Cutera Inc (CUTR) 2008 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is Jen, and I will be your coordinator for today. (OPERATOR INSTRUCTIONS) During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, August 4, 2008 I would now like to turn the conference over to John Mills of ICR. Please go ahead.

Thank you.

By now everyone should have access to the second quarter of 2008 earnings release which went out today at approximately 4:00 p.m. eastern time. The release is available on the investor relations portion of Cutera's website at cutera.com and with its form 8-K filed with the SEC and available on the SEC's website at sec.gov. Before we begin, Cutera would like to remind everyone that these remarks contain forward-looking statements, including statements concerning long-term domestic and international growth opportunities and strategies future presenting on various aspects of our operations, and the development and commercialization of existing and planned products. Also, management may make additional forward-looking statements in response to your questions. Factors that could cause Cutera's actual results to differ materially from these forward-looking statements include its ability to increase revenue and manage expenses worldwide, the length of the sales cycle process, its availability to successfully develop and acquire new products and market them to both its install base and new customers, unforeseen events and circumstances related to its operations, government regulatory actions, general economic conditions and those other factors described in the section entitled risk factors in this most recent 10-Q filed August 4, 2008, with the SEC. 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 risks with such statements. Cutera also cautions you to not place undue reliance on forward-looking statements which speak 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'll turn the call over to company's President and Chief Executive Officer, Mr. Kevin Connors.

Thank you, John. Good afternoon, everyone and thanks for joining us to discuss Cutera's results for the second quarter ended June 30, 2008. On today's call I'll provide an overview of results, and then Ron Santilli, our CFO will provide additional details on our operating and financial results. Finally, I will provide some closing comments and open the call to your questions.

Our revenue in the second quarter 2008 was $24.8 million or 4% higher than the $23.9 million reported in the second quarter 2007, and diluted earnings per share was $0.05. We generated $3.5 million in cash from operations. International revenue increased 41% in the second quarter 2008 compared to the second quarter 2008 and accounted for half of the quarter's revenues. We are pleased to have achieved our goal of generating half of our business outside of the United States. We believe that global diversification in our business is critical, particularly during this challenging period in our domestic market. We have built a direct sales and customer support presence in Japan, Canada, Australia, Switzerland, Spain, France and the UK and are establishing direct operations in China. In addition, we have distributors in approximately 35 other countries where we do not have a direct presence. We are encouraged by our international team's progress as we experience strong contributions in Australia, Canada and emerging global markets. The investments we have been making in our internation business during the past several years are now providing solid results and have us well positioned for future international growth.

US revenue in second quarter 2008 was $12.4 million or 18% lower than the amount reported in the year-ago quarter and sequentially flat compared to the first quarter 2008 US revenue. We believe that year-over-year decline was primarily driven by an economic slowdown which caused physicians to delay their decisions to make capital equipment purchases. To manage our business through this uncertain environment, we recently implemented expense reduction measures, including the restructuring of our North American sales team to 46 territories, with a focus of bringing our expenses in line with current revenue levels. These initiatives are expected to improve our operating margins and help us achieve higher profitability. Our product revenue in the second quarter 2008 grew 4% when compared to the second quarter of 2007. This growth of our install base then creates other revenue opportunities through future sales upgrades, service and Titan refills. Our Pearl product has gained momentum in the marketplace and was a popular application with our customers the second quarter of 2008. During the quarter, we focused our sales and marketing efforts on Pearl in our North American business and were able to gain higher sales. Pearl continues to perform well in our international business.

Turning to research and development, we are continuing our investments to develop innovative solutions, and expand the clinical understanding and applications of our current products. The development efforts related to our new ProFractional are continuing to produce positive clinical results and patient responses are exceeding our expectations. This new device, designed to improve pronounced wrinkles by targeting the deep dermal layer will enable us to complete in this expanding fractional blade of market. We have submitted our 510(k) application for the FDA approval and plan to start commercial shipments within the next 90 days. Also, we are pleased with the progress we have been making on many other R&D projects and are looking forward to providing more information on those developments in the coming quarters. Cutera continues to see high demand for our products outside of the core specialties, the dematologists and plastic surgeons. During the second quarter of 2008, 23% of our US orders came from core physicians with the balance of our US orders coming from non-core specialties. Is in line with Cutera's goal of building and retaining a diverse customer base. Now I would like to turn the call over to Ron to discussion our financials in more detail. Ron?

