Syneron Medical Ltd. (ELOS) Investor Meeting Conference Call May 22, 2012 10:30 am ET Executives Louis P. Scafuri – Chief Executive Officer Alan Gold – Plastic Surgeon, Great Neck Shimon Eckhouse – Chairman Christopher Inglefield – Medical Director and Owner, London Bridge Plastic Surgery & Aesthetic Clinic Arie Benchetrit – Cosmedica Plastic Surgery Clinic Fabian Tenenbaum – Chief Executive Officer, Syneron Beauty Zoe Diana Draelos – Dermatologist, High Point Presentation Louis P. Scafuri
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First is Dr. Alan Gold, Dr. Alan Gold is a practicing plastic surgeon. He is the former half President of the American Society of Aesthetic and Plastic Surgeons. He is well published. He has great experience with Syneron Technology and other technologies and will talk about emerging trends in the field of aesthetic. We also have Dr. Chris Inglefield joining us today from the UK. Dr. Inglefield has been an investigator with UltraShape for a number of years. Worked in their initial clinical trials as well as currently uses the product on a day-to-day basis in his clinic. He is an expert in the latest series of the revised UltraShape version 3 with DVS and he has published numerous studies related to body contouring.We are also joined today from Montreal by Dr. Arie Benchetrit who also is a plastic surgeon; he specializes in cosmetic as well as injectables. He was the first surgeon, plastic surgeon in Canada to use the UltraShape device. He has many years experience and he is also very well published in the field of body contouring. Joining us telephonically by phone will be Dr. Zoe Draelos, who is a practicing Dermatologist board, certified and she will be talking this afternoon after our lunch break on our elure skin whitening products. We are trying to keep everything on time today I will just briefly give the latest update on the company. Syneron is the market leader; we are the global leader in aesthetic devices with over 35% market share of the publicly traded companies. We have a platform aesthetic company besides just the aesthetic devices. We believe that we have products that fits the needs for plastic surgeons, dermatologists and other aesthetic providers across various segments for both face and body. We have a very comprehensive products as well as the ability to service our customers on a global basis. We sell in over 90 countries and we service as well in all of those countries and we have some very strong partnerships.
If we look at the segments of our business we have the professional aesthetic devices, which is as people know Syneron historically it’s a major segment of our business, approximately 90% of our revenues as well as the emerging business units and we will have time this afternoon to spend some time on Syneron Beauty and our elure, which is a very exciting opportunity. It’s a $2 billion at least the smallest segment alone is a $2 billion opportunity and when Fabian speaks he is going to talk about the multiple segments that exists. And we see this is a major growth engine for the company.On the trailing 12 months our revenue is $241 million, 31% of this is occurring on a recurring basis we have $142 million in cash a very strong balance sheet and we have significant tax advantage being headquartered in Israel. As I mentioned just previously we look at our business in two segments professional aesthetic devices where we have established brands, proven efficacy, we have an install base of close to 20,000 users of our products. We are running on seven consecutive quarters of double-digit revenue growth in professional aesthetic devices and last quarter we’ve had a 21% year-over-year growth with an 8% operating margin in this segment. A very exciting emerging business unit represented approximately 10% of our revenue last quarter. The numbers are staggering I used just one segment fitting a $2 billion but it’s an extremely fast growing market, we look at both the consumer devices, the tropical devices and other sub sections. Major area of growth and interest for the company Syneron Beauty has had an exceptional revenue growth over the last four quarters since we formed it where quarter-over-quarter and year-over-year were up significant percentages. This technology and the technologies we have there leverage the expertise the professional relationships and the know how that we have in the pad and last quarter we reached close to $900,000 in our elure skin brightening products and Luminaze products.
