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Edited Transcript of CUTR earnings conference call or presentation 26-Feb-20 9:30pm GMT

Q4 2019 Cutera Inc Earnings Call

BRISBANE Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Cutera Inc earnings conference call or presentation Wednesday, February 26, 2020 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David H. Mowry

Cutera, Inc. - CEO & Director

* Fuad Ahmad

Cutera, Inc. - Interim CFO

* R. Jason Richey

Cutera, Inc. - President

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Conference Call Participants

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* Anthony V. Vendetti

Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst

* Jonathan David Block

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst

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Presentation

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Operator [1]

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Thank you for joining Cutera's Fourth Quarter and Full Year 2019 Earnings Conference Call. (Operator Instructions)

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

Forward-looking statements are based on current information that is, by its nature, dynamic and subject to change. Forward-looking statements include, among others, statements regarding financial guidance, plans to introduce new products, regulatory approvals and productivity improvements. 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.

Cutera also cautions you not to place undue reliance on forward-looking statements, which speak only as 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 from management's current expectations.

In addition, we will discuss non-GAAP financial measures, including results on an adjusted bias. 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 alternative to, the operating performance measures prescribed by GAAP.

With that, I'd like to turn the call over to our CEO, Dave Mowry.

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David H. Mowry, Cutera, Inc. - CEO & Director [2]

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Thank you, operator. I would like to welcome each of you to Cutera's Fourth Quarter and Full Year 2019 Earnings Conference Call. With me on the call today are Jason Richey, President; and Fuad Ahmad, Cutera's interim Chief Financial Officer.

Since joining Cutera 8 months ago, we have made steady progress on our key initiatives, and I am extremely pleased with the results we have posted to date. With our strong fourth quarter performance, we effectively closed out a great year, and we are carrying forward into 2020 strong and growing momentum for our products, an unmatched pipeline of new product development programs and the management alignment around a plan to deliver consistent and steady improvement in our cost structures over the next several quarters.

By all measures, Cutera is well positioned to create value for our employees and key stakeholders in fiscal year 2020 and beyond.

Regarding our specific fourth quarter 2019 results, I am pleased with our revenue and gross profit performance, in particular, and credit the amazing depth of talent across our global organization for this success. Our revenue growth was well balanced across the business, with contributions from 3 key areas: our truSculpt body sculpting franchise, our international commercial team and the continued expansion of our recurring revenue streams. These diverse sources of revenue growth and the strong underlying drivers of each have me excited about the opportunities at hand as we continue to fuel top line growth and increase profitability through steady execution against our plan.

Additionally, the Cutera team remains fully committed to delivering next-generation innovation and evidence-based technologies into the global aesthetics market, supported by the strength of our global commercial efforts.

In the fourth quarter, we demonstrated progress against 4 key business initiatives. First, we delivered strong results in our body sculpting growth initiative. Over the last 6 quarters, Cutera has upgraded our body sculpting portfolio, launching significantly upgraded product into the fat-reduction market segment, and expanding our portfolio to address the rapidly growing muscle sculpting segment.

In combination, we believe that truSculpt ID for fat reduction and truSculpt flex for muscle sculpting represent the best body sculpting offering on the market. Demand within the fourth quarter for truSculpt ID remained strong, and the customer reception for truSculpt flex only in its second full quarter of commercial release was exceptionally robust.

The second initiative, we generated strong results in key geographies where we had previously made strategic investments in our international commercial team. Historically, Cutera's international business has been underpowered and delivered less than the desired growth. However, following recent investments in talent and structure in key geographies, we have delivered international business growth at more than double the market rate.

Third, our collected and cross-functional attention on building recurring revenue is delivering rapid improvements across the business. In just a few short years, we have nearly doubled the percentage of total revenue coming from our active installed base of systems. As a reminder, recurring revenue is comprised of our global service contracts, skincare products and the single-use, per procedure-based consumable product sales. Together, these categories provided growth of 28% in fourth quarter over the prior year.

And finally, our fourth initiative, efforts spent on various activities within gross margin expansion were reflected in the continued improvements within the period. Fourth quarter gross margins benefited from 3 items: first, product, price and mix by way of continued commercial discipline; second, freight expense reduction using our regional distribution centers; and third, early contributions from manufacturing and material cost savings efforts. Together, these improvements provided nearly 400 basis points of lift over prior-year gross margin on a non-GAAP basis.

