Executive Summary

Q2 2024 revenue was $34.4M, down 44% year-over-year and down sequentially vs Q1 2024 ($38.8M), with GAAP gross margin of 22.2% and non-GAAP gross margin of 28.0%; gross margin was depressed by ~$2.4M of excess/obsolete inventory charges (~6.9% of revenue) .
Management lowered FY 2024 revenue guidance to $140–$145M (from $160–$170M) and year-end cash guidance to ~$40M (from $55–$60M), citing macro financing pressure and North America salesforce turnover as key drivers .
AviClear showed strong international traction: >70 systems sold outside North America to date, with average utilization >10 treatments/month among ~50 customers with at least two months in-market; xeo+ launch feedback exceeded expectations .
North America execution changes are underway: new SVP for North America (Steve Kreider), capital sales org restructuring, and additional cost reductions (~$10M annualized in 2025 after ~$20M annualized savings from Q4’23 program) .
Working capital narrative is a key stock catalyst: inventory work-down benefit shifts into 2025, with management targeting >$50M year-over-year improvement in cash burn from working capital alone, even without revenue/margin recovery .

What Went Well and What Went Wrong

What Went Well

AviClear international momentum: “We’ve sold over 70 AviClear systems outside of North America” and for ~50 customers with ≥2 months in-market, “utilization is averaging over 10 treatments per month” .
xeo+ product launch: “highly positive feedback” and “exceeding our expectations” in North America; flexibility with >25 applications and improved handpieces/cooling .
Service growth and field improvements: Service revenue grew +6.5% YoY in Q2 (press release headline cited +7%, but detailed table shows +6.5%), reflecting better field service and customer support; field service performance made “great progress” with improved response times .

What Went Wrong

North America capital weakness: sequential decline due to macro financing pressure and ~40% salesforce turnover; management reduced FY revenue guidance accordingly .
Gross margin pressure: lower volume, mix shift away from higher-margin RF platforms (True Body, Secret), and excess/obsolete inventory charges (~$2.4M) drove GM to 22.2% GAAP; non-GAAP GM ~35% on a normalized basis excluding inventory reserves .
Cash burn higher than prior expectations for H2’24 due to delayed inventory reduction; year-end cash guidance cut to ~$40M (from $55–$60M) .

Financial Results

Metric	Q2 2023	Q1 2024	Q2 2024
Revenue ($USD Millions)	$61.8	$38.8	$34.4
Gross Profit ($USD Millions)	$26.1	$12.4	$7.6
Gross Margin % (GAAP)	42.2%	32.0%	22.2%
Gross Margin % (Non-GAAP)	46.6%	38.1%	28.0%
Operating Expenses ($USD Millions, GAAP)	$57.2	$31.9	$29.4
Operating Loss ($USD Millions, GAAP)	$(31.2)	$(19.4)	$(21.8)
Operating Loss ($USD Millions, Non-GAAP)	$(13.2)	$(20.4)	$(21.3)
Net Loss ($USD Millions)	$(33.3)	$(22.8)	$(24.7)
Diluted EPS (GAAP)	$(1.68)	$(1.14)	$(1.23)
Consensus Revenue	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)
Consensus EPS	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)	N/A (S&P Global consensus unavailable)

Note: Management disclosed ~$2.4M (~6.9% of revenue) excess/obsolete inventory expense in Q2 2024; normalized non-GAAP GM would be ~35% excluding inventory reserves .

Segment breakdown (Revenue):

Segment	Q2 2023	Q1 2024	Q2 2024
North America ($M)	$32.4	$18.4	$16.0
Japan ($M)	$12.8	$7.6	$3.8
Rest of World ($M)	$16.6	$12.8	$14.6
Systems – North America ($M)	$23.6	$11.9	$9.8
Systems – RoW incl. Japan ($M)	$15.7	$12.4	$14.1
Consumables ($M)	$7.5	$4.7	$4.5
Skincare ($M)	$9.4	$4.2	$0.0 (agreement terminated Feb 2024)
Service ($M)	$5.7	$5.7	$6.0

KPIs and operational metrics:

KPI	Q2 2023	Q1 2024	Q2 2024
AviClear international systems sold (cumulative)	N/A	N/A	>70
AviClear utilization (intl, avg treatments/month among ~50 customers ≥2 months)	N/A	N/A	>10
AviClear NA lease installed base (units)	N/A	~1,050	~925
AviClear NA systems on list to be returned (units)	N/A	~275	~270
AviClear NA expected % of original lease base to be returned	N/A	>50%	>50%
Cooperative marketing program utilization	N/A	N/A	>40%
Cash, cash equivalents & restricted cash ($M)	$181.4	$105.4	$84.3

Discrepancy note: Press release highlights cite Service growth +7% YoY; detailed table shows +6.5% YoY for Q2 2024 .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	FY 2024	$160–$170M	$140–$145M	Lowered
Cash, Cash Equivalents & Restricted Cash ($USD Millions)	FY 2024 (Dec 31)	$55–$60M	~$40M	Lowered
Cost reductions (annualized)	FY 2025 run-rate	~$20M (Q4’23 restructuring already completed)	+$10M additional identified (to be fully realized in 2025)	Updated (additional savings)

