Luminex Corporation
Q1 2008 Earnings Call Transcript

Published: 29 May 2008

[Operator:]

Good day and welcome to the Luminex First Quarter 2008 Earnings Call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Harriss Currie. Please go ahead, sir.

[Harriss Currie:]

Good afternoon and welcome to Luminex Corporation conference call to discuss first quarter 2008 financial and operational results. I’m Harriss Currie, Vice President and Chief Financial Officer. Today Pat Balthrop, our President and CEO, and I will take you through our quarter one 2008 results, highlights and remaining outlook for 2008. We issued a press release earlier today announcing the company’s results for the first quarter ended March 31, 2008. Following our prepared remarks on these results, we will have time to take your questions. In addition to the audio portion of our conference call, we prepared a slide presentation that’s available on our website at www.luminexcorp.com. To access this presentation, click on the Company tab, access the Investor Relations link and click on the Live Conference Call link. As usual, our presentation will be available on our website for one year. Before we begin, I would like to take this opportunity to remind you that certain statements made during the course of this call may not be purely historical and consequently may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements made regarding maintaining and growing revenue, the growth and demand for our technology and our partner’s ability to enhance that growth, the increasing productivity and profitability of our installed base of systems, our and our partners ability to achieve worldwide reach for our products, the long-term value of our products in various strategic markets, our long-term financial targets, our strategic plan and product development milestones, the advantages of our regulatory compliant processes, the competitive advantage of our products, our business outlook and projections about our revenues, cash flow, market conditions and their anticipated impact on the company, and information regarding the development, timing and performance of new products and any statements about the plans, strategies and objectives for future operations. These forward-looking statements are based on our current belief and expectations, and are subject to known or unknown risks and uncertainties, some of which are beyond the company’s control that could cause actual results or plans to differ materially and adversely from those anticipated in the forward-looking statements. The factors that could cause or contribute to such differences are detailed in our press release and our annual, quarterly or other filings with the Securities and Exchange Commission. Also, we may discuss certain non-GAAP financial measures as defined by SEC Regulation G to the extent that any non-GAAP financial measures are disclosed on this call, a presentation of and reconciliation to the most directly-comparable GAAP financial measure will be presented on this call and be available on our website at www.luminex.com in accordance with Regulation G. I will now turn the call over to Pat Balthrop, President and Chief Executive Officer of Luminex.

[Patrick Balthrop:]

