| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2023
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| Delaware | 77-0492262 | |||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. | |||||
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock ($0.001 par value) | CUTR | The NASDAQ Stock Market, LLC | ||||||
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||||||||
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September 30, 2017 December 31, 2016 Assets Current assets: Cash and cash equivalents Marketable investments Accounts receivable, net Inventories Other current assets and prepaid expenses Total current assets Property and equipment, net Deferred tax asset Intangibles, net Goodwill Other long-term assets Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Deferred revenue Total current liabilities Deferred revenue, net of current portion Income tax liability Other long-term liabilities Total liabilities Commitments and Contingencies (Note 11) Stockholders’ equity: Convertible preferred stock, $0.001 par value; authorized: 5,000,000 shares; none issued and outstanding Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 13,906,439 and 13,773,389 shares at September 30, 2017 and December 31, 2016, respectively Additional paid-in capital Accumulated deficit ) ) Accumulated other comprehensive loss ) ) Total stockholders’ equity Total liabilities and stockholders’ equityinIn thousands, except share, and per share data)(unaudited) $ 14,784 $ 13,775 35,692 40,299 19,604 16,547 23,728 14,977 2,894 2,251 96,702 87,849 1,842 1,907 384 377 — 2 1,339 1,339 381 380 $ 100,648 $ 91,854 $ 5,805 $ 2,598 22,203 17,397 8,801 8,394 36,809 28,389 1,950 1,705 171 168 505 582 39,435 30,844 — — 14 14 81,195 88,114 (19,933 (27,046 (63 (72 61,213 61,010 $ 100,648 $ 91,854 The accompanying notes are an integral part of these unauditeddata and par value)September 30,
2023December 31,
2022Assets Current assets: Cash and cash equivalents $ 179,516 $ 145,924 Marketable investments — 171,390 Accounts receivable, net of allowance for credit losses of $7,985 and $2,497, respectively 49,829 45,562 Inventories, net 61,847 63,628 Other current assets and prepaid expenses 19,415 24,036 Restricted cash 700 700 Total current assets 311,307 451,240 Property and equipment, net 69,923 40,368 Deferred tax assets 528 590 Goodwill 1,339 1,339 Operating lease right-of-use assets 10,690 12,831 Other long-term assets 12,846 14,620 Total assets $ 406,633 $ 520,988 Liabilities and stockholders' deficit Current liabilities: Accounts payable $ 31,373 $ 33,736 Accrued liabilities 47,043 57,452 Operating lease liabilities 2,511 2,810 Deferred revenue 11,479 11,841 Total current liabilities 92,406 105,839 Deferred revenue, net of current portion 1,629 1,657 Operating lease liabilities, net of current portion 9,466 11,352 Convertible notes, net of unamortized debt issuance costs of $10,996 and $12,666, respectively 418,129 416,459 Other long-term liabilities 1,088 862 Total liabilities 522,718 536,169 Commitments and Contingencies (Note 13) Stockholders’ deficit: Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 19,948,803 and 19,668,603 shares at September 30, 2023 and December 31, 2022, respectively 20 20 Additional paid-in capital 130,008 125,406 Accumulated other comprehensive income (loss) — (94) Accumulated deficit (246,113) (140,513) Total stockholders’ deficit (116,085) (15,181) Total liabilities and stockholders’ deficit $ 406,633 $ 520,988
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net revenue: | ||||||||||||||||
Products | $ | 33,486 | $ | 25,493 | $ | 89,688 | $ | 65,903 | ||||||||
Service | 4,687 | 4,788 | 14,173 | 14,278 | ||||||||||||
Total net revenue | 38,173 | 30,281 | 103,861 | 80,181 | ||||||||||||
Cost of revenue: | ||||||||||||||||
Products | 13,859 | 10,160 | 38,843 | 26,804 | �� | |||||||||||
Service | 2,104 | 2,378 | 6,241 | 7,155 | ||||||||||||
Total cost of revenue | 15,963 | 12,538 | 45,084 | 33,959 | ||||||||||||
Gross profit | 22,210 | 17,743 | 58,777 | 46,222 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 13,148 | 10,574 | 36,708 | 30,002 | ||||||||||||
Research and development | 3,467 | 2,914 | 9,393 | 8,335 | ||||||||||||
General and administrative | 3,379 | 2,716 | 10,143 | 9,933 | ||||||||||||
Lease termination income | (4,000 | ) | — | (4,000 | ) | — | ||||||||||
Total operating expenses | 15,994 | 16,204 | 52,244 | 48,270 | ||||||||||||
Income (loss) from operations | 6,216 | 1,539 | 6,533 | (2,048 | ) | |||||||||||
Interest and other income, net | 197 | 166 | 746 | 527 | ||||||||||||
Income (loss) before income taxes | 6,413 | 1,705 | 7,279 | (1,521 | ) | |||||||||||
Provision for income taxes | 225 | 61 | 166 | 115 | ||||||||||||
Net income (loss) | $ | 6,188 | $ | 1,644 | $ | 7,113 | $ | (1,636 | ) | |||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.44 | $ | 0.12 | $ | 0.51 | $ | (0.12 | ) | |||||||
Diluted | $ | 0.42 | $ | 0.12 | $ | 0.48 | $ | (0.12 | ) | |||||||
Weighted-average number of shares used in per share calculations: | ||||||||||||||||
Basic | 13,973 | 13,163 | 13,917 | 13,102 | ||||||||||||
Diluted | 14,767 | 13,544 | 14,733 | 13,102 | ||||||||||||
The accompanying notes are an integral part of these unaudited
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Products | $ | 40,989 | $ | 56,540 | $ | 146,285 | $ | 167,195 | |||||||||||||||
| Service | 5,489 | 6,268 | 16,544 | 17,851 | |||||||||||||||||||
| Total net revenue | 46,478 | 62,808 | 162,829 | 185,046 | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Products | 36,586 | 25,255 | 98,696 | 74,066 | |||||||||||||||||||
| Service | 3,435 | 3,305 | 9,961 | 9,900 | |||||||||||||||||||
| Total cost of revenue | 40,021 | 28,560 | 108,657 | 83,966 | |||||||||||||||||||
| Gross profit | 6,457 | 34,248 | 54,172 | 101,080 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Sales and marketing | 25,808 | 26,488 | 88,591 | 78,433 | |||||||||||||||||||
| Research and development | 4,592 | 6,389 | 16,844 | 19,747 | |||||||||||||||||||
| General and administrative | 17,004 | 10,804 | 47,448 | 35,554 | |||||||||||||||||||
| Total operating expenses | 47,404 | 43,681 | 152,883 | 133,734 | |||||||||||||||||||
| Loss from operations | (40,947) | (9,433) | (98,711) | (32,654) | |||||||||||||||||||
| Interest and other expense, net: | |||||||||||||||||||||||
| Amortization of debt issuance costs | (561) | (400) | (1,670) | (917) | |||||||||||||||||||
| Interest on convertible notes | (2,939) | (1,739) | (8,836) | (3,666) | |||||||||||||||||||
| Loss on extinguishment of convertible notes | — | — | — | (34,423) | |||||||||||||||||||
| Interest income | 2,288 | 1,141 | 6,946 | 1,536 | |||||||||||||||||||
| Other expense, net | (1,948) | (876) | (2,564) | (3,554) | |||||||||||||||||||
| Total interest and other expense, net | (3,160) | (1,874) | (6,124) | (41,024) | |||||||||||||||||||
| Loss before income taxes | (44,107) | (11,307) | (104,835) | (73,678) | |||||||||||||||||||
| Income tax expense | 167 | 827 | 765 | 874 | |||||||||||||||||||
| Net loss | $ | (44,274) | $ | (12,134) | $ | (105,600) | $ | (74,552) | |||||||||||||||
| Net loss per share: | |||||||||||||||||||||||
| Basic | $ | (2.22) | $ | (0.62) | $ | (5.32) | $ | (3.95) | |||||||||||||||
| Diluted | $ | (2.22) | $ | (0.62) | $ | (5.32) | $ | (3.95) | |||||||||||||||
| Weighted-average number of shares used in per share calculation: | |||||||||||||||||||||||
| Basic | 19,932 | 19,593 | 19,858 | 18,897 | |||||||||||||||||||
| Diluted | 19,932 | 19,593 | 19,858 | 18,897 | |||||||||||||||||||
LOSS
(unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income (loss) | $ | 6,188 | $ | 1,644 | $ | 7,113 | $ | (1,636 | ) | |||||||
Other comprehensive income (loss): | ||||||||||||||||
Available-for-sale investments | ||||||||||||||||
Net change in unrealized gains (losses) on available-for-sale investments | 5 | (24 | ) | 13 | 56 | |||||||||||
Less: Reclassification adjustment for gains on investments recognized during the period | — | (1 | ) | (4 | ) | (1 | ) | |||||||||
Net change in unrealized gain and losses on available-for-sale investments | 5 | (25 | ) | 9 | 55 | |||||||||||
Tax provision (benefit) | — | (9 | ) | — | 20 | |||||||||||
Other comprehensive income (loss), net of tax | 5 | (16 | ) | 9 | 35 | |||||||||||
Comprehensive income (loss) | $ | 6,193 | $ | 1,628 | $ | 7,122 | $ | (1,601 | ) | |||||||
The accompanying notes are an integral part of these unaudited
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net loss | $ | (44,274) | $ | (12,134) | $ | (105,600) | $ | (74,552) | |||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Net change in unrealized gain (loss) on available-for-sale investments, net of tax | (4) | (153) | 94 | (336) | |||||||||||||||||||
| Other comprehensive income (loss), net of tax | (4) | (153) | 94 | (336) | |||||||||||||||||||
| Comprehensive loss | $ | (44,278) | $ | (12,287) | $ | (105,506) | $ | (74,888) | |||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 19,668,603 | $ | 20 | $ | 125,406 | $ | (140,513) | $ | (94) | $ | (15,181) | ||||||||||||||||||||||||
| Issuance of common stock for employee purchase plan | 51,786 | — | 711 | — | — | 711 | |||||||||||||||||||||||||||||
| Exercise of stock options | 42,234 | — | 612 | — | — | 612 | |||||||||||||||||||||||||||||
| Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes | 186,180 | — | (3,273) | — | — | (3,273) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 6,552 | — | — | 6,552 | |||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on available-for-sale investments | — | — | — | — | 94 | 94 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | (105,600) | — | (105,600) | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 19,948,803 | $ | 20 | $ | 130,008 | $ | (246,113) | $ | — | $ | (116,085) | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 19,901,600 | $ | 20 | $ | 128,014 | $ | (201,839) | $ | 4 | $ | (73,801) | ||||||||||||||||||||||||
| Issuance of common stock for employee purchase plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Exercise of stock options | 33,000 | — | 465 | — | — | 465 | |||||||||||||||||||||||||||||
| Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes | 14,203 | — | (87) | — | — | (87) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 1,616 | — | — | 1,616 | |||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on available-for-sale investments | — | — | — | (4) | (4) | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | (44,274) | — | (44,274) | |||||||||||||||||||||||||||||
| Balance at September 30, 2023 | 19,948,803 | $ | 20 | $ | 130,008 | $ | (246,113) | $ | — | $ | (116,085) | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 17,995,344 | $ | 18 | $ | 114,724 | $ | (58,173) | $ | — | — | $ | 56,569 | |||||||||||||||||||||||
| Issuance of common stock for employee purchase plan | 27,810 | — | 1,063 | — | — | 1,063 | |||||||||||||||||||||||||||||
| Exercise of stock options | 27,023 | — | 624 | — | — | 624 | |||||||||||||||||||||||||||||
| Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes | 203,226 | — | (4,820) | — | — | (4,820) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 13,021 | — | — | 13,021 | |||||||||||||||||||||||||||||
| Purchase of capped call, inclusive of issuance cost of $353 | — | — | (32,024) | — | — | (32,024) | |||||||||||||||||||||||||||||
| Issuance of common stock in repayment of convertible notes | 1,354,348 | 2 | 55,947 | — | — | 55,949 | |||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on available-for-sale investments | — | — | — | — | (336) | (336) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | (74,552) | — | (74,552) | |||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 19,607,751 | $ | 20 | $ | 148,535 | $ | (132,725) | $ | (336) | $ | 15,494 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 19,560,163 | $ | 20 | $ | 144,628 | $ | (120,591) | $ | (183) | $ | 23,874 | ||||||||||||||||||||||||
