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    CUTR   US2321091082

CUTERA, INC.

(CUTR)
  Report
Delayed Nasdaq  -  04:00:00 2023-02-02 pm EST
36.20 USD   +4.72%
01/31William Blair Initiates Cutera at Market Perform
MT
01/18Mitek Systems Retains Fuad Ahmad as Interim CFO
MT
01/13Cutera, Inc. Announces Preliminary Unaudited Financial Results for Full-Year 2022
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CUTERA : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

03/23/2021 | 11:49am EST
The following discussion should be read in conjunction with the Company's
audited financial statements and notes thereto for the fiscal year ended
December 31, 2020. This Annual Report on Form 10-K, including the following
sections, contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Throughout this Report, and
particularly in this Item 7, the forward-looking statements are based upon the
Company's current expectations, estimates and projections and that reflect the
Company's beliefs and assumptions based upon information available to the
Company at the date of this Report. In some cases, you can identify these
statements by words such as "may," "might," "could," "will," "should,"
"expects," "plans," "anticipates," "likely," "believes," "estimates," "intends,"
"forecasts," "foresees," "predicts," "potential" or "continue," and other
similar terms. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties, and assumptions that are
difficult to predict. The Company's actual results, performance or achievements
could differ materially from those expressed or implied by the forward-looking
statements. The forward-looking statements include, but are not limited to,
statements relating to the Company's future financial performance, the ability
to grow the Company's business, increase the Company's revenue, manage expenses,
generate additional cash, achieve and maintain profitability, develop and
commercialize existing and new products and applications, improve the
performance of the Company's worldwide sales and distribution network, and to
the outlook regarding long term prospects. The Company cautions you not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date of this Annual Report on Form 10-K. The Company
undertakes no obligation to update forward-looking statements to reflect events
or circumstances occurring after the date of this Form 10-K.



Some of the important factors that could cause the Company's results to differ
materially from those in the Company's forward-looking statements, and a
discussion of other risks and uncertainties, are discussed in Item 1A-Risk
Factors. The Company encourages you to read that section carefully as well as
other risks detailed from time to time in the Company's filings with the SEC.



Introduction


The Management's Discussion and Analysis ("MD&A") is organized as follows:

? Executive Summary. This section provides a general description and history of

the Company's business, a brief discussion of the Company's product lines and

the opportunities, trends, challenges and risks the Company focuses on in the

operation of the Company's business.

? Critical Accounting Policies and Estimates. This section describes the key

accounting policies that are affected by critical accounting estimates.

? Recent Accounting Guidance. This section describes the issuance and effect of

    new accounting pronouncements that are or may be applicable to us.


  ? Results of Operations. This section provides the Company's analysis and
    outlook for the significant line items on the Company's Consolidated
    Statements of Operations.

? Liquidity and Capital Resources. This section provides an analysis of the

Company's liquidity and cash flows, as well as a discussion of the Company's

    commitments that existed as of December 31, 2020.




Executive Summary



Company Description



The Company is a leading medical device company specializing in the research,
development, manufacture, marketing and servicing of light and other
energy-based aesthetics systems for practitioners worldwide. In addition to
internal development of products, the Company distributes third party sourced
products under the Company's own brand names. The Company offers easy-to-use
products which enable practitioners to perform safe and effective aesthetic
procedures, including treatment for body contouring, skin resurfacing and
revitalization, tattoo removal, removal of benign pigmented lesions, vascular
conditions, hair removal, toenail fungus and women's intimate health. The
Company's platforms are designed to be easily upgraded to add additional
applications and hand pieces, which provide flexibility for the Company's
customers as they expand their practices. In addition to systems and upgrade
revenue, the Company generates revenue from the sale of post warranty service
contracts, providing services for products that are out of warranty, hand piece
refills and other per procedure related revenue on select systems and
distribution of third-party manufactured skincare products. The Company also
expands its revenues from sales of third-party skincare products by utilizing
its network and relationships with physicians and practitioners.



The Company's ongoing research and development activities primarily focus on
developing new products, as well as improving and enhancing the Company's
portfolio of existing products. The Company also explores ways to expand the
Company's product offerings through alternative arrangements with other
companies, such as distribution arrangements. The Company introduced Juliet, a
product for women's intimate health, in December 2017, Secret RF, a fractional
RF microneedling device for skin revitalization, in January 2018, enlighten SR
in April 2018, truSculpt iD in July 2018, excel V+ in February 2019 truSculpt
flex in June 2019, Secret PRO in July 2020 and excel V+III during the fourth
quarter of 2020.



The Company's corporate headquarters and U.S. operations are located in
Brisbane, California, where the Company conducts manufacturing, warehousing,
research and development, regulatory, sales and marketing, service, and
administrative activities. The Company markets sells and services the Company's
products through direct sales and service employees in North America (including
Canada), Australia, Austria, Belgium, France, Germany, Hong Kong, Japan, Spain,
Switzerland and the United Kingdom. Sales and Services outside of these direct
markets are made through a worldwide distributor network in over 42 countries.



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Products and Services



The Company derives revenue from the sale of Products and Services. Product
revenue includes revenue from the sale of systems, hand pieces and upgrade of
systems (collectively "Systems" revenue), replacement hand pieces, truSculpt iD
cycle refills, and truSculpt flex cycle refills, as well as single use
disposable tips applicable to Juliet and Secret RF ("Consumables" revenue), the
sale of third party manufactured skincare products ("Skincare" revenue); and the
leasing of equipment through a membership program . 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,
as well as one or more hand pieces. However, depending on the application, the
laser or other energy-based module is sometimes contained in the hand piece such
as with the Company's Pearl and Pearl Fractional applications instead of within
the console.



The Company offers customers the ability to select the system that best fits
their practice at the time of purchase and then to cost-effectively add
applications to their system as their practice grows. This provides customers
the flexibility to upgrade their systems whenever they choose and provides the
Company with a source of additional Systems revenue. The Company's primary
system platforms include excel, enlighten, Juliet, Secret RF, truSculpt and xeo.



Skincare revenue relates to the distribution of ZO's skincare products in Japan.
The skincare products are purchased from a third-party manufacturer and sold to
medical offices and licensed physicians. The Company acts as the principal in
this arrangement, as the Company determines the price to charge customers for
the skincare products and controls the products before they are transferred to
the customer.


Service includes prepaid service contracts, enlighten installation, customer marketing support and labor on out-of-warranty products.

