Q2 2022 Venus Concept Inc Earnings Call
Please standby good.
Ladies and gentlemen, and welcome to the second quarter 2022 earnings Conference call for Venus concept, Inc. At this time all participants have been placed on 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.
And those identified in the risk factors section of our most recent 10-Q and our 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 SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward looking statements as a result of new information future events or otherwise.
This call will also include references to certain financial measures that are not calculated in accordance with the generally accepted accounting principles or GAAP.
We generally refer to these as non-GAAP financial measures reckon.
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 convenience concepts second quarter of 2022 earnings Conference call.
I'm pleased to be joined today by our Chief Financial Officer, Domenic della Penna, and Ross Porcaro, our president of global sales.
Let me start with a brief agenda of what we'll cover during our prepared remarks.
I will start with an overview of our revenue results in the second quarter and a discussion of the initiatives. We have implemented to focus our commercial strategy streamline our global operations and enhance the cash flow profile of the company.
Then Dominic will provide you with a more in depth review of our quarterly financial results, our balance sheet and our guidance for full year 2022, which we updated in today's press release, and then we will open up the call to your questions.
With that overview in mind, let's get started with a review of our second quarter revenue performance and overall business trends.
We reported GAAP revenue of $27 3 million up 6% year over year. The increase in total revenue year over year was driven by 7% growth in sales to U S customers and 5% growth to sales to international customers in that period.
Total systems in subscription revenue increased 9% year over year in Q2, and our procedure related disposal revenues increased 2% year over year, excluding our discontinued hero graft revenues from the prior year period, as we exited that business in 'twenty in Q4 of 2021.
Importantly, our total revenue growth in Q2 was driven by the key franchises, we prioritized as part of our commercial strategy. We have discussed in recent investor calls specifically, excluding barrel drafters program revenue sales in our growth franchises increased 13% year over year in Q2 fueled by Kantar.
Strong demand for our Bliss smacks following the initial commercial launch in March and our artist.
X robotic system adoption was strong this quarter, posting 58% growth year over year.
On system sales.
While we were pleased to see continued strong demand for products in our growth franchises in Q2. Our total revenue results were below expectations, we experienced significant sales force disruption and a key U S market that had material impact on our results. This was a leadership issue in this key U S market, which unfortunately drove regrettable.
Turnover in our sales team and lower sales force productivity in the U S market during the quarter.
We have since consolidated sales leadership to address this issue and have rebuilt our sales team in this key U S market aligned with our core values and our sales strategy.
That said, we are very encouraged by the strong results in the rest of the U S market in Q2, our team outside of the market, where we had disruption delivered growth in subscription and system sales up 24% year over year and continues to build a very strong qualified pipeline.
The results validated our enthusiasm heading into the second quarter, we haven't experienced significant growth in qualified pipeline as we entered Q2 and we are ready to capitalize on the improving operating environment with confidence in our belief that we had the right right product portfolio and the right commercial strategy.
Which has us extremely well positioned for our future success.
The softer than expected total revenue in Q2 did not change our level of conviction and commitment to driving improving profitability and enhancing our cash flow profile of our business. In fact, we undertook a comprehensive review of our business and our updated expectations for potential growth and profitability in all regions of the world.
In which we operate.
We have developed a series of strategic initiatives to further enhance the cash flow profile of our business and to accelerate our path to long term sustainable profitability. These.
These strategic initiatives are already being implemented and we expect to realize benefits to our cash flow profile in the second half of 2022.
The strategic initiatives, we are implementing fall into two camps are more focused and targeted commercial strategy.
And streamlining of our global operations.
With respect to the more focused commercial strategy, we will continue to arm our direct sales team in the U S with programs and messaging focused on key product lines, including those with meaningful recurring revenue streams.
We are prioritizing our cash system sales to maximize the potential profitability and cash flow that are highly differentiated technologies should contribute as we address the continued strong demand in the U S market.
Note, we are not shelving our industry first subscription model, we will continue to offer this differentiated business model for certain products and certain geographic markets going forward.
