Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CUTR > SEC Filings for CUTR > Form 10-Q on 6-May-2013All Recent SEC Filings

Show all filings for CUTERA INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for CUTERA INC


6-May-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Caution Regarding Forward-Looking Statements

The following discussion should be read in conjunction with the attached condensed consolidated financial statements and notes thereto, and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2012 as contained in our annual report on Form 10-K filed with the SEC on March 15, 2013. This quarterly report, including the following sections, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout this report, and particularly in this Item 2, the forward-looking statements are based upon our current expectations, estimates and projections and reflect our beliefs and assumptions based upon information available to us at the date of this report. In some cases, you can identify these statements by words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," and other similar terms. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements include, but are not limited to, statements relating to our future financial performance, the ability to grow our business, increase our revenue, manage expenses, generate additional cash, achieve and maintain profitability, develop and commercialize existing and new products and applications, and improve the performance of our worldwide sales and distribution network, and the outlook regarding long term prospects. These forward-looking statements involve risks and uncertainties. The cautionary statements set forth below and those contained in Part II, Item 1A - "Risk Factors" commencing on page 20, identify important factors that could cause actual results to differ materially from those predicted in any such forward-looking statements. We caution you to not place undue reliance on these forward-looking statements, which reflect management's analysis and expectations only as of the date of this report. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Form 10-Q.

Introduction

The Management's Discussion and Analysis, or MD&A, is organized as follows:

ˇ Executive Summary. This section provides a general description and history of our business, a brief discussion of our product lines and the opportunities, trends, challenges and risks we focus on in the operation of our business.

ˇ Critical Accounting Policies and Estimates. This section describes the key accounting policies that are affected by critical accounting estimates.

ˇ Results of Operations. This section provides our analysis and outlook for the significant line items on our Consolidated Statements of Operations.

ˇ Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments.


Table of Contents

Executive Summary

Company Description.

We are a leading medical device company specializing in the research, development, manufacture, marketing and servicing of laser and other energy-based aesthetics systems for practitioners worldwide. We offer easy-to-use, products which enable physicians and other qualified practitioners to perform safe and effective aesthetic procedures, including vascular and benign pigmented lesions, hair-removal, skin rejuvenation, body contouring, skin resurfacing, tattoo removal and toenail fungus. Our platforms are designed to be easily upgradeable to add additional applications and hand pieces, which provide flexibility for our customers as they expand their practices. In addition to systems and upgrade revenue, we generate revenue from the sale of post warranty service contracts, providing services for products that are out of warranty, hand piece refills, and third-party manufactured dermal fillers and cosmeceuticals.

Our corporate headquarters and U.S. operations are located in Brisbane, California, from where we conduct our manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative activities. We market, sell and service our products through direct sales and service employees in the United States, Canada, Japan, France and Australia. Sales and Service outside of these direct markets are made through a worldwide distributor network in over 60 countries.

Products

Our revenue is derived from the sale of Products and upgrades, Service, Titan and truSculpt hand piece refills, and Dermal fillers and cosmeceuticals. Product revenue represents the sale of a system. A system consists of a console that incorporates a universal graphic user interface, a laser and/or other energy-based module, control system software, high voltage electronics and one or more hand pieces.

Our broad portfolio of Product brands include:

ˇ ExcelVTM

ˇ XeoŽ

ˇ GenesisPlusTM

ˇ truSculptTM

ˇ CoolGlideŽ

ˇ SoleraŽ

ˇ myQTM

ˇ VariLiteTM

We offer our customers the ability to select the system that best fits their practice at the time of purchase and then to cost-effectively add applications to their system as their practice grows, resulting in Upgrade revenue. Service revenue relates to amortization of prepaid service contracts, direct billings for detachable hand piece replacements (except for Titan and truSculpt) and revenue for parts and labor on out-of-warranty products. For our Titan and truSculpt hand pieces, after a set number of treatments have been performed, the customer is required to send the hand piece back to the factory for refurbishment, which we refer to as "refilling" the hand piece. In Japan, we distribute Merz Pharma GmbH's ("Merz") RadiesseŽ dermal filler product; and Obagi Medical Products, Inc.'s ("Obagi") cosmeceutical products.

Significant Business Trends

We believe that our ability to grow revenue will be primarily dependent on the following:

ˇ Consumer demand for the application of our products.

ˇ Continuing to expand our product offerings ? both through internal development and sourcing from other vendors.

ˇ Ongoing investment in our global sales and marketing infrastructure.

ˇ Use of clinical results to support new aesthetic products and applications.

ˇ Enhanced luminary development and reference selling efforts (to develop a location where our products can be displayed and used to assist in selling efforts).

ˇ Marketing to physicians in the core dermatology and plastic surgeon specialties, as well as outside those specialties.

ˇ Customer demand for our products.