Thank you, Harriss, and good afternoon, everyone. Welcome to our first quarter 2008 earnings call. We are extremely pleased with our results for the quarter and we believe that we are off to a great start for the year. We set another set of records in revenue, in gross profit, in microsphere sales and in royalties. We launched our RVP product in the quarter in the United States, and we announced several important deals and milestones. On the call today, I will begin by covering the highlights for the quarter and give you a snapshot of our financial progress. Harris will review our financial results. Then I will return to provide an update on our annual revenue guidance and then we’ll open the line for your questions. As we stated in our earnings release, we are reaffirming our 2008 annual revenue guidance at 95 to $105 million. Moving to an overview of the numbers, Luminex delivered record revenue of $23 million for the first quarter. Included in this record revenue number is another quarter with over 200 instrument shipments, with 220 systems sold and shipped. Our consumables and royalties, our high margin revenue items, not only set records, but also grew at 36% and 39% respectively. Our third high margin category, assay product sales, also did very well. All this combines to achieve a gross margin of 66% for the quarter, an all-time high. And as we told you to expect, our SG&A expense came in almost exactly on the run rate that we established in the fourth quarter of 2007. I will comment on this point again later in the presentation. This slide provides a snapshot of the company’s results and progress over time. Our revenue of $23 million for the quarter when viewed as another data point on a trend is very encouraging. The same is true for our system shipments. Our technology remains in high demand. Our partners are providing significant reach and growth. Our installed base again grew by over 20% year-over-year. That’s helping us 20 plus percent growth rate in the installed bases, please note the charge in the bottom left of the slide, which displays our royalty revenue. Royalty revenue grew by 39% in the quarter, twice that of the installed base growth. Indicating our installed instruments is growing more productive and more profitable. The data supporting this fact is shown in the bottom right chart, where you can see the annualized end user sales on our installed base was over $200 million for the first time. We also delivered several crucial milestones for the quarter. We’ve received FDA clearance for our xTAG RVP, Respiratory Viral Panel, molecular diagnostics assay from LMD, and we launched the product in the United States in early January. We are very pleased with xTAG RVP’s acceptance and so far we are doing as well or better than we expected in terms of market acceptance, customer response and revenue. As you may recall, we have previously announced that we had entered into a domestic molecular diagnostics distribution agreement with Thermal Fisher, which will help us achieve xTAG RVP market penetration in the United States. The Fisher relationship is going very well. During the quarter we also announced a worldwide distribution agreement with Abbott for xTAG RVP, which will help ensure that we can achieve global penetration and market reach for this exciting product. We also announced and expanded strategic relationship in the life science research segment with Invitrogen, which not only extends and strengthens our agreement, but will also, we believe, deliver long-term growth to Luminex and to Invitrogen. We shipped our 5,000th instrument system in the first quarter, and as of the end of the quarter we have an installed base of almost 5,200 instruments. As I mentioned earlier, this is an increase of over 20% in instruments installed over the first quarter of 2007. We announced two agreements in an important in emerging strategic market for Luminex, the food safety market. We announced a strategic relationship with both Tyson Foods and with Wageningen University and Research Center in The Netherlands. Under these agreements, Luminex will design and develop xMAP technology-based assay products for use in this emerging market space, one were the ability to multiplex using a high-performance regulatory compliant technology will have significant long-term value. In the first week of March we had to key events. The first of these was our annual scientific symposium, Planet xMAP. This year we went to another biotech and medical hotbed as we visited Boston, where we hosted 350 scientists and medical professionals. At Planet xMAP, the attendees attended lectures, shared applications, interacted with our sales and marketing and R&D staff, as well as those of many of our partners, and all of this was dedicated to our proprietary xMAP technology. It was once again a major success and we look forward to our Planet xMAP Europe event in Amsterdam in the fall and our spring 2009 event, which will be here in Austin. The second event during that week was our annual investor event in New York at the Grand Hyatt Grand Central. During this event we reviewed the company’s strategy and pipeline, our competitive position and advantages, and our key to success. We are very pleased with this year’s events. Although after 90 minutes of Q&A, I have to admit, I was a bit of hoarse. The details of the company’s progress are reflected in our financial results, which Harriss will now review.

[Harriss Currie:]

