Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ZLTQ > SEC Filings for ZLTQ > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for ZELTIQ AESTHETICS INC

Form 10-Q for ZELTIQ AESTHETICS INC


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and with our Management's Discussion and Analysis of Financial Condition and Results of Operations and financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011, filed with the Securities and Exchange Commission on March 15, 2012.
In addition, the following discussion contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. Forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to the differences include, but are not limited to, those discussed in the section titled "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. Overview
We are a medical technology company focused on developing and commercializing products utilizing our proprietary controlled-cooling technology platform. Our first commercial product, the CoolSculpting System, is designed to selectively reduce stubborn fat bulges that may not respond to diet or exercise. We generate revenues from sales of our CoolSculpting System and from procedure fees our physician customers pay for each CoolSculpting procedure they perform. We received clearance from the FDA in September 2010 to market CoolSculpting for the selective reduction of fat around the flanks, an area commonly referred to as the "love handles." In May 2012, CoolSculpting was cleared by the FDA for treatment of "belly fat" or non-surgical reduction of fat for the abdomen area. We intend to seek additional regulatory clearances from the FDA to expand our U.S. marketed indications for CoolSculpting to areas on the body other than the flanks and abdomen. We have received regulatory approval or are otherwise free to market CoolSculpting in 55 international markets where use of the product is generally not limited to specific treatment areas. Physicians in these markets commonly perform CoolSculpting procedures on the inner thighs, back, and chest, in addition to the flanks and abdomen.
As of September 30, 2012, our worldwide sales force consisted of 74 professionals. In the United States, Canada and four key markets in Europe (England, Germany, France and Spain), we use our direct sales organization to selectively market CoolSculpting. In markets outside of North America and the four key markets in Europe, we sell CoolSculpting through a network of distributors. We intend to continue developing our international sales and marketing organization to focus on increasing sales and strengthening our physician relationships. We also intend to seek regulatory approval to market CoolSculpting in key additional international markets, including China. Revenues from markets outside of North America accounted for 25% and 27% of our total revenues for the nine months ended September 30, 2012 and 2011, respectively. Our ongoing research and development activities are primarily focused on improving and enhancing our CoolSculpting System and CoolSculpting procedure. In addition to these development activities related to CoolSculpting, we are exploring additional uses of our proprietary controlled-cooling technology platform for the dermatology, plastic surgery, and aesthetic markets. We are also exploring potential therapeutic uses for our platform technology, either directly or through collaborative arrangements with strategic partners. Revenues
We generate revenues from sales of our CoolSculpting System and from procedure fees our physician customers pay for each CoolSculpting procedure they perform. We generated revenues of $57.6 million and $49.3 million for the nine months ended September 30, 2012 and 2011, respectively.
Systems revenues. Sales of our CoolSculpting System include the CoolSculpting control unit and our CoolSculpting vacuum applicators. We are targeting 4,000 to 5,000 physician practice sites on a global basis that have our target characteristics. Some of our target practices may purchase more than one CoolSculpting System. Our standard terms do not allow for trial or evaluation periods, rights of return, or refund payments contingent upon the customer obtaining financing or other terms that could impact the customer's obligation.