As far as technologies we have significant breadths and depths in our technologies. We surely can offer one stop shopping the company was founded with the invention of ELOS technology, which is very novel and very unique in the sense that it’s a combination of bi-polar radio frequency and optical energy whether it be laser or light, which offers a very unique safety profile as well as controllable depth and penetration and it also has an optimal profile for home use. In the early years Syneron’s major growth was fueled by this invention and then we enabled many practitioners to get into aesthetic practice as a result of this innovation.In 2010, we acquired Candela Laser; Candela Laser for many years was the market leader in premium solid-state laser products to 40 years of innovation recognizably best in class. We also have additional core competencies both in-house organic fees that we created but through some notable acquisitions. Most recently in February of this year we announced the acquisition of UltraShape so we now have ultrasound as the core competency as well as fractional RF where then we have our own technologies in the eMatrix the e2 and the other e series products as well as CO2. We also acquired TransPharma at the beginning of this year, which had a very unique transdermal RF technology that we see great opportunity in the future. In the area of skin whitening we have elure, which we will talk about later this afternoon and also we have expertise in the area of teeth whitening as through our relationship with a company called Fluorinex. Our products were all clinically validated I thought it was important rather than having the CEO talk on the podium and the usual investor presentation as we talk about the opportunity in the area of body contouring and as well as when we talk about the credibility of the company to bring some actually uses here and then to have interaction between some of the top notch physicians in the world as well as our investor base. Because we work very hard to scientifically validate our product, we have unique IP positions and several years ago we started with the monstrous Syneron equal science and growing so rapidly as we did in the years 2000 to 2008. It was very important for us to come back work with the core doctors, publish scientific study and to make sure that the time on the podium in terms of the references and the validity of our science will have the credibility of working with the top people and we’ve done that.
The other thing that we’ve worked very hard to do is make sure our value proposition for the customer is competitive has significant competitive advantage. We looked at key customer demands we have customer panels all the time, we are first to market in many different categories. We believe in terms of cost of acquisition, cost of ownership, value after sale, the ability to support a product then we clear as it’s clear from our revenue results we are clearly the market leader.Is the market growing? We have some of our analysts in the room here today and they have their own channels we have significant domain expertise in the field of aesthetics so I can tell you from our perspective, from the company’s perspective, we think the market is better than it was clearly in 2011 we see continued signs of improvement around the economy. North America I believe the economy is back on track certainly we have gone at Syneron we’ve explored and if we look at our revenue growth outside the U.S. we’ve out paced the competition and if you look at the acceptance of cosmetic procedures the whole notion around non-invasive procedures today, I believe Dr. Gold and Dr. Benchetrit are going to be talking about some of that as Dr. Inglefield today just what the trends are in the practice. Demand is there, we see certain markets that are clearly overheated like Brazil, and China people ask about Europe I can tell you we had record revenues last quarter in Europe. We are cautious about the macro but the business is good as far as the social media, the social media enables all this and we see a younger patient answering it in the world of aesthetics and we see from the standpoint of growth again a very exciting year ahead of us in 2012 as well as we look forward.
Some of our brands are extremely well recognized in the area of skin rejuvenation we have multiple offerings with our e series of products. In the field of body contouring we were the pioneers with the introduction of VelaShape, we’ve sold over 7,000 VelaShape units when it was introduced. As well as we’ve done several million treatments we have significant expertise in that area it’s well thought threw in terms of the product roadmap and our ability to remain in a leadership position. Dr. Eckhouse is going to be speaking specifically on VelaShape the other Syneron body contouring area debentures as well as UltraShape and the like and as we move over to the area of skin rejuvenation and skin tightening, vascular lesions, pigmented lesions and the like and hair removal with the Candela brand such as VD and GentleLASE. We are usually the company that most dermatologists and plastic surgeons things of first.What really makes a difference in our company is our ability to go where the business is we sell direct in 13 markets including North America and in the major Western European countries as well as in Japan, most recently in Australia and China as well. As well as the fact that we have some of the strongest partners in the aesthetic industry in our distribution channel. If one following our numbers and sees our quarterly growth we’ve had an unparalleled record of revenue growth in these markets and it has to do with the fact that we pay a lot of attention to it. We had with a willful mindset when we saw the North American economy slowdown we actually went out and we deployed resources in the markets, we made sure that we had the mind share of our distributors as well as the training done so that we could sell as money products across the breadths and depths in our product line to the customers as possible.