Thanks, Pat. Let’s begin the financial review with our operating results. Total consolidated revenues for the first quarter of 2008 were 23 million, up 38.6%, over the first quarter of last year. Gross margins improved 4 points from the prior year due to the continued shift in revenue concentration towards the higher margin items, assays, consumables and royalties. Net loss for the quarter for first quarter of 2008 was 1.2 million, or $0.03 per share, compared with net income of 136,000, or $0.00 per share, for the same period last year. As a reminder, beginning on March 1, 2007 Luminex’s consolidated results included the results of operations of its acquired subsidiary, Luminex Molecular Diagnostics, or LMD. For the first quarter of 2008, LMD incurred a net loss of 1.5 million after the elimination of inter-segment revenue and expense. As you will see in the upcoming slides, the increase in revenue is attributable to growth in the assay segment, including the effects of the acquisition of LMD, which contributed 3.2 million of the overall increase, and growth of our Technology segment, which had an increase of 3.7 million in consumable and royalty revenues. This slide displays revenue and operating income or loss by segment for the first quarters of 2008 and 2007. Items of note from this slide, includes 21% growth in Technology Group revenue and improvement in Technology Group profitability through the increases in consumables and royalty revenue. We achieved 220 system shipments in the first quarter of 2008, up 21% over last year for total installed base of 5,199. The Technology segment sold 210 of the total 220 system sales. Quarter one 2008 revenues for our Assay segment include three months of revenue from LMD and LBG, while revenue for the three months ended March 31, 2007 include three months of LBG, but only one month of revenues from LMD, as the LMD acquisition was finalized on March 1, 2007. Quarter one gross profit percentage for the Assay segment increased to 75% from 61% in the first quarter of 2007. Another metric we used to track the progress of our business is what we refer to as cash income. Cash income is net income for the period, adjusted for significant one-time items with depreciation, amortization and stock compensation expense, which are key non-cash items in our income statement added back. Here you can see that in the first quarter of 2007, prior to the first full quarter of consolidated operations following the acquisition of LMD, we had over $2 million of cash income for the quarter, which was similar to our quarterly performance during 2006. And our first full quarter of consolidated activity, as we had indicated, the acquired operations were dilutive to our previous performance. During the third and fourth quarters of 2007 and continuing into the first quarter of 2008, our efforts to grow revenues, expand margins and control expenses played a large role in the shift back to and growth in the cash income metric. A reconciliation of cash income to GAAP net income is provided on a separate slide in the appendix of this presentation, and can also be viewed on the Investor Relations portion of our website at www.luminexcorp.com. For the first quarter of 2008 we had 6.6 million in system revenue, up 16% over the first quarter of 2007; 6.5 million in consumable revenue or microspheres, up 36% over the first quarter of 2007; 3.5 million in royalties, up 39% over Q1 2007; 3.8 million in reagents or assays, up 238% over Q1 2007; 1.2 million in service revenue, up 21% over Q1 of 2007; and 1.2 million in all other revenue, which includes spare parts, shipping, license amortization and training. Our quarterly revenue distribution for the first quarter of 2008 is shown here compared to the first quarter of 2007. Note that in the prior year, our high margin items, consumables, royalties and assays, represented only 51% of total quarterly revenues, partially as a result of the acquisition. And additionally as a result of organic growth in our consumables and royalties revenue, the current quarter has approximately 61% of these high margin items. For additional reference relative to our fourth quarter 2007 revenues, system revenues were down 15% and you will recall that we placed 250 systems in the fourth quarter of 2007. So the drop is not unexpected. But consumables, royalties, assays and service were up 21%, 26%, 10% and 4% respectively. Included in the first quarter of 2008 royalty revenue is $150,000 minimum royalty payment by our partner that is not expected to repeat in the second quarter. We anticipate as a result of our expectations of relatively constant system placements that these high margin items will continue to become more significant percentage of our revenue mix, and will contribute to a continued upward migration of our gross margin percentage. This slide shows consolidated royalty revenues and consumables, with the elimination of royalties paid and consumables purchased by Tm Bioscience, or LMD, in periods prior to the acquisition. It also doesn’t include audit adjustments and one-time payments. We believe this demonstrates a long-term health of our royalty stream and we expect this trend to continue. As previously noted, consumables and royalties now account for higher percentage of total revenues. Another item of note is a relative volatility of the consumable stream, which I will talk about on the next slide. Bulk purchases are those purchases in excess of $100,000 for a single customer, for the current quarter were approximately 5.2 million, or about 80% of total consumable sales. Bulk purchases in the aggregate have continued to increase slowly over time and it contributed to relatively consistent increases in our consumable stream on an annual basis. However, we still have quarterly fluctuations, for which timing is difficult to predict. Note that even with the volatility of all purchases, the long-term moving average has continued to decline. Additionally, the non-bulk purchases have remained at fairly predictable levels over the periods presented between 1 million and 1.4 million. At the end of the first quarter of 2008, our long-term moving average of consumables stood at approximately 5.2 million. At March 31, 2008 our consolidated balance sheet reflected total cash and investments of 35.3 million compared with 34.2 million of cash and investments at year end 2007. As previously disclosed, Luminex recorded goodwill related to the Tm Bioscience acquisition. Initial goodwill assets were subject to adjustment upon recording of final transaction related costs and allocation of purchase price based on the company’s final determination of fair market value for the acquired operation’s assets and liabilities. Luminex completed this valuation at the end of the third quarter of 2007. At March 31, 2008 we had approximately 7.4 million of consolidated inventory, and as we have indicated previously, we attempt to manage our inventory to a level that appropriately reflects our current production needs and expectations of future quarterly sales. Obviously, unforeseen demand that can affect our ability to manufacture and deliver systems on specific requested dates. As of March 31, 2008 our daily sales outstanding, or DSO, on accounts receivable was 46 days compared with 51 days at December 31, 2007. And finally, working capital at March 31, 2008 was approximately 43.3 million compared with 40.8 million at the end of 2007. As a reminder, all of the initiatives that Pat and I have discussed are designed to deliver long-term financial objectives from a revenue, investment and profitability perspective, as you see here. Please note that these new numbers take into account the incremental business related to the Tm acquisition, now known as LMD. Based on our current financial performance, we do not believe these targets are unreasonable. In order to continue to be responsive to our investors’ needs, we have added a Director of Investor Relations, (inaudible) is new to the company and is coming up the learning curve that will serve in a traditional Investor Relations role. Obviously, Pat and I will continue to be available and we look forward to introducing you to her in the coming months. I will now turn the call back over to Pat to review our outlook for the remainder of 2008.

