Q1 2024 Cutera Inc Earnings Call

Thank you for standing by this is the conference operator, welcome to the Q Terra Inc. First quarter 2024 results conference call.

Operator: Thank you for standing by. This is the conference operator. Welcome to the Cutera Inc. first quarter 2024 results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Greg Barker, Vice President of Finance and Industrial Relations. Please go ahead. Thank you.

Operator: A reminder, all participants are in listen only mode and the conference is being recorded.

Operator: After the presentation, there will be an opportunity to ask questions.

Operator: Join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero.

Greg Barker: I would now like to turn the conference over to Greg Parker, Vice President of Finance and Investor Relations. Please go ahead.

Greg Barker: Thank you, Operator, and thank you everyone for joining us. With me today is Taylor Harris, Cutera's Chief Executive Officer, and Stuart Drummond, Interim CFO. Following our prepared remarks, we'll take your questions. Before we get started, I'll note that the discussion today includes four looking statements. These forecasting statements reflect management's current forecast or expectation of certain aspects of the company's future business, including, but not limited to, any financial guidance provided for modeling purposes.

Greg Barker: Thank you operator, and thank you everyone for joining US with me today is Taylor Harris, Q terrorist Chief Executive Officer, and Stuart drummer and interim CFO.

Greg Barker: Forelooking statements are based on information available to us at the time those statements are made, which by its nature is dynamic and subject to change. Oral management is based on our good faith belief as of that time with respect to future events.

Greg Barker: Following our prepared remarks, we'll take your questions before we get started let it to discussion today includes forward looking statements.

Greg Barker: Forward-looking statements include, among others, statements regarding financial guidance, regulatory approvals, productivity improvements, and plans to introduce new products and expand into additional geographies. For words that may identify forward-looking statements, we encourage you to refer to the Safe Harbor Statement in our press release earlier today. All forward-looking statements are subject to risks and uncertainties, including those risk factors described in the section entitled Risk Factors in our Form 10-K, as filed with the Securities and Exchange Commission, and updated in our Form 10-Qs subsequently filed.

Greg Barker: Forward looking statements reflect management's current forecast or expectation of certain aspects of the companys future business.

Greg Barker: But not limited to any financial guidance provided for modeling purposes.

Greg Barker: Forward looking statements are based on information available to us at the time those statements are made which by its nature is dynamic and subject to change or a management's good faith belief as of that time with respect to future events.

Greg Barker: Forward looking statements include among others statements regarding financial guidance regulatory approvals and productivity improvements and plans to introduce new products and expand into additional geographies.

Greg Barker: For words that May identify forward looking statements. We encourage you to refer to the safe Harbor statement in our press release earlier today.

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

Greg Barker: And in our Form 10-Q subsequently filed.

Greg Barker: Cutera also cautions you not to place undue reliance on forward-looking statements, which speak only as of the date that 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 from management's current expectations. In addition, we'll 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 Cutera's ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the reconciliation from GAAP to non-GAAP measures in 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.

Greg Barker: <unk> also cautions you not to place undue reliance on forward looking statements, which speak only as of the date that they are made.

Greg Barker: <unk> 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.

Greg Barker: Future results may differ materially from management's current expectations.

Greg Barker: In addition, we will discuss non-GAAP financial measures, including results on an adjusted basis.

Greg Barker: We believe these financial measures can fill facilities, a more complete analysis and greater transparency into the terrorists ongoing results of operations, particularly when comparing underlying results from period to period.

Greg Barker: Please refer to the reconciliation from GAAP to non-GAAP measures in 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.

Greg Barker: With that said, it is my pleasure to turn the call over to our CEO, Taylor Harris.

Greg Barker: With that it's my pleasure to turn the call over to our CEO Taylor Harris.

Taylor Harris: Thank you, Greg. Good afternoon, everyone, and welcome to Cutera's first quarter 2024 earnings call. So far this year, we're stabilizing, tracking with our expectations, and making progress on our key strategic priorities, despite a challenging macroeconomic environment. I just returned from attending our Cutera University Clinical Forum in Australia, where we launched AviClear into the dermatology community. It was an inspiring event, and the enthusiasm for this new technology is encouraging. A handful of dermatologists in Australia have had AviClear for several months as part of our limited commercial release, and they've each treated a good number of patients. These physicians served as some of our speakers and panelists for the event, and they were able to share their firsthand experiences with the other attendees.

Taylor Harris: Thank you, Greg and good afternoon, everyone and welcome to Q terrorists first quarter 2024 earnings call.

Taylor Harris: So far this year, we're stabilizing tracking with our expectations and making progress on our key strategic priorities, despite a challenging macroeconomic environment.

Taylor Harris: I just returned from attending our criteria University clinical Forum in Australia, where we launched I'll be clear into the dermatology community.

Taylor Harris: It was an inspiring event and the enthusiasm for this new technology is encouraging.

Taylor Harris: A handful of dermatologists in Australia have had I'll be clear for several months as part of our limited commercial release.

Taylor Harris: Each treated a good number of patients. These position served as some of our speakers and panelists for the event.

Taylor Harris: And they were able to share their firsthand experience with the other attendees.

Taylor Harris: It's clear that as we launch an international market, the learnings from the last 18 to 24 months in North America are proving quite valuable. Physicians with early access are already incorporating the clinical best practices identified in our white paper related to expectation setting, pain management, use of concomitant therapy, and managing acne flares. And overall, while it's still early, I would characterize the reception of Avicleer in Australia as very encouraging, and we're hearing similar feedback out of Europe.

Taylor Harris: Clear that as we launch in international markets. The learnings from the last 18 to 24 months in North America are proving quite valuable.

Taylor Harris: The physicians with early access are already incorporating the clinical best practices identified in our white paper.

Taylor Harris: Related to expectation setting pain management use of concomitant therapy.

Taylor Harris: And managing Acme flares and overall, while it's still early I would characterize the reception of I'll be clear in Australia is very encouraging and we're hearing similar feedback out of Europe.

Taylor Harris: Physicians involved in our international limited commercial release phase are excited to be offering a truly new non-pharmacologic therapeutic option to their patients for the treatment of acne, and they're also already considering potential new applications of Avicleer to treat other conditions of the sebaceous gland.

Taylor Harris: Physicians involved in our international limited commercial release Phase, we're excited to be offering a truly new non pharmacologic therapeutic option to their patients for the treatment of acne and they're also already considering potential new applications of all the clear to treat other conditions of the sebaceous gland.

Taylor Harris: More broadly, we've had a busy first four months of the year. We kicked it off with the first global sales meeting in the history of Cutera, where field teams from around the world were able to come together to learn and prepare for the year. This GSM provided the perfect opportunity for us to launch our new vision, mission, and values company-wide and to start building new energy around leadership as a mission-driven, values-based organization.

Taylor Harris: More broadly we've had a busy first four months of the year, we kicked it off with the first global sales meeting in the history of few terror, where field teams from around the world, We're able to come together to learn and prepare for the year.

Taylor Harris: Following GSM, we introduced a new business model for AviClear in North America, and in international markets, we began our limited commercial release phase for Avi at the NCAST meeting in Paris in February. We also introduced our Enhanced Cooperative Marketing Program, supported the publication of a white paper on clinical best practices with AviClear, and finalized preparations for our first Cutera Academy, which was held last week in Atlanta. Meanwhile, we introduced our R&D organization's latest new product, XeoPlus, to the North American market in early April at the ASLMS meeting.

Taylor Harris: G S provided the perfect opportunity for us to launch our new vision mission and values companywide.

Taylor Harris: And to start building new energy around leadership as a mission driven values based organization.

Taylor Harris: Following G. S. M. We introduced a new business model for all the clear in North America and in International markets. We began our limited commercial release stays frothy at the <unk> meeting in Paris in February.