| Issuance of common stock for employee purchase plan | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Exercise of stock options | 12,179 | — | 248 | — | — | 248 | |||||||||||||||||||||||||||||
| Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes | 35,409 | — | (586) | — | — | (586) | |||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | 4,245 | — | 4,245 | ||||||||||||||||||||||||||||||
| Purchase of capped call | — | — | — | — | |||||||||||||||||||||||||||||||
| Issuance of common stock in extinguishment of convertible notes | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on available-for-sale investments | — | — | — | (153) | (153) | ||||||||||||||||||||||||||||||
| Net loss | (12,134) | (12,134) | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 19,607,751 | $ | 20 | $ | 148,535 | $ | (132,725) | $ | (336) | $ | 15,494 | ||||||||||||||||||||||||
(unaudited)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 7,113 | $ | (1,636 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Stock-based compensation | 3,623 | 2,652 | ||||||
Depreciation and amortization | 750 | 733 | ||||||
Other | (67 | ) | (45 | ) | ||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (3,048 | ) | (61 | ) | ||||
Inventories | (8,751 | ) | (4,400 | ) | ||||
Other current assets and prepaid expenses | (633 | ) | (690 | ) | ||||
Other long-term assets | (1 | ) | (60 | ) | ||||
Accounts payable | 3,207 | 1,324 | ||||||
Accrued liabilities | 4,757 | 886 | ||||||
Other long-term liabilities | — | (247 | ) | |||||
Deferred revenue | 652 | (1,187 | ) | |||||
Income tax liability | 3 | (18 | ) | |||||
Net cash provided by (used) in operating activities | 7,605 | (2,749 | ) | |||||
Cash flows from investing activities: | ||||||||
Acquisition of property, equipment and software | (443 | ) | (311 | ) | ||||
Disposal of property and equipment | 53 | 17 | ||||||
Proceeds from sales of marketable investments | 9,154 | 6,153 | ||||||
Proceeds from maturities of marketable investments | 39,612 | 20,135 | ||||||
Purchase of marketable investments | (44,156 | ) | (23,944 | ) | ||||
Net cash provided by investing activities | 4,220 | 2,050 | ||||||
Cash flows from financing activities: | ||||||||
Repurchase of common stock | (13,776 | ) | (4,873 | ) | ||||
Proceeds from exercise of stock options and employee stock purchase plan | 4,566 | 6,798 | ||||||
Taxes paid related to net share settlement of equity awards | (1,332 | ) | (601 | ) | ||||
Payments on capital lease obligations | (274 | ) | (218 | ) | ||||
Net cash used in financing activities | (10,816 | ) | 1,106 |
| ||||
Net increase in cash and cash equivalents | 1,009 | 407 | ||||||
Cash and cash equivalents at beginning of period | 13,775 | 10,868 | ||||||
Cash and cash equivalents at end of period | $ | 14,784 | $ | 11,275 | ||||
Supplemental disclosure of non-cash items: | ||||||||
Assets acquired under capital lease | $ | 257 | $ | 580 | ||||
The accompanying notes are an integral part of these unaudited
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | (105,600) | $ | (74,552) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Stock-based compensation | 6,552 | 13,021 | |||||||||
| Depreciation and amortization | 5,225 | 1,603 | |||||||||
| Amortization of contract acquisition costs | 7,085 | 1,815 | |||||||||
| Amortization of debt issuance costs | 1,670 | 917 | |||||||||
| Unrealized gain on foreign exchange forward | — | (292) | |||||||||
| Deferred tax assets | 62 | 152 | |||||||||
| Provision for credit losses | 5,488 | 677 | |||||||||
| Loss on sale of property and equipment | — | 86 | |||||||||
| Loss on extinguishment of convertible notes | — | 34,423 | |||||||||
| Accretion of discount on investment securities and investment income, net | 1,048 | — | |||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | (9,755) | (5,104) | |||||||||
| Inventories | 1,781 | (28,615) | |||||||||
| Other current assets and prepaid expenses | 4,352 | (8,835) | |||||||||
| Other long-term assets | (5,642) | (3,644) | |||||||||
| Accounts payable | (4,735) | 20,442 | |||||||||
| Accrued liabilities | (10,963) | (3,684) | |||||||||
| Operating leases, net | (44) | 46 | |||||||||
| Deferred revenue | (390) | 1,576 | |||||||||
| Net cash used in operating activities | (103,866) | (49,968) | |||||||||
| Cash flows from investing activities | |||||||||||
| Acquisition of property and equipment | (30,642) | (14,107) | |||||||||
| Proceeds from maturities of marketable investments | 193,903 | 47,000 | |||||||||
| Purchase of marketable investments | (23,467) | (252,282) | |||||||||
| Net cash provided by (used in) investing activities | 139,794 | (219,389) | |||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from exercise of stock options and employee stock purchase plan | 1,323 | 1,687 | |||||||||
| Taxes paid related to net share settlement of equity awards | (3,273) | (4,820) | |||||||||
| Purchase of capped call | — | (31,671) | |||||||||
| Payment of issuance costs of capped calls | — | (353) | |||||||||
| Proceeds from issuance of convertible notes | — | 240,000 | |||||||||
| Payment of issuance costs of convertible notes | — | (7,602) | |||||||||
| Extinguishment of convertible notes | — | (45,777) | |||||||||
| Payments on finance lease obligations | (386) | (391) | |||||||||
| Net cash provided by (used in) financing activities | (2,336) | 151,073 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 33,592 | (118,284) | |||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 146,624 | 164,864 | |||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 180,216 | $ | 46,580 | |||||||
| Supplemental non-cash investing and financing activities: | |||||||||||
| Assets acquired under finance lease | $ | 1,428 | $ | 689 | |||||||
| Assets acquired under operating lease | $ | 57 | $ | 549 | |||||||
| Transfer of inventory to property and equipment | $ | — | $ | 12,180 | |||||||
| Acquisition of property and equipment | $ | 6,503 | $ | 5,843 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 6,509 | $ | 2,685 | |||||||
| Cash paid for income taxes | $ | 1,160 | $ | 1,909 | |||||||
Headquartered
Unaudited Interim Financial Information
an unfavorable impact on the Company's overall liquidity. Most recently, the Company reported net losses of $44.3 million and $105.6 million for the three and nine months ended September 30, 2023, respectively. The interimCompany also reported operating losses for the year ended December 31, 2022.
April 7, 2023, and as amended on May 1, 2023.
Recent Accounting Pronouncements Not Yet Adopted
Revenue Recognition
In May 2014,
The standard's core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying this new guidance to contracts within its scope, an entity will: (1) identify the contract(s) with a customer, (2) identify the performance obligationsold in the contract, (3) determineJapanese market. In the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, this new guidance would require significantly expanded disclosures about revenue. The new standard is effective for annual reporting periods (including interim reporting periods within those annual periods) beginning after December 15, 2017. Entities have the option of using either a full retrospective or a modified retrospective approach to adopt this new standard.
While the Company has not completed its evaluation, the Company currently plans to adopt this accounting standard in the first quarter of fiscal year 2018 using the modified retrospective method. Based on the analysis performed through the third quarter of 2017, the Company believes that the timing and measurement of revenue recognition under its contracts with customers for its Products and Services will not change significantly. However, the basis of revenue recognition will change to one based on the transfer of control of products and services. Also based on the analysis performed, the Company expects that incremental contract acquisition costs of obtaining revenue generating contracts, such as sales commissions paid in connection with system sales with multi-year post-warranty service contracts, would be capitalized and amortized over the customer relationship period. Under the current guidance, the Company expenses such costs when incurred. The Company is in the process of calculating the adjustment that would be required for capitalizing the sales commissions to accumulated deficit and completing the analysis and documentation required for the implementation of ASC 606 upon adoption of the standard on January 1, 2018.
The new revenue standard is principle-based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as companies and the accounting profession work to implement this new standard. As the Company completes its evaluation of this new standard, new information may arise that could change the Company’s current understanding of the impact to revenue and expense recognized. Additionally, the Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession and adjust the Company’s assessment and implementation plans accordingly.
The new standard requires comprehensive disclosures of quantitative and qualitative information that enables users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company is in the process of preparing the expanded disclosures required under ASC 606.
Accounting for Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). The new standard also requires expanded disclosures regarding leasing arrangements. The new standard becomes effective for the Company in the first quarter of fiscal year 2019 and early adoption is permitted. The new standard is required to be adopted using the modified retrospective approach and requires application of the new standard at the beginning of the earliest comparative period presented. The Company generally does not finance purchases of equipment or other capital, but does lease some of its facilities. Several of the Company’s customers finance purchases of its system products through third party lease companies and not directly with the Company. The Company does not believe that the new standard will change customer buying patterns or behaviors for its products. The Company expects that upon adoption, right-of-use assets and lease liabilities will be recognized in the balance sheet in amounts that will be material.
Accounting for Income Taxes
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU will be effective for the Company in the first quarter of 2018. This ASU is required to be adopted using the modified retrospective approach, with a cumulative catch-up adjustment to retained earnings in the period of adoption. The Company does not believe that adopting this ASU will have a material impact on the financial Statements.
Adopted Accounting Pronouncement
Beginning fiscal year 2017, the Company adopted ASU No. 2016-09, Improvements to Employee Share-based Payment Accounting, which changes among other things, how the tax effects of share-based awards are recognized. ASU No. 2016-09 requires excess tax benefits and tax deficiencies to be recognized in the provision for income taxes as discrete items in the period when the awards vest or are settled, whereas previously such income tax effects were generally recorded as part of additional paid-in capital. The provision for income taxes for the three and nine months ended September 30, 2017, included excess tax benefits 2023, and 2022, revenue from the distribution of $50,000skincare products was $24.7 million and $160,000,$30.7 million, respectively, representing 15% and 17% of the Company’s consolidated revenue, respectively.
Significant Accounting Policies
There have been no additional new or material changes to the significant accounting policies discussedconsolidated revenue. The Company‘s Ilooda distribution agreement expires in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, that are of significance or potential significance to the Company.
June 30, 2026.
an unrealized gain or loss in other comprehensive income.