If we look at the high growth opportunities body contouring is very exciting. We will talk about that in great detail today but we have an area in the EDU three segments, which are particularly exciting, one is the home use devices and I believe Fabian has brought some devices here with him so that he can do a bit of show and tell. They are available at some of the major retailers right here in Manhattan as they are throughout North America as well as in the UK and certain other international markets. It’s a rapidly growing marketplace, there are numbers around this market is the numbers range approximately $350 million today growing at a compounded growth rate of over 25% that’s because people want the treatments. The social media is driving it I think people who go to a professional wants maintenance at home. They want treatments for acme, wrinkle reduction hair removal and the like and we will get through our offering and our unique position in the marketplace later today, teeth whitening and other blockbuster opportunity, we’ve recently introduced this last quarter. the Tanda Pearl is compete head-to-head with other home-based, other devices and whitening solutions.It also offers potentially a treatment almost as good, if not as good, as a professional treatment, and we’ll be talking about that later today. and skin lightening, we talked about elure before, we have a significant activity underway, which we’ll talk about this afternoon both in the areas of scientific research as well as expanding our distribution channel and gaining regulatory approvals, because this marketplace is explosive, this marketplace in North America is over $1 billion, it’s about $300 million of just a professional, professionally distant skin lightening products. But outside the U.S., it’s everywhere, outside the U.S., the estimates run as high as $14 billion. From the standpoint of financial strength, we have the strongest balance sheet of the industry with over $142 million in cash and cash equivalents. We’re expanding our recurring revenue; our recurring revenue right now is approximately 31% of our total revenues. we’re working diligently to improve our margins both from the standpoint of cost of goods reduction and operational efficiencies. and we are the clear market leader, if we look at publicly traded companies; we have 35% of the total available market.
Looking at the first quarter, we are coming off the significant first quarter, very successful from the standpoint, the year-over-year revenue growth our revenues were a record for the industry, record for Syneron of $62.7 million up 26% year-over-year. and please keep in mind, we’re the largest company, so the percentages are very, very meaningful and also we’re coming from some very significant numbers in 2011. So we continue to grow, we continue to outperform the competition, our international revenue was up 24% and Syneron North American revenue was up 30%, both very good signs for the company’s performance, we have significant cross-selling revenues or cross-training since the acquisition of Candela and some of the other acquisitions that we’ve done really is starting to gain some traction and the other number that I think it’s very, very meaningful as we look to improve our operating margin is the recurring revenue, which last quarter was 31%.Our gross margins are basically flat at 53.5% down slightly from year-over-year. our operating profit of the aesthetic units of business has been profitable for the last five quarters. It was 4.6% or 8%, and we continue to invest in the EDU, a very exciting opportunity for growth again with many more details that will follow this afternoon. And the emerging business units again had a record quarter, where 10% of our revenues up 111% year-over-year, $6.1 million were contributed by the EDU primarily by Syneron Beauty in the segment. Our net income was $0.6 million, $0.02 per share versus basically the same last year at $0.01, slightly over the previous year at $0.01 per share. So as I summarized the brief overview, I know many of the people here in the room, we have frequent discussions. I think today we used the day to be as interactive as possible, ask questions that you’ve had on your mind related to the company’s growth, different segments of the business that are new, I think when we acquired UltraShape, we made the announcement, we saw some major interests, but the actual impact and the growth opportunity for the company.
Today I think we’re going to clearly outline to you, how we believe this, by this time next year. we will be the clear leader in non-invasive body contouring. we have all the elements in place to execute on this plan as well as the fact that our performance continues to improve and we continue to outpace the competition.The EDU today will spend time discussing the many baskets of the EDU and the significant growth opportunity that it represents. And I would like to say that I expect by the end of the day today to have our most of the questions answered, and to have some new thinking around the growth prospects of Syneron and how I believe that we’re tremendously undervalued and probably the company to invest in our space. So I would like to introduce Dr. Alan Gold for his presentation on cardio aesthetic practices, Dr. Gold? Alan Gold Good morning, I’m going to present a little bit of a different perspective, if you notice there isn’t anything in my presentation as of listed that’s going to be scientifically based. When I spoke with Lou about the investor meeting coming up, I thought it might of interest to be able to present from a different point of view. How I look at Syneron and you’ve seen some of the credential before, this is not appropriate, I just want to give an idea of what my understanding of the market is based up on. I’ve been the President of the most of the National Plastic Surgery societies over the years. I’m Chairman now the Industry Relation Task Force of the American Society for Aesthetic Plastic Surgery. Why is that important? It’s important because it allows me to understand the working of some of our industry partners amongst them Syneron and Candela.
I’ll get you that in a little bit in a moment. I’m a clinical researcher for both Syneron and Candela. I’m director of Gold Laser Academy. This industry I feel is just about to explode beyond what we’ve seen before. Beyond what we’ve seen in the last several years and training was woefully inadequate. Training of the personnel, all these devices that are provided to us as practioners by the company are merely tools, and if they are not used properly they don’t reach the potential for the device. You wind up with unhappy, disappointed patients and unhappy consumers. Consumers meaning the people that purchase the devices, and so we thought a school would be really credible and I am pleased that we’ve been able to partner with informally partner with and utilize only Syneron and Candela devices in our instruction.Read the rest of this transcript for free on seekingalpha.com