Q2 2020 Venus Concept Inc Earnings Call
Please standby.
Good afternoon, ladies and gentlemen.
To the second quarter of 2020, <unk> earnings conference call for Venus concept.
At this time, all participants happened placed in 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.
Putting those identified in the risk factor section of our most recent annual report on form 10-K filed with the Securities and Exchange Commission.
Such factors may be updated from time to time in our filings with the FCC, 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 generally accepted accounting principles or gap.
We generally refer to these as non-GAAP financial measures reconciliations of these non-GAAP financial measures to the most comparable measures calculated and presented in accordance with gap or available in our earnings press release issued today on the Investor Relations portion of our website.
I would now like turn call over to Mr. Dumpster, Pheno Chief Executive Officer RV. This concept. Please go ahead Sir.
Thank you operator, and welcome everybody to Venus concepts second quarter Twentytwenty earnings Conference call.
I'm joined today on the call by our Chief Financial Officer, Dominic Dellapenna and sharing our chief commercial officer.
Let me start with a brief agenda, what we will be covering today during our prepared remarks.
I will start with an overview of our revenue performance in the second quarter, including color on how our business trends were impacted by covert Nike and how we have managed the business to make sure we're well positioned for our recovery.
After my opening remarks, Dominic will provide you with a more in depth review of our quarterly financial results. It's always a summary of our balance sheet and financial condition.
And then we will open up the call for your questions without in more.
Let's get started.
[music] well begin with a review of our second quarter revenue performance.
We reported GAAP revenue of 17 million for the second quarter of 2020, representing a decrease of 39% year over year, but at the high end of our preliminary revenue range, which we announced on July 15.
As expected our sales performance in the second quarter was significantly impacted by business disruption caused by the global pandemic.
Discussed in our Q1 call in mid May April was unlike any months I've ever experienced in the sector, a roughly 95% of our U.S. customers were closed during the month.
And as a result, as a result, a federal restrictions and our U.S. sales declined 55% year over year and the fundamentals will worsen our primary markets outside of the U.S.
It was a painful first mark on the quarter to say the lease but the organization rallied I'm very proud of how their hard work and dedication had us well position to bounce back as the operating environment began to improve in may and throughout Europe.
The end of May roughly 30% of our customers were open and more than 40% were opened by the end of June. These reopenings were followed by a steady increase in procedures as many of our customers had built solid pipelines a future procedures by leveraging virtual technologies to conduct patient consultations well their offices.
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In the U.S. after a difficult April we saw improving year over year device sales trends in May and then sharp improvement.
And our year over year device sales trends for the month of June although we're still flat on a year over year basis for the month of Jim.
Outside of the U.S., we saw similar improvement in sales trends and make compared to April and June showed a material improvement in trends compared to me. However sales for the month of June were still down more than 20% year over year.
The recovery is best categorized as improving but there are certainly pockets of strength and relative weakness depending on the region of the country and this is definitely the case as you look across the many regions of the world in which we operate.
As of the end of July roughly 65% of our U.S. customers were open.
Based on our feedback from our customers and the strong visibility we have into the usage and procedure activity for a large portion of our installed base in a systems, we're really encouraged.
The recovery that is taking shape and that our U.S. customers are on the path to pre covert productivity.
As for our business outside of the U.S. in total we did see an improvement in sales trends during the month of July although there was a wide variety of variability in the pace of recovery depending on the region. We had a very strong July in EMEA region.
But this was offset by softer trends in Asia Pac and certain countries in Latin America.
Well the year over year decline in revenue for the second quarter was quite shocking at face value. It was largely expected given our overall exposure to elective procedures.
The medical aesthetics and hear restoration markets have been significantly impacted by the disruption caused by the global pandemic.
And well a significant amount of uncertainty around the pace and timing of the global recovery remains we continue to believe that we're well positioned to return to above market growth and significant market share gains as the global recovery takes shape over the second half of 2020.
Our confidence in this belief is driven by the early evidence that we are seeing both in terms of driving growth in key areas of commercial focus and in terms of improving profitability as a result of the strategic initiatives outlined in our Q1 call.
These street strategic initiatives are squarely focused on enhancing our competitive positioning and maximizing our capital as the global recovery progresses.
Let me share a few thoughts on the early evidence of success in each of these areas.
Firstly, the new commercial strategy for the artists an artist I ask systems products and services is focused on driving broad based adoption and utilization, which has not happened to under the fire management of restoration robotics.
By the by way of reminder, through our three tenants to this new commercial strategy first and improved pricing model, where we significantly lowered the list price of the artist system, while still improving the gross profit margin profile as a result of the significant reductions in the cost of the goods we identified.
