Cutera Reports Second Quarter 2019 Financial Results

August 8, 2019 |

19 min read

Revenue Growth of 12% Over Prior Year

Aug. 8, 2019 20:05 UTC

Highest Quarterly Revenue in Company History

Second Consecutive Quarter of Double-Digit International Revenue Growth

BRISBANE, Calif.--(BUSINESS WIRE)-- Cutera, Inc. (NASDAQ: CUTR) (“Cutera” or the “Company”), a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide, today reports financial results for the second quarter ended June 30, 2019.

Key second quarter financial and operational highlights include:

Revenue increased 12% over the prior year second quarter, to $47.8 million, the highest quarterly revenue in the Company’s history. Second quarter revenue performance driven by:
- International revenue grew 36% year-over-year in the second quarter, continuing the positive momentum seen in first quarter and reflecting strong performances in Japan, Europe and Australia.
- Continued demand for our body-sculpting platform as total revenue for the truSculpt portfolio grew 44% over the prior year period. Performance includes contributions from the limited launch of the Company’s new muscle sculpting technology, truSculpt flex, in June.
- Continued expansion of recurring revenue, including service, skincare products and procedure related consumables. Total recurring revenue was $10.2 million, representing 41% growth over the second quarter 2018.
Gross Margin for the second quarter was 54%, compared to 53% in the prior year period and 48% in the first quarter of 2019. Increase in second quarter gross margin performance reflects leverage from revenue growth as well as product and channel mix.
Operating expenses for the second quarter were 53% of revenue as compared to 58% for the prior year period demonstrating improved leverage as the Company begins to realize benefit from investments in commercial leadership and practice development efforts.
Net Income for the second quarter was $0.6 million, or $0.04 per fully-diluted share as compared to a net loss of $1.6 million, or $0.11 per fully-diluted share in the prior year period.

“Our second quarter performance reflects the Company’s progress on commercial and operational execution,” stated President, Jason Richey. “We continue to see growth from our truSculpt body sculpting portfolio, which includes the recently launched truSculpt flex, as well as the consumable revenue stream associated with these platforms. I am also encouraged by the Company’s gross margin performance delivered through our pricing strategies implemented earlier this year and progress on operational initiatives.”

Mr. David Mowry, Chief Executive Officer stated, “I’m delighted to join the Cutera team and encouraged by the quality of the Company’s people, products and development pipeline. Cutera is well-positioned to shape the future of energy-based aesthetics and the second quarter performance reflects this potential. While I am new to the business and need some time to come up to full speed, I am confident there are multiple pathways to sustain above-market growth, enhance the Company’s profitability and be the supplier of choice in these exciting and growing markets.”

2019 Financial Outlook Reiterated:

Full year revenue to be in the range of $165 to $175 million, a 2% - 8% increase over 2018;
Full year 2019 gross margin is expected to improve as compared to full year 2018 gross margin; and
The Company’s adjusted EBITDA* is expected to be in the range of $2 million to $4 million.

Conference Call

The Company will host a live audio webcast for interested parties commencing today at 1:30 p.m. PDT (4:30 p.m. EDT). Participating in the call will be David Mowry, Chief Executive Officer, Jason Richey, President and Chief Operating Officer and Sandra Gardiner, Executive Vice President and Chief Financial Officer. The call will be broadcast live over the Internet, hosted at the Investor Relations section of Cutera's website at http://www.cutera.com/, and will be available online within 24 hours of its completion through September 8, 2019. In addition, you may call 1-877-705-6003 to listen to the live broadcast.

About Cutera, Inc.

Brisbane, California-based Cutera is a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide. Since 1998, Cutera has developed innovative, easy-to-use products that enable physicians and other qualified practitioners to offer safe and effective aesthetic treatments to their patients. For more information, call 1-888-4CUTERA or visit www.cutera.com.

