10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number 000-51623

Cynosure, Inc.

(Exact name of registrant as specified in its charter)

Delaware	04-3125110
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5 Carlisle Road Westford, MA	01886
(Address of principal executive offices)	(Zip code)

(978) 256-4200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares outstanding of the registrant’s Class A common stock as of October 31, 2016:

Class	Number of Shares
Class A Common Stock, $0.001 par value	23,858,441

Cynosure, Inc.

Table of Contents

		Page No.
PART I.	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015		1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015		2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015		3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24
Item 4.	Controls and Procedures		25
PART II.	Other Information
Item 1.	Legal Proceedings		25
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 6.	Exhibits		41
SIGNATURES			42
EXHIBIT INDEX			43

EX-31.1 Section 302 Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

EX-31.2 Section 302 Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

EX-32.1 Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-32.2 Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-101 The following materials from the Cynosure, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, (ii) Consolidated Balance Sheets at September 30, 2016 and December 31, 2015, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, and (v) Notes to Consolidated Financial Statements.

PART I — Financial Information

Item 1. Financial Statements

Cynosure, Inc.

Consolidated Balance Sheets

(in thousands, except par value data)

	(Unaudited) September 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	130,997		$	108,587
Short-term marketable securities		41,100			35,412
Accounts receivable, net		40,827			42,012
Inventories		83,926			79,768
Prepaid expenses and other current assets		29,741			21,356
Total current assets		326,591			287,135
Property and equipment, net		45,858			39,706
Long-term marketable securities		42,167			38,761
Goodwill		105,865			105,807
Intangibles, net		37,859			44,317
Deferred tax asset		14,664			17,882
Other assets		1,057			1,002
Total assets	$	574,061		$	534,610
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	26,406		$	33,885
Accrued expenses		49,778			45,616
Deferred revenue		21,278			24,803
Capital lease obligation		958			741
Total current liabilities		98,420			105,045
Capital lease obligation, net of current portion		16,974			17,372
Deferred revenue, net of current portion		1,099			903
Other noncurrent liability		6,354			6,888
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.001 par value
Authorized — 5,000 shares
Issued — none		—			—
Class A and Class B common stock, $0.001 par value
Authorized — 61,500 Class A shares and no Class B shares at September 30, 2016
Authorized — 61,500 Class A shares and 8,500 Class B shares at December 31, 2015
Issued — 25,223 Class A shares and no Class B shares at September 30, 2016
Issued — 24,327 Class A shares and no Class B shares at December 31, 2015		25			24
Additional paid-in capital		420,225			387,161
Retained earnings		69,131			55,781
Accumulated other comprehensive loss		(5,063	)		(5,460	)
Treasury stock, 1,628 Class A shares, at cost		(33,104	)		(33,104	)
Total stockholders’ equity		451,214			404,402
Total liabilities and stockholders’ equity	$	574,061		$	534,610

The accompanying notes are an integral part of these consolidated financial statements.

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Cynosure, Inc.

Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Product revenues	$	87,613		$	64,644		$	255,226		$	190,575
Parts, accessories, service and royalty revenues		18,773			13,770			56,167			46,445
Total revenues		106,386			78,414			311,393			237,020
Cost of revenues		43,576			34,009			128,106			102,486
Gross profit		62,810			44,405			183,287			134,534
Operating expenses:
Sales and marketing		38,090			26,828			112,255			78,950
Research and development		7,210			5,514			21,288			16,723
Amortization of intangible assets acquired		684			736			2,057			2,208
General and administrative		8,664			6,492			24,574			22,124
Total operating expenses		54,648			39,570			160,174			120,005
Income from operations		8,162			4,835			23,113			14,529
Interest expense, net		(377	)		(428	)		(1,181	)		(1,260	)
Other income (expense), net		245			(216	)		628			(1,395	)
Income before provision for income taxes		8,030			4,191			22,560			11,874
Provision for income taxes		3,867			962			9,210			3,295
Net income	$	4,163		$	3,229		$	13,350		$	8,579
Basic net income per share	$	0.18		$	0.14		$	0.58		$	0.39
Diluted net income per share	$	0.17		$	0.14		$	0.57		$	0.38
Basic weighted average common shares outstanding		23,536			22,580			23,195			22,167
Diluted weighted average common shares outstanding		23,945			22,880			23,607			22,539

The accompanying notes are an integral part of these consolidated financial statements.

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Cynosure, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net income	$	4,163		$	3,229		$	13,350		$	8,579
Other comprehensive (loss) income components:
Cumulative translation adjustment		17			(516	)		404			(1,605	)
Unrealized (loss) gain on marketable securities		(71	)		37			(7	)		43
Total other comprehensive (loss) income		(54	)		(479	)		397			(1,562	)
Comprehensive income	$	4,109		$	2,750		$	13,747		$	7,017

The accompanying notes are an integral part of these consolidated financial statements.

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Cynosure, Inc.

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Nine Months Ended September 30,
	2016			2015
Operating activities:
Net income	$	13,350		$	8,579
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization		15,536			14,343
Stock-based compensation expense		7,008			5,683
Loss on disposal of fixed assets		252			15
Noncash interest expense on capital lease obligations		1,402			1,271
Noncash interest expense on license transfer agreement		140			148
Deferred income taxes		3,083			1,590
Net accretion of marketable securities		1,910			1,609
Tax benefit from stock option exercises		(3,258	)		(1,309	)
Changes in operating assets and liabilities:
Accounts receivable		1,368			(3,391	)
Inventories		(8,905	)		(20,018	)
Net book value of demonstration inventory sold		525			298
Prepaid expenses and other current assets		(5,040	)		(3,889	)
Accounts payable		(7,495	)		1,339
Accrued expenses		3,897			(1,345	)
Deferred revenue		(3,394	)		5,380
Other noncurrent liabilities		(502	)		(179	)
Net cash from operating activities		19,877			10,124
Investing activities:
Purchases of property and equipment		(10,553	)		(8,101	)
Proceeds from the sales and maturities of marketable securities		45,981			35,247
Purchases of marketable securities		(56,993	)		(50,403	)
Increase in other noncurrent assets		(20	)		(29	)
Net cash from investing activities		(21,585	)		(23,286	)
Financing activities:
Excess tax benefit on options exercised		3,258			1,309
Proceeds from stock option exercises		22,797			17,745
Payments on capital lease obligation		(1,753	)		(179	)
Net cash from financing activities		24,302			18,875
Effect of exchange rate changes on cash and cash equivalents		(184	)		561
Net increase in cash and cash equivalents		22,410			6,274
Cash and cash equivalents, beginning of the period		108,587			75,131
Cash and cash equivalents, end of the period	$	130,997		$	81,405
Supplemental cash flow information
Cash paid for interest	$	14		$	13
Cash paid for income taxes	$	7,149		$	2,915
Supplemental noncash investing and financing activities
Transfer of demonstration equipment from inventory to fixed assets	$	5,084		$	4,970
Assets acquired under capital lease	$	161		$	273
Net effect of acquisition-related opening balance sheet adjustments	$	—		$	143

The accompanying notes are an integral part of these consolidated financial statements.

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Cynosure, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1 — Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K of Cynosure, Inc. (Cynosure) for the year ended December 31, 2015. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the nine months ended September 30, 2016 may not be indicative of the results that may be expected for the year ending December 31, 2016, or any other period.

Note 2 — Stock-Based Compensation

Cynosure recorded stock-based compensation expense of $2.4 million and $1.9 million for the three months ended September 30, 2016 and 2015, respectively. Cynosure recorded stock-based compensation expense of $7.0 million and $5.7 million for the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016 and 2015, respectively, Cynosure had $31,000 and $29,000 of stock-based compensation expense capitalized as a part of inventory.

Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individual holding the respective share-based payments, as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)
Cost of revenues	$	118	$	96	$	351	$	244
Sales and marketing		663		541		1,944		1,511
Research and development		356		308		1,070		857
General and administrative		1,215		1,004		3,643		3,071
Total stock-based compensation expense	$	2,352	$	1,949	$	7,008	$	5,683

Cash received from option exercises was $22.8 million and $17.7 million during the nine months ended September 30, 2016 and 2015, respectively.

Cynosure has been increasingly using restricted stock units as an equity incentive award for employees. Cynosure granted 158,613 and 86,618 restricted stock units to employees during the nine months ended September 30, 2016 and 2015, respectively, at the fair market value of its common stock on the date of grant and which vest annually over a three-year period. Fair market value was determined using the closing price of Cynosure’s common stock on the date of grant. Cynosure is recognizing related compensation expense, net of estimated forfeitures, on a straight-line basis over the three-year period.

Cynosure granted 25,425 and 16,685 restricted stock units to non-employee directors during the nine months ended September 30, 2016 and 2015, respectively, at a fair market value of its common stock on the date of grant and which vest quarterly over a one-year period. Fair market value was determined using the closing price of Cynosure’s common stock on the date of grant. Cynosure is recognizing related compensation expense, net of estimated forfeitures, on a straight-line basis over the one-year period.

Cynosure implemented a performance-based equity compensation program in 2016. Cynosure granted 58,981 performance-based stock units during the nine months ended September 30, 2016 to employees at the fair market value of its common stock on the date of grant and which vest annually over a three-year period based on continued performance of services and the achievement of performance goals. If Cynosure’s consolidated cumulative revenue and EBITDA exceeds defined thresholds for the one, two and three-year periods beginning on January 1, 2016 and ending December 31, 2016, December 31, 2017 and December 31, 2018, respectively, the performance-based stock units will vest on the date which is the earlier of (i) the financial earnings release for the

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year following the year in which the performance period ended or (ii) a determination by the audit committee of the board of directors that the performance target has been achieved. Cynosure recognizes compensation expense for performance targets when the probability of achieving such targets is considered probable and is recognizing related compensation expense on a straight-line basis over the period from the date of grant through the expected vest dates. Cynosure reevaluates at each reporting period whether the performance targets are probable of achievement and, if at any point in time, Cynosure believes that achieving a performance goal is not probable, it will stop recognizing the related compensation expense and will adjust the previously recognized compensation expense prospectively.

Cynosure did not grant any stock options during the nine months ended September 30, 2016. Cynosure granted options to purchase 452,499 shares of common stock during the nine months ended September 30, 2015. Cynosure uses the Black-Scholes model to determine the weighted average fair value of options. The weighted average fair value of the options granted during the nine months ended September 30, 2015 was $12.40, using the following assumptions:

	Nine Months Ended September 30, 2015
Risk-free interest rate	1.39% - 1.72%
Expected dividend yield	—
Expected term	4.8 years
Expected volatility	42% - 43%
Estimated forfeiture rate	5%

Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Cynosure’s estimated expected stock price volatility is based on its own historical volatility. Cynosure’s expected term of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and Cynosure’s historical exercise patterns. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield of zero is based on the fact that Cynosure has never paid cash dividends and has no present intention to pay cash dividends.

Note 3 — Inventories

Cynosure states all inventories at the lower of cost or market, determined on a first-in, first-out method. Inventory includes material, labor and overhead and consists of the following:

	September 30, 2016		December 31, 2015
	(in thousands)
Raw materials	$	19,559	$	22,569
Work in process		2,360		3,317
Finished goods		62,007		53,882
	$	83,926	$	79,768

Note 4 — Fair Value

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable markets data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of September 30, 2016 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	5,690	$	—	$	—	$	5,690
Treasuries and government agencies (2)		—		30,231		—		30,231
State and municipal bonds		—		54,536		—		54,536
Total	$	5,690	$	84,767	$	—	$	90,457

The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of December 31, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	5,785	$	—	$	—	$	5,785
State and municipal bonds		—		59,786		—		59,786
Treasuries and government agencies		—		14,387		—		14,387
Total	$	5,785	$	74,173	$	—	$	79,958

(1) Included in cash and cash equivalents at September 30, 2016 and December 31, 2015, as applicable.

(2) $1.5 million included in cash and cash equivalents at September 30, 2016.

During the nine months ended September 30, 2016, there were no significant transfers in or out of Level 1 or Level 2. Cynosure did not have any Level 3 financial assets at September 30, 2016 or December 31, 2015.

Note 5 — Short and Long-Term Marketable Securities

Cynosure’s available-for-sale securities at September 30, 2016 consist of approximately $84.8 million of investments in debt securities consisting of state and municipal bonds, treasuries and government agencies. All investments in available-for-sale securities are recorded at fair market value, with any unrealized gains and losses reported as a separate component of accumulated other comprehensive loss.

As of September 30, 2016, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Cash equivalents:
Treasuries and government agencies	$	1,500	$	1,500	$	—	$	—
Total cash equivalents	$	1,500	$	1,500	$	—	$	—
Short-term marketable securities:
State and municipal bonds	$	32,044	$	32,072	$	—	$	(28	)
Treasuries and government agencies		9,056		9,056		1		(1	)
Total short-term marketable securities	$	41,100	$	41,128	$	1	$	(29	)
Long-term marketable securities:
State and municipal bonds	$	22,492	$	22,546	$	—	$	(54	)
Treasuries and government agencies		19,675		19,680		2		(7	)
Total long-term marketable securities	$	42,167	$	42,226	$	2	$	(61	)
Total available-for-sale securities	$	84,767	$	84,854	$	3	$	(90	)
Total marketable securities	$	83,267

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As of December 31, 2015, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Short-term marketable securities:
State and municipal bonds	$	33,914	$	33,923	$	—	$	(9	)
Treasuries and government agencies		1,498		1,500		—		(2	)
Total short-term marketable securities	$	35,412	$	35,423	$	—	$	(11	)
Long-term marketable securities:
State and municipal bonds	$	25,872	$	25,916	$	1	$	(45	)
Treasuries and government agencies		12,889		12,914		—		(25	)
Total long-term marketable securities	$	38,761	$	38,830	$	1	$	(70	)
Total available-for-sale securities	$	74,173	$	74,253	$	1	$	(81	)
Total marketable securities	$	74,173

As of September 30, 2016, Cynosure’s available-for-sale debt securities mature as follows (in thousands):

	Total		Maturities
			Less Than One Year		One to Five Years		More than Five Years
State and municipal bonds	$	54,536	$	32,044	$	22,492	$	—
Treasuries and government agencies		30,231		10,556		19,675		—
Total available-for-sale debt securities	$	84,767	$	42,600	$	42,167	$	—

Note 6 — Goodwill and Other Intangible Assets

Changes to goodwill during the nine months ended September 30, 2016 were as follows (in thousands):

Balance — December 31, 2015	$	105,807
Translation adjustment		58
Balance — September 30, 2016	$	105,865

Other intangible assets consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	Developed Technology & Patents			Business Licenses			Customer Relationships			Trade Names			Other			Total
September 30, 2016
Cost	$	28,541		$	384		$	16,459		$	18,370		$	1,353		$	65,107
Translation adjustment		—			—			(32	)		—			—		$	(32	)
Accumulated amortization		(17,719	)		(242	)		(5,763	)	$	(3,179	)	$	(313	)	$	(27,216	)
Balance, September 30, 2016	$	10,822		$	142		$	10,664		$	15,191		$	1,040		$	37,859
December 31, 2015
Cost	$	29,240		$	384		$	19,718		$	18,390		$	1,353		$	69,085
Translation adjustment		—			—			(42	)		—			—			(42	)
Accumulated amortization		(14,055	)		(232	)		(7,799	)		(2,518	)		(122	)		(24,726	)
Balance, December 31, 2015	$	15,185		$	152		$	11,877		$	15,872		$	1,231		$	44,317

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Amortization expense related to developed technology and patents is classified as a component of cost of revenues. Amortization expense related to customer relationships and trade names is classified as a component of amortization of intangible assets acquired. Amortization expense related to business licenses and other is classified as a component of general and administrative expenses.

Amortization expense for the three months ended September 30, 2016 and 2015 was $2.2 million and $2.3 million, respectively. Amortization expense for the nine months ended September 30, 2016 and 2015 was $6.5 million and $6.9 million, respectively. Cynosure has approximately $56,000 of indefinite-life intangible assets that are included in other intangible assets in the table above. As of September 30, 2016, amortization expense on existing intangible assets for the next five years and beyond is as follows (in thousands):

Remainder of 2016	$	2,152
2017		6,624
2018		5,108
2019		3,373
2020		2,923
2021 and thereafter		17,623
Total	$	37,803

Note 7 — Warranty Costs

Cynosure typically provides a one-year system and labor warranty on end-user sales of systems. Distributor sales of systems generally include a one-year warranty on systems only. These one-year warranty obligations are limited, in their exclusive options, to repair or replace parts and materials which prove to be defective, and do not contain any service performance obligations. Estimated future costs for initial product warranties are provided for at the time of revenue recognition and recorded as cost of revenues within Cynosure’s consolidated statement of operations. The following table provides the detail of the change in Cynosure’s product warranty accrual during the nine months ended September 30, 2016, which is a component of accrued expenses in the consolidated balance sheets (in thousands):

Balance — December 31, 2015	$	8,841
Warranty provision related to new sales		13,878
Costs incurred		(12,332	)
Balance — September 30, 2016	$	10,387

Note 8 — Segment Information

In accordance with Accounting Standards Codification (ASC) 280, Segment Reporting Topic, operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Cynosure’s chief operating decision maker, as defined under ASC 280, is a combination of the Chief Executive Officer and the Chief Financial Officer. Cynosure views its operations and manages its business as one segment, aesthetic treatment products and services.

The following table represents total revenue by geographic area:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)
United States	$	67,434	$	47,341	$	204,239	$	136,988
Europe		8,785		8,470		28,679		29,572
Asia / Pacific		22,613		16,217		59,568		51,175
Other		7,554		6,386		18,907		19,285
Total	$	106,386	$	78,414	$	311,393	$	237,020

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Total assets by geographic area are as follows:

	September 30, 2016			December 31, 2015
	(in thousands)
United States	$	533,402		$	497,007
Europe		21,643			22,204
Asia / Pacific		25,530			21,139
Eliminations		(6,514	)		(5,740	)
Total	$	574,061		$	534,610

Long-lived assets (property and equipment only) by geographic area are as follows:

	September 30, 2016		December 31, 2015
	(in thousands)
United States	$	40,378	$	35,185
Europe		1,812		1,641
Asia / Pacific		3,668		2,880
Total	$	45,858	$	39,706

No individual country within Europe or Asia/Pacific represented greater than 10% of total revenue, total assets or long-lived assets for any period presented.

Note 9 — Net Income Per Common Share

Basic net income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted net income per share is determined by dividing net income by the diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of common stock options and restricted stock units based on the treasury stock method.

A reconciliation of basic and diluted shares is as follows (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Net income	$	4,163	$	3,229	$	13,350	$	8,579
Basic weighted average common shares outstanding		23,536		22,580		23,195		22,167
Weighted average common equivalent shares		409		300		412		372
Diluted weighted average common shares outstanding		23,945		22,880		23,607		22,539
Basic net income per share	$	0.18	$	0.14	$	0.58	$	0.39
Diluted net income per share	$	0.17	$	0.14	$	0.57	$	0.38

For the three and nine months ended September 30, 2016, approximately 3,000 and 93,000 shares of Cynosure’s Class A common stock issuable pursuant to stock options, respectively, were excluded from the calculation of diluted weighted average shares outstanding as their effect was antidilutive.

For the three and nine months ended September 30, 2015, approximately 0.5 million and 1.1 million shares of Cynosure’s Class A common stock issuable pursuant to stock options, respectively, were excluded from the calculation of diluted weighted average shares outstanding as their effect was antidilutive.

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Note 10 — Accumulated Other Comprehensive Loss

Changes to accumulated other comprehensive loss during the nine months ended September 30, 2016 were as follows (in thousands):

	Unrealized Loss on Marketable Securities, net of taxes			Translation Adjustment			Accumulated Other Comprehensive Loss
Balance — December 31, 2015	$	(49	)	$	(5,411	)	$	(5,460	)
Current period other comprehensive gain		(7	)		404			397
Balance — September 30, 2016	$	(56	)	$	(5,007	)	$	(5,063	)

Note 11 — Income Taxes

During the three and nine months ended September 30, 2016, Cynosure recorded an income tax provision of $3.9 million and $9.2 million, respectively, representing an effective tax rate of 48% and 41%, respectively. The income tax provision for the three and nine months ended September 30, 2016 was primarily attributable to applying Cynosure’s estimated annual effective tax rate to its year-to-date consolidated income before provision for income taxes. For the nine months ended September 30, 2016, the tax provision includes a $0.5 million discrete tax provision related to the impact of tax law changes enacted during the period, certain foreign audit settlements, and a provision to return differences. Other factors resulting in differences between the U.S. federal statutory tax rate and the effective tax rate include the jurisdictional mix of worldwide earnings, non-deductible expenses, the domestic manufacturing deduction, and federal research credits.

