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

• the impact of the ongoing uncertainty in global finance markets on us and our strategic partners and their customers, including its effects on their capital spending policies and their ability to finance purchases of our products;

• concentration of our revenue in a limited number of strategic partners;

• fluctuations in quarterly results due to a lengthy and unpredictable sales cycle, bulk purchases of consumables, and the seasonal nature of some of our assay products;

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

• potential shortages, or increases in costs, of components;

• competition;

• our ability to successfully launch new products;

• the timing of regulatory approvals;

• 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;

• risks relating to our foreign operations; and

• risks and uncertainties associated with implementing our acquisition strategy including our ability to obtain financing, our ability to integrate acquired companies or selected assets into our consolidated business operations, and the ability to recognize the benefits of our acquisitions.

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 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 section titled "Risk Factors" below and in the 2008 10-K. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this 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 report and 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 report.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "Luminex," the "Company," "we," "us" and "our" refer to Luminex Corporation and its subsidiaries.
OVERVIEW
We develop, manufacture and sell proprietary biological testing technologies and products with applications throughout the life sciences and diagnostics industries. These industries depend on a broad range of tests, called bioassays, to perform diagnostic tests, discover and develop new drugs and identify genes. Our xMAP® (Multi-Analyte Profiling) technology, an open architecture, multiplexing technology, allows simultaneous analysis of up to 100 bioassays from a small sample volume, typically a single drop of fluid, by reading biological tests on the surface of microscopic polystyrene beads called microspheres. Products we are currently developing and that are anticipated for market release in 2009 will be able to perform up to 500 simultaneous bioassays from a small sample volume. xMAP technology combines this miniaturized liquid array bioassay capability with small lasers, digital signal processors and proprietary software to create a system offering advantages in speed, precision, flexibility and cost. Our xMAP technology is currently being used within various segments of the life sciences industry which includes the fields of drug discovery and development, clinical diagnostics, genetic analysis, bio-defense, protein analysis and biomedical research.
Our end-user customers and partners, which include laboratory professionals performing research, clinical laboratories performing tests on patients as ordered by a physician and other laboratories, have a fundamental need to perform high quality testing as efficiently as possible. Luminex has adopted a business model built around strategic partnerships. We have licensed our xMAP technology to companies, which then develop products that incorporate the xMAP technology into products that they sell to the end-user. Luminex develops and manufactures the proprietary xMAP laboratory instrumentation and the proprietary xMAP microspheres and sells these products to its partners. Our partners then sell xMAP instrumentation and xMAP-based reagent consumable products, which run on the instrumentation, to the end-user laboratory. Luminex was founded on this model, and our success to date has been due to this model. As of March 31, 2009, Luminex had approximately 61 strategic partners and these partners have purchased from Luminex over 6,000 xMAP-based systems. Of the 61 strategic partners, 36 have released commercialized reagent-based products utilizing our technology.

Beginning in 2006, we began developing proprietary assays. This development was supplemented in 2007 by our acquisition of Tm Bioscience, which we named Luminex Molecular Diagnostics, or LMD. Our Assay Segment focuses on the molecular diagnostics market and certain specialty markets.
Luminex has several forms of revenue that result from this partner model:
• System revenue is generated from the sale of our xMAP systems and peripherals. Currently, system revenue is derived from the sale of the Luminex 100 and 200 analyzers, our FLEXMAP 3D system, optional XY Platform and Sheath Delivery Systems.

• Consumable revenue is generated from the sale of our dyed polystyrene microspheres and sheath fluid. Our larger commercial and development partners often purchase these consumables in bulk to minimize the number of incoming qualification events and to allow for longer development and production runs.

• Royalty revenue is generated when a partner sells a kit incorporating our proprietary microspheres to an end user or when a partner utilizes a kit to provide a testing result to a user. End users can be facilities such as testing labs, development facilities and research facilities that purchase prepared kits and have specific testing needs or testing service companies that provide assay results to pharmaceutical research companies or physicians.

• Assay revenue is generated from the sale of our kits which are a combination of chemical and biological reagents and our proprietary bead technology used to perform diagnostic and research assays on samples.

• Service revenue is generated when a partner or other owner of a system purchases a service contract from us after the warranty has expired. Service contract revenue is amortized over the life of the contract and the costs associated with those contracts are recognized as incurred.

