Obagi Medical Products Reports Third Quarter 2009 Earnings

http://www.businesswire.com/news/home/20091105006367/en

LONG BEACH, Calif.--(Business Wire)--
Obagi Medical Products, Inc. (NASDAQ: OMPI) today reported third quarter 2009
net income of $3.0 million, or $0.14 per diluted share, compared with $2.9
million, or $0.13 per diluted share, for the third quarter of 2008.

Net sales were $24.9 million in the third quarter of 2009, a decline of 4% from
$26.0 million a year ago. Gross margin was 78.9% in the third quarter of 2009,
compared with 80.3% a year ago. This was due primarily to a newly initiated
rebate program tied to the use of NuDerm or Condition & Enhance systems in
conjunction with cosmetic procedures, which impacted gross margins by 1%, and
which has been fully accrued for.

Operating expense declined to $14.7 million, compared with $16.1 million a year
ago, and operating income was $4.9 million, or 20% of sales, compared with $4.8
million, or 18% of sales, a year ago.

Business Highlights of the Third Quarter and Subsequent Weeks:

* Added 427 new accounts during the quarter compared to 389 in the second
quarter 2009, as a result of the Company`s continued investment in promotional
activities. This brings the number of active accounts to 6,130 as of September
30, which is up 9% from a year ago.
* Introduced a second new product for 2009 in select accounts, Refissa Tretinoin
Emollient Cream, 0.05% in mid-September. Refissa is FDA-approved for specific
use to diminish fine facial wrinkles and fade irregular pigmentation due to sun
damage and smooth tactile roughness. The Company plans to position Refissa to be
used to further enhance the effectiveness of NuDerm, Condition & Enhance and
Obagi-C Rx Systems.
* Launched ELASTIderm successfully in Japan thru Rohto Pharmaceuticals, Obagi`s
retail consumer partner, contributing to an increase in approximately $200,000
in licensing fees from the same period in 2008.
* Generated $5.0 million of cash from operations for the third quarter of 2009
bringing the Company`s cash and short-term investment balance to $31.2 million
at September 30. No shares were repurchased through the Company`s stock buyback
program during the quarter.

Obagi Medical Products` President and Chief Executive Officer Steve Carlson
stated, "We are seeing additional signs that support our conservative optimism
for our future business. Namely, this quarter`s growth in new accounts, which
represents the second largest quarter increase in the Company`s history and a
sequential increase of 10%, as well as feedback from physicians that they are
seeing an increase in patient traffic are indicators that consumer demand for
aesthetic procedures is improving. In addition, while continuing our investment
in sales promotions to drive customer demand, we have effectively managed costs
and lowered SG&A expenses by $1.4 million, or 9%, from the same period last
year."

Introducing Fourth Quarter 2009 Financial Guidance

Based on current market conditions, continued economic uncertainty and the
Company`s historical seasonality pattern, the Company expects revenue for the
fourth quarter of 2009 to be between $25.0 and $27.0 million and earnings to be
$0.16 - $0.18 per fully diluted share on 22.0 million fully diluted shares
outstanding.

Strengthened Balance Sheet and Cash Flow

As of September 30, 2009, the Company was debt free with cash and cash
equivalents, including short term investments, totaling $31.2 million, up from
$19.9 million at December 31, 2008. Additionally, the Company generated $5.0
million in cash flow from operations during the third quarter of 2009 and $13.9
million since December 31, 2008.

Conference Call Information

Obagi will host a conference call and webcast today at 4:30 p.m. Eastern time
(1:30 p.m. Pacific time). Investors interested in participating in the live call
can dial 877-941-4776 from the U.S. International callers can dial 480-629-9762.
A telephone replay will be available approximately two hours after the call
concludes through Thursday, November 19, by dialing 800-406-7325 from the U.S.,
or 303-590-3030 for international callers, and entering confirmation code
4174669. The simultaneous webcast will be available on the Investor Relations
section of the Company's website at www.obagi.com and will be archived for 30
days.

About Obagi Medical Products, Inc.

Obagi Medical Products develops and commercializes skin health products for the
dermatology, plastic surgery, and related aesthetic markets. Using its
Penetrating Therapeutics technologies, Obagi Medical's products are designed to
improve penetration of agents across the skin barrier for common and visible
skin conditions in adult skin including chloasma, melasma, senile lentigines,
acne vulgaris and sun damage. The history of Obagi's skin care product
introductions is as follows: Obagi Nu-Derm, 1988; Obagi-C Rx (the first and only
prescription-strength vitamin C and hydroquinone system), 2004; Obagi
Professional-C (a line of highly stable vitamin C serums), 2005; Obagi Condition
& Enhance System for use with cosmetic procedures to enhance patient outcomes
and satisfaction, 2006; Obagi ELASTIderm eye treatment and Obagi CLENZIderm M.D.
acne therapeutic systems, 2007; a formulation of Obagi CLENZIderm M.D. Systems
for normal to dry skin, June 2007; Obagi ELASTIderm Décolletage System, January
2008; the Rosaclear System for the treatment of rosacea, January 2009; and
Refissa Tretinoin Emollient Cream, 0.05%, September 2009. Visit www.obagi.com
for information.

