Solta Medical's CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Solta Medical, (SLTM)

Solta Medical Inc. (NASDAQ:SLTM)

Q4 2012 Earnings Call

February 19, 2013 4:30 pm ET

Executives

Jenifer Kirtland – Managing Director, EVC Group, Inc.

Stephen J. Fanning – Chairman, President and Chief Executive Officer

John F. Glenn – Chief Financial Officer

H. Daniel Ferrari – Vice President-Finance

Analysts

Jeremy Feffer – Cantor Fitzgerald Securities

William J. Plovanic – Canaccord Genuity, Inc.

Richard Newitter – Leerink Swann LLC

Matt V. Dolan – ROTH Capital Partners

Anthony V. Vendetti – Maxim Group LLC

Keay T. Nakae – Ascendiant Capital Markets

Konstantin Tcherepachenets – Raymond James

Joseph Munda – Sidoti & Company

Operator

Good day, ladies and gentlemen, and welcome to the Solta Fourth Quarter Fiscal 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, the conference will be opened for questions. (Operator Instructions)

I would now like to turn the conference over to Ms. Jenifer Kirtland. Please go ahead, ma’am.

Jenifer Kirtland

Thank you, operator, and good morning, everyone. By now everyone should have accessed to the fourth quarter 2012 financial results release, which was distributed this afternoon after the market closed. The release is available on the Investor Relations section of Solta Medical’s website at solta.com and with our Form 8-K filed with the SEC.

Before we get started, during the course of this conference call, the company will make projections and may make other statements about the company’s business that are forward-looking and are subject to many risks and uncertainties that could cause actual results to differ materially from expectations.

A detailed discussion of the risks and uncertainties that affect our business is contained in the company’s SEC filings, particularly under the heading Risk Factors. Copies of these filings are available online from the SEC or on the Solta Medical website. The company’s projections and forward-looking statements are based on factors that are subject to change and therefore these statements speak only as of the date they are given. The company does not undertake to update any projection or forward-looking statement.

In addition, to supplement the GAAP numbers, we have provided non-GAAP gross margin, operating income and loss, EBITDA, net income and loss and non-GAAP income and loss per share information that excludes the impact of non-cash acquisition related charges, and other acquisition related charges and non-cash stock-based compensation charges.

We believe that these non-GAAP numbers provide you with insight to conduct a more meaningful and consistent comparison of our ongoing operating results and trends, compared with historical results. A table reconciling the GAAP financial information to the non-GAAP information is included in our financial results release.

And with that, I’d like to turn the call over to Steve Fanning, Chairman, President and CEO of Solta Medical.

Stephen J. Fanning

Thank you, Jenifer and good afternoon everyone. With me today is our Chief Financial Officer, Jack Glenn; and our Vice President of Finance Dan Ferrari. The fourth quarter provided a strong ending to a productive year for Solta. Revenue for the fourth quarter increased 20% to $39.8 million as compared to the fourth quarter of 2011.

Our industry leading recurring revenue business model continues to generate approximately one-half of revenue from treatment tips and other consumables. In the fourth quarter, revenue from treatment tips and consumables grew 18% year-over-year and accounted for 47% of total revenue.

The revenue growth and regional mix continue to be well balanced between North America and the international markets. Revenue rose in North America by 17% to $19.3 million and international revenue increased by 23% to $20.5 million. The Asian market delivered another quarter of exceptional revenue growth, revving for the Asia-Pacific region in Q4, up $14.7 million was up 26% from the prior year. In Europe and the Middle East, we delivered our best numbers for the year with revenue up $5.2 million, an increase of 33% over the prior year.

In addition, we generated double-digit revenue growth across all of our direct distribution markets in Western Europe. Our gross margin for Q4 expanded from the prior year by over two percentage points to 65% as we increased our sales volume and drove manufacturing efficiencies at our Liposonix facility.

Non-GAAP EBITDA for the quarter was $4 million compared to $1.3 million in the fourth quarter of last year. Our delivery of positive non-GAAP EBITDA in the fourth quarter and in every quarter over the past three years demonstrates the leverage in our business model. We also generated cash from operations of $1.4 million in the fourth quarter.

Now, for the full-year 2012, revenue of $144.5 million grew year-over-year by $28.6 million, or 25%. We completed the integration of the Liposonix acquisition ahead of plan and the first-year of our Liposonix commercial launch exceeded our expectations. During the year, we shipped approximately 360 Liposonix systems. We look forward to additional expansion opportunities of Liposonix overseas from regulatory approvals received in recent months for the markets of Taiwan, Australia, and Brazil.

