Cynosure, Inc. (CYNO)

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Cynosure, Inc. (CYNO)

Q3 2008 Earnings Call Transcript

October 28, 2008, 9:00 am ET


Scott Solomon – VP, Sharon Merrill Associates

Mike Davin – Chairman, President and CEO

Tim Baker – EVP, CFO and Treasurer


Yami Ogencoi [ph] – Citi

Dalton Chandler – Needham & Company

Isaac Ro – Leerink Swan

Anthony Vendetti – Maxim Group

Andy Schopick – Nutmeg Securities

Gregory Hummel [ph] – Quantum Asset Management

Peter Bye – Jefferies & Company

Sasha Castemdoven [ph] – Shaker Investments [ph]

Bill Deslam [ph] – Tiatin Capital


Good day, everyone and welcome to Cynosure's third-quarter 2008 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. Today's question-and-answer session will be conducted electronically. After the presentation, if you'd like to ask question (Operator instructions) At this time, for opening remarks and introductions, I like turn the cola were to Mr. Scott Solomon, Vice President of Sharon Merrill Associates. Please go ahead sir.

Scott Solomon

Thank you, Claudia. Good morning, everyone. Really on today's call are Cynosure's President and Chief Executive Officer, Michael Davin; and Executive Vice President and Chief Financial Officer, Tim Baker. Will begin today's call with Mike providing highlights of Cynosure's third-quarter 2008 results in an overview of the companies growth strategy. Tim will take you through the financials after which management will take your questions.

Before we begin, please note that various remarks management makes on this conference call about Cynosure's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, and actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in the Company's Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2007 and subsequent reports filed with the SEC. These filings can be accessed via the Investor section of Cynosure's website at

In addition, any forward-looking statements represent the Company's views as of today, October 28, 2008. These statements should not be relied upon as representing the Company's views as of any subsequent date. While Cynosure may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so.

With that, I'll turn the call over to Mike Davin. Mike?

Mike Davin

Thank you, Scott. Good morning everyone and thank you for joining us for our Q3 conference call. In light of the challenging economic environment, I'm especially pleased to report 21% revenue growth over Q3 of 2007 and our eighth consecutive quarter of profitability. As you have no doubt seen or heard from some of our peers, the aesthetic industry was not immune from economic downturn in the third quarter. But I believe that our focus on technology innovation and rapidly growing high-volume applications and on global direct distribution has benefited us in a difficult market as well as help position Cynosure as an industry leader over the long-term.

For the third quarter of 2008, we posted revenue of $38.2 million, compared with $31.5 million Q3 of ’07. We saw particularly strong demand for our Elite workstation for laser hair removal, our Affirm family of anti-aging workstations, and Smartlipo workstations for laser body sculpting. All three of these flagship systems delivered double digit percentage growth in the third quarter.

As we discussed in this morning's news release, we continue to gain significant traction in the third quarter from Smartlipo MPX, our powerful new 32 watt, dual wavelength system for laser lipolysis. We introduced MPX in North America in Q2 2008, and internationally in Q3. This system represents Cynosure's newest generation of advanced laser technology. MPX combines the 1064 and 1320 nanometer Nd:YAG wavelengths with SmartSense, the industry's first intelligent energy delivery system.

One of our goals for MPX is to work with industry luminaries to generate rapid and broad adoption of the product. And to accomplish this, we have initially targeted plastic surgeons to perform a high volume of liposuction procedures. To accelerate adoption and quickly build an installed base among key opinion leaders, we have aggressively priced the system which has contributed to a decrease in Q3 gross margin from Q2.

Also, from a cost perspective, MPX is the most expensive to produce of our six flagship products. We've been very successful in penetrating the target market as MPX has increased from 46% of total Smartlipo revenue in Q2 of 2008 to 73% of total Smartlipo how revenue in the third quarter. Consistent with what we have seen thus far, virtually all MPX customers are ordering the system equipped with optional SmartSense and hand piece.

We recently surveyed 30 physicians who have performed a combined total of 500 procedures with the Smartlipo MPX, and we are very pleased with the level of satisfaction among these customers. Among those who had previously used our 6-, 10-, or 18-watt Smartlipo, 94% said they noticed an improvement in efficacy. The average treatment time with MPX was reduced by 35%. Among other findings of note, 67% of respondents notice an improvement in hemostasis, while 86% saw an improvement in skin tightening. Skin tightening is an important application for us and one that you'll be hearing more about from a clinical perspective in the coming quarters.

Our training programs also received high marks. When after the training they received was adequate, 96% responded affirmatively with many characterizing the training as very good or excellent.

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