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CI

CUTERA INC (CUTR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 revenue was $32.5M, down from $34.4M in Q2 and $46.5M in Q3’23; GAAP gross margin compressed to 5.6% and diluted EPS was $(1.94), with results heavily impacted by a $10.1M non‑cash excess and obsolete (E&O) inventory charge and $5.4M bad debt expense .
  • AviClear continued to grow year over year (+16%) with strong international traction (100+ systems sold across ~25 countries; direct-market utilization >9 treatments/device/month), while global core capital grew 7% sequentially; xeo+ launch and Secret RF saw modest sequential upticks .
  • Management reaffirmed FY24 revenue guidance of $140–$145M and YE cash of ~$40M; quarter-end cash, cash equivalents and restricted cash were $59.0M, down from $84.3M at Q2 .
  • Into 2025, management targets a >50% reduction in cash burn, largely via working capital reversal as inventories are worked down; near-term headwinds remain from tight customer financing and softer procedure demand weighing on NA capital purchases .

What Went Well and What Went Wrong

What Went Well

  • International AviClear momentum and early utilization: “We’ve now sold over 100 AviClear systems outside of North America… expanded into ~25 countries… direct markets averaging over 9 treatments per device per month,” signaling encouraging utilization and customer-reported clinical results .
  • Sequential improvement in core capital and early product traction: CEO cited “core capital sales improving on a sequential basis,” plus positive feedback on xeo+ and upticks in Secret RF and truFlex activity .
  • Service excellence as a differentiator: Field service response times improved to 90–100% within 72 hours recently, positioning service capability as a potential competitive advantage .

What Went Wrong

  • Revenue and margin pressure: Q3 revenue fell to $32.5M (vs. $46.5M in Q3’23) with GAAP gross margin at 5.6%; drivers included E&O inventory charge of $10.1M (31 pts of margin) and skincare distribution termination (Q3’23 included $7.1M skincare revenue) .
  • North America capital environment: Continued macro and financing constraints dampened NA capital systems revenue; consumables also declined YoY; CFO highlighted bad debt expense of $5.4M reflecting aging receivables in a tough backdrop .
  • Cash draw and leverage overhang: Cash declined to $59.0M at 9/30 from $84.3M at 6/30; balance sheet shows $420.4M in convertible notes, underscoring the importance of working capital release and cost controls .

Financial Results

Income Statement and EPS (GAAP)

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Revenue ($M)$46.478 $38.793 $34.377 $32.500
Gross Profit ($M)$6.457 $12.419 $7.644 $1.813
Gross Margin %13.9% 32.0% 22.2% 5.6%
Operating Expenses ($M)$47.404 $31.851 $29.448 $38.030
Loss from Operations ($M)$(40.947) $(19.432) $(21.804) $(36.217)
Diluted EPS ($)$(2.22) $(1.14) $(1.23) $(1.94)
  • Non‑GAAP reconciliation: Q3 non‑GAAP gross profit $3.747M (11.6% margin) vs. GAAP $1.813M (5.6%); adjustments included D&A, stock comp, severance .
  • E&O impact: $10.1M non‑cash E&O (≈31 margin pts) in Q3; CFO noted methodology change reserving refurbished AviClear units as a key driver .

Liquidity

MetricQ1 2024Q2 2024Q3 2024
Cash, Cash Equivalents & Restricted Cash ($M)$105.444 $84.311 $58.977

Segment/Product Mix (Q3 YoY)

Product Category ($M)Q3 2023Q3 2024
Total Systems$27.600 $23.024
Consumables$6.248 $4.218
Skincare$7.141 —
Service$5.489 $5.258
Total Net Revenue$46.478 $32.500

Geography Mix (Q3 YoY)

Geography ($M)Q3 2023Q3 2024
North America$24.855 $14.651
Japan$11.529 $3.420
Rest of World$10.094 $14.429
Total Net Revenue$46.478 $32.500

KPIs and One‑time Items

KPIQ3 2024
AviClear systems sold International (cumulative)100+ systems
AviClear countries launched (International)~25
AviClear utilization (direct markets)>9 treatments/device/month
AviClear leased systems outstanding (NA)~785
AviClear returned in Q3 and on return list~140 returned in Q3; ~200 more on list
E&O Non‑cash inventory charge$10.1M
Bad debt expense (Q3)$5.4M
Non‑GAAP Gross Margin11.6%
Cash, cash equivalents & restricted cash$59.0M headline; $58.977M per CF statement

