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