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Cutera (NASDAQ:CUTR)

Q1 2012 Earnings Call

May 10, 2012 5:00 pm ET

Executives

John Mills - Senior Managing Director

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

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

Analysts

Michael A. Dinerman - Piper Jaffray Companies, Research Division

Morris Ajzenman - Griffin Securities, Inc., Research Division

Anthony V. Vendetti - Maxim Group LLC, Research Division

Larry Haimovitch

Operator

Greetings, and welcome to the Cutera Incorporated First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Mills of ICR. Thank you, Mr. Mills. You may begin.

John Mills

Thank you. By now everyone should have access to the first quarter 2012 earnings release, which went out today at approximately 4:00 p.m. Eastern Time. The release is available on the Investor Relations portion of Cutera's website at cutera.com, and with its Form 8-K filed today with the SEC and available on its website at sec.gov.

Before we begin, Cutera would like to remind everyone that these prepared remarks contain forward-looking statements, including statements concerning domestic and international growth opportunities and strategies; future spending; expense management and execution on various aspects of Cutera's operations and business; expectations for increasing revenue, generating cash and improving profitability; the development and commercialization of existing and planned new products; potential revenue growth from strategic alliances and planned new products; and financial performance and integration risk associated with the Iridex aesthetic business unit acquisition.

Also, management may make additional forward-looking statements in response to your questions. These forward-looking statements do not guarantee future performance, and therefore, you should not rely on them in making an investment decision without considering the risk associated with such statements.

Cutera also cautions you to not place undue reliance on forward-looking statements, which speak only as of the date they were made. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events.

For a complete list of risk factors that could cause Cutera's actual results to differ materially from the forward-looking statements, please refer to the section entitled, Risk Factors, in the company's most recently filed 10-Q, filed on May 10, 2012, with the Securities and Exchange Commission.

With that, I'll turn the call over to the company's President and Chief Executive Officer, Mr. Kevin Connors.

Kevin P. Connors

Thank you, John. Good afternoon, everyone, and thanks for joining us today to discuss Cutera's results for the first quarter ended March 31, 2012. On today's call, I'll provide an overview of our company performance, and then Ron Santilli, our CFO, will provide an overview of our financial results. Finally, I'll provide some closing comments and open the call to your questions.

We are pleased with the first quarter revenue growth of 35%. Our U.S. revenue increased by 50%, and international revenue improved by 27% compared to the first quarter of 2011. This revenue improvement was a direct result of the following key initiatives. The first key contributor to our revenue growth in the first quarter was the sales management changes that we successfully implemented a year ago. Our North American sales management team under the leadership of Michael Poole, has been executing effectively, and their strategies are generating improved performance. The 27% international growth was primarily driven from expansion in Canada, Japan and Australia. The second key contributors are the 2 most recent new product introductions, GenesisPlus and Excel V. Both of these products are continuing to be well-received by the market and are playing a strong role in our revenue growth.

The third, albeit smaller contributor, was the acquisition of Iridex's aesthetic business unit that was closed on February 2, 2012. During the first 2 months of the first quarter of 2012, we recognized $627,000 of revenue associated with this transaction, which represents a start-up revenue level. We are expecting to see significant growth from this revenue level in the second quarter when we experience the results of the fully integrated business.

The final contributor to our revenue growth was our legacy Cutera products with the primary contribution coming from our flagship Xeo product. We believe with our strength in sales management teams our new product offerings position us for continued revenue growth in the growing market for energy-based aesthetic equipment.

We concluded the quarter with 32 sales territories in the United States and Canada, and are planning to increase this team to approximately 39 by the end of 2012, or sooner. We believe our recent expansion into the podiatry market will continue to perform well, and as such, we are in the process of dedicating a group of sales specialists in the United States to the podiatry specialty to focus on the sale of our GenesisPlus product for the primary treatment of onychomycosis. Once our sales force's expansion is complete, we will have 29 aesthetic sales representatives and 10 podiatry sales representatives in North America. We'll continue to monitor the size of our sales force, and we'll consider additional expansion as our sales performance support it.

We closed the acquisition of Iridex's aesthetic business on February 2, 2012, and are pleased with the progress made in integrating this business with Cutera's. As a reminder, we believe the benefits of this acquisition are as follows: one, the VariLite product, a small, compact vascular product that complements our Excel V and other vascular products; two, a significant, existing customer service business that we are equipped to service and leverage with our existing team; three, cross-selling opportunities of Cutera products into the Iridex installed base of core physicians. Four, a strong, direct organization in France that will contribute to strengthening our European organization.

