Document And Entity Information - USD ($) $ in Millions	12 Months Ended
Document And Entity Information - USD ($) $ in Millions	Dec. 31, 2018	Mar. 01, 2019	Jun. 30, 2018
Document Information [Line Items]
Entity Registrant Name	CUTERA INC
Entity Central Index Key	0001162461
Trading Symbol	cutr
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		14,014,511
Entity Public Float			$ 418
Entity Shell Company	false
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Current assets:
Cash and cash equivalents	$ 26,052	$ 14,184
Marketable investments	9,523	21,728
Accounts receivable, net of allowance for doubtful accounts of $1,257 and $9, respectively	19,637	20,777
Inventories	28,014	28,782
Other current assets and prepaid expenses	3,972	2,903
Total current assets	87,198	88,374
Property and equipment, net	2,672	2,096
Deferred tax assets	457	19,055
Goodwill	1,339	1,339
Other long-term assets	5,971	374
Total assets	97,637	111,238
Current liabilities:
Accounts payable	11,279	7,002
Accrued liabilities	23,300	26,848
Extended warranty liabilities	3,159
Deferred revenue	9,882	9,461
Total current liabilities	47,620	43,311
Deferred revenue, net of current portion	2,684	2,195
Income tax liability	394	379
Other long-term liabilities	553	460
Total liabilities	51,251	46,345
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value: Authorized: 50,000,000 shares; Issued and outstanding: 13,968,852 and13,477,973 shares at December 31, 2018 and 2017, respectively	14	13
Additional paid-in capital	70,451	62,025
Retained earnings (accumulated deficit)	(24,010)	2,947
Accumulated other comprehensive loss	(69)	(92)
Total stockholders’ equity	46,386	64,893
Total liabilities and stockholders’ equity	$ 97,637	$ 111,238

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Accounts receivable, allowance for doubtful accounts	$ 1,257	$ 9
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	13,968,852	13,477,973
Common stock, outstanding (in shares)	13,968,852	13,477,973

Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands

12 Months Ended

Dec. 31, 2018

Dec. 31, 2017

Dec. 31, 2016

Net revenue:

Revenue from Contract with Customer, Including Assessed Tax

$ 162,720

$ 151,493

$ 118,056

Cost of revenue:

Cost of revenue

82,338

65,383

49,921

Gross profit

80,382

86,110

68,135

Operating expenses:

Sales and marketing

58,420

52,070

41,563

Research and development

14,359

12,874

11,232

General and administrative

20,995

14,090

12,943

Lease termination income

(4,000)

Total operating expenses

93,774

75,034

65,738

Income (loss) from operations

(13,392)

11,076

2,397

Interest and other income(expense), net

(123)

^[1]

884

323

Income (loss) before income taxes

(13,515)

11,960

2,720

Income tax (benefit) provision

17,255

(18,033)

143

Net income (loss)

$ (30,770)

$ 29,993

$ 2,577

Net loss per share:

Basic (in dollars per share)

$ (2.23)

$ 2.16

$ 0.19

Diluted (in dollars per share)

$ (2.23)

$ 2.04

$ 0.19

Weighted-average number of shares used in per share calculations:

Basic (in shares)

13,771

13,873

13,225

Diluted (in shares)

13,771

14,728

13,753

Product [Member]

Net revenue:

Revenue from Contract with Customer, Including Assessed Tax

$ 142,535

$ 132,660

$ 99,028

Cost of revenue:

Cost of revenue

66,843

56,363

40,149

Operating expenses:

Sales and marketing

58,420

Service [Member]

Net revenue:

Revenue from Contract with Customer, Including Assessed Tax

20,185

18,833

19,028

Cost of revenue:

Cost of revenue

$ 15,495

$ 9,020

$ 9,772

[1]	Included in interest and other income, net, is the estimated interest expense for advance payment related to service contracts under the new revenue standard.

Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net income (loss)	$ (30,770)	$ 29,993	$ 2,577
Available-for-sale investments
Net change in unrealized gain (loss) on available-for-sale investments	14	(15)	30
Less: Reclassification adjustment for net gains on investments recognized during the year	9	(5)	(3)
Net change in unrealized gain (loss) on available-for-sale investments	23	(20)	27
Tax provision			10
Other comprehensive income (loss), net of tax	23	(20)	17
Comprehensive income (loss)	$ (30,747)	$ 29,973	$ 2,594

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2015	12,980,807
Balance at Dec. 31, 2015	$ 13	$ 79,782	$ (29,672)	$ (89)	$ 50,034
Deferred tax relating to adoption of ASU 2016-09 at Dec. 31, 2015			49		49
Issuance of common stock for employee purchase plan (in shares)	79,922
Issuance of common stock for employee purchase plan		768			$ 768
Exercise of stock options (in shares)	1,051,138				1,051,138
Exercise of stock options	$ 1	9,342			$ 9,342
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)	116,833
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(618)			(618)
Repurchase of common stock (in shares)	(455,311)
Repurchase of common stock		(4,873)			(4,873)
Stock-based compensation expense		3,713			3,713
Net income (loss)			2,577		2,577
Net change in unrealized loss on available-for-sale investments				17	17
Balance (in shares) at Dec. 31, 2016	13,773,389
Balance at Dec. 31, 2016	$ 14	88,114	(27,046)	(72)	61,010
Issuance of common stock for employee purchase plan (in shares)	78,479
Issuance of common stock for employee purchase plan		1,059			$ 1,059
Exercise of stock options (in shares)	488,398				488,398
Exercise of stock options		4,376			$ 4,376
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)	160,309
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(1,469)			(1,469)
Repurchase of common stock (in shares)	(1,022,602)
Repurchase of common stock	$ (1)	(35,165)			(35,166)
Stock-based compensation expense		5,110			5,110
Net income (loss)			29,993		29,993
Net change in unrealized loss on available-for-sale investments				(20)	$ (20)
Balance (in shares) at Dec. 31, 2017	13,477,973				13,477,973
Balance at Dec. 31, 2017	$ 13	62,025	2,947	(92)	$ 64,893
Issuance of common stock for employee purchase plan (in shares)	64,511
Issuance of common stock for employee purchase plan	$ 1	1,680			$ 1,680
Exercise of stock options (in shares)	271,902				271,902
Exercise of stock options		2,718			$ 2,718
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)	154,466
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(3,128)			(3,128)
Stock-based compensation expense		7,157			7,157
Net income (loss)			(30,770)		(30,770)
Net change in unrealized loss on available-for-sale investments				23	23
Adjustment to opening balance for ASC 606 adoption at Dec. 31, 2017			3,813		$ 3,813
Balance (in shares) at Dec. 31, 2018	13,968,852				13,968,852
Balance at Dec. 31, 2018	$ 14	$ 70,451	$ (24,010)	$ (69)	$ 46,386

