Cutera(US:CUTR)2024-08-09 20:48PART I FINANCIAL INFORMATION Financial Statements (Unaudited) The unaudited statements show a widening stockholders' deficit and raise substantial doubt about going concern Condensed Consolidated Balance Sheets 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 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 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 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 concern2425 - 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 20243637 - The Company settled with its former manufacturer Jabil Inc., making a net payment related to inventory purchase obligations and other expenses3940 - As of June 30, 2024, the Company had three series of convertible notes outstanding with a total carrying value of $419.8 million117 - 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 share157 Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue declined sharply due to lower system sales and a terminated agreement, reiterating going concern doubts Results of Operations 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 reserves193 - G&A expenses decreased by $13.9 million in Q2 2024, reflecting lower legal expenses and a $5.8 million settlement received from Lutronic Aesthetics199 Liquidity and Capital Resources 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 million203 - 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 settlement209 - The company's continued operations are dependent on growing AviClear sales, achieving cost savings, and managing inventory205 - The company terminated its SVB Revolving Line of Credit on April 3, 2024, and had no line of credit facility as of June 30, 2024152215 Quantitative and Qualitative Disclosures About Market Risk 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, 2024219 - The company faces risks from inflation, which could increase costs and reduce consumer demand for aesthetic treatments221 - Operations are exposed to foreign exchange risk as revenue is generated in multiple foreign currencies, including the Japanese Yen, Euro, and Australian Dollar222 Controls and Procedures 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, 2024226 - The ineffectiveness is due to material weaknesses identified in the 2023 Form 10-K related to ITGCs, inventory controls, equity award calculations, and risk assessment224 - The company is executing remediation plans, including enhanced training, implementing new policies, and engaging third-party professionals227228 PART II OTHER INFORMATION Legal Proceedings 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 proceedings232 Risk Factors 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 position233234 - The company may need to raise additional capital, which could be dilutive to stockholders or impose restrictive covenants235236 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None237 Defaults Upon Senior Securities No defaults upon senior securities were reported - None238 Mine Safety Disclosures No mine safety disclosures were reported - None238 Other Information No other material information was reported for the period - None238 Exhibits 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 files240