Cynosure, Inc. (Nasdaq: CYNO), a leading developer and manufacturer of a broad array of light-based aesthetic treatment systems, today announced financial results for the three and 12 months ended December 31, 2009.
Fourth-Quarter 2009 Financial Results
Revenues for the three months ended December 31, 2009 were $19.3 million, compared with $25.5 million for the same period of 2008 and $17.9 million for the third quarter of 2009. The decrease in revenues from the fourth quarter of 2008 reflected the continued effects of the global economic slowdown on the aesthetic laser industry. Access to credit remains a significant hurdle for many practitioners seeking to make aesthetic capital equipment purchases.
Financial results for the three months ended December 31, 2009 included: a non-cash tax charge of $10.4 million to establish a valuation allowance against the company's U.S. deferred tax assets, primarily consisting of temporary differences; and a $2.1 million non-cash charge related to an inventory write-down of an earlier-generation product. The write-down resulted in part from rapid customer adoption of Cynosure's newer-generation products, coupled with the downturn in the overall aesthetic laser market.
Gross profit for the fourth quarter of 2009 was 43.9% of total revenues, compared with 60.5% for the same period of 2008 and 58.4% for the third quarter of 2009. Excluding the $2.1 million inventory write-down, gross profit for the fourth quarter of 2009 was 54.7% of total revenues. In addition to the write-down, the decrease in gross profit from the sequential and year-over-year periods reflected a higher percentage of laser revenue from international markets, where sales prices tend to be lower than in the U.S. and Canada, and a decline in average selling prices due to overall market conditions.
Including the charge for the valuation allowance against deferred tax assets and the inventory write-down, the net loss for the fourth quarter of 2009 was $14.5 million, or $1.14 per basic and diluted share. This compared with a net loss of $2.5 million, or $0.20 per basic and diluted share, for the fourth quarter of 2008.
"The aesthetic industry continued to experience the effects of the economic downturn in the fourth quarter," said Cynosure President and Chief Executive Officer Michael Davin. "Lack of available credit remains a major impediment, as the restrictive lending environment has continued to make it difficult for many practitioners to purchase aesthetic capital equipment. We see good participation in our workshops, forums and other training venues, so we are confident that the underlying demand is strong. We continue to work closely with several lenders on customized financing programs designed to help our customers gain access to capital, and we believe this initiative will yield further results as the credit situation improves."
"Although the U.S. lending environment hurt our top-line performance in the fourth quarter, particularly in North America, we were encouraged by the contribution of our international markets," Davin said. "International laser sales accounted for $8.7 million, or 59%, of laser product revenue in the quarter. This compared with $8.1 million, or 39%, of laser product revenue in the fourth quarter of 2008 and $6.2 million, or 45%, of laser product revenue in the third quarter of 2009. We believe the growth of our international business validates the investments we have made overseas including China and Korea, where we have expanded our direct sales force and introduced new products aimed at fast-growing applications such as laser body sculpting, skin rejuvenation and pigmented skin treatment.
Total operating expenses declined nearly 31% to $14.2 million for the fourth quarter of 2009 from $20.5 million for the same period of 2008. For full-year 2009, total operating expenses decreased 23% to $60.3 million from $78.4 million.
"We achieved our targeted operating expense savings for full-year 2009, reducing expenses by more than $18 million from the prior year," Davin said. "Our cost-reduction initiatives enabled us to preserve our strong balance sheet. Our cash and investments totaled approximately $92 million at December 31, 2009, up $1.4 million from September 30, 2009."
Full-year 2009 Financial Results
Revenues for the 12 months ended December 31, 2009 were $72.8 million, compared with $139.7 million for the full year of 2008. Gross profit for 2009 was 54.9% of total revenues, compared with 65.1% for 2008. Adjusted for the $2.1 million write-down, gross profit for the full year of 2009 was 57.8% of total revenues. Including the charge for the allowance against deferred tax assets and the inventory write-down, the net loss for the full-year 2009 was $22.8 million, or $1.79 per basic and diluted share, compared with net income of $10.2 million, or $0.80 per diluted share, for 2008.
CoolTouch Patent Litigation Settlement
In a separate news release issued this morning, Cynosure announced that the company and its largest shareholder, El.En. S.p.A, have successfully settled their patent infringement lawsuit against CoolTouch, Inc. CoolTouch acknowledged that its laser lipolysis product violated El.En.'s Patent No. 6,206,873 (the 873 patent), which is licensed to Cynosure. The 873 patent, which covers laser technology to remove subcutaneous fat, is integral to Cynosure's groundbreaking Smartlipo family of LaserBodySculpting workstations.
Under the terms of the settlement, CoolTouch will make payments representing a 9% royalty on its sales of CoolLipo made prior to the agreement and a portion of Cynosure's legal expenses. CoolTouch also has agreed to pay a royalty rate of 10% of its future net sales for any licensed product sold strictly for lipolysis, and 7.5% of its future net sales for any licensed product sold for lipolysis and at least one other aesthetic procedure. As part of its agreement with Cynosure, CoolTouch has agreed to a Consent Judgment that it has infringed on the 873 patent and that the patent is valid and enforceable.
"This settlement should alert other laser aesthetic companies that Cynosure will remain vigilant in protecting its intellectual property position," Davin said. "We have held a first-mover advantage since introducing our initial Smartlipo workstation in 2006. Successful, smart innovations – from new higher-power workstations to intelligent energy delivery – have enabled Smartlipo to remain the world's leading system for laser lipolysis. And by aggressively defending the IP, we intend to maintain that leadership position."
"We believe the lending climate will gradually improve in the coming quarters, and we are optimistic that as economic conditions recover the underlying demand among practitioners and consumers will support a return to top-line growth," Davin said. "Our focus for the year ahead will be on returning to growth while continuing to appropriately size the company for the current economic and business climate. In 2010, we are committed to lowering our annual operating expenses by another $5 million to $7 million from 2009, a goal we believe we can attain without losing strength in our core competencies. While we cannot predict the pace of economic recovery, we believe that our market position and strong balance sheet will enable us to gain momentum as the year progresses."
SOURCE Cynosure, Inc.