Cutera(CUTR) - 2019 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements (Unaudited) Unaudited Q2 2019 financials reflect net income turnaround, six-month net loss widening, and improved operating cash flow Condensed Consolidated Balance Sheets Total assets and liabilities increased due to new lease standard adoption, while stockholders' equity decreased from net loss Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $107,946 | $97,637 | | Total current assets | $88,014 | $87,198 | | Operating lease right-of-use assets | $8,990 | $— | | Total Liabilities | $64,764 | $51,251 | | Total current liabilities | $52,859 | $47,620 | | Operating lease liabilities, non-current | $7,888 | $— | | Total Stockholders' Equity | $43,182 | $46,386 | - The adoption of the new lease standard (ASC Topic 842) on January 1, 2019, resulted in the initial recording of operating lease right-of-use assets of $10.3 million and lease liabilities of $10.4 million[53] Condensed Consolidated Statements of Operations Q2 2019 saw 12.3% revenue growth and net income, while six-month revenue grew 9.3% but net loss widened Key Operating Results (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | 6 Months 2019 | 6 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Net Revenue | $47,774 | $42,553 | $83,800 | $76,678 | | Gross Profit | $25,831 | $22,377 | $43,140 | $39,711 | | Income (Loss) from Operations | $299 | $(2,155) | $(7,727) | $(6,904) | | Net Income (Loss) | $588 | $(1,572) | $(7,632) | $(3,604) | | Diluted EPS | $0.04 | $(0.11) | $(0.54) | $(0.26) | Condensed Consolidated Statements of Cash Flows Operating cash use improved, investing activities provided cash, increasing cash and equivalents by $1.6 million Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(3,919) | $(6,503) | | Net cash provided by investing activities | $5,284 | $10,611 | | Net cash provided by financing activities | $251 | $140 | | Net increase in cash and cash equivalents | $1,616 | $4,248 | | Cash and cash equivalents at end of period | $27,668 | $18,432 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue disaggregation, lease standard impact, credit amendments, and CEO appointment - The company's revenue is categorized into "Products" (Systems, Consumables, Skincare) and "Service" (post-warranty contracts, repairs)[41] - The company adopted new lease standard ASU 2016-02 on January 1, 2019, resulting in the recognition of $10.3 million in lease assets and $10.4 million in lease liabilities[53] Revenue by Product Category - Six Months Ended June 30 (in thousands) | Category | 2019 | 2018 | | :--- | :--- | :--- | | Products | $64,748 | $62,530 | | Consumables | $4,599 | $1,826 | | Skincare | $3,383 | $2,558 | | Total Product Revenue | $72,730 | $66,914 | | Service | $11,070 | $9,764 | | Total Consolidated Revenue | $83,800 | $76,678 | - Subsequent to the quarter's end, on July 8, 2019, David H. Mowry was appointed as the new CEO and joined the Board of Directors[145] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2019 revenue growth, flat U.S. revenue, increased operating expenses, and liquidity Results of Operations Q2 2019 revenue grew 12% from international and consumables, gross margin improved, operating expenses mixed Revenue Growth by Geography and Product (Q2 2019 vs Q2 2018) | Category | Q2 2019 Revenue (in thousands) | % Change YoY | | :--- | :--- | :--- | | By Geography | | | | United States | $28,147 | 0% | | International | $19,627 | 36% | | By Product Type | | | | Total Systems | $37,539 | 6% | | Consumables | $2,654 | 151% | | Skincare | $1,775 | 36% | | Service | $5,806 | 18% | | Total Net Revenue | $47,774 | 12% | - Growth was driven by demand for product lines including truSculpt iD, Secret RF, and the recently launched excel V+ and truSculpt flex systems[180] - U.S. performance was negatively affected by softness in the women's health market, competitive pricing on legacy systems, and turnover in the North American salesforce from late 2018[181] Liquidity and Capital Resources Company holds $31.7 million cash, improved operating cash flow, and an undrawn, amended Wells Fargo credit facility - Cash, cash equivalents, and marketable investments totaled $31.7 million as of June 30, 2019, a decrease of $3.9 million from year-end 2018[203][204] - The company's revolving line of credit with Wells Fargo was amended in March 2019, requiring a minimum cash balance of $15 million at Wells Fargo but removing other financial covenants if undrawn[218] - As of June 30, 2019, the company had not drawn on its revolving line of credit and was in compliance with all financial covenants[220] Quantitative and Qualitative Disclosures About Market Risk Market risks from interest rates and foreign exchange are managed via high-quality investments and natural hedges - The company's investment portfolio is maintained in high-quality securities, and a hypothetical 1% increase in interest rates would have no impact on the portfolio's value[224] - The company generates revenue in multiple foreign currencies, including Japanese Yen, Euros, and Australian Dollars, creating exposure to foreign exchange fluctuations[228] Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[230] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2019[232] PART II OTHER INFORMATION Legal Proceedings No new material legal proceedings are reported beyond those disclosed in the 2018 Annual Report on Form 10-K - The company refers to its 2018 Form 10-K for a description of material pending legal proceedings and settlements[236] Risk Factors No material changes to the risk factors previously disclosed in the 2018 Annual Report on Form 10-K are reported - No material changes from the Risk Factors disclosed in the 2018 Annual Report on Form 10-K are reported[237]