Cynosure, Inc. (CYNO)
Q2 2010 Earnings Call
July 27, 2010 09:00 am ET
Michael Davin - President and CEO
Tim Baker - EVP and CFO
Anthony Vendetti - Maxim Group
Matthew Dodds – CitiGroup
Andy Schopick - Nutmeg Securities
Anthony Petron – Jefferies
Dalton Chander – Madum and Company
Bill Dezellem – Titan Capital
We’ve been operating since the global economic downturn began in 2008. In summary, we continue to navigate to a challenging economic climate with our core competencies and financial strength intact.
While we would expect to see some natural pullback in our business in Q3 as a result of traditional seasonality, so we are encouraged about where we finish the first six month of 2010.
From a financial and operational standpoint, we begin the second half of the year well positioned to grow as the economy improves.
With that, I will turn the call over to Tim for his financial review.
Thank you, Mike. Good morning everyone, and thanks for joining us.
As Mike outlined, Q2 was a solid quarter for Cynosure. Revenue for the second quarter increased 3% year over year, and 14% sequentially to $21.5 million. On a GAAP basis, the second quarter loss narrowed to $1.5 million, or $0.12 a share from $2.3 million, or $0.18 per share for the second quarter of 2009.
The improved bottom line reflected an 18% reduction in operating expenses from Q2 of last year.
It is important to point out that a Second Quarter 2010 net loss, included income tax provision, or expense of $0.1 million, representing an effective tax rate of 5%. This compares with an income tax benefit of $1.3 million, or a reduction to our loss of $0.10 per share, recorded in the Second Quarter of 2009. And representing an effective tax rate of 35%.
The change from a benefit to a provision in the 2010 period is a result of the company’s establishment of evaluational allowance in the fourth quarter of 2009, against our net domestic deferred tax assets. And results from taxable income generated in four jurisdictions.
We expect to continue to record a quarterly tax provision for the balance of the year, and expect our effective tax rate to range between 8% and 12% the remainder of 2010.
Additionally, in the Second Quarter of 2010, the company recorded a foreign exchange loss of $0.5 million or $0.04 per share, compared with a foreign exchange gain of $0.4 million or $0.03 per share, recorded in the Second Quarter of 2009.
Our aggressive expense reduction initiatives enable the company to cut its loss from operations by 78%, or $3.2 million to less than $1 million in the Second Quarter of 2010 from $4.1 million for the same quarter in 2009.
On a non-GAAP basis, excluding stock-based compensation expense of $1.2 million, we had positive income from operations from approximately $300,000.
In the coupled period of 2009, we had a non-GAAP loss from operations of $2.3 million which excluded stock-based comp of $1.8 million.
The non-GAAP net loss for the Second Quarter of 2010 was $200,000, or $0.02 per share, down from $1.1 million or $0.09 per share in the same period of 2009.
We used approximately $12.7 million weighted-average shares outstanding in computing basic earnings per share for both quarters.
Looking at our quarterly revenue in a bit more detail, laser product revenue accounted for $16.4 million, or 76% of total revenue in Q2 2010, compared with $16.5 million or 79% of total revenue for the same period of 2009.
Revenue from parts, accessories, and service increased 19% to $5.1 million in the Second Quarter of 2010 from $4.3 million in Q2 of 2009.
By territory, international markets accounted for 52% of laser revenue in the Second Quarter of 2010, down from 53% in the same period last year, when North America laser revenue accounted for 48% of total product revenue in Q2 of 2010, as compared to 47% for the Second Quarter of 2009.
Gross profit for the Second Quarter was 57.8% essentially flat from 58% for the same period in 2009, and up slightly from the First Quarter of this year. As Mike mentioned, average selling prices have remained stable through the first six months of the year.
Turning to expenses, total operating expenses in Q2 declined 18% to $13.3 million from $16.2 million in the Second Quarter of '09. Looking at operating expense by category, selling and marketing expenses decreased $1.8 million or approximately 17% to $8.6 million from $10.4 million in the year ago quarter.
A reduction in headcount in the elimination of some non-core programs were the primary reasons for the decrease. Selling and marketing encounters were 40% of revenue versus 50% of revenue in Q2 of '09.
Research and development expenses increased about $150,000 to $1.8 million for the Second Quarter of 2010 versus same period last year, reflecting our continued commitment to innovation.
R&D expenses totaled approximately 9% of revenue in Q2 2010, versus 8% in the same period last year.
General and administrative expenses for the quarter decreased $1.2 million to $2.8 million, or 13% of revenue compared with $4 million, or 19% of revenue in Q2 of '09. The reduced G&A expenses reflects cost reduction initiatives and lower legal expenses.