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Cynosure, Inc. (NASDAQ:CYNO)

Q2 2010 Earnings Call

July 27, 2010 09:00 am ET

Executives

Michael Davin - President and CEO

Tim Baker - EVP and CFO

Analysts

Anthony Vendetti - Maxim Group

Matthew Dodds – CitiGroup

Andy Schopick - Nutmeg Securities

Anthony Petron – Jefferies

Dalton Chander – Madum and Company

Bill Dezellem – Titan Capital

Operator

Good day. And welcome to the Cynosure Second Quarter Conference Call. Today’s call is being recorded. There will be an opportunity for question 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.

Scott Solomon

Thank you, Katie. And good morning, everyone. With me on today’s call are Cynosure President and Chief Executive Officer, Michael Davin, and Executive Vice President and Chief Financial Officer Tim Baker.

Mike will begin today’s call with a discussion of Cynosure’s second quarter 2010 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 the various remarks management makes on this conference call about future expectations, plans and prospective 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 different materially from those indicated by such forward-looking statements as a result of various important factors including those discussed in Cynosure’s end-year report, filed with the SEC on Form 10K for the year ended December 31, 2009, and subsequent reports filed with the SEC.

These filings can be accessed on the Investor Relation’s section of the company’s website, www.cynosure.com.

In addition, any forward-looking statements represent the company’s views as of today, July 27, 2010. 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.

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

Michael Davin

Thank you, Scott. Good morning, everyone. And thank you for joining us on today’s conference call.

Although we continue to face challenges in the current macroeconomic environment, we are seeing the positive impact of the financial and operational strategies we have put into place. And we are moving our business in a positive direction while keeping our balance sheet strong.

Total revenue, while up modestly year over year, increased 14% sequentially. Most encouraging was our performance in North America, where laser revenue was up 24% from the first quarter of this year to $7.9 million, its highest level since the end of 2008.

International laser revenue increased 8% to $8.5 million from the first quarter of 2010.

We believe this sequential growth reflects a gradual improvement in the U.S. credit environment as well as continued growth opportunities in specific international geographies.

As we mentioned in this morning’s new release, North America’s ASPs remained stable in the second quarter. We believe this speaks directly to the ability of our sales force to effectively convey the value propositions supporting our technology.

North America laser revenue accounted for 48% of total laser revenue in the second quarter of 2010, up from 47% in the prior year period and 44% in the first quarter of this year.

Of note during the quarter, was the strong performance of Smartlipo Triplex, our newest Smartlipo workstation for laser-body sculpting. And the new Elite MPX, for hair removal applications as well as treatment of facial and leg veins, pigmented lesions and photo-aged skin.

With the Spectro International Business, a bright spot in the quarter was Asia-Pacific Region. We have made significant investments to strengthen our distribution.

Led by products, including the Accolade workstation for the treatment of pigmented lesions, the Asia-Pacific Region posted a 28% increase in laser revenue on a sequential basis in the second quarter.

Overall, international markets accounted for 52% of laser revenue in the second quarter versus 53% in Q2 of last year, and 56% in the first quarter of 2010.

Pursing regulatory approvals in key overseas markets remains an important element in our overall strategy, and it is an area where we continue to have success.

During Q2, for example, we announced marketing approval of the new Elite MPX workstation in Korea where we have a direct sales force. And the approval of the Smartlipo MPX workstation in Hong Kong, where we maintain a strong distribution relationship.

In addition, we announced the approval of the Elite MPX and the Elite Workstations in Columbia, extending our reach into South America.

We continue to see attractive long-term opportunities internationally, and look forward to additional regulatory approvals in the coming quarters.

We’re also making good strides in the development of our newest flagship workstation. You may recall that we are targeting a high-volume application that will provide us with a first-mover advantage in an area that is not been adequately addressed by current technology.

Based on what we see regarding the current regulatory approval process, we anticipate that a launch will likely occur in the first quarter of 2011.