The second tenant of this new commercial strategy is a target a plan to engage with clinicians to reinvigorate invigorate underutilized artist systems, including practice enhancement managers and customer focus tear technicians like our mirror graft or program and importantly.
The third key tenets of the new commercial strategy, which we believe will improve the growth and trends for artists is the fact that we're now able to offer the most comprehensive hair restoration solutions offering available today. This point really cannot be overstated with artist Aneel graph. We now have an end to end portfolio minimally invasive solutions.
Unique from any competitor in this 4.1 billion dollar global here restoration market.
Simply stated our your commercial strategy is clearly working sales or the artist systems and products in the second quarter increased 11% year over year to 3.3 million. The sales results were driven by new system adoption and strong procedure growth compared to the prior year period.
We've sold systems to new customers in both the U.S. and outside of the U.S. and we are encouraged by the improving utilization trends for our U.S. customers, where utilization increased more than 40% year over year in June and July.
Overall, we believe the new commercial strategy has led to improving results during the second quarter and in July impressive performance given the challenging operating environment, we work under.
We're also seeing early evidence of success in our goals to enhance our competitive position positioning, which we outlined in the Q1 call.
Chad Jerry has been instrumental in executing these initiatives which include.
Consolidation of direct selling patients in certain international markets and investing that capital in the higher return more attractive U.S. market.
Enhancing our sales leadership team by eliminating multiple layers of sales management positions and duplicated positions throughout the sales organization and calling on performing reps underperforming reps importantly, we have relocated a portion of these savings towards the expansion of our North American direct sales team, which we believe offers the highest we.
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Lastly, we implemented a more targeted near term commercial strategy during Q2, which is focused on optimizing our pipeline and sales process tightening clinician targeting tailoring our sales strategies, depending on the geographic region of the country and arming our direct sales team with programs and messaging focused on six key product lines.
Within our broad portfolio of 12 commercialized products.
Importantly, the changes to our direct sales infrastructure and more targeted near term commercial strategy have not altered our commitment to our high touch customer focused philosophy, which builds long term relationships with our customers supported by our outstanding marketing team continuous clinical education practice enhancement programs and much more.
These efforts to enhance our competitive position are already paying dividends, our second quarter sales results in the U.S. benefited from this strategic focus and we are seeing struck strong pipeline, thus far in the third quarter, which further supports our cautious optimism in our ability to drive improving sales performance over the balance of 2020.
We also made notable progress in our efforts to reduce our operating expenses profile during Q2, which Dominic will discuss in greater detail in a few moments by way of reminder, as discussed in our last call. We conducted a full review of our operating budget for 2020 in April and announced or were you and your restructuring program and identified additional operating.
Auction opportunities of at least 20 million, which we expect to realize in 2020 to 21.
This new restructuring program combined with the previously announced synergies and cost reductions is expected to result in a total cost savings of approximately 38 million in 2020 continuing into 2021.
Simply stated we expect these efforts to result in a significant improvement in the Companys financial profile going forward and allowing us to maximize our capital.
I wanted to highlight one other item before I turn the call over its a dominant specifically the significant progress. We have made this year in the area of R&D, which we believe is a key driver for our long term value creation.
Discussed on prior calls our longer term R&D strategy is focused on leveraging the potentially powerful combination of Venus expertise and noninvasive energy based technology solutions for a static applications with restorations robotics expertise and robotic technology, three d. PR pre operative planning and saw.
More specifically, we believed that there is a compelling opportunity to introduce new minimally invasive robotic solutions beyond hair restoration for medical aesthetic procedures that are not only treated that are currently only treated by surgical intervention today.
Combination of our manufacturing capabilities in Israel, and restorations deep IPO IP portfolio and strong robotic capabilities in San Jose has us well positioned to develop the next generation of robotic technologies for medical aesthetic applications that are truly disruptive and that is exactly what our teams of it and that's exactly what our teams have been working on diligently.
This year.
We are excited with the progress that we are making in this product development and we believe this new technology will offer dermatology and plastic surgery minimally invasive robotic solution for medical aesthetic procedures. They will improve the safety profile predictability of but and then clinical outcomes and will also offering significant competitive advantage to this group.
A poor physicians in the areas of marketing a new customer acquisition.
We plan to hosting a virtual R&D that this fall where analysts and investors can learn more about the progress we have made and product development as well as our near and longer term strategy in this exciting area of Nexgen medical device innovation.
With that said, let me turn the call over to Dominic Dellapenna Who'll provide a detailed review of our second quarter financial results and discuss our balance sheet and financial condition Dominic.
Thanks, Don My prepared remarks. This afternoon will focus on the company's reported results on a GAAP basis, unless otherwise noted to avoid confusion when evaluating our reported results are when reviewing our historical financial results and that they see filings.
