Over the past year, I've been accused of being unmercifully tough on aesthetic laser maker Candela (NASDAQ:CLZR). It's been said that I chided it for pumping up unrealistic expectations and failing to deliver the goods in terms of sales. I even disparaged its math skills, it's said. And, admittedly, as I waited for the company to report its first-quarter results today, I didn't hold out much hope.
Yet I found the results to be surprisingly satisfactory. Revenues grew 25% to $28.1 million, while net income grew 8% to $3 million, or $0.13 a share. Gross margins also reversed trend and shot up to more than 50%, compared with 45.1% last year, driven in part by an improved product mix and reductions in costs for services, but also because of its reworked royalty plan. Still, I'm going to contain my enthusiasm, not because of any wanton desire to continue bashing the company, but rather because it's only one quarter.
Over the past two years, Candela has been experiencing slower growth rates, except for occasional bumps in a quarter here or there. I'll need to see Candela string together at least two quarters (and more would be better) before I'll become enthusiastic once again. Sure, I might miss the absolute bottom for this stock, but it also minimizes the downside risk.
A number of other developments bode well for the leading aesthetic laser manufacturer. It brought out new products and is expanding into China, a huge and currently untapped market. That will increase costs, but Candela's healthy balance sheet should have no problem meeting those needs and it could serve to ramp up revenues. Domestically, it has signed on medical products distributor McKesson (NYSE:MCK) to push its new pulsed dye lasers, though that may cut into gross margins. But management has reaffirmed that such margins will remain in the 50% to 52% range for the full year.
Perhaps one of the more shareholder-friendly things Candela did this quarter was to announce a share buyback program equal to 10% of the company's outstanding stock over the next two years. While announcing a plan and implementing it are separate issues -- and Candela says there are no targets; it will buy back shares "opportunistically" -- it is at least a nod toward beleaguered shareholders. Nor does a buyout hurt minimizing the dilutive effects of the company's generous stock option plans; most of the shares owned by Candela's insiders are through options.
Interestingly, laser competitor Cutera (NASDAQ:CUTR) also released earnings today, and by comparison, the report seemed more cheery. Revenues were up 49% to $19 million, while earnings rose to $3.8 million from $877,000 one year ago. So while the company was starting from a smaller base, a point I've raised in the past, it is slowly approaching parity. Cutera's results do not show the same sort of seasonality that Candela's does, allowing for smoother revenue increases, but it is locked in a legal battle with Palomar Medical Technology (NASDAQ:PMTI) that could sap its strength going forward.
Still, I will give Candela credit where it's due. The first quarter is historically one of the company's weakest, and it managed reversed recent trends to post strong growth and handily beat analyst expectations, my own included. It has new products, new distributors, and new markets to expand into, along with a shareholder-friendly stock buyback program. The pieces are in place for the laser maker to resume its industry-leading role. I'll just need to see some consistency over the next quarter or so to say that Candela is again sharply focused.
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Fool contributor Rich Duprey owns shares in Candela, but he does not own any of the other stocks mentioned in this article. The Motley Fool has a disclosure policy.
