Q4 2023 Cutera Inc Earnings Call
Participants
Greg Barker; Vice President - Corporate FP&A, Investor Relations; Cutera Inc
Taylor Harris; Chief Executive Officer; Cutera Inc
Stuart Drummond; Interim Chief Financial Officer; Cutera Inc
George Sellers; Analyst; Stephens Inc.
Joe Federico; Analyst; Stifel Financial Corp.
Margaret Kaczor; Analyst; William Blair & Company
Anthony Vendetti; Analyst; Maxim Group LLC.
Jennie Tsai; Analyst; Gabelli Funds
Presentation
Operator
Thank you for standing by this is the conference operator and welcome to the Cutera, Inc. fourth quarter 2023 Results Conferce 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 will now turn the call 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 forward looking statements. These forward looking 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. 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 management's good faith belief as of that time with respect to future events, 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 or 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 Q subsequently filed. Cutera also cautions you not to place undue reliance on forward-looking statements, which speak only as of the date they are made. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances or to reflect 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 basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into care to Tower'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 an alternative to the operating performance measures prescribed by GAAP.
With that, it is my pleasure to turn the call over to our CEO, Taylor Harris.
Taylor Harris
Thank you, Greg. Good afternoon, and welcome to Cutera's Fourth Quarter 2023 earnings call. I'll provide some summary comments regarding our fourth quarter financial results and then highlight our areas of focus and excitement for 2024. But first, I want to thank the whole team at Cutera who've been performing so admirably of this challenging set of circumstances because of our team's focus and dedication, we finished 2023 with fourth quarter results that were better than we had anticipated, both for revenue and cash burn.
We've also been working hard to resolve a number of time-consuming projects, including the transition of our distributed skincare line in Japan as well as bringing our manufacturing are the clear and X of A. plus back in house. So there we can now turn our attention more fully to the future. And on that note, over the past few months, we have introduced a new corporate brand tag line vision, mission statement and set of core talent views. Our mission is to improve lives through medical aesthetic technologies that are driven by science and powered through partnership. This mission both unites us as a team, and it energizes us because of the ability we have by supporting our customers to see the life-changing impact that our technologies and service can have on people on a daily basis.
What I guess that is we've also redefined our core values, which you can remember through an acronym that is well suited for Cutera, Quico passion, innovation, communication and ownership teams from across Cutera will be involved with each of these values to keep some visible and deriving. So you can start to see how we at Cutera are bringing a new energy two aesthetics. In the fourth quarter, we saw more of a stabilization in our business than we had anticipated as part of our guidance.
Our international business, in fact, improved sequentially from Q3 to Q4, while our North American business experienced a sequential decline, albeit more modest than we had expected, our nuclear revenue was stable from Q3 to Q4, with some capital revenue from the limited commercial release of our enhanced product offering, offsetting a continued decline in treatment revenue. The primary reason for this procedural softness has been a decrease in the number of contributing systems, which were less than 50% of the installed base during the fourth quarter.
As we've mentioned, there are a number of accounts at which I'll be clear, likely won't remain, and we've seen many of these accounts go dormant, however, and of critical importance were also identifying the success factors for building a healthy RV clear franchise.
On average utilization rates at dermatology practices are approximately 50% higher than other specialties and a disproportionate percentage of our most successful accounts are dermatologists beyond practice type, though, key determinants for success are having a physician on-site at the practice, having the entire office staff trained on IV clear and on how to select patients communicate with them and set expectations as well as having active patient flow and a willingness to invest in building awareness. All of these best practices, coupled with our new business model are at the center of our efforts in 2024, which I'll speak to later.
Another key item from our Q4 results that I would like to have to address is gross margin throughout 2020 30, our gross margin was depressed due to reduced volumes, the array of company-specific operational issues that we've highlighted previously, and a high level of inventory reserves. In the fourth quarter alone, we took approximately $8 million of excess and obsolete inventory reserves. Note that we are not scrapping this inventory and we'll attempt to utilize it over time, but the appropriate accounting treatment is to put reserves in place given the excess position we have, particularly of RV clear, adjusting for these reserves as well as our other non-GAAP items.
