Cutera, Inc. Announces Third Quarter 2020 Financial Results

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 third quarter ended September 30, 2020.

Third Quarter 2020 Financial and Operational Highlights

  • Revenue was $39.1 million, a 15% decrease from the prior-year period, as COVID-19 disruptions led to a year-over-year decline in capital equipment deals as well as overall energy-based aesthetic procedures during the quarter, compared to a 45% year-on-year decline in 2Q20.
    • Capital Equipment revenue of $24.1 million decline of 31% over prior-year period, compared to a 59% decline in 2Q20.
    • Recurring revenue grew $3.9 million or 35% over prior-year period, compared to 6% in 2Q20, driven primarily by Skin Care revenue growth of 140% over third quarter 2019.
  • Gross Margin was 56%, compared to 57% in the prior-year period, driven by lower production levels and substantially lower overhead absorption during the quarter, offset by reductions in manufacturing overhead, increased manufacturing efficiencies and continued pricing discipline.
  • Operating Expenses were $23.0 million, down $5.7 million or 20% from prior year period, delivering improved leverage in the period.
  • Net loss was $2.3 million, or $0.13 per fully diluted share, as compared to a net loss of $2.6 million, or $0.19 per fully diluted share, in the prior-year period.

“I am pleased with our third quarter financial performance, with faster-than-expected sequential improvement in capital equipment sales and exceptionally strong recurring revenue growth of 35% year-over-year,” commented Dave Mowry, Chief Executive Officer of Cutera, Inc. “Moreover, I am very proud of our team’s continued expense discipline, which led to increased profitability in the period and allowed us to achieve positive cash flow on a non-GAAP basis a quarter earlier than expected. While we continue to anticipate COVID-related headwinds to capital equipment sales in the fourth quarter, our year-to-date operational focus and outlook for sequential growth in both equipment sales and procedure volumes will provide a pathway to stronger results in the near-term and a solid foundation going into fiscal year 2021 and beyond.”

Conference Call

The Company’s management will host a conference call to the discuss these results and related matters today at 1:30 p.m. PT (4:30 p.m. ET) that same day. Participating on the call will be Dave Mowry, Chief Executive Officer, Rohan Seth, Chief Financial Officer, and, Jason Richey, President.

To participate in the conference call, dial 1-877-705-6003 (domestic) or + 1-201-493-6725 (international) and refer to the Conference Code: 13711852.

The call will also be webcast and can be accessed from the Investor Relations section of Cutera’s website at http://www.cutera.com/. The webcast replay of the call will be available at the same site approximately one hour after the end of the call.

About Cutera, Inc.

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

*Use of Non-GAAP Financial Measures

In this press release, in order to supplement the Company’s condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management has disclosed certain non-GAAP financial measures for the statement of operations and net income (loss) per diluted share. Non-GAAP adjustments include stock-based compensation, depreciation, amortization, executive and other non-recurring separation costs, customer relationship management (“CRM”) and enterprise resource planning (“ERP”) system costs, non-recurring legal and litigation costs, as well as the net tax impact of excluding these items. From time to time in the future, there may be other items that we may exclude if the Company believes that doing so is consistent with the goal of providing useful information to investors and management. The Company has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The Company has not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability, limited visibility, unpredictability, or unique non-recurring nature of the items. Forward-looking non-GAAP measures include adjusted EBITDA. The Company defines adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, stock-based compensation, executive and other non-recurring separation costs, customer relationship management (“CRM”) and enterprise resource planning (“ERP”) system costs, and non-recurring legal and litigation costs.

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

Non-cash expenses for stock-based compensation. The Company has excluded the effect of stock-based compensation expenses in calculating its non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to its employees, the Company continues to evaluate its business performance excluding stock-based compensation expenses. The Company records stock-based compensation expense related to grants of options, employee stock purchase plan, and performance and restricted stock. Depending upon the size, timing and the terms of the grants, this expense may vary significantly but will recur in future periods. The Company believes that excluding stock-based compensation better allows for comparisons to its peer companies;

Depreciation and amortization. The Company has excluded depreciation and amortization expense in calculating its non-GAAP operating expenses and net income measures. Depreciation and amortization are non-cash charges to current operations;

Executive and other non-recurring separation costs. We have excluded costs associated with the resignation of our former Executive Officers in calculating our non-GAAP operating expenses and net income measures. We exclude these and other non-recurring costs related to Reduction–in-Force (“RIF”) 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;

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; and

Non-recurring legal and litigation costs. We have excluded costs incurred related to third party litigation and disputes, that are of a non-recurring nature.

The Company believes that excluding all of the items above allows users of its financial statements to better review and assess both current and historical results of operations.

