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| PMTI > SEC Filings for PMTI > Form 10-Q on 8-Aug-2012 | All Recent SEC Filings |
8-Aug-2012
Quarterly Report
The following discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth previously under the caption "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2012 and those included in Item 1A below. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report.
Critical accounting policies
Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, the most critical of which are those related to revenue recognition, available for sale and marketable securities valuation, accounts receivable valuation, inventory valuation, warranty provision, stock-based compensation, fair value measurements, income tax valuation, and contingencies. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. A discussion of our critical accounting policies and the related judgments and estimates affecting the preparation of our consolidated financial statements is included in the Annual Report on our Form 10-K fiscal year 2011. There have been no material changes to our critical accounting policies as of June 30, 2012.
Recently issued accounting standards
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments intend to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The new amendments will be effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance did not materially impact our financial statements or disclosures.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. In this ASU, the FASB amended its guidance on the presentation of comprehensive income in financial statements to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items that are recorded in other comprehensive income. The new accounting guidance requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The provisions of this new guidance are effective for interim and annual periods beginning after December 15, 2011. We retroactively adopted this guidance during the third quarter of 2011 and the impact on our financial statements was not material. ASU 2011-05 addresses the presentation of comprehensive income (loss) in consolidated financial statements and footnotes. The adoption impacts presentation only and had no effect on the Company's financial condition, results of operations and comprehensive loss or cash flows. The Company did not adopt the provisions of the reclassification requirements, which were deferred by ASU 2011-12, Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, in December 2011.
Overview
We are a global leader in laser and other light-based systems for aesthetic treatments. Since our inception, we have been able to develop a differentiated product mix of light-based systems for various treatments through our research and development as well as with our partnerships throughout the world. We are continually developing and testing new indications to further the advancement in light-based treatments.
Our corporate headquarters and United States operations are located in Burlington, Massachusetts, where we conduct our manufacturing, warehousing, research and development, regulatory, sales, customer service, marketing and administrative activities. In the United States, Australia, Canada, Japan, Germany, and Spain, we market, sell, and service our products primarily through our direct sales force and customer service employees. In the rest of the world, sales are generally made through our worldwide distribution network which encompasses over 70 countries.
Results of operations
Revenues for the quarter ended June 30, 2012 were $19.7 million, a 21 percent increase over the $16.3 million reported in the second quarter of 2011. Professional product revenues for the quarter ended June 30, 2012 were $13.0 million, an increase of 30 percent over the second quarter of 2011. Professional product gross margins were 61% in both the second quarter of 2012 and 2011. Consumer product revenues were $0.9 million for the quarter ended June 30, 2012. No consumer revenues were recognized in the second quarter last year. Consumer product revenues gross margin was 14% in the second quarter of 2012. Loss before taxes for the quarter ended June 30, 2012 was $1.5 million. Loss before taxes for the quarter ended June 30, 2011 was $3.9 million. Net loss for the quarter ended June 30, 2012 was $1.5 million, or $0.08 per share, as compared to a net loss for the quarter ended June 30, 2011 of $4.0 million, or $0.21 per share. As of June 30, 2012, the balance sheet continues to be strong with $98.7 million in cash, cash equivalents, short-term investments, and marketable securities and other investments with no borrowings.