Significant Business Trends

The Company believes that the ability to grow revenue will be primarily impacted by the following:

? continuing to expand the Company's product offerings, both through internal

development and sourcing from other vendors;

? ongoing investment in the Company's global sales and marketing infrastructure;

? use of clinical results to support new aesthetic products and applications;

? enhanced luminary development and reference selling efforts (to develop a

location where Company's products can be displayed and used to assist in

    selling efforts);


  ? customer demand for the Company's products;


  ? consumer demand for the application of the Company's products;


  ? marketing to physicians in the core dermatology and plastic surgeon
    specialties, as well as outside those specialties; and

? generating recurring revenue from the Company's growing installed base of

customers through the sale of system upgrades, services, hand piece refills,

truSculpt cycles, skincare products and replacement tips for Juliet and Secret

    RF products.



For a detailed discussion of the significant business trends impacting the Company's business, please see the section titled "Results of Operations" below.

Critical accounting policies, significant judgments and use of estimates




The preparation of the Company's audited consolidated financial statements and
related notes requires the Company to make judgments, estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. The Company has
based its estimates on historical experience and on various other assumptions
that the Company believes to be reasonable under the circumstances. The Company
periodically reviews its estimates and makes adjustments when facts and
circumstances dictate. To the extent that there are material differences between
these estimates and actual results, its financial condition or results of
operations will be affected.



An accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are 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. The critical accounting policies,
judgments and estimates should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto and other disclosures
included in this report.


For an analysis of the Company's Critical Accounting Policies and Estimates please refer to Note 1 "Summary of significant accounting policies" to the Company's audited consolidated financial statements included in Part II, Item 8 of this report.




The Company believes the following critical accounting policies, estimates and
assumptions may have a material impact on reported financial condition and
operating performance and may involve significant levels of judgment to account
for highly uncertain matters or are susceptible to significant change:



Revenue Recognition



See "Part II, Item 8. Revenue Recognition, Note 1" to the consolidated financial
statements for the year ended December 31, 2020, included in this Annual Report
on Form 10-K for additional information about the Company's revenue recognition
policy, significant judgement and criteria for recognizing revenue.



The Company enters into contracts with multiple performance obligations where
customers purchase a combination of systems and services. Determining whether
systems and services are considered distinct performance obligations that should
be accounted for separately requires judgment. The Company determines the
transaction price for a contract based on the consideration it expects to
receive in exchange for the transferred goods or services. To the extent the
transaction price includes variable consideration, such as expected price
adjustments for returns, the Company applies judgment when estimating variable
consideration and when estimating the extent to which the transaction price is
subject to the constraint on variable consideration. The Company evaluates
constraints based on its historical and projected experience with similar
customer contracts.



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The Company allocates revenue to each performance obligation in proportion to
the relative standalone selling prices and recognize revenue when control of the
related goods or services is transferred for each performance obligation.





The Company utilizes the observable standalone selling price when available,
which represents the price charged for the performance obligation when sold
separately. When standalone selling prices for systems or services are not
directly observable, the Company determines the standalone selling prices using
relevant information available and applies suitable estimation methods
including, but not limited to, the cost plus a margin approach.



The Company determines the standalone selling price ("SSP"), for systems based
on directly observable sales in similar circumstances to similar customers. The
SSPs for extended service contracts are based on observable prices when sold on
a standalone basis.



Under the Company's loyalty program, customers accumulate points based on their
purchasing levels. Once a loyalty program member achieves a certain tier level,
the member earns a reward such as the right to attend the Company's advanced
training event for truSculpt, or a ticket for the Company's annual forum. A
customer's account must be in good standing to receive the benefits of the
rewards program. Rewards are earned on a quarterly basis and must be used in the
following quarter. All unused rewards are forfeited. The fair value of the
reward earned by loyalty program members is included in accrued liabilities and
recorded as a reduction of net revenue at the time the reward is earned.



Incremental costs of obtaining a contract, including sales commissions, are
allocated to the distinct goods and services to which they relate based on the
relative stand-alone selling prices. Incremental costs related to obligations
delivered at inception are recognized at contract inception. Those related to
obligations delivered over time are capitalized and amortized on a straight-line
basis over the expected customer relationship period if the Company expects to
recover those costs. 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 for the
Company's product and service arrangements.



Valuation of Goodwill


Goodwill represents the excess of the purchase price over the fair value of net identifiable assets and liabilities.




Goodwill is initially valued based on the excess of the purchase price of a
business combination over the fair value of acquired net assets recognized and
represents the future economic benefits arising from other assets acquired that
could not be individually identified and separately recognized.



Goodwill is not amortized, but is tested for impairment annually, at the
reporting unit level, in the fourth quarter and whenever events or circumstances
indicate impairment may exist. An impairment charge is recorded for the amount,
if any, by which the carrying amount of goodwill exceeds its implied fair value.
See "Part II, Item 8. Financial Statements, Note 1" in the accompanying Notes to
consolidated financial statements for more information.



Capitalized Cloud Computing Costs




The Company capitalizes costs incurred related to implementation costs incurred
in a hosting arrangement that is a service contract to develop or obtain
internal-use software in accordance with ASU No. 2018-15, "Intangibles (Topic
350): Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract," which aligns the requirements
for capitalizing implementation costs incurred in a hosting arrangement that is
a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software. The capitalized
implementation costs are then amortized over the term of the hosting arrangement
inclusive of expected contract renewals, which is generally three to five years.
See "Part II, Item 8. Financial Statements, Note 1" in the accompanying Notes to
consolidated financial statements for more information. The Company periodically
assesses the capitalized implementation costs for impairment. If the Company
determines that an impairment is necessary, the Company records an impairment
loss.



Leases



Lessee



The Company is a party to certain operating and finance leases for vehicles,
office space and storages. The Company's material operating leases consist of
office space, as well as storage facilities. The Company's leases generally have
remaining terms of 1 to 10 years, some of which include options to renew the
leases for up to 5 years.



The Company determines if a contract contains a lease at inception. Right of Use
Assets and lease liabilities are recognized at the lease commencement date.
Operating lease liabilities represent the present value of lease payments not
yet paid. Operating lease Right of Use assets represent the right to use an
underlying asset and are based upon the operating lease liabilities adjusted for
prepayments or accrued lease payments, initial direct costs, lease incentives,
and impairment of operating lease assets. To determine the present value of
lease payments not yet paid, the Company estimates the incremental secured
borrowing rates corresponding to the maturities of the leases. The Company based
the rate estimates on prevailing financial market conditions, credit analysis
and management judgment.



The Company recognizes expense for these leases on a straight-line basis over
the lease term. Additionally, tenant incentives used to fund leasehold
improvements are recognized when earned and reduce the Company's right-of-use
asset related to the lease. These are amortized through the right-of-use asset
as reductions of expense over the lease term.



