Syneron Medical CEO Discusses Q1 2011 - Earnings Call Transcript

| About: Syneron Medical (ELOS)

Syneron Medical Ltd. (NASDAQ:ELOS)

Q1 2011 Earnings Call

May 19, 2011 8:30 am ET

Executives

Shimon Eckhouse – Chairman of the Board

Louis Scafuri – Chief Executive Officer

Asaf Alperovitz – Chief Financial Officer

Analysts

Rich Newitter – Leerink Swan

Amit Hazan – Gleacher & Company

Anthony Vendetti – Maxim Group

Dalton Chandler – Needham & Company

Operator

Good day ladies and gentlemen. Welcome to the Syneron Q1 2011 Results 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. If anyone should require operator assistance, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Carol Ruth. You may begin.

Carol Ruth

Thank you, Operator. I’d like to welcome you to Syneron Medical’s First Quarter 2011 conference call.

Statements on this call may be forward-looking within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 relating to the Company’s future events or future performance, including statements with respect to Syneron’s expectations regarding but not limited to the financial forecast for 2011, the launch of new products and the maintenance of a leadership position in core and non-core markets.

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

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

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

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

Lou Scafuri

Thank you, Carol, and welcome to Syneron’s first quarter 2011 conference call. During the first quarter we continued to successfully execute on our growth strategy. This included launching several new products in both our professional aesthetic devices and emerging business unit segments and leveraging the broad distribution across selling capabilities of the Syneron and Candela sales channels.

We also further strengthened our customer relationships, particularly in the core market, by demonstrating the strong clinical results and science that are the foundation of all of our products. This has allowed us to maintain the positive momentum that we built during 2010 and further enhance our position as the clear leader in the esthetic device market.

I’ll begin today’s call with a brief review of our strong financial results followed by an operational update of some recent company highlights.

We achieved first quarter 2011 revenue of $49.8 million, up 16% over the prior year. This represents our third consecutive quarter of double-digit year-over-year sales growth, underscoring the strategic benefit of the combination of Syneron and Candela and our ability to grow incremental value from the combined company. Revenue grew 13% in North America and 18% in international markets. Importantly, we achieved record sales of consumables and accessories. Consumable sales from the Syneron product line grew 252% year-over-year and 36% sequentially. This demonstrates that our products are being well-received by physicians and patients alike and provide a positive outlook for future growth in our recurring revenue, high margin business model.

Non-GAAP gross margin was 53.5%, up from 47.4% in the prior year, reflecting an increased mix of Syneron products and the strong consumable business margins I just mentioned. In our professional aesthetic devices, or PAD segment, non-GAAP operating profit was $3.2 million or 6.8% operating margin, demonstrating our continued ability to drive an increased mix of higher margin products, capitalize on efficiencies, and effectively leverage our worldwide infrastructure.

During the quarter, we combined our focus on prudent expense management in our PAD business with new product launch initiatives in our emerging business units. This resulted in our second consecutive quarter of non-GAAP profitability with earnings per share of $0.01, demonstrating our ability to manage the business to drive revenue growth and sustained profitability.

Over the last several months, Syneron has had a dominant presence at all of the major aesthetic industry trade conferences, including the American Academy of Dermatology, the American Society of Laser Medicine and Surgery, and the Aesthetic Meeting 2011 hosted by the American Society for Aesthetic Plastic Surgery. One of the Company’s major initiatives has been to highlight evidence-based clinical results and significant scientific innovations that are synonymous with both the Syneron and Candela products. We believe that focusing on these two key initiatives benefits us further by enhancing existing customer relationships as well as driving cross-selling opportunities.

Syneron and Candela products are firmly positioned as best-in-class, innovative solutions amongst many of the key opinion leaders in dermatology, plastic surgery, and in other medical fields. Our products were featured on the podium in presentations by many thought-leading physicians at these conferences and we have seen a very strong interest in all of our new products.

In addition to the strong KOL support that we have developed, we successfully used these trade conferences to launch several of our new products in both our PAD and emerging business units. All of us here at Syneron are very proud and excited about each of these new products and the very positive reception from the aesthetic medical community at large.

