Cutera Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 8 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Cutera Inc. 1st Quarter 2024 Results Conference Call. I would now like to turn the conference over to Greg Barker, Vice President of Finance and Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thank you everyone for joining us. With me today is Taylor Harris, Cutera's Chief Executive Officer and Stuart Drummond, Interim CFO. Following our prepared remarks, we'll take your questions. Before we get started, I'll note that the discussion today includes forward looking statements. These forward looking statements reflect management's current forecast or expectation of certain aspects of the company's future business, including, but not limited to, any financial guidance provided for modeling purposes.

Speaker 1

Forward looking statements are based on information available to us at the time those statements are made, which by its nature is dynamic and subject to change or management's good faith belief as of that time with respect to future events. Forward looking statements include, among others, statements regarding financial guidance, regulatory approvals, productivity improvements and plans to introduce new products and expand into additional geographies. For words that may identify forward looking statements, we encourage you to refer to the Safe Harbor statement in our press release earlier today. All forward looking statements are subject to risks and uncertainties, including those risk factors described in the section entitled Risk Factors in our Form 10 ks as filed with the Securities and Exchange Commission and updated in our Form 10 Qs subsequently filed. Cutera also cautions you not to place undue reliance on forward looking statements, which speak only as of the date that they are made.

Speaker 1

Cutera undertakes no obligation to update publicly any forward looking statements to reflect new information, events or circumstances or to reflect the occurrence of unanticipated events. Future results may differ materially from management's current expectations. In addition, we will discuss non GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Cutera's ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the reconciliation from GAAP to non GAAP measures in our earnings release.

Speaker 1

These non GAAP financial measures should be considered along with, but not as alternatives to, the operating performance measures prescribed by GAAP. With that, it is my pleasure to turn the call over to our CEO, Taylor Harris.

Speaker 2

Thank you, Greg. Good afternoon, everyone, and welcome to Cutera's Q1 2024 earnings call. So far this year, we're stabilizing, tracking with our expectations and making progress on our key strategic priorities, despite a challenging macroeconomic environment. I just returned from attending our Cutera University Clinical Forum in Australia, where we launched Avicleer into the dermatology community. It was an inspiring event and the enthusiasm for this new technology is encouraging.

Speaker 2

A handful of dermatologists in Australia have had Avi Clear for several months as part of our limited commercial release and they've each treated a good number of patients. These physicians served as some of our speakers and panelists for the event and they were able to share their firsthand experience with the other attendees. It's clear that as we launch in international markets, the learnings from the last 18 to 24 months in North America are proving quite valuable. The physicians with early access are already incorporating the clinical best practices identified in our white paper related to expectation setting, pain management, use of concomitant therapy and managing acne flares. And overall, while it's still early, I would characterize the reception of Avicleer in Australia is very encouraging and we're hearing similar feedback out of Europe.

Speaker 2

Physicians involved in our international limited commercial release phase are excited to be offering a truly new non pharmacologic therapeutic

Speaker 3

gland.

Speaker 2

More broadly, we've had a busy 1st 4 months of the year. We kicked it off with the 1st global sales meeting in the history of Cutera where field teams from around the world were able to come together to learn and prepare for the year. This GSM provided the perfect opportunity for us to launch our new vision, mission and values company wide and to start building new energy around leadership as a mission driven values based organization. Following GSM, we introduced a new business model for AviClear in North America. And in international markets, we began our limited commercial release phase for Avi at the MCAS meeting in Paris in February.

Speaker 2

We also introduced our enhanced cooperative marketing program, supported the publication of a white paper on clinical best practices with Avicleer and finalized preparations for our first Cutera Academy, which was held last week in Atlanta. Meanwhile, we introduced our R and D organization's latest new product, Zio Plus, to the North American market in early April at the ASLMS meeting. Zio Plus builds on the legacy of the original Zio platform, one of Cutera's most successful products, which was introduced over 20 years ago and pioneered both Nd YAG laser technology and contact cooling as well as Cutera's signature laser Genesis procedure for skin revitalization. ZioPlus offers tremendous flexibility and customization with over 25 applications from skin revitalization to hair removal to pigment reduction and more. With a larger spot size, enhanced contact cooling and redesigned handpieces, ZioPlus both to new customers and as an upgrade option to the installed base of over 2,500 original Zio accounts.

