Cutera, Inc. Q4 2007 Earnings Call Transcript

Feb.11.08 | About: Cutera, Inc. (CUTR)

Cutera, Inc. (NASDAQ:CUTR)

Q4 2007 Earnings Call

February 11, 2008 5:00 pm ET

Executives

John Mills - Investor Relations

Kevin Connors - President and Chief Executive Officer

Ron Santilli - Chief Financial Officer

Analysts

Tom Gunderson - Piper Jaffray

Phil Nalbone - RBC Capital Markets

Anthony Vendetti - Maxim Group

Dalton Chandler - Needham & Company

Jose Haresco - Merriman Curhan & Ford

Operator

Good afternoon ladies and gentlemen, thank you so much for standing by and welcome to the Cutera Inc. fourth quarter 2007 conference call. At this time all participants are in listen-only mode. Following today's presentation, instructions will be given for the question and answer session. (Operator Instructions).

I will now turn the call over to Mr. John Mills, please go ahead sir.

John Mills - Investor Relations

By now everyone should have access to the fourth quarter and full year 2007 earnings release, which went out today at approximately 4:00 pm Eastern Time. The release is available on the Investor Relations portion of Cutera's website at Cutera.com and with our Form 8-K filed 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 the planned improvements from our distribution network, long term domestic and international growth opportunities and strategies, future spending on various aspects of our operation, success of our recently launched Pearl product and the development and acquisition of other new products and applications, and their anticipated introduction dates, and increase in market share.

Also, management may make additional forward looking statements in response to your questions. Factors that could cause Cutera's actual results to differ materially from these forward looking statements include: its ability to improve sales productivity and increased sales performance worldwide; the length of its sales cycle process; its ability to successfully develop and acquire new products and market them both to its installed base and new customers; unforeseen events and circumstances relating to its operations; government regulatory actions; general economic conditions and as other factors described in the section titled Risk Factors in its most recent 10-Q filed November 5th, 2007 with the Securities and Exchange Commission. 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 speaks 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.

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

Kevin Connors - President and Chief Executive Officer

Thank you, John. Good afternoon everyone and thanks for joining us today to discuss Cutera's results for the fourth quarter and year ended December 31, 2007. On today's call, I'll provide an overview of our results and then Ron Santilli, our CFO, will provide additional details on our operating and financial results. Finally, I will provide some closing comments and open the call to your questions.

Our revenue for the fourth quarter of 2007 was $26.5 million or 13% lower than the $30.5 million reported in the fourth quarter of 2006. Revenue for the full year of 2007 grew by 1% to $101.7 million from $100.7 million reported in 2006. US revenue for the fourth quarter of 2007 was $15.4 million or 27% lower than the amount reported in the fourth quarter of 2006. For the full year our US revenue was $64.1 million or 8% lower than the amount reported in 2006.

2007 was a transitional year where we made significant investments in our business, which included the restructuring and expansion of our North American direct sales force, and increasing our North American sales management team to help train and manage the sales force expansion and position us for future growth, and expanding our product portfolio with the introduction of our Pearl application.

Shipments of Pearl is part of a multi-application system to new customers, and as an upgrade to install base, commenced in June 2007. We mentioned during our third quarter call that we are disappointed with the new system sales that included Pearl. We are now pleased to report that during the fourth quarter the Pearl application accounted for a greater portion of our new system orders. We are continuing to receive positive customer feedback in clinical results and have additional clinical studies underway. We expect that Pearl will become an even more important part of our product offering 2008 and beyond.

Now I would like to discuss the decrease in our US revenue. As noted on our third quarter conference call, we believe that domestic growth rate in our industry has slowed, which has led to a challenging environment for our new and re-structured North American sales organization. However, we now have in place a seasoned sales team and are pleased with the level of talent of our new sales hires. We ended the year with 60 sales territories throughout North America and don't have any expansion plans until we see signs of improved productivity. We will remain focused on improving North American sales performance in 2008.

Our relationship with PSS strengthened in the later half of 2007, they accounted for approximately 14% of our sales for the year. We are pleased with their continuing significant contributions to our revenue and are encouraged about our growth opportunities for PSS. We remain focused on important relationships into - on this important relationship in 2008.

Our international revenue for the fourth quarter and full year 2007 grew by 19% and 22% respectively when compared to the same period in 2006. The growth and revenue primarily came from sales to Australia, Japan, many European countries and Latin America. From the past few years, we've made significant investments in international markets.

