Venus Concept Q4 2024 Earnings Call Transcript

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Provided by Quartr
March 31, 2025

There are 6 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Fiscal Year twenty twenty four Earnings Conference Call for Venus Concept Inc. At this time, all participants have been placed in a listen only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay. 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 the 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 annual report on Form 10 ks filed with the Securities and Exchange Commission.

Operator

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 to 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 that are not calculated in accordance with the Generally Accepted Accounting Principles or GAAP. 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.

Operator

I would now like to turn the call over to Mr. Rajeev DaSilva, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Speaker 1

Thank you, operator, and welcome, everyone, to Venus Concept's fourth quarter twenty twenty four earnings conference call. I am joined on the call today by our Chief Financial Officer, Dominic Della Pena. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief review of our fourth quarter results and operating developments in the recent months. Following that, Dominic will provide you with an in-depth review of our fourth quarter financial results as well as our balance sheet and financial condition at year end.

Speaker 1

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, our fourth quarter revenue results were softer than expectations we outlined on our third quarter earnings call. Fourth quarter revenue declined $2,400,000 or 13% year over year, driven by a mid teens decline in systems revenue and to a lesser extent, a mid single digit decline in procedure related products and service revenue. Importantly, the decline in systems sales continued to be impacted by our strategic shift of prioritizing system sales versus subscription sales as expected.

Speaker 1

Lease revenue declined by $3,500,000 or 58% year over year in the fourth quarter, which offset mid teens growth in cash system sales in the period. We are encouraged that our commercial team's focus on prioritizing cash deals is is proving effective. Cash system sales in The U. S. Increased 27% year over year and represented 87% of total U.

Speaker 1

S. System sales in the fourth quarter compared to 58% last year and 70% in the first nine months of twenty twenty four. We continue to believe that our efforts to reposition the business to prioritize cash system sales is the right strategy to enhance the company's long term profitability profile. While we were pleased to see strong growth in cash system sales in The U. S.

Speaker 1

In the fourth quarter, global systems adoption continues to be impacted by macroeconomic headwinds, which are impacting this aesthetic sector as a whole. Customer financial pressures, economic uncertainty, high interest rates and tighter credit markets continue to impact customer system adoption throughout our business. The softer than expected total revenue results in Q4 were driven primarily by continued macro related challenges impacting the overall time to close deals. In addition, we also experienced VNS specific factors, which impacted our ability to close systems deals, specifically a supply related shortfall in inventory of select products. I'm proud of our team's continued commitment to our strategy despite the challenging operating environment.

Speaker 1

The U. S. Team delivered fourth quarter cash systems growth of 48% on a quarter over quarter basis. U. S.

Speaker 1

Cash system sales represented the majority of our U. S. Systems revenue in the period, which reflects the team's strong execution towards our strategic priority to transition the company to higher quality cash revenues. Our efforts to reposition our international business from unprofitable direct markets to partnering with high value distributors are also proving effective. Sales distributors more than doubled year over year in Q4, fueled by demand from new and existing distribution partners in the APAC and EMEA regions.

Speaker 1

While we expect continued fluctuation in ordering patterns from distribution partners in key international markets, we are encouraged by the early evidence that our efforts to evolve our OUS commercial strategy to enhance future growth and profitability are on the right track. Stepping back, our revenue results in fiscal year twenty twenty four reflect a decline of 15% year over year, which is better than the performance many of our competitors delivered this year. It is important to remember that our total revenue results reflect the impact of the strategic initiatives we have executed throughout the year, primarily the shift to prioritizing cash system sales, which had a material impact on our total revenue results in 2024. Specifically, more than 60% of the year over year decline in total revenue this year is a result of our transition away from subscription system sales. Importantly, we believe the impact on our year over year growth profile from the strategic transition is behind us, and we look forward to a more normalized business profile going forward.

Speaker 1

However, our quarterly business performance will continue to be impacted by macroeconomic headwinds. Despite these challenges, we remain focused on our strategic initiative to enhance the cash flow profile of the business and accelerate the path to long term sustainable profitability and growth. We outlined the key elements of our transformation strategy on our fourth quarter call last year, specifically cost reductions, shifting to cash sales and working capital management. The team's strong execution towards each of these key elements in 2024 contributed to this achievement. We achieved a 14% reduction in our cash used in operations year over year in 2024, which we view as solid performance given the continued headwinds to revenue growth that aesthetic sector participants have been facing over the last year.

