Cutera Reports Fourth Quarter and Full Year 2017 Record Revenue and Financial Results

Record Fourth Quarter Revenue of $47.6 Million; Increases 26% Year-over-Year; 14th Consecutive Quarter of Double-Digit Revenue Growth

System Revenue Grows in the Fourth Quarter by 35% in North America and 19% Internationally

Full Year Revenue Grows 28%

Company Expands Product Offerings in 2018 with Introduction of Juliet® and Secret RF®

BRISBANE, Calif., Feb. 14, 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 fourth quarter and fiscal year ended December 31, 2017.

James Reinstein, President and Chief Executive Officer stated, “We are pleased with our fourth quarter and fiscal year 2017 performance. Our 26% global revenue growth in the fourth quarter was driven by the continued strength of systems revenue in North America, which increased 35%, as well as, considerable improvement in our International systems revenue, which increased 19%.  We believe the enhancements made to our International structure in 2017 will continue to drive execution improvements. We expect to build upon our 2017 success with continued North American and International expansion of legacy and newly launched products, as well as, consumables revenue related to truSculpt 3D®, Juliet and Secret RF.  In the second half 2017, approximately 30% of our systems sold will realize a recurring revenue stream going forward.  We believe our newly created Commercial Team dedicated to supporting our consumable products will help expand this revenue opportunity.” 

Key financial highlights for the fourth quarter 2017, when compared to the fourth quarter 2016, include:

  • Revenue increased 26% to a record $47.6 million, due primarily to an overall growth of 30% in systems revenue, with 35% growth in North America and 19% Internationally;
    • Record quarter of $11.5 million International systems revenue;
    • 25% sequential quarter increase compared to the third quarter of 2017;
    • Fourteenth consecutive quarter of double-digit year-over-year revenue growth;
  • Gross Margin of 57% impacted by increased warranty costs, as well as, an increased investment in our Service operations to fuel future growth;
  • Net Income was $22.9 million, or $1.57 per fully diluted share, including a benefit for the release of a significant portion of our valuation allowance against U.S. deferred tax assets;
    • Non-GAAP net income* was $6.1 million, or $0.42 per fully diluted share.  In the fourth quarter of 2017, the Company recorded an income tax benefit of $18.2 million resulting primarily from the release of a significant portion of its valuation allowance against certain U.S. deferred tax assets, partially offset by the revised measurement of U.S. deferred tax assets resulting from the Tax Cuts and Jobs Act of 2017;
  • Cash Generated by Operations increased 41% to $6.7 million, compared to $4.7 million in the prior period;
  • Cash, cash equivalents and investments of $35.9 million, with no debt; and
  • Repurchased $21.4 million of common stock.

Key financial highlights for the full year 2017, when compared to the full year 2016, were as follows:

  • Revenue increased 28% for the full year to a record $151.5 million, due primarily to a 51% growth in North American systems revenue;
    • Three consecutive years of 20%+ year-over-year growth;
  • Gross Margin of 57% was slightly lower than previous year, impacted by warranty costs and an increased investment in our Service operations in the second half of 2017;
  • Net Income was $30.0 million, or $2.04 per fully diluted share;
    • Non-GAAP net income* was $13.7 million, or $0.93 per fully diluted share;
  • Cash Generated by Operations was $14.3 million, including the one-time $4 million benefit from our facility lease cancellation in the third quarter of 2017; and
  • Repurchased $35.2 million of common stock.

Product Updates

Each platform in our portfolio contributed to the success of the year.  The Company’s newly launched truSculpt 3D system continues to gain market acceptance in North America and in International markets.  In 2018, the Company expects continued North American growth for the truSculpt platform, as well as, expansion into new International markets. Additionally, the Enlighten family continues to be a top selling platform and closely follows truSculpt 3D in total revenue.  In January 2018, the Company launched Juliet (a women’s health product) and Secret RF (an RF microneedle product) to further enhance our product offerings, as well as expand our participation in recurring procedural revenue.  As previously announced, Cutera also created a commercial organization dedicated to supporting consumable products for procedures performed in physicians’ practices.  We expect this new team, combined with the new consumable offerings, to expand disposable revenue opportunities in 2018 and beyond.

2018 Outlook

  • We expect revenue to be in the range of $178 to $181 million, an 18% – 20% increase over 2017;
  • Gross margin is expected to be in the range of 57% to 58%, as we continue to invest in our Service operations, and experience increased facility costs in our headquarters in Brisbane, California;
  • Operating expenses are expected to be in the range of 52% to 54% of revenue, consistent with 2017 (excluding the non-recurring lease termination benefit), as we continue to invest in product development and the scalability of our operations;
  • Non-GAAP earnings per share* is expected to be in the range of $1.03 to $1.11 as compared to $0.93 for the full-year of 2017; and
  • Adjusted EBITDA* is expected to be in the range of $15.0 to $17.0 million.

