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

November 01, 2012 | About:

10qk

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Obagi Medical Products Inc. (OMPI) filed Quarterly Report for the period ended 2012-09-30.

Obagi Medical Products, Inc. has a market cap of $233.1 million; its shares were traded at around $12.73 with a P/E ratio of 13 and P/S ratio of 2.

Highlight of Business Operations:

Physician-dispensed sales increased $0.4 million, to $27.6 million during the three months ended September 30, 2012, as compared to $27.2 million during the three months ended September 30, 2011. We experienced net increases in the majority of our product categories as follows: (i) an increase in Therapeutic sales of $0.3 million; (ii) a $0.2 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 an increase in units sold related to our fall 2012 purchase-with purchase-promotion; and (iii) an increase in the Vitamin C category of $0.2 million. These increases were offset in part by: (i) a decrease in Nu-Derm of $0.2 million; and (ii) a decrease in the Other category of $0.2 million. Licensing fees increased by $0.7 million due to the launch of three new products by our Japanese partner, Rohto, during the three months ended September 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 $2.7 million to $17.8 million during the three months ended September 30, 2012, as compared to $15.1 million for the three months ended September 30, 2011. The increase was primarily due to the following: (i) $1.2 million in expenses directly related to the development and set-up of our e-Commerce platform; (ii) a $0.4 million increase in professional fees; (iii) $0.2 million in expenses associated with the regulatory matters in California; (iv) $0.2 million in research concerning the Japanese market; (v) a $0.2 million increase in promotions and training expenses; (vi) a $0.2 million increase in other marketing expenses; (vii) a $0.2 million increase in advertising primarily due to increased advertising support for our international distributors; (viii) a $0.2 million increase in non-cash compensation; (ix) $0.1 million in expenses related to the establishment of a second source for certain of our products; (x) $0.1 million in expenses related to researching physician opportunities; and (xi) a $0.1 million increase in other expenses. These increases were partially offset by: (i) a decrease of $0.1 million in expenses associated with regulatory matters in Texas; (ii) a decrease of $0.1 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 $0.1 million decrease in product development expenses; and (vi) a $0.1 million decline in volume-driven expenses. As a percentage of net sales, selling, general and administrative expenses in the three months ended September 30, 2012 were 61% as compared to 54% for the three months ended September 30, 2011. We expect selling, general and administrative expenses to increase as a percentage of net sales for the remainder of 2012 as we plan to invest significant resources in the development and launch of our e-Commerce platform. See discussion “Liquidity and capital resources,” for further information.

Physician-dispensed sales increased $6.4 million, to $86.8 million during the nine months ended September 30, 2012, as compared to $80.4 million during the nine months ended September 30, 2011. We experienced net increases in the majority of our product categories as follows: (i) an increase in Nu-Derm sales of $1.9 million, of which $1.1 million is attributable to the sales returns provision related to Texas recorded during the nine months ended September 30, 2011; (ii) a $1.9 million increase in Elasticity sales, of which the majority is attributable to the launch of ELASTIderm Complete Complex Eye Serum during the nine months ended September 30, 2012; (iii) an increase in Vitamin C sales of $1.9 million; and (iv) an increase in the Therapeutic category of $0.9 million, the majority of which is attributable to the re-launch of our Normal to Oily CLENZIderm kit during the nine months ended September 30, 2012. These increases were partially offset by a decrease in the Other category of $0.3 million. Licensing fees increased by $0.6 million, which is primarily attributable to the launch of new products by our licensing partner Rohto, during the third quarter ended September 30, 2012.

Our aggregate sales growth was composed of $4.2 million and $2.2 million from our U.S. and International physician-dispensed markets, respectively, and an increase of $0.6 million 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 $1.2 million increase in the Europe and Other region; (ii) a $0.7 million increase from the Far East; (iii) a $0.2 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 $2.5 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 nine months ended September 30, 2011.

Selling, general and administrative. Selling, general and administrative expenses decreased $1.7 million to $55.0 million during the nine months ended September 30, 2012, as compared to $56.7 million for the nine months ended September 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 decrease of $0.9 million in expenses associated with regulatory matters in Texas; (iii) a $0.9 million decrease in other marketing expenses as during the nine months ended September 30, 2011, we invested in extensive market research and consumer engagement initiatives to update and enhance our Internet presence; (iv) a $0.5 million decrease in impairment charges (see “Impairment of License” discussion under “Overview and Recent Developments”); (v) a $0.2 million decrease in depreciation and amortization; and (vi) a $0.1 million decrease in product development expenses. These decreases were partially offset by: (i) $2.9 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 nine months ended September 30, 2012 and an increase in operational and general and administrative headcount; (iii) $1.0 million in expenses associated with the regulatory matters in California; (iv) a $0.7 million increase in professional fees; (v) $0.6 million in research concerning the Japanese market; (vi) a $0.5 million increase in advertising primarily due to increased advertising support for our international distributors; (vii) a $0.5 million increase in non-cash compensation; (viii) $0.4 million in expenses related to the establishment of a second source for certain of our products; (ix) a $0.3 million increase in promotions and training expenses; (x) $0.2 million in expenses related to researching physician opportunities; and (xi) a $0.1 million increase in other expenses. As a percentage of net sales, selling, general and administrative expenses in the nine months ended September 30, 2012 were 61% as compared to 68% for the nine months ended September 30, 2011.

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10qk
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