*Use of Non-GAAP Financial Measures

In this press release, in order to supplement our condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management has disclosed certain non-GAAP financial measures for the statement of operations and net income (loss) per diluted share. Non-GAAP adjustments include stock-based compensation, depreciation, amortization, executive separation costs, customer relationship management (“CRM”) and enterprise resource planning (“ERP”) system implementation costs, as well as the net tax impact of excluding these items. From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management. We have provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability, limited visibility, unpredictability, or unique non-recurring nature of the items. Forward-looking non-GAAP measures include adjusted EBITDA. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation, executive separation costs, and charges related to CRM and ERP software implementation costs.

Company management uses these measurements as aids in monitoring the Company’s ongoing financial performance from quarter to quarter, and year to year, on a regular basis and for benchmarking against other similar companies. Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, the operating performance measure as prescribed by GAAP. Non-GAAP financial measures for the statement of operations and net income per diluted share exclude the following:

Non-cash expenses for stock-based compensation. We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record stock-based compensation expense related to grants of options, performance and restricted stock. Depending upon the size, timing and the terms of the grants, this expense may vary significantly but will recur in future periods. We believe that excluding stock-based compensation better allows for comparisons to our peer companies;

Depreciation and amortization. We have excluded depreciation and amortization expense in calculating our non-GAAP operating expenses and net income measures. Depreciation and amortization are non-cash charges to current operations;

Executive separation. We have excluded costs associated with the resignation of our former Chief Executive Officer in calculating our non-GAAP operating expenses and net income measures. We exclude these non-recurring separation costs because we believe that these items do not reflect future operating expenses;

Customer Relationship Management. We have excluded CRM system costs related to direct and incremental costs incurred in connection with our multi-phase implementation of a new CRM solution and the related technology infrastructure costs. We exclude these costs because we believe that these items do not reflect future operating expenses and will be inconsistent in amounts and frequency making it difficult to contribute to a meaningful evaluation of our operating performance; and

Enterprise Resource Planning. We have excluded ERP system costs related to direct and incremental costs incurred in connection with our multi-phase implementation of a new ERP solution and the related technology infrastructure costs. We exclude these costs because we believe that these items do not reflect future operating expenses and will be inconsistent in amounts and frequency making it difficult to contribute to a meaningful evaluation of our operating performance.

We believe that excluding all of the items above allows users of our financial statements to better review and assess both current and historical results of operations.

Safe Harbor Statement

Certain statements in this press release, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, but are not limited to, Cutera’s plans, objectives, strategies, financial performance and outlook, product launches and performance, trends, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “should,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” “foresee” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Forward-looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause Cutera's actual results to differ materially from the statements contained herein. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this press release, including those described in the “Risk Factors” section of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, the Registration Statement on Form S-8 and other documents filed from time to time with the United States Securities and Exchange Commission by Cutera.

All information in this press release is as of the date of its release. Accordingly, undue reliance should not be placed on forward-looking statements. 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. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Cutera's financial performance for the second quarter ended June 30, 2019, as discussed in this release, is preliminary and unaudited, and subject to adjustment.


	CUTERA, INC.
	CONDENSED CONSOLIDATED BALANCE SHEETS
	(in thousands)
	(unaudited)

		June 30,		March 31,		December 31,
		2019		2019		2018⁽¹⁾
	Assets
	Current assets:
	Cash and cash equivalents	$	27,668	$	19,158	$	26,052
	Marketable investments		4,002		7,939		9,523
	Accounts receivable, net		24,919		19,136		19,637
	Inventories		26,889		26,659		28,014
	Other current assets and prepaid expenses		4,536		4,864		3,972
	Total current assets		88,014		77,756		87,198

	Property and equipment, net		2,834		2,407		2,672
	Deferred tax asset		458		451		457
	Goodwill		1,339		1,339		1,339
	Operating lease right-of-use assets		8,990		9,442		-
	Other long-term assets		6,311		5,960		5,971
	Total assets	$	107,946	$	97,355	$	97,637

	Liabilities and Stockholders' Equity
	Current liabilities:
	Accounts payable	$	11,441	$	10,337	$	11,279
	Accrued liabilities		27,026		21,788		23,300
	Operating leases liabilities		1,276		1,840		-
	Extended warranty liabilities		2,399		2,667		3,159
	Deferred revenue		10,717		10,263		9,882
	Total current liabilities		52,859		46,895		47,620

