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 26-Apr-2013All Recent SEC Filings

Show all filings for ZELTIQ AESTHETICS INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ZELTIQ AESTHETICS INC


26-Apr-2013

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, 2012. In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled Risk Factors in 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


Table of Contents

fat bulges. We generate revenue from sales of our CoolSculpting System and from sale of consumables to our physician customers. 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 may 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 numerous 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.

In the United States and related territories and Canada we use our direct sales organization to selectively market CoolSculpting. In markets outside of North America, including Asia Pacific and Europe, we sell CoolSculpting through a direct sales organization as well as 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. Revenue from markets outside of North America accounted for 17% and 25% of our total revenue for the three months ended March 31, 2013 and 2012, 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.

Revenue

We generate revenue from sales of our CoolSculpting System and from sales of consumables to our physician customers. We generated revenue of $20.0 million and $17.4 million for the three months ended March 31, 2013 and 2012, respectively.

System revenue. Sales of our CoolSculpting System include the CoolSculpting control unit and our CoolSculpting vacuum applicators. Some 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. System revenue accounted for approximately 55% and 52% of our total revenue for three months ended March 31, 2013 and 2012, respectively. Our worldwide installed base grew by 45% from 1,097 units as of March 31, 2012, to 1,595 units as of March 31, 2013.

Consumable revenue. We generate consumable revenue 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. Consumable revenue accounted for approximately 45% and 48% of our total revenue for the three months ended March 31, 2013 and 2012, respectively. During the three months ended March 31, 2013 and 2012, we shipped 77,559 and 63,948 CoolSculpting Procedures to our physician customers, respectively.

Our business plan focuses on expanding our base of physician customers, and increasing our consumable revenue by driving demand for CoolSculpting procedures through our physician and consumer marketing programs. We anticipate that as we implement our business plan our consumable revenue will increase as a percentage of our total revenue.

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.

Market in which we operate. The medical technology and aesthetic product markets are highly competitive and dynamic, and are characterized by rapid and substantial technological development and product innovations. We compete with many other technologies for consumer demand. Further, the aesthetic industry in which we operate is particularly vulnerable to economic trends. The decision to undergo a procedure from our systems is driven by consumer demand. Most procedures performed using our systems are elective procedures, the cost of which must be borne by the patient, and are not reimbursable through government or private health insurance. In times of economic uncertainty or recession, individuals often reduce the amount of money that they spend on discretionary items, including aesthetic procedures. The general economic difficulties being experienced and the lack of availability of consumer credit for some of our customers' patients are adversely affecting the market in which we operate.


Table of Contents

Critical Accounting Policies and Estimates

Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012.

Our critical accounting policies have not materially changed during the three months ended March 31, 2013. Furthermore, the preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Our management believes that we consistently apply these judgments and estimates and the consolidated financial statements and accompanying notes fairly represent all periods presented. However, any differences between these judgments and estimates and actual results could have a material impact on our consolidated statements of income and financial position.

Critical accounting estimates, as defined by the Securities and Exchange Commission, are those that are most important to the portrayal of our consolidated financial condition and results of operations and require our management's most difficult and subjective judgments and estimates of matters that are inherently uncertain. Our critical accounting estimates include those regarding (1) revenue recognition and the fair value of revenue elements,
(2) investments, including the fair value of such investments, (3) warranty accruals, (4) valuation and recognition of stock-based compensation, and (5) provision for income taxes, tax liabilities and valuation allowance for deferred tax assets. For a discussion of our critical accounting estimates, see Item 7:
"Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2012.

Results of Operations

Revenue (in thousands, except for percentages):

                                  Three Months Ended
                                      March 31,
                     2013        2012       $ Change      % Change
System revenue     $ 11,072    $  9,025    $    2,047        23 %
Consumable revenue    8,910       8,379           531         6 %
Total revenue      $ 19,982    $ 17,404    $    2,578        15 %

Total revenue increased by $2.6 million, or 15%, to $20.0 million in the three months ended March 31, 2013, compared to $17.4 million during the same period in 2012. Overall, we experienced an increase in revenue driven primarily by the expansion of our sales force into new and existing key markets, a larger percentage of total revenue contribution from North America revenue which has a higher average selling price, the introduction of new applicators and an increase in our installed base of CoolSculpting Systems.

System revenue. System revenue increased by $2.0 million to $11.1 million in the three months ended March 31, 2013, compared to $9.0 million during the same period in 2012. System revenue represented 55% and 52% of total revenue for the three months ended March 31, 2013 and 2012, respectively. During the first quarter of 2013, our system revenue increased as result of the launch of our CoolCurve+ applicator during the third quarter of 2012 and the launch of our CoolFit applicator during the first quarter of 2013, which increases the number of vacuum applicators included in each standard CoolSculpting System. We also experienced increased sales of vacuum applicators, including the CoolCurve+ and CoolFit, to existing customers in the three months ended March 31, 2013, as compared to the same period in 2012, as our customers look to optimize their existing system to fit different body shapes and sizes.

