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Obagi Medical Products Inc (OMPI)

Q3 2010 Earnings Call

November 4, 2010 04:30 pm ET

Executives

Ina McGuinness - Integrated Corporate Relations

Al Hummel - Interim President, Interim CEO

Preston Romm - CFO, EVP of Finance, Operations and Administration

Analysts

John Newman - Oppenheimer

Annabel Samimy - Stifel Nicolaus

Scott Henry - Roth Capital Partners

Larry Neibor - Robert W. Baird & Co.

[Mark] - Canaccord Adams

Irina Rivkin - Duncan Williams

Chris Sassouni - Eagle Asset Management

Presentation

Operator

Greetings and welcome to the Obagi Medical Products third quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Ina McGuinness. Thank you. Ms. McGuinness, you may begin.

Ina McGuinness

Thank you, operator. Earlier this afternoon Obagi Medical Products released its financial results for the third quarter ended September 30, 2010. If you have not received press release it's available on the investor relation section of the Obagi Medical Products website at www.obagi.com.

This call is being webcast and a replay will be available on the company's website for 30 days. Before we begin, we would like to remind you that today's remarks contain forward-looking statements within the meaning of federal securities laws.

These statements do not guarantee future performance, and therefore, undue reliance should not be placed on them. We refer you to the risk factors contained in Obagi Medical Products' SEC filings for more detailed discussions of the factors that could cause actual results to differ materially from those projected in any forward-looking statements.

All information provided on today's call is as of the date of the live broadcast, Thursday, November 4, 2010, and Obagi Medical Products assumes no obligation to update any such information.

Participating in today's call are Interim President and CEO, Al Hummel, and CFO and EVP of Finance, Operations and Administration, Preston Romm.

With that, I'd like to turn the call over to Al Hummel. Al?

Al Hummel

Thank you and good afternoon, everyone. Let me give a little background since I’m the new kid on the block. I've been a member of the board of Obagi for the past five years and I’m pretty familiar with the operations of the company. In the past few weeks I've been able to work with the employees of the company and I’m pleased to say that Obagi has employees that care about the company, believe in the company and they're dedicated to Obagi's success. It's a very fruitful opportunity to be working with these people.

Today, we reported another solid quarter, including delivering double-digit top line growth of 12%. This was fueled by very strong growth in our Vitamin C line as well as good growth from Nu-Derm and elasticity products.

Our earnings, excluding the incremental additional cost of terminating the Zein Obagi contract, which decision was made after we last talked, and, therefore, not included in our third quarter guidance, our income would have been $2.1 million or $0.10 per diluted share, in line with our third quarter guidance.

Our performance by specific product lines for the third quarter of 2010 compared to 2009 was as follows: Nu-Derm sales increased 14% to $14.9 million. We launched our Nu-Derm continuum program on September 2 as a maintenance regime to encourage continued use of Nu-Derm after the initial treatment phase is completed.

We had meaningful growth from our new and improved CRX systems, which were introduced in the first quarter and which drove awareness of the entire product line. This resulted in sales from the Vitamin C product line increasing 39% year-over-year to $3.8 million.

ELASTIderm sales, which include eye cream, eye gel and decolletage, grew 11% to $2.6 million. We entered an entirely new product segment with our October 15 introduction of ELASTILash. This is an efficacious alternative to other products in the category and has been clinically demonstrated to achieve the appearance of visibly thicker, fuller looking eye lashes. We're excited to enter into this new segment and look forward to reporting our progress.

Sales from our therapeutic products, which include CLENZIderm and Rosaclear, were relatively flat at $1.8 million. Other product categories were up more than 5% year-over-year primarily due to the addition of Refissa, our new tretinoin, which launched in the third quarter last year.

Now, let me review our third quarter performance by geography. Sales from our US business increased over 14% to $23.2 million year-over-year and we were successful in opening 362 new accounts which were up sequentially and indicate that our derm specialty sales force reorganization is operating well. As of June 30, we had 6435 active accounts, a 5% increase from a year ago. Our domestic sales force now totals 120 people, up three from last quarter.

Internationally, product sales were up approximately 14% to $3.5 million due mostly to increased sales in the Middle East and Hong Kong. Both areas are expanding their Medi-Spa businesses. On the other hand, our licensing fee revenue was down approximately 22% to $1.2 million due mostly to the poor economy in Japan.

As you know, we filed a registration statement to sell up to 6.2 million shares of common stock owned by two long-term stock holders, one of which is in the process of winding down the fund. To be clear, these are not new shares and no money will be raised by the company. Please refer to our press release from this afternoon and the S1 on file with the SEC for additional information.

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