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Lessor



Beginning in 2020, the Company also enters into leasing transactions, in which
the Company is the lessor, offered through the Company's membership program. All
of the Company's leases for equipment rentals were initially accounted for as
operating leases. The lease agreements are typically for three years; however,
the customer has the right to terminate the lease after twelve months
with no penalty. As such, the Company has determined that the expected term of
the lease is twelve-months. Rental charges are a fixed monthly fee, paid at the
beginning of each month, over the term of the lease. Along with the leased
equipment, the membership program provides customers with a warranty service and
a fixed amount of consumables per month for the term of the lease, which are
classified as non-lease components. The Company has made an accounting policy
election to account for qualifying lease components and associated non-lease
components as a single component; accordingly, a lease component and an
associated warranty service non-lease component are combined and accounted for
as an operating lease. The consumables do not qualify for the practical
expedient and are accounted for as a separate non-lease component.



The initial direct costs related to the Company's operating leases for equipment
rentals include the related commissions paid to employees upon the origination
of a lease agreement. These costs are included in Other current assets and
prepaid expenses on the consolidated balance sheets and are amortized over the
lease term of twelve-months.



During the fourth quarter ended December 31, 2020, some of the membership
program agreements were amended to grant the lessees an option to purchase the
leased system from the Company, at any time during the period of 12 months from
signing the amended agreement. For contracts signed under the amended membership
agreement, the Company classified and accounted for the arrangement as
sales-type leases, as the Company determined it is reasonably certain that the
customer will exercise the purchase option.



At the commencement of the sales-type leases, the Company derecognized the underlying equipment and recognized a lease receivable if collectability criteria was met.




The Company adopted ASC Topic 842 on January 1, 2019, applying the modified
retrospective method to all leases existing at the date of initial application.
The comparative information has not been adjusted and continues to be reported
under the accounting standards in effect for the prior period.



See "Part II, Item 8. Financial Statements, Notes 1 and 11" in the accompanying Notes to consolidated financial statements for more information.



Valuation of Inventories



Inventories are stated at the lower of cost and net realizable value, cost being
determined on a standard cost basis which approximates actual cost on a
first-in, first-out basis. Net realizable value is the estimated selling prices
in the ordinary course of the Company's business, less reasonably predictable
costs of completion, disposal, and transportation. Standard costs are monitored
and updated quarterly or as necessary, to reflect changes in raw material costs,
labor to manufacture the product and overhead rates.



The cost basis of the Company's inventory is reduced for any products that are
considered excess or obsolete based upon assumptions about future demand and
market conditions. The Company provides for excess and obsolete inventories when
conditions indicate that the inventory cost is not recoverable due to physical
deterioration, forecast usage, obsolescence, reductions in estimated future
demand and reductions in selling prices. Inventory provisions are measured as
the difference between the cost of inventory and net realizable value to
establish a lower cost basis for the inventories. The Company balances the need
to maintain strategic inventory levels with the risk of obsolescence due to
changing technology, timing of new product introductions and customer demand
levels.



The Company includes demonstration units within inventories. Demonstration units
are carried at cost and amortized over an estimated economic life of two years.
Amortization expense related to demonstration units is recorded in Products cost
of revenue or in the respective operating expense line based on which function
and purpose for which the demonstration units are being used. Proceeds from the
sale of demonstration units are recorded as revenue and all costs incurred to
refurbish the systems prior to sale are charged to cost of revenue.



See "Part II, Item 8. Financial Statements, Note 1" in the accompanying Notes to consolidated financial statements for more information.

Stock-based Compensation Expense




The Company's equity incentive plans are broad-based, long-term programs
intended to attract and retain talented employees and align stockholder and
employee interests. The Company's equity incentive plans provide for the grant
of incentive stock options, non-statutory stock options, RSAs, restricted stock
units ("RSUs"), stock appreciation rights, performance stock units, performance
shares, and other stock or cash awards. See "Part II, Item 8. Financial
Statements, Note 6" in the accompanying Notes to consolidated financial
statements for more information.



The Company accounts for stock-based compensation costs in accordance with the accounting standards for share-based compensation, which require that all share-based payments to employees and non-employees be recognized in the consolidated statements of operations based on their fair values.

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The Company uses the Black-Scholes option-pricing model using the single-option
approach to determine the fair value of options granted. Option-pricing models
require the input of highly subjective assumptions, particularly for the
expected stock price volatility and the expected term of options. The risk-free
interest rate is based on the U.S. Treasury yield for a duration similar to the
expected term at the date of grant. The Company has never paid any cash
dividends on its common stock and it has no intention to pay a dividend at this
time; therefore, the Company assumes that no dividends will be paid over the
expected terms of option awards. The Company determines the assumptions to be
used in the valuation of option grants as of the date of grant. As such, the
Company uses different assumptions during the year if it grants options at
different dates.



The assumptions used in the Black-Scholes-option pricing model to determine the fair value of an award include the following:




Expected Term: The expected term represents the weighted-average period that the
stock options are expected to be outstanding prior to being exercised. The
Company determines expected term based on historical exercise patterns and its
expectation of the time it will take for employees to exercise options still
outstanding.



Expected Volatility: For the underlying stock price volatility of the Company's
stock, the Company estimates volatility solely based on the Company's historical
volatility of its stock price.



Forfeitures: The amount of stock-based compensation recognized during a period
is based on the value of the portion of the awards that are ultimately expected
to vest. Under ASC 718, the Company has made an accounting policy to estimate
forfeitures at the time awards are granted and revises, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.



Risk-Free Interest Rate: The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for the expected term of the stock option.




The Company grants RSUs to the Company's directors, officers and management
employees and non-employees. The fair value of RSUs is based on the stock price
on the grant date using a single-award approach. The RSUs are subject to a
service vesting condition and are recognized on a straight-line basis over the
requisite service period. Shares are issued on the vesting dates, net of
applicable tax withholding requirements to be paid by the Company on behalf of
the recipient. As a result, the actual number of shares issued will be fewer
than the actual number of RSUs outstanding. Furthermore, the Company records the
obligation for withholding amounts to be paid by the Company as a reduction to
additional paid-in capital.



Performance stock units are granted to the Company's officers and management
employees and non-employees. PSU's with operational measurement goals are
measured at the market price of the Company's stock on the date of grant. The
final number of shares of common stock issuable at the end of the performance
measurement period, subject to the recipient's continued service through that
date, is determined based on the expected degree of achievement of the
performance goals. Stock-based compensation expense for PSUs is recognized based
on the expected degree of achievement of the performance goals over the vesting
period. On the vesting date of PSU awards, the Company issues fully paid up
common stock, net of the minimum statutory tax withholding requirements to be
paid by the Company and records the obligation for withholding amounts as a
reduction to additional paid-in capital.
During 2020 and 2019, the Company's Board granted to executive officers, senior
management and certain employees PSUs that vest subject to the recipients'
continued service and to the achievement of certain operational goals for the
Company's 2020 and 2019 fiscal year which consist of the achievement of revenue
targets for consumable products, revenue targets for international revenue, and
certain operational milestones related to product performance and business
management.



