Luminex systems covered under extended service agreements, of which approximately 150 are attributable to Verigene systems added since our Acquisition on June 2016. In addition, we have $4.9 million in deferred revenue related to those contracts. As of June 30, 2016, we had 1,835 Luminex systems covered under extended service agreements and $4.9 million in deferred revenue related to those contracts.

Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, amortized license fees and revenue from agreements with U.S. government agencies, decreased 8% to $1.9 million for the three months ended June 30, 2017 compared to $2.1 million for the three months ended June 30, 2016, primarily driven by a reduction in government contract revenue. We expect this trend to continue in the near term as our focus has shifted away from these government contract opportunities.

Gross Profit. Gross profit increased to $50.1 million for the three months ended June 30, 2017, as compared to $44.9 million for the three months ended June 30, 2016. However, gross margin (gross profit as a percentage of total revenue) was 65% for the three months ended June 30, 2017, a decrease from the prior year quarter of 70%. The decrease in gross margin is primarily attributable to the inclusion of Verigene product revenue, which accounted for approximately 80% of the gross margin decline. The acquired Verigene portfolio has meaningfully lower gross margins than the pre-existing Luminex business. For comparison, following the Acquisition on June 30, 2016 our gross margin percentages were 64%, 61% and 68% for the third and fourth quarters of 2016 and the first quarter of 2017, respectively. We expect the gross margins on the acquired portfolio to continue to negatively impact our consolidated gross margins in the near term; however, we expect synergies realized from the Acquisition, increased sales volumes and the commercialization of the next generation Verigene system, Verigene II, to increase these gross margins in the longer term. We currently believe that the gross margin percentages experienced in the third and fourth quarter of 2016 represent the most significant negative impact that we expect to experience from the Nanosphere portfolio margin. However, 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.

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Research and Development Expense. Research and development expense increased to $12.3 million, or 16% of total revenue, for the three months ended June 30, 2017 from $11.5 million, or 18% of total revenue, for the three months ended June 30, 2016. The increase in research and development expense was primarily a result of the addition of Nanosphere's expenses, as well as higher costs for clinical trials of ARIES assays, partially offset by savings from the previously announced reorganization in December 2016.  Research and development headcount as of June 30, 2017 was 195 compared to 208 as of June 30, 2016. The focus of our research and development activities is the development and commercialization of a pipeline of assays for the ARIES^® system and the development of the next generation Verigene system, Verigene II, and assays.

Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of acquired intangible assets, was $28.2 million for the three months ended June 30, 2017, an increase of $4.0 million from the three months ended June 30, 2016 and an increase of $4.2 million from the three months ended March 31, 2017. Over 75% of the increase was attributable to the addition of Nanosphere's expenses for the three months ended June 30, 2017. On a sequential basis, expenses were higher primarily resulting from stock compensation reversals in the prior quarter for employees who left the Company, as well as one-time employee separation costs of $0.5 million included in the current quarter. Selling, general and administrative headcount as of June 30, 2017 was 365 as compared to 323 as of June 30, 2016. As a percentage of revenue, selling, general and administrative expense, excluding the amortization of acquired intangible assets, was 37% in the second quarter of 2017, down from 38% in the second quarter of 2016.

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets increased to $2.2 million for the three months ended June 30, 2017 from $1.7 million for the three months ended June 30, 2016. The increase was primarily driven by the acquired intangible assets from the Acquisition, which began amortizing in July 2016.

Income taxes. Our effective tax rate for the three months ended June 30, 2017 was 26%, reflecting a $1.9 million expense, as compared to 7%, or a $0.4 million expense, for the three months ended June 30, 2016. We expect our consolidated effective tax rate to be in the 25% to 35% range over the next several years, absent any other significant discrete items. We continue to assess our business model and its impact in various tax jurisdictions. Currently we are experiencing a high concentration of revenue in the U.S. relative to the rest of the world, which could be impacted by future revenue mix and worldwide tax rate adjustments.

SIX MONTHS ENDED JUNE 30, 2017 COMPARED TO SIX MONTHS ENDED JUNE 30, 2016

Selected consolidated financial data for the six months ended June 30, 2017 and 2016 is as follows (dollars in thousands):

	Six Months Ended June 30,
	2017			2016			Variance			Variance (%)
Revenue	$	154,236		$	127,147		$	27,089		21	%
Gross profit	$	102,847		$	89,727		13,120			15	%
Gross margin percentage	67		%	71		%	(4		)%	N/A
Operating expenses	$	81,353		$	70,426		10,927			16	%
Income from operations	$	21,494		$	19,301		2,193			11	%

Total revenue increased by 21% to $154.2 million for the six months ended June 30, 2017 from $127.1 million for the comparable period in 2016. The increase was primarily attributable to increases in assay, system, and consumable sales, driven in part by the Acquisition, which contributed approximately 76% of the 21% growth in total revenue. Excluding the impact of the Acquisition, revenue increased by 5% for the six months ended June 30, 2017 from the comparable period in 2016.

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A breakdown of revenue for the six months ended June 30, 2017 and 2016 is as follows (dollars in thousands):

	Six Months Ended June 30,
	2017		2016		Variance			Variance (%)
System sales	$	18,406	$	17,311	$	1,095		6	%
Consumable sales	28,695		25,184		3,511			14	%
Royalty revenue	22,374		22,820		(446		)	(2	)%
Assay revenue	75,160		52,924		22,236			42	%
Service revenue	5,700		4,958		742			15	%
Other revenue	3,901		3,950		(49		)	(1	)%
	$	154,236	$	127,147	$	27,089		21	%

We continue to experience revenue concentration in a limited number of customers. Five customers accounted for 49% (two of whom were 19% and 17%, respectively, and no other customer exceeded 6%) of consolidated total revenue in the six months ended June 30, 2017. For comparative purposes, these top five customers accounted for 52% (two of whom were 21% and 14%, respectively, and no other customer exceeded 7%) of total revenue in the six months ended June 30, 2016.

Revenue from the sale of systems and peripheral components increased 6% to $18.4 million for the six months ended June 30, 2017 from $17.3 million for the six months ended June 30, 2016, resulting primarily from the inclusion of Verigene system sales, as well as a more favorable mix in sales of multiplexing analyzers with fewer sales of LUMINEX 100/200 systems, partially offset by more sales of FLEXMAP 3D systems whose average sales price is higher than the LUMINEX 100/200 systems. Excluding the impact of the Acquisition, revenue from the sale of systems and peripheral components remained consistent for the six months ended June 30, 2017 from the comparable period in 2016. We sold 512 multiplexing analyzers in the six months ended June 30, 2017, as compared to 532 multiplexing analyzers sold for the corresponding prior year period. For the six months ended June 30, 2017, five of our partners accounted for 388, or 76%, of total multiplexing analyzers sold.  Five of our partners accounted for 391, or 74%, of total multiplexing analyzers sold for the six months ended June 30, 2016.

Consumable sales increased 14% to $28.7 million for the six months ended June 30, 2017 compared to $25.2 million for the six months ended June 30, 2016. We had 35 bulk purchases of consumables totaling approximately $22.7 million (79% of total consumable revenue), ranging from $0.1 million to $6.4 million, during the six months ended June 30, 2017, as compared with 42 bulk purchases totaling approximately $19.8 million (79% of total consumable revenue), ranging from $0.1 million to $3.4 million, for the six months ended June 30, 2016.  The increase in revenue from bulk purchases in the six months ended June 30, 2017 is the main driver to the increase 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 $20.7 million, or 72%, of consumable sales for the six months ended June 30, 2017 compared to $16.0 million, or 63%, of the total consumable sales for the six months ended June 30, 2016.

