Business Wire | Aug 6, 2020 04:01PM EDT

Cutera, Inc. Announces Second Quarter 2020 Financial Results

Aug. 06, 2020

BRISBANE, Calif.--(BUSINESS WIRE)--Aug. 06, 2020--Cutera, Inc. (NASDAQ: CUTR) ("Cutera" or the "Company"), a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide, today reported financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Financial and Operational Highlights

* Revenue was $26.4 million, a 45% decrease from the prior-year period, as COVID-19 disruptions led to a year-over-year decline in procedures during the quarter Capital Equipment revenue of $15.5 million, a decline of 59% over prior-year period Recurring revenue grew 6% over prior-year period driven primarily by Skin Care revenue growth of 169% year-over-year offsetting declines in Service and Consumables revenue * Gross Margin was 44%, compared to 54% in the prior-year period, driven by lower production levels and substantially lower overhead absorption during the quarter, partially offset by strong pricing discipline and a reduction in manufacturing headcount * Net loss was $11.4 million, or $0.67 per fully diluted share, as compared to a net income of $0.6 million, or $0.04 per fully diluted share, in the prior-year period * Closed a public stock offering on April 21, 2020, resulting in approximately $26.5 million in net proceeds * Subsequent to the quarter, the Company secured a $30 million credit facility with Silicon Valley Bank, replacing the Company's existing $25 million facility with Wells Fargo

"While our second quarter results were impacted by a decline in patient volumes associated with COVID-related shutdowns; I am encouraged by the recovery trends as patient volumes continue to rebound toward pre-COVID levels," commented Dave Mowry, Chief Executive Officer of Cutera, Inc. "I am pleased with our increased customer outreach efforts which we implemented during the quarter, leading to improved customer engagement and enabled us to be highly responsive, helping accounts increase their patient traffic. I am amazed by the resilience and adaptability of our customers, and proud of the Cutera team's work to steer the company and our clients through unprecedented adversity. We are continuing to manage the impacts of the pandemic effectively, and, with a recently strengthened balance sheet, we are well-positioned to drive a continued recovery in our business through the second half of the year despite the uncertain environment."

2020 Financial Outlook

As previously announced on April 3, 2020, Cutera has withdrawn its previously announced full-year 2020 guidance due to uncertainty over the magnitude and duration of the impacts from the COVID-19 pandemic on its financial results. The Company will not be providing updated guidance at this time.

Conference Call

The Company's management will host a conference call to the discuss these results and related matters today at 1:30 p.m. PT (4:30 p.m. ET) that same day. Participating on the call will be Dave Mowry, Chief Executive Officer, Jason Richey, President, and Fuad Ahmad, Interim Chief Financial Officer.

To participate in the conference call, dial 1-877-705-6003 (domestic) or + 1-201-493-6725 (international) and refer to the Conference Code: 13706585.

The call will also be webcast and can be accessed from the Investor Relations section of Cutera's website at http://www.cutera.com/. The webcast replay of the call will be available at the same site approximately one hour after the end of the call.

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 the Company's 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 and other non-recurring separation costs, customer relationship management ("CRM") and enterprise resource planning ("ERP") system costs, non-recurring legal and litigation 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 the Company believes that doing so is consistent with the goal of providing useful information to investors and management. The Company has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The Company has 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. The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation, executive and other non-recurring separation costs, customer relationship management ("CRM") and enterprise resource planning ("ERP") system costs, and non-recurring legal and litigation 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.The Company has excluded the effect of stock-based compensation expenses in calculating its non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to its employees, the Company continues to evaluate its business performance excluding stock-based compensation expenses. The Company records stock-based compensation expense related to grants of options, employee stock purchase plan, and 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. The Company believes that excluding stock-based compensation better allows for comparisons to its peer companies;

Depreciation and amortization.The Company has excluded depreciation and amortization expense in calculating its non-GAAP operating expenses and net income measures. Depreciation and amortization are non-cash charges to current operations;

Executive and other non-recurring separation costs.We have excluded costs associated with the resignation of our former Executive Officers in calculating our non-GAAP operating expenses and net income measures. We exclude these and other non-recurring employee 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.

Non-recurring legal and litigation costs. We have excluded costs incurred related to third party litigation and disputes, that are of a non-recurring nature.