ˇ Generating ongoing revenue from our growing installed base of customers through the sale of Service, Upgrade, Titan and truSculpt hand piece refills, and Dermal fillers and cosmeceuticals.


Table of Contents

Our total revenue increased by $240,000, or 2%, in the three-month period ended March 31, 2013, compared to the same period in 2012. Historically, the first quarter of the year is our seasonally lowest quarter of the year, while the fourth quarter is the strongest due in part to tax deduction motivated purchases.

Geographical Revenue
Our U.S. revenue increased by $177,000, or 3%, in the three-month period ended March 31, 2013, compared to the same period in 2012. This increase was due primarily to our recent new product introductions (ExcelV and truSculpt) and the acquisition of Iridex's aesthetic business in February 2012 that resulted in incremental Service revenue, which was partially offset by a decline in revenue of some of our legacy products.

For the three-month period ended March 31, 2013, our international revenue increased by $63,000, or 1% compared to the same period in 2012. This revenue increase resulted primarily from higher revenue from our direct operations in France, several of our Asian distributor countries, offset by declines in revenue from Canada and Japan, which was due in part to the decline in their currencies versus the U.S. Dollar.

Revenue by Product Category:

Significant changes in revenue by product category were an increase in Service revenue by $571,000, or 15%, due to the acquisition of the Iridex aesthetic business in February 2012, which was partially offset by a decline in our Dermal filler and cosmeceutical revenue in Japan, due primarily to the weakening Japanese Yen, versus the U.S. Dollar, and some volume discounting.

Factors that May Impact Future Performance.

Our industry is impacted by numerous competitive, regulatory, macroeconomic and other significant factors. Our industry is highly competitive and our future performance depends on our ability to compete successfully. Additionally, our future performance is dependent upon our ability to continue to expand our product offerings, develop innovative technologies, obtain regulatory clearances for our products, protect the proprietary technology of our products and our manufacturing processes, manufacture our products cost-effectively, and successfully market and distribute our products in a profitable manner. If we fail to execute on the aforementioned initiatives, our business would be adversely affected. A detailed discussion of these and other factors that could impact our future performance are provided in Part II, Item 1A "Risk Factors" section below.

Critical Accounting Policies and Estimates.

The preparation of our Condensed Consolidated Financial Statements and related disclosures in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates, judgments and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our estimates and make adjustments when facts and circumstances dictate. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.

Critical accounting estimates, as defined by the SEC are those that are most important to the portrayal of our financial condition and results of operations and require our management's most difficult and subjective judgments and estimates of matters that are inherently uncertain. The accounting policies and estimates that we consider to be critical, subjective, and requiring judgment in their application are summarized in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 15, 2013. There have been no significant changes to the accounting policies and estimates disclosed in our Form 10-K.


Table of Contents

Results of Operations

The following table sets forth selected consolidated financial data for the
periods indicated, expressed as a percentage of total revenue, net. Percentages
in this table and throughout our discussion and analysis of financial condition
and results of operations may reflect rounding adjustments.

                                         Three Months Ended
                                              March 31,
                                         2013            2012

Net revenue                                 100 %          100 %
Cost of revenue                              46 %           50 %
Gross margin                                 54 %           50 %

Operating expenses:
Sales and marketing                          41 %           47 %
Research and development                     13 %           14 %
General and administrative                   14 %           22 %
Total operating expenses                     68 %           83 %

Loss from operations                        (14 )%         (33 )%
Interest and other income, net                1              1
Loss before income taxes                    (13 )%         (32 )%
Provision (benefit) for income taxes          -              1 %
Net loss                                    (13 )%         (33 )%



Total Net Revenue
                                                            Three Months Ended March 31,
(Dollars in thousands)                                  2013            % Change         2012
Revenue mix by geography:
United States                                        $     6,488                3 %    $   6,311
International                                              9,479                1 %        9,416
Consolidated total revenue                           $    15,967                2 %    $  15,727

United States as a percentage of total revenue                41 %                            40 %
International as a percentage of total revenue                59 %                            60 %
Revenue mix by product category:
Products and upgrades                                $     9,197               (1 )%   $   9,258
Service                                                    4,444               15 %        3,873
Titan and truSculpt hand piece refills                     1,190                5 %        1,130
Dermal fillers and cosmeceuticals                          1,136              (23 )%       1,466
Consolidated total revenue                           $    15,967                2 %    $  15,727

Discussion of Revenue by Product Type:

Product and Upgrade Revenue
As explained in more detail in the Products section of the Executive Summary above, some of our products consist of a configurable system platform that includes a console and one or more hand pieces. Each product is configured to give our customers the ability to select the combination of platform and hand pieces that provides the applications that best fit their practice.

Product and upgrade revenue decreased by $61,000 or 1% in the three-month period ended March 31, 2013, compared to the same period in 2012. This resulted primarily due to an increase in our ExcelV and truSculpt product revenue, which was partly offset by declines in some of legacy products and upgrades.

