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Solta Medical, Inc (SLTM)

Q2 2013 Earnings Call

August 6, 2013, 4:30 PM ET

Executives

Jenifer Kirtland - Investor Relations, EVC Group

Mark Sieczkarek - Chairman, Interim President and Chief Executive Officer

John Glenn - Chief Financial Officer

Analysts

Bill Plovanic - Canaccord

Richard Newitter - Leerink Swann

Chris Lewis - ROTH Capital Partners

Jeremy Feffer - Cantor Fitzgerald

Konstantin Tcherepachenets - Raymond James

Keay Nakae - Ascendiant Capital

Anthony Vendetti - Maxim Group

Presentation

Operator

Welcome to the Solta Medical second quarter fiscal 2013 financial results conference call. (Operator Instructions) At this time, I would like to turn the conference over to Jenifer Kirtland of EVC Group. Please go ahead, ma'am.

Jenifer Kirtland

Good afternoon, everyone. Today after the market closed, Solta released its second quarter 2013 financial results and announced the change in leadership. The release is available on the Investor Relations section of Solta Medical's website at solta.com and with our Form 8-K filed with the SEC.

Before we get started, during the course of this conference call, the company will make projections and may make other statements about the company's business that are forward-looking and are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.

A detailed discussion of the risks and uncertainties that affect our business is contained in the company's SEC filings, particularly under the heading Risk Factors. Copies of these filings are available online from the SEC or on the Solta Medical website. The company's projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company does not undertake to update any projection or forward-looking statement.

In addition, to supplement the GAAP numbers, we have provided non-GAAP gross margin, operating income and loss, EBITDA, net income and loss and non-GAAP income and loss per share information that excludes the impact of non-cash acquisition related charges and other acquisition related charges and non-cash stock-based compensation charges.

We believe that these non-GAAP numbers provides you with insight to conduct a more meaningful and consistent comparison of our ongoing operating results and trends, compared with historical results. A table reconciling the GAAP financial information to the non-GAAP information is included in our financial results release.

And with that, I'd like to turn the call over to Mark Sieczkarek, Interim President and CEO of Solta Medical.

Mark Sieczkarek

Thank you, Jennifer, and good afternoon, everyone. With me today is our Chief Financial Officer, Jack Glenn. Now, this afternoon we would like to cover three topics with you. First, we'll discuss our second quarter financial performance. Secondly, we'll discuss the change in leadership that we've announced this afternoon. And third, we'll outline our strategy to build shareholder value going forward, while the board conducts a search for a permanent CEO.

Now, our second quarter was a disappointment. We didn't achieve the topline growth we expected, and to be frank, the outlook for the remainder of the year is unacceptable. Solta has built a portfolio of brands that are respective leaders in their categories, Thermage, Liposonix, Fraxel, Clear and Brilliant, Isolaz, VASER. And each of these brands capitalizes on a business mile that generates recurring revenue at a rate far higher than anyone else in our industry.

At the same time, each of these brands generate better results and returns for our customers, where the physicians buying our systems, tips and supplies. They also provide better results for their patients. What we haven't done is to convert the superior business model to higher revenue growth and good returns for our shareholders. The changes we are announcing today are expected to accelerate, achieving this priority.

So at this point, I'd like to turn the call over to Jack Glenn, to review the second quarter financial performance. Jack?

John Glenn

Thanks Mark. Given that our financial details were released this afternoon, I'd like to focus my comment today on key elements of our second quarter results. Our revenue growth is 16% in the second quarter as compared to the year ago period, was primarily attributable to sales of VASER systems and product from the February acquisition of Sound Surgical Technologies.

International revenue from sales of our other product lines increased 23% during the second quarter. However, domestic system revenue declined compared to last year, primarily due to the decision to match competitive pricing.

To providing more complete picture of our second quarter revenue, I'd like to briefly review the performance of each major brand. Thermage is our largest and most profitable brand. In the second quarter, unit system sales of Thermage grew by more than 50% year-over-year and total revenue increased by approximately 20% worldwide.

In North America, the placement of new systems grew 75% over the second quarter of 2012, and in international market the placement of new systems grew by over 40% as compared to the second quarter of 2012. However, this gain was offset by an approximately 20% decline in the average sales price of Thermage systems, as we moved to respond to the aggressive pricing of a competitor.

Both units and revenue from sales of Thermage treatment tips increased with tip revenue growing more than 20% year-over-year. Average sales prices on Thermage treatment tips were up slightly over the year ago period. The new total tip introduced earlier this year has been a major factor in our strong Thermage tip revenue performance in the second quarter.

With the total tip and achievement of our internal R&D effort, doctors and their patients see much improved skin tightening results in the face, jaw, neck and other body areas right off the table as compared to other competitive treatments. Because of the strong demand, we increased total tip production threefold during the quarter. Due to its success the total tip is helping to reinvigorate our installed base and gain new accounts.

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