Cynosure's CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.30.13 | About: Cynosure, Inc. (CYNO)

Cynosure Inc. (NASDAQ:CYNO)

Q1 2013 Earnings Call

April 30, 2013 9:00 am ET

Executives

Scott Solomon - VP, Sharon Merrill Associates

Michael Davin - President & CEO

Tim Baker - EVP & CFO

Analysts

Matthew Dodds - Citigroup

Rich Newitter - Leerink Swann

Anthony Vendetti - Maxim Group

Jim Sidoti - Sidoti & Company

Andy Schopick - Nutmeg Securities

Bill Plovanic - Canaccord

Operator

Good day and welcome to Cynosure’s First Quarter 2013 Conference 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, Webb, and good morning, everyone. Thank you for joining us today. With me on this morning’s call are Michael Davin, Cynosure’s President and Chief Executive Officer; and Tim Baker, Executive Vice President and Chief Financial Officer.

Michael will begin today’s call with a discussion of Cynosure’s first quarter results and a business overview. Tim will take you through the financials, after which management will take your 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.

Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including those discussed in Cynosure’s most recent Annual Report on Form 10-K, for the year ended December 31, 2012, which was filed with the SEC on March 8, 2013 and any subsequent filing of quarterly report on Form 10-Q, which are filed with the SEC.

In connection with the proposed transaction between Cynosure and Palomar, Cynosure filed a registration statement on Form S4 file number 333187895 with the SEC on April 12, 2013. The registration statement includes a joint proxy statement of Cynosure and Palomar that also constitutes a prospectus of Cynosure. Palomar and Cynosure also planned to file other relevant documents with the SEC regarding their proposed transaction. Investors are urged to read the joint proxy statement prospectus and the other relevant documents filed with the SEC, if and when they become available because they contain or will contain important information. These filings can be accessed on the Investor Relations section of the company’s website www.cynosure.com.

In addition, any forward-looking statements represent the company’s views as of today, April 30, 2013. These statements should not be relied upon as representing the company’s views as of any subsequent date. While Cynosure may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so.

During today’s call management will refer to adjusted net income and adjusted net income per share. These metrics are non-GAAP financial measures which the company believes hope investors to gain a meaningful understanding of Cynosure’s cooperative results exclusive of acquisition related expenses and can also help investors who wish to make comparisons between Cynosure and other companies on both a GAAP and a non-GAAP basis. For more information on these non-GAAP financial measures please see the discussion and reconciliation table included in this morning’s earnings release. The table has more details of the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

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

Michael Davin

Thank you, Scott and good morning everyone.

First quarter of 2013 was highlighted by the U.S. launch of our newest flagship product PicoSure Picosecond Laser Workstation. PicoSure is the world’s first Picosecond Laser indicated for the removal of tattoos and benign pigmented lesions.

We unveil PicoSure for the Cynosure team during our national sales meeting in January and for the public at the American Academy of dermatology annual meeting in March. Along the successful introduction at AAD demand for PicoSure has been very positive. With the revenue ramp up slightly steeper than we had anticipated at this point post launch. We did begin shipping the first PicoSure units at the end of Q1 but in limited quantities. But we do not breakout revenue by individual product PicoSure is on pace to achieve the 10 million sales target we have historically established for the introduction of our flagship laser systems in their first full year on the market.

We began introducing PicoSure in the U.S. to key opinion leaders and other luminaries and aesthetic dermatology and plastic surgery, their report seeing excellent results in terms of tissue reaction and inclearance with the Picosecond pulse.

In addition to clearance in the U.S., we recently received the European CE Mark for PicoSure, allowing us to sell the device in the European Union. We will make the device available in the second quarter through our direct sales offices in Germany, Spain, France and the United Kingdom. We anticipate minimal revenue from the European launch of PicoSure in the second quarter with an increasing sales as we move toward the end of 2013.

A presentation of clinical data and the publication of scientific research have played an important role in conveying the benefits of our aesthetic technology to physicians. That remains a prominent aspect of our PicoSure strategy. Four abstracts describing the safety and efficacy of PicoSure were accepted for presentation at last month’s American Society Laser Medicine for Surgery Meeting held in Boston.

