Q3 2020 Cutera Inc Earnings Call

Thank you for joining <unk> third quarter 2020, <unk> earnings conference call. After the prepared remarks, there will be a question and answer session.

His question today includes forward looking statements. These forward looking statements reflect management's current forecast or expectations of certain aspects of the company's future business, including but not limited to any financial guidance provided for modeling purposes.

These statements are based on current information guidance by its nature dynamic and subject to change for that any statements include among others statements regarding financial guidance regulatory approvals productivity improvement and plans to introduce new products and expand into additional geographies.

Pardon me identify forward looking statements. We encourage you to refer to the Safe Harbor statement in our press release earlier today our <unk>.

All forward looking statements are subject to risks and uncertainties, including those risk factors described in section entitled risk factors in our form 10-K as filed with Securities and Exchange Commission.

The alphaform tend to accuse subsequently filed.

Cutera also cautions you not to place undue reliance on forward looking statements, which speak only as of the date. They are made cutera undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances or to reflect the occurrence of unanticipated events future results may differ materially.

Management's current expectations.

In addition, we will discuss non-GAAP financial measures, including results on an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into Q terrorism ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the reconciliation from GAAP to non-GAAP measures.

Our earnings release, these non-GAAP financial measures should be considered along with but not as alternatives to the operating performance measures prescribed by GAAP.

With that I would like to turn the call over to our CEO Denmar.

Please standby for one moment.

[noise].

Thank you operator today I'm joined on the call by Jason Ritchie, <unk>, President and Chief operating officer, as well as Robin said, our Chief Financial Officer.

I will begin today's call by providing a brief overview of our third quarter 2020 business results highlighting our efforts improving our top and bottom line performances as customers continue to ramp treatment volumes.

Well here and will then provide more detail around our third quarter financial results and then turn the call over to Jason who will provide an operational update.

Before opening the call to questions I will provide some insights into our longer term initiatives as we work to put fiscal year 2020 behind us.

Turning now to the third quarter.

I'm pleased with our third quarter results and proud of the way in which to terrorists team has responded to the challenges presented by the global pandemic over the course of 2020.

In the third quarter of fiscal 2020, we built upon our previous efforts to increase our account level interactions engaging customers through increased service and support and working more collaboratively with practices to drive price patient traffic to the terror specific treatments they offer.

These efforts delivered near term improvement to the business and drove sequential growth over second quarter across all revenue categories.

Additionally, these efforts have helped to strengthen our relationship with our high value customers running dedicated aesthetic practices.

As we mentioned on our second quarter earnings call any g. based treatment volumes were running at approximately 70% a prequel good levels exiting June.

Despite excess treatment demand from patients practices faced constraint on the procedure volumes as they implemented social distancing and disinfecting protocols to mitigate the risks of COVID-19 within their practice.

As we anticipated practice efficiencies continue to improve over the course of third quarter and most practices were able to expand their capacity with extended hours or treatment room expansions.

These improvements enabled practice is to further ramp energy based treatment volumes exiting the period between 90% to 95% of their pre coated volumes for these treatment types.

Pent up patient demand has diminished slightly but remains a strong positive leading indicator of the recovery with many aesthetic practices booked several months out into the future.

While recovery trends varied across regions, we witnessed steady progress over the course of third quarter amongst static practices in North America, Japan, and several geographies in Europe along.

Along with the treatment volume improvement, we also saw an improving appetite for capital spending across many of the distributor markets. We serve as practices in these regions continued to reopen and ramp patient treatment volumes.

Across Europe, some regions, such as France, Spain, UK, and Germany remains slightly less predictable with the increased travel and treatment restrictions coming back into play and the impact of the virus runs its course.

Australia also experienced a temporary setback in the Melbourne region as the Spike in KOVA cases caused the government to reissue temporary localized restrictions.

Despite these challenges our sales teams around the world continue to adapt and deliver results across the portfolio.

Within the period, we saw particular strength in a couple of areas of note one area of significant year over year growth is in our skin care line offered in Japan, which reached a triple digit growth for a second consecutive quarter. This performance exceeded our expectations and was driven by further expansion of the customer base and the continued loyal.

<unk> of our existing users.

While these results are very positive for the business, we do expect a more normalized level of growth on this new base going into fiscal 2021.

