Cutera, Inc.

Thank you for standing by. This is the conference operator. Welcome to the QTERRA Inc. fourth quarter 2022 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. The discussion today includes forward-looking statements. These forward-looking statements reflect management's current forecast or expectation of current aspects of the company's future business including, but not limited to, any financial guidance provided for modeling purposes. Forward-looking statements are based on current information that is by its nature dynamic and subject to change. Forward-looking statements include, among others, statements regarding financial guidance, regulatory approvals, productivity improvements, and plans to introduce new products and expand into additional geographies. For words that identify forward-looking statements, we encourage you to refer to the Safe Harbor Statement in our press release earlier today. All forward-looking statements are subject to risks and uncertainties. including those risk factors described in the section entitled Risk Factors in our Form 10-K as filed with the Securities and Exchange Commission and updated in our Form 10-Q subsequently filed. QTERRA also cautions you not to place undue reliance on forward-looking statements which speak only as of the date they are made. Futera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances, or to reflect the occurrence of unanticipated events. Future results may differ materially from management's current expectations. In addition, we will discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Katerra's ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the reconciliation of GAAP to non-GAAP measures in our earnings release. These non-GAAP financial measures should be considered along with, but not as alternative to the operating performance measures prescribed by GAP. With that, I would like to turn the conference over to Dave Mowry, CEO of Kuterra. Please go ahead.

Thank you, Operator. Good afternoon and welcome to Kuterra's fourth quarter and full year 2022 earnings call. We are glad that you can join us for this update. Rohan Seth, our Chief Financial Officer, is joining me on today's call. During the initial segment of the call, I will provide you with our view on the fourth quarter 2022 performance, as well as the underlying market fundamentals and other leading indicators of the health of our business. I will then pass the call to Rohan, who will provide you with greater detail on our financial results for both fourth quarter 2022 and full year 2022 periods, as well as share our initial full year 2023 financial guidance. Following Rohan's remarks, I will share our thoughts on the year ahead, the financial contributions of the AviClear product, and the associated business transformation we anticipate delivering over the course of 2023. Following our prepared remarks, we will turn the call over to the operator, who will then open the call to your questions. With that being said, let's dive right in. As a starting point for the call, I'd like to put our full year 2022 performance into perspective. During 2022, our team delivered strong top-line results with a mid-teens, full-year constant currency growth across the business with contributions coming from each geography in almost every product category. This performance came in the face of macroeconomic pressures, wavering consumer confidence, and material foreign exchange headwinds. Additionally, we successfully brought to market and scaled an innovative first mover energy based laser for the treatment of acne, which we believe increases our total addressable market by nearly two and a half fold. The AviClear device is and will always be the first FDA approved device for the treatment of mild, moderate, and severe acne across all skin types. Most critically, the clinical outcomes and patient safety profile from this signature procedure are unmatched. We remain convinced that this device will indeed change the way that dermatologists see and treat acne. Finally, we were able to see the green shoots of the financial transformation we intend to deliver through the novel AviClear business model. By approaching the acne market with a unique placement-based approach to AviClear, we have established a true collaboration that tightly aligns our interests with those of the clinicians and practice owners. In addition to the transformation of our customer relationships, we also expect AviClear to energize top-line migration to recurring revenues, expansion of gross margins, increased positive impact on EBITDA, greater linearity in our business, and a significant change in the trajectory of cash generations for QTERRA. I will provide additional commentary on the AviClear program later in this discussion. Turning now to fourth quarter 2022 performance. While revenue was lower than expected, we overachieved our AviClear placement expectations following its full North American launch announced in November of 2022. Top line shortfall in the period was driven by a miss on the North American core capital equipment sales. and to a lesser extent, North American core consumable product sales, both of which were directly impacted by the extent and volume of AviClear activity in the period, as key account managers focused on promoting, placing, and supporting the increased customer demand for AviClear. As previously disclosed, we are utilizing the same sales force to place AviClear and sell our core capital equipment. In fourth quarter 2022, the North American capital team focused its efforts on driving AviClear bookings and perhaps over-indexed some of their efforts. Following the full North American AviClear launch, strong underlying interest in AviClear quickly converted into customer demand that occupied our sales team throughout November and most of December. The higher than anticipated volume of deals diverted much attention away from routine processing of core capital deals and left a significantly shortened timeframe to close deals. when sales reps finally pivoted back to their core capital pipeline. Based upon our experience thus far with the AviClear launch, we believe that these efforts spent prospecting and closing AviClear deals would have translated into advancing approximately 100 to 120 core capital deals, which we estimate to have resulted in roughly $4 to $5 million of core capital revenue, some of which may still be recovered over the course of 2023. We have already taken action to address the root cause of our capital revenue shortfall in fourth quarter 2022. The underlying issues requiring attention are number one, sales rep activity and monitoring, and number two, sales commission and incentive structures. Following end of year closed activities, we went to work with the North American sales leadership team to understand these issues. And this has in turn resulted in the construction and implementation of an uncapped compensation program that rewards sales performance when it achieves goals in both the core and AviClear segments. Additionally, we have implemented activity tracking utilizing Salesforce.com application to help sales managers ensure that adequate time and attention are being applied by each rep across both segments. While these repairs may seem obvious, these are management oversights and they do not reflect upon the skills or capabilities of our North American sales force. As you will hear later in the discussion, the level of AviClear placements in the period confirms the quality and capabilities of this exceptional sales team. Now with data in hand, we are actively reviewing the sales activity at senior levels within the organization with the goal of leveraging this information to improve our sales processes. Meanwhile, our sales managers are delivering a strong accountability message that efforts must be applied across both segments. Additionally, our internal staff is scaling its support to ensure that the capital sales team can remain tightly focused on processing deals with their customers. Before turning the call over to Rohan, I would like to share our view of the markets as we look ahead to 2023. We believe that some macroeconomic headwinds are indeed present and that these will have an impact on our 2023 results. Nevertheless, we believe that these changes will not be long-lasting as underlying market feedback continues to highlight steady patient traffics. Additionally, our routine assessment of activity levels indicates well-booked practice schedules, reinforcing our confidence in the continued resiliency that we have seen over the past six quarters. With AviClear now in full launch, we can leverage what we believe to be a more recession resistant process and procedure to place products into areas that may be more impacted by macroeconomic factors. In the end, we expect to be able to leverage our core products, bolstered by some new product introductions, in combination with AviClear to deliver above market performance for the business. With that, Let me turn the call over to Rohan to provide some additional color on our financial performance and our fiscal year 2023 outlook. Rohan.