During the three and nine months ended September 30, 2015, Cynosure recorded an income tax provision of $1.0 million and $3.3 million, respectively, representing an effective tax rate of 23% and 28%, respectively. The income tax provision for the three and nine months ended September 30, 2015 was primarily attributable to applying Cynosure’s estimated annual effective tax rate to its year-to-date consolidated income before provision for income taxes. The estimated annual effective tax rate was favorably impacted by the jurisdictional mix of worldwide earnings and the domestic manufacturing deduction, and unfavorably impacted by non-deductible expenses. The difference between the U.S. federal statutory tax rate and the effective tax rate was primarily attributable to a discrete tax benefit of $0.5 million for the release of the valuation allowance previously maintained against the net deferred tax assets of Palomar Japan K.K. that was recorded in the second quarter of 2015, as well as a discrete tax benefit of $0.5 million that was principally due to an increase in 2014 federal and state research credits that was recorded in the third quarter of 2015.

At September 30, 2016 and December 31, 2015, Cynosure had gross tax-effected unrecognized tax benefits of $0.8 million of which the entire amount, if recognized, would favorably impact the effective tax rate. Cynosure classifies interest and penalties related to income taxes as a component of its provision for income taxes. Cynosure does not expect any material changes in the amounts of unrecognized tax benefits over the next 12 months.

Cynosure files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Cynosure is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2013. With few exceptions, Cynosure is no longer subject to U.S. state tax examinations for years before 2012. Additionally, certain non-U.S. jurisdictions are no longer subject to income tax examinations by tax authorities for years before 2011.

Note 12 — Commitments and Contingencies

Lease Commitments

Cynosure leases the land portion of its U.S. operating facility and certain foreign facilities under non-cancellable operating lease agreements expiring through May 2027. These leases are non-cancellable and typically contain renewal options. Certain leases contain rent escalation clauses for which Cynosure recognizes the expense on a straight-line basis. Rent expense for the three and nine months ended September 30, 2016 was approximately $0.6 million and $1.6 million, respectively. Rent expense for the three and nine months ended September 30, 2015 was approximately $0.5 million and $1.5 million, respectively.

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Cynosure leases the buildings portion of its U.S. operating facility and certain equipment and vehicles under capital lease agreements with payments due through May 2027. Commitments under Cynosure’s lease arrangements are as follows as of September 30, 2016 (in thousands):

	Operating Leases		Capital Leases
Remainder of 2016	$	593	$	716
2017		2,070		2,837
2018		1,760		2,732
2019		1,453		2,662
2020		594		2,643
Thereafter		2,248		18,348
Total minimum lease payments	$	8,718	$	29,938
Less amount representing interest				(12,006	)
Present value of obligations under capital leases			$	17,932
Current portion of capital lease obligations				958
Capital lease obligations, net of current portion			$	16,974

In April and June 2016, Cynosure executed amendments to its U.S. operating facility lease, and these amendments became effective in October 2016. These amendments, among other things, extend the lease period for an additional year, provide additional rental space and require additional base rent of $5.7 million over the remaining life of the lease.

Contractual Obligations

Cynosure’s significant outstanding contractual obligations relate to its capital leases from its facilities leases, including the buildings portion of its U.S. operating facility, and equipment financings. Cynosure’s leases are non-cancellable and typically contain renewal options. Certain leases contain rent escalation clauses for which Cynosure recognizes the expense on a straight-line basis. Cynosure has summarized in the table below its fixed contractual cash obligations as of September 30, 2016.

	Total		Less Than One Year		One to Three Years		Three to Five Years		More than Five Years
	(in thousands)
Capital lease obligations, including interest	$	29,938	$	2,845	$	5,437	$	5,363	$	16,293
Operating leases		8,718		2,144		3,368		1,209		1,997
Total contractual obligations	$	38,656	$	4,989	$	8,805	$	6,572	$	18,290

Contingencies

Cynosure continually assesses litigation to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss, which could be estimated. In accordance with the Financial Accounting Standards Board’s (FASB) guidance on accounting for contingencies, Cynosure accrues for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely, Cynosure accrues the minimum amount of the range. In cases where Cynosure believes that a reasonably possible loss exists, Cynosure discloses the facts and circumstances of the litigation, including an estimable range, if possible.

On July 27, 2016, ARcare, Inc., individually and as putative representative of a purported nationwide class, filed a complaint against Cynosure in the U.S. District Court for the District of Massachusetts. The plaintiff alleges that Cynosure violated the federal Telephone Consumer Protection Act (TCPA) by sending fax advertisements that did not comply with statutory and Federal Communications Commission (FCC) requirements that senders provide recipients with certain information about how to opt out from receiving faxed advertisements in the future, and by sending unsolicited fax advertisements. The complaint seeks damages, declaratory and injunctive relief, and attorneys’ fees on behalf of a purported class of all recipients of purported fax advertisements that the plaintiff alleges did not receive an adequate opt-out notice. The TCPA provides for statutory damages of $500 per violation and gives courts the discretion to increase that amount up to $1,500 for knowing and willful violations. On September 30, 2016, Cynosure answered the complaint and denied liability. On September 7, 2016, the plaintiff sent a demand letter seeking a class settlement for statutory damages under Massachusetts General Laws, Chapter 93A § 9, and on October 7, 2016, Cynosure responded denying any liability under Chapter 93A, but offering the plaintiff statutory damages under Chapter 93A on an individual basis. To date, the plaintiff has not moved to amend the complaint to assert a claim under Chapter 93A. Cynosure and the plaintiff have agreed

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to explore a possible class settlement of the litigation in a mediation to be held in late 2016, and on October 12, 2016, the court stayed the case until January 11, 2017 to allow the parties to mediate without litigation. Based on preliminary estimates, Cynosure believes the aggregate number of faxes sent in the four years prior to the lawsuit to be approximately 835,000.

Cynosure has not recorded a liability in respect of this matter, and at this time it cannot estimate the possible loss or range of losses that it may incur in respect of this matter. Cynosure is unable to make such an estimate because, among other reasons, the proceedings are at an early stage and other reported TCPA lawsuits have resulted in a broad range of outcomes, with each case being dependent on its own facts and circumstances. In addition, Cynosure believes that the outcome of litigation currently pending before the U.S. Court of Appeals for the D.C. Circuit (Bais Yaakov of Spring Valley, et al. v. FCC) may have a significant impact on the outcome of this matter. In that case, the outcome of which Cynosure cannot predict, other companies are challenging the validity of an FCC regulation that requires certain opt out information to be included in fax promotions sent to recipients who had given permission to receive them. Cynosure has also applied to the FCC for a retroactive waiver from that requirement, which if approved, would exempt Cynosure from that requirement through April 30, 2015. The FCC’s ability to issue such waivers is also before the U.S. Court of Appeals for the D.C. Circuit in the Bais Yaakov matter, and in any event there can be no assurance that Cynosure’s application will be granted.

Note 13 — Recent Accounting Pronouncements

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in ASC 605, Revenue Recognition. This new revenue standard creates a single source of revenue guidance for all companies in all industries and is more principles-based than the current revenue guidance. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. ASC 606 was originally scheduled to be effective for interim and annual periods beginning after December 15, 2016. In August 2015, the FASB deferred the effective date for ASC 606. The standard will be effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Cynosure is currently evaluating the impact of the provisions of ASC 606.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern, which requires management of public and private companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Cynosure has concluded that if this standard had been adopted as of September 30, 2016, substantial doubt about its ability to continue as a going concern does not exist.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. The guidance will be effective for public business entities for fiscal years beginning after December 15, 2016. Cynosure is currently evaluating the impact of the provisions of ASU 2015-11.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. Cynosure elected to early adopt ASU 2015-17 retrospectively in the fourth quarter of 2015. As a result, the Company has presented all deferred tax assets and liabilities as net noncurrent assets in its consolidated balance sheets as of September 30, 2016 and December 31, 2015.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. Cynosure is currently evaluating the impact of this new standard on its consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q, which we refer to as this Quarterly Report, contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

• our ability to identify and penetrate new markets for our products and technology;

• our strategy of growing through acquisitions;

• our ability to innovate, develop and commercialize new products;

• our ability to obtain and maintain regulatory clearances;

• our sales and marketing capabilities and strategy in the United States and internationally;

• our intellectual property portfolio; and

• our estimates regarding expenses, future revenues, capital requirements and needs for additional financing.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in Part II, Item 1A of this Quarterly Report, and in our other public filings with the Securities and Exchange Commission, or the SEC, that could cause actual results or events to differ materially from the forward-looking statements that we make.

You should read this Quarterly Report and the documents that we have filed as exhibits to this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report and may change prior to the end of each quarter or the year. While we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

The following discussion should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report and the consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 29, 2016. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods.

Company Overview

We develop, manufacture, and market aesthetic treatment systems that enable plastic surgeons, dermatologists and other medical practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular and benign pigmented lesions, remove multi-colored tattoos, revitalize the skin, reduce fat through laser lipolysis, reduce cellulite, clear nails infected by toe fungus, ablate sweat glands and improve women’s health. We also market radiofrequency, or RF, energy-sourced medical devices for precision surgical applications such as facial plastic and general surgery, gynecology, ear, nose, and throat procedures, ophthalmology, oral and maxillofacial surgery, podiatry and proctology.

Our product portfolio is composed of a broad range of energy sources including Alexandrite, diode, Nd: YAG, picosecond, pulse dye, Q-switched lasers, intense pulsed light and RF technology. We sell our products globally under the Cynosure, Palomar, ConBio and Ellman brand names through a direct sales force in the United States, Canada, France, Morocco, Germany, Spain, the United Kingdom, Australia, China, Japan and Korea, and through international distributors in approximately 120 other countries.

A key element of our business strategy is to launch innovative new products and technologies into high-growth aesthetic applications. Our research and development team builds on our existing broad range of laser, light-based technologies and other energies to develop new solutions and products to target unmet needs in significant aesthetic treatment markets. Innovation continues to be a strong contributor to our strength as we continue to add new products to our aesthetic treatment systems portfolio.

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Revenues

We generate revenues primarily from sales of our non-invasive and minimally invasive laser and light-based aesthetic treatment systems, as well as RF energy based surgical and aesthetic systems, which we refer to collectively as our product sales. We also generate revenues from sales of parts and accessories, from services, including product warranty revenues, and from royalty payments received from our licensees. Our business model generally does not involve separate contracts entered into at or near the same time; nor does our business model involve incremental future discounts offered to the same customer. We do not offer a right of cancellation, termination, refund or return. During the nine months ended September 30, 2016, we derived approximately 82% of our revenues from sales of our products and 18% of our revenues from parts, accessories, service and royalty revenues. During the nine months ended September 30, 2015, we derived approximately 80% of our revenues from sales of our products and 20% of our revenues from parts, accessories, service and royalty revenues.

We recognize revenue from sales of our products, parts and accessories in accordance with the Accounting Standards Codification, or ASC, Revenue Recognition Topic 605-10-S99. We recognize revenue from sales of our products, parts and accessories when title and risk of ownership has been transferred, which is upon shipment, provided there are no uncertainties regarding customer acceptance, and there is:

• persuasive evidence of an arrangement;

• the fee is fixed or determinable; and

• collectability of the related receivable is reasonably assured.

Revenues from the sale of services and extended warranty contracts are deferred and recognized on a straight-line basis over the contract period as services are provided.

We recognize royalty revenues when we can reliably estimate such amounts and collectability is reasonably assured. As such, we recognize royalty revenues in the quarter reported to us by our licensees, or one quarter following the quarter in which sales by our licensees occurred. Royalty revenues also include amounts due from settlements with licensees for back-owed royalties from prior periods. These settlement amounts are considered revenue, when collectability is reasonably assured, because they constitute our ongoing major or central operations.

Multiple-element arrangements are evaluated in accordance with ASC 605-25, Multiple-Element Arrangements. We determined that our multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of accounting: products, accessories, extended warranties and installation and training services. Installation and training services are not essential to the functionality of the aesthetic treatment system. We allocate revenue among the elements based upon their vendor specific objective evidence of fair value, or VSOE. If VSOE does not exist, we may use third party evidence of fair value, or TPE, to determine the relative selling price of each element. If neither VSOE nor TPE exists, we may use management’s best estimate of selling price, or BESP, of each element to determine the relative selling price. Presently there are no elements for which we are utilizing TPE or BESP.

VSOE is based on the relative sales price based on separate stand-alone sales of our elements. Revenues associated with products and accessories are recognized when shipped. Accessories are predominantly shipped with the aesthetic treatment system when sold with the product. Revenues associated with extended warranties are deferred and recognized ratably over the extended warranty period, which is generally one year. The relative sales prices of extended warranties are based on the actual pricing of service contracts purchased on a standalone basis at a later time, normally at the end of the standard warranty period. We do not separately price the extended warranty; rather, we offer a bundled price for the aesthetic treatment system and extended warranty, and we allocate revenue among the elements based on their VSOE of fair value.

We sell our products globally under the Cynosure, Palomar, ConBio and Ellman brand names through a direct sales force in the United States, Canada, France, Morocco, Germany, Spain, the United Kingdom, Australia, China, Japan and Korea, and use distributors to sell our products in other countries where we do not have a direct presence. During the nine months ended September 30, 2016 and 2015, we derived 32% and 40% of our revenues, respectively, from sales outside North America. As of September 30, 2016, we had 157 sales employees covering North America and 57 sales employees in France, Morocco, Germany, Spain, the United Kingdom, Australia, China, Japan and Korea. We use a global distribution network covering approximately 120 countries.

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The following table provides revenue data by geographical region for the nine months ended September 30, 2016 and 2015:

	Percentage of Revenues
	Nine Months Ended September 30,
Region	2016			2015
North America		68	%		60	%
Europe		9			12
Asia/Pacific		19			22
Other		4			6
Total		100	%		100	%

See Note 8 to our consolidated financial statements included in this Quarterly Report for revenues and asset data by geographic region.

Results of Operations

THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

The following table contains selected statement of operations data, which serve as the basis of the discussion of our results of operations for the three months ended September 30, 2016 and 2015, respectively (in thousands, except for percentages):

	Three Months Ended September 30,												$ Change			% Change
	2016						2015
	Amount			As a % of Total Revenues			Amount			As a % of Total Revenues
Product revenues	$	87,613			82	%	$	64,644			82	%	$	22,969			36	%
Parts, accessories, service and royalty revenues		18,773			18			13,770			18			5,003			36
Total revenues		106,386			100			78,414			100			27,972			36
Cost of revenues		43,576			41			34,009			43			9,567			28
Gross profit		62,810			59			44,405			57			18,405			41
Operating expenses
Sales and marketing		38,090			36			26,828			34			11,262			42
Research and development		7,210			6			5,514			7			1,696			31
Amortization of intangible assets acquired		684			1			736			1			(52	)		(7	)
General and administrative		8,664			8			6,492			9			2,172			33
Total operating expenses		54,648			51			39,570			51			15,078			38
Income from operations		8,162			8			4,835			6			3,327			69
Interest expense, net		(377	)		—			(428	)		(1	)		51			12
Other income (expense), net		245			—			(216	)		—			461			213
Income before provision for income taxes		8,030			8			4,191			5			3,839			92
Provision for income taxes		3,867			4			962			1			2,905			302
Net income	$	4,163			4	%	$	3,229			4	%	$	934			29	%

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Revenues

Total revenues for the three months ended September 30, 2016 increased by $28.0 million, or 36%, to 106.4 million, as compared to revenues of $78.4 million for the three months ended September 30, 2015 (in thousands, except for percentages):

	Three Months Ended September 30,				$ Change		% Change
	2016		2015
Product sales in North America	$	58,197	$	40,805	$	17,392		43	%
Product sales outside North America		29,416		23,839		5,577		23
Global parts, accessories, service and royalty sales		18,773		13,770		5,003		36
Total revenues	$	106,386	$	78,414	$	27,972		36	%

The change in total revenues was attributable to a number of factors:

• Revenues from the sale of products in North America increased $17.4 million, or 43%, from the 2015 period, attributable primarily to sales of SculpSure, to which we have focused increased sales and marketing resources since its September 2015 launch, and, to a significantly lesser extent, increased unit sales of certain other existing products. These sales increases were partially offset by a decline in the number of units sold in certain other products, as a result of normal quarterly shifts in product mix, timing of order qualification and fulfillment, and certain products nearing the end of their product life cycle. For the period, revenues from North American product sales of SculpSure meaningfully exceed the amount of the aggregate $17.4 million quarterly increase in revenues from the sale of products in North America. Average selling prices for our products remained consistent with the 2015 period.

• Revenues from the sale of products outside of North America increased $5.6 million, or 23%, from the 2015 period. Product sales from our Asia Pacific subsidiaries increased 69% from the 2015 period following the regulatory approvals, and the resulting commencement of sales, of PicoSure in China and SculpSure in Australia in September 2015 and December 2015, respectively. Product sales from our European subsidiaries increased 6% from the 2015 period primarily as a result of an increase in the number of units sold. These were offset by a 4% decrease in our third party distributor product sales from the 2015 period primarily as a result of fewer units sold due to economic weakness in certain third party distributor territories.

• Revenues from the sale of parts, accessories, services and royalties increased $5.0 million, or 36%, from the 2015 period primarily due to increases in our accessories sales of SculpSure Patented Applicators for Contouring, or PACs, which were launched in September 2015, and PicoSure FOCUS Lens Arrays. Revenues from our services business, including repairs and contracts, increased over the 2015 period in part due to our expanded install base. These increases were partially offset by the expiration of Massachusetts General Hospital, or MGH, royalty agreements in 2016.

Cost of Revenues

	Three Months Ended September 30,						$ Change		% Change
	2016			2015
Cost of revenues (dollars in thousands)	$	43,576		$	34,009		$	9,567		28	%
Cost of revenues (as a percentage of total revenues)		41	%		43	%

Total cost of revenues increased $9.6 million, or 28%, to $43.6 million for the 2016 period, as compared to $34.0 million for the 2015 period. The increase was primarily associated with our 36% increase in total revenues in the 2016 period compared to the 2015 period. Total cost of revenues as a percentage of total revenues decreased for the 2016 period as compared to the 2015 period due to a higher percentage of product revenue from our distribution in North America, where average selling prices tend to be higher, and increases in service and accessories sales.

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Sales and Marketing

	Three Months Ended September 30,						$ Change		% Change
	2016			2015
Sales and marketing (dollars in thousands)	$	38,090		$	26,828		$	11,262		42	%
Sales and marketing (as a percentage of total revenues)		36	%		34	%

Sales and marketing expenses increased $11.3 million, or 42%, to $38.1 million for the 2016 period, as compared to $26.8 million for the 2015 period. This increase was due to an increase of $4.9 million in payroll and payroll related expenses as we expanded our sales and marketing efforts and an increase of $3.6 million from expenses related to workshops, trade shows, and other marketing efforts. Commission expense also increased $2.8 million, as a result of increased product sales. Our total sales and marketing expenses for the 2016 period increased as a percentage of total revenues as compared to the 2015 period, primarily due to the sales and marketing costs associated with SculpSure, which was launched in September 2015.

Research and Development

	Three Months Ended September 30,						$ Change		% Change
	2016			2015
Research and development (dollars in thousands)	$	7,210		$	5,514		$	1,696		31	%
Research and development (as a percentage of total revenues)		6	%		7	%

Research and development expenses increased $1.7 million, or 31%, to $7.2 million for the 2016 period, as compared to $5.5 million for the 2015 period. The increase was due to increases in personnel costs of $1.2 million and professional services costs of $0.5 million related to research and development projects to expand our product offerings for new aesthetic indications and treatment areas. Our total research and development expenses as a percentage of total revenues decreased in the 2016 period as compared to the 2015 period due to improved operating leverage of our costs and increased revenues.