Performance across other recurring revenue categories service and consumable products was also solid during the period tracking in line with the increased energy based treatment volumes, we anticipated across global aesthetic practices in the third quarter of 2020.

Global service revenues were up 27% sequentially with second quarter 2020, and have returned to pre coated levels.

Within the third quarter of 2020 service revenue was driven by strong field service call volumes and an increased revenue from the sale of extended warranties insert field service contracts.

Consumable revenue achieved sequential growth of 62% over second quarter 2020, nearly closing the gap to pre covert energy based treatment volumes.

Given constrained practice capacities customers were drawn to true Scott I'd Trusculpt flex in secret RF procedures as these treatments offer practices greater treatment profitability on competitively shorter procedure times.

During the third quarter of 2020, our consumable product revenue benefited from the growing partnership between the company and a steady practices and promoting.

These treatments to their existing customer base.

As expected in the period capital sales remain challenge. Nevertheless, can tear sales organization made meaningful improvements on a sequential basis, delivering 55% improvement over second quarter 2020 on global systems revenue.

Largely driven by an increase of 67% in North American systems revenue over the second quarter of 2020.

Many core customers remain hesitant to make significant capital commitments with the uncertainty associated with the possible covert resurgence as we move into the colder months consider.

Considering the uncertainty surrounding the virus, we continue expect pressure in the capital equipment demand environment as system sales will continue to track under pre coded levels. Nevertheless, we anticipate sequential improvement in the fourth quarter of 2020, as we continue to expand our sales coverage in advance of the full market recovery.

Before turning the call over to ROE and I would like to highlight the results of our operating discipline during the third quarter of 2020.

As I shared previously we've made several difficult decisions to reduce headcount and rightsize our business in the face of the unknown warm.

While many of these programs were rolled out in the second quarter. We saw the full effect of these cost reduction initiatives reflected in both our gross margin performance and operating expense controls.

These reductions in combination with our above expectation revenue performance provided an accelerated pathway to positive cash generation a quarter earlier than we had previously committed.

We remain committed to maintaining this discipline going forward and intend to keep operating expenses inline with business volumes.

I will now turn the call over to ROE him to review specific financial performance result from the third quarter and year to date.

Thank you Dave before I begin I wanted to share my personal excitement and enthusiasm in joining the team at your Terra.

In my short time here. It is clear to me that there hasn't been a better time to join Cutera and its 22 year history.

Dave and his leadership team are in the process of re imagining and creating the future of medical aesthetics, and I'm delighted and humbled to play a role in that.

As I review my prepared remarks, I want to note that I will primarily focus on non-GAAP results unless otherwise stated.

A complete reconciliation of GAAP to non-GAAP is included in the earnings release.

We encourage listeners and readers review, our non-GAAP metrics in conjunction with the GAAP results as contained in our earnings release.

Total revenue for the third quarter was 39.1 million compared to 46.1 million for the same period in 2019, representing a decline of approximately 15%.

The decline is attributed to reduced treatment volumes and lower levels of capital equipment purchases due to covert disruptions around the word.

[noise] North American capital equipment revenue was 13.7 million compared to 24.1 million for the same period last year.

While international capital equipment revenue for the third quarter was 10.4 million as <unk> as compared to 10.8 million in third quarter 2019, a 4% decline.

The year over year performance of our international capital sales benefited from our European direct sales team driving the growth of 68%.

And our Australia, New Zealand team.

Delivering 16% growth over the same period prior year.

These areas of growth were offset by weakness in distribution markets within the middle East as well as the Asia Pacific markets.

Our expectations are that these international distribution markets will continue to improve in subsequent quarters as customers and regional distributors continue.

Continue their recovery efforts post covert disruptions.

Recurring revenue defined as consumables global service and skin care revenue.

15 million compared to 11.2 million for the same period last year right.

Representing 35% growth over prior year.

Decline in energy based treatment volumes over prior year had a limited impact on both service and consumables revenue.

Gross profit declined over prior year, but improved sequentially over the second quarter as a result of increased revenue in combination with a full quarter of overhead savings.

Regional product mix had a slight negative impact during the quarter GAAP gross profit for third quarter of fiscal 2020 was 21.7 million.

Another bright spot in our financial performance for third quarter 2020 was our gross margin performance.