Speaker 2

I'll now provide some summary comments regarding our Q1 financial results and then highlight a few of our areas of focus for the year. Similar to the Q4 of last year, Q1 financial results reflected an ongoing stabilization in the business. While revenue declined sequentially reflecting typical seasonality in our industry, our AviClear revenue increased and hit a quarterly high watermark due to the change of business model in North America and the limited commercial release in international markets. Now it's clear that we're operating in a challenging macro environment with pressure on the body contouring market in particular. And given that backdrop, we're fortunate to have the opportunity to launch a new first in class device like Avi Clear.

Speaker 2

Avi Systems revenue increased from conversions to the new business model as well as new sales more than offsetting the continued contraction and procedures performed on the legacy installed base of leased systems, which is due largely to the reduction we've seen in the number of active accounts. As we've mentioned before, there are a number of Avi Clear devices under our former lease model that have gone dormant and which we expect to be returned. However, and of critical importance, we're also identifying the success factors for building a healthy Avicleer franchise. On average, utilization rates at dermatology practices are close to 50% higher than those of other specialties and a disproportionate percentage of our most successful accounts are dermatologists. Beyond practice type though, key determinants for success include having a physician on-site at a practice, training the entire office staff, communicating and setting appropriate expectations with patients and a willingness to invest in building awareness.

Speaker 2

All of these best practices coupled with our new business model are at the center of our efforts in 2024. We also began to see progress with our cost structure in the Q1. Throughout 2023, our gross margin was depressed due to reduced volume, the array of company specific operational issues that we have highlighted previously and a high level of inventory reserves. Non GAAP gross margin remained below the historical trend line in Q1. However, on a normalized basis, excluding inventory reserves, it did improve to 40% and that's compared to 37% in the 4th quarter and 30% in the 3rd quarter, despite having a lower revenue base in Q1 relative to either of those previous quarters.

Speaker 2

Additionally, our operating expenses were down both sequentially and year over year, reflecting the restructuring and other cost containment initiatives that we've enacted. We continue to focus on efficiency initiatives that should support ongoing improvements in our cost position and our gross margin profile over time. I'll now provide an update on a couple of our critical priorities that we've discussed on previous quarterly calls. Returning to operational excellence and building a global AviClear franchise. First, operational excellence.

Speaker 2

We continue to make progress in the 5 key areas that we identified last year: product reliability, field service, inventory control, supply demand planning and cost of operations. In the Q1, our cross functional product reliability team product reliability rates, both in terms of initial performance following new shipments as well as ongoing reliability thereafter. In fact, our Q1 performance met or exceeded our annual objectives across all of our product categories. In the area of field service, we saw dramatic improvement in our North American service levels in the back half of last year, addressing most of the backlog of open cases as well as reducing response times for new service calls. In the Q1, we maintained that performance in backlog in North America and we are beginning to see an improvement in our average response time as well.

Speaker 2

We're also rolling out best practices across our international regions so that we can achieve the same level of service quality across the globe. We still have work to do on this front. For years, our international regions were managed separately with the service teams having little support from the corporate office. We're starting to change that though with regular interactions such as trainings and reviews of service part demand and with in person support as well. For example, as I was leaving Australia, one of our top field engineers from North America was arriving to spend a month with the team, helping to reduce backlog, while other leaders were on their way to help with training and the implementation of new processes.

Speaker 2

I won't spend as much time on our other focus areas of inventory management, demand planning and cost control except to make a few points. We performed another physical inventory count at the end of Q1 and we had a net variance below 1% and that exceeded our target for the year. It was better than our target for the year. We have now filled our new 50,000 square foot warehouse as we have just over $130,000,000 of gross value of inventory on hand. Our supply demand planning process continues to mature and we believe that by mid year we will be done with the inventory build that has resulted both from previous purchase commitments as well as the need to remediate shortages of certain key components.