Our normalized gross margin was around 37% in Q4, a comparable normalized measure in Q3 would have been approximately 30%. These are well below historical levels, and we are squarely focused on efficiency initiatives that should improve our cost position and gross margin profile over time beginning in 2024.
Turning to 2024, our team is excited about this new year. We remain focused on the same three critical priorities that we've discussed on our previous quarterly calls, returning to operational excellence, building a global RV clear franchise and driving toward long-term profitability. We are making strides in each of these areas. First, operational excellence, our Chief Operating Officer, Geoff Jones and his team in just a few months, have made progress in the five key areas that we identified last year, product reliability, field service, inventory control, supply, demand planning and cost of operations.
We are on track to remediate the most critical elements of these issues by the middle of 2024 with ongoing improvement opportunities beyond that point, particularly in the area of cost control, product reliability performance improved in Q4 and we have a dedicated team in place that is methodically identifying further opportunities so that we expect a continuation of the favorable trend that we saw late last year in the area of field service. We saw a dramatic improvement in our North American service levels in the back half of last year, wiping away most of the backlog of open cases and reducing response times for new service calls for 2024.
The field service team is focused on elevating response time performance to levels above industry standard as well as rolling out best practices across our international regions so that we have fit so that we achieve the same level of service quality across the globe. This team has started to attract great engineers from across the industry when roles open showing the power of a culture of ongoing improvement and the momentum that can build quickly. This bodes well for our plans for Cutera to be recognized as industry leading both in technology and through our service and support.
In terms of inventory management, where we experienced significant challenges last year, we ended on a high note with our year end. Physical inventory count proceeding much faster than at year end 2022. And with no count related issues identified in the audit, we've assembled a materials control team, which has implemented daily reviews to ensure that inventory movements are being transacted appropriately. We've also opened our own warehouse, which allows us to consolidate more expensive third party warehouses with better control while also providing room for the significant amount of RP clear and XLV. plus inventory that we will be bringing in from Jabil.
On the planning front, we've introduced a new process in Q4 to better match supply and demand. As a reminder, we had too much inventory in certain areas, most notably RV, clear and too little in other areas. We are still building inventory in the first half of the year due to purchase commitments and the need to remediate shortages of certain key components. But after that, we should begin working down inventory, creating a cash tailwind for the company.
On the cost front, we've implemented key processes for repairing and reusing components as well as checking the quality of purchased materials and rejecting those that aren't usable. We've also reviewed vendors for certain key components in an effort to reduce scrap rates, and we're now producing all of a clear and XLV. plus in house, thereby better leveraging our fixed overhead expense while at the same time improving quality. The operations team has also implemented new controls and processes around shipping, which has already begun to reduce freight expense.
Our second key priority is growing the RV clear franchise in international markets. We commenced a limited commercial release phase at the MCAS. meeting in February, and we have had highly favorable feedback from the first wave of new RV clear customers. And in North America, during the first quarter, we broadened the availability of our enhanced RV clear offering, which provides greater flexibility and simplicity. The new business model offers the option to purchase the device upfront with a corresponding reduction in ongoing treatment costs to the practitioner, along with greater business model flexibility.
We are offering a hardware and software upgrade that simplifies the user experience, improved product reliability and move billing from a per patient model to paying for individual treatment cycles. Our primary focus with all the player in all geographies is on partnering with our customers to build franchises with healthy utilization. We believe a few challenges limited utilization in 2023, each of which we plan to address this year.
On the service front, we've already made significant progress, and we have hardware and software updates, but address the majority of the issues that customers have seen since launch.
On the clinical front, we have strengthened our clinical protocols through a consensus white paper from leading dermatologists this was recently published in the dermatology digest and serves as a basis for ongoing practice training. We've also brought on board a new medical liaisons to help respond to customer questions and make connections to our nuclear KOL Centers of Excellence if needed, unless perhaps most important, we are currently finalizing our plans for future Academy, a two day university style training program that will launch at the end of April.
In addition to providing clinical education to care, Academy is an important component of our overall effort to help customers build and grow their RV clear practices to this thing. And we've also introduced an enhanced cooperative marketing program, which provides rising levels of rewards benefits, including matching funds for co-branded marketing programs to customers who purchase Terra consumables.