We highlight a few items regarding our merger transaction with restoration robotics first reported results prior to the fourth quarter of fiscal year 2019 reflect the business operations and performance of the legacy Venus concept business referred to as Venus concept Ltd, and our FCC filings.
Again, beginning with the fourth quarter and fiscal year 2019 periods. Our reported results include the contributions from restoration robotics.
Second quarter total GAAP revenue decreased 10.8 million or 39% year over year to 17 million adds reported on our GAAP income statement total lease revenue decreased 9.2 million or 55% year over year to 7.5 million and total products and services revenue.
Decreased 1.6 million or 15% year over year to 9.6 million.
The decrease in lease revenue and in products and services revenue in the second quarter of 2020 was driven primarily by the business disruption caused by the global pandemic total products and services revenue in the second quarter of 2020 included 3.3 million from the sale of artists and artist IOC systems probably.
Dixon services sales of artists systems products and services increased 11% year over year as compared to 2.9 million of revenue and the second quarter of 2019 that restoration robotics reported when they were a standalone public company.
Turning to a brief review of our revenue performance by geography, and product line, which incidentally is how we report and discuss revenue in our 10-K and 10-Q filings the year over year change in second quarter total GAAP revenue by geography was driven by an 8 million dollar decrease or 50%.
Year over year, and international sales and a 2.8 million decrease or 24% year over year in U.S. sales compared to the prior year period.
The year over year change in second quarter total GAAP revenue by product category was driven by a decrease of 9.2 million or 55% year over year and leases revenue, which is where our subscription program as reported and represents all system sales with typical lease terms of 36 months.
A decrease of 1 million or 13% year over year in system revenue, which our cash sales where sales of systems with payments expected in less than 12 months and a decrease of 0.8 million or 45% year over year in service sales.
These decreases were partially offset by an increase of 0.2 million or 10% year over year in sales or procedure related products, including our audit artists kits and are there consumable products.
Turning to a review of our second quarter performance across the rest of the piano.
Gross profit for the second quarter, 2020 decreased 8.2 million or 41% year over year to 11.9 million, representing a gross margin of 70% compared to a gross margin of 72.2% last year.
The primary driver of the year over year change in gross profit was lower revenue as a result of cobot related business disruption.
The primary drivers of the year over year change in gross margin were directly related to sales of artists system, representing a higher mix of total sales this year as well as inventory fair value adjustments recognized on the business combination with restoration robotics compared to the prior year period, which was not impacted by the.
Just items, having not yet closed the merger transaction.
No one item that is not readily apparent in our GAAP gross profit margin results. This quarter is the improvement we saw in restoration robotics gross margin, which were approximately 50% in Q2 2020.
Compared to approximately 42% in Q2 2019. This improvement reflects the early evidence of our strategic initiative to improve the long term profitability of artists related sales.
Total GAAP operating expense decreased 2.9 million or 12% year over year to 21.1 million.
The decrease in total operating expenses was driven parent primarily by a decrease of 5.7 million or 56% in sales and marketing expenses and to a lesser extent, a decrease of 0.4 million or 18% and research and development expenses offset partially by a 3.1 million.
26% increase in general general and administrative expenses.
Our to our Q2 GAAP Genie was impacted by two items that were incremental to our normalized Opex first we recorded a 3 million dollar bad debt charge, driven by covert 19 reductions and the collections of accounts receivable from our subscription customers across the markets we operate in.
Second we had a zero point fourmillion loss related to the sale of our 51% share and our Bulgarian subsidiary Venus concept Central Eastern Europe limited to a third party in the period. This transaction was a direct result of one of the strategic initiatives Don mentioned earlier, specifically the consolidation of.
Direct selling operations in certain international markets, and investing that capital and the higher return more attractive U.S. market.
Excluding these two items, our GAAP t. any expenses would have declined year over year. Despite absorbing the operating expenses from our merger with restoration robotics, which did not impact GAAP opex in the second quarter of 2019.
Our second quarter operating expense performance includes significant profit progress and our renewal restructuring program.
By way of reminder, this new restructuring program was initiated in response to the challenging business environment caused by covert 19 and is expected to contribute to our overall strategy of financial improvement through the elimination of overhead and streamlining of certain enterprise functions.
This restructuring program is mainly focused on a combination of permanent head count reductions hiring freezes temporary unpaid leave and have reduced work week for certain employees and a reduction of discretionary spending across all departments.
We realized cost savings from this new restructuring program of more than 7 million during the second quarter and we continue to expect to realize 20 million of cost savings for the full year 2020.
