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ZELTIQ Aesthetics, Inc. (NASDAQ:ZLTQ)

Q4 2013 Earnings Conference Call

February 25, 2014 16:30 ET

Executives

Nick Laudico - Investor Relations

Mark Foley - President and Chief Executive Officer

Patrick Williams - Senior Vice President and Chief Financial Officer

Analysts

Richard Newitter - Leerink Partners

Margaret Kocher - William Blair

Jeremy Feffer - Cantor Fitzgerald

Bill Plovanic - Canaccord

Chris Hammond - Goldman Sachs

Jordan McKinnie - JPMorgan

Anthony Vendetti - Maxim Group

Operator

Good day, ladies and gentlemen, and welcome to the ZELTIQ’s Fourth 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. Sir, you may begin.

Nick Laudico - Investor Relations

Thanks, operator. Welcome to ZELTIQ’s fourth quarter 2013 earnings conference call. ZELTIQ’s Senior Management on the call today will be Mark Foley, President and Chief Executive Officer and Patrick 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 including its guidance for 2014. 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 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 - President and Chief Executive Officer

Thanks Nick. Good afternoon, everyone and thank you for joining today’s conference call. Fourth quarter of 2013 marks the close to an exceptional year of record-breaking performance by ZELTIQ, where we reported year-over-year revenue growth of 93% in the fourth quarter and 47% for the full year. Our installed base has reached almost 2,200 systems. And during the first quarter of 2014, we shipped our 1,000,000th CoolSculpting cycle. These major milestones further solidify CoolSculpting’s market leadership position as well as its broad consumer and physician appeal. We believe we have added another level of validation to the very large and untapped market opportunity for non-invasive fat reduction.

As we move forward, the entire ZELTIQ organization is dedicated to increasing our market penetration in 2014 and beyond. Our success in 2013 was driven by focused and consistent cross-functional execution. At the beginning of the year, we identified several key strategic initiatives that we believe would be critical to our success and enable us to reaccelerate our growth. As previously communicated, these initiatives include one, validating our market-leading and differentiated technology; two, significantly strengthening our management team; three, bifurcating our sales force to improve both focus and performance; four, optimizing our marketing strategy; and five, streamlining and prioritizing our investment in R&D.

On today’s call, I will focus on how we expect to leverage our platform through further refinement of these initiatives and how we expect to drive market-leading and sustainable growth moving forward. Additionally, we are extremely excited about the upcoming launch of CoolSmooth, our new game changing applicator. CoolSmooth is a revolutionary product launch for ZELTIQ and that it will allow us to treat areas of fat without drawing it away from the body and will pave the way for us to expand the applicability of our cooling technology. It is our first non-suction based conformable applicator and it will increase our ability to provide customizable approaches for non-invasive fat reduction.

The ability to deliver targeted cooling with a flat-based design represents a significant technological advancement and is an important first step in increasing our ability to address other areas of the body. In addition to the treatment expansion that this applicator will enable, we also expect that due to its revolutionary design, it will also foster renewed excitement among both practices and existing CoolSculpting patients and will help to drive greater CoolSculpting awareness. I will talk more about CoolSmooth when we cover new product development later in the call.

As you can see from our results, we reported strong year-over-year growth for both systems and consumables. This was driven mostly by our North American business with international momentum beginning to build in the third quarter as new management gain traction. We continue to implement sales and marketing tactics in Europe that have proven successful in North America. The outstanding execution by our account sales managers and practice development managers has enabled us to deliver consistent revenue growth to develop unique partnerships with our physician practices, increase brand awareness and drive new patients into the aesthetics channel. Because of the success of our initiatives and the performance of our sales organization, we have increased confidence in our strategy and in our growth prospects. But we are still early in 2014, the momentum we are experiencing in the field combined with our strong pipeline of system leads and patient interest leads us to increase our projections on full year 2014 revenue to between $134 million and $137 million, which represents greater than 20% year-over-year growth.

Now, let me touch on each of our previously outlined key initiatives. Technology and market opportunity: First, we continued to see a clear differentiation of our CoolSculpting technology in the market. We are proven to a large and growing population that our technology delivers exceptional outcomes and also brings new patients in our physician practices. Our install base now stands at almost 2200 systems globally. We have approximately 1500 systems in North America across approximately 1200 accounts and approximately 700 systems internationally across approximately 700 accounts. We believe are CoolSculpting technology is just scratching the surface and that there is plentyof run way to install more systems globally. Market data indicates that there are approximately 10,000 aesthetically focused accounts in North America and an additional 20,000 internationally.

Regarding the patient market opportunity, our recently completed quantitative U.S. market survey suggests there are 22.4 million potential patients that are willing to get one or more CoolSculpting cycles. Further analysis shows that between 4 million to 8 million of them are motivated buyers and would look to make a purchasing decision over the next 12 to 18 months. To put those numbers into perspective, we estimate that we treated approximately 100,000 patients in the U.S. in 2013, which is less than 2% of the near-term motivated patient market. We also look at the addressable market by body area and take into account our ability to treat different areas based on existing and future applicators.

In 2011, we commissioned an independent research study to better understand the potential U.S. market opportunity by body area that patients want to have treated. We identified an estimate for the number of CoolSculpting cycles per body area, which resulted in an estimated total market size of over 149 million cycles in the U.S. alone. The majority of these cycles were for areas that are currently treatable with our existing applicators and to-date our penetration is less than one half of 1% of those potential cycles.

On the systems side, we continued to see significant upside to increasing our share of the 30,000 worldwide aesthetic practices. Our comp sales managers have increased their proficiency in leveraging the abundant real world examples of exceptional outcomes and practices with strong ROIs to build a robust pipeline of new and repeat system orders. Our practice development managers are following a more streamlined roadmap to ensure that once the system is installed it is busy and that we are capturing both existing practice patients as well as new patients. As physician practices increase their proficiency with the product and increase their utilization, we often see them purchase a second or multiple systems to both keep up with demand and increase patient throughput.

In 2014 we plan to continue our strong clinical podium presence and look at ways to clinically differentiate our CoolSculpting technology and outcomes through additional clinical data presented by efficient physicians on a peer-to-peer basis. In late March we will be exhibiting at the American Academy of Dermatology, the largest industry show of the year and then in early April at the American Society of Laser Medicine and Surgery. We believe these clinical and data driven forms will further reinforce physician decisions to purchase a CoolSculpting system.