Thanks, Kevin, and thanks to all of you for joining us today on our second quarter 2008 conference call. Second quarter 2008 revenue was $24.8 million, a 4% increase when compared to the $23.9 million for the second quarter of 2007. Our net income was $661,000 or $0.05 per diluted share. Product revenue for the second quarter of 2008 increased 4% when compared to the second quarter of 2007. These results primarily reflect higher sales levels from our international markets. Upgrade revenue for the second quarter of 2008 decreased 26% when compared to the second quarter of 2007. This decrease was primarily attributable number of upgrade sales in the second quarter of 2007 when we commenced shipments of our new Pearl product. Service revenue for the second quarter of 2008 increased 30% to $2.7 million when compared to $2.1 million in the second quarter of 2007. We expect this revenue growth to remain strong as the size of our install base continues to increase and customers use our services to maintain their products after the initial warranty periods expires. Titan refill revenue for the second quarter of 2008 increased by 27% to $1.6 million compared to $1.2 million in the second quarter of 2007. We are continuing to see a higher level of refill orders and are pleased to see our customer procedure volume grow, which is reflective of a positive market acceptance. Titan remains a popular application that is sold on a majority of our Xeo systems. We are continuing to experience growth in our business from existing customers. During the second quarter of 2008, 26% of our revenue was derived from sales of service, upgrades and Titan refills. We are committed to strong customer satisfaction and believe we will continue to realize strong growth rates in our annuity revenue categories.

I will now address our operating performance. Our gross margin in the second quarter of 2008 was 63% compared to gross margin of 67% in the second quarter of 2007. The decrease in gross margin was primarily attributable to higher service revenue as a percentage of total revenue, which is a lower gross margin than our other revenue categories and increased level of international revenue to distributors which has lower gross margins than our direct revenues. We have several internal initiatives with the goal of achieving target gross margin levels in the mid-60% range. Sales and marketing expenses for the second quarter of 2008 were $10.4 million or 42% of revenue compared to $9.2 million or 39% of revenue for the second quarter of 2007. The increase in expenses in the second quarter of 2008 in absolute dollars was due primarily to expenses associated with our international sales and marketing efforts. The increase in expenses as a percentage of revenue was due primarily to lower than expected US revenue. Recently, we resized our North America sales team to 46 territories. It is our belief that this action, along with other expense reducing measures, will position our business to a higher level of profitability at current revenue levels. Research and development expenses in the second quarter of 2008 was $2 million as compared to $1.9 million in the second quarter of 2007. Each of those quarters, R&D expense was 8% of revenue. We intend to increase our investment in this area in our continuing pursuit to develop and commercialize innovative products and applications. General and administrative expenses increased slightly from $2.9 million in the second quarter of 2007, to $3 million in the second quarter of 2008. General administrative expense was 12% of revenue for each of those quarters. Our effective income tax rate for the second quarter of 2008 was 31%. For modeling purposes, we suggest using an effective tax rate of approximately 30% for the remainder of 2008.

Turning to the balance sheet, our financial position remains strong as we experienced strong cash generation, reduced inventory levels and lowered our accounts receivable DSO levels. As of June 30, 2008, we had $107.8 million in cash, marketable securities and long-term investments with no debt. That number divided by the 12.8 million outstanding shares of our common stock as of June 30, 2008 translated to more than $8.40 per outstanding share. We are pleased with the $3.5 million of cash generated by operations during the quarter and believe we can continue being accretive, especially in light of the expense-reduction measures we recently implemented. Net accounts receivables at the end of the second quarter of 2008 was $9.2 million and the DSOs were 34 days. Our DSOs continue to remain strong and we were better than our target of 35 to 45 days due a thorough credit approval process and strong collection efforts. Inventories declined to $8.6 million at June 30, 2008 from $9.4 million at March 31, 2008. The primary reason for this inventory decline was a reduction in our finished goods inventory, partially offset by higher inventories associated with purchases of ProFractional parts in anticipation of that planned-product launch. Now that I've concluded my overview of Cutera's financial performance, I'll turn the call back to Kevin.

Thanks, Ron.

