Cutera(CUTR) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company presents its unaudited condensed consolidated financial statements as of September 30, 2019 Condensed Consolidated Balance Sheets Balance Sheet Summary (in thousands) | Balance Sheet Items | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $111,236 | $97,637 | | Total Current Assets | $91,925 | $87,198 | | Total Liabilities | $67,246 | $51,251 | | Total Current Liabilities | $55,266 | $47,620 | | Total Stockholders' Equity | $43,990 | $46,386 | - Total assets increased to $111.2 million, driven by the adoption of the new lease standard which added $8.3 million in operating lease assets[12] - Total liabilities increased significantly to $67.2 million, mainly due to recognizing $8.5 million in operating lease liabilities upon adopting ASC 842[12] Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Net Revenue | $46,117 | $40,573 | $129,917 | $117,251 | | Gross Profit | $26,233 | $21,885 | $69,373 | $61,596 | | Loss from Operations | ($2,409) | ($998) | ($10,135) | ($7,902) | | Net Loss | ($2,628) | ($873) | ($10,260) | ($4,477) | | Net Loss Per Share (Basic & Diluted) | ($0.19) | ($0.06) | ($0.73) | ($0.33) | - Total net revenue grew 13.7% YoY for the third quarter and 10.8% for the nine months ended September 30, 2019[18] - Operating expenses increased faster than revenue, leading to a wider loss from operations, which grew from ($1.0) million in Q3 2018 to ($2.4) million in Q3 2019[18] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($6,194) | ($8,119) | | Net cash provided by investing activities | $2,667 | $15,531 | | Net cash provided by financing activities | $354 | $270 | | Net (decrease) increase in cash | ($3,173) | $7,682 | - Cash used in operations for the first nine months of 2019 improved to $6.2 million from $8.1 million used in the same period of 2018[34] - Investing activities provided $2.7 million in cash, a significant decrease from $15.5 million in the prior year, due to lower proceeds from marketable investments[34] Notes to Condensed Consolidated Financial Statements Revenue by Geography - Nine Months Ended Sep 30 (in thousands) | Region | 2019 | 2018 | | :--- | :--- | :--- | | United States | $74,972 | $73,597 | | Japan | $18,142 | $12,522 | | Asia, excluding Japan | $11,396 | $11,422 | | Europe | $7,147 | $6,729 | | Rest of the world | $18,260 | $12,981 | | Total | $129,917 | $117,251 | - The company adopted the new lease accounting standard (ASC Topic 842), recognizing $10.3 million in lease assets and $10.4 million in lease liabilities[48] - As of September 30, 2019, the company had not drawn on its revolving line of credit and was in compliance with all financial covenants[135] - A subsequent event noted was the resignation of the CFO and a related Demand for Arbitration she filed[141][142][143] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, highlighting revenue growth driven by international sales and new products Results of Operations Total Net Revenue Breakdown (in thousands) | Category | Q3 2019 | Q3 2018 | % Change | YTD 2019 | YTD 2018 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | United States | $26,425 | $24,329 | 9% | $74,972 | $73,597 | 2% | | International | $19,692 | $16,244 | 21% | $54,945 | $43,654 | 26% | | Total Revenue | $46,117 | $40,573 | 14% | $129,917 | $117,251 | 11% | Revenue by Product Category (in thousands) | Category | Q3 2019 | Q3 2018 | % Change | YTD 2019 | YTD 2018 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Systems | $34,958 | $33,197 | 5% | $99,706 | $95,727 | 4% | | Consumables | $2,510 | $1,055 | 138% | $7,109 | $2,881 | 147% | | Skincare | $2,847 | $1,423 | 100% | $6,230 | $3,981 | 56% | | Service | $5,802 | $4,898 | 18% | $16,872 | $14,662 | 15% | - Gross margin for Q3 2019 increased to 57% from 54% in Q3 2018, driven by new products and strong growth in consumables and skincare[192][193] - Sales and marketing expenses for Q3 2019 rose 22% YoY to $17.7 million, due to increased headcount and costs for a new CRM system[194][195] - General and administrative expenses for Q3 2019 increased 42% YoY to $7.3 million, driven by higher personnel costs and fees for a new ERP system[200] Liquidity and Capital Resources Cash and Investments (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $22,879 | $26,052 | ($3,173) | | Marketable investments | $6,448 | $9,523 | ($3,075) | | Total | $29,327 | $35,575 | ($6,248) | - As of September 30, 2019, the company had working capital of $36.7 million, down from $39.6 million at year-end 2018[208] - The company has a revolving line of credit requiring a minimum cash balance of $15 million, with no funds drawn as of September 30, 2019[223][224][226] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate fluctuations, inflation, and foreign exchange fluctuations - The company's primary market risks are interest rate changes on its investment portfolio, inflation, and foreign currency exchange rate fluctuations[229] - The investment portfolio consists of high-quality securities with a short weighted average maturity of approximately 0.3 years, minimizing interest rate risk[230] - The company does not actively hedge foreign currency exposure, relying on local currency operating expenses to provide a natural hedge[234][235] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Based on an evaluation as of September 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[236] - There were no changes in the company's internal control over financial reporting during the third quarter of 2019 that have materially affected internal controls[238] PART II OTHER INFORMATION Item 1. Legal Proceedings The company refers to its 2018 Annual Report on Form 10-K for details on material pending legal matters - For details on material pending legal proceedings, the report refers to the company's Annual Report on Form 10-K for the year ended December 31, 2018[242] Item 1A. Risk Factors No material changes were reported to the risk factors previously disclosed in the 2018 Annual Report - There are no material changes from the Risk Factors previously disclosed in the company's 2018 Annual Report on Form 10-K[243] Other Items (2, 3, 4, 5) The company reports no activity for unregistered sales of equity, defaults, mine safety, or other information - The company reported no activity under Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, or Other Information[244][245][246][247] Item 6. Exhibits This section lists filed exhibits, including corporate governance documents, certifications, and XBRL data files - Exhibits filed with the report include corporate governance documents, CEO/CFO certifications (Sections 302 and 906), and interactive data files (XBRL)[249][253][254][255]