Specifically in 2007, we had new sales and services people to our international subsidiaries, appointed new distributor and expansions geographies, open a second office in Japan, and obtained regulatory clearance to market our new product, our new Pearl product abroad

Our long-term strategy is -- half of our business comes from outside the United States. We believe that our continuing investment in international market positions us to continue growing international business in 2008 and beyond.

We are continued to generate cash from operations demonstrating the strong fundamentals of our business model. We ended the year with approximately $107 million in cash or $8.35 for outstanding share and cash and marketable securities with no debt. This $107 million figure is net of $25 million stock repurchase program completed earlier in 2007.

We are continuing to see high demand for our product sales outside of the core specialties. During the fourth quarter of 2007, approximately 30% of our sales orders came from traditional dermatologists and plastic surgeon specialties. The rest of the fourth quarter 2007 orders came from the non-core specialties, including 28% from family practitioners, 12% from OB/GYNs, 11% from other physicians, and 19% from MedSpa businesses.

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

Ron Santilli - Chief Financial Officer

Thanks Kevin, and thanks to you all for joining us today on our fourth quarter in full year 2007 conference call. Before I begin, please note that all of our historical financial performance data are expressed in GAAP numbers. In addition, to supplement the GAAP numbers we have provided non-GAAP net income and non-GAAP diluted income per share information that excludes the after tax impact of all stock based compensation expense.

We believe that this non-GAAP information provides with you an insight to conduct a more meaningful and consistent comparison of our ongoing operating results and trends, compared with historical results. A table reconciling the GAAP financial information to the non-GAAP information is included in our earnings release.

Beginning with our first quarter 2008 earnings release, we plan to provide only GAAP information since stock based compensation will be included in the historical 2007 numbers thus providing you with a meaningful and consistent comparison.

Fourth quarter 2007 revenues was $26.5 million, a 13% decrease when compared to the $30.5 million for the fourth quarter of 2006. Revenue for the full year 2007 was $101.7 million, a 1% increase from $100.7 million in 2006. Net income for the fourth quarter of 2007 was $3.6 million or $0.27 per diluted share.

Non-GAAP net income for the fourth quarter of 2007 was $4.3 million, or $0.32 per diluted share. Net income for the full year of 2007 was $10.5 million, or $0.74 per diluted share, non-GAAP net income for the full year 2007 was $14.2 million, or $1 per diluted share.

The difference between GAAP and non-GAAP net income and EPS represents the after tax impact of the non-cash stock based compensation expenses recorded in accordance with FAS 123R, which was $1.3 million in Q4, '07 and $5.6 million for the full year 2007.

Product revenue for the fourth quarter of 2007 decreased 27% when compared to product revenues for the fourth quarter of 2006. This is primarily a result of lower product revenue in US.

The adoption rate for Pearl by new customers, improved in the fourth quarter 2007 compared with the third quarter of 2007. Pearl is gaining traction in the market and we expect sales of new systems with the Pearl application to continue increasing and we further fully develop our clinical support, build our reference sites and educate the market.

Upgrade revenue for the fourth quarter of 2007 was $3.5 million, representing a growth of 104% when compared to upgrade revenue for the fourth quarter of 2006. This growth continues to be driven by the Pearl application as our existing customers continue to show interest in this new technology.

Service revenue for the fourth quarter of 2007 increased 59%, to $2.8 million when compared to $1.8 million in the fourth quarter of 2006. We expect this revenue growth to remain strong as our installed base continues to increase and customers utilize our services to maintain their products after the initial warranty periods expire.

Titan resale revenue for the fourth quarter of 2007 increased by 24% to $1.3 million, compared to $1 million in the fourth quarter of 2006. Titan remains a popular application that is sold on a maturity of our Xeo systems.

I will now address our operating performance. Our gross margin in the fourth quarter of 2007 was 63%, compared to gross margin of 73% in the fourth quarter of 2006. Our full year of 2007 gross margin was 66%, compared to gross margin of 70% in 2006. The decrease in gross margins for the fourth quarter was mostly due to lower than expected revenue.

Historically the fourth quarter is our strongest revenue quarter of the year. However, our fourth quarter of 2007 top line did not allow us to properly leverage against our operating expenses. In 2008 with quarterly revenue of $26.5 million, we'd expect our gross margin to remain at approximately 63% and to increase at higher levels of revenue.

