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Thermage revenue for the third quarter of 2008 was $13.0 million, adecline of 6% from $13.9 million for the third quarter of 2007. Domesticrevenue decreased 10% and international revenue fell 1% from the third quarterof 2007. Gross margin for the quarter was 75.4% as compared to 77.6% for thesame period last year. Third quarter operating expenses declined from theprior year by $0.4 million, or 3%, to $10.6 million. Net loss for the quarterwas $1.1 million, or $0.05 per share, compared to net income of $0.4 million,or $0.02 per diluted share, in the third quarter of 2007. The third quarterof 2008 included a $0.9 million loss, or $0.03 per share, associated with thecompany's investment in a Lehman Brothers bond. Non-GAAP (1) net income forthe third quarter of 2008 was $0.7 million, or $0.03 per diluted share,compared to non-GAAP (1) net income of $1.6 million, or $0.07 per dilutedshare, for the prior year period.
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Third quarter 2008 revenue for Reliant totaled $19.9 million, 22% over the$16.3 million in revenue in the third quarter of the prior year. Reliant'soperating loss for the third quarter of 2008 was $1.6 million on a GAAP basisand included approximately $1.6 million in stock based compensation chargesand approximately $1.1 million in transaction expenses related to the pendingmerger with Thermage.
On a combined pro forma basis, revenue for the third quarter of 2008 forboth companies would have totaled $32.9 million. This represents a growthrate of approximately 9% from the pro forma combined revenue of the twocompanies of $30.1 million in the third quarter of 2007.
"This was a challenging quarter for the industry. The poor economicclimate and tight credit conditions resulted in physicians delaying purchasesand a slowdown in end-user demand," said Stephen J. Fanning, Chairman,President and Chief Executive Officer. "While Thermage revenue declinedslightly from the prior year, our gross margin of 75% remains one of thehighest in the industry. In addition, we exhibited good control of ouroperating expenses and generated approximately $1.4 million in cash fromoperations in the quarter."
"Reliant's growth for the quarter was the highest reported in theaesthetic energy device industry," Mr. Fanning continued. "With growingacceptance of its Fraxel products and procedures for skin resurfacing andrejuvenation earlier, Reliant generated strong growth, despite the difficultenvironment. We are focused on closing the Reliant transaction and completingthe integration as quickly as possible. The Reliant acquisition offerssignificant opportunities for an expanded market presence and cost synergies."
"We anticipate that the environment will remain challenging. However, webelieve that the merger of Thermage and Reliant joins the two leading brandsand innovators in aesthetic device technology. Both companies have businessmodels focused on generating substantial recurring revenue that should serveto help us weather current economic conditions and ultimately result instrengthening our leadership position in the industry," concluded Mr. Fanning.
Due to the pending completion of the Reliant acquisition and the uncertaineconomic environment, Thermage is withdrawing previous guidance for full year2008.
Non-GAAP Presentation
(1) To supplement the condensed financial information presented on a GAAPbasis, management has provided non-GAAP net income, and non-GAAP earnings pershare measures that exclude the impact of all stock-based compensationexpenses, loss on investments, and merger related costs, all net of incometaxes. The Company believes that these non-GAAP financial measures provideinvestors with insight into what is used by management to conduct a moremeaningful and consistent comparison of the Company's ongoing operatingresults and trends, compared with historical results. This presentation isalso consistent with management's internal use of the measure, which it usesto measure the performance of ongoing operating results, against prior periodsand against our internally developed targets. A table reconciling the GAAPfinancial measures to the non-GAAP measures is included in the condensedfinancial information attached to this release.
Conference Call
The conference call is scheduled to begin at 1:30 p.m. PT (4:30 p.m. ET)on November 10, 2008. The call will be broadcast live over the Internethosted at the Investor Relations section of the Company's website athttp://www.thermage.com. In addition, you may call to listen to the livebroadcast: 800-218-0530 for domestic participants and 303-262-2190 forinternational participants.
A taped replay of the conference call will also be available beginningapproximately one hour after the call's conclusion and will remain accessiblefor seven days. This replay can be accessed by dialing 800-405-2236 fordomestic callers and 303-590-3000 for international callers. Both callerswill need to use the Passcode 11120695#. An archived webcast will also beavailable at http://www.thermage.com.
About Thermage, Inc.
Thermage's innovative technology provides a unique non-invasive proceduredesigned to tighten and contour skin, significantly expanding the non-invasiveaesthetic applications physicians can offer to the rapidly growing"anti-aging" market. For more information, call 1-510-259-7117 or visithttp://www.thermage.com.
This press release contains forward-looking statements within the meaningof the U.S. Private Securities Litigation Reform Act of 1995. Specifically,statements concerning the pending merger with Reliant and related integrationas well as the uncertain economic environments are forward-looking statementswithin the meaning of the Safe Harbor. Forward-looking statements are basedon management's current, preliminary expectations and are subject to risks anduncertainties, which may cause Thermage's actual results to differ materiallyfrom the statements contained herein including but not limited to marketacceptance and demand of current and future products among physicians andpatients, our ability to successfully integrate the operations of Reliant andrealize synergies, the potential impact of general economic conditions on thedemand for our products, risks inherent with third-party supply anddistribution networks, risks inherent to future sales growth, and the abilityto execute proposed initiatives. Further information on potential riskfactors that could affect Thermage's business and its financial results aredetailed in its Form 10-K for the year ended December 31, 2007, its Form 10-Qfor the quarter ended June 30, 2008 and other reports as filed from time totime with the Securities and Exchange Commission. Undue reliance should notbe placed on forward-looking statements, especially guidance on futurefinancial performance, which speaks only as of the date they are made.Thermage undertakes no obligation to update publicly any forward-lookingstatements to reflect new information, events or circumstances after the datethey were made, or to reflect the occurrence of unanticipated events.
