CUTERA, INC.
2014 PROXY STATEMENT AND 2013 ANNUAL REPORT
Dear Stockholders:
You are cordially invited to attend the 2014 Annual Meeting of Stockholders of Cutera, Inc. (the “Company”). The
meeting will be held at our principal executive offices located at 3240 Bayshore Blvd., Brisbane, California 94005-
1021 on June 18, 2014 at 10:00 a.m. Pacific Time.
The attached Notice of 2014 Annual Meeting of Stockholders and Proxy Statement contain details of the business to be
conducted at the Annual Meeting. We have also made available a copy of our 2013 Annual Report to Stockholders
with this proxy statement. We encourage you to read our Annual Report. It includes our audited financial statements
and provides information about our business.
We have elected to provide access to our proxy materials over the internet under the Securities and Exchange
Commission’s “notice and access” rules. We are constantly focused on improving the ways people connect with
information, and believe that providing our proxy materials over the internet increases the ability of our stockholders to
connect with the information they need, while reducing the environmental impact of our Annual Meeting. If you need
additional information about Cutera, please visit the Investor Relations section of the Company’s website at
www.cutera.com.
Whether or not you attend the Annual Meeting, it is important that your shares be represented and voted at the meeting.
Therefore, I urge you to promptly vote and submit your proxy via the internet, by phone, or by signing, dating, and
returning the proxy card provided to you. If you decide to attend the Annual Meeting, you will be able to vote in
person, even if you have previously submitted your proxy.
On behalf of Cutera’s Board of Directors and executive team, I would like to express our appreciation for your
continued interest and confidence in our business.
Sincerely,
Kevin Connors,
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a–6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to §240.14a–11(c) or §240.14a–2
CUTERA, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set
forth the amount on which the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 2014
10:00 A.M. Pacific Time
To our Stockholders:
You are cordially invited to attend the 2014 Annual Meeting of Stockholders of Cutera, Inc. (the “Company”). The
meeting will be held at our principal executive offices located at 3240 Bayshore Blvd., Brisbane, California 94005-
1021. The meeting will be held on June 18, 2014 at 10:00 a.m. Pacific Time, for the following purposes:
1.
2.
3.
4.
To elect two Class I directors to each serve for a three-year term that expires at the 2017 Annual Meeting of
Stockholders and until their successors have been duly elected and qualified;
To ratify the selection of BDO USA, LLP as the independent registered public accounting firm of the
Company (the “Independent Registered Public Accounting Firm”) for the fiscal year ending December 31,
2014;
To hold a non-binding, advisory vote on the compensation of our Named Executive Officers; and
To transact such other business as may properly come before the Annual Meeting, including any motion to
adjourn to a later date to permit further solicitation of proxies, if necessary, or before any adjournment thereof.
The foregoing items of business are more fully described in the proxy statement accompanying this Notice of Annual
Meeting.
To help conserve resources and reduce printing and distribution costs, we will be mailing a notice to our stockholders,
instead of a paper copy of this proxy statement and our 2013 Annual Report, with instructions on how to access our
proxy materials over the Internet, including this proxy statement, our 2013 Annual Report and a form of proxy card or
voting instruction card. The notice will also contain instructions on how each of those stockholders can receive a paper
copy of our proxy materials.
The meeting will begin promptly at 10:00 a.m., local time, and check-in will begin at 9:50 a.m. local time. Only
holders of record of shares of our common stock (NASDAQ: CUTR) at the close of business on April 22, 2014 will be
entitled to notice of, and to vote at, the meeting and any postponements or adjournments of the meeting.
For a period of at least 10 days prior to the meeting, a complete list of stockholders entitled to vote at the meeting will
be available and open to the examination of any stockholder for any purpose relating to the Annual Meeting during
normal business hours at our principal executive offices located at 3240 Bayshore Blvd., Brisbane, California 94005-
1021.
By order of the Board of Directors,
Kevin P. Connors
President and Chief Executive Officer
Brisbane, California
April 25, 2014
YOUR VOTE IS IMPORTANT!
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY VOTE
BY TELEPHONE, OR IF AVAILABLE, ELECTRONICALLY, OR, IF YOU RECEIVED PER YOUR
REQUEST A PAPER COPY OF OUR PROXY MATERIALS, COMPLETE, SIGN, DATE, AND RETURN
THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE. NO
ADDITIONAL POSTAGE IS NECESSARY IF THE PROXY CARD IS MAILED IN THE UNITED STATES
OR CANADA. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE
MEETING.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS REGARDING THIS SOLICITATION AND VOTING AT THE ANNUAL
MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Why am I receiving these proxy materials? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a
paper copy of the proxy materials? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is the purpose of the Annual Meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who is entitled to attend the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who is entitled to vote at the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How many shares must be present or represented to conduct business at the meeting (that is, what
constitutes a quorum)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What items of business will be voted on at the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How does the Board recommend that I vote? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What shares can I vote at the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is the difference between holding shares as a stockholder of record and as a beneficial owner? . . . . . .
How can I vote my shares without attending the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How can I vote my shares in person at the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Can I change my vote? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Is my vote confidential? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What vote is required to approve each item and how are votes counted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is a “broker non-vote”? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How are “broker non-votes” counted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How are abstentions counted? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What happens if additional matters are presented at the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Who will serve as inspector of election? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What should I do in the event that I receive more than one set of proxy/voting materials? . . . . . . . . . . . . . . . .
Who is soliciting my vote and who will bear the costs of this solicitation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Where can I find the voting results of the meeting? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What is the deadline to propose actions for consideration at next year’s Annual Meeting of stockholders or
to nominate individuals to serve as directors? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STOCK OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE AND BOARD MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Leadership Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Oversight and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meetings Attended by Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nomination Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Committee Interlocks and Insider Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Review, Approval or Ratification of Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Family Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnification Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications with the Board by Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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TABLE OF CONTENTS
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
REPORT OF THE AUDIT COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL ONE—ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Classes of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors’ Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors Whose Terms Extend Beyond the 2014 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL TWO—RATIFICATION OF BDO USA, LLP AS OUR INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors’ Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit and Non-Audit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPOSAL THREE— NON-BINDING VOTE ON EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of 2013 Executive Compensation Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors’ Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NAMED EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal Revenue Code Section 162(m) and Limitations on Executive Compensation . . . . . . . . . . . . . . . . . . . . .
Securities Authorized for Issuance Under Equity Compensation Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Incentive Awards Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Potential Payments Upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMPENSATION COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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PROXY STATEMENT
FOR
2014 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 18, 2014
The Board of Directors (“Board”) of Cutera, Inc., a Delaware corporation, is soliciting the enclosed proxy from you.
The proxy will be used at our 2014 Annual Meeting of Stockholders to be held on Wednesday, June 18, 2014,
beginning at 10:00 a.m., Pacific Time, which is the local time, at our principal executive offices located at 3240
Bayshore Blvd., Brisbane, California 94005-1021, and at any postponements or adjournments thereof. This proxy
statement contains important information regarding the meeting. Specifically, it identifies the matters upon which you
are being asked to vote, provides information that you may find useful in determining how to vote and describes the
voting procedures.
In this proxy statement the terms “we”, “our”, “Cutera” and the “Company” each refer to Cutera, Inc.; the term
“Board” means our Board of Directors; the term “proxy materials” means this proxy statement, the enclosed proxy
card, and our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the U.S. Securities and
Exchange Commission (the “SEC”) on March 18, 2014, and the term “Annual Meeting” means our 2014 Annual
Meeting of Stockholders.
We are sending the Notice of Internet Availability of Proxy Materials on or about May 7, 2014, to all stockholders of
record at the close of business on April 22, 2014 (the “Record Date”).
QUESTIONS AND ANSWERS REGARDING THIS SOLICITATION AND VOTING AT THE ANNUAL
MEETING
Why am I receiving these proxy
materials?
You are receiving these proxy materials from us because you were a stockholder of
record at the close of business on the Record Date (which was April 22, 2014). As
a stockholder of record, you are invited to attend the meeting and are entitled to
and requested to vote on the items of business described in this proxy statement.
Why did I receive a notice in the
mail regarding the Internet
availability of the proxy
materials instead of a paper
copy of the proxy materials?
Pursuant to SEC rules, we have elected to provide access to our proxy materials
over the Internet. Accordingly, we are sending a Notice of Internet Availability of
Proxy Materials (the “Notice”) to our stockholders.
All stockholders will have the ability to access the proxy materials on a website
referred to in the Notice or request to receive a printed set of the proxy materials.
Instructions on how to access the proxy materials over the Internet or to request a
printed copy may be found on the Notice.
In addition, stockholders may request to receive proxy materials in printed form by
mail or electronically by email on an ongoing basis. Choosing to receive your
future proxy materials by email will save us the cost of printing and mailing
documents to you and will reduce the impact of our annual stockholders’ meetings
on the environment. If you chose in connection with our 2013 Annual Meeting of
Stockholders to receive future proxy materials by email, you should receive an
email this year with instructions containing a link to those materials and a link to
the proxy voting site. In connection with our upcoming Annual Meeting, if you
choose to receive future proxy materials by email, you will receive an email next
year with instructions containing a link to those materials and a link to the proxy
voting site. Your election to receive proxy materials by email will remain in effect
until you terminate it.
What is the purpose of the
Annual Meeting?
At our meeting, stockholders of record will vote upon the items of business
outlined in the notice of meeting (on the cover page of this proxy statement), each
of which is described more fully in this proxy statement. In addition, management
will report on the performance of the Company and respond to questions from
stockholders.
Who is entitled to attend the
meeting?
You are entitled to attend the meeting only if you owned our common stock (or
were a joint holder) as of the Record Date or if you hold a valid proxy for the
meeting. You should be prepared to present photo identification for admittance.
Please also note that if you are not a stockholder of record but hold shares in street
name (that is, through a broker or nominee), you will need to provide proof of
beneficial ownership as of the Record Date, such as your most recent brokerage
account statement, a copy of the voting instruction card provided by your broker,
trustee or nominee, or other similar evidence of ownership.
The meeting will begin promptly at 10:00 a.m., local time. Check-in will begin at
9:50 a.m., local time.
Who is entitled to vote at the
meeting?
Only stockholders who owned our common stock at the close of business on the
Record Date are entitled to notice of and to vote at the meeting, and at any
postponements or adjournments thereof.
As of the Record Date, 14,193,752 shares of our common stock were outstanding.
Each outstanding share of our common stock entitles the holder to one vote on each
matter considered at the meeting. Accordingly, there are a maximum of 14,193,752
votes that may be cast at the meeting.
How many shares must be
present or represented to
conduct business at the meeting
(that is, what constitutes a
quorum)?
The presence at the meeting, in person or by proxy, of the holders of a majority of
the shares of our common stock entitled to vote at the meeting will constitute a
quorum. A quorum is required to conduct business at the meeting. The presence of
the holders of our common stock representing at least 7,096,877 votes will be
required to establish a quorum at the meeting. Both abstentions and broker non-
votes are counted for the purpose of determining the presence of a quorum.
What items of business will be
voted on at the meeting?
The items of business scheduled to be voted on at the meeting are as follows:
1.
the election of two nominees to serve as Class I directors on our Board;
2.
3.
4.
the ratification of BDO USA, LLP (“BDO”) as the Independent
Registered Public Accounting Firm for the 2014 fiscal year;
to hold a non-binding vote on the compensation of our Named Executive
Officers; and
to transact such other business as may properly come before the Annual
Meeting, including any motion to adjourn to a later date to permit further
solicitation of proxies, if necessary, or before any adjournment thereof.
These proposals are described more fully below in this proxy statement.
As of the date of this proxy statement, the only business that our Board
intends to present or knows of that others will present at the meeting is as
set forth in this proxy statement. If any other matter or matters are
properly brought before the meeting, it is the intention of the persons who
hold proxies to vote the shares they represent in accordance with their best
judgment.
-2-
How does the Board
recommend that I vote?
Our Board recommends that you vote your shares “FOR” each of the director
nominees, “FOR” the ratification of BDO as the Independent Registered Public
Accounting Firm for the 2014 fiscal year, and “FOR” the approval of a non-
binding vote on executive compensation.
What shares can I vote at the
meeting?
You may vote all shares owned by you as of the Record Date, including (1) shares
held directly in your name as the stockholder of record, and (2) shares held for you
as the beneficial owner through a broker, trustee or other nominee such as a bank.
What is the difference between
holding shares as a stockholder
of record and as a beneficial
owner?
Most of our stockholders hold their shares through a broker or other nominee rather
than directly in their own name. As summarized below, there are some distinctions
between shares held of record and those owned beneficially.
Stockholders of Record. If your shares are registered directly in your name with
our transfer agent, Computershare Trust Company, Inc., you are considered, with
respect to those shares, the stockholder of record, and these proxy materials are
being sent directly to you by us. As the stockholder of record, you have the right to
grant your voting proxy directly to Cutera or to vote in person at the meeting. We
have enclosed a proxy card for your use.
Beneficial Owner. If your shares are held in a brokerage account or by another
nominee, you are considered the beneficial owner of shares held in street name,
and these proxy materials are being forwarded to you together with a voting
instruction card. As the beneficial owner, you have the right to direct your broker,
trustee or nominee how to vote and are also invited to attend the meeting. Please
note that since a beneficial owner is not the stockholder of record, you may not
vote these shares in person at the meeting unless you obtain a “legal proxy” from
the broker, trustee or nominee that holds your shares, giving you the right to vote
the shares at the meeting. Your broker, trustee or nominee has enclosed or provided
voting instructions for you to use in directing the broker, trustee or nominee how to
vote your shares.
Whether you hold shares directly as the stockholder of record or beneficially in
street name, you may direct how your shares are voted without attending the
meeting. Stockholders of record of our common stock may submit proxies by
completing, signing and dating their proxy cards and mailing them in the
accompanying pre-addressed envelope. Our stockholders who hold shares
beneficially in street name may vote by mail by completing, signing and dating the
voting instruction cards provided by the broker, trustee or nominee and mailing
them in the accompanying pre-addressed envelope.
Shares held in your name as the stockholder of record may be voted in person at
the meeting. Shares held beneficially in street name may be voted in person only if
you obtain a legal proxy from the broker, trustee or nominee that holds your shares
giving you the right to vote the shares. Even if you plan to attend the meeting, we
recommend that you also submit your proxy card or voting instructions as
described above so that your vote will be counted if you later decide not to, or are
unable to, attend the meeting.
How can I vote my shares
without attending the meeting?
How can I vote my shares in
person at the meeting?
-3-
Can I change my vote?
Is my vote confidential?
You may change your vote at any time prior to the vote at the meeting. If you are
the stockholder of record, you may change your vote by granting a new proxy
bearing a later date (which automatically revokes the earlier proxy), by providing a
written notice of revocation to our Secretary prior to your shares being voted, or by
attending the meeting and voting in person. Attendance at the meeting will not
cause your previously granted proxy to be revoked unless you specifically so
request.
For shares you hold beneficially in street name, you may change your vote by
submitting new voting instructions to your broker, trustee or nominee, or, if you
have obtained a legal proxy from your broker, trustee or nominee giving you the
right to vote your shares, by attending the meeting and voting in person.
Proxy
tabulations that
instructions, ballots and voting
individual
stockholders are handled in a manner that protects your voting privacy. Your vote
will not be disclosed either within Cutera or to third parties, except: (1) as
necessary to meet applicable legal requirements, (2) to allow for the tabulation of
votes and certification of the vote, and (3) to facilitate a successful proxy
solicitation. Occasionally, stockholders provide written comments on their proxy
card, which are then forwarded to our management.
identify
What vote is required to approve
each item and how are votes
counted?
The vote required to approve each item of business and the method for counting
votes is set forth below:
Election of Directors. The two director nominees receiving the highest number of
affirmative “FOR” votes at the meeting (a plurality of votes cast) will be elected to
serve as Class I directors. You may vote either “FOR” or “WITHHOLD” your vote
for the director nominees. A properly executed proxy marked “WITHHOLD” with
respect to the election of one or more directors will not be voted with respect to the
director or directors indicated, although it will be counted for purposes of
determining whether there is a quorum.
Ratification of BDO as our Independent Registered Public Accounting Firm.
For the ratification of BDO as our Independent Registered Public Accounting Firm,
the affirmative “FOR” vote of a majority of the shares represented in person or by
proxy and entitled to vote on the item will be required for approval. You may vote
“FOR,” “AGAINST” or “ABSTAIN” for
item of business. If you
“ABSTAIN,” your abstention has the same effect as a vote “AGAINST.”
this
Non-binding Vote on Executive Compensation. For the non-binding vote on
executive compensation, the affirmative “FOR” vote of a majority of the shares
represented in person or by proxy and entitled to vote on the item will be required
for approval. You may vote “FOR,” “AGAINST” or “ABSTAIN” for this item of
business. If you “ABSTAIN,” your abstention has the same effect as a vote
“AGAINST.”
If you provide specific instructions with regard to certain items, your shares will be
voted as you instruct on such items. If you sign your proxy card or voting
instruction card without giving specific instructions, your shares will be voted in
accordance with the recommendations of the Board (“FOR” all of the Company’s
nominees to the Board, “FOR” ratification of BDO as our Independent Registered
Public Accounting Firm, “FOR” the approval, by non-binding vote, of executive
compensation, and in the discretion of the proxy holders on any other matters that
may properly come before the meeting).
-4-
What is a “broker non-vote”?
A “broker non-vote” occurs when a broker expressly instructs on a proxy card that
it is not voting on a matter, whether routine or non-routine. Under the rules that
govern brokers who have record ownership of shares that are held in street name
for their clients who are the beneficial owners of the shares, brokers have the
discretion to vote such shares on routine matters, which includes ratifying the
appointment of an independent registered public accounting firm but does not
include the election of directors, and the non-binding vote on executive
compensation. Therefore, if you do not otherwise instruct your broker, the broker
may turn in a proxy card voting your shares “FOR” ratification of BDO as the
Independent Registered Public Accounting Firm.
However, if you do not instruct your broker how to vote with respect to the election
of directors and the non-binding vote on executive compensation, your broker may
not vote with respect to such proposal and your shares will not be counted as
voting in favor of these matters.
How are “broker non-votes”
counted?
Broker non-votes will be counted for the purpose of determining the presence or
absence of a quorum for the transaction of business, but they will not be counted in
tabulating the voting result for any particular proposal.
How are abstentions counted?
What happens if additional
matters are presented at the
meeting?
If you return a proxy card that indicates an abstention from voting on all matters,
the shares represented will be counted for the purpose of determining both the
presence of a quorum and the total number of votes cast with respect to a proposal
(other than the election of directors), but they will not be voted on any matter at the
meeting. In the absence of controlling precedent to the contrary, we intend to treat
abstentions in this manner. Accordingly, abstentions will have the same effect as a
vote “AGAINST” a proposal.
Other than the three proposals described in this proxy statement, we are not aware
of any other business to be acted upon at the meeting. If you grant a proxy, the
persons named as proxy holders, Gregory Barrett (Chairman of the Compensation
Committee) and Ronald J. Santilli (our Executive Vice President and Chief
Financial Officer), will have the discretion to vote your shares on any additional
matters that may be properly presented for a vote at the meeting. If, for any
unforeseen reason, any of our nominees is not available as a candidate for director,
the persons named as proxy holders will vote your proxy for such other candidate
or candidates as may be nominated by our Board.
Who will serve as inspector of
election?
We expect a representative of Computershare Trust Company, Inc., our transfer
agent, to tabulate the votes, and expect Rajesh Madan, our Vice President of
Finance and Legal to act as inspector of election at the meeting.
What should I do in the event
that I receive more than one set
of proxy/voting materials?
You may receive more than one set of these proxy solicitation materials, including
multiple copies of this proxy statement and multiple proxy cards or voting
instruction cards. For example, if you hold your shares in more than one brokerage
account, you may receive a separate voting instruction card for each brokerage
account in which you hold shares. In addition, If you are a stockholder of record
and your shares are registered in more than one name, you may receive more than
one proxy card. Please complete, sign, date and return each Cutera proxy card and
voting instruction card that you receive to ensure that all your shares are voted.
-5-
Who is soliciting my vote and
who will bear the costs of this
solicitation?
Your vote is being solicited on behalf of the Board, and the Company will bear the
entire cost of solicitation of proxies, including preparation, assembly, printing and
mailing of this proxy statement. In addition to these mailed proxy materials, our
directors and employees may also solicit proxies in person, by telephone, by
electronic mail or by other means of communication. Directors and employees will
not be paid any additional compensation for soliciting proxies. We may reimburse
brokerage firms, banks and other agents for the cost of forwarding proxy materials
to beneficial owners. We may also engage the services of a professional proxy
solicitation firm to aid in the solicitation of proxies from certain brokers, bank
nominees and other institutional owners. Our costs for such services, if retained,
will not be material.
Where can I find the voting
results of the meeting?
We intend to announce preliminary voting results at the Annual Meeting and file a
Form 8-K with the SEC within four business days after the end of our Annual
Meeting to report the voting results.
What is the deadline to propose
actions for consideration at next
year’s Annual Meeting of
stockholders or to nominate
individuals to serve as
directors?
As a stockholder, you may be entitled to present proposals for action at a future
meeting of stockholders, including director nominations.
Stockholder Proposals: For a stockholder proposal to be considered for inclusion
in our proxy statement for the Annual Meeting to be held in 2015, the written
proposal must be received by our corporate Secretary at our principal executive
offices no later than January 8, 2015, which is the date 120 calendar days before
the anniversary of the mailing date of the Notice of Internet Availability of Proxy
Materials. If the date of next year’s Annual Meeting is moved more than 30 days
before or after the anniversary date of this year’s Annual Meeting, the deadline for
inclusion of proposals in our proxy statement is instead a reasonable time before
we begin to print and mail its proxy materials. Such proposals also must comply
with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and any other applicable rules established by the
SEC. Stockholders interested in submitting such a proposal are advised to contact
knowledgeable legal counsel with regard to the detailed requirements of applicable
securities laws. Proposals should be addressed to:
Secretary
Cutera, Inc.
3240 Bayshore Blvd.
Brisbane, California 94005-1021
Nomination of Director Candidates: You may propose director candidates for
consideration by our Board. Any such recommendations should include the
nominee’s name and qualifications for Board membership and should be directed
to the “Secretary” at the address of our principal executive offices set forth above.
In addition, our Bylaws permit stockholders to nominate directors for election at an
Annual Meeting of stockholders. To nominate a director, the stockholder must
provide the information required by our Bylaws, as well as a statement by the
nominee consenting to being named as a nominee and to serve as a director if
elected. In addition, the stockholder must give timely notice to our corporate
Secretary in accordance with the provisions of our Bylaws, which require that the
notice be received by our corporate Secretary no later than January 9, 2015.
Copy of Bylaw Provisions: You may contact our corporate Secretary at our
principal executive offices for a copy of the relevant bylaw provisions regarding
the requirements for making stockholder proposals and nominating director
candidates.
-6-
Security Ownership of Certain Beneficial Owners and Management
STOCK OWNERSHIP
The following table provides information relating to the beneficial ownership of our common stock as of the Record
Date, by:
•
•
•
•
each stockholder known by us to own beneficially more than 5% of our common stock;
each of our executive officers named in the Summary Compensation Table on page 32 (including our Chief
Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”);
each of our directors; and
all of our directors and Named Executive Officers (“NEOs”) as a group.
The number of shares beneficially owned by each entity, person, director or executive officer is determined in
accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares over which the individual has the sole or
shared voting power or investment power and any shares that the individual has the right to acquire within 60 days of
April 22, 2014 (the Record Date) through the exercise of any stock option or other right. The number and percentage of
shares beneficially owned is computed on the basis of 14,193,752 shares of our common stock outstanding as of the
Record Date. The information in the following table regarding the beneficial owners of more than 5% of our common
stock is based upon information supplied by principal stockholders or Schedules 13D and 13G filed with the SEC.
Shares of our common stock that a person has the right to acquire within 60 days of the Record Date are deemed
outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed
outstanding for purposes of computing the percentage ownership of any other person, except with respect to the
percentage ownership of all directors and executive officers as a group. To our knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws, each person or entity named in the table has
sole voting and disposition power with respect to the shares set forth opposite such person’s or entity’s name. The
address for those persons for which an address is not otherwise provided is c/o Cutera, Inc., 3240 Bayshore Blvd.,
Brisbane, California 94005-1021.
Name and Address of Beneficial Owner
GAMCO Investors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BlackRock, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Craig A Drill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dimensional Fund Advisors LP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David B. Apfelberg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory Barrett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kevin P. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David A. Gollnick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
W. Mark Lortz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timothy J. O’Shea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ronald J. Santilli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jerry P. Widman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All directors and Named Executive Officers as a group (8
persons) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*Less than 1%.
Warrants
and
Options
Exercisable
Within 60
Days
Approximate
Percent
Owned
—
—
—
—
58,779
16,113
638,746
21,675
68,779
48,779
325,895
68,779
9.7%
9.3%
8.9%
8.3%
*
*
7.7%
1.3%
*
*
2.4%
*
Number of
Shares
Outstanding
1,382,500
1,324,403
1,260,000
1,172,776
7,585
8,823
506,624
162,573
32,212
18,727
20,057
29,927
786,528
1,247,545
13.2%
-7-
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, officers and beneficial owners of more than 10% of our
common stock to file reports of ownership and reports of changes in the ownership with the SEC. Such persons are
required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received by us, or written representations from reporting
persons that no Forms 3, 4 or 5 were required of such persons, we believe that during our fiscal year ended December
31, 2013 all reports were timely filed.
CORPORATE GOVERNANCE AND BOARD MATTERS
Director Independence
Our Board currently consists of eight authorized directors, with one vacancy. The Company’s directors are David B.
Apfelberg, Gregory Barrett, Kevin P. Connors, David A. Gollnick, Timothy J. O’Shea, W. Mark Lortz, and Jerry P.
Widman. Our Board has determined that each of the directors other than Kevin P. Connors, the Company’s President
and CEO, and David A. Gollnick, the Company’s Vice President of North American Sales satisfy the current
“independent director” standards established by rules of The NASDAQ Stock Market LLC (“Nasdaq”).
Board Leadership Structure
Our Board does not have a chairman but David B. Apfelberg is the Board-designated lead independent director. We
believe Dr. Apfelberg’s technical qualifications as a physician and Clinical Professor of Plastic Surgery at the Stanford
University Medical Center, understanding of our products, tenure with the Company and his knowledge of the
aesthetics market make him suitable for this lead independent director position. Our CEO, Mr. Connors, performs
many of the functions that a chairman would typically perform and works together with Dr. Apfelberg in setting the
agenda for each board meeting and presiding over such meetings. At the end of each board meeting, the independent
directors meet without Mr. Connors and Mr. Gollnick present. Following each meeting, Dr. Apfelberg provides
feedback to Mr. Connors on his performance and the performance of other Cutera employees during the meeting and
frequently recommends new agenda items for the next meeting.
As described in more detail below, the Board has four standing committees, an Audit Committee, a Compensation
Committee, a Nominating and Corporate Governance Committee and a Strategic Transactions Committee. The
chairman and each member of these committees is an independent director. The Board delegates substantial duties and
responsibilities to each committee. The committees make recommendations to the Board and report regularly to the
Board on their activities and any actions they have taken. We believe that our independent board committees and their
chairman are an important aspect of our board leadership structure.
Risk Oversight and Analysis
Our management is responsible for managing the risks we face in the ordinary course of operating our business. The
Board oversees potential risks and our risk management activities by receiving operational and strategic presentations
from management which include discussions of key risks to our business. While our Board has the ultimate
responsibility for risk management and oversight, various committees of the Board also support the Board in its
fulfillment of this responsibility. For example, our Audit Committee assists the Board in its risk oversight function by
reviewing and discussing with management our system of disclosure controls and our internal controls over financial
reporting, and risks associated with our cash investment policies. Our business is run conservatively and excessive risk
taking has been discouraged. As a result, risk analysis has not been a significant factor for our Compensation
Committee in establishing compensation. The Nominating and Corporate Governance Committee assists the Board in
fulfilling its oversight responsibilities with respect to the management of risks associated with Board organization,
membership and structure. Our Board established the Strategic Transactions Committee to evaluate business
development opportunities and to report back to the full Board with their recommendations.
-8-
Committees of the Board
Our Board has four standing committees: the Audit Committee, the Compensation Committee, the Nominating and
Corporate Governance Committee and the Strategic Transactions Committee. From time to time, our Board may also
create various ad hoc committees for special purposes. The membership during the last fiscal year and the function of
each of the committees are described below.
Name of Director
Non-Employee Directors:
Jerry P. Widman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timothy J. O’Shea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
W. Mark Lortz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David B. Apfelberg . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory Barrett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee Director: . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kevin P. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David A. Gollnick* . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of Meetings Held During the Last Fiscal
Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
X = Committee member
* = Chairman of Committee
Audit
Committee
Compensation
Committee
Nominating
and
Corporate
Governance
Committee
Strategic
Transactions
Committee
X*
X
X
X
X
X*
X
X*
X
X
X
X
X
6
5
0
2
Audit Committee. The Audit Committee oversees the Company’s accounting and financial reporting processes and the
audits of its financial statements. The committee operates under a written charter adopted by the Board in January 2004
and as amended and approved by the Board on October 25, 2013. A copy of the charter can be found at on our website
at www.ir,cutera.com under the Corporate Governance section. In this role, the Audit Committee monitors and
oversees the integrity of the Company’s financial statements and related disclosures, the qualifications, independence,
and performance of the Company’s Independent Registered Public Accounting Firm, and the Company’s compliance
with applicable legal requirements and its business conduct policies. Our Board has determined that each member of
the Audit Committee meets the independence and financial literacy requirements of the Nasdaq rules and the
independence requirements of the SEC. Our Board has determined that Jerry P. Widman continues to qualify as an
“audit committee financial expert,” as defined in SEC rules. The report of the Audit Committee appears on page 14 of
this proxy statement.
Compensation Committee. The Compensation Committee, together with our Board, establishes compensation for our
CEO and the other executive officers and administers the Company’s 2004 Equity Incentive Plan and 2004 Employee
Stock Purchase Plan. The Compensation Committee has a written charter, which was adopted by our Board in January
2004, and amended on April 13, 2007 and on April 25, 2008, and can be found on our website at www.ir,cutera.com
under the Corporate Governance section.
-9-
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee reviews
and makes recommendations to the Board on matters concerning corporate governance, Board composition,
identification, evaluation and nomination of director candidates, Board committees, Board compensation, and conflicts
of interest. The Nominating and Corporate Governance Committee has a written charter, which was adopted by our
Board in October 2011 and can be found on our website at www.ir,cutera.com under the Corporate Governance
section.
Strategic Transactions Committee. The Strategic Transactions Committee reviews and evaluates any potential strategic
business combination transactions as the possibilities arise and other related or pertinent strategic alternatives for the
Company (which may include, but are not limited to, a merger, other business combination, recapitalization,
acquisition, spin-off, split-off, acquisition of a subsidiary, division or unit, or other similar transaction).
Meetings Attended by Directors
During 2013, the Board held seven meetings, the Audit Committee held six meetings, the Compensation Committee
held five meetings, the Strategic Transactions Committee held two meetings and the Nominating and Corporate
Governance Committee held no meetings. No director attended fewer than 75% of the meetings of the Board or
committee(s) on which he served during 2013.
The directors of the Company are encouraged to attend the Company’s Annual Meeting of Stockholders. In 2013,
director Kevin P. Connors attended the meeting in person; and directors David B. Apfelberg, Gregory Barrett, W. Mark
Lortz, Timothy J. O’Shea and Jerry P. Widman attended the meeting telephonically. No other board members attended
that meeting in person or telephonically.
Director Nomination Process
Director Qualifications. While the Nominating and Corporate Governance Committee has not established specific
minimum qualifications for director candidates, the candidates for Board membership should have the highest
professional and personal ethics and values, and conduct themselves consistent with our Code of Ethics. While the
Nominating and Corporate Governance Committee has not formalized specific minimum qualifications they believe
must be met by a candidate to be recommended by the independent members, the Nominating and Corporate
Governance Committee believes that candidates and nominees must reflect a Board that is comprised of directors who
(i) have broad and relevant experience, (ii) are predominantly independent, (iii) are of high integrity, (iv) have
qualifications that will increase overall Board effectiveness and enhance long-term stockholder value, and (v) meet
other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect
to Audit Committee members.
Stockholder Nominations and Recommendations. As described above in the Question and Answer section of this proxy
statement under “What is the deadline to propose actions for consideration at next year’s Annual Meeting of
Stockholders or to nominate individuals to serve as directors?,” our Bylaws set forth the procedure for the proper
submission of stockholder nominations for membership on our Board. In addition, the Nominating and Corporate
Governance Committee may consider properly submitted stockholder recommendations (as opposed to formal
nominations) for candidates for membership on the Board. A stockholder may make such a recommendation by
submitting the following information to our Secretary at 3240 Bayshore Blvd., Brisbane, California 94005-1021 no
later than January 8, 2015:
the candidate’s name;
•
• home and business contact information;
• detailed biographical data, relevant qualifications, professional and personal references;
•
•
information regarding any relationships between the candidate and Cutera within the last three years; and
evidence of ownership of Cutera stock by the recommending stockholder.
-10-
Identifying and Evaluating Director Nominees. Typically new candidates for nomination to the Board are suggested by
existing directors or by our executive officers, although candidates may initially come to our attention through
professional search firms, stockholders or other persons. The Nominating and Corporate Governance Committee
carefully reviews the qualifications of any candidates who have been properly brought to its attention. Such a review
may, in the Nominating and Corporate Governance Committee’s discretion, include a review solely of information
provided to the Nominating and Corporate Governance Committee or may also include discussion with persons
familiar with the candidate, an interview with the candidate or other actions that the Nominating and Corporate
Governance Committee deems proper. The Nominating and Corporate Governance Committee shall consider the
suitability of each candidate, including the current members of the Board, in light of the current size and composition
of the Board. In evaluating the qualifications of the candidates, Nominating and Corporate Governance Committee
considers many factors, including, issues of character, judgment, independence, expertise, length of service, and other
commitments. In addition, the Nominating and Corporate Governance Committee takes into account diversity in
professional experience, skills and background in considering and evaluating candidates. However, while diversity
relating to background, skill, experience and perspective is one factor considered in the nomination process, the
Company does not have a formal policy relating to diversity. The Nominating and Corporate Governance Committee
evaluates such factors, among others, and does not assign any particular weighting or priority to any of these factors.
Candidates properly recommended by stockholders are evaluated by the Nominating and Corporate Governance
Committee using the same criteria as other candidates. Candidates are not discriminated against on the basis of race,
religion, national origin, sexual orientation, disability or any other basis proscribed by law.
Director Nominees at our 2014 Annual Meeting. Our Nominating and Corporate Governance Committee
recommended the director nominees for nomination to our Board.
Director Compensation
The following table sets forth a summary of the cash compensation paid and the grant date fair value of shares of
Cutera common stock which vest over a one-year period, awarded to our non-employee directors in the fiscal year
ended December 31, 2013.
2013 Director Compensation Table
Fees Earned
or Paid in
Cash(1)
Stock Awards(2)
Name
David B. Apfelberg . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory Barrett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David A. Gollnick . . . . . . . . . . . . . . . . . . . . . . . . . . .
W. Mark Lortz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timothy J. O’Shea . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jerry P. Widman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
54,500 $
61,500
45,000
57,500
62,500
71,000
$
All Other
Compensation(3)
—
—
46,720(6)
—
—
—
60,000(4) $
60,000(5)
60,000(6)
60,000(7)
60,000(8)
60,000(9)
Total
114,500
121,500
151,720
117,500
122,500
131,000
(1) The amounts reported in this column were earned in connection with serving on our Board and its committees,
or as committee Chairman retainers, each as described below.
(2) The amounts reported in this column represent the aggregate grant date fair value of shares of Cutera common
stock which vest over a one-year period, awarded during the fiscal year ended December 31, 2013 calculated in
accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718.
-11-
(3) The amounts reported in this column were earned for services provided for other than serving on our Board or
its committees, each as described below.
(4) At December 31, 2013, Dr. Apfelberg held options to purchase 52,000 shares of Cutera common stock.
(5) At December 31, 2013, Mr. Barrett held options to purchase 14,000 shares of Cutera common stock.
(6) Mr. Gollnick was paid $46,720 in 2013 for consulting services provided to the Company. At December 31,
2013, Mr. Gollnick held options to purchase 14,896 shares of Cutera common stock. In February 2014, Mr.
Gollnick was appointed to serve as Vice President of North American Sales of the Company for the initial
duration through July 26, 2014.
(7) At December 31, 2013, Mr. Lortz held options to purchase 62,000 shares of Cutera common stock.
(8) At December 31, 2013, Mr. O’Shea held options to purchase 42,000 shares of Cutera common stock.
(9) At December 31, 2013, Mr. Widman held options to purchase 62,000 shares of Cutera common stock.
For 2013, our non-employee directors earned an annual retainer of $45,000 for regular Board meetings; $6,000 for
Compensation Committee meetings (for members other than the Chairman); $7,500 for Audit Committee meetings (for
members other than the Chairman); and $5,000 for Strategic Transactions Committee meetings (for members other
than the Chairman). Our non-employee directors did not earn an annual retainer for Nominating and Corporate
Governance Committee meetings (for members other than the Chairman). The Chairman of the Audit Committee and
the Compensation Committee each earned an annual retainer of $20,000 for their services on the respective
committees. The Chairman of the Nominating and Corporate Governance Committee earned an annual retainer of
$5,000 for his services. Our non-employee directors no longer receive meeting fees for Board and committee meetings
regardless of the number of meetings held throughout the year.
Our 2004 Equity Incentive Plan provides for the automatic grant of options to purchase shares of Cutera common stock
to our non-employee directors. Each non-employee director who is appointed to the Board will receive an initial option
to purchase 14,000 shares of Cutera common stock upon such appointment. Each of these stock options will have an
exercise price equal to fair market value of Cutera common stock on the date of grant and a term of seven years and
will become exercisable as to one-third of the shares subject to the option on each anniversary of its date of grant,
provided the non-employee director remains a director on such dates. In addition, each non-employee director who is a
director on the date of each Annual Meeting of Stockholders and has been a director for at least the preceding six
months, will receive an award of shares represented by the quotient of $60,000 divided by the closing market price of
Cutera common stock on the date of such Annual Meeting. These shares vest on the one-year anniversary of the grant
date.
Code of Ethics
We are committed to maintaining the highest standards of business conduct and ethics. Our Code of Ethics, as
amended, (the “Code”) reflects our values and the business practices and principles of behavior that support this
commitment. The Code is intended to satisfy SEC rules for a “code of ethics” required by Section 406 of the Sarbanes-
Oxley Act of 2002, as well as the Nasdaq listing standards requirement for a “code of conduct.” The Code is an Exhibit
to our Form 8-K filed with the SEC on April 29, 2004, was amended and restated on January 1, 2011, and is available
on the Company’s website at www.cutera.com. We will post any amendment to the Code, as well as any waivers that
are required to be disclosed by the rules of the SEC or Nasdaq, on our website.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of the following members: David Apfelberg, Gregory Barrett and Jerry
Widman. No member of this committee, nor any of our executive officers, has a relationship that would constitute an
interlocking relationship with executive officers or directors of another entity. No Compensation Committee member is
an officer or employee of Cutera.