We remain pleased with the progress of our ongoing partnership with Unilever to develop and commercialize aesthetic products for home use. All the internal milestones have been achieved to date and the program is right on schedule.

We’ve continued to efficiently reduce operating expenses without sacrificing our focus on distribution or technology development.

At the mid-point of the year, operating expenses have decreased $5.7 million as compared to the first half of 2009, achieving our goal of lowering annualized operating expenses by $5 million to $7 million this year.

At the same time, our balance sheet has never been stronger. At June 30, our cash, marketable securities, and investment balance exceeds $96 million. A record for the company and a significant milestone given the environment we have been operating in since the global economic downturn began in 2008.

In summary, we continue to navigate to a challenging economic climate with our core competencies and financial strength intact.

While we would expect to see some natural pullback in our business in Q3 as a result of traditional seasonality, so we are encouraged about where we finish the first six month of 2010.

From a financial and operational standpoint, we begin the second half of the year well positioned to grow as the economy improves.

With that, I will turn the call over to Tim for his financial review.

Tim Baker

Thank you, Mike. Good morning everyone, and thanks for joining us.

As Mike outlined, Q2 was a solid quarter for Cynosure. Revenue for the second quarter increased 3% year over year, and 14% sequentially to $21.5 million. On a GAAP basis, the second quarter loss narrowed to $1.5 million, or $0.12 a share from $2.3 million, or $0.18 per share for the second quarter of 2009.

The improved bottom line reflected an 18% reduction in operating expenses from Q2 of last year.

It is important to point out that a Second Quarter 2010 net loss, included income tax provision, or expense of $0.1 million, representing an effective tax rate of 5%. This compares with an income tax benefit of $1.3 million, or a reduction to our loss of $0.10 per share, recorded in the Second Quarter of 2009. And representing an effective tax rate of 35%.

The change from a benefit to a provision in the 2010 period is a result of the company’s establishment of evaluational allowance in the fourth quarter of 2009, against our net domestic deferred tax assets. And results from taxable income generated in four jurisdictions.

We expect to continue to record a quarterly tax provision for the balance of the year, and expect our effective tax rate to range between 8% and 12% the remainder of 2010.

Additionally, in the Second Quarter of 2010, the company recorded a foreign exchange loss of $0.5 million or $0.04 per share, compared with a foreign exchange gain of $0.4 million or $0.03 per share, recorded in the Second Quarter of 2009.

Our aggressive expense reduction initiatives enable the company to cut its loss from operations by 78%, or $3.2 million to less than $1 million in the Second Quarter of 2010 from $4.1 million for the same quarter in 2009.

On a non-GAAP basis, excluding stock-based compensation expense of $1.2 million, we had positive income from operations from approximately $300,000.

In the coupled period of 2009, we had a non-GAAP loss from operations of $2.3 million which excluded stock-based comp of $1.8 million.

The non-GAAP net loss for the Second Quarter of 2010 was $200,000, or $0.02 per share, down from $1.1 million or $0.09 per share in the same period of 2009.

We used approximately $12.7 million weighted-average shares outstanding in computing basic earnings per share for both quarters.

Looking at our quarterly revenue in a bit more detail, laser product revenue accounted for $16.4 million, or 76% of total revenue in Q2 2010, compared with $16.5 million or 79% of total revenue for the same period of 2009.

Revenue from parts, accessories, and service increased 19% to $5.1 million in the Second Quarter of 2010 from $4.3 million in Q2 of 2009.

By territory, international markets accounted for 52% of laser revenue in the Second Quarter of 2010, down from 53% in the same period last year, when North America laser revenue accounted for 48% of total product revenue in Q2 of 2010, as compared to 47% for the Second Quarter of 2009.

Gross profit for the Second Quarter was 57.8% essentially flat from 58% for the same period in 2009, and up slightly from the First Quarter of this year. As Mike mentioned, average selling prices have remained stable through the first six months of the year.