Full year 2007 margin was also impacted by the royalty expenses associated with our patent licenses, which we incurred through all of 2007 and for only three quarters in 2006. Our royalty rate continues to be approximately 4% of total revenue per quarter.

Sales and marketing expenses for the fourth quarter of 2007 were $9.4 million or 36% of revenue, compared to $7.9 million or 26% of revenue in the fourth quarter of 2006. The increase in expenses in Q4 '07 in absolute dollars was due primarily to expenses associated with our worldwide sales force expansion. The increase in expenses as a percentage of revenue was due primarily to a lower productivity of our North American sales force.

Research and development expenses in the fourth quarter of 2007 were $1.7 million or 7% of revenue, compared to $1.9 million or 6% of revenue in the fourth quarter of 2006. We intend to increase our investment in this area in our continuing pursuit to develop new and innovative products and applications.

General and administrative expenses for the fourth quarter of 2007 were $2.7 million, or 10% of revenue, compared with $3.6 million, or 12% of revenue, in the fourth quarter of 2006. The decrease in G&A expenses in the fourth quarter of 2007, compared with the fourth quarter of 2006 was primarily due to non-recurring expenses incurred in Q4 2006.

Our effective income tax rate for the fourth quarter and full year 2007 was 6% and 24% respectively. The rate in Q4 '07 was significantly lower than we had expected due to the lower than expected pre-tax profit for the full year of 2007.

There is uncertainty in the projected tax rate for 2008. It will vary, based on the projected revenue, the resulting profit before taxes and whether the US Congress ratifies the Federal R&D tax credit beyond 2007. For modeling purposes we suggest using an effective tax rate of approximately 30% for 2008.

Turning to the balance sheet, our financial position and cash flows from operations continues to remain very strong. As of December 31st, 2007, we had approximately $107 million in cash and marketable securities. This represents approximately $8.35 per outstanding share.

For the fourth quarter and full year 2007, cash generated by operations was $5 million and $16.9 million respectively. Net accounts receivable at the end of the fourth quarter of 2007 was $10.7 million and the DSOs were 37 days. Our DSOs continue to remain among the best in the industry and within our target of 35 days to 45 days, due to thorough credit, check, approval process and strong collection efforts.

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

Kevin Connors- President and Chief Executive Officer

Thanks Ron. 2007 was a challenging year for Cutera, as we experienced solid growth rates in the domestic market. We however remain confident of the opportunities in our industry, and our business, and I believe the worldwide market for laser and light based aesthetic equipment will continue to grow in 2008 and beyond. We made significant investments in our business during the year, including the restructuring and expansion of our North American sales organization and expect to leverage that team in the coming years.

We have continued to experience solid growth in our international business, both through our direct sales and our expanded distribution network. And we remain excited about Pearl's significant potential, as evidenced by its continued market acceptance. We believe that, as we continue developing clinical support and educate the market about the benefits of Pearl over competing technologies, we can further improve our performance in the skin rejuvenation market. We have one of the most diverse product lines in the industry and understand the importance of innovative product launches. Later this year we plan on introducing a new product, which historically, has always provided us with a strong catalyst for growth.

We enjoy healthy operating margins, generate positive cash flow and manage a strong balance sheet, with $107 million in cash in marketable securities with no debt. And the most valuable asset is even shown in our balance sheet, it's our employees. I would like to take this opportunity to thank our employees, our partners worldwide for their continued loyalty, dedication and valued contributions. We are all committed to make Cutera the leading global provider of laser light based aesthetic equipment. And believe we have the necessary improvements and develop the appropriate infrastructure to achieve higher performance in 2008.

Now I would like to open the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen at this time we will begin our question and answer session. (Operator Instructions).

Our first question is coming from the line of Tom Gunderson with Piper Jaffray. Please go ahead.

Tom Gunderson

Hi guys. I think investors are mostly concerned about the current economic environment, what the consumer is doing etcetera, and the connect the dots [here] is that, if the consumers are spending less on elective products if you will, then doctors are less likely to buy capital equipment. I am not sure if that's a correct equation, I think in tough times they might want to get extra income in from something like a laser, but that's currently the worry. Can you give us Kevin any – you're taking to sales guys, you're talking to customers, you're out in the field. Can you give us a sense of the way they buy, the purchase equation may have changed over the last three or six months?