Customers can use these funds through a simple white-glove service provider on digital March marketing tactics that are proven the most effective at driving patient conversion from a financial return perspective, our new business model allows customers to achieve an even higher return on their investments as utilization grows and with our new programmatic support options, coupled with our key account manager team, we're providing the tools to help achieve this growth.
Lastly, on RV clear, as the pioneer of this technology, we are committed to ongoing clinical research, not only within the field of acne, but also in potential expanded indications during 2024. In partnership with leading researchers, we plan to conduct pilot studies on the use of IV clear in both sebaceous hyperplasia and Hydra at night, a super Achiever, both of which are conditions associated with the sebaceous gland.
These are areas of unmet clinical need affecting meaningful numbers of individuals and there's clear interest within the dermatology community in a novel treatment approach. Like RV clear, during the second quarter, we will host an investor webinar to reintroduce RP clear from a scientific foundation to its clinical data profile in the treatment of acne. And with potential extensibility into these new indications of use, we'll send a save-the-date in the weeks to come.
Our third and final priority is the drive toward profitability. Everything we've covered regarding operational excellence and growth of the RB clear franchise should contribute meaningfully to our path to profitability. In addition, though, we need to manage our cost structure in a disciplined fashion while also making prudent investments to drive growth.
On the cost structure front, we have now almost completed the global restructuring program that we initiated in Q4 2023, which has reduced headcount by close to 25%. This reduction should lead to personnel related savings of over $20 million on an annualized basis. Partially offsetting these savings, though, will be an increased level of incentive compensation in 2024, assuming that we hit our corporate targets as well as some selective new investments. We do, for example, plan to increase the footprint of our North American field organization with both capital reps and key account managers. We also continue to invest in new product development, and we plan to launch a refreshed product platform later this year. All of this contributes to our excitement regarding 2024 and beyond. Every team in the company has a critical role to play in achieving these objectives. And together, we're going to make it happen.
I'll now turn it over to Stuart to provide more detail on Q4 and our guidance for 2020 for.
Stuart Drummond
Thank you, Taylor. This afternoon, I will discuss our Q4 GAAP results as well as some non-GAAP results. A reconciliation of GAAP to non-GAAP gross margin and operating loss is included in our earnings release.
Total revenue for the fourth quarter was $49.5 million compared to $67.4 million for the same period in 2022 and compared to $46.5 million in Q3 of 2023. Our Q4 revenue compared favorably to Q3 2023, increasing by $3.1 million, mainly due to strong capital equipment sales in our international markets as well as strength in skin care. The $17.8 million or 26% decrease from the fourth quarter of 2022 was due mainly to a $14 million decline in capital equipment revenue.
This decrease in capital equipment revenue resulted from continued macroeconomic pressures and a challenging financing environment, particularly for our North American customers. We clear revenue for the fourth quarter of 2023 was $3.9 million and our 10-Q for the September quarter, we announced that we were no longer considering. I'll be clear as a separate reporting segment following a clear business model change and corporate restructuring and accordingly, we have included Abbey, clear lease fees and direct sales as part of systems revenue.
And I'll be clear treatment revenue as reported in consumables, revenue comparative periods have been adjusted accordingly, non-GAAP gross profit for the fourth quarter of 2023 was $9.9 million with a gross margin rate of 20% compared to a gross margin rate of 59.4% for the fourth quarter of 2022. The primary driver of this 39 percentage point decrease as a 19 percentage point impact from the increase in our reserve for excess inventory, reflecting the decline in our capital equipment sales forecasts and a provision for Evoclin materials and finished goods.
Other contributors to this gross margin decrease include an approximate 10 percentage point impact from lower manufacturing and sales volume as well as inventory variances identified through our annual physical count and write-offs of demo equipment and skin care product non-GAAP operating expenses for the third quarter of 2023 with $36 million compared to $39.7 million for the same period last year. This $3.7 million decrease mainly reflects personnel savings resulting from the restructuring we announced in November 2023, as well as lower sales commissions for the fourth quarter of 2023, we incurred a non-GAAP operating loss of $26.1 million compared to an operating income of $0.2 million in the prior year period. And a loss of $28.7 million in the third quarter of 2023.
