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Syneron Medical Ltd. (NASDAQ:ELOS)

Q4 2012 Earnings Conference Call

February 12, 2013 8:00 a.m. ET

Executives

Louis P. Scafuri - CEO

Hugo Goldman - CFO

Dr. Shimon Eckhouse - Chairman of the Board

Zack Kubow – The Ruth Group

Analysts

Jeremy Feffer – Cantor Fitzgerald

Richard Newitter - Leerink Swann

Zach Ajzenman – Griffin Securities

Anthony Vendetti – Maxim Group

Bill Plovanic – Canaccord Genuity Inc.

Operator

Good day ladies and gentleman and welcome to the Syneron Medical Q4 fiscal year 2012 results conference call. At this time all participants are in a listen-only mode and later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce our host for today’s conference, Zack Kubow.

Zack Kubow

Thank you, operator. I’d like to welcome you to Syneron Medical’s fourth quarter and full year 2012 conference call. Statements on this call may be forward-looking within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 relating to the company’s future events or future performance, including statements with respect to Syneron’s expectations regarding, but not limited to the financial forecast for 2013, the launch of new products and the maintenance of a leadership position in core and non-core markets.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in any forward-looking statements. These risks may include, but are not limited to the risk factors set forth under the heading Risk Factors in Syneron’s Annual Report on Form 20-F, filed with the SEC. These factors are updated from time to time through the filing of reports and registration statements with the Securities and Exchange Commission. These statements are only predictions and Syneron cannot guarantee that they will, in fact, occur. The company does not assume any obligation to update the forward-looking statements discussed in today’s conference call.

Finally, this presentation includes non-GAAP financial measures. Syneron provides reconciliation information at the end of the third quarter results press release on the Investor Relation’s page at www.syneron.com.

Speaking on the call today are Syneron’s CEO, Louis P. Scafuri and Syneron’s CFO, Hugo Goldman. Dr. Shimon Eckhouse, Syneron’s Chairman of the Board, is also on the call. Shimon will be available for questions during the Q&A portion at the conclusion of management’s prepared remarks.

Now, I’d like to turn the call over to Lou.

Louis Scafuri

Thank you, Pat and welcome to Syneron’s fourth quarter and full year 2012 conference call.. 2012 was another good year for Syneron. We continued to drive double digit topline growth with major contributions from several new products in the PAD segment, including the initial international rollout of UltraShape which we acquired to further enhance our leadership in the body contouring market and continue growth in the EDU segment. This was combined with solid progress with our strategic initiatives to improve operating leverage.

We exited the year with a strong fourth quarter, positioning Syneron for continued momentum in 2013. We will benefit from our broad product portfolio and global channel to market capabilities which will allow us to further leverage our corporate infrastructure and benefit from the growing demand for aesthetic procedures.

I will now provide a brief overview of our financial results and an operational update on the fourth quarter. Total revenue in the fourth quarter 2012 was a record $72.8 million, up 19% over the prior year quarter. In North America, sales were up 46% driven by strong adoption of the elos Plus next generation multi-application platform system and the GentleMax Pro along with a large, multi-site customer order. International sales grew 5%, mainly driven by strong performance in China, partially offset by a softness in expected sales in select European and Asian countries.

Recurring revenue for the fourth quarter, which includes service and consumables, represented 25% of total PAD sales. Revenue in the PAD segment increased 19% and we delivered operating income of $8.1 million or 12.3% of PAD sales. EBU revenue also increased 19%, driven by good results from the Syneron Beauty family of products and an increase in dental laser sales. We also made good progress with our initiative to reduce segment expenses which resulted in another quarter of sequential improvement in the EDU performance.

On a consolidated basis, we achieved a non-GAAP operating income of $5.7 million or an operating margin of 7.8%, driven by revenue growth and an increased focus on controlling costs in the PAD and EDU segments. Non-GAAP net income was $4.1 million or $0.11 per share, marking our ninth consecutive quarter of non-GAAP profitability. Further, we generated $9.6 million from operations. As of December 31st, 2012 Syneron has now $136 million in cash and no debt.

