Cutera, Inc.
Q2 2013 Earnings Call Transcript

Published: 6 Aug 2013

[Operator:]

Greetings, and welcome to the Cutera, Inc. Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills of ICR. Thank you. Mr. Mills, you may begin.

[John Mills:]

By now, everyone should have access to the second quarter of 2013 earnings release, which went out today at approximately 4 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 today with the SEC and available on its website at sec.gov. Before we begin, we would like to remind everyone that these prepared remarks contain forward-looking statements, including statements concerning financial guidance on future revenue growth, expense levels, gross and net margins, the results of cost improvement initiatives and other financial metrics, expectations for increasing revenue, the development, commercialization and revenue growth potential of existing and planned new products. While we manage to commercialize new products and we attempt to launch products according to our plans, there is risk both from regulatory and technical challenges that our actual launch date could be delayed or the launch of certain products may never occur. Management's plans for the repurchase of Cutera's stock management and our Board of Directors make no assurances to the magnitude of our planned share repurchases, although we have established board-approved limits and the company has to comply with regulatory and repurchase volume restrictions. 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 the company's most recent 10-Q filed today with the Securities and Exchange Commission. I would like to point out that all references to the current quarter relate to our second quarter of 2013 and all changes in financial performance are in comparison to the same quarter in the prior year, unless specified otherwise. With that, I'll turn the call over to the company's President and Chief Executive Officer, Kevin Connors.

[Kevin P. Connors:]

Thank you, John. Good afternoon, everyone, and thanks for listening today to discuss Cutera's results for the second quarter ended June 30, 2013. Revenue for the second quarter of 2013 was $19.6 million. We have experienced growth in many segments of our global markets. This was offset by declines that I would address next in further detail. Our international revenue increased modestly in the quarter. We have continued to experience healthy performance in our direct businesses in France and Australia, as well as our European and Asian distributorship businesses. The effect of foreign exchange in Japan had an overall negative impact on our direct business performance, however. In the quarter, Japan represented just under 20% of our business volume, down from roughly 25%, largely due to unfavorable foreign exchange impact. Some of our business is priced on local currency, in which case, although the locally denominated business showed growth, we experienced contraction due to weaker yen conversion relative to last year. In the case of our U.S. dollar-denominated business in Japan, the effect was a price increase on local currency, which has a negative impact on business demand. For reference, on June 30, 2012, the yen-to-U.S. dollar ratio was approximately 80

[Ronald J. Santilli:]

