CUTR - Earnings call transcript Q2 2018

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Operator

Greetings, and welcome to the Cutera Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matt Scalo. ahead. go Please

Matthew Scalo

is expectations welcome of prepared Gardiner. there Call. And Investor second will XXXX Chief call reflect quarter & discussion Officer, Chief company's Thanks, forward-looking Reinstein; include will forward-looking James including comments, name to is limited Conference and be today the on statements My Development. The Officer, but aspects modeling of President the to guidance Matt statements, Earnings current management's of and Corporate future business, Executive Sandra operator. Financial or And any Cutera’s Cutera's After forecast today Scalo, Relations the provided a question-and-answer certain purposes. these not session. for financial Head

is, Forward-looking forward-looking statements plans productivity by change. subject include, dynamic statements to and are regarding The to and introduce based nature, as financial that improvements. others, information its statements among products guidance, new of current

expectations. forward-looking Future to current from subsequently Cutera of unanticipated made. undertakes statements, not may Safe risk and Cutera to are as Factors” filed. with differ the or to risks Form statements, in results occurrence also that on forward-looking our statements uncertainties, we new date cautions update subject words may in forward-looking section entitled materially SEC earlier to the filed All reflect or they described are in XX-K you updated circumstances release no those including statement the any press place forward-looking in Harbor Form our and XX-Qs of publicly reliance as undue statements encourage you events. identify today. For the factors to information, to management's which reflect “Risk to the speak refer events only our obligation

greater measures from results by period basis. addition, considered to, believe our with, and the Please the financial we to comparing more Reinstein. not non-GAAP underlying refer results CEO, to financial I particularly these but can GAAP. should We adjusted results financial an be measures from complete our will prescribed These facilitate analysis into non-GAAP of performance including operations, transparency Cutera's when a to alternatives In measures measures, that, over With on ongoing non-GAAP discuss reconciliation in turn along will measured an to call GAAP James the operating earnings release. as period.

James Reinstein

XXXX. you, today to our XX% second Matt. million for of revenue us results. generating the $XX.X quarter growth of Thank quarter well, From afternoon, and Good performed company or joining thanks perspective, very a sales second over discuss

in areas time operational will we some However, our more from an than require achieve that gross have goals. perspective anticipated order margin to

towards While to we more China. our did quarter second distributors was shifting the in of gross results part our margin new result such our expected. channel sequentially, improve mix XX% at expansion into we did This achieve a not the as due markets in international as

reduction impact the the manufacturing primary gross on the ultimately made of planned read to in in result our improvements as stems margin process from investments which take our to through and as other service longer cost goods. financials However, will organization a well recent in

company’s on impact of year a to end beyond. of gross lead margins global Looking the investment and second the field processes will team XXXX, half the at service positive the in towards manufacturing our and

gross range, discuss Given margin are we our will gross later. is target the that first half Sandy XX% range our in which margin revising year full

about over continues to the year growth QX most of be of which to to to well above we peg XX% U.S. continues topline X%. compelling Cutera growth, back Turning market part The prior story. the the be at average sales be which

approximately patient faster times iD market. with with launched our the demand itself changing of and hands clinical comfort This XX and is than which dramatic believe we procedure and iD and QX, leader, apart it’s system our market performance over We is their initiated noteworthy body functionality setup, June. sculpting impress a total and the XXXX. which game release limited strong in This offers truSculpt truSculpt very treatment iD is minutes set’s as quarter’s in especially little system options time rapid market with simple performance seven yet customers will excellent for considering a placement July in XX% great XD grew as free time. results, the in next its in continued truSculpt generation patients which reflects diversity almost comfortable

in have truSculpt results the benefits course to the deliver Of The patient being paying factor office less able result the after highly than our will $XXXX effective for with realize in of level satisfaction. physician's a $XXXX a out the customers XX come to of high iD these in combination minutes, that XD. is and important with of the to procedure of ability patient to a get all

launch I is excited on our from extremely but investor the in positive. limited company's at X, feedback more the has event sales say extremely The biggest will in is into iD truSculpt sell team users platform this truSculpt upgraded user can We upcoming early October launch detail history. market provide to iD release been the the and

