Cutera, Inc. (NASDAQ:CUTR) Q4 2022 Earnings Conference Call February 28, 2023 4:30 PM ET Company Participants Dave Mowry - Chief Executive Officer Rohan Seth - Chief Financial Officer Conference Call Participants Jon Block - Stifel Margaret Kaczor - William Blair Sim Kaur - Piper Sandler George Sellers - Stephens Inc. Anthony Vendetti - Maxim Group Operator Thank you for standing by. This is the conference operator. Welcome to the Cutera Inc. Fourth Quarter 2022 Results Conference Call. As a reminder, all p ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to_____. Commission File Number: 000-50644 Cutera, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | ...

Cutera, Inc. (NASDAQ:CUTR) Q3 2022 Earnings Conference Call November 3, 2022 4:30 PM ET Company Participants David Mowry - CEO Rohan Seth - CFO Conference Call Participants Jonathan Block - Stifel George Sellers - Stephens Inc. Operator Thank you for standing by. This is the conference operator. Welcome to the Cutera, Inc. Third Quarter 2022 Results Conference Call. [Operator Instructions] The discussion today includes forward-looking statements. These forward-looking statements reflect management's current ...

PART I. FINANCIAL INFORMATION [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=5&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20%28UNAUDITED%29) Cutera, Inc.'s unaudited condensed consolidated financial statements and detailed notes are presented [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | Change | | :----- | :------------ | :----------- | :----- | | Cash and cash equivalents | $75,050 | $164,164 | $(89,114) | | Marketable investments | $203,126 | $— | $203,126 | | Total current assets | $373,313 | $249,661 | $123,652 | | Property and equipment, net | $24,470 | $3,019 | $21,451 | | Total assets | $424,092 | $280,293 | $143,799 | | Accounts payable | $25,365 | $7,891 | $17,474 | | Accrued liabilities | $47,539 | $54,100 | $(6,561) | | Total current liabilities | $85,716 | $73,900 | $11,816 | | Convertible notes, net | $299,856 | $134,243 | $165,613 | | Total liabilities | $400,218 | $223,724 | $176,494 | | Total stockholders' equity | $23,874 | $56,569 | $(32,695) | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total net revenue | $64,224 | $58,589 | $122,238 | $108,257 | | Gross profit | $35,044 | $33,789 | $66,832 | $61,499 | | Total operating expenses | $45,108 | $31,721 | $90,053 | $58,266 | | (Loss) income from operations | $(10,064) | $2,068 | $(23,221) | $3,233 | | Loss on extinguishment of convertible notes | $(34,423) | $— | $(34,423) | $— | | Net (loss) income | $(47,276) | $7,746 | $(62,418) | $7,387 | | Basic Net (loss) income per share | $(2.53) | $0.43 | $(3.39) | $0.41 | | Diluted Net (loss) income per share | $(2.53) | $0.39 | $(3.39) | $0.40 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income | $(47,276) | $7,746 | $(62,418) | $7,387 | | Net change in unrealized loss on available-for-sale investments | $(172) | $— | $(183) | $— | | Comprehensive (loss) income | $(47,448) | $7,746 | $(62,601) | $7,387 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity) Stockholders' Equity Changes (in thousands, except share amounts) | Metric | Dec 31, 2021 | June 30, 2022 | | :----- | :----------- | :------------ | | Common Shares | 17,995,344 | 19,560,163 | | Common Stock Amount | $18 | $20 | | Additional Paid-in Capital | $114,724 | $144,628 | | Accumulated Deficit | $(58,173) | $(120,591) | | Accumulated Other Comprehensive Loss | $— | $(183) | | Total Stockholders' Equity | $56,569 | $23,874 | - Key activities impacting equity in H1 2022 included: - Issuance of common stock in extinguishment of convertible notes: **$55,949 thousand** - Purchase of capped call: **$(32,024) thousand** - Net loss: **$(62,418) thousand** - Stock-based compensation expense: **$8,776 thousand**[27](index=27&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $(30,085) | $4,818 | | Net cash used in investing activities | $(211,547) | $(299) | | Net cash provided by financing activities | $152,518 | $117,634 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(89,114) | $122,153 | | Cash, cash equivalents, and restricted cash at end of period | $75,750 | $169,200 | - Major drivers for cash flows in H1 2022: - Operating activities: Net loss of **$(62,418)K**, adjusted for non-cash items like loss on extinguishment of convertible notes (**$34,423K**) and stock-based compensation (**$8,776K**), and changes in working capital, notably an increase in inventories (**$(18,059)K**) - Investing activities: Primarily driven by the purchase of marketable investments (**$203,309K**) - Financing activities: Proceeds from issuance of convertible notes (**$240,000K**), partially offset by extinguishment of convertible notes (**$(45,777)K**) and purchase of capped call (**$(31,671)K**)[35](index=35&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1. Summary of Significant Accounting Policies](index=11&type=section&id=Note%201.%20Summary%20of%20Significant%20Accounting%20Policies) - Cutera develops, manufactures, distributes, and markets energy-based product platforms (e.g., AviClear, enlighten, excel, truSculpt) for medical practitioners worldwide[39](index=39&type=chunk) - Revenue is categorized into "Products" (Systems, Consumables, Skincare) and "Service" (post-warranty contracts, parts, labor)[39](index=39&type=chunk) - AviClear, a laser treatment for acne, received 510(k) clearance in March 2022 and is in limited commercial capacity with a full launch expected by year-end[40](index=40&type=chunk) - The company acknowledges ongoing risks from the COVID-19 pandemic (supply chain, economic disruption) and widespread inflation, which could reduce demand for aesthetic treatments[45](index=45&type=chunk)[46](index=46&type=chunk) - Early adopted ASU No. 2020-6 effective January 1, 2021, simplifying accounting for convertible debt instruments[54](index=54&type=chunk) [Note 2. Cash, Cash Equivalents and Marketable Investments](index=13&type=section&id=Note%202.