SEC Filing | Cutera Inc.

View:

cutr-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to_____.

Commission File Number: 000-50644

Cutera, Inc.

(Exact name of registrant as specified in its charter)


Delaware			77-0492262
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3240 Bayshore Blvd., Brisbane, California 94005

(Address of principal executive offices)

(415) 657-5500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.001 par value)	CUTR	The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No x

The number of shares of Registrant’s common stock issued and outstanding as of May 5, 2023, was 19,835,472.

Table of Contents

EXPLANATORY NOTE

Cutera, Inc., a Delaware corporation (“we”, “us”, “our”, the “Company” or “Cutera”), is filing this Amendment No. 1 to Form 10-Q (this “Amendment” or “Form 10-Q/A”) to amend and restate certain items in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 originally filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2023 (the “Original 10-Q”, and, as amended by this Amendment, the “Quarterly Report”) to reflect the restatement of the Company’s financial statements as of and for the quarter ended March 31, 2023 contained in the Original 10-Q (the “Restatement”).

Background of Restatement

As previously reported in the Form 8-K filed on December 21, 2023, the Company performed a physical inventory count at the end of the third quarter of its fiscal year ending December 31, 2023. The physical inventory count identified a shortfall of inventory relative to the Company's system of record, resulting in an error overstating the inventory in the condensed consolidated balance sheets as of March 31, 2023 and June 30, 2023 and corresponding understatement of cost of revenue in the condensed consolidated statements of operations for the periods then ended.

The Company concluded that a restatement was necessary to correct the misstatement in inventory, cost of revenue, and disclosures of basic and diluted earnings (loss) per share for the first and second quarters of the 2023 fiscal year. The Company also determined to correct other misstatements that were identified and deemed immaterial in previous periods, as further detailed in Note 1 – Restatement of Previously Issued Financial Statements.

On December 21, 2023, the Board of Directors of Cutera, upon the recommendation of its Audit Committee, and in consultation with management of the Company and the Company’s independent registered public accounting firm, BDO USA, P.C. (“BDO”), concluded that certain items of the Company’s previously issued unaudited condensed consolidated interim financial statements as of and for the fiscal periods ended March 31, 2023 and June 30, 2023 included in the Company’s Quarterly Reports on Form 10-Q for such periods should no longer be relied upon and that the Company needed to restate these previously issued financial statements. Similarly, earnings releases, and investor communications describing the financial statements for the periods described above should no longer be relied upon.

For a more detailed description of the financial impact of the Restatement, see Note 1 – Restatement of Previously Issued Financial Statements, to the unaudited condensed consolidated financial statements contained in this Amendment and “Restatement of Previously Issued Financial Statements” under Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in this Amendment.

Concurrently with the filing of this Amendment, the Company is filing an amendment to its Quarterly Report on Form 10-Q as of and for the period ended June 30, 2023.

Internal Control Considerations

The Company’s management identified material weaknesses in its internal control over financial reporting, which were previously identified in connection with, and disclosed in, the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on April 7, 2023, as amended on May 1, 2023, and the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2023, and as of and for the three and six months ended June 30, 2023.

In connection with the Company's review and preparation of its financial statements leading to the Restatement, management identified an additional material weakness. Specifically, the Company failed to design, maintain and monitor a risk assessment program at a sufficiently precise level and therefore failed to identify new and evolving risks related to accounting policies, procedures and related controls performed over areas including, but not limited to inventory, revenues and lease income, costs for leased devices, and testing of certain key reports used in controls. Consequently, the Company failed to timely implement new controls to respond to changes in the business and leadership.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the financial statements will not be prevented or detected and corrected on a timely basis. Therefore, the Company’s management concluded that material weaknesses exist in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective as of March 31, 2023. For further information regarding the effectiveness of the Company’s disclosure controls and procedures, see Part I, Item 4, “Controls and Procedures”, included in this Amendment.

Items Amended in the Form 10-Q/A

Table of Contents

The following items are amended and restated in their entirety in this Amendment: (i) Part I, Item 1, “Financial Statements”; Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and Item 4, “Controls and Procedures”; and (ii) Part II, Item 6, “Exhibits”.

Pursuant to Rule 12b-15 promulgated under the Securities Act of 1934, as amended (the “Exchange Act”), this Amendment also contains new currently dated certifications by the Company's principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002.

Except as described above, this Amendment does not amend, update or change any other disclosures in the Original 10-Q. In addition, the information contained in this Amendment does not reflect events occurring after the filing of the Original 10-Q and does not modify or update the disclosures therein. Among other things, forward-looking statements made in the Original 10-Q have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original 10-Q, other than with respect to the Restatement, and such forward-looking statements should be read in conjunction with the Company's filings with the SEC, including those subsequent to the filing of the Original 10-Q. Unless otherwise stated or unless the context otherwise requires, defined terms used throughout this Amendment have the meanings ascribed to them in the Original 10-Q.

Table of Contents

CUTERA, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4	Controls and Procedures	47

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	49
Item 1A	Risk Factors	49
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3	Defaults Upon Senior Securities	51
Item 4	Mine Safety Disclosures	51
Item 5	Other Information	51
Item 6	Exhibits	52
	Signature	53

Table of Contents

In this Amendment, “Cutera,” “the Company,” “we,” “us” and “its” refer to Cutera, Inc. and its consolidated subsidiaries.

This report may contain references to its proprietary intellectual property, including among others, trademarks for its systems and ancillary products, “CUTERA®,” “AVI360®,” “AVICARE®," “AVICLEAR®," “AVICOOL®, "ACUTIP 500®," “COOLGLIDE®,” “CUCF®,” “CUTERA UNIVERSITY CLINICAL FORUM®,” “ENLIGHTEN®,” “EXCEL HR®,” “EXCEL V®,” “EXCEL V+™,” “GENESIS®,” “LASER GENESIS®,” “LIMELIGHT®,” "MYQ®," “PEARL®,” “PICO GENESIS®,” “PROWAVE 770®,” “SOLERA®,” “TITAN®,” “TRUBODY®,” “TRUFLEX™,” “TRUSCULPT®,” “TRUSCULPT ID®,” “TRUSCULPT FLEX®,” “VANTAGE®,” and “XEO®.