In the third quarter of 2020, GAAP gross margin was 56% versus 57% for the same period last year.

Holding relatively flat despite the year over year decline in revenue.

This performance was the result of improved production efficiencies and substantially lower overhead costs being absorbed across lower planned production volumes.

Associated with covert volumes and planned finished goods inventory reductions.

GAAP total operating expenses for the third quarter of 2020 were 23 million compared to 28.6 million for the same period last year.

20% decrease that delivered 300 basis points of improved leverage.

Our results reflect lower variable compensation expenses as well as the talk full and durable cost reduction measures implemented by the company in face of the business disruptions associated with COVID-19 headwinds.

Sales and marketing expense for the third quarter of 2020 was 12 point threemillion compared to 17.7 million for the same period last year, a 31% reduction.

The lower expense was primarily a direct result of our cost reduction measures and to a lesser extent lower variable compensation expenses from lower revenue.

R&D expenses for the third quarter of 2020 were 3.4 million compared to 3.6 million for the same period last year.

As a result of project timing.

Finally, genie expenses for the third quarter of 2000, and my were 7.2 million compared to 7.3 million in the same period last year, driven by improved internal efficiencies offset by some one time legal expenses incurred in the period.

I'd like to take a moment to discuss our ginnie outlook going forward.

During the third quarter of 2020, we had some onetime charges relating to completion of our rightsizing activities and resolving open legal matters going.

Going forward with these issues behind us.

In conjunction with the cost cutting measures implemented in the second quarter, we expect to see continued improvement in our cost run rate in the fourth quarter.

As we benefit from a full quarter at the reduced run rates.

For the third quarter of 2020, our non-GAAP operating income also called adjusted EBITDA well.

It was a profit of 2.4 million compared to a profit of 2.4 million for the same period last year.

Why do we exceeded expectations.

We recognize the importance of holding the line and delivering sustained profitability coming out of the corporate environment.

There were no material or significant changes to our tax positions.

Turning now to our balance sheet, we ended the quarter with approximately 42.4 million of cash and equivalents compared to 29.4 million at the same time last year and 46.6 million at the end of second quarter 2020.

Regardless of this renewed strength, we're paying particularly close attention to working capital management in the current environment.

As highlighted previously we effectively work with our vendor partners to conserve cash, but I've been able to come card during third quarter time period, ensuring no interruption of material parts or services.

I'm pleased to report that the goals, we outlined at the onset of the COVID-19 pandemic are bearing fruit.

We ended the quarter with 29.3 million of inventory down 7.6 million from the high watermark coming out of Q1 2020, we.

We expect to continue this effort monetizing our inventory through the end of 2020.

Additionally, we have remained diligent on collections recognizing business challenges being faced by distribution partners and customers, while bringing down the accounts receivable exposure.

We believe that our approach has been fair yet for and built on good commercial processes to qualify customers in the current environment.

Our balance sheet is in excellent shape and remains capable of supporting our growth initiatives going forward with that I will now pass it over Jason for his comments.

Thanks, ROE and that's the speed of recovery in the global aesthetic space continues to be highly dependent on reasonable restrictions I'm proud of our commercial teams resilience and agility as they navigate this complex business environment since the return of elective procedures post locked down we are encouraged by the continued backlog of patient demand for said it pretty.

Seizures and that the vast majority of practices have reopened however, most practices continue to enforce strict precautions limiting the number of people allowed in a clinic in any given time. These.

These conditions, along with our priority of maintaining the health and safety of our employees and customers have made face to face commercial interactions challenging.

As a result, our team continues to utilize a combination of creative methods to augment face to face visits with key decision makers to navigate the sales process. These new methods include virtual meetings, social media direct messaging video conferences and off site demonstrations and interactions to communicate the unique long term.

Our value proposition of key terrorists innovative portfolio of aesthetic devices.

Our commercial team remains highly focused on our flagship body sculpting franchise comprised of our award winning through scope I'd and true scope flex platforms in both North America and international markets. We.

We have recently launched our true body program promoting the use of our idea and flex platforms in combination we.

We believe this 360 degree approach to body sculpting will deliver unmatched clinical results for patients by removing fat renewing skin and building muscle.

The true Scott I'd and flex combination equips clinicians with the most robust on suite of tools to stay ahead of their competition in the field of body sculpting.

