Palomar Medical Technologies Inc. ( PMTI)

Q3 2010 Earnings Call

October 28, 2010; 11:30 am ET

Executives

Joe Caruso - President & Chief Executive Officer

Paul Weiner, Chief Financial Officer

Dan Valente - Chairman

Kerry McAnistan - Investor Relations Assistant

Analysts

Dalton Chandler - Needham

Anthony Vendetti - Maxim Group

Jose Haresco - JMP Securities

Sharon DeStefano - Argent LLC

Bill Plovanic - Canaccord Genuity

Andy Schopick - Nutmeg Securities

Presentation

Operator

Welcome to the Palomar Medical Technologies third quarter 2010 financial results conference call. Please be aware that each of your lines is in a listen-only mode. At the conclusion of Palomar’s presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question.

I would now like to turn the conference over to Kerry McAnistan, Investor Relations Assistant at Palomar. Ms. McAniston, you may begin.

Kerry McAnistan

Good morning and welcome to the Palomar Medical Technologies third quarter 2010 conference call. Before we start this morning's call there are a couple of items we would like to cover. These conference calls are recorded live and you may access the webcast replay at Palomar’s website, www.palomarmedical.com, through Thursday, November 4th.

Various remarks that we’ll make about future expectations, plans and prospects for the company constitute forward-looking statements, the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Form 10-K for the year ended December 31, 2009 and the company's Quarterly Reports on Form 10-Q, which are on file with the SEC and available through Palomar's website.

The information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor statement as of the date of this call. The information in this conference call is the property of Palomar and should not be reproduced, recorded or otherwise published without the expressed prior written consent of the company.

Joining us this morning are Dan Valente, Chairman; Joe Caruso, President and Chief Executive Officer; and Paul Weiner, Chief Financial Officer.

I would now like to turn the call over to Dan.

Dan Valente

Thanks Kelly and thank you all for tuning into the conference call. We’ve met our financial and operating goals again for the third quarter. As you know, Palomar will be entering a new and exciting phase in achieving the company’s direct-to-consumer commercialization goals. We are very excited about our plans to introduce our first home product in 2011. Now let’s hear from Joe Caruso, Palomar, CEO.

Joe Caruso

Thank you, Dan. Although the economy remains weak, we are seeing signs of improvement in our business. There has been a decrease in physician components and an increase in lead generation and demos. We are yet to see any substantial change in the availability of credit to our customers. Fortunately, Palomar’s products are very well positioned for these challenging times. Even in this environment, our products make economic sense to our customers due to their high return on investment profile and the flexibility of our platform.

We also continue to add technology in product configurations that fits in today’s economy. Our sales force has the ability to match our technology to fit not only the clinical needs of our customers, but their financial constraints as well. This quarter was the fourth consecutive quarter of product sales growth, quarter-over-quarter. We also increased our product revenues 23% this quarter as compare to the same period last year. This is the largest such increase in more than three years.

There are also benefits from a diversified business model that includes a significant portion of our revenues being derived from multiple sources. 31% of our revenues during the third quarter were generated from sources other than one-time capital equipment sales.

Our distribution expansion initiative is moving along according to plan. The office we opened in Japan last quarter is working out well. We have hired direct sales and marketing staff, as well as set up people with peer capability with service technicians. This office will not only service the Japanese market, but help support our efforts in other Asian countries. Our business outside North America continues to strength. It now accounts for 38% of our overall product and service revenue.

This quarter we were able to achieve better gross margins than last year. Average selling prices remained stable for our products and we were happy with our product mix. Paul will give us more details during his comments in just a few minutes on the financial results for the quarter.

We continue to focus on executing our diversified strategy by addressing the professional light-based aesthetic market today, working for driving our technology directly to the consumer markets and capitalizing on the value of our extensive client portfolio. We continue to invest in more in research and into developments than our competitors as we position the company for future growth.

Earlier this year we launched a new platform system called Addison. It is positioned to penetrate the ever-growing skin rejuvenation market. It combines the best of our non-ablative and ablative fractional laser technologies with photofacial IPL technology. This combination of technologies can be used to provide milder treatments, plutonium texture up to the more aggressive fractional ablated laser treatments for wrinkles.

Physicians are able to have the multiple tools they need for an overall best-in-class treatment protocol, depending on individual age, skin conditions, potential down time and financial constraints at even more attractive price points. We continue to monitor the economic environment and adjust if necessary. Our intent is to balance our short-term operating goals with our long-term opportunities as we invest in research.

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