Cutera Inc (CUTR) 2010 Q4 法說會逐字稿

Greetings, and welcome to the Cutera, Inc. fourth quarter and fiscal year 2010 earnings conference call. At this time, all participants are in a listen-only mode. A belief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. John Mills of ICR. Thank you, Mr. Mills, you may begin.

Thank you. By now everyone should have access to the fourth quarter 2010 earnings release, which went out today at approximately 4 PM 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 today with the SEC and available on its website at sec.gov.

Before we begin, Cutera would like to remind everyone that these prepared remarks contain forward-looking statements, including statements concerning domestic and international growth opportunities and strategies; future spending, expense management, and execution on various aspects of our operations and business; expectations for increasing revenue, generating cash, and improving profitability; development and commercialization of existing and planned new products; potential revenue growth from strategic alliances and planned new products; and obtaining regulatory clearances. Also management may make additional forward-looking statements in response to your questions. 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, 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. For a complete list of risk factors that could cause Cutera's actual results to differ materially from the forward-looking statements, please refer to the section entitled "risk factors" in our most recent 10-Q filed on November 1, 2010, and with the Securities & Exchange Commission.

With that, I'll turn the call over to the Company's President and Chief Executive Officer, Mr. Kevin Connors. Go ahead, Kevin.

Thank you, John.

Good afternoon, everyone, and thanks for joining us today to discuss Cutera's results for the fourth quarter ended December 31, 2010. On today's call I'll provide an overview of our results, and then Ron Santilli, our CFO, will provide additional details on our operating and financial results. Finally I'll provide closing comments and open the call to your questions.

Our fourth quarter and annual 2010 revenue remained flat compared to the same period in 2009. During the fourth quarter 2010, US revenue increased by 9% compared to the fourth quarter of 2009. This growth was primarily the result of improvements associated with the initiatives discussed in the past few quarters, including launched of our GenesisPlus product and improved productivity in our domestic sales force. We are pleased to show this growth and are focused on initiatives to increase our revenue in the US in 2011 and beyond..

Our international business declined 7% compared to the fourth quarter 2009. We experienced growth in most of our international market; however, Australia in volume was exceptional strong in the fourth quarter 2009 due to a special tax incentive. This is the primary reason for the comparative decline in the fourth quarter of 2010. Additionally, we recognized record revenue in Japan in the fourth quarter 2010. Our Japanese operations experienced growth in all of the product categories, including the recently added filler and cosmeceutical business.

During the fourth quarter 2010, approximately 64% of our North American orders came from the core market [and] podiatristsThe podiatry specialty is a new target market to us, and an opportunity to sell our GenesisPlus and other products. We're continuing to target the core market segments as well as other established medical offices, because we believe they offer the best growth opportunities in the current market environment.

Titan annuity revenue for the fourth quarter 2010 was in line with our expectations of $934,000, a decrease of $590,000 from the same quarter in the prior year. This decrease was primarily due to our volunteer recall of certain Titan XL handpieces. We provided our eligible customers with fully refilled Titan XL handpieces, which resulted in lower than normal Titan refill revenue. We are pleased with the sequential increase of approximately nine -- $300,000 of annuity revenue from the third quarter, which we believe will continue to increase until the return to our normalized quarterly revenue of $1.5 million in the second half of 2011.

Turning to our cosmeceutical and filler products. In the fourth quarter of 2010 we had a record revenue of $1.2 million from these products. As a reminder, in Japan we started distributing Obagi physician-dispensed cosmeceutical products in February 2010, and have been distributing BioForm's Radiesse product since late 2008. These products augment our Cutera laser and light-based products. We are pleased with the reoccurring revenue model and profit contributions, as well as the significant cross-selling opportunities that these products provide. Currently the cosmeceutical filler business and Cutera laser and light-based install base overlaps by approximately only 10%.

Turning to research and development. We believe strategic on going investments in product research and development are critical to our future success. In line with that principal, we are continuing to invest in R&D for the next generation of technology, and have increased our engineering and clinical research headcount to develop innovation -- innovative solutions and expand the clinical understanding and applications of our current products. In our last earnings release call we stated that we plan to launch three new products by the end of 2011. Now I would like to share with you the current status of product development efforts.