Our recent new product launches include our highly innovative category creating ePrime Energy Based Dermal Volumizer, eMatrix featuring sublative rejuvenation, and the CO2RE CO2 fractional laser. ePrime is the first minimally invasive aesthetic device designed to precisely target and deliver measured RF energy directly into the deep dermis. This achieves a clinically demonstrated improvement in skin tone, laxity and volume in just one treatment. Our first quarter results include the initial sales from the launch of ePrime and we are very pleased with the early feedback we are receiving. As we continue to roll out ePrime and establish a base of customers, we’ll benefit from the sale of the systems and from the recurring revenue generated from the consumable applicator treatment tips.

eMatrix, which continues to garner high praise and interest from the aesthetic community, is the world’s first RF-only device for energy based sublative rejuvenation. This unique technology allows eMatrix to treat skin texture and tone across all skin colors with minimal patient downtime. The impressive results are attributed to its ability to deliver treatments with high intensity dermal impact with less epidermal ablation. eMatrix, much like ePrime, was designed with special attention to the specific needs of aesthetic practitioners and the evolving demands of their patients. Accordingly, we have positioned eMatrix and ePrime with a lower cost of acquisition with a pay-for-procedure consumable that allows our customers to maintain an attractive margin. These products offer the patient the latest technologies as well as a safe and effective treatment at a lower price point compared to traditional aesthetic procedures.

During the quarter, we continued to roll out the CO2RE fractional CO2 resurfacing system. CO2RE is a versatile CO2 laser system that offers the unique ability to treat both superficial and deep layer skin simultaneously with precision control over the intensity, pattern and depth of ablation. Market acceptance has been strong and we believe that our continued efforts will position CO2RE as the gold standard fractional laser for skin rejuvenation and wrinkle reduction.

In April at the American Society of Laser Medicine and Surgery Annual Meeting, we launched a next generation system from the best-selling family of Candela GentleLASE products, the GentleLASE Pro High Speed Hair Removal System. GentleLASE Pro is an advanced aesthetic laser providing physicians with faster treatment times, greater treatment versatility, and enhanced ease of use. We shipped and installed the first GentleLASE Pro in late April and have been pleased with its reception amongst existing GentleLASE users and potential new users that have been attracted by the best-in-class functionality and patient results achieved with the system.

Another growth engine where we see a tremendous opportunity is our emerging business units, or EBU. Last quarter we began breaking out the results of this business segment in our financial reporting. In the first quarter, we placed further emphasis on this important area by forming a dedicated subsidiary, Syneron Beauty, to focus on the development and marketing of our direct-to-consumer and home use products. Syneron Beauty is responsible for the mē home use hair removal system, the tandem family of LED devices, and the development stage Fluorinex teeth whitening and fluorination products.

Our elure advanced skin lightening technology was first launched outside the U.S. in the fourth quarter of last year, and we began selectively rolling out the product to key opinion leaders in the United States at the end of 2010 and in early 2011. The product entered full launch at the AAD meeting in February and has been a featured product at all of our trade shows since. We have received strong KOL support for elure and early feedback from patient treatments has been very promising.

In particular, our customers are encouraged by its ability to effectively treat cases with patients that have not responded to other treatments, such as hydroquinone-based skin lightening products. We believe that this is significant because elure has a completely different mechanism of action that these products. It is the first and only topical skin lightening product that improves the appearance of the skin by temporarily reducing melanin, the molecule that accumulates in the skin to cause a darkened or uneven skin tone. elure effectiveness has been clinically proven and we have completed a comprehensive safety review of the active ingredient in elure, the naturally-occurring enzyme, Melanozyme. We have demonstrated that it effectively lightens the skin with no reports of skin irritation or other health concerns. elure provides patients with a meaningful improvement in skin appearance with healthier, brighter and younger looking skin in as little as seven days, compared to one to two months with hydroquinone-based products.

In addition to elure, during the quarter we also announced the European launch of the mē home use hair removal system. Product sales have tracked in line with our expectations, driven by the combination of Syneron’s proprietary ELOS technology with an optional epilator or shaver to provide dual action permanent hair reduction for the widest range of skin and hair colors. The system requires no preparation and is up to four times faster than competitive energy based consumer based home hair removal systems.