Thank you, Dave. As I review my prepared remarks, I want to note that I will be discussing some non-GAAP results. A complete reconciliation of GAAP to non-GAAP is included in our earnings release. We encourage listeners and readers to review our non-GAAP metrics in conjunction with the GAAP results as contained in this earnings release. Total revenue for the fourth quarter was $67.4 million compared to $65.6 million for the same period in 2021, representing an increase of approximately 3% on an as reported basis. During the quarter, we continued to face meaningful foreign currency headwinds, and our constant currency revenue growth was approximately 10%. Fourth quarter North American capital equipment revenue of $25 million decreased by 13% over the prior year. International capital equipment revenue for the fourth quarter was $17.4 million, up 18% as reported, and 27% in constant currency from the fourth quarter of 2021. Recurring revenue defined as our consumables, global service, skincare, and AviClear product lines was $24.9 million in the fourth quarter, up 13% as reported, and 29% in constant currency. The increase over the prior year was largely driven by skincare revenue of $11.8 million, up 10% as reported, and 37% in constant currency, and the continued ramp of AviClear, generating $3.2 million in revenue for the fourth quarter. This growth was partially offset by decline in consumable revenue, which came in at $4.2 million, down 22% as reported, and 18% on a constant currency basis. driven by AviClear account onboarding activities, diverting the attention of our sales team away from core promotional events. Our service revenue grew slightly at 2% on a constant currency basis. Non-GAAP gross profit for the fourth quarter of fiscal 2022 was $40 million, with a gross margin of 59.4%, representing an increase of 30 basis points compared to the same period last year. Excluding a more than 210 basis point impact from foreign exchange headwinds, the non-GAAP gross margin in the fourth quarter would have been 61.5%, an approximately 240 basis point improvement over the prior year. This was particularly impressive given the shortfall in North American capital revenue and highlights the transformation that AviClear is bringing to our business. Total non-GAAP operating expenses for the fourth quarter of 2022 were $39.7 million compared to $34.5 million for the same period last year. Included within this number are $6.7 million in expenses related to all these years. Non-GAAP sales and marketing expenses for the fourth quarter of 2022 were $26 million compared to $22.3 million for the same period last year. driven by continued expansion in our sales force, higher commissions, and increased travel. Non-GAAP R&D expenses for the fourth quarter of 2022 were $5.5 million compared to $5.6 million for the same period last year. Non-GAAP G&A expenses for the fourth quarter of 2022 were $8.3 million compared to $6.6 million in the same period last year, driven by expansion in our headcount and an increase in our bad debt reserve due to an increase in age receivables. This was driven mainly by the same Salesforce distraction that impacted core capital equipment sales. We expect this to largely be addressed over the next couple of quarters. For the fourth quarter of 2022, our non-GAAP operating income, which we refer to as adjusted EBITDA, was $0.2 million compared to $4.3 million in the prior year period, largely driven by FX advance, of more than $3.4 million and costs associated with the full North American launch of AviClear. Finally, there were no material or significant changes to our tax position. Turning now to our balance sheet. We ended the quarter with $317.3 million of cash and marketable securities compared to $250.8 million at the end of the third quarter. driving the $66.5 million sequential increase or $91.4 million of net proceeds from our December convertible debt raise, partially offset by $24.9 million of cash utilization, primarily driven by increased AviClear deployment. Before I turn the call back over to Dave, I would like to provide you with our outlook for the full year of 2023. We are issuing constant currency revenue guidance of $277 million to $292 million, implying 10% to 16% constant currency growth over the prior year. At current foreign exchange rates, we expect to eclipse these headwinds exiting Q2 23. We also expect adjusted EBITDA to be in the low single-digit millions with consistent sequential improvement as we progress through 2023. And we expect to continue to consume cash, primarily in the first half of 2023, as we continue to expand our AviClear footprint in the North American market, with a projected cash consumption of $55 to $65 million, greater than half of which will happen in Q1. By Q4 2023, we expect to achieve cash flow breakeven. As a reminder, our core business historically has consumed cash in Q1 and Q2 of the year. With that, I will now pass the call back over to Dave.

