Core Insights - The global cellulite treatment market is projected to grow from USD 1.57 billion in 2024 to USD 2.47 billion by 2030, with a compound annual growth rate (CAGR) of 7.84% during the forecast period [2][17]. Market Overview - The market is characterized by increasing awareness and desire for aesthetic improvement, leading to a surge in the development of new cellulite treatment technologies and products [3][5]. - Non-invasive procedures such as radiofrequency, ultrasound, and laser therapy are gaining popularity due to their effectiveness and minimal downtime [4][8]. Market Drivers - Heightened awareness surrounding cellulite and evolving beauty standards are driving demand for effective solutions [5][6]. - The beauty and wellness industry is capitalizing on the growing demand for cellulite treatments, as individuals are increasingly willing to invest in solutions that promise aesthetic enhancement [6][7]. Market Challenges - The market faces challenges due to the limited efficacy of treatments, as many options provide only temporary results [10][11]. - The complexity of cellulite, influenced by genetics, hormones, and lifestyle choices, complicates the development of universally effective solutions [11][12]. Market Trends - Social media and celebrity endorsements significantly influence consumer decisions in the cellulite treatment market, with platforms like Instagram and TikTok shaping beauty standards [13][14]. - The psychological impact of cellulite on individuals is notable, with a significant portion of the population expressing dissatisfaction with their appearance and seeking treatment [9]. Key Market Players - Major companies in the cellulite treatment market include Hologic, Inc. (Cynosure), Merz Pharma, Syneron Medical, Zimmer Aesthetics, and others [19][24].

Financial Performance - Total net revenue for Q3 2024 was $32.5 million, a decrease of 30.1% compared to $46.5 million in Q3 2023[11] - Product revenue was $27.2 million, down 33.5% from $41.0 million in the same quarter last year[11] - Gross profit for Q3 2024 was $1.8 million, representing a gross margin of 5.6%, compared to $6.5 million and 13.9% in Q3 2023[11] - The net loss for Q3 2024 was $39.0 million, compared to a net loss of $44.3 million in Q3 2023, reflecting a 12.9% improvement[11] - For the nine months ended September 30, 2024, the company reported a net loss of $86.5 million, compared to a net loss of $105.6 million for the same period in 2023[21] - The company reported a basic net loss per share of $1.94 for Q3 2024, compared to $2.22 for Q3 2023[11] - The Company reported net losses of $86.5 million for the nine months ended September 30, 2024, and $162.8 million for the year ended December 31, 2023[26] - The Company’s comprehensive loss for the nine months ended September 30, 2024, was $86,477 thousand, down from $105,600 thousand in the same period of 2023, indicating an 18.1% reduction[13] Cash and Liquidity - Cash and cash equivalents decreased to $57.6 million as of September 30, 2024, down from $143.6 million at the end of 2023[8] - The company experienced a decrease in cash, cash equivalents, and restricted cash, ending the period at $58.98 million, down from $180.22 million[21] - As of September 30, 2024, cash, cash equivalents, and restricted cash totaled $59.0 million, down from $143.6 million as of December 31, 2023[53] - The Company’s liquidity assessment includes evaluating current funds and forecasted future cash flows[26] - The Company has a historic trend of operating losses, impacting overall liquidity and raising doubts about its ability to continue as a going concern[27] Assets and Liabilities - Total current assets were $160.5 million, a decline of 40.4% from $269.2 million at the end of 2023[8] - Total liabilities amounted to $487.3 million, a slight decrease from $518.1 million at the end of 2023[8] - The accumulated deficit increased to $389.8 million as of September 30, 2024, compared to $303.3 million at the end of 2023[8] - The total stockholders' deficit increased to $(252.9) million as of September 30, 2024, from $(171.8) million at December 31, 2023[16] - Total assets decreased to $234,418 as of September 30, 2024, from $346,291 as of December 31, 2023[8] Revenue Sources and Changes - Revenue from the distribution of skincare products was $4.2 million for the nine months ended September 30, 2024, compared to $24.7 million for the same period in 2023, representing a decline of 83.0%[43] - Revenue from performance obligations satisfied over time accounted for approximately 11% and 13% of total revenue for the three and nine months ended September 30, 2024, compared to 13% and 10% for the same periods in 2023[77] - Revenue from the United States for the three months ended September 30, 2024, was $12,043, down 44.6% from $21,526 in 2023[174] - The Company generates revenue from Products, which include Systems and Consumables, as well as Service revenue from post-warranty contracts[24] Operational Changes and Strategies - The Company is transitioning from a lease model to a direct sales model for AviClear, which is critical for revenue growth[28] - The Company terminated its distribution agreement for skincare products with ZO Skin Health, Inc. on February 28, 2024[24] - The Company is implementing cost savings initiatives due to workforce reductions in Q4 2023 and Q2 2024[28] - The Company is focusing on improving inventory and receivables management as part of its restructuring efforts[28] - The Company has developed and marketed multiple energy-based product platforms, including AviClear and truSculpt, for various medical treatments[23] Stock and Equity - The balance of common shares increased to 20,177,717 as of September 30, 2024, from 19,960,622 at December 31, 2023[16] - The Company’s stock options outstanding as of September 30, 2024, were 2,231,124, with a weighted average exercise price of $2.42[99] - The Company’s equity incentive plans had 3,009,733 shares available for grant as of September 30, 2024[96] Legal and Settlement Matters - The Company reached a settlement agreement with Lutronic, where Lutronic agreed to pay $5.75 million within thirty days of the Settlement Date[125] - The Company had accrued $2.6 million related to various pending commercial and product liability lawsuits[126] - All pending actions against both parties in the Lutronic case were dismissed with prejudice as of July 3, 2024[125] Debt and Financing - The outstanding principal amount of the Company's Convertible Notes as of September 30, 2024, was $420.4 million[128] - The 2026 Notes bear an interest rate of 2.25% per year, with a principal amount of $69.1 million remaining outstanding after exchanges[129][130] - The 2028 Notes, issued in May 2022, have a principal amount of $240 million and an interest rate of 2.25% per year[132][133] - The 2029 Notes, issued in December 2022, have a principal amount of $120 million and an interest rate of 4.00% per year[134][135] - The Company entered into capped call transactions for the 2028 Notes, with an initial cap price of $82.62, representing a 100% premium over the last reported sale price of $41.31 per share[166]

Financial Data and Key Metrics - Total revenue for Q3 2024 was $32.5 million, down from $46.5 million in Q3 2023, primarily due to decreases in North American capital equipment and consumables revenue [32] - Non-GAAP gross profit for Q3 2024 was $3.7 million with a gross margin rate of 11.5%, compared to 19.3% in Q3 2023, driven by a $10.1 million charge for excess and obsolete inventory [33] - Non-GAAP operating expenses for Q3 2024 were $34.7 million, down $5.1 million YoY, reflecting personnel savings and lower sales commissions, partially offset by higher bad debt expense [34] - Cash, cash equivalents, and restricted cash at the end of Q3 2024 were $59.0 million, down from $84.3 million in June 2024 [36] Business Line Performance - AviClear revenue grew YoY, driven by international launch, with over 100 systems sold outside North America and expansion into approximately 25 countries [11] - Core capital sales increased modestly sequentially but were down YoY, with North America showing relative stability in Q3 compared to Q2 [8] - The Secret portfolio of RF microneedling devices and truFlex saw sequential sales growth, while the truBody platform was highlighted for potential indication expansion [16] Market Performance - International markets showed strong AviClear utilization, averaging over nine treatments per device per month, with positive feedback from customers [11] - North America experienced typical seasonality, with core capital revenue stable QoQ but broader revenue contribution across the field team [13] - The company began selling under a distribution partnership with L'Oreal's SkinCeuticals in Japan, with potential for long-term growth [30] Strategic Direction and Industry Competition - The company is focused on operational excellence, fully developing AviClear opportunities, and improving financial health through cost structure efficiency and working capital reduction [17] - Progress in product reliability, field service, supply-demand planning, and inventory control has been made, with service response times improving to industry-leading levels [18][19] - The company is exploring indication expansion for AviClear and truFlex, potentially targeting functional strength and physical rehabilitation [16] Management Commentary on Operating Environment and Future Outlook - The company reaffirmed its full-year revenue guidance range of $140 million to $145 million, with an expected cash balance of approximately $40 million at year-end [36] - Management noted challenging macroeconomic conditions, including