The Company believes that excluding all of the items above allows users of its 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, CFO and other senior leadership searches, product launches and performance, trends, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, the Company's 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 the Company's control, that could cause its 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 the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Cutera's financial performance for the second quarter ended June 30, 2020, 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, 2020 2020 2019

AssetsCurrent assets:Cash and cash equivalents $ 33,659 $ 14,774 $ 26,316

Marketable investments 12,894 4,746 7,605

Accounts receivable, net 13,826 15,660 21,556

Inventories 31,240 36,941 33,921

Other current assets and prepaid expenses 5,313 4,831 5,648

Total current assets 96,932 76,952 95,046

Property and equipment, net 2,417 2,687 2,817

Deferred tax asset 419 408 423

Goodwill 1,339 1,339 1,339

Operating lease right-of-use assets 7,577 7,143 7,702

Other long-term assets 4,733 5,901 6,411

Total assets $ 113,417 $ 94,430 $ 113,738

Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable $ 11,681 $ 14,604 $ 12,685

Accrued liabilities 20,423 23,663 30,307

Operating leases liabilities 1,526 2,204 2,800

Extended warranty liabilities 1,660 1,765 1,999

Deferred revenue 9,345 10,180 10,831

Total current liabilities 44,635 52,416 58,622

Deferred revenue, net of current portion 2,434 2,789 3,391

Income tax liability 93 93 93

Long-Term Debt 7,149 - -

Operating lease liabilities, net of 6,262 5,149 5,112 current portionOther long-term liabilities 345 447 578

Total liabilities 60,918 60,894 67,796

Stockholders' equity:Common stock 18 15 14

Additional paid-in capital 112,644 82,292 82,346

Accumulated deficit (60,166 ) (48,772 ) (36,358 )

Accumulated other comprehensive loss 3 1 (60 )

Total stockholders' equity 52,499 33,536 45,942

Total liabilities and stockholders' equity $ 113,417 $ 94,430 $ 113,738

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,

2020 2019 2020 2019

Products $ 21,745 41,968 48,136 $ 72,730

Service 4,624 5,806 10,472 11,070

Total net revenue 26,369 47,774 58,608 83,800

Products 12,206 18,393 26,309 33,935

Service 2,539 3,550 6,339 6,725

Total cost of revenue 14,745 21,943 32,648 40,660

Gross profit 11,624 25,831 25,960 43,140

Gross margin % 44 % 54 % 44 % 51 %

Operating expenses:Sales and marketing 11,035 16,992 25,823 33,096

Research and development 2,991 3,273 6,862 6,979

General and administrative 8,529 5,267 16,336 10,792

Total operating expenses 22,555 25,532 49,021 50,867

Income (loss) from operations (10,931 ) 299 (23,061 ) (7,727 )

Interest and other income 3 46 (204 ) (33 )(expense), netIncome (loss) before income (10,928 ) 345 (23,265 ) (7,760 )taxesIncome tax benefit 466 (243 ) 543 (128 )

Net income (loss) $ (11,394 ) $ 588 $ (23,808 ) $ (7,632 )

Net income (loss) per share:Basic $ (0.67 ) $ 0.04 $ (1.51 ) $ (0.54 )

Diluted $ (0.67 ) $ 0.04 $ (1.51 ) $ (0.54 )

Weighted-average number of shares used in per share calculations:Basic 17,055 14,086 15,744 14,051

Diluted 17,055 14,356 15,744 14,051

CUTERA, INC.CONSOLIDATED FINANCIAL HIGHLIGHTS(in thousands, except percentage data)(unaudited) Three Months Ended % Six Months Ended % Change Change June 30, June 30, 2020 June 30, 2020 Vs June 30, Vs

2020 2019 2019 2020 2019 2019

Revenue By Geography:United States $ 10,915 $ 28,147 -61% $ 24,699 $ 48,547 -49%

International 15,454 19,627 -21% 33,909 35,253 -4%

Total Net Revenue $ 26,369 $ 47,774 -45% $ 58,608 $ 83,800 -30%

International as a 59% 41% 58% 42%percentage of totalrevenue Revenue By ProductCategory:Systems- North America $ 8,214 $ 26,491 -69% $ 18,596 $ 44,071 -58%

- Rest of World 7,328 11,048 -34% 17,904 20,677 -13%

Total Systems 15,542 37,539 -59% 36,500 64,748 -44%

Consumables 1,425 2,654 -46% 3,958 4,599 -14%

Skincare 4,778 1,775 +169% 7,678 3,383 +127%

Total Products 21,745 41,968 -48% 48,136 72,730 -34%

Service 4,624 5,806 -20% 10,472 11,070 -5%

Total Net Revenue $ 26,369 $ 47,774 -45% $ 58,608 $ 83,800 -30%

Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019

Pre-tax Stock-BasedCompensation Expense:Cost of revenue $ 743 $ 404 $ 1,033 $ 673

Sales and marketing 1,251 997 1,969 1715

Research and 769 370 1,090 633developmentGeneral and 1,332 748 1,982 805administrative $ 4,095 $ 2,519 $ 6,075 $ 3,826