%20Cash%2C%20Cash%20Equivalents%20and%20Marketable%20Investments) Cash, Cash Equivalents, and Marketable Investments (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | | :----- | :------------ | :----------- | | Cash and cash equivalents | $75,050 | $164,164 | | Non-current restricted cash | $700 | $700 | | Marketable investments - U.S. Treasury | $203,126 | $— | | Total Cash, Cash Equivalents, and Restricted Cash | $278,876 | $164,864 | - Marketable investments are classified as available-for-sale securities, with a net unrealized loss of **$0.2 million** at June 30, 2022, due to interest rate changes[59](index=59&type=chunk) [Note 3. Fair Value of Financial Instruments](index=14&type=section&id=Note%203.%20Fair%20Value%20of%20Financial%20Instruments) Financial Assets Measured at Fair Value (in thousands) | Asset Type | Level 1 | Level 2 | Level 3 | Total | | :--------- | :------ | :------ | :------ | :---- | | Money market funds | $1,935 | $— | $— | $1,935 | | Available-for-sale securities | $— | $203,126 | $— | $203,126 | | Total | $1,935 | $203,126 | $— | $205,061 | - The company had no money market funds or marketable investments at December 31, 2021[62](index=62&type=chunk) [Note 4. Balance Sheet Details](index=14&type=section&id=Note%204.%20Balance%20Sheet%20Details) Inventories, net (in thousands) | Category | June 30, 2022 | Dec 31, 2021 | | :------- | :------------ | :----------- | | Raw materials | $27,192 | $24,035 | | Work in process | $2,695 | $2,124 | | Finished goods | $15,523 | $13,344 | | Total | $45,410 | $39,503 | Property and Equipment, net (in thousands) | Category | June 30, 2022 | Dec 31, 2021 | | :------- | :------------ | :----------- | | Leasehold improvements | $1,693 | $826 | | Leased equipment | $1,765 | $107 | | Assets under construction | $18,791 | $843 | | Total Property and equipment, net | $24,470 | $3,019 | - Materials for the AviClear acne treatment device, previously inventories, were reclassified to "Assets under construction" and "Leased equipment" after 510(k) clearance and initial device placement in April 2022[66](index=66&type=chunk) Accrued Liabilities (in thousands) | Category | June 30, 2022 | Dec 31, 2021 | | :------- | :------------ | :----------- | | Bonus and payroll-related accruals | $16,194 | $21,649 | | Sales and marketing accruals | $4,087 | $4,808 | | Accrued inventory in transit | $4,932 | $4,265 | | Product warranty | $4,189 | $3,947 | | Accrued sales tax | $6,048 | $9,110 | | Other accrued liabilities | $12,089 | $10,321 | | Total | $47,539 | $54,100 | [Note 5. Product Warranty](index=15&type=section&id=Note%205.%20Product%20Warranty) Product Warranty Accrual Changes (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Beginning Balance | $3,874 | $4,390 | $3,947 | $4,124 | | Add: Accruals for warranties issued | $1,769 | $2,210 | $3,232 | $3,735 | | Less: Settlements made | $(1,454) | $(1,769) | $(2,990) | $(3,028) | | Ending Balance | $4,189 | $4,831 | $4,189 | $4,831 | [Note 6. Deferred Revenue](index=16&type=section&id=Note%206.%20Deferred%20Revenue) Deferred Revenue Changes (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Beginning balance | $11,064 | $11,737 | $10,825 | $11,237 | | Add: Payments received | $5,199 | $4,423 | $10,032 | $9,352 | | Less: Revenue recognized from beginning balance | $(4,293) | $(2,923) | $(7,956) | $(6,907) | | Ending balance | $11,527 | $11,403 | $11,527 | $11,403 | - Approximately **88%** of the **$11.5 million** deferred revenue balance as of June 30, 2022, is expected to be recognized over the next 12 months[72](index=72&type=chunk) [Note 7. Revenue](index=16&type=section&id=Note%207.%20Revenue) - Revenue from performance obligations transferred over time accounted for approximately **7%** and **8%** of total revenue for the three and six months ended June 30, 2022, respectively, a decrease from **12%** and **18%** in the prior year[74](index=74&type=chunk) - The company acts as the principal in selling third-party manufactured skincare products in Japan, recognizing revenue upon shipment[83](index=83&type=chunk) - The loyalty program for qualified customers allows points redemption for training or annual forum tickets, with the fair value of earned rewards recorded as a reduction of net revenue[91](index=91&type=chunk) [Note 8. Stockholders' Equity and Stock-based Compensation Expense](index=18&type=section&id=Note%208.%20Stockholders%27%20Equity%20and%20Stock-based%20Compensation%20Expense) Shares Available for Grant (Summary) | Metric | Dec 31, 2021 | June 30, 2022 | | :----- | :----------- | :------------ | | Balance, Shares Available for Grant | 947,347 | 1,019,984 | | RSUs granted | — | (159,131) | | PSUs granted | — | (164,818) | | Options granted | — | (278,903) | Stock-based Compensation Expense by Department (in thousands) | Department | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Cost of revenue | $500 | $434 | $959 | $578 | | Sales and marketing | $1,638 | $522 | $2,214 | $1,243 | | Research and development | $1,067 | $307 | $2,047 | $608 | | General and administrative | $1,528 | $1,656 | $3,556 | $2,336 | | Total | $4,733 | $2,919 | $8,776 | $4,765 | [Note 9. Net (Loss) Income Per Share](index=20&type=section&id=Note%209.