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Cutera (NASDAQ:CUTR)

Q1 2013 Earnings Call

May 06, 2013 5:00 pm ET

Executives

John Mills - Senior Managing Director

Kevin P. Connors - Chief Executive Officer, President and Director

Ronald J. Santilli - Chief Financial Officer, Principal Accounting Officer and Executive Vice President of Finance & Administration

Analysts

Anthony V. Vendetti - Maxim Group LLC, Research Division

Morris Ajzenman - Griffin Securities, Inc., Research Division

Larry Haimovitch - Haimovitch Medical Technology Consultants

Jack Ripsteen

Jack Wallace - Sidoti & Company, LLC

Operator

Greetings, and welcome to the Cutera, Inc. First 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

Thank you. By now, everyone should have access to the first quarter 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 plan, 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. 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 any 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 actual Cutera 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 SEC.

I'd like to point out that all references to the current quarter relate to our first 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, Mr. Kevin Connors. Go ahead, Kevin.

Kevin P. Connors

Thank you, John. Good afternoon, everyone, and thanks for joining us today to discuss Cutera's results for the first quarter ended March 31, 2013.

On today's call, I'll provide an overview of our company performance; and then Ron Santilli, our CFO, will provide an overview of our financial results. Finally, I'll provide some closing comments and then open the call to your questions.

Our revenue for the first quarter 2013 was $16 million, which represents modest growth for the same -- from the same quarter a year ago. This is our eighth consecutive quarter of year-over-year revenue growth. Our U.S. growth was driven primarily by Excel V and truSculpt products. Although we realized growth in this market segment, we anticipate higher growth rates beginning in the active quarter. As we believe that market conditions remain sound, we're planning to expand the size of our North American sales team in the second half of 2013. The details of the expansion are being evaluated, and we will be able to provide more details in the second quarter conference call.

In the first quarter of 2013, approximately 50% of our North American product orders came from core specialties, driven by an increased volume of our Excel V product, with 25% coming from podiatry specialties. Outside the United States and Canada, we sell primarily to core physicians. Our international business also experienced modest growth during the quarter. France and our Asia Pacific distributors performed well in the quarter, with some decrease in revenue from Canada and Japan. Both regions have historically been strong, and we expect to resume to normal performance levels going forward.

Part of the reason for the decline in our Japan performance was the negative impact of the decline of the Japanese yen versus the U.S. dollar. We also anticipate stronger performance for our international market segment beginning in the second quarter. From a product line perspective, Service, Excel V and truSculpt were the primary drivers of our growth this quarter; while Xeo, our flagship product, and GenesisPlus, used for onychomycosis, remain strong revenue contributors. Customer feedback from our truSculpt product continues to be encouraging as we gain momentum in this high-growth segment of the energy-based aesthetic market.

Turning to research and development. We continue to augment our team, and we believe we built a strong technically diversified organization that continues to develop innovative new products and applications. Recently, we initiated production shipments of the ProWave LX hair removal product, which was featured at the American Academy of Dermatology meeting last quarter. This product delivers high-peak power to the patient, more than twice other leading pulsed light technologies on the market. High peak power is desirable for this application because fine hair and lighter hair color requires more power to achieve positive clinical results.

The ProWave LX technology, coupled with our Nd:YAG laser hair removal technology, will allow practitioners to treat the widest range of hair and patient types in the market today. We are soon to launch a new disposable applicator for our truSculpt system to treat smaller areas. truSculpt has a commercial advantage of being a platform where we're able to launch new applicators to better treat different parts of the body, as well as the potential to pursue other aesthetic applications. We expect to begin shipping this new delivery device in the third quarter of this year. With our expanded research and development team, we're excited to launch a new high-performance laser system that is planned to be launched by near year end. More details of this project will be forthcoming.