Royalty revenue decreased 2% to $22.4 million for the six months ended June 30, 2017 from $22.8 million for the six months ended June 30, 2016.  This decrease is primarily attributable to a decrease in minimum royalty payments and royalty audit findings and other adjustments, which was partially offset by an increase in base royalties of approximately $0.4 million as a result of the timing of when our partners report end user sales. 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.

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Assay revenue increased 42% to $75.2 million for the six months ended June 30, 2017 from $52.9 million for the six months ended June 30, 2016, driven primarily by the inclusion of Verigene revenue, which contributed 82% of the 42% increase, in addition to increased sales of ARIES and infectious disease testing assays. The remaining 7% of growth is attributable to increased sales in infectious disease testing assays. Additionally, infectious disease testing and genetic testing assay products represented 81% and 19%, respectively, of total assay revenue in the six months ended June 30, 2017, compared to 69% and 31%, respectively, in the six months ended June 30, 2016. Our infectious disease testing assay portfolio increased 67% from the first six months of 2016, primarily driven by the addition of Verigene assays, while our genetic testing assay portfolio decreased 14% over the comparable time period.  This decrease in genetic testing assay products was primarily attributable to pricing and reimbursement challenges within the pharmacogenetic market segment and the departure of a key customer, causing us to shift our focus towards infectious disease testing. The Verigene assay revenue stream represents approximately 24% of total assay revenue for the six months ended June 30, 2017, and consisted primarily of our sample to answer clinical tests. Our largest customer, by revenue, accounted for 38% of total assay revenue for the six months ended June 30, 2017 compared to 48% for the six months ended June 30, 2016. No other customer accounted for more than 10% of total assay revenue during those periods. As disclosed previously, cystic fibrosis revenue from our largest assay customer is expected to transition to a competing technology and, although timing is uncertain, the loss of a significant portion of that revenue is now expected in early 2018. As discussed under "Material Partner Activity" and previously disclosed in our prior quarterly report, the same assay customer informed us that they plan on developing the next iteration of their women's health portfolio with another party, which could negatively impact our assay revenue in 2018 and beyond.

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 15% to $5.7 million for the six months ended June 30, 2017 compared to $5.0 million for the six months ended June 30, 2016. This increase is primarily attributable to the inclusion of Verigene service revenue, which accounted for more than 80% of the 15% increase. Excluding the impact of the Acquisition, service revenue increased by 2% for the six months ended June 30, 2017 from the comparable period in 2016.

Other revenue, which includes training revenue, shipping revenue, miscellaneous part sales, amortized license fees, and revenue from agreements with U.S. government agencies, decreased modestly to $3.9 million for the six months ended June 30, 2017 compared to $4.0 million for the six months ended June 30, 2016.

Gross Profit. Gross profit increased to $102.8 million for the six months ended June 30, 2017, as compared to $89.7 million for the six months ended June 30, 2016. Gross margin (gross profit as a percentage of total revenue) was 67% for the six months ended June 30, 2017, a decrease of four percentage points from the six months ended June 30, 2016. This decrease in gross margin was attributable to the inclusion of Verigene product revenue, where the acquired portfolio currently has meaningfully lower gross margins than the pre-existing Luminex business. We expect the gross margins on the acquired portfolio to continue to negatively impact our consolidated gross margins in the near term; however, we expect synergies realized from the Acquisition, increased sales volumes and the commercialization of the next generation Verigene system, Verigene II, to increase these gross margins in the longer term. 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.

Research and Development Expense. Research and development expense increased to $24.7 million, or 16% of total revenue, for the six months ended June 30, 2017 from $22.6 million, or 18% of total revenue, for the six months ended June 30, 2016. The increase in research and development expense was primarily the result of the addition of Nanosphere's expenses and higher expenses driven by clinical trials of ARIES assays, partially offset by savings from the previously announced reorganization in December 2016.  Research and development headcount as of June 30, 2017 was 195 as compared to 208 as of June 30, 2016. The focus of our research and development activities is the development and commercialization of a pipeline of assays for the ARIES^® system and the development of the next generation Verigene system, Verigene II, and assays.

Selling, General and Administrative Expense. Selling, general and administrative expenses, excluding the amortization of acquired intangible assets, increased to $52.2 million for the six months ended June 30, 2017 from $44.5 million for the six months ended June 30, 2016, primarily resulting from the Acquisition in addition to higher sales and marketing expenses driven by increased headcount and marketing activities. This increase was partially offset by the Nanosphere acquisition costs of $2.0 million that were recorded in the six months ended June 30, 2016. Selling, general and administrative headcount as of June 30, 2017 was 365 as compared to 323 as of June 30, 2016. As a percentage of revenue, selling, general and administrative expense, excluding the amortization of acquired intangible assets, was 34% in the first six months of 2017, compared to 35% in the first six months of 2016.

Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets increased to $4.5 million for the six months ended June 30, 2017 from $3.3 million for the six months ended June 30, 2016. The increase was primarily driven by the acquired intangible assets from the Acquisition which began amortizing in July 2016.

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Income taxes. Our effective tax rate for the six months ended June 30, 2017 was 31%, reflecting a $6.7 million expense, as compared to 19%, or a $3.5 million expense, for the six months ended June 30, 2016. The increase in rate is attributable to the high concentration of revenue in the U.S. that we are experiencing relative to the rest of the world, which could be impacted by future revenue mix and worldwide tax rate adjustments. We expect our consolidated effective tax rate to be in the 25% to 35% range over the next several years, absent any other significant discrete items. We continue to assess our business model and its impact in various tax jurisdictions.

LIQUIDITY AND CAPITAL RESOURCES

	June 30, 2017		December 31, 2016
	(in thousands)
Cash and cash equivalents	$	103,705	$	93,452
Short-term investments	—		—
Long-term investments	—		—
	$	103,705	$	93,452

As of June 30, 2017, we held cash and cash equivalents of $103.7 million and had working capital of $158.4 million. At December 31, 2016, we held cash and cash equivalents of $93.5 million and had working capital of $133.5 million. The $10.3 million increase in cash, cash equivalents and investments is primarily attributable to an increase in operating cash flows of the Company in the amount of $20.6 million for the six months ended June 30, 2017 driven primarily by net income of $14.8 million. These operating cash flows were partially offset by capital expenditures of $6.4 million and dividends paid of $2.6 million.

As a result of the dilutive nature of the Acquisition, our profitability and operating cash flows have been lower than our recent historical results through the end of the second quarter of 2017, on a percentage basis. The Acquisition and the related integration was accretive to the Company's consolidated revenue and profitability in the second quarter of 2017.

We have funded our operations to date primarily through the issuance of equity securities (in conjunction with an initial public offering in 2000, subsequent option exercises, and our secondary public offering in 2008) and cash generated from operations. 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 or sub-prime style investments.

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 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 ongoing internal evaluations of our business could result in expenditures not currently contemplated in our estimates for 2017.

One of our short term projects that is expected to require significant capital to complete is our current in-process research and development of the next generation Verigene system, Verigene II. The estimated aggregate cost to complete this project, including completion of development of the Verigene II system, cartridge, software and the initial assay, validation, verification, clinical trials and regulatory submission, is between $14.0 million and $18.0 million and is included in our research and development budget for 2017 and 2018. 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. 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' 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 Harbor Cautionary Statement" of this report and the risk factors in the 2016 10-K and our other filings with the SEC.

As announced in February 2017, the Board of Directors initiated a cash dividend program under which the Company anticipates it will 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 or corporate laws, changes to our business model and periodic

26

determination by our Board of Directors whether cash dividends are in the best interests of stockholders as a proper capital allocation and whether they are in compliance with applicable laws and agreements of the Company.