These trademarks and trade names are the property of Cutera or the property of its consolidated subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, its trademarks and tradenames referred to in this Amendment may appear without the ® or symbols, but such references are not intended to indicate in any way that the Company will not assert, to the fullest extent under applicable law, its rights to these trademarks and tradenames.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

CUTERA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	March 31, 2023		December 31, 2022
	(As Restated)
Assets
Current assets:
Cash and cash equivalents	$	166,828	$	145,924
Marketable investments	100,823		171,390
Accounts receivable, net of allowance for credit losses of $2,722 and $2,497, respectively	51,747		45,562
Inventories, net	69,791		63,628
Other current assets and prepaid expenses	26,156		24,036
Restricted cash	700		700
Total current assets	416,045		451,240
Property and equipment, net	52,216		40,368
Deferred tax assets	577		590
Goodwill	1,339		1,339
Operating lease right-of-use assets	12,059		12,831
Other long-term assets	14,343		14,620
Total assets	$	496,579	$	520,988

Liabilities and Stockholders' deficit
Current liabilities:
Accounts payable	$	35,169	$	33,736
Accrued liabilities	58,660		57,452
Operating lease liabilities	2,722		2,810
Deferred revenue	12,056		11,841
Total current liabilities	108,607		105,839

Deferred revenue, net of current portion	1,643		1,657
Operating lease liabilities, net of current portion	10,652		11,352
Convertible notes, net of unamortized debt issuance costs of $12,114 and $12,666, respectively	417,011		416,459
Other long-term liabilities	711		862
Total liabilities	538,624		536,169

Commitments and Contingencies (Note 14)

Stockholders’ deficit:
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 19,785,107 and 19,668,603 shares at March 31, 2023 and December 31, 2022, respectively	20		20
Additional paid-in capital	126,504		125,406
Accumulated other comprehensive loss	(8)		(94)
Accumulated deficit	(168,561)		(140,513)
Total stockholders’ deficit	(42,045)		(15,181)
Total liabilities and stockholders’ deficit	$	496,579	$	520,988

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,
	2023		2022
	(As Restated)
Net revenue:
Products	$	49,121	$	52,066
Service	5,405		5,948
Total net revenue	54,526		58,014
Cost of revenue:
Products	30,059		22,912
Service	2,835		3,314
Total cost of revenue	32,894		26,226
Gross profit	21,632		31,788

Operating expenses:
Sales and marketing	29,512		24,944
Research and development	6,468		6,499
General and administrative	12,253		13,502
Total operating expenses	48,233		44,945
Loss from operations	(26,601)		(13,157)
Interest and other expense, net:
Amortization of debt issuance costs	(552)		(219)
Interest on convertible notes	(2,939)		(778)

Interest income (expense), net	2,479		(144)
Other expense, net	(163)		(611)
Total interest and other expense, net	(1,175)		(1,752)
Loss before income taxes	(27,776)		(14,909)
Income tax expense	272		233
Net loss	$	(28,048)	$	(15,142)

Net loss per share:
Basic	$	(1.42)	$	(0.84)
Diluted	$	(1.42)	$	(0.84)
Weighted-average number of shares used in per share calculations:
Basic	19,776		18,080
Diluted	19,776		18,080

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(Unaudited)


	Three Months Ended March 31,
	2023		2022
	(As Restated)
Net loss	$	(28,048)	$	(15,142)
Other comprehensive loss:
Available-for-sale investments
Net change in unrealized loss on available-for-sale investments	86		(11)
Other comprehensive loss, net of tax	86		(11)
Comprehensive loss	$	(27,962)	$	(15,153)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts)

Three Months Ended March 31, 2023 and 2022

(As Restated)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Deficit
	Shares	Amount
Balance at December 31, 2022	19,668,603	$	20	$	125,406	$	(140,513)	$	(94)	$	(15,181)

Exercise of stock options	5,775	—		109		—		—		109
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes	110,729	—		(2,397)		—		—		(2,397)
Stock-based compensation expense	—	—		3,386		—		—		3,386


Net change in unrealized loss on available-for-sale investments	—	—		—		—		86		86
Net loss	—	—		—		(28,048)		—		(28,048)
Balance at March 31, 2023	19,785,107	$	20	$	126,504	$	(168,561)	$	(8)	$	(42,045)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	17,995,344	$	18	$	114,724	$	(58,173)	$	—	$	56,569
Exercise of stock options	7,459	—		151		—		—		151
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes	130,146	—		(2,450)		—		—		(2,450)
Stock-based compensation expense	—	—		4,043		—		—		4,043
Net change in unrealized loss on available-for-sale investments	—	—		—		—		(11)		(11)
Net loss	—	—		—		(15,142)		—		(15,142)
Balance at March 31, 2022	18,132,949	$	18	$	116,468	$	(73,315)	$	(11)	$	43,160

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
	(As Restated)
Cash flows from operating activities:
Net loss	$	(28,048)	$	(15,142)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	3,386		4,043
Depreciation and amortization	1,409		427
Amortization of contract acquisition costs	2,178		652
Amortization of debt issuance costs	552		219


Deferred tax assets	13		41

Provision for credit losses	225		192
Loss on sale of property and equipment	—		14
Unrealized gain on foreign exchange forward	(623)		—
Accretion of discount on investment securities and investment income, net	(34)		—
Changes in assets and liabilities:
Accounts receivable	(6,410)		(1,912)
Inventories	(6,163)		(12,177)
Other current assets and prepaid expenses	(2,053)		(5,611)
Other long-term assets	(2,011)		(385)
Accounts payable	(1,330)		5,755
Accrued liabilities	1,706		(5,989)
Operating leases, net	(16)		30
Deferred revenue	201		239
Net cash used in operating activities	(37,018)		(29,604)
Cash flows from investing activities:
Acquisition of property and equipment	(10,353)		(321)

Proceeds from maturities of marketable investments	94,154		—
Purchase of marketable investments	(23,467)		(74,058)
Net cash provided by (used in) investing activities	60,334		(74,379)
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan	109		151
Taxes paid related to net share settlement of equity awards	(2,397)		(2,450)





Payments on finance lease obligations	(124)		(150)
Net cash used in financing activities	(2,412)		(2,449)
Net increase (decrease) in cash, cash equivalents and restricted cash	20,904		(106,432)
Cash, cash equivalents, and restricted cash at beginning of period	146,624		164,864
Cash, cash equivalents, and restricted cash at end of period	$	167,528	$	58,432
Supplemental non-cash investing and financing activities:
Assets acquired under finance lease	$	33	$	57
Assets acquired under operating lease	$	57	$	320

Acquisition of property and equipment	$	6,894	$	—
Supplemental disclosure of cash flow information:
Cash paid for interest	$	778	$	1,577
Income tax paid	$	483	$	1,100

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

Table of Contents

CUTERA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Restatement of Previously Issued Financial Statements

Background of Restatement

The accompanying unaudited condensed consolidated financial statements have been restated to correct errors related to (1) an accounting error identified as a result of a physical inventory count performed by the Company and (2) other accounting adjustments identified that were deemed immaterial. The details of the errors are further described below:

1.The Company determined that, as a result of an accounting error identified by the physical inventory count, there was a shortfall of inventory relative to the Company's system of record. The effect of this error was an overstatement of $1.2 million of inventory on the condensed consolidated balance sheet as of March 31, 2023. This error resulted in an associated understatement of $1.2 million of cost of revenue on the condensed consolidated statement of operations for the three months ended March 31, 2023.