Last, our dual-wavelength picosecond laser development program for the tattoo and pigmented lesion removal market continues to progress nicely. We have had scientific poster presentations at recent trade shows, and we have piqued physician interest in our research. We have a working prototype conducting early clinical trials. We recently met with the FDA to discuss our regulatory path and are encouraged with the direction from the agency. Dermatologists have been seeking very short pulse duration lasers over existing technology in the market. In addition, multiple wavelengths are needed to treat various tattoo colors. Our innovative technology will allow this system to deliver high-energy, short pulses with sufficiently large spot sizes than historically possible. Our novel laser topology allows for a solution, which we believe provides improved efficacy with the superior patient experience. We will continue to update you on this exciting program as we progress.

In conclusion, we're pleased with the breadth of programs in our engineering organization, and we feel we have an exciting product development pipeline.

And now I'd like to turn the call over to Ron to discuss our financials in more detail.

Ronald J. Santilli

Thanks, Kevin, and thanks to all of you for joining us today on our first quarter 2013 conference call. Our revenue grew modestly to $16 million. Net loss was $2.2 million or $0.15 per diluted share. Adjusted for noncash stock-based compensation, amortization and depreciation expense of $1.1 million, our net loss was $1 million or $0.07 per diluted share. Our cash and investment balances increased by $2.5 million during the quarter, bringing our cash and investment balance to $88.1 million.

Product and upgrade revenue decreased slightly in the quarter. This resulted primarily due to an increase of our recently launched Excel V and truSculpt product revenue, which was offset by declines in some other products and upgrades. Service revenue increased by $571,000 or 15% to $4.4 million, due primarily to the Iridex Aesthetic Business acquired in February 2012. We expect future quarterly service revenue to be approximately $4.5 million.

Fillers and cosmeceuticals revenue declined approximately $330,000 or 23% due to -- due primarily to unfavorable yen-U.S. dollar foreign exchange rates and some declines resulting from volume discounting. We remain pleased with these product offerings, which allow us to generate incremental revenue and help us expand our laser business into an additional customer base.

Now I will address our first quarter 2013 operating performance. Our gross margin was 54% in the first quarter of 2013 compared to gross margin of 50% in the first quarter of 2012. This improvement was due primarily to an improved service margin. Included in our first quarter 2012 service expenses were nonrecurring integration expenses related to the Iridex acquisition. Adjusting for the Iridex-related startup expenses in Q1 '12, the Cutera gross margin would've been approximately 54% in that quarter. We expect the gross margin to improve in the second quarter and expect our annual range to be in the mid- to upper 50s in 2013, depending on the revenue level.

Sales and marketing expenses were $6.5 million or 40% of revenue compared to $7.4 million or 47% of revenue in the first quarter of 2012. This decrease was primarily the result of reduced international expenses resulting from the closure of our Spain and U.K. offices; the impact of the appreciation of the U.S. dollar against several of the currencies that we incur expenses in, primarily, the Japanese yen; and lower sales commission expenses in the U.S. The decline in our expenses while maintaining a revenue level reflects the leverage in our model. We are targeting sales and marketing expenses to be in the mid-30% range for the year.

Research and development expenses remain fairly flat at $2.1 million in Q1 '13 and $2.2 million in Q1 '12. We remain 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 $1.2 million to $2.3 million. As a percentage of revenue, G&A expenses declined from 22% in Q1 '12 to 14% in Q1 '13. The large reduction was due primarily to $559,000 of nonrecurring acquisition-related expenses incurred in the first quarter of 2012; $541,000 of decreased professional fees, which was partially offset by a $71,000 increase in expenses due to the commencement of the U.S. medical device excise tax effective January 1, 2013. We expect G&A 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 increased to $135,000 from $96,000. This increase was due primarily to an increase in net foreign exchange gain as a result of the appreciation of the U.S. dollar.

Income tax provision. Our tax provision is primarily attributable to international taxes related to our foreign subsidiaries and small amounts of minimum and capital base taxes in the U.S. As a reminder, we continue to maintain a 100% valuation allowance for our U.S. deferred tax asset. We recorded income tax benefit of $18,000 in the current quarter compared to an income tax expense of $97,000 in the first quarter of 2012. The Q1 2013 benefit results primarily from the nonrecurring release of uncertain tax position liabilities that was offset partially by income taxes for our international operations. 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 first quarter of 2013 was $6.8 million, and our DSOs were 38 days. We continue to have among the best DSOs in the industry and expect to remain in the mid-30s range throughout 2013.