However, bring a more disciplined approach to the subscription model going forward, specifically stricter pricing and credit qualifications to ensure our total company financial results are not overly exposed to fluctuations in the global macro and interest rate environment.
We expect these commercial initiatives to result in a material shift in our mix of systems and subscription revenues and we are targeting more than a 75% system sales to be cash sales in the second half of 2022 compared to 49% in the first half of the year.
We have aligned our sales force compensation plan to support this and we expect the team to fully embrace this important strategic initiative.
While we expect a shift towards cash sales has an impact on our total revenue expectations for 2022, the improvement in our cash flow conversion in the second half of 'twenty two justifies our efforts in this area.
Now with respect to our efforts to have streamlining our global operations.
Based on comprehensive review of our international markets. We plan on a series of actions that may include closing offices testing.
Reorganizing and eliminating redundant operations over the balance of 2022.
Our growth and profitability objectives in this coming years cannot support unprofitable operations in international markets. While these are activities are expected to represent a modest impact on our total revenue results in 2022, it will reduce our operating expenses in the second half of the year and materially reduce our annualized expenses in <unk>.
2023.
As you May recall, we implemented a restructuring of our global commercial footprint in 2020, including divesting our interest in smaller less profitable international markets and reinvesting those resources and higher opportunity markets like North America and key countries direct in EMEA.
Dominic will provide you additional financial detail on these initiatives as well as additional areas, where we are working to optimize our go forward operating expense and cash flow profile to support.
Our focus on becoming a sustainably profitable entity in the future.
Before I turn the call over to Dominic I wanted to provide you an update on the progress we are making in the areas of new product development clinical validation.
Regulatory clearances in commercialization.
In April we announced the receipt of a new five 10-K clearance to market. The Bliss Max with an expanded indication for use in new areas of the body and an increased RF energy output. This new clearance further expands our single body contour and workstations versatility and utility with its indications for use to include noninvasive.
Pace of life policies of the back and thighs. In addition to the abdomen and flanks and by increasing the maximum of RF energy output by 50%, which marks offers physicians more efficiency and flexibility in treatments, which we believe will provide even stronger clinical results and ultimately increase the revenue for our customers.
<unk>.
The early market response to <unk> has been notable and sales of this highly differentiated body contouring workstation have been strong during the initial commercial launch we continue to expect sales of Bliss match in the U S and Bliss outside of the U S to drive strong contributions to total company growth in 2022.
Finally, we are proud of the continued progress we have made in recent months to advance our development regulatory and clinical strategy for Amy or non surgical robotic technology platform for medical aesthetic application.
We announced a five 10-K submission for.
For the general indication of tissue excision of skin resurfacing on March 31st and had been engaged with D. A with the FDA. During the review of our submission. We continue to believe that Amy has the potential to bring true innovation to the medical aesthetics market by changing the way procedures are performed and bringing a new level of speed safety and clinical predictability to.
Our customers.
The prospects for Amy are very compelling and we look forward to introducing this disruptive technology. It is important to remember that Amy the Ami platform excuse me. It was just that a platform that has been designed to support numerous different clinical indications via our unique upgrade path for the clinicians, making it extremely cost effective and.
Differentiated from any products currently available in the aesthetic device market today.
In parallel to the process of submitting for general indication for tissue extrusion resurfacing. We've also made progress towards our strategy to secure a specific clinical indications for Amy for treatments on the face.
We are pursuing an IDE clinical study evaluating the safety and efficacy of using Amy for the treatment of moderate to severe facial wrinkles.
We announced first patient treatments in April and our foreign Vesta investigational sides are busy enrolling and treating 70 patients for this study.
This study will support our five 10-K submission for specific clinical indications for treatment of wrinkles and sheets, which will further expand our annual addressable market opportunity to enhance our long term growth profile.
Now with that let me turn the call over to Domenic della Penna, who will provide a detailed review of our second quarter financial results and discuss our balance sheet financial condition, and our updated 2022 guidance Dominic.