2.The Company corrected certain other errors that were deemed immaterial to the related interim period and restated the financial statements for the quarter ended March 31, 2023. The details of these corrections are noted in the footnotes to the tables below.

The Company's basic and diluted losses per share for the three months ended March 31, 2023, increased by $0.16 per share. The Company's income tax expense for the three months ended March 31, 2023 did not change as a result of the restatement. The errors did not have an impact on the Company’s net cash or liquidity.

Table of Contents

Effect of Restatement

The effects of the accounting error on the Company's condensed consolidated balance sheet as of March 31, 2023 are as follows (in thousands):


	March 31, 2023		Adjustments			March 31, 2023
	(As Reported)					(As Restated)
Assets
Current assets:
Cash and cash equivalents	$	166,828	$	—		$	166,828
Marketable investments	100,823		—			100,823
Accounts receivable, net of allowance	52,138		(391)		(f), (h)	51,747
Inventories, net	71,819		(2,028)		(a), (c), (d)	69,791
Other current assets and prepaid expenses	26,156		—			26,156
Restricted cash	700		—			700
Total current assets	418,464		(2,419)			416,045
Property and equipment, net	53,016		(800)		(b), (e)	52,216
Deferred tax assets	577		—			577
Goodwill	1,339		—			1,339
Operating lease right-of-use assets	12,059		—			12,059
Other long-term assets	14,343		—			14,343
Total assets	$	499,798	$	(3,219)		$	496,579

Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$	35,169	$	—		$	35,169
Accrued liabilities	58,660		—			58,660
Operating lease liabilities	2,722		—			2,722
Deferred revenue	12,243		(187)		(g)	12,056
Total current liabilities	108,794		(187)			108,607
Deferred revenue, net of current portion	1,643		—			1,643
Operating lease liabilities, net of current portion	10,652		—			10,652
Convertible notes, net of unamortized debt issuance costs	417,011		—			417,011
Other long-term liabilities	711		—			711
Total liabilities	538,811		(187)			538,624

Stockholders’ deficit:
Common stock	20		—			20
Additional paid-in capital	126,504		—			126,504
Accumulated other comprehensive income (loss)	(8)		—			(8)
Accumulated deficit	(165,529)		(3,032)		(j)	(168,561)
Total stockholders’ deficit	(39,013)		(3,032)			(42,045)
Total liabilities and stockholders’ deficit	$	499,798	$	(3,219)		$	496,579

Table of Contents

The effects of the accounting error on the Company's condensed consolidated income statement for the three-month period ended March 31, 2023 are as follows (in thousands, except per share data):


	Three Months Ended March 31, 2023		Adjustments			Three Months Ended March 31, 2023
	(As Reported)					(As Restated)
Net revenue:
Products	$	49,588	$	(467)	(f), (g)	$	49,121
Service	5,405		—			5,405
Total net revenue	54,993		(467)			54,526
Cost of revenue:
Products	27,231		2,828		(a), (b), (c), (d), (e)	30,059
Service	2,835		—			2,835
Total cost of revenue	30,066		2,828			32,894
Gross profit	24,927		(3,295)			21,632

Operating expenses:
Sales and marketing	29,512		—			29,512
Research and development	6,468		—			6,468
General and administrative	12,516		(263)		(h)	12,253
Total operating expenses	48,496		(263)			48,233
Loss from operations	(23,569)		(3,032)			(26,601)
Interest and other expense, net:
Amortization of debt issuance costs	(552)		—			(552)
Interest on convertible notes	(2,939)		—			(2,939)

Interest income	2,479		—			2,479
Other expense, net	(163)		—			(163)
Total interest and other expense, net	(1,175)		—			(1,175)
Loss before income taxes	(24,744)		(3,032)			(27,776)
Income tax expense	272		—			272
Net loss	$	(25,016)	$	(3,032)	(j)	$	(28,048)

Net loss per share:
Basic	$	(1.26)	$	(0.16)		$	(1.42)
Diluted	$	(1.26)	$	(0.16)		$	(1.42)
Weighted-average number of shares used in per share calculation:
Basic	19,776		19,776			19,776
Diluted	19,776		19,776			19,776

Table of Contents

The effects of the accounting errors on the Company's condensed consolidated statement of cash flows for the three-month period ended March 31, 2023 are as follows (in thousands):


	Three Months Ended March 31,
	2023		Adjustments			2023
	(As Reported)					(As Restated)
Cash flows from operating activities:
Net loss	$	(25,016)	$	(3,032)	(j)	$	(28,048)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	3,386		—			3,386
Depreciation and amortization	1,409		—			1,409
Amortization of contract acquisition costs	2,178		—			2,178
Amortization of debt issuance costs	552		—			552


Deferred tax assets	13		—			13

Provision for credit losses	488		(263)		(h)	225

Unrealized gain on foreign exchange forward	(623)		—			(623)
Accretion of discount on investment securities and investment income, net	(880)		846		(i)	(34)
Changes in assets and liabilities:
Accounts receivable	(7,064)		654		(f)	(6,410)
Inventories	(8,191)		2,028		(a), (c), (d)	(6,163)
Other current assets and prepaid expenses	(2,053)		—			(2,053)
Other long-term assets	(2,011)		—			(2,011)
Accounts payable	(1,330)		—			(1,330)
Accrued liabilities	1,706		—			1,706
Operating leases, net	(16)		—			(16)
Deferred revenue	388		(187)		(g)	201
Net cash used in operating activities	(37,064)		46			(37,018)
Cash flows from investing activities:
Acquisition of property and equipment	(11,153)		800		(b), (e)	(10,353)

Proceeds from maturities of marketable investments	95,000		(846)		(i)	94,154
Purchase of marketable investments	(23,467)		—			(23,467)
Net cash provided by (used in) investing activities	60,380		(46)			60,334
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan	109		—			109
Taxes paid related to net share settlement of equity awards	(2,397)		—			(2,397)





Payments on finance lease obligations	(124)		—			(124)
Net cash used in financing activities	(2,412)		—			(2,412)
Net increase (decrease) in cash, cash equivalents and restricted cash	20,904		—			20,904
Cash, cash equivalents, and restricted cash at beginning of period	146,624		—			146,624
Cash, cash equivalents, and restricted cash at end of period	$	167,528	$	—		$	167,528
Supplemental non-cash investing and financing activities:
Assets acquired under finance lease	$	33	$	—		$	33
Assets acquired under operating lease	$	57	$	—		$	57