Turning to expenses, total operating expenses in Q2 declined 18% to $13.3 million from $16.2 million in the Second Quarter of '09. Looking at operating expense by category, selling and marketing expenses decreased $1.8 million or approximately 17% to $8.6 million from $10.4 million in the year ago quarter.

A reduction in headcount in the elimination of some non-core programs were the primary reasons for the decrease. Selling and marketing encounters were 40% of revenue versus 50% of revenue in Q2 of '09.

Research and development expenses increased about $150,000 to $1.8 million for the Second Quarter of 2010 versus same period last year, reflecting our continued commitment to innovation.

R&D expenses totaled approximately 9% of revenue in Q2 2010, versus 8% in the same period last year.

General and administrative expenses for the quarter decreased $1.2 million to $2.8 million, or 13% of revenue compared with $4 million, or 19% of revenue in Q2 of '09. The reduced G&A expenses reflects cost reduction initiatives and lower legal expenses.

We ended the Second Quarter with the strongest balance sheet in our history; $96.1 million in cash and investments, and no long-term debt other than capitalized lease obligations.

This is approximately $4 million higher than our cash and investment balance of $92 million at year-end 2009.

In addition, we generated positive operating cash flow for the fifth consecutive quarter.

Also, during the quarter, we exercised our put right on our remaining auction rate securities and now have converted all of our auction rate securities at par to cash and investments.

We continue effectively manage our accounts receivables. GSOs at the end of Q2 of 45 days, down from 54 at the end of Q1 of this year, and from 75 days at the end of Q2 of 2009.

In summary, through the first six months of the year, we are pleased with the job we have done bringing cost and line with the current business environment, while at the same time, growing the top line and strengthening the balance sheet.

With that, we are ready to open the call to questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question and answer session. (Operator Instructions)

Thank you. Our first question is from Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti – Maxim Group

Thanks. Good morning. Obviously, some positive signs here with increased sequentially in North America, 24%, is that correct?

Tim Baker

Yes.

Anthony Vendetti – Maxim Group

And you mentioned that, in the press release, Mike, that the credit markets remain challenged, but you said on the call, but improving. Is that correct? And if you could just elaborate a little bit more on what you’re seeing in terms of the credit market, and also just a little bit more on your relationship with Bank of America?

Michael Davin

Yeah. Sure Anthony. You know, as we mentioned at the end of the first quarter, we were encouraged by the signs of credit loosening up a little bit North America, although marginal, not significant by any means.

Also, we were encouraged by seeing the third-party lease brokers, or leasing companies coming back into this space. As we mentioned, they were basically absent from the space all through 2009. So it’s a positive sign that they’ve began to re-enter to this space and start offering lending solutions to our customers.

The relationship with Bank of America is going extremely well. It is a marathon, not a sprint, but each quarter it gets stronger and they begin to continue to open up the lending tree more and more as the relationship develops and both sides of the table get to know each other well, and they see the strength of the customers that we are bringing to them as far as being very viable candidates for lending.

So overall, we’re encouraged by lending availability compared to a year ago. But still, it’s a far cry from where it was pre-September of 2008.

Anthony Vendetti – Maxim Group

Okay. And then you said Unilever, which is your home-based product partner, is on schedule. Can you talk about what that approximate schedule is. And then just elaborate a little bit on this new platform. It looks like it got pushed out of quarter. Is that more due to the regulatory timeframe, or a combination of that and just further development, you know, further development time necessary.

Tim Baker

Sure Andy, this is Tim. I’ll take the Unilever question and the I’ll have Mike address the other new product developments.

As we mentioned in the past, you know, Unilever is a [inaudible] program. It is progressing very nicely, we’re very please with were we are in the program. We are ahead of schedule and have met all milestones to date.

But as we’ve mentioned, this is more of a 2012, probably, product release, so we’re still out there a way, a year or to before we get to the marketplace. But as I said, we’re pleased with where we are in the program. Unilever is very pleased as a partner. So we’re encouraged that that’s going to be a significant opportunity down the road.

