Q3 2021 Venus Concept Inc Earnings Call
Please standby.
Good morning, ladies and gentlemen, and welcome to the third quarter 2021 earnings conference call for Venus concept.
At this time, all participants have been placed in listen only mode.
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 current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated.
And those identified in the risk factors section of our most recent annual report on Form 10-K, and 10-Q 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 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 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.
I would now like to turn the call over to Mr. Dom Serafino, Chief Executive Officer of Venus concept. Please go ahead Sir.
Thank you operator, and welcome everyone to Venus Concept's third quarter of 2021 earnings Conference call.
I'm joined today on the call by our Chief Financial Officer, Domenic della Penna, and Ross Porcaro, our recently appointed President of global sales.
Let me start with a brief agenda of what we will cover during our prepared remarks.
I will start with an overview of our revenue results in the third quarter. I will then provide a summary of our operating progress in recent months and then domenic will provide with you with a more in depth review of our quarterly financial results, our balance sheet and our updated guidance for the full year 2021.
And then we will open the call to questions.
With that overview in mind, let's get started with a review of our third quarter revenue performance and overall business trends.
We reported GAAP revenue of $24 6 million up 19.
19% year over year, the increase in total revenue year over year was driven by a 67% growth in sales to U S customers, which was offset which offset excuse me, 10% decrease in sales to international customers during the same period.
We are very encouraged by our overall demand trends, we experienced during the third quarter, particularly in the United States. We saw continued improvements in system adoption trends in Q3, as well while procedure trends were impacted.
It's a tougher than expected operating environments in our global customers faced during the quarter. We were pleased to see strong recovery in procedure trends during the month of September.
Unfortunately, our total revenue results for Q3 did not fully reflect the favorable underlying demand environment as our international revenue was impacted by a $2 4 million of purchase orders from customers in APAC EMEA and Latin America that we were unable to deliver by quarter end. This backlog is directly a result of global supply disruptions.
Related to COVID-19, specifically.
Specifically as we are seeing longer lead times and shortages in certain materials and components that are impacting our ability to manufacture the number of systems to meet the demand of our international customers.
We have been working with our suppliers and third party manufacturers to mitigate supply risks and as of this week, we have already delivered $1 4 million of the quarter end backlog, we intend to fulfill the majority of this remaining backlog during the fourth quarter of 'twenty, one 2021 and the first quarter of 2022 were understandably frustrated by the supply.
Chain issues as they are masking the favorable favorable demand trends, we are seeing from customers around the world.
To that end, if we had not encountered the supply chain issues, we would've reported total revenue growth of 30% year over year and international sales growth of 9% year over year for the third quarter.
Diving deeper into our revenue performance and trends, we experienced during the third quarter.
Third quarter total revenue growth benefited from a 22% increase in total subscription and systems revenue compared to the prior year by region. The U S customers were the largest contributor to the year over year growth in total subscription and revenues system revenues increased 97% by.
By market sales to aesthetic customers were the largest contributor to year over year growth by total subscription and system revenue, increasing 34% year over year, driven predominantly by a 32% increase in sales of our franchise aesthetic platforms, which are the Venus legacy Venus versa and <unk>.
Velocity and a 119% increase in our sales of our newer aesthetic platforms, the Venus Bliss and venous glow, both of which drive growth in sales and consumables.
Our total system shipments increased 15% year over year in Q3, driven by 93% growth in shipments to customers in the U S. We effect, reflecting continued improvement in the U S capital equipment environment during the quarter.
System shipments under a subscription model increased 15% on a year over year in Q3 and represented 51% of the total global shipments in the period.
As discussed on prior calls the flexibility we have in our commercial model with unique pricing and payment options via our industry first subscription model is an incredible lever that we have which differentiates us from competition importantly, this lever really empowers our commercial team to work with customers to identify not only the right technologies for their practices.
But also the right business model for each individual clinic and meet their to meet their needs.
With respect to procedure trends in the third quarter.