%20Net%20%28Loss%29%20Income%20Per%20Share) Net (Loss) Income Per Share (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income, basic | $(47,276) | $7,746 | $(62,418) | $7,387 | | Net (loss) income, diluted | $(47,276) | $8,713 | $(62,418) | $8,331 | | Basic EPS | $(2.53) | $0.43 | $(3.39) | $0.41 | | Diluted EPS | $(2.53) | $0.39 | $(3.39) | $0.40 | - For the three and six months ended June 30, 2022, basic and diluted EPS were the same because the inclusion of potentially issuable shares (e.g., convertible notes, options, RSUs, PSUs, ESPP shares) would have been anti-dilutive[104](index=104&type=chunk)[106](index=106&type=chunk) [Note 10. Income Taxes](index=21&type=section&id=Note%2010.%20Income%20Taxes) Income Tax (Benefit) Expense (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax (benefit) provision | $(186) | $122 | $47 | $380 | - The company maintains a full valuation allowance on its U.S. deferred tax assets[108](index=108&type=chunk) [Note 11. Leases](index=21&type=section&id=Note%2011.%20Leases) Leased Assets (in thousands) | Asset Type | June 30, 2022 | Dec 31, 2021 | | :--------- | :------------ | :----------- | | Operating lease assets | $13,771 | $14,627 | | Finance lease assets | $1,253 | $392 | | Total leased assets | $15,024 | $15,019 | Lease Liabilities (in thousands) | Liability Type | June 30, 2022 | Dec 31, 2021 | | :------------- | :------------ | :----------- | | Total Operating lease liabilities | $15,082 | $15,902 | | Total Finance lease liabilities | $1,391 | $1,284 | Lease Costs (in thousands) | Cost Type | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------- | :--------------------------- | :--------------------------- | | Finance lease cost (amortization) | $339 | $237 | | Finance lease cost (interest) | $37 | $28 | | Operating lease cost | $1,795 | $1,759 | [Note 12. Contingencies](index=24&type=section&id=Note%2012.%20Contingencies) - Cutera filed a lawsuit against Lutronic Aesthetics in January 2020, alleging misappropriation of trade secrets, RICO violations, interference with contractual relations, and other claims[122](index=122&type=chunk) - A temporary restraining order and preliminary injunction were issued against Lutronic, prohibiting the use of Cutera's confidential information[122](index=122&type=chunk) - Accrued liabilities for pending commercial and product liability lawsuits were **$0.5 million** as of June 30, 2022, down from **$0.7 million** at December 31, 2021[123](index=123&type=chunk) [Note 13. Debt](index=24&type=section&id=Note%2013.%20Debt) Convertible Notes Outstanding (in thousands) | Note Series | June 30, 2022 (Principal) | Dec 31, 2021 (Principal) | June 30, 2022 (Carrying Value) | Dec 31, 2021 (Carrying Value) | | :---------- | :------------------------ | :----------------------- | :----------------------------- | :---------------------------- | | 2026 Notes | $69,125 | $138,250 | $67,344 | $134,243 | | 2028 Notes | $240,000 | $— | $232,512 | $— | | Total Convertible notes, net | $309,125 | $138,250 | $299,856 | $134,243 | - In May 2022, the company issued **$240.0 million** in 2028 Notes (**2.25%** interest, convertible at **$52.67**/share) and simultaneously exchanged **$69.1 million** of 2026 Notes for **$45.8 million** cash and 1,354,348 common shares, resulting in a **$34.4 million** loss on extinguishment[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[133](index=133&type=chunk) - The 2026 and 2028 Notes are general senior unsecured obligations. The company intends to settle conversion requests in shares of common stock[137](index=137&type=chunk)[141](index=141&type=chunk)[145](index=145&type=chunk) - The company has a **$30.0 million** secured revolving loan facility with Silicon Valley Bank, which was undrawn as of June 30, 2022, but a covenant violation was waived[160](index=160&type=chunk)[164](index=164&type=chunk) - Capped call transactions were entered into for both 2026 and 2028 Notes to reduce potential dilution, purchased for **$16.1 million** and **$32.0 million** respectively[152](index=152&type=chunk)[153](index=153&type=chunk) [Note 14. Segment reporting](index=30&type=section&id=Note%2014.%20Segment%20reporting) - The company's chief operating decision makers (CEO and CFO) manage the business as one operating segment, focusing on consolidated financial information and disaggregated revenue by geography and product[168](index=168&type=chunk) Revenue Mix by Geography (in thousands) | Geography | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | United States | $26,742 | $22,972 | $51,216 | $41,920 | | Japan | $15,174 | $17,421 | $32,677 | $33,976 | | Asia, excluding Japan | $5,106 | $3,500 | $8,715 | $5,489 | | Europe | $5,925 | $4,886 | $10,116 | $9,887 | | Rest of the World | $11,277 | $9,810 | $19,514 | $16,985 | | Total consolidated revenue | $64,224 | $58,589 | $122,238 | $108,257 | Revenue Mix by Product Category (in thousands) | Product Category | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :--------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Products | $43,653 | $35,567 | $80,167 | $63,887 | | Consumables | $5,298 | $4,433 | $9,201 | $7,358 | | Skincare | $9,638 | $11,812 | $21,287 | $24,118 | | Total product revenue | $58,589 | $51,812 | $110,655 | $95,363 | | Service | $5,635 | $6,777 | $11,583 | $12,894 | | Total consolidated revenue | $64,224 | $58,589 | $122,238 | $108,257 