I will now provide an operational update for the business, beginning with the PAD segment. In North America, we realized the initial benefits of new leadership and expanded geographical coverage from the sales force restructuring that we completed in the third quarter. With that transition now behind us, our team is poised to leverage their deep collective experience to drive customer adoption of our innovative, science-based portfolio of aesthetic devices.

Our North American team had a strong quarter with the recently launched elos Plus next generation multi-application platform system and the GentleMax Pro systems. Both systems have a large install base of earlier generation systems and we are still only scratching the surface in terms of the potential to upgrade the install base and introduce these products to new customers. The rollout of direct sales of UltraShape in Canada remains on track with good demand from new and existing UltraShape customers. The North American team also secured a large, multi-center customer order that included several different products and related disposables. We view this as a positive endorsement of our innovative technology and the wide range of treatments addressed by our systems.

We believe the financing environment in North America continues to improve, with more lenders interested in working with aesthetic practitioners. On the development front, we continued enrollment in the UltraShape United States clinical trial. We remain on track for potential FDA clearance around the end of the year which would give Syneron a unique and powerful body shaping product portfolio. This is a key investment for the company that we believe has the potential to drive significant growth and profitability by further leveraging our restructured U.S sales force and global sales channel.

Internationally, we continued to make excellent progress in the PAD segment. In China, which is one of the largest and fastest growing aesthetic market, we recently transitioned to a direct sales business office. While it’s early in the development of our sales team, we were pleased by the results in the quarter which included double digit growth led by a large multi-center customer order. We view this success as incremental evidence of Syneron’s strong potential in China and the rest of Asia. Our elos technology is ideally suited for Asian skin types and we are fully committed to the region, with an expert Asian medical advisory board and experienced local market executives.

Our PAD segment international sales were impacted during the fourth quarter by softness in some selected European and Asian markets. Sales grew in the rest of our European and Asian markets and we continue to receive strong interest in these regions. Overall, PAD segments was up 19% in the fourth quarter and 14% for the year, demonstrating our ability to leverage our unmatched channel-to-market capabilities to drive sales growth. In 2013, we expect this to continue, with growth driven by Syneron’s leading portfolio of innovative science-based technologies that address all of the most in-demand procedures, including the recently launched elos Plus and GentleMax Pro systems.

We’ll also focus on the expanded rollout of UltraShape for our international sales channels, the development of our business in Asia and in particular China, as well as the introduction of other exciting new products scheduled for later in the year.

Turning to the EBU, we had solid performance in this segment during the quarter, with overall segment sales of 19% in the fourth quarter and 35% for the year. The Syneron Beauty family of products, including the recently launched Pearl and the Dental Laser business were key contributors to the growth in the quarter. In addition, we made good initial progress with our initiative to enhance EBU operating efficiency during the quarter. As a result of this increased focus, segment losses narrowed, driven by sequential improvements in EBU gross margin and operating margin. This is a key area of management focus to the EBU and we are committed to further reducing segment losses.

Over the course of 2013, our goal will be to continue balancing targeted investments in EBU growth opportunities and our cost reduction initiatives. We expect this will drive sequential improvements in the EBU operating performance with a goal of reaching EBU break even in the latter part of 2013.

We’re also excited about several product initiatives in 2013 which will be supported with strategic investments in sales and marketing that are in line with our cost management and profitability goals. These include the U.S launch of the Me Home-Use hair removal. The Me is the first and only FDA cleared Home-Use hair removal system approved for all skin tones. The initial launch will occur with Syneron Beauty’s high end retail partners during the first quarter, followed by a direct to consumer model beginning in the second quarter. We believe that having both channels will maximize our opportunity to drive product awareness, ramp sales and provide an attractive margin profile.

We’ve been pleased with the initial adoption of the Pearl Teeth Whitening system in the U.S and believe this product has a substantial potential for growth. We believe the Pearl would benefit from the support of a targeted direct to consumer marketing campaign that highlights its rapid and professional like result. We expect to begin this campaign during the first half of 2013 in a measured, metrics driven approach.

