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Executives

Scott Solomon – Vice President, Sharon Merrill Associates

Michael R. Davin – Chairman, President and Chief Executive Officer-Cynosure Inc.

Joseph P. Caruso – Chairman, President and Chief Executive Officer-Palomar Medical Technologies, Inc.

Timothy W. Baker – Executive Vice President, Chief Financial Officer and Treasurer-Cynosure Inc.

Analysts

Matthew J. Dodds – Citigroup Global Markets Inc.

Richard Newitter – Leerink Swann LLC

Anthony V. Vendetti – Maxim Group LLC

James Sidoti – Sidoti & Co. LLC

Bill J. Plovanic – Canaccord Genuity, Inc.

Paul T. Nouri – Noble Equity Funds

Stephen Velgot – ICAP Corporates LLC

Cynosure Inc. (CYNO) Acquisition of Palomar Medical Technologies Conference Call March 18, 2013 9:00 AM ET

Operator

Good day. And welcome to the Cynosure, Palomar Medical Technologies Investor Call. Today’s call is being recorded. There will be an opportunity for questions at the end of the call. (Operator Instructions)

At this time, I would like to turn the call over to Mr. Scott Solomon, Vice President for Sharon Merrill Associates. Please go ahead, sir.

Scott Solomon

Thank you, Jessie, and good morning, everyone. Thank you for joining us today. With me on this morning’s call are Michael Davin, Cynosure’s Chairman, President and Chief Executive Officer; Tim Baker, Executive Vice President and Chief Financial Officer, and Joe Caruso, Chairman, President and CEO of Palomar Medical Technologies. Michael and Joe will discuss the strategic highlights of today’s announcement. Tim will review the financial terms of the transaction, and then open the line for questions.

Before we begin, please note that various remarks management makes on this conference call about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

These statements include, but are not limited to, statements of our long-term growth and profitability, the expectation of an accretive transaction to Cynosure in calendar 2014 with the implementation of $8 million to $10 million of synergies, the integration of operations, the tax-free nature of the transaction, and the timing of the closing of the transaction.

These forward-looking statements are neither promises nor guarantees, but involve risk and uncertainties that may individually or mutually impact the matters herein, and cause actual results, events and performance to differ materially from such forward-looking statements. These risk factors are detailed under the Risk Factors heading in both Cynosure Annual Report on Form 10-K for the year-ended December 31, 2012 and the Palomar Annual Report on Form 10-K for the year-ended December 31, 2012.

With that, I’ll turn the call over to Michael Davin.

Michael R. Davin

Thank you, Scott, good morning everyone, and thank you for joining us. I wonder it is a momentous day for Cynosure and Palomar. We are excited to be welcoming Joe and the entire Palomar team, both here in Massachusetts and around the world to our organization. The definitive agreement we announced today will create one of the wold’s premier aesthetic laser and light-based companies; one that blends not only complementary products and technologies, but similar corporate cultures. And that’s incredibly important, because it creates a level of continuity that is key as Cynosure and Palomar combined into one unified organization. Each company has a history of product innovation and a heritage that spans more than 20 years. We have pursued similar growth paths as leaders in aesthetic laser and light-based devices.

As the Cynosure Management Team and Board consider this transaction, we did so with an eye toward one overarching objective; to continue to create shareholder value through industry leadership, technology innovation, and profitable growth. With that as a backdrop, here is why we believe Cynosure’s acquisition of Palomar will be an effective, efficient, value generating transaction for shareholders of both companies.

First, we believe that this transaction creates a company, with the industry’s broadest aesthetic laser capabilities and most comprehensive product portfolio.

Second, the acquisition strengthens our global distribution network, creating a combined field sales force of more than 80 reps in North America, drug distribution in 9 foreign countries and third-party distributors in over 100 countries. The geographic fit between our two companies is a good one. Palomar brings particular expertise in international markets such as Japan and Australia.