Now I’d like to discuss the recent U.S. District Court ruling on the Palomar patent claims. First, let me begin by saying that we are delighted by this ruling from the U.S. District Court. A major point here for us is that the court found that Candela does not infringe 11 of the 12 patent claims at issue in the patent infringement action brought by Palomar against Candela. Many years ago, Dr. Jim Shaw, Candela’s chief technology officer, decided not to license the Anderson laser hair removal patents because Candela had a different and better approach as well as their own intellectual property for doing hair removal. Candela’s DCD cryogen spray cooling products subsequently became the industry-leading laser hair removal device. The recent District Court summary judgment validates this decision.

We believe that this is a significant victory for Candela for the following reasons: point one, when Palomar initiated its lawsuit against Candela, it included two patents and over 30 claims at issue. Today following the District Court ruling, Palomar has only a single claim remaining and we have not even proceeded to trial.

Point two, the remaining claim, which is Claim 32 of the 844 patent, has never been tested in any trial. Palomar has not won a single lawsuit related to Claim 32 or the 844 patent. We are confident that this single claim, 32, will be found not to be infringed and to be invalid at trial, now scheduled to begin on October 3, 2011.

Point three, it is of major significance to note that Claim 32 is a method claim, and method claims are only applicable in the U.S.; therefore, Palomar cannot recover damages for sales outside of the U.S. which effectively eliminated the majority of their claimed damages, even before the trial begins. To eliminate such a significant portion of a plaintiff damage claim in a preliminary motion is by anyone’s standards an important victory.

We are confident in Candela’s longstanding belief that it developed a different and better approach to hair removal and that Candela’s approach does not infringe the single claim in question. We believe that we will be vindicated at trial once the facts are presented at court.

In addition it’s important to point out that prior to this ruling, on April 14 we also received a positive outcome in the claim construction order in a separate patent infringement action brought against Syneron by Palomar. In this order, the District Court adopted Syneron’s position that Claims 8, 9, 10, 14, 18, 19 and 20 of U.S. Patent 5595568 and Claims 27 and 41 of the 844 patent are limited to lasers. As a result, this ruling supports the conclusion that Syneron’s ELOS broadband incoherent light and RF devices do not infringe the 568 and 844 patents.

Today, we are even more confident in our positioning in both the Candela and Syneron patent litigations brought by Palomar. We are confident for a positive outcome at trial.

In summary, we continue to leverage our market leadership and execute on our growth strategy in both the PAD and EBU segments. We are enormously excited about Syneron’s potential to continue gaining market share in the aesthetic device market and drive the adoption of our products in the emerging home use segment of the market. We are encouraged by the strong reception of our recent product launches and believe that we have effectively delivered new products that provide meaningful benefits and differentiation for our customers and the patients that they serve. We have rolled out these new products while continuing to focus on driving efficiencies in our operations, increasing cross-selling, and enhancing our position with KOLs by leveraging the strong science and clinical data on our products.

Looking forward, we expect to continue executing on this strategy, expanding our market share driven by new product launches, increase adoption of our products in the EBU, and a higher contribution from recurring revenue sources. Together, this will drive improved gross margins and better leverage of our corporate infrastructure, which will lead to higher profitability and create value for our shareholders.

I would like to now turn the call over to Asaf for his financial review. Asaf?

Asaf Alperovitz

Thank you, Lou. Revenue in the first quarter of 2011 was 49.8 million, up 15.8% compared to 43 million in the first quarter of 2010. International revenue grew 17.5% year-over-year to 33.4 million, and North American revenue grew 12.6% to 16.4 million. Sixty-seven percent of the first quarter 2011 revenue was in the international market compared to 66% in the first quarter of 2010. Product revenue and service revenue for the first quarter of 2011 was 33.2 million and 16.6 million respectively.

Gross margin for the first quarter of 2011 was 15.4% or 53.5% on a non-GAAP basis, excluding stock-based compensation, amortization, restructuring, and expenses related to the Candela merger, compared to 34.5% or 47.3% on a non-GAAP basis in the first quarter of 2010.

First quarter 2011 operating loss was 2.6 million or an operating income of $600,000 on a non-GAAP basis, compared to an operating loss of 29.9 million or 6 million on a non-GAAP basis in the first quarter of 2010. GAAP net loss for the first quarter of 2011 was 2.4 million or $0.07 per share compared to a GAAP net loss of 22.5 million or $0.66 per share in the first quarter of 2010.

