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Cutera Reports First Quarter 2019 Financial Results

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

Total International Sales Grows 20%

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.

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