Thank you, Rohan. As noted in our earnings release earlier today, I was especially pleased in the period to see broad product acceptance of the AviClear device, as well as the corresponding customer demand enabling us to accelerate AviClear placements, which exceeded 600 units for 2022. Our team's relentless focus on leading with clinical results, providing increased support for practice adoption, and ensuring the delivery of improved patient outcomes in less time with a reduced patient risk profile is indeed resonating within the dermatology markets as well as with patients. We expect to sustain a placement rate of 200 to 300 AviClear devices per quarter and exit 2023 with greater than 1,500 AviClear devices in our active installed base. As part of our 2023 ObbyClear plans, we intend to increase our efforts in driving utilization with each practice. To date, we have been prioritizing our efforts on placements to fully leverage the first mover advantage we created through the execution of our product development, clinical, and regulatory functions. We also recognize that any incremental improvement in utilization applied across our growing install base will deliver a profound revenue and profitability impact in the long term, and we have initiated a coordinated effort to drive patient traffic. These efforts will build over the course of 2023 and 2024 and include indication expansion, continued procedure optimization, and an expanded patient outreach and awareness campaign. The results of AviClear placements and utilization ramp will ultimately lead to higher quality financial contributions. The nature of these contributions will sustain improvements across key metrics such as an increased mix of recurring revenue, expanded gross margins, increased adjusted EBITDA, greater linearity and visibility in our business, and finally, sustainable positive cash flow exiting 2023. These desired state performance contributions and financial profile transformations are just around the corner. as we continue to accelerate our AviClear program. Now, we will open the call to your questions. Operator?