Michael Davin

And Andy, this is Michael. On the new product development, and as it relates to the launches, you know, we were hoping to launch the product in the fourth quarter of this year. The delay is 100% related to regulatory.

We’re encouraged by where we are with the filing. As you know, the FDA is moving a little more methodically to the process in 5-10Ks. That is a direct relationship to why we believe we will launch the product now in the first quarter of 2011.

Anthony Vendetti – Maxim Group

Okay. So when you say launch, though, you mean you’ll be actually selling it, or just demo-ing it?

Michael Davin

Yeah. Our plan right now, once again, pending the regulatory clearance, is to launch to our distribution in the first quarter, and also exhibit the product at – actually, at one primary conference in February. And then be generating a slight level, we believe, of revenue.

Once again, depending on the regulatory approval on the actual date of the clearance, there will be some marginal revenue in the first quarter, and that would be spring boarding into the second quarter.

Tim Baker

The second quarter should be the first full quarter of revenue generation for the product.

Anthony Vendetti – Maxim Group

And then, in regards to the cash, you’re up to $96.1 million, no debt. Can you talk about what your plan, or what your potential uses of the cash are? And with the stock, you know, down here at these levels, have you considered using some of that for buy back?

Tim Baker

Well, I think you’re aware, Anthony, that we initiated a stock buy-back program in August of last year. And we announced up to $10 million of stock that the program was approved to buy back. So that program is still active; it expires at the – I believe, at the end of next month, or this month. And we are reviewing whether to continue that program. So there is a program in place and has been for the past year.

We are also very activity in looking at non-organic opportunities for the company, to grow the organization as we go forward.

Anthony Vendetti – Maxim Group

Okay. I’ll hop back in the queue. Thanks.

Operator

Thank you. Our next question is from Matthew Dodds, with CitiGroup. Please proceed with your question.

Matthew Dodds – Citigroup

Good morning. A couple questions. First, Mike, on the laser ASP, you said was stable in relation to the gross margin. And you said, I think, North America ASPs were stable. How’s the trend in internationally? Is it stable, or is it mixed that’s driving the ASPs?

Michael Davin

Tim, I defer to you on this.

Tim Baker

Matt, it’s really – it is stable. Really, the only difference we’re seeing is you can see we’re at 58 versus, you know, 57.8. I mean, it’s really the geographic mix. But even that has become much more stable in that 48-to-52% kind of mixed domestic and internationally.

So really, worldwide, we’re seeing a pretty stable platform in pricing. There is some variation between Asia-Pac pricing and Europe, a little stronger in the Asian-Pacific region. But overall, we’re not seeing any kind of significant pricing pressures worldwide.

Matthew Dodds – Citigroup

And then, on the international, you said Asia-Pacific was up 28% quarter over quarter. Can you say what Europe was?

Tim Baker

Essentially flat.

Matthew Dodds – Citigroup

And then one last question. On the new laser system, you just said, you know, with the timing back about a quarter, it was related to the FDA. It’s not related to clinicals, it’s just related to your view that it’s just taking longer to get a 5-10K approved?

Tim Baker

Correct, Matt.

Matthew Dodds – Citigroup

All right. Perfect. Thanks, Tim. Thanks, Michael.

Operator

Our next question is from Andy Schopick with Nutmeg Securities. Please proceed with your question.

Andy Schopick – Nutmeg Securities

Thank you. Good morning. A question quickly for you Mike. And then I have a couple for Tim. On balance, the Healthcare Reform Legislation, as you now understand it, any – can you summarize any pros and cons as it relates to the industry, or whether you just consider this to be a totally neutral event?

Michael Davin

You know, from our perspective, I think as you know, Andy, a catalyst growth in our industry at the turn of the century, you know, really 2002 to like 2007, was the interest of the non-core physicians to offer aesthetic applications in their practice.