September 30, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Market Value | ||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash | $ | 6,703 | $ | — | $ | — | $ | 6,703 | ||||||||
Money market funds | 1,636 | — | — | 1,636 | ||||||||||||
Commercial paper | 6,445 | — | — | 6,445 | ||||||||||||
Total cash and cash equivalents | 14,784 | — | — | 14,784 | ||||||||||||
Marketable investments: | ||||||||||||||||
U.S. government notes | 5,133 | — | (4 | ) | 5,129 | |||||||||||
U.S. government agencies | — | — | — | — | ||||||||||||
Municipal securities | 201 | — | — | 201 | ||||||||||||
Commercial paper | 15,942 | 1 | (1 | ) | 15,942 | |||||||||||
Corporate debt securities | 14,419 | 9 | (8 | ) | 14,420 | |||||||||||
Total marketable investments | 35,695 | 10 | (13 | ) | 35,692 | |||||||||||
Total cash, cash equivalents and marketable investments | $ | 50,479 | $ | 10 | $ | (13 | ) | $ | 50,476 | |||||||
December 31, 2016 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Market Value | ||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Cash | $ | 6,672 | $ | — | $ | — | $ | 6,672 | ||||||||
Money market funds | 6,053 | — | — | 6,053 | ||||||||||||
Commercial paper | 1,050 | — | — | 1,050 | ||||||||||||
Total cash and cash equivalents | 13,775 | — | — | 13,775 | ||||||||||||
Marketable investments: | ||||||||||||||||
U.S. government notes | 8,403 | 4 | (9 | ) | 8,398 | |||||||||||
U.S. government agencies | 3,918 | — | (2 | ) | 3,916 | |||||||||||
Municipal securities | 1,325 | — | — | 1,325 | ||||||||||||
Commercial paper | 12,299 | 2 | (2 | ) | 12,299 | |||||||||||
Corporate debt securities | 14,366 | 3 | (8 | ) | 14,361 | |||||||||||
Total marketable investments | 40,311 | 9 | (21 | ) | 40,299 | |||||||||||
Total cash, cash equivalents and marketable investments | $ | 54,086 | $ | 9 | $ | (21 | ) | $ | 54,074 | |||||||
Amount Due in less than one year Due in 1 to 3 years Total marketable investments credit determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant management judgment or estimation. September 30, 2017 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds Commercial paper Marketable investments: Available-for-sale securities Total assets at fair value December 31, 2016 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds Commercial paper Marketable investments: Available-for-sale securities Total assets at fair value net September 30, 2017 December 31, 2016 Raw materials Finished goods Total September 30, 2017 December 31, 2016 Accrued payroll and related expenses Sales and marketing programs Warranty liability Sales tax Other Total Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Beginning Balance Add: Accruals for warranties issued during the period Less: Warranty related expenses during the period ) ) ) ) Ending Balance The following table provides changes in the deferred Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Beginning Balance Add: Payments received Less: Revenue recognized ) ) ) ) Ending Balance Options Outstanding Shares Available for Grant Number of Stock Options Outstanding Weighted- Average Exercise Price Balance as of December 31, 2016 Additional shares reserved Options granted ) Stock awards granted(1) (2) ) Options exercised ) Options canceled ) Stock awards canceled(1) Balance as of September 30, 2017 Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Stock options Stock awards, net of shares withheld to satisfy employees’ minimum income tax withholding ESPP Total stock issued Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Cost of revenue Sales and marketing Research and development General and administrative Total stock-based compensation expense Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Numerator Net income (loss) ) Denominator Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic Dilutive effect of incremental shares and share equivalents Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted Net income (loss) per share: Net income (loss) per share, basic ) Net income (loss) per share, diluted ) Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Options to purchase common stock Restricted stock units Performance stock units Employee stock purchase plan shares Total Year Ending September 30, Amount 2018 2019 2020 2021 2022 2023 and beyond Total future minimum lease payments defend the Company against these claims and, as a result, the Company has not incurred significant external legal costs. The Company is defending against these claims vigorously. Given the inherent uncertainties of litigation, the Company cannot guarantee that it will not be held liable for infringing one or more claims of Serendia patents. If the Company is held liable for infringement, it may be subject to monetary damages and/or an injunction prohibiting the importation or sale of the applicable products in the United States. Three Months Ended Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Net revenue % % % % Cost of revenue % % % % Gross margin % % % % Operating expenses: Sales and marketing % % % % Research and development % % % % General and administrative % % % % Lease termination income )% )% Total operating expenses % % % % Income (loss) from operations % % % )% Interest and other income, net % % % Income (loss) before income taxes % % % )% Provision for income taxes % % % % Net income (loss) % % % )% Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 Revenue mix by geography: United States % % Rest of World % Consolidated total revenue % % United States as a percentage of total revenue % % % % Rest of World as a percentage of total revenue % % % % Revenue mix by product category: Systems – North America % % Systems – International % Total Systems % % Service )% )% Hand Piece Refills )% )% Skincare % % Consolidated total revenue % % World revenue decreased by $4.2 million, or 29%, in the three months ended September 30, 2023, compared to the same period in 2022. The Company’s Rest of World revenue decreased by $1.7 million, or 4%, in the nine months ended September 30, 2023, compared to the same period in 2022 driven by declining System sales in global distributor markets and Australia. Japan effective immediately. Refer to service contracts. Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 Gross profit % % As a percentage of total net revenue % % % % a result of the Company’s Skincare revenue being denominated in Japanese Yen and costs being dominated in U.S. Dollars; Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 Sales and marketing % % As a percentage of total net revenue % % % % Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended workshops and trade shows, post-marketing studies, advertising, and and $3.1 million, respectively. Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 Research and development % % As a percentage of total net revenue % % % Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 General and administrative $ 3,379 24 % $ 2,716 $ 10,143 2 % $ 9,933 As a percentage of total net revenue 9 % 9 % 10 % 12 % 2023. Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 Interest income % % Other income (expense), net )% % Total interest and other income, net % % Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2017 % Change 2016 2017 % Change 2016 Income (loss) before income taxes % % ) Provision for income taxes % % (Dollars in thousands) September 30, December 31, 2016 Change Cash and cash equivalents Marketable investments ) Total ) Nine Months Ended September 30, (Dollars in thousands) 2017 2016 Net cash flow provided by (used in): Operating activities ) Investing activities Financing activities ) Net increase (decrease) in cash and cash equivalents resulted from an increase in accounts receivable and decreases in accounts payable and accrued liabilities, reflecting proactive measures by the Company's management to settle payables and obligations. attributable to the net sale of marketable investments of $170.4 million, partially offset by an $30.6 million increase in the AviClear device and assets under construction balances. to taxes paid related to net share settlement of equity awards. accompanying notes to the Company's condensed consolidated financial statements for more information. Commitments and Contingencies Payments Due by Period ($’000’s) Contractual Obligations Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years Limitations on the Effectiveness of Controls met. Period Total Number Average Price Paid per Share Total Number of Publicly Announced Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Program July 1-31, 2017 — — — 28,110 August 1-31, 2017 109 34.71 109 24,340 September 1-30, 2017 76 38.99 76 21,380 July 1, 2017 - September 30, 2017 $ 36.47 185 $ 21,380 Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Linkbase Document Inline XBRL Taxonomy Extension Definition Linkbase Document Inline XBRL Taxonomy Extension Label Linkbase Document Inline XBRL Taxonomy Extension Presentation Linkbase Document As of Gross Gross Fair Amortized Unrealized Unrealized Market September 30, 2023 Cost Gains Losses Value Cash and cash equivalents N/A N/A N/A $ 179,516 Current restricted cash N/A N/A N/A 700 Cash, cash equivalents, and restricted cash as reported within the Condensed Consolidated Statements of Cash Flows N/A N/A N/A 180,216 Total $ 180,216 Gross Gross Fair Amortized Unrealized Unrealized Market December 31, 2022 Cost Gains Losses Value Cash and cash equivalents N/A N/A N/A $ 145,924 Current restricted cash N/A N/A N/A 700 Cash, cash equivalents, and restricted cash as reported within the Condensed Consolidated Statements of Cash Flows N/A N/A N/A 146,624 Marketable investments - U.S. Treasury 171,484 8 (102) 171,390 Total $ 318,014 20172023 and December 31, 2016, total gross2022, net unrealized losses were $13,000zero and $21,000,$0.1 million, respectively, and were related to interest rate changes on available-for-sale marketable investments. The Company has concluded that it is more- likely- than- notmore-likely-than-not that the securities will be held until maturity or the recovery of their cost basis. No securities were in an unrealized loss position for more than 12 months.The following table summarizes the contractual maturitiesthe Company’s available-for-sale securities, classified as marketable investments as of September 30, 2017 (in thousands): $ 30,410 5,282 $ 35,692 Fairis defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. including cash and cash equivalents.distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based oncontains the best information available in the circumstances (unobservablefollowing three levels of inputs). The that may be used to measure fair value, hierarchy consists of three broad levels,in accordance with ASC 820:gives the highest priority to unadjustedinclude quoted prices in active markets for identical assets or liabilities;(quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and1) and the lowest priority to3 inputs, which include unobservable inputs (Level 3). The three levels ofthat are supported by little or no market activity and that are significant to the fair value hierarchyof the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are described below:●Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.●Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.●Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.considersconsidering counterparty credit risk in its assessment of fair value.2017,2023, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands): $ 1,636 $ — $ — $ 1,636 — 6,445 — 6,445 — 35,692 — 35,692 $ 1,636 $ 42,137 $ — $ 43,773 September 30, 2023 Level 1 Level 2 Cash equivalents: Money market funds $ 164,126 $ — Total $ 164,126 $ — 2016,2022, financial assets and liabilities measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above waswere as follows (in thousands): $ 6,053 $ — $ — $ 6,053 — 1,050 — 1,050 — 40,299 — 40,299 $ 6,053 $ 41,349 $ — $ 47,402 December 31, 2022 Level 1 Level 2 Cash equivalents: Money market funds $ 26,408 $ — Marketable investments: Available-for-sale securities 171,390 — Derivative liabilities: Foreign exchange forward — (558) Total $ 197,798 $ (558) 10The Company’s Level 2 investments include U.S. government-backed securitiesSee Note 14 - Debt for the carrying amount and corporate securities that are valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. The weighted average remaining maturityestimated fair value of the Company’s Level 2 investments as2.25% Convertible Senior Notes due 2026 (the “2026 Notes”), the 2.25% Convertible Senior Notes due 2028 (the “2028 Notes”), and the 4.00% Convertible Senior Notes due 2029 (the “2029 Notes”).2017 is less than 1 year and all of these investments are rated by S&P and Moody’s at A- or better.2023, the Company did not have any foreign currency exchange forward contracts outstanding. At December 31, 2022, the following foreign exchange forward was outstanding (in thousands):December 31, 2022 Classification Foreign Exchange Forward Gross notional amount N/A $ 6,128 Fair value Accrued liabilities $ 558 Unrealized loss Other income (expense), net $ (558) 4.5. Balance Sheet Details20172023 and December 31, 2016,2022, inventories consistconsist of the following (in thousands): $ 18,201 $ 10,966 5,527 4,011 $ 23,728 $ 14,977 Accrued LiabilitiesAsSeptember 30,
2023December 31,
2022Raw materials $ 37,216 $ 36,323 Work in process 1,349 2,117 Finished goods 23,282 25,188 Total $ 61,847 $ 63,628 December 31, 2016, accrued liabilities consist prepaid expenses $ 10,869 $ 9,036 3,060 706 2,940 2,461 2,206 2,373 3,128 2,821 $ 22,203 $ 17,397 Note 5. WarrantySeptember 30,
2023December 31,
2022Deposits with vendors $ 10,830 $ 13,917 Foreign tax receivable 4,683 7,147 Prepayments 3,902 2,972 Total $ 19,415 $ 24,036 September 30,
2023December 31,
2022Leasehold improvements $ 819 $ 793 AviClear devices 40,647 19,904 Office equipment and furniture 1,874 1,936 Machinery and equipment 6,879 5,106 Assets under construction 29,570 17,876 79,789 45,615 Less: Accumulated depreciation (9,866) (5,247) Property and equipment, net $ 69,923 $ 40,368 provides a standard one-year warranty on all systems. For direct salesconcluded that an impairment was not required in the three months ended September 30, 2023. An impairment may potentially result in partial or full write-down of these balances. The Company will continue to end customers, warranty coverage provided is for labormonitor financial results and market capitalization. Should the financial results continue to deteriorate, an impairment of goodwill and property and equipment may become reasonably possible to record in the future. The Company's goodwill balance as of each of September 30, 2023 and December 31, 2022 was $1.3 million.necessary to repairand devices not placed in service.systems during the warranty period. For sales to distributors, we provide a following (in thousands):September 30,
2023December 31,