Amortization of Intangible Assets Acquired

	Three Months Ended September 30,						$ Change			% Change
	2016			2015
Amortization of intangible assets acquired (dollars in thousands)	$	684		$	736		$	(52	)		(7	)%
Amortization of intangible assets acquired (as a percentage of total revenues)		1	%		1	%

Amortization of intangible assets acquired decreased $0.1 million, or 7%, for the 2016 period as compared to the 2015 period. Amortization of intangible assets acquired as a percentage of total revenues remained consistent for the 2016 and 2015 periods.

General and Administrative

	Three Months Ended September 30,						$ Change		% Change
	2016			2015
General and administrative (dollars in thousands)	$	8,664		$	6,492		$	2,172		33	%
General and administrative (as a percentage of total revenues)		8	%		9	%

General and administrative expenses increased $2.2 million, or 33%, to $8.7 million for the 2016 period, as compared to $6.5 million for the 2015 period. The increase is due to increases in payroll, legal and administrative expenses of $2.0 million, as well as an increase of $0.2 million in stock-based compensation expense including the performance-based stock unit awards during the 2016 period. Our total general and administrative expenses as a percentage of total revenues decreased in the 2016 period as compared to the 2015 period due to improved operating leverage of our costs and increased revenues.

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Interest Expense, net

	Three Months Ended September 30,						$ Change		% Change
	2016			2015
Interest expense, net (dollars in thousands)	$	(377	)	$	(428	)	$	51		12	%

The decrease in interest expense, net was primarily due to an increase in interest income from investments resulting from increased cash invested in interest-bearing securities during the 2016 period as compared to the 2015 period.

Other Income (Expense), net

	Three Months Ended September 30,					$ Change		% Change
	2016		2015
Other income (expense), net (dollars in thousands)	$	245	$	(216	)	$	461		213	%

The change in other income (expense), net was primarily as a result of net foreign currency remeasurement gains in the 2016 period, as compared to net foreign currency remeasurement losses in the 2015 period.

Provision for Income Taxes

	Three Months Ended September 30,						$ Change		% Change
	2016			2015
Provision for income taxes (dollars in thousands)	$	3,867		$	962		$	2,905		302	%
Provision as a percentage of income before provision for income taxes		48	%		23	%

The provision for income taxes resulted from a combination of the activities of our U.S. entities and foreign subsidiaries. During the 2016 period, we recorded an income tax provision of $3.9 million, representing an effective tax rate of 48%. The difference between the U.S. federal statutory tax rate and the effective tax rate during the 2016 period was primarily attributable to a discrete tax provision of $0.3 million relating to the impact of our federal return filed during the 2016 period and the impact of non-deductible expenses, the jurisdictional mix of worldwide earnings, the federal research credit and the domestic manufacturing deduction on our effective tax rule and tax provision. During the 2015 period, we recorded an income tax provision of $1.0 million, representing an effective tax rate of 23%. The difference between the U.S. federal statutory tax rate and the effective tax rate during the 2015 period was primarily attributable to a discrete tax benefit of $0.5 million recorded in the 2015 period, which was principally due to an increase in 2014 federal and state research credits. Other factors resulting in the difference between the U.S. federal statutory tax rate and the effective tax rate during the 2015 period were the jurisdictional mix of worldwide earnings, non-deductible expenses and the domestic manufacturing deduction.

NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015

The following table contains selected statement of operations data, which serve as the basis of the discussion of our results of operations for the nine months ended September 30, 2016 and 2015, respectively (in thousands, except for percentages):

	Nine Months Ended September 30,										$ Change		% Change
	2016					2015
	Amount		As a % of Total Revenues			Amount		As a % of Total Revenues
Product revenues	$	255,226		82	%	$	190,575		80	%	$	64,651		34	%
Parts, accessories, service and royalty revenues		56,167		18			46,445		20			9,722		21
Total revenues		311,393		100			237,020		100			74,373		31
Cost of revenues		128,106		41			102,486		43			25,620		25
Gross profit		183,287		59			134,534		57			48,753		36
Operating expenses

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	Nine Months Ended September 30,												$ Change			% Change
	2016						2015
	Amount			As a % of Total Revenues			Amount			As a % of Total Revenues
Sales and marketing		112,255			36			78,950			33			33,305			42
Research and development		21,288			7			16,723			7			4,565			27
Amortization of intangible assets acquired		2,057			1			2,208			1			(151	)		(7	)
General and administrative		24,574			8			22,124			10			2,450			11
Total operating expenses		160,174			52			120,005			51			40,169			33
Income from operations		23,113			7			14,529			6			8,584			59
Interest expense, net		(1,181	)		—			(1,260	)		—			79			6
Other income (expense), net		628			—			(1,395	)		(1	)		2,023			145
Income before provision for income taxes		22,560			7			11,874			5			10,686			90
Provision for income taxes		9,210			3			3,295			1			5,915			180
Net income	$	13,350			4	%	$	8,579			4	%	$	4,771			56	%

Revenues

Total revenues for the nine months ended September 30, 2016 increased by $74.4 million, or 31%, to $311.4 million, as compared to revenues of $237.0 million for the nine months ended September 30, 2015 (in thousands, except for percentages):

	Nine Months Ended September 30,				$ Change		% Change
	2016		2015
Product sales in North America	$	172,857	$	112,810	$	60,047		53	%
Product sales outside North America		82,369		77,765		4,604		6
Global parts, accessories, service and royalty sales		56,167		46,445		9,722		21
Total revenues	$	311,393	$	237,020	$	74,373		31	%

The change in total revenues was attributable to a number of factors:

• Revenues from the sale of products in North America increased $60.0 million, or 53%, from the 2015 period, attributable primarily to sales of SculpSure, to which we have focused increased sales and marketing resources since its September 2015 launch, and, to a significantly lesser extent, increased unit sales of certain other existing products. These sales increases were partially offset by a decline in the number of units sold in certain other products, as a result of normal shifts in product mix, timing of order qualification and fulfillment, and certain products nearing the end of their product life cycle. For the period, revenues from North American product sales of SculpSure meaningfully exceed the amount of the aggregate $60.0 million increase in revenues from the sale of products in North America. Average selling prices for our products remained consistent with the 2015 period.

• Revenues from the sale of products outside of North America increased $4.6 million, or 6%, from the 2015 period. Product sales from our Asia Pacific subsidiaries increased 42% from the 2015 period following the regulatory approvals, and the resulting commencement of sales, of PicoSure in China and SculpSure in Australia in September 2015 and December 2015, respectively. This was offset by a 16% decrease in third party distributor product sales from the 2015 period due to economic weakness in certain third party distributor territories and a 4% decrease in product sales from our European subsidiaries as a result of fewer units sold.

• Revenues from the sale of parts, accessories, services and royalties increased $9.7 million, or 21%, from the 2015 period primarily due to increases in our sales of PACs, which were launched in September 2015, and PicoSure FOCUS Lens Arrays. Revenues from our services business, including repairs and contracts, increased over the 2015 period in part due to our expanded install base. These increases were partially offset by the final $3.0 million settlement payment received from Tria Beauty, Inc. in the 2015 period and the expiration of MGH royalty agreements in the 2016 period.

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Cost of Revenues

	Nine Months Ended September 30,						$ Change		% Change
	2016			2015
Cost of revenues (dollars in thousands)	$	128,106		$	102,486		$	25,620		25	%
Cost of revenues (as a percentage of total revenues)		41	%		43	%

Total cost of revenues increased $25.6 million, or 25%, to $128.1 million for the 2016 period, as compared to $102.5 million for the 2015 period. The increase was primarily associated with our 31% increase in total revenues in the 2016 period compared to the 2015 period. Total cost of revenues as a percentage of total revenues decreased for the 2016 period as compared to the 2015 period due to a higher percentage of product revenue from our distribution in North America, where average selling prices tend to be higher, and increases in services and accessories sales.

Sales and Marketing

	Nine Months Ended September 30,						$ Change		% Change
	2016			2015
Sales and marketing (dollars in thousands)	$	112,255		$	78,950		$	33,305		42	%
Sales and marketing (as a percentage of total revenues)		36	%		33	%

Sales and marketing expenses increased $33.3 million, or 42%, to $112.3 million for the 2016 period, as compared to $79.0 million for the 2015 period. The increase was due to an increase in payroll and payroll related expenses of $12.9 million as we expanded our sales and marketing efforts, as well as an increase of $11.8 million from expenses related to workshops, trade shows, and other marketing efforts. Commission expense also increased $8.6 million, as a result of increased product sales. Our total sales and marketing expenses for the 2016 period increased as a percentage of total revenues as compared to the 2015 period, primarily due to the sales and marketing costs associated with SculpSure, which was launched in September 2015.

Research and Development

	Nine Months Ended September 30,						$ Change		% Change
	2016			2015
Research and development (dollars in thousands)	$	21,288		$	16,723		$	4,565		27	%
Research and development (as a percentage of total revenues)		7	%		7	%

Research and development expenses increased $4.6 million, or 27%, to $21.3 million for the 2016 period, as compared to $16.7 million for the 2015 period. The increase was due to increases in personnel costs of $3.1 million and professional services costs of $1.5 million related to research and development projects to expand our product offerings for new aesthetic indications and treatment areas. Our total research and development expenses as a percentage of total revenues remained consistent for the 2016 and 2015 periods.

Amortization of Intangible Assets Acquired

	Nine Months Ended September 30,						$ Change			% Change
	2016			2015
Amortization of intangible assets acquired (dollars in thousands)	$	2,057		$	2,208		$	(151	)		(7	)%
Amortization of intangible assets acquired (as a percentage of total revenues)		1	%		1	%

Amortization of intangible assets acquired decreased $0.2 million, or 7%, for the 2016 period as compared to the 2015 period. Amortization of intangible assets acquired as a percentage of total revenues remained consistent for the 2016 and 2015 periods.

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General and Administrative

	Nine Months Ended September 30,						$ Change		% Change
	2016			2015
General and administrative (dollars in thousands)	$	24,574		$	22,124		$	2,450		11	%
General and administrative (as a percentage of total revenues)		8	%		10	%

General and administrative expenses increased $2.5 million, or 11%, to $24.6 million for the 2016 period, as compared to $22.1 million for the 2015 period. The increase was due to increases in payroll, legal and administrative expenses of $1.9 million, as well as an increase of $0.6 million in stock-based compensation expense including the performance-based stock unit awards during the 2016 period. Our total general and administrative expenses as a percentage of total revenues decreased in the 2016 period as compared to the 2015 period due to improved operating leverage of our costs and increased revenues.

Interest Expense, net

	Nine Months Ended September 30,						$ Change		% Change
	2016			2015
Interest expense, net (dollars in thousands)	$	(1,181	)	$	(1,260	)	$	79		6	%

The decrease in interest expense, net was primarily due to an increase in interest income from investments resulting from increased cash invested in interest-bearing securities during the 2016 period as compared to the 2015 period.

Other Income (Expense), net

	Nine Months Ended September 30,					$ Change		% Change
	2016		2015
Other income (expense), net (dollars in thousands)	$	628	$	(1,395	)	$	2,023		145	%

The change in other income (expense), net was primarily a result of net foreign currency remeasurement gains in the 2016 period, as compared to net foreign currency remeasurement losses in the 2015 period.

Provision for Income Taxes

	Nine Months Ended September 30,						$ Change		% Change
	2016			2015
Provision for income taxes (dollars in thousands)	$	9,210		$	3,295		$	5,915		180	%
Provision as a percentage of income before provision for income taxes		41	%		28	%

The provision for income taxes resulted from a combination of the activities of our U.S. entities and foreign subsidiaries. During the 2016 period, we recorded an income tax provision of $9.2 million, representing an effective tax rate of 41%. The difference between the U.S. federal statutory tax rate and the effective tax rate during the 2016 period was attributable to a $0.5 million discrete tax provision related to the impact of tax law changes enacted during the period, certain foreign audit settlements, and a provision to return differences. Other factors resulting in the difference between the U.S. federal statutory tax rate and the effective tax rate during the 2016 period were the jurisdictional mix of worldwide earnings, non-deductible expenses, the domestic manufacturing deduction and the federal research credit. During the 2015 period, we recorded an income tax provision of $3.3 million, representing an effective tax rate of 28%. The difference between the U.S. federal statutory tax rate and the effective tax rate during the 2015 period was primarily attributable to a discrete tax benefit of $0.5 million for the release of the valuation allowance previously maintained against the net deferred tax assets of Palomar Japan K.K. and a discrete tax benefit of $0.5 million, which was principally due to an increase in 2014 federal and state research credits. Other factors resulting in the difference between the U.S. federal statutory tax rate and the effective tax rate during the 2015 period were the jurisdictional mix of worldwide earnings, non-deductible expenses and the domestic manufacturing deduction.

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Liquidity and Capital Resources

We require cash to pay our operating expenses, make capital expenditures, fund acquisitions and pay our long-term liabilities. We have funded our operations through cash generated from our operations and proceeds from public offerings of our Class A common stock.

At September 30, 2016, our cash, cash equivalents and short and long-term marketable securities were $214.3 million. Our cash and cash equivalents of $131.0 million are highly liquid investments with maturities of 90 days or less at date of purchase and consist of cash in operating accounts and investments in money market funds. Our short-term marketable securities of $41.1 million consist of investments in various state and municipal governments, U.S. government agencies and treasuries, all of which mature by September 15, 2017. Our long-term marketable securities of $42.2 million consist of investments in various state and municipal governments, U.S. government agencies and treasuries, all of which mature by September 13, 2018.

At September 30, 2016, $12.5 million of cash and cash equivalents was held by our foreign subsidiaries, which we expect will be used primarily to fund working capital requirements, service existing obligations and invest in efforts to secure future business. We have provided U.S. deferred income taxes on approximately $2.7 million of unremitted earnings at our foreign subsidiaries at December 31, 2015, which are not deemed to be indefinitely reinvested, as they are not necessary to fund existing business needs of our subsidiaries. There has not been a material change in the amount of unremitted earnings on which deferred taxes have been provided as of September 30, 2016.

Our future capital requirements depend on a number of factors, including the rate of market acceptance of our current and future products, the resources we devote to developing and supporting our products and continued progress of our research and development of new products. During the nine months ended September 30, 2016 and 2015, we purchased $10.6 and $8.1 million, respectively, of property and equipment. During the nine months ended September 30, 2016 and 2015, we transferred $5.1 million and $5.0 million, respectively, of demonstration equipment to fixed assets. In February 2016, we announced that our board of directors had authorized the repurchase of up to $35 million of our Class A common stock, from time to time, on the open market or in privately negotiated transactions under a new stock repurchase program. This program will terminate on February 1, 2018. During the nine months ended September 30, 2016, we did not repurchase any shares of our common stock under this program.

We believe that our current cash, cash equivalents and short and long-term marketable securities, as well as cash generated from operations, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

Cash Flows

Net cash provided by operating activities was $19.9 million for the nine months ended September 30, 2016, and resulted primarily from $13.4 million in net income and approximately $22.5 million in depreciation and amortization and stock-based compensation expense for the period. Net changes in working capital items decreased cash from operating activities by approximately $19.5 million, primarily related to increases in inventory and prepaid expenses and a decrease in accounts payable, partially offset by an increase in accrued expenses. Net cash used in investing activities was $21.6 million for the nine months ended September 30, 2016, which consisted primarily of purchases of marketable securities of $57.0 million and purchases of property and equipment of $10.6 million, partially offset by proceeds from the sales and maturities of marketable securities of $46.0 million. Net cash provided by financing activities during the nine months ended September 30, 2016 was $24.3 million, primarily related to proceeds from stock option exercises.

Net cash provided by operating activities was $10.1 million for the nine months ended September 30, 2015, and resulted primarily from the $8.6 million of net income and $20.0 million in depreciation and amortization and stock-based compensation expense for the period. Net changes in working capital items decreased cash from operating activities by $21.8 million, primarily related to increases in inventory, prepaid expenses and accounts receivable, partially offset by an increase in deferred revenue. Net cash used in investing activities was $23.3 million for the nine months ended September 30, 2015, which consisted primarily of purchases of marketable securities of $50.4 million and purchases of property and equipment of $8.1 million, partially offset by proceeds from the sales and maturities of marketable securities of $35.2 million. Net cash provided by financing activities during the nine months ended September 30, 2015 was $18.9 million, principally relating to the proceeds from stock option exercises.

Contractual Obligations

As of September 30, 2016, other than the amendments to our U.S. operating facility lease discussed in Note 12 to our consolidated financial statements included in this Quarterly Report, there were no material changes, outside of the ordinary course of business, in our outstanding contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

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Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet financing activities.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations set forth above are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments, including those described in our Annual Report on Form 10-K for the year ended December 31, 2015. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities, and the reported amounts of revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A discussion of our critical accounting policies and the related judgments and estimates affecting the preparation of our consolidated financial statements is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. There have been no material changes to our critical accounting policies as of September 30, 2016.

Recent Accounting Pronouncements

See Note 13 to our consolidated financial statements included in this Quarterly Report for information regarding recent accounting pronouncements that are of significance or potential significance to us.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments.

Interest Rate Sensitivity. We maintain an investment portfolio consisting mainly of money market funds, state and municipal government obligations, U.S. government agencies and treasuries. The securities, other than money market funds, are classified as available-for-sale and consequently are recorded on the balance sheet at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive loss. All investments mature by September 13, 2018. These available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase, which could result in a realized loss if we are forced to sell an investment before its scheduled maturity. We currently have the ability and intent to hold our fixed income investments until maturity. We do not use derivative financial instruments to manage our interest rate risks.

The following table provides information about our investment portfolio in available-for-sale debt securities. For investment securities, the table presents principal cash flows (in thousands) and weighted average interest rates by expected maturity dates.

	September 30, 2016			Future Maturities in 2016			Future Maturities in 2017			Future Maturities in 2018
Investments (at fair value)	$	84,767		$	6,366		$	44,770		$	33,631
Weighted average interest rate		0.64	%		0.46	%		0.57	%		0.78	%

Foreign Currency Exchange. A significant portion of our operations is conducted through operations in countries other than the United States. Revenues from our international operations that were recorded in U.S. dollars represented approximately 38% of our total international revenues during the nine months ended September 30, 2016. Substantially all of the remaining 62% were sales in euros, British pounds, Moroccan dirham, Japanese yen, Chinese yuan, South Korean won and Australian dollars. Since we conduct our business in U.S. dollars, our main exposure, if any, results from changes in the exchange rate between these currencies and the U.S. dollar. Our functional currency is the U.S. dollar. Our policy is to reduce exposure to exchange rate fluctuations by having most of our assets and liabilities, as well as most of our revenues and expenditures, in U.S. dollars, or U.S. dollar linked. We have not historically engaged in hedging activities relating to our non-U.S. dollar operations. We sell inventory to our subsidiaries in U.S. dollars. These amounts are recorded at our local subsidiaries in local currency rates in effect on the transaction date. Therefore, we may be exposed to exchange rate fluctuations that occur while the debt is outstanding which we recognize as unrealized gains and losses in our statements of operations. Upon settlement of these debts, we may record realized foreign exchange gains and losses in our statements of operations. We may incur negative foreign currency translation charges as a result of changes in currency exchange rates.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer (our principal executive and principal financial officers, respectively), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2016. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2016, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the third quarter of the year ending December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — Other Information

Item 1. Legal Proceedings

PicoSure Litigation

On June 26, 2015, a plaintiff, LDGP, LLC d/b/a Hartsough Dermatology, individually and on behalf of a putative class, filed a complaint against us in the U.S. District Court for the Northern District of Illinois — Western Division seeking monetary damages, injunctive relief, costs and attorneys’ fees. The plaintiff filed an amended complaint on November 9, 2015, which added three new plaintiffs. The amended complaint alleges that we falsely represented that the PicoSure laser removes and eliminates tattoos and difficult colors, and alleges violations of several state consumer fraud laws, breach of warranty, common law fraud and negligent misrepresentation. It seeks to assert claims on behalf of all entities in the United States who purchased a PicoSure laser, except those located in Louisiana. On December 7, 2015, we filed our answer and motion for partial judgment on the pleadings regarding several counts in the amended complaint. On August 15, 2016, the court granted our motion in connection with the negligent misrepresentation count, and denied it with respect to the breach of contact claim. We believe that the claims are without merit and that we have meritorious defenses.