On April 1, 2020, the Company issued RSUs to settle bonuses owed to management
under the 2019 Management Bonus Program. In the past, the Company paid these
bonuses with cash on hand. However, due to the economic conditions resulting
from COVID-19, fully vested shares were issued in lieu of cash. The Company
issued 209,981 shares related to this bonus payment to management and recognized
$2.6 million in stock-based compensation expense during fiscal year 2020. The
Company also recorded an equivalent reduction in bonus expense as a result of
the settlement of the bonus in shares.



For a significant majority of the Company's awards, share-based compensation
expense is recognized on a straight-line basis over the requisite service
period, which ranges from one to four years depending on the award. The Company
recognizes share-based compensation expense for the portion of the equity award
that is expected to vest over the requisite service period and develops an
estimate of the number of share-based awards which will ultimately vest,
primarily based on historical experience within separate groups of employees and
expectations regarding achievement of PSU goals for PSU awards. The forfeiture
rates used in 2020 ranged from 0% to 20.8%. The estimated forfeiture rate is
reassessed periodically throughout the requisite service period. Such estimates
are revised if they differ materially from actual forfeitures. For the award
types discussed above, if the employee or non-employee terminates employment
prior to being vested in an award, then the award is forfeited.



Modifications of the terms of outstanding awards may result in significant increases or decreases in share-based compensation. During the third quarter of 2020, the Company's Board modified RSUs awards granted to certain senior management that vest subject to the recipients' continued service.

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There were no significant modifications to the terms of outstanding options, and PSUs during 2020.




During the quarter ended March 31, 2020, the Company's Board of Directors
granted its executive officers, senior management, and certain employees 98,580
PSUs. The PSUs granted in the quarter ended March 31, 2020 vest subject to the
recipients continued service and to the achievement of specific optional and
regulatory milestones.



On August 2, 2020, the Board awarded its new CFO, Rohan Seth, an option grant
for 60,000 shares, which vests over 5 years, and a PSU award covering a target
of 22,423 shares, which vests over 2.5 years and is subject to performance-based
criteria relating to the achievement of certain goals with 40% based on
achievement of Finance department goals and 60% based on the Company's
achievement of financial performance. The maximum number of shares that may vest
under the award is 150% of the target number of shares of Common Stock subject
to the award.


See "Part II, Item 8. Financial Statements, Notes 1 and 6" in the accompanying Notes to consolidated financial statements for more information.



Income Taxes



The provision for income taxes is determined using the asset and liability
approach of accounting for income taxes. Under this approach, deferred taxes
represent the estimated future tax effects of temporary differences between book
and tax treatment of assets and liabilities and carryforwards to the extent they
are realizable.



The Company is subject to taxes on earnings in both the U.S. and various foreign
jurisdictions. On a quarterly basis, the Company assesses the realizability of
its deferred tax assets. For those jurisdictions where tax carryforwards are
likely to expire unused or the projected operating results indicate that
realization is not more likely than not, a valuation allowance is recorded to
offset the deferred tax asset within that jurisdiction. In assessing the need
for a valuation allowance, the Company considers future taxable income and
ongoing prudent and feasible tax planning strategies. In the event that the
Company determines that it would be able to realize its deferred tax assets in
the future in excess of the net recorded amount, a reduction of the valuation
allowance would increase income in the period such determination was made.
Likewise, should the Company determine that it would not be able to realize all
or part of its net deferred tax asset in the future, a reduction to the deferred
tax asset would be charged to income in the period such determination was made.



The Company's net taxable temporary differences and tax carryforwards are
recorded using the enacted tax rates expected to apply to taxable income in the
periods in which the deferred tax liability or asset is expected to be settled
or realized. Should the expected applicable tax rates change in the future, an
adjustment to the Company's deferred taxes would be credited or charged, as
appropriate, to income in the period such determination was made.



The Company's effective tax rates have differed from the statutory rate
primarily due to changes in the valuation allowance, foreign operations,
research and development tax credits, state taxes, and certain benefits realized
related to stock option activity. The Company's current effective tax rate does
not assume U.S. taxes on undistributed profits of foreign subsidiaries. These
earnings could become subject to incremental foreign withholding or U.S. state
taxes, should they either be deemed or actually remitted to the U.S. The
Company's future effective tax rates could be adversely affected by earnings
being lower in countries where the Company has lower statutory rates and being
higher in countries where the Company has higher statutory rates, or by changes
in tax laws, accounting principles, interpretations thereof, net operating loss
carryback, research, and development tax credits, and due to changes in the
valuation allowance applied to its U.S. deferred tax assets. In addition, the
Company is subject to the examination of the Company's income tax returns by the
Internal Revenue Service and other tax authorities. The Company regularly
assesses the likelihood of adverse outcomes resulting from these examinations to
determine the adequacy of the Company's provision for income taxes.



Undistributed earnings of the Company's foreign subsidiaries as of December 31,
2020 are considered to be indefinitely reinvested and, accordingly, no provision
for income taxes has been provided thereon. Due to the Transition Tax and Global
Intangible Low-Tax Income ("GILTI") regimes as enacted by the 2017 Tax Act,
those foreign earnings will not be subject to federal income taxes when actually
distributed in the form of a dividend or otherwise. The Company, however, could
still be subject to state income taxes and withholding taxes payable to various
foreign countries. The amounts of taxes which the Company could be subject to
are not material to the accompanying financial statements.



On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid,
Relief, and Economic Security Act ("CARES Act"). The CARES Act changed several
of the existing U.S. corporate income tax laws by, among other things,
increasing the amount of deductible interest, allowing companies to carry back
certain Net Operating Losses ("NOLs") and increasing the amount of NOLs that
corporations can use to offset income. Further, in December 2020, the
Consolidated Appropriations Act, 2021 was signed into law. It clarified that
gross income does not include any amount that would otherwise arise from the
forgiveness of a PPP loan. The CARES Act did not have a material impact on the
Company's income tax provision, deferred tax assets and liabilities, and related
taxes payable.



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The Company periodically assesses its exposures related to its global provision
for income taxes and believe that it has appropriately accrued taxes for
contingencies. Any reduction of these contingent liabilities or additional
assessment would increase or decrease income, respectively, in the period such
determination was made.





The Company records a liability for uncertain tax positions that do not meet the
more likely than not standard as prescribed by the authoritative guidance for
income tax accounting. The Company records tax benefits for only those positions
that it believes will more likely than not be sustained. For positions that the
Company believes that it is more likely than not that it will prevail, the
Company records a benefit considering the amounts and probabilities that could
be realized upon ultimate settlement. If the Company judgment as to the likely
resolution of the uncertainty changes, if the uncertainty is ultimately settled
or if the statute of limitation related to the uncertainty expires, the effects
of the change would be recognized in the period in which the change, resolution
or expiration occurs. The Company has included in the Company's Consolidated
Balance Sheet a long-term income tax liability for unrecognized tax benefits and
accrued interest and penalties of $1,864 and $1,461 as of December 31, 2020 and
December 31, 2019, respectively. See "Part II, Item 8. Financial Statements,
Note 7. Income Taxes" in the accompanying Notes to consolidated financial
statements for more information.