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,

2020 2019 2020 2019

Cash flows from operatingactivities:Net income (loss) $ (11,394 ) $ 588 $ (23,808 ) $ (7,632 )

Adjustments to reconcile netincome (loss) to net cashprovided by operatingactivities:Stock-based compensation 4,095 2,519 6,075 3,826

Depreciation of tangible 355 404 715 815 assetsAmortization of contract 675 722 1,392 1,412 acquisition costsImpairment of cloud computing 805 - 805 - costsChange in deferred tax asset (11 ) (7 ) 4 (1 )

Provision for doubtful 1,106 (117 ) 1,696 (19 )accounts receivableOther 163 48 198 151

Changes in assets and - liabilities:Accounts receivable 728 (5,666 ) 6,034 (5,263 )

Inventories 5,701 (230 ) 2,681 1,125

Other current assets and (491 ) 302 316 (614 )prepaid expensesOther long-term assets (312 ) (1,073 ) (519 ) (1,752 )

Accounts payable (2,923 ) 1,104 (1,004 ) 162

Accrued liabilities (3,187 ) 5,246 (9,754 ) 3,779

Extended warranty liabilities (105 ) (268 ) (339 ) (760 )

PPP Loan Payable - -

Other long-term liabilities - - - (140 )

Deferred revenue (1,190 ) 768 (2,443 ) 1,293

Income tax liability - (306 ) - (301 )

Net cash provided by (used (5,985 ) 4,034 (17,951 ) (3,919 )in) operating activities Cash flows from investingactivities:Acquisition of property, (205 ) (251 ) (435 ) (316 )equipment and softwareDisposal of Property and - 20 - 20 equipmentProceeds from maturities of 4,100 6,400 10,900 9,600 marketable investmentsPurchase of marketable (12,237 ) (2,434 ) (16,167 ) (4,020 )investmentsNet cash provided by (used (8,342 ) 3,735 (5,702 ) 5,284 in) investing activities Cash flows from financingactivities:Proceeds from exercise of 647 1,032 848 1,163 stock options and employeestock purchase planProceeds from PPP Loan 7,149 7,149

Proceeds from equity offering 26,496 - 26,496 -

Taxes paid related to net (883 ) (80 ) (3,117 ) (570 )share settlement of equityawardsPayments on finance lease (197 ) (211 ) (380 ) (342 )obligationsNet cash provided by 33,212 741 30,996 251 financing activities Net increase in cash and cash 18,885 8,510 7,343 1,616 equivalentsCash and cash equivalents at 14,774 19,158 26,316 26,052 beginning of periodCash and cash equivalents at $ 33,659 $ 27,668 $ 33,659 $ 27,668 end of period

CUTERA, INC.RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSTO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited) Three Months Ended June 30, 2020 Three Months Ended June 30, 2019 Depreciation CRM and ERP Legal-Former Taxes and Depreciation Taxes and GAAP and Stock-Based Implementation Severance CFO Other Non-GAAP GAAP and Stock-Based CRM and ERP Other Non-GAAP Amortization Compensation / (RIF) Settlement/ Adjustments Amortization Compensation Implementation Adjustments write-off Lutronic Net revenue $ 26,369 - - - - $ 26,369 $ 47,774 - - - $ 47,774

Cost of revenue 14,745 (136 ) (743 ) - - 13,866 21,943 (123 ) (404 ) - 21,416

Gross profit 11,624 136 743 - - 12,503 25,831 123 404 - 26,358

Gross margin % 44 % 47 % 54 % 55 %

Operating expenses:Sales and marketing 11,035 (827 ) (1,251 ) - - 8,957 16,992 (912 ) (997 ) (27 ) - 15,056

Research and development 2,991 (38 ) (769 ) - - 2,184 3,273 (26 ) (370 ) - - 2,877

General and administrative 8,529 (29 ) (1,332 ) (729 ) (518 ) (1,018 ) - 4,903 5,267 (65 ) (748 ) (460 ) - 3,994

Total operating expenses 22,555 (894 ) (3,352 ) (729 ) (518 ) (1,018 ) - 16,044 25,532 (1,003 ) (2,115 ) (487 ) - 21,927

Income (loss) from operations (10,931 ) 1,030 4,095 729 518 1,018 - (3,541 ) 299 1,126 2,519 487 - 4,431

Interest and other income (expense), net 3 - - - - - - 3 46 - - - - 46

Loss before income taxes (10,928 ) 1,030 4,095 729 518 1,018 - (3,538 ) 345 1,126 2,519 487 - 4,477

Provision (benefit) for income taxes 466 - - - - - (3 ) 463 (243 ) - - - (397 ) (640 )