And that was a significant driver, a growth driver for our industry because, you know, for years, the traditional market was derms and plastic surgeons, which there’re about 60,000 globally with the interest of the non-core physicians; OBGYN, family practice, internal medicine, ENT wanting to offer a aesthetic application in their practices. And we believe the driver for the interest in their behalf was the reduction in fees, and they were looking for a vehicle to generate new revenues for their practice that were not going to be decapitated or controlled by insurance-paid medicine.

And we do believe with the new Healthcare Reform Bill, that there will be even more pressure on insurance-paid medicine to reduce these. And therefore, driving these practices to look for alternative revenue – and preferably revenue that’s not going to be controlled by regulatory, or by Government reimbursement, or by insurance reimbursement.

So we do think this could be another catalyst. It was unfortunate when were seeing this kind of growth, that the economic downturn hit in 2008. And we do believe the non-core physicians are probably more prone to pull back and review the economic environment where they have to go back to their practice and perform the medicine with the [inaudible] forward. But the plastics and derms had to continue to drive the opportunity as it relates to offering aesthetic applications.

We do believe it could be another catalyst. The economy needs to improve, lending needs to open up. And then we do believe you’ll see that group enter back into – that non-core group enter back into offering aesthetic applications in their practices.

Andy Schopick - Nutmeg Securities

Thanks. Also, Mike, how many regulatory approvals, and in what regions are you anticipating could occur this year?

Michael Davin

Yeah. We, as I mentioned at the beginning of the call, we’ve been very active in that front, Andy. And we’ve had a number of regulatory approvals already come through this year, and the last couple of years as part of our investment in expanding our international business.

We are working on a number of additional approvals, you know, greater than ten in additional markets like South and Latin America, Asia, and in Europe. And as we roll out new technology, especially this new platform that will come out in the first quarter of 2011, we’ll need to drive the regulatory clearance just for that technology in all the different markets we participate in as well.

Andy Schopick - Nutmeg Securities

Tim, what was stock-base comp in the quarter? I don’t know if you mentioned that.

Tim Baker

Yeah, it was about $1.2 million, Andy.

Andy Schopick - Nutmeg Securities

And what was it in the first quarter?

Tim Baker

About the same.

Andy Schopick - Nutmeg Securities

Thank you. All right, I’ll pass it along.

Operator

Thank you. Our next question is from Anthony Petron, with Jefferies. Please proceed with your question.

Anthony Petron – Jefferies

Thank you, gentlemen. I want to begin with Europe here. A lot of news out from Europe. In the way of austerity and not directly exposed to that, but are you seeing any rationalization from patients on that end as they begin to sort of rationalize their healthcare expenditures now that the purse strings are being squeezed there nationwide across select nations in Europe?

Michael Davin

You know, Anthony, we’re not. You know, Tim and I just did a tour of our subs in Europe and I’m pleased to report that the overall sentiment was positive going into the second half of the year course. The third quarter, you have seasonalities such as in the month of August pretty much shutting down in Europe. But overall, the attitude and the sentiment from our distribution in Europe seems fairly positive.

Anthony Petron - Jefferies

Just moving onto some specific platforms, last quarter I think Triplex and the MPX workstations had some pretty good volumes last quarter. They seem to be driving volumes in the core market. Did you see follow through with those two stations in the quarter, or what were volumes specifically as it relates to Triplex and MPX?

Michael Davin

Yeah. We don’t really speak to volumes as it relates to revenue. But as we mentioned, Triplex had a very good quarter. We really didn’t launch the technology to the market until the fourth quarter of last year. So this is the real first calendar year for the product. And we’re very encouraged by not only the uptake in revenue, but also the overall clinical feedback we’re getting from our thought leaders and luminaries as it relates to the platform and the clinical benefits it offers to their patients.

Anthony Petron - Jefferies

You mentioned, I believe, last quarter AD had some good lead generation out of there, some good activity on the floor. Can you comment on at least follow through in terms of conversions and to orders, backlog, anything to that affect?

