CYNO

Cynosure, Inc. (CYNO)

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Cynosure, Inc. (CYNO)

Q4 2008 Earnings Call

February 10, 2009; 9:00 am ET

Executives

Mike Davin - Chairman, President and Chief Executive Officer

Tim Baker - Executive Vice President, Chief Financial Officer and Treasurer

Scott Solomon - Vice President, Sharon Merrill Associates

Analysts

Anthony Vendetti - Maxim Group

Josh Jennings - Jefferies & Company

Dalton Chandler - Needham & Company

Andy Schopick - Nutmeg Securities

Bill Dezellem - Tieton Capital Management

Sasha Kostadinov - Shaker Investments

Andrew Siegelstein - Unidentified Company

Presentation

Operator

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

Than you Melissa. Good morning everyone. With me on today’s call are Cynosure’s President and Chief Executive Officer, Michael Davin; and Executive Vice President and Chief Financial Officer, Tim Baker. We’ll begin today’s call with Mike providing and overview of Cynosure’s fourth quarter 2008 results and the business outlook. Tim will take you thorough the financials, after which management will take your questions.

Before we begin, please note that various remarks management makes on this conference call about future expectations planes and prospects constitute forward-looking statements for the 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, 2007and subsequent reports filed with the SEC.

These filings can be accessed on the Investor Section of the company’s website at www.cynosure.com. In addition any forward-looking statements represent the company’s use as of today February 10, 2009. These statements should not be relied upon as representing the company’s views as of any subsequent date or 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 fourth quarter conference call. As we discussed in our preannouncement in mid-January the affects of the economic slowdown on the aesthetic industry have been significant. After delivering 13 consecutive quarters of year-over-year double-digit percentage top line growth, our revenue declined 30% in the fourth quarter as the credit markets tightened and many physicians elected to postpone capital equipment purchases.

Reflecting the current macroeconomic environment, revenue for the fourth quarter totaled $25.5 million and we recorded a GAAP-net loss of $2.5 million or $0.20 per basic share. A net loss included a $2.7 million bad debt charge discussed in this morning’s press release. While our quarterly results we’re inline with the estimate we provided to you last month, our performance was nevertheless disappointing. Especially given the track record of consistently strong revenue growth and profitability we’ve built over the past three years.

Gross margin also was negatively impacted by the overall climate in the fourth quarter, following about five points from Q4, 07 to 61%. This resulted from a combination of pricing pressure and revenue weakness that was most pronounced in North America which accounted for 61% of laser revenue in Q4, 08 compared to 68% in the fourth quarter of 2007.

We also experienced a decrease in the overhead absorption in the quarter related to the reduction in volume. In light of the economic downturn in the fourth quarter we took a number of steps to reduce expenses as part of an effort to bring cost structure inline with anticipated revenue levels. Especially we reduced worldwide headcount by 17%, curtailed spending in various areas including marketing and clinical development, and imposed other cost cutting initiatives.

These measures are expected to result in an operating expense savings to the company of approximately $8 million to $10 million in 2009. We are committed to maintaining our technology leadership position in the market and we feel it’s important to continue to invest in key areas such as engineering and product development which have enabled us to build an important competitive advantage.

Our goal for 2009 is to maintain our core competency’s or working towards managing the business profitably. We will continue to monitor events closely and adjust expenses appropriately as we move forward.

If you look at our track record over the past three years, it should be clear that the growth we’ve achieved is the by-product of outstanding products, quality global distribution and innovative technology. We have strived to consistently deliver to the market proprietary workstations in product innovations that enhance the aesthetic experience for patients and enable practitioners to efficiently and cost effectively grow the practices.

In 2008 we commercialized three flag ship workstations, dual-wavelength, Smartlipo MPX for laser lipolysis. The Accolade Workstation for Pigmented Lesions and the affirm CO2 a new platform that combines of blade of skin resurfacing and skin rejuvenation in a single laser system.

These systems had been well received by customers and each has opened a new market opportunity for Cynosure. One product innovation I want to highlight from 2008 is our SmartSense intelligent delivery system, which give the aesthetic surgeon performing laser lipolysis on prolog level of precision, safety and control.

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