CLZR Candela (MM)

FINAL TRANSCRIPT CLZR - Q1 2010 Candela Corp. Earnings Conference Call Event Date/Time: Oct. 20. 2009 / 9:00PM GMT THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2009 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies.

CORPORATE PARTICIPANTS Jerry Puorro Candela Corp. - President, CEO Bob Quinn Candela Corp. - CFO CONFERENCE CALL PARTICIPANTS Anthony Vendetti Maxim Group - Analyst Dalton Chandler Needham & Company - Analyst Anup Mehta Canaccord Adams - Analyst PRESENTATION Operator Good day, ladies and gentlemen, and welcome to the Candela Corporation First Quarter Fiscal Results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the program, please press star then zero on your touchtone telephone. As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Jerry Puorro, President and CEO. Jerry Puorro - Candela Corp. - President, CEO Thank you. Good evening, everybody. As always, we appreciate your calling in to our quarterly call. Here with me is Bob Quinn, the Company's Senior Vice President of Finance, Chief Financial Officer and Treasurer. Bob is going to review the requisite Safe Harbor statement and then go over the financials for the quarter. Then I have some very, very brief comments, following which we'll be happy to take your questions. Bob? Bob Quinn - Candela Corp. - CFO Good afternoon. In addition to historical information contained in this call, we'll discuss forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements relating to the future success of the business, marketing, technology strategies, future market opportunities, and the future market acceptance of and demand for the Company's products. The Company's future actual results could differ materially from the forward-looking statements discussed or implied because of risks or uncertainties including, but not limited to those risks identified in the press release issued earlier today, and those other factors discussed from time to time in the Company's periodic reports filed with the Securities & Exchange Commission. Results for the quarter were as follows -- revenue for the quarter was $26.2 million versus $26.7 million for the same quarter last year. This resulted in a net loss of $3.6 million, or $0.16 per share compared to a net loss of $4 million, or $0.18 per share for the same quarter last year. The revenue split this quarter geographically is 35% US and 65% international compared to 33% and 67% international last year. The customer mix this quarter was 64% core and 36% noncore. The product line split this quarter is 40% service and 60% laser-related compared to 36% service to 64% laser-related for the same period last year. 1 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2009 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FINAL TRANSCRIPT Oct. 20. 2009 / 9:00PM, CLZR - Q1 2010 Candela Corp. Earnings Conference Call

The revenue mix and erosion of ASPs resulted in an overall gross margin of approximately 35% this quarter compared to 39% a year earlier. This is broken down as product-related margins of 38% and service margins of 31% compared to last year's product line margins of 49% and service margins of 21%. The service margin improved again this quarter and is reflective of the work that has been performed to improve the product reliability. And, as I said earlier, ASPs have decreased approximately 5% year-over-year. Legal and related expense this quarter were approximately $2.5 million compared to $3.1 million last year. The expense this quarter related primarily to the pending merger activity, while the expense last year related primarily to the Palomar litigation activity. Key factors related to our balance sheet -- we maintain a strong cash position with $26 million in cash. As for accounts receivable, our DSO was at 107, which is higher than we would like but in line with the same quarter last year, and inventory levels continue to come more in line with our expectations as we reduced the levels by approximately $1 million this quarter. Jerry Puorro - Candela Corp. - President, CEO Thank you, Bob. Well, since we last spoke in August, as you know, we have announced our pending merger with Syneron. As we said at the time, we think the resulting company will be a leader in both product portfolio and distribution channels and capabilities. Further, the combined R&D pipeline is rich with new products and applications. As the recession abates, we believe our combined shareholders will be rewarded, as the upside value potential becomes apparent to investors. Turning to Palomar litigation, there are no material updates with respect to same. Two shareholder lawsuits have been filed in the Massachusetts state court against Candela and its board relating to the proposed merger with Syneron. The lawsuits claim that the board breached its fiduciary duties because the price and process of the transaction are allegedly unfair and seek, among other things, to enjoin the merger and mandate disclosure of information in connection with the shareholder vote of the transaction. We will have no further comment on either the Palomar litigation or the shareholder lawsuits. And, with that, Operator, we will take questions. QUESTIONS AND ANSWERS Operator Certainly. (Operator Instructions) Anthony Vendetti, Maxim Group. Anthony Vendetti - Maxim Group - Analyst I wanted to just get an update on the cellulite product. I know that that was pushed out a little bit. Do you have any update on that? And then if you could talk about, just in very broad terms, where you see the opportunities over the next couple of years in terms of the development pipeline? 2 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2009 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FINAL TRANSCRIPT Oct. 20. 2009 / 9:00PM, CLZR - Q1 2010 Candela Corp. Earnings Conference Call

