Cutera Announces Second Quarter 2023 Financial Results along with 2023 Outlook

Cutera, Inc. (NASDAQ:CUTR) ("Cutera" or the "Company"), a leading provider of aesthetic and dermatology solutions, today reported financial results for the second quarter ended June 30, 2023.

Second Quarter 2023 Financial and Operational Highlights

• Consolidated revenue of $61.2 million, a decrease of 5% as reported and a decrease of 2% in constant currency from the prior-year period, primarily driven by a decline in capital equipment revenue, partially offset by AviClear revenue.
• AviClear Q2 2023 new bookings of just under 200 units, vs. over 350 in Q1 2023, in line with our strategy to drive a more measured pace of new bookings.
• GAAP Gross margin of 45.8% in the quarter, compared to 54.6% in the prior-year period.
• Non-GAAP Gross margin of 50.3% in the quarter, compared to 55.6% in the prior-year period.
• GAAP Operating expenses were $57.6 million in the quarter, compared to $45.1 million in the prior-year period. Operating expenses during the period included $10.6 million in AviClear spending, up $3.6 million from the prior-year period.
• GAAP Net loss was $31.6 million, compared to a GAAP Net loss of $47.3 million in the prior-year period.
• Adjusted EBITDA was a loss of $11.6 million, compared to a loss of $1.6 million in the prior-year period.
  • Core adjusted EBITDA was a loss of $4.3 million.
  • AviClear adjusted EBITDA was a loss of $7.3 million.

"Second quarter results reflect that our business faces more operational and market challenges than were apparent when I stepped in as interim CEO. While we succeeded in refocusing our selling organization on Core Capital, business performance in this area has been negatively impacted by continued parts-driven service delays, and a tightening credit environment which have made deal closing more difficult, and placed pressure on our ASP's. Addressing these challenges is a top priority for the company and we are working diligently to get Core Capital back on track," commented Sheila Hopkins, former interim Chief Executive Officer of Cutera Inc.

Hopkins continued, "On AviClear we have more work to do to increase utilization and the percent of installed offices that are contributing. We are working expeditiously on the playbook for that. This will be a process; however, I am encouraged by progress made in the quarter on AviClear. We moved forward with a more measured pace of device bookings, and drove treatment volume that was in-line with our expectations. Finally, AviClear became the first acne therapy to obtain FDA clearance as a long-term treatment for mild to severe acne vulgaris."

"I continue to believe in the potential of Cutera, fueled by excellent technologies, and a dedicated and talented team. The challenges before us can and will be addressed, particularly with Taylor at the helm given his deep industry experience. This will place the Company firmly on the path to unlock inherent upside value not only on AviClear, but also Core Capital. Cutera's future remains bright," concluded Hopkins.

"I am very excited about the platform, the team, and the opportunity ahead at Cutera. While we face a set of near-term challenges, which our team will address, we have significant potential to drive growth and profitability over time, not only with our AviClear, our revolutionary solution for acne, but across our entire portfolio," commented Taylor Harris, Chief Executive Officer of Cutera, Inc.

2023 Outlook

The company expects full-year 2023 revenue in the range of $220 million to $230 million.

Conference Call

The Company's management will host a conference call to discuss these results and related matters today at 1:30 p.m. PT (4:30 p.m. ET). Participating in the call will be Taylor Harris, Chief Executive Officer; Sheila Hopkins, former Interim Chief Executive Officer; Stuart Drummond, Interim Chief Financial Officer; and Greg Barker, Vice President of FP&A and Investor Relations.

To participate in the conference call, dial 1-800-319-4610 (domestic) or +1-631-891-4304 (international).

The call will also be a webcast and can be accessed from the Investor Relations section of Cutera's website at http://www.cutera.com/. The webcast replay of the call will be available at the same site approximately one hour after the end of the call.

About Cutera, Inc.

Brisbane, California-based Cutera is a leading provider of aesthetic and dermatology solutions for practitioners worldwide. Since 1998, Cutera has been developing innovative, easy-to-use products that harness the power of science and nature to enable medical practitioners to offer safe and effective treatments to their patients. For more information, call +1-415-657-5500 or 1-888-4CUTERA or visit www.cutera.com.

*Use of Non-GAAP Financial Measures

In this press release, to supplement the Company's condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management has disclosed certain non-GAAP financial measures for gross margin, gross margin rate, and operating income. Non-GAAP adjustments include depreciation and amortization including contract acquisition costs, stock-based compensation, enterprise resource planning ("ERP") implementation costs, certain legal and litigation costs, executive and other non-recurring severance costs, costs related to a retention plan, and legal and advisory fees related to litigation and shareholder activism. From time to time in the future, there may be other items that the Company may exclude if the Company believes that doing so is consistent with the goal of providing useful information to investors and management. The Company has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure.