In combination, our progress across all 4 of these key business initiatives puts Cutera in a strong position with positive momentum going into 2020.

Now I'd like to spend just a moment discussing changes to our North American sales organization, subsequent to the close of the fourth quarter 2019. Earlier this quarter, our Vice President of North American Sales and a small number of sales employees departed the company. While our typical forecasting process anticipates a routine level of attrition or sales rep turnover, we took the time to assess these departures and their impact on our 2020 revenue outlook. Based upon our assessment, we made appropriate revisions to our North American revenue plan as well as implementing steps to prevent further attrition.

Additionally, we have adopted a firm but measured posture regarding our legal defense of the business from further threat.

In summary, I am pleased with the team's collective performance in the fourth quarter and for the full year 2019. We are seeing strong revenue growth across our portfolio, supported by strong underlying drivers and a rich pipeline of new product development programs. We feel good about our international commercial plans and have confidence in the prospects of our U.S. commercial organization going forward.

I will now turn the call over to Jason Richey, our President, for a review of fourth quarter and full year 2019 operational performance. Jason?

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R. Jason Richey, Cutera, Inc. - President [3]

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Thank you, Dave. I'd like to echo Dave's initial comments and thank the global Cutera team for delivering an outstanding fourth quarter to cap off a strong 2019. Together, this team accomplished a tremendous amount in a very short period of time and has set our company up for even greater success in the future.

Cutera's fourth quarter total revenue grew 14% over the prior year driven by 3 key areas of contribution: growth of our body sculpting franchise, increased penetration of the international markets and expansion of our recurring revenue streams.

With respect to our body sculpting franchise, we continue to gain share in the growing $1.1 billion body sculpting market. Total truSculpt revenue, which includes our fat reduction systems, truSculpt 3D and ID, as well as our muscle sculpting system, truSculpt flex, grew 52% over fourth quarter 2018.

Momentum from the North American launch of the truSculpt flex in the third quarter carried forward into the fourth quarter with increased flex system sales. Customer feedback has been very positive. In fact, we've had nice success with multiple competitive accounts adding truSculpt flex to their practice to provide a next level offering that electrical muscle stimulation delivers.

In addition to competitive account penetration, our body sculpting systems, truSculpt ID and flex, continue to be used by certain customers in combination therapy, offering their patients fat reduction and muscle sculpting in a single 1-hour treatment. Together, these systems provide clinicians with an unmatched suite of body sculpting capabilities.

We're extremely pleased with our international systems revenue, which grew 18% over the prior year period. During the quarter, we saw benefit from previous investments in both commercial talent and sales infrastructure within key geographies.

Over the course of the second half of 2019, we applied many of our learnings from top-performing international regions to our direct EU markets, and we have already begun to realize a return on these investments.

Going forward, we remain bullish on our international opportunities as we continue to improve our global commercial team and layer in new products, such as truSculpt flex, which we recently launched into several international regions earlier this month.

The third major contributor to growth in the fourth quarter 2019 was the continued expansion of our recurring revenue streams. As previously mentioned, recurring revenue is an area of focus for the company as it further accelerates our top line growth and provides a key lever in our improved profitability strategy.

We estimate that exiting 2019, roughly 30% of our active installed base was generating consumable revenue, which is up from approximately 22% at the end of 2018. We are defining the active installed base as systems that were sold within the previous 5 years, systems with an extended warranty in place as well as systems having been serviced in the previous 24 months.

Procedure-related revenue grew nearly triple digits over the fourth quarter of 2018 driven by increasing patient flows through our truSculpt family of products as well as our Secret RF microneedling system. We remained bullish on consumable growth, in particular, with over 50% of systems sold during the quarter, providing access to longer-term recurring revenue in the form of consumables.

The final area I'd like to review is our focus on gross margin expansion. We are pleased with the continued improvements in our gross margin performance over the prior year period. During the fourth quarter of 2019, our gross margins were 57% on a non-GAAP basis versus 53% for fourth quarter 2018. These results reflect our focus on commercial pricing discipline, favorable product mix and cost improvements coming through our continuous improvement initiatives within our manufacturing and distribution environment.

We are pleased with our efforts to date, and we remain vigilant to unlock the full benefit of our cost reduction efforts.

Before I turn the call over to Fuad, I wanted to follow-up on Dave's earlier remarks regarding the North American commercial team. I'm working closely with our sales leaders and have great confidence in the strength and ability of this organization. We have a strong sales management team that possesses significant depth of experience in the energy-based aesthetic market. Together, we have successfully navigated choppy waters before, and we have already leveraged our learnings to work through these issues and execute our strategy.

And now to provide additional details on the company's performance, I'd like to turn the call over to Fuad.

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Fuad Ahmad, Cutera, Inc. - Interim CFO [4]

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Thank you, Jason. Before I begin, please note that our prepared remarks will focus primarily on non-GAAP results, unless otherwise noted.

A reconciliation of GAAP to non-GAAP is included in our earnings release. We encourage listeners and readers to review our non-GAAP metrics in conjunction with the GAAP results as contained in our earnings release.

I will now go over full year results for fiscal 2019 and fourth quarter ending December 31, 2019. For fiscal '19, we recorded total revenue of $181.7 million, a 12% growth over fiscal '18. We recorded total revenue growth of 4% in the U.S. and 24% internationally in fiscal '19 compared to fiscal '18.

Growth from body sculpting and microneedling products for both systems and recurring revenue streams offset expected declines from legacy platforms. Internationally, we experienced particularly strong growth in Japan, Australia and New Zealand and European direct.

For the fourth quarter of fiscal '19, total revenue grew 14% to $51.8 million from $45.5 million for the same period in fiscal '18. We recorded 11% revenue growth in the U.S., with main growth drivers being truSculpt family of products and Secret RF.

Total international revenue grew 19% for the quarter. As was the case for the full year, we experienced particularly strong growth in our European direct markets and from an expanding business in the Middle East as well as growth in Japan and Australia and New Zealand. This was the result of previous investments in talent and structure that have started to take hold.

Overall, our truSculpt product portfolio remains very strong and generated 44% worldwide revenue growth for the fiscal year '19 versus fiscal '18.

For full year fiscal '19, recurring revenue, defined as consumables, global service and skincare revenue, grew 37% over fiscal $18 to $41.2 million. Recurring revenue represent 23% of the total revenue in fiscal '19 versus 19% in fiscal '18.

Consumable revenue growth in fiscal '19 accelerated, consistent with the expansion of our installed base of systems and associated with single-use and procedure-based products. As a result, consumable revenue grew 132% in fiscal '19 to $9.6 million. Revenue from consumables are expected to continue to expand and become a more meaningful contributor to our revenue over time as an increasing number of our active installed base of systems will have a consumable revenue stream.

For the fourth quarter of fiscal '19, recurring revenue grew 28% over the same period in fiscal '18 and accounted for approximately 21% of total fourth quarter revenue of $11 million. Consumable revenue growth in fiscal '19 demonstrates system utilization and is reflective of commitment our customers have to our platform. As a result, consumable revenue grew over 98% to $2.5 million in the fourth quarter of fiscal '19 compared to the same period last year.

Moving to expenses, beginning with gross profit and gross margin and then to operating expenses. For fiscal '19, we recorded non-GAAP gross profit of $100.2 million compared to $86.4 million in fiscal '18. Non-GAAP gross margin in fiscal '19 was 55.2% versus 53.1% for the same period last year, an over 200 basis point improvement. This improvement is primarily attributed to superior execution and end-user pricing, favorable product mix associated with our rapidly expanding consumable revenue component that garners higher gross margin as well as improved overhead absorption.

For the fourth quarter of fiscal '19, our non-GAAP gross profit was $29.4 million compared to $24 million for the same period last year. This significant improvement is worth noting. As was the case for fiscal '19, non-GAAP gross margin reflected substantial improvement over the prior period. Our non-GAAP gross margin in the fourth quarter of fiscal '19 was 56.7% compared to 52.8% for the same period last year.

We believe our continued commitment to pricing discipline, expansion of our consumable revenue streams and renewed focus on cost improvements has delivered really meaningful results. To that end, we recorded significant gross margin improvement throughout fiscal '19.

Moving to operating expenses. For fiscal '19, we recorded non-GAAP sales and marketing expenses of $62.6 million compared to $53.9 million for fiscal '18. The year-over-year increase is primarily attributed to personnel and related expenses. As a result of our investment, sales and marketing expense as a percentage of total revenue grew slightly to 34.5% in fiscal '19 from 33.1% in fiscal '18.

For the fourth quarter of fiscal '19, our non-GAAP sales and marketing expenses were $17.9 million compared to $14.3 million for the same period in fiscal '18. The reason for growth from the prior year is essentially the same as mentioned before. Sales and marketing expenses as a percentage of revenue were 34.5% in the fourth quarter of fiscal '19 compared to 31.4% of revenue in the fourth quarter of fiscal '18.

For fiscal '19, our total non-GAAP R&D expenses remained essentially flat year-over-year. As is the case with project-related expenses, there is some lumpiness to the flow of expenses. Our non-GAAP R&D expenses totaled $13.4 million in fiscal '19 compared to $13.5 million in fiscal '18. As a result, our non-GAAP R&D expenses were 7.4% of total revenue in fiscal '19 compared to 8.3% in fiscal '18.

However, our non-GAAP R&D expenses were $4 million in the fourth quarter of fiscal '19 compared to $3.2 million for the same period in fiscal '18. This increase was the result of increased staffing for active development projects. Consequently, total non-GAAP R&D expense as a percentage of revenue increased to 7.7% in the fourth quarter of fiscal '19 from 7.1% for the same period in fiscal '18.

Looking ahead, we would like to reiterate our commitment to investing in engineering and clinical research to drive new product innovation, existing product enhancement, increased indications and coverage as well as expanded regulatory approval of our technology.

Finally, on G&A expenses of fiscal '19. Our non-GAAP G&A expenses were $19.9 million compared to $17.1 million for the same period in fiscal '18. Growth from the prior period was a result of higher compensation expense in fiscal '19, as fiscal '18 didn't contain management incentive bonus as well as the addition of key leadership roles, including Dave, our CEO.

Additionally, we also incurred additional credit card processing fees on higher revenue and higher legal and accounting fees.

For the fourth quarter of fiscal '19, our non-GAAP G&A expenses were $5.5 million compared to $4.3 million for the same period in fiscal '18. The reason for the increase in expenses are the same as mentioned earlier.

For fiscal '19, our non-GAAP operating income, also called adjusted EBITDA, was $4.3 million compared to $2 million in fiscal '18. The improvement is essentially the result of higher revenue on improving gross margins, offset by highlighted investments in sales organization and G&A.

We expect these investments to lead to significant operating leverage in fiscal '20 and beyond.

We incurred no material or significant tax liabilities in the period.

Turning to balance sheet, cash flow and liquidity. We had approximately $33.9 million of cash and equivalents at December 31, 2019, compared to $35.6 million at the end of fiscal '18. However, our working capital decreased only slightly to $39.4 million at December 31, 2019, from $39.6 million at the end of the same period last year.

The 12 months ended fiscal '19 cash flow from operations was a net use of cash of $2.2 million compared to $300,000 of net cash provided over the same period last year. The net increase in cash used is primarily due to us employing a regional distribution center strategy, resulting in higher initial inventory levels of finished goods and service inventory. We believe these investments are necessary as keeping inventory close to customers results in order fulfillment and freight costs, better execution and higher level of customer service.

I will now provide full year guidance for fiscal '20. For fiscal 2020, we are targeting total revenue in the range of $194 million to $200 million, representing 7% to 10% increase over fiscal 2019. As mentioned earlier, we have considered recent factors as well as the growth trajectories coming out of 2019 in developing this range.

We expect full year '20 non-GAAP gross margin to improve over the full year '19 level, and adjusted EBITDA to be in the range of $6 million to $7 million as we see initial benefits of operating leverage.

With that, I will now turn the call back over to Dave for some closing comments.

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David H. Mowry, Cutera, Inc. - CEO & Director [5]

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Thank you, Fuad. We are really excited and encouraged going into 2020 with momentum in several key areas. Steady execution of our plan is delivering the intended results in revenue growth across our body sculpting portfolio, our international commercial operation and across the recurring revenue streams.