Our real time Iot data on our systems gives us strong visibility to the active device trends for a large portion of our medical aesthetic installed base. This average usage per system data reflects consumer activity consistent with the with what most companies have reported to date, specifically U S usage persistent trends were softer in July.
<unk>, some of which related to normal seasonality and we saw a nice recovery in usage during the month of September outside the U S. We continue to see very in usage trends, depending on the region of the world.
And with respect the wristband the respect of pace of recovery from the pandemic procedure trends in our hair restoration customers in the third quarter reflect a larger impact from seasonality. This year with doctors returning to summer vacation activities with COVID-19 restrictions eased compared to the third quarter of 2020.
Procedures on our artist systems in North America did show a month to month improvements during the quarter were basically flat year over year in Q3.
Outside of North America procedures of artist systems were down year over year for the quarter, but did show strong improvements in.
In September.
Turning to a brief update on operating highlights in the third quarter.
First we continue to make notable progress in areas of new product developments clearance and commercialization of <unk>.
Following the receipt of health, Canada authorization for our venous Fiori feminine health system. In July we are pleased to further expand our portfolio of technologies that can treat a broad range of common women's health conditions with our recent FDA five 10-K clearance of the venous freedom in October <unk>.
Venus concept devoted nearly six years to developing this technology in order to create a comprehensive safe and effective system that has the ability to treat a variety of different women's wellness issues addressing important medical needs and supported with significant clinical data, we intend to sell Davita is freedom using a unique utilization focused business model.
<unk>, which we believe will make the return on investment of this system very attractive for both Venus concept and the obgyn community.
We began a limited launch of the venous viewer in Canada and the European Union in the third quarter of 2021, and we look forward to commencing a limited launch of the Venus Venus freedom in the U S. During the first quarter of 2022.
To expand the Venus Bliss portfolio assistance products continues to progress as well we submitted our request for five 10-K clearance for the Venus Bliss Max at the end of September Venus Bliss snack is a new device that not only includes fat reduction in body contouring capabilities, but also has a muscle stimulation.
<unk> element to the technology.
This device addresses the three most in the main body contouring procedures in one platform workstation.
We expect this device will have a list price of approximately $250000 and contribute contributing gross margins above company current averages we intend to add on a modest but important utilization fee of approximately $100 $100 per treatment and importantly, we estimate that the time to ROI of just 33 weeks for our customers, which we are.
We expect we'll be extremely compelling to our clinicians.
And this compares nicely to the 28 week ROI of the current Venus Bliss customers. We are achieving today based on the visibility we have from our Iot data on the platforms.
We are now targeting a potential clearance in Q1 of 2022 and a commercial launch in early 2022.
Our strategy to expand the potential addressable market for both the existing Venus Bliss and eventually the Venus Bliss. Max also continues to progress specifically we are on track.
So targeting large areas of the body and specific indications of use sick.
Securing these additional clearances will allow us to fully market key differentiators of the Venus Bliss in the Venus Bliss, Max optimizing our potential for increased market share in the largest and fastest growing area of the aesthetic market.
We are targeting submission for these additional clearances.
Early 2022 with commercial introductions in Q2.
We are pleased to announce that Amy our development project to create the next generation of robotic technologies for medical aesthetic applications, formerly entered the clinical validation phase in recent weeks.
We have finalized the protocol for our human clinical study, which is now available on clinical trials Dot Gov, and we're working through training and E approvals for our three clinical investigator sites, we expect to.
To begin enrollment of up to 60 patients in December and we intend to submit FDA clearance as soon as possible. Upon completion of this study, which depending on the pace of enrollment is expected to be by the end of Q3 2022.
Since our last earnings call, we completed commercial design and finalize the look and feel design options of the device.
Amy will be will consist of a cart.
And a six axis robotic arm and vision system, which features automation to track and adapt to the curve of body surfaces.
We are very excited about the prospects for our Amy device a robotic <unk>.