Thank you Don given Don's detailed review of our revenue results I will begin with a review of our financial performance across the rest of the P&L for the avoidance of doubt unless otherwise noted my prepared remarks will focus on the Companys reported results for the second quarter of 2022 on a GAAP basis and all.
Growth related items are on a year over year basis.
Gross profit increased zero point $3 million or 2% to $19 million.
Most margin was 70% compared to 72, 5% of revenue in the second quarter of 2021 the.
The change in gross margin was driven by changes in mix as well as by changes in foreign currencies, which depreciated relative to the U S dollar in the period.
Total operating expenses were $26 2 million compared to $17 2 million in the second quarter of 2021. The change in total operating expenses was driven by an increase of $6 4 million or 82% and general and administrative expenses, an increase of zero point $4 million or <unk> <unk>.
20% in research and development expenses.
Offset partially by a decrease of zero point $6 million or 6% and sales and marketing expenses. In addition in the three months ended June 30th 2021 operating expenses included a bad debt recovery of $3 2 million due to a reactivation of accounts impacted by COVID-19.
<unk>, which did not repeat in the three months ended June 32022.
In fact, our GAAP operating expenses include an additional $2 million reserve for bad debt expense compared to what our prior to our prior guidance had assumed.
The prior year period also included a $2.8 million noncash gain on forgiveness of government assistance loans, which did not benefit.
Our GAAP opex in the second quarter of 2022.
Excluding the impacts of bad debt expense and recovery in both periods as well as the noncash gain last year, our non-GAAP operating expenses increased $1 million or 4% year over year.
We believe this better reflects our efforts to prudently manage our expenses in the current high inflation environment.
In addition, we continue to prioritize the strategic investments, we are making in support of our key growth initiatives, including our commercial launch of the Bliss, Max and our development regulatory and clinical programs for Amy.
As Dom mentioned earlier, we've implemented a series of initiatives to streamline our global operations reduce our operating expenses and improve our cash generation. While these initiatives are intended to enhance our multiyear financial profile, we expect to realize early benefits of these activities in the <unk>.
Second half of 2022.
Specifically by prioritizing cash system sales, we significantly improved cash flow in the second half while minimizing the economic risks we face in this high inflation setting. We now expect GAAP operating expenses of approximately $95 million to $97 million for the full year 2022 compared to our pre.
<unk> guidance, which had assumed GAAP opex in the range of $98 million to $101 million.
Returning to a review of our second quarter financial results.
Total operating loss was $7 1 million compared to income of $1 5 million in the second quarter of 2021 net loss attributable to stockholders for the second quarter of 2022 was $10 6 million or 16 cents per share compared to net income of <unk> 4 million for the second quarter.
<unk> of 2021.
Adjusted EBITDA loss for the second quarter of 2022 was $5 5 million compared to adjusted EBITDA of zero point $5 million for the second quarter of 2021. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our in our earnings press.
Lease.
Turning to the balance sheet.
As of June 32022, the company had $10 5 million of cash and cash equivalents and total debt obligations of approximately $77 5 million compared to $30 9 million and $77 8 million respectively. As of December 31, 2021.
Cash used in operations for the six months ended June 30th was $19 8 million, which is flat compared to the prior year period as discussed on our recent calls the use of cash to date is directly related to our strategic initiative, which prioritized investments in inventory and advances to suppliers to ensure our.
<unk> to meet customer demand as we move through 2022, given the realities of ongoing supply chain challenges. We continue to expect improved working capital trends as we move through 2022.
Turning to a review of our updated guidance as detailed in our press release, we updated our revenue guidance for the full year 2022 period.
The company now expects total revenue for the 12 months ending December 31, 2022 in the range of $110 million to $113 million, representing an increase of approximately 4% to 7% year over year compared to total revenue of $105 6 million for the 12 months ended December 31 2020.
One.
For modeling purposes, we would like to offer the following considerations to help investors understand the underlying assumptions driving our 2020 to growth and profitability targets.
First are our updated total revenue range reflects the following.
The largest driver of the change in our guidance range, representing roughly two thirds of the total revision comes from our strategic initiative to drive more cash flow from the sale of our systems, specifically in shifting our revenue mix towards cash sales versus subscription sales.
As Tom mentioned earlier, while the expected shift towards cash sales has an impact on our total revenue expectations for 2022, the improvement in our cash flow conversion in the second half of 2022 justifies our efforts in this area.
The remaining one third of the revision to our 2022 revenue guidance range comes from a combination of the softer than expected sales results in the second quarter and the impact of our strategic initiatives to streamline our global operations.
Specifically the transition from a direct to distributor based sales model in certain international markets. During the second half of 2022.
With respect to the updated assumptions supporting our P&L expectations for 2022.
We now expect our gross margins of approximately we now expect gross margins of approximately 67% compared to 70% in 2021 the.
The year over year change in gross margins continues to reflect impacts from changes in mix as well as the inflationary headwinds discussed on our prior calls.
Our updated gross margin range also includes the impact of changes in exchange rates compared to the prior year period.
We now expect total GAAP operating expenses of approximately 95% to 97 million representing growth of 7% to 9% year over year compared to our prior guidance range of $98 million to $101 million.
The revised GAAP operating expense range reflects.
The incremental bad debt expense realized in Q2, 2022, which was not contemplated in our prior guidance range and continued prudent expense management of our expenses in order to prioritize the strategic investments, we are making to support our key growth initiatives.
It also reflects the early benefits of the strategic initiatives that we have implemented to streamline our global operations, which we estimate together represent roughly $5 million to $6 million of savings over the second half of 2022.
Importantly, these initiatives were designed to enhance our multiyear financial profile and thus we expect to realize approximately $10 million of GAAP operating expense reduction on a full year basis in 2023.
We now expect interest expense of approximately $4 5 million compared to 4 million previously driven by higher interest rate assumptions on our variable rate debt.
There are no material changes to other modeling considerations, we shared on our last earnings call. We continue to expect noncash DNA, a $4 5 million noncash stock comp of approximately $2 4 million and weighted average shares outstanding to be approximately 64 million finally, our.
<unk> total revenue guidance range for the full year 2022 includes the assumption that third quarter total revenue will be in the range of 24 million to $25 million.
With respect to our efforts to secure non dilutive financing.
We are in discussion with potential partners interested in the more than $73 million of current and long term trade receivables on our balance sheet by way of a reminder, current subscription agreements are reported as part of accounts receivable on our balance sheet each quarter.
These accounts receivable do not bear interest and are typically not collateralize, we believe the potential cash infusion from our factoring agreement represents an attractive non dilutive financing option for the <unk>.
With that operator, we will now open the call to your questions operator.
Thank you if you'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 please limit yourself to one question and one follow up question.
I'd like to ask additional questions. We invite you to address off to the queue again by pressing star one.
And our first question will come from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your questions.
Oh, Hi, Don Don and Ross.
Good morning, Jeff Good morning.
Good morning I.
I guess first question is could you could you dive in a little bit on the sales force disruption. It was it was one geography within the U S representing.
What percent of the U S and how many individuals.
Where are you on the.
As far as advancing a new sales force into their territory.
Yes.
Jeff.
Hold on hold on Ross just yet another competitive reasons for competitive reasons, we're not going to get into the specifics of the geography, we will say that we were disappointed with the leader didn't really fit with.
Sort of the direction and the consistency in the companies.
No desire is to continue to grow the business. It did impact the number of sales reps.
Once we identified this issue it was unfortunately late in the quarter and it did significantly impact. The overall performance of that particular region. Now that said I think it's really important to identify that the team outside of this particular market.
Did show a very significant 24% year over year growth and has continued to build a very strong pipeline. The leadership that was running that particular region has now been.
<unk>, if you will over the entire U S territory, and we feel very comfortable based on where we are right now.
With with the team and I'm happy to say that the majority of the team that exited during.
During this very difficult period of time has been replaced in the region and we do feel comfortable as we go forward.