• Other revenue consists of items such as training, shipping, parts sales, license revenue, grant revenue, contract research and development fees, milestone revenue and other items that individually amount to less than 5% of total revenue.

First Quarter 2009 Highlights
• Consolidated revenue of $25.6 million for the quarter ended March 31, 2009, representing an 11% increase over revenue for the first quarter of 2008

• Consolidated gross profit margin of 69% compared with first quarter 2008 gross profit margin of 66%

• System shipments of 203 including 2 shipments of FLEXMAP 3D™, representing the tenth consecutive quarter of system shipments of 200 or more and resulting in cumulative life-to-date shipments of 6,097

• First quarter consumables revenue of $7.6 million and royalty revenue of $4.5 million

• Our partners reported over $65 million of royalty bearing end user sales on xMAP technology for the quarter, a 21% increase over the first quarter of 2008

• Settlement of SUNY lawsuit, resulting in one-time charge of approximately $4.4 million

We have experienced a decrease in sequential total revenue from the fourth quarter of 2008 of approximately 9%, or $2.6 million. This decrease was a result of several factors.
• The historical decline in system placements from each fourth quarter to the first quarter of the subsequent year that we have consistently experienced, primarily attributable to customer spending behavior. The variability in customer spending patterns is one of the factors contributing to the broad range of expected system placements we have communicated of between 175 and 225 LX100/200 systems per quarter.

• The decline in bulk consumable purchases in the first quarter of 2009. In the fourth quarter of 2008, we had bulk purchases totaling $6.8 million in consumables. In the first quarter of 2009, bulk purchases constituted $6.1 million of consumables, primarily as a result of one less bulk purchaser in the first quarter. We have previously indicated that variability is expected in the absolute number of bulk purchasers and purchases per quarter and we expect this variability to continue. Non-bulk purchases for the same periods remained essentially unchanged at approximately $1.5 million.

• The decline in total assay revenue from $5.4 million in the fourth quarter of 2008 to $4.2 million in the first quarter of 2009. The decline in total assay revenue is a result of expected volatility in individual assay sales coupled with a lighter than anticipated flu season, resulting in xTAG RVP sales falling below expectations. Assay volatility will continue to exist as our customers buy product to meet current expected needs and manage their inventory, and as a result of economic and other external conditions that may impact a particular product, such as a mild flu season with respect to our xTAG RVP products. In the aggregate, we do not believe that our anticipated assay sales will experience any long term decline based on the first quarter results and experience, and with the introduction of new products currently in the pipeline, assay sales are expected to grow long term.

Segment Information
Luminex has two reportable segments: the Technology Segment and the Assay Segment. The Technology Segment, which is our base business, consists of system sales to partners, raw bead sales, royalties, service and support of the technology, and other miscellaneous items. The Assay Segment is primarily involved in the development and sale of assays on xMAP technology for use on Luminex's installed base of systems.
Future Operations
We expect anticipated 2009 revenue growth to be driven by sustained adoption of our core technology coupled with assay introduction and commercialization by the Assay Segment. We anticipate a continued shift in revenue concentration towards the higher margin items, such as assays, consumables and royalties, which will remain a significant portion of our revenue mix, contributing to favorable, but variable gross margin percentages. Additionally, we believe that a sustained investment in R&D is necessary in order to meet the needs of our marketplace; however, we estimate that R&D expenditures for the year ended December 31, 2009 will decline as a percentage of revenue from 18% in 2008 towards our long term target of 15% of revenue. We could experience volatility in R&D expenses as a percentage of revenue on a quarterly basis.
We expect our primary challenges throughout the remainder of 2009 to be the continued adoption of partner products incorporating Luminex technology, the current economic condition and its potential impact on the purchases and sales of our partners and customers, our ability to improve or maintain our operating margins, commercialization, regulatory acceptance and market adoption of output from the Assay Segment, our ability to manage our costs, and the expansion of our footprint and reputation within our identified target market segments.
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 United States generally accepted accounting principles for interim financial statements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.
Management believes there have been no significant changes during the quarter ended March 31, 2009 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 our Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008
Selected consolidated financial data for the three months ended March 31, 2009
and 2008 is as follows (dollars in thousands):

