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IRIDEX Corp. Reports Operating Results (10-Q)

August 13, 2009 | About:

IRIDEX Corp. (IRIX) filed Quarterly Report for the period ended 2009-07-04.

IRIDEX Corporation is the leading worldwide provider of semiconductor-based laser systems used to treat eye diseases in ophthalmology and skin lesions in dermatology. The products are sold in the United States predominantly through a direct sales force and internationally through independent distributors. The company markets the products using three brand names: IRIS Medical to the ophthalmology market IRIDERM to the dermatology market and Light Solutions to the research market. IRIDEX Corp. has a market cap of $19.2 million; its shares were traded at around $2.17 with and P/S ratio of 0.4.

Highlight of Business Operations:

For the three months ended July 4, 2009, total revenue decreased 18.6% to $10.5 million compared to $12.9 million for the same three month period in 2008. For the six months ended July 4, 2009, total revenue decreased 12.9% to $21.2 million compared to $24.4 million for the same six month period in 2008. The decline in total revenue was primarily due to the global economic environment which has significantly impacted our aesthetics business and to a lesser extent impacted our ophthalmology business over the three and six month periods under discussion.

For the comparable three month periods: ophthalmology revenues in total decreased $0.5 million, or 6.4%, from $8.2 million to $7.7 million; ophthalmology recurring revenues consisting of consumables and service, decreased $0.2 million, or 4.1%, from $4.4 million to $4.2 million; domestic ophthalmology systems revenue decreased $0.4 million, or 26.0%, from $1.5 million to $1.1 million; international ophthalmology systems revenue remained constant at $1.9 million; and OEM revenues also remained constant at $0.4 million. Domestic system sales were directly impacted by the ongoing recession which has caused a significant reduction in spending on capital equipment in the U.S. market. Aesthetics revenues in total decreased $1.9 million or 39.8%, from $4.8 million to $2.9 million; service revenues decreased $0.4 million or 21.1%, from $1.8 million to $1.4 million; international aesthetics system revenues decreased $1.2 million or 55.3%, from $2.2 million to $1.0 million; and domestic aesthetics system revenues decreased $0.3 million or 40.3%, from $0.7 million to $0.4 million. Aesthetics systems revenues can fluctuate period to period due to the timing of individual deals because of the relatively high price and low volume of systems being sold. This effect is magnified for international sales where distributors often place multiple system orders at one time.

For the comparable six month periods: ophthalmology revenues in total decreased $0.5 million, or 3.3%, from $15.7 million to $15.2 million; ophthalmology recurring revenues increased $0.1 million, or 1.1%, from $8.6 million to $8.7 million; domestic ophthalmology systems revenue decreased $0.8 million, or 28.5%, from $2.7 million to $1.9 million; international ophthalmology systems revenue increased $0.1 million, or 3.6%, from$3.6 million to $3.8 million; and OEM revenues also remained constant at $0.8 million Domestic system sales were directly impacted by the ongoing recession which has caused a significant reduction in spending on capital equipment in the U.S. market. OEM revenues are generated from a long standing relationship and the demand for this product is dependent on the OEMs market demand. Aesthetics revenues in total decreased $2.6 million or 30.3%, from $8.7 million to $6.1 million; service revenues decreased $0.6 million or 16.2%, from $3.6 million to $3.0 million; international aesthetics system revenues decreased $2.4 million or 57.3%, from $4.1 million to $1.8 million; and domestic aesthetics system revenues increased $0.3 million or 35.6%, from $0.9 million to $1.2 million. Aesthetics systems revenues can fluctuate period to period due to the timing of individual deals because of the relatively high price and low volume of systems being sold. This effect is magnified for international sales where distributors often place multiple system orders at one time.

Gross profit for the three months ended July 4, 2009 was $4.8 million compared with $5.3 million for the same three month period in 2008, a decrease of 9.4% or $0.5 million. However gross margin improved to 45.9% from 41.3%, respectively. Gross profit for the six months ended July 4, 2009 was $9.9 million compared to $10.1 million, a decrease of 2.6% or $0.2 million. However gross margin improved to 46.5% from 41.5%, respectively.

General and administrative expenses decreased by $0.6 million or 31.8%, to $1.3 million from $1.9 million for the three months ended July 4, 2009 compared to the same three month period in 2008 and decreased by 26.7% to $2.8 million from $3.8 million for the six months ended July 4, 2009 compared to the same six month period in 2008. The decreases in general and administrative spending is primarily attributable to decreases in audit, accounting and tax, consulting and temporary help, general business insurance premiums. In addition, at the end of June 2008, we transferred our operating activities in the UK to a third party distributor, which contributed to the decrease in general and administrative spending.

The legal settlement relates to monies received from Synergetics associated with a 2007 settlement of legal claims for patent infringement. The settlement called for an initial payment of $2.5 million which was received in the second quarter of 2007 and five subsequent annual payments of $0.8 million, totaling $6.5 million. The annual payment of $0.8 million was received in the second quarter of 2008 and in the second quarter of 2009, leaving a balance of $2.4 million to be received over the next three years. Interest and other income (expense) relates to interest incurred on the bank debt outstanding in the respective periods, offset by interest earned on cash deposits.

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