Thanks, Kevin, and thanks to all of you for joining us today on our second quarter 2013 conference call. Our revenue is $19.6 million, which remained flat when compared to the second quarter of 2012. Net loss was $638,000 or $0.04 per diluted share. Adjusted for noncash items, including stock-based compensation, amortization and depreciation expense of $1.1 million, we generated net income of $500,000 or $0.03 per diluted share. Operations provided $1.9 million of cash during the quarter, bringing our cash and investment balance to $89.6 million. Our cash balances have increased by over $8.2 million during the past year. As Kevin mentioned, the Japanese yen devalued approximately 23% when comparing the average rate for the second quarter of 2013 to the second quarter of 2012. Japan-sourced revenue represented approximately 20% of our total revenue for the second quarter. Please keep in mind that roughly 1/3 of our Japanese revenue is sourced in U.S. dollars, which minimized the accounting impact of the devaluation to our revenue. We did result in higher prices for our Japanese customers who paid us in U.S. dollars. As such, it is our belief that revenue was adversely impacted in the aggregate by approximately $1 million during the quarter. Also note that we have expenses denominated in Japanese yen in cost of goods sold, sales and marketing and general and administrative expenses, each of which include a favorable impact related to the foreign exchange devaluation. Products and upgrade revenue increased slightly in the current quarter. This resulted primarily due to an increase in our recently launched Excel V and truSculpt products, which was offset by declines in some of our other legacy products and upgrades. Service revenue increased by $72,000 to $4.5 million. We expect our service revenue to remain in the $4.5 million per quarter range for the remainder of 2013. Titan and truSculpt revenue -- Titan and truSculpt refill revenue decreased by $110,000 or 9%. This decline was due primarily to general softening that we are addressing and the devaluation of the Japanese yen, partially offset by an increase in truSculpt refills, which commenced in the fourth quarter of 2012. Fillers and cosmeceutical revenue declined $540,000 or 37%, due primarily to the devaluation of the yen and some general softening in the market. Now I will address our operating performance. Our gross margin was 57% in the second quarter of 2013 compared to gross margin of 53% in the second quarter of 2012. This improvement was due primarily to product mix shifts towards higher margin products such as truSculpt, realization of many cost initiatives driven during the past year and increased reliability of our products resulting in lower service expenses. We are pleased with our gross margin performance. For modeling purposes, gross margin percentage will remain in the upper 50% range if revenue is approximately $20 million per quarter and we expect our gross margin percentage to increase as our revenue increases. Sales and marketing expenses were $7.2 million or 37% of revenue compared to $7.1 million or 36% of revenue in the second quarter of 2012. We expect our sales and marketing expenses to increase slightly in the second half in absolute dollars due to the planned expansion of our North American sales force. Research and development expenses increased to $2.2 million in Q2 2013 from $1.9 million in the second quarter of 2012. The growth in the current quarter was due primarily to increased material spending related to new product development activity. We remained committed to investing in R&D and launching new products in the future and expect quarterly spending to be in the range of $2 million to $2.5 million per quarter. General and administrative expenses decreased by $500,000 to $2.4 million. As a percent of revenue, G&A expenses declined from 15% in 2012 to 12% in Q2 2013. The large reduction was due primarily to reduced personnel and legal-related costs. We expect general and administrative expenses to be approximately $2.6 million per quarter in the future, which includes the U.S. medical device excise tax. Interest and other income net decreased by -- decreased to $75,000 from $144,000 a year ago. This decrease was due primarily to an increase in net foreign exchange translation losses as a result of the appreciation of the U.S. dollar versus most of the currencies of our foreign subsidiaries. Income tax provision. Our tax provision is primarily attributable to international taxes related to our foreign subsidiaries and small amounts of minimum and capital-based taxes in the U.S. As a reminder, we continue to maintain a 100% valuation allowance for our U.S. deferred tax assets. We recorded an income tax expense of $90,000 for the current quarter compared to an income tax expense of $89,000 in the second quarter of 2012. Going forward, for modeling purposes, we suggest using an effective income tax expense of approximately $100,000 per quarter. Turning to the balance sheet. Net accounts receivable at the end of the second quarter of 2013 were $7.5 million and our DSOs were 35 days. We continue to have among the best DSOs in the industry and expect them to remain in the mid-30s -- mid-30 range throughout 2013. Inventories at the end of June 30, 2013 declined by $573,000 to $10.5 million compared to the first quarter of 2013. This reflects turns of approximately 3.2 to per year. We believe there continues to be room to reduce our inventory further, where appropriate, increase our turns to 4 per year. Deferred revenue has increased by $2.6 million over the past year. We have had an increased volume of customers who purchased extended service contracts from us, most of whom did so at the time of purchase of a new system. Relative to last year, this effectively indicates that our order level is improved, but the revenue will be recognized over the term of the contract. In conclusion, our financial position continues to strengthen as we increased our cash and investments to almost $90 million with no debt. This represents over $6 per outstanding share. Now I'd like to open up the call to your questions. Operator?

[Operator:]

[Operator Instructions] Our first question comes from the line of Morris Ajzenman with Griffin.

[Morris Ajzenman:]

Two questions. First, just help us understand specifically focusing on U.S. market, which was down 2% year-over-year, and you're talking about certain sales and management structural changes, et cetera, et cetera. You touched on podiatry, we can talk on that. But, I guess, first start with the sales force. What is it that, for lack of a better word, that when it's lacking that your sales really kind of lethargic versus what's going on in the industry right now. And what is specifically that needs to be done with the sales force when you used the word structural?

[Kevin P. Connors:]

Well, Morris, as we alluded on the call, we've got parts of business that are doing extremely well, but we mentioned Canada and podiatry in North America because relative to a year ago, our Canadian business is off about $1.3 million and podiatry, some of which is kind of double accounting Canada. But largely, that's $1 million off from a year ago as well. So in terms of the techniques that we're focused on, number one, what's get renewed focus on from a distribution perspective on podiatry, we don't believe that the market in Canada has gone through a material shift and much of the things we're focused on, it just bring out a higher level of attention. We talked about specialization in our sales force to make sure that we can sufficiently focus on the broad array of products that we currently have in our portfolio. And heightened focus on training and so it's really blocking and tackling rather than something elusive.