Taylor Harris: We also introduced our enhanced cooperative marketing program.

Taylor Harris: Ported the publication of a white paper on clinical best practices with all be clear and finalize preparations for our first acute care of Academy, which was held last week in Atlanta.

Taylor Harris: Meanwhile, we introduced our R&D organization's latest new product Z O plus to the North American market in early April at the a S. L. M S meeting.

Taylor Harris: Xeo Plus builds on the legacy of the original Xeo platform, one of Cutera's most successful products, which was introduced over 20 years ago and pioneered both YAG laser technology and contact cooling, as well as Cutera's signature laser genesis procedure for skin revitalization. ZioPlus offers tremendous flexibility and customization with over 25 applications ranging from skin revitalization to hair removal to pigment reduction and more.

Taylor Harris: Oh plus builds on the legacy if the original Z O platform one of two terrorist most successful products, which was introduced over 20 years ago and pioneered it both in the AG laser technology and contact cooling as well as Q terrorists signature laser Genesis procedure for skin revitalization.

Taylor Harris: The old plus offers tremendous flexibility and customization with over 25 applications from skin revitalization to hair removal to pigment reduction and more with a larger spot size enhanced contact cooling and redesigned hand pieces Z O plus provides faster and more comfortable treatments.

Taylor Harris: With a larger spot size, enhanced contact cooling, and redesigned hand pieces, ZO Plus provides faster and more comfortable treatment. We're excited to launch Xeo Plus both to new customers and as an upgrade option to the installed base of over 2,500 original Xeo accounts. I'll now provide some summary comments regarding our first quarter financial results and then highlight a few of our areas of focus for the year. Similar to the fourth quarter of last year, our first quarter financial results reflected an ongoing stabilization in the business.

Taylor Harris: We're excited to launch the O plus both to new customers and as an upgrade option to the installed base of over 2500 original Z O accounts.

Taylor Harris: I'll now provide some summary comments regarding our first quarter financial results and then highlight a few of our areas of focus for the year.

Taylor Harris: Similar to the fourth quarter of last year, our first quarter financial results reflected an ongoing stabilization in the business.

Taylor Harris: While revenue declined sequentially, reflecting typical seasonality in our industry are all the clear revenue increased.

Taylor Harris: While revenue declined sequentially, reflecting typical seasonality in our industry, our AviClear revenue increased and hit a quarterly high-water mark due to the change in business model in North America and the limited commercial release in international markets. Now, it's clear that we're operating in a challenging macro environment with pressure on the body contouring market in particular. And given that backdrop, we're fortunate to have the opportunity to launch a new, first-in-class device like AviClear.

Taylor Harris: Hit a quarterly high watermark due to the change of business model in North America, and the limited commercial release in international markets.

Taylor Harris: Now it's clear that we're operating in a challenging macro environment with pressure on the body contouring market in particular.

Taylor Harris: And given that backdrop, we're fortunate to have the opportunity to launch a new first in class device like I'll be clear.

Taylor Harris: AVI Systems revenue increased from conversions to the new business model as well as new sales, more than offsetting the continued contraction in procedures performed on the legacy installed base of leased systems, which is due largely to the reduction we've seen in the number of active accounts. As we've mentioned before, there are a number of AviClear devices under our former lease model that have gone dormant and which we expect to be returned.

Taylor Harris: All of these systems revenue increased from conversions to the new business model as well as new sales more than offsetting the continued contraction in procedures performed on the legacy installed base of leased systems, which is due largely to the reduction we've seen in the number of active accounts.

Taylor Harris: As we've mentioned before there are a number of I'll be clear devices under our former lease model, but have gone dormant and which we expect to be returned however, and of critical importance. We're also identifying the success factors for building a healthy Avi clear franchise.

Taylor Harris: However, and of critical importance, we're also identifying the success factors for building a healthy AviClear franchise. On average, utilization rates at dermatology practices are close to 50% higher than those of other specialties, and a disproportionate percentage of our most successful accounts are dermatologists. Beyond practice type, though, key determinants for success include having a physician on site at the practice, training the entire office staff, communicating and setting appropriate expectations with patients, and a willingness to invest in building awareness.

Taylor Harris: On average utilization rates of dermatology practices or close to 50% higher than those of other specialties and a disproportionate percentage of our most successful accounts are dermatologists.

Taylor Harris: Beyond practice strike, though key determinants for success, including include having a physician on site at a practice training the entire office staff communicating and setting appropriate expectations with patience.

Taylor Harris: And a willingness to invest in building awareness.

Taylor Harris: All of these best practices, coupled with our new business model, are at the center of our efforts in 2024. We also began to see progress with our cost structure in the first quarter. Throughout 2023, our gross margin was depressed due to reduced volume, the array of company-specific operational issues that we have highlighted previously, and a high level of inventory reserves. Non-GAAP gross margin remained below the historical trend line in Q1.

Taylor Harris: All of these best practices, coupled with our new business model or at the center of our efforts in 2024.

Taylor Harris: We also began to see progress with our cost structure in the first quarter.

Taylor Harris: Throughout 2023, our gross margin was depressed due to reduced volume the array of company specific operational issues that we have highlighted previously.

Taylor Harris: The high level of inventory reserves now.

Taylor Harris: non-GAAP gross margin remained below the historical trend line in Q1.

Taylor Harris: However, on a normalized basis, excluding inventory reserves, it did improve to 40%. And that's compared to 37% in the fourth quarter and 30% in the third quarter, despite having a lower revenue base in Q1 relative to either of those previous quarters. Additionally, operating expenses were down both sequentially and year over year, reflecting the restructuring and other cost containment initiatives that we've enacted. We continue to focus on efficiency initiatives that should support ongoing improvements in our cost position and our gross margin profile over time.

Taylor Harris: However, on a normalized basis, excluding inventory reserves, it did improve to 40% and that's compared to 37% in the fourth quarter and 30% in the third quarter, Despite having a lower revenue base in Q Q1 relative to either of those previous quarters.

Taylor Harris: Additionally, our operating expenses were down both sequentially and year over year, reflecting the restructuring and other cost containment initiatives that we've enacted.

Taylor Harris: We continue to focus on efficiency initiatives that should support for ongoing improvements in our cost position and our gross margin profile over time.

Speaker Change: I'll now provide an update on a couple of our critical priorities that we've discussed on previous quarterly calls returning to operational excellence and building a global I'll be clear franchise first operational excellence, we continue to make progress on our five key areas that we identified last year product reliability field service.

Taylor Harris: I'll now provide an update on a couple of our critical priorities that we discussed on previous quarterly calls. First, operational excellence. We continue to make progress in the five key areas that we identified last year. Product reliability, field service, inventory control, supply demand planning, and cost of operations.

Taylor Harris: Inventory control supply demand planning and cost of operations.

Taylor Harris: In the first quarter, our cross-functional product reliability team, consisting of representatives from R&D, field service, quality, and operations, delivered another improvement in product reliability rates, both in terms of initial performance following new shipments, as well as ongoing reliability thereafter. In fact, our Q1 performance met or exceeded our annual objectives across all of our product categories. In the area of field service, we saw dramatic improvement in our North American service levels in the back half of last year, addressing most of the backlog of open cases as well as reducing response times for new service calls.

Taylor Harris: In the first quarter, our cross functional product reliability team consisting of representatives from R&D field service quality and operations delivered another improvement in product reliability rates. Both in terms of initial performance following new shipments as well as ongoing reliability thereafter.

Taylor Harris: In fact, our Q1 performance met or exceeded our annual objectives across all of our product categories.

Taylor Harris: In the area of field service, we saw a dramatic improvement in our North American service levels in the back half of last year.

Taylor Harris: Dressing most of the backlog of open cases, as well as reducing response times for new service calls.

Taylor Harris: In the first quarter, we maintained that performance and backlog in North America, and we are beginning to see an improvement in our average response time as well. We're also rolling out best practices across our international regions so that we can achieve this same level of service quality across the globe. We still have work to do on this front. For years, our international regions were managed separately, with the service teams having little support from the corporate office.

Taylor Harris: In the first quarter, we maintained that performance and backlog in North America, and we are beginning to see an improvement in our average response time as well.

Taylor Harris: We're also rolling out best practices across our international regions. So that we can achieve the same level of service quality across the globe and we still have work to do on this front for years, our international regions were managed separately with the service teams, having little support from the corporate office, we're starting to change that though with <unk>.

Taylor Harris: We're starting to change that, though, with regular interaction such as trainings and reviews of service part demand and with in-person support as well. For example, as I was leaving Australia, one of our top field engineers from North America was arriving to spend a month with the team, helping to reduce backlog while other leaders were on their way to help with training and the implementation of new processes. I won't spend as much time on our other focus areas of inventory management, demand planning, and cost control except to make a few points.

Taylor Harris: Regular interactions such as trainings and reviews of service part demand and with in person support as well for example, as I was leaving Australia, one of our top field engineers from North America was arriving to spend a month with the team helping to reduce backlog while other leaders were on their way to help with training and implementation.

Taylor Harris: Mentation of new processes.

Taylor Harris: I won't spend as much time on our other focus areas of inventory management demand planning and cost control except to make a few points.

Taylor Harris: We performed another physical inventory count at the end of Q1, and we had a net variance below 1%, and that exceeded our target for the year. It was better than our target for the year. We have now filled our new 50,000 square foot warehouse, as we have just over $130 million of gross value of inventory on hand.

Taylor Harris: We performed another physical inventory count at the end of Q1, and we had a net variance below 1% and that exceeded our target for the year it was better than our target for the year.

Taylor Harris: We have now filled our new 50000 square foot warehouse as we have just over $130 million of gross value of inventory on hand.

Taylor Harris: Our supply-demand planning process continues to mature, and we believe that by mid-year we will be done with the inventory build that has resulted both from previous purchase commitments, as well as the need to remediate shortages of certain key components. And we continue to believe that we are positioned to begin working down inventory in the second half of the year, creating a cash tailwind for the company. And now turning to AviClear, in international markets, we commenced a limited commercial release phase at the NCAST meeting in February, and in North America, during the first quarter, we broadened the availability of our enhanced AviClear offering, which provides greater flexibility and simplicity. The new business model offers the option to purchase the device up front with a corresponding reduction in ongoing treatment costs to the practitioner.

Taylor Harris: Our supply demand planning process continues to mature and we believe that by midyear, we will be done with the inventory build that has resulted both from previous purchase commitments as well as the need to remediate shortages of certain key components and we continue to believe that we are positioned to begin working down inventory in the second half.

Taylor Harris: Of the year, creating a cash tailwind for the company.

Taylor Harris: And now turning to RV clear in international markets, We commenced a limited commercial release phase at the M cast meeting in February and in North America. During the first quarter, we broaden the availability of our enhanced I'll be clear offering which provides greater flexibility and simplicity.

Taylor Harris: The new business model offers the option to purchase the device upfront with a corresponding reduction in ongoing treatment cost to the practitioner.

Taylor Harris: Along with greater business model flexibility, we are offering a hardware and software upgrade that simplifies the user experience improves product reliability and moves billing from a per patient model to payment for individual treatment cycles.

Taylor Harris: Along with greater business model flexibility, we are offering a hardware and software upgrade that simplifies the user experience, improves product reliability, and moves billing from a per-patient model to payment for individual treatment cycles. Our primary focus with AviClear in all geographies is on partnering with our customers to build franchises with healthy utilization. In North America, we're first working to identify a more focused list of customers who will move forward with AviClear

Taylor Harris: Our primary focus with all he player in all geographies is on partnering with our customers to build franchises with healthy utilization.

Taylor Harris: In North America were first working to identify a more focused list of customers, who will move forward with I'll be clear and as a reminder, during 2022 and 23 the company placed over 1200, RV clear systems into the field under the original business model, but as we've described most of those accounts were no longer do.

Taylor Harris: As a reminder, during 2022 and 2023, the company placed over 1,200 AviClear systems in the field under the original business model. But, as we've described, most of those accounts were no longer doing AviClear procedures as of the second half of 2023. At the end of the first quarter, our installed base of leased systems in North America had declined to approximately 1,050, with a list of an additional 275 set to be returned in the coming month.

Taylor Harris: I'll be clear procedures as of the second half of 2023.

Taylor Harris: At the end of the first quarter, our installed base of leased systems in North America had declined to approximately 1050 with a list of an additional 275 set to be returned in the coming months.

Taylor Harris: We've also begun reaching out to customers with upcoming lease renewals, and we continue to expect that more than half of the original systems will be returned. This process requires a significant amount of attention, both from our field team and our internal customer support and operations teams. But this is critical work to allow us to start the rebuilding process.

Taylor Harris: We've also began reaching out to customers with upcoming lease renewals and we continue to expect that more than half of the original systems will be returned this process requires a significant amount of attention both from our field team and our internal customer support and operations teams. This is critical work to allow us to.

Taylor Harris: Start the rebuilding process.

Taylor Harris: At the same time, though, we've dedicated a group of individuals in the company to our key practice development initiatives. And perhaps most important among these is Cutera Academy, a two-day university-style training program that launched at the end of April. Our first Academy session was received with rave reviews, both from our internal team as well as the customers who attended. When asked if the Academy had a significant impact on their confidence with AviClear, 100% of attendees said yes.

Taylor Harris: At the same time, though we've dedicated a group of individuals in the company to our key practice development initiatives and perhaps most important among these is Q Terra Academy.

Taylor Harris: When asked what we should do differently with future academies, 100% said nothing. So we're excited about what it can do for our AviClear franchise and also for the broader business. As one attendee commented, this made me have a different perspective on Cutera as a whole in a very positive way. It shows that Cutera truly cares about its practice partners and wants us to succeed. Our CAM team has now been fully trained on the Cutera Academy curriculum, and we are developing a video content library so that they can apply the academy experience at a local, individualized level.

Taylor Harris: A two day University style training program that launched at the end of April.

Taylor Harris: Our first Academy session was received with rave reviews, both from our internal team as well as the customers who attended when asked if a cat had a significant impact on their confidence with all the clear 100% of attendees said, yes. When asked what we should do differently with future academies.

Taylor Harris: 100% said nothing.

Taylor Harris: So we're excited about what academy can do for our RV clearer franchise and also for the broader business as one attendee commented at this made me have a different perspective on Q terror as a whole in a very positive way. It shows that <unk> truly cares about their practice partners and wants us to 60.

Taylor Harris: Pete.

Taylor Harris: Our Kam team has now been fully trained on the Terra Academy curriculum, and we are developing a video content library. So that they can apply the academy experience at a local individualized level.

Taylor Harris: In summary, we're tracking along with our plans for the year, and we're making progress on our key initiatives, setting the foundation for the future. So with that, I'll turn it over to Stuart for a review of our Q1 financial results.

Taylor Harris: In summary, we're tracking along with our plans for the year and we're making progress on our key initiatives setting the foundation for the future so with that I'll turn it over to Stuart to review of our Q1 financial results.

Stuart: Thank you Taylor this afternoon, I will discuss our Q1 GAAP results as well as some non-GAAP results a reconciliation of GAAP to non-GAAP gross margin and loss from operations is included in our earnings release.

