Gross Margin Increases Sequentially to 58.4% as ASPs Remain Stable; Company Generates $3.6 Million Cash from Operations WESTFORD, Mass., Oct. 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 three and nine months ended September 30, 2009. Third Quarter 2009 Financial Results Revenues for the three months ended September 30, 2009 were $17.9 million, compared with $38.2 million for the same period of 2008 and $20.8 million for the second quarter of 2009. The decrease in revenues from the third quarter of 2008 reflected the downturn in global economic conditions and the effects of a highly restrictive credit environment in North America. The decrease in sequential revenue reflected the typical seasonality of the third quarter. Gross margin for the third quarter of 2009 was 58.4% of total revenues, compared with 64.9% for the same period of 2008 and 58.0% for the second quarter of 2009. The lower gross margin from the year-ago period reflects a higher percentage of laser revenue from international markets, where sales prices tend to be lower than in North America. The 40-basis-point increase in gross margin from the second quarter of 2009 resulted from a higher percentage of laser revenue from North America, as well as stable average selling prices across Cynosure's distribution network. Total operating expenses decreased 31% to $13.8 million for the third quarter of 2009 from $19.9 million for the same period of 2008, as the company maintained its focus on reducing costs in response to the current economic climate. On a sequential basis, the company reduced operating expenses by 15% from $16.2 million for the second quarter of 2009. Net loss for the third quarter of 2009 was $1.9 million, or $0.15 per basic and diluted share, compared with net income of $3.2 million, or $0.25 per diluted share, for the third quarter of 2008 and a net loss of $2.3 million, or $0.18 per basic and diluted share, for the second quarter of 2009. "While consumer demand for aesthetic procedures appears to be regaining momentum and participation in our training programs is strong, limited access to credit remains a key hurdle for practitioners across the industry," said President and Chief Executive Officer Michael Davin. "Many physicians continue to encounter a restrictive lending environment and a lengthy credit approval process. We are continuing to work directly with the lending community to assist our customers -- the majority of whom are physicians -- with securing financing. The positive news we take from the current environment is that, as credit begins to ease, we believe the underlying demand is there to support the industry's return to growth. Despite the challenges of the economic climate, margins increased slightly on a sequential basis, which underscores the stability of our ASPs." "In what traditionally has been the weakest quarter for the aesthetic industry, we were encouraged by the continued progress during the third quarter of 2009 of our international business, particularly in the Asia Pacific region," Davin said. "The initiatives we have taken to establish and grow our direct distribution in countries such as Korea and China, and to introduce new products there, are yielding positive results. International revenue accounted for 45% of total laser revenue in the quarter, compared with 29% for the third quarter of 2008 and 53% for the second quarter of this year." "On the product development front, our funded development agreement with Unilever Ltd. to develop light-based devices for the home use personal care market moved forward in the quarter and we are pleased with our achievements to date," Davin continued. "Our development partnership is a project we believe will take two to three years to bring to commercialization. In Unilever we have an outstanding partner with the consumer marketing and distribution expertise to make this initiative a success." Recent Highlights -- At the Plastic Surgery 2009 meeting, Cynosure introduced the Smartlipo Triplex(TM), the world's first laser lipolysis workstation featuring three wavelengths that combine to deliver high-powered fat absorption and tissue tightening through tissue coagulation. Smartlipo Triplex adds a 1440 nm wavelength to the MPX generation of the product, and employs Cynosure's patented MultiPlex technology to combine the benefits of multiple wavelengths in a