SmartLipo Litigation

On May 2, 2016, Susan Lovell Ficken and certain other named plaintiffs, individually and on behalf of a putative class, filed a complaint against us in Missouri state court seeking monetary and punitive damages, injunctive relief, costs and attorneys’ fees. The matter was removed to the U.S. District Court for the Western District of Missouri — Central Division on June 3, 2016. The amended complaint, filed on June 27, 2016, alleges that the SmartLipo laser was unlawfully marketed by us and third parties, giving rise to alleged violations of the Missouri Merchandising Practices Act. It seeks to assert claims on behalf of all individuals who purchased a SmartLipo procedure in Missouri. On July 11, 2016, we filed a motion to dismiss the entire action. In response, on September 2, 2016, plaintiffs filed a second amended complaint with the same material allegations but that added a named plaintiff in an attempt to defeat our statute of limitations defense. We filed a motion to dismiss the second amended complaint on September 16, 2016. That motion has been fully briefed, and we are awaiting the Court’s ruling. In the interim, we are engaged in discovery. In accordance with the requirements imposed upon us by Western District of Missouri’s mandatory mediation and assessment program, we are required to participate in mediation by February 28, 2017. We believe the claims are without merit, and that we have meritorious defenses.

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TCPA Litigation

On July 27, 2016, ARcare, Inc., individually and as putative representative of a purported nationwide class, filed a complaint against us in the U.S. District Court for the District of Massachusetts. The plaintiff alleges that we violated the federal Telephone Consumer Protection Act, or TCPA, by sending fax advertisements that did not comply with statutory and Federal Communications Commission, or FCC, requirements that senders provide recipients with certain information about how to opt out from receiving faxed advertisements in the future, and by sending unsolicited fax advertisements. The complaint seeks damages, declaratory and injunctive relief, and attorneys’ fees on behalf of a purported class of all recipients of purported fax advertisements that the plaintiff alleges did not receive an adequate opt-out notice. The TCPA provides for statutory damages of $500 per violation and gives courts the discretion to increase that amount up to $1,500 for knowing and willful violations. On September 30, 2016, we answered the complaint and denied liability. On September 7, 2016, the plaintiff sent a demand letter seeking a class settlement for statutory damages under Massachusetts General Laws, Chapter 93A § 9, and on October 7, 2016, we responded denying any liability under Chapter 93A, but offering the plaintiff statutory damages under Chapter 93A on an individual basis. To date, the plaintiff has not moved to amend the complaint to assert a claim under Chapter 93A. We and the plaintiff have agreed to explore a possible class settlement of the litigation in a mediation to be held in late 2016, and on October 12, 2016, the court stayed the case until January 11, 2017 to allow the parties to mediate without litigation. Based on preliminary estimates, we believe the aggregate number of faxes sent in the four years prior to the lawsuit to be approximately 835,000.

We have not recorded a liability in respect of this matter, and at this time we cannot estimate the possible loss or range of losses that we may incur in respect of this matter. We are unable to make such an estimate because, among other reasons, the proceedings are at an early stage and other reported TCPA lawsuits have resulted in a broad range of outcomes, with each case being dependent on its own facts and circumstances. In addition, we believe that the outcome of litigation currently pending before the U.S. Court of Appeals for the D.C. Circuit (Bais Yaakov of Spring Valley, et al. v. FCC) may have a significant impact on the outcome of this matter. In that case, the outcome of which we cannot predict, other companies are challenging the validity of an FCC regulation that requires certain opt out information to be included in fax promotions sent to recipients who had given permission to receive them. We have also applied to the FCC for a retroactive waiver from that requirement, which if approved, would exempt us from that requirement through April 30, 2015. The FCC’s ability to issue such waivers is also before the U.S. Court of Appeals for the D.C. Circuit in the Bais Yaakov matter, and in any event there can be no assurance that our application will be granted.

In addition to the matters discussed above, from time to time, we are subject to various claims, lawsuits, disputes with third parties, investigations and pending actions involving various allegations against us incident to the operation of its business, principally product liability. Each of these other matters is subject to various uncertainties, and it is possible that some of these other matters may be resolved unfavorably to us. We establish accruals for losses that management deems to be probable and subject to reasonable estimate. We believe that the ultimate outcome of these other matters will not have a material adverse impact on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

We have revised our discussion of the risk factors affecting our business since those presented in our Annual Report on Form 10-K, Part I, Item 1A, for the fiscal year ended December 31, 2015. We have denoted with an asterisk (*) those risk factors that have been materially revised or added. If any of the following risks actually occurs, our business, financial condition, results of operations and cash flows could be materially adversely affected. This section contains forward-looking statements. You should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page 14.

Risks Related to Our Business and Industry

We have incurred net losses in prior periods.

Although we were profitable in the first three quarters of 2016 and for the full 2015 and 2014 years, we incurred losses in the first quarter of 2015 and in 2013. If we are unable to maintain profitability, the market value of our stock may decline, and an investor could lose all or a part of their investment.

If there is not sufficient consumer demand for the procedures performed with our products, practitioner demand for our products could decline, which would adversely affect our operating results.

The aesthetic laser and light-based treatment system industry in which we operate is particularly vulnerable to economic trends. Most procedures performed using our aesthetic treatment systems are elective procedures that are not reimbursable through government or private health insurance. The cost of these elective procedures must be borne by the patient. As a result, the decision to undergo a procedure that uses our products may be influenced by the cost.

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Consumer demand, and therefore our business, is sensitive to a number of factors that affect consumer spending, including political and macroeconomic conditions, health of credit markets, disposable consumer income levels, consumer debt levels, interest rates, consumer confidence and other factors. For example, consumer demand for the procedures performed with our products, and practitioner demand for our products, decreased dramatically during 2009 as a result of turmoil in the financial markets, which contributed to a significant decrease in our total product revenues during that year. If there is not sufficient consumer demand for the procedures performed with our products, practitioner demand for our products would decline, and our business would suffer.

Our financial results may fluctuate from quarter to quarter, which makes our results difficult to predict and could cause our results to fall short of expectations.

Our financial results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our financial results on a period-to-period basis may not be meaningful, and our past results should not be relied upon as an indication of our future performance. Our future quarterly and annual expenses as a percentage of our revenues may be significantly different from those we have recorded in the past or which we expect for the future. Our financial results in some quarters may fall below our expectations or the expectations of market analysts or investors. Any of these events could cause our stock price to fall. Each of the risk factors listed in this “Risk Factors” section, and the following factors, may adversely affect our financial results:

• our inability to introduce new products to the market in a timely fashion, or at all;

• our inability to quickly address and resolve reliability issues in our products and/or meet warranty and service obligations to our customers;

• continued availability of attractive equipment leasing terms for our customers, which may be negatively influenced by interest rate increases or lack of available credit;

• increases in the length of our sales cycle; and

• reductions in the efficiency of our manufacturing processes.

In addition, we may be subject to seasonal fluctuations in our results of operations, because our customers may be more likely to make equipment purchasing decisions near year-end, and because practitioners may be less likely to make purchasing decisions in the summer months.

Our competitors may prevent us from achieving further market penetration or improving operating results.

Competition in the aesthetic device industry is intense. Our products compete against products offered by public companies, such as Cutera, Syneron Medical, and ZELTIQ Aesthetics, as well as several smaller specialized private companies, such as Alma Lasers (acquired in 2013 by Shanghai Fosun Pharmaceutical) and Lumenis. Additional competitors may enter the market, and we are likely to compete with new companies in the future.

We also face competition against non-laser and non-light-based medical products, such as BOTOX^® and collagen injections, and surgical and non-surgical aesthetic procedures, such as face lifts, chemical peels, abdominoplasty, liposuction, microdermabrasion, sclerotherapy and electrolysis. We may also face competition from manufacturers of pharmaceutical and other products that have not yet been developed. As a result of competition with these companies, products and procedures, we could experience loss of market share and decreasing revenue as well as reduced prices and profit margins, any of which would harm our business and operating results.

Our ability to compete effectively depends upon our ability to distinguish our company and our products from our competitors and their products. Factors affecting our competitive position include:

• product performance, reliability and design;

• ability to sell products tailored to meet the applications needs of clients and patients;

• quality of customer support;

• product pricing;

• product safety;

• sales, marketing and distribution capabilities;

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• success and timing of new product development and introductions; and

• intellectual property protection.

We face exposure to credit risk of customers.

In the event of deterioration of general business conditions or the availability of credit, the financial strength and stability of our customers and potential customers may deteriorate over time, which may cause them to cancel or delay their purchase of our products. In addition, we may be subject to increased risk of non-payment of our accounts receivables. We may also be adversely affected by bankruptcies or other business failures of our customers and potential customers. A significant delay in the collection of funds or a reduction of funds collected may impact our liquidity or result in bad debts.

If we do not continue to develop and commercialize new products and identify new markets for our products and technology, we may not remain competitive, and our revenues and operating results could suffer.

The aesthetic laser and light-based treatment system industry is subject to continuous technological development and product innovation. If we do not continue to innovate and develop new products and applications, our competitive position will likely deteriorate as other companies successfully design and commercialize new products and applications. Accordingly, our success depends in part on developing or acquiring new and innovative applications of laser and other light-based technology and identifying new markets for and applications of existing products and technology. If we are unable to develop and commercialize new products, identify and acquire complementary businesses, products or technologies, and identify new markets for our products and technology, our product and technology offerings could become obsolete and our revenues and operating results could be adversely affected.

To remain competitive, we must:

• develop or acquire new technologies that either add to or significantly improve our current products;

• convince our target practitioner customers that our new products or product upgrades would be attractive revenue-generating additions to their practices;

• sell our products to non-traditional customers, including primary care physicians, gynecologists and other specialists;

• identify new markets and emerging technological trends in our target markets and react effectively to technological changes;

• preserve goodwill and brand value with customers; and

• maintain effective sales and marketing strategies.

If our new products do not gain market acceptance, our revenues and operating results could suffer, and our newer generation product sales could cause earlier generation product sales to suffer.

The commercial success of the products and technology we develop will depend upon the acceptance of these products by providers of aesthetic procedures and their patients and clients. It is difficult for us to predict how successful recently introduced products, or products we are currently developing, will be over the long term. If the products we develop do not gain market acceptance or meet customer expectations, our revenues and operating results could suffer.

We expect that many of the products we develop will be based upon new technologies or new applications of existing technologies. It may be difficult for us to achieve market acceptance of some of our products, particularly the first products that we introduce to the market based on new technologies or new applications of existing technologies.

As we introduce new technologies to the market, our earlier generation product sales could suffer, which may result in write-offs of those earlier generation products.

If demand for our aesthetic treatment systems by physician customers does not increase, our revenues will suffer and our business will be harmed.

We market our aesthetic treatment systems to physicians and other practitioners. We believe, and our growth expectations assume, that we and other companies selling lasers and other light-based aesthetic treatment systems have not fully penetrated these markets and that we will continue to receive a significant percentage of our revenues from selling to these markets. If our expectations as to the size of these markets and our ability to sell our products to participants in these markets are not correct, our revenues will suffer and our business will be harmed.

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We sell our products and services through subsidiaries and distributors in numerous international markets. Our operating results may suffer if we are unable to manage our international operations effectively.

We sell our products and services through subsidiaries and distributors in approximately 120 foreign countries, and we therefore are subject to risks associated with having international operations. We derived 32% of our product revenues from sales outside North America for the nine months ended September 30, 2016. We derived 39%, 48%, and 48% of our product revenues from sales outside North America for the years ended December 31, 2015, 2014, and 2013, respectively.

Our international sales are subject to a number of risks, including:

• foreign certification and regulatory requirements;

• difficulties in staffing and managing our foreign operations;

• import and export controls; and

• political and economic instability.

If we are unsuccessful at managing these risks, our results of operations may be adversely affected.

We may incur foreign currency conversion charges as a result of changes in currency exchange rates, which could cause our operating results to suffer.

The U.S. dollar is our functional currency. Although we sell our products and services through subsidiaries and distributors in approximately 120 foreign countries, approximately 38% of our revenues outside of North America for the nine months ended September 30, 2016 and 46% of our revenues outside of North America for the year ended December 31, 2015 were denominated in or linked to the U.S. dollar. Substantially all of our remaining revenues and all of our operating costs outside of North America are recognized in euros, British pounds, Moroccan dirham, Japanese yen, Chinese yuan, South Korean won and Australian dollars. We have not historically engaged in hedging activities relating to our non-U.S. dollar operations. Fluctuations in exchange rates between the currencies in which such revenues are realized or costs are incurred and the U.S. dollar may have a material adverse effect on our results of operations and financial condition. We incurred a loss on foreign currency of $1.8 million in 2015, which was recorded as other expense, net within our consolidated statement of operations. This was primarily due to the strengthening of the U.S. dollar against the euro, British pound, Japanese yen, Australian dollar and Chinese yuan.

We may not receive revenues from our current research and development efforts for several years, if at all.

Investment in product development often involves a long payback cycle and risks associated with new technology. For example, our SculpSure laser system, which we launched in the second half of 2015, was in development for five years. Our PicoSure laser system, which we launched in 2013, was in development for several years. We have made and expect to continue making significant investments in research and development and related product opportunities. Accelerated product introductions and short product life cycles require high levels of expenditures for research and development that could adversely affect our operating results if not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain our competitive position. However, we may not generate anticipated revenues from these investments for several years, if at all.

Because we do not require training for users of our non-invasive products, and we sell these products to non-physicians, there exists an increased potential for misuse of these products, which could harm our reputation and our business.

Federal regulations allow us to sell our products to or on the order of practitioners licensed by law to use or order the use of a prescription device. The definition of “licensed practitioners” varies from state to state. As a result, our products may be purchased or operated by physicians with varying levels of training and, in many states, by non-physicians, including nurse practitioners, chiropractors and technicians. Outside the United States, many jurisdictions do not require specific qualifications or training for purchasers or operators of our products. We do not supervise the procedures performed with our products, nor can we require that direct medical supervision occur. We and our distributors offer product training sessions, but neither we nor our distributors require purchasers or operators of our non-invasive products to attend training sessions. The lack of required training and the purchase and use of our non-invasive products by non-physicians may result in product misuse and adverse treatment outcomes, which could harm our reputation and expose us to costly product liability litigation.

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We may be unable to attract and retain management and other personnel we need to succeed.

Our success depends on the services of our senior management and other key research and development, manufacturing, sales and marketing employees. The loss of the services of one or more of these employees could have a material adverse effect on our business. We consider retaining Michael R. Davin, our chief executive officer, key to our efforts to develop, sell and market our products and remain competitive. We have entered into an employment agreement with Mr. Davin; however, the employment agreement is terminable by him on short notice and may not ensure his continued service with our company. Our future success will depend in large part upon our ability to attract, retain and motivate highly skilled employees. We cannot be certain that we will be able to do so.

We may seek to acquire companies or technologies, which could disrupt our ongoing business, divert the attention of our management and employees and adversely affect our results of operations.

We may, from time to time, evaluate potential strategic acquisitions of other complementary businesses, products or technologies, as well as consider joint ventures and other collaborative projects. We may not be able to identify suitable future acquisition candidates, consummate acquisitions on favorable terms or complete otherwise favorable acquisitions because of antitrust or other regulatory concerns. We cannot be certain that the acquisitions we have completed, including our 2014 acquisition of substantially all of the assets of Ellman International, Inc., or any future acquisitions that we may make, will enhance our products or strengthen our competitive position. In particular, we may encounter difficulties assimilating or integrating the acquired businesses, technologies, products, personnel or operations of the acquired companies, and in retaining and motivating key personnel from these businesses. The integration of these businesses may not result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that may be possible from this integration and these benefits may not be achieved within a reasonable period of time.

Our stock price has fluctuated substantially, and we expect it will continue to do so.

Our Class A common stock price has fluctuated substantially in recent years, and we expect it will continue to do so. From January 1, 2012 through November 1, 2016, our Class A common stock has traded as high as $55.94 per share and as low as $11.64 per share. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for our Class A common stock may be influenced by many factors, including:

• the success of competitive products or technologies;

• regulatory developments in the United States and foreign countries;

• developments or disputes concerning patents or other proprietary rights;

• the recruitment or departure of key personnel;

• variations in our financial results or those of companies that are perceived to be similar to us;

• activism by any single large stockholder or combination of stockholders;

• securities or other litigation;

• market conditions in our industry and issuance of new or changed securities analysts’ reports or recommendations;

• purchases or sales of our stock by our officers and directors;

• repurchases of shares of our Class A common stock; and

• general economic, industry and market conditions.

In addition, if the stock market in general experiences a loss of investor confidence, the trading price of our Class A common stock could decline for reasons unrelated to our business, financial condition or results of operations.

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Our common stock could be further diluted by the conversion of outstanding options, restricted stock units and performance-based stock units.

In the past, we have issued and still have outstanding convertible securities in the form of options, restricted stock units and performance-based stock units. We may continue to issue options, restricted stock units, performance-based stock units and other equity rights as compensation for services and incentive compensation for our employees, directors and consultants or others who provide services to us. We have a substantial number of shares of common stock reserved for issuance upon the conversion and exercise of these securities. Such a conversion would dilute our stockholders and could adversely affect the market price of our common stock.

We may not be able to successfully continue collecting licensing royalties.

Since 2013, portions of our revenues have consisted of royalties from sub-licensing patents, including patents licensed to us on an exclusive basis by MGH. These patents expired in the United States on February 1, 2015 and their foreign counterparts expired in several foreign jurisdictions on January 31, 2016. Though we receive royalty revenues on other patents, our revenues have decreased as a result of the expiration of the MGH patents because we will no longer receive any royalties from such patents, and such license revenues may not be replaced.

We face risks associated with product warranties.

We could incur substantial costs as a result of product failures for which we are responsible under warranty obligations.

If we are unable to protect our information technology infrastructure against service interruptions, data corruption, cyber-based attacks or network security breaches, our reputation, business and operating results may suffer.

We rely on information technology networks and systems, including the Internet, to process and transmit sensitive electronic information and to manage or support a variety of business processes and activities, including procurement and supply chain, manufacturing, distribution, and invoicing and collection of payments for our products. We use enterprise information technology systems to record, process, and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal, and tax requirements. Our information technology systems, some of which are managed by third parties, are susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. If our information technology systems are damaged, disrupted or shutdown and we are unable to effectively resolve the issues in a timely manner, our reputation, business and operating results may suffer.

Risks Related to Our Reliance on Third Parties

If we fail to obtain key components of our products from our sole source or limited source suppliers or service providers, our ability to manufacture and sell our products would be impaired and our business could be materially harmed.

We depend on sole or limited suppliers of certain components and systems that are critical to the products that we manufacture and sell, and to which the significant majority of our revenues are attributable. We depend on a single contract manufacturer, Columbia Electrical Contractors, Inc., in the United States for the subassembly of certain products that we manufacture and sell, and for the manufacturing of certain products that we sell, and to which a significant portion of our revenues are attributable to these products. We depend on El.En. S.p.A., or El.En., for the SLT II laser system that we integrate with our own proprietary software and delivery systems into our SmartLipo Triplex, Cellulaze, and PrecisionTx systems. We also depend on El.En. for the MonaLisa Touch laser system. For further information regarding our distribution agreements with El.En., please see the discussion on page 19 of our Annual Report on Form 10-K for the year ended December 31, 2015. We use Alexandrite rods to manufacture the lasers for our Elite and PicoSure products and Nd:YAG rods to manufacture the lasers for our RevLite / MedLite C6 products. We depend exclusively on Northrop Grumman SYNOPTICS to supply both the Alexandrite and Nd:YAG rods to us, and we are aware of no alternative supplier of Alexandrite rods meeting our quality standards. We offer our SmartCool treatment cooling systems for use with our laser aesthetic treatment systems, and we depend exclusively on Zimmer Elektromedizin GmbH to supply SmartCool systems to us. In addition, one third party supplier assembles and tests many of the components and subassemblies for our Elite and Cynergy product families. We use diode laser bars from Coherent to manufacture our Vectus laser, and we use diode laser modules from Dilas to manufacture our SculpSure laser system. Although alternative suppliers exist for the diode laser subassemblies and diode laser bars, they could take months to qualify and implement.

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Other than with El.En., we do not have long-term arrangements with any of our suppliers or our contract manufacturer for the supply of these components or systems or with the assembly and test service provider referenced above, but instead purchase from them on a purchase order basis. Northrop Grumman SYNOPTICS, Zimmer Elektromedizin, Dilas and Coherent are not required, and may not be able or willing, to meet our future requirements at current prices, or at all.

