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Cynosure Reports Financial Results for the Fourth Quarter and Full Year 2008
Date:2/10/2009

WESTFORD, Mass., Feb. 10 /PRNewswire-FirstCall/ -- 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, 2008.

Fourth-Quarter 2008 Financial Results

Consistent with Cynosure's January 15, 2009 announcement, revenues for the three months ended December 31, 2008 were $25.5 million, reflecting the effect of deteriorating global economic conditions and a weakening credit environment in the aesthetic laser industry. Revenues for the comparable period of 2007 were $36.6 million. Gross margin for the fourth quarter of 2008 was 61.0% of total revenues, compared with 65.9% for the same period in 2007. The decline in gross margin was attributable to pricing pressure and a shift in the geographic product mix in the fourth quarter of 2008, which saw a higher percentage of laser revenue from the company's international customers than in the comparable quarter of 2007.

Net loss for the fourth quarter of 2008 was $2.5 million, or $0.20 per basic share. For the comparable period of 2007, Cynosure reported net income of $5.3 million, or $0.41 per diluted share. Results for the fourth quarter of 2008 included a bad debt charge of $2.7 million related to uncollectible accounts from certain customers affected by the overall economic environment and the tightening of credit markets, which subsequently caused a number of practitioners to be unable to meet their payment obligations to Cynosure.

On a non-GAAP basis, which excludes stock-based compensation expense and its related income tax effects, the net loss was $1.9 million, or $0.15 per basic share, for the fourth quarter of 2008, compared with non-GAAP net income of $5.9 million, or $0.46 per diluted share, for the fourth quarter of 2007. Please refer to the financial reconciliations included in this news release for a reconciliation of GAAP results to non-GAAP results for the three months ended December 31, 2008 and 2007.

"The global economic downturn has created an extremely challenging environment for the aesthetic industry," said Cynosure President and Chief Executive Officer Michael Davin. "After achieving 13 consecutive quarters of year-over-year, double-digit percentage revenue growth, our revenue declined sharply in the fourth quarter as a number of prospective customers faced tighter lending standards and some physicians opted to delay planned capital equipment purchases."

"As previously announced, Cynosure has taken a number of steps to bring expenses in line with current revenue levels," Davin said. "We have reduced our worldwide headcount by 17%, decreased spending on multiple programs and implemented other cost-control initiatives. Together, we expect these actions to produce an annualized savings of approximately $8 million to $10 million as we work toward managing the business profitably in 2009."

"Despite the economic headwinds, we believe Cynosure concluded 2008 in a strong competitive position," Davin said. "During 2008, we extended our track record of innovation with the introduction of three new workstations, including Smartlipo MPX(TM) for laser lipolysis, Accolade(TM) for the removal of pigmented lesions, and Affirm CO2(TM) for advanced ablative therapy. We also rolled out a series of technology enhancements such as the SmartSense(TM) intelligent energy delivery system and the Affirm Er wavelength for anti-aging applications. For customers, these solutions raise the bar for efficacy and safety in the aesthetic industry, and further differentiate the Cynosure brand."

Full-Year Results

For the 12 months ended December 31, 2008, revenues increased approximately 12% to $139.7 million from $124.3 million in 2007. Gross margin was 65.1% of total revenues in 2008 compared with 64.2% in 2007. Net income for 2008 was $10.2 million, or $0.80 per diluted share, versus $14.5 million, or $1.15 per diluted share, for 2007.

Non-GAAP net income, which excludes stock-based compensation expense and its related income tax effects, was $14.4 million, or $1.13 per diluted share, for full-year 2008 compared with $18.3 million, or $1.44 per diluted share, in 2007. Please refer to the financial reconciliations included in this news release for a reconciliation of GAAP results to non-GAAP results for the 12 months ended December 31, 2008 and 2007.