Our performance for the second quarter 2008 showed improved performance over our first quarter 2008 results. We grew our revenue, showing particular strength in our international markets, returned to profitability and generated $3.5 million in cash from operations in the quarter. As mentioned earlier, we recently implemented a number of expense reduction measures with a focus on bringing our expenses in line with current revenue levels. We are addressing our cost structure in an effort to improve profitability and as an example, we recently resized our North American sales to 46 territories, which we believe is better balanced with today's market environment. Additionally, we have a number of other initiatives now underway which we expect to reduce costs primarily in our service and marketing functions. We believe these additional initiatives will improve our operating margins and help us achieve higher profitability. In the coming quarters, we'll be focusing our efforts on increase revenue productivity with our resized North American sales team, preparing for the launch of the ProFractional, which we expect will be within the next 90 days, continuing our commitment to investing in R&D, and continuing our efforts on managing expenses to ensure they remain within targeted levels. Now I would like to open up the call for your questions. Operator?

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). If Our first question comes from the line of Tom Gunderson from Piper Jaffray. Please go ahead.

Hi, good afternoon, guys.

Hi, Tom.

Last I have, there were 64 territories; is that right? So you went from 64 to 46?

We had 64 territories at the end of September '07, and then it fluctuated slightly at the end of '07 to 60 and then 58 at the end of March, and then in early July, we just changed that to 46.

I'm sorry, when was that, Ron?

Early July.

Early July. So nothing in Q2 from that savings. Can you put some sort of dollar amount on that, savings on an annualized basis, or any way you want to give it to us?

Yes, I wasn't giving it in dollars, but at the end of March 31, we had 58 territories, and then we ended the quarter with about 51, 52 territories.

And you don't want to put dollars on it?

No, I wasn't planning to put dollars on that.

Okay. And can you give us some sense, there's going to be attrition, there's going to be, et cetera. The assumption would be, you kept the top 46, but what kind of normal turnover was there during the quarters as well?

Yes, Tom, we didn't see any aberrant turnover levels during the quarter. So we're committed to keeping 46 territories as the targeted level at this point, and we think that we have a pretty strong team and for the levels that we're looking for in our domestic business, we think we're well positioned, particularly with the new product launch on the horizon.

Okay and then two quick questions on the breakdown of revenues. Service was down sequentially for the second quarter in a row. Can you help me make numerical sense out of that? Are there old devices that are going out of service or -- how does that work when you straight line it and there should be more devices every quarter than the last quarter?

It is a good question. You did raise it last time, Tom, and we believe we should be seeing sequential growth in the service revenue and these past few quarters, we have seen good year-over-year growth but of course, the sequential growth has been minimal. I'm not sure how to characterize it going forward, other than we do expect it to grow, particularly on a year to year level. There are so many variables that go in to that number, that it is causing some fluctuations here in the short-term.

Okay. And that was the answer you gave the last time I asked it, too. It's just that the short-term got doubled here in length. So I was hoping maybe there was some more info. Sounds like it's just a mix of variables that's hard to pin down. On Titan -- this will be my last question and I'll get back in queue. On the disposables, it keeps going up. Don't they know that there's a bad consumer economy out there and it's not supposed to grow? And not to be too facetious here, but what I'm thinking is that -- is it your opinion that your existing customers are doing okay and that the weakness is coming from adding new boxes to newer existing customers?

Yes, Tom, I think you hit the nail on the head there. The Titan refill revenue is the only direct way that we could monitor application volume with our customers, and that growth rate has really picked up, so obviously, that suggests that the Titan application continues to be popular with our physicians and their patients. And it's our belief that the biggest challenge we have is not so much procedure demand, but just a cautious physician when it comes to making a major capital equipment purchasing decision.

But Kevin, you have probably polled your existing companies recently. Are they comfortable? Are their average incomes from the laser continuing to go up like they did in the last several years?

Well, it's -- it has been growing at single-digit levels. We do those polls twice a year, and we have another meeting coming up in Chicago later this month where we will be getting fresh data at that point, but barring having up to the minute data, everything that we have seen so far suggests that the revenue volumes that our customers are generating is still in the same range that we have expanded historically.

Okay. Thanks.

Thank you. Our next question comes from the line of Dalton Chandler from Needham & Company. Please go ahead.

Yes, hi, it's Dalton.

Hi, Dalton.

So, let me ask first, on ASPs. Last quarter you were pretty specific that ASPs were holding in, pretty much unchanged. Is that still the Case? overall when you look at the product line, the average selling prices are holding fairly constant.