Third, the transaction enhances Intellectual Property position of our combined company. We will have a total of more than 80 U.S. patents covering numerous key innovations. We believe that as a device technology company, a broad patent position is an important differentiator in the market and is key to long-term success.

Fourth, our combined installed base of more than 20,000 systems creates a substantial cross-selling opportunity in terms of new workstations, technology enhancements, and services.

And finally, this transaction leverages the efficiencies and economies of scale of the combined company to generate a significant level of synergies, which we estimate will be between $8 million and $10 million in 2014.

With the acquisition of Palomar, our balance sheet will remain strong and debt free. On a pro forma basis, for the transaction as of December 31, 2012, the companies combined had approximately $87 million in cash and no debt. That provides us with a financial flexibility necessary to continue to execute our growth strategy.

Beyond our strategical rationale, we also are excited about the benefits of bringing together two organizations build on a commitment to meaningful innovation. Cynosure has established its reputation with industry leading minimally invasive systems such as Cellulaze and Smartlipo and most recently our promising new PicoSure, picosecond laser for clearing tattoos and benign pigmented lesions.

Meanwhile, Palomar has launched novel products such as the Icon laser and Intense Pulsed Light Platforms, and the new Vectus Diode Laser for permanent hair reduction. Many of these systems have been elevated to gold standard status by physicians for the respective applications.

Cynosure and Palomar also share a common business philosophy. The tenets of this philosophy include providing comprehensive training and marketing support that enables our customers to efficiently grow their aesthetic practices through new products and service offerings. It also extends to a deep commitment to the comfort and safety of the patients they serve through technology advances such as intelligent energy delivery; skin cooling, and temperature controls. We are confident that we are acquiring a first-class organization led by a strong management team consisting of industry veterans. We expect this deal to deepen our existing talent base as we gain skilled employees and management strength.

The leadership strength begins with Joe Caruso, who will be joining us as Vice-Chairman and President. We look forward to welcoming the Palomar team to Cynosure. We envision a smooth transition and integration that will achieve the full operational and financial benefits of this combination for customers and employees, and shareholders.

Now let me turn the call over to Joe for his comments. Joe.

Joseph P. Caruso

Thank you Mike, and good morning everyone. It is a pleasure to be with you today. Mike talked about the business and cultural similarities between Cynosure and Palomar. It would be difficult to find two organizations with the entrepreneurial spirit and the enthusiasm to develop superb technology is any stronger. Our companies have approached the engineering challenge of creating high-quality aesthetic laser products from slightly different perspectives, but very complementary ones. And the drive, passion and professionalism we have invested in the effort is very much the same.

The combined company will be positioned for success based on a seasoned management team, a talented employee base, a comprehensive and complementary product portfolio, unique pool of technologies, a deep intellectual property position, and a strong balance sheet.

I'm confident that Palomar is becoming part of an outstanding organization positioned for continued growth and success. Our Board of Directors and Management team believe that this transaction makes strategic sense for our company, offers an attractive premium to our shareholders, and creates exciting opportunities for our employees.

Now, Tim will go over the financial terms of the transaction.

Timothy Baker

Thanks Joe. Good morning. I would like to quickly cover the terms of the transaction. As Mike mentioned, we are acquiring 100% of the outstanding Palomar stock for approximately $294 million. The transaction will be funded through a combination of cash and stock. Shareholders of Palomar stock will receive approximately $6.83 in cash and approximately $6.83 in Cynosure common stock, subject to adjustments and collar provision outlined in the merger agreement.

Cynosure will issue approximately 5.2 million shares and fund the approximately $147 million in cash consideration through existing cash balances. The acquisition price of $13.65 represents a premium of approximately 23% of Palomar’s average closing price and a premium of approximately 34% over Palomar’s average enterprise value excluding cash since the announcement of Palomar's 2012 year-end result on February 7, 2013.

The acquisition is expected to be accretive to Cynosure in calendar 2014 with the implementation of $8 million to $10 million in projected synergies. As Mike mentioned on a pro forma basis for the transaction as of December 31, 2012 the companies combined had approximately $87 million in cash and no debt.

