We're gonna go ahead and kick things off with the next fireside chat of the day. With us is Cutera. Representing the company, we have Taylor Harris, the CEO, and Greg Barker, VP, FP&A and IR. Thank you both for being here. Thank you. Thank you. Thanks for having us. Before we get into some more specific questions, I think a good way to start would be to maybe level set, expectations for, for this discussion. Maybe if you could, Taylor, go through some of the recent history of the company. You took over as CEO this summer. Maybe talk about what attracted you to that role, and then, from a high level, some of your strategic priorities. Great. Okay. Well, thanks, everybody, for being with us. I would just also start by saying we probably are gonna make some forward-looking statements, and so I'll refer you to our filings for the risks and uncertainties associated with those. But I'm excited to talk about Cutera and where we're going. And so just a little bit of background on the company before we go into the recent history and priorities. Cutera was founded 25 years ago by engineers with a focus on laser-based energy devices for the medical aesthetics market. And so we make pieces of equipment, capital equipment that is used to treat conditions of the skin, as well as the body contouring market. And so think of anything from treatment of scars or spots or vascular issues, to skin tightening, skin revitalization, and then we have a body contouring couple of devices that treat pockets of unwanted fat, stubborn fat, as well as we have a muscle toning device. So pretty broad portfolio of devices- Yeah ... for the treatment of aesthetic conditions. Most recently, we have launched a novel device, first-in-market device, for the treatment of acne. And so this actually takes us further on our journey with patients and skin conditions, and also more into a category of real medical need. So we'll talk more for sure about that device called AviClear, because we think that it is a really good growth opportunity and a really important new treatment modality. In the very recent, just over the last couple of years' history, we launched AviClear. The company launched AviClear and had some challenges associated with that launch. And I think that if I were to bucket, umbrella, what the challenges were, the business model strategy approach was to go, really broad, and with a low cost of entry for customers, but with a higher cost of utilizing the device downstream. And we really flooded the engines at the company in the process of doing that. So we got, and kudos to the team for being able to do this, 1,250 devices into the field in a very short period of time, which for a relatively small company is not a small feat. But a couple of challenges arose in the process. One was that for a variety of reasons, we didn't see the utilization across those machines that had been expected. And then the second is because of the torrent of activity, we started to develop some operational challenges, some cracks, just because I think of the speed and the volume of activity. Yeah. So that led to some. So performance wasn't what it was expected. There was management and board turnover earlier this year, and then I came in in early August, and since then, we have been, we've started the process of rebuilding what we think can be a great franchise and has been, in AviClear- Mm-hmm ... and what has been a great franchise company in Cutera. So, let me just, I think you also asked about priorities. Yeah. I'll, I'll touch on that at a high level, and then we can certainly go more into detail. Perfect. You know, my view is that we've got a great chassis here to build on at Cutera, and that's what had attracted me to the company. I've always heard that Cutera had great products, and I have continued to hear that in my interactions with customers. So Cutera is known for high quality, the best engineering, great products, and so that's something you can build off of. We've also got a lot of people at the company who are excellent and are committed, and who have a good legacy of knowledge and experience at the company. So you've got a team that really wants to see Cutera succeed. So with people and with technology, and then with a, an exciting new product opportunity in AviClear, where, I do not believe that there is a clinical or, you know, problem with the technology. I think there's been a problem with the execution and the strategic direction. Those are things that can be fixed, and so that, that's what drew me to the company.... and then priorities are, hey, let's, let's return to operational excellence. That's number one, and we can go, we can go into a lot of detail there. Number two is, let's, come back to market with an enhanced AviClear offering, one that's gonna delight our customers and one that's gonna allow this therapy to get, to, to make it to, a lot of patients who need something other than a systemic-based, you know, drug therapy. There is a hunger for an alternative. We think we've got it. And then the third is, hey, we have to adjust to the market environment that we are in, which is a challenging one from a macro perspective. And so that means running the business with a focus on profitability and on cash, getting back to cash generation. Mm-hmm. We have started that. We did a restructuring, a reduction in force, which was kinda step one of let's just right-size the business in order to be able to grow in the future. Perfect. I think that's a great overview. A lot we