Thermage Inc. Q2 2008 Earnings Call Transcript

Sep.24.08 | About: Solta Medical, (SLTM)

Thermage Inc. (NASDAQ:THRM)

Q2 2008 Earnings Call

August 12, 2008 8:30 am ET

Executives

Doug Sherk – EVC Group

Steve Fanning – Chairman, CEO, President

Jack Glenn – CFO

Clint Carnell - COO

Analysts

Keay Nekae – Collins Stuart LLC

Anthony Vendetti – Maxim Group

Isaac Ro – Leerink Swann LLC

Dalton Chandler – Needham & Company

Scott Palmer – Paragon Associates

Hesham Shaaban – Maxim Group

Operator

Good morning ladies and gentlemen, and thank you for standing by. Welcome to the Thermage second quarter 2008 results conference call. (Operator Instructions) I would now like to turn the conference over to Doug Sherk.

Doug Sherk

Thank you, operator, and good morning everyone. By now everyone should have access to the second quarter 2008 earnings release which was distributed yesterday afternoon after the market closed. The release is available on the investor relations section of Thermage's Website at www.thermage.com with our form 8-K filed with the SEC.

Before we get started during the course of this conference call the company will make projections and may make other statements about the company's business that are forward looking and are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.

A detailed discussion of the risks and uncertainties that affect our business is contained in the company's SEC filings particularly under the heading Risk Factors. Copies of these filings are available online from the SEC or on the Thermage Website. The company's projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given.

The company does not undertake to update any projection or forward-looking statement. In addition to supplement the GAAP numbers we have provided non-GAAP net income and non-GAAP diluted income per share information that excludes the impact of the stock-based compensation. We believe these non-GAAP numbers provide you with an insight to conduct a more meaningful and consistent comparison of our ongoing operating results and trends compared with historical results. [Inaudible] reconciling the GAAP and financial information to the non-GAAP information included in our earnings release.

Later in the call the company will also offer a slide presentation which includes information concerning the pending acquisition of Reliant Technology including financial results as disclosed in the form S-4 recently filed with the SEC. The slide presentation can be accessed from Thermage's Website at www.thermage.com. Please click on the link to the presentation at the lower left hand side of the Thermage home page just below the world map.

With that I'll turn the call over to Steve Fanning, Chairman, President, and CEO of Thermage.

Steve Fanning

Thanks, Doug, and good morning everyone and to those of you out on the West Coast a very good early morning. Thank you again for joining us today for our second quarter 2008 conference call. With me today is Jack Glenn, our Chief Financial Officer and Clint Carnell, our Chief Operating Officer. The agenda for our conference call this morning will be to first review our results for the second quarter and then turn to a Webcast presentation and discussion on the pending acquisition of Reliant Technologies which we announced on July 7th. Finally, we will open the call for questions. Now, on to our second quarter results.

Yesterday afternoon we released our results for the second quarter that ended June 30, 2008. We reported revenue for the quarter of $17.9 million at the high end of our preliminary results that we announced on July 7th. This was a solid quarter for Thermage in what has been a difficult period for the aesthetics market. We grew both the top and bottom line, increased treatment tip and other consumable revenue by 15%, substantially improved our gross margin and sold the second largest number of system upgrades since the introduction of the ThermaCoolNXT last year.

In addition we announced a proposed acquisition that combines two of the market leaders in skin tightening and skin resurfacing. We believe this transaction has the potential to boost the growth opportunities and our earnings power. Now to begin I'd like to talk about some key financial highlights of the second quarter. We grew our revenue by 2% which was driven by sales of our tips and consumables. Treatment tip revenue in the quarter increased both domestically and internationally.

In the second quarter sales of our treatment tips and other consumable revenue represented 74% of revenue compared with 70% in the first quarter and 66% in last year's second quarter. We attribute the increase in tip revenue to continued high demand for our premium treatment tips including the STC Tip, the DC Tip or body shaping Tip and the ThermaCool CL for cellulite, all of which we introduced within the last 12 months.