Review, Approval or Ratification of Related Party Transactions
As provided by our Audit Committee charter, our Audit Committee must review and approve in advance any proposed
related party transaction. All of our directors and officers are required to report to our Audit Committee any such
related party transaction prior to its completion. We have not adopted specific standards for approval of related party
transactions, but instead our Audit Committee reviews each such transaction on a case-by-case basis. Our policy is to
require that all executive compensation-related matters be recommended and approved by our Compensation
Committee as provided by our Compensation Committee charter and be reported under applicable SEC rules.
-12-
Certain Relationships and Related Transactions
In 2013 and through April 22, 2014, except for compensation paid to the Company’s directors and executive officers
for services performed in such roles, and except as provided in the following paragraph, there has not been, nor is there
currently proposed, any transaction or series of similar transactions to which the Company was or is to be a party in
which the amount involved exceeds $120,000 and in which any director, executive officer, holder of more than 5% of
our common stock or any member of their immediate families had or will have a direct or indirect material interest.
We have a consulting agreement with David A. Gollnick pursuant to which Mr. Gollnick is compensated for services
that he provides to us, including product development, clinical sales and marketing support. Payments to Mr. Gollnick
under this agreement in January 2014, fiscal year 2013 and fiscal year 2012 were $3,840 plus travel expenses, $46,720
and $109,360, respectively. In February 2014, Mr. Gollnick was appointed to serve as Vice President of North
American Sales of the Company for the initial duration through July 26, 2014. Mr. Gollnick will continue to serve on
the Company’s Board during his period of employment.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Indemnification Agreements
Each of our directors and officers has an indemnification agreement with our Company.
Communications with the Board by Stockholders
Stockholders wishing to communicate with the Board or with an individual Board member concerning the Company
may do so by writing to the Board or to the particular Board member, and mailing the correspondence to: Attention:
Board, c/o Secretary, Cutera, Inc., 3240 Bayshore Blvd., Brisbane, California 94005-1021. The envelope should
indicate that it contains a stockholder communication. All such stockholder communications will be forwarded to the
director or directors to whom the communications are addressed.
Stock Ownership Guidelines
To enhance our overall corporate governance practices and director compensation program, our Board adopted stock
ownership guidelines for our non-employee directors, which the Compensation Committee intends to review annually.
These guidelines are designed to align our non-employee directors’ interests with our stockholders’ long-term interests
by promoting long-term ownership of Cutera common stock. These guidelines provide that, within five years of the
later of the adoption of the guidelines or his or her first date of election to our Board, our non-employee directors must
hold shares of Cutera common stock having a value not less than three times the value of their annual retainer for
general Board service.
As of April 22, 2014, the non-employee directors’ holdings and target guidelines were as follows:
Non-Employee Directors
David B. Apfelberg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory Barrett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
David A. Gollnick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
W. Mark Lortz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Timothy J. O’Shea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jerry P. Widman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock
Ownership as of
April 22, 2014
Minimum Stock Ownership
Required by April 27,
2017(1)
7,585
8,823
162,573
32,212
18,727
29,927
12,477
12,477
12,477
12,477
12,477
12,477
(1) Based of the closing stock price of $10.82 on April 22, 2014.
-13-
REPORT OF THE AUDIT COMMITTEE
In accordance with its written charter, the Audit Committee of the Board is responsible for assisting the Board to fulfill
its oversight of the integrity of the Company’s financial statements and internal controls, the Company’s compliance
with legal and regulatory requirements, the independent auditors’ qualifications and independence, and the
performance of the Company’s internal audit function and independent auditors. It is the responsibility of the
Company’s management to prepare the Company’s financial statements, develop and maintain adequate systems of
internal accounting and financial controls, facilitating the internal audit intended to evaluate the adequacy and
effectiveness of the Company’s financial and operating internal control systems.
Ernst & Young LLP (“E&Y ”), the Company’s independent registered public accounting firm for 2013 (the
independent auditors), was responsible for performing independent audits of the Company’s consolidated financial
statements and internal control over financial reporting and issuing an opinion on the conformity of those audited
financial statements with accounting principles generally accepted in the United States of America (GAAP) and on the
effectiveness of the Company’s internal control over financial reporting. The independent auditors also review the
Company’s interim financial statements in accordance with applicable auditing standards.
In evaluating the independence of E&Y, the Audit Committee has (i) received the written disclosures and the letter
from E&Y required by applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”)
regarding the audit firm’s communications with the committee concerning independence, (ii) discussed with E&Y the
firm’s independence from the Company and management, and (iii) considered whether E&Y ‘s provision of non-audit
services to the Company was compatible with the auditors’ independence. The committee has concluded that E&Y was
independent from the Company and its management. The committee has reviewed with the independent auditors and
the Company’s internal auditors the overall scope and specific plans for their respective audits, and the committee
regularly monitored the progress of both in assessing the Company’s compliance with Section 404 of the Sarbanes-
Oxley Act, including their findings, required resources and progress.
In 2013, the Audit Committee held six meetings. At every regular meeting, the committee meets separately, and
without management present, with the independent auditors to review the results of their examinations, their
evaluations of the Company’s internal controls, and the overall quality of the Company’s accounting and financial
reporting. The committee also meets separately at its regular meetings with the Company’s management. In addition,
from time-to-time the Audit Committee met with the independent internal audit firm.
The committee has met and discussed with management and the independent auditors the fair and complete
presentation of the Company’s financial statements. The committee has also discussed and reviewed with the
independent auditors all communications required by GAAP, including those described in Auditing Standards No. 16,
“Communication with Audit Committees”, as adopted by the PCAOB. The committee has discussed significant
accounting policies applied in the financial statements, as well as alternative treatments. Management has represented
that the consolidated financial statements have been prepared in accordance with GAAP and the committee has
reviewed and discussed the audited consolidated financial statements with both management and the independent
auditors.
Relying on the foregoing reviews and discussions, the committee recommended to the Board, and the Board approved,
inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2013, for filing with the Securities and Exchange Commission.
On March 31, 2014, the Audit Committee met with BDO USA, LLP and appointed them on April 3, 2014 as the
Company’s independent registered public accounting firm for 2014.
The foregoing report is provided by the undersigned members of the Audit Committee.
W. Mark Lortz
Timothy J. O’Shea
Jerry P. Widman
-14-
PROPOSAL ONE—ELECTION OF DIRECTORS
Classes of the Board of Directors
Our Amended and Restated Certificate of Incorporation provides that our Board shall be divided into three classes
designated as Class I, Class II and Class III, respectively, with the classes of directors serving for staggered three-year
terms. Our Board currently consists of seven directors, divided among the three classes as follows:
•
•
•
two Class I directors, Kevin P. Connors and David A. Gollnick, whose terms expire at our Annual Meeting of
Stockholders to be held in 2014;
two Class II directors, David B. Apfelberg and Timothy J. O’Shea, whose terms expire at our Annual Meeting
of Stockholders to be held in 2015; and
three Class III directors Gregory Barrett, W. Mark Lortz and Jerry P. Widman, whose terms expire at the
Annual Meeting of Stockholders to be held in 2016.
The name of each member of the Board, the class in which he serves, and his age as of the Record Date, principal
occupation and length of service on the Board are as follows:
Term
Expires Age
Name
Class I Directors
Kevin P. Connors . . . . . . . . . . . . . . . 2014
David A. Gollnick . . . . . . . . . . . . . . 2014
Principal Occupation
Director Since
52
50
President and CEO
VP of North American Sales and Former Executive
1998
1998
Vice President (“EVP”) of Research and
Development
Class II Directors
David B. Apfelberg(1)(3) . . . . . . . . . 2015
Timothy J. O’Shea(2)(3) (4) . . . . . . . . 2015
Class III Directors
Gregory Barrett(1)(3) . . . . . . . . . . . . . 2016
W. Mark Lortz(2)(3) (4) . . . . . . . . . . . . 2016
Jerry P. Widman(1)(2)(3) . . . . . . . . . . 2016
72
Clinical Professor of Plastic Surgery, Stanford
University Medical Center
61
Managing Director, Oxo Capital
60
62
71
President and CEO, DFINE, Inc.
Former CEO, TheraSense, Inc.
Former CFO, Ascension Health
1998
2004
2011
2004
2004
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of Nominating and Corporate Governance Committee.
(4) Member of the Strategic Transactions Committee.
Director Nominees
The Board has nominated Kevin P. Connors and David A. Gollnick for re-election as Class I directors.
Kevin P. Connors has served as our President and CEO, and as a member of our Board, since our inception in August
1998. Prior to founding Cutera, from May 1996 to June 1998 Mr. Connors served as President and General Manager of
Coherent Medical Group, a unit of Coherent Inc., which manufactures lasers, optics and related accessories. We
believe Mr. Connors’ qualifications to serve on our Board include, his knowledge of and leadership experience, in the
aesthetic medical equipment industry prior to joining Cutera and the substantial understanding of the Company and its
operations that he has gained while serving as President, CEO and director of the Company since its inception.
-15-
David A. Gollnick has served as a member of our Board since our inception in August 1998. Since February 2014, he
held the position of Vice President of North American Sales for the Company. From March 2009 to January 2014, Mr.
Gollnick consulted with the Company for product development, clinical, sales and marketing support as needed. Mr.
Gollnick served as our EVP of Research and Development from April 2007 to March 2009 and as Vice President of
Research and Development from August 1998 until April 2007. From June 1996 to July 1998, Mr. Gollnick held the
position of Vice President of Research and Development at Coherent Medical Group, a unit of Coherent Inc. Mr.
Gollnick holds a B.S. in Mechanical Engineering from Fresno State University. We believe Mr. Gollnick’s
qualifications to serve on our Board include his technical experience in researching and developing products for the
aesthetic medical equipment industry and his understanding of our employees, products and operations.
If elected to our Board, directors Kevin P. Connors and David A. Gollnick would each hold office as a Class I director
until our Annual Meeting of Stockholders to be held in 2017, or until his earlier resignation, removal, or death.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE TWO
NOMINEES FOR CLASS I DIRECTOR LISTED ABOVE.
Directors Whose Terms Extend Beyond the 2014 Annual Meeting
David B. Apfelberg, MD has served as a member of our Board since November 1998. Since 1980, Dr. Apfelberg has
held various roles at the Stanford University Medical Center, and currently serves as a Clinical Professor of Plastic
Surgery. Since 1987, Dr. Apfelberg has also been a consultant for entrepreneurs and venture capital companies in the
areas of medical devices and medicine. From June 1991 to May 2001, Dr. Apfelberg was Director of the Plastic
Surgery Center in Atherton, California. Dr. Apfelberg is the author of five books on lasers in medicine and is a
founding member and past president of the American Society for Lasers in Medicine and Surgery. Dr. Apfelberg holds
both a B.M.S., Bachelor of Medical Science, and an M.D. from Northwestern University Medical School. We believe
Dr. Apfelberg’s qualifications to serve on our Board include his medical expertise, understanding of our products, and
his knowledge of the aesthetics market generally.
Timothy J. O’Shea has served as a member of our Board since April 2004. Mr. O’Shea has been with Oxo Capital
since 2008 and serves as a managing director. From 1995 to 2008, he served in a variety of management positions at
Boston Scientific, including Corporate Vice President of Business Development from 2000 to 2008. Mr. O’Shea holds
a B.A. in history from the University of Detroit. We believe Mr. O’Shea’s qualifications to serve on our Board include
his corporate marketing knowledge as well as his diverse experience in the medical device industry working for a large
medical device company.
Gregory Barrett has served as a member of our Board since October 2011.Mr. Barrett has been the President and CEO
of DFINE, Inc., a private medical device equipment company since September 2013. Mr. Barrett was the Chairman,
President and CEO of BÂRRX Medical, Inc., a private medical device company that was acquired by Covidien, a
manufacturer and distributer of products to treat gastrointestinal diseases. Prior to joining BÂRRX Medical in February
2004, from January 2001 through August 2003, Mr. Barrett served as President and CEO of ACMI Corporation, a
developer of medical visualization and energy systems; Group Vice President at Boston Scientific Corporation; Vice
President, Global Sales and Marketing at both Orthofix Corporation (formerly American Medical Electronics) and
Baxter Healthcare. Mr. Barrett holds a B.A. in Marketing from the University of Texas, Austin. We believe Mr.
Barrett’s qualifications to serve on our Board include his more than 34 years of diverse experiences in the medical
device industry, including time spent serving as president and CEO of several medical device companies.
-16-
W. Mark Lortz has served as a member of our Board since June 2004. Mr. Lortz served as the Chairman, President and
CEO of TheraSense until June of 2004 after its acquisition by Abbott Laboratories. Prior to TheraSense, Mr. Lortz held
several positions at LifeScan, including Vice President, Operations and Group Vice President, Worldwide Business
Operations. Prior to LifeScan, Mr. Lortz had 18 years of experience with the General Electric Company in several
divisions. Mr. Lortz currently serves as a member of the Board of Insulet, a publicly-traded manufacturer of insulin
infusion systems. Within the past five years, Mr. Lortz also served on the Board of NeuroMetrix, a publicly-traded
manufacturer of neurological diagnostic and therapeutic devices, and IntraLase, a manufacturer of lasers for the
medical industry and for eye surgery which was acquired by Advanced Medical Optics as well as two privately-held
companies in the healthcare industry. Mr. Lortz holds an M.B.A. in Management from Xavier University and a B.S. in
Engineering Science from Iowa State University. We believe Mr. Lortz’s qualifications to serve on our Board include
his executive leadership and management experience as a former CEO, as well as his experience serving on the boards
of other public and private companies.
Jerry P. Widman has served as a member of our Board since March 2004. From 1982 to 2001, Mr. Widman served as
the CFO of Ascension Health, a not-for-profit multi-hospital system. Mr. Widman currently serves as a member of the
Board of three other privately-held companies in the healthcare industry. Within the past five years, Mr. Widman also
served on the Board of ArthroCare Corporation, United Surgical Partners International and the Trizetto Group. Mr.
Widman holds a B.B.A. from Case Western Reserve University, an M.B.A. from the University of Denver, and a J.D.
from Cleveland State University and is a Certified Public Accountant. We believe Mr. Widman’s qualifications to
serve on our Board include his financial expertise and prior experience as a CFO, as well as his experience serving on
the boards of various public and private companies.
-17-
PROPOSAL TWO—RATIFICATION OF BDO USA, LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee of the Board has selected BDO USA, LLP as the Independent Registered Public Accounting
Firm to perform the audit of the Company’s consolidated financial statements for the fiscal year ending December 31,
2014. E&Y audited the Company’s consolidated financial statements for the fiscal year 2013 and 2012.
The Board is asking the stockholders to ratify the selection of BDO as the Company’s Independent Registered Public
Accounting Firm for 2014. Although not required by law, by rules of Nasdaq, or by the Company’s bylaws, the Board
is submitting the selection of BDO to the stockholders for ratification as a matter of good corporate practice. Even if
the selection is ratified, the Audit Committee in its discretion may select a different Independent Registered Public
Accounting Firm at any time during the year if it determines that such a change would be in the best interests of the
Company and its stockholders.
We have requested that representatives of BDO be present at the Annual Meeting. They will have an opportunity to
make a statement if they desire to do so and will be available to respond to appropriate questions from the Company’s
stockholders.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE
SELECTION OF BDO AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR 2014.
Prior Changes in Independent Registered Public Accountant
On April 2, 2014, the Audit Committee of the Board dismissed E&Y as the Company’s independent registered public
accountant. The reports of E&Y on the financial statements of the Company as of and for the fiscal years ended
December 31, 2013 and 2012 contained no adverse opinion or disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope or accounting principle.
During the Company’s fiscal years ended December 31, 2013 and 2012 and through April 2, 2014, (i) there were no
disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to E&Y ‘s satisfaction, would have caused E&Y to
make reference to the subject matter of such disagreements in its reports on the Company’s consolidated financial
statements for such years, and (ii) there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
We provided E&Y with a copy of the disclosures we proposed to make in a current report on Form 8-K dated April 2,
2014, and requested from E&Y a letter indicating whether or not they agree with such disclosures. A copy of E&Y ‘s
letter was filed as an exhibit to the Form 8-K reporting the change in our auditors.
Based on the Audit Committee’s recommendation, the Company engaged BDO on April 3, 2014, as the Company’s
independent registered public accountant for the fiscal year ending December 31, 2014. During the Company’s two
most recent fiscal years ended December 31, 2013 and 2012 and through April 3, 2014, neither the Company nor
anyone on its behalf consulted BDO regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s
financial statements, and no written report or oral advice was provided to the Company that BDO concluded was an
important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting
issue; or (ii) any matter that was the subject of a disagreement or reportable event as defined in Item 304(a)(1)(iv) and
Item 304(a)(1)(v), respectively, of Regulation S-K.
-18-
Audit and Non-Audit Services
To help ensure the independence of the Independent Registered Public Accounting Firm, the Audit Committee has
adopted a policy for the pre-approval of all audit and non-audit services to be performed for the Company by its
Independent Registered Public Accounting Firm. Pursuant to this policy, all audit and non-audit services to be
performed by the Independent Registered Public Accounting Firm must be approved in advance by the Audit
Committee. The Audit Committee may delegate to one or more of its members the authority to grant the required
approvals, provided that any exercise of such authority is presented to the full Audit Committee at its next regularly
scheduled meeting.
The Audit Committee has reviewed all non-audit services provided by E&Y in 2013 and has concluded that the
provision of such services was compatible with maintaining their independence in the conduct of their auditing
functions.
All of the services provided by E&Y described in the table below were approved by the Audit Committee.
The aggregate fees incurred by the Company for audit and non-audit services in 2013 and 2012 were as follows:
Service Category
2013
2012
Ernst & Young LLP:
Audit Fees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Ernst & Young LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
521,239
13,300
534,539
$
$
403,092
—
403,092
(1) In accordance with the SEC’s definitions and rules, audit fees are comprised of billed and unbilled fees for
professional services related to the audit of financial statements and internal control over financial reporting
for the Company’s 2013 and 2012 fiscal years as included in the annual report on Form 10-K; and the review
of financial statements for interim periods included in the quarterly reports on Form 10-Q within those years.
(2) All Other Fees for 2013 related to the review of the Company’s responses to SEC comment letters by E&Y.
-19-
PROPOSAL THREE—NON-BINDING ADVISORY VOTE ON THE COMPENSATION
OF NAMED EXECUTIVE OFFICERS
General
As required pursuant to Section 14A of the Securities Exchange Act of 1934, the Board is asking you to approve, on an
advisory and non-binding basis, the executive compensation programs and policies and the resulting 2013
compensation of our Named Executive Officers listed in the 2013 Summary Compensation Table on page 32 (our
“NEOs”) as described in this proxy statement.
This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their
views on our NEOs’ compensation as a whole. This vote is not intended to address any specific item of compensation
or any specific NEO, but rather the overall compensation of all of our NEOs and the philosophy, policies and practices
described in this proxy statement. We only have two NEOs because our company is a small company and all our
employees report into our CEO or CFO. Because the vote is advisory, the result will not be binding on our
Compensation Committee and it will not affect, limit or augment any existing compensation or awards. The say-on-pay
vote will, however, provide information to the Compensation Committee and our Board regarding investor sentiment
about our executive compensation philosophy, policies and practices, which they will take into account when
considering future compensation arrangements. Our Board and the Compensation Committee value the opinions of our
stockholders and to the extent there is any significant vote against the compensation of the NEOs as disclosed in this
proxy statement, they will consider our stockholders’ concerns and the Compensation Committee will evaluate whether
any actions are necessary to address those concerns.
We recommend you should read the Compensation Discussion and Analysis and compensation tables and also consider
the factors below in determining whether to approve this proposal.
Summary of Our Executive Compensation Program
Pay-for-Performance and Stockholder Alignment
The impact of our growth in revenue, operating results and the stock price on executive compensation is significant.
For example, in 2013, 54% of the CEO’s compensation was performance-based, with 50% of his compensation being
granted in the form of equity.
Commencing with 2012, the Compensation Committee changed the equity award structure for the NEOs and started
granting PSUs, instead of time based vesting RSUs. PSUs are earned only if certain revenue and Net Income targets
are achieved. In 2013, PSUs represented 22% of our CEO’s compensation.
Key Features of Our Executive Compensation Program
We pay reasonable salaries and appropriate benefits
We do not enter
into multi-year employment
WHAT WE DO
WHAT WE DON’T DO
contracts.
We
incent and pay
for performance
to align
We do not allow repricing of underwater stock
compensation with shareholder goals.
options for our executive officers.
We retain an independent compensation consultant to
We do not have single-trigger equity vesting in the
benchmark compensation at reasonable intervals.
event of a change-in-control
We consider market conditions and peer groups in
We do not provide excessive perquisites
establishing compensation
We have stock ownership guidelines
We do not provide any tax reimbursements or gross-
ups on any severance or change-in-control payments
or benefits.
-20-
Following is a summary of some of the key features of our 2013 executive compensation program. For a detailed
discussion about our compensation philosophy, policies and practices, and other changes that we have made to our
corporate governance policies, see the section titled “Named Executive Officers and Executive Compensation” below
beginning on page 22.
• The primary objectives of our executive compensation programs are that they be fair, objective and consistent.
Further that compensation be directly and substantially linked to measurable corporate and individual
performance and that compensation remains competitive so that we can attract, motivate, retain and reward
the key executives whose knowledge, skills and performance are necessary for our success.
• We seek to foster a culture where individual performance is aligned with organizational objectives.
• Our NEOs are compensated with cash, equity and non-equity incentives, and other customary employee
benefits.
• We evaluate and reward our NEOs based on the comparable industry specific and general market
compensation for their respective positions in the Company and an evaluation of their contributions to the
achievement of short-and long-term organizational goals.
• Executive compensation is reviewed annually by the Compensation Committee, and adjustments are made to
reflect performance-based factors and competitive conditions.
• Our Compensation Committee engages outside compensation consultant to review our executive
compensation programs, in comparison to a peer group of companies, and recommend modifications to it.
• Our NEOs have Change of Control and Severance Agreements and, except for these arrangements, we do not
have employment agreements with any of our NEOs.
• We have stock ownership guideline for our NEOs.
We believe that the information provided above and within the Executive Compensation section of this proxy
statement demonstrates that our executive compensation program has been designed appropriately and is working to
ensure our NEOs’ interests are aligned with our stockholders’ interests to support long-term value creation.
Accordingly, we ask our stockholders to vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on an advisory and non-binding basis, the
compensation of the NEOs, as disclosed in the Company’s Proxy Statement for the Annual Meeting of
Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission,
including the Compensation Discussion and Analysis, the compensation tables and the other related
disclosure.”
Consistent with the preference of our stockholders, as reflected in the advisory vote on the frequency of future say-on-
pay votes conducted at our 2011 Annual Meeting of Stockholders, the Board has adopted a policy providing for annual
advisory votes on the compensation of the NEOs.
Board of Directors’ Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADVISORY (NON-
BINDING) VOTE APPROVING THE COMPENSATION OF THE NAMED EXECUTIVE OFFICERS.
-21-
NAMED EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
Set forth below is certain information as of the Record Date, which is April 22, 2014, concerning our NEOs.
Name
Kevin P. Connors . . . . . . . . . . . . . . . . . . . . .
Ronald J. Santilli . . . . . . . . . . . . . . . . . . . . .
Age
52
54
President, CEO and Director
EVP and CFO
Position(s)
Further information regarding Kevin P. Connors is provided above under “Director Nominees.”
Ronald J. Santilli has served as our CFO since September 2001. In addition, Mr. Santilli has performed the role of EVP
since April 2007 to present and prior to that he held the position of Vice President of Finance and Administration. Prior
to joining Cutera, from April 2001 to August 2001, Mr. Santilli served as Senior Director of Financial Planning and
Accounting at Lumenis, a manufacturer of medical lasers. From May 1993 to March 2001, Mr. Santilli held several
positions at Coherent Inc., including Sales Operations Manager, Controller of the Medical Group and, most recently,
Director of Finance and Administration. Mr. Santilli holds a B.S. in Business Administration from San Jose State
University and an M.B.A. in Finance from Golden Gate University.
Compensation Discussion and Analysis
Overview
The primary objectives of our compensation programs are:
•
•
•
that they be fair, objective and consistent across the employee population;
that compensation be directly and substantially linked to measurable corporate and individual performance;
and
that compensation remains competitive, so that we can attract, motivate, retain and reward the key employees
whose knowledge, skills and performance are necessary for our success.
We seek to foster a culture where individual performance is aligned with organizational objectives. We evaluate and
reward our NEOs based on the comparable industry specific and general market compensation for their respective
positions in the Company and an evaluation of their contributions to the achievement of short-term and long-term
organizational goals. Executive compensation is reviewed and evaluated annually by the Compensation Committee and
once every few years by an independent compensation consultant hired by the Compensation Committee. Based on
input received from the compensation consultant, and the results of the stockholder vote on say-on-pay, the
Compensation Committee makes adjustments to the components of, as well as, the total compensation of the NEOs.
Financial Highlights
Fiscal 2013 was a year for building a stronger foundation for improving future growth in our business. Through adding
product specialists to focus on and close Excel V sales, primarily to core physicians, we successfully increased our
revenue from this product line. However, this growth was more than offset by the significant challenges that we faced
including, an annual decline in our Japan sourced revenue due to the devaluation of the Japanese Yen by approximately
22% versus U.S. Dollar as well as a contraction in the podiatry segment of our business. In managing through the
challenges in 2013, we improved our business as follows:
•
Improved revenue from our international locations outside of Japan, including, improved international
distributor revenue through better collaboration and more focus, higher revenue from our direct business in
France and the success of our Excel V business.
-22-
•
•
•
Increased gross margins from 54% in 2012 to 56% in 2013, on a lower revenue base. This was achieved
through the implementation of several management initiatives including, improved reliability of our products
and product cost reductions.
Invested in our research and development team to develop two new innovative products that were
introduced in March 2014–Excel HR for hair removal and Enlighten for the tattoo and benign pigmented
lesion markets.
Improved our Earnings Before Interest Tax Depreciation and Amortization (“EBITDA”) by $1.2 million
in 2013, compared to 2012.
• Generated Cash from Operations of $2.8 million through the continued conservative management of our
working capital and overall business.
• Repurchased $10 million of Cutera common stock through our stock repurchase plan.
We ended the year with cash and investments of $83.1 million – with no debt, a strong diversified portfolio of
products. We have implemented several changes to our sales and marketing functions, including the appointment of
David A. Gollnick as our Vice President of North American Sales. We will continue to make additional improvements,
to increase our market share in the growing aesthetic equipment market.
Executive Compensation Actions
In 2012, our Compensation Committee conducted a review of our executive compensation policies and practices and
engaged an outside compensation consultant to study the design, pay mix, and pay levels of our executives; compare
our program to that of our peers; and then make recommendations for changes to our policies or practices that were
inconsistent with “best practices.” As part of this review, our executives also directly contacted some of our major
stockholders to solicit their input on our executive compensation policies and practices.
In 2013, after reviewing the modifications made to the executive compensation packages of our NEOs in 2012, the
Compensation Committee recommended, and our Board approved, the following changes to our executive’s
compensation arrangements.
• Base Salary and Bonus: The Compensation Committee increased the CEO’s annual base compensation in
2013 to bring it up to the 50th percentile of the peer group and reduced his target bonus percentage from 95%
to 75%. The Compensation Committee maintained the base salary and target bonus percentage of our CFO at
the levels set in 2012.
• Equity awards: In response to the say-on-pay results in 2011our Compensation Committee discontinued the
grant of RSUs to our CEO starting from 2012 and granted PSUs instead that would vest based on the
achievement of certain financial goals (as detailed below). In 2013, the Board granted, based on
recommendations from the Compensation Committee, market based stock options, RSUs to our CFO, and
PSUs to both our CEO and CFO.
• Other Benefits- There were no changes made to the benefits provided, which are reasonable and customary
as discussed in detail below in the section titled “Benefits.”
Based on the recommendations of the Compensation Committee and approval by the Board, the cash compensation
changes made to the CEO’s base salary and the CEO’s target bonus percentage, as well as the value of the equity
awards granted to the NEO’s in 2013, the total compensation for our NEOs was at approximately the 50th percentile of
the peer group established in 2012.
The Compensation Committee concluded that the changes to the compensation of our NEOs strengthen the alignment
of their interests with those of our stockholders, should be sufficient to maintain competitiveness with the executives in
comparable positions at the companies in our Peer Group, and promote their retention. Further, the Compensation
Committee also took into consideration the fact that, consistent with our compensation objectives, the equity awards
granted increase our NEOs’ stake in the Company, thereby reinforcing their incentive to manage our business as
owners and subjecting a significant portion of their total compensation to fluctuations in the market price of Cutera
common stock in alignment with stockholder interests.
-23-
Corporate Governance Highlights
We endeavor to maintain good corporate governance standards consistent with our executive compensation policies
and practices. The following policies and practices were in effect during 2013:
• The Compensation Committee is comprised solely of independent directors who have established effective
means for communicating with stockholders regarding executive compensation issues and concerns.
• We have a Nominating and Corporate Governance Committee that is comprised of independent directors who
review and make recommendations to the Board on matters concerning corporate governance, director
composition, identification, evaluation and nomination of director candidates, Board committees, director
compensation and conflicts of interest.
• The Compensation Committee conducts an annual review and approval of our compensation strategy. We
ensure that our compensation practices remain current with market conditions by having them reviewed by
compensation consultants from time to time. Our compensation philosophy and related corporate governance
features are complemented by several elements that are designed to align our executive compensation with
long-term stockholder interests, including the following:
- We do not currently offer, nor do we have plans to provide, pension arrangements, retirement plans
or nonqualified deferred compensation plans or arrangements to our executive officers, including our
NEOs;
- We provide limited perquisites to our executive officers, including our NEOs. Our executive officers
participate in broad-based Company-sponsored health and welfare benefits programs on the same
basis as our other full-time, salaried employees;
- Executive officers are not entitled to any tax reimbursement payments (including “gross-ups”) on
any severance or change-in-control payments or benefits;
- All change-in-control payments and benefits are based on a “double-trigger” arrangement (i.e.,
requiring both a change-in-control of the Company plus a qualifying termination of employment
before payments and benefits are paid);
- We use performance-based short-term and long-term incentives; and
- We adopted stock ownership guidelines for our executive officers and non-employee directors.
Role of Our Compensation Committee
Compensation Committee Charter
The Compensation Committee establishes the compensation for our NEOs, who are our CEO and CFO ,and
administers our equity incentive plans, which are currently the 2004 Equity Incentive Plan and the 2004 Employee
Stock Purchase Plan. The Compensation Committee has a written charter, which was adopted by our Board in January
2004, and was amended in April 2007 and again in April 2008. A copy of this charter, as amended, can be found on
our website, which is www.ir.cutera.com.
Duties of the Compensation Committee
The responsibilities of the Compensation Committee include:
(i) Establishing the following for our NEOs and such other executive officers as appropriate:
(a) annual base salary;
(b) annual incentive bonus, which may include the setting of specific goals and target amounts;
(c) equity compensation;
(d) agreements for employment, severance and change-of-control payments and benefits; and
(e) any other benefits, compensation or arrangements, other than benefits generally available to our
employees.
-24-
(ii) Reviewing and making recommendations to our Board, at such intervals as may be decided by the
Compensation Committee from time to time, regarding:
(a) general compensation goals and guidelines for our employees and the criteria by which bonuses and stock
compensation awards to our employees are determined; and,
(b) other policies and plans for the provision of compensation to our employees, directors and consultants.
(iii) Acting as Administrator of our 2004 Equity Incentive Plan, 2004 Employee Stock Purchase Plan and any
other equity compensation plans adopted by our Board.
(iv) Reviewing and making recommendations to our Board with respect to policies relating to the issuance of
equity incentives to employees, directors and consultants.
(v) Evaluating the compensation of the independent members of our Board.
(vi) Preparing the report that follows this Compensation Discussion and Analysis.
Compensation Committee Members
The members of the Compensation Committee are appointed by our Board. The members of the Compensation
Committee as of the Record Date were Dr. David B. Apfelberg, Mr. Jerry P. Widman and Mr. Gregory Barrett
(chairman). Each member of the Compensation Committee is an “outside director” for purposes of Section 162(m) of
the Internal Revenue Code, a “non-employee director” for purposes of Exchange Act Rule 16b-3 and satisfies the
independence requirements imposed by Nasdaq.
Role of the Compensation Committee and its Consultant in Setting Executive Compensation
The Compensation Committee establishes the compensation for our NEOs to ensure consistency with market
compensation rates for similar positions, our compensation philosophy and corporate governance guidelines. Following
the SEC’s reforms relating to executive compensation disclosure, the Compensation Committee assumed an active role
in reviewing market data and working with a compensation consultant on executive compensation matters. Because
certain components of executive compensation—such as bonus targets—are driven by operational priorities, as to
which management has greater insight than our Board or the Compensation Committee, the Compensation Committee
has directed management to interface with the Committee and the compensation consultant to help establish
appropriate target levels.
The Compensation Committee engaged Compensia in December 2011 to perform the following activities for each of
our NEOs:
• Review the components of the total compensation package;
• Evaluate and develop a group of public companies that would be suitable to use as a Peer Group;
• Gather competitive market data with respect to compensation of executive officers of the Peer Group;
• Compare our NEOs’ 2011compensation against the Peer Group;
• Recommend any adjustments that should be considered for cash-based and equity-based compensations; and
• Recommend compensation components that would make the compensation variable based on the performance
of the Company
Due to the significant cost associated with services provided by a compensation consultant, we decided not to engage a
compensation consultant in 2013, but rather to engage one once every few years. This decision will be evaluated
regularly and will be based on the Compensation Committee’s evaluation of whether the prior report obtained, along
with the publicly-available information about the executive compensation practices of other public companies from our
Peer Group, is sufficient to allow it to make informed and reasonable decisions with regard to executive-compensation
matters.
-25-
Role of our Executives in Setting Compensation
On occasion, the Compensation Committee meets with members of our management team, including our CEO and
CFO, to obtain recommendations with respect to Company compensation programs, practices and packages for our
executive officers, other employees and directors. Management may make recommendations to the Compensation
Committee on all components of compensation. The Compensation Committee considers, but is not bound to and does
not always accept, management’s recommendations with respect to these matters. The Compensation Committee has
the ultimate authority to make decisions with respect to the compensation of our NEOs and does not delegate any of its
compensation functions to others.
Competitive Positioning
In developing, reviewing, and approving the annual compensation for our NEOs, the Compensation Committee
develops and maintains a peer group of public companies from which to gather competitive market data. The
Compensation Committee, with the assistance of Compensia, refined its approach to reviewing market compensation
data for our NEOs and approved a set of selection criteria for determining the companies to comprise the compensation
peer group. Going forward, companies should meet the following criteria to be included in our compensation peer
group (the “Peer Group”):
• U.S.-based companies with a primary focus on health care equipment and supplies;
•
• market capitalization of between 0.5x to 2.5x Cutera (approximately $64 million and $320 million).
revenue of between 0.5x to 2.0x Cutera (approximately $39 million and $154 million); and
This set of selection criteria led us to revise in 2012 the then-existing Peer Group to include the following companies:
Atrion Corporation
AtriCure
Biolase, Inc.
Cardiovascular Systems
Cryolife
Cynosure*
Exactech
Kensey Nash
Lemaitre Vascular
Palomar Medical Technologies*
Photomedex
RTI Biologics
Solta Medical*
Spectranetics
Synergetics USA
Theragenics
Young Innovations
Zeltiq Aesthetics
* Acquired subsequent to 2012 but was part of the then existing Peer Group .
Compensation Components
Our NEOs are compensated with cash, equity and non-equity incentives, and other customary employee benefits.
Cash Compensation
Cash compensation consists of base salary, participation in a bonus program and participation in a profit-sharing plan.
Our cash compensation goals for our NEOs are based upon the following principles:
• Cash Compensation should generally be set at or above the 50th percentile of the Peer Group;
• Base salary should be positioned to reflect each individual’s experience, performance and potential;
• A significant portion of cash compensation should be “at risk”; and
• The amount of bonuses payable for any quarter should be based on revenue growth, compared with the same
quarter in the prior year, and the operating profit before stock-based compensation and non-operational
expenses, or “adjusted operating profit”, as a percentage of revenue.
-26-
Base Salary and Total Target Cash Compensation
Total target cash compensation for each Named Executive Officer includes his annual base salary, annual target bonus
opportunity (described below) and annual profit-sharing payments.
Bonus Program
In addition to base salary, we provided cash bonus opportunities for our NEOs in 2013 pursuant to which cash bonuses
were determined quarterly based on the Company’s performance for the then-preceding quarter.
Target Bonus Opportunities
For 2013, the target cash bonuses were designed to reward our NEOs based on the Company’s overall financial
performance and were established based on the recommendation of the compensation consultants provided to the
Compensation Committee. As in prior years, the Compensation Committee determined that the target cash bonus for
each NEO should be determined as a percentage of their base salary. In 2013, the Compensation Committee reduced
Mr. Connor’s target bonus percentage from 95% to 75% and increased his annual base compensation. The
Compensation Committee maintained the target bonus percentage of Mr. Santilli at 55%.
The target bonus opportunity is reviewed annually by the Compensation Committee and is based on several factors,
including the scope of the NEO’s performance, contributions, responsibilities, experience, prior years’ target cash
bonus and market conditions.
Corporate Performance Measures
For 2013, the Compensation Committee selected revenue growth and adjusted operating profits as the corporate
performance measures that best supported our annual operating plan and enhanced long-term value creation for
purposes of paying annual cash bonuses. For these purposes, “adjusted operating profits” was defined as operating
profit less stock-based compensation expense and non-operational expenses. The Compensation Committee decided
that non-operational expenses should be excluded from the operating profit amount as they were deemed unrelated to
quarterly “operating” performance.
Using these measures, each fiscal quarter the Compensation Committee compared our performance against the same
fiscal quarter in the prior year, 2012, and applied a multiplier of 5.0 to the percentage increase for that quarter to
determine our quarterly performance for that measure. If the percentage growth for a fiscal quarter in 2013 was
negative (when compared to the same fiscal quarter for the prior year), the multiplier for that measure was zero. For
example, at 10% revenue growth and 10% adjusted operating profit, an individual would be eligible to receive 100% of
his or her target bonus opportunity for that quarter. At 15% revenue growth and 15% adjusted operating profit, an
individual would be eligible to receive 150% of his or her target bonus opportunity.
Based on the actual quarterly revenue growth and adjusted operating profit for each of the quarters in 2013, the NEOs
earned the following bonus payout multipliers of their respective target bonus opportunity.
-27-
Fiscal
Period
First quarter . . . . . .
Second quarter . . .
Third quarter . . . . .
Fourth quarter . . . .
Revenue
Growth
(expressed
as a
percentage)
1.53%
-0.16%
-14.08%
-1.30%
Revenue
Growth
Multiplier
7.63%
—
—
—
Factor
5
5
5
5
Adjusted
Operating
Profit
(expressed
as a
percentage)
-9.40%
0.90%
0.00%
5.40%
Adjusted
Operating
Profit
Multiplier
—
4.50%
—
27.00%
Factor
5
5
5
5
Total
Payout
Multiplier
7.63%
4.50%
—
27.00%
On an annual basis, the cash bonus opportunity, and the amount actually earned, for fiscal 2013 was as follows:
Named Executive Officer
Mr. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Annual
Cash
Bonus
Target
383,000
170,500
Annual
Cash
Bonus Paid
for 2013(1)
$
$
37,888
16,700
(1) The Annual Cash Bonus Target represents the amount that would be payable for 100% achievement of the
corporate performance measures of (i) revenue growth, and (ii) Adjusted Operating Profit as a percentage of
revenue.