Overall, we currently expect contraction of our genetic portfolio of approximately $5.0 million in 2017, with the majority of the contraction attributable to declines in our PGx portfolio.  Also, as previously disclosed, LabCorp elected to develop the next iteration of one of their women's health products with another party. The transition time is significant and, as a result, we have negotiated a significant minimum women's health purchases through June 2018.  LabCorp has committed to acquire no less than $63.1 million of our women's health products from January 1, 2017 through June 30, 2018. This is in comparison to 2016 purchases of $39.3 million. Based upon an agreement entered into in the first quarter of 2017, the company will continue to sell its CF products to the Company’s largest customer, LabCorp, until at least the end of 2017 when LabCorp is expected to transfer its CF testing to an alternative technology.

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. Any downgrade in our credit rating could adversely affect our ability to raise debt capital on favorable terms, or 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 instruments available-for-sale. A 50 basis point fluctuation from average investment returns as of June 30, 2017 would yield a less than 0.5% variance in overall investment return, which would not have a material 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 adversely impacted by changes in these and other factors.

As of June 30, 2017, 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 in our Netherlands, Japanese and Hong Kong subsidiaries are primarily denominated in Euros, Yen and Hong Kong dollars, respectively. The majority of 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 exchange rates. A 10% change in these exchange rates in relation to the U.S. dollar would result in an income statement impact of approximately $1.0 million on foreign currency denominated asset and liability balances as of June 30, 2017. 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 gain of approximately $6,000 was included in determining our consolidated results for the quarter ended June 30, 2017.

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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 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 Financial Reporting

There were 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, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

28

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 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 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.

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 2016 10-K, which are incorporated herein by reference. There have been no material changes from the risk factors previously disclosed in the 2016 10-K.

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

The stock repurchase activity for the second quarter of 2017 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
4/1/17 - 4/30/17	575	$	18.10	—	$	—
5/1/17 - 5/31/17	166	21.22		—	—
6/1/17 - 6/30/17	176	21.06		—	—
Total Second Quarter	917	$	19.23	—	$	—
(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.

29

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

Exhibit Number	Description of Documents
10.1#	Amended and Restated Luminex Corporation Employee Stock Purchase Plan (Previously filed as Annex A to the Company’s Proxy Statement for its Annual Meeting of Stockholders on May 18, 2017).
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 Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017, 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.

30

SIGNATURES

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

Date: August 8, 2017

LUMINEX CORPORATION

By: /s/ Harriss T. Currie   

Harriss T. Currie

Chief Financial Officer, Senior Vice President of Finance

(Principal Financial Officer)

EXHIBIT INDEX

Exhibit Number	Description of Documents
10.1#	Amended and Restated Luminex Corporation Employee Stock Purchase Plan (Previously filed as Annex A to the Company’s Proxy Statement for its Annual Meeting of Stockholders on May 18, 2017).
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 Quarterly Report on Form 10-Q for the three and six months ended June 30, 2017, 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.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Nachum Shamir, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Luminex Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2017

By:  /s/ Nachum Shamir   

Nachum Shamir

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Harriss T. Currie, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Luminex Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2017

By: /s/ Harriss T. Currie   

Harriss T. Currie

Chief Financial Officer, Senior Vice President of Finance

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Luminex Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nachum Shamir, President and Chief Executive Officer of the Company, certify, pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

/s/ Nachum Shamir   

Nachum Shamir

President and Chief Executive Officer

August 8, 2017

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO LUMINEX CORPORATION AND WILL BE RETAINED BY LUMINEX CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Luminex Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harriss T. Currie, Chief Financial Officer and Senior Vice President of Finance of the Company, certify, pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

/s/ Harriss T. Currie   

Harriss T. Currie

Chief Financial Officer, Senior Vice President of Finance

August 8, 2017

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 HAS BEEN PROVIDED TO LUMINEX CORPORATION AND WILL BE RETAINED BY LUMINEX CORPORATION AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 07, 2017
Entity [Abstract]
Entity Registrant Name	Luminex Corp
Entity Central Index Key	0001033905
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		44,071,126
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 103,705	$ 93,452
Short-term Investments	0	0
Accounts receivable, net	33,133	32,365
Inventories, net	47,095	40,775
Prepaids and other	8,208	7,145
Total current assets	192,141	173,737
Property and equipment, net	57,890	57,375
Intangible assets, net	80,318	84,841
Deferred income taxes	35,511	42,497
Long-term investments	0	0
Goodwill	85,481	85,481
Other	7,611	6,785
Total assets	458,952	450,716
Current liabilities:
Accounts payable	10,456	12,276
Accrued liabilities	18,327	22,804
Deferred revenue	4,933	5,120
Total current liabilities	33,716	40,200
Deferred revenue	1,720	1,875
Other	4,929	4,962
Total liabilities	40,365	47,037
Stockholders' equity:
Common stock, $.001 par value, 200,000,000 shares authorized; issued and outstanding: 43,264,509 shares at June 30, 2017; 42,802,480 shares at December 31, 2016	43	43
Preferred stock, $.001 par value, 5,000,000 shares authorized; no shares issued and outstanding	0	0
Additional paid-in capital	341,290	336,430
Accumulated other comprehensive loss	(1,090)	(1,692)
Retained earnings	78,344	68,898
Total stockholders' equity	418,587	403,679
Total liabilities and stockholders' equity	$ 458,952	$ 450,716

XML

CONDENSED CONSOLIDATED BALANCE SHEETS Parenthetical - $ / shares	Jun. 30, 2017	Dec. 31, 2015
Stockholders' equity:
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, issued (in shares)	42,708,733	42,314,581
Common stock, outstanding (in shares)	42,708,733	42,314,581
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Income Statement [Abstract]
Revenue	$ 76,457	$ 64,166	$ 154,236	$ 127,147
Cost of revenue	26,396	19,245	51,389	37,420
Gross profit	50,061	44,921	102,847	89,727
Operating expenses:
Research and development	12,260	11,543	24,680	22,562
Selling, general and administrative	28,153	24,190	52,150	44,549
Amortization of acquired intangible assets	2,166	1,688	4,523	3,315
Total operating expenses	42,579	37,421	81,353	70,426
Income from operations	7,482	7,500	21,494	19,301
Other income (expense), net	1	(1,446)	(5)	(1,425)
Income before income taxes	7,483	6,054	21,489	17,876
Income taxes	(1,939)	(401)	(6,714)	(3,453)
Net income	5,544	5,653	14,775	14,423
Other comprehensive income:
Foreign currency translation adjustments	339	(31)	602	179
Unrealized gain (loss) on available-for-sale securities, net of tax		(7)	0	38
Other comprehensive income (loss)	339	(38)	602	217
Comprehensive income	$ 5,883	$ 5,615	$ 15,377	$ 14,640
Net income per share, basic	$ 0.13	$ 0.13	$ 0.34	$ 0.34
Shares used in computing net income per share, basic	43,160	42,534	43,030	42,440
Net income per share, diluted	$ 0.13	$ 0.13	$ 0.34	$ 0.34
Shares used in computing net income per share, diluted	43,259	42,575	43,128	42,440