These individuals will get their feet under them and we'll be able to contribute certainly in the back half of 2022.
Okay got it can you talk a little bit about supply chain challenges it looks like your margins for the second quarter held up rather well.
But it sounds like you do have some challenges in the back half could you talk to us a little bit about what's going on out there.
Why it didn't impact Q2, but you expect it to impact the latter part of the year.
Sure sure people handle that so Jeff what we're anticipating in the second quarter is second half sorry. The second half is more of the same in terms of FX. So we had a.
Roughly a 1 million dollar FX impact in Q2 with most major currencies depreciating vis vis the U S dollar.
So we expect that to continue and the impact of exchange is worth about 100 basis points. In addition, we expect inflation to have an impact of between 80 and 100 basis points and then thirdly, we.
We're expecting mix to have an impact of between 100 and 120 basis points. So that collectively is about 300 basis points.
Relative to the 70% we experienced in Q2 now.
Now I can offer the the.
Additional insight in relation to the cash versus subscription split so we pulled down our revenue guidance in the second half, but that guidance has not necessarily been pulled down for the.
The her side of the business. So the artist side in particular is not impacted because thats a fully cash business anyway.
But because artist has slightly lower margins than the subscription side of the business when you pull the one lever down and.
And you hold the artist side, which is still continuing to perform very strong.
That's where you get a slight bit of mix impact of approximately 100 basis points and then the balances is inflationary impacts.
Which up to date, we have managed pretty well, but that's sort of how we're looking at it and how we've hedged in this in the second half.
Okay.
I'll move to three point too bad debt recovery.
As reflected where.
So the $3 2 million relates to a bad debt expense recovery that we experienced in the second quarter of 2021.
Which did not repeat in the second quarter of 2022. So it was a one time benefit because when we experienced the dramatic COVID-19 shutdown in.
In 2020 in 2021, a lot of our customers stopped paying and then we were able to reactivate those customers. Many of them were reactivated in the first half of 2021 and in particular in Q2, we realized a bad debt expense recovery with the activation of several hundred.
Accounts.
And that is a one off benefit in Q1 of 2021.
As in Q2, we actually experienced some negative.
Impact on the bad debt side, so instead of a recovery we ended up booking about $2 million more than we would normally book.
Okay, perfect that those cross I'll jump back in queue.
Thank you.
Thank you. Our next question is come from the line of Marie Thibault with BT. Archie. Please proceed with your questions.
Good morning, Thanks for taking the questions and I understand the shift to prioritize cash sales and help your cash flow profile, but I wanted to hear a little bit about <unk>.
What you're seeing on patient demand and appetite for discretionary spending I'm trying to dig into customer willingness to pay upfront for six one at a time that we're hearing a lot more pressure on Macau.
So any commentary there would be helpful.
Yes look I think that there's ebbs and flows Maria and good morning, I think overall the thing that we're really focused on right. Now is we spent the first 12 years of the company's life focusing a lot on promoting the.
The differentiated subscription model and so the impact to <unk>.
Moving to cash versus subscription is more based in our marketing efforts than it is the realities of the market demand our pipeline has grown exponentially in the last 30 to 60 days and we feel very good about that and it's an especially quarter are sort of following the the performance of the <unk>.
Region in the U S grew 24%, we don't see a real slowing down per se of demand now having said that there's always the credit challenges and risks associated with dealing with third party lenders, but to this point and it's early but to this point, we have not really seen.
Any issues there as far as patient traffic.
Based on our Iot data that we see on a routine basis I can tell you that patient activity has consistently outperformed pre COVID-19.
The trends into clinics around the world. So I think that this is more for us anyway, an issue of getting our sales reps.
Right sized in terms of their messaging and what they focus on day in and day out when they talk to our customers and taking full advantage of the significantly increasing pipeline, especially in our hair franchise and in our body franchise.
Okay. That's very helpful. John Thank you.
I'll ask my follow up here on the cash.