Potential disrupt initially the skin tightening and directional lifting market with plans to add additional clinical applications in the years to come.
Yes.
Firstly I want to share also a few thoughts on important change in our leadership that we announced last month.
We announced the appointment of Rasper Carl to the position of President of Global sales effective October 15, 2021, Ross assume the responsibilities of Chad Zaring, who resigned from his role as chief commercial officer for personal reasons.
Ross joined Venus as President of EMEA as Vice President of EMEA earlier, this year and is an accomplished leader and industry veteran with more than 30 years of experience in health care in the health care sector, including key positions at Candela luminous medicines and amongst others.
Our commercial team has not missed a beat during this transition and in fact, we are encouraged by the positive feedback from the team who appreciates Ross a strong pedigree in the medical aesthetics market and his passion for leading our commercial strategy centered around differentiated products in large.
And growing procedure categories as well as Venus his commitment to the development and commercialization of disruptive disruptive robotic technologies and the medical aesthetic and hair restoration market.
We are confident that Ross is reputation will also help us attract high level industry talent over time.
So to summarize the third quarter results. We are very encouraged by the overall demands we experienced during the third quarter particular respect to system sales, while procedural trends were impacted by a tougher than expected environment that our global customers faced during the quarter. We are pleased to see a strong recovery in procedure trends during the month of September our <unk>.
Mobile sales team continues to increase the qualified pipeline of new prospects across the full product portfolio, which gives us confidence in our increased revenue growth expectations for the balance of 2021 are.
Our third quarter leases and systems revenue results, particularly in the U S. Combined with a strong qualified pipeline. We are actively managing today were the primary drivers of the increase in our full year 2021 guidance, which now calls for total revenue in the range of $104 million to 107, representing an increase of approximately 33%.
37% year over year.
We are confident in our outlook for 2021 based on our belief that we have the right product portfolio and the right commercial strategy.
Which has us extremely well positioned for future success in the near to intermediate term.
With that let me turn the call over to Domenic della Penna, who will provide a detailed review of our third quarter financial results and discuss our balance sheet and financial condition Domenic.
Thanks, Tom.
Given <unk> detailed review of our revenue results I will begin with a review of our financial performance across the rest of the P&L for.
For the avoidance of doubt unless otherwise noted my prepared remarks. This afternoon. Sorry. This morning will focus on the Companys reported results for the third quarter of 2021 on a GAAP basis, and all growth related items are on a year over year basis.
Gross profit increased $3 8 million or 28% to $17 3 million gross.
Gross margin was 75% compared to 65, 3% of revenue in the third quarter of 2020.
The increase in gross margin was primarily driven by higher sales with Venus consumables and an improved revenue mix of systems sales sold under our subscription program, primarily tracing to Venus Bliss and the discontinuation of our two to five at our advertising agency services.
Total operating expense increased $3 9 million.
Or 21% to $22 7 million the increase in total operating expenses was driven by an increase of $3 1 million or 55% and sales and marketing expenses and to a lesser extent, an increase of <unk> 7 million or 6% and general and administrative expenses.
And an increase of <unk> 1 million or 4% in R&D expenses compared to the third quarter of 2020.
Total operating loss increased zero point $1 million or 2% to $5 4 million.
Net loss attributable to stockholders increased $2 6 million or 35% to $9 8 million non-GAAP adjusted EBITDA increased $2 2 million or 155% to $3 5 million.
We have provided a full reconciliation of our GAAP net income to adjusted EBITDA in our press release this afternoon.
Today.
Turning to the balance sheet as of September 32021, the company had $15 8 million of cash and cash equivalents and total debt obligations of approximately $77 8 million compared to $34 3 million and 79.6 million respectively as of December 30.
<unk> 2020, the change in cash for the three months ended September 32021 was driven primarily by a $7 3 million cash at.
$7 3 million of cash used in operating and investing activities.