[Morris Ajzenman:]

Podiatry, GenesisPlus, what about U.S.? How's the traction there?

[Kevin P. Connors:]

That's largely a U.S. product.

[Morris Ajzenman:]

And so the sales -- it's just we focus elsewhere away from GenesisPlus that's impacting recent results in podiatry?

[Kevin P. Connors:]

Well again, the key concept here is this renewed focus on it. We think that the trade meetings that we attend in podiatry specifically have had a lot of excitement and buzz. So we think that we just need to get our sales forces' proper mind share of this market because it's -- we're making investments and we're seeing continued signs that this market is real.

[Morris Ajzenman:]

One follow-up and I'll get back in queue. How many quarters -- is it quarters or quarter before you think the sales force in putting aside of what's going on now with the yen-dollar devaluation as from the perspective of the yen? Is it a quarter? Is it a couple of quarters before you get back on track where you think the top line should be?

[Kevin P. Connors:]

Yes. Well, just to keep things to the perspective, we had 7 quarters of growth in excess of 20% up until the end of last -- sorry, up until Q1. So we uncovered some things earlier in the year and we think we've jumped on the appropriate course to get those things back on track. We feel good about what our sales management team is focused on and I think from a product perspective, we think we're also very strong there. So it's -- we don't give guidance on our revenue, but we don't think that there's something here that we can't manage our way through.

[Operator:]

Our next question comes from the line of Tom Gunderson with Piper Jaffray.

[Thomas J. Gunderson:]

So let me just start with a little confusion on the answers to the last questionnaire. Kevin, I thought podiatry in the U.S. had a separate sales force and I thought you just said that there was a lack of focus. If I understand this right, they have one product to sell, how do you lose focus on that?

[Kevin P. Connors:]

Right. But the challenge that we found with that is that you're correct that they largely have one product. We've distributed something in addition to that, but the territories we found to be very difficult to manage. We had around 9 reps for the U.S. and so that the efficiency of that focus team, I think, brought some challenges that we didn't anticipate. We are continuing to expand and we will fold the podiatry product in with the whole portfolio such that all of our feet on the street will be able to capture the podiatry market. Now with the specialized team, we did have individuals that did extremely well with that, but we found that the feedback that we had is that there's a lot of travel time associated with the specialized force like that and we're looking to do some other things, where we can continue to manage or create some structural focus such that we could continue to get proper mind share, but we just found that 9 people traveling across the country, just spending more time traveling rather than getting in front of customers.

[Thomas J. Gunderson:]

Got it. And then I can't remember if it was a year ago or 2 years ago, where you were talking about how things have kind of switched for the sales -- for your sales force. And at some of the meetings and industry meetings, et cetera, the competitive sales force was coming to you and saying, "Hey, you guys have the hot products and we'd be interested in switching ships here." Is that still out there? Do you think you can get some of those high-performance aesthetic laser light sales guys from some of your competitors? And then second part of that question is, you mentioned feet on the street now and combining the 2 forces, if we go from feet on the street at the beginning of the year to the end of the year, where do you think it's going to be?

[Kevin P. Connors:]

Right. Well first of all, in terms of getting high performers, you're absolutely right, that's an active initiative with our sales force expansion. We've been able to successfully land some people that, at one point, were top performers here that were recruited by competition. And we're delighted to have them come back into the fold. So that's part of the plan. We're targeting about 40 people.

[Ronald J. Santilli:]

About 40 people from 35 at the beginning of the year.

[Kevin P. Connors:]

Right. And mind you, Tom, that we're collapsing that 9 podiatry sales force into that as well. So we're scheduled to get that. And that's underway as we said in the script. We have more expansion plans beyond that, but we're taking this as first step. And just to speak a little bit about the specialization, we have an Excel V sales specialist because this a product that really shines when it's in a doctor's office for evaluation. The conversion rate with this product is the highest of our products and it's a premium product with well differentiated technology and it's just really done well in certain parts of the world. It just exceeded our expectations and our focus now is that how can we replicate that on a much broader scale here in North America with very sophisticated salespeople that can manage their colleagues within their region. So we'll sign one specialist for each region and have them work side-by-side with the direct rep in a given territory. And so far, the reception of that has been very good.

[Thomas J. Gunderson:]

Got it. Two quick number ones probably for Ron. Excel V and truSculpt were 48% of revenues in Q1. What was that number in Q2?

