10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period _____ to_____.

Commission file number: 000-50644

Cutera, Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0492262
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3240 Bayshore Blvd., Brisbane, California 94005

(Address of principal executive offices)

(415) 657-5500

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.001 par value)	CUTR	The NASDAQ Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    ☒    No    ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒     No    ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer  ☐ Accelerated filer  ☒ Non-accelerated filer  ☐ Smaller reporting company  ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes    ☐    No    ☒

The number of shares of Registrant’s common stock issued and outstanding as of July 31, 2019 was 14,168,034.

CUTERA, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4	Controls and Procedures	33
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	35
Item 1A	Risk Factors	35
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3	Defaults Upon Senior Securities	35
Item 4	Mine Safety Disclosures	35
Item 5	Other Information	35
Item 6	Exhibits	36
	Signature	36

In this Quarterly Report on Form 10-Q, “Cutera,” “the Company,” “we,” “us” and “our” refer to Cutera, Inc. and its consolidated subsidiaries.

This report may contain references to the Company’s proprietary intellectual property, including among others, trademarks for its systems and ancillary products, AcuTip^®, CoolGlide^®, CoolGlide excel^®, enlighten^®, excel HR^®, excel V^®, excel V+^®, LimeLight^®, MyQ^®, Pearl^®, PicoGenesis™, ProWave^®, Solera^®, Titan^®, truSculpt^®, truSculpt^® flex, Vantage^®, and xeo^®.

These trademarks and trade names are the property of Cutera or the property of our consolidated subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and tradenames referred to in this Quarterly Report on Form 10-Q may appear without the ® or ™ symbols, but such references are not intended to indicate in any way that the Company will not assert, to the fullest extent under applicable law, its rights to these trademarks and tradenames.

PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS (UNAUDITED)

CUTERA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data) (unaudited)

	June 30, 2019			December 31, 2018
Assets
Current assets:
Cash and cash equivalents	$	27,668		$	26,052
Marketable investments		4,002			9,523
Accounts receivable, net		24,919			19,637
Inventories		26,889			28,014
Other current assets and prepaid expenses		4,536			3,972
Total current assets		88,014			87,198
Property and equipment, net		2,834			2,672
Deferred tax asset		458			457
Operating lease right-of-use assets		8,990			—
Goodwill		1,339			1,339
Other long-term assets		6,311			5,971
Total assets	$	107,946		$	97,637
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,441		$	11,279
Accrued liabilities		27,026			23,300
Operating lease liabilities		1,276			—
Extended warranty liability		2,399			3,159
Deferred revenue		10,717			9,882
Total current liabilities		52,859			47,620
Deferred revenue, net of current portion		3,142			2,684
Income tax liability		93			394
Operating lease liabilities, net of current portion		7,888			—
Other long-term liabilities		782			553
Total liabilities		64,764			51,251
Commitments and Contingencies (Notes 12 and 13)
Stockholders’ equity:
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 14,142,296 and 13,968,852 shares at June 30, 2019 and December 31, 2018, respectively		14			14
Additional paid-in capital		74,870			70,451
Accumulated deficit		(31,642	)		(24,010	)
Accumulated other comprehensive loss		(60	)		(69	)
Total stockholders’ equity		43,182			46,386
Total liabilities and stockholders’ equity	$	107,946		$	97,637

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

3

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except per share data)

 (unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Net revenue:
Products	$	41,968	$	37,650	$	72,730	$	66,914
Service		5,806		4,903		11,070		9,764
Total net revenue		47,774		42,553		83,800		76,678
Cost of revenue:
Products		18,393		17,045		33,935		30,967
Service		3,550		3,131		6,725		6,000
Total cost of revenue		21,943		20,176		40,660		36,967
Gross profit		25,831		22,377		43,140		39,711
Operating expenses:
Sales and marketing		16,992		15,535		33,096		28,623
Research and development		3,273		4,095		6,979		7,651
General and administrative		5,267		4,902		10,792		10,341
Total operating expenses		25,532		24,532		50,867		46,615
Income (loss) from operations		299		(2,155)		(7,727)		(6,904)
Interest and other income (expense), net		46		(129)		(33)		(31)
Income (loss) before income taxes		345		(2,284)		(7,760)		(6,935)
Income tax benefit		(243)		(712)		(128)		(3,331)
Net income (loss)	$	588	$	(1,572)	$	(7,632)	$	(3,604)
Net income (loss) per share:
Basic	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)
Diluted	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)
Weighted-average number of shares used in per share calculations:
Basic		14,086		13,709		14,051		13,649
Diluted		14,356		13,709		14,051		13,649

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

4

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands) (unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Net income (loss)	$	588	$	(1,572)	$	(7,632)	$	(3,604)
Other comprehensive income (loss):
Available-for-sale investments
Net change in unrealized gains (losses) on available-for-sale investments		3		18		9		(4)
Less: Reclassification adjustment for (gains) losses on investments recognized during the period		—		—		—		9
Net change in unrealized gains and losses on available-for-sale investments		3		18		9		5
Tax provision		—		—		—		—
Other comprehensive income, net of tax		3		18		9		5
Comprehensive income (loss)	$	591	$	(1,554)	$	(7,623)	$	(3,599)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

5

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Three and Six Months Ended June 30, 2019

	Common Stock				Additional Paid-in		Retained Earnings (Accumulated		Accumulated Other Comprehensive		Total Stockholders’
	Shares		Amount		Capital		Deficit)		Income (loss)		Equity
Balance at December 31, 2018		13,968,852	$	14	$	70,451	$	(24,010)	$	(69)	$	46,386
Issuance of common stock for employee purchase plan		53,803		—		832		—		—		832
Exercise of stock options		40,454		—		331		—		—		331
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		79,187		—		(570)		—		—		(570)
Stock-based compensation expense		—		—		3,826		—		—		3,826
Net loss		—		—		—		(7,632)		—		(7,632)
Net change in unrealized loss on available-for-sale investments		—		—		—		—		9		9
Balance at June 30, 2019		14,142,296	$	14	$	74,870	$	(31,642)	$	(60)	$	43,182

	Common Stock				Additional Paid-in		Retained Earnings (Accumulated		Accumulated Other Comprehensive		Total Stockholders’
	Shares		Amount		Capital		Deficit)		Income (loss)		Equity
Balance at April 1, 2019		14,035,375	$	14	$	71,399	$	(32,230)	$	(63)	$	39,120
Issuance of common stock for employee purchase plan		53,803		—		832		—		—		832
Exercise of stock options		25,422		—		200		—		—		200
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		27,696		—		(80)		—		—		(80)
Stock-based compensation expense		—		—		2,519		—		—		2,519
Net income		—		—		—		588		—		588
Net change in unrealized loss on available-for-sale investments		—		—		—		—		3		3
Balance at June 30, 2019		14,142,296	$	14	$	74,870	$	(31,642)	$	(60)	$	43,182

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

6

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

Three and Six Months Ended June 30, 2018

	Common Stock				Additional Paid-in		Retained Earnings (Accumulated		Accumulated Other Comprehensive		Total Stockholders’
	Shares		Amount		Capital		Deficit)		Income (loss)		Equity
Balance at December 31, 2017		13,477,973	$	13	$	62,025	$	2,947	$	(92)	$	64,893
Adjustment to opening balance for ASC 606 adoption		—		—		—		3,813		—		3,813
Issuance of common stock for employee purchase plan		34,776		—		1,154		—		—		1,154
Exercise of stock options		188,859		1		1,884		—		—		1,885
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		122,644		—		(2,665)		—		—		(2,665)
Stock-based compensation expense		—		—		3,893		—		—		3,893
Net income		—		—		—		(3,604)		—		(3,604)
Net change in unrealized loss on available-for-sale investments		—		—		—		—		5		5
Balance at June 30, 2018		13,824,252	$	14	$	66,291	$	3,156	$	(87)	$	69,374

	Common Stock				Additional Paid-in		Retained Earnings (Accumulated		Accumulated Other Comprehensive		Total Stockholders’
	Shares		Amount		Capital		Deficit)		Income (loss)		Equity
Balance at April 1, 2018		13,824,252	$	14	$	62,057	$	5,888	$	(104)	$	67,855
Adjustment to opening balance for ASC 606 adoption		—		—		—		(1,160)		—		(1,160)
Issuance of common stock for employee purchase plan		—		—		1,154		—		—		1,154
Exercise of stock options		—		—		1,251		—		—		1,251
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		—		—		(377)		—		—		(377)
Stock-based compensation expense		—		—		2,206		—		—		2,206
Net income		—		—		—		(1,572)		—		(1,572)
Net change in unrealized loss on available-for-sale investments		—		—		—		—		17		17
Balance at June 30, 2018		13,824,252	$	14	$	66,291	$	3,156	$	(87)	$	69,374

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

7

CUTERA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(7,632)		$	(3, 604)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation		3,826			3,893
Depreciation of tangible assets		815			544
Amortization of contract acquisition costs		1,412			822
Change in deferred tax asset		(1)			(3,324)
Provision for doubtful accounts receivable		(19)			487
Other		151			(25)
Changes in assets and liabilities:
Accounts receivable		(5,263)			(1,832)
Inventories		1,125			(1,356)
Other current assets and prepaid expenses		(614)			(569)
Other long-term assets		(1,752)			(1,578)
Accounts payable		162			3,741
Accrued liabilities		3,779			(4,325)
Extended warranty liabilities		(760)			—
Other long-term liabilities		(140)			70
Deferred revenue		1,293			546
Income tax liabilities		(301)			7
Net cash used in operating activities		(3,919)			(6,503)
Cash flows from investing activities:
Acquisition of property, equipment and software		(316	)		(581)
Disposal of property and equipment		20			38
Proceeds from sales of marketable investments		—			13,044
Proceeds from maturities of marketable investments		9,600			2,500
Purchase of marketable investments		(4,020)			(4,390)
Net cash provided by investing activities		5,284			10,611
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan		1,163			3,038
Taxes paid related to net share settlement of equity awards		(570)			(2,664)
Payments on finance lease obligations		(342)			(234)
Net cash provided by financing activities		251			140
Net increase in cash and cash equivalents		1,616			4,248
Cash and cash equivalents at beginning of period		26,052			14,184
Cash and cash equivalents at end of period	$	27,668		$	18,432
Supplemental disclosure of non-cash items:
Assets acquired under finance lease	$	903		$	533

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

8

CUTERA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) provides laser and energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, distributes and markets light and energy-based product platforms for use by physicians and other qualified practitioners, enabling them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following system platforms: excel, enlighten, Juliet, Secret RF, truSculpt and xeo. Several of the Company’s systems offer multiple hand pieces and applications, providing customers the flexibility to upgrade their systems. The sales of (i) systems, system upgrades, hand pieces and upgrade of systems (collectively “Systems” revenue); (ii) replacement hand pieces, truSculpt iD and truSculpt flex cycle refills, as well as single use disposable tips applicable to Juliet and Secret RF (“Consumables” revenue); and (iii) the distribution of third party manufactured skincare products (“Skincare” revenue); are collectively classified as “Products” revenue. In addition to Products revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for Titan, truSculpt 3D, truSculpt iD and truSculpt flex) and service labor for the repair and maintenance of products that are out of warranty, all of which are classified as “Service” revenue.

Headquartered in Brisbane, California, the Company operates wholly-owned subsidiaries in Australia, Belgium, Canada, France, Germany, Hong Kong, Japan, Spain, Switzerland and the United Kingdom. The Company’s wholly owned subsidiary in Italy is currently dormant. These active subsidiaries market, sell and service the Company’s products outside of the United States. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Unaudited Interim Financial Information

In the opinion of the Company, the accompanying unaudited Condensed Consolidated Financial Statements included in this report reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of its financial position as of June 30, 2019 and 2018, its results of operations, comprehensive income (loss), consolidated statements of changes in equity for the three and six months ended June 30, 2019 and 2018, and cash flows for the six months ended June 30, 2019 and 2018. The December 31, 2018 condensed consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The results for interim periods are not necessarily indicative of results for the entire year or any other interim period. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company’s previously filed audited financial statements and the related notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2019.

Accounting Policies

These unaudited Condensed Consolidated Financial Statements are prepared in accordance with the rules and regulations of the SEC applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statement disclosures in our annual report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 18, 2019.

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Condensed Consolidated Financial Statements refer to the Company’s continuing operations. Notes 2 and 13 provide information about the Company’s adoption of new accounting standards for leases.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the accompanying notes, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ materially from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to warranty obligations, sales commission, accounts receivable and sales allowances, valuation of inventories, fair value of goodwill, useful lives of property and equipment, incremental borrowing rates related to the Company’s leases, assumptions regarding variables used in calculating the fair value of the Company's equity awards, expected achievement of performance based vesting criteria, management performance bonuses, fair value of investments, the standalone selling price of the Company's products and services, the customer life and period of benefit used to capitalize and amortize contracts acquisition costs, variable consideration, contingent liabilities, recoverability of deferred tax assets, and effective income tax rates. Management bases estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

9

Risks and Uncertainties

The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, continued acceptance of the Company's products, stability of global financial markets, cybersecurity breaches and other disruptions that could compromise the Company’s information or results, management of international activities, competition from substitute products and larger companies, ability to obtain and maintain regulatory approvals, government regulations and oversight, patent and other types of litigation, ability to protect proprietary technology from counterfeit versions of the Company's products, strategic relationships and dependence on key individuals.

Recently Adopted Accounting Pronouncements 

Adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, "Leases," (also known as ASC Topic 842) which requires, among other items, a lessee to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures were enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, "Targeted Improvements," which gives the option to apply the transition provisions of ASU 2016-02 at its adoption date instead of at the earliest comparative period presented in its financial statements. In addition, ASU 2018-11 provides a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are met. Also in July 2018, the FASB issued ASU 2018-10, "Codification Improvements to ASC Topic 842, Leases," which clarifies certain aspects of ASU 2016-02.

The Company adopted ASU 2016-02, as of January 1, 2019, using the modified retrospective method, to all leases existing at the date of initial application. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the Company’s historical conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient related to land easements, allowing the Company to carry forward the Company’s accounting treatment for land easements on existing agreements. The Company did not elect the practical expedient to use hindsight in determining the lease term.

The adoption of the new standard resulted in the recording of additional lease assets and lease liabilities of $10.3 million and $10.4 million, respectively, as of January 1, 2019, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The difference between the additional lease assets and lease liabilities results from rent-free periods which were previously recorded as deferred rent. The Company’s accounting for finance leases remained substantially unchanged. The standard had no material impact on the Company’s condensed consolidated net earnings, results of operations, comprehensive loss, statements of changes in equity, and cash flows.

See Notes 2 and 12 for additional accounting policy and transition disclosures regarding ASC Topic 842.

In August 2018, the FASB issued 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. This standard also requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement inclusive of expected contract renewals. The new standard becomes effective for the Company after December 15, 2019 and early adoption is permitted.

The Company adopted this standard effective April 1, 2019, on a prospective basis for applicable implementation costs. The adoption of this guidance prospectively resulted in the capitalization of software development costs of $0.5 million during the three months ending June 30, 2019. These costs relate to implementation of a new Enterprise Resource Planning (ERP) system and are included in “other current assets and prepaid expenses” on the balance sheet.

Issued

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement", which modifies the disclosure requirements on fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect the new guidance will have on its consolidated financial statements.

10

Note 2. Effect of Adoption of the New Lease Standard (ASC Topic 842) on Condensed Consolidated Financial Statements

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.

The following table summarizes the effects of adopting Topic 842 on the Company’s consolidated balance sheet as of January 1, 2019 (in thousands):

	As reported under Topic 842			Adjustments			Balances under Prior GAAP
Operating lease right-of-use assets	$	10,049		$	(10,049	)	$	—
Operating lease liabilities		(2,430	)		2,430			—
Other long-term liabilities*		—			140			140
Operating lease liabilities, net of current portion		(7,759	)		7,759			—

*Deferred rent included in other long-term liabilities

Note 3. Cash, Cash Equivalents and Marketable Investments

The Company invests its cash primarily in money market funds, U.S. Treasury bills and in highly liquid debt instruments of U.S. federal and municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than three months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks and the Company's foreign subsidiaries maintain a limited amount of cash in their local banks to cover short term operating expenses.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable securities are classified and accounted for as available-for-sale securities. Investments with remaining maturities of more than one year are viewed by the Company as available to support current operations and are classified as current assets under the caption marketable investments in the accompanying condensed consolidated balance sheets. Investments in marketable securities are carried at fair value, with the unrealized gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest and other income, net.

The following tables summarize the components, and the unrealized gains and losses position, related to the Company’s cash, cash equivalents and marketable investments (in thousands) as of June 30, 2019 and December 31, 2018:

June 30, 2019	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	27,669	$	—	$	(1)	$	27,668
Marketable investments:
U.S. government notes		1,397		1		—		1,398
U.S. government agencies		—		—		—		—
Municipal securities		—		—		—		—
Commercial paper		1,393		—		—		1,393
Corporate debt securities		1,211		1		(1)		1,211
Total marketable investments		4,001		2		(1)		4,002
Total cash, cash equivalents and marketable investments	$	31,670	$	2	$	(2)	$	31,670

11

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	26,052	$	—	$	—	$	26,052
Marketable investments:
U.S. government notes		1,397		—		—		1,397
U.S. government agencies		2,677		—		—		2,677
Municipal securities		200		—		—		200
Commercial paper		2,433		—		—		2,433
Corporate debt securities		2,825		—		(9)		2,816
Total marketable investments		9,532		—		(9)		9,523
Total cash, cash equivalents and marketable investments	$	35,584	$	—	$	(9)	$	35,575

As of June 30, 2019 and December 31, 2018, the gross unrealized losses were $2,000 and $9,000, respectively, and were related to interest rate changes on available-for-sale marketable investments. The Company has concluded that it is more-likely-than-not that the securities will be held until maturity or the recovery of their cost basis. No securities were in an unrealized loss position for more than 12 months. 

The following table summarizes the contractual maturities of the Company’s available-for-sale securities, classified as marketable investments as of June 30, 2019 (in thousands):

	Amount
Due in less than one year	$	4,002
Due in 1 to 3 years		—
Total marketable investments	$	4,002

Note 4. Fair Value of Financial Instruments

Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels of inputs that may be used to measure fair value, in accordance with ASC 820, as follows:

● Level 1: inputs, which include quoted prices in active markets for identical assets or liabilities;

● Level 2: inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For available-for-sale securities, the Company reviews trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third-party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

● Level 3: inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant management judgment or estimation. 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of June 30, 2019, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands):

June 30, 2019	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	4,339	$	—	$	—	$	4,339
U.S. Treasury bills		1,345		—		—		1,345
Commercial paper		—		4,091		—		4,091
Marketable investments:
Available-for-sale securities		—		4,002		—		4,002
Total assets at fair value	$	5,684	$	8,093	$	—	$	13,777

12

As of December 31, 2018, financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

December 31, 2018	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	3,036	$	—	$	—	$	3,036
Commercial paper		—		1,047		—		1,047
Marketable investments:
Available-for-sale securities		—		9,523		—		9,523
Total assets at fair value	$	3,036	$	10,570	$	—	$	13,606

Money market funds and U.S. Treasury bills are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

Corporate debt, U.S. government-backed securities, and commercial paper are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy. The average remaining maturity of the Company’s Level 2 investments as of June 30, 2019 is less than nine months and all of these investments are rated by S&P and Moody’s at A or better. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the quarter and year ended June 30, 2019 and December 31, 2018, respectively.

Note 5. Balance Sheet Details

Inventories

As of June 30, 2019 and December 31, 2018, inventories consist of the following (in thousands):

	June 30, 2019		December 31, 2018
Raw materials	$	15,130	$	16,991
Work in process		1,465		2,306
Finished goods		10,294		8,717
Total	$	26,889	$	28,014

Accrued Liabilities

As of June 30, 2019 and December 31, 2018, accrued liabilities consist of the following (in thousands):

	June 30, 2019		December 31, 2018
Accrued payroll and related expenses	$	11,102	$	9,377
Sales and marketing accruals		2,183		2,379
Warranty liability		4,832		4,666
Sales tax		2,826		2,935
Other		6,083		3,943
Total	$	27,026	$	23,300

Product Remediation Liability

During the fourth quarter of 2018, the Company recognized a liability for a product remediation plan related to one of its legacy systems. This product remediation plan, a voluntary action initiated by the Company, includes the replacement of a component in one of our legacy products. The accrued liability consists of the cost of materials and labor to replace the component in all units under the Company's standard warranty or covered under an existing Extended Warranty contract. The Company recorded approximately $5.0 million related to this product remediation plan, of which $1.1 million was utilized in the fourth quarter of 2018. As of December 31, 2018, approximately $0.7 million of the balance was related to product warranty and included in accrued liabilities, and $3.2 million is separately recorded as Extended Warranty Liability.

13

In the six months ended June 30, 2019, the Company utilized $0.2 million related to product warranty and $0.7 million related to extended warranty liability. As of June 30, 2019, the product remediation warranty and extended warranty liability were $0.6 million and $2.4 million, respectively.

Note 6. Warranty and Extended Service Contract

The Company has a direct field service organization in North America (including Canada). Internationally, the Company provides direct service support in Australia, Belgium, France, Germany, Hong Kong, Japan, Spain and Switzerland, as well as through third-party service providers in the United Kingdom. In other countries, where the Company does not have a direct presence, the Company provides service through a network of distributors and third-party service providers.

After the original warranty period, maintenance and support are offered on an extended service contract basis or on a time and materials basis. The Company provides for the estimated cost to repair or replace products under standard warranty at the time of sale. Costs incurred in connection with extended service contracts are recognized at the time when costs are incurred, except the one-time extended service contracts charge of $3.2 million in December 31, 2018, related to the cost to replace a component in one of the Company's legacy products.

The following table provides the changes in the product standard warranty accrual for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Beginning Balance	$	4,064	$	3,373	$	4,668	$	3,508
Add: Accruals for warranties issued during the period		2,708		2,311		4,152		4,575
Less: Settlements made during the period		(1,940)		(2,123)		(3,988)		(4,522)
Ending Balance	$	4,832	$	3,561	$	4,832	$	3,561

Note 7. Deferred Revenue

The Company records deferred revenue when revenue is to be recognized subsequent to invoicing. For extended service contracts, the Company generally invoices customers at the beginning of the extended service contract term. The Company’s extended service contracts typically have one, two or three year terms. Deferred revenue also includes payments for installation, training and extended marketing support service. As of June 30, 2019, approximately 77% of the deferred revenue balance of $13.9 million will be recognized over the next 12 months.

The following table provides changes in the deferred service contract revenue balance for the three and six months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Beginning Balance	$	12,475	$	11,015	$	11,855	$	11,656
Add: Payments received		5,309		4,739		9,451		8,416
Less: Revenue recognized		(3,925)		(3,947)		(7,447)		(8,265)
Ending Balance	$	13,859	$	11,807	$	13,859	$	11,807

Costs for extended service contracts were $2.2 million and $4.2 million, respectively, for the three and six months ended June 30, 2019, and $2.0 million and $ 3.9 million, respectively, for the three and six months ended June 30, 2018.

Note 8. Revenue

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that are transferred to customers over time accounted for approximately 13% and 9% respectively, of the Company’s total revenue for the six months ended June 30, 2019 and 2018.

14

The Company has certain system sale arrangements that contain multiple products and services. For these bundled sale arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct. The Company’s products and services are distinct if a customer can benefit from the product or service on its own or with other resources that are readily available to the customer, and if the Company’s promise to transfer the products or service to the customer is separately identifiable from other promises in the sale arrangements. The Company’s system sale arrangements can include all or a combination of the following performance obligations: the system and software license (considered as one performance obligation), system accessories (hand pieces), training, other accessories, extended service contracts and marketing services.

For the Company’s system sale arrangements that include an extended service contract, the period of service commences at the expiration of the Company’s standard warranty offered at the time of the system sale. The Company considers the extended service contracts terms in the arrangements that are legally enforceable to be performance obligations. Other than extended service contracts and marketing services, which are satisfied over time, the Company generally satisfies all performance obligations at a point in time. Systems, system accessories (hand pieces), training, time and materials services are also sold on a stand-alone basis, and these performance obligations are satisfied at a point in time. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative standalone selling price basis.

Nature of Products and Services

Systems

Systems revenue is generated from the sale of systems and from the sale of upgrades to existing systems. A system consists of a console that incorporates a universal graphic user interface, a laser or other energy based module, control system software and high voltage electronics, as well as one or more hand pieces. In certain applications, the laser or other energy-based module is contained in the hand piece, such as with the Company’s Pearl and Pearl Fractional applications rather than 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 system or upgrade and the right to use the embedded software represent a single performance obligation as the software license is integral to the functionality of the system or upgrade.

The Company does not identify calibration and installation services for systems other than enlighten as performance obligations because such services are immaterial in the context of the sale arrangement. The related costs to complete calibration and installation for systems other than enlighten are immaterial. Calibration and installation services for enlighten systems are identified as separate performance obligations.

For systems sold directly to end-customers that are credit approved, revenue is recognized when the Company transfers control to the end-customer, which occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. In international markets where the Company has a direct presence, revenue is recognized on cash basis, for system sales to end-use customers in which the collectibility criterion has not been established, when the performance obligations in the sale arrangement are satisfied. For systems sold through credit approved distributors, revenue is recognized at the time of shipment.

The Company typically receives payment for its system consoles and other accessories within 30 days of shipment. Certain international distributor arrangements allow for longer payment terms.

Skincare products

The Company sells third-party manufactured skincare products in Japan. The third-party skincare products are purchased from the third-party manufacturer and sold to licensed physicians. The Company acts as the principal in this arrangement, as it determines the price to charge customers for the skincare products, and controls the products before they are transferred to the customer. Sales of skincare products are typically the subject of contracts in which the skincare products represent the sole performance obligations. The Company recognizes revenue for skincare products at a point in time.

Consumables (Other accessories)

The Company treats its customers' purchases of replacement cycles for truSculpt iD and truSculpt flex, as well as replacement Titan and truSculpt 3D hand pieces, as Consumable revenue, which provides the Company with a source of recurring revenue from existing customers. The Juliet and Secret RF products have single use disposable tips which must be replaced after every treatment. Sales of these consumable tips further enhance the Company’s recurring revenue. Hand piece refills of the Company’s legacy truSculpt product are accounted for in accordance with the Company’s standard warranty and service contract policies.

15

Extended contract services

The Company offers post-warranty services to its customers through extended service contracts that cover parts and labor for a term of one, two, or three years. Service contract revenue is recognized over time, using a time based measure of progress, as the customers benefit from the service throughout the service period. The Company also offers services on a time-and-materials basis for systems and detachable hand piece replacements. Revenue related to services performed on a time-and-materials basis is recognized when performed. These post-warranty services serve as additional sources of recurring revenue from the Company’s installed product base.

Training

Sales of systems to customers include training on the use of the system to be provided within 180 days of purchase. The Company considers training a separate performance obligation as customers can immediately benefit from the training together with the customer’s system. Training is also sold separately from systems. The Company recognizes revenue for training when the training is provided. Training is not required for customers to use the systems.

Customer Marketing Support

In North America, the Company offers marketing and consulting phone support to its customers across all system platforms. These customer marketing support services include a practice development model and marketing training, performed remotely with ongoing phone consultations for six months from date of purchase. The Company considers customer marketing support a separate performance obligation, and recognizes revenue over the six-month term of the contracts.  

Significant Judgments

The determination of whether two or more contracts entered into at or near the same time with the same customer should be combined and accounted for as one contract may require the use of significant judgment.  In making this determination, the Company considers whether the contracts are negotiated as a package with a single commercial objective, have price interdependencies, or promise goods or services that represent a single performance objective

While the Company’s contracts do not provide customers with a contractual right of return, the Company maintains a sales allowance to account for potential returns or refunds as a reduction in transaction price at the time of sale. The Company estimates sales returns and other variable consideration based on historical experience.

The Company determines standalone selling price ("SSP") for each performance obligation as follows:

● Systems: The SSPs for systems are based on directly observable sales in similar circumstances to similar customers. When SSP is not directly observable, the Company estimates SSP using the expected cost plus margin approach.

● Training: SSP is based on observable price when sold on a standalone basis.

● Extended warranty/Service contracts: SSP is based on observable price when sold on a standalone basis (by customer type).

● Customer Marketing Support: SSP is estimated based on cost plus a margin.

● Set-up /Installation: Set-up or installation for all systems, excluding the enlighten system, is immaterial in the context of the contract. The related costs to complete set-up or installation are immaterial.

The calibration and installation service of the enlighten system are treated as separate performance obligations because the Company regularly sells enlighten systems without the calibration and installation service.

Loyalty Program

The Company launched a customer loyalty program during the third quarter of 2018 for qualified customers located in the U.S. and Canada. Under the 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. 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. Customers receive a notification regarding their rewards tier by the fifth day of 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.

Deferred Sales Commissions

Incremental costs of obtaining a contract, including sales commissions, are capitalized and amortized on a straight-line basis over the expected customer relationship period. 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.

16

Total capitalized costs as of June 30, 2019 were $5.0 million and are included in other assets in the Company’s condensed consolidated balance sheet. Amortization expense for these assets was $0.7 million and $1.4 million respectively, during the three and six months ended June 30, 2019 and is included in sales and marketing expense in the Company’s condensed consolidated statement of operations. Amortization expense was $0.4 million and $0.8 million, respectively, during the three and six months ended June 30, 2018.

Note 9. Stockholders’ Equity and Stock-based Compensation Expense

2019 Equity Incentive Plan

At the Company’s Annual Meeting of Stockholders on June 14, 2019, the Company’s stockholders approved the amendment and restatement of the Amended and Restated 2004 Equity Incentive Plan (the “Prior Plan”) as the 2019 Equity Incentive Plan (the “Amended and Restated Plan”). The Amended and Restated Plan amended the Prior Plan to: (i) increase the number of shares available for future grant by 700,000 (in addition to the 9,701,192 shares provided under the Prior Plan); (ii) extend the term of the Prior Plan to the date of the Annual Meeting of the Company’s stockholders in 2029; (iii) amend the Prior Plan to eliminate the requirement for awards granted on or after June 14, 2019 that any shares subject to awards with an exercise price less than fair market value on the date of such grant will be counted against the Plan as 2.12 shares for each full value share awarded as set forth in Section 3(b) of the Prior Plan; (iv) amend the Prior Plan to remove the requirement that any shares subject to awards with an exercise price less than fair market value on the date of such grant will be counted against the Plan as 2.12 shares for each full value share awarded as set forth in Section 3(b) of the Prior Plan; (v) amend Section 11 of the Prior Plan related to non-employee director initial and annual awards; (vi) amend the Prior Plan to remove certain provisions relating to the “performance based compensation” exception under Section 162(m) of the Internal Revenue Code of 1986, as amended; (vii) include a minimum one-year vesting period with respect to awards granted under the Amended and Restated Plan; and (viii) include certain other editorial and administrative amendments to the Prior Plan.

On June 11, 2019, the Company’s board of directors (“the “Board”) also approved amended and restated the Company’s Stock Ownership Guidelines adopted on July 28, 2017 in their entirety, to require all officers (as defined by Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended) to hold at least 50% of any shares received pursuant to stock options, stock appreciation rights, vested restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance shares or performance units (net of taxes) for a minimum of one year following vesting and delivery.

On June 11, 2019, the Board also adopted a Clawback Policy to permit recovery of certain compensation paid to Named Executive Officers (as defined in Item 402 of Regulation S-K) of the Company if the Compensation Committee of the Board determines that a Named Executive Officer (i) has violated law, the Company’s Code of Business Conduct and Ethics, or any significant ethics or compliance policies, and (ii) such conduct results in material financial or reputational harm, or results in a need for a restatement of the Company’s consolidated financial statements.

The Amended and Restated Plan provides for the grant of incentive stock options, non-statutory stock options, RSAs, RSUs, stock appreciation rights, performance units, performance shares, and other stock or cash awards.

The Company issued 22,344 and 42,236 RSUs to its non-employee directors during the three and six months ended June 30, 2019. The Board granted to executive officers, senior management and certain employees 307,355 performance stock units (“PSUs”) during the six months ended June 30, 2019. The PSUs granted in the six months ended June 30, 2019 vest subject to the recipients continued service and to the achievement of certain operational goals for the Company’s 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. The Board also granted its executive officers, senior management and certain employees 21,324 and 267,106 RSUs during the three and six months June 30, 2019. The annual RSUs granted vest over four years at 25% on each anniversary of the grant date.

As of June 30, 2019, there was approximately $13.0 million of unrecognized compensation expense, net of projected forfeitures, for stock options and stock awards. The expense is expected to be recognized over the remaining weighted-average period of 1.8 years. The actual expense recorded in the future may be higher or lower based on a number of factors, including, actual forfeitures experienced and the degree of achievement of the performance goals related to the PSUs granted.

Activity under the predecessor plans to the 2019 Equity Incentive Plan are summarized as follows:

			Options Outstanding
	Shares Available for Grant		Number of Stock Options Outstanding		Weighted- Average Exercise Price
Balance, December 31, 2018		1,141,305		507,705	$	20.52
Additional shares reserved		700,000		—		—
Stock awards granted*		(1,319,304)		—		—
Options exercised		—		(42,066)		7.87
Options canceled		41,573		(41,573)		20.60
Stock awards canceled*		299,374		—		—
Balance, June 30, 2019		862,948		424,066	$	21.77

*The Company had a “fungible share” provision in the Prior Plan whereby for each full-value award (RSU/PSU) issued or canceled under the Prior Plan required the subtraction or add back of 2.12 shares from or to the Shares Available for Grant, respectively. The Company’s stockholders approved the removal of the “fungible share” provision for awards granted on or after June 14, 2019 upon adoption of the Amended and Restated Plan at the Company’s 2019 Annual Meeting of Stockholders held on June 14, 2019.

17

Non-Employee Stock-Based Compensation

The Company granted 9,303 RSUs and 11,920 PSUs to non-employees during the six months ended June 30, 2019. The RSUs granted vest over four years at 25% on each anniversary of the grant date. The PSUs vest over a year subject to the same performance criteria as employees. The PSUs granted in the three and six months ended June 30, 2019 vest subject to the recipients continued service and to the achievement of certain operational goals for the Company’s 2019 fiscal year.

Stock-based Compensation Expense

Stock-based compensation expense by department recognized during the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019*		2018
Cost of revenue	$	404	$	227	$	673	$	380
Sales and marketing		997		715		1,715		1,204
Research and development		370		262		633		453
General and administrative		748		1,002		805		1,856
Total stock-based compensation expense	$	2,519	$	2,206	$	3,826	$	3,893

*Included in the six-month ended June 30, 2019 stock-based compensation expense is the charge in connection with the accelerated vesting of 4,667 shares of the Company’s former CEO, in accordance with his separation agreement dated January 4, 2019.

Note 10. Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of shares outstanding during the period. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money equity awards (stock options, RSUs, PSUs and employee stock purchase plan contributions), which is calculated based on the average share price for each fiscal period using the treasury stock method.

Diluted earnings per share is the same as basic earnings per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) and the weighted average number of shares used in computing basic and diluted net income (loss) per share (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Numerator
Net income (loss) (in thousands)	$	588	$	(1,572)	$	(7,632)	$	(3,604)
Denominator
Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic		14,086		13,709		14,051		13,649
Dilutive effect of incremental shares and share equivalents		270		—		—		—
Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted		14,356		13,709		14,051		13,649
Net income (loss) per share:
Net income (loss) per share, basic	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)
Net income (loss) per share, diluted	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)

18

The following numbers of shares outstanding, prior to the application of the treasury stock method, were excluded from the computation of diluted net income (loss) per common share for the period presented because including them would have had an anti-dilutive effect (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Options to purchase common stock		192		710		466		758
Restricted stock units		178		449		460		422
Performance stock units		—		49		162		36
Employee stock purchase plan shares		—		73		94		73
Total		370		1,281		1,182		1,289

Note 11. Income Taxes

The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to ordinary income or loss for the interim reporting period. When applicable, the year-to-date tax provision reflects adjustments from discrete tax items.

The Company's income tax benefit for the three months ended June 30, 2019 is due primarily to the release of reserve for uncertain tax position in Germany of $0.3 million, partially offset by income taxes in non-U.S. operations. The Company's U.S. operations continue to be in a loss position and the Company maintains a 100% valuation allowance against its U.S. deferred tax assets.

For the three and six months ended June 30, 2019, the Company's income tax benefits were $0.2 million and $0.1 million, compared to tax benefits of $0.7 million and $3.3 million, respectively, for the same periods in 2018.

The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. As of June 30, 2019, and December 31, 2018, the Company maintained a 100% valuation allowance against its U.S. deferred tax assets. There was no valuation allowance during the three months ended June 30, 2018 other than the California jurisdiction.

Management’s judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considers available positive and negative evidence giving greater weight to its more recent cumulative losses, and lesser weight to its projected financial results, due to the subjectivity involved in forecasting future periods. The Company also considers, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

19

Note 12. Leases

The Company has 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 leases space for operations in the United States, Japan, France and Spain. In addition to the above facility leases, the Company also routinely leases automobiles for certain sales and field service employees under operating leases.

The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease 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 our 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.

Below is supplemental balance sheet information related to leases (in thousands): 

Assets	Classification		June 30, 2019
Right-of-use assets	Operating lease assets	$	8,990
Finance lease	Property and equipment, net*		1,327
Total leased assets		$	10,317

*Finance lease assets included in Property and equipment, net. 

Liabilities

Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	1,276
Operating lease liabilities , non-current	Operating lease liabilities, net of current portion		7,888
Total Operating lease liabilities		$	9,164

Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	640
Finance lease liabilities, non-current	Other long-term liabilities		782
Total Finance lease liabilities		$	1,422

Lease costs during the three months ended June 30, 2019: 

Finance lease cost	Amortization expense	$	188
Finance lease cost	Interest for finance lease		21
Operating lease cost	Operating lease expense		717

Lease costs during the six months ended June 30, 2019:
Finance lease cost	Amortization expense	$	371
Finance lease cost	Interest for finance lease		40
Operating lease cost	Operating lease expense		1,441

Cash paid for amounts included in the measurement of lease liabilities during the three months ended June 30, 2019 were as follows:
Operating cash flow	Finance lease	$	21
Financing cash flow	Finance lease		253
Operating cash flow	Operating lease		699

Cash paid for amounts included in the measurement of lease liabilities during the six months ended June 30, 2019 were as follows:

Operating cash flow	Finance lease	$	40
Financing cash flow	Finance lease		415
Operating cash flow	Operating lease		1,404

20

Maturities of lease liabilities

Maturities of lease liabilities were as follows as of June 30, 2019 (in thousands):

	Operating leases
Remainder of 2019	$	1,416
2020		2,868
2021		2,613
2022		2,607
2023 and thereafter		352
Total lease payments		9,856
Less: imputed interest		692
Present value of lease liabilities	$	9,164

Vehicle Leases

As of June 30, 2019, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance leases as follows (in thousands):

	Operating leases
Remainder of 2019	$	456
2020		499
2021		379
2022		234
Total lease payments		1,568
Less: imputed interest		146
Present value of lease liabilities	$	1,422

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting, maturities of lease liabilities were as follows as of December 31, 2018:

Facility Leases

As of December 31, 2018, the Company was committed to minimum lease payments for facilities and other leased assets under long-term non-cancelable operating leases as follows (in thousands):

	Operating leases
2019	$	3,011
2020		2,939
2021		2,564
2022		2,495
2023 and thereafter		214
Future minimum rental payments	$	11,223

Vehicle Leases - U.S.

As of December 31, 2018, the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable capital leases as follows (in thousands):

	Operating leases
2019	$	576
2020		287
2021		152
Future minimum lease payments	$	1,015

21

Weighted-average remaining lease term and discount rate, as of June 30, 2019, were as follows:

Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases	3.5
Finance leases	3.0
Weighted-average discount rate
Operating leases	4.4	%
Finance leases	5.6	%

Note 13. Contingencies

The Company is named from time to time as a party to other legal proceedings, product liability, commercial disputes, employee disputes, and contractual lawsuits in the ordinary course of business. A liability and related charge are recorded to earnings in the Company’s consolidated financial statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including discussion with outside legal counsel. 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 material 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. The Company expenses legal fees as incurred.

As of June 30, 2019 and December 31, 2018, the Company had zero and $171,000 accrued respectively, related to various pending contractual and product liability lawsuits. The Company does not believe that a material loss in excess of accrued amounts is reasonably likely.

Note 14. Debt

On May 30, 2018, the Company and Wells Fargo Bank, N.A. (“Wells Fargo”) entered into a Loan and Security Agreement (the “Original Revolving Line of Credit”) in the original principal amount of $25 million. The Original Revolving Line of Credit terminates on May 30, 2021.

On or about November 2, 2018, the Company entered into a First Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “First Amended Revolving Line of Credit”). The First Amended Revolving Line of Credit provided for an original principal amount of $15 million, with the ability to request an additional $10 million, and a waiver of any existing defaults under the Original Revolving Line of Credit as long as the Company is in compliance with the terms of the First Amended Revolving Line of Credit.

On or about, March 11, 2019, the Company entered into a Second Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “Second Amended Revolving Line of Credit”). The Second Amended Revolving Line of Credit requires the Company to maintain a minimum cash balance of $15 million at Wells Fargo, but removes all other covenants so long as no money is drawn on the line of credit. The Company may draw down on the line of credit at the time it reaches and maintains trailing twelve months adjusted EBITDA of not less than $10 million, and a leverage ratio not to exceed 2.5 to 1.0.

As of June 30, 2019, the Company had not drawn on the Original Revolving Line of Credit and the Company is in compliance with all financial covenants of the Original Revolving Line of Credit, as amended by the First and Second Amendment to the Revolving Line of Credit.

Note 15. Segment Reporting

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker ("CODM") is its Chief Executive Officer ("CEO"), who makes decisions on allocating resources and in assessing performance. The CEO reviews the Company's consolidated results as one operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geography and product. All of the Company’s principal operations and decision-making functions are located in the U.S. The Company’s CEO views its operations, manages its business, and uses one measurement of profitability for the one operating segment - which sells aesthetic medical equipment and services, and distributes skincare products, to qualified medical practitioners. Substantially all of the Company’s long-lived assets are located in the U.S.

22

The following table presents a summary of revenue by geography for the three months ended June 30, 2019 and 2018:

	Three Months Ended June 30,
	2019		2018
Revenue mix by geography:
United States	$	28,147	$	28,132
Japan		5,337		3,946
Asia, excluding Japan		4,547		4,231
Europe		2,504		1,803
Rest of the world		7,239		4,441
Total consolidated revenue	$	47,774	$	42,553
Revenue mix by product category:
Products	$	37,539	$	35,291
Consumables		2,654		1,057
Skincare		1,775		1,302
Total product revenue	$	41,968	$	37,650
Service		5,806		4,903
Total consolidated revenue	$	47,774	$	42,553

The following table presents a summary of revenue by geography for the six months ended June 30, 2019 and 2018:

	Six Months Ended June 30,
	2019		2018
Revenue mix by geography:
United States	$	48,547	$	49,268
Japan		10,631		7,501
Asia, excluding Japan		7,642		7,074
Europe		5,240		4,373
Rest of the world		11,740		8,462
Total consolidated revenue	$	83,800	$	76,678
Revenue mix by product category:
Products	$	64,748	$	62,530
Consumables		4,599		1,826
Skincare		3,383		2,558
Total product revenue	$	72,730	$	66,914
Service		11,070		9,764
Total consolidated revenue	$	83,800	$	76,678

Note 16—Subsequent Events

The Company has determined based on the evaluation that no material subsequent events exist other than the following:

On July 2, 2019, the Board appointed David H. Mowry as CEO of the Company effective as of his employment commencement date, July 8, 2019. On the same date, the Board also increased the number of directors constituting the Board from six to seven directors and appointed Mr. Mowry to the Board, effective as of July 8, 2019.

Mr. Mowry’s base salary is $650,000 and he is not entitled to receive any board compensation during the period of his employment. Mr. Mowry is also eligible to participate in the Company’s 2019 Management Bonus Program on a prorated basis to reflect the period during 2019 that Mr. Mowry is employed with the Company, and his target bonus percentage is equal to 80% of his base salary, as well as severance and other standard employment benefits. As an additional compensation, the Board awarded Mr. Mowry 67,897 RSUs, which vest over 4 years at 25% per year, and a PSU award covering a target of 67,897 shares, subject to certain performance-based criteria and scheduled to vest over 4 years from 2019 through 2022.

Following the appointment of a permanent CEO, the Board promoted Mr. Jason Richey, the Interim CEO and Chief Operating Officer to President of the Company, effective July 8, 2019. His base salary was increased from $505,000 to $575,000.

The Board also granted Mr. Richey an RSU award covering 27,159 shares which vest in four equal installments on each of the one-, two-, three-, and four-year anniversaries of July 8, 2019, subject to Mr. Richey’s continued employment through the applicable vesting date, and an RSU award covering 27,159 shares, which vest on January 1, 2020, subject to Mr. Richey’s continued employment through such date.

23

ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis should be read in conjunction with the Company’s financial condition and results of operations in conjunction with the Company’s unaudited Condensed Consolidated Financial Statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the Company’s audited financial statements and notes thereto for the year ended December 31, 2018, included in its Annual Report on Form 10-K filed on March 18, 2019 with the U.S. Securities and Exchange Commission (SEC).

Unless otherwise indicated, all results presented are prepared in a manner that complies, in all material respects, with accounting principles generally accepted in the United States of America (“GAAP”). Additionally, unless otherwise indicated, all changes identified for the current-period results represent comparisons to results for the prior corresponding fiscal period.

Special note regarding forward-looking statements

This report contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, ("the Exchange Act"). Forward looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward- looking statements. These statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below.

Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The statements are subject to change based on various factors, including but not limited to the risks and uncertainties summarized below:

● changes in the Company’s common stock price;

● the ability of the Company’s sales force to effectively market and promote the Company’s products, and the extent to which those products gain market acceptance;

● the existence and timing of any product approvals or changes;

● the inability to meet the Company's debt repayment obligations, if any, under the Loan and Security Agreement with Wells Fargo Bank, N.A., as amended by the First Amendment and Waiver to the Loan and Security Agreement and the Second Amendment and Waiver to the Loan and Security Agreement, due to insufficient cash; 

● the possibility that cybersecurity breaches, data breaches, and other disruptions could compromise our information or result in the unauthorized disclosure of confidential information;

● the existence and timing of any product approvals or changes;

● the rate and size of expenditures incurred on the Company’s clinical, manufacturing, sales, marketing and product development efforts;

● the Company’s ability to obtain and retain personnel;

● the availability of key components, materials and contract services, which depends on the Company’s ability to forecast sales, among other things;

● investigations of the Company’s business and business-related activities by regulatory or other governmental authorities;

● variations in timing and quantity of product orders;

● temporary manufacturing interruptions or disruptions;

● the timing and success of new product and new market introductions, as well as delays in obtaining domestic or foreign regulatory approvals for such introductions;

● increased competition, patent expirations or new technologies or treatments;

● impact of the FDA communication letter regarding “vaginal rejuvenation” procedures using energy-based devices on sales of the Company's products;

● product recalls or safety alerts;

● litigation, including product liability, patent, employment, securities class action, stockholder derivative, general commercial and other lawsuits;

● volatility in the global market and worldwide economic conditions;

● changes in tax laws, including changes domestically and internationally, or exposure to additional income tax liabilities;

● the impact of the new EU privacy regulations, the General Data Protection Regulation on the Company’s resources;

● the financial health of the Company’s customers and their ability to purchase the Company’s products in the current economic environment; and

● other unusual or non-operating expenses, such as expenses related to mergers or acquisitions, may cause operating result variations.

24

Introduction

The Management’s Discussion and Analysis, or 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 product lines and the opportunities, trends, challenges and risks the Company focuses on in the operation of our business.

● Critical Accounting Policies and Estimates. This section describes the key accounting policies that are affected by critical accounting estimates.

● Results of Operations. This section provides the Company’s analysis and outlook for the significant line items on the Company’s Condensed 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 June 30, 2019.

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 products developed internally, the Company distributes third party sourced products under our 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 health. The Company’s platforms are designed to be easily upgraded to add additional applications and hand pieces, which provide flexibility for our 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, as well as distributing third-party manufactured skincare products.

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 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 and truSculpt flex in June 2019.

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, Belgium, France, Germany, Hong Kong, Japan, Spain, Switzerland and the United Kingdom. Sales and Services outside of these direct markets are made through a network of distributors in over 40 countries.

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 and truSculpt flex cycle refills, as well as single use disposable tips applicable to Juliet and Secret RF (“Consumables” revenue), and the sale of skincare products (“Skincare” revenue). 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 us 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.

Service includes prepaid service contracts, training services, enlighten installation, direct billings for detachable hand piece replacements and revenue for parts, customer marketing support and labor on out-of-warranty products.

Significant Business Trends

The Company believes that its ability to grow revenue will be primarily dependent on the following:

● continuing to expand the Company’s product offerings, both through internal development and sourcing from other vendors;

25

● 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;

● 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 systems with a Consumable revenue component.

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

Factors that May Impact Future Performance

The Company’s industry is impacted by numerous competitive, regulatory and other significant factors. The Company’s industry is highly competitive and the Company’s future performance depends on the Company’s ability to compete successfully. Additionally, the Company’s future performance is dependent upon the ability to continue to expand the Company’s product offerings with innovative technologies, obtain regulatory clearances for the Company’s products, protect the proprietary technology of the products and manufacturing processes, manufacture the products cost-effectively, and successfully market and distribute the products in a profitable manner. If the Company fails to execute on the aforementioned initiatives, the Company’s business would be adversely affected.

The Company, and other medical aesthetic companies, are facing increased scrutiny by the Food and Drug Administration (the “FDA”) with respect to products for vaginal health. On July 30, 2018, the FDA issued a public statement and sent letters to a number of companies in the medical aesthetics industry expressing concerns regarding “vaginal rejuvenation” procedures using energy-based devices. Although the Company did not receive such a letter at that time, we carefully considered the FDA’s broader concerns articulated in the letter and elected to implement certain commercial and promotional initiatives that addressed the FDA’s stated concerns, including ceasing to promote the Juliet device for “vaginal rejuvenation” procedures until we and the manufacturer assessed the implications of recent FDA considerations for devices in this category. Subsequently, on or about June 3, 2019, the Company received correspondence from the FDA related to its distributed product, the Juliet laser, expressing similar concerns to the letter issued in July, 2019. The Company responded to the FDA’s correspondence outlining measures already taken that we believe address the FDA’s concerns. The Company expects to continue to market Juliet as stated in its currently cleared indications: coagulation, vaporization, ablation or cutting of soft tissue (skin) in Dermatology, Plastic Surgery, Oral Surgery, ENT, Gynecology, General Surgery, Podiatry and Ophthalmology (skin around the eyes), as well as skin resurfacing on the face and body. Lost sales of the Juliet device and its hand pieces, has and will likely continue, to impact our revenue. The Company believes, however, that a higher level of scrutiny from regulatory authorities ultimately will benefit us as well as our customers and patients.

The Company believes it has a robust, multi-functional process that reviews its promotional claims and materials to ensure they are truthful, not misleading, fair and balanced, and supported by sound scientific evidence. A detailed discussion of these and other factors that could impact the Company’s future performance are provided in (1) the Company’s Annual Report on Form 10-K for the year ended December 31, 2018- Part I, Item 1A “Risk Factors,” (2) the Company’s reports and registration statements filed and furnished from time to time with the SEC, and (3) other announcements the Company makes from time to time.

The Company recently hired a new Chief Executive Officer (“CEO”), who was also elected to serve on the Company’s Board of Directors. His prior experience is primarily with medical device companies, but not within the aesthetics industry specifically. In addition, recently hired executives may view the business differently than prior members of management, and over time may make changes to the existing personnel and their responsibilities, our strategic focus, operations or business plans. The Company can give no assurances that it will be able to properly manage any such shift in focus, or that any changes to its business, would ultimately prove successful. In addition, leadership transitions and management changes can be inherently difficult to manage and may cause uncertainty or a disruption to the Company’s business or may increase the likelihood of turnover in key officers and employees. The Company’s success depends in part on having a successful leadership team. If the Company cannot effectively manage the leadership transitions and management changes, it could make it more difficult to successfully operate its business and pursue its business goals.

Critical Accounting Policies, Significant Judgments and Use of Estimates.

The preparation of the Company’s unaudited Condensed Consolidated Financial Statements and related disclosures in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates, judgments and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. The Company periodically reviews its estimates and make adjustments when facts and circumstances dictate. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or results of operations will be affected.

The Company adopted ASU 2016-02 in the first quarter of fiscal year 2019 using the modified retrospective method, to all leases existing at the date of initial application. The comparative information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of $10.3 million and $10.4 million, respectively, as of January 1, 2019, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The difference between the additional lease assets and lease liabilities, was recorded as deferred rent. The standard had no material impact on the Company’s condensed consolidated statements of operations, comprehensive loss, statements of changes in equity, and cash flows. Refer to notes 2 and 12 to the unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional accounting policy and transition disclosures.

26

The Company also adopted ASU No. 2018-15 during the second quarter of fiscal year 2019. The adoption resulted in the capitalization of software development costs of $0.5 million during the three months ending June 30, 2019, related to implementation of a new Enterprise Resource Planning. The amount is included in other current assets and prepaid expenses on the balance sheet.

Critical accounting estimates, as defined by the SEC, are those that are most important to the portrayal of our financial condition and results of operations and require our management’s most difficult and subjective judgments and estimates of matters that are inherently uncertain. The accounting policies and estimates that the Company considers to be critical, subjective, and requiring judgment in their application are summarized in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 18, 2019. With the exception of the change for the accounting of leases as a result of the adoption of ASU 2016-02 and the adoption of ASU No. 2018-15, there have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K that are of significance, or potential significance, to the Company.

Results of Operations

The following table sets forth selected consolidated financial data for the periods indicated, expressed as a percentage of total revenue, net. Percentages in this table and throughout our discussion and analysis of financial condition and results of operations may reflect rounding adjustments.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Net revenue		100%		100%		100%		100%
Cost of revenue		46%		47%		49%		48%
Gross margin		54%		53%		51%		52%
Operating expenses:
Sales and marketing		36%		37%		39%		37%
Research and development		7%		10%		8%		10%
General and administrative		11%		12%		13%		13%
Total operating expenses		54%		59%		60%		60%
Income (loss) from operations		1%		(5)%		(9)%		(9)%
Interest and other income, net		—%		—%		—%		—%
Income (loss) before income taxes		1%		(5)%		(9)%		(9)%
Provision (benefit) for income taxes		(1)%		—%		—%		(4)%
Net income (loss)		—%		(5)%		(9)%		(5)%

Revenue

The timing of the Company’s revenue is significantly affected by the mix of system products, installation, training, consumables and extended contract services. The revenue generated in any given period is also impacted by whether the revenue is recognized over time or at a point in time, upon completion of delivery. For an additional description on revenue, see Note 1 in the notes to consolidated financial statements on the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and Note 7 to the unaudited Condensed Consolidated Financial Statements included in Item I, Part 1 of this Quarterly Report on Form 10-Q.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that are transferred to customers over time accounted for approximately 13% and 9% of the Company’s total revenue for the six months ended June 30, 2019 and June 30, 2018, respectively. Revenue recognized over time relates to revenue from the Company’s extended service contracts and marketing services. Revenue recognized upon delivery is primarily generated by the sales of systems, consumables and skincare.

27

Total Net Revenue

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019		% Change		2018		2019		% Change		2018
Revenue mix by geography:
United States	$	28,147		—%	$	28,132	$	48,547		(1)%	$	49,268
International		19,627		36%		14,421		35,253		29%		27,410
Consolidated total revenue	$	47,774		12%	$	42,553	$	83,800		9%	$	76,678
United States as a percentage of total revenue		59%				66%		58%				64%
International as a percentage of total revenue		41%				34%		42%				36%
Revenue mix by product category:
Systems - North America	$	26,491		2%	$	25,886	$	44,071		(2)%	$	44,830
Systems - Rest of World		11,048		17%		9,405		20,677		17%		17,700
Total Systems		37,539		6%		35,291		64,748		4%		62,530
Consumables		2,654		151%		1,057		4,599		152%		1,826
Skincare		1,775		36%		1,302		3,383		32%		2,558
Total Products		42,968		11%		37,650		72,730		9%		66,914
Service		5,806		18%		4,903		11,070		13%		9,764
Total Net Revenue	$	47,774		12%	$	42,553	$	83,800		9%	$	76,678

The Company’s revenue increased by 12% and 9% in the three and six month periods ended June 30, 2019, respectively, compared to the same periods in 2018, due primarily to strong growth in the Company’s international business, and demand for the Company’s product lines – the truSculpt iD, Secret RF, and the recently launched systems, excel V+ and truSculpt flex, offset by softness in the overall women’s health market, competitive trends affecting certain legacy system pricing, and the continued impact from turnover in our North American salesforce in the fourth quarter of 2018.

Revenue by Geography:

The Company’s U.S. revenue was flat for the three months ended June 30, 2019, and decreased by $0.8 million, or 1%, for the six months ended June 30, 2019, compared to the same periods in 2018. This decrease for the six months ended June 30, 2019 was due primarily to softness in the overall women’s health market, competitive trends affecting certain legacy system pricing, and greater than expected turnover in our North American salesforce in the fourth quarter on 2018 impacting revenue growth in North America during the first half of 2019.

The Company’s international revenue increased by $5.2 million, or 36%, and $7.8 million, or 29% in the three and six months ended June 30, 2019, compared to the same periods in 2018. The increase was due to strong demand in the Company's recurring revenue, including service, skincare products and procedure related consumables.

Revenue by Product Type:

Systems Revenue

Systems revenue in North America increased by $0.5 million, or 2%, and decreased by $0.8 million, or 2%, in the three and six months and ended June 30, 2019, compared to the same periods in 2018, due to the softness in the overall women’s health market, competitive trends affecting certain legacy system pricing and greater than expected turnover in our North American salesforce in the fourth quarter of 2018, impacting the first half year sales of 2019. The Rest of the World systems revenue increased 17% for the three and six months ended June 30, 2019, compared to same periods 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 due to strong demand in recurring revenue, including service, skincare products and procedure related consumables, and an increase in the Company’s distributor business in the Middle East.

28

Consumables Revenue

Consumables revenue increased $2.3 million, or 151%, and $3.5 million, or 152%, for the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018. The increase in consumables revenue was primarily due to the introduction of Secret RF and Juliet during January 2018, and truSculpt iD in July 2018, each of which have consumable elements.

Skincare Revenue

The Company’s revenue from Skincare products in Japan increased $0.5 million, or 36%, and $0.8 million, or 32%, for the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018. This increase was due primarily to (i) increased marketing and promotional activities, and (ii) a temporary increase in consumer demand due to changes in the Japanese consumption tax rate effective October 1, 2019.

Service Revenue

The Company’s Service revenue increased $0.9 million, or 18%, and $1.3 million, or 13%, for the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018. This increase was due primarily to increased sales of service contracts, support and maintenance services provided on a time and materials basis to the Company's network of international distributors.

Gross Profit

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2019			% Change			2018			2019			% Change			2018
Gross profit	$	25,831			15	%	$	22,377		$	43,140			9	%	$	39,711
As a percentage of total net revenue		54	%					53	%		51	%					52	%

The Company’s cost of revenue consists primarily of material, personnel expenses, product warranty costs, and manufacturing overhead expenses. The Company also continues to make investments in its international direct service support, as well as operational improvement activities, which is positively impacting the Company’s international revenue.

Gross margins for the three months ended June 30, 2019 increased by 1%, compared to same period in 2018. The increase in gross margins in the three months ended June 30, 2019 was largely driven by demand for the Company's new products with higher gross margins – the truSculpt iD, Secret RF, and the newly launched systems, excel V+ and truSculpt flex, as well as continues strong growth in recurring revenue, including service, skincare products and procedure related consumables.

Gross margin for the six months ended June 30, 2019 declined by 1%, compared to the same period in 2018. The decline in gross margins during the six months ended June 30, 2019 was due to the softness in the overall women’s health market, competitive trends affecting certain legacy system pricing, and greater than expected turnover in our North American salesforce in the fourth quarter of 2018 impacting growth in the first half of 2019.

Sales and Marketing

	Three Months Ended June 30,									Six Months Ended June 30,
(Dollars in thousands)	2019			% Change			2018			2019			% Change			2018
Sales and marketing	$	16,992			9	%	$	15,535		$	33,096			16	%	$	28,623
As a percentage of total net revenue		36	%					37	%		39	%					37	%

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 $2.7 million increase in sales and marketing expenses during the three months ended June 30, 2019, compared to the same period in 2018, was due primarily to:

● $2.0 million increase in personnel related expenses, including travel related expenses, primarily driven by increased headcount and commissions related to higher revenues;

● $0.3 million of stock based compensation as a result of increased headcount; and

● $0.4 million of higher promotional and product demonstration expenses, primarily in North America.

The $4.4 million or 16% increase in sales and marketing expenses for the six months ended June 30, 2019 compared to same periods in 2018 was due primarily to:

● $2.9 million net increase in personnel related expenses, driven primarily by increased headcount;

● $0.7 million increased sales related and product demonstration expenses, primarily in North America;

● $0.7 million increased marketing consulting services; and

● $0.5 million increased stock based compensation due to higher headcount; partially offset by

● $0.4 million of decreased promotional expenses, primarily in North America.

29

Research and Development (“R&D”)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019		% Change		2018		2019		% Change		2018
Research and development	$	3,273		(20)%	$	4,095	$	6,979		(9)%	$	7,651
As a percentage of total net revenue		7%				10%		8%				10%

R&D expenses consist primarily of personnel expenses, clinical research, regulatory and material costs. R&D expenses decreased by $0.8 million or 20%, and $0.7 million or 9%, and represented 7% and 8% of total net revenue, in the three and six months ended June 30, 2019, compared to 10% of total net revenue in each of the three and six months ended June 30, 2018. This decrease in expense was due primarily to $0.9 million decrease in material expenses, and $0.3 million decrease in personnel related expenses; partially offset by increase in consulting related expenses.

General and Administrative (“G&A”)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019		% Change		2018		2019		% Change		2018
General and administrative	$	5,267		7%	$	4,902	$	10,792		4%	$	10,341
As a percentage of total net revenue		11%				12%		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 $0.4 million, or 7%, and $0.5 million or 8% and represented 11% and 13% of total net revenue in the three and six months ended June 30, 2019, compared to the same 12% and 13% of total net revenue in the three and six months ended June 30, 2018. The increase was due primarily to $1.4 million of increased professional fees and consulting services related to the ongoing implementation efforts of a new Enterprise Resource Planning solution during the six months ended June 30, 2019; partially offset by personnel related expenses.

Interest and Other Income (Expense), Net

Interest and other income (expense), net, consists of the following:

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019		$ Change		2018		2019		$ Change		2018
Interest and other income (expense), net	$	46		175	$	(129)	$	(33)		(2)	$	(31)
As a percentage of total net revenue		—%				—%		—%				—%

Interest and other income (expense), net, decreased by $175,000 to result in income of $46,000 in the three months ended June 30, 2019.  An increase in interest income from the Company’s marketable investments, and foreign exchange gains in the three months ended June 30, 2019 compared to foreign exchange losses in the three months ended June 30, 2018, were offset by an increase in interest expense related to the estimated interest expense for advance payment related to service contracts under ASC Topic 606.

Interest and other income (expense), net, increased $2,000 to $33,000 expense in the six months ended June 30, 2019.  An increase in interest income from the Company’s marketable investments in the six months ended June 30, 2019, compared to the same period in 2018, was offset by an increase in interest expense related to the estimated interest expense for advance payment related to service contracts under ASC Topic 606.

Provision for Income Taxes

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019		$ Change		2018		2019		$ Change		2018
Income (loss) before income taxes	$	345	$	2,629	$	(2,284)	$	(7,760)		(825)	$	(6,935)
Provision (benefit) for income taxes		(243)		469		(712)		(128)		3,203		(3,331)

For the three and six months ended June 30, 2019, the Company’s income tax benefits were $0.2 million and $0.1 million, respectively, compared to tax benefits of $0.7 and $3.3 million in the same periods in 2018. In the three and six months ended June 30, 2019, the Company calculated the provision for income taxes for interim reporting periods by applying an estimate of the annual effective tax rate for the full year to ordinary income or loss for the reporting period. The Company’s income tax benefit in the three and six months ended June 30, 2019 was primarily related to the release of reserve for uncertain tax position in Germany during the second quarter end June 30, 2019. The release of the reserve resulted in a tax benefit of $0.3 million for the six months ended June 30, 2019.

As of June 30, 2019, and December 31, 2018, the Company maintains a 100% valuation allowance against its U.S. deferred tax assets. There was no valuation allowance during the six months ended June 30, 2018 other than the California jurisdiction.

30

Liquidity and Capital Resources

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 and investments to ensure the maintenance of funds sufficient to meet its operational needs. The majority of the Company’s cash and investments are held in U.S. banks. Our foreign subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses.

As of June 30, 2019 and December 31, 2018, the Company had $35.2 million and $39.6 million of working capital, respectively. Cash and cash equivalents, plus marketable investments decreased by $3.9 million to $31.7 million as of June 30, 2019, from $35.6 million as of December 31, 2018, primarily due to settling accounts payable and accrued liabilities, as well as increased investments in sales, service and other management headcount to facilitate revenue growth.

Cash, Cash Equivalents and Marketable Investments

The following table summarizes our cash, cash equivalents and marketable investments:

(Dollars in thousands)	June 30, 2019		December 31, 2018		Change
Cash and cash equivalents	$	27,668	$	26,052	$	1,616
Marketable investments		4,002		9,523		(5,521)
Total	$	31,670	$	35,575	$	(3,905)

Cash Flows

	Six Months Ended June 30,
(Dollars in thousands)	2019		2018
Net cash flow provided by (used in):
Operating activities	$	(3,919)	$	(6,503)
Investing activities		5,284		10,611
Financing activities		251		140
Net increase in cash and cash equivalents	$	1,616	$	4,248

Cash Flows from Operating Activities

Net cash used in operating activities in the six months ended June 30, 2019 was approximately $4.0 million, primarily due to:

● $7.6 million net loss as adjusted for by non-cash related items consisting primarily of stock-based compensation expense of $3.8 million, and $2.2 million depreciation and amortization expenses;

● $5.3 million increase in accounts receivables;

● $3.8 million increase in accrued liabilities due primarily to due to the timing of vendor payments in the ordinary course of business;

● $2.3 million decrease in pre-paid expenses and other long term assets;

● $1.3 million generated from an increase in deferred revenue;

● $1.1 million used to increase inventories;

● $0.8 million used to settle extended warranty liabilities;

● $0.4 million decrease in other long-term liabilities, including tax liability of $0.3 million; and

● $0.1 million generated from an increase in accounts payable due primarily to increased material purchases.

Net cash used in operating activities in the six months ended June 30, 2018 was approximately $6.5 million, primarily due to:

● $3.7 million net loss as adjusted for non-cash related items consisting primarily of stock-based compensation expense of $3.9 million, income tax benefit of $3.2 million, and $1.4 million depreciation and amortization expenses;

● $3.7 million cash used to increase accounts payable due primarily to increased material purchases and timing of vendor payments in the ordinary course of business;

● $4.3 million cash used to settle accrued liabilities;

● $2.1 million decrease in pre-paid expenses and other long term assets;

● $1.8 million used as a result of increased account receivables;

● $1.4 million cash used to increase inventories; and

● $0.5 million generated as a result of increased deferred revenue.

31

Cash Flows from Investing Activities

Net cash provided by investing activities was $5.3 million in the six months ended June 30, 2019, primarily due to:

● $9.6 million in net proceeds from the maturities of marketable investments; partially offset by

● $4.0 million of cash used to purchase marketable investments.

Net cash provided by investing activities was $10.6 million in the six months ended June 30, 2018, primarily due to:

● $15.5 million in net proceeds from the sales and maturities of marketable investments; partially offset by

● $4.4 million of cash used to purchase marketable investments.

Cash Flows from Financing Activities

Net cash used in financing activities was $251,000 in the six months ended June 30, 2019, primarily due to:

● $1.2 million net proceeds from the issuance of common stock due to employees exercising their stock options and purchasing stock through the Employee Stock Purchase Plan (“ESPP”) program; offset by

● $0.6 million of cash used for taxes related to net share settlement of equity awards; and

● $0.3 million of cash used to pay finance lease obligations.

Net cash provided by financing activities was $140,000 in the six months ended June 30, 2018, primarily due to:

● $3.0 million proceeds from exercise of stock options and employee stock purchase plan, offset by

● $2.9 million of cash used for taxes paid related to net share settlement of equity awards.

Adequacy of Cash Resources to Meet Future Needs

The Company had cash, cash equivalents, and marketable investments of $31.7 million as of June 30, 2019. For the six months ended June 30, 2019, 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 ESPP. 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.

Loan and Security Agreement

On May 30, 2018, the Company and Wells Fargo Bank, N.A. (“Wells Fargo”) entered into a Loan and Security Agreement (the “Original Revolving Line of Credit”) in the original principal amount of $25 million. The Original Revolving Line of Credit terminates on May 30, 2021.

The Original Revolving Line of Credit contained financial and other covenants as well as the maintenance of a leverage ratio not to exceed 2.5 to 1.0 and a trailing twelve months ("TTM") adjusted EBITDA of not less than $10 million. A violation of any of the covenants could result in a default under the Original Revolving Line of Credit that would permit the lenders to restrict the Company’s ability to further access the revolving line of credit for loans and letters of credit and require the immediate repayment of any outstanding loans under the Loan and Security Agreement.

During the third quarter of 2018, the Company received notice that it was in violation of certain financial covenants in the Original Revolving Line of Credit and entered into discussions with Wells Fargo to amend and revise certain terms of the Original Revolving Line of Credit.

On or about November 2, 2018, the Company entered into a First Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “First Amended Revolving Line of Credit”). The First Amended Revolving Line of Credit provided for a principal amount of $15 million, with the ability to request an additional $10 million, and a waiver of any existing defaults under the Original Revolving Line of Credit as long as the Company is in compliance with the terms of the First Amended Revolving Line of Credit.

On or about March 11, 2019, the Company entered into a Second Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “Second Amended Revolving Line of Credit”). The Second Amended Revolving Line of Credit requires the Company to maintain a minimum cash balance of $15 million at Wells Fargo, but removes all other covenants so long as no money is drawn on the line of credit. The Company may draw down on the line of credit at the time it reaches and maintains TTM adjusted EBITDA of not less than $10 million, and a leverage ratio not to exceed 2.5 to 1.0.

A violation of any of the covenants could result in a default under the Second Amended Revolving Line of Credit that would permit the lenders to restrict the Company’s ability to further access the revolving line of credit for loans and letters of credit and require the immediate repayment of any outstanding loans under the Second Amended Revolving Line of Credit.

As of June 30, 2019, the Company had not drawn on the Original Revolving Line of Credit and the Company is in compliance with all financial covenants of the Original Revolving Line of Credit, as amended by the First Amended Revolving Line of Credit and the Second Amended Revolving Line of Credit.

Commitments and Contingencies

As of the date of this report, other than changes related to adoption of the new lease accounting standard effective January 1, 2019, and as described in Notes 2 and 12 to the Condensed Consolidated Financial Statements, there were no material changes to the Company’s contractual obligations and commitments outside the ordinary course of business since March 18, 2019, as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 18, 2019.

32

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A summary of the key market risks facing the Company is disclosed below. For a detailed discussion, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 18, 2019.

Interest Rate Fluctuations

The primary objective of the Company’s investment activities is to preserve principal while at the same time maximizing the income the Company receives from investments without significantly increasing risk. To achieve this objective, the Company maintains its portfolio of cash equivalents and short- and long-term investments in a variety of high quality securities, including U.S. treasuries, U.S. government agencies, corporate debt, cash deposits, money market funds, commercial paper, non-U.S. government agency securities, and municipal bonds. The securities are classified as available-for-sale and consequently are recorded at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive loss. The weighted average maturity of the Company’s portfolio as of June 30, 2019 was approximately 0.3 years. If interest rates rise, the market value of our investments may decline, which could result in a realized loss if the Company is forced to sell an investment before its scheduled maturity. A hypothetical increase in interest rate by one percentage point would have resulted in no impact on the Company’s total investment portfolio.

The uncertain financial markets could result in a tightening in the credit markets, a reduced level of liquidity in many financial markets, and extreme volatility in fixed income and credit markets. The credit ratings of the securities the Company has invested in could further deteriorate and may have an adverse impact on the carrying value of these investments.

As of June 30, 2019, the Company had not drawn on the Revolving Line of Credit. Overall interest rate sensitivity is primarily influenced by any amount borrowed on the line of credit and the prevailing interest rate on the line of credit facility. The effective interest rate on the line of credit facility is based on a floating per annum rate equal to the LIBOR rate. The LIBOR rate was 2.2% as of June 30, 2019, and accordingly the Company may incur additional expenses if the Company has an outstanding balance on the line of credit and the LIBOR rate increases in future periods.

Inflation

The Company does not believe that inflation has had a material effect on the Company’s business, financial condition, or results of operations. If the Company’s costs were to become subject to significant inflationary pressures, the Company may not be able to fully offset such higher costs through price increases. The Company’s inability or failure to do so could harm the Company’s business, financial condition, and results of operations.

Foreign Exchange Fluctuations

The Company generates revenue in Japanese Yen, Euros, Australian Dollars, Canadian Dollars, British Pounds and Swiss Francs. Additionally, a portion of the Company’s operating expenses and assets and liabilities are denominated in each of these currencies. Therefore, fluctuations in these currencies against the U.S. dollar could materially and adversely affect the Company’s results of operations upon translation of the Company’s revenue denominated in these currencies, as well as the remeasurement of the Company’s international subsidiaries’ financial statements into U.S. dollars.

The Company has historically not engaged in hedging activities relating to the Company’s foreign currency denominated transactions, given the Company has a natural hedge resulting from the Company’s foreign cash receipts being utilized to fund the respective local currency expenses.

ITEM 4.     CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation as of the three months June 30, 2019 was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the Company’s “disclosure controls and procedures.” Rule 13a-15(e) under the Exchange Act defines “disclosure controls and procedures” as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective at June 30, 2019. Attached as exhibits to this Quarterly Report are certifications of the Company’s CEO and CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

33

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, the Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of the Company’s disclosure control system are met. As set forth above, the Company’s CEO and CFO have concluded, based on their evaluation as of the end of the period covered by this report, that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the objectives of the Company’s disclosure control system were met.

34

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may be involved in legal and administrative proceedings and claims of various types. For a description of the Company’s material pending legal and regulatory proceedings and settlements refer to Note 11 to the Company’s consolidated financial statements entitled “Commitments and Contingencies,” in the Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 18, 2019.

ITEM 1A. RISK FACTORS

There are no material changes from the Risk Factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 18, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

35

ITEM 6. EXHIBITS

Exhibit No.		Description
3.2	(1)	Amended and Restated Certificate of Incorporation of the Registrant (Delaware).

3.4 ⁽¹⁾ Bylaws of the Registrant.

4.1 ⁽²⁾ Specimen Common Stock certificate of the Registrant.

10.14 ⁽³⁾ Cutera, Inc. 2004 Amended and Restated Equity Incentive Plan.

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.ins Instance Document

101.sch XBRL Taxonomy Extension Schema Document

101.cal XBRL Taxonomy Extension Calculation Linkbase Document

101.def XBRL Taxonomy Extension Definition Linkbase Document

101.lab XBRL Taxonomy Extension Label Linkbase Document

101.pre XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference from the Company’s Registration Statement on Form S-1 (Registration No. 333-111928) which was declared effective on March 30, 2004.

(2) Incorporated by reference from the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2005.

(3) Incorporated by reference from the Company’s Definitive Proxy Statement on Form 14A filed with the SEC on April 30, 2018.

(4) Incorporated by reference from Current Report on Form 8-K filed May 9, 2018.

(5) Incorporated by reference from Current Report on Form 8-K filed June 5, 2018.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Brisbane, State of California, on the 8th day of August, 2019.

CUTERA, INC.

/S/ SANDRA A. GARDINER

Sandra A. Gardiner

Executive Vice President and Chief

Financial Officer (Principal Financial and

Accounting Officer)

 36

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David H. Mowry, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cutera, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2019	/S/ David H. Mowry
	David H. Mowry
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Sandra A. Gardiner, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cutera, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditor and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2019	/S/ SANDRA A. GARDINER
	Sandra A. Gardiner
	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, David H. Mowry, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

i. the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2019	/S/ David H. Mowry
	David H. Mowry
	Chief Executive Officer (Principal Executive Officer)

I, Sandra A. Gardiner, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that

i. the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

ii. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2019	/S/ SANDRA A. GARDINER
	Sandra A. Gardiner
	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Jul. 31, 2019
Document Information [Line Items]
Entity Registrant Name	CUTERA INC
Entity Central Index Key	0001162461
Trading Symbol	cutr
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding (in shares)		14,168,034
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 27,668	$ 26,052
Marketable investments	4,002	9,523
Accounts receivable, net	24,919	19,637
Inventories	26,889	28,014
Other current assets and prepaid expenses	4,536	3,972
Total current assets	88,014	87,198
Property and equipment, net	2,834	2,672
Deferred tax asset	458	457
Operating lease right-of-use assets	8,990
Goodwill	1,339	1,339
Other long-term assets	6,311	5,971
Total assets	107,946	97,637
Current liabilities:
Accounts payable	11,441	11,279
Accrued liabilities	27,026	23,300
Operating lease liabilities	1,276
Extended warranty liability	2,399	3,159
Deferred revenue	10,717	9,882
Total current liabilities	52,859	47,620
Deferred revenue, net of current portion	3,142	2,684
Income tax liability	93	394
Operating lease liabilities, net of current portion	7,888
Other long-term liabilities	782	553
Total liabilities	64,764	51,251
Commitments and Contingencies (Notes 12 and 13)
Stockholders’ equity:
Common stock, $0.001 par value; authorized: 50,000,000 shares; issued and outstanding: 14,142,296 and 13,968,852 shares at June 30, 2019 and December 31, 2018, respectively	14	14
Additional paid-in capital	74,870	70,451
Accumulated deficit	(31,642)	(24,010)
Accumulated other comprehensive loss	(60)	(69)
Total stockholders’ equity	43,182	46,386
Total liabilities and stockholders’ equity	$ 107,946	$ 97,637

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	14,142,296	13,968,852
Common stock, outstanding (in shares)	14,142,296	13,968,852

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net revenue:
Revenue	$ 47,774	$ 42,553	$ 83,800	$ 76,678
Cost of revenue:
Cost of revenue	21,943	20,176	40,660	36,967
Gross profit	25,831	22,377	43,140	39,711
Operating expenses:
Sales and marketing	16,992	15,535	33,096	28,623
Research and development	3,273	4,095	6,979	7,651
General and administrative	5,267	4,902	10,792	10,341
Total operating expenses	25,532	24,532	50,867	46,615
Income (loss) from operations	299	(2,155)	(7,727)	(6,904)
Interest and other income (expense), net	46	(129)	(33)	(31)
Income (loss) before income taxes	345	(2,284)	(7,760)	(6,935)
Income tax benefit	(243)	(712)	(128)	(3,331)
Net income (loss)	$ 588	$ (1,572)	$ (7,632)	$ (3,604)
Net income (loss) per share:
Basic (in dollars per share)	$ 0.04	$ (0.11)	$ (0.54)	$ (0.26)
Diluted (in dollars per share)	$ 0.04	$ (0.11)	$ (0.54)	$ (0.26)
Weighted-average number of shares used in per share calculations:
Basic (in shares)	14,086	13,709	14,051	13,649
Diluted (in shares)	14,356	13,709	14,051	13,649
Product [Member]
Net revenue:
Revenue	$ 41,968	$ 37,650	$ 72,730	$ 66,914
Cost of revenue:
Cost of revenue	18,393	17,045	33,935	30,967
Service [Member]
Net revenue:
Revenue	5,806	4,903	11,070	9,764
Cost of revenue:
Cost of revenue	$ 3,550	$ 3,131	$ 6,725	$ 6,000

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net income (loss)	$ 588	$ (1,572)	$ (7,632)	$ (3,604)
Available-for-sale investments
Net change in unrealized gains (losses) on available-for-sale investments	3	18	9	(4)
Less: Reclassification adjustment for (gains) losses on investments recognized during the period				9
Net change in unrealized gains and losses on available-for-sale investments	3	18	9	5
Tax provision
Other comprehensive income, net of tax	3	18	9	5
Comprehensive income (loss)	$ 591	$ (1,554)	$ (7,623)	$ (3,599)

XML

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	13,477,973
Balance at Dec. 31, 2017	$ 13	$ 62,025	$ 2,947	$ (92)	$ 64,893
Issuance of common stock for employee purchase plan (in shares)	34,776
Issuance of common stock for employee purchase plan		1,154			1,154
Exercise of stock options (in shares)	188,859
Exercise of stock options	$ 1	1,884			1,885
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)	122,644
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(2,665)			(2,665)
Stock-based compensation expense		3,893			3,893
Net income (loss)			(3,604)		(3,604)
Net change in unrealized loss on available-for-sale investments				5	5
Adjustment to opening balance for ASC 606 adoption at Dec. 31, 2017			3,813		3,813
Balance (in shares) at Jun. 30, 2018	13,824,252
Balance at Jun. 30, 2018	$ 14	66,291	3,156	(87)	69,374
Balance (in shares) at Mar. 31, 2018	13,824,252
Balance at Mar. 31, 2018	$ 14	62,057	5,888	(104)	67,855
Issuance of common stock for employee purchase plan (in shares)
Issuance of common stock for employee purchase plan		1,154			1,154
Exercise of stock options (in shares)
Exercise of stock options		1,251			1,251
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(377)			(377)
Stock-based compensation expense		2,206			2,206
Net income (loss)			(1,572)		(1,572)
Net change in unrealized loss on available-for-sale investments				17	18
Adjustment to opening balance for ASC 606 adoption at Mar. 31, 2018			(1,160)		(1,160)
Balance (in shares) at Jun. 30, 2018	13,824,252
Balance at Jun. 30, 2018	$ 14	66,291	3,156	(87)	$ 69,374
Balance (in shares) at Dec. 31, 2018	13,968,852				13,968,852
Balance at Dec. 31, 2018	$ 14	70,451	(24,010)	(69)	$ 46,386
Issuance of common stock for employee purchase plan (in shares)	53,803
Issuance of common stock for employee purchase plan		832			$ 832
Exercise of stock options (in shares)	40,454				42,066
Exercise of stock options		331			$ 331
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)	79,187
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(570)			(570)
Stock-based compensation expense		3,826			3,826
Net income (loss)			(7,632)		(7,632)
Net change in unrealized loss on available-for-sale investments				9	$ 9
Balance (in shares) at Jun. 30, 2019	14,142,296				14,142,296
Balance at Jun. 30, 2019	$ 14	74,870	(31,642)	(60)	$ 43,182
Balance (in shares) at Mar. 31, 2019	14,035,375
Balance at Mar. 31, 2019	$ 14	71,399	(32,230)	(63)	39,120
Issuance of common stock for employee purchase plan (in shares)	53,803
Issuance of common stock for employee purchase plan		832			832
Exercise of stock options (in shares)	25,422
Exercise of stock options		200			200
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards (in shares)	27,696
Issuance of common stock in settlement of restricted and performance stock units, net of shares withheld for employee taxes, and stock awards		(80)			(80)
Stock-based compensation expense		2,519			2,519
Net income (loss)			588		588
Net change in unrealized loss on available-for-sale investments				3	$ 3
Balance (in shares) at Jun. 30, 2019	14,142,296				14,142,296
Balance at Jun. 30, 2019	$ 14	$ 74,870	$ (31,642)	$ (60)	$ 43,182

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income (loss)	$ (7,632)	$ (3,604)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation	3,826	3,893
Depreciation of tangible assets	815	544
Amortization of contract acquisition costs	1,412	822
Change in deferred tax asset	(1)	(3,324)
Provision for doubtful accounts receivable	19	(487)
Other	151	(25)
Changes in assets and liabilities:
Accounts receivable	(5,263)	(1,832)
Inventories	1,125	(1,356)
Other current assets and prepaid expenses	(614)	(569)
Other long-term assets	(1,752)	(1,578)
Accounts payable	162	3,741
Accrued liabilities	3,779	(4,325)
Extended warranty liabilities	(760)
Other long-term liabilities	(140)	70
Deferred revenue	1,293	546
Income tax liabilities	(301)	7
Net cash used in operating activities	(3,919)	(6,503)
Cash flows from investing activities:
Acquisition of property, equipment and software	(316)	(581)
Disposal of property and equipment	20	38
Proceeds from sales of marketable investments		13,044
Proceeds from maturities of marketable investments	9,600	2,500
Purchase of marketable investments	(4,020)	(4,390)
Net cash provided by investing activities	5,284	10,611
Cash flows from financing activities:
Proceeds from exercise of stock options and employee stock purchase plan	1,163	3,038
Taxes paid related to net share settlement of equity awards	(570)	(2,664)
Payments on finance lease obligations	(342)	(234)
Net cash provided by financing activities	251	140
Net increase in cash and cash equivalents	1,616	4,248
Cash and cash equivalents at beginning of period	26,052	14,184
Cash and cash equivalents at end of period	27,668	18,432
Supplemental disclosure of non-cash items:
Assets acquired under finance lease	$ 903	$ 533

XML

Note 1 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Organization, Consolidation, Basis of Presentation, Business Description and Accounting Policies [Text Block]

Note

1.

Summary of Significant Accounting Policies

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) provides laser and energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, distributes and markets light and energy-based product platforms for use by physicians and other qualified practitioners, enabling them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following system platforms:

excel, enlighten, Juliet, Secret RF, truSculpt

and

xeo

.

Several of the Company’s systems offer multiple hand pieces and applications, providing customers the flexibility to upgrade their systems. The sales of (i) systems, system upgrades, hand pieces and upgrade of systems (collectively “Systems” revenue); (ii) replacement hand pieces,

truSculpt iD

and

truSculpt flex

cycle refills, as well as single use disposable tips applicable to

Juliet

and

Secret RF

(“Consumables” revenue); and (iii) the distribution of

third

party manufactured skincare products (“Skincare” revenue); are collectively classified as “Products” revenue. In addition to Products revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for

Titan, truSculpt

3D

,

truSculpt iD

and truSculpt

flex

) and service labor for the repair and maintenance of products that are out of warranty, all of which are classified as “Service” revenue.

Headquartered in Brisbane, California, the Company operates wholly-owned subsidiaries in Australia, Belgium, Canada, France, Germany, Hong Kong, Japan, Spain, Switzerland and the United Kingdom. The Company’s wholly owned subsidiary in Italy is currently dormant. These active subsidiaries market, sell and service the Company’s products outside of the United States. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Unaudited Interim Financial Information

In the opinion of the Company, the accompanying unaudited Condensed Consolidated Financial Statements included in this report reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of its financial position as of

June 30, 2019

and

2018,

its results of operations, comprehensive income (loss), consolidated statements of changes in equity for the

three

and

six

months ended

June 30, 2019

and

2018,

and cash flows for the

six

months ended

June 30, 2019

and

2018.

The

December 31, 2018

condensed consolidated balance sheet was derived from audited financial statements, but does

not

include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The results for interim periods are

not

necessarily indicative of results for the entire year or any other interim period. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company’s previously filed audited financial statements and the related notes thereto included in the Company’s annual report on Form

10

-K for the year ended

December 31, 2018

filed with the Securities and Exchange Commission (the “SEC”) on

March 18, 2019.

Accounting Policies

These unaudited Condensed Consolidated Financial Statements are prepared in accordance with the rules and regulations of the SEC applicable to interim financial statements. While these statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do

not

include all of the information and footnotes required by GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the financial statement disclosures in our annual report on Form

10

-K for the year ended

December 31, 2018

filed with the SEC on

March 18, 2019.

The Company uses the same accounting policies in preparing quarterly and annual financial statements. Unless otherwise noted, amounts presented within the Notes to Condensed Consolidated Financial Statements refer to the Company’s continuing operations. Notes

2

and

13

provide information about the Company’s adoption of new accounting standards for leases.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the accompanying notes, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ materially from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to warranty obligations, sales commission, accounts receivable and sales allowances, valuation of inventories, fair value of goodwill, useful lives of property and equipment, incremental borrowing rates related to the Company’s leases, assumptions regarding variables used in calculating the fair value of the Company's equity awards, expected achievement of performance based vesting criteria, management performance bonuses, fair value of investments, the standalone selling price of the Company's products and services, the customer life and period of benefit used to capitalize and amortize contracts acquisition costs, variable consideration, contingent liabilities, recoverability of deferred tax assets, and effective income tax rates. Management bases estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Risks and Uncertainties

The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are

not

limited to, rapid technological change, continued acceptance of the Company's products, stability of global financial markets, cybersecurity breaches and other disruptions that could compromise the Company’s information or results, management of international activities, competition from substitute products and larger companies, ability to obtain and maintain regulatory approvals, government regulations and oversight, patent and other types of litigation, ability to protect proprietary technology from counterfeit versions of the Company's products, strategic relationships and dependence on key individuals.

Recently Adopted Accounting Pronouncements 

Adopted

In

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

-

02,

"Leases," (also known as ASC Topic

842

) which requires, among other items, a lessee to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures were enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. In

July 2018,

the FASB issued ASU

2018

-

11,

"Targeted Improvements," which gives the option to apply the transition provisions of ASU

2016

-

02

at its adoption date instead of at the earliest comparative period presented in its financial statements. In addition, ASU

2018

-

11

provides a practical expedient that permits lessors to

not

separate non-lease components from the associated lease component if certain conditions are met. Also in

July 2018,

the FASB issued ASU

2018

-

10,

"Codification Improvements to ASC Topic

842,

Leases," which clarifies certain aspects of ASU

2016

-

02.

The Company adopted ASU

2016

-

02,

as of

January 1, 2019,

using the modified retrospective method, to all leases existing at the date of initial application. The comparative period information has

not

been restated and continues to be reported under the accounting standards in effect for the period presented. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the Company’s historical conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient related to land easements, allowing the Company to carry forward the Company’s accounting treatment for land easements on existing agreements. The Company did

not

elect the practical expedient to use hindsight in determining the lease term.

The adoption of the new standard resulted in the recording of additional lease assets and lease liabilities of

$10.3

million and

$10.4

million, respectively, as of

January 1, 2019,

based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The difference between the additional lease assets and lease liabilities results from rent-free periods which were previously recorded as deferred rent. The Company’s accounting for finance leases remained substantially unchanged. The standard had

no

material impact on the Company’s condensed consolidated net earnings, results of operations, comprehensive loss, statements of changes in equity, and cash flows.

See Notes

2

and

12

for additional accounting policy and transition disclosures regarding ASC Topic

842.

In

August 2018,

the FASB issued 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. This standard also requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement inclusive of expected contract renewals. The new standard becomes effective for the Company after

December 15, 2019

and early adoption is permitted.

The Company adopted this standard effective

April 1, 2019, 

on a prospective basis for applicable implementation costs. The adoption of this guidance prospectively resulted in the capitalization of software development costs of

$0.5

million during the

three

months ending

June 30, 2019.

These costs relate to implementation of a new Enterprise Resource Planning (ERP) system and are included in “other current assets and prepaid expenses” on the balance sheet.

Issued

In

August 2018,

the FASB issued ASU

2018

-

13,

"

Fair Value Measurement (Topic

820

): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement

",

which modifies the disclosure requirements on fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the effect the new guidance will have on its consolidated financial statements.

XML

Note 2 - Effect of Adoption of the New Lease Standard (ASC Topic 842) on Condensed Consolidated Financial Statements

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note

2.

Effect of Adoption of the New Lease Standard (ASC Topic

842

) on Condensed Consolidated Financial Statements

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.

The following table summarizes the effects of adopting Topic

842

on the Company’s consolidated balance sheet as of

January 1, 2019 (

in thousands):

	As reported under Topic 842			Adjustments			Balances under Prior GAAP
Operating lease right-of-use assets	$	10,049		$	(10,049	)	$	—
Operating lease liabilities		(2,430	)		2,430			—
Other long-term liabilities*		—			140			140
Operating lease liabilities, net of current portion		(7,759	)		7,759			—

*Deferred rent included in other long-term liabilities

XML

Note 3 - Cash, Cash Equivalents and Marketable Investments

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Cash, Cash Equivalents, and Marketable Securities [Text Block]

Note

3.

Cash, Cash Equivalents and Marketable Investments

The Company invests its cash primarily in money market funds, U.S. Treasury bills and in highly liquid debt instruments of U.S. federal and municipal governments and their agencies, commercial paper and corporate debt securities. All highly liquid investments with stated maturities of

three

months or less from date of purchase are classified as cash equivalents; all highly liquid investments with stated maturities of greater than

three

months are classified as marketable investments. The majority of the Company’s cash and investments are held in U.S. banks and the Company's foreign subsidiaries maintain a limited amount of cash in their local banks to cover short term operating expenses.

The Company determines the appropriate classification of its investments in marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. The Company’s marketable securities are classified and accounted for as available-for-sale securities. Investments with remaining maturities of more than

one

year are viewed by the Company as available to support current operations and are classified as current assets under the caption marketable investments in the accompanying condensed consolidated balance sheets. Investments in marketable securities are carried at fair value, with the unrealized gains and losses reported as a component of stockholders’ equity. Any realized gains or losses on the sale of marketable securities are determined on a specific identification method, and such gains and losses are reflected as a component of interest and other income, net.

The following tables summarize the components, and the unrealized gains and losses position, related to the Company’s cash, cash equivalents and marketable investments (in thousands) as of

June 30, 2019

and

December 31, 2018:

June 30, 201 9	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	27,669	$	—	$	(1)	$	27,668
Marketable investments:
U.S. government notes		1,397		1		—		1,398
U.S. government agencies		—		—		—		—
Municipal securities		—		—		—		—
Commercial paper		1,393		—		—		1,393
Corporate debt securities		1,211		1		(1)		1,211
Total marketable investments		4,001		2		(1)		4,002
Total cash, cash equivalents and marketable investments	$	31,670	$	2	$	(2)	$	31,670

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	26,052	$	—	$	—	$	26,052
Marketable investments:
U.S. government notes		1,397		—		—		1,397
U.S. government agencies		2,677		—		—		2,677
Municipal securities		200		—		—		200
Commercial paper		2,433		—		—		2,433
Corporate debt securities		2,825		—		(9)		2,816
Total marketable investments		9,532		—		(9)		9,523
Total cash, cash equivalents and marketable investments	$	35,584	$	—	$	(9)	$	35,575

As of

June 30, 2019

and

December 31, 2018,

the gross unrealized losses were

$2,000

and

$9,000,

respectively, and were related to interest rate changes on available-for-sale marketable investments. The Company has concluded that it is more-likely-than-

not

that the securities will be held until maturity or the recovery of their cost basis.

No

securities were in an unrealized loss position for more than

12

months. 

The following table summarizes the contractual maturities of the Company’s available-for-sale securities, classified as marketable investments as of

June 30, 2019 (

in thousands):

	Amount
Due in less than one year	$	4,002
Due in 1 to 3 years		—
Total marketable investments	$	4,002

XML

Note 4 - Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

4.

Fair Value of Financial Instruments

Fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains

three

levels of inputs that

may

be used to measure fair value, in accordance with ASC

820,

as follows:

● Level 1: inputs, which include quoted prices in active markets for identical assets or liabilities;

● Level 2: inputs, which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. For available-for-sale securities, the Company reviews trading activity and pricing as of the measurement date. When sufficient quoted pricing for identical securities is not available, the Company uses market pricing and other observable market inputs for similar securities obtained from various third -party data providers. These inputs either represent quoted prices for similar assets in active markets or have been derived from observable market data; and

● Level 3: inputs, which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies, or similar valuation techniques, as well as significant management judgment or estimation. 

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of

June 30, 2019,

financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above were as follows (in thousands):

June 30, 2019	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	4,339	$	—	$	—	$	4,339
U.S. Treasury bills		1,345		—		—		1,345
Commercial paper		—		4,091		—		4,091
Marketable investments:
Available-for-sale securities		—		4,002		—		4,002
Total assets at fair value	$	5,684	$	8,093	$	—	$	13,777

As of

December 31, 2018,

financial assets measured and recognized at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above was as follows (in thousands):

December 31, 2018	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	3,036	$	—	$	—	$	3,036
Commercial paper		—		1,047		—		1,047
Marketable investments:
Available-for-sale securities		—		9,523		—		9,523
Total assets at fair value	$	3,036	$	10,570	$	—	$	13,606

Money market funds and U.S. Treasury bills are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level

1

of the fair value hierarchy.

Corporate debt, U.S. government-backed securities, and commercial paper are measured at fair value using Level

2

inputs. The Company reviews trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is

not

available, the Company uses market pricing and other observable market inputs for similar securities obtained from various

third

party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level

2

of the fair value hierarchy. The average remaining maturity of the Company’s Level

2

investments as of

June 30, 2019

is less than 

nine

months and all of these investments are rated by S&P and Moody’s at A or better. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were

no

transfers within the hierarchy during the quarter and year ended

June 30, 2019

and

December 31, 2018,

respectively.

XML

Note 5 - Balance Sheet Details

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Supplemental Balance Sheet Disclosures [Text Block]

Note

5.

Balance Sheet Details

Inventories

As of

June 30, 2019

and

December 31, 2018,

inventories consist of the following (in thousands):

	June 30, 2019		December 31, 2018
Raw materials	$	15,130	$	16,991
Work in process		1,465		2,306
Finished goods		10,294		8,717
Total	$	26,889	$	28,014

Accrued Liabilities

As of

June 30, 2019

and

December 31, 2018,

accrued liabilities consist of the following (in thousands):

	June 30, 2019		December 31, 2018
Accrued payroll and related expenses	$	11,102	$	9,377
Sales and marketing accruals		2,183		2,379
Warranty liability		4,832		4,666
Sales tax		2,826		2,935
Accrued expenses payable		2,259		—
Other		3,824		3,943
Total	$	27,026	$	23,300

Product Remediation Liability

During the

fourth

quarter of

2018,

the Company recognized a liability for a product remediation plan related to

one

of its legacy systems. This product remediation plan, a voluntary action initiated by the Company, includes the replacement of a component in

one

of our legacy products. The accrued liability consists of the cost of materials and labor to replace the component in all units under the Company's standard warranty or covered under an existing Extended Warranty contract. The Company recorded approximately

$5.0

million related to this product remediation plan, of which

$1.1

million was utilized in the

fourth

quarter of

2018.

As of

December 31, 2018,

approximately

$0.7

million of the balance was related to product warranty and included in accrued liabilities, and

$3.2

million is separately recorded as Extended Warranty Liability.

In the

six

months ended

June 30, 2019,

the Company utilized

$0.2

million related to product warranty and

$0.7

million related to extended warranty liability. As of

June 30, 2019,

the product remediation warranty and extended warranty liability were

$0.6

million and

$2.4

million, respectively.

XML

Note 6 - Warranty and Extended Service Contract

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Product Warranty Disclosure [Text Block]

Note

6.

Warranty and Extended Service Contract

The Company has a direct field service organization in North America (including Canada). Internationally, the Company provides direct service support in Australia, Belgium, France, Germany, Hong Kong, Japan, Spain and Switzerland, as well as through

third

-party service providers in the United Kingdom. In other countries, where the Company does

not

have a direct presence, the Company provides service through a network of distributors and

third

-party service providers.

After the original warranty period, maintenance and support are offered on an extended service contract basis or on a time and materials basis. The Company provides for the estimated cost to repair or replace products under standard warranty at the time of sale. Costs incurred in connection with extended service contracts are recognized at the time when costs are incurred, except the

one

-time extended service contracts charge of 

$3.2

million in

December 31, 2018,

related to the cost to replace a component in

one

of the Company's legacy products.

The following table provides the changes in the product standard warranty accrual for the

three

and

six

months ended

June 30, 2019

and

2018

(in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	201 9		201 8		201 9		201 8
Beginning Balance	$	4,064	$	3,373	$	4,668	$	3,508
Add: Accruals for warranties issued during the period		2,708		2,311		4,152		4,575
Less: Settlements made during the period		(1,940)		(2,123)		(3,988)		(4,522)
Ending Balance	$	4,832	$	3,561	$	4,832	$	3,561

XML

Note 7 - Deferred Revenue

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Contract with Customer Liability [Text Block]

Note

7.

Deferred Revenue

The Company records deferred revenue when revenue is to be recognized subsequent to invoicing. For extended service contracts, the Company generally invoices customers at the beginning of the extended service contract term. The Company’s extended service contracts typically have one,

two

or

three

year terms. Deferred revenue also includes payments for installation, training and extended marketing support service. As of

June 30, 2019,

approximately

77%

of the deferred revenue balance of

$13.9

million will be recognized over the next

12

months.

The following table provides changes in the deferred service contract revenue balance for the

three

and

six

months ended

June 30, 2019

and

2018

(in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Beginning Balance	$	12,475	$	11,015	$	11,855	$	11,656
Add: Payments received		5,309		4,739		9,451		8,416
Less: Revenue recognized		(3,925)		(3,947)		(7,447)		(8,265)
Ending Balance	$	13,859	$	11,807	$	13,859	$	11,807

Costs for extended service contracts were

$2.2

million and

$4.2

million, respectively, for the

three

and

six

months ended

June 30, 2019,

and

$2.0

million and $

3.9

million, respectively, for the

three

and

six

months ended

June 30, 2018.

XML

Note 8 - Revenue

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

Note

8.

Revenue

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for promised goods or services. The Company’s performance obligations are satisfied either over time or at a point in time. Revenue from performance obligations that are transferred to customers over time accounted for approximately

13%

and

9%

respectively, of the Company’s total revenue for the

six

months ended

June 30, 2019

and

2018.

The Company has certain system sale arrangements that contain multiple products and services. For these bundled sale arrangements, the Company accounts for individual products and services as separate performance obligations if they are distinct. The Company’s products and services are distinct if a customer can benefit from the product or service on its own or with other resources that are readily available to the customer, and if the Company’s promise to transfer the products or service to the customer is separately identifiable from other promises in the sale arrangements. The Company’s system sale arrangements can include all or a combination of the following performance obligations: the system and software license (considered as

one

performance obligation), system accessories (hand pieces), training, other accessories, extended service contracts and marketing services.

For the Company’s system sale arrangements that include an extended service contract, the period of service commences at the expiration of the Company’s standard warranty offered at the time of the system sale. The Company considers the extended service contracts terms in the arrangements that are legally enforceable to be performance obligations. Other than extended service contracts and marketing services, which are satisfied over time, the Company generally satisfies all performance obligations at a point in time. Systems, system accessories (hand pieces), training, time and materials services are also sold on a stand-alone basis, and these performance obligations are satisfied at a point in time. For contracts with multiple performance obligations, the Company allocates the transaction price of the contract to each performance obligation on a relative standalone selling price basis.

Nature of Products and Services

Systems

Systems revenue is generated from the sale of systems and from the sale of upgrades to existing systems. A system consists of a console that incorporates a universal graphic user interface, a laser or other energy based module, control system software and high voltage electronics, as well as

one

or more hand pieces. In certain applications, the laser or other energy-based module is contained in the hand piece, such as with the Company’s

Pearl

and

Pearl Fractional

applications rather than 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 system or upgrade and the right to use the embedded software represent a single performance obligation as the software license is integral to the functionality of the system or upgrade.

The Company does

not

identify calibration and installation services for systems other than

enlighten

as performance obligations because such services are immaterial in the context of the sale arrangement. The related costs to complete calibration and installation for systems other than

enlighten

are immaterial. Calibration and installation services for

enlighten

systems are identified as separate performance obligations.

For systems sold directly to end-customers that are credit approved, revenue is recognized when the Company transfers control to the end-customer, which occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. In international markets where the Company has a direct presence, revenue is recognized on cash basis, for system sales to end-use customers in which the collectibility criterion has

not

been established, when the performance obligations in the sale arrangement are satisfied. For systems sold through credit approved distributors, revenue is recognized at the time of shipment.

The Company typically receives payment for its system consoles and other accessories within

30

days of shipment. Certain international distributor arrangements allow for longer payment terms.

Skincare products

The Company sells

third

-party manufactured skincare products in Japan. The

third

-party skincare products are purchased from the

third

-party manufacturer and sold to licensed physicians. The Company acts as the principal in this arrangement, as it determines the price to charge customers for the skincare products, and controls the products before they are transferred to the customer. Sales of skincare products are typically the subject of contracts in which the skincare products represent the sole performance obligations. The Company recognizes revenue for skincare products at a point in time.

Consumables (Other accessories)

The Company treats its customers' purchases of replacement cycles for

truSculpt iD and truSculpt flex,

as well as replacement

Titan

and

truSculpt

3D

hand pieces, as Consumable revenue, which provides the Company with a source of recurring revenue from existing customers. The

Juliet

and

Secret RF

products have single use disposable tips which must be replaced after every treatment. Sales of these consumable tips further enhance the Company’s recurring revenue. Hand piece refills of the Company’s legacy

truSculpt

product are accounted for in accordance with the Company’s standard warranty and service contract policies.

Extended contract services

The Company offers post-warranty services to its customers through extended service contracts that cover parts and labor for a term of one, two, or

three

years. Service contract revenue is recognized over time, using a time based measure of progress, as the customers benefit from the service throughout the service period. The Company also offers services on a time-and-materials basis for systems and detachable hand piece replacements. Revenue related to services performed on a time-and-materials basis is recognized when performed. These post-warranty services serve as additional sources of recurring revenue from the Company’s installed product base.

Training

Sales of systems to customers include training on the use of the system to be provided within

180

days of purchase. The Company considers training a separate performance obligation as customers can immediately benefit from the training together with the customer’s system. Training is also sold separately from systems. The Company recognizes revenue for training when the training is provided. Training is

not

required for customers to use the systems.

Customer Marketing Support

In North America, the Company offers marketing and consulting phone support to its customers across all system platforms. These customer marketing support services include a practice development model and marketing training, performed remotely with ongoing phone consultations for

six

months from date of purchase. The Company considers customer marketing support a separate performance obligation, and recognizes revenue over the

six

-month term of the contracts.

Significant Judgments

The determination of whether

two

or more contracts entered into at or near the same time with the same customer should be combined and accounted for as

one

contract

may

require the use of significant judgment.  In making this determination, the Company considers whether the contracts are negotiated as a package with a single commercial objective, have price interdependencies, or promise goods or services that represent a single performance objective

While the Company’s contracts do

not

provide customers with a contractual right of return, the Company maintains a sales allowance to account for potential returns or refunds as a reduction in transaction price at the time of sale. The Company estimates sales returns and other variable consideration based on historical experience.

The Company determines standalone selling price ("SSP") for each performance obligation as follows:

● Systems: The SSPs for systems are based on directly observable sales in similar circumstances to similar customers. When SSP is not directly observable, the Company estimates SSP using the expected cost plus margin approach.

● Training: SSP is based on observable price when sold on a standalone basis.

● Extended warranty/Service contracts: SSP is based on observable price when sold on a standalone basis (by customer type).

● Customer Marketing Support: SSP is estimated based on cost plus a margin.

● Set-up /Installation: Set-up or installation for all systems, excluding the enlighten system, is immaterial in the context of the contract. The related costs to complete set-up or installation are immaterial.

The calibration and installation service of the

enlighten

system are treated as separate performance obligations because the Company regularly sells

enlighten

systems without the calibration and installation service.

Loyalty Program

The Company launched a customer loyalty program during the

third

quarter of

2018

for qualified customers located in the U.S. and Canada. Under the 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. 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. Customers receive a notification regarding their rewards tier by the

fifth

day of 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.

Deferred Sales Commissions

Incremental costs of obtaining a contract, including sales commissions, are capitalized and amortized on a straight-line basis over the expected customer relationship period. 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.

Total capitalized costs as of

June 

30,

2019

were

$5.0

million and are included in other assets in the Company’s condensed consolidated balance sheet. Amortization expense for these assets was

$0.7

million and

$1.4

million respectively, during the

three

and

six

months ended

June 30, 2019

and is included in sales and marketing expense in the Company’s condensed consolidated statement of operations. Amortization expense was

$0.4

million and

$0.8

million, respectively, during the

three

and

six

months ended

June 30, 2018.

XML

Note 9 - Stockholders' Equity and Stock-based Compensation Expense

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

9.

Stockholders’ Equity and Stock-based Compensation Expense

2019

Equity Incentive Plan

At the Company’s Annual Meeting of Stockholders on

June 14, 2019,

the Company’s stockholders approved the amendment and restatement of the Amended and Restated

2004

Equity Incentive Plan (the “Prior Plan”) as the

2019

Equity Incentive Plan (the “Amended and Restated Plan”). The Amended and Restated Plan amended the Prior Plan to: (i) increase the number of shares available for future grant by

700,000

(in addition to the

9,701,192

shares provided under the Prior Plan); (ii) extend the term of the Prior Plan to the date of the Annual Meeting of the Company’s stockholders in

2029;

(iii) amend the Prior Plan to eliminate the requirement for awards granted on or after

June 14, 2019

that any shares subject to awards with an exercise price less than fair market value on the date of such grant will be counted against the Plan as

2.12

shares for each full value share awarded as set forth in Section

3

(b) of the Prior Plan; (iv) amend the Prior Plan to remove the requirement that any shares subject to awards with an exercise price less than fair market value on the date of such grant will be counted against the Plan as

2.12

shares for each full value share awarded as set forth in Section

3

(b) of the Prior Plan; (v) amend Section

11

of the Prior Plan related to non-employee director initial and annual awards; (vi) amend the Prior Plan to remove certain provisions relating to the “performance based compensation” exception under Section

162

(m) of the Internal Revenue Code of

1986,

as amended; (vii) include a minimum

one

-year vesting period with respect to awards granted under the Amended and Restated Plan; and (viii) include certain other editorial and administrative amendments to the Prior Plan.

On

June 11, 2019,

the Company’s board of directors (“the “Board”) also approved amended and restated the Company’s Stock Ownership Guidelines adopted on

July 28, 2017

in their entirety, to require all officers (as defined by Rule

16a

-

1

(f) of the Securities Exchange Act of

1934,

as amended) to hold at least

50%

of any shares received pursuant to stock options, stock appreciation rights, vested restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance shares or performance units (net of taxes) for a minimum of

one

year following vesting and delivery.

On

June 

11,

2019,

the Board also adopted a Clawback Policy to permit recovery of certain compensation paid to Named Executive Officers (as defined in Item

402

of Regulation S-K) of the Company if the Compensation Committee of the Board determines that a Named Executive Officer (i) has violated law, the Company’s Code of Business Conduct and Ethics, or any significant ethics or compliance policies, and (ii) such conduct results in material financial or reputational harm, or results in a need for a restatement of the Company’s consolidated financial statements.

The Amended and Restated Plan provides for the grant of incentive stock options, non-statutory stock options, RSAs, RSUs, stock appreciation rights, performance units, performance shares, and other stock or cash awards.

The Company issued

22,344

and

42,236

RSUs to its non-employee directors during the

three

and

six

months ended

June 30, 2019.

The Board granted to executive officers, senior management and certain employees

307,355

performance stock units (“PSUs”) during the

six

months ended

June 30, 2019.

The PSUs granted in the

six

months ended

June 30, 2019

vest subject to the recipients continued service and to the achievement of certain operational goals for the Company’s

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. The Board also granted its executive officers, senior management and certain employees

21,324

and

267,106

RSUs during the

three

and

six

months

June 30, 2019.

The annual RSUs granted vest over

four

years at

25%

on each anniversary of the grant date.

As of

June 30, 2019,

there was approximately

$13.0

million of unrecognized compensation expense, net of projected forfeitures, for stock options and stock awards. The expense is expected to be recognized over the remaining weighted-average period of

1.8

years. The actual expense recorded in the future

may

be higher or lower based on a number of factors, including, actual forfeitures experienced and the degree of achievement of the performance goals related to the PSUs granted.

Activity under the predecessor plans to the

2019

Equity Incentive Plan are summarized as follows:

			Options Outstanding
	Shares Available for Grant		Number of Stock Options Outstanding		Weighted- Average Exercise Price
Balance, December 31, 2018		1,141,305		507,705	$	20.52
Additional shares reserved		700,000		—		—
Stock awards granted*		(1,319,304)		—		—
Options exercised		—		(42,066)		7.87
Options canceled		41,573		(41,573)		20.60
Stock awards canceled*		299,374		—		—
Balance, June 30 , 2019		862,948		424,066	$	21.77

*The Company had a “fungible share” provision in the Prior Plan whereby for each full-value award (RSU/PSU) issued or canceled under the Prior Plan required the subtraction or add back of

2.12

shares from or to the Shares Available for Grant, respectively. The Company’s stockholders approved the removal of the “fungible share” provision for awards granted on or after

June 14, 2019

upon adoption of the Amended and Restated Plan at the Company’s

2019

Annual Meeting of Stockholders held on

June 14, 2019.

Non-Employee Stock-Based Compensation

The Company granted

9,303

RSUs and

11,920

PSUs to non-employees during the

six

months ended

June 30, 2019.

The RSUs granted vest over

four

years at

25%

on each anniversary of the grant date. The PSUs vest over a year subject to the same performance criteria as employees. The PSUs granted in the

three

and

six

months ended

June 30, 2019

vest subject to the recipients continued service and to the achievement of certain operational goals for the Company’s

2019

fiscal year.

Stock-based Compensation Expense

Stock-based compensation expense by department recognized during the

three

and

six

months ended

June 30, 2019

and

2018

were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30 ,
	2019		2018		2019*		2018
Cost of revenue	$	404	$	227	$	673	$	380
Sales and marketing		997		715		1,715		1,204
Research and development		370		262		633		453
General and administrative		748		1,002		805		1,856
Total stock-based compensation expense	$	2,519	$	2,206	$	3,826	$	3,893

*Included in the

six

-month ended

June 30, 2019

stock-based compensation expense is the charge in connection with the accelerated vesting of

4,667

shares of the Company’s former CEO, in accordance with his separation agreement dated

January 4, 2019.

XML

Note 10 - Net Income (Loss) Per Share

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

10.

Net

Income (L

oss

)

Per Share

Basic net income (loss) per share is computed using the weighted-average number of shares outstanding during the period. In periods of net income, diluted shares outstanding include the dilutive effect of in-the-money equity awards (stock options, RSUs, PSUs and employee stock purchase plan contributions), which is calculated based on the average share price for each fiscal period using the treasury stock method.

Diluted earnings per share is the same as basic earnings per share for the periods in which the Company had a net loss because the inclusion of outstanding common stock equivalents would be anti-dilutive.

The following table sets forth the computation of basic and diluted net income (loss) and the weighted average number of shares used in computing basic and diluted net income (loss) per share (in thousands, except per share data):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Numerator
Net income (loss) (in thousands)	$	588	$	(1,572)	$	(7,632)	$	(3,604)
Denominator
Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic		14,086		13,709		14,051		13,649
Dilutive effect of incremental shares and share equivalents		270		—		—		—
Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted		14,356		13,709		14,051		13,649
Net income (loss) per share:
Net income (loss) per share, basic	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)
Net income (loss) per share, diluted	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)

The following numbers of shares outstanding, prior to the application of the treasury stock method, were excluded from the computation of diluted net income (loss) per common share for the period presented because including them would have had an anti-dilutive effect (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Options to purchase common stock		192		710		466		758
Restricted stock units		178		449		460		422
Performance stock units		—		49		162		36
Employee stock purchase plan shares		—		73		94		73
Total		370		1,281		1,182		1,289

XML

Note 11 - Income Taxes

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

11.

Income Taxes

The Company calculates the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to ordinary income or loss for the interim reporting period. When applicable, the year-to-date tax provision reflects adjustments from discrete tax items.

The Company's income tax benefit for the

three

months ended

June 30, 2019 

is due primarily to the release of reserve for uncertain tax position in Germany of

$0.3

million, partially offset by income taxes in non-U.S. operations. The Company's U.S. operations continue to be in a loss position and the Company maintains a

100%

valuation allowance against its U.S. deferred tax assets.

For the

three

and

six

months ended

June 30, 2019,

the Company's income tax benefits were

$0.2

million and

$0.1

million, compared to tax benefits of

$0.7

million and

$3.3

million, respectively, for the same periods in

2018.

The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than

not

that some of the deferred tax assets will

not

be realized. As of

June 30, 2019,

and

December 31, 2018,

the Company maintained a

100%

valuation allowance against its U.S. deferred tax assets. There was

no

valuation allowance during the

three

months ended

June 30, 2018

other than the California jurisdiction.

Management’s judgment is required in determining any valuation allowance recorded against deferred tax assets. In evaluating the ability to recover deferred tax assets, the Company considers available positive and negative evidence giving greater weight to its more recent cumulative losses, and lesser weight to its projected financial results, due to the subjectivity involved in forecasting future periods. The Company also considers, commensurate with its objective verifiability, the forecast of future taxable income including the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies.

XML

Note 12 - Leases

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Lessee, Leases [Text Block]

Note

12.

Leases

The Company has 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 leases space for operations in the United States, Japan, France and Spain. In addition to the above facility leases, the Company also routinely leases automobiles for certain sales and field service employees under operating leases.

The Company determines if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments

not

yet paid. Operating lease 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 our 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.

Below is supplemental balance sheet information related to leases (in thousands):

Assets	Classification		June 30, 2019
Right-of-use assets	Operating lease assets	$	8,990
Finance lease	Property and equipment, net *		1,327
Total leased assets		$	10,317

*Finance lease assets included in Property and equipment, net. 

Liabilities

Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	1,276
Operating lease liabilities , non-current	Operating lease liabilities, net of current portion		7,888
Total Operating lease liabilities		$	9,164

Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	640
Finance lease liabilities, non-current	Other long-term liabilities		782
Total Finance lease liabilities		$	1,422

Lease cost

s during the

three

months ended

 

June 30, 2019

:

 

Finance lease cost	Amortization expense	$	188
Finance lease cost	Interest for finance lease		21
Operating lease cost	Operating lease expense		717

Lease costs during the six months ended June 30, 2019:
Finance lease cost	Amortization expense	$	371
Finance lease cost	Interest for finance lease		40
Operating lease cost	Operating lease expense		1,441

Cash paid for amounts included in the measurement of lease liabilities during the three months ended June 30, 2019 were as follows:
Operating cash flow	Finance lease	$	21
Financing cash flow	Finance lease		253
Operating cash flow	Operating lease		699

Cash paid for amounts included in the measurement of le

ase liabilities during the

six

months ended

June 30,

2019

were as follows:

Operating cash flow	Finance lease	$	40
Financing cash flow	Finance lease		415
Operating cash flow	Operating lease		1,404

Maturities of lease liabilities

Maturities of lease liabilities were as follows as of

June 30, 

2019

(in thousands):

	Operating leases
Remainder of 2019	$	1,416
2020		2,868
2021		2,613
2022		2,607
2023 and thereafter		352
Total lease payments		9,856
Less: imputed interest		692
Present value of lease liabilities	$	9,164

Vehicle Leases

As of

June 30, 2019,

the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable finance leases as follows (in thousands):

	Operating leases
Remainder of 2019	$	456
2020		499
2021		379
2022		234
Total lease payments		1,568
Less: imputed interest		146
Present value of lease liabilities	$	1,422

As previously disclosed in our

2018

Annual Report on Form

10

-K and under the previous lease accounting, maturities of lease liabilities were as follows as of

December 31, 2018:

Facility Leases

As of

December 31, 2018,

the Company was committed to minimum lease payments for facilities and other leased assets under long-term non-cancelable operating leases as follows (in thousands):

	Operating leases
2019	$	3,011
2020		2,939
2021		2,564
2022		2,495
2023 and thereafter		214
Future minimum rental payments	$	11,223

Vehicle Leases -

U.S.

As of

December 31, 2018,

the Company was committed to minimum lease payments for vehicles leased under long-term non-cancelable capital leases as follows (in thousands):

	Operating leases
2019	$	576
2020		287
2021		152
Future minimum lease payments	$	1,015

Weighted-average remaining lease term and discount rate, as of

June 30, 2019,

were as follows:

Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases	3.5
Finance leases	3.0
Weighted-average discount rate
Operating leases	4.4	%
Finance leases	5.6	%

XML

Note 13 - Contingencies

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note

13.

Contingencies

The Company is named from time to time as a party to other legal proceedings, product liability, commercial disputes, employee disputes, and contractual lawsuits in the ordinary course of business. A liability and related charge are recorded to earnings in the Company’s consolidated financial statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including discussion with outside legal counsel. 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 material 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. The Company expenses legal fees as incurred.

As of

June 30, 2019

and

December 31, 2018,

the Company had

zero

and

$171,000

accrued respectively, related to various pending contractual and product liability lawsuits. The Company does

not

believe that a material loss in excess of accrued amounts is reasonably likely.

XML

Note 14 - Debt

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

14.

Debt

On

May 30, 2018,

the Company and Wells Fargo Bank, N.A. (“Wells Fargo”) entered into a Loan and Security Agreement (the “Original Revolving Line of Credit”) in the original principal amount of

$25

million. The Original Revolving Line of Credit terminates on

May 30, 2021.

On or about

November 2, 2018,

the Company entered into a First Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “First Amended Revolving Line of Credit”). The First Amended Revolving Line of Credit provided for an original principal amount of

$15

million, with the ability to request an additional

$10

million, and a waiver of any existing defaults under the Original Revolving Line of Credit as long as the Company is in compliance with the terms of the First Amended Revolving Line of Credit.

On or about,

March 11, 2019,

the Company entered into a Second Amendment and Waiver to the Loan and Security Agreement with Wells Fargo (the “Second Amended Revolving Line of Credit”). The Second Amended Revolving Line of Credit requires the Company to maintain a minimum cash balance of

$15

million at Wells Fargo, but removes all other covenants so long as

no

money is drawn on the line of credit. The Company

may

draw down on the line of credit at the time it reaches and maintains trailing

twelve

months adjusted EBITDA of

not

less than

$10

million, and a leverage ratio

not

to exceed

2.5

to

1.0.

As of

June 30, 2019,

the Company had

not

drawn on the Original Revolving Line of Credit and the Company is in compliance with all financial covenants of the Original Revolving Line of Credit, as amended by the First and Second Amendment to the Revolving Line of Credit.

XML

Note 15 - Segment Reporting

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

15.

Segment Reporting

Segment reporting is based on the “management approach,” following the method that management organizes the company’s reportable segments for which separate financial information is made available to, and evaluated regularly by, the chief operating decision maker in allocating resources and in assessing performance. The Company’s chief operating decision maker ("CODM") is its Chief Executive Officer ("CEO"), who makes decisions on allocating resources and in assessing performance. The CEO reviews the Company's consolidated results as

one

operating segment. In making operating decisions, the CEO primarily considers consolidated financial information, accompanied by disaggregated information about revenues by geography and product. All of the Company’s principal operations and decision-making functions are located in the U.S. The Company’s CEO views its operations, manages its business, and uses

one

measurement of profitability for the

one

operating segment - which sells aesthetic medical equipment and services, and distributes skincare products, to qualified medical practitioners. Substantially all of the Company’s long-lived assets are located in the U.S.

The following table presents a summary of revenue by geography for the

three

months ended

June 30, 2019

and

2018:

	Three Months Ended June 30,
	2019		2018
Revenue mix by geography:
United States	$	28,147	$	28,132
Japan		5,337		3,946
Asia, excluding Japan		4,547		4,231
Europe		2,504		1,803
Rest of the world		7,239		4,441
Total consolidated revenue	$	47,774	$	42,553
Revenue mix by product category:
Products	$	37,539	$	35,291
Consumables		2,654		1,057
Skincare		1,775		1,302
Total product revenue	$	41,968	$	37,650
Service		5,806		4,903
Total consolidated revenue	$	47,774	$	42,553

The following table presents a summary of revenue by geography for the

six

months ended

June 30, 2019

and

2018:

	Six Months Ended June 30,
	2019		2018
Revenue mix by geography:
United States	$	48,547	$	49,268
Japan		10,631		7,501
Asia, excluding Japan		7,642		7,074
Europe		5,240		4,373
Rest of the world		11,740		8,462
Total consolidated revenue	$	83,800	$	76,678
Revenue mix by product category:
Products	$	64,748	$	62,530
Consumables		4,599		1,826
Skincare		3,383		2,558
Total product revenue	$	72,730	$	66,914
Service		11,070		9,764
Total consolidated revenue	$	83,800	$	76,678

XML

Note 16 - Subsequent Events

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

Note

16—Subsequent

Events

The Company has determined based on the evaluation that

no

material subsequent events exist other than the following:

On

July 2, 2019,

the Board appointed David H. Mowry as CEO of the Company effective as of his employment commencement date,

July 8, 2019.

On the same date, the Board also increased the number of directors constituting the Board from

six

to

seven

directors and appointed Mr. Mowry to the Board, effective as of

July 8, 2019.

Mr. Mowry’s base salary is

$650,000

and he is 

not

entitled to receive any board compensation during the period of his employment. Mr. Mowry is also eligible to participate in the Company’s

2019

Management Bonus Program on a prorated basis to reflect the period during

2019

that Mr. Mowry is employed with the Company, and his target bonus percentage is equal to

80%

of his base salary, as well as severance and other standard employment benefits. As an additional compensation, the Board awarded Mr. Mowry

67,897

RSUs, which vest over

4

years at

25%

per year, and a PSU award covering a target of

67,897

shares, subject to certain performance-based criteria and scheduled to vest over

4

years from

2019

through

2022.

Following the appointment of a permanent CEO, the Board promoted Mr. Jason Richey, the Interim CEO and Chief Operating Officer to President of the Company, effective

July 8, 2019.

His base salary was increased from

$505,000

to

$575,000.

The Board also granted Mr. Richey an RSU award covering

27,159

shares which vest in

four

equal installments on each of the

one

-,

two

-,

three

-, and

four

-year anniversaries of

July 8, 2019,

subject to Mr. Richey’s continued employment through the applicable vesting date, and an RSU award covering

27,159

shares, which vest on

January 1, 2020,

subject to Mr. Richey’s continued employment through such date.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block]

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) provides laser and energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, distributes and markets light and energy-based product platforms for use by physicians and other qualified practitioners, enabling them to offer safe and effective aesthetic treatments to their customers. The Company currently markets the following system platforms:

excel, enlighten, Juliet, Secret RF, truSculpt

and

xeo

.

Several of the Company’s systems offer multiple hand pieces and applications, providing customers the flexibility to upgrade their systems. The sales of (i) systems, system upgrades, hand pieces and upgrade of systems (collectively “Systems” revenue); (ii) replacement hand pieces,

truSculpt iD

and

truSculpt flex

cycle refills, as well as single use disposable tips applicable to

Juliet

and

Secret RF

(“Consumables” revenue); and (iii) the distribution of

third

party manufactured skincare products (“Skincare” revenue); are collectively classified as “Products” revenue. In addition to Products revenue, the Company generates revenue from the sale of post-warranty service contracts, parts, detachable hand piece replacements (except for

Titan, truSculpt

3D

,

truSculpt iD

and truSculpt

flex

) and service labor for the repair and maintenance of products that are out of warranty, all of which are classified as “Service” revenue.

Headquartered in Brisbane, California, the Company operates wholly-owned subsidiaries in Australia, Belgium, Canada, France, Germany, Hong Kong, Japan, Spain, Switzerland and the United Kingdom. The Company’s wholly owned subsidiary in Italy is currently dormant. These active subsidiaries market, sell and service the Company’s products outside of the United States. The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Unaudited Interim Financial Information [Policy Text Block]

Unaudited Interim Financial Information

In the opinion of the Company, the accompanying unaudited Condensed Consolidated Financial Statements included in this report reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of its financial position as of

June 30, 2019

and

2018,

its results of operations, comprehensive income (loss), consolidated statements of changes in equity for the

three

and

six

months ended

June 30, 2019

and

2018,

and cash flows for the

six

months ended

June 30, 2019

and

2018.

The

December 31, 2018

condensed consolidated balance sheet was derived from audited financial statements, but does

not

include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The results for interim periods are

not

necessarily indicative of results for the entire year or any other interim period. The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company’s previously filed audited financial statements and the related notes thereto included in the Company’s annual report on Form

10

-K for the year ended

December 31, 2018

filed with the Securities and Exchange Commission (the “SEC”) on

March 18, 2019.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the accompanying notes, and the reported amounts of revenue and expenses during the reported periods. Actual results could differ materially from those estimates.

On an ongoing basis, management evaluates its estimates, including those related to warranty obligations, sales commission, accounts receivable and sales allowances, valuation of inventories, fair value of goodwill, useful lives of property and equipment, incremental borrowing rates related to the Company’s leases, assumptions regarding variables used in calculating the fair value of the Company's equity awards, expected achievement of performance based vesting criteria, management performance bonuses, fair value of investments, the standalone selling price of the Company's products and services, the customer life and period of benefit used to capitalize and amortize contracts acquisition costs, variable consideration, contingent liabilities, recoverability of deferred tax assets, and effective income tax rates. Management bases estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Risks and Uncertainties, Policy [Policy Text Block]

Risks and Uncertainties

The Company's future results of operations involve a number of risks and uncertainties. Factors that could affect the Company's future operating results and cause actual results to vary materially from expectations include, but are

not

limited to, rapid technological change, continued acceptance of the Company's products, stability of global financial markets, cybersecurity breaches and other disruptions that could compromise the Company’s information or results, management of international activities, competition from substitute products and larger companies, ability to obtain and maintain regulatory approvals, government regulations and oversight, patent and other types of litigation, ability to protect proprietary technology from counterfeit versions of the Company's products, strategic relationships and dependence on key individuals.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Pronouncements 

Adopted

In

February 2016,

the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)

2016

-

02,

"Leases," (also known as ASC Topic

842

) which requires, among other items, a lessee to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures were enhanced to better understand the amount, timing and uncertainty of cash flows arising from leases. In

July 2018,

the FASB issued ASU

2018

-

11,

"Targeted Improvements," which gives the option to apply the transition provisions of ASU

2016

-

02

at its adoption date instead of at the earliest comparative period presented in its financial statements. In addition, ASU

2018

-

11

provides a practical expedient that permits lessors to

not

separate non-lease components from the associated lease component if certain conditions are met. Also in

July 2018,

the FASB issued ASU

2018

-

10,

"Codification Improvements to ASC Topic

842,

Leases," which clarifies certain aspects of ASU

2016

-

02.

The Company adopted ASU

2016

-

02,

as of

January 1, 2019,

using the modified retrospective method, to all leases existing at the date of initial application. The comparative period information has

not

been restated and continues to be reported under the accounting standards in effect for the period presented. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward the Company’s historical conclusions about lease identification, lease classification and initial direct costs. The Company also elected the practical expedient related to land easements, allowing the Company to carry forward the Company’s accounting treatment for land easements on existing agreements. The Company did

not

elect the practical expedient to use hindsight in determining the lease term.

The adoption of the new standard resulted in the recording of additional lease assets and lease liabilities of

$10.3

million and

$10.4

million, respectively, as of

January 1, 2019,

based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The difference between the additional lease assets and lease liabilities results from rent-free periods which were previously recorded as deferred rent. The Company’s accounting for finance leases remained substantially unchanged. The standard had

no

material impact on the Company’s condensed consolidated net earnings, results of operations, comprehensive loss, statements of changes in equity, and cash flows.

See Notes

2

and

12

for additional accounting policy and transition disclosures regarding ASC Topic

842.

In

August 2018,

the FASB issued 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. This standard also requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement inclusive of expected contract renewals. The new standard becomes effective for the Company after

December 15, 2019

and early adoption is permitted.

The Company adopted this standard effective

April 1, 2019, 

on a prospective basis for applicable implementation costs. The adoption of this guidance prospectively resulted in the capitalization of software development costs of

$0.5

million during the

three

months ending

June 30, 2019.

These costs relate to implementation of a new Enterprise Resource Planning (ERP) system and are included in “other current assets and prepaid expenses” on the balance sheet.

Issued

In

August 2018,

the FASB issued ASU

2018

-

13,

"

Fair Value Measurement (Topic

820

): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement

",

which modifies the disclosure requirements on fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the effect the new guidance will have on its consolidated financial statements.

XML

Note 2 - Effect of Adoption of the New Lease Standard (ASC Topic 842) on Condensed Consolidated Financial Statements (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	As reported under Topic 842			Adjustments			Balances under Prior GAAP
Operating lease right-of-use assets	$	10,049		$	(10,049	)	$	—
Operating lease liabilities		(2,430	)		2,430			—
Other long-term liabilities*		—			140			140
Operating lease liabilities, net of current portion		(7,759	)		7,759			—

XML

Note 3 - Cash, Cash Equivalents and Marketable Investments (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Unrealized Gain (Loss) on Investments [Table Text Block]

June 30, 201 9	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	27,669	$	—	$	(1)	$	27,668
Marketable investments:
U.S. government notes		1,397		1		—		1,398
U.S. government agencies		—		—		—		—
Municipal securities		—		—		—		—
Commercial paper		1,393		—		—		1,393
Corporate debt securities		1,211		1		(1)		1,211
Total marketable investments		4,001		2		(1)		4,002
Total cash, cash equivalents and marketable investments	$	31,670	$	2	$	(2)	$	31,670

December 31, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	26,052	$	—	$	—	$	26,052
Marketable investments:
U.S. government notes		1,397		—		—		1,397
U.S. government agencies		2,677		—		—		2,677
Municipal securities		200		—		—		200
Commercial paper		2,433		—		—		2,433
Corporate debt securities		2,825		—		(9)		2,816
Total marketable investments		9,532		—		(9)		9,523
Total cash, cash equivalents and marketable investments	$	35,584	$	—	$	(9)	$	35,575

Investments Classified by Contractual Maturity Date [Table Text Block]

	Amount
Due in less than one year	$	4,002
Due in 1 to 3 years		—
Total marketable investments	$	4,002

XML

Note 4 - Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

June 30, 2019	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	4,339	$	—	$	—	$	4,339
U.S. Treasury bills		1,345		—		—		1,345
Commercial paper		—		4,091		—		4,091
Marketable investments:
Available-for-sale securities		—		4,002		—		4,002
Total assets at fair value	$	5,684	$	8,093	$	—	$	13,777

December 31, 2018	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	3,036	$	—	$	—	$	3,036
Commercial paper		—		1,047		—		1,047
Marketable investments:
Available-for-sale securities		—		9,523		—		9,523
Total assets at fair value	$	3,036	$	10,570	$	—	$	13,606

XML

Note 5 - Balance Sheet Details (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2019		December 31, 2018
Raw materials	$	15,130	$	16,991
Work in process		1,465		2,306
Finished goods		10,294		8,717
Total	$	26,889	$	28,014

Schedule of Accrued Liabilities [Table Text Block]

	June 30, 2019		December 31, 2018
Accrued payroll and related expenses	$	11,102	$	9,377
Sales and marketing accruals		2,183		2,379
Warranty liability		4,832		4,666
Sales tax		2,826		2,935
Accrued expenses payable		2,259		—
Other		3,824		3,943
Total	$	27,026	$	23,300

XML

Note 6 - Warranty and Extended Service Contract (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Product Warranty Liability [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	201 9		201 8		201 9		201 8
Beginning Balance	$	4,064	$	3,373	$	4,668	$	3,508
Add: Accruals for warranties issued during the period		2,708		2,311		4,152		4,575
Less: Settlements made during the period		(1,940)		(2,123)		(3,988)		(4,522)
Ending Balance	$	4,832	$	3,561	$	4,832	$	3,561

XML

Note 7 - Deferred Revenue (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Deferred Revenue, by Arrangement, Disclosure [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Beginning Balance	$	12,475	$	11,015	$	11,855	$	11,656
Add: Payments received		5,309		4,739		9,451		8,416
Less: Revenue recognized		(3,925)		(3,947)		(7,447)		(8,265)
Ending Balance	$	13,859	$	11,807	$	13,859	$	11,807

XML

Note 9 - Stockholders' Equity and Stock-based Compensation Expense (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

			Options Outstanding
	Shares Available for Grant		Number of Stock Options Outstanding		Weighted- Average Exercise Price
Balance, December 31, 2018		1,141,305		507,705	$	20.52
Additional shares reserved		700,000		—		—
Stock awards granted*		(1,319,304)		—		—
Options exercised		—		(42,066)		7.87
Options canceled		41,573		(41,573)		20.60
Stock awards canceled*		299,374		—		—
Balance, June 30 , 2019		862,948		424,066	$	21.77

Share-based Payment Arrangement, Expensed and Capitalized, Amount [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30 ,
	2019		2018		2019*		2018
Cost of revenue	$	404	$	227	$	673	$	380
Sales and marketing		997		715		1,715		1,204
Research and development		370		262		633		453
General and administrative		748		1,002		805		1,856
Total stock-based compensation expense	$	2,519	$	2,206	$	3,826	$	3,893

XML

Note 10 - Net Income (Loss) Per Share (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Numerator
Net income (loss) (in thousands)	$	588	$	(1,572)	$	(7,632)	$	(3,604)
Denominator
Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic		14,086		13,709		14,051		13,649
Dilutive effect of incremental shares and share equivalents		270		—		—		—
Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted		14,356		13,709		14,051		13,649
Net income (loss) per share:
Net income (loss) per share, basic	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)
Net income (loss) per share, diluted	$	0.04	$	(0.11)	$	(0.54)	$	(0.26)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Options to purchase common stock		192		710		466		758
Restricted stock units		178		449		460		422
Performance stock units		—		49		162		36
Employee stock purchase plan shares		—		73		94		73
Total		370		1,281		1,182		1,289

XML

Note 12 - Leases (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Leases, Financial Statement Information [Table Text Block]

Assets	Classification		June 30, 2019
Right-of-use assets	Operating lease assets	$	8,990
Finance lease	Property and equipment, net *		1,327
Total leased assets		$	10,317

Operating lease liabilities
Operating lease liabilities, current	Operating lease liabilities	$	1,276
Operating lease liabilities , non-current	Operating lease liabilities, net of current portion		7,888
Total Operating lease liabilities		$	9,164

Finance lease liabilities
Finance lease liabilities, current	Accrued liabilities	$	640
Finance lease liabilities, non-current	Other long-term liabilities		782
Total Finance lease liabilities		$	1,422

Finance lease cost	Amortization expense	$	188
Finance lease cost	Interest for finance lease		21
Operating lease cost	Operating lease expense		717

Lease costs during the six months ended June 30, 2019:
Finance lease cost	Amortization expense	$	371
Finance lease cost	Interest for finance lease		40
Operating lease cost	Operating lease expense		1,441

Cash paid for amounts included in the measurement of lease liabilities during the three months ended June 30, 2019 were as follows:
Operating cash flow	Finance lease	$	21
Financing cash flow	Finance lease		253
Operating cash flow	Operating lease		699

Operating cash flow	Finance lease	$	40
Financing cash flow	Finance lease		415
Operating cash flow	Operating lease		1,404

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

	Operating leases
Remainder of 2019	$	1,416
2020		2,868
2021		2,613
2022		2,607
2023 and thereafter		352
Total lease payments		9,856
Less: imputed interest		692
Present value of lease liabilities	$	9,164

Finance Lease, Liability, Maturity [Table Text Block]

	Operating leases
Remainder of 2019	$	456
2020		499
2021		379
2022		234
Total lease payments		1,568
Less: imputed interest		146
Present value of lease liabilities	$	1,422

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

	Operating leases
2019	$	3,011
2020		2,939
2021		2,564
2022		2,495
2023 and thereafter		214
Future minimum rental payments	$	11,223

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

	Operating leases
2019	$	576
2020		287
2021		152
Future minimum lease payments	$	1,015

Lease, Cost [Table Text Block]

Lease Term and Discount Rate
Weighted-average remaining lease term (years)
Operating leases	3.5
Finance leases	3.0
Weighted-average discount rate
Operating leases	4.4	%
Finance leases	5.6	%

XML

Note 15 - Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

	Three Months Ended June 30,
	2019		2018
Revenue mix by geography:
United States	$	28,147	$	28,132
Japan		5,337		3,946
Asia, excluding Japan		4,547		4,231
Europe		2,504		1,803
Rest of the world		7,239		4,441
Total consolidated revenue	$	47,774	$	42,553
Revenue mix by product category:
Products	$	37,539	$	35,291
Consumables		2,654		1,057
Skincare		1,775		1,302
Total product revenue	$	41,968	$	37,650
Service		5,806		4,903
Total consolidated revenue	$	47,774	$	42,553

	Six Months Ended June 30,
	2019		2018
Revenue mix by geography:
United States	$	48,547	$	49,268
Japan		10,631		7,501
Asia, excluding Japan		7,642		7,074
Europe		5,240		4,373
Rest of the world		11,740		8,462
Total consolidated revenue	$	83,800	$	76,678
Revenue mix by product category:
Products	$	64,748	$	62,530
Consumables		4,599		1,826
Skincare		3,383		2,558
Total product revenue	$	72,730	$	66,914
Service		11,070		9,764
Total consolidated revenue	$	83,800	$	76,678

XML

Note 1 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating Lease, Right-of-Use Asset	$ 8,990	$ 10,049
Operating Lease, Liability, Total	9,164
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		10,300
Operating Lease, Liability, Total		$ 10,400
Accounting Standards Update 2018-15 [Member]
Capitalized Computer Software, Additions	$ 500

XML

Note 2 - Effect of Adoption of the New Lease Standard (ASC Topic 842) On Condensed Consolidated Financial Statements - Financial Statement Impact (Details) - USD ($) $ in Thousands		Jun. 30, 2019	Jan. 01, 2019		Dec. 31, 2018
Operating Lease, Right-of-Use Asset		$ 8,990	$ 10,049
Operating lease liabilities		(1,276)	(2,430)
Other long-term liabilities*		782		[1]	553
Operating lease liabilities, net of current portion		$ (7,888)	(7,759)
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset			(10,049)
Operating lease liabilities			2,430
Other long-term liabilities*	[1]		140
Operating lease liabilities, net of current portion			$ 7,759
Previous Accounting Guidance [Member]
Operating Lease, Right-of-Use Asset
Operating lease liabilities
Other long-term liabilities*	[1]				140
Operating lease liabilities, net of current portion

[1] Deferred rent included in other long-term liabilities

XML

Note 3 - Cash, Cash Equivalents and Marketable Investments (Details Textual) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Cash, Cash Equivalents and Marketable Investments, Gross Unrealized Losses	$ 2,000	$ 9,000
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	$ 0

XML

Note 3 - Cash, Cash Equivalents and Marketable Investments - Unrealized Gains and Losses Related to Marketable Investments (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Cash and cash equivalents, amortized cost	$ 27,669,000
Cash and cash equivalents, Gross Unrealized Losses	(1,000)
Cash and cash equivalents, Fair Market Value	27,668,000	$ 26,052,000
Marketable investments, Amortized Cost	4,001,000	9,532,000
Marketable investments, Gross Unrealized Gains	2,000
Marketable investments, Gross Unrealized Losses	(1,000)	(9,000)
Marketable investments, Fair Market Value	4,002,000	9,523,000
Marketable investments, Amortized Cost	31,670,000	35,584,000
Marketable investments, Gross Unrealized Losses	(2,000)	(9,000)
Marketable investments, Fair Market Value	31,670,000	35,575,000
Cash and cash equivalents, Amortized Cost	27,668,000	26,052,000	$ 18,432,000	$ 14,184,000
Cash Equivalents	27,668,000	26,052,000
Cash [Member]
Marketable investments, Amortized Cost		2,677,000
Marketable investments, Gross Unrealized Gains
Marketable investments, Gross Unrealized Losses
Marketable investments, Fair Market Value		2,677,000
Money Market Funds [Member]
Marketable investments, Amortized Cost	1,393,000	2,433,000
Marketable investments, Gross Unrealized Gains
Marketable investments, Gross Unrealized Losses
Marketable investments, Fair Market Value	1,393,000	2,433,000
US Treasury and Government [Member]
Marketable investments, Amortized Cost	1,397,000	1,397,000
Marketable investments, Gross Unrealized Gains	1,000
Marketable investments, Gross Unrealized Losses
Marketable investments, Fair Market Value	1,398,000	1,397,000
US States and Political Subdivisions Debt Securities [Member]
Marketable investments, Amortized Cost		200,000
Marketable investments, Gross Unrealized Gains
Marketable investments, Gross Unrealized Losses
Marketable investments, Fair Market Value		200,000
Corporate Debt Securities [Member]
Marketable investments, Amortized Cost	1,211,000	2,825,000
Marketable investments, Gross Unrealized Gains	1,000
Marketable investments, Gross Unrealized Losses	(1,000)	(9,000)
Marketable investments, Fair Market Value	$ 1,211,000	$ 2,816,000

XML

Note 3 - Cash, Cash Equivalents and Marketable Investments - Maturities of Available-for-sale Securities (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Due in less than one year	$ 4,002
Due in 1 to 3 years
Total marketable investments	$ 4,002

XML

Note 4 - Fair Value of Financial Instruments - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Cash equivalents:
Cash Equivalents	$ 27,668	$ 26,052
Marketable investments:
Available-for-sale securities	4,002	9,523
Money Market Funds [Member]
Marketable investments:
Available-for-sale securities	1,393	2,433
Fair Value, Recurring [Member]
Marketable investments:
Available-for-sale securities	4,002	9,523
Total assets at fair value	13,777	13,606
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Marketable investments:
Total assets at fair value	5,684	3,036
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Marketable investments:
Available-for-sale securities	4,002	9,523
Total assets at fair value	8,093	10,570
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Marketable investments:
Total assets at fair value
Fair Value, Recurring [Member] | Money Market Funds [Member]
Cash equivalents:
Cash Equivalents	4,339	3,036
Fair Value, Recurring [Member] | Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents:
Cash Equivalents	4,339	3,036
Fair Value, Recurring [Member] | Money Market Funds [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents:
Cash Equivalents
Fair Value, Recurring [Member] | Money Market Funds [Member] | Fair Value, Inputs, Level 3 [Member]
Cash equivalents:
Cash Equivalents
Fair Value, Recurring [Member] | US Treasury Securities [Member]
Cash equivalents:
Cash Equivalents	1,345
Fair Value, Recurring [Member] | US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents:
Cash Equivalents	1,345
Fair Value, Recurring [Member] | US Treasury Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents:
Cash Equivalents
Fair Value, Recurring [Member] | US Treasury Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Cash equivalents:
Cash Equivalents
Fair Value, Recurring [Member] | Commercial Paper [Member]
Cash equivalents:
Cash Equivalents	4,091	1,047
Fair Value, Recurring [Member] | Commercial Paper [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents:
Cash Equivalents
Fair Value, Recurring [Member] | Commercial Paper [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents:
Cash Equivalents	4,091	1,047
Fair Value, Recurring [Member] | Commercial Paper [Member] | Fair Value, Inputs, Level 3 [Member]
Cash equivalents:
Cash Equivalents

XML

Note 5 - Balance Sheet Details (Details Textual) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2017
Standard Product Warranty Accrual, Ending Balance	$ 4,832	$ 4,668	$ 3,561	$ 4,832	$ 3,561	$ 4,064	$ 3,373	$ 3,508
Standard Product Warranty Accrual, Decrease for Payments	1,940		$ 2,123	3,988	$ 4,522
Product Remediation Liability [Member]
Standard and Extended Product Warranty Accrual, Increase for Warranties Issued, Total		5,000
Standard and Extended Product Warranty Accrual, Decrease for Payments, Total		1,100
Standard Product Warranty Accrual, Ending Balance	600	700		600
Extended Product Warranty Accrual, Ending Balance	$ 2,400	$ 3,200		2,400
Standard Product Warranty Accrual, Decrease for Payments				200
Extended Product Warranty Accrual, Decrease for Payments				$ 700

XML

Note 5 - Balance Sheet Details - Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Raw materials	$ 15,130	$ 16,991
Work in process	1,465	2,306
Finished goods	10,294	8,717
Total	$ 26,889	$ 28,014

XML

Note 5 - Balance Sheet Details - Accrued Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accrued payroll and related expenses	$ 11,102	$ 9,377
Sales and marketing accruals	2,183	2,379
Warranty liability	4,832	4,666
Sales tax	2,826	2,935
Accrued expenses payable	2,259
Other	3,824	3,943
Total	$ 27,026	$ 23,300

XML

Note 6 - Warranty and Extended Service Contract (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Extended Product Warranty Accrual, Current	$ 2,399	$ 3,159

XML

Note 6 - Warranty and Extended Service Contract - Summary of Warranties (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Beginning Balance	$ 4,064	$ 3,373	$ 4,668	$ 3,508
Add: Accruals for warranties issued during the period	2,708	2,311	4,152	4,575
Less: Settlements made during the period	(1,940)	(2,123)	(3,988)	(4,522)
Ending Balance	$ 4,832	$ 3,561	$ 4,832	$ 3,561

XML

Note 7 - Deferred Revenue (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue, Remaining Performance Obligation, Percentage	77.00%		77.00%
Revenue, Remaining Performance Obligation, Amount	$ 13.9		$ 13.9
Deferred Revenue Costs Incurred	$ 2.2	$ 2.0	$ 4.2	$ 3.9

XML

Note 7 - Deferred Revenue - Summary of Deferred Service Contract Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Beginning Balance	$ 12,475	$ 11,015	$ 11,855	$ 11,656
Add: Payments received	5,309	4,739	9,451	8,416
Less: Revenue recognized	(3,925)	(3,947)	(7,447)	(8,265)
Ending Balance	$ 13,859	$ 11,807	$ 13,859	$ 11,807

XML

Note 8 - Revenue (Details Textual) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Selling and Marketing Expense [Member]
Capitalized Contract Cost, Amortization	$ 0.7	$ 0.4	$ 1.4	$ 0.8
Other Assets [Member]
Capitalized Contract Cost, Net, Total	$ 5.0		$ 5.0
Transferred over Time [Member]
Revenue from Contract with Customer, Including Assessed Tax, Percent of Total Revenues			13.00%	9.00%

XML

Note 9 - Stockholders' Equity and Stock-based Compensation Expense (Details Textual) - USD ($) $ in Millions		3 Months Ended	6 Months Ended
	Jan. 04, 2019	Jun. 30, 2019	Jun. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized			700,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total		$ 13	$ 13
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition			1 year 292 days
Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares	4,667
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		21,324	267,106
Restricted Stock Units (RSUs) [Member] | Non-employee Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period		22,344	42,236
Restricted Stock Units (RSUs) [Member] | Non-employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			9,303
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			307,355
Performance Shares [Member] | Non-employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			11,920
Two Thousand Nineteen Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized		700,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized		9,701,192	9,701,192
Number of Stock Awards Counted for Every Share Granted or Canceled		2.12	2.12
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		1 year
Two Thousand Nineteen Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
Two Thousand Nineteen Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Vest Over Each Anniversary of the Grant Date [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			25.00%
Two Thousand Nineteen Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Non-employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years
Two Thousand Nineteen Equity Incentive Plan [Member] | Restricted Stock Units (RSUs) [Member] | Non-employees [Member] | Vest Over Each Anniversary of the Grant Date [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage			25.00%

XML

Note 9 - Stockholders' Equity and Stock-based Compensation Expense - Activity Under the 2004 Equity Incentive Plan (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Balances, shares available for grant (in shares)	1,141,305
Balances, stock options outstanding (in shares)	507,705
Balances, weighted-average exercise price (in dollars per share) | $ / shares	$ 20.52
Additional shares reserved, shares available for grant (in shares)	700,000
Stock awards granted, shares available for grant (in shares)	(1,319,304)	[1]
Stock awards granted, stock options outstanding (in shares)		[1]
Stock awards granted, weighted-average exercise price (in dollars per share) | $ / shares		[1]
Options exercised, stock options outstanding (in shares)	(42,066)
Options exercised, weighted-average exercise price (in dollars per share) | $ / shares	$ 7.87
Options canceled (in shares)	41,573
Options canceled, stock options outstanding (in shares)	(41,573)
Options canceled, weighted-average exercise price (in dollars per share) | $ / shares	$ 20.60
Stock awards canceled, shares available for grant (in shares)	299,374	[1]
Balances, shares available for grant (in shares)	862,948
Balances, stock options outstanding (in shares)	424,066
Balances, weighted-average exercise price (in dollars per share) | $ / shares	$ 21.77

[1] The Company had a "fungible share" provision in the Prior Plan whereby for each full-value award (RSU/PSU) issued or canceled under the Prior Plan required the subtraction or add back of 2.12 shares from or to the Shares Available for Grant, respectively. The Company's stockholders approved the removal of the "fungible share" provision for awards granted on or after June 14, 2019 upon adoption of the Amended and Restated Plan at the Company's 2019 Annual Meeting of Stockholders held on June 14, 2019.

XML

Note 9 - Stockholders' Equity and Stock-based Compensation Expense - Stock-based Compensation Expense by Department (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	[1]	Jun. 30, 2018	[1]
Allocated Share Based Compensation Expense	$ 2,519	$ 2,206	$ 3,826		$ 3,893
Cost of Sales [Member]
Allocated Share Based Compensation Expense	404	227	673		380
Selling and Marketing Expense [Member]
Allocated Share Based Compensation Expense	997	715	1,715		1,204
Research and Development Expense [Member]
Allocated Share Based Compensation Expense	370	262	633		453
General and Administrative Expense [Member]
Allocated Share Based Compensation Expense	$ 748	$ 1,002	$ 805		$ 1,856

[1] Included in the six-month ended June 30, 2019 stock-based compensation expense is the charge in connection with the accelerated vesting of 4,667 shares of the Company's former CEO, in accordance with his separation agreement dated January 4, 2019.

XML

Note 10 - Net Income (Loss) Per Share - Net Loss Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net income (loss)	$ 588	$ (1,572)	$ (7,632)	$ (3,604)
Weighted average shares of common stock outstanding used in computing net income (loss) per share, basic (in shares)	14,086	13,709	14,051	13,649
Dilutive effect of incremental shares and share equivalents (in shares)	270
Weighted average shares of common stock outstanding used in computing net income (loss) per share, diluted (in shares)	14,356	13,709	14,051	13,649
Net income (loss) per share, basic (in dollars per share)	$ 0.04	$ (0.11)	$ (0.54)	$ (0.26)
Net income (loss) per share, diluted (in dollars per share)	$ 0.04	$ (0.11)	$ (0.54)	$ (0.26)

XML

Note 10 - Net Income (Loss) Per Share - Antidilutive Securities Excluded From Computation of Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Antidilutive Securities (in shares)	370	1,281	1,182	1,289
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities (in shares)	192	710	466	758
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities (in shares)	178	449	460	422
Performance Shares [Member]
Antidilutive Securities (in shares)		49	162	36
ESPP [Member]
Antidilutive Securities (in shares)		73	94	73

XML

Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Tax Expense (Benefit), Total	$ (243)	$ (712)	$ (128)	$ (3,331)
Deferred Tax Assets, Valuation Allowance, Total		$ 0		$ 0
GERMANY | Foreign Tax Authority [Member]
Unrecognized Tax Benefits, Period Increase (Decrease), Total	$ 300

XML

Note 12 - Leases (Details Textual)	6 Months Ended
	Jun. 30, 2019
Lessee, Operating Lease, Renewal Term	5 years
Minimum [Member]
Lessee, Leases, Remaining Term	1 year
Maximum [Member]
Lessee, Leases, Remaining Term	10 years

XML

Note 12 - Leases - Financial Statement Information (Details) - USD ($) $ in Thousands		3 Months Ended	6 Months Ended
		Jun. 30, 2019	Jun. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating Lease, Right-of-Use Asset		$ 8,990	$ 8,990	$ 10,049
Total leased assets		10,317	10,317
Operating lease liabilities, current		1,276	1,276	2,430
Operating lease liabilities , non-current		7,888	7,888	$ 7,759
Operating Lease, Liability, Total		9,164	9,164
Total Finance lease liabilities		1,422	1,422
Finance lease cost		188	371
Finance lease cost		21	40
Operating lease cost		717	1,441
Operating cash flow		21	40
Financing cash flow		253	415
Operating cash flow		699	1,404
Operating Lease Assets [Member]
Operating Lease, Right-of-Use Asset		8,990	8,990
Operating Lease Liabilities [Member]
Operating lease liabilities, current		1,276	1,276
Accrued Liabilities, Current [Member]
Finance lease liabilities, current		640	640
Property and Equipment, Net [Member]
Finance lease	[1]	1,327	1,327
Operating Lease Liabilities, Net of Current Portion [Member]
Operating lease liabilities , non-current		7,888	7,888
Other Current Liabilities [Member]
Finance lease liabilities, non-current		$ 782	$ 782

[1] Finance leases assets included in Property and equipment, net.

XML

Note 12 - Leases - Maturities of Lease Liabilities (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Remainder of 2019	$ 1,416
2020	2,868
2021	2,613
2022	2,607
2023 and thereafter	352
Total lease payments	9,856
Less: imputed interest	692
Present value of lease liabilities	$ 9,164

XML

Note 12 - Leases - Maturities of Finance Liabilities (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Remainder of 2019	$ 456
2020	499
2021	379
2022	234
Total lease payments	1,568
Less: imputed interest	146
Present value of lease liabilities	$ 1,422

XML

Note 12 - Leases - Minimum Lease and Other Leased Assets Under Long-term Non-cancellable Operating Leases (Details) $ in Thousands	Dec. 31, 2018 USD ($)
2019	$ 3,011
2020	2,939
2021	2,564
2022	2,495
2023 and thereafter	214
Future minimum rental payments	$ 11,223

XML

Note 12 - Leases - Minimum Lease Payments for Leased Vehicles Under Long-term Non-cancellable Capital Leases (Details) $ in Thousands	Dec. 31, 2018 USD ($)
2019	$ 576
2020	287
2021	152
Future minimum lease payments	$ 1,015

XML

Note 12 - Leases - Lease Information (Details)	Jun. 30, 2019
Operating leases (Year)	3 years 182 days
Finance leases (Year)	3 years
Operating leases	4.40%
Finance leases	5.60%

XML

Note 13 - Contingencies (Details Textual) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Estimated Litigation Liability	$ 0	$ 171,000

XML

Note 14 - Debt (Details Textual) $ in Thousands	Mar. 11, 2019 USD ($)	Jun. 30, 2019 USD ($)	Nov. 02, 2018 USD ($)	May 30, 2018 USD ($)
Revolving Line of Credit [Member] | Wells Fargo [Member]
Line of Credit Facility, Maximum Borrowing Capacity				$ 25,000
Revised Revolving Line of Credit [Member] | Wells Fargo [Member]
Line of Credit Facility, Maximum Borrowing Capacity			$ 15,000
Line of Credit Facility, Additional Requestable Maximum Borrowing Capacity			$ 10,000
Debt Instrument, Debt Covenant, Minimum Unrestricted Cash Balance	$ 15,000
Revolving Credit Facility [Member]
Debt Instrument, Minimum Adjusted EBITDA	$ 10,000
Leverage Ratio, Maximum	2.5
Long-term Line of Credit, Total		$ 0

XML

Note 15 - Segment Reporting (Details Textual)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Number of Operating Segments	1	1

XML

Note 15 - Segment Reporting - Revenue by Geographic Region (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue	$ 47,774	$ 42,553	$ 83,800	$ 76,678
Products Excluding Consumables and Skincare [Member]
Revenue	37,539	35,291	64,748	62,530
Hand Piece Refills [Member]
Revenue	2,654	1,057	4,599	1,826
Skincare [Member]
Revenue	1,775	1,302	3,383	2,558
Product [Member]
Revenue	41,968	37,650	72,730	66,914
Service [Member]
Revenue	5,806	4,903	11,070	9,764
UNITED STATES
Revenue	28,147	28,132	48,547	49,268
JAPAN
Revenue	5,337	3,946	10,631	7,501
Asia, Excluding Japan [Member]
Revenue	4,547	4,231	7,642	7,074
Europe [Member]
Revenue	2,504	1,803	5,240	4,373
Rest of World [Member]
Revenue	$ 7,239	$ 4,441	$ 11,740	$ 8,462

XML

Note 16 - Subsequent Events (Details Textual) - USD ($)			3 Months Ended	6 Months Ended
	Jul. 08, 2019	Jul. 07, 2019	Jun. 30, 2019	Jun. 30, 2019
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			21,324	267,106
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period				307,355
Subsequent Event [Member] | Chief Executive Officer [Member]
Annual Base Salary	$ 650,000
Target Bonus, Percent of Base Salary	80.00%
Subsequent Event [Member] | Chief Executive Officer [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	67,897
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Subsequent Event [Member] | Chief Executive Officer [Member] | Restricted Stock Units (RSUs) [Member] | Vesting Each Anniversary of Grant Date [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Subsequent Event [Member] | Chief Executive Officer [Member] | Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	67,897
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Subsequent Event [Member] | President [Member]
Annual Base Salary	$ 575,000	$ 505,000
Subsequent Event [Member] | President [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	27,159
Subsequent Event [Member] | President [Member] | RSU Vesting in Four Installments [Member] | Share-based Payment Arrangement, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Subsequent Event [Member] | President [Member] | RSU Vesting in Four Installments [Member] | Share-based Payment Arrangement, Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Subsequent Event [Member] | President [Member] | RSU Vesting in Four Installments [Member] | Share-based Payment Arrangement, Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Subsequent Event [Member] | President [Member] | RSU Vesting in Four Installments [Member] | Share-based Payment Arrangement, Tranche Four [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage	25.00%
Subsequent Event [Member] | President [Member] | RSU Vesting in January 2020 [Member] | Share-based Payment Arrangement, Tranche Five [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period	27,159