Acquisition of property and equipment	$	6,894	$	—		$	6,894
Supplemental disclosure of cash flow information:
Cash paid for interest	$	778	$	—		$	778
Income tax paid	$	483	$	—		$	483

Footnote to tables:

(a) Correction of the accounting error for the overstatement of inventory identified as a result of the physical inventory count ($1.2 million)

(b) Correction of the accounting error related to AviClear devices identified as a result of the physical inventory count ($1.0 million)

(d) Correction of the overstatement of demonstration and field inventory ($0.4 million)

(e) Correction of AviClear capitalized labor cost incorrectly expensed in previous period ($0.2 million)

(f) Correction of AviClear treatment revenue incorrectly recognized in the period ended June 30, 2023 ($0.7 million)

(g) Correction of AviClear sales and lease arrangements incorrectly allocated to deferred revenue in previous period ($0.2 million)

(h) Correction of the overstatement of the provision for credit losses associated with other receivables ($0.3 million)

Table of Contents

(i) Correction of the classification error related to the cash interest received on investments in marketable securities purchased at a discount ($0.8 million)

(j) Net change in net loss for the three-month period ended March 31, 2023

The impact of the restatement on the Company’s condensed consolidated statement of stockholders’ deficit and condensed consolidated statement of comprehensive loss for the three months ended March 31, 2023 is limited to the understatement of net loss, comprehensive loss, accumulated deficit, and total stockholders' deficit of $3.0 million.

The related notes to the condensed consolidated financial statements have also been restated to reflect the error corrections described above.

Note 2. Summary of Significant Accounting Policies

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) develops, manufactures, distributes, and markets energy-based product platforms for medical practitioners, enabling them to offer treatments to their customers. In addition, the Company distributes third-party manufactured skincare products. The Company currently markets the following system platforms: AviClear, enlighten, excel, truSculpt, Secret PRO, Secret RF, and xeo. These platforms enable medical practitioners to perform procedures including treatment for acne, body contouring, skin resurfacing and revitalization, hair and tattoo removal, removal of benign pigmented lesions, and vascular conditions. Several of the Company’s systems offer multiple hand pieces and applications, providing customers the flexibility to upgrade their systems. The sales of systems, system upgrades, and hand pieces (collectively “Systems” revenue); the leasing of AviClear devices for acne treatment ("AviClear" revenue); the replacement hand pieces, Titan, truSculpt 3D,truSculpt and truFex cycle refills, as well as single use disposable tips applicable to Secret PRO, and Secret RF (“Consumables” revenue); and 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 3D, truSculpt and truFlex) and service labor for the repair and maintenance of products that are out of warranty, all of which are collectively classified as “Service” revenue.

The Company’s corporate headquarters and U.S. operations are located in Brisbane, California, where the Company conducts manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative activities. The Company also maintains regional distribution centers (“RDCs”) in select locations across the U.S. These RDCs serve as forward warehousing for systems and service parts in various geographies. The Company markets, sells and services the Company’s products through direct sales and service employees in North America (including Canada), Australia, Austria, Belgium, France, Germany, Hong Kong, Japan, the Netherlands, Spain, Switzerland, and the United Kingdom. Sales and services outside of these direct markets are made through a worldwide distributor network in over 37 countries. The condensed consolidated financial statements include the accounts of the Company and its subsidiaries.

Basis of Presentation

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements included in this report reflect all adjustments necessary for a fair statement of its condensed consolidated statements of financial position as of March 31, 2023 and December 31, 2022, and its condensed consolidated statements of results of operations, comprehensive income (loss), changes in equity (deficit), and cash flows for the three months ended March 31, 2023, and 2022. The December 31, 2022 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The results for interim periods are not necessarily indicative of results for the entire year or any other interim period. Presentation of certain prior year balances have been updated to conform with the current year presentation. All intercompany accounts and transactions have been eliminated upon consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s previously filed audited financial statements and the related notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on April 7, 2023, and as amended on May 1, 2023.

Risks 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 global financial markets, cybersecurity breaches and other disruptions that could compromise the Company’s information or results, business disruptions that are

Table of Contents

caused by natural disasters or pandemic events, management of international activities, competition from substitute products and larger companies, the Company's ability to obtain and maintain regulatory approvals, government regulations and oversight, patent and other types of litigation, the Company's ability to protect proprietary technology from counterfeit versions of the Company's products, the successful execution of new product launches, strategic relationships and dependence on key individuals.

Accounting Policies

These unaudited condensed consolidated financial statements are prepared in accordance with the rules and regulations of the SEC applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company uses the same accounting policies in preparing quarterly and annual financial statements.

Leases

The Company incurs costs to fulfill its lease agreement obligations with its AviClear device lessees. These costs consist of freight, installation, and training. In addition to these mobilization costs, the Company incurs commission costs associated with the placement of the AviClear device. The Company capitalizes commission costs and has made a policy election to capitalize the mobilization costs.

In the three months ended March 31, 2023, the Company capitalized $1.8 million of mobilization costs and $1.0 million of deferred commission costs related to placements of the AviClear device. These costs are recorded in Other long-term assets in the Company's condensed consolidated balance sheets and will be amortized over the expected lease term. The amortization of the mobilization costs and amortization of deferred commission costs are recorded in cost of revenue and sales and marketing, respectively, in the Company's condensed consolidated statement of operation. Total capitalized commissions as of March 31, 2023, and December 31, 2022, were $3.7 million and $3.3 million, respectively, and are included in Other long-term assets in the Company’s consolidated balance sheet.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with 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 condensed 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 commissions, allowance for credit losses, sales allowances, fair value of investments, valuation of inventories, fair value of goodwill, useful lives of property and equipment, impairment testing for long-lived-assets, implicit and incremental borrowing rates related to the Company’s leases, variables used in calculating the fair value of the Company's equity awards, expected achievement of performance based vesting criteria and management performance bonuses, assumptions used in operating and sales-type lease classifications, the standalone selling price of the Company's products and services, the period of benefit used to capitalize and amortize contract acquisition costs, variable considerations, contingent liabilities, recoverability of deferred tax assets, residual value of leased equipment, lease term and effective income tax rates. 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.

Customer Concentration

The Company generates revenue from the distribution of skincare products, which are manufactured by ZO Skin Health, Inc. (“ZO”), and sold in the Japanese market. In the three months ended March 31, 2023, and 2022, revenue from the distribution of skincare products represented 15% and 20% of the Company’s consolidated revenue, respectively.

There are certain economic requirements in the distribution agreement with ZO that were not met for the 2022 fiscal year. The distribution agreement provides that the Company and ZO shall meet during the first quarter of the subsequent fiscal year to develop an improvement plan and/or change the minimum purchase requirements for 2023.

