Q2 2023 Cutera Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Q Tara Inc. Second quarter 2023 results conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero. The discussion today includes forward looking statements. These forward looking statements reflect management's current forecast or.
Expectations of certain aspects of the company's future business, including but not limited to any financial guidance provided for modeling purposes forward looking statements are based on information available to us at the time those statements are made which by its nature is dynamic and subject to change our management's good faith belief as of that time with respect to future events.
Forward looking statements include among others statements regarding financial guidance regulatory approvals productivity improvements and plans to introduce new products and expand into additional geographies for words that may identify forward looking statements. We encourage you to refer to the safe Harbor statement in our press release earlier today all forward looking statements.
Subject to risks and uncertainties, including those risk factors described in the section entitled risk factors in our Form 10-K as filed with the Securities and Exchange Commission and updated on our form 10, Qs subsequently filed Q. Tara also cautions you not to place undue reliance on forward looking statements, which speak only.
As of the date they are made to Terra undertakes no obligation to update publicly any forward looking statements to reflect new information events or circumstances or to reflect the occurrence of unanticipated events future results may differ materially from management's current expectations. In addition, we will discuss non-GAAP financial measures, including results on an a.
<unk> basis, we believe these financial measures can facilitate a more complete analysis and greater transparency into Q terrorists ongoing results of operations, particularly when comparing underlying results from period to period. Please refer to the reconciliation from GAAP to non-GAAP measures in our earnings release these non-GAAP financial measures.
Should be considered along with but not as alternatives to the operating performance measures prescribed by GAAP with that I would like to turn the conference over to Sheila Hopkins former interim CEO of Q Tara. Please go ahead.
Thank you operator, good afternoon, and welcome to two terrorists second quarter 2023 earnings call with me on the call are Stuart because I'm, an interim CFO, Greg Parker, Vice President of financial planning and Investor Relations and Taylor Harris, Our recently appointed Chief Executive Officer.
Before reviewing results I'd like to comment on Taylor's appointment.
Since I stepped in as interim CEO . Our board has worked with a clear mandate find the best person to serve as the permanent CEO of two tera.
We're committed to bringing in a world class operating executive with a track record of success uncompromising standards and the skill set and industry experience needed to execute the company strategy.
Taylor Harris more than deliveries against these attacks.
His appointment follows a comprehensive search process led by Russell Reynolds that included input from some of our largest investors.
I speak on behalf of the entire board when I say that we could not be more excited to have Taylor at the helm and we're confident that the company and our shareholders are in good hands going forward.
For those of you who don't know Taylor, let me share a bit more about why the board and I believe he's the right person for the job Taylor is a proven executive with over 20 years of experience and a track record of driving growth in the medical and aesthetic device landscape.
Most recently he served as senior Vice President and CFO of myocardial a biopharmaceutical company.
Prior to that he was SVP and CFO and sell Teco Statics Taylor.
Taylor played a key role in building cool sculpting until a formidable competitor. He also served as vice President and Chief Financial Officer at Thoratec Corporation and prior to that he worked at J P. Morgan Chase for over a decade with a focus on the medical device industry.
He only joined our board in June and also served as a consultant for us and we've been able to see that he has a deep seeded sense of integrity, a people centric approach and our commitment to excellence that can take you terrorists business performance and its culture to the next level.
Taylor also shares the board's conviction that there is a tremendous opportunity to unlock and create value at two tera and if there's a common thread woven throughout peerless experience. It is in fact his ability to drive value creation. So when you add it up there is no doubt that he is there.
Right person for this job and I'm delighted that he is here his second day on the seat for this call and you'll hear from him in a few minutes.
But first let me walk you through the highlights of our second quarter performance.
Then I'll pass things over to Stuart to provide greater details on the financials, we'll conclude with Taylor sharing his initial thoughts on the way forward for the company.
I'll wrap up the call and open it up for questions and with that I'd like to shift and provide an overview of the second quarter.
First a couple of reminders regarding the company's progress on governance issues from a board perspective in June we welcomed four new directors, Kevin Cameron, Nick Lou and Keith Sullivan, and Taylor and they each bring relevant skills and experiences to the table and are adding significant value already.
From an organization perspective, the retention bonuses, we implemented in April have worked with only lost one person among the targeted group of people. So our employee base has remained engaged.
