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Thermage Announces Third Quarter Financial Results
Date:11/6/2007

Revenue Up 11%; Tip Revenue Up 16%

Gross Profit Margin of 78%; Non-GAAP EPS of $0.06

Cellulite Product Launch Targeted for Late Q1 2008

Company Updates Guidance for Full Year 2007

HAYWARD, Calif., Nov. 6 /PRNewswire-FirstCall/ -- Thermage, Inc. (Nasdaq: THRM), a leader in non-invasive tissue tightening in the aesthetic industry, today reported its financial results for the third quarter ended September 30, 2007. Revenue for the third quarter of 2007 was $13.9 million, an 11% increase from $12.5 million for the quarter ended September 30, 2006. The Company reported net income of $0.4 million on a GAAP basis for the recent third quarter, or $0.02 per diluted share, versus a net loss of $1.5 million, or $(0.36) per diluted share, for the third quarter of 2006. Non-GAAP(1) net income for the third quarter of 2007 was $1.6 million, or $0.06 per diluted share, compared to a non-GAAP(1) net loss of $0.9 million, or $(0.06) per diluted share, for the prior year period.

Revenue for the nine months ended September 30, 2007 was $46.5 million, up 18% from $39.6 million for the prior year period. GAAP net income for the first nine months of the year was $1.8 million, or $0.07 per diluted share, versus a net loss of $5.3 million, or $(1.26) per share last year. Non-GAAP(1) net income for the first nine months of 2007 was $5.5 million, or $0.22 per diluted share, compared to a non-GAAP(1) net loss of $1.6 million, or $(0.10) per diluted share, for the prior year period.

"Our third quarter net income was driven by a very strong gross profit margin of 78%, reflecting the strength of our treatment tip sales during the period," said Stephen J. Fanning, President and Chief Executive Officer of Thermage. "Treatment tip revenue grew 16% from the third quarter of 2006. A key to our growth was our recently introduced premium ThermaCool STC (smoothing, tightening and contouring) tip that has served to further improve the value proposition for our customers. Tips and related consumables represented 73% of total revenue. During the quarter, we sold 120 generators. We also demonstrated continued good operating expense controls."

"We believe support for Thermage treatments continues to grow among clinicians," continued Mr. Fanning, "and that this support is being driven by a wide range of Thermage applications as a result of our aggressive new product introductions during 2007. The new ThermaCool STC treatment tip introduced last quarter has been selling well, and on October 15th we began shipments of our deep heating 3.0cm2 ThermaTip(TM) DC for use in our recently introduced Body Shape procedure. Finally, we are very excited with the clinical results we are seeing from our cellulite procedure trials and we are targeting product launch late first quarter of 2008."

"The third quarter is traditionally the slowest for the industry," Mr. Fanning continued. "While we have adjusted our top line outlook for the full year, we have also raised the low-end of our guidance on EPS. The gross profit margin should remain strong and we expect continued good control of our operating expenses.

Guidance:

Management currently expects full year 2007 revenue to be approximately $63 million. Net income for full year 2007 on a GAAP basis is expected to be between $0.07 and $0.10 per diluted share. Non-GAAP earnings are expected to be in a range of $0.26 to $0.30 per diluted share. The per share earnings amounts are based on fully diluted weighted average shares of 26 million.

Non-GAAP Presentation:

(1) To supplement the condensed financial information presented on a GAAP

basis, management has provided non-GAAP net income and loss, and

non-GAAP earnings per share measures that exclude the impact of all

stock-based compensation expenses, and amounts recorded for

revaluation of preferred stock warrant liabilities, all net of income

taxes. The calculation of non-GAAP net earnings per share in the

periods ended September 30, 2007 and 2006 also includes adjustments

for dilutive potential common stock and assumes the conversion into

common stock of the Company's shares of convertible preferred stock,

which automatically converted into shares of common stock upon the

Company's initial public offering in November 2006. The Company

believes that these non-GAAP financial measures provide investors with

insight into what is used by management to conduct a more meaningful

and consistent comparison of the Company's ongoing operating results

and trends, compared with historical results. This presentation is

also consistent with management's internal use of the measure, which

it uses to measure the performance of ongoing operating results,

against prior periods and against our internally developed targets. A

table reconciling the GAAP financial measures to the non-GAAP measures

is included in the condensed consolidated financial information

attached to this release.