Kevin Connors

Sure Tom. Well first of all I think this is a phenomenon that we believe is isolated to the US market. We are continuing to see lots of strength, signs of strength in our international business and don't anticipate that changing any time soon from what we can see here today. The business model that these products represent for doctors continues to remain compelling, the ROI is one of the strongest tools that we have to present this equipment to doctors and they will recognize so they can generate incremental revenue for the practice. And in someway it's a defensive move for doctors that are seeing pressure in other parts of the practice.

What we've seen in the past is that new applications have been a strong catalyst for growth, and I think we are looking to extract more from the pro-opportunity, and we think it is important for us to have some new applications in the future and we look forward to having something to talk about later in the year, but with all that said, we still think the US market is growing, it's just that the growth is probably half of what it was about a year ago.

Tom Gunderson

And the Docs, that either you are getting indirectly through the sales force or directly through your conversations there, their views of the market out there?

Kevin Connors

Well we get a mixed bag of comments, I think, a lot of the physicians are just more jittery now about making a major [capital] equipment purchase, but we think that from the discussions we've had with the customers that they certainly aren't turning off these purchases, and if we look at the growth rates and the overall market it supports that the US market is growing, it's just at a cooler rate.

Tom Gunderson

Okay. And then switching to the income statement. Ron, gross margin 63%, you attributed to lower sales, except in Q1 and Q2, you had $23 million and $24 million in sales, with higher gross margins. Is there any pricing pressure that would contribute to lower gross margin in Q4?

Ron Santilli

Not pricing, not pricing pressure per se. We had actually ramped up projecting a higher revenue base, and when we didn't realize that, that caused the depression in the gross margin in our fourth quarter. And you'll see that in the other Q4s of prior years, since it is such a big revenue period for us. We typically are ramped up and we were prepared for it at this year. And you can also see that in the inventory sides that had grown in the last quarter.

Tom Gunderson

But if we looked at, just simply if we look at cost of the good that you sold, were there any changes in parts of labor?

Ron Santilli

Not significantly, now

Tom Gunderson

So, we are talking about overhead?

Ron Santilli

Yes.

Tom Gunderson

Okay. Is there anything specifically that when you ramp up, that changes the overhead?

Ron Santilli

There is absorption issue that you would see in both manufacturing and service.

Tom Gunderson

Okay. And then Kevin just can you help us on the territories. I had 64 at the end of Q3, 56 US territories and 8 for PSS and now 60. Can you make that an apple-to-apples comparison for me?

Kevin Connors

Yeah. We ended up the year with the 60 numbers. So, we dropped up the four territories but

Tom Gunderson

But still have eight dedicate to PSS?

Kevin Connors

In that range of 6 to 8.

Tom Gunderson

Okay.

Kevin Connors

Yeah.

Tom Gunderson

Okay. That's it. I'll get back in queue, thanks.

Operator

All right, thank you. Phil Nalbone with RBC Capital Markets. Please go ahead with your question.

Phil Nalbone

Yes, good afternoon, Ron, let me take a sort of this, you've given us some tax line guidance for '08. Can you care to give us any other variables on the income statements for '08?

Ron Santilli

You know Phil it's difficult without the top line specific guidance which we're now providing. It makes it difficult to give the other guidance line. So at this point, we don't have any further guidance.

Phil Nalbone

What is it going to take Kevin for Cutera to grow its US business at a market rate of growth in '08?

Kevin Connors

Well that's exactly the question, we are focused on here. So, as you know, historically we have been able to exceed the market growth rate, especially in the United States for many years and '07 was an unfortunate departure from that trend. The things that we have done historically, that have made that achievable was to launch new applications. And we have been fortunate that we have been successful with those in the past and continued expansion of our sales organization across our support group. And we are sticking with those key initiatives as the guiding principles for 2008.

Phil Nalbone

You give us a vague timeline here, later in the year for a new product. Can you give us some sense for how much later and is there a major dating factor here, such as regulatory approval or validating the technology?

Kevin Connors

We are not going to get into it as much; we haven't even disclosed what we were working on with our sales organization. So, for those reasons it's important we keep that confidential. But we are hopeful to have revenue during the year from the new product launch.

Phil Nalbone

Okay. And will your ability to basically grow in line with the market depend on that new product launch?

Kevin Connors

Well I think, that's kind of the backdrop for the industry ramp, we have to constantly launch new products and so we try to launch a new product every year. And so, it's kind of in line with that. And historically that's been responsible for significant part of our revenue during the year. So, we are hopeful that we will get measurable contributions from that.