Including the previous, excuse me paper previously presented at AAD we now have 8 clinical publications on PicoSure. The data from the abstracts demonstrates a laser’s ability to breakdown and cleat the ink particles more quickly than established treatment modalities. Better results in fewer treatments with minimal discomfort no downtime produced high levels of satisfaction among patients and physicians.

Another important aspect of the research presented at the ASLMS is the improvement PicoSure demonstrated and improving other aesthetic indications such as acne scaring and stretch marks both of which are also large indications. We are currently in the process of seeking expanded clinical indications of PicoSure beyond tattoos and pigmented lesions.

Turning to Cynosure’s performance in the first quarter, we continued our momentum in 2013 posting our sixth consecutive profitable GAAP quarter and increased revenue favorable product mix and continued operating leverage.

Revenue increased 19% from the first quarter of 2012 to $40.7 million, non-GAAP net income after adjusting for the expenses associated with our pending acquisition of Palomar with $0.12 per share. Including the transaction related expense our GAAP net income per share were $0.07. By way of comparison, GAAP net income for Q1 of 2012 was $0.8 million or $0.06 per share.

Laser product revenue increased 21% from the first quarter of 2012 to $34.1 million, with 52% from product sold outside of North America and 48% of the total coming from product sold in North America.

It’s very important to note that international laser product revenue marked the best quarter for our overseas business in Cynosure’s 22 year history. Each of our distribution channels posted year-over-year revenue gains with significant growth coming from our North American direct sales channel, third-party distributors and our Asia-Pacific subsidiaries, which were up 60% over the first quarter of 2012.

In particular our subsidiaries in China and Japan performed quite well during the quarter. Over the past several quarters we made a number of organizational changes in Japan and the new personnel have really embraced the opportunity to expand their business.

Obtaining regulatory clearances in key markets is essential part of our international growth strategy. In recent months, we received a number of marketing clearances including Cellulaze Cellulite Laser Workstation in Colombia, Saudi Arabia and Singapore. The Elite+ and Apogee+ systems in Korea, Saudi Arabia and our RevLite and MedLite C6 aesthetic lasers in Australia. We remain active in terms of filing for new marketing clearances internationally.

Turning now to some domestic growth drivers. With our recent innovations in the minimally invasive market, we continue to transform Cynosure from an indication specific aesthetic device company to a recognized brand delivering value across the entire aesthetic surgical suite. Our technology is addressing lucrative, high volume opportunities top treat not just one isolated aesthetic problem area. But multiple areas have required varying energy wave lengths and deliver systems.

Example of this evolution is evidenced by our minimally invasive Cellulaze Cellulite Laser Workstation, which we introduced in the U.S. last year. In addition to its effectiveness in treating large areas such as thighs and buttocks for cellulite, we have also introduced an enhanced delivery system called Precision TX. The compact design of Precision TX allows for the contouring of the lower face, jaw line and neck as well as targeted ablation of ancillary sweat glands that cause excessive underarm sweating a condition known as Axillary Hyperhidrosis. Physician and patient response to Precision TX has been exciting, it speaks roughly to the value, we bring as the leader in minimally invasive aesthetic laser technology.

Since 2006, we have expanded our aesthetic surgical platform with Smartlipo MPX, Smartlipo Triplex, Cellulaze and now Precision TX. To the development of innovative and (inaudible) energy and delivery systems we are helping our customers to expand their minimally invasive aesthetic practice.

Before concluding my prepared remarks, let me comment briefly on the anticipated closing of our acquisition of Palomar Medical Technologies. As you may have seen last week, we announced that our annual stockholder meeting will be held on June 24, 2013. At the meeting our stock holders will be asked to approve the acquisition of Palomar. Assuming stockholders from both companies improve the transaction, we expect the acquisition to close by the end of June 2013. Just announcing the definitive agreement to acquire Palomar on March 18, we have grown even more excited about the complementary nature of the transaction. This transaction will combine two outstanding companies to create a worldwide leader in laser and light basis aesthetic technology which we expect to have ample opportunity for additional growth.

In closing we are off to a strong start in 2013, in addition to our pending acquisition of Palomar, we have several catalysts on the horizon that position us for a continued momentum this year and beyond.

With that, let me turn the call over to Tim for his financial review. Tim?

Tim Baker

Thanks Mike, and good morning everyone.

Total revenues for the first quarter increased 19% from the first quarter of the prior year to $40.7 million reflecting top-line growth across all geographic regions.