Total operating loss in the second quarter of 2020 was 9.2 million.
Compared to an operating loss of 3.9 million and the prior year period.
Net loss attributable to Venus concept Inc. for the second quarter of 2020 was 13.2 million or 39 cents per share compared to 5.9 million or $1.24 per share in the prior year period.
Weighted average shares used to compute net loss attributable to Venus concept inc. holders per share were 33.3 million and 4.8 million for the second quarter of 2020, and 29 team respectively.
Net loss attributable to Venus concept inc. for the second quarter of 2020 included a noncash deemed dividends beneficial conversion feature of 3.6 million related to the series a preferred stock conversion, which occurred on June 16th 2020.
Adjusted EBITDA loss for the second quarter 2020 was 2.6 million compared to adjusted EBITDA income of 155000 for the second quarter of 2019, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA in our press release this afternoon.
Now turning to the balance sheet.
The company had 14 million and 15.7 million of cash and cash equivalents as of June Thirtyth 2020, and December 31st 2019, respectively, and total debt obligations of approximately 73.3 million, including line of credit borrowings of 3.9 million and government assistance.
Loans of 4.1 million compared to total debt obligations of approximately 69 million, including line of credit borrowings to 7.8 million at December 30, Onest 2019.
The year to date change in cash was driven by an increase of 23.1 million in cash from financing activities.
Offset by use of cash from operating activities of 24.7 million the increase in cash from financing activities was driven primarily by.
Proceeds of 20.3 million from our private placements in Q1.
Proceeds of 4.1 million from two small business loans under the federal Paycheck Protection program provided under the cares Act and proceeds from the issuance of common stock to Lincoln Park of 3 million under our new equity purchase agreement, which we signed in June.
Offset partially by repayment of our credit facility of 3.9 million.
Finally on June Thirtyth, the company entered into an amended agreement with madron, which costs, where interest payments for the peak period, beginning January Onest, 2020, and ending and including June Thirtyth 2020 to be paid in kind as of June Thirtyth 2020, the company wasn't compliance with all required.
Covenants.
Turning to a review of our guidance due to to the rapidly evolving environment and continued uncertainties uncertainties from the impact of covert 19 on March Thirtyth 2020, the company withdrew its previously announced fiscal year 2020 revenue guidance.
Which was issued on January 13th 2020 at this date the company cannot predict the specific extent or duration of the impact of the covert 19 outbreak on its financial and operating results for this fiscal year 2020, as such we're not able to provide financial guidance at this time, we plan to provide additional information.
And to the extent practicable during our third quarter of 2020 earnings call.
While we are not in a position to offer formal guidance at this time, we would like to offer the following considerations for modeling purposes.
The combined companies had a total opex of 34.6 million in Q3, 2019, roughly a third of which came from restoration robotics.
The combined Opex in Q3 2019 included approximately 7.5 million of merger related costs. So the normalized Opex was 27 million in Q3 2019.
In total we expect to realize a 9 million reduction year over year and combined company normalized opex in the third quarter of 2020, which implies roughly 18 million of GAAP Opex in Q3 2020.
With that operator, we will now open the call to your questions operator.
Thank you.
If you'd like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
We do ask that you limit yourself to one question and one follow up.
If you would like to ask additional questions. We invite you to add yourself to the Q again by pressing star one.
[noise] and our first question comes from Serasa Calia with Oppenheimer and company. Please state your question.
Good afternoon, Dom Dominic Chad hope, everyone is safe and healthy can you hear me right, Yeah, Hi, Raj how are you ice Raj.
So all the Dom couple of questions for you and maybe Chad can chip in in one question for Dominic.
It does that were not lot of numbers floating around so forgive me if I missed as tried to.
Keep pace with the commentary so the charges you was busy in Q2 was down 24% year over year I.
Thanks, I heard you see that by end of June 40% of customers were offline.
Maybe I screwed that up but I guess my point is if you can just walk us through the cadence in Q2 again.
Yes, so listen to fear U.S. business was up and going and in a normalized circumstance, we'll do they usually contribution.
Right. So on an in a normalized basis, the U.S. business represents about 45% of our global consolidated revenues.
Just a question a little bit on the on the business trends in April about 5% of our customers were open.
In may that grew to 30% because of obviously regional.
Disparities, there and by the end of June we were working with about 45% of our customers being active so 60% we're still dark.
And during this period of time trial, we spent most of our time doing was for targeting our are pretty substantial customer base in the United States and working on creating a very solid pipeline for obviously future consideration as we moved into Q3 and into Q4.
So overall, our sales trends in April were down 55% year over year made demonstrated an improvement year over year on the device sales and in June we started to really see as as you know the broader markets open.
