CYNO

Cynosure, Inc. (CYNO)

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Cynosure, Inc. (CYNO)

Q3 2013 Earnings Conference Call

October 29, 2013 09:00 AM ET

Executives

Scott Solomon - IR

Michael Davin - Chairman and CEO

Tim Baker - EVP, COO and CFO

Analysts

Matthew Dodds - Citigroup

Richard Newitter - Leerink Swann

Anthony Vendetti - Maxim Group

Jim Sidoti - Sidoti & Company

Presentation

Operator

Good day and welcome to Cynosure’s Third 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 Chairman, CEO and President; 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, October 29, 2013. These statements should not be relied upon as representing the company’s views as of any subsequent date. 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 diluted earnings per share. These metrics are non-GAAP financial measures which the company believes help investors gain a meaningful understanding of Cynosure’s results exclusive of acquisition related expenses and also to help investors who wish to make comparisons between Cynosure and other companies on both the 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 on 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 the 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 and thank you for joining us in today’s call. I am pleased to report on the significant progress we’ve made in integrating the Palomar Medical Technologies since acquiring the business on June 24th. As you may recall step one was integrated to North American sales teams which we accomplished within a few weeks after the transaction close. We exited the third quarter with a combined field salesforce of 72 reps and managers in North America. And we expect to be north of 80 by year-end.

Outside the North America, we also have streamlined our international direct salesforces consolidating the offices in Europe and the Asia Pacific region. Worldwide headcount was approximately 600 at the end of the third quarter down approximately 8% from the end of the second quarter.

We made good progress in the third quarter and integrating a number of key areas in the organization including research and development, engineering, marketing, compliance, quality assurance, clinical, field and depot service, finance and legal.

The integration of our IT systems is well underway. You may remember that on our July earnings call I discussed our plan to extend our existing lease here in Westfort, add square footage and put Palomar’s former corporate headquarters in nearby Burlington up for sale.

We continue to make good progress on that initiative. We are amending our lease in Westfort and expect to complete the sale of the Palomar building in the fourth quarter, which will further strengthen our balance sheet.

Now let me turn to our third quarter operating results. Total revenues were up 64% for the quarter to $60.7 million, primarily reflecting the addition of Palomar, to put the topline in it contacts total laser revenue for the third quarter was $50.1 million, 14% higher than the combination of Cynosure’s and Palomar’s laser revenue in the third quarter of 2012.

Our focus for the first quarter as combined company was to ensure that our integrated sales team was trained and focused on maintaining broad revenue contribution across all product lines. To this end we were very successful, as the sales team’s rapidly adopted a new technology and products and grew revenues across all product lines. And therefore we will not be breaking out the revenue by company.

In terms of product mix revenues were distributed across multiple aesthetic applications, with particular demands in areas such as skin resurfacing, wrinkle reduction, tattoo removal, body contouring, hair removal, and benign pigmented lesions.

PicoSure, our new flagship product for the removal of tattoos and benign pigmented lesions, continues to be enthusiastically received by physicians and consumers for the North America and Europe. Given its extremely short pulse duration, the primary technical challenge in developing a commercialized and effective Pico second laser is maintaining optical stability.

I'm delighted to say that the feedback we've received from the customers on the stability of PicoSure and the clinical setting has been excellent as has a response from doctors and consumers about the efficacy of the product.

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