Cynosure: Profitable, Growing and Flush with Cash, but Investors Don’t Care

Quarterly revenues at Cynosure, a developer of laser-based aesthetic systems, grew 21% year-over-year, from $31.5 million in Q3 2007 to $38.2 million in the most recent quarter. Second quarter revenues were $39.2 million.

Net income for the third quarter of 2008 was $3.2 million compared with net income of $4.4 million for the same period last year. The decline in profits was largely the result of a foreign currency exchange loss of $0.4 million. In Q3 2007, the company reported a foreign currency exchange gain of $0.5 million.

Cynosure, profitable for eight consecutive quarters, seems comfortable navigating the challenging economic conditions seen throughout the aesthetics industry. President and CEO Michael Davin commented, “[A] consistent focus on innovation enabled us to extend our leadership position. Driving our performance was steady demand for our Elite workstation for laser hair removal, our Affirm workstations for anti-aging and Smartlipo MPX, our new 32-watt workstation for laser body sculpting.”

In late April, Cynosure began selling Smarlipo MPX in the U.S. The company has reported significant demand for the workstation, in part because Cynosure decided to sell the product at a lower price than originally planned (high-volume liposuction practices take note). The company seeks to rapidly build an installed base and presumably benefit from the future sale of disposables.

Cynosure enters the fourth quarter well positioned operationally and financially. In the past year the company has invested in direct sales and marketing infrastructure in North America and in Europe and Asia. These efforts are beginning to yield results, with international product revenue increasing 29% in the third quarter of 2008 compared to the year ago period.

Cynosure ends its third quarter with cash and cash equivalents of $92.7 million and no long-term debt. The stock fell below $10 today and has a market capitalization of $126 million. I understand the aesthetics industry bearishness, but only to a point. Months ago, I would have told you this presented a terrific buy opportunity, but nothing makes sense nowadays.

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