Cutera Inc (CUTR) 2005 Q2 法說會逐字稿

Good afternoon everyone and welcome to the Cutera Second Quarter 2005 Earnings Conference Call.

(Operator Instructions)

The floor will be open for questions following the presentation. It is now my pleasure to turn the conference over to Mr. John Mills of Integrated Corporate Relations. Please go ahead.

Thank you. By now everyone should have access to the second quarter earnings release which went out today approximately 4pm Eastern time. The release is available on the investor relations portion of Cutera's web site at cutera.com and with our Form 8-K filed with the SEC and available on its web site at www.sec.gov

Before we begin, Cutera would like to remind everyone that these prepared remarks contain forward-looking statements including statements related to guidance about future financial performance and that management may make forward-looking statements in response to your questions.

Factors that could cause Cutera's actual result to differ materially from these forward looking statements include its reliance on a limited product line, its ability to effectively develop market and sell future products, unpredictable events and circumstances relating to international operations, deferred regulatory actions, general economic conditions and those other factors described in this section entitled "Risk factors" in its most recent 10-Q and 10-K filed with the Securities and Exchange Commission.

These forward-looking statements do not guarantee future performance and therefore, you should not rely on them in making an investment decision without considering the risk associated with such statements.

Cutera also cautions you to not place undue reliance on forward looking statements especially those relating to guidance on future financial performance which speaks only as of the date they were made.

Cutera undertakes no obligation to update publicly any forward looking statements, to reflect new information, events or circumstances after the date they were made or to reflect the occurrence of unanticipated events.

With that I will turn the call to the Company's president and Chief Executive Officer, Mr. Kevin Connors.

Thank you, John. Good afternoon, everyone and thanks for joining us today to discuss the results for the second quarter and the 6 months ended June 30, 2005.

On today's call, I'll provide an overview of the quarter, current trends. Ron Santilli, our CFO, will provide additional detail on operating and financial results and comment on guidance. We'll then provide some closing comments and open the call to your questions.

We're excited to report such strong second quarter results, which exceeded our expectations. Our revenue jumped 43% and our operating margin improved to 18% as compared to the same period last year. These numbers reflect the strength of our outstanding product portfolio and the markets acceptance of our versatile technology platforms and multi-application systems.

During the second quarter, we posted revenue of $17.6 million and earnings per diluted share of $0.20 significantly ahead of our previous guidance of $16 million in revenue and $0.11 in diluted EPS.

Both domestically and internationally, all of our product lines including our premier flagship CoolGlide Xeo platform, the recently launched Titan application, and Solera platform contributed to strong results while helping us maintain our gross margin at near record levels at 72%.

On an even more exciting note, our operating margin more than doubled to 18% from 8% in the same period last year due primarily to improved leverage in our business model.

I believe our positive results stem from the quality of our product offerings and from the significant investments and infrastructure we have built to support the sales and service of these products.

Research and Development is critical to maintaining a leadership, a leading product portfolio and Cutera excels at not only providing significant innovations but also in providing upgrade paths for our customers. This highly successful strategy has enabled us to create a loyal and growing customer base and a leverage on installed base of customers by offering new value added applications.

The most recent example is our application, the Titan, which is offered as a feature on our mutli-application product line as an upgrade to our entire installed base and as the first single application device in Solera, our new compact platform.

In the end of the second quarter, we introduced another exciting new application for light-based hair removal, the Prowave 770. We believe that this new offering is the most significant innovation in the light-based hair removal in years. It's the first hair removal system that allows practitioners to select the ideal spectrum for each skin type. The innovative design of Prowave 770 allows practitioners to program the Wave One spectrum for optimal performance and safety and is configured to quickly treat large areas like legs and backs.

Practitioner feedback has been extremely positive about the two applications offered on both the CoolGlide Xeo platform and the Solera Opus. To support our new product launches and increase of overall market penetration we've been expanding our sales and marketing efforts worldwide.

In North America, we now have 42 sales territories up from 32 to 6 months ago and 22 in 2003.

