Obagi Medical Products Reports Fourth Quarter and Year-End 2012 Financial Results

  Obagi Medical Products Reports Fourth Quarter and Year-End 2012 Financial
  Results

              --Conference Call To Be Held at 4:30 PM ET Today--

Business Wire

LONG BEACH, Calif. -- March 14, 2013

Obagi Medical Products, Inc. (NASDAQ: OMPI), a leader in topical aesthetic and
therapeutic skin health systems, today reported financial results for the
fourth quarter and full-year ended December 31, 2012.

Net sales for the fourth quarter of 2012 were $30.3 million, compared with the
prior year quarter’s sales of $30.6 million, reflecting a 5.3% increase in
international product revenues that was offset by a decline in licensing fees
and the planned reduction in sales to accounts identified to be re-selling to
unauthorized internet retailers.

Net income for the fourth quarter of 2012 was $7.3 million, or $0.41 per
diluted share. This compared with net income of $5.1 million, or $0.27 per
diluted share, a year ago. Excluding the impact of an insurance related
settlement and corporate advisory related expenses, non-GAAP net income for
the fourth quarter of 2012 was $2.6 million, or $0.15 per diluted share.
Please refer to the GAAP vs. non-GAAP reconciliation attached.

Operating expenses for the fourth quarter of 2012 were $11.6 million, down
from $16.0 million for the same period last year, primarily due to the $8.4
million benefit of insurance proceeds. Included in operating expenses for the
fourth quarter 2012 was $1.7 million for our e-Commerce and other growth
initiatives, or an earnings per dilutive share impact of $0.06.

Gross margin for the fourth quarter of 2012 was 77.7%, compared with 79.2% a
year ago as a result of component inventory write offs and lower royalties
from our Japanese licensing partner.

The Company generated $13.6 million in cash flow from operations in the fourth
quarter, which includes the benefit of insurance proceeds received in October
2012. This compared to $7.8 million a year ago.  Total cash on hand at
December 31, 2012 was $34.6 million.

Al Hummel, the Company’s President and CEO, stated, “Obagi achieved solid
performance for the fourth quarter, which reflected our continued focus on
growing existing accounts and launching new products, even though we reduced
sales to unauthorized discounted internet sites. In particular, performance of
the Nu-Derm System improved, aided by the successful November launch of our
novel moisturizer, Obagi Hydrate, and continued traction from the
re-introduction of product sales in Texas.”

Mr. Hummel continued, “We continue to advance development of our new
e-Commerce platform that will provide our physician partners with customized
online storefronts where their customers can order and re-order Obagi
products. This e-Commerce strategy will capitalize on current demand for our
products that exists online, while also facilitating the flow of new Obagi
customers to our physicians. We are on track to launch the testing of trial
sites for this important initiative and continue to be excited about its
prospects based upon feedback we have received from physicians and patients.

“In 2013, we continue to focus on maintaining Obagi’s leadership position in
the increasingly important and visible physician-dispensed skincare category
through the execution of our disciplined growth strategy, which includes new
product introductions, growing existing customer accounts through re-focused
sales efforts and e-Commerce, and increasing our international presence. We
are confident that this is the right strategy for Obagi and look forward to
growing the reach of our brands and enhancing value for all stockholders,”
concluded Mr. Hummel.

Additional developments of the fourth quarter and to date include the
following:

  *Introduced Obagi Hydrate™ in November, the first moisturizer by Obagi,
    which was offered as a vital component in the Nu-Derm® System and as a
    stand-alone product, and drove an increase in Nu-Derm sales;
  *Commenced co-distribution of ReGenica® Facial Rejuvination Complex in
    partnership with Suneva Medical, Inc. This growth factor product is
    designed to support a more rapid improvement in the appearance of skin
    following laser and other skin treatments and to restore skin’s more
    youthful appearance by helping to soothe, rejuvenate and revitalize skin;
    and
  *Repackaged a number of current products into a larger size (liter and half
    liter) and marketed as a Professional Back Bar line designed to be used by
    aestheticians and other skincare professionals in performing facials and
    other procedures, to create awareness and conversion throughout the
    medical practice.

