CYNO

Cynosure, Inc. (CYNO)

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Exchange: NASDAQ
Industry: Health Care
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Cynosure, Inc. (CYNO)

Q2 2013 Earnings Call

July 31, 2013 9:00 AM ET

Executives

Scott Solomon – IR

Michael Davin – Chairman and CEO

Tim Baker – EVP, COO and CFO

Analysts

Rich Newitter – Leerink Swann

Matthew Dodds – Citigroup

Anthony Vendetti – Maxim Group

Jim Sidoti – Sidoti & Company

William Plovanic – Canaccord

Presentation

Operator

Good day and welcome to Cynosure’s Second Quarter 2013 Conference Call. Today’s call is being recorded. There will be an opportunity for questions at the end of the call.

At this time I would like to turn the call over to Mr. Scott Solomon, Vice President for Sharon Merrill Associates. Please go ahead, sir.

Scott Solomon

Thank you, Kevin, and good morning, everyone. Thank you for joining us today. With me on this morning’s call are Michael Davin, Cynosure’s President and Chief Executive Officer; and Tim Baker, Executive Vice President, Chief Operating Officer and Chief Financial Officer.

Before we begin please note that various remarks management makes on this conference call about 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. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in Cynosure’s filings with the Securities and Exchange Commission.

In addition, any forward-looking statements represent the company’s views as of today, July 31, 2013. These statements should not be relied upon as representing the company’s views as of any subsequent days. While Cynosure may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so.

To supplement its consolidated financial statements presented in accordance with GAAP, Cynosure uses non-GAAP gross profit, non-GAAP income from operations, non-GAAP net income and non-GAAP EPS. These metrics are non-GAAP financial measures which the company believes help investors to gain a meaningful understanding of Cynosure’s cooperative results exclusive of acquisition related expenses and can also help investors who wish to make comparisons between Cynosure and other companies on both a GAAP and a non-GAAP basis.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures please see the discussion and reconciliation table included in this morning’s earnings release. The table has more details of the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

With that, I’ll turn the call over to Michael Davin.

Michael Davin

Thank you, Scott. Good morning everyone and thank you for joining us. Cynosure sustained a strong momentum in the second quarter generating recorded revenue highlighted by year-over-year gains across of distribution channels. We cap a busy and successful quarter by closing our acquisition of Palomar Medical Technologies on June 24th. We made great progress since then integrating the Cynosure and Palomar sales forces, systems and processes while continuing to advance our growth strategy.

Turning first to our second quarter financial results. Revenue rose 27% to 50.1 million which includes 5.1 million attributed to the acquired Palomar business representing Palomar sales in the last five days of the quarter.

PicoSure, our new flagship workstation for the removal of tattoos and benign pigmented lesions contributed nicely to our top line in its first full quarter of US sales. Demand also remained strong for other products including our lead platform for laser hair removal, our Q-switch MedLite Q6 and MedLite workstations as well as our minimally laser products for cellulite reduction, laser-assisted lipolysis and the sweat gland ablation.

Laser product revenue increased 31% for the quarter to 43 million from 32.9 million for the same period of 2012, with year-over-year double-digit percentage gains in North America, Europe, Asia and our international third-party distribution channel. By territory, North America represented 48% of second quarter laser revenue with our international distribution contributing 52%. Since Q2, was the first full quarter of PicoSure, I’m pleased to say that the launch has gone very well. The product is in the hands of the number of luminaries and key opinion leaders and the feedback about clinical results and the device reliability has been very good. As we mentioned on our Q1 call, we are planning to introduce proprietary CAP lens array technology for PicoSure within the next several months. And we expect that to contribute to our disposables revenues.

Now let me update you on the integration on Palomar. While bringing together two companies the scale of Cynosure and Palomar can be complex. We are confident in the strength of the strategic and cultural fit between our organizations. We’re excited to bring together the complementary aspects of our products, technology and distribution footprint. In the five one weeks since the transaction closed our teams have been busy implementing our integration plan, which will serve as a blue print for maximizing the value of the organization by streamlining functions, blending systems and processes enhancing manufacturing efficiencies and eliminating redundancies.

Through the use of contract manufacturing and cost controls, Cynosure does an excellent job in recent years managing expenses and gaining operating leverage. We plan to sustain the momentum as a combined company and we see ample opportunity to achieve that goal. In the full year 2012 for example, Cynosure’s SG&A expense was 42% of product and service revenues our Palomar’s SG&A and product and service revenues for the same period was 11 points higher at 53%. We see the ability to deliver significant synergies based on increasing scale. Our expectation has not changed and we expect that the acquisition will be accretive in 2014 with the implementation of 8 million to 10 million in synergies. Nearly all of that would come from the cost side, including administrative consolidation, savings and duplicate company expenses, personal cost, facilities and international distribution.

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