Business Outlook

"Looking ahead, we are committed to managing our business profitably and extending our industry leadership in 2009," Davin said. "Among our goals for the year, we plan to introduce a new flagship workstation at the American Academy of Dermatology Annual Meeting in March; open new direct sales offices in select international markets; and roll out several new technology innovations designed to benefit both aesthetic practitioners and patients."

"Our emphasis on delivering the most innovative and exciting products through the most efficient distribution channels has served us well," Davin said. "We plan to invest further in these areas as we navigate this economic downturn, with the aim of emerging as an even stronger competitor. With more than $95 million in cash, cash equivalents, marketable securities and investments at year end, and no long-term debt, we believe we have ample capital to execute our strategy."

Use of Non-GAAP Financial Measures

To supplement Cynosure's consolidated financial statements presented in accordance with GAAP, this press release includes the following measures defined as non-GAAP financial measures by the SEC: non-GAAP net income and non-GAAP diluted earnings per share. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release may be different from, and therefore not comparable to, similar measures used by other companies. Although certain non-GAAP financial measures used in this release exclude the accounting treatment of stock-based compensation, these non-GAAP measures should not be relied upon independently, as they ignore the contribution to our operating results that is generated by the incentive and compensation effects of the underlying stock-based compensation programs. For more information on these non-GAAP financial measures, please see the non-GAAP data included at the end of this release. This data has more details of the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.

Cynosure's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses and expenditures that may not be indicative of our core business operating results. Cynosure believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Cynosure's performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Cynosure's historical performance and our competitors' operating results. Cynosure believes that these non-GAAP measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making.

Conference Call

Cynosure will host a conference call for investors today at 9:00 a.m. ET. On the call, Michael Davin and Timothy Baker, the company's Executive Vice President and Chief Financial Officer, will discuss the fourth quarter and full year 2008 financial results and provide a business outlook.

Those who wish to listen to the conference call webcast should visit the "Investor Relations" section of the company's website at www.cynosure.com. The live call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. If you are unable to listen to the live call, the webcast will be archived on the company's website.

About Cynosure, Inc.

Cynosure, Inc. develops and markets aesthetic treatment systems that are used by physicians and other practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular lesions, rejuvenate skin through the treatment of shallow vascular and pigmented lesions, liquefy and remove unwanted fat through laser lipolysis and temporarily reduce the appearance of cellulite. Cynosure's products include a broad range of laser and other light-based energy sources, including Alexandrite, pulsed dye, Nd:YAG and diode lasers, as well as intense pulsed light. Cynosure was founded in 1991.

For corporate or product information, contact Cynosure at 800-886-2966, or visit www.cynosure.com.

Forward-Looking Statements

Any statements in this press release about future expectations, plans and prospects for Cynosure, Inc., including statements about the company's expectations and future financial performance, as well as other statements containing the words "believes," "anticipates," "plans," "expects," "will" and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including Cynosure's history of operating losses, its reliance on sole source suppliers, the inability to accurately predict the timing or outcome of regulatory decisions, changes in consumer preferences, competition in the aesthetic laser industry, economic, market, technological and other factors discussed in Cynosure's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are filed with the Securities and Exchange Commission. In addition, the forward-looking statements included in this press release represent Cynosure's views as of the date of this press release. Cynosure anticipates that subsequent events and developments will cause its views to change. However, while Cynosure may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Cynosure's views as of any date subsequent to the date of this press release.

    Contact:
    Scott Solomon
    Vice President
    Sharon Merrill Associates, Inc.
    617-542-5300
    cyno@investorrelations.com 

    Consolidated Statements of Income (Unaudited)
    ---------------------------------------------
    (In thousands, except per share data)

                                     Three Months
                                         Ended           Year Ended
                                      December 31,      December 31,
                                     2008     2007     2008      2007
                                     ----     ----     ----      ----

    Revenues                      $25,495  $36,573 $139,662  $124,315
    Cost of revenues               10,060   12,472   48,705    44,507
                                   ------   ------   ------    ------
    Gross profit                   15,435   24,101   90,957    79,808

