Venus Concept Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 15, 2024

There are 7 speakers on the call.

Operator

Please note that this conference call is being Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our most recent 10 Q and our annual report on Form 10 ks filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation publicly update or revise our forward looking statements as a result of new information, future events or otherwise. This call will also include references to certain financial measures measures that are not calculated in accordance with Generally Accepted Accounting Principles or GAAP.

Operator

We generally refer to these as non GAAP financial measures. Reconciliations of those non GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in our earnings press release issued today on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Rajeev D'Silva, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Speaker 1

Thank you, operator, and welcome, everyone, to Venus Concept's Q1 2024 earnings conference call. I'm joined on the call today by our Chief Financial Officer, Dominic Della Pena and by our President and Chief Operating Officer, Doctor. Hemant Waghis. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief review of our Q1, 2024 results and notable operating developments in the recent months.

Speaker 1

Then, Hayman will share an update on our progress in key several key operating areas. Dominic will then provide you with an in-depth review of our Q1 financial results and our balance sheet and financial condition at quarter end as well as a review of our Q2 2024 revenue outlook outlined in today's press release. Then we will open the call for your questions. With that agenda in mind, let's get started. As detailed in our press release issued today, we are pleased to deliver revenue for Q1 2024 that exceeded the expectations we outlined in our Q4 earnings report.

Speaker 1

While our revenue results reflect a decline of 15% on a year over year basis, we are encouraged by the underlying trends we are seeing in the business to start 2024. While the business continues to be impacted by macroeconomic headwinds, which are pressuring the aesthetic sector as a whole, we were pleased to deliver growth in cash system sales on a quarter over quarter basis in both the U. S. And international markets in the Q1. Notably, we are seeing early indications that our strategic initiatives to exit unprofitable direct markets outside the U.

Speaker 1

S. Are bearing fruit. International revenue increased more than 30% sequentially in the Q1, driven by strong initial demand from new distribution partners added in late 2020 3 and stronger than expected artist system sales in the period. As discussed in recent calls, the challenging macroeconomic environment and tighter credit markets have impacted systems adoption throughout our business in recent quarters. The hair restoration business in particular has experienced notable increases in time to close systems deals given the higher ASP associated with these robotic capital equipment purchases.

Speaker 1

We remain cautiously optimistic that the operating environment will show improvement as we move through 2024. That said, we're encouraged by the continued evidence that our efforts to reposition the business and to focus on key strategic and operational initiatives are well founded. We are pleased to report that cash system sales represented 75% of total systems subscription and lease program sales in the Q1 compared to 66% in the prior year period. Notably, global cash system sales increased more than 20% on a quarter over quarter basis in Q1, with particular strength in markets outside of the U. S, which posted cash systems growth compared to the prior year to the prior quarter and prior year periods.

Speaker 1

By way of reminder, one of our key strategic priorities in 2023 was to optimize our commercial and operational strategy in certain international markets and to reinvest those resources in higher opportunity markets to enhance the company's longer term growth and profitability profile. We continue to execute towards our goal of having our new distribution partners identified, signed up and ordering in the majority of our key international markets in early 2024. We were pleased to see solid initial demand from these new distributors and continue to believe we are well positioned for profitable growth in these key markets in 2024. Importantly, our Q1 financial results support our belief that the key elements of our transformational strategy, cost reductions, prioritizing cash system sales and restructuring initiatives in the U. S.

Speaker 1

And international markets are enhancing the cash flow profile of the business. We delivered a double digit decrease in operating expenses in Q1 and generated 3.5 times more cash from working capital compared to the Q1 of 2023, which together helped drive a 51% reduction in cash used in operations year over year. We continue to believe that our expense and cash flow performance represents the clearest evidence that we're on the right track towards our goal of enhancing the cash flow profile of the business and accelerating the path to long term sustainable profitability and growth. Before I turn the call over to Hemant, I want to highlight multiple important developments subsequent to quarter end. Specifically, the company announced multiple transactions reflecting material progress towards the company's strategic initiative to restructure our debt obligations and secure bridge financing.