[Patrick Balthrop:]

So as I mentioned earlier regarding our annual revenue guidance, we are reaffirming that previously stated guidance of between 95 and $105 million of revenue for the quarter. In addition, we advise our investors to hold us accountable for continuing to deliver against our strategic plan and our product development milestones. We’ve previously stated and now believe it even more strongly that our regulatory compliant processes, procedures and status will be a strategic advantage for us for years to come. With regard to expenses, over the longer term we intend to continue to invest in R&D and scale this part of our company’s expense with our growth, eventually arriving at 15% of revenue. We believe that this investment in combination with the significant investments being made by our partners will ensure the long-term competitive advantage of xMAP-based technology products. And finally, our goal for SG&A expense is to manage our SG&A expense closely, with the goal of holding it at or near the fourth quarter 2007 run rate, net of one-time items and exchange variances. During the first quarter we achieved this goal after adjustment for exchange and we were very pleased to have done so. This ends our formal remarks. We will now open the line for questions. Robbie, if you don’t mind, please open the line for the Q&A. Question-and-Answer Session

[Operator:]

Absolutely. (Operator Instructions). We will go first to Peter Lawson with Thomas Weisel Partners.

[Peter Lawson:]

Good afternoon. Congratulations on a strong quarter.

[Patrick Balthrop:]

Thank you very much, Peter.

[Peter Lawson:]

What drove the uptick in the utilization rate for the instruments?

[Patrick Balthrop:]

Well, I would say, Peter, there is no sort of single event or single partner or single product line. One of the things that we have been consistent about advising our investors over the past eight quarters at least, is that the overall trends are encouraging. That there is no single partner or single event that is driving those trends, that the advantages that we are getting from adding companies that are large and worldwide players, our partner mix and the investments that they are making in the products that they are introducing are all stalking one on top of the other to deliver the utilization that we are continuing to see.

[Peter Lawson:]

Okay. And then on the Assay group business, is that the trends that we are seeing in 1Q or is that a kind of a seasonal effect as they jump up in profitability or towards profitability?

[Patrick Balthrop:]

Could you clarify your question Peter? I’m sorry.

[Peter Lawson:]

For the Assay group, it looks like it was the loss is narrowing at least at their half margin level. Is that a 1Q effect, some kind of seasonal effect or is that something we should look forward to for the next couple of quarters that kind of narrowing of the --?

[Patrick Balthrop:]

I would say Peter the -- and I’ll ask Harriss to add to this, to my comments. And I would say it’s not seasonal. The respiratory viral panel product of course although it’s a seasonal products, it’s also a new product and the vast majority of our revenue that we experienced with RBP was in the first quarter. We did roll the product out in the Europe and we -- as you may remember, we recognized a small amount of revenue in the fourth quarter, which was European sale but in the first quarter most of the revenues that we enjoyed for RBP was in the United States. So, it was a new product launch phenomenon in that number. And the revenue continues to grow nicely as we -- and as you saw in Harris’s chart that he showed five quarters with the cash income of bar charts, it shows a favorable trend. So we believe that as the revenue continues to scale there and as we continue to absorb -- to increase our revenue, we absorb the factory more effectively. We hold our resources in line where we think they ought to be that we believe that’s a trendable number.

[Harriss Currie:]

Okay. Peter, I will just add that more as a reminder than anything else that when we acquired the LMD entity, they were doing right at about $2 million a year revenue and loosing about $20 million a year or $5 million a quarter. And the fact that we have been able to manage the expenses, grow the revenues to what now for the Assay Group as a whole, you will recall the Biosciences Group wasn’t large, but which today is in excess of $17 million a year on an annualized basis. We have managed to control that net loss. And so I think that in the near term, you will certainly see the Assay Group continue to experience a continued move towards profitability.

[Peter Lawson:]

And then, Harriss, just finally, how should we think about the inter-segmental revenue. It kind of came down to zero this quarter. Is that what it’s going to be like going forward or should we model in so the previous you had?

[Harriss Currie:]

Well, actually that’s a good question, Peter. And what we did is we just didn’t show you the elimination of inter-segment revenue. So there is a significant amount of inter-segment revenue that is eliminated from the calculation. So the aggregate uneliminated amount between the two companies is well in excess of $23 million. But obviously that’s reported on a consolidate basis as well. So in order to avoid confusion and to allow you to tie it to the Assay Group on a standalone basis, we did away with those inter-company eliminations, presenting those -- we didn’t -- (inaudible). Does that help?

[Peter Lawson:]

Yes, it doesn’t change kind of the 4Q reported number, does it?