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY2024 (Q1 issued)$160–$170M ——
RevenueFY2024 (Q2 update)$160–$170M (prior) $140–$145M Lowered
RevenueFY2024 (Q3 update)$140–$145M (prior) $140–$145M (reaffirmed) Maintained
YE Cash, Cash Eq. & Restricted Cash12/31/2024 (Q1 issued)~$55–$60M ——
YE Cash, Cash Eq. & Restricted Cash12/31/2024 (Q2 update)~$55–$60M (prior) ~ $40M Lowered
YE Cash, Cash Eq. & Restricted Cash12/31/2024 (Q3 update)~ $40M (prior) ~ $40M (reaffirmed) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 and Q2)Current Period (Q3)Trend
Macro/financingFinancing tightness, sluggish practice volumes; body contouring particularly weak; assumed tougher macro through year “We have not yet seen an easing of credit availability… dampened appetite for capital equipment purchases” Persistent headwind
AviClear InternationalLimited commercial release progressing with high early utilization; >70 systems sold by Q2; utilization >10 treatments/mo for initial cohort 100+ systems across ~25 countries; utilization >9 treatments/device/mo; distributor rollouts broadening Strong, expanding
AviClear NA lease transitionExpect >50% of original leased base to be returned; active winnowing in Q1/Q2 Leased base at ~785 (down ~140 in Q3); ~200 more on return list; focus on ~150 committed accounts for utilization lift Progressing; narrowed focus
Cost structure/working capitalIdentified $20M restructuring savings (Q4’23) + $10M incremental; inventory workdown benefit pushed to 2025; plan >$50M YoY burn improvement via WC Anticipate >50% burn reduction in 2025; begin inventory reduction in Q4’24, larger in 2025 Improving trajectory
Gross margin normalizationQ1 normalized GM ~40%; Q2 normalized GM ~35% (ex reserves) Q3 normalized GM 42% (ex large E&O); GAAP GM 5.6% due to $10.1M E&O Underlying up; reported noisy
Product cycle (xeo+, Secret, truFlex)xeo+ launched; early positive feedback; Secret and body weak in Q1 Continued positive xeo+ feedback; sequential upticks in Secret and truFlex Gradual improvement
Partnerships/SkincareJapan skincare distribution ended; new SkinCeuticals (L’Oréal) partnership planned for Q4 launch in Japan Began selling SkinCeuticals in Japan; immaterial in Q4 but longer-term potential Early launch, LT optionality

Management Commentary

  • Strategic focus reiterated: operational excellence, fully developing AviClear, and improving financial health via cost structure and working capital reductions .
  • CEO emphasized international AviClear traction and utilization as leading indicators of sustainable growth: “Utilization remains strong… an increase versus prior quarters… trends are clearly encouraging” .
  • Service differentiation: “We’ve… achieved 90% to 100% [72‑hour response time]… which we believe puts us into an industry‑leading position” .
  • 2025 cash discipline: “We expect at least a 50% reduction in our burn next year… biggest source… working capital… $50M improvement… even without revenue growth” .
  • Guidance stance: “We’re pleased to be maintaining our guidance… amidst a challenging environment” .

Q&A Highlights

  • Gross margin path: Management framed normalized GM in low‑40% range near term (ex E&O), with improvements driven by volume, mix (consumables, body rebound), and operational efficiencies over time .
  • Inventory charges and refurbs: ~¾ of the $10.1M E&O tied to reserving refurbished AviClear units for the first time; further reserves expected but smaller .
  • 2025 cash burn outlook: At least 50% reduction expected vs. 2024, led by inventory workdown; WC reversal alone targeted at >$50M improvement vs. 2024 .
  • AviClear base “winnowing” and focus accounts: Leased fleet down to ~785 (–~140 in Q3); ~200 slated for return; focusing PDM resources on ~150 high‑commitment accounts to rebuild utilization .
  • 2025 growth framing: International poised to grow; NA growth contingent on field productivity and restarting AviClear under ownership model; macro assumed challenging near term .

Estimates Context

  • S&P Global/Capital IQ consensus for Q3’24 could not be retrieved due to a mapping limitation in the estimates feed; as a result, we cannot present vs‑consensus revenue/EPS comparisons for this quarter. Management reaffirmed FY24 revenue of $140–$145M and YE cash of ~ $40M, which serve as external reference points for the model cadence .
  • Note: We attempted to pull “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q3’24 via S&P Global; data were unavailable due to missing CIQ mapping for CUTR (tool returned error).

Key Takeaways for Investors

  • Q3 was another transitional print: revenue drifted to $32.5M and GAAP GM to 5.6% given a large E&O charge; underlying normalized margin trends remain constructive (low‑40% in Q3) even as reported metrics are noisy .
  • AviClear’s international momentum is the bright spot (100+ systems, ~25 countries, >9 treatments/device/month) and should underpin growth outside NA while NA is rebuilt under the ownership model .
  • Reaffirmed FY24 guide signals control amid macro headwinds; YE cash guide of ~ $40M implies continued cash burn moderation as cost cuts annualize and inventory reduction begins .
  • 2025 setup: >50% cash burn reduction targeted, driven primarily by working capital reversal; this is a key watch‑item/catalyst along with evidence of NA capital recovery and AviClear utilization gains in focus accounts .
  • Near‑term risks: tight financing and softer consumer demand continue to weigh on NA capital sales; recurring consumables tied to AviClear will take time to scale; additional but smaller E&O/bad debt reserves may persist .
  • Execution levers: service differentiation (72‑hour response >90%), xeo+ upgrades, Secret RF/truFlex recovery, and SkinCeuticals Japan partnership provide incremental vectors for stabilization and mix improvement .
  • With estimates unavailable, monitor management’s reiterated FY24 guide, gross margin normalization ex‑E&O, and quarterly cash trends versus the YE ~$40M target as near‑term validation points .

Appendix: Non‑GAAP Adjustments and Definitions (Company)

  • Q3 non‑GAAP items include depreciation and amortization (including contract acquisition costs), stock‑based compensation, severance, and other items; company no longer adjusts for the April 2023 retention plan .
  • Management defines “non‑GAAP operating income (loss)” (adjusted EBITDA) as operating income (loss) before D&A, stock‑based comp, ERP implementation, certain legal/litigation costs, severance, gain on early termination of distribution agreement, and other adjustments .

Citations:

  • Q3’24 earnings press release and financial statements .
  • Q3’24 earnings call (prepared remarks and Q&A) .
  • Q2’24 press release and call for context and guidance history .
  • Q1’24 press release and call for earlier trajectory and guidance baseline .