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ZELTIQ Aesthetics, Inc.

Q3 2013 Earnings Conference Call

October 30, 2013 4.30 PM ET

Executives

Nick Laudico – IR

Mark Foley – President and CEO

Patrick Williams – SVP and CFO

Analysts

David Roman - Goldman Sachs

Tycho Peterson - JP Morgan

Bill Plovanic – Canaccord

Margaret Kocher - William Blair & Company

Anthony Vendetti – Maxim Group

Operator

Good day, ladies and gentlemen, and welcome to the ZELTIQ's Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Nick Laudico of The Ruth Group. You may begin.

Nick Laudico

Thanks, operator. Welcome to ZELTIQ's third quarter 2013 earnings conference call. ZELTIQ's Senior Management on the call today will be Mark Foley, President and Chief Executive Officer and Patrick F. Williams, Senior Vice President and Chief Financial Officer.

Our discussion today, including the Q&A session will include forward-looking statements reflecting management's current forecasts of certain aspects of the company's future business. Forward-looking statements are denoted by such words as, will, would, believe, should, expect, outlook, estimate, plan, goal, anticipate, project, potential, forecast and similar expressions that look towards future events or performance.

Forward-looking statements are based on current information that is by its nature, dynamic and subject to rapid and even abrupt changes. Our forward-looking statements are subject to risks and uncertainties which may cause the actual results to differ materially from those projected or implied in our statements. Such risks and uncertainties are discussed in today's press release and can also be found in the company's filings with the Securities and Exchange Commission.

This conference call is the property of ZELTIQ Aesthetics and any recording or rebroadcast of this conference call is expressly prohibited without the written consent of ZELTIQ Aesthetics. After management's prepared comments there will be a question-and-answer session.

With that, I’d like to turn the call over to Mark.

Mark Foley

Thanks Nick. Good afternoon, everyone, and thank you for joining today's conference call. Our results for the third quarter of 2013 were exceptionally strong and better than expected. Q3 revenue of $29.5 million was up 64% year-over-year and 12% sequentially. Our growth was driven by an increasing leadership position in the non-invasive, fat reduction market and continued execution of our bifurcated sales force building upon its momentum form the first half of this year. Armed with market leading technology, our account managers continued successfully and predictably expand on installed system base while our Practice Support Specialists leveraged on hands treatment protocol, treatment to transformation and approve training and education initiative to drive greater utilization. At the core of success thus far has been an ongoing commitment to delivering outstanding patient outcome, a commitment partnering with our physician practices and a commitment to driving awareness through our cooperative advertising campaign, a new marketing initiative.

Our third quarter results further increased our confidence that the changes we have implemented are resulting in more predictable and sustainable growth. As a result, we are raising our full revenue guidance to approximately 40% year-over-year growth in 2013, up from 20%. Due to our focus North America continued to be the main contributor to our over performance. But we are beginning to see positive signs in our international markets. Additionally, we've demonstrated strong discipline in our cash management this year and have significantly reduced our year-over-year cash burn. Patrick will give full guidance detail and our improved cash projections during his financial overview.

With our strong Q3 results and projected Q4 performance, we feel it would be helpful to give a preliminary range of our expected growth in 2014. Although, we liked 2013 with a very high growth rate, this performance is amplified due to lower revenue comparable in the second half of 2012. Also with the strong 2013 performance the comparisons for 2014 will become harder. At this early stage, we believe a growth rate between 15% to 20% for the full year 2014 is achievable and our prior comment to generating cash by the middle of 2014 still hold true.