Looking at our Q1 revenue in more detail laser product revenue was up 21% to $34.4 million or 84% of total revenues compared with $28.1 million or 82% of total revenues for the first quarter of 2012.

Services and parts revenue grew 8% in the first quarter to $6.6 million compared to $6.1 million in the first quarter of 2012. By territory North American laser product revenue increased 20% to $16.3 million from $13.6 million in the first quarter of 2012. North America accounted for 48% of total laser product revenue in the first quarter consistent with 48% for the first quarter of 2012.

Average selling prices remained strong and the lending environment for aesthetic capital equipment continues to be favorable. International product revenue was a record $17.8 million up 22% from Q1 of 2012 accounting for 52% of total product revenue again consistent with Q1 of 2012 which was also 52%.

Each of our distribution channels posted year-over-year gains with particularly robust growth coming from our North American distribution our Asian subsidiaries and third-party distributors.

On an adjusted basis, excluding $0.18 million in costs net of tax associated with the company’s pending acquisition of Palomar non-GAAP net income for the first quarter of 2013 was $2.1 million or $0.12 per diluted share. GAAP net income which includes the acquisition related costs was $1.2 million or $0.07 per diluted share for the first quarter of 2013 compared with $0.8 million or $0.06 per diluted share for the first quarter of 2012.

Please see this morning’s news release for a reconciliation of non-GAAP Q1 results to the most directly comparable GAAP results. Gross profit margin on a GAAP basis in Q1 increased to 58.2% compared with 57.1% for the same period of 2012. The increase in Q1 gross margin reflected a favorable product mix and strong selling prices. On an adjusted basis excluding the acquisition related costs total operating expenses for the first quarter of 2013 were $20.6 million or 51% of revenues.

On a GAAP basis, including expenses related to the acquisition, total operating expenses for the first quarter of 2013 were $21.7 million or 53% of revenues compared with $18.7 million or 55% of revenues for the first quarter of 2012.

The increase in operating expenses exclusive of acquisition costs was primarily due to higher selling and marketing expenses to support sales growth, research and development costs associated with PicoSure and clinical research development.

Looking at expenses in more detail, selling and marketing expenses increased by approximately $1 million in the first quarter to $12.6 million, up from $11.6 million in the first quarter of 2012. The increase primarily reflects higher selling and remarketing expenses to support sales growth and the PicoSure product launch.

On a percentage basis, selling and marketing expenses accountable for approximately 31% of revenues in Q1, a decrease compared to 34% of revenue in the same quarter of 2012.

By way of background, we exited the first quarter with approximately 44 sales reps in North America, including management up slightly from 42 sales reps in Q4. Research and development expenses totaled $3.8 million in Q1, 2013, up approximately 542,000 or 17% from the same period in 2012. The increase is primarily attributable to the development of our Picosecond Alexandrite laser technology. R&D expenses were 9% of revenues consistent with the same quarter in 2012.

General and administrative expenses increased approximately $1.6 million to $5.1 million compared with $3.5 million in Q1 of 2012. The increase relates primarily to expenses related to the acquisition incurred in the quarter. G&A expenses increased approximately 13% of revenues in Q1 of 2013 from approximately 10% for the same period in 2012 due primarily to the acquisition related expenses.

Cynosure concluded the quarter with approximately $147 million in cash and equivalence and we have no long-term debt. We generated approximately $0.8 million in cash from operations for the three months ended March 31, 2013. Day sales outstanding were 46 days at the end of the first quarter up from 38 days in the fourth quarter primarily reflecting the timing of laser product revenue in the first quarter of this year as well as increased contribution from the international markets.

Echoing Mike’s comments, the Palomar transaction in on track to close by the end of June pending approval by stockholders of both companies. As a reminder, at the close of the transaction, we expect to have approximately 22 million shares outstanding in a pro forma cash balance of approximately $87 million as of December 31, 2012. We continue to expect the acquisition to be accretive to Cynosure in calendar 2014 with eight to $10 million in projected synergies.

With that, we are ready to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting your question-and-answer session. (Operator Instructions) Thank you. Our first question is from Matthew Dodds of Citigroup. Please proceed with your question.

Matthew Dodds - Citigroup

Hey, good morning. I give you three quick ones for Palomar, did you get U.S. or European antitrust clearance yet and if not do you expect them soon? That’s one.