Speaker 1

On April 23, 2024, one of the company's largest lenders and investors, Madwin Asset Management, purchased its Main Street Lending Program Loan or MSLP loan from the City National Bank of Florida for an undisclosed amount. As of December 31, 2023, the MSLP loan had an outstanding balance of $51,300,000 Following the close of the MSLP loan program, the company and Madrid entered into a loan and security agreement for an aggregate principal amount of up to $5,000,000 in debt financing to support near term liquidity requirements. We appreciate the support and partnership from City National Bank since we entered into the loan agreement in December 2020. We're also very pleased that Madryn has demonstrated further commitment to the company's longer term prospects with these transactions. We look forward to their continued support as we work towards our goal of returning to growth and sustained profitability in the future.

Speaker 1

I would now like to turn the call over to Doctor. Hemant Waggis, who will share an update on recent progress in our restructuring programs and our commercial product development and regulatory initiatives. Hemant?

Speaker 2

Thanks, Rajeev. As discussed on our last earnings call, we've made considerable progress against several key initiatives of our corporate turnaround strategy. Let me share a little color in areas where we're making notable progress. First, our cost reduction and cash management initiatives continue to progress well. Our focus on protecting our near term cash runway has been productive and the targeted incremental cost containment initiatives implemented in the second half of twenty twenty three have further enhanced our ability to execute on our high priority strategic initiatives while still preserving liquidity.

Speaker 2

2nd, as Rajiv mentioned earlier, our efforts to rationalize our international infrastructure, reduce costs and simplify the organization continues to progress. We continue to engage with both existing and several new distribution partners to align with our new international strategy and we are pleased to see the initial demand from 2 new exclusive partnerships we announced in December in the United Kingdom and in India. We are tracking towards our goal of finalizing terms with additional new distribution agreements, which we intend to announce publicly upon completion and remain on track to be substantially completed with our international repositioning in the coming months and ready to return to growth outside the U. S. In 2024.

Speaker 2

3rd, our efforts to advance certain new product pipeline projects, secure regulatory clearances and execute initial commercial launches are tracking favorably in early 2024. The U. S. Commercial launch of our new multi application platform, the Venus Versa Pro is going well and feedback from customers is very positive. We launched in the EU in the Q1 and we were pleased to receive TGA clearance in Australia on April 3.

Speaker 2

We were also pleased to announce regulatory approval for the Venus Bliss MAX on April 8th from the State of Israel Ministry of Health. 4th, we are pleased with the positive early response from our company wide rebranding initiative Venus AI and encouraging feedback from physician participants in our NextEtics program recently hosted in March. By way of reminder, NextEtics is a new series of customer education and training events launched under our Venus AI rebrand. The Nexetics program represents a great example of how we are enhancing our focus on physician education, practice enhancement by empowering professionals in the aesthetics field with the knowledge, tools and support they need to grow their businesses. Finally, we've had some great success in this past quarter in expanding our commercial strategy to target corporate accounts.

Speaker 2

We secured a recent win for the fast growing multicenter account, which contributed solid system demand for Venus Viva, and more importantly will deliver attractive recurring revenue from ongoing procedure related demand for Veeva tips. More details to follow. With that, let me turn the call over to Dominic for a review of our Q1 financial results and balance sheet at quarter end. Dominic?

Speaker 3

Thanks, Tayman. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the Q1 of 2024 on a GAAP basis and all growth related items are on a year over year basis. We reported total revenue of $17,500,000 down $3,100,000 or 15% year over year. The decrease in total revenue by region was driven by a 15% decrease year over year in U. S.

Speaker 3

Revenue and a 14% decrease year over year in international revenue. The decrease in revenue is primarily attributed to general macroeconomic headwinds that impacted customer access to capital and the effects of tighter third party lending practices, which negatively impacted capital equipment sales. International revenue results were also impacted by the company's strategic initiatives related to exiting unprofitable direct markets in 2023. The decrease in total revenue by product category was driven by a 39% decrease in lease revenue, a 5% decrease in products, systems revenue, a 13% decrease in products, other revenue, partially offset by a 13% increase in services revenue. The percentage of total systems revenue derived from the company's subscription model and lease program sales was quarter of 2023 as evidence of the continued progress in focusing on cash sales.