One. During the third quarter of 2010 we commenced a stage launch of our new product, GenesisPlus targeted internationally for the treatment of toenail fungus. We are pleased with the initial market response and are excited to -- about the growth opportunity of this market. We believe that this is a fast-growing market, where we are targeting podiatry and dermatology specialties. Our new product utilizes our Nd-YAG technology, coupled with a proprietary delivery devise with a temperature sensory to provide the practitioner and patient a consistent and safe treatment. GenesisPlus currently has a number of general indications for used in the United States that allow us to market the product podiatrists and dermatologists. During the third quarter of 2010 we received a CE mark with an indication for toenail fungus treatment. During the fourth quarter of 2010 we submitted a 510(k) application to the FDA with the intent to obtain a toenail fungus treatment indication.

Later this week, at the American Academy of Dermatology annual meetings in New Orleans, we're launching a next-generation comprehensive vascular workstation, Excel V. Excel V is a high-performance vascular laser designed specifically for the core market of dermatologists and plastic surgeons. Excel V has a substantial number of key features that will enable physicians to provide a vast range of clinical vascular treatment capabilities, both on the face and body, providing great value from a cost of ownership perspective. It has the versatility to treat all vascular lesion, from shallow to deep, with a delivery system that can precisely match the treatment beam to the target structure up to 12 millimeters in size; physician-controlled dermal cooling, while providing the ability to clearly see the vessels being treated; and an extremely broad combination fluence and pulse duration that will enable the physician the optimum treatment parameter for each patient; and no consumables or disposables, which is a significant competitive benefit.

We took the Excel V to leading vascular specialist dermatologists, and the clinical and user feedback was extremely positive with respect to its ease of use and availability with standard power; no warmup, and auto calibration; a delivery system design that is lightweight with excellent visibility and cooling. We are hearing that the treatments are also much faster. It incorporates a variable spot beam with ability to resolve at 0.1 millimeter increments, which in turn enables physicians to provide ideal treatment rather than limited to discrete spot sizes.

Lastly, we plan to add another new product during the second half of 2011. More details associated with this product launch will be coming in upcoming quarters. We remain committed to the core physicians in developing high-performance solutions and believe our new product launches will be reflected in our revenue in the future.

Before I turn the call over to Ron, I would like to reiterate that we are delighted to have Len DeBenedictis join our management team as Chief Technical Officers, as was announced earlier in January. Len will expand our research and product development efforts. Further, we are pleased about the strengthening of our sales management team through the addition of Michael Poole, a Vice President of North American Sales. Michael and his team are focused on achieving great gains in this historically significant market. This is an important development -- this important development has allowed Chris West to dedicate his time to further developing our Japan and Asia-Pacific markets. We believe that these strategic challenges significantly strengthen our executive management team and position us for growth in 2011 and beyond.

Now I would be like to turn over to Ron to discuss our financials in more detail.

Thanks, Kevin, and thanks to all of you for joining us today on our fourth quarter 2010 conference call.

Fourth quarter and 2010 revenue remained flat when compared to the same period in 2009. Net loss for the fourth quarter was $1.3 million or $0.09 per diluted share. Product revenue increased by 10% in the fourth quarter of 2010 when compared to the fourth quarter of 2009. We are pleased with the growth in our unit volumes; however, this was partly offset by declines in ASTs, which was primarily a result of customers purchasing fewer applications on our platforms and a greater proportion of distributer revenue that has a lower selling price.

Upgrade revenue for the fourth quarter of 2010 was unusually low at less than $900,000. In the fourth quarter our sales team focused on selling systems to new customers, which resulted in a lower volume of upgrades. Historically a new product launch has resulted in an increase in upgrade revenue. However, in 2010 we launched GenesisPlus, a stand-alone system that is not upgradable to our existing product line.

Service revenue for the fourth quarter of 2010 compared to the fourth quarter of 2009 was relatively flat at approximately $3.3 million. The primary component of service revenue is extended service contract amortization. This revenue has remained flat over the past several quarters due primarily to lower service contract amortization as a result of lower ASPs on our service contracts, offset by higher revenue from consumable handpiece purchases and time and material fees charged to customers who are out of warranty.