Global sales force expansion. I will now view the strengthening of the management team and expansion of our global sales force. Last quarter marked the fourth full quarter with the new executive leadership team in place. Additionally, these personnel changes have extended down into the rest of the organization, where we have added new senior leadership in many other parts of our business, including Asia, Europe, marketing, clinical, advanced development as well as other areas. We believe that these changes and additions will continue to enhance our ability to execute on our strategy both in North America and internationally. This is no doubt one of the strongest global leadership teams in the industry and we are excited about the positive impact that they are having.

In 2014, we expect our global sales force will continue to drive predictable system and consumable growth. Also to accommodate the greater than expected growth in our customer and system base, we significantly increased the investment in our North American consumable sales force to ensure that we are able to adequately support our customers. We exited 2013 with 28 practice development managers, or PDMs and have since significantly expanded this group by approximately 22 PDMs for a total of around 50. With respect to our North American system sales force, we exited the year with 28 account sales managers, or AFMs and have expanded that group by around 5 for a total of 33.

Turning to international, we expect to accelerate the recent momentum in our international business by increasing our investment in certain strategic markets. We are reengaging our distributors through various training meetings and we have hired additional in-country practice development managers to focus on an increased system utilization focus on optimal outcomes. Our third initiative is to continue our focus on optimal patient outcomes. Properly trained practices are generating wild results for their patients, which is driving CoolSculpting to become one of the top revenue and income producing procedures they offer. Our Treatment to Transformation clinical protocol continues to be taught as the standard of care and we are seeing increasing adoption.

Customer training efforts like our flagship CoolSculpting University program or CFU highlight the importance of reproducible and superior outcomes as this drives high patient satisfaction, viral marketing, new patient interest, and ultimately more treatments for patients. CoolSculpting University has become a more efficient and scalable way to consistently train accounts and the customer feedback following these programs has been overwhelmingly positive. Based on demand for and the success of these courses, we are increasing the number of CoolSculpting University training classes to more than one per month in 2014.

In addition to CSU, our PDMs remain an integral part of our training efforts as they provide both initial training for accounts that aren’t able to attend CSU and follow-up training for all of our customers. As I mentioned earlier, we have significantly increased the number of PDMs and we remained focused on distilling down and simplifying the roadmap for success, so that our PDMs can continue to assist our customers in the growth of their CoolSculpting business and attraction of new patients to their practices.

Enhanced marketing initiatives that brings me to the significant work we have done to enhance our marketing initiatives. ZELTIQ remains committed to building our customer’s practices through our industry-leading partnering programs. After a year in which we scaled back many of our marketing initiatives, we enter 2014 with a number of new initiatives that have demonstrated successful results in different pilot programs. From a new branding campaign to an enhanced website and the launch of CoolConnect, we expect to improve the efficiency of our marketing efforts and help drive greater awareness among patients. Despite the success we have experienced in the market, our recent market research study we conducted reveal that less them 3% of patients were very familiar with CoolSculpting.

In 2014, we expect to do a better job of raising awareness in partnership with our physician practices. With the launch of CoolConnect, we will be able to provide real-time and actionable information to our practices in order to help them achieve a better ROI on their marketing spend, increase their CoolSculpting profitability and incorporate best practices. Additionally, we have further refined our efforts by rolling out to our sales force, a simple five-step program to help drive customer success. Despite step roadmap to success, it’s an easy-to-follow program that is designed to increase our customer’s ability to realize the revenue and income potential of their CoolSculpting offering.

One, the first step is for the practice to fully adopt and deploy their treatment to transformation protocol. It is imperative that patients experience wow results through this comprehensive treatment protocol. Two, the second step is to have all key staff in the practice undergo a CoolSculpting treatment. This is an important step in creating strong CoolSculpting ambassadors who themselves have experienced the procedure and the wow results it delivers.

Three, step three is to properly train the front-desk staff as this is critical to driving higher conversion of interested patients. We recommend that practices have a single point of contact for all inbound inquiries for CoolSculpting. Our most successful practices have dedicated patient concierges, that has been treated who understands the technology and that can answer all questions about their CoolSculpting offering. The last two steps are focused on our practice marketing initiatives which are designed to convert both existing and new patients to CoolSculpting.

Step four is driven by our PDM in partnership with the practice and involve hosting Cool Events which are open-house type presentations that allow patients to come and learn more about CoolSculpting and get assessed. Cool Events are generally marketed to both the practices existing patient base as well as new potential patients and are hosted at the practice itself while being supported by the practice staff and the PDM. Prospective patients are invited to learn more about the procedure from the physician and are able to receive a customized treatment plan.

Five, our final step is focused on raising awareness and bringing new patients into the practice through a physician to consumer digital strategy. Qualifying practices will be able to develop a CoolSculpting specific micro-site using branded uniform content. This will create digital hubs that funnel interested consumers to branded portals so that they can get information while also allowing them to range for a free consultation. Using the search engine optimization and pay-per-click programs our digital strategy is designed to capture more leads and result in increased patient bookings.

Following a very successful pilot program in the latter part of 2013 we will be rolling this out to our installed base in 2014. We believe this is to still down five step plan to success will result in an increase in utilization and will enable more of our customers to successfully integrate CoolSculpting into their practice. We just recently rolled this five step plan out to our sales force at our Global Sales Meeting and we believe that this will help us to further differentiate ourselves from our competition and other set of companies.

R&D and new product introductions. On the R&D front we continue to invest in our proprietary cooling platform as we believe that there are significant opportunities to both expand the areas we treat and further improve outcome. Earlier in the call I talked about CoolSmooth which is our flat applicator that doesn’t require suction to deliver controlled cooling. It has a flexible plate circuit which conforms to flat for curved body areas. CoolSmooth represents a significant step toward a finer technology to other parts of the body in the future and opening the door to new patients who have trouble with fat bulges that aren’t amenable to suction. CoolSmooth is expected to launch in early Q2 and we’re already pre-selling the applicator to both new and existing customers. In addition to CoolSmooth, we are working closely with the FDA and hope to have a thigh indication by the middle of 2014. We also continue to evaluate the use of our technology for the treatment of cellulite, acne, and the cementum.

With that, I’d like to turn it over to Patrick to discuss our financial results in more detail.

Patrick Williams - Senior Vice President and Chief Financial Officer

Thanks Mark. Revenue for Q4, 2013 was $35.8 million compared to $18.6 million in Q4, 2012 and $29.5 million in Q3, 2013. We continue to see a larger contribution from North America versus International. North America accounted for approximately 78% of revenue in Q4, 2013 versus 72% in Q4, 2012.