Last, we are evaluating the opportunity to expand distribution of the highly successful Tanda Zap acne product. Acne treatment has broad consumer interest and the Zap has an attractive $49 price and excellent treatment efficacy. We believe the Zap has the potential to translate into a successful, mass retail market product. We’re still working on potential distribution models for such an expansion, with the goal of expanding retail distribution of Zap before the end of the year.

Outside of Syneron Beauty, we continued to work with Asian regulatory bodies with the potential approval of elure in key markets such as Korea, China and Japan. We are hopeful that we will receive regulatory approval in one or more of these key markets in 2013. Jonathan Pearson, our recently hired Executive Vice President of Topical Products, is spending a large portion of his time defining and refining our go-to-market strategies for these key Asian markets. We are confident that Jonathan’s deep experience in the industry and Asian markets will be invaluable as we work to realize the large potential for elure. The potential approval of elure in major Asian markets will also include some targeted investments in its subsequent launch. However, this will be in support of entry into what we believe to be a large, new market for the EBU. We intend to keep close control over any such spending in order to ensure we remain on trajectory towards EBU profitability over the course of the year.

Overall, we believe we’re well positioned in the EBU with significant opportunity for revenue growth and improved profitability. We are equally focused on growing the topline as we are on managing expenses and reducing segment losses and our goal is to reach EBU breakeven in the latter part of 2013.

Combined with our expectations for continued growth and profitability in the PAD segments, we believe 2013 will be an important year in Syneron’s development as we continue to execute on our profitable growth objectives.

I will now turn the call over to Hugo for his financial review. Hugo?

Hugo Goldman

Thank you Louis and good morning everyone. Revenues in the fourth quarter of 2012 were $72.8 million, up 19.2% compared to $61.0 million in the fourth quarter of 2011. International revenue grew 5.2% year-over-year to $42.2 million and North American revenues grew 46% to $70.6 million year-over-year. As Louis mentioned, the strong growth in North America included a large multi-site customer order. 58% of fourth quarter 2012 revenue was in the international market compared to 66% in the fourth quarter of 2011.

Product revenues and recurring revenues, which included service and consumables for the fourth quarter of 2012, were $56.4 million and $16.4 million, respectively. Recurrent revenue represented 25% of PAD segment sales compared to 29.3% in the fourth quarter of last year. Consumable sales were up compared to the prior year fourth quarter.

Revenues for the full year of 2012 were $263.6 million, up 15.4% compared to $228.4 million in 2011. International revenues grew 12.9% year-over-year to $170.4 million and North American revenues grew 20.3% to $93.2 million.

Gross margin for the fourth quarter of 2012 was 49.5%, or 53% on a non-GAAP basis, excluding stock-based compensation, amortization of acquired intangible assets and other non-recurring costs, compared to 46.3% or 55% on a non-GAAP basis in the fourth quarter of 2011. The decrease in non-GAAP gross margin was primarily due to a higher mix of multi-system order in the PAD segment which carry lower margins and a slight year-over-year decline in EBU gross margin, partially offset by a higher production in sales volume and recently implemented cost cutting and efficiency measures.

On a GAAP basis, the fourth quarter 2011 also included a negative impact of the volatile field action for the LiteTouch dental laser systems. Gross margin for the full year 2012 was 51.8% or 54.2% on a non-GAAP basis compared to 50.3% or 54.1% on a non-GAAP basis in 2011.

Fourth quarter 2012 GAAP operating loss was $1.7 million compared to an operating loss of $8.2 million in the fourth quarter of 2011. On a non-GAAP basis, we had an operating income of $5.7 million this quarter compared to an operating income of $2.2 million on a non-GAAP basis in the fourth quarter of 2011. The increase in non-GAAP operating income was primarily related to the revenue growth and a focus on managing expenses, partially offset by lower gross margins.

Full year 2012 GAAP operating loss was $7.8 million, compared to an operating loss of $48.9 million in 2011. Full year 2011 GAAP operating loss includes onetime legal settlement costs of $73.9 million which was comprised of a settlement payment to Palomar Medical Technologies of $31 million plus related legal expenses of $2.9 million.