The Company defines adjusted EBITDA as operating income before depreciation and amortization, stock-based compensation, ERP implementation costs, costs related to certain litigation, executive and non-recurring severance costs, retention plan costs, and legal and advisory fees related to litigation and shareholder activism.

Company management uses non-GAAP measures as aids in monitoring the Company's ongoing financial performance from quarter to quarter, and year to year, and for benchmarking against other similar companies. Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, the operating performance measure as prescribed by GAAP. Non-GAAP financial measures for the statement of operations and net income per share exclude the following:

Depreciation and amortization, including contract acquisition costs. The Company has excluded depreciation and amortization expense in calculating its non-GAAP operating expenses and net income measures. Depreciation and amortization are non-cash charges to current operations.

Stock-based compensation. The Company has excluded the effect of stock-based compensation expenses in calculating its non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to the Company's employees, the Company continues to evaluate its business performance excluding stock-based compensation expenses. The Company records stock-based compensation expenses related to grants of options, employee stock purchase plans, and performance and restricted stock. Depending upon the size, timing, and terms of the grants, this expense may vary significantly but will recur in future periods. The Company believes that excluding stock-based compensation better allows for comparisons to its peer companies.

ERP implementation costs. The Company has excluded ERP system costs related to direct and incremental costs incurred in connection with its multi-phase implementation of a new ERP solution and the related technology infrastructure costs. The Company excludes these costs because it believes that these items do not reflect future operating expenses and will be inconsistent in amounts and frequency making it difficult to contribute to a meaningful evaluation of the Company's operating performance.

Certain legal and litigation costs. The Company has excluded costs incurred related to its litigation against Lutronic Aesthetics, which is not part of the Company's ordinary course of business. The Company's complaint against Lutronic alleges misappropriation of trade secrets, violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), interference with contractual relations and other claims. The Company excludes these costs because this litigation is a result of a discrete event that was not part of the Company's business strategy, but has a significant effect on the results of operations. Its costs are incidental to and do not reflect the efficiencies and effectiveness of the Company's core operations.

Executive and other non-recurring severance costs. The Company has excluded costs associated with restructuring activities and the separation of its officers and other executives in calculating its non-GAAP operating expenses and non-GAAP Operating Income. The Company has excluded restructuring costs because a restructuring represents a discrete event that signifies a change in the Company's strategy, but its costs are not indicative of the ongoing financial performance of the business. The Company excludes executive separation costs because executive separations are unpredictable and not part of the Company's business strategy but could have a significant impact on the results of operation.

Retention plan costs. The Company has excluded the expense related to a retention plan implemented in April 2023. Approximately $11 million was made available to sales personnel and key employees and will be paid in quarterly installments through October 2024. The Company has excluded expense related to this retention plan as such costs are not considered part of ongoing operations.

Board of Director legal and advisory fees. The Company has excluded costs associated with the litigation and shareholder activism related to its 2023 annual meeting of shareholders. The Company has excluded these costs as the costs do not relate to ongoing operations.

The Company believes that excluding all of the items above allows users of its financial statements to better review and assess both current and historical results of operations.

Safe Harbor Statement

Certain statements in this press release, other than purely historical information, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements include but are not limited to, Cutera's plans, objectives, strategies, financial performance and outlook, product launches and performance, trends, prospects, or future events and involve known and unknown risks that are difficult to predict. As a result, the Company's actual financial results, performance, achievements, or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "seek," "guidance," "predict," "potential," "likely," "believe," "will," "should," "expect," "anticipate," "estimate," "plan," "intend," "forecast," "foresee" or variations of these terms and similar expressions or the negative of these terms or similar expressions. Forward-looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause Cutera's actual results to differ materially from the statements contained herein. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are several risks, uncertainties, and other important factors, many of which are beyond the Company's control, that could cause its actual results to differ materially from the forward-looking statements contained in this press release, including those described in the "Risk Factors" section of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other documents filed from time to time with the United States Securities and Exchange Commission by Cutera.

All information in this press release is as of the date of its release. Accordingly, undue reliance should not be placed on forward-looking statements. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events, or circumstances after the date they were made, or to reflect the occurrence of unanticipated events. If the Company updates one or more forward-looking statements, no inference should be drawn that it will make additional updates concerning those or other forward-looking statements. Cutera's financial performance for the second quarter ended June 30, 2023, as discussed in this release, is preliminary and unaudited, and subject to adjustment.

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