We have significantly improved our cash performance during the first nine months of 2021, our cash used in operations in the first nine months of 2021 declined 33% year over year, driven primarily by a reduction in our net loss.
And a 30, 36% decline in cash used in working capital compared to the prior year period.
Note our use of cash in the working capital line includes proactive investments in recent months to build safety stock of our longer lead time components, given the global supply chain issues in 2021.
Turning to a review of our guidance as detailed in our press release. This morning, we updated our revenue guidance for the full year 2021 period the.
The company now expects total revenue for the 12 months ending December 31, 2021, and the range of $104 million to $107 million, representing an increase of approximately 33% to 37% year over year.
While we are not providing formal profitability guidance for full year 2021, we would like to offer the following considerations for modeling purposes.
First given the strong gross margin performance over the first nine months of 2021, we now expect our gross margins to be in the range of 69% to 70% in 2021 compared to 68% to 70% previously.
Second we continue to expect GAAP operating expenses of approximately $88 million, representing a 26% decrease year over year import.
Importantly, this represents approximately $94 million of normalized operating expenses in 2021, which excludes certain items that impacted our GAAP GAAP operating expenses in 2020 in 2021, including noncash goodwill impairment incremental bad debt expense and recoveries.
And the nonoperating nonrecurring items related to retention and severance and other legal expenses, which together represented approximately $2 3 million of costs and expenses last year.
All of these items were detailed in our non-GAAP adjusted EBITDA reconciliation tables in 2020.
Third we expect our interest expense to be approximately $5 million, given the lower borrowing costs and debt obligations compared to the prior year.
Fourth we expect noncash G&A of $5 million and noncash stock comp of approximately $2 5 million.
Fifth weeks, we continue to expect our weighted average shares outstanding to be approximately $54 million.
With that operator, we will now turn.
Open the call to your questions operator.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. 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'd like to ask additional questions. We invite you to ask yourself to the queue again by pressing star one.
And our first question will come from Jeffrey Cohen with Ladenburg Thalmann.
Uh-huh Dom Domenic, Rob how are you.
Hey, good morning, great. Thanks, Great. How are you just a couple from my end so firstly.
Sure.
Could you discuss the backlog a little bit so it sounded like a 2.4.
You were unable to pull through as far as production.
In manufacturing and you picked up $4 four but thus far in the fourth quarter do you expect the balance to come into the year or how they are sort of.
How does that true as far as CTO manufacturing components. So yes. Thanks for the question, Jeff I think that Theres a couple of factors related to this particular topic, yes, we even stock failed one four we had a resurgence in some of our legacy items, including our Venus legacy product and velocity.
The majority of the business that represents that two four came from our distributor network in EMEA Latin America and APAC.
As we said one four has been filled we expect a large portion of the other million outstanding to be.
Captured in Q4, but there will be leakage into Q1 for sure based on our current visibility to our supply chain.
And the leak is just coming from last.
Last quarter or you expect to have further orders in the fourth quarter, but also spill into the first quarter.
Yeah, No I think I think with our product mix.
And the improved forecasting of our sales organization under <unk> leadership, I think is helping us.
For sure. So we don't find ourselves short of particular skus in the quarter. So I think that overall, we should be reasonably in good position based on what we know today and what we've had delivered in terms of a finished product.
So when I talk about leakage I'm talking about large orders related to suppliers that we will fill partial orders to keep them sort of moving forward and I think sort of balance if you will the inventory requirements globally, including North America, where we're seeing very significant increase.
In our demand for some of our legacy historical products as I said, the Venus legacy and velocity. So some will some of the as a $1 million will be dripping into Q into Q1.
The number we don't know exactly yet but.
I would I would I would say it'll be.
Did you say, 50% portion or so into Q1.
Alright, and then secondly could you clarify the difference between the Fury and freedom or as you talked about.
<unk> Freedom is U S is there a difference in the technology. There is absolutely no difference in the technology was really more of a pathway for regulatory clearances.
And in creating a separate brand for the U S market compared to the specific labeling.