Under our agreements with El.En. and our purchase order arrangements with our other suppliers and service providers, we are vulnerable to supply shortages and cessations and price fluctuations with respect to these critical components and systems and services. Such shortages or cessations could occur either as a result of breach by El.En. or us of our distribution agreements, or as a result of other types of business decisions made by El.En. or other suppliers and service providers. Any extended interruption in our supplies of these components or systems or in the assembly and test services could materially harm our business.

We rely on third party distributors to market, sell and service a significant portion of our products. If these distributors do not commit the necessary resources to effectively market, sell and service our products or if our relationships with these distributors are disrupted, our business and operating results may be harmed.

In the United States, Canada, France, Morocco, Germany, Spain, the United Kingdom, Australia, China, Japan and Korea, we sell our products through our internal sales organization. Outside of these markets, we sell our products through third party distributors. Our sales and marketing success in these other markets depends on these distributors, in particular their sales and service expertise and relationships with the customers in the marketplace. Sales of our aesthetic treatment systems by third party distributors represented 12% of our product revenue for the nine months ended September 30, 2016. Sales of our aesthetic treatment systems by third party distributors represented 17%, 21% and 25% of our product revenue for 2015, 2014 and 2013, respectively.

We do not control our distributors, and these parties may not be successful in marketing our products. These parties may fail to commit the necessary resources to market and sell our products to the level of our expectations. Currently, we have written distributor agreements in place with most of our third party distributors. We cannot be sure that our distributors will agree with our interpretation of the terms of the agreements or that we will receive payments under the agreements. The third party distributors with which we do not have written distributor agreements may also disagree with the terms of our relationship. Our distributors may terminate their relationships with us and stop selling and servicing our products with little or no notice. If current or future third party distributors or other parties that sell our products do not perform adequately, or if we fail to maintain our existing relationships with these parties or fail to recruit and retain distributors in particular geographic areas, our revenue from international sales may be adversely affected and our operating results could suffer.

Risks Related to Our Relationship with El.En. and Our Corporate Structure

El.En. and its subsidiaries market and sell products that compete with our products, and any increased competition from El.En. could have a material adverse effect on our business.

El.En. is a leading laser manufacturer in Europe and a leading light-based medical device manufacturer worldwide. El.En. and its subsidiaries develop and produce laser systems with scientific, industrial, commercial and medical applications. Under exclusive distribution agreements with El.En., we purchase from El.En. its proprietary SmartLipo MPX system and its SLT II laser system. The SLT II laser system is an essential component of our SmartLipo Triplex and Cellulaze systems, which also incorporate our proprietary software and delivery systems. We also depend on El.En. for the MonaLisa Touch laser system. For further information regarding our distribution agreements with El.En., please see the discussion on page 19 of our Annual Report on Form 10-K for the year ended December 31, 2015.

El.En. markets, sells, promotes and licenses other products that compete with our products, both in North America and elsewhere throughout the world and our agreements with El.En. do not prevent El.En. from competing with us by selling products that we purchased in the past from El.En., including earlier generation SmartLipo systems. Our business could be materially and adversely affected by increased competition from El.En.

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*Provisions in our corporate charter documents and under Delaware law may delay or prevent attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us.

Several provisions of our certificate of incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which our stockholders might otherwise receive a premium for their shares. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

• the classification of the members of our board of directors until our 2019 annual meeting of stockholders, at which point the full board of directors will be declassified and each director will be elected on an annual basis;

• limitations on the removal of our directors until our 2019 annual meeting of stockholders, after which our directors may be removed with or without cause by the affirmative vote of the holders of a majority of our shares of capital stock entitled to vote;

• advance notice requirements for stockholder proposals and nominations;

• the inability of stockholders to act by written consent or to call special meetings; and

• the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors.

Absent approval of our board of directors, our bylaws may only be amended or repealed by the affirmative vote of the holders of at least 75% of the voting power of our shares of capital stock entitled to vote.

In addition, Section 203 of the Delaware General Corporation Law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns or within the last three years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or prevent a change in control of our company.

Risks Related to Intellectual Property

If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be adversely affected.

Our products may infringe, or it may be claimed that they infringe, patents or patent applications under which we do not hold licenses or other rights. Third parties may own or control these patents and patent applications in the United States and abroad. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successfully asserted against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay manufacturing or sales of the product that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from the third party and be required to pay license fees or royalties or both, as we did in a 2006 patent license agreement with Palomar Medical Technologies, Inc. Such licenses may not be available on acceptable terms, or at all. Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be forced to cease some aspect of our business operations if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This could harm our business significantly.

There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in our industry. In addition to infringement claims against us, we may become a party to other types of patent litigation and other proceedings, including reexamination proceedings, inter partes or post-grant review or interference proceedings declared by the U.S. Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products and technology. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time.

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If we are unable to obtain or maintain intellectual property rights relating to our technology and products, the commercial value of our technology and products will be adversely affected and our competitive position could be harmed.

Our success and ability to compete depends in part upon our ability to obtain protection in the United States and other countries for our products by establishing and maintaining intellectual property rights relating to or incorporated into our technology and products. We own numerous patents and patent applications in the United States and corresponding patents and patent applications in many foreign jurisdictions. We do not know how successful we would be in any instance in which we asserted our patents against suspected infringers. Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that would be advantageous to us. Even if issued, our patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products could be adversely affected.

In addition to patented technology, we rely upon unpatented proprietary technology, processes and know-how. We generally seek to protect this information in part by confidentiality agreements with our employees, consultants and third parties. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

Risks Related to Government Regulation and Other Legal Compliance Matters

If we fail to obtain and maintain necessary FDA clearances and approvals for our products and indications or if clearances and approvals for future products and indications are delayed or not issued, our business would be harmed.

Our products are classified as medical devices and are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, state and local authorities. These regulations relate to manufacturing, design, labeling, sale, promotion, distribution, importing and exporting and shipping of our products. In the United States, before we can market a new medical device, or a new use of, or claim for, an existing product, we must first receive either 510(k) clearance or premarket approval from the FDA, unless an exemption applies. Both of these processes can be expensive and lengthy and entail significant user fees, unless exempt. The FDA’s 510(k) clearance process often takes from three to 12 months. The FDA may require us to withdraw an application if they cannot make a determination that the device is substantially equivalent according to the regulations. In such situations, we may re-submit the 510(k) application with additional data for reconsideration or we may determine not to commercialize the device or the new indication for use. The process of obtaining premarket approval is much more costly and uncertain than the 510(k) clearance process. It generally takes from one to three years, or even longer, from the time the premarket approval application, or PMA, is submitted to the FDA until an approval is obtained.

In order to obtain premarket approval and, in some cases, a 510(k) clearance, a product sponsor must conduct well controlled clinical trials designed to test the safety and effectiveness of the product. Conducting clinical trials generally entails a long, expensive and uncertain process that is subject to delays and failure at any stage. The data obtained from clinical trials may be inadequate to support approval or clearance of a submission. In addition, the occurrence of unexpected findings in connection with clinical trials may prevent or delay obtaining approval or clearance. If we conduct clinical trials, they may be delayed or halted, or be inadequate to support approval or clearance, for numerous reasons, including:

• the FDA, other regulatory authorities or an institutional review board may place a clinical trial on hold;

• patients may not enroll in clinical trials, or patient follow-up may not occur, at the rate we expect;

• patients may not comply with trial protocols;

• institutional review boards and third party clinical investigators may delay or reject our trial protocol;

• third party clinical investigators may decline to participate in a trial or may not perform a trial on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices, or other FDA requirements;

• third party organizations may not perform data collection and analysis in a timely or accurate manner;

• regulatory inspections of our clinical trials or manufacturing facilities may, among other things, require us to undertake corrective action or suspend or terminate our clinical trials, or invalidate our clinical trials;

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• changes in governmental regulations or administrative actions; and

• the interim or final results of the clinical trials may be inconclusive or unfavorable as to safety or effectiveness.

Medical devices may be marketed only for the indications for which they are approved or cleared. The FDA may not approve or clear indications that are necessary or desirable for successful commercialization. Indeed, the FDA may refuse our requests for 510(k) clearance or premarket approval of new products, new intended uses or modifications to existing products. Our clearances can be revoked if safety or effectiveness problems develop.

In addition, if the FDA requires us to go through a lengthier, more rigorous examination for products or modifications to products than we expect, or at a particular time in the future had expected, our product introductions or modifications could be delayed or canceled, which could negatively affect our ability to generate sales, or cause sales at such time to decline. For example, the FDA could demand that we obtain a PMA prior to marketing certain of our products in cases in which we did not expect to have to obtain a PMA. If we were to determine that a product we plan to market is subject to an exemption from premarket review, the FDA could disagree with our determination and could require us to submit a 510(k) or PMA in order to continue marketing the product.

Finally, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions that may prevent or delay approval or clearance of products we are developing or impact our ability to modify any of our products for which we receive regulatory clearance or approval in the future on a timely basis. Any change in the laws or regulations that govern the clearance and approval processes relating to the products we are developing could make it more difficult and costly to obtain clearance or approval for such products, or to produce, market and distribute products for which we receive regulatory approval or clearance in the future.

After clearance or approval of our products, we are subject to continuing regulation by the FDA, and if we fail to comply with FDA regulations, or other regulations to which we are subject, our business could suffer.

Even after clearance or approval of a product, we are subject to continuing regulation by the FDA, including the requirements that our facility be registered and our devices be listed with the agency. We are subject to Medical Device Reporting regulations, which require us to report to the FDA if our products may have caused or contributed to a death or serious injury or malfunction in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. We must report corrections and removals to the FDA where the correction or removal was initiated to reduce a risk to health posed by the device or to remedy a violation of the Federal Food, Drug, and Cosmetic Act, or FDCA, caused by the device that may present a risk to health, and maintain records of other corrections or removals. The FDA closely regulates promotion and advertising and our promotional and advertising activities could come under scrutiny. If the FDA objects to our promotional and advertising activities or finds that we failed to submit reports under the Medical Device Reporting regulations, for example, the FDA may allege our activities resulted in violations.

Violations of the FDCA and other laws and regulations to which we are subject may lead to investigations by the FDA, Department of Justice, or DOJ, and state Attorneys General. In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including:

• restrictions on such products, manufacturers or manufacturing processes;

• restrictions on the labeling or marketing of a product;

• restrictions on product distribution or use of a product;

• requirements to conduct post-marketing studies or clinical trials;

• warning letters or untitled letters;

• withdrawal of the products from the market;

• refusing or delaying our requests for 510(k) clearance or premarket approval of new products or new intended uses;

• fines, restitution or disgorgement of profits or revenues;

• suspension or withdrawal of marketing approvals;

• operating restrictions or partial suspension or total shutdown of production;

• refusal to permit the import or export of our products;

• repair, replacement, refunds, recalls or seizure or detention of our products;

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• consent decrees;

• injunctions or the imposition of civil or criminal penalties;

• damage to relationships with any potential contributors;

• unfavorable press coverage and damage to our reputation; or

• litigation involving patients using our products.

Non-compliance with European Union requirements can also result in significant financial penalties.

We may be subject to enforcement action if we engage in improper marketing or promotion of any of our products for which we receive regulatory clearance or approval. Any such enforcement action could result in significant fines, costs and penalties and could result in damage to our reputation.

Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of unapproved use. Use of a device outside its cleared or approved diseases or conditions is known as “off-label” use. Despite our efforts to comply with such laws and regulations, physicians may use our products for which we receive regulatory clearance or approval off-label, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. If the FDA determines that our promotional materials or other product labeling constitute promotion of an unapproved, or off-label, use, it could request that we modify our materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, recall, injunction, seizure, civil fine or criminal penalties.

Other federal, state and foreign regulatory agencies, including the U.S. Federal Trade Commission, have issued guidelines and regulations that govern how we will be required to promote products for which we receive regulatory clearance or approval, including how we may use endorsements and testimonials. If our promotional materials are inconsistent with these guidelines or regulations, we could be subject to enforcement actions, which could result in significant fines, costs and penalties. Our reputation could also be damaged and the adoption of our products could be impaired. In addition, the off-label use of our products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in substantial damage awards against us and harm our reputation.

In the EU, our medical devices may be promoted only for the intended purpose for which the devices have been CE marked. Failure to comply with this requirement could lead to the imposition of penalties by the competent authorities of the EU Member States. The penalties could include warnings, orders to discontinue the promotion of the medical device, seizure of the promotional materials and fines. The promotional materials related to any of our products that may be CE marked in the future must also comply with various laws and codes of conduct developed by medical device industry bodies in the EU governing promotional claims, comparative advertising, advertising of medical devices reimbursed by the national health insurance systems and advertising to the general public. If we do not comply with these laws and industry codes, we could be subject to penalties which could include significant fines. Our reputation could also be damaged and the adoption of our products after receipt of a CE mark could be impaired.

We have modified some of our products without FDA clearance. Modifications to any FDA-cleared or approved products may require new regulatory clearances or approvals or require us to recall or cease marketing such products until clearances or approvals are obtained.

We have made modifications to our devices in the past and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. Any modification to one of our 510(k)-cleared products that would constitute a major change in its intended use or any change that could significantly affect the safety or effectiveness of the device would require us to obtain a new 510(k) marketing clearance and may even, in some circumstances, require the submission of a PMA, if the change raises complex or novel scientific issues or the product has a new intended use. We may be required to submit extensive pre-clinical and clinical data depending on the nature of the changes. We may not be able to obtain additional 510(k) clearances or premarket approvals for modifications to, or additional diseases or conditions for, any products for which we receive regulatory clearance or approval in a timely fashion, or at all. Delays in obtaining future clearances or approvals would adversely affect our ability to introduce enhanced products in a timely manner, which in turn would harm our revenue and operating results.

The FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but the FDA may review any manufacturer’s decision. If the FDA disagrees with our determination and requires us to seek new 510(k) clearances or PMA approval for modifications to our previously-cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or distribution of the products or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

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Furthermore, potential changes to the 510(k) program may make it more difficult for us to make modifications to any of our then-previously-cleared products, by either imposing more strict requirements on when a new 510(k) clearance for a modification to a previously-cleared product must be submitted or applying more onerous review criteria to such submissions. In 2011, respectively, the FDA issued draft guidance documents addressing when to submit a new 510(k) clearance due to modifications to 510(k)-cleared products and the criteria for evaluating substantial equivalence. The 2011 draft guidance was ultimately withdrawn as the result of the Food and Drug Administration Safety and Innovation Act. As a result, the FDA’s original guidance document regarding 510(k) modifications, which dates back to 1997, remains in place. However, the FDA may seek to issue new guidance on product modifications. Any efforts to do so could result in a more rigorous review process and make it more difficult to obtain clearance for device modifications.

If we or our contract manufacturers fail to comply with ongoing FDA and EU or other foreign regulatory authority requirements concerning manufacturing operations and laser performance standards, our products could be subject to additional restrictions and withdrawal from the market, which would harm our business.

We are currently required to demonstrate and maintain compliance with the FDA’s Quality System Regulation, or QSR. The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Because our products involve the use of lasers, our products also are covered by a performance standard for lasers set forth in FDA regulations. The laser performance standard imposes specific record keeping, reporting, product testing and product labeling requirements. These requirements include affixing warning labels to laser products as well as incorporating certain safety features in the design of laser products. In the EU countries, compliance with harmonized standards is also recommended as this is interpreted as a presumption of conformity with the relevant Essential Requirements. The FDA enforces the QSR and laser performance standards through periodic unannounced inspections. We have been, and anticipate in the future being, subject to such inspections.

These FDA regulations and EU standards cover the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of any products for which we may obtain regulatory clearance or approval. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA. Compliance with harmonized standards in the EU is also subject to regular review through the conduct of inspection by Notified Bodies or other certification bodies. If we, or our contract manufacturers, fail to adhere to QSR requirements in the United States or other harmonized standards in the EU, this could delay production of our products and lead to fines, difficulties in obtaining regulatory clearances or CE Certificates of Conformity, recalls, enforcement actions, including injunctive relief or consent decrees, or other consequences, which could, in turn, have a material adverse effect on our financial condition or results of operations.

The FDA audits compliance with the QSR through periodic announced and unannounced inspections of manufacturing and other facilities. The failure by us or any of our contract manufacturers to comply with applicable statutes and regulations administered by the FDA, or harmonized standards in the EU, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in various enforcement actions, including a public warning letter, a shutdown of or restrictions on our manufacturing operations, delays in approving or clearing a product, refusal to permit the import or export of our products, a recall or seizure of our products, fines, injunctions, civil or criminal penalties, or other sanctions, such as those described in the preceding paragraphs, any of which could cause our business and operating results to suffer.

If any of our products for which we receive regulatory clearance or approval cause or contribute to a death or a serious injury, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions, which could harm our business.

Under the FDA medical device reporting, or MDR, regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury if the malfunction of the device or a similar device of such manufacturer were to recur. The decision to file an MDR involves a judgment by us as the manufacturer. If and when we make such decisions in the future, the FDA may not agree with our decisions. If we fail to report MDRs to the FDA within the required timeframes, or at all, or if the FDA disagrees with any of our determinations regarding the reportability of certain events, the FDA could take enforcement actions against us, which could have an adverse impact on our reputation and financial results.

Additionally, all manufacturers placing medical devices in the market in the EU are legally bound to report any serious or potentially serious incidents involving devices they produce or sell to the competent authority in whose jurisdiction the incident occurred. In the EU, we must comply with the EU Medical Device Vigilance System. Under this system, incidents must be reported to the relevant authorities of the EU countries, and manufacturers are required to take Field Safety Corrective Actions, or FSCAs, to

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reduce a risk of death or serious deterioration in the state of health associated with the use of a medical device that is already placed on the market. An incident is defined as any malfunction or deterioration if the characteristics or performance of a device, as well as any inadequacy in the labeling or the instructions for use which, directly or indirectly, might lead to or might have led to the death of a patient or user or of other persons or to a serious deterioration in their state of health. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its European Authorized Representative to its customers and to the end users of the device through Field Safety Notices.

Any such safety issues involving our products could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results.

Any of the products for which we receive regulatory clearance or approval may be subject to product recalls. A recall of such products, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our future products, could have a significant adverse impact on our business.

The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture. The authority to require a recall must be based on an FDA finding that there is reasonable probability that the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recall of products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is initiated. A government-mandated or voluntary recall by us, or any distributor we may have in the future, could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues.

We are also required to follow detailed recordkeeping requirements for all company-initiated medical device corrections and removals and to report such corrective and removal actions to the FDA if they are carried out in response to a risk to health and have not otherwise been reported under the MDR regulations. We may initiate voluntary recalls involving our products for which we receive regulatory clearance or approval in the future that we determine do not require notification to the FDA. If the FDA disagrees with our determinations, the FDA could require us to report those actions as recalls. Recalls of any of our products for which we receive regulatory clearance or approval in the future would divert managerial and financial resources and have an adverse effect on our reputation, results of operations and financial condition, which could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands. We may also be subject to enforcement actions or liability claims, any may be required to bear other costs, or take other actions that may have a negative impact on our future sales and our ability to generate profits.

If we fail to comply with state laws and regulations, or if state laws or regulations change, our business could suffer.

In addition to FDA regulations, most of our products are also subject to state regulations relating to their sale and use. These regulations are complex and vary from state to state, which complicates monitoring compliance. In addition, these regulations are in many instances in flux. For example, federal regulations allow our prescription products to be sold to or on the order of “licensed practitioners,” that is, practitioners licensed by law to use or order the use of a prescription device. Licensed practitioners are defined on a state-by-state basis. As a result, some states permit non-physicians to purchase and operate our products, while other states do not. Additionally, a state could change its regulations at any time to prohibit sales to particular types of customers. We believe that, to date, we have sold our prescription products only to licensed practitioners. However, our failure to comply with state laws or regulations and changes in state laws or regulations may adversely affect our business.

We, or our distributors, may be unable to obtain or maintain foreign regulatory qualifications or approvals for our current or future products and indications, which could harm our business.

Sales of our products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. In many countries, our third party distributors are responsible for obtaining and maintaining regulatory approvals for our products. We do not control our third party distributors, and they may not be successful in obtaining or maintaining these regulatory approvals.

