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Cutera Reports Second Quarter 2018 Financial Results

Second Quarter Revenue of $42.6 Million, an Increase of 17% Year-over-Year
Rest of World System Revenue Grew 26% in the Second Quarter

BRISBANE, Calif., Aug. 07, 2018 (GLOBE NEWSWIRE) -- Cutera, Inc. (NASDAQ: CUTR) (“Cutera” or the “Company”), a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide, today reported financial results for the second quarter ending June 30, 2018.

Key financial and operational highlights for the second quarter 2018 include:

  • Revenue increased 17% to $42.6 million, with the United States and International reporting 16% and 19% growth over the year ago period, respectively;
    • Revenue growth continues to be driven by strong demand for the truSculpt® 3D, as well as, Juliet™ and Secret RF systems. truSculpt 3D revenue grew 29% from the year ago period.
    • Rest of World system revenue of $9.4 million grew 26% over the year ago period driven by multiple regions, including EMEA and a strong performance from Asia.
    • Products consumed in procedures using the truSculpt 3D, Juliet and Secret RF platforms, plus distributed skincare products, accounted for 6% of total revenue in the second quarter.  Recurring revenue, which includes these sales and Service revenue, accounted for 17% of total revenue in the first quarter.
  • Gross Margin of 53%, compared to 51% in the first quarter 2018, and 58% in the year ago period, reflects a combination of slightly lower average system pricing on our legacy products and growth in our distributor channel.  Distributor channel growth occurred in existing markets, as well as the expansion into new markets, such as China;
  • Operating expenses were 58% of revenue compared to 53% in the year ago period.  Non-GAAP* operating expenses were 51% of revenue compared to 50% in the year ago period, primarily reflecting $2.0 million in non-cash stock compensation in the current period vs. $1.1 million in the same period a year ago;
  • GAAP Net Loss was $1.6 million, or $0.11 per fully-diluted share while non-GAAP* net income was $1.8 million, or $0.12 per fully-diluted share;
  • On July 9, the Company appointed Mr. Jason Richey to the newly created position of Chief Operating Officer; and
  • On July 16, the Company launched truSculpt iD, its next generation body sculpting system.  

“Our overall second quarter performance reflected strong execution by our sales force, which drove truSculpt 3D revenue growth 29%, in front of the launch of our next generation system. The Company is very excited about the recent launch of truSculpt iD, a system we believe will enhance Cutera’s status as a top player in the $850 million energy based device body shaping market,” stated President and CEO, James Reinstein.  “In addition, the Company is attracting top talent, like Jason Richey, who recently joined Cutera as Chief Operating Officer, from LivaNova, PLC, a $5 billion global medical device manufacturer.  He will play an important role in scaling the Company to generate strong long-term shareholder value. Lastly, International revenue were strong in most regions, especially in Asia.  However, the mix of direct versus distributor revenue affected gross margins this quarter. We are reiterating our full year revenue guidance but lowering our full year gross margin guidance due to the previously reported operational improvements, which are taking longer to realize in the gross margin line. We fully expect to achieve our goals in operational efficiencies and will improve each sequential quarter this year. My enthusiasm for the Company’s future remains at all-time highs due to continued sales execution, improvements in the international team and the R&D group delivering the next-generation truSculpt iD.” 

Product Updates

On July 16, at the Company’s general sales meeting in Chicago, Cutera launched its next generation version of the truSculpt system, truSculpt iD. This hands-free solution offers a significantly shorter procedure time while achieving consistently high clinical results (an average fat reduction of 24 percent.)  The Company will provide more details on its product pipeline, including this new offering and a general corporate update, at its analyst day on October 9, 2018.