On a non-GAAP basis, we had an operating income of $11.2 million in 2012, compared to an operating income of $4.3 million on a non-GAAP basis in 2011. The increase in non-GAAP operating income was primarily related to the revenue growth and the focus on managing expense.

GAAP net income for the fourth quarter 2012 was $5.2 million, or $0.15 per share, compared to GAAP net loss of $8 million or $0.23 per share in the fourth quarter of 2011. On a non-GAAP basis, net income for the fourth quarter of 2012 was $4.1 million or $0.11 per share compared to a non-GAAP net income of $1.1 million or $0.03 per share in the fourth quarter of 2011.

GAAP net loss for the full year 2012 was $1.3 million or $0.04 per share compared to GAAP net loss of $50.8 million or $1.44 per share in 2011. As stated above, full year 2011 GAAP net loss includes onetime legal costs related to the Palomar settlement. On a non-GAAP basis, net income for the full year 2012 was $7.5 million or $0.21 per share compared to a non-GAAP net income of $2.5 million or $0.07 per share in 2011.

Fourth quarter and full year non-GAAP operating income and net income, excludes stock-based compensation, amortization of acquired intangible assets and other non-recurring costs as detailed in the company’s financials in today’s press release. The main GAAP adjustments in this year’s fourth quarter were amortization of acquiring tangible assets of $1.9 million, stock-based compensation of $1.4 million and other non-recurring costs of $4.1 million. The non-recurring costs were offset by mid tax benefits of $8.5 million. For the full year, the main GAAP adjustments were amortization of acquiring tangible assets of $7.8 million, stock-based compensation of $4.7 million and other non-recurring costs of $6.5 million. The above mentioned costs were partially offset by tax benefit net of them for $1 million.

The fourth quarter 2012 GAAP net income and earnings per share include a onetime tax benefit of $6.8 million or $0.19 per share as a result of a net deferred tax asset adjustment.

Now I will provide a review and commentary on the results of our two important segments, the Professional Aesthetic Devices or PAD and Emerging Business Units or EBU. For the fourth quarter of 2012, PAD revenues were $65.6 million or 90.2% of total revenue and EBU revenues were $7.2 million or 9.8% of total revenue. Operating income in the PAD segment was $1 million from a non-GAAP basis, representing an operating margin of 12.3%. This compared to a non-GAAP operating income of $5.5 million or 10.1% operating margin in the fourth quarter 2011.

For the full year 2012, PAD revenues were $236.5 million or 89.7% of total revenue and EBU revenues were $27.1 million or 10.3% of total revenue. Operating income for the year in the PAD segment was $24.5 million on a non-GAAP basis, representing an operating margin of 10.4%. This compares to a non-GAAP operating income of $16.8 million or 8.1% operating margin in 2011.

The improvement in operating margin for the fourth quarter and full year was driven by revenue growth which allows us to better leverage our infrastructure combined with our cost control and cost management initiatives. It is important to note that our 2012 operating expenses also include our ongoing investment in the UltraShape clinical trial. We expect additional leverage as we continue to ramp up the UltraShape business.

Moving to the EBU, sales grew 19.4% in the fourth quarter and 75.3% for the full year, with solid performance from most of our product lines. Importantly, we grew the EBU segment revenues by nearly 20% in the quarter and its non-GAAP operating loss was narrow by $1 million year over year and also $800,000 sequentially to $2.4 million. This improvement in operating efficiency was a direct result of initiatives that we began in the fourth quarter to better manage EBU expenses and focus our investments on fewer, more targeted initiatives.

As Louis indicated, our goal is to reach EBU break even operating income near the latter part of 2013 following the launch of the Me Home-Use hair removal system and our Pearl DTC campaign in the first half of 2013 and the potential launch of elure in additional Asian markets. We believe we will continue seeing improving trends in the EBU over the course of 2013 with continued narrowing of operating losses driven by a focus on revenue growth and controlling costs. Combined with our focus on strengthening the profitability of our PAD business, improving the results in our expanding EBU segment, should put us in a solid position to drive sustained profitable growth for Syneron.