Cash flow conversion improvements expected in the second half is there any way you can sort of quantify for us as we think about that that cadence AR and cash flow improvement and do.
Do you care to give any update on.
Our goal of reaching cash flow positive as I recall that was previously Q4 I don't know.
You know that Goldman.
Thank you.
Okay.
So Murray, we're expecting that the conversion to.
Previously, we said that we'd be cash flow.
Positive and in the fourth quarter, we're still on that track with this conversion and in fact, we expect that.
A good proportion of those cash of the subscription sales well in fact convert to cash, but not all of them.
So when we pulled down our guidance we've referenced that approximately two thirds of that impact is.
It is related to this this shift and.
Based on early results and thus far to the almost the midpoint of August were in line with those expectations as far as that that trajectory to convert over from subscription to more cash deals, which doesn't mean, we're abandoning subscription, but we feel that the combination of that.
Incremental cash that previously was not in any of our plans will be a cash benefit.
Fit to us in the second half, but the other reminder, is that we continue to have $73 million of receivables on our books that will continue to pay even though we're deemphasizing. This subscription business. So in effect you have the benefit of the previous model continuing to pay dividends in the form of an <unk>.
Alrighty and then you've got this cash conversion of new deals that are coming in which were never anticipated. So this is the the.
Mental shift and benefit that we're going to have over the next year year and a half before that 73 million starts to really dwindle down. So we're looking at this inflection point as being a substantial pivot in the in the business that will significantly help us, but we don't want to give any specific cash targets at this point.
Okay understood I'll get back in queue basketball.
Thank you Marie.
Thank you. Our next question is coming from the line of Jon Block with Stifel. Please proceed with your questions.
Alright, thanks, guys good morning.
The first question.
The first question is the emphasis on the cost I.
I guess maybe.
Couple.
Questions to that are there concerns about call it.
Further sales force disruption with the change in strategy that might necessitate a different type of web or just a change in behavior and then I'll.
We think the subscription model is what's really needed in this type of environment. Just gives the docs are little bit more flexibility I know youre not abandoning because you said several times, but you're arguably deemphasizing. So maybe if you can just talk.
Should we be concerned about further sales force disruption with this move and then why this move with that.
Gives us the dots a little bit more.
Flex, if you would and proceeding with a purchase and those type of uncertain environment.
Yes.
Yeah, No and it's a great question, John and look I think that there's multi parts to this answer first of all we don't believe that it's going to have any material impact on the sales force.
We have done a very good job and Ross can elaborate on this a little bit more sort.
Replacing the individuals that left because of the challenges we had in one region.
Having said that we this is the right time for us to do this for a few reasons number one.
As we continue to develop our robotic technologies and so on that are going to be focused predominantly in the core market of dermatology and plastic surgery. It is more important that we focus our energies and how we compete on the technical advantages of our technology versus the ROI, which essentially was the primary focus when we talk about.
The subscription model in the past, it's not as important to the core audience as it is to the noncore or med Spa market, where we were very very strong for many years, we think that the ability to keep both programs in play will give us the ultimate flexibility in being able to start with the conversation related to a traditional <unk>.
This transaction like everybody else do we compete against and basically leveraging what we believe to be best in class technologies, and we prove that day in and day out when we do competitive side by side evaluations with our competitive products.
And at the same time be able to look at customers for example might be a new physician that is just opening a practice and they don't necessarily have a credit history with a third party that will be beneficial to them, but we have the option and total control and am apply certain disciplines that quite frankly, we're not there in the past when it relates to when we are.
The subscription model and we don't by doing this we think that we're in control of our own destiny as it relates to cash on balance sheet and ensuring that we don't find ourselves in a situation, where we have to go out and dilute any further we've made this shift keeping in mind.
Possibly outcomes not only for the company, but for our shareholders as well.
Got it very helpful and maybe just to pivot a little bit.
What about a pipeline update with Amy are the 12 patients Dawn I guess in the first part of the pivotal and has that been submitted to the FDA any update on the freedom Freedom time your expectations and then GDP, maybe just to build on the prior question around cash flow you know.