We believe our sales force and its support organization are an exceptional industry and our results are reaffirming this point.

In our international markets, on the close of the second quarter, we opened an office in Zurich, Switzerland to serve as our European headquarters.

This facility will provide the infrastructure, sales, marketing, service and financial support for all of our direct sales persons and distributors in Europe, Middle East and in Africa. We are confident about our growth opportunities in this market especially since the new European headquarters will allow us to better serve and support this customer base with physician training facilities and overall quicker customer care response time.

Our upstanding sales force and exciting new products allowed us to increase our market penetration both with the core physician specialties meaning dermatologists and plastic surgeons and the non-core specialties comprised primarily of family and general practitioners and gynecologists. Our sales to the sort of price-sensitive medi-spa continues to increase following the introduction of Solera platform.

We ended the second quarter of 2005 with almost $75 million in cash and marketable investments. We remain focused on strengthening our solid foundation and will make the best use of our cash as we position Cutera as the leader in light-based aesthetics systems.

With that, I'd like to turn the call over to Ron to discuss our financials in more detail.

Thanks Kevin and thanks to all for joining us today for our second quarter results. Second quarter 2005 revenue was $17.6 million, a 43% increase from the $12.3 million reported in the same quarter last year. Net income for the second quarter was $2.7 million or $0.20 per diluted share, compared to $591,000 or $0.05 per diluted share reported in the same period last year.

The second quarter included pre-tax, non-cash, stock-based compensation charges of $302,000 compared to similar charges of $355,000 in the second quarter of 2004. The company's revenue for the first 6 months ended June 30, 2005 was $32.7 million, a 37% increase from $23.8 million recorded in the same period last year.

Net income for the first 6 months was $4.2 million or $0.31 per diluted share, compared to net income of $812,000 or $0.07 per diluted share reported in the same period last year. Included in the first 6 months of 2005 was $729,000 of pre-tax non-cash stock-based compensation charges compared to similar charges of $727,000 in the same period last year.

As Kevin indicated, these outstanding results were driven by strong sales across product lines and geographic markets. Revenue in the U.S. increased $3.3 million or 41% from $8.1 million in Q2 '04 to $11.4 million in Q2 '05. This growth reflects our continuing investments in sales force expansion and a strong demand for our product offering.

International revenue in the second quarter of 2005 increased 47% from the same quarter of 2004 and accounted for 35% of our quarterly revenue. The second quarter was driven by improvements in all international markets. We're continuing to invest in international sales and marketing to ensure that our overseas markets are properly serviced. As Kevin mentioned, we recently opened our European headquarters in Zurich, Switzerland that will become our hub for sales, marketing and service activities throughout greater Europe.

During the second quarter of 2005, we had $14.6 million of product revenue, $1.7 million of upgrade revenue, $860,000 in service revenue and $405,000 from Titan resales. Each category represents significant growth from second quarter of 2004 levels.

As you may know, there is a recurring revenue stream with our Titan products as the hand pieces require periodic refilling process. We will be breaking this part of our revenue outgoing forward as we believe it is important for you to understand that recurring revenue stream and strong demands for these products.

We are very pleased with this level of refill or annuity business in this very early stage of product release. We expect this refill revenue to increase over the next two quarters.

During the quarter we continue to increase our market penetration with sales to new customers and upgrade to existing customers. While our premium multi-application CoolGlide Xeo products remain our flagship product, our Solera platform is continuing to gain market acceptance. Our product revenue increased by 37% from $10.7 million in Q2 2004 to $14.6 million in Q2 '05.

In addition, upgrade revenue and service revenue were very strong as we continue to leverage on cell base, by adding new applications and servicing their existing products.

When comparing the second quarter of 2005 to 2004, our service revenue increased by 34% from $641,000 to $860,000, and our upgrade revenue increased 75% from $1 million to $1.7 million.

