Cutera Reports Third Quarter 2018 Financial Results

truSculpt® iD Sets Company Record for New System Launch
Company Achieves Sequential Gross Margin Improvement

BRISBANE, Calif., Nov. 06, 2018 (GLOBE NEWSWIRE) -- Cutera, Inc. (NASDAQ: CUTR) (“Cutera” or the “Company”), a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide, today reported financial results for the third quarter ended September 30, 2018.

Key financial and operational highlights for the third quarter of 2018 include:

Revenue increased 6% to $40.6 million for the third quarter and 13% to $117.3 million for the nine months ended September 30, 2018. The United States and International operations reported 5% and 9% growth in the third quarter over the prior year period, and 15% and 10% growth year-to-date, respectively;
- Third quarter revenue performance continues to reflect strong demand for the Secret® RF system and a record performance for the newly launched next generation body sculpting system, truSculpt^® iD.
- In its launch quarter, truSculpt iD revenue exceeded any previous product launch and was 55% greater than truSculpt 3D’s second quarter of 2017 launch performance.
- Third quarter International results reflect strong performances in EMEA and Asia and positions the Company well for the upcoming launch of truSculpt iD in these respective regions.
Gross Margin of 54%, compared to 53% in the second quarter 2018 and 58% in the prior year period. Sequential improvement seen in the third quarter reflects a combination of product and channel mix and benefits from operational improvement initiatives.
Operating expenses were 56% of revenue compared to 42% in the prior year period. The third quarter of 2017 included a one-time $4 million facility lease termination benefit. Non-GAAP* operating expenses were 51% of revenue compared to 50% in the prior year period, primarily reflecting $1.6 million in non-cash stock compensation in the current period vs. $1.0 million in the prior year period, and the one-time $4 million lease termination benefit.
GAAP Net Loss was $0.9 million, or $0.06 per fully-diluted share, while non-GAAP* net income was $1.6 million, or $0.11 per fully-diluted share.

“We remain committed to expanding Cutera’s leadership in the energy based aesthetic space while delivering long-term shareholder value,” stated Cutera President and CEO, James Reinstein. “The Company has a clearly defined growth strategy built around product innovation and strong distribution channels. Our growth initiatives include launching at least two products a year through a reinforced and expanded capital sales team. In 2018, we launched four products, three of which generate high margin revenue from Cutera products used in each procedure. We are very excited about our most recent launch, truSculpt iD, which addresses the billion-dollar body sculpting market, and set a company record for revenue contribution in its launch quarter.”

“We are also committed to improving the scalability of our business and continue to execute on our operational improvement activities,” continued Reinstein. “These initiatives will enhance the Company’s efficiency and enable Cutera to achieve its overall long-term corporate objectives.”

2018 Financial Outlook

We reiterate our 2018 revenue guidance range of $165 to $170 million, a 9% - 12% increase over 2017;
Full year gross margin expected in a range 53% to 54% of total revenue;
With the revised annual revenue range issued on October 4, GAAP operating expenses are now expected to be in the range of 57% to 58% of 2018 revenue; and
Our non-GAAP* earnings per share is now expected to be in the range of $0.40 to $0.50.

Conference Call

The Company will host a live audio webcast for interested parties commencing today at 1:30 p.m. PST (4:30 p.m. EST). Participating in the call will be James Reinstein, President and Chief Executive Officer and Sandra Gardiner, Executive Vice President and Chief Financial Officer. The call will be broadcast live over the Internet, hosted at the Investor Relations section of Cutera's website at http://www.cutera.com/, and will be archived online within 24 hours of its completion through November 30, 2018. In addition, you may call 1-877-705-6003 to listen to the live broadcast.

CONTACTS:

Cutera, Inc.
Matthew Scalo
Vice President, Investor Relations & Corporate Development
415-657-5500
mscalo@cutera.com

Investor Relations
John Mills
Partner, ICR, Inc.
646-277-1254
john.mills@icrinc.com

About Cutera, Inc.

Brisbane, California-based Cutera is a leading provider of laser and other energy-based aesthetic systems for practitioners worldwide. Since 1998, Cutera has developed innovative, easy-to-use products that enable physicians and other qualified practitioners to offer safe and effective aesthetic treatments to their patients. For more information, call 1-888-4CUTERA or visit www.cutera.com.

