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MRLB: Strong Growth in North America, Europe

By Brian Marckx, CFA


Q1 Financials:  North America, Europe Remain Robust. Asia Could Come Back in Near-Term..

Miramar Labs (OTC:MRLB) reported financial results for the first quarter ending March 31st.  While revenue slid on both a yoy and sequential basis, there were some positives in the top-line details.  Most notably was relative strength in North America and Europe, both of which posted double-digit percentage increases in revenue compared to the prior year.  Meanwhile, Asia, which was fingered as a laggard in Q4 of last year, turned in another disappointing showing with Q1 sales falling more than 50% yoy.  Encouraging, however, is management indicating that the slide in sales from Asia is largely due to timing of orders in China and Japan (as well as to changes in distributors in some countries) – perhaps signaling expectations of a near-term rebound in revenue from those countries.  

The other bit of encouraging detail in the numbers was that while console sales were relatively very weak, consumables revenue was relatively strong.  As consumables contribute the majority of margin, act as a proxy for utilization and demand, and represent the bulk of the long-term opportunity for growth (for revenue, margin, cash flow and profitability), the 10% yoy (+$204k) and 18% sequential (+$335k) growth in this line item was a meaningful highlight in Q1.  

Consumable sales accounted for 58% of total revenue in Q1 – which looks to be (by far) the greatest proportional contribution ever (or at least as far back as MRLB’s publicly available financials).  And despite consoles placements underperforming in Q1, the installed base continues to grow and now sits at approximately 900 units – up from ~873 at the end of 2016.  Even modest growth in the size of the installed base can be meaningful in accelerating revenue as a result of the multiplier-effect of the razor-razor blade business model.

Total revenue was $3.8M, down 11% yoy (-$472k) and 14% sequentially (-$596k), and consisted of $1.5M in console sales and $2.2M in consumable sales.  The aforementioned strength in consumable sales was more than offset by a 30% yoy (-$623k) and 38% sequential (-$907k) decrease in console revenue.  As compared to Q1 2016, MRLB noted that while console revenue increased ~$100k in North America, it fell ~$800k in Asia (which also implies Europe/Middle East console sales were up slightly).  

Asia revenue was just $825k in Q1, down 54% from $1.8M in the comparable prior year period.  As all of the revenue decline was attributable to Asia (at least as related to console sales), had it not been for the adverse timing-related issue, Q1 total revenue may have looked much better.  In fact, had Asia just turned in flat growth, Q1 total revenue would have been almost $4.9M, or up 14% yoy.  As a reminder, Asia generated $6.2M of revenue in 2016, up 6% from the prior year.  Given the continued strength in Europe and North America, if Asia (which now accounts for ~25% of total revenue) returns to even modest growth, this should have an outsized positive impact on the top-line.        

Meanwhile North America and Europe both remain quite robust.  North America revenue increased 18% yoy – with both console and consumable sales strong in Q1.  This follows 38% revenue growth in North America in 2016.  With North America now accounting for slightly more than 50% of total revenue, growth in this territory is a clear positive.  We think sales in North America, where MRLB details with a direct sales force, are benefitting from greater awareness from the implementation of the company’s newly implemented marketing and social media efforts.  Additionally, the recent label expansion (‘reduction of hair’ in June ’15 and ‘reduction of odor’ in Oct ’16) as well as the attractive economics for physicians may also benefitting uptake in the U.S.   

European sales, which account for almost 25% of total revenue, were up 26% yoy – MRLB notes most of the growth is from consumables.  As noted, growth in consumables sales is particularly encouraging and should aid in driving gross margin higher.

Relative to the rest of the income statement…   

Gross margin continues to march upwards, widening to 55.6% in Q1 from 52.7% in the comparable prior year period and 55.3% average throughout 2016.  Gross margin is benefitting from a higher proportion of total sales coming from consumables as well as from economies of scale from higher production volumes.  We continue to model incremental widening of gross margin as higher margin consumables grow to account for a larger percentage of total revenue.

Q1 operating expenses were $5.3M, roughly flat and down 6% from Q1 and Q4, respectively, in 2016.  Control in OpEx helped to offset much of the relatively weakness on the top-line.  So while revenue fell 11% yoy and 14% sequentially, operating loss increased by only 5% and less than 1% compared to those same periods.

Cash used in operating activities in Q1 was $2.8M ($3.1M ex-changes in working capital).  Cash balance at quarter-end was just $1.1M – as such a capital raise needs to be imminent.  While we had hoped the balance sheet would have been shored up before now, MRLB has shown the ability in the past to raise capital when necessary – including $2.7M (net) via the sale of convertible notes in January.  


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