The Boards of both companies have approved the transaction, which is expected to close in the third quarter of 2013. The acquisition is subject to customary closing conditions, regulatory approvals, and the approval of Palomar shareholders. In addition Cynosure shareholders will need to approve the share issuance. It is anticipated that the transaction will be tax free to Palomar shareholders with respect to the stock component. Upon completion of the transaction current Cynosure shareholders will own approximately 77% and current Palomar shareholders will own approximately 23% of the combined company.

In conclusion, we believe that this will prove to be a milestone acquisition for Cynosure and a win for the shareholders, customers, and employees of both companies. We’ll now like to open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we will now be conducting our question-and-answer session (Operator Instructions). Our first question comes from the line of Matthew Dodds with Citigroup. Please proceed with your question.

Matthew J. Dodds – Citigroup Global Markets Inc.

Hey good morning, A couple of questions for you. First, on the third-party distributors, you’ve got a lot of them, it sounds like between the two companies. How long does it take to restructure those? Do you leave them alone for a while? How do you eventually integrate those?

Michael R. Davin

Yeah. Matt, it’s Michael. Yes, exactly we at this point we’ll leave them alone definitely, and we will want to just review the overall global distribution as it relates to our third-party distribution similar to what we do with ConBio, and today many of those distributors are still distributing on behalf of Cynosure, and so we anticipate just to continue to strengthen that network with this broad base of third-party distributors.

Matthew J. Dodds – Citigroup Global Markets Inc.

And then just one synergy question on the $8 million to $10 million, Michael or Tim, how much of that is SG&A versus cost of goods roughly?

Timothy W. Baker

Initially majority of that will be SG&A. We do think there is some cost of good synergies, but that may take a little longer to realize.

Matthew J. Dodds – Citigroup Global Markets Inc.

Great. Thanks Tim, thanks Michael.

Michael R. Davin

You bet, Matt.

Scott Solomon

Next.

Operator

Thank you. The next question comes from the line of Rich Newitter with Leerink Swann. Please proceed with your question.

Richard Newitter – Leerink Swann LLC

Hi, guys. Thanks for taking the questions and congratulations.

Michael R. Davin

Thanks Rich.

Richard Newitter – Leerink Swann LLC

So, I just wanted to ask actually two questions. The $8 million to $10 million in projected synergies, that’s all in a GAAP basis, correct?

Timothy W. Baker

That’s correct.

Richard Newitter – Leerink Swann LLC

And, I am sorry – and the accretion is GAAP as well.

Timothy W. Baker

That’s correct.

Richard Newitter – Leerink Swann LLC

Okay. And is it safe to assume that that doesn’t even factor in sale synergies or kind of right now just thinking purely on the cost side?

Timothy W. Baker

In other word, we’re obviously evaluating Rich in lot of different areas. So that would have some sales but mostly its overall SG&A cost.

Richard Newitter – Leerink Swann LLC

Okay. And as I think about kind of Palomar’s R&D spending, I know they have been spending significantly and then that ratcheted down in the fourth quarter of 2012. But it’s still in the above average pace relative or above average margin relative to the industry and yours kind of R&D spend level, is that an area that you would expect to bring in more in line with kind of Cynosure’s corporate average? And can you talk about where the R&D dollars and how you allocate that? Where the projects are going to be?

Michael R. Davin

Yeah, I mean, Rich I’ll just comment on. First of all, we’re very excited about the opportunity to bring these two explosive research and development teams together. As you are aware, Palomar has done an outstanding job launching on a regular basis exciting new technologies, as well as our team has done. So we believe it’s going to be a very, very talented team as we bring them together to continue to innovate exciting technologies for the company. As it relates to – maybe percentage of spending going forward, Joe may be you can comment a little bit on the past spending and maybe where we see things going in the future.