Speaker 2

And we continue to believe that we are positioned to begin working down inventory in the second half of the year creating a cash tailwind for the company. And now turning to Avicleer. In international markets, we commenced a limited commercial release phase at the NCAS meeting in February. And in North America during the Q1, we broadened the availability of our enhanced AviClear offering, which provides greater flexibility and simplicity. The new business model offers the option to purchase the device upfront with a corresponding reduction in ongoing treatment costs to the practitioner.

Speaker 2

Along with greater business model flexibility, we are offering a hardware and software upgrade that simplifies the user experience, improves product reliability and moves billing from a per patient model to payment for individual treatment cycles. Our primary focus with Avicleer in all geographies is on partnering with our customers to build franchises with healthy utilization. In North America, we're first working to identify a more focused list of customers who will move forward with Avicleer. As a reminder, during 2022 and 2023, the company placed over 1200 AviClear systems into the field under the original business model. But as we've described, most of those accounts were no longer doing AviClear procedures as of the second half of twenty twenty three.

Speaker 2

At the end of the Q1, our installed base of leased systems in North America had declined to approximately 1050 with a list of an additional 275 set to be returned in the coming months. We've also begun reaching out to customers with upcoming lease renewals. We continue to expect that more than half of the original systems will be returned. This process requires a significant amount of attention both from our field team and our internal customer support and operations teams. This is critical work to allow us to start the rebuilding process.

Speaker 2

At the same time though, we've dedicated a group of individuals in the company to our key practice development initiatives and perhaps most important among these is Cutera Academy, a 2 day university style training program that launched at the end of April. Our first Academy session was received with rave reviews both from our internal team as well as the customers who attended. When asked if Academy had a significant impact on their confidence with AviClear, 100% of attendees said yes. When asked what we should do differently with future academies, 100% said nothing. So we're excited about what Academy can do for our AviClear franchise and also for the broader business.

Speaker 2

As one attendee commented, this made me have a different perspective on Cutera as a whole in a very positive way. It shows that Cutera truly cares about their practice partners and wants us to succeed. Our CAM team has now been fully trained on the Cutera Academy curriculum and we are developing a video content library so that they can apply the academy experience at a local individualized level. In summary, we're tracking along with our plans for the year and we're making progress on our key initiatives, setting the foundation for the future. So with that, I'll turn it over to Stuart for a review of our Q1 financial results.

Speaker 3

Thank you, Taylor. This afternoon, I will discuss our Q1 GAAP results as well as some non GAAP results. A reconciliation of GAAP to non GAAP gross gross margin and loss from operations is included in our earnings release. Total revenue for the Q1 was $38,800,000 compared to $54,500,000 for the same period in 2023 and compared to $49,500,000 in Q4 of 2023. Our Q1 revenue decreased by $10,700,000 compared to Q4 2023, mainly reflecting Q4 being typically our strongest quarter of our fiscal year as well as the early termination of our skincare distribution agreement in Japan.

Speaker 3

The $15,700,000 or 29 percent decrease from the Q1 of 2023 was due mainly to a $10,300,000 decline in capital equipment revenue and a $3,900,000 decline in skincare revenue. This decrease in capital equipment revenue resulted from continued macroeconomic pressures and a challenging financing environment, particularly for our North American customers. The decrease in capital equipment revenue was partially offset by an increase in systems revenue related to Abicleer as we began capital sales of this device. Non GAAP gross profit for the Q1 of 2024 was $14,800,000 with a gross margin rate of 38.2% compared to a gross margin rate of 43.5 percent for the Q1 of 2023. The 5.3 percentage point decrease was driven by lower Non GAAP operating expenses for the Q1 of 2024 were $35,200,000 compared to $41,300,000 for the same period year.

Speaker 3

This $6,100,000 decrease mainly reflects personnel savings resulting from the restructuring announced in November 2023 and lower sales commissions. We have recorded a $9,700,000 gain on the early termination of our Japanese skincare distribution agreement, and this is recorded as a separate line in our GAAP income statement. This agreement was originally scheduled to end in June 2024, and we agreed to an early termination and received what were effectively payments for the gross margin we relinquished. For the Q1 of 2024, we incurred a non GAAP loss from operations of $20,400,000 compared to a loss from operations of 17,600,000 in the prior year period. Turning to our balance sheet.