limited credit availability and dampened demand for capital equipment, which are expected to persist in the near term [37] - The company is focused on improving service, cleaning up inventory, rebuilding the North America field organization, and driving international launches [38] Other Important Information - The company terminated its skin care distribution agreement in March 2024, contributing to the revenue decline [32] - AviClear systems under the lease model decreased by approximately 140 in Q3, with around 200 more expected to be returned in the coming quarters [22] - The company anticipates a 50% reduction in cash burn in 2025, driven by working capital improvements and cost-saving initiatives [29][56] Q&A Session Summary Question: North American Sales Force Update - The company made leadership changes in the North American sales force, with Steve Kreider taking over commercial leadership, resulting in improved productivity and culture [41][42] Question: Gross Margin Improvement - Gross margin improvement will depend on volume, product mix, and operational efficiencies, with AviClear consumables and body contouring products being key drivers [46][47] Question: Inventory Adjustment - The $10.1 million inventory charge in Q3 included a reserve for refurbished AviClear units, with future charges expected to be significantly reduced [52] Question: R&D Pipeline and Innovation - The company is exploring indication expansion for AviClear, including sebaceous hyperplasia and hidradenitis suppurativa, with potential for further studies [53][54] Question: Cash Burn Reduction - The company expects at least a 50% reduction in cash burn in 2025, primarily driven by working capital improvements [56] Question: Geographic Opportunities - Key opportunities include further penetration of AviClear in existing markets, with significant potential in Korea, Japan, and China [58][59] Question: AviClear Device Returns - Approximately 785 AviClear systems remain under the lease model, with around 200 expected to be returned in the coming quarters [60][61] Question: Macro Environment and Growth Drivers - The company is adapting to a challenging macro environment, with growth expected from international markets and improved productivity in North America [66][68]

Core Insights - Cutera reported a quarterly loss of $1.85 per share, significantly worse than the Zacks Consensus Estimate of a loss of $0.96, marking an earnings surprise of -92.71% [1] - The company's revenues for the quarter ended September 2024 were $32.5 million, missing the Zacks Consensus Estimate by 0.20% and down from $46.48 million a year ago [2] - Cutera's stock has declined approximately 83.7% year-to-date, contrasting with the S&P 500's gain of 24.3% [3] Financial Performance - Over the last four quarters, Cutera has surpassed consensus EPS estimates only once [2] - The current consensus EPS estimate for the upcoming quarter is -$0.89 on revenues of $36.03 million, and for the current fiscal year, it is -$4.23 on revenues of $141.7 million [7] Industry Context - Cutera operates within the Lasers Systems and Components industry, which is currently ranked in the bottom 29% of over 250 Zacks industries [8] - The performance of Cutera's stock may be influenced by the overall outlook of the industry, as top-ranked industries tend to outperform lower-ranked ones significantly [8]

Revenue Performance - Consolidated revenue for Q3 2024 was $32.5 million, a decrease of 30% compared to Q3 2023[3] - Total net revenue for Q3 2024 was $32,500,000, a decrease of 30.1% compared to $46,478,000 in Q3 2023[22] - For the nine months ended September 30, 2024, total net revenue was $105.7 million, down 35.1% from $162.8 million in the same period of 2023[24] - North America revenue dropped by 41.1% year-over-year to $14.7 million, while Japan saw a significant decline of 70.3% to $3.4 million[24] - Revenue from the Rest of the World increased by 42.9% to $14.4 million, contributing to 54.9% of total revenue[24] - Revenue from capital systems sales declined by 17% year-over-year[3] - Recurring revenue sources, excluding skincare, declined by 19%[3] - Total systems revenue decreased by 16.6% to $23.0 million, with North America down 45.5% and Rest of World up 29.7%[25] Profitability and Loss - Gross profit for Q3 2024 was $1.8 million, or 6% of revenue, down from $6.5 million, or 14% of revenue, in Q3 2023[4] - Gross profit for Q3 2024 was reported at $1.8 million, with a gross margin of 5.6%[26] - Non-GAAP gross profit for Q3 2024 was $3.7 million, reflecting a gross margin of 11.6%[26] - Net loss for Q3 2024 was $39,018,000, compared to a net loss of $44,274,000 in Q3 2023, indicating an improvement[22] - GAAP operating loss was $36.2 million for Q3 2024, compared to a loss of $40.9 million in Q3 2023[6] - The company reported a significant operating loss of $77.5 