Stuart Drummond: Thank you, Taylor. This afternoon, I will discuss our Q1 GAAP results as well as some non-GAAP results. A reconciliation of GAAP to non-GAAP gross margin and loss from operations is included in our earnings release. Total revenue for the first quarter was $38.8 million, compared to $54.5 million for the same period in 2023 and compared to $49.5 million in Q4 of 2023. Our Q1 revenue decreased by $10.7 million compared to Q4 2023, mainly reflecting Q4 being typically our strongest quarter of a fiscal year, as well as the early termination of our skin care distribution agreement in Japan.

Stuart Drummond: Total revenue for the first quarter was $38 8 million compared to $54 5 million.

Stuart Drummond: Same period in 2023, and compared to $49 5 million in Q4 of 2023.

Stuart Drummond: Q1 revenue decreased by $10 7 million compared to Q4 of 2023, mainly reflecting Q4 being typically our strongest quarter of our fiscal year as well as the early termination of our skin care distribution agreement in Japan.

Stuart Drummond: The $15.7 million, or 29% decrease, from the first quarter of 2023 was due mainly to a $10.3 million decline in capital equipment revenue and a $3.9 million decline in skin care revenue. This decrease in capital equipment revenue resulted from continued macroeconomic pressures and a challenging financing environment, particularly for our North American customers. The decrease in capital equipment revenue was partially offset by an increase in systems revenue related to RVClear as we began capital sales of this device.

Stuart Drummond: The $15 7 million or 29% decrease from the first quarter of 2023 was due mainly to a $10 3 million decline in capital equipment revenue and a $3 9 million in skin care revenue.

Stuart Drummond: This decrease in capital equipment revenue, resulting from continued macroeconomic pressures and a challenging financing environment, particularly for our North American customers.

Stuart Drummond: The decrease in capital equipment revenue was partially offset by an increase in systems revenue related to be clear as we began capital sales of this device.

Stuart Drummond: non-GAAP gross profit for the first quarter of 2024 was $14 8 million with a gross margin rate of 38, 2% compared to a gross margin rate of 43, 5% for the first quarter of 2023.

Stuart Drummond: Non-GAAP gross profit for the first quarter of 2024 was $14.8 million, with a gross margin rate of 38.2%, compared to a gross margin rate of 43.5% for the first quarter of 2023. The 5.3 percentage point decrease was driven by lower manufacturing and sales volume and a 0.7 million non-cash charge in Q1 of 2024 for excess inventory. Non-GAAP operating expenses for the first quarter of 2024 were $35.2 million, compared to $41.3 million for the same period last year.

Stuart Drummond: 5.3 percentage point decrease was driven by lower manufacturing and sales volume.

Stuart Drummond: They are calling 7 million noncash charge in Q1 of 'twenty 'twenty four for excess inventory.

Stuart Drummond: non-GAAP operating expenses for the first quarter of 'twenty 'twenty, four with $35 2 million compared to $41 3 million for the same period last year.

Stuart Drummond: This $6.1 million decrease mainly reflects personnel savings resulting from the restructuring announced in November 2023 and lower sales commissions. We've recorded a $9.7 million gain on the early termination of our Japanese Skin Clear Distribution Agreement, which is recorded as a separate line in our Gap Incomes...

Stuart Drummond: The $6 1 million decrease mainly reflects personnel savings, resulting from the restructuring announced in November 2023, and lower sales commissions.

Stuart Drummond: We've recorded a $9 2 million gain on the early termination of about Japanese skin care distribution agreement and this was recorded as a separate line in our GAAP income statement.

Stuart Drummond: This agreement was originally scheduled to end in June 2024, and we agreed to an early termination and received what were effectively payments for the gross margin we relinquished. For the first quarter of 2024, we incurred a non-gap loss from operations of $20.4 million, compared to a loss from operations of $17.6 million in the prior year period. Turning to our balance sheet, we ended the quarter with $105.4 million of cash and cash equivalents compared to $143.6 million at December 31, 2023.

Stuart Drummond: This agreement was originally scheduled to end in June 2024, and we agreed to an early termination and received what we're effectively payments for the gross margin we relinquished.

Stuart Drummond: For the first quarter of 2024, we incurred a non-GAAP loss from operations of $20 4 million compared to a loss from operations of $17 6 million in the prior year period.

Stuart Drummond: Turning to our balance sheet, we ended the quarter with $105 4 million of cash and cash equivalents compared to $143 6 million at December 31, 2023.

Stuart Drummond: The $38.2 million quarterly sequential decrease in cash and cash equivalents was driven by a $20 million net cash loss for the quarter, a $17.5 million net payment to Jabil for the non-renewal of our Manufacturing Service Agreement, and a $6.5 million reduction in accounts payable. These items were partially offset by $5.8 million that we received as partial payment related to the early termination of the Skin Care Distribution Agreement. Now turning to our guidance, we are reiterating our previous revenue guidance of $160 to $170 million, which includes the $4 million of skin care revenue earned through the transition in the first quarter.

Stuart Drummond: The $38 2 million quarterly sequential decrease in cash and cash equivalents was driven by a.

Stuart Drummond: 20 million net cash loss for the quarter.

Stuart Drummond: $17 5 million payment to Jabil for the non renewal of a manufacturing service agreement and a $6 5 million reduction in accounts payable. These items were partially offset by 5.8 million that we received as partial payment related to the early termination of the skin care distribution agreement.

Stuart Drummond: Now turning to our guidance, we are reiterating our previous revenue guidance of $160 million to $170 million, which includes a $4 million of skin care revenue and through the transition in the first quarter. We are also reiterating our expected cash and cash equivalents balance at December 31, 2024 to be in the range of 55 to 60 million.

Stuart Drummond: We are also reiterating our expected cash and cash equivalents balance at December 31, 2024, to be in the range of $55 to $60 million. Before I turn the call back to the operator, I'd like to mention some changes to our Q4 2023 income statement since our Q4 earnings release on March 21st of this year. We have revised our estimate of the inventory provision related to RV Clear materials, resulting in an additional $12 million being charged to cost of revenue.

Stuart Drummond: Before I turn the call back to the operator I'd like to mention some changes to our Q4 2023 income statement since our Q4 earnings release on March 21st of this yet we.

Stuart Drummond: In addition, we reclassified two charges related to the non-renewal of the Manufacturing Services Agreement with Jabil. An expense of approximately $6 million was reclassified from general and administrative expense to cost of revenue, and an expense of approximately $1 million recorded as other expense in Q3 was reclassified to cost of revenue in Q4. Operator, we are now ready to begin the question and answer session.

Stuart Drummond: We have revised estimate of the inventory provision relates to abbvie cleared materials, resulting in an additional 12 million being charged to cost of revenue. In addition, we reclassify two charges related to the non renewal of the manufacturing services agreement with cable and expense of approximately 6 million was reclassified from general and administrative expense to cost of revenue.

Stuart Drummond: And an expense of approximately 1 million recorded as other expense in Q3 was reclassified to cost of revenue in Q4.

Operator: Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad; you'll hear a tone acknowledging your request. If you're using a speaker phone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from George Sellers with Stevens. Please go ahead.

Speaker Change: Operator, we're now ready to begin the question and answer session.

George Stone Sellers: Thank you well now begin the question and answer session.

George Stone Sellers: She joined the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging the earthquake if.

George Stone Sellers: If youre using a speakerphone please pick up your handset before pressing the keys.

George Stone Sellers: To withdraw your question. Please press Star then two.

Operator: Our first question is from George Sellers with Stephens. Please go ahead.

George Stone Sellers: Hey, good afternoon, and thanks for taking the question.