    Operating expenses
      Selling and marketing        11,872   12,611   53,062    42,058
      Research and development      1,891    1,869    7,497     6,827
      General and administrative    6,729    2,975   17,837    11,346
                                    -----    -----   ------    ------

    Total operating expenses       20,492   17,455   78,396    60,231

    (Loss) income from operations  (5,057)   6,646   12,561    19,577

      Interest income, net            521      754    2,498     2,516
      Other (expense) income, net     (98)     255      (89)      695
                                      ---      ---      ---       ---

    (Loss) income before income
     taxes                         (4,634)   7,655   14,970    22,788

      Income tax (benefit)
       provision                   (2,141)   2,349    4,771     8,276
                                   ------    -----    -----     -----

    Net (loss) income             $(2,493)  $5,306  $10,199   $14,512
                                  =======   ======  =======   =======


    Diluted net (loss) income
     per share                    $(0.19)   $0.41    $0.80     $1.15
                                  ======    =====    =====     =====
    Diluted weighted average
     shares outstanding           12,807   12,806   12,806    12,654
                                  ======   ======   ======    ======


    Basic net (loss) income per
     share                        $(0.20)   $0.43    $0.81     $1.21
                                  ======    =====    =====     =====
    Basic weighted average shares
     outstanding                  12,698   12,381   12,581    11,993
                                  ======   ======   ======    ======



    Condensed Consolidated Balance Sheet
     (Unaudited)
    ------------------------------------
    (In thousands)
                                                          December 31,
                                                         2008     2007
                                                         ----     ----

    Assets:
      Cash, cash equivalents and marketable securities  $74,369  $86,097
      Accounts receivable, net                           25,156   24,124
      Amounts due from related parties                       40        8
      Inventories                                        30,248   22,442
      Deferred tax asset, current portion                 6,825    4,161
      Prepaid expenses and other current assets           4,331    4,425
                                                          -----    -----
    Total current assets                                140,969  141,257
      Property and equipment, net                         8,422    7,146
      Long-term investments and related financial
       instruments                                       21,082        -
      Other noncurrent assets                             2,649    1,441
                                                          -----    -----
    Total assets                                       $173,122 $149,844
                                                       ======== ========

    Liabilities and stockholders' equity:
      Accounts payable and accrued expenses             $20,697  $20,790
      Amounts due to related parties                      6,083    2,311
      Deferred revenue                                    4,296    3,939
      Capital lease obligations                             398      485
                                                            ---      ---
    Total current liabilities                            31,474   27,525

    Capital lease obligations, net of current portion       407      794
    Deferred revenue, net of current portion                436      421
    Other long-term liabilities                             451      226
                                                            ---      ---
    Total stockholders' equity                          140,354  120,878
                                                        -------  -------
    Total liabilities and stockholders' equity         $173,122 $149,844
                                                       ======== ========



    To supplement our consolidated financial statements presented in
    accordance with GAAP, Cynosure uses the following measures defined
    as non-GAAP financial measures by the SEC: non-GAAP gross profit,
    non-GAAP income from operations, non-GAAP net income and
    non-GAAP diluted earnings per share.  The presentation of this financial
    information is not intended to be considered in isolation or as a
    substitute for the financial information prepared and presented in
    accordance with GAAP. In addition, the non-GAAP financial measures
    included in this press release may be different from, and therefore not
    comparable to, similar measures used by other companies.  Although
    certain non-GAAP financial measures used in this release exclude the
    accounting treatment of stock-based compensation, these non-GAAP measures
    should not be relied upon independently as they ignore the contribution
    to our operating results that is generated by the incentive and
    compensation effects of the underlying stock-based compensation programs.