To date, the Company has been unable to reach terms with ZO on an improvement plan and/or minimum purchase requirements for 2023 and therefore ZO has the option to terminate the distribution agreement in its sole discretion during the second quarter of 2023. If ZO terminates the Company’s distribution rights, or requires the Company to amend the terms of its distribution

Table of Contents

agreement in a manner favorable to ZO, there would be an adverse effect the Company’s future revenue, results of operations, cash flows and stock price.

Note 3. Cash, Cash Equivalents and Marketable Investments

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 available-for-sale debt securities are measured at fair value under the guidance in ASC 320. Credit losses on impaired available-for-sale debt securities are recognized through an allowance for credit losses. Under ASC 326, credit losses recognized on an available-for-sale debt security should not reduce the net carrying amount of the available-for-sale debt security below its fair value. Any changes in fair value unrelated to credit are recognized as an unrealized gain or loss in other comprehensive income.

The following table summarizes the Company's cash and cash equivalents and marketable investments (in thousands):

Gross

Fair

Amortized

Unrealized

Market

March 31, 2023

Cost

Gains

Losses

Value

Cash and cash equivalents

N/A

166,828

Current restricted cash

N/A

700

Cash, cash equivalents, and restricted cash as reported within the Condensed Consolidated Statements of Cash Flows

N/A

167,528

Marketable investments - U.S. Treasury

100,831

133

(141)

100,823

Total

100,831

133

(141)

268,351

Gross

Fair

Amortized

Unrealized

Market

December 31, 2022

Cost

Gains

Losses

Value

Cash and cash equivalents

N/A

145,924

Current restricted cash

N/A

700

Cash, cash equivalents, and restricted cash as reported within the Condensed Consolidated Statements of Cash Flows

N/A

146,624

Marketable investments - U.S. Treasury

171,484

(102)

171,390

Total

171,484

(102)

318,014

At March 31, 2023 and December 31, 2022, net unrealized losses were nil and $0.1 million, respectively, and were related to interest rate changes on available-for-sale marketable investments. The Company has concluded that it is more-likely-than-not that the securities will be held until maturity or the recovery of their cost basis. No securities were in an unrealized loss position for more than 12 months. The restricted cash balance relates to an outstanding letter of credit provided to a supplier.

All the marketable investments will mature less than one year from March 31, 2023.

Note 4. Fair Value of Financial Instruments

The Company measures certain financial assets at fair value, including cash and cash equivalents.

The fair value hierarchy contains the following three levels of inputs that may be used to measure fair value, in accordance with ASC 820:

•Level 1 inputs, which include quoted prices in active markets for identical assets or liabilities;

Table of Contents

•Level 2 inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

•Level 3 inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant management judgment or estimation.

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 considering counterparty credit risk in its assessment of fair value.

As of March 31, 2023, 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 were as follows (in thousands):


March 31, 2023	Level 1		Level 2
Cash equivalents:
Money market funds	$	94,131	$	—
Marketable investments:
Available-for-sale securities	100,823		—
Derivative assets:
Foreign exchange forward	—		65
Total	$	194,954	$	65

As of December 31, 2022, financial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands):


December 31, 2022	Level 1		Level 2
Cash equivalents:
Money market funds	$	26,408	$	—
Marketable investments:
Available-for-sale securities	171,390		—
Derivative liabilities:
Foreign exchange forward	—		(558)
Total	$	197,798	$	(558)

See Note 14 - Debt for the carrying amount and estimated fair value of the Company’s 2.25% Convertible Senior Notes due 2026 (the “2026 Notes”), the 2.25% Convertible Senior Notes due 2028 (the “2028 Notes”), and the 4.00% Convertible Senior Notes due 2029 (the “2029 Notes”).

Note 5. Derivative Instruments

The Company uses foreign currency exchange forward contracts to manage the impact of currency exchange fluctuations on earnings and cash flow. The Company does not enter into derivative instruments for speculative purposes. The Company is exposed to potential credit loss in the event of nonperformance by counterparties on its outstanding derivative instruments but the Company does not anticipate nonperformance by any of its counterparties. Should a counterparty default, the Company's maximum loss exposure would be the potential asset balance of the instrument.

Table of Contents

The cash flow effect of the derivative instruments settlement is recorded in cash flow from operations.

March 31, 2023

Classification

Foreign Exchange Forward

(Dollars in thousands)

Gross notional amount

N/A

5,557

Fair value

Other current assets and prepaid expenses

Unrealized gain

Other expense, net

394

Note 6. Balance Sheet Details (Restated)

Inventories, net (Restated)

As of March 31, 2023 and December 31, 2022, inventories consist of the following (in thousands):


	March 31, 2023		December 31, 2022
	(As Restated)
Raw materials	$	42,243	$	36,323
Work in process	1,416		2,117
Finished goods	26,132		25,188
Total	$	69,791	$	63,628

Other current assets and prepaid expenses

Other current assets and a prepaid expenses, consists of the following (in thousands):


	March 31, 2023		December 31, 2022
Deposits with vendors	$	14,118	$	13,917
Foreign tax receivable	9,129		7,147
Prepayments	2,837		2,972
Foreign exchange forward	65		—
Other	7		—
Total	$	26,156	$	24,036

Property and Equipment, net (Restated)

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


	March 31, 2023		December 31, 2022
	(As Restated)
Leasehold improvements	$	793	$	793

AviClear devices	29,870		19,904
Office equipment and furniture	1,976		1,936
Machinery and equipment	5,802		5,106
Assets under construction	20,323		17,876
	58,764		45,615
Less: Accumulated depreciation	(6,548)		(5,247)
Property and equipment, net	$	52,216	$	40,368

Table of Contents

Accrued Liabilities

As of March 31, 2023 and December 31, 2022, accrued liabilities consist of the following (in thousands):


	March 31, 2023		December 31, 2022
Bonus and payroll-related accruals	$	17,300	$	18,951
Sales and marketing accruals	4,184		5,347
Liability for inventory in transit	8,597		7,028
Product warranty	3,154		3,254
Accrued sales tax	9,657		9,066
Other accrued liabilities	15,768		13,806
Total	$	58,660	$	57,452

Note 7. Product Warranty

The Company has a direct field service organization in North America (including Canada). Internationally, the Company provides direct service support in Australia, Austria, Belgium, France, Germany, Hong Kong, Japan, the Netherlands, Spain, Switzerland, 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 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 generally recognized at the time when costs are incurred.