Profit-Sharing Program
We also have a profit sharing program for our NEOs and other employees pursuant to which quarterly cash payments
are made. Target profit-sharing payments are calculated based upon half of the quarterly pre-tax adjusted operating
profit percentage (pre-tax adjusted operating profit divided by revenue) multiplied by the Named Executive Officer’s
gross salary earned during that quarter.
In 2013, our CEO and our CFO earned $4,000 and $2,444 in profit sharing payments respectively.
Long-Term Incentive Program
We believe that equity-based compensation promotes and encourages long-term successful performance by our NEOs
that is aligned with the organization’s goals and the generation of stockholder value. Our equity compensation goals for
our NEOs are based upon the following principles:
Stockholder and executive officer interests should be aligned;
•
• Key and high-performing employees, who have a demonstrable impact on our performance and /or
stockholder value, should be provided this benefit;
• The program should be structured to provide meaningful retention incentives to participants;
• The equity awards should reflect each individual’s experience, performance, potential and be comparable to
what the Peer Group awards for the respective position; and
• Actual awards should be tailored to reflect individual performance and attraction/retention goals.
Equity Incentive Compensation
Under our 2004 Equity Incentive Plan, we are permitted to grant stock options, stock appreciation rights, restricted
shares, RSU awards, performance shares and other stock-based awards. Under this Plan, we grant options to our
executive officers, directors and employees to purchase shares of Cutera common stock at an exercise price equal to
the fair market value of such stock on the date of grant. The grant date for stock options to our NEOs is typically the
date of a regularly scheduled Board meeting, or, for annual merit grants, on or around June 1 of each year. Our non-
employee directors are granted RSUs annually on the date of our Annual Meeting of Stockholders that vest on the one-
year anniversary of the grant date. We have no program, plan or practice to select option grant dates (or set board
meeting and annual stockholder meeting dates) to correspond with the release of material non-public information.
-28-
In July 2013, our Board, with the approval of our non-employee directors, granted the following number of stock
options, RSUs and PSU awards to our NEOs. In granting these awards, our Board considered the recommendations of
the compensation consultants hired by the Compensation Committee; individual performance and contribution to the
Company’s performance; its own subjective assessment of market conditions; its ability to retain the individual Named
Executive Officer; and the goal of increasing the value of the Company, in arriving at the amounts awarded to each
Named Executive Officer.
Stock Option
Awards:
Number of
Securities
Underlying
Options
Number of
Restricted
Stock Unit
Awards –
Shares (1)
Number of
Performance
Share Unit
Awards-
Shares(2)
Exercise Price
for Stock
Options and
Base Price of
RSU and PSU
Awards
Grant
Date Fair
Value of
All Equity
Award
83,333
43,333
—
6,750
27,001
6,750
$
$
8.91
8.91
$
$
534,886
273,324
Names
Mr. Connors . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . .
(1) These RSU awards vest as to one-third of the shares on each of June 1, 2014, 2015 and 2016, subject to the
recipient’s continuing service.
(2) The PSU awards reflect the number of shares of stock that would get issued assuming 100% achievement of
each of the performance targets discussed below.
Stock Option:
Each of the stock options granted to our NEOs had a vesting commencement date of June 1, 2013, a term of seven
years and vest as follows: one-third of the total number of shares subject to the stock option vest one full calendar year
following the vesting commencement date of June 1, 2013 and 1/36th of the total number of shares subject to the stock
option vest on the last day of each full calendar month thereafter, until all such shares have vested, subject to the
Named Executive Officer continuing to provide services to the Company through each such date.
Restricted Stock Unit Awards:
The RSU awards granted to our CFO vest as to one-third of the shares on each of June 1, 2013, 2014 and 2015, subject
to the recipient’s continuing service.
Performance Stock Unit Awards:
In June 2013, our Board, upon the recommendation of our Compensation Committee, granted PSUs to the NEOs. The
number of PSUs awarded to the NEOs will result in a varying number of shares of common stock that may be paid out
on June 1, 2014 based on the achievement of three performance goals as set forth below and subject to the recipient
continuing to provide service to the company through the vesting date. Each of the three performance goals is equally
weighted and the PSU awards represent the aggregate number of shares that may be earned from achievement of the
three performance goals at targets that have been pre-determined by the Board. For each performance goal, the Board
has established certain minimum performance level for there to be payout and has capped the maximum payout
percentage at 200%.
The three revenue and profitability performance goals of the Company are:
(1) Actual revenue for 2013, compared to budgeted revenue per the Company’s operating plan approved by the
Board.
(2) Actual Net Income (on GAAP basis) for 2013, compared to budgeted Net Income per the Company’s
operating plan approved by the Board.
(3) Actual revenue generated from the Company’s planned launch of the Picosecond laser for the tattoo and
pigmented lesions market−Enlighten−during the time period from the product launch date through May 31,
2014.
-29-
The following matrix provides an example of the number of common stock that would be issued on June 1, 2014 based
on the performance at varying degrees of achievement of all three performance criteria:
Number of Shares of Common Stock that Would be Paid Out on June 1, 2014
If
Minimum
Thresholds
are Not
Met
—
—
At 90% of
Target
Performance
18,001
4,500
At 100% of
Target
Performance
27,001
6,750
At 110% of
Target
Performance
45,926
11,481
Maximum
Payout
(at 200%)
54,002
13,500
Name
Mr. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits
We provide the following benefits to our NEOs generally on the same basis as the benefits provided to all employees:
• Health, dental and vision insurance;
• Life insurance;
•
•
•
• These benefits are consistent with those offered by other companies and specifically with those companies
Short-term and long-term disability insurance;
401(k) plan with 25% employer matching contributions, capped at 6% of total cash compensation; and
Flexible Spending Accounts.
with which we compete for employees.
We also maintain a 2004 Employee Stock Purchase Plan that provides eligible employees with the opportunity to
purchase shares of Cutera common stock at a 15% discounted price to the lower of the fair market value at either the
beginning or the end of the applicable offering period.
Post-Employment Compensation
Except for Change of Control and Severance Agreements, we do not have employment agreements with any of our
NEOs. We have Change of Control and Severance Agreements with each of our NEOs. The purpose of these
agreements is to provide incentives to our NEOs to continue their employment with the Company and not be distracted
by the possibility of loss of employment as a result of an acquisition of the Company or for other reasons. For a
summary of the material terms and conditions of these Change of Control and Severance agreements, see Potential
Payments upon Termination or Change in Control below.
Internal Revenue Code Section 162(m) and Limitations on Executive Compensation
Section 162(m) of the Internal Revenue Code may limit our ability to deduct for federal income tax purposes
compensation paid to either our CEO or to our three other most highly paid executive officers (other than our CFO) in
any fiscal year that is, for each such person, in excess of $1,000,000. None of our executive officers received any such
compensation in excess of this limit during 2013, or any prior year.
-30-
Stock options granted under the 2004 Equity Incentive Plan are not subject to the deduction limitation; however, to
preserve our ability to deduct the compensation income associated with stock options granted to such executive officers
pursuant to Section 162(m) of the Internal Revenue Code, our 2004 Equity Incentive Plan provides that no optionee
may be granted option(s) to purchase more than 500,000 shares of Cutera common stock in any one fiscal year.
However, in the fiscal year in which the optionee is hired, an optionee may be granted an option to purchase up to
1,000,000 shares of Cutera common stock. In the future, the Compensation Committee may, in its judgment, authorize
compensation payments that do not comply with an exemption from the deductibility limit when it believes that such
payments are appropriate to attract and retain executive talent.
Accounting for Stock-Based Compensation
We follow Financial Accounting Standard Board Accounting Standards Codification Topic 718 (“ASC 718”) for our
stock-based compensation awards. ASC 718 requires companies to measure the compensation expense for all share-
based payment awards made to employees and directors, including stock options, based on the grant date “fair value”
of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below,
even though our executive officers may never realize any value from their awards. ASC Topic 718 also requires
companies to recognize the compensation cost of their stock-based awards in their income statements over the period
that an employee is required to render service in exchange for the award.
Securities Authorized for Issuance Under Equity Compensation Plans
Our stockholders have approved each of our equity compensation plans, including our 2004 Equity Incentive Plan (as
amended). The following table provides information regarding the shares of Cutera common stock that may be issued
upon the exercise of stock options, RSU and PSU awards granted under our 2004 Equity Incentive Plan as of
December 31, 2013.
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (a)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (b)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)) (c)
3,792,162
$
—
3,792,162
$
9.42
—
9.42
709,483
—
709,483
Plan category
Equity compensation plans approved by security
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation plan not approved by
security holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Compensation Practices and Policies
Stock Ownership Guidelines
To enhance our overall corporate governance practices and executive compensation program, our Board adopted stock
ownership guidelines for our executive officers, which the Compensation Committee intends to review annually. These
guidelines are designed to align our executive officers’ interests with our stockholders’ long-term interests by
promoting long-term ownership of Cutera common stock, which reduces the incentive for excessive short-term risk
taking. These guidelines provide that, within five years of the later of the adoption of the guidelines or his or her first
date of employment, our CEO and CFO must hold shares of Cutera common stock having a value not less than three
times and one time respectively of their annual salary.
-31-
As of April 22, 2014, the NEOs’ holdings and targeted guidelines were as follows:
Named Executive Officer
Mr. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership
as of April 22, 2014
506,624
20,057
(1) Based of the closing stock price of $10.82 on April 22, 2014.
Insider Trading Compliance Program
Minimum Stock Ownership
Required
by April 27, 2017(1)
142,791
28,651
According to our Insider Trading Compliance Program, no employee of the Company, including, but not limited to,
our executive officers and directors, may invest in derivatives of the Company’s securities. This prohibition includes,
but is not limited to, trading in put or call options related to securities of the Company.
2013 Summary Compensation Table
The following table sets forth summary compensation information for the fiscal years ended December 31, 2013, 2012
and 2011 for our NEOs.
Name and Principal Position
Kevin P. Connors,
Salary
Bonus(1)
Option
Awards(2)
Stock
Awards(2)
Non-Equity
Incentive Plan
Compensation(3)
All Other
Compensation(4)
Total
President and CEO
2013 . . . . . . . . . . . . . . . . $ 481,667 $ 41,914 $ 294,307 $ 240,579 $
2012 . . . . . . . . . . . . . . . . 428,750 569,048 218,336 247,680
2011 . . . . . . . . . . . . . . . . 420,000
95,920
― 359,508
Ronald J. Santilli,
EVP and CFO
2013 . . . . . . . . . . . . . . . . $ 310,000 $ 19,156 $ 153,039 $ 120,285 $
2012 . . . . . . . . . . . . . . . . 301,667 247,087 77,977
86,000
2011 . . . . . . . . . . . . . . . . 290,000
65,400
― 239,672
― $
―
226,365
12,435 $ 1,070,902
23,520 1,487,334
― 1,101,793
― $
―
117,389
3,825 $
15,032
―
606,305
727,763
712,461
(1) The amounts reported in this column represent the bonus earned for each of the years covered in the table in
accordance with our bonus plans.
(2) The amounts reported in this column represent the aggregate grant date fair value of stock awards granted
during each of the fiscal years in 2013, 2012 and 2011 calculated in accordance with ASC Topic 718. See
Note 6 of the Consolidated Notes to Financial Statements included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2013 filed with the SEC on March 18, 2014 for a discussion of the
valuation assumptions for stock-based compensation.
(3) Amounts shown include an annual bonus and profit sharing earned in 2011 and paid in 2012.
(4) Amounts represent 401(k) employer-match contributions and a non-cash benefit associated with a Company
sponsored, non-business event for achieving sales targets in accordance with our commission incentive plan.
-32-
2013 Grants of Plan-Based Awards Table
The following table lists grants of plan-based stock options, RSU and PSU awards made to our NEOs during the fiscal year ended
December 31, 2013.
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
Name
Grant Date
Threshold Target
Maximum
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
All Other
Option
Awards:
Number of
Securities
Underlying
Options
Grant Date
Fair Value
of Stock
and
Option
Awards(2)
Exercise or
Base Price
of Option
Awards(1)
Mr. Connors . . . . . . 06/10/2013
Mr. Santilli . . . . . . . 06/10/2013
—
—
—
—
—
—
27,001
13,500
83,333 $
43,333 $
8.91 $
8.91 $
534,886
273,324
(1) The per-share exercise prices of the option awards were based on the closing market price of a share of Cutera common
stock on the respective dates of grant.
(2) The amounts reported in this column reflect the grant date fair value of equity awards calculated in accordance with ASC
Topic 718. See Note 5 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2013 filed with the SEC on March 18, 2014 for a discussion of the valuation
assumptions for our stock-based compensation.
The following table lists the outstanding equity incentive awards held by our NEOs as of December 31, 2013.
2013 Outstanding Equity Awards at Fiscal Year-End Table
Name
Mr. Connors . . . . .
Mr. Santilli . . . . . .
Option Awards
Number of
Securities
Underlying
Unexercised
Earned Options
30,000
33,300
100,000
120,000
120,000
100,000
45,501
—
10,000
15,000
13,700
50,000
55,000
55,000
66,667
16,251
—
Number of
Securities
Underlying
Unexercised
Unearned
Options
—
—
—
—
—
20,000(1)
45,499(1)
83,333(1)
—
—
—
—
—
—
13,333(1)
16,249(1)
43,333(1)
Option
Exercise Price
$20.25
10.43
10.43
8.66
10.24
8.72
6.88
8.91
Option
Expiration
Date
7/28/2015
5/28/2015
5/28/2015
6/08/2016
5/14/2017
5/27/2018
7/27/2019
6/10/2020
13.30
20.25
10.43
10.43
8.66
10.24
8.72
6.88
8.91
7/20/2014
7/28/2015
5/28/2015
5/28/2015
6/08/2016
5/14/2017
5/27/2018
7/27/2019
6/10/2020
Stock Awards
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
Number of
Shares or
Units of Stock
that Have Not
Vested
Date Awards
Will be Fully
Vested
27,001(2)
274,870(2)
6/01/2014(2)
6,750(2)
4,166(3)
6,750(4)
68,715(2)
42,410(3)
68,715(4)
6/01/2014(2)
6/01/2015(3)
6/01/2016(4)
(1) One-third of the shares underlying each of these stock options vest on the first anniversary of the vesting commencement
date and 1/36th of the underlying shares vest each month thereafter.
(2) These unvested shares represent the PSU awards assuming they are paid at target performance levels and will vest on June
1, 2014.
(3) One-third of the shares underlying this award vest on the first, second and third anniversary of the vesting commencement
date of June 1, 2012.
(4) One-third of the shares underlying this award vest on the first, second and third anniversary of the vesting commencement
date of June 1, 2013.
-33-
2013 Options Exercised and Stock Vested Table
The following table lists the stock options exercised by, and stock awards vested to, our NEOs in the fiscal year ended
December 31, 2013.
Name
Mr. Connors . . . . . . . . . . . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . . . . . . . . . . . .
Option Awards
Stock Awards
Number of
Shares Acquired
on Exercise
Value Realized
on Exercise (1)
Number of
Shares
Acquired on
Vesting
Value
Realized
Upon
Vesting (2)
3,333
14,753
$
$
16,065
114,714
33,621
9,784
$
$
307,632
89,524
(1) The amounts reported in this column represents the excess of fair market value of the shares of Cutera
common stock purchased on the exercise date over the aggregate exercise price of such options.
(2) The amounts reported in this column represent the fair market value of the shares of Cutera common stock on
the vesting date of each Named Executive Officer’s outstanding RSU awards.
Pension Benefits
We did not sponsor any defined benefit pension or other actuarial plan for our executive officers, including our NEOs,
during 2013.
Nonqualified Deferred Compensation
We did not maintain any nonqualified defined contribution or other deferred compensation plans or arrangements for
our executive officers, including our NEOs, during 2013.
Employment Agreements
We do not have employment agreements with any of our NEOs.
Potential Payments Upon Termination or Change in Control
We have entered into Change of Control and Severance Agreements with each of our NEOs. These agreements provide
that if a Named Executive Officer’s employment with the Company is terminated by the Company without “cause” (as
defined in the agreement) or by the Named Executive Officer for “good reason” (as defined in the agreement) either
prior to three months before or after 12 months following a Change of Control (as defined in the agreement) of the
Company but not in connection with a Change of Control, the Named Executive Officer will receive, subject to signing
a release of claims in favor of the Company:
•
•
a lump sum severance payment equal to 200% of the annual base salary as in effect immediately prior to such
termination for our CEO and 100% of the annual base salary as in effect immediately prior to such
termination for our CFO; and
up to 24 months for our CEO and up to 12 months for our CFO of reimbursement for premiums paid for
COBRA coverage.
These agreements also provide that if a Named Executive Officer’s employment with the Company is terminated by
the Company without “cause” or by the Named Executive Officer for “good reason” and such termination occurs
within the period beginning three months before, and ending 12 months following, a Change of Control of the
Company and in connection with a Change of Control, the Named Executive Officer will receive, subject to signing a
release of claims in favor of the Company:
•
a lump sum severance payment equal to 200% of the annual base salary as in effect immediately prior to such
termination or, if greater, at the level in effect immediately prior to the Change of Control for our CEO and
100% of the annual base salary as in effect immediately prior to such termination or, if greater, at the level in
effect immediately prior to the Change of Control for our CFO;
-34-
•
•
•
a lump sum severance payment equal to 100% of the Named Executive Officer’s annual target bonus for the
fiscal year in which the termination occurs or, if greater, his annual target bonus in effect immediately prior to
the Change of Control;
automatic vesting in full of all outstanding and unvested equity awards held by the Named Executive Officer
as of the date of the Change of Control; and
up to 24 months for our CEO and up to 12 months for our CFO of reimbursement for premiums paid for
COBRA coverage.
Each of these agreements were renewed in 2013 for another initial term of three years, and will extend for an additional
year unless the Company or the applicable Named Executive Officer provides written notice at least 60 days prior to
the third anniversary of the agreement.
For purposes of these agreements, “cause” means a Named Executive Officer’s termination of employment only upon
(i) his willful failure to substantially perform his duties (subject to notice and a reasonable period to cure), other than a
failure resulting from his complete or partial incapacity due to physical or mental illness or impairment; (ii) his willful
act which constitutes gross misconduct and which is injurious to the Company; (iii) his willful breach of a material
provision of the agreement (subject to notice and reasonable period to cure); or (iv) his knowing, material and willful
violation of a federal or state law or regulation applicable to the business of the Company.
For purposes of these agreements, “good reason” means a Named Executive Officer’s termination of employment within
90 days following the expiration of any cure period following the occurrence of one or more of the following, without his
consent: (i) a material reduction in his authority, duties, or responsibilities relative to duties, position or responsibilities in
effect immediately prior to such reduction; (ii) a material reduction in his base salary as in effect immediately prior to such
reduction; or (iii) a material change in the geographic location at which he must perform services (in other words, the
relocation of the Named Executive Officer to a facility that is more than 50 miles from his then-current location).
The following table lists our NEOs and the estimated payments and benefits that each of them would have received had
their employment with the Company been terminated without “cause” or had they resigned for “good reason” on
December 31, 2013.
Name
Mr. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Estimated
Total
Value of
Cash
Payment
Estimated
Total Value
of Health
Coverage
Continuation
1,030,000
310,000
$
$
45,629
19,881
The following table lists our NEOs and the estimated payments and benefits that each of them would have received had
their employment with the Company been terminated without “cause” or had they resigned for “good reason” in
connection with a change in control of the Company on December 31, 2013.
Name
Mr. Connors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Santilli . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated
Total
Value of
Cash
Payment
$ 1,519,250
480,500
$
Estimated
Total Value
of
Health
Coverage
Continuation
45,628
$
19,881
$
Value of
Accelerated
Equity (1)
$
$
560,050
141,803
(1) We estimated the value of acceleration of the outstanding and unvested stock options, RSU and PSU awards
(assuming paid at 100% of target) held by each of our NEOs based on a market price of $10.18 per share for
Cutera common stock as of December 31, 2013.
Severance payments upon termination or change in control would be payable to the recipient only if the executive signs
and does not revoke a release of claims with the Company (in a form reasonably acceptable to the Company) and
provided that such release of claims becomes effective no later than sixty (60) days following the termination date. In
addition, the executive would need to have complied with the terms of any confidential information agreement
executed by executive in favor of the Company and the provisions of the severance agreements.
-35-
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by
Item 402(b) of SEC Regulation S-K with management. Based on such review and discussion, the Compensation
Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in
Cutera’s proxy statement.
The foregoing report is provided by the undersigned members of the Compensation Committee.
David B. Apfelberg
Gregory Barrett
Jerry P. Widman
(1) The material in this report is not deemed soliciting material or filed with the SEC and is not to be incorporated
by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language in those filings.
-36-
OTHER MATTERS
We are not aware of any other business to be presented at the meeting. As of the date of this proxy statement, no
stockholder had advised us of the intent to present any business at the meeting. Accordingly, the only business that our
Board intends to present at the meeting is as set forth in this proxy statement.
If any other matter or matters are properly brought before the meeting, the proxies will use their discretion to vote on
such matters in accordance with their best judgment.
By order of the Board of Directors,
/s/ Kevin P. Connors
Kevin P. Connors, President and Chief Executive Officer
Brisbane, California
April 25, 2014
-37-
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CUTERA, INC.
2014 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Cutera, Inc., a Delaware corporation, hereby acknowledges receipt of the Notice of
Annual Meeting of Stockholders and Proxy Statement each dated April 25, 2014 and hereby appoints Gregory Barrett
(Chairman of the Compensation Committee) and Ronald J. Santilli (our Chief Financial Officer), each as proxy and
attorney-in-fact, with full power of substitution, on behalf and in the name of the undersigned to represent the
undersigned at the 2014 Annual Meeting of Stockholders of Cutera, Inc. to be held on June 18, 2014 at 10:00 a.m.,
local time, at Cutera’s offices located at 3240 Bayshore Blvd., Brisbane, California 94005-1021, and at any
postponement or adjournment thereof, and to vote all shares of common stock which the undersigned would be entitled
to vote if then and there personally present, on the matters set forth below:
SEE REVERSE SIDE
FOLD AND DETACH HERE
The Board of Directors of Cutera, Inc. recommends a vote FOR the following proposals:
Please mark your votes as indicated:
1. Election of Directors: Class I Nominees:
Kevin P. Connors
FOR WITHHOLD 2. Ratification of BDO USA,
David A. Gollnick
LLP as our Independent
Registered Public
Accounting Firm for the
fiscal year ending
December 31, 2014.
3. Non-binding advisory vote
on the compensation of our
Named Executive Officers.
FOR
AGAINST ABSTAIN
FOR
AGAINST ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED, WILL
BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF THE NOMINATED CLASS I DIRECTORS; (2) FOR
THE RATIFICATION OF BDO USA, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM; (3) FOR THE APPROVAL, BY NON-BINDING ADVISORY VOTE, ON THE COMPENSATION OF
NAMED EXECUTIVE OFFICERS OF THE COMPANY; AND (4) AS THE PROXY HOLDERS DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN THE
NAME OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS A
CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED OFFICER
SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE,
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SIGNATURE(S)
SIGNATURE(S)
DATE:
NOTE: This Proxy should be marked, signed by the stockholder(s) exactly as his or her name appears hereon, and
returned promptly in the enclosed envelope. Persons signing in fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 2013
Commission file number: 000-50644
Cutera, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0492262
(I.R.S. Employer Identification Number)
3240 Bayshore Blvd.
Brisbane, California 94005
(415) 657-5500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share
The NASDAQ Stock Market, LLC
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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 than 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 and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted 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 and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the
definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
(check one):
Large accelerated
filer
Accelerated
filer
Non-accelerated filer (Do not check if a
smaller reporting company)
Smaller reporting
company
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the registrant’s common stock, held by non-affiliates of the registrant as of June 30, 2013
(which is the last business day of registrant’s most recently completed second fiscal quarter) based upon the closing price of such
stock on the NASDAQ Global Select Market on June 28, 2013, was approximately $99 million. For purposes of this disclosure,
shares of common stock held by entities and individuals who own 5% or more of the outstanding common stock and shares of
common stock held by each officer and director have been excluded in that such persons may be deemed to be “affiliates” as that
term is defined under the Rules and Regulations of the Securities Exchange Act of 1934. This determination of affiliate status is not
necessarily conclusive.
The number of shares of Registrant’s common stock issued and outstanding as of February 28, 2014 was 14,040,107.
Part III incorporates by reference certain information from the registrant’s definitive proxy statement for the 2014 Annual
Meeting of Stockholders.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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2
ITEM 1.
BUSINESS
PART I
We are a global medical device company headquartered in Brisbane, California specializing in the design,
development, manufacture, marketing and servicing of laser and other energy based aesthetics systems for practitioners
worldwide. We offer easy-to-use products based on four primary platforms / systems —Xeo®, GenesisPlusTM,
Excel VTM, and truSculptTM — each of which enables physicians and other qualified practitioners to perform safe and
effective aesthetic procedures for their customers. Each of our laser and other energy-based platforms consists of one
or more hand pieces and a console that incorporates a universal graphical user interface, a laser or other energy-based
module, control system software and high voltage electronics. However, depending on the application, the laser or
other energy-based module is sometimes instead contained in the hand piece itself. A description of each of our hand
pieces, and the aesthetic conditions they are designed to treat, is contained in the section below entitled “Products” and
a summary of the features of our primary products is as follows:
Xeo- In 2003, we introduced the Xeo platform, which can combine pulsed light and laser applications in a
single system. The Xeo is a multi-application platform on which a customer can purchase hand piece
applications for the removal of unwanted hair, treatment of vascular lesions, and skin rejuvenation by treating
discoloration, improving texture, reducing pore size, and treating fine lines and laxity. This multi-application
platform represents the largest contributor to our Product revenue.
GenesisPlus- In 2010, we introduced the GenesisPlus platform, which is a dedicated laser system for
performing aesthetic skin procedures and for the temporary increase of clear nail in patients with
onychomycosis, or toenail fungus. This system features a hand piece that includes real time temperature
monitoring of the treatment area, as well as a non-contact distance gauge using dual aiming beams that
enhances ease of use. In addition, this system can be used to treat patients with skin concerns such as fine
wrinkles, diffuse redness and rosacea.
Excel V- In February 2011, we introduced our Excel V platform, a high-performance, vascular platform
designed specifically for the core-market of Dermatologists and Plastic Surgeons. This platform provides a
combination of the 532 nm green laser with Cutera’s award-winning 1064 nm Nd:YAG technology, to
provide a single, compact and efficient system that treats the entire range of cosmetic vascular conditions,
without the need for costly consumables.
truSculpt- In August 2012, we commenced shipments of our truSculpt platform with a 25cm2 hand piece.
truSculpt is a high-powered radio frequency (“RF”) platform designed for the non-invasive body contouring
market. This system is designed to treat all body areas and with its unique electrode design is able to achieve
comfortable, uniform heating of the subcutaneous fat. In the fourth quarter of 2012, we commenced shipping
a larger 40cm2 hand piece that enables faster treatments of larger areas. In the third quarter of 2013, we
commenced shipping a smaller 16 cm2 hand piece.
Other than the above mentioned four primary systems, we continue to generate revenue from our legacy products such
as CoolGlide®, Solera®, VariliteTM, and a third-party sourced system called myQTM for the Japanese market.
We offer our customers the ability to select the systems and applications that best fit their practice and to subsequently
upgrade their systems to add new applications. This upgrade path allows our customers to cost-effectively build their
aesthetic practices and provides us with a source of incremental revenue.
In addition to systems and upgrades, we generate revenue from the sale of post warranty services, Titan hand piece
refills, and dermal fillers and cosmeceuticals.
The Structure of Skin and Conditions that Affect Appearance
The skin is the body’s largest organ and is comprised of two layers called the epidermis and dermis. The epidermis is
the outer layer, and serves as a protective barrier for the body. It contains cells that determine pigmentation, or skin
color. The underlying layer of skin, the dermis, contains hair follicles and large and small blood vessels that are found
at various depths below the epidermis. Collagen, also found within the dermis, provides strength and flexibility to the
skin.
3
Many factors, including advancing age, smoking, and sun damage, can result in aesthetically unpleasant changes in the
appearance of the skin. These changes can include:
Undesirable hair growth;
Enlargement or swelling of blood vessels due to circulatory changes that become visible at the skin’s surface
in the form of unsightly veins;
Deterioration of collagen, leading to uneven texture, increased pore size, wrinkles and skin laxity;
Uneven pigmentation or sun spots due to long-term sun exposure.
In addition to these skin conditions, people seek removal of unwanted tattoos as well as removal of fat in certain body
areas in order to improve their appearance and confidence.
The Market for Non-Surgical Aesthetic Procedures
The market for non-surgical aesthetic procedures has grown significantly over the past several years. The American
Society of Plastic Surgeons estimates that in 2012 there were over 13.0 million minimally-invasive aesthetic
procedures performed in North America, a 6% increase over 2011 and a 137% increase over 2000.
We believe there are several factors contributing to the growth of these aesthetic procedures:
Aging of the U.S. Population- The “baby boomer” demographic segment ─ ages 49 to 67 in 2013 ─
represented approximately 75 million people, or nearly 25%, of the U.S. population in 2013. The size and
wealth of this aging segment, and its desire to retain a youthful appearance, has contributed to the growth for
aesthetic procedures.
Broader Range of Safe and Effective Treatments- Technical developments have led to safe, effective, easy-
to-use and low-cost treatments with fewer side effects, resulting in broader adoption of aesthetic procedures
by practitioners. In addition, technical developments have enabled practitioners to offer a broader range of
treatments. These technical developments have reduced the required treatment and recovery times, which in
turn have led to greater patient demand.
Broader Base of Customers- Managed care and government payer reimbursement restrictions in the U.S., and
similar payment related constraints outside the U.S., may help motivate qualified practitioners from differing
specialties to establish or expand their elective aesthetic practices with procedures that are paid for directly by
patients. As a result, in addition to the core users such as dermatologists and plastic surgeons, many other non-
core practitioners, such as gynecologists, family practitioners, primary care physicians, physicians offering
aesthetic treatments in non-medical offices, and other qualified practitioners are offering aesthetic procedures.
Wide acceptance of aesthetic procedures and increased focus on body image and appearance. According to
an ASAPS survey in 2010, 51% of Americans (including 53% of women and 49% of men) approved of
cosmetic surgery, and 67% of Americans responded that they would not be embarrassed if their friends or
family knew they had undergone a cosmetic procedure. Broader social acceptance of aesthetic treatments, and
reducing average cost of treatments resulting from competition, has also driven the growth in aesthetic
procedures.
Non-Surgical Aesthetic Procedures for Improving the Skin’s Appearance and Their Limitations
Many alternative therapies are available for improving a person’s appearance by treating specific structures within the
skin. These procedures utilize injections or abrasive agents to reach different depths of the dermis and the epidermis. In
addition, non-invasive and minimally-invasive treatments have been developed that employ laser and other energy-
based technologies to achieve similar therapeutic results. Some of these more common therapies and their limitations
are described below.
Hair Removal- Techniques for hair removal include waxing, depilatories, tweezing, shaving, electrolysis and laser and
other energy-based hair removal. The only techniques that provide a long-lasting solution are electrolysis and other
energy-based hair removal. Electrolysis is usually painful, time-consuming and expensive for large areas, but is the
most common method for removing light-colored hair. During electrolysis, an electrologist inserts a needle directly
into a hair follicle and activates an electric current in the needle. Since electrolysis only treats one hair follicle at a
time, the treatment of an area as small as an upper lip may require numerous visits and many hours of treatment. In
addition, electrolysis can cause blemishes and infection related to needle use.
4
Leg and Facial Veins- Current aesthetic treatment methods for leg and facial veins include sclerotherapy and laser and
other energy-based treatments. With these treatments, patients seek to eliminate visible veins and improve overall skin
appearance. Sclerotherapy requires a skilled practitioner to inject a saline or detergent-based solution into the target
vein, which breaks down the vessel causing it to collapse and be absorbed into the body. The need to correctly position
the needle on the inside of the vein makes it difficult to treat smaller veins, which limits the treatment of facial vessels
and small leg veins. The American Society of Plastic Surgeons estimates that approximately 358,000 sclerotherapy
procedures were performed in 2012.
Skin Rejuvenation- Skin rejuvenation treatments include a broad range of popular alternatives, including Botox and
collagen injections, chemical peels, microdermabrasions, radio frequency treatments and lasers and other energy-based
treatments. With these treatments, patients hope to improve overall skin tone and texture, reduce pore size, tighten skin
and remove other signs of aging, including mottled pigmentation, diffuse redness and wrinkles. All of these procedures
are temporary solutions and must be repeated within several weeks or months to sustain their effect, thereby increasing
the cost and inconvenience to patients. For example, the body absorbs Botox and collagen and patients require
supplemental injections every three to six months to maintain the benefits of these treatments.
Some skin rejuvenation treatments, such as chemical peels and microdermabrasions, can have undesirable side effects.
Chemical peels use acidic or caustic solutions to peel away the epidermis, and microdermabrasion generally utilizes
sand crystals to resurface the skin. These techniques can lead to stinging, redness, irritation and scabbing. In addition,
more serious complications, such as changes in skin color, can result from deeper chemical peels. Patients that undergo
these deep chemical peels are also advised to avoid exposure to the sun for several months following the procedure.
The American Society of Plastic Surgeons estimates that in 2012, approximately 6.1 million injections of Botulinum
Toxin and 1.99 million injections of collagen and other soft-tissue fillers were administered; and 1.13 million chemical
peels and 973,000 microdermabrasion procedures were performed.
In radio frequency tissue tightening, energy is applied to heat the dermis of the skin with the goal of shrinking and
tightening collagen fibers. This approach may result in a more subtle and incremental change to the skin than a surgical
facelift. Drawbacks to this approach may include surface irregularities that may however resolve over time, and the
risk of burning the treatment area.
Laser and other energy-based non-surgical treatments for hair removal, veins, skin rejuvenation and body contouring
are discussed in the following section and in the section entitled “Our Applications and Procedures,” below.
Laser and Other Energy-Based Aesthetic Treatments
Laser and other energy-based aesthetic treatments can achieve therapeutic results by affecting structures within the
skin. The development of safe and effective aesthetic treatments has created a well-established market for these
procedures.
Ablative skin resurfacing is a method of improving the appearance of the skin by removing the outer layers of the skin.
Ablative skin resurfacing procedures are considered invasive or minimally invasive, depending on how much of the
epidermis is removed during a treatment. Non-ablative skin resurfacing is a method of improving the appearance of the
skin by treating the underlying structure of the skin without damaging the outer layers of the skin. Practitioners can use
laser and other energy-based technologies to selectively target hair follicles, veins or collagen in the dermis, as well as
cells responsible for pigmentation in the epidermis, without damaging surrounding tissue. They can also use these
technologies to safely remove portions of the epidermis and deliver heat to the dermis as a means of generating new
collagen growth.
Safe and effective laser and energy-based treatments require an appropriate combination of the following four
parameters:
Energy Level- the amount of light or radio frequency emitted to heat a target;
Pulse Duration- the time interval over which the energy is delivered;
Spot Size or Electrode Size- the diameter of the energy beam, which affects treatment depth and area; and
Wavelength or Frequency- the position in the electromagnetic spectrum which impacts the absorption and
therefore the effective depth of the energy delivered.
5
For example, in the case of hair removal, by utilizing the correct combination of these parameters, a practitioner can
use a laser or other light source to selectively target melanin within the hair follicle to absorb the laser energy and
destroy the follicle, without damaging other delicate structures in the surrounding tissue. Wavelength and spot size
permit the practitioner to target melanin in the base of the hair follicle, which is found in the dermis. The combination
of pulse duration and energy level may vary, depending upon the thickness of the targeted hair follicle. A shorter pulse
length with a high energy level is optimal to destroy fine hair, whereas coarse hair is best treated with a longer pulse
length with lower energy levels. If treatment parameters are improperly set, non-targeted structures within the skin may
absorb the energy thereby eliminating or reducing the therapeutic effect. In addition, improper setting of the treatment
parameters or failure to protect the surface of the skin may cause burns, which can result in blistering, scabbing and
skin discoloration.
Technology and Design of Our Systems
Our unique Xeo, GenesisPlus, Excel V, and truSculpt platforms provide the long-lasting benefits of laser and other
energy-based aesthetic treatments. Our technology allows for a combination of a wide variety of applications available
in a single system. Key features of our solutions include:
Multiple Applications Available in a Single System- Our platforms feature multiple-applications that enable
practitioners to perform a variety of aesthetic procedures using a single device. These procedures include hair
removal, vascular treatments and skin rejuvenation ─ including the treatment of discoloration, laxity, fine
lines, pore size reduction, and uneven texture. Because practitioners can use our systems for multiple
indications, the cost of a unit may be spread across a potentially greater number of patients and procedures
and therefore may be more rapidly recovered.
Technology and Design Leadership- We offer innovative laser and other energy-based solutions for the
aesthetic market. Our laser technology combines long wavelength, adjustable energy levels, variable spot
sizes and a wide range of pulse durations, allowing practitioners to customize treatments for each patient and
condition. Our proprietary pulsed light hand pieces for the treatment of discoloration, hair removal and
vascular treatments optimize the wavelength used for treatments and incorporate a monitoring system to
increase safety. Our Titan hand pieces utilize a novel light source that had not been previously used for
aesthetic treatments. Our Pearl and Pearl Fractional hand pieces, with proprietary YSGG technology,
represent the first application of the 2790 nm wavelength for minimally-invasive cosmetic dermatology.
Further, our GenesisPlus platform performs aesthetic skin procedures and temporarily increases clear nail in
patients with onychomycosis. The GenesisPlus platform contains a hand piece that includes real time
temperature monitoring of the treatment area, as well as a non-contact distance gauge using dual aiming
beams, for improving the clinical result of the treatment. Excel V is a stand-alone laser device that combines a
new high power green laser with Cutera’s award winning Nd:YAG technology, to provide a system that treats
the entire range of cosmetic vascular conditions, without the need for costly consumables. truSculpt is a
mono-polar radio frequency platform and has a unique electrode design that delivers high-powered energy at
1 MHz for the deep and uniform heating of the subcutaneous fat tissues at sustained therapeutic temperatures.
This system includes real-time skin temperature sensing and a large 40cm2 surface area for faster treatments
over large areas of the body.
Upgradeable Platform- We have designed some of our products to allow our customers to cost-effectively
upgrade to our multi-application systems (Solera and Xeo), which provide our customers with the option to
add additional applications to their existing systems and provides us with a source of incremental revenue. We
believe that product upgradeability allows our customers to take advantage of our latest product offerings and
provide additional treatment options to their patients, thereby expanding the opportunities for their aesthetic
practices.
Treatments for Broad Range of Skin Types and Conditions- Our products remove hair safely and effectively
on patients of all skin types, including harder-to-treat patients with dark or tanned skin. In addition, the wide
parameter range of our systems allows practitioners to effectively treat patients with both fine and coarse hair.
Practitioners may use our products to treat spider and reticular veins (unsightly small veins in the leg) and
small facial veins; perform skin rejuvenation procedures for discoloration, texture, pore size, fine lines, and
laxity on any type of skin; and treat toenail fungus. The ability to customize treatment parameters enables
practitioners to offer safe and effective therapies to a broad base of their patients.