George Stone Sellers: Hey, good afternoon, and thanks for taking the question. On guidance, you obviously reiterated the cash that you expect to have at the end of the year. I'm just curious if you could give us some additional color on the cadence for cash burn through the remainder of the year. It was obviously a little bit elevated in the first quarter and, I think, probably in line with what we were expecting. How should that trend sequentially in the second quarter, and then what's the sort of exit rate that you expect to end the year with?

Speaker Change: Got it.

George Stone Sellers: On the on guidance I E.

George Stone Sellers: Obviously reiterated the.

George Stone Sellers: Cash that you expect heading into the year target I'm just curious if you could give us some additional color on the cadence for cash burn through the remainder of the year.

George Stone Sellers: It was obviously a little bit elevated in the first quarter and I think probably in line with what we were expecting and how should that trend sequentially in the second quarter and then.

George Stone Sellers: What's sort of the exit rate.

George Stone Sellers: That you expect to end the year with.

Speaker Change: Sure. Thanks, George Yeah, you're you're right, we're trending along with what we expected as part of our overall cash guidance for the year end.

Stuart Drummond: Sure. Thanks, George. Yeah, you're right.

Stuart Drummond: We're trending along with what we expected as part of our overall cash guidance for the year. And as we look forward, the second quarter will be down relative to the first, but it'll still be elevated relative to the back half of the year. In fact, whereas on our earlier call, we had indicated that we thought about 70% of our burn would happen in the first half of the year, we now think that'll be a little closer to 75% in the first half of the year.

Stuart Drummond: And as we look forward the second quarter will be down relative to the first but but it'll still be elevated relative to the back half of the year in fact, whereas on our earlier call. We had indicated that we thought about 70% of our burn it would happen in the first half of.

Stuart Drummond: The year, we now think that'll be a little closer to 75% in the first half of the year and the reason for that is there. We've got a few more million dollars call it $3 million of extra one time nonrecurring.

Stuart Drummond: And the reason for that is we've got a few more million dollars, call it $3 million of extra one-time non-recurring expenses that we're expecting in the first half of the year, but we're offsetting that with some operating expense reductions that will primarily occur through the second half of the year. So what that means is that overall, we're on track, but the exit rate in the second half of the year is actually a little improved now relative to what we had expected earlier in the year.

Stuart Drummond: Expenses that we're expecting in the first half of the year, but we're offsetting that with some operating expense reductions that will primarily occur through the second half of the year. So what that means is that overall, where we're on track, but the exit rate in the second half of the year.

Stuart Drummond: There's actually a little improved now relative to what we had expected earlier in the year.

Speaker Change: Okay. That's really helpful. And then on Abbott clear I'm, just curious you talked about the increase.

Taylor Harris: Okay, that's really helpful. And then on Avoclear, I'm just curious, you talked about the increase really being driven from the shift in the commercial strategy and some capital sales, but how did procedure volume trend with the doctors who are actually using the device? So, if we exclude the dormant accounts and just focus on the DERMs, like you talked about, that are seeing success, what does procedure volume look like with those accounts?

Taylor Harris: Increase really being driven from the shift in the commercial strategy and capital sales, but how did the procedure volume trends with the doctors, who are actually using the device and so if we exclude the dormant accounts hum.

Taylor Harris: And just focus on the derm I'm like you talked about that are better seeing success, what's procedure volume look like with those accounts.

Taylor Harris: Yeah, so I'd say there are a few different types of accounts in there. The first comment I would make is that as we're launching at new accounts, and I would frame this primarily internationally, where that's obviously been the focus, we're seeing some good initial adoption. And so that's really encouraging. But I would say that it's early, so we don't want to get ahead of ourselves there.

Speaker Change: Sure. So yeah. So I'd say there are a few different types of accounts in there. The first comment I would make is that as we're launching at new accounts and I'd frame. This primarily internationally, where that's that's obviously been the.

Taylor Harris: Focus we're seeing some good initial adoption.

Taylor Harris: And so that's really encouraging I would say that it is early so we don't want to get out ahead of ourselves there, but where we're certainly encouraged by what we're seeing with with new accounts and in particular international.

Taylor Harris: But we're certainly encouraged by what we're seeing with new accounts, and in particular international. There's also a core group of physicians in the U.S., or in North America, I should say, where we've had fairly stable utilization over the last several quarters. And that, I think, reflects, all right, they've adopted, they've incorporated AviClear into their practice. There is a subset of accounts that are still doing procedures, but where there's been softness sequentially for a few quarters in a row, and we did see some of that in the first quarter.

Taylor Harris: There's also a a core group of physicians in the U S or in North America, I should say, where we've had fairly stable utilization over the last several quarters and that I think reflects alright, they they've adopted they've incorporated I'll be clear into their practice.

Taylor Harris: There there is a subset of accounts that are still doing procedures, but where there's been softness sequentially for a few quarters in a row and we did see some of that in the first quarter and what that really speaks to is the need for all of these initiatives that we've talked about to really help support.

Taylor Harris: And what that really speaks to is the need for all of these initiatives that we've talked about to really help support practice development and practice growth. So that is what our focus is. And as we're out talking to these accounts, that's a big part of the conversation. And it's, I think, important before they make decisions on whether they're going to return the device, whether they're going to stay on the lease model, or whether they're going to convert.

Taylor Harris: Practice development and practice growth that that is our focus and as we're out talking to these accounts, that's a big part of the conversation and it. It's I think important before they make decisions on whether theyre going to return the device, whether they're going to stay on the lease model or whether they're going to convert.

Taylor Harris: And so that's squarely where we're aiming when we talk about programs like Keturah Academy like our cooperative marketing program like some of these round tables, where we're discussing best practices. It's it's really focused at that group of account George where we've seen softness in procedure volume, but we also.

Taylor Harris: And so that's squarely where we're aiming when we talk about programs like Kutera Academy, like our cooperative marketing program, like some of these roundtables where we're discussing best practices. It's really focused on that group of accounts, George, where we've seen softness in procedure volume, but we also think there's an opportunity for growth over time.

Taylor Harris: Think there's an opportunity for for growth overtime.

Speaker Change: Okay. That's really helpful. Maybe just squeeze one more in I, obviously, you're pulling down your opex expense, but we've also heard that there's been some some sales rep hiring at the same time and I'm just curious if you could give some.

Taylor Harris: Okay, that's really helpful. Maybe to just squeeze one more in, obviously you're pulling down your OPEX expense, but we've also heard that there's been some sales rep hiring at the same time, and I'm just curious if you could give some color on maybe where you're adding sales reps, what parts of the business you think they'll be effective, and any background on maybe the experience level of these reps and revenue that you would expect them to be able to drive.

Taylor Harris: Color on maybe where you're adding sales reps what parts of the business you think.

Taylor Harris: There'll be effective and any background on maybe <unk>.

Taylor Harris: He experienced level of these reps and and you know revenue that you would you would expect them.

Taylor Harris: To be able to drive.

Taylor Harris: George good good to hear you're doing your channel checks.

Taylor Harris: George, good to hear you're doing your channel checks. You've heard me correctly. Just to add some color, though, we are right now in North America at a pretty similar level in terms of overall headcount in our field force as where we started the year. We had some turnover during the first quarter, but more recently, we've had some real traction with our hiring initiatives. Our plan has been to build, and we still plan on this, through the year so that we're exiting the year higher than where we started. Right now, we're about at par.

Taylor Harris: You you've heard correctly.

Taylor Harris: Just to add some color though.

Taylor Harris: We are right now in in North America at a pretty similar level in terms of overall head count in our field force as where we started the year, we had some turnover during the first quarter, but more recently we've had.

Taylor Harris: Some some real traction with with our hiring initiatives. Our plan has been to build and we still we still plan on this through the year. So that we're exiting the year you know higher than where we started right now we're about at par we are adding both in.

