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Obagi Medical Products, Inc. (OMPI)

Q1 2009 Earnings Call

May 7, 2009 4:15 pm ET

Executives

Steven R. Carlson - Chief Executive Officer and President

Preston Romm - Chief Financial Officer

Ina McGuinness - Investor Relations

Analysts

Scott Henry - Roth Capital Partners

Brian Jeep - Sidoti

Anup Mehta – Canaccord Adams

Larry Neibor – Robert W. Baird

Presentation

Operator

Welcome to the Obagi Medical Products first quarter 2009 earnings conference call. (Operator instructions). I would now like to turn the conference over to our host, Ms. Ina McGuinness of ICR.

Ina McGuinness

Earlier, Obagi Medical Products released financial results for the first quarter ended March 31, 2009. If you have not received the press release, it is available on the Investor Relations section of the Obagi Medical Products website at www.obagi.com. This call is being webcast, and a replay will be available on the company’s website for 30 days.

We’d like to remind you that today’s remarks contain forward-looking statements within the meaning of federal securities laws. These statements do not guarantee future performance, and therefore, undue reliance should not be placed on them. We refer you to the risk factors contained in Obagi Medical Products’ SEC filings for more details and discussions of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. All of the information provided in today’s call is as of the date of the live broadcast, Thursday, May 7, 2009, and Obagi Medical Products assumes no obligation to update any such information.

Participating in today’s call from the company are President and Chief Executive Officer, Steve Carlson, and Chief Financial Officer and EVP of Finance, Operations, and Administration, Preston Romm.

With that, I’d like to turn the call over to Steve Carlson.

Steven R. Carlson

Good afternoon to everyone. Looking at the aesthetic landscape, while we’re still being impacted by depressed economy, the aesthetic skin care market now and in the future remains a dynamic environment. Our first quarter net sales of $22.6 million were on the lower end of our guidance, we were pleased overall with the performance when taking into consideration the economy couples with historical normal softness in Q1 following a seasonally strong fourth quarter.

Regarding our views of the current and future industry, there are simple fundamentals one should not lose sight of. We have a growing aging population. Billions of dollars continues to be spent by consumers and patients seeking ever better skincare solutions. New neurotoxins and dermal fillers have recently and will continue to be approved and enter this market place. We believe these will provide a stimulus for future growth by driving increased consumer awareness and bringing more patients into the physician’s office in search of better and alternative ways of improved aesthetic outcomes.

In such an environment, we remain confident that our clinically proven efficacy, industry leadership in physician dispense, and value price point position us well for the remainder of 2009 and beyond. Supporting our current resiliency and greater stability versus more expensive cosmetic procedures, we continue to see strong new account growth with more than 329 accounts added during the quarter. Further, Nu-Derm sales were down only 6% versus recent market data indicating neurotoxins, derm fillers, and laser procedures were down 13% to 16% for the same period.

As of March 31, 2009, the number of active accounts totaled approximately 5800, up 8% from a year ago. This continues to demonstrate that physicians are actively seeking additional revenues by incorporating a topical physician dispensed business within their existing clinical practice. We believe our products and systems continue to be one of the easiest user friendly, yet still highly effective skin care therapies.


Further, we worked diligently to get Rosaclear launched earlier in the year because we believed we had a great system that fills an unmet need among men and women who are challenged by the facial redness associated with rosacea. Rosaclear was introduced late January and contributed $1.3 million in net sales during the first quarter. Rosaclear has been widely and enthusiastically received in its first 100 days since launch. 28% of our customers have already purchased Rosaclear which is a very good initial indication from our customers. With an estimated 14 million people who suffer from the associated facial flushing and redness of rosacea, we believe this is a unique opportunity for us to treat a new Asian population with a new Obagi system while leveraging our existing salesforce and current account base.

By geography, domestic sales represented 80% of revenues, yet declined 10% during the quarter. Our international business showed progress, but was not immune to the global economic downturn with sales down 14%. This was particularly prevalent in Japan, where we saw a decrease in licensing fees of roughly $400,000 due to economy and a delayed product launch. As we look forward to the launch of our Elastiderm product line into Rohto’s drug store distribution channel later this year and the anticipated future launch of the more science and clinically based product line into the Prestige Department Store channel.

Also internationally, we have added 8 new distributors for Elastiderm in the first quarter covering Russia, Ukraine, the Netherlands, China, Hong Kong, Australia, Vietnam, and Combodia. As a result, we are in a much better position in our international markets than we were a year ago to capture share and revenue growth as demand returns to normal levels. Of note, in Far East Asia which I visited last quarter, we recently launched in China, Hong Kong, Vietnam, and Cambodia and our Q1 business was up significantly with initial stocking sales of over $1 million.

Read the rest of this transcript for free on seekingalpha.com