Our innovative Clear and Brilliant product also continues to perform very well in the marketplace. For the year, we experienced double-digit revenue growth from our Clear and Brilliant platform for skin rejuvenation. Based on our proven fractional laser technology, Clear and Brilliant is perfect for patients who want to refresh their look, prevent signs of aging, and do all that they can to keep their skin looking younger and more radiant.

For many patients, Clear and Brilliant is a natural next step in the skincare continuum, a true fractional laser treatment that is effective and safe, but also gentle and affordable. Treatment time is equipped 15 to 20 minutes. In the second half of the year, we launched a new handpiece for our Clear and Brilliant laser system called Perméa, along with an exclusive partnership with SkinCeuticals to deliver the first fractional laser treatment along with an in-office and home use antioxidant skincare regimen.

The partnership is the combination of clinical research supported by Solta and SkinCeuticals exploring the beneficial effects of using Solta’s Clear and Brilliant laser system with its new Perméa handpiece and SkinCeuticals products. The combination serves to bring additional benefits to patients who are seeking an effective in-office and at home treatment.

We continue to dominate share of voice through our innovative use of public relations and social media resulting in the most recognized brands in the category. For the full year, we generated a record 6.4 billion impressions worldwide, which resulted in a 70% share of voice in the aesthetic device industry.

Non-GAAP EBITDA for the full year increased to $12 million or 59% from $7.5 million in 2011. We generated $4.4 million in cash from operations and ended 2012 with $38 million in cash on the balance sheet.

About three weeks ago, we announced our pending acquisition of Sound Surgical Technologies. There were a number of strategic and financial reasons that drive our belief that Sound Surgical will create added value for our shareholders and our customers.

Sound Surgical’s product portfolio minimally invasive surgical and non-invasive body contouring products provide Solta with the complete array of safe and effective solutions to address a large and growing $500 million market. Specifically, in the body contouring, VASER and other Sound Surgical products expand our ability to address fat and cellulite among a much wider spectrum of patients.

Sound Surgical has three leading products. First, the VASER Lipo system provides body contouring with minimal surging effort and fast patient recovery, a VASER procedure results in significantly less loss of blood as compared to traditional tumescent liposuction.

The systems ability to selectively go after fat with these systems of ultrasound makes the procedure minimally invasive, leaving connective tissue intact and enhancing skin retraction. The fat is viable for fat grafting procedures and the procedure can be formed under general or local anesthesia.

Second, VASERsmooth and accessory to VASER Lipo Systems emulsifies superficial fatty tissue and cuts through hardened fiber septum that can cause unwanted skin rippling and contour irregularities on thigh and buttocks. The product has been on the market for less than a year and feedback from physicians has been very positive. The doctors have said the procedure is as much as twice as fast as similar technologies addressing this problem.

We are excited that a presentation on VASERsmooth will occur in April as part of the Hot Topics program at the ASAPS meeting in New York City. Third, a non-invasive alternative to treating cellulite, the VASER Shape system heats fatty tissue followed by massage with a typical course of four to six pain free procedures.

We believe we will generate significant cross-selling opportunities through what will be one of the largest sales organizations in the aesthetic device industry and in particular, Solta will have improved access to plastic surgeons in North America that account for approximately 80% of Sound Surgical’s customer base.

Our team has exceeded our cross-selling strategy very well, in 2012 over 40% of our new systems placed in distribution resulted in cross-selling or bundling on two or more brands. Our direct and distributor channels overseas provide Solta with an excellent opportunity to drive international sales of Sound Surgical products, which currently are only about 20% of Sound Surgical sales.

Sound Surgical joined Solta with impressive financial results for 2012 with revenue growth of over 40%, gross margins in excess of 70%, and positive EBITDA margin of approximately 10%. We expect to close the acquisition of Sound Surgical in the coming weeks and the transaction is expected to be accretive in non-GAAP operating results in 12 months.

So in summary, with our efforts in building our worldwide distribution network, creating a broad offering of innovative products, staying committed to our recurring business model, and successful execution of strategic acquisitions we have just begun to demonstrate leverage in our operating infrastructure.

With that, I’ll turn the call over to Jack to provide additional details on our fourth quarter financial results, as well as provide you with our initial financial outlook for 2013. Jack?

John F. Glenn

Thanks, Steve. Revenue for the second quarter was $39.8 million, an increase of $6.6 million, or 20% as compared to fourth quarter 2011 revenue of $33.2 million. Q4 2012 revenue by major category was as follows; systems $18.5 million, tips and other consumables $18.8 million, and service and other revenue of $2.5 million.