[Patrick Balthrop:]

No, no, no.

[Harriss Currie:]

No, no, no. The numbers are the same. We certainly, Peter, could have shown on that chart Assay Group, Technology Group inter-segment eliminations. What you would have found that the Assay Group revenues would have been significantly higher than they were and the Technology Group revenues would have been higher, and Assay Group revenues would have been slightly higher, and then that all would have been eliminated and brought you back down to the $23 million number.

[Peter Lawson:]

Got you. Thank you, crystal clear. Thank you.

[Operator:]

Thank you. We will go next to Daniel Owczarski with Avondale Partners.

[Daniel Owczarski:]

Yes, thanks. Hi, Pat. Hi, Harriss.

[Patrick Balthrop:]

Hi Daniel

[Harriss Currie:]

Hi Daniel

[Daniel Owczarski:]

Could you give us some updates on timetables as far as your projections for the FlexMAP and animal health and newborn screening?

[Patrick Balthrop:]

Sure. The FlexMAP 3D instrument, which is the next hardware product that we will be introducing, as we mentioned at the investor event that we had in March, is scheduled for introduction in the second half of 2008. And we are still confident with that. I would suggest it will be towards the second half of the second half, if you know what I mean. But the product is continuing to hit milestones. We are executing the manufacturing transfer to system with what the product development milestone process calls for and so on. And we have beta units in the field and so on, so we’re actually very pleased with the product’s progress and were we stand with that. So no change except maybe more excitement and more encouragement, because with each passing day and week and month, it did hit your milestones and that’s a good thing. As far as animal health, that’s a more longer term business for us. You shouldn’t anticipate seeing anything in terms of revenue in 2008. But again, we are very encouraged with the progress we are making, but it’s mostly R&D progress, Dan. And then, as far as newborn screening is concerned, where we believe that we have an opportunity to have some products available in – during 2008. But if so, they will not be material and they will be at the very end of the year. So that’s how you should think about those three pieces.

[Daniel Owczarski:]

Great, helpful. You’re reaffirming guidance for the year, but what about for the second quarter? Could that be sequentially flat without RVP or with that coming down, could you help us with that?

[Patrick Balthrop:]

Well, all I can really talk about guidance line, Dan, is that we reaffirmed our annual guidance. Obviously, we haven’t provided quarterly guidance. And I can’t really comment because of the factors that you know all too well that exist in the business regarding bulk purchase timing and phenomenon and so on. There are a lot of moving parts associated with your question. The RVP number I would suggest would be one, but a small portion of that. The bulk purchases and other types of things are – or would be more substantive. So I can’t really comment about whether it will be sequentially up or down or flat. I can only comment on definitively on the fact that we remain confident in our 95 to 105 million revenue number for the year.

[Daniel Owczarski:]

Okay. And then just last question. Could you talk about the efforts of some of your partners to automate, kind of, the upfront sample prep on your systems? I thought that Inverness either had rolled something out or was ready to for their AtheNA? And then doesn’t One Lambda have like automated sample prep in the works. And I guess how should we think about that as far as driving throughput and driving consumables and increasing the capacity or productivity of your systems?

[Patrick Balthrop:]

Sure. So I would say. Dan. that in our industry, whether we’re talking about the life science research market, the diagnostics market, the molecular diagnostics segment or the diagnostics market or anything else, automation in productivity have been a major customer need for at least 25 years and we anticipate they will continue to be an important customer need. You’re seeing the evidence of that in the examples that you cite with Inverness initiative. One Lambda, as you noted, has also announced an automation initiative, which is nothing more than -- think of it as a liquid handler or robot that moves, that does all the pipe heading and all the fluid management in the testing process on the front end, and then in the place of a human the instrument does all the detection that it always had. So our partners are doing some things to ensure that they address that customer need. We are as well. We have, as I mentioned during – as we reviewed during the Investor Day, we have an automation initiative underway that has several elements. A portion of that is similar to what you are seeing from companies like Inverness and One Lambda, which is a separate sort of robotic type of, what is called, the front end in the business, that is the liquid handler portion, all the way through to a more elegant sample in, answer out type of automation initiative. And so that’s the approach that we and our partners are taking. We think it’s important and we are making investments in that regard.

[Daniel Owczarski:]

But could that theoretically drive consumables or make your – could it increase – I don’t know – capacity or throughput or consumable usage by 10%, 20%, 50%, I mean, any order of magnitude we could think about?