6
Ease of Use- We design our products to be easy to use. Our proprietary hand pieces are lightweight and
ergonomic, minimizing user fatigue, and allow for clear views of the treatment area, reducing the possibility
of unintended damage and increasing the speed of application. Our control console contains a universal
graphical user interface with three simple, independently adjustable controls from which to select a wide
range of treatment parameters to suit each patient’s profile. The clinical navigation user interface on the Xeo
platform provides recommended clinical treatment parameter ranges based on patient criteria entered. And our
Pearl and Pearl Fractional hand pieces include a scanner with multiple scan patterns to allow simple and fast
treatments of the face. Risks involved in the use of our products include risks common to other laser and other
energy-based aesthetic procedures, including the risk of burns, blistering and skin discoloration.
Strategy
Our goal is to maintain and expand our position as a leading, worldwide, provider of energy-based aesthetic devices
and complementary aesthetic products by executing the following strategies:
Continue to Expand our Product Offering- Though we believe that our current portfolio of products is
comprehensive, our research and development group has a pipeline of potential products under development
that we expect to commercialize in the future. We launched GenesisPlus in 2010, Excel V in 2011,truSculpt in
2012 and the ProWave LX and truSculpt 16 cm2 hand pieces in 2013. Such products will allow us to leverage
our existing customer call points and provide us with new customer call points which will enhance the
productivity of our distribution channels.
Increasing Revenue and Improving Productivity- We believe that the market for aesthetic systems will
continue to offer growth opportunities. We continue to build brand recognition, add additional products to our
international distribution channel, and are focused on enhancing our global distribution network, all of which
we expect will increase our revenue.
Increasing Focus on Practitioners with Established Medical Offices- We believe there is growth opportunity
in targeting our products to a broad customer base. However, in response to the 2009 to 2010 global recession,
we shifted our focus to core practitioners and physicians with established medical offices. We believe that our
customers’ success is largely dependent upon having an existing medical practice, in which our systems
provide incremental revenue sources to augment their practice revenue. The success of our Excel V platform
has resulted from strong adoption by core customers in dermatology and plastic and reconstructive surgery.
Leveraging our Installed Base - With the introduction of Excel V and now truSculpt, we are able to
effectively offer additional platforms into our existing installed base. In addition, each of these platforms
allows for potential future upgrades to offer additional indications or capabilities. We believe this program
aligns our interest in generating revenue with our customers’ interest in improving the return on their
investment by expanding the range of applications that can be performed in their practice.
Generating Revenue from Services and Refillable Hand Pieces- Our Titan and pulsed-light hand pieces are
refillable products, which provide us with a source of recurring revenue from our existing customers. We offer
post-warranty services to our customers either through extended service contracts to cover preventive
maintenance or through direct billing for parts and labor. These post-warranty services serve as additional
sources of recurring revenue.
Products
Our CoolGlide, Xeo, Solera, GenesisPlus, Excel V, truSculpt and myQ platforms allow for the delivery of multiple
laser and energy-based aesthetic applications from a single system. With our Xeo and Solera platforms, practitioners
can purchase customized systems with a variety of our multi-technology applications.
7
The following table lists our products and each checked box represents the applications that were included in the
product in the years noted.
Applications:
Hair
Removal:
Vascular
Lesions:
Products:
System
Platforms:
CoolGlide . . . CV
Year:
2000
2001
Excel
2002
Vantage
Xeo . . . . . . . . Nd:YAG
2003
2003
OPS600
2004
LP560
2004
Titan S
2005
ProWave 770
2005
AcuTip 500
2006
Titan V/XL
2006
LimeLight
2007
Pearl
Pearl Fractional 2008
2013
ProWave LX
2004
2005
2005
2005
2005
2006
2006
2010
2011
2011
2012
2012
GenesisPlus . .
Excel V . . . . .
myQ . . . . . . .
VariLite . . . . .
truSculpt . . . .
ProWave 770
OPS 600
LP560
AcuTip 500
Titan V/XL
LimeLight
Solera . . . . . . Titan S
x
x
x
x
x
x
x
Energy
Source:
a
a
a
a
b
b
c
b
b
c
b
d
d
b
c
b
b
b
b
c
b
a
e
e
f
g
Non
Invasive
Body
Contouring:
Skin Rejuvenation
Texture,
Lines and
Wrinkles:
Skin
Laxity:
Melasma
&Tattoo
Removal:
Dyschromia:
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Energy Source: a. 1064nm Nd:YAG laser; b. flashlamp; c. Infrared laser; d. 2790 nm YSGG laser; e. combined
frequency 532 nm and 1064 nm Nd:YAG laser; f. Combined frequency 532 nm and 940 nm diode laser; g. Radio
frequency at 1 MHz
Each of our products consists of a control console and one or more hand pieces, depending on the model.
Control Console
Our control console includes a universal graphical user interface, control system software and high voltage electronics.
All CoolGlide systems, GenesisPlus, VariLite, Excel V and some models of the Xeo platform, include our laser
module which consists of electronics, a visible aiming beam, a focusing lens, and an Nd:YAG and/or flashlamp laser
that functions at wavelengths that permit penetration over a wide range of depths and is effective across all skin types.
The interface allows the practitioner to set the appropriate laser or flashlamp parameters for each procedure through a
user-friendly format. The control system software ensures that the operator’s instructions are properly communicated
from the graphic user interface to the other components within the system. Our high voltage electronics produce over
10,000 watts of peak laser energy, which permits therapeutic effects at short pulse durations. Our Solera console
platform comes in two configurations—Opus and Titan—both of which include a universal graphical user interface,
control system software and high voltage electronics. The Solera Opus console is designed specifically to drive our
flashlamp hand pieces while the Solera Titan console is designed specifically to drive the Titan hand pieces. The
control system software is designed to ensure that the operator’s instructions are properly communicated from the
graphical user interface to the other components within the system and includes real-time calibration to control the
output energy as the pulse is delivered during the treatment. Our truSculpt control console includes a high-powered,
mono-polar RF generator at 1MHz capable of delivering up to 300 watts of energy. The truSculpt system dynamically
adjusts current, voltage and power during treatment as needed to reach and maintain the appropriate treatment levels.
8
Hand Pieces
1064 nm Nd:YAG Hand Piece- Our 1064nm Nd:YAG hand piece delivers laser energy to the treatment area for hair
removal, leg and facial vein treatment, and skin rejuvenation procedures to treat skin texture and fine lines, and reduce
pore size. The 1064nm Nd:YAG hand piece consists of an energy-delivery component, consisting of an optical fiber
and lens, and a copper cooling plate with imbedded temperature monitoring. The hand piece weighs approximately 14
ounces, which is light enough to be held with one hand. The lightweight nature and ergonomic design of the hand piece
allows the operation of the device without user fatigue. Its design allows the practitioner an unobstructed view of the
treatment area, which reduces the possibility of unintended damage to the skin and can increase the speed of treatment.
The 1064nm Nd:YAG hand piece also incorporates our cooling system, providing integrated pre- and post-cooling of
the treatment area through a temperature-controlled copper plate to protect the outer layer of the skin. The hand piece is
available in either a fixed 10 millimeter spot size for our CoolGlide CV system, or a user-controlled variable 3, 5, 7 or
10 millimeter spot size for our CoolGlide Excel and CoolGlide Vantage systems.
Excel V Hand Piece- The Excel V system introduced in February 2011 delivers 1064 nm and 532 nm laser energy to
the treatment area for vascular treatments. The Excel V system supports two hand pieces, both consisting of an energy-
delivery component housing an optical fiber and lens. One hand piece includes a sapphire window cooling plate with
temperature monitoring. The second hand piece does not have a cooling plate and includes a non-contact temperature
sensor to monitor the treatment area temperature. In addition, this second hand piece includes dual aiming beams that
facilitate consistent treatments by maintaining the correct distance of the hand piece to the skin. Both hand pieces offer
a spot size range from 1.5 to 12 mm in 0.1 mm increments. Each hand piece is capable of delivering either the 1064 nm
or 532 nm laser energy.
GenesisPlus Hand Piece- Our GenesisPlus system launched in 2010 delivers 1064 nm laser energy to the treatment
area for the temporary increase of clear nail in patients with onychomycosis and for the treatment of fine wrinkles,
diffuse redness and rosacea. This lightweight1064nm Nd:YAG hand piece consists of an energy-delivery component,
housing an optical fiber and lens. The hand piece includes a non-contact temperature sensor to monitor the treatment
area temperature. In addition, the hand piece includes dual aiming beams that facilitate consistent treatments by
maintaining the correct distance of the hand piece to the skin. This hand piece offers a single 5 mm spot size.
Pulsed Light Hand Piece- The LP560, ProWave 770, ProWave LX, AcuTip 500, and LimeLight hand pieces are
designed to produce a pulse of light over a wavelength spectrum to treat discoloration such as age and sun spots and
other dyschromia, hair removal, and superficial facial vessels. The hand pieces each consist of a custom flashlamp,
proprietary wavelength filter, closed-loop power control and embedded temperature monitor, and weigh approximately
13 ounces. The filter in the AcuTip 500 eliminates long and short wavelengths, transmitting only the therapeutic range
required for safe and effective treatment. The filter in the LP560, ProWave 770, ProWave LX, and LimeLight
eliminates short wavelengths, allowing longer wavelengths to be transmitted to the treatment area. In addition, the
wavelength spectrum of the ProWave 770 and the LimeLight can be shifted based on the setting of the control console.
Our power control includes a monitoring system to ensure that the desired energy level is delivered. The hand pieces
protect the epidermis by regulating the temperature of the hand piece window through the embedded temperature
monitor. These hand pieces are available on the Xeo and Solera platforms.
Titan Hand Piece- The Titan hand pieces are designed to produce a sustained pulse of light over a wavelength
spectrum tailored to induce heating in the dermis to treat skin laxity (although it is cleared in the U.S. by the U.S. Food
and Drug Administration, or FDA, only for deep dermal heating). The hand piece consists of a custom light source,
proprietary wavelength filter, closed-loop power control, sapphire cooling window and embedded temperature monitor,
and weighs approximately three pounds. The temperature of the epidermis is controlled by using a sapphire window to
provide cooling before, during and after the delivery of energy to the treatment site. We offer two different Titan hand
pieces—Titan V and Titan XL.
Titan V- Titan V has a treatment tip that extends beyond the hand piece housing to provide enhanced visibility
of the skin’s surface to effectively treat delicate areas such as the skin around the eyes and nose.
Titan XL- Titan XL, like the Titan V, has a treatment tip that extends beyond the housing for improved
visibility. It also has a larger treatment spot size to treat larger body areas faster, such as the arms, abdomen
and legs.
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The Titan hand pieces can be used on the Xeo and Solera platforms. The Titan hand piece requires a periodic
“refilling” process, which includes the replacement of the optical source, after a set number of pulses have been used.
This provides us with a source of recurring revenue.
Pearl Hand Piece- The Pearl hand piece, introduced in 2007, is designed to treat fine lines, uneven texture and
dyschromia through the application of proprietary YSGG laser technology. This hand piece can safely remove a small
portion of the epidermis, while coagulating the remaining epidermis, leading to new collagen growth. The Pearl hand
piece consists of a custom monolithic laser source, scanner and power monitoring electronics. The scanner includes
multiple scan patterns to allow simple and fast treatments of the face. The hand piece includes an attachment for a
smoke evacuator, allowing the practitioner to use one hand during treatment.
Pearl Fractional Hand Piece- The Pearl Fractional hand piece, introduced in 2008, also uses proprietary YSGG
technology and is designed to treat wrinkles and deep dermal imperfections (although it is cleared in the U.S. by the
FDA only for skin resurfacing and coagulation). This hand piece penetrates the deep dermis producing a series of
microcolumns across the skin, which can result in the removal of damaged tissue and the production of new collagen.
The Pearl Fractional hand piece consists of a custom monolithic laser source, scanner and power monitoring
electronics. The scanner includes multiple scan patterns to allow simple and fast treatments of the face. The hand piece
includes an attachment for a smoke evacuator, allowing the practitioner to use one hand during treatment.
truSculpt Hand Pieces- The truSculpt product introduced in August 2012 is used for the non-invasive heating of
subcutaneous fat tissue. We sold three different truSculpt hand pieces in 2013. The original 25cm2 hand piece (now
discontinued), 40 cm2 for larger body parts and the 16cm2 for smaller parts of the body. Each of the truSculpt hand
pieces is light weight and ergonomically designed for operator comfort, which allows for the uniform heat distribution
delivered by the hand pieces. In addition, the hand pieces have a built-in, real time, temperature sensing system to
monitor the temperature during the treatment.
Upgrades
Our Solera and Xeo platforms are multi-application products that are designed to allow our customers to cost-
effectively upgrade to our newest technologies, which provide our customers the option to add applications to their
system and provides us with a source of recurring revenue.
Service
We offer post-warranty services to our customers either through extended service contracts ─ that cover preventive
maintenance and/or replacement parts and labor ─ as well as direct billing for detachable hand piece replacements,
parts and labor. These post-warranty services serve as additional sources of recurring revenue from our installed base.
Titan and truSculpt Hand Piece Refills
When customers purchase a replacement Titan or truSculpt hand piece, we treat that as “refill” revenue, which
provides us with a source of recurring revenue from existing customers. Following the launch of truSculpt product in
2012, we charged customers for hand piece refills, however, beginning in the third quarter of 2013 we included
truSculpt refills as part of our standard warranty and service contract product offerings.
Fillers and Cosmeceuticals
We distribute Merz’s Radiesse® dermal filler product and ZO Skin Health, Inc.’s (“ZO”) prescription-based, topical
skin health systems (or ‘cosmeceuticals’) to physicians in the Japanese market. Since the first quarter of 2010 we had
been distributing Obagi Medical Products, Inc.’s (“Obagi”) cosmeceuticals. Effective December 31, 2013 we no longer
distribute the Obagi cosmeceuticals and have fully transitioned to the ZO product line.
Our Applications and Procedures
Our products are designed to allow the practitioner to select an appropriate combination of energy level, spot size and
pulse duration for each treatment. The ability to manipulate the combinations of these parameters allows our customers
to treat the broadest range of conditions available with a single energy-based system.
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Hair Removal- Our laser technology allows our customers to treat all skin types and hair thicknesses. Our 1064 nm
Nd:YAG laser permits energy to safely penetrate through the epidermis of any skin type and into the dermis where the
hair follicle is located. Using the universal graphic user interface on our control console, the practitioner sets
parameters to deliver therapeutic energy with a large spot size and variable pulse durations, allowing the practitioner to
treat fine or coarse hair. Our 1064nm Nd:YAG hand piece allows our customers to treat all skin types, while our
ProWave 770 and ProWave LX hand pieces, with pulsed light technology, treat the majority of skin types quickly and
effectively.
To remove hair using a 1064nm Nd:YAG hand piece, the treatment site on the skin is first cleaned and shaved. The
practitioner then applies a thin layer of gel to glide across the skin, and next applies the hand piece directly to the skin
to cool the area to be treated and then delivers a laser pulse to the pre-cooled area. To remove hair using the ProWave
770 and ProWave LX hand pieces, mineral oil is used instead of gel, and cooling is provided by a sapphire window
placed directly on the skin, allowing the pulse of light to be applied while the treatment area is being cooled. In the
case of both hand pieces, delivery of light which is converted to heat destroys the hair follicles and prevents hair re-
growth. This procedure is then repeated at the next treatment site on the body, and can be done in a gliding motion to
increase treatment speed. Patients receive on average three to six treatments. Each treatment can take between five
minutes to one hour depending on the size of the area and the condition being treated. On average, there are six to eight
weeks between treatments.
Vascular Lesions- Our laser technology allows our customers to treat the widest range of aesthetic vein conditions,
including spider and reticular veins and small facial veins. Our CoolGlide and Xeo 1064nm Nd:YAG hand piece’s
adjustable spot size of 3, 5, 7 or 10 millimeters, or the Excel V 1064 nm and 532 nm hand piece with adjustable spot
sizes from 1.5 to 12 mm, allows the practitioner to control treatment depth to target different sized veins. Selection of
the appropriate energy level and pulse duration ensures effective treatment of the intended target. Our AcuTip 500
hand piece, with its 6 millimeter spot size, uses pulsed-light technology and is designed for the treatment of facial
vessels.
The vein treatment procedure when using the 1064nm Nd:YAG hand piece is performed in a substantially similar
manner to the laser hair removal procedure. The laser hand piece is used to cool the treatment area both before and
after the laser pulse has been applied. With the Excel V hand piece, the cooling can be performed pre, during and post
delivery of the laser pulse. With the AcuTip 500 hand piece, the pulse of light is delivered while the treatment area is
being cooled with the sapphire tip. The delivered energy damages the vein and, over time, it is absorbed by the body.
Patients receive on average between one and six treatments, with six weeks or longer between treatments.
Skin Rejuvenation- Our Nd:YAG laser and other energy based technologies allow our customers to perform non-
invasive and minimally-invasive treatments that reduce redness, pore size, fine lines and laxity, improve skin texture,
and treat other aesthetic conditions. Our myQ Q-switched laser can be used for the treatment of superficial and deep
pigmented lesions (i.e., melasma), skin rejuvenations, laser skin toning and tattoo removal.
Texture; Lines and Wrinkles- When using a 1064nm Nd:YAG laser to improve skin texture, reduce pore size and treat
fine lines, cooling is not applied and the hand piece is held directly above the skin. A large number of pulses are
directed at the treatment site, repeatedly covering an area, such as the cheek. By delivering many pulses of laser light to
a treatment area, a gentle heating of the dermis occurs and collagen growth is stimulated to rejuvenate the skin and
reduce wrinkles. Patients typically receive four to six treatments for this procedure. The treatment typically takes less
than a half hour and there are typically two to four weeks between treatments.
When treating texture and fine lines with a Pearl hand piece, the hand piece is held at a controlled distance from the
skin and the scanner delivers a preset pattern of spots to the treatment area. Cooling is not applied to the epidermis
during the treatment. The energy delivered by the hand piece ablates a portion of the epidermis while leaving a
coagulated portion that will gently peel off over the course of a few days. Heat is also delivered into the dermis which
can result in the production of new collagen. Treatment of the full face can usually be performed in 15 to 30 minutes.
Patients receive on average between one and three treatments at monthly intervals.
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When treating wrinkles and deep dermal imperfections with a Pearl Fractional hand piece, the hand piece is held at a
controlled distance from the skin and the scanner delivers a preset pattern of spots to the treatment area. Cooling is not
applied to the epidermis during the treatment. The energy delivered by the hand piece penetrates the deep dermis
producing a series of microcolumns across the skin, which can result in the removal of damaged tissue and the
production of new collagen. Treatment of the full face can usually be performed in less than an hour. Patients receive
on average between one and three treatments at monthly intervals.
Our CE Mark allows us to market Pearl Fractional in the European Union, Australia and certain other countries outside
the U.S. for the treatment of wrinkles and deep dermal imperfections. However, in the U.S. we have a 510(k) clearance
for only skin resurfacing and coagulation.
Toenail Fungus- In addition to performing skin rejuvenation, we have FDA, Health Canada and CE Mark approvals for
GenesisPlus that allows us to market it for onychomycosis (“toenail fungus”). Tiny pulses of light from an Nd:YAG
laser pass through the toenail to the fungus underneath, which is irradiated without any damage to the surrounding nail
or skin. The GenesisPlus has dual aiming beams that facilitate consistent treatments by maintaining the correct distance
of the hand piece to the skin. In addition, during the treatment an integrated sensor is used to actively monitor the
temperature of the treatment area.
Dyschromia- Our pulsed-light technologies allow our customers to safely and effectively treat red and brown
dyschromia, which is skin discoloration, pigmented lesions, and rosacea. The practitioner delivers a narrow spectrum
of light to the surface of the skin through our LP560 or LimeLight hand pieces. These hand pieces include one of our
proprietary wavelength filters, which reduce the energy level required for therapeutic effect and minimize the risk of
skin injury.
In treating pigmented lesions with a pulsed-light technology, the hand piece is placed directly on the skin and then the
light pulse is triggered. The cells forming the pigmented lesion absorb the light energy, darken and then flake off over
the course of two to three weeks. Several treatments may be required to completely remove the lesion. The treatment
takes a few minutes per area treated and there are typically three to four weeks between treatments.
The 532 nm wavelength green laser option on the Excel V and VariLite can also be used to treat pigmented lesions in
substantially the same way as described above with the pulsed light devices.
Practitioners can also treat dyschromia and other skin conditions with our Pearl hand piece. During these treatments,
the heat delivered by the Pearl hand piece will remove the outer layer of the epidermis while coagulating a portion of
the epidermis. That coagulated portion will gently peel off over the course of a few days, revealing a new layer of skin
underneath. Treatment of the full face can usually be performed in 15 to 30 minutes. Patients receive on average
between one and three treatments at monthly intervals.
Skin Laxity- Our Titan technology allows our customers to use deep dermal heating to tighten lax skin. The practitioner
delivers a spectrum of light to the skin through our Titan hand piece. This hand piece includes our proprietary light
source and wavelength filter which tailors the delivered spectrum of light to provide heating at the desired depth in the
skin.
In treating skin laxity, the hand piece is placed directly on the skin and then the light pulse is triggered. A sustained
pulse causes significant heating in the dermis. This heating can cause immediate collagen contraction while also
stimulating long-term collagen re-growth. Several treatments may be required to obtain the desired degree of tightening
of the skin. The treatment of a full face can take over an hour and there are typically four weeks between treatments.
Our CE Mark allows us to market the Titan in the European Union, Australia and certain other countries outside the
U.S. for the treatment of wrinkles through skin tightening. However, in the U.S. we have a 510(k) clearance for only
deep dermal heating.
Non-Invasive Body Contouring- our truSculpt technology allows physicians to apply a hand piece directly to the skin
and deliver high-powered RF energy that results in the deep and uniform heating of the subcutaneous fat tissue at
sustained therapeutic temperatures. This heating can cause selective destruction of fat cells, which are eliminated from
the treatment area through the body’s natural wound healing processes. The treatment takes approximately 45 minutes
and two or more treatments may be required to obtain the desired aesthetic results.
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Our CE Mark allows us to market the truSculpt in the European Union, and certain other countries outside the U.S. for
fat reduction, body shaping and body contouring. In the U.S. we have 510(k) clearance for deep dermal heating for the
temporary relief of minor muscle and joint pain and the temporary improvement in the appearance of cellulite.
Sales and Marketing
In the U.S. we market and sell our products primarily through a direct sales organization. Generally, each direct sales
employee is assigned a specific territory. As of December 31, 2013, we had a U.S. direct sales force of 29 employees.
We internally manage our U.S. and Canadian sales organization as one North American sales region with 34 territories
as of December 31, 2013. In addition to direct sales employees, we have a distribution relationship with PSS World
Medical that operates medical supply distribution service centers with over 700 sales representatives serving physician
offices throughout the U.S. Revenue from PSS was $0.4 million in 2013, $1.1 million in 2012, and $1.6 million in
2011.
International sales are generally made through a worldwide distributor network in over 60 countries, as well as a direct
international sales force of 24 employees, as of December 31, 2013. As of December 31, 2013, we had direct sales
offices in Australia, Belgium, Canada, France and Japan. Our international revenue as a percentage of total revenue
represented 58% in 2013, 59% in 2012 and 61% in 2011.
We also sell certain items like Titan hand piece refills and marketing brochures via the internet.
Although specific customer requirements can vary depending on applications, customers generally demand quality,
performance, ease of use, and high productivity in relation to the cost of ownership. We have responded to these
customer demands by introducing new products focused on these requirements in the markets we serve. Specifically,
we believe that we introduce new products and applications that are innovative, address the specific aesthetic
procedures in demand, and are upgradeable on our customers’ existing systems. In addition, we provide attractive
upgrade pricing to new product families and are responsive to our customers’ financing preferences. To increase
market penetration, in addition to marketing to the core specialties of plastic surgeons and dermatologists, we also
market to the non-core aesthetic practices consisting of gynecologists, primary care physicians, family practitioners,
physicians offering aesthetic treatments in non-medical offices, podiatrists and other qualified practitioners.
We seek to establish strong ongoing relationships with our customers through the upgradeability of our products, sales
of extended service contracts, the refilling of Titan hand pieces, ongoing training and support, and distributing (in
Japan only) cosmeceutical and dermal filler products. We primarily target our marketing efforts to practitioners
through office visits, workshops, trade shows, webinars and trade journals. We also market to potential patients
through brochures, workshops and our website. In addition, we offer clinical forums with recognized expert panelists
to promote advanced treatment techniques using our products to further enhance customer loyalty and uncover new
sales opportunities.
Competition
Our industry is subject to intense competition. Our products compete against conventional non-energy-based
treatments, such as electrolysis, Botox and collagen injections, chemical peels, microdermabrasion and sclerotherapy.
Our products also compete against laser and other energy-based products offered by public companies, such as
Cynosure, Elen (in Italy), Lumenis, Syneron and Zeltiq, as well as private companies, including, Alma, Sciton, and
several others.
Competition among providers of laser and other energy-based devices for the aesthetic market is characterized by
extensive research efforts and innovative technology. While we attempt to protect our products through patents and
other intellectual property rights, there are few barriers to entry that would prevent new entrants or existing competitors
from developing products that would compete directly with ours. There are many companies, both public and private,
that are developing innovative devices that use both energy-based and alternative technologies. Some of these
competitors have greater resources than we do or product applications for certain sub-markets in which we do not
participate. Additional competitors may enter the market, and we are likely to compete with new companies in the
future. To compete effectively, we have to demonstrate that our products are attractive alternatives to other devices and
treatments by differentiating our products on the basis of performance, brand name, service and price. We have
encountered, and expect to continue to encounter, potential customers who, due to existing relationships with our
competitors, are committed to, or prefer the products offered by these competitors. Competitive pressures may result in
price reductions and reduced margins for our products.
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Research and Development
Our research and development group develops new products and applications and builds clinical support to address
unmet or underserved market needs. As of December 31, 2013, our research and development activities were
conducted by a staff of 32 employees with a broad base of experience in lasers, optoelectronics, software and other
fields. We have developed relationships with outside contract engineering and design consultants, giving our team
additional technical and creative breadth. We work closely with thought leaders and customers, to understand unmet
needs and emerging applications in aesthetic medicine. Research and development expenses were approximately $9.2
million in 2013, $8.4 million in 2012 and $9.1 million in 2011.
Service and Support
Our products are engineered to enable quick and efficient service and support. There are several separate components
of our products, each of which can easily be removed and replaced. We believe that quick and effective delivery of
service is important to our customers. As of December 31, 2013, we had a 43-person global service department.
Internationally, we provide direct service support through our Australia, Canada, France and Japan offices, and also
through the network of distributors and third-party service providers in over 60 countries. In February 2012, we
acquired Iridex’s aesthetic business, which resulted in an increase in our service and support team and service revenue.
We provide a standard one-year warranty coverage for all of our systems. We provide initial warranties on our
products to cover parts and service and offer extended service plans that vary by the type of product and the level of
service desired. Our standard warranty on system consoles covers parts and service for a standard period of one year.
From time to time, we also have promotions whereby we include a post-warranty service contract with the sale of our
products. Customers are notified before their initial warranty expires and are able to choose from two different
extended service plans covering preventative maintenance or replacement parts and labor. With effect from the third
quarter of 2013, we included the refilling of truSculpt hand pieces in the initial warranty as well as service contracts
offered to customers.
In the event a customer does not purchase an extended service plan, we will offer to service the customer’s system and
charge the customer for time and materials. With respect to the truSculpt and other hand pieces, if a customer’s system
is out of warranty and they have not purchased an extended service contract that covers hand piece replacements, then
the customer is charged for their replacement hand piece.
Our Titan hand pieces generally include a warranty for a set number of shots, instead of for a period of time.
We have invested substantial financial and management resources to develop a worldwide infrastructure to meet the
service needs of our customers through our direct operations in the U.S., Australia, Belgium (which commenced
operations in the fourth quarter of 2013), Canada, France, and Japan. In countries where we are represented by
distributor partners, our customers are serviced through the distributor network.
Manufacturing
We manufacture our products with components and subassemblies supplied by vendors. We assemble and test each of
our products at our Brisbane, California facility. Quality control, cost reduction and inventory management are top
priorities of our manufacturing operations.
We purchase certain components and subassemblies from a limited number of suppliers. We have flexibility with our
suppliers to adjust the number of components and subassemblies as well as the delivery schedules. The forecasts we
use are based on historical demands and sales projections. Lead times for components and subassemblies may vary
significantly depending on the size of the order, time required to fabricate and test the components or subassemblies,
specific supplier requirements and current market demand for the components and subassemblies. We reduce the
potential for disruption of supply by maintaining sufficient inventories and identifying additional suppliers. The time
required to qualify new suppliers for some components, or to redesign them, could cause delays in our manufacturing.
To date, we have not experienced significant delays in obtaining any of our components or subassemblies.
We use small quantities of common cleaning products in our manufacturing operations, which are lawfully disposed of
through a normal waste management program. We do not forecast any material costs due to compliance with
environmental laws or regulations.
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We are required to manufacture our products in compliance with the FDA’s Quality System Regulation, or QSR. The
QSR covers the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance,
packaging, storage and shipping of our products. The FDA enforces the QSR through periodic unannounced
inspections. We had an FDA audit of compliance with laser performance standards in 2010 and a full quality system
audit plus laser performance standard audit in August 2011. There were no significant findings as a result of these
audits and our responses have been accepted by the FDA. Our failure to maintain compliance with the QSR
requirements could result in the shutdown of our manufacturing operations and the recall of our products, which would
have a material adverse effect on business. In the event that one of our suppliers fails to maintain compliance with our
quality requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result.
We have opted to maintain quality assurance and quality management certifications to enable us to market our products
in the U.S., the member states of the European Union, the European Free Trade Association and countries which have
entered into Mutual Recognition Agreements with the European Union. In January 2014, we passed our surveillance
audit establishing compliance with the most current requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003,
and MDD 93/42/EEC. Our manufacturing facility is ISO 13485 certified.
Patents and Proprietary Technology
We rely on a combination of patent, copyright, trademark and trade secret laws, and non-disclosure, confidentiality and
invention assignment agreements to protect our intellectual property rights. As of December 31, 2013, we had 30
issued U.S. patents and 11 pending U.S. patent applications. In the U.S. and several foreign countries, we have
registered our Company name and several of our product names as trademarks, including Cutera, Acutip 500,
CoolGlide, CoolGlide Excel, Limelight, myQ, Pearl, ProWave 770, ProWave LX, Solera, Titan, Xeo and truSculpt.
We may have common law rights in other product names, including Excel V, Pearl Fractional, Solera Titan and
VariLite. We intend to file for additional patents and trademarks to continue to strengthen our intellectual property
rights.
We license certain patents from Palomar (acquired by Cynosure in 2013) and pay ongoing royalties based on sales of
applicable hair-removal products. The royalty rate on these products ranges from 3.75% to 7.50% of revenue. One
patent expired in February 2013 and the remaining patents are set to expire in February 2015. Our revenue from
systems that do not include hair-removal capabilities (such as our Solera Titan, Xeo SA, GenesisPlus, VariLite, myQ
and Excel V), and other revenue from service contracts, Titan, Fillers and cosmeceuticals, are not subject to these
royalties. In addition, in 2006 we capitalized $1.2 million as an intangible asset representing the ongoing license for
these patents, which is being amortized on a straight-line basis over their expected useful life of 9-10 years.
Our employees and technical consultants are required to execute confidentiality agreements in connection with their
employment and consulting relationships with us. We also require them to agree to disclose and assign to us all
inventions conceived in connection with the relationship. We cannot provide any assurance that employees and
consultants will abide by the confidentiality or assignability terms of their agreements. Despite measures taken to
protect our intellectual property, unauthorized parties may copy aspects of our products or obtain and use information
that we regard as proprietary.
Government Regulation
Our products are medical devices subject to extensive and rigorous regulation by the U.S. Food and Drug
Administration, as well as other regulatory bodies. FDA regulations govern the following activities that we perform
and will continue to perform to ensure that medical products distributed domestically or exported internationally are
safe and effective for their intended uses:
Product design and development;
Product testing;
Product manufacturing;
Product safety;
Product labeling;
Product storage;
Recordkeeping;
Pre-market clearance or approval;
Advertising and promotion;
Production;
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Product sales and distribution; and
Complaint Handling.
FDA’s Pre-market Clearance and Approval Requirements
Unless an exemption applies, each medical device we wish to commercially distribute in the U.S. will require either
prior 510(k) clearance or pre-market approval from the FDA. The FDA classifies medical devices into one of three
classes. Devices deemed to pose lower risks are placed in either class I or II, which requires the manufacturer to submit
to the FDA a pre-market notification requesting permission to commercially distribute the device. This process is
generally known as 510(k) clearance. Some low risk devices are exempted from this requirement. Devices deemed by
the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices deemed not
substantially equivalent to a previously cleared 510(k) device, are placed in class III, requiring pre-market approval.
All of our current products are class II devices.
510(k) Clearance Pathway
When a 510(k) clearance is required, we must submit a pre-market notification demonstrating that our proposed device
is substantially equivalent to a previously cleared 510(k) device or a device that was in commercial distribution before
May 28, 1976 for which the FDA has not yet called for the submission of Pre-Market Approval, or PMA, applications.
By regulation, the FDA is required to clear or deny a 510(k), pre-market notification within 90 days of submission of
the application. As a practical matter, clearance often takes significantly longer. The FDA may require further
information, including clinical data, to make a determination regarding substantial equivalence. Laser devices used for
aesthetic procedures, such as hair removal, have generally qualified for clearance under 510(k) procedures.
The following table details the indications for which we received a 510(k) clearance for our products and when these
clearances were received.
FDA Marketing Clearances:
Laser-based products:
- treatment of vascular lesions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- hair removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- permanent hair reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- treatment of benign pigmented lesions and pseudo folliculitis barbae, commonly referred to
as razor bumps, and for the reduction of red pigmentation in scars . . . . . . . . . . . . . . . . . . . . . . . .
- treatment of wrinkles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- treatment of Onychomycosis for the clearance of nails. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- addition of Alexandrite 755 nm laser wavelength for hair removal, permanent hair reduction
Date Received:
June 1999
March 2000
January 2001
June 2002
October 2002
April 2011
and the treatment of vascular and benign pigmented lesions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2013
Pulsed-light technologies:
- treatment of pigmented lesions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- hair removal and vascular treatments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 2003
March 2005
Infrared Titan technology for deep dermal heating for the temporary relief of minor muscle
and joint pain and for the temporary increase in local circulation where applied . . . . . . . . . . . . . .
February 2004
Solera tabletop console:
- for use with the Titan hand piece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
- for use with our pulsed-light hand pieces . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2004
January 2005
Pearl product for the treatment of wrinkles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 2007
Pearl Fractional product for skin resurfacing and coagulation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
August 2008
truSculpt radio frequency (“RF”) product for deep dermal heating for the temporary relief of
minor muscle and joint pain and for a temporary improvement in the appearance of cellulite
- 16cm2 to 25cm2 hand pieces for smaller body parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 2008
- 16cm2 to 40cm2 hand pieces for larger body parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 2012
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Pre-Market Approval (“PMA”) Pathway
A PMA must be submitted to the FDA if the device cannot be cleared through the 510(k) process. A PMA must be
supported by extensive data, including but not limited to, technical, preclinical, clinical trials, manufacturing and
labeling to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device. No device that we have
developed to date has required pre-market approval, although development of future devices or indications may require
pre-market approval.
Product Modifications
We have modified aspects of our products since receiving regulatory clearance, but we believe that new 510(k)
clearances are not required for these modifications. After a device receives 510(k) clearance or a PMA, any
modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its
intended use, will require a new clearance or approval. The FDA requires each manufacturer to make this
determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s
determination. If the FDA disagrees with our determination not to seek a new 510(k) clearance or PMA, the FDA may
retroactively require us to seek 510(k) clearance or pre-market approval. The FDA could also require us to cease
marketing and distribution and/or recall the modified device until 510(k) clearance or pre-market approval is obtained.
Also, in these circumstances, we may be subject to significant regulatory fines or penalties.
Clinical Trials
When FDA approval of a class I, class II or class III device requires human clinical trials, and if the device presents a
“significant risk,” as defined by the FDA, to human health, the device sponsor is required to file an Investigational
Device Exemption, or IDE, application with the FDA and obtain IDE approval prior to commencing the human clinical
trial. If the device is considered a “non-significant” risk, IDE submission to the FDA is not required. Instead, only
approval from the Institutional Review Board, or IRB, overseeing the clinical trial is required. Human clinical studies
are generally required in connection with approval of class III devices and may be required for class I and II devices.
The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that
it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in
advance by the FDA for a specified number of patients. Clinical trials for a significant risk device may begin once the
application is reviewed and cleared by the FDA and the appropriate institutional review boards at the clinical trial sites.
Future clinical trials of our products may require that we submit and obtain clearance of an IDE from the FDA prior to
commencing clinical trials. The FDA, and the IRB at each institution at which a clinical trial is being performed, may
suspend a clinical trial at any time for various reasons, including a belief that the subjects are being exposed to an
unacceptable health risk.
Pervasive and Continuing Regulation
After a device is placed on the market, numerous regulatory requirements apply. These include:
Quality system regulations, which require manufacturers, including third-party manufacturers, to follow
stringent design, testing, control, documentation and other quality assurance procedures during all aspects of
the manufacturing process;
Labeling regulations and FDA prohibitions against the promotion of products for un-cleared, unapproved or
“off-label” uses;
Medical device reporting regulations, which require that manufacturers report to the FDA if their device may
have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or
contribute to a death or serious injury if the malfunction were to recur; and
Post-market surveillance regulations, which apply when necessary to protect the public health or to provide
additional safety and effectiveness data for the device.
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The FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by
the FDA and the Food and Drug Branch of the California Department of Health Services, or CDHS, to determine our
compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our
subcontractors. In the past, our prior facility has been inspected, and observations were noted. There were no findings
that involved a material violation of regulatory requirements. Our responses to these observations have been accepted
by the FDA and CDHS, and we believe that we are in substantial compliance with the QSR. Our current manufacturing
facility has been inspected by the FDA and the CDHS. The FDA and the CDHS noted observations, but there were no
findings that involved a material violation of regulatory requirements. Our responses to those observations have been
accepted by the FDA and CDHS.
We are also regulated under the Radiation Control for Health and Safety Act, which requires laser products to comply
with performance standards, including design and operation requirements, and manufacturers to certify in product
labeling and in reports to the FDA that their products comply with all such standards. The law also requires laser
manufacturers to file new product and annual reports, maintain manufacturing, testing and sales records, and report
product defects. Various warning labels must be affixed and certain protective devices installed, depending on the class
of the product.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may
include any of the following sanctions:
Warning letters, fines, injunctions, consent decrees and civil penalties;
Repair, replacement, recall or seizure of our products;
Operating restrictions or partial suspension or total shutdown of production;
Refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or
modifications to existing products;
Withdrawing 510(k) clearance or pre-market approvals that have already been granted; and
Criminal prosecution.
The FDA also has the authority to require us to repair, replace or refund the cost of any medical device that we have
manufactured or distributed. If any of these events were to occur, they could have a material adverse effect on our
business.
We are also subject to a wide range of federal, state and local laws and regulations, including those related to the
environment, health and safety, land use and quality assurance. We believe that compliance with these laws and
regulations as currently in effect will not have a material adverse effect on our capital expenditures, earnings and
competitive and financial position.