Update to 2018 Financial Outlook

  • We reiterate our 2018 revenue guidance range of $178 to $181 million, an 18% - 20% increase over 2017;
  • We are adjusting full year gross margin expectations to be in the range of 53% to 54% of total revenue. This adjustment incorporates previously discussed infrastructure investments, the timing of realizing operational improvements, and the impact from second quarter’s global sales mix, along with an expectation that gross margin will improve in the second half of 2018 compared to the first half of 2018;
  • GAAP operating expenses are expected to be in the range of 56% to 57% of 2018 revenue, due to additional non-cash stock-based compensation and the continued investment in the scalability of our operations; and
  • Non-GAAP* earnings per share is now expected to be in the range of $0.50 to $0.60, reflecting the adjustment in gross margin and operating expenses.

Conference Call

The conference call to discuss these results is scheduled to begin today at 1:30 p.m. PDT (4:30 p.m. EDT).  Participating in the call will be James Reinstein, President and Chief Executive Officer and Sandra Gardiner, Executive Vice President and Chief Financial Officer.  The call will be broadcast live over the Internet, hosted at the Investor Relations section of Cutera's website at http://www.cutera.com/, and will be archived online within one hour of its completion through August 31, 2018. In addition, you may call 1-877-705-6003 to listen to the live broadcast.

CONTACTS:

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

Investor Relations
John Mills
Partner, ICR, Inc.
646-277-1254
john.mills@icrinc.com

About Cutera, Inc.

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

*Use of Non-GAAP Financial Measures

In this press release, in order to supplement our condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management has disclosed certain non-GAAP financial measures for the statement of operations and net income per diluted share, which exclude non-cash expenses for stock-based compensation, depreciation and amortization, as well as the net tax impact of excluding these items.  From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.  We have provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure.  We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability, limited visibility, unpredictability, or unique non-recurring nature of the excluded items.

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

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

Depreciation and amortization. We have excluded depreciation and amortization expense in calculating our non-GAAP operating expenses and net income measures.  Depreciation and amortization are non-cash charges to current operations.  We continue to evaluate our business performance excluding non-cash charges and believe that excluding these items allows users of our financial statements to better review and assess both current and historical results of operations.

Safe Harbor Statement

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

All information in this press release is as of the date of its release.  Accordingly, undue reliance should not be placed on forward-looking statements. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Cutera's financial performance for the second quarter ended June 30, 2018, as discussed in this release, is preliminary and unaudited, and subject to adjustment.


CUTERA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
  June 30,  March 31,  June 30,
  2018  2018  2017(1)
Assets
         
Current assets:         
 Cash and cash equivalents $18,432 $10,910 $18,679
 Marketable investments  10,573  13,062  32,270
 Restricted investments  -  -  2,290
  Cash, cash equivalents and marketable investments  29,005  23,972  53,239
          
 Accounts receivable, net  22,122  19,862  18,191
 Inventories  30,138  30,979  16,913
 Other current assets and prepaid expenses  3,469  2,601  2,840
  Total current assets  84,734  77,414  91,183
          
Property and equipment, net  2,632  2,214  1,867
Deferred tax asset, net of current portion  21,219  21,792  381
Goodwill
  1,339  1,339  1,339
Other long-term assets  5,807  5,367  381
   Total assets $115,731 $108,126 $95,151
          
Liabilities and Stockholders' Equity         
Current liabilities:         
 Accounts payable $10,743 $8,206 $4,293
 Accrued liabilities  22,756  20,083  18,973
 Deferred revenue  9,288  8,847  8,901
  Total current liabilities  42,787  37,136  32,167
          
Deferred revenue, net of current portion  2,519  2,168  1,982
Income tax liability  386  384  170
Other long-term liabilities  665  583  604
  Total liabilities  46,357  40,271  34,923
          
Stockholders' equity  69,374  67,855  60,228
   Total liabilities and stockholders' equity $115,731 $108,126 $95,151
          

(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.