That we have for venous fiori in EC in the CE markets and and.
And health, Canada, and rest of world, but it's exactly the same technology.
Got it okay that does it for me I'll jump back in queue. Thank you great.
Great. Thanks, Jeff.
Our next question comes from Murray default with BTG.
Hi, Good morning. Thank you for taking the questions I did want to just follow up on the international portion of a bad connection here a little bit more of that.
Excluding some of these supply chain disruptions during the quarter, how the international commercial strategy is progressing I understand that some markets have been consolidating.
Focusing on some of the faster growing markets I'd love to hear a little bit about how that progressed during the quarter.
Yeah, I mean, that's a great question, Larry So as Youll recall, we at the beginning of the year. We were in the range of 29 direct offices, we've now as part of our restructuring coming out of Covid, We're down to 18 direct offices, which we think are the best opportunities for us to contain sustained growth in Q3 really.
The growth it was a blip I guess, where we had a bit of a deceleration not because of a demand standpoint, I mean, we had strong demand consistent to what we were seeing in North America.
But it was where we could deliver product in order to fulfill the demands of our direct offices, we had to make we have to make decisions, where we prioritize allocation of technologies and in our European markets.
In our APAC markets in Latin America, and essentially our distributors were short changed with our product mix and deliveries.
Our direct offices continue to perform very nicely through Q3, but we did suffer in aggregate we did suffer temporarily through our distributor channel.
Okay, well understand Dom I guess I'll ask a follow up here then on CRE freedom.
When it comes to targeting some of those customers. It's a different call point than where you stand with up to the rest of your portfolio. So I'd like to hear about some of the investments youre, making perhaps on the salesforce side or how you're thinking about targeting with me Paul and thanks for taking the question.
Sure. Thanks, Mark so that is exactly.
<unk>.
What we will do with the venous freedom and Fiori, it's very similar to what we did with the artist portfolio, where we felt that there needs to be a specialized our COO.
Call It <unk>.
Specialized sales organization with the Venus with the artist system, we dedicated essentially one expert to every region, which translated into seven in North America. We are doing the same thing with the venous PRA in the venous freedom.
And those experts will understand will have pedigree in the obgyn market, specifically and the way we are structuring our business model for the obgyn community will be very very attractive and.
And we think will provide us a very significant.
Our growth profile for this category in the utilization because historically this space.
Female wellness and health has been very successful.
In terms of utilization in terms of revenue growth. So we think that the fact that we developed a technology specific for a variety of different clinical indications will.
We will be well and has been well received globally already with very significant clinical support to validate I'll call. It the six year journey to get the product to market.
Thank you.
Our next question is from the line of Suraj, Kalia with Oppenheimer and company.
Morning, Dom Domenic, Rob can you hear me all right.
Yes, we can thank you. Thank you Suraj perfect, Hey, hope everyone is safe and healthy.
Saddam Domenic.
Specifically on the supply issue right.
If you just look at it on a macro level it isn't going anywhere anytime soon these arent going to persist so I'm curious.
How does the decision matrix look like as you all have supply issues is it basically FIFO base store.
Walk us through in case any of these supply issues.
In March again veteran Q1, or Q4, and how do you all mitigated.
Look I hear you right Suraj I mean, I think that every time you open the news if you look at the news there is some some reference to a supply chain issue I think in our case, what we did was.
We didn't expect certain demand in key products like the Venus legacy products like the Venus legacy I hate to use that because it's the same word, but venus legacy and velocity.
We've seen a resurgence in demand, particularly in our O U S markets through our distributor networks and there is a lot of reasons for that discontinuation of competitor products in key categories like cellulite, and even hair removal and so we were caught a little bit by surprise on that and we don't I think we've done a reasonably good job of planning.
Production for all of our products and we've taken into consideration with additional investment into inventory for long lead time items. So I think we're managing it reasonably well based on what we know today.