International
International sales of medical devices are subject to foreign governmental regulations, which vary substantially from
country to country. The time required to obtain clearance or approval by a foreign country may be longer or shorter
than that required for FDA clearance or approval, and the requirements may be different.
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The primary regulatory environment in Europe is that of the European Union, which consists of a 27 countries
encompassing most of the major countries in Europe. The member states of the European Free Trade Association have
voluntarily adopted laws and regulations that mirror those of the European Union with respect to medical devices.
Other countries, such as Switzerland, have entered into Mutual Recognition Agreements and allow the marketing of
medical devices that meet European Union requirements. The European Union has adopted numerous directives and
European Standardization Committees have promulgated voluntary standards regulating the design, manufacture,
clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements of a
relevant directive will be entitled to bear CE conformity marking, indicating that the device conforms with the essential
requirements of the applicable directives and, accordingly, can be commercially distributed throughout the member
states of the European Union, the member states of the European Free Trade Association and countries which have
entered into a Mutual Recognition Agreement. The method of assessing conformity varies depending on the type and
class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party
assessment by a Notified Body, an independent and neutral institution appointed by a country to conduct the
conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system and
specific testing of the manufacturer’s device. An assessment by a Notified Body in one member state of the European
Union, the European Free Trade Association or one country which has entered into a Mutual Recognition Agreement is
required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 9001 and
ISO 13845 certification are voluntary harmonized standards. Compliance establishes the presumption of conformity
with the essential requirements for a CE Marking. In February 2000, our facility was awarded the ISO 9001 and EN
46001 certification. In March 2003, we received our ISO 9001 updated certification (ISO 9001:2000) as well as our
certification for ISO 13485:1996 which replaced our EN 46001 certification. In March 2004, we received our ISO
13485:2003 certification and in March 2006, March 2010, February 2011 and January 2012 we passed our ISO 13485
recertification audits. In January 2014, we passed our surveillance audit establishing compliance with the most current
requirements of EN ISO 13485:2012, CAN/CSA ISO 13485:2003, and MDD 93/42/EEC.
Employees
As of December 31, 2013, we had 238 employees, compared to 227 employees as of December 31, 2012. Of the 238
employees at December 31, 2013, 89 were in sales and marketing, 52 in manufacturing operations, 43 in technical
service, 32 in research and development and 22 in general and administrative. We believe that our future success will
depend in part on our continued ability to attract, hire and retain qualified personnel. None of our employees are
represented by a labor union, and we believe our employee relations are good.
Available Information
We are subject to the reporting requirements under the Securities Exchange Act of 1934. Consequently, we are
required to file reports and information with the Securities and Exchange Commission, or SEC, including reports on
the following forms: annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. These reports and other information concerning the company may be accessed through the SEC’s website at
www.sec.gov. Such filings, as well as our charters for our Audit and Compensation Committees and our Code of
Ethics are available on our website at www.cutera.com. In the event that we grant a waiver under our Code of Ethics to
any of our officers and directors, we will publish it on our website.
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ITEM 1A.
RISK FACTORS
We operate in a rapidly changing economic and technological environment that presents numerous risks, many of
which are driven by factors that we cannot control or predict. The following discussion, as well as our discussion in
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7), highlights some of
these risks. The risks described below are not exhaustive and you should carefully consider these risks and
uncertainties before investing in our securities.
In 2013, our U.S. revenue decreased by approximately 1% compared to 2012. Unless our U.S. revenue improves, we
could experience a material adverse effect on our total revenue, profitability, employee retention and stock price.
Our U.S. revenue decreased by 1% in 2013, compared to 2012. Our U.S. revenue has declined due to several factors,
including:
We experienced significant sales force turnover, which was a distraction and negatively impacted our revenue
and employee productivity in 2013. Due in part to the softness experienced in the Podiatry market into which
we sell our GenesisPlus product, we consolidated the Podiatry focused sales force into our mainstream
aesthetic field sales group. This resulted in an even higher field sales employee turnover in 2013, as some of
our Podiatry specialists left our company.
Historically, following a new product introduction, we experience revenue growth, compared to the same
period in the prior year. However, even though we have experienced increased revenue from our Excel V and
truSculpt products, this revenue increase has not offset declines in some of our legacy product and upgrade
business, as well as the lower ASPs.
Lower product and upgrade average selling prices (“ASPs”) as a result of customers purchasing fewer
applications for systems and lower pricing resulting from competitive discounting.
There can be no assurance that we will continue to introduce new products each year, or that the new product
introductions will translate into increased revenue in the long term in the U.S, or that the new direct sales employees
and management hired to replace the recently departed sales employees will be effective and result in improved sales
productivity. Further, if the current economic recovery does not continue, or there is another recession in the U.S., our
future revenue would be adversely impacted.
If our U.S. revenue does not improve, we could experience a material adverse effect on our total revenue, profitability,
employee retention and stock price.
In the past five years we have only had two profitable quarters and we are unable to predict whether we will return
to sustained quarterly profits in the future.
Although we had a profitable fourth quarter in 2009 and 2012, we have had net quarterly losses in each quarter since
the third quarter of 2008. There is no guarantee that we will be profitable in the future and you should not rely on our
operating results for any prior quarterly or annual periods as an indication of our future operating performance. Any
predictions about the performance of our operations in the future may not be as accurate as they could be if we had a
longer history of profitability.
Revenue growth in our business is driven by several factors and one such factor is new product introductions. While sales
of our Excel V platform increased in 2013, compared with the prior year, sales of our truSculpt product introduced in
2012 have not gained a share of that market segment to the degree we had expected. We are making several product
improvements to the truSculpt product, adding new applicators to this platform and plan to seek additional regulatory
approvals for new indications to address the slower than expected penetration in the body contouring market. If our
revenue does not grow in 2014, compared to 2013, we may not be able to become profitable in future quarters.
Our ability to sustain profitability depends on the extent to which we can increase revenue and control our costs in
order to, among other things, counter any unforeseen difficulties, complications, product delays or other unknown
factors that may require additional expenditures. Because of the numerous risks and uncertainties associated with our
growth prospects, product development, sales and marketing and other efforts, we are unable to predict the extent of
our future profitability or losses. If our revenue does not achieve adequate growth in the future, we may continue to
incur a quarterly net loss and could consume cash in our operations in the future.
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We rely heavily on our sales professionals to market and sell our products worldwide. If we are unable to hire,
effectively train, manage, improve the productivity of, and retain the sales professionals, our business will be
harmed, which would impair our future revenue and profitability.
Our success largely depends on our ability to hire, train, manage and improve the productivity levels of our sales
professionals worldwide. Because of our focus on the non-core market in the past, several of our sales professionals do
not have established relationships with core market physicians (dermatologists and plastic surgeons) or where those
relationships exist, they are not very strong. We have experienced high sales employee turnover, partly due to the
consolidation of our specialty podiatry sales force into the mainstream aesthetic sales group. Further, some of our sales
management has either been recently hired or recently transferred into different roles. These factors have heavily
impacted the revenue we derived from our products and upgrades in fiscal 2013.
In 2013 we once again restructured our direct sales force and sales management and we are in the process of increasing
the number of direct sales employees in North America in response to our revenue results and changes in our sales
organization. However, at present we have a number of vacant sales territories in North America and are in the process
of hiring sales professionals for them. The sales employee turnover in 2013 negatively impacted our revenue and
productivity. We have increased our efforts to hire high quality experienced sales professionals but there can be no
guarantee that we will be able to locate and employ such qualified individuals. Our industry is characterized by a few
established companies that compete vigorously for talented sales professionals. Further, as the economy in North
America has rebounded from the recent recession years, some of those sales professionals have left our Company for
jobs that they perceive to be better opportunities both within and outside of the aesthetic industry.
We train our existing and recently recruited sales professionals to better understand our existing and new product
technologies and how they can be positioned against our competitors’ products. These initiatives are intended to
improve the productivity of our sales professionals, our revenue and profitability. It takes time for the sales
professionals to become productive following their training and there can be no assurance that the recently recruited
sales professionals will be adequately trained in a timely manner, or our direct sales productivity will improve, or that
we will not experience significant levels of attrition in the future. If we are not able to improve the productivity and
retention of our North American and international sales professionals, then our total revenue, profitability and stock
price may be adversely impacted.
Measures we implement in an effort to retain, train and manage our sales professionals, strengthen their relationships
with core market physicians, and improve their productivity may not be successful and may instead contribute to
instability in our operations, additional departures from our sales organization, or further reduce our revenue and harm
our business.
If our revenue does not improve, or if our cost of revenue and/ or operating expenses increase by a greater
percentage than our revenue, our gross margins and operating margins may be adversely impacted, our loss from
operations will increase, and our cash used in operating activities will increase, which could reduce our assets and
have a material adverse effect on our stock price.
Our gross margin (revenue less cost) improved to 56% in 2013, compared to 54% in 2012. Our gross margin is
impacted by the revenue that we generate and the costs incurred to generate the revenue. To the extent that our revenue
declines, it is difficult to improve our gross margins as our fixed costs must be spread over a lower revenue base. Our
future revenue may be adversely affected by a number of factors including, the competitive market environment in
which we operate, which may result in a decrease in the number of units sold, a decrease in the number of applications
per system purchased by customers, a decrease in the average selling prices achieved for our product sales, a shift in
our product mix towards products with lower average selling prices, or a shift in our product mix towards products
with lower margin.
Our cost of revenue may also be adversely impacted by various factors such as obsolescence of our inventory,
increased expenses associated with repairing defective products covered by our warranty program, utilization of our
relatively fixed manufacturing costs, and a shift in our product mix towards products that have a higher cost of
manufacturing.
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We have also been investing significant resources in our research and development and sales and marketing activities.
We are in the process of expanding our global direct sales force, and it may take time before our new sales
professionals become productive and for the revenue that they generate to become accretive to our operating income.
We plan to continue making such investments in order to bring new products to market and to distribute them
effectively. If these investments do not yield in increased revenue, we may continue to generate losses and consume
cash.
If our revenue does not to improve, or if our cost of revenue increases by a greater percentage than our revenue, or if
we are not able to reduce expenses in the event of a decline in revenue, we may continue to generate losses from
operations and use cash, which could reduce our assets and have a material adverse effect on our operations and stock
price.
The aesthetic equipment market is characterized by rapid innovation. To compete effectively, we must develop
and/or acquire new products, market them successfully, and identify new markets for our technology.
We have created products to apply our technology to body contouring, hair removal, treatment of veins and skin
rejuvenation, including the treating of diffuse redness, skin laxity, fine lines, wrinkles, skin texture, pore size and
pigmented lesions, etc. In 2012, we launched truSculpt for the body contouring market and acquired VariLite for
vascular and pigmented lesions. In 2011, we launched our vascular laser product – Excel V – and began distribution of
a Q-switched laser in Japan that Cutera is sourcing from a third party OEM for superficial and deep pigmented lesions
(i.e., melasma), skin rejuvenation, laser skin toning and tattoo removal. Currently, these applications represent the
majority of offered laser and other energy-based aesthetic procedures. In addition, since the first quarter of 2010, we
have been distributing cosmeceuticals and dermal fillers in the Japanese market. To grow in the future, we must
continue to develop and/or acquire new and innovative aesthetic products and applications, identify new markets, and
successfully launch the newly acquired or developed product offerings.
To successfully expand our product offerings, we must, among other things:
Develop and acquire new products that either add to or significantly improve our current product offerings;
Convince our existing and prospective customers that our product offerings would be an attractive revenue-
generating addition to their practice;
Identify new markets and alternative applications for our technology;
Sell our product offerings to a broad customer base;
Protect our existing and future products with defensible intellectual property; and
Satisfy and maintain all regulatory requirements for commercialization.
Historically, product introductions have been a significant component of our financial performance. To be successful in
the aesthetics industry, we need to continue to innovate. Our business strategy has therefore been based, in part, on our
expectation that we will continue to increase our product offerings. We need to continue to devote substantial research
and development resources to make new product introductions, which can be costly and time consuming to our
organization.
We also believe that, to increase revenue from sales of new products, we need to continue to develop our clinical
support, further expand and nurture relationships with industry thought leaders and increase market awareness of the
benefits of our new products. However, even with a significant investment in research and development, we may be
unable to continue to develop, acquire or effectively launch and market new products and technologies regularly, or at
all. If we fail to successfully commercialize new products, our business may be harmed.
While we attempt to protect our products through patents and other intellectual property, there are few barriers to entry
that would prevent new entrants or existing competitors from developing products that compete directly with ours. We
expect that any competitive advantage we may enjoy from current and future innovations may diminish over time as
companies successfully respond to our, or create their own, innovations. Consequently, we believe that we will have to
continuously innovate and improve our products and technology to compete successfully. If we are unable to innovate
successfully, our products could become obsolete and our revenue could decline as our customers and prospects
purchase our competitors’ products.
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Demand for our products in any of our markets could be weakened by several factors, including:
Our ability to develop and market our products to the core market specialties of dermatologists and plastic
surgeons;
Poor financial performance of market segments that try introducing aesthetic procedures to their businesses;
The inability to differentiate our products from those of our competitors;
Reduced patient demand for elective aesthetic procedures;
Failure to build and maintain relationships with opinion leaders within the various market segments;
An increase in malpractice lawsuits that result in higher insurance costs; and
The lack of credit financing for some of our potential customers.
If we do not achieve anticipated demand for our products, it could have a material adverse effect on our total revenue,
profitability, employee retention and stock price.
Macroeconomic political and market conditions, and catastrophic events may adversely affect our business, results
of operations, financial condition and stock price.
Our business is influenced by a range of factors that are beyond our control, including:
General economic and business conditions;
The overall demand for our products by the core market specialties of dermatologists and plastic surgeons;
Governmental budgetary constraints or shifts in government spending priorities;
General political developments;
Natural disasters, such as the March 2011 earthquake and tsunami in Japan; and
Currency exchange rate fluctuations.
Macroeconomic developments like the global recession and the debt crisis in the U.S. and certain countries in the
European Union, could negatively affect our business, operating results or financial condition which, in turn, could
adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global
economy or the curtailment in government or corporate spending could cause current or potential customers to reduce
their budgets or be unable to fund product or upgrade application purchases, which could cause customers to delay,
decrease or cancel purchases of our products and services or cause customers not to pay us or to delay paying us for
previously purchased products and services.
In addition, political unrest in regions like the Middle East, terrorist attacks around the globe and the potential for other
hostilities in various parts of the world, potential public health crises and natural disasters continue to contribute to a
climate of economic and political uncertainty that could adversely affect our results of operations and financial
condition, including our revenue growth and profitability. For example, the March 2011 earthquake and tsunami and
other collateral events in Japan adversely affected the demand for our products and services in the Japanese market.
Macroeconomic declines, negative political developments, adverse market conditions and catastrophic events may
cause a decline in our revenue, negatively affect our operating results, adversely affect our cash flow and could result
in a decline in our stock price.
To successfully market and sell our products internationally, we must address many issues that are unique to our
international business.
International revenue represented 58% of our total revenue in 2013 compared to 59% in 2012. International revenue is
a material component of our business strategy. We depend on third-party distributors and a direct sales force to sell our
products internationally, and if they underperform, we may be unable to increase or maintain our level of international
revenue.
23
We have experienced significant turnover of our European sales team in the past. While we continue to have a direct
sales and service organization in France and Belgium (which commenced operations in 2013), a significant portion of
our European revenue is generated through our network of distributors. Though we continue to evaluate and replace
non-performing distributors and are restructuring parts of our European business towards the utilization of more
distributors, there can be no assurance given that these initiatives will result in improved European-sourced revenue or
profitability in the future
To grow our business, we will need to improve productivity in current sales territories and expand into new territories.
However, direct sales productivity may not improve and distributors may not accept our business or commit the
necessary resources to market and sell our products to the level of our expectations. If we are not able to increase or
maintain international revenue growth, our total revenue, profitability and stock price may be adversely impacted.
We believe, as we continue to manage our international operations and develop opportunities in additional
international territories, our international revenue will be subject to a number of risks, including:
Difficulties in staffing and managing our foreign operations;
Export restrictions, trade regulations and foreign tax laws;
Fluctuating foreign currency exchange rates;
Foreign certification and regulatory requirements;
Lengthy payment cycles and difficulty in collecting accounts receivable;
Customs clearance and shipping delays;
Political and economic instability;
Lack of awareness of our brand in international markets;
Preference for locally-produced products; and
Reduced protection for intellectual property rights in some countries.
If one or more of these risks were realized, it could require us to dedicate significant resources to remedy the situation;
and if we were unsuccessful at finding a solution, we may not be able to sell our products in a particular market and, as
a result, our revenue may decline.
We are subject to fluctuations in the exchange rate of the U.S. dollar and foreign currencies.
Foreign currency fluctuations could result in volatility of our revenue. We do not actively hedge our exposure to
currency rate fluctuations. While we transact business primarily in U.S. Dollars, and a significant proportion of our
revenue is denominated in U.S. Dollars, a portion of our costs and revenue is denominated in other currencies, such as
the Euro, Japanese Yen, Australian Dollar and Canadian Dollar. As a result, changes in the exchange rates of these
currencies to the U.S. Dollar will affect our results from operations. For example, as a result of the recent strengthening
of the U.S. Dollar, relative to many other major currencies, our products priced in U.S. dollars have become more
expensive relative to products of our foreign competitors. In addition, our revenue earned in foreign currencies, such as
our locally generated revenue in Japan, has been negatively impacted upon translation into U.S. dollars. Both these
factors had a negative impact on our international revenue in 2013, compared to 2012.
Future foreign currency fluctuations could adversely impact and increase the volatility of our revenue, profitability and
stock price.
Our ability to effectively compete and generate additional revenue from new and existing products depend upon our
ability to distinguish our company and our products from our competitors and their products, and to develop and
effectively market new and existing products. Our success is dependent on many factors, including the following:
Identify and develop clinical support for new indications of our existing products;
Speed of new and innovative product development;
Effective strategy and execution of new product launches;
Product performance;
Product pricing;
Quality of customer support;
Development of successful distribution channels, both domestically and internationally; and
Intellectual property protection.
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To compete effectively, we have to demonstrate that our new and existing products are attractive alternatives to other
devices and treatments, by differentiating our products on the basis of such factors as innovation, performance, brand
name, service, and price. This is difficult to do, especially in a crowded aesthetic market. Some of our competitors have
newer or different products and more established customer relationships than we do, which could inhibit our market
penetration efforts. For example, we have encountered, and expect to continue to encounter, situations where, due to
pre-existing relationships, potential customers decided to purchase additional products from our competitors. Potential
customers also may need to recoup the cost of products that they have already purchased from our competitors and
may decide not to purchase our products, or to delay such purchases.
If we are unable to increase our market penetration or compete effectively, our revenue and profitability will be
adversely impacted.
We compete against companies that offer alternative solutions to our products, or have greater resources, a larger
installed base of customers and broader product offerings than ours. If we are not able to effectively compete with
these companies, it may harm our business.
Our industry is subject to intense competition. Our products compete against similar products offered by public
companies, such as Cynosure, Elen (in Italy), Lumenis, Solta (acquired by Valeant Pharmaceuticals International, Inc.
in January 2014), Syneron, as well as private companies such as Alma, Sciton and several other companies. Recently,
there has been consolidation in the aesthetic industry leading to companies combining their resources. For example,
Valeant acquired Solta in January 2014, Cynosure acquired Palomar in June 2013 and the aesthetic laser business of
HOYA ConBio in June 2011; Syneron acquired Ultrashape in March 2012 and Candela in September 2009; we
acquired the aesthetic business unit of Iridex in February 2012; and Solta (previously Thermage) acquired Aesthera in
February 2010 and Reliant in December 2008. We are likely to compete with new companies in the future.
Competition with these companies could result in reduced selling prices, reduced profit margins and loss of market
share, any of which would harm our business, financial condition and results of operations.
The energy-based aesthetic market faces competition from non-energy-based medical products, such as Botox, an
injectable compound used to reduce wrinkles, and collagen injections. Other alternatives to the use of our products
include electrolysis, a procedure involving the application of electric current to eliminate hair follicles, and chemical
peels. We may also face competition from manufacturers of pharmaceutical and other products that have not yet been
developed.
If there is not sufficient consumer demand for the procedures performed with our products, practitioner demand for
our products could be inhibited, resulting in unfavorable operating results and reduced growth potential.
Continued expansion of the global market for laser and other-energy-based aesthetic procedures is a material
assumption of our business strategy. Most procedures performed using our products are elective procedures not
reimbursable through government or private health insurance, with the costs borne by the patient. The decision to
utilize our products may therefore be influenced by a number of factors, including:
Consumer disposable income and access to consumer credit, which as a result of the unstable economy, may
have been significantly impacted;
The cost of procedures performed using our products;
The cost, safety and effectiveness of alternative treatments, including treatments which are not based upon
laser or other energy-based technologies and treatments which use pharmaceutical products;
The success of our sales and marketing efforts; and
The education of our customers and patients on the benefits and uses of our products, compared to
competitors’ products and technologies.
If, as a result of these factors, there is not sufficient demand for the procedures performed with our products,
practitioner demand for our products could be reduced, which could have a material adverse effect on our business,
financial condition, revenue and result of operations.
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The U.S. Food and Drug Administration (the “FDA”), federal and state agencies and international regulatory
bodies have broad enforcement powers. If we fail to comply with applicable regulatory requirements, it could result
in enforcement action by the FDA, federal and state agencies or international regulatory bodies.
The FDA, state authorities and international regulatory bodies have broad enforcement powers. For example, in July
2012, we received a warning letter from the FDA concerning the promotional labeling for our GenesisPlus laser. The
FDA determined that some of the claims, such as the one related to Skin Rejuvenation, constituted new Indications for
Use and required additional 510(k) clearances. The FDA subsequently requested that we review the promotional
labeling for all of our products to ensure our claims were within regulatory clearances and that we submit updated
promotional labeling for our products to the FDA for their review. We are in the process of complying with the FDA’s
request.
If we fail to comply with any U.S. law or any of the applicable regulatory requirements of the FDA, or federal or state
agencies, or one of the international regulatory bodies, it could result in enforcement action by the agencies, which may
include any of the following sanctions:
Warning letters, fines, injunctions, consent decrees and civil penalties;
Repair, replacement, refund, recall or seizure of our products;
Operating restrictions or partial suspension or total shutdown of production;
Refusing our requests for 510(k) clearance or pre-market approval of new products, new intended uses, or
modifications to existing products;
Withdrawing 510(k) clearance or pre-market approvals that have already been granted; and
Criminal prosecution.
If we fail to obtain or maintain necessary FDA clearances for our products and indications, if clearances for future
products and indications are delayed or not issued, if there are federal or state level regulatory changes or if we are
found to have violated applicable FDA marketing rules, our commercial operations would be harmed.
Our products are medical devices that are subject to extensive regulation in the U.S. by the FDA for manufacturing,
labeling, sale, promotion, distribution and shipping. Before a new medical device, or a new use of or labeling claim for
an existing product, can be marketed in the U.S., it must first receive either 510(k) clearance or pre-marketing approval
from the FDA, unless an exemption applies. Either process can be expensive and lengthy. In the event that we do not
obtain FDA clearances or approvals for our products, our ability to market and sell them in the U.S. and revenue
derived from there may be adversely affected.
Medical devices may be marketed in the U.S. only for the indications for which they are approved or cleared by the
FDA. For example, up until April 2011 our recently introduced GenesisPlus product had a number of general
indications for use in the U.S. that allowed us to market the product in the U.S.; however we could only market it
internationally for the treatment of toenail fungus as it has a CE Mark approval. In April 2011, we received FDA
clearance to market GenesisPlus in the U.S. for the clearance of nails that are infected with toenail fungus. Another
example is our Pearl Fractional product which is cleared only for skin resurfacing in the U.S. and our Titan product
only for deep heating for the temporary relief of muscle aches and pains in the U.S. Therefore, we are prevented from
promoting or advertising Titan and Pearl Fractional in the U.S. for any other indications. If we fail to comply with
these regulations, it could result in enforcement action by the FDA which could lead to such consequences as warning
letters, adverse publicity, criminal enforcement action and/or third-party civil litigation, each of which could adversely
affect us.
We have obtained 510(k) clearance for the indications for which we market our products. However, our clearances can
be revoked if safety or effectiveness problems develop. We also are subject to Medical Device Reporting regulations,
which require us to report to the FDA if our products cause or contribute to a death or serious injury, or malfunction in
a way that would likely cause or contribute to a death or serious injury. Our products are also subject to state
regulations, which are, in many instances frequently changing. Changes in state regulations may impede sales. For
example, federal regulations allow our products to be sold to, or on the order of, “licensed practitioners,” as determined
on a state-by-state basis. As a result, in some states, non-physicians may legally purchase our products. However, a
state could change its regulations at any time, thereby disallowing sales to particular types of end users. We cannot
predict the impact or effect of future legislation or regulations at the federal or state levels.
26
Federal regulatory reforms and changes occurring at the FDA could adversely affect our ability to sell our products
profitably and financial condition.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory
provisions governing the clearance or approval, manufacture and marketing of a device. It is impossible to predict
whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the
impact of such changes, if any, may be.
In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may
significantly affect our business and our products. Changes in FDA regulations may lengthen the regulatory approval
process for medical devices and require additional clinical data to support regulatory clearance for the sale and
marketing of our new products. In addition, it may require additional safety monitoring, labeling changes, restrictions
on product distribution or use, or other measures after the introduction of our products to market. Either of these
changes lengthen the duration to market, increase our costs of doing business, adversely affect the future permitted
uses of approved products, or otherwise adversely affect the market for our products.
If we fail to comply with the FDA’s Quality System Regulation and laser performance standards, our
manufacturing operations could be halted, and our business would suffer.
We are currently required to demonstrate and maintain compliance with the FDA’s Quality System Regulation (the
“QSR”). The QSR is a complex regulatory scheme that covers the methods and documentation of the design, testing,
control, manufacturing, labeling, quality assurance, packaging, storage and shipping of our products. Because our
products involve the use of lasers, our products also are covered by a performance standard for lasers set forth in FDA
regulations. The laser performance standard imposes specific record-keeping, reporting, product testing and product
labeling requirements. These requirements include affixing warning labels to laser products, as well as incorporating
certain safety features in the design of laser products. The FDA enforces the QSR and laser performance standards
through periodic unannounced inspections. We had a full quality system audit in 2008 and an FDA audit of compliance
with laser performance standards in 2010 and a full quality system audit plus laser performance standard audit in
August 2011 and a full quality system audit in October 2012. There were no significant findings as a result of these
audits and our responses have been accepted by the FDA. Our failure to take satisfactory corrective action in response
to an adverse QSR inspection or our failure to comply with applicable laser performance standards could result in
enforcement actions, including a public warning letter, a shutdown of our manufacturing operations, a recall of our
products, civil or criminal penalties, or other sanctions, such as those described in the preceding paragraph, which
would cause our sales and business to suffer.
If we modify one of our FDA-approved devices, we may need to seek re-approval, which, if not granted, would
prevent us from selling our modified products or cause us to redesign our products.
Any modifications to an FDA-cleared device that would significantly affect its safety or effectiveness or that would
constitute a major change in its intended use would require a new 510(k) clearance or possibly a pre-market approval.
For example, we designed a larger 40cm2 hand piece for our truSculpt product and had to get that approved by the
FDA before we could market it, which approval was received in January 2012. We may not be able to obtain additional
510(k) clearance or pre-market approvals for new products or for modifications to, or additional indications for, our
existing products in a timely fashion, or at all. Delays in obtaining future clearance would adversely affect our ability
to introduce new or enhanced products in a timely manner, which in turn would harm our revenue and future
profitability.
We have made modifications to our devices in the past and may make additional modifications in the future that we
believe do not or will not require additional clearance or approvals. If the FDA disagrees, and requires new clearances
or approvals for the modifications, we may be required to recall and to stop marketing the modified devices, which
could harm our operating results and require us to redesign our products.
27
We may be unable to obtain or maintain international regulatory qualifications or approvals for our current or
future products and indications, which could harm our business.
Sales of our products outside the U.S. are subject to foreign regulatory requirements that vary widely from country to
country. In addition, exports of medical devices from the U.S. are regulated by the FDA. Complying with international
regulatory requirements can be an expensive and time-consuming process and approval is not certain. The time
required for obtaining clearance or approvals, if required by other countries, may be longer than that required for FDA
clearance or approvals, and requirements for such clearances or approvals may significantly differ from FDA
requirements. We may be unable to obtain or maintain regulatory qualifications, clearances or approvals in other
countries. We may also incur significant costs in attempting to obtain and in maintaining foreign regulatory approvals
or qualifications. If we experience delays in receiving necessary qualifications, clearances or approvals to market our
products outside the U.S., or if we fail to receive those qualifications, clearances or approvals, we may be unable to
market our products or enhancements in international markets effectively, or at all, which could have a material
adverse effect on our business and growth strategy.
Any defects in the design, material or workmanship of our products may not be discovered prior to shipment to
customers, which could materially increase our expenses, adversely impact profitability and harm our business.
The design of our products is complex. To manufacture them successfully, we must procure quality components and
employ individuals with a significant degree of technical expertise. If our designs are defective, or the material
components used in our products are subject to wearing out, or if suppliers fail to deliver components to specification,
or if our employees fail to properly assemble, test and package our products, the reliability and performance of our
products will be adversely impacted. As an example, in 2010, we incurred significant expenses for the voluntary recall
of our Titan XL hand pieces.
If our products contain defects that cannot be repaired easily, inexpensively, or on a timely basis, we may experience:
Damage to our brand reputation;
Loss of customer orders and delay in order fulfillment;
Diversion of resources from our manufacturing and research and development departments into our service
Increased costs due to product repair or replacement;
Inability to attract new customers;
department; and
Legal action.
The occurrence of any one or more of the foregoing could materially increase expenses, adversely impact profitability
and harm our business.
We depend on skilled and experienced personnel to operate our business effectively. If we are unable to recruit,
hire, train and retain these employees, our ability to manage and expand our business will be harmed, which would
impair our future revenue and profitability.
Our success largely depends on the skills, experience and efforts of our officers and other key employees. Except for
Change of Control and Severance Agreements for our executive officers and one key employee, we do not have
employment contracts with any of our officers or other key employees. Any of our officers and other key employees
may terminate their employment at any time. We do not have a succession plan in place for each of our officers and
key employees. In addition, we do not maintain “key person” life insurance policies covering any of our employees.
The loss of any of our senior management team members could weaken our management expertise and harm our
business.
Our ability to retain our skilled labor force and our success in attracting and hiring new skilled employees are critical
factors in determining whether we will be successful in the future. We may not be able to meet our future hiring needs
or retain existing personnel. The staff we hire to perform administrative functions may be become stretched due to our
increased growth and they may not be able to perform their jobs effectively or efficiently as a result.
We may face particularly significant challenges and risks in hiring, training, managing and retaining engineering and
sales and marketing employees. Failure to attract, train and retain personnel, particularly technical and sales and
marketing personnel, would materially harm our ability to compete effectively and grow our business.
28
Product liability suits could be brought against us due to a defective design, material or workmanship or misuse of
our products and could result in expensive and time-consuming litigation, payment of substantial damages and an
increase in our insurance rates.
If our products are defectively designed, manufactured or labeled, contain defective components or are misused, we
may become subject to substantial and costly litigation by our customers or their patients. Misusing our products or
failing to adhere to operating guidelines could cause significant eye and skin damage, and underlying tissue damage. In
addition, if our operating guidelines are found to be inadequate, we may be subject to liability. We have been involved,
and may in the future be involved, in litigation related to the use of our products. Product liability claims could divert
management’s attention from our core business, be expensive to defend and result in sizable damage awards against us.
We may not have sufficient insurance coverage for all future claims. We may not be able to obtain insurance in
amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability
claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from
securing continuing coverage, could harm our reputation in the industry and could reduce product sales. In addition, we
historically experienced steep increases in our product liability insurance premiums as a percentage of revenue. If our
premiums continue to rise, we may no longer be able to afford adequate insurance coverage.
If customers are not trained and / or our products are used by non-physicians, it could result in product misuse and
adverse treatment outcomes, which could harm our reputation, result in product liability litigation, distract
management, result in additional costs, all of which could harm our business.
Because we do not require training for users of our products, and sell our products at times to non-physicians, there
exists an increased potential for misuse of our products, which could harm our reputation and our business. U.S. federal
regulations allow us to sell our products to or on the order of “licensed practitioners.” The definition of “licensed
practitioners” varies from state to state. As a result, our products may be purchased or operated by physicians with
varying levels of training, and in many states, by non-physicians, including nurse practitioners, chiropractors and
technicians. Outside the U.S., many jurisdictions do not require specific qualifications or training for purchasers or
operators of our products. We do not supervise the procedures performed with our products, nor do we require that
direct medical supervision occur. We and our distributors generally offer but do not require product training to the
purchasers or operators of our products. In addition, we sometimes sell our systems to companies that rent our systems
to third parties and that provide a technician to perform the procedures. The lack of training and the purchase and use
of our products by non-physicians may result in product misuse and adverse treatment outcomes, which could harm our
reputation and our business, and, in the event these result in product liability litigation, distract management and
subject us to liability, including legal expenses.
In the past we entered into strategic alliances to distribute third party products internationally. To successfully
market and sell these products, we must address many issues that are unique to these businesses and could reduce
our available cash reserves and negatively impact our profitability.
In the past we entered into distribution arrangements pursuant to which we utilize our sales force and distributors to
sell products manufactured by other companies. In Japan we distribute a Q-switched laser product manufactured by a
third party OEM. We also have an agreement with ZO (commencing in the fourth quarter of 2013) to distribute certain
of their proprietary cosmeceuticals, or skin care products, in Japan. We previously had an agreement to distribute
certain of Obagi’s cosmeceutical products but terminated that effective December 31, 2013. Each of these agreements
requires us to purchase annual minimum dollar amounts of their product. If we do not make these minimum purchases,
we could lose exclusivity for distributing these products to physicians in Japan. Finally, we also have an agreement
with Merz Aesthetics to distribute its Radiesse® dermal filler product in Japan.
Each of these distribution agreements presents its own unique risks and challenges. For example, to sell cosmeceutical
products we need to invest in creating a sales structure that is experienced in the sale of cosmeceuticals and not in
capital equipment. We need to commit resources to training this sales force, obtaining regulatory licenses in Japan and
developing new marketing materials to promote the sale of cosmeceutical products. In addition, the minimum
commitments and other costs of distributing products manufactured by these companies may exceed the incremental
revenue that we derive from the sale of their products thereby negatively impacting our profitability and reducing our
available cash reserves.
29
Adverse conditions in the global banking industry and credit markets may adversely impact the value of our
marketable investments or impair our liquidity.
We invest our excess cash primarily in money market funds and in highly liquid debt instruments of the U.S.
government and its agencies and U.S. municipalities, in commercial paper and high grade corporate debt. As of
December 31, 2013, our balance in marketable investments was $67 million. The longer the duration of a security, the
more susceptible it is to changes in market interest rates and bond yields. As yields increase, those securities with a
lower yield-at-cost show a mark-to-market unrealized loss. For example, assuming a hypothetical increase in interest
rates of one percentage point, the fair value of our total investment portfolio as of December 31, 2013 would have
potentially decreased by approximately $788,000, resulting in an unrealized loss that would subsequently adversely
impact our earnings. As a result, changes in the market interest rates will affect our future net income (loss).
The price of our common stock may fluctuate substantially due to several factors, some of which are discussed
below. Further, we have a limited number of shares of common stock outstanding, a large portion of which is held
by a small number of investors, which could result in the increase in volatility of our stock price.
As of December 2013, approximately 53% of our outstanding shares of common stock were held by 10 institutional
investors. As a result of our relatively small public float, our common stock may be less liquid than the stock of
companies with broader public ownership. Among other things, trading of a relatively small volume of our common
stock may have a greater impact on the trading price for our shares than would be the case if our public float were
larger. The public market price of our common stock has in the past fluctuated substantially and, due to the current
concentration of stockholders, it may continue to do so in the future. The market price for our common stock could also
be affected by a number of other factors, including:
Litigation surrounding executive compensation has increased with the passage of the Dodd-Frank Wall Street
Reform and Consumer Protection Act. If we are involved in a lawsuit related to compensation matters or any
other matters not covered by our D&O insurance, there could be material expenses involved, fines, or
remedial actions which could negatively affect our stock price;
The general market conditions unrelated to our operating performance;
Sales of large blocks of our common stock, including sales by our executive officers, directors and our large
institutional investors;
Quarterly variations in our, or our competitors’, results of operations;
Changes in analysts’ estimates, investors’ perceptions, recommendations by securities analysts or our failure
to achieve analysts’ estimates;
The announcement of new products or service enhancements by us or our competitors;
The announcement of the departure of a key employee or executive officer by us or our competitor;
Regulatory developments or delays concerning our, or our competitors’ products; and
The initiation of litigation by us or against us.
Actual or perceived instability and / or volatility in our stock price could reduce demand from potential buyers of our
stock, thereby causing our stock price to either remain depressed or to decline further.
Our manufacturing operations are dependent upon third-party suppliers, making us vulnerable to supply shortages
and price fluctuations, which could harm our business.
Many of the components and materials that comprise our products are currently manufactured by a limited number of
suppliers. A supply interruption or an increase in demand beyond our current suppliers’ capabilities could harm our
ability to manufacture our products until a new source of supply is identified and qualified. Our reliance on these
suppliers subjects us to a number of risks that could harm our business, including:
Interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
Delays in product shipments resulting from uncorrected defects, reliability issues or a supplier’s variation in a
component;
A lack of long-term supply arrangements for key components with our suppliers;
Inability to obtain adequate supply in a timely manner, or on reasonable terms;
Inability to redesign one or more components in our systems in the event that a supplier discontinues
manufacturing such components and we are unable to source it from other suppliers on reasonable terms;
30
Difficulty locating and qualifying alternative suppliers for our components in a timely manner;
Production delays related to the evaluation and testing of products from alternative suppliers and
corresponding regulatory qualifications; and
Delay in supplier deliveries.
Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials
from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our
customers, which would have an adverse effect on our business.
Intellectual property rights may not provide adequate protection for some or all of our products, which may permit
third parties to compete against us more effectively.
We rely on patent, copyright, trade secret and trademark laws and confidentiality agreements to protect our technology
and products. At December 31, 2013, we had 30 issued U.S. patents. Some of our components, such as our laser
module, electronic control system and high-voltage electronics, are not, and in the future may not be, protected by
patents. Additionally, our patent applications may not issue as patents or, if issued, may not issue in a form that will be
advantageous to us. Any patents we obtain may be challenged, invalidated or legally circumvented by third parties.
Consequently, competitors could market products and use manufacturing processes that are substantially similar to, or
superior to, ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other
trade secrets by consultants, vendors, former employees or current employees, despite the existence generally of
confidentiality agreements and other contractual restrictions. Monitoring unauthorized uses and disclosures of our
intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual
property will be effective. Moreover, the laws of many foreign countries will not protect our intellectual property rights
to the same extent as the laws of the U.S.
The absence of complete intellectual property protection exposes us to a greater risk of direct competition. Competitors
could purchase one of our products and attempt to replicate some or all of the competitive advantages we derive from
our development efforts, design around our protected technology, or develop their own competitive technologies that
fall outside of our intellectual property rights. If our intellectual property is not adequately protected against
competitors’ products and methods, our competitive position and our business could be adversely affected.