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=31&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses Cutera's financial condition, operational results, key business trends, and critical accounting policies [Executive Summary](index=31&type=section&id=Executive%20Summary) [Company Description](index=31&type=section&id=Company%20Description) - Cutera offers easy-to-use products for treatments like acne, body contouring, skin resurfacing, tattoo removal, and hair removal, with platforms designed for upgrades[176](index=176&type=chunk) - The company generates revenue from systems, upgrades, post-warranty service contracts, hand piece refills, and third-party skincare product distribution[176](index=176&type=chunk) - Recent product introductions include Secret RF (2018), truSculpt iD (2018), excel V+ (2019), truSculpt flex (2019), Secret PRO (2020), and AviClear (April 2022)[178](index=178&type=chunk) [Products and Services](index=32&type=section&id=Products%20and%20Services) - Product revenue includes Systems (consoles, hand pieces, upgrades), Consumables (replacement hand pieces, cycle refills, disposable tips), and Skincare (third-party products in Japan)[180](index=180&type=chunk) - AviClear, cleared by the FDA in March 2022, is a 1726 nm laser device for inflammatory acne vulgaris, targeting sebocytes and suppressing sebum production, with a full commercial launch expected by year-end[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) [Significant Business Trends](index=32&type=section&id=Significant%20Business%20Trends) - Key growth drivers include successful commercialization of AviClear, expansion of product offerings (internal and external), investment in global sales/marketing, use of clinical results, enhanced physician development, and recurring revenue from system upgrades, services, and consumables[187](index=187&type=chunk)[188](index=188&type=chunk) [Factors that May Impact Future Performance](index=33&type=section&id=Factors%20that%20May%20Impact%20Future%20Performance) - Future performance is dependent on successful competition, expanding product offerings with innovative technologies, obtaining regulatory clearances, protecting proprietary technology, cost-effective manufacturing, and profitable marketing/distribution[190](index=190&type=chunk) [Risks and Uncertainties](index=33&type=section&id=Risks%20and%20Uncertainties) - COVID-19 continues to pose risks, including potential business shutdowns, supply chain disruptions, and economic instability, which could materially affect revenue, operating results, and cash flows[193](index=193&type=chunk) - Inflationary pressures may lead to reduced consumer spending on non-essential aesthetic treatments, potentially decreasing demand for Cutera's products and revenue[194](index=194&type=chunk) [Critical accounting policies, significant judgments and use of estimates](index=34&type=section&id=Critical%20accounting%20policies%2C%20significant%20judgments%20and%20use%20of%20estimates) - The company's critical accounting policies involve significant estimates and assumptions, including those related to convertible debt instruments[199](index=199&type=chunk)[200](index=200&type=chunk) - Following ASU 2020-06 adoption, convertible notes are recorded as long-term debt without separation of the conversion option, and the company intends to settle conversion requests in shares of common stock[203](index=203&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) [Revenue](index=35&type=section&id=Revenue) Total Net Revenue (in thousands) | Metric | 3 Months Ended June 30, 2022 | % Change | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | % Change | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | | Consolidated total revenue | $64,224 | 10% | $58,589 | $122,238 | 13% | $108,257 | Revenue by Geography (in thousands) | Geography | 3 Months Ended June 30, 2022 | % Change | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | % Change | 6 Months Ended June 30, 2021 | | :-------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | | North America | $32,239 | 20% | $26,786 | $61,092 | 24% | $49,188 | | Japan | $15,174 | (13)% | $17,421 | $32,677 | (4)% | $33,976 | | Rest of World | $16,811 | 17% | $14,382 | $28,469 | 13% | $25,093 | Revenue by Product Type (in thousands) | Product Type | 3 Months Ended June 30, 2022 | % Change | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | % Change | 6 Months Ended June 30, 2021 | | :----------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | | Total Systems | $43,653 | 23% | $35,568 | $80,167 | 25% | $63,888 | | Consumables | $5,298 | 20% | $4,432 | $9,201 | 25% | $7,357 | | Skincare | $9,638 | (18)% | $11,812 | $21,287 | (12)% | $24,118 | | Service | $5,635 | (17)% | $6,777 | $11,583 | (10)% | $12,894 | - North America Systems revenue increased by **27%** (3 months) and **31%** (6 months) due to COVID-19 recovery[218](index=218&type=chunk) - Japan Skincare revenue decreased by **18%** (3 months) and **12%** (6 months), significantly impacted by a weakening Japanese Yen[221](index=221&type=chunk) [Gross Profit](index=37&type=section&id=Gross%20Profit) Gross Profit (in thousands) | Metric | 3 Months Ended June 30, 2022 | % of Revenue | 3 Months Ended June 30, 2021 | % of Revenue | 6 Months Ended June 30, 2022 | % of Revenue | 6 Months Ended June 30, 2021 | % of Revenue | | :----- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | | Gross profit | $35,044 | 54.6% | $33,789 | 57.7% | $66,832 | 54.7% | $61,499 | 56.8% | - Decrease in gross profit margin was