CYNO

Cynosure, Inc. (CYNO)

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Industry: Health Care
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Cynosure, Inc. (CYNO)

Q4 2013 Earnings Conference Call

February 12, 2014 09:00 AM ET

Executives

Maureen Wolf - Sharon Merrill Associates

Michael Davin - CEO

Tim Baker - CFO and COO

Analysts

Difei Yang - RF Lafferty

Matthew Dodds - Citigroup

Zack Ajzenman - Griffin Securities

Anthony Vendetti - Maxim Group

James Sidoti - Sidoti & Company

Bill Plovanic - Canaccord

Andy Shopigo - Private Investor

Presentation

Operator

Good day and welcome to Cynosure’s Fourth Quarter 2013 Conference Call. Today’s call is being recorded. There will be an opportunity for questions at the end of the call. [Operator Instructions] At this time, I would like to turn the call over to Ms. Maureen Wolf from Sharon Merrill Associates. Please go ahead Ms. Wolf.

Maureen Wolf

Thank you, Manny, and good morning, everyone. Thank you for joining this morning. With me on the 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 forward 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 SEC.

In addition, any forward-looking statements represent the Company’s views as of today, February 12, 2014. 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 Act, 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 helps 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 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 on the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between these financial statements.

With that, I will turn the call over to Michael Davin. Michael?

Michael Davin

Thank you, Maureen. Good morning, everyone and thank you for joining us for our fourth quarter conference call. Cynosure capped busy and successful 2013 with a strong fourth quarter that marked the Company’s return to GAAP profitability just six months after our $294 million acquisition of Palomar Medical Technologies.

Q4 revenues grew 75% to a record $74.5 million. This increase partially reflects the acquisition of Palomar, which we acquired in June of last year. Fourth quarter also includes $4 million in royalty revenues received as part of our recently announced settlement with Tria Beauty. Laser revenue was 67% to 61 million in the fourth quarter, reflecting strong product demand in North America and internationally. North American and international markets each posted double digit percentage growth in Laser revenue on a comparative basis. This growth is a testament to the speed and success of our integration of Palomar, which is now largely complete. We are not only on pace to achieve our expectation of $8 million to $10 million in deal synergies but more importantly we are extending our leadership position in the aesthetic laser and light based market. Sales for distributors across multiple aesthetic applications with particular demand in areas such as tattoo removal, skin resurfacing, wrinkle reduction, body contouring, hair removal and benign pigmented lesions.

The addition of Palomar’s pulse light, diode and fractional technology for our product portfolio is creating a high degree of interest and excitement in the market which is translating into effective cross selling opportunities. Our ability to bundle Cynosure and Palomar products provides customers with a complete light based aesthetic solution. We believe that our broad global reach and expanded product portfolio create a meaningful competitive advantage for us.

Average selling prices remain strong as both the Cynosure and former Palomar sales reps have done an outstanding job in conveying the unique value proposition and return on investment of the new products that they are marketing to their accounts. Physicians and consumers in North America and abroad continue to be impressed with the benefits of PicoSure, our recently introduced flagship laser system for the removal of tattoos and the benign pigmented lesions. We are pleased by the high level of satisfaction of PicoSure’s stability and the clinical setting and the results reported by our customers and their patients.

International direct sales of PicoSure have continued to increase throughout Europe and in the most recent quarter Australia. In addition we recently received clearances to market the device in Korea and Taiwan and have begun an initiative to introduce PicoSure to our third party international distributors this year. We continue to work towards additional international registrations.

We began shifting focus on new disposable lens array for PicoSure in Q4. The high density focused technology enables doctors to deliver PicoSure’s unique laser energy in a combination of high and low treatment zones to address a broad range of potential indications while simulating collagen production and remodeling. We are pursuing additional regulatory clearances for PicoSure in areas including acne scaring, skin rejuvenation and skin toning.

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