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net income	$ 5,544	$ 5,653	$ 14,775	$ 14,423
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,651	4,276	11,270	8,488
Stock-based compensation	4,026	3,475	4,748	4,655
Deferred income tax expense	4,332	(395)	7,267	2,931
Loss on sale or disposal of assets	0	4	0	41
Other	478	(17)	922	(71)
Changes in operating assets and liabilities:
Accounts receivable, net	3,911	7,221	(758)	6,673
Inventories, net	(3,417)	(4,142)	(6,304)	(4,040)
Other assets	(1,892)	508	(1,197)	672
Accounts payable	1,337	3,737	(2,369)	2,724
Accrued liabilities	2,661	1,098	(7,411)	(6,174)
Deferred revenue	(547)	(209)	(350)	621
Net cash provided by operating activities	22,084	21,209	20,593	30,943
Cash flows from investing activities:
Sales and maturities of available-for-sale securities	0	19,491	0	19,491
Purchase of property and equipment	(2,970)	(2,871)	(6,403)	(5,719)
Proceeds from sale of assets	0	3	0	3
Business acquisition consideration, net of cash acquired	0	(66,902)	0	(66,902)
Purchase of cost method investment	(500)	0	(1,000)	0
Acquired technology rights	0	0	0	(200)
Net cash used in investing activities	(3,470)	(50,279)	(7,403)	(53,327)
Cash flows from financing activities:
Payments on debt	0	(25,000)	0	(25,000)
Proceeds from issuance of common stock	1,495	1,406	2,229	1,762
Shares surrendered for tax withholding	(40)	(35)	(2,096)	(1,484)
Payments of Ordinary Dividends	(2,636)		(2,636)
Net cash provided by (used in) financing activities	(1,181)	(23,629)	(2,503)	(24,722)
Effect of foreign currency exchange rate on cash	(194)	115	(434)	278
Change in cash and cash equivalents	17,239	(52,584)	10,253	(46,828)
Cash and cash equivalents, beginning of period	86,466	134,302	93,452	128,546
Cash and cash equivalents, end of period	$ 103,705	$ 81,718	$ 103,705	$ 81,718

XML

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Statement - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]
Common Stock, Shares, Outstanding		42,802,480
Stockholders' Equity Attributable to Parent	$ 403,679	$ 43	$ 336,430	$ (1,692)	$ 68,898
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		45,396
Stock Issued During Period, Value, Stock Options Exercised	733	$ 0	733	0	0
Stock Issued During Period, Shares, Restricted Stock Award, Gross		243,628
Stock Issued During Period, Value, Restricted Stock Award, Gross	(2,056)	$ 0	(2,056)	0	0
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition	679	$ 0	679	0	0
Stock Issued During Period, Shares, Employee Stock Purchase Plans		0
Stock Issued During Period, Value, Employee Stock Purchase Plan	0	$ 0	0	0	0
Net income	9,231	0	0	0	9,231
Foreign currency translation adjustments	263	$ 0	0	263	0
Dividends, Common Stock, Cash					(2,661)
Net income	14,775
Foreign currency translation adjustments	602
Common Stock, Shares, Outstanding		43,091,504
Stockholders' Equity Attributable to Parent	409,868	$ 43	335,786	(1,429)	75,468
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period		41,648
Stock Issued During Period, Value, Stock Options Exercised	684	$ 0	684	0	0
Stock Issued During Period, Shares, Restricted Stock Award, Gross		82,983
Stock Issued During Period, Value, Restricted Stock Award, Gross	(39)	$ 0	(39)	0	0
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition	4,022	$ 0	4,022	0	0
Stock Issued During Period, Shares, Employee Stock Purchase Plans		48,374
Stock Issued During Period, Value, Employee Stock Purchase Plan	813	$ 0	813	0	0
Net income	5,544	0	0	0	5,544
Foreign currency translation adjustments	$ 339	$ 0	0	339	0
Dividends, Common Stock, Cash					(2,644)
Common Stock, Shares, Outstanding	42,708,733	43,264,509
Stockholders' Equity Attributable to Parent	$ 418,587	$ 43	$ 341,290	$ (1,090)	$ 78,344

XML

BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. 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, 2016 (the 2016 10-K).

XML

INVESTMENTS

6 Months Ended

Jun. 30, 2017

Investments [Abstract]

INVESTMENTS

NOTE 2 — INVESTMENTS

Marketable Securities

The Company determines the appropriate classification of its 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, 2017 and December 31, 2016, 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, 2017, the Company had no short or long term investments, since those funds were used to pay for a portion of the acquisition of Nanosphere, Inc. (Nanosphere).

Available-for-sale securities consisted of the following as of June 30, 2017 (in thousands):

	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

Available-for-sale securities consisted of the following as of December 31, 2016 (in thousands):

	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 the three and six months ended June 30, 2017. Realized gains and losses on sales of investments are determined using the specific identification method. Realized gains and losses are included in Other income, net in the Consolidated Statements of Comprehensive Income. All of the Company's available-for-sale securities with gross unrealized holding losses as of June 30, 2017 and December 31, 2016 had been in a loss position for less than 12 months.

There were no available-for-sale debt securities as of June 30, 2017 and December 31, 2016.

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 year ended December 31, 2016, and in the six months ended June 30, 2017, respectively, the Company made a $1.0 million minority interest investment (an aggregate of $2.0 million), in a private company based in the U.S. that is focused on development of 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 since the Company owns less than 20% of the voting equity in the investee and the investee is not publicly traded. 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.

The Company owns a minority interest in a second 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 the Company owns less than 20% of the voting equity in the investee and the investee is not publicly traded.

The Company regularly evaluates the carrying value of its cost-method 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 ability to remain in business, such as the 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 judged to be other-than-temporary, the Company will record an other-than-temporary impairment charge in Other income, net in the Consolidated Statements of Comprehensive Income. As the inputs utilized for the Company's periodic impairment assessment are not based on observable market data, the determination of fair value of this cost-method investment is classified within Level 3 of the fair value hierarchy. See Note 4 - Fair Value Measurement to our Condensed Consolidated Financial Statements for further discussion. To determine the fair value of this investment, 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, a cost-method investment's fair value is not estimated as there are no identified events or changes in the circumstances that may have a significant adverse effect on the fair value of the investment and to do so would be impractical.

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INVENTORY, NET

6 Months Ended

Jun. 30, 2017

Inventory, Net [Abstract]

INVENTORIES, NET

NOTE 3 — 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):

	June 30, 2017		December 31, 2016
Parts and supplies	$	24,233	$	22,960
Work-in-progress	8,559		6,268
Finished goods	14,303		11,547
	$	47,095	$	40,775

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

NOTE 4 — FAIR VALUE MEASUREMENT

The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 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 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.

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 three or six month period ended June 30, 2017.

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 (in thousands):

	Fair Value Measurements as of June 30, 2017 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money Market funds	$	701	$	—	$	—	$	701

	Fair Value Measurements as of December 31, 2016 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money Market funds	$	701	$	—	$	—	$	701

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GOODWILL AND OTHER INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 5 — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is reviewed for impairment at least annually at the beginning of the fourth quarter, or more frequently if impairment indicators arise. The Company's goodwill is not expected to be deductible for tax purposes.

The changes in the carrying amount of the Company’s goodwill during the period are as follows (in thousands):

	June 30, 2017		December 31, 2016
Balance at beginning of year	$	85,481	$	49,619
Acquisition of Nanosphere	—		35,862
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
2016
Balance as of December 31, 2015	$	69,102		$	7,797		$	1,652		$	—	$	78,551
Acquisition of Nanosphere	12,283			11,300			4,012			12,982		40,577
Balance as of December 31, 2016	81,385			19,097			5,664			12,982		119,128
Less: accumulated amortization:
Accumulated amortization balance as of December 31, 2015	(21,646		)	(3,667		)	(756		)	—		(26,069		)
Amortization expense	(6,491		)	(1,371		)	(356		)	—		(8,218		)
Accumulated amortization balance as of December 31, 2016	(28,137		)	(5,038		)	(1,112		)	—		(34,287		)
Net balance as of December 31, 2016	$	53,248		$	14,059		$	4,552		$	12,982	$	84,841
Weighted average life (in years)	10			10			10
2017
Balance as of December 31, 2016	$	81,385		$	19,097		$	5,664		$	12,982	$	119,128
Balance as of June 30, 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	(3,234		)	(1,000		)	(289		)	—		(4,523		)
Accumulated amortization balance as of June 30, 2017	(31,371		)	(6,038		)	(1,401		)	—		(38,810		)
Net balance as of June 30, 2017	$	50,014		$	13,059		$	4,263		$	12,982	$	80,318
Weighted average life (in years)	11			10			10

The in-process research and development project is the development of the next generation Verigene system, Verigene II, which we believe will be completed in 2018. The estimated cost to complete this project is between $14.0 million and $18.0 million.