Speaker 3

We ended the quarter with $105,400,000 of cash and cash equivalents compared to $143,600,000 at December 31, 2023. The $38,200,000 quarterly sequential decrease in cash and cash equivalents was driven by a $20,000,000 net cash loss for the quarter, a $17,500,000 net payment to Jabil for the non renewal of our manufacturing service agreement and a $6,500,000 reduction in accounts payable. These items were partially offset by $5,800,000 that we received as partial payment related to the early termination of the skincare distribution agreement. Now turning to our guidance. We are reiterating our previous revenue guidance of $160,000,000 to $170,000,000 which includes the $4,000,000 of skincare revenue earned through the transition in the Q1.

Speaker 3

We are also reiterating our expected cash and cash equivalents balance at December 31, 2024, to be in the range of $55,000,000 to $60,000,000 Before I turn the call back to the operator, I'd like to mention some changes to our Q4 2023 income statement since our Q4 earnings release on March 21 this year. We have revised our estimate of the inventory provision related to Aviclare Materials, resulting in an additional $12,000,000 being charged to cost of revenue. In addition, we reclassified 2 charges related to the non renewal of the manufacturing service agreement with Jabil. An expense of approximately $6,000,000 was reclassified from general and administrative expense to cost of revenue and an expense of approximately $1,000,000 recorded as other expense in Q3 was reclassified to cost of revenue in Q4. Operator, we are now ready to begin the question and answer session.

Operator

Thank you. We'll now begin the question and answer session. Our first question is from George sellers with Stephens. Please go ahead.

Speaker 4

Hey, good afternoon and thanks for taking the question. Hey, guys. On guidance, you obviously reiterated the cash that you expect to have at the end of the year target. I'm just curious if you could give us some additional color on the cadence for cash burn through the remainder of the year. It was obviously a little bit elevated in the Q1 and I think probably in line with what we were expecting.

Speaker 4

How should that trend sequentially in the Q2? And then what sort of the exit rate that you expect to end the year with?

Speaker 2

Sure. Thanks, George. Yes, you're right. We're trending along with what we the Q2 will be down relative to the first, but it will still be elevated relative to the back half of the year. In fact, whereas on our earlier call, we had indicated that we thought about 70% of our burn would happen in the first half of the year.

Speaker 2

We now think that will be a little closer to 75% in the first half of the year. And the reason for that is there we've got a few more $1,000,000 call it $3,000,000 of extra one time non recurring expenses that we're expecting in the first half of the year, but we're offsetting that with some operating expense reductions that will primarily occur through the second half of the year. So what that means is that overall we're on track. But the exit rate in the second half of the year is actually a little improved now relative to what we had expected earlier in the year.

Speaker 4

Okay. That's really helpful. And then on Avicleer, I'm just curious, you talked about the increase really being driven from the shift in the commercial strategy and some capital sales, but how did procedure volume trend with the doctors who are actually using the device? So if we exclude the dormant accounts and just focus on the derms like you talked about that are seeing success, what's procedure volume look like with those accounts? A

Speaker 2

few different types of accounts in there. The first comment I would make is that as we're launching at new accounts and I'd frame this primarily internationally where that's obviously been the focus. We're seeing some good initial adoption. And so that's really encouraging. I would say that it's early, so we don't want to get ahead of ourselves there.

Speaker 2

But we're certainly encouraged by what we're seeing with new accounts and in particular international. There's also a core group of physicians in the U. S. Or in North America I should say where we've had fairly stable utilization over the last several quarters. And that I think reflects all right, they've adopted, they've incorporated AviClear into their practice.

Speaker 2

There is a subset of accounts that are still doing procedures, but where there's been softness sequentially for a few quarters in a row and we did see some of that in the Q1. And what that really speaks to is the need for all of these initiatives that we've talked about to really help support practice development and practice growth. That is our focus. And as we're out talking to these accounts, that's a big part of the conversation. And it's I think important before they make decisions on whether they're going to return the device, whether they're going to stay on the lease model or whether they're going to convert.