Joseph P. Caruso

Sure, hi, Rich. As we have talked about on our conference calls over the last couple of quarters Palomar has made significant investments in not only core technologies but products over the past few years. And it’s one of the driving forces and reasons that this is so exciting to us because we have an enhanced distribution base with both companies and we’re able to launch these products more effectively, not only products we have today, but some of the products we have in the backroom that we have planned.

Richard Newitter – Leerink Swann LLC

Got it. And then maybe I could ask – actually I have two more – one is on the royalty stream, obviously Palomar has one of the stronger IP portfolios in the industry and I believe you had actually been paying royalties to Palomar for certain hair removal patents. Can you quantify just what that’s been and is that material?

Timothy W. Baker

So we do have been the royalty to Palomar based on the Anderson Patents at 7.5% of our hair removal patents, of our hair removal products sales, that has been roughly $2 million a year, what we have been paying to Palomar in those royalties, keep in mind a portion of those royalties then go on to MGH, when we look at this as a combined entity.

Richard Newitter – Leerink Swann LLC

Okay, and okay, got it, so what’s the savings there and does that factored into your synergy assumptions at all?

Timothy W. Baker

Not really, because it’s actually will be a wash in the combined companies.

Richard Newitter – Leerink Swann LLC

Okay. And then as I think about the product overlap and the customer base overlap, can you just quickly go through, which products you think are most complementary, I know you do have IPL technology, but maybe Palomar, is a little bit stronger, so can you say which products do you think would be emphasizing in each of the respective technologies.

Michael R. Davin

Yeah, Rich, Michael here, have you recall when we did a follow-on back in November we commented and the core for raising that money, the primary reason for raising that money is to fill some gaps we had in our portfolio of technology. Two of the gaps, we mentioned were IPL and also fractional technology. With this acquisition Palomar brings the strength of those two missing components to our portfolio, with the company’s portfolio, they have a very, very strong IPL platform both in the Starlux as well as recently launched Icon, and also on those platforms they have fractional technology, which is what we would call gold standard technology.

So we don’t really have an IPL Rich, just to correct your comment, we are all laser based. We made attempts at IPL, but really have been successful with it, so pretty much zero percent of our revenue comes from IPL, and our current portfolio. So with the Icon system, which really is the gold standard out there and Starlux also in the international markets, and also they are fractional with a 15-40 as well as 29-40 fractional. These are great additions to our product portfolio on top of that kind of a bonus that comes along; also this transaction is the diode technology.

They recently launched the Vectus, I think a couple of quarters ago, which is now the world’s fastest diode hair removal system on the market. And then also there is other products such as the Emerge that’s been launched, which is a low-end fractional diode device, and certainly PaloVia also comes from Palomar’s unique diode manufacturing process, and also innovations, so these are three excellent additions to this now very broad portfolio, with both Palomar and Cynosure’s technologies.

Richard Newitter – Leerink Swann LLC

That’s great, and I don’t mean to be greedy, if I could squeeze one last one in the same question, I mean it sounds like the product overlap is fairly minimal and very complementary, can you just talk about the strengths in the international territories where you think you bring more to the table for Palomar to leverage and then vice versa?

Michael R. Davin

Yeah. So Palomar is direct I believe in three countries; Japan, Australia – I am sorry, Spain, and Germany, so four all together. And we are not direct in Australia, so that’s a great new opportunity for the company. And then as you know, we are direct in France and the UK, China, Japan, and Mexico, and Korea. So we’ll now have direct presences in nine, what we call emerging market countries. So this really strengthens our O-US distribution. Also backing an earlier question on IPL, we’d say one third of our addressable market wants an IPL technology and probably 50% or 60% of that is O-US. This now have an ability to bring IPL technology to our worldwide, O-US distribution is going to be a major benefit in our cross-selling efforts into those markets.

Richard Newitter – Leerink Swann LLC

Thanks a lot. I will hop back in line. Thank you.

Operator

Thank you. The next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony V. Vendetti – Maxim Group LLC

Thanks. I was just wondering if we can talk a little bit about the process for approval, doesn’t seem like there will be any FTC concerns. Third quarter, is it possibly to close this earlier? And then, do you want to give any range in terms of what the accretive nature will be and if it will be dilutive initially in the first couple of quarters or at least in 2013?