Speaker 1

We continue to believe that the reduction in cash used in operations represents the clearest evidence that we are making progress with respect to the key elements of our transformation strategy. Our priority now is to return to growth as a substantial part of our operational turnaround is complete. We are actively working on evolving our portfolio and look forward to announcing our next body device in the near future. We believe that the increase of GLP-one usage by consumers is an exciting catalyst for the industry and a chance for Venus to highlight the complementary benefits of our body technology, specifically Skin Tight to our customers that are on weight loss medications. Now, before I turn the call over to Dominic, I wanted to provide an update on a few areas of notable progress and operating developments in 2024 and in recent months.

Speaker 1

First, we made material progress towards our strategic initiative to restructure the company's debt obligations and secure bridge financing in 2024. As of 12/31/2024, the company had total debt obligations of approximately $39,700,000 down 47% from $74,900,000 outstanding as of 12/31/2023. The substantial reduction in overall debt is evidence of continued progress in the restructuring of the balance sheet and will enable us to be best positioned for future growth. Second, on 02/25/2025, the company announced several changes to its senior leadership team, including the following: Doctor. Hemant Waghees, President and COO, departed the company to pursue other opportunities effective 03/28/2025 and Bill McGrail, EVP, Technical Operations and Compliance, retired effective 02/28/2025.

Speaker 1

Kirk Garnes was appointed Chief Revenue Officer, with global responsibility for Venus' sales efforts. Prospero was appointed as EVP, Commercial Strategy and Head of Venus Aira, with a primary focus on overseeing Venus Air expanding their business in all jurisdictions and evaluating strategic opportunities. Melissa Kang, the company's former EVP, Global Marketing and Product Management, was appointed Chief Product Officer. Michael Mandarello, the company's Chief Legal Officer, was appointed Head of Strategy and Operations to include the oversight of Venus' corporate strategy and operational execution in addition to its existing responsibilities. This new management structure is designed to streamline decision making and best position the company for its return to growth and its journey towards profitability.

Speaker 1

This reorganization demonstrates our commitment to building the right team to enable future growth and maximize upcoming new product launches. I look forward to working with Kirk, Ross, Melissa and Michael in their new roles. I also want to share my appreciation for the pivotal role Hemant has played in executing the company's transformation efforts over the last two years and want to congratulate Bill on his well deserved retirement. In addition, on February 27, the company announced a one for 11 reverse stock split of the company's issued and outstanding common stock. The company's common stock began trading on the NASDAQ Capital Market on a strict adjusted basis at the open of trading on 03/04/2025.

Speaker 1

Venus stock traded above $1 for ten consecutive trading days followed the completion of the reverse stock split. And on 03/18/2025, we received a formal notice of compliance from NASDAQ. Finally, on March 28, we announced an amendment to a bridge loan agreement with Madryn Asset Management that will increase our financing capacity by $10,000,000 This is evidence of the continued financial commitment from Madryn in our ongoing partnership. With that, let me turn the call over to Dominic for a review of our fourth quarter financial results and balance sheet at year end. Dominic?

Speaker 2

Thank you, Rajeev. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the fourth quarter of twenty twenty four on a GAAP basis and all growth related items are on a year over year basis. We reported total revenue of $15,800,000 down $2,400,000 or 13% year over year. The decrease in total revenue was driven by a 13% decrease year over year in both United States and international revenue. As Rajeev mentioned earlier, the decrease in total revenue by product category was driven primarily by a 58% decrease in lease revenue, cash systems revenue and sales of products and services increased 10% year over year in Q4.

Speaker 2

The percentage of total systems revenue derived from the company's internal lease programs, Venus Prime and our legacy subscription model, was approximately 20% in the fourth quarter of twenty twenty four compared to 41% the prior year period. Our focus on prioritizing cash system sales has been enhanced through various partnerships secured with preferred lenders in The U. S. And in other key international markets. These preferred lending arrangements assist us in accelerating the lending approval cycle, offering competitive financing solutions to our customers and accelerating our cash funding requirements.

Speaker 2

The decrease in utilizing our internal lease programs is partially attributed to the recent success of these preferred lending arrangements. The overall percentage of total systems revenue derived from our internal lease programs declined from approximately 42% in fiscal year twenty twenty two to 33% in fiscal year twenty twenty three and twenty six percent in fiscal year twenty twenty four. As discussed on our recent investor calls, this strategic initiative has been a key driver of the significant improvements in cash generation and is consistent with our focus on quality of revenue. In the current macro environment, third party lending has tightened and so has access to capital. These conditions often result in the postponement of capital equipment purchases.