    Cynosure's management believes that these non-GAAP financial measures
    provide meaningful supplemental information regarding our
    performance by excluding certain expenses and expenditures that may not
    be indicative of our core business operating results. Cynosure
    believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing Cynosure's
    performance and when planning, forecasting and analyzing future periods.
    These non-GAAP financial measures also facilitate management's
    internal comparisons to Cynosure's historical performance and our
    competitors' operating results. Cynosure believes that these non-GAAP
    measures are useful to investors in allowing for greater transparency with
    respect to supplemental information used by management in its financial
    and operational decision making.

    Reconciliation of GAAP Income Statement Measures to Non-GAAP Income
    Statement Measures (Unaudited)
    --------------------------------------------------------------------
    (In thousands, except per share data)

                                             Three Months
                                                Ended            Year Ended
                                              December 31,      December 31,
                                             2008     2007     2008     2007
                                             ----     ----     ----     ----


    Gross profit                          $15,435  $24,101  $90,957  $79,808
                                          -------  -------  -------  -------
    Non-GAAP adjustments to gross profit:
      Stock-based compensation                127      104      537      373
                                              ---      ---      ---      ---
      Total non-GAAP adjustments to gross
       profit                                 127      104      537      373
                                              ---      ---      ---      ---
    Non-GAAP gross profit                 $15,562  $24,205  $91,494  $80,181
                                          =======  =======  =======  =======

                                             Three Months
                                                Ended           Year Ended
                                              December 31,      December 31,
                                             2008     2007     2008     2007
                                             ----     ----     ----     ----

    (Loss) income from operations         $(5,057)  $6,646  $12,561  $19,577
                                          -------   ------  -------  -------

    Non-GAAP adjustments to (loss) income
     from operations:

      Stock-based compensation              1,616    1,494    7,279    5,777
                                            -----    -----    -----    -----
      Total non-GAAP adjustments to (loss)
       income from operations               1,616    1,494    7,279    5,777
                                            -----    -----    -----    -----
    Non-GAAP (loss) income from
     operations                           $(3,441)  $8,140  $19,840  $25,354
                                          =======   ======  =======  =======

                                             Three Months
                                                Ended           Year Ended
                                              December 31,      December 31,
                                             2008     2007     2008     2007
                                             ----     ----     ----     ----

    Net (loss) income                     $(2,493)  $5,306  $10,199  $14,512
                                          -------   ------  -------  -------

    Non-GAAP adjustments to net (loss)
     income:

      Stock-based compensation              1,547    1,494    7,422    5,777
      Income tax provision from IRS Audit       -        -        -      702
      Income tax effect of non-GAAP
       adjustments                           (941)    (945)  (3,201)  (2,710)
                                             ----     ----   ------   ------
      Total non-GAAP adjustments to net
       (loss) income                          606      549    4,221    3,769
                                              ---      ---    -----    -----
    Non-GAAP net (loss) income            $(1,887)  $5,855  $14,420  $18,281
                                          =======   ======  =======  =======

                                              Three Months
                                                  Ended         Year Ended
                                              December 31,      December 31,
                                             2008     2007     2008     2007
                                             ----     ----     ----     ----

    Diluted net (loss) income per share    $(0.19)   $0.41    $0.80    $1.15
                                           ------    -----    -----    -----

      Stock-based compensation               0.12     0.12     0.58     0.46
      Income tax provision from IRS Audit       -        -        -     0.06
      Income tax effect of non-GAAP
       adjustments                          (0.08)   (0.07)   (0.25)   (0.21)
                                           ------    -----    -----    -----

      Total non-GAAP adjustments to net
       (loss) income                         0.04     0.04     0.33     0.30
                                            -----     ----     ----     ----

    Non-GAAP diluted net (loss) income
     per share                             $(0.15)   $0.46    $1.13    $1.44
                                           ======    =====    =====    =====

    Weighted average shares used to
     compute diluted net (loss)
     income per share                      12,807   12,806   12,806   12,654
                                           ======   ======   ======   ======

    Weighted average shares used to
     compute non-GAAP diluted net
     (loss) income per share               12,807   12,806   12,806   12,654
                                           ======   ======   ======   ======


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SOURCE Cynosure, Inc.
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