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Cash flows from operating activities:
Net income (loss)	$ (30,770)	$ 29,993	$ 2,577
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation	7,157	5,110	3,713
Depreciation and amortization	1,209	1,016	982
Amortization of contract acquisition costs	1,834
Change in deferred tax assets	17,438	(18,678)	22
Provision for doubtful accounts receivable	(1,257)	1
Other	241	(51)	(7)
Changes in assets and liabilities:
Accounts receivable	(117)	(4,229)	(4,899)
Inventories	768	(13,805)	(2,899)
Other current assets and prepaid expenses	(1,070)	(591)	(432)
Other long-term assets	(2,754)	6	4
Accounts payable	4,277	4,404	639
Accrued liabilities	(3,781)	9,345	3,461
Extended warranty liabilities	3,159
Other long-term liabilities	140		(329)
Deferred revenue	1,305	1,557	(826)
Income tax liability	15	211	(14)
Net cash provided by operating activities	308	14,287	1,992
Cash flows from investing activities:
Acquisition of property, equipment and software*	(1,488)	(855)	(537)
Disposal of property and equipment	41	53	20
Proceeds from sales of marketable investments	13,044	33,640	9,008
Proceeds from maturities of marketable investments	10,050	45,812	25,810
Purchase of marketable investments	(10,874)	(60,956)	(37,693)
Net cash provided by (used in) investing activities	10,773	17,694	(3,392)
Cash flows from financing activities:
Repurchase of common stock		(35,167)	(4,873)
Proceeds from exercise of stock options and employee stock purchase plan	4,399	5,435	10,111
Taxes paid related to net share settlement of equity awards	(3,129)	(1,469)	(618)
Payments on capital lease obligation	(483)	(371)	(313)
Net cash provided by (used in) financing activities	787	(31,572)	4,307
Net increase (decrease) in cash and cash equivalents	11,868	409	2,907
Cash and cash equivalents at beginning of year	14,184	13,775	10,868
Cash and cash equivalents at end of year	26,052	14,184	13,775
Supplemental cash flow information:
Cash paid for interest	85	70	43
Cash paid for income taxes	472	220	222
Supplemental non-cash investing and financing activities:
Assets acquired under capital lease	$ 610	$ 365	$ 801

Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

NOTE

1—SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) is a global provider of laser and energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, distributes and markets light and energy-based product platforms for use by physicians and other qualified practitioners, enabling them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following system platforms:

excel, enlighten, Juliet, Secret RF, truSculpt

and

xeo

. The Company’s systems offer multiple hand pieces and applications, allowing customers to upgrade their systems. The sales of (i) systems, system upgrades and hand pieces (“Systems” revenue); (ii) hand piece refills applicable to

Titan, truSculpt

and

truSculpt iD

, as well as single use disposable tips applicable to

Juliet

and

Secret RF

(“Consumables” revenue); and (iii) the distribution of

third

party manufactured skincare products (“Skincare” revenue); are collectively classified as “Products” revenue. In addition to Products revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for

Titan , truSculpt

and

truSculpt iD

) and service labor for the repair and maintenance of products that are out of warranty, all of which are classified as “Service” revenue.

Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries that are currently operational in Australia, Belgium, Canada, France, Germany, Hong Kong, Japan, Spain, Switzerland and the United Kingdom. The Company’s wholly owned subsidiary in Italy is currently dormant. These active subsidiaries market, sell and service the Company’s products outside of the United States. The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the amounts reported of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial Statements and the accompanying notes, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ materially from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to warranty obligations, sales commission, accounts receivable and sales allowances, valuation of inventories, fair values of goodwill, useful lives of property and equipment, assumptions regarding variables used in calculating the fair value of the Company's equity awards, expected achievement of performance based vesting criteria, fair value of investments, the standalone selling price of the Company's products and services, the customer life and period of benefit used to capitalize and amortize contracts acquisition costs, variable consideration, contingent liabilities, recoverability of deferred tax assets, and effective income tax rates, among others. Management bases estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

isks and Uncertainties

The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are

not

limited to, rapid technological change, continued acceptance of the Company's products, stability of world financial markets, cybersecurity breaches and other disruptions that could compromise the Company’s information or results, management of international activities, competition from substitute products and larger companies, ability to obtain and maintain regulatory approvals, government regulations and oversight, patent and other types of litigation, ability to protect proprietary technology from counterfeit versions of the Company's products, strategic relationships and dependence on key individuals.

Comparability

The Company adopted the new revenue standard effective

January 1, 2018,

using the modified retrospective method. Prior period financial statements were

not

retrospectively restated. The consolidated balance sheet as of

December 31, 2018

and results of operations for

December 31, 2018

were prepared using an accounting standard that was different than that in effect for the year ended

December 31, 2017.

As a result the consolidated balance sheets as of

December 31, 2018

and

December 31, 2017

are

not

directly comparable, nor are the consolidated statement of operations for the years ended

December 31, 2018

and

December 31, 2017.

Recent Accounting Pronouncements

Not

Yet Adopted

February 2016,

the FASB issued ASU

2016

02,

"Leases," (also known as ASC Topic

842

) which will require, among other items, lease accounting to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. In

July 2018,

the FASB issued ASU

2018

11,

"Targeted Improvements," which gives the option to apply the transition provisions of ASU

2016

at its adoption date instead of at the earliest comparative period presented in its financial statements. In addition, ASU

2018

provides a practical expedient that permits lessors to

not

separate nonlease components from the associated lease component if certain conditions are met. Also in

July 2018,

the FASB issued ASU

2018

10,

"Codification Improvements to ASC Topic

842,

Leases," which clarifies certain aspects of ASU

2016

02.

The Company will adopt ASU

2016

on a modified retrospective basis on its adoption date of

January 1, 2019

with practical expedients, instead of at the earliest comparative period presented in the Company’s financial statements.

The Company will adopt ASC Topic

842

- Leases on

January 1, 2019,

applying the modified retrospective transition approach to all leases existing at the date of initial application. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits the Company

not

to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company did

not

elect the practical expedient to use hindsight in determining the lease term.

The Company expects that this standard will have a material effect on our financial statements. While the Company continues to assess all of the effects of adoption, the Company currently believes the most significant effects relate to the recognition of new right-of-use (“ROU”) assets and lease liabilities on our balance sheet for our auto, office, and embedded leases; and the requirement to provide significant new disclosures about our leasing activities.

Upon the adoption of ASC Topic

842,

the Company will recognize additional operating liabilities ranging from

$10.0

million to

$11.0

million, with corresponding ROU assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

The new standard also provides practical expedients for an entity’s ongoing accounting. The Company will elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will

not

recognize ROU assets or lease liabilities, and this includes

not

recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also will

not

elect the practical expedient to

not

separate lease and non-lease components for all of our leases.

Recently Adopted Accounting Pronouncements

May 2014,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2014

09,

“Revenue from Contracts with Customers,” amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amended guidance, herein referred to as ASC Topic

606,

is effective for annual and interim reporting periods beginning after

December 15, 2017,

with early adoption permitted for public companies effective for annual and interim reporting periods beginning after

December 15, 2016.

The Company adopted the new revenue standard in the

first

quarter of fiscal year

2018

using the modified retrospective method. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to retained earnings. The comparative information has

not

been restated and continues to be reported under the accounting standards in effect for the periods presented.

See “Revenue Recognition,” for additional accounting policy and transition disclosures.

January 26, 2017,

the FASB issued Accounting Standards Update

No.

2017

04,

Intangibles—Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment. The new guidance requires only a

one

-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (

not

to exceed the total goodwill allocated to that reporting unit). The new guidance eliminates Step

of the current

two

-step goodwill impairment test, and requires companies to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Companies will continue to have the option of performing a qualitative assessment of goodwill impairment; however, if a company performs a qualitative assessment of its goodwill and fails, it must proceed with quantitative impairment testing (ASC

350

The amendment is effective for the Company for its fiscal years beginning after

December 15, 2019.

The amendment is required to be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017 (

350

). The Company early adopted ASU

2017

04—Intangibles—Goodwill

and Other (Topic

350

): Simplifying the Test for Goodwill Impairment, on

October 1, 2018.

There was

material impact upon adoption of the new standard to the financial statements.