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then two. Our first question is from John Block with Defo. Please go ahead.

Great, guys. Thanks. Good afternoon. I'll start with North American capital. 4Q22, Dave, as you said, it was difficult. You're making changes, right? You're augmenting the sales force. You're changing incentives. I think you have some new capital products, but those are arguably later in the year. So I get that you don't like to give specific quarterly guidance but considering those changes and again the new products that i don't think are one two events can you just help us out a little bit you know directionally on the thoughts of the waiting specific to capital if you would for 2023 as much as many details as you want to provide and then i'll ask my follow-up thanks yeah thanks john um uh and thank you for the question listen i think that the way to be thinking about capital in the first quarter

of 2023 is just like every other year, this is generally the seasonally low quarter for capital placement and sales. And I think we would expect to see that again this quarter. I think that some of the deals that we maybe had in the pipeline may still continue to push through and we may see some artifact of those in first quarter, but I'm actually thinking those will probably bleed out mostly over the first half and not just the first quarter. I do think that there is some degree of, I'll say, macroeconomic perceptions out there that have people hesitant, slightly hesitant, but I don't see any telltale signs that we think that patient spending will significantly be off or down. In fact, our information continues to show good, steady patient traffic at the majority of our customers, and we're not seeing anything that suggests that these things are long-lasting, but other than maybe just a near-term perception and concern of the customer. So while I think they may create a little bit of a shadow in the first quarter, I think we'll outrun that quickly in terms of those concerns. And I think over the long term, we would expect the capital in 2023 would follow a very similar seasonality that we've seen historically.

Okay. Got it. Thanks for that. Very helpful. And maybe just to pivot my second question for AviClear, the systems of two to 300 per quarter is helpful, but not sure if you want to comment on a $30 million-ish revenue number for AviClear for 2023. And any thoughts just on cohort data, Dave? I mean, I know these things take a little while to ramp, but, you know, approved in March, and maybe if you look at the 160 systems or so that were placed as of the end of September, you know, how are those ramping from a utilization perspective? How long does it take to really get these things up and running? So really those two items, the revenue number and anything from a cohort perspective that you're willing to comment on. Thanks.

yeah thanks john i think first of all it's most important that the listeners are aware that depending on where the device placed is placed in which type of practice does have some impact on the speed of uptake number one but then secondarily on the sustainability of that volume what we have seen with med derms in particular is a much slower uptake up front because of practice behaviors and It's tough to kind of re-engineer and rewire the practice for something that doesn't take seven minutes as I move from room to room in diagnosis. So being able to accept that into the practice takes a little bit more work. That being said, they're also very clinically driven, and they want to see some results before they broadly adopt across their practice. So we see them slow to adopt, slow to change, but they have a lot of patients and they have the ability that once they get convinced to move to a more greater utilization in the longer term. Contrast that with, we'll say, an aesthetic derm that may have a couple of patients right now and is willing to maybe be a little bit more aggressive in the placement and use of the device, but they're not actively recruiting or sourcing patients for acne at quite the same rate that the med derm is. So we see them burning through some patients and then having low periods. So I think each are very different. But to answer your question, we certainly see that the aging of med derms in particular leads to higher utilization over an extended period of time of a couple quarters. And we see that the aesthetic derms, once they get into the habit of recruiting and refilling, if you will, their patient pool, they get to an established run rate as well. And those are both increasing over time.

I'm sorry, in just the $30 million number that I threw out for AviClear, just any thoughts on that? Thanks.

I was conveniently avoiding that because we aren't giving AviClear financial guidance. But, look, I think there's a number out in the street, and I think we understand what that number is, and I don't think it is overwhelmingly scary to us. However, we know that we have our work cut out for us.

Thanks for the time, guys. The next question is from Margaret Caktor with William Blair. Please go ahead.