Conference Call

The conference call to discuss these results is scheduled to begin today at 1:30 p.m. PST (4:30 p.m. EST).  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 February 28, 2018. 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 order to supplement our unaudited condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management discloses certain non-GAAP financial measures. Management uses these measures 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.

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.  Forward-looking non-GAAP measures include adjusted earnings per share and adjusted EBITDA.  We define adjusted EBITDA as earnings before interest, taxes, depreciation and amortization as adjusted for non-cash stock-based compensation expense.  For computing non-GAAP earnings per share and adjusted EBITDA, we have assumed $8 to $9 million of non-cash stock-based compensation, an effective tax rate of 10% to 12%, and approximately 15 million weighted-average shares outstanding.

In this press release management has disclosed certain non-GAAP financial measures for the statement of operations and net income per diluted share, which 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.

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

Non-recurring lease termination income.  We incurred a one-time benefit with respect to a certain lease termination transaction.  We exclude this benefit as it is related to a unique, one-time event and has no direct impact or correlation to the operation of our on-going business. Additionally, we believe that its inclusion is potentially misleading to users of our financial statements given the lease termination income’s unique, non-recurring nature.

Non-recurring income tax adjustments relating primarily to the release of a significant portion of the Company’s valuation allowance against certain U.S. deferred tax assets, partially offset by the impact of the Tax Cuts and Jobs Act of 2017.  We exclude this adjustment as it is related to a unique, non-recurring event and has no direct impact or correlation to the operation of our on-going business.  Additionally, we believe that its inclusion is potentially misleading to users of our financial statements given its unique, non-recurring nature.

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. 

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 fourth quarter ended December 31, 2017, as discussed in this release, is preliminary and unaudited, and subject to adjustment.

     
  CUTERA, INC.   
  CONDENSED CONSOLIDATED BALANCE SHEETS  
  (in thousands)   
  (unaudited)   
     
              December 31,     September 30,     December 31,  
              2017     2017     2016  
  Assets                      
  Current assets:                    
  Cash and cash equivalents   $ 14,184   $ 14,784   $ 13,775  
  Marketable investments     21,728     35,692     40,299  
  Cash, cash equivalents and investments     35,912     50,476     54,074  
                             
  Accounts receivable, net     20,777     19,604     16,547  
  Inventories     28,782     23,728     14,977  
  Other current assets and prepaid expenses     2,903     2,894     2,251  
  Total current assets     88,374     96,702     87,849  
                             
  Property and equipment, net     2,096     1,842     1,907  
  Deferred tax asset     19,055     384     377  
  Intangibles, net             2  
  Goodwill     1,339     1,339     1,339  
  Other long-term assets     374     381     380  
  Total assets   $ 111,238   $ 100,648   $ 91,854  
                             
  Liabilities and Stockholders’ Equity                    
  Current liabilities:                    
  Accounts payable   $ 7,002   $ 5,805   $ 2,598  
  Accrued liabilities     26,848     22,203     17,397  
  Deferred revenue     9,461     8,801     8,394  
  Total current liabilities     43,311     36,809     28,389  
                             
  Deferred revenue, net of current portion     2,195     1,950     1,705  
  Income tax liability     379     171     168  
  Other long-term liabilities     460     505     582  
  Total liabilities     46,345     39,435     30,844  
                             
  Stockholders’ equity     64,893     61,213     61,010  
  Total liabilities and stockholders’ equity   $ 111,238   $ 100,648   $ 91,854  
                             

 

     
  CUTERA, INC.   
  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
  (in thousands, except per share data)  
  (unaudited)   
             
          Three Months Ended   Twelve Months Ended  
          December 31,   December 31,   December 31,   December 31,  
          2017   2016   2017   2016  
  Net revenue   $ 47,632     $ 37,875     $ 151,493     $ 118,056    
  Cost of revenue     20,299       15,962       65,383       49,921    
  Gross profit     27,333       21,913       86,110       68,135    
  Gross margin %     57 %     58 %     57 %     58 %  
                                 
  Operating expenses:                          
  Sales and marketing     15,362       11,561       52,070       41,563    
  Research and development     3,481       2,897       12,874       11,232    
  General and administrative     3,947       3,010       14,090       12,943    
  Lease termination                 (4,000 )        
  Total operating expenses     22,790       17,468       75,034       65,738    
  Income from operations     4,543       4,445       11,076       2,397    
  Interest and other income (expense), net   138       (204 )     884       323    
  Income before income taxes     4,681       4,241       11,960       2,720    
  Provision (benefit) for income taxes     (18,199 )     28       (18,033 )     143    
  Net income   $ 22,880     $ 4,213     $ 29,993     $ 2,577    
                                 