Litigation



The Company has been, and may in the future become, subject to a number of legal
proceedings involving securities litigation, product liability, intellectual
property, contractual disputes, trademark and copyright, and other matters. The
Company records a liability and related charge to earnings in its consolidated
financial statements for legal contingencies when the loss is considered
probable and the amount can be reasonably estimated. The Company's assessment is
reevaluated each accounting period and is based on all available information,
including discussion with any outside legal counsel that represents us. If a
reasonable estimate of a known or probable loss cannot be made, but a range of
probable losses can be estimated, the low-end of the range of losses is
recognized if no amount within the range is a better estimate than any other. If
a loss is reasonably possible, but not probable and can be reasonably estimated,
the estimated loss or range of loss is disclosed in the notes to the
consolidated financial statements.



Off-Balance Sheet Arrangements




The Company does not participate in transactions that generate relationships
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance, variable interest or special purpose
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. As of December 31, 2020, the Company was not involved in any
unconsolidated transactions.



Recent Accounting Pronouncement




In addition to the impacts from new accounting pronouncements included above see
Note 1 - "Summary of Significant Accounting Pronouncements" in the Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on
Form 10-K. for a complete discussion of recent accounting pronouncements adopted
and not adopted.



Results of Operations



The following table sets forth selected consolidated financial data expressed as
a percentage of net revenue.



                                      Year Ended December 31,
                                   2020           2019       2018

Net revenue                           100 %         100 %      100 %
Cost of revenue                        49 %          46 %       51 %
Gross profit                           51 %          54 %       49 %
Operating expenses:
Sales and marketing                    36 %          39 %       36 %
Research and development               10 %           8 %        9 %
General and administrative             20 %          13 %       13 %
Total operating expenses               66 %          61 %       58 %
Loss from operations                  (15 )%         (7 )%      (8 )%
Interest and other expense, net        (1 )%          - %        - %
Loss before income taxes              (16 )%         (7 )%      (8 )%
Income tax provision                    - %           - %       11 %
Net loss                              (16 )%         (7 )%     (19 )%




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Net Revenue


The following table sets forth selected consolidated revenue by major geographic area and product category with changes thereof.



                                                        Year Ended December 31,
(Dollars in thousands)              2020         % Change        2019         % Change        2018
Revenue mix by geography:
United States                     $  61,202            -42 %   $ 106,243              4 %   $ 101,862
International                        86,481             15 %      75,469             24 %      60,858
Consolidated total revenue        $ 147,683            -19 %   $ 181,712             12 %   $ 162,720
United States as a percentage
of total revenue                         41 %                         58 %                         63 %
International as a percentage
of total revenue                         59 %                         42 %                         37 %

Revenue mix by product
category:
Systems
- North America                   $  50,721            -48 %   $  96,718              3 %   $  93,977
- Rest of World                      40,045             -8 %      43,760             13 %      38,618
Total Systems                        90,765            -35 %     140,478              6 %     132,595
Consumables                           9,287             -4 %       9,648            132 %       4,162
Skincare                             25,061            194 %       8,512             47 %       5,778
Total Products                      125,113            -21 %     158,638             11 %     142,535
Service                              22,570             -2 %      23,074             14 %      20,185
Total Net revenue                 $ 147,683            -19 %   $ 181,712             12 %   $ 162,720




Total Net Revenue



The Company's revenue decreased by $34.0 million, or 19%, for the year ended
December 31, 2020, compared to 2019, due to significant decline in sales in the
North America market as a direct result of the COVID-19 pandemic. The decrease
was partially offset by increase in sales of Skincare products.



Revenue by Geography



The Company's U.S. revenue decreased by $45.0 million, or 42%, for the year
ended December 31, 2020, compared to the same period in 2019. The decrease was
due primarily to the COVID-19 pandemic. In response to the pandemic, government
authorities imposed mandatory business closures, shelter-in place and
work-from-home orders and social distancing protocols during 2020 that
significantly impacted the Company's business operation.



The Company's U.S. revenue increased $4.4 million, or 4%, for the year ended
December 31, 2019 compared to 2018. The increase was due primarily to continued
demand of the truSculpt portfolio, including the recently launched truSculpt
flex, as well as the Company's excel V+ system.



The Company's international revenue increased $11.0 million, or 15%, for the
year ended December 31, 2020, compared to the same period in 2019, driven
primarily by an increase in skincare product sales in Japan as a result of
increased marketing and promotional efforts, as well as changes in customers
behavior due to the COVID-19 as some consumers opted to purchase skincare
products rather than go to a doctor's office for treatment due to the COVID 19
pandemic, partially offset by decrease in the Company's distributor business due
to the COVID-19 pandemic.



The Company's international revenue increased $14.6 million, or 24%, for the
year ended December 31, 2019 compared to 2018, driven primarily by increases in
service revenue, systems, skincare products and consumables.



Revenue by Product Type



Systems Revenue



Systems revenue in North America decreased by $46.0 million, or 48%, for the
year ended December 31, 2020, compared to the same period in 2019, due primarily
to the COVID-19 pandemic that impacted system sales. The Rest of the World
systems revenue decreased by $3.7 million, or 8%, compared to the same period in
2019. The decrease in Rest of the World revenue was primarily due to a decrease
in the Company's distributor business in the Middle East due to the COVID-19
pandemic.



Systems revenue in North America increased $2.7 million, or 3%, for the year
ended December 31, 2019, compared to the same period in 2018, due primarily to
the recently launched excel V+ and truSculpt flex systems. The Rest of the World
systems revenue increased by $5.1 million, or 13%, compared to the same period
in 2018. The increase in Rest of the World revenue was primarily a result of an
increase in the Company's direct business in Asia Pacific and Europe, as well as
an increase in the Company's distributor business in the Middle East due to the
Company's expansion to these markets and new products launches.



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Consumables Revenue



Consumables revenue decreased $0.4 million, or 4%, for the year ended December
31, 2020, compared to the same period in 2019. The decrease in consumables
revenue was primarily due to decreased sales in installed base of truSculpt iD,
Secret RF, and truSculpt flex, each of which have a consumable element, as well
as the decline in usage of the consumables due to the COVID-19 pandemic.



Consumables revenue increased $5.5 million, or 132%, for the year ended December
31, 2019, compared to the same period in 2018. The increase in consumables
revenue was due to the introduction of Secret RF and Juliet during January 2019,
and truSculpt iD in July 2019, each of which have consumable elements.