[Patrick Balthrop:]

I would say that once – we need some more time before we can answer that question, Dan. I think if I could restate your question for you, are there markets that you could enter more effectively if you had an automation front end, are there customers that you could be more effective in penetrating? The answer to that question is, absolutely. We think FlexMAP 3D will help us to a significant degree because of its throughput capability. But I think in order to quantify my response I think we are unable to do that now. I think we will just need to get more data between now and when we can actually introduce our automation solution.

[Daniel Owczarski:]

Okay. Thank you.

[Operator:]

Thank you. We will go next to Un Kwon-Casado with Pacific Growth Equities.

[Un Kwon-Casado:]

Hi. Good afternoon.

[Patrick Balthrop:]

Hi, Un Kwon. How are you?

[Un Kwon-Casado:]

Great. I was – I had a question for Harriss on the bulk consumable sales.

[Harriss Currie:]

Okay.

[Un Kwon-Casado:]

So we have now gone through three quarters where it is coming pretty strong, and I think this is the most consistent that it’s ever been. Is it too early to drive trend where it is becoming a little bit more predictable than it has in the past?

[Harriss Currie:]

I would say that the amount of predictability in number has increased slightly. But if you graph it and really do the math around it, there is still a significant amount of volatility around that. And given what sort of some of the details behind it that maybe we don’t present on the call, there certainly are opportunities for both upward and downward movements in an individual quarter’s purchases. So I would – the answer to your question is, maybe. There is a slight increase in predictability, but not a lot.

[Un Kwon-Casado:]

Okay. And then on the Assay revenue side, what was that in the fourth quarter?

[Harriss Currie:]

Assay revenue in the fourth quarter, total Assay Group was 4.1 million.

[Un Kwon-Casado:]

And then what about just the reagent revenue?

[Harriss Currie:]

The reagent revenue is probably 90% of that number.

[Un Kwon-Casado:]

Okay.

[Harriss Currie:]

I don’t have that in front of me to be honest, so I can’t tell you specifically, but it’s a significant part of that number.

[Un Kwon-Casado:]

Okay. And so would it be asking too much to breakout – this isn’t qualitatively what percentage of your Assay revenue came from RVP?

[Harriss Currie:]

It would be too much to break that out. But I can tell you that CF remains a significant portion over all of our Assay revenue, well more than half today.

[Un Kwon-Casado:]

Okay.

[Harriss Currie:]

When RVP becomes a significant driver of the results, I mean, really significant of the results within a quarter, then we will certainly talk to you about that.

[Patrick Balthrop:]

This is Pat. On the RVP question, as I mentioned during my remarks, we are very pleased with how the panel has been received by the market. I can tell you we are ahead of our internal expectations and projections, although we don’t break out individual products line item by line item. The clear – the timing of the FDA clearance was not ideal for sure, but one of the things that we’re particularly pleased with, which we were hopeful about as we rolled the product and it’s turned out to be true, is that we found that the first mover advantage here, we believe is extremely important and valuable strategically as we establish the xTAG RVP product as the market leading product. And the lateness of the flu season timing helped us a little bit to get the product established, because as you may remember, we were talking to our investors as the flu season was unfolding and we predicted the flu season, based on CDC’s numbers and so on, was going to begin the ramp in the second half of February, and that turned out to be true. So that helped us a bit. And then the Fisher distribution agreement and, of course, the Abbott agreement, which we announced in the first quarter. So Abbott’s role in the RVP numbers has been approaching extremely minimal so far. But the fact that we have very effective distribution channel makes us extremely optimistic as well.

[Un Kwon-Casado:]

Okay. And on the CF side, did revenues for that segment grow sequentially?

[Patrick Balthrop:]

Well, providing product line results is not something that we do, Un, as you know. But the status of our product and our market share and so on has remained robust. Our market share continues to increase. We do have some very large customers who – the timing of whose shipments may move around a bit, which makes quarter-to-quarter comparisons a little bit risky. So if you’re looking at that number and thinking did something dramatic happened with cystic fibrosis, I will tell you the answer to that is absolutely not.

[Un Kwon-Casado:]

Okay. Thank you. And then just one final one on your ASR resubmission to the FDA. My understanding is that you need to do that by September. So are you on track with that? And also could you help me understand, is there some sort of grandfather period, so as long as you submitted before that deadline to the FDA, are you allowed to keep your ASRs on the market until it’s formally approved?