million for the nine months ended September 30, 2024[28] Operating Expenses - Operating expenses decreased to $38.0 million in Q3 2024 from $47.4 million in the prior year period[5] - Operating expenses for Q3 2024 totaled $38,030,000, a reduction from $47,404,000 in Q3 2023[22] - Cash used in operating activities for Q3 2024 was $24,742,000, an improvement from $36,877,000 in Q3 2023[23] Cash and Assets - Cash, cash equivalents, and restricted cash totaled $59.0 million as of September 30, 2024, down from $84.3 million as of June 30, 2024[6] - Cash and cash equivalents decreased to $57,614,000 as of September 30, 2024, down from $143,612,000 at the end of 2023[21] - Total current assets fell to $160,514,000 from $269,185,000 at the end of 2023, reflecting a significant decline[21] - Total liabilities decreased to $487,292,000 from $518,121,000 at the end of 2023, showing a reduction in financial obligations[21] Guidance and Future Focus - Full-year revenue guidance is maintained at $140 million to $145 million[7] - The company remains focused on expanding access to AviClear through training and education initiatives[2] - The weighted-average number of shares used in the basic net loss per share calculation was 20,154,000 for Q3 2024, compared to 19,932,000 for Q3 2023[22] - The company reported a provision for credit losses of $4,931,000 in Q3 2024, up from $3,574,000 in Q3 2023[23]

Company Overview - Cutera Inc. specializes in designing, developing, manufacturing, marketing, and servicing laser and other energy-based aesthetic systems, with products including Enlighten, Excel HR, Excel V, Xeo, and Trusculpt 3D [4] - The company's offerings enable medical practitioners to perform safe procedures such as acne treatment, body contouring, skin resurfacing, hair removal, tattoo removal, and treatment of benign pigmented and vascular lesions [4] - Most of Cutera's revenue is derived from its U.S. operations [4] Financial Performance - Cutera reported revenue of $34.38 million and a net loss of $24.68 million, resulting in an earnings per share (EPS) of -$1.23 [1] - The gross profit for the period was $6.27 million, with a price-to-earnings (P/E) ratio of -0.10 [1] - The stock price declined by 5.14%, bringing it to $0.751 per share, with a trading volume of 26,733 shares and a turnover rate of 0.13% [1] Industry Context - The medical device industry, where Cutera operates, saw an overall decline of 0.27% [3] - Significant gainers in the sector included Ainos Inc C/Wts 29/07/2027 (To Pur Com) and Inspira Tech Oxy Bhn Ltd C/Wts 16/07/2026 (To Pur Com) [3] - High trading activity was noted for Tenon Medical, Inc. and Bone Biologics Corp, with turnover rates of 63.35% and 22.05%, respectively [3] - Ainos Inc C/Wts 29/07/2027 (To Pur Com) and Beyond Air, Inc. experienced notable price fluctuations of 80.40% and 27.59%, respectively [3]

Financial Data and Key Metrics Changes - Total revenue for Q2 2024 was $34.4 million, a decrease of 44% compared to $61.8 million in Q2 2023 and a decline from $38.8 million in Q1 2024 [15][16] - Non-GAAP gross profit for Q2 2024 was $9.6 million, with a gross margin rate of 28.8%, down from 46.6% in Q2 2023, primarily due to decreased sales volume and a change in sales mix [16] - Non-GAAP loss from operations for Q2 2024 was $21.3 million, compared to a loss of $13.2 million in the prior year [17] Business Line Data and Key Metrics Changes - North American capital equipment revenue declined by $13.8 million, while skincare revenue decreased by $9.4 million and consumables revenue fell by $3 million [15] - The international launch of AviClear has been successful, with over 70 systems sold outside North America and utilization averaging over 10 treatments per month for customers with systems in place for at least 2 months [5][6] Market Data and Key Metrics Changes - Customers in multiple geographies are struggling with access to capital, limiting their ability to invest in new capital [8] - The macroeconomic pressures have particularly affected the med spa community, where access to financing has been significantly restricted [30] Company Strategy and Development Direction - The company is focusing on operational excellence, cost structure improvements, and strengthening its North American sales force to drive future growth [9][10] - A new partnership with L'Oreal's SkinCeuticals business in Japan is expected to enhance the company's skincare offerings, with plans to launch in Q4 2024 [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a disappointing second quarter performance and revised full-year revenue guidance to $140 million to $145 million, down from $160 million to $170 million [17] - The company anticipates a year-over-year improvement in cash burn of over $50 million as it moves from 2024 to 2025, primarily due to working capital adjustments [12] Other