Company Outlook

IRIS International reaffirms initial guidance for full year 2009, anticipating revenue growth to at least $102 million and earnings of at least $0.48 per fully diluted share. For the current second quarter ending June 30, 2009, IRIS anticipates revenue growth to $24.5 million and earnings of $0.11 per share.

We are pleased with our overall first quarter performance which is in line with our earnings guidance, despite carrying a $1.2 million backlog in iChem(r)VELOCITY(tm) and iRICELL(tm) sales. Our sales also reflect the impact of current global economic conditions. Despite these factors, and the continuing economic uncertainty, we remain confident that our full year forecast is achievable. We are particularly satisfied with the continuing strong growth in recurring high margin consumables and service revenue, which increased 15% over the year ago period and represented 58% of total revenue for the quarter, stated Cesar Garcia, Chairman, President and Chief Executive Officer. First quarter 2009 instrument sales would have been significantly higher if not for our decision to delay international shipments of our recently introduced iChem(r)VELOCITY(tm) automated chemistry analyzer, in order to implement product improvements based on customer feedback during the early stages of the product launch. These improvements have now been implemented and we anticipate resuming full-scale shipments against our backlog of iChem(r)VELOCITY(tm) and iRICELL(tm) integrated urinalysis workstations during the first week of May 2009. We expect to ship the backlog and believe we can significantly recover the instrument’s sales momentum during the second quarter as the interest for our new product offerings continues to be strong. In addition, we are anticipating our planned U.S. launch of the iChem(r)VELOCITY(tm) and iRICELL(tm) system as soon as these instruments attain pending FDA 510(k) clearance, Garcia said.

While the current recessionary environment presents some challenges which have been accounted for in our previously stated 2009 guidance, domestic sales in the first quarter, a seasonally slow period, were slightly better than the comparable period a year ago. We experienced the most softness in the international market, primarily due to the delay in iChem(r)VELOCITY(tm) and iRICELL(tm) shipments which, we believe, has now been resolved, Garcia said. There were a total 81 iQ(r)200 analyzers shipped in the 2009 first quarter.

With the support and cooperation of our international distributors, we have incorporated all the design improvements needed for the global launch of iChem(r)VELOCITY(tm) and iRICELL(tm) and the final validation of these important changes is progressing per plan. We have not encountered any fundamental problems in the underlying technology and we are confident that after these latest improvements we should attain the high quality levels that we have traditionally achieved with our flagship iQ(r)200 product line. Our backlog has continued to grow in April, which is testimony to the acceptance of our product concept and the confidence of our customers and distributors in our track record to deliver high quality products. We are confident the product will soon be FDA cleared and we remain optimistic in our ability to meet revenue and earnings guidance for the full year, Garcia said.

The IVD business unit had sales of $18.0 million in the first quarter of 2009, against $18.2 million in the first quarter of 2008. IVD instrument sales decreased 26% to $5.5 million in the first quarter of 2009, against $7.4 million in the first quarter of 2008, due primarily to delayed shipments of iChem(r)VELOCITY(tm) and iRICELL(tm) workstations to the international market. IVD instrument revenue represented 25% of consolidated revenue in the first quarter of 2009 versus 34% in the first quarter of 2008. IVD consumables and service revenue grew by 15% to a record $12.5 million for the quarter, against $10.9 million in the first quarter of 2008. IVD consumables and service revenue represented 58% of total revenue in the first quarter of 2009 versus 50% in the first quarter of 2008, as a result of product mix. There were 81 iQ(r)200 urine microscopy analyzers sold in the quarter, increasing the total number of iQ(r)200 analyzers sold to more than 2,230 units, as of March 31, all generating high margin recurring consumables and service revenue. The Iris Sample Processing Division achieved record first quarter 2009 revenue of $3.6 million, an increase of 6% over revenue of $3.4 million in the first quarter of 2008.

Consolidated gross profit margin remained consistent at 54% in the first quarters of 2009 and 2008. IVD instruments gross profit margin was 42% in the 2009 first quarter, versus 52% in the year ago period and 41% for the immediately preceding Q4-08 quarter.

IVD consumables and service gross profit margin was 61% for the 2009 first quarter, against 56% in the year ago period. This was driven by increased consumable volumes and improved profitability in the service business. Our service business benefited in the first quarter from a higher than normal volume of orders for iQ(r)200 spare parts from International distributors and reduced labor costs. Consumable and service profitability continues to improve with the growing installed base of iQ analyzers and should continue to benefit with the release of the iChem(r)VELOCITY(tm), which is now beginning to favorably impact the utilization of our strip manufacturing facility in Marburg, Germany.

Research and development expense for the first quarter of 2009 was $2.8 million, or 13% of revenue, against $2.6 million, or 12% of revenue, in the first quarter of 2008.

We are very pleased with the results of the recent 30 patient, first stage clinical study with Duke University Medical Center using our NADiA(r)ProsVue(tm) ultra sensitive prostate-specific antigen (PSA) diagnostic assay for identifying post-prostatectomy patients with low risk of prostate cancer recurrence, Garcia said. Once again, our most recent clinical study confirmed NADiA(r)ProsVue’s(tm) capability to measure PSA concentrations with extremely high sensitivity and specificity, below the detection limits of conventional third generation PSA assays, a performance that we believe is essential to support a prognostics claim. After reviewing our second Pre Investigational Device Exemption (Pre-IDE), the FDA has not identified any significant deficiency in our protocol, the preliminary experimental conclusions or the improved hypothesis submitted for their consideration. We are incorporating the final recommendations from the FDA review into our retrospective clinical study before initiating a larger multi-center study, which is expected to be completed and submitted with an FDA 510(k) application in the mid-Summer of 2009. We are on schedule with the regulatory plan that we outlined in January 2009, added Garcia.

Operating expenses increased to $9.8 million, or 46% of sales, in the first quarter of 2009, against $9.2 million, or 43% of sales, in the first quarter of 2008. Marketing and selling expenses of $3.9 million in the first quarter of 2009 were the same as the year ago period. General and administrative expenses in the first quarter of 2009 were $3.1 million, against $2.8 million in the prior year period.

The effective tax rate for the first quarter of 2009 was 32%, compared to 33% for the first quarter of 2008. The company’s balance sheet remains strong with cash of $26.7 million and no debt at March 31, 2009.