A very significant improvement in our sales trends and specifically in the areas of artists and in our Venus Bliss product.
Fair enough. Okay. So it doesn't it on product specific issues on the Venus plus maybe you can provide us the the latest and greatest on the uptake profile you know, it's competitive positioning and maybe Chad you can just chime in on you know a sneak peak on.
Oh, you had mentioned jump that commentary on robotics and minimally invasive aesthetic procedures. If you can just give us some additional color that that would be great.
Right. So I'll touch the first part then I'll pass it over to shop, but.
As you May recall, we in the in North America, we were in soft launch mode in Q1, and combined with our challenges of getting some of the component parts out of China. While we were pleased with what we were able to realize in terms of sales in Q1, we were in full launch mode in Q2.
We were able to keep up with the demand that we had which has significantly improved and on targets, where we would have normally been under normal circumstances. So I can't stress. This enough that while we don't obviously get into unit counts and so on a projection percent perspective, our assumptions related to the price competitor.
I've noticed the three year warranty and no disposable element to this product compared to our peers, who sell a one year warranty with their devices and have a typical utilization charge of somewhere between 150 and $250 per treatment.
This seems to be working really well for us lastly on the product itself I think that one of the things that we need to remember about the Venus Bliss is that we built a device to not only treat five non invasively, but to simultaneously do a body contouring treatment in conjunction with the fat reduction treatments. So patients are getting more back.
All you further treatment dollars compared to our peers.
As it relates to robotics, perhaps Chad you want to give you know sort of a little bit of an overview there.
Sure.
We were able to see strong improvements in robotics cells are both on the capital side into utilization side and you know if you look at our commercial strategy, we outlined which is an improved pricing model.
So making the barrier of entry lower you know for physicians and core doctors that want to get into robotics.
Focusing on reinvigorating underutilized systems, which is a core tenant of selling the capital is creating strong utilization at the installed base and then <unk> end to end product portfolio of artists in New York graphs, and giving customers kind of a one size fits all model to start a hair rest.
Racial practice, we saw good return from that.
Second quarter.
Got it.
Fair enough and Dominic one final question for you is sort of a two part question.
Generally speaking the Dominic our credit terms changing idled seeing that in the U.S. and Oh U.S. and also how should we think about our our contribution for Q3 in Q4, it sounds counterintuitive right artist it pretty well in the quarter.
And you would think capital equipment would be relatively cheap you know at least what we're seeing in other sectors. It's getting hit harder. So just kind of walk us through how we should think about the next two quarters not necessarily guidance, but just to get our arms around because gross margin also ticked up.
Any color there would be great and also more importantly, what's happening with credit terms that you guys are seeing gentlemen, thank you for taking my questions and stay safe.
Sure. So on the credit terms side I mean, we we haven't really changed our requirements in respect of the subscription model, we're being very very careful in this environment, which is why we have not focused more on subscription sales.
But our terms are basically the same.
We do want to make sure that we get a down payment and we do want to make sure that the customer we're dealing with has had good.
Capability to pay based on whatever public reference checks we can make.
So there's still that that diligence that we have and in fact were a bit more diligence on our end to make make sure that we qualify the customers appropriately, especially if they're signing up for you know a package that's north of $100000 is there's a little more care there because there's more at risk.
But in terms of our approach not much has changed but we're a bit more careful now in terms of the global credit markets. Obviously, they you know the overnight rates have come down the 30 day LIBOR is next next the negative.
So those other factors, there's a lot of quantitative easing and and you know easy money policy, that's out there, which I think will help but certainly we feel a bit bullish about Q3 in Q4, especially in the U.S. notwithstanding the fact that the pandemic is still alive and well.
But there is signs of resurgence as we've seen in Q2. Your question around artists and we're kind of bucking. The trend I think I think yes. We are strategy is working but I understand that you know a year ago. This business within a bit of disarray, we're starting to put the pieces to go.
Whether to make sure that works both on the you know on what is the right price points. What is the right margin that we watch and as well how do we drive utilization and all three of those as have worked very very well for us and the first half of this year and DAMI Comcast's Ross I, just want to add one more point to that part of the story because.
We knew we broke we bought a broken asset, but last year, but we understood that the product was very promising if it had the proper attention and by that I mean by having a global footprint to could support the installed base with restoration Didnt traditionally have always interesting about the performance in Q2 is we had virtually an eagle.
Equal contribution in North America, and in Europe, and that was quite.
Pleasing to us because what it did for US is it validated that we were able to demonstrate outside of the U.S. If there was a very real interest and hair, a restoration, especially with a competitive advantage that robotics.
