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| 8-K - OBAGI MEDICAL PRODUCTS 8-K 3-13-2012 - Obagi Medical Products, Inc. | form8k.htm |
Obagi: Strategic Direction Information Meetings
Welcome to the Obagi Transformation
We’ve been transforming women’s skin
for more than 20 years.
Now it’s our turn.
SAFE HARBOR
1
Today’s presentation contains forward-looking statements that 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. Actual events and
performance may differ materially from expectations. Such factors include, but are not limited to the ability to
successfully implement the new online e-Commerce sales and fulfillment strategy, variability of quarterly
operating results, intense competition our products face and will face in the future, 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. The
forward-looking statements in this presentation speak only as of the date they are made and Obagi Medical
Products does not intend to update this information.
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. Actual events and
performance may differ materially from expectations. Such factors include, but are not limited to the ability to
successfully implement the new online e-Commerce sales and fulfillment strategy, variability of quarterly
operating results, intense competition our products face and will face in the future, 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. The
forward-looking statements in this presentation speak only as of the date they are made and Obagi Medical
Products does not intend to update this information.
BUSINESS OVERVIEW
2
Obagi Medical Products: Who We Are
• Founded in 1997
• Headquarters: Long Beach, CA
• Employees: 199, including 141 in Sales & Marketing
• Accounts: Estimated ~12,500 physicians in U.S.
• Profitable, positive cash flow business
• Specialty pharmaceutical company that develops, markets and
sells proprietary topical aesthetic and therapeutic prescription-
strength skin care systems
sells proprietary topical aesthetic and therapeutic prescription-
strength skin care systems
• Designed to prevent and improve the most common and visible
skin disorders in adults
skin disorders in adults
Leading Company in the Physician-Dispensed Skin Care Market
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• Segment: Medical care providers, spas/skin salons
and specialty retail stores
and specialty retail stores
• 2010 combined market: $900 million+1
• Sector: OMPI participates almost solely in the
medical care provider channel - $303 million in
20111
medical care provider channel - $303 million in
20111
• Segment CAGR: 7.1% 2006 to 2011
• OMPI CAGR: 8.0% (includes 1.0% negative impact
relating to Texas)
relating to Texas)
• OMPI market leader: all years, currently ~2x its
nearest competitor
nearest competitor
Obagi’s Existing Addressable Market
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1. Source: Kline & Company, Inc.
Obagi Maintains Leading Brand Recognition
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Elite
Products
Products
Medical/Spa
$$$
Estee Lauder
Laura Mercier
Chanel
Clinique
Dior
Kate Sommerville
Lancõme
Department
Store
Store
$$
Drug Store
$
Oil of Olay
L’Oreal
Cetaphil
Dove
Clearasil
Neutrogena
Aveeno
St. Ives
Clean & Clear
Obagi
Kinerase
LaMer
SkinCeuticals
MD Forte
La Roche Posay
Kiehl’s
SkinMedica
NeoStrata
Murad
Preuage
LaPraine
(spa)
(medical)
Dermalogica
Glytone
• At the apex of the
hierarchy of
consumer attitudes,
aspirations and
perceptions
hierarchy of
consumer attitudes,
aspirations and
perceptions
• OMPI: leader overall in the segment, and also in a number
of sub-categories
of sub-categories
• Nu-Derm: leading brand in the entire segment, with 20% of
all revenues
all revenues
• ELASTIderm: leading eye treatment, 20% of sub-segment
• CLENZIderm: leading acne treatment dispensed by
physicians, more than 30% of sub-segment
physicians, more than 30% of sub-segment
Obagi’s Market-Leading Products
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Obagi’s Core Business is Robust
• The Obagi brand value and goodwill is reflected in the
Company’s strength and stability
Company’s strength and stability
• Products are accepted as clinically proven and effective
by medical professionals and by consumers
by medical professionals and by consumers
• Physician-dispense model enabled OMPI to compete
and win in a market targeted by much larger companies
and win in a market targeted by much larger companies
• OMPI dominates the physician-dispense segment it
helped create
helped create
• At the apex of the hierarchy of consumer attitudes,
aspirations and perceptions
aspirations and perceptions
OBAGI TRANSFORMATION:
EXPANDING THE ADDRESSABLE MARKET
EXPANDING THE ADDRESSABLE MARKET
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• In the new global consumer community, strong brands
have extraordinary opportunities
have extraordinary opportunities
• Social media brings consumer behaviors and preferences
visible to the masses (Facebook, Twitter, 4Square, etc.)
visible to the masses (Facebook, Twitter, 4Square, etc.)