Similar to last quarter we saw very strong performance in North America with 109% year-over-year growth in Q4, 2013 which compares to Q3, 2013 North America revenue growth of 72%. International revenue grew 51% year-over-year compared to Q3, 2013 of 41%. As Mark mentioned we see momentum increasing internationally during 2014 as our new sales management of five successful marketing tactics in international markets, particularly in Europe.

Worldwide system revenue in the quarter was $21.4 million, or up 123% compared to $9.6 million in Q4 2012 and up 35% sequentially. Our area sales managers performed extremely well placing new systems during the quarter, which led to system sales that were better than our expectations. This strength was mostly in our North American accounts with international showing strong sequential growth. We believe this is a result of our area sales managers reaching a large underpenetrated new client market as well as the existing physician customer base who are purchasing multiple units to keep up with consumer demand. We continue to see multi-system placements in the 15% range.

Consumable revenue in the quarter was $14.4 million, or up 61% compared to $9 million in Q4 2012 and up 6% sequentially. The contribution of North America system and consumable revenue in the quarter was similar to the overall contribution percent I mentioned earlier of approximately 78%. Worldwide consumable revenue as a percent of total revenue was approximately 40% compared to approximately 48% in Q4 2012 and 46% in Q3 2013. We shipped 121,791 cycles in the quarter, up 62% from Q4 2012 and 6% sequentially. During 2013, we launched CoolConnect, which is a HIPAA compliant connectivity and data management tool that allows the accumulation and analysis of procedure information at the point-of-sale. It not only collects real-time utilization, but also demographic and marketing data that we believe can further optimize our customers’ marketing efforts.

CoolConnect has now been retrofitted on virtually every installed system in North America and every new systems shipped globally comes enabled with this tool. We are in the beginning stages of collecting and analyzing this data of this sophisticated system, which gathers in using it to help show our customers, best practices to drive increased utilization. We plan to share some of the key findings of this data collection and analytics with the investment community towards the end of 2014. We shipped 263 systems worldwide during the quarter, up 119% from Q4 2012 and up 45% sequentially.

North America system sales significantly outperformed international on a year-over-year basis. This brings our worldwide installed base to 2,175 units or up 47% compared to Q4 2012 and 14% sequentially. We are very encouraged that we are still placing a large number of systems into new and existing accounts, which we believe shows that we are still penetrating the addressable market as more new practices adopt this technology and the demand increases from existing practices.

Gross margin for the quarter was 70% compared to 66% in Q4 2012 and 72% in Q3 2013. The year-over-year increase is primarily due to the lower cost of goods as a result of our in-sourcing, manufacturing efforts and continued focus on product cost reductions. 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. The sequential quarterly decrease is primarily a result of higher system sales, which generate a lower gross margin.

Operating expenses for Q4 2013 were $30.4 million compared to $18.7 million for Q4 2012 and $24.1 million for Q3 2013. Year-over-year, our operating expenses as a percentage of revenue during the quarter decreased across all functions primarily due to better-than-expected revenue. Sequentially, operating expenses as a percentage of revenue during the quarter increased slightly related to an increase in performance-based compensation.

Our net loss for Q4 2013 was $5.4 million compared to $6.5 million for Q4 2012 and a $2.8 million loss for Q3 2013. On a per share basis, we had $0.15 loss per share compared to an $0.18 loss per share for Q4 2012 and a $0.08 loss per share for Q3 2013. The sequential increase in loss per share was primarily a result of increased performance-based compensation expense as a result of our higher revenue as well as expense incurred from entering into a separation agreement with a former executive. We continue to be well-capitalized giving us the ability to execute our organic growth initiatives.

Our cash, cash equivalents and investments at the end of Q4 2013 now sit at $56.1 million compared to $58.6 million at the end of Q4 2012 and $55.9 million at the end of Q3 2013. In the quarter, we increased our cash position by a marginal amount. Our positive cash generation in the quarter was driven by better-than-expected revenue especially on our North American system sales and the continued financial discipline that has been instilled throughout the organization.

I will now turn to a discussion of our 2014 guidance. We are very pleased with the performance of our entire team throughout 2013 and believe we can continue to produce robust revenue growth in 2014 and beyond. As we have done in the past we will evaluate and as appropriate update our guidance as we move through the year. We are providing the following guidance for the full year 2014, revenue between $134 million and $137 million, which represents an over 20% year-over-year growth rate, consumable revenue of approximately 50% of total revenue, full year gross margins of approximately 70%, total operating expense as a percent of total full year revenue of approximately 80%. This includes sales and marketing expense of approximately 54% of total full year revenue. G&A expense of approximately 12% of total full year revenue and R&D expense of approximately 14% of total full year revenue.

Throughout 2013, we made infrastructure investments in both R&D and G&A, so we expect similar absolute dollar spend levels for the full year 2014 when compared to our annualized Q4 2013 run rates. At this point, we believe both or R&D and G&A spend levels are appropriately scaled to support our stated growth needs for 2014 as well as any potential growth upside with minimal increased fixed expense.

On the sales and marketing front, we have and we will make upfront investments in the first half of 2014 ahead of the corresponding revenue. This will be primarily in our global sales force headcount. Following this large headcount addition to the global sales team, we believe we have a sales and marketing infrastructure that can also support potential growth upside with minimal increased fixed expense. Of course the normal variable expenses such as commissions will correspond to changes in our revenue growth. We expect other income expense as well as tax expense to be similar to our full year 2013 results. We expect average shares of basic common stock outstanding of approximately 37.5 million.

In 2013 we guided and reported our quarterly cash burn since there had been a significant use of cash in 2012. We made significant progress on being more data driven in our spend choices for 2013 as well as pulling back on investments until we better understood what initiatives we believe were important. Looking into 2014, we expect to see a similar cash burn pattern that we had in 2013, which had a materially higher cash usage in the first quarter. This is due to significantly higher cash expense related to the performance based compensation payouts for prior year results, global sales and marketing events and initiatives and working capital needs as we enter the year. We expect to have a cash burn of approximately $10 million in the first half of 2014. But consistent with our prior comments, we are committed to achieving the right balance between investments and cash conservation and expect positive cash generation of approximately $5 million in the second half of 2014.

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

Mark Foley - President and Chief Executive Officer

Thank you, Patrick and thank you everyone for joining us on the call today. The fourth quarter and full year marks the close to an incredible year at ZELTIQ particularly in light of all the changes we implemented. Despite our success in 2013, our entire organization is energized and excited about the future and we remain encouraged about the potential impact of some of our new initiatives such as our expanded sales team, enhanced marketing programs and new product introductions. We feel that ZELTIQ is just getting started and that we have a tremendous amount of runway ahead of us as we look to expand the non-invasive fat reduction market and further enhance our leadership position. As we look into 2014, we remain focused on continually improving outcomes, our technology and are committed to partnering with our physician customers.