The team has made significant strides in our gross margin performance, with plans in place to steadily improve upon this performance going forward.

And finally, we are moving into a new era of leveraging process and system investments to deliver operating improvements and increased profitability. While we are working through any temporary disruptions, we will remain focused on the long-term goals and objectives of our business, leveraging our vital few initiatives to focus our energies and advance the company toward our vision of shaping the future of energy-based aesthetics and delivering value to our key stakeholders.

Operator, at this time, would you please open the lines for questions?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jon Block with Stifel.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [2]

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Great. Maybe a small handful for me. The revenue guidance of 7% to 10% year-over-year, any color on how that may look U.S. versus international? In other words, international grew at a big premium to the U.S. in 2019. Jason, I think you said flex is first rolling out in international markets, sort of as we speak. So does international outpaced the U.S. growth in 2020 similar to what we saw last year?

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David H. Mowry, Cutera, Inc. - CEO & Director [3]

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Yes, I think that's -- by the way, Jon, thanks for the question. I think that's a fair assessment. Obviously, we took the time to think through this. And a lot of the growth drivers of the business are quite positive. We talked about the body contouring portfolio, and now with the full offering, we expect to be able to offer not just the ID, but the flex in European markets. It launched earlier this month, as Jason indicated, and we're seeing exceptionally strong, obviously, interest in that product. That will continue to roll out into other international markets through the course of the year and make major contributions.

In addition, we see strong execution from our international group, in particular. And I think this is a little bit around, certainly, some of the investments we've made. Jason, I don't know if you want to add any color to that?

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R. Jason Richey, Cutera, Inc. - President [4]

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Yes. No, I think you're thinking about it the right way. Just because #1 of installed base, we're definitely going to see international outpace the U.S. in terms of growth as we continue to layer in additional products. And I mentioned earlier that we're really starting to see some of the investments that we made earlier last year and even at the -- exiting 2018 that are really starting to give us a nice return on that investment.

A couple of other areas where we're seeing some nice growth, too, is in our skincare line, which is distributed in Japan, as well as our consumable business, which we're seeing globally, and also our service component, which is growing at nice double digit at this point in time.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [5]

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Okay, great. Very helpful. And sort of second question, just on the margins, I think the adjusted EBITDA margins were in and around 2.4% for 2019. It seems to imply up 100 bps, so like 3.3-ish in 2020. I guess, the question is, is that so much share between the gross margin and OpEx leverage because you alluded to gross margin expansion?

And then, Dave, just stepping away from that from a moment. If you could talk to just how you view reinvesting in the business? In other words, if you've got some ups, then you're going to redeploy that into the OpEx infrastructure since that part of the balance sheet is pretty strong and [you indeed had] the cash theoretically?

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David H. Mowry, Cutera, Inc. - CEO & Director [6]

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So great questions, John, as always. So first, let me take those in sequence. So when I think first about margin -- gross margin versus operating margin, I think we see a stronger contribution probably in operating margin. We see some leverage on the sales and marketing side, but not a lot. Fundamentally, we just see a little bit that's coming through the natural growth of the top line, right?

We've endeavored to continue to take very good care of our sales organization, in particular, and as such, you'll see the variable comp associated to that has fundamentally not changed year-over-year. So we don't expect to get a lot of leverage out of the sales function on a global basis this year.

However, I think we do see a little bit of leverage on the marketing side, and we see a little bit of leverage coming -- very small amount, perhaps from G&A, in the back half of the year from some of the investments. So most of this is coming out of gross margin. And these investments that we're making below the line are things that, we think, will reap long-term benefit of future leverage as we continue to grow. And these are the infrastructure investments that we've talked about for the last 2 quarters.

To your other question, if we overperform, what do we do? I think this is an R&D engine that, I think, is unrivaled in this space. And fundamentally, I think we have the Board's approval and focus and support in making key R&D investments that accelerate top line growth, and I think you'll see that from us as we go forward. We intend to shape the future of the market in aesthetics. And I think that comes through innovation and introducing new technologies that outpace all of our competitors.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [7]

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Got it. Very helpful. And last one, a quicker one. I just got to ask coronavirus. Just maybe if you could talk about overall exposure, but maybe just from a supply chain perspective, how you guys feel you're comfortable and just update us there?