• Virtual communities are fast becoming the biggest factor in
consumer purchasing decisions
consumer purchasing decisions
• In a global consumer community connected by the web
and social media, the power of the Obagi brand can drive
consumer action
and social media, the power of the Obagi brand can drive
consumer action
• Our research indicates that millions of consumers are
already searching for us on the web every year
already searching for us on the web every year
Leveraging Strength of Obagi’s Brand to
Capitalize on Global Online Communities
Capitalize on Global Online Communities
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• OMPI’s true revenue potential is bottled up:
– In the US alone, at least 60 million women represent potential
Obagi customers
Obagi customers
– However, at any one time, there are only approximately 500,000
active Obagi end-users
active Obagi end-users
• Yet, 400,000 web searches for Obagi occur each month
• Obviously, there is a disconnect between existing and
potential demand and conversion into sales
potential demand and conversion into sales
• This disconnect is a manifestation of the difference
between “old” and “new” business models, and between
“physical” and “virtual” marketplaces
between “old” and “new” business models, and between
“physical” and “virtual” marketplaces
Evolving Obagi’s Channel Strategy to
Accelerate Growth
Accelerate Growth
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Potential New Market Opportunity
• Physical limitations vs. virtual limitlessness
– Currently, business is 100% wholesale; customer is exclusively a
reselling physician
reselling physician
– Revenues are bounded on the upside due to inventory
purchasing requirements placed upon physicians
purchasing requirements placed upon physicians
– Physicians are rarely willing or able to purchase, store and re-
offer the complete Obagi line, even if customers want them
offer the complete Obagi line, even if customers want them
– Thus the physical and financial limitations of its individual outlets
limits upside for Obagi
limits upside for Obagi
• The fact that prescriptions are required both complicates
the solution and creates a unique and exciting opportunity
the solution and creates a unique and exciting opportunity
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Building an e-Commerce and Fulfillment
Operation
Operation
• Moving forward with innovation, creativity and vision
• Obagi-owned online pharmacy and fulfillment operation
will set ourselves apart in our industry by combining
will set ourselves apart in our industry by combining
– A dominant brand with prescription components, built on
– An ability to engage (in theory) directly with virtually all women
(through e-Commerce and new channels), which is
(through e-Commerce and new channels), which is
– Supported by direct fulfillment of individual customer orders,
including Rx, which in turn establishes
including Rx, which in turn establishes
– An ongoing personal dialogue with them, which we will
accomplish through
accomplish through
– Use of a customer profile created and maintained in a database
we will own
we will own
• Obagi’s new online pharmacy and fulfillment capability is
not just a marginal add-on to the existing business
not just a marginal add-on to the existing business
• Building a worldwide, Obagi-branded online community to
bring together in one place existing end-users, physicians
and millions of prospective new customers
bring together in one place existing end-users, physicians
and millions of prospective new customers
• A place to share information and experiences, create
affinities, refill prescriptions and buy products online
affinities, refill prescriptions and buy products online
• In time, this new environment will become the dominant, if
not the only, channel for the delivery of Obagi goods and
services to end-users
not the only, channel for the delivery of Obagi goods and
services to end-users
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Creating a Dominant New Channel
Shopping
Online
Offline
Brands
Clothing/Accessories
Cars
Technology
Obagi is…
• Strong and powerful
• Fixes problems
• Somewhat exotic
• Flawless skin
Angelina
Jolie
Jolie
Celebrities
High Opportunity
Consumers
Consumers
Targeting New End Users and High Opportunity
Consumers Through e-Commerce
Consumers Through e-Commerce
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Accelerating Future Growth
• The goal is to generate 15%-20% sustained annual
growth rates in revenues and profits
growth rates in revenues and profits
• Add up to $100 million in new revenue within 3-5 years
• Establish direct relationships with end-users on a major
scale
scale
• Maintain or improve contribution margins
• Avoid cannibalizing the existing business
Multiplies Revenue Prospects Immediately
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Expected Revenue Impact of Immediate Benefits
“Back of the Envelope” Revenues Discussed Above
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2012 Investments - Management Estimates1