While we continue to enjoy a technological advantage in the field, our practice partnership efforts are quickly becoming as big of a differentiator as our technology. And when combined with the practice and patient friendly nature of our technology, our comprehensive approach to the non-invasive fat reduction market is hard to beat. You should expect our focus and success in 2014 to be driven by the five key initiatives I touched on today. They are further differentiating our technology in an expanding and under-penetrated market, expanding our global sales force to leverage our technology both in North America and internationally, a perpetual focus on consistent, predictable and improving outcomes through treatment of transformation and a focus on more science based evidence through clinical studies, enhanced marketing initiatives to drive patient interest, build brand awareness and partner with our customers to market to potential patients and a continued commitment to new product introductions that will further leverage our technology to treat more areas of the body and launch new indications.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And the first question is from Richard Newitter of Leerink Partners. Your line is open.

Richard Newitter - Leerink Partners

Mark, maybe I can just start off you raised your guidance, so clearly you are feeling better about the business, can you elaborate a little further on what’s driving that increase, is it on the systems side or is it on the consumable side?

Mark Foley

Well, thanks for the question, Rich. I think as we communicated in the past when you look at how we built our revenue model for 2014, we assumed sort of a consistent number of system placements in the fields. We assumed similar utilization while getting the benefit of the systems that we placed last year and the new systems this year. And I think that as we look at kind of how we are coming in 2014, some of these new initiatives that we are putting in place and the momentum that we are experiencing and then we overlaid it on the model, we just – we have I think we are having a hard time keeping sort of the revenue at the previously committed amount and that’s what gave us the confidence to raise it into the $134 million to $137 million range.

Richard Newitter - Leerink Partners

I think you had mentioned a flat year-over-year system placement number under the prior 15% to 20% guidance. So as we think about 20% to 23% with 50% consumables mix, how should we think about that, that system placement number? Is that kind of going up? Is that where it was challenging to kind of get the numbers to fit?

Patrick Williams

This is Patrick, Rich. No, I think at the end of the day, I think when we say flattish it’s going to be fairly consistent with what you saw in 2013. Certainly, we are always achieving to try to get higher numbers on both the system and consumables side, but I just kind of leave it at that.

Richard Newitter - Leerink Partners

Okay. And maybe just one last one for you, Patrick, gross margin, I think you said 70% or approximately 70% is touch below what we were kind of forecasting for ‘14, I was just wondering is there any mix shift issues that are going on in there or is there anything by gross margin, by consumables or systems that we should be paying attention to?

Patrick Williams

That’s a good question. And so when we uptick the guidance for ‘14 on the consumables side from 45% in 2013 results to 50% for our 2014 guidance, the reason why our gross margin is sitting around 70% is really everything to do with our CoolSmooth applicator. That product has a higher cost of goods sold for us. And so for every system that we sell now, which will include a CoolSmooth applicator, we are going to see a lower gross margin related to our system sales. So that’s what’s really pressuring our gross margins, which is why you are not getting the uptick in light of the fact that consumables is upticking from 45% to 50%.

Richard Newitter - Leerink Partners

Okay. And that should be more of a 2014 issue or is that something we should expect generally with new hand pieces?

Patrick Williams

I would say that it’s more of 2014. I mean, obviously we continue to develop new hand pieces, but this hand piece is fairly – it’s fairly complex when it comes to just the difference between this one compared to our suction-based applicators. There is more disposable than parts involved in order to attach it to the patient, straps and some orders, and stuff like that.

Richard Newitter - Leerink Partners

Thank you.

Patrick Williams

Yes.

Operator

Thank you. The next question is from Margaret Kocher of William Blair. Your line is open.

Margaret Kocher - William Blair

Hi, good afternoon guys. Couple of questions for you. First, I don’t know how much detail you guys want to get into this, but can you talk about what you are assuming for procedure utilization per system and per account for 2014 both U.S. and otherwise, are you expecting still an increase there kind of stable, any clarity would be great?

Mark Foley

Hey, Margaret, this is Mark. I think as I mentioned before, when we did the model we assumed again similar number of systems that we would place in the field in ‘14 again similar to 2013. And that the utilization on a persistent basis would be consistent with what we saw in 2013 with the actual growth in consumables coming from the annualization effect of those accounts that we opened up in 2013 and the new accounts that we’re placing in 2014. And the reason we built to model that way is we’re rolling out a number of new marketing initiatives and different tools to try and grow that utilization, but we obviously feel a lot better about a higher persistent utilization rate if we can demonstrate some traction in the market with these. So the way we built it was consistent utilization on a persistent basis 13 to 14.

Margaret Kocher - William Blair

Okay. And then moving on to kind of the new PDMs, how quickly do you think those guys can ramp, obviously you increased some quite a bit, but is that more because of the catch-up, because of the bigger base or you in fact trying to plan on utilization going up?

Mark Foley

Well so I think first if you look at what drove the out of those PDMs I mean we had such strong system placements late last year and we’re opening up a number of new customers that needed to be trained and brought on board. And I think we’re starting to challenge our PDM organization and their ability to both onboard new customers and circle backup with existing customers to make sure that they’re getting the benefit of a lot of the new tools and techniques that we’re rolling out. So we felt just at a base level that we needed to add more PDMs to have a – so that they could have a manageable number of accounts.

In terms of the time that it take for them to get up and running, we were sort of out in front of this and we added most of those PDMs the beginning of this year, most of them were onboard for our National Sales Meeting which was the third week in January. They’re going to need to go through some additional training both here at corporate and we’ll bring them back out for a series of different training session so that they’re able to hit the ground running. Whenever you add a large number like that you’re going to have some new territory lines that are drawn up and so even with some of our existing PDMs they’re going to have to get to know some of their new accounts.

I would bet that for the new PDMs it’s probably a three to six month process to get them fully up and functional. And then even for some of our existing PDMs as they hand off both customers and pickup new ones it’s going to take them a little bit become (fat). Having said all that I think that the fact that they’re all going to have a smaller number of accounts, we would expect that we will get more touches with our existing customers because of this increase and the data that we have collected through CoolConnect does seem to indicate that the more touches that we have with accounts the stronger that their business is. So we’re hoping that these types of efforts will have a positive impact.

Margaret Kocher - William Blair

Okay. And then with regards to CoolConnect obviously you guys are kind of in the early stages there. But talk about what we can expect towards the end of 2014, what kind of metrics are you guys looking for and what are you going to share with us?