*Use of Non-GAAP Financial Measures

In this press release, in order to supplement our condensed consolidated financial statements presented in accordance with Generally Accepted Accounting Principles, or GAAP, management has disclosed certain non-GAAP financial measures for the statement of operations and net income(loss) per diluted share, which exclude non-cash expenses for stock-based compensation, depreciation and amortization, as well as the net tax impact of excluding these items. From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management. We have provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability, limited visibility, unpredictability, or unique non-recurring nature of the excluded items.

Company management uses these measurements as aids in monitoring the Company’s ongoing financial performance from quarter to quarter, and year to year, on a regular basis and for benchmarking against other medical technology companies. Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, the operating performance measure as prescribed by GAAP. Non-GAAP financial measures for the statement of operations and net income per diluted share exclude the following:

Non-cash expenses for stock-based compensation. We have excluded the effect of stock-based compensation expenses in calculating our non-GAAP operating expenses and net income measures. Although stock-based compensation is a key incentive offered to our employees, we continue to evaluate our business performance excluding stock-based compensation expenses. We record non-cash compensation expense related to grants of options, performance and restricted stock. Depending upon the size, timing and the terms of the grants, the non-cash compensation expense may vary significantly but will recur in future periods. We believe that excluding this item allows users of our financial statements to better review and assess both current and historical results of operations. We also believe that excluding non-cash expenses for stock-based compensation better allows for comparisons to our peer companies;

Non-recurring lease termination income. We incurred a one-time benefit with respect to a certain lease termination transaction. We exclude this benefit in calculating our non-GAAP operating expenses and net income measures as it relates to a unique, one-time event and has no direct impact or correlation to the operation of our on-going business. Additionally, we believe that its inclusion is potentially misleading to users of our financial statements given the lease termination income’s unique, non-recurring nature; and

Depreciation and amortization. We have excluded depreciation and amortization expense in calculating our non-GAAP operating expenses and net income measures. Depreciation and amortization are non-cash charges to current operations. We continue to evaluate our business performance excluding non-cash charges and believe that excluding these items allows users of our financial statements to better review and assess both current and historical results of operations.

Safe Harbor Statement

Certain statements in this press release, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, but are not limited to, Cutera’s plans, objectives, strategies, financial performance and outlook, product launches and performance, trends, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “should,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” “foresee” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Forward-looking statements are based on management's current, preliminary expectations and are subject to risks and uncertainties, which may cause Cutera's actual results to differ materially from the statements contained herein. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this press release, including those described in the “Risk Factors” section of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, the Registration Statement on Form S-8 and other documents filed from time to time with the United States Securities and Exchange Commission by Cutera.

All information in this press release is as of the date of its release. Accordingly, undue reliance should not be placed on forward-looking statements. Cutera undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date they were made, or to reflect the occurrence of unanticipated events. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. Cutera's financial performance for the third quarter ended September 30, 2018, as discussed in this release, is preliminary and unaudited, and subject to adjustment.


CUTERA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

			September 30,			June 30,			December 31,
			2018			2018			2017⁽¹⁾
Assets
Current assets:
	Cash and cash equivalents		$	21,866		$	18,432		$	14,184
	Marketable investments			5,018			10,573			21,728
	Accounts receivable, net			25,444			22,122			20,777
	Inventories			31,322			30,138			28,782
	Other current assets and prepaid expenses			3,716			3,469			2,903
		Total current assets		87,366			84,734			88,374

Property and equipment, net				2,784			2,632			2,096
Deferred tax asset				21,402			21,219			19,055
Goodwill				1,339			1,339			1,339
Other long-term assets				6,048			5,807			374
		Total assets	$	118,939		$	115,731		$	111,238

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	13,321		$	10,743		$	7,002
	Accrued liabilities			22,904			22,756			26,848
	Deferred revenue			8,939			9,288			9,461
		Total current liabilities		45,164			42,787			43,311

Deferred revenue, net of current portion				2,380			2,519			2,195
Income tax liability				352			386			379
Other long-term liabilities				640			665			460
		Total liabilities		48,536			46,357			46,345

Stockholders’ equity:
	Common stock			14			14			13
	Additional paid-in capital			68,180			66,291			62,025
	Accumulated income			2,283			3,156			2,947
	Accumulated other comprehensive loss			(74	)		(87	)		(92	)
		Total stockholders' equity		70,403			69,374			64,893
		Total liabilities and stockholders' equity	$	118,939		$	115,731		$	111,238

(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.

CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

			Three Months Ended						Nine Months Ended
			September 30,			September 30,			September 30,			September 30,
			2018			2017⁽¹⁾			2018			2017⁽¹⁾

Products			$	35,675		$	33,486		$	102,589		$	89,688
Service				4,898			4,687			14,662			14,173
Total net revenue				40,573			38,173			117,251			103,861

Products				15,909			13,859			46,876			38,843
Service				2,779			2,104			8,779			6,241
Total cost of revenue				18,688			15,963			55,655			45,084
		Gross profit		21,885			22,210			61,596			58,777
		Gross margin %		54	%		58	%		53	%		57	%

Operating expenses:
	Sales and marketing			14,479			13,148			43,102			36,708
	Research and development			3,244			3,467			10,895			9,393
	General and administrative			5,160			3,379			15,501			10,143
	Lease termination income			-			(4,000	)		-			(4,000	)
		Total operating expenses		22,883			15,994			69,498			52,244
Income (loss) from operations				(998	)		6,216			(7,902	)		6,533
Interest and other income (expense), net				(49	)		197			(80	)		746
Income (loss) before income taxes				(1,047	)		6,413			(7,982	)		7,279
Provision (benefit) for income taxes				(174	)		225			(3,505	)		166
Net income (loss)			$	(873	)	$	6,188		$	(4,477	)	$	7,113

Net income (loss) per share:
	Basic		$	(0.06	)	$	0.44		$	(0.33	)	$	0.51
	Diluted		$	(0.06	)	$	0.42		$	(0.33	)	$	0.48

Weighted-average number of shares used in per share calculations:
	Basic			13,851			13,973			13,717			13,917
	Diluted			13,851			14,767			13,717			14,733

(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.

CUTERA, INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands, except percentage data)
(unaudited)

			Three Months Ended						*% Change*		Nine Months Ended						*% Change*
			Q3			Q3			*Q3 '18 Vs*		Q3			Q3			*Q3 '18 Vs*
			2018			2017⁽¹⁾			*Q3 '17*		2018			2017⁽¹⁾			*Q3 '17*
Revenue By Geography:
		United States	$	24,329		$	23,275		+5	%	$	73,597		$	64,058		+15	%
		International		16,244			14,898		+9	%		43,654			39,803		+10	%
		Total Net Revenue	$	40,573		$	38,173		+6	%	$	117,251		$	103,861		+13	%
		International as a percentage of total revenue		40	%		39	%				37	%		38	%

Revenue By Product Category:
	Systems
		- North America	$	22,628		$	21,869		+3	%	$	67,458		$	58,955		+14	%
		- Rest of World		10,569			9,993		+6	%		28,269			26,014		+9	%
		Total Systems		33,197			31,862		+4	%		95,727			84,969		+13	%
	Consumables			1,055			595		+77	%		2,881			1,743		+65	%
	Skincare			1,423			1,029		+38	%		3,981			2,976		+34	%
		Total Products		35,675			33,486		+7	%		102,589			89,688		+14	%

	Service			4,898			4,687		+5	%		14,662			14,173		+3	%
		Total Net Revenue	$	40,573		$	38,173		+6	%	$	117,251		$	103,861		+13	%


(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.


			Three Months Ended								Nine Months Ended
			Q3			Q3					Q3			Q3
			2018			2017					2018			2017
Pre-tax Stock-Based Compensation Expense:
		Cost of revenue	$	196		$	101				$	576		$	377
		Sales and marketing		541			394					1,744			1215
		Research and development		163			157					617			633
		General and administrative		731			345					2,587			1398
			$	1,631		$	997				$	5,524		$	3,623

CUTERA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

			Three Months Ended						Nine Months Ended
			September 30,			September 30,			September 30,			September 30,
			2018			2017⁽¹⁾			2018			2017⁽¹⁾
Cash flows from operating activities:
Net income (loss)			$	(873	)	$	6,188		$	(4,477	)	$	7,113
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Stock-based compensation			1,631			997			5,524			3,623
	Depreciation of tangible assets			305			258			849			750
	Amortization of contract acquisition costs			482			-			1,304			-
	Change in deferred tax asset			(183	)		-			(3,507	)		-
	Provision for doubtful accounts receivable			390			(6	)		877			(9	)
	Other			240			(16	)		215			(58	)
Changes in assets and liabilities:
	Accounts receivable			(3,712	)		(1,407	)		(5,544	)		(3,048	)
	Inventories			(1,184	)		(6,815	)		(2,540	)		(8,751	)
	Other current assets and prepaid expenses			(228	)		(88	)		(797	)		(633	)
	Other long-term assets			(723	)		-			(2,301	)		(1	)
	Accounts payable			2,578			1,512			6,319			3,207
	Accrued liabilities			148			3,223			(4,177	)		4,757
	Other long-term liabilities			35			-			105			-
	Deferred revenue			(488	)		(132	)		58			652
	Income tax liability			(34	)		1			(27	)		3
		Net cash provided by (used in) operating activities		(1,616	)		3,715			(8,119	)		7,605

