IMRIS fourth quarter sales increase 26% to $25.2 million

IMRIS Inc. (NASDAQ: IMRS; TSX: IM) ("IMRIS" or the "Company") today reported its results for the fourth quarter 2010 highlighted by record financial performance that included strong revenue growth and the Company's second consecutive quarter of positive EBITDA and earnings.  All figures are reported in Canadian dollars.

Highlights:

• Record quarterly sales revenues of $25.2 million
• Record quarterly gross profit as a percentage of sales of 46.4%
• Record quarterly EBITDA of $3.6 million and net income of $1.7 million
• Order bookings of $24.8 million including the first sale of IMRIScardio in the Middle East
• Agreement with Varian Medical Systems to co-develop advanced new radiation therapy product
• Listing on NASDAQ Global Market and completion of financing for net proceeds of $50.9 million

Sales revenues in the fourth quarter of 2010 increased by 26% to $25.2 million compared with Q4 2009.  Year to date December 31, 2010, sales increased by 62% to $71.8 million.  Gross profit also increased significantly, by 31% to $11.7 million in the quarter and by 58% to $31.0 million for all of 2010.  The Company achieved its second consecutive quarter of positive EBITDA and net income which were $3.6 million and $1.7 million respectively.  Net loss for full year 2010 was $1.4 million, representing an 84% improvement over 2009. 

"2010 has been a solid year of growth for our Company," said David Graves, IMRIS CEO.  "We finished the year with a strong fourth quarter, contributing to the achievement of annual EBITDA of $2.8 million.  Customer orders improved throughout 2010 and were $68 million in the second half of the year.  We are optimistic that annual order bookings in 2011 will build on this trend and be significantly higher."

Financial Highlights:

Fourth Quarter and Twelve Month Results

Sales

Sales in the fourth quarter of 2010 were $25.2 million, increasing by 26% from $19.9 million in the fourth quarter of 2009. For the twelve month period of 2010 sales climbed by 62% to $71.8 million.  The stronger fourth quarter performance is due to increased system deliveries in 2010 versus 2009. The year to date increase is due to increased system deliveries and higher average revenue per system. IMRIS continues to expand its global footprint to provide top line growth and additional geographic diversification to the revenue mix.  Through this strategy, revenues from system installations outside North America climbed to 21% of total revenues in 2010 compared with only 2.5% in 2009. Growth in revenues from service contracts also contributed to higher sales results in 2010.  Revenues from service contracts contributed $0.7 million in the fourth quarter and $2.1 million year to date compared with $0.5 million and $1.8 million during the respective periods in 2009. 

Gross Profit

Gross profit increased by 31% to $11.7 million in the quarter and by 58% to $31.0 million for all of 2010. The improvements reflect strong year over year growth in sales revenues and changes in gross profit as a percentage of sales. Gross profit as a percentage of sales reached a record 46.4% in the fourth quarter and was 43.3% year to date.  In 2009, gross profit as a percentage of sales was 44.8% and 44.3% in the fourth quarter and 12 months respectively. The increase in quarterly gross profit as a percentage of sales reflected the delivery of higher margined systems during the quarter.   On a year to date basis gross profit was slightly lower due to the delivery of two lower margin systems earlier in the year.

Operating Expenses

Throughout 2010, IMRIS continued to carefully manage its investment in operations, driving strong top line growth while at the same time improving its financial performance. Operating expenses in the fourth quarter of 2010 were $9.0 million and $31.8 million year to date, compared to $8.1 million and $26.8 million during the same periods in 2009.  The 2010 increases include a significant increase in non-cash amortization expense primarily related to the acquisition of NeuroArm Surgical Limited at the beginning of the year.  In addition, higher cash operating costs have been incurred to fund growth in the business, increasing year over year by $0.5 million in the fourth quarter and by $3.6 million for all of 2010.  IMRIS continues to leverage its investment in operations to support long term growth.  The benefits of this approach are reflected in the decrease in operating expenses as a percentage of sales, which declined to 44% in 2010 from 60% in 2009.