Table of Contents

During the nine months ended September 30, 2012, our system sales were impacted by new product launches and trial offers by our competitors that created competition for physician capital equipment dollars. Despite this, we grew our worldwide installed base by 68% from 812 units as of September 30, 2011 to 1,363 units as of September 30, 2012.
Procedure fees revenues. We generate revenues from procedure fees through sales of CoolSculpting procedure packs, each of which includes our consumable CoolGels and CoolLiners and a disposable computer cartridge that we market as the CoolCard. The CoolCard contains enabling software that permits our physician customer to perform a fixed number of CoolSculpting procedures. Procedure fees accounted for approximately 49% and 29% of our total revenues for the nine months ended September 30, 2012 and 2011, respectively. During the nine months ended September 30, 2012, we shipped approximately 225,000 CoolSculpting procedures to our physician customers.
Our business plan focuses on expanding our base of physician customers, and increasing our procedure fees revenues by driving demand for CoolSculpting procedures through our physician and consumer marketing programs. We anticipate that as we implement our business plan our revenues from procedure fees will increase as a percentage of our total revenues.
Seasonality. Seasonal fluctuations in the number of physician customers in their offices and available to take appointments as well as their patients have affected, and are likely to continue to affect, our business. Specifically, our customers often take vacation or are on holiday during the summer months and therefore tend to perform fewer procedures, particularly in Europe. These seasonal trends have caused and will likely continue to cause, fluctuations in our quarterly results, including fluctuations in sequential revenue growth rates. In order of revenue significance throughout the year, historically our strongest to weakest quarters were as follows: fourth quarter, third quarter, second quarter and first quarter. We expect during fiscal 2012 our strongest to weakest quarters will be as follows: fourth quarter, second quarter, third quarter and first quarter.
Critical Accounting Policies and Estimates Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America or GAAP. The preparation of our consolidated financial statements requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the applicable periods. Management bases its estimates, assumptions, and judgments on historical experience and on various other factors that it believes to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our financial statements, which, in turn, could materially change our results from those reported. Management evaluates its estimates, assumptions, and judgments on an ongoing basis. Historically, our critical accounting estimates have not differed materially from actual results. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity, and financial condition. There have been no material changes to our significant accounting policies during the nine months ended September 30, 2012, as compared to the significant accounting policies described in our Form 10-K for the year ended December 31, 2011, except as described below.
During the nine months ended September 30, 2012, we purchased available-for-sale securities and have accounted for such investments in accordance with the following investments policy:
Investments
We invest our excess cash balances primarily in certificates of deposit, commercial paper, corporate bonds, and U.S. Government agency securities. Investments with original maturities greater than 90 days that mature less than one year from the consolidated balance sheet date are classified as short-term investments. We classify all of our investments as available-for-sale and record such assets at estimated fair value in the consolidated balance sheets, with unrealized gains and losses, if any, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method. Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in other income (expense) as incurred. We periodically evaluate these investments for other-than-temporary impairment.
Results of Operations
Revenues (in thousands, except for percentages):


Table of Contents

                               Three Months Ended                                    Nine Months Ended
                                 September 30,                                         September 30,
                  2012         2011       $ Change     % Change         2012         2011       $ Change     % Change
Revenues
Systems        $  8,507     $ 13,220     $ (4,713 )      (36 )%      $ 29,528     $ 35,265     $ (5,737 )      (16 )%
Procedure fees    9,421        4,500        4,921        109  %        28,069       14,081       13,988         99  %
Total revenues $ 17,928     $ 17,720     $    208          1  %      $ 57,597     $ 49,346     $  8,251         17  %

Total revenues increased by $0.2 million, or 1%, to $17.9 million in the three months ended September 30, 2012 compared to $17.7 million during the same period in 2011. Total revenues increased by $8.3 million, or 17%, to $57.6 million in the nine months ended September 30, 2012 compared to $49.3 million during the same period in 2011.
Systems revenues. Systems revenues decreased by $4.7 million to $8.5 million in the three months ended September 30, 2012 compared to $13.2 million during the same period in 2011. Systems revenues represented 47% and 75% of total revenues for the three months ended September 30, 2012 and 2011, respectively. During the third quarter of 2012, as anticipated, our systems revenues were impacted by seasonal trends due to vacations taken by our physician customers and their patients during the summer months. New product launches and trial offers by our competitors, that created competition for physician capital equipment dollars, continued to negatively impact system sales volume.
Systems revenues decreased by $5.7 million to $29.5 million in the nine months ended September 30, 2012 compared to $35.3 million during the same period in 2011. Systems revenues represented 51% and 71% of total revenues for the nine months ended September 30, 2012 and 2011, respectively. The systems revenues in the first nine months of 2012 were impacted by new product launches and trial offers by our competitors that created competition for physician capital equipment dollars as well as by changes in our sales force in the North American Franchise. Our rest of the world systems sales were impacted by the transition to a direct sales model.
Procedure fees revenues. Procedure fees revenues increased by $4.9 million to $9.4 million in the three months ended September 30, 2012 compared to $4.5 million during the same period in 2011. Procedure fees revenues represented 53% and 25% of total revenues for the three months ended September 30, 2012 and 2011, respectively. The increase in procedure fees revenues was primarily due to the growth of our installed base of worldwide CoolSculpting Systems, and an increased number of procedures performed by our physician customers driven by our targeted physician and consumer marketing programs.
Procedure fees revenues increased by $14.0 million to $28.1 million in the nine months ended September 30, 2012 compared to $14.1 million during the same period in 2011. Procedure fees revenues represented 49% and 29% of total revenues for the nine months ended September 30, 2012 and 2011, respectively. The increase in procedure fees revenues was primarily due to the growth of our installed base of worldwide CoolSculpting Systems, and an increased number of procedures performed by our physician customers driven by our targeted physician and consumer marketing programs.

