"You have to cope"
Syneron's Shimon Eckhouse on finding himself on the wrong side of sales guidance.
Tali Tsipori 3 Jan 06 18:55
The announcement released by aesthetic medicine device company Syneron Medical Ltd. (Nasdaq: ELOS) at 7 am EST this morning, as US investors woke for the resumption of work after the New Year holiday, probably did not make them fall out of bed. The sharp fall in the company's stock price in the two last trading sessions of 2005, and the dark warnings of investment house CIBC, presaged just such an announcement.
Syneron, whose products are mainly for various kinds of skin treatments, now expects to report revenue of $24 million for the fourth quarter of 2005, compared with previous guidance of $27.3-28.3 million. In its announcement, the company said that orders worth $3-4 million that had been invoiced and shipped would not be recognized as revenue because they could not be delivered over the holiday period.
"We have a very strict revenue recognition policy," says Syneron founder and chairman Shimon Eckhouse. "Until the customer receives the product, we don’t recognize any revenue from him. The end of the fourth quarter is always a busy time. In 2005, December 31 fell on a Saturday, and January 1 on a Sunday, which limited our ability to supply orders to some of our customers."
It may be that some of the company's problems in the fourth quarter were due to the holidays, but it should be noted that even had Syneron posted revenue of $27-28 million, it would still have only met its guidance, and would not have beaten the analysts' estimates. "True, from the investors' point of view, we disappointed them, as it were, but this is an unending game that's impossible to win," says Eckhouse. "If we had been too aggressive, and then not met our guidance, the share would have fallen. If we are conservative, as we take care to be, the share will still fall, as in fact happened. These are unpleasant situations with which we have to cope."
Syneron expects to report revenue of some $88 million for 2005 as a whole, 50% more than in 2004. Perhaps to sugar the pill, Syneron chose to open today's announcement with this growth rate, rather than with the fourth quarter results. The analysts' consensus estimate, before today's warning, was for annual revenue of $92 million, at the upper limit of the company's $91-92 million guidance. The consensus estimate for fourth quarter revenue was $28.7 million. For earnings per share, the consensus estimate was for $0.54 in the fourth quarter, and $1.17 for the year.
Globes: Do you have a projection for this year's growth rate?
Eckhouse: "No, still not. We are only in the first few days of the year, and, as always, we want to be cautious about making projections. We therefore prefer not to make announcements at this time."
About 2006, Eckhouse adds that Syneron is in the process of expanding its sales force, which in the short term will mean higher sales and administration expenses, but which, according to Eckhouse, "will have positive significance" in the long term.
Will the level of profitability you have accustomed investors to seeing be maintained in the fourth quarter?
"As far as gross profit is concerned, I can say that it will. It's hard for me to answer about net profit at the moment."
I suppose the past few days haven't been easy.
"Yes, but that's part of the job in a public company. It's not pleasant, but you have to deal with situations like this one as well. We are very happy with what's happening at the company, and hope for continued growth."
Published by Globes [online], Israel business news - www.globes.co.il - on January 3, 2006
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