And going through our anticipated Q4 demand and so on there is a slight impact, but I think overall I think we've done a reasonably good job of of I'll call. It dodging the bullet.
Because of <unk>.
Some surprises in few categories when it comes to FIFO for example.
That's partially true I mean, I think that what we look at as we consider where we have our strongest demand, obviously, where we have our best profit margin potential as well and where we service our customers directly and I think that that's one of the reasons why.
In Q3.
Our European R. O U S business suffered a little bit because we had to make decisions on where we would ship the products that we did have available to us given this resurgence in a couple of key categories on the venous historical business, but.
But I think I think we're doing a pretty decent job right now of managing through that Suraj.
So I don't anticipate that the impact is going to be as dramatic going forward.
Got it Hey, Don maybe you could give us a qualitative aspect of Venus Bliss adoption and more specifically I'm interested in the assumptions made for Bliss Mac. So for 33 week payback versus 'twenty.
<unk> week or something like that for the for the Bliss. If you can just kind of walk us through what are your utilization assumptions.
Yeah. So.
This is one of those categories, where it is not an anecdotal commentary from my part it's factual on data that we draw from all of our devices that are in the field globally. So we can benchmark regions. How they are performing and consistently since we launched the bliss, even with a very significant increase in user base. The first store sales.
Have been quite impressive and so what that means is that on average a clinic is doing somewhere between five and six fat reduction treatments a week with the current Bliss system and we don't see any reason why that would be differentiated with the Venus Bliss snacks and currently with the Venus Bliss above double that in the body contour and so.
Five to six on the fat and five to 10 or so on the body contouring, which is an element of of the total treatment protocol.
And that payback period right now based on the ASP of the device globally and based on what the clinics typically charge for these procedures, whether they were individual costs are or bundles.
<unk> is about 26 weeks the assumption that we made on the Venus Bliss snacks is that by adding a third element it will be the only platform in the market that will actually have a full <unk>.
Body contouring workstation that will not only reduce fat contour the tissue, where the fat was reduced as well as create muscle definition through our muscles stim device, we think that moving from 26% to 30% 33 weeks is a safe assumption based on our current global trends a store for store with.
The Venus Bliss and the extra six or seven weeks has really taken into consideration.
The intended or anticipated higher asps. Additionally, what we will have as we said in our prepared remarks about $100 charge every time.
A treatment is being done.
With the muscles stim portion of the device at a very high margin.
Got it and final from my side, Tom and I will hop back in queue Amy.
Amy is supposed to be a five 10-K oar a de Novo 500 10-K. Thank you for taking my questions it'll be it'll be a 500 10-K.
We have a strong belief that we'll be able to predicate our own artist device.
And recent clearances from competitors.
We've spoken with the FDA, we have a pretty good pretty good understanding of the track that we need to follow and we're quite encouraged with what we're seeing with our device now that we have a design us design stop and we're ready to move forward in our clinical trials.
Formal clinical trials.
Yes.
My pleasure.
The next question is from Jon block with Stifel.
Thanks, guys good morning.
Morning, John.
Maybe just to start off on orders I know you mentioned, some consumable headwinds year over year, I think more notably in the international markets can you just talk about the utilization expectations for that key product line going forward.
Also with what Youre willing to say about artist capital sales specific to the quarter.
You might not break it out specifically, but.
What was orders in the quarter as a percent of total revenue was it in and around that 25% bogey I'm guessing just based on some of the commentary you might have been below thanks.
Yes, John Thanks for the question. So the first part of it on the utilization.
One of the things that we did end up seeing sort of in early September was when we looked at our utilization trends on our devices. We saw the doctors, we're going back and actually taking vacations now and this was particularly evident in hair restoration clinics, where the procedures tend to be longer they're not typically delegated the doctors are involved.
So I think that.
Doctors finally reached a point, where they need to take a bit of time off and so we saw that specifically in August.
To a greater level in terms of Directionally, where we think that the utilization trends will go we saw a very nice recovery in September and.