Titan annuity revenue for the fourth quarter of 2010 was in line with our expectations at $934,000, a decrease of $590,000 from the same quarter in the prior year. This decrease was primarily due to our voluntary recall of certain Titan XL handpieces. We provide our eligible customers with a fully refilled Titan XL handpiece, which resulted in a lower than normal Titan refill revenue. We were pleased with the approximately $300,000 increase in Titan refill revenue from the third quarter, which we believe will continue to increase until we reach our normalized $1.5 million on a quarterly basis in the second half 2011.

Fillers and cosmeceutical revenue was $1.2 million for the fourth quarter of 2010, which was up significantly from the fourth quarter of 2009. The primary reason for this growth was Obagi Japan cosmeceutical sales of approximately $750,000 in the fourth quarter of 2010. We started selling Obagi products in Japan in February 2010 and are pleased with this increase in revenue source and the cross-selling opportunities this relationship provides.

A significant percentage of our revenue is sourced from existing customers. During the fourth quarter of 2010, 41% of our revenue was derived from service of upgrades, service, Titan refills, and filler cosmeceutical products. We remain committed to strong customer satisfaction and believe we will continue to realize revenue from these annuity revenue categories.

I will now address our operating performance. Our gross margin was 59% in the fourth quarter of 2010, compared to 62% in the fourth quarter of 2009. The 59% margin is lower than we expected at our current revenue level due primarily to the following; lower ASPs for our product as a result of customers purchasing fewer applications on our platforms, a greater proportion of distributor revenue has a lower gross margin, and a temporary decline in our Titan refill revenue that traditionally has a higher gross margin than our consolidated gross margin.

We have historically targeted 60% gross margin at quarterly revenue levels in the $14 million range. Due to the reasonings just mentioned above, to achieve 60% gross margins we believe our quarterly revenue now needs to be at approximately $15.5 million. Below this revenue level our margin will be lower, and conversely above this revenue level they will be higher.

Sales and marketing expenses remain flat at $6.1 million or 40% of revenue in the fourth quarters of 2010 and 2009. Research and development expenses were $2.2 million for the fourth quarter of 2010, compared to $1.9 million for the fourth quarter of 2009. This increase was due primarily to material spending associated with our new product development efforts. As Kevin mentioned earlier, we plan to increase our investments in R&D and expect multiple product launches in 2011. As a result, we expect R&D expenses to increase. Note that at revenue levels higher than our fourth quarter 2010 revenue of $15.2 million, we expect that R&D expenses as a percentage of revenue will decrease from the 14% rate in the fourth quarter of 2010. General and administrative expense were flat at $2.2 million for the fourth quarter of 2010, compared to $2.1 million for the fourth quarter of 2009.

Interest and other income net was $144,000 for the fourth quarter of 2010, compared to $174,000 in the fourth quarter of 2009. The lower income is due primarily to lower yields on our investment portfolio, which reflects our focus on capital preservation during the recent uncertain financial markets. In the fourth quarter of 2010 we had a net benefit from income taxes of $127,000, which resulted partly from expiration of the statute of limitations related to the audit of some tax years, as a result -- as well as certain foreign deferred tax benefits recorded at the end of 2010. For modeling purposes, we suggest using effective income tax expense of approximately $50,000 per quarter in 2011.

Turning to the balance sheet. Our financial position remains strong. As of December 31, 2010, we had approximately $97 million in cash, marketable securities, long-term investments with no debt. This represents over $7 per outstanding share. During the fourth quarter our operations consumed approximately $400,000 of cash. Net accounts receivable at the end of the fourth quarter of 2010 were $4.2 million, and our DSOs were 25 days. Inventories at the end of the fourth quarter declined by approximately $700,000 when compared to the third quarter 2010. We continue to aggressively manage this asset and are turning our inventory in the range of three to four times per year.

