Cutera Reports First Quarter 2019 Financial Results

Total truSculpt^® Body Sculpting Revenue Grows 29%; Surpasses 1,000 Systems Sold-To-Date

Total International Sales Grows 20%

BRISBANE, Calif.--(BUSINESS WIRE)--Cutera, Inc. (NASDAQ: CUTR) (“Cutera” or the “Company”), a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide, today reports financial results for the first quarter ended March 31, 2019.

Key financial and operational highlights for the first quarter include:

• Revenue for the first quarter increased 6% over the prior year first quarter, to $36.0 million.
  • First quarter continues to reflect strong demand for our body sculpting platform, as total revenue for the truSculpt portfolio grew 29% over the prior year period.
  • Total recurring revenue, which includes service, skincare and consumable revenue, was $8.8 million, representing 28% growth over the first quarter 2018. Consumable revenues more than doubled year-on-year.
  • International revenue grew 20% year-over-year in the first quarter, reflecting strong growth in Japan and Australia.
  • US revenue declined by 3% in the first quarter over the prior year period, as continued strong demand for truSculpt iD and Secret RF systems were offset by challenging year-over-year comparisons for the Juliet women’s health system and the overall pricing environment.
• Successful launch of excel V+, the Company’s latest generation laser technology for vascular and pigmentation treatments.
• Gross Margin for the first quarter was 48%, compared to 51% in the prior year period. The decrease in first quarter gross margin reflects a combination of geographic mix and pricing. Non-GAAP gross margin* was 49% for the first quarter compared to 51% for the prior year period.
• Operating expenses for the first quarter were 70% of revenue. This compares to 65% for the prior year period. Non-GAAP* operating expenses for the first quarter were 62% of revenue, compared to 59% for the same period in the prior year. The year-over-year increase in operating expenses was primarily due to select promotional activities, and the increase in commercial leadership from a year ago, including the North American regional sales leadership team and the expansion of our Practice Development Management team.
• GAAP Net Loss for the first quarter was $8.2 million, or $0.59 per fully-diluted share. This compares to a loss of $2.0 million, or $0.15 per fully-diluted share in the prior year period. Non-GAAP* net loss was $4.9 million, or $0.35 per fully-diluted share as compared to a loss of $0.3 million or $0.02 per fully-diluted share in the first quarter 2018.

“Overall, I am pleased with many aspects of our first quarter performance,” stated Chief Operating Officer and Interim CEO, Jason Richey. “Several positive trends and the team’s continued execution all contributed to driving strong revenue. We continue to see robust demand for, and utilization of, truSculpt iD, our body sculpting solution. In addition, we successfully launched our excel V+ at the American Academy of Dermatology annual meeting where our enhanced North American sales team generated significant interest. Likewise, our International sales group grew revenue 20%, executing on initiatives introduced at year-end. We continue to make progress in our operational and infrastructure improvement activities, reflected in lower inventory levels and average system assembly times. We recognize, however, that we still have significant work to do.”

2019 Financial Outlook

• We reiterate full year revenue to be in the range of $165 to $175 million, a 2% - 8% increase over 2018;
• Full year 2019 gross margin is expected to improve as compared to full year 2018 gross margin; and
• Adjusted EBITDA* is expected to be in the range of $2 million to $4 million.

Conference Call

The Company will host a live audio webcast for interested parties commencing today at 1:30 p.m. PDT (4:30 p.m. EDT). Participating in the call will be Jason Richey, Chief Operating Officer and Interim 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 available online within 24 hours of its completion through June 9, 2019. In addition, you may call 1-877-705-6003 to listen to the live broadcast.

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 (loss) per diluted share. Non-GAAP adjustments include stock-based compensation, depreciation, amortization, executive separation costs, customer relationship management (“CRM”) and enterprise resource planning (“ERP”) system implementation costs, as well as the net tax impact of excluding these items. From time to time in the future, there may be other items that we may exclude if 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 items. Forward-looking non-GAAP measures include adjusted EBITDA. We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation, executive separation costs, and charges related to CRM and ERP software implementation costs.