And that's continued into October and November. So we think that that was more of a blip because of the traditionally.
Softer Q3, so in other words, we're heading back into a traditional <unk>.
Environment, where Q3 historically in our industry has always been the softest quarter, so that that happened in terms of.
Where we see the actual device business historically, what we've said is overall.
It typically represents about 40% to 45% combined with our Bliss product.
That was softer in Q3 on the artist side and so collectively was closer to 35%.
The artist system, there were some delays in our shipments at the end of the quarter.
We had the orders and we had the pipeline, we just couldnt get them shipped for a variety of different reasons.
It wasn't supply chain related but it was just getting proper documentation credit in place and so financing in place and so on so yes, we were disappointed with the performance of artist in Q3.
But we think that based on how we started early in.
In Q4, where some of that slippage from Q3 moved and we closed deals in Q4 early Q4 and the current pipeline, we feel pretty confident we're back on track with the artist system.
That's great. That's very helpful color. Thank you and then maybe just to shift to the pipeline the clinical trial for Amy a bunch of good color. There. It does seem like a little bit of a push on the timeline what is that correct and then what kind of attributable to in other words is it just a function of a little bit more time getting the trial up and <unk>.
Running or are you, leaving yourselves some more wiggle room in terms of the pace of enrollment.
Yeah, I think theres, a little bit of both I think that to the last part of your question. There. We made it we made a strategic decision to change to of the doctors that we're going to be involved in our multicenter clinical trial and it wasn't it wasn't to knock on the doctors. We just felt that once we started to dig into hey can you enroll the patients can you get them done on the timeline that we.
<unk> and.
And do you have quite frankly, the clinical bandwidth to do this you know unfortunately.
We discovered that the answers most of that was no and at the same time, the inbound inquiries from a variety of different doctors in the dermatology and plastic surgery community gave us high level of confidence that we could significantly improve.
The exposure that Amy would get post clinical.
Completion on the podium through peer reviewed papers et cetera. So we're quite excited about the I'll call. It the level of physicians that have actually presented themselves as options.
To be clinical sites for this.
The second part of it is that.
Supply chain did hurt us a little bit by the in building four platforms for clinical trials three for sites and then one backup we have one system. That's already been built and we are basically moving it around to get the doctors, well well versed and familiar with the device, but ideally we'd like to have devices that are stationary and that was a supply chain issue.
Getting some of the key components on a relatively low level of order for for these devices to be able to get the clinical trials done. So there is a bit a little bit of everything John but I think overall.
We feel pretty good about the trajectory of this product.
And the timelines to getting this product to market in 2022, while I'll tell you one thing and I'll close on this is that we're starting to see.
The opportunity to this particular platform has in other clinical indication. So in other words. The platform has been designed to be sort of like an Ala carte platform, where youll have essentially an app on the screen and youll be able to choose various clinical indications through the software algorithms. So that's quite exciting and I think that's one.
The key reasons why the type of Doctor that has approached us today to want to participate has been significantly improved.
That's great and last one for me I don't know if this is fair game, but raws I believe youre on the call. Congratulations on the role is there anything to call out.
It's early but at a high level that you think can be done differently or anything in particular that youre very excited about more or less emphasis on certain product lines. We're just love to hear again, a fair game. Your initial thoughts on the organization. Thank you.
Ross would you like to answer that.
[laughter] Rossi there are you muted.
Okay.
John I think he is I think I'm not sure. If he is having problems here with this launch is the Choctaw I'll follow up all good. Thank you, yes, we will follow up on the follow up call, but it will be on but I think he is traveling so I think he may have had a little bit of pump just to be clear Ross has been with the organization for about five six months or five months now, but he started in EMEA and then we brought.
To North America, because of the performance of resetting the organization there so, but we'll talk about it.
The ongoing calls.
That's great. Thanks for the color guys.
No problem John.
Our next question is from Anthony Vendetti with Maxim Group.