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

2017 (six months)	$	4,333
2018	8,666
2019	8,666
2020	8,666
2021	8,307
Thereafter	28,698
	$	67,336
IPR&D	12,982
	$	80,318

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OTHER COMPREHENSIVE (LOSS) INCOME

6 Months Ended

Jun. 30, 2017

Statement of Comprehensive Income [Abstract]

Comprehensive Income (Loss) Note

NOTE 6 — OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (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) for the Company includes foreign currency translation adjustments.

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

	Foreign Currency Items			Available-for-Sale Investments		Accumulated Other Comprehensive Income (Loss) Items
Balance as of December 31, 2016	$	(1,692	)	$	—	$	(1,692	)
Other comprehensive income before reclassifications	602			—		602
Net current-period other comprehensive income	602			—		602
Balance as of June 30, 2017	$	(1,090	)	$	—	$	(1,090	)

The following table presents the tax (expense) benefit allocated to each component of other comprehensive income (loss) (in thousands):

	Three Months Ended June 30, 2017						Six Months Ended June 30, 2017
	Before Tax		Tax Benefit		Net of Tax		Before Tax		Tax Benefit		Net of Tax
Foreign currency translation adjustments	$	339	$	—	$	339	$	602	$	—	$	602
Unrealized gains on available-for-sale investments	—		—		—		—		—		—
Other comprehensive income (loss)	$	339	$	—	$	339	$	602	$	—	$	602

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EARNINGS PER SHARE

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

EARNINGS PER SHARE

NOTE 7 — EARNINGS PER SHARE

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Basic:
Net income	$	5,544		$	5,653	$	14,775		$	14,423
Less: allocation to participating securities	(103		)	—		(276		)	—
Net income attributable to common stockholders	$	5,441		$	5,653	$	14,499		$	14,423
Weighted average common stock outstanding	43,160			42,534		43,030			42,440
Net income per share attributable to common stockholders	$	0.13		$	0.13	$	0.34		$	0.34
Diluted:
Net income	5,544			$	5,653	$	14,775		$	14,423
Less: allocation to participating securities	(103		)	—		(276		)	—
Net income attributable to common stockholders	$	5,441		$	5,653	$	14,499		$	14,423
Weighted average common stock outstanding	43,160			42,534		43,030			42,440
Effect of dilutive securities: stock options and awards	99			41		98			—
Weighted-average shares used in computing net income per share	43,259			42,575		43,128			42,440
Net income per share attributable to common stockholders	$	0.13		$	0.13	$	0.34		$	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 options to acquire approximately 2.5 million and 0.4 million shares for the three months ended June 30, 2017 and 2016, and 2.0 million and 0.4 million shares for the six months ended June 30, 2017 and 2016, respectively, were excluded from the computations of diluted EPS because the effect of including those stock options would have been anti-dilutive.

We apply the two-class method of computing earnings per share, which requires the calculation of separate 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.

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

NOTE 8 — STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION

Dividends

On February 21, 2017 and May 24, 2017, the Board of Directors declared cash dividends on the Company’s common stock of $0.06 per share, respectively. The dividend declared in February was payable to stockholders of record as of March 24, 2017 and was paid on April 14, 2017. The dividend declared in May was payable to stockholders of record as of June 23, 2017 and was paid on July 14, 2017. The Company's current intent is to pay a continuing dividend on a quarterly basis.

Stock-Based Compensation

The Company’s stock option activity for the six months ended June 30, 2017 was as follows:

Stock Options (shares in thousands)	Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2016	2,180		$	18.06
Granted	1,406		18.08
Exercised	(96	)	16.46
Cancelled or expired	(169	)	19.79
Outstanding as of June 30, 2017	3,321		$	18.04

The Company had $16.7 million of total unrecognized compensation costs related to stock options as of June 30, 2017, which costs are expected to be recognized over a weighted average period of 3.01 years.

The Company’s restricted share activity for the six months ended June 30, 2017 was as follows:

Restricted Stock Awards (shares in thousands)	Shares		Weighted Average Grant Price
Non-vested as of December 31, 2016	810		$	18.74
Granted	370		18.22
Vested	(322	)	18.53
Cancelled or expired	(47	)	19.03
Non-vested as of June 30, 2017	811		$	18.58
Restricted Stock Units (in thousands)	Shares
Non-vested as of December 31, 2016	457
Granted	101
Vested	(121	)
Cancelled or expired	(10	)
Non-vested as of June 30, 2017	427

As of June 30, 2017, there was $15.3 million and $3.3 million of total unrecognized compensation costs related to Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs), respectively. This cost is expected to be recognized over a weighted average period of 2.60 years for the RSAs and 2.35 years for the RSUs. The Company issues a small number of cash settled RSUs pursuant to the 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 of comprehensive income (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	402	$	320	$	737	$	569
Research and development	759		752		597		1,142
Selling, general and administrative	2,865		2,403		3,414		2,944
Stock-based compensation costs reflected in net income	$	4,026	$	3,475	$	4,748	$	4,655

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ACCRUED LIABILITIES

6 Months Ended

Jun. 30, 2017

Accrued Liabilities, Current [Abstract]

ACCRUED WARRANTY COSTS

NOTE 9 — ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

	June 30, 2017		December 31, 2016
Compensation and employee benefits	$	11,380	$	17,229
Dividends payable	2,668		—
Income and other taxes	517		816
Warranty costs	1,212		675
Other	2,550		4,084
	$	18,327	$	22,804

Sales of certain of the Company's systems are subject to a warranty. System warranties typically extend for a period of 12 months from the date of installation not to exceed 24 months from the date of shipment. The Company estimates the amount of warranty claims on sold products that may be incurred based on current and historical data. The actual warranty expense could differ from the estimates made by the Company based on product performance. Warranty expenses are evaluated and adjusted periodically.

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

Accrued warranty costs as of December 31, 2016	$	675
Warranty adjustments/settlements	258
Accrual for warranty costs	279
Accrued warranty costs as of June 30, 2017	$	1,212

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INCOME TAXES

6 Months Ended

Jun. 30, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

OTE 10 — 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 months ended June 30, 2017 was 31.2%, including amounts recorded for discrete events. This differs from the statutory rate of 35% primarily because of the worldwide mix of consolidated earnings and losses before taxes. The mix of profits for the 2017 fiscal year is estimated to have a higher concentration in the U.S. than in prior years, which profits are subject to a statutory U.S. federal and blended state rate of 37.5%. The Company’s tax expense reflects the full federal, various state, and foreign blended statutory rates. The Company is utilizing its net operating losses and tax credits in the U.S., Canada and the Netherlands and currently expects a full year effective tax rate of less than 35%. Therefore, cash taxes to be paid are expected to continue to be less than 15% of book tax expense.

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 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 2013 can still be reviewed by the taxing authorities. For the six months ended June 30, 2017, there were no material changes to the total amount of unrecognized tax benefits.  No material changes to this liability are expected within the next 12 months. The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 11 - 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 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 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.

