Raising Estimates for VISX Following Preannounced Blowout
We are raising estimates for VISX, Inc. following this week's preannouncement of a 1Q-99 which will surpass all prior expectations. Our new EPS estimates for 1Q and FY-1999 are $0.53 and $2.10 respectively. Growth in laser vision correction procedures is driving these results: we believe that VISX will perform about 77% of 800,000 total U.S. procedures this year. Hardware sales remain at full capacity as well. VISX will spend some of the incremental revenue on additional marketing and promotion, which should fuel further growth for the industry and the company.
The VISX Train Just Keeps Picking Up Steam. VISX management announced this week that 1Q-99 EPS would come in well ahead of everyone's expectations, in the $0.51-0.55 range. We are raising our revenue and EPS estimates for 1Q-99 from $42.2 million and $0.36 to $52.3 million and $0.53. For the full year 1999, we go from $166 million and $1.55 to $216 million and $2.10. We had previously believed that the "best case" scenario for 1999 was EPS of $1.85, and that it would take time to get there, but we hadn't counted on the huge step-up in laser vision correction procedure volume we have seen in the first two months of the year. For 2000, we are raising our estimates from $179 million and $1.86 to $248 million and $2.65.
Once Again, LVC Procedures are the Key. Procedure volume for VISX grew sequentially (on average) by about 9,000 procedures per quarter in 1997 and by about 14,000 per quarter in 1998. The largest sequential quarterly increase in our model occurred between 3Q and 4Q-98, when VISX went from 77,000 to 100,000 procedures. We now anticipate that roughly 140,000 procedures will be performed on VISX lasers in the U.S. in 1Q-99, an astounding incremental volume of 40,000. We have raised our market-wide procedure estimates for 1999 and 2000 to 800,000 and 1.1 million respectively, with VISX capturing nearly 77% in 1999 and about 70% in 2000. We believe that VISX currently holds an 80% share of procedures performed on FDA-approved lasers. Procedure growth continues to be broad-based, with current refractive surgical practices, new practices, and corporate laser centers all contributing.
Laser System Sales Still at Full Capacity. We admit to also being surprised by the continued strength of VISX's hardware sales, which we had expected to taper off based on market saturation and new competitive approvals. The company will probably place a record number of lasers in the current quarter, and has been running at full manufacturing capacity since 3Q-98. As with procedure growth, laser sales have been broad-based, with all customer segments participating. Of particular note is the large number of physicians who have built their practice volumes at the corporate centers and are now purchasing lasers of their own. We believe that VISX will capture about two-thirds of all U.S. laser placements this year, which bodes well for continued procedure share leadership.
VISX Will Increase Marketing and Promotional Efforts Beginning in 2Q-99. Our updated revenue model for VISX provides an additional $44 million in gross profit in 1999 versus our prior model. We anticipate that VISX will take about 25% of this upside, or about $11 million, and invest in additional marketing efforts to spread the word to consumers about laser vision correction in general and VISX in particular. This investment should contribute to the top line by late 1999 and 2000. Importantly, because these marketing expenses are incremental and discretionary, and will be allocated throughout 1999 based on the revenue ramp, the increased SG&A budget provides up to $0.20 of "wiggle room" to our 1999 EPS estimate.
VISX, Inc. develops, manufactures, and markets excimer lasers for the correction of refractive disorders of the eye, such as nearsightedness, farsightedness, and astigmatism. The company owns the most fundamental intellectual property in the industry, is the leading seller of ophthalmic excimer lasers and receives procedure fee revenues for laser vision correcion (LVC) procedures performed in the U.S.
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