Inventories at March 31, 2013, were $11.1 million, which is the same level reported at December 31, 2012. We believe there is still room to reduce our inventory further and remain vigilant in reducing further where appropriate. Our inventories are turning approximately 3x per year and our goal is to increase it to 4x per year. Our financial position remains strong. Our cash and marketable securities balance increased by $2.5 million this quarter to $88.1 million with no debt. This represents $6 per outstanding share. Our cash balances have increased over $9 million during the past 12 months.

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

Kevin P. Connors

Thanks, Ron. In conclusion, we're pleased that we have experienced 8 consecutive quarters of revenue growth with a strong year-end performance in 2012. But we are expecting higher growth rates in the second quarter and for the remainder of 2013 than we experienced in the first quarter of 2013. Market data supports that the industry trends are sound. We believe we are well-positioned to capture an increased market share with our diverse and expanding portfolio of products, an expanding sales force and a strong engineering team to bring new innovative technologies to our marketplace. In addition, we will remain opportunistic and continue to evaluate new business development opportunities that will be accretive to our business model.

And now I'd like to open up the call for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Anthony Vendetti of Maxim Group.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Just wanted to see if you can talk a little bit, Kevin and Ron, just a little bit about particular products in the quarter that either drove the slight growth that you had or products that you thought maybe didn't do as well? You mentioned cosmeceuticals was down a little bit. Can you talk about Excel V or Titan, Xeo -- in general, just trends for those products?

Kevin P. Connors

Yes, it's Kevin. In terms of the 2 most recent product launches, truSculpt and Excel V, the combination has been a growing slice of the revenue pie, and those 2 products account for approximately 48% of our product sales in the quarter. So we're pleased to see that shift. And if you look at the trended mix by specialty, core has picked up and that was one of the objectives of developing these products as we get a larger share of the core's focus. And so we're pleased.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Okay. And I noticed that you moved upgrade into product revenues. Is that how you're going to be counting it going forward? And if so -- by the way, I think that's fine, but was there a particular reason why you started that this quarter?

Ronald J. Santilli

Yes, we -- at the beginning of the new year, Anthony. So we filed the K with it, separate from last year. And then beginning this year, we figured we would start combining it, mostly because that number had shrunk. It was well below $1 million, in the $700,000, $800,000 range per quarter. And the reason it had shrunk is because our last few product launches were platforms instead of upgrades to existing products. So it just -- we didn't feel it was providing meaningful data anymore.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Yes, no, no. Agreed. Understood. Is there anything else that you could point to? I know that the devaluation of the yen maybe contributed a little bit. But is there any geographic area or anything else you could point to for the weakness in revenues this quarter? And then specifically, what you think will jump start revenues in the second quarter? Is it the new disposable applicators? Is that ready to be -- is that commercially available now for the truSculpt? And then, anything else you think will help jump start revenue growth here in the second quarter.

Kevin P. Connors

Sure. So there are a number of questions in there, so I hope I touch on all of them. But in terms of specific things in the quarter, certainly, our business in Japan is a material part of our business. Approximately 25% of revenue comes from Japan, and an unfavorable foreign exchange factor, obviously, have an impact. And Canada has also been a very strong geography for us, and we feel really good about it. But both of those showed some softness there that we don't believe has any reasonable chance of continuing. We've got very stable, strong teams in place there and I expect for the recovery to happen, and certainly, it can. And we'll keep our eyes on the foreign exchange in Japan. But I think it's important that we look at where we've been and we've talked about 8 quarters of sequential growth -- or year-over-year growth. And then in the past year, we've had strong cash flow generation. It came off of a strong Q4 with our worldwide growth at 22% and 36% growth in our domestic business. And then for the year, the domestic business is at 37%. So we're coming off of a very strong 2012 and a very strong close to the year. And as you know, the timing of when physicians decide to make these purchases can be a bit unpredictable. But we looked at the quarter in the context of where we've gone and where we've come from. And as we look at some of more recent information from the publicly traded companies in our space, we think the Q1 numbers would support a growth rate somewhere close to 10%. So based on that, we think that the market conditions appear sound. And that, coupled with our augmented investments in R&D, have justified us making the decision to expand our sales team, certainly, in North America, but we're looking at geographies outside the United States as well.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Did you want to get specific on how many sales people are you looking to add this point?