Important Information - The company has identified additional cost savings that should annualize at approximately $10 million in 2025 [9] - The transition from a lease model to an ownership model for AviClear in North America is expected to drive growth, with higher utilization rates for owned devices compared to leased ones [34] Q&A Session Summary Question: Can you provide additional color on the international AviClear rollout? - Management confirmed that the international launch of AviClear is proceeding well, with good traction in existing markets and expectations for continued growth in the second half of the year [20][21] Question: What is the potential impact of the new skincare agreement with L'Oreal? - Management expressed optimism about the new partnership with SkinCeuticals, indicating that it has the potential to become a significant product line for the company over time [22][24] Question: What factors contributed to the reduction in revenue guidance for the full year? - Management indicated that both macroeconomic pressures and sales force turnover contributed to the revenue guidance reduction, with approximately 40% turnover in the North American capital organization during Q2 [26][27] Question: How should investors think about cash burn guidance for the full year? - Management stated that cash burn in the second half of the year is expected to be lower than in the first half, but the fourth quarter may see higher levels of burn due to inventory levels [27][28] Question: Can you elaborate on the macro weakness observed in the med spa community? - Management noted that the weakness is primarily due to access to capital issues in the med spa community, with financing being particularly challenging for certain customer segments [30]

PART I FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=5&type=section&id=Item%201%20Financial%20Statements%20%28Unaudited%29) The unaudited statements show a widening stockholders' deficit and raise substantial doubt about going concern [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased while the total stockholders' deficit widened significantly due to ongoing net losses **Condensed Consolidated Balance Sheet Highlights (in thousands)** | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $83,115 | $143,612 | | Total current assets | $210,983 | $269,185 | | Total assets | $276,295 | $346,291 | | **Liabilities & Stockholders' Deficit** | | | | Total current liabilities | $60,153 | $87,747 | | Convertible notes, net | $419,841 | $418,695 | | Total liabilities | $491,966 | $518,121 | | Total stockholders' deficit | $(215,671) | $(171,830) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue declined significantly year-over-year, though the quarterly net loss improved due to lower expenses **Statement of Operations Summary (in thousands, except per share data)** | Metric | Q2 2024 | Q2 2023 | Six Months 2024 | Six Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $34,377 | $61,825 | $73,170 | $116,351 | | Gross profit | $7,644 | $26,083 | $20,063 | $47,715 | | Loss from operations | $(21,804) | $(31,163) | $(41,236) | $(57,764) | | Net loss | $(24,681) | $(33,278) | $(47,459) | $(61,326) | | Net loss per share, basic & diluted | $(1.23) | $(1.68) | $(2.37) | $(3.09) | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was $57.9 million, leading to a significant decrease in the company's cash balance **Cash Flow Summary for Six Months Ended June 30 (in thousands)** | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(57,874) | $(66,989) | | Net cash (used in) provided by investing activities | $(1,154) | $104,284 | | Net cash used in financing activities | $(273) | $(2,565) | | **Net (decrease) increase in cash** | **$(59,301)** | **$34,730** | | Cash at beginning of period | $143,612 | $146,624 | | **Cash at end of period** | **$84,311** | **$181,354** | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key disclosures include a going concern warning, termination of a key distribution agreement, and debt details - Management has concluded that the company's history of operating losses and recent financial performance raise **substantial doubt about its ability to continue as a going concern**[24](index=24&type=chunk)[25](index=25&type=chunk) - On February 28, 2024, the Company **terminated its distribution agreement for ZO skincare products** in Japan, resulting in a net gain of $9.7 million in Q1 2024[36](index=36&type=chunk)[37](index=37&type=chunk) - The Company **settled with its former manufacturer Jabil Inc.