                                                  Three Months Ended
                                                       March 31,
                                                   2009          2008
               Revenue                          $   25,557     $ 23,012
               Gross profit                     $   17,568     $ 15,257
               Gross profit margin percentage           69 %         66 %
               Operating expenses               $   15,984     $ 16,525
               Income (loss) from operations    $    1,584     $ (1,268 )

Total revenue increased by 11% to $25.6 million for the three months ended March 31, 2009 from $23.0 million for the comparable period in 2008. The increase in revenue was primarily attributable to growth in consumable and royalty revenues in the Technology Segment as a result of the expansion of the installed instrument base and the corresponding increased aggregate consumption which contributed $2.1 million or 81% of the overall increase. System sales for the first quarter of 2009 decreased to 203 Systems from 220 Systems for the corresponding prior year period bringing total system sales since inception to 6,097 as of March 31, 2009.
A breakdown of revenue for the three months ended March 31, 2009 and 2008 is as follows (in thousands):

                                           Three Months Ended
                                                March 31,
                                            2009          2008
                     System sales        $    6,127     $  6,627
                     Consumable sales         7,603        6,554
                     Royalty revenue          4,527        3,518
                     Assay revenue            4,195        3,846
                     Service contracts        1,432        1,219
                     Other revenue            1,673        1,248

                                         $   25,557     $ 23,012

We continue to experience revenue concentration in a limited number of strategic partners. Two customers accounted for 34% of consolidated total revenue in the first quarter of 2009 (21% and 13%, respectively). For comparative purposes, these same two customers accounted for 32% of total revenue (17% and 15%, respectively) in the first quarter of 2008. No other customer accounted for more than 10% of total revenue in this quarter.
Gross profit margin percentage increased to 69% for the three months ended March 31, 2009 from 66% for the comparable period in 2008 due to the continued shift in revenue concentration towards higher margin items: consumables and royalties. The decrease in operating expenses from $16.5 million for the first quarter of 2008 to $16.0 million for the three months ended March 31, 2009 reflects our cost containment efforts. Net operating income increased due to the increase in revenue and gross profit margin percentage. See additional discussions by segment below.

Technology Segment
Selected financial data for our Technology Segment for the three months ended
March 31, 2009 and 2008 is as follows (dollars in thousands):

                                                  Three Months Ended
                                                       March 31,
                                                   2009          2008
               Revenue                          $   21,098     $ 18,656
               Gross profit                     $   14,583     $ 11,989
               Gross profit margin percentage           69 %         64 %
               Operating expenses               $   11,065     $ 11,090
               Income from operations           $    3,518     $    899

Revenue. Total revenue for our Technology Segment increased by 13% to $21.1 million for the three months ended March 31, 2009 from $18.7 million for the comparable period in 2008. The increase in revenue was primarily attributable to an increase in consumable and royalty revenue as a result of the expansion of the installed instrument base and the corresponding increased aggregate consumption. Two customers accounted for 41% of total Technology Segment revenue in the first quarter of 2009 (25% and 16%, respectively). For comparative purposes, these same two customers accounted for 40% of total Technology Segment revenue (21% and 19%, respectively) in the first quarter of 2008.
A breakdown of revenue in the Technology Segment for the three months ended March 31, 2009 and 2008 is as follows (in thousands):

                                           Three Months Ended
                                                March 31,
                                            2009          2008
                     System sales        $    6,011     $  6,163
                     Consumable sales         7,590        6,545
                     Royalty revenue          4,527        3,518
                     Service contracts        1,372        1,219
                     Other revenue            1,598        1,211

                                         $   21,098     $ 18,656

System and peripheral component sales decreased by 2% to $6.0 million for the three months ended March 31, 2009 from $6.2 million for the comparable period of 2008. The Technology Segment sold 199 of the 203 total system sales in the three months ended March 31, 2009. For the three months ended March 31, 2009, five of our partners accounted for 132, or 66%, of total Technology Segment system sales for the period. The top five partners purchased 162, or 74%, of total Technology Segment system sales in the three months ended March 31, 2008.
Consumable sales, comprised of microspheres and sheath fluid, increased 16% to $7.6 million for the three months ended March 31, 2009 from $6.5 million for the three months ended March 31, 2008. This is primarily the result of an increase in bulk purchases due to increased commercial activity by our partners. A bulk purchase is defined as the purchase of $100,000 or more of consumables in a quarter. During the three months ended March 31, 2009, we had 11 bulk purchases of consumables totaling approximately $6.1 million as compared with 11 bulk purchases totaling approximately $5.2 million in the three months ended March 31, 2008. Partners who reported royalty bearing sales accounted for $6.6 million, or 87%, of total consumable sales for the three months ended March 31, 2009.

