Syneron Medical's Management Presents at Barclays Global Healthcare Conference (Transcript)

Mar.12.14 | About: Syneron Medical (ELOS)

Syneron Medical Ltd. (NASDAQ:ELOS)

Barclays Global Healthcare Conference Call

March 12, 2014 08:30 AM ET

Executives

Hugo Goldman – Chief Financial Officer

Unidentified Analyst

Okay, well good morning everyone. I’m pleased to move forward to the next presentation. We’re glad to have Hugo Goldman of Syneron Medical here. We are going to go through a fireside chat format. Hugo, welcome. Great to have you here.

Hugo Goldman

Thank you.

Unidentified Analyst

May be if we could start of with a recent acquisition of CoolTouch, if you can discuss just the rationale of that deal. What do you think it brings to your portfolio and how you will be positioning the product and maybe even your expectations over the next couple of years?

Hugo Goldman

Sure. Good morning everyone. We are happy to be here with Barclays, so CoolTouch is a nice acquisition, basically the rationale is as follows; first of all it diversifies our product portfolio, broadens our customer base and enable us to entry into another larger market, enter into the varicose veins and laser assisted lipolysis, and varicose veins is really, it’s very impressible and have a very nice consumables business model of CoolTouch.

So the second rationale, the second point is the, what kind of revenues as I just mentioned on the consumables. [indiscernible] is we can really leverage with all our global sales to China and offer this additional product also outside the U.S. where CoolTouch was almost not present.

And finally, is the very strong technology and intellectual property, which is contributing to our overall portfolio product and technology.

Unidentified Analyst

That’s helpful. I guess if you just transition to, many don’t know that Shimon invented the ELOS technology, but obviously there is going to be a transition as Amit steps in for him. So, do you see any changes really in the strategic direction at different areas of focus that we can see going forward with under the new leadership?

Hugo Goldman

Basically, Amit joined in July. First of all, there is no change in the strategy. Amit joined and really helped significantly in pursuing our strategy and was very instrumental in what we have been doing since he joined. So right now, we are continuing in that strategy, I mean what Amit was doing as President, he will continue more so as CEO.

Unidentified Analyst

Okay. I guess if we just comment on obviously many growth opportunities, maybe we discussed some in Japan and China and maybe if you can discuss the Japan and China markets, when you might expect to enter those markets?

Hugo Goldman

You are talking about the elure probably. In general, we have a very significant presence in Japan and China in our professional device market. In terms of our skin lightening product, elure, we recently received approvals from Korea and from Japan and we are expecting in 2014 to receive the approval in China as well and this is something that the Asian market is very large, $8 billion to $10 billion for this skin lightening product.

So we are in the process on one hand beginning. For example, in Korea, we build the initial clinical studies and KOLs and pre-launch, et cetera and we will do similar in Japan and eventually we will have some distribution in China. In parallel, we are looking into some strategic directions we’ve endured as well in terms of factoring with global leaders in the space.

So it’s really – our elure products are extremely successful. Clinically proven that this is superior to highlighting our profession. So we are very quite encouraged about elure market opportunities.

Unidentified Analyst

Okay. And I guess if we broaden out and talk about in overall your sales force expansion that you have, do you think is it the right level now, do you think to see that expand and maybe touch specifically what we can see over there.

Hugo Goldman

Yes. As we announced in our Q4 earnings call, on top of the 35 territory managers we have in North America, as of the call we have another additional 18 doing our sales reps and the plan is to reach to 30 additional. So it will be 35 plus 30 by the end of Q1. This is the plan and this is what we are working on. We believe that with the recovery in the U.S. economy the market is positive, the non-core market in particular and we can address this growing market with our expansion, the sales coverage adding this what we can ASAs, the junior sales reps that can also address not only the non-core market, but also with our high margin Syneron products in the Syneron product line and this is what we are in process.

Unidentified Analyst

[indiscernible] I guess if we shift maybe from quarter, maybe we can talk about another significant gross average that you guys also shared, just maybe if you can discuss your expectations around launch timing, maybe how big of a growth driver that could become, I guess, this year, but more and more in 2015?

Hugo Goldman

Yes, just before UltraShape, just to complete your previous question was about CoolTouch as well. So definitely CoolTouch is going to be a contribution to our business and revenues and in the U.S. we have a very nice independent sales team and we want to strengthen that with additional sales people in U.S. And then also the more we grow with CoolTouch will enable us to grow the disposable revenues as well, which is very interesting as well as it is part of our strategy of increasing mix, our disposable component.