driven by labor-related manufacturing overheads (**1.9%** for 3 months, **1.7%** for 6 months) and weakening Japanese Yen (**1.8%** for 3 months, **1.5%** for 6 months)[224](index=224&type=chunk) [Sales and Marketing](index=37&type=section&id=Sales%20and%20Marketing) Sales and Marketing Expenses (in thousands) | Metric | 3 Months Ended June 30, 2022 | % of Revenue | 3 Months Ended June 30, 2021 | % of Revenue | 6 Months Ended June 30, 2022 | % of Revenue | 6 Months Ended June 30, 2021 | % of Revenue | | :----- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | | Sales and Marketing | $27,001 | 42.0% | $18,410 | 31.4% | $51,945 | 42.5% | $33,478 | 30.9% | - Increases were due to headcount growth for AviClear launch, marketing costs for new business, trade shows, and resumption of travel activities[227](index=227&type=chunk) [Research and Development ("R&D")](index=38&type=section&id=Research%20and%20Development%20%28%22R%26D%22%29) Research and Development Expenses (in thousands) | Metric | 3 Months Ended June 30, 2022 | % of Revenue | 3 Months Ended June 30, 2021 | % of Revenue | 6 Months Ended June 30, 2022 | % of Revenue | 6 Months Ended June 30, 2021 | % of Revenue | | :----- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | | Research and development | $6,859 | 10.7% | $4,850 | 8.3% | $13,358 | 10.9% | $8,962 | 8.3% | - Increases were primarily due to higher personnel expenses (headcount increase) and increased outside services[228](index=228&type=chunk) [General and Administrative ("G&A")](index=38&type=section&id=General%20and%20Administrative%20%28%22G%26A%22%29) General and Administrative Expenses (in thousands) | Metric | 3 Months Ended June 30, 2022 | % of Revenue | 3 Months Ended June 30, 2021 | % of Revenue | 6 Months Ended June 30, 2022 | % of Revenue | 6 Months Ended June 30, 2021 | % of Revenue | | :----- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | :--------------------------- | :----------- | | General and administrative | $11,248 | 17.5% | $8,461 | 14.4% | $24,750 | 20.2% | $15,826 | 14.6% | - The increase in G&A expenses for the six months was primarily due to **$2.4 million** higher personnel expenses and **$6.4 million** for ERP system implementation[230](index=230&type=chunk) [Interest and Other (expense) income, Net](index=38&type=section&id=Interest%20and%20Other%20%28expense%29%20income%2C%20Net) Interest and Other (expense) income, Net (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Amortization of debt issuance costs | $(298) | $(215) | $(517) | $(267) | | Interest on convertible notes | $(1,149) | $(778) | $(1,927) | $(969) | | Loss on extinguishment of convertible notes | $(34,423) | $— | $(34,423) | $— | | Gain on extinguishment of PPP loan | $— | $7,185 | $— | $7,185 | | Other expense, net | $(1,528) | $(392) | $(2,283) | $(1,415) | | Total | $(37,398) | $5,800 | $(39,150) | $4,534 | - The significant shift from income to expense was primarily driven by the **$34.4 million** loss on extinguishment of convertible notes and increased interest expense from the May 2022 convertible notes issuance[231](index=231&type=chunk)[233](index=233&type=chunk) [Provision for Income Taxes](index=39&type=section&id=Provision%20for%20Income%20Taxes) Income Tax (Benefit) Provision (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax (benefit) provision | $(186) | $122 | $47 | $380 | [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) [Cash, Cash Equivalents, Restricted Cash and Marketable Investments](index=39&type=section&id=Cash%2C%20Cash%20Equivalents%2C%20Restricted%20Cash%20and%20Marketable%20Investments) Cash, Cash Equivalents, Restricted Cash and Marketable Investments (in thousands) | Metric | June 30, 2022 | Dec 31, 2021 | Change | | :----- | :------------ | :----------- | :----- | | Cash and cash equivalents | $75,050 | $164,164 | $(89,114) | | Restricted cash | $700 | $700 | $— | | Marketable investments | $203,126 | $— | $203,126 | | Total | $278,876 | $164,864 | $114,012 | [Cash Flows](index=39&type=section&id=Cash%20Flows) Net Cash Flow (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------- | :----------------------------- | :----------------------------- | | Operating activities | $(30,085) | $4,818 | | Investing activities | $(211,547) | $(299) | | Financing activities | $152,518 | $117,634 | | Net (decrease) increase in cash and cash equivalents | $(89,114) | $122,153 | - Operating cash outflow was due to net loss adjusted for non-cash items and an increase in inventory for AviClear launch[239](index=239&type=chunk) - Investing cash outflow was primarily due to **$203.3 million** in marketable investments and **$8.2 million** in property and equipment[240](index=240&type=chunk) - Financing cash inflow was driven by **$240.0 million** from 2028 Notes issuance, offset by **$45.8 million** for 2026 Notes extinguishment and **$31.7 million** for capped calls[242](index=242&type=chunk) [Adequacy of Cash Resources to Meet Future Needs](index=40&type=section&id=Adequacy%20of%20Cash%20Resources%20to%20Meet%20Future%20Needs) - The company had **$75.1 million** in cash and cash equivalents and **$203.1 million** in marketable investments as of June 30, 2022[243](index=243&type=chunk) - Proceeds from convertible notes issuances will fund growth initiatives, market development, working capital, capital expenditures, clinical trials, and potential acquisitions[243](index=243&type=chunk) - Management believes current liquidity and the revolving credit facility are sufficient for the next 12 