On a non-GAAP basis, net income for the first quarter of 2011 was $200,000 or $0.01 per share compared to a net loss of 4.9 million or $0.14 per share in the first quarter of 2010.

Now I will provide a review and commentary on the results from our two reporting segments, professional aesthetic devices, or PAD, and emerging business units, or EBU. For the first quarter of 2011, PAD revenue was 46.9 million or 94.2% of total revenue, and EBU revenue was 2.9 million or 5.8% of total revenue. Operating income in the PAD segment was 3.2 million on a non-GAAP basis, representing an operating margin of 6.8% compared to an operating loss of 4.7 million in the first quarter of 2010. The improvement in our operational results is primarily due to the following main factors: higher sales mix of senior products and consumables, which was also driven by increased cross-selling; higher production and sales volume; and operational efficiency and cost-cutting measures we implemented mostly in conjunction with the Candela integration.

Operating loss in the EBU segment was 2.6 million. EBU expenses in the first quarter included investment in the North American launch of the elure advanced skin lightening product, the European launch of the mē home use hair removal system, and the North American launch of the Tanda Zap advanced acne clearing device. As we move out to the launch base with these products and EBU revenue ramps, we expect to achieve better operating leverage in this segment. The early results have been promising and we believe we are well positioned for continued growth of these and all of our new product launches. As these products gain traction in the marketplace, we feel confident it will also have a positive impact on our profitability.

Turning to the balance sheet, our DSO declined on a year-over-year basis to 76 days, representing an increase of 10 days compared to DSO of 86 days in the first quarter of 2010. On March 31, 2011 cash and cash equivalents, including short-term bank deposits and investments in marketable securities, was 211.4 million and equity was 280.2 million. We continue to remain debt-free.

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

Question and Answer Session

Operator

Thank you. Ladies and gentlemen, if you have a question please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. Once again, if you have a question, please press star then one.

Our first question is from Rich Newitter of Leerink Swan. Your line is open.

Rich Newitter – Leerink Swan

Hi guys. Thanks for taking my questions. I’m just going to start off with your base business, the PAD segment and profitability there. So you guys are running on a GAAP basis roughly breakeven in the first quarter, slightly below last quarter. Can you maybe provide some context for us with where you think that goes? Is 1Q kind of the low point for 2011 on base business profitability? How should we think about that progressing throughout the year? And then also if you could talk about that within the context of kind of where you are in terms of driving some operational efficiency initiatives that clearly have been playing out over the last 12 months.

Asaf Alperovitz

Yes, certainly. In terms of (inaudible) in Q4, Q4 in terms of seasonality is the strongest in the year, and since we do have some fixed structure costs built within our cost structure, certainly with increased volume and sales we have better utilization of this fixed cost structure and better profitability. Going forward, I think you can see that we do improve certainly year-over-year and we expect to continue to improve our gross margin and operating margin as we increase the sale portion of Syneron products proportionately from overall our sales. And with the increased sales of our consumables as part of our recurring revenue model, and actually we also will include consumables for some of our new products that were recently introduced, including the CO2RE resurfacing device and the ePrime dermal volumizer. Also with the introduction of premium products such as the ePrime and the elure skin whitening, we expect to continue to this trend of increased profitability, and certainly we are continuing to push costs down and be efficient and control our expense management.

Rich Newitter – Leerink Swan

Okay, thanks for that. It seems like this elure skin whitening product has the potential to be very significant for you guys over time. Can you talk about what your expectations are for 2011, how the launch—how we can think about the launch progressing? Is this more of a 2012 product? Should we be thinking about this gradually in 2011? Just help me there for modeling purposes.

Louis Scafuri

Well Rich, let’s start with the major headline. The major headline is we’re getting tremendous response from the key opinion leaders in the use of the product. We have comments that they can’t keep it on the shelves. We have prop-up comments as well that the clinical outcome is superior. Some difficult patients that have not or are not suitable for hydroquinone, such as PIH patients, melasma patients, we’ve had outstanding results.

Our challenge today is one of execution and building the distribution channel. We’ve been out there. We’ve been continually ramping. We’re in the several hundred customer numbers in North America and we’re starting to gain traction as we deploy resources. And in the international markets, we’re learning that the regulatory hurdles getting into some of the countries is a little longer than what we initially anticipated. We are highly focused on it. We plan on continuing to build our revenue. It’s a very high margin item, and we plan on making this a major item and a major contributor to our revenue and bottom line on an ongoing basis, building on it in 2011 and in 2012 having significant material results.