 
CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
  Three Months Ended Six Months Ended
  June 30, June 30, June 30, June 30,
  2018
 2017(1) 2018
 2017(1)
             
Net revenue $42,553  $36,389  $76,678  $65,688 
Cost of revenue  20,176   15,343   36,967   29,121 
  Gross profit  22,377   21,046   39,711   36,567 
  Gross margin %  53%  58%  52%  56%
               
Operating expenses:            
 Sales and marketing  15,535   12,787   28,623   23,560 
 Research and development  4,095   2,981   7,651   5,926 
 General and administrative  4,902   3,548   10,341   6,764 
  Total operating expenses  24,532   19,316   46,615   36,250 
Income (loss) from operations  (2,155)  1,730   (6,904)  317 
Interest and other income (expense), net (129)  276   (31)  549 
Income (loss) before income taxes  (2,284)  2,006   (6,935)  866 
Provision (benefit) for income taxes  (712)  59   (3,331)  (59)
Net income (loss) $(1,572) $1,947  $(3,604) $925 
               
Net loss per share:            
 Basic $(0.11) $0.14  $(0.26) $0.07 
 Diluted $(0.11) $0.13  $(0.26) $0.06 
               
Weighted-average number of shares used in per share calculations:      
 Basic  13,709   13,935   13,649   13,888 
 Diluted  13,709   14,629   13,649   14,633 
               
               
(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.


 
CUTERA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except percentage data)
(unaudited)
 
    Three Months Ended  % Change Six Months Ended  % Change
    Q2  Q2 Q2 '18 Vs Q2  Q2 Q2 '18 Vs
    2018  2017(1) Q2 '17 2018  2017(1) Q2 '17
Revenue By Geography:                  
  United States $28,132  $24,239 +16% $49,268  $40,783 +21%
  International  14,421   12,150 +19%  27,410   24,905 +10%
    Total Net Revenue $42,553  $36,389 +17% $76,678  $65,688 +17%
  International as a percentage of total revenue  34%   33%    36%   38%  
                     
Revenue By Product Category:                  
 Systems                  
  - North America $25,886  $22,626 +14% $44,830  $37,086 +21%
  - Rest of World  9,405   7,489 +26%  17,700   16,021 +10%
    Total Systems  35,291   30,115 +17%  62,530   53,107 +18%
 Consumables  1,057   649 +63%  1,826   1,148 +59%
 Skincare  1,302   963 +35%  2,558   1,947 +31%
    Total Products  37,650   31,727 +19%  66,914   56,202 +19%
                     
 Service  4,903   4,662 +5%  9,764   9,486 +3%
    Total Net Revenue $42,553  $36,389 +17% $76,678  $65,688 +17%
                     
                     
(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.
 
 
    Three Months Ended    Six Months Ended   
    Q2  Q2   Q2  Q2  
    2018  2017   2018  2017  
Pre-tax Stock-Based Compensation Expense:                  
  Cost of revenue $226  $147   $380  $276  
  Sales and marketing  715   401    1,203   821  
  Research and development  262   239    453   476  
  General and administrative  1,002   444    1,856   1053  
    $2,205  $1,231   $3,892  $2,626  
                     


CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 Three Months Ended  Six Months Ended
 June 30, June 30,  June 30, June 30,
 2018
 2017(1)  2018
 2017(1)
Cash flows from operating activities:            
Net income (loss)$(1,572) $1,947   $(3,604) $925 
Adjustments to reconcile net loss to net cash used in operating activities:            
 Stock-based compensation 2,205   1,231    3,893   2,626 
 Depreciation of tangible assets 290   244    544   492 
 Amortization of contract acquisition costs 449   -    822   - 
 Change in deferred tax asset (587)  -    (3,324)  - 
 Provision for doubtful accounts receivable 300   4    487   (3)
 Other 137   2    (25)  (42)
Changes in assets and liabilities:            
 Accounts receivable (2,747)  (336)   (1,832)  (1,641)
 Inventories 841   (1,241)   (1,356)  (1,936)
 Accounts payable 2,537   1,204    3,741   1,695 
 Accrued liabilities 2,402   4,191    (4,325)  1,534 
 Deferred revenue 1,002   807    546   784 
 Other (1,713)  (378)   (2,070)  (544)
  Net cash provided by (used in) operating activities 3,544   7,675    (6,503)  3,890 
             