Our gross profit margin remains strong at 72% for the second quarter of 2005. We expect our margin to continue to be in the 71% to 73% range as demand for our premium, multi-application CoolGlide Xeo product and other high margin products remain strong.

Selling and marketing expenses for the second quarter were $5.8 million or 33% of net sales compared to $4.6 million or 38% of net sales for the second quarter of 2004. We are continuing to build our distribution network and invest in domestic and international expansion and are up to 40 sales positions in North America.

Keep in mind that next quarter we will have the additional expenses of the European headquarters in Zurich. We expect to see our sales and marketing spending in the range of 34% to 36% of revenues during the remainder of the year.

Research and development expenses were $1.3 million or 8% of revenues for the quarter and in line with our plans to invest in the range of 8% to 10% of our revenue as we continue to develop new and innovative products and applications that expand our portfolio of offerings.

General and administrative expenses for the second quarter were $2.1 million, up from $1.9 million for the same period in 2004 and in line with our guidance of $2 million to $2.5 million for the quarter.

Expenses during the quarter for our patent litigation were minimal as the case is moving slowly through the courts. However, we experienced higher than usual accounting service expenses associated with Sarbanes-Oxley implementation. We expect our general administrative expenses to remain within the 2 million to $2.5 million until our patent litigation matter has ended.

Operating income for the second quarter of 2005 was $3.2 million, up from $970,000 in the second quarter of 2004 due primarily to higher revenue, continued strong gross margin and improved leverage on operating expenses. Operating income as a percentage of income in the second quarter of 2005 was 18% compared to 8% in the second quarter of 2004.

Our expected tax rate for the second quarter was 26%, which is lower than we had expected. The decrease in effective tax rate is primarily due to higher tax-exempt interest income and increased deductions from disqualifying dispositions of incentive stock options. For the remainder of 2005, we expect our effective income tax rates to be approximately 30%.

Turning to the balance sheet. As of June 30, 2005, Cutera had approximately $75 million in cash and marketable investments and no debt. Net cash generated from operations was approximately $4.9 million in the second quarter and $6.5 million for the first half of 2005. Our accounts receivable net at the end of the second quarter was $5.9 million compared to $6.6 million at December 31, 2004 and $5.9 million at the end of the first quarter.

We are continuing to improve at the rate at which we collect cash and our accounts receivable which we measure by counting Day Sales Outstanding or DSL. Our DSL's were 30 days for the second quarter of 2005 as compared to 35 days for the first quarter of 2005.

And now to our guidance. For the seasonally softer third quarter of 2005, we are expecting revenue to be approximately $17.5 million with earning per diluted share of approximately $0.13.

For the full year 2005, we are raising revenue guidance to approximately $70 million, up from $67 million to reflect our strong results for the first half of the year.

In addition, we are raising 2005 earnings per diluted share to $0.62 from $0.48 due to the better than expected second quarter results and a strong outlook for the remainder of 2005, including an improved outlook on operating margin.

Now that I have concluded my overview of Cutera's financial performance, I will now turn the call back over to Kevin.

Thanks, Ron. This summer we had an outstanding first half of the year and we are very enthusiastic about our prospects for the remainder of 2005 and beyond.

Our growth strategy has been consistent, our dedication to increasing stockholder value has been unwavering. Our second quarter results and increased guidance for the year are proof of that.

Cutera is a leading player in a growing market. We have proprietary scalable technology platforms that provide high performance and next generation light-based aesthetic solutions. We are gaining traction in the new compact part platform and are continuing to successfully add applications to our upgrade path. Our product pipeline is strong which is demonstrated with the recent addition of the ProWave 770.

We are confident hat our proven business model, steady pace of innovation and strong financial foundation will enable us to invest in both research and development and sales and marketing to meet the growing market demand and increase our stockholder value.

Now, I would like to open up the call for your questions.

Operator?

(Operator Instructions)

Thank you, and we will take our first question from Tom Gunderson with Piper Jaffray.