Mark Foley

It’s probably too early I mean there is just so much that we’re gathering I mean we’re getting data on percentage of existing practice patients that are getting treated versus new, we’re getting the ratio of men to women, we’re getting a sense to what areas of the body that are being treated along with the applicator. We’re obviously able to sort of track utilization pattern so there is a well-known seasonality in the aesthetics business but that’s more of a capital equipment seasonality and we’ll be able to now track real-time actual procedure patterns. And so I think that we’ll be in a position to communicate information on all of those things, body part areas being treated, applicators being used, ratio of men to women, percent of new patients versus existing practice patients, all of those things which will give us a lot greater visibility and improve our ability to predict our business going forward.

Margaret Kocher - William Blair

And (indiscernible) on an ROI perspective, how quickly will we see an impact of that program on utilization which I’m guessing is the reason to do it?

Mark Foley

Yes, I don’t know that we’re in a position to give any other clarity than what we’ve already spoken to which is that. Right now the way that we built our forecast model is assuming similar utilization on a persistent basis in 2014. And the reason is, is that number of these initiatives we’re just rolling out and we don’t have the feedback yet on how those are going to go. So it’s hard for me to directly link kind of CoolConnect rollout to performance or any of these other initiatives other than to say that kind of right now the model anticipates similar utilization in 2014.

Margaret Kocher - William Blair

Good. Thank you.

Operator

Thank you. The next question is from Jeremy Feffer of Cantor Fitzgerald. Your line is open.

Jeremy Feffer - Cantor Fitzgerald

Hey good afternoon guys. Thanks for taking the questions. I guess first one is peg you back of Margaret’s question on the PDMs. How scalable – once these guys are up and running how scalable do you see this or do you see them being in other words, do you foresee the need for further additions down the road even as the model scales?

Mark Foley

I mean we added PDMs to give each PDM an account range of 25 to 50 accounts. And so even with sort of our system placements in 2014 that we are expecting it will still be in a manageable range. But if you look at things that we are dealing to try and create more scale on this model I mean you got things like CSU, CoolSculpting University where we are trying to get it to a point where most of our new customers start the on boarding process at CSU. So we kick started, we delivered a much more consistent and reproducible start to these practices and then the PDMs can follow-up and do more of reinforcement of the training and implementation of some of the marketing initiatives. So that’s an example of one – I think as CoolConnect gets going that’s going to be a great tool as well that will allow us to track and make sure that they are doing all the right things and that we are helping them with best practices. So I do think that there will be some efficiencies in this over time. And a lot of the different things that we are doing including the five step plan are really designed to enhance some of the efficiency there.

Jeremy Feffer - Cantor Fitzgerald

Okay. And then as you think about ‘14 revenues, how do we think about the mix of U.S., o-U.S., do we see o-U.S. picking up a little bit from a mix standpoint?

Patrick Williams

This is Patrick, Jeremy. I think it’s about the same that you saw in 2013 regarding 80-20 split. I have been very pleased with international being able to keep up frankly with the U.S. even though the U.S. has been obviously outperforming quite a bit on the system side sales. We are just putting some of the new people in place within PDMs and everything is really a big utilization push for us in North America this year. And I think overseas, international markets you are going to see us reengage the distributor channel and we started to work on that. And then we will start to focusing on utilization if those folks with the new PDMs that we put in country both in Europe as well as in the Asia-Pac region.

Jeremy Feffer - Cantor Fitzgerald

Okay. And last one for me, how do you see the competitive landscape playing out this year, I mean obviously you had one competitor was acquired, another competitor is set to launch a product in the next quarter or two, how do you see that I know you have talked about the market being vastly underpenetrated, but how do you see that progressing over the course of the year?

Mark Foley

Jeremy, I think we look at sort of the competitive market, first look was back right. We had a number of new entrants into this marketplace. And I think despite that we have been able to chart up pretty big path forward in terms of consistent system placement. If you look at our pipeline which stands right now at around 2500 systems in North America, we would expect that any new competitor that comes into the market is going to steal some mind share and we will be able to successfully place systems in accounts that if they were not in the market, we might actually be successful placing the system, but having said that I think that we continue to feel comfortable with sort of our directional guidance of placing a similar number of systems in the field this year. So we like our technologies positioned from a fast comfort and time.

I think as I also mentioned in my comments it’s becoming not just about the technology, but also about the other value that we are bringing to these practices. I mean we are spending money to drive brand new patients into these physician practices and we are showing them how to make it work. We are also the only technology where the physician doesn’t need to stand or the person delivering therapy doesn’t need to stand there for an hour in delivery. And if you look at the opportunity costs within these aesthetic practices most of these people that are doing these treatments if they weren’t headed to a machine for an hour to be generating a couple hundred of dollars doing something else to maybe even $1000. And so we give these practices the ability to attach a CoolSculpting device and then go off and generate incremental revenue doing something else. So I think it’s a long way saying we would expect there will some bumps when new competitors come in, but we actually feel that as we put together our plan and our guidance for 2014 that that plan anticipates competitors coming into the marketplace.

Jeremy Feffer - Cantor Fitzgerald

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

Operator

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

Bill Plovanic - Canaccord

Great, thanks, good evening, can you hear me okay.

Mark Foley

We can. Hey Bill.

Bill Plovanic - Canaccord

Hi, good evening, fantastic. So let’s start out, a couple of questions there was a pretty big international quarter, I think a little more than we had expected even with the pre-announced. And I am just curious if I try to break the numbers up and figured out given on everything you are providing, it seems like the U.S. utilization is still lagging and you might have had a big international quarter. And kind of just any commentary there would be helpful? And specifically I mean, was U.S. disposables up sequentially on a dollar basis?

Patrick Williams

Yes, it was. And from a utilization standpoint, Bill, we did see that North America utilization is really kind of flattened out maybe even slightly down from Q3 stuff that we addressed as far back of the pre-release that we did at JPMorgan, which is why everything that we Mark outlined with the five steps is really driven towards trying to drive that utilization numbers moving forward. We fully appreciate and understand that with the high gross margins that we get from the consumable side of the business that we want to put a lot of focus on that, which is why we have got CSU, we hired the additional PDMs and we are making that a big focus for ourselves in 2014.

Bill Plovanic - Canaccord

And is some of that utilization impact though just the fact that you put so many boxes in the field, I mean, if I think about this, I mean, growing your installed base almost 50% in North America in 2015 is a pretty big deal to lot of boxes to try to get going. And if you could help us, how long does it take a box once you sell it and book the revenues to really be buying cool cards from you?

