CYNO Cynosure - Class A (MM)

New Products Drive Top-line Growth, Continued Gross Margin Expansion WESTFORD, Mass., Aug. 7 /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, 2007. Second Quarter 2007 Financial Results Revenues increased 66% to $30.1 million from $18.1 million for the second quarter of 2006. Gross profit margin increased 490 basis points to 63.3% of total revenues compared with 58.4% for the same period in 2006. Second quarter 2007 net income was $2.7 million, or $0.21 per diluted share, compared with net income of $1.4 million, or $0.12 per diluted share, in the second quarter of 2006. Non-GAAP net income, which excludes stock-based compensation expense, was $4.2 million, or $0.33 per diluted share, for the second quarter of 2007 compared with $1.7 million, or $0.14 per diluted share, in the second quarter of 2006. Please refer to the financial reconciliations included in this news release for a reconciliation of GAAP results to Non-GAAP results for the three months ended June 30, 2007 and 2006. "During the second quarter of 2007, Cynosure delivered the best revenue and profitability in its 16-year history and continued the positive momentum we have experienced since 2004," said President and Chief Executive Officer Michael Davin. "Our performance marked the third consecutive quarter of year- over-year revenue growth above 50 percent, and the fourth consecutive quarter in which our gross margin hit 60 percent or higher." "Laser product revenue climbed 70 percent year-over-year, reflecting the enthusiasm with which customers have embraced Smartlipo, our new flagship LaserBodySculpting workstation, and Affirm, our multi-energy-source workstation for anti-aging," Davin said. "The investments we have made to expand our North America direct sales force to further penetrate international markets and to increase our technology leadership are yielding significant returns for Cynosure." Second-Quarter Highlights Since the end of the first quarter, Cynosure: -- Received regulatory clearance to market and sell the Smartlipo LaserBodySculpting(SM) Workstation in Canada. The minimally invasive Smartlipo Workstation is an innovative system designed as an alternative to traditional liposuction in patients with smaller areas of localized fat. Cynosure received U.S. Food and Drug Administration clearance to market Smartlipo in the fourth quarter of 2006. -- Received regulatory clearance to market and sell its Elite(TM) family of laser workstations in China. The Elite workstation combines the Apogee 5500 system, which contains a short wavelength 755 nm Alexandrite laser for lighter skin types, and the Acclaim 7000 system, which is equipped with a high-powered 1064 nm Nd:YAG laser for use on tan and darker skin types to permanently remove hair. -- Launched a new, higher power Smartlipo LaserBodySculpting(SM) Workstation in the United States. Utilizing Cynosure's patented delivery approach, the new 10-watt workstation allows physicians to complete typical laser-assisted liposuction procedures in about half the time as the original 6-watt workstation. "Just six months into its launch, Smartlipo has become a popular choice for consumers who are looking for a fast, safe and effective alternative to traditional liposuction for the removal of small areas of localized unwanted fat," Davin said. "The introduction of our 10-watt workstation helps meet the demands of aesthetic surgeons with high-volume practices, and underscores our focus on pioneering innovative solutions that capitalize on the rapid growth of the aesthetic market." "We also are pleased with the strong performance of our international laser business," Davin continued. "Between our European subsidiaries and overseas distributors, international second-quarter laser product sales increased 55 percent year-over-year, and accounted for approximately 37 percent of worldwide laser revenue." Six-Month Results For the six months ended June 30, 2007, revenues increased approximately 59% to $56.2 million from $35.3 million for the same period in 2006. Net income for the first half of 2007 was $4.8 million, or $0.39 per diluted share, versus $2.1 million, or $0.17 per diluted share, for the same period in 2006. Non-GAAP net income, which excludes stock-based compensation expense and for 2006, expenses relating to Sona MedSpa, was $7.3 million, or $0.58 per diluted share, for the first half of 2007 compared with $3.2 million, or $0.26 per diluted share, in the first half of 2006. Please refer to the financial reconciliations included in this news release for a reconciliation of GAAP results to Non-GAAP results for the six months ended June 30, 2007 and 2006. Business Outlook "On the strength of our leading-edge technology and global distribution network, we believe Cynosure is positioned for continued strong growth," Davin said. "Demand for our flagship workstations is robust. We are capitalizing on that momentum through new alliances, product enhancements and training programs that are building positive brand recognition, engendering customer loyalty and, ultimately, creating value for our shareholders." Use of Non-GAAP Financial Measures To supplement Cynosure's consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined as non-GAAP financial measures by the SEC: non-GAAP net income and non-GAAP diluted earnings per share. 