Turning to the business our results for the second quarter, or frankly disappointing and reflect that the business faces more challenges that were apparent when I first stepped into this seat in April .
Total revenue for the second quarter was $61.2 million down 5% versus a year ago on a reported basis and down 2% in constant currency.
We did see sequential growth versus the prior quarter, but not as much as expected and the decline versus a year ago traces primarily to capital equipment and cuts across most geographies.
Adjusted EBITDA was a loss of $11.6 million versus a 1.6 million dollar loss in the year ago period.
Now this reflects decreased gross profit and increased Opex, then behind I'll be clear.
It will provide more detail.
But let me provide a bit more perspective on revenue performance.
Our core capital business was down minus 13% as reported and 11% in constant currency.
Now some of the declines reflect challenging year over year comparisons as our Q2 'twenty two revenues, we're a high watermark.
However, a clear eyed assessment of this business shows that it also faces operational and macro economic headwinds on the operational front core capital has been hampered by parts driven service delays and increased reliability issues.
These service and reliability hiccups don't fit well with our customers and are making it much more difficult to close deals.
These issues reflect growing pains or supply chain and production facilities have faced.
They ramped up I'll be clear production, while at the same time working to meet the needs of our core capital business, having said that we own this problem and we're working diligently to mitigate and then solve it so that we meet our standards and the expectations of our customers.
On the macroeconomic front our capital business is also challenged by the tightening credit environment, which has made it more difficult for some customers to find financing. This has impacted deal closures and placed pressure on our a S piece med spas have been the most affected and we're investigating newer.
Approaches to help these customers find financing.
Now there are shoots of green on the core capital business first the shift to a more measured booking pace for all be clear address the problem that we had faced from October through March with the capital selling organization being somewhat distracted by steep I'll be clear booking targets.
Second, we'll bring new product news to the capital portfolio. This year with new technology to round out the secret franchise, and we'll follow that with more new product news on core capital in 2020 four.
So a net getting our capital business back on track is a top priority for the company and Taylor is already engaged with the team to do just that.
Turning to Aussie clear, we have more work to do here also but the biggest challenge being increasing utilization and the percent of installed offices that are contributing.
Key to success will be practice business development, and more effectively holding utilization rates and existing offices as new offices are on boarded.
We are working expeditiously on the playbook to achieve stronger results here and Taylor brings in valuable industry experience to the task at hand.
I'm encouraged by the progress that we made in the quarter on I'll be clear, we moved forward with a more measured pace of device bookings our kam team drove treatment volume in the quarter that was in line with our expectations and we're also progressing development of new hand pieces for I'll be clear that will expand treatment.
Areas and finally I'll be clear became the first active therapy to obtain FDA clearance as a long term treatment for mild to severe acne.
Connecting all of the dots, while second quarter performance did not meet our expectations and the challenges that we face are greater than I. Initially realized I am confident that with Chili's leadership. These challenges will be addressed in the business will return to sustainable growth and.
With that I'd like to turn the call over to Stuart for a financial update Stuart.
Thank you Sheila.
Today I'll be discussing our reported Q2 results as well as from non-GAAP results, a reconciliation of GAAP to non-GAAP gross margin and operating losses included in our earnings release.
Listeners and readers to review our non-GAAP results in conjunction with the GAAP results contained in this earnings release.
Turning to our Q2 results total revenue for the first quarter was $61 2 million compared to $64 3 million.
Period in 'twenty, 'twenty, two and compared to 55 million in Q1.
Oh 2023.
$3 million of a 5% decrease from the comparative period represents a 2% decrease on a constant currency basis.
This decrease reflects the decline in capital equipment revenue, partially offset by obviously the revenue recorded in Q2 of this year.
As a reminder, we began a limited commercial launch if I'd be clear in April 2022, and a full commercial release in November 2022.
Second quarter consolidated capital equipment revenue of $37 9 million decreased by $5 8 million, 13% from a prior year period.
North American capital equipment revenue of $22 2 million decreased by $3 million or 12% from the prior year period.
This decrease included a $1 million increase in our sales return reserve.
I'd like to highlight our Q2 2023, North American system revenue represented a $4 2 million improvement over Q1, 2023 reflecting ourselves forces refocus on core capital.
International equipment revenue of $15 7 million represents a $2 8 million or 15% decrease from Q2 2022.