Cash flows from investing activities:            
Acquisition of property, equipment and software (477)  (141)   (581)  (210)
Disposal of property and equipment 38   15    38   40 
Net change in marketable investments 2,500   2,385    11,154   5,703 
  Net cash provided by investing activities 2,061   2,259    10,611   5,533 
             
Cash flows from financing activities:            
Repurchases of common stock    (4,341)      (7,041)
Proceeds from exercise of stock options and employee stock purchase plan2,405   2,120    3,038   3,871 
Taxes paid related to net share settlement of equity awards (376)  (383)   (2,664)  (1,167)
Payments on capital lease obligations (112)  (94)   (234)  (182)
  Net cash provided by (used in) financing activities 1,917   (2,698)   140   (4,519)
             
Net increase in cash and cash equivalents 7,522   7,236    4,248   4,904 
Cash and cash equivalents at beginning of period 10,910   11,443    14,184   13,775 
Cash and cash equivalents at end of period$18,432  $18,679   $18,432  $18,679 
             
             
(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.


 
CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO  NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
     
  Three Months Ended June 30, 2018 Three Months Ended June 30, 2017
  GAAP Adjustments* Non-GAAP GAAP(1) Adjustments* Non-GAAP
               
Net revenue $42,553  $-   $42,553  $36,389  $-   $36,389 
Cost of revenue  20,176   (302)(a)  19,874   15,343   (227)(a)  15,116 
  Gross profit  22,377   302    22,679   21,046   227    21,273 
  Gross margin %  53%     53%  58%     58%
                 
Operating expenses:              
 Sales and marketing  15,535   (1,316)(b)  14,219   12,787   (560)(b)  12,227 
 Research and development  4,095   (279)(c)  3,816   2,981   (244)(c)  2,737 
 General and administrative  4,902   (1,047)(d)  3,855   3,548   (444)(d)  3,104 
  Total operating expenses  24,532   (2,642)   21,890   19,316   (1,248)   18,068 
Income (loss) from operations   (2,155)  2,944    789   1,730   1,475    3,205 
Interest and other income (expense), net  (129)  -    (129)  276   -    276 
Income (loss) before income taxes  (2,284)  2,944    660   2,006   1,475    3,481 
Provision (benefit) for income taxes  (712)  (397)(e)  (1,109)  59   6 (e)  65 
Net income (loss) $(1,572) $3,341   $1,769  $1,947  $1,469   $3,416 
               
Net income (loss) per share:              
 Basic $(0.11)    $0.13  $0.14     $0.25 
 Diluted $(0.11)    $0.12  $0.13     $0.23 
               
Weighted-average number of shares used in per share calculations:              
 Basic  13,709      13,709   13,935      13,935 
 Diluted  13,709      14,311   14,629      14,629 
                 
(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.
 
                 
Operating expenses as a % of net revenue GAAP    Non-GAAP GAAP(1)    Non-GAAP
 Sales and marketing  36.5%     33.4%  35.1%     33.6%
 Research and development  9.6%     9.0%  8.2%     7.5%
 General and administrative  11.5%     9.1%  9.8%     8.5%
     57.7%     51.4%  53.1%     49.7%
                 