No margin, OpEx, OI&E, tax rate, or dividend guidance was provided beyond cost-reduction commentary .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2023 and Q1 2024)	Current Period (Q2 2024)	Trend
Macro/financing environment	Body contouring particularly weak; GLP-1 impact; financing challenging; depressed volumes/margins	Continued macro pressure; med spa segment faces financing access issues; terms more onerous; assumed persistent through 2024	Continued headwind
North America salesforce execution	Rebuilding and hiring; reiteration of cost containment	~40% capital sales turnover; promotion of SVP North America; restructuring for productivity	Transition; near-term drag, medium-term improvement
AviClear strategy	Transitioning NA lease model; expected >50% of lease base returned; preparing ownership model; limited international release	>70 international systems; >10 treatments/month avg utilization; NA owned devices >2x utilization vs leased; continued returns expected	International ramp; NA rebuild
Product performance (xeo+)	Launch announced early April; legacy base opportunity	Launch feedback exceeding expectations; new accounts uptake vs upgrades	Positive traction
Operational excellence	Reliability, service, inventory control, supply/demand planning improvements; significant inventory reserves in prior quarters	Progress continues; mix shift and inventory charges depress margins in Q2; inventory work-down benefit shifted to 2025	Improving operations; margin lag
Working capital & cash runway	Expected cash tailwind from inventory reduction in H2’24	Inventory reduction benefit delayed to 2025; targeting ~$50M YoY cash burn improvement from working capital alone	Benefit pushed out
Legal/regulatory	Lutronic litigation costs previously excluded in non-GAAP; inventory provision adjustments	~$5.8M litigation proceeds received (excluded from non-GAAP); partnership with L’Oréal SkinCeuticals in Japan (launch planned Q4’24)	One-time proceeds; new partner
Regional trends	International % of revenue rising; Japan declining YoY	International mix up; North America capital down; Japan significantly down YoY	International strength, NA softness

Management Commentary

“We’ve sold over 70 AviClear systems outside of North America… utilization is averaging over 10 treatments per month” (Taylor Harris, CEO) .
“Our launch of Xeo+ is off to a promising start” (press release) ; “highly positive feedback… exceeding our expectations” (CEO) .
“This year… increased capital purchase activity… didn’t hold… due to continued macroeconomic pressure… we are… with new commercial leadership in North America, additional cost reductions, and continued focus on building the AviClear franchise” (CEO) .
“Approximately 925 [AviClear] systems operating under the lease model… ~270 more on a list to be returned… expect that more than half of the original lease installed base… will be returned” (CEO) .
“We currently anticipate a year-over-year improvement in cash burn of over $50 million… related to working capital alone… in 2025” (CEO) .

Q&A Highlights

AviClear international rollout: momentum strong; additional markets expanding via distributors in H2’24; some markets (e.g., Japan) may not launch in 2024 due to regulatory timing .
Skincare partnership in Japan: L’Oréal SkinCeuticals agreement expected to launch Q4’24; meaningful long-term potential but unlikely to reach prior skincare peak levels within 2 years .
Guidance reduction drivers: primarily North America; macro pressures and salesforce turnover each contributed materially .
Cash burn cadence: lower burn in H2’24 vs H1’24, but Q4 burn higher than early 2025 run rate; inventory reduction benefit shifts into 2025 .
Macro detail: financing “shut off” for segments of med spa customers; rates/terms more onerous; medical derm less affected but still challenged .
Sequential cadence to FY guide: Q3 down sequentially from Q2, Q4 back up; guide assumes Q2 conditions as “new normal” .
AviClear NA owned devices >2x utilization vs leased; focus on aesthetic dermatology targets and practice development programs .

Estimates Context

S&P Global consensus estimates for CUTR were unavailable due to missing CIQ mapping, so beat/miss vs Wall Street consensus could not be assessed. Based on company guidance reductions (revenue and year-end cash), Street models likely need to reflect lower FY 2024 revenue and cash assumptions .
Note: S&P Global consensus unavailable for CUTR at time of analysis.

Key Takeaways for Investors

FY 2024 guide cut and delayed inventory cash benefit shift the investment focus to 2025 working capital reversal (> $50M) and cost reductions ($10M incremental annualized) as the primary cash trajectory drivers .
Near-term revenue/margin pressure stems from NA capital weakness and mix shift; watch execution under new SVP North America and stabilization of salesforce productivity .
AviClear presents the clearest growth vector: strong international adoption and improving utilization; NA strategy pivots to ownership in aesthetic dermatology with practice development support (Academy, coop marketing) .
Product cycle support from xeo+ could offset some macro weakness; early demand includes new accounts, not just upgrades, signaling market receptivity .
Legal/litigation flows and one-time items complicate GAAP vs non-GAAP optics; use non-GAAP margins and operating loss to assess underlying trend, noting inventory-related adjustments .
Regional mix trend favoring international markets implies structurally lower gross margin near-term; margin recovery hinges on mix normalization and RF platform sales (True Body, Secret) .
Tactical positioning: avoid near-term surprises given Q3 seasonality and macro “new normal”; potential positive catalysts include incremental AviClear indications, NA ownership conversions, regulatory greenlights in new markets, and visible inventory reduction in 2025 .

CUTERA INC (CUTR)·Q2 2024 Earnings Summary