months[244](index=244&type=chunk) [Debt](index=40&type=section&id=Debt) - In May 2022, **$240.0 million** of 2028 Notes were issued, with **$10.0 million** purchased by an affiliated entity[245](index=245&type=chunk) - In March 2021, **$138.3 million** of 2026 Notes were issued[246](index=246&type=chunk) - The SVB Revolving Line of Credit (**$30.0 million**) was undrawn as of June 30, 2022, but a covenant violation occurred and was waived[250](index=250&type=chunk) [Commitments and Contingencies](index=40&type=section&id=Commitments%20and%20Contingencies) - No material changes to contractual obligations and commitments since the 2021 Form 10-K[252](index=252&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=42&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section outlines Cutera's exposure to market risks, including those related to the conditional conversion feature of its convertible notes, interest rate fluctuations on its revolving credit facility, inflationary pressures on operating costs, and foreign exchange rate volatility, particularly concerning the Japanese Yen - The conditional conversion feature of 2026 and 2028 Convertible Notes could lead to conversion if stock price thresholds are met, requiring cash or share settlement. This condition was not met for 2026 Notes in Q2 2022[255](index=255&type=chunk) - Interest rate risk is tied to the floating rate on the undrawn SVB Revolving Line of Credit (Prime rate + **1.75%** or **5.0%**), potentially increasing expenses if drawn and rates rise[256](index=256&type=chunk) - Inflationary pressures could impact costs, and the company may not be able to fully offset these through price increases, harming financial results[257](index=257&type=chunk) - Foreign exchange fluctuations, especially the weakening Japanese Yen, adversely impact revenue and gross margin. A hedging program was implemented in July 2022 to mitigate this exposure[258](index=258&type=chunk)[259](index=259&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=42&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Cutera's disclosure controls and procedures were deemed ineffective as of June 30, 2022, due to a material weakness in IT general controls at its Japan subsidiary. Despite this, management asserts the financial statements are fairly presented. Remediation efforts are ongoing, including addressing user access and segregation of duties, following a new ERP system implementation in January 2022 - Disclosure controls and procedures were not effective as of June 30, 2022, due to a material weakness in ITGCs (user access and segregation of duties) at the Japan subsidiary[262](index=262&type=chunk)[263](index=263&type=chunk) - Despite the material weakness, management concluded that the financial statements fairly present the company's financial condition and results[263](index=263&type=chunk) - Remediation plans include reviewing user access and implementing additional controls, with full remediation expected after these steps operate effectively for a sufficient period[264](index=264&type=chunk) - A new ERP system was implemented in January 2022, leading to modifications in internal control processes[265](index=265&type=chunk) PART II. OTHER INFORMATION [ITEM 1. LEGAL PROCEEDINGS](index=43&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that Cutera is involved in various legal and administrative proceedings in the normal course of business, with material pending legal and regulatory proceedings detailed in Note 11 of the 2021 Annual Report on Form 10-K - The company is subject to various legal and administrative proceedings[267](index=267&type=chunk) - Material pending legal and regulatory proceedings are described in Note 11 of the 2021 Annual Report on Form 10-K[267](index=267&type=chunk) [ITEM 1A. RISK FACTORS](index=43&type=section&id=ITEM%201A.%20RISK%20FACTORS) There are no material changes to the risk factors previously disclosed in the 2021 Annual Report on Form 10-K, with the only update being the inclusion of both the 2026 and 2028 Convertible Senior Notes in all relevant references - No material changes to previously disclosed risk factors, other than updating references to include both 2026 and 2028 Convertible Senior Notes[269](index=269&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=44&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Cutera issued $138.3 million in 2026 Convertible Senior Notes in March 2021 and $240.0 million in 2028 Convertible Senior Notes in May 2022 through private placements. Proceeds were used for general corporate purposes, including the extinguishment of a portion of the 2026 Notes and the purchase of capped call transactions to mitigate potential dilution - In March 2021, **$138.3 million** of 2026 Notes were issued in a private placement, with **$16.1 million** used for capped call transactions[270](index=270&type=chunk) - In May 2022, **$240.0 million** of 2028 Notes were issued in a private placement (including **$10.0 million** to an affiliate), with **$32.0 million** used for capped call transactions and **$45.8 million** cash (excluding accrued interest) for the 2026 Notes Exchange[271](index=271&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=44&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon senior securities for the period - No defaults upon senior securities[272](index=272&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=44&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The company reported no mine safety disclosures for the period - No mine safety