  Net income per share:                          
  Basic   $ 1.66     $ 0.31     $ 2.16     $ 0.19    
  Diluted   $ 1.57     $ 0.30     $ 2.04     $ 0.19    
                                 
  Weighted-average number of shares                          
  used in per share calculations:                          
  Basic and diluted     13,744       13,591       13,873       13,225    
  Diluted     14,569       14,201       14,728       13,753    
                                 

 

   
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 December 31, 2017  
  GAAP   Adjustments*   Non-GAAP*  
Net revenue $ 47,632     $       $ 47,632    
Cost of revenue   20,299       (377 ) (a)     19,922    
Gross profit   27,333       377         27,710    
  Gross margin %   57 %             58 %  
                     
Operating expenses:                    
Sales and marketing   15,362       (586 ) (b)     14,776    
Research and development   3,481       (314 ) (c)     3,167    
General and administrative   3,947       (476 ) (d)     3,471    
Total operating expenses   22,790       (1,376 )       21,414    
Income from operations   4,543       1,753         6,296    
Interest and other income, net   138               138    
Income before income taxes   4,681       1,753         6,434    
Provision (benefit) for income taxes   (18,199 )     18,491   (e)     292    
Net income $ 22,880     $ (16,738 )     $ 6,142    
                     
Net income per share:                    
Basic $ 1.66     $ (1.22 )     $ 0.45    
Diluted $ 1.57     $ (1.15 )     $ 0.42    
                     
Weighted-average number of shares used in per share calculations:                    
Basic   13,744       13,744         13,744    
Diluted   14,569       14,569         14,569    
                     
* Fiscal fourth quarter 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s):  
(a) Adjustment of $377 included non-cash expenses of $94 related to depreciation and $283 of stock based compensation.  
(b) Adjustment of $586 included a non-cash expenses of $159 related to depreciation and $427 of stock based compensation.  
(c) Adjustment of $314 included a non-cash expenses of $11 related to depreciation and $303 of stock based compensation.  
(d) Adjustment of $476, included a non-cash expenses of $2 related to depreciation and $474 of stock based compensation.  
(e) Adjustment of $18,491 included: (i) $18,741 for the release of a significant portion of our valuation allowance against certain U.S. deferred tax assets, partially offset by our revised measurement of U.S. deferred tax assets resulting from the 2017 US Tax Reform; offset by (ii) $248 for establishing a foreign transfer pricing contingency reserve; and (iii) $2 for adjusting the tax effect of the $4 million lease termination fee received in Q3’2017.   
                     

 

                   
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)
                   
  Twelve Months Ended December 31, 2017    
  GAAP 
  Adjustments*    Non-GAAP* 
Net revenue $ 151,493     $       $ 151,493  
Cost of revenue   65,383       (989 ) (a)   64,394  
Gross profit   86,110       989         87,099  
Gross margin %   57 %             57 %
                   
Operating expenses:                  
Sales and marketing   52,070       (2,300 ) (b)   49,770  
Research and development   12,874       (961 ) (c)   11,913  
General and administrative   14,090       (1,876 ) (d)   12,214  
Lease termination   (4,000 )     4,000   (e)    
Total operating expenses   75,034       (1,137 )       73,897  
Income from operations   11,076       2,126         13,202  
Interest and other income, net   884               884  
Income before income taxes   11,960       2,126         14,086  
Provision (benefit) for income taxes   (18,033 )     18,411   (f)   378  
Net income $ 29,993     $ (16,285 )     $ 13,708  
                       
Net income per share:                  
Basic $ 2.16     $ (1.17 )     $ 0.99  
Diluted $ 2.04     $ (1.11 )     $ 0.93  
                   
Weighted-average number of shares used in per share calculations:                  
Basic   13,873       13,873         13,873  
Diluted   14,728       14,728         14,728  
                   
* Fiscal year 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s)                  
(a) Adjustment of $989 included non-cash expenses of $329 related to depreciation and amortization, and $660 of stock based compensation.
(b) Adjustment of $2,300 included a non-cash expenses of $658 related to depreciation and $1,642 of stock based compensation.
(c) Adjustment of $961 included a non-cash expenses of $25 related to depreciation and $936 of stock based compensation.
(d) Adjustment of $1,876 included non-cash expenses of $4 for depreciation and $1,872 for stock based compensation. 
(e) Adjustment of $4,000 represents non-recurring lease termination income.
(f) Adjustment of $18,411 relates to: (i) $18,741 for the release of a significant portion of our valuation allowance against certain U.S. deferred tax assets, partially offset by our revised measurement of U.S. deferred tax assets resulting from the 2017 US Tax Reform; offset by (ii) $248 for establishing a foreign transfer pricing contingency reserve; and (iii) $82 for the tax effect of the $4 million lease termination fee received in Q3’2017. 
                   