Tim Baker

Yes. This is Tim. Yes. We are cleared with both domestic and international clearances.

Matthew Dodds - Citigroup

Okay. And then on Europe, I think you said every region was up, the capital markets been pretty tough so far based on reporting in Q1, can you say how your trends were in Europe in the first quarter and what your expectation might be if it’s changed?

Michael Davin

Yeah, it’s Michael. So, in terms of the four offices and the European overall business including the distributors was up came as a percentage 6% our European direct subs were up 6% for the quarter.

Matthew Dodds - Citigroup

Right.

Michael Davin

Just as a reminder that’s Germany, Spain and France and the UK.

Matthew Dodds - Citigroup

How that trend versus the fourth quarter, Michael?

Michael Davin

Yeah, sequentially they are down again but Q1 is typically sequentially down quarter. Within the European subs directly, I mean, we’re much stronger, France had a very good quarter, Germany had a good quarter, UK is basically flat but Spain is still continuing to struggle. So, within that section, all of them were effectively up, except for Spain.

Matthew Dodds - Citigroup

And then one last one, poor net interest, you’ve got a $147 million in cash and the net interest was zero. And what I’m missing on the math?

Michael Davin

Well, we’ve got interest expense set against that with capitalize leases.

Matthew Dodds - Citigroup

Okay.

Michael Davin

It’s a big thing. And again a lot of the money is sitting there for liquidity given the acquisition.

Matthew Dodds - Citigroup

Got it. All right, thank you, Tim. Thank you, Michael.

Tim Baker

Yes.

Michael Davin

Thanks Matt.

Operator

Our next question is from the line of Richard Newitter of Leerink Swann. Please proceed with your question.

Rich Newitter - Leerink Swann

Hi, guys, thanks. Just on PicoSure, I was just, I might have missed some of the call earlier but did you mention what if any contribution there may have been from initial shipments, I know it didn’t loss at the end of the quarter but did you provide that?

Michael Davin

Rich, we mention that there were light shipments at the end of Q1.

Rich Newitter - Leerink Swann

And any rough quantification of that was it that less than a million dollars or more?

Michael Davin

As we mentioned, we don't breakout product by revenues, so we did not mention any contribution as it relates to an actual dollar figure. But as I mentioned, we were pleasantly pleased with the activity around PicoSure and the launch and we do expected to contribute very nicely in the second quarter.

Rich Newitter - Leerink Swann

And can you maybe talk a little bit about how we should model the ramp from a product like PicoSure, if demand is trending a little bit stronger, is it still likely going to be weighted towards the back half or 2Q possibly even going to be a little bit bigger than what you had originally anticipated?

Michael Davin

No, I think, it was sorted to be weighted for its back half especially not that we received a CE Mark, but we do not expect much of our contribution in Q2, we’re ramping up with the training and we’re getting our marketing setup in Europe. And so with the combination of Europe and North America, we would expect more significant contribution to be in Q3 and Q4 of this year.

Rich Newitter - Leerink Swann

Got it. And just based on our, some of our preliminary conversations with physicians, it sounds like PicoSure is peaking interest in other indications outside of even pigmented lesion and tattoo. Can you talk a little bit about how this would be kind of a platform technology and when and how those indications might begin to evolve?

Michael Davin

Sure. And as you know right now, our current clearances are for tattoo removal and benign pigmented lesions but to your point, a number of the physicians have acquired the technology early on as they get the technology, already telling us they plan to treat other indications because they were very excited about the nature of this (trend) of the second pulse and what it can offer for clinical outcome also safety profile. Also in our research facilities, both the New York and Boston would be expanding that now that we are shipping additional technology. They have already begun to travel into other indications under clinical protocols that we are driving with them and as I mentioned, we have seen some real nice results and papers that were accepted and presented at the ASLMS, acne, scarring and also striae or stretch marks. And we are hearing additional strong interests from those sites as it relates to treating other indications.

So, we do believe this device over time will continue to expand with indications in terms of treating a variety of indications in the same and a parallel path will also be moving from a regulatory perspective and getting additional recurrences beyond pigmented lesions and tattoo removal.

Rich Newitter - Leerink Swann

Great. And then Tim, just what was the medical device tax impact this quarter and where is that booked?

Tim Baker

It’s booked in revenue and cost of sales. It’s about a $174,000.