Hey, good afternoon, everyone. Thanks for taking the questions. I wanted to follow up maybe on the series of adjustments that you guys talked to, both on the capital side as well as on the CAM side, improving quality of leads, commission structure, et cetera. So when did those changes get implemented? Can you give us any sense or metrics now that maybe you're a few weeks into these changes, whether you think it's having traction or is it just going to take a little bit more time given kind of the weight of capital sales to the last month of the quarter?

Great. By the way, Margaret, thank you very much for the question. I would start by just saying that there's two different elements that we have put in place. The first is an uncapped commission structure that significantly weights towards performing well in both the AVI segment as well as the core segments. And I think that's generally going to have an immediate impact and more dramatic effect on people's use of their time and how they apply themselves over the period. So I think that's probably a little bit more of an immediate change and probably get rolled out much more effectively in February as we had our national sales meeting. So I think that that will have the desired effect on time and sharing time. The other element is actually monitoring time and attention of our sales reps so that we can actually see what's the outcome and output of different processes, how many calls they're taking, how many meetings they're setting up, et cetera, et cetera. And the intent is not to micromanage reps, but rather notice and identify patterns and coach to best practice, if you will. with that data. And I think that's going to probably take a little bit more time to coalesce into process improvements and process changes. However, I think what we will see early is just kind of from the Hawthorne effect of a manager looking at what's happening with their rep, they'll get probably a little bit more activity on certain areas that they want to have focus. So while I don't think we're going to see process improvements, probably until really towards the end of this quarter, early next quarter, I do think we may see some increased focus and attention being spent nonetheless.

Okay. That's helpful. And, you know, I guess just to follow up even further on that point, you know, obviously we've seen a big increase in AVI accounts. That's still increasing a lot this year. So how do you think about the number of sales reps and or cams to make sure that these you know, new AVI accounts and, frankly, new key carrier accounts have a good experience. I don't know if you can give it either in rep numbers or, you know, the number of touch points that some of these accounts end up having. Anything like that would be useful. Thank you.

Yeah, I think this is really interesting to talk about this. Fundamentally, we kind of outpaced ourselves in a little bit in the fourth quarter and early part of first quarter. But you'll notice that we're kind of laying in line a sustained rate of future placements. So this is not going to require us to add a significant amount of capital reps, although we'll always have a churn, if you will, for higher performers and better outcomes. I think what you're going to see is it will require some investment in some of the back office operations and support for the field, such as our field service engineers that do installations. I think we will have to continue to scale our key account managers as we add new accounts and expand their roles. But I think that's where you're going to see the investments. I don't think you're going to see a significant amount of capital reps being added. But I think you'll see a few added, right? And we'll continue to expand with market growth. But I do think there's going to be an opportunity to continue to add capital. great people to the team and our intent will be to continue to upgrade the team and put the best players on the field.

Thank you, guys.

All right.

Our next question is from Matt O'Brien with Piper Sandler.

Please go ahead.

Hi, this is Sam on for Matt. We were just hoping you could help us with It's a little bit of the guidance for the year, so there's growth of roughly 13% for 2023. Can you speak to how much of that you anticipate would be from AvaClear?

By the way, thanks for the question, and please say hi to Matt for us. I would say, for the most part, we're not breaking that out right now. We will be reporting by segment over the course of the year. So this will become more obvious as we kind of put more and more data out. It would be a little bit premature for us to get too far in front of this in the quarter as we are kind of coming out of a fourth quarter where we over-indexed a little bit to AviClear. And some of the hangover from that probably will have some early effect on this quarter. So we're shifting as we go. And we really don't want to specifically lay out AviClear guidance as a standalone until we see the speed at which we can onboard these accounts and get them to a productive nature. So I think we're going to hold back on that for the time being. I do think that there's a lot of people that have put out notes regarding a little bit of malaise or overhang in the markets regarding capital purchases due to interest rates and other things. And I don't think we're going to be inoculated from those items, but I do think our salespeople have a good pipeline and a line of sight to achieve their numbers. And they've certainly been able to deliver for us very, very successfully throughout 2022. And we anticipate that they'll be able to get back to that rate. So without breaking apart, I do think that we'll see good performance from our team, and I think we'll see continued growth of AviClear as the install base grows.