Phil Nalbone

Okay. Kevin at the AAD meeting we saw a lot companies offering product for the blade event of the skin rejuvenations spectrum, can you talk about that opportunity? And is Cutera prepared to address that at some point in the not too distant future; will there be a follow-on to Pearl, at that sector in the market?

Kevin Connors

Well we really don't want to tip our hand in terms what we've got going on in the lab and in our clinical work. But clearly we are continuing to see the skin rejuvenation market evolve, and I think more invasive therapies have become popular, and I think that's one of the things we learned from the product launches from our competitors at the meeting. So, we try to keep very-very close to the ground in terms of what the market trends are and respond to them accordingly.

Phil Nalbone

Okay. Kevin can you give us some sense for what your expected level of productivity is for North American sales rep over the coming year, the numbers would suggest about $250,000 worth of revenue per rep in the United States, during the most recent quarter. Can you comment on kind of the acceptability of that and where do you think we stand with the productivity of that 60 person group?

Kevin Connors

Well in past calls we've talked about productivity levels from senior sales people, people who've been in the company for nine months and more. And the numbers we've seen historically have been north a $1.5 million per rep, that's in that category. So, we don't see any thing out there today that gives us pause to reconsidered that. So, I think target of $1.5 million and higher is what we are striving to achieve.

Phil Nalbone

Okay. Thank you very much.

Operator

Alright thank you, Anthony Vendetti with Maxim Group. Please go ahead with your question.

Anthony Vendetti

Sure thanks. Good afternoon.

Ron Santilli

Hi, Anthony.

Kevin Connors

Hi, Anthony.

Anthony Vendetti

You had mentioned during the call that the adoption of the Pearl is improving from the new customers, because last quarter you said it sold well into your system customer base. What did you differently this quarter to get that interest level up for the new customers if any thing?

Kevin Connors

Well. We have been focusing on the Pearl rollout since, actually, before the shipment of the product back in June. But one other things that we focused on early on was to target the install base, so we can build a reference base. And so, we had promotion, that we talked about for the third quarter, actually for the second was shipments for that beginning in the third quarter. And so, getting a larger number of Pearl physicians was one of the key things that we attempted to do and we've been successful with that.

It was a very fairly fast development program, and so, lot of the clinical support elements have been coming. And we believe, that those tools are now in the hands of our sales force and we have more satisfied Pearl users out there. And that really helps the selling process. And not to mention our clinical research that we have underway as well.

Anthony Vendetti

Okay. And I know that you said that you're going to have a new product launch later this year. Was there any delay in this product since you didn't have any thing really new at AAD? Or is this just part of a cycle and it was just this particular product took longer?

Kevin Connors

Well. We were constantly working on a number of different programs in the research and development group. And we attempt to get things launched when we are ready to. The derm part of our business is relatively small part. So, in that sense the meeting isn't all that important to us, in terms of the portion that comes through dermatology. But we weren't prepared to talk about that at the meeting and so we look forward to being able to roll it out latter in the year.

Anthony Vendetti

Okay. And International revenues, Ron you mentioned up 19% and 22%. Can you go over which one of those was year-over-year and which one was sequential?

Ron Santilli

The 19% was the quarter-to-quarter for Q4 '06 to Q4 '07, and the 22% was for full year 2006 to full year 2007.

Anthony Vendetti

Of those year. Okay, got it. And, Okay lastly on the revenue number that you said for the gross margin, I know someone else had ask this question. But is there anything that you are seeing now that we are almost half way through the first quarter that leads you to believe that growth is still slowing in the US, or do you feel like it has trapped or stabilized here? Any sense for where things are at this point?

Kevin Connors

Well we are not prepared to talk about the first quarter at this point. But we are keeping very close with what we are earning in the marketplace and as you know, Anthony the sales cycle is really short in this business, 90 days is what we think, in most cases it been short in that. So we are trying to take as many cues as we can from what's happening in the marketplace, and we will manage the business accordingly. But, with that said, we still think we've got a market that's growing in North America and we have made investments in '07 that should put us in a very good position to capture that opportunity.

Anthony Vendetti

Okay. And just last question on Titan. Any color on Titan for the fourth quarter?

Kevin Connors

Well we were pleased with the 20 -- was the 24% growth.

Ron Santilli

Yes 24% quarter-to-quarter.

Kevin Connors

Yes. So and we are…

Ron Santilli

That's juts on the retail business.

Kevin Connors

Just on a retail business and it continues to be extremely popular application on the Xeo platform.

Anthony Vendetti

Okay, great. Thanks guys.