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

Thanks, Ron. For the next few quarters we'll remain focused on the following key initiatives. One, achieving higher sales productivity through improved management focus. Two, targeting our sales and marketing efforts on physicians in the core market while maintaining a strong presence in the non-core market. Three, continuing to cultivate relationships with key opinion leaders. Four, continuing our efforts on multiple R&D projects that include the following; one, the continued launch of the GenesisPlus product; two, launch of our new vascular work station Excel V for the core market; and three, focusing efforts on an additional new product scheduled for the second half of 2011. With the appropriate swift execution of these important initiatives, we believe we will achieve our goal of increasing revenue, and improve leverage of our operating expenses, resulting in increased performance.

Now I would like to open the call to your questions. Operator?

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question is from Phil Nalbone with Wedbush. Please go ahead with your question.

Hi, thank you very much. Kevin, I'll start with you. You just reported your best US growth since Q4 of 2006. What has happened? What is turning around? Is it market dynamics? Is it the new product? Is it sales force productivity? How would you assess the mix on your domestic performance?

Well, Phil, we are pleased to see that we have been able to make the course corrections to get our growth trajectory in a positive direction, and it's nice to see double-digit growth relative to a year ago. It's a number of things. I think we have struggled over the years making the shift from the non-core segment of the market to the core segment. Clearly, with the product development activities, we're seeing nice uptake there. The GenesisPlus has done very nicely, and we think the new product that we have been able to get in the hands of key opinion leaders is also giving us access to the part of the market that we think is [a help to us].

Kevin, would you dare to hazard a guess as to what the US growth rate for the aesthetic laser market is likely to look like on a year-over-year basis over the next couple of quarters?

Sure. So, Rob, we have data on what it has been historically from 2010 versus 2009. It was relatively flat, wasn't it?

Single-digit growth, maybe.

Single-digit growth. But we're hopeful the same newspapers that you're reading are reflecting the optimism in our business. I mean, if we can get more of economic rebound, that we're going to benefit from that. And we're also hopeful that the downdraft has been severe and protracted, such that there potentially could be an issue of pent-up demand once things do get more stabilized on the economy front. But we're hopeful that the industry can experience double-digit growth.

Okay. Great. One more for you, Kevin, and I'll go back into the queue. Can you talk more about the FDA pathway for the toenail fungus indication? Exactly what sort of claim are you aiming for? Is this a 510(k) or PMA? And any guess as to timing?

It is a 510(k), and there is a predicate device that has been cleared for this indication. We're looking for the exact same language on our indication. We have been working with the agency to understand what they are looking for, and have worked in tandem with them to construct the 510(k), so we're hopeful that the agency reviews and gets a favorable response from it. We submitted it several months ago, and -- so we're waiting to get a signal from the update as to how they view it. In the case that we don't get a clearance with the predicate 510(k), we also have clinical work that we're currently doing that would be able to support any potential requirements they have for clinical validation of our technology.

Are you seeking an appearance-based claim? Or something a little more clinical, like destruction of the underlying fungus condition?

No, it's an aesthetic claim that shows the improvement of the appearance of this condition, which we think is going to be just fine in terms of us having the ability to talk about toenail fungus specifically.

Okay. Thank you very much.

The next question is from [Bill Knox] will TIG Advisors. Please go ahead with your question.

Hey, guys, two quick questions, if I could. First, do you expect to be cash flow positive this year, 2011, given your current outlook?

Yes. If you look in the current quarter, Q4, we consumed about $428,000 of cash from an operating perspective, and part of that was consumed by increase in accounts receivable, so we're pleased with what occurred in Q4. So looking into 2011, we are certainly planning to be accretive from a cash perspective.

Okay, great. And secondly, Kevin, you alluded to it on the call about your international business, and specifically a year ago, Australia.

Yes.

(Inaudible -- multiple speakers) tax incentive. If you were to back that out and normalize for apples-to-apples compare, what would that kind of year-on-year growth be?

This is Ron.

Okay,Ron.

You are right. We actually had a decline of 7% of our international business. Revenue volume. If you were to back out the Australia number, which was unusually high in revenue volume in the fourth quarter of 2009 due to special tax incentives that was provided in that country. If you were to back that out, our international volume actually grew 21% from the fourth quarter of 2009 to the fourth quarter of 2010. We saw growth in many, many of our international markets, with Japan leading the way with significant or record revenue growth.