Timothy W. Baker

Sure. And it is Tim. So just on your timing, as we said earlier, the dealer is subject to customary closing conditions. There will be regulatory approvals required in terms of antitrust obviously. We will require shareholder approval from Cynosure side for the issuance of the shares, for the Palomar side obviously for the deal. It’s hard to put a time on that, because you’ve got regulatory agencies involved. So we are projecting third quarter likely to be sooner, but right now we’re seeing third quarter.

In terms of the synergies, we are really looking – targeting 2014. I mean if this thing closes in the third quarter of 2013, clearly we’ll just be getting our hands around it that point in time and really be focusing on what 2014 looks like. So we are really looking at synergies coming into play in 2014.

Michael R. Davin

And at this point, really we are looking at the 8 to 10. Cost savings, we are not looking to quantify that yet. We will update you more as we get closer to closing the transaction.

Anthony V. Vendetti – Maxim Group LLC

Okay. And you said Mike; you were direct in China, France, Korea, UK, what was the fifth country?

Michael R. Davin

So the nine countries that the new company will be direct. So Japan, Australia, China, Korea, Mexico, yeah then Spain, Germany, France, and the United Kingdom.

Anthony V. Vendetti – Maxim Group LLC

Yeah.

Michael R. Davin

And of course, obviously North America as well with both companies direct as well.

Anthony V. Vendetti – Maxim Group LLC

Sure, sure. And just – I know this is a little bit off the path here, but on PicoSure, that started to sell at AAD, correct?

Michael R. Davin

That’s correct. We officially launched at AAD, that’s correct Anthony.

Anthony V. Vendetti – Maxim Group LLC

Okay, all right, good, all right. Thanks.

Michael R. Davin

You bet.

Operator

Thank you. Then next question comes from the line of Jim Sidoti with Sidoti & Company.

James Sidoti – Sidoti & Co. LLC

Good morning, can you hear me?

Michael R. Davin

Yes Jim, we can hear you fine.

James Sidoti – Sidoti & Co. LLC

Great, I wanted to ask about the retail channel. I know you have a product with Unilever and Palomar had some existing relationship with Gillette. How does this deal affect that and what are the prospects of that going forward?

Timothy W. Baker

Sure, Jim, it’s Tim. So in terms of the home use market, I mean obviously we have our relationship with Unilever. We don’t anticipate any changes to that. I mean we look at the PaloVia opportunity and really PaloVia represents an opportunity to leverage a proven low cost diode technology, other benefits areas in both the consumer and the professional market. So again it’s really good as additional bandwidth and technology to draw from. As I said, right now we will be continuing with our relationship with Unilever and our strategy and really look at the PaloVia as a technology opportunity to use that low cost diode both in the consumer and the professional market.

James Sidoti – Sidoti & Co. LLC

All right. And then can you just tell us what you expect the share count to be starting the second half of this year?

Timothy W. Baker

We’re looking at about 22 million shares to be outstanding in 2014.

James Sidoti – Sidoti & Co. LLC

All right. And I believe you said the direct distribution in the U.S. would be approximately 80 reps?

Michael R. Davin

That’s correct.

James Sidoti – Sidoti & Co. LLC

All right, so how does that transition work out?

Michael R. Davin

In terms of…

James Sidoti – Sidoti & Co. LLC

Well, I am sure you must have quite a bit of geographical overlap right now.

Timothy W. Baker

Yes, actually you know Jim, as you know Cynosure has been very good at diversifying our distribution. If you look in North America, we actually have four different flavors of distribution. And we look to continue with this latest development to continue to expand that, especially now that we’re bringing IPL into the fold or bringing diode into the fold and fractional technology into the fold. So both companies have very strong North American distribution. We’re excited to see how that play’s out.

James Sidoti – Sidoti & Co. LLC

So it sounds like you may have 2 reps in the same territory selling different products?