Cash flows from investing activities:
Acquisition of property, equipment and software				(633	)		(233	)		(1,214	)		(443	)
Disposal of property and equipment				3			13			41			53
Proceeds from sales of marketable investments				-			2,400			13,044			9,154
Proceeds from maturities of marketable investments				5,550			14,800			8,050			39,612
Purchase of marketable investments				-			(18,293	)		(4,390	)		(44,156	)
		Net cash provided by (used in) investing activities		4,920			(1,313	)		15,531			4,220

Cash flows from financing activities:
Repurchases of common stock				-			(6,735	)		-			(13,776	)
Proceeds from exercise of stock options and employee stock purchase plan				565			695			3,603			4,566
Taxes paid related to net share settlement of equity awards				(307	)		(165	)		(2,971	)		(1,332	)
Payments on capital lease obligations				(128	)		(92	)		(362	)		(274	)
		Net cash provided by (used in) financing activities		130			(6,297	)		270			(10,816	)

Net increase (decrease) in cash and cash equivalents				3,434			(3,895	)		7,682			1,009
Cash and cash equivalents at beginning of period				18,432			18,679			14,184			13,775
Cash and cash equivalents at end of period			$	21,866		$	14,784		$	21,866		$	14,784


(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.

CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

			*Three Months Ended September 30, 2018*										*Three Months Ended September 30, 2017*
			GAAP			Adjustments*				Non-GAAP			GAAP⁽¹⁾			Adjustments*				Non-GAAP

Net revenue			$	40,573		$	-			$	40,573		$	38,173		$	-			$	38,173
Cost of revenue				18,688			(261	)	(a)		18,427			15,963			(188	)	(a)		15,775
		Gross profit		21,885			261				22,146			22,210			188				22,398
		Gross margin %		54	%						55	%		58	%						59	%

Operating expenses:
	Sales and marketing			14,479			(1,183	)	(b)		13,296			13,148			(560	)	(b)		12,588
	Research and development			3,244			(182	)	(c)		3,062			3,467			(162	)	(c)		3,305
	General and administrative			5,160			(792	)	(d)		4,368			3,379			(345	)	(d)		3,034
	Lease termination income			-			-				-			(4,000	)		4,000		(e)		-
		Total operating expenses		22,883			(2,157	)			20,726			15,994			2,933				18,927
Income (loss) from operations				(998	)		2,418				1,420			6,216			(2,745	)			3,471
Interest and other income (expense), net				(49	)		-				(49	)		197			-				197
Income (loss) before income taxes				(1,047	)		2,418				1,371			6,413			(2,745	)			3,668
Provision (benefit) for income taxes				(174	)		(39	)	(f)		(213	)		225			(92	)	(f)		133
Net income (loss)			$	(873	)	$	2,457			$	1,584		$	6,188		$	(2,653	)		$	3,535

Net income (loss) per share:
	Basic		$	(0.06	)					$	0.11		$	0.44						$	0.25
	Diluted		$	(0.06	)					$	0.11		$	0.42						$	0.24

Weighted-average number of shares used in per share calculations:
	Basic			13,851							13,851			13,973							13,973
	Diluted			13,851							14,258			14,767							14,767

(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.


Operating expenses as a % of net revenue			GAAP							Non-GAAP			GAAP⁽¹⁾							Non-GAAP
	Sales and marketing			35.7	%						32.8	%		34.4	%						33.0	%
	Research and development			8.0	%						7.5	%		9.1	%						8.7	%
	General and administrative			12.7	%						10.8	%		8.9	%						7.9	%
	Lease termination income			0.0	%						0.0	%		-10.5	%						0.0	%
				56.4	%						51.1	%		41.9	%						49.6	%


* Fiscal third quarter of 2018 and 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s):
a) Adjustment of $261 and $188 for 2018 and 2017, respectively, included non-cash expenses of $65 and $87 related to depreciation, and $196 and $101 of stock-based compensation.
b) Adjustment of $1,183 and $560 for 2018 and 2017, respectively, included non-cash expenses of $642 and $166 related to depreciation and amortization, and $541 and $394 of stock-based compensation.
c) Adjustment of $182 and $162 for 2018 and 2017, respectively, included non-cash expenses of $19 and $5 related to depreciation, and $163 and $157 of stock-based compensation.
d) Adjustment of $792 and $345 for 2018 and 2017, respectively, included non-cash expenses of $61 and $0 related to depreciation and $731 and $345 for stock-based compensation.
e) Adjustment of $4,000 represents non-recurring lease termination income.
f) Adjustment of $39 and $92 for 2018 and 2017, respectively, relates to the net impact of excluding the Non-GAAP adjustments from our tax provision. The 2018 adjustment excludes a discrete tax benefit of $0.25M related to excess stock deduction activity in the quarter.