Safe Harbor Statement

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

All information in this press release is as of the date of its release. Accordingly, undue reliance should not be placed on forward-looking statements. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events. If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements. Cutera's financial performance for the third quarter ended September 30, 2020, as discussed in this release, is preliminary and unaudited, and subject to adjustment.

CUTERA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
September 30,June 30,December 31,

2020

2020

2019

Assets
Current assets:
Cash and cash equivalents$

29,394

$

33,659

$

26,316

Marketable investments

13,046

12,894

7,605

Accounts receivable, net

17,597

13,826

21,556

Inventories

29,333

31,240

33,921

Other current assets and prepaid expenses

6,892

5,313

5,648

Total current assets

96,262

96,932

95,046

 
Property and equipment, net

2,391

2,417

2,817

Deferred tax asset

500

419

423

Goodwill

1,339

1,339

1,339

Operating lease right-of-use assets

17,645

7,577

7,702

Other long-term assets

5,290

4,733

6,411

Total assets$

123,427

$

113,417

$

113,738

 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$

6,799

$

11,681

$

12,685

Accrued liabilities

25,644

20,423

30,307

Operating leases liabilities

1,608

1,526

2,800

Extended warranty liabilities

1,497

1,660

1,999

Deferred revenue

9,580

9,345

10,831

Total current liabilities

45,128

44,635

58,622

 
Deferred revenue, net of current portion

2,244

2,434

3,391

Income tax liability

93

93

93

PPP Loan payable

7,167

7,149

-

Operating lease liabilities, net of current portion

16,497

6,262

5,112

Other long-term liabilities

292

345

578

Total liabilities

71,421

60,918

67,796

 
Stockholders’ equity:
Common stock

18

18

14

Additional paid-in capital

114,410

112,644

82,346

Accumulated deficit

(62,423)

(60,166)

(36,358)

Accumulated other comprehensive loss

1

3

(60)

Total stockholders' equity

52,006

52,499

45,942

Total liabilities and stockholders' equity$

123,427

$

113,417

$

113,738

 
 
CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,

2020

2019

2020

2019

 
Products$

33,254

40,315

81,390

$

113,045

Service

5,878

5,802

16,350

16,872

Total net revenue

39,132

46,117

97,740

129,917

 
Products

14,018

16,343

40,326

50,278

Service

3,369

3,541

9,708

10,266

Total cost of revenue

17,387

19,884

50,034

60,544

Gross profit

21,745

26,233

47,706

69,373

Gross margin %

56%

57%

49%

53%

 
Operating expenses:
Sales and marketing

12,286

17,691

38,109

50,786

Research and development

3,432

3,643

10,294

10,622

General and administrative

7,239

7,308

23,575

18,100

Total operating expenses

22,957

28,642

71,978

79,508

Loss from operations

(1,211)

(2,409)

(24,272)

(10,135)

Interest and other expense, net

(382)

(146)

(586)

(180)

Loss before income taxes

(1,593)

(2,555)

(24,858)

(10,315)

Income tax expense (benefit)

664

73

1,207

(55)

Net loss$

(2,257)

$

(2,628)

$

(26,065)

$

(10,260)

 
Net loss per share:
Basic$

(0.13)

$

(0.19)

$

(1.59)

$

(0.73)

Diluted$

(0.13)

$

(0.19)

$

(1.59)

$

(0.73)

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

17,603

14,182

16,368

14,095

Diluted

17,603

14,182

16,368

14,095

 
CUTERA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except percentage data)
(unaudited)
 
Three Months Ended % ChangeNine Months Ended % Change
September 30,September 30,2019 VsSeptember 30,September 30,2020 Vs

2020

2019

2018

2020

2019

2019

Revenue By Geography:
United States$

15,442

$

26,425

-42%

$

40,142

$

74,972

-46%

International

23,690

19,692

+20%

57,598

54,945

+5%
Total Net Revenue$

39,132

$

46,117

-15%

$

97,740

$

129,917

-25%

International as a percentage of total revenue

61%

43%

59%

42%

 
Revenue By Product Category:
Systems
- North America$

13,700

$

24,121

-43%

$

32,296

$

68,192

-53%

- Rest of World

10,421

10,837

-4%

28,325

31,514

-10%

Total Systems

24,121

34,958

-31%

60,621

99,706

-39%

Consumables

2,305

2,510

-8%

6,263

7,109

-12%

Skincare

6,828

2,847

+140%

14,506

6,230

+133%
Total Products

33,254

40,315

-18%

81,390

113,045

-28%

 
Service

5,878

5,802

+1%

16,350

16,872

-3%

Total Net Revenue$

39,132

$

46,117

-15%

$

97,740

$

129,917

-25%

 
 
 
Three Months Ended Nine Months Ended
September 30,September 30,September 30,September 30,