Tip ASP is worth $337 in the second quarter compared with $300 in the second quarter of 2007. While sales of new systems were down in Q2 on a year-over-year basis we had the second highest quarter of system upgrade sales we introduced the NXT in February 2007. Our sales team placed 165 systems which included 89 system upgrades during the period.

Our second quarter revenue results confirm the high regard patients and clinicians hold for Thermage procedures. The success of our procedures and our differentiated business model that focuses on reoccurring revenue are the primary reasons we are generating modest revenue growth and profitability.

The bifurcation of our U.S. sales force is contributing to our success by separating the focus on servicing existing accounts in tip sales from sales of new systems we are able to build business with our loyal customers while devoting the attention and time required to generate leads, build new relationships and close new sales. While the economic climate is affecting our industry, our company did an excellent job of putting our heads down, focusing on our business and growing sales. I would like to thank our employees for this result. Our focus over the remainder of 2008 will be on increasing system sales especially in international markets, generating strong reoccurring revenue from the sale of treatment tips and closing the Reliant transaction.

Now Jack will provide further details of our financial performance and discuss our full year 2008 guidance. Jack?

Jack Glenn

Thank you, Steve, and thanks to all of you for joining us today. Given that we filed our form 10-Q yesterday afternoon I will focus my remarks on a few key highlights. Our second quarter revenue of $17.9 million was evenly split between U.S. and international. International revenues grew 10% while U.S. revenues declined 4%, 13.2 million or 74% of Q2 revenues consisted of ThermaTips and other consumables.

ThermaCoolRF generator systems were 4.3 million for the quarter or 24% of total revenues and service and other revenues were approximately 400,000 or 2% of total revenues. Our installed based of systems at the end of the quarter grew to 2,561 systems of which 1,328 are in the U.S. and 1,233 are international. The gross profit margin for the quarter was 77.1% as compared to 72.5% for the prior year period.

The higher proportion of revenue from Tips and other consumables of 74% for Q2 2008 as compared to 56% for Q2 2007 and improved manufacturing period costs were the primary drivers in the improved gross profit margin levels. Sales and marketing expenses as a percentage of revenue at 39% were flat when compared to Q2 2007. Research and development expenses for the second quarter of 2008 were also flat at compared to last year at 2.2 million.

General and administrative expenses of 3 million rose slightly by 200,000 from 2.8 million the prior year period as a result of legal fees related to the patent litigation with Alma Lasers and professional fees associated with Sarbanes-Oxley compliance. Total stock-based compensation charges for the quarter were 923,000. The breakdown of these charges on the P&L was as follows, cost of goods sold 53,000, sales and marketing 354,000, R&D 82,000, and G&A 434,000.

Q2 operating income on a non-GAAP basis which excludes stock-based compensation charges of $923,000 with 2.5 million or 14% of revenue. On a GAAP basis operating income for the second quarter was 1.6 million or 9% of revenue. Net income for the quarter on a non-GAAP basis excluding stock-based compensation was approximately 3 million or $0.12 per share. This compares with net income of 2.5 million or $.010 a share on a non-GAAP basis last year. On a GAAP basis net income was 2 million or $0.08 per share compared to 1.3 million or $0.05 per share last year.

Now turning to the balance sheet as of June 30, 2008 we had approximately 52 million of cash in marketable, secured investments and no debt. During the quarter we generated approximately 1.9 million in cash from operations. Please note that our portfolio of marketable investments does not include any auction rates or asset backed securities. Accounts receivable at the end of the fourth quarter were 7.1 million resulting in day sales outstanding of 36 days. And finally without giving effect to the Reliant transaction, we are maintaining our previously announced guidance of full year 2008 revenue in the range of 67 to 70 million. Full year 2008 earnings per share is expected to be between breakeven and $0.03.