Turning to the balance sheet, our DSO were 63 days compared to DSO of 65 days in the fourth quarter of 2011 and a DSO of 74 days in the prior quarter. Excluding these onetime large multi-site customer orders, the DSO was 67 days. During the quarter, we generated $8.8 million in cash from operations on a consolidated basis. At December 31 2012, cash and cash equivalents, including short term bank deposits and investments in marketable securities were $136 million. We continue to have a very strong balance sheet with no debt.

With that, I will turn the call over to the operator to answer any questions you might have. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Jeremy Feffer with Cantor Fitzgerald. Your line is open.

Jeremy Feffer – Cantor Fitzgerald

Good morning. Thanks for taking my questions. First on EBU, I appreciate the commentary on what’s going to drive breakeven. Can you give us a sense of what the revenue run rate needs to be for you to get to that breakeven point?

Hugo Goldman

I think that basically we will be very close. We in general don’t give the accurate numbers, but we are assuming a strong double digit growth in revenues and if you look at the latter part of Q4 on an annualized basis that will be a breakeven point.

Jeremy Feffer – Cantor Fitzgerald

And then following on that, on elure, Louis, you talked about several quarters waiting for these approvals in Asian countries and I know a lot of this is out of your hands. I’m just wondering if you can provide a little more color into what kind of dialogues you’ve had with these countries? Are they looking for more information? What do they need from you to actually give you the approvals or is it just a matter of getting through the bureaucracy?

Louis Scafuri

I think it’s a combination of all that, Jeremy. I think in terms of markets we’re anticipating the first clearance from is Korea. The process is underway and its’ something that we have been anticipating and have been talking about for a period of time and I would say it is now just a question of waiting it out.

Jeremy Feffer – Cantor Fitzgerald

And then just finally and then I’ll hop back in queue, can you provide a little more color into Europe? You mentioned that was a little, probably if there’s one geography that wasn’t quite up to expectations it was Europe. Can you give a little commentary on how that market is playing out right now?

Louis Scafuri

Well, I would just expand it a bit further. We said we had softness in several European and Asian countries and we had less than anticipated revenues in marketplace like Turkey and Spain and we also were a bit softer than we anticipated in Korea or Hong Kong. We grew in some of the western European markets during the quarter and we also feel that again quarter to quarter there’s always a country – it’s very difficult to hit 110% in every country across the board. So we see this as a Q4 phenomenon not as far as any long term trends.

Operator

Our next question comes from the line of Richard Newitter - Leerink Swann. Your line is open.

Richard Newitter - Leerink Swann

Just wanted to ask you, we saw a very nice step up in your base business profitably. I’m sure it will be more focused on the EBU. That sequentially improved and I hear your comments there loud and clear about breaking even next year. But on the base business, it looks like you’re operating at about a 12% operating margin right now. Just wondering, where does that operating margin continue to go? Are we looking just to see continued sequential improvement there? Is that saying that could move into the mid-teens or higher?

Dr. Shimon Eckhouse

We are expecting to improve the operating margins as a continuation of growing our revenues and controlling our expenses. The exact to which extent we will have also to continue some investments, for example sales and marketing. But overall, we should see some improvement throughout the year in the operating margin.

Richard Newitter - Leerink Swann

That’s helpful, thank you. And just on the EBU breakeven commentary in the latter part of 2013, Louis maybe, it sounds to me like elure a huge potential opportunity for you. There should be a big positive margin mix shift there, but that probably it sounds like maybe more of a back half event. Is it fair to assume that you’re probably going to get to the breakeven even without the benefits of elure coming into the mix? That’s more of a gravy thing for you? Is that the right way to think about it?

Louis Scafuri

I think that’s a very good way to think about it and that’s the way we think about it internally here. We work very hard in Syneron Beauty. The team has worked very hard there at growing the topline with some exciting new product launches that we think the margin structure around the Pearl, around the Me and our go-to-market strategy will improve the operating margin and even though we have to do a marketing investment we feel very good about that group which is the largest part of the EBU. As far as elure is concerned, again we have some very big plans for the future around the product. We’re gated by the regulatory approvals. We may have to make some additional marketing investments along the way. We will do it in a measured approach and we do believe again that that will be incremental to our improved performance across that segment.

