MOUNTAIN VIEW, Calif., April 3 /PRNewswire-FirstCall/ -- IRIDEX Corporation (Nasdaq: IRIX) today reported final financial results for the fourth quarter and full year ended December 30, 2006.
"2006 was a very busy, challenging and exciting year for IRIDEX and marked a new phase of development in our history," said Barry Caldwell, president and CEO of IRIDEX Corporation. "Throughout the year, we continued to focus on executing our long-term strategy to increase revenue and profitability. We have continued to grow our recurring revenue sales, which include sales of our disposable products and launched a number of innovative products within our core ophthalmic business that should bode well for long-term growth. In addition, we also executed on the third prong of our growth strategy by acquiring the aesthetics business of Laserscope in January. The next twelve months will be a transition period for the Company as we embrace this growth."
2006 and Recent Highlights
- Recurring revenue of $15.4 million in 2006 accounted for 43% of total revenue for the year; an increase from 36% in 2005 and 33% in 2004.
- Global disposable product sales increased 24% during the 2006 compared with 2005.
- Annual direct ophthalmic sales increased 18% in the U.S. and included a 28% increase in U.S. disposable product sales.
- Gross margins expanded to 52.4% (including stock compensation expenses) compared with 49.1% in 2005 (which did not include stock compensation expenses).
- We successfully introduced several new products during the year and at the American Academy of Ophthalmology, including six new disposable products and two new laser consoles.
- We decreased day sales outstanding for the fifth consecutive year; we exited 2006 at 64 days, which was a five day improvement from year-end 2005.
- We performed due diligence efforts on several external growth opportunities resulting in the acquisition of the Laserscope aesthetics business in mid-January 2007.
Fourth Quarter and Full Year Financial Results
Revenues for the fourth quarter of 2006 were $9.0 million, compared with $10.4 million reported for the fourth quarter of 2005. For the full 2006 fiscal year revenues were $35.9 million, compared with $37.0 million reported for 2005. "While we are disappointed in our sales for the fourth quarter and the full year of 2006, several challenges are now behind us and we are confident that we can build upon the foundation we have established," continued Mr. Caldwell. "We have introduced several new ophthalmic products and have expanded our U.S. ophthalmic sales team in order to increase the focus on disposable products and our new laser consoles during 2007. The increase in disposable sales has been a key factor in our gross margin expansion."
Gross margins for the fourth quarter of 2006 were 55.5%, compared with 48.8% for the fourth quarter of 2005. Gross margins for the full year 2006 were 52.4%, including stock based compensation compared with 49.1% for 2005, which did not include stock compensation expenses. Margin improvement in 2006 was largely driven by favorable product mix.
Operating expenses for the fourth quarter were impacted negatively by increased legal expenses which added $1.2 million to general and administrative spending. These expenses included $1,020,000 in spending related to litigation activities, and $200,000 in expenses associated with the investigation of the Company's revenue recognition practices. In addition, the Company expensed $456,000 in stock based compensation during the fourth quarter. A similar comparison for full year 2006 reflects a $3.1 million increase in increased legal and audit fees which included $2.4 million in expenses related to litigation support, $530,000 for expenses related to the revenue recognition investigation and $202,000 in expenses related to business development efforts. In addition, the Company recorded $1.8 million of stock compensation expense in 2006.
The net loss for the fourth quarter ended December 30, 2006 was $3.8 million, which included a tax provision of $2.0 million including the establishment of a full valuation allowance with respect to deferred taxes of $2.5 million. The fourth quarter loss resulted in basic and diluted net loss per share of $0.48. This compares with net income of $381,000 in the year-ago period or $0.05 in net earnings per basic and diluted share. Net loss for the full year 2006 was $5.8 million, or a basic and diluted net loss per share of $0.75. During 2005 the Company recorded net income of $1.7 million or $0.23 of net income per basic share and $0.21 of net income per diluted share.
"Our spending levels in 2006 were not at a normalized level and some of these expenses should not recur in 2007," said Mr. Caldwell. "Most of our litigation related expenses should be behind us by mid-year 2007. During 2007 it is likely that we will experience acquisition integration expenses associated with the Laserscope acquisition which should not extend beyond this year."