Non-GAAP EPS for the full year of 2008, which excludes stock-based compensation charges, is expected to be in the range of $0.18 to $0.21. The per share earnings announced are based on weighted average shares that are approximately 26 million. With that I have concluded my overview of Thermage's Q2 financial performance and I will turn the call back over to Steve.

Steve Fanning

Thanks, Jack, we'd like to spend a little time discussing our proposed acquisition of Reliant Technologies which we announced on July 7th. Again our presentation accompanying our discussion today is available through a link at the bottom of our home page below the world map at www.thermage.com. First, I'll review the strategic benefits of the transaction and then Clint Cornell will discuss the practical product line and technology as well as key benefits of the combined operation.

Finally, Jack will review Reliant's recent financial performance as well as detail the cost synergies we expect to achieve after closing the transaction. So if you would please turn to slide five of our presentation. We're excited about merging with Reliant for a number of reasons. Reliant was the pioneer of fractional technology and continues to be the leader in skin resurfacing and rejuvenation. The Fraxel brand is one of the most recognized brands in the aesthetics.

The company has sold over 1,700 devices which formed the basis of their consumable revenue stream. In terms of product innovation Reliant followed its original product offering in 2004 with its workhorse restore product in 2006, the refine in 2007, and the repair in early 2008. Reliant's role as the early innovator has enabled it to create strong patent protection with 30 patents issued in the U.S. and 121 patents pending in the U.S. and internationally.

Most importantly the company has reached an agreement with Philips to develop a home device product to address a brand new market. Turning to slide six, a little over a month ago we announced a proposed transaction to create a global leader in aesthetic devices. We've gotten to know the Reliant organization very well and as a result our due diligence prior to the announcement and our integration planning over the last month we are confident the combination will create significant value for shareholders, our customers and our employees.

The proposed transaction will combine market leaders in skin tightening and skin resurfacing, two of the largest segments of the aesthetic device industry. Our two companies offer products that are complementary and are often used together. Furthermore both of our businesses have significant consumable revenue. By combining Thermage and Reliant we believe we will be generating strong economies of scale and significant cross selling opportunities through what will be one of the largest sales organizations in the aesthetic device industry, calling on both perspective customers and our existing install base of over 4,200 customers.

Both companies have established track records of innovation, which will most definitely continue under the strong leadership of Dr. Len DeBenedictis who is currently the Chief Technology Officer of Reliant. In addition we expect that the combination of Thermage and Reliant will expand our presence overseas. From a financial perspective, as I mentioned, both companies execute a strong reoccurring revenue financial model. And given the close proximity of our respective headquarters we expect to generate significant SG&A cost synergies opportunities as Jack will review in a few moments.

We believe that the combined operation will generate strong cash flow during 2009. And that the proposed transaction will be accretive to 2009 EPS. So, now I'd like to turn the call over to Clint Carnell to provide additional details on Reliant. Clint?

Clint Carnell

Thanks, Steve, please turn to slide seven for an overview of Reliant's products. Reliant has three core products. The Fraxel re:pair launched in January of this year uses an ablative technology based on the CO2 laser. The product targets plastic surgeons and dermatologists and the initial market reaction has been fantastic.

The re:pair uses one treatment Tip per procedure and is considered the premier technology for ablative, fractional resurfacing. The Fraxel re:store was introduced in September 2006 and it continues to demonstrate strong growth and represents their workhorse platform. Their system uses a non-ablative technology that targets both core and non-core physicians.

Each treatment Tip is typically used for a period of three to five face treatments and the Fraxel re:store is considered by many the Gold Standard for non-ablative fractional procedures.

Finally, the Fraxel re:fine was launched in June 2007 to target non-core physicians and Medi-spas. The system uses a non-ablative technology and is the least invasive of the product portfolio. Each treatment tip is typically used for a series of five to six face treatments. We believe this platform has significant growth opportunities internationally and domestically in the non-core category.

Now turning to slide eight, Reliant uses a unique continuous motion scanning technology enabling the practitioner to deliver Fraxel laser treatments by performing a simple, painting motion on the patient's skin. The motion controlled technology automatically delivers a consistent level and pattern of energy by compensating for how rapidly the practitioner moves the hand piece.