2022Compensation and payroll-related accruals $ 16,106 $ 18,951 Sales and marketing accruals 4,877 5,347 Liability for inventory in transit 3,490 7,028 Accrued interest 3,469 1,851 Product warranty 2,792 3,254 Accrued sales tax 4,854 9,066 Other accrued liabilities 11,455 11,955 Total $ 47,043 $ 57,452 to 16 month warranty for parts only. The distributor provides the labor to their end customer.the U.S.North America (including Canada). Internationally, the Company provides direct service support through its wholly-owned subsidiaries in Australia, Austria, Belgium, Canada, France, Germany, Hong Kong, Japan, the Netherlands, Spain, Switzerland, and the United Kingdom. In several other countries, where itthe Company does not have a direct presence, the Company provides service through a network of distributors and third-party service providers.aan extended service contract basis or on a time and materials basis. The Company provides for the estimated cost to repair or replace products under standard warranty at the time of sale. Costs incurred in connection with extended service contracts are generally recognized at the time when costs are incurred.20172023 and 20162022 (in thousands): $ 2,877 $ 2,000 $ 2,461 $ 1,819 959 1,202 5,038 3,634 (896 (1,102 (4,559 (3,353 $ 2,940 $ 2,100 $ 2,940 $ 2,100 Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Beginning Balance $ 3,104 $ 4,189 $ 3,254 $ 3,947 Add: Accruals for warranties issued during the period 1,076 1,235 3,626 4,467 Less: Settlements made during the period (1,388) (1,622) (4,088) (4,612) Ending Balance $ 2,792 $ 3,802 $ 2,792 $ 3,802 6.7. Deferred Service Contract Revenuegenerates Servicerecords deferred revenue from the sale ofwhen revenue is to be recognized subsequent to invoicing. For extended service contracts, and from time and material services provided tothe Company generally invoices customers who are not under a warranty orat the beginning of the extended service contract. Service contract term. The Company’s extended service contracts typically have one to three-year terms. Deferred revenue isalso includes payments for training not yet delivered. Approximately 88% of the Company’s deferred revenue balance of $13.1 million as of September 30, 2023 will be recognized on a straight-line basis over the period of the applicable contract. Service revenue from time and material services is recognized as the services are provided.next 12 months.service contract revenue balance for the three and nine month ended September 30, 2017 and 2016 (in thousands): $ 10,013 $ 10,223 $ 9,431 $ 10,469 3,178 2,517 10,290 8,825 (3,233 (3,447 (9,763 (10,001 $ 9,958 $ 9,293 $ 9,958 $ 9,293 Costs incurred by the Company for servicing extended service contracts were $1.2 million and $1.7 million for the three months ended September 30, 2017 and 2016, respectively; and $4.2 million and $4.9 million for the nine months ended September 30, 2017 and 2016, respectively.Note 7. Stockholders’ Equity and Stock-based Compensation ExpenseAmended and Restated 2004 Equity Incentive PlanThe Company’s Board of Directors (“Board”) and stockholders approved the amendment and restatement of the 2004 equity incentive plan (“Amended and Restated 2004 Equity Incentive Plan”) in April and June 2017, respectively. The amendments included the extension of the term of the plan to the date of the annual meeting of the Company’s stockholders in 2022, an increase in the number of shares available for future grant by 1,600,000 shares, and other terms of the plan. The Amended and Restated 2004 Equity Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units ("RSUs"), stock appreciation rights, performance stock units ("PSUs"), performance shares, and other stock or cash awards.Activity under the Company’s Amended and Restated 2004 Equity Incentive Plan for the nine months ended September 30, 2017 is summarized as follows: 721,657 1,116,472 $ 9.56 1,600,000 (154,000 154,000 21.82 (558,694 — (447,673 8.90 53,393 (53,393 16.58 110,278 1,772,634 769,406 $ 11.91 (1)The Company has a “fungible share” provision in its Amended and Restated 2004 Equity Incentive Plan whereby for each full-value award issued or canceled under the Amended and Restated 2004 Equity Incentive Plan requires the subtraction or addition of 2.12 shares from or to the shares available for grant, as applicable.(2)Included in the 'Stock awards granted' total of 558,694, are 221,540 fungible shares relating to 104,500 of PSUs granted. These PSUs may result in a lower number of shares of common stock that may be released on January 1, 2018, based on PSUs forfeited due to employment terminations and the degree of achievement of two performance goals compared to targets that were pre-determined by the Board and disclosed in a Current Report on Form 8-K filed with the SEC on January 11, 2017.As of September 30, 2017, unrecognized compensation expense, net of projected forfeitures, related to non-vested equity awards issued under the Company’s Amended and Restated 2004 Equity Incentive Plan and the 2004 Employee Stock Purchase Plan (“ESPP”), was approximately $4.9 million. This expense is expected to be recognized over the remaining weighted-average period of 1.88 years. The actual expense recorded in the future may be higher or lower based on a number of factors, including, actual forfeitures experienced and the degree of achievement of the performance goals related to the granted PSUs.Pursuant to the Company’s Amended and Restated 2004 Equity Incentive Plan and the ESPP, the Company issued the following number of shares of common stock during the three and nine months ended September 30, 2017 and 2016: 77,511 413,588 447,673 706,522 9,881 8,107 152,972 114,832 — — 51,185 41,980 87,392 421,695 651,830 863,334 Stock Repurchase ProgramOn February 8, 2016, the Company announced that Board approved the expansion of its Stock Repurchase Program by $10 million, under which the Company is authorized to repurchase shares of its common stock. As of December 31, 2016, there remained an additional $5.1 million in the Stock Repurchase Program to use for repurchasing the Company’s common stock. On February 13, 2017 and July 28, 2017 the Company’s Board of Directors approved the expansion of its Stock Repurchase Program by an additional $5 million and $25 million, respectively.In the three and nine months ended September 30, 2017, the Company repurchased 184,536 and 518,780 shares of its common stock for approximately $6.7 million and $13.8 million, respectively. As of September 30, 2017, there remained an additional $21.4 million available in the Stock Repurchase Program to repurchase shares of common stock. All shares repurchased were retired and returned to authorized but unissued status.Stock-based Compensation ExpenseStock-based compensation expense by department recognized during the three and nine months ended September 30, 2017 and 2016, were as follows (in thousands): $ 101 $ 73 $ 377 $ 254 394 239 1,215 844 157 131 633 416 345 127 1,398 1,138 $ 997 $ 570 $ 3,623 $ 2,652 Note 8. Lease Termination IncomeOn May 2, 2017, the Company entered into a building lease with the intent to relocate its corporate headquarters to a new facility in Fremont, California. On July 6, 2017, the Company agreed to terminate this lease in return for a lump sum receipt from the lessor of $4.0 million. Simultaneously with the execution of the lease termination, the Company entered into an amendment to its existing lease agreement for the Company to maintain its corporate headquarters in its current facility in Brisbane, California. This amendment extends the term of the lease from December 31, 2017 to January 31, 2023. The $4.0 million is reported as “Lease termination income,” as a component of operating expenses, in the Company’s Condensed Consolidated Statements of Operations for the three and nine month periods ending September 30, 2017.Note 9. Net Income (Loss) Per ShareBasic net income (loss) per share is computed using the weighted-average number of shares outstanding during the period. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money equity awards (stock options, restricted stock units, performance stock units and employee stock purchase plan contributions), which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for the equity award, and the amount of compensation cost for future service that the Company has not yet recognized, are all assumed to be used to repurchase shares. Diluted earnings per share is the same as basic earnings per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-dilutive.The following table sets forth the computation of basic and diluted net income (loss) and the weighted average number of shares used in computing basic and diluted net income (loss) per share (in thousands, except per share data): $ 6,188 $ 1,644 $ 7,113 $ (1,636 13,973 13,163 13,917 13,102 794 381 816 — 14,767 13,544 14,733 13,102 $ 0.44 $ 0.12 $ 0.51 $ (0.12 $ 0.42 $ 0.12 $ 0.48 $ (0.12 The following numbers of weighted shares outstanding, prior to the application of the treasury stock method, were excluded from the computation of diluted net income (loss) per common share for the period presented because including them would have had an anti-dilutive effect (in thousands): 42 1,740 31 1,952 — 334 6 395 — 64 — 81 — 40 — 83 42 2,178 37 2,511 Note 10. Income TaxesThe Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. When applicable, the year-to-date tax provision reflects adjustments from discrete tax items. In the quarter ended December 31, 2016, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. As a result of the adoption of the ASU No. 2016-09, the nine months ended September 30, 2017 tax provision includes the discrete accounting of the net tax benefit of excess compensation cost (“windfalls”). In the periods prior to the adoption of ASU No. 2016-09, the tax benefit of windfalls and tax deficiencies (“shortfalls”) were recorded in equity to the extent of previous windfalls, and then to the income statement.For the nine- month period ended September 30, 2016, the Company used a discrete effective tax rate method to calculate the provision for income taxes. The Company determined that since small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the fiscal nine-month period ended September 30, 2016.The Company’s income tax expense of $225,000 and $166,000 for the three and nine months ended September 30, 2017, respectively,2023 and 2022 (in thousands):Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Beginning balance $ 14,007 $ 11,527 $ 13,498 $ 10,825 Add: Payments received from current period sales 5,005 5,738 15,140 14,755 Less: Revenue recognized from current period sales (405) (487) (4,902) (4,569) Less: Revenue recognized from beginning balance (5,499) (4,377) (10,628) (8,610) Ending balance $ 13,108 $ 12,401 $ 13,108 $ 12,401 primarily to the Company’s U.S.AviClear contracts are deferred and non-U.S. operations based onrecognized over the annual effective tax rate method. In addition, itlease periods. The AviClear deferred license fee balance included a tax benefit for excess tax deductions of approximately $50,000 and $160,000 recorded discretely in the three and nine months endedtotal deferred revenue balance at September 30, 2017,2023, and December 31, 2022, was $3.2 million and $2.3 million, respectively. The Company’s income tax expense2016 was $61,000 and $115,000,2023, respectively, and related primarily to income taxes of the Company’s non-U.S. operations.The Company utilizes the assetwere $1.4 million and liability method of accounting$4.6 million for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statementthree and tax basis of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. Significant management judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considered available positive and negative evidence giving greater weight to its recent historical financial results and lesser weight to its projected financial results, due to the subjectivity involved in forecasting future periods. The Company also considered, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. As ofnine months ended September 30, 2017 and December 31, 20162022, respectively.Company had a 100% valuation allowance against its U.S. deferred tax assets. In the near future, as and when the Company concludes that sufficient positive evidence, including its estimate of future taxable income, existsconsideration to support a reversal of all or a portion of the valuation allowance, thenwhich the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that a significant portion of any releaseare transferred to customers over time accounted for approximately 13% and 10% of the valuation allowance will be recorded as an income tax benefit at the time of release, which will have a material impact on the financial statements. Thereafter, the income tax expense recorded in future quarters could also be significantly higher than it has been since fiscal year 2009, when we recorded a valuation allowance for our U.S. deferred tax assets. Note 11. Commitments and ContingenciesOperating LeasesThe Company leases space for operations in United States, Japan and France. Future minimum lease commitments under the Company’s facility operating leases as of September 30, 2017 were as follows (in thousands): $ 2,446 2,677 2,743 2,593 2,477 838 $ 13,774 In addition to the above facility leases, the Company also routinely leases automobiles for certain sales and field service employees under operating leases for which the remaining committed lease payments are not material.ContingenciesThe Company is named from time to time as a party to product liability, contractual lawsuits and other general corporate matters in the normal course of business. The Company routinely assesses the likelihood of any adverse judgments or outcomes related to legal matters and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that the Company shall incur a loss, and whether the loss is estimable. As of September 30, 2017, there were no material exposures beyond the amounts accrued in thefinancial statements.The Company is not currently a party to any material legal proceedings.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCaution Regarding Forward-Looking StatementsThis Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. The words “believe,” “potential,” “forecast,” “project,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could,” “may,” “estimate,” “project” or other similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we anticipate. All discussion concerning our expectations for future revenues and operating results are based on our forecasts for our existing operations. These forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions. They are subject to change based on various factors, including but not limited to the risks and uncertainties summarized below:●changes in our common stock price;●changes in our profitability;●regulatory activities and announcements, including the failure to obtain regulatory approvals for our new products;●effectiveness of our internal controls over financial reporting;●fluctuations in future quarterly operating results;●failure to comply with, or changes in, laws, regulations or administrative practices affecting government regulation of our products, including, but not limited to, United States Food and Drug Administration laws and regulations;●failure to establish, expand or maintain market acceptance or payment for the purchase of our products;●failure to maintain the current regulatory approvals for our indications;●unfavorable results from clinical studies;●variations in sales and operating expenses relative to estimates;●our dependence on certain suppliers and manufacturers to provide certain materials, components and contract services necessary for the production of our products;●product liability-related losses and costs;●protection, expiration and validity of our intellectual property;●changes in technology, including the development of superior or alternative technology or devices by competitors;●failure to comply with applicable domestic laws and regulations, including federal and state privacy and security laws and regulations;●failure to comply with foreign laws and regulations;●international operational and economic risks and concerns;●failure to attract or retain key personnel;●losses or costs from pending or future lawsuits and governmental investigations;●changes in accounting rules that adversely affect the characterization of our consolidated results of income, financial position or cash flows;●changes in customer spending patterns;●continued volatility in the global market and worldwide economic conditions;●changes in tax laws or exposure to additional income tax liabilities;●failure to adequately secure our information technology systems from hacker intrusion, malicious viruses and other cybercrime attacks; and●weather or natural disasters that interrupt our business operations or the business operations of our customers.Other factors that could cause our actual results to differ from our projected results are described in (1) “Part II, Item 1A. Risk Factors” and elsewhere in this Form 10-Q, (2) our Annual Report on Form 10-K for the period ended December 31, 2016 (“2016 Form 10-K”), (3) our reports and registration statements filed and furnished from time to time with the U.S. Securities and Exchange Commission (“SEC”) and (4) other announcements we make from time to time.Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. You should read the following discussion and analysis in conjunction with our unaudited Condensed Consolidated Financial Statements and related notes included elsewhere in this report. Operating resultstotal revenue for the three and nine months ended September 30, 2017 are not necessarily indicative of future results, including2023, respectively, and 8% and 7% for the full fiscal year. You should also refer to our “Annual Consolidated Financial Statements,” “Notes” thereto, “Management’s Discussionthree and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our 2016 Form 10-K.16IntroductionManagement’s DiscussionCompany has certain system sale arrangements that contain multiple products and Analysis,services. For these bundled sale arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct. The Company’s products and services are distinct if a customer can benefit from the product or MD&A,service on its own or with other resources that are readily available to the customer, and if the Company’s promise to transfer the products or service to the customer is organized as follows:●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.