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David H. Mowry, Cutera, Inc. - CEO & Director [8]

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Yes, I think -- yes, John, it's a great question. And we thought about putting in the script, frankly, and we opted not to only because we see it currently as relatively not material to us currently. That doesn't mean that we're not looking at this thing on a very routine basis. So some of this is the result of where we have strength in market, and what we see the impact in those markets.

From a supply chain basis, we've actually not only looked at our suppliers, we've looked at their suppliers. And unlike some companies that have a strong Asian subcomponent, we have a strong amount of our components that have been sourced in the U.S., and as a result, we have limited exposure there. We are managing some of the Asian subcomponents that serve some of the suppliers we have in the U.S. And right now, we feel we're very comfortably through even the [subsegments]. So as we go forward -- can you still hear me? My line cut out for a second, sorry.

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Jonathan David Block, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Equity Research Analyst [9]

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Yes, you cut out for a second, but I'm still here.

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David H. Mowry, Cutera, Inc. - CEO & Director [10]

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So as we go forward, our supply chain, I think, is -- continues to improve, not only in its performance, but it's depth and control that we haven't had. So I feel very good about it from that perspective.

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Operator [11]

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(Operator Instructions) Our next question comes from the line of Anthony Vendetti with Maxim Group.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [12]

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First, just as a financial question. I think, Dave, you said on the call, recurring revenues include 3 things, global service contracts, which are your maintenance contracts, consumables. I missed the third piece?

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David H. Mowry, Cutera, Inc. - CEO & Director [13]

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It's skincare. The skincare line that we distribute out to Japan.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [14]

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Right. Right. Just out of curiosity, the skincare line, as a percent of total revenues, it's what percent, just a couple of percent, right?

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David H. Mowry, Cutera, Inc. - CEO & Director [15]

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Yes, it's a relatively small percent. I think total recurring revenues are kind of in the upper 20s percent, and that's a smaller even component of that. So roughly, it's 4%, 5%, I think, of total revenues. So it's not significantly material from that perspective. But what it's -- really important for us is it allows us to make key investments in the Japanese sales structure that have allowed us to have great uptake on systems as well as service. So we look at it as an opportunity to kind of spread the overhead, if you will, and have a stronger presence in that market, and we've been able to leverage that presence, I think, pretty effectively.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [16]

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Okay. Yes, that's helpful. And then the majority of that, let's say, let's call it 27% to 29% of recurring revenues, are your global service maintenance contracts that probably makes up right around 20%, 18% to 20%. So the onetime consumables is about 5% or 6%. Is that about right?

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David H. Mowry, Cutera, Inc. - CEO & Director [17]

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Yes. And we break that out on the sheets. You can see that. You're in the right ballpark there. But I think what's interesting is, that component is what grew 134% year-over-year. So we see that as probably being one of the fastest-growing segments in our business. And while it represents a relatively small component, it's the component that's going to carry us over the next few years up into those 40% of revenue being recurring revenue.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [18]

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And could you just talk about the truSculpt flex, particularly that business model? Obviously -- based on your comments, that's obviously the fastest-growing segment of this truSculpt portfolio. Can you talk about the price point on an ASP standpoint for this system and then the consumable piece there?

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David H. Mowry, Cutera, Inc. - CEO & Director [19]

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Yes. I'm going to tee that up, and then I'm going to have Jason kind of bring that home. The way I look at it -- first of all, it's the fastest-growing because it's the newest segment, right? So I don't want to have it overshadow the exceptionally strong view we have around truSculpt ID, which is still receiving very, very positive customer sentiment. And when you do your channel checks, as I'm sure you do, you get a lot of favorable response from our current users. So our view of it is that ID is an equally strong component of that portfolio.

And the flex, while it's new and novel, complements ID and gives us probably the faster-growing component because that's a new segment to the market.

Jason, I mean you...

