Cutera(US:CUTR)2020-05-11 19:01PART I FINANCIAL INFORMATION Item 1. Financial Statements The unaudited Q1 2020 financial statements show decreased assets and equity, with a significantly increased net loss Condensed Consolidated Balance Sheets Balance Sheet Summary (in thousands) | Balance Sheet Items | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $94,430 | $113,738 | | Total current assets | $76,952 | $95,046 | | Total Liabilities | $60,894 | $67,796 | | Total current liabilities | $52,416 | $58,622 | | Total Stockholders' Equity | $33,536 | $45,942 | - Total assets decreased by approximately 17% from December 31, 2019, to March 31, 2020, primarily due to a reduction in cash and cash equivalents and accounts receivable15 Condensed Consolidated Statements of Operations Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total Net Revenue | $32,239 | $36,026 | | Gross Profit | $14,336 | $17,309 | | Total Operating Expenses | $26,465 | $25,335 | | Loss from Operations | $(12,129) | $(8,026) | | Net Loss | $(12,414) | $(8,220) | | Net Loss Per Share (Basic & Diluted) | $(0.86) | $(0.59) | - Net revenue decreased by 10.5% year-over-year, while operating expenses increased, leading to a 51.0% larger net loss compared to the first quarter of 201921 Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,966) | $(7,953) | | Net cash provided by investing activities | $2,640 | $1,549 | | Net cash used in financing activities | $(2,216) | $(490) | | Net decrease in cash and cash equivalents | $(11,542) | $(6,894) | - Cash used in operating activities increased significantly year-over-year, driven by a larger net loss and changes in working capital34 Notes to Condensed Consolidated Financial Statements - The COVID-19 pandemic began negatively affecting customer demand in late Q1 2020, prompting expense reductions affecting approximately 42% of the workforce414244 Revenue by Geography and Product (in thousands) | Category | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | By Geography | | | | United States | $13,784 | $20,400 | | International | $18,455 | $15,626 | | By Product Type | | | | Products | $26,391 | $30,762 | | Service | $5,848 | $5,264 | | Total Revenue | $32,239 | $36,026 | - Subsequent to the quarter's end, the company raised approximately $26.7 million in net proceeds from a public stock offering and received a $7.1 million loan under the Paycheck Protection Program (PPP)149151152 - The company maintains a revolving line of credit with Wells Fargo, which was amended to require a minimum cash balance of $15 million141142 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the adverse impact of COVID-19 on Q1 2020 results, cost-cutting measures, and subsequent liquidity enhancements Impact of COVID-19 - The COVID-19 pandemic led to decreasing customer demand starting in the second half of Q1 2020 as customers deferred non-essential procedures180 - In response, the company implemented significant cost-reduction measures, including salary cuts and workforce actions affecting approximately 42% of its employees188 - The company received a $7.1 million loan under the Paycheck Protection Program (PPP) in April 2020 to support ongoing operations189 Results of Operations Revenue Analysis (in thousands) | Revenue Category | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Net Revenue | $32,239 | $36,026 | (11)% | | United States | $13,784 | $20,400 | (32)% | | International | $18,455 | $15,626 | 18% | | Total Systems | $20,958 | $27,209 | (23)% | | Consumables | $2,533 | $1,945 | 30% | | Skincare | $2,900 | $1,608 | 80% | | Service | $5,848 | $5,264 | 11% | - The 11% decrease in total net revenue was primarily caused by a 32% decline in U.S. revenue due to COVID-19, partially offset by an 18% increase in international revenue205206207 - Gross margin decreased from 48% to 44% year-over-year, driven by a decline in the average sales price of systems214215 - General and Administrative (G&A) expenses increased by $2.3 million (41%) year-over-year, attributed to higher stock compensation, legal, and credit loss expenses219 Liquidity and Capital Resources - As of March 31, 2020, the company had $19.5 million in cash, cash equivalents, and marketable investments, a decrease of $14.4 million from year-end 2019226227 - Subsequent to the quarter's end, the company bolstered its liquidity by raising $26.7 million in net proceeds from a public offering and receiving a $7.1 million PPP loan235236 - The company believes its existing cash and recent financing are sufficient to meet its needs for at least the next 12 months237 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks involve interest rate fluctuations and foreign currency exchange rate volatility - A hypothetical 1% increase in interest rates would have no material impact on its investment portfolio due to its short weighted average maturity246247 - The company is exposed to foreign exchange risk as it generates revenue in multiple currencies and does not historically use hedging instruments252 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2020 - The CEO and Interim CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter, March 31, 2020254 - New controls were implemented for the adoption of FASB ASC 326 for credit losses, with no other material changes to internal controls256 PART II OTHER INFORMATION Item 1. Legal Proceedings The company is defending an arbitration claim from its former CFO and does not expect a material loss - The company's former CFO filed an arbitration demand against the company in November 2019, which the company intends to defend vigorously135 Item 1A. Risk Factors Key risks include potential ineligibility for its PPP loan and the ongoing adverse business impacts of the COVID-19 pandemic - A significant risk is that the company may be deemed ineligible for the $7.1 million PPP loan it received, potentially requiring full repayment and subjecting it to penalties260261263 - The COVID-19 pandemic is a major risk, expected to continue reducing customer demand, impacting receivables collection, and disrupting supply chains265266270 - Cost-saving measures, including workforce cuts affecting 42% of employees, could negatively impact employee morale and lead to the loss of key personnel267268 Item 2-5. Other Information No information was reported for Items 2 through 5 for the period - No unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, or other information were reported for the quarter274 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and required certifications - The report includes standard corporate governance documents and required CEO/CFO certifications as exhibits275