This results in a more uniform post treatment appearance and reduced treatment time. The technology also reduces the risk of operator error including the activating of the laser if it is not in motion on the skin. Now in terms of system reliability the re:store and re:fine laser systems use advanced fiber laser technology reducing the need for optical alignment or adjustments thus the Fraxel laser systems require minimal regular maintenance and have a reduced total cost of ownership.

As you can see on slide nine, Thermage has an install base of more than 2,500 systems and Reliant has an install base of more than 1,700 systems. We believe that as many as 400 of our customers use both Thermage and Reliant therapies already. Early feedback from these customers provide some of the basis for our optimism about our ability to cross brand and explore the bundling of our technologies.

As seen on slide ten to further develop cross selling opportunities created by bringing together our two companies, we will be creating the largest U.S. sales force in the aesthetic energy device industry. With our bifurcated sales force one team will focus on the sale of consumables while the other team focuses on the sale of systems.

Thermage moved to this model in late 2007 and despite a very difficult environment we continue to experience increased revenues for treatment tips and system upgrades as well as expanding gross margins. On the consumable side of the sales model as noted on slide 11 we have developed proven, cooperative marketing campaigns with physicians and believe the combination of the two companies will result in increased visibility of the two leading brands with both physicians and consumers.

Better visibility of the brand in combination with our bifurcated sales force model will drive growth of consumable revenue from the Reliant install base. Our combined strengths in tips and other consumables is illustrated on slide 12.

For the first six months of 2008 approximately 45% of the combined companies' revenue was generated from Tips and other consumables which represented a year-over-year increase of 16%. And now I'd like to turn the call back over to Jack. Jack?

Jack Glenn

Thank you, Clint. We filed our registration statement on form S-4 yesterday in connection with the Reliant transaction. The financial information with respect to Reliant has been provided by Reliant for inclusion in the registration statement. I would like to review a number of key financial considerations including Reliant's historical growth, Reliant's current operating income and cost structure, a detailed break down of cost synergies, and the combined companies projected cap position.

Turning to slide 14, Reliant has been one of the fasted growing companies in the aesthetic space. Recently this growth has been driven by system sales and tips and other consumables. System sales have increased approximately 28% in the first six months of 2008 over 2007. In addition, tips and consumable sales have grown 37% over 2007. Growth in systems and tips and other consumables has been offset by a decrease in upgrades in auxiliary equipment to result in total growth of 12% in the quarter ending March 31, 2008 and 19% in the quarter ending June 30, 2008.

We believe several factors will continue to drive Reliant's growth. First, the continued momentum for repair as well as pending foreign registration clearances, second expanded application capabilities for re:store and third the recently announced partnership with Philips that will add a modest amount of development revenue beginning in 2008. Finally, we anticipate that tip sales would continue to be robust.

Turning to slide 15 Reliant has been one of the fastest revenue growers in the aesthetic space. Its revenue growth in 2007 exceeded industry peers by 12% and in 2008 its revenues have exceeded industry peers by 11% and 18% respectively in Q1 and Q2. Adding Reliant's growth to Thermage's will create a company that will continue to grow above the aesthetic device industry average.

Turning to slide 16 Reliant has made dramatic strides in reducing its net losses over the past nine months. In 2007 Reliant lost 24.1 million in GAAP operating income. However, when we back out stock-based compensation charges of 6.3 million and extraordinary charges of 2.6 million related to a withdrawn IPO and a 1.7 million inventory charge, the company lost 13.5 million from operations on a non-GAAP basis.

As revenues have increased operating results have shown constant improvement. In Q1 2008 increased tip sales went to a higher gross profit of 60% and a GAAP operating loss of 5 million. However, when we back out 2 million in stock-based compensation and approximately 700,000 in M&A expenses the company lost 2.2 million from operations on a non-GAAP basis. In Q2 of 2008 Reliant had GAAP operating loss of 2.1 million.