Net income (loss) $ (11,394 ) 1,030 4,095 729 518 1,018 3 $ (4,001 ) $ 588 1,126 2,519 487 397 $ 5,117

Net income (loss) per share:Basic $ (0.67 ) $ (0.23 ) $ 0.04 $ 0.36

Diluted $ (0.67 ) $ (0.23 ) $ 0.04 $ 0.36

Weighted-average number of shares used in pershare calculations:Basic 17,055 17,055 14,086 14,086

Diluted 17,055 17,055 14,356 14,311

Operating expenses as a % of net revenue GAAP Non-GAAP GAAP Non-GAAPSales and marketing 41.8% 34.0% 35.6% 31.5%

Research and development 11.3% 8.3% 6.9% 6.0%

General and administrative 32.3% 18.6% 11.0% 8.4%

85.5% 60.8% 53.4% 45.9%



CUTERA, INC.RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSTO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)(unaudited) Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Depreciation CRM and ERP Legal-Former Taxes and Depreciation Taxes and GAAP and Stock-Based Implementation Severance CFO Other Non-GAAP GAAP and Stock-Based CRM and ERP Other Non-GAAP Amortization Compensation / (RIF) Settlement/ Adjustments Amortization Compensation Implementation Adjustments write-off Lutronic Net revenue $ 58,608 - - - - - - $ 58,608 $ 83,800 - - - $ 83,800

Cost of revenue 32,648 (277 ) (1,033 ) - - - - 31,338 40,660 (251 ) (673 ) - 39,736

Gross profit 25,960 277 1,033 - - - - 27,270 43,140 251 673 - 44,064

Gross margin % 44 % 47 % 51 % 53 %

Operating expenses:Sales and marketing 25,823 (1,698 ) (1,969 ) - - - - 22,156 33,096 (1,783 ) (1,715 ) (112 ) - 29,486

Research and development 6,862 (76 ) (1,090 ) - - - - 5,696 6,979 (46 ) (633 ) - - 6,300

General and administrative 16,336 (56 ) (1,982 ) (729 ) (518 ) (1,018 ) - 9,387 10,792 (147 ) (805 ) (699 ) (614 ) (a) 8,526

Total operating expenses 49,021 (1,830 ) (5,042 ) (729 ) (518 ) (1,018 ) - 37,238 50,867 (1,976 ) (3,153 ) (811 ) (614 ) 44,313

Loss from operations (23,061 ) 2,107 5,042 729 518 1,018 - (9,968 ) (7,727 ) 2,227 3,826 811 614 (249 )

Interest and other income (expense), net (204 ) - - - - - - (204 ) (33 ) - - - - (33 )

Loss before income taxes (23,265 ) 2,107 5,042 729 518 1,018 - (10,172 ) (7,760 ) 2,227 3,826 811 614 (282 )

Provision (benefit) for income taxes 543 - - - - - 2 545 (128 ) - - - 282 154

Net income (loss) $ (23,808 ) 2,107 5,042 729 518 1,018 (2 ) $ (10,717 ) $ (7,632 ) 2,227 3,826 811 332 $ (436 )

Net income (loss) per share:Basic $ (1.51 ) $ (0.68 ) $ (0.54 ) $ (0.03 )

Diluted $ (1.51 ) $ (0.68 ) $ (0.54 ) $ (0.03 )

Weighted-average number of shares used in pershare calculations:Basic 15,744 15,744 14,051 14,051

Diluted 15,744 15,744 14,051 14,298

a) Other adjustment of $614 related to Executiveseparation costs. Operating expenses as a % of net revenue GAAP Non-GAAP GAAP Non-GAAPSales and marketing 44.1% 37.8% 39.5% 35.2%

Research and development 11.7% 9.7% 8.3% 7.5%

General and administrative 27.9% 16.0% 12.9% 10.2%

83.6% 63.5% 60.7% 52.9%



CUTERA, INC.RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA(in thousands)(unaudited) Three Months Six Months Ended Ended June 30, 2020 Net loss $ (11,394 ) $ (23,808 )

Adjustments:Stock-based compensation 4,095 6,075

Depreciation and amortization 1,030 2,107

CRM and ERP Implementation/write-off 729 1,139

Severance (RIF) 518 518

Taxes and Other Adjustments - 324

Legal-Former CFO Settlement/Lutronic 1,018 1,018

Interest and other (income) expense, net (3 ) 204

Benefit for income taxes 466 543

Total adjustments $ 7,853 $ 11,928

Adjusted EBITDA $ (3,541 ) $ (11,880 )

View source version on businesswire.com: https://www.businesswire.com/news/home/20200806005844/en/

CONTACT: Cutera, Inc. Anne Werdan Director, Investor Relations 415-657-5500 awerdan@cutera.com