The geographic split of revenue with North America 48% and international 52% as compared to a 50-50 split for Q4 of last year. Gross margin for the quarter was $24.2 million or 61% of revenue and includes $1.5 million of amortization, acquisition-related charges and stock-based compensation charges. Excluding these charges, the gross profit for the quarter was approximately $25.7 million, or 65% of revenue. The comparable gross profit for Q4 2011 was approximately $20.7 million, or 62% of revenue.

The year-over-year increase in gross margin as a percent of revenue was primarily due to increased production volume in our Bothell facility, resulting an improved product cost on Liposonix systems.

Operating expenses for the quarter were $23.3 million compared to $24.1 million in Q4 of 2011. Solta Medical’s GAAP results for the fourth quarter include 500,000 credit for the fair value of the reassessment of the expected earn out payments associated with the acquisition of Liposonix, as well as amortization and other acquisition-related charges and stock-based compensation charges of $2.8 million.

Excluding these items, Q4 2012 operating expenses increased by $2.1 million to $22.5 million versus $20.4 million in the prior year period. The year-over-year increase was attributable to higher commissions on higher year-over-year sales volume, increased G&A expenses related to the expansion of international sales channels, and increased regulatory costs associated with entering new markets.

Total stock-based compensation charges for the quarter were $1 million. The breakdown of these charges on the P&L is as follows: cost of goods sold $133,000, sales and marketing $253,000, G&A $632,000 and a credit of 9,000 for R&D.

GAAP net loss for the quarter was $45,000 as compared to GAAP net income of $1 million reported for the fourth quarter of 2011. Non-GAAP net income for the quarter was $2.3 million, or $0.03 per diluted share, as compared to non-GAAP net loss of $23,000 for the same period last year.

Now, turning to the balance sheet; as of December 31, our cash balance was $38.1 million and the company had additional cash resources available to an $8 million revolving credit facility with Silicon Valley Bank. The company recently agreed to an amendment with Silicon Valley Bank to expand its credit facility to $12 million.

Total bank debt at the end of Q4 stood at $26.4 million. Inventory levels of $16.6 million are in line with year end 2011. Inventory turns for the quarter rose to 3.4 turns as compared to the three turns we reported in the prior quarter. Days sales outstandings for the quarter were at 47 days, up slightly from the previous quarter’s 44 days. We generated approximately $1.4 million in cash flow from operations for the quarter.

Now, I’ll turn to our initial financial outlook for 2013, which includes the pending acquisition of Sound Surgical technologies as follows. Revenue for the full-year 2013 is expected to be in the range of $182 million to $191 million, representing year-over-year revenue growth of $37 million to $46 million, or 26% to 32% compared to full-year 2012 revenue of $144.5 million.

Non-GAAP gross margin is expected to be in the range of 65% to 68% for the full-year 2013. Non-GAAP gross margin excludes non-cash amortization charges, non-cash stock-based compensation charges, severance costs and acquisition related adjustments. Non-GAAP gross margin for the full-year 2012 was 66%.

Non-GAAP operating income is expected to be in the range of $13 million to $16 million for the full year 2013. Non-GAAP operating income for the first six months of 2013 is expected to be in the range of $3 million to $4 million as the company integrates its acquisition of Sound Surgical Technologies.

Non-GAAP operating income excludes non-cash amortization charges, non-cash stock-based compensation charges, severance costs and acquisition related adjustments. Non-GAAP operating income for the full-year 2012 was $8.4 million.

With that, I’ll turn the call back over to Steve.

Stephen J. Fanning

Okay, thank you Jack. And with that, we’ll begin to take questions, operator. Thank you.

Question-and-Answer-Session

Operator

Thank you, sir. (Operator Instructions) And our first question comes from the line of Jeremy Feffer with Cantor Fitzgerald. Please go ahead.

Jeremy Feffer – Cantor Fitzgerald Securities

Hi, good afternoon. Thank you for taking my questions. First, just I wanted to come back to revenue guidance. I’m wondering if you could provide a little bit of color into what some of your assumptions are for the three quarters of Sound Surgical and what you are expecting for some of the base business revenues.

Stephen J. Fanning

Sure. So obviously we don’t know exactly when we’re going to close. But right now, we have in the neighborhood of somewhere between $25 million to $26 million. But again, we just don’t know when it’s going to close, so it’s difficult to nail down, but somewhere around $26 million.

Jeremy Feffer – Cantor Fitzgerald Securities

Okay. And the assumption is you said you don’t the exact close, but the assumption is sales would start probably in 2Q?