It’s improves overall scars. Juliet by American North health also and American contribution bolstered which with mid-July. which in meeting to team the the I system and We the have incremental very iD in since in were expand addresses sharing wrinkles the October. the Secret time, North women's at system, details sales the remodels launched the RF to from a microneedling revenue sales story, To health forward exciting upon sales and you look the entire a diminishes quarter vaginal second collagen, mild effectively

consumable they of contributors reorder the XXXX systems and are in both We are rates robust strong growth uptake seeing We both our with to and be pleased anticipate beyond. for systems. will

brief based market. devices Communication energy women's comment recent and the FDA Just a Safety regarding addressing health

the letter not agency. named a and are announcement, we from received We have in the not

from certainly support helps in We world. that any are action patient Juliet not safety. any aware the resulting we anywhere of ensure Additionally, adverse the events the of use

of X% in Cutera total truthful, and multifunctional not sound for are a the of for include promotional to our evidence. revenue. a revenue, revenue includes and product quarter. second distributed Secret accounted the consumable fair ensure revenue products consumable balanced at RF process robust by the total Revenue service skincare procedures they forward, plus to Going XX% grew these and second that Juliet and products scientific year-over-year supported misleading, accounted Taking the XX% from our in look sales the claims which and These has systems, products. quarter. Recurring products materials platforms, reviews related truSculpt our and

American this organization, the consists from end force reps first the XX sales to as reps by the on field year. we of July, sales our and of track at of up the XX expand group quarter Looking remain to North XX in

approximately In be addition, and we of working practices have expect attract onboard to are ahead build help seven now and of customers sales with building to reps total new our schedule team end by force, consumable with the in our their XX in will This XXXX. patients.

the towards growth period Asia EMEA Turning second and saw geographies. respectively from XX% XX%, our year across XX% sales driven a and multiple ago of International, to shift grew reflects robust distribution a and global system network. quarter

partner starting are [ph] coming meaningful mentioned there. China, we launched we XD truSculpt earlier, where revenue the from see to I our As via

who have to Lastly, our early Officer Jason new ramp impressed I in with in been company July. joined have ability Jason Richey, markets. Chief Operating worked business performance, before with to the announce particularly I'm his quickly pleased and up international

first all completes upon the priorities arrival the now international will company. has call like the our Jason's highest be to attracted the to new next turn is sales organization here the company Jason's surely which team over Sandy priority. excellent forward, Cutera the Going Gardiner, I would of which at level. take talent levels, my will enable Cutera one to leadership at CFO. joining us now to

Sandy Gardiner

James. Thanks,

or sales as and from XX% revenue, up saw total distributor our service existing versus such XX% channel. growth year the approximately for revenue. quarter, defined network consumable occurred margins in the truSculpt system, million system U.S. $XX.X towards second XXXX, quarter, accounted approximately accounted markets grew Most of our XX% skincare revenue a RF. ago In XX% of the Distributors International sales. growth new for second for period, in body strong our XX% China. shift over Distributor to international second laser International Juliet in quarter positive the quarter. period XD sculpting regions grew continued returning was international by the double with and revenue grew quarter Secret in impacting direct second also the by revenue growth sales reflects revenue and strong revenue, mix Japan recurring quarter margins. driven in in XXXX. momentum versus XX% second ago demand product sales plus year expansion into over the the XX% driven Second digits as gross

We our see strong, supported expanding commercial revenue consumable continue to growing by team. dedicated

consumable annual of as year period a marked will time our revenue quarter anniversary the to In a quarter as XD, in procedural meaningful the of since The second revenue Revenue XXXX XX% system compared the second of become have stream. the launch more with XXXX. the quarter second consumables of system sold stream. from launch, company's first ago consumable revenue of going grew the over the truSculpt percent

and consistent believe of breakdown core the few accounted our revenue channel physicians. with of this indicates into continued our in the reach plastic customer for comprised XD. XX% and We core customers approximately customer last dermatologists our of segment, surgeons As expansion quarters along truSculpt by launch for with the non-core markets strength

our operating pricing the XXX first the year from was quarter distributor on lower legacy of many higher Gross gross average as points and Moving a or a quarter margin as towards network in mix our ago down products. XX% well expenses. basis sales quarter, XXX margins weighted reflect this margin than basis to system points but Gross across period. second international approximately