Service Revenue
Our worldwide Service revenue increased by $571,000, or 15%, in the three-month period ended March 31, 2013, compared to the same period in 2012. This increase was primarily the result of Service revenue from the Iridex business acquisition in February 2012.


Table of Contents

Titan and truSculpt Hand Piece Refill Revenue Our Titan and truSculpt hand piece refill revenue increased by $60,000 or 5% in the three-month period ended March 31, 2013, compared to the same period in 2012. This increase was due primarily to the truSculpt refill revenue that started from the third quarter ended September 30, 2012.

Dermal Filler and Cosmeceuticals Revenue Our dermal filler and cosmeceuticals revenue decreased by $330,000 or 23%, in the three-month period ended March 31 2013, compared to the same period in 2012. This decrease was due primarily to the weakening Japanese Yen, versus the U.S. Dollar, and some volume discounting.

Discussion of Revenue by Geography:

U.S. Revenue
Our U.S. revenue increased by $177,000, or 3%, in the three-month period ended March 31, 2013, compared to the same period in 2012. This increase was primarily attributable to our recent new product introductions - ExcelV and truSculpt - and the acquisition of Iridex's aesthetic business in February 2012 that resulted in incremental Service revenue, which was partially offset by a decline in revenue of some of our other products.

International Revenue
International revenue increased by $63,000, or 1%, in the three-month period
ended March 31, 2013, compared to the same period in 2012. This increase
resulted primarily from higher revenue from our direct operations in France,
several of our Asian distributor countries, offset by declines in revenue from
Canada and Japan which was due in part to the decline in their currencies versus
the US Dollar.

Gross Profit
                                             Three Months Ended March 31,
(Dollars in thousands)                    2013           % Change         2012
Gross profit                           $     8,550               8 %     $ 7,882
As a percentage of total net revenue            54 %                          50 %

Our cost of revenue consists primarily of material, personnel expenses, royalty expense, warranty, amortization of intangibles and manufacturing overhead expenses.

Gross margin (which is gross profit divided by net revenue) was 54% in the three-month period ended March 31, 2013, compared to 50% for the same period in 2012. This improvement was due primarily to an improved Service margin as a result of a favorable impact of the non-recurring nature of the acquisition integration expenses incurred in the first quarter 2012.

Sales and Marketing
                                            Three Months Ended March 31,
(Dollars in thousands)                   2013            % Change       2012
Sales and marketing                     $    6,456             (13 )%   $ 7,437
As a percentage of total net revenue            41 %                         47 %

Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended workshops and trade shows, post-marketing studies, and advertising. Sales and marketing expenses decreased by $981,000, and represented 41% of total net revenue, in the three-month period ended March 31, 2013, compared to 47% in the same period in 2012. The $981,000 decrease was due primarily to:

ˇ $353,000 of lower international expenses attributable to the closure of our Spain and U.K. offices;

ˇ $265,000 of decreased North American sales commission expenses; and

ˇ $190,000 of decreased Japan expenses resulting primarily from the appreciation of the U.S. Dollar against the Japanese Yen.

Research and Development (R&D)
                                             Three Months Ended March 31,
(Dollars in thousands)                    2013           % Change         2012
Research and development               $    2,121               (4 )%    $ 2,216
As a percentage of total net revenue           13 %                           14 %

R&D expenses consist primarily of personnel expenses, clinical research, regulatory and material costs. R&D expenses decreased by $95,000, and represented 13% of total net revenue, in the three-month period ended March 31, 2013, compared to 14% for the same period in 2012. The decrease was due primarily to $110,000 of lower personnel costs.


Table of Contents

General and Administrative (G&A)
                                             Three Months Ended March 31,
(Dollars in thousands)                    2013           % Change        2012
General and administrative             $    2,289              (35 )%   $ 3,495
As a percentage of total net revenue           14 %                          22 %

General and administrative expenses consist primarily of personnel expenses, legal fees, accounting, audit and tax consulting fees, U.S. medical device excise tax (from January 1, 2013) and other general and administrative expenses. G&A expenses decreased $1.2 million, and represented 14% of total net revenue, in the three-month period ended March 31, 2013, compared to 22% for the same period in 2012. This decrease was due primarily to $559,000 of non-recurring acquisition related expenses incurred in first quarter of 2012, $541,000 of decreased accounting and legal fees, partially offset by a $71,000 increase in expenses due to the commencement of the U.S. medical device excise tax from January 1, 2013.

Interest and Other Income, Net

Interest and other income, net consist of the following:
                                            Three Months Ended March 31,
(Dollars in thousands)                   2013         % Change          2012
Interest income                        $    109             (15 )%      $ 128
Other income (expense), net                  26             181 %         (32 )
Total interest and other income, net   $    135              40 %       $  96

Interest and other income, net, increased $39,000 for the three-month period ended March 31, 2013, compared to the same period in 2012. This increase was primarily attributable to a $55,000 increase in net foreign exchange gains, offset by a $19,000 decrease in interest income resulting from reduced yields.