Michael Davin

Yeah. I think one true indicator is seeing North American revenues sequentially up 24%. Probably, you know, 70% of those leads were North American leads and we do believe that was a catalyst that drives forward the revenues in the second quarter in North America in particular.

Anthony Petron - Jefferies

And to that, and backlog, are you still seeing some kind of backlog that can fall through into the current quarter?

Michael Davin

Yeah. We don’t really speak to backlog.

Anthony Petron - Jefferies

All right. And then lastly, just for Tim, just on the interest income in the quarter seemed to dip there sequentially. You know, you’re transitioning some of the funds out of the auction rate securities. Is that just related to the transition or are all those funds reinvested at this point? Where would you expect interest income to go in further periods? Thank you.

Tim Baker

As you know, and actually, the investment money markets out there are not paying very high rates at all. Our effective yields are still under a ½ of percent, which is pretty consistent where it’s been the last two or three quarters.

So you know, right now we’re still very conservative with our investment and we’re putting that money, and that’s going to be the strategy we’re going to follow, at least for the foreseeable future.

Operator

Thank you. Our next question is from Dalton Chander with Madum and Company. Please proceed with your question.

Dalton Chander – Madum and Company

Good morning. I guess just to follow up on the lead conversion. What do you think drove that more? Was it new products? Was it the listing of the credit markets? Or are we just seeing some of the typical 2Q seasonality?

Michael Davin

Think some of it is the typical Q2 seasonality. Q2 is historically our second strongest quarter, Dalton, to Q4. I also believe, though, as we mentioned in Q1’s call, the overall just attitude and sentiment of the physicians at the AAD, the 2010 AAD compared to 2009, was significantly better; activity was up significantly over the AAD of 2009.

I think the overall economic environment being better, credit opening up a little bit, and doctors realizing that maybe the worst is behind us, are starting to look back at investing in their practices.

Dalton Chander – Madum and Company

Okay. And within the Smartlipo family, you’re now on – I lose track, about the fifth generation, I guess. Are you still selling the earlier models, and how do you transition through that?

Michael Davin

Yes, we are still selling the earlier models. The earlier models beginning with the single wavelength 1064, the 6-watt, 10-watt and 15-watt; that was the first generation of our product. That product is being more focused on physicians that are looking to treat smaller anatomical areas, like the neck and the facial area. And speed isn’t much of a necessity, it’s more of the ability to be able to get into these areas and treat them effectively, safely, but also not have to take on maybe the expense of what the larger more versatile platform costs to bring into their practice.

Dalton Chander – Madum and Company

Okay. And what are you seeing in terms of attach rates for the add-on products, like Smartsense and ThermoGuide and ThermoView?

Michael Davin

Yeah, those products have performed very nicely as it relates to them complimenting the Smartlipo portfolio technology. The Triplex, actually the ThermaGuide, because of the higher powered systems and the more aggressive wavelengths, that’s included in the overall platform. But the intelligent delivery systems have been performing nicely as it relates to physicians wanting them, or adding them at the time of the purchase or later on after installation to their platforms.

Dalton Chander – Madum and Company

Okay. I know you’re not going to give me an exact number, but just sort of an order of magnitude what the attach rates have been? Is it over 50%, or below 50%, or just whatever you feel like you can say.

Michael Davin

Yeah, it would be over 50%.

Dalton Chander – Madum and Company

Okay. All right. Thanks a lot.

Operator

(Operator Instructions) Our next question is from Bill Dezellem with Titan Capital. Please proceed with your question.

Bill Dezellem – Titan Capital

Thank you. A group of questions. Let’s start first of all with foreign exchange. Would you please discuss how you’re viewing that going forward? I think it had a negative impact this quarter. How do you view that in the coming quarters, please?

Tim Baker

Sure Bill. Basically, the foreign exchange loss is going through the P&L, as we’ve talked in prior quarters, relating to our intercompany payables and receivables with our subsidiaries, particular in Europe.