Speaker 2

With this in mind, the ability to offer Venus Prime represents a valuable option to help with new system sales. While we continue to favor cash system sales with our new target of roughly 70% to 75% of total systems revenue coming from cash sales, we are very pleased to have the unique lever of our Venus Prime program as a key differentiator from competitors. Turning to a review of our fourth quarter financial results across the rest of the P and L. Gross profit decreased 1,200,000 or 10% to $10,900,000 The change in gross profit was primarily due to the effects of tighter third party lending practices, which negatively impacted capital equipment sales in both The U. S.

Speaker 2

And international markets, partially offset by an improvement in third party international distributor revenues. Gross margin was 69.1% of revenue compared to 66.5% of revenue for the fourth quarter of twenty twenty three. Our continued focus on margin management was the largest contributor to the year over year change in gross margin, while the change in revenue mix by geography, by product and by channel was a contributor. Total operating expenses decreased $2,100,000 or 11% to $17,600,000 The change in total operating expenses was driven primarily by a decrease of 1,300,000 or 13% in general and administrative expenses, a decrease of $700,000 or 8% in selling and marketing expenses, a decrease of $200,000 or 12% in research and development expenses. The reduction in fourth quarter twenty twenty four operating expenses reflects our continued progress and cost containment and streamlining of our operations.

Speaker 2

GAAP operating loss was $6,700,000 compared to $7,600,000 in the fourth quarter of twenty twenty three. Net interest and other expenses were $2,100,000 compared to $3,700,000

Speaker 1

in the fourth quarter of twenty twenty three.

Speaker 2

The year over year change in net interest and other expenses was driven by non cash foreign exchange loss of $1,000,000 compared to a non cash gain of $700,000 last year. Interest expense on outstanding borrowings of $1,100,000 compared to $2,200,000 last year and a $2,000,000 non cash loss on debt extinguishment in the fourth quarter of twenty twenty three, which did not impact current period results. Net loss attributable to stockholders for the fourth quarter of twenty twenty four was $8,000,000 or $11.23 per share compared to a net loss of $11,100,000 or $20.14 per share for the fourth quarter of twenty twenty three. Adjusted EBITDA loss for the fourth quarter of twenty twenty four was $6,100,000 compared to $5,900,000 last year. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release.

Speaker 2

Turning to the balance sheet. As of 12/31/2024, the company had cash and cash equivalents of $4,300,000 and total debt obligations of approximately $39,700,000 compared to $5,400,000 and $74,900,000 respectively as of 12/31/2023. The 47% reduction in debt obligations in fiscal year twenty twenty four demonstrates our commitment to deliver the balance sheet and improve the financial profile of the company. As Rajeev mentioned previously, we announced an amendment to our bridge loan agreement with our primary lender, Madryn Asset Management that increases our financing capacity by $10,000,000 We continue to enjoy the support of Madryn as we execute on enhancing the financial profile of the business. Cash used in operations for the three months ended December 31 was $3,800,000 compared to $800,000 last year.

Speaker 2

The year over year change in cash used in operations was driven primarily by changes in net working capital, offset partially by an improvement in net loss year over year. Note, approximately half of the year over year increase in cash used in operations was related to an increase in advances to suppliers as part of our efforts to secure requisite supply of component inventory to avoid continued impacts on sales on system sales due to shortages. Despite the increase in cash used in Q4, we are very proud of our continued improvement in reducing our cash used in operations in 2024 despite the challenging operating environment. We remain intently focused on further enhancement of the balance sheet and cash flow profile of our business and believe we have the right strategy to build foundation to support our growth and profitability goals in the years to come. Lastly, with respect to our financial outlook for 2025, 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 to maximize shareholder value, the company is not providing full year 2025 financial guidance at this time.

Speaker 2

The company expects total revenue for the three months ending 03/31/2025, of at least $14,000,000 With that, I'll turn the call over to the operator to open the call for your questions. Operator?

Speaker 3

And our first question will come from Marie Thibault with BTIG. Please proceed with your questions.

Speaker 4

Hi, good morning. Thanks for taking the questions. I appreciate that you're not able to give 2025 guidance, but I did catch the commentary that post the strategic shift, you're looking for a more normalized business profile going forward. Can you characterize that for me a little further? It's just a little hard to know what a normal business profile is given the macroeconomic conditions.

Speaker 4

So, any more details you can give on that would be helpful.