While this acquisition did not contribute significant revenue for our business in the first quarter of 2012, due to the integration and ramp up of operations, we believe this acquisition will be incrementally profitable to Cutera in the second quarter of 2012. Ron will address the financial impact to this transaction later on the call.

Turning to research and development, we believe that strategic ongoing investments in research and development are critical to our future success. In line with that principle, we continue to invest in R&D for the next generation of technology. We're excited about the pipeline of new product opportunities and have augmented our team with top talent that we believe will enable us to continue to develop differentiated, exciting products for years to come.

We announced the launch of TruSculpt at the American Academy of Dermatology meeting in March earlier this year. TruSculpt is the latest breakthrough technology for non-invasive body contouring and sculpting that targets subcutaneous adipose tissue or fat cells. TruSculpt's innovation technology uses RF energy with targeted heating to selectively disrupt fat cells without damaging overlying skin. In one or more pain-free treatments, TruSculpt provides remodeling to smooth and sculpt body contours. This product received a CE Mark for body sculpting in January 2012, and has a 510(NYSE:K) clearance for the treatment of cellulite. We expect to commence shipment of this product in the third quarter.

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

Ronald J. Santilli

Thanks, Kevin, and thanks to all of you for joining us today on our first quarter 2012 conference call. First quarter 2012 revenue was $15.7 million or 35% higher than the first quarter of 2011. Net loss for the first quarter of 2012 was $5.3 million or $0.38 per diluted share. Included in this loss was approximately $1.1 million or $0.08 per diluted share of the Iridex acquisition non-recurring expenses and start up loss. Kevin already discussed the geographical performance. I will now discuss revenue by product category.

Product revenue increased in the first quarter by 58% when compared to the first quarter of 2011. This increase was primarily driven by increased sales of our existing products, including our flagship Xeo product, Excel V into core specialties and GenesisPlus product into the podiatry specialty.

During the fourth -- first quarter of 2012, approximately 38% of our North American product orders came from core specialties, and 23% came from the podiatry specialty. Outside the U.S. and Canada, we primarily sell to core physicians.

A significant percentage of our revenue is sourced from existing customers. During the first quarter of 2012, 46% of our revenue was derived from sales of upgrades, service, Titan annuity and fillers and cosmeceutical products. We remain committed to strong customer satisfaction and believe we will continue to realize revenue from this annuity revenue category.

Upgrade revenue continues to remain flat because in the last 3 years, we have introduced new platform systems versus the new application that would be an upgrade to a customer's existing product. Service revenue was $3.9 million in the first quarter of 2012 compared to $3.3 million in the first quarter of 2011. The primary reason for this growth was incremental revenue from the Iridex acquisition. We expect future revenue from the Iridex service product line to be approximately $1 million per quarter, beginning in the second quarter of 2012. Titan annuity revenue remains flat at $1.1 million when comparing the first quarters of 2011 and 2012.

Fillers and cosmeceuticals revenue was $1.5 million in the first quarter of 2012, an increase of 37% from $1.1 million in the first quarter of 2011. Growth of this revenue category was derived from sales of our Obagi and Merz, distributed products in Japan.

Turning to the Iridex aesthetic business acquisition. The transaction closed on February 2, 2012. We are now integrating Iridex people -- products, people and business activity into Cutera's as planned. Included in our loss for the first quarter of 2012 was approximately $559,000 of Iridex' non-recurring expenses. In addition, our results included approximately $500,000 of incremental start-up operating loss for the 2 months in the quarter.

For modeling purposes, we do not expect the $1.1 million or $0.08 per diluted share of operating loss to recur. Beginning in the second quarter of 2012, we expect the incremental revenue from this acquisition to be approximately $2 million per quarter, and we expect this acquisition to be incrementally profitable.

We're excited about this opportunity and we believe it will increase our revenues, penetration into the core market, and will be accretive to our results.

Now I will address our first quarter 2012 operating performance. Our gross margin was 50% in the first quarter of 2012 compared to 55% in the first quarter of 2011. Adjusting for the Iridex-related start-up expenses, the Cutera gross margin rate would have been 54% -- approximately 54%. The decline -- the slight decline in our Cutera gross margin was due primarily to an unfavorable product mix shift towards lower margin products and higher-than-expected service-related costs.