And obviously, the Euro went from about $1.35 to $1.22 within the quarter. So it’s really a remeasurement gain or loss on intercompany payables; the majority of which is realized. So that’s really the fact that it goes through the P&L.

From actually the sub’s P&Ls in Europe, again, they’re selling in Euros and their expenses are in Euros. So effectively it becomes a very small net impact in consolidation.

So the real impact of the FX that we’re seeing is really going through that intercompany remeasurement, which again, typically the majority of it is unrealized.

Bill Dezellem – Titan Capital

Thank you. And then next, the Smartlipo family, what is the highest volume platform that you’re selling in the U.S;A. And that you’re selling outside of the U.S.; B?

Michael Davin

Yeah. The Smartlipo MPX, overall in both the international markets as well as domestic markets, would be, I think the leader in revenue generation. But it’s important to note that the ASP on that portfolio of technology starts at about 130 and goes as high as 165 versus the single wavelength product offering ranges from say 80,000 to 100.

But with the introduction of Triplex now as well, Bill, which continues the versatility of that platform, and the intelligent deliver systems, I’d say the greater percentage in the revenue comes from the MPX platform.

Bill Dezellem – Titan Capital

And are you feeling that as time progresses that that answer will eventually change to Triplex, or not necessarily, and why, relative to whatever your answer is?

Michael Davin

You know, with the core market, I would say yes. That’s probably 80% of the Smartlipo installed base because they are looking to enhance throughput speed of the procedure. They’re looking to get a little more aggressive with the technology. They’re also very interested in the intelligent delivery systems.

So it’s not unusual, especially for the plastic surgeons, which 85% of them do traditional liposuction in their practice, to really want to go after a product that offers all the bells and whistles that allows them to once again maximize throughput, optimize safety, and get excellent clinical results. And the Triplex offers all of that to them.

Bill Dezellem – Titan Capital

And margins on Triplex versus MPX? Which is greater?

Michael Davin

They’re fairly similar Bill. There’s a little higher margin on higher-level devices on Triplex.

Bill Dezellem – Titan Capital

Okay. The shareholders were happy to see that shift to Triplex, you’re saying?

Michael Davin

Yes.

Bill Dezellem – Titan Capital

All right. And then the last question is, relative to the various intelligent delivery systems, what are you seeing from competitors offering their version of intelligent delivery systems?

Michael Davin

Well, Bill, as you know, we were the first ones to introduce intelligent delivery systems, first with SmartSense and then with ThermaGuide and ThermaView. And our intelligent delivery systems are married to the laser. So they have real-time feedback to the operator as it relates to monitoring both speed, temperature – internal temperature and external temperature, and give real-time feedback to the physician as they’re performing the procedure.

To my knowledge, and I’m not 100% sure I’m accurate on this, but we are the only company that offers a technology and that covers the range of temperature both internal, external, as well as motion with real-time feedback to the doctor, and is directly connected to the device.

I believe there are some other technologies, one or two out there that they’re offering a temperature monitoring, but it’s a separate system. It’s not married to the actual laser itself.

Bill Dezellem – Titan Capital

And I apologize for continuing on here, but just following to that question, do you have either patents or is there some other inhibitors to your competitors being able to have the real-time intelligent delivery?

Michael Davin

As you know, we have intellectual properties surrounding not only the laser platform itself, but also, yes, we have filed patents on the intelligent delivery systems as well.

Bill Dezellem – Titan Capital

Thank you both.

Operator

Thank you. Our next question is a follow-up question from Andy Schopick with Nutmeg Securities. Please proceed with your question.

Andy Schopick

Thank you. Bill asked the question and it’s been answered.

Operator

At this time, we have reached the end of the Q&A Session. I will now turn the conference back over to Mr. Davin for any closing or additional remarks.

Michael Davin

Thank you, Operator. Thank you for joining us this morning. We look forward to keeping you updated on our progress. Have a great day.

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Source: Cynosure, Inc. Q2 2010 Earnings Call Transcript
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