CYNO Cynosure - Class A (MM)

New Products Drive Top-line Growth, Continued Gross Margin Expansion WESTFORD, Mass., July 27 /PRNewswire-FirstCall/ -- Cynosure, Inc. (NASDAQ:CYNO), a leading developer and manufacturer of a broad array of light-based aesthetic treatment systems, today announced financial results for the quarter and six months ended June 30, 2006. Financial Highlights Revenues for the second quarter grew approximately 40% to a record $18.1 million from $13.0 million for the second quarter of 2005. Cynosure posted net income for the 2006 second quarter of $1.4 million, or $0.12 per diluted share, compared with $0.3 million, or $0.04 per diluted share, for the comparable period in 2005. Results for the second quarter of 2006 include approximately $0.5 million in stock-based compensation expense; Cynosure recorded $0.3 million in stock-based compensation expense in the 2005 period. On a non-GAAP basis that excludes the effect of the stock-based compensation expense, net income for the second quarter of 2006 was $1.7 million, or $0.14 per diluted share, compared with $0.5 million, or $0.06 per diluted share, for the comparable period in 2005. "Cynosure delivered an outstanding second quarter, driven by the continued success of our newest aesthetic laser systems," said President and Chief Executive Officer Michael Davin. "On a year-over-year basis, total laser revenue grew 52% in the second quarter of 2006 while gross margin increased 480 basis points to 58.4% of revenue. These gains reflect the worldwide momentum of our higher-margin workstation products such as the Apogee Elite(TM) workstation and Cynergy(R) workstation with Multiplex(TM) technology, efficiencies related to our modular manufacturing approach and the success of our global distribution strategy." "Both in North America and abroad, our flagship products continue to be favorably received by customers," Davin said. "We expect to sustain this momentum with the launch of our new anti-aging product -- the Affirm(TM) system. It is the first single-platform, multi-energy system that provides treatment for wrinkles, micro-rejuvenation, skin texture, skin discoloration and skin tightening. At our recent distributor meeting and workshop in Tokyo, doctors from Japan, Korea, Thailand and other Pacific Rim countries responded enthusiastically to the Affirm system's ease of use, speed and technological advantages. We expect to begin initial U.S. shipments of the Affirm system in the third quarter of 2006, and to launch the product in other markets as the necessary regulatory steps are completed in those regions." Recent Highlights Since the end of the first quarter: * Cynosure received approval to begin marketing and selling its flagship Cynergy workstation with MultiPlex technology in Canada and South Korea. * Favorable clinical data from studies of the Affirm system and Cynergy workstation with MultiPlex technology were presented by leading dermatologists at the American Society for Laser Medicine and Surgery's 26th Annual Meeting in Boston. * Cynosure conducted 25 workshops, hosted three webinars and participated in 19 aesthetic treatment industry tradeshows to provide product support, education and technology training for current and prospective customers. Six-Month Results For the six months ended June 30, 2006, revenues increased approximately 41% to $35.3 million from $25.1 million for the same period in 2005. Net income for the first half of 2006 was $2.1 million, or $0.17 per diluted share, versus $0.5 million, or $0.07 per diluted share, for the same period in 2005. Results for the six-month period ended June 30, 2006 include approximately $0.8 million in stock-based compensation and $1.1 million in charges for the write-down of inventory and uncollectible accounts receivable resulting from the termination of two agreements associated with Cynosure's legacy relationship with Sona MedSpa International. Cynosure recorded stock-based compensation expense of $0.3 million in the 2005 period. On a non-GAAP basis that excludes the effect of the stock-based compensation expense and the Sona MedSpa-related charges, net income for the first six months of 2006 was $3.2 million, or $0.26 per diluted share, compared with $0.7 million, or $0.10 per diluted share, for the comparable period in 2005. Business Outlook "As we begin the second half of 2006, we continue to rely on four key principles - high-value products, effective distribution, efficient manufacturing and unsurpassed customer service -- to sustain our growth," Davin said. "Our expected operational milestones in the third quarter include: European marketing authorization for our Affirm system; the start of Affirm system shipments in the United States; and continued expansion in the Pacific Rim with the pending opening of a new sales office in Osaka, Japan. We believe that consumer interest in light-based aesthetic treatment for anti-aging and other applications is growing worldwide, and we believe Cynosure is well positioned to continue to capitalize on this expanding opportunity as the market accelerates." Use of Non-GAAP Financial Measures To supplement Cynosure's consolidated financial statements presented in accordance with GAAP, this press release uses the following measures defined as non-GAAP financial measures by the SEC: non-GAAP net income and non-GAAP diluted earnings per share. For the three months ended June 30, 2006, these non-GAAP measures exclude $492,000 in stock-based compensation expense. For the six months ended June 30, 2006, these non-GAAP measures exclude charges related to the write-down of inventory of $667,000 and uncollectible accounts receivable of $463,000 and exclude $791,000 in stock-based compensation expense. 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. In addition, the non-GAAP financial measures included in this press release may be different from, and therefore not comparable to, similar measures used by other companies. Although certain non-GAAP financial measures used in this release exclude the accounting treatment of stock-based compensation, these non-GAAP measures should not be relied upon independently, as they ignore the contribution to our operating results that is generated by the incentive and compensation effects of the underlying stock-based compensation programs. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliation of GAAP Results to Non-GAAP Results" included at the end of this release. The table has more details of the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures. Cynosure's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses and expenditures that may not be indicative of our core business operating results. Cynosure believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Cynosure's performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Cynosure's historical performance and our competitor's operating results. Cynosure believes that these non-GAAP measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Conference Call Cynosure will host a conference call for investors today at 9:00 a.m. ET. On the call, Michael Davin and Timothy Baker, the company's executive vice president and chief financial officer, will discuss the second-quarter 2006 financial results, provide a business outlook and discuss Cynosure's growth strategy. Those who wish to listen to the conference call webcast should visit the "Investors" section of the company's website at http://www.cynosurelaser.com/. The live call also can be accessed by dialing (800) 311-0799 or (719) 457-2695 (confirmation code: 3345082). If you are unable to listen to the live call, the webcast will be archived on the company's website for 30 days. About Cynosure, Inc. Cynosure, Inc. develops and markets aesthetic laser treatment systems that are used by physicians and other practitioners to perform non-invasive procedures to remove hair, treat vascular lesions, rejuvenate skin through the treatment of shallow vascular and pigmented lesions and temporarily reduce the appearance of cellulite. Cynosure's products include a broad range of laser and other light-based energy sources, including Alexandrite, pulse-dye, Nd:YAG and diode lasers, as well as intense pulsed light. Cynosure was founded in 1991. For corporate or product information, contact Cynosure at 800-886-2966, or visit http://www.cynosurelaser.com/. Safe Harbor Any statements in this press release about future expectations, plans and prospects for Cynosure, Inc., including statements about the company's expectations and future financial performance, as well as other statements containing the words "believes," "anticipates," "plans," "expects," "will" and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including Cynosure's history of operating losses, its reliance on sole source suppliers, the inability to accurately predict the timing or outcome of regulatory decisions, timing of the company's launch of the Affirm system, changes in consumer preferences, competition in the aesthetic laser industry, economic, market, technological and other factors discussed in Cynosure's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are filed with the Securities and Exchange Commission. In addition, the forward-looking statements included in this press release represent Cynosure's views as of the date of this press release. Cynosure anticipates that subsequent events and developments will cause its views to change. However, while Cynosure may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Cynosure's views as of any date subsequent to the date of this press release. Contact: Scott Solomon Vice President Sharon Merrill Associates, Inc. 617-542-5300 Consolidated Statements of Income (In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 (unaudited) (unaudited) Revenues $18,131 $12,971 $35,270 $25,080 Cost of revenues 7,541 6,014 15,573 11,632 Gross profit 10,590 6,957 19,697 13,448 Operating expenses Selling and marketing 6,149 4,400 11,607 8,266 Research and development 1,039 666 2,248 1,529 General and administrative 2,031 1,193 4,177 2,385 Total operating expenses 9,219 6,259 18,032 12,180 Income from operations 1,371 698 1,665 1,268 Interest income (expense), net 731 (34) 1,383 (45) Other income (expense), net 276 (146) 406 (281) Income before income taxes 2,378 518 3,454 942 Income tax provision 915 211 1,351 383 Minority interest in net income of subsidiary 22 16 36 35 Net income $1,441 $291 $2,067 $524 Diluted net income per share $0.12 $0.04 $0.17 $0.07 Diluted weighted average shares outstanding 12,138 7,433 12,158 7,034 Basic net income per share $0.13 $0.05 $0.19 $0.08 Basic weighted average shares outstanding 11,044 6,209 11,038 6,226 Non-GAAP data Gross Profit $10,590 $6,957 $19,697 $13,448 Sona - inventory writedown - - 667 - Stock-based compensation 19 13 26 13 Non-GAAP Gross Profit 10,609 6,970 20,390 13,461 Operating Expenses: 9,219 6,259 18,032 12,180 Sona - provision for doubtful account - - (463) - Stock-based compensation (473) (245) (765) (245) Non-GAAP Operating Expenses 8,746 6,014 16,804 11,935 Non-GAAP Income from Operations: 1,863 956 3,586 1,526 Interest income (expense), net and other income 1,007 (180) 1,789 (326) Non-GAAP Income before income taxes 2,870 776 5,375 1,200 Non-GAAP provision for income taxes 1,135 307 2,125 474 Minority Interest 22 16 36 35 Non-GAAP Net income $1,713 $453 $3,214 $691 Non-GAAP diluted net income per share $0.14 $0.06 $0.26 $0.10 Diluted weighted average shares outstanding 12,138 7,433 12,158 7,034 Condensed Consolidated Balance Sheet (In thousands) June 30, December 31, 2006 2005 (Unaudited) Assets: Cash, cash equivalents and marketable securities $62,398 $64,646 Accounts receivable, net 15,413 13,552 Amounts due from related parties 122 72 Inventories 16,887 14,140 Deferred tax asset, current portion 2,366 1,804 Prepaid expenses and other current assets 1,269 737 Total current assets 98,455 94,951 Property and equipment, net 4,753 4,424 Other noncurrent assets 777 793 Total assets $103,985 $100,168 Liabilities and stockholders' equity: Short-term loan $163 $161 Accounts payable and accrued expenses 12,063 10,682 Amounts due to related parties 1,244 960 Deferred revenue 2,207 3,626 Capital lease obligations 376 295 Total current liabilities 16,053 15,724 Capital lease obligations, net of current portion 910 814 Deferred revenue, net of current portion 189 123 Other long-term liabilities 84 42 Minority interest in consolidated subsidiary 341 314 Total stockholders' equity 86,408 83,151 Total liabilities and stockholders' equity $103,985 $100,168 DATASOURCE: Cynosure, Inc CONTACT: Scott Solomon, Vice President of Sharon Merrill Associates, Inc., +1-617-542-5300, or Web site: http://www.cynosurelaser.com/

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