Conference Call

The conference call is scheduled to begin at 1:30 p.m. PT (4:30 p.m. EST) on November 6, 2007. The call will be broadcast live over the Internet hosted at the Investor Relations section of the Company's website at http://www.thermage.com. In addition, you may call to listen to the live broadcast: 800-218-0713 for domestic participants and 303-262-2125 for international participants. Participating in the call will be Stephen J. Fanning, Chairman, President and Chief Executive Officer, and Laureen DeBuono, Chief Financial Officer.

A taped replay of the conference call will also be available beginning approximately one hour after the call's conclusion and will remain accessible for seven days. This replay can be accessed by dialing 800-405-2236 for domestic callers or 303-590-3000 for international callers. The passcode for both is 11098153#. An archived web cast will also be available at http://www.thermage.com.

About Thermage, Inc.

Thermage's innovative technology provides a unique non-invasive procedure designed to tighten and contour skin, significantly expanding the non-invasive aesthetic applications physicians can offer to the rapidly growing "anti-aging" market. For more information, call 1-510-259-7117 or visit http://www.thermage.com.

This press release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Specifically, statements concerning Thermage's ability to continue to grow demand for Thermage treatments, timing of a cellulite product launch, as well as financial guidance for fiscal year 2007 are forward-looking statements within the meaning of the Safe Harbor. Forward-looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause Thermage's actual results to differ materially from the statements contained herein. Thermage's third quarter September 30, 2007 financial results, as discussed in this release, are preliminary and unaudited, and subject to adjustment. Further information on potential risk factors that could affect Thermage's business and its financial results are detailed in its Form 10-Q as filed with the Securities and Exchange Commission on August 13, 2007. Undue reliance should not be placed on forward-looking statements, especially guidance on future financial performance, which speaks only as of the date they are made. Thermage undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

Thermage, Inc.

CONDENSED STATEMENTS OF OPERATIONS

(in thousands of dollars, except share and per share data)

(unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2007 2006 2007 2006

Net revenue $13,865 $12,507 $46,519 $39,569

Cost of revenue 3,111 3,493 12,081 11,172

Gross margin 10,754 9,014 34,438 28,397

Operating expenses

Sales and marketing 6,016 5,785 19,205 17,935

Research and development 2,282 2,189 6,980 7,129

General and administrative 2,695 2,688 8,162 7,345

Total operating expenses 10,993 10,662 34,347 32,409

Income (loss) from

operations (239) (1,648) 91 (4,012)

Interest and other income 662 135 1,846 375

Interest, warrants and

other expense - (33) - (1,661)

Income (loss) before

income taxes 423 (1,546) 1,937 (5,298)

Provision for income taxes - - (147) -

Net income (loss) $423 $(1,546) $1,790 $(5,298)

Net income (loss) per

share - basic $0.02 $(0.36) $0.08 $(1.26)

Net income (loss) per

share - diluted $0.02 $(0.36) $0.07 $(1.26)

Weighted average shares

outstanding used in

calculating net income

(loss) per common share:

Basic 23,364,409 4,317,069 23,151,949 4,196,954

Diluted 24,882,614 4,317,069 24,825,621 4,196,954

Thermage, Inc NON-GAAP RECONCILIATION OF NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE

(in thousands, except share and per share data)

(unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2007 2006 2007 2006

GAAP net income (loss) $423 $(1,546) $1,790 $(5,298)

Non-GAAP adjustments to

net income (loss):