See ” Goodwill and Other Intangible Assets” in Note

– Balance Sheet Detail.

June 2018,

the FASB issued ASU

No.

2018

07,

"Compensation -Stock Compensation (Topic

718

): Improvement to Nonemployee Share-Based Payment Accounting". The new guidance changes the accounting for nonemployee awards including: (

) equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date, (

) for performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (

) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The new guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC Topic

606.

The amendments in the new guidance are effective for annual and interim reporting periods beginning after

December 15, 2018,

with early adoption permitted for public companies, but

earlier than an entity’s adoption date of ASC Topic

606.

The Company will adopt the new standard effective

January 1, 2019

and the Company does

not

expect to have a material impact upon adoption of the new standard to the financial statements.

Revenue

The Company adopted ASC Topic

606,

"Revenue from Contracts with Customers," on

January 1, 2018,

applying the modified retrospective method to all agreements that were

not

completed as of

January 1, 2018.

Results for reporting periods beginning after

January 1, 2018

are presented under ASC Topic

606,

while prior period amounts are

not

adjusted and continue to be reported under the accounting standards in effect for the prior periods. A cumulative catch up adjustment was recorded to beginning retained earnings to reflect the impact of all existing arrangements under ASC Topic

606.

Upon adoption of ASC Topic

606,

the Company recorded an increase to retained earnings, net of deferred tax liability, of

$3.8

million (Note

) for contracts still in force as of

January 1, 2018

for the following items in the

first

quarter of

2018:

●

$237,000

reduction in deferred revenue balances for the differences in the amount of revenue recognized for the Company’s revenue streams as a result of allocation of revenue based on standalone selling prices to the Company’s various performance obligations.

●

$151,000

increase in deferred revenue balances, related to the accretion of financing costs for multi-year post-warranty service contracts for customers who pay more than

one

year in advance of receiving the service. The Company estimated interest expense for such advance payments under the new revenue standard.

●

$210,000

decrease in accrued liabilities.

●

$4.7

million for the capitalization of the incremental contract acquisition costs, such as sales commissions paid in connection with system sales. These contract acquisition costs were capitalized and are being amortized over the period of anticipated support renewals which is estimated to be approximately

2.5

years. The Company expensed such costs when incurred under the prior guidance.

●

$1.2

million deferred tax liability related to the direct tax effect of the ASC Topic

606

adoption.

The following table summarizes the effects of adopting ASC Topic

606

on the Company’s consolidated balance sheet as of

December 31, 2018:

	As reported under ASC Topic 606		Adjustments		Balances under Prior GAAP
	(In thousands)

Other long-term assets	$	5,971	$	(5,217)	$	754
Deferred revenue		12,566		(106)		12,460
Retained earnings (deficit)		(24,010)		4,610		(19,400)

The following table summarizes the effects of adopting ASC Topic

606

on Company’s consolidated income statement for the year ended

December 31, 2018:

	As reported under Topic 606		Adjustments		Balances under Prior GAAP
	(In thousands)
Products revenue	$	142,535	$	274	$	142,261
Service revenue		20,185		280		19,905
Sales and marketing		58,420		540		58,960
Interest and other income, net*		(123)		297		174

* Included in interest and other income, net, is the estimated interest expense for advance payment related to service contracts under the new revenue standard.

Adoption of the standard had

impact on total net cash from or used in operating, investing, or financing activities within the consolidated statements of cash flows.

As part of the Company's adoption of ASC Topic

606,

the Company elected to use the following practical expedients: (i)

not

to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be

one

year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been

one

year or less; (iii)

not

to recast revenue for contracts that begin and end in the same fiscal year; and (iv)

not

to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

Revenue recognition

Revenue recognition- Period before

January 1, 2018 -

ASC Topic

606

Adoption

The Company recognized revenue under ASC Topic

605

prior to the adoption of ASC Topic

606

effective

January 1 2018.

Under ASC

605,

the Company recognized products revenue when title and risk of ownership was transferred, provided that:

● Persuasive evidence of an arrangement exists;

● The price is fixed or determinable;

● Delivery has occurred or services have been rendered; and

● Collectability is reasonably assured.

Transfer of title and risk of ownership occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. Revenue is recorded net of customer and distributor discounts. When collectability is

not

reasonably assured, the Company recognizes revenue upon receipt of cash payment. Sales to customers and distributors do

not

include any return or exchange rights. In addition, the Company’s distributor agreements obligate the distributor to pay the Company for the sale regardless of whether the distributor is able to resell the product. Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related expense as a component of Products cost of revenue.

Multiple-element Arrangements

A multiple-element arrangement includes the sale of

one

or more tangible product offerings with

one

or more associated services offerings, each of which are individually considered separate units of accounting. The Company determined that its multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of accounting: Product, service contracts, training, and in some cases, marketing support and installation.

For multiple-element arrangements, judgments are required as to the allocation of the proceeds received from an arrangement to the multiple elements of the arrangement. For multiple element arrangements the Company allocates revenue to all deliverables based on their relative selling prices in accordance with the FASB Accounting Standards Codification (“ASC”)

605

25.

Because the Company has neither vendor specific objective evidence (“VSOE”) nor

third

-party evidence of selling price for the Company's systems, the allocation of revenue has been based on the Company's best estimate of selling prices (“BESP”). The objective of BESP is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis. The Company determines BESP for the Company's deliverables by considering multiple factors including, but

not

limited to, features and functionality of the system, geographies, type of customer and market conditions

With respect to the sale of its earlier generation of the

truSculpt

product, the Company includes unlimited refills as part of the

truSculpt

standard warranty and the Company does

not

account for the

truSculpt

warranty as a separate deliverable under the multiple-element arrangement revenue guidance. Upon a

truSculpt

sale, the Company recognizes the estimated costs which will be incurred under the warranty obligation in Products cost of revenue. Revenue from the sale of refills is recorded as Product revenue in the period in which such sales are made.

Customer Marketing Arrangements

The Company has a customer marketing and incentive program called “Cutera Bucks” for its North America customers through which it offers various sales incentives and discounts and pays or reimburses customers for qualifying expenses associated with practice set-up, advertising procedures related to the system purchased, and other expenses. The Company records such incentives as a reduction of revenue at the time when the sale of the system is recorded.

Service Revenue

The Company also offers customers extended service contracts. Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract. Revenue from services performed in the absence of a service contract, including installation and training revenue, is recognized when the related services are performed and collectability is reasonably assured. Service revenue billed on a time and material basis, from customers whose systems are

not

under a service contact, is recognized as the services are provided. Service revenue for the years ended

December 31, 2017

and

2016

was

$18.8

million, and

$19.0

million.

Bill and Hold Arrangement

Under ASC

605

2017

the Company segregated certain products for

one

order at the request of a customer for a limited period of time at a

third

-party storage facility (“bill -and -hold”). Revenue recognition for the bill-and-hold transaction requires consideration of, among other things, whether the customer has made a written fixed commitment to purchase the product; the existence of a substantial business purpose for the arrangement; the bill-and-hold arrangement is at the request of the customer; the scheduled delivery date must be reasonable and consistent with the buyer's business purpose; title and risk of ownership must pass to the customer and

additional performance obligations exist by the Company, at the time of the bill-and-hold the product is complete and ready for shipment and the product has been segregated from the Company's inventory. The Company recognized revenue of

$938,000

for a bill-and-hold transaction in

2017.

There were

such transactions in

2016.