Rich Newitter – Leerink Swan

So actually, is it fair to say that—it seems like your emerging business units actually came in a bit higher than we and what consensus was looking for. Is it fair to say that almost all of that was not even from elure, and we haven’t really even seen any of the major impact from elure?

Asaf Alperovitz

Actually, we don’t break out the allocation between the different business units at this stage, so I will not be able to specifically relate to that, unfortunately.

Rich Newitter – Leerink Swan

Okay. And then one last one on litigation – thanks for the comments there. It sounds like you guys feel very confident in your position going forward. Just maybe help me reconcile—you know, Palomar also seems to be conveying a very confident tone and message, especially after the recent summary judgment. Can you just help me understand how both of you are seemingly claiming victory on that decision? And then also with respect to your comments about no OUS damages being fair game, how does that compare to the zero to $50 million damages estimate that you guys specified in your recent 20-F SEC filing?

Shimon Eckhouse

Rich, this is Shimon. Maybe I’ll try and get you a little bit of an overview and then Lou and Asaf might want to add some additional information. First of all, regarding your very first question on the, let’s call it contradiction between the way we see it and Palomar sees it, the facts are the facts and the claims are the claims. And as Lou pointed out, the claims shrink down from 30 at the beginning to one now; from 12 on the summary judgment to one now. And not only did they decline extremely significantly, but the claim that was left in spite of the fact that Palomar is trying to make the case that this is the strongest claim – which is, by the way, true. I mean, when you have one claim, it’s always the strongest claim that you have. But the fact is that this is method claim and as Lou pointed out, this method claim really doesn’t have any impact on markets outside of the United States because only the U.S. accepts method claims in patents.

So as I said, there are claims and there are facts, and the facts are what they are. On whatever we reported, this was of course before the summary judgment, and as Lou explained in quite some detail, with this summary judgment and with the fact that is the nature of this claim, the one that was left, this has a significant impact on whatever the potential damage may be, even if we don’t prevail in trial, and we feel very strongly that we have a very strong case of both non-infringement and invalidity.

Rich Newitter – Leerink Swan

Thank you.

Operator

Thank you. Our next question is from Amit Hazan of Gleacher & Company. Your line is open.

Amit Hazan – Gleacher & Co.

Thanks. Good morning, guys.

Asaf Alperovitz

Good morning.

Amit Hazan – Gleacher & Co.

Let me start and ask about if you can give us a little bit more color on any impact from Japan, not only in this first quarter but also how we should be expecting the impact trajectory to go into 2Q as well.

Louis Scafuri

I’ll make a few comments and then Asaf would like to say something as well. First off, we were very fortunate with our teams in Japan with both Candela KK, our subsidiary, as well as with our distributor, JMAC. We were very fortunate from the standpoint that people were safe, people remained focused and productive, and we had much of the quarter in when the major events happened there. We continue to work very hard. We continue to work in a marketplace, again, both on the Candela side where many of our products are used for medical dermatology in hospitals, so we have a very strong business there, as well as with our distributor JMAC to take advantage of any and all aesthetic opportunities that are present in Japan.

As we look at this quarter, as we’re reviewing the situation in Japan, we like everyone else is subject to the macroeconomic environment in Japan, and we’re working very, very hard to make sure we come as close to plan as possible. One thing we stated last year during our call, one of our stated goals was the ability to remain agile and deploy resources accordingly. We like to look at our marketing organization, our global channel to market capability as the strongest in the industry. If we see a shortfall in any particular region or country, we are capable of deploying resources and taking advantage of individual markets in over 90 countries. We see this as a strength. We continue to monitor Japan’s progress very closely. We’re having our medical advisory user meeting there on the 22nd of this month. The outlook is positive. Our new CO2RE CO2 product has significant traction there, and we are positive on our ability to exploit the opportunities as they arise.

Asaf?

Asaf Alperovitz

Yeah, I just wanted to shortly add that our sales in Japan actually significantly increased during this quarter, during Q1 when compared to the last year. And as Louis indicated, going forward we do expect some disruption in business due to the recent disaster but we cannot currently estimate its effect on our results at this stage.