We may be involved in future costly intellectual property litigation, which could impact our future business and
financial performance.
Our competitors or other patent holders may assert that our present or future products and the methods we employ are
covered by their patents. In addition, we do not know whether our competitors own or will obtain patents that they may
claim prevent, limit or interfere with our ability to make, use, sell or import our products. Although we may seek to
resolve any potential future claims or actions, we may not be able to do so on reasonable terms, or at all. If, following a
successful third-party action for infringement, we cannot obtain a license or redesign our products, we may have to
stop manufacturing and selling the applicable products and our business would suffer as a result. In addition, a court
could require us to pay substantial damages, and prohibit us from using technologies essential to our products, any of
which would have a material adverse effect on our business, results of operations and financial condition.
We may become involved in litigation not only as a result of alleged infringement of a third party’s intellectual
property rights but also to protect our own intellectual property. For example, we have been, and may hereafter
become, involved in litigation to protect the trademark rights associated with our company name or the names of our
products. Infringement and other intellectual property claims, with or without merit, can be expensive and time-
consuming to litigate, and could divert management’s attention from our core business.
31
We offer credit terms to some qualified customers and also to leasing companies to finance the purchase of our
products. In the event that any of these customers default on the amounts payable to us, our earnings may be
adversely affected.
While we qualify customers to whom we offer credit terms (generally net 30 to 90 days), we cannot provide any
assurance that the financial position of these customers will not change adversely before we receive payment. Our
general and administrative expenses and earnings are negatively impacted by customer defaults and cause an increase
in the allowance for doubtful accounts. In the event that there is a default by any customers to whom we have provided
credit terms in the future, we may recognize a bad debt charge in our general and administrative expenses and this
could negatively affect our earnings and results of operations.
The expense and potential unavailability of insurance coverage for our customers could adversely affect our ability
to sell our products, and therefore our financial condition.
Some of our customers and prospective customers have had difficulty in procuring or maintaining liability insurance to
cover their operation and use of our products. Medical malpractice carriers are withdrawing coverage in certain states
or substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using our
products and potential customers may opt against purchasing laser and light based products due to the cost or inability
to procure insurance coverage. The unavailability of insurance coverage for our customers and prospects could
adversely affect our ability to sell our products, and that could harm our financial condition.
Healthcare reform legislation will continue to adversely affect our profitability and financial condition.
In December 2009, the President and members of Congress passed legislation relating to healthcare reform. Procedures
performed by our products are not reimbursed by insurance companies or federal or state governments and as a result
this legislation had a limited impact on our business. Medical device manufacturers have to pay an excise tax of 2.3%
on certain U.S. medical device revenues. Though there are some exceptions, this excise tax applies to all of our product
and upgrade revenue from the U.S. and will continue to have an adverse effect on our operating profitability and
financial condition.
Any acquisitions that we make could disrupt our business and harm our financial condition.
From time to time we evaluate potential strategic acquisitions of complementary businesses, products or technologies.
We may also consider joint ventures and other collaborative projects. We may not be able to identify appropriate
acquisition candidates or strategic partners, or successfully negotiate, finance or integrate any businesses, products or
technologies that we acquire. Furthermore, the integration of any acquisition and management of any collaborative
project may divert management’s time and resources from our core business and disrupt our operations and we may
incur significant legal, accounting and banking fees in connection with such a transaction. In addition, if we purchase a
company that is not profitable, our cash balances may be reduced or depleted. We have limited experience as a team
with acquiring companies and products. If we decide to expand our product offerings beyond laser and other energy-
based products, we may spend time and money on projects that do not increase our revenue. Any cash acquisition we
pursue would diminish our available cash balances to us for other uses, and any stock acquisition could be dilutive to
our stockholders.
While we from time to time evaluate potential acquisitions of businesses, products and technologies, and anticipate
continuing to make these evaluations, we have no present understandings, commitments or agreements with respect to
any material acquisitions or collaborative projects.
Anti-takeover provisions in our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law,
contain provisions that could discourage a takeover.
Our Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, contain provisions that might
enable our management to resist a takeover, and might make it more difficult for an investor to acquire a substantial
block of our common stock. These provisions include:
• A classified board of directors;
• Advance notice requirements to stockholders for matters to be brought at stockholder meetings;
32
• Limitations on stockholder actions by written consent; and
• The right to issue preferred stock without stockholder approval, which could be used to dilute the stock
ownership of a potential hostile acquirer.
These provisions, as well as Change of Control and Severance Agreements entered into with each of our executive
officers and one key employee, might discourage, delay or prevent a change in control of our company or a change in
our management. The existence of these provisions could adversely affect the voting power of holders of common
stock and limit the price that investors might be willing to pay in the future for shares of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
PROPERTIES
Our corporate headquarters and U.S. operations are located in an approximately 66,000 square foot facility in Brisbane,
California. We lease these premises under a non-cancelable operating lease which expires on December 31, 2017. In
addition, we have leased office facilities in certain countries as follows:
Country
Square Footage
Japan . . . . . .
Approximately 5,896
France . . . . .
Approximately 2,239
Lease termination or Expiration
Two leases, one of which expires in March 2015 and one which expires in
December 2015.
One lease which expires in October 2021 but can be terminated with six months’
notice prior to October 2015 and 2018.
We believe that these facilities are adequate for our current and future needs for at least the next twelve months.
ITEM 3.
LEGAL PROCEEDINGS
We are not a party to any pending litigation that we believe will have a material impact to our results of operations.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
33
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Exchange Listing
Our common stock trades on The NASDAQ Global Select Market under the symbol “CUTR.” As of February 28,
2014, the closing sale price of our common stock was $10.70 per share.
Common Stockholders
We had 9 stockholders of record as of February 28, 2014. Since many stockholders choose to hold their shares under
the name of their brokerage firm we estimate that the actual number of stockholders was approximately 2,500
shareholders.
Stock Prices
The following table sets forth quarterly high and low closing sales prices of our common stock for the indicated fiscal
periods:
Common Stock
2013
2012
High
Low
High
Low
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
10.56
10.18
13.70
13.03
$
8.39
8.89
8.62
8.95
$
9.77
7.60
9.13
9.67
7.34
6.46
6.47
7.09
Issuer Purchases of Equity Securities
The following table summarizes the activity related to stock repurchases for the year ended December 31, 2013 (in
thousands except per share data):
Period
August 1-30, 2013 . . . . . . . . . . . . . . . . . . . . .
September 1-30, 2013 . . . . . . . . . . . . . . . . . .
November 1-30, 2013 . . . . . . . . . . . . . . . . . .
Total
Number of
Shares
Purchased
Average
Price Paid
per Share
546
251
264
1,061
$
$
$
$
9.46
9.70
9.10
9.43
Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares
That May
Yet Be
Purchased
Under the
Plans or
Programs
546
251
264
1,061
$
$
$
$
14,833
12,400
10,000
10,000
On August 5, 2013, our Board of Directors modified Cutera, Inc.’s stock buyback program, originally adopted in
November 2012, to permit an additional $10 million of its issued and outstanding common shares to be repurchased.
As modified, the stock buyback program permits us to purchase an aggregate of $20 million of our common stock
through a 10b5-1 program based on predetermined pricing and volume parameters, as well as open-market purchase
that are subject to management discretion and regulatory restrictions.
In the year ended December 31, 2013, we repurchased 1,060,447 shares of our common stock for approximately $10.0
million. As of December 31, 2013, there remained an additional $10.0 million of our common stock to be purchased
under the modified stock buyback program. The number of shares to be repurchased, and the timing of such
repurchases, will be based on several factors, including the price of the Company’s common stock, regulatory
restrictions, and general market and business conditions.
34
Sales of Unregistered Securities
We did not sell any unregistered securities during the period covered by this Annual Report on Form 10-K.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this Item regarding equity compensation plans is incorporated by reference to the
information set forth in Part III Item 12 of this Annual Report on Form 10-K.
Performance Graph
Below is a graph showing the cumulative total return to our stockholders during the period from December 31, 2008
through December 31, 2013 in comparison to the cumulative return on the NASDAQ Composite Index (U.S.) and the
NASDAQ Medical Equipment Index during that same period.
The information under “Performance Graph” is not deemed filed with the Securities and Exchange Commission and is
not to be incorporated by reference in any filing of Cutera under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, whether made before or after the date of this 10-K and irrespective of
any general incorporation language in those filings.
Dividend Policy
We have never paid a cash dividend and have no present intention to pay cash dividends in the foreseeable future. We
intend to retain any future earnings for use in our business.
35
ITEM 6.
SELECTED FINANCIAL DATA
The table set forth below contains certain consolidated financial data for each of our last five fiscal years. This data
should be read in conjunction with the detailed information, financial statements and related notes, as well as
Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
Consolidated Statements of Operations
Data (in thousands, except per share
data):
Net revenue . . . . . . . . . . . . . . . . . . . .
Cost of revenue . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . .
f
Operating expenses:
Sales and marketing . . . . . . . . . .
Research and development . . . .
General and administrative . . . .
Litigation settlement . . . . . . . . . .
Total operating expenses . . . .
Loss from operations. . . . . . . . . . . .
Interest and other income, net. . . .
Loss before income taxes . . . . . . . .
Income tax (benefit) provision . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share:
Basic and diluted . . . . . . . . . . . . .
Weighted-average number of
shares used in per share
calculations:
Basic and diluted . . . . . . . . . . . . .
Consolidated Balance Sheet Data (in
thousands):
Cash and cash equivalents . . . . . . .
Marketable investments . . . . . . . . .
Long-term investments . . . . . . . . . .
Working capital (current assets
less current liabilities) . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . .
Retained earnings (accumulated
deficit) . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . .
Year Ended December 31,
2013
2012
2011
2010
2009
$
74,594
32,712
41,882
27,984
9,216
9,938
—
47,138
(5,256)
455
(4,801)
(54)
(4,747) $
$
77,277
35,737
41,540
28,664
8,427
11,276
—
48,367
(6,827)
497
(6,330)
218
(6,548) $
$
60,290
25,978
34,312
$
53,274
23,058
30,216
53,682
21,759
31,923
25,499
9,141
10,104
—
44,744
(10,432)
614
(9,818)
243
(10,061) $
24,735
7,004
9,576
—
41,315
(11,099)
583
(10,516)
2
(10,518) $
24,286
6,810
10,320
850
42,266
(10,343)
1,572
(8,771)
8,908
(17,679)
(0.33) $
(0.46) $
(0.73) $
(0.78) $
(1.33)
$
$
$
14,421
14,089
13,807
13,540
13,279
As of December 31,
2013
2012
2011
2010
2009
$
$
16,242
66,831
—
$
23,546
62,026
—
$
14,020
74,666
3,027
$
12,519
77,484
6,784
22,829
76,780
7,275
84,654
108,669
(14,620)
84,265
88,788
112,794
(9,873)
90,774
89,075
111,353
(3,325)
91,567
90,339
111,805
6,736
95,417
96,015
121,352
17,254
100,853
36
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited financial statements and notes thereto for the
fiscal year ended December 31, 2013. This Annual Report on Form 10-K, including the following sections, contains
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout
this Report, and particularly in this Item 7, the forward-looking statements are based upon our current expectations,
estimates and projections and that reflect our beliefs and assumptions based upon information available to us at the
date of this Report. In some cases, you can identify these statements by words such as “may,” “might,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” and
other similar terms. These forward-looking statements are not guarantees of future performance and are subject to
risks, uncertainties, and assumptions that are difficult to predict. Our actual results, performance or achievements
could differ materially from those expressed or implied by the forward-looking statements. The forward-looking
statements include, but are not limited to, statements relating to our future financial performance, the ability to grow
our business, increase our revenue, manage expenses, generate additional cash, achieve and maintain profitability,
develop and commercialize existing and new products and applications, improve the performance of our worldwide
sales and distribution network, and to the outlook regarding long term prospects. We caution you not to place undue
reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual
Report on Form 10-K. We undertake no obligation to update forward-looking statements to reflect events or
circumstances occurring after the date of this Form 10-K.
Some of the important factors that could cause our results to differ materially from those in our forward-looking
statements, and a discussion of other risks and uncertainties, are discussed in Item 1A—Risk Factors commencing on
page 20. We encourage you to read that section carefully as well as other risks detailed from time to time in our filings
with the SEC.
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 our business, a brief discussion
of our product lines and the opportunities, trends, challenges and risks we focus 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.
• Recent Accounting Guidance. This section describes the issuance and effect of new accounting
pronouncements that are and may be applicable to us.
• Results of Operations. This section provides our analysis and outlook for the significant line items on our
Consolidated Statements of Operations.
• Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows, as well as a
discussion of our commitments that existed as of December 31, 2013.
Executive Summary
Company Description.
We are a global medical device company specializing in the design, development, manufacture, marketing and
servicing of laser and other energy based aesthetics systems for practitioners worldwide. We offer easy-to-use products
based on four primary platforms—Xeo®, GenesisPlusTM, Excel VTM, and truSculptTM— each of which enables
physicians and other qualified practitioners to perform safe and effective aesthetic procedures for their customers. In
addition to our four primary platforms, we offer other products, including CoolGlide®, Solera®, VariliteTM and Japan
specific products such as myQTM.
The Xeo and Solera platforms offer multiple hand pieces and applications, which allow customers to upgrade their
systems, which we treat as Upgrade revenue. In addition to systems and upgrade revenue, we generate revenue from
the sale of post warranty service contracts, providing services for products that are out of warranty, Titan and truSculpt
hand piece refills, and dermal fillers and cosmeceuticals.
37
Our corporate headquarters and U.S. operations are located in Brisbane, California, from where we conduct our
manufacturing, warehousing, research and development, regulatory, sales and marketing, service, and administrative
activities. In the U.S., we market, sell and service our products through direct sales and service employees, and a
distribution relationship with PSS World Medical Shared Services, Inc. (“PSS”), a wholly owned subsidiary of PSS
World Medical which has over 700 sales representatives serving physician offices throughout the U.S. We also sell
certain items such as our Titan hand piece refills and marketing brochures online.
International sales are generally made through direct sales employees in Australia, Belgium, Canada, France and Japan.
In addition, we have a worldwide distributor network in over 60 countries.
Products. Our revenue is derived from the sale of Products, Upgrades, Service, Titan and truSculpt hand piece refills,
and Dermal fillers and cosmeceutical products. Product revenue represents the sale of a system. 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 our Pearl and Pearl
Fractional applications instead of within the console.
We offer our 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 want and provides us with a source of recurring revenue which we classify as
Upgrade revenue. Service revenue relates to amortization of prepaid service contracts, direct billings for detachable
hand piece replacements and revenue for parts and labor on out-of-warranty products. For our Titan hand pieces, after a
set number of treatments have been performed, the customer is required to send the hand piece back to the factory for
refurbishment, which we refer to as ‘refilling’ the hand piece. In Japan, we distribute ZO’s and Obagi’s (through
December 31, 2013 only) cosmeceutical products; and Merz Pharma GmbH’s (“Merz”) Radiesse® dermal filler
product.
Significant Business Trends. We believe that our ability to grow revenue will be primarily dependent on the
following:
• Continuing to expand our product offerings ─ both through internal development and sourcing from other
vendors.
• Ongoing investment in our 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 our products can
be displayed and used to assist in selling efforts).
• Customer demand for our products.
• Consumer demand for the application of our products.
• Marketing to physicians in the core dermatology and plastic surgeon specialties, as well as outside those
specialties.
• Generating ongoing revenue from our growing installed base of customers through the sale of Service,
Upgrade, Titan hand piece refills, and Dermal fillers and cosmeceutical products.
For a detailed discussion of the significant business trends impacting our business, please see Results of Operations
below.
Factors that May Impact Future Performance
Our industry is impacted by numerous competitive, regulatory and other significant factors. Our industry is highly
competitive and our future performance depends on our ability to compete successfully. Additionally, our future
performance is dependent upon our ability to continue to expand our product offerings with innovative technologies,
obtain regulatory clearances for our products, protect the proprietary technology of our products and our manufacturing
processes, manufacture our products cost-effectively, and successfully market and distribute our products in a
profitable manner. If we fail to execute on the aforementioned initiatives, our business would be adversely affected. A
detailed discussion of these and other factors that could impact our future performance are provided in Part I, Item 1A
“Risk Factors.”
38
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements and related disclosures in conformity with generally
accepted accounting principles in the U.S. (“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.
We periodically review our estimates and make adjustments when facts and circumstances dictate. To the extent that
there are material differences between these estimates and actual results, our financial condition or results of operations
will be affected.
Critical accounting estimates, as defined by the Securities and Exchange Commission (“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. Our critical accounting
estimates are as follows:
Revenue Recognition
We earn revenue from the sale of Products, Upgrades, Titan and truSculpt hand piece refills, and Dermal fillers and
cosmeceuticals. We recognize revenue when persuasive evidence of an arrangement exists, transfer of title to the
customer has occurred, the sales price is fixed or determinable, and collectability is probable. We defer revenue in the
event that any of these revenue recognition criteria is not met.
• Persuasive evidence of an arrangement exists: We use customer purchase agreements or contracts, or
customer purchase orders to determine the existence of an arrangement.
•
• Transfer of title: Our standard terms generally specify that title transfers upon shipment to the customer. We
generally use third party shipping documents to verify that title has transferred. For service revenue, we use
the date that services have been rendered;
Sales price is fixed or determinable: We assess whether the sales price is fixed or determinable at the time of
the transaction. Sales prices are documented in the customer purchase agreement or purchase order received
prior to shipment. Our standard terms do not allow for trial or evaluation periods, rights of return or refund,
payments contingent upon the customer obtaining financing or other terms that could impact the customer’s
obligation; and
• Collectability is probable: We assess whether collection is reasonably assured based on a number of factors,
including receipt of cash or credit card payment, customer’s past transaction history, credit worthiness, or the
receipt of an irrevocable letter of credit.
Multiple-Element Arrangements
For System or Upgrade sales, all of the tangible products, including the embedded software, are delivered to the
customer at the time of sale. In some circumstances, in conjunction with the purchase of a System or Upgrade,
customers purchase Service contracts for one or more years to cover their products. For these transactions, the
following multiple-element arrangement exists:
a tangible product delivered to the customer at the inception of the revenue arrangement; and
a service contract for delivery of services to the customer over a contractually stated period of time defined in the
service contract.
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 entered into on or after
January 1, 2010, we allocate revenue to all deliverables based on their relative selling prices. Because we have neither
vendor-specific objective evidence (“VSOE”) nor third-party evidence of selling price (“TPE”) for our systems, the
allocation of revenue has been based on our best estimate of selling prices (“BESP”). The objective of BESP is to
determine the price at which we would transact a sale if the product or service was sold on a stand-alone basis. We
determine BESP for our deliverables by considering multiple factors including, but not limited to, features and
functionality of the system, geographies, type of customer and market conditions.
Revenue under service contracts is recognized on a straight-line basis over the period of the applicable service contract.
Service revenue, not under a service contract, is recognized as the services are provided.
39
Hand Piece Refills
When customers purchase a hand piece refill, we ship a previously refurbished unit and recognize revenue upon
shipment. With respect to our truSculpt product, prior to the third quarter of 2013, we sold the system and hand piece
and then charged the customer an incremental fee for any future refills and we treated the refills as a separate
deliverable under FASB ASC 605-25. In addition, we also provided promotions that included an unlimited number of
“free” hand piece replacements during a stated trial period of 3 months or 12 months. We determined that these free
refills were an undelivered element under FASB ASC 605-25 in the original revenue transaction. As such, we deferred
the relative fair value related to the estimated number of hand piece replacements to be delivered during the
promotional period and recognized that deferred revenue over the free refills promotion period. Commencing with the
third quarter of 2013, we included unlimited hand piece replacements in the truSculpt standard warranty contract and
concluded that this no longer was a separate deliverable under the multiple-element arrangement revenue guidance.
Following this change, we recognized the revenue under the warranty model, in which the revenue for the system sale
was recognized up-front along with an estimate of the costs which will be incurred under the warranty obligation
recorded in cost of revenue.
Shipping and handling costs
We expense shipping and handling costs as incurred and include them in cost of revenue. In those cases where we bill
shipping and handling costs to customers, we classify the amounts billed as revenue.
Stock-based Compensation Expense
Stock options
We account for stock-based compensation in accordance with the fair value recognition provisions of U.S. GAAP. We
use the Black-Scholes-Merton option-pricing model which requires the input of highly subjective assumptions. These
assumptions include:
• Estimating the length of time employees will retain their vested stock options before exercising them
(“expected term”);
• Estimated volatility of our common stock price over the expected term;
• Number of options that will ultimately not complete their vesting requirements (“forfeiture rate”); and
• Expected risk-free interest rate and dividend rate over the expected term.
The assumptions for expected volatility and expected term are the two assumptions that significantly affect the grant
date fair value.
The expected term represents the weighted-average period that our stock options are expected to be outstanding. The
expected term is based on the observed and expected time to post-vesting exercise of options by employees. We use
historical exercise patterns of previously granted options in relation to stock price movements to derive an employee
behavioral pattern used to forecast expected exercise patterns.
We estimate volatility based on historical volatility and we also consider implied volatility when there is sufficient
volume of freely traded options with comparable terms and exercise prices in the open market.
U.S. GAAP requires us to develop an estimate of the number of share-based awards that will be forfeited due to
employee turnover. Adjustments in the estimated forfeiture rates can have a significant effect on our reported share-
based compensation, as we recognize the cumulative effect of the rate adjustments for all expense amortization in the
period the estimated forfeiture rates were adjusted. We estimate and adjust forfeiture rates based on a periodic review
of recent forfeiture activity and expected future employee turnover. If a revised forfeiture rate is higher than previously
estimated forfeiture rate, we may make an adjustment that will result in a decrease to the expense recognized in the
financial statements during the period when the rate was changed. Adjustments in the estimated forfeiture rates could
also cause changes in the amount of expense that we recognize in future periods.
Changes in expected risk-free interest rate and dividend rate do not significantly impact the calculation of fair value,
and determining this input is not highly subjective.
40
Changes in the subjective assumptions of expected term, volatility and forfeiture rate can materially affect the estimate
of fair value of stock-based compensation and, consequently, the related amount recognized on the Consolidated
Statements of Income.
Restricted Stock Units
We grant restricted stock unit (“RSU”) awards to our management employees, officers and directors. RSUs are
measured based on the fair market values of the underlying stock on the dates of grant and the stock based
compensation expense is recognized over the vesting period using the straight-line method. Shares are issued on the
vesting dates net of the minimum statutory tax withholding requirements to be paid by us on behalf of our employees.
As a result, the actual number of shares issued will be fewer than the actual number of RSUs outstanding. Furthermore,
we record the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital.
Performance Stock Units
Performance stock unit (“PSU”) awards were granted to our officers in 2013 and 2012. The final number of shares of
common stock issuable at the end of the performance measurement period, subject to the recipient’s continued service
through that date, is determined based on the degree of achievement of the performance goals. The stock-based
compensation expenses for the PSUs is measured based on the fair market value on the dates of grant of the target
number of underlying shares. Stock based compensation expense is recognized over the vesting period using the
straight-line method and the expected degree of achievement of the performance goals. At the vest date, we issue fully-
paid up common stock, net of the minimum statutory tax withholding requirements to be paid by us on behalf of our
officers. As a result, the actual number of shares issued is less than the original number of PSUs outstanding.
Furthermore, we record the liability for withholding amounts to be paid by us as a reduction to additional paid-in
capital.
Intangible Assets.
Our intangible assets include identifiable intangibles and goodwill. Identifiable intangibles include sub-licenses, rights
acquired from a former distributor and those acquired in conjunction with an acquisition in 2012. All of our identifiable
intangibles have finite lives.
In February 2012, we acquired the global aesthetic business unit of IRIDEX Corporation, which included various laser
systems (such as the VariLite and Gemini) and an installed base of customers, whose products are being serviced by
us. This acquisition was considered a business combination for accounting purposes, and as such, in addition to valuing
all the assets, we recorded goodwill associated with the expected synergies from leveraging the customer relationships
and integrating new product offerings into our business. The fair values of the assets acquired were determined to be
$4.8 million of net tangible and intangible assets and $1.3 million of goodwill.
Identifiable intangible assets with finite lives are subject to impairment testing and are reviewed for impairment when
events or circumstances indicate that such assets may not be recoverable at their carrying value. We evaluate the
recoverability of the carrying value of these identifiable intangibles based on estimated undiscounted cash flows to be
generated from such assets. If the cash flow estimates or the significant operating assumptions upon which they are
based change in the future, we may be required to record additional impairment charges. When events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be recoverable, we recognize such
impairment in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to
such assets.
The valuation and classification of intangible assets and goodwill and the assignment of useful amortization lives for
the intangible assets involves judgments and the use of estimates. The evaluation of these intangibles and goodwill for
impairment under established accounting guidelines is required on a recurring basis. Changes in business conditions
could potentially require future adjustments to asset valuations. When we determine that the useful lives of assets are
shorter than we had originally estimated, we accelerate the rate of amortization over the assets’ new, shorter useful
lives. No impairment charge or accelerated amortization was recorded for the years ended December 31, 2013, 2012,
and 2011. A considerable amount of judgment is required in assessing impairment, which includes financial forecasts.
Should conditions be different from management’s current estimates, material write-downs of long-lived assets may be
required, which would adversely affect our operating results.
41
Valuation of Inventories
We state our inventories at the lower of cost or market, computed on a standard cost basis, which approximates actual
cost on a first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value.
Standard costs are monitored and updated quarterly or as necessary, to reflect changes in raw material costs, labor to
manufacture the product and overhead rates. We provide for excess and obsolete inventories when conditions indicate
that the selling price could be less than cost due to physical deterioration, usage, obsolescence, reductions in estimated
future demand and reductions in selling prices. Inventory provisions are measured as the difference between the cost of
inventory and estimated market value and charged to cost of revenue to establish a lower cost basis for the inventories.
We balance the need to maintain strategic inventory levels with the risk of obsolescence due to changing technology
and customer demand levels. Unfavorable changes in market conditions may result in a need for additional inventory
provisions that could adversely impact our gross margins. Conversely, favorable changes in demand could result in
higher gross margins when product that had previously been written off is sold.
Warranty Obligations
We provide a one-year standard warranty on all systems. Warranty coverage provided is for labor and parts necessary
to repair the systems during the warranty period. Commencing with the third quarter of 2013, for sales of our truSculpt
product, we included free hand piece refills during the warranty period. We provide for the estimated future costs of
warranty obligations in cost of revenue when the related revenue is recognized. The accrued warranty costs represent
our best estimate at the time of sale, and as reviewed and updated quarterly, of the total costs that we expect to incur
during the warranty period to repair or replace product parts that fail, including the refurbishment of any truSculpt
refills included as part of the original sale. Accrued warranty costs include costs of material, technical support labor
and associated overhead. The amount of accrued estimated warranty costs obligation for established products is
primarily based on historical experience as to product failures adjusted for current information on repair costs. Actual
warranty costs could differ from the estimated amounts. On a quarterly basis, we review the accrued balances of our
warranty obligations and update based on historical warranty cost trends. If we were required to accrue additional
warranty cost in the future due to actual product failure rates, material usage, service delivery costs or overhead costs
differing from our estimates, revisions to the estimated warranty liability would be required, which would negatively
impact our operating results.
Provision for Income Taxes
We are subject to taxes on earnings in both the U.S. and various foreign jurisdictions. As a global taxpayer, significant
judgments and estimates are required in evaluating our uncertain tax positions and determining our provision for
income taxes on earnings. We perform a two-step approach to recognizing and measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon settlement. Although we believe we have adequately reserved for our uncertain tax positions, no
assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in
light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the
extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact
the provision for income taxes in the period in which such determination is made. The provision for income taxes
includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related
net interest.
42
Our 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. Our 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 effective tax rate was approximately 1% in 2013,
(3)% in 2012, and (2)% in 2011. Our future effective tax rates could be adversely affected by earnings being lower in
countries where we have lower statutory rates and being higher in countries where we have 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 our U.S. deferred tax assets. In addition, we
are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. We
regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our
provision for income taxes.
At December 31, 2013, we had an aggregate of approximately $2.6 million of unremitted earnings of foreign
subsidiaries that have been, or are intended to be, indefinitely reinvested for continued use in foreign operations.
Depending on the timing and nature of the distribution, if the total undistributed earnings of foreign subsidiaries were
remitted while the Company is able to utilize its net operating losses, it is likely there would be no material additional
tax resulting from the distribution.
Our deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit
carryforwards. A valuation allowance reduces deferred tax assets to estimated realizable value, which assumes that it is
more likely than not that we will be able to generate sufficient future taxable income in certain tax jurisdictions to
realize the net carrying value. We have fully reserved our U.S. federal and state deferred tax assets due to our history of
operating losses.
Litigation
We have been, and may in the future become, subject to legal proceedings related to securities litigation, intellectual
property, product liability claims, contractual disputes and other matters. Based on all available information at the
balance sheet dates, we assess the likelihood of any adverse judgments or outcomes for these matters, as well as
potential ranges of probable loss. If losses are probable and reasonably estimable, we record an estimated liability.
Results of Operations
The following table sets forth selected consolidated financial data expressed as a percentage of net revenue.
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43
Year Ended December 31,
2012
2011
2013
100%
44%
56%
38%
12%
13%
63%
(7)%
1%
(6)%
—%
(6)%
100%
46%
54%
37%
11%
15%
63%
(9)%
1%
(8)%
—%
(8)%
100%
43%
57%
42%
15%
17%
74%
(17)%
1%
(16)%
1%
(17)%
Net Revenue
The following table sets forth selected consolidated revenue by major geographic area and product category with
changes thereof.
(Dollars in thousands)
Revenue mix by geography:
United States . . . . . . . . . . . . . . . . . .
Percent of total . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . .
Asia, excluding Japan . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . .
Rest of the world . . . . . . . . . . . . . .
Total international revenue . . .
Percent of total . . . . . . . . . . . . . .
$
$
2013
% Change
Year Ended December 31,
2012
% Change
2011
31,487
42%
14,205
11,263
7,358
10,281
43,107
58%
(1)% $
31,949
37% $
23,313
(20)% $
27%
48%
(25)%
(5)%
41%
17,826
8,902
4,958
13,642
45,328
59%
19% $
79%
39%
2%
23%
39%
15,019
4,984
3,571
13,403
36,977
61%
Total consolidated revenue . . .
$
74,594
(3)% $
77,277
28% $
60,290
Revenue mix by product
category:
Products and upgrades . . . . . . . . .
Titan and truSculpt hand piece
refills . . . . . . . . . . . . . . . . . . . . . . .
Dermal fillers and
cosmeceuticals . . . . . . . . . . . . . .
Total product revenue . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . .
Total consolidated revenue . . .
$
Revenue by Geography:
$
48,374
(2)% $
49,605
33% $
37,208
4,267
4,264
56,905
17,689
74,594
11%
4,807
3%
4,686
(24)%
(5)%
3%
(3)% $
5,645
60,057
17,220
77,277
13%
28%
28%
28% $
4,985
46,879
13,411
60,290
Our U.S. revenue decreased by 1% and our international revenue decreased by 5% in 2013, compared to 2012. We
believe the decrease in U.S. revenues was attributable to several factors, including:
• Reduced productivity of our U.S. sales force, caused in part by field sales and management turnover;
• A reduction in our GenesisPlus revenue, due in part to the reorganization and consolidation of our podiatry
sales force into the general aesthetics sales force; and
• A decline in Xeo product revenue; which was partially offset by
• Continued growth of Excel V shipments, which began shipping in the second quarter of 2011; and
• An increase in truSculpt revenue, which commenced shipments in the third quarter of 2012.
Our total international revenue decreased by 5% in 2013, compared to 2012, and represented 58% of our total revenue.
The decrease in international revenue was primarily a result of the decline in 2013 of the Japanese Yen versus the U.S.
Dollar compared to 2012, partially offset by growth in revenue from France and several of our international
distributors.
Revenue by Product Category:
Our product and upgrade revenue decreased by 2% in 2013 and increased by 33% in 2012, compared to the respective
prior year periods. The 2013 decrease in product and upgrade revenue was primarily attributable to a decline of the
Japanese Yen versus the U.S. Dollar and the decline of GensisPlus sales, partially offset by continued growth in
Excel V sales. The 2012 increase in product and upgrade revenue was primarily attributable to the continued growth of
Excel V shipments, which began shipping in 2011, the commencement of truSculpt shipments in the third quarter of
2012 and incremental revenue from the February 2012 Iridex aesthetic acquisition.
44
Our service revenue increased by 3% in 2013 and by 28% in 2012, compared to the respective prior year periods. The
ratable recognition of service contract fees is the primary component of our service revenue. The increase in 2013 was
primarily due to an expanded customer base as well as one additional month of service revenue in 2013, versus 2012,
relating to the acquisition of the Iridex aesthetic business in February 2012. The increase in 2012 was primarily the
result of the Iridex business acquisition.
Our Titan and truSculpt hand piece refill revenue decreased by 11% in 2013 and increased by 3% in 2012, compared to
the respective prior year periods. The decrease in 2013 was due primarily to declines in Titan hand piece refill revenue
caused by reduced utilization and partly due to decline in the Japanese Yen versus the U.S. Dollar, which was partially
offset by an increase in revenue from truSculpt refills that started shipping in the fourth quarter of 2012. Commencing
in the third quarter of 2013, we have repositioned our truSculpt product to include the refurbishment of the hand pieces
as part of the original system warranty or ongoing service contracts, thereby enabling our customers unlimited usage as
part of the original system warranty. Because very few truSculpt hand piece replacements were sold separately, the
impact of the change in our agreements with our customers has been immaterial on our revenue and financial
statements. The increase in 2012 was due primarily to the introduction of truSculpt refills in the fourth quarter of 2012.
Our Dermal filler and cosmeceutical business decreased by 24% in 2013, compared to 2012, and increased by 13% in
2012 compared to 2011. The decrease in 2013 is primarily the result of the devaluation of the Japanese yen versus the
U.S. dollar. The increase in 2012 was due primarily to the higher number of customers purchasing Obagi products,
which we began distributing in Japan in the first quarter of 2010, and due to the expansion of cosmeceutical product
lines being distributed.
Gross Profit
(Dollars in thousands)
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . $
As a percentage of total revenue . . .
% Change
2013
41,882
56%
Year Ended December 31,
2012
41,540
1% $
% Change
21% $
54%
2011
34,312
57%
Our cost of revenue consists primarily of materials, personnel expenses, royalty expense, warranty and manufacturing
overhead expenses. Gross margin as a percentage of net revenue improved to 56% in 2013, compared to 2012, which
was primarily attributable to the following:
A partial shift in product mix towards higher margin products;
Improved gross margin from our Service business, due primarily to reduced material expenses resulting from
improved reliability of our products;
Results of cost reduction initiatives; and
Reduced amortization of intangibles related to the acquisition of Iridex’s aesthetic business.
Our gross margin as a percentage of net revenue declined to 54% in 2012, compared to 2011, which was primarily
attributable to the following:
A product mix shift towards lower margin products;
An increase in Service revenue primarily as a result of the acquisition of the Iridex service business that has a
lower margin than our blended margin;
Amortization of intangibles related to the acquisition of Iridex’s aesthetic business in the first quarter of 2012;
and
An increase in sales through distributors, which typically has a lower margin than our direct revenue.
Sales and Marketing
(Dollars in thousands)
Sales and marketing . . . . . . . . . . . . . . . . $
As a percentage of total revenue . . .
2013
27,984
% Change
% Change
Year Ended December 31,
2012
28,664
(2)% $
12% $
2011
25,499
42%
38%
37%
45
Sales and marketing expenses consist primarily of personnel expenses, expenses associated with customer-attended
workshops and trade shows, post-marketing studies and advertising. Sales and marketing expenses decreased $680,000
in 2013, compared to 2012, which was primarily attributable to the following:
$1.0 million of decreased Japan expenses resulting primarily from the appreciation of the U.S. Dollar against
the Japanese Yen (the change in the U.S. Dollar to Japanese Yen exchange rate between 2012 and 2011 was
insignificant);
$312,000 of decreased North American travel and entertainment expenses; partially offset by
$523,000 of increased North American product demonstration, promotional and marketing expenses.
In 2012, sales and marketing expenses increased by $3.2 million compared to 2011. This increase was primarily
attributable to:
$2.2 million increase in personnel expenses attributable primarily to higher headcount and commission
expenses due to higher revenue;
$660,000 of higher product demonstration related expenses; and
$418,000 increase in travel, entertainment and sales meeting expenses due to increased headcount and sales
activity.
Sales and marketing expenses as a percentage of net revenue, increased to 38% in 2013, compared to 37% in 2012.
This increase was due to lower revenue levels than in 2012. Sales and marketing expenses as a percentage of net
revenue, decreased to 37% in 2012, compare to 42% in 2011. The decrease in 2012 was due primarily to a larger
increase in our revenue, compared to the increase in expenses, in 2012.
Research and Development (“R&D”)
(Dollars in thousands)
Research and development . . . . . . . . . . . $
As a percentage of total revenue . . . .
2013
% Change
% Change
2011
Year Ended December 31,
2012
9,216
12%
9% $
8,427
(8)% $
9,141
11%
15%
Research and development expenses consist primarily of personnel expenses, clinical, regulatory and material costs.
R&D expenses increased $789,000 in 2013, compared to 2012, which was primarily attributable to:
$1.1 million increase in material spending related to new product development; partially offset by
A decrease of $237,000 in outside consulting expenses.
In 2012, R&D expenses decreased by $714,000, compared to 2011, which primarily attributable to:
$444,000 decrease in personnel expenses due to lower headcount; and
A decrease in material spending of $107,000 due to the timing, complexity and material component costs of
the product being developed.
General and Administrative (“G&A”)
(Dollars in thousands)
General and administrative . . . . . . . . . . . $
As a percentage of total revenue . . . .
2013
% Change
% Change
Year Ended December 31,
2012
11,276
(12)% $
15%
12% $
2011
10,104
17%
9,938
13%
General and administrative expenses consist primarily of: personnel expenses, legal fees, accounting, audit and tax
consulting fees, and other general and administrative expenses. G&A expenses decreased by $1.3 million in 2013,
compared to 2012, which was primarily attributable to:
$1.0 million of decreased personnel related expenses;
$532,000 of reduced legal fees and costs of settlements;
46
A reduction of $527,000 of integration expenses associated with the Iridex business acquisition incurred in
2012;
$292,000 of reduced accounting fees; partially offset by,
$800,000 of management consulting fees in 2013; and
$343,000 of increased expenses due to the commencement of the U.S. medical excise tax from January 1,
2013.
In 2012, G&A expenses increased by $1.2 million, compared to 2011. This increase was primarily attributable to:
$527,000 of integration expenses associated with the Iridex business acquisition;
$366,000 of higher legal fees and costs of settlements;
$207,000 of higher accounting fees;
$187,000 of higher personnel expenses; partially offset by,
$162,000 decrease in facilities costs due the relocation of our offices in Tokyo, Japan and the closure of our
office in Switzerland in 2011.
Interest and Other Income, Net
The components of “Interest and Other Income, Net” are as follows:
(Dollars in thousands)
Interest income . . . . . . . . . . . . . . . . . . . . . . . $
Other income (expense), net . . . . . . . . . . .