Solutions can provide from a marketing perspective lastly, I'll leave it at this we have to understand that here restoration is the highest ROI treatment outside of a surgical intervention for physicians, so when they're generating anywhere from a thousand to $1500 an hour on an average share restoration treatment that becomes quite compelling.
And as opposed to trying to chase the 50 dollar hair removal procedures with groupon advertising, so doctors understood our value proposition that weve represented with hair restoration and it took it took.
It made a very significant impact for us and we believe that based on our current pipeline and what we're doing with our organization that will continue into Q3 and into Q4 and beyond.
Thank you. Our next question comes from Anthony Vendetti with Maxim Group. Please state your question.
Thanks, and thanks.
How you doing Dom.
Good.
Excellent.
It looks like obviously the U.S. business.
It's starting to shoot to reopen but but slowly obviously only 5% April 30%, maybe he said 40% in June.
And I was wondering if you could comment on July.
Yes, so what's really good about you know when we give you these numbers, they're not anecdotal with the use of internet of things on our devices were able to see.
Procedures being done globally and what we can report is at the end of July about 65% of the U.S. customers were open.
And generating meaningful revenues of devices that they have and we were able to.
Measure that through our IP integration with our devices. So we feel that as we finished the July and moved into August we have continually sort of surveyed our customer base and we believe that the 65% than we saw in July will continue to increase through the end of August and then as we all know one.
Even though this is a bit of a weird year and typically Q3 represents the slowest quarter of the year in our industry. We think that those rules wrote the window and we expect a very.
Very strong Q.
Timber and in Q3, so the trend is moving in the right direction, it's not quite there yet there's been obviously some pockets of challenges.
But I think that for the most part many people are becoming somewhat immune to this the second the second thing I want to point out on this which I think is really important to recognize as we look at our data.
We collect from our devices the demographic profile of the patience is shifting a little bit typically in our industry. The majority of the patients and took advantage of these procedures were usually 50 plus.
And based on you know the fear around cobot and everything honestly seen a significant movement towards the 35 to 45 year age group demographic. So what is telling us and certainly with the doctors that we work with are telling us is that it seems like the younger population is now starting more of a preventative care probe.
Graham so that they can get ahead of wrinkles and saggy skin fat and so on a as opposed to being reactive one year on year, Fiftys, which has traditionally been the kicks in our industry.
And that Don I'll add a third point to that to is our ability.
Our long term focus is to have products that our core product focus to have consumables and so you know we can look at that real time to see if customers that have our core devices or order in consumables and that really allows us to predict trends you know in terms of or the number of customers and percentages that are reopening.
Okay. That's helpful. And then just on the consumable side I think you mentioned utilization for for.
Your hair restoration artist.
That was up 40% year over year in June July at that time frame is that correct number correct correct.
And what would you attribute that to I know Dominic mentioned.
The disarray that the businesses and in in.
Last year in both Q3, Q, but but.
40% increase in utilization.
Can you talk a little bit about what you changed in in the consumable part of that business.
Yeah, I'll address the first part of and shot if you want to add anything after but what we've identified the doctors the doctors would already established themselves in hair removal Earnhardt restoration. No. This is a procedure that typically requires a partial portion of the head if not all of the had to be Shane.
Typically there is a bit of downtime three to five days before people return to normal activity and by way of coal there.
I think that where the markets, where open and as the markets continue to open it didnt necessarily mean that people were back in the workplace and with the shift towards more zoom type of.
Really activity I think that that led to a very positive outcome in terms of patients.
Deciding that this is probably the right time for something that I may have been holding off on and doing it. So I think that with the improved pricing model, it's allowing doctors to better position their procedures and again you know in an area where the doctors can justify the then limited time they've had available in their clinics for the highest return on invested.
That dollar is that they can generate in their clinic in other words, if I only want to see one patient today, it make $15000 or revenue with a hair restoration treatment I'd, rather do that than do 50 patients doing hair removal.
Yes, sure I've got a third component to that as well so there's a opportunities for patients to recover you know cold it has presented that opportunity.
There is also that shifts to the higher revenue lower volume procedures, but there's also a focus we've undergone a pretty extensive initiative that we launched in Q2 are to roll out number one an initiative to speak directly you know with our product team to every customer in the U.S. and North America.
And we take those whatever the customer feedback as we break them into three buckets, you know number one marketing number two training or number three product wish list so to speak.
And we use that then to define a clinical pathway. So our goal you know is for us to apply as much focus to the installed base and driving utilization as we as we apply to new system sales because strong utilization will drive new system sales and we believe that for each doctor to have a plan in place you know.
Through marketing product training initiatives that will be able to increase the overall utilization across the base.
Okay, Great and then we just talk a little bit about the art you overall.