We have entered into a manufacturing supply agreement with Iridex to transition the production to our facility in Brisbane. This agreement includes a transfer price that will adversely affect our gross margins on Iridex products for the second quarter of 2012. We believe in the third quarter, we expect to have all manufacturing in our Brisbane facility and this will enable us to optimize our gross margin on Iridex products.

We expect gross margin rates, including the Iridex business for the remainder of 2012, to be between 55% and 59% depending on their revenue level. Sales and marketing expenses were $7.4 million or 47% of revenue in the first quarter of 2012, compared to $5.9 million or 51% of revenue in the first quarter of 2011. Adjusting our expense base for the Iridex transaction, we expect sales and marketing expenses to be in the range of $6.5 million to $8 million per quarter, depending on the revenue level. We target sales and marketing expenses to be in the range of 35% to 40% of revenue, overall.

Research and development expenses were $2.2 million for the first quarter of 2012 and $2.1 million in the first quarter of 2011. We remain committed to investing in R&D and launching new products in the future. We expect quarterly spending to be at similar absolute dollar levels in 2012.

General and administrative expenses were $3.5 million in the first quarter of 2012 compared to $2.3 million in the first quarter of 2011. Growth of these expenses were due to $559,000 of non-recurring charges associated with the Iridex integration cost, higher audit and legal expenses and higher personnel-related cost. We expect G&A expenses to be in the range of approximately $2.5 million per quarter in 2012. However, note that in addition, in the second quarter of 2012, there will be a $360,000 charge associated with stock compensation expenses for our independent board members.

Interest and other income net was $96,000 in the first quarter of 2012 compared to $184,000 in the first quarter of 2011. Foreign exchange gains and losses were the primary reason for this fluctuation. Income tax provision in the first quarter of 2011 was $97,000, due primarily to our international taxes related to our foreign subsidiaries.

As a reminder, we continue to maintain 100% valuation allowance for our U.S. deferred tax assets and our income tax provision is primarily related to our non-U.S. operations, as well as small amounts of minimum and capital base tax in the U.S. Therefore, going forward for modeling purposes, we suggest using an effective income tax expense of approximately $75,000 for the future quarters through 2012.

Turning to the balance sheet. Our financial position remained strong. As of March 31, 2012, we had $81.9 million in cash, marketable securities and long-term investments, but no debt. Our cash balance declined by $9.9 million this quarter which was due to $5.1 million of cash spent to acquire the Iridex aesthetic assets and $5.3 million of cash consumed by operations, due primarily to the income statement loss.

Net accounts receivable at the end of the first quarter was -- of 2012 were $4.5 million and our DSOs were 26 days. Inventories at the end of the first quarter of 2012 were $13.4 million and our inventories are turning approximately 3x per year which is in line with our previous inventory turns. Inventory increased $2.7 million when comparing March 31, 2012 to December 31, 2011. $1.6 million of the increase is due to the Iridex asset purchase, the other $1.1 million was related to inventory buildup, primarily for our increased Excel V volume and the planned launch of TruSculpt. We don't expect any more inventory growth this year.

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

Kevin P. Connors

Thanks, Ron. As we enter the second quarter, we remain focused on the following key initiatives: one, continuing growth from recently launched products, GenesisPlus into the podiatry specialty, and other physicians -- categories, and Excel V into the core market; two, integration of Iridex's aesthetic products and service business which we believe will result in revenue growth and incremental profits; three, launch of our TruSculpt product with revenue shipments commencing in the third quarter of this year; four, expansion and continued productivity improvements of our North American sales team driven by the formation of a direct sales team targeted at the podiatry market; five, continued focus on our research and development efforts to enable new product launches in the future, as well as build on the clinical support of our existing products.

With appropriate swift execution to these important initiatives, we remain focused on expanding our global business and leveraging our operating expenses, which should result in improved operating performance. We believe that our worldwide distribution network, strong cash position, no debt and expanding portfolio of products offer continued long-term opportunities for Cutera.

Now I'd like to open the call for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Tom Gunderson with Piper Jaffray.

Michael A. Dinerman - Piper Jaffray Companies, Research Division

This is actually Misha Dinerman for Tom. Can you tell us if there's any noticeable seasonality in the podiatrist sales? And if we should expect any in the future?