Mark Foley

Yes. So, Bill, I think couple of answers there. I think first in terms of how long it takes for a reorder of a box, I mean sometimes people will purchase cards at the front end. So it depends what they purchase. We do find at some of these newer practices, because they are treating their staff kind of want to wait to see the results and everything before they fully engaged and some want to attend a CoolSculpting University before they get started. So all of those things can create a little bit of an inconsistency in terms of how quickly that they reorder, but your point about a lot of new systems coming into the market in Q4, I do think overshadows a little bit of the actual consumable performance. I would just say from a market momentum standpoint, we sensed that there is a lot of enthusiasm and excitement out there. And there might be some seasonality in actual utilization that we just have – we sort of believed through last year that we will start to find is more consistent on a quarterly basis. So again, we all know what the quarterly seasonality is on the capital side of it, but we will have better visibility into what the actual utilization seasonality is.

And our systems today are the consumables tomorrow, but I think the other piece is again if we look back at ‘13 we were really trying to find that balance of pulling back on the marketing expense until we had a lot greater clarity on what was going to be working. And so 2013 and coming into the back half of the year was really the success there was just based on lot of group force. And so as we come into ‘14 the fact that we have got now a lot of new systems that are out there and we have all these new initiatives, we are hopeful that a lot of this focus and this effort is going to show up on the consumable side.

Bill Plovanic - Canaccord

And is it fair to assume or at least expect, I mean, given the time it takes a rep to ramp up the CoolSculpt University, all these changes you have put in place that we are probably going to see the effects of utilization in late Q2 or Q3?

Mark Foley

It’s possible. I mean, again, that’s why I think we are trying to be careful that as we build this whole thing, we would rather see some success in proof points before we get overly optimistic on it. I think CoolSmooth could be another potential catalyst for us, because I think that as that new applicator goes out, it’s not just sort of another suction-based applicator. And I don’t want to minimize the other suction-based applicators that we put into the market, because I think each one in and of themselves, was a really important advance in terms of improving how well we treat certain areas. But I think that the new flat design is going to reinvigorate some of these accounts and maybe bring some existing CoolSculpting patients back in. So it’s possible that CoolSmooth could be partly a catalyst, but to your point the time that it’s going to take us to fully implement all these initiatives that probably is more of a Q2 phenomenon before those really start to take hold.

Bill Plovanic - Canaccord

Okay. And then just flipping over to the model, Patrick, the sales and marketing line, I mean it was up $5 million sequentially on a $6.5 million revenue increase, that’s a lot of incentive comp. And I am just trying to get my hands around that?

Patrick Williams

Yes, that’s a fair question. I was actually hoping someone would ask it, so we could address it. At the end of the day the performance based compensation that we had that we ended up booking in Q4 not just for sales and marketing but across the organization related to other performance based conversation was definitely much higher. As we move into 2014, we expect that not to be the norm and expect to translate much better. As I stated in my prepared comments, I talked about not only infrastructure that we have from a fixed standpoint across G&A, R&D and sales and marketing, but I would tell you that on a performance-based compensation standpoint, we should not see that lower translation that happened in ’13. And frankly we came into a year where I don’t think anyone expected and even ourselves that we would have this sort of results that we had and so quickly. And when those things happened you have performance based compensation that can get pretty high.

Bill Plovanic - Canaccord

And then just to help us out I mean what revenue level are you running operating breakeven or profitable roughly?

Patrick Williams

Well, I will just take to my prepared comments and we talked about what our full year revenue would be and said in the second half of the year we are going to start generating cash. And I think most people as they are doing their models will be able to come out with what they believe is the appropriate breakeven or EBITDA or whatever profitability target they are using. But once again I will come back to my prepared comments, we have the infrastructure in place in this guidance that we stated that if we are able to have higher revenues than what is in the guidance then we should be able to translate that very well as we move throughout the year, very similarly to what we saw in 2013 minus obviously the performance based compensation anomaly.

Bill Plovanic - Canaccord

Okay. And then lastly just on COGS, you somewhat answered this question, but I think I get to where you are going and I think adjust the models, I mean basically it tells me this CoolSmooth product really doesn’t have much of a margin for you at all and it’s you are really hoping it drives utilization, but from a hardware standpoint it’s cost me a lot to make that thing, is that pretty fair?

Mark Foley

Well, I think it’s the margins on that are sitting in I will call the low to mid-40s right now. We are still doing low production and it’s our first run of the product, so I think we made good efforts on the product cost side, our operations and quality teams did. And we will continue to see some benefit over time on that. You have to remember the reason why we are going to see a bit of a decline in our gross margin, our system side is two fold. One is I mentioned you have the CoolSmooth product that goes into the system bundle. The second part is that we are going to sell all of these CoolSmooth into existing accounts. And so there is the amount of revenue that’s going to go into our system revenue as well that’s going to be at a lower gross margin than we have historically seen compared to applicators that we did last year with our CoolFit. So it’s a bit of a 2014 anomaly when it comes on to the add-on applicator revenue we get. And so I think as we move into 2015 what you will see is a better cost performance we expect on a COG standpoint as well as we are not going to get the unfavorable impact from selling into existing account. And so this is just it’s a product that’s launched, that’s got a lower gross margin based on its complexity, but we are very bullish on its ability to deliver higher consumable revenue to the card sales.

Bill Plovanic - Canaccord

Congratulations on a very good 2013 and nice turnaround in the business.

Patrick Williams

Alright, thanks Bill.

Mark Foley

Thanks Bill.

Operator

Thank you. The next question is from David Roman of Goldman Sachs. Your line is open.

Chris Hammond - Goldman Sachs

Hey there guys, its Chris Hammond in for David. Thank you for taking the questions. So I have a couple of maybe we will start with Mark, so the first of all the new applicator, you talked about commercializing that in the second quarter, but I want to be clear that have you gotten FDA approval on that one or maybe you got in commentary that you are in early stages. And secondly on the applicator as I think back to the first part of one each ‘13, you launched the CoolFit applicator there is a substantial benefit on the ASP for the first half of the year. And so how should we think about that this new applicator which we think about this as far as the same magnitude when you launched this one from an ASP standpoint?

Mark Foley

Yes, so your first question on where do we stand with the approval on our CoolSmooth applicator, in the U.S. we are going to market it under the approved indications that we have. And so based on that we will be able to move this into the market based on Letter to File and so that’s going to be pretty straight forward approval process for us. As I stated in my prepared comments we are pursuing thigh indication. And we have submitted that for the agency and we hope to hear back from them in Q2 of ’14 on that, so that one continues to track well. In terms of the assumptions that we have made in CoolSmooth in the marketplace, we are looking at that, we made the assumption that we will place a similar number of add-on applicators into our existing systems that we saw with the CoolFit, so similar percentage there. And then Patrick if you want to comment more on the ASP side of it.

