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PhotoMedex Inc. (PHMD)
Q2 2013 Earnings Call
August 7, 2013 11:00 AM ET
Kim Golodetz – IR
Dolev Rafaeli – CEO
Dennis McGrath – President and CFO
Bill Plovanic - Canaccord
Jim Sidoti – Sidoti & Company
Anthony Vendetti – Maxim Group
Kay MacKay – Sindiant
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Thank you, operator. And thank you all for participating in today’s call. Joining me this afternoon from PhotoMedex are Dr. Dolev Rafaeli, Chief Executive Officer and Dennis McGrath, President and Chief Financial Officer.
Earlier today PhotoMedex announced financial results for the second quarter of 2013. If you have not received this news release or if you would like to be added to the company’s distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.
Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of PhotoMedex. I encourage you to review the company’s filings with the Securities and Exchange Commission including without limitation, the company’s Forms S3, S4, 10-Qs and 10-Ks, which can be accessed in the Investor session of the company’s website at photomedex.com.
These reports identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 7, 2013. PhotoMedex undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.
With that, I’d like to turn the call over to Dr. Dolev Rafaeli.
Thank you, Kim, and good morning, welcome to our second quarter 2013 earnings call. My name is Dolev Rafaeli, I’m the CEO of PhotoMedex.
Joining me today is Dennis McGrath, President and CFO. Before I turn it over to Dennis to provide with financial update, I would like to make a couple of comments.
I’m particularly pleased that our team delivered another profitable quarter. Specifically, our net income is up 68%. Our diluted EPS is up 70%. Our XTRAC recurring revenue is more than doubled during the – driving the gross margin from 50% last quarter to 59% this quarter and operating income of more than $800,000.
Our Neova skincare product sales on the consumer platform increased 10-fold since last year and the overall brand increased by 42%. And our gross margin expanded in all business units.
We are pleased that we have a solid core business that consistently delivers $55 million to $60 million in revenue and diluted EPS of more than $0.30 for quarter. We expect the third quarter revenue to be in line with what you see in the second quarter. We are building the next major phase of our growth which includes a number of initiatives across our business segments.
These are a major geographic expansion of the no!no! brand into Brazil. And early development of successful launch stage for the no!no! in Germany. Building the domestic XTRAC business to critical mass; developing the consumer channel for Neova and completing the launch plan for new breakthrough products until that time we have about $3 per share in cash and an annualized EPS of more than $1.30.
We are clearly confident in our continued future success as evidenced by the Board committing to an additional $30 million to our stock repurchase program on top of the $25 million committed last year.
I’m now going to turn it over to Dennis to provide more specific color on the quarter.
Thanks Dolev. Good morning everyone.
Revenues for the second quarter 2013 were $58.1 million. Consumer revenues of $48.7 million where in line with the previous quarter although direct response consumer revenues of $30.3 million were limited in part from national news events as well as weather catastrophes during the quarter. These events converted tension away from the television channels where our advertisements were placed. The Boston bombing as we mentioned earlier on our last call and the Oklahoma City tornadoes, which happened after the call specifically muted nearly three weeks of committed media spend during the quarter delivering 2.88 U.S. MER for the quarter.
Furthermore, we were limited in increasing the spent to make up for these events partly because Q2 TV rates – ad rates are typically 5% to 15% higher than Q1 for two reasons. First, there is a heavy influx of new programming as new TV shows are launched and many shows broadcasted season finales in the second quarter which drives more media demand and leads to higher prices.
Moving on with discussion of revenue, distributor revenues of $8.5 million were up 20% year-over-year and 50% sequentially. Retail revenues of $9.9 million were up 2% year-over-year and sequentially we are off 18% against an unusually difficult comparison and included the initial distribution in Bed Bath & Beyond, as the distribution expanded from 100 to almost 1000 stores.
The consumer gross margin, up 85.3% and the operating margin of 29.8% increased by 150 basis points and 107 basis points respectively. The physician recurring business segment increased 38% year-over-year and 24% sequentially led by more than $4 million in XTRAC recurring revenue treatments representing 104% improvement over last year and a 57% increase over last quarter.