Operator

Well, thank you. Our next question coming from the line of Dalton Chandler with Needham & Company, please go ahead with your question Mr. Chandler

Dalton Chandler

Good afternoon. Just a quick follow-up on the gross margin question. You mentioned you had ramped up overhead in the anticipation of higher revenues. When the revenues did not come in did you dial that overhead back, so we could expect a return to the historical revenue gross margin relationship or did you leave that in place?

Ron Santilli

Well we ramped up our overhead in plans for having increased revenue, and that plan would continue into '08 as well.

Dalton Chandler

Okay. And then just also a quick follow up on the new product. Kevin you had mentioned that you hope to have revenue from it this year. I mean up here just being cautious but reading between the lines there that suggests like a late third quarter launch any further color on that?

Kevin Connors

As I said earlier Dalton, we haven't disclosed this to our sales force and so we are keeping it confidential. As we have with every product launch we tend to keep it pretty quite until we are ready to announce it.

Dalton Chandler

Okay. Well we still got two months before [ASMS], anything we should be looking for there? As you

Kevin Connors

Well I am sorry Dalton. We are not prepared to commit to that at this point.

Dalton Chandler

Okay. Thanks a lot guys.

Ron Santilli

Thank you

Operator

Well, thank you. (Operators instruction) Our next is coming from Jose Haresco of Merriman Curhan & Ford. Please go ahead.

Jose Haresco

Good afternoon gentleman.

Ron Santilli

Hi, good afternoon.

Jose Haresco

Could you give us some insight into how the leasing companies which still disproportionately find a lot of these leases, how they've react to the dire economic environment and lease flow in terms of how they are qualifying the doctor and the kind of [hoops] that they've made to see the docs jump further in terms of getting approved for a laser. Do you sense of the major changes, not just from your own capital leasing companies but from others that you watch from the periphery.

Ron Santilli

Jose, I think the largest change I see recently is the credit approval process for the non-physician. I think that got much more difficult. The doctor's situation assuming they have been in practice for a while and have the credentials typically still seems to be a fairly easy credit approval process. If you've got some blemishes credit record, that's a different story. But the doc situation doesn't appear to be as bad, it's the non-physicians that are getting tougher and tougher. Are you there Jose? Did we loose him?

Operator

Just one moment please. I am sorry Jose your line is reopened.

Jose Haresco

Okay thanks. Can you hear me guys.

Ron Santilli

Yes

Jose Haresco

Okay, when you say non-physicians are you referring specifically to MedSpa segment of the market?

Ron Santilli

Yeah I should probably say MedSpa as opposed to the non-physician.

Jose Haresco

Okay. When you look into the overseas market do physicians over there face similar types of hurdles when they sell into that market or do these distributors face similar types of hurdles in getting, I guess lease lines approved by your types of equipment. How should we think about the global market when it comes to risking and crediting and that type of thing?

Ron Santilli

Well, I think that they are going to have a similar risk profile, because they've have got to come up with the money to acquire the piece of capital equipment and they have to have the return of investment. Although we haven't seen a significant change there, as we have in the US market primarily for the MedSpa type environments, it might have already been a more sophisticated approach for the international markets because we haven't seen much change there.

Jose Haresco

Okay, last question. Do you guys have a sense of the penetration rate at this point at the end of '07 into both the core and the non-core market.

Kevin Connors

Well Jose, if we look at the global opportunity for our business, it represents about 500,000 physicians, and obviously we are talking about much larger physician groups in terms of plastics, OB/GYNs and family practice make up the lion's share of our business. And outside of the core specialties, I think it's safe to say that we are in low single digit penetration of that market.

Jose Haresco

Okay, great. Thanks.

Operator

And that concludes our question-and-answer session. Mr. Connors please continue, if you have any closing comments

Kevin Connors

Thank you for participating in our call today. We will be presenting at the Roth Conference next week. Look forward to meeting you at various investor events during the next quarter. Look forward to updating you on our progress on our first quarter conference call in May. Good Afternoon, thanks for your interest in Cutera.

Operator

Alright, thank you ladies and gentlemen this concludes the Cutera Inc. fourth quarter 2007 conference call. If you would like to listen to a replay of today's conference in its entirety, you can do so by dialing 1800-406-7325 or 303-590-3030 and input the access code 3829016. Those numbers again 1800-406-7325 or 303-590-3030, again the access code 3829016. Thank you for your participation, at this time you may disconnect. Have a very pleasant rest of your day.

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