Forward Looking Statements

There are forward-looking statements contained herein, which can be identified
by the use of forward-looking terminology such as the words "believes,"
"expects," "may," "will," "should," "potential," "anticipates," "plans," or
"intends" and similar expressions. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause actual
results, events or developments to be materially different from the future
results, events or developments indicated in such forward-looking statements.
Such factors include, but are not limited to the current condition of, and
continued deterioration in, the global economy, intense competition our products
face and will face in the future, the level of market acceptance of our
products, the possibility that our products could be rendered obsolete by
technological or medical advances, the possibility that we may become involved
in intellectual property claims and litigation that could adversely affect the
profitability of or our ability to sell our products, the possibility that our
products may cause undesirable side effects and the fact that our ability to
commercially distribute our products may be significantly harmed if the state or
federal regulatory environment governing our products changes. A more detailed
discussion of these and other factors that could affect results is contained in
our filings with the U.S. Securities and Exchange Commission. These factors
should be considered carefully and readers are cautioned not to place undue
reliance on such forward-looking statements. No assurance can be given that the
future results covered by the forward-looking statements will be achieved. All
information in this press release is as of the date of this press release and
Obagi Medical Products does not intend to update this information.

Obagi Medical Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share and per share amounts)

September 30, December 31,
2009 2008
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 23,458 $ 13,938
Short-term investments 7,743 6,000
Accounts receivable, net 20,855 20,648
Accounts receivable from related parties, net 314 518
Inventories, net 6,569 6,845
Prepaid expenses and other current assets 4,759 6,404
Total current assets 63,698 54,353
Property and equipment, net 4,890 5,340
Goodwill 4,629 4,629
Intangible assets, net 5,018 5,267
Other assets 2,297 2,670
Total assets $ 80,532 $ 72,259
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 7,675 $ 6,478
Current portion of long-term debt 46 47
Accrued liabilities 3,672 3,510
Amounts due to related parties 485 169
Total current liabilities 11,878 10,204
Long-term debt 2 18
Other long-term liabilities 1,592 1,516
Total liabilities 13,472 11,738
Commitments and contingencies
Stockholders' equity
Common stock, $.001 par value; 100,000,000 shares authorized, 22,748,068 and 22,691,238 shares issued and 21,912,707 and 22,044,872 shares outstanding at September 30, 2009 and December 31, 2008, respectively

23 23
Additional paid-in capital 59,378 58,026
Accumulated earnings 13,085 6,557
Treasury stock, at cost; 811,031 and 627,367 shares at September 30, 2009 and December 31, 2008, respectively
(5,348 ) (4,016 )
Accumulated other comprehensive loss (78 ) (69 )
Total stockholders' equity 67,060 60,521
Total liabilities and stockholders' equity $ 80,532 $ 72,259

Obagi Medical Products, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except share and per share amounts)

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited)

Net sales $ 24,899 $ 26,012 $ 73,393 $ 79,158
Cost of sales 5,250 5,114 15,552 14,888
Gross profit 19,649 20,898 57,841 64,270
Selling, general and administrative expenses 13,610 14,985 43,850 43,260
Research and development expenses 1,114 1,155 3,492 3,872
Income from operations 4,925 4,758 10,499 17,138
Interest income 34 91 147 279
Interest expense (17 ) (28 ) (53 ) (93 )
Income before provision for income taxes 4,942 4,821 10,593 17,324
Provision for income taxes 1,897 1,914 4,065 6,920
Net income $ 3,045 $ 2,907 $ 6,528 $ 10,404

Net income attributable to common shares
Basic $ 0.14 $ 0.13 $ 0.30 $ 0.46
Diluted $ 0.14 $ 0.13 $ 0.30 $ 0.46

Weighted average common shares outstanding
Basic 21,912,707 22,658,232 21,989,952 22,652,205
Diluted 21,993,263 22,693,197 22,005,721 22,703,071

Segment information:

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited)
Net sales by segment
Physician Dispensed $ 23,357 $ 24,798 $ 69,854 $ 75,750
Licensing 1,542 1,214 3,539 3,408
Net sales $ 24,899 $ 26,012 $ 73,393 $ 79,158

Gross profit by segment
Physician Dispensed $ 18,138 $ 19,717 $ 54,395 $ 60,963
Licensing 1,511 1,181 3,446 3,307
Gross profit $ 19,649 $ 20,898 $ 57,841 $ 64,270

Geographic information
United States $ 20,256 $ 21,743 $ 60,469 $ 66,510
International 4,643 4,269 12,924 12,648
Net sales $ 24,899 $ 26,012 $ 73,393 $ 79,158

Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(unaudited) (unaudited)
Net sales by product line
Physician dispensed
Nu-Derm $ 13,120 $ 14,764 $ 39,029 $ 43,973
Vitamin C 2,771 3,104 8,712 9,386
Elasticity 2,362 2,399 6,728 9,502
Therapeutic 1,800 1,805 6,590 4,714
Other 3,304 2,726 8,795 8,175
Total 23,357 24,798 69,854 75,750
Licensing 1,542 1,214 3,539 3,408
Total net sales $ 24,899 $ 26,012 $ 73,393 $ 79,158

Obagi Medical Products, Inc.
Preston Romm
CFO, EVP of Finance, Operations & Administration
562-628-1007
or
ICR, Inc.
Ina McGuinness/Lena Adams
310-954-1100

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