Stephen J. Fanning

No, we’re hoping to get some sales in Q1. But again, we’re not exactly sure Jeremy, it’s difficult to predict.

Jeremy Feffer – Cantor Fitzgerald Securities

Okay, okay, that’s fair. And then just curious on Liposonix, ASPs are still roughly in the $90,000 range or has that fluctuated at all with some of your OUS sales?

Stephen J. Fanning

Yeah, that is – well, the answer is what you just said. It is fluctuated somewhat due to the fact that we’ve had focus on international sales. So the way to look at the ASP all-in with the distributors is in the $80,000 range.

Jeremy Feffer – Cantor Fitzgerald Securities

Okay, that’s very helpful. Thank you very much.

Stephen J. Fanning

Sure.

Operator

And our next question comes from the line of Bill Plovanic with Canaccord. Please go ahead.

William J. Plovanic – Canaccord Genuity, Inc.

Great, thanks. Good afternoon. Couple questions for you, just – that’s interesting you took the credit on the contingent. So, as I look at the Liposonix and we can get to the one-year annualization here, it kind of seems like this product has better great contributor for you, but it’s starting to head maybe the stride that it’s going to maintain going forward and also that’s the question; and then secondly, some comments or thoughts on your international versus U.S. for that same product line?

Stephen J. Fanning

Sure. First of all, in terms of systems, the answer would be yes. But please remember that, tip sales we’ll start to be thrown off this year as a result of what was a significant B versus what we thought we would do initially with Liposonix. But here again, we were able to grow business, Q4 over Q3, but all in all we still think we’ve got a lot of room way ahead of us built for distribution on the Liposonix systems.

William J. Plovanic – Canaccord Genuity, Inc.

When you said, you mean, more international as you continue to get approvals from rolling out that way?

Stephen J. Fanning

Yes.

William J. Plovanic – Canaccord Genuity, Inc.

Okay. And then just secondly, should we come up to AAD, is there anything in particular that you would like to highlight, or is it going to be just wait until we get there?

Stephen J. Fanning

No. And bill, you are breaking up on us a little bit, I don’t know if it’s your phone or ours, but obviously, we’re very, very excited about the Sound Surgical business, because we really think this will represent a significant opportunity for us. So we will have that in our booth with us as a new family member if you will. We also launched a new tip for Thermage, which is a – we’re calling it a total tip. And it’s a total tip 3.0. And this tip build delivers literally twice the bulk heating volume that we were currently delivering. So in terms of that we’re obviously excited about that and we’ll look forward to talking to you about at AAD.

William J. Plovanic – Canaccord Genuity, Inc.

Great, thanks. That’s all I had.

Operator

And our next question comes from the line of Rich Newitter with Leerink Swann. Please go ahead.

Richard Newitter – Leerink Swann LLC

Hi, guys. Thanks for taking the questions.

Stephen J. Fanning

Sure.

Richard Newitter – Leerink Swann LLC

So Stephen, it looks like you hit impressively your 100 unit placement in the fourth quarter. Congratulations on that. And I was just wondering again for Liposonix, is this something that we should think about especially with the potential pull-through that you could be getting from cross-selling as you integrate the Sound Surgical and you cross-sell Liposonix into those accounts? And then also as you expand into new international accounts, really, should we thinking of this as the run rate, or should we kind of think of the run rate is accelerating as we move into the quarters in 2013 for Liposonix?

Stephen J. Fanning

I think that first of all, Liposonix is going to grow in our model, Liposonix is going to grow in 2013 versus 2012, so in terms of systems. The thing that and I’m excited about that. The thing that I’m really excited about is to see these tip sales grow. And without getting, we don’t break this out. But we feel good looking at our internal data, because we finally can look at it, because we were in back order on our tips in Q1 and Q2.

We supplied tips, but we didn’t supply all the tips that doctors wanted. So I’m very excited about procedures now, realizing that we’ve been able to keep to our promise. And our promise has been you get with one procedure, you get one pants or one dress size in one hour. And we’ve been able to meet that quite frankly at a minimum and in some cases if not more than some exceed that.

So I’m pleased by what we’ve been able to do, not only with the amount of generators that we sold into the channel, but with the satisfaction that we’re getting back from consumers relative to how they feel about the product. So again, not to be reparative but we see system sales growing in 2013, but tips at the margins that they generate represent a nice opportunity for us, Rich.

Richard Newitter – Leerink Swann LLC

Thank you. Just to push a little further on that, can you give a sense ballpark of what percentage tips were of Liposonix sales and then maybe kind of what order of magnitude increase as a percentage of overall Liposonix revenue we should expect tips sales to be in 2013?