wanna get to- Yeah ... within that. I think the place to start, though, is with AviClear, and again, to maybe give some people who are less familiar with the story some context. Could you just go through what that device does specifically, what the competitive alternative is, and how to think about... Well, we'll get into- Mm-hmm ...the business model maybe in the next question. Maybe, maybe a good start is just how the device works and what the competitive offering might be. Sure. So, AviClear is a laser-based device that it has a wavelength specifically targeted to reach the sebaceous gland, which is the ultimate source of sebum production and the formation of acne over time. There is drug therapy that targets a chemical destruction of the activity in the sebaceous gland, so drugs like Accutane, but with attendant side effects that are unpalatable. AviClear achieves the same end goal in a non-invasive, non-systemic way with three treatments. And so that's the pitch. That's the appeal of AviClear. The results that we saw in our clinical study were over 90% of patients having improvement in their... Meaningful improvement, as judged, as graded by their dermatologists or other practitioners, in a six-month time period, and that was persistent at the one-year mark as well. So, that's what the device is intended to do. And then, do you wanna talk about the launch or sort of how we've been rolling out to market? Yeah. Maybe level set the initial commercial strategy, and then we can get into some of the changes that you recently mentioned on the earnings call. Sure. So our initial go-to-market approach was with a lease model, and the model involved an annual fee of $5,000, which. So no ownership was transferred to the customer. Cutera owned the machines. The capital is sitting on our balance sheet. Customer pays $5,000 lease fee each year, and then we would share the economics of treating a patient. And roughly, the way that would break down is that, Cutera would receive $1,500 for the treatment of a patient. That patient would be treated over a series of three treatments, as I, as I mentioned before. Mm-hmm. So you can think about the per-treatment economics as being about $500 that would go to the company. End patient pricing was generally $3,000 or more, depending on where geographically the customer site is. So it was close to a 50/50 type of revenue share, customer and company. So we deployed 1,250 machines into the field over just a little over a year timeframe. And we just didn't, as I mentioned before, see the type of utilization across the machines that had been hoped for, anticipated. And I think there are a few different reasons behind that. One, as we learned, is the business model itself. So some customers do have a preference for this business model. It is working for some, but for a lot, the per-treatment economics didn't seem favorable enough to them, for them to really want to drive this as part of their practice. That would be one. And so the request is, can we... "Hey, we'd rather actually own the device and have a lower, a lower cost back to the company per treatment, so that the value of our time can be more appropriately rewarded on a treatment basis." So that's number one. Number two, there are some placements that are in places where there's just not enough patient flow of acne patients. And so what that means is we need to be a bit more thoughtful, disciplined about where AviClear goes, and so we're contemplating that as we go back to market. There will likely be a number of devices that come back into Cutera headquarters, and then over time, we can be deploying them, selling them into locations that may be better long-term homes. A third was simply some ease of use and operational challenges. So, they're things like the way that when a patient was being treated, because we are billing on a per-patient model, there had to be an individual patient QR code that was managed and accounted for over time, put into the system every time that patient was receiving a treatment, and that was a little more complicated than it needed to be. And so while there's maybe some diversity of opinion on what the business model approach should be across our customer base, there's pretty much uniformity of opinion that they don't want the QR codes. And so we're gonna move away from that. And then there have been some product reliability challenges. That's endemic to the laser-based device business. These are, you know, finely tuned devices, and you do have to have a service team that's that is local and able to come in and do service calls. We had more than we wanted to, though, with AviClear. So as we go back to market, how are we addressing each of those? I'll take them in reverse order. As part of the return to market, we have a hardware and a software upgrade. The hardware upgrade should address a significant portion of the reliability challenges that customer had, customers had. The software upgrade is gonna shift things from the patient QR code model to just a treatment click model. So it doesn't. You don't have to track really anything. You just. Anytime you wanna treat a patient or a spot, it's ready to go, and it's a per-click fee. In terms of where the devices are gonna be, well, we're in the process of discussing lease renewals with the installed base. We're working with customers to see: Hey, are you motivated? Do you want to really partner with us and have a great AviClear practice? And we're hopeful. We know that there are a number