Skincare Revenue



The Company's revenue from Skincare products in Japan increased $16.5 million,
or 194%, for the year ended December 31, 2020, compared to the same period in
2019. This increase was due primarily to increased marketing and promotional
efforts, as well as changes in customers behavior due to the COVID-19 pandemic
as some consumers opted to purchase skincare products rather than go to a
doctor's office for treatment.



The Company's revenue from Skincare products in Japan increased $2.7 million, or
47%, for the year ended December 31, 2019, compared to the same period in 2018.
This increase was due primarily to increased marketing and promotional
activities, and a temporary increase in consumer demand due to changes in the
Japanese consumption tax rate from 8% to 10% effective October 1, 2019.



Service Revenue



The Company's Service revenue decreased $0.5 million, or 2%, for the year ended
December 31, 2020, compared to the same period in 2019. This decrease was due
primarily to decreased sales of service contracts and support and maintenance
services provided on a time and materials basis to the Company's network of
international distributors due to the COVID-19 pandemic.



The Company's Service revenue increased $2.9 million, or 14%, for the year ended
December 31, 2019, compared to the same period in 2018. This increase was due
primarily to increased sales of service contracts, and support and maintenance
services provided on a time and materials basis to the Company's network of
international distributors.



Gross Profit



                                                            Year Ended December 31,
(Dollars in thousands)                2020         % Change           2019          % Change          2018
Gross Profit                       $   75,772             (23 )%   $   98,163               22 %   $   80,382
As a percentage of total revenue           51 %                            54 %                            49 %



The Company's cost of revenue consists primarily of material, personnel expenses, product warranty costs, and manufacturing overhead expenses.




Gross profit as a percentage of revenue for the year ended December 31, 2020
decreased from 54% to 51%, compared to same period in 2019. The decrease in
gross profit as a percentage of revenue was primarily driven by a lower overhead
absorption on lower revenue, the decline in the average sales price of systems
due to the COVID-19 pandemic and reduction-in-force and furloughed costs
implemented by the Company during the first nine months of 2020, partially
offset by costs savings from the reduction-in-force and furlough and continuous
investments in its international direct service support and operational
improvement activities.



Gross profit as a percentage of revenue for the year ended December 31, 2019
increased from 49% to 54%, compared to same period in 2018. The increase in
gross profit as a percentage of revenue was largely driven by demand for the
Company's new products with higher margins, as well as strong growth in
consumables and skincare products. The year ended December 31, 2018 also
included a $5 million product remediation charge when the Company recognized a
liability for a product remediation plan related to of one of its legacy
systems. The accrued expense consisted of the estimated cost of materials and
labor to replace the component in all units that were under the Company's
standard warranty or were covered under existing service contracts.



Sales and Marketing



                                                            Year Ended December 31,
(Dollars in thousands)                2020         % Change           2019          % Change          2018
Sales and marketing                $   52,766             (26 )%   $   71,109               22 %   $   58,420
As a percentage of total revenue           36 %                            39 %                            36 %




Sales and marketing expenses consist primarily of personnel expenses, expenses
associated with customer-attended workshops and trade shows, post- marketing
studies, advertising and training.



The $18.3 million, or 26%, decrease in sales and marketing expenses for the year
ended December 31, 2020 compared to the same period in 2019 was due primarily
to:


? $8.0 million decrease in labor costs due to a decrease in commission as a

result of lower sales, salary reduction, furloughs and reductions-in-force in

early 2020;

? $4.8 million decrease in promotional and product demonstration expenses due to

cancellation of trade shows and promotional events as a result of the COVID-19

pandemic;

? $3.3 million decrease in travel related expenses resulting from the travel

restrictions due to the COVID-19 pandemic;

? $1.1 million decrease in stock-based compensation due to decreased headcount;

    and


  ? $1.1 million decrease in consulting and outside professional fees.




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The $12.7 million, or 22%, increase in sales and marketing expenses for the year
ended December 31, 2019 compared to the same period in 2018 was due primarily
to:



  ? $6.4 million increase in labor costs due to increased headcount;

? $2.4 million increase in stock-based compensation due to increased headcount;


  ? $1.9 million increase in consulting and outside professional fees;


  ? $1.2 million increase in software user license fees and other expenses;

? $0.5 million of higher travel related expenses in North America resulting from

    increased headcount; and


  ? $0.3 million of higher promotional and product demonstration expenses.



Research and Development ("R&D")



                                                     Year Ended December 31,
(Dollars in thousands)        2020          % Change           2019          % Change           2018
Research and development   $   14,322               (5 )%   $   15,085                 5 %   $   14,359
As a percentage of total
revenue                            10 %                              8 %                              9 %




R&D expenses consist primarily of personnel expenses, clinical research,
regulatory and material costs. R&D expenses decreased by $0.8 million, or 5%,
for the year ended December 31, 2020, compared to the same period in 2019. The
decrease in expense for the year ended December 31, 2020 was due primarily to
$0.6 million decrease in salaries and benefits due to cost cutting measures
implemented in response to the COVID 19 pandemic, $0.5 million decrease in
consulting services and $0.3 million decrease in travel and other costs, offset
by a net increase in material and equipment costs used for research and
development activities of $0.6 million.



R&D expenses increased by 5% for the year ended December 31, 2019, compared to
the same period in 2018. The increase in expense of $0.7 million for the year
ended December 31, 2019 was due primarily to an increase in stock-based
compensation.



General and Administrative ("G&A")



                                                            Year Ended December 31,
(Dollars in thousands)                2020          % Change          2019          % Change          2018
General and administrative         $   31,512               31 %   $   24,033               14 %   $   20,995
As a percentage of total revenue           21 %                            13 %                            13 %




G&A expenses consist primarily of personnel expenses, legal, accounting, audit
and tax consulting fees, as well as other general and administrative expenses.
G&A expenses increased by $7.5 million, or 31%, for the year ended December 31,
2020, compared to the same period in 2019. The increase in expenses was due
primarily to $5.2 million increase in professional fees, consulting services and
legal fees, $1.6 million increase in credit loss expense, $0.5 million increase
in software user license expense and $0.8 million increase due to a write off of
capitalized Enterprise Resource Planning cloud computing costs, partially offset
by $0.4 million decrease in personnel related expenses, including stock-based
compensation expense, and $0.2 million decrease in travel and other expense.



G&A expenses increased 14% for the year ended December 31, 2019, compared to the
same period in 2018. The increase in expenses of $3.0 million was due primarily
to $1.1 million of personnel related expenses, inclusive of a $1.3 million
decrease in stock-based compensation, $0.9 million increase in professional
fees, consulting services and legal fees related to the ongoing implementation
efforts of a new Enterprise Resource Planning system and $ 0.6 million related
to executive severance costs.


