CYNO

Cynosure, Inc. (CYNO)

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Cynosure, Inc. (CYNO)

Q1 2009 Earnings Call

May 4, 2010 9:00 a.m. ET

Executives

Scott Solomon - VP, Sharon Merrill Associates

Michael Davin - President and CEO

Tim Baker - EVP and CFO

Analysts

Gary Nachman - Leerink Swann

Andy Schopick - Nutmeg Securities

Anthony Vendetti - Maxim Group

Anup Mehta - Canaccord Adams

Presentation

Operator

Good day and welcome to Cynosure's first quarter 2010 conference call. (Operator Instructions) At this time, I'd like to turn the call over to Mr. Scott Solomon, Vice President for Sharon Merrill Associates.

Scott Solomon

With me on today's call are Cynosure President and Chief Executive Officer, Michael Davin; and Executive Vice President and Chief Financial Officer, Tim Baker. Mike will begin today's call with a discussion of Cynosure's first quarter 2010 results and a business overview. Tim will take you through the financials, after which management will take your questions.

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 and 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 Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2009, and subsequent reports filed with the SEC. These filings can be accessed on the Investor Relations section of the company's website, www.cynosure.com.

In addition, any forward-looking statements represent the company's views as of today, May 4, 2010. 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.

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 on today's conference call. Stronger year-over-year sales in our international subsidiaries and distributors along with continued operating spend savings contributed to our improved first quarter results.

Total revenue grew 28% from Q1 in 2009, reflecting a solid increase in demand from our European and Asian customers. International laser production revenue increased 70% to $7.9 million from 4.6 million in the same period of 2009. Our North American laser revenue was up slightly year-over-year at 6.4 million from 6.3 million for the first quarter of 2009.

Just over a year ago, we re-organized our international sales organization, and have since enhanced our sales operations throughout Europe and the Asia-Pacific region, forging relationships with new distributors in Singapore, Taiwan, Australia, as well as expanding our direct presence in these territories.

Through this effort, revenue from products sold outside North America has increased to 56% of total product revenue in the first quarter 2010, compared with 43% for the same period a year earlier. For some time, we view the number of overseas markets as attractive long-term opportunities for Cynosure. As a result we've made considerable investments during the past several years to strengthen our presence internationally as part of our growth strategy.

Looking ahead, we continue to see the EU and Asia-Pacific regions becoming increasingly significant for the aesthetic industry and for Cynosure. Although North America first quarter product revenue was up just slightly year-over-year, we saw an encouraging 4% sequential increase from Q4, 2009.

Access to credit remains a gating factor for many US practitioners. We are however, seeing a gradual improvement in the lending environment, a conclusion that is supported by two indicators; first, a percentage of our customers that have successfully obtained financing as a result of the relationships we established with institutions such as Bank of America, has started to incrementally climb during the past few months.

The other indicator is resumption in lending by third-party financing sources. These sources had virtually disappeared over the past 15 months. So the fact that they appear to be making a slow comeback is a good indicator for the industry.

We are also encouraged by the response of attendees at the recent American Academy of Dermatology Annual Meeting and the American Society for Laser Medicine and Surgery Annual Conference. Our core customer base reports that demand for aesthetic procedures is improving as the US economy regains its footing.

And certainly the tone of both the AAD and ASLMS meetings was upbeat and stands in sharp contrast to the general mood we experienced at those two events in 2009. In fact, full traffic, sales demonstrations, sales leads and even lasers sold at these events were all up considerably from 12 months ago.

We view this as promising evidence of a rebuilding of overall demand in our industry. We experienced good initial traction from our new Smartlipo Triplex and Elite MPX workstations in the quarter. We are optimistic that order volumes of these products will accelerate as we move through the remainder of this year and into 2011.

We continue to diligently manage operating expenses in what we view as still a fragile economic climate. Through the headcount reductions and other cost control initiatives we implemented last year, we are in pace to achieve our targeted annualized operating spend savings of $5 million to $7 million in 2010.

At the same time, we are continuing to strategically invest in market expansion, product development and technology innovation as well as scientific research to support adoption of our lasers and intelligent delivery systems.

Read the rest of this transcript for free on seekingalpha.com