Candela Fizzles

Even when the bar is set insanely low, disappointing results can still have an impact. Such is the case with aesthetic laser maker Candela (Nasdaq: CLZR), which reported slightly higher revenue but wider-than-anticipated losses. Shares are still getting hit pretty hard.

The reason undoubtedly has to do with the laser maker reporting more of what it has been saying all along: Product introductions are faltering, legal expenses are sapping strength, margins are eroding, and business is drying up.

Revenue came in at $38.9 million, essentially flat from a year ago, but a few dollars higher than analyst consensus estimates. While analysts had been expecting a $0.07-per-share loss, the loss actually came in at $0.09 per share. And that's the good news.

The bad news is that margins are eroding significantly, down to 45% from 51% last year, and below the stated 50%-55% range the company says it typically shoots for. Yet it's also witnessing a decline in average selling prices for its lasers in the 4% to 5% range and, with practitioners holding off on making purchases or leases, revenue from product sales was down from last year. It was an increase in services that helped revenue inch up this quarter.

Moreover, Candela is having problems collecting from the customers it does have. Management noted on the conference call that days sales outstanding was up a few days. It's also taking longer for physicians who want to lease lasers to get the financing approved. While it used to be able to complete a lease in less than 30 days, Candela says it's now taking more than 60 days, and approaching 90 days in some cases.

Certainly, the lackluster North American economy hasn't helped, but when a laser maker like Candela must consistently push back product introductions, it can't instill much confidence in its sales force, which, along with laser sales, has been shrinking. It's down from 60 people to 48 positions, not all of which are filled. Its supposedly revolutionary pneumatic skin-flattening system has been postponed indefinitely as we heard last time, and now Candela's cellulite-zapping laser is being pushed back from the first quarter of 2009 to the end of the year, as it needs more clinical testing.

Although management says its home-based laser product is on target for the end of 2009, well, you'll pardon us if we take that assurance with more than a grain of salt.

Candela is the first aesthetic laser maker to report, and we'll be hearing over the next few weeks from Palomar Medical Technologies (Nasdaq: PMTI), Cutera (Nasdaq: CUTR), Cynosure (Nasdaq: CYNO), and Syneron Medical (Nasdaq: ELOS). When it comes to Candela, it's hard to know if it's a company-specific problem or an industry-wide affliction.

What we do know is that Candela spent another $4 million in legal expenses, and there's no sign of its letting up anytime soon. And despite a stock that's headed toward the penny-stock zone, even management can't bring itself to buy back any shares. Of course, that didn't stop them from handing out an additional $600,000 in stock options this quarter.

With such an ugly business model, there's just nothing pretty about this company anymore.