Late in the quarter, we launched Praxis pro in the United States a platform designed to expand our micro needling offering the Fracs. This pro delivers best in class Microneedle and capabilities, along with the fractional ablative C. O. Two laser this device provides unique value to our core customers combining powerful capabilities, a robust feature set and a small footprint.

It is well suited to support the needs of our core customers and aesthetic dermatology and plastic surgery moving forward, we expect to expand this product launch into other geographies during fiscal year 2021.

Combined with new product launches are 2020 commercial plan was designed to thoughtfully implement greater focus on structure and pricing discipline.

Despite lockdowns, increasing global competition economic certainty and substantial pricing headwinds I'm proud of the commercial teams performance year to date as their efforts have enabled us to maintain our year over year average selling prices at historical levels.

Lastly, I would like to discuss our commercial outlook in the market environment for the remainder of the year.

As Dave mentioned earlier, many of our customers remain hesitant to make significant capital equipment purchase commitments due to remaining uncertainty to a possible covered a resurgence late in the year and we continue to expect some pressure in the capital equipment demand environment in the fourth quarter.

Despite this pressure, we expect companies with innovative new technology and strong balance sheets, such as ours to continue to do well.

As such we are planning to make some thoughtful investments in expanding sales coverage by key geographies as well as deliver some indication expansion.

I'm pleased with the strength physician and resilience of our North American commercial organization in particular.

In the early days of the pandemic with a tremendous amount of uncertainty around the outlook for demand over the remainder of the year. We made the difficult decision to scale back the size of our sales force in an effort to rightsize the team preserve cash and retain operating flexibility.

Following our capital raise and the view to a pathway for recovery, we'd be I'm cautiously, bringing back reps throughout the third quarter of 2020.

In addition to bringing back many reps we were also able to recruit a number of high quality competitive reps to the team.

Based on their performance and the continued recovery we are seeing in the market I am pleased to report that we will continue to invest and expand our north American commercial organization balancing the expansion with the improved rep productivity, we're seeing come about on our team.

Additionally, we will continue to make intelligent investments through our marketing efforts in November we will host the North American Cutera University clinical form or CCF.

Annual session is well known and highly regarded throughout the field of energy based aesthetics. This is a forum where the community of aesthetic practitioners are able to come see could terrorists technology first hand, and discuss applications with top clinicians scientists and researchers.

In addition to best practice sharing platform also provides an opportunity for customers to use our devices onsite and purchase the products. They fill will best complement their practices.

As the rate environment continues to open we will also run a series of regional clinical training workshops to allow for more specialized one on one education and demonstrations of our products.

This platform will continue through the balance of the fiscal year, along with our Webinars to support our customers to this ever changing environment.

I want to reiterate how proud I am of our entire team as they continue to successfully navigate this complex business environment.

I will now turn the call back to Dave for closing comments.

Thank you Jason.

While there remain several unknown surrounding the disruptions from the pandemic and the impact of the U.S. elections that will need to play out over the next several months, we recognize that there's plenty of work ahead for the team at Q Tara.

Regardless of any underlying challenges the management team and I remain focused on driving the transformation of our business by developing and introducing disruptive technology driving operational efficiencies and delivering sustained profitability over the long term.

Regarding disruptive technologies, we are very excited about the early results from our acne solutions and continue to work to accelerate our entry into the market.

Currently we are working to secure various regulatory approvals out of this novel device and the associated procedure, while the acne team continues to address critical path activities to optimize the timeline. We're also focused on expanding indications and enhancing the performance of our strong energy based to static device portfolio to drive.

Growth of the core business in the near term as we advance our various disruptive technologies closer toward launch.

With respect to ongoing efforts to streamline operations and expand March margins, we have made difficult cuts earlier in the year and have begun shifting energies towards optimizing these new leaner structures, improving our supply chain capabilities and building a sustainable sales footprint that enhances account management.

Improves rep productivity and provides adequate coverage going into 2021.

Since joining the business five quarters ago, we have executed on the foundational work, we laid out to investors and we have begun to shift our energies from the needed foundational investments to process optimization and top line growth acceleration.

Our efforts are intended to deliver a sustainable a static market winner with strong topline performance continued margin expansion and increased leverage of our operating expenses that fuels. The R&D engine that will drive our long term growth.

With that I'd like to open the call to questions operator.