Stephen J. Fanning

Well, I have to give some credit to our finance guys here. They actually know the number within one point. So we continue to say last year that it would be 80%, 20% approximately 80%, 20%. The exact number is 79%. So 79% generators and obviously 21% went to the tips. So we came in pretty good on that projection. So we feel good about that.

It’s difficult Rich, the second part of your question to think about what is going to be going forward. But if I had to make a guess, I would say, about 35% of our revenue on that business in 2013 will come from tips.

Richard Newitter – Leerink Swann LLC

Gotcha. And when you say 20% that was for the fourth quarter, correct, not the full year?

Stephen J. Fanning

That was full year. We don’t break – full year, that’s what we thought full year, and it got there by the end of the year, because we started to get in a better supply position for tips and then doctors could start doing the procedures.

Richard Newitter – Leerink Swann LLC

Got it, that’s really helpful. And if I could just maybe squeeze in one more, just trying to get – would you say that Sound Surgical is accretive within 12 months; you’re talking accretive on an annual basis, correct?

Stephen J. Fanning

Yes, that’s correct.

Richard Newitter – Leerink Swann LLC

And could you just tell us what are your assumptions for stock-based comp, amortization, and what should we model for share count for 2013?

Stephen J. Fanning

He’ll pick up, Jack?

John F. Glenn

The share count is roughly give you around – total outstandings will be around $78 million. As far as the stock-based comp, I would say, it’s probably going to be somewhere around $4 million to $5 million for the year and then amortization is probably somewhere around $1.2 million for the quarter.

I’m sorry on the amortization, it’s probably somewhere around – okay well, actually, I don’t have that number right in front of me. I can get back to you on that, because we haven’t done all the work yet there, and I guess it’s – yeah, it will be around $7 million for the year on the amortization. That’s including Sound Surgical.

Richard Newitter – Leerink Swann LLC

$7 million including Sound Surgical, okay, got it. Okay, thanks a lot guys.

John F. Glenn

Sure.

Operator

And our next question comes from the line of Matt Dolan with ROTH Capital Partners. Please go ahead.

Matt V. Dolan – ROTH Capital Partners

Hey, good afternoon. Steve and Jack how are you?

Stephen J. Fanning

Good, thank you.

Matt V. Dolan – ROTH Capital Partners

And Dan – so just looking at this 2013 growth, the components of your growth guidance, the market has been growing around 20%. I think if we back out VASER and Sound, you’re growing in the low double-digit. So what do you assume in the market growth in your guidance and then maybe extending that, you could tell us what gets you to the higher low-end, because it’s a decent size range that you’ve laid out?

Stephen J. Fanning

Sure. I think you’ve got to think about growth somewhere in the high-singles to low-mid-teens, somewhere in that range would be my point of view.

Matt V. Dolan – ROTH Capital Partners

And that covers your overall range, so it’s all about how the market performs?

Stephen J. Fanning

I think we’re pretty much there. And obviously, we’ve got – we believe a good upside opportunity with Sound Surgical. That obviously is baked into the guidance.

Matt V. Dolan – ROTH Capital Partners

Okay. And then secondly, can you tell us where you are with the contingency payment for Lipo in the first quarter, and what’s the new short-term level based on that answer?

H. Daniel Ferrari

Hi, this is Dan Ferrari. We’re going to spend – in the first quarter we’re going to pay 75% of what you see on the balance sheet in terms of the contingent liability. So it’s going to be in the neighborhood of $16 million to $17 million in the first quarter with the balance towards the end of the third quarter of the year.

Matt V. Dolan – ROTH Capital Partners

Okay. And then is there a new short-term estimate for February of 2014 that we’ll see on the K?

Stephen J. Fanning

Yeah, you will see that…

John F. Glenn

You will see that on the balance sheet.

Stephen J. Fanning

Yeah, you will see in adjusted current balance.

Matt V. Dolan – ROTH Capital Partners

Okay. Thank you.

Stephen J. Fanning

Sure.

Operator

And our next question comes from the line of Anthony Vendetti with Maxim Group. Please go ahead.

Anthony V. Vendetti – Maxim Group LLC

Thanks. On the Sound Surgical, on the DO, it’s $25.5 million in shares. Is that a fixed amount of shares, or is it based on some average up until the closing?

Stephen J. Fanning

It’s a fixed amount of shares, Anthony.