of customers who absolutely, that's gonna be the case. We know there's a list of, right now, 200, where that's not the case. They're ready to send the device back. There will be more, and that's okay. We're gonna, we're gonna take back some capital and then have a reservoir that we're able to redeploy. And when we, when we redeploy, we now have unified our field organization, so we're gonna have a team-based approach to deciding, "Hey, what accounts can we support, and how well can we support them?" And that's gonna be our commitment to customers, is if you take on AviClear, if you make this investment for your practice, we're gonna be here, and we're gonna be here... We've got you covered on service, customer support, and on the practice development support, training, and education. It's gonna be a team package, and we're ready to, to make it really work. Then on the business model front, we are shifting to a capital purchase model. So what that will involve is an upfront purchase of the machine, customer owns it, and then in exchange, the per treatment-based fee will go from $500 per treatment down to $250 per treatment. We think at that level, that will open up enough economics in the per treatment time to make this pretty attractive for customers. So that's where we're at, and we are just starting the process of going out to the installed base. Yeah? I think you said 1,250 devices placed, 200 you think are gonna be returned. [audio distortion] I think half- Could we repeat the question just for the, Absolutely ... the people on the webinar? Yeah, sure. So question is: Where do we think the terminal point in returns of the installed base is? Mm-hmm. As I mentioned, there's 1,250 devices in the field. We know of 200 that will come back. We think that a reasonable expectation would be up to half come back, and the reason we say that is in the third quarter, about 40% of the machines were dormant. They did not do a procedure. Now, it's possible that some of those can be rejuvenated, but we'll see, and we're gonna work through it. I think that the cost of ownership or the cost of using was low enough that some people took it on as a flyer and may just decide, "Hey, this is, this isn't the right fit for our practice. So was it a compensation issue or the overplacement, or was it lack of targeting, or what drove that? You know, I... The question was- [audio distortion] Yeah, gotcha. The question was: What drove the oversupply to the market? And I think that it was a strategic decision to simply get as many machines out into the field with the underlying assumption that the patient flow would be able to be there quickly. And so I think that's the source of it. I think that our team then, with that strategic direction, the team did what the desired goal was. So you know, what that—I think what that shows you is when Cutera decides there's something we wanna do, the team's gonna make it happen. The problem in this case was that the underlying assumption set what turned out to not be right. Now, we do think that there obviously is, there's a huge population of patients suffering from acne- Yeah ... who seek out treatment, and there's a significant portion who have a real desire for something other than systemic pharmaceutical therapy. But these markets, this is a new market, and it takes development, and that happens in partnership with the customer base and with the company. And so that takes time, and we just need to be more disciplined about it. Thank you. Yep. I think it might be helpful to also frame up the physician demographics of where those devices were originally placed, as compared to where those acne patients maybe seek treatment. Great. Yeah. So, placements of the device fairly well mirror the Cutera customer base, which is a little bit more than 50%, med spas, on the order of perhaps 20% dermatology offices, and then the balance spread between could be some plastic surgeons, some family medicine practices, OB-GYNs. So there's a distribution there that looks similar to our overall product mix. Now, where are acne patients being seen? I mean, most start their journey with retail therapies, topicals. They also go to their family practice, and then into the dermatology offices. So I do think that a great focal point for us would be the aesthetic dermatology practice- Mm-hmm ... of which there's, you know, there are thousands in the U.S. I think there's, in total, 12,000 dermatologists, maybe 60% more medically oriented, 40% more aesthetically oriented. They've got an experience with laser-based technology and with cash pay procedures, which that is, that is AviClear. But so that, that's probably a good initial target. Mm-hmm. But there are successful AviClear practices in all of the groups that I mentioned. So, it really does come down to some discretion at the local level, and we're... So we're not gonna say no, Sure. just because of what the title on a door is. Sure, sure. Okay. And you also mentioned this is shifting to a capital purchase business model. What does that look like for the customers who are already using AviClear, the ones who are- Yeah ... actually utilizing the device? And, and- Right ... to contextualize that as well, I believe you said the list price is gonna be around $100,000. Is that what those physicians would pay? So we will. Before we go to any new customers, we are gonna be having conversations with our installed base, and we will be going to them and saying, "Hey, we've got, we've got some options here. You can