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Cynosure, Inc. (CYNO)
Q3 2010 Earnings Call Transcript
October 26, 2010 9:00 am ET
Scott Solomon – VP, Sharon Merrill Associates, Inc.
Michael Davin – President, CEO and Chairman
Timo Baker – EVP, CFO and Treasurer
Anthony Vendetti – Maxim Group
Matthew Dodds – Citigroup
Dalton Chandler – Needham & Company
Josh Jennings – Jefferies & Company
Paul Nouri – Noble Equity Funds
Bill Dezellem – Tieton Capital Management
Previous Statements by CYNO
» Cynosure, Inc. Q2 2010 Earnings Call Transcript
» Cynosure, Inc. Q1 2009 Earnings Call Transcript
» Cynosure, Inc. Q1 2009 Earnings Call Transcript
» Cynosure Inc. Q4 2008 Earnings Call Transcript
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.
Thank you, Claudia and good morning, everyone. 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 third 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. 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, October 26, 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 Mike Davin.
Thank you, Scott. Good morning, everyone and thank you for joining us on today’s conference call. Although we continue to face challenges in the current macroeconomic environment, particularly in North America, we continue to see the positive impact from the investments we have made into our international organization over the past few years.
Laser sales from our European and Asian subsidiaries, as well as our international third-party distributors were up nicely year-over-year. This fueled a 6% increase in total third quarter revenues of $19.1 million from $17.9 million for the comparable period of 2009. International markets outside of North America accounted for 55% of laser product revenue in Q3 of 2010 compared with 45% in the third quarter of 2009.
The strength of our overseas business is a testament to the work that we have done in strengthening our sales presence in both Europe and Asia both through our direct and indirect sales organizations.
Third-party distributors were an important driver for our revenue in the third quarter, accounting for 34% of overseas laser revenue and 19% of total laser revenue in the quarter. By way of comparison, third-party distribution comprised 25% of overseas product revenue and only 11% of total product revenue in the third quarter of 2009.
In North America, the economic climate continues to pose a challenge for our industry. Access to credit remains a major hurdle for many practitioners and equally is important, overall consumer sentiment has not returned to pre-season recession levels – pre-recession levels, which is continuing to make some U.S. doctors hesitant to make capital equipment purchases.
We continued to see good growth of our service revenue in the third quarter, which increased 12% to $4.7 million. While the willingness of our customers to keep their equipment healthy is a reflection of the current economic climate, it also speaks to the strength of our technology value proposition in the marketplace.
As we noted in this morning's news release, during the quarter, we further increased our overseas presence in several key regulatory approvals. These include marketing authorization for Smartlipo MPX in Australia and Canadian regulatory approval for the Affinity QS workstation to treat multi-color tattoos and pigmented lesions and Smartlipo Triplex for advanced laser lipolysis and high definition body contouring. Going forward, we will continue to seek additional regulatory approvals overseas, particularly our international footprint, to further expand.
Looking at our operating performance in the quarter, we have continued to manage our expenses tightly. Year-to-date, operating expenses were down $7.8 million or 17% from the same period of 2009, putting us ahead of our goal of reducing operating expenses by $5 million to $7 million on an annualized basis in 2010. With over $25 million in cost reductions that we have made over the past two years, we have appropriately sized the company and are well positioned to leverage the current organization and increase our profitability, as well as grow our revenue base.
In Q3, we posted our sixth consecutive quarter of positive operating cash flows and we continue to maintain a healthy and unencumbered balance sheet. We ended the quarter with cash, investments, and marketable securities of more than $95 million and no long-term debt.
We continue to be encouraged about the development of our newest flagship workstation, which we believe will give us a significant first-mover advantage in a high-growth end market. The new product is on schedule for launch in the first quarter of 2011.