Kevin P. Connors

We, as you know, we got our FDA clearance for this indication in April, so we're still fairly early in the cycle with this application. But with that said, we still see tremendous opportunity in podiatry. We're doing some things with our sales organization to now create a podiatry specialist within the sales team, and with the TruSculpt coming and Excel V being launched, we really believe we got a full portfolio of products and it's important for us to have specialists that can give us the focus that we need in some of these exciting categories.

Michael A. Dinerman - Piper Jaffray Companies, Research Division

Okay, great. And then just one more question. As far as the launch of TruSculpt x U.S., particularly Asia, do we have any timelines for that?

Kevin P. Connors

Well, we will have a global launch, but we'll primarily be focusing on the domestic or North American market early on, but we are taking orders for it globally today.

Operator

Our next question comes from the line of Morris Ajzenman with Griffin Securities.

Morris Ajzenman - Griffin Securities, Inc., Research Division

Top line improving, which we all want to see, we've talked about it in the past, but gross margins, I understand you need to get to a certain inflection point, probably in the upper teens would have, until you start approaching breakeven depending on the mix. But we understand also, Iridex' low gross margins, and maybe you can kind of give us a ballpark on what the gross margins are there, but do you expect to see gross margins improving throughout the year, where at some point, we could be at a -- at least on a pro forma basis at breakeven or possibly earning money?

Ronald J. Santilli

Yes, Morris. This is Ron. With regard to gross margins, you're right. Our gross margin for the quarter was only 50%. But it's around 54%, if you were to pull out the Iridex aspect of that. Now it's actually negative for the quarter because we're in a start-up phase. So that clearly, is not a reflection of the ongoing rate. And our expectation for the remainder of 2012 is that the gross margins on a consolidated level with the Iridex numbers, will be in the range of 55% to 59%. So we certainly expect -- this 50% is not an ongoing rate that we would expect.

Morris Ajzenman - Griffin Securities, Inc., Research Division

No-- and I understand that. You said that during the presentation. I guess, what I'm getting at, if you get to the upper 50% range -- and again, I'd like to just get a handle on what the gross margins are on Iridex, but in the upper 50% range, would we be earning money on a pro forma basis?

Ronald J. Santilli

Certainly. We believe that in those upper 50% gross margin range, depending on the revenue level, we can get to above breakeven where we are earning an EPS positive basis.

Kevin P. Connors

And Morris, to add more color to that, we have a faith integration with Iridex, where we'll have full vertical integration of all manufacturing processes. We anticipate somewhere by mid-year, that we have a manufacturing agreement with Iridex, for some part of the manufacturing, we think, will have improved product margins once we bring that in-house. And Ron, I think tried that layout. For modeling purposes, some target gross margin levels, as well as what we anticipate expenses looking like going forward. So you should have enough there to figure out where the breakeven point is.

Operator

Our next question comes from the line of Anthony Vendetti with Maxim Group.

Anthony V. Vendetti - Maxim Group LLC, Research Division

You mentioned that one of the strengths was some of the international operations, including Canada, Japan, Australia. Can you talk about Europe, because most of the companies that have reported so far have said that Europe's been weak, particularly Greece and Spain. What are you seeing in Europe? And then I just have a few follow-ups.

Kevin P. Connors

Well, with -- not just the recent times, but for the last year, we've had our challenges in Europe. We believe that one of the things with the Iridex opportunity was that the direct operation that they have. In France, they have a very strong aesthetic business as well as a service business. And so we're excited to invest in that. But yes, we have had our challenges there. Greece was never a major market for us. And we've also struggled with Spain as well. So we're doing what we can to maintain our expenses and control them, and during a difficult time. But we are excited to have a real nice franchise in France, as well as a -- we have a very nice installed base in the U.K.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Your international headquarters for selling, I guess, and distribution in Europe, is still -- is that still in Zurich?

Kevin P. Connors

No, we are -- as part of the integration of Iridex, we are shifting that to France. That will be our hub. And then of course, our office in Tokyo is our hub for our Pacific Rim business.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Okay. And then in terms of the Iridex start-up costs for this quarter, should we, in our model, look at that as falling all in G&A, or did, Ron, did that fall off through some of the other expense lines?