CUTERA, INC.
RECONCILIATION OF GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
TO NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

			*Nine Months Ended September 30, 2018*										*Nine Months Ended September 30, 2017*
			GAAP			Adjustments*				Non-GAAP			GAAP⁽¹⁾			Adjustments*				Non-GAAP

Net revenue			$	117,251		$	-			$	117,251		$	103,861		$	-			$	103,861
Cost of revenue				55,655			(802	)	(a)		54,853			45,084			(612	)	(a)		44,472
		Gross profit		61,596			802				62,398			58,777			612				59,389
		Gross margin %		53	%						53	%		57	%						57	%

Operating expenses:
	Sales and marketing			43,102			(3,509	)	(b)		39,593			36,708			(1,714	)	(b)		34,994
	Research and development			10,895			(668	)	(c)		10,227			9,393			(648	)	(c)		8,745
	General and administrative			15,501			(2,698	)	(d)		12,803			10,143			(1,399	)	(d)		8,744
	Lease termination income			-			-				-			(4,000	)		4,000		(e)		-
		Total operating expenses		69,498			(6,875	)			62,623			52,244			239				52,483
Income (loss) from operations				(7,902	)		7,677				(225	)		6,533			373				6,906
Interest and other income (expense), net				(80	)		-				(80	)		746			-				746
Income (loss) before income taxes				(7,982	)		7,677				(305	)		7,279			373				7,652
Provision (benefit) for income taxes				(3,505	)		130		(f)		(3,375	)		166			(80	)	(f)		86
Net income (loss)			$	(4,477	)	$	7,547			$	3,070		$	7,113		$	453			$	7,566

Net income (loss) per share:
	Basic		$	(0.33	)					$	0.22		$	0.51						$	0.54
	Diluted		$	(0.33	)					$	0.21		$	0.48						$	0.51

Weighted-average number of shares used in per share calculations:
	Basic			13,717							13,717			13,917							13,917
	Diluted			13,717							14,285			14,733							14,733

(1) As of January 1, 2018, the Company adopted the requirements of ASC 606 using the modified retrospective method, and as a result, there is a lack of comparability to the prior periods presented.


Operating expenses as a % of net revenue			GAAP							Non-GAAP			GAAP⁽¹⁾							Non-GAAP
	Sales and marketing			36.8	%						33.8	%		35.3	%						33.7	%
	Research and development			9.3	%						8.7	%		9.0	%						8.4	%
	General and administrative			13.2	%						10.9	%		9.8	%						8.4	%
	Lease termination income			0.0	%						0.0	%		-3.9	%						0.0	%
				59.3	%						53.4	%		50.3	%						50.5	%


* Year-to-date September 30, 2018 and 2017 Non-GAAP results exclude the effect of the below mentioned adjustments ($000s):
a) Adjustment of $802 and $612 for 2018 and 2017, respectively, included non-cash expenses of $226 and $235 related to depreciation, and $576 and $377 of stock-based compensation.
b) Adjustment of $3,509 and $1,714 for 2018 and 2017, respectively, included non-cash expenses of $1,765 and $499 related to depreciation and amortization, and $1,744 and $1,215 of stock-based compensation.
c) Adjustment of $668 and $648 for 2018 and 2017, respectively, included non-cash expenses of $51 and $15 related to depreciation, and $617 and $633 of stock-based compensation.
d) Adjustment of $2,698 and $1,399 for 2018 and 2017, respectively, included non-cash expenses of $111 and $1 related to depreciation and $2,587 and $1,398 for stock-based compensation.
e) Adjustment of $4,000 represents non-recurring lease termination income.
f) Adjustment of ($130) and $80 for 2018 and 2017, respectively, relates to the net impact of excluding the Non-GAAP adjustments from our tax provision. The 2018 adjustment excludes a discrete tax benefit of $2.85M related to excess stock deduction activity.