The following table provides the changes in the product warranty accrual for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
Beginning Balance	$	3,254	$	3,947
Add: Accruals for warranties issued during the period	1,016		1,462
Less: Settlements made during the period	(1,116)		(1,535)
Ending Balance	$	3,154	$	3,874

Note 8. Deferred Revenue (Restated)

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 to three-year terms. Deferred revenue also includes payments for training. Approximately 88% of the Company’s deferred revenue balance of $13.7 million as of March 31, 2023 will be recognized over the next 12 months.

The following table provides changes in the deferred revenue balance for the three months ended March 31, 2023 and 2022 (in thousands):


	Three Months Ended March 31,
	2023		2022
	(As Restated)
Beginning balance	$	13,498	$	10,825
Add: Payments received	6,045		4,864
Less: Revenue from current period sales	(615)		(458)
Less: Revenue recognized from beginning balance	(5,229)		(4,167)
Ending balance	$	13,699	$	11,064

Table of Contents

The fixed annual license fees received related to the AviClear contracts are deferred and recognized over the annual lease periods. The AviClear deferred license fee balance included in the total deferred revenue balance at March 31, 2023, and December 31, 2022, was $2.9 million and $2.3 million, respectively.

Costs for extended service contracts were $1.6 million and $1.7 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

Note 9. Revenue (Restated)

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 11% and 7% of the Company's total revenue for the three months ended March 31, 2023 and March 31, 2022, respectively.

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 sale arrangements. The Company’s system sale arrangements can include all or a combination of the following performance obligations: the system and software license (considered one performance obligation), system accessories (hand pieces), training, AviClear license agreements, other accessories, extended service contracts, marketing services, and time and materials 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 performance obligations at a point in time. Systems, system accessories (hand pieces), service contracts, training, and time and materials services are also sold on a stand-alone basis. 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.

The Company leases the AviClear device to customers and receives a fixed annual lease fee over the term of the arrangement and variable revenue related to the number of treatments performed by the lessee.

Nature of Products and Services

Systems

Systems revenue is generated from the sale of systems and from the sale of upgrades to existing systems. 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. In certain applications, the laser or other energy-based module is contained in the hand piece, such as with the Company’s Pearl and Pearl Fractional applications, rather than 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 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.

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. When collectability is not established in advance of receipt of payment from the customer, revenue is recognized upon the later of the receipt of payment or the satisfaction of the performance obligation. For systems sold through credit approved distributors, revenue is recognized at the time of shipment to the distributor.

The Company typically receives payment for its system consoles and other accessories within 30 days of shipment. Certain international distributor arrangements allow for longer payment terms.

Table of Contents

AviClear

The Company leases the AviClear device to customers and receives a fixed annual license fee over the term of the arrangement and variable lease income related to the number of treatments performed by the lessee. The Company classifies its lease income as product revenue and classifies the AviClear contracts as operating leases. The fixed annual license fee is recognized evenly over the period of the lease contract on a straight-line basis. The treatment fee is recognized in the period the treatment protocol is initiated.

Consumables and other accessories

The Company classifies its customers' purchases of replacement cycles for truSculpt and truFlex, as well as replacement hand pieces, xeo and truSculpt 3D hand pieces, and single use disposable tips applicable to Secret PRO, and Secret RF as Consumable revenue. The Secret PRO and Secret RF products' single use disposable tips must be replaced after every treatment. The Company’s systems offer multiple hand pieces and applications, which allow customers to upgrade their systems.

Skincare products

The Company sells third-party manufactured skincare products in Japan. The skincare products are purchased from a third-party manufacturer and sold to medical offices and licensed physicians. The Company warrants that the skincare products are free of significant defects in workmanship and materials for 90 days from shipment. The Company acts as the principal in this arrangement, as the Company determines the price to charge customers for the skincare products and controls the products before they are transferred to the customer. The Company recognizes revenue for skincare products at a point in time upon shipment.

Extended service contract

The Company offers post-warranty services to its customers through extended service contracts that cover parts and labor for a term of one to three years. Service contract revenue is recognized over time, using a time-based measure of progress, as customers benefit from the service throughout the service period. The Company also offers services on a time-and-materials basis for systems and detachable hand piece replacements. Revenue related to services performed on a time-and-materials basis is recognized when performed.

Training

Sales of systems to customers include training on the use of the system to be provided within 180 days of purchase. The Company considers training 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.

Significant Judgments

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.

•Extended warranty/Service contracts: SSP is based on observable price when sold on a standalone basis to similar customers.

Loyalty Program

The Company operates a customer loyalty program for qualified customers located in the U.S. and Canada. Under the loyalty program, customers accumulate points based on their purchasing levels which can be redeemed for such rewards as the right to attend the Company’s advanced training event for a product, or a ticket for the Company’s annual forum. A customer’s account must be in good standing to receive the benefits of the rewards program. Rewards are earned on a quarterly basis and must be used in 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 revenue at the time the reward is earned. As of March 31, 2023 and December 31, 2022, the liability for the loyalty program included in accrued liabilities was $0.2 million and $0.3 million, respectively.

Table of Contents

Deferred Sales Commissions

Incremental costs of obtaining a contract related to the sale of a system, which consist primarily of commissions and related payroll taxes, are capitalized, and amortized on a straight-line basis over the expected period of benefit, except for costs that are recognized when product is sold. 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 to three years.

Total capitalized commissions as of March 31, 2023 and December 31, 2022 were $3.4 million and $3.8 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet. Amortization expense for these assets was $0.6 million and $0.8 million during the three months ended March 31, 2023 and March 31, 2022, respectively. The amortization related to these capitalized costs is included in sales and marketing expense in the Company’s condensed consolidated statement of operations.

Note 10. Stockholders’ Equity and Stock-based Compensation Expense

The Company’s equity incentive plans are broad-based, long-term programs intended to attract and retain talented employees and align stockholder and employee interests. The 2019 Equity Incentive Plan (the "2019 Plan") provides for the grant of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), performance stock units ("PSUs"), and other stock or cash awards.

Activity under the Company's equity incentive plans is summarized as follows:



			Shares Available for Grant
Balance, December 31, 2022			1,070,925

RSUs granted			(36,541)


Stock awards canceled / forfeited / expired			206,087
Options canceled / forfeited / expired			4,835
Balance, March 31, 2023			1,245,306


	Options Outstanding
	Number of Stock Options Outstanding	Weighted- Average Exercise Price		Weighted Average Remaining Term (in Years)
Balance, December 31, 2022	513,935	$	34.41	6.63

Options exercised	(5,775)	$	18.93
Options canceled / forfeited / expired	(4,835)	$	46.99
Balance, March 31, 2023	503,325	$	34.47	5.29

Table of Contents


	Stock Awards Outstanding
	Number of Awards Outstanding		Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2022	$	906,211	$	40.39
RSUs granted	36,541		$	31.14

Awards released	(168,525)		$	30.78
Stock awards canceled / forfeited / expired	(206,268)		$	46.17
Balance, March 31, 2023	567,959		$	40.54

Stock-based Compensation Expense

Stock-based compensation expense by department recognized during the three months ended March 31, 2023 and 2022 was as follows (in thousands):


	Three Months Ended March 31,
	2023		2022
Cost of revenue	$	364	$	459
Sales and marketing	1,148		576
Research and development	693		980
General and administrative	1,181		2,028
Total stock-based compensation expense	$	3,386	$	4,043

Note 11. Net Loss Per Share (Restated)

As of March 31, 2023, the Company’s Convertible Notes were potentially convertible into 8,696,792 shares of common stock.