Ronald J. Santilli

It actually fell into a variety of lines. $559,000 of it did fall into G&A, which is truly non-recurring. Then there's a variety of other expenses and revenue which had a net loss of approximately $500,000 for the quarter, that was just efficiencies as a result of just getting the -- getting integrated at post closing on February 2.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Okay, did you want to break that out and what lines that was in? Or do you have that handy?

Ronald J. Santilli

Well, we aren't breaking out that level of detail. We are talking about it being in the $1.1 million combined level and $559,000 falling into G&A. But the others are in a variety of areas that we aren't getting into that level of detail with.

Anthony V. Vendetti - Maxim Group LLC, Research Division

Okay, okay. And I guess, Kevin, you talked about sales. You're at 32 sales territories right now. You said 39 by the end of the year, including 10 in podiatry. Is that correct? And how many of the 32 right now are podiatry?

Kevin P. Connors

Well, first of all, on the last quarter call, we said our target was expanding and then we're talking of, by the end of the year or sooner. So we're -- as I alluded to in the earlier question, we are building a podiatry specialty sales force within the North American team, and a number of them are on board now. I don't have this week's figure, but it's probably at least 5 or 6.

Operator

[Operator Instructions] Our next question comes from the line of Larry Haimovitch with HMTC.

Larry Haimovitch

Forgive me, I'm not on a very clear line, and Ron, I missed a couple of metrics I wanted. I didn't catch what the contribution of Iridex was in the quarter, or maybe asked a different way. What was the apples to apples growth in Q1 over last year, just with the base Cutera business?

Ronald J. Santilli

In terms of -- well, let me answer the question more easily on the Iridex side. What it contributed for the quarter was $559,000 of non-recurring expenses, that fell into our G&A line. And then there was another $500,000, approximately, of other net contribution. That's revenue less cost and other expenses associated from -- in the quarter that basically occurred from February 2, the date of close, through March 31.

Larry Haimovitch

So Ron, if I take away the Iridex transaction completely, what would your sales have been? I'm trying to get an apples to apples, to understand what the organic growth or organic sales was for the first quarter over last year's first quarter?

Ronald J. Santilli

Got it. I understand the question now. Okay. Iridex contributed $640,000 of revenue for the quarter. So it was just $640,000 from [indiscernible]. So that would have made the Cutera revenue $15.1 million.

Larry Haimovitch

Which is still a very healthy increase. We're still into the very high 20s, probably. I haven't done the math, but it looks like it's still a very, very healthy increase.

Ronald J. Santilli

Correct. Correct.

Larry Haimovitch

Okay, the second question is and, again, I know you said it, forgive me for going over this again. I thought you said that you expected the Iridex quarterly revenue, now that you have it for a full quarter beginning obviously in Q2, to be running at above the $2 million end at quarterly rate. Did I catch that right?

Ronald J. Santilli

That's correct.

Larry Haimovitch

Okay, and that's a little less than -- it's a nice number obviously, considering you paid a very modest price for it. But I'm just curious because I thought when you acquired the business, it was running at -- I thought I remembered, roughly $11 million in sales. At least that's what I seem to remember from the press release. Did I do something different? Or is it just that you've pruned the product line a little bit or...

Ronald J. Santilli

You got that right. It's a more of a pruning of the product line. They were running higher, and clearly our goal was to do higher than $2 million per quarter. But the $2 million is primarily driven for us, that is that service business, the VariLite product line which we've is taken on, and a lot of the cross-selling opportunity that we've now acquired. But remember, they were also selling things like Dalera [ph], oral products, the older laser scope products which we no longer are [indiscernible] in the marketplace. We will continue to service those customers, but we are not offering those product sales.

Larry Haimovitch

Okay, so Ron if I understood you correctly, what you just said is effectively, we've trimmed the product line, to only sell what we really want to sell. We're letting go some things. And the true expected annual rate of sales is $8 million a year or $2 million a quarter?

Ronald J. Santilli

That's our commitment at this time. You're exactly right. But the business itself was running at a higher revenue level, which doesn't mean that isn't an opportunity for us.

Larry Haimovitch

Sure, sure. And then maybe this is for Kevin rather than you, Ron. Kevin, you thought there were some opportunities and sort of cross-selling and the fact that you'd be getting into a bunch of Iridex accounts that perhaps Cutera sales reps were not having as easy a time with. Have you seen any evidence that, that synergy of cross-selling, et cetera, is working for you in the sales force?