Anthony V. Vendetti – Maxim Group LLC

Okay. And the earn-out starts when the deal closes and goes over 12 months, or it ends in at the end of 2013?

H. Daniel Ferrari

At the end of 2013 based on calendar 2013 sales.

Anthony V. Vendetti – Maxim Group LLC

Okay, okay. And then any update Steve just on any changes or updates to the Fraxel product line, any…?

Stephen J. Fanning

Yeah, Fraxel, so two things; one, remember that Clear and Brilliant really is part of the Fraxel franchise. It’s a line extension that quite frankly has proved as I’ve indicated in my opening remarks to be very successful. That’s number one. Number two, our Fraxel Dual continues to do very well. In fact, we were very pleased with, I think I used the word one–time before resurgence in that product, and we continue to see that in Q4, and we think it represents still a significant opportunity for us. So we’re very pleased by the Fraxel franchise.

Anthony V. Vendetti – Maxim Group LLC

Okay, lastly I haven’t looked through the financials. So I don’t know if Dan or Jack, you already you provided the stock-based comp for each of these line item in the expense line?

John F. Glenn

Yes, we did. You want me to repeat those for you?

H. Daniel Ferrari

We can tell you if you want.

Anthony V. Vendetti – Maxim Group LLC

No, no. I seem now, you can put them through. Just lastly on – so 360 Liposonix sales, so in the fourth quarter, was it a little over 100?

John F. Glenn

No, it was a little over 90.

Anthony V. Vendetti – Maxim Group LLC

Little over 90, okay got it. Okay, great. Thanks.

John F. Glenn

Yeah.

Operator

And our next question comes from the line of Keay Nakae with Ascendiant Capital. Please go ahead.

Keay T. Nakae – Ascendiant Capital Markets

Yes, thanks. Steve, back to the Lipo sales. You did a little over 90 in Q4. I think going back to Q3, if maybe you could do a 100, are you seeing more headway, U.S or OUS? Can you give a little color on that?

Stephen J. Fanning

Well, we’re seeing one of our primary competitors really dramatically reduce price. And we don’t – we haven’t done that. We’ve kept our ASP pretty well instead. The only difference for us has been the international market, which we aggressively began to tap into at the second half of the year. But other than that, that’s pretty much it.

Keay T. Nakae – Ascendiant Capital Markets

Okay. So I think just kind of going back to Bill’s question earlier, when we think about 2013, I think about you guys placing more systems in 2013 and 2012, the bulk of that’s going to come from obviously U.S. where you had a small presence this year?

Stephen J. Fanning

U.S., did you mean it?

Keay T. Nakae – Ascendiant Capital Markets

OUS?

Stephen J. Fanning

Yeah, you gargled a little bit on the phone, I apologize. If you said OUS, the answer to that is, yes.

Keay T. Nakae – Ascendiant Capital Markets

Okay. And then just in terms of Europe in general, I know your direct sales continue to be encouraging, but how would you characterize the market there overall as opposed to North America?

Stephen J. Fanning

Well, I would say finally starting to improve, because I’m looking at the numbers right. We did well on our direct markets and we did well on our distributor markets. And in essence, the European business was up. So I don’t know one quarter doesn’t make a trend. But we were pleased to see the business in Europe begin to grow again both on a direct and non-direct basis.

So in all the markets just a review, France, Germany, Spain, UK, they all grew, they are all direct markets, and we also grew in our distributor markets. So let’s hope, we’re starting to see the beginning of a trend in Europe.

Keay T. Nakae – Ascendiant Capital Markets

Okay. All right, thanks. That’s all I have.

Operator

And our next question comes from the line of Konstantin Tcherepachenets with Raymond James. Please go ahead.

Konstantin Tcherepachenets – Raymond James

Hi, guys, thanks for taking the question. So, Steve, I just wanted to make sure I understood it correctly. So clearly, you guys for the year exceeded your initial expectations for Liposonix sales. But is it really to think about the fourth quarter shortfall in system placements, is it really just kind of attributed to kind of more intense competitions from Zeltiq.

Stephen J. Fanning

First of all, I think we did exceedingly well with Liposonix. I mean we really did well for the entire year. So number one, I’m very, very pleased with the efforts that our sales force was able to make in terms of gaining distribution. And we’re not giving you the exact number, but as we said, we came in over the 90 number mark. So all in all, I feel that we had a good Q4 on Liposonix.

Konstantin Tcherepachenets – Raymond James

Okay. And then just I think if you can give any update in terms of, are there any additional indications that you guys are seeking for Liposonix?

Stephen J. Fanning

Konstantin, I’m not going to address that. It’s a very competitive market and I just don’t want to go there.