Turning to our balance sheet. We ended the quarter with $143.6 million of cash and cash equivalents compared to $179.5 million at September 30th, 2023. This $36 million quarterly sequential decrease was primarily driven by our net loss after adding back non-cash items of $28 million and other working capital changes in our 10 Q for the September quarter filed on March 6th of this year, we disclosed that a change in our clear strategy from a lease model to a direct sales model would result in the reclassification from property plant and equipment to inventories of all other clear devices that had not been leased as well as our nuclear power. Accordingly, the adequacy of inventory materials net of reserves has been recorded as long-term Inventories at December 31st, 2023.
Before we open the call for questions, I would like to provide you with our outlook for 2024. We are issuing revenue guidance of $160 million to $170 million, including $4 million of skin care revenue earned through the transition in the first quarter. We expect to continue to consume cash more heavily weighted towards the first half of 2024 as we close out certain supply chain obligations, primarily related to our nuclear. Our expected cash and cash equivalents balance at December 31st, 2024 is in the range of $55 million to $60 million.
Operator, we are now ready to begin the question-and-answer session.
Question and Answer Session
Operator
George sellers of Stephens.
George Sellers
Hey, good afternoon and thanks for taking the question. Maybe just to start on guidance could you just parse out what that revenue guidance assumes from a systems consumable and then also have a clear contribution throughout the year?
Taylor Harris
Thanks. Sure. Hey, George. Good to hear from you. So as we just a couple of thoughts on our revenue guidance, as we looked at 2024, we were assuming that we have a similar macroeconomic backdrop as what we faced in the second half and particularly the fourth quarter of last year. And as you saw in our results in the second half of last year, we did have more of more pressure on the capital equipment portion of our business than in other parts. And so we've assumed that where we were exiting 2023 is where things pick up in 2024 on capital up for a couple of specifics for skin care, we're assuming $4 million of revenue.
That's what's embedded in our range, and that's what we recorded in the months of January and February, and we've now transitioned to that business. So there's no more skin care revenue in aggregate, we would have some our systems and our consumables slightly down year over year on a full year basis from 2023 to 2024. And that's because we have tough comps in the first half of the year. We are assuming as we move through the year that we perform better and that as we disseminate more best practices with, I'll be clear and training that we're going to start to see a pickup sequentially in our RV clear business.
George Sellers
Okay. That's really helpful. I appreciate that color. And then maybe and on the cash burn piece of it, you mentioned a few puts and takes with inventory building in the first half of the year, but there's also some cost saves. How should we think about just the cadence and the progression of cash burn. Is there sort of a step function improvement we should expect in the second half of this year? Or how should we be thinking about that cash position specifically Yes, you're absolutely right, George.
Taylor Harris
So the burn that we're anticipating in 2024, about 70% of it should be incurred in the first half of the year. And that will be more heavily weighted toward the first quarter. And the reason for that, as we've talked about in the back half of last year is we still have purchase commitments related to inventory, particularly with RV clear. And we've gotten a fair amount of that behind this with by wrapping up our agreement with Jabil. So in the first quarter, a lot of that is occurring. In fact, Q1 burn will probably be a little higher than we had in Q4.
But these are working capital movements and we'll still have some of that in the second quarter. But by the second half of the year, we should be in a much more favorable position with respect to our burn profile. And in fact, we should have inventory at a level that we're able to start working it down and having that become a source of cash for us offsetting some of the other elements of burn.
Greg Barker
Okay, great.
George Sellers
That's really helpful. Thank you for the time.
Operator
Jon Block, Stifel.
Joe Federico
Hey, guys, this is Joe Federico on for John. Thanks for taking the questions. And I guess just to start maybe on I'll be clear revenue stable sequentially, but it included that lower procedural revenue. I was just curious maybe what the thought was for the recurring revenue aspect to kind of turn the corner. Are some of those unproductive unproductive productive accounts that you mentioned that are already dormant? Is there more to come on? And then I also just wanted to ask if there were any learnings maybe from the early international launch of be clear so far?