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R. Jason Richey, Cutera, Inc. - President [20]

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Yes. No, I think it's a great question, Anthony. We don't really break out ASPs by product. What I would tell you is that we're still in the 6-figure range on our muscle sculpting technology. And I'm really happy with the way we went about delivering this piece of technology to really complement the body's vertical that we're in with truSculpt ID. And I mentioned earlier in the call that clinicians using these together have been able to really deliver some fantastic results for their patients. And so it's a nice complementary piece.

When it comes to the consumable that goes with that, we're really focused on a procedure-related revenue, which is a little bit of a shift from what we've done with some of our other devices, where it's been a consumable per treatment. This is more of a procedure-related consumable piece. But it's still something that, I think, is really complementary to the consumable strategy that we have, and it's still putting us in that high double to low-triple-digit growth perspective.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [21]

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Okay. And then just shifting gears a little bit, but maybe, Jason, just -- you can probably answer. So from what I understand, right? So since the Head of Sales departed with a few salespeople, Jason, you're, right now, heading the Sales Division. Is there -- is that a long-term plan? Or are you looking for a new Head of Sales? And then as a follow-up to that, how many of the salespeople that departed in January have you replaced at this point?

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R. Jason Richey, Cutera, Inc. - President [22]

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Yes, a couple of things. Number one, no, I'm not leading the commercial team. I'm actually working very closely with them. We have an Interim Vice President of Sales, who was our former National Sales Director, who stepped into the role. This is a very important position. So we have engaged a formal process of sourcing this individual. We have a couple of internal candidates that have expressed deep interest for the position. But based on the importance of this position, we're looking internally as well as looking externally to see what is available.

In terms of what we're looking for, we're really trying to evaluate externally if there's people that have a strong industry experience in the aesthetics and energy-based market. And we want to make sure that if we are able to find somebody that has that type of experience, that they're aligned with our long-term value strategy. So it's an important role.

And what I'd tell you is, right now, we've got a structure in place that is -- I'm really impressed with the agility that the team has demonstrated in order to quickly ramp to this, and we're in the process of executing a full formal search, both internally and externally to find that candidate. Dave, anything you want to add to that?

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David H. Mowry, Cutera, Inc. - CEO & Director [23]

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Yes. I think as you think about this, what's really been kind of interesting to us is, frankly, our ability to backfill. It's been very interesting to see the number of competitive reps that have reached out to us with the openings. And without naming names or companies, I'll tell you that we've actually had several last year award winners from competitors reach out to us for some of the vacancies as they like the portfolio, they like the technology and they know what's coming through our development program. So we've been pleased with the speed at which the company has reacted.

I think, frankly, it's hard not to be disappointed in some regards, but I also view this as an opportunity for us to continue to upgrade the total team. And some of the great players that we have with us and are still with us are really amazing folks. And this has created an opportunity for some of them to step up into bigger roles and have greater impact in this organization. So while it's disruptive in the short term, I think this is going to play out very favorably for us in the long term. And we got the growth drivers of both international and the recurring revenue streams to help kind of tide us through, and hence, the guidance we provided.

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Anthony V. Vendetti, Maxim Group LLC, Research Division - Executive MD of Research & Senior Healthcare Analyst [24]

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Okay. Yes, but just as a follow-up, just in terms of -- did people step up internally for the territories, not just for the Head of Sales, right, but for the territories that also lost salespeople? Have people stepped up internally? Or have you already been able to hire some of those people that have left?

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R. Jason Richey, Cutera, Inc. - President [25]

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Yes, the short answer is yes and yes. We've -- this has created an opportunity to really look deep within the organization, and we've been really excited with the people that have raised their hands, that wanted to move into leadership positions. And so we have had a chance to promote from within on many levels. And we've also, to Dave's point, had a chance to look outside of the organization and have found some really unique and qualified people, too, that are interested in joining the company based off of the pipeline, based off of the structure and based off of the future of where we're going. So I've been really pleased with both -- on both fronts.

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Operator [26]

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There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

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David H. Mowry, Cutera, Inc. - CEO & Director [27]

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Thank you, operator. I just want to thank everybody for joining the call today. I'm very excited about where this company is heading. I think we have alignment, focus and energy and a full commitment to great excellence here.

So with that, we'll end the call, and just say thank you for all of you joining us and your support for our long-term outcomes. Thank you.

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Operator [28]

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Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation, you may disconnect your lines at this time, and have a wonderful day.