Additional Information and Where You Can Find It
This communication may be deemed to be solicitation material in respect ofthe proposed transaction between Thermage and Reliant. In connection with thetransaction, Thermage has filed a registration statement on Form S-4 with theSEC containing a proxy statement/prospectus/ information statement. The proxystatement/prospectus/information statement will be mailed to the stockholdersof Thermage and Reliant. Investors and security holders of Thermage andReliant are urged to read the proxy statement/prospectus/information statementwhen it becomes available because it will contain important information aboutThermage, Reliant and the proposed transaction. The proxystatement/prospectus/information statement (when it becomes available), andany other documents filed by Thermage with the SEC, may be obtained free ofcharge at the SEC's web site at http://www.sec.gov. In addition, investorsand security holders may obtain free copies of the documents filed with theSEC by Thermage by contacting Thermage Investor Relations by e-mail [email protected] or by telephone at (510) 259-7117. Investors and securityholders are urged to read the proxy statement/prospectus/information statementand the other relevant materials when they become available before making anyvoting or investment decision with respect to the proposed transaction.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, 2008 2007 2008 2007 Net revenue $13,020 $13,865 $47,132 $46,519 Cost of revenue 3,209 3,111 11,662 12,081 Gross margin 9,811 10,754 35,470 34,438 Operating expenses: Sales and marketing 5,915 6,016 20,330 19,205 Research and development 2,150 2,282 7,054 6,980 General and administrative 2,575 2,695 10,173 8,162 Total operating expenses 10,640 10,993 37,557 34,347 Income (loss) from operations (829) (239) (2,087) 91 Interest and other income 635 662 1,781 1,846 Loss on investments (863) - (863) - Income (loss) before income taxes (1,057) 423 (1,169) 1,937 Provision for income taxes (89) - (175) (147) Net income (loss) $(1,146) $423 $(1,344) $1,790 Net income (loss) per share - basic $(0.05) $0.02 $(0.06) $0.08 Net income (loss) per share - diluted $(0.05) $0.02 $(0.06) $0.07 Weighted average shares outstanding used in calculating net income (loss) per share: Basic 24,067,548 23,364,409 23,861,079 23,151,949 Diluted 24,067,548 24,882,614 23,861,079 24,825,621 Thermage, Inc NON-GAAP RECONCILIATION OF OPERATING INCOME (LOSS), 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, 2008 2007 2008 2007 Income (loss) from operations $(829) $(239) $(2,087) $91 Non-GAAP adjustments to income (loss) from operations: Merger related costs 165 - 1,134 - Stock-based compensation 887 1,222 2,789 3,705 Non-GAAP income from operations $223 $983 $1,836 $3,796 GAAP net income (loss) $(1,146) $423 $(1,344) $1,790 Non-GAAP adjustments to net income (loss): Merger related costs, net of taxes 131 - 1,075 - Loss on investments, net of taxes 863 - 863 - Stock-based compensation, net of taxes 887 1,222 2,789 3,705 Non-GAAP net income $735 $1,645 $3,383 $5,495 GAAP basic net income (loss) per share $(0.05) $0.02 $(0.06) $0.08 Non-GAAP adjustments to basic income (loss) per share: Merger related costs 0.01 - 0.05 - Loss on investments 0.03 - 0.03 - Stock-based compensation 0.04 0.05 0.12 0.16 Non-GAAP basic net income per share $0.03 $0.07 $0.14 $0.24 Non-GAAP diluted net income per share $0.03 $0.07 $0.14 $0.23 GAAP weighted average shares outstanding used in calculating basic net income (loss) per share 24,067,548 23,364,409 23,861,079 23,151,949 Adjustments for dilutive potential common stock 838,410 549,052 1,057,632 585,145 Weighted average shares outstanding used in calculating non-GAAP diluted net income (loss) per share 24,905,958 23,913,461 24,918,711 23,737,094 Thermage, Inc. CONDENSED BALANCE SHEETS (in thousands of dollars, except share and per share data) (Unaudited) September 30, December 31, 2008 2007 ASSETS Current assets: Cash and cash equivalents $21,236 $13,650 Marketable investments 24,684 38,707 Accounts receivable, net 5,928 4,809 Inventories, net 6,823 6,639 Prepaid expenses and other current assets 1,401 1,782 Total current assets 60,072 65,587 Property and equipment, net 3,132 3,000 Notes and interest receivable 5,164 - Other assets 1,784 140 Total assets $70,152 $68,727 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $2,517 $1,341 Accrued liabilities 6,359 6,850 Current portion of deferred revenue 1,472 1,544 Customer deposits 57 18 Total current liabilities 10,405 9,753 Deferred revenue, net of current portion 529 601 Other liabilities 322 255 Total liabilities 11,256 10,609 Stockholders' equity: Common stock, $0.001 par value: 100,000,000 shares authorized 24,082,735 and 23,605,415 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively 24 24 Additional paid-in capital 103,127 99,588 Deferred stock-based compensation (2) (4) Accumulated other comprehensive income (loss) (1,400) 19 Accumulated deficit (42,853) (41,509) Total stockholders' equity 58,896 58,118 Total liabilities and stockholders' equity $70,152 $68,727
SOURCE Thermage, Inc.