disclosures[273](index=273&type=chunk) [ITEM 5. OTHER INFORMATION](index=44&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reported no other information for the period - No other information[274](index=274&type=chunk) [ITEM 6. EXHIBITS](index=45&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including corporate documents, indenture agreements for convertible notes, purchase agreements, capped call confirmations, amendments to the loan and security agreement, and certifications from the CEO and CFO - Exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), debt-related agreements (Indenture, Form of Convertible Senior Notes, Purchase Agreements, Capped Call Transaction Confirmation), and amendments to the Loan and Security Agreement with Silicon Valley Bank[276](index=276&type=chunk) - Also includes certifications from the CEO and CFO as required by the Sarbanes-Oxley Act[276](index=276&type=chunk) [SIGNATURE](index=46&type=section&id=SIGNATURE) The report was duly signed on behalf of Cutera, Inc. by Rohan Seth, Chief Financial Officer, on August 8, 2022 - The report was signed by Rohan Seth, Chief Financial Officer, on August 8, 2022[278](index=278&type=chunk)

Cutera, Inc. (NASDAQ:CUTR) Q2 2022 Results Conference Call August 4, 2022 4:15 PM ET Company Participants Dave Mowry - CEO Rohan Seth - CFO Conference Call Participants Jon Block - Stifel Chris Cooley - Stephens Louise Chen - Cantor Operator Thank you for joining Cutera’s Second Quarter 2022 Earnings Conference Call. [Operator Instructions] The discussion today includes forward-looking statements. These forward-looking statements reflect management’s current forecasts or expectations of certain aspects of t ...

Financial Data and Key Metrics Changes - The company reported first quarter revenue of $58.0 million, representing approximately 17% growth year-over-year and 21% growth on a constant currency basis [10][18] - Non-GAAP gross profit for the first quarter was $32.3 million with a gross margin of 55.7%, a decline of approximately 70 basis points compared to the same period last year [20][22] - Non-GAAP operating income was a loss of $3.8 million compared to a profit of $4.6 million in the prior year, primarily due to investments in the AviClear program [26][34] Business Line Data and Key Metrics Changes - Capital Equipment sales were the most significant contributor to year-over-year growth, with North American Capital Equipment sales increasing by 35% [11][18] - Recurring revenue, including Consumables, Global Service, and Skincare, was $21.5 million, up 1% as reported and 7% in constant currency [13][19] - Skincare revenue for the quarter was $11.6 million, a decline of 5% from the prior year on an as-reported basis, but growth of 4% on a constant currency basis [16][20] Market Data and Key Metrics Changes - International Capital Equipment sales grew 20% as reported and 27% in constant currency, with notable recoveries in Australia (41% growth) and Japan (49% growth) [12][18] - European Capital Equipment sales declined by $700,000 from prior year levels due to disruptions caused by events in Ukraine, but a return to growth is anticipated [13][32] Company Strategy and Development Direction - The company is focusing on the launch of AviClear, a new acne treatment device, and plans to make significant investments in commercial and R&D functions over the next two to three quarters [17][36] - Management is optimistic about the potential of AviClear to transform the company's financial profile and is committed to a careful rollout strategy [70][72] Management's Comments on Operating Environment and Future Outlook - Management noted that they have not observed softness in demand in their key markets, contrasting with trends seen in other companies associated with elective medical procedures [7][9] - The company reiterated its revenue guidance for 2022 at $255 million to $260 million, excluding any revenue from AviClear, with an expected underlying constant currency growth of approximately 13% to 15% [32][34] Other Important Information - The company ended the quarter with $131.8 million in unrestricted cash and marketable securities, a decline from $164.9 million at the same time last year [29][30] - The anticipated cash burn for the remainder of the year is approximately $10 million per quarter, with expectations of non-linear cash consumption as inventories for AviClear are built [31][34] Q&A Session Summary Question: Can you talk about the increased revenue expectations on the core business? - Management noted that strength is primarily seen in North America, with a positive impact from the AviClear launch and investments in key account managers [50][51] Question: What are the early learnings from the partnership model for AviClear? - Management expressed excitement about the alignment of goals between the company and practitioners, emphasizing the potential for a win-win situation [54][55] Question: How do you think about the sales conversion cycle for AviClear? - The sales process is evolving, with a focus on joint efforts between consumable and capital representatives to support practices effectively [58][59] Question: What is the expected gross margin for AviClear? - While specific numbers were not provided, management expects AviClear to be accretive to the overall gross margin profile [79][80] Question: How will the company manage operating expenses throughout the year? - Management clarified that while ERP spending is expected to taper, investments in AviClear will increase, impacting overall operating expenses [73][74]