Michael R. Davin

Potentially.

James Sidoti – Sidoti & Co. LLC

Okay, all right. Thank you.

Operator

Thank you. The next question comes from the line of Bill Plovanic with Canaccord Genuity. Please proceed with your question.

Bill J. Plovanic – Canaccord Genuity, Inc.

All right. Great, thanks, good morning and congratulations.

Michael R. Davin

Thanks Bill.

Timothy W. Baker

Thank you, Bill.

Bill J. Plovanic – Canaccord Genuity, Inc.

Just to leverage off of Jim's question there, in terms of the North American distribution, is it safe to say that you might have a bifurcation of the sales force given the kind of OR focus of the Triplex platform versus the call point with the standard tattoo, hair and other type of products?

Michael R. Davin

Well, Bill I think as you know, we already have a bifurcation, I mean right now we have a surgical sales force that focuses on Cellulaze, Smartlipo, and some of our other products with the addition now of SlimLipo, and Adivive, we are very excited about bringing fat transfer and a diode approach to laser lipolysis into that group. We also have our core group that’s out there selling the hair removal products. We also have onychomycosis or hair removal and some skin rejuvenation as well as pigment products. We have our onychomycosis sales force or that’s out there focused on the podiatry market, and then we also have our junior rep sales force. So we have today in our platform of distribution four different kind of call points or four different flavors of distribution. And now as I mentioned to Jim, with adding IPL, a true gold standard IPL platform and also fractional and a diode platform, we can see even broadening the distribution into additional bifurcation. So we’re excited about where this can take us in North America and worldwide.

Bill J. Plovanic – Canaccord Genuity, Inc.

Okay, okay, that's fine. And then just – one of the things I think the last time I was out there visiting you, it was painfully obvious you were really in need of more space. Had you already leased new space?

Michael R. Davin

No, now we have an existing lease that we’ve been in here. We’ve been building here seven plus years. So we were actually looking at expanding our space, but now I think we’ve done that solution.

Bill J. Plovanic – Canaccord Genuity, Inc.

Okay. So you have never signed anything, so you are not committed at this point?

Michael R. Davin

Not beyond our current lease restrictions that we’ve also had.

Bill J. Plovanic – Canaccord Genuity, Inc.

And your current lease runs through?

Michael R. Davin

2017.

Bill J. Plovanic – Canaccord Genuity, Inc.

Okay.

Michael R. Davin

2018.

Bill J. Plovanic – Canaccord Genuity, Inc.

Okay. Again great, congratulations, thank you.

Michael R. Davin

Thanks Bill.

Timothy W. Baker

Thanks Bill.

Operator

Thank you. The next question comes from the line of Paul Nouri with Noble Equity Fund. Please proceed with your question.

Paul T. Nouri – Noble Equity Funds

Hey, good morning.

Michael R. Davin

Good morning.

Paul T. Nouri – Noble Equity Funds

On Palomar's 10-K they listed having $39 million in net operating loss carry-forwards. Should you guys be able to use that over the next couple of years?

Michael R. Davin

Yes, yes we will be.

Paul T. Nouri – Noble Equity Funds

Okay. And looking at the R&D, I mean I imagine you have some overlap. So even if you don't bring down the overall dollar spend with the combined companies, is it going to be the case where maybe you can focus resources on some projects and then put other resources towards new projects you otherwise might not have been able to?

Michael R. Davin

Yes, that’s definitely one way we’re looking at it.

Paul T. Nouri – Noble Equity Funds

And what percent of revenues when the company as combined is going to come from things like royalty, service and consumable versus equipment sales?

Michael R. Davin

It’s right around – I think service is – I think it’s somewhere – Tim, I am sorry.

Timothy W. Baker

So, on a combined basis pro forma back 12.31 – 12 on a combined basis, the company $234 million in revenue, about 80% of that will be product, about 16% will be service and 5% will be comprised as of 12.31 with royalty and other. It’s about 5%.