Hey, good morning.
Hey, good morning, Tom how are you.
Good thanks, good morning.
So two questions one on <unk>.
Greenest Bliss, Max and then one on supply chain on the Venus Bliss, Max I, just want to make sure.
And the timeline because this looks like.
A significant potential driver for growth in 2022.
Just wanted to talk about the FDA five 10-K submission.
The exact timing there the expected clearance I think you said first quarter 'twenty, two and then commercialization.
In second quarter 'twenty. Two is that is that am I thinking about the timeline right or can you just clarify that please sure. So so we file to the FDA September.
30th.
We received feedback from the FDA.
I guess about 10 days ago or so for some clarification.
We have done that and we will be resubmitting that shortly.
A formal manner.
We do anticipate that that because of that those questions. We got pushed off a little bit, but we anticipate that we will see an FDA approval early in Q1.
Whether that's the end of January mid February we do have a production schedule for approximately 15 systems to be available for us in Q1.
But ultimately in full release, we're looking at.
Q2, so it'll be staggered those first 15 units that we will have available to us will be used for populating key strategic partners in terms of Kols. There, we'll be able to do a lot of work very quickly have a lot of commercial success, hopefully and be able to articulate that to potential new customers and so that's why it will be in <unk>.
Full full release, if you will and in Q2, hopefully that answers your question.
No that's great color.
Very helpful.
So the 15th systems and <unk> that are.
Going to be available those would be the kols and then.
Sure.
Okay.
And then and then look at every industry as having different supply chain issues.
And I'm curious.
The supply chain issues that are out there whether its shipping or so forth.
Still we are able to to have a 70% gross margin here in the third quarter and you're guiding towards 6900 70.
So as the supply chain issues more of a timing situation for Venus concept, where.
Are you seeing actual impact.
On the cost of your goods.
Going forward.
Yes, so the answer to the second part is we haven't seen it.
Device cost and we have contractual obligations with our suppliers. So from that standpoint, we've been able to protect.
Our gross profit margin profile on especially on our on our venous products that historically had been at very high margins very nice margins.
To the first part of your question there have been some challenges with suppliers.
Coming out of Covid, I mean, it's no different than seen empty stores on the streets in Manhattan or wherever some suppliers, we're not able to come through.
The chaos, if you will of 2020, and so we have to quite frankly scramble and find alternative sources in whenever you find alternative shortened sources for key components. There is a process that you need to go through to comply with a variety of.
Requirements, including safety testing et cetera, et cetera. So it's almost like building a new product when you have to change a component part on a particular platform. So we saw a little bit of that not in our key growth drivers like the Venus bliss or the artist, but rather on some of the other items that quite frankly, we didn't anticipate we're going to have such a meaningful resurgence and we.
Saw that in Q3, so it left us scrambling a little bit I mean.
On one level, we're extremely encouraged that we have six to seven year old products in our portfolio that are haven't experienced that somewhat Renaissance here, which is great and quite frankly validates the quality of the technology and the clinical efficacy and patient.
Patient acceptance of the product. So we're excited about that on the other hand has certainly left us in a in a situation where we were scrambling for sure.
Okay, great. Thanks for that color and lastly, unless and lastly, Anthony just just to make sure we're aligned.
The margins were helped by the mix right I mean, including improved disposable contributions.
Across the Venus glow, the Venus Viva versa, and obviously the artists, but and I think that that's going to continue to help improve our margins over the next three to four quarters.
Okay.
We also improved our increased our safety stock levels uncertainty components, such that we secure our Q4, so we're feeling a lot better about the fourth quarter.
And that was part of part of the working capital build in the third quarter was in order to secure that supply.
Because we were pretty tight entering into the third quarter, but we wanted to be able to match that fourth quarter demand, which for us was quite strong with sufficient inventory.
So that explains some of the working capital impact.
Yeah.
Okay, great. Thank you very much.
Our pleasure Anthony.
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Yeah.
Okay.