On non-GAAP basis excluding stock-based compensation charges of 2 million, M&A expenses of 100,000 and severance costs of 200,000, the company had operating income of 300,000. This profit was driven by strong revenue growth of 19% and a modest increase in gross margin while the company continued to hold overall operating expenses steady.

Now turning to slide 17, we would like to detail for you the 14 million in expected cost synergies that has been calculated on a specific individual and cost line item basis. 66 positions have been identified for reduction in headcount. These 66 positions result in 2.2 million in savings and sales, 2.3 million in marketing, 1.4 million in operations and 3.4 million G&A for a total cost savings related to headcount reductions of 9.3 million.

In addition we have identified 2 million in marketing through overlapping attendance at trade shows, efficiencies in advertising and public relations, and opportunities to conduct joint workshops. A 500,000 facility synergy results from moving Reliant employees to Thermage headquarters in Hayward, California. An R&D reduction of 1 million is driven by cross synergies among engineering disciplines and efficiencies in conducting clinical studies.

And finally consulting, legal, insurance and audit costs are expected to decline by a total of 1.2 million due to the reduction in duplicative costs. For 2009 we expect to realize approximately 2.5 million of the 14 million in synergies in the first quarter of the year with the balance of the synergies spread evenly over the last three quarters of 2009. Now please turn to slide 18.

If you look at the right side of the slide you will see that Thermage's operating expense has a percentage of revenue during the second quarter with 68% while Reliant's was 70%. Because Reliant and Thermage have had a relatively small but growing revenue base compared to the other participants in the aesthetic market, both companies had relatively high operating expenses has a percentage of revenue.

The combined company will have one of the largest revenue bases in the aesthetic space. Give its larger size it would be reasonable to expect it to have a cost structure similar to the larger players. If we take into account one quarter's worth of the 14 million in annual synergies we expect to realize in 2009 or 3.5 million the combined operating expenses at 61% of revenue would still be approximately 7% larger than the other comparably sized players. Given this level of operating expenses in conjunction with our stated 2009 gross margin target of 70% from our call on July 7th we've built in an operating income target of 9% of revenue for 2009.

Now please turn to slide 19. Our cash as of June 30, 2008 stands at 52.2 million. If we take into account our $5 million loan to Reliant, the 25 million to be paid to Reliant shareholders, 8 million in estimated transaction expenses, $2.5 million in cash assumed from Reliant and 1 million debt and interest repayment, we end the year with approximately 16 million of cash as of 12-31-08.

This assumes that approximately 4 million of remaining net debt assumed from Reliant either remains outstanding with the current lenders or that we put a substantially equivalent new loan in place. This cash profile excludes any cash generated by Thermage or Reliant operations during the second half of the year. We continue to expect to generate approximately $15 million in cash growth from operations in 2009.

In summary these details should enable you to understand the potential cost savings that can be realized by combining these two operations. We continue to believe that the acquisition of Reliant will be accretive to our 2009 EPS and we currently expect the transaction to close in Q4 of 2008. Now I'd like to turn the call over to the operator for your questions. Operator?

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions) Our first question comes from Keay Nakae with Collins Stuart, go ahead, please.

Keay Nekae – Collins Stuart LLC

Yes, good morning. Jack, could you give us the revenue split for tips, U.S., OUS in the quarter?

Jack Glenn

Yes, let me just grab that.

Steve Fanning

Within revenue we'll give you that number.

Jack Glenn

Yes, in revenue.

Steve Fanning

Yes.

Keay Nekae – Collins Stuart LLC

And then also could you give us an idea of what the revenue split is U.S. OUS for Reliant?

Jack Glenn

Yes, the domestic tips for the quarter was 6.4 million and international was 6.8 million. That's tips and consumables.

Keay Nekae – Collins Stuart LLC

Okay.

Steve Fanning

And your question regarding Reliant?