Revenue recognition- Period after

January 1, 2018 -

ASC Topic

606

Adoption

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that are transferred to customers over time accounted for approximately

12%

of the Company’s total revenue for the

twelve

months ended

December 31, 2018.

The Company has certain system sale arrangements that contain multiple products and services. For these bundled sale arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct. The Company’s products and services are distinct if a customer can benefit from the product or service on its own or with other resources that are readily available to the customer, and if the Company’s promise to transfer the products or service to the customer is separately identifiable from other promises in the contract. The Company’s system sale arrangements include a combination of the following performance obligations: the system and software license (considered as

one

performance obligation), system accessories (hand pieces), training, other accessories, extended service contracts and marketing services.

For the Company’s system sale arrangements that include an extended service contract, the period of service commences at the expiration of the Company’s standard warranty offered at the time of the system sale. The Company considers the extended service contracts terms in the arrangements that are legally enforceable to be performance obligations. Other than extended service contracts and marketing services (which are satisfied over time), the Company generally satisfies all of the performance obligations at a point in time. Systems, system accessories (hand pieces), training, time and materials services are also sold on a stand-alone basis, and related performance obligations are satisfied at a point in time. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative standalone selling price basis.

Nature of Products and Services

Systems

System revenue represents the sale of a system or an upgrade of an existing system. A system consists of a console that incorporates a universal graphic user interface, a laser or other energy based module, control system software and high voltage electronics, as well as

one

or more hand pieces. However, depending on the application, the laser or other energy based module is sometimes contained in the hand piece such as with the Company’s

Pearl

and

Pearl Fractional

applications instead of within the console.

The Company offers customers the ability to select the system that best fits their practice at the time of purchase and then to cost-effectively add applications to their system as their practice grows. This provides customers the flexibility to upgrade their systems whenever they choose and provides the Company with a source of additional Systems revenue.

The Company concludes that the system or upgrade and the right to use the embedded software represent a single performance obligation as the software license is integral to the functionality of the system or upgrade.

The Company does

not

identify calibration and installation services for systems other than

enlighten

as performance obligations because such services are immaterial in the context of the contract. The related costs to complete calibration and installation for systems other than

enlighten

are immaterial. Calibration and installation services for

enlighten

systems are identified as separate performance obligations.

For systems sold directly to end-customers that are credit approved, revenue is recognized when the Company transfers control to the end-customer, which occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. The Company recognizes revenue on a cash basis for system sales to international direct end-customer sales that have

not

been credit approved, as the performance obligations in the contract are satisfied. For systems sold through credit approved distributors, revenue is recognized at the time of shipment.

The Company typically receives payment for its system consoles and other accessories within

days of shipment. Certain international distributor arrangements allow for longer payment terms.

Skincare products

The Company sells

third

-party manufactured skincare products in Japan. The

third

-party skincare products are purchased from the

third

-party manufacturers and sold to licensed physicians. The Company acts as the principal in this arrangement, as it determines the price to charge customers for the skincare products, and controls the products before they are transferred to the customer. Skincare products are typically sold in contracts in which the skincare products represent the sole performance obligations. The Company recognizes revenue for skincare products at a point in time, upon shipment.

Consumables (Other accessories)

The Company treats its customers' purchases of replacement

Titan

truSculpt

and

truSculpt iD

hand pieces as Consumable revenue, which provides the Company with a source of recurring revenue from existing customers. The Company’s recently launched

Juliet

and

Secret RF

products have single use disposable tips which must be replaced after every treatment. Sales of these consumable tips further enhance the Company’s recurring revenue. Hand piece refills of the Company’s legacy

truSculpt

product are accounted for in accordance with the Company’s standard warranty and service contract policies.

Extended contract services

The Company offers post-warranty services to its customers through extended service contracts that cover parts and labor for a term of one, two, or

three

years. Service contract revenue is recognized over time, using a time based measure of progress, as the customers benefit from the service throughout the service period. The Company also offers services on a time-and-materials basis for detachable hand piece replacements, parts and labor. Revenue related to services performed on a time-and-materials basis is recognized when performed. These post-warranty services serve as additional sources of recurring revenue from the Company’s installed product base

Training

Sales of system to customers include training on the system to be provided within

180

days of purchase. The Company considers training as a separate performance obligation as customers can immediately benefit from the training together with the customer’s system. Training is also sold separately from systems. The Company recognizes revenue for training when the training is provided. Training is

not

required for customers to use the systems.

Customer Marketing Support

In North America, the Company offers marketing and consulting phone support to its customers who purchase

truSculpt

and

truSculpt iD

systems. These customer marketing support services include a practice development model and marketing training, performed remotely with ongoing phone consultations for

six

months from date of purchase. The Company considers customer marketing support a separate performance obligation, and recognizes revenue over the

six

-month term of the contracts.

Significant Judgments

The Company combines

two

or more contracts entered into at or near the same time with the same customer and accounts for the contracts as a single contract. The contracts are negotiated as a package with a single commercial objective. The Company exercises significant judgment to evaluate the relevant facts and circumstances in determining whether the separate contracts of contracts comprise a single contract can affect the allocation of consideration to the distinct performance obligations, which could have an effect on results of operations for the periods involved.

The Company is required to estimate the total consideration expected to be received from contracts with customers. In limited circumstances, the consideration expected to be received is variable based on the specific terms of the contract The Company has

not

experienced significant returns or refunds to customers. Estimating consideration expected to be received from contracts with customers requires significant judgment and the change in these estimates could have an effect on its results of operations during the periods involved.

The Company determines standalone selling price ("SSP") for each performance obligation as follows:

Systems: The SSPs for systems are based on directly observable sales in similar circumstances to similar customers. When SSP is

not

directly observable, the Company estimates SSP using the expected cost plus margin approach.

Training: SSP is based on observable price when sold on a standalone basis.

Extended warranty/Service contracts: SSP is based on observable price when sold on a standalone basis (by customer type).

Customer Marketing Support: SSP is estimated based on cost plus a margin.

Set-up /Installation: Set-up or installation for all other systems (excluding the enlighten system) is immaterial in the context of the contract as the set-up or installation for systems other than enlighten. The related costs to complete set-up or installation are immaterial.

The calibration and installation service of the enlighten system are treated as separate performance obligations because the Company regularly sells enlighten systems without the calibration and installation service.

Loyalty Program

The Company launched a customer loyalty program during the

third

quarter of

2018

for qualified customers located in the U.S. and Canada. Under the programs, customers accumulate points based on their purchasing levels. Once a loyalty program member achieves a certain tier level, the member earns a reward. A customer’s account has to be in good standing in order to receive the benefits of the rewards program. Rewards are given on a quarterly basis and must be used in the following quarter. Customers receive a notification regarding their rewards tier by the

fifth

(

) day of the following quarter. All unused rewards are forfeited.

The fair value of the reward earned by loyalty program members is included in accrued liabilities and recorded as a reduction of net sales at the time the reward is earned.

Cash Equivalents, and

Marketable Investments

The Company invests its cash primarily in money market funds and in highly liquid debt instruments of U.S. federal and municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments with stated maturities of

three

months or less from date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than

three

months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks and the Company's foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short term operating expenses.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable securities have been classified and accounted for as available-for-sale securities. Investments with remaining maturities of more than

one

year are viewed by the Company as available to support current operations, and are classified as current assets under the caption marketable investments in the accompanying consolidated balance sheets. Investments in marketable securities are carried at fair value, with the unrealized gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest and other income, net.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value. The Company’s financial instruments include cash equivalents, accounts receivable, accounts payable and accrued liabilities. Carrying amounts of the Company's financial instruments, approximate their fair values as of the balance sheet dates given their generally short maturities. The fair value hierarchy distinguishes between (

) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (

) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of

three

broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level

) and the lowest priority to unobservable inputs (Level

). The

three

levels of the fair value hierarchy are described below in accordance with ASC

820:

●

Level

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

●

Level

Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are

not

active. Level

also includes assets and liabilities that are valued using models or other pricing methodologies that do

not

require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

●

Level

Unobservable inputs that are supported by little or

market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company also considers counterparty credit risk in its assessment of fair value.

Impairment of Marketable Investments

After determining the fair value of available-for-sales debt instruments, gains or losses on these securities are recorded to other comprehensive income, until either the security is sold or the Company determines that the decline in value is other-than-temporary. The primary differentiating factors that the Company considers in classifying impairments as either temporary or other-than-temporary impairments are the Company’s intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value or the maturity of the investment, the length of the time and the extent to which the market value of the investment has been less than cost and the financial condition and near-term prospects of the issuer. There were

other-than-temporary impairments in the years ended

December 31, 2018,

2017,

and

2016.

Allowance for Sales Returns and Doubtful Accounts

The allowance for sales returns is based on the Company’s estimates of potential future product returns and other allowances related to current period product revenue. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of the Company's products.

In cases where the Company is aware of circumstances that

may

impair a specific customer’s ability to meet its obligations to the Company, the Company records a specific allowance against amounts due from the customer, and thereby reduces the net recognized receivable to the amounts it reasonably believes will be collected

Concentration of Credit Risk and Other Risks and Uncertainties

The Company operates in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities and other factors could negatively impact our operating results.

The Company is also subject to risks related to changes in the value of our significant balance of financial instruments. Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents, marketable investments and accounts receivable. The Company’s cash and cash equivalents are primarily invested in deposits and money market accounts with

three

major financial institutions in the U.S. In addition, the Company has operating cash balances in banks in each of the international locations in which it operates. Deposits in these banks

may

exceed the amount of insurance provided on such deposits, if any. Management believes that these financial institutions are financially sound and, accordingly, believes that minimal credit risk exists. To date, the Company has

not

experienced any losses on its deposits of cash and cash equivalents.

The Company invests in debt instruments, including bonds of the U.S. Government, its agencies and municipalities. The Company has also invested in other high grade investments such as commercial paper and corporate debt securities. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. By policy, the Company restricts its exposure to any single issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity of generally less than

twelve

months.

Accounts receivable are recorded net of an allowance for doubtful accounts, and are typically unsecured and are derived from revenue earned from worldwide customers. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs credit evaluations of its customers and maintains reserves for potential credit losses. As of

December 31, 2018

and

2017,

there was

one

customer who represented

4.9%

of the Company’s net accounts receivable. During the years ended

December 31, 2018,

2017,

and

2016,

domestic revenue accounted for

62%,

and

55%,

respectively, of total revenue, while international revenue accounted for

37%,

38%,

and

45%,

respectively, of total revenue.

single customer represented more than

10%

of total revenue for any of the years ended

December 31, 2018,

2017,

and

2016.

Supplier concentration

The Company relies on

third

parties for the supply of components of its products, as well as

third

-party logistics providers. In instances where these parties fail to perform their obligations, the Company

may

be unable to find alternative suppliers or satisfactorily deliver its products to its customers.

Inventories

Inventories are stated at the lower of cost and net realizable value, cost being determined on a standard cost basis which approximates actual cost on a

first

-in,

first

-out basis. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The cost basis of the Company’s inventory is reduced for any products that are considered excessive or obsolete based upon assumptions about future demand and market conditions.

The Company includes demonstration units within inventories. Demonstration units are carried at cost and amortized over an estimated economic life of

two

years. Amortization expense related to demonstration units is recorded in Products cost of revenue or in the respective operating expense line based on which function and purpose for which the demonstration units are being used. Proceeds from the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems prior to sale are charged to cost of revenue.

As of

December 31, 2018

and

2017,

demonstration inventories, net of accumulated depreciation, included in finished goods inventory balance was

$2.9

million and

$1.9

million, respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation expense recognized is on a straight-line basis over the estimated useful lives of the assets, generally as follows:

		Useful Lives
Leasehold improvements		Lesser of useful life or term of lease
Office equipment and furniture (in years)		3
Machinery and equipment (in years)		3

Upon sale or retirement of property and equipment, the costs and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses. Maintenance and repairs are charged to operations as incurred.

Depreciation expense related to property and equipment for

2018,

2017

and

2016,

was

$1.2

million,

$1.0

million and

$0.8

million respectively. Amortization expense for vehicles leased under capital leases is included in depreciation expense.

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite useful lives are

not

amortized, but are tested for impairment at least annually during the

fourth

fiscal quarter, or if circumstances indicate their value

may

longer be recoverable. Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities.

The Company continues to operate in

one

segment, which is considered to be the sole reporting unit and, therefore, goodwill was tested for impairment at the enterprise level. As of

December 31, 2018,

there has been

impairment of goodwill. All acquired intangible assets have been fully amortized as of

December 31, 2018.

Warranty Obligations

The Company offers post-warranty services to its customers through extended service contracts that cover replacement parts and labor for a term of one, two, or

three

years. For sales to distributors, the Company generally provides a

month warranty for parts only, with labor being provided to the end customer by the distributor.

The Company also offers services on a time-and-materials basis for detachable hand piece replacements, parts and labor. These post-warranty services serve as additional sources of recurring revenue from the Company’s installed product base.

Deferred Sales Commissions

Incremental costs of obtaining a contract, including sales commissions, are capitalized and amortized on a straight-line basis over the expected customer relationship period. The Company uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally

two

three

years for the Company’s product and service arrangements.

Total capitalized costs for the year ended

December 31, 2018

was

$5.2

million and are included in other long-term assets in the Company’s consolidated balance sheet. Amortization of this asset was

$1.8

million during the year ended

December 31, 2018

and is included in sales and marketing expense in the Company’s consolidated statements of operations.

Cost of Revenue

Cost of revenue consists primarily of material, finished and semi-finished products purchased from

third

-party manufacturers, labor, stock-based compensation expenses, overhead involved in the Company's internal manufacturing processes, service contracts technology license amortization and royalties, costs associated with product warranties and any inventory write-downs.

The Company's system sales include a control console, universal graphic user interface, control system software, high voltage electronics and a combination of applications (referred to as hand pieces). Hand pieces are programmed to have a limited number of uses to ensure the safety of the device to patients. The Company sells refurbished hand pieces, or "refills," of its

Titan

and

truSculpt

products and provides for the cost of refurbishment of these hand pieces as part of cost of revenue. When customers purchase a replacement hand piece or are provided a replacement hand piece under a warranty or service contract, the Company ships the customer a previously refurbished unit. Upon the receipt of the expended hand piece from the customer, the Company capitalizes the expended hand piece as inventory at the estimated fair value. Cost of revenue includes the costs incurred to refurbish hand pieces.

Research and Development Expenditures

Research and development costs are expensed as incurred and include costs related to research, design, development, testing of products, salaries, benefits and other headcount related costs, facilities, material,

third

party contractors, regulatory affairs, clinical and development costs.

Advertising Costs

Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for

2018,

2017

and

2016

were

$2.8

million,

$1.8

million and

$1.3

million, respectively.

Stock-based Compensation

The Company accounts for share-based employee compensation plans using the fair value recognition and measurement provisions under U.S. GAAP. The Company’s share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period. The Company estimates expected forfeitures at the time of grant and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimated.