[laughter].

And at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May proceed start to if you like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before Christmas turkeys.

One moment, please while we pull for questions.

[laughter].

And our first question is from Matthew O'brien with Hypersound. Please proceed with your question.

Afternoon, Thanks for taking my questions.

I guess I guess just for starters on the decision to go ahead and start.

Adding reps back can you give us a sense for.

The cuts that you've made how.

How many folks are adding you've added back already and then the plans on the on the Rep side going forward I don't know how much you want to share just given competitive.

Competitive considerations, there, but how significant are some of those those additions as we think about things you know heading into Q4, and then more importantly into 21 yeah.

Yes, Great question, Matt. Thanks for asking you know as we think about this you know we look at our core customers in the business that we have which you know.

It's really all noninvasive technology across the board and as we thought about those businesses and many of those core customers.

You know we recognized that they were probably going to be a little bit more conservative and building back their businesses because they have multiple revenue streams. So our thoughts were you know, let's make sure that we rightsize the business appropriately for the revenues that we expect with our portfolio.

And because that's what guidance the discussion now we're not going to just discuss or disclose the exact number of reps that we furloughed or or released.

But I will say you know, we obviously kept a significant portion in play during second quarter and hence we outperformed I think the street's expectations on capital during that period.

We were able to leverage that foundation and bring back you know I wouldn't say, a a doubling or anything like that but I would say we brought back reps at a rate where we saw productivity improvement in Threeq you not just additive coverage and I think as we think about that the contribution.

Going into Q4 will be similar we expect that we'll see greater productivity as well as some additional coverage that will get us to to the goal that we've set for ourselves based upon the market recovery I will say that we do believe the market has recovered slightly faster than we anticipated and we are going to look towards.

Dedicate those reps into some of the more aggressive practice patterns that are buying capital or have greater appetite for capital.

Got it and then as a follow up question just on the.

Just on the capital side of things I guess as we are looking at the potential second wave and you talked about what's going on in Europe.

No other medical the other surgical procedures that they're finding ways to just stay open or have capacity at 90%.

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Yes, I mean.

Yeah, we can hear.

Oh, sorry, Okay. So just just through a second wave.

Maybe if that could be a little bit more impacted than compared to kind of a surgical.

[noise] type companies. So what are your customers doing as far as trying to maintain full.

Full operation and even if we go through another way of you know domestically internationally and then what kind of appetite do they have at this point on the capital side specifically.

I think thats another very insightful question, because you know there there's still is quite a bit of unknown and I think what we've learned through this process is that we still have a lot of opportunities to go out and prospect additional deals.

There are some people that are a lot more.

Passive in certain practice patterns for.

For example, we believe in the plastic surgeons in particular are little bit more aggressive than the dermatology.

Practitioners because dermatologist have other revenue channels that they can leverage so and you know a plastic surgeon you know greater than 90% of their practices on cosmetic treatments. So you know, we'll continue to kind of make sure that we have the coverage we need to prospect the deals that are available to be out to be had.

Meanwhile, I think we need to continue to think about what we did exceptionally well in the second quarter, which was partnering with those folks to give them the tools and the training and the support they need to stay open.

And continue to move their practice forward I think it's the fear of the unknown that we need to continue to deal with and a lot of what we did in the second quarter and even in the early third quarter was working hand in hand, with those physicians and practices in order to support them and help them address the unknowns. So I think we have the playbook for that.

Matt I think we feel very good about it.

And we're going to be very thoughtful to not get over our ski tips with investments and expenses that are justified in the business that we think can be had.

Very helpful. Thank you.

Next question is from Jon Block with Stifel. Please proceed with your question.

Thanks, guys and good afternoon.

David The first one for you sort of a broad question on the equipment environment maybe.

Maybe if you can just discuss the customers launch and are they very different the.

The wants and call it the U.S. versus the international markets and I guess as a follow on to that.

Can you just also discuss the different capital outcomes you guys saw in North America was down around 40% international almost all the way back to flat and so maybe just the dynamics within.

National bids were results were somewhat surprising to you guys, but yes.

Yes, I think the way I I wouldn't it teed up here and maybe just give you some specifics around.

Around certain practice patterns and in where we're seeing it I think in the U.S. you know from from our perspective.

Our our our kind of focus has been on the core customers and I'd say probably more heavily on.