Rich Newitter - Leerink Swann

Great. Thanks a lot guys. Great quarter.

Michael Davin

Thanks Rich.

Operator

Our next question is from the line of Anthony Vendetti of Maxim Group. Please proceed with your question.

Anthony Vendetti - Maxim Group

Thanks. Just wanted to ask a couple of more questions on PicoSure. So, right now can you talk a little bit about the consumables and what the ongoing warranty would be – just to get a better idea of the recurring revenue stream. And then I just wanted to ask some questions on Precision TX.

Michael Davin

Sure. So in terms of consumables or PicoSure at this point for the current launch, there is not a consumable Anthony associated with it. But we do plan to launch our unique CAP Array Technology with some research side utilizing right now for additional indications, that should be available within six months to our customers in the installed base and that will be disposable revenue generator.

If you recall, our Affirm Skin Rejuvenation device was the first product in which we introduced the CAP technology and now we will be launching a flavor of CAP technology with PicoSure. And we expect that to be at the later part of the third quarter or early in the fourth quarter. And we have not put a price on that as of yet.

In terms of service contract opportunity similar to our other fleet of technology or post the one-year warranty, doctors have a variety of options to acquire a service contracts to maintain the technology and usually, I guess what we call the bumper to bumper program would be around 10% of the sales price of the device.

Anthony Vendetti - Maxim Group

And ASPs right now around 250, is that about right?

Tim Baker

The list price on the device is 295 and we haven’t really commented on ASPs but it’s certainly north of $200,000.

Anthony Vendetti - Maxim Group

Okay. And just to understand a little bit more on the consumable is that going to be for benign pigmented lesions and tattoos or is that CAP technology going to be for the new indication when you get FDA approval for acne, scaring, and striae?

Michael Davin

We don’t see playing a role in tattoo. But we definitely see playing a role in the current clearance of benign pigmented lesions especially as it relates to skin toning which we believe there is a significant demand for this indication in the far east and then it will also be used Anthony as part of the additional indications that we are pursuing regulatory clearances for. Yes.

Anthony Vendetti - Maxim Group

Any timeframe have you submitted yet to the FDA for those other indications, can you give us any color on that?

Michael Davin

Yes. We are working very closely with the research sides, our clinical team and regulatory team are gathering the data to submit to the FDA. Currently, we have not submitted anything additional at this point, but we are very close to that. And in the clearances as I stated are right now directly associated with benign pigmented lesions and tattoo removal.

Anthony Vendetti - Maxim Group

And then lastly on the Precision TX to hyperhidrosis product, that’s certainly a positive surprise, can you talk about where that’s at and sort of what the timeframe is for making that commercially available?

Michael Davin

And Precision TX is not just associated with hyperhidrosis that is just one indication. We have seen a significant movement from our physicians and that were utilizing our Smartlipo Triplex with a larger delivery systems wanting to address facial areas, the neck into the cheek area. So what we have done with Precision TX, as we have introduced a new line of delivery systems which encompass our side fire technology and also our thermal sensing with our thermal guide.

This allows doctors introduce a smaller delivery system into these more delicate areas to sculpt the face and to also coagulate tissue for contouring. But on the top of that we have also had doctors said, if had a strong interest in using our minimally invasive approach with – we did some of the procedures, when they reason the Smartlipo delivery systems for hyperhidrosis. Once again (inaudible) in those delivery systems were a little bulky and large. We have also created a delivery system that allows them to introduce it into the actual area and built the treat sweat glands directly and a Precision type approach where they can direct the energy right into the sweat gland or they can coagulate and they can also address to the less trauma than some of the larger instruments what we have introduced.

So, w are excited about not only hyperhidrosis but about being able to allow the physicians to travel under the skin, in some of these delicate areas with smaller instruments but also given the capabilities of the tissue tightening as well as we have been able to sculpt those areas, I think they can with the Smartlipo technology.

Anthony Vendetti - Maxim Group

So right now that would be physicians just using the product off label, but are you also in the process of submitting for FDA for hyperhidrosis as well?

Michael Davin

Well, we actually have an approval for the treatment of sweat glands. So that’s approved, they can do that currently today. And then what they are doing in the face and neck would fall under our Smartlipo approvals.