Interest and Other Expense, Net

Interest and other income, net, consists of the following:



                                                       Year Ended December 31,
(Dollars in thousands)           2020         % Change          2019           % Change          2018
Total interest and other
expense, net                  $     (579 )           191 %   $     (199 )              62 %   $     (123 )
As a percentage of total
net revenue                          0.0 %                         (0.1 )%                          (0.1 )%




Interest and other expense, net increased $0.4 million, or 191%, for the year
ended December 31, 2020, compared to 2019. The increase was primarily due to an
amortization of loan costs related to the revolving loan obtained from Silicon
Valley Bank during the year ended December 31, 2020 and a decrease in interest
income from marketable investments.



Net interest and other income expense was marginally higher for the year ended December 31, 2019 compared to the year ended December 31, 2018.



Income Tax Provision



                                                       Year Ended December 31,
(Dollars in thousands)              2020        $ Change        2019        $ Change        2018
Income loss before income taxes   $ (23,407 )   $ (11,144 )   $ (12,263 )   $   1,252     $ (13,515 )
Income tax provision                    470           385            85       (17,170 )      17,255




During the year ended December 31, 2020, the Company incurred income tax expense
in foreign jurisdictions as the Company applied a full valuation allowance
against all U.S. federal and state deferred tax assets. During the year ended
December 31, 2019, the Company incurred income tax expense in foreign
jurisdictions which was partially offset by an income tax benefit of $0.3
million related to the release of reserves for uncertain tax positions in
Germany.



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Liquidity and Capital Resources



Sources and Uses of Cash



The Company's principal source of liquidity is cash from maturity and sales of
marketable investments and cash generated from the issuance of common stock
through exercise of stock options and the Company's employee stock purchasing
program. The Company actively manages its cash usage and investment of liquid
cash to ensure the maintenance of sufficient funds to meet its daily needs. The
majority of the Company's cash and investments are held in U.S. banks and its
foreign subsidiaries maintain a limited amount of cash in their local banks to
cover their short-term operating expenses.



As of December 31, 2020 and December 31, 2019, the Company had $51.9 million and
$36.4 million of working capital, respectively. Cash and cash equivalents plus
marketable investments increased by $13.1 million to $47.0 million as of
December 31, 2020, from $33.9 million as of December 31, 2019, primarily as a
result of cash obtained from financing activities, including net proceeds from
the Company's secondary offering of $26.5 million and proceeds from the PPP loan
of $7.1 million, partially offset by a decrease in sales caused by the business
disruptions due to the COVID-19 pandemic. The Company's $6.4 million cash inflow
from investing activities is due primarily to the liquidation of marketable
investments.



As of December 31, 2019, and December 31, 2018, the Company had $36.4 million
and $39.6 million of working capital, respectively. Cash and cash equivalents
plus marketable investments decreased by $1.7 million to $33.9 million as of
December 31, 2019, from $35.6 million as of December 31, 2018, primarily as a
result of increased inventory purchases related to the increasing demand of the
Company's products, and an increase in investments in sales, service, and other
management headcount to facilitate continued revenue expansion.



Cash, Cash Equivalents and Marketable Investments

The following table summarizes the Company's cash and cash equivalents and marketable investments (in thousands):



                                                         Year ended December 31,
(Dollars in thousands)                                2020         2019        Change
Cash, cash equivalents and marketable securities:
Cash and cash equivalents                           $ 47,047     $ 26,316     $ 20,731
Marketable investments                                     -        7,605       (7,605 )
Total                                               $ 47,047     $ 33,921     $ 13,126




Consolidated Cash Flow Data


In summary, the Company's cash flows were as follows:



                                                  Year ended December 31,
(Dollars in thousands)                        2020          2019         2018
Cash flows provided by (used in):
Operating activities                        $ (16,934 )   $ (2,217 )   $    308
Investing activities                            6,389        1,067       10,773
Financing activities                           31,276        1,414          787

Net increase in cash and cash equivalents $ 20,731 $ 264 $ 11,868

Cash Flows from Operating Activities

Net cash used in operating activities was $16.9 million during 2020, which was due primarily to:

? $23.9 million net loss adjusted for non-cash related items consisting

primarily of stock-based compensation expense of $10.1 million, $2.6 million

amortization of capitalized contract costs, $2.1 million of provision for

    credit losses and $1.4 million depreciation and amortization.


  ? $6.0 million cash used as a result of a decrease in accounts payable;

? $3.2 million cash used due to an increase in other current assets and prepaid

    expenses;


  ? $3.0 million cash used as a result of a decrease in deferred revenue;


  ? $2.6 million cash used as a result of an increased accounts receivable;


  ? $2.1 million cash used due to increase other long-term assets;


  ? $0.8 million cash used as a result of a decrease in extended warranty
    liabilities; partially offset by

? $5.4 million cash generated as a result of a decrease in inventories; and

? $0.9 million cash generated as a result of increased accrued liabilities.

Net cash used in operating activities was $2.2 million during 2019, which was due primarily to:

? $12.3 million net loss adjusted for non-cash related items consisting

primarily of stock-based compensation expense of $9.8 million, $2.9 million

amortization of capitalized contract costs and $1.5 million depreciation and

    amortization expenses;


  ? $5.9 million cash used due to an increase in inventories;


  ? $3.4 million cash used to increase long term assets;


  ? $2.5 million cash used as a result of increased accounts receivables;

? $1.8 million cash used to increase other current assets and prepaid expenses;


  ? $1.4 million cash used for increased inventory purchases leading to an
    increase in accounts payable;


  ? $1.2 million cash used as a result of a decrease in extended warranty
    liabilities; partially offset by


  ? $7.2 million cash generated by an increase in accrued liabilities; and


  ? $1.7 million cash generated as a result of increased deferred revenue.




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Net cash provided by operating activities was $0.3 million during 2018, which was due primarily to:

? $30.8 million net loss as adjusted for non-cash related items consisting

primarily of valuation allowance against certain U.S. differed tax assets of

? $17.4 million (excluding the $1.2 million tax effect of the ASC 606 Adoption),

stock-based compensation expense of $7.2 million, $1.3 million provision for

    accounts receivable credit losses and $3.0 million depreciation and
    amortization expenses;

? $4.3 million cash generated from an increase in accounts payable due primarily

    to increased inventory related purchases;


  ? $3.2 million cash generated due to an increase in extended warranty
    liabilities;


  ? $1.3 million cash generated as a result of increased deferred revenue;


  ? $0.8 million cash generated as a result of a decrease in inventories;

? $0.1 million cash generated due to a decrease in other long liabilities;

    partially offset by


  ? $3.8 million cash used to settle accrued liabilities;


  ? $2.8 million cash used to increase other long-term assets;

? $1.1 million cash used to increase other current assets and prepaid expenses;

    and


  ? $0.1 million cash used as a result of increased accounts receivables.