Patrick Williams

Yes. I think what you’re going to see is something similar to 2013, Chris which is where when we launched the product which we’re actually pre-selling right now CoolSmooth, but as we look to launch it in early Q2 what will happen is it will go into frankly a larger installed base, right. And so if we’re able to get a similar conversion and hopefully will get even higher and be able to sell it into the existing installed base you will see larger Q2 add-on applicator revenue piece and then that will start tapering down as we move throughout the year as I said very similar to what we saw in 2013, which means artificially the ASP look higher in the early part of 2014 especially in Q2.

And that’s really just how we do our revenue on our Q and our K filings right, which is any add-on applicator revenue gets run into the system revenue and because we don’t breakout how many add-on applicators we sold, most people simply use the denominator of number of systems sold globally and that’s why you get sort of that artificial inflation on the ASP. With all that said, I wanted to bring up one thing on ASP. We are actually raising our U.S. list price on our bundled system, because now instead of having four applicators we will have a fifth applicator on all new system placements and there is so – you buy the system with all five applicators and our prices increasing by about 10% on our U.S. list price for 2014.

Chris Hammond - Goldman Sachs

Okay, that’s very helpful. And then Mark you touched on the new indication. So the thigh indication you talked before about having inner and outer thigh, is there a difference in the filing there also I might have missed it if you mentioned what the update was on the arms and you said cementum is underway but is there any incremental disclosure that we can talk about?

Mark Foley

Yes. So first off on the thigh side of it we submitted data on both inner and outer thigh and so we’re going for a thigh indication and the results from our clinical trials on both of those are very encouraging. So we just kind of work through the FDA process and again I’m hopeful that we’ll see something by Q2 of this year. In terms of the arms we didn’t comment on that. We’re still evaluating what other indications that we might want to pursue. We are aware that our system or our applicators do get used more broadly than our approved indications in the United States certainly internationally where there aren’t limits on which specific body parts you could treat, we know we have a fair number of people using it in arms. And so that’s currently still being evaluated in terms of whether or not we’re going to pursue an arm indication in the U.S. and if so kind of what timing, that’s still yet to be decided on.

On the cementum side of it we’ve not given anymore specific color around the timing of that other than to say that CoolSmooth all the work and effort that went into designing a flat applicator that could deliver targeted cooling temperatures. That was I think the real big effort there. We’re clearly aware that cementum is a big and interesting market and so we’re aggressively working on that, but we’re not in a position to give any specific timeline at this point.

Chris Hammond - Goldman Sachs

Okay, that’s fair. And if could have just a quick follow-up for Patrick, you talked about the cash flow guidance and then previously I think in the last two or with the third quarter in the preannouncement we talked about being cash flow positive in the middle of 2014. But the numbers I’m hearing are negative 10 could earn in the first half positive 5 in the second half. So on a net for the full year basis we should still expect full year cash burn to be negative. And I just want to be clear about what cash flow metric that you guys are using internally? Is this an even metric of you’re using cash flow from operations, just so that there is no confusion there?

Patrick Williams

No, that’s a fair question. So we are really just looking at what our cash balance is on a quarter-over-quarter basis. And so that’s how we’re measuring whether we’re burning cash or not burning cash. I think as we move forward we’ll start migrating towards a EBITDA type metric and be prepared to talk to the street about that. But the reason why you’re seeing an increase in the overall cash burn for 2014 compared to 2013 which is nominal right and we’re talking about we really in 2013 focused on not sending as much money on certain things because we wanted to make sure we understood what that return look like.

As we come into 2014 we have outlined those five steps and those five steps do require some investments, but those five steps of our program are really structured to drive the utilization, which has a 90% plus gross margin. So at this point, we feel that we are making the right decision for a longer term business plan that will be very profitable. And as I said in my prepared comments, I talked about any upside to our revenue guidance that we gave should translate very well, because we have taken the steps to really build up the infrastructure in the early part of 2014 and frankly back into 2013.

Chris Hammond - Goldman Sachs

Okay, great. And just one final one on the just generally in the body sculpting and non-invasive fat reduction market, it’s a hot area. There is a lot of companies interested here. Mark, you mentioned earlier in the Q&A that several new competitors have come to market, is there any particular area I get that there is a difference in the technologies, but is there any particular competitor that you guys think has a shot – and basically a shot on goal anywhere related to technology or where are you seeing the greatest competitive interest out there in the market? And I will jump back in queue.

Mark Foley

Yes, I mean, no, not that we have seen. I mean, the three main modalities are ultrasound, RF and laser. And at least to the technologies that we are aware of, it’s one variation of those. So I think the one that supposed to come up this year is the UltraShape system from Syneron. We are interested to see that one come out as that base technology has been out in the marketplace for quite a long time, particularly in Europe. And so they have got some good relationships in the industry in a large field organization. I am sure we will try to leverage that, but we expect we will see a little bit more of the same on the competitive side of it.

Patrick Williams

Hey, Chris, this is Patrick. I just wanted to kind of come back to the cash number and I am glad you had that question, but remember in 2013, we started our guidance off saying that we were going to burn $20 million in 2013 and throughout the year we lowered that number as revenue continue to come in and we ended up burning about $2.6 million in total for 2013. So I am just going to come back to my prepared comments once again is that the way that we are structuring our organization is to have the infrastructure in place in order to support a higher revenue number. And as that revenue number comes then, we will be able to translate effectively very well. The cash from projections that we have given for ‘14 are based off of that $134 million to $137 million revenue range.

Chris Hammond - Goldman Sachs

That’s great, that’s great. Thanks a lot guys and congrats on a great 2013.

Patrick Williams

Thanks.

Mark Foley

Thanks.

Operator

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

Jordan McKinnie - JPMorgan

Hi, this is Jordan McKinnie on for Tycho. Thanks for squeezing us in. I was just wondering so physician office visits have been down and I want to see if you have seen any impacts in your procedure volumes due to like inclement weather in the beginning of the year? And then do you see that business kind of being pushed out into 2Q, 3Q or is that lost?

Mark Foley

Good question. I think it’s really hard to say beginning of the year we had our sales meeting, we had a number of different things that were going on. We are certainly in some areas, I am sure that the weather and the change has impacted some of these practices, but at least for our business with where we are in the early stages of this market, we don’t think that, that’s going to have an impact on kind of our business at least in Q1. So thus far that’s not showing up kind of in our performance results.