single laser output. -- Cynosure announced two key regulatory approvals in the Asia Pacific region. The company received approval to market its Smartlipo MPX(TM) LaserBodySculpting(SM) Workstation in Korea and its Affirm(TM) Anti-Aging Workstation in the People's Republic of China. -- The company named Paul B. Cardarelli to the new position of Vice President of Business Development. Cardarelli is responsible for day-to-day management of Cynosure's funded development agreement with Unilever Ltd. Nine-Month Results For the nine months ended September 30, 2009, revenues were $53.6 million compared with $114.2 million for the same period in 2008. Gross profit margin for the first nine months of 2009 decreased to 58.9% of total revenues, compared with 66.2% for the same period in 2008. Net loss for the first nine months of 2009 was $8.3 million, or $0.65 per basic and diluted share, compared with net income of $12.7 million, or $0.99 per diluted share, for the same period in 2008. Business Outlook "We are on track to achieve our target operating expense savings of between $14 million and $18 million for 2009," Davin said. "The cost-reduction program we implemented beginning in early 2009 has enabled us to cut operating expenses by $11.8 million -- more than 20% -- through the first nine months of the year, compared with the same period in 2008. At the same time, we maintained our strong balance sheet, with cash, cash equivalents and investments increasing $1.9 million for the quarter ended September 30, 2009 to $90.5 million. "Although obtaining credit for capital equipment purchases remains difficult for many practitioners, we are encouraged by the level of activity and interest we are seeing in North America and continuing international traction, particularly in Asia. In the near term, the lending environment may continue to create challenges for the company and our industry, but our balance sheet and drive to sustain technology leadership in applications such as LaserBodySculpting give us a high level of confidence for the quarters ahead," Davin concluded. 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 company's financial results and provide a business outlook. 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 can also be accessed by dialing (877) 407-5790 or (201) 689-8328. 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 and pigmented lesions, rejuvenate the skin, liquefy and remove unwanted fat through 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, 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.cynosure.com/. Forward-Looking Statements Any statements in this press release about future expectations, plans and prospects for Cynosure, Inc., including statements about the company's ability to achieve targeted operating expense savings, and expectations for increased industry demand, 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 the global economic recession and its effects on the aesthetic laser industry, 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 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 Nine Months Ended September 30, Ended September 30, 2009 2008 2009 2008 ---- ---- ---- ---- (unaudited) (unaudited) Revenues $17,937 $38,209 $53,566 $114,167 Cost of revenues 7,460 13,396 21,997 38,645 ----- ------ ------ ------ Gross profit 10,477 24,813 31,569 75,522 Operating expenses Selling and marketing 8,743 13,911 29,696 41,190 Research and development 1,564 1,992 5,001 5,606 General and administrative 3,511 3,983 11,440 11,108 ----- ----- ------ ------ Total operating expenses 13,818 19,886 46,137 57,904 (Loss) income from operations (3,341) 4,927 (14,568) 17,618 Interest income, net 83 549 454 1,977 Other income (expense), net 371 (425) 705 9 --- ---- --- - (Loss) income before income taxes (2,887) 5,051 (13,409) 19,604 Income tax (benefit) provision (972) 1,888 (5,149) 6,912 ---- ----- ------ ----- Net (loss) income $(1,915) $3,163 $(8,260) $12,692 ======= ====== ======= ======= Diluted net (loss) income per share $(0.15) $0.25 $(0.65) $0.99 ====== ===== ====== ===== Diluted weighted average shares outstanding 12,712 12,854 12,708 12,806 ====== ====== ====== ====== Basic net (loss) income per share $(0.15) $0.25 $(0.65) $1.01 ====== ===== ====== ===== Basic weighted average shares outstanding 12,712 12,642 12,708 12,542 ====== ====== ====== ====== To supplement our consolidated financial statements presented in accordance with GAAP, Cynosure uses the following measures defined as non-GAAP financial measures by the SEC: non-GAAP gross profit, non-GAAP income from operations, 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. 