Taylor Harris
Sure, thanks, Joe. So yes, let's start with, I'll be clear procedures, you're absolutely right that the primary factor affecting our procedure base without a clear, has just been that we went to a large number of accounts early in the launch, it was well over 1,200 and many of those. They may have tried RB clear, but have decided that it's probably not going to be a an ongoing part of their their practice where they're still evaluating. So in by the fourth quarter, we had approximately 55% of the account base that did not do a procedure. So that's what caused the procedure slowdown as we moved from the initial launch phase into the second half of last year, Q3 and Q4.
So what we're doing right now, we're in a period as we're going back out to market and having conversations with these with accounts who have are the clear of really helping diagnose well, what some of the learnings and what some of the challenges are.
And I think the good news is that we're not hearing anything that's surprising to us. And in fact, we hear from a lot of accounts that they want to be in the business of treating acne and they want to make all the clear work, but they need our help in that. So that's exactly what we're doing. And a lot of what I talked about in my prepared remarks is what are our initiatives that we're kicking off here.
We've already kicked much of it off in Q1 some to come in Q2, what are we doing to help support growth of utilization across the RV clear account base. And so I think there are a number of accounts who are taking some time to are trying to make that work. And that's that that's the good news, but it will take some time for us to work with the account base to help identify the ones that are going to commit to be clear and then start rebuilding that procedure base.
International learnings are that it's great to start a launch in market in a disciplined methodical way, and that's exactly what we're doing internationally. So we are now in approximately 10 markets outside of the US, our outside of North America, and we are in most of these markets, one, maybe two KOL centers, and there's been a lot of enthusiasm for the technology.
There are other offices, other practices who have absolutely expressed interest in becoming an RV ClearSight, but we're taking our time and we're making sure we support the initial wave of customers so that they can get great outcomes and they can become champions for the product. So I think the learnings internationally are that so far and it is early. It's just showing us that when we do it right and partner with a with great R&D, clear accounts, we can build successful obviously our practices.
Joe Federico
Okay. Great. That's that's really helpful. And then maybe just a quick follow-up. I know you had mentioned the expanded indications for I'll be clear. I wanted to ask maybe about just new products in the core business. Are there any introductions planned for this year?
I think awhile back. We had heard about maybe some existing system refreshers. Could we see that this year or is that more about 2025? Thank you.
Taylor Harris
Sure. Yes, we are planning on new product introduction and it is a refresh of one of our successful product lines. And so we're excited about that. We're not ready to talk specific, but we are currently on track around and maybe even before the midyear timeframe to bring that to market. So that will be first and our product development team is working on on other initiatives in the background. But those are not 2024 events.
Joe Federico
Okay, great. Thank you.
Operator
Margaret Kaczor, William Blair.
Margaret Kaczor
Hey, guys, good afternoon. Thanks for taking the question and I wanted to maybe start with the cash burn cash position at year-end. And then just trying to do the math on my end and even if I assume kind of 30% of the burn for the second half of 2024. I think it still gets me maybe there's kind of a $26 million burn in the second half so and I annualize that out of $52 million and push that into 2025. And then there's still to put this business into cash dynamic there. And so how do we think about that? And as we think about 2025 inventory big, maybe a tailwind and a cash generator, could that be $10 million plus is just getting some sense of how 2020 looks like as well? Thank you.
Taylor Harris
Sure. Thanks, Margaret. So yes, we're obviously not ready to give specific 2025 guidance, but you're you're in the ballpark as we as we get into the second half of 2024. And that's obviously a much favorable position from a cash burn perspective to what we experienced in 2023 and to where we'll be in the in the first half of 2024. And then as you think about launch launching off point into 2025 and beyond the what we're working on is building and RV clear franchise that would have a higher margin, it consumable stream associated with it. And so to the extent that we're successful with our initiatives as we build momentum through 2024, that should help us as we go into 2025.
And I'd say similarly on the gross margin front, that's an area of high focus for us. We're planning on improvements in 2024, but we still won't be back to levels that the company had achieved in previous years. And so we're not stopping with where we're going to be in 2024, even in the second half of 2024.
And then the last comment, I would I would make in terms of trajectory. We're obviously not assuming any improvement in the macro backdrop here in 2024, and we're hopeful on that front. But we're not going to plan for it. But the further into the future that we get, we would assume that conditions can start to normalize and we can have a more favorable environment. That's, of course, speculative. Like I said, it's not built into the way we're planning for this year. So those are just a few thoughts on that kind of give us optimism in the overall trajectory.
Margaret Kaczor
Okay. Appreciate that. And then I guess a different way of looking at guidance does seem like the guidance is achievable based on in historical sequential progression and so on. And off of a depressed number. It's not out of the second half of '23, but maybe a different way of looking at it is also kind of looking at estimated rep productivity apps. So we don't have those numbers, but we know there was a reduction in force from a from a rep perspective last year.
What are you saying add, Neil, in terms of reps and spending productivity metrics since then? And then if you can just give us some context for what's best and take them excuse me, for 2024 guidance on rep productivity versus either last year or whatever you'd like to look at? Thank you.
Taylor Harris
So we we have seen relatively consistent over time rep productivity and that I would make that comment for last year now, we obviously have we did do a reduction in force because we were seeing that it was just a more challenging environment. So I think if we had kept the same number of reps. We would not have seen the same level of rep productivity. So we've tried to rightsize the organization based on the conditions on the ground. As we've looked at 2024, though, we were entering the year with or we're currently here in the first quarter in the low 40s in terms of our capital field organization and we're in the mid to upper 10s in terms of our CAM organization.
And we do have plans to increase those those numbers that field team force both on the capital and the CAM front. So our budget and guidance do assume that we're adding reps, we factored in the operating expense associated with that. So we've got room to add 15 or more reps on the capital equipment front. And we're planning on getting to about 25 in our Campbell organization. And so that's and that's part of the guidance and it is also part of the reason that we would expect it sequentially to be stronger as we're as we get to the back half of the year relative to the first half of the year. And that also gives us confidence in what we were talking about previously.
To your question, Margaret, about trajectory as we're heading out of 2024 and then the last comment, I'd say, especially on the CAM front, we think that number getting into the mid 20s based on where we're at right now or where we expect our RV clear installed base to be this year. We think that's a good coverage level that's going to allow us two to support well, the RV, clear customers who commit to growing their overall utilization.
George Sellers
Okay, terrific. Really appreciate accounting effect.
Taylor Harris
Sure.
Operator
Anthony Vendetti, Maxim Group.
Anthony Vendetti
So it's George. Just wondering, Taylor, if you could just talk about the transition from home from cable over to your in house, how long is that going to take to transitionary setup to start manufacturing, Excel V? And now I'll be clear? Or is that going to be a couple of months process or so?
Taylor Harris
Thanks, Anthony. Yes, so good news is we have already made that transition from a manufacturing perspective. In fact, we we never fully shut down our capability with those product lines. So we were although the plan had been to fully transition, but we retain the capability and we've been able to ramp that back up. So the main transition now is simply going to be bringing back the inventory that Jabil had purchased. So we had to purchase that and then we're going to restock our warehouses. That's going to be a it's a big project for our distribution organization. But from a production line perspective, we're in good shape already.
Anthony Vendetti
Okay. And then just looking at international sales, obviously, it's always been a big portion from mostly in most cases, a majority of the revenues. Is it going to be as you move into '24 as far as you can tell about 55% or so of your revenue and if it's going to change on how come or how do you look at it for '24?
Taylor Harris
So for 2024 the big change is the our skin care business, which was Japan exclusively, it is now gone, and that was a distributed lower margin district distributed product line. And so we will only have $4 million of skin care revenue this year compared to something in the mid 30s in 20 and 2030. So that will bring down the percent contribution from international. And then otherwise, we have similar dynamics in North America and international in terms of the market backdrop, and we are launching. I'll be clear for the first time in international. And so that's creating some new enthusiasm and which is which is great for the organization. But I think if you adjust for the skin care, you're you'll get to the right ballpark.
Anthony Vendetti
Okay. And then just in terms of international, the direct and indirect or direct and distributors, any changed any change for that in '24?