[Ronald J. Santilli:]

I think that was of the product revenue in Q1.

[Thomas J. Gunderson:]

Product revenue. Okay, so what was that number in Q2?

[Ronald J. Santilli:]

It's in the same range, around 44%, I think, but it's in that same range.

[Thomas J. Gunderson:]

And then you gave us -- can you give us the split of orders between core and podiatry and other?

[Ronald J. Santilli:]

Right. I realized that we didn't have those in the prepared remarks. The core group was about 43%. That's, again, is North America orders. Podiatry was about 19% and then the noncore group about 38%.

[Operator:]

Our next question comes from line of Anthony Vendetti with Maxim Group.

[Anthony V. Vendetti:]

Just to talk a little bit more about the products. You mentioned that you've done some clinical trials for the new picosecond laser and you're getting ready to submit a 510(k) for that. What do you think the time frame is for that submission? And based on the fact that there's already a competitor out there with a product, what's your best guess to with some type of a range of when you think you might receive approval? And then also on the new high-performance laser, which you already submitted FDA approval for, is that something you're still expecting by year end?

[Kevin P. Connors:]

Sure, Anthony. Well, first of all, we wanted just to update investors and anyone else on the call that's interested in being updated on the various engineering programs. Last quarter, we indicated that we had a meeting with the FDA to lay out what seem to be an agreeable strategy. The FDA is always subject to change their views on things, but we're encouraged by that meeting. And they laid out the basic framework for what they're looking for the 2 indications that we're looking to get the agency to approve. One is for tattoo removal and other one is for pigmented lesions. And both of those have clinical trials to support the 510(k). So that was the direction we got from the agency last quarter. And on timing, we'll comment more as we get closer. But generally, we want to start speaking about product launch information once we have the submission and the FDA's given us some guidance that they don't want us to seem as if we're promoting it before having our 510(k) in process. So I can't speak to the timing of it. And the second question, Anthony, was...

[Anthony V. Vendetti:]

So just in terms of -- in terms of the laser system that you've already -- the new high-performance laser system, is that still on track for the end of this year? And then just -- I wanted just an update on ProWave LX, just how that rollout is going?

[Kevin P. Connors:]

Right. Well it's -- we're pleased to get the submission in, in the past -- recently, and we think that the program is coming together nicely and we think that the timeframe that we talked about is still what we're targeting.

[Anthony V. Vendetti:]

Okay. And then the launch of ProWave?

[Kevin P. Connors:]

ProWave LX, we started shipment of that. And so far, the feedback we're getting from physicians on a clinical experience has been very positive. Again, we're really raising the peak power capabilities with that launch and that allows our customers to treat some of the more challenging patients with fine hair and lighter hair and with this technology, they're able to do that.

[Anthony V. Vendetti:]

Can they buy that as a separate handpiece, as well as a standalone system?

[Kevin P. Connors:]

That's correct. We were able to provide that as an upgrade. Or they can buy a system that incorporates that technology, as well as our Nd

[Anthony V. Vendetti:]

Okay. And then on Canada, Kevin, is -- are you convinced that this is transitory? I know the first quarter was maybe a little bit of a surprise because Canada has been a strong market for you guys for a while. Are you confident that whatever steps you've taken or is going to turn things around quickly here in the third quarter? Or is this going to take a little bit of time to turn around?

[Kevin P. Connors:]

Right. I think to your point, Anthony, we've had a very strong business in Canada for years, and we really believe we got a great team up there that has been consistently performing at some of the highest levels in our organization over the years. And that same team is in place. I think with some of the things that have happened in the podiatry discussion impacted Canada as well, and we believe that, again, just really sending a message of focus in providing a higher level of support for the team underground, we beefed up our sales training resources significantly and we certainly haven't lost confidence in our team in Canada. So we've seen that elsewhere, where certain parts of the United States, our performance has been extremely strong. So where we're not strong, we're really shining a bright light on the specifics of what we can do to change that. We're working very closely with that team and we believe that the initiatives in place are going to return our performance to typical levels.

[Operator:]

[Operator Instructions] Our next question comes from the line of Brian Freckmann from LS Capital.

[Brian Freckmann:]

Just -- a lot of the budgets have been answered, but I just want to -- I'm looking at things. Is it fair to say that your -- as best as I can tell, your sort of Excel V and truSculpt business had grown around 30% sequentially over the last 2 quarters? Is that about a good way of thinking about it?