Full-Year 2012 Financial Summary for the Year Ended December 31, 2012 Compared
to 2011

For the full-year 2012, Obagi achieved:

  *Net sales were $120.7 million in 2012, up 5.8% from $114.1 million in
    2011;
  *Gross margin was 79.2% versus 78.9% a year ago;
  *Net income totaled $16.6 million, or $0.90 per diluted share, compared
    with $10.0 million, or $0.54 per diluted share a year ago;
  *On a non-GAAP basis net income was $12.0 million, or $0.65 per diluted
    share, compared with $15.0 million, or $0.80 per diluted share for 2011.
    Please refer to the attached table to reconcile GAAP to non-GAAP financial
    measures;
  *Invested $5.8 million in operating expenses and $2.8 million in capital
    expenditures towards the Company’s e-Commerce and other growth
    initiatives, representing an earnings per dilutive share impact of $0.19;
    and
  *The acquisition of 1.5 million shares of the Company’s common stock
    through market purchases for $19.8 million, reducing the total shares
    outstanding by approximately 8%. There is approximately $10.2 million of
    remaining capacity for future repurchases in the current authorization.

2013 First Quarter and Full-Year Financial Guidance

The Company today provided financial guidance for the first quarter and full
year 2013 as follows. First quarter 2013 net sales of between $30.0 million
and $30.5 million and diluted earnings per share of between $0.09 and $0.10.
For full year 2013, net sales are expected to be between $126 million and $130
million and diluted earnings per share between $0.80 and $0.84.

These estimates take into consideration the following expectations:

  *Continuation of the current economic environment and continued elimination
    of accounts that divert products to internet discounters, particularly in
    the first quarter;
  *Total 2013 investment of approximately $3.5 million associated with
    establishing the Company’s e-Commerce initiative which will be recorded as
    selling, general and administrative;
  *Total 2013 investments of approximately $1.5 million, primarily associated
    with physician outreach and market positioning that will focus on an
    increasingly competitive landscape; and
  *An annualized tax rate of 36.0%, which assumes the continued benefit of
    the R&D tax credit for both 2012 (to be recorded in the first quarter of
    2013) and 2013.

Conference Call Information

The Company will host a conference call and webcast today at 4:30 p.m. Eastern
time (1:30 p.m. Pacific time). Investors interested in participating in the
live call from the U.S. can dial 877.407.0789. International callers can dial
201.689.8562. A telephone replay will be available approximately two hours
after the call concludes through Thursday, March 28, by dialing 877.870.5176
from the U.S., or 858.384.5517 internationally, and entering replay pin
#409446.

There also will be a simultaneous webcast available on the Investor Relations
section of the Company's web site at www.obagi.com. For those unable to
participate during the live broadcast, the webcast will be archived for 30
days.

About Obagi Medical Products, Inc.

Obagi Medical Products is a specialty pharmaceutical company that develops,
markets and sells, and is a leading provider of, proprietary topical aesthetic
and therapeutic prescription-strength skin care systems in the
physician-dispensed market. Using its Penetrating Therapeutics™ technologies,
Obagi Medical's products are designed to improve penetration of agents across
the skin barrier for common and visible skin conditions in adult skin
including premature aging, photodamage, hyperpigmentation (irregular or patchy
discoloration of the skin), acne, sun damage, rosacea, and soft tissue
deficits, such as fine lines and wrinkles. Obagi Medical's portfolio, which
includes cosmetic, over-the-counter and prescription products, including 4%
hydroquinone, is sold and promoted only through physician offices and requires
education by a physician on proper use. The history of Obagi's skin care
product introductions is as follows: Obagi Nu-Derm^®, Obagi-C^® Rx (a
prescription-strength vitamin C and hydroquinone system), Obagi^®
Professional-C (a line of highly stable vitamin C serums), Obagi Condition &
Enhance^® for use with cosmetic procedures to enhance patient outcomes and
satisfaction, ObagiELASTIderm^® Eye Products ObagiCLENZIderm^® M.D. acne
therapeutic systems, a formulation of ObagiCLENZIderm M.D. Systems for normal
to dry skin, ObagiELASTIderm Décolletage System, ObagiRosaclear^® System,
ObagiELASTILash^® Eyelash Solution, Obagi Blue Peel RADIANCE^®, Nu-Derm^® Sun
Shield SPF 50 and Obagi Hydrate™. Visit www.obagi.com for information.

Penetrating Therapeutics and Obagi Hydrate are trademarks, and Obagi, the
Obagi logo, Blue Peel RADIANCE, Condition & Enhance, ELASTIderm, ELASTILash,
Nu-Derm, Obagi-C, ObagiCLENZIderm and Rosaclear are registered trademarks, of
Obagi Medical Products, Inc. and/or its affiliates in the United States and
certain other countries.