Cash Flows from Investing Activities

Net cash provided by investing activities was $6.4 million during 2020, which was attributable primarily to:

? $33.7 million in net proceeds from the maturities of marketable investments;

    partially offset by


  ? $26.1 million of cash used to purchase marketable investments; and


  ? $1.3 million of cash used to purchase property, equipment and software.



Net cash provided by investing activities was $1.1 million during 2019, which was attributable primarily to:

? $14.7 million in net proceeds from the sales and maturities of marketable

    investments; partially offset by


  ? $12.7 million of cash used to purchase marketable investments; and


  ? $1.0 million of cash used to purchase property, equipment and software.



Net cash provided by investing activities was $10.8 million during 2018, which was attributable primarily to:

? $23.1 million in net proceeds from the sales and maturities of marketable

    investments; partially offset by


  ? $10.9 million of cash used to purchase marketable investments; and


  ? $1.5 million of cash used to purchase property, equipment and software.



Cash Flows from Financing Activities

Net cash provided by financing activities was $31.3 million during 2020, which was primarily due to:

? $26.5 million proceeds from the issuance of common stock in connection with

    public offering, net of issuance costs;


  ? $7.2 million proceeds from the PPP loan;

? $1.6 million net proceeds from the issuance of common stock due to employee

exercising their stock options and purchasing stock through the Employee Stock

Purchase Plan ("ESPP") program; partially offset by

? $3.4 million of cash used for taxes paid related to net share settlement of

    equity awards; and


  ? $0.5 million of cash used to pay capital lease obligations.



Net cash provided by financing activities was $1.4 million during 2019, which was primarily due to:

? $2.9 million proceeds from the issuance of common stock due to employee

exercising their stock options and purchasing stock through the ESPP program;

partially offset by

? $0.8 million of cash used for taxes paid related to net share settlement of

    equity awards; and


  ? $0.6 million of cash used to pay capital lease obligations.



Net cash provided by financing activities was $0.8 million during 2018, which was primarily due to:

? $4.4 million proceeds from the issuance of common stock due to employee

exercising their stock options and purchasing stock through the ESPP program;

offset by

? $3.1 million of cash used for taxes paid related to net share settlement of

    equity awards; and


  ? $0.5 million of cash used to pay capital lease obligations.



Adequacy of Cash Resources to Meet Future Needs




The Company had cash and cash equivalents of $47.0 million as of December 31,
2020. For fiscal year 2020, the Company's principal source of liquidity is cash
generated from proceeds received from its April 2020 offering, the PPP loan,
maturity and sales of marketable investments and cash generated from the
issuance of common stock through exercise of stock options and the Company's
employee stock purchasing program. In addition, on March 9, 2021, the Company
issued and sold $125 million aggregate principal amount of 2.25% Convertible
Senior Notes. The Company believes that the existing cash resources are
sufficient to meet the Company's anticipated cash needs for working capital and
capital expenditures for at least the next several years, but there can be no
assurances.



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Loan and Security Agreement



On July 9, 2020, the Company terminated its undrawn revolving line of credit
with Wells Fargo and subsequently entered into a Loan and Security 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. The SVB Revolving Line of Credit matures on July 9, 2024. As of
December 31, 2020, there were no borrowings under the SVB Revolving Line of
Credit.







Covenants



On July 9, 2020, the Company terminated its undrawn revolving line of credit
with Wells Fargo and subsequently entered into a Loan and Security Agreement
with Silicon Valley Bank. The agreement provides 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 "Part II, Item 8. Financial
Statements, Note 12. Debt" in the accompanying Notes to consolidated financial
statements for more information.



The Loan and Security Agreement with Silicon Valley Bank contains customary
affirmative covenants, such as financial statement reporting requirements and
delivery of borrowing base certificates, as well as customary covenants that
restrict the Company's ability to, among other things, incur additional
indebtedness, sell certain assets, guarantee obligations of third parties,
declare dividends, or make certain distributions, and undergo a merger or
consolidation or certain other transactions. The Loan and Security Agreement
also contains certain financial condition covenants, including maintaining a
quarterly minimum revenue of $90.0 million, determined in accordance with GAAP
on a trailing twelve-month basis. This quarterly minimum revenue requirement is
subject to renegotiation at the beginning of each fiscal year.



As of December 31, 2020, the Company had not drawn on the SVB Revolving Line of
Credit and the Company is in compliance with all financial covenants of the SVB
Revolving Line of Credit.



Contractual Obligations



The following are the Company's contractual obligations, consisting of future
minimum lease commitments related to facility and vehicle leases as of December
31, 2020:



                                                   Payments Due by Period ($'000's)
                                              Less Than                                       More Than

Contractual Obligations Total 1 Year 1-3 Years

   3-5 Years        5 Years
Operating leases              $   21,448     $     3,062     $     6,319     $     5,759     $     6,308
Finance leases                       635             374             261              -                -
Total leases                  $   22,083     $     3,436     $     6,580     $     5,759     $     6,308




Purchase Commitments



The Company maintains certain open inventory purchase commitments with its
suppliers to ensure a smooth and continuous supply for key components. The
Company's liability in these purchase commitments is generally restricted to an
agreed-upon period. Such time periods can vary among different suppliers. The
Company's open inventory purchase commitments were not material for the year
ended December 31, 2020. The Company believes it has adequate funds to fulfill
any such commitments in the future using the sources discussed in this Item 7 -
Management's Discussion & Analysis of Financial Condition and Results of
Operations.



Other



In the normal course of business, the Company enters into agreements that
contain a variety of representations, warranties, and indemnification
obligations. For example, the Company has entered into indemnification
agreements with each of the Company's directors and executive officers. The
Company's exposure under the various indemnification obligations is unknown and
not reasonably estimable as they involve future claims that may be made against
us. As such, the Company has not accrued any amounts for such obligations.



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01/31William Blair Initiates Cutera at Market Perform
MT
01/18Mitek Systems Retains Fuad Ahmad as Interim CFO
MT
01/13Cutera, Inc. Announces Preliminary Unaudited Financial Results for Full-Year 2022
AQ
01/12Maxim Adjusts Price Target on Cutera to $55 From $80, Maintains Buy Rating
MT
01/11Top Midday Decliners
MT
01/11Cantor Fitzgerald Downgrades Cutera to Neutral From Overweight, Adjusts Price Target to..
MT
01/09Cutera Reports Preliminary Full-Year 2022 Revenue Below Guidance; Shares Fall
MT
01/09Cutera Inc : Results of Operations and Financial Condition, Regulation FD Disclosure, Fina..
AQ
01/09Cutera, Inc. Announces Preliminary Unaudited Financial Results for Full-Year 2022
BU
01/09Cutera, Inc. Revises Revenue Guidance for the Year Ended December 31, 2022
CI
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