Yes, still the case. Overall, when you look at the product line, the average selling prices are holding fairly constant.

Okay. And just a follow-up on the Titan refill revenue growth. I -- for a while there, after you introduced the product, you had some very nice growth and then it sort of flatlined for a while, and now in what everyone believes is this lousy market, it's actually started to grow again. Is there any further insight you can give us on that?

Well, I think the -- we have launched some different hand pieces for our Titan customers, and we offer a broader range of solutions today, and it could be that the technology that we have developed has resulted in higher procedure volumes, but clearly, the numbers speak for themselves, and we're pleased with 25% plus growth in the Titan annuity business.

Okay.

And getting back to your comment about average selling prices Dalton, what's particularly interesting about that is that with half of our business going through our international channel, that also has our blended decision distributor volume in there, so that's typically at a lower transfer price. So that would suggest that average selling prices are actually going very well at that.

Okay. Then on the new -- the ProFractional, you mentioned several times you expect to be selling it within the next 90 days, so should we assume you actually made that 510(k) filing a few months ago?

We have been in discussions with the FDA for longer than that, and we have been going back and forth with them about various requests, that we've been able to satisfy the questions that they have had and they have got that application in front of them. It doesn't necessarily guarantee that we will get a clearance, but to the best of our knowledge, we have satisfied their questions, and we are hopeful to get that clearance in the next 90 days.

Okay. And -- excuse me. Just a final question here. I -- September quarter is a seasonally weak quarter, typically, and you are going to have, it looks like 18 fewer sales reps for this September than you had last September. So -- you have shied away from giving any guidance, but would it be reasonable to assume that the domestic sales would be down again in this quarter?

Well, Dalton, I think we're looking to extract higher levels of productivity from the sales team, and I think the extent of the reduction we had, where people have been with people who have been with the company -- they are some of the newer hires, so have some of our more seasoned people take those territories, we are hopeful that with can actually see an uptick in sales productivity. It's still a significant sales force, and we think it's ample size to represent us with the new product launch that we have planned this year.

Alright. Thanks a lot, guys.

Thank you, the next question comes from the line of Phil nay bone.

Hi guys. Yes, hi, you beat my numbers quite handlily. I think you have managed very well through some tough times. Isn't this cause for optimism here, Kevin, shouldn't you be giving us some sort of outlook on the next couple of quarters?

Phil, we would really like to be able to do that, and I think over this last several quarters, we have been able to establish somewhat predictable international growth, but we have been sequentially flat in our North American business, and we are very hopeful that we get the FDA clearance that we can start shipping the new product here in the next 90 days. But until we see signs of predictable growth in the US business, I think we're going to hold off on making those kinds of statements about our future performance.

Okay. I can certainly understand the reluctance to provide guidance, given the uncertainties about the domestic market, your overseas business is clearly very lively. Could you give us some sense for what you expect that component of your business to look like for the balance of the year?

Well, I think the -- the one thing to point out about our international business, we're pleased that relative to our peers that the growth rate that we're experiencing abroad is better than our competitors, but we have other competitors that have been in the international markets longer than we have that have a larger base. So, we are capturing share abroad, and we also think that the market abroad is growing at a more healthy rate than we're seeing here in the states, but we would like to continue to have similar growth rates going forward.

Okay. I'm unclear how you achieved this latest gap down in the sales force headcount. I think Ron said it was 51 or 52 at the end of the June quarter, it is now 46. Did you just let attrition play out, or did you actually send some people packing?

Well, we didn't have some territories that opened up very -- relatively few, though, during the quarter that we didn't replace. But most of them are just tough decisions that we had to make in order to size our sales and marketing expenses, what we think are reasonable business levels. With that said, we're still looking for growth in our business with the new product launch.

Okay. Given that approach to the downsizing, should we anticipate any sort of one-time charges, any severance costs in the September quarter?

Nothing would be appreciable there.

Very good. Thank you, guys. I'll go back in to the queue.

Great.

Thank you. (OPERATOR INSTRUCTIONS). Our next question comes from the line of Anthony Vendetti from Maxim Group. Please go ahead.

Thanks, good afternoon.

Hi, Anthony.

Can you give us a little bit more color on Titan refills, where that 25% year-over-year increase, was that mostly from the international market? And then if you could just talk about which products drove the 41% growth internationally?