The derm type practices or the dedicated acetic med spas that are led by physicians, which are essentially Durham, a static type practices.

You know Weve also you know we also go after some plastic surgeons in certain regions and and certainly where we think that there that makes sense, but I think a lot of times the plastic surgeons.

We are looking to basically down sell people that have shifted sticker shock and they use a combination of minimally invasive and non invasive products to serve those customers.

And our portfolio doesn't really line up exactly to that and I think we are aware of that.

Ours are all non invasive.

By nature, So I think we need to understand that and make sure that we're leveraging our portfolio for the right customers and presenting it as a value to their practice, where it makes sense.

As we think about the international versus the U.S. I do think that this could be a little bit more of a kind of a.

[noise] kind of the law of small numbers in some cases.

We saw some very nice recovery in a couple of geographies in particular, where you know we had some real stud sales leaders come in versus last year, where we may be weren't doing so well and as a result, we saw a really nice pick up on that and then in combination we saw a very nice benefit in Australia with a recent law.

Much of the flex Geez I don't know if you have anything you want to add to that yeah. I don't think that there is a dramatic shift in terms of desire by region. I think one of the things that's been addressing for US is there's really four things that clinicians are looking for that they're able to sell to the pacing is cost treatment time access and then for the clinician.

The return on investment and so I'd say that that navigating through a covert environment is certainly beneficial to have a robust portfolio that we can really customized.

The tools that the clinician needs in order to maximize the return on investment what we have seen is moving.

Moving into sort of this zoom environment, where a lot of video chatting a lot of people have spent a lot of time and focus on fast phase procedures things like micro needling or laser Genesis and some of the body stuff has some of the season somewhat of a seasonal approach as well so.

You know as people have been in the resumed meetings. They are really focused on face that appearance at this point in time, but then when you when you ship to seasonality, we see in Australia, right now bodies getting Super Hot because it's getting ready for summer. So you see some of that regionally, but I think I guess the take home would be having a portfolio mix is fairly nimble. During this time, we can sort of play.

Did the strengths of whatever the markets yielding at that time.

Got it very helpful color and then Dave I know in normal times market share to static and the challenging just because it's sort of all over the map in market share can sometimes be heavily dictated by who's got the new toy, but just curious on your thoughts on that in terms of how you guys are shaking out mortgage or was maybe North America.

In abroad, and maybe your earlier comments do you feel like you're punching above your weight in derm, and maybe slightly below and lastly, given I've got one more thanks.

Yeah, I think that's a fair way to look at it and it's really about how our products appeal to the certain practice patterns that you see there like I said I think that the germs are a little bit more conservative in their capital purchases right now, whereas I think the the plastics are being a little bit more aggressive and then I think when the plastics are looking at.

At full as they're looking at what they can down sell those customers that come in looking for surgical out outcomes or surgical.

Procedures.

And have little sticker shock, what they can provide them and I think a minimally invasive.

Combination with with Noninvasive is probably the package that they're looking at.

Okay, Great and then last one for me.

We all know what the stories about going forward, but that skin care line was gosh, I mean, maybe 17% of sales versus 6% a year ago. It was the second consecutive quarter of really strong results.

Revenue growth over 100%. So can you just give us some more color on that what's the margin profile of skin care roughly at the gross margin line and then I know you talked about moderating, but just to be clear moderating growth year over year are moderating on an absolute basis.

You jump off point. Thanks, Yeah, Let me go in reverse order I look at I think we've established a new foundational basis for that sale level and and as.

As you would imagine we've been very close with our international sales team, specifically that in Japan, and we feel very good about that now that's a distributed product so.

As a result, you know where were kind of leveraging our.

Our relationship with the distributor.

To continue to provide that and I really like the line I think the customers really liked a lot, but I think most importantly, the patients like the line and that's given US a lot more stability than I think we had anticipated coming out of Q2, and and we pressure test that a little bit. So I think this is the new base that we.

I should be thinking about going forward.

In terms of the base of the business.

And I would tell you that that has come about through to two things in particular, we've seen some improvement in same store sales people.

People have promoted it more to other customers or other patients in their practice, but we've seen a significant portion of this growth come from new store sales.