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RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 12 — RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting guidance

In July 2015, the FASB issued guidance regarding the measurement of inventory. The new guidance requires inventory to be measured at the lower of cost and net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The Company adopted this standard during the quarter ended March 31, 2017, and its adoption did not have any impact on its consolidated financial statements.

Recent accounting guidance not yet adopted

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 transfer occurs. The guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial position and results of operations. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.

In August 2016, the FASB issued specific guidance on eight cash flow classification issues that are not addressed by current U.S. GAAP and thereby reduced the current diversity in practice.  This guidance is effective for annual periods beginning after December 15, 2017. 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 the new guidance is for the Company's first quarter of fiscal 2019 and early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. The Company is currently evaluating the impact of the adoption of this requirement on its consolidated financial statements, but 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 balance sheet.

In January 2016, the FASB issued guidance that changes how entities measure equity investments that do not result in consolidation and are not accounted for under the equity method. Entities will be required to measure these investments at fair value at the end of each reporting period and recognize changes in fair value in net income. This guidance also changes certain disclosure requirements and other aspects of current U.S. GAAP. This guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that adoption of this guidance will have a material impact on its consolidated financial statements as the only potential impact would be related to the Company's cost-method investments discussed in Note 2 - Investments.

In May 2014, the FASB issued 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. In doing so, companies will need to use their judgment and make estimates more extensively than under current U.S. GAAP. These judgments may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is designed to create greater comparability for financial statement users across industries and jurisdictions and also requires enhanced disclosures. On July 9, 2015, the FASB voted in favor of delaying the effective date of the new standard by one year, with early adoption permitted as of the original effective date. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company currently anticipates adopting the new standard effective January 1, 2018. The new standard permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. The Company has begun assessing its various revenue streams to identify performance obligations under this guidance and the key aspects of the standard that will impact the Company's revenue recognition process. Based upon the Company's preliminary assessments, these standards will impact the timing of the recognition of the Company's royalty revenue as the Company has historically waited until the partners have reported end user sales to recognize royalty revenue. With the implementation of the standard, the Company expects to record a cumulative adjustment increasing retained earnings which is estimated to be approximately one quarter of royalty revenue. After implementation, the Company will begin recording estimated royalty revenue each quarter to coincide with the timing of the end user sale by the partner, with any necessary corrections to the estimates in the following quarter. Given the diversity of its commercial arrangements, the Company is continuing to assess the impact these standards may have on its consolidated results of operation, financial position, cash flows and financial statement disclosures.

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INVESTMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Investments [Abstract]

Components of available-for-sale securities

Available-for-sale securities consisted of the following as of June 30, 2017 (in thousands):

	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

Available-for-sale securities consisted of the following as of December 31, 2016 (in thousands):

	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

Estimated fair value of available-for-sale debt securities, by contractual maturity

There were no available-for-sale debt securities as of June 30, 2017 and December 31, 2016.

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INVENTORY, NET (Tables)

6 Months Ended

Jun. 30, 2017

Inventory, Net [Abstract]

Schedule of Inventory, Current

nventories consisted of the following (in thousands):

	June 30, 2017		December 31, 2016
Parts and supplies	$	24,233	$	22,960
Work-in-progress	8,559		6,268
Finished goods	14,303		11,547
	$	47,095	$	40,775

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2017

Fair Value Disclosures [Abstract]

Fair value, financial assets (cash equivalents and investments) measured on a recurring basis

The following table represents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016 (in thousands):

	Fair Value Measurements as of June 30, 2017 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money Market funds	$	701	$	—	$	—	$	701

	Fair Value Measurements as of December 31, 2016 Using
	Level 1		Level 2		Level 3		Total
Assets:
Money Market funds	$	701	$	—	$	—	$	701

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Changes in the carrying amount of goodwill

The changes in the carrying amount of the Company’s goodwill during the period are as follows (in thousands):

	June 30, 2017		December 31, 2016
Balance at beginning of year	$	85,481	$	49,619
Acquisition of Nanosphere	—		35,862
Balance at end of period	$	85,481	$	85,481

Schedule of intangible assets

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
2016
Balance as of December 31, 2015	$	69,102		$	7,797		$	1,652		$	—	$	78,551
Acquisition of Nanosphere	12,283			11,300			4,012			12,982		40,577
Balance as of December 31, 2016	81,385			19,097			5,664			12,982		119,128
Less: accumulated amortization:
Accumulated amortization balance as of December 31, 2015	(21,646		)	(3,667		)	(756		)	—		(26,069		)
Amortization expense	(6,491		)	(1,371		)	(356		)	—		(8,218		)
Accumulated amortization balance as of December 31, 2016	(28,137		)	(5,038		)	(1,112		)	—		(34,287		)
Net balance as of December 31, 2016	$	53,248		$	14,059		$	4,552		$	12,982	$	84,841
Weighted average life (in years)	10			10			10
2017
Balance as of December 31, 2016	$	81,385		$	19,097		$	5,664		$	12,982	$	119,128
Balance as of June 30, 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	(3,234		)	(1,000		)	(289		)	—		(4,523		)
Accumulated amortization balance as of June 30, 2017	(31,371		)	(6,038		)	(1,401		)	—		(38,810		)
Net balance as of June 30, 2017	$	50,014		$	13,059		$	4,263		$	12,982	$	80,318
Weighted average life (in years)	11			10			10

Estimated aggregate amortization expense for the next five years and thereafter

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

2017 (six months)	$	4,333
2018	8,666
2019	8,666
2020	8,666
2021	8,307
Thereafter	28,698
	$	67,336
IPR&D	12,982
	$	80,318

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OTHER COMPREHENSIVE (LOSS) INCOME (Tables)

6 Months Ended

Jun. 30, 2017

Statement of Comprehensive Income [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

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

	Foreign Currency Items			Available-for-Sale Investments		Accumulated Other Comprehensive Income (Loss) Items
Balance as of December 31, 2016	$	(1,692	)	$	—	$	(1,692	)
Other comprehensive income before reclassifications	602			—		602
Net current-period other comprehensive income	602			—		602
Balance as of June 30, 2017	$	(1,090	)	$	—	$	(1,090	)

Schedule of Comprehensive Income (Loss)

The following table presents the tax (expense) benefit allocated to each component of other comprehensive income (loss) (in thousands):

	Three Months Ended June 30, 2017						Six Months Ended June 30, 2017
	Before Tax		Tax Benefit		Net of Tax		Before Tax		Tax Benefit		Net of Tax
Foreign currency translation adjustments	$	339	$	—	$	339	$	602	$	—	$	602
Unrealized gains on available-for-sale investments	—		—		—		—		—		—
Other comprehensive income (loss)	$	339	$	—	$	339	$	602	$	—	$	602

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EARNINGS PER SHARE (Tables)

6 Months Ended

Jun. 30, 2017

Earnings Per Share [Abstract]

Schedule of Calculation of Numerator and Denominator in Earnings Per Share

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2017			2016		2017			2016
Basic:
Net income	$	5,544		$	5,653	$	14,775		$	14,423
Less: allocation to participating securities	(103		)	—		(276		)	—
Net income attributable to common stockholders	$	5,441		$	5,653	$	14,499		$	14,423
Weighted average common stock outstanding	43,160			42,534		43,030			42,440
Net income per share attributable to common stockholders	$	0.13		$	0.13	$	0.34		$	0.34
Diluted:
Net income	5,544			$	5,653	$	14,775		$	14,423
Less: allocation to participating securities	(103		)	—		(276		)	—
Net income attributable to common stockholders	$	5,441		$	5,653	$	14,499		$	14,423
Weighted average common stock outstanding	43,160			42,534		43,030			42,440
Effect of dilutive securities: stock options and awards	99			41		98			—
Weighted-average shares used in computing net income per share	43,259			42,575		43,128			42,440
Net income per share attributable to common stockholders	$	0.13		$	0.13	$	0.34		$	0.34

