Spectranetics Narrows Quarterly Loss

Spectranetics Corp. (SPNC - Snapshot Report) reported a net loss of $2.0 million, or $0.06 per share, for the second quarter of 2009, compared to a net loss of $2.6 million, or $0.08 per share, a year ago. Revenues increased 8.7% to $29.0 million, with $24.5 (up 6%) coming from the United States and $4.5 million (up 24%) from the international markets.

Gross margin contracted slightly to 71.5% from 71.8%. Operating expenses (excluding in-process R&D expenses) grew 19.2% to $22.9 million on higher SGA and R&D spending. R&D grew 19.1% to $4.1 million (14.0% of revenues) and SGA grew 19.3% to $18.8 million (64.9% of revenues).

Total Laser revenues fell 11.8% to $1.9 million -- comprising of Equipment revenues of $0.8 million (down 27.6%) and Rental fees of $1.1 million (up 5.8%). Spectranetics placed 30 laser systems (including 21 transfers) during the quarter, versus 42 (including 9 transfers), a year-ago. Globally the installed base of laser systems totaled 876 at the end of the second quarter, of which 685 are in the United States.

Total Disposable Products revenues rose 11.7% to $24.8 million, comprising of Vascular Intervention revenues of $16.0 million (up 7.9%) and Lead Management revenues of $8.8 million (up 19.3%). Service and other revenues were almost flat at $2.3 million.

Spectranetics is hopeful of posting revenues growth in both Vascular Interventions and Lead Management product segments in 2009. It anticipates Lead Management revenues to grow at 15%-20% in the current year on favorable market dynamics and the expanded sales force.

In the Vascular Interventions segment, Spectranetics expects a higher growth rate during the second half of 2009 compared to the 10% growth rate recorded during the first half. The company is looking forward to the contribution from the recently introduced Turbo-Tandem device, which has been designed for above-the-knee procedures.

However, Spectranetics management expects to post a pre-tax loss for the full year 2009. New laser placements are likely to decline in the current year as the company continues to focus on increasing revenues in the existing accounts. Consequently, gross margin may contract from the 2008 level.

Spectranetics is attempting to expand as well as improve the performance of its sales team. It plans to extend its footprint to 40 countries by the end of this year from 34 countries presently. Moreover, Spectranetics plans to increase R&D investment to accelerate new product innovation and broaden its product portfolio.

We see all these measures to augment Spectranetics' competitiveness, growth and profitability in the long run. We reiterate our Hold recommendation for the company.

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