Jordan McKinnie - JPMorgan

Okay. And then circling back to ASPs, when you think about your partnership marketing efforts, do you guys give discounts?

Patrick Williams

We do. So that’s netted. So there is two things. On the consumables side, we were giving rebates in 2013 related to our consumables and that would be netted out in the revenue already. We have actually adjusted that program as we move into ‘14. So we will no longer be giving rebates on our consumables. Related to the systems side, we do normal discounting and so that’s already netted out and then we also do which what you were asking, which is more of the co-op advertising or partnerships with the physician practices, that falls into our sales and marketing bucket.

Jordan McKinnie - JPMorgan

Okay. And then one more circling back to the whole FDA indication, so assuming you don’t get the thigh indication, do you have any sense of how the CoolSmooth applicator performs compared to the applicators with the suction?

Mark Foley

So if we don’t get the thigh indication, we will launch it with the same general indication. We have certainly looked at comparing results of the suction-based applicators with the flat applicators and it will really depend on kind of the body part and the area that the physician chooses to use it. So we will be sharing more of that clinical information in that data as we launch the product.

Jordan McKinnie - JPMorgan

Okay, thanks so much.

Patrick Williams

Sure, thank you.

Operator

Thank you. And the next question is from Anthony Vendetti of Maxim Group. Your line is open.

Anthony Vendetti - Maxim Group

Thanks. I think most of my questions have been answered, but just a couple of quick ones. On Solta, with the acquisition by Valeant, have you seen much of a change in terms of their competitive position or is it pretty much status quo? And then just a couple of housekeeping questions for Patrick?

Mark Foley

Yes, Anthony. I think its pretty status quo. I think clearly when the announcement that they were being acquired, occurred, we did see I think a lot of concern within the Solta organization about what it meant. And I think that we saw number of people in the field looking for other opportunities. So nothing has really changed there. I think that we have not seen any real change in sort of their competitive push of their effort. So we are still kind of waiting to see and are interested to see kind of whether or not Valeant is going to focus or put any effort behind this product going forward.

Anthony Vendetti - Maxim Group

Okay. And then Patrick just on the stock-based comp, can you break that out by operating expense line?

Patrick Williams

It’s like your favorite question every quarter (indiscernible).

Anthony Vendetti - Maxim Group

I know I have got to get in there.

Patrick Williams

Guess what, I am ready for you.

Anthony Vendetti - Maxim Group

Excellent.

Patrick Williams

From a stock-based comp standpoint just for easy math, it’s about 40% of our stock-based comp rose through R&D. And then I will call it kind of 30% and 30% on sales and marketing and G&A. We have a little bit in COGS and I know already added up to 100, but just kind of broad strokes.

Anthony Vendetti - Maxim Group

Just de minimis there. And then on the revenue line, just system systems and procedure fee just the exact number as opposed to just grounded number? Do you have that number?

Patrick Williams

Well, I am not sure what the question is, what are you asking me exactly.

Anthony Vendetti - Maxim Group

Just the exact number for systems revenue and procedure fees as opposed to just a rounded number at this point?

Patrick Williams

Well, I think I stated in my comments that $21.4 million in systems and $14.4 million in consumables, is what you are asking me?

Anthony Vendetti - Maxim Group

Yes, that’s rounded, okay. That’s fine.

Patrick Williams

Okay.

Anthony Vendetti - Maxim Group

Just in terms of, Mark, just more another bigger picture question in terms of industry growth, where do you see for 2014 sort of you are raising your ASPs, what are you seeing on the competitive as nothing has changed in terms of Solta, what are you seeing on the competitive landscape in terms of growth in the market in terms of sell-through to this physician discounting by the physician if any still, what general trends are you seeing if anything different from what you saw last year?

Mark Foley

Yes. Again, I think it’s probably more of the same. Obviously with our guidance, we believe that we are going to grow at 20% plus which is I think is a good representation of kind of market growth in this sector. I think its big enough market, where if additional competitors come in that they can likely participate in the expansion of this market and also do reasonably well. We talked about the Liposonix and Solta I think being distracted because of the acquisition, so to be determined whether or not they increased sort of their presence in their footprint. So I think overall the staff reduction market should be able to grow at 20% plus, particularly in North America. Internationally, we see a little bit more in terms of knock-off competition, which makes it little bit of a different dynamic, but I think we have successfully taken what’s worked for us here in North America and rolled out similar type of programs, particularly on our direct markets in Europe and have been very pleased with the results that we have seen there.

So, on a pricing standpoint, I think pricing is holding pretty well in the practices with our product. I do think with Treatment to Transformation, we are seeing some physician practices offer kind of discounts if they buy larger quantities of cycles with the idea that the total dollars per patient goes up even though the dollar per cycle might go down a little bit to them. So I think we are seeing more bundling packaging, but I think in terms of the advertised price and what they are doing things are staying pretty consistent and we are working closely with our physicians to try and help there. I mean, we are making sure that the practices that we are featuring on our practice locator and that we are supporting in our Crystal Rewards Program are adhering to sort of minimum advertised prices and those that sort of deviate go outside of that don’t get to participate in our programs. And so I think we have struck a nice partnership with our physicians giving them the flexibility to bundle or do things on a patient by patient basis but not do things early in the marketplace that aren’t good for the health of the market.

Anthony Vendetti - Maxim Group

Okay, great. Thanks.

Operator

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

Bill Plovanic - Canaccord

Great. Just on the cash flow question, just Patrick, just if you can give us what’s your expectation is for CapEx in 2014 in your DNA for 2014 and then stock comp that’s it? Thanks.

Patrick Williams

Sure I think on a stock comp basis you are going to expect to see a little bit higher based on where the stock price is but not much more and so maybe closer to around $7 million we will call it on the SBC side. From a CapEx standpoint, we might see a little bit more on there maybe somewhere around 1.5 million on the CapEx side. And then finally on the D&A side, I don’t expect that to materially increase coming out of 2013 I think we did around $1.7 million in depreciation and amortization for 2013 so we are probably going to sit pretty close around that number coming into ’14.

Bill Plovanic - Canaccord

Great thanks.

Patrick Williams

Yes.

Operator

Thank you. There are no further questions at this time. I will turn the call back over for closing remarks.

Mark Foley - President and Chief Executive Officer

Well, thanks we are obviously pleased to report our Q4, year end numbers as we stated earlier 2013 was a fantastic year for ZELTIQ, but it’s good as it was we are really excited about our prospects for 2014 and look forward to reporting our Q1 numbers in the not too distant future. Thank you very much.

Operator

Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day.

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