Hi, Good afternoon,

Good afternoon, Tom

Hi, Tom

Kevin could you comment a little bit about what your feeling is going on out there in the market? Your public competitors that have reported so far at least have also reported good quarters and it just feels like there is this uplift, that is accelerating in the market. You care to add any comments as to the size of that uplift and the sustainability in what you are seeing now?

Well, we share your view, Tom. I think the overall market dynamics remain strong and I think that the fact that we are seeing tremendous traction in our business outside of our core specialties, where we are tapping onto much larger physician groups. A part like 2/3rds of our business comes from outside of Durham's and Plastics and this part of the market is really embracing these procedures. I think we share the same views that the overall market is solid and we are seeing continued strength and we are happy to have competitors that are also experiencing growth in this business.

And slightly underpenetrated or very underpenetrated do you see yourselves adding sales people at the same rate as we go into '06 or '07.

Well we haven't been presented with any data that suggests that we are anything close to having proper representation from where we see this opportunity. So we have grown the domestic sales force about 50% a year since we started the company and we have not seen any drop off in sales productivity. So we continue to aggressively invest in the distribution channel and until we are presented with data to suggest that there is a change in the market, we will continue to do so.

And then, just one quick question on the international, with the Zurich office -- you have made investments in the past in Asia and those have paid off and continue to pay off nicely for you. I would expect the same from Europe, but on that 35% of revenues that are international, can you break that up between Asia and Europe, Middle East and Africa.

I will ask Ron to give you that detail in terms of how the international business stacks up. But we see the opportunity in Asia and the Middle East to be approximately the same size to the opportunity that we are pursuing in Asia.

The difference is that Japan is the single market that is quite large and there really isn't an equivalent market that size in Europe in terms of each country. But with that said, that we are hiring local representation both on the sales side as well as the customer support side to take full advantage of each one of those countries. Ron, maybe you can comment on how the break out between Asia and Europe--

Sure. Also, when I speak, Tom, about Europe and Asia, Europe is really the greater Europe area -- it covers a lot of the middle eastern countries as well. And of course Asia covers all the Pac rim (ph) countries and we saw a nice growth in both of those. Europe grew 42% when comparing Q2 '05 to Q2 '04 and Asia area grew 63% when comparing Q2 '05 to Q2 '04.

And you have greater resources in Asia right now and that is why you are building the Zurich office to tap into maybe increasing that growth in Europe?

That is right, That's right. We are further along in Asia and we have a hub in Tokyo that has been around for a number of years. So yes, we're further along in Asia than we are in Europe and we are hoping to close that gap.

Tom Gunderson; OK, I will get back in queue.

And our next question comes from Phil Nalbone with RBC

Phil Nalbone Hi, guys.

Hi, Phil.

Can we start with the gross margin, Ron. Certainly it is a big improvement year-over-year but down sequentially. We've have seen bigger gross margin quarters recently. Can you kind of remind us what the trends have been over the last couple of quarters.

Sure, let me first mention that the guidance we have given is between 71 and 73%. So at 72% we fall right in the middle of that. I think one of the biggest factors we have is since we have been coming off of near 74% margin in, I think, in the previous quarter is our distributor business which typically has slightly lower gross margins because you don't have as much security expense associated to it. We showed a slight uptick this past quarter from about -- the normal range was about 10% distributor business and this past quarter we were about 13% or 14%. And that caused a little impact in the gross margin rate.

And your guidance continues at 71% to 73%. So that kind of assumes a - pretty much a steady state in terms of the mix of the distributor business or are there other factors going on there.

No. We continue to grow the distributor business as well as our direct business internationally. So it is expected to kind of continue with that sort of level.

OK. Can you give us your current installed base and what that split is between the US and overseas markets?

Yes. It's approximately 2000 units, is about what we have installed and about 2/3rds of that is in the US.

OK. And can you talk a little bit about what the Prowave 770 added during the quarter and in particular to what extent did backlog contribute to the quarter?