Royalty revenue, which results when our partners sell products or services incorporating our technology, increased by 29% to $4.5 million for the three months ended March 31, 2009 compared with $3.5 million for the three months ended March 31, 2008. We believe this is primarily the result of our efforts to accelerate instrument placements, menu expansion, and increased utilization of our partners' assays on our technology. We expect modest fluctuations in the number of commercial partners submitting royalties quarter to quarter based upon the varying contractual terms, consolidations among partners, differing reporting and payment requirements, and the addition of new partners. For the three months ended March 31, 2009, we had 36 commercial partners submitting royalties as compared to 31 for the three months ended March 31, 2008. One of our partners reported royalties totaling approximately $1.5 million or 32% of total royalties for the current quarter compared to $950,000 or 25% for the quarter ended March 31, 2008. Two other customers reported royalties totaling approximately $949,000 or 21% (12% and 9%, respectively) of total royalties for the current quarter. No other customer accounted for more than 10% of total royalty revenue for the current quarter. Total royalty bearing sales reported to us by our partners were over $65 million for the quarter ended March 31, 2009 compared with over $53 million for the quarter ended March 31, 2008. Service contracts revenue, comprised of extended warranty contracts earned ratably over the term of a contract, increased by 13% to $1.4 million for the first quarter of 2009 from $1.2 million for the first quarter of 2008. This increase is attributable to additional resources allocated to the sale of extended service agreements resulting in increased penetration of the expanded installed base. At March 31, 2009, we had 1,016 Luminex systems covered under extended service agreements and $2.5 million in deferred revenue related to those contracts. At March 31, 2008, we had 841 Luminex systems covered under extended service agreements and $2.3 million in deferred revenue related to those contracts.
Other revenues, comprised of training revenue, shipping revenue, miscellaneous part sales, amortized license fees, reagent sales, and grant revenue, increased by 32% to $1.6 million for the three months ended March 31, 2009 from $1.2 million for the three months ended March 31, 2008. This increase is primarily the result of an increase in grant revenue.
Gross profit. The gross profit margin percentage (gross profit as a percentage of total revenue) for the Technology Segment increased to 69% for the three months ended March 31, 2009 from 64% for the three months ended March 31, 2008. Gross profit for the Technology Segment increased to $14.6 million for the three months ended March 31, 2009, as compared to $12.0 million for the three months ended March 31, 2008. The increase in gross profit margin percentage was primarily attributable to changes in revenue mix between our higher and lower gross margin items. The increase in gross profit was primarily attributable to the overall increase in revenue coupled with the increase in gross margin. Consumables and royalties, two of our higher margin items, comprised $12.1 million, or 57%, of Technology Segment revenue for the current quarter and $10.1 million, or 54%, of Technology Segment revenue for the quarter ended March 31, 2008.
Research and development expense. Research and development expenses for the Technology Segment decreased to $2.5 million for the three months ended March 31, 2009 from $2.7 million for the comparable period in 2008. The slight decrease was primarily related to the timing of expenses related to our various R&D projects, while headcount remained flat compared to the three months ended March 31, 2008.
Selling, general and administrative expense. Selling, general and administrative expense for the Technology Segment increased to $8.5 million for the three months ended March 31, 2009 from $8.4 million for the comparable period in 2008. Other income, net. Other income increased to $877,000 for the three months ended March 31, 2009 from $320,000 for the comparable period in 2008. The increase is due to the interest income on the net proceeds from our secondary offering offset by the decrease in the average rate earned on current invested balances which decreased to 1.0% at March 31, 2009 from 3.7% at March 31, 2008. This decrease in the average rate earned is the result of an overall decrease in market rates compared to the prior year period.

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