IRIDEX (IRIX:BUY) Robust sales of proprietary new ophthalmic laser, amplified by high recurring sales of disposable laser probes, fueled 32% sales growth

12-AUG-16 – IRIDEX (IRIX:BUY) Robust sales of proprietary new ophthalmic laser, amplified by high recurring sales of disposable laser probes, fueled 32% sales growth in Q2:16. Investments in sales force and operating capacity in H2 will restrict profit growth. However, we expect sales of high-margin consumables across an expanding installed base to drive margin expansion and accelerate EPS growth in FY:17. We reiterate our BUY rating and increase our price target from $13 to $16.

Q2:16 Highlights

IRIX sold 72 Cyclo G6 lasers in Q1 and 124 systems in Q2. Based on this sales momentum, the Company will easily exceed its target of 200 units delivered in 2016 and an installed base of 300 units by year-end.
The Cyclo G6 system is based on a razor/razor blade model, with each installed laser consuming 10-12 disposable probes per month. IRIX sold 5,000 MP3 probes in Q1 and 8,000 MP3 probes in Q2. Probes, which have attractive 80% gross margins, will drive profit growth.
67 units were sold internationally in Q2 versus 22 in Q1. Some of these international sales were stocking by distributors. IRIX targets an installed base of at least 100 systems outside the U.S. by year-end 2016.
IRIX will add six sales reps and expand production capacity over the next several months to ramp sales growth. We have modeled rising expenses and adjusted our EPS estimates accordingly.
IRIX has no long-term debt and $11.9 million of cash. During Q1:16, approximately 7,000 shares were repurchased.
We reiterate our BUY rating and raise our price target from $13 to $16.

Primary Risks

IRIX’s sales to overseas distributors are denominated in U.S. dollars so currency effects are minimal. However, increases in the value of the dollar make IRIX products more expensive for foreign customers, which may result in lower sales/profits.