The XX% compared quarter compared second Non-GAAP to successive and increased second percent expanding build expense quarter an the quarter percent a as compared second product non-cash that operational and revenue channel, as and headcount, including in in X% or global administrative of XXXX. the continued revenue a to compared Non-GAAP $X.X the XXXX. in XXXX. a of increase quarter of of expenses to second year affected Sales investing same realizing of in as do XX% Operating innovation. and second quarter, investments clinical percent the timing as revenue expense of in the to the development continued and X.X% quarter research or general million investment in We quarter infrastructure the administrative compared and revenue of was operations in the in grow in of as expense sales the in long percent investment the of in the to committed as General second non-cash compared revenue stock-based loss X% of expense. revenue to general revenue is us same $X.X of the revenue Research quarter in of to the revenue quarter of depreciation XX% of see was amortization remain additional million, administrative XX% expense improvement and in that to sales second second of gross of XXXX, $X.X Non-GAAP include million engineering period of revenue margin reflects primarily gross result in expect were adjustments a each expense expenses We development the scalability XXXX. in XX% $X.X the of consumable compensation, our year. drives enable XX% in of and The Our of quarter of margin. X% second Non-GAAP the quarter XXXX. and in second to the also marketing or to was the ago. team, million in quarter revenue related the our a research compared was in XXXX, income stock-based quarter, million revenues over new quarter in XX% out to second the second revenue term. quarter XX% of to compensation marketing the commercial compared X% XXXX. was throughout of XXXX. improvements increase procedural the will $X.X the a

outstanding million XX.X $X.XX second Our was loss for net for used GAAP fully per share. period or was same million non-GAAP Fully year of Non-GAAP $X.X diluted diluted net was income diluted compute versus million, shares $X.X the XXXX share. period. million $X.XX the per or to the in XX.X weighted ago quarter EPS

million the to March or of times from first the approximately inventories an in Turning decrease of million Inventories a accounts XX driven first were was and the ratio and flow, five million XXXX. of decrease inventory XX, to from of representing $XX.X turns days $XX.X sheet in XXXX end balance our reduction X.X at times DSO net in $X June second by XXXX, quarter. by receivable of the the days cash quarter at a XX, The raw versus was X.X XXXX materials. quarter improved

to improvements, million also turns. XXXX. expect to of increased investments $X.X in ago $X.X the provided As Decreased we sales infrastructure realize accounts of improvement and distribution by in receivables the for was operations. was loss investments international turns, for a by increase second we inventory provided from and change in by in operational in The $X.X in from net the quarter, driven for reflects also and increased quarter cash in as continue second increase reduction Cash contributed million year-over-year resulting an of second inventory compared $X.X long-term to the year network. our related million in non-cash receivable primarily a operational quarter adjusted million accounts our our XXXX. efficiencies This compared as operations continuous scalability to items

and Our no and of million. end with working cash remains as the of million XXXX, cash held $XX.X $XX while XX, was capital June of strong position debt, we investments

XXXX an year encountering range our XXXX. increase as international mix to gross our sales well revenue We million, Turning a our and guidance. With to $XXX million XX% XXXX service to margins full gross are quarter, second to to XX% investments as future, in of from reiterate we half in our the for target margin the XXXX over first headwinds manufacturing XX%. $XXX target revising XX% representing our

We timeframe ultimately in longer than although anticipated. are confident we investments our improve had will originally a gross margins,

in improvement quarter gross each the year. continuous throughout expect with We successive margin

expected in a to of investment to for expense, compensation the XX% increase future the as is We increase This XX%. for to revenue are expenses also as range range topline well an expecting growth. additional from percent stock-based in continue XX% Company previous as XX%, the operating of be the a to attributed scalability largely of non-cash

We approximately our pipeline. now million continue of will invest We to previous non-cash in versus million $X also million. $X to product expect $XX stock-based the compensation

be earnings $X.XX. the per to adjustment share range new margin our $X.XX and the is With expected gross to of operating expenses, TO non-GAAP in

in $X.X is EBITDA adjusted million. million the to of Lastly, now $X expected be range to

of turn earnings per to share adjusted I James non-GAAP computing full approximately approximately of tax we like mentioned the XX% his XX.X would shares to non-cash and over EBITDA previously assumed have and and year annual the million for For to for million $XX rate average outstanding closing stock-based compensation as XX% XXXX. now comments. effective weighted call

James Reinstein

margin. which on resulting progress operations an service perspective have like from gross areas Thanks, confident made Sandy. in global expanding improved substantial operating manufacturing to From team executing we our efficiencies, bring in we initiatives improvement will are

is our shift continued new example in is NexGen constantly see guidance margins products the translate Cutera will our system, and gross lag improving We The body best of margin second on that patients in is to there beyond. in commitment. level needs. focused the course customers remain serve them provide launch reflects financial truSculpt sequential to improved with metrics gross into and most highest them a our the of iD enables striving of premier this their and half Of should quality service innovative sculpting another with our and we see timeline. improvement when

and customers experience of fast-growing to We helps penetrate October sharing sculpting our to system body how Cutera position forward for are X. and on more can iD large and excited I fully truSculpt patients, what this this their more look market. Event our our details it do very about Investor both at

value. now strong for As the XXXX, double-digit the current improve growth and our questions, I margins company profitability with continues up I to operator? open drive along shareholder to call gross execute would increase and to in from levels like revenue expect