The denominator for diluted net income (loss) per share does not include any effect from the capped call transactions the Company entered into concurrently with the issuances of convertible notes, as this effect would be anti-dilutive. In the event of conversion of a convertible note, shares delivered to the Company under the capped call will offset the dilutive effect of the shares that the Company would issue under the convertible notes. In the three months ended March 31, 2023 and March 31, 2022, the if-converted method was not applied as the effect would have been anti-dilutive.

For the three months ended March 31, 2023 and March 31, 2022, a basic loss per common share and diluted loss per common share are the same in each period as the inclusion of any potentially issuable shares would be anti-dilutive.

Table of Contents

The following table sets forth the computation of basic and diluted net loss and the weighted average number of shares used in computing basic and diluted net loss per share (in thousands, except per share data):


	Three Months Ended March 31,
	2023		2022
Numerator:	(As Restated)
Net loss used in calculating net loss per share, basic	$	(28,048)	$	(15,142)
Denominator:
Weighted average shares of common stock outstanding used in computing net loss per share, basic	19,776		18,080
Dilutive effect of incremental shares and share equivalents:
Convertible notes	—		—
Options	—		—
RSUs	—		—
PSUs	—		—
ESPP	—		—
Weighted average shares of common stock outstanding used in computing net loss per share, diluted	19,776		18,080

Net loss per share:
Net loss per share, basic	$	(1.42)	$	(0.84)
Net loss per share, diluted	$	(1.42)	$	(0.84)

The following numbers of shares outstanding, prior to the application of the treasury stock method and the if-converted method, were excluded from the computation of diluted net loss per common share for the periods presented because including them would have had an anti-dilutive effect (in thousands):


	Three Months Ended March 31,
	2023	2022
Capped call	8,697	4,167
Convertible notes	8,697	4,167
Options to purchase common stock	503	485
Restricted stock units	370	526
Performance stock units	235	482
Employee stock purchase plan shares	52	32
Total	18,554	9,859

Note 12. Income Taxes

For the three months ended March 31, 2023, the Company's income tax expense was $0.3 million compared to tax expense of $0.2 million for the three months ended March 31, 2022.

The Company's income tax expense for the three months ended March 31, 2023 and 2022 is due to income taxes in foreign jurisdictions. The Company continues to maintain a full valuation allowance on its U.S. deferred tax assets.

Note 13. Leases (Restated)

The Company is a party to certain operating and finance leases for vehicles, office space and storage facilities. The Company’s material operating leases consist of office space, as well as storage facilities and finance leases consist of automobile leases. The Company’s leases generally have remaining terms of one to 10 years, some of which include options to renew the leases for up to five years. The Company leases space for operations in the United States, Japan, Belgium, France, and Spain.

Table of Contents

The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, the Company estimates the incremental secured borrowing rates corresponding to the maturities of the leases. The Company based the rate estimates on prevailing financial market conditions, credit analysis, and management judgment.

Tenant incentives used to fund leasehold improvements are recognized when earned and reduce the Company’s right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.

Supplemental balance sheet information related to leases was as follows (in thousands):


Leases	Classification	March 31, 2023		December 31, 2022
Assets
Right-of-use assets	Operating lease right-of-use assets	$	12,059	$	12,831
Finance lease	Property and equipment, net	1,535		1,606
Total leased assets		$	13,594	$	14,437


Liabilities	Classification	March 31, 2023		December 31, 2022
Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	2,722	$	2,810
Operating lease liabilities, non-current	Operating lease liabilities, net of current portion	10,652		11,352
Total Operating lease liabilities		$	13,374	$	14,162

Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	480	$	485
Finance lease liabilities, non-current	Other long-term liabilities	675		825
Total Finance lease liabilities		$	1,155	$	1,310

Table of Contents

Lease costs during the three months ended March 31, 2023 and 2022 (in thousands) was as follows:


		Three Months Ended March 31,
Lease costs	Classification	2023		2022
Finance lease cost	Amortization expense	$	150	$	161
Finance lease cost	Interest for finance lease	$	20	$	21
Operating lease cost	Operating lease expense	$	891	$	915

Cash paid for amounts included in the measurement of lease liabilities during the three months ended March 31, 2023 and 2022 was as follows (in thousands):


		Three Months Ended March 31,
Cash paid for amounts included in the measurement of lease liabilities	Classification	2023		2022
Operating cash flow	Finance lease	$	20	$	21
Financing cash flow	Finance lease	$	124	$	150
Operating cash flow	Operating lease	$	699	$	792

Facility leases

Maturities of facility leases were as follows as of March 31, 2023 (in thousands):


As of March 31, 2023	Amount
Remainder of 2023	$	2,489
2023	2,937
2024	2,934
2025	3,029
2026	3,132
2027 and thereafter	468
Total lease payments	14,989
Less: imputed interest	1,615
Present value of lease liabilities	$	13,374

Vehicle Leases

As of March 31, 2023, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance leases as follows (in thousands):


As of March 31, 2023	Amount
Remainder of 2023	$	402
2024	614
2025	263
2025	8
Total lease payments	1,287
Less: imputed interest	132
Present value of lease liabilities	$	1,155

Table of Contents

Weighted-average remaining lease term and discount rate, as of March 31, 2023, were as follows:


Lease Term and Discount Rate	March 31, 2023
Weighted-average remaining lease term (years)
Operating leases	4.8
Finance leases	2.0
Weighted-average discount rate
Operating leases	4.8	%
Finance leases	6.2	%

Lessor - AviClear (Restated)

Lessor revenue (Restated)

The Company leases the AviClear device to customers and receives a fixed annual license fee over the term of the arrangement and variable revenue related to the number of treatments performed by the lessee. The contractual term of the lease agreement is three years with a one-year autorenewal feature. Certain lease agreements' terms in excess of one year can be terminated without financial penalty, and these agreements are accounted for as having a lease term of one year. The AviClear lease agreements are accounted for as operating leases. The fixed annual license fee is recognized evenly throughout the period of the lease agreement on a straight-line basis. The treatment revenue is recognized in the period the lessee has the ability to perform the patient treatment.