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 non-GAAP data included at the end of this release. This data 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 competitors' 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 2007 financial results, provide a business update and discuss the company's growth strategy. Those who wish to listen to the conference call webcast should visit the "Investor Relations" section of the company's website at http://www.cynosure.com/. The live call also can be accessed by dialing (800) 810-0924 or (913) 981-4900 (confirmation code: 9483476). If you are unable to listen to the live call, the webcast will be archived on the company's website. About Cynosure, Inc. Cynosure, Inc. develops and markets aesthetic treatment systems that are used by physicians and other practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular lesions, rejuvenate skin through the treatment of shallow vascular and pigmented lesions, laser lipolysis and temporarily reduce the appearance of cellulite. Cynosure's products include a broad range of laser and other light-based energy sources, including Alexandrite, pulsed 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.cynosure.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, 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, which is 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. Consolidated Statements of Income (In thousands, except per share data) Three Months Six Months June 30, March 31, 2007 2006 2007 2006 (unaudited) (unaudited) Revenues $30,132 $18,131 $56,209 $35,270 Cost of revenues 11,068 7,541 20,990 15,573 Gross profit 19,064 10,590 35,219 19,697 Operating expenses Selling and marketing 9,875 6,149 19,137 11,607 Research and development 1,767 1,039 3,490 2,248 General and administrative 2,933 2,031 5,228 4,177 Total operating expenses 14,575 9,219 27,855 18,032 Income from operations 4,489 1,371 7,364 1,665 Interest income, net 596 731 1,101 1,383 Other income, net 28 276 84 406 Income before income taxes 5,113 2,378 8,549 3,454 Income tax provision 2,402 915 3,720 1,351 Minority interest in net income of subsidiary - 22 - 36 Net income $2,711 $1,441 $4,829 $2,067 Diluted net income per share $0.21 $0.12 $0.39 $0.17 Diluted weighted average shares outstanding 12,686 12,138 12,530 12,158 Basic net income per share $0.23 $0.13 $0.41 $0.19 Basic weighted average shares outstanding 11,964 11,044 11,654 11,038 Non-GAAP data Gross Profit $19,064 $10,590 $35,219 $19,697 Sona - inventory writedown - - - 667 Stock-based compensation 71 19 169 26 Non-GAAP Gross Profit 19,135 10,609 35,388 20,390 Operating Expenses: 14,575 9,219 27,855 18,032 Sona - provision for doubtful account - - - (463) Stock-based compensation (1,426) (473) (2,678) (765) Non-GAAP Operating Expenses 13,149 8,746 25,177 16,804 Non-GAAP Income from Operations: 5,986 1,863 10,211 3,586 Interest income, net and other income, net 624 1,007 1,185 1,789 Non-GAAP Income before income taxes 6,610 2,870 11,396 5,375 Non-GAAP provision for income taxes 2,380 1,135 4,103 2,125 Minority Interest - 22 - 36 Non-GAAP Net income $4,230 $1,713 $7,293 $3,214 Non-GAAP diluted net income per share $0.33 $0.14 $0.58 $0.26 Diluted weighted average shares outstanding 12,686 12,138 12,530 12,158 Condensed Consolidated Balance Sheet (In thousands) June 30, December 31, 2007 2006 (unaudited) Assets: Cash, cash equivalents and marketable securities $71,411 $57,246 Accounts receivable, net 21,856 19,871 Amounts due from related parties 10 335 Inventories 22,144 17,624 Deferred tax asset, current portion 2,625 2,604 Prepaid expenses and other current assets 3,325 4,977 Total current assets 121,371 102,657 Property and equipment, net 6,273 5,662 Other noncurrent assets 1,317 1,247 Total assets $128,961 $109,566 Liabilities and stockholders' equity: Accounts payable and accrued expenses $19,675 $17,063 Amounts due to related parties 2,380 1,052 Short-term loan - 167 Deferred revenue 5,166 3,476 Capital lease obligations 455 439 Total current liabilities 27,676 22,197 Capital lease obligations, net of current portion 912 1,069 Deferred revenue, net of current portion 280 311 Other long-term liabilities 153 119 Total stockholders' equity 99,940 85,870 Total liabilities and stockholders' equity $128,961 $109,566 DATASOURCE: Cynosure, Inc. CONTACT: Scott Solomon, Vice President of Sharon Merrill Associates, Inc., +1-617-542-5300, , for Cynosure, Inc. Web site: http://www.cynosure.com/

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