 

     
  CUTERA, INC.   
  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
  (in thousands)   
  (unaudited)   
                               
        Three Months Ended   Twelve Months Ended  
        December 31,   December 31,   December 31,   December 31,  
        2017   2016   2017   2016  
  Cash flows from operating activities:                        
  Net income $ 22,880     $ 4,213     $ 29,993     $ 2,577    
  Adjustments to reconcile net income to net cash provided by operating activities:                        
  Stock-based compensation   1,487       1,061       5,110       3,713    
  Depreciation and amortization   266       249       1,016       982    
  Change in deferred tax assets   (18,678 )     22       (18,678 )     22    
  Other   15       38       (52 )     (7 )  
  Changes in assets and liabilities:                        
  Accounts receivable   (1,181 )     (4,838 )     (4,229 )     (4,899 )  
  Inventories   (5,054 )     1,501       (13,805 )     (2,899 )  
  Accounts payable   1,197       (685 )     4,404       639    
  Accrued liabilities   4,588       2,575       9,345       3,461    
  Deferred revenue   905       361       1,557       (826 )  
  Other   257       244       (374 )     (771 )  
  Net cash provided by operating activities   6,682       4,741       14,287       1,992    
                               
  Cash flows from investing activities:                        
  Acquisition of property, equipment and software   (412 )     (226 )     (855 )     (537 )  
  Disposal of property and equipment         3       53       20    
  Net change in marketable investments   13,886       (5,219 )     18,496       (2,875 )  
  Net cash provided by (used in) investing activities   13,474       (5,442 )     17,694       (3,392 )  
                               
  Cash flows from financing activities:                        
  Repurchases of common stock   (21,391 )           (35,167 )     (4,873 )  
  Proceeds from exercise of stock options and employee stock purchase plan 869       3,313       5,435       10,111    
  Taxes paid related to net share settlement of equity awards   (137 )     (17 )     (1,469 )     (618 )  
  Payments on capital lease obligations   (97 )     (95 )     (371 )     (313 )  
  Net cash provided by (used in) financing activities   (20,756 )     3,201       (31,572 )     4,307    
                               
  Net increase (decrease) in cash and cash equivalents   (600 )     2,500       409       2,907    
  Cash and cash equivalents at beginning of period   14,784       11,275       13,775       10,868    
  Cash and cash equivalents at end of period $ 14,184     $ 13,775     $ 14,184     $ 13,775    
                               

 

   
  CUTERA, INC. 
  CONSOLIDATED FINANCIAL HIGHLIGHTS
  (in thousands, except percentage data)
  (unaudited) 
                         
          Three Months Ended    % Change   Twelve Months Ended    % Change
          Q4     Q4   Q4 ’17 Vs   Q4     Q4   YTD Q4 ’17 Vs
          2017     2016   Q4 ’16   2017     2016   YTD Q4 ’16
  Revenue By Geography:                                    
      United States   $ 30,524       $ 23,297     +31 %   $ 94,581       $ 65,513     +44 %
      Rest of World     17,108         14,578     +17 %     56,912         52,543     +8 %
          $ 47,632       $ 37,875     +26 %   $ 151,493       $ 118,056     +28 %
      Rest of World as a percentage of total revenue     36 %       38 %         38 %       45 %    
                                           
  Revenue By Product Category:                                    
    Systems                                    
      – North America   $ 29,383       $ 21,787     +35 %   $ 88,338       $ 58,595     +51 %
      – International     11,531         9,678     +19 %     37,544         34,126     +10 %
      Total Systems     40,914         31,465     +30 %     125,882         92,721     +36 %
    Service     4,660         4,750     -2 %     18,833         19,028     -1 %
    Hand Piece Refills     692         612     +13 %     2,436         2,498     -2 %
    Skincare     1,366         1,048     +30 %     4,342         3,809     +14 %
          $ 47,632       $ 37,875     +26 %   $ 151,493       $ 118,056     +28 %
                                           
                                           
                                           
        Three Months Ended        Twelve Months Ended     
          Q4     Q4       Q4     Q4    
          2017     2016       2017     2016    
  Pre-tax Stock-Based Compensation Expense:                                    
      Cost of revenue   $ 283       $ 87         $ 660       $ 341      
      Sales and marketing     427         335           1,642         1,179      
      Research and development     303         180           936         596      
      General and administrative     474         459           1,872         1,597      
          $ 1,487       $ 1,061         $ 5,110       $ 3,713      
                                           

CONTACTS:

Cutera, Inc.
Sandra Gardiner
Chief Financial Officer
415-657-5500

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

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