The following table contains selected income statement information, which serves as the basis of the discussion of our results of operations for the three and six months ended June 30, 2012 and 2011, respectively (in thousands, except for percentages):
Three Months Ended June 30,
2012 2011
As a % of As a % of
Total Total Change
Amount Revenue Amount Revenue $ %
Revenues
Professional product
revenues $ 13,030 66 % $ 10,054 62 % $ 2,976 30 %
Consumer product
revenues 900 5 % - - % 900 N/ A
Service revenues 3,546 18 % 3,907 24 % (361 ) (9 %)
Royalty revenues 1,527 8 % 1,749 11 % (222 ) (13 %)
Other revenues 667 3 % 556 3 % 111 20 %
Total revenues 19,670 100 % 16,266 100 % 3,404 21 %
Costs and expenses
Cost of professional
product revenues 5,045 26 % 3,970 24 % 1,075 27 %
Cost of consumer
product revenues 776 4 % 14 - % 762 N/ A
Cost of service
revenues 1,654 8 % 1,664 10 % (10 ) (1 %)
Cost of royalty
revenues 611 3 % 700 4 % (89 ) (13 %)
Research and
development 2,836 14 % 3,880 24 % (1,044 ) (27 %)
Selling and
marketing 7,075 36 % 6,316 39 % 759 12 %
General and
administrative 2,942 15 % 3,782 23 % (840 ) (22 %)
Total costs and
expenses 20,939 106 % 20,326 125 % 613 3 %
Loss from operations (1,269 ) (6 %) (4,060 ) (25 %) 2,791 (69 %)
Interest income 86 - % 89 1 % (3 ) (3 %)
Other (loss) income (271 ) (1 %) 29 - % (300 ) (1034 %)
Loss before income
taxes (1,454 ) (7 %) (3,942 ) (24 %) 2,488 (63 %)
Provision for income
taxes 18 - % 57 - % (39 ) (68 %)
Net loss $ (1,472 ) (7 %) $ (3,999 ) (25 %) $ 2,527 (63 %)
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Six Months Ended June 30,
2012 2011
As a % of As a % of
Total Total Change
Amount Revenue Amount Revenue $ %
Revenues
Professional product
revenues $ 24,927 64 % $ 20,601 60 % $ 4,326 21 %
Consumer product
revenues 1,879 5 % - - % 1,879 N/ A
Service revenues 7,316 19 % 7,742 22 % (426 ) (6 %)
Royalty revenues 3,325 9 % 4,967 14 % (1,642 ) (33 %)
Other revenues 1,222 3 % 1,111 3 % 111 10 %
Total revenues 38,669 100 % 34,421 100 % 4,248 12 %
Costs and expenses
Cost of professional
product revenues 9,946 26 % 8,274 24 % 1,672 20 %
Cost of consumer
product revenues 1,611 4 % 56 - % 1,555 2777 %
Cost of service
revenues 3,314 9 % 3,456 10 % (142 ) (4 %)
Cost of royalty
revenues 1,330 3 % 1,987 6 % (657 ) (33 %)
Research and
development 6,208 16 % 7,528 22 % (1,320 ) (18 %)
Selling and
marketing 13,756 36 % 11,891 35 % 1,865 16 %
General and
administrative 6,093 16 % 7,268 21 % (1,175 ) (16 %)
Total costs and
expenses 42,258 109 % 40,460 118 % 1,798 4 %
Loss from operations (3,589 ) (9 %) (6,039 ) (18 %) 2,450 (41 %)
Interest income 175 - % 202 1 % (27 ) (13 %)
Other (loss) income (259 ) (1 %) 39 - % (298 ) (764 %)
Loss before income
taxes (3,673 ) (9 %) (5,798 ) (17 %) 2,125 (37 %)
Provision for income
taxes 90 - % 95 - % (5 ) (5 %)
Net loss $ (3,763 ) (10 %) $ (5,893 ) (17 %) $ 2,130 (36 %)
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Professional product revenues. During the three and six months ended June 30, 2012, our professional product revenues increased 30% and 21%, respectively, as compared to the corresponding periods in the prior year, primarily due to the Icon™ Aesthetic System, our new flagship platform, which we launched during the second half of 2011. Almost 50% of our professional product revenues in the three and six months ended June 30, 2012 were from Icon System sales. We are still in the regulatory registration process for many countries and will continue to sell the StarLux 500® system until we have registrations in all areas around the world. In the first three and six months of 2012, as compared to the corresponding periods in 2011, professional product revenues were favorably impacted by the Icon System as well as the introduction of the Emerge™ Fractional Laser and Vectus system in the first quarter of 2012. This impact was partially offset by a decrease in sales related to the StarLux Laser and Pulsed Light System as some potential StarLux customers opted to purchase the new Icon System.
Consumer product revenues. During the fourth quarter of 2010, we launched the PaloVia® Skin Renewing Laser® -- our first consumer product. Since we were selling the PaloVia laser through retail channels with which we had no history and were unable to estimate the customer return rates and the expected warranty accrual needed on sales of our consumer product, we deferred a majority of our consumer product revenues from the PaloVia laser until the fourth quarter of 2011. During the fourth quarter of 2011, we determined that we had sufficient history to be able to estimate our customer return rates and the expected warranty accrual needed on sales of our consumer product. In the fourth quarter of 2011, we recognized $3.5 million of consumer product revenues related to the PaloVia laser. During the three and six months ended June 30, 2012, we recognized $0.9 million and $1.9 million, respectively, of consumer product revenues.
Service revenues. Service revenues are primarily comprised of revenue generated from our service organization to provide ongoing service, sales of replacement handpieces, sales of consumables and accessories, and billable repairs of our professional products. During the three and six months ended June 30, 2012, service revenues decreased 9% and 6%, respectively, as compared to the corresponding periods in the prior year. The decrease in the three and six months ended June 30, 2012 was primarily due to lower sales from ongoing service contracts and billable services.
