Cutera CEO Discusses Q4 2010 Results - Earnings Call Transcript

Cutera, Inc. ( CUTR)

Q4 2010 Earnings Call Transcript

February 2, 2011 5:00 pm ET

Executives

John Mills – IR, Integrated Corporate Relations

Kevin Connors – President and CEO

Ron Santilli – EVP and CFO

Analysts

Phillip Nalbone – Wedbush Securities

Bill Knox [ph] – TIG Advisors

Tom Gunderson – Piper Jaffray & Co.

Anthony Vendetti – Maxim Group

Morris Ajzenman – Griffin Securities, Inc.

Dalton Chandler – Needham & Company

Presentation

Operator

Greetings and welcome to the Cutera Inc.’s fourth quarter and fiscal year 2010 earnings conference call. (Operator instructions) It is now my pleasure to introduce your host, Mr. John Mills of ICR. Thank you. Mr. Mills you may begin.

John Mills

Thank you. By now, everyone should have access to the fourth quarter of 2010 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 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 risks 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, with the Securities and 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.

Kevin Connors

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 will provide some 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 of 2010, US revenue increased by 9% compared to the fourth quarter of 2009. This growth was primarily the result of improvements associated with the initiative discussed in the past few quarters, including the launch of our new Genesis Plus 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 of 2009. We experienced growth in most of our international markets, however, Australian volume was especially strong in the fourth quarter of 2009 due to the 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 of 2010. Our Japanese operations experienced growth in all the product categories, including the recently added filler in the cosmeceutical business. during the fourth quarter 2010, approximately 67% of our North American orders came from the core market of podiatrists. The podiatry specialty is a new perfect market for us, an opportunity to sell our Genesis Plus and other products. We are 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 at $934,000, a decrease of $590,000 from the same quarter in the prior year. This decrease was primarily due to the voluntary recall of certain Titan XL hand pieces. We provided our eligible customers with a fully refilled Titan XL hand pieces, which resulted in lower than normal Titan refill revenue. We are pleased with the sequential increase of approximately $300,000 of annuity revenue from the third quarter, which we believe will continue to increase until the return to a normalized quarterly revenue of $1.5 million in the second half of 2011.

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

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