Okay. Great. Thanks, guys.

Thank you, Bill.

Your next question is from Thom Gunderson with Piper Jaffray. Please go ahead with your question.

Hi, good afternoon, guys.

Hi, Thom.

So on Excel V, is -- congratulations on the impending launch. Is that ready to ship now?

We're planning to have it available to ship this quarter. We are -- as the press release indicated today, we have it at the -- in New Orleans now, and we will be talking about it in our booth, and we're excited from the clinical feedback from the most respected people in aesthetic vascular dermatology.

The reason I ask is usually inventories go up on an impending launch, and your inventories went down. So I was just wonder, is there anything unusual about this? Can you ship from some other -- from manufacturing side or something like that?

Actually the inventory associated with this product, the Excel V, actually went up during the quarter. We just had significant declines in other inventory levels. So -- and that's just reflective of the management we have been focused on in reducing our inventory levels.

Got it, thanks. And staying on that same theme of Excel V, were there any beta test sites? Any sales at all in the quarter at all that were attributed to this?

No, we haven't been focused on our sales efforts until this meeting. We wanted to really approach this with a strategy that we get it in the hands of people that we think are very influential, so we have probably had this in the hands of 15 physicians, and -- So that's been the focus this quarter -- or this past quarter and the early part of this quarter is to really hear what they have to say about it. And so far we have been delighted with the response so far, and now we're at a point where we're ready to commercially launch the product.

Kevin, were those revenue-generating units or [try it] --

No, we had -- that wasn't the strategy.

Got it.

We're not looking to do that. We're really looking to build the story.

Got it.

To be clear, Thom, there was zero associated with Excel V in that -- in this quarter.

0.0, got it. The sales force. Are they getting trained this weekend, or are they already trained?

Well, we did training last quarter for Excel V specifically, and we here in New Orleans right now with our sales force next door getting four days of additional training, so we really are looking to roll this out with a well-positioned sales organization.

Got it. You gave us a number -- I'll switch a little bit here. You gave us a number of 64% of sales same from core and podiatry. How much of that was podiatry?

About 26% was podiatry, with 38% coming from the core. A total of 64%.

Thanks. And last question for me right now is, I had in my notes from previous that maybe we were expecting an order to come through -- a shipment to come through to spa or health club. Was there any of that in the quarter?

We had one -- the shipment -- the organization you are thinking of happened in the first quarter a year ago, and we have a very good relationship with that organization. And we are in active discussions for a subsequent order, but we didn't recognize any revenue for that in the fourth quarter.

Got it. That's it for my guys, thanks.

Thanks, Thom.

Your next questions is from Anthony Vendetti with Maxim Group. Please go ahead with your question.

Thanks. Good afternoon, guys. The 2011 second half product that you are mentioning, can you talk a little bit more about that particular product? Maybe the expected application for that?

Not at this point, Anthony. We really are still focused on the GenesisPlus offering and continuing to roll that out, and then obviously this weekend the Excel V is what we have the whole organization focused on.

Was this product, the one for the second half, this was one of the products that you mentioned in the third quarter call, and you are just finalizing specifically where it's -- when going to come out?

We have been consistent in talking about three product launches, with the third one coming in the second half. So there has been no change from our position.

Okay. And cosmeceutical area, looks like those revenues sequentially have gone down. Is that accurate? And if so, what would be the reason for that do you think?

I think sequentially it went up just a small amount, Anthony. From $1.1 millionto $1.2 million,if I remember it right. I'm going to look at my records now. Yes, it went from $1.1 million in the third quarter of 2010 to $1.2 million in the fourth quarter of 2010. And that's relative to $807,000 in the second quarter of 2010, so there's been a nice upward tick on that revenue source.

Again, that's just limited to our business in Japan.

That's just Japan. Okay. Okay. And then if you could give the breakout of stock-based comp, Ron?

Sure. In cost of sales it is about $158,000;in sales and marketing, $286,000; R&D was $152,000; and general and administrative was $384,000; for a total of $984,000.