2020

2019

2020

2019

Pre-tax Stock-Based Compensation Expense:
Cost of revenue$

326

$

430

$

1,359

$

1103

Sales and marketing

648

1,365

2,617

3080

Research and development

254

443

1,344

1076

General and administrative

754

940

2,736

1745

$

1,982

$

3,178

$

8,057

$

7,004

 
 
CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months EndedNine Months Ended
September 30,September 30,September 30,September 30,

2020

2019

2020

2019

Cash flows from operating activities:
Net loss$

(2,257)

$

(2,628)

$

(26,065)

$

(10,260)

Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation

1,982

3,178

8,057

7,004

Depreciation of tangible assets

341

369

1,056

1,184

Amortization of contract acquisition costs

625

757

2,017

2,169

Impairment of intangible assets

-

-

805

-

Change in deferred tax asset

(81)

(1)

(77)

(2)

Provision for doubtful accounts receivable

54

666

1,750

647

Change in right-of-use asset/liability

249

250

-

Other

129

(96)

327

55

Changes in assets and liabilities:
Accounts receivable

(5,064)

1,031

2,209

(4,232)

Inventories

1,907

(7,153)

4,588

(6,028)

Other current assets and prepaid expenses

(350)

(809)

(1,273)

(1,423)

Other long-term assets

(1,182)

(856)

(1,701)

(2,608)

Accounts payable

(4,882)

2,699

(5,886)

2,861

Accrued liabilities

5,196

1,121

(4,559)

4,900

Extended warranty liabilities

(163)

(167)

(502)

(927)

Other long-term liabilities

-

-

-

(140)

Deferred revenue

45

(386)

(2,398)

907

Income tax liability

(0)

-

-

(301)

Net cash used in operating activities

(3,451)

(2,275)

(21,402)

(6,194)

 
Cash flows from investing activities:
Acquisition of property, equipment and software

(339)

(208)

(774)

(524)

Disposal of property and equipment

-

25

-

45

Proceeds from maturities of marketable investments

8,100

1,850

19,000

11,450

Purchase of marketable investments

(8,244)

(4,284)

(24,411)

(8,304)

Net cash provided by (used in) investing activities

(483)

(2,617)

(6,185)

2,667

 
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan

8

437

856

1,600

Proceeds from long-term debt

18

-

7,167

-

Gross proceeds from equity offering

(1)

-

28,798

-

Offering costs on the equity offering

-

-

(2,303)

-

Taxes paid related to net share settlement of equity awards

(223)

(180)

(3,340)

(750)

Payments on finance lease obligations

(133)

(154)

(513)

(496)

Net cash (used) provided by financing activities

(331)

103

30,665

354

 
Net increase (decrease) in cash and cash equivalents

(4,265)

(4,789)

3,078

(3,173)

Cash and cash equivalents at beginning of period

33,659

27,668

26,316

26,052

Cash and cash equivalents at end of period$

29,394

$

22,879

$

29,394

$

22,879

 
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 September 30, 2020Three Months Ended September 30, 2019
GAAPDepreciation
and
Amortization
Stock-Based
Compensation
CRM and ERP
Implementation/
write-off
Severance (RIF)Legal -Former CFO Settlement/LutronicTaxes and
Other Adjustments
Non-GAAPGAAPDepreciation
and
Amortization
Stock-Based
Compensation
CRM and ERP
Implementation
Taxes and
Other Adjustments
Non-GAAP
 
Net revenue

$ 39,132

-

-

-

-

-

-

$ 39,132

$ 46,117

-

-

-

-

$ 46,117

Cost of revenue

17,387

(140)

(326)

-

(186)

-

-

16,735

19,884

(134)

(430)

-

-

19,320

Gross profit

21,746

140

326

-

186

-

-

22,398

26,233

134

430

-

-

26,797

Gross margin %

56%

57.2%

57%

58%

 
Operating expenses:
Sales and marketing

12,286

(756)

(648)

-

(25)

-

-

10,857

17,691

(936)

(1,365)

(90)

-

15,300

Research and development

3,432

(39)

(254)

-

(67)

-

-

3,072

3,643

(27)

(443)

-

-

3,173

General and administrative

7,239

(28)

(754)

-

(27)

(341)

-

6,089

7,308

(29)

(940)

(430)

-

5,909

Total operating expenses

22,957

(823)

(1,656)

-

(119)

(341)

-

20,018

28,642

(992)

(2,748)

(520)

-

24,382

Income (loss) from operations

(1,211)

963

1,982

-

305

341

-

2,380

(2,409)

1,126

3,178

520

-

2,415

Interest and other expense, net

(382)

-

-

-

-

-

-

(382)

(146)

-

-

-

-

(146)

Income (loss) before income taxes

(1,593)

963

1,982

-

305

341

-

1,998

(2,555)

1,126

3,178

520

-

2,269

Provision (benefit) for income taxes

664

-

-

-

-

-

2

666

73

-

-

-

6

79

Net income (loss)