Kevin P. Connors

We're working with sales management right now and laying all that out. But we recognize that with as much as we hoped for, improvements in sales force productivity, it's important that a growing market constantly be in a mode of adding to the sales team in order to capture a larger share of the market.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Okay. And then...

Kevin P. Connors

And then product-related, we indicated in the script that we just got the LX launched, so we have revenue shipments of that, that have commenced. We showed that at the AAD, and we're really excited about what that enabling technology can provide in the hair removal market, which continues to be one of the largest markets in our space.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Okay. And then just lastly, Ron, core, non-core breakout for the quarter?

Ronald J. Santilli

Yes. Core was approximately 50% here in North America, with podiatry approximately 25%; and the other 25%, the other specialties.

Operator

Our next question is from Morris Ajzenman with Griffin Securities.

Morris Ajzenman - Griffin Securities, Inc., Research Division

Again, following -- clearly, the focus is going to be near term on the top line. And, Kevin, you signaled that this is kind of an anomaly. You'd expect to rebound. In effect, you said looking at the market, the 10% growth rate is what should be supported here irrespective of the modest growth you had in this quarter. But can you just talk about a little further, were there any orders that were potentially pushed out into the second quarter from the first quarter? Or vice versa, was the orders that might have hit the first quarter hit in the fourth quarter this past year that caused the sales moderation? And then, if you want to talk about linearities as far as the months progress, January, February, March, was there any change in sort of the trend of sales? Let's start with that, and then I have a follow-up.

Kevin P. Connors

Well, as you know, Morris, we have a track record of having our fourth quarter be our strongest quarter followed by our weakest quarter. So predicting what that order rate looks like from Q4 to Q1 is difficult for us. And in terms of how we're looking at the future, we think we've got exciting products that are resonating in the market. We've got more coming. And we look at our publicly traded competitors, and it gives us reason to be optimistic that the market continues to be strong.

Morris Ajzenman - Griffin Securities, Inc., Research Division

As the quarter unfolded, was there any change in trends? Was January weak, strong, February, March, et cetera? How did that play out in trends?

Kevin P. Connors

Well, it's...

Ronald J. Santilli

I don't think we saw anything. This is Ron, I'm sorry. But I don't think we saw anything aberrant for months 1, 2 and 3. This business is largely back-ended into the month 3, and that's what we saw in Q4 and that's what we saw in Q1 as well.

Morris Ajzenman - Griffin Securities, Inc., Research Division

Okay. And Ron -- excuse me, Kevin, you mentioned 10% growth rate. Is this fair? Again, in the previous 7 quarters, you had double-digit growth rate. Is there any reason to believe that we will not revert back to a double-digit or at least a 10% growth rate going forward?

Kevin P. Connors

We've talked about we will evaluate our performance in the marketplace relative to what's happening with the market trends. And if we're growing faster than the market's expanding, we're in the right side of that. And obviously when we're not, that means that we've got work to do. So we will continue to monitor that closely and make the relevant business decisions in terms of expanding sales team, et cetera.

Operator

The next question is from Larry Haimovitch of HMJC (sic) [HMTC].

Larry Haimovitch - Haimovitch Medical Technology Consultants

Kevin, any comments on the proposed merger of 2 of your larger competitors in terms of how that might impact you or the industry? Do you think it's favorable in that it might cause some uncertainty in the marketplace or disruption in some way?

Kevin P. Connors

Well, we're obviously keeping our eye on it, and the nature of these things comes down to how the integration comes together. The integration team is really critical on the success of these kinds of things. And there are, I guess, 2 ways of looking at it. One is that we have one fewer competitor that's in the marketplace and allows us to really focus our sales and marketing efforts on fewer of them out there. Now there's always a risk that the larger footprint in the space could be damaging. But we are doing everything we can to run very quickly in the race, and we think from an innovation perspective, that can really move the needle very quickly. So we've been fortunate that we've been able to build, and if I should say, augment our R&D team, and we think that, that's probably the most direct way that we can control our destiny.