**, making a net payment related to inventory purchase obligations and other expenses[39](index=39&type=chunk)[40](index=40&type=chunk) - As of June 30, 2024, the Company had three series of convertible notes outstanding with a **total carrying value of $419.8 million**[117](index=117&type=chunk) - Subsequent to the quarter end, on July 15, 2024, the company **repriced 2,159,425 outstanding stock options** to an exercise price of $1.54 per share[157](index=157&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue declined sharply due to lower system sales and a terminated agreement, reiterating going concern doubts [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Revenue fell 44% in Q2, with gross margin compressing to 22.2% due to lower sales and higher reserves **Revenue by Geography - Q2 2024 vs Q2 2023 (in thousands)** | Geography | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | North America | $15,980 | $32,437 | (51)% | | Japan | $3,829 | $12,810 | (70)% | | Rest of World | $14,568 | $16,578 | (12)% | | **Total** | **$34,377** | **$61,825** | **(44)%** | **Revenue by Product Category - Q2 2024 vs Q2 2023 (in thousands)** | Product Category | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | Systems | $23,900 | $39,262 | (39)% | | Consumables | $4,457 | $7,491 | (41)% | | Skincare | $— | $9,422 | (100)% | | Service | $6,020 | $5,650 | 7% | | **Total** | **$34,377** | **$61,825** | **(44)%** | - **Gross margin for Q2 2024 decreased by 20.0 percentage points to 22.2%**, primarily due to adverse revenue mix, lower manufacturing absorption, and increased inventory reserves[193](index=193&type=chunk) - **G&A expenses decreased by $13.9 million** in Q2 2024, reflecting lower legal expenses and a $5.8 million settlement received from Lutronic Aesthetics[199](index=199&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased by $59.3 million in H1 2024, reinforcing substantial doubt about its going concern status - Cash, cash equivalents, and restricted cash **decreased by $59.3 million** during the first six months of 2024, ending at $84.3 million[203](index=203&type=chunk) - **Net cash used in operating activities was $57.9 million** for the six months ended June 30, 2024, reflecting the net loss and a $18.7 million payment for the Jabil settlement[209](index=209&type=chunk) - The company's continued operations are dependent on **growing AviClear sales, achieving cost savings, and managing inventory**[205](index=205&type=chunk) - The company **terminated its SVB Revolving Line of Credit** on April 3, 2024, and had no line of credit facility as of June 30, 2024[152](index=152&type=chunk)[215](index=215&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=54&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from its convertible notes, inflation, and foreign exchange rate fluctuations - The **conditional conversion feature of the company's convertible notes was not met** for the three months ended June 30, 2024[219](index=219&type=chunk) - The company faces risks from **inflation**, which could increase costs and reduce consumer demand for aesthetic treatments[221](index=221&type=chunk) - Operations are exposed to **foreign exchange risk** as revenue is generated in multiple foreign currencies, including the Japanese Yen, Euro, and Australian Dollar[222](index=222&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%204%20Controls%20and%20Procedures) Disclosure controls were deemed ineffective due to previously identified material weaknesses in internal controls - The CEO and Interim CFO concluded that the company's **disclosure controls and procedures were not effective** as of June 30, 2024[226](index=226&type=chunk) - The ineffectiveness is due to **material weaknesses** identified in the 2023 Form 10-K related to ITGCs, inventory controls, equity award calculations, and risk assessment[224](index=224&type=chunk) - The company is **executing remediation plans**, including enhanced training, implementing new policies, and engaging third-party professionals[227](index=227&type=chunk)[228](index=228&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=58&type=section&id=Item%201%20Legal%20Proceedings) Details on material legal proceedings and recent settlements are provided in Note 12 of the financials - Refers to **Note 12 in the financial statements** for a full description of legal proceedings[232](index=232&type=chunk) [Risk Factors](index=58&type=section&id=Item%201A%20Risk%20Factors) The primary updated risk is the substantial doubt about the company's ability to continue as a going concern - The primary updated risk factor is the **substantial doubt about the company's ability to continue as a going concern**, stemming from its net loss and cash position[233](index=233&type=chunk)[234](index=234&type=chunk) - The company may need to **raise additional capital**, which could be dilutive to stockholders or impose restrictive covenants[235](index=235&type=chunk)[236](index=236&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during the period - None[237](index=237&type=chunk) [Defaults Upon Senior Securities](index=59&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported - None[238](index=238&type=chunk) [Mine Safety Disclosures](index=59&type=section&id=Item%204%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported - None[238](index=238&type=chunk) [Other Information](index=59&type=section&id=Item%205%20Other%20Information) No other material information was reported for the period - None[238](index=238&type=chunk) [Exhibits](index=60&type=section&id=Item%206%20Exhibits) A list of filed exhibits includes corporate bylaws, officer certifications, and Inline XBRL documents - Lists exhibits filed with the report, including **CEO/CFO certifications and XBRL data files**[240](index=240&type=chunk)