Cost of Revenues and Gross Profit (in thousands, except for percentages):

                           Three Months Ended                                    Nine Months Ended
                             September 30,                                         September 30,
              2012         2011       $ Change     % Change         2012         2011       $ Change     % Change
Cost of
revenues   $  5,953     $  7,283     $ (1,330 )      (18 )%      $ 19,096     $ 19,632     $   (536 )       (3 )%
% of total
revenues         33 %         41 %                                     33 %         40 %
Gross
profit     $ 11,975     $ 10,437     $  1,538         15  %      $ 38,501     $ 29,714     $  8,787         30  %
Gross
profit %         67 %         59 %                                     67 %         60 %

Cost of revenues decreased by $1.3 million, or 18%, to $6.0 million in the three months ended September 30, 2012 compared to $7.3 million during the same period in 2011. Cost of revenues decreased by $0.5 million, or 3%, to $19.1 million in the nine months ended September 30, 2012 compared to $19.6 million during the same period in 2011. The quarter-over-quarter and year-over-year decrease in cost of revenues was primarily due to lower direct material costs driven by our continued focus on product cost reductions and negotiations with suppliers. Gross profit was $12.0 million, or 67% of revenues, in the third quarter of 2012, compared to gross profit of $10.4 million, or


Table of Contents

59% of revenues, in the third quarter of 2011. Gross profit was $38.5 million, or 67% of revenues, for the nine months ended September 30, 2012, compared to gross profit of $29.7 million, or 60% of revenues, for the same period in 2011. The increase in gross profit as a percentage of revenues was driven by an increase in procedure fees revenues as a percentage of total revenues and a decrease in the per unit manufacturing cost of systems mainly due to lower direct material costs.

Operating Expenses (in thousands, except for percentages):

                                 Three Months Ended                                   Nine Months Ended
                                   September 30,                                        September 30,
                    2012         2011       $ Change     % Change        2012         2011       $ Change     % Change
Operating
expenses
Research and
development      $  2,450     $  2,933     $   (483 )      (16 )%     $  9,217     $  7,540     $   1,677         22 %
% of total
revenues               14 %         17 %                                    16 %         15 %
Sales and
marketing        $ 10,881     $  7,104     $  3,777         53  %     $ 39,632     $ 18,672     $  20,960        112 %
% of total
revenues               61 %         40 %                                    69 %         38 %
General and
administrative   $  3,760     $  3,209     $    551         17  %     $ 13,169     $  7,240     $   5,929         82 %
% of total
revenues               21 %         18 %                                    23 %         15 %
Total operating
expenses         $ 17,091     $ 13,246     $  3,845         29  %     $ 62,018     $ 33,452     $  28,566         85 %

Research and development. Research and development expenses decreased by $0.5 million, or 16%, to $2.5 million in the three months ended September 30, 2012 compared to $2.9 million in the same period in 2011. The decrease in research and development expenses was primarily due to a decrease of $0.2 million in tooling costs for our control units, $0.1 million in consulting costs and $0.1 million in payroll related costs.
Research and development expenses increased by $1.7 million, or 22%, to $9.2 million in the nine months ended September 30, 2012 compared to $7.5 million in the same period in 2011. The increase in research and development expenses was primarily due to an increase of $0.8 million in payroll related costs and a higher stock-based compensation expense by approximately $0.3 million. The increase in payroll related costs was attributed to a higher headcount and severance costs incurred during the nine months ended September 30, 2012. Sales and marketing. Sales and marketing expenses increased by $3.8 million, or 53%, to $10.9 million in the three months ended September 30, 2012 compared to $7.1 million for the same period in 2011. The increase in sales and marketing expenses was mostly due to a $2.4 million increase in advertising expenses incurred in conjunction with our sales and marketing initiatives, undertaken to improve brand awareness and increase procedure fee revenues, a $1.0 million increase in payroll related costs and a $0.6 million increase in sales commission expenses. The increase in these payroll related expenses is directly related to the growth of our sales and marketing organization. The overall increase was partially offset by lower marketing collateral development costs of $0.5 million. Higher marketing collateral costs in the third quarter of 2011 were driven by special marketing programs and launch of new patient brochures. Sales and marketing expenses increased by $21.0 million, or 112%, to $39.6 million in the nine months ended September 30, 2012 compared to $18.7 million for the same period in 2011. The increase in sales and marketing expenses was mostly due to a $9.4 million increase in advertising expenses incurred in conjunction with our direct marketing campaign and other sales and marketing initiatives, a $4.9 million increase in payroll related costs, which include approximately $0.7 million in severance costs recognized during the nine months ended September 30, 2012, a $1.6 million increase in sales commission expenses driven by higher sales levels and a $1.5 million increase in marketing costs mostly related to public relations, web site maintenance, marketing materials production and distribution. The remaining increase is attributed to higher stock-based compensation expenses, higher travel expenses and higher public relations expenses during the nine months ended September 30, 2012. The increase in these expenses is directly related to the growth of our sales and marketing organization.
General and administrative. General and administrative expenses increased by $0.6 million, or 17%, to $3.8 million for the three months ended September 30, 2012 compared to $3.2 million for the same period in 2011. The increase in general and administrative expenses was primarily due to $0.9 million increase in legal expenses mostly related to our ongoing litigation and IP enforcement activities and higher stock-based compensation expenses by $0.7 million. The increase was partially offset by lower accounting fees by approximately $0.9 million incurred during the three months ended September 30, 2012 compared to the prior period. Higher accounting fees during the three months ended September 30, 2011 were incurred in the preparation