●Critical Accounting Policies and Estimates. This section describes the key accounting policies that are affected by critical accounting estimates.●Results of Operations. This section provides our analysis and outlook for the significant line items on our Condensed Consolidated Statements of Operations.●Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a discussion of our commitments.Executive SummaryCompany DescriptionWe are a leading medical device company specializingseparately identifiable from other promises in the research, development, manufacture,sale arrangements. The Company’s system sale arrangements can include all or a combination of the following performance obligations: the system and software license (considered one performance obligation), system accessories (hand pieces), training, AviClear license agreements, other accessories, extended service contracts, marketing services, and servicingtime and materials services.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 treatmentservice commences at the expiration of vascular conditions and removalthe Company’s standard warranty offered at the time of benign pigmented lesions, hair removal, skin rejuvenation, body contouring, skin resurfacing, tattoo removal and toenail fungus treatment. Our platformsthe system sale. The Company considers the extended service contracts terms in the arrangements that are designedlegally enforceable to be easily upgradedperformance obligations. Other than extended service contracts and marketing services, which are satisfied over time, the Company generally satisfies all performance obligations at a point in time. Systems, system accessories (hand pieces), service contracts, training, and time and materials services are also sold on a stand-alone basis. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to add applicationseach performance obligation on a relative standalone selling price basis.hand pieces, which provide flexibility for our customers as they expand their practices. The salesreceives a fixed annual lease fee over the term of systems, system upgrades, hand pieces, hand piece refills (applicablethe arrangement and variable revenue related to Titanthe treatments performed by the lessee.truSculpt) and the distribution of third party manufactured skincare products are classified as “Products” revenue. In addition to ProductsServiceswe generate revenueis generated from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titansystems andtruSculpt) and service labor for the repair and maintenance of products that are out of warranty, all of which is classified as “Service” revenue.Our corporate headquarters and U.S. operations are located in Brisbane, California, where we conduct our manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative activities. We have wholly-owned subsidiaries located in Australia, Belgium, Canada, France, Hong Kong, Japan, Switzerland and the United Kingdom. We market, sell and service our products outside of the United States through our direct employees, third party service providers, as well as a global distributor network in over 40 countries.Products and ServicesOur revenue is derived from the sale of Products and Services. Our Products revenue is derived from the sale of Systems, Hand Piece Refills (applicableupgrades to Titan and truSculpt) and the distribution of third party manufactured Skincare products. Systems revenue includes the sales of new systems and additional applications that customers purchase as their practice grows.existing systems. A system consists of a console that incorporates a universal graphic user interface, a laser and/or other energy-based module, control system software and high voltage electronics, andas well as one or more hand pieces. Our primaryIn certain applications, the laser or other energy-based module is contained in the hand piece, rather than within the console.platforms include:●enlighten●excel HR●truSculpt●excel V●xeoOther thanthat best fits their practice at the above mentioned five primarytime of purchase and then to cost-effectively add applications to their system as their practice grows. This provides customers the flexibility to upgrade their systems we continuewhenever they choose and provides the Company with a source of additional Systems revenue.generateuse the embedded software represent a single performance obligation as the software license is integral to the functionality of the system or upgrade.our legacythe distribution of skincare products, such as GenesisPlusTM, CoolGlide®which are manufactured by ZO Skin Health, Inc. (“ZO”), and a third-party sourced system called myQ®sold in the Japanese market to medical offices and licensed physicians. The Company warrants that the skincare products are free of significant defects in workmanship and materials for 90 days from shipment. The Company acts as the principal in this arrangement, as the Company determines the price to charge customers for the Japanese market. We have renewed ourskincare products and controls the products before they are transferred to the customer. The Company recognizes revenue for skincare products at a point in time upon shipment.myQ in Japana system, which consist primarily of commissions and related payroll taxes, are capitalized, and amortized on a non-exclusivestraight-line basis throughover the expected period of benefit, except for costs that are recognized when product is sold. The Company uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally two to three years.2018. 2023 and December 31, 2022 were $2.8 million and $3.8 million, respectively, and are included in Other long-term assets in the Company’s condensed consolidated balance sheet. Amortization expense for these assets was $0.6 million and $1.9 million during the three and nine months ended September 30, 2023, respectively, and $0.6 million and $1.8 million during the three and nine months ended September 30, 2022, respectively. The amortization related to these capitalized costs is included in sales and marketing expense in the Company’s condensed consolidated statement of operations.Shares
Available
for GrantBalance, December 31, 2022 1,070,925 Additional shares reserved 3,800,000 Options and stock awards granted (2,048,037) Stock awards canceled / forfeited / expired 378,128 Options canceled / forfeited / expired 189,705 Balance, September 30, 2023 3,390,721 Options Outstanding Number of
Stock Options
OutstandingWeighted-
Average
Exercise
PriceWeighted Average Remaining Term
(in Years)Balance, December 31, 2022 513,935 $ 34.41 6.63 Options granted 1,099,075 $ 13.27 Options exercised (42,234) $ 14.50 Options canceled / forfeited / expired (189,705) $ 30.26 Balance, September 30, 2023 1,381,071 $ 18.77 8.44 Stock Awards Outstanding Number of Awards Outstanding Weighted Average Grant Date Fair Value per Share Balance, December 31, 2022 906,211 $ 40.39 Stock awards granted 752,492 $ 15.72 Awards released (284,231) $ 35.54 Stock awards canceled / forfeited / expired (378,128) $ 39.38 Balance, September 30, 2023 996,344 $ 23.50 Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Cost of revenue $ (19) $ 471 $ 706 $ 1,430 Sales and marketing 593 1,641 3,024 3,855 Research and development (178) 466 930 2,513 General and administrative 1,220 1,667 1,892 5,223 Total stock-based compensation expense $ 1,616 $ 4,245 $ 6,552 $ 13,021 our Titanthe three and truSculpt hand pieces, afternine months ended September 30, 2023 and September 30, 2022, a setbasic loss per common share and diluted loss per common share are the same in each period as the inclusion of any potentially issuable shares would be anti-dilutive.Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Numerator: Net loss used in calculating net loss per share, basic $ (44,274) $ (12,134) $ (105,600) $ (74,552) Denominator: Weighted average shares of common stock outstanding used in computing net loss per share, basic 19,932 19,593 19,858 18,897 Dilutive effect of incremental shares and share equivalents: Convertible notes — — — — Options — — — — RSUs — — — — PSUs — — — — ESPP — — — — Weighted average shares of common stock outstanding used in computing net loss per share, diluted 19,932 19,593 19,858 18,897 Net loss per share: Net loss per share, basic $ (2.22) $ (0.62) $ (5.32) $ (3.95) Net loss per share, diluted $ (2.22) $ (0.62) $ (5.32) $ (3.95) Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Capped call 10,780 8,724 10,780 8,724 Convertible notes 8,697 6,640 8,697 6,640 Options 1,381 521 1,381 521 RSU's 756 488 756 488 PSU's 240 470 240 470 ESPP 72 22 72 22 Total 21,926 16,865 21,926 16,865 Leases Classification September 30,
2023December 31,
2022Assets Right-of-use assets Operating lease right-of-use assets $ 10,690 $ 12,831 Finance lease Property and equipment, net 1,825 1,606 Total leased assets $ 12,515 $ 14,437 Liabilities Classification September 30,
2023December 31,
2022Operating lease liabilities Operating lease liabilities, current Operating lease liabilities $ 2,511 $ 2,810 Operating lease liabilities, non-current Operating lease liabilities, net of current portion 9,466 11,352 Total Operating lease liabilities $ 11,977 $ 14,162 Finance lease liabilities Finance lease liabilities, current Accrued liabilities $ 818 $ 485 Finance lease liabilities, non-current Other long-term liabilities 1,052 825 Total Finance lease liabilities $ 1,870 $ 1,310 Three Months Ended
September 30,Nine Months Ended
September 30,Lease costs Classification 2023 2022 2023 2022 Finance lease cost Amortization expense $ 209 $ 148 $ 507 $ 487 Finance lease cost Interest for finance lease $ 23 $ 17 $ 61 $ 54 Operating lease cost Operating lease expense $ 921 $ 883 $ 2,701 $ 2,678 Nine Months Ended
September 30,Cash paid for amounts included in the measurement of lease liabilities Classification 2023 2022 Operating cash flow Finance lease $ 62 $ 56 Financing cash flow Finance lease $ 386 $ 391 Operating cash flow Operating lease $ 2,449 $ 1,682 As of September 30, 2023 Amount Remainder of 2023 $ 814 2024 2,924 2025 2,932 2026 3,027 2027 3,130 2028 and thereafter 462 Total lease payments 13,289 Less: imputed interest 1,312 Present value of lease liabilities $ 11,977 As of September 30, 2023 Amount Remainder of 2023 $ 251 2024 878 2025 600 2026 341 Total lease payments 2,070 Less: imputed interest 200 Present value of lease liabilities $ 1,870 Lease Term and Discount Rate September 30, 2023 Weighted-average remaining lease term (years) Operating leases 4.4 Finance leases 2.5 Weighted-average discount rate Operating leases 4.8 % Finance leases 8.9 % Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 AviClear operating lease license fee revenue $ 1,324 $ 246 $ 3,916 $ 285 AviClear operating lease revenue 2,565 909 8,504 1,006 Total AviClear revenue $ 3,889 $ 1,155 $ 12,420 $ 1,291 As of September 30, 2023 Amount Remainder of 2023 $ 1,082 2024 5,924 2025 3,476 Total AviClear revenue $ 10,482 September 30,
2023December 31,
2022Notes due in 2026 Outstanding principal amount $ 69,125 $ 69,125 Unamortized debt issuance costs (1,203) (1,553) Carrying Value $ 67,922 $ 67,572 Notes due in 2028 Outstanding principal amount $ 240,000 $ 240,000 Unamortized debt issuance costs (6,016) (6,908) Carrying Value $ 233,984 $ 233,092 Notes due in 2029 Outstanding principal amount $ 120,000 $ 120,000 Unamortized debt issuance costs (3,777) (4,205) Carrying Value $ 116,223 $ 115,795 Convertible notes, net $ 418,129 $ 416,459 Shares issued for repurchase 1,354,348 Closing price of Cutera common stock on May 24, 2022 $ 41.31 Value of shares issued $ 55,948 Cash used for repurchase 45,776 Total shares and cash $ 101,724 2026 Note principal exchanged (69,125) 32,599 2026 Notes: Unamortized debt issuance costs on May 24, 2022 $ 3,648 Portion of 2026 Note principal exchanged 50 % 1,824 Loss on debt extinguishment $ 34,423 performed,included as Long-term debt on the customercondensed consolidated balance sheet.sendfile with U.S. Bank Trust Company, National Association (the “Trustee”), as trustee under each of the indentures governing the Convertible Notes, within 15 days after the same are required to be filed with the SEC (giving effect to any grace period provided by Rule 12b-25 under the Exchange Act), copies of any annual report on Form 10-K or quarterly reports on Form 10-Q that the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. To the extent the Company elects, the sole remedy for an event of default under the indenture governing a series of Convertible Notes relating to its failure to comply with this obligation (which shall occur upon failure by the Company for 60 days after receipt of written notice from the Trustee or the holders of 25% in aggregate principal amount the Convertible Notes of such series to comply with this obligation) shall, for the first 360 days after the occurrence of such an event of default, consist exclusively of the right for the holders of Convertible Notes of such series to receive additional interest on their Convertible Notes at a rate equal to (i) 0.25% per year for each day during the first 180 days after the occurrence and during the continuance of such event of default and (ii) 0.50% per year for each day from, and including, the 181st day to, but excluding, the 360th day after the occurrence and during the continuance of such event of default. On the 361st day after such event of default, if not previously cured or waived, the Convertible Notes of the applicable series shall be subject to acceleration pursuant to the terms of the indenture governing the Convertible Notes of such series. In the event the Company does not elect to pay additional interest on a series of Convertible Notes prior to the occurrence of an event of default relating to the Company’s failure to comply with this obligation, or the Company elects to make such payment but does not pay the additional interest on such Convertible Notes when due, the Convertible Notes of such series shall be immediately subject to acceleration at the election of either the Trustee or the holders of at least 25% in aggregate principal amount of the Convertible Notes of such series.Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 (Dollars in thousands) (Dollars in thousands) Net revenue Cutera Core $ 42,589 $ 61,653 $ 150,409 $ 183,755 AviClear 3,889 1,155 12,420 1,291 Total net revenue $ 46,478 $ 62,808 $ 162,829 $ 185,046 Segment loss Cutera Core (22,643) 5,953 (40,485) 16,174 AviClear (6,105) (7,906) (19,057) (23,568) Total segment loss (28,748) (1,953) (59,542) (7,394) Items not allocated to segments Stock-based compensation (1,616) (4,245) (6,552) (13,021) ERP implementation costs (1,457) (1,351) (2,745) (7,712) Depreciation and amortization (4,732) (1,195) (12,310) (3,342) Board of Directors legal and advisory fee (2,030) — (9,739) — Retention plan costs (1,366) — (4,338) — Legal fees, severance, and other (998) (689) (3,485) (1,185) Consolidated loss from operations (40,947) (9,433) (98,711) (32,654) Interest and other expense, net (3,160) (1,874) (6,124) (41,024) Consolidated loss before income taxes $ (44,107) $ (11,307) $ (104,835) $ (73,678) Nine Months Ended