Core Insights - Cutera reported a quarterly loss of $1.20 per share, which was worse than the Zacks Consensus Estimate of a loss of $0.90, and compared to a loss of $0.69 per share a year ago, indicating a significant decline in performance [1] - The company's revenues for the quarter ended June 2024 were $34.38 million, missing the Zacks Consensus Estimate by 12.90% and down from $61.22 million year-over-year [2] - Cutera's stock has underperformed significantly, losing about 70.8% since the beginning of the year, while the S&P 500 has gained 9% [3] Financial Performance - Over the last four quarters, Cutera has surpassed consensus EPS estimates only once [2] - The current consensus EPS estimate for the upcoming quarter is -$0.87 on revenues of $39.53 million, and for the current fiscal year, it is -$3.71 on revenues of $162.33 million [7] Industry Context - The Lasers Systems and Components industry, to which Cutera belongs, is currently ranked in the bottom 17% of over 250 Zacks industries, indicating a challenging environment [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Cutera's stock performance [5] Future Outlook - The sustainability of Cutera's stock price movement will largely depend on management's commentary during the earnings call and the subsequent revisions of earnings estimates [3][4] - The current Zacks Rank for Cutera is 3 (Hold), suggesting that the shares are expected to perform in line with the market in the near future [6]

Part I [Q2 2024 Highlights & Management Commentary](index=1&type=section&id=Q2%202024%20Highlights%20%26%20Management%20Commentary) Cutera reported challenging Q2 results with $34.4 million revenue, offset by strong AviClear international growth and service revenue, prompting new leadership and cost reductions Q2 2024 Key Metrics | Metric | Value | Note | | :--- | :--- | :--- | | Consolidated Revenue | $34.4 million | - | | Cash, Cash Equivalents, and Restricted Cash | $84.3 million | - | | AviClear Growth | 41% YoY | Driven by international capital system sales | | Service Growth | 7% YoY | Highlighting improvements in field service | - CEO Taylor Harris acknowledged the challenging quarter, especially in North America, but highlighted the international momentum of AviClear and the promising start of the Xeo+ launch[1](index=1&type=chunk) - Strategic responses to the market challenges include appointing new commercial leadership in North America, implementing additional cost reductions, and focusing on building the AviClear franchise through training, marketing, and international expansion[1](index=1&type=chunk) [Second Quarter 2024 Financial Performance](index=1&type=section&id=Second%20Quarter%202024%20Financial%20Highlights) Q2 2024 consolidated revenue declined 44% to $34.4 million due to a skincare agreement termination, with gross margin contracting to 22.2% and GAAP operating loss improving to $21.8 million Q2 2024 vs Q2 2023 Financial Comparison | Metric | Q2 2024 (Millions) | Q2 2023 (Millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $34.4M | $61.8M | -44% | | Gross Profit (GAAP) | $7.6M | $26.1M | -71% | | Gross Margin (GAAP) | 22.2% | 42.2% | -20.0 p.p. | | Gross Profit (Non-GAAP) | $9.6M | $28.8M | -67% | | Gross Margin (Non-GAAP) | 28.0% | 46.6% | -18.6 p.p. | | Operating Expenses (GAAP) | $29.4M | $57.2M | -49% | | Operating Loss (GAAP) | ($21.8M) | ($31.2M) | +30% | | Operating Loss (Non-GAAP) | ($21.3M) | ($13.2M) | -61% | - The termination of the skincare distribution agreement in February 2024 resulted in no skincare revenue in Q2 2024, compared to **$9.4 million** in Q2 2023[2](index=2&type=chunk) - Revenue from capital systems sales declined by **39%**, and recurring revenue sources (excluding skincare) decreased by **20%** compared to Q2 2023[2](index=2&type=chunk) - Q2 2024 gross profit was negatively impacted by approximately **$2.4 million** in expenses related to excess and obsolete inventory[3](index=3&type=chunk) [Cost Restructuring and 2024 Outlook](index=3&type=section&id=Cost%20Restructuring) Cutera completed its Q4 2023 restructuring, achieving **$20 million** in annualized savings, identified an additional **$10 million** for 2025, and revised 2024 revenue guidance to **$140-$145 