Cutera, Inc. is a medical device company that develops, manufactures, distributes, and markets energy-based product platforms for medical practitioners, enabling them to offer safe and effective treatments to their customers. The company's product portfolio includes systems for procedures such as treatment for acne, body contouring, skin resurfacing and revitalization, hair and tattoo removal, removal of benign pigmented lesions, and vascular conditions.
Business Overview
Cutera's corporate headquarters and U.S. operations are located in Brisbane, California, where the company conducts manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative activities. The company also maintains regional distribution centers across the U.S. to serve as forward warehousing for systems and service parts. Cutera markets, sells, and services its products through direct sales and service employees in North America (including Canada), Australia, New Zealand, Austria, France, Germany, Hong Kong, Japan, and the United Kingdom and the Republic of Ireland. Sales and services outside of these direct markets are made through a worldwide distributor network in over 38 countries.The company derives revenue from the sale of products and services. Product revenue includes revenue from the sale of systems, hand pieces, upgrade of systems, and leasing and direct sales of the company's AviClear devices (collectively "Systems" revenue); replacement hand pieces, truSculpt cycle refills, truFlex cycle refills, AviClear treatment fees, and single use disposable tips applicable to Secret RF (collectively "Consumables" revenue); and the sale of third-party manufactured skincare products ("Skincare" revenue). Service revenue includes prepaid service contracts, and labor, time and material on out-of-warranty products.
Financials
For the full year 2023, Cutera reported annual revenue of $212.4 million, a decrease of 15.6% compared to the prior year. The company's net loss for the year was $162.8 million. Operating cash flow was negative $137.9 million, and free cash flow was negative $170.9 million.In the first quarter of 2024, Cutera's total revenue was $38.8 million, a 29% decrease compared to the same period in 2023. This decline was primarily driven by a $10.3 million decrease in Systems revenue and a $3.9 million decrease in Skincare revenue due to the early termination of the company's distribution agreement in Japan. Gross margin for the quarter was 32.0%, compared to 39.7% in the prior year period, reflecting lower manufacturing and sales volume, as well as a $0.7 million non-cash charge for excess inventory.
The company reported a non-GAAP operating loss of $20.4 million in Q1 2024, compared to a loss of $17.6 million in the same period last year. Cutera ended the quarter with $105.4 million in cash and cash equivalents, down from $143.6 million at the end of 2023, primarily due to the $20 million net cash loss for the quarter, a $17.5 million net payment related to the non-renewal of the manufacturing services agreement, and a $6.5 million reduction in accounts payable.
Geographic Performance
Cutera generates revenue across several geographic regions. In the first quarter of 2024, North America accounted for 47% of total revenue, Japan 20%, and the Rest of World 33%. Revenue in North America decreased 32% year-over-year, driven by lower capital equipment sales due to macroeconomic pressures and a challenging financing environment. Japan revenue declined 41% due to the early termination of the skincare distribution agreement. Revenue in the Rest of World, including international markets, decreased 11% compared to the prior year period.Segment Performance
Cutera reports revenue across three main product categories: Systems, Consumables, and Skincare.Systems revenue, which includes the sale of devices and upgrades, decreased 30% year-over-year to $24.3 million in Q1 2024. This decline was driven by a 38% decrease in North America and a 19% decrease in the Rest of World, including Japan. The company attributed the lower Systems revenue to continued macroeconomic pressures and a challenging financing environment, particularly for North American customers.
Consumables revenue, which includes replacement hand pieces, treatment cycles, and tips, decreased 28% to $4.7 million, reflecting an industry-wide slowdown.
Skincare revenue, which was generated from the distribution of third-party products in Japan, decreased 48% to $4.2 million due to the early termination of the distribution agreement.
Service revenue, which includes service contracts and time and materials work, increased 5% to $5.7 million.
Operational Initiatives and Outlook
Cutera is focused on executing several key operational initiatives to drive its business forward:1.
Returning to Operational Excellence:
The company continues to make progress in five key areas - product reliability, field service, inventory control, supply/demand planning, and cost of operations. In Q1 2024, Cutera met or exceeded its annual objectives for product reliability across all product categories and maintained improved service levels in North America.2.
Building a Global AviClear Franchise:
Cutera launched AviClear, its novel acne treatment device, in international markets during the first quarter through a limited commercial release. In North America, the company broadened the availability of its enhanced AviClear offering, which provides greater flexibility and simplicity through a new business model. The company's primary focus is on partnering with customers to build healthy AviClear franchises with strong utilization.3.
New Product Introductions:
In April 2024, Cutera introduced its xeo+ platform, which builds on the legacy of the original xeo system. The xeo+ offers enhanced features and customization, targeting both new customers and the company's installed base of over 2,500 xeo systems.For the full year 2024, Cutera is reiterating its revenue guidance of $160 million to $170 million, which includes $4 million of Skincare revenue earned through the transition in the first quarter. The company also expects its cash and cash equivalents balance at the end of 2024 to be in the range of $55 million to $60 million.
Risks and Challenges
Cutera operates in a highly competitive industry and faces several risks and challenges, including:- Macroeconomic pressures and a challenging financing environment, particularly for capital equipment purchases - Continued softness in the body contouring market due to the impact of GLP-1 medications - Successful execution of the company's initiatives to build a healthy AviClear franchise and drive operational improvements - Ability to introduce new innovative products and expand into additional geographies - Potential regulatory and legal challenges