Keay Nekae – Collins Stuart LLC

What's their geographic revenue split?

Jack Glenn

It's roughly about 60/40, 60% domestic, 40% international.

Keay Nekae – Collins Stuart LLC

Okay and my second question is, Steve, how many of your U.S. accounts are now participating in the Infinity partner plan?

Steve Fanning

You know we're – it's pretty competitive information. I will just tell you that we have gotten an overwhelmingly strong response from our customers. So we're very, very pleased and it's significantly exceeded our expectation.

Keay, we really view that as proprietary information. It served us very well in the marketplace so we're not going to give the exact number.

Operator

Okay, thank you and our next question comes from Anthony Vendetti. (Operator Instructions) We now have Anthony Vendetti back in the queue with Maxim Group, I do apologize. Go ahead, Mr. Vendetti.

Anthony Vendetti – Maxim Group

Sure. All right, thanks. Just wondering, Steve, can you talk a little bit about the legal situation with Alma, where that's at? What was the legal expenses this quarter? And then, Jack, if you could just give us again the amount of stock-based compensation that went to G&A. I missed that last one.

Steve Fanning

Yes, in terms of – good morning, Anthony. In terms of Alma it's – our expenses are less than what we originally projected because the Markman hearings now will probably not, well they will not be this year. So you know we think it will be approximately 150 right now. But at the end of the day less than what we thought originally and that's in Q2 about 150.

Anthony Vendetti – Maxim Group

$150,000?

Steve Fanning

Yes.

Jack Glenn

And Anthony the G&A stock based compensation for the quarter was 434,000 of the total 923.

Anthony Vendetti – Maxim Group

Okay and, Steve, can you give us a little bit of a feel for the cellulite tip and how that's going so far?

Steve Fanning

Sure. If you look at our total tips let me talk about that. Total tip sales of our business, of our disposables 60% were in all the new products. So we continue to be very pleased by the reception of our doctors with our new products. Cellulite was over 10% of that. So that has exceeded our original expectation which we thought we would exit the year hopefully somewhere between 10 to 15%, so this is the first full quarter that we've had our cellulite in the marketplace so we're pleased.

Operator

Okay, thank you and our next question comes from Isaac Ro with Leerink Swann, go ahead, please.

Isaac Ro – Leerink Swann LLC

Hi guys. Thanks for taking the question, first off, you know, as I look across the rest of the earnings seasons for the group it looks like U.S. has universally been a bit weaker than the international marketplace and maybe just speaking for yourselves do you think that's a function of better demand in the international markets or just relatively lower penetration or maybe a bit of both?

Steve Fanning

I think it's a bit of both, but I also think that in the U.S. market it's become increasingly difficult for doctors to get credit. We've found that out. We in many cases have sold systems then only to find out that doctors are having a difficult time accessing the credit market. So I think that's also an issue. We find it more so in the U.S. than international.

Isaac Ro – Leerink Swann LLC

Okay so along the lines of the credit issue any sense of how that might percolate out to the international markets in the coming months?

Steve Fanning

Not really, no, I really couldn’t project that at this point in time.

Isaac Ro – Leerink Swann LLC

Okay and then just lastly on ASPs for the tip, I think you said were up – tips were up 12% so what was volume growth?

Steve Fanning

We really in terms of unit growth we don’t give out the unit growth. And again just to reiterate the reason why we've had so many changes in pulse counts on tips and all that it really wouldn’t be an apple to apple comparison. But in terms of dollars, you know, as we indicated we were up 15%.

Isaac Ro – Leerink Swann LLC

Okay, thanks.

Steve Fanning

You're welcome.

Operator

Okay thank you and our next question comes from Dalton Chandler with Needham & Company. Go ahead, please.

Dalton Chandler – Needham & Company

Thank you, good morning. Could you give us a little bit more detail on the Reliant/Philips home use product?