Recurring revenue defined as consumables global service skincare that'd be clear revenue was $23 3 million in the quarter.
$2 8 million or 15% over the comparative period to.
The increase over the prior year was mainly driven by obviously a revenue of 4 million, partially offset by a 9 million decrease in consumable revenues, resulting from a promotion we offered in Q2 2022.
non-GAAP gross profit for the first quarter of 2023 was $30 8 million with a gross margin of 53% representing a decrease of 530 basis points compared to the same period last year.
Increase of 120 basis points compared to Q1 of 2023.
Regarding the comparative quarterly decrease Geographics and product revenue mix and increased pressure on Isps affected gross margins by 270 basis points and continued foreign exchange headwinds adversely impacted gross margin by a further 120 basis points.
The remaining factors impacting the comparative decline in our gross margin with cost increases for certain paths, which had 170 basis points impact.
The increase in inventory obsolescence reserve, which had a 100 basis point impact.
Revenue in the second quarter of 2023 positively impacted our gross margin compared to the second quarter of 2022 by 130 basis points.
non-GAAP operating expenses for the second quarter of 2023 were $42 4 million compared to $37 3 million for the same period last year.
This 5 million the increase was mainly driven by the continued expansion of sales force and promotional activities, which represents around 341 million of this increase as well as the charge. We took in the second quarter as we increased our allowance for doubtful accounts by $2 million.
For the second quarter of 2023, and non-GAAP operating income, which we refer to as adjusted EBITDA was a loss of $11 6 million compared to a loss of $1 6 million in the prior year period and compared to a loss of $14 5 million in the first quarter of 2023.
The increase in loss compared to Q2 2022 was due to the decrease in gross profit and increase in operating expenses.
Turning to our balance sheet, we ended the quarter with $222 6 million of cash and marketable securities compared to $267 7 million at March 31st 2023.
Driving this 45 million a sequential decrease of 25 million, Jason I'll be clear business and $18 million from core losses of which 8 million relates to the board of director legal and advisory fees incurred in support of the recent board governance matches.
To be clear use of cash results from 17 million spent on devices and paths and $7 million in cash losses.
Okay. It's consumed in the first quarter of this year was $49.7 million.
Our expectation is that our cash consumption will continue to trend downward throughout 2023, driven by a decline in board of director legal and advisory fees. As we are expecting the Q3 amount to be about half of Q2, a reduction in core imagery and improvement in cash collection and a slower pace of placements I will now pass the call back to Sheila.
Thanks, Stuart before I turn the call over to Taylor to talk about the future.
Want to say that it has been a privilege to serve as key terrorists interim CEO .
In the time I've been in this role I've gained even deeper insight into the company's business people and strategy.
Getting to know two tera people up close has been a joy I'm grateful for their unwavering dedication and commitment and while there's a lot of work to be done I am confident that the company is well positioned for growth under <unk> leadership.
I look forward to applying my learnings as interim CEO upon returning to my position as an independent director on the board now.
Now, let me turn this over to Taylor.
Thank you so much Sheila it's an honor to join you today as Q terrorists News C E O.
This year, two tera celebrates its 25th anniversary.
25 years of pioneering innovation and leadership within the medical aesthetics industry.
This company founded by accomplished engineers has focused on the science and on the technology that underpins the treatment advances in our field over the past few decades from the very beginning we've developed amazing products and we partnered with our customers with dedicated sales service clinical and marketing support to help them.
Am best utilize our technology and our products to serve the needs of patients around the globe.
The next 25 years can be even better and that's the reason that I'm here at Q2, we.
We have an opportunity to make <unk> stronger to extend our technology and product leadership position and to provide our customers with unparalleled quality reliability and customer support.
We're not there now, but we can and we will be.
The team at Q Tara is hungry to become the preeminent player in the aesthetics industry second to none.
We will speak to this longer term vision in the quarters to call them.
For now.
Let me talk about three near term priorities that are intended to address the speed bumps, which we've had in recent quarters first and foremost we must improve our product reliability and service levels, where we've seen a disappointing degradation in performance across the installed base of our capital systems.
As Sheila mentioned this dynamic occurred concomitant with it may have been in part caused by the significant demand for and the production levels of Avi clearer. We will address these reliability issues expeditiously and once again assume a position as a recognized industry leadership not just in the innovation, we bring but also in the <unk>.