Ophthalmology
During 2006, total ophthalmology sales grew to $30.8 million, compared with $30.7 million for 2005. Total sales of ophthalmology products, excluding all OEM sales and service, increased by 8% for the full year period. Those ophthalmology sales increases were led by the U.S. sales organization, which accounted for a 12% increase in revenues for the fourth quarter and an 18% increase for the full year 2006. International ophthalmic sales were down 21% for the fourth quarter of 2006, compared with the fourth quarter of 2005. International ophthalmology sales for the full year 2006 decreased 3%, despite an 18% increase in sales of disposables in 2006, as compared with 2005.
"Total revenues for the year were negatively impacted by a decline in international ophthalmic equipment sales," continued Mr. Caldwell. "A key to this decline was the healthcare reform efforts in the China market concerning medical device purchases. For comparative purposes, during 2005 the Company also benefited from a one-time OEM sale which did not repeat in 2006. As a consequence, the decline in OEM sales during 2006 was approximately $1.8 million.
"Approximately 20% of all of our disposable sales during 2006 were of new disposable probes introduced during the past 18 months," continued Mr. Caldwell. "Our new 532nm green laser, the OcuLight(R) TX, began shipping during the fourth quarter and we have received a very good response from the market regarding the new features. The new 577 true yellow solid state laser console is on target for release in the second half of the year. We are pleased with these tangible results arising from our focus on new product innovation and customer awareness."
Dermatology/Aesthetics
Total dermatology sales were $1.4 million in the fourth quarter of 2006 compared with $1.5 million in the comparable period of 2005. Full year 2006 dermatology sales were $5.1 million compared with $6.4 million in 2005.
"We are continuing to make progress in strengthening our sales effort within dermatology and now, the aesthetics market with our newly expanded team," continued Mr. Caldwell. "With the Laserscope asset acquisition, we obtained some very strong sales and marketing representatives who are being trained on the IRIDEX laser systems while the IRIDEX dermatology representatives are being trained on the newly acquired Laserscope products. Our integration plans are progressing in all areas of the Company. We are rationalizing the product offering to assure we can drive gross margins that are in line with the Company's global margin objectives. The manufacturing transfer into our Mountain View facility is planned for mid-year. Overall, we have made good progress on further developing our organization since the transaction was closed in mid-January."
Balance Sheet
Cash and cash equivalents and available-for-sale-securities were $21.1 million as of December 30, 2006, down from $21.4 million at December 31, 2005. Inventories were $9.5 million as of December 30, 2006, compared with inventories of $8.6 million at December 31, 2005. Inventory turns were 1.9 turns in 2006, compared with 2.2 turns for the full year 2005. Accounts receivable were $6.1 million as of December 30, 2006, compared with $6.6 million as of December 31, 2005. Quarterly days sales outstanding improved to 64 days in 2006 compared with 69 days for the full year 2005.
"Although we had cash in excess of our restricted cash covenant of $3.0 million as of March 31, 2007, we do not believe that our current liquidity and capital resources will be sufficient to meet our currently planned operating requirements for the next 12 months. We currently expect that our operating performance for the quarter ended March 31, 2007 will result in our not being able to satisfy certain current restrictive covenants contained in our credit facilities with Mid-Peninsula Bank and the Export-Import Bank. We have initiated discussions with the bank to restructure our credit facilities."
The Company's financial statements and audit opinion for the fiscal year ended December 31, 2006, which were filed with its Annual Report on Form 10-K on March 30, 2007, included a going concern qualification received from its independent auditors. This announcement is being made in compliance with Nasdaq Marketplace Rule 4350(b)(1)(B), which requires separate disclosure of receipt of an audit opinion that contains a going concern qualification. This announcement does not represent any change or amendment to the Company's 2006 financial statements or to its Annual Report on Form 10-K.
The Company is working with American Medical Systems Holdings (AMS) to prepare the financial statements of the acquired aesthetics business of Laserscope and to prepare related pro-forma financial statements. These statements are required to be filed with the SEC on Monday April 2, 2007. The Company is diligently working with AMS to complete the preparation of these financial statements but currently expects that the filing deadline will not be met.
Conference Call
IRIDEX management will conduct a conference call today at 8:30 a.m. (Pacific Time) to discuss its fourth quarter and full year 2006 results and recent corporate developments. Interested parties may access the live conference call via telephone by dialing (800) 240-4186 for domestic participants or (303) 262-2200 for international participants. Interested parties may also visit the Company's website at www.iridex.com . A telephone replay will be available beginning later today, March 30, 2007 through Friday April 6, 2007 by dialing 800-405-2236 for domestic participants or 303-590-3000 for international participants. The passcode is 11087378 #. In addition, later today an archived version of the webcast will be available on the Company's website at www.iridex.com .