Anthony Vendetti - Maxim Group

Okay, and then…

Michael Davin

So those indications are not off label, they fall under our regulatory clearances.

Anthony Vendetti - Maxim Group

Okay, great. And then Tim just the stock-based comp please?

Tim Baker

Sure, Anthony. For Q1, sales and marketing is $224,000, R&D is $141,000, G&A is $421,000 and there is about $40,000 in COGS.

Anthony Vendetti - Maxim Group

Okay, great. All right, great. Thanks guys.

Tim Baker

Yeah, thanks Anthony.

Operator

Thank you. (Operator Instructions). The next question is from the line of Jim Sidoti of Sidoti & Company. Please proceed with your question.

Jim Sidoti - Sidoti & Company

Good morning. Can you hear me?

Michael Davin

Yes, Jim. How are you doing?

Jim Sidoti - Sidoti & Company

Good, good. I apologize if some of these questions have been asked. I have had a couple of calls going on once today, but the acquisition expenses I believe it was about $1.1 million pre-tax, is that booked in the SG&A line primarily?

Tim Baker

Yes. It’s all in the SG&A line.

Jim Sidoti - Sidoti & Company

Okay. And did you break out the U.S. sales growth for the quarter and the international sales growth?

Tim Baker

Sure. So U.S. sales growth North America was 20%, year-over-year, and international was 22% year-over-year.

Jim Sidoti - Sidoti & Company

And can you update on the Unilever agreement?

Tim Baker

The agreement is no change to the agreement as we have said all long. We continue to move towards commercialization. We are expecting commercialization in 2013, really it’s up to Unilever now to put their launch plans in place and we are waiting to hear kind of final dates from them.

Jim Sidoti - Sidoti & Company

Okay. But do you still expect that to happen sometime this year?

Tim Baker

We hope so, yes. Yeah, again it’s really a Unilever’s core in terms of their market launch timing and we are supporting that, but we do still anticipate that.

Jim Sidoti - Sidoti & Company

All right. And we are about 6 weeks or so since you announced the Palomar acquisition. With the additional time you had for due diligence any changes to your outlook there?

Tim Baker

No changes, as I mentioned. We were very excited about bringing these two great companies together and believe the combination is going to be an awesome force in the industry and get more and more excited about this opportunity. It’s going to look like post to close.

Jim Sidoti - Sidoti & Company

Okay. And you still expect that to close in the second – right in the second or in the third quarter that’s got a timeframe or?

Michael Davin

Well, we actually mentioned last week we announced Jim that we have our stockholder meeting on June 24 with the anticipation of the shareholders of both companies moving on the transaction. So we are hopeful the close of transaction at the end of this quarter.

Unidentified Analyst

Okay. All right. And I know historically you haven’t given guidance but typically revenues built throughout the year organically and is there anything that you see out there that would make this year different from previous years?

Michael Davin

No.

Tim Baker

But, Jim, they do build but they sequentially Q3 is typically a down quarter from Q2. So Q2 is our strongest going into Q4, strongest for the full year, so typically Q1 is our weakest and then Q3 is our second weakest.

Unidentified Analyst

Okay, all right. Thank you.

Tim Baker

Yes.

Michael Davin

You are welcome.

Operator

Our next question is coming from the line of Andy Schopick with Nutmeg Securities. Please proceed with your question.

Andy Schopick - Nutmeg Securities

Thank you and good morning. Couple of questions for you, Tim, the shareholder votes are these simple majority votes by both companies do approve the acquisition?

Tim Baker

We need to have (inaudible) obviously, so we need to have the majority of the votes that are cast and Palomar is at 50% of the shareholders approve it.

Andy Schopick - Nutmeg Securities

Okay. And acquisition related expenses in 2Q, can you give us any color on how you expect those acquisition expenses to track?

Tim Baker

I mean, its still a little early, obviously a lot of work has been done in Q2, we will break those out as we get to the end of Q2 and the people know typically what those are but right now its probably still too early to put a number on it.

Andy Schopick - Nutmeg Securities

All right. My understanding is that G&A which was up $1.6 million in the quarter year-over-year consisted of about $1.1 million of Palomar related acquisition cost?

Tim Baker

That’s correct.

Andy Schopick - Nutmeg Securities

So there is another 500,000 of G&A that is accounted for by primarily what?

Tim Baker

Typically legal and stock comps in G&A.