Paul T. Nouri – Noble Equity Funds

And Palomar has been doing around $6 million to $7 million a year in royalties, how long is that kind of trajectory is sustainable for you?

Timothy W. Baker

2015.

Paul T. Nouri – Noble Equity Funds

And then will it totally drop off or just reduce?

Timothy W. Baker

It drops off – totally drops off at that point.

Michael R. Davin

As it relates to the Anderson Patents.

Timothy W. Baker

Right.

Paul T. Nouri – Noble Equity Funds

Okay. All right, I’ll get back in the queue. Thanks.

Timothy W. Baker

Thanks.

Operator

Thank you. The next question comes from the line of [Andy Shopick], a private investor. Please proceed with your question.

Unidentified Analyst

Thank you very much. The prior question has raised a couple of interesting points. After the Anderson Patents drop-off, there has been considerable litigation at Palomar’s pursuit over the years and it has been successful. Those royalties from other manufacturers, there will be some component that will accrue to you, whether or not in terms of future ongoing royalties?

Joseph P. Caruso

Sure. This is Joe. Those license agreements stay in effect. So the royalties that we have been enjoying over the past years will continue until the expiration of the Anderson Patents, and at that point, we will take a look at other things.

Michael R. Davin

Yeah. And Andy, the expiration of the Anderson Patents is at the beginning of 2015.

Unidentified Analyst

Okay. Tim, a couple of questions for you. The issue of NOL’s was raised and obviously there is a positive effect, I would think on the bearing of your tax rate going forward until those NOL’s are utilized. Clearly I recognize that there will be a lot of preparation of pro forma going forward. But can you give us any color on what you think the overall benefit to your future tax rate might be upon closing of this deal?

Timothy W. Baker

Yeah, Andy, obviously we do look at that as an asset in the acquisition, but at this point in time, it’s too early to kind of quantify that and the timing of that. So we will keep you updated as we move forward into it, but we’ll look at that as an asset, but the timing will still be determined.

Unidentified Analyst

Okay, Tim, any concerns about Hart-Scott-Rodino in terms of looking at this deal?

Timothy W. Baker

We need to go through the process, obviously there is a number of competitors in our space, this clearly continues as a dealer in our space, but we feel there is quite of bit competition out there still, so we’re not concerned, but we need to go through the process.

Unidentified Analyst

Okay, two quick ones here, when do you think pro forma’s will become available in terms of future documents.

Timothy W. Baker

Sorry Andy, what stock?

Unidentified Analyst

Pro forma preparations will they became available any time?

Timothy W. Baker

No, until we get to the close, again we obviously have to get through all the purchase accounting exercise and allocation to purchase price, so it will be obviously post close. So probably third quarter.

Unidentified Analyst

Okay, and last one Joe, obviously the companies will continue to operate as independent entities prior to the closing, is it your intention to conduct conference calls for the upcoming future quarters this year until deal close?

Joseph P. Caruso

Yes, that’s correct.

Unidentified Analyst

Thank you very much, and best of luck.

Joseph P. Caruso

Thank you.

Scott Solomon

Thanks, Anderson.

Operator

Thank you. Our next question is a follow-up question from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony V. Vendetti – Maxim Group LLC

Yes, I just want to ask another question on the patents, I know they expire at least the Anderson Patents in February of 2015, but there have been a discussion about the patent strategy going forward in terms of obviously Palomar has been forcing those patents, and they have other patents that you mentioned that I’m aware of as well, has there been a discussion about what your strategy might be as a combined company going forward on the patent front?

Michael R. Davin

Yeah, Anthony, Michael as you know both companies have strong patent portfolios, with greater than 80 patents now with the combined company, and it is the same for Cynosure, if you are going to look at the two patents we recently have issued on PicoSure, which is a very imporant technology for us going forward, where it makes good business strategic sense we will enforce our intellectual property, and in the same breath as we continue to innovate collectively as companies, and we continue to plan that to be our cornerstone of our company’s innovation, we’re going to surround our innovation with strong intellectual property. So we’ll see how that plays out, but we’re very pleased to have such a strong portfolio of IP.