The following table sets forth, for the periods indicated, information about our total Professional Product segment's product and service revenues, by geographic region:
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
North America 51 % 57 % 55 % 57 %
Europe 18 % 14 % 19 % 16 %
Middle East 11 % 8 % 8 % 7 %
Australia 7 % 5 % 5 % 5 %
Asia/Pacific Rim 5 % 6 % 3 % 5 %
Japan 5 % 4 % 5 % 4 %
South and Central America 3 % 6 % 5 % 6 %
Total 100 % 100 % 100 % 100 %
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In the first three and six month periods of 2012, 100% and 92%, respectively, of our Consumer Product segment revenues were derived from sales in the United States and 0% and 8%, respectively, were from Europe.
Royalty revenues. Royalty revenues decreased for the three and six months ended June 30, 2012 by 13% and 33%, respectively, as compared to the corresponding periods in the prior year. The decrease is attributed to lower on-going royalty payments from our licensees and a $1.1 million back-owed royalty payment received in the first quarter of 2011.
Other revenues. During the three and six months ended June 30, 2012, other revenues increased 20% and 10%, respectively, as compared to the corresponding periods in the prior year. Other revenues were generated from the amendment to our license agreement ("License Agreement") with P&G which was signed in the fourth quarter of 2010. In accordance with the License Agreement, during the second quarter of 2012, P&G paid us an Additional TTP Quarterly Payment (as defined in the License Agreement) of $1.0 million. This Additional TTP Quarterly Payment resulted in $0.7 million in other revenues during the second quarter of 2012 after being netted with the receivable from P&G as payments under the amended License Agreement were being recognized ratably through the expected launch term. During the six months ended June 30, 2012, other revenues consists of $0.6 million related to TTP Quarterly Payments received under the amended License Agreement which were being recognized ratably through the expected launch term plus the $0.7 million previously mentioned. For the three and six months ended June 30, 2011, other revenues consisted of the recognition of $0.6 million and $1.1 million, respectively, related to TTP Quarterly Payments received under the amended License Agreement. The TTP Quarterly Payments under the amended License Agreement were being recognized ratably through the expected launch term.
Going forward, P&G will make technology transfer payments ("TTPs") based on a percentage of net sales of its light-based hair removal product. We will recognize these TTPs as other revenues.
Cost of professional product revenues. For the three months ended June 30, 2012 and 2011, the cost of professional product revenues increased in absolute dollars, but remained consistent as a percentage of professional product revenues at 39% in both 2012 and 2011. For the six months ended June 30, 2012 and 2011, the cost of professional product revenues increased in absolute dollars, but remained consistent as a percentage of professional product revenues at 40% in both 2012 and 2011. The increase in absolute dollars was attributable to higher product revenues. Our cost of professional product revenues consists primarily of material, labor and manufacturing overhead expenses. Cost of professional product revenues also includes royalties incurred on certain products sold, warranty expenses, as well as payroll and payroll-related expenses, including stock-based compensation, and quality control.
Cost of consumer product revenues. The cost of consumer product revenues relates to the PaloVia® Skin Renewing Laser®. For the three and six months ended June 30, 2012, cost of consumer product revenues was $0.8 million and $1.6 million, respectively or 86% of consumer product revenues for both periods. Since we were selling the PaloVia laser through retail channels with which we had no history and were unable to estimate the customer return rates and the expected warranty accrual needed on sales of our consumer product, we deferred a majority of our consumer product revenues from the PaloVia laser until the fourth quarter of 2011. During the fourth quarter of 2011, we determined that we had sufficient history to be able to estimate our customer return rates and the expected warranty accrual needed on sales of our consumer product. In the fourth quarter of 2011, we recognized $3.5 million of consumer product revenues related to the PaloVia laser and the related expenses.
Cost of service revenues. For the three months ended June 30, 2012 and 2011, the cost of service revenues decreased in absolute dollars, but increased as a percentage of service revenues to 47% in 2012 from 43% in 2011. The increase as a percentage is due higher material costs, partially offset by a decrease in shipping expenses. For the six months ended June 30, 2012 and 2011, the cost of service revenues decreased in absolute dollars, but remained constant as a percentage of service revenues at 45% for both years.
Cost of royalty revenues. Cost of royalty revenues decreased for the three and six months ended June 30, 2012 by 13% and 33%, respectively, as compared to the corresponding periods in the prior year. The decrease is attributed to lower on-going royalty payments from our licensees and a $1.1 million back-owed royalty payment received in the first quarter of 2011. As a percentage of royalty revenues, the cost of royalty revenues for the three and six months ended June 30, 2012 and 2011 were 40%.