Jerry Puorro - Candela Corp. - President, CEO Well, in terms of cellulite, specifically as it relates to just Candela, as you remember, we had pushed it out. We originally said by the end of the calendar year, and we said -- we saw some slippage there and pushed it into the earlier part of 2010. As part of the merger activities, we're going to look at all of the product positioning and product rationalization, and we have been for the past five weeks at various integration teams. And there are a number of products that the Syneron folks have related to body shaping, and so on. So we need to position our cellulite product in that and, in due course, we'll be talking to people about the positioning. There's an awful lot of shows coming up -- there's IMCAS in January, and AAD in March, and ASLMS is in April, where we'll be telling people more about how we position not only the products that are in the market together but the products that are in each other's pipelines together. Other than that, I don't want to talk about specificity of R&D pipelines right now, okay? Anthony Vendetti - Maxim Group - Analyst Yes, that's fair, that's fair. Can you talk, Jerry, just a little bit about -- since you said you spent about five weeks in the integration process already -- can you talk about how that's going, what you've learned in the integration process, and is it ahead of schedule? Is it moving kind of as you expected? Any insights you could share would be great. Jerry Puorro - Candela Corp. - President, CEO Well, it is very, very positive. M&A transactions, historically, are really, really hard to do and difficult, and I'm sure there are skeptics out there, given that one firm is Israeli and the other firm is a US-based firm. Shimon Eckhouse and I have been in this industry over two decades together. We've known each other, and we're trying to -- and Lou Scafuri, as well, was in the industry for years. So the leadership is trying to permeate down through the organizations. The attitude of working together towards all the same goals that we at the top have established or would like this to look like in a couple of years, and we've put together a number of integration teams for every single discipline, and they are working well together. In fact, they are here in Massachusetts for two days this week for what we're calling "Readiness Reports" by each of the teams to see how ready they are for all of our timelines. I can share with you a little bit of interesting data -- we brought in Price Waterhouse to help us facilitate this process, and we had them do a study on about 3,000 customers in the field, and what we found -- that of the 3,000 customers, there were only 181 who both had -- that had a Candela and a Syneron. And that didn't surprise us, it just confirmed what we thought we already knew, and that was -- when I looked at our last report, we never saw Syneron. And when Lou looked at his last report, he never saw Candela, and that's because we've been addressing the core; they have been addressing the noncore. Well, that is very heartening -- that there isn't going to be any bastardization of product lines. In fact, there is going to be some terrific complementary and cross-selling opportunities as we go forward. So -- in general, I would tell you that this is everything we thought it would be. It's on schedule. We're all very excited about the product portfolio, the R&D pipeline, and, as you know already, the distribution channel combination is pretty compelling. Anthony Vendetti - Maxim Group - Analyst Yes. Just quickly on just the market situation right now for the quarter. I know this is the most difficult quarter, seasonally -- the weakest quarter for the industry, and this is your fiscal first quarter, which exacerbates that to some extent. But can you talk just 3 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2009 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FINAL TRANSCRIPT Oct. 20. 2009 / 9:00PM, CLZR - Q1 2010 Candela Corp. Earnings Conference Call

about what you're seeing in the market in terms of demand? And then if you can talk about the credit markets -- whether you're seeing that stabilize at all or loosen up at all at this point? Jerry Puorro - Candela Corp. - President, CEO Well, the three quarters prior to the one we announced today, as you know, we saw incremental -- modest, yet incremental, growth at the top line. The quarter we announced today is actually flat to last year. They're both $26 million and change. So we think, at least from where we sit at Candela, that it has bottomed out, and it's on its way back in a modest sense. As for the credit markets, it isn't much better, quite frankly. There's still difficulty getting credit. Us and the competition all have different plans to help overcome that, but it's still tough. I haven't seen it from Candela, and I know at a couple of other companies that I invested in, in other industries, they -- it doesn't appear as though the credit markets have really loosened up in any measure of substance. Operator Dalton Chandler, Needham & Company. Dalton Chandler - Needham & Company - Analyst Good afternoon. I'm sorry, could you just repeat the split between core and noncore and equipment and service? Bob Quinn - Candela Corp. - CFO Between core and noncore is 64% core, and then service was 60-40 -- 40% service. Jerry Puorro - Candela Corp. - President, CEO That's a large service component. Dalton Chandler - Needham & Company - Analyst Yes, it is. So -- with regard to the pricing pressure you said you're seeing -- is it across the board or is it in particular product categories or applications? Bob Quinn - Candela Corp. - CFO It's across the board, basically. Jerry Puorro - Candela Corp. - President, CEO Oh, year-over-year, it's 5%? 4 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2009 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FINAL TRANSCRIPT Oct. 20. 2009 / 9:00PM, CLZR - Q1 2010 Candela Corp. Earnings Conference Call

Bob Quinn - Candela Corp. - CFO Right, it's approximately 5% year-over-year. The good news is we haven't seen, in the last few quarters, it has tailed off. We're not seeing dramatic changes in quarter-to-quarter -- consecutive quarters, that is. Dalton Chandler - Needham & Company - Analyst Are you seeing it internationally as well as domestically? Bob Quinn - Candela Corp. - CFO We are seeing some impact internationally, yes. Operator Anup Mehta, Canaccord Adams. Anup Mehta - Canaccord Adams - Analyst I was just wondering, has there been any change in the salesforce internationally over the last quarter or any change in -- I guess, in the message since the merger was announced? Jerry Puorro - Candela Corp. - President, CEO No, not at all. As you know, I know you have started following some of the companies in this space. We have had very strong distribution channels and a large footprint internationally for a while. That hasn't changed. Operator Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press star then 1. I am not showing any further questions. Jerry Puorro - Candela Corp. - President, CEO All right, thank you. Thank you all for calling in. We'll keep you apprised as we progress towards closing the transaction with Syneron. Thank you again. Operator Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. 5 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2009 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. FINAL TRANSCRIPT Oct. 20. 2009 / 9:00PM, CLZR - Q1 2010 Candela Corp. Earnings Conference Call

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