Larry Haimovitch - Haimovitch Medical Technology Consultants

A follow-up question, Kevin. In the past, the product for toenail fungus has been one of your strongest, strongest growth vehicles. And I haven't heard much comment on the call. Maybe you said it, but could you comment on the trends in Q1 for that particular product?

Kevin P. Connors

Ron just went through that. What was the mix on that podiatry?

Ronald J. Santilli

Well, we don't disclose the specifics within our product category...

Kevin P. Connors

But you broke out non-core.

Ronald J. Santilli

Right, that was just for non-core. And we did 25% of the orders came from the podiatry group. But in terms of our growth rate in that particular product, we didn't see any substantial growth. It was truSculpt and Excel V is where we experienced the growth.

Larry Haimovitch - Haimovitch Medical Technology Consultants

So what happened there? That product has been so strong for you for the last several quarters. Is there some competitive activity that we should be aware of?

Kevin P. Connors

Well, we've been in the market with that. I think we got our FDA clearance in April 2 years ago, so we've been out there for quite some time. And we still have a sales team that's focused on the podiatry market. And we are pleased that we're seeing the core part of our business continue to expand, and we continue to see GenesisPlus as a viable product in podiatry.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Okay. So did it lose share to any other competitors, or it sounds like what you're saying, Kevin, it's just becoming mature?

Kevin P. Connors

Or we've got a broader bag of products. So it's one of the challenges we have, is that lots of new things hitting the market and it's important that we have strategies that we can remain focused on all of our products.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Okay. And then, Ron, you may have said this, I lost a part of the call. On the buyback, how did you fair this quarter on the buyback?

Ronald J. Santilli

As you know, we do have a buyback in place, but it has certain thresholds. And at this point, none have been reached. So there was no buyback that occurred in the quarter.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Is it fair to say the stock price was above where you're comfortable buying it?

Ronald J. Santilli

It was higher than what the rates -- the stock had actually gone through a recent pretty good runup. And so at the time that we set the targets, they were lower than what today's market prices are.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Okay. Is that going to be reconsidered possibly? Or are you going to stay on the sidelines based on the fact that the stock is still up quite a bit?

Kevin P. Connors

It's in active discussion at our board meetings, and we listen to investors' comments on that being one of the best uses of our cash and we're at 7 [ph] and change a share. It seemed like the right thing to do. So we'll continue to have that discussion with our board.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Has the board considered ever a special dividend, Kevin?

Kevin P. Connors

We've talked about all sorts of things, but I don't think we've gotten a significant amount of interest on that. But we just have a discussion of any comments we get from our shareholders.

Larry Haimovitch - Haimovitch Medical Technology Consultants

Well, a lot of other companies are doing it. You can see what Apple is doing. Apple is getting a massive amount of pressure. Of course, they have a little more cash than you. But they have a massive amount of pressure -- and yes, just a little bit. But -- and I'm not generally in favor of special dividends, but there's a lot of cash on the balance sheet that's been there for a long, long time. Obviously, you've evaluated lots of acquisitions and obviously, you haven't found anything yet to your liking, so that may be something to consider as well.

Kevin P. Connors

Yes, absolutely.

Operator

[Operator Instructions] And the next question is from Jack Ripsteen of Potrero.

Jack Ripsteen

Can you talk about your sales force a little bit in terms of incentives -- how you're incentivizing them? Because as you add new products, it seems like maybe they're getting distracted and maybe offering too many things or maybe they're hitting their quotas too early. But this seems sort of like a bit of a letdown quarter after a good Q4. So how do you incentivize them?

Kevin P. Connors

Well, I think the compensation plan is probably largely close to what we see from our competitors, but low base as a percentage of the total target comp. And then we have ways to put special incentives for our top people to even make a larger comp package. But on the issue of specialization, that's in active discussion, Jack. I think we recognize that we've got great products, and thus we are able to structurally maintain focus on all those that, that could be an unintended consequence.