Complying with foreign regulatory requirements can be an expensive and time consuming process, and approval is not certain. The time required to obtain foreign clearances or approvals may be longer than that required for FDA clearance or approval, and

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requirements for such clearances or approvals may differ significantly from FDA requirements. Foreign regulatory authorities may not clear or approve our products for the same indications cleared or approved by the FDA. The foreign regulatory approval process may include all of the risks associated with obtaining FDA clearance or approval in addition to other risks. Although we or our distributors have obtained regulatory approvals in the European Union and other countries outside the United States for many of our products, we or our distributors may be unable to maintain regulatory qualifications, clearances or approvals in these countries or obtain qualifications, clearances or approvals in other countries. If we are not successful in doing so, our business will be harmed. We may also incur significant costs in attempting to obtain and in maintaining foreign regulatory clearances, approvals or qualifications. Foreign regulatory agencies, as well as the FDA, periodically inspect manufacturing facilities both in the United States and abroad. If we experience delays in receiving necessary qualifications, clearances or approvals to market our products outside the United States, or if we fail to receive those qualifications, clearances or approvals, or if we fail to comply with other foreign regulatory requirements, we and our distributors may be unable to market our products or enhancements in international markets effectively, or at all. Additionally, the imposition of new requirements may significantly affect our business and our products. We may not be able to adjust to such new requirements, which may adversely affect our business.

Federal regulatory reforms may adversely affect our ability to sell our products profitably.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the clearance or approval, manufacture and marketing of a device. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. For example, the FDA proposed changing its standards for determining when a medical device modification must receive premarket clearance or approval. Although Congress objected to these revised standards, it is possible that the FDA will seek to implement these or similar changes in the future.

In addition, most of the products and systems that we sell became subject in 2013 to an excise tax on sales of certain medical devices in the United States after December 31, 2012 by the manufacturer, producer or importer in an amount equal to 2.3% of the sale price. Under the law, additional charges, including warranties, may be deemed to be included in the sale price for purposes of determining the amount of the excise tax. Although this excise tax has been suspended for 2016 and 2017, we believe this excise tax could harm our future sales and profitability.

The Patient Protection and Affordable Care Act includes reporting and disclosure requirements, commonly referred to as the “Sunshine Act”, for “applicable manufacturers” of drugs, biological, medical devices and medical supplies with regard to payments or other transfers of value made to certain physicians and teaching hospitals. The final rules implementing the Sunshine Act are complex, ambiguous, and broad in scope. Sales related to the Ellman surgical product line are subject to the reporting requirements under the Sunshine Act. We believe that sales related to our aesthetic product lines fall under a reporting exception under this law and, accordingly, reporting related to those sales is not required.

There are a number of federal and state laws protecting the confidentiality of certain patient health information, including patient records, and restricting the use and disclosure of that protected information. In particular, the U.S. Department of Health and Human Services promulgated patient privacy rules under the Health Insurance Portability and Accountability Act of 1996, or HIPAA. These privacy rules protect medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend and seek accounting of their own health information and limiting most use and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. If we or any of our service providers are found to be in violation of the promulgated patient privacy rules under HIPAA, we could be subject to civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial condition and operating results. Similarly, failure to comply with the European Union’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

Our compliance with applicable legal and regulatory requirements is, and will continue to be, costly and time consuming. It is impossible to predict whether other legislative changes will be enacted or government regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. If we are found to be in violation of any of this or any other law, we may be subject to penalties, including fines.

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Risks Related to Litigation

*If our past fax practices are shown to have violated the Telephone Consumer Protection Act, that could have a material impact on our results of operations, cash flows and financial condition.

In the past, we have used faxes to disseminate information about our clinical workshops to large numbers of customers and potential customers. Under the federal Telephone Consumer Protection Act, or TCPA, recipients of noncompliant fax advertisements are entitled to $500 per violation, and that amount may be increased up to $1,500 for knowing or willful violations.

In July 2016, we were sued in federal court by ARcare, Inc., individually and as putative representative of a purported class under the TCPA. The plaintiff alleges that we violated the TCPA by sending fax advertisements that did not comply with statutory and Federal Communications Commission requirements that senders provide recipients with certain information about how to opt out from receiving faxed advertisements in the future, and by sending unsolicited fax advertisements.

We have answered the complaint and denied liability, but litigation is subject to numerous uncertainties and we are unable to predict the ultimate outcome of this matter. Even if we prevail in this lawsuit, other individual or class action claims may be brought against us alleging past violations of the TCPA. Moreover, the amount of any potential liability in connection with this lawsuit or other possible lawsuits will depend, to a large extent, on whether a class in a class action lawsuit is certified and, if one is certified, on the scope of the class, neither of which we can predict at this time. We have tendered a claim with respect to the ARcare lawsuit to our general liability insurance carrier and the carrier has indicated that coverage is unlikely for this claim.

We have not recorded a liability in respect of this matter, and at this time we cannot estimate the loss or the range of losses that we may incur in respect of this matter. However, we may determine in the future that an accrual is required, and we may be required to pay damages in respect of this lawsuit or other possible future lawsuits arising out of our past fax transmissions, any of which could materially and adversely affect our results of operations, cash flows and financial condition. Regardless of the outcome, this lawsuit or other possible future lawsuits may cause us to incur significant legal expenses and divert the attention of our management and key personnel from our business operations.

Product liability and business liability suits could be brought against us due to defective design, material or workmanship or due to misuse of our products. These lawsuits could be expensive and time consuming and result in substantial damages to us and increases in our insurance rates.

If our products are defectively designed, manufactured or labeled, contain defective components or are misused, we may become subject to substantial and costly litigation by our customers or their patients or clients. Misusing our products or failing to adhere to operating guidelines for our products can cause severe burns or other significant damage to the eyes, skin or other tissue. If our products fail to function properly, we may be required to conduct product recalls and our customers may lose the ability to treat their patients or clients resulting in a loss of business for our customers. We are routinely involved in claims related to the use of our products. Product liability and business liability claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us. Our current insurance coverage may not apply or may not be sufficient to cover these claims, and the coverage we have is subject to deductibles for which we are responsible. Moreover, in the future, we may not be able to obtain insurance in amount or scope sufficient to provide us with adequate coverage against potential liabilities. Any product liability or other claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and reduce product sales. We would need to pay any losses in excess of our insurance coverage out of cash reserves, harming our financial condition and adversely affecting our operating results.

Employment related lawsuits could be brought against us for improper termination of employment, sexual harassment, hostile work environment and other claims. These lawsuits could be expensive and time consuming and result in substantial damages to us and increases in our insurance rates.

If we terminate employment for improper reasons or fail to provide an appropriate work environment or it is alleged that we did so, we may become subject to substantial and costly litigation by our former and current employees. We are routinely involved in claims related to improper termination and other claims. Such claims could divert management’s attention from our core business, be expensive to defend and result in sizable damage awards against us. Our current insurance coverage may not apply or may not be sufficient to cover these claims, and the coverage we have is subject to deductibles for which we are responsible. Moreover, in the future, we may not be able to obtain insurance in amount or scope sufficient to provide us with adequate coverage against potential liabilities. Any employment related claims brought against us, with or without merit, could increase our employment law insurance rates or prevent us from securing continuing coverage, could harm our reputation in the industry and reduce product sales. We would need to pay any losses in excess of our insurance coverage out of cash reserves, harming our financial condition and adversely affecting our operating results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2016, we announced that our board of directors had authorized the repurchase of up to $35 million of our Class A common stock, from time to time, on the open market or in privately negotiated transactions under a new stock repurchase program. This program will terminate on February 1, 2018. During the nine months ended September 30, 2016, we did not repurchase any shares of our common stock under this program.

Item 6. Exhibits

Exhibit No.	Description
10.1	Offer Letter, dated September 1, 2016 between the Company and Stephen J. Webber (Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed September 13, 2016)
10.2	Consulting Agreement, dated September 12, 2016, between the Company and Timothy W. Baker (Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed September 13, 2016)
31.1	Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1	Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Cynosure, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, (ii) Consolidated Balance Sheets at September 30, 2016 and December 31, 2015, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, and (v) Notes to Consolidated Financial Statements.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	Cynosure, Inc. (Registrant)
Date: November 7, 2016		By:	/s/    MICHAEL R. DAVIN
			Michael R. Davin
			Chairman, President and Chief Executive Officer
Date: November 7, 2016		By:	/s/    TIMOTHY W. BAKER
			Timothy W. Baker
			Chief Operating Officer and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Offer Letter, dated September 1, 2016 between the Company and Stephen J. Webber (Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed September 13, 2016)
10.2	Consulting Agreement, dated September 12, 2016, between the Company and Timothy W. Baker (Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed September 13, 2016)
31.1	Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1	Certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following materials from the Cynosure, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, (ii) Consolidated Balance Sheets at September 30, 2016 and December 31, 2015, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, and (v) Notes to Consolidated Financial Statements.

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Michael R. Davin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cynosure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2016	/s/    Michael R. Davin
	Michael R. Davin
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Timothy W. Baker, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Cynosure, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 7, 2016	/s/    Timothy W. Baker
	Timothy W. Baker
	Chief Operating Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cynosure, Inc. (the “Company”) for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael R. Davin, Chairman, President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 7, 2016	/s/    Michael R. Davin
	Michael R. Davin
	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Cynosure, Inc. (the “Company”) for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Timothy W. Baker, Chief Operating Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 7, 2016	/s/    Timothy W. Baker
	Timothy W. Baker
	Chief Operating Officer and Chief Financial Officer

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	CYNO
Entity Registrant Name	CYNOSURE INC
Entity Central Index Key	0000885306
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		23,858,441

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Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 130,997	$ 108,587
Short-term marketable securities	41,100	35,412
Accounts receivable, net	40,827	42,012
Inventories	83,926	79,768
Prepaid expenses and other current assets	29,741	21,356
Total current assets	326,591	287,135
Property and equipment, net	45,858	39,706
Long-term marketable securities	42,167	38,761
Goodwill	105,865	105,807
Intangibles, net	37,859	44,317
Deferred tax asset	14,664	17,882
Other assets	1,057	1,002
Total assets	574,061	534,610
Current liabilities:
Accounts payable	26,406	33,885
Accrued expenses	49,778	45,616
Deferred revenue	21,278	24,803
Capital lease obligation	958	741
Total current liabilities	98,420	105,045
Capital lease obligation, net of current portion	16,974	17,372
Deferred revenue, net of current portion	1,099	903
Other noncurrent liability	6,354	6,888
Commitments and contingencies (Note 12)
Stockholders' equity:
Preferred stock, $0.001 par value Authorized - 5,000 shares Issued - none
Class A and Class B common stock, $0.001 par value Authorized - 61,500 Class A shares and no Class B shares at September 30, 2016 Authorized - 61,500 Class A shares and 8,500 Class B shares at December 31, 2015 Issued - 25,223 Class A shares and no Class B shares at September 30, 2016 Issued - 24,327 Class A shares and no Class B shares at December 31, 2015	25	24
Additional paid-in capital	420,225	387,161
Retained earnings	69,131	55,781
Accumulated other comprehensive loss	(5,063)	(5,460)
Treasury stock, 1,628 Class A shares, at cost	(33,104)	(33,104)
Total stockholders' equity	451,214	404,402
Total liabilities and stockholders' equity	$ 574,061	$ 534,610

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Common Stock Class A [Member]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	61,500,000	61,500,000
Common stock, shares issued	25,223,000	24,327,000
Treasury stock, shares	1,628,000	1,628,000
Common Stock Class B [Member]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	0	8,500,000
Common stock, shares issued	0	0

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Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Product revenues	$ 87,613	$ 64,644	$ 255,226	$ 190,575
Parts, accessories, service and royalty revenues	18,773	13,770	56,167	46,445
Total revenues	106,386	78,414	311,393	237,020
Cost of revenues	43,576	34,009	128,106	102,486
Gross profit	62,810	44,405	183,287	134,534
Operating expenses:
Sales and marketing	38,090	26,828	112,255	78,950
Research and development	7,210	5,514	21,288	16,723
Amortization of intangible assets acquired	684	736	2,057	2,208
General and administrative	8,664	6,492	24,574	22,124
Total operating expenses	54,648	39,570	160,174	120,005
Income from operations	8,162	4,835	23,113	14,529
Interest expense, net	(377)	(428)	(1,181)	(1,260)
Other income (expense), net	245	(216)	628	(1,395)
Income before provision for income taxes	8,030	4,191	22,560	11,874
Provision for income taxes	3,867	962	9,210	3,295
Net income	$ 4,163	$ 3,229	$ 13,350	$ 8,579
Basic net income per share	$ 0.18	$ 0.14	$ 0.58	$ 0.39
Diluted net income per share	$ 0.17	$ 0.14	$ 0.57	$ 0.38
Basic weighted average common shares outstanding	23,536	22,580	23,195	22,167
Diluted weighted average common shares outstanding	23,945	22,880	23,607	22,539

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 4,163	$ 3,229	$ 13,350	$ 8,579
Other comprehensive (loss) income components:
Cumulative translation adjustment	17	(516)	404	(1,605)
Unrealized (loss) gain on marketable securities	(71)	37	(7)	43
Total other comprehensive (loss) income	(54)	(479)	397	(1,562)
Comprehensive income	$ 4,109	$ 2,750	$ 13,747	$ 7,017

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Operating activities:
Net income	$ 13,350	$ 8,579
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization	15,536	14,343
Stock-based compensation expense	7,008	5,683
Loss on disposal of fixed assets	252	15
Noncash interest expense on capital lease obligations	1,402	1,271
Noncash interest expense on license transfer agreement	140	148
Deferred income taxes	3,083	1,590
Net accretion of marketable securities	1,910	1,609
Tax benefit from stock option exercises	(3,258)	(1,309)
Changes in operating assets and liabilities:
Accounts receivable	1,368	(3,391)
Inventories	(8,905)	(20,018)
Net book value of demonstration inventory sold	525	298
Prepaid expenses and other current assets	(5,040)	(3,889)
Accounts payable	(7,495)	1,339
Accrued expenses	3,897	(1,345)
Deferred revenue	(3,394)	5,380
Other noncurrent liabilities	(502)	(179)
Net cash from operating activities	19,877	10,124
Investing activities:
Purchases of property and equipment	(10,553)	(8,101)
Proceeds from the sales and maturities of marketable securities	45,981	35,247
Purchases of marketable securities	(56,993)	(50,403)
Increase in other noncurrent assets	(20)	(29)
Net cash from investing activities	(21,585)	(23,286)
Financing activities:
Excess tax benefit on options exercised	3,258	1,309
Proceeds from stock option exercises	22,797	17,745
Payments on capital lease obligation	(1,753)	(179)
Net cash from financing activities	24,302	18,875
Effect of exchange rate changes on cash and cash equivalents	(184)	561
Net increase in cash and cash equivalents	22,410	6,274
Cash and cash equivalents, beginning of the period	108,587	75,131
Cash and cash equivalents, end of the period	130,997	81,405
Supplemental cash flow information
Cash paid for interest	14	13
Cash paid for income taxes	7,149	2,915
Supplemental noncash investing and financing activities
Transfer of demonstration equipment from inventory to fixed assets	5,084	4,970
Assets acquired under capital lease	$ 161	273
Net effect of acquisition-related opening balance sheet adjustments		$ 143

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Interim Consolidated Financial Statements

9 Months Ended

Sep. 30, 2016

Quarterly Financial Information Disclosure [Abstract]

Interim Consolidated Financial Statements

Note 1 — Interim Consolidated Financial Statements

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K of Cynosure, Inc. (Cynosure) for the year ended December 31, 2015. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the financial position, results of operations, and cash flows as of the dates and for the periods presented have been included. The results of operations for the nine months ended September 30, 2016 may not be indicative of the results that may be expected for the year ending December 31, 2016, or any other period.

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Note 2 — Stock-Based Compensation

Cynosure recorded stock-based compensation expense of $2.4 million and $1.9 million for the three months ended September 30, 2016 and 2015, respectively. Cynosure recorded stock-based compensation expense of $7.0 million and $5.7 million for the nine months ended September 30, 2016 and 2015, respectively. As of September 30, 2016 and 2015, respectively, Cynosure had $31,000 and $29,000 of stock-based compensation expense capitalized as a part of inventory.

Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individual holding the respective share-based payments, as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)
Cost of revenues	$	118	$	96	$	351	$	244
Sales and marketing		663		541		1,944		1,511
Research and development		356		308		1,070		857
General and administrative		1,215		1,004		3,643		3,071
Total stock-based compensation expense	$	2,352	$	1,949	$	7,008	$	5,683

Cash received from option exercises was $22.8 million and $17.7 million during the nine months ended September 30, 2016 and 2015, respectively.

Cynosure has been increasingly using restricted stock units as an equity incentive award for employees. Cynosure granted 158,613 and 86,618 restricted stock units to employees during the nine months ended September 30, 2016 and 2015, respectively, at the fair market value of its common stock on the date of grant and which vest annually over a three-year period. Fair market value was determined using the closing price of Cynosure’s common stock on the date of grant. Cynosure is recognizing related compensation expense, net of estimated forfeitures, on a straight-line basis over the three-year period.

Cynosure granted 25,425 and 16,685 restricted stock units to non-employee directors during the nine months ended September 30, 2016 and 2015, respectively, at a fair market value of its common stock on the date of grant and which vest quarterly over a one-year period. Fair market value was determined using the closing price of Cynosure’s common stock on the date of grant. Cynosure is recognizing related compensation expense, net of estimated forfeitures, on a straight-line basis over the one-year period.

Cynosure implemented a performance-based equity compensation program in 2016. Cynosure granted 58,981 performance-based stock units during the nine months ended September 30, 2016 to employees at the fair market value of its common stock on the date of grant and which vest annually over a three-year period based on continued performance of services and the achievement of performance goals. If Cynosure’s consolidated cumulative revenue and EBITDA exceeds defined thresholds for the one, two and three-year periods beginning on January 1, 2016 and ending December 31, 2016, December 31, 2017 and December 31, 2018, respectively, the performance-based stock units will vest on the date which is the earlier of (i) the financial earnings release for the year following the year in which the performance period ended or (ii) a determination by the audit committee of the board of directors that the performance target has been achieved. Cynosure recognizes compensation expense for performance targets when the probability of achieving such targets is considered probable and is recognizing related compensation expense on a straight-line basis over the period from the date of grant through the expected vest dates. Cynosure reevaluates at each reporting period whether the performance targets are probable of achievement and, if at any point in time, Cynosure believes that achieving a performance goal is not probable, it will stop recognizing the related compensation expense and will adjust the previously recognized compensation expense prospectively.

Cynosure did not grant any stock options during the nine months ended September 30, 2016. Cynosure granted options to purchase 452,499 shares of common stock during the nine months ended September 30, 2015. Cynosure uses the Black-Scholes model to determine the weighted average fair value of options. The weighted average fair value of the options granted during the nine months ended September 30, 2015 was $12.40, using the following assumptions:

	Nine Months Ended September 30, 2015
Risk-free interest rate	1.39% - 1.72%
Expected dividend yield	—
Expected term	4.8 years
Expected volatility	42% - 43%
Estimated forfeiture rate	5%

Option-pricing models require the input of various subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. Cynosure’s estimated expected stock price volatility is based on its own historical volatility. Cynosure’s expected term of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and Cynosure’s historical exercise patterns. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield of zero is based on the fact that Cynosure has never paid cash dividends and has no present intention to pay cash dividends.

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Inventories

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventories

Note 3 — Inventories

Cynosure states all inventories at the lower of cost or market, determined on a first-in, first-out method. Inventory includes material, labor and overhead and consists of the following:

	September 30, 2016		December 31, 2015
	(in thousands)
Raw materials	$	19,559	$	22,569
Work in process		2,360		3,317
Finished goods		62,007		53,882
	$	83,926	$	79,768

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Fair Value

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value

Note 4 — Fair Value

U.S. GAAP establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable markets data for substantially the full term of the assets or liabilities.

• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of September 30, 2016 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	5,690	$	—	$	—	$	5,690
Treasuries and government agencies (2)		—		30,231		—		30,231
State and municipal bonds		—		54,536		—		54,536
Total	$	5,690	$	84,767	$	—	$	90,457

The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of December 31, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	5,785	$	—	$	—	$	5,785
State and municipal bonds		—		59,786		—		59,786
Treasuries and government agencies		—		14,387		—		14,387
Total	$	5,785	$	74,173	$	—	$	79,958

(1) Included in cash and cash equivalents at September 30, 2016 and December 31, 2015, as applicable.