Expected Term

: The expected term represents the weighted-average period that the stock options are expected to be outstanding prior to being exercised. The Company determines expected term based on historical exercise patterns and its expectation of the time it will take for employees to exercise options still outstanding.

Expected Volatility:

The underlying stock price volatility of our stock. The Company estimates volatility based on a

blend of our historical volatility and the implied volatility of freely traded options of our stock in the open market.

Risk-Free Interest Rate:

The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for the expected term of the stock option.

●

The fair value of stock options ("options") on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option's expected term and the price volatility of the underlying stock, to determine the fair value of award. The Company recognizes the expense associated with options using a single award approach over the requisite service period. The Company accounts for all stock options awarded to non-employees at the fair value of the consideration received or the fair value of the equity instrument issued, as calculated using the Black-Scholes model.

●

The fair value of restricted stock units is determined based on the closing quoted

-day moving average price of the Company’s common stock on the day of the grant.

●

The fair value of Performance Stock Units (“PSUs”) that have operational measurement goals, are measured at the

-day moving average price of the Company’s stock on the date of grant. PSUs with market-based measurement goals are valued using the Monte-Carlo simulation option-pricing model. The Monte-Carlo simulation option-pricing model uses the same input assumptions as the Black-Scholes model, however, it further incorporates into the fair-value determination the possibility that the market condition

may

not

be satisfied.

See Note

- Stockholders’ Equity, Stock Plans and Stock-Based Compensation Expense for a detailed discussion of the Company’s stock plans and share-based compensation expense.

Income Taxes

The Company is subject to taxes on earnings in both the U.S. and various foreign jurisdictions. As a global taxpayer, significant judgments and estimates are required in evaluating our uncertain tax positions and determining our provision for income taxes on earnings. The Company recognizes tax benefits from uncertain tax positions only if it is more likely than

not

that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than

50%

likelihood of being realized upon ultimate settlement.

The Company’s effective tax rates have differed from the statutory rate primarily due to changes in the valuation allowance, foreign operations, research and development tax credits, state taxes, and certain benefits realized related to stock option activity. The Company’s current effective tax rate does

not

assume U.S. taxes on undistributed profits of foreign subsidiaries. These earnings could become subject to incremental foreign withholding or U.S. federal and state taxes, should they either be deemed or actually remitted to the U.S. The Company’s future effective tax rates could be adversely affected by earnings being lower in countries where the Company has lower statutory rates and being higher in countries where the Company has higher statutory rates, or by changes in tax laws, accounting principles, interpretations thereof, net operating loss carryback, research and development tax credits, and due to changes in the valuation allowance of its U.S. deferred tax assets. In addition, the Company is subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

Undistributed earnings of the Company’s foreign subsidiaries at

December 31, 2018

are considered to be indefinitely reinvested and, accordingly,

provision for federal and state income taxes has been provided thereon. Due to the Transition Tax and Global Intangible Low-Tax Income (“GILTI”) regimes as enacted by the

2017

Tax Act, those foreign earnings will

not

be subject to federal income taxes when actually distributed in the form of a dividend or otherwise. The Company, however, could still be subject to state income taxes and withholding taxes payable to various foreign countries. The amounts of taxes which the Company could be subject to are

not

material to the accompanying financial statements.

December

2017,

the SEC staff issued Staff Accounting Bulletin

No.

118,

Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB

118”

), which allows companies to record provisional amounts during a measurement period

not

to extend beyond

one

year of the enactment date. Since the

2017

Tax Act was passed late in the

fourth

quarter of

2017,

and ongoing guidance and accounting interpretation was yet to be issued, the Company’s accounting of the transition tax and deferred tax re-measurements was incomplete as of

December

31,

2017.

The Company filed its

2017

Federal corporate income tax return in the

fourth

quarter of

2018.

The Company’s final analysis and impact of the

2017

Tax Act is reflected in the tax provision and related tax disclosures for the year ended

December

31,

2018.

There was a net increase of approximately

$0.4

million to the originally estimated

$7.3

million remeasurement of deferred tax assets. The Company considers the

$0.4

million true-up to be an immaterial change in estimate which has been reflected within the measurement period in accordance with SAB

118.

January

2018,

the FASB released guidance on the accounting for tax on the GILTI provisions of the

2017

Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. The Company has elected to treat any taxes on GILTI inclusions as a period cost.

Computation of Net Income (

Loss)

per Share

Basic net income per share is computed using the weighted average number of shares outstanding during the period. Diluted net income per share is computed using the weighted average number of the Company’s shares and dilutive potential shares outstanding during the period. Dilutive potential shares primarily consist of employee stock options, restricted stock units, and shares to be purchased by employees under the Company’s employee stock purchase plan.

GAAP requires that employee equity share options, non-vested shares, and similar equity instruments granted by the Company be treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include the dilutive effect of equity awards, which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options and the amount of compensation cost for future service that the Company has

not

yet recognized are assumed to be used to repurchase shares. Diluted earnings per share (“EPS”) is same as basic when the Company incurs a loss.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. For the periods presented, the accumulated other comprehensive income (loss) consisted solely of the unrealized gains or losses on the Company's available for- sale investments, net of tax.

Foreign Currency

The U.S. Dollar is the functional currency of the Company’s subsidiaries. Monetary assets and liabilities are re-measured into U.S. Dollars at the applicable period end exchange rate. Sales and operating expenses are re-measured at average exchange rates in effect during each period. Gains or losses resulting from foreign currency transactions are included in net income (loss) and are insignificant for each of the

three

years ended

December 31, 2017.

The effect of exchange rate changes on cash and cash equivalents was insignificant for each of the

three

years presented in the period ended

December 31, 2018.

Segments

The Company operates in

one

segment. Management uses

one

measurement of profitability and does

not

segregate its business for internal reporting. As of

December 31, 2018,

and

2017,

89%

and

98%

of long-lived assets were in the United States, respectively. Revenue is attributed to a geographic region based on the location of the end customer. See Note

– Segment Information and Revenue by Geography and Products for details relating to revenue by geography.

Note 2 - Investment Securities

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Cash, Cash Equivalents, and Marketable Securities [Text Block]

NOTE

—INVESTMENT SECURITIES

The following tables summarize cash, cash equivalents and marketable securities (in thousands):

	December 31,
	201 8		20 1 7
Cash and cash equivalents:
Cash	$	21,969	$	14,058
Cash equivalents:
Money market funds		4,083		126
Total cash and cash equivalents		26,052		14,184

Marketable securities:
U.S. government notes		1,397		11,870
U.S. government agencies		2,677		—
Municipal securities		200		200
Commercial paper		2,433		1,833
Corporate debt securities		2,816		7,825
Total marketable securities		9,523		21,728

Total cash, cash equivalents and marketable securities	$	35,575	$	35,912

The following table summarizes unrealized gains and losses related to the Company’s marketable investments (in thousands):

December 31, 201 8	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	26,052	$	—	$	—		$	26,052

Marketable investments
U.S. government notes		1,397		—		—			1,397
U.S. government agencies		2,677		—		—			2,677
Municipal securities		200		—		—			200
Commercial paper		2,433		—		—			2,433
Corporate debt securities		2,825		—		(9	)		2,816
Total marketable securities		9,532				(9	)		9,523

Total cash, cash equivalents and marketable securities	$	35,584	$		$	(9	)	$	35,575

December 31, 201 7	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
Cash and cash equivalents	$	14,184	$	—	$	—		$	14,184

Marketable investments
U.S. government notes		11,885		—		(15	)		11,870
Municipal securities		201		—		(1	)		200
Commercial paper		1,836		—		(3	)		1,833
Corporate debt securities		7,838		2		(15	)		7,825
Total marketable securities		21,760		2		(34	)		21,728

Total cash, cash equivalents and marketable securities	$	35,944	$	2	$	(34	)	$	35,912

investments were in a continuous unrealized loss position for longer than

months as of

December 31, 2018

and

2017.

