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Obagi Medical Products Inc. Reports Operating Results (10-Q)

May 04, 2012 | About:
10qk

10qk

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Obagi Medical Products Inc. (OMPI) filed Quarterly Report for the period ended 2012-03-31.

Obagi Medical has a market cap of $235.7 million; its shares were traded at around $12.85 with a P/E ratio of 14.7 and P/S ratio of 2.1.

Highlight of Business Operations:

Physician-dispensed sales increased $5.0 million, to $29.9 million during the three months ended March 31, 2012, as compared to $24.9 million during the three months ended March 31, 2011. We experienced net increases in the majority of our product categories as follows: (i) an increase in Nu-Derm sales of $2.4 million, of which $1.3 million is attributable to the sales returns provision related to Texas recorded during the three months ended March 31, 2011; (ii) a $1.2 million increase in Elasticity sales, of which $1.1 million is attributable to the launch of ELASTIderm Complete Complex Eye Serum during the three months ended March 31, 2012; (iii) an increase in Vitamin C sales of $0.8 million, of which $0.2 million is attributable to the sales returns provision related to Texas during the three months ended March 31, 2011; and (iv) an increase in the Therapeutic category of $0.6 million, of which $0.5 million is attributable to the re-launch of our Normal to Oily CLENZIderm kit during the three months ended March 31, 2012. Licensing fees decreased by $0.7 million due to the launch of new products by our Japanese partner, Rohto, during the three months ended March 31, 2011. Despite the decline in our licensing fees during the first quarter of 2012, we do not expect our licensing fees to be materially impacted for the year ending December 31, 2012.

Our aggregate sales growth was composed of $4.0 million from the U.S and $0.9 million from our International physician-dispensed markets, offset in part by a $0.7 million decline in licensing fees. The increase in International sales was experienced across the majority of our product lines and was principally a result of: (i) a $0.4 million increase in the Europe and Other region; (ii) a $0.4 million increase from the Far East; and (iii) a $0.1 million increase from the Americas. The net increase in the U.S. was due to $2.1 million in sales growth, along with a decrease of $1.9 million in sales returns and allowances associated with the Texas regulatory matter during the three months ended March 31, 2011.

products sold, warehousing costs, advertising, travel expense and other selling expenses. Selling, general and administrative expenses decreased $5.5 million to $19.0 million during the three months ended March 31, 2012, as compared to $24.5 million for the three months ended March 31, 2011. This decline was primarily due to the following: (i) a decrease of $7.2 million in costs associated with the litigation and settlement of matters related to Dr. Obagi (see Note 7 to Unaudited Condensed Consolidated Financial Statements); (ii) a $0.8 million decrease in other marketing as during the three months ended March 31, 2011, we invested in extensive market research and consumer engagement initiatives to update and enhance our internet presence; and (iii) a $0.5 million decrease in impairment charges (see “Impairment of License” discussion under “Overview and Recent Developments”). These decreases were partially offset by: (i) $1.0 million in expenses directly related to the development and set-up of our e-Commerce platform; (ii) $0.5 million in expenses associated with the regulatory matters in California; (iii) a $0.4 million increase in professional fees, primarily legal fees related to other general corporate matters and the shareholder rights plan; (iv) a $0.3 million increase in headcount-related expenses; (v) $0.2 million in expenses related to the establishment of a second source for certain of our products; (vi) $0.1 million in research concerning the Japanese market; (vii) $0.1 million in expenses for efforts to expand our reach into obstetrician/gynecology practices; (viii) a $0.1 million increase in promotions and training expenses; (ix) a $0.1 million increase in advertising costs; and (x) a $0.1 million increase in non-cash compensation. As a percentage of net sales, selling, general and administrative expenses in the three months ended March 31, 2012 was 62% as compared to 92% for the three months ended March 31, 2011. We expect selling, general and administrative expenses to decline as a percentage of net sales for the remainder of fiscal year 2011.

Research and development. Research and development expenses increased $0.2 million to $0.6 million for the three months ended March 31, 2012 as compared to $0.4 million for the three months ended March 31, 2011. This was due to a $0.2 million increase in expenses related to the development of new products. As a percentage of net sales, research and development costs were 2% for each of the three months ended March 31, 2012 and 2011. We expect research and development costs to increase slightly as a percentage of net sales for the remainder of fiscal year 2012.

During the three months ended March 31, 2011, we recorded $1.9 million in sales returns for products returned from customers residing in the state of Texas, which was subsequently adjusted to $1.7 million during the second and third quarters of 2011. We voluntarily ceased shipment of certain of our products containing 4% hydroquinone into the state of Texas from April 2011 to May 2012. Although we resumed shipping HQ products in Texas in May 2012, we cannot assure you that sales of such products in that state will return to historical levels. Texas net sales, including products containing hydroquinone, represented approximately 5% and 9% of our total net sales during the years ended December 31, 2011 and 2010, respectively;

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