Andy Schopick - Nutmeg Securities

And would you repeat what stock comp was in total for the quarter?

Tim Baker

$840,000.

Andy Schopick - Nutmeg Securities

$840,000. And I also thought I heard you say that cash flow from operations was a positive $800,000, is that correct?

Tim Baker

That is correct, yeah.

Andy Schopick - Nutmeg Securities

Okay. And finally, again, it maybe too early for you to answer this, but you have any color on what goodwill and intangibles are likely to look like take a bracket that for us in terms of the Palomar related deal?

Tim Baker

Yeah. We are obviously going through all of our purchase accounting analysis now and getting our fair market appraisals, so that’s an ongoing process. And we will get some more clarity as we get closer to the close.

Andy Schopick - Nutmeg Securities

Okay. Thank so much.

Tim Baker

Thanks Andy

Operator

Our next question is from the line of Bill Plovanic with Canaccord. Please proceed with your question.

Bill Plovanic - Canaccord

Great. Can you hear okay?

Michael Davin

Yes, Bill, how’re you doing?

Bill Plovanic - Canaccord

Good, good, hold on for a moment. I just had a couple of questions, one, you may have answered this just if you look at the company post the merger, how much revenue dis-synergies do you think they will be from overcrossing, overlapping product lines?

Michael Davin

Dis-synergies? Yeah, I’m not hearing you very clearly. We don't believe there will be, much at all. I think our feeling is, if anything there is a great cross-selling opportunities on a synergistic standpoint, realizing Palomar has really been more in that, laser IPL Fractional and diode world. And we are in a different world as it relates to our very laser focused devices and then also the minimally invasive world as well with our broad platform and certainly, I being able to add their products as it relates to minimally invasive. So we see a great cross-selling opportunity with the technology, we don't see dis-synergies as far as generating revenue.

Bill Plovanic - Canaccord

Okay. And then switching topics as you look at the Cellulaze product, I mean that’s been a big success for you, I think the original data we saw it was a temporary, do you have any longer term data yet or do you expect longer term data that could support that this could be one, two, three year or permanent solution?

Michael Davin

Yeah, Bill, it’s a great question. Actually, at the American Society for Laser Medicine and Surgery meeting, this past – at the beginning of this past month in Boston. There was a paper accepted by Doctor Barry Di Bernardo and Doctor Gordon Sasaki in a multi-center study that presented three year data following, I believe was 11 subjects out three years which still like a significant clinical result with minimal to know resolution or I guess recession on the Cellulaze.

So that paper was very well received in ASLMS and then about a week later, it was also presented at ASAPS, the American Society for Aesthetic Plastic Surgery in New York City which was very important because that particular venue and that physician base is aesthetic surgical centric. And so that data was presented once again three year data, there’s never been three year data presented on the treatment of Cellulaze, the long lasting clinical results. So, we’re very pleased that paper was accepted by ASLMS it will be published and available to our physicians to be able to see the significance of the clinical data out three years.

Bill Plovanic - Canaccord

And do you think that’s enough for a submission to the FDA to get a label or is a label does not something you go after with this, you need more patients for that?

Michael Davin

Yeah, actually we have had an adjustment to the FDA original submission that has moved more to a long-term clearance from our short-term clearance so that data was part of and helpful in that submission. So that has been a recent event.

Bill Plovanic - Canaccord

Okay. And then I think you covered this and I apologize for asking again. Just post deal, what does the balance sheet ensures outlook like?

Tim Baker

So post deal, the shares I believe are about 22 million and then post deal pro forma as of 12/31/2012, we talk about $87 million in cash left on the combined balance sheet.

Bill Plovanic - Canaccord

Is that gross or net cash?

Tim Baker

That’s net cash. Net cash remaining post deal. Pro forma end of 12/31.

Bill Plovanic - Canaccord

Okay, perfect. Great. Thank you very much.

Tim Baker

Thanks Bill.

Operator

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

Michael Davin

Thank you, operator. Those of you working in or traveling to New York City in May, Tim and I will be participating in the UBS global healthcare conference, the third week of May. We hope to see you there. Thank you for joining us this morning and we look forward to updating you on our progress. Have a great day.

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Cynosure (CYNO): Q1 EPS of $0.12 in-line. Revenue of $40.7M (+19% Y/Y) beats by $2.19M. (PR)