Jack Ripsteen

Okay. And then in terms of units, can you guys talk about how many truSculpt units you sold in the quarter? You said it was about half of -- or 48%, I guess, was combined Excel V, truSculpt. Can you give a little more flavor of how fast or, I don't know, just in general, at the direction of truSculpt is there?

Kevin P. Connors

Well, again, we wanted to give some color in terms of how the new products are being received in the marketplace, so we just kind of threw that out there. But historically, we haven't given granular information about each product. But we still see tremendous opportunities for truSculpt, and we think that the new applicators that we're developing allow us really to leverage that to make that even a more high-utility product offering for our customers.

Jack Ripsteen

Is truSculpt bigger than Excel V yet?

Kevin P. Connors

Again, we're not going to get into that. But we have -- when we started with Excel V, we had a pretty slow uptake just because we were displacing a technology that's been in the market for a long time and many considered that technology the gold standard. And as we got that technology in the hands of key opinion leaders in dermatology, we really started winning the battle one doctor at a time. And I think largely with truSculpt, it's kind of a similar challenge for us. But the investments we've made with Excel V have been reflective of the success that we've seen with that product.

Operator

The next question is from Jack Wallace of Sidoti & Company.

Jack Wallace - Sidoti & Company, LLC

Just wanted to maybe talk not necessarily about Q2 or even Q3, but just wanted to talk a little bit more about some of the long-term growth opportunities. I know you've mentioned looking backwards in the last quarter that publicly traded companies, you're growing at about 10%. I believe it was in the quarter previous to that, the talk was somewhere around 20%, kind of looking -- gazing in the crystal ball with the tattoo removal technology and other add-ons for some of the new products you've launched in the past couple of years. Do you see that growth rate industry-wide, and particularly for you guys, maybe coming back up maybe into the mid-teens range? Or is there -- maybe 10% a good place maybe to think about say the next 12, 18 months?

Kevin P. Connors

Well, I think the fact that we are making the investments in technology gives some sense of how we're viewing the market opportunities. The tattoo removal product that we're -- or project that we're working on, that could be a very exciting breakthrough because there really -- with the exception of one competitor, there hasn't been anything that's materially changed the game of removing tattoos. I mean, the technology that's out there today can take 10 treatments in order to get a result and then the results are limited to certain tattoo inks. So if we're able to ultimately come up with the clinical results that move the needle, that could change the tattoo removal market in its current form, which I'd say is maybe a $50 million world market that's not growing very fast into something that could have broad appeal and even, ultimately, having a home in a large portion of the derms offices out there. And our one competitor is charging a premium for their products, and we're excited to stay close to this market. So that's just one example. But we've got no shortage of things that we're working on, and so we believe it makes sense for us to continue to step on the accelerator with product development activities, as well as a future -- or investments in sales force expansion on a global basis.

Jack Wallace - Sidoti & Company, LLC

Great. And just talking about the sales question, it was brought up a little bit earlier. Can you maybe talk a little bit more about some of the potential expansion internationally? I know you've talked a little bit more specific in North America.

Kevin P. Connors

Sure. Well, recently -- and again, a little history in Q1, we acquired the aesthetic assets of Iridex. And one of the things that was very appealing to us is that they had a very strong business in certain parts of Europe and France in particular. And we've augmented that team, and we've got a nice presence in France and we're seeing that in our numbers. And now, we're looking to leverage that hub in Paris and build some direct operations elsewhere in Europe. So we find that to be exciting. And then, the business in Japan for us has been a strong contributor to our performance over the years, but we see other places in the Asia Pacific region that look like opportunities for us to make additional expansion in our direct operation.

Jack Wallace - Sidoti & Company, LLC

Great. And can you guys break out what the upgrade number would've been for the quarter if it was split out?

Ronald J. Santilli

If it would've been split out, hold one just 1 second, it was about $544,000 for the quarter.

Operator

We have no further questions in queue at this time. I would like to turn the floor back over to Mr. Connors for any closing remarks.

Kevin P. Connors

Thanks for participating on the call today. We'll be attending a number of investor events in the coming months, and we'll update you on our business progress in the second quarter conference call in August 2009 (sic) [2013]. Good afternoon, and thanks for your continued interest in Cutera.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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