	Deferred revenue, net of current portion		3,142		2,828		2,684
	Income tax liability		93		399		394
	Operating lease liabilities, net of current portion		7,888		7,759		-
	Other long-term liabilities		782		354		553
	Total liabilities		64,764		58,235		51,251

	Stockholders’ equity:
	Common stock		14		14		14
	Additional paid-in capital		74,870		71,399		70,451
	Accumulated deficit		(31,642)		(32,230)		(24,010)
	Accumulated other comprehensive loss		(60)		(63)		(69)
	Total stockholders' equity		43,182		39,120		46,386
	Total liabilities and stockholders' equity	$	107,946	$	97,355	$	97,637


(1)	As of January 1, 2019, the Company adopted the requirements of ASC 842 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.


CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2019		2018		2019		2018

Products	$	41,968		37,650		72,730	$	66,914
Service		5,806		4,903		11,070		9,764
Total net revenue		47,774		42,553		83,800		76,678

Products		18,393		17,045		33,935		30,967
Service		3,550		3,131		6,725		6,000
Total cost of revenue		21,943		20,176		40,660		36,967
Gross profit		25,831		22,377		43,140		39,711
Gross margin %		54%		53%		51%		52%

Operating expenses:
Sales and marketing		16,992		15,535		33,096		28,623
Research and development		3,273		4,095		6,979		7,651
General and administrative		5,267		4,902		10,792		10,341
Total operating expenses		25,532		24,532		50,867		46,615
Income (loss) from operations		299		(2,155)		(7,727)		(6,904)
Interest and other income (expense), net		46		(129)		(33)		(31)
Income (loss) before income taxes		345		(2,284)		(7,760)		(6,935)
Income tax benefit		(243)		(712)		(128)		(3,331)
Net income (loss)	$	588	$	(1,572)	$	(7,632)	$	(3,604)

Net income (loss) per share:
Basic	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)
Diluted	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)

Weighted-average number of shares used in per share calculations:
Basic		14,086		13,709		14,051		13,649
Diluted		14,356		13,709		14,051		13,649


CUTERA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except percentage data)
(unaudited)

	Three Months Ended				% Change	Six Months Ended				% Change
	June 30,		June 30,		2019 Vs	June 30,		June 30,		2019 Vs
	2019		2018		2018	2019		2018		2018
Revenue By Geography:
United States	$	28,147	$	28,132	+0%	$	48,547	$	49,268	-1%
International		19,627		14,421	+36%		35,253		27,410	+29%
Total Net Revenue	$	47,774	$	42,553	+12%	$	83,800	$	76,678	+9%
International as a percentage of total revenue		41%		34%			42%		36%

Revenue By Product Category:
Systems
- North America	$	26,491	$	25,886	+2%	$	44,071	$	44,830	-2%
- Rest of World		11,048		9,405	+17%		20,677		17,700	+17%
Total Systems		37,539		35,291	+6%		64,748		62,530	+4%
Consumables		2,654		1,057	+151%		4,599		1,826	+152%
Skincare		1,775		1,302	+36%		3,383		2,558	+32%
Total Products		41,968		37,650	+11%		72,730		66,914	+9%

Service		5,806		4,903	+18%		11,070		9,764	+13%
Total Net Revenue	$	47,774	$	42,553	+12%	$	83,800	$	76,678	+9%



	Three Months Ended					Six Months Ended
	June 30,		June 30,			June 30,		June 30,
	2019		2018			2019		2018
Pre-tax Stock-Based Compensation Expense:
Cost of revenue	$	404	$	226		$	673	$	380
Sales and marketing		997		715			1,715		1,204
Research and development		370		262			633		453
General and administrative		748		1,002			805		1856
	$	2,519	$	2,205		$	3,826	$	3,893


CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2019		2018		2019		2018
Cash flows from operating activities:
Net income (loss)	$	588	$	(1,572)	$	(7,632)	$	(3,604)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		2,519		2,205		3,826		3,893
Depreciation of tangible assets		404		290		815		544
Amortization of contract acquisition costs		722		449		1,412		822
Change in deferred tax asset		(7)		(587)		(1)		(3,324)
Provision for doubtful accounts receivable		(117)		300		(19)		487
Other		48		137		151		(25)
Changes in assets and liabilities:
Accounts receivable		(5,666)		(2,747)		(5,263)		(1,832)
Inventories		(230)		841		1,125		(1,356)
Other current assets and prepaid expenses		302		(2,322)		(614)		(569)
Other long-term assets		(1,073)		572		(1,752)		(1,578)
Accounts payable		1,104		2,537		162		3,741
Accrued liabilities		5,246		2,402		3,779		(4,325)
Extended warranty liabilities		(268)		-		(760)		-
Other long-term liabilities		-		35		(140)		70
Deferred revenue		768		1,002		1,293		546
Income tax liability		(306)		2		(301)		7
Net cash provided by (used in) operating activities		4,034		3,544		(3,919)		(6,503)

Cash flows from investing activities:
Acquisition of property, equipment and software		(251)		(477)		(316)		(581)
Disposal of Property and equipment		20		38		20		38
Proceeds from sales of marketable investments		-		-		-		13,044
Proceeds from maturities of marketable investments		6,400		2,500		9,600		2,500
Purchase of marketable investments		(2,434)		-		(4,020)		(4,390)
Net cash provided by investing activities		3,735		2,061		5,284		10,611

Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan		1,032		2,405		1,163		3,038
Taxes paid related to net share settlement of equity awards		(80)		(376)		(570)		(2,664)
Payments on finance lease obligations		(211)		(112)		(342)		(234)
Net cash provided by financing activities		741		1,917		251		140

Net increase in cash and cash equivalents		8,510		7,522		1,616		4,248
Cash and cash equivalents at beginning of period		19,158		10,910		26,052		14,184
Cash and cash equivalents at end of period	$	27,668	$	18,432	$	27,668	$	18,432


CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


	Three Months Ended June 30, 2019														Three Months Ended June 30, 2018
	GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation		Taxes and Other Adjustments		Non-GAAP			GAAP			Depreciation and Amortization		Stock-Based Compensation		Taxes and Other Adjustments		Non-GAAP

Net revenue	$	47,774		-		-		-		-		$	47,774		$	42,553		-		-		-		$	42,553
Cost of revenue		21,943		(123	)	(404	)	-		-			21,416			20,176		(76	)	(226	)	-			19,874
Gross profit		25,831		123		404		-		-			26,358			22,377		76		226		-			22,679
Gross margin %		54	%										55	%		53	%								53	%

Operating expenses:
Sales and marketing		16,992		(912	)	(997	)	(27	)	-			15,056			15,535		(601	)	(715	)	-			14,219
Research and development		3,273		(26	)	(370	)	-		-			2,877			4,095		(17	)	(262	)	-			3,816
General and administrative		5,267		(65	)	(748	)	(460	)	-			3,994			4,902		(45	)	(1,002	)	-			3,855
Total operating expenses		25,532		(1,003	)	(2,115	)	(487	)	-			21,927			24,532		(663	)	(1,979	)	-			21,890
Income (loss) from operations		299		1,126		2,519		487		-			4,431			(2,155	)	739		2,205		-			789
Interest and other income (expense), net		46		-		-		-		-			46			(129	)	-		-		-			(129	)
Loss before income taxes		345		1,126		2,519		487		-			4,477			(2,284	)	739		2,205		-			660
Benefit for income taxes		(243	)	-		-		-		279			36			(712	)	-		-		(397	)		(1,109	)
Net income (loss)	$	588		1,126		2,519		487		(279	)	$	4,441		$	(1,572	)	739		2,205		397		$	1,769

Net income (loss) per share:
Basic	$	0.04										$	0.32		$	(0.11	)							$	0.13
Diluted	$	0.04										$	0.31		$	(0.11	)							$	0.12

Weighted-average number of shares used in per share calculations:
Basic		14,086											14,086			13,709									13,709
Diluted		14,356											14,356			13,709									14,311