The unrealized losses on the available-for-sale investments are related to corporate securities and government securities. The Company determined these unrealized losses to be temporary. Factors considered in determining whether a loss is temporary included the length of time and extent to which the investment’s fair value has been less than the cost basis; the financial condition and near-term prospects of the investee; extent of the loss related to credit of the issuer; the expected cash flows from the security; the Company’s intent to sell the security; and whether or

not

the Company will be required to sell the security before the recovery of its amortized cost.

The following table summarizes the estimated fair value of the Company’s marketable investments classified by the contractual maturity date of the security as of

December 31, 2018 (

in thousands):

	Amount
Due in less than one year	$	9,121
Due in 1 to 3 years		402
Total marketable securities	$	9,523

Fair Value Measurements

The following table summarizes financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above (in thousands):

December 31, 201 8	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	4,083	$	—	$	—	$	4,083
Short term marketable investments:
Available-for-sale securities		—		9,523		—		9,523
Total assets at fair value	$	4,083	$	9,523	$	—	$	13,606

December 31, 201 7	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	126	$	—	$	—	$	126
Commercial paper		—		—		—		—
Short term marketable investments:
Available-for-sale securities		—		21,728		—		21,728
Total assets at fair value	$	126	$	21,728	$	—	$	21,854

The Company’s Level

financial assets are money market funds with fair values that are based on quoted market prices. The Company’s Level

investments include U.S. government-backed securities and corporate securities that are valued based upon observable inputs that

may

include benchmark yields, reported trades, broker/dealer quotes, issuer spreads,

two

-sided markets, benchmark securities, bids, offers and reference data including market research publications. The average remaining maturity of the Company’s Level

investments as of

December 31, 2018

is less than

months and all of these investments are rated by S&P and Moody’s at A or better. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were

transfers within the hierarchy during the years ended

December 31, 2018

2017.

Note 3 - Balance Sheet Detail

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Supplemental Balance Sheet Disclosures [Text Block]

NOTE

—BALANCE SHEET DETAIL

Inventories

Inventories consist of the following (in thousands):

	December 31,
	201 8		201 7
Raw materials	$	16,991	$	19,160
Work in process		2,306		2,744
Finished goods		8,717		6,878
Total	$	28,014	$	28,782

Property and Equipment, net

Property and equipment, net, consists of the following (in thousands):

	December 31,
	201 8		201 7
Leasehold improvements	$	660	$	640
Office equipment and furniture		2,835		2,370
Machinery and equipment		7,304		6,277
		10,799		9,287
Less: Accumulated depreciation		(8,127)		(7,191)
Property and equipment, net	$	2,672	$	2,096

Included in machinery and equipment are financed vehicles used by the Company’s North American sales employees. As of

December 31, 2018

and

2017,

the gross capitalized value of the leased vehicles was

$1.9

million and

$1.6

million and the related accumulated depreciation was

$1.1

million and

$0.7

million, respectively. Included in Property and equipment is construction in progress of

$0.4

million that is yet to be depreciated.

Goodwill and Other

Intangible Assets

Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in

2006,

intangible assets and goodwill related to the acquisition of Iridex’s aesthetic business unit, and, customer relationships in the Benelux countries acquired from a former distributor in

2013.

The components of intangible assets at

December 31, 2018

and

2017

were as follows (in thousands):

	Gross Carrying Amount		Accumulated Amortization & Impairment Amount		Net Amount
December 31, 201 8
Patent sublicense	$	1,218	$	1,218	$	—
Customer relationship intangible related to acquisition		2,510		2,510		—
Other identified intangible assets related to acquisition		780		780		—
Other intangible		155		155		—
Goodwill		1,339		—		1,339
Total	$	6,002	$	4,663	$	1,339
December 31, 201 7
Patent sublicense	$	1,218	$	1,218	$	—
Customer relationship intangible related to acquisition		2,510		2,510		—
Other identified intangible assets related to acquisition		780		780		—
Other intangible		155		155		—
Goodwill		1,339		—		1,339
Total	$	6,002	$	4,663	$	1,339

The Company did

not

incur any amortization expense for intangible assets in

2018.

Amortization expense in the

2017

and

2016

fiscal years for intangible assets was

$2,000

and

$141,000,

respectively. Intangible assets were fully amortized and there were

additions as of

December 31, 2018.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	December 31,
	201 8		201 7
Accrued payroll and related expenses	$	9,377	$	12,567
Sales and marketing accruals		2,379		3,710
Accrued sales tax		2,935		2,920
Warranty liability		4,666		3,508
Other accrued liabilities		3,943		4,143
Total	$	23,300	$	26,848

Product Remediation Liability

During the

fourth

quarter of

2018,

the Company recognized a liability for a product remediation plan related to of

one

of its legacy systems. This was related to a voluntary action initiated by the Company to replace a component in

one

of the Company’s legacy products. The developed remediation plan consists primarily of replacement of a component in the system. The accrued liability consisted of cost of materials and labor costs to replace the component in all units that are under the Company's standard warranty or are covered under the existing extended warranty contracts. . The Company recorded approximately

$5.0

million related to this remediation, of which

$1.1

million was utilized in the

fourth

quarter. Approximately

$0.8

million out of the

$5.0

million is included in accrued liabilities and

$3.2

million is separately recorded as extended warranties.

Note 4 - Warranty and Extended Services Contracts

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

NOTE

—

ARRANTY AND EXTENDED SERVICES CONTRACT

The Company has a direct field service organization in North America (including Canada). Internationally, the Company provides direct service support in Australia, Belgium, France, Germany, Hong Kong, Japan, and Switzerland, as well as through

third

-party service providers in Spain and the United Kingdom. In several other countries, where the Company does

not

have a direct presence, the Company provides service through a network of distributors and

third

-party service providers.

After the original warranty period, maintenance and support are offered on an extended service contract basis or on a time and materials basis. The Company provides for the estimated cost to repair or replace products under standard warranty at the time of sale. Costs incurred in connection with extended service contracts are recognized at the time when costs are incurred, except the

one

-time extended service contracts charge of

$3.2

million related to the cost to replace a component in

one

of the Company's legacy products.. The following table provides the changes in the product standard warranty accrual for the years ended

December 31, 2018

and

2017

(in thousands):

	December 31,
	201 8			201 7
Balance at beginning of year	$	3,508		$	2,461
Add: Accruals for warranties issued during the period		9,205			7,583
Less: Warranty related expenses during the period		(8,045	)		(6,536	)
Balance at end of year	$	4,668		$	3,508

Note 5 - Deferred Revenue

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE

—

DEFERRED REVENUE

The Company records deferred revenue when revenue is to be recognized subsequent to invoicing. For extended service contracts, the Company generally invoices customers at the beginning of the extended service contract term. The Company’s extended service contracts typically have one,

two

three

year terms. Deferred revenue also includes payments for installation, training and extended marketing support service. Approximately

79%

of the Company’s deferred revenue balance of

$12.6

million as of

December 31, 2018

will be recognized over the next

months.