September 30,Capital spending 2023 2022 Cutera Core $ 267 $ 1,053 AviClear 30,375 13,054 Total segment capital spending $ 30,642 $ 14,107 Corporate — — Total capital spending $ 30,642 $ 14,107 Total assets September 30, 2023 December 31, 2022 Cutera Core $ 132,587 $ 154,978 AviClear 78,517 47,406 Total segment assets $ 211,104 $ 202,384 Corporate 195,529 318,604 Total assets $ 406,633 $ 520,988 Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Revenue mix by geography: United States $ 21,526 $ 28,074 $ 69,630 $ 79,290 Japan 11,529 15,263 37,247 47,940 Asia, excluding Japan 3,440 6,166 14,494 14,881 Europe 3,864 4,711 14,477 14,827 Rest of the World 6,119 8,594 26,981 28,108 Total consolidated revenue $ 46,478 $ 62,808 $ 162,829 $ 185,046 Revenue mix by product category: Systems $ 26,277 $ 40,985 $ 97,490 $ 121,152 AviClear 3,889 1,155 12,420 1,291 Consumables 3,682 4,964 11,680 14,029 Skincare 7,141 9,436 24,695 30,723 Total product revenue 40,989 56,540 146,285 167,195 Service 5,489 6,268 16,544 17,851 Total consolidated revenue $ 46,478 $ 62,808 $ 162,829 $ 185,046 backsuch as with the Company’s Pearl and Pearl Fractional applications instead of within the console.factoryexclusive distributor for refurbishment, which we referall systems sold in the United States, Canada, the United Kingdom; the exclusive distributor for certain systems in France, and Spain; and the non-exclusive distributor for systems sold in Austria and Germany.as “refilling”upgrade their systems whenever they choose and provides the hand piece. In Japan, we also distribute ZO Medical Health Inc. (“ZO”) skincare products.ServiceCompany with a source of additional Systems revenue.direct billings for detachable hand piece replacements (except for Titan and truSculpt) and revenue for parts and labor, time and material on out-of-warranty products.We believeourthe ability to grow revenue will be primarily dependent onimpacted by the following:●Consumer demand for the applications of our products;●Customer (physicians and other practitioners) demand for our products;●Continuing to expand our product offerings ─ both through internal development and sourcing from other vendors;17•continuing to expand the Company’s product offerings, both through internal development and sourcing from other vendors;Contentsclinical results to support new aesthetic products and applications;●Ongoing investment in our global sales and marketing infrastructure;●Use of clinical results to support new aesthetic products and applications;●Increased collaboration with key opinion leaders of our industry to assist us in selling efforts;●Marketing to physicians in the core dermatology and plastic surgery specialties, as well as outside those specialties; and●Generating ongoing revenue from our growing installed base of customers through the sale of systems, system upgrades, hand piece refills, skincare products, and services.ourthe Company’s business, please see the section titled “Results of Operations” below.Ourmacroeconomic and other significant factors. OurThe Company’s industry is highly competitive and ourthe Company’s future performance depends on ourthe Company’s ability to compete successfully. Additionally, ourthe Company’s future performance depends on our is dependent upon the ability to continue to expand ourthe Company’s product offerings developwith innovative technologies, obtain regulatory clearances for ourthe Company’s products, protectourthe products and our manufacturing processes, manufacture ourthe products cost-effectively, and successfully market and distribute ourthe products in a profitable manner. If we failthe Company fails to execute on the aforementioned initiatives, ourthe Company’s business couldwould be adversely affected.ourthe Company’s future performance are provided in (1) “Part II, Item 1A. Risk Factors” and elsewhere in this Form 10-Q, (2) our 2016the Company’s Annual Report on Form 10-K (3) our reportsfor the year ended December 31, 2022- Part I, Item 1A “Risk Factors,” and registration statements filed and furnished(2) other announcements the Company makes from time to timetime.SEC,International Trade Commission (“ITC”) and (4) other announcements we makein U.S. District Court for the District of Delaware alleging infringement of six Serendia patents by the Secret RF and Secret Pro systems, which the Company distributes in the U.S. on behalf of ILOODA Co. Ltd., a Korean company. The Delaware matter has been stayed pending the ITC matter, which the Company expects to be ruled upon in the second half of 2024. If the Company is held liable for patent infringement and is unable to secure a license to the patents or re-design the allegedly infringing products, the Company may be subject to monetary damages and/or an injunction prohibiting the applicable products from timebeing imported into the United States. The manufacturer of these products, ILOODA Co. Ltd., is obligated to time.our Condensed Consolidated Financial Statementsthe Company’s consolidated financial statements and related disclosures in conformity with GAAPnotes requires usthe Company to make judgments, estimates judgments and assumptions that affect the reported amounts of assets, liabilities, revenuerevenues and expenses. Theseexpenses, and related disclosure of contingent assets and liabilities. The Company has based its estimates judgments and assumptions are based on historical experience and on various other factorsassumptions that we believe arethe Company believes to be reasonable under the circumstances. WeThe Company periodically review ourreviews its estimates and makemakes adjustments when facts and circumstances dictate. To the extent that there are material differences between these estimates and actual results, ourits financial condition or results of operations will be affected.Criticalestimates, as defined by the SEC, are those that are most importantpolicy is considered to the portrayal of our financial condition and results of operations and require our management’s most difficult and subjective judgments and estimates ofbe critical if it requires an accounting estimate to be made based on assumptions about matters that are inherently uncertain. highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. The Company believes that its critical accounting policies reflect the more significant estimates and assumptions used in the preparation of its audited consolidated financial statements.we considerthe Company considers to be critical, subjective, and requiring judgment in their application are summarized in “Item 7—Management’s7-Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2016its Annual Report on Form 10-K.10-K for the year ended December 31, 2022 filed with the SEC on April 7, 2023, as amended on May 1, 2023. There have been no significantnew or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K that are of significance, or potential significance, to the Company.estimates disclosed in our Form 10-K.together with the 2028 Notes and 2029 Notes, the “Convertible Notes”) and related transactions during the first quarter of 2021.18 total revenue. Percentages in this table and throughout ourits discussion and analysis of financial condition and results of operations may reflect rounding adjustments. 100 100 100 100 42 41 43 42 58 59 57 58 34 35 35 37 9 10 9 11 9 9 10 12 (10 — (3 — 42 54 51 60 16 5 6 (2 1 1 1 — 17 6 7 (2 1 — — — 16 6 7 (2 Three Months Ended
September 30,Nine Months Ended
September 30,2023 2022 2023 2022 Net revenue 100 % 100 % 100 % 100 % Cost of revenue 86 % 45 % 67 % 45 % Gross margin 14 % 55 % 33 % 55 % Operating expenses: Sales and marketing 56 % 42 % 54 % 42 % Research and development 10 % 10 % 10 % 11 % General and administrative 37 % 17 % 29 % 19 % Total operating expenses 102 % 70 % 94 % 72 % Loss from operations (88) % (15) % (61) % (18) % Amortization of debt issuance costs (1) % (1) % (1) % — % Interest on convertible notes (6) % (3) % (5) % (2) % Other expense, net (4) % (1) % (2) % (2) % Loss before income taxes (95) % (18) % (64) % (40) % Income tax benefit — % 1 % — % — % Net loss (95) % (19) % (65) % (40) % $ 23,275 52 $ 15,356 $ 64,058 52 $ 42,216 14,898 — 14,925 39,803 5 37,965 $ 38,173 26 $ 30,281 $ 103,861 30 $ 80,181 61 51 62 53 39 49 38 47 $ 21,869 57 $ 13,896 $ 58,955 60 $ 36,808 9,993 — 9,983 26,014 6 24,448 31,862 33 23,879 84,969 39 61,256 4,687 (2 4,788 14,173 (1 14,278 595 (1 602 1,743 (8 1,886 1,029 2 1,012 2,976 8 2,761 $ 38,173 26 $ 30,281 $ 103,861 30 $ 80,181 Total Net Revenue:Our Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 % Change 2022 2023 % Change 2022 Revenue mix by geography: North America $ 24,855 (25) % $ 33,258 $ 84,494 (10) % $94,350 Japan 11,529 (24) % 15,263 37,247 (22) % 47,940 Rest of World 10,094 (29) % 14,287 41,088 (4) % 42,756 Consolidated total revenue $ 46,478 (26) % $ 62,808 $ 162,829 (12) % $ 185,046 North America as a percentage of total revenue 53 % 53 % 52 % 51 % Japan as a percentage of total revenue 25 % 24 % 23 % 26 % Rest of World as a percentage of total revenue 22 % 23 % 25 % 23 % Revenue mix by product category: Systems - North America $ 15,670 (38) % $ 25,359 $ 55,873 (24) % $73,298 Systems - Rest of World (including Japan) 10,607 (32) % 15,626 41,617 (13) % 47,854 Total Systems 26,277 (36) % 40,985 97,490 (20) % 121,152 AviClear 3,889 237 % 1,155 12,420 862 % 1,291 Consumables 3,682 (26) % 4,964 11,680 (17) % 14,029 Skincare 7,141 (24) % 9,436 24,695 (20) % 30,723 Total Products 40,989 (28) % 56,540 146,285 (13) % 167,195 Service 5,489 (12) % 6,268 16,544 (7) % 17,851 Total Net Revenue $ 46,478 (26) % $ 62,808 $ 162,829 (12) % $185,046 increaseddecreased by $7.9$16.3 million, or 26%, in the three months ended September 30, 2023, compared to the same period in 2022. This decrease was primarily driven by Systems revenue, partially offset by AviClear revenue. In March 2022, the Company received FDA clearance for the AviClear treatment device and $23.7began limited commercial release in April 2022.30%12%, in the nine months ended September 30, 2023, compared to the same period in 2022. This decrease in the nine-month comparison was primarily driven by Systems revenue and a decline in Japanese Skincare revenue, partially offset by AviClear revenue.2017,2023, respectively, compared to the same periods in 2016, due primarily to an increase2022. The decreases in the volumethree and nine-month comparisons was primarily driven by a decline in Systems revenue, partially offset by AviClear revenue.systems sold.Geography:Our U.S.Product Typeincreasedin North America decreased by $7.9$9.7 million, or 52%38%, in the three months ended September 30, 2023, compared to the same period in 2022, due mainly to a decrease in unit volumes. In the nine months ended September 30, 2023, the decrease in systems revenue of $17.4 million, or 24%, was due to a decrease in both unit volumes and average selling prices (“ASPs”).by $21.8$6.2 million, or 52%13%, in the three and nine months ended September 30, 2017,2023, respectively, compared to the same periods in 2016. This growth was due primarily to an increase2022. The decrease in revenue in the volume of truSculpt systems sold as a result of the launch of our truSculpt 3D in the second quarter ended June 30, 2017, as well as increased sales headcount, marketingthree and promotional activities.Our revenue outside the U.S. was $14.9 million for each of the three month periodsnine months ended September 30, 20172023 reflects a decrease in Systems revenue in global distributor markets and Japan, which was partially offset by increased revenue in Europe.2016. For2023, consisted of $1.3 million of lease revenue related to the fixed annual license fees and $2.6 million in revenue related to treatments performed by the lessee.2017, compared2023, consisted of $3.9 million of lease revenue related to the same periodfixed annual license fees and $8.5 million in 2016, revenue outsiderelated to treatments performed by the lessee.increasedthrough the quarter ended September 30, 2022, and was fully commercially launched in the quarter ended December 31, 2022.$1.8$1.3 million, or 5%. This growth was primarily attributable to revenue growth in Japan, Australia,26%, and the Middle East, offset in part by a decline in revenue from Latin America.Revenue by Product Type:Systems RevenueSystems revenue in North America increased by $7.9$2.3 million, or 57%, and by $22.2 million, or 60%17%, in the three and nine months ended September 30, 2017,2023, respectively, compared to the same periods in 2016. This growth was primarily attributable to2022. The decrease in revenue in the three and nine-month periods reflects an increase in sales promotion activity in 2022 that resulted in an increase in Consumable revenue.truSculpt 3DSkincare products in Japan decreased by $2.3 million, or 24%, enlighten IIIand $6.0 million, or 20%, xeoand excel HR products, offset by a small decline in revenue from excel V. In addition, the North America revenue growth was the result of increased sales headcount, higher productivity of our field sales representatives, and the impact of additional marketing and promotional activities.International Systems revenue was $10 million for each of the three monthsand nine-month periods ended September 30, 20172023, respectively, compared to the same periods in 2022. The weakening of the Japanese Yen had an impact of $0.4 million and September 30, 2016. International Systems revenue increased by $1.6$2.4 million or 6%, in the three and nine months ended September 30, 2017,20, 2023, respectively, compared to the same periodperiods in 2016. This growth was driven primarily2022. The decline also reflects increased competition from alternative skincare products. On February 28, 2024, the Company entered into a Business Transfer and Termination Agreement with ZO, which, among other things, terminates all agreements related to the distribution by increased revenue from enlighten IIIand xeo, partially offset by a declinethe Company of ZO’s products in revenue from our excel V product.Our worldwidewas relatively flat decreased by $0.8 million, or 12%, and decreased by $1.3 million, or 7%,in the three and nine months ended September 30, 2017,2023, respectively, compared to the same periods in 2016.Hand Piece Refills RevenueRevenue from our Hand Piece Refills was flat during the three months ended September 30, 2017, and declined by $143,000 or 8%,2022. This decrease in the nine months ended September 30, 2017, comparedthree-month comparison is due to the same periodsdecrease in 2016. This decrease wasservice contracts, and support and maintenance services, and in the nine-month comparison is primarily due to reduced utilizationdecreased sales of the Titan hand pieces.Skincare RevenueRevenue from our Skincare products in Japan was flat during the three months ended September 30, 2017, and increased by $215,000, or 8%, in the nine months ended September 30, 2017, compared to the same periods in 2016. This increase was primarily due to the launch of new product lines as well as increased marketing and promotional activities for this distributed product. $ 22,210 25 $ 17,743 $ 58,777 27 $ 46,222 58 59 57 58 OurThree Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change 2023 2022 Change Gross profit $ 6,457 $ 34,248 $ (27,791) $ 54,172 $ 101,080 $ (46,908) As a percentage of total net revenue 13.9 % 54.5 % (40.6) % 33.3 % 54.6 % (21.4) % marginprofit as a percentage of revenue for the three months ended September 30, 2023, was 13.9% compared to 54.5% in the threesame period in 2022. This 40.6 percentage point decrease in gross profit in the three-month comparison mainly reflects the following factors:2017,2023, was 33.3% compared to 54.6% in the same periodsperiod in 2016, declined slightly2022. This 21.4 percentage point decrease in gross profit in the nine-month comparison mainly reflects the following factors:due to:●a reduction in the average selling prices in international markets, largely driven by enlighten system sales; and●increased warranty, personnel and overhead costs in support of higher revenue levels; partially offset by●higher margins generated from our truSculpt 3D system launched in North America in May 2017 and in select European countries in September 2017. $ 13,148 24 $ 10,574 $ 36,708 22 $ 30,002 34 35 35 37 Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change 2023 2022 Change Sales and Marketing $ 25,808 $ 26,488 $ (680) $ 88,591 $ 78,433 $ 10,158 As a percentage of total net revenue 55.5 % 42.2 % 13.3 % 54.4 % 42.4 % 12.0 % 20advertising. training.as a percentage of revenue declined to 34% and 35% duringfor the three months ended September 30, 2023, decreased $0.7 million, compared to the same period in 2022. This decrease was primarily attributable to a $1.0 million decrease in stock-based compensation expense.2017, respectively,2023, increased $10.2 million, compared to 35%the same period in 2022. This increase reflects headcount growth related to the promotion and 37% duringsale of AviClear, such as payroll-related costs and commission expense, which increased $3.8 million. Also contributing to the three and nine months ended September 30, 2016, respectively. The reduction in sales and marketing expense as a percent of revenue was due primarily to improved leverage of our sales and marketing expenses, as well as an increase in our direct sales employee productivity.The $2.6 million, or 24%, increase in sales and marketing expenses during the three months ended September 30, 2017, compared to the same periodwas an increase in 2016, was due primarily to:●$2.0 million increase in personnel related expenses, largely driven by increased headcount and commission expenses in support of higher revenue levels;●$217,000 increased promotional expenses, primarily in North America; and●$185,000 increased marketing consulting services in the U.S.Sales and marketing expenses increased by $6.7activities and consulting services of $1.8 million or 22%, in the nine months ended September 30, 2017, compared to the same period in the prior year, due primarily to:●$4.6 million increase in personnel related expenses, largely driven by increased headcount and commission expenses in support of higher revenue levels;●$781,000 increased promotional expenses, primarily in North America;●$574,000 increased marketing consulting services in the U.S.; and●$512,000 increased travel related expenses, primarily in North America, resulting from the increased headcount supporting higher revenue levels.