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock options activity

The Company’s stock option activity for the six months ended June 30, 2017 was as follows:

Stock Options (shares in thousands)	Shares		Weighted Average Exercise Price
Outstanding as of December 31, 2016	2,180		$	18.06
Granted	1,406		18.08
Exercised	(96	)	16.46
Cancelled or expired	(169	)	19.79
Outstanding as of June 30, 2017	3,321		$	18.04

Restricted shares activity

The Company’s restricted share activity for the six months ended June 30, 2017 was as follows:

Restricted Stock Awards (shares in thousands)	Shares		Weighted Average Grant Price
Non-vested as of December 31, 2016	810		$	18.74
Granted	370		18.22
Vested	(322	)	18.53
Cancelled or expired	(47	)	19.03
Non-vested as of June 30, 2017	811		$	18.58
Restricted Stock Units (in thousands)	Shares
Non-vested as of December 31, 2016	457
Granted	101
Vested	(121	)
Cancelled or expired	(10	)
Non-vested as of June 30, 2017	427

Stock-based compensation costs recognized in consolidated statements of income

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Cost of revenue	$	402	$	320	$	737	$	569
Research and development	759		752		597		1,142
Selling, general and administrative	2,865		2,403		3,414		2,944
Stock-based compensation costs reflected in net income	$	4,026	$	3,475	$	4,748	$	4,655

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ACCRUED LIABILITIES (Tables)

6 Months Ended

Jun. 30, 2017

Accrued Liabilities, Current [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

Accrued liabilities consisted of the following (in thousands):

	June 30, 2017		December 31, 2016
Compensation and employee benefits	$	11,380	$	17,229
Dividends payable	2,668		—
Income and other taxes	517		816
Warranty costs	1,212		675
Other	2,550		4,084
	$	18,327	$	22,804

Changes in warranty accrual

Accrued warranty costs as of December 31, 2016	$	675
Warranty adjustments/settlements	258
Accrual for warranty costs	279
Accrued warranty costs as of June 30, 2017	$	1,212

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BUSINESS COMBINATIONS (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended			6 Months Ended		12 Months Ended
	Jun. 30, 2017	Mar. 31, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015
Business Acquisition [Line Items]
Common stock, par value (in dollars per share)	$ 0.001			$ 0.001			$ 0.001
Goodwill						$ 35,862
Revenue	$ 76,457		$ 64,166	$ 154,236	$ 127,147
Net loss	$ 5,544	$ 9,231	$ 5,653	$ 14,775	$ 14,423
Net income attributable to common stockholders	43,160		42,534	43,030	42,440
Net income per share attributable to common stockholders	43,259		42,575	43,128	42,440

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INVESTMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Components of Available-for-sale Securities [Line Items]
Payments to Acquire Other Investments	$ 500	$ 0	$ 1,000	$ 0
Amortized Cost	701		701		$ 701
Gains in Accumulated Other Comprehensive Gain	0		0		0
Losses in Accumulated Other Comprehensive Gain	0		0		0
Estimated Fair Value	701		701		701
Available-for-sale Securities [Abstract]
Proceeds from sales of available-for-sale-securities	$ 0	$ 0	$ 19,500	$ 0
Available-for-sale securities, debt maturities [Abstract]
Ownership percentage in cost method investment	20.00%		20.00%
Money Market Funds [Member]
Components of Available-for-sale Securities [Line Items]
Amortized Cost	$ 701		$ 701		701
Gains in Accumulated Other Comprehensive Gain	0		0		0
Losses in Accumulated Other Comprehensive Gain	0		0		0
Estimated Fair Value	701		701		701
Total Current Available-for-sale Securities [Member]
Components of Available-for-sale Securities [Line Items]
Amortized Cost	701		701		701
Gains in Accumulated Other Comprehensive Gain	0		0		0
Losses in Accumulated Other Comprehensive Gain	0		0		0
Estimated Fair Value	701		701		701
Total Non-Current Available-for-sale Securities [Member]
Components of Available-for-sale Securities [Line Items]
Amortized Cost	0		0		0
Gains in Accumulated Other Comprehensive Gain	0		0		0
Losses in Accumulated Other Comprehensive Gain	0		0		0
Estimated Fair Value	0		0		0
Investment in Private Company 1 [Member]
Available-for-sale securities, debt maturities [Abstract]
Amount of investments in a private company	2,000		2,000
Investment in Private Company 2 [Member]
Available-for-sale securities, debt maturities [Abstract]
Amount of investments in a private company	$ 1,000		$ 1,000		$ 1,000

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INVENTORY, NET (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Inventory, Net [Abstract]
Parts and supplies	$ 24,233	$ 22,960
Work-in-progress	8,559	6,268
Finished goods	14,303	11,547
Inventory, net	$ 47,095	$ 40,775

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Amounts included in asset accounts [Abstract]
Money Market funds	$ 701	$ 701
Fair Value, Inputs, Level 1 [Member]
Amounts included in asset accounts [Abstract]
Money Market funds	701	701
Fair Value, Inputs, Level 2 [Member]
Amounts included in asset accounts [Abstract]
Money Market funds	0	0
Fair Value, Inputs, Level 3 [Member]
Amounts included in asset accounts [Abstract]
Money Market funds	$ 0	$ 0

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GOODWILL AND OTHER INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015
Intangible Assets [Line Items]
Business Acquisition, Purchase Price Allocation, Amortizable Intangible Assets					$ 40,577
Goodwill [Roll Forward]
Balance at beginning of year			$ 85,481	$ 49,619	49,619
Goodwill					35,862
Balance at end of period	$ 85,481		85,481		85,481	$ 49,619
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Balance, beginning			119,128	78,551	78,551
Balance, ending	119,128		119,128		119,128	78,551
Less: accumulated amortization [Abstract]
Accumulated amortization, beginning balance			(34,287)	(26,069)	(26,069)
Amortization expense	(2,166)	$ (1,688)	(4,523)	(3,315)		(8,218)
Accumulated amortization, ending balance	(38,810)		(38,810)		(34,287)	(26,069)
Net balance	80,318		80,318		84,841
Estimated aggregate amortization expense for the next five years and thereafter [Abstract]
2017 (six months)	4,333		4,333
2017	8,666		8,666
2018	8,666		8,666
2019	8,666		8,666
2020	8,307		8,307
Thereafter	28,698		28,698
Total	67,336		67,336
IPR&D	12,982		12,982
Total	80,318		80,318
In-process Research and Development [Member]
Intangible Assets [Line Items]
Business Acquisition, Purchase Price Allocation, Amortizable Intangible Assets					12,982
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Balance, beginning			12,982	0	0
Balance, ending	12,982		12,982		12,982	0
Less: accumulated amortization [Abstract]
Accumulated amortization, beginning balance			0	0	0
Amortization expense			0			0
Accumulated amortization, ending balance	0		0		0	0
Net balance	12,982		12,982		12,982
Technology, Trade Secrets, and Know-how [Member]
Intangible Assets [Line Items]
Business Acquisition, Purchase Price Allocation, Amortizable Intangible Assets					12,283
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Balance, beginning			81,385	69,102	69,102
Balance, ending	81,385		81,385		81,385	69,102
Less: accumulated amortization [Abstract]
Accumulated amortization, beginning balance			(28,137)	(21,646)	(21,646)
Amortization expense			(3,234)			(6,491)
Accumulated amortization, ending balance	(31,371)		(31,371)		(28,137)	$ (21,646)
Net balance	50,014		$ 50,014		53,248
Weighted average life (in years)			11 years			10 years
Customer Lists and Contracts [Member]
Intangible Assets [Line Items]
Business Acquisition, Purchase Price Allocation, Amortizable Intangible Assets					11,300
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Balance, beginning			$ 19,097	7,797	7,797
Balance, ending	19,097		19,097		19,097	$ 7,797
Less: accumulated amortization [Abstract]
Accumulated amortization, beginning balance			(5,038)	(3,667)	(3,667)
Amortization expense			(1,000)			(1,371)
Accumulated amortization, ending balance	(6,038)		(6,038)		(5,038)	$ (3,667)
Net balance	13,059		$ 13,059		14,059
Weighted average life (in years)			10 years			10 years
Other Identifiable Intangible Assets [Member]
Intangible Assets [Line Items]
Business Acquisition, Purchase Price Allocation, Amortizable Intangible Assets					4,012
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Balance, beginning			$ 5,664	1,652	1,652
Balance, ending	5,664		5,664		5,664	$ 1,652
Less: accumulated amortization [Abstract]
Accumulated amortization, beginning balance			(1,112)	$ (756)	(756)
Amortization expense			(289)			(356)
Accumulated amortization, ending balance	(1,401)		(1,401)		(1,112)	$ (756)
Net balance	$ 4,263		$ 4,263		$ 4,552
Weighted average life (in years)			10 years			10 years