Richard Newitter – Leerink Swann

And if I could just squeeze one last one in. can you just maybe repeat the multi-center or the large customer order, what was the impact in the quarter and what was that related to again and what region?

Louis Scafuri

It was in the United States as well as in China. We had large orders for Candela products in the States and large orders in China for Syneron products. In terms of the impact there, we’re a multi-center chains that after careful evaluation, careful analysis chose our product over any of the competitors.

Richard Newitter - Leerink Swann

And did you quantify it?

Louis Scafuri

No.

Richard Newitter - Leerink Swann

Can you give us any ballpark, just generally what that contributed?

Hugo Goldman

Large means several good millions.

Operator

Our next question comes from the line of Zach Ajzenman - Griffin Securities. Your line is open.

Zach Ajzenman – Griffin Securities

First question, gross margin came in a little lighter than anticipated. How much of that had to do with lower mix in margins? System sales versus the relatively low recurring number as a percentage of revenues which came in at around 25% versus the first three quarters this year and it’s 31% to 32% range?

Hugo Goldman

This quarter basically because of the mix, we have much higher product revenues in the mix. So this is driving higher percent of product and less percent on the service and consumables on the other part. This is mainly I would say the major reason for the change in the revenue mix actually. So when you mention about the lower margins, obviously this large deals had a certain impact in the gross margins as well.

Zach Ajzenman – Griffin Securities

As we approach the one year anniversary for the UltraShape acquisition, can you comment on the adoption of the device and how the greatest change since the product has been associated with Syneron who clearly offers greater distribution capabilities than UltraShape as a standalone business?

Louis Scafuri

I would say we’re building momentum. We’re very excited about the results we’re hearing from the customers using the products from the field as well as what we’re hearing from our clinical sites during the FDA trial in the United States. We’ve gone out into the UltraShape install base. We’ve worked with some of the customers. We’ve sold an appreciable number of upgrades. We have some initiatives to get customers upgraded to the V3 technology which is the latest UltraShape offering. We have additional product augmentation plans and we’re very, very enthused about the clinical results with the product as well as the market upside for us once we obtain the FDA approval.

Zach Ajzenman – Griffin Securities

Quickly, any color on the proportion of sales for Candela products versus Syneron products this past quarter and maybe an idea of that proportion in 2013?

Hugo Goldman

So we are in the overall number it’s usually typically we’re in the same levels in Q4 because of this large deal as Louis mentioned was more of Candela in the mix, but overall we expect a similar mix going forward.

Zach Ajzenman – Griffin Securities

And the consumer side, some of your latest thoughts around elure and the different avenues and opportunities you guys have for distributing in Asian markets and when the product is approved?

Louis Scafuri

With the addition of Jon Pearson to the team we have an individual that’s lived in the Far East for over 17 years who comes with an extensive network of business contacts, not only from the distribution end, but from the partnering end as well the way to navigate in the local markets. So as we’re looking with Jon and our other resources, we continue to see more opportunity as we move along with elure.

Zach Ajzenman – Griffin Securities

And lastly if I may, any comments around the report in Israeli newspapers about the Israeli buyout fund (inaudible) client position?

Louis Scafuri

No comment.

Dr. Shimon Eckhouse

Just an article newspaper. We have no comment on that.

Operator

Our next question comes from the line of Anthony Vendetti with Maxim Group. Your line is open.

Anthony Vendetti – Maxim Group

Just a couple of questions on the elos Plus, the GentleMax Pro and then the new GentleLase. Can you give an idea from those three products what percent of your revenues is made up of those three products in the fourth quarter? And then lastly, if you could talk about plans for AAD in March, beginning of March in terms of products that you’ll be displaying at AAD.