Taylor Harris: We are adding both in our capital organization as well as in our CAM, that's our key account manager organization that's focused on practice development. I'd say there's been a mix of the profiles that we've been able to attract to the company, which I think is encouraging. That mix has, for sure, included some on the fairly experienced side, which I think is a good sign of buy-in to what we're doing here and the opportunity they see, both with the full portfolio and probably with Avi Clear in particular.

Taylor Harris: Our capital organization as well as our Cam that's our key account manager organization. That's focused on practice development and I'd say, we've had a there's been a mix of the profile that that we've been able to attract to the company, which I think is encouraging and that mix has.

Taylor Harris: For sure included some on the the fairly experienced side.

Taylor Harris: Which I think is a good sign of I and you know, what we're doing here and and the opportunity. They see both with the you know the full portfolio, but but probably with all of the clear in particular.

Speaker Change: Okay. That's really helpful. I'll leave it there. Thank you all again for the time.

George Stone Sellers: Okay, that's really helpful. I'll leave it there and thank you all again for the time. You got it. Thanks, George.

Speaker Change: You got it thanks George.

George Stone Sellers: The next question is from Jon Block with Stifel. Please go ahead.

Operator: The next question is from John Block with Stiegel. Please go ahead.

Jonathan David Block: Hey guys, good afternoon. Taylor, maybe I'll just start with Xeo. I think you mentioned 2,500 legacy Xeos in the field. You know, we'd love to hear any early feedback for Xeo Plus. And how do you see that opportunity playing out throughout the year, you know, replacement versus new accounts? And I ask because, just like back of the envelope, even a modest, you know, five to 10% of that current installed base upgrading seems like it could be material revenue. So maybe you could just talk through that opportunity for a bit.

Jonathan David Block: Hey, guys.

Speaker Change: Good afternoon.

Jonathan David Block: Maybe I'll just start with zero I think you mentioned 2500 leg as easy as in the field.

Jonathan David Block: I'd love to hear any early feedback or zero plus.

Jonathan David Block: Do you see that opportunity playing out throughout the year.

Jonathan David Block: Raceman versus new accounts and I ask because just like back of the envelope, even a modest 5% to 10% of that current install base upgrading seems like it could be material revenues, maybe you could just talk through that opportunity a bit.

Taylor Harris: Sure. So, yeah, thanks for the question, John. We introduced Xeo Plus in early April at the ASLMS meeting, and feedback has been positive. I think what we've heard most commonly is that there's a real appreciation for the handpiece design. Users are telling us they just have better visibility. It also, you know, we've got enhanced contact cooling. We're able to do procedures more quickly, and that for sure means benefits to the patient, and benefits to the practice in terms of ROI.

Taylor Harris: Sure. So so yeah. Thanks for the question John We we introduced Z O plus in.

Taylor Harris: In early April at the a S. L M S meeting.

Taylor Harris: And feedback has been positive Ah I think what we've heard most are most commonly there's a real appreciation for the hand piece design users are telling us. It's they just have better visibility. It also.

Taylor Harris: Enhanced contact cooling are where.

Taylor Harris: We're able to do procedures more quickly that that for sure. It means benefits for the patient means benefits to the practice in terms of ROI, but I think from a user's perspective, it's just a visibility issue that has been highlighted and you know generally better visibility means a better procedure. So we're we're optimistic on that.

Taylor Harris: But I think from a user's perspective, it's this visibility issue that has been highlighted, and generally, better visibility means a better procedure. So we're optimistic on that front. Yeah, the opportunity, you know, we've had Xeo in the field for 20 plus years. So there is a nice installed base of users, and I think that's where we're most likely to target. This is, as we mentioned on the call, and as everybody knows, it's a difficult macro environment for a lot of accounts.

Taylor Harris: On that front yeah. The the opportunity you know we've had Z O in the plus in the field for for 20 plus years. So we there is a a nice installed base of users and I think that that's where we're most likely to target. This is a as we mention.

Taylor Harris: On the call and as everybody knows its a difficult macro environment for a lot of accounts.

Taylor Harris: And so I think I'm probably more optimistic about the upgrade opportunity than I am about the new system opportunity, but over time, we think that both are real. And, yeah, we think that this can be a nice, nice addition or at least support the overall effort as we go through 2024.

Taylor Harris: And so I think I'm, probably more optimistic on the upgrade opportunity than I am on the new system opportunity, but over time, we think that both are are real.

Taylor Harris: And yeah, we think that this can be a a nice it nicely additive.

Taylor Harris: Or at least support the overall effort as we go through 2024.

Speaker Change: Got it that's great that's helpful and maybe just to shift gears.

Jonathan David Block: I got it. That was great.

Jonathan David Block: I'll be clear as you mentioned youre getting systems back and more will come back shortly maybe if you could just comment on what the go to market strategy is that you'd want to get those out the door.

Taylor Harris: That was helpful. And maybe just to shift gears, you know, for Obby Clear. As you mentioned, you're getting systems back, and more will come back shortly. Maybe if you could just comment on what the go-to-market strategy is there. You know, you'd want to get those out the door as soon as possible, arguably just from a cash flow perspective, but obviously still a very new law. You started offering the new systems and the refurbs immediately. Do you do that in the same market? Maybe if you could just talk about how you're going to attack the market as you get those systems back more frequently.

Taylor Harris: As soon as possible arguably just from a cash flow perspective, but obviously still a very new laws. So you.

Taylor Harris: You started offering the new systems and the re Burbs immediately do you do that in the same market. Maybe if you could just talk to how you were going to attack.

Taylor Harris: The market.

Taylor Harris: Systems back more frequently.

Taylor Harris: Sure, so as we contemplate new accounts for AviClear, our number one focus is, well, I should say our focus is on accounts with a profile that we really think can support developing a healthy franchise, a healthy business over time. And that generally means a practice that is either already familiar with the treatment of acne more broadly or has the ability to get up that learning curve very quickly. It generally means you've got a physician on site.

Taylor Harris: Sure so as as we contemplate new accounts for all the clear our number one focus is well I should say our focus is on accounts with a profile that we really think can support developing a healthy franchise.

Taylor Harris: Healthy business over time and that generally means a practice that is either already familiar with the treatment of acne more broadly or has the ability to get up that learning curve very quickly. It's generally means you've got a physician on site.

Taylor Harris: And then there's got to be a willingness to train the entire staff, to go through programs like our academy, and to invest in the product. Now we think that the best target that meets that profile is an aesthetic dermatology practice. Ideally, one that has connections with medical dermatology, which is where you're gonna see probably the healthiest flow of acne patients. So really, step number one is to find that target audience. You know, we think there are call it 3,000 to 4,000 aesthetic dermatology practices across the country.

Taylor Harris: And then there's gotta be a willingness of willingness to train the entire staff.

Taylor Harris: To go through programs like our Academy.

Taylor Harris: Invest behind behind the product now we think that the most likely the best target that meet that profile is an aesthetic dermatology practice.

Taylor Harris: Ideally one.

Taylor Harris: That has connections with medical dermatology, which is where you're going to see probably the healthiest flow of acne patients. So really the step number one is fine that target audience. You know, we we think there are a call it three to 4000.

Taylor Harris: Aesthetic dermatology practices across the country. So there there's a there's a good target here to go after and there are other accounts.

Taylor Harris: So there's a good target here to go after, and there are other accounts that could meet the profile that we're looking for as well. But really, the focus is, unlike the first time around, it's not on just getting machines out into the field. The focus is on getting machines into places where we think we're gonna see a great return over time, both for the practice and for us. So, now, whether it's a new or refurbished system, we will have both to offer.

Taylor Harris: It could meet the profile that we're looking for as well, but but really the focus is.