Table of Contents

for our initial public offering.
General and administrative expenses increased by $5.9 million, or 82%, to $13.2 million for the nine months ended September 30, 2012 compared to $7.2 million for the same period in 2011. The increase in general and administrative expenses was primarily due to a $2.2 million increase in payroll related costs, a $2.8 million increase in legal expenses primarily related to our ongoing litigation and IP enforcement activities and higher stock-based compensation expenses by $1.8 million. Consulting, recruiting and travel expenses also increased during the current period. The increase was partially offset by lower accounting fees of $1.4 million incurred during the nine months ended September 30, 2012 compared to the prior period. Higher accounting fees during the nine months ended September 30, 2011 were incurred in the preparation for our initial public offering. The increase in payroll related costs was attributed to a higher headcount and severance costs recognized during the nine months ended September 30, 2012. The stock-based compensation expense for the nine months ended September 30, 2012 included $0.7 million in modification charges incurred in connection with the severance packages to our former executives.

Interest Income (Expense), Net and Other Income (Expense), Net (in thousands, except for percentages):

                               Three Months Ended                                   Nine Months Ended
                                 September 30,                                        September 30,
                   2012         2011       $ Change    % Change        2012         2011       $ Change     % Change
Interest income
(expense), net  $    11      $   (24 )    $     35       (146 )%    $   100      $   (84 )    $     184       (219 )%
% of total
revenues              -  %         -  %                                   -  %         -  %
Other income
(expense), net  $   (44 )    $   (17 )    $    (27 )      159  %    $  (108 )    $  (412 )    $     304        (74 )%
% of total

revenues - % - % - % (1 )%

Interest income (expense), net. Interest income (expense), net was an income of $11,000 for the three months ended September 30, 2012 compared to an expense of $24,000 for the same period in 2011. Interest income (expense), net was an income of $0.1 million for the nine months ended September 30, 2012 compared to an expense of $84,000 for the same period in 2011. During 2012, interest income was earned on our available-for-sale securities. During 2011, interest expense was incurred in relation to our note payable that was paid in full in the quarter ended March 31, 2012.
Other income (expense), net. Other income (expense), net, for the three months ended September 30, 2012 was an expense of $44,000 compared to $17,000 of expense in 2011. Other income (expense), net, for the nine months ended September 30, 2012 was an expense of $0.1 million compared to $0.4 million of expense in 2011. Higher expense in prior year was related to the loss incurred on the change in the fair value of the convertible preferred stock warrant. Liquidity and Capital Resources

Since our inception, we have financed our operations to date primarily through private placements of convertible preferred stock, promissory notes, borrowings under a loan agreement, product sales and the proceeds from our IPO.

As of September 30, 2012, we had $66.9 million of cash and cash equivalents, short-term and long-term investments. The following table summarizes our working capital, cash and cash equivalents, short-term and long-term investments as of September 30, 2012 and December 31, 2011 as follows (in thousands):


Table of Contents

                           September 30,      December 31,
                                2012              2011
Cash and cash equivalents $        22,172    $       83,908
Short-term investments             29,022                 -
Long-term investments              15,715                 -
Total                     $        66,909    $       83,908

Working capital           $        52,011    $       84,086

  Add ZLTQ to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ZLTQ - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.