As we have done on prior earnings call, we will touch on those areas of the business we believe are driving our growth to give some insights into our third quarter and rest of year performance. So we start with the market. Starting with the addressable market, we continue to believe we are in the early stages of not only penetrating the existing market but also seeing rapid expansion of the market as non-invasive, fat reduction and body contouring gain traction with the end user patient. As we broaden our installed base and grow the utilization of CoolSculpting, we continue to gain a deeper understanding of the long-term market opportunity for both treatments and systems. Previously, we've talked about the base aesthetic market of 30,000 practices worldwide and the company's initial focus on penetrating 5000 of this market leading practices. We are currently in about 1700 of those practices and our success to date in further diligence on the market opportunity suggest that we can likely go much deeper into base aesthetic market than initially anticipated. Additionally, we find the CoolSculpting practices continue to add multiple systems in order to increase their throughput and to handle increasing patient demand. Our market research continues to demonstrate that CoolSculpting is changing practice dynamic by driving new non-aesthetic patients into the aesthetic channel. At our Investor Day meeting in New York last month, Dr. Grant Stevens presented his published pre reviewed paper on the success of CoolSculpting in attracting new patients whereby 66% of it is CoolSculpting patients were new to his practice was 52% of that being completely new to aesthetics. This supports our ongoing believe that CoolSculpting can and is drawing new patients into the aesthetics channel. We believe the ability to drive new patients into the channel combined with high new procedure conversion rate is on tested in the aesthetic space.

Additionally, we are hearing from our CoolSculpting physicians that we are driving a large number of men into their practices for treatment which is something that haven't experienced before. Also they tell us that men tend to be very loyal patients once they enter the channel and have a good experience. We've recently conducted another quantitative market research study to better understand the potential market size. The result of this study further increased our confidence that CoolSculpting is highly under penetrated within large addressable and end user patient market. This study used the latest U.S. census data combined with the patient survey about motivated speakers of non -invasive, fat reduction. It also look at characteristics such as household income, body mass index and age and correlated that with localized survey responses about whether patients have an aesthetic position, have unwanted body fat and would seek a treatment like CoolSculpting. The conclusions were very encouraging showing anywhere between 4 million to 8 million potential end user patients in the U.S. alone that to be actively seeking treatment. This is not taking into account repeat treatment, supports expansion opportunities facilitated by new applicators or labeling indication.

The economic backdrop to all of this is also encouraging as recent economic report forecast improving income, moderating unemployment and an increase in discretionary consumer spending going into 2014 which would facilitate overall market penetration and enhance market expansion.

Now I would like to talk a little bit about sales force. As we highlighted before, we expect our sales force to increase the momentum and productivity heading into the back half of the year. Our third quarter results especially on the system placements side will well above our expectations and we continue to benefit from our experience and market leading sales team. The changes and addition to the team are resulting in a higher level of performance and predictability. In Q3, we placed 181 systems worldwide which is the second highest level in company's history and included our largest quarter ever in North America. The sales team has become proficient in demonstrating to physicians, through real world case studies that CoolSculpting can consistently produce impressive outcome, satisfy patients and grow their business. Our Practice Support Specialists are providing proactive support to practices in ways that have never been seen before in the aesthetic industry. These professionals have continued to hone their skills and knowledge and what delivered increased patient awareness through localized marketing efforts. They quickly follow a new system sale with a dedicated partnership that generates strong utilization soon after the system is delivered. It is this one cue punch that is so unique to our industry and has built physician confidence in our organization and in our ability to deliver. An example of our pioneering partnership effort is CoolConnect which while still early in terms of its rollout has made some early contribution in directing the practices CoolSculpting awareness effort. Lastly, the direct markets in Europe are continue to perform well further validating our efforts to drive growth through a focus on outcomes, training and practice partnership and that these efforts translate internationally.

Now I'm going to move on marketing. From a marketing perspective we have evolved the strategy and tactics we employ in the field which would help contribute to our strong results. Our initiative can be broken down into four focused categories. Treatment to Transformation or T2T as we call it, CoolSculpting University, CoolConnect and our digital initiatives. Let me briefly touch on each of these. Treatment to Transformation has revolutionized the way physicians use CoolSculpting resulting in impressive customized patient outcome. It's too early in the T2T launch that with the right training and education, applicator selection and placement and cycle combination, physicians can deliver liposuction -like results with a true wow factor. When patients are pleased with their outcome, a natural word-of-mouth or viral marketing campaign takes place. Physicians' education of T2T now begins before the system sale is made, strong on the positive outcome and practice building case studies generated in other market. Our PSS team is committed to helping physicians replicate that success by starting the marketing process immediately. Additionally, now that the program has continue to gain momentum for a few quarters, we are seeing more peer to peer sharing regarding best practices and how to successfully implement T2T.