Speaker 1

Yes. Hi, Marie. This is Rajeev. Thank you for the question. As you said, with the macroeconomic environment, it is a little hard to predict, right?

Speaker 1

Now in addition to that, obviously, we've been through a lot of structural changes in the business. And I think what we're saying is that those structural changes are now behind us.

Speaker 5

And

Speaker 1

as we look forward to the rest of 2025, we would expect our performance versus prior year to begin to improve versus last year. In other words, we do not expect to see the level of decline versus last year versus prior year as we did in 2024. What's difficult to predict, of course, is what's going to happen in the global economy, the tariffs impact on the business, etcetera, And that's why we're being cautious. We're also being cautious because we continue to expect to have results from our strategic review of the business, which has obviously taken a little bit longer than expected. But in light of all of that, we didn't think it was prudent to have full year guidance.

Speaker 4

Okay. That's very helpful, Arjji. Thank you. And then my follow-up, wonder if you could give us a little more detail on how the Venus Hair business is going. I know that has been in the past sometimes a bright spot for the business.

Speaker 4

I know it's a well regarded product for sure. So I'm curious how customers are viewing that, if there's been much uptake, what volumes are like, just some more detail on the hair business. Thank you.

Speaker 1

Sure. We don't as you know, we don't give product level guidance, but we are pleased with the performance of the Venus hair business. And as you know, it's one of our higher priced piece of equipment. And despite that, we've had good performance with the particularly on the Venus robot, ARTIS robot, both in The U. S.

Speaker 1

As well as outside The U. S. I think more importantly, we have also been, despite our financial constraints, we worked on some pretty important R and D innovations around the robot and we look forward to progressing those in 2025. And then finally, it is also one of these businesses because of its profile. And as you pointed out, how well it is received by customers that we've had more strategic interest in that specific business, right?

Speaker 1

So we continue to evaluate those options as well as progress our internal R and D efforts. And it is an important value driver for the company.

Speaker 4

Well understood. Thank you so much.

Speaker 1

Thank you, Mary.

Speaker 3

Thank you. The next question is from the line of Jeremy Prohm with Maxim Group. Please proceed with your question.

Speaker 5

Thank you for taking my question. Good morning. Just it seems you mentioned

Speaker 1

on the call that most

Speaker 5

of the strategic shift is done in 2024 is now behind you. So maybe you could be just talk a little bit about going into 2025, what's your strategy to maybe see some top line growth just across the business? Thanks.

Speaker 1

Sure. So outside The U. S, it's really about getting to a normal rhythm of ordering with our new distribution partners. I think as you said, the shift to distribution is complete, but distributor orders tend to be lumpy by its sheer nature. And one of the things we need to do in 2025 is to get to a bit more of a rhythm with those orders.

Speaker 1

And I suspect it will take us a couple of quarters to get to that point. But once we do, I think that we do look forward to growth in our international business. In The U. S, we look forward to launching our new body system sometime later this year. We have not given specific guidance as to when we expect that to be, but we are cautiously optimistic that it will be sometime in the early part of the second half of the year and that we expect to be an important driver for the business.

Speaker 5

Understood. And then maybe I know you've taken cost cutting measures. Is there anything left on the table that you could or that you could still see as gaining some extra savings there or are you operating as lean as possible?

Speaker 1

Yes. Look, I think we're at a point where the infrastructure is pretty efficient. And really, what the issue is lack of critical mass of sales, right? So in other words, with this existing cost base, we should be able to support a much higher level of sales. So we don't expect to need to add substantially to the cost base other than variables.

Speaker 1

There are some marketing expense that kind of expands with sales as we go. But we also don't think there are large areas of cost reduction opportunities that we have missed. Okay. And then just

Speaker 5

one last quick question. Everyone's it's a hot topic, tariffs. How would is that affect how would that affect your business at all, maybe more internationally in The U. S? Are your products produced in The U.

Speaker 5

S? I'm just curious maybe talk about how tariffs could have an effect on your business? Thanks.

Speaker 1

Sure. So our products, it depends on the business. Our robot is assembled and manufactured in The U. S. Our energy based products for the most part are manufactured in Israel.

Speaker 1

And depending of course, nothing is certain for sure, but so far, Israel has been protected from the increased tariffs. So from that standpoint, we do not expect a substantial near term impact on our business.

Speaker 5

Okay, great. Thank you so much for taking my questions.

Speaker 3

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

Speaker 1

Thank you.

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