Great. Thank you. The next question is from Greg Sellers with Stevens, Inc.

Please go ahead.

Hey, this is George. I just wanted to maybe start with gross margins. That outperformed our expectations in the quarter, so just curious what the puts and takes there were and maybe if this is a good starting point for us to model as we think about the next few quarters and years.

Hey, George. I knew it was George, by the way. Listen, I think it starts – by just, you know, we try to kind of hint towards this, that we're seeing green shoots of the impact that we think will likely come from a continued growth and acceleration of the AviClear product. And I think you see that, you know, as you look at our non-GAAP constant currency growth that got to 61.5 gross margins. And I think, you know, There's probably a lot of people that probably remember us a year ago saying, you know, that we thought we could get up into the 60s. And I think this kind of shows that viability. But maybe I can let Rohan speak specifically to the puts and takes that got us to those numbers.

Yeah, thanks, Dave. So I'd say, you know, in addition to the year-end seasonal mix of high capital markets, The biggest put here simply was AviClear being over $3 million. We've been carrying some of those costs in the past couple quarters, and now we're getting to the revenue liftoff that we've been planning for a little bit. And I think as AviClear continues to scale, so will our P&L and margins and cash and the overall financial health of this company.

Okay, that's really helpful. And maybe switching gears here a little bit, the international systems revenue line put up another really strong quarter. So could you just give us some color on what some of the drivers there are and your expectations for next year?

Before we get to that, Dave just reminded me, the biggest take over there obviously was FX. And that's why there's a spread of almost 200 basis points between our non-GAAP margin and our constant currency margin, which crested 61%, which was particularly awesome to see.

Thanks, Rohan. Internationally, and I think this speaks a little bit to the fact that we don't believe there to be significant macroeconomic pressures. We think that there are some present. We think some of these are probably more perceived than real. And we do think that interest rates may be somewhat problematic in the U.S. temporarily. Those things being said, we saw a fairly decent performance in both Japan and in our intercontinental distribution markets. Australia kind of held their own. And Europe had kind of year-over-year growth as well, although it was somewhat stymied at the end of the year. And we expect more from Europe over the longer term. But it was quite actually compelling to see the performance in Japan in particular, knowing some of the challenges that they have gone through in terms of pricing and local economic environment. So I'd say capital was strong really in Japan and intercontinental and probably at or above expectations. in Australia and Europe.

Okay, great. Thank you all for the time this evening.

The next question is from Anthony Vendetti with Maxim Group.

Please go ahead.

Okay, yeah, thanks, Dave. So just a couple more follow-up questions on AviClear. So 600 total in 2022 that were placed. Did you provide the number for the fourth quarter specifically?

I did not, Anthony. I didn't want to mix apples and oranges, frankly. You know, we had talked about what the installed and active units were at the end of Q3 at 166, but what I wanted to do is get to a number that we can probably more regularly report on with accuracy being kind of the placements, which are indeed just shipments. I will tell you this, that we saw a little bit over 600 total placements in the year, but I think that that probably doesn't fully disclose the amount of demand and the customer interest that we continue to see, which gave us great confidence in giving you the 200 to 300 per quarter coming through this year. I will tell you that it's been overwhelming and very, very gratifying to see that kind of demand from our customer base.

Okay. And then the revenue generated from AviClear consisting of the treatment revenue and the device license fees was $3.2 million in the fourth quarter. And during that quarter, there was $7.6 million in AviClear spending. Is that correct?

Yeah, I think we're kind of moving through a point where the install base is still small enough that it's not over-earning, if you will, the amount it costs to place devices. I think we expect that to cross over during 2023, and we've talked about being cash accretive exiting 2023.

Cash flow breakeven, I think Rohan said, in 3Q23. Is that the same thing for AviClear, or is that AviClear's maybe a little bit later than that, 23?

What I said was cash flow breakevens. toward the end of 23, and I can go back and look at my script specifically, but that guidance is not specific to the entire company.