The following table summarizes the amount of operating lease income included in product revenue in the accompanying condensed consolidated statements of operations (in thousands):


	Three Months Ended March 31,
	2023		2022
	(As Restated)
AviClear operating lease license fee revenue	$	1,225	$	—
AviClear operating lease revenue	2,703		—
Total AviClear revenue	$	3,928	$	—

The AviClear device being leased has a useful life of seven years. The Company expects that a device will be leased for two consecutive lease terms at the end of which its residual value will be immaterial.

The following is the minimum future lease payments as of March 31, 2023, under non-cancelable operating leases, assuming the minimum contractual lease term (in thousands):


As of March 31, 2023	Amount
Remainder of 2023	$	2,463
2024	4,581
2025	2,119
Total AviClear revenue	$	9,163

Practical Expedients

The Company elected to apply a practical expedient to operating leases and elected not to separate lease and nonlease components as long as the lease and at least one nonlease component have the same timing and pattern of transfer. As such, updates or upgrades on a when-and-if available basis to the AviClear device are combined with the operating lease revenue. The combined component is being accounted for under ASC 842. Additionally, the Company made an accounting policy election to present AviClear revenue net of sales and other similar taxes.

Table of Contents

Capitalized sales commissions

Sales commissions related to obtaining AviClear lease agreements are accounted for as initial direct costs and are capitalized and amortized on a straight-line basis over the lease term. Amortization expenses for these assets were $1.0 million for the three months ended March 31, 2023, and nil for the three months ended March 31, 2022, and were included in Sales and marketing expense in the Company’s condensed consolidated statement of operations. Total capitalized commissions as of March 31, 2023, and December 31, 2022, were $3.7 million and $3.3 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Lease installment costs

The Company capitalizes fulfillment costs incurred before AviClear lease commencement and these costs include freight, installation, and training costs. Amortization expenses for these assets were $0.5 million during the three months ended March 31, 2023, and nil for the three months ended March 31, 2023, and were included in Cost of revenue in the Company’s condensed consolidated statement of operations. Total lease installment costs as of March 31, 2023, and December 31, 2022, were $1.8 million and $1.4 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet.

Note 14. Contingencies

The Company is named from time to time as a party to other legal proceedings, product liability, intellectual property disputes, commercial disputes, employee disputes, and contractual lawsuits. A liability and related charge are recorded to earnings in the Company’s consolidated financial statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including discussion with outside legal counsel. If a reasonable estimate of a known or probable loss cannot be made, but a range of probable losses can be estimated, the low-end of the range of losses is recognized if no amount within the range is a better estimate than any other. If a material loss is reasonably possible, but not probable and can be reasonably estimated, the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements. The Company expenses legal fees as incurred. Certain of the cases below are still in the preliminary stages, and the Company is not able to quantify the extent of its potential liability, if any, other than as described. The outcome of litigation is inherently unpredictable and subject to significant uncertainties. If any of these matters are resolved adversely to the Company, this could have a material adverse effect on its business, financial condition, results of operations, and cash flows. In addition, defending these legal proceedings is likely to be costly, which may have a material adverse effect on the Company's financial condition, results of operations and cash flows, and may divert management's attention from the day-to-day operations of its business.

On January 31, 2020, the Company filed a lawsuit against Lutronic Aesthetics in the United States District Court for the Eastern District of California. Lutronic employs numerous former Cutera employees. The complaint against Lutronic generally alleges claims for (1) misappropriation of trade secrets in violation of state and federal law; (2) violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); (3) interference with contractual relations; (4) interference with prospective economic advantage; (5) unfair competition; and (6) aiding and abetting. On March 13, 2020, the court entered a temporary restraining order ("TRO") against Lutronic generally prohibiting it from using or disseminating the Company's confidential, proprietary, or trade secret information. The order also prohibits Lutronic, for two years, from using such information for the purpose of soliciting, or conducting business with, certain specified customers. On April 9, 2020, the parties stipulated to the entry of a preliminary injunction providing for the same relief afforded by the TRO. On August 4, 2022, Cutera filed a second amended complaint. In addition to the above referenced claims, Cutera alleged claims for violation of the Lanham Act, unlawful business practices, false advertising and trademark infringement. Discovery is ongoing. No trial date has been scheduled.

In March 2023, Serendia, LLC (“Serendia”), filed patent infringement complaints against the Company with the International Trade Commission (“ITC”) and in U.S. District Court for the District of Delaware alleging infringement of six Serendia patents by the Secret RF and Secret Pro systems, which the Company distributes in the U.S. on behalf of ILOODA Co. Ltd., a Korean company. If, following a successful third-party action for infringement, the Company cannot obtain a license for its products, the Company may have to stop selling the applicable products.

On April 11, 2023, J. Daniel Plants, the Company’s former Executive Chairperson, and David Mowry, the Company’s former Chief Executive Officer, filed a complaint in the Delaware Court of Chancery against directors Gregory Barrett, Sheila Hopkins, Timothy O’Shea, Juliane Park and Janet Widmann, as defendants, and the Company, as nominal defendant (the “Delaware Litigation”) seeking a declaration that the individual defendants breached their fiduciary duties and enjoining them

Table of Contents

from enforcing the nomination deadline under the Company’s Amended and Restated Bylaws in connection with the 2023 annual meeting of stockholders, or in the alternative, a declaration that the Company must hold a special meeting of the stockholders on June 2, 2023. Mr. Plants and Mr. Mowry filed a motion for expedited proceedings with their complaint. Mr. Plants and Mr. Mowry subsequently agreed that the determination made by the Special Committee of the Board to hold a special meeting of the stockholders on June 9, 2023 mooted their request in the Delaware Litigation for a declaration that the Company hold a special meeting of the stockholders. On April 18, 2023, the Court of Chancery denied Mr. Plants and Mr. Mowry’s motion for expedited proceedings.

As of March 31, 2023 and December 31, 2022, the Company had accrued $0.8 million and $0.5 million, respectively, related to various pending commercial and product liability lawsuits. The Company does not believe that a material loss in excess of accrued amounts is reasonably likely.

Note 15. Debt

Convertible notes, net of unamortized debt issuance costs

The following table presents the outstanding principal amount and carrying value of the Company’s Convertible Notes (in thousands):


	March 31, 2023		December 31, 2022
Notes due in 2026
Outstanding principal amount	$	69,125	$	69,125
Unamortized debt issuance costs	(1,437)		(1,553)
Carrying Value	$	67,688	$	67,572

Notes due in 2028
Outstanding principal amount	$	240,000	$	240,000
Unamortized debt issuance costs	(6,613)		(6,908)
Carrying Value	$