Steve Fanning

You know at this point in time, you know, obviously this merger has not been completed yet. So I really can't elaborate too much upon that. All I can say is this that obviously Philips is viewed as a very, very strong leader within the consumer marketplace and given the proprietary technology that Reliant has we believe that this is going to be a strong opportunity in the marketplace. And it's just really in the development stage at this point in time. But obviously it's an exciting opportunity.

Dalton Chandler – Needham & Company

Okay, does that count as one question then?

Steve Fanning

Sure.

Dalton Chandler – Needham & Company

Maybe I can ask two together then. You know I think in the past you've given us some numbers around the percentage of tip revenue that came from new tips introduced within the last 12 months. If you have that number and then also when you update on the fat tip that you have in the pipeline.

Steve Fanning

Sure, 60% of our business has come from new tips. So we're obviously very pleased by that. In terms of the fat initiative at the company, Dalton, I really – it's too competitive and, you know, I really am not able to address that at this point in time.

Dalton Chandler – Needham & Company

Okay, thanks.

Jack Glenn

You're welcome.

Operator

Okay thank you and our next question comes from Scott Palmer with Paragon Associates, go ahead please.

Scott Palmer – Paragon Associates

Hi, Steve, the S-4 mentioned two different offers that were made to acquire Thermage. One was at I believe 450 and both of those were rejected by the board. Could you just elaborate a little bit more on why those were considered unattractive?

Steve Fanning

Yes, I really at this point in time can't get into that information.

Scott Palmer – Paragon Associates

Okay, well then not specific to this situation then what would constitute a contingent offer? Would that suggest the buyer needs financing?

Steve Fanning

You know, here again, I really can't comment on that.

Scott Palmer – Paragon Associates

Okay, thank you.

Steve Fanning

You're welcome.

Operator

Okay, thank you and our next question comes from Hesham Shaaban with Maxim Group, go ahead, please.

Hesham Shaaban – Maxim Group

Oh, I'm sorry my question has been answered. Thank you.

Operator

Thank you and we have a follow-up question from Keay Nekae, go ahead, please.

Keay Nekae – Collins Stuart LLC

Yes, Steve, in terms of launch of your Matrix Tip how does the acquisition affect the timing of when we might see that product in the market?

Steve Fanning

It doesn’t affect it at all and we continue to be on schedule to launch it.

Keay Nekae – Collins Stuart LLC

So early next year?

Steve Fanning

Yes.

Keay Nekae – Collins Stuart LLC

Okay, thanks.

Operator

Okay, thank you and our next question is a follow-up from Anthony Vendetti, go ahead, please.

Anthony Vendetti – Maxim Group

Thanks. The growth so far from you have – is it correct, Steve, you have over 50% of the votes now from Thermage shareholders and can you talk about the Reliant shareholders?

Steve Fanning

First off, the Reliant deal is a locked deal. And we have right now 33 no, you know what, we have 38% of the vote in.

Jack Glenn

And what it needed is you know over 50% of the votes cast. Not of the votes – not outstanding but 50% of the votes cast.

Anthony Vendetti – Maxim Group

Okay, so 38% of the vote is in favor of it?

Jack Glenn

38% of our outstanding shares have voted in favor and it requires 60% of the votes cast. So we feel very confident in the deal.

Anthony Vendetti – Maxim Group

Okay and it's been approved by Reliant's –

Steve Fanning

Absolutely, it's a locked deal on Reliant's part, yes.

Anthony Vendetti – Maxim Group

Locked in on Reliant's part, okay, great. Okay, thanks.

Steve Fanning

You're welcome.

Operator

Okay thank you. (Operator Instructions) And gentlemen, we have no further audio questions at this time. I would like to turn it back over to management for any closing statements.

Steve Fanning

Okay, well thank you everyone for joining us at this early hour today out on the West Coast. We really do appreciate it and, you know, we look forward to updating you on our progress in the near future. Thank you again.

Operator

Ladies and gentlemen, this concludes the Thermage second quarter 2008 results conference call. (Operator Instructions) Thank you for your participation and you may now disconnect.

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