Gross margin either for the artist.
System, the capital equipment, and then obviously.
The per.
Per case gross margin, however, you want to break that down but [noise].
Obviously, you've brought the price down and I know you brought that cost of goods down significantly as well what's the.
What's the current gross margin or the the gross margin goal for the artist.
Yes, so you won't glad that yes, so I mean, we experienced the gross margin in Q2 on the artist business of approximately 50%.
So that compares favourably favourably to 42% in Q2 of 2019, and that's a pretty good outcome given that we changed the price point, we've made the the product.
Appeal to a wider audience in terms of its revised pricing, but at the same time.
True to our commitment to continue to reduce costs, we've done so and we've been able to increase the margin. So we think theres still some opportunity to go in terms of getting that margin north of 50% it won't happen overnight, but we're pretty comfortable with the progress that we've made thus far.
And it hasn't had a huge impact on our overall margins, we're quite comfortable with the result of 70% for Q2.
And as we continue to focus on procedures and.
You are driving our as kits I think that we'll continue to help the margins overall as that as that component of the artist business is actually quite a high margin.
Right, Okay, and then and then not that nor the.
Your base business, it's been a split and then I know you launch.
Yeah, the new.
And also the new.
Eva and D.
I know the Blitz is probably the main driver on your.
Growth side of your base business.
Maybe talk about.
The focus on six main platforms and then.
How you would how would you break the drivers.
Bless and then is it some of these some of these new products like Veeva, Andy and I believe or or how would you categorize.
So if you're if you're talking about dollar contribution, which I assume you are Anthony when in terms of ranking of the products I think if we if we look at if we look at where we see the overall of the six products. The Venus Bliss, we believe will be the the biggest dollar value driver overall, the simply because they feel.
Category has broad appeal to both sexes, so and it's pretty well established and people that are doing fat or or have been looking at fab understand the value proposition of a no disposable three year warranty cost certainty model, which I think is really important.
In terms of the the second driver I'm going to say essentially the way we look at it is there's a lot of bundling opportunities for people, who are serious and hair, which allows us to bring up RSP by bundling the neo graft and the artist robot together, so that they have a one stop solution for everything.
Related to here again being the highest per procedure revenue generator in the clinic outside of breast augment anything surgical intervention wise. So those those are the two key areas in terms of Epee lead and Veeva MD, we didn't really have a lot of contributions of both those products in Q2.
That said the Veeva MD was specifically designed to be consistent with our.
Our go forward strategy, if a full having a I'll call. It a renewed focus on the core.
Physician group of Derms, and plastics, who fell in love essentially with the Veeva based product and wanted something more aggressive to get a little bit more.
A better a better tool for deeper rankles bigger pores acne scars and so on so we spent over almost two years developing the veeva MD model and we feel that combined with the more aggressive the ability to treat a broader range of patient problems.
We also took the opportunity to add a meaningful disposable element to that product from the previous platform. So.
Overall, if you were to rank our products I mean, I think that the Bliss will continue to be number one in terms of revenue generation. The combination of artisan angiography number two and probably our versa technology will still be number three because of its modularity and its ability to be sort of.
Built our cards and so that typically allows us to get.
A much higher ASP for the product and it's probably the most diversified platform that we offer so for people that are just getting started in the business. The it's the right platform.
Okay great.
Thanks, if I could just add one last point to that four of our six.
Core products have consumables.
The zero hair, the hair restoration artist Neil grouse allow us to lead into the core market was something where you know it's a unique solution without significant competition. So it's a strategic way to increase revenue for the clinic and then the bless as Don mentioned, the one product that doesn't have the consumable stream.
That's what the customers are asking for so it's a really nice complement that drives bundling. We go in with our strategic products and then we're able to layer on products based on customer needs are then and establish market like fat reduction or in another market.
Okay. Thank you very much helpful. Appreciate it.
Thanks Anthony.
If I could just a reminder to ask a question press star one on your telephone.
Our next question comes from Murray to Bowl with BTG. Please state your question.
Hi, good evening, Thank you for taking the questions.
Appreciate all the metrics you've given us throughout this call I wanted to spend a little bit of time on procedure volumes and the range of procedure volumes your customers who are back online are seeing.
Yes, I'm curious if you can tell us a little bit more about what procedures are coming back faster.
Where in terms of volume recovery some of them more successful customers are at this point.
Yeah, I mean, I think it it's hard to pinpoint exactly like what if I was going to handicap. What is the number one procedure. What is number two number three I think that you know the real message here is as well while clinics are still working in an environment of I'll call. It cautious optimism, they're trying to find ways to maximize the.
Revenue with minimizing their trade patient traffic.