Previously you said positive cash flow for Q, which was I think street was around $39 $40 million or are there just ways to thing dawn.
New revenue top line and how that shakes out with some of the the opex streamlining and the move to more cash sales. Thanks guys.
Okay. So on the amey update.
We are in the final stages of completing phase one of that clinical trial. As you may recall, there is a waiting period between the last treatment and the time in which we measure and then submit to the FDA. We do expect that that phase that trial first of all the first submission as we mentioned in our prepared remarks, we are waiting for the EFT.
To come back to us with a general clearance on the Amy.
And we're well down the road, we continue to communicate with them as to when we expect that clearance and hopefully that should be sooner rather than later, having said that the patient trials continue.
The FDA did ask us to do the first 12 patients and then submit we are almost complete with that and then we have a very we have a timeframe that we need to wait before we can submit that data that should happen before the end of the year. So we do expect to be re engage with the balance of the treatments and so on in early part of 2023 with a full commercial release.
And the year.
With with and just let me be clear full commercial release later in the year within with an on label specific indication for the face we do expect a general clearance that will allow us to commercialize. This product later this year and are limited and unlimited fashion.
Okay.
Does that make sense John .
Sorry, I was just going to ask anything.
But a lot of sense anything on freedom or the castle. Thanks, though.
Yeah, we just as part of the restructuring John and we took a long hard look in when we're quite objective at this point I think we're going to as we streamlined some of our product offerings. The freedom category is a is a good one it's just not one that we can focus resources on at this point because it is as you know a differentiated market, we made a commitment that when <unk>.
We do go there it's going to be for predominantly the obgyn community and we made a strategic decision at this point to focus on what we're doing really well at this point and we look at a variety of different alternatives on how to bring that product to market, but not necessarily in a direct way.
Maybe through a third party, but at this point, we are not we are not pursuing moving that project forward simply because we want to focus on what's real for today and what's going to drive the maximum return for us in the short to mid term and then we'll revisit that that particular project.
And Don do you want to answer the second part John can you just reiterate Europe , because you had a lot in there I just wanted to make sure I would you mind just reiterating the question sure did even though you're right I tried to back a lot in there I was just sort of go into the prior guidance said cash flow positive and for Q&A.
I think the street or we were around $39 $40 million number and so just even at a higher level than trying to rethink.
Some of the Opex coming down and the move to more cash sales I'm guessing the topline requirement to reach cash flow positive wouldn't be quite as high are there any sort of benchmarks or thoughts that you can put in and around that thought process.
Yeah. So we've guided one the full year 110 to $1 13, and then for Q3 and in and around the $24 million to $25 million range.
So if you do that math, you're sort of left with the different switches in the lower end of the <unk> for Q4.
Based on that that guidance.
And that that combined with the Opex cuts that we're making in the second half of between five and $6 million.
Should render us.
Profitable in that fourth quarter based on $32 million of revenue and <unk>.
And our gross margins in around 67%. So that's what we're guiding.
That's what we're aiming for and in addition in 2023 the annualized impact of those.
The restructuring savings amounts to about $10 million and in that year.
So that will put us in a much better position in 2023, notwithstanding that worth calling down.
The revenues for this year based on the the shift in and subscription being more geared towards cash.
Without necessarily of banning subscription.
Very helpful elimination of it's a combination of the cash shift as well as the opex cuts and refocusing the business.
Yes, that's what I was called perfect. Thanks PDP.
Youre welcome nature.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Anthony Vendetti with Maxim Group. Please proceed with your questions.
Thanks, and good morning.
Hey, good morning, good morning.
Good morning, Good morning, Dominic Good morning, Tom.
So.
Just following up on the little bit of a strategy shift at all.
Can you talk a little bit about asps or are they are they holding up in this environment or especially if you shift to our cash.
And I know, it's not pure cash, but if you're offering the cash alternative for pushing that.
Are you expecting asps.
Come in a little bit.
Just talk a little bit about that and then obviously in this environment.