Speaker 3

Turning to a review of our first quarter financial results across the rest of the P and L. Gross profit decreased $2,100,000 or 15 percent to $11,600,000 The change in gross profit was primarily due to a decrease in revenue in our international markets driven by the accelerated exit from unprofitable direct markets. Gross margin was 66.6 percent of revenue compared to 66.7 percent of revenue for the Q1 of 2023. Total operating expenses decreased $2,400,000 or 11 percent to $19,400,000 The change in total operating expenses was driven primarily by a decrease of $900,000 or 8% in general and administrative expenses, a decrease of $900,000 or 32% in research and development expenses, a decrease of $700,000 or 8% in selling and marketing expenses. Q1 of 20 24 GAAP general and administrative expenses include approximately $900,000 of costs related to restructuring activities designed to improve the company's operations and cost structure and approximately $400,000 of expenses related to the Canada Revenue Agency for denial of Canada Emergency Wage subsidy claims filed by the company for certain periods between 2020 2021.

Speaker 3

The total operating loss was $7,800,000 compared to operating loss of $8,200,000 for the Q1 of 2023. Net interest and other expenses were $2,000,000 compared to $1,200,000 in the Q1 of 2023. The year over year change in net interest and other expenses was driven primarily by an increase in non cash foreign exchange loss of $300,000 compared to a noncash gain of $300,000 in the prior year period. Net loss attributable to stockholders for the Q1 of 2024 was $9,800,000 or $1.68 per share compared to a net loss of $9,700,000 or $1.84 per share for the Q1 of 2023. Adjusted EBITDA loss for the Q1 of 2024 improved 11% year over year to $5,100,000 compared to adjusted EBITDA loss of $5,700,000 for the Q1 of 2023.

Speaker 3

As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release. Turning to the balance sheet. As of March 31, 2024, the company had cash and cash equivalents of 5,100,000 and total debt obligations of approximately $76,700,000 compared to $5,400,000 74 $900,000 respectively as of December 31, 2023. Cash used in operations for the 3 months ended March 31 was $2,900,000 a 51% decrease in cash used year over year. The year over year decrease in cash used in operations was driven primarily by strong working capital performance with more than $4,700,000 of cash generated from working capital in the period.

Speaker 3

The improvement in working capital conversion is primarily related to our strategy to shift the mix of sales to cash versus subscription and lease program sales. Cash used in operating and investing activities during the Q1 of 2024 was partially offset by $2,600,000 of cash from financing activities in the period, driven primarily by the net proceeds of $1,600,000 from a note purchase agreement with EW Investors on January 18, 2024 and the net proceeds of 900 and $77,000 from the sale of 817,748 shares of the company's common stock at a price of $1.46 per share through a registered direct offering on February 22, 2024. Turning to a review of our financial outlook for 2024. As outlined in our press release, given the company's active dialogue with existing lenders and investors and the ongoing evaluation of strategic alternatives with various interested parties maximize shareholder value, the company is not providing full year 2024 financial guidance at this time. For modeling purposes, the company expects total revenue for the 3 months ending June 30, 2024 of at least $16,500,000 With that, I'll turn the call over to the operator to open the call for your questions.

Speaker 3

Operator?

Speaker 4

Thank Our first question comes from Marie Thibault with BTIG. Please proceed with your question.

Operator

Hi, good morning. Thanks for

Speaker 5

taking the questions. Maybe I'll start here. I'd love to hear just a review of what you felt went better than expected in Q1, and a little bit more on assumptions for your guidance for Q2. You gave us that at least $16,500,000 floor, would like to hear what's baked into that?

Speaker 1

Terrific. I think in terms of your first part of the question, Marie, I think the strength in our international markets was better than expected. And as you know, we've been doing this transition from direct presence in many of these markets, distributors and in many cases, this is the first orders. We were

Speaker 2

also

Speaker 1

positively surprised by the strength of the artist system sales outside the U. S. I think that I would say probably exceeded expectations. I think the U. S.

Speaker 1

Performed as expected. It's the macroeconomic headwinds probably impact the U. S. More so than it certainly has in the past. And given those headwinds, we were pleased with the outcome in the U.