(“(“R&D”&D”) $ 3,467 19 $ 2,914 $ 9,393 13 $ 8,335 9 % 10 9 11 Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change 2023 2022 Change Research and development $ 4,592 $ 6,389 $ (1,797) $ 16,844 $ 19,747 $ (2,903) As a percentage of total net revenue 9.9 % 10.2 % (0.3) % 10.3 % 10.7 % (0.4) % Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change 2023 2022 Change General and administrative $ 17,004 $ 10,804 $ 6,200 $ 47,448 $ 35,554 $ 11,894 As a percentage of total net revenue 36.6 % 17.2 % 19.4 % 29.1 % 19.2 % 9.9 % $553,000,a decrease in stock-based compensation expense of $3.3 million primarily resulting from the departure of several executives and represented 9%Board directors in the three months ended June 30, 2023, which resulted in a reversal of totalpreviously-recorded stock-based compensation expense related to forfeited awards.Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change 2023 2022 Change Amortization of debt issuance costs $ (561) $ (400) $ (161) $ (1,670) $ (917) $ (753) Interest on convertible notes (2,939) (1,739) (1,200) (8,836) (3,666) (5,170) Loss on extinguishment of convertible notes — — — — (34,423) 34,423 Interest income (expense), net 2,288 1,141 1,147 6,946 1,536 5,410 Other expense, net (1,948) (876) (1,072) (2,564) (3,554) 990 Interest and other expense, net $ (3,160) $ (1,874) $ (1,286) $ (6,124) $ (41,024) $ 34,900 Three Months Ended September 30, Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Change 2023 2022 Change Income tax expense $ 167 $ 827 $ (660) $ 765 $ 874 $ (109) Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 (Dollars in thousands) Cutera Core AviClear Total Cutera Core AviClear Total Revenue $ 42,589 $ 3,889 $ 46,478 $ 61,653 $ 1,155 $ 62,808 Segment loss $ (22,643) $ (6,105) $ (28,748) $ 5,953 $ (7,906) $ (1,953) Loss from operations $ (30,954) $ (9,993) $ (40,947) $ (850) $ (8,583) $ (9,433) Interest and other income (expense), net (3,160) (1,874) Loss before income taxes $ (44,107) $ (11,307) Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 (Dollars in thousands) Cutera Core AviClear Total Cutera Core AviClear Total Revenue $ 150,409 $ 12,420 $ 162,829 $ 183,755 $ 1,291 $ 185,046 Segment loss $ (40,485) $ (19,057) $ (59,542) $ 16,174 $ (23,568) $ (7,394) Loss from operations $ (69,308) $ (29,403) (98,711) $ (7,602) $ (25,052) $ (32,654) Interest and other income (expense), net (6,124) (41,024) Loss before income taxes $ (104,835) $ (73,678) 2017,2023, compared to 10%the three months ended September 30, 2022. This decrease reflected a decrease in system sales of $14.7 million due to ASP and unit volume decreases, and a decrease in Consumables and Skincare revenue of $1.3 million and $2.3 million, respectively.same periodtreatment of mild to severe acne. The Company began earning revenue from its AviClear device following FDA approval in 2016.March 2022. The Company leases the AviClear device to customers in North America and receives a fixed annual license fee over the term of the arrangement and variable revenue related to number of treatments performed by the lessee.due primarily to:●$336,000attributable to the increase in depreciation and amortization expense, including contract acquisition cost amortization, of $3.4 million. personnel and consulting related expenses due to increased headcount and product development activities; and●$141,000 increased material spending relating to new product development. R&D expenses increased by $1.1 million, and represented 9% of total net revenue in the nine months ended September 30, 2017, compared to 11% for the same period in 2016. This increase in expense was due primarily to:●$749,000 increase in personnel and consulting related expenses due to increased headcount and product development activities; and●$136,000 increased material spending relating to new product development. General and Administrative (“G&A”)G&A expenses consist primarily of personnel expenses, legal fees, accounting, audit and tax consulting fees, and other general and administrative expenses. G&A expenses increased by $663,000 and represented 9% of total net revenue in both the three months ended September 30, 2017 and 2016. The increase in G&A expenses was due primarily to:●$595,000 increase in personnel related expenses due to increased headcount; and●$112,000 increased consulting service fees; partially offset by●$146,000 reduction in legal fees.G&A expenses increased by $210,000 and represented 10% of total net revenue$29.4 million in the nine months ended September 30, 2017,2023, compared to 12%a loss from operations of $25.1 million in the same periodnine months ended September 30, 2022. This $4.3 million adverse change represents a $8.9 million increase in 2016, dueexpense compared to the $4.5 million favorable change in segment loss in the nine-to:●$720,000 increase in personnel related expenses due primarily to increased headcount;●$471,000 increased consulting service fees; and●$155,000 increased credit card fees as a result of increased North America system revenue; partially offset by●$1.2 million one-time litigation settlement expense and related legal fees associated with a matter settled in the second quarter of 2016, not recurring in 2017.Lease Termination IncomeIn July 2017, we agreedattributable to terminate the building lease for a new facilityincrease in Fremont, California, which was entered into in May 2017. In conjunction with this lease termination, we received a lump sum termination paymentdepreciation and amortization expense, including contract acquisition cost amortization, of $4.0 million from the landlord.Interest$9.0 million.Other Income, NetInterest and other income (net), consistsCapital Resourcesthe following: $ 145 81 $ 80 $ 388 65 $ 235 52 (40 86 358 23 292 $ 197 19 $ 166 $ 746 42 $ 527 Interest and other income, net, increased $31,000liquidity in the three months ended September 30, 2017, compared to2023, was cash generated from net proceeds from the same period in 2016. This was due primarily to an increase in interest income from our marketable investments resulting from higher investment balances as well as higher rates of return, partially offset by a reduction in net foreign exchange gains.Interest and other income (net) increased $219,000 in the nine months ended September 30, 2017, compared to the same period in 2016. This was due primarily to an increase in interest income from our marketable investments resulting from higher investment balance as well as higher rates of return, and increase in vendor discounts for early payments, partially offset by higher interest payments for leased vehicles. Provision for Income Taxes $ 6,413 276 $ 1,705 $ 7,279 579 $ (1,521 225 269 61 166 44 115 For the three months ended September 30, 2017, our income tax expense was $225,000, compared to $61,000 in the same period in 2016. For the nine months ended September 30, 2017, our income tax expense was $166,000, compared to $115,000 in the same period in 2016.In the three and nine months ended September 30, 2017, we calculated the provision for income taxes for interim reporting periods by applying an estimateissuance of the "annual effective tax rate" for the full fiscal year to ordinary income.Convertible Notes in March 2021, May 2022 and December 2022. The result related primarily to U.S. alternative minimum taxes as we are able to utilize our net operating losses brought forward. In addition, we recorded discretely the net tax benefit of excess equity compensation costs (“windfalls”) of approximately $50,000 and $160,000 in the three and nine months ended September 30, 2017, respectively.For our income tax provision in the three and nine months ended September 30, 2016, the tax expense was primarily related to income taxes of our non-U.S. operations as our U.S. operations were in a loss position and we had a 100% valuation allowance against them. We did not record a year-to-date tax benefit associated with the projected 2016 U.S. tax expense due to historical losses and uncertainties related to the projected income.Due to the uncertainty regarding the timing and extent of our future profitability, we continue to record a full valuation allowance to offset our U.S. deferred tax assets, which primarily represent future income tax benefits associated with our operating losses because we do not currently believe that the positive evidence outweighs the negative evidence. In the near future, if we conclude that sufficient positive evidence (including our estimate of future taxable income) exists to support a reversal of all or a portion of the valuation allowance, we expect that a significant portion of any release of the valuation allowance will be recorded as an income tax benefit at the time of release, which will have a material impact on our financial statements. In addition, as and when we discontinue recording a valuation allowance against our deferred tax assets, we expect that our income tax expense recorded in future quarters will also be significantly higher than it has been since fiscal year 2009, when we recorded a valuation allowance for our U.S. deferred tax assets. Liquidity and Capital ResourcesLiquidity is the measurement of our ability to meet potentialCompany actively manages its cash requirements, fund the planned expansion of our operations and acquire businesses. Our sources of cash include operating activities, stock option exercises, ESPP contributions, and the liquidation of marketable investments. We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient funds to meet our daily needs.its cash requirements. The majority of ourthe Company’s cash, cash equivalents, and investments are held in U.S. banks and ourbanks. The Company's foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.Cash, Cash EquivalentsMarketable InvestmentsThe following table summarizes our cash,December 31, 2022, the Company had $218.9 million and $345.4 million of working capital, respectively. Cash, cash equivalents, restricted cash and marketable investments:
2017 $ 14,784 $ 13,775 $ 1,009 35,692 40,299 (4,607 $ 50,476 $ 54,074 $ (3,598 Cash Flows $ 7,605 $ (2,749 4,220 2,050 (10,816 1,106 $ 1,009 $ 407 Cash Flowsinvestments decreased by $137.8 million to $180.2 million as of September 30, 2023, from Operating ActivitiesNet$318.0 million as of December 31, 2022, driven by net loss adjusted for non-cash items of $78.5 million, changes in assets and liabilities of $25.4 million and capital expenditures of $30.6 million.generated fromflows and unconditional obligations due over the next twelve months. In addition, management evaluated the history of the Company's financial performance, and determined that the Company has had a historic trend of operating activities inlosses, which continues to have an unfavorable impact on the Company's overall liquidity. Most recently, the Company reported net losses of $44.3 million and $105.6 million for the three and nine months ended September 30, 2017 was $7.6 million,2023, respectively. The Company also reported operating losses for the year ended December 31, 2022.primarily to:●$11.4 million generated by net income of $7.1 million, which included a non-recurring $4.0 million of lease termination income, and was further increased by non-cash related items of $3.6 million of stock-based compensation expense and $750,000 in depreciation and amortization expenses;●$4.8 million of increased cash due to an increase in accrued liabilities as a result of higher personnel and warranty costs;●$3.2 million of increased cash due to an increase in accounts payable as a result of increased material purchases to support higher revenue levels;●$652,000 generated from an increase in deferred revenue; partially offset by●$8.8 million used to increase inventories in support of a greater volume of product sales;●$3.0 million used as a result of increased accounts receivables resulting from the higher revenue; and●$633,000 used to increase other assets and pre-paid expenses.Netwould adversely affect the Company’s ability to achieve its intended business objectives. There can be no assurances that financing will be available on terms favorable to the Company, if at all, and delays may occur in completing the operating activities.used in operating activities inrequirements, the Company could be required to obtain funding though the credit or capital markets. Any equity financing obtained by the Company would dilute existing stockholders and any debt financing could contain restrictive covenants, which would reduce management’s flexibility to run the Company’s business or present a risk of default. If the Company raises funds through collaborations or licensing arrangements, the Company may be required to relinquish significant rights to its technologies or products or grant licenses on terms that are not favorable to the Company. The Company cannot be certain that additional funds would be available to it on favorable terms when required, or at all.