(2) $1.5 million included in cash and cash equivalents at September 30, 2016.

During the nine months ended September 30, 2016, there were no significant transfers in or out of Level 1 or Level 2. Cynosure did not have any Level 3 financial assets at September 30, 2016 or December 31, 2015.

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Short and Long-Term Marketable Securities

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Short and Long-Term Marketable Securities

Note 5 — Short and Long-Term Marketable Securities

Cynosure’s available-for-sale securities at September 30, 2016 consist of approximately $84.8 million of investments in debt securities consisting of state and municipal bonds, treasuries and government agencies. All investments in available-for-sale securities are recorded at fair market value, with any unrealized gains and losses reported as a separate component of accumulated other comprehensive loss.

As of September 30, 2016, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Cash equivalents:
Treasuries and government agencies	$	1,500	$	1,500	$	—	$	—
Total cash equivalents	$	1,500	$	1,500	$	—	$	—
Short-term marketable securities:
State and municipal bonds	$	32,044	$	32,072	$	—	$	(28	)
Treasuries and government agencies		9,056		9,056		1		(1	)
Total short-term marketable securities	$	41,100	$	41,128	$	1	$	(29	)
Long-term marketable securities:
State and municipal bonds	$	22,492	$	22,546	$	—	$	(54	)
Treasuries and government agencies		19,675		19,680		2		(7	)
Total long-term marketable securities	$	42,167	$	42,226	$	2	$	(61	)
Total available-for-sale securities	$	84,767	$	84,854	$	3	$	(90	)
Total marketable securities	$	83,267

As of December 31, 2015, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Short-term marketable securities:
State and municipal bonds	$	33,914	$	33,923	$	—	$	(9	)
Treasuries and government agencies		1,498		1,500		—		(2	)
Total short-term marketable securities	$	35,412	$	35,423	$	—	$	(11	)
Long-term marketable securities:
State and municipal bonds	$	25,872	$	25,916	$	1	$	(45	)
Treasuries and government agencies		12,889		12,914		—		(25	)
Total long-term marketable securities	$	38,761	$	38,830	$	1	$	(70	)
Total available-for-sale securities	$	74,173	$	74,253	$	1	$	(81	)
Total marketable securities	$	74,173

As of September 30, 2016, Cynosure’s available-for-sale debt securities mature as follows (in thousands):

	Total		Maturities
			Less Than One Year		One to Five Years		More than Five Years
State and municipal bonds	$	54,536	$	32,044	$	22,492	$	—
Treasuries and government agencies		30,231		10,556		19,675		—
Total available-for-sale debt securities	$	84,767	$	42,600	$	42,167	$	—

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Note 6 — Goodwill and Other Intangible Assets

Changes to goodwill during the nine months ended September 30, 2016 were as follows (in thousands):

Balance — December 31, 2015	$	105,807
Translation adjustment		58
Balance — September 30, 2016	$	105,865

Other intangible assets consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	Developed Technology & Patents			Business Licenses			Customer Relationships			Trade Names			Other			Total
September 30, 2016
Cost	$	28,541		$	384		$	16,459		$	18,370		$	1,353		$	65,107
Translation adjustment		—			—			(32	)		—			—		$	(32	)
Accumulated amortization		(17,719	)		(242	)		(5,763	)	$	(3,179	)	$	(313	)	$	(27,216	)
Balance, September 30, 2016	$	10,822		$	142		$	10,664		$	15,191		$	1,040		$	37,859
December 31, 2015
Cost	$	29,240		$	384		$	19,718		$	18,390		$	1,353		$	69,085
Translation adjustment		—			—			(42	)		—			—			(42	)
Accumulated amortization		(14,055	)		(232	)		(7,799	)		(2,518	)		(122	)		(24,726	)
Balance, December 31, 2015	$	15,185		$	152		$	11,877		$	15,872		$	1,231		$	44,317

Amortization expense related to developed technology and patents is classified as a component of cost of revenues. Amortization expense related to customer relationships and trade names is classified as a component of amortization of intangible assets acquired. Amortization expense related to business licenses and other is classified as a component of general and administrative expenses.

Amortization expense for the three months ended September 30, 2016 and 2015 was $2.2 million and $2.3 million, respectively. Amortization expense for the nine months ended September 30, 2016 and 2015 was $6.5 million and $6.9 million, respectively. Cynosure has approximately $56,000 of indefinite-life intangible assets that are included in other intangible assets in the table above. As of September 30, 2016, amortization expense on existing intangible assets for the next five years and beyond is as follows (in thousands):

Remainder of 2016	$	2,152
2017		6,624
2018		5,108
2019		3,373
2020		2,923
2021 and thereafter		17,623
Total	$	37,803

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Warranty Costs

9 Months Ended

Sep. 30, 2016

Guarantees [Abstract]

Warranty Costs

Note 7 — Warranty Costs

Cynosure typically provides a one-year system and labor warranty on end-user sales of systems. Distributor sales of systems generally include a one-year warranty on systems only. These one-year warranty obligations are limited, in their exclusive options, to repair or replace parts and materials which prove to be defective, and do not contain any service performance obligations. Estimated future costs for initial product warranties are provided for at the time of revenue recognition and recorded as cost of revenues within Cynosure’s consolidated statement of operations. The following table provides the detail of the change in Cynosure’s product warranty accrual during the nine months ended September 30, 2016, which is a component of accrued expenses in the consolidated balance sheets (in thousands):

Balance — December 31, 2015	$	8,841
Warranty provision related to new sales		13,878
Costs incurred		(12,332	)
Balance — September 30, 2016	$	10,387

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Segment Information

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Segment Information

Note 8 — Segment Information

In accordance with Accounting Standards Codification (ASC) 280, Segment Reporting Topic, operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. Cynosure’s chief operating decision maker, as defined under ASC 280, is a combination of the Chief Executive Officer and the Chief Financial Officer. Cynosure views its operations and manages its business as one segment, aesthetic treatment products and services.

The following table represents total revenue by geographic area:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)
United States	$	67,434	$	47,341	$	204,239	$	136,988
Europe		8,785		8,470		28,679		29,572
Asia / Pacific		22,613		16,217		59,568		51,175
Other		7,554		6,386		18,907		19,285
Total	$	106,386	$	78,414	$	311,393	$	237,020

Total assets by geographic area are as follows:

	September 30, 2016			December 31, 2015
	(in thousands)
United States	$	533,402		$	497,007
Europe		21,643			22,204
Asia / Pacific		25,530			21,139
Eliminations		(6,514	)		(5,740	)
Total	$	574,061		$	534,610

Long-lived assets (property and equipment only) by geographic area are as follows:

	September 30, 2016		December 31, 2015
	(in thousands)
United States	$	40,378	$	35,185
Europe		1,812		1,641
Asia / Pacific		3,668		2,880
Total	$	45,858	$	39,706

No individual country within Europe or Asia/Pacific represented greater than 10% of total revenue, total assets or long-lived assets for any period presented.

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Net Income Per Common Share

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Net Income Per Common Share

Note 9 — Net Income Per Common Share

Basic net income per share is determined by dividing net income by the weighted average common shares outstanding during the period. Diluted net income per share is determined by dividing net income by the diluted weighted average shares outstanding during the period. Diluted weighted average shares reflect the dilutive effect, if any, of common stock options and restricted stock units based on the treasury stock method.

A reconciliation of basic and diluted shares is as follows (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Net income	$	4,163	$	3,229	$	13,350	$	8,579
Basic weighted average common shares outstanding		23,536		22,580		23,195		22,167
Weighted average common equivalent shares		409		300		412		372
Diluted weighted average common shares outstanding		23,945		22,880		23,607		22,539
Basic net income per share	$	0.18	$	0.14	$	0.58	$	0.39
Diluted net income per share	$	0.17	$	0.14	$	0.57	$	0.38

For the three and nine months ended September 30, 2016, approximately 3,000 and 93,000 shares of Cynosure’s Class A common stock issuable pursuant to stock options, respectively, were excluded from the calculation of diluted weighted average shares outstanding as their effect was antidilutive.

For the three and nine months ended September 30, 2015, approximately 0.5 million and 1.1 million shares of Cynosure’s Class A common stock issuable pursuant to stock options, respectively, were excluded from the calculation of diluted weighted average shares outstanding as their effect was antidilutive.

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Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Accumulated Other Comprehensive Loss

Note 10 — Accumulated Other Comprehensive Loss

Changes to accumulated other comprehensive loss during the nine months ended September 30, 2016 were as follows (in thousands):

	Unrealized Loss on Marketable Securities, net of taxes			Translation Adjustment			Accumulated Other Comprehensive Loss
Balance — December 31, 2015	$	(49	)	$	(5,411	)	$	(5,460	)
Current period other comprehensive gain		(7	)		404			397
Balance — September 30, 2016	$	(56	)	$	(5,007	)	$	(5,063	)

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Note 11 — Income Taxes

During the three and nine months ended September 30, 2016, Cynosure recorded an income tax provision of $3.9 million and $9.2 million, respectively, representing an effective tax rate of 48% and 41%, respectively. The income tax provision for the three and nine months ended September 30, 2016 was primarily attributable to applying Cynosure’s estimated annual effective tax rate to its year-to-date consolidated income before provision for income taxes. For the nine months ended September 30, 2016, the tax provision includes a $0.5 million discrete tax provision related to the impact of tax law changes enacted during the period, certain foreign audit settlements, and a provision to return differences. Other factors resulting in differences between the U.S. federal statutory tax rate and the effective tax rate include the jurisdictional mix of worldwide earnings, non-deductible expenses, the domestic manufacturing deduction, and federal research credits.

During the three and nine months ended September 30, 2015, Cynosure recorded an income tax provision of $1.0 million and $3.3 million, respectively, representing an effective tax rate of 23% and 28%, respectively. The income tax provision for the three and nine months ended September 30, 2015 was primarily attributable to applying Cynosure’s estimated annual effective tax rate to its year-to-date consolidated income before provision for income taxes. The estimated annual effective tax rate was favorably impacted by the jurisdictional mix of worldwide earnings and the domestic manufacturing deduction, and unfavorably impacted by non-deductible expenses. The difference between the U.S. federal statutory tax rate and the effective tax rate was primarily attributable to a discrete tax benefit of $0.5 million for the release of the valuation allowance previously maintained against the net deferred tax assets of Palomar Japan K.K. that was recorded in the second quarter of 2015, as well as a discrete tax benefit of $0.5 million that was principally due to an increase in 2014 federal and state research credits that was recorded in the third quarter of 2015.

At September 30, 2016 and December 31, 2015, Cynosure had gross tax-effected unrecognized tax benefits of $0.8 million of which the entire amount, if recognized, would favorably impact the effective tax rate. Cynosure classifies interest and penalties related to income taxes as a component of its provision for income taxes. Cynosure does not expect any material changes in the amounts of unrecognized tax benefits over the next 12 months.

Cynosure files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. Cynosure is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2013. With few exceptions, Cynosure is no longer subject to U.S. state tax examinations for years before 2012. Additionally, certain non-U.S. jurisdictions are no longer subject to income tax examinations by tax authorities for years before 2011.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 12 — Commitments and Contingencies

Lease Commitments

Cynosure leases the land portion of its U.S. operating facility and certain foreign facilities under non-cancellable operating lease agreements expiring through May 2027. These leases are non-cancellable and typically contain renewal options. Certain leases contain rent escalation clauses for which Cynosure recognizes the expense on a straight-line basis. Rent expense for the three and nine months ended September 30, 2016 was approximately $0.6 million and $1.6 million, respectively. Rent expense for the three and nine months ended September 30, 2015 was approximately $0.5 million and $1.5 million, respectively.

Cynosure leases the buildings portion of its U.S. operating facility and certain equipment and vehicles under capital lease agreements with payments due through May 2027. Commitments under Cynosure’s lease arrangements are as follows as of September 30, 2016 (in thousands):

	Operating Leases		Capital Leases
Remainder of 2016	$	593	$	716
2017		2,070		2,837
2018		1,760		2,732
2019		1,453		2,662
2020		594		2,643
Thereafter		2,248		18,348
Total minimum lease payments	$	8,718	$	29,938
Less amount representing interest				(12,006	)
Present value of obligations under capital leases			$	17,932
Current portion of capital lease obligations				958
Capital lease obligations, net of current portion			$	16,974

In April and June 2016, Cynosure executed amendments to its U.S. operating facility lease, and these amendments became effective in October 2016. These amendments, among other things, extend the lease period for an additional year, provide additional rental space and require additional base rent of $5.7 million over the remaining life of the lease.

Contractual Obligations

Cynosure’s significant outstanding contractual obligations relate to its capital leases from its facilities leases, including the buildings portion of its U.S. operating facility, and equipment financings. Cynosure’s leases are non-cancellable and typically contain renewal options. Certain leases contain rent escalation clauses for which Cynosure recognizes the expense on a straight-line basis. Cynosure has summarized in the table below its fixed contractual cash obligations as of September 30, 2016.

	Total		Less Than One Year		One to Three Years		Three to Five Years		More than Five Years
	(in thousands)
Capital lease obligations, including interest	$	29,938	$	2,845	$	5,437	$	5,363	$	16,293
Operating leases		8,718		2,144		3,368		1,209		1,997
Total contractual obligations	$	38,656	$	4,989	$	8,805	$	6,572	$	18,290

Contingencies

Cynosure continually assesses litigation to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss, which could be estimated. In accordance with the Financial Accounting Standards Board’s (FASB) guidance on accounting for contingencies, Cynosure accrues for all direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely, Cynosure accrues the minimum amount of the range. In cases where Cynosure believes that a reasonably possible loss exists, Cynosure discloses the facts and circumstances of the litigation, including an estimable range, if possible.

On July 27, 2016, ARcare, Inc., individually and as putative representative of a purported nationwide class, filed a complaint against Cynosure in the U.S. District Court for the District of Massachusetts. The plaintiff alleges that Cynosure violated the federal Telephone Consumer Protection Act (TCPA) by sending fax advertisements that did not comply with statutory and Federal Communications Commission (FCC) requirements that senders provide recipients with certain information about how to opt out from receiving faxed advertisements in the future, and by sending unsolicited fax advertisements. The complaint seeks damages, declaratory and injunctive relief, and attorneys’ fees on behalf of a purported class of all recipients of purported fax advertisements that the plaintiff alleges did not receive an adequate opt-out notice. The TCPA provides for statutory damages of $500 per violation and gives courts the discretion to increase that amount up to $1,500 for knowing and willful violations. On September 30, 2016, Cynosure answered the complaint and denied liability. On September 7, 2016, the plaintiff sent a demand letter seeking a class settlement for statutory damages under Massachusetts General Laws, Chapter 93A § 9, and on October 7, 2016, Cynosure responded denying any liability under Chapter 93A, but offering the plaintiff statutory damages under Chapter 93A on an individual basis. To date, the plaintiff has not moved to amend the complaint to assert a claim under Chapter 93A. Cynosure and the plaintiff have agreed to explore a possible class settlement of the litigation in a mediation to be held in late 2016, and on October 12, 2016, the court stayed the case until January 11, 2017 to allow the parties to mediate without litigation. Based on preliminary estimates, Cynosure believes the aggregate number of faxes sent in the four years prior to the lawsuit to be approximately 835,000.

Cynosure has not recorded a liability in respect of this matter, and at this time it cannot estimate the possible loss or range of losses that it may incur in respect of this matter. Cynosure is unable to make such an estimate because, among other reasons, the proceedings are at an early stage and other reported TCPA lawsuits have resulted in a broad range of outcomes, with each case being dependent on its own facts and circumstances. In addition, Cynosure believes that the outcome of litigation currently pending before the U.S. Court of Appeals for the D.C. Circuit (Bais Yaakov of Spring Valley, et al. v. FCC) may have a significant impact on the outcome of this matter. In that case, the outcome of which Cynosure cannot predict, other companies are challenging the validity of an FCC regulation that requires certain opt out information to be included in fax promotions sent to recipients who had given permission to receive them. Cynosure has also applied to the FCC for a retroactive waiver from that requirement, which if approved, would exempt Cynosure from that requirement through April 30, 2015. The FCC’s ability to issue such waivers is also before the U.S. Court of Appeals for the D.C. Circuit in the Bais Yaakov matter, and in any event there can be no assurance that Cynosure’s application will be granted.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Note 13 — Recent Accounting Pronouncements

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in ASC 605, Revenue Recognition. This new revenue standard creates a single source of revenue guidance for all companies in all industries and is more principles-based than the current revenue guidance. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. ASC 606 was originally scheduled to be effective for interim and annual periods beginning after December 15, 2016. In August 2015, the FASB deferred the effective date for ASC 606. The standard will be effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Cynosure is currently evaluating the impact of the provisions of ASC 606.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern, which requires management of public and private companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Cynosure has concluded that if this standard had been adopted as of September 30, 2016, substantial doubt about its ability to continue as a going concern does not exist.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. The guidance will be effective for public business entities for fiscal years beginning after December 15, 2016. Cynosure is currently evaluating the impact of the provisions of ASU 2015-11.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. Cynosure elected to early adopt ASU 2015-17 retrospectively in the fourth quarter of 2015. As a result, the Company has presented all deferred tax assets and liabilities as net noncurrent assets in its consolidated balance sheets as of September 30, 2016 and December 31, 2015.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. Cynosure is currently evaluating the impact of this new standard on its consolidated financial statements.

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Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition — Revenue from Contracts with Customers, which amends the guidance in ASC 605, Revenue Recognition. This new revenue standard creates a single source of revenue guidance for all companies in all industries and is more principles-based than the current revenue guidance. The new guidance must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach. ASC 606 was originally scheduled to be effective for interim and annual periods beginning after December 15, 2016. In August 2015, the FASB deferred the effective date for ASC 606. The standard will be effective for public entities for interim and annual reporting periods beginning after December 15, 2017. Cynosure is currently evaluating the impact of the provisions of ASC 606.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern, which requires management of public and private companies to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The new standard is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. Cynosure has concluded that if this standard had been adopted as of September 30, 2016, substantial doubt about its ability to continue as a going concern does not exist.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by replacing the lower of cost or market test with a lower of cost and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. The guidance will be effective for public business entities for fiscal years beginning after December 15, 2016. Cynosure is currently evaluating the impact of the provisions of ASU 2015-11.

In November 2015, the FASB issued ASU 2015-17, Income Taxes: Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. Cynosure elected to early adopt ASU 2015-17 retrospectively in the fourth quarter of 2015. As a result, the Company has presented all deferred tax assets and liabilities as net noncurrent assets in its consolidated balance sheets as of September 30, 2016 and December 31, 2015.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. Cynosure is currently evaluating the impact of this new standard on its consolidated financial statements.

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of Stock-Based Compensation Expenses

Total stock-based compensation expense was recorded to cost of revenues and operating expenses based upon the functional responsibilities of the individual holding the respective share-based payments, as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)
Cost of revenues	$	118	$	96	$	351	$	244
Sales and marketing		663		541		1,944		1,511
Research and development		356		308		1,070		857
General and administrative		1,215		1,004		3,643		3,071
Total stock-based compensation expense	$	2,352	$	1,949	$	7,008	$	5,683

Summary of Share-Based Compensation Arrangement Fair Value Assumptions

The weighted average fair value of the options granted during the nine months ended September 30, 2015 was $12.40, using the following assumptions:

	Nine Months Ended September 30, 2015
Risk-free interest rate	1.39% - 1.72%
Expected dividend yield	—
Expected term	4.8 years
Expected volatility	42% - 43%
Estimated forfeiture rate	5%

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Inventories (Tables)

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventories

Cynosure states all inventories at the lower of cost or market, determined on a first-in, first-out method. Inventory includes material, labor and overhead and consists of the following:

	September 30, 2016		December 31, 2015
	(in thousands)
Raw materials	$	19,559	$	22,569
Work in process		2,360		3,317
Finished goods		62,007		53,882
	$	83,926	$	79,768

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Fair Value (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Measurement of Fair Value Hierarchy for Financial Assets

The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of September 30, 2016 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	5,690	$	—	$	—	$	5,690
Treasuries and government agencies (2)		—		30,231		—		30,231
State and municipal bonds		—		54,536		—		54,536
Total	$	5,690	$	84,767	$	—	$	90,457

The following table represents Cynosure’s fair value hierarchy for its financial assets (cash equivalents and marketable securities) measured at fair value as of December 31, 2015 (in thousands):

	Level 1		Level 2		Level 3		Total
Money market funds (1)	$	5,785	$	—	$	—	$	5,785
State and municipal bonds		—		59,786		—		59,786
Treasuries and government agencies		—		14,387		—		14,387
Total	$	5,785	$	74,173	$	—	$	79,958

(1) Included in cash and cash equivalents at September 30, 2016 and December 31, 2015, as applicable.