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

Non-cash expenses for stock-based compensation. 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 stock-based compensation expense related to grants of options, performance and restricted stock. Depending upon the size, timing and the terms of the grants, this expense may vary significantly but will recur in future periods. We believe that excluding stock-based compensation better allows for comparisons to our peer companies;

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;

Executive separation. We have excluded costs associated with the resignation of our former Chief Executive Officer in calculating our non-GAAP operating expenses and net income measures. We exclude these non-recurring separation costs because we believe that these items do not reflect future operating expenses;

Customer Relationship Management. We have excluded CRM system costs related to direct and incremental costs incurred in connection with our multi-phase implementation of a new CRM solution and the related technology infrastructure costs. We exclude these costs because we believe that these items do not reflect future operating expenses and will be inconsistent in amounts and frequency making it difficult to contribute to a meaningful evaluation of our operating performance; and

Enterprise Resource Planning. We have excluded ERP system costs related to direct and incremental costs incurred in connection with our multi-phase implementation of a new ERP solution and the related technology infrastructure costs. We exclude these costs because we believe that these items do not reflect future operating expenses and will be inconsistent in amounts and frequency making it difficult to contribute to a meaningful evaluation of our operating performance.

We believe that excluding all of the items above 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 first quarter ended March 31, 2019, as discussed in this release, is preliminary and unaudited, and subject to adjustment.

CUTERA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
	March 31,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	19,158		$	26,052
Marketable investments		7,939			9,523
Accounts receivable, net		19,136			19,637
Inventories		26,659			28,014
Other current assets and prepaid expenses		4,864			3,972
Total current assets		77,756			87,198
Property and equipment, net		2,407			2,672
Deferred tax asset		451			457
Goodwill		1,339			1,339
Operating lease right-of-use assets		9,442			-
Other long-term assets		5,960			5,971
Total assets	$	97,355		$	97,637
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,337		$	11,279
Accrued liabilities		21,788			23,300
Operating leases liabilities		1,840			-
Extended warranty liabilities		2,667			3,159
Deferred revenue		10,263			9,882
Total current liabilities		46,895			47,620
Deferred revenue, net of current portion		2,828			2,684
Income tax liability		399			394
Operating lease liabilities, net of current portion		7,759			-
Other long-term liabilities		354			553
Total liabilities		58,235			51,251
Stockholders’ equity:
Common stock		14			14
Additional paid-in capital		71,399			70,451
Accumulated deficit		(32,230	)		(24,010	)
Accumulated other comprehensive loss		(63	)		(69	)
Total stockholders' equity		39,120			46,386
Total liabilities and stockholders' equity	$	97,355		$	97,637

CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
	Three Months Ended
	March 31,			March 31,
	2019			2018
Products	$	30,762		$	29,264
Service		5,264			4,861
Total net revenue		36,026			34,125
Products		15,541			13,922
Service		3,176			2,869
Total cost of revenue		18,717			16,791
Gross profit		17,309			17,334
Gross margin %		48	%		51	%
Operating expenses:
Sales and marketing		16,104			13,088
Research and development		3,706			3,556
General and administrative		5,525			5,439
Total operating expenses		25,335			22,083
Loss from operations		(8,026	)		(4,749	)
Interest and other income (expense), net		(79	)		98
Loss before income taxes		(8,105	)		(4,651	)
Income tax expense (benefit)		115			(2,619	)
Net loss	$	(8,220	)	$	(2,032	)
Net loss per share:
Basic and Diluted	$	(0.59	)	$	(0.15	)
Weighted-average number of shares used in per share calculations:
Basic and Diluted		14,017			13,587

CUTERA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except percentage data)
(unaudited)
	Three Months Ended				% Change
	March 31,		March 31,		2019 Vs
	2019		2018		2018
Revenue By Geography:
United States	$	20,400	$	21,136	-3	%
International		15,626		12,989	+20	%
Total Net Revenue	$	36,026	$	34,125	+6	%
International as a percentage of total revenue	43%		38%
Revenue By Product Category:
Systems
- North America	$	17,580	$	18,944	-7	%
- Rest of World		9,629		8,295	+16	%
Total Systems		27,209		27,239	0	%
Consumables		1,945		769	+153	%
Skincare		1,608		1,256	+28	%
Total Products		30,762		29,264	+5	%
Service		5,264		4,861	+8	%
Total Net Revenue	$	36,026	$	34,125	+6	%
	Three Months Ended
	March 31,		March 31,
	2019		2018
Pre-tax Stock-Based Compensation Expense:
Cost of revenue	$	269	$	154
Sales and marketing		718		489
Research and development		263		191
General and administrative		57		854
	$	1,307	$	1,688

CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
	Three Months Ended
	March 31,			March 31,
	2019			2018
Cash flows from operating activities:
Net loss	$	(8,220	)	$	(2,032	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Stock-based compensation		1,307			1,688
Depreciation of tangible assets		411			254
Amortization of contract acquisition costs		690			373
Change in deferred tax asset		6			(2,737	)
Provision for doubtful accounts receivable		98			187
Other		103			(162	)
Changes in assets and liabilities:
Accounts receivable		403			915
Inventories		1,355			(2,197	)
Other current assets and prepaid expenses		(916	)		1,753
Other long-term assets		(679	)		(2,150	)
Accounts payable		(942	)		1,204
Accrued liabilities		(1,467	)		(6,727	)
Extended warranty liabilities		(492	)		-
Other long-term liabilities		(140	)		35
Deferred revenue		525			(456	)
Income tax liability		5			5
Net cash used in operating activities		(7,953	)		(10,047	)
Cash flows from investing activities:
Acquisition of property, equipment and software		(65	)		(104	)
Proceeds from sales of marketable investments		-			13,044
Proceeds from maturities of marketable investments		3,200			-
Purchase of marketable investments		(1,586	)		(4,390	)
Net cash provided by investing activities		1,549			8,550
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan		131			633
Taxes paid related to net share settlement of equity awards		(490	)		(2,288	)
Payments on finance lease obligations		(131	)		(122	)
Net cash used in financing activities		(490	)		(1,777	)
Net decrease in cash and cash equivalents		(6,894	)		(3,274	)
Cash and cash equivalents at beginning of period		26,052			14,184
Cash and cash equivalents at end of period	$	19,158		$	10,910

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 March 31, 2019															Three Months Ended March 31, 2018
	GAAP			Depreciation and Amortization		Stock-Based Compensation		CRM and ERP Implementation Costs		Taxes and Other Adjustments			Non-GAAP			GAAP			Depreciation and Amortization		Stock-Based Compensation		Taxes and Other Adjustments		Non-GAAP
Net revenue	$	36,026		-		-		-		-			$	36,026		$	34,125		-		-		-		$	34,125
Cost of revenue		18,717		(129	)	(269	)	-		-				18,319			16,791		(85	)	(154	)	-			16,552
Gross profit		17,309		129		269		-		-				17,707			17,334		85		154		-			17,573
Gross margin %		48	%											49	%		51	%								51	%
Operating expenses:
Sales and marketing		16,104		(868	)	(718	)	(85	)	-				14,433			13,088		(523	)	(489	)	-			12,076
Research and development		3,706		(21	)	(263	)	-		-				3,422			3,556		(15	)	(191	)	-			3,350
General and administrative		5,525		(83	)	(57	)	(239	)	(614	)	^(a)		4,531			5,439		(4	)	(854	)	-			4,581
Total operating expenses		25,335		(972	)	(1,038	)	(324	)	(614	)			22,387			22,083		(542	)	(1,534	)	-			20,007
Income (loss) from operations		(8,026	)	1,101		1,307		324		614				(4,680	)		(4,749	)	627		1,688		-			(2,434	)
Interest and other income (expense), net		(79	)	-		-		-		-				(79	)		98		-		-		-			98
Loss before income taxes		(8,105	)	1,101		1,307		324		614				(4,759	)		(4,651	)	627		1,688		-			(2,336	)
Provision (benefit) for income taxes		115		-		-		-		3				118			(2,619	)	-		-		566			(2,053	)
Net loss	$	(8,220	)	1,101		1,307		324		611			$	(4,877	)	$	(2,032	)	627		1,688		(566	)	$	(283	)
Net loss per share:
Basic and diluted	$	(0.59	)										$	(0.35	)	$	(0.15	)							$	(0.02	)
Weighted-average number of shares used in per share calculations:
Basic and diluted		14,017												14,017			13,587									13,587
a)Other adjustment of $614 related to Executive separation costs.
Operating expenses as a % of net revenue	GAAP												Non-GAAP			GAAP									Non-GAAP
Sales and marketing		44.7	%											40.1	%		38.4	%								35.4	%
Research and development		10.3	%											9.5	%		10.4	%								9.8	%
General and administrative		15.3	%											12.6	%		15.9	%								13.4	%
		70.3	%											62.1	%		64.7	%								58.6	%

CUTERA, INC.
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
(in thousands, except per share data)
(unaudited)
	Three Months Ended
	March 31, 2019
Net loss	$	(8,220	)
Adjustments:
Stock-based compensation		1,307
Depreciation and amortization		1,101
CRM and ERP implementation costs		324
Other adjustments		614		^(a)
Interest and other (income) expense, net		79
Provision (benefit) for income taxes		115
Total adjustments	$	3,540
Adjusted EBITDA	$	(4,680	)
a)Other adjustment of $614 related to Executive separation costs.