Yeah, I think what we've said historically, Anthony, is that the core business has historically been a cash generator for us since we made some changes back in 2021, and we expect that that will continue. and it has indeed partially funded some of the AviClear expenses. That being said, we think that as AviClear crosses over, you'll see kind of an accretive nature of cash being generated even before AviClear totally crosses over. But when it does cross over, then it will accelerate even faster through the course of the end of fourth quarter into 2024. Yeah, exactly.

Just to clarify, in my script, I said by Q4 2023. Okay.

Okay. Yeah, I wasn't sure if I got that right. So Q4. Okay. And then remind us what's in consumable product revenues. I know it's some of the the AviClear stuff, but there's other things in there. And that fell off 18% in constant currency from the prior year. If so, what was the major reason for that?

Yeah, first of all, I want to be very clear. There's no AviClear revenue in our consumable product sales for core. What's in that product is the consumable products associated with our TrueBody line of products, including TrueSculpt Flex and TrueSculpt ID, as well as the tips that we sell associated with the Secret Pro and the Secret RF. And finally, there are some consumable hand pieces that we distribute. So just to be clear, that's what's in there. The lion's share of myths came in North America, though. And like I said in my script, That came as a result of kind of the number, the vast number of accounts that we were trying to engage and onboard that were receiving, they're obviously a product. With that many, obviously, placements or shipments, you had a lot of customers getting product. And we wanted to make sure that we were there to help them receive the product and do the training. So the net result of that was we did fewer promotional events. VIP nights or open houses at practices showing and demonstrating the TrueSculpt Flex or ID or secret product to the practice's customer base. And the net result of not doing as many promotions is we didn't sell as many consumables. So that's a staffing issue and a capacity issue that we've addressed, and we're expecting that we'll get back on that horse here in the first quarter.

Okay, great. And then lastly on, I guess, on AviClear, there's now another FDA-approved product out there. How do you look at, you know, how the difference between AviClear and that product? And do you feel like, you know, the goal is 200 to 300 placements per quarter? Do you have the sales force and the key account managers and the clinical support you need? right now, or do you have to incrementally add to that or significantly add to that before the end of 23? And then I'll hop back to you.

Well, let's take those in the order you offer them. First of all, there's another product that's come to market that uses 1726 nanometer wavelength laser. And in some ways, that serves as a validation of the technology we have. However, they don't come close to duplicating the rest of our procedure. And I'd rather not get into all the details there, but we're able to do this without anesthesia, without any adjunctive pain therapy, on a very routine basis. And while there are always a subset, a handful of people that may complain or be discomforted, that is less than a handful of those folks. So there's a very different risk profile, safety profile, and even discomfort associated with this product that we have versus the competitive product. So while we see it to be a validation, I don't know if I necessarily see it as a competitive device, number one. And number two, I certainly think that the ancillary programs and things that we've developed around patient financing around the AviClear model that allows a no-down, very low capital outlay of expense for the med derm in particular, an opportunity to give them a key account manager and support them, and then now the loyalty program that allows them a cooperative marketing investment in their practice to promote not only their practice but also the device. So I think we've got a very broad moat of opportunities and support functions that our competitors can offer. Finally, I guess I would say from a staffing perspective, as I said earlier, we have probably a need to continue to add our key account managers as we scale and add new accounts and broader customers. But we do not necessarily need to add reps to our capital sales team to place these devices since we've settled in on a number, and a flat number, if you will, of how many we expect to place. So I think we're in good shape all the way around from our staffing. I think you'll see additional service and support investments over the course of the year as our install base grows, but I don't think it will be necessarily in capital sales teams.

Okay, great. I'll hop back in the queue. Thanks.

Great.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Mowry for any closing remarks.

Thank you, operator. And thanks again for dialing in for our update. We are very bullish for 2023 with our focus evenly split between core business performance and AviClear acceleration. Our next update will come early May with our first quarter 2023 result, and we look forward to updating you then.

This concludes today's conference call. You may disconnect your line. Thank you for participating, and have a pleasant day.