This is an important example of how ZELTIQ is in the unique position of delivering both in innovative technology and a true marketing partnership that build physician practices. T2T continue to spread across our installed base deepening physician relationship, improving our utilization and driving incremental system sales in existing practices. We believe that T2T adoption will be a significant contributor and helping us achieve our long-term growth objective. In addition to field training, we've officially launched CoolSculpting University in the third quarter. CoolSculpting University is an industry first practice training and comprehensive education program which currently last two and half days. It includes didactic sessions, demonstration on how to optimize outcome through patient selection, assessment, treatment planning and implementation. It also includes the practice branding component of marketing section and a step by step 90 day action in power plan. We are still in the early stages of implementing this program, a participant feedback thus far has been overwhelmingly positive and we believe this program will allow us to scale up T2T across a broader customer base, drive better physician brand loyalty and compliance, and ultimately train practices on how to maximize the CoolSculpting experience for improve patients health and system utilization. The implementation of our third initiative CoolConnect is progressing on schedule. We currently have CoolConnect up and running on about 700 systems and are working hard to upgrade our entire North American installed base by the end of the year. We expect the point of sale data we have begun to receive on patient demographics, procedure trends and treatment pattern will help us and our physician partners to optimize and improve the way we do things in real time.

Lastly, as we better understand the true market size and patient demand in specific population segments, we believe a stronger, expanded digital marketing strategy will help us to increase consumer awareness. We are focused on creating branded micro sites in partnership with our physicians to drive patient web traffic, procedure consultations and ultimately new treatments. We are also going to enhance our search relevance by increasing available information in data on CoolSculpting so that there is a better backdrop of searchable contain for interested parties. This focus the powerful digital initiative will allow to market repeatedly and consistently to qualify patients driving them to a local CoolSculpting provider.

Now I'm going to shift over and talk about technology and R&D. From an R&D perspective we continue to focus on making the CoolSculpting procedure faster, safer, more efficient and more efficacious while also expanding the area that we are able to treat. We believe that we are in the early stages of optimizing our control cooling technology and that there is an opportunity to continue to advance therapy. Currently we are actively working on ways to address outer thighs, sub momentum [ph], acne and other volume areas. We expect to launch new applicator and our goal is to have an expanded labeling indication before the end of 2014.

Lastly, I would like to comment on some of our pioneering efforts that are redefining the aesthetics landscape and our ability to build long-term, sustainable and value add relationships with our physician customers. Through CoolSculpting University, CoolConnect and our cooperative advertising in digital initiative such as physician centric micro site, we are demonstrating the ability to be a true partner that providers a lot more than just product. Over time, we believe our ability to deliver consistent outcome, enabled via training initiative, collect real time point of sale data via CoolConnect and combine these with our powerful marketing and awareness efforts, will enable us to build a leverageable and formidable position in the aesthetics space that will open up interesting strategic opportunities over time.

I will now turn it over to Patrick.

Patrick Williams

Thanks Mark. Revenue for Q3 2013 was $29.5 million compared to $17.9 million in Q3 2012 and $26.3 million in Q2 2013. We continue to see a larger contribution from North America versus international compared to prior years. North America accounted for 80% of revenue in Q3 2013, versus 76% in Q3 2012. Similar to last quarter we saw very strong performance in North America with 72% year-over-year growth in Q3 2013 which was significantly larger than Q2 2013 North America year-over-year revenue growth of 27%.

International year-over-year revenue grew 41% compared to a year-over-year decline in Q2, 2013 of 8%. As we progress to the fourth quarter of 2013 and into 2014 we expect our international business to go momentum as we expand our focus.

Worldwide system revenue in the quarter was $15.9 million, or up 87% compared to $8.5 million in Q3 2012 and up 22% sequentially. Consumable revenue in the quarter was $13.6 million or up 44% compared to $9.4 million in Q3 2012 and up 2% sequentially. Contribution of both North America system and consumable revenue in the quarter was similar to the overall North America contribution percent I mentioned earlier of approximately 80%.