Amit Hazan – Gleacher & Co.

Okay, thanks for that. I want to push you a little bit on your emerging business. I understand that you don’t break out the products, but you had a fairly significant increase sequentially – I know these are small numbers – but be that as it may, it’s still a nice increase sequentially. Maybe you can give us in general terms what drove that increase versus the December quarter?

Louis Scafuri

Well, we are now getting out into the marketplace. The very well received mē home hair removal system – we’ve launched it in several major European countries with partnership with HoMedics. And in Israel, we were particularly successful with our consumer marketing campaign in a major retail pharmacy chain, Super-Pharm. We also were capable of having continued traction with the Tanda LED product line. We have some new product introductions, the Tanda Zap scheduled for this quarter, and we expect our strong Q1 results to continue to ramp in future quarters as well.

Amit Hazan – Gleacher & Co.

Great. And then last one from me – a very good number also on your increase in consumables. Can you just remind us where you are with your recurring revenue as a percent of total sales, and where you feel that could go over the next 12 months?

Asaf Alperovitz

Yeah, revenue from the consumables are currently mostly from the eMatrix tips that we’re selling that were up significantly. We’re having current revenues that are growing significantly for the Velashape cover; and as I indicated, we expect to have some recurring revenue from the new consumables from the CO2 resurfacing system and the ePrime dermal volumizer. Both will have consumable components as part of the transaction.

We actually don’t provide the analysis you indicated, as a percentage of overall sales, but we do expect it to continue to grow significantly both in terms of nominal dollar value and as a percentage of sales. We may consider providing that data later in the future.

Amit Hazan – Gleacher & Co.

Okay, good. You have provided that in the past. I imagine that’s increasing versus what you’ve provided in the past.

Asaf Alperovitz

Yeah, in terms of growth year-over-year and quarter-over-quarter; but in terms of overall revenue, consumables out of total revenues, I don’t believe we’ve provided that in the past.

Amit Hazan – Gleacher & Co.

Okay. Thanks very much, guys.

Asaf Alperovitz

Sure, my pleasure.

Operator

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

Anthony Vendetti – Maxim Group

Thanks. Just wanted to—maybe Asaf, just give us those numbers again on the consumables that you gave. You said up 36% - was that the sequential number?

Asaf Alperovitz

Yes, 36%, that’s the sequential number. You got it right. And in terms of year-over-year, it was 244%--252%, sorry.

Anthony Vendetti – Maxim Group

Okay. And then do you have the stock-based comp breakout by expense line?

Asaf Alperovitz

Yes, certainly. So, overall stock-based compensation for the quarter was $670,000. Out of that, 7 went to the COGS; 130 to the R&D; 184 to the sales and marketing, and 349 to the G&A expenses.

Anthony Vendetti – Maxim Group

349, okay. And I know it’s hard to gauge what’s going on in Japan, but just in terms of international sales in other countries, can you talk about—you know, it’s obviously a big part of your revenue. Can you talk about other countries and the growth you’re seeing in the other international segments?

Louis Scafuri

We’re seeing very strong response across the board internationally. If we look at our distributors in Western Europe, we have increased significantly year-over-year. We’ve applied some of our very best talent and resources there to get our distribution channel on both the Syneron and the Candela side up and running and firing out in the marketplace to win the in the market. If we look at Latin America, we added some talent and focused resources there, and particularly on the Candela side we’ve seen some very strong growth. If we look out in Asia Pacific, I would say that we are clearly emerging as the market leader in the growth market. Asia Pacific, the marketplace numbers are estimated at approximately 25% growth year-over-year, and we are executing as well and leading in the market, I believe, in both market share gains as well as individual regions of the marketplace throughout Southeast Asia, China, as well as in Australia and across the entire region.

We’re feeling quite strong. I think we’re at the point now where we know the areas of improvement. We’re focusing on those areas and we plan on leveraging our channel to market capability, again, with the breadth and depth of our portfolio, best-in-class products, having the mind share of our direct and indirect distribution channel, again, so that we win and continue to increase market share.

Anthony Vendetti – Maxim Group

And you have the largest direct international distribution. Can you remind us how many countries you’re direct in, and then if you could talk about the sales number—the number of carrot-quoting sales people in the U.S.?