Taylor Harris: Unlike the first time around it's not on just getting machines out in the field. The focus is on getting machines into places, where we think we're going to see a great return over time, both for the practice and for us.

Taylor Harris: So now then whether it's a new or a refurbished system. We will have both to offer there could be a you know a cost advantage to our practice if if they go with a refurbished and refurbished is we we make we make it new I mean it is this is a.

Taylor Harris: There could be a, you know, cost advantage to a practice if they go with a refurbished machine. And, you know, refurbished is we make it new. I mean, this is effectively a brand new machine. We've got a great team that does that work back here at headquarters. So, both will be available. Got it.

Taylor Harris: Effectively a brand new machine, we got a great team that does that work back here at headquarters so both will be available.

Jonathan David Block: Got it. Thanks for the call, you guys.

Speaker Change: Got it thanks for the color guys.

Speaker Change: Thank you John.

Jonathan David Block: Yeah.

Operator: The next question is from James Beards with William Blair. Please go ahead.

Jonathan David Block: The next question is from James <unk> with William Blair. Please go ahead.

James Beards: Hey, guys, it's Jimmy on for Margaret Thanks for taking the question I wanted to maybe start off just on the capital environment, maybe go back to some of the macro thoughts, but we continue to hear the environment at least for aesthetics, it's pretty tough just securing financing could you maybe speak to what you're seeing.

James Beards: Hey guys, it's Shimeon from Margaret. Thanks for taking the time to answer the question. I wanted to maybe start off just on the capital environment, maybe go back to some of the macro thoughts. But, you know, we continue to hear the environment, at least for aesthetics, is pretty tough, just securing financing. Could you maybe speak to what you're seeing on the macro front in the first quarter? And then, you know, now that we're a little bit into the second quarter, any trends you may point out?

James Beards: On the macro front in the first quarter and then no not here a little bit into the second quarter.

James Beards: Any trends you you may point out.

James Beards: Sure.

Taylor Harris: Sure. Hey Jimmy.

Speaker Change: Jimmy we yeah, we agree with the feedback that it sounds like you're hearing more broadly the I'd put it into a couple of categories. The the financing environment is challenging it is and we saw this in the second half of last year, we saw it in the first.

Taylor Harris: <unk>.

Jimmy: There's a segment of the the.

Taylor Harris: Legacy.

Taylor Harris: User base. So it really just doesn't have access to financing right now.

Taylor Harris: And we've been trying to work with third parties to unlock that there are there's some things that you can do but not not a lot for a certain segment. So financing is is tough rates are higher even even for someone who's whose credit worthy. So.

Taylor Harris: We, yeah, we agree with the feedback that sounds like you're hearing more broadly the, I put it into a couple of categories. The financing environment is challenging. It is, and we saw this in the second half of last year; we saw it in the first quarter.

Taylor Harris: There's a segment of the legacy user base that really just doesn't have access to financing right now. And you know, we've been trying to work with third parties to unlock that. There are some things that you can do, but not a lot for a certain segment. So financing is tough. Rates are higher, even for someone who's credit-worthy.

Taylor Harris: So definitely more challenging there. And we also are hearing from customers that practice volumes are sluggish, not just for us, but just practice volumes are sluggish. And I think that's probably contributing to the, you know, some lack of confidence in moving forward with capital purchases.

Taylor Harris: Definitely more challenging there and and we also are hearing from customers that practice volumes just generally not not just for for us, but just practice volumes are are sluggish and I think that's probably contributing to the the you know some lack of confidence in moving forward with capital purchase.

Taylor Harris: So that's the environment. We're operating in that is what we had generally expected as we entered the year I'd say, we're seeing it the only other thing I'd add is is in the body business. The body contours business I think it's it's.

Taylor Harris: So that's the environment we're operating in, and that is what we had generally expected as we entered the year. And I'd say we're seeing it. The only other thing I'd add is in the body business, the body contouring business. I think it's particularly tough, and there may be a GLP-1 impact there. So all of that was, you know, expected. It was part of the way we thought about the outlook for the year.

Taylor Harris: Particularly tough and there may be a G. L. P. One impact there. So all of that is you know it was to be expected. It was it was part of the way we thought about the outlook for the year and I tell you it takes us back to us.

Taylor Harris: And I tell you, it takes us back to the real, you know, you know, the, you know, the, you know, the. We're just fortunate to have a product like AviClear that we're able to be launching right now into what we believe is a less sensitive portion of the customer base and in a market that should be less sensitive from a consumer perspective as well.

Taylor Harris: Real.

Taylor Harris: You know, where we're just fortunate to have a product like I'll be clear that we're able to to be launching right now into what we believe is a less sensitive portion of the of the customer base and in a market that should be less sensitive from a consumer perspective as well.

Speaker Change: Great. That's really helpful. And then maybe just touching on the modeling side like.

Taylor Harris: And then maybe just touching on the modeling side, like you said, it seems like it's still a pretty tough selling environment. For Q2, capital tends to have one of its strongest quarters. How should we think about modeling capital into Q2? And what are you sort of assuming for guidance into Q2 and then thereon for capital? Thank you.

Taylor Harris: Like you said kind of it seems like it's still a pretty tough selling environment.

Taylor Harris: For Q2 capital tends to have one of its stronger quarters, how should we think about modeling capital into Q2, and what are you sort of assuming for guidance.

Taylor Harris: Q2, and then they're on for capital. Thank you.

Speaker Change: We are expecting an uptick from Q1 to Q2, we're not going to give specific guidance on that but I'd I'd say.

Taylor Harris: We are expecting an uptick from Q1 to Q2. We're not going to give specific guidance on that, but I'd say, you know, Q2 should be, from a capital perspective, stronger than Q1. The second half of the year, we think, will be stronger than the first half of the year. You know, we do have the macro backdrop, but we're also launching ZEO Plus. We think we're going to be a bit stronger in terms of the overall field force, so we've got some offsets to that pressure. That's the way we've been thinking about them, you know, in terms of putting some tape on them. Great.

Taylor Harris: You know Q2 should be from from a capital perspective stronger than Q1 in a second half of the year, we think will be stronger than the first half of the year.

Taylor Harris: You know we do we do have the the macro backdrop, but we're also.

Taylor Harris: Launching Z O plus are we think we're gonna be up a bit stronger in terms of the overall field force. So we've got some some offsets to that pressure. That's the way we've been thinking about them you know in terms of puts and takes.

Speaker Change: Great. Thanks for the questions.

James Beards: Great. Thanks for the questions.

Speaker Change: Once again, if you have a question. Please press Star then one.

Operator: Once again, if you have a question, please press star then 1. The next question is from Nick Sherwood with Maxim Group. Please go ahead.

Operator: The next question is from Nick Sherwood with Maxim Group. Please go ahead.

Nick Sherwood: Hi, good evening. My first question is, what is the runway that you're seeing for this international expansion? You know, I imagine you're targeting a lot of high-quality leads, but once you get some of those easier wins with practices that might have more capital on hand, what do you see as the environment for, you know, maybe lower-quality leads and, like, their financing potential?

Nick Sherwood: Hi, Good evening. My first question is what is the.

Nick Sherwood: Runway that you're seeing for this international expansion, Yeah, I imagine you're targeting a lot of Pi.

Nick Sherwood: High quality leads but what is once you get some of those easier wins with practices that might have more capital on hand, what you see as the environment for you.

Nick Sherwood: Maybe the lower.

Nick Sherwood: Lower quality leads and like their financing potential.

Speaker Change: Hey, Nick So where are we where we're at with the launch we we think there's a pretty long runway ahead. So first quarter was truly limited commercial release, which which means a few K O L type sites and we were.