[Ronald J. Santilli:]

Well we really don't get into that level of granularity within our products, but I think we can say we're continuing to see growth on those products year-over-year, as well as sequential.

[Brian Freckmann:]

So here's just a general question, and then I'll jump to the buyback. It seems as if you guys are launching new products and you're growing at least when you sort of take Excel V and truSculpt as a percent of sales and line those up, you're growing at about 30% the last 2 quarter-over-quarter sequentially and unfortunately have been stumbling with core products and then, let's say, optically $1 million of FX. I think the question prior was how comfortable are you guys that your legacy business has maybe trimmed the decline? Because obviously, you guys are losing the benefit of 30% sequential growth in new products because your core legacy products seem to be struggling a little bit and obviously, I think people see the value in the new products, but that is getting lost in the wash because you guys are showing optically flat growth when in fact, I think what are people are looking for is a pretty good growth. You're just giving it up in other places. So how do you stem the legacy business?

[Kevin P. Connors:]

Brian, unfortunately, there's not a one sentence explanation to the question, but we've tried to kind of tease it out in any number of ways. Previous in the call, we've mentioned the $1.3 million shortfall relative to a year ago from Canada. On the call, we indicated that we anticipate Japan is about $1 million, about $1 million for the podiatry and even in our topical business, which is to some degree, part of the Japan number but not completely, that was off about $0.5 million. And then we also indicated in Ron's section that deferred revenue increased relative to a year ago by $2.6 million. So there's just a lot of moving parts here, but one way to think about it is that our order performance actually grew very nicely. Obviously, the FX really hurt us in Japan. There's nothing we can do about that. But Ron explained that our operating expenses are a bit of a hedge in terms of our operating performance in Japan. But we are working diligently to address the areas that we think are key opportunities for us in the same way the Canadian opportunity in podiatry.

[Brian Freckmann:]

Okay. So -- okay. So you -- I appreciate that. So you mean -- that leads to my next question in relation to the buyback. I mean it sounds like you guys have built a deferred revenue, so theoretically, revenue should be growing from there. Your gross margins should increase as revenue grows. It sounds like you are trying to stem the sales slowdown by bringing in new salespeople and restructuring that. And so from a standpoint of kind of looking forward, obviously, you guys are fairly confident in the direction it's going and you're generating about a 13% free cash flow yield. When I look at the $10 million authorized for the buyback, you already have, of course, a $10 million 10b5-1, can you tell me how willing you are to buy the stock kind of at the current prices? I assume the $10 million is for current prices. In some general sense, is that a fair assessment?

[Kevin P. Connors:]

Well, general comments, Brian. While we would like to see the top line perform at high levels in what we're reporting today, we are encouraged that year-over-year, our gross margin has improved 418 basis points. And you can see the cash generation even with $19.6 million in revenue, we were able to generate nice cash in the quarter. And we think that we've got some challenges/opportunities from an execution perspective, but we think we've got the right products and we think with the right people. And as such, the board considered this issue and certainly, we've gotten strong opinions from some of our holders and we take that very seriously. So that was the catalyst for the board deciding that this made sense for our shareholders to do this. And we wanted to make it clear in our communication of the newly approved plan that we can purchase that in the open market during the open window. So we have about 1 month a quarter that we have an open window. And that's why we wanted to retain our 10b5-1 plan because we want to be opportunistic if the stock were to perform at that certain levels that we'd be able to acquire that way, too. So we intend to buy stock is the short answer.

[Brian Freckmann:]

Okay. And the window opens, I assume, a couple of days after this conference call.

[Kevin P. Connors:]

That's correct. That's correct.

[Brian Freckmann:]

Is it 2 days, 3 days, what's the...

[Kevin P. Connors:]

I think Thursday, but...

[Ronald J. Santilli:]

48 hours is the...

[Ronald J. Santilli:]

48 hours? Okay. So you guys could be in the market buying $10 million of the stock come Thursday?

[Kevin P. Connors:]

Yes. And just be mindful that there are volume requirements, that kind of thing, so we have to be compliant with the regulations, but we were able to get this cleared based on an attempt to buy back stock.

[Brian Freckmann:]

Okay, great. I mean -- I think you guys should buy $10 million and potentially buy $10 million more, but that's for another conference call.

[Operator:]

Our next question comes from line of Jack Wallace with Sidoti & Company.