                 
* Fiscal second quarter of 2018 and 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s): 
a) Adjustment of $302 and $227 for 2018 and 2017, respectively, included non-cash expenses of $76 and $80 related to depreciation, and $226 and $147 of stock-based compensation.
b) Adjustment of $1,316 and $560 for 2018 and 2017, respectively, included non-cash expenses of $601 and $159 related to depreciation and amortization, and $715 and $401 of stock-based compensation.
c) Adjustment of $279 and $244 for 2018 and 2017, respectively, included non-cash expenses of $17 and $5 related to depreciation, and $262 and $239 of stock-based compensation.
d) Adjustment of $1,047 and $444 for 2018 and 2017, respectively, included non-cash expenses of $45 and $0 related to depreciation and $1,002 and $444 for stock-based compensation.
e) Adjustment of $(397) and $6 for 2018 and 2017, respectively, relates to the net impact of excluding the Non-GAAP adjustments from our tax provision.  The 2018 adjustment excludes a discrete tax benefit of $1.14M related to excess stock deduction activity in the quarter.
 


CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO  NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
 
  Six Months Ended June 30, 2018 Six Months Ended June 30, 2017
  GAAP Adjustments* Non-GAAP GAAP(1) Adjustments* Non-GAAP
               
Net revenue $76,678  $-   $76,678  $65,688  $-   $65,688 
Cost of revenue  36,967   (540)(a)  36,427   29,121   (424)(a)  28,697 
  Gross profit  39,711   540    40,251   36,567   424    36,991 
  Gross margin %  52%     52%  56%     56%
                 
Operating expenses:              
 Sales and marketing  28,623   (2,327)(b)  26,296   23,560   (1,154)(b)  22,406 
 Research and development  7,651   (485)(c)  7,166   5,926   (486)(c)  5,440 
 General and administrative  10,341   (1,906)(d)  8,435   6,764   (1,054)(d)  5,710 
  Total operating expenses  46,615   (4,718)   41,897   36,250   (2,694)   33,556 
Income (loss) from operations  (6,904)  5,258    (1,646)  317   3,118    3,435 
Interest and other income (expense), net  (31)  -    (31)  549   -    549 
Income (loss) before income taxes  (6,935)  5,258    (1,677)  866   3,118    3,984 
Provision (benefit) for income taxes  (3,331)  169 (e)  (3,162)  (59)  12 (e)  (47)
Net income (loss) $(3,604) $5,089   $1,485  $925  $3,106   $4,031 
               
Net income (loss) per share:              
 Basic $(0.26)    $0.11  $0.07     $0.29 
 Diluted $(0.26)    $0.10  $0.06     $0.28 
               
Weighted-average number of shares used in per share calculations:              
 Basic  13,649      13,649   13,888      13,888 
 Diluted  13,649      14,298   14,633      14,633 
               
(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.
 
               
Operating expenses as a % of net revenue GAAP    Non-GAAP GAAP(1)    Non-GAAP
 Sales and marketing  37.3%     34.3%  35.9%     34.1%
 Research and development  10.0%     9.3%  9.0%     8.3%
 General and administrative  13.5%     11.0%  10.3%     8.7%
   60.8%     54.6%  55.2%     51.1%
               
                 
* Year-to-date June 30, 2018 and 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s):
a) Adjustment of $540 and $424 for 2018 and 2017, respectively, included non-cash expenses of $160 and $148 related to depreciation, and $380 and $276 of stock-based compensation.
b) Adjustment of $2,327 and $1,154 for 2018 and 2017, respectively, included non-cash expenses of $1,124 and $333 related to depreciation and amortization, and $1,203 and $821 of stock-based compensation.
c) Adjustment of $485 and $486 for 2018 and 2017, respectively, included non-cash expenses of $32 and $10 related to depreciation, and $453 and $476 of stock-based compensation.
d) Adjustment of $1,906 and $1,054 for 2018 and 2017, respectively, included non-cash expenses of $50 and $1 related to depreciation and $1,856 and $1,053 for stock-based compensation.
e) Adjustment of $169 and $12 for 2018 and 2017, respectively, relates to the net impact of excluding the Non-GAAP adjustments from our tax provision.  The 2018 adjustment excludes a discrete tax benefit of $2.59M related to excess stock deduction activity.
 
Tuesday, August 7, 2018 - 16:05