Operating expenses as a % of net revenue	GAAP											Non-GAAP			GAAP									Non-GAAP
Sales and marketing		35.6	%										31.5	%		36.5	%								33.4	%
Research and development		6.9	%										6.0	%		9.6	%								9.0	%
General and administrative		11.0	%										8.4	%		11.5	%								9.1	%
		53.4	%										45.9	%		57.7	%								51.4	%


CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)


	Six Months Ended June 30, 2019															Six Months Ended June 30, 2018
	GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation		Taxes and Other Adjustments			Non-GAAP			GAAP			Depreciation and Amortization		Stock-Based Compensation		Taxes and Other Adjustments		Non-GAAP

Net revenue	$	83,800		-		-		-		-			$	83,800		$	76,678		-		-		-		$	76,678
Cost of revenue		40,660		(251	)	(673	)	-		-				39,736			36,967		(160	)	(380	)	-			36,427
Gross profit		43,140		251		673		-		-				44,064			39,711		160		380		-			40,251
Gross margin %		51	%											53	%		52	%								52	%

Operating expenses:
Sales and marketing		33,096		(1,783	)	(1,715	)	(112	)	-				29,486			28,623		(1,124	)	(1,204	)	-			26,295
Research and development		6,979		(46	)	(633	)	-		-				6,300			7,651		(32	)	(453	)	-			7,166
General and administrative		10,792		(147	)	(805	)	(699	)	(614	)	(a)		8,526			10,341		(50	)	(1,856	)	-			8,435
Total operating expenses		50,867		(1,976	)	(3,153	)	(811	)	(614	)			44,313			46,615		(1,206	)	(3,513	)	-			41,896
Loss from operations		(7,727	)	2,227		3,826		811		614				(249	)		(6,904	)	1,366		3,893		-			(1,645	)
Interest and other income (expense), net		(33	)	-		-		-		-				(33	)		(31	)	-		-		-			(31	)
Loss before income taxes		(7,760	)	2,227		3,826		811		614				(282	)		(6,935	)	1,366		3,893		-			(1,676	)
Provision (benefit) for income taxes		(128	)	-		-		-		282				154			(3,331	)	-		-		169			(3,162	)
Net income (loss)	$	(7,632	)	2,227		3,826		811		332			$	(436	)	$	(3,604	)	1,366		3,893		(169	)	$	1,486

Net income (loss) per share:
Basic	$	(0.54	)										$	(0.03	)	$	(0.26	)							$	0.11
Diluted	$	(0.54	)										$	(0.03	)	$	(0.26	)							$	0.10

Weighted-average number of shares used in per share calculations:
Basic		14,051												14,051			13,649									13,649
Diluted		14,051												14,051			13,649									14,298

a) Other adjustment of $614 related to Executive separation costs.


Operating expenses as a % of net revenue	GAAP												Non-GAAP			GAAP									Non-GAAP
Sales and marketing		39.5	%											35.2	%		37.3	%								34.3	%
Research and development		8.3	%											7.5	%		10.0	%								9.3	%
General and administrative		12.9	%											10.2	%		13.5	%								11.0	%
		60.7	%											52.9	%		60.8	%								54.6	%


CUTERA, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
(unaudited)


	Three Months Ended			Six Months Ended
	June 30, 2019

Net income (loss)	$	588		$	(7,632	)
Adjustments:
Stock-based compensation		2,519			3,826
Depreciation and amortization		1,126			2,227
CRM and ERP implementation costs		487			811
Other adjustments		-			614		^(a)
Interest and other (income) expense, net		(46	)		33
Provision (benefit) for income taxes		(243	)		(128	)
Total adjustments	$	3,843		$	7,383

Adjusted EBITDA	$	4,431		$	(249	)

a) Other adjustment of $614 related to Executive separation costs.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190808005585/en/

Contacts

Cutera, Inc.
Matthew Scalo
Vice President, Investor Relations & Corporate Development
415-657-5500
mscalo@cutera.com

Source: Cutera, Inc.

View this news release online at:
http://www.businesswire.com/news/home/20190808005585/en

Earnings