EBITDA

EBITDA in the fourth quarter of 2010 was $3.6 million compared with $1.4 million in the fourth quarter of 2009.  Year to date, EBITDA improved to $2.8 million compared with negative $5.0 million in 2009.  With the strong performance in Q4 2010, IMRIS achieved full year positive EBITDA performance - a milestone in the Company's evolution. The year over year improvements are primarily due to increased gross profit, net of the higher cash operating expenses described above. 

Operating and Net Income

Operating income increased to $2.7 million from $0.8 million in the fourth quarter of 2009 contributing to a strong improvement in the Company's annual operating loss which was $0.7 million compared with $7.1 million during 2009. Net income was $1.7 million in the fourth quarter of 2010 versus $0.4 million in Q4 2009.  Net loss improved by 84% to $1.5 million year to date. The year over year improvements reflect higher gross profit net of higher operating expenses to fund growth in revenues.  Foreign exchange losses arising from translation of foreign currency cash balances also contributed to the year over year changes.  The Company reported foreign exchange losses of $1.0 million and $0.8 million in the fourth quarter and full year 2010 compared with foreign exchange losses of $0.4 million and $2.0 million during the same respective periods in 2009.

Liquidity and Capital Resources

Cash and cash equivalents at December 31, 2010 totaled $60.4 million.  In addition the Company had accounts receivable of $15.8 million, the majority of which are expected to be collected within the next 60 days.  During the fourth quarter of 2010 the Company completed an equity financing with the issuance of 11,100,000 common shares, resulting in net proceeds of $50.9 million.  The proceeds from the offering will be used to fund research and development, support continued global market penetration of IMRIS products and additional working capital associated with accelerated sales and production of IMRS products.

Backlog

At December 31, 2010, IMRIS reported order backlog of $118.2 million - 5% higher than a year earlier, even after record backlog conversion that delivered revenues of $71.8 million for the year. In the fourth quarter, 4 new system orders were received contributing to total bookings of $24.8 million.  These orders included an IMRISneuro sale in Europe and the Company's first IMRIScardio sale in the Middle East.     During the quarter $25.2 million of backlog was converted into revenues, and the appreciation of the Canadian dollar late in 2010 resulted in a $1.4 million decrease in the valuation of backlog related to foreign currencies.  Net of these items, backlog at December 31, 2010 was $118.2 million, including $87.4 million of system orders and $30.8 million of service contracts. 

IMRIS and Varian Medical Systems to Co-Develop MR-Guided Radiation Therapy System

On October 5, 2010 IMRIS announced an agreement with Varian Medical Systems to co-develop an innovative new MR-guided radiation therapy system for use in treating a variety of cancers.  Under the terms of the agreement, the two companies will develop a solution that combines IMRIS's proprietary MR imaging technology with Varian's TrueBeam^TM system. Following successful completion of the development stage of this project, and subject to necessary regulatory approvals, the companies anticipate co-branding the new MR-guided radiation therapy suite and leveraging Varian's global presence and leadership position in the fields of radiotherapy and radiosurgery to market the new product.  

2011 Outlook

The Company anticipates a strong year of growth in system orders in 2011.  A number of factors are expected to contribute to this forecast including an improved capital spending environment in the US healthcare sector, growing recognition of the value IMRIS solutions offer and increased orders from outside the United States as the Company's investments in other territories gain traction.   Another solid year of revenue performance in 2011 is expected with system orders in backlog forecast to convert into revenues at rates higher than in 2010.  Consistent with prior years, quarterly performance is expected to continue to be variable with a trend toward higher order flow, revenue, and financial performance in the back half of the year. Gross profit as a percentage of sales will be slightly lower than in 2010 as the early installations of the Company's newest products IMRISNV and IMRIScardio continue to be rolled out.  As these products become more established in the market, the Company's overall gross profit as a percentage of sales is expected to increase into the mid 40% range. In support of the Company's priorities for the year, operating expenses as a percentage of sales are expected to increase marginally over 2010 levels, but with significantly higher year over year research and development expenditures which are forecast to increase from 8% of revenues in 2010 to 11% to 12% in 2011.  Spending in this area will primarily be used to advance development of the MR guided radiation therapy and MR guided surgical robotics products.  Limited increases are anticipated in other operational areas and amortization expense will increase modestly.