Speaker 1

S. As well. With respect to Q2, we see a continued the same type of trends to continue into Q2. The macroeconomic headwinds have not dramatically improved, though in certain spots, they may be showing some signals of doing so. So the pressures in the U.

Speaker 1

S, we expect to continue. And in the international markets, it continue we continue to can expect a little bit of lumpy behavior until we get our new distributors on a more consistent ordering pattern. Hemant or Dominic, anything to add to that?

Speaker 3

No, I don't think so.

Speaker 1

Yes. All right, Marie. Sorry.

Speaker 5

Okay. That's really helpful. Yes, that's very helpful. And then appreciate the efforts that your team has been making on managing working capital and cutting cash burn in the quarter. What else is left to do on managing working capital?

Speaker 5

Is there more that you can be doing to collect receivables, worked out inventory? Any target areas that you see room for added improvement? And thanks for taking the questions.

Speaker 1

Dominic, do you want to take that one?

Speaker 3

Sure. I think the one area that we continue to focus on, on a very selective basis is working with key customers that, for example, like chain accounts that if we can accelerate the collection of amounts owed to us at a reasonable discount, we've been modestly successful in converting some of that. We currently have an opportunity now to convert a $200,000 and we do that selectively with certain customers that owe us for bulk device sales. And that augments our existing focus on cash sales. In addition, you'll notice that our inventory balance is lower and we've put in place a more robust sales and operations planning program that will continue to focus on inventory management in particular because we do think there's some opportunity to better focus on inventory turns and free up some working capital that way.

Speaker 4

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

Speaker 6

Hi, Rajeev, Dominic and Herman. How are you?

Speaker 1

Hey, Jeff.

Speaker 3

Good, thanks.

Speaker 6

So firstly, could you walk through and give us some better metrics or trends on the hair business specifically from the Q1 and how 2024 looks there?

Speaker 1

All right. Good. Dominik, you want to take that one?

Speaker 3

Our hair trends are impacted by the tight capital equipment market. But having said that, in the international side, we did show an improvement over Q4 in terms of artist device sales. But in the U. S, we were slightly ahead of Q4, but still a challenging environment when you're trying to sell a device that is $250,000 in terms of outlay. And the financing environment is such that although capital may be available, it's not as available as it used to be.

Speaker 3

So we're cautiously optimistic about the second half of the year. But in terms of Q1, the underlying strength really came in international through some distributor sales.

Speaker 6

Okay, got it. And then secondly for us, I just wanted to walk through the MSLP loan agreement. So does Madryn currently have the entirety of the 76.7% now?

Speaker 1

That's correct. Madryn owns the entire debt stack at this point, yes. And the face amount is what you quoted.

Speaker 6

Okay. I got it. And just one clarification that you spoke about Q over Q international business plus 30%. Could you talk a little bit about U. S.

Speaker 6

Versus international and call out in particular a few of the territories that are driving international, please? Thank you.

Speaker 1

Dominic, do you want to

Speaker 6

go back?

Speaker 3

Yes. I think on the international front, what we had is a good result, a very good result in Australia in particular. And in addition, we did have a bounce back in terms of our sales in Israel that suffered through a very, very difficult Q4. And there was some traction that we got in the Q1 of 2024 in Israel, notwithstanding a still challenging environment there, obviously. But those were the key direct markets.

Speaker 3

In addition, we continue to make progress on signing up new distributors. So it was a combination of improved performance in select direct markets like Australia and Israel as well as improved distributor performance in Rest of World.

Speaker 1

Okay. Perfect. Thanks, Jeff. And Jeff, I just wanted to amend my answer from before. Just to clarify, our debt stack also includes about $2,000,000 in a convertible note with EW.

Speaker 1

So that is in addition to the to what Madryn owns at this point. Obviously, Madryn still owns the vast majority.

Speaker 6

Got it. The no purchase, the 1.6 you're referencing?

Speaker 1

That's correct. Yes. That's the net amount in the phases, phases 2.

Speaker 6

Okay, perfect. That does it for us. Thanks for taking our questions.

Speaker 4

We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation.

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Earnings Conference Call
Venus Concept Q1 2024
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