And those seem to be reordering at a rate that makes us very comfortable that this is the new basis. So as you think about 21 or 2021 I think what you saw in the last two quarters is probably that foundational basis that we should be thinking about but I think we're going to get back to something that's more in line with with kind of a normal growth.

Both pattern on that basis.

Got it very helpful. Thanks for the color guys.

Okay.

And our next question is from Anthony Vendetti with Maxim Group. Please proceed with your question.

Oh.

[laughter].

Oh, no l. camels that sorry about that.

I'm sorry, yes.

Yep Turner from just the just an update on the.

On the trends I know you mentioned on the call Dave.

About 790% to 95% it appears patients returning to the office is that based on on patient volume or procedure numbers, yes.

Yes, thats treatment volumes not patients right. So there's been some really good reports out there from a number of folks kind of tracking this and I think our numbers in pulling our own customers kind of track likewise to those numbers.

Obviously, a lot of the terms are doing the kind of the quick Noncontact are limited contact type procedures as as people come back we've seen that kind of reflected in injectables and other things as you get into the energy based treatments I think what we're seeing is that in the derm practices in.

Either you're seeing facial treatments rejuvenation of the face and then you've been seeing somebody a little bit lower but we think we're probably getting a little bit more share of those treatment volumes in the body just because of the profitability. The those procedures offer the physician on shorter time.

Yes so.

It's a little bit of a multi factorial problem to solve but I think 90% to 95% is treatment volumes of energy based business.

Trade volumes energy based Okay and then.

You mentioned in your 20, you were doing they keep their membership program for capital constrained customers.

Is that was that.

A significant part of your third quarter or is that less less yeah.

A factor in your in your third quarter numbers and do you expect to continue that program.

Yeah.

We knew that so many of these customers could not afford a down payment when they had completely eradicated their cash reserves in their practice. We also knew that they needed to have competitive treatment options to provide their customers, where they would lose their their customers or their patients.

So it was a courtesy program you know it I would say that it was not a material factor in our revenues.

Overall, and I think it was just our way of making sure that we were partnering with those practices that couldnt afford the down payment likewise.

Likewise likely you know, it's not a long term contributor to the to the business here, but it's an option that we have and we will keep it kind of you know tucked in our pocket here as we think about potential resurgence, but the reality is that you know the vast majority of customers that can afford a down payment would rather only.

Equipment and control the procedure and not have kind of that that rental arrangement establish so.

It was kind of a a an opportunity for a convenient arrangement that allow them to build their practice, but it's not something I would expect to be a building block for the future.

Okay, and then any.

Any stats on the rollout of the Fracpro the terminal remodeling.

Yes.

We launched very late in the quarter NJ signed Lois if you know you want to give a view to where what we saw the uptake to be you know, we're not going to reduce reliance or give you numbers obviously, but.

But it was a very late in the quarter launch Yeah. I mean, this is something that like that like Dave said, we train to this thing in the last month of the quarter and then it came out literally with about two weeks ago I would say that we're pleased with the traction of it this far out I think the timing of this.

Launches good because it pairs well with the static dermatology as well as plastics.

And I think it complements the success that we've had with secret RF that sort of in the sweet part of our portfolio and Weve.

So the group of them over the course of the last several years and I think being able to add in Fracs is pro and add that fractional are to add that fractional ablative Seo to laser to the suite of products puts us at a nice spot it fortifies the vertical and it also.

Creates this element that we didnt necessarily have in our existing portfolio that I think will complement the conditions that were really trying to to court with this so more to come on it but so far so good it's a nice box people or is that really warm receptivity and I look forward to see we can do with it in the back half of the year.

Okay, and then just lastly on the.

The acne product you are developing any any updates on on the timeline there how that's going.

Any.

Yes.

Okay, Great Great question, and we've talked about it I want to be really clear you know, we're probably going to go into a little bit of a quiet period as we are working.

Very closely with the regulatory agencies on securing kind of the pathway to approval.

You know the probably the next big note, you'll see will be when we get to the point of of enrolling patients right. So.

At some point in time, we will give you a little bit more insight, but we have a a login a legacy product portfolio that we need to continue to invest in and drive growth on and you know we're going to be focusing our efforts internally on that while we let the the researchers the engineers and the clinicians kind of dry.

The next stages of acne.

Okay, and then just I just just to get back real quickly to the Fracs is probably is there is there a consumable on that or is that just capital equipment.