million** with year-end cash of **~$40 million** - The global restructuring program initiated in Q4 2023 is complete, resulting in annualized expense savings of about **$20 million**[5](index=5&type=chunk) - An additional cost reduction initiative of **$10 million** has been identified, with the full benefit expected to be realized in 2025[5](index=5&type=chunk) Revised Full Year 2024 Guidance | Metric | New Guidance (Millions) | Previous Guidance (Millions) | | :--- | :--- | :--- | | Full Year Revenue | $140M - $145M | $160M - $170M | | Year-End Cash | ~$40M | $55M - $60M | [Financial Statements](index=7&type=section&id=Financial%20Statements) The financial statements show total assets of **$276.3 million**, a stockholders' deficit of **$215.7 million**, a Q2 2024 net loss of **$24.7 million**, and **$20.2 million** net cash used in operations [Condensed Consolidated Statements of Operations](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Q2 2024 net revenue was **$34.4 million**, a **44.4%** decrease, resulting in a gross profit of **$7.6 million**, an operating loss of **$21.8 million**, and a net loss of **$24.7 million** or **($1.23)** per share Statement of Operations Highlights (Three Months Ended June 30) | Metric (in thousands, except per share) | 2024 (Thousands) | 2023 (Thousands) | | :--- | :--- | :--- | | Total Net Revenue | $34,377 | $61,825 | | Gross Profit | $7,644 | $26,083 | | Loss from Operations | ($21,804) | ($31,163) | | Net Loss | ($24,681) | ($33,278) | | Net Loss Per Share (Basic & Diluted) | ($1.23) | ($1.68) | [Condensed Consolidated Balance Sheets](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) As of June 30, 2024, Cutera reported cash of **$83.1 million**, total assets of **$276.3 million**, total liabilities of **$492.0 million**, and a stockholders' deficit of **$215.7 million** Balance Sheet Highlights (in thousands) | Metric | June 30, 2024 (Thousands) | Dec 31, 2023 (Thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $83,115 | $143,612 | | Total current assets | $210,983 | $269,185 | | Total assets | $276,295 | $346,291 | | Total liabilities | $491,966 | $518,121 | | Total stockholders' deficit | ($215,671) | ($171,830) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For H1 2024, net cash used in operating activities was **$57.9 million**, investing activities used **$1.2 million**, leading to a **$59.3 million** decrease in cash, ending at **$84.3 million** Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2024 (Thousands) | 2023 (Thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($57,874) | ($66,989) | | Net cash (used in) provided by investing activities | ($1,154) | $104,284 | | Net cash used in financing activities | ($273) | ($2,565) | | Net decrease in cash | ($59,301) | $34,730 | | Cash at end of period | $84,311 | $181,354 | [Revenue Breakdown](index=11&type=section&id=Revenue%20Breakdown) Q2 2024 revenue saw North America decline **50.7%** to **$16.0 million** and Japan **70.1%** to **$3.8 million**, while Systems revenue fell **39.1%** to **$23.9 million**, offset by **6.5%** growth in Service revenue to **$6.0 million** Q2 2024 Revenue by Geography (in thousands) | Region | Q2 2024 (Thousands) | Q2 2023 (Thousands) | % Change | | :--- | :--- | :--- | :--- | | North America | $15,980 | $32,437 | -50.7% | | Japan | $3,829 | $12,810 | -70.1% | | Rest of World | $14,568 | $16,578 | -12.1% | | **Total** | **$34,377** | **$61,825** | **-44.4%** | Q2 2024 Revenue by Product Category (in thousands) | Category | Q2 2024 (Thousands) | Q2 2023 (Thousands) | % Change | | :--- | :--- | :--- | :--- | | Systems | $23,900 | $39,262 | -39.1% | | Consumables | $4,457 | $7,491 | -40.5% | | Skincare | $0 | $9,422 | -100.0% | | Service | $6,020 | $5,650 | +6.5% | | **Total** | **$34,377** | **$61,825** | **-44.4%** | [Reconciliation of GAAP to Non-GAAP Financial Measures](index=12&type=section&id=RECONCILIATION%20OF%20GAAP%20FINANCIAL%20MEASURES%20TO%20NON-GAAP%20FINANCIAL%20MEASURES) Cutera provides non-GAAP measures, with Q2 2024 non-GAAP operating loss at **$21.3 million** (vs. GAAP **$21.8 million**), adjusted for items like depreciation, stock-based compensation, and a legal settlement gain - Management uses non-GAAP measures to monitor ongoing financial performance and for benchmarking. Adjustments include depreciation, stock-based compensation, ERP costs, legal costs, severance, retention plan costs, and gains on agreement terminations[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) Q2 2024 GAAP to Non-GAAP Reconciliation (in thousands) | Metric | GAAP (Thousands) | Adjustments (Thousands) | Non-GAAP (Thousands) | | :--- | :--- | :--- | :--- | | Gross Profit | $7,644 | $1,981 | $9,625 | | Gross Margin | 22.2% | 5.8% | 28.0% | | Operating Expenses | $29,448 | ($1,447) | $30,895 | | Operating Loss | ($21,804) | $534 | ($21,270) |