Operator

Thank you.

go first now a session. ahead. answer from and Block [Operator will be conducting Stifel. Instructions] with question Please We Jonathan question comes Our

Unidentified Analyst

taking high-level, on comment days RF? for could recognizing for Secret across utilization on maybe Dennis it's first Thanks kind question Jon. be question. still Juliet guys, utilization than you of truSculpt guess I Hey, its early would for a the the and at

James Reinstein

Sure. truSculpt, cellular as may or connection. mean you you early be Appreciate can IoT machine from we've actually using days we pretty I or the which market joining, of know Dennis. iD not the do a reorders and limited already did what's on some is the right off actually done know release amazing

have procedures. of the those actually the had part even was of some which of June already the nearly we of year latter XD XX% course So that prior launch. we grew over the placed then quarter in And quarter reorder

selling the and though speaks we of market. step in growth to of launching we're precipice even those that iD forward on the and a were doing. the just And amount really a for was beyond XD, So body the sculpting interest iD overall significant still XD the even is the us size really what

Unidentified Analyst

for year other I questions. question leverage year. in your Thanks How either in guess recognizing color. of model return investment be or the taking out to this would year's do for the that Thanks years? more Great. next looks view

Sandy Gardiner

Sure.

is Sandy. this So

view hit I the head. really nail the think as year. we you the an That investment on exactly is share how

revenue but operating and setting have XXXX get scalability really well expect put that beyond going Now we're to we this so for up beyond. mentioned the in to leverage also ourselves up year, fully and

Operator

you. Thank

with Chris comes go Please Stephens. question Cooley ahead. next Our from

Chris Cooley

remarks of I just the prepared to forward And is I'm assuming the the here the function of so walk mix? some incremental of stock guidance, but your the already expense, you pieces I did you taking on XXXX? as How expectations? little softness Thank reduction calls, a of I or offsets, Could sizeable prior if is you've growth in in a your couple the in just put network the top on more that fairly the because guess for out the the about various the incremental to your line you're when gross understand but terms Thanks just afternoon. Q&A, through, together that there? going I of get trying going this apologize CY non-cash company's just Good touched core side then but margin questions. versus us you assume you. maintained what earnings think much XXXX here that in distributor

James Reinstein

Yes. a Chris, covered sort Okay. Thanks the question of for there. and of lot ground

speak really of on the some gross initiating me really Let is that We've doing and to manufacturing. that we're and inventory. We're and will quite floor the of and we and if overall do improve also the address. our part talked margin first to there as that looking well footprint need to that specific you processes optimizing we the operational got activities manufacturing a layout relates frankly at before as contract the

to so And already efficient manual initiate going going about an shipments have process more that with makes we've products do new the tend time. talked we to That the to customers that world -- orders for processing significant revenue. be ERP still amount get a We will we processes start be deployed delivering be we're has we're at the inventory the do who And we're sense of beginning in is managing of just then, close up implementing be over recently until before those and the to can next we where as which brought of and center ERP and great and of sometime. quarter QX to ideas then, near we and out off amount the be end period leadership system running. quarter system of as to regional it that implementing At distribution we operations, of have that process will do the going door. and ideas until year kicked significant

if This These expand with we all are other or of the bounds. plan good our frankly reality that within markets. to isn't when is, control. not recently to the And the come international activities regards cannot always launched. are is matter that with truSculpt all solely is just within of So, into on we'd forces achieve here this. regards is this we some has news XD a then to with Certainly it And government the China being of how external with control. our this mandate quite

We also had parts the European distributor of some network good from tailwinds as well.

good And saw international the what And all well with we was so that generally line expected. growth within of we across markets.