Quality and in our commitment to customer service.
Second.
I'll be clear.
What an impressive new technology for the treatment of acne.
I'll be clear truly has the ability to change People's lives. It's a privilege to work at a company with this opportunity and the mission to bring this important new product to market.
Science underlying I'll be clear has proven the data profile is compelling.
Patient interest and an alternative to systemic drug therapy is clear.
And the results in patient satisfaction or inks or increasingly impressive.
I'll be clear it was one of the most exciting features that attracted me to keep terror and this therapy will play a vital role in our future.
But we need to slow down before we speed back up in the coming weeks I will be meeting with the team to look at ways to optimize I'll be clear, we'll look at everything from our clinical training and practice development support to our billing systems and our business model with over 1000 I'll be clear devices in physician offices, we need to focus our team on the edge.
<unk> our customers well.
How to drive utilization within their practices.
This will include training the physician staff on how best to speak to their patients about the benefits of Audi and ultimately to get them in for treatment. We know that we need to deploy I'll be clear capital strategically, but more importantly, we need to assist our physician partners on how to get the best results for their patients suffering from acne fundamentally.
We need to put ourselves into our customers' shoes and do everything we can to support them as they deliver this game changing therapy for patients.
The team at <unk> is hard at work thinking through these plans and in the meantime, we're focused on improving service levels building, our practice development capabilities and continuing to drive awareness through our consumer and professional marketing activities.
Third we will focus on growth in our core business, which has lagged our expectations in recent quarters with an exciting new product like I'll be clear it was easy for organizational attention to become diverted away from the core product line upon which you Keira has been built.
We're thrilled the industry's excitement regarding aussie and the level of demand that we experienced and we will build a world class franchise supporting patients with acne overtime.
However, this initial demand stretched the organization too far in some areas to the detriment of our core business.
Earlier this year, we began to slow the pace of new RV clear bookings and we're now focusing our capital our capital organizations priority squarely on our core business as we develop the tools to drive greater treatment session utilization with I'll be clear.
The broader company has a significant role to play in supporting our field team. Most importantly, if your product support and new product innovation.
With this focused effort from our capital organization and the support from our service and innovation functions.
I believe we can continue the legacy of product leadership and growth in Q2 up.
Underpinning all of this work is the foundation of our people our purpose and our mindset and I think our logo highlights the most important building block in our coming journey with its highlight on the letter U K Terra our focus is on you not on our individual selves, but on those that we serve our teammates our customers.
Patients this core value as part of the DNA here at Q2 I've seen it firsthand in these early days and I truly believe it is only through this cultural mindset that we will have the fortitude and resilience to weather the journey to greatness. So it was so we as an organization are recommitting to supporting each other and to pursuing excellence for our customers.
On the people front, we have some key holes to fill in the near term and we need to make sure that we're allocating our time and resources towards the right set of priorities.
But I am confident that we have the team and the will to weather.
Now, let me turn to our outlook for the balance of 2023 with today being my second day on the job. There's a degree of uncertainty that must be recognized so I'll walk you through the way we formulated our revenue guidance in.
In the first half of the year, our core capital and consumables product lines declined year over year.
We will be redirecting more attention to this portfolio. However, there are macro pressures facing our customers that are not getting easier and we need some time to resolve our service challenges.
Our guidance assumes that these factors will weigh more heavily in the second half.
They did in the first.
We will also be committed to winning business based on our technology and our service while maintaining higher margins.
I'll be clear, we expect the installed base to continue to grow with scheduled installations, bringing a higher level of red revenue contribution in the second half of the year compared to the first however, this increase is likely to be modest given the fact that the summer is a slow period for laser treatments in general.
And we need to work with all of our practices on developing sustainable engines for generating patient flow and utilization.
As I mentioned earlier, we are committed to building I'll be clear into a mainstay treatment for patients with moderate to severe acne, but in the near term we need to optimize our go to market approach and make sure that we have the reliability and processes to support our customers before re accelerating.
Last as it relates to our skin care line in Japan, we've been informed by our partner Z O that they do not intend to extend our distribution agreement beyond the current agreements expiry in June of 2024.
We expect our revenue in the second half of 2023 to be down compared to the first half.
We are still working through the details of the transition process and will provide more color at a later date on how revenue will trend leading up through the middle of 2024.