1. Other than Operations, some Sales & Marketing and Other, all listed expense items are one-time investments.
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• Draw large numbers of new users into online community
• Spread to non-traditional medical channels
• International possibilities become interesting - particularly
Japan and Asia
Japan and Asia
Longer Term Opportunities
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OBAGI FINANCIALS
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Financial Overview
($’s in millions except for share price & EPS)
As of December 31, 2011
($’s in millions except for share price & EPS)
As of December 31, 2011
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NASDAQ Ticker Symbol
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OMPI
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Stock price (3/9/2012)
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$13.00
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FD Shares outstanding
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18.7M
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|
Market cap (3/9/2012)
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$243M
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Financial Metrics (non-GAAP*)
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2011
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|
Gross Margin
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79%
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Operating Margin
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21%
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EBITDA Margin
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24%
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ROA
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19%
|
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ROE
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25%
|
|
|
|
|
* See our Report on Form 8-K filed with the Commission on March 8, 2012 for non-GAAP financial measures. Non-GAAP financial
information excludes impact of the Texas Sales Provision.
information excludes impact of the Texas Sales Provision.
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Comments to 2011 and 2012 Outlook
• 2011 Financial Results:
• Excludes any impact related to the Zein Obagi law suit and settlement
• Includes any negative impact due to Texas Hydroquinone; revenue and expenses
• GAAP revenue was $114.1M and non-GAAP EPS was $0.81
• 2012 Guidance:
• Core business:
• Revenue of between $122.0 M- $125.0M
• Earnings per share in the range of $0.89 - $0.91
• Impact of investments:
• Revenue impact of between <$1.0M> - <$3.0M>
• Earnings per share in the range of <$0.29> - <$0.31>
• Combined guidance:
• Total year revenue of between $119.0M - $124.0M
• Total year earnings per share in the range of $0.58 - $0.62
• Year-end 2012 cash balance at $43.0M - $45.0M; positive cash flow of $8.0M - $10.0M
• Q1 revenue of between $27.0M - $29.0M
• Q1 earnings per share in the range of $0.10 - $0.11
• Excludes potential costs associated with responding to any state
regulatory inquiry
regulatory inquiry
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Note: See Form 8-K filed with the Commission on March 8, 2012. 2011 Non-GAAP financial information excludes the impact of
the Texas Sales Provision.
the Texas Sales Provision.
* See our Report on Form 8-K filed with the Commission on March 11, 2010 for Non-GAAP financial measures.
** See our Report on Form 8-K filed with the Commission on March 10, 2011 for Non-GAAP financial measures.
*** See our Report on Form 8-K filed with the Commission on March 8, 2012 for Non-GAAP financial measures. 2011 Non-
GAAP financial measures exclude the impact of the Texas Sales Provision. As a reminder, the Company completed a stock
buyback of 3.5 million shares in November 2010.
GAAP financial measures exclude the impact of the Texas Sales Provision. As a reminder, the Company completed a stock
buyback of 3.5 million shares in November 2010.
Annual Revenue & EPS Trends
($ in millions, except per share)
($ in millions, except per share)
•Revenues
•EPS
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Balance Sheet Summary
($ in millions)
($ in millions)
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Dec. 2011
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Cash and Cash Equivalents
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$35.0M
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2011 Free Cash Flow (1)
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$23.9M
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Total Assets
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$77.8M
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Total Bank Debt (2)
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$0
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Shareholders’ Equity
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$60.9M
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Authorized Buyback (remaining)
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$30.0M
|
(1) 2011 free cash flow before $5.0 million legal settlement paid to Dr. Obagi in May 2011.
(2) Obagi has access to up to $35.0 million in additional credit through its agreement with Comerica Bank,
including a Revolving Credit Facility of up to $20.0 million and potential term loans of up to $15.0 million.
including a Revolving Credit Facility of up to $20.0 million and potential term loans of up to $15.0 million.
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CLOSING THOUGHTS
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Key Takeaways and Investment Highlights
• Experienced Management Team
• Outstanding Brand Recognition and Track Record for
Product Innovation
Product Innovation
• Expansion of Distribution Channels to Accelerate Growth
• Targeted End Users Through e-Commerce Channel
Q&A
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