Worldwide consumable revenue as a percent of total revenue was approximately 46% compared to approximately 53% in Q3 2012 and 51% in Q2 2013. We shipped approximately 115,000 cycles in the quarter, up 48% from Q3 2012 and 2% sequentially. We also saw strong sales growth across both our North America and international market in system sales and we believe this is a result of our account managers reaching a larger under penetrated new client market as well as the existing physician customer base who are purchasing more cool unit to keep up the consume demand.

In the quarter, we installed 181 systems worldwide, up 71% from Q3 2012 and up 33% sequentially. North American system sales significantly out performed international on a year-over-year. This brings our worldwide installed base to 1,912 units or up 40% compared to Q3 2012 and up 10% sequentially. We now have approximately 1,250 unit installed in North America and approximately 650 internationally.

We are very encouraged that we are still placing a large number systems into new customers which we believe show that the addressable market continuous to grow as more practices adopt our technology.

Gross margin was 72% compared to 67% in Q3 2012 and 70% in Q2 2013. The year-over-year sequential increase is primarily due to the lower cost as a rebuilt of in-sourcing manufacturing efforts. As well our gross margin would have been about 125 basis points higher compared to last year if it were not for the unfavorable impact from the medical device excise tax.

Operating expenses for Q3 2013 were $24.1 million compared to $17.1 million for Q3 2012 and $22.1 million for Q2 2013. Our net loss for Q3 2013 was $2.8 million compared to a net loss $5.2 million for Q3 2012 and $3.6 million net loss for Q2 2013. On a per share basis we had a $0.08 loss per share compared to a $0.15 loss per share for Q3 2012 and a $0.10 loss per share for Q2 2013.

Our cash, cash equivalents and investment at the end of Q3 2013 now sit at $55.9 million, compared to $66.9 million at the end of Q3 2012 and $52.5 million at the end of Q2 2013. So in the quarter we once again increased our cash position this time by approximately $3.4 million. Our positive cash generation in the quarter was driven by better than expected revenue and especially on North America system sales and continued financial disciplined that has been instilled throughout the organization.

I will now turn to a discussion of our 2013 guidance. As Mark stated we are raising 2013 full year revenue guidance to approximately 40% year-over-year growth, up from 20%. We are very pleased with the outstanding quarter and I believe we have put the people into place to continue robust, top line growth in the remainder of 2013 and beyond. Our North America system sales in Q3 2013 was well above our expectations and that we are pleased with this result, we would like to see some more data point to better understand how sustainable such high unit placement can be.

While we do see strong year-over-year and sequential growth, we expect Q4 total revenue to be similar to Q3 and we expect system sale to come down slightly offset by an increase in consumable sales. We are revising our full year 2013 guidance as follows. Revenue growth of approximately 40% year-over-year, up from 20%. Consumable revenue to be between 45% and 50% of total revenue, unchanged from prior guidance. Full year gross margin increased to approximately 69%, up from approximately 67% due to continued saving from in-sourcing manufacturing efforts.

Total operating expenses as a percent of total revenue decreased to approximately 90% down from approximately 96% due primarily to higher revenue guidance and leveraging of fixed cost. This includes sales and marketing expense of approximately 58% down from prior guidance of approximately 60% of total full year revenue.

G&A expense of approximately 16% down from prior guidance of approximately 18% of total full year revenue and R&D expense also approximately 16% down from prior guidance of approximately 18% of total full year revenue. We continue to expect other income expense as well as tax expense to be similar to our full year 2012 results. We also continue to expect weighted average number of shares of basic common stock outstanding of approximately 36 million.

Last quarter, we lowered our cash burn projections for the full year 2013 to approximately $18 million. We now believe we will significantly decrease this full year cash burn projections by approximately half. This is a significant reduction nearly 70% when compared to our full year 2012 cash burn. The decrease can be attributable to increase revenue growth as well as the continued financial discipline. As previously stated, we still expect to have positive cash generation by the middle of 2014.

Lastly as Mark said we plan to provide official full year 2014 financial guidance at a later date but we felt it was warranted to share our preliminary thoughts on 2014 revenue growth rate after such significant raise in our full year 2013 guidance.

I will now turn it back to Mark for closing comments.