I would note that this product line currently has a gross margin profile slightly below corporate average with relatively low associated operating expense.
So all of those considerations informed our thoughts around the revenue guidance range of $220 million to $230 million.
While we don't give specific quarterly guidance, the phasing should reflect seasonal softness in the third quarter.
As for the bottom line impact I would just reiterate stuart's comments regarding the moderation of our cash burn as we progress through the next two quarters, we plan to end the year with a strong cash position in the ballpark of $150 million.
We're highly focused on using that capital judiciously, when I'm steering our business toward profitability and cash flow our.
Our performance year to date, and our near term outlook does not reflect the type of profile that we aspire to but it's important to acknowledge the facts on the ground, while we retool to support sustainable long term growth profitability and leadership the future at Q Tara is bright.
With that I'll turn it over to the operator for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we'll pause for a moment.
Callers join the queue.
Our first question comes from George Sellers of Stephens, Inc. Please go ahead.
Of Aussie So we've now got.
Over 1200 50 devices in the field as of the end of the second quarter.
Our training programs have ramped as well so the vast majority of those units had been placed.
As we think about utilization I think it's important to think about both how many devices out in the field or are contributing active.
As well as what types of utilization rates, we're seeing there. So the good news is that the number of devices that are contributing has increased however, the percentage as our installed base is increase the percentage that are contributing and we think about contribution really is how many devices are doing a treatment during a month.
So the the percentage that is contributing has declined and that reflects the really the the large increase in our installed base.
Consequently utilization rates have declined and we've really seen that across the user base.
I think some of that in recent months.
Has been a fact has been attributed to just seasonality and the business. We're learning more about the way this business works.
Seasonally.
But we're also looking into all of the other factors clearly the number one focus of the organization needs to be supporting the customers who.
Who have this device and helping them build a great practices. So that's what we're planning on doing I think there's a playbook here.
We saw it it's L. T. We had a similar challenge not when I was there but.
In earlier days with respect to having a large installed base and needing to really refocus on driving utilization and that's what we're gonna do here.
Okay that that's really helpful. And then maybe switching to the core aesthetic business I'm. Just curious if you could sort of level said after you've been a a structural change in that business as it relates to profitability or or in terms of demand or is this more something.
That can be corrected with some of the initiatives and and things that you're working on.
So what I, what I would say I I do think that as you've noticed or and Stewart alluded to are selling prices have declined.
In the first half of the year and we've had an overall volume decline as well and I think what that reflects are a couple of pressures one is.
A macro economic pressure.
And the second is more companies vicinity. So on the macro front the financing environment is more challenging and we're seeing that reflected.
In our conversations with customers and we're looking for ways to support them. So I would say that's a structural issue that we need to address.
The company specific factor has enlarged.
In large part to do with some of the service challenges the reliability challenges that Sheila spoke to and so there we need to do a better job of supporting our customers and delivering the quality and the timeliness of service getting when.
Machines go down and getting them back up online quickly that is not structural that is something that we control and we are we're focusing a lot of attention there.
Okay. That's really helpful color I'll leave it at two and thank you again for this time.
Our next question comes from John Block of Stifel. Please go ahead.
Thanks, guys good afternoon all.
I'll start with Audi clear, so you know boxes higher <unk>.
The clear revenue lower Q overuse, you know, obviously, you don't utilization I'm not very good.
I think you mentioned the percent contributing has declined.
That's weighing on utilization and I know what your second day on the job, but I wanted to press you a little bit is this the right business model you know in terms of placing the box essentially for free and then to Tara getting outside economics, and the consumable you've got as you mentioned over 1200 boxes out there where you.
Dispatch sales guys, who serious about adopting the technology. So maybe just talk to us on your thoughts on that business model I know don't take was a little different I mean, you you know you charge for the box and then you still got the recurring but is this the right one where it essentially goes out for free and then the 50 per cent shared economic towards.
More of a middle ground that might be a better fit.
John I think it's a it's a great question and it's the right question to ask and before I get to that let me, let me just talk to the second quarter.
And the patient dynamic you know.
Revenue was down as you noted we did treat more patients in the second quarter than we did in the first quarter now it was it was modestly more but it. It was more we had we did have a revenue adjustment on accounting adjustment that we needed to take without that you would have seen in.