Financial Performance - Total net revenue for Q1 2022 was $58,014,000, an increase of 16.7% compared to $49,668,000 in Q1 2021[18] - Product revenue reached $52,066,000, up from $43,551,000, reflecting a growth of 19.5% year-over-year[18] - Gross profit for the quarter was $31,788,000, resulting in a gross margin of approximately 54.8%[18] - The net loss for Q1 2022 was $15,142,000, compared to a net loss of $359,000 in Q1 2021, indicating a substantial increase in losses[18] - Total consolidated revenue for the three months ended March 31, 2022, was $58.014 million, an increase from $49.668 million in the same period of 2021, representing a growth of 16.8%[144] - Revenue from the United States for the same period was $24.474 million, up from $18.948 million in 2021, indicating a growth of 29.2%[144] - The Company’s revenue from products for the three months ended March 31, 2022, was $36.514 million, compared to $28.320 million in the same period of 2021, reflecting a growth of 28.9%[144] - Total stock-based compensation expense for the three months ended March 31, 2022, was $4.043 million, an increase from $1.846 million in the same period in 2021[94] Expenses and Losses - Operating expenses increased significantly to $44,945,000, compared to $26,545,000 in the same quarter last year, marking a rise of 69.5%[18] - Operating expenses increased significantly to 77% of total net revenue in the three months ended March 31, 2022, compared to 53% in the same period in 2021, with sales and marketing expenses rising to 43% from 30%[180] - R&D expenses increased by $2.4 million to $6.5 million, representing 11.2% of total net revenue for the three months ended March 31, 2022, compared to 8.3% in the same period in 2021[201] - G&A expenses increased by $6.1 million to $13.5 million, representing 23.3% of total net revenue for the three months ended March 31, 2022, compared to 14.8% in the same period in 2021[202] - Interest and other expense, net increased by $0.5 million to $1.8 million for the three months ended March 31, 2022, due to interest expense related to convertible notes[204] Cash Flow and Assets - Cash and cash equivalents decreased to $57,732,000 from $164,164,000 at the end of 2021, a decline of 64.9%[14] - Cash flows from operating activities showed a net cash used of $29,604 for the three months ended March 31, 2022, compared to a net cash provided of $1,253 in the prior year[29] - Cash, cash equivalents, restricted cash, and marketable investments decreased by $32.4 million to $132.5 million as of March 31, 2022, primarily due to cash used in operating activities[208] - Net cash used in operating activities was $29.6 million for the three months ended March 31, 2022, reflecting an increase in inventory and deposits with vendors[211] - Net cash used in investing activities was $74.4 million for the three months ended March 31, 2022, primarily attributable to the purchase of marketable investments[212] Assets and Liabilities - Total current assets decreased to $236,784,000 from $249,661,000, a reduction of 5.2%[14] - Total liabilities remained relatively stable at $223,531,000, slightly down from $223,724,000[14] - Stockholders' equity decreased to $43,160,000 from $56,569,000, a decline of 23.7%[14] - The accrued liabilities decreased from $54,100,000 as of December 31, 2021, to $48,044,000 as of March 31, 2022, a reduction of about 11.2%[61] - The deferred revenue balance as of March 31, 2022, was $11,064,000, with approximately 88% expected to be recognized over the next 12 months[67] Product and Market Developments - The company received FDA clearance for the AviClear acne treatment device in March 2022, which will be rolled out to physicians throughout the year[34] - The company reported a significant increase in sales of skincare products under an exclusive distribution agreement with ZO Skin Health, Inc. in 2021[41] - The company is focused on the successful commercialization of AviClear and enhancing its product offerings through internal development and partnerships[162] - The company plans to continue expanding its product offerings and investing in global sales and marketing infrastructure to drive future revenue growth[162] Risks and Challenges - The company faces risks including rapid technological change, competition, and the ongoing impacts of the COVID-19 pandemic on its operations[37] - The company continues to monitor potential impairment of its long-lived assets and goodwill, with no charges necessary during the three months ended March 31, 2022[40]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For fiscal year ended December 31, 2021 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____ to ____ Commission file number: 000-50644 CUTERA, INC. (Exact name of registrant as specified in its charter) Delaware 77-0492262 (State or other jurisdict ...

Cutera, Inc. (NASDAQ:CUTR) Q4 2021 Earnings Conference Call February 22, 2022 4:30 PM ET Company Participants Dave Mowry - Chief Executive Officer Rohan Seth - Chief Financial Officer Conference Call Participants Jon Block - Stifel Chris Cooley - Stephens Louise Chen - Cantor Operator Greetings. And welcome to the Cutera’s Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator ...

Cutera, Inc. (NASDAQ:CUTR) Q3 2021 Earnings Conference Call November 3, 2021 4:30 PM ET Company Participants Dave Mowry - CEO Rohan Seth - CFO Conference Call Participants Simran Kaur - Piper Sandler Jon Block - Stifel Chris Cooley - Stephens Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided ...