NOTE

1—SUMMARY

SIGNIFICANT

ACCOUNTING

POLICIES

Description of Operations and Principles of Consolidation

Cutera, Inc. (“Cutera” or the “Company”) provides energy-based aesthetic systems for practitioners worldwide. The Company designs, develops, manufactures, distributes and markets 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, and hand pieces (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

truSculpt iD

and

truSculpt flex

) and service labor for the repair and maintenance of products that are out of warranty, all of which are collectively 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 Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All inter-company transactions and balances have been eliminated.

Use of Estimates

The preparation of 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 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 allowance for credit losses, 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 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.

Comparability

The Company adopted the new revenue standard effective

January 1, 2018,

using the modified retrospective method. Prior period financial statements were

not

retrospectively restated. The financial results for the years ended

December 31, 2019

and

2018

reflect the adoption of this accounting standard whereas financial results for the year ended

December 31, 2017

were prepared using prior revenue recognition guidance. As a result the consolidated statements of operations for the years ended

December 31, 2019

and

2018

are

not

directly comparable to the consolidated statement of operations for the year ended

December 31, 2017.

The Company adopted the new lease standard effective

January 1, 2019,

using the modified retrospective method. Prior period financial statements were

not

retrospectively restated. The financial results for the year ended

December 31, 2019

were prepared using the new lease accounting standard whereas the financial results for the years ended

December 31, 2018

and

2017

were prepared using prior effective guidance. As a result the consolidated balance sheet as of

December 31, 2019

not

directly comparable to the balance sheet as of

December 31, 2018,

and the consolidated statement of operations for the year ended

December

31,2019

not

directly comparable to the consolidated statements of operations for the years ended

December 31, 2018

and

December 31, 2017.

Recently Adopted Accounting Pronouncements

May 2014,

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

2014

09,

“Revenue from Contracts with Customers,” amending revenue recognition guidance and requiring more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amended guidance, herein referred to as ASC Topic

606,

is effective for annual and interim reporting periods beginning after

December 15, 2017.

The Company adopted ASC Topic

606,

"Revenue from Contracts with Customers," on

January 1, 2018,

applying the modified retrospective method to all agreements that were

not

completed as of

January 1, 2018.

Results for reporting periods beginning after

January 1, 2018

are presented under ASC Topic

606,

while prior period amounts are

not

adjusted and continue to be reported under the accounting standards in effect for the prior periods. A cumulative catch up adjustment was recorded to beginning retained earnings to reflect the impact of all existing arrangements under ASC Topic

606.

Upon adoption of ASC Topic

606,

the Company recorded an increase to retained earnings, net of deferred tax liability, of

$3.8

million for contracts still in force as of

January 1, 2018

for the following items in the

first

quarter of

2018:

●

$237,000

reduction in deferred revenue balances for the differences in the amount of revenue recognized for the Company’s revenue streams as a result of allocation of revenue based on standalone selling prices to the Company’s various performance obligations.

●

$151,000

increase in deferred revenue balances, related to the accretion of financing costs for multi-year post-warranty service contracts for customers who pay more than

one

year in advance of receiving the service. The Company estimated interest expense for such advance payments under the new revenue standard.

●

$210,000

decrease in accrued liabilities.

●

$4.7

million for the capitalization of the incremental contract acquisition costs, such as sales commissions paid in connection with system sales. These contract acquisition costs were capitalized and are being amortized over the period of anticipated support renewals which is estimated to be approximately

2.5

years. The Company expensed such costs when incurred under the prior guidance.

●

$1.2

million deferred tax liability related to the direct tax effect of the ASC Topic

606

adoption.

The following table summarizes the effects of adopting ASC Topic

606

on the Company’s consolidated balance sheet as of

December 31, 2018:

	As reported under ASC Topic 606			Adjustments			Balances under Prior GAAP
	(In thousands)

Other long-term assets	$	5,971		$	(5,217	)	$	754
Deferred revenue		12,566			(106	)		12,460
Retained earnings (deficit)		(24,010	)		4,610			(19,400	)

The following table summarizes the effects of adopting ASC Topic

606

on Company’s consolidated income statement for the year ended

December 31, 2018:

	As reported under Topic 606			Adjustments		Balances under Prior GAAP
	(In thousands)
Products revenue	$	142,535		$	274	$	142,261
Service revenue		20,185			280		19,905
Sales and marketing		58,420			540		58,960
Interest and other income, net*		(123	)		297		174

* Included in interest and other income, net, is the estimated interest expense for advance payment related to service contracts under the new revenue standard.

Adoption of the standard had

impact on total net cash from or used in operating, investing, or financing activities within the consolidated statements of cash flows.

As part of the Company's adoption of ASC Topic

606,

the Company elected to use the following practical expedients: (i)

not

to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be

one

year or less; (ii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been

one

year or less; (iii)

not

to recast revenue for contracts that begin and end in the same fiscal year; and (iv)

not

to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

February 2018,

the FASB issued ASU

No.

2018

02,

“Income Statement - Reporting Comprehensive Income (Topic

220

) - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act and requires certain disclosures about stranded tax effects and became effective beginning

January 1, 2019

and could be applied either in the period of adoption or retrospectively. The Company adopted the standard in the

first

quarter of

2019,

and the adoption had

impact on our consolidated financial statements and related disclosures.

July 2018,

the FASB issued ASU

2018

09,

"Codification Improvements”, which represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. The amendments in this standard include those made to: Subtopic

220

10,

Income Statement-Reporting Comprehensive Income-Overall; Subtopic

470

50,

Debt-Modifications and Extinguishments; Subtopic

480

10,

Distinguishing Liabilities from Equity-Overall; Subtopic

718

740,

Compensation-Stock Compensation-Income Taxes; Subtopic

805

740,

Business Combinations-Income Taxes; Subtopic

815

10,

Derivatives and Hedging-Overall; Subtopic

820

10,

Fair Value Measurement-Overall; Subtopic

940

405,

Financial Services-Brokers and Dealers-Liabilities; and Subtopic

962

325,

Plan Accounting-Defined Contribution Pension Plans-Investments-Other. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments do

not

require transition guidance and will be effective upon issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after

December 15, 2018,

for public business entities. The Company adopted subtopics under the standard that are applicable, including Subtopics

718

740

and

820

in the

first

quarter of

2019.

The adoption of this standard had

impact on our consolidated financial statements and related disclosures.

February 2016,

the FASB issued ASU

2016

02,

"Leases," (also known as ASC Topic

842

) which requires, among other items, lease accounting to recognize most leases as assets and liabilities on the balance sheet. Qualitative and quantitative disclosures are enhanced to better present 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

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

2018

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

$10.2

million and

$10.1

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 resulted from rent-free periods which were previously recorded as deferred rent. The Company’s accounting for finance leases remained substantially unchanged. The standard had

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

See below and Note

for additional accounting policy and transition disclosures regarding ASC Topic

842.

Effect of Adoption of the New Lease Standard (ASC Topic

842

) on Consolidated Financial Statements

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

June 2016,

the FASB issued ASU

No.

2016

13,

Financial Instruments-Credit Losses (Topic

326

):”Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected credit loss methodology that is referred to as the current expected credit loss (CECL) methodology. ASU

2016

is effective for fiscal years beginning after

December 15, 2019,

with early adoption permitted. The amendments in this update are required to be applied using the modified retrospective method with an adjustment to accumulated deficit and are effective for the Company beginning with fiscal year

2020,

including interim periods. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. An entity with trade receivables will be required to use historical loss information, current conditions, and reasonable and supportable forecasts to determine expected lifetime credit losses. Pooling of assets with similar risk characteristics is also required.

The Company adopted ASU

2016

January 1, 2020

on a modified retrospective basis, and is currently evaluating the impact of adoption of the amendments in these updates on the Company’s financial position, results of operations, and related disclosures.

January 26, 2017,

the FASB issued Accounting Standards Update

No.

2017

04,”

Intangibles—Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment”. The new guidance requires only a

one

-step quantitative impairment test, whereby a goodwill impairment loss will be measured as the excess of a reporting unit’s carrying amount over its fair value (

not

to exceed the total goodwill allocated to that reporting unit). The new guidance eliminates Step

of the current

two

-step goodwill impairment test, and requires companies to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Companies will continue to have the option of performing a qualitative assessment of goodwill impairment; however, if a company performs a qualitative assessment of its goodwill and fails, it must proceed with quantitative impairment testing.

The amendment is effective for the Company for its fiscal years beginning after

December 15, 2019.

The amendment is required to be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

The Company early adopted ASU

2017

04—Intangibles—Goodwill

and Other (Topic

350

): “Simplifying the Test for Goodwill Impairment, on

October 1, 2018.

There was

material impact upon adoption of the new standard to the financial statements.

See “Goodwill and Other Intangible Assets” in Note

– Balance Sheet Detail.

June 2018,

the FASB issued ASU

No.

2018

07,

"Compensation -Stock Compensation (Topic

718

): Improvement to Nonemployee Share-Based Payment Accounting". The new guidance changes the accounting for nonemployee awards including: (

) equity-classified share-based payment awards issued to nonemployees will be measured on the grant date, instead of the previous requirement to remeasure the awards through the performance completion date, (

) for performance conditions, compensation cost associated with the award will be recognized when the achievement of the performance condition is probable, rather than upon achievement of the performance condition, and (

) the current requirement to reassess the classification (equity or liability) for nonemployee awards upon vesting will be eliminated, except for awards in the form of convertible instruments. The new guidance also clarifies that any share-based payment awards issued to customers should be evaluated under ASC Topic

606.

The amendments in the new guidance are effective for annual and interim reporting periods beginning after

December 15, 2018,

with early adoption permitted for public companies, but

earlier than an entity’s adoption date of ASC Topic

606.

The Company adopted the new standard effective

January 1, 2019

and there was

material impact to the financial statements.

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" (ASU

No.

2018

(Topic

350

)), 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 Company adopted this standard effective

April 1, 2019,

on a prospective basis for applicable implementation costs and there was

material impact to the financial statements. The adoption of this guidance prospectively resulted in the capitalization of costs related to implementation of a new Enterprise Resource Planning and Customer Relationship Management systems. Refer to Cloud Computing Costs below for further disclosure regarding ASU

No.

2018

(Topic

350

Recently Issued Accounting Pronouncements

Not

Yet Adopted by the Company

August 2018,

the FASB issued ASU

No.

2018

13,

“Fair Value Measurement (Topic

820

): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement”, to improve the fair value measurement reporting of financial instruments. The amendments in this update require, among other things, added disclosure of the range and weighted average of significant unobservable inputs used to develop Level

fair value measurements. The amendments in this update eliminate, among other things, disclosure of the reasons for and amounts of transfers between Level

and Level

for assets and liabilities that are measured at fair value on a recurring basis and an entity's valuation processes for Level

fair value measurements. The amendments in this update will be effective for the Company beginning with fiscal year

2020,

with early adoption permitted. Retrospective application is required for all amendments in this update except the added disclosures, which should be applied prospectively. The adoption of the amendments in this update is

not

expected to have a material impact on the Company’s consolidated financial position and results of operations.

December 2019,

the FASB issued ASU

No.

2019

“Income Taxes (Topic

740

)-Simplifying the Accounting for Income Taxes”, to remove certain exceptions and improve consistency of application, including, among other things, requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The amendments in this update will be effective for the Company beginning with fiscal year

2021,

with early adoption permitted. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of the amendments in this update is

not

expected to have a material impact on the Company’s consolidated financial position and results of operations.

Revenue recognition

Effective

January 1, 2018,

the Company recognized revenue under ASC Topic

606.

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

12%,

respectively, of the Company’s total revenue for the years ended

December 31, 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, marketing services, and time and materials 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), service contracts, training, and 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 contract. 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. When collectability is

not

established in advance of receipt of payment from the customer, revenue is recognized upon the later of the receipt of payment or the satisfaction of the performance obligation. For systems sold through credit approved distributors, revenue is recognized at the time of shipment to the distributor.

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

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 a

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 classifies its customers' purchases of replacement cycles for truSculpt iD and truSculpt flex, as well as replacement Titan and truSculpt

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. . The Company’s systems offer multiple hand pieces and applications, which allow customers to upgrade their systems. The Company classifies as product revenue the sales of systems, system upgrades, hand pieces, hand piece refills (applicable to Titan® and truSculpt) and the distribution of

third

-party manufactured skincare products.

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 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 obligation.

While the Company’s purchase agreements 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

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

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 such as the right to attend the Company’s advanced training event for truSculpt, or a ticket for the Company’s annual forum. A customer’s account must be in good standing to receive the benefits of the rewards program. Rewards are earned on a quarterly basis and must be used in the following quarter. 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. As of

December 31, 2019,

the accrual for the loyalty program included in accrued liabilities was

$0.2

million.

Revenue recognition- Period before

January 1, 2018 -

ASC Topic

606

Adoption

The Company recognized revenue under ASC Topic

605

prior to the adoption of ASC Topic

606

effective

January 1 2018.

Under ASC

605,

the Company recognized products revenue when title and risk of ownership was transferred, provided that:

● Persuasive evidence of an arrangement exists;

● The price is fixed or determinable;

● Delivery has occurred or services have been rendered; and

● Collectability is reasonably assured.

Transfer of title and risk of ownership occurs when the product is shipped to the customer or when the customer receives the product, depending on the nature of the arrangement. Revenue is recorded net of customer and distributor discounts. When collectability is

not

reasonably assured, the Company recognizes revenue upon receipt of cash payment. Sales to customers and distributors do

not

include any return or exchange rights. In addition, the Company’s distributor agreements obligate the distributor to pay the Company for the sale regardless of whether the distributor is able to resell the product. Shipping and handling charges are invoiced to customers based on the amount of products sold. Shipping and handling fees are recorded as revenue and the related expense as a component of Products cost of revenue.

Multiple-element Arrangements

A multiple-element arrangement includes the sale of

one

or more tangible product offerings with

one

or more associated services offerings, each of which are individually considered separate units of accounting. The Company determined that its multiple-element arrangements are generally comprised of the following elements that are recognized as separate units of accounting: Product, service contracts, training, and in some cases, marketing support and installation.

For multiple-element arrangements, judgments are required as to the allocation of the proceeds received from an arrangement to the multiple elements of the arrangement. For multiple element arrangements the Company allocates revenue to all deliverables based on their relative selling prices in accordance with the FASB Accounting Standards Codification (“ASC”)

605

25.

Because the Company has neither vendor specific objective evidence (“VSOE”) nor

third

-party evidence of selling price for the Company's systems, the allocation of revenue has been based on the Company's best estimate of selling prices (“BESP”). The objective of BESP is to determine the price at which the Company would transact a sale if the product or service was sold on a stand-alone basis. The Company determines BESP for the Company's deliverables by considering multiple factors including, but

not

limited to, features and functionality of the system, geographies, type of customer and market conditions

With respect to the sale of its earlier generation of the truSculpt product, the Company includes unlimited refills as part of the truSculpt standard warranty and the Company does

not

account for the

truSculpt

warranty as a separate deliverable under the multiple-element arrangement revenue guidance. Upon a

truSculpt

sale, the Company recognizes the estimated costs which will be incurred under the warranty obligation in Products cost of revenue. Revenue from the sale of refills is recorded as Product revenue in the period in which such sales are made.

Customer Marketing Arrangements

The Company has a customer marketing and incentive program called “Cutera Bucks” for its North America customers through which it offers various sales incentives and discounts and pays or reimburses customers for qualifying expenses associated with practice set-up, advertising procedures related to the system purchased, and other expenses. The Company records such incentives as a reduction of revenue at the time when the sale of the system is recorded.

Service Revenue

The Company also offers customers extended service contracts. Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract. Revenue from services performed in the absence of a service contract, including installation and training revenue, is recognized when the related services are performed and collectability is reasonably assured. Service revenue billed on a time and material basis, from customers whose systems are

not

under a service contact, is recognized as the services are provided. Service revenue for the years ended

December 31, 2017

was

$18.8

million.

Bill and Hold Arrangement

Under ASC

605

2017

the Company segregated certain products for

one

order at the request of a customer for a limited period of time at a

third

-party storage facility (“bill -and -hold”). Revenue recognition for the bill-and-hold transaction requires consideration of, among other things, whether the customer has made a written fixed commitment to purchase the product; the existence of a substantial business purpose for the arrangement; the bill-and-hold arrangement is at the request of the customer; the scheduled delivery date must be reasonable and consistent with the buyer's business purpose; title and risk of ownership must pass to the customer and

additional performance obligations exist by the Company, at the time of the bill-and-hold the product is complete and ready for shipment and the product has been segregated from the Company's inventory. The Company recognized revenue of

$938,000

for a bill-and-hold transaction in

2017.

Deferred Sales Commissions

Incremental costs of obtaining a contract, which consist primarily of commissions and related payroll taxes, are capitalized and amortized on a straight-line basis over the expected period of benefit, except for costs that are recognized when product is sold. The Company uses the portfolio method to recognize the amortization expense related to these capitalized costs related to initial contracts and such expense is recognized over a period associated with the revenue of the related portfolio, which is generally

two

three

years.

Total capitalized costs for the year ended

December 31, 2019

and

December 31, 2018

were

$4.6

million and

$5.2

million, respectively, and are included in Other long-term assets in the Company’s consolidated balance sheet. Amortization expense for these assets was

$2.9

million and

$1.8

million, respectively, during the

twelve

months ended

December 31, 2019

and

December 31, 2018

and are included in sales and marketing expense in the Company’s consolidated statement of operations.

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 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.

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

inputs, which include quoted prices in active markets for identical assets or liabilities;

● Level

inputs, which include observable inputs other than Level

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

inputs, which include unobservable inputs that are supported by little or

market activity and that are significant to the fair value of the underlying asset or liability. Level

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.

Impairment of Marketable Investments

After determining the fair value of available-for-sales debt instruments, gains or losses on these securities are recorded to other comprehensive income, until either the security is sold or the Company determines that the decline in value is other-than-temporary. The primary differentiating factors that the Company considers in classifying impairments as either temporary or other-than-temporary impairments are the Company’s intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value or the maturity of the investment, the length of the time and the extent to which the market value of the investment has been less than cost and the financial condition and near-term prospects of the issuer. There were

other-than-temporary impairments in the years ended

December 31, 2019,

2018,

and

2017.

Allowance for Sales Returns and Doubtful Accounts

The allowance for sales returns is based on the Company’s estimates of potential future product returns and other allowances related to current period product revenue. The Company analyzes historical returns, current economic trends and changes in customer demand and acceptance of the Company's products.

In cases where the Company is aware of circumstances that

may

impair a specific customer’s ability to meet its obligations to the Company, the Company records a specific allowance against amounts due from the customer, and thereby reduces the net recognized receivable to the amounts it reasonably believes will be collected

Concentration of Credit Risk and Other Risks and Uncertainties

The Company operates in markets that are highly competitive and rapidly changing. Significant technological changes, shifting customer needs, the emergence of competitive products or services with new capabilities and other factors could negatively impact the Company’s operating results.

The Company is also subject to risks related to changes in the value of the Company’s significant balance of financial instruments. Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash, cash equivalents, marketable investments and accounts receivable. The Company’s cash and cash equivalents are primarily invested in deposits and money market accounts with

three

major financial institutions in the U.S. In addition, the Company has operating cash balances in banks in each of the international locations in which it operates. Deposits in these banks

may

exceed the amount of insurance provided on such deposits, if any. Management believes that these financial institutions are financially sound and, accordingly, believes that minimal credit risk exists. To date, the Company has

not

experienced any losses on its deposits of cash and cash equivalents.

The Company invests in debt instruments, including bonds of the U.S. Government, its agencies and municipalities. The Company has also invested in other high grade investments such as commercial paper and corporate debt securities. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity. By policy, the Company restricts its exposure to any single issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, the Company maintains investments at an average maturity of generally less than

twelve

months.

Accounts receivable are recorded net of an allowance for doubtful accounts, and are typically unsecured and are derived from revenue earned from worldwide customers. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs credit evaluations of its customers and maintains reserves for potential credit losses. As of

December 31, 2019

and

2018,

customer represented more than

10%

of the Company’s net accounts receivable. During the years ended

December 31, 2019,

2018,

and

2017,

domestic revenue accounted for

58%,

62%,

and

62%,

, respectively, of total revenue, while international revenue accounted for

42%,

38%,

and

38%,respectively,

of total revenue.

single customer represented more than

10%

of total revenue for any of the years ended

December 31, 2019,

2018,

and

2017.

Supplier concentration

The Company relies on

third

parties for the supply of components of its products, as well as

third

-party logistics providers. In instances where these parties fail to perform their obligations, the Company

may

be unable to find alternative suppliers or satisfactorily deliver its products to its customers. The Company relies on

one

supplier for its

Secret

product.

Inventories

Inventories are stated at the lower of cost and net realizable value, cost being determined on a standard cost basis which approximates actual cost on a

first

-in,

first

-out basis. Net realizable value is the estimated selling prices in the ordinary course of the Company’s business, less reasonably predictable costs of completion, disposal, and transportation. The cost basis of the Company’s inventory is reduced for any products that are considered excessive or obsolete based upon assumptions about future demand and market conditions.

The Company includes demonstration units within inventories. Demonstration units are carried at cost and amortized over an estimated economic life of

two

years. Amortization expense related to demonstration units is recorded in Products cost of revenue or in the respective operating expense line based on which function and purpose for which the demonstration units are being used. Proceeds from the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems prior to sale are charged to Product cost of revenue.

As of

December 31, 2019

and

2018,

demonstration inventories, net of accumulated depreciation, included in finished goods inventory was

$4.1

million and

$2.9

million, respectively.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation expense recognized is on a straight-line basis over the estimated useful lives of the assets, generally as follows:

		Useful Lives
Leasehold improvements		Lesser of useful life or term of lease
Office equipment and furniture (in years)		3
Machinery and equipment (in years)		3

Upon sale or retirement of property and equipment, the costs and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operating expenses. Maintenance and repairs are charged to operations as incurred.

Depreciation expense related to property and equipment for

2019,

2018

and

2017,

was

$1.5

million,

$1.2

million, and

$1.0

million respectively. Amortization expense for vehicles leased under capital leases is included in depreciation expense.

Capitalized Cloud Computing Set-up Cost

The Company capitalizes certain set-up costs for the Company’s cloud computing arrangements. The capitalized implementation costs are then amortized over the term of the cloud computing arrangement inclusive of expected contract renewals, which are generally

three

five

years.

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite useful lives are

not

amortized, but are tested for impairment at least annually during the

fourth

quarter of the Company’s fiscal year, or if circumstances indicate their value

may

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

The Company continues to operate in

one

segment, which is considered to be the sole reporting unit and, therefore, goodwill was tested for impairment at the enterprise level. As of

December 31, 2019,

there has been

impairment of goodwill. All acquired intangible assets have been fully amortized as of

December 31, 2019.

Warranty Obligations

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

three

years. For sales to distributors, the Company generally provides a

month warranty for parts only, with labor being provided to the end customer by the distributor.

The Company also offers services on a time-and-materials basis for detachable hand piece replacements, parts and labor.

Leases

Policy from

January 1, 2019

Effective

January 1, 2019,

the Company adopted ASC

842,

which established a right-of-use ("ROU") model requiring lessees to record a right-of-use ("ROU") asset and lease obligations on the balance sheet for all leases with terms longer than

months. The Company determines if an arrangement is a lease at inception. Where an arrangement is a lease the Company determines if it is an operating lease or a finance lease. At lease commencement, the Company records a lease liability and corresponding right-of- use ("ROU") asset. Lease liabilities represent the present value of our future lease payments over the expected lease term which includes options to extend or terminate the lease when it is reasonably certain those options will be exercised. The present value of the Company’s lease liability is determined using its incremental collateralized borrowing rate at lease inception. ROU assets represent its right to control the use of the leased asset during the lease and are recognized in an amount equal to the lease liability for leases with an initial term greater than

months. Over the lease term (operating leases only), the Company uses the effective interest rate method to account for the lease liability as lease payments are made and the ROU asset is amortized to consolidated statement of operations in a manner that results in straight-line expense recognition. The Company does

not

apply lease recognition requirements for short-term leases. Instead, the Company recognizes payments related to these arrangements in the consolidated statement of operations as lease costs on a straight-line basis over the lease term.

Policy before

January 1, 2019

For periods prior to the Company’s adoption of ASC

842

January 1, 2019,

the Company recognized leases as either an operating lease or a capital lease (finance lease). An operating lease records

asset or liability on the financial statements, the amount paid is expensed as incurred. A capital lease is recorded as both an asset and a liability on the Company’s Consolidated Balance Sheets, generally at the present value of the rental payments. The Company uses the guidance provided by FASB to determine if a lease should be capitalized, and if any

one

of the criteria for capitalization is met, the lease is treated as a capital lease.

Cost of Revenue

Cost of revenue consists primarily of material, finished and semi-finished products purchased from

third

-party manufacturers, labor, stock-based compensation expenses, overhead involved in the Company's internal manufacturing processes, service contracts technology license amortization and royalties, costs associated with product warranties and any inventory write-downs.

The Company's system sales include a control console, universal graphic user interface, control system software, high voltage electronics and a combination of applications (referred to as “hand pieces”). Hand pieces are programmed to have a limited number of uses to ensure the safety of the device to patients. The Company sells refurbished hand pieces, or "refills," of its Titan and truSculpt

products and provides for the cost of refurbishment of these hand pieces as part of cost of revenue. When customers purchase a replacement hand piece or are provided a replacement hand piece under a warranty or service contract, the Company ships the customer a previously refurbished unit. Upon the receipt of the expended hand piece from the customer, the Company capitalizes the expended hand piece as inventory at the estimated fair value. Cost of service revenue includes the costs incurred to refurbish hand pieces.

Research and Development Expenditures

Research and development costs are expensed as incurred and include costs related to research, design, development, testing of products, salaries, benefits and other headcount related costs, facilities, material,

third

party contractors, regulatory affairs, clinical and development costs.

Advertising Costs

Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising expenses for

2019,

2018

and

2017

were

$2.8

million,

$2.8

million, and

$1.8

million, respectively.

Stock-based Compensation

The Company accounts for share-based employee compensation plans using the fair value recognition and measurement provisions under U.S. GAAP. The Company’s share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense on a straight- line basis over the requisite service period. The Company estimates expected forfeitures at the time of grant and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimated.

Expected Term

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

Expected Volatility

: The underlying stock price volatility of the Company’s stock. The Company estimates volatility based on a

blend of the Company’s historical volatility and the implied volatility of freely traded options of the Company’s stock in the open market.

Forfeitures:

The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Under ASC

718

(Stock Based Compensation), the Company has made an accounting policy to estimate forfeitures at the time awards are granted and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Risk-Free Interest Rate:

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

The fair value of stock options ("options") on the grant date is estimated using the Black-Scholes option-pricing model using the single-option approach. The Black-Scholes option pricing model requires the use of highly subjective and complex assumptions, including the option's expected term and the price volatility of the underlying stock, to determine the fair value of award. The Company recognizes the expense associated with options using a single award approach over the requisite service period. The Company accounts for all stock options awarded to non-employees at the fair value of the award issued on the day of the grant.

The fair value of restricted stock units (“RSUs”) granted are measured on the grant date using the closing price of the Company's common shares on the grant date. The quantity of the RSUs units granted is calculated by dividing a fixed award amount determined by the Board on the grant date by the average closing price of the Company’s common stock over the

-day period ending on the day of the grant.

The fair value of Performance Stock Units (“PSUs”) that have operational measurement goals, are measured on the grant date using the closing price of the Company's common shares on the grant date. The quantity of the PSUs units granted is calculated by dividing a fixed award amount determined by the Board on the grant date by the average closing price of the Company’s common stock over the

-day period ending on the day of the grant.

See Note

- Stockholders’ Equity, Stock Plans and Stock-Based Compensation Expense for a detailed discussion of the Company’s stock plans and share-based compensation expense.

Income Taxes

The Company is subject to income taxes in the United States and several foreign jurisdictions. Significant judgment is required in determining our provision (benefit) for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

The Company records a provision (benefit) for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, we recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize the deferred income tax effects of a change in tax rates in the period of enactment. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than

not

to be realized.

The Company recognizes tax benefits from uncertain tax positions if we believe that it is more likely than

not

that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. Although we believe we have adequately reserved for our uncertain tax positions (including net interest and penalties), we can provide

assurance that the final tax outcome of these matters will

not

be different. We make adjustments to these reserves in accordance with income tax accounting guidance when facts and circumstances change, such as the closing of a tax audit. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences

may

impact the provision (benefit) for income taxes in the period in which such determination is made. We record interest and penalties related to our uncertain tax positions in our provision (benefit) for income taxes.

The Company’s effective tax rates have differed from the statutory rate primarily due to changes in the valuation allowance, foreign operations, research and development tax credits, state taxes, and certain benefits realized related to stock option activity. The Company’s current effective tax rate does

not

assume U.S. taxes on undistributed profits of foreign subsidiaries. These earnings could become subject to incremental foreign withholding or U.S. federal and state taxes, should they either be deemed or actually remitted to the U.S. The Company’s future effective tax rates could be adversely affected by earnings being lower in countries where the Company has lower statutory rates and being higher in countries where the Company has higher statutory rates, or by changes in tax laws, accounting principles, interpretations thereof, net operating loss carryback, research and development tax credits, and due to changes in the valuation allowance of its U.S. deferred tax assets. In addition, the Company is subject to the examination of the Company’s income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes.

Undistributed earnings of the Company’s foreign subsidiaries at

December 31, 2019

are considered to be indefinitely reinvested and, accordingly,

provision for state income taxes has been provided thereon. Due to the Transition Tax and Global Intangible Low-Tax Income (“GILTI”) regimes as enacted by the

2017

Tax Act, those foreign earnings will

not

be subject to federal income taxes when actually distributed in the form of a dividend or otherwise. The Company, however, could still be subject to state income taxes and withholding taxes payable to various foreign countries. The amounts of taxes which the Company could be subject to are

not

material to the accompanying financial statements.

Computation of Net Income (Loss) per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average number of common shares and the dilutive effect of potential future issuances of common stock from outstanding stock options, RSUs, PSUs and employee stock purchase plan contributions for the period outstanding determined by applying the treasury stock method. In accordance with ASC

718,

the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of in-the-money stock options, RSUs and PSUs. This results in the assumed buyback of additional shares, thereby reducing the dilutive impact of equity awards

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.

Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. For the periods presented, the accumulated other comprehensive income (loss) consisted solely of the unrealized gains or losses on the Company's available for- sale investments, net of tax.

Foreign Currency

The financial statements of the Company’s foreign subsidiaries are translated in accordance with ASC

830,

Foreign Currency Matters. The U.S. Dollar is the functional currency of the Company’s subsidiaries and the Company’s reporting currency. Monetary assets and liabilities are re-measured into U.S. Dollars at the applicable period end exchange rate. Sales and operating expenses are re-measured at average exchange rates in effect during each period. Gains or losses resulting from foreign currency transactions are included in net income (loss) and are insignificant for each of the

three

years ended

December 31, 2019.

The effect of exchange rate changes on cash and cash equivalents was insignificant for each of the

three

years ended

December 31, 2019.

Segments

The Company operates in

one

segment and reports segment information in accordance with ASC

280,

Segment Reporting. Management uses

one

measurement of profitability and does

not

segregate its business for internal reporting. As of

December 31, 2019,

and

2018,

89.3%

and

89.0%

of long-lived assets were in the United States, respectively. Revenue is attributed to a geographic region based on the location of the end customer. See Note

– Segment Information and Revenue by Geography and Products for details relating to revenue by geography.