Ah revenue trend more reflective of the underlying patients treated trend, but the broader point remains.
In in that what we saw as we progress through the first half of the year and even into the into the start of the third quarter is utilization rates, not where we want them to be so your question is is the right. One it is one that that I asked when I started doing my work look.
Q Tara as an opportunity personally and I think one thing that that work and I'll tell you. This the the organization is looking at it for sure. One thing we're committed to his meeting customers, where they are and so the question you're asking is one that some customers have asked as well and I think we need.
To be really thoughtful and responsive on that front.
Different they're different business models, each each can work and and we just want to find the right setup for our particular situation. So for now we need to leave it at that but it is something that we're we're looking hard at and John I'd also say, that's that's part of the reason.
That we're we're slowing down here on the capital front is we want to reassess are we doing this the right way from a number of different angles.
Okay, Great that was very helpful. Thanks for that color and maybe just to shift gears at the second question at all so just keep it to do but.
And I want to make sure I ask about her on the quality issues acute care and.
Tell you mentioned the 25 year history of the company and I've been monitoring you guys for Awhile and this company is always the way with quality and that's really resonated with your customer base. So you know I.
Find that to surprise, how pervasive or these issues across the portfolio, maybe you can talk a little bit to that.
What's unfolding in the past three to six months in terms of why this is coming front and center now and it may be most importantly, how long does it take to turn around thanks for your time.
Sure John I'll I'll start and then if Sheila wants to add anything it and.
And then she can heartburn.
I think that what we're seeing here is part of the fact that we really flooded the engines with.
Avi clear and you know the so we we saw.
A lot of capital go out a lot of production volume through our facility and it really stretched the organization and so it's hard to.
Link it links some of the challenge, we're having directly to that or or full proof of that but the timing would indicate that that had a a meaningful role to play.
And so I fully agree with your assessment of the company over over its history.
And I also believe that we can and will get back to being known for quality and service, but the fact is we've got a lot more devices out in the field.
With across the corps as well as Accra, with Ozzy and and so it stretched the organization. So I think what what we need to do is.
And this is Ah we talked about this but we're bringing the new deployments of all the clear effectively to a halt as we pause here now we do have scheduled installations. We've we've made commitments to customers, we're going to fulfill those but we're going to give the.
Asian, some breathing room to refocus on surface levels and on quality across the entire portfolio that won't be easy you know how long is it going to take I I can't give you a promise there what I can tell you is that it's the organizations.
Top priority right now and there's a clear commitment.
Perfect. Thanks, guys off all by phone.
Our next question comes from Matthew O'brien of Piper Sandler. Please go ahead.
Hey, this is Phil on for Matt. Thanks for taking my question. My first one is for Taylor Congrats on the new role I was just wondering if you could expand on what you saw.
You tear a and ultimately prompted you and taking this role. Despite some of these near term headwind that you outlined you know what might be needed from a real sore throat technology perspective that the company might not have at this point in in any guide rails in terms of how long this might take to get your strategic plan and.
And in place.
Hey, Phil Thanks, Thanks for the question, so I've been familiar with Q terror for a number of years I I remember back to when I was at J P. Morgan and the company went public Ah and they were at our Health Care Conference I thought Wow. This is a this is a really cool company.
And then just having been in the the aesthetics business was familiar with the reputation of the company for being a product innovator ER a leader in a in a company that stood behind its products. So it felt reputation Lily. It's Ah. It's the kind of company that that did it appeals to me and then I want to be a part of.
I I think all the clear was another big draw for me. So there aren't too many times that you have an opportunity to launch an exciting new therapy like this and I do think the market needs is is ready for hungry for an alternative to to drugs.
And I think Ozzy has the potential to be a really meaningful impactful new product launch.
And then the the other couple of things I'd say is that I've had the opportunity over the last couple of months to be involved with the team as a consultant on the board and I've just been super impressed with the commitment level.
Of the team I've been at companies before where you go through hard stretches and I think it's in those times that teams come together and that you end up looking back and those are the times you remember and it makes coming out of those time periods, all the more sweet and I think that's what's what's going to happen.
Here at Q, Tara and I'm, just convinced we've got a team that wants that so.
The challenges we have here, we're not going to sugarcoat, where we're going to we're going to talk about them.
We're gonna put numbers to them and we're going to deal with them methodically.