Mark Foley

Thank you, Patrick and thank you everyone for joining us on the call today. The third quarter is an example of what our organization is capable of when it is firing on all cylinders. Sales, marketing, management and the entire ZELTIQ team outperformed expectations. Additionally, we continue to benefit from the strengthening of relationship we enjoy with our dedicated physician partners whom we highly value. We always knew that CoolSculpting was a very unique and differentiated technology and over the course of the past year we have honed the strategy, operations and execution to leverage its potential. As we closed out 2013 and look forward to 2014 and beyond, we believe that we can continue to penetrate and grow the very large and untapped non-invasive fat reduction market by continuing to execute and through the implementation of our new initiatives. Additionally, we believe that we have opportunity internationally as we look to replicate our success in North America and increase our focus in these geographies. Going forward, you should expect our focused to be in the following areas. Continued sales execution to predictably space system and grow utilization, implementation and optimization of our marketing and training initiative, investment in our CoolSculpting platform to enable us to treat more areas and enhance the performance of the existing technology, an ongoing financial discipline to achieve top line and bottom line target.

I would now like to open the call for your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And the first question is from David Roman of Goldman Sachs. Your line is open

David Roman - Goldman Sachs

Thank you and good afternoon everybody. I was hoping you could just go into a little bit more detail on the profitability comments for 2014? That would obviously represent a fairly significant improvement around the trends that you're showing right now, and if I look at the revenue base that would put your level of profitability well ahead of what we normally see in med tech at that revenue size. Maybe you could just sort of give us a little bit more color on what you're thinking is there and why you're willing to commit to that at this point?

Patrick Williams

Sure, so I think and I said it was color and we have been pretty up front what about cash burn would be for 2013 and going into 2014, David, so that is all the same comments that we made. For us I think as we look forward we will give you official guidance for 2014 as we progress throughout this year and get into the next. The reality is we are seeing a nice up take in our consumables which has a very high gross margin. We still feel very good about cash generation and I think some of that has to do with some of the working capital adjusted that we made as well so I think from an operating margin perspective is really a pure GAAP net income perspective and there is still some room for us to improve in that area. But we are looking at ways that we can continue invest in the company to grow the top line.

David Roman - Goldman Sachs

Okay and maybe just a follow-up. I was hoping you'd go into ASPs a little bit more. It looks like they came down a little bit versus the past couple of quarters. Anything there with system upgrades that we should be mindful of? And I'll get back in queue. I just want to say congrats on a great quarter.

Mark Foley

Thanks, David. This is Mark. I think if you look at the system ASPs, entire quarters when we introduced new applicators, CoolCurve + and CoolFit, the sale of those applicators to customers that have existing systems got rolled up into the total system revenue and so that drove higher system ASP in the last two quarters. If you look at kind of our pricing in the market it's held very stable. And so we continue to see pretty good price stability on the system side and it's going to be more influenced frankly by our next between U.S. and O- U.S. when we sell outside the United States, obviously the -- when we work through our distributor we get lower revenue in that spending. But our pricing continuous to hold up and again it has been consistently we back up the applicators.

Operator

Thank you. And the next question is from the Tycho Peterson of JP Morgan. Your line is open.

Tycho Peterson - JP Morgan

Hey, thanks for taking the question. You guys called out international a few times, can you maybe just talk about whether there are pockets of strength that are worth calling out at this point? And I guess as we think about 2014 what do you really need to add, maybe additional infrastructure, outside the US?

Mark Foley

Hey Tycho, that's a great question. I think as we look at the international market the first data point that we use was our direct international market. So as we focus a lot on U.S. and different things have been successful here, we are able to more quickly and easily replicate that in our direct European market place and we have seen the traction there. And so as we look out across the entire international opportunity, we have broke it down into APAC, LATAM and then our European indirect and our European direct and so I think we will take sort the market the matter in those and trying put some effort behind. As Patrick said we are not really in a position yet to give a lot of granularity to our 2014 performance but we will look to add some Practice Support Specialists that we think can really help work side by side with our distributors to drive T2T and utilization. And we will probably make some more investments in training this whole CoolSculpting University and the benefit that we've seen from training new customers is proving to be a really good investment so I would expect it to be combination of more PSS re-forces and more investment in training.