Okay. And then lastly on the ASPs you mentioned they went down, but the main reason is it sounds like when, I guess, customers order the Xeo or some other product that has handpieces, they're ordering fewer handpieces, at least initially? Is that -- and then I guess you said more distributor-type sales. Is that the main reason, the only reason, or has there been any pricing pressure? Or is it mostly a combination to these two things?

Those are the primary reasons, Anthony. There might be a small amount of erosion, but the primary reasons are those two.

Okay. The distributor, though, with international revenues down a little bit this quarter --

Anthony, I think the way we look at it is that the comparisons are to an extraordinary Australia quarter --

Okay.

-- (inaudible -- multiple speakers) growth elsewhere to be quite strong.

And, remember, Australia is a direct country for us. It is not a distributor country. So we were up significantly internationally, about 21% when you back out that Australia piece.

Okay, so international, because of that strong 4Q 2009, if you back that out, international was actually up 21%.

That's correct.

Okay. Okay. That --

And looking at the distributor volume as you're referring to right, Australia is a direct country, so our distributor business is also very healthy and was up significantly.

And just -- I missed the part where you were talking about the Titan refills. Is that recall now complete, and you expect it to be back on track? Is that -- I missed part of that.

Yes, the recall is complete. It's actually a closed matter with the FDA. We have done all of the swaps that we were supposed -- that we were -- that we had promised to our customers with full refilled handpieces. And now we're starting to see much more of those handpieces being used and coming back for replacement. So we had nice sequentially growth in our Titan refill revenue category, and we expect more growth in Q1 and Q2 of 2011.

Okay. Excellent, guys. All right. Look forward to seeing you at AAD. Thanks.

Thanks, Anthony.

The next question is from Morris Ajzenman from Griffin Securities. Please go ahead with your question.

Hi, Kevin. Hi, Ron.

Hey, Morris.

Hi, Morris.

Just a follow-up on one of the earlier questions about inventories. You actually spoke about inventory reduction ex the new introduction, so I guess you have kind of gotten your hands around the inventory level there. Is that complete as far as you are concerned in the fourth quarter, as far as the inventory reduction?

Yes, I think we have been working it aggressively. I wouldn't anticipate any further reductions in inventory, but we're very pleased with what we have accomplished during the past year in our inventory reduction.

Can I then ask what the impact was to gross margin of inventory reduction was in this past quarter?

For the inventory reduction?

Yes.

It really wouldn't have impacted the gross margins. It just means we were buying less and storing less.

Okay. So it wasn't that you sold through --

No. No. It wasn't that. There wasn't any kind of a margin impact. It was more of a management of the asset.

Got you. Moving quickly to the cash burn. $428,000 cash burn, and then you look at the accounts payable being up $1.2 million.

Yes.

Therefore you are looking at -- if there's no increase in the accounts -- not accounts payable, accounts receivable.

Accounts receivable.

I'm sorry, accounts receivable. Looking into next quarter, so if all things being equal, then you would be generating $600,000, $700,000, $800,000?

Yes, we certainly believe the level of $15 million per quarter is very doable to generate cash. And the key thing is that when you look at that cash-flow statement is you look at the net loss of $1.3 million at the top, and we have got deferred stock-based compensation charges of around $1 million. Those roughly offset. And if -- and the rest of the assets, if they remain flat, basically it puts us at about break-even point from a cash perspective, or even generating cash.

Right. And one other -- two other items. One on your upgrades. You talked about the sales focus with new products in this particular quarter, and it looks like that might be -- is that going to be something going forward, where upgrades will not be at the levels it has been previous quarters because of the more focus on new products, and some of the new products not having upgrades associated with it?

Yes, the two new products that we have launched in the last six months are not -- they are dedicated systems, and we're finding that core physicians tend to prefer having dedicated systems. Dedicated systems don't offer an upgrade opportunity for the existing install base.

So, therefore, upgrades will be a -- in a declining mode the next couple of quarters as you compare the previous years [on this]?

Well, it tends to move around quite a bit in terms of our upgrades, but what this does do is it provides us with new products that we are able in turn to go back to our existing install base.