Louis Scafuri

Well, I would say all three of those products are winners. all three of those products are very exciting in terms of the market reception now that we have demo units, a full launch plan and they all played a major role in our success in Q4. I can’t give you a specific breakout of the numbers, Anthony. But they clearly are receiving strong market reception both from new customers as well as from our install base which is the key asset that we have here at Syneron. In terms of plans for AAD, we have several things that we’ll decide in a week or so whether or not we’ll display. We promise you an exciting meeting of some very innovative technologies and some marketing messages that we’re working on prior to the show. But there’s nothing specifically that I’d like to pre-announce.

Anthony Vendetti – Maxim Group

And then just lastly, in terms of international which was up 5%, which particular regions did you think were weak or do you have specific percentage of revenues from certain regions that were maybe down year over year or just not as strong as other regions?

Louis Scafuri

I named a couple of specific countries. It’s not that I’m making a blanket statement. We had a couple of markets that are large markets such as Korea where we didn’t hit our own internal expectations. We say that’s competition. We have strong competition there. Turkey was a little less than what we anticipated for the quarter which is a good market for us. Taiwan I didn’t mention before has some economy issues which typically is a strong performer. And Spain we’ve been remarkably resilient throughout the entire economic crisis in Spain and even though we had what would be considered by any of the competitors an excellent quarter in Spain, it was still less than our expectations for growth.

Operator

Our next question comes from the line of Kyle Rose Canaccord. Your line is open.

Bill Plovanic – Canaccord Genuity Inc.

Actually this is Bill Plovanic. So my questions, one, if you look at onetime charges of $4.1 million, I was wondering if we could get some color on what particular that’s associated with?

Hugo Goldman

This is associated mainly from some impairments made of some products acquired in the past.

Bill Plovanic – Canaccord Genuity Inc.

And how much of that was associated with the distribution changes that you talked about?

Hugo Goldman

Nothing.

Bill Plovanic – Canaccord Genuity Inc.

And then, Louis, if I oculd get some color, you talked about the EBU becoming profitable. I think that’s a focus to many of the investors out there. Was it not turning profitable in 2012 a function of not using the revenues that were expected or was it an infrastructure, spending more than originally anticipated? I’m trying to figure out what gives you confidence that you’re going to be able to achieve that profitability in 2013 as we get towards the end of the year? (Inaudible)

Louis Scafuri

I can answer this question very simple, focus. We are focusing on three products in Syneron Beauty. We are focused on less product categories than we were historically in terms of the marketing spend. We’ve selected these three products that I mentioned during the course of my opening dialog. We’re focused on the Me. We’re focused on Pearl. We’re focused on the Zap. All these products have high margin. Our go-to-market strategy is one which we think we can generate significant volumes and in terms of the rest of the OpEx controls, we have them in place. And in terms of elure, we’re focused on key markets and the last thing is the dental business which we had the voluntary field action last year. We have that business back on track. So, all three of those major points give us the confidence.

Bill Plovanic – Canaccord Genuity Inc.

And is it you need to hit a certain revenue level for this to become breakeven or profitable?

Hugo Goldman

Well, as I mentioned before, if you take the Q4 ’13 annualized should be level that should bring us to breakeven in the EBU. Q4 ’13 to breakeven the revenue level to breakeven.

Bill Plovanic – Canaccord Genuity Inc.

And that does mean that you scale back some of your expenses? Because you lost I think $3.5 million in that business.

Hugo Goldman

One thing I would like to emphasize is that we’re focusing to reach breakeven in the latter part of 2013. Together with that, we’re narrowing the losses compared to last year. So it’s a combination that we are – growing revenues, managing costs, focusing on the execution, narrowing the losses from last year and targeting breakeven in the latter part of the year.

Operator

I’m showing no other questions in queue. I’d like to turn it over to for any Louis Scafuri for any closing remarks.

Louis Scafuri

First off I would like to thank our employees, our distributor partners and our customers for the dedication, hard work, loyalty, adoption of our products to allow us again to continue and sustain our lead as the market leader in the aesthetics space. I’d like to thank everyone. We feel very optimistic about our prospects for 2013 and we look forward to speaking with everyone at the end of our Q1 when we report results. Thank you very much.

Operator

Ladies and gentlemen, this concludes your conference. You all may disconnect and have a good day.

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