Taylor Harris
No, we're we're in similar a similar position in 2024. We we have direct businesses in some of the major markets in Europe as well as in Japan and Australia. And in other areas, we're working through distributors. And so by and large, that's the same as we transition from '23 to '24.
Anthony Vendetti
Okay, great. Thanks so much topic, and I appreciate it.
Taylor Harris
Thanks, Anthony.
Operator
Matthew O'Brien, Piper Sandler.
Hi, this is [Samantha] on for Matt. Thank you for taking our question, I guess to start off with them, but I'll be clear on. Could you talk to us about the progress at how bandwidth and how many of these systems particularly, I guess the dormant ones have made it back from the field and I guess you just that more details on?
Taylor Harris
Hi, Samantha. Yes, sure. Happy to address that. So at year end, we had an installed base of about 1,200 machines, 1,200 machines. So we've been out it's been great to be out and having conversations we've had with our installed base about RV clear. And as I referenced earlier, what's been interesting is that there there are a lot of accounts that are what I want to make are the clear work. And so even though we've had a significant number who didn't do a procedure in the fourth quarter or in the third quarter, there have only been 125 so far that have been returned. Now.
We do have a list of another 175 that will be returned just so that's 300 total out of the 1,200 others, even if they and a procedure were very low volume, we think that many of them likely will end up returning, but some of them are taking a wait-and-see approach. And so that's that's the nature of the conversations. I think that that that plays well for us and because we're ramping up our support initiatives for for our customers through Q1 and Q2.
Now on the other hand, we've rolled out a new business model and that involves a capital purchase of the machine. And I think people are also taking their time to assess well, are they ready to purchase? Do they want to purchase or are they comfortable with the lease model for or do they want to return the machine. So it's going to take a few quarters for this to play out. But the key it really all comes back to can we alongside our customers identify the pathway for them to integrate our nuclear successfully and make it a solid part of their business. And so and that's what that's exactly what we're focused on here in the first half of the year, and we're feeling good about the conversations as well as our plans. I think our plans are on target with what we're hearing the Express MD need from the customer base.
That's great. Thank you so much. And I guess just one more follow up. I know this year doesn't expect any improvement in the macro environment. I guess given that are you what are you hearing from physicians on whether they they do like the purchase model versus the rental model for those? And for those centers that already have?
Taylor Harris
Well, I think that in general, accounts are more familiar with the purchase model and for sure and over time, if they are able to ramp utilization, that it makes a lot of sense for them and they get that and there there are some it's this is not a universal sentiment. There are some who think that the actually the rental model was innovative and maybe that works for them. So this is not all or nothing, but I'd say the majority would express express a preference for the purchase model.
However, they are the big question for them, especially for the ones who have been very low utilizers is say what's it going to take for me to make this a real part of my overall practice. And so that's why while the business model, I'd say is important and it's a necessary part of long-term success is most important right now that we're working hand-in-hand with the customers to help them figure out how to integrate RV clear and grow utilization. So that's what we're focused on primarily.
Got it. Thank you so much.
Operator
Jenny Sykes, Gabelli Fund.
Jennie Tsai
I think for taking my questions, what are your thoughts or plans to address the maturities on the converts that are coming and 2026 and beyond.
Taylor Harris
Hey, Jenny, good to hear from you. So yes, we just to speak for a few minutes about our convertible debt. We have three tranches of convertible debt. The first one is about two years away. That's March of 2026. And then the others are 2028 and 2029. And the 2026 is the is the smallest. It's about $70 million of face value. So we don't have specific plans right now where we're focused primarily on running the business and all the priorities I talked about on the call, but we do want to address our capital structure and we believe that we'll have options to do that. And so yes, I think that's something that we will be working on, especially after we get our all of these important are the clear initiatives well underway.
Jennie Tsai
Great. Thanks for the update.
Taylor Harris
Thanks, Jennie.
Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Taylor Harris for closing remarks.
Taylor Harris
Great. Thank you. And in closing, I'll just reiterate our excitement for our mission and the opportunity that we have to deliver on these priorities, operational excellence, building a global franchise with RB clear and bringing new energy to aesthetics. So thanks to the Cutera team for your passion and dedication, and thanks, everybody, for joining us today. Have a great evening.
Operator
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