Chris Cooley

back a should believe back And queue. question the little for incremental contribution And quarter I'll side, be it Did when were for I'm you from just you. more to Thank the was for the year maybe say, one or what OpEx a me flow-through quarter. is then you last two that period? quickies had with I distributor it Okay. and just investments through half in agreement? bit that the in the break timing the here, can on get is I out the the relative you towards skewed do Super. to my we as Paragon anticipating the help ratable is about So assuming or of think remainder, us of new these

James Reinstein

really distributor. signed of meaningful last coming question. partner in up year I'll that of the front had end expected. this quarter when China. we in was as revenue that third-party QX with are take relationship Chris. call on of Paragon, QX They out is and others aware them just are Thanks the our Okay. that We last

Sandy Gardiner

think its your you period-to-period non-cash be compare I then to able reconciliation question one all removing operating to to to think here, And things note Chris, important do these the on the provide because to do we for non-GAAP in the we expenses, of GAAP items. so regards

$X stock-based non-GAAP previous expense in totality points year guidance so expenses expecting look million to that basis are basis. million, XX% this are operating full giving that XX% it last and the compensation you only were we from we the last for XXX making XX% if so non-GAAP versus XX% statement year And going new And our about million operating and QX to year-over-year. for year, on at was total XX% up to a $XX $X with

we're about we'll third to bit a points the always related. XXX year last is see much increase of larger talking non-cash fourth the over quarter. So than having this because basis And XXX quarter

Chris Cooley

Thank you.

Operator

next Our from Instructions] question [Operator go comes Group. with Vendetti Anthony Please Maxim ahead.

Anthony Vendetti

Thank you. was shipping? just James, behind of a bit shorter can how procedure if and I about truSculpt little little I on time, then XX, bit was little know you launched just engineering July significantly more iD color wondering, in talk it the the the started achieve And when you just that? it

James Reinstein

sure, good Anthony. Okay, Thanks question.

So same, the frequency. its base technology is radio the

added RF that as agnostic. and we total the card, so XD. handpieces two allows characterize what still have being at anatomically – us second have RF of There's megahertz to additional the would which functioning two time. handpieces same as is card However, with six able I again that it it But we're a a

that answered your in it in so next replicate and that pair And pair. to question? effective basically iD. Hope two you're fat, we're put truSculpt given And you and the essentially that the bound by handpieces original the it where want on truSculpt placed which so to lipolysis can You it obtaining back apex at then the replicate six and to technique anatomy. on next not and the goes XD those was pair one able are then then that rotates and time are patient's the then of the the with glide

Anthony Vendetti

enough Yes. just are early And look start production the you what at and point? shipping then able on do that demand to the have like does you shipping, this

James Reinstein

the the which demand we've go from was going ramping that June the do generate some mid-July. the following built. release feel to mentioned everything the meeting, is we getting breakdown and on limited market much be shipped in of sales to then the And then since patient a then is the be is iD. particular physicians, practice Chap we the the got City. in in confident and So, we setup, any that's then there – able as more our where using the facility, the within and will early course key her I we've productive and quoted meet true And Ian very in that type been and extremely sales market going limited New for with obviously we very practice Dr. we release is basically website that her of of time York did of and that practices procedure make one speed team out production impressed of will the to is He's indications time

Anthony Vendetti

the one excel lastly that enlighten, price. Then little selling Okay. the those bit any average you lower products V, in on just of products some Were or experiencing press mentioned than specific product? legacy your on release, a you

James Reinstein

Yes.

are doing therefore you the and therefore to iD, sales the gross with it does point becomes other of place, recurring truSculpt and to iD. a drop Juliet in average As III XD. the price overall certainly crowded I'd the pretty product, amount screen attention it and which all we're revenue quarter because I've is most organization versus per the said of but market, the really really getting look experienced impact than handpiece XD today what the has going we're from off space getting that since now more And increasing procedures a in the be the the they prior calls, to a significantly, the selling minimum with become the the our going once the it they're margin, revenue enlighten going achieve has Secret, impacted stream PICO very second of And to swap. that like the is has are nice to laser launch annuity. ASPs and regards legacy if right of and dominating products have significant That a procedure their to cost of so doubling truSculpt be the purchasing make

Anthony Vendetti

Okay.

the card, so second RF the total So what iD? procedure truSculpt is for disposable per

James Reinstein

than doubling We're were what that can about I iD. that not say $XXX more with procedure reasons, getting XD the we're competitive is the that per for disclosing we but and

Anthony Vendetti

jump Okay, great. back… I'll

James Reinstein

Okay.

Operator

turn closing Thank comments. you. over the I like floor James for would to to

James Reinstein

in everyone in mentioned operator. to which California Day Thank facility addition our for call Okay. today I California. participating in our Investor October Xth you, on in Brisbane, Thanks the

We interest and will be there. and attending to in a hope months number of Good see thank your the for investor continued events next Cutera. in afternoon you you few

Operator

This teleconference. you concludes your participation. for today's Thank

your You may time. line at this disconnect

Cutera (CUTR) 7 Aug 182018 Q2 Earnings call transcript