We first of all - we don't really disclose any information on backlog and the Prowave handpiece would typically be -- was included with our new product sales as another application that could be sold with the XEO system and there were some upgrades that also would have also been included in our upgrade numbers.

OK. And I just wanted to be clear on this $405,000 contribution from Titan, did you use the term 'refill'?

Yes, that was it - the term we used.

And so that's basically the handpiece?

Right, if you remember on the handpiece itself, there is some sort of a fuel gauge, if you will, that allows you a certain amounts of shots. Once that is emptied out, then it comes back to the factory here and we basically refill that and send it back out.

So, where is the initial sale of the handpiece being recorded, is that in the product or equipment?

That's right, it's in the product. That's right

OK.

Or it could be in the upgrade - if they did a Titan upgrade, it could be in one or the other depending on what the nature of the sale was.

So, you are really going to break out then as a separate item, the turnover?

Yes - that's just the - after the initial handpiece is purchased, they have to come back to have that refilled. And the $405,000 reflects that recurring revenue that will be coming back to us as they need to have it refilled.

OK. One last thing and I will go back into the queue. Can you remind us what the goal is over the next couple of years for the size of the North American direct sales force? How many bodies would you anticipate?

Well, I think the trajectory of doubling every two years is something that we have been successful with in the past and so far we haven't counted anything that would lead us to believe that we should change that strategy.

OK. You are not likely to double forever, I assume. What would seem to be sort of an optimal number in North America, over the next, say, 2 to 3 years?

Well, I think that, what we're challenged with is the fact that in 2000 we were calling on dermatologists and plastic surgeons almost exclusively. In the US, that represents about 18,000 doctors. We're still calling on those physician categories, but now we are calling on OBGYN's, family practice, physicians and GPs and other physician categories.

So in total there is an excess of a 130,000 physicians in the US only. And we are continuing to see mutations even beyond that. So now we are seeing the emergence of med-spas.

So, as long as the target market continues to expand exponentially as it has for us, we will continue to move forward by adding additional direct representation until such point that we think that we haven't reached an optimum level. But we don't think we're anywhere close to that yet.

OK. Thank you very much.

Mark Taylor, Roth Capital Partners

Hi good afternoon. Great quarter.

Thanks, Mark.

Thanks, Mark.

Thanks for taking the call. I'll try to keep it brief here - per question. Just first back on Titan, noticed this nice piece of recurring revenue here -- can you remind me what you sell that hand piece for?

Sure. No.1, there is a handpiece that is sold with machines and that handpiece has a full 10,000 shots in the handpiece, and after which point the customer has to order a replacement handpiece and that price is $3000.

Okay. So $3000 dollars for the replacement, 10, 000 shots and does the 10,000 shots normally treat a hundred patients, is that what I heard?

No. It's probably in the 30 range, but again it's on a per shot basis and so some physicians may elect to use more shots than another, but we think that about 30 procedures is a rough average.

OK. And then what percent, if you mind me asking, what percent of your current installed base has opted for a Titan upgrade?

They're relatively modest.

OK.

A lot of room to go there.

And of this revenue that came through is this - is this recurring revenue back to the, you know, maybe 6 months ago or so when you started your, you know, your test marketing or could this be from just high volume docs who have bought recently and are just moving lots of patients through.

It's both Mark, we're really seeing a broad range of situations, but we have high volume users that are ordering hand pieces more than once a month. We thought that about three months might be average but in terms of how long it takes for a customer to order a replacement, obviously we are monitoring this very closely. But I think we wanted to break it out so that people could get some sense of the adoption of Titan out there.

Excellent. Just last question. I was wandering around the AAD in Chicago and I noticed one of your competitors is selling a system and giving away 3 years of warranty. Do you do anything like that?

We really try not to get into those situations. Obviously, we have to deal with certain competitive issues out there -- we get creative with various programs. But we really have been very focussed on establishing value for our products and I think the market has responded to a multi-application approach that we have taken to business. That's quiet unique, so we have multiple type technologies supported by the CoolGlide Xeo platform. And as a result, we are able to command a premium in the market in terms of our pricing and we try to really sell value when we are presenting our products.