Total interest and other income, net . . $
2013
% Change
Year Ended December 31,
2012
% Change
421
34
455
(12)% $
113%
(8)% $
481
16
497
(19)% $
(20)%
(19)% $
2011
594
20
614
Interest income decreased 12% in 2013, compared to 2012, and decreased 19% in 2012, compared to 2011. The
decrease in interest income in 2013 was primarily attributable to a decrease in our cash, cash equivalents and
marketable investments balances and decreased yields on our investments. The decreases in interest income in 2012
was primarily attributable to a decrease in our cash, cash equivalents and marketable investments balances. Our cash,
cash equivalents, marketable investments and long-term investments were $83.1 million at December 31, 2013, $85.6
million at December 31, 2012 and $91.7 million at December 31, 2011.
Income tax (benefit) provision
(Dollars in thousands)
Loss before income taxes . . . . . . . . . . . . . $
Income tax (benefit) provision . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . .
2013
$ Change
Year Ended December 31,
2012
(4,801)
(54)
$
1%
1,529
(272)
$
(3)%
(6,330)
218
$
(2)%
$ Change
2011
3,488
(25)
$
(9,818)
243
We recorded an income tax benefit of $54,000 in 2013, and despite a loss we recorded a provision of $218,000 and
$243,000 in 2012, and 2011 respectively. Our tax benefit for 2013 is primarily related to releases of reserves for
Uncertain Tax Positions due to lapses in the applicable statutes of limitations, offset by foreign tax expenses. Our tax
provisions for 2012 and 2011 are primarily related to foreign tax expenses. A full valuation allowance was applied
against all U.S. federal and state deferred tax assets arising during each of these years.
47
Liquidity and Capital Resources
Liquidity is the measurement of our ability to meet potential cash requirements, fund the planned expansion of our
operations and acquire businesses. Our sources of cash include operations, stock option exercises, and employee stock
purchases. We actively manage our cash usage and investment of liquid cash to ensure the maintenance of sufficient
funds to meet our daily needs. The majority of our cash and investments are held in U.S. banks and our foreign
subsidiaries maintain a limited amount of cash in their local banks to cover their short-term operating expenses. The
following table summarizes our cash and cash equivalents, marketable investments and long-term investments (in
thousands):
(Dollars in thousands)
Cash, cash equivalents and marketable securities:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013
As of December 31,
2012
Change
$
$
16,242
66,831
83,073
$
$
23,546
62,026
85,572
$
$
(7,304)
4,805
(2,499)
Cash Flows
In summary, our cash flows were as follows:
(Dollars in thousands)
Cash flows provided by (used in):
Operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents. . . . . . . . . .
Year ended December 31,
2012
2011
2013
$
$
3,513
(5,848)
(4,969)
(7,304)
$
$
(2,300 )
10,153
1,673
9,526
$
$
(5,168)
5,287
1,382
1,501
Cash Flows from Operating Activities
We generated net cash of $3.5 million in operating activities during 2013, which was primarily attributable to:
$3.1 million generated from an increase in deferred revenue due primarily to a two-for-one service contract
pricing promotion;
$2.1 million generated from the reduction of inventories; partially offset by
$857,000 used as a result of an increase in accounts receivable that resulted from increased product sales in
December 2013 compared to December 2012; and
$371,000 used in a reduction in accrued liabilities.
We used net cash of $2.3 million in operating activities during 2012, which was primarily attributable to:
$3.7 million used as a result of an increase in accounts receivable that resulted from increased product sales in
the three-month period ended December 31, 2012, compared to the same period in 2011;
$1.9 million used from net loss of $6.5 million after adjusting for non-cash related items of $4.7 million,
consisting primarily of stock-based compensation expense of $3.2 million and depreciation and amortization
expense of $1.6 million; partially offset by
$1.9 million generated from an increase in deferred revenue due primarily to an increase in our service
business following the acquisition of the Iridex aesthetic customer base and a two-for-one service contract
pricing promotion; and
$1.2 million generated from the reduction of inventories resulting from the increase in revenue in 2012.
48
Cash Flows from Investing Activities
We used net cash of $5.8 million in investing activities in 2013, which was primarily attributable to:
$56.8 million of cash used to purchase marketable investments;
$517,000 of cash used to purchase property and equipment; partially offset by
$51.6 million in net proceeds from the sales and maturities of marketable investments.
We generated net cash of $10.2 million from investing activities in 2012, which was primarily attributable to:
$74.6 million in net proceeds from the sales and maturities of marketable investments; partially offset by
$58.8 million of cash used to purchase marketable investments;
$5.1 million of cash used for the Iridex acquisition; and
$516,000 of cash used to purchase property and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities in 2013 was $5.0 million, which resulted from:
$10.0 million of cash used to repurchase common stock; partially offset by
$5.2 million generated from the issuance of stock through our stock option and employee stock purchase plan.
Net cash provided by financing activities in 2012 was $1.7 million, which resulted from the issuance of stock through
our stock option and employee stock purchase plans.
Adequacy of cash resources to meet future needs
We had cash, cash equivalents and marketable investments of $83.1 million as of December 31, 2013. We believe that
our existing cash resources are sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next several years.
Contractual Obligations
The following are our contractual obligations, consisting of future minimum lease commitments related to facility and
vehicle leases as of December 31, 2013:
Contractual Obligations
Operating leases . . . . . . . . . . . . . . . . .
Capital leases . . . . . . . . . . . . . . . . . . .
Total leases . . . . . . . . . . . . . . . . . . . . .
Total
1 Year
1-3 Years
3-5 Years
5 Years
$
$
5,996
493
6,489
$
$
1,793
155
1,948
$
$
2,857
338
3,195
$
$
1,346
—
1,346
$
$
—
—
—
Payments Due by Period ($’000’s)
Less Than
More Than
Purchase Commitments
We maintain certain open inventory purchase commitments with our suppliers to ensure a smooth and continuous
supply for key components. Our liability in these purchase commitments is generally restricted to a forecasted time-
horizon as agreed between the parties. These forecasted time-horizons can vary among different suppliers. Our open
inventory purchase commitments were not material at December 31, 2013. As a result, this amount is not included in
the contractual obligations table above.
49
Income Tax Liability
We have included in our Consolidated Balance Sheet $108,000 in long-term income tax liability with respect to
unrecognized tax benefits and accrued interest as of December 31, 2013. At this time, we are unable to make a
reasonably reliable estimate of the timing of payments in individual years beyond 12 months due to uncertainties in the
timing of tax audit outcomes. As a result, this amount is not included in the contractual obligations table above.
Other
In the normal course of business, we enter into agreements that contain a variety of representations, warranties, and
indemnification obligations. For example, we have entered into indemnification agreements with each of our directors
and executive officers. Our exposure under the various indemnification obligations is unknown and not reasonably
estimable as they involve future claims that may be made against us. As such, we have not accrued any amounts for
such obligations.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
Our exposure to interest rate risk relates primarily to our investment portfolio. Fixed rate securities may have their fair
market value adversely impacted due to fluctuations in interest rates, while floating rate securities may produce less
income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of
expectation due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have
declined in market value due to changes in interest rates. The primary objective of our investment activities is to
preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this
objective, we invest in debt instruments of the U.S. Government and its agencies and municipal bonds, and, by policy,
restrict our exposure to any single type of investment or issuer by imposing concentration limits. To minimize the
exposure due to adverse shifts in interest rates, we maintain investments at a weighted average maturity of generally
less than eighteen months. Based on discounted cash flow modeling with respect to our total investment portfolio as of
December 31, 2013 and 2012, assuming a hypothetical increase in interest rates of one percentage point, the fair value
of our total investment portfolio would have potentially declined by approximately $788,000 and $745,000
respectively.
Foreign Currency Exchange
In 2013, 2012 and 2011, approximately 58%, 59% and 61% of our total revenue was sourced from countries other than
the U.S. In 2013, 54% of our total international revenue was denominated in U.S. Dollars and substantially all of the
remaining 46% was revenue was denominated in Japanese Yen and Euros.
In 2013, the Japanese Yen, compared to the U.S. Dollar, devalued by approximately 22% and had a significant adverse
foreign exchange impact on our revenue − both from a remeasurement loss upon the conversion of our Japanese Yen
denominated revenue as well as the additional negative revenue impact due to the effective price increase for the local
customers importing our U.S. Dollar denominated systems into Japan. In addition, the Japanese Yen devaluation had a
favorable foreign currency translation impact on our local cost of sales and operating expenses.
We have historically not engaged in hedging activities relating to our non-U.S. dollar operations.
50
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CUTERA, INC. AND SUBSIDIARY COMPANIES
ANNUAL REPORT ON FORM 10-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Registrant and its subsidiaries are required to be included in
Item 8:
Report of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
52
54
55
56
57
58
59
The following Consolidated Financial Statement Schedule of the Registrant and its subsidiaries for the years ended
December 31, 2013, 2012 and 2011 is filed as a part of this Report as required to be included in Item 15(a) and should
be read in conjunction with the Consolidated Financial Statements of the Registrant and its subsidiaries:
Schedule
II
Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
82
All other required schedules are omitted because of the absence of conditions under which they are required or because
the required information is given in the Consolidated Financial Statements or the Notes thereto.
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Cutera, Inc.
We have audited the accompanying consolidated balance sheets of Cutera, Inc. as of December 31, 2013 and 2012, and
the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of
the two years in the period ended December 31, 2013. Our audit also included the financial statement schedule listed in
the Index at Item 15(a) for each of the two years in the period ended December 31, 2013. These financial statements
and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Cutera, Inc. at December 31, 2013, and the consolidated results of its operations and its cash flows
for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Cutera, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (1992 Framework) and our report dated March 17, 2014 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Redwood City, California
March 17, 2014
52
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Cutera, Inc.:
In our opinion, the consolidated statements of operations, comprehensive loss, stockholders’ equity and of cash flows
for the year ended December 31, 2011, present fairly, in all material respects, the results of the operations and cash
flows of Cutera, Inc. and its subsidiaries for the year ended December 31, 2011, in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule for the year ended December 31, 2011 present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
San Jose, CA
March 15, 2012
53
CUTERA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for doubtful accounts of $19 and $0,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets and prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 11)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value:
Authorized: 5,000,000 shares; Issued and outstanding: none . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
$ 16,242
66,831
$ 23,546
62,026
9,679
9,006
31
1,507
103,296
1,362
329
2,019
1,339
324
$ 108,669
$
1,820
9,328
7,494
18,642
4,340
108
1,314
24,404
8,841
11,114
40
1,439
107,006
933
553
2,566
1,339
397
$ 112,794
$
2,107
9,493
6,618
18,218
2,102
412
1,288
22,020
—
—
Common stock, $0.001 par value:
Authorized: 50,000,000 shares; Issued and outstanding: 13,931,833 and 14,233,476
shares at December 31, 2013 and 2012, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
98,820
(14,620)
51
84,265
$ 108,669
14
100,552
(9,873)
81
90,774
$ 112,794
The accompanying notes are an integral part of these consolidated financial statements.
54
CUTERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net revenue:
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of revenue:
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average number of shares used in per share calculations:
Basic and diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2012
2013
2011
56,905
17,689
74,594
24,179
8,533
32,712
41,882
27,984
9,216
9,938
47,138
(5,256)
455
(4,801)
(54)
(4,747)
$ 60,057
17,220
77,277
$ 46,879
13,411
60,290
26,911
8,826
35,737
41,540
28,664
8,427
11,276
48,367
(6,827 )
497
(6,330 )
218
(6,548 )
17,545
8,433
25,978
34,312
25,499
9,141
10,104
44,744
(10,432)
614
(9,818)
243
$ (10,061)
$
(0.33)
$
(0.46 )
$
(0.73)
14,421
14,089
13,807
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
55
CUTERA, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Available-for-sale investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Year Ended December 31,
2012
(6,548)
$
2013
(4,747)
2011
$ (10,061)
Net change in unrealized (loss) gain on available-for-sale
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Reclassification adjustment for net gains on investments
recognized during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized (loss) gain on available-for-sale
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax provision (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21)
(9)
959
(19)
723
(5)
(30)
—
(30)
(4,777)
940
18
922
(5,626)
$
718
(197)
915
(9,146)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
56
CUTERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Common Stock
Additional
Shares
Amount
Paid-in
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Total
Comprehensive
Stockholders’
Income (loss)
Equity
Balance at December 31, 2010 . . . . . . . . . .
Issuance of common stock for employee
purchase plan . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . .
Issuance of common stock in settlement of
restricted stock units, net of shares withheld
for employee taxes, and stock awards . . . .
Stock-based compensation expense . . . . . . .
Tax benefit from exercises of stock-based
payment awards . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gain (loss) on
available-for-sale investments (net of $197
of tax benefit) . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2011 . . . . . . . . . .
Issuance of common stock for employee
purchase plan . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . .
Issuance of common stock in settlement of
restricted stock units, net of shares withheld
for employee taxes, and stock awards . . . .
Stock-based compensation expense . . . . . . .
Tax benefit from exercises of stock-based
payment awards . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gain (loss) on
available-for-sale investments (net of $18 of
tax provision) . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 . . . . . . . . . .
Issuance of common stock for employee
purchase plan . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . . . .
Issuance of common stock in settlement of
restricted stock units, net of shares withheld
for employee taxes, and stock awards . . . .
Repurchase of common stock . . . . . . . . . . .
Stock-based compensation expense . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in unrealized gain (loss) on
available-for-sale investments . . . . . . . . .
Balance at December 31, 2013 . . . . . . . . . .
13,629,713
$
45,161
207,624
65,897
—
—
—
—
13,948,395
46,982
211,551
26,548
—
—
—
—
14,233,476
51,338
612,210
95,256
(1,060,447)
—
—
—
13,931,833
$
14
—
—
—
—
—
—
—
14
—
—
—
—
—
—
—
14
—
1
—
(1)
—
—
—
14
$
90,423
$
6,736
$
(1,756)
$
95,417
276
1,230
(146)
3,907
29
—
—
95,719
289
1,480
(101)
3,159
6
—
—
100,552
362
5,048
(222)
(10,030)
3,110
—
—
—
—
—
—
(10,061)
—
(3,325)
—
—
—
—
—
(6,548)
—
(9,873)
—
—
—
—
—
(4,747)
—
—
—
—
—
—
915
(841)
—
—
—
—
—
—
922
81
—
—
—
—
—
—
—
98,820
$
$
—
(14,620)
$
(30)
51
$
276
1,230
(146)
3,907
29
(10,061)
915
91,567
289
1,480
(101)
3,159
6
(6,548)
922
90,774
362
5,049
(222)
(10,031)
3,110
(4,747)
(30)
84,265
The accompanying notes are an integral part of these consolidated financial statements.
57
CUTERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit (deficit) from stock-based compensation. . . . . . . . . . . . . . . .
Excess tax benefit related to stock-based compensation . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets and prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . .
Cash flows from investing activities:
Acquisition of property, equipment and software . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposal of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of marketable and long-term investments . . . . . . . . . . .
Proceeds from maturities of marketable investments . . . . . . . . . . . . . . . . . . . .
Purchase of marketable investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities. . . . . . . . . . . . . . . .
Cash flows from financing activities:
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options and employee stock purchase
plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on capital lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit related to stock-based compensation . . . . . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid (received) for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental non-cash investing and financing activites:
Assets acquired under capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2012
2011
2013
$ (4,747) $ (6,548) $ (10,061)
3,110
—
—
1,304
243
(857)
2,108
345
73
(287)
(371)
(218)
3,114
(304)
3,513
(517)
(155)
—
63
15,578
36,030
(56,847)
(5,848)
3,160
6
(6)
1,606
(87)
(3,690)
1,167
859
89
(466)
(177)
(62)
1,915
(66)
(2,300)
(516)
—
(5,091)
—
31,564
43,009
(58,813)
10,153
3,907
29
(22)
637
107
(1,000)
(4,281)
2,604
(486)
1,277
2,970
45
(895)
1
(5,168)
(751)
—
—
36
21,198
47,935
(63,131)
5,287
(10,031)
—
—
5,189
(127)
—
(4,969)
(7,304)
23,546
$ 16,242
1,667
—
6
1,673
9,526
14,020
$ 23,546
1,360
—
22
1,382
1,501
12,519
$ 14,020
$
$
$
19
337
—
307
$
—
(1,345)
577
$
—
$
—
The accompanying notes are an integral part of these consolidated financial statements.
58
CUTERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations and Principles of Consolidation
Cutera, Inc. (“Cutera” or the “Company”) is a global provider of laser and other energy based aesthetic systems for
practitioners worldwide. The Company designs, develops, manufactures, and markets the Xeo, GenesisPlus, Excel V,
and truSculpt for use by physicians and other qualified practitioners to allow its customers to offer safe and effective
aesthetic treatments to their customers. In addition to the Company’s four primary platforms, the Company offers other
products, including CoolGlide, Solera, VariLite and Japan specific products such as myQ. The Xeo and Solera
platforms offer multiple hand pieces and applications, which allow customers to upgrade their systems (“Upgrade”
revenue). 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, Titan and truSculpt hand piece refills, and
distributing third party manufactured dermal fillers and cosmeceuticals.
Headquartered in Brisbane, California, the Company has wholly-owned subsidiaries in Australia, Belgium, Canada,
France and Japan, that market, sell and service its products outside of the U.S. 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 generally accepted accounting principles in
the United States of America (“GAAP”) requires the Company’s management to make estimates and assumptions that
affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could
differ materially from those estimates. On an ongoing basis, the Company evaluates their estimates, including those
related to warranty obligation, sales commission, accounts receivable and sales allowances, fair values of long-term
investments, fair values of acquired intangible assets, useful lives of intangible assets and property and equipment, fair
values of options to purchase the Company’s common stock, recoverability of deferred tax assets, and effective income
tax rates, among others. Management bases their 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.
Cash, Cash Equivalents, and Marketable Investments
The Company invests its cash primarily in money market funds 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 its foreign subsidiaries maintain a
limited amount of cash in their local banks to cover their 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 have been
classified and accounted for as available-for-sale. Investments with remaining maturities 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.
59
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. 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. Carrying amounts of the
Company’s financial instruments, including cash equivalents, marketable investments, accounts receivable, accounts
payable and accrued liabilities, approximate their fair values as of the balance sheet dates because of their generally
short maturities.
The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data
obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant
assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair
value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities.
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data,
including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are
not active. Level 2 also includes assets and liabilities that are valued using models or other pricing
methodologies that do not require significant judgment since the input assumptions used in the models, such
as interest rates and volatility factors, are corroborated by readily observable data from actively quoted
markets for substantially the full term of the financial instrument.
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant
management judgment. These values are generally determined using pricing models for which the
assumptions utilize management’s estimates of market participant assumptions.
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 is the 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, the length of the time and the extent to
which the market value of the investment has been less than cost, the financial condition and near-term prospects of the
issuer. There were no other-than-temporary impairments in the years ended December 31, 2013, 2012, and 2011.
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 our products.
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts.
The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the
age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.
Concentration of Credit Risk and Other Risks and Uncertainties
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. The Company has
not experienced any losses on its deposits of cash and cash equivalents.
60
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 bonds. 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 (interest
reset date for auction-rate securities and variable rate demand notes) of generally less than eighteen months.
Accounts receivable are typically unsecured and are derived from revenue earned from worldwide customers. The
Company performs credit evaluations of its customers and maintains reserves for potential credit losses. No single
customer represented more than 10% of net accounts receivable as of either December 31, 2013 or 2012.
During the years ended December 31, 2013, 2012, and 2011, domestic revenue accounted for 42%, 41%, and 39%,
respectively, of total revenue, while international revenue accounted for 58%, 59%, and 61%, respectively, of total
revenue, for each of the years. No single customer represented more than 10% of total revenue for any of the years
ended December 31, 2013, 2012, and 2011.
The Company is also subject to risks common to companies in the medical device industry, including, but not limited
to, new technology innovations, dependence on key personnel, dependence on key suppliers, protection of proprietary
technology, product liability, Food and Drug Administration and/ or international regulatory approvals required for
new products and compliance with government regulations.
Inventories
Inventories are stated at the lower of cost or market, cost being determined on a standard cost basis (which
approximates actual cost on a first-in, first-out basis) and market being determined as the lower of replacement cost or
net realizable value.
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 cost of
revenue or in the respective operating expense line based on which function and purpose for which it is being used for.
Proceeds from the sale of demonstration units are recorded as revenue and all costs incurred to refurbish the systems
prior to sale are charged to cost of revenue.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is on a straight-line basis over
the estimated useful lives of the assets, generally as follows:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and furniture . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . .
Useful Lives
Lesser of useful life or term of lease
3 years
3 years
Upon sale or retirement of assets, 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, equipment and leasehold improvements was $602,000, $436,000 and
$446,000 in 2013, 2012, and 2011 respectively. Amortization expense for vehicles leased under capital leases is
included in depreciation expense.
Goodwill and Intangible Assets
Goodwill, which represents the excess of the purchase price over the fair value of net tangible and identifiable
intangible assets, is not subject to amortization, but is subject to at least an annual assessment for impairment, applying
a fair-value based test.
61
The Company’s intangible assets are comprised of purchased technology sub-licenses, acquired customer relationships,
and those assets acquired in conjunction with an asset acquisition in February 2012 including, existing customer
relationships, product portfolio and a manufacturing process for the products acquired. All identifiable intangibles have
finite lives and are carried at cost, net of accumulated amortization. Amortization is recorded using the straight-line
method, over their respective useful lives, which range from approximately 11 months to 10 years.
Impairment of Long-lived Assets
Goodwill is not amortized, but is tested for impairment at least annually or as circumstances indicate their value may
no longer be recoverable. The goodwill impairment test is generally performed annually during the fourth fiscal quarter
(or earlier if impairment indicators arise). 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,
2013, there has been no impairment of goodwill.
The Company evaluates the recoverability of its long-lived assets, which include amortizable intangible and tangible
assets. Acquired intangible assets with definite useful lives are amortized over their useful lives. The Company
evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
value of long-lived assets may not be recoverable. The Company recognizes such impairment in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable to such assets. No impairment losses were
incurred in the periods presented.
Warranty Obligations
The Company provides a one-year standard warranty on all systems. Warranty coverage provided is for labor and parts
necessary to repair the systems during the warranty period.
The Company accounts for the estimated warranty cost of the standard warranty coverage as a charge to costs of
revenue when revenue is recognized. The estimated warranty cost is based on historical product performance. To
determine the estimated warranty reserve, the Company utilizes actual service records to calculate the average service
expense per system and applies this to the equivalent number of units exposed under warranty. The Company updates
these estimated charges every quarter.
Revenue Recognition
Product, Upgrade, Titan hand piece refill, and Dermal filler and cosmeceutical revenue is recognized when title and
risk of ownership has been 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 probable.
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. For sales transactions 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 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: system and upgrade sales; and service contracts.
62
For multiple-element arrangements revenue is allocated to each element based on their relative selling prices. Relative
selling prices would be based first on vendor specified objective evidence (“VSOE”), then on third-party evidence of
selling price (“TPE”) when VSOE does not exist, and then on best estimate of selling price (“BESP”) when VSOE and
TPE do not exist. Because the Company has neither VSOE nor TPE for its systems, the allocation of revenue has been
based on the Company’s BESPs. The objective of BESP is to determine the price at which the Company would transact
a sale if the product was sold on a stand-alone basis. The Company determines BESP for its systems by considering
multiple factors including, but not limited to, prices charged for stand-alone sales, features and functionality of the
system, geographies, type of customer, and market conditions. Revenue allocated to each element is then recognized
when the other revenue recognition criteria are met for each element.
In the first and second quarter of 2013, with respect to the sale of its truSculpt product, the Company provided
promotions that included an unlimited number of “free” hand piece replacements during a stated trial period of 3
months or 12 months. These free refills were treated as an undelivered element under FASB ASC 605-25 in the
original revenue transaction. The Company deferred the relative fair value related to the estimated number of hand
piece replacements to be delivered during the promotional period and recognized that deferred revenue over the free
refills promotion period. Commencing with the third quarter of 2013, the Company included unlimited refills as part of
the truSculpt standard warranty and determined that this was no longer a separate deliverable under the multiple-
element arrangement revenue guidance. Following this change, the Company recognized the revenue under the
warranty model, in which the revenue for the system sale was recognized up-front along with an estimate of the costs
which will be incurred under the warranty obligation recorded in cost of 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. Service revenue, 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, 2013, 2012, and 2011 was $17.7 million, $17.2 million, and $13.4 million, respectively.
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 our internal manufacturing processes,
technology license amortization and royalties, and costs associated with product warranties.
The Company’s system sales includes 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 product and provides for refurbishment of other hand pieces under warranty or service contracts.
When customers purchase a replacement hand piece (or “refill”) or are provided a replacement hand piece under a
warranty or service contract, Cutera ships 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
revenue includes the costs incurred to refurbish hand pieces.
Research and Development Expenditures
Costs related to research, design, development and testing of products are charged to research and development
expense as incurred. Expenses incurred primarily relate to employees, facilities, material, third party contractors and
clinical and regulatory fees.
Advertising Costs
Advertising costs are included as part of sales and marketing expense and are expensed as incurred. Advertising
expenses were $1.6 million in 2013 and $1.3 million in both 2012 and 2011.
63
Stock-based Compensation
The Company accounts for stock-based employee compensation plans under the fair value recognition and
measurement provisions under U.S. GAAP. The Company’s stock-based compensation cost is measured at the grant
date, based on the fair value of the award, and is recognized as expense over the requisite service period. The Company
elected to use the Black-Scholes-Merton (“BSM”) pricing model to determine the fair value of stock options on the
dates of grant. Restricted stock units (“RSUs”), performance stock units (“PSUs”) and stock awards are measured
based on the fair market values of the underlying stock on the dates of grant. Shares are issued on the vesting dates, net
of the tax withholding requirements to be paid by the Company on behalf of its employees. As a result, the actual
number of shares issued will be fewer than the actual number of RSUs outstanding. Furthermore, the Company records
the liability for withholding amounts to be paid by us as a reduction to additional paid-in capital when the shares are
issued. Also, the Company recognizes stock-based compensation using the straight-line method.
U.S. GAAP requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation
cost recognized for stock-based awards for options exercised and RSUs vested during the period (excess tax benefits)
to be classified as financing cash flows.
Income Taxes
The Company recognizes income taxes under the liability method. The Company recognizes deferred income taxes for
differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect
for the years in which differences are expected to reverse. The Company recognizes the effect on deferred taxes of a
change in tax rates in income in the period that includes the enactment date. For deferred tax assets which are not
subject to a valuation allowance, the Company has determined that its future taxable income will be sufficient to
recover all of the deferred tax assets. However, should there be a change in their ability to recover the deferred tax
assets, the Company could be required to record a valuation allowance against the net carrying value of its deferred tax
assets. This would result in an increase to the Company’s tax provision in the period in which they determined that the
recovery was not probable.
The measurement of deferred taxes often involves an exercise of judgment related to the computation and realization of
tax basis. The deferred tax assets and liabilities reflect management’s assessment that tax positions taken, and the
resulting tax basis, are more likely than not to be sustained if they are audited by taxing authorities. Also, assessing tax
rates that the Company expects to apply and determining the years when the temporary differences are expected to
affect taxable income requires judgment about the future apportionment of our income among the states in which the
Company operates. These matters, and others, involve the exercise of significant judgment. Any changes in our
practices or judgments involved in the measurement of deferred tax assets and liabilities could materially impact our
financial condition or results of operations.
Valuation allowances are established when necessary to reduce deferred income tax assets to amounts that the
Company believes are more likely than not to be recovered. The Company evaluates its deferred tax assets quarterly to
determine whether adjustments to our valuation allowance are appropriate. In making this evaluation, the Company
relies on its recent history of pre-tax earnings, estimated timing of future deductions and benefits represented by the
deferred tax assets, and its forecasts of future earnings, the latter two of which involve the exercise of significant
judgment. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax asset due to
a history of operating losses.
64
The Company establishes reserves for uncertain tax positions in accordance with the Income Taxes subtopic of the
ASC. The subtopic prescribes the minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. Additionally, the subtopic provides guidance on derecognition, measurement,
classification, interest and penalties, and transition of uncertain tax positions. The impact of an uncertain income tax
position on income tax expense must be recognized at the largest amount that is more-likely-than-not to be sustained.
An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The
Company has provided taxes and related interest and penalties due for potential adjustments that may result from
examinations of open U.S. Federal, state and foreign tax years. The Company will reverse the liability and recognize a
tax benefit during the period in which the Company makes the determination that the tax position is effectively settled
through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine
and challenge the tax position has expired. The Company will record an additional charge in the Company’s provision
for taxes in the period in which the Company determines that the recorded tax liability is less than the Company
expects the ultimate assessment to be.
Computation of Net Loss per Share
Basic net income per share is computed using the weighted-average number of shares outstanding during the period.
Diluted net income per share is computed using the weighted-average number of shares and dilutive potential shares
outstanding during the period. Dilutive potential shares primarily consist of employee stock options. Dilute earnings
per share is the same as basic earnings per share for the periods presented because the inclusion of outstanding
common stock equivalents would be anti-dilutive.
U.S. GAAP requires that employee equity share options, non-vested shares and similar equity instruments granted by
the Company be treated as potential common shares outstanding in computing diluted earnings per share. In periods of
net income, diluted shares outstanding include the dilutive effect of in-the-money options, which is calculated based on
the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the
amount the employee must pay for exercising stock options, the amount of compensation cost for future service that
the Company has not yet recognized, and the amount of tax benefits that would be recorded in additional-paid-in-
capital (“APIC”) when the award becomes deductible are all assumed to be used to repurchase shares.
Comprehensive Loss
Comprehensive 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 consisted
solely of the unrealized gains or losses on the Company’s available-for-sale investments, net of tax.
Foreign Currency
The U.S. dollar is the functional currency of the Company’s subsidiaries. Monetary and non-monetary assets and
liabilities are remeasured into U.S. dollars at the applicable period end exchange rate. Sales and operating expenses are
remeasured at average exchange rates in effect during each period, except for those expenses related to non-monetary
assets which are remeasured at historical exchange rates. 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, 2013. The effect
of exchange rate changes on cash and cash equivalents was insignificant for each of the three years presented in the
period ended December 31, 2013.
Segments
The Company operates in one segment. Management uses one measurement of profitability and does not segregate its
business for internal reporting. As of December 31, 2013 and 2012, 83% and 85%, respectively, of all long-lived assets
were maintained in the U.S. See Note 10 for details relating to revenue by geography.
65
NOTE 2—INVESTMENT SECURITIES
The following tables summarize cash, cash equivalents and marketable securities (in thousands):
Cash and cash equivalents:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash equivalents:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities:
U.S. government notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
$
3,816
$
2,198
9,926
2,500
16,242
10,522
25,858
2,039
10,242
18,170
66,831
17,348
4,000
23,546
4,009
24,958
4,206
10,519
18,334
62,026
Total cash, cash equivalents and marketable securities . . . . . . . . . . . . . . . . . . . . . . .
$
83,073
$
85,572
The following table summarizes unrealized gains and losses related to our marketable investments (in thousands):
December 31, 2013
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$ 16,242
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
—
$
—
Fair
Market
Value
$ 16,242
Marketable investments
U.S. government notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,516
25,823
2,043
10,239
18,109
66,730
11
38
1
3
61
114
(5)
(3)
(5)
—
—
(13)
10,522
25,858
2,039
10,242
18,170
66,831
Total cash, cash equivalents and marketable securities . . . .
$ 82,972
$
114
$
(13) $ 83,073
December 31, 2012
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
$ 23,546
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
—
$
—
Fair
Market
Value
$ 23,546
Marketable investments
U.S. government notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,005
24,910
4,184
10,515
18,281
61,895
4
48
23
4
59
138
—
—
(1)
—
(6)
(7)
4,009
24,958
4,206
10,519
18,334
62,026
Total cash, cash equivalents and marketable securities . . . .
$ 85,441
$
138
$
(7) $ 85,572
No investments were in a continuous unrealized loss position for longer than 12 months.
66
The following table summarizes the estimated fair value of our marketable investments classified by the contractual
maturity date of the security as of December 31, 2013 (in thousands):
Due in less than one year (fiscal year 2014) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due in 1 to 3 years (fiscal year 2015 - 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$
$
26,685
40,146
66,831
Fair Value Measurements
The following table summarizes 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 (in thousands):
December 31, 2013
Cash equivalents:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short term marketable investments:
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2012
Cash equivalents:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short term marketable investments:
Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . .
Total assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
Level 2
Level 3
Total
$
$
$
$
9,926
—
—
9,926
Level 1
17,348
—
—
17,348
$
$
$
$
—
2,500
66,831
69,331
$
$
—
—
—
—
Level 2
Level 3
—
4,000
62,026
66,026
$
$
—
—
—
—
$
$
$
$
9,926
2,500
66,831
79,257
Total
17,348
4,000
62,026
83,374
The Company’s Level 1 financial assets are money market funds with fair values are based on quoted market prices
The Company’s Level 2 investments include U.S. government-backed securities and corporate securities that are
valued based upon observable inputs that may include benchmark yields, reported trades, broker/dealer quotes, issuer
spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research
publications. The average remaining maturity of the Company’s Level 2 investments as of December 31, 2013 is less
than 36 months and all of these investments are rated by S&P and Moody’s at A or better.
The table presented below summarizes the change in carrying value associated with Level 3 financial assets, which
represents the Company’s investment in long term Auction Rate Securities, for the year ended December 31, 2012 (in
thousands):
Balance at December 31, 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gains or losses (realized or unrealized)
Included in other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2012 and 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Amount
3,027
262
(3,289)
—
67
NOTE 3—ACQUISITION
On February 2, 2012, Cutera acquired certain assets and liabilities of Iridex’s global aesthetics business unit for $5.1
million in cash. This business is engaged in developing, manufacturing, marketing and servicing laser-based medical
systems and delivery devices. The business purpose of this transaction was to acquire access to an expanded installed
base of customers, add to Cutera’s product offerings and acquire a recurring stream of service revenue. This acquisition
was considered a business combination for accounting purposes, and as such, in addition to valuing all the assets, the
Company recorded goodwill associated with the expected synergies from leveraging the customer relationships and
integrating new product offerings into the Company’s business.
The fair values of the assets acquired were determined to be $4.8 million of net tangible and intangible assets and $1.3
million of goodwill. The customer relationship intangible assets are being amortized over 5 years on a straight-line
basis. Other intangible assets are being amortized over 11 months to 5 years from the date of acquisition on a straight-
line basis.
The following table summarizes the fair value as of February 2, 2012 of the net assets acquired (in thousands):
Purchase price paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
5,091
Assets (liabilities acquired):
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationship intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other identified intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,552
2,510
780
1,339
(780)
(310)
5,091
$
The identifiable intangible assets and goodwill identified above shall be deductible for income taxes over a useful
economic life of 15 years.
The Company acquired the Iridex aesthetics business unit on February 2, 2012. Disclosure of the amounts of revenue
and earnings of the assets and liabilities of the acquired Iridex aesthetics business, separately from the Company’s, is
not practicable because the acquired business was immediately integrated into the Company’s operations. Based on
Iridex’s Form 10-K for the year ended December 2011, the revenue of the aesthetics business unit was reported to be
$10.8 million and the earnings were $469,000 for the fiscal year ended December 31, 2011.
NOTE 4—BALANCE SHEET DETAIL
Inventories
Inventories consist of the following (in thousands):
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
5,989
3,017
9,006
$
$
7,221
3,893
11,114
December 31,
2013
2012
68
Property and Equipment, net
Property and equipment, net consists of the following (in thousands):
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office equipment and furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2013
2012
625
3,285
3,876
7,786
(6,424 )
1,362
$
$
620
2,888
3,252
6,760
(5,827)
933
$
$
During 2013, the Company financed vehicles for some of its sales employees in North America. As of December 31,
2013 the gross capitalized value of the leased vehicles was $577,000 and the related accumulated depreciation was
$98,000.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets comprise a patent sublicense acquired from Palomar in 2006; a technology
sublicense acquired in 2002 (fully amortized as of December 31, 2012 and removed from the balance sheet in 2013);
intangible assets and goodwill related to the acquisition of Iridex’s aesthetic business unit; and, customer relationships
in the Benelux countries acquired from a former distributor in 2013). The components of intangible assets at December
31, 2013 and 2012 were as follows (in thousands):
December 31, 2013
Patent sublicense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationship intangible related to acquisition . . . . . . . . . . . . . .
Other identified intangible assets related to acquisition. . . . . . . . . . . . . .
Other intangible . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2012
Patent sublicense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology sublicense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationship intangible related to acquisition . . . . . . . . . . . . . .
Other identified intangible assets related to acquisition. . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross
Carrying
Amount
Accumulated
Amortization
Amount
Net
Amount
$
$
$
$
1,218
2,510
780
155
1,339
6,002
1,218
538
2,510
780
1,339
6,385
$
$
$
$
1,068
962
607
6
—
2,643
931
538
460
551
—
2,480
$
$
$
$
150
1,548
173
149
1,339
3,359
287
—
2,050
229
1,339
3,905
Amortization expense for intangible assets was $702,000 in 2013, $1.2 million in 2012, and $191,000 in 2011.
Based on intangible assets recorded at December 31, 2013, and assuming no subsequent additions to, or impairment of
the underlying assets, the remaining estimated annual amortization expense is expected to be as follows (in thousands):
Year ending December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Amount
773
641
558
47
2,019
69
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Payroll and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
NOTE 5—WARRANTY AND SERVICE CONTRACTS
December 31,
2013
2012
4,753
1,307
1,202
2,066
9,328
$
$
4,721
1,085
1,212
2,475
9,493
The Company has a direct field service organization in the U.S. Internationally, the Company provides direct service
support through its wholly-owned subsidiaries in Australia, Canada, France and Japan as well as through a network of
distributors and third-party service providers in several other countries where it does not have a direct presence. The
Company provides a warranty with its products, depending on the type of product. After the original warranty period,
maintenance and support are offered on a service contract basis or on a time and materials basis. The Company
currently provides for the estimated cost to repair or replace products under warranty at the time of sale.
Warranty Accrual (in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Accruals for warranties issued during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Settlements made during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Deferred Service Contract Revenue (in thousands)
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add: Payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Revenue recognized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2013
2012
1,212
3,420
(3,430 )
1,202
$
$
1,121
3,525
(3,434)
1,212
December 31,
2013
$
8,539
15,026
(11,928)
2012
5,838
14,112
(11,411)
11,637
$
8,539
Costs incurred under service contracts amounted to $6.9 million in 2013, $7.2 million in 2012, and $4.6 million in
2011, and are recognized as incurred.
NOTE 6—STOCKHOLDERS’ EQUITY, STOCK PLANS AND STOCK-BASED COMPENSATION
EXPENSE
As of December 31, 2013, the Company had the following stock-based employee compensation plans:
2004 Equity Incentive Plan and 1998 Stock Plan
In 1998, the Company adopted the 1998 Stock Plan, or 1998 Plan, under which 4,650,000 shares of the Company’s
common stock were reserved for issuance to employees, directors and consultants.
On January 12, 2004, the Board of Directors adopted the 2004 Equity Incentive Plan. A total of 1,750,000 shares of
common stock were originally reserved for issuance pursuant to the 2004 Equity Incentive Plan. In addition, the shares
reserved for issuance under the 2004 Equity Incentive Plan included shares reserved but un-issued under the 1998 Plan
and shares returned to the 1998 Plan as the result of termination of options or the repurchase of shares.