Speaker 2

And so that's squarely where we're aiming when we talk about programs like Cutera Academy, like our cooperative marketing program, some of these roundtables where we're discussing best practices. It's really focused at that group of account, George, where we've seen softness in procedure volume, but we also think there's an opportunity for growth over time.

Speaker 4

Okay. That's really helpful. Maybe to just squeeze one more in. Obviously, you're pulling down your OpEx expense, but we've also heard that there's been some sales rep hiring at the same time. And I'm just curious if you could give some color on maybe where you're adding sales reps, what parts of the business you think they'll be effective and any background on maybe the experience level of these reps and revenue that you would expect them to be able to drive?

Speaker 2

George, good to hear you're doing your channel checks. You've heard correctly. Just to add some color though, we are right now in North America at a pretty similar level in terms of overall headcount in our field force as where we started the year. We had some turnover during the Q1, but more recently we've had some real traction with our hiring some real traction with our hiring initiatives. Our plan has been to build and we still plan on this through the year so that we're exiting the year higher than where we started.

Speaker 2

Right now we're about at par. We are adding both in our capital organization as well as our CAM that's our key account manager organization that's focused on practice development. And I'd say we've had a there's been a mix of the profile that we've been able to attract to the company, which I think is encouraging. And that mix has for sure included some on the fairly experienced side, which I think is a good sign of buy in to what we're doing here and the opportunity they see both with the full portfolio, but probably with AviClear in particular.

Speaker 4

Okay. That's really helpful. I'll leave it there. And thank you all again for the time.

Speaker 2

You got it. Thanks, George.

Operator

The next question is from Jon Block with Stifel. Please go ahead.

Speaker 5

Hey, guys. Good afternoon. Talen, maybe I'll just start with Zio. I think you mentioned 2,500 legacy Zios in the field. We'd love to hear any early feedback for Zio Plus.

Speaker 5

And how you see that opportunity playing out throughout the year, replacement versus new accounts? And I ask because just like back of the envelope, even a modest 5% to 10% of that current installed base upgrading seems like it could be material revenue. So maybe you could just talk through that opportunity a bit?

Speaker 2

Sure. So, yes, thanks for the question, John. We introduced ZioPlus in early April at the ASLMS meeting and feedback has been positive. I think what we've heard most commonly, there's a real appreciation for the handpiece design. Users are telling us it's they just have better visibility.

Speaker 2

It also we've got enhanced contact cooling. We're able to do procedures more quickly. That for sure means benefits to the patient, it means benefits to the practice in terms of ROI. But I think from a user's perspective, it's this visibility issue that has been highlighted. And generally better visibility means a better procedure.

Speaker 2

So we're optimistic on that front. Yes, the opportunity we've had Zio in the plus in the field for 20 plus years. So there is a nice installed base of users. And I think that that's where we're most likely to target. This is a as we mentioned on the call and as everybody knows, it's a difficult macro environment for a lot of accounts.

Speaker 2

And so I think I'm probably more optimistic on the upgrade opportunity than I am on the new system opportunity. But over time, we think that both are real. And yes, we think that this can be a nicely additive or at least support the overall effort as we go through 2024.

Speaker 5

Got it. That was great. That was helpful. And maybe just to shift gears. For AviClear, as you mentioned, you're getting systems back and more will come back shortly.

Speaker 5

Maybe if you could just comment on what the go to market strategy is there? You'd want to get those out the door as soon as possible, arguably, just from a cash flow perspective, but Avi is still a very new launch. So you start offering the new systems and the refurbs immediately? Do you do that in the same market? Maybe if you could just talk to how you're going to attack the market as you get those systems back more frequently?

Speaker 2

Sure. So as we contemplate new accounts for Avicleer, our number one focus is well, I should say, our focus is on accounts with a profile that we really think can support developing a healthy franchise, a healthy business over time. And that generally means, a practice that is either already familiar with the treatment of acne more broadly or has the ability to get up that learning curve very quickly. It generally means you've got a physician on-site. And then there's got to be a willingness, a willingness to train the entire staff to go through programs like our academy and to invest behind the product.