(2) $1.5 million included in cash and cash equivalents at September 30, 2016.

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Short and Long-Term Marketable Securities (Tables)

9 Months Ended

Sep. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Schedule of Marketable Securities

As of September 30, 2016, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Cash equivalents:
Treasuries and government agencies	$	1,500	$	1,500	$	—	$	—
Total cash equivalents	$	1,500	$	1,500	$	—	$	—
Short-term marketable securities:
State and municipal bonds	$	32,044	$	32,072	$	—	$	(28	)
Treasuries and government agencies		9,056		9,056		1		(1	)
Total short-term marketable securities	$	41,100	$	41,128	$	1	$	(29	)
Long-term marketable securities:
State and municipal bonds	$	22,492	$	22,546	$	—	$	(54	)
Treasuries and government agencies		19,675		19,680		2		(7	)
Total long-term marketable securities	$	42,167	$	42,226	$	2	$	(61	)
Total available-for-sale securities	$	84,767	$	84,854	$	3	$	(90	)
Total marketable securities	$	83,267

As of December 31, 2015, Cynosure’s marketable securities consist of the following (in thousands):

	Market Value		Amortized Cost		Unrealized Gains		Unrealized Losses
Available-for-Sale Securities:
Short-term marketable securities:
State and municipal bonds	$	33,914	$	33,923	$	—	$	(9	)
Treasuries and government agencies		1,498		1,500		—		(2	)
Total short-term marketable securities	$	35,412	$	35,423	$	—	$	(11	)
Long-term marketable securities:
State and municipal bonds	$	25,872	$	25,916	$	1	$	(45	)
Treasuries and government agencies		12,889		12,914		—		(25	)
Total long-term marketable securities	$	38,761	$	38,830	$	1	$	(70	)
Total available-for-sale securities	$	74,173	$	74,253	$	1	$	(81	)
Total marketable securities	$	74,173

Schedule of Available-for-Sale Debt Securities Mature

As of September 30, 2016, Cynosure’s available-for-sale debt securities mature as follows (in thousands):

	Total		Maturities
			Less Than One Year		One to Five Years		More than Five Years
State and municipal bonds	$	54,536	$	32,044	$	22,492	$	—
Treasuries and government agencies		30,231		10,556		19,675		—
Total available-for-sale debt securities	$	84,767	$	42,600	$	42,167	$	—

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Changes to Goodwill

Changes to goodwill during the nine months ended September 30, 2016 were as follows (in thousands):

Balance — December 31, 2015	$	105,807
Translation adjustment		58
Balance — September 30, 2016	$	105,865

Schedule of Components of Other Intangible Assets

Other intangible assets consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	Developed Technology & Patents			Business Licenses			Customer Relationships			Trade Names			Other			Total
September 30, 2016
Cost	$	28,541		$	384		$	16,459		$	18,370		$	1,353		$	65,107
Translation adjustment		—			—			(32	)		—			—		$	(32	)
Accumulated amortization		(17,719	)		(242	)		(5,763	)	$	(3,179	)	$	(313	)	$	(27,216	)
Balance, September 30, 2016	$	10,822		$	142		$	10,664		$	15,191		$	1,040		$	37,859
December 31, 2015
Cost	$	29,240		$	384		$	19,718		$	18,390		$	1,353		$	69,085
Translation adjustment		—			—			(42	)		—			—			(42	)
Accumulated amortization		(14,055	)		(232	)		(7,799	)		(2,518	)		(122	)		(24,726	)
Balance, December 31, 2015	$	15,185		$	152		$	11,877		$	15,872		$	1,231		$	44,317

Schedule of Amortization Expenses on Intangible Assets

As of September 30, 2016, amortization expense on existing intangible assets for the next five years and beyond is as follows (in thousands):

Remainder of 2016	$	2,152
2017		6,624
2018		5,108
2019		3,373
2020		2,923
2021 and thereafter		17,623
Total	$	37,803

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Warranty Costs (Tables)

9 Months Ended

Sep. 30, 2016

Guarantees [Abstract]

Schedule of Change in Product Warranty Accrual

The following table provides the detail of the change in Cynosure’s product warranty accrual during the nine months ended September 30, 2016, which is a component of accrued expenses in the consolidated balance sheets (in thousands):

Balance — December 31, 2015	$	8,841
Warranty provision related to new sales		13,878
Costs incurred		(12,332	)
Balance — September 30, 2016	$	10,387

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Schedule of Total Revenue by Geographic Area

The following table represents total revenue by geographic area:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
	(in thousands)
United States	$	67,434	$	47,341	$	204,239	$	136,988
Europe		8,785		8,470		28,679		29,572
Asia / Pacific		22,613		16,217		59,568		51,175
Other		7,554		6,386		18,907		19,285
Total	$	106,386	$	78,414	$	311,393	$	237,020

Schedule of Total Assets by Geographic Area

Total assets by geographic area are as follows:

	September 30, 2016			December 31, 2015
	(in thousands)
United States	$	533,402		$	497,007
Europe		21,643			22,204
Asia / Pacific		25,530			21,139
Eliminations		(6,514	)		(5,740	)
Total	$	574,061		$	534,610

Schedule of Long-Lived Assets (Property and Equipment Only) by Geographic Area

Long-lived assets (property and equipment only) by geographic area are as follows:

	September 30, 2016		December 31, 2015
	(in thousands)
United States	$	40,378	$	35,185
Europe		1,812		1,641
Asia / Pacific		3,668		2,880
Total	$	45,858	$	39,706

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Net Income Per Common Share (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Schedule of Reconciliation of Basic and Diluted Shares

A reconciliation of basic and diluted shares is as follows (in thousands, except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Net income	$	4,163	$	3,229	$	13,350	$	8,579
Basic weighted average common shares outstanding		23,536		22,580		23,195		22,167
Weighted average common equivalent shares		409		300		412		372
Diluted weighted average common shares outstanding		23,945		22,880		23,607		22,539
Basic net income per share	$	0.18	$	0.14	$	0.58	$	0.39
Diluted net income per share	$	0.17	$	0.14	$	0.57	$	0.38

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Changes to Accumulated Other Comprehensive Loss

Changes to accumulated other comprehensive loss during the nine months ended September 30, 2016 were as follows (in thousands):

	Unrealized Loss on Marketable Securities, net of taxes			Translation Adjustment			Accumulated Other Comprehensive Loss
Balance — December 31, 2015	$	(49	)	$	(5,411	)	$	(5,460	)
Current period other comprehensive gain		(7	)		404			397
Balance — September 30, 2016	$	(56	)	$	(5,007	)	$	(5,063	)

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Operating Facility, Certain Equipment and Vehicles Under Operating Lease and Capital Lease Agreements with Payments

Commitments under Cynosure’s lease arrangements are as follows as of September 30, 2016 (in thousands):

	Operating Leases		Capital Leases
Remainder of 2016	$	593	$	716
2017		2,070		2,837
2018		1,760		2,732
2019		1,453		2,662
2020		594		2,643
Thereafter		2,248		18,348
Total minimum lease payments	$	8,718	$	29,938
Less amount representing interest				(12,006	)
Present value of obligations under capital leases			$	17,932
Current portion of capital lease obligations				958
Capital lease obligations, net of current portion			$	16,974

Summary of Fixed Contractual Cash Obligations

Cynosure has summarized in the table below its fixed contractual cash obligations as of September 30, 2016.

	Total		Less Than One Year		One to Three Years		Three to Five Years		More than Five Years
	(in thousands)
Capital lease obligations, including interest	$	29,938	$	2,845	$	5,437	$	5,363	$	16,293
Operating leases		8,718		2,144		3,368		1,209		1,997
Total contractual obligations	$	38,656	$	4,989	$	8,805	$	6,572	$	18,290

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Stock-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 2,352	$ 1,949	$ 7,008	$ 5,683
Stock-based compensation expense capitalized to inventory			31	29
Cash received from option exercises			$ 22,800	$ 17,700
Stock options granted			0	452,499
Weighted average fair value of the options granted				$ 12.40
Cash dividend yield			0.00%
Restricted Stock Units (RSUs) [Member] | Employee [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted stock units			158,613	86,618
Vested period			3 years
Share based compensation period			3 years
Restricted Stock Units (RSUs) [Member] | Non Employee [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted stock units			25,425	16,685
Vested period			1 year
Share based compensation period			1 year
Performance-based Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted stock units			58,981
Vested period			3 years

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Stock-Based Compensation - Summary of Stock-Based Compensation Expenses (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	$ 2,352	$ 1,949	$ 7,008	$ 5,683
Cost of Revenues [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	118	96	351	244
Sales and Marketing [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	663	541	1,944	1,511
Research and Development [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	356	308	1,070	857
General and Administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total stock-based compensation expense	$ 1,215	$ 1,004	$ 3,643	$ 3,071

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Stock-Based Compensation - Summary of Share-Based Compensation Arrangement Fair Value Assumptions (Detail)	9 Months Ended
	Sep. 30, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Risk-free interest rate, minimum	1.39%
Risk-free interest rate, maximum	1.72%
Expected dividend yield	0.00%
Expected term	4 years 9 months 18 days
Expected volatility, minimum	42.00%
Expected volatility, maximum	43.00%
Estimated forfeiture rate	5.00%

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Inventories - Inventories (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Raw materials	$ 19,559	$ 22,569
Work in process	2,360	3,317
Finished goods	62,007	53,882
Inventories, Total	$ 83,926	$ 79,768

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Fair Value - Measurement of Fair Value Hierarchy for Financial Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	$ 90,457	$ 79,958
Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	5,690	5,785
State and Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	54,536	59,786
Treasuries and Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	30,231	14,387
Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	5,690	5,785
Level 1 [Member] | Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	5,690	5,785
Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	84,767	74,173
Level 2 [Member] | State and Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	54,536	59,786
Level 2 [Member] | Treasuries and Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of financial assets	$ 30,231	$ 14,387

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Fair Value - Measurement of Fair Value Hierarchy for Financial Assets (Parenthetical) (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 90,457	$ 79,958
Treasuries and Government Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	30,231	$ 14,387
Treasuries and Government Agencies [Member] | Cash and Cash Equivalents [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	$ 1,500

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Short and Long-Term Marketable Securities - Additional Information (Detail) $ in Thousands	Sep. 30, 2016 USD ($)
Investments, Debt and Equity Securities [Abstract]
Available for sale securities in debt	$ 84,767

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Short and Long-Term Marketable Securities - Schedule of Marketable Securities (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Market Value	$ 84,767	$ 74,173
Amortized Cost	84,854	74,253
Unrealized Gains	3	1
Unrealized Losses	(90)	(81)
Total marketable securities	83,267	74,173
Cash Equivalents [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	1,500
Amortized Cost	1,500
Cash Equivalents [Member] | Treasuries and Government Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	1,500
Amortized Cost	1,500
Short-Term Marketable Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	41,100	35,412
Amortized Cost	41,128	35,423
Unrealized Gains	1
Unrealized Losses	(29)	(11)
Short-Term Marketable Securities [Member] | State and Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	32,044	33,914
Amortized Cost	32,072	33,923
Unrealized Losses	(28)	(9)
Short-Term Marketable Securities [Member] | Treasuries and Government Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	9,056	1,498
Amortized Cost	9,056	1,500
Unrealized Gains	1
Unrealized Losses	(1)	(2)
Long-Term Marketable Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	42,167	38,761
Amortized Cost	42,226	38,830
Unrealized Gains	2	1
Unrealized Losses	(61)	(70)
Long-Term Marketable Securities [Member] | State and Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	22,492	25,872
Amortized Cost	22,546	25,916
Unrealized Gains		1
Unrealized Losses	(54)	(45)
Long-Term Marketable Securities [Member] | Treasuries and Government Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Market Value	19,675	12,889
Amortized Cost	19,680	12,914
Unrealized Gains	2
Unrealized Losses	$ (7)	$ (25)

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Short and Long-Term Marketable Securities - Schedule of Available-for-Sale Debt Securities Mature (Detail) $ in Thousands	Sep. 30, 2016 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Total	$ 84,767
Less Than One Year	42,600
One to Five Years	42,167
More than Five Years	0
State and Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Total	54,536
Less Than One Year	32,044
One to Five Years	22,492
More than Five Years	0
Treasuries and Government Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Total	30,231
Less Than One Year	10,556
One to Five Years	19,675
More than Five Years	$ 0

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Goodwill and Other Intangible Assets - Schedule of Changes to Goodwill (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Balance - December 31, 2015	$ 105,807
Translation adjustment	58
Balance - September 30, 2016	$ 105,865

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Goodwill and Other Intangible Assets - Schedule of Components of Other Intangible Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Cost	$ 65,107	$ 69,085
Translation adjustment	(32)	(42)
Accumulated amortization	(27,216)	(24,726)
Other intangible assets, net	37,859	44,317
Developed Technology & Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	28,541	29,240
Accumulated amortization	(17,719)	(14,055)
Other intangible assets, net	10,822	15,185
Business Licenses [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	384	384
Accumulated amortization	(242)	(232)
Other intangible assets, net	142	152
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	16,459	19,718
Translation adjustment	(32)	(42)
Accumulated amortization	(5,763)	(7,799)
Other intangible assets, net	10,664	11,877
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	18,370	18,390
Accumulated amortization	(3,179)	(2,518)
Other intangible assets, net	15,191	15,872
Other [Member]
Finite-Lived Intangible Assets [Line Items]
Cost	1,353	1,353
Accumulated amortization	(313)	(122)
Other intangible assets, net	$ 1,040	$ 1,231

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Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 2,200,000	$ 2,300,000	$ 6,500,000	$ 6,900,000
Indefinite-life intangible assets	$ 56,000		$ 56,000

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Goodwill and Other Intangible Assets - Schedule of Amortization Expenses on Intangible Assets (Detail) $ in Thousands	Sep. 30, 2016 USD ($)
Finite-Lived Intangible Assets, Amortization Expense, Maturity Schedule [Abstract]
Remainder of 2016	$ 2,152
2017	6,624
2018	5,108
2019	3,373
2020	2,923
2021 and thereafter	17,623
Total	$ 37,803

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Warranty Costs - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2016
Guarantees [Abstract]
Standard product warranty period	1 year

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Warranty Costs - Schedule of Change in Product Warranty Accrual (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Guarantees [Abstract]
Balance at beginning of period	$ 8,841
Warranty provision related to new sales	13,878
Costs incurred	(12,332)
Balance at end of period	$ 10,387

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Segment Information - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2016 Segment Country
Segment Reporting [Abstract]
Number of operating segments | Segment	1
Number of individual countries with greater than 10% of total revenue, total assets or total long lived assets | Country	0
Percentage of total revenue	10.00%

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Segment Information - Schedule of Total Revenue by Geographic Area (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 106,386	$ 78,414	$ 311,393	$ 237,020
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	67,434	47,341	204,239	136,988
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	8,785	8,470	28,679	29,572
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	22,613	16,217	59,568	51,175
Other [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total revenue	$ 7,554	$ 6,386	$ 18,907	$ 19,285

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Segment Information - Schedule of Total Assets by Geographic Area (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Total assets	$ 574,061	$ 534,610
Reportable Geographical Components [Member] | United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total assets	533,402	497,007
Reportable Geographical Components [Member] | Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total assets	21,643	22,204
Reportable Geographical Components [Member] | Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total assets	25,530	21,139
Eliminations [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Total assets	$ (6,514)	$ (5,740)

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Segment Information - Schedule of Long-Lived Assets (Property and Equipment Only) by Geographic Area (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 45,858	$ 39,706
United States [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	40,378	35,185
Europe [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	1,812	1,641
Asia Pacific [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets	$ 3,668	$ 2,880

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Net Income Per Common Share - Schedule of Reconciliation of Basic and Diluted Shares (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Net income	$ 4,163	$ 3,229	$ 13,350	$ 8,579
Basic weighted average common shares outstanding	23,536	22,580	23,195	22,167
Weighted average common equivalent shares	409	300	412	372
Diluted weighted average common shares outstanding	23,945	22,880	23,607	22,539
Basic net income per share	$ 0.18	$ 0.14	$ 0.58	$ 0.39
Diluted net income per share	$ 0.17	$ 0.14	$ 0.57	$ 0.38

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Net Income Per Common Share - Additional Information (Detail) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Stock options excluded from computation of earning per share	3,000	500,000	93,000	1,100,000

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Accumulated Other Comprehensive Loss - Changes to Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance			$ 404,402
Accumulated Other Comprehensive Loss, Current period other comprehensive gain	$ (54)	$ (479)	397	$ (1,562)
Ending Balance	451,214		451,214
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance			(5,460)
Accumulated Other Comprehensive Loss, Current period other comprehensive gain			397
Ending Balance	(5,063)		(5,063)
Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance			(5,411)
Accumulated Other Comprehensive Loss, Current period other comprehensive gain			404
Ending Balance	(5,007)		(5,007)
Unrealized Loss on Marketable Securities, Net of Taxes [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance			(49)
Accumulated Other Comprehensive Loss, Current period other comprehensive gain			(7)
Ending Balance	$ (56)		$ (56)

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Deferred Tax Assets And Liabilities Classification [Line Items]
(Benefit) provision for income taxes	$ 3,867	$ 962		$ 9,210	$ 3,295
Effective tax rate	48.00%	23.00%		41.00%	28.00%
Discrete provision for income taxes				$ 500
Discrete tax benefits related to federal and state research credits		$ 500
Unrecognized tax benefits	$ 800			$ 800		$ 800
Palomar Medical Technologies, Inc. [Member]
Deferred Tax Assets And Liabilities Classification [Line Items]
Discrete tax benefits related to release of valuation allowance			$ 500

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Commitments and Contingencies - Additional Information (Detail)	1 Months Ended		3 Months Ended		9 Months Ended
	Jun. 30, 2016 USD ($)	Apr. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Faxes	Sep. 30, 2015 USD ($)
Loss Contingencies [Line Items]
Operating lease rent expense			$ 600,000	$ 500,000	$ 1,600,000	$ 1,500,000
Operating lease expiration period					2027-05
Additional base rent required under operating lease	$ 5,700,000	$ 5,700,000
Aggregate number of faxes sent in four years prior to the lawsuit | Faxes					835,000
Minimum [Member]
Loss Contingencies [Line Items]
Statutory damages per violation					$ 500
Maximum [Member]
Loss Contingencies [Line Items]
Statutory damages per violation					$ 1,500

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Commitments and Contingencies - Operating Facility, Certain Equipment and Vehicles Under Operating Lease and Capital Lease Agreements with Payments (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
Remainder of 2016	$ 593
2017	2,070
2018	1,760
2019	1,453
2020	594
Thereafter	2,248
Total minimum lease payments	8,718
Remainder of 2016	716
2017	2,837
2018	2,732
2019	2,662
2020	2,643
Thereafter	18,348
Total minimum lease payments	29,938
Less amount representing interest	(12,006)
Present value of obligations under capital leases	17,932
Current portion of capital lease obligations	958	$ 741
Capital lease obligations, net of current portion	$ 16,974	$ 17,372

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Commitments and Contingencies - Summary of Fixed Contractual Cash Obligations (Detail) $ in Thousands	Sep. 30, 2016 USD ($)
Contractual Obligation [Line Items]
Capital lease obligations, including interest	$ 29,938
Operating leases	8,718
Total contractual obligations	38,656
Less Than One Year [Member]
Contractual Obligation [Line Items]
Capital lease obligations, including interest	2,845
Operating leases	2,144
Total contractual obligations	4,989
One To Three Years [Member]
Contractual Obligation [Line Items]
Capital lease obligations, including interest	5,437
Operating leases	3,368
Total contractual obligations	8,805
Three To Five Years [Member]
Contractual Obligation [Line Items]
Capital lease obligations, including interest	5,363
Operating leases	1,209
Total contractual obligations	6,572
More Than Five Years [Member]
Contractual Obligation [Line Items]
Capital lease obligations, including interest	16,293
Operating leases	1,997
Total contractual obligations	$ 18,290