(Dollars in thousands) September 30, 2023 December 31, 2022 Change Cash and cash equivalents $ 179,516 $ 145,924 $ 33,592 Restricted cash 700 700 — Marketable investments — 171,390 (171,390) Total $ 180,216 $ 318,014 $ (137,798) Nine Months Ended September 30, (Dollars in thousands) 2023 2022 Net cash flow provided by (used in): Operating activities $ (103,866) $ (49,968) Investing activities 139,794 (219,389) Financing activities (2,336) 151,073 Net increase (decrease) in cash and cash equivalents $ 33,592 $ (118,284) 2016 was $2.72023, net cash used in operating activities resulted in $103.9 million, which comprised net loss adjusted for non-cash items of $78.5 million, which was due primarily to:●$1.7 million generated by a net loss of $1.6 million, offset by non-cash related items of $2.7 million stock-based compensation expense and $733,000 in depreciation and amortization expenses;●$1.3 million generated from an increase in accounts payable primarily as a result of higher inventory purchases for the increased volume of business;●$886,000 generated from an increase in accrued liabilities primarily relatedinfluenced by the factors noted in the preceding Result of Operations section indicating a deteriorated bottom line in comparison to higher personnel expenses; partially offset by●$4.4 million used to increase inventory;●$1.2 million used in deferred revenue resulting primarily from the amortization of deferred service contract revenue; and●$690,000 used to increase other current assets and prepaid expenses primarily related to insurance premiums and future marketing tradeshows. Cash Flows from Investing ActivitiesWe generated net cash of $4.2 million in our investing activities in the nine months ended September 30, 2017, which was attributable primarily to:●$48.8 million in net proceeds from the sales and maturities of marketable investments; partially offset by●$44.2 million of cash used to purchase marketable investments; and●$443,000 of cash used to purchase property, equipment and software.We generated2023. The net cash used in operating activities were further adjusted by the changes in assets and liabilities of $2.1 million in our investing activities$25.4 million. The change in the nine months ended September 30, 2016, which was attributableCompany's working capital primarily to:●$26.3 million in net proceeds from the sales and maturities of marketable investments; partially offset by●$23.9 million of cash used to purchase marketable investments; and●$311,000 of cash used to purchase property, equipment and software.FinancingInvesting Activitiesused in financingprovided by investing activities was $10.8$139.8 million in the nine months ended September 30, 2017,2023, which was primarily due to:●$13.8 million used to repurchase common stock;●$1.3 million of cash used for taxes paid related to net share settlement of equity awards;●$274,000 used to pay down our capital lease obligations; partially offset by●$4.6 million of cash generated from the issuance of common stock due to employees exercising their stock options and purchasing stock through the ESPP program.provided byused in financing activities was $1.1$2.3 million in the nine months ended September 30, 2016,2023, which was primarily due to:●proceeds of $6.2 million from the issuance of common stock due to employees exercising their stock options and purchasing stock through the ESPP program; partially offset by●repurchase of common stock for $4.9 million; and●payments for capital lease obligations of $218,000. Weand investments of $50.5$179.5 million as of September 30, 2017.2023. For the ninethree months ended September 30, 2017, we financed our operations and stock repurchases through2023, the Company’s principal source of liquidity was cash generated by our operating activities, sales and maturities of marketable investments andfrom proceeds received from the saleissuance of the Convertible Notes in March 2021, May 2022, and December 2022. The Company has reported operating losses in recent quarters and intends to use its remaining cash resources to develop plans and take proactive steps to grow revenue and enhance its operations as further explained in the preceding Liquidity and Capital Resources section.dueor a combination thereof, at the Company’s election. The convertible notes are presented as convertible notes, net of unamortized debt issuance costs, on the condensed consolidated balance sheet. The aggregate proceeds from the offering were approximately $133.6 million, net of issuance costs, including initial purchaser fees.employees exercising theirwhich the Company issued to Voce $10.0 million aggregate principal amount of 2028 Notes on the same terms and conditions. The aggregate proceeds from the offering of 2028 Notes were approximately $232.4 million, net of issuance costs, including initial purchaser fees.optionsor a combination thereof, at the Company’s election. The Convertible notes are presented as Convertible notes, net of unamortized debt issuance costs, on the consolidated balance sheet. The aggregate proceeds from the offering were approximately $115.8 million, net of issuance costs, including initial purchaser fees.purchasing stock throughSecurity Agreement with Silicon Valley Bank for a four-year secured revolving loan facility (“SVB Revolving Line of Credit”) in an aggregate principal amount of up to $30.0 million. See Note 14 – Debt in the ESPP program.2017, we2023, the Company had $21.4 million remaining under our Board approved Stock Repurchase Program. We believenot drawn on the existing capital resources, including cash, cash equivalentsSVB Revolving Line of Credit and investments of $50.5 million, are sufficient to meet our operating and capital requirements for the next several years, and enable us to repurchase stock pursuant to our Stock Repurchase Program. In July 2017, we agreed to terminate the building lease for a new facilityCompany is in Fremont, California, entered into in May 2017. In conjunctioncompliance with this lease termination, we received a lump sum termination payment of $4.0 million from the landlord. Except for the foregoing, cash used to fund our operating activities in certain historical quarters, purchase fixed assets and repurchase our common stock, we are unaware of any other known trends or any known demands, commitments, events or uncertainties, including collectability of our accounts receivable, that will result in, or that are reasonably likely to result in, liquidity increasing or decreasing in any material way.Contractual ObligationsThe following are our contractual obligations, consistingfuture minimum lease commitments related to facility leases asthe date of September 30, 2017: 13,774 2,446 $ 5,420 $ 5,070 $ 838 In addition to the above facility leases, we also routinely lease automobiles for certain sales and field service employees under operating leases for which the remaining committed lease payments are not material.Except as set forth above,this report, there have beenwere no material changes to ourthe Company’s contractual obligations and commitments and contingencies from those disclosed in our 2016outside the ordinary course of business since April 7, 2023, the filing date of the Company’s Annual Report on Form 10-K.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThere have been no material changesCompany’s market risk duringCompany's convertible notes, if triggered, may adversely affect the nine months endedCompany's financial condition and operating results.2017. For2022, in the case of the 2028 Notes, and ending on March 31, 2023, in the case of the 2029 Notes, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a discussionperiod of 30 consecutive trading days ending on and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of conversion price for the applicable series of Convertible Notes on each applicable trading day then holders may convert their notes in the subsequent quarter. This condition was not met for any of the Company’s exposureConvertible Notes in the three months ended September 30, 2023. Upon any future conversion requests of the Convertible Notes, the Company would be required to market risk, referpay or deliver, as the case may be, cash, shares of its common stock, or a combination of cash and shares of its common stock, at the Company’s election with respect to such conversion requests.market risk disclosures set forthcosts were to become subject to significant inflationary pressures, the Company may not be able to fully offset such higher costs through price increases. The Company’s inability or failure to do so could harm the Company’s business, financial condition, and results of operations.Part II, Item 7A, “QuantitativeJapanese Yen, Euros, Australian Dollars, Canadian Dollars, British Pounds, and Qualitative Disclosures About Market Risk”Swiss Francs. Additionally, a portion of the 2016 Form 10-K.Company’s operating expenses, and assets and liabilities are denominated in each of these currencies. Therefore, fluctuations in these currencies against the U.S. dollar could materially and adversely affect the Company’s results of operations upon translation of the Company’s revenue denominated in these currencies, as well as the re-measurement of the Company’s international subsidiaries’ financial statements into U.S. dollars.Attached as exhibits to this Quarterly Report are certifications of our Chief Executive Officer (“CEO”)consultant Chief Financial Officer (“CFO”), which are requiredprocedures (as defined in accordance with Rule 13a-14 ofRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.We conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act) (“Disclosure Controls”) as of the end of the period covered by this Report required by Exchange Act Rules 13a-15(b) or 15d-15(b). The controls evaluation was conducted under the supervision and with the participation of our management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concludedamended) that as of the end of the period covered by this report the disclosure controls and procedures were effective at a reasonable assurance level.Definition of Disclosure ControlsDisclosure Controls are controls and procedures designed to reasonably assureensure that information required to be disclosed in our reports filed under the Company’s Exchange Act such as this Report,reports is recorded, processed, summarized and reported within the time periods specified in the SEC’sSEC’s rules and forms. Disclosure Controls are also designed to reasonably assureforms and that such information is accumulated and communicated to ourthe Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.as appropriatehas concluded that the condensed consolidated financial statements, included in the Form 10-Q, for the three months ended September 30, 2023, fairly present, in all material respects, the Company's financial condition, results of operations and cash-flows for the periods presented in conformity with generally accepted accounting principles.allowreview and make changes to the overall design of its internal control environment, including implementing additional internal controls over ITGCs, inventory, equity and its risk assessment program over areas including but not limited to inventory, revenues and lease income, costs for leased devices, and certain key reports used in controls. The Company has added internal and external resources to its finance function to enhance the effectiveness of internal controls over financial reporting. The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period. The Company has made progress in the remediation efforts related to the material weaknesses but cannot estimate when these efforts will be completed.decisions regarding required disclosure. Our Disclosure Controls include componentsidentification and assessment of changes in the business and leadership; andwhich consists of control processes designed to provide reasonable assurance regarding the reliability ofCompany may not detect errors on a timely basis, and its condensed financial reportingstatements may be materially misstated.preparation of financial statementsremediation measures in accordanceconnection with generally accepted accounting principlesthe material weaknesses described above, there were no changes in the U.S. To the extent that components of ourCompany's internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are included within Disclosure Controls, they are included inreasonably likely to materially affect, the scope of our annual controls evaluation.Company's internal control over financial reporting.Our management, including the CEO and CFO, does not expect that our disclosure controls or internal control over financial reporting will prevent all error and all fraud. designedconceived and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further,of the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, and instances of fraud, if any, within a company have been detected. These inherent limitations includeAccordingly, the realitiesCompany’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management overrideobjectives of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effectiveCompany’s disclosure control system misstatements due to error or fraud may occur and not be detected.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.LEGAL PROCEEDINGSWe are named fromasthe Company may be involved in legal and administrative proceedings and claims of various types. For a partydescription of the Company’s material pending legal and regulatory proceedings and settlements, see Note 11 to product liabilitythe Company’s consolidated financial statements entitled “Commitments and contractual lawsuitsContingencies,” in the normal course of business. We routinely assessAnnual Report on Form 10-K for the likelihood of any adverse judgments or outcomes relatedyear ended December 31, 2022, filed with the SEC on April 7, 2023, and Note 13 to legal mattersthe Company's condensed consolidated financial statements entitled "Contingencies", in this Quarterly Report on Form 10-Q for the three and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any, for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than not that we shall incur a loss, and whether the loss is estimable. We are not currently a party to any material legal proceedings.nine months ended September 30, 2023.RISK FACTORSOur business faces many risks. Anyreferencedrelated to accounting policies, procedures and related controls performed over areas including, but not limited to inventory, revenues and lease income, costs for leased devices, and testing of certain key reports used in this Form 10-Qcontrols. Consequently, the Company failed to timely implement new controls to respond to changes in the business and leadership.ourcombination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. As a result of these material weaknesses, the Company concluded that its internal control over financial reporting was not effective based on criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in Internal Control-An Integrated Framework (2013).SEC filingsrisks described in its Annual Report, the Company may be required to raise additional capital through the issuances of additional equity or convertible debt securities, enter into a credit facility or another form of third-party funding or seek other debt financing.impactadverse effect on ourthe Company's business, and consolidated financial position orcondition, results of operations. Additional risksoperations and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.For detailed discussion of risk factors that should be understood by any investor contemplating investment in our stock, please refer to “Part I. Item 1A. Risk Factors” in our 2016 Form 10-K and elsewhere in this Form 10-Q.Our ability to reverse all or any part of the valuation allowance against our U.S. deferred tax assets is uncertain.We have recorded a full valuation allowance against our U.S. deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. To the extent we determine that all, or a portion of, our valuation allowance is no longer necessary, we will reverse the valuation allowance and recognize an income tax benefit in the reported financial statement earnings in that period. Once the valuation allowance is eliminated or reduced, its reversal will no longer be available to offset our current financial statement tax provision in future periods. We believe that there is a possibility that, within the next 3-12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve. Due to significant estimates used to determine the valuation allowance and the potential for changes in facts and circumstances, the Company cannot guarantee that it will be able to reverse all or any of the valuation allowance or that the Company will not need to increase its deferred tax asset valuation allowance in the future.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSThe following table summarizes the activity related to stock repurchases for the three months ended September 30, 2017 (in thousands except per share data):
of Shares
Purchased
Shares Purchased
as Part of
Plans or Programs 185 26As of December 31, 2016, we had $5.1 million available in our Stock Repurchase Program. On February 13, 2017 and July 28, 2017, our Board of Directors approved an incremental $5 million and $25 million, respectively, to be added to the Stock Repurchase Program.In the three months ended September 30, 2017, we repurchased 184,536 shares for approximately $6.7 million, or $36.47 per share, and retired and returned them to an authorized but unissued status. As of September 30, 2017, $21.4 million remained available for future repurchases of our stock.ExhibitNo.Description3.4
No.(1)Description 3.2 3.5(5)3.4 4.1 4.1(2)31.1 10.26(3)10.27(4)10.28(5)Transition Agreement dated July 12, 2017 by and between the Company and Ronald J. Santilli.10.29(5)Consulting Agreement dated July 12, 2017 by and between the Company and Sandra A. Gardiner31.131.2 31.232.1 32.1101.sch 101.insXBRL Instance Document101.sch101.cal 101.cal101.def 101.def101.lab 101.lab101.pre 101.pre(1)Incorporated by reference from our Current Report on Form 8-K filed on January 8, 2015. 104 (2)Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) Incorporated by reference from our Annual Report on Form 10-K filed with the SEC on March 25, 2005.(3)Filed as Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2017, and incorporated by reference.(4)Filed as Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 7, 2017, and incorporated by reference.(5)Filed herewith.28theThe Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Brisbane, State of California, on the 7th5th day of November, 2017.March, 2024.CUTERA, INC. /s/ Stuart Drummond /S/ SANDRA A. GARDINERSandra A. GardinerConsultantInterim Chief Financial Officer(Principal Financial and Accounting Officer)29