70
Options granted under the 1998 Plan and 2004 Equity Incentive Plan may be incentive stock options or non-statutory
stock options. Stock purchase rights may also be granted under the 2004 Equity Incentive Plan. Incentive stock options
may only be granted to employees. The Board of Directors determines the period over which options become
exercisable. Options granted under the Plan to employees generally vest over a four year term from the vesting
commencement date and become exercisable 25% on the first anniversary of the vesting commencement date and an
additional 1/48th on the last day of each calendar month until all of the shares have become exercisable. During 2013,
2012 and 2011 the officers of the Company were granted options that vest over a three year term at the rate of 1/3rd on
the one year anniversary of the vesting commencement date and 1/36th thereafter. The contractual term of the options
granted in 2013, 2012 and 2011 was seven years.
In accordance with the 2004 Equity Incentive Plan, prior to 2012, the Company’s non-employee directors were granted
$60,000 of grant date fair value, fully vested, stock awards annually on the date of the Company’s Annual Meeting of
stockholders. Commencing with 2012, the Company’s non-employee directors get $60,000 of RSUs annually that cliff-
vest on the one year anniversary of the grant date. In the years ended December 31, 2013, 2012and 2011, the Company
issued 40,674, 52,938 and 37,925 shares of stock, respectively.
In addition, in the years ended December 31, 2013 and 2012, the Company’s Board of Directors granted 148,004 and
95,250, respectively, of RSUs to certain members of the Company’s management. These RSUs vest at the rate of one-
third on June 1of the year of grant, and one-third in each of the subsequent two years. The Company measured the fair
market values of the underlying stock on the dates of grant and recognizes the stock-based compensation expense using
the straight-line method over the vesting period.
2004 Employee Stock Purchase Plan
On January 12, 2004, the Board of Directors adopted the 2004 Employee Stock Purchase Plan. Under the 2004
Employee Stock Purchase Plan, or 2004 ESPP, eligible employees are permitted to purchase common stock at a
discount through payroll deductions. The 2004 ESPP offering and purchase periods are for approximately six months.
The 2004 ESPP has an evergreen provision based on which shares of common stock eligible for purchase are increased
on the first day of each fiscal year by an amount equal to the lesser of:
i. 600,000 shares;
ii. 2.0% of the outstanding shares of common stock on such date; or
iii. an amount as determined by the Board of Directors.
The Company’s Board of Directors did not increase the shares available for future grant on January 1, 2014, 2013,
2012 and 2011. The price of the common stock purchased is the lower of 85% of the fair market value of the common
stock at the beginning or end of a six month offering period. Under the 2004 ESPP the Company issued 51,338 shares
in 2013 and 46,982 shares in 2012. At December 31, 2013, 958,616 shares remained available for future issuance.
71
Option Activity
Activity under the 1998 Plan and 2004 Equity Incentive Plan is summarized as follows:
Shares
Available
For Grant
Number of
Shares
Options Outstanding
Weighted-
Average
Exercise
Price
Weighted-Average
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
(in $ millions)(1)
Balances as of December 31,
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . .
Options cancelled (expired or
forfeited) . . . . . . . . . . . . . . . . . . . .
Stock awards granted . . . . . . . . . . .
Restricted stock units cancelled
(expired or forfeited) . . . . . . . . . .
Balances as of December 31,
2011 . . . . . . . . . . . . . . . . . . . . . . . . .
Additional shares reserved (2) . . . .
Options granted . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . .
Options cancelled (expired or
forfeited) . . . . . . . . . . . . . . . . . . . .
Stock awards granted . . . . . . . . . . .
Restricted stock units cancelled
(expired or forfeited) . . . . . . . . . .
Balances as of December 31,
2012 . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . .
Options exercised . . . . . . . . . . . . . . .
Options cancelled (expired or
forfeited) . . . . . . . . . . . . . . . . . . . .
Stock awards granted . . . . . . . . . . .
Restricted stock units cancelled
(expired or forfeited) . . . . . . . . . .
Balances as of December 31,
2013 . . . . . . . . . . . . . . . . . . . . . . .
1,005,447
(1,206,500)
—
3,296,419
1,206,500
$
$
(207,624) $
746,273
(77,225)
6,542
(746,273) $
—
—
474,537
1,910,000
(921,500)
—
$
3,549,022
—
921,500
$
(211,551) $
470,732
(314,159)
24,746
(470,732) $
—
—
1,644,356
(1,007,166)
—
3,788,239
1,007,166
$
$
(612,210) $
391,033
(399,997)
(391,033)
—
81,257
—
709,483
3,792,162
$
$
10.93
8.61
5.92
13.40
—
—
9.92
—
7.04
7.00
9.45
—
—
9.44
8.97
8.16
10.37
—
—
9.42
10.14
4.4
1.1
4.6
$
0.4
4.3
$
2.6
4.2
$
3.0
$
5.1
2.3
Exercisable as of December
31, 2013 . . . . . . . . . . . . . . . . . . .
2,221,657
(1) Based on the closing stock price of the Company’s stock of $10.18 on December 31, 2013, $9.00 on December 31,
2012, $7.45 on December 30, 2011 and $8.29 on December 31, 2010.
(2) Approved by stock holders in 2012.
72
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference
between the Company’s closing stock price on the last trading day of the fiscal year and the exercise price, multiplied
by the number of in-the-money options) that would have been received by the option holders had all option holders
exercised their options on December 31, 2013. The aggregate intrinsic amount changes based on the fair market value
of the Company’s common stock. Total intrinsic value of options exercised was $2.1 million in 2013, $397,000 in
2012, and $521,000 in 2011. The options outstanding and exercisable at December 31, 2013 were in the following
exercise price ranges:
Range of Exercise Prices
$ 6.54 . . . . . . . . . . . . . . . . . . . . .
$ 6.88 . . . . . . . . . . . . . . . . . . . . .
$ 7.11–$8.52 . . . . . . . . . . . . . . .
$ 8.66 . . . . . . . . . . . . . . . . . . . . .
$ 8.72 . . . . . . . . . . . . . . . . . . . . .
$ 8.80 . . . . . . . . . . . . . . . . . . . . .
$ 8.81–$9.74 . . . . . . . . . . . . . . .
$ 10.24 . . . . . . . . . . . . . . . . . . . .
$ 10.43–$14.14 . . . . . . . . . . . . .
$ 14.78–$25.73 . . . . . . . . . . . . .
$ 6.54–$25.73 . . . . . . . . . . . . . .
Options Outstanding
Options Exercisable
Number
Outstanding
Weighted-Average
Remaining
Contractual Life
(in years)
Number
Outstanding
Weighted-Average
Exercise
Price
19,292
628,329
191,548
397,231
564,751
688,000
231,978
491,137
402,708
177,188
3,792,162
2.30
5.54
2.91
2.43
4.37
6.46
5.46
3.36
1.65
1.61
4.18
19,292
239,088
145,738
397,231
376,169
—
56,522
446,826
363,603
177,188
2,221,657
$
$
6.54
6.88
8.29
8.66
8.72
—
9.39
10.24
11.57
19.85
10.14
As of December 31, 2012 there were 2,224,660 options that were exercisable at a weighted average exercise price of
$10.50.
RSU and Stock Awards Activity Table
Information with respect to restricted stock units’ activity is as follows (in thousands):
Number
of
Shares
Weighted-Average
Grant-
Date Fair
Value
Aggregate
Fair Value(1)
(in thousands)
Aggregate
Intrinsic Value(2)
(in thousands)
Outstanding at December 31, 2010 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2011 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2012 . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2013 . . . . . .
$
67,096
77,225
$
(82,526) $
(6,542) $
$
55,253
148,188
$
(41,522) $
(13,210) $
148,709
$
$
188,678
(119,505) $
(38,417) $
$
179,465
10.24
8.32
8.93
9.99
9.55
6.85
9.79
7.39
6.99
8.94
7.68
8.11
8.34
$
$
$
691(4)
279(5)
1,091(6)
$
$
$
$
556
412
1,338
1,827
(1) Represents the value of the Company’s stock on the date that the restricted stock units vest.
(2) Based on the closing stock price of the Company’s stock of $10.18 on December 31, 2013, $9.00 on December 31,
2012, $7.45 on December 30, 2011 and $8.29 on December 31, 2010.
(3) The number of restricted stock units vested includes shares that the Company withheld on behalf of the employees
to satisfy the statutory tax withholding requirements.
(4) On the grant date, the fair value for these vested awards was $737,000.
(5) On the grant date, the fair value for these vested awards was $407,000.
(6) On the grant date, the fair value for these vested awards was $917,000.
73
Performance Stock Units
In 2013 and 2012, the Company granted its executive officers 33,751 and 42,250 PSUs that vest on June 1, 2014 and
2013, respectively, subject to the recipient’s continued service through that date. At the vest date, the Company issues
fully-paid up common stock based on the percentage achievement of each performance goal. For the June 1, 2013 to
2014 PSUs, there are three performance goals. For the June 1, 2012 to 2013 PSUs, there were also three performance
goals, related to Company revenue and profitability targets, based on which the Company issued 35,154 shares of
common stock on June 1, 2013.
Stock-Based Compensation
Stock-based compensation expense for stock options, restricted stock units, stock awards and ESPP shares for the year
ended December 31, 2013, 2012 and 2011 was as follows (in thousands):
Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ESPP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2012
2011
2013
2,201
631
162
116
3,110
$
$
2,421
501
138
100
3,160
$
$
3,047
775
—
85
3,907
As of December 31, 2013, the unrecognized compensation cost, net of expected forfeitures, was $4.3 million for stock
options and stock awards, which will be recognized using the straight-line attribution method over an estimated
weighted-average remaining amortization period of 2.56 years. For the ESPP, the unrecognized compensation cost, net
of expected forfeitures, was $38,000, which will be recognized using the straight- line attribution method over an
estimated weighted-average amortization period 0.33 years.
The amount of cash received from the exercise of stock options and employee stock purchases, net of taxes withheld
and paid was $5.2 million in 2013, $1.7 million in 2012, and $1.4 million in 2011, and the total direct tax benefit
(deficit) realized, including the excess tax benefit (deficit), from stock-based award activity was $6,000 in 2012, and
$29,000 in 2011. There was no direct tax benefit (deficit) in 2013. The Company elected to account for the indirect
effects of stock-based awards—primarily the research and development tax credit—through the Statement of
Operations.
Total stock-based compensation expense recorded by department during the year ended December 31, 2013, 2012 and
2011 was as follows (in thousands):
Cost of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2012
2011
2013
638
744
397
1,331
3,110
$
$
658
657
514
1,331
3,160
$
$
659
788
698
1,762
3,907
74
Valuation Assumptions and Fair Value of Stock Options and ESPP Grants
The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted under its
equity incentive plans and rights to acquire stock granted under its employee stock purchase plan. The Company based
the weighted average estimated values of employee stock option grants and rights granted under the employee stock
purchase plan, as well as the weighted average assumptions used in calculating these values, on estimates at the date of
grant, as follows:
2013
Stock Options
2012
2011
2013
Stock Purchase Plan
2012
2011
Estimated fair value of grants during
the year . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years)(1) . . . . . . . . . . . .
Risk-free interest rate(2) . . . . . . . . . . . . . .
Volatility(3) . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield(4) . . . . . . . . . . . . . . . . . . . . .
$
$
3.22
4.30
1.13%
43%
—%
$
2.47
4.17
0.45%
44%
—%
$
3.10
4.15
1.41%
43%
—%
$
2.84
0.50
0.08%
44%
—%
$
2.16
0.50
0.15%
43%
—%
2.06
0.50
0.08%
39%
—%
(1) The expected term represents the period during which the Company’s stock-based awards are expected to be
outstanding. The estimated term is based on historical experience of similar awards, giving consideration to the
contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including
post-vesting terminations.
(2) The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of
the option as of the date of grant.
(3) Estimated volatility is based on historical volatility. The Company also considers implied volatility when there is
sufficient volume of freely traded options with comparable terms and exercise prices in the open market.
(4) The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.
The Company periodically estimates forfeiture rates based on its historical experience within separate groups of
employees and adjusts the stock-based payment expense accordingly.
RSU Withholdings
For RSU’s granted to employees, the number of shares issued on the date the RSUs vest is net of the tax withholding
requirements paid on behalf of the employees. The Company withheld 24,249 in 2013, 14,974 in 2012, and 16,629 in
2011, shares of common stock to satisfy its employees’ tax obligations of $222,000 in 2013, $101,000 in 2012, and
$146,000 in 2011. The Company paid this amount in cash to the appropriate taxing authorities. Although shares
withheld are not issued, they are treated as common stock repurchases for accounting and disclosure purposes, as they
reduce the number of shares that would have been issued upon vesting.
Share Repurchase Program
On August 5, 2013, the Company’s Board of Directors modified Cutera, Inc.’s stock buyback program, originally
adopted in November 2012, to permit an additional $10 million of its issued and outstanding common shares to be
repurchased. As modified, the stock buyback program permits the Company to purchase an aggregate of $20 million of
its common stock through a 10b5-1 program based on predetermined pricing and volume as well as open-market
purchases that are subject to management discretion and regulatory restrictions
In the year ended December 31, 2013, the Company repurchased 1,060,447 shares of its common stock at an average
price of $9.43 per share, for approximately $10.0 million. As of December 31, 2013, there remained an additional
$10.0 million of the Company’s common stock to be purchased under the modified stock buyback program. The
number of shares to be repurchased and the timing of such repurchases will be based on several factors, including the
price of the Company’s common stock, regulatory restrictions, and general market and business conditions.
75
NOTE 7—INCOME TAXES
The Company files income tax returns in the U.S. federal and various state and local jurisdictions and foreign
jurisdictions. The Company’s loss before provision for income taxes consisted of the following (in thousands):
U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2012
2013
$
$
(4,919) $
118
(4,801) $
(6,767) $
437
(6,330) $
2011
(10,458)
640
(9,818)
The components of the provision for income taxes are as follows (in thousands):
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax (benefit) provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
The Company’s deferred tax asset consists of the following (in thousands):
Year Ended December 31,
2012
2011
2013
(329) $
7
159
(163)
33
—
76
109
(54) $
(13) $
(56)
366
297
(12)
—
(67)
(79)
218
$
(52)
69
208
225
(13)
13
18
18
243
Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets before valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets after valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability on indefinite-lived tangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2013
11,014
3,806
3,686
3,121
—
360
441
224
470
23,122
(22,762)
360
(39)
321
2012(1)
9,828
5,561
3,259
2,261
796
436
466
180
(450)
22,337
(21,907)
430
—
430
(1) The Company revised its 2012 deferred tax asset balances relating to its net operating loss, stock-based
compensation, other assets and valuation allowance. These changes had no impact to the balance sheet, statement of
operations, earnings per share, statement of cash flows, or statement of equity for any period presented.
76
The Company’s deferred tax asset balance is reported in the following captions in the Consolidated Balance Sheets (in
thousands):
Deferred tax asset (current portion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities (current deferred tax liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities (non-current deferred tax liability). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset after valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2013
2012
31
329
—
(39)
321
$
$
40
553
(163)
—
430
The differences between the U.S. federal statutory income tax rates to the Company’s effective tax rate are as follows:
U.S. federal statutory income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State tax rate, net of federal benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit for research and development credit . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign income inclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meals and entertainment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2012*
2011*
2013
35.00%
1.57
19.91
(4.53)
2.60
—
0.19
(34.33)
(2.10)
—
(17.82)
0.63
1.12%
35.00%
3.28
3.40
(1.49)
1.06
(0.05)
1.07
(21.31)
(1.68)
0.28
(21.15)
(1.86)
(3.45)%
35.00%
2.56
6.02
—
(0.02)
(2.15)
2.34
(15.82)
(0.88)
(2.01)
(28.51)
0.99
(2.48)%
(*) The Company revised the effective tax rate reconciliation above for the years ended December 31, 2011 and 2012
for changes to its deferred tax assets for stock-based compensation and resulting valuation allowances. In addition the
Company made reclassification changes to its 2011 and 2012 tax rate reconciliations to conform to current period
presentation. These changes had no impact to the Company’s balance sheets, statement of operations, earnings per
share, statement of cash flows, or statement of equity for any period presented.
The Company recognizes deferred tax assets for the expected future tax consequences of temporary differences
between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit
carryforwards. The Company records a valuation allowance to reduce the deferred tax assets to their estimated
realizable value, when it is more likely than not that it will not be able to generate sufficient future taxable income to
realize the net carrying value. The Company has recorded a full valuation allowance against its U.S. federal and state
deferred tax assets due to its history of operating losses. There was a net increase in the valuation allowance of $0.9
million, $1.4 million, and $2.8 million in the years ended December 31, 2013, 2012 and 2011, respectively
As of December 31, 2013, the Company had cumulative net operating loss carry-forwards for federal and state income
tax reporting purposes of approximately $30.0 million and $10.0 million, respectively. The federal net operating loss
carry-forwards expire through the year 2033 and the state net operating loss carry-forwards expire at various dates
through the year 2032. The Company maintained a valuation allowance against these net operating loss carry-forwards
as of December 31, 2013.
As of December 31, 2013, the Company had research and development tax credits for federal and state income tax
purposes of approximately $3.6 million and $4.5 million, respectively. The federal research and development tax
credits expire through the year 2033. The state research and development credits can be carried forward indefinitely,
except for $284,000, which will expire at various dates through the year 2020. The Company maintained a valuation
allowance against these tax credits as of December 31, 2013.
77
Included in the net operating loss and research and development tax credit carryforwards are approximately $3.9
million of excess tax benefits from employee stock option exercises, for which the Company has not recorded a
deferred tax asset. When such excess tax benefits are ultimately realized, the Company will record the deferred tax
asset and the credit to additional paid in capital.
The Tax Reform Act of 1986 and similar state provisions limit the use of net operating loss and research and
development credit carry-forwards in certain situations where equity transactions result in a change of ownership as
defined by Internal Revenue Code Section 382. In the event the Company should experience an ownership change, as
defined, utilization of its federal and state net operating loss carry-forwards and credits could be limited and may
expire unutilized.
Undistributed earnings of the Company’s foreign subsidiaries of approximately $2.6 million at December 31, 2013, are
considered to be indefinitely reinvested and, accordingly, no provision for federal and state income taxes has been
provided thereon. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability would be
reduced by any foreign income taxes previously paid on these earnings.
Uncertain Tax Positions
The Company establishes reserves for uncertain tax positions based on the largest amount that is more-likely-than-not
to be sustained. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being
sustained. The Company has provided taxes and related interest and penalties due for potential adjustments that may
result from examinations of open U.S. Federal, state and foreign tax years. If the Company ultimately determines that
payment of these amounts are not more-likely-than-not, the Company will reverse the liability and recognize a tax
benefit during the period in which the Company makes the determination. The Company will record an additional
charge in the Company’s provision for taxes in the period in which the Company determines that the recorded tax
liability is less than the Company expects the ultimate assessment to be. The Company’s policy is to include interest
and penalties related to gross unrecognized tax benefits within the provision for income taxes.
The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. The
2004 through 2013 tax years generally remain subject to examination by U.S., federal and California state tax
authorities due to the Company’s net operating loss and credit carryforwards. For significant foreign jurisdictions, the
2008 through 2013 tax years generally remain subject to examination by their respective tax authorities.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits in December 31,
2011 to December 31, 2013 (in thousands):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . .
Decreases related to lapsing of statute of limitations . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
536
36
116
(153)
535
$
$
583
—
29
(76 )
536
$
$
555
—
44
(16)
583
Year Ended December 31,
2012
2011
2013
The Company’s total unrecognized tax benefits that, if recognized, would affect its effective tax rate were
approximately $33,000 and $325,000 as of December 31, 2013 and 2012, respectively. The Company had accrued
approximately $37,000 and $86,000 for payment of interest as of December 31, 2013 and 2012, respectively. Interest
included in the provision for income taxes was not significant in all the periods presented. The Company has not
accrued any penalties related to its uncertain tax positions as it believes that it is more likely than not that there will not
be any assessment of penalties. The Company expects that the amount of unrecognized tax benefits will not materially
change within the next 12 months.
78
NOTE 8—NET LOSS PER SHARE
Diluted earnings per share is the same as basic earnings per share for the periods presented because the inclusion of
outstanding common stock equivalents would be anti-dilutive. The following number of weighted shares outstanding,
prior to the application of the treasury stock method, were excluded from the computation of diluted net loss per
common share for the years presented because including them would have had an anti-dilutive effect (in thousands):
Options to purchase common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee stock purchase plan shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance stock units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 9—DEFINED CONTRIBUTION PLAN
Year Ended December 31,
2012
2011
2013
3,830
173
72
34
4,109
3,746
97
78
8
3,929
3,667
61
70
—
3,798
In the U.S., the Company has an employee savings plan (401(k) Plan) that qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code. Eligible employees may make voluntary contributions to the
401(k) Plan up to 100% of their annual compensation, subject to statutory annual limitations. The Company made no
discretionary contributions in 2011 under the 401(k) Plan, however in 2012 and 2013, the Company made discretionary
contributions of $146,000 and $184,000 respectively.
For the Company’s Japanese subsidiary, it has established an employee retirement plan at its discretion. In addition, for
some of the Company’s other foreign subsidiaries, the Company deposits funds with insurance companies, third-party
trustees, or into government-managed accounts consistent with the requirements of local laws. The Company has fully
funded or accrued for its obligations as of December 31, 2013, and the related expense for each of the three years then
ended was not significant.
NOTE 10—SEGMENT INFORMATION AND REVENUE BY GEOGRAPY AND PRODUCTS
Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to
allocate resources and assess performance. The Company’s chief decision maker, as defined under the FASB’s ASC
280 guidance, is a combination of the Chief Executive Officer and the Executive Vice President and Chief Financial
Officer. To date, the Company has viewed its operations, managed its business, and used one measurement of
profitability for the one operating segment – the sale of aesthetic medical equipment and services, and distribution of
cosmeceutical and dermal filler products, to qualified medical practitioners. In addition, substantially all of the
Company’s long-lived assets are located in the U.S.
The following table summarizes revenue by geographic region, which is based on the shipping location of where the
product is delivered, and product category (in thousands):
Revenue mix by geography:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asia, excluding Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of the world . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue mix by product category:
Products and upgrades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Titan and truSculpt hand piece refills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dermal filler and cosmeceuticals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total product revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79
Year Ended December 31,
2012
2011
2013
$
$
$
$
31,487
14,205
11,263
7,358
10,281
74,594
48,374
4,267
4,264
56,905
17,689
74,594
$
$
$
$
31,949
17,826
8,902
4,958
13,642
77,277
49,605
4,807
5,645
60,057
17,220
77,277
$
$
$
$
23,313
15,019
4,984
3,571
13,403
60,290
37,208
4,686
4,985
46,879
13,411
60,290
NOTE 11—COMMITMENTS AND CONTINGENCIES
Facility Leases
As of December 31, 2013, 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):
Year Ending December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future minimum rental payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount
1,793
1,516
1,341
1,346
5,996
Gross rent expense was $1.6 million in 2013, $1.6 million in 2012 and $1.9 million in 2011.
Vehicle Leases
As of December 31, 2013, the Company was committed to minimum lease payments for leased vehicles under long-
term non-cancelable capital leases as follows (in thousands):
Year Ending December 31,
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Amount
155
155
183
493
Purchase Commitments
The Company maintains certain open inventory purchase commitments with its suppliers to ensure a smooth and
continuous supply for key components. The Company’s liability in these purchase commitments is generally restricted
to a forecasted time-horizon as agreed between the parties. These forecasted time-horizons can vary among different
suppliers. The Company’s open inventory purchase commitments with its suppliers were not significant at December
31, 2013 or 2012.
Indemnifications
In the normal course of business, the Company enters into agreements that contain a variety of representations,
warranties, and indemnification obligations. For example, the Company has entered into indemnification agreements
with each of its directors and executive officers and one other key employee. The Company’s exposure under its
various indemnification obligations is unknown and not reasonably estimable as they involve future claims that may be
made against the Company. As such, the Company has not accrued any amounts for such obligations.
Litigation and Litigation Settlements
The Company is named from time to time as a party to product liability and contractual lawsuits in the normal course
of business. The Company routinely assesses the likelihood of any adverse judgments or outcomes related to legal
matters and claims, as well as ranges of probable losses. A determination of the amount of the reserves required, if any,
for these contingencies is made after analysis of each known issue, historical experience, whether it is more likely than
not that the Company shall incur a loss, and whether the loss is estimable. As of December, 2013, the Company had
accrued $72,000 related to pending product liability and contractual lawsuits.
80
SUPPLEMENTARY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Dec. 31,
2013
Sept. 30,
2013
June 30,
2013
March 31,
2013
Dec. 31,
2012
Sept. 30,
2012
June 30,
2012
March 31,
2012
Quarter ended:
Net revenue . . . . . . . . . . . . . . $ 22,239 $ 16,828 $ 19,560 $ 15, 967 $ 22,533 $ 19,426 $ 19,591 $ 15,727
Cost of revenue . . . . . . . . . . .
7,845
8,442
9,202
Gross profit . . . . . . . . . . . . . . 13,037
7,882
11,118
Operating expenses:
Sales and marketing . . . . . .
Research and
9,274
10,598 10,317
9,790
12,743
7,417
8,550
7,651
9,177
8,828
7,014
7,804
6,456
7,112
7,170
7,437
6,554
7,101
development . . . . . . . . . . .
2,438
2,440
2,217
2,121
2,122
2,217
1,872
2,216
General and
administrative . . . . . . . . . .
2,160
Total operating expenses . . 13,377 11,154
Income (loss) from
3,135
2,354
11,741
2,289
10,866
2,452
11,675
2,854
2,475
11,706 11,838
3,495
13,148
operations . . . . . . . . . . . . . .
Interest and other income,
net . . . . . . . . . . . . . . . . . . . .
Income (loss) before
income taxes . . . . . . . . . . .
Income tax provision
(benefit) . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . $
Net income (loss) per
share—basic . . . . . . . . . . . $
(340)
(1,977)
(623)
(2,316)
1,068
(1,108 )
(1,521)
(5,266)
105
140
75
135
105
152
144
96
(235)
(1,837)
(548)
(2,181)
1,173
(956 )
(1,377)
(5,170)
43
(169)
90
(18)
(278) $ (1,668) $
(638) $ (2,163) $
96
1,077 $
(64 )
97
89
(892 ) $ (1,466) $ (5,267)
(0.02) $
(0.11) $
(0.04) $
(0.15) $
0.08 $
(0.06 ) $
(0.10) $
(0.38)
Net income (loss) per
share—diluted . . . . . . . . . . $
(0.02) $
(0.11) $
(0.04) $
(0.15) $
0.08 $
(0.06 ) $
(0.10) $
(0.38)
Weighted average number
of shares used in per
share calculations:
Basic . . . . . . . . . . . . . . . . . . 14,016 14,541
Diluted . . . . . . . . . . . . . . . . 14,016 14,541
14,723
14,723
14,408
14,408
14,173
14,272
14,127 14,095
14,127 14,095
13,960
13,960
81
SCHEDULE II
CUTERA, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
For the Years Ended December 31, 2013, 2012 and 2011
Deferred tax assets valuation allowance
Year ended December 31, 2013 . . . . . . . . . . . . . . . .
Year ended December 31, 2012(1) . . . . . . . . . . . . . .
Year ended December 31, 2011(1) . . . . . . . . . . . . . .
Allowance for doubtful accounts receivable
Year ended December 31, 2013 . . . . . . . . . . . . . . . .
Year ended December 31, 2012 . . . . . . . . . . . . . . . .
Year ended December 31, 2011 . . . . . . . . . . . . . . . .
Balance at
Beginning
of Year
21,907
20,551
17,752
Balance at
Beginning
of Year
—
8
20
$
$
$
$
$
$
$
$
$
$
$
$
Additions
Deductions
3,437
1,773
3,869
$
$
$
2,582
417
1,070
Additions
Deductions
19
66
39
$
$
$
—
74
51
Balance
at End of
Year
22,762
21,907
20,551
Balance
at End of
Year
19
—
8
$
$
$
$
$
$
(1) The Company revised the deferred tax assets valuation allowance balances for calendar 2011 and 2012 as a
result of revisions to its deferred tax assets relating to stock-based compensation and the resulting valuation
allowance for them. These changes had no impact to the Company’s balance sheets, statement of operations,
earnings per share, statement of cash flows, or statement of equity for any period presented.
a. For 2011, reduced the balance at the beginning of the year by $116,000 and increased the
deductions for the year by $607,000, which resulted in a net change in the ending balance for the
year by $723,000;
b. For 2012, reduced the beginning balance by $723,000, and increased the deductions for the year by
$276,000, which resulted in a net change in the ending balance for the year by $999,000.
82
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Attached as exhibits to this Annual Report are certifications of the Company’s Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of
1934, as amended (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.
The Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and
procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act) (Disclosure Controls) as of the
end of the period covered by this Report required by Exchange Act Rules 13a-15(b) or 15d-15(b). The controls
evaluation was conducted under the supervision and with the participation of the Company’s management, including
the CEO and CFO. Based on this evaluation, the CEO and our CFO have concluded that as of the end of the period
covered by this report the Company’s disclosure controls and procedures were effective at a reasonable assurance
level.
Definition of Disclosure Controls
Disclosure Controls are controls and procedures designed to reasonably assure that information required to be
disclosed in the Company’s reports filed under the Exchange Act, such as this Report, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls are also
designed to reasonably assure that such information is accumulated and communicated to the Company’s management,
including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. The Company’s
Disclosure Controls include components of its internal control over financial reporting, which consists of control
processes designed to provide reasonable assurance regarding the reliability of its financial reporting and the
preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the
extent that components of the Company’s internal control over financial reporting are included within its Disclosure
Controls, they are included in the scope of the Company’s annual controls evaluation.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the
participation of the Company’s management, including the CEO and CFO, the Company conducted an evaluation of
the effectiveness of its internal control over financial reporting based on criteria established in the framework in
Internal Control—Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”). Based on this evaluation, the Company’s management concluded that the
Company’s internal control over financial reporting was effective as of December 31, 2013. The effectiveness of our
internal control over financial reporting as of December 31, 2013 has been audited by Ernst & Young LLP, an
Independent Registered Public Accounting Firm, as stated in their report, which is included herein.
83
Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that the Company’s disclosure controls or
internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities that judgments in decision making can be
faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance
with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the most recent
fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Cutera, Inc.:
We have audited Cutera, Inc.’s internal control over financial reporting as of December 31, 2013, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (1992 Framework) (the COSO criteria). Cutera, Inc.’s management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Cutera, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Cutera, Inc. as of December 31, 2013 and 2012, and the related consolidated
statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the
period ended December 31, 2013, of Cutera, Inc. and our report dated March 17, 2014 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
Redwood City, California
March 17, 2014
85
ITEM 9B.
OTHER INFORMATION
The Company has established that the 2014 Annual Meeting of Stockholders will be held at its principal executive
offices located at 3240 Bayshore Blvd., Brisbane, CA 94005-1021 on June 18, 2014 at 10:00 a.m. and the record date
for the purposes of voting in that meeting shall be April 22, 2014.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a
Definitive Proxy Statement (the “Proxy Statement”) for our 2014 Annual Meeting of Stockholders with the Securities
and Exchange Commission within 120 days after the end of our fiscal year ended December 31, 2013.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to the Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the Proxy Statement.
86
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(1)
(2)
(3)
Exhibit
No.
3.2(1)
3.4(1)
4.1(4)
10.1(1)
10.2(1)
10.3(1)
10.4(5)
10.6(1)
The financial statements required by Item 15(a) are filed as Item 8 of this annual report.
The financial statement schedule required by Item 15(a) filed as Item 8 of this annual report.
Exhibits.
Description
Amended and Restated Certificate of Incorporation of the Registrant (Delaware).
Bylaws of the Registrant.
Specimen Common Stock certificate of the Registrant.
Form of Indemnification Agreement for directors and executive officers.
1998 Stock Plan.
2004 Equity Incentive Plan.
2004 Employee Stock Purchase Plan.
Brisbane Technology Park Lease dated August 5, 2003 by and between the Registrant and Gal-Brisbane,
L.P. for office space located at 3240 Bayshore Boulevard, Brisbane, California.
10.10(2) Settlement Agreement and Non-Exclusive Patent License, each between the Registrant and Palomar
Medical Technologies, Inc. dated June 2, 2006.
10.11(3) Form of Performance Unit Award Agreement.
10.13(4)† Distribution Agreement between the Registrant and PSS World Medical Shared Services, Inc., a
subsidiary of PSS World Medical dated October 1, 2006.
10.14(6) Cutera, Inc. 2004 Equity Incentive Plan, as amended by its Board of Directors on April 27, 2012.
10.18(7) Consulting Agreement dated March 2, 2009 by and between the Company and David A. Gollnick.
10.19(8) First Amendment to Brisbane Technology Park Lease dated August 11, 2010 by and between the
Company and BMR-Bayshore Boulevard LLC, as successor-in-interest to Gal-Brisbane, L.P., the
original landlord, for office space located at 3240 Bayshore Boulevard.
10.20(9) Change of Control and Severance Agreement dated January 5, 2011 by and between the Company and
16.1(10)
23.1(11)
23.2(11)
24.1
31.1(11)
31.2(11)
32.1(11)
101(11)
Len DeBenedictis, Chief Technology Officer of Cutera, Inc.
Letter regarding change in certifying accountants.
Consent of Independent Registered Public Accounting Firm.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
The following materials from Cutera Inc.’s Annual Report on Form 10-K for the year ended December
31, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance
Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Loss,
(iv) Consolidated Statement of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and
(vi) Notes to Consolidated Financial Statements, tagged at Level I through IV.
(1)
Incorporated by reference from our Registration Statement on Form S-1 (Registration No. 333-111928) which was
declared effective on March 30, 2004.
Incorporated by reference from our Current Report on Form 8-K filed on June 2, 2006.
Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 14, 2005.
Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 8, 2006.
Incorporated by reference from our 2006 Annual Report on Form 10-K filed on March 16, 2007.
Incorporated by reference from our Definitive Proxy Statement on Form 14A filed with the SEC on April 30, 2012.
Incorporated by reference from our Current Report on Form 8-K filed on March 4, 2009.
Incorporated by reference from our Quarterly Report on Form 10-Q filed on November 1, 2010.
Incorporated by reference from our 2010 Annual Report on Form 10-K filed on March 15, 2011.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10) Incorporated by reference from Current Report on Form 8-K filed March, 26, 2012.
(11) Filed herewith.
† Confidential Treatment has been requested for certain portions of this exhibit.
87
Pursuant to the requirements of Section 13 or 15(d) 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 17th day of March, 2014.
SIGNATURES
CUTERA, INC.
By:
/s/ KEVIN P. CONNORS
Kevin P. Connors
President and Chief Executive
Officer
Power of Attorney
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kevin P. Connors, his attorney-in-fact, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in
connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact, or his substitute, may do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ KEVIN P. CONNORS
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
March 17, 2014
/s/ RONALD J. SANTILLI
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
March 17, 2014
(Principal Accounting Officer)
/s/ DAVID B. APFELBERG
David B. Apfelberg
Director
/s/ GREGORY A. BARRETT
Gregory A. Barrett
Director
/s/ DAVID A. GOLLNICK
David A. Gollnick
Director
/s/ MARK LORTZ
Mark Lortz
/s/ TIM O’SHEA
Tim O’Shea
Director
Director
/s/ JERRY P. WIDMAN
Jerry P. Widman
Director
88
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 15 U.S.C. SECTION 7241, AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin P. Connors, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cutera, Inc.:
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;
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;
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 annual 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 fiscal 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: March 17, 2014
/s/ KEVIN P. CONNORS
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 15 U.S.C. SECTION 7241, AS
EXHIBIT 31.2
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald J. Santilli, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cutera, Inc.:
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;
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;
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 annual 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 fiscal 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: March 17, 2014
/s/ RONALD J. SANTILLI
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
EXHIBIT 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
In connection with the annual report on Form 10-K of Cutera, Inc. a Delaware corporation, for the period ended
December 31, 2013, as filed with the Securities and Exchange Commission, each of the undersigned officers of Cutera,
Inc. certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to his respective knowledge:
(1)
(2)
the annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
the information contained in the annual report fairly presents, in all material respects, the financial
condition and results of operations of Cutera, Inc. for the periods presented therein.
Date: March 17, 2014
Date: March 17, 2014
/s/ Kevin P. Connors
Kevin P. Connors
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Ronald J. Santilli
Ronald J. Santilli
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Corporate Information (as of April 25, 2014)
BOARD OF DIRECTORS
Kevin P. Connors, President and Chief
Executive Officer, Cutera, Inc.
David B. Apfelberg, MD3,5, Clinical
Professor of Plastic Surgery, Stanford
University Medical Center
Gregory Barrett4,5, President and Chief
Executive Officer, DFINE, Inc.
David A. Gollnick, Vice President of
North American Sales, Cutera, Inc.
Mark Lortz1,5,7, Former Chief
Executive Officer, TheraSense, Inc.
Timothy J. O'Shea1,6,7, Managing
Director, Oxo Capital
Jerry P. Widman2,3,5, Former Chief
Financial Officer, Ascension Health
1- Audit Committee member
2- Chairman of Audit Committee
3- Compensation Committee member
4- Chairman of Compensation Committee
5- Nominating and Corporate Governance
Committee
6- Chairman of Nominating and Corporate
Governance Committee
7- Strategic Transactions Committee
MANAGEMENT TEAM
Kevin P. Connors, President, Chief
Executive Officer and Director
Ronald J. Santilli, Executive Vice
President and Chief Financial Officer
ANNUAL MEETING
Annual meeting of stockholders will be
held on June 18, 2014, 10:00 a.m.
(PDT) at: 3240 Bayshore Blvd.,
Brisbane, California 94005.
TRANSFER AGENT
Computershare Trust Company, Inc.
350 Indiana St., Suite 800
Golden, Colorado 80401
303-262-0600
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
2014: BDO USA, LLP,
San Jose, California
2012 & 2013: Ernst & Young LLP,
Redwood City, California
CORPORATE LEGAL COUNSEL
Wilson, Sonsini, Goodrich & Rosati,
P.C., Palo Alto, California
CORPORATE/STOCKHOLDER
INFORMATION
Our Form 10-K was filed with the
Securities and Exchange Commission
on March 18, 2014. For additional
copies of this report, Form 10-K, or
other financial information, without
charge, please visit the Investor
Relations page on our website at:
www.cutera.com or write to
ir@cutera.com.
STOCK LISTING
AND MARKET DATA
Our common stock is traded on The
NASDAQ Global market under the
symbol "CUTR." We have not declared
or paid any cash dividends on our
capital stock since our inception. We
currently
future
earnings, if any, for use in the operation
and expansion of our business and do
not
cash
dividends in the foreseeable future. As
of February 28, 2014, we believe there
were approximately 2,500 holders of
record of our common stock.
anticipate
paying
expect
retain
any
to
The following table sets forth quarterly
high and low closing sales prices per
share of our common stock as reported
on The NASDAQ Global Market for the
periods indicated.
Common Stock
2013
2012
High Low High Low
$ 10.56 $ 8.39 $
7.34
4th Qtr.
3rd Qtr. 10.18 8.89
6.46
2nd Qtr. 13.70 8.62
6.47
13.03 8.95
7.09
1st Qtr.
9.77 $
7.60
9.13
9.67