[Jack Wallace:]

A couple of questions here. One, on previous calls, you've gone ahead and commented on your results versus those of the market that you've seen, obviously, looking back at the quarter that just passed, could you go ahead and comment on that and your thoughts on how you can improve that forward? Which will tie into my second question regards to collapsing the podiatry sales force and with the existing sales force as well?

[Kevin P. Connors:]

Sure. All right, Jack, we tried to provide what we think are kind of macro comments on what's happening within the industry. And at this point, it's really difficult for us to weigh in right now because there's some significant moving parts. We have the integration of talamar and simoshore that just happened and they reported recently, but it was only for a partial quarter so it's hard to see what the combined entity's trajectory is. And then we have Deltic [ph] report so we still -- and they've shown very nice growth in their procedure growth in particular. But there are a number of other companies that are awaiting to report so we just didn't feel like we have enough information to really give a good assessment of what's happening with the industry expansion rate. But I would estimate, and again, this is boring having that other information I alluded to, but I would estimate that it's growing double digits. And clearly, that's the bar that we're setting in terms of how we want to perform.

[Jack Wallace:]

And then going to my second question with the collapse of the podiatry sales force and with the rest of the sales force. It seems as though in particular in the comments you've made in previous calls, truSculpt and possibly even the Excel V product are higher-margin products, and depending on how the sales force is incentivized, it looks like the podiatry sales force may be incentivized the focus on the newer products, which may, of course, be what you're looking to accomplish there. But what will that say about the, I guess, the standing of this slowed growth to decline with the podiatry segment sales?

[Kevin P. Connors:]

Right. Well, originally, we have the podiatry product, GenesisPlus, in the bag with our general sales force before we went to specialization, so this is not an area that we haven't had experience with it. And as I alluded to earlier, we believe the activity at our trade meetings and other podiatry events has been very positive, so it doesn't seem that there's any indication that suggests that the podiatry opportunity has contracted and in our view, is that having 40 individuals having this product in their bag will improve the efficiency of -- because we're not dealing with people flying large geographies in their territory in order to get this product distributed. So we're staying very close to that and I think the whole notion of specialization is something that once we get our experience with Excel V, we will look to replicate that with other products as well.

[Jack Wallace:]

Great. One last question, just as it regards to the lower service gross margin. I think you may have alluded to it earlier in the call, but my call patched out, so I'm wondering if you could just talk about the lower gross margin in that segment?

[Kevin P. Connors:]

Right. Our service business typically has gross margins sub-50%. We're doing things the way we like to and I think we're seeing nice evidence that our service expenses are moving in the right direction and that's one of the contributors to our overall gross margin going right. But even as it -- even in that level, the period expenses associated with that business are very little. So on a contribution basis, profit contribution basis, it's comparable to our product sales, and I think there are a number of companies in the space that have a very difficult time maintaining a profitable service business and I think that's been an area that we've been able to maintain very positive relationships with our customers and also provide them with service by either an extended service contract or time of material. It's about a $19 million per year business for us.

[Operator:]

Our last question is a follow-up from Morris Ajzenman with Griffin.

[Morris Ajzenman:]

If you care to loop 1 month past into this third quarter of July, any comments here you want to give on any of the specific divisions or parts that had difficulties, if there's any change, any traction, and do you want to comment on Japan and the yen?

[Kevin P. Connors:]

On terms of the yen, I think you can see that, that's stabilized. The yen hasn't strengthened, but it's no longer -- at this moment in time, it's no longer collapsing like we experienced in the first of the year. Your prediction's as good as mine in terms of what that's likely to look like going forward. All I'll say is that we've got -- we feel good about the team that are working in various initiatives that are in front of us. And we're shining a very bright light on the areas that we think are truly areas of improved performance. But, again, I look at the entire organization and we've got some great shining stars here and we think we've got exciting products that are well received in the marketplace. So I just think that focusing on execution is critical and supporting these initiatives with the appropriate management and training resources that we've provided are going to ensure that we ultimately see the results.

[Operator:]

That is all the time we have allotted for questions. Mr. Connors, I would like to turn the floor back over to you for closing remarks.

[Kevin P. Connors:]

Thank you for participating on our call today. I will be attending a number of investor events in the coming months, and we will update you on our business progress on the third quarter call in November 2013. Good afternoon, and thanks for your continued interest in Cutera.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.