Stock-based compensation(a) 1,222 779 3,705 2,662

Impact of change in fair

value of preferred

warrant liabilities (b) - (164) - 1,075

Total non-GAAP adjustments

to net income (loss) 1,222 615 3,705 3,737

Non-GAAP net income (loss) $1,645 $(931) $5,495 $(1,561)

GAAP basic net income

(loss) per share $0.02 $(0.36) $0.08 $(1.26)

Non-GAAP adjustments to

basic income (loss) per

share:

Stock-based compensation(a) 0.05 0.05 0.16 0.16

Impact of change in fair

value of preferred

warrant liabilities (b) - (0.01) - 0.07

Impact of higher weighted

average shares due to

assumed conversion of

preferred shares (c) - 0.26 - $0.93

Non-GAAP basic net income

(loss) per share $0.07 $(0.06) $0.24 $(0.10)

Non-GAAP diluted net

income (loss) per share $0.06 $(0.06) $0.22 $(0.10)

Weighted average shares

outstanding used in

calculating non-GAAP

basic net income (loss)

per common share: 23,364,409 16,369,615 23,151,949 16,242,753

GAAP weighted average

shares outstanding used

in calculating basic net

income (loss) per common

share: 23,364,409 4,317,069 23,151,949 4,196,954

Adjustments to reflect

assumed weighted average

effect of conversion of

preferred stock - 12,052,546 - 12,045,799

Weighted average shares

outstanding used in

calculating non-GAAP

basic net income (loss)

per common share: 23,364,409 16,369,615 23,151,949 16,242,753

GAAP weighted average

shares outstanding used

in calculating diluted

net income (loss) per

common share: 24,882,614 4,317,069 24,825,621 4,196,954

Adjustments to reflect

assumed weighted average

effect of conversion of

preferred stock - 12,052,546 - 12,045,799

Adjustments for dilutive

potential common stock 549,052 - 585,145 -

Weighted average shares

outstanding used in

calculating non-GAAP

diluted net income per

common share: 25,431,666 16,369,615 25,410,766 16,242,753

(a) Includes all employee and non-employee stock-based compensation

charges

(b) Includes the impact of adjustments related to the revaluation of the

Company's preferred stock warrant liability during the period.

(c) Assumes the conversion of the Company's convertible preferred stock

into shares of common stock at the beginning of the period.

Thermage, Inc.

CONDENSED BALANCE SHEETS

(in thousands of dollars, except share and per share data)

(Unaudited)

September 30, December 31,

2007 2006

ASSETS

Current assets:

Cash and cash equivalents $16,995 $45,915

Marketable investments 32,915 -

Accounts receivable, net 4,560 3,285

Inventories, net 6,935 5,219

Prepaid expenses and other current assets 1,055 1,717

Total current assets 62,460 56,136

Property and equipment, net 3,166 3,638

Other assets 232 101

Total assets $65,858 $59,875

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Accounts payable $1,319 $1,398

Accrued liabilities 6,630 7,372

Current portion of deferred revenue 1,559 1,151

Customer deposits 17 62

Total current liabilities 9,525 9,983

Deferred revenue, net of current portion 736 716

Other liabilities 100 55

Total liabilities 10,361 10,754

Stockholders' equity:

Preferred stock, $0.001 par value:

shares authorized: 10,000,000 at 2007

and 2006; issued and outstanding: none

at 2007 and 2006 - -

Common stock, $0.001 par value:

shares authorized: 100,000,000 at

2007 and 2006; issued and outstanding:

23,437,629 and 22,906,851 at 2007 and

2006, respectively 23 23

Additional paid-in capital 97,963 93,418

Deferred stock-based compensation (5) (6)

Notes receivable from stockholders - (125)

Accumulated other comprehensive income 15 -

Accumulated deficit (42,499) (44,189)

Total stockholders' equity 55,497 49,121

Total liabilities and stockholders'

equity $65,858 $59,875


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SOURCE Thermage, Inc.
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