Provision (Benefit) for Income Taxes
                                             Three Months Ended March 31,
(Dollars in thousands)                    2013           % Change         2012
Loss before income taxes               $    (2,181 )           (58 )%   $ (5,170 )
Provision (benefit) for income taxes           (18 )            NA            97

We recorded an income tax benefit of $18,000 for the three-month period ended March 31, 2013, compared to an income tax provision of $97,000 for the three-month period ended March 31, 2012. Our income tax benefit for the three-month period ended March 31, 2013 was primarily attributable to the release of uncertain tax position liabilities resulting from the statutes relating to these positions lapsing, which was offset partially by income taxes for our international operations. The income tax expense for the three-month period ended March 31, 2012 was primarily attributable to income taxes for our international operations, offset by benefits for income taxes related to net gains on marketable and long term investments recorded in our 'Other comprehensive loss.'

Liquidity and Capital Resources

Liquidity is the measurement of our ability to meet potential cash requirements, fund the planned expansion of our operations and acquire businesses. Our sources of cash include operations and stock option exercises. We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our daily needs. The majority of our cash and investments are held in U.S. banks and our foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.


Table of Contents

Cash and Cash Equivalents, Marketable Investments and Long-Term Investments
Summary

The following table summarizes our cash and cash equivalents, marketable
investments and long-term investments:

                             March 31,       December 31,
(Dollars in thousands)         2013              2012           Change
Cash and cash equivalents   $    17,272     $       23,546     $ (6,274 )
Marketable investments           70,821             62,026        8,795
Total                       $    88,093     $       85,572     $  2,521



Cash Flows

                                                         Three Months Ended
                                                              March 31,
(Dollars in thousands)                                    2013          2012
Net cash flow provided by (used in):
Operating activities                                   $     (543 )   $ (4,873 )
Investing activities                                       (9,448 )      3,054
Financing activities                                        3,717          586
Net increase (decrease) in cash and cash equivalents   $   (6,274 )   $ (1,233 )

Cash Flows from Operating Activities

Net cash used in operating activities in the three-month period ended March 31, 2013 was $543,000, which was due primarily to:

ˇ $1.0 million used due to the net loss of $2.2 million, after adjusting for non-cash related items of $1.2 million consisting primarily of stock-based compensation expense of $820,000 and depreciation and amortization expenses of $320,000;

ˇ $2.5 million used to pay down the high accrued liabilities as of December 31, 2012; partially offset by

ˇ $2.0 million generated from the collection of cash from the high accounts receivable balance as of December 31, 2012;

ˇ $584,000 generated by an increase in deferred service revenue resulting primarily from the sale of service contracts to an increasing installed base of customers; and

ˇ $259,000 generated by an increase in other long-term liabilities relating primarily to $315,000 of capital lease obligations from the financing of fixed asset purchases, partially offset by a reduction in our deferred rent balance by $56,000.

Net cash used in operating activities in the three-month period ended March 31, 2012 was $4.9 million, which was due primarily to:

ˇ $4.2 million used by the net loss of $5.3 million, after adjusting for non-cash related items of $1.1 million consisting primarily of stock-based compensation expense of $738,000 and depreciation and amortization expenses of $343,000;

ˇ $1.2 million used to increase inventory relating primarily to higher raw materials and finished goods associated with our increased revenue levels and higher demonstration inventories as a result of increased sales personnel;

ˇ $661,000 used to reduce accrued liabilities relating primarily to $699,000 of reduced customer deposits, $546,000 decrease in accrued personnel costs, offset by a net $584,000 increase in other accrued expenses associated with the increased inventory and other purchases; offset by

ˇ $640,000 generated by a reduction in accounts receivable during the quarter ended March 31, 2012; and

ˇ $444,000 generated by a reduction of other current assets, primarily relating to a $375,000 reduction in discounts and purchased interest with respect to our marketable investments and a $185,000 reduction in our Japan income tax receivable.

Cash Flows from Investing Activities

We used net cash of $9.5 million in our investing activities in the three-month period ended March 31, 2013, which was attributable primarily to:

ˇ $20.5 million of cash used to purchase marketable investments;

ˇ $0.5 million used to acquire property and equipment; partially offset by

ˇ $11.6 million in net proceeds from the sales and maturities of marketable investments.


Table of Contents

We generated net cash of $3.1 million from investing activities in the three-month period ended March 31, 2012, which was attributable primarily to:

ˇ $21.9 million in net proceeds from the sales and maturities of marketable investments; partially offset by

. . .

  Add CUTR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CUTR - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.