Forward Looking Statements

There are forward-looking statements contained in this press release and the
related investor conference call that can be identified by the use of
forward-looking terminology such as the words "believes," "expects," "may,"
"will," "should," "potential," "anticipates," "plans," or "intends" and
similar expressions. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause actual results, events
or developments to be materially different from the future results, events or
developments indicated in such forward-looking statements. Such factors
include, but are not limited to the current condition of, and potential
further deterioration in, the global economy, intense competition our products
face and will face in the future, the level of market acceptance of our
products, our ability to successfully implement our new online pharmacy
e-Commerce sales and fulfillment strategy, the possibility that our products
could be rendered obsolete by technological or medical advances, the
possibility that we may become involved in intellectual property claims and
litigation that could adversely affect the profitability of or our ability to
sell our products or on our results of operations, the possibility that our
products may cause undesirable side effects and the fact that our ability to
commercially distribute our products may be significantly harmed if the state
or federal regulatory environment governing our products changes and whether
we effect the repurchase of any shares. A more detailed discussion of these
and other factors that could affect results is contained in our filings with
the U.S. Securities and Exchange Commission. These factors should be
considered carefully and readers are cautioned not to place undue reliance on
such forward-looking statements. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. The
forward-looking statements in this release and the related investor conference
call speak only as of the date they are made and Obagi Medical Products does
not intend to update this information.

Obagi Medical Products, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)
                                                               
                                                   December 31,
                                                   2012            2011
                                                   (unaudited)
Assets
Current assets
Cash and cash equivalents                          $ 34,552        $ 35,049
Accounts receivable, net                             20,464          20,985
Inventories, net                                     6,590           4,389
Deferred income taxes                                1,592           2,894
Prepaid expenses and other current                   2,607           2,364
assets
Income taxes receivable                             —             790     
Total current assets                                 65,805          66,471
Property and equipment, net                          4,984           2,841
Goodwill                                             4,629           4,629
Intangible assets, net                               2,971           3,538
Deferred income taxes                                3,130           —
Other assets                                        590           172     
Total assets                                       $ 82,109       $ 77,651  
                                                                     
Liabilities and Stockholders'
Equity
Current liabilities
Accounts payable                                   $ 8,442         $ 7,216
Current portion of long-term debt                    11              9
Accrued liabilities                                  7,306           5,256
Income taxes payable                                 2,596           1,725
Amounts due to related parties                      40            84      
Total current liabilities                            18,395          14,290
Long-term debt                                       8               13
Deferred income taxes                                —               906
Other long-term liabilities                         1,843         1,570   
Total liabilities                                   20,246        16,779  
Commitments and contingencies
Stockholders' equity
Common stock, $.001 par value; 100,000,000 shares
authorized, 23,311,332 and 23,066,707 shares
issued and 17,427,471 and 18,682,721 shares          23              23
outstanding at December 31, 2012 and 2011,
respectively
Additional paid-in capital                           67,930          63,796
Retained earnings                                    54,039          37,401
Treasury stock, at cost; 5,867,941 and 4,367,941    (60,129 )      (40,348 )
shares at December 31, 2012 and 2011, respectively
Total stockholders' equity                          61,863        60,872  
Total liabilities and stockholders'                $ 82,109       $ 77,651  
equity
                                                                             

Obagi Medical Products, Inc.
Consolidated Statements of Income and Comprehensive Income
(Dollars in thousands, except share and per share amounts)
                                                                  
                 Three Months Ended December 31,       Year Ended December 31,
                 2012               2011               2012               2011
                 (unaudited)                           (unaudited)
                                                                            
Net sales        $ 30,271           $ 30,607           $ 120,678          $ 114,108
Cost of sales     6,747            6,376            25,047           24,022     
Gross profit       23,524             24,231             95,631             90,086
Selling,
general and        11,038             15,179             66,041             71,888
administrative
expenses
Research and
development       591              855              2,161            2,192      
expenses
Income from        11,895             8,197              27,429             16,006
operations
Interest           13                 14                 63                 35
income
Interest          (18        )      (24        )      (77        )      (143       )
expense
Income before
provision for      11,890             8,187              27,415             15,898
income taxes
Provision for     4,630            3,092            10,777           5,878      
income taxes
Net income and
Comprehensive    $ 7,260           $ 5,095           $ 16,638          $ 10,020     
income
                                                                            