The following table provides changes in the deferred contract revenue balance for the years ended

December 31, 2018

and

2017

(in thousands):

	December 31,
	201 8			201 7
Balance at beginning of year	$	10,719		$	9,431
Add: Payments received		14,882			14,369
Less: Revenue recognized		(13,746	)		(13,081	)
Balance at end of year	$	11,855		$	10,719

Costs for extended service contracts in

2018,

2017

and

2016

were

$7.8

million,

$6.0

million and

$6.7

million, respectively. The

$7.8

million in

2018

includes a

one

-time extended service contract cost of

$3.2

million to replace a component in

one

of the Company's legacy products (See Note

Note 6 - Stockholders' Equity, Stock Plans and Stock-based Compensation Expense

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE

—STOCKHOLDERS’ EQUITY, STOCK PLANS AND STOCK-BASED COMPENSATION EXPENSE

As of

December 31, 2018,

the Company had the following stock-based employee compensation plans:

2004

Equity Incentive Plan and

1998

Stock Plan

1998,

the Company adopted the

1998

Stock Plan, or

1998

Plan, under which

4,650,000

shares of the Company’s common stock were reserved for issuance to employees, directors and consultants.

January 12, 2004,

the Board of Directors adopted the

2004

Equity Incentive Plan. A total of

1,750,000

shares of common stock were originally reserved for issuance pursuant to the

2004

Equity Incentive Plan. In addition, the shares reserved for issuance under the

2004

Equity Incentive Plan included shares reserved but un-issued under the

1998

Plan and shares returned to the

1998

Plan as the result of termination of options or the repurchase of shares. In

2012

the stockholders approved a “fungible share” provision whereby each full-value award issued under the

2004

Equity Incentive Plan results in a requirement to subtract

2.12

shares from the shares reserved under the Plan.

Options granted under the

1998

Plan and

2004

Equity Incentive Plan

may

be incentive stock options or non-statutory stock options. Stock purchase rights

may

also be granted under the

2004

Equity Incentive Plan. Incentive stock options

may

only be granted to employees. The Board of Directors determines the period over which options become exercisable. Options granted under the Plan to employees generally vest over a

four

-year term from the vesting commencement date and become exercisable

25%

on the

first

anniversary of the vesting commencement date and an additional

1/48th

on the last day of each calendar month until all of the shares have become exercisable. During

2013

and

2012

the officers of the Company were granted options that vest over a

three

-year term at the rate of

one

third

on the

one

-year anniversary of the vesting commencement date and

1/36th

thereafter. In

2014

the officers of the Company were granted RSUs and PSUs but were

not

granted any options. The contractual term of the options granted in

2013

and

2012

was

seven

years.

In accordance with the

2004

Equity Incentive Plan, prior to

2012,

the Company’s non-employee directors were granted

$60,000

of grant fair value (determined by dividing the award amount by the

-day moving average stock price on the day of the award), fully vested, stock awards annually on the date of the Company’s Annual Meeting of stockholders. Following Board of Directors action on

October 31, 2017,

the Company’s nonemployee directors receive

$60,000

of RSUs granted annually that cliff-vest on the

one

-year anniversary of the grant date. In the years ended

December 31, 2018,

2017

and

2016,

the Company issued

13,392,

21,605

and

45,350

RSUs, respectively, to its non-employee directors. Included in the

2016

grants, was

6,500

RSUs granted to

one

of the Company's non-employee directors for consulting services to the Company, which vest over a period of

four

years from the grant date.

In the years ended

December 31, 2018,

2017

and

2016

the Company’s Board of Directors granted

120,273,

270,707

and

229,865

RSUs, respectively, to its executive officers and certain members of the Company’s management. The RSUs granted to the employees vest at the rate of

one

fourth

on the

one

-year anniversary of the grant date, and

one

fourth

in each of the subsequent

three

years. The annual RSUs granted to the executive officers vests at the rate of

one

third

on the

one

-year anniversary of the grant date, and

one

third

in each of the subsequent

two

years. In addition, on

December 15, 2017,

the Company’s Board granted

100,000

RSUs to the President and Chief Executive Officer, which vest according to the following schedule:

15%,

25%

and

45%

on the first, second,

third

and

fourth

anniversary of the grant date, respectively. The Company measured the fair market values of the underlying stock on the dates of grant and recognizes the stock-based compensation expense over the vesting period. On the vesting date, the Company issues fully paid up common stock, net of stock withheld to settle the recipient’s minimum statutory tax liability.

In the years ended

December 31, 2018,

2017

and

2016

the Company’s Board of Directors granted its executive officers and certain senior management employees

49,498,

117,418

and

204,976

of PSUs, respectively. All PSUs vesting was subject to the recipient’s continued service and achievement of pre-established goals that were operational (in

2018,

2017

and

2016

). The operational PSU goals were related to revenue growth, operating income improvement and specific product releases. On the vest date of the PSUs, the Company issues fully-paid up common stock, based on the degree of achievement of the pre-established targets, net of the stock withheld to settle the recipient’s minimum statutory tax liability.

50%

of the U.S. domestic metric was achieved while international metric was

not

achieved in

2018.

2004

Employee Stock Purchase Plan

January

12,

2004,

the Board of Directors adopted the

2004

Employee Stock Purchase Plan. Under the

2004

Employee Stock Purchase Plan, or

2004

ESPP, eligible employees are permitted to purchase common stock at a discount through payroll deductions. The

2004

ESPP offering and purchase periods are for approximately

six

months. The

2004

ESPP has an evergreen provision based on which shares of common stock eligible for purchase are increased on the

first

day of each fiscal year by an amount equal to the lesser of:

600,000

shares;

ii.

2.0%

of the outstanding shares of common stock on such date; or

iii.

an amount as determined by the Board of Directors.

The Company’s Board of Directors did

not

increase the shares available for future grant on

January 1, 2019,

2018

and

2017.

The price of the common stock purchased is the lower of

85%

of the fair market value of the common stock at the beginning or end of a

six

month offering period. In the years ended

December 31, 2018,

2017and

2016,

under the

2004

ESPP, the Company issued

64,511,

78,479

and

79,922

shares, respectively. At

December 31, 2018,

627,073

shares remained available for future issuance.

Option Activity

Activity under the

1998

Plan and

2004

Equity Incentive Plan is summarized as follows:

				Options Outstanding
	Shares Available For Grant			Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in $ millions ) (1)
Balances as of December 31, 2015		1,263,425			2,148,797		$	9.31		3.4	$	7.9
Options granted		(162,000	)		162,000		$	11.55
Options exercised		—			(1,051,138	)	$	8.89
Options cancelled (expired or forfeited)		143,187			(143,187	)	$	12.93
Stock awards granted		(1,018,005	)		—			—
Stock awards cancelled (expired or forfeited)		495,050			—			—

Balances as of December 31, 2016		721,657			1,116,472		$	9.56		3.7	$	8.7

Options granted		(278,250	)		278,250		$	31.00
Options exercised		—			(488,398	)	$	8.96
Options cancelled (expired or forfeited)		66,405			(66,405	)	$	16.54
Stock awards granted		(873,881	)		—			—
Stock awards cancelled (expired or forfeited)		258,935			—			—
Additional shares reserved (2)		1,600,000			—			—
Balances as of December 31, 2017		1,494,866			839,919		$	16.46		3.99	$	24.4
Options granted		(21,010	)		21,010		$	50.65
Options exercised		—			(271,902	)	$	9.99
Options cancelled (expired or forfeited)		81,322			(81,322	)	$	21,55
Stock awards granted