Louis Scafuri

We have right now—we’re direct in 11 countries. We just went direct in Canada this quarter as well; we added that to the list. We see great opportunity there. We see that economy as one as being slightly better than North America. And in terms of direct sales force, we have now 38 direct salespeople in Syneron and Candela in North America, as well as managers and support people.

Anthony Vendetti – Maxim Group

And then just lastly, as you’re rolling out these home-based products, obviously it takes a different marketing strategy to reach the home-based market. Can you talk about just in general the avenues that you’ll be spending money to try to increase the awareness of these products?

Louis Scafuri

Well, a few comments. I think the creation of Syneron Beauty was a major step forward for the Company. We have a wealth of breadth and depth of technology as core competencies, and we nominated one of our most talented people, Fabian Tenenbaum, to lead this particular initiative. Fabian’s been out in conjunction with the people from Pharos Life who have much experience with the Tanda products in both the Sephora, Bloomingdale’s, and other high-end retailing chains, exploring the multiple opportunities that exist to build distribution networks. It’s more than a channel, Anthony; it’s distribution networks. We’ve looked at our approach almost as a multilevel marketing strategy. Depending upon the diverse product line we have, we are looking for partners and unique market opportunities to gain as much awareness as possible. It’s clearly a very different challenge. We have dedicated and focused resources. Our Syneron Beauty group has actually moved from our main office facility just give minutes down the road to make sure that as we expand, dedicate our focus in this area, that we have the best talent and the right focus in this marketplace, because it’s completely unique from what we’re doing in the PAD segment.

Anthony Vendetti – Maxim Group

Okay, great. Thanks a lot.

Operator

Thank you. Our next question is from Dalton Chandler of Needham & Company. Your line is open.

Dalton Chandler – Needham & Co.

Good morning. I was wondering if you could give us an update on your deal with P&G, and also how that deal fits with the Syneron Beauty initiative.

Shimon Eckhouse

This is Shimon. Maybe I make a few comments about that. Actually, P&G is dedicating significant resources to move this initiative forward, including a wealth of information that they generated in marketing research as well as clinical work with the product. We are well within the regulatory process of the product, and it does fit the basic strategy of Syneron Beauty because, as Lou pointed out, this is for us a whole new area of distribution and marketing, and we have no doubt that with the broad range of technology and products and applications that we have in this area, there will be more than one channel that we will want to work with. And of course, in our mind, P&G is a very highly regarded channel for at least some of the application and the technologies that we have.

So to a large extent, we do—these days, everybody likes to call multilevel marketing on everything we do, and as part of this and a very significant one, of course, our relationship with P&G for some of the applications are very important to us.

Dalton Chandler – Needham & Co.

Okay. Thanks for that. And you’ve launched a lot of new products in the last couple of quarters. I was wondering if you could give us a sense of their percentage contribution to revenue in the quarter.

Louis Scafuri

We actually—this year, we embarked upon several KPIs – key performance indicators – and as we start moving out here, we have our own internal measurement of percentage of revenue generated from products introduced in the last 12 months. I would say, Dalton, it’s fair to say that they are making a contribution. We are gaining traction. We did have impact in both Q4 from the CO2RE product as well as in Q1. We had upside as well from the ePrime. ePrime, again, is a new category. We have to go out there, work with the thought leaders, and make sure we do our job right; and we’re getting increasing benefit around that.

The other thing I would say is if we look at our strategy around the eMatrix and sublative rejuvenation, as we introduce new treatment fits and as consumer awareness and the story of results and customer satisfaction get out there, we’re starting to see some extremely positive increases in not only device placement as well as the recurring revenue trail. So we have a steady stream of new products. We’re monitoring it internally, and this is something that we continue, I believe, to put a lot of resource and confidence around the revenue growth and bottom line contribution that it will do for the Company.

Dalton Chandler – Needham & Co.

Okay, thanks a lot.

Operator

Thank you. There are no further questions at this time. I will turn the call back over to management.

Louis Scafuri

Well, I’d like to thank first off our employees for their hard work and dedication and focus. We are winning the marketplace, all as a result of the belief that our customers have put into us as well as our shareholders. We’re working very hard to create value, to continue on as the market leader, as well as doing our very best possible job for all of our stakeholders and shareholders.

I’d like to thank everyone and we look forward to having a successful Q2. Thank you and goodbye.

Operator

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

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