[Patrick Balthrop:]

Well, let me answer it this way. So the ASR guidance was published in the middle part of September of 2007. Under that guidance, there was a period of enforcement discretion that FDA announced. That’s part of that guidance which, as you know, was one year, so that’s September of 2008. And as you also know, we have our ASR products teed up for completion of clinical data and submission to FDA in advance of that September 2008 date. We can speak for – you will have to talk to FDA about what their specific policies will be. I will tell you what we believe based on our discussions with a variety of parties, and that is that if for some reason our assays are submitted, but FDA has not been able to clear them by the middle part of September of 2008, the enforcement discretion position of FDA will basically continue forward until that clearance is achieved.

[Un Kwon-Casado:]

Okay, that’s very helpful. Thank you.

[Operator:]

Thank you. We will go next to Matthew Scalo with Canaccord Adams.

[Matthew Scalo:]

Hi guys, good quarter.

[Patrick Balthrop:]

Thanks, Matthew.

[Harriss Currie:]

How are you?

[Matthew Scalo:]

I am doing well, thank you. I wanted to ask about, there is a number that you usually provide us for the total xMAP-based revenue from partners in the quarter?

[Patrick Balthrop:]

Yes.

[Matthew Scalo:]

(inaudible)?

[Patrick Balthrop:]

Yes. So it was during my remarks, Matt, and we refer to that, or I refer to it as, end-user sales. I believe it was on slide six of the slide deck. So...

[Matthew Scalo:]

I can pull it down from slide.

[Patrick Balthrop:]

The slide six was the one where I had the four charts that showed the installed based and the revenue trends and so on. The bottom right hand corner of that chart, the annualized end-user sales on our installed base was over $200 million for the first time in the first quarter.

[Matthew Scalo:]

Okay. And that roughly equates to 6 to 6.5% royalty rate or so?

[Patrick Balthrop:]

Yes. Our blended average royalty rate hasn’t changed. So I think it’s right about between 6 and 6.5.

[Matthew Scalo:]

Are there any partners like first-time partners in bulk orders this quarter?

[Patrick Balthrop:]

No.

[Harriss Currie:]

No.

[Matthew Scalo:]

Any essentially partners that are growing in size and has hit that 100,000 level? Okay. So when we look at the filings come September, you guys will still be able to sell the CF 97 test, which is the bulk of CF revenue, is that correct? Meaning, you submit by mid-September, probably hear back by year-end, is that --?

[Patrick Balthrop:]

Yes. You got a couple of questions in that sentence, Matt. So I didn’t know – so CF 97 is the bulk of our CF sales; that is correct. It is also correct that we – if that product is submitted and not yet cleared by that September date, it’s our strong belief that that product will continue to be marketable.

[Matthew Scalo:]

Okay. And then last on diluted question. Anticipate in this next flu season having the same exact RVP test? I mean, will you have another iteration of potentially enhanced or improved RVP test for next flu season?

[Patrick Balthrop:]

Well, we talked about – as you may recall, Matt, we talked about, at the Investor Day in March we talked about our molecular diagnostics pipeline, or LMD pipeline. And included in that was an enhanced version of RVP. We are not – we don’t believe today that we’ll have that product necessarily available for the next flu season.

[Matthew Scalo:]

Okay. Thank you, guys.

[Operator:]

Thank you. Next we will go to Alastair Mackay with GARP Research and Securities.

[Alastair Mackay:]

Hi, good afternoon.

[Patrick Balthrop:]

Hi, Alastair.

[Alastair Mackay:]

A question on the FlexMAP 3D, could you talk a little bit about what your plans might be for device master file for the new device?

[Patrick Balthrop:]

Well, the device master file is – for those on the call who may not be familiar with that term, is a regulatory term that allows an assay developer to submit an assay to FDA for clearance and refer to a device master file with FDA. And therefore, not require the instrument system to be submitted every single time. We have a device master file on file with FDA for our current platform and we expect to have a similar strategy with FlexMAP 3D, Alastair. The only thing that could make that change is if for some reason the regulations change, in which case we will obviously adjust to those.

[Alastair Mackay:]

Sounds good. Can I ask a question on Invitrogen, on the press release that you two jointly put out last quarter? That’s a press release that focuses on collaboration for the research market. Has there been any thought to extending that, any initiatives in diagnostics that Invitrogen might entertain?