About IRIDEX
IRIDEX Corporation is a leading worldwide provider of therapeutic based laser systems, disposable laser probes and delivery devices to treat eye diseases in ophthalmology and skin diseases in dermatology markets (also referred to as aesthetics). IRIDEX products are sold in the United States through a direct sales force and internationally through a network of 77 independent distributors into 107 countries. For further information, visit the Company's website at www.iridex.com .
Safe Harbor Statement
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Act of 1934, as amended, relating to the Company's future expenses, growth strategy and prospects, gross margins, revenue growth, earnings, integration efforts relating to recent acquisitions, and developments within the Company's sales team. Actual results could differ materially and adversely from those projected in the forward-looking statements based on, among other things, the actual order and shipment rate for the Company's ophthalmology and dermatology product lines, the rate of sales to OEM customers, the rate of growth in sales of disposables and services, our ability to reduce expenses, our ability to remediate material weaknesses in our disclosure controls and the impact of any continuing weakness and uncertainties related to general economic conditions or weakness in overall demand in the Company's markets, especially with regard to the Company's dermatology products which are typically used for elective procedures that can be deferred. Additional risks and uncertainties to which the Company are subject may include, but may not necessarily be limited to, the amount of orders that the Company receives and ships, dependence on international sales and the Company's network of independent distributors, the risks associated with bringing new products to market, and the results of clinical trials and competition in our markets, as well as the risks associated with a competitive market for management talent and the risks inherent with identifying, negotiating and integrating strategic acquisitions of complementary businesses, products or technologies. Please see a detailed description of these risks contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006 filed with the Securities and Exchange Commission. Forward-looking statements contained in this announcement are made as of this date and will not be updated.
IRIDEX Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
Dec. 30, Dec. 31, Dec. 30, Dec. 31,
2006 2005 2006 2005
Sales $9,035 $10,416 $35,904 $37,029
Cost of sales 4,023 5,343 17,099 18,854
Gross profit 5,012 5,073 18,805 18,175
Operating expenses:
Research and development 1,556 1,058 5,511 4,195
Sales, general
and administrative 5,408 3,323 18,059 12,171
Total operating expenses 6,964 4,381 23,570 16,366
(Loss) income from operations (1,952) 692 (4,765) 1,809
Interest and other income, net 194 115 733 528
(Loss) income
before income taxes (1,758) 807 (4,032) 2,337
(Provision for) benefit
from income taxes (2,015) (426) (1,721) (666)
Net (loss) income ($3,773) $381 ($5,753) $1,671
Basic (loss)
net income per common share ($0.48) $0.05 ($0.75) $0.23
Diluted (loss)
net income per common share ($0.48) $0.05 ($0.75) $0.21
Shares used in per common
share basic calculations 7,811 7,501 7,713 7,405
Shares used in per common
share diluted calculations 7,811 8,144 7,713 7,880
IRIDEX Corporation
Condensed Consolidated Balance Sheets
(In thousands)
December 30, December 31,
2006 2005
Assets
Current Assets:
Cash and cash equivalents $21,051 $12,655
Available-for-sale securities 0 8,779
Accounts receivable, net 6,052 6,589
Inventories, net 9,499 8,594
Prepaids and other current assets 1,264 885
Short term deferred income taxes 0 1,415
Total current assets 37,866 38,917
Property and equipment, net 1,087 1,114
Other long term assets 1,224 0
Deferred income taxes 0 1,073
Total assets $40,177 $41,104
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $1,830 $1,094
Accrued expenses 4,775 4,421
Deferred revenue 1,415 1,072
Total liabilities 8,020 6,587
Stockholders' Equity:
Common stock 79 76
Additional paid-in capital 29,697 26,334
Accumulated other comprehensive loss 0 (27)
Treasury stock (430) (430)
Retained earnings 2,811 8,564
Total stockholders' equity 32,157 34,517
Total liabilities and stockholders' equity $40,177 $41,104
SOURCE IRIDEX Corporation
04/03/2007
CONTACT: Larry Tannenbaum, Chief Business Officer of IRIDEX Corporation,
+1-650-940-4700
Web site: http://www.iridex.com
(IRIX)