Konstantin Tcherepachenets – Raymond James

Okay, that’s fair. And then I guess, my last one, in terms of environment in North America, I guess how would your assessment, I guess of elected procedure environment than just appetite from doctors in terms of you guys making capital sales?

Stephen J. Fanning

So when you look at what our tips were, our tips were up high-teens. So I’m very pleased by that, number one. Number two, we didn’t give this number, but we had a large, I would argue significant number of bundles if you will where we sold multiple systems into our customer. So we were very pleased by that.

And looking into those practices, we’re locking them up. So it really is very, very effective for us. I don’t want to sell those too hard, but we really are seeing some great opportunity to cross bundle with our customers, and that’s really working for us.

So all in all, I would say, the North America business is doing well. And I think doctors have realized that, it’s all about new products and they got to have new products. The forward thinking guys need to have new products in their practice if they’re going to grow in both sales and profitability.

So, I have to tell you, I’m encouraged by the business, I mean when you look at Europe, when you look at North America and up inside of Asia. I mean Asia, as I’ve said consistently is on fire for us. So we’re very pleased with the balance of business we had geographically. Quite frankly, while we don’t breakout all of our system sales when you look at the balance of system sales that we had both in North America, Europe and Asia, it was very good.

Konstantin Tcherepachenets – Raymond James

Terrific; thanks so much.

Stephen J. Fanning

Sure.

Operator

And our next question comes from the line of Joe Munda with Sidoti & Company. Please go ahead.

Joseph Munda – Sidoti & Company

Good afternoon, guys. Thanks for taking my question.

Stephen J. Fanning

Sure.

Joseph Munda – Sidoti & Company

Lot of my questions have been answered already, but Steve, can you give us – well, first of all, can you – what was CapEx spend in the quarter?

Stephen J. Fanning

Jack, CapEx spend in the quarter?

John F. Glenn

CapEx spend for the year was right around $3 million for the quarter. I think it somewhere around just checking here about $1 million.

Joseph Munda – Sidoti & Company

$1 million, okay. And looking at CapEx with the addition of Sound Surgical, can you give us some color on expectations going forward? Are you guys going to increase the spend, is there any – go ahead I’m sorry.

John F. Glenn

We’re going to increase the spend, it’s probably somewhere in the $4 million to $5 million depending on how – did make decisions on how we’re going to fund certain projects, but somewhere in that range.

Stephen J. Fanning

That’s the total.

John F. Glenn

Yeah.

Joseph Munda – Sidoti & Company

Okay. And was that planned before Sound Surgical acquisition or is that in response to it?

John F. Glenn

That includes the Sound Surgical acquisition.

Stephen J. Fanning

Yeah, let’s be clear of this because that’s full year Jack?

John F. Glenn

Yeah, and that includes Sound Surgical.

Joseph Munda – Sidoti & Company

Okay, okay. Okay, and then I mean following up on another caller’s question as far as competitive pressures go. Steve, what do you see in the marketplace as far as body contouring products? Would you go down the road of acquiring another body contouring product or do you guys think you’re done in that stage?

Stephen J. Fanning

No, no we’ve got a great array of products. So in terms of body contouring, we think quite frankly we have all of the advanced technologies. I mean when you think about it, we have a minimally invasive treatment that is world-class with VASERPro. I mean that product again, without reiterate too much what I said in the call, it’s much more efficacious and it is in fact a product where you get significantly better efficacy versus a traditional liposuction.

Then we’ve got a product now for cellulite. And now we have our product for non-invasive treatment of fat. So no, I think our body contouring and so I’ll go one step further and cellulite product array is in very, very good stage. So no, we’re pleased, and let me say this by all of our products. We’re pleased now with this latest acquisition.

We think we’ve really got a great opportunity with the basket of products we’ve got to deliver to our customers. For us, now it’s about top line growth and bottom line growth and that equals execution. So we’ve got a great array of products. We need to get to work, selling those products and making sure that we’re driving leverage in our P&L period.

Joseph Munda – Sidoti & Company

Okay. And Steve, I’m sorry one more and I’ll jump back out. You had talked about a competitor cutting prices on their systems, that’s something you guys are not willing to do, correct?

Stephen J. Fanning

Yeah, well, if you look at all of our products, we have always been a company and you look at our ASPs, if you look at our gross margins, they’ve always been one of the highest within the category, and that’s the result of the products that we deliver to the marketplace. So we’ve intruded a promise of one procedure, one hour, one pants or one dress size.