Last question if I may on the international component. Is the Titan selling for a higher price point in Europe than it is here?

In Europe, no, I think not. I think the selling prices can be a little softer there in some markets, but we are certainly getting a premium for our flagship CoolGlide Xeo platform, which incorporates Xeo into that.

Thanks again.

And we will take our next question from Mike Hoffman (ph) from Penninsula Capital

Hi, Kevin and Ron. Great to have a shareholder equity in the quarter, it is an outstanding job. Just following up on Phil's earlier question. While you'd mentioned that - Actually I'll switch over to the patent litigation -- there was minimal expense in the quarter, is that -- did I understand you correctly there?

Yes that is true.

OK. And do you guys have any idea what a normalized operating rate, marginal rate, that we can maybe look out for '06 once we get a little more clarity on the patent litigation?

Well the numbers that we have kind of thrown out there is again gross margins in that 71% to 73% range and then we continue to invest in R&D at 8 to 10%. Sales and marketing we have given guidance at least to stay in that 34% to 36% range. And then administration what we say is after this patent litigation behind us will be between 8% to 10 %.

So that's the kind of modeling that we've given guidance on.

There is still quite a bit of room for outside expense.

And this year we also have some non-recurring and Ron touched it on a little bit on in terms of stocks compliance and we had some outside consulting center. So the answer to that--there are some fees there that won't exist next year.

That's correct.

Sure. And the tax rate you said, looking 30% for next year. Did I hear you say the tax-free is that municipal investment or something?

Yes, most of the interest income that we have is tax-free, and that's what helping us drive some of the rate down. In addition to that, there is incentive stock options that are being exercised allowing us to have a lower-that could be run to the tax rate at this time, and that is covering us to actually also see a lower tax rate than expected.

And then on the sales force, there's a 40 person head count. It is - is it consistent still -- are we seeing like a 6 month lag before they really start producing and adding to the bottom -- to top line there, and if so, did you add most of the sales people in the beginning of the quarter or was it kind of spread out linearly?

We tended to hiring in a fairly linear fashion. So it's been spread out through the quarter. Yes, and it can take 6 to9 months before sales person is able to produce to the levels that our seasoned people are able to produce that.

Thanks a lot. Great job, guys.

Thank you.

Thank you very much.

(Operator Instructions)

And we will go next to Anthony Vendetti with Maxim Group

Thanks very much. Hey, Kevin. Hey, Ron.

Hi, Anthony.

Hi, Anthony.

I just wanted to get a little more, most of my questions have been answered. So, I just want to talk a little about the trial and where that's at.

With the introduction of the ProWave 770 and some of the new products that you have out and in the pipeline, right now what percent of revenues could be potentially affected by the law suit with Palamer (ph)?

Well, as I said the ProWave is a nonlaser-based technology and the litigation we have with Palamer is related to laser hair removal. So it's our position that this technology is not subject to it. We sell multi-application products and I think the key thing is that we offer a broad range of applications with one system.

In terms of products that are sold for hair removal exclusively, that is a very small part of our business model we just make that as ..

Just the hair removal?

Laser hair removal.

Again, what (inaudible) make it difficult

No this is, single application is less than 5%.

Less than 5% for just a single application. All right.

So anyway, we are working through the process with the courts; there have been no developments. We are still awaiting a ruling on the summary judgment motion that we initiated with the court. That hearing was held on March 17th, and until we hear back from the judge we still don't have a date for the trial.

OK. So right now, less than 5% of your revenues would be impacted by the decision, by whatever decision that comes down.

What he is referring to, those are hair removal - laser-based hair removal only products. Because we sell multi-applications, so it's hard to break out the hair-removal component.

OK. And right now you're still expecting a trial date before the end of the year?

We are hopeful.

OK. In relation to the European Headquarters, you selected Zurich. What went into that process, and when you said that there would be a little bit more expenses this quarter associated with it, are you talking about just general start-up costs, or just ongoing expense, just to tap this additional headquarters.