And just slightly in the fall you know other categories that were in specifically here restoration.
In fact treatments are one and two for sure and so that's what we're seeing a lot of volume in markets like Europe for example, where they've been they had better control of of of this this disease to this point of Iraq, our economic era Aiotv data points are.
Telling us that hair removal and wrinkle reduction is coming back strongly.
So I think its regional Marie I think that we still have some challenges in places like Latin America, and and APAC sort of jumped out what I start and then came back into some some degree of.
A moderation if you will in terms of opening of clinics and staying open or opening less hours. During the day. This is the kind of stuff that we've seen in the field now that you know that was in Q2 and as we move through Q3 and get through.
August July and August what I will tell you is that normally EMEA is supposed to sleep in Q3 in July and August and we have not seen any indication of that whatsoever. In fact, we've seen the opposite and I think that that's a byproduct, though clinics that were closed for three or four months or trying to compensate for what they lost in terms of revenue.
During that shutdown period, where they are completely locked down. So you know to get specific about procedures. What I can tell you. The broader picture is that surgical procedures are up dramatically.
The physicians that we've been talking to have demonstrated to us a new way to go to market in terms of interacting with their pay potential patients they've been able to eliminate a lot of the sort of touch points within their clinic and dealing directly with the potential patient through typical zoom type of consultations, which has led to higher.
Our higher procedure rate.
And better comfort or stronger come from by the patient to go through this process, while they're in Stewart, where there is still in somewhat shutdown mode or at least working from home.
Thank you for that and then as they think about the subscription system kind of a legacy systems. There <unk> any thoughts on kind of a characteristics of customers, who are buying who who is feeling I guess healthy enough and confident enough in this environment to go ahead and purchasing.
Or.
Subscription model.
Yeah. So just just to be clear I mean, you know it while the numbers may seem that there has been a move away from the subscription model the way the way we looked at this was we said look theres going to be a product mix influence on the the total dollars as it represents the number of deals so with a higher price products.
The the Venus Bliss and the artist system and with the contributions of a cash only business. Some disposables when you blend that altogether that does disproportionately impact the percentage of contributions on a revenue perspective between subscription and cash deals. So to a degree that was that was partially intentional.
With our focus on six products of which two were very.
Higher than average selling prices average selling prices.
In terms of the subscription what's interesting about what we've seen is this is still a p. This program is still appealing to what we call. The non core market people that want to get into the business, we're thinking about getting into the business. It gives them and it gives them optionality and it also gives dermatology and plastic surgery clinics, the do need solutions that we offer.
An opportunity to not have to go back to their bank and leasing institutions to be able to do things to continue to offer what they perceived to be competitive advantage state of the our technologies, especially in robotics, which is why we saw you know some decent demand globally with the products that we we carry in hair restoration and in the area fat.
Very helpful last one for you here you mentioned that the bad debt charge in the quarter and I know that your team is doing work to reactivate some of your suggestion customary going and get some of those monthly payments back online can you give us a status update on how that is going and whether we can see some of that oh.
Reverse in the second half of your.
Thanks.
Yes, I mean predicting a reversal of that is something that I.
I wouldn't want to touch at this stage given all the unknowns, but what I can what I can I tell you about the 3 million dollar charge in fact, a year to date, it's 3.5 million. We took a small provision in Q1 as the pandemic had just unfold it at least in North America. So the 3.5 million.
You have to correlate that to the total basket of receivables on our balance sheet and on a gross basis that basket is $96 million of growth accounts receivable between the current and the long term.
And that's before the allowance for doubtful accounts, because that's the amount of receivable at risk. So when you correlate 3.5 million on 96 million. It works out to 3.6% that we've identified.
And our watching and saying you know what there may be a problem here because the be clinic is close we tried to contact them, but we know there that they are shut down there not asking for activation codes et cetera. So we have basically put those aside and said okay. They are at risk and we just got to keep an eye on.
Mm.
So that's the the process.
I know 3.5 is a big number, especially for our business, but in the context of the totality of our receivables I don't think it's it's out of whack. What I can offer you is that and the majority of cases, where we've made contact with a customer that has been closed down and couldn't make a payment and the.
Vast majority of cases, we have been successful at securing a repayment arrangement such that over the next three to six months. They will they will make good on whatever it is that they were missing. So now that they've come open again, they've asked for an activation code, we won't release, an activation code unless.
They can demonstrate that they are willing to repay and that typically involves a payment that that very day for a path you know a pasta charge or a around payment of $1000 and a repayment plan based on specific payments on certain days.
And in those cases, we've been very successful and arranging repayment programs. So I'm very encouraged by what my team has done thus far and how things are working out.
Thank you very helpful. Thanks.
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