$ (2,257)

963

1,982

-

305

341

(2)

$ 1,332

$ (2,628)

1,126

3,178

520

(6)

$ 2,190

 
Net income (loss) per share:
Basic

$ (0.13)

$ 0.08

$ (0.19)

$ 0.15

Diluted

$ (0.13)

$ 0.08

$ (0.19)

$ 0.15

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

17,603

17,603

14,182

14,182

Diluted

17,603

17,603

14,182

14,751

 
 
 
 
Operating expenses as a % of net revenueGAAPNon-GAAPGAAPNon-GAAP
Sales and marketing

31.4%

27.7%

38.4%

33.2%

Research and development

8.8%

7.9%

7.9%

6.9%

General and administrative

18.5%

15.6%

15.8%

12.8%

58.7%

51.2%

62.1%

52.9%

CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
 
Nine Months Ended September 30, 2020Nine Months Ended September 30, 2019
GAAPDepreciation
and
Amortization
Stock-Based
Compensation
CRM and ERP
Implementation/write-off
Severance
(RIF)
Legal -Former
CFO
Settlement/Lutronic
Taxes and
Other
Adjustments
Non-GAAPGAAPDepreciation
and
Amortization
Stock-Based
Compensation
CRM and ERP
Implementation
Taxes and
Other
Adjustments
Non-GAAP
 
Net revenue

$ 97,740

-

-

-

-

$ 97,740

$ 129,917

-

-

-

-

$ 129,917

Cost of revenue

50,034

(417)

(1,359)

-

(318)

-

-

47,940

60,544

(385)

(1,103)

-

-

59,056

Gross profit

47,706

417

1,359

-

318

-

-

49,800

69,373

385

1,103

-

-

70,861

Gross margin %

49%

51%

53%

55%

 
Operating expenses:
Sales and marketing

38,109

(2,454)

(2,617)

-

(274)

-

-

32,764

50,786

(2,718)

(3,080)

(201)

-

44,787

Research and development

10,294

(115)

(1,344)

-

(130)

-

-

8,705

10,622

(74)

(1,076)

-

-

9,472

General and administrative

23,575

(84)

(2,736)

(1,139)

(101)

(1,359)

(324)

17,832

18,100

(176)

(1,745)

(1,129)

(614)

14,435

Total operating expenses

71,978

(2,653)

(6,698)

(1,139)

(505)

(1,359)

(324)

59,300

79,508

(2,968)

(5,901)

(1,331)

(614)

68,694

Income (loss) from operations

(24,272)

3,070

8,057

1,139

823

1,359

324

(9,500)

(10,135)

3,353

7,004

1,331

614

2,167

Interest and other expense, net

(586)

-

-

-

-

-

(586)

(180)

-

-

-

-

(180)

Income (loss) before income taxes

(24,858)

3,070

8,057

1,139

823

1,359

324

(10,086)

(10,315)

3,353

7,004

1,331

614

1,987

Provision (benefit) for income taxes

1,207

-

-

-

-

-

9

1,216

(55)

-

-

-

288

233

Net income (loss)

$ (26,065)

3,070

8,057

1,139

823

1,359

315

$ (11,302)

$ (10,260)

3,353

7,004

1,331

326

$ 1,754

 
Net income (loss) per share:
Basic

$ (1.59)

$ (0.69)

$ (0.73)

$ 0.12

Diluted

$ (1.59)

$ (0.69)

$ (0.73)

$ 0.12

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

16,368

16,368

14,095

14,095

Diluted

16,368

16,368

14,095

14,417

 

a) Other adjustment of $614 related to Executive separation costs.

 
 
Operating expenses as a % of net revenueGAAPNon-GAAPGAAPNon-GAAP
Sales and marketing

39.0%

33.5%

39.1%

34.5%

Research and development

10.5%

8.9%

8.2%

7.3%

General and administrative

24.1%

18.2%

13.9%

11.1%

73.6%

60.7%

61.2%

52.9%

 
CUTERA, INC.
RECONCILIATION OF LOSS TO ADJUSTED EBITDA
(in thousands)
(unaudited)
 
 
Three Months
Ended
Nine Months
Ended
September 30, 2020
 
Net loss

$ (2,257)

$ (26,065)

Adjustments:
Stock-based compensation

1,982

8,057

Depreciation and amortization

963

3,070

CRM and ERP implementation costs

-

1,139

Severance (RIF)

305

823

Legal -Former CFO Settlement/Lutronic

341

1,359

Other adjustments

-

324

Interest and other expense, net

382

586

Provision (benefit) for income taxes

664

1,207

Total adjustments

$ 4,637

$ 16,565

 
Adjusted EBITDA

$ 2,380

$ (9,500)

Contacts:

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

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