We could see some pullback if we go back to the financial crisis.
2007, 2008 to 2009.
We did see revenue start to fall off in some cases pretty dramatically.
What how do you how do you navigate through through this if we do fall into recession, what's what's your what's your strategy or plan.
So let me let me answer the second part of the question and then I'll, let DDP answer the first part if that's okay Anthony.
So.
Yeah.
I started this company in 2009 2010, and the business model that we've put in place was to protect you know the.
Opportunity at the customer level by offering a subscription model. This is the main reason why we are not abandoning the subscription model, but if you remember in 2007 2008 2009, there was an interesting phenomena that occurred youre absolutely right that the device business did dry up and there was a significant amount of pressure on pricing et cetera.
And that was predominantly based on the fact that lenders were not lending.
And if they did land it was really.
And in a very small part of the market and with all sorts of bells and whistles in terms of guarantees et cetera, but what was interesting in that time period is that the patient traffic was pretty level and in fact in some jurisdictions actually continuing to increase people wanted to feel better during bad times et cetera, et cetera, and they took advantage of disposable income that they did.
Especially as you look at today's market where.
The job market is actually pretty robust. So we're not seeing any of that impact at the street level with the consumer to the clinic, we do maintain the right to make to continue to have the subscription model in play. The only difference is that now we have a very specific way that we are going to the market with a cash versus <unk>.
<unk> based on technology benefits compared to our peers and if the customer isn't a situation that falls into one of the buckets of new clinic or whatever the case may be we have the ability to still.
Leverage that customers. So instead of losing them, we have an alternative to go to which our competitors do not offer and quite frankly are afraid to offer because they don't really want to stand behind the consistency of the technology's ability to generate revenue.
For the three year period in which we run our subscription model versus traditional leases.
DDP do you want to if you want to touch on the other stuff. So Anthony on the ESP side in the second quarter, our Asp's by device actually held up very well in fact on the artist side were actually slightly above our own internal targets on asps.
Where we have the challenge is that.
For rest of World, where we've got currency.
Impacts, although the asps in local currency and markets like <unk>.
Spain, and Germany et cetera are the euro when we convert to U S dollars, that's where we get hit on the ESP side. So in local currencies were holding but we're not able to get that extra bit to offset the currency impact, which we estimate to be about 8% on rest of world in Q2, and we've modeled that 8%.
In the second half, which causes a bit of the margin compression that I spoke about earlier and so there is one other thing to consider here as well as we take a look at some of the nonperforming O U S markets, we will be converting from direct operations to distributor operations and that by itself has a bit of an impact on the ASP.
Because we are selling to distributors and obviously lower pricing so.
These are these are modest shifts, but ddp's point.
We've been able to maintain pretty consistent asps across the product portfolio, especially in North America.
Okay, Great and then just lastly for GDP.
One of the things mentioned in the press release was up.
Youre exploring non dilutive financing, maybe just talk about what.
What avail.
Available for you at this point and what type of.
Non dilutive financing.
Were to seek that what what it may look like.
Yes, I mean, we can't say much on that front, Anthony but there are many.
Forms of the non dilutive financing clearly one of the key opportunities. We have is to leverage this significant receivables balance between long and long term and current receivables of over $70 million.
So that's obviously an area that we're looking closely at and and <unk>.
Ceiling, but there are also other opportunities for non dilutive financing via partnerships et cetera. So these are these are very active things that are are are ongoing and in addition to our restructuring plan, we're feeling pretty good about where we're headed.
Anthony the only thing I'll add to that is that there have we do.
Have a few opportunities that we're exploring that could bring to ddp's point, some strategic partnerships to help develop certain categories, especially in the robotics area on behalf of these entities and that would represent.
Call it a cash injection that would be non dilutive.
Okay great.
Helpful. Thanks, Thanks, guys appreciate it.
Our pleasure.
Thank you we are currently showing no additional participants in the queue with that that does conclude our conference for today. Thank you for your participation.
Have a great weekend.
Thanks, everybody. Thanks, Ross Thank you.