Cutera Reports Third Quarter 2017 Financial Results

BRISBANE, CA--(Marketwired - Nov 7, 2017) - 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 and nine months ended September 30, 2017. 

James Reinstein, President and Chief Executive Officer stated, "We are pleased with our third quarter financial and operational performance and the continued progress of our commercial teams. Our 26% revenue growth in the third quarter was again driven primarily by North American product sales. In addition, our International team produced systems revenue of $10 million - a single quarter record for this team. Much of our growth was fueled by recent product launches, including enlighten III and truSculpt 3D , however we continue to see growth in some of our legacy platforms such as xeo . We expect this momentum to continue throughout the fourth quarter." 

Key operating highlights for the third quarter of 2017, compared to the third quarter of 2016:

• Revenue  increased 26%, to a record $38.2 million, primarily due to 57% growth in North America Systems revenue;
  • 13 ^th  consecutive quarter of year-over-year double-digit revenue growth;
• Gross margin of 58%, consistent with previous guidance;
• Research and Development increased 19% as we continue to invest in our product portfolio;
• Operating income was $6.2 million, including a one-time $4 million benefit from our facility lease cancellation;
  • Excluding the one-time $4 million benefit, operating income was $2.2 million, an increase of 44% over the third quarter 2016;
• Cash generated by operations was $3.7 million, including the one-time $4 million benefit from our facility lease cancellation;
  • Excluding the one-time $4 million benefit, cash used by operations was $300,000 due primarily to increased working capital investment to support higher revenue levels;
• Net income  was $6.2 million, or $0.42 per fully diluted share (including the $4 million income benefit from our previously announced facility lease cancellation); 
  • Adjusted net income  (non-GAAP*) was $3.5 million, or $0.24 per fully diluted share excluding non-cash stock based compensation, depreciation and the facility lease cancellation benefit (refer to the GAAP to Non-GAAP reconciliation provided).

Product Updates Market acceptance for the Company's truSculpt 3D system continues to be robust in North America as many practitioners believe it is the best-in-class system for body sculpting. The Company introduced truSculpt 3D in select International markets in September 2017, and plans to continue to execute regional expansion of the launch throughout the fourth quarter. This latest version of the truSculpt family includes a consumable product enabling the Company to participate in the procedure income with its customers. Although only launched in mid-May of this year, truSculpt leads all platforms in revenue generation during the quarter and year-to-date periods ended September 30, 2017, highlighting the importance of new products and new markets.

Sandra Gardiner, Consultant Chief Financial Officer, commented, "Our continued quarterly success allows us to invest in new product platform opportunities, as reflected in our increased research and development investments. We also continue to purchase our stock in the open market and have now repurchased $13.8 million of stock through the nine months ended September 30, 2017. We ended the third quarter with over $50 million in cash, cash equivalents and investments. Based on our strong third quarter results, we are reiterating our guidance ranges for the full year."

Full-Year 2017 Outlook

• We expect to be at the upper end of our previously announced revenue guidance range of $144 - $147 million;
• Gross margin is expected to be in the range of 58% - 59%;
• GAAP earnings per share is expected to be in the range of $0.77 - $0.81. This includes the benefit from the $4 million facility cancellation income received.

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, Consultant 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 November 21, 2017. 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 been developing 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 * To supplement our condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management has disclosed certain Non-GAAP financial measures for the statement of operations and net income per diluted share, which exclude non-cash expenses for stock-based compensation, depreciation and a non-recurring lease termination income. Company management uses these measurements as aids in monitoring the Company's ongoing financial performance from quarter to quarter, and year to year, on a regular basis and for benchmarking against other medical technology companies. Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These Non-GAAP financial measures should be considered along with, but not as alternatives to, the operating performance measure as prescribed by GAAP.

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.

Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made. 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. Cutera's financial performance for the third quarter ended September 30, 2017, 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,			September 30,
					2017			2017			2016
Assets
Current assets:
	Cash and cash equivalents				$	14,784		$	18,679		$	11,275
	Marketable investments					35,692			32,270			35,108
	Restricted investments					-			2,290			-
		Cash, cash equivalents and investments				50,476			53,239			46,383
	Accounts receivable, net					19,604			18,191			11,680
	Inventories					23,728			16,913			16,478
	Other current assets and prepaid expenses					2,894			2,840			2,507
		Total current assets				96,702			91,183			77,048
Property and equipment, net						1,842			1,867			1,720
Deferred tax asset						384			381			410
Intangibles, net						-			-			16
Goodwill						1,339			1,339			1,339
Other long-term assets						381			381			444
			Total assets		$	100,648		$	95,151		$	80,977
Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable				$	5,805		$	4,293		$	3,283
	Accrued liabilities					22,203			18,973			14,786
	Deferred revenue					8,801			8,901			8,312
		Total current liabilities				36,809			32,167			26,381
Deferred revenue, net of current portion						1,950			1,982			1,426
Income tax liability						171			170			164
Other long-term liabilities						505			604			597
		Total liabilities				39,435			34,923			28,568
Stockholders' equity						61,213			60,228			52,409
			Total liabilities and stockholders' equity		$	100,648		$	95,151		$	80,977

CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
				Three Months Ended								Nine Months Ended
				September 30,				September 30,				September 30,				September 30,
				2017				2016				2017				2016
Net revenue				$	38,173			$	30,281			$	103,861			$	80,181
Cost of revenue					15,963				12,538				45,084				33,959
		Gross profit			22,210				17,743				58,777				46,222
		Gross margin %			58	%			59	%			57	%			58	%
Operating expenses:
	Sales and marketing				13,148				10,574				36,708				30,002
	Research and development				3,467				2,914				9,393				8,335
	General and administrative				3,379				2,716				10,143				9,933
	Lease termination				(4,000	)			-				(4,000	)			-
		Total operating expenses			15,994				16,204				52,244				48,270
Income (loss) from operations					6,216				1,539				6,533				(2,048	)
Interest and other income, net					197				166				746				527
Income (loss) before income taxes					6,413				1,705				7,279				(1,521	)
Provision for income taxes					225				61				166				115
Net income (loss)				$	6,188			$	1,644			$	7,113			$	(1,636	)
Net income (loss) per share:
	Basic			$	0.44			$	0.12			$	0.51			$	(0.12	)
	Diluted			$	0.42			$	0.12			$	0.48			$	(0.12	)
Weighted-average number of shares
	used in per share calculations:
	Basic and diluted				13,973				13,163				13,917				13,102
	Diluted				14,767				13,544				14,733				13,102

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, 2017
		GAAP				Adjustments*					Non-GAAP*
Net revenue		$	38,173			$	-				$	38,173
Cost of revenue			15,963				(188	)		(a)		15,775
Gross profit			22,210				188					22,398
Gross margin %			58	%								59	%
Operating expenses:
Sales and marketing			13,148				(560	)		(b)		12,588
Research and development			3,467				(162	)		(c)		3,305
General and administrative			3,379				(345	)		(d)		3,034
Lease termination			(4,000	)			4,000			(e)		-
Total operating expenses			15,994				2,933					18,927
Income from operations			6,216				(2,745	)				3,471
Interest and other income, net			197				-					197
Income before income taxes			6,413				(2,745	)				3,668
Provision for income taxes			225				(92	)		(f)		133
Net income		$	6,188			$	(2,653	)			$	3,535
			-
Net income per share:
Basic		$	0.44			$	(0.19	)			$	0.25
Diluted		$	0.42			$	(0.18	)			$	0.24
Weighted-average number of shares used in per share calculations:
Basic:			13,973				13,973					13,973
Diluted			14,767				14,767					14,767

* Fiscal third quarter 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s):

(a) Adjustment of $188 included non-cash expenses of $87 related to depreciation and $101 of stock based compensation.

(b) Adjustment of $560 included a non-cash expenses of $166 related to depreciation and $394 of stock based compensation.

(c) Adjustment of $162 included a non-cash expenses of $5 related to depreciation and $157 of stock based compensation.