Well, we picked up a little bit more up there with our facilities, there's a nice facility that's able to be used for demonstration purposes, to bring customers into, for training within the greater Europe area, to bring sales people into, as well as we picked up additional service people and sales people and an administrative person as well.

So there's a total of maybe 5 people that been added to it, but we believe this strategically positions us well, to provide a better level, or higher level service to the market in greater Europe.

And then again, touching on the discussion we had with Tom, we've elected to pursue a strategy where we can build a direct organization, both on the sales, marketing and customer support side. That has paid dividend for us. We have done that in the past -- and I point to the operation we have in Japan. And so we see the ups here in Europe as being very exciting and it makes sense to us to make these investments in the short run because we want more than half of our business to come from outside the United States in the future.

OK. And just last question related to the Titan product and the tissue tightening in general. Can you talk a little bit about competition versus Thermage or some of the other players out there and there is certainly a lot of talk about other companies looking to get into both the tissue tightening area as well as the cellular reduction area. Can you talk a little bit about what you're seeing out there?

On the competitor front, the company that we bump up against, more than anyone else by a long shot is a private held company, has a radio frequency solution for this -- to his application. They've been in the market a lot longer than we have and I think they have created a nice business for the radio frequency technology. But we think that the light-based therapy that we offer, has a lot of characteristics that are being well received in the marketplace.

So that's on the competitive front, there is at least that one company. We haven't seen anything else out there in the marketplace from our other competitors, but it's not unusual for a new application to draw attention in the marketplace and we're excited about what we've been able to develop with Titan, and the rollout has come ahead of our expectations, and we are seeing a lot of very positive things in the marketplace in terms of how this is being received by our customers.

Just last one on Titan. Can you give us any specific metric regarding the numbers, Titan or Titan hand pieces or the number of procedures you think have been performed or I don't know if you're tracking that?

No, we are not really going to do that, Anthony, and I think we've explained that the models when we sell a hand piece that has a finite number of pulses and so technically we cannot track the number of procedures being done other than user surveys. So we do explore those -- that information. But we will break out the annuity based revenue stream associated with Titan in the future. So you can get some sense of the interest of the procedure.

OK, great. Alright, thanks, guys.

Thank You.

Thanks.

Our next question comes from Anthony Petrone from Maxim Group.

Thank you, guys. Good afternoon. Just a question on possibly expanding into other areas, I know one of the editors recently went into the dental laser markets, that was centeron(ph) that made a small investment in light instrument. Are there any plans over or would you try to do anything like that? Or you strictly - you got enough room to expand within your current market?

Well, our strategy is to be the world leader in the aesthetic market. We really have difficulty in understanding how exploring multiple markets could really make sense for our current sales and marketing focus. We like the space we are in. We are seeing tremendous growth opportunities and we have new technologies that we're working on that we think will continue to be a source of future growth. So, we like the business we are in and we have no intention of dabbling in other unrelated markets.

Just then with relation to the guidance -- obviously your guidance for almost equivalent revenues next quarter. And the EPS is lower -- obviously lower operating margin - I think you mentioned the higher expenses in Zurich. Is there any other expenses we're going to see or is it mostly just going to be attributable to Zurich?

Well, we continue to invest in Cutera's marketing, that wouldn't be just Zurich. That would be everywhere else in the world. We've also factored in some additional spending, assuming that we'll get a trial date and that litigation expenses would pick up. But we don't know that.

That concludes today's question and answer session. I would like to turn the conference back to our speakers for any additional or closing comments.

Well, thank you for participating in our call today. We look forward to updating you on our progress next quarter. As a reminder, we will be presenting at the Rock (ph) Conference in New York on September 8th, Nariman Conference in San Francisco on September 21st and the UBS Conference on September 28th. We look forward to sharing our positive news with you next quarter.

Thank you very much.

Thank you for your participation in today's Conference Call. You may disconnect at this time.