Anthony V. Vendetti – Maxim Group LLC

Okay, and then just as a follow-up, I think Joe, I think he said specifically so when February 2015 rolls around, the royalities that Palomar has been collecting on the Anderson Patents cease at that time, is that correct?

Joseph P. Caruso

Okay.

Anthony V. Vendetti – Maxim Group LLC

All right, great thanks guys.

Scott Solomon

Thanks, Anthony.

Operator

Thank you. The next question is from the line of Rich Newitter with Leerink Swann. Please proceed with your question.

Richard Newitter – Leerink Swann LLC

Thanks for the follow-up. Two quick ones, just on the tax questions. I know you are reluctant to say what it's going to look like, but I mean, can you give us any order of magnitude of – for modeling purposes should we think of this as Cynosure's tax rate or the combined entity will be lower by a magnitude of – I don't know, 300 bps or more?

Timothy W. Baker

Yeah, Rich, it’s Tim. I think it’s still too early to tell, because the other thing with the NOLs, we need to look at what comprises of those NOLs. So a portion of these NOLs will be going straight to APAC. So it doesn’t actually go through the book tax rate and you’re going to get more into whether your cash tax is paid, whereas what is the effective book tax rate. So again, we don’t want to give any wrong information that people thinking a certain rate when effectively the cash tax will be a much different rate. So again we’ve got to figure that all out and we’ll keep you posted.

Richard Newitter – Leerink Swann LLC

Okay. And then, can you give us a sense of what the anticipated cash of the combined entity will be?

Timothy W. Baker

So on a pro forma basis for the transaction as of 12/31/2012 would be $87 million.

Richard Newitter – Leerink Swann LLC

I’m sorry, cash flow or free cash flow.

Timothy W. Baker

No, we’ll have to update you on that as we get the model together.

Richard Newitter – Leerink Swann LLC

Okay. And maybe just one last one. Is there a possibility that you may begin to issue guidance once the deal closes given the significantly stepped up size of the organization?

Timothy W. Baker

Yeah. we don’t anticipate that.

Richard Newitter – Leerink Swann LLC

Okay. Thanks a lot guys.

Timothy W. Baker

Yeah.

Operator

Thank you. Our next question comes from the line of Steve Velgot with ICAP. Please proceed with your question.

Stephen Velgot – ICAP Corporates LLC

Yeah. I had a quick question on the collar. Could you describe that in any way before the merger agreement is filed?

Timothy W. Baker

Sure, it’s Tim. So basically the collar is a 20% band across the purchase price. You see 15 on the downside and five on the upside, but really the details will be in the merger agreement which will be filed shortly.

Stephen Velgot – ICAP Corporates LLC

Great, thank you.

Timothy W. Baker

You’re welcome.

Operator

Thank you. Our next question is a follow-up question from the line of Paul Nouri with Noble Equity Fund. Please proceed with your question.

Paul T. Nouri – Noble Equity Funds

Does the increased level of absolute sales on the greater resources will it allow you to go direct in international markets where you haven't been?

Michael R. Davin

Paul, that’s a good question. We believe our direct presence is very strong right now with the combined companies and the key markets. but yes, we will be looking at other countries where the opportunity presents itself obviously in a positive formula, but we will go great. So – yes, there is additional opportunities to go direct in other countries where we are not direct today.

Paul T. Nouri – Noble Equity Funds

And were there any significant banking fees in the fourth quarter 2012 that we could take out for this year or?

Michael R. Davin

No, all the fees are incurred in 2013.

Paul T. Nouri – Noble Equity Funds

Okay, thanks.

Michael R. Davin

You’re welcome.

Operator

Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. Davin for any closing comments.

Michael R. Davin

Thank you, Operator. Thank you for joining us on short notice. This is an exciting announcement from both companies and we look forward to sharing our progress as we move toward completing the deal. Thank you and have a great day.

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