As for UltraShape, we are in the process as we have been communicating that we are expecting FDA approval in the first half of 2014 and this is where we are at. We believe UltraShape is a superior product, its focus ultrasound, today the market of fat cell destruction, the non-invasive fat cell destruction is very large. It’s actually addressing almost two thirds of the whole population. In general, if most of the static devices are addressed more to women and I can say that in the UltraShape, we can also address to men as well. So it’s a very large market.

So we expect to see after the FDA approval to strength our process with a pre-launch and launch in the beginning gradually in certain KOLs and gradually we are increasing our penetration with UltraShape in the U.S. UltraShape is just for some people in the audience just to for the benefit. UltraShape is really not doing any heating whatsoever, it’s mechanical, it possesses cavitation and there is no side effects, no damages and after the result, it’s different every two weeks treatments. After the first treatment, two weeks after you already can see initial results.

So we are very encouraged about the process and expecting that and just on UltraShape obviously you know you have a competitor out there with the codes of opening system, so what we’re going do is, we’re going to kick off the audience response question number one, really this is just talking about Syneron’s UltraShape versus CoolTouch and really, what the expectations are, so you see the five choices up there ranging from whether you think Syneron is kind of lead the market there. So if you kind of vote both on your handy-dandy remotes and then we will get you those stock-ons with the high end things. So if you can pull the audiences please.

Question-and-Answer Session

Unidentified Analyst

Okay, so the view is that there is the advantage for the CoolTouch and perhaps and obviously they have been very visible, we have seen with that life stock, I am just curious with your responses to that result?

Hugo Goldman

Well, you know I have to – all I can say is that the evidence is that the non-invasive fat cell destruction is a growing market, it is an attractive market to be in. It’s growing at 16% annual growth according to one of the, I think its medical insight research report. So we believe we can be a significant player in this market. So I mean I see that are in general it’s interesting to see this both in, but I think that with our superior product we definitely want to be a significant player in this markets.

Unidentified Analyst

Moving on with the similar topic, then we have talked about some of the growth drivers from CoolTouch to the lowered UltraShape. Let’s actually queue up the next audience response question and then get to you those solved, and this is really what’s the biggest opportunity is it UltraShape, VelaShape or lowered CoolTouch. So if we can quickly uphold the audience there and we will get, we can start to move on to some other topics. I guess not, a huge surprise.

Hugo Goldman

Well according to what they say and the audience is supporting the UltraShape is that the biggest product opportunity. Evidently UltraShape is as we just discussed it’s a very strong product and that we are expecting the FDA approval and we believe it’s really a very – it’s a big opportunity. What we need to remember is that, the UltraShape is based on the I would say, drug platform of a leader in this industry which is general, coming into a place where we have more than 7,000 installed base of VelaShape, so we are definitely are leveraging on our existing strengths to be able to launch successfully UltraShape going forward.

Unidentified Analyst

And I’m sure you get many more questions on the drug there, the drugs throughout the day. And maybe if we just move a little bit to our new joint venture with Unilever and touch really upon how that relationship has gone in the early days and how you would see that benefiting the company in the future and really what investor – what you want investor to take away from that on joint venture?

Hugo Goldman

We identified a few years ago that the home use device at this market is very large and we invested during the last few years and we set up the Syneron Beauty subsidiary and we have been growing significantly over the years and we reached to a level where a global player like Unilever identified these large market ahead of us together with the strength of the ELOS technology which really striving the me smooth the hair removal mobile home use device product which is a leader. And we are very proud of this JV.

We are right now we have 49% of the JV and it’s doing very well and we expect in the future we will be updating our holdings in the JV by a fair value of valuations that we will be doing from time to time. I think that it’s really we are very happy about this JV and as a result of this JV, the evaluation performed at closing in December is giving the 49% of this JV for us is $24.7 million in our balance sheet. So this is let’s say the baseline in terms of this – now this holding of the 49% of the JV.

Unidentified Analyst

Okay. If we can shift to turning to margins obviously there is a moving part there with the recent acquisition, you have potential sales force expansion where do you think you could see operating margins go and I remember there obviously we think about as a fragmenting of the digit level where could they go with the medium and potentially the longer-term and really what gets you there?