And one last question. It looks like on a seasonal basis -- [I don't know why, but] from the fourth to the first quarter, there looks to be a revenue decline usually. Is that something we should expect, or is that those trends will not be in place based on internal growth capabilities?

Well, you can look at our experience historically, and that's typically been the case. But with that said, we are doing what we can to get growth through 2011.

Okay. But no [comment] beyond that for the first quarter, as far as not being able to offset that sort of decline on the fourth quarter / first quarter basis?

We're not giving guidance on our revenue projections, but we are hopeful that we're getting nice growth as a result of these new products, and some of the initiatives that we have taken with our sales organization and other internal initiatives.

Thank you.

Thanks, Morris.

Your next question is from Dalton Chandler with Needham and Company. Please go ahead with your question.

Good afternoon.

Hi, Dalton.

The Obagi product launch has been so successful in Japan. Do you have the potential to expand that to additional geographies?

We're pleased with it, andI think we have got a nice partner with Obagi. It's a something that -- the two organizations are working very well together. You know that Obagi has a direct sales organization here in North America, so that -- take that off of the table. We do like the model, and we are looking at other ways to expand the relationship, both through expansion of our geographic coverage as well as new products, but there are nuances in each country that we have to consider, and we think that a strong brand of Obagi in Japan is really provided the revenue opportunities as well as our ability to introduce our products to the existing Obagi customers.

Okay. And then just shifting gears to the new dedicated workstations. Is your strategy here to go through all of the major indications and introduce a dedicated workstation for that particular indication?

We have not stated that as the driving strategy going forward. We're looking at a number of different things, but we do think that as it relates to developing products for dermatologists and plastic surgeons, they do like to have high-performance products that are best in class. And as we look at market those are the types of products that we will develop.

And I apologize if I missed it, but have you given an update on the [true scope] element?

There are no updates at this time, Dalton, but it's still an active program, and we are hopeful to have that introduced to the market when we are prepared to do so.

Okay. And just a quick housekeeping question. What is your sales headcount now?

Sales headcount, we have -- in North America, about 27 territories. And there is about 25 internationally.

Outside of North America.

Outside of North America.

27 in North America, and how many internationally?

25.

Okay. Thanks, guys.

Thank you.

We have time for one more question. The question from Phil Nalbone with Wedbush. Please go ahead.

Kevin, I'm sorry I know you want to get down to Bourbon Street and start drinking hurricanes, but a couple of questions. Can you tell us the regulator status of product number three targeted for the second half?

We don't have a clearance for that right now, but we have got some -- submission in for something, but we just don't have it yet.

Okay. Ron, a housekeeping question. The balance sheet shows cash and short-term investments of $90 million. If you include the long-term investments, it's a $97 million balance. What is in the long-term investment category? How liquid are those assets?

Those are our auction-rate securities. So those aren't liquid at this time,but it seems like we are getting liquidation slowly. In fact, I got an email just today;There is about $250,000 of it that has just become liquidated at PAR. But they are all auction-rate securities.

Okay, great. Last question, Kevin. The Excel V product, this is really directed at a product that has been in the market for quite sometime by Candela. I'm blanking on the name of it, their big high-end vascular laser. Can you tell us what that product does annually in terms of sales, and really, what the market opportunity is here for a competing product?

Yes, that competitor doesn't break that product out by revenue, but we think it's a $150 million market easily. And we're -- we respect that product, and it does things that allow dermatologists that provide very straight-forward procedure. And what we're trying to do is build upon that with a broader range of vascular treatments that can be supported with a more cost-effective solution, as well as some of the other things. [But] a 2011 product offering to providers of something that's been in the market for a while.

And so $150 million annual worldwide market for a vascular laser?

(Inaudible -- multiple speakers), but as I said no one breaks it out by category, so we're just estimating.

Got it. Okay. Thank you very much.

Okay. Well, thank you for participating in our call today. We look forward to seeing you at various investor events during the quarter, and updating you on our first quarter conference call inMay 2011. Good afternoon, and thanks for your continued interest in Cutera.

This concludes the teleconference. You may disconnect your lines. Thank you for your participation.