Tycho Peterson - JP Morgan

And can you maybe talk about where you think utilization is headed? I'm thinking more about just cycles per patient. At the Analyst Day you had one physician I think highlighted he's doing over five cycles per patient on average, which clearly is I think the high end of the spectrum, but where do you think it goes in the next maybe 12 to 18 months?

Mark Foley

Well, it's probably still little pre matured to talk about that. We obviously had in our internal targets and goals that we are working on to really grow and drive that as you pointed out with people like Dr. Stevens we have some pretty good benchmarks out there as to what we think is possible. As we are starting right now to rollout CoolConnect, we are going to have much better data on actual utilization and statistic selling that will give us more confidence in actually what's happening. So it's hard to say I think we all know where we like to be and we got some great physicians out there that are doing a really good job. I will say that we gone back and look at some of the early CoolConnect data, one of the things that did come out of it in a subset of practices where we are getting a good estimate of the total number of practice patients that they have, yes we think that we are less than 5% penetrated in these accounts where we have data on 15 practice patients. So we think there is an ability to clearly work on increasing the overall average utilization and that will be a big focus. So we are just not really in a position I think to give sort of target or where that can go right now.

Patrick Williams

Let me jump in real quick, Tycho, I think one of the questions that you are asking may be is also what were assumption as we did a little bit color on 2014 and I would say that we are not looking to huge increase at all on the utilization when we are thinking about that 15% to 20% so we believe that we are getting traction of all the program that Mark mentioned and the things that can add utilization but we do want to make sure that we are being talked about not over estimating.

Tycho Peterson - JP Morgan

And lastly on the new label and you talk about that coming in 2014. Any sense of that first half of this year event or back half and how important is that to drive in demand.

Mark Foley

Yes, I mean we are hoping it will be more towards the first half of the year but obviously with the FDA you just you never know. We are aware that clearly the applicators are getting used more broadly than just a label indication in the U.S. but I think any time that you can get an extended label it gives us the better opportunity to train and to talk about it, so yes it will be helpful but it's not critical driver we think in our success. I think the new applicator is likely to have much greater impact than new label.

Operator

Thank you. The next question is from Bill Plovanic of Canaccord. Your line is open

Bill Plovanic – Canaccord

Thanks, good evening. Can you hear me? Good, congratulation on a solid quarter. You made a lot of changes to the sales force in the March timeframe just one, do you think this quarter reflected the full benefit from those changes because I believe a lot of them were new or are there some other well another quarter or two before they're fully up to speed? And then two has this changed the success changed your thoughts on how many, you know, the size of the sales force, whether you expand it or not, just kind of as you look into 2014 and beyond?

Mark Foley

So Bill in terms of the account managers on the system side, I think we do feel that we are seeing that group of sort of fully up and operational. And so I think we are experiencing seeing the full benefit of that sales group. I think on the PSS side, some of them team is still newer and also I think we thought this initiative that we rolling out is going to take us a little while to sort of fully implement those and it might be get that group trained. And for example CoolConnect, we are just starting to get that data and as we get that data we will be handing that of to the PSS force so that they can go out and work more closely with the practices. CoolSculpting University some of these I think the PSS team still has opportunities to kind of get to full speed and implement these different program. And of course this is all North America focused, and our European direct organization and so I think there is the opportunity internationally to add some more sales resources particular on practice support side, that can start to hit the ground and generate momentum. And your second question, does our performance to date sort of influenced, how we think about adding resources going forward and it does. I think we are more confidence with some of the changes and some of the programs that we put in place and therefore take a little more willing put some more effort behind it. But as I mentioned, on last question, I think it's going to come in the form of more PSS expansion as we have more accounts and more systems in the field to make sure that we are adequately supporting those. And whereas I think the account manager side we think we are staffed at a pretty good level and we want to make sure that when we place the box into the field we can adequately support it, and I think that's why when Patrick talked about coming in the Q4, we've been pretty consistent on the box placement side and so we expect more the growth to come on the PSS support side.

Bill Plovanic – Canaccord

Okay, good. And then one more if I may? Just going back to pre IPO I mean the utilization rates, it was impressive this quarter we calculated about 63 units per box for the quarter, but you had a peak that was maybe 50% higher, way back in first quarter of 2011 and while you had less boxes in the field. Do you think that that's something with the PSS and the Treat to Transformation and the CoolConnect and all these programs? Do you think that we can get back to that sort of utilization trend at some point in time?