Research and development expense. Research and development expense decreased by $1.0 million, or 27%, for the three months ended June 30, 2012 over the corresponding period in 2011. Research and development expense decreased by $1.3 million, or 18%, for the six months ended June 30, 2012 over the corresponding period in 2011. The decrease in research and development expense was due to reorganizing these departments while maintaining our continued commitment to introducing new products and enhancing our current family of products through our continued substantial investment in research and development.
Research and development expenses relating to our Professional Product segment decreased by 28% and 19%, respectively, for the three and six months ended June 30, 2012, as compared to the corresponding periods in 2011. Research expenses relating to our Professional Product segment include internal research and development projects relating to the introduction of new professional products and enhancements to our current line of professional products. Research and development expense relating to our Consumer Product segment remained constant for the three and six months ended June 30, 2012, as compared to the corresponding periods in 2011.
For the three months ended June 30, 2012 and 2011, research and development expense included $0.3 million and $0.4 million, respectively, of stock-based compensation expense. For the six months ended June 30, 2012 and 2011, research and development expense included $0.5 million and $0.9 million, respectively, of stock-based compensation expense.
Selling and marketing expense. Selling and marketing expense increased by $0.8 million, or 12%, for the three months ended June 30, 2012 over the corresponding period in 2011. Selling and marketing expense increased by $1.9 million, or 16%, for the six months ended June 30, 2012 over the corresponding period in 2011. Selling and marketing expenses relating to our Professional Product segment increased by 10% and 13%, respectively, in the three and six months ended June 30, 2012 as compared to corresponding periods in 2011. The increase for the three months ended June 30, 2012 was primarily driven by an increase of $0.5 million in commission expense. The increase for the six months ended June 30, 2012 was primarily driven by an increase of $0.8 million from our foreign subsidiaries in Germany and Spain that we established in 2011. Selling and marketing expenses related to our Consumer Product segment increased by 30% and 45%, respectively, in the three and six months ended June 30, 2012 as compared to corresponding periods in 2011. The increase for the three and six months ended June 30, 2012 was primarily driven by increases of $0.2 million and $0.4 million, respectively in direct marketing expenses.
For the three months ended June 30, 2012 and 2011, selling and marketing expense included $0.2 million and $0.3 million, respectively, of stock-based compensation expense. For the six months ended June 30, 2012 and 2011, selling and marketing expense included $0.4 million and $0.6 million, respectively, of stock-based compensation expense.
General and administrative expense. General and administrative expense decreased by $0.8 million, or 22%, for the three months ended June 30, 2012 over the corresponding period in 2011. General and administrative expense decreased by $1.2 million, or 16%, for the six months ended June 30, 2012 over the corresponding period in 2011. The decrease in general and administrative expense for the three months ended June 30, 2012 was driven by lower legal expenses partially offset by higher incentive compensation. The decrease in general and administrative expense for the six months ended June 30, 2012 was driven by lower legal expenses and stock-based compensation expense, partially offset by higher incentive compensation.
For both the three months ended June 30, 2012 and 2011, general and administrative expense included $0.2 million of stock-based compensation expense. For the six months ended June 30, 2012 and 2011, general and administrative expense included $0.3 million and $0.4 million, respectively, of stock-based compensation expense.
Interest income. Interest income for the three and six months ended June 30, 2012 decreased by 3% and 13%, respectively, as compared to the corresponding periods in 2011 primarily due to lower interest rates, partially offset by a higher average cash and cash equivalents, short-term investments, and marketable securities and other investments balance during the first half of 2012 as compared to the corresponding periods in 2011.
Other (loss) income. Other (loss) income for the six months ended June 30, 2012 and 2011 includes the foreign exchange (loss) gain resulting from transactions in currencies other than the U.S. dollar.
Provision for income taxes. Our effective tax rate for the six months ended June 30, 2012 and 2011 was 2.5% and 1.7%, respectively. In 2012, the company is generating taxable profits before the excess tax benefit of stock option deductions, and our rate consists primarily of federal tax and minimum state taxes. In 2011, our effective tax rate consisted primarily of minimum state taxes as the company generated operating losses during the period ending June 30, 2011. We continue to maintain a full valuation allowance in all jurisdictions and have available net operating losses in foreign jurisdictions to offset future income in those jurisdictions.
Liquidity and capital resources
The following table sets forth, for the periods indicated, a year over year comparison of key components of our liquidity and capital resources (in thousands):
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