We don't have that Titan revenue split by geography, but I would have a strong impression that most of that is from our domestic business. We have a strong Titan business and annuity business out of Japan and other international markets, but the lion's share is coming out of our US operation. In terms of the products abroad that are doing well, we commented in the call that Pearl has continued to do well outside of the United States, and I think one of the things that we've recognized is that Pearl is a different approach -- different technology for improving the epidermal appearance, and we've had a lot of competition with other technologies here in the United States that haven't made the impact in the international market, so we think that we have done particularly well with Pearl, where these other technologies haven't made the impact that we have seen here in the states. So Pearl business has been very strong abroad, but aside from that it's the same products that we're having success with here in the states.

So Xeo and Titan are selling well internationally?

Still the dominant source, yes.

Okay, and the $11.5 million in long term investments, is that auction-rate securities that you intend to hold to maturity?

That is correct, Anthony. We have the ability to hold those to maturity. As such, we have approximately $1.9 million of unrealized loss on the balance sheet, nothing to the income statement. The numbers changed negligibly in the quarter.

Okay, great. I'll hop in the queue. Thanks.

Thank you. Our next question comes from the line of Gerry Heffernan from Lord, Abbett & Company. Please go ahead.

Hi. Thank you for taking my call. Hey, I would like to ask -- just to understand a little bit better, the revenue by product category, we have the products and the product upgrades and we have a big flip from what happened in the first quarter to the second quarter between those two categories. And I'm trying to understand where there's some significance there or not.

When -- I'm sorry -- this is Ron. In the upgrade section, there -- a year ago, we had commercially launched the upgrade for the Pearl product, and so we had a lot of pent-up demand that we were fulfilling, and as such, that made -- it looked like a decline this quarter. It was a decline this quarter, but we were comparing to that pent-up demand. Does that help understand at least the upgrade section?

Well, I guess so. Well, so the upgrades in the first quarter were up 16% because you were not selling the Pearl yet? For the first quarter of '07?

I'm referring to Q2 '07.

I understand that. But I'm trying to understand is why we flipped from the first quarter to the second quarter. In the first quarter, product upgrades were up 16%. And so the first quarter '08 over the first quarter '07 being up 16% is because we had the Pearl in '08, and we did not have the Pearl upgrade available in the first quarter '07?

Yes, that would be correct.

Okay. Then how about for the products, where the products were down 16% in the first quarter '08 over the first quarter '07, but up 4% in this quarter?

And what drove it up to 4% this quarter was the international volume, that was up significantly.

Okay.

And Jerry, I think in general, we see some lumpiness in the upgrade business, typically when we have a new application that we launch, we see a surge in that. However, one of the most important factors for us is to find new users, so we are pleased to see growth in our new -- in our product sales, because that's an indication that we can create new accounts and they are a source of future opportunities in terms of upgrades in the Titan refill business.

Okay, in in regards to the Pearl Fractional, where we are talking about a 90 days to -- are we talking just domestic or is that domestic and international?

We plan on a global launch, so we're looking to be able to get regulatory approvals at in the major global markets with that.

Where are we as far as getting those approvals?

Well, we have been working with the CE Mark so we are prepared to be able to ship to Europe, and we also have clearance in Australia, we're working the other markets as well, including Canada and Japan.

But you think you'll be able to sell it domestically within 90 days. When do you expect to be able to sell it within Australia, within Japan, within Europe?

Well, with Australia and Europe, within that same window. Japan, we're still working on that.

Okay. So you'll have a major part of the -- you expect to have a major part of the globe covered on the Pearl Fractional within the same 90-day period?

Yes, but again, with the caveat that this is for the -- the domestic market, it's contingent upon the FDA clearance being granted.

And for those other markets?

We already have a CE Mark for Europe --

So you are just waiting to get the domestic before you go anywhere with it?

Not necessarily, but we plan to have the (inaudible) clearance in the next 90 days, at which case --

Have you sold any Pearl Fractional international yet?

No, we have not.

Okay.

The typical sequence that we have had is to focus on the domestic launch, but that doesn't mean that we have to stay with that same strategy going forward.

