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

August 02, 2012 | About:
10qk

10qk

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Obagi Medical Products Inc. (OMPI) filed Quarterly Report for the period ended 2012-06-30.

Obagi Medical Products, Inc. has a market cap of $287.5 million; its shares were traded at around $15 with a P/E ratio of 16.9 and P/S ratio of 2.5.

Highlight of Business Operations:

Physician-dispensed sales increased $1.1 million, to $29.3 million during the three months ended June 30, 2012, as compared to $28.2 million during the three months ended June 30, 2011. We experienced net increases in the majority of our product categories as follows: (i) an increase in Vitamin C sales of $0.8 million; (ii) a $0.5 million increase in Elasticity sales, which is primarily attributable to the launch of ELASTIderm Complete Complex Eye Serum during the three months ended March 31, 2012; and (iii) an increase in the Therapeutic category of $0.1 million. These increases were offset in part by: (i) a decrease in Nu-Derm of $0.3 million; and (ii) a decrease in the Other category of $0.1 million. Licensing fees increased by $0.6 million due to the launch of a new product by our Japanese partner, Rohto, during the three months ended June 30, 2012.

Selling, general and administrative. Selling, general and administrative expenses consist primarily of salaries and other personnel-related costs, professional fees, insurance costs, stock-based compensation, depreciation and amortization not attributable to products sold, warehousing costs, advertising, travel expense and other selling expenses. Selling, general and administrative expenses increased $1.2 million to $18.3 million during the three months ended June 30, 2012, as compared to $17.1 million for the three months ended June 30, 2011. The increase was primarily due to the following: (i) a $1.3 million increase in headcount-related expenses, primarily due to an increase in accrued bonus during the three months ended June 30, 2012; (ii) $0.7 million in expenses directly related to the development and set-up of our e-Commerce platform; (iii) $0.4 million in expenses associated with the regulatory matters in California; (iv) a $0.3 million increase in promotions and training expenses; (v) $0.3 million in research concerning the Japanese market; (vi) a $0.2 million increase in non-cash compensation; (vii) $0.1 million in expenses related to the establishment of a second source for certain of our products; (viii) a $0.1 million increase in advertising expenses; and (ix) a $0.1 million increase in other expenses. These increases were partially offset by: (i) a decrease of $0.8 million in expenses associated with regulatory matters in Texas; (ii) a decrease of $0.7 million in costs associated with the litigation and settlement of matters related to Dr. Obagi (see Note 7 to Unaudited Condensed Consolidated Financial Statements); (iii) a $0.6 million decrease in other marketing expenses as during the three months ended June 30, 2011, we invested in extensive market research and consumer engagement initiatives to update and enhance our internet presence; (iv) a $0.1 million decline in professional services; (v) a $0.1 million decrease in product development expenses; and (vi) a $0.1 million decline in depreciation and amortization. As a percentage of net sales, selling, general and administrative expenses in the three months ended June 30, 2012 were 60% as compared to 59% for the three months ended June 30, 2011. We expect selling, general and administrative expenses to increase as a percentage of net sales for the remainder of fiscal year 2012 as we plan to invest significant resources related to the development and set-up of our e-Commerce platform. See discussion “Liquidity and capital resources,” for further information.

Physician-dispensed sales increased $6.0 million, to $59.2 million during the six months ended June 30, 2012, as compared to $53.2 million during the six months ended June 30, 2011. We experienced net increases in the majority of our product categories as follows: (i) an increase in Nu-Derm sales of $2.2 million, of which $1.1 million is attributable to the sales returns provision related to Texas recorded during the six months ended June 30, 2011; (ii) a $1.7 million increase in Elasticity sales, of which the majority is attributable to the launch of ELASTIderm Complete Complex Eye Serum during the six months ended June 30, 2012; (iii) an increase in Vitamin C sales of $1.6 million; and (iv) an increase in the Therapeutic category of $0.7 million, the majority of which is attributable to the re-launch of our Normal to Oily CLENZIderm kit during the six months ended June 30, 2012. These increases were partially offset by a decrease in the Other category of $0.2 million. Licensing fees decreased by $0.1 million.

Our aggregate sales growth was composed of $4.3 million from the U.S and $1.7 million from our International physician-dispensed markets, offset in part by a $0.1 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 $0.8 million increase in the Europe and Other region; (ii) a $0.7 million increase from the Far East; (iii) a $0.1 million increase from the Americas; and (iv) a $0.1 million increase in the Middle East. The net increase in the U.S. was due to $2.6 million in sales growth, along with a decrease of $1.7 million in sales returns and allowances associated with the Texas regulatory matter during the six months ended June 30, 2011.

Selling, general and administrative. Selling, general and administrative expenses decreased $4.3 million to $37.3 million during the six months ended June 30, 2012, as compared to $41.6 million for the six months ended June 30, 2011. This decline was primarily due to the following: (i) a decrease of $7.9 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 $1.1 million decrease in other marketing expenses as during the six months ended June 30, 2011, we invested in extensive market research and consumer engagement initiatives to update and enhance our internet presence; (iii) a decrease of $0.8 million in expenses associated with regulatory matters in Texas; (iv) a $0.5 million decrease in impairment charges (see “Impairment of License” discussion under “Overview and Recent Developments”); (v) a $0.1 million decrease in depreciation and amortization; and (vi) a $0.1 million decrease in product development expenses. These decreases were partially offset by: (i) $1.7 million in expenses directly related to the development and set-up of our e-Commerce platform; (ii) a $1.6 million increase in headcount-related expenses, primarily due to an increase accrued bonus during the six months ended June 30, 2012 and an increase in operational and general and administrative headcount; (iii) $0.9 million in expenses associated with the regulatory matters in California; (iv) $0.4 million in research concerning the Japanese market; (v) a $0.3 million increase in non-cash compensation; (vi) $0.3 million in expenses related to the establishment of a second source for certain of our products; (vii) a $0.3 million increase in professional fees; (viii) a $0.2 million increase in advertising costs; (ix) a $0.2 million increase in other expenses; (x) a $0.1 million increase in promotions and training expenses; (xi) $0.1 million in expenses for efforts to expand our reach into obstetrician/gynecology practices; and (xii) a $0.1 million increase in volume related expenses, primarily bad debt expense and credit card fees. As a percentage of net sales, selling, general and administrative expenses in the six months ended June 30, 2012 were 61% as compared to 75% for the six months ended June 30, 2011.

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