Yes, there is a consumable just like its the same consumable that we have in our secret RF micro needling device, we had committed and I wanted to make sure that everyone kind of hears me say this we've committed that we will not launch another product out of the queue Terra portfolio that doesn't have a consumable component to it.

Okay, Great all right I'll hop back in the queue. Thank you appreciate it.

Thanks Evan.

And our next question is from Chris Cooley with Stephens incorporated. Please proceed with your question.

Good afternoon, everyone.

Yes.

The strong quarter.

Great. Thanks, Chris.

I apologize if I missed that Saddam.

A couple here this morning courses this afternoon.

Speaking today.

But could you maybe provide some additional clarity around the strength relative strength that you saw there.

Consumables.

When you think about the decline in North American systems.

When I compare that to overall consumables really seems to speak to better utilization trends. There I'm. Just just curious if you could help us parse that out is that broad based system specific.

But just any kind of clarity.

Oh, I should say platform specific there.

I appreciate and I've got one other quick follow up Greg.

Great well.

It's good to hear you, Chris and thanks for the question I would say that you know it's kind of more of the same and we commented upon it very very briefly in the prepared remarks, but listen we have our flagship product the trusculpt flex and I'd, which you know were seeing greater and greater usage of those in combination as a result of for.

Loading them under our true body.

Approach.

And I think that that's led to a lot of uptake on the consumable side of the business. Additionally.

You know, we have secret RF, which has become a you know a a good standard profitable procedure for a lot of the practices and have it it's got shorter times and good outcome. So when you look at the way that we're thinking about you know true Scott, both I'd and flex and was secret it's about driving profitability.

For the practices with competitively shorter times and a good result, or a great result, as they can charge for and I think do you see more of that in in this quarter as you have in previous.

But I think you're right you know with less boxes being sold you're seeing when you get a recovery like we saw you are seeing kind of utilization go up in some regards.

So you know generally speaking we're pleased with the way that's laid out on the consumables on on the service I have to tell you that we have a a really quite an amazing service organization that has hustle through a number of restrictions travel restrictions quarantine challenges et cetera to deliver these numbers.

And I'm exceptionally proud of what they've done the surveys we get back from customers regarding our service and our service team are very strong and they do great work for us and I think that's evidenced by the quick and and aggressive recovery that they've been able to create on the revenue side.

Which is at pre covered levels.

Okay.

Okay.

Loans.

I think it was just bodes on the floor close.

Sure.

When we think about the new product.

One of the most of our locations.

Yes.

That data when appropriate.

But is that expected to follow us lots and Thats why are you looking towards specific indication just want to make sure.

When we think about.

When it comes to more.

And those those those were.

For the consumer.

Sales type of price points.

You hit a lot of the topics, Chris that we're still wrestling with to optimize the outcome from from this investment and obviously the the regulatory pathway is something that we're you.

You know obviously not willing to disclose at this point as we're working through.

With the U.S.F. da and even some foreign regulatory bodies to secure regulatory approvals for those those jurisdictions.

And as that becomes a reality or we become kind of committed to a pathway. You know, we'll we'll make sure that that shared appropriately in advance right at the time that it happens I should say.

In regards to kind of the way, we're thinking about you know the that business.

We continue to see Great result, and the durability of the results continue to be exceptionally impressive to us.

Because of the studies that we did over a year ago. We're still following up those patient. So we remain exceptionally bullish on the the option or on on this the procedure and the device we remain exceptionally committed to it because of the just the math of what that means to this business and how transformative.

It could be but I want to remind the folks on the call that we've got a legacy business that is really strong as well and you know the last thing we want to do right now is get diverted from the value that we can create with this legacy business and hence you know we're trying to keep.

The right people on our team focused on moving as quickly as possible to a launch on the acne. Meanwhile, the rest of the team needs to focus on optimizing what we have in the legacy and core businesses, we've talked about.

Understood. Thank you so much what color and congrats on a very good quarter and a challenging environment.

Great. Thank you.

We have reached the end of the question and answer session and I will now turn the call over to de Mary CEO for closing remarks.

Thank you operator on behalf of the Cutera team I want to thank you for attending our third quarter 2020 earnings call. We look forward to updating you in subsequent quarters until then please stay safe. Thanks.

And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Yeah.