Right now, we believe that we have the preeminent product in the marketplace and we do custom contouring. So our product is in a product that is what I’ll recall a – treated with one particular spot, a spot treatment, or as you can take anywhere on the abdomen and do the contouring treatment.

And by the way, we also know, because we’ve done the work, we have the best return on investment, the ROI for the doc. And we believe that we’re going to continue to deliver that. So all in all, we think we have superior product for the consumer and a great product for the doc to make some money on.

Joseph Munda – Sidoti & Company

Okay, Steve, that’s interesting you said that, so do you find any patient coming in requesting the products by name, or are they fully aware, you know of any situations where the patient is requesting your product by name?

Stephen J. Fanning

Well, absolutely. We’ve had a lot of consumers numerous on the many, many hundreds, thousands of consumers who ask for Liposonix by name. We can take you through separately sometime, a lot of the great work that our marketing team has been able to complete to drive brand recognition and share of voice, which has been significant last year. So absolutely, they’re asking for it by name.

Joseph Munda – Sidoti & Company

Okay, okay, thank you.

Stephen J. Fanning

Sure.

Operator

And we have a follow-up question from the line of Rich Newitter with Leerink Swann. Please go ahead.

Richard Newitter – Leerink Swann LLC

Hey guys, thank for taking the follow-up. Just two quick ones, on gross margins, I was just wondering why, in Sound Surgical, I thought had a higher gross margin than your corporate average and I noticed that your 2013 guidance is actually, roughly in line with 2012. Is there anything we should think about there or is that just mean that it depressed in the first half and really raises towards the back half?

Stephen J. Fanning

Dan?

H. Daniel Ferrari

Yeah, as we said earlier that our estimate for when we cut over and closed the deal and then for this year in terms of up line is about $26 million. So if we take a look at our top line guidance for 2013 that represents sort of a small percentage of the total business. So the impact on the overall gross margin is small.

Richard Newitter – Leerink Swann LLC

Okay. And then conversely, how should we think about two trends going on in the base business. One, gross margin, what’s the underlying trend that I would suggest that maybe there is some downward pressure on gross margin in 2013 in the non-surgical business?

And then two, I know it’s not fair to call it your base business because Liposonix for all intents and purposes is part of your base business, but because as we have the numbers, it looks like your non-Liposonix business was down in the mid-teens year-over-year. One, is that correct? And then two, is that how we should kind of think about with Liposonix accelerating?

Stephen J. Fanning

First off, the answer is, the base business was not down, okay, it’s not down. Okay, so let’s get that one off the table, number one. Number two, gross margin on the base business, no we don’t see it going down. If you go back to our history from last year, I believe we took up our gross margin every quarter. We took the floor of it up every quarter, and we took the top end up. So no, we continue to see ourselves driving a very strong gross margin to be clear on our base business and obviously on the Sound Surgical business.

Richard Newitter – Leerink Swann LLC

And the reason why the base business just – if I think about non-Liposonix business not down year-over-year, how do you get there?

Stephen J. Fanning

In terms of this coming year, 2013?

Richard Newitter – Leerink Swann LLC

No, no, I’m sorry, in the fourth quarter?

H. Daniel Ferrari

The way to look at it is, when we first launched Liposonix I think as we’ve stated on number of calls, it sort of took the air out the room. So there was a little bit of more tension spent on Liposonix by the sales force and by customers who were asking for it consistently and that was pretty much all they were interested in, in the first half.

And then we made some adjustments in terms of balance of our compensation. So in the second half, we recovered in terms of the base business. So I think if you take a look at the second half, that’s what Steve was referring to as part of the base business not going down.

Richard Newitter – Leerink Swann LLC

Gotcha. And we should kind of think about improving going forward or I mean, in all fairness Liposonix remains an exciting products category. So should we think of that as kind of continuing to be a little bit of the focus in outpacing the base business, so to speak?

H. Daniel Ferrari

No, the base business will improve going forward. We have some exciting new things as Steve talked about the Thermage Total Tip 3.0 for Thermage and we have some other exciting things coming in the year across all the brands. And then of course, the bundling opportunity is very big for us.

Richard Newitter – Leerink Swann LLC

Okay. Thanks a lot.

Stephen J. Fanning

Sure.

Operator

And Mr. Fanning, there are not further questions at this time.

Stephen J. Fanning

Great, all right. Well, thank you operator and thank you everyone for joining us on our call today, and we look forward to updating you on our performance in early May. Thank you.

Operator

Ladies and gentlemen, this concludes the Solta fourth quarter fiscal 2012 financial results conference call. You may now disconnect.

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