Mark Foley

I will answer it. I don't there is any reason why we can't. And I think it's clearly it's a different market today I think back when we launched as pointed there were few boxes, we were dealing with a lot of top leaders, there was lot of trade crafts around sort of this new non-invasive technology that drove a lot of awareness. And I think we benefited from a lot of patients that were kind of early adopters of new treatment as well. But clearly if you look at it I do think when you do math that we certainly have the ability with any new account coming on board to grow their utilization back to that level. The question will be as we scale and grow that what happens to the overall average, and how many dead boxes do we have because and we definitely had some boxes that aren't active in the field, that are waiting down the average, and I guess I think it could be one of these that I think will have a lot more conviction about once we start to get the CoolConnect data and can really track what's happening at active accounts and what's happening at new accounts that went through training.

Patrick Williams

And may be just little more color on that. I think what we have seen because we just don't give this data up to guys but I think it's important you understand you go back and you look at sort of the 2010, 2011 utilization performance, international was definitely doing a lot better than an international good stuff move 2012 and 2013. We are now starting to see a climb back. We got two quarters in a row with starting to climb back and starting to approach these levels that we were at before so North America has been somewhat consistent over time it's really been the international wing has down over the last I would even say almost two years now.

Bill Plovanic – Canaccord

Great, and again congratulation on a nice turnaround gentleman.

Operator

Thank you. The next question is from Margaret Kaczor, William Blair & Company. Your line is open

Margaret Kocher - William Blair & Company

Can you hear me?

Mark Foley

We can.

Margaret Kocher - William Blair & Company

Okay, sorry about that. Couple of question for me. A couple questions for me. Can you expand at all on the percent of the 181 systems sold whether they were placed at new or existing clinics? Kind of what drove that this quarter? I don't think it was rep adds so is it CoolConnect was it kind of the new indication in the applicator that's coming next year or something else?

Patrick Williams

Yeah so historically, we have seen new system sot of new store versus existing store, we see stores around 80 percentages on the system side. We did see a decline on that I did -- in my prepared remarks in Q3 nothing that's really alarming at all. I think more encouraging is the fact that we continue to see product that's now what three years old in a market place that with the right plan and right support behind it, it is able to get new customers just because the technology is really that good so I think the direct me that we saw in the quarter Margaret.

Margaret Kocher - William Blair & Company

Okay and then as we think about this line item I know you guys had alluded to this again but from a growth perspective what should we think for the next four to six quarters? Should we expect it to go back to that 120 that have been out for awhile or kind of keep it closer to the 180 or kind of 10% growth? Any clarity would be great.

Patrick Williams

Sure, so I think we did see some very strong over performance on our North American system sales which we talked about probably two or three times in the script and we did -- we are going to see that number go back, it's one data point. We are not ready to really give official guidance. We wanted to give some colors we said just because of the strong over performance; I don't think so much at take Q3 and learn with that number on a system basis as they move forward in model. I believe that if you want to see some more data points, we are cautiously optimistic if that can be sustainable, but it is one quarter where we thought I mean it's a huge number when you look at it right so we just take a wait and see approach at this point.

Margaret Kocher - William Blair & Company

Okay and then just going back to utilization, was that improvement kind of across the board or still more along the lines of the 80, 20 rule that we normally see?

Patrick Williams

So may be only after this our [trans clarification] and the average revenue that we get when we start to file the accounts and some of the top users and all the way down to different levels you had, it's even materially changed over the last from this quarter to the prior quarter and even a quarter before. We have seen the overall number go up slightly but the contribution hasn't really changed.

Margaret Kocher - William Blair & Company

Okay and then a last one for me. Can you at all give any clarity on CoolConnect some initial data that you may be seen from there I guess future plans?