[Patrick Balthrop:]

Well, I tried my best not to speak on behalf of my partners. What I can really – the only thing I can really comment on, Alastair, is that we are excited about the new deal. I think Invitrogen is also excited about the new deal. When I say new deal, I mean the extension and expansion of the previous relationships that we had. And I think that’s why Greg Lucier mentioned it during their quarterly call, while we emphasize it during ours. Our relationship with Invitrogen is on the research side of the business, and any discussions with them that we may or may not be having on other parts of the business, I am not really prepared to talk about.

[Alastair Mackay:]

Very good. And then I had two quick questions for Harriss. Harriss, can you give a number for the quarter for the FAS 123(NYSE

[Harriss Currie:]

Yes. Stock comp expense for the first quarter was about 1.7 million.

[Alastair Mackay:]

Okay, great. And then...

[Patrick Balthrop:]

Sorry, Alastair, (inaudible) – just to clarify. That’s total stock comp.

[Harriss Currie:]

That’s total stock comp. The 123(R) is stock option expense. Much of our – significant portion of our stock comp expense, Alastair, is in the form of restricted shares, which obviously is not – they are just expensed as normal shares rather than 123(R) related.

[Alastair Mackay:]

So 123 (R), the options might be say half of that?

[Harriss Currie:]

Less than half.

[Alastair Mackay:]

Got it.

[Harriss Currie:]

Luminex moved about four years ago to the issuance of restricted shares as opposed to options for a couple of reasons. Number one, to extend the life of existing plans, because you can issue fewer aggregate shares for more value. We move to that and so the options that we issued, a significant number of the options previously were – we do. So it also – because you slow down the rate of which you put shares in the marketplace, you obviously minimize the illusion as well.

[Alastair Mackay:]

Okay. Harriss, then my last one would be, by GAAP numbers you had a very modest loss this quarter and by cash account you had a modest positive result. Can you say what the share count would have been, had the GAAP results been modestly positive?

[Harriss Currie:]

We, I believe, left out about 1.7 million shares from the calculation. So the 36 and change would have been almost 38.

[Alastair Mackay:]

Got it. Okay, thanks very much.

[Harriss Currie:]

Sure.

[Operator:]

(Operator Instructions). We will go next with John Sullivan with Leerink Swann.

[John Sullivan:]

Hi guys. Good afternoon.

[Patrick Balthrop:]

Hi John.

[John Sullivan:]

Just a couple of quick ones. I guess, first of all, can you just go over the distribution relationship with Fischer versus Abbott regarding the RVP products?

[Patrick Balthrop:]

Sure, John. The relationship we have with Fischer, this is the Fischer Healthcare division of Thermal Fischer, is a domestic or that is a U.S. distribution relationship for all molecular diagnostic products, including RVP. The Abbott relationship, as currently configured, is for RVP only, but it’s on a worldwide basis.

[John Sullivan:]

Right. And then Abbott has the right to distribute in the U.S. as well as Fischer and then Abbott is exclusive rest of the world, is that true?

[Patrick Balthrop:]

That’s correct.

[John Sullivan:]

Okay. So that’s (inaudible), okay. Any – you used to talk about how many different partners were selling or making products based on Luminex beads. Can you give us some sense of how many different partners are involved these days?

[Patrick Balthrop:]

Sure. That number is 25, 26, I believe. Those are – 25 or 26, John, are companies that have products. The over 30 number includes companies that are service providers. So if you’ve a reference lab, for example, and you’re – have home group products that you’re charging the customer for, we collect royalties on that based on a different type of agreement. So we have 25 or 26 commercial partners that are making products and another handful that are reference lines.

[John Sullivan:]

Okay. And then lastly, do you have any insight into particular geographies that might be especially strong in end-user instrument placements by any chance?

[Patrick Balthrop:]

I can’t really – we can’t really answer the question definitively, John. We do drop ship a lot of our instruments, as you may recall. There are others that we ship directly to our partners, and in some cases those partners deliver – they have their own field service organization. So we don’t have a 100% clarity regarding every instrument that we ship where it ends up geographically.

[John Sullivan:]

Okay, great. Thanks very much.

[Operator:]

Thank you. And at this time it appears we have no further questions. I’d like to turn the program back over to Pat Balthrop for any additional or closing comments.

[Patrick Balthrop:]

Well, thank you, Robbie. And thank you for your interest in Luminex and for tuning into our first quarter earnings call. We’re very excited about our results and we are extremely optimistic about the trajectory that we’re on and we look forward to see each of you in person in the not too distant future.

[Operator:]

That does conclude today’s conference. You may disconnect at this time.