stay on your current model, but you also have the option to shift to a capital purchase. Okay. So the conversions is the question George is asking. We did say that for new capital, the list price would actually be over $100,000. Mm. Now, that's not where our average selling price will be, and we don't know where that's gonna be. It'll be below list, but we need some time to really work through that in conversations with the field. Right. For the installed base, the conversion economics will be more attractive. Why is that? Well, they've already paid into the machine that they have in their office with a $5,000 annual fee and with utilization at $500 per treatment, as opposed to what the new price is gonna be. So we want to recognize and reward that, and also just reward the loyalty factor of having been early in the AviClear experience. Yeah. So it'll be lower than the list, for sure- Yeah ... and more attractive than it would be to purchase a new machine. Okay. This is sort of a new change that y'all only recently talked about. How should we think about the timing of it being implemented in the field? Sure. So it's mid-November right now. We have just started some conversations with existing practices. In the fourth quarter, it's gonna be a very small number of conversations that we have, and the reason for that is we are still in beta mode on the software upgrade, and we wanna make sure that that works. So we've gone into a few practices. We've done this. So far, so good. But we wanna just have a little bit more time to make sure that we know any wrinkle that's gonna emerge, so that when we do do go more broadly, we're ready. And then for the hardware upgrade, that won't be broadly available until starting in the first quarter. So think about, we're in pilot mode here in the fourth quarter, and in the first quarter, it'll be primarily going to our installed base. I'd say first and second quarter, with a goal to have those conversations and understand what customers wanna do in the first part of next year. After we make it through a good chunk of the installed base, is when we would be starting to go out to new customers. And I think that could start in the first quarter, but that will be more measured and we would expect could build as we move through the balance of 2024. Internationally, we haven't, we haven't touched the AviClear opportunity yet. So... And I tell you, it's when I've traveled and spoken to people around the world, that's the first question that people ask: When are we gonna get AviClear? And so we're gonna start with a limited commercial release in the first quarter in some direct markets, and then third quarter of next year is when we would start to go more broad. I assume the business model internationally will be similar to this change? That's correct. Okay. That's correct. Okay. So you're receiving or expecting to receive some of these devices back from the user base that isn't using it? Yep. You've also had this production agreement in place. Mm-hmm. That's gonna continue through the remainder of this year. How should we think about the inventory on hand that you'll have next year and available for sale? Yes. So we will have sufficient inventory for a while. And just to put some rough numbers around that, so let's call it 500-600 come back from the field. Mm-hmm. And then, we did have purchase commitments to bring in a fair amount of component inventory of AviClear. We're still working through these, factored into our guidance, as part of a cash burn that we would experience in the fourth quarter and the first quarter, is the fulfillment of these purchase commitments. If we did bring all of that in, then that could be another up to 1,500 or so devices that could be made with minimal additional capital. And so we're still working on the exact number that we would have, but the I think important thing for investors to understand about this is that while we are in a cash burn situation right now, which is fueled in a significant... to a significant degree by the AviClear working capital build, the position that's gonna leave us in, at roughly the end of the first quarter of next year, is having an asset on our balance sheet that we're then able to convert over time and have AviClear become a really productive cash-generating franchise for us. Okay. So is the right way to think about that, that you're no longer needing to produce these devices, so that cash outflow is being turned off, and then, at the same time, you're turning on a cash inflow with the capital purchase- Yep ... business model for AviClear? That is the right way to think about it, and just the nuance that, that I would add is that there will be some you do have to inject some cash into the assembly, the final production, but you've got all the materials around. You've got your you've got your manufacturing space that you're paying for one way or another. You've got your, your team, your production team. Yeah. And so the portion of the overall value of production that you need to put in, on a marginal basis, is pretty darn low. Yeah. Okay, okay. Maybe to shift gears a little bit, there's been a few recent hires over the last few months, and yourself included. Could you speak to the new COO- Yeah ... the new head of international- Yep ... what they bring to the table, some of their experience in the aesthetics market, and how you think they can sort of change the Cutera culture and y'all's ability to return to growth? Great. Yeah, I'm excited about some of