Patrick Williams

Sure, I think Mark actually -- he talked a little bit about some of the data that we are getting where we can see it, one of the things that we are finding right now is that for all the new systems that we are selling, so if we think about 180 that went out this quarter and 130 or so that went out last quarter, what we are seeing with those we don't have quite enough information yet to really drive conclusion. It's just still pretty small sample size. So we just haven't enough time. On the other systems that we have may be older data on if you go back and then do the installed database we are studying the collect add and I think anecdotally we are getting some interesting tidbits I think we are still a quarter two away to be a very really talk about what that information is telling us. It is the big addition force internally, we talk about it a lot internally but we just want make sure we fully understand a data before we start making a comment that we know the people well are certainly react to.

Operator

Thank you. (Operator Instructions) Next question is from Anthony Vendetti of Maxim Group. Your line is open.

Anthony Vendetti – Maxim Group

Thanks, congratulation guys, great quarter. In terms of numbers of sales people as you ramped up, I am sure Keith is hired a number of new sales people. Are you comfortable with the number that you have between your sales people and the support specialists. Or do you need to more feet on the street to service this increased demand.

Mark Foley

We feel pretty good, we built our field organization and again we are talking about direct field organization in North America. We build that with sort of the expectation that we would place boxes in that in the early party of the year we would have few accounts for PSS and as we added them we would start getting more towards the higher end of the range of accounts we like the PSS to have. So you right now we are still feeling pretty good about we are positioned but certainly going into 2014 with some of the strong performance we had on the system side, we are going to need to expand our PSS base and we will want to sort of get out in front of some of these to anticipate ongoing success from the system side. So right now we feel pretty good about how our staff in position but I do think as we get into 2014, we will be able to provide little bit more clarity as to what kind of increases will make on our direct and indirect side.

Anthony Vendetti – Maxim Group

You had the percentage of your sales that are going into existing customer basis because you commented on the fact that and we saw that at your Analyst Day in New York, the current positions appear obviously to, you are very happy with the system that you are currently having or utilizing them at fully capacity as they are ordering additional systems. Do you have that break up like how many what percent of your new system sales are going into existing physicians.

Patrick Williams

Yes, actually I think we addressed that I think Margaret asked the question but on historically this year we are still sitting some 20% now year-to-date on our North America multi unit sales, we did see a little bit of decline in Q3 on multi unit sales meaning going to existing customers but as I said that's all to a positive right because it means we are selling new unit in a new account which is very good and those new units today are the consumable of tomorrow so we don't read too much into that. I think it's really more of the nice to have, the fact to be get some more multi unit into single account.

Anthony Vendetti – Maxim Group

Okay and then how about the number of procedures per patients. Has that number gone up? Are you just tracking that with your CoolConnect? How many -- are you seeing that treatment transformation occurring like you think it is or it's hard to track because CoolConnect is not on all the systems yet.

Mark Foley

I think that's really hard one for to answer, this is all anecdotal, even with CoolConnect being stalled it's going to be hard for us to link patients we can sort of get a sense to whether or not this is a effective treatment for them but it's going to be harder for them come back later 60 days 90 days to get another treatment, how are able to determine whether or not that's a new patient or an existing patient getting more. So again it's all anecdotal. I have to think that with T2T, the training initiative that we are hearing from the field that those that are raising the support are certainly increasing the number of treatment cycles per patient to get the desire outcome and I would expect over time that this gets out and people have great results. We might even see patients come back to get retreated a two years or something if they put on a little bit more weight and want to have another treatment in the same area or adjacent area.

Anthony Vendetti – Maxim Group

Okay and then just the last question. Patrick, you mentioned cash burn. Can you just run by those numbers again you said that come down significantly and then just the stock base comp by the four expense line items, cost to good sales and then sales, marketing, R&D, G&A.

Patrick Williams

Sure, well I give you the cash burn number. So as I said in my prepared remarks our last guidance for the full year was about $18 million full year 2013 cash burn. And for after this the quarter we just had, this is full year would come down about half of that number. And so we expect to see a pretty significant increase in overall cash burn for the full year. And then I'll follow up with you afterwards on the breakout and SBC by line item.

Operator

There are no further questions at this time. I would like to turn the call back over for closing remarks.

Mark Foley

Great, thank you everyone for joining today's call. And we look forward to reporting Q4 and yearend results later on. All right, thank you.

Patrick Williams

Thanks, bye.

Operator

Ladies and gentleman, this concludes today's program. You may now disconnect. Good day.

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