Taylor Harris: Hey Nick, so where we're at with the launch, we think there's a pretty long runway ahead. So the first quarter was a truly limited commercial release, which means a few KOL-type sites. And we were in around 10 markets in the first quarter with that. As we move into the second quarter, we're broadening a bit in some of those markets. So, for example, in Australia, we're starting to reach out more broadly in the dermatology community. We are not, we're not yet moving, you know, to full market coverage, though.

Taylor Harris: We're in around 10 10 markets in the in the first quarter with that.

Taylor Harris: As we move into the second quarter were broadening a bit in some of those markets. So for example in Australia, we're starting to reach out more broadly in the dermatology community. We're not we're not yet moving you know to a full market coverage, though.

Taylor Harris: So, I think over the next several quarters, there's going to be a gradual broadening within some of these target markets. And then, as we get into later in the year, we'll start moving into some of our distributor territories. And then there are other markets, like Japan, where we probably won't have regulatory approval in 2024. So that would be something that we layer in next year. And there are other markets that will be able to come online in the years to come.

Taylor Harris: So there's I think over the next several quarters theres going to be a gradual broadening within some of these target markets and then as we get into later in the year, we will start moving into some of our distributor territories.

Taylor Harris: And then there are other markets like Japan, where we probably won't have regulatory approval in 2024, so that would be something that we layer in the next year and there are other markets that we'll be able to come on line over the years to come.

Taylor Harris: So as an example, China, that's probably a multi-year opportunity in terms of the length of time it'll take us to get clearances there. So I think you're going to see this launch build for a fair amount of time.

Taylor Harris: So as an example, China, that's probably a multi year opportunity and in terms of.

Taylor Harris: The link the time, it'll take us to get clearances, there. So I think you're going to see this launch build.

Taylor Harris: For a fair amount of time.

Speaker Change: Awesome. Thank you for that color and then switching gears can you talk a little bit about sort of the innovation you're driving through your R&D, where are you tried to build upon your current product lines to make them more appetizing to your current customers or are you also looking at.

Taylor Harris: And then switching gears, can you talk a little bit about sort of the innovation you're driving through R&D, where are you trying to build upon your current product lines to make them more appealing to your current customers, or are you also looking into more new products that can really kick things off and start growing revenues faster?

Taylor Harris: More looking into.

Taylor Harris: New products that can.

Taylor Harris: Really kick things off and start growing revenues faster.

Taylor Harris: What I'd say to start with is we don't suffer from a lack of ideas. We've got a really innovative team and an innovative leader in Michael Karavidas. And what the team is working on at various stages would be a combination of everything you described. What to expect in the near term, though, I would say where we're seeing, you know, a good near-term opportunity is just in the clinical expansion with AviClear. So we are going to be putting some investment dollars behind some initial clinical studies in new indications.

Speaker Change: There's there's but what I'd say to start with as we we don't suffer from a lack of ideas. We've we've got a really innovative team.

Taylor Harris: And an innovative leader in Michael care of Itis and what the what the team is working on at various stages would be a combination of of everything you described what to expect in the near term, though I would say.

Taylor Harris: Where we're seeing you know good near term opportunity is just on the clinical expansion with Aussie clear, so where we are going to be putting some investment dollars behind some initial clinical studies in new indications.

Taylor Harris: Over time, we will likely need new hand pieces to support some of those new indications.

Taylor Harris: Over time, we will likely need new handpieces to support some of those new indications, so this is early, but we see a good opportunity to expand the utility of this system. And this is a system that's a novel wavelength, a new wavelength for the industry, and we're the leaders. So it just makes sense to invest in a capability set like that.

Taylor Harris: So this is this is early but we see a we see a good opportunity to expand the utility of this system and this is a system. That's a it's a novel wavelength the new wavelength for the industry and we're the leader. So it just makes sense to invest behind a a capability set like that.

Taylor Harris: <unk>.

Speaker Change: Understood and then my last question you kind of mentioned briefly the potential G. G. L. P. One impact to the body contouring business can you just give any additional color or detail that you've heard from some of your partners and customers about that.

Taylor Harris: And then for my last question, you kind of mentioned briefly the potential GLP-1 impact on the body contouring business. Can you just give any additional color detail that you've heard from some of your partners and customers about that?

Speaker Change: Sure. So yeah, just to add a little bit more color I think this is probably the area, where we had a little more weakness than expected in the first quarter of I think across the board things where in terms of the macro environment were more in line with what we thought but.

Taylor Harris: Sure. So, you know, just to add a little bit more color, I think this is probably the area where we had a little more weakness than expected in the first quarter. I think across the board, things were, in terms of the macro environment, more in line with what we thought. But body language took a step down for us, and we've heard it across the industry. So we're pretty light in terms of what we sold in the first quarter. But what we're hearing is just that with the GLP-1 dynamic, you've got a lot of patients who are moving on to that therapy. And so practice volumes at customer sites are down.

Taylor Harris: Body took a took a step down for us and we've heard it across the industry. So we're we're pretty pretty light in terms of what we sold in the first quarter. What we're hearing is just that with the G. L. P. One dynamic you've got you got a lot of patients who are moving on to <unk>.

Taylor Harris: That therapy.

Taylor Harris: And and so practice volumes are at at customer sites are down.

Taylor Harris: And so that obviously creates an air pocket in the market for people thinking about investing in a new energy-based platform. Now, what we also hear, and what we expect, is that patients aren't going to be on these drugs forever. And while they're really good at debulking, they aren't going to address stubborn pockets of fat, which are likely to be residual, which is what the body contouring industry was designed for in the first place. So I think you're likely to see a wave. People are riding the GLP-1 wave right now.

Taylor Harris: And so that obviously creates a an air pocket in the market for people thinking about investing in a new energy based platform now what we also hear and what we expect is that.

Taylor Harris: Patients aren't going to be on these on these drugs forever and it while they're really good at deep bulking. They they aren't going to address stubborn pockets of fat, which are likely to be residual and which is what the body countering industry was designed for in the first.

Taylor Harris: Place, so I think you're likely to see a wave people are riding that G. O P. One wave right now they're gonna come off they're gonna have stuff in pockets of fat, they're gonna have loose skin, they're gonna have they're losing muscle just like they're they're losing a fat and we believe there's going to be a need in the future.

Taylor Harris: They're going to come off. They're going to have stubborn pockets of fat. They're going to have loose skin. They're losing muscle, just like they're losing fat. And we believe there's going to be a need in the future for the energy-based device space to address. What I can't tell you is how long it's going to take that wave to get to shore, but we think it's coming.

Taylor Harris: For the energy based device space to address what.

Taylor Harris: What I can't tell you how long, it's going to take that wave to get to shore up, but we think it's coming.

Taylor Harris: Yeah.

Nick Sherwood: Thank you for that detail, and I'll return to the queue.

Speaker Change: Well, thank you for that detail and I'll return to the queue.

Speaker Change: Thank you.

Nick Sherwood: Yeah.

Operator: This concludes the question and answer session. I'd like to turn the conference back over to Taylor Harris for any closing remarks.

Nick Sherwood: This concludes our question and answer session I'd like to turn the conference back over to Taylor Harris for any closing remarks.

Taylor Harris: Well. Thank you. Thank you everyone for joining us before we conclude I just want to thank the entire cute here at team. We've just got an amazing group of passionate committed.

Taylor Harris: Well, thank you. Thank you everyone for joining us. Before we conclude, I just want to thank the entire Cutera team. We've just got an amazing group of passionate, committed Cuterans.

Taylor Harris: Q Terence and so thanks for all the hard work and thanks for everyone, who joined US today and have a good evening.

Taylor Harris: And so, thanks for all the hard work and thanks to everyone who joined us today. Have a good evening. Bye! Bye!

Taylor Harris: Yeah.

Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Speaker Change: Yeah. Thanks to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.

Operator: Yeah.

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