A previous questioner made the comment that you have been able to establish a good sales rate internationally, and that, we've at least today sequentially flat revenue period in the domestic market. You're not willing to really call a bottom yet, nor start putting out guidance, but are we at least in a sufficient enough steady state that you would feel comfortable starting to put the balance sheet to work? At what time is it appropriate to start using this cash balance that we have at our disposable -- at disposable -- our disposal for -- doing something to improve value here?

Well, we have acquired $25 million of our stock last year, and we have constantly looking at opportunities to acquire things that make sense with our business, and that's something we actively are looking at, but we need to find something that really fits.

Okay. We acquire $25 million worth of stock last year.

Yes.

What about -- and that was at a higher price. What about this year?

We have not done anything yet.

Understood. Why not? Where -- what can we expect to go on that? What are your thoughts as to what you would like to do on that?

I think it's a topic that we have out with our board, and so it's always possible that we could decide to acquire more of our stock, but I think we are trying to understand whether there are opportunities out there that allow us to grow our business in a faster way, so we're probably more inclined to keep that option open.

Okay. Thank you.

Thank you. Ladies and gentlemen, at this time we would live to give participants a final opportunity ask additional questions. (OPERATOR INSTRUCTIONS). Our next question comes from the line of Ken Thomas from Progressive Investments, please go ahead.

Hi, guys, actually [Eric Yu] in for Ken. Good quarter, and I just want to touch base in regards to fat. I know you guys usually keep your product introductions quite close to your vest, but with three competitors out there with a fat solution now, I was wondering if your could comment on your view of that market?

What specific technology are you referring to?

SmartLipo, SlimLipo in particular.

So that's the laser lipolysis market. Well, I think the body contouring space is certainly an exciting market. We're seeing a lot of growth, and we're aware of what our competitors are doing with the laser-assisted liposuction. We believe we have got some in-house initiatives in place that are exciting, but we just don't talk about them until we're ready to launch.

I figured that would be the case. Also, can you compact on the sales cycle, what you're seeing there and in regards to financing? Any impact there whatsoever in the marketplace?

No real impact to financing, Eric. I think what we do see is, in the small piece of our business that is MedSpa related, those typically are difficult to get financed, but the majority of our sales are to physicians and physician-based customers still haven't -- we haven't been seeing any significant problems on the financing side.

Great. Thank you much, guys.

Thanks.

Thank you. Our next question comes from the line of Dalton Chandler from Needham & Company.

Hi, again. I was just wondering if you could tell us anything about your anticipated pricing for the new Pearl Fractional.

Dalton, we can't talk about pricing until we get the FDA clearance, but we do think it's a premium product, and the clinical experience we have at this wavelength for voiding the epidermis is quite exciting, so we think we should have a lot of features and benefits that will allow us to really establish our technology, but we can't speak to pricing until we are able to get the FDA clearance.

Understood, but when you say it's -- you think it's a premium product, that implies that it should cost more than the existing Pearl. Is that fair to say?

Well, we have many different versions of -- or many different offerings with regard to Pearl that's available to upgrade. It's available as an extension of the Xeo, so we are -- certainly, as we look at our new product, we're look at the competitive landscape and what the pricing structure is there and running cost and when we come up with our Pearl Fractional pricing, will have the competitive landscape in mind, but we do think it will be at a premium.

Okay. Thanks very much.

Thank you. We have a follow-up question from the line of Anthony Vendetti from Maxim Group. Please go ahead.

Thanks. Just really quickly on R&D it was a little bit higher than we were expecting by about $220,000, and also $220,000 more than first quarter. Is this a sustained uptick in R&D, or should we expect it to trail back down to the 1.5 million, $1.6 million range?

When looking at our R&D investment, I think it's fair to continue -- for us to continue investing in that line. So, no, I don't think you'll see it going down. I think it's go only going to be going upward.

Okay. Great. Thanks, Ron.

Thank you. At this time, I would like to turn the call back over to Kevin Connors. Please go ahead.

Thank you for participating on our call today. We look forward to seeing you at various investor events during the quarter and to updating you on our third quarter conference call in November. Good afternoon, and thank for your interest in Cutera.

Ladies and gentlemen, this concludes the Cutera, Inc. second quarter 2008 earnings conference call. This conference will be available for replay today through August 18, 2008, at midnight. You may access the replay system at anytime by dialing 303-590-3030 , or 1-800-406-7325 with an access code of 3900916. Thank you for your participation, and you may now