Consumable revenue. Consumable revenue increased by $0.5 million to $8.9 million in the three months ended March 31, 2013, compared to $8.4 million during the same period in 2012. Consumable revenue represented 45% and 48% of total revenue for the three months ended March 31, 2013 and 2012, respectively. The increase in consumable revenue was primarily due to the growth of our worldwide installed base of CoolSculpting Systems, and an increased number of procedures shipped to our physician customers driven by our targeted physician and consumer marketing programs. This increase was partially offset by rebates associated with the Crystal Rewards Program, our customer loyalty program related to consumable purchases, that was launched


Table of Contents

in the third quarter of 2012. Consumable revenue as a percent of total revenue was down compared to last year due to the our near term focus on system sales during the first quarter of 2013.

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

                                   Three Months Ended
                                       March 31,
                      2013         2012       $ Change      % Change
Cost of revenue    $  7,348     $  5,993     $    1,355        23 %
% of total revenue       37 %         34 %
Gross profit       $ 12,634     $ 11,411     $    1,223        11 %
Gross profit %           63 %         66 %

Gross profit as a percentage of revenue typically fluctuates with product mix, selling prices, material costs and revenue levels. Gross profit was $12.6 million, or 63% of revenue, in the first quarter of 2013, compared to gross profit of $11.4 million, or 66% of revenue, in the first quarter of 2012. The decrease in gross profit as a percentage of revenue was primarily attributable to the inclusion of the 2.3% Medical Device Excise Tax on all U.S. sales as part of the Patient Protection and Affordable Care Act of 2010 which went into effect on January 1, 2013. As well, we experienced decreased sales in consumable revenue as a percentage of total revenue and increased sales of our vacuum applicators, which have a lower margin. Additionally, we experienced an increase in manufacturing overhead cost as result of our on-going transition from outsourced manufacturing and supply of our CoolSculpting control units, certain of our applicators and our CoolCards to an in-sourced manufacturing structure.

Operating Expenses (in thousands, except for percentages):

                                          Three Months Ended
                                               March 31,
                              2013         2012       $ Change     % Change
Operating expenses
Research and development   $  3,749     $  3,398     $    351        10  %
% of total revenue               19 %         20 %
Sales and marketing        $ 12,542     $ 14,497     $ (1,955 )     (13 )%
% of total revenue               63 %         83 %
General and administrative $  3,808     $  3,853     $    (45 )      (1 )%
% of total revenue               19 %         22 %
Total operating expenses   $ 20,099     $ 21,748     $ (1,649 )      (8 )%

Research and development. Research and development expenses increased by $0.4 million, or 10%, to $3.7 million in the three months ended March 31, 2013, compared to $3.4 million for the same period in 2012. The increase in research and development expenses was primarily due to an increase in payroll related costs attributed to higher headcount, as we to explore ways to leverage our proprietary cooling platform for additional applications and indications,during the three months ended March 31, 2013.

Sales and marketing. Sales and marketing expenses decreased by $2.0 million, or 13%, to $12.5 million in the three months ended March 31, 2013, compared to $14.5 million for the same period in 2012. The decrease in sales and marketing expenses was mostly due to a $2.9 million decrease in advertising, public relations, collateral development and production expenses incurred in conjunction with our sales and marketing initiatives, offset in part by a $1.0 million increase in payroll related costs and sales commission expenses due to higher volume of sales. The decrease in advertising expenses is related to our shift in emphasis from Direct-to-Consumer advertising programs to a more localized co-op marketing strategy with individual practices. The increase in these payroll related expenses is directly related to the growth of our sales and marketing organization, while sales commission expenses increased due to the expansion of our sales force into new and existing markets driving growth in revenue.

General and administrative. General and administrative expenses were relatively flat at $3.8 million for the three months ended March 31, 2013, compared to $3.9 million for the same period in 2012. The decrease in general and administrative expenses was primarily due to decreases in payroll related costs, legal, travel and entertainment expenses totaling $0.5 million as we continue


Table of Contents

to focus on our cost control and reduction efforts. This was offset in part by increased stock-based compensation expense of $0.4 million.

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

Three Months Ended
March 31,
2013 2012 $ Change % Change
Interest income, net $ 24 $ 29 $ (5 ) (17 )% % of total revenue - % - % Other expense, net $ (34 ) $ (17 ) $ (17 ) 100 % % of total revenue - % - %

Interest income, net. Interest income, net resulted in income of $24,000 for the three months ended March 31, 2013, compared to income of $29,000 for the same period in 2012. The decrease in interest income is attributable to a decrease in our cash, cash equivalents and investments.

Other expense, net. Other expense, net for the three months ended March 31, 2013, resulted in an expense of $34,000 compared to an expense of $17,000 for the same period in 2012. The increase in other expenses in the current year was related to foreign exchange transaction losses.

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 initial public offering, or IPO. As of March 31, 2013, we had $51.6 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 March 31, 2013, and December 31, 2012 (in thousands):

                           March 31,      December 31,
                              2013            2012
Cash and cash equivalents $    16,846    $       22,876
Short-term investments         25,359            22,563
Long-term investments           9,364            13,141
Total                     $    51,569    $       58,580

Working capital           $    47,519    $       49,590

  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
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


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.