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OTHER COMPREHENSIVE (LOSS) INCOME (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Balance as of December 31, 2016			$ (1,692)
Other comprehensive income before reclassifications			602
Net current-period other comprehensive income	$ 339	$ (38)	602	$ 217
Balance as of June 30, 2017	(1,090)		(1,090)
Accumulated Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Balance as of December 31, 2016			(1,692)
Other comprehensive income before reclassifications			602
Net current-period other comprehensive income			602
Balance as of June 30, 2017	(1,090)		(1,090)
Available-for-sale Securities [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Balance as of December 31, 2016			0
Other comprehensive income before reclassifications			0
Net current-period other comprehensive income			0
Balance as of June 30, 2017	$ 0		$ 0

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OTHER COMPREHENSIVE (LOSS) INCOME (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Other Comprehensive Income (Loss), Net of Tax [Abstract]
Foreign currency translation adjustments, before tax	$ 339		$ 602
Foreign currency translation adjustments, tax benefit	0		0
Foreign currency translation adjustments, net of tax	339		602
Unrealized gains on available-for-sale investments, before tax	0		0
Unrealized gains on available-for-sale investments, tax benefit	0		0
Unrealized gains on available-for-sale investments, net of tax	0		0
Other comprehensive (loss) income, before tax	339		602
Other comprehensive (loss) income, tax benefit	0		0
Other comprehensive (loss) income, net of tax	$ 339	$ (38)	$ 602	$ 217

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2017	Mar. 31, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Numerator:
Net income	$ 5,544	$ 9,231	$ 5,653	$ 14,775	$ 14,423
Undistributed Earnings (Loss) Allocated to Participating Securities, Basic	(103)		0	(276)	0
Net Income (Loss) Available to Common Stockholders, Basic	$ 5,441		$ 5,653	$ 14,499	$ 14,423
Less: allocation to participating securities
Net income attributable to common stockholders	43,160		42,534	43,030	42,440
Net income per share attributable to common stockholders	43,259		42,575	43,128	42,440
Basic net income per share	$ 0.13		$ 0.13	$ 0.34	$ 0.34
Net income per share attributable to common stockholders	$ 0.13		$ 0.13	$ 0.34	$ 0.34
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive restricted stock awards, stock options	99		41	98	0

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STOCK-BASED COMPENSATION (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	6 Months Ended
	Jun. 30, 2017
Stock options, additional Disclosures [Abstract]
Total unrecognized compensation costs	$ 16.7
Unrecognized compensation costs, weighted average period of recognition (in years)	3 years 3 days
Stock Options [Member]
Stock options, outstanding [Roll Forward]
Options outstanding, beginning balance (in shares)	2,180
Granted (in shares)	1,406
Exercised (in shares)	(96)
Cancelled or expired (in shares)	(169)
Options outstanding, ending balance (in shares)	3,321
Stock options, additional Disclosures [Abstract]
Weighted-average price, beginning of period (in dollars per share)	$ 18.06
Weighted-average price, granted (in dollars per share)	18.08
Weighted average price, exercised (in dollars per share)	16.46
Weighted-average price, cancelled or expired (in dollars per share)	19.79
Weighted-average price, end of period (in dollars per share)	$ 18.04
Restricted Stock [Member]
Stock options, additional Disclosures [Abstract]
Total unrecognized compensation costs	$ 15.3
Unrecognized compensation costs, weighted average period of recognition (in years)	2 years 7 months 5 days
Equity instruments other than options, nonvested [Roll Forward]
Non-vested, beginning balance (in shares)	810
Granted (in shares)	370
Vested (in shares)	(322)
Cancelled or expired (in shares)	(47)
Non-vested, ending balance (in shares)	811
Equity instruments other than options, additional Disclosures [Abstract]
Non-vested, beginning balance (in dollars per share)	$ 18.74
Granted (in dollars per share)	18.22
Vested (in dollars per share)	18.53
Cancelled or expired (in dollars per share)	19.03
Non-vested, ending balance (in dollars per share)	$ 18.58
Restricted Stock Units (RSUs) [Member]
Stock options, additional Disclosures [Abstract]
Total unrecognized compensation costs	$ 3.3
Unrecognized compensation costs, weighted average period of recognition (in years)	2 years 4 months 5 days
Equity instruments other than options, nonvested [Roll Forward]
Non-vested, beginning balance (in shares)	457
Granted (in shares)	101
Vested (in shares)	(121)
Cancelled or expired (in shares)	(10)
Non-vested, ending balance (in shares)	427

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STOCK-BASED COMPENSATION (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Cost of revenue
Share-based Compensation, allocation and classification in income statements [Abstract]
Stock-based compensation costs	$ 402	$ 320	$ 737	$ 569
Research and development
Share-based Compensation, allocation and classification in income statements [Abstract]
Stock-based compensation costs	759	752	597	1,142
Selling, general and administrative
Share-based Compensation, allocation and classification in income statements [Abstract]
Stock-based compensation costs	2,865	2,403	3,414	2,944
Selling, general and administrative
Share-based Compensation, allocation and classification in income statements [Abstract]
Stock-based compensation costs	$ 4,026	$ 3,475	$ 4,748	$ 4,655

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ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Dec. 31, 2016	Dec. 31, 2015
Accrued Liabilities, Current [Abstract]
Accrued Employee Benefits, Current	$ 11,380	$ 17,229
Estimated Litigation Liability	2,668		$ 0
Accrued Income And Other Taxes	517	816
Other Accrued Liabilities, Current	2,550	4,084
Accrued liabilities	18,327	$ 22,804
Accrued warranty costs [Roll Forward]
Accrued warranty costs as of December 31, 2016	675
Warranty adjustments/settlements	(258)
Accrual for warranty costs	279
Accrued warranty costs as of June 30, 2017	$ 1,212

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INCOME TAXES (Details)	6 Months Ended
	Jun. 30, 2017
Effective tax rate, including amounts recorded for discrete events (in hundredths)	31.23%
Statutory rate (in hundredths)	35.00%
Maximum rate for cash taxes expected to be paid (in hundredths)	15.00%

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RECENT ACCOUNTING PRONOUNCEMENTS RECENT ACCOUNTING PRONOUNCEMENTS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
New Accounting Pronouncement, Early Adoption [Line Items]
Income Tax Expense (Benefit)	$ 1,939	$ 401	$ 6,714	$ 3,453
Retained earnings	$ 78,344		$ 78,344		$ 68,898