But want it but I think that for me looking at them I felt like they were issues that are fixable.
With with resolve they're they're not these are not technology issues. These aren't clinical data issues. These are execution issues and so we just need to we just need to focus on them.
And so all all of that made me feel excited you know I'm here not for a couple of quarters, but for a long time and we're going to start working on it right now.
I appreciate the caller. Thank you so much and I guess you know.
To wrap it up I I would love to hear a little bit more about the sales retention plans that were mentioned earlier, just because you know opex numbers were a little high now what did you have to commit there how long is that duration and and how can we get comfortable that Wendy.
Fire, there's not going to be some type of accident.
Sometime next year or later.
[noise], Yeah, I feel it Stuart speaking I'll I'll speak to the first part of your question.
So we announced in a subsequent events footnote they were committing up to $13 million. The final number came in and live in a million. The attention plan is over one year and it's pay down from foreign students. Two this year and the bulk actually is weighted towards next year.
And it covers around 50 employees, mainly in the sales and marketing area and a few key individuals and the Jna area as well.
And and this is sheila dedicated to follow up that the the good news is that those retention bonuses have worked quite well on the sales frankly retained 100 per cent of the targeted employees and for the management team we became down.
All but one.
And as importantly, the the team on the ground here when names.
Taylor mentioned quite committed and engaged.
[noise]. Thanks, so much.
Once again, if you have a question. Please press Star then one our next question comes from Anthony Vendetti of Maxim Group. Please go ahead.
Thanks, Yeah, Taylor and I was wondering you know.
Just to follow up on the service issues.
When.
When were they identified was he.
With the commencement of of the placement of the Ivy clear.
Systems or where service issues.
Starting to.
Crap up before that and then just in terms of the core business.
Do you feel like the some of the.
Poor systems that have been around the legacy systems have been around for awhile.
Just naturally starting to decline or would you attribute that more to the.
<unk> <unk>.
<unk> <unk> <unk>.
My interest rate and.
If it's one of those or an issue.
Is there really anything you could do to turn around that core business.
<unk>, you know new product development.
This is Sheila let let me just kind of start on the service and reliability issues and.
They begin to surface.
And let me say this is some background person active on the timing to service front on the issue is actually parts availability. There are a number of parts that are on backlog that reflect some supply chain.
Issues and that has gotten in the way of R. F.
F S fees, which are our service engineers being able to service offices in a timely manner. It is not a deficiency of that organization at all it is.
The need for acute care I to find ways to close the gap on the pirates and that is what the organization will be doing with a great sense of urgency the parts availability issues has has been around.
For awhile, they began with Covid and they have persevere. Since then, but we really do need to to as Kelly said wrap our minds around this issue and solve it in a way that is systemic and very methodical on on the reliability front those.
Issues really did begin to surface on as.
We ramped up a hobby.
And I think it is fair to say that Miss Taylor has mentioned while Ozzy is is an amazing technology that does have a brilliant scene sure.
The organization was a bit overwhelmed and stretched then and.
As the manufacturing organization ramped up on the reliability issues began to surface across the.
A portfolio of products. It is it is not entirely broad scale that reliability issues are focused on three to four systems, but once again. These are these are issues that we and that we will be dealing with post haste.
C N N to that and let me just talk a little about the steps the organization will be taking too.
I dressed and reliability issues until it to a large degree.
Crime Merry way to interact with their reliability issues is through enhanced quality control measures and that's gonna look like an increased quality controls or third party systems and third party materials enhanced quality control testing.
<unk> on our lines and also improved.
Improved quality control measures.
So that we're testing systems as they come off the line before they are shipped to make sure that they are meeting our quality standards.
Okay, Yeah, no that that was helpful. Sheila on the service.
Service reliability and quality front just on the the second part of my question on the legacy core.
Products is there is there really much you can do to turn that around in this environment apps and new product development.
Yeah, Anthony I think on that front. The there is a challenging macro environment, but there are things that we can do the the first is focus and so we've already <unk>.
Refocus the capital organization squarely on the core product line that'll be one of the benefits of not looking to place to Ozzy here in the coming months.
The second does relate to everything Sheila covered with respect to a service and reliability. So we've got some great products, we got a broad product line.
There are.
Parts of that that we feel like we've got a good opportunity to grow.
