Cutera, Inc. Announces Second Quarter 2020 Financial Results

August 6, 2020 at 4:01 PM EDT

BRISBANE, Calif.--(BUSINESS WIRE)--Aug. 6, 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
Assets
Current 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' Equity
Current 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 current portion		6,262			5,149			5,112
Other 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 (expense), net		3			46			(204	)		(33	)
Income (loss) before income taxes		(10,928	)		345			(23,265	)		(7,760	)
Income 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				% Change	Six Months Ended				% Change
	June 30,		June 30,		2020 Vs	June 30,		June 30,		2020 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 percentage of total revenue		59%		41%			58%		42%

Revenue By Product Category:
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-Based Compensation Expense:
Cost of revenue	$	743	$	404		$	1,033	$	673
Sales and marketing		1,251		997			1,969		1715
Research and development		769		370			1,090		633
General and administrative		1,332		748			1,982		805
	$	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 operating activities:
Net income (loss)	$	(11,394	)	$	588		$	(23,808	)	$	(7,632	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		4,095			2,519			6,075			3,826
Depreciation of tangible assets		355			404			715			815
Amortization of contract acquisition costs		675			722			1,392			1,412
Impairment of cloud computing costs		805			-			805			-
Change in deferred tax asset		(11	)		(7	)		4			(1	)
Provision for doubtful accounts receivable		1,106			(117	)		1,696			(19	)
Other		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 prepaid expenses		(491	)		302			316			(614	)
Other 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 in) operating activities		(5,985	)		4,034			(17,951	)		(3,919	)

Cash flows from investing activities:
Acquisition of property, equipment and software		(205	)		(251	)		(435	)		(316	)
Disposal of Property and equipment		-			20			-			20
Proceeds from maturities of marketable investments		4,100			6,400			10,900			9,600
Purchase of marketable investments		(12,237	)		(2,434	)		(16,167	)		(4,020	)
Net cash provided by (used in) investing activities		(8,342	)		3,735			(5,702	)		5,284

Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan		647			1,032			848			1,163
Proceeds from PPP Loan		7,149						7,149
Proceeds from equity offering		26,496			-			26,496			-
Taxes paid related to net share settlement of equity awards		(883	)		(80	)		(3,117	)		(570	)
Payments on finance lease obligations		(197	)		(211	)		(380	)		(342	)
Net cash provided by financing activities		33,212			741			30,996			251

Net increase in cash and cash equivalents		18,885			8,510			7,343			1,616
Cash and cash equivalents at beginning of period		14,774			19,158			26,316			26,052
Cash and cash equivalents at end of period	$	33,659		$	27,668		$	33,659		$	27,668

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, 2020																		Three Months Ended June 30, 2019
	GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation/ write-off		Severance (RIF)		Legal-Former CFO Settlement/Lutronic		Taxes and Other Adjustments		Non-GAAP			GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation		Taxes and Other Adjustments		Non-GAAP

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 per share 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-GAAP
Sales 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 OPERATIONS
TO 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
	GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation/ write-off		Severance (RIF)		Legal-Former CFO Settlement/Lutronic		Taxes and Other Adjustments		Non-GAAP			GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation		Taxes and Other Adjustments			Non-GAAP

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 per share 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 Executive separation costs.


Operating expenses as a % of net revenue	GAAP															Non-GAAP			GAAP												Non-GAAP
Sales 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 Ended			Six Months 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/

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

Source: Cutera, Inc.