Speaker 2

Now we think that the most likely the best target that meets that profile is an aesthetic dermatology practice. Ideally one that has connections with medical dermatology, which is where you're going to see probably the healthiest flow of acne patients. So really the step number 1 is find that target audience. We think there are call it 3000 to 4000 aesthetic dermatology practices across the country. So there's a good target here to go after.

Speaker 2

And there are other accounts that could meet the profile that we're looking for as well. But really the focus is unlike the first time around, it's not on just getting machines out to the field. The focus is on getting machines into places where we think we're going to see a great return over time both for the practice and for us. So now then whether it's a new or a refurbished system, we will have both to offer. There could be a cost advantage to a practice if they go with a refurbished.

Speaker 2

And refurbished is we make it new. I mean, this is effectively a brand new machine. We got a great team that does that work back here at headquarters. So both will be available.

Speaker 5

Got it. Thanks for the color guys.

Speaker 2

Thank you, John.

Operator

The next question is from James Beard with William Blair. Please go ahead.

Speaker 6

Hey, guys. It's Jimmy on for Margaret. Thanks for taking the question. I wanted to maybe start off just on the capital environment, maybe go back to some of the macro thoughts. But we continue to hear that the environment, at least for aesthetics, is pretty tough, just securing financing.

Speaker 6

Could you maybe speak to what you're seeing on the macro front in the Q1? And then now here a little bit into the Q2, any trends you may point out?

Speaker 2

Sure. Hey, Jimmy. We agree with the feedback that it sounds like you're hearing more broadly. I put it into a couple of categories. The financing environment is challenging.

Speaker 2

It is and we saw this in the second half of last year. We saw it in the first quarter. There's a segment of the legacy user base it really just doesn't have access to financing right now. And we've been trying to work with 3rd parties to unlock that.

Speaker 7

There are some things that

Speaker 2

you can do, but not a lot for a certain segment. So financing is tough. Rates are higher even for someone who's creditworthy. So definitely more challenging there. And we also are hearing from customers that practice volumes just generally not just for us, but just practice volumes are sluggish.

Speaker 2

And I think that's probably contributing to the some lack of confidence in moving forward with capital purchases. So that's the environment we're operating in. That is what we had generally expected as we entered the year. I'd say we're seeing it. The only other thing I'd add is in the body business, the body contouring business, I think it's particularly tough and there may be a GLP 1 impact there.

Speaker 2

So all of that is it was to be expected. It was part of the way we thought about the outlook for the year. And I tell you it takes us back to real we're just fortunate to have a product like Avi Clear that we're able to be launching right now into what we believe is a less sensitive portion of the customer base and in a market that should be less sensitive from a consumer perspective as well.

Speaker 6

Great. That's really helpful. And then maybe just touching on the modeling side. Like you said, kind of it seems like it's still a pretty tough selling environment. For Q2, capital tends to have one of its stronger quarters.

Speaker 6

How should we think about modeling capital into Q2? And what are you sort of assuming for guidance into Q2 and then there on for capital? Thank you.

Speaker 2

We are expecting an uptick from Q1 to Q2. We're not going to give specific guidance on that, but I'd say Q2 should be from a capital perspective stronger than Q1. Second half of the year we think will be stronger than the first half of the year. We do have the macro backdrop, but we're also launching ZioPlus. We think we're going to be a bit stronger in terms of the overall field force.

Speaker 2

So we've got some offsets to that pressure. That's the way we've been thinking about them in terms of puts and takes.

Speaker 6

Great. Thanks for the questions.

Operator

The next question is from Nick Sherwood with Maxim Group. Please go ahead.

Speaker 7

Hi, good evening. My first question is, what is the runway that you're seeing for this international expansion? I imagine you're targeting a lot of high quality leads, but what is once you get some of those easier wins with practices that might have more capital on hand, what do you see as the environment for maybe lower quality leads and like their financing potential?

Speaker 2

Hey, Nick. So where we're at with the launch, we think there's a pretty long runway ahead. So Q1 was truly limited commercial release, which means a few KOL type sites. And we were in around 10 markets in the Q1 with that. As we move into the Q2, we're broadening a bit in some of those markets.