the new team that we have and also just the way that they're fitting in with some great team members who've been at Cutera for longer. But to start with our Chief Operating Officer, Jeff Jones. So Jeff has a 35-year or so career in the Bay Area medical device community, including a dozen or so specifically targeted in our industry. So Jeff knows lasers, and he knows the laser supply chain, how to produce these things, how to service them. When Jeff started, we consolidated a number of functions under him that belonged together, so production, supply chain, quality, and field service. I mentioned early on that one of our main priorities is operational excellence, and that really is housed in this group, in this set of groups. So they are addressing what they think the most important root cause issues are, which come down to product reliability, service levels, inventory management, and then cost reduction activities. So Jeff has brought in a few new team members. They have already started to make a difference, and I'm actually hearing this from customers, that they're starting to feel the difference on the service front. So just one number for you. Over the summer until the end of the third quarter, the backlog of service complaints was reduced by 80%. So we're not—we wanna get to zero, we're gonna make more headway in the fourth quarter, but a lot of issues are starting to get resolved, and timeliness of resolving issues is also improving. So I think we will get to by the end of this year, I think backlog should be in a really good spot, and I think we'll be very close to a industry standard for response time for service calls. And then the goal beyond that is, let's set a new standard. So that's the mentality in all of the different areas where we feel like we need to do some work. And I mean, so I get excited about this. I really do, because the team is... They are seeing the fruit of their labor, and they're excited about it. You know, success breeds success, and they're starting to feel like they're putting some points on the board. So that's the operations. We also hired Brent Hauser, who will be our President, International. Brent and I worked together at Zeltiq with the CoolSculpting business. Brent has a 20-year or so career in the aesthetics market. So Brent knows aesthetics, Brent knows energy-based device technologies, and he knows our markets. So it's been great to have just another aesthetics industry leader on the senior team, and he's helping good input on how we're going back to market with AviClear. Then his focus will be the international markets, and he's actually moving abroad in the early part of next year. And I think that'll be great because we've got a big opportunity internationally, and we just haven't had, I don't think, the leadership bandwidth to really pull it together and have a unified approach. And then just most recently, we hired Stephana Patton as our Chief Legal Officer, and she's also gonna be responsible for the HR team, so another experienced team leader. And that, as I mentioned, really just complements the rest of the team, both at a senior level and throughout the organization, that has a little bit more company experience at Cutera. Okay. And you mentioned the international launch of AviClear. Could you speak to some of those direct markets and how you're thinking about the opportunity there, some of the low-hanging fruit, and the potential to impact your growth in 2024? Yes. So we are direct in, I'd say, most of the major markets in Europe, as well as in Japan and in Australia. And then we have distributor business in the rest of Europe, as well as some other key markets in Asia, Eastern Europe, Middle East, and a couple in Latin America. So we will, in areas where we have regulatory approval and ability to go to market early next year, we'll start that process, and so that would be some in Europe, as well as in Australia. Japan will take a regulatory approval before we're able to launch. But so we wanna start there. We realize that markets can differ across the globe, and make sure that we're incorporating the learnings both from what business model works. It'll be generally like what we're talking about here in North America, but there may be some nuances as well as the support mechanisms that we need to have in place. Okay. And we didn't mention this earlier, but you do have a fairly significant international piece to the business. As we think about AviClear launching internationally, is there any additional commercial infrastructure investment that's required beyond the regulatory pieces you touched on? No, not right now. This—we have a leverageable team, and infrastructure, both from a commercial perspective as well as from a service perspective. So that's the good news. I would also say that we have some distributors that are particularly keen to have access to the technology. So we just wanna make sure that people are well-trained before we go to market with it. Okay. Okay. And maybe to take a step back on the device portfolio, there's been a few headwinds the last 12 months and in some, some different areas, and AviClear has had, you know, some positives and negatives in that commercialization. But as we take a step back and look at the business, is there any fundamental reason why you can't compete effectively in the aesthetic market, in the U.S. and internationally? So no, there's not, and in fact, I would say there are fundamental reasons why we can compete very effectively. And I think