Hugo Goldman

So, first of all we just a step with the JV that we just mentioned gave us an improvement right away because we are moving from actually the 2.2% operating margin where we take out Syneron Beauty from our numbers in 2013 that gives the 5.2% and now with all our steps that we take into account on one hand the investments, the expansion of the North America sales force and other initiatives and UltraShape, their effort et cetera, altogether we expect to see some improvement in 2014 in our operating margin to a level another 180 basis points to get to the level of around the 7% operating margin for 2014.

Going forward in the long run, all these investments North America investments, the VelaShape III, a continuous success, the UltraShape penetration in the U.S. and outside the U.S. as well. All of these should enable us in the long-term to go to reach above market in terms of top line and improving profitability.

Unidentified Analyst

I guess maybe before we move on to the next topic as we’ve discussed large difficulties with a lot of opportunities, as you look forward I guess not just maybe 2014, 2015 but for the next two years, what is the risk that might keep you up at night? What’s the one thing that could drive? What’s that one thing that you want to make sure goes right? What’s the one thing?

Hugo Goldman

Well, just one, I think it’s execution, I would say. I mean we have a lot of strength in the company in terms of the products, China’s strong management and a very, very focused strategy, all the ingredients are in place and now we really need to execute and this is I think number one.

Unidentified Analyst

And that’s fair. And then maybe we will move to the audience, just another time for audience response number three, which [Indiscernible] start. But this question is as Syneron Beauty be most aggressive by reinvesting its cash whether that’s tuck-in large acquisitions in emerging markets and you see the rest of the choice is there obviously a broad selection will pull the [Indiscernible] and get you the stuff. All right, a little bit of a slip there what are your thoughts there?

Hugo Goldman

According to what they say, the audience should say we should be aggressive interesting in sales and marketing. I think that we are doing that. We are investing in sales and marketing and eventually maybe some expansions around that area of distribution in different places. So we are very focused in terms of the use of the cash like CoolTouch case that I think it’s going to contribute and we’ll bring CoolTouch to be accretive in 2015.

Evidently the North America sales force investment is definitely showing this is the way to go to really address the market opportunities and they are out there right now. So we are investing there. I think that we are very – it’s important to have the flexibility like close to $100 million in cash in order to be able to – on one hand be able to invest what’s needed and on the other hand, we always focus on what’s on one hand to grow our top line.

And secondly and making sure we can watching all the time our profitability, and I think that overall over time we should be looking that how we can leverage these investments for the success and profitable growth of the company. We have taken a few steps in parallel, because while we are investing in terms of marketing, we also are monitoring very tightly the R&D and the G&A to the levels that we have seen G&A savings in the first few quarters. R&D more stable shifting our result as to places where we believe opportunities are.

Unidentified Analyst

I just get to depressed on that point a little bit. So given I guess you know the acquisition you’ve done the need to really further expanding your sales and marketing, is there really the need to kind of that just agree what you have to focus on that? Or is there still an appetite immediately go out there in the new growth driver if you could see if want of course given the flexibility…

Hugo Goldman

We have enough growth drivers that we, as we just mentioned we have first of all other – we mentioned the UltraShape, we mentioned the VelaShape III in North America expansion. We – in parallel we have the elure, the skin brightening products and we have with the JV Iluminage Beauty. So we do have several of our growth drivers and we will also have CoolTouch in our portfolio and we continue looking for an eventual opportunities that can help either in terms of the product portfolio or in terms of business model that can be complementary to our offline as well.

Unidentified Analyst

And then but there is going to be one more and that is next number 4 an audience response questions, we’ll get you some thoughts and then we will may be wrap up with a couple of questions. The question number four, as you Hugo mentioned execution, so just – what type of execution is really the most important right now, is the organic revenue growth, is it the market – gross and operating margin, EPS growth or cash flow growth what are actual growth in and get to those thoughts? And kind of the top line mainly as it looks like?

Hugo Goldman

Yes surprising but really are – generally I think the market there is looking into top line growth and this is really what we are looking, looking out there and for 2014 as we said in our call that we want to see some growth in 2014 and then with all of our investments that about marketing in 2015 and beyond and this is really the focus is – there is a lot of work to do in the lot of places and Amit since he joined the company and also as CEO to really focusing on the efficient of this strategy.

Unidentified Analyst

Okay and I think we will close there and then we were going to do the breakout session pointing on our two things everyone. And thank you very much Hugo.

Hugo Goldman

Thank you very much to you [ph] and to everyone.

Unidentified Analyst

Thank you.

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