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. Reconciliation of GAAP Income Statement Measures to Non-GAAP Income Statement Measures (Unaudited) ------------------------------------------------------------------- (In thousands, except per share data) Three Months Nine Months Ended September 30, Ended September 30, 2009 2008 2009 2008 ---- ---- ---- ---- Gross profit $10,477 $24,813 $31,569 $75,522 ------- ------- ------- ------- Non-GAAP adjustments to gross profit: Stock-based compensation 120 145 383 411 --- --- --- --- Total Non-GAAP adjustments to gross profit 120 145 383 411 --- --- --- --- Non-GAAP Gross profit $10,597 $24,958 $31,952 $75,933 ======= ======= ======= ======= Three Months Nine Months Ended September 30, Ended September 30, 2009 2008 2009 2008 ---- ---- ---- ---- (Loss) income from operations $(3,341) $4,927 $(14,568) $17,618 ------- ------ -------- ------- Non-GAAP adjustments to (loss) income from operations: Stock-based compensation 1,464 2,096 5,110 5,663 ----- ----- ----- ----- Total Non-GAAP adjustments to (loss) income from operations 1,464 2,096 5,110 5,663 ----- ----- ----- ----- Non-GAAP (Loss) income from operations $(1,877) $7,023 $(9,458) $23,281 ======= ====== ======= ======= Three Months Nine Months Ended September 30, Ended September 30, 2009 2008 2009 2008 ---- ---- ---- ---- Net (loss) income $(1,915) $3,163 $(8,260) $12,692 ------- ------ ------- ------- Non-GAAP adjustments to net (loss) income: Stock-based compensation 1,464 2,308 5,110 5,875 Income tax effect of Non-GAAP adjustments (460) (762) (2,162) (2,261) ---- ---- ------ ------ Total Non-GAAP adjustments to net (loss) income 1,004 1,546 2,948 3,614 ----- ----- ----- ----- Non-GAAP Net (loss) income $(911) $4,709 $(5,312) $16,306 ===== ====== ======= ======= Three Months Nine Months Ended September 30, Ended September 30, 2009 2008 2009 2008 ---- ---- ---- ---- Diluted net (loss) income per share $(0.15) $0.25 $(0.65) $0.99 ------ ----- ------ ----- Stock-based compensation 0.12 0.18 0.40 0.46 Income tax effect of Non-GAAP adjustments $(0.04) (0.06) (0.17) (0.18) ------ ----- ----- ----- Total Non-GAAP adjustments to net (loss) income $0.08 0.12 $0.23 0.28 ----- ---- ----- ---- Non-GAAP Diluted net (loss) income per share $(0.07) $0.37 $(0.42) 1.27 ====== ===== ====== ==== Weighted average shares used to compute diluted net (loss) income per share 12,712 12,854 12,708 12,806 ====== ====== ====== ====== Weighted average shares used to compute Non-GAAP diluted net (loss) income per share 12,712 12,854 12,708 12,806 ====== ====== ====== ====== Condensed Consolidated Balance Sheet (Unaudited) ------------------------------------------------ (In thousands) September 30, December 31, 2009 2008 ---- ---- (unaudited) Assets: Cash, cash equivalents and marketable securities $69,953 $74,369 Short-term investments and related financial instruments 18,587 - Accounts receivable, net 14,975 25,156 Amounts due from related parties 49 40 Inventories 25,724 30,248 Deferred tax asset, current portion 6,871 6,825 Prepaid expenses and other current assets 7,857 4,331 ----- ----- Total current assets 144,016 140,969 Property and equipment, net 10,080 8,422 Long-term investments and related financial instruments 2,005 21,082 Other noncurrent assets 2,906 2,649 ----- ----- Total assets $159,007 $173,122 ======== ======== Liabilities and stockholders' equity: Accounts payable and accrued expenses $14,071 $20,697 Amounts due to related parties 1,944 6,083 Deferred revenue 3,990 4,296 Capital lease obligations 299 398 --- --- Total current liabilities 20,304 31,474 Capital lease obligations, net of current portion 231 436 Deferred revenue, net of current portion 504 407 Other long-term liabilities 429 451 --- --- Total stockholders' equity 137,539 140,354 ------- ------- Total liabilities and stockholders' equity $159,007 $173,122 ======== ======== DATASOURCE: Cynosure, Inc. CONTACT: Scott Solomon, Vice President, Sharon Merrill Associates, Inc., for Cynosure, Inc., +1-617-542-5300, Web Site: http://www.cynosure.com/

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