those come down to the quality of product, which we are known for. The Cutera brand is associated with high-value engineering. We've got a broad portfolio. We have the commercial and service infrastructure to service the market. We've got focus and discipline that I think is evident in the restructuring. You know, we're willing to adjust to the macroeconomic conditions, which are for sure a headwind, and more than expected from the start of the year, more than expected from when I started, but we're adjusting quickly. And then we have a novel technology in AviClear that there is, I think, a hungry, eager market for. Yeah. Okay. Okay. Maybe to shift gears a little bit to the cost side of the business. You talked about a 25% personnel reduction with $20 million in savings. Where are those personnel reductions coming, and how should we think about the timing of seeing those full savings flow through? So we did just in the month of October announce, and we're not done with it, a restructuring that involved a close to 25% reduction in force across the company, and it affected all functions and all, it will affect all geographies. But the way we approached this was not simply we have to cut cost. It really was, let's, let's look at organizational effectiveness, efficiency. What's, what's the best structure? And there were a number of cases where different teams had developed that had similar functions and perhaps were spun out as part of the launch of AviClear to create unique focus on AviClear, but where we had an opportunity to consolidate, to create single points of accountability, and to create cross-training opportunities for the team. So where we really think we're not only saving cost, we're gonna create a sharpened organization. And I think we're feeling that. So we had a consolidation within the North America commercial team, to some degree, within our training education team, our customer service team, and our field service teams. So that was the way we thought about it, from an internal perspective. And then from an external perspective, really, the guiding principle was: What does our customer want? What is best for our customer? And that's an ethos that I think has existed at Cutera, and we've got the ability to really just augment it and run with that. And that's what we're doing. Okay. Okay. In the third quarter, cash burn was a little bit elevated, around 40, 43 million or so. You talked about exiting the year with $135 million on cash, in cash. Mm-hmm. Within that third quarter number, you talked about roughly $20 million being sort of core. Is that a fair run rate as we think about the cadence through 2024? Yes. So what we were separating between was operational use of cash, maybe more of a P&L-centric use of cash, and then working capital changes, which had been a use of cash, have been a pretty significant use of cash in recent quarters- Yeah ... and they were in the third quarter as well. So the approximately $20 out of that $43 million was the P&L type burn. And the only thing that so if you, if you take that as a starting point, I'd just say it, the only thing I would adjust for, as you think about maybe a full half of a year, is our convertible debt interest is largely paid in the second and the fourth quarters. We have lower use for that need in the first and third quarters. So that would be something to adjust for, as you're broadening to extrapolating from that third quarter. But we're also, we also have done this restructuring activity that was not reflected in those numbers. Yeah. So, so that's perhaps where you could start from. The big picture is we wanna get... we are expecting that the macroeconomic environment will stay challenging for us. It was in the third quarter. Our capital equipment business was down 36% in the third quarter. We're expecting it to be down a little bit more than that in the fourth quarter. That's what's built into our guidance. We are not expecting to get some macroeconomic tailwind in 2024. We're planning for more of the same. So, the revenue environment for the core will stay challenging. We're trying to adjust the cost structure for that- Yeah ... and then we're launching AviClear. And AviClear, we're excited about both from a technology perspective, but also, this should be a more economically insensitive business line franchise for us. So what will help with our cash burn and what gives us confidence that we're gonna be able to get to profitability and cash flow break even, just using the capital that we currently have on our balance sheet, is that we see an end to the working capital use of cash. We see that turning actually into being able to convert the inventory fixed assets into cash and cash producing, cash generating, you know, treatment flow. And then, as AviClear grows, that helps us leverage the cost infrastructure. Okay. Okay. I think we're almost out of time, so I'll maybe end with turning it over to you, really, and asking: What would you want investors to most take away from our conversation today? I would say that just know that the team is excited. It is. We know what we need to do, both from an operational and a commercial execution perspective. We believe in Cutera, and we're geared up. And so we're excited for 2024 and getting AviClear back to market in a really high-quality, disciplined way that's gonna be good for, most importantly, for patients and for our customers, and for Cutera. Okay, great. Well, thank you all again for being here. All right. We appreciate it.