Kevin P. Connors

The early signs are positive, Larry. They've got an extremely large installed base and we've got the service connection with them. And we've already had a large number of Iridex customers approach us about trading in their equipment or getting into with the Cutera Excel V and other products. So -- and that also extends to key opinion leaders in the core. And many of them are now asking to explore getting into the Excel V technology. So that was part of the strategy. We still see opportunities such as trading and having a used equipment business in the market. It gives us a different price point. And the economics are favorable for us to explore that kind of thing. So, the real answer is that this is a new business. We are hopeful that the synergies exceed what Ron has communicated. But in terms of setting expectations, with investors, we want to be just a little cautious with that.

Larry Haimovitch

Yes, so you're basically just being conservative and cautious and not wanting to -- not wanting to stick your neck out too far, so to speak.

Kevin P. Connors

No, and I also think, another factor is that if you look at the way we manage our business from an accounts receivable perspective, we're the most conservative. Well, I see that we're on the conservative line of the spectrum in our industry. And so there is a -- at company to company, there's a different views on how to look at revenue recognition. And so, there's -- probably, one way of looking at that, is that the -- there's a bit of a time shift for us to apply our principles to the way we transact our business.

Larry Haimovitch

Yes. I do have one more question. I don't know if there's a queue, and I don't want to hog the line. I'll be happy to jump back in queue, if there is, if you think it's okay to ask another question, I will right now. You've seen Liposonix and [indiscernible] off to a very, very nice start with their fat reduction product. You're entering the market now. I know you probably don't want to give specific guidance, but it looks like this is a market that's got plenty of room to penetrate and grow. Any thoughts about, their success and how big the market is, and is the market bigger and maybe faster-growing than many of us thought?

Kevin P. Connors

Well, it's an exciting market. I think that the growth is pretty explosive from what we're seeing from our publicly-traded companies that are in that space. And we're certainly excited to get our technology in the marketplace. So all indications that I'm seeing are probably what you're looking at, Larry, and it has us very encouraged about the demand for non-invasive therapy like this.

Larry Haimovitch

Yes. So it looks like the market's got a lot of strength and that this should be a very, very good opportunity for you?

Kevin P. Connors

Well, the interest in the marketplace has been extremely high, so we're excited.

Larry Haimovitch

And I'm sorry I missed it. I know you talk about TruSculpt. Are you actually shipping product now or will you ship this quarter, Kevin?

Kevin P. Connors

It's -- we've -- there is an outside chance that it's at the very end of the quarter, but in the script we indicated that, that will be next quarter. And in the last quarter call, we said that we anticipated the revenue contribution largely being in the second half. So let's [indiscernible].

Operator

Our next question comes from the line of Morris Ajzenman with Griffin Securities.

Morris Ajzenman - Griffin Securities, Inc., Research Division

Just another kind of follow-up, a little different than the previous question on gross margins. Again, revenues clearly have -- you're really getting traction there. And you even stated, even excluding Iridex, you were at about $15 million revenue run rate or thereabout versus $11.6 million a year ago. Again though, exclusive of Iridex charges, you had a loss of $0.30 on a GAAP basis. That was up $0.02 from the loss of $0.28 a year ago. Revenues were up materially. Is -- should I construe that as just investment in -- getting up and ramping on new -- on the product instructions, what is it -- and again, you touched today, on mix of business, but x Iridex, revenues are up a lot but GAAP earnings, a loss actually increase some. What's the best sort of summary to that?

Ronald J. Santilli

Yes, I think you're right. There's a couple of different things there. First one is, the business is ramping up. And so we are -- Q1 is seasonally the -- one of the lower quarters of the year. And so a lot of our operating expenses are ramped up for that higher level. So you're seeing that in your Q1 of 2012. In addition to growth on the gross margin, we did have some unfavorable mix shifts for the quarter for -- on the Cutera line, excluding Iridex, which may or may not continue and will drive gross margins higher. So those 2 different factors could have a very different impact on the net income on a similar revenue basis. But going forward, clearly, we expect some revenue growth, as we've been experiencing significant revenue growth in the past 4 quarters. And I think the industry itself looks like it's growing fairly significantly now. So we're ramped up for that.

Operator

Mr. Connors, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Kevin P. Connors

Thank you for participating in our call today. We'll be attending a number of investor events in the coming months. And we'll update you on our business progress in our second quarter call, the conference call in August 2012. Good afternoon, and thanks for your continued interest in Cutera.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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