Net income
attributable
to common
shares
Basic            $ 0.42            $ 0.27            $ 0.91            $ 0.54       
Diluted          $ 0.41            $ 0.27            $ 0.90            $ 0.54       
                                                                            
Weighted
average common
shares
outstanding
Basic              17,418,580         18,628,605         18,303,858         18,575,333
Diluted            17,537,224         18,692,088         18,452,958         18,670,098
                                                                                       

Segment Information:                                                
                                                
                        Gross         Intersegment     Net Sales       Gross
                        Sales                                          Profit
Three Months Ended
December 31, 2012
(unaudited)
Physician-dispensed     $ 29,494      $  (56     )     $  29,438       $ 22,687
e-Commerce                —              —                —              —
Licensing                833           —              833           837
Total                   $ 30,327      $  (56     )     $  30,271       $ 23,524
                                                                         
Three Months Ended
December 31, 2011
(unaudited)
Physician-dispensed     $ 29,255      $  —             $  29,255       $ 22,884
e-Commerce                —              —                —              —
Licensing                1,352         —              1,352         1,347
Total                   $ 30,607      $  —            $  30,607       $ 24,231
                                                                         
Year Ended December
31, 2012
(unaudited)
Physician-dispensed     $ 116,270     $  (56     )     $  116,214      $ 91,167
e-Commerce                —              —                —              —
Licensing                4,464         —              4,464         4,464
Total                   $ 120,734     $  (56     )     $  120,678      $ 95,631
                                                                         
Year Ended December
31, 2011
Physician-dispensed     $ 109,677     $  —             $  109,677      $ 85,670
e-Commerce                —              —                —              —
Licensing                4,431         —              4,431         4,416
Total                   $ 114,108     $  —            $  114,108      $ 90,086
                                                                         
                                                                         
                        Three Months Ended             Year Ended December 31,
                        December 31,
                        2012          2011             2012            2011
                        (unaudited)                    (unaudited)
Geographic
information
United States           $ 24,858      $  24,904        $  98,999       $ 94,842
International            5,413         5,703          21,679        19,266
Net sales               $ 30,271      $  30,607       $  120,678      $ 114,108
                                                                         
                                                                         
                                                                         
                        Three Months Ended             Year Ended December 31,
                        December 31,
                        2012          2011             2012            2011
                        (unaudited)                    (unaudited)
Net sales by
product line
Nu-Derm                 $ 16,681      $  15,964        $  62,671       $ 60,035
Vitamin C                 4,835          4,734            18,580         16,604
Elasticity                2,489          2,578            13,163         11,313
Therapeutic               1,758          2,117            7,075          6,491
Other                    3,675         3,862          14,725        15,234
Total                     29,438         29,255           116,214        109,677
Licensing                833           1,352          4,464         4,431
Total net sales         $ 30,271      $  30,607       $  120,678      $ 114,108
                                                                         

Reconciliation between GAAP and non-GAAP measures is included below
(unaudited):
(Dollars in thousands, except share and per share amounts)
                                                         
                      Three Months Ended     Year Ended
                      December 31,           December 31,
                      2012                   2012               2011
                                                                  
GAAP net income       $  7,260               $ 16,638           $ 10,020
Adjustments to
GAAP net income:
a) Insurance
related                  (8,401      )         (8,401     )       —
settlement
b) Corporate
advisory related         759                   759                —
expenses
c) Dr. Obagi
settlement,              —                     —                  7,947
litigation and
related expenses
d) Non-GAAP
income tax              2,976               3,004            (2,938     )
expense
Non-GAAP net          $  2,594              $ 12,000          $ 15,029     
income
                                                                  
Non-GAAP net
income per share:
Basic                 $  0.15               $ 0.66            $ 0.81       
Diluted               $  0.15               $ 0.65            $ 0.80       
                                                                  
Shares used in
computing
non-GAAP per
share amounts:
Basic                    17,418,580            18,303,858         18,575,333
Diluted                  17,537,224            18,452,958         18,670,098

Contact:

Obagi Medical Products, Inc.
Preston Romm
CFO, EVP of Finance, Operations and Administration
562-628-1007
or
Mark Taylor
SVP, Corporate Development and Investor Relations
562-256-3020