But we need to be able to commit on you know on the reliability front and that that's what we're that's what we're doing and then for sure new product flow helps and there's our our team there has a number of different programs. We're working on we aren't sure right now the order in which we're going to be.
Bringing some of those to market, but there are plans to bring new product to market in 2024 and that should absolutely be helpful.
Really the only thing I can <unk>.
Out here, it's just.
Just one other point on the core business is that the the macro economic pressures that we are saying really do affect the med spa environment more than some other parts of our customer base. So as a for example, we are still seen good growth on our business.
On the core business amongst aesthetic dermatologists, so that that is a acquaintance strengths that we can leverage going forward.
Okay. Thank you I hope I can thank you appreciate it.
Our next question comes from Margaret <unk> William Blair. Please go ahead.
Hey, good afternoon. Thanks for taking my questions that I wanted to start off an Avi cleared and you know maybe a simple.
Question are not simple question, but how much of the answer is pulling back some system is from the field, where maybe you know.
Not necessarily yeah.
Possible for the company versus changing some of the pricing dynamics person you know increasing investments such as P. M or you know a more dedicated sales force just because a product does seem like it's maybe a little bit different than the rest of the court.
How do you look at those three sure.
Hey, Margaret good to talk with you again.
So I think it's hard to provide you know a percentage allocation of you know of of what we think will be impactful here, but I I would take each one and say that we think there's opportunity. So for sure. There are some devices that are not being utilized or may not have.
Real potential to grow at least in the near term and there will will have a conversation there was an opportunity potentially to bring that back in and have that be a win win.
So I do think that that will be part of the discussion in the coming weeks and months.
On the business model or pricing front.
I think that that's we're hearing from customers. There is there is a desire for for different options and so we just need to we need to look at that we want something that's gonna be simple to understand transparent consistent but we want to provide some flexibility.
And then the last point is I think the longer term. That's the answer for sure you know we would all be clear. We're we're a treatment company, we're interested in helping our customers treat their patients and so.
So that means having our team aligned in that direction, both from a practice development practice marketing clinical training perspective, and then really working with our customers.
As well to help them be successful so I I think that there's probably an order of it.
There's a order of operations here, but then ultimately the third point is the one that we're shooting for to make this a long term success.
Okay. That's helpful. And then you know as we think about utilization trends this quarter.
Anything that you can <unk> you know highlight were some systems up some down was it pretty similar.
Alright, thank the prime management team and kind of describe that's maybe it's a little bit more of a scatter plot or maybe you're working through that generate data generation before taking a more definitive action.
That's a hobby thanks.
Well in in the second quarter there, while there are absolutely bright spots and there are also some systems that that aren't performing at all in fact, you know there's a good good percentage.
Generally second quarter utilization was down compared to the previous couple of quarters and I think that likely reflects a couple of factors. One is just the the seasonality and our business and the second is simply the number of machines out in the field some of which are.
Aren't performing at all but also the that's stretching our organization thin in terms of being able to support them. So.
Ah.
So that's generally what we saw in the second quarter.
Also leading into the the start of the third and and that's the reason that we're doing what we're doing here in terms of retooling.
But focusing on identifying where are our.
Most.
Productive opportunities to step in on a you know quickly and start growing growing practices and then doing that more consistently across the base.
Yeah.
I would like to add.
Okay. One other piece of color there would be that you know we added a lot of new devices in the second quarter and so those devices are still in the emerging phase of utilization and by definition.
They pulled down the averages and so as we pause even more on the number of devices that we place that really will enable they cam organization to get into those offices.
And nurture them you know put some really high quality practice development plans in place and get those utilization numbers up.
And once again there there is a playbook that that we can use here and Taylor is well versed in they use of that playbook.
Mmk, Thank you, though I appreciate it.
Thanks Margaret.
This concludes the question and answer session I would like to turn the conference back over to Taylor Harris for any closing remarks.
Thinks Ariel before we say goodbye for the day I just wanted to I want to thank Sheila.
Who has been a consummate professional she stabilize the organization and she's been so thoughtful and supportive and Onboarding me. So we're fortunate to have Sheila staying on our board and we all thank her for everything she's done operationally over the past few months.
We got a lot of work to do here at Q Terror, but we've got a big opportunity ahead and the team and I are excited to get going So we hope you will join us on that journey and we thank you for listening and have a great evening.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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