Speaker 2

So for example, in Australia, we're starting to reach out more broadly in the dermatology community. We are not yet moving to full market coverage though. So there's I think over the next several quarters, there's going to be a gradual broadening within some of these target markets. And then as we get into later in the year, we'll start moving into some of our distributor territories. And then there are other markets like Japan where we probably won't have regulatory approval in 2024.

Speaker 2

So that would be something that we layer in next year. And there are other markets that will be able to come online over the years to come. So as an example, China, that's probably a multi year opportunity in terms of the length of time it will take us to get clearances there. So I think you're going to see this launch build for a fair amount of time.

Speaker 7

Awesome. Thank you for that color. And then switching gears, can you talk a little bit about sort of the innovation you're driving through your R and D, where are you trying to build upon your current product lines to make them more appetizing to your current customers? Or are you also looking into more looking into new products that can really kick things off and start growing revenues faster?

Speaker 2

There's what I'd say to start with is we don't suffer from a lack of ideas. We've got a really innovative team and an innovative leader in Michael Kirovaitis. And what the team is working on at various stages would be a combination of everything you described. What to expect in the near term though, I would say we're seeing good near term opportunity is just on the clinical expansion with Avicleer. So we are going to be putting some investment dollars behind some initial clinical studies in new indications.

Speaker 2

Over time, we will likely need new handpieces to support some of those new indications. So this is early, but we see a good opportunity to expand the utility of this system. And this is a system that's it's a novel wavelength, a new wavelength for the industry and we're the leaders. So it just makes sense to invest behind a capability set like that.

Speaker 7

Understood. And then, for my last question, color or detail that you've heard from some of your partners and customers about that?

Speaker 2

Sure. So just to add a little bit more color, I think this is probably the area where we had a little more weakness than expected in the Q1. I think across the board things were in terms of the macro environment were more in line with what we thought. But Body took a step down for us and we've heard it across the industry. So we're pretty light in terms of what we sold in the Q1.

Speaker 2

What we're hearing is just that with the GLP-one dynamic, you've got a lot of patients who are moving on to that therapy. And so practice volumes at customer sites are down. And so that obviously creates an air pocket in the market for people thinking about investing in a new energy based platform. Now what we also hear and what we expect is that patients aren't going to be on these drugs forever. And while they're really good at debulking, they aren't going to address stubborn pockets of fat, which are likely to be residual and which is what the body contouring industry was designed for in the first place.

Speaker 2

So I think you're likely to see a wave. People are riding that GLP-one wave right now. They're going to come off. They're going to have stubborn pockets of fat. They're going to have loose skin.

Speaker 2

They're going to have they're losing muscle just like they're losing fat. And we believe there's going to be a need in the future for the energy based device space to address. What I can't tell you is how long it's going to take that wave to get to shore, but we think it's coming.

Operator

This concludes the question and answer session. I'd like to turn the conference back over to Taylor Harris for any closing remarks.

Speaker 2

Well, thank you. Thank you everyone for joining us. Before we conclude, I just want to thank the entire Cutera team. We've just got an amazing group of passionate committed Cutera's. And so thanks for all the hard work and thanks for everyone who joined us today.

Speaker 2

Have a good evening.

Operator

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Key Takeaways

  • Cutera’s AviClear launch expanded into international markets with a limited commercial release, and the new North America business model drove quarterly unit‐sales revenue to a record high amid encouraging clinician feedback.
  • The company introduced ZioPlus in April, offering enhanced contact cooling, larger spot sizes and redesigned handpieces to drive upgrades from over 2,500 legacy Zio systems and attract new customers.
  • Operational excellence efforts delivered improved product reliability, sharper field service response times and under‐1% inventory variances, while normalized non‐GAAP gross margin rose to 40% in Q1.
  • Q1 revenue of $38.8 million declined from prior quarters due to typical seasonality and a challenging macro environment, but cost‐containment measures cut operating expenses by $6.1 million year‐over‐year.
  • Cutera reaffirmed full‐year guidance of $160–170 million in revenue and an expected year‐end cash balance of $55–60 million, with more than 75% of cash burn anticipated in H1 and operating leverage improvements to follow.
A.I. generated. May contain errors.
Earnings Conference Call
Cutera Q1 2024
00:00 / 00:00