Obagi Medical Products Reports Third Quarter 2009 Earnings

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 Decolletage 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