(d) Adjustment of $345 related to stock based compensation.

(e) Adjustment of $4,000 represents non-recurring lease termination income

(f) Adjustment of $92 for income tax benefit relates to the net impact of excluding the Non-GAAP adjustments from our year-to-date tax provision.

CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
				Three Months Ended								Nine Months Ended
				September 30,				September 30,				September 30,				September 30,
				2017				2016				2017				2016
Cash flows from operating activities:
Net income (loss)				$	6,188			$	1,644			$	7,113			$	(1,636	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Stock-based compensation				997				570				3,623				2,652
	Depreciation and amortization				258				249				750				733
	Other				(22	)			18				(67	)			(45	)
Changes in assets and liabilities:
	Accounts receivable				(1,407	)			(525	)			(3,048	)			(61	)
	Inventories				(6,815	)			(1,776	)			(8,751	)			(4,400	)
	Accounts payable				1,512				531				3,207				1,324
	Accrued liabilities				3,223				1,659				4,757				886
	Deferred revenue				(132	)			(866	)			652				(1,187	)
	Other				(87	)			99				(631	)			(1,015	)
		Net cash provided by (used in) operating activities			3,715				1,603				7,605				(2,749	)
Cash flows from investing activities:
Acquisition of property, equipment and software					(233	)			(174	)			(443	)			(311	)
Disposal of property and equipment					13				11				53				17
Net change in marketable investments					(1,093	)			711				4,610				2,344
		Net cash provided by (used in) investing activities			(1,313	)			548				4,220				2,050
Cash flows from financing activities:
Repurchases of common stock					(6,735	)			(2,008	)			(13,776	)			(4,873	)
Proceeds from exercise of stock options and employee stock purchase plan					695				3,848				4,566				6,798
Taxes paid related to net share settlement of equity awards					(165	)			(45	)			(1,332	)			(601	)
Payments on capital lease obligations					(92	)			(91	)			(274	)			(218	)
		Net cash provided by (used in) financing activities			(6,297	)			1,704				(10,816	)			1,106
Net increase (decrease) in cash and cash equivalents					(3,895	)			3,855				1,009				407
Cash and cash equivalents at beginning of period					18,679				7,420				13,775				10,868
Cash and cash equivalents at end of period				$	14,784			$	11,275			$	14,784			$	11,275

CUTERA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except percentage data)
(unaudited)
				Three Months Ended						% Change			Nine Months Ended						% Change
				Q3			Q3			Q3 '17 Vs			Q3			Q3			YTD Q3 '17 Vs
				2017			2016			Q3 '16			2017			2016			YTD Q3 '16
Revenue By Geography:
		United States		$	23,275		$	15,356		+52	%		$	64,058		$	42,216		+52	%
		Rest of World			14,898			14,925		-				39,803			37,965		+5	%
				$	38,173		$	30,281		+26	%		$	103,861		$	80,181		+30	%
		Rest of World as a percentage of total revenue			39	%		49	%					38	%		47	%
Revenue By Product Category:
	Systems
		- North America		$	21,869		$	13,896		+57	%		$	58,955		$	36,808		+60	%
		- International			9,993			9,983		-				26,014			24,448		+6	%
		Total Systems			31,862			23,879		+33	%			84,969			61,256		+39	%
	Service				4,687			4,788		-2	%			14,173			14,278		-1	%
	Hand Piece Refills				595			602		-1	%			1,743			1,886		-8	%
	Skincare				1,029			1,012		+2	%			2,976			2,761		+8	%
				$	38,173		$	30,281		+26	%		$	103,861		$	80,181		+30	%

			Three Months Ended						Nine Months Ended
			Q3			Q3			Q3			Q3
			2017			2016			2017			2016
Pre-tax Stock-Based Compensation Expense:
	Cost of revenue		$	101		$	73		$	377		$	254
	Sales and marketing			394			239			1,215			844
	Research and development			157			131			633			416
	General and administrative			345			127			1,398			1,138
			$	997		$	570		$	3,623		$	2,652