Q4 2023 Venus Concept Inc Earnings Call
Ladies and gentlemen, and welcome to the fourth quarter of 2020 earnings Conference call for Venus concept, Inc. At this time all participants have been placed in a listen only mode. Please note that this conference call is being recorded and that the recording will be available on the company's website for replay.
Before I begin I would like to remind everyone that our remarks and responses to your questions. Today may contain forward looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including those identified in the risk factors section of our most recent 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 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.
Speaker Change: I would now like to turn the call over to Mr. Rajiv de Silva Chief Executive Officer of Venus concept. Please go ahead Sir.
Speaker Change: Thank you operator, and welcome everyone to Venus Concept's fourth quarter, Duane 23 earnings Conference call.
Speaker Change: I'm joined on the call today by our Chief Financial Officer, Domenic della Penna, and by our President and Chief Operating Officer, Dr. Hammond luggage.
Speaker Change: Let me start with an agenda of what we will cover during our prepared remarks.
Speaker Change: I will begin with a brief overview of our Q4 2023 results and notable operating developments in the recent months.
Speaker Change: Then.
Hammond Luggage: Hey man will share an update on our progress in several key initiatives.
Speaker Change: Corporate turnaround strategy.
Speaker Change: Dominic will then provide you with an in depth review of our fourth quarter financial results and our balance sheet and financial condition of your writing as well as a review of our Q1 'twenty 'twenty four finance outlook outlined.
Speaker Change: Outlined in today's press release.
None: Then we will open the call for your questions.
None: Okay.
None: With that agenda in mind, let's get started.
None: As you would've seen in our press release issued today. We are pleased that we achieved our primary goal of reducing cash burn by more than 50% in 2020 three.
None: Key elements of our transformation strategy cost reductions shift to cash sales and working capital management.
None: All contributed to this achievement.
None: I'm proud of the resilience shown by our organization and navigating through a difficult transition.
None: In the fourth quarter of 'twenty three we.
None: We delivered total revenue of 18.1 million.
None: $6 2 million or 20.
None: 25% year over year and up four.
<unk> 5 million or 3% quarter over quarter.
None: Oh fourth quarter revenue results reflect softer than expected system sales in the U S.
None: The macroeconomic conditions and tightened credit markets and by the impact of the accelerated restructuring activities in certain international markets.
None: Similar to what we discussed on our recent earnings calls macroeconomic headwinds continue to pressure the aesthetic sector as a whole while higher interest rates affecting our customers the ability to finance new capital equipment purchases.
None: Deals are taking much longer to close.
None: Our revenue results outside the U S continued to be impacted by the strategic initiatives, we executed last year.
None: But typically we are transitioning the company to a high quality cash revenues exiting unprofitable direct operations and suddenly Nashville market and implementing a series of restructuring activities, which all together I expect it to enhance the cash flow profile of the business and accelerating the path to long term sustainable profitability.
None: And growth.
None: We are pleased with the progress we have made in our strategic turnaround plan in 2020 three.
None: Despite the continuing challenging operating environment, we remain encouraged by the signs that our efforts to reposition the business and to focus on key strategic and operational initiatives, although have found it.
None: First we are pleased to report the cash system sales represented 67% of.
Total systems and subscription sales for fiscal year 2023, compared to 58% in fiscal year 2022.
None: Our progress on this initiative is even more evident when looking at the mix of pass system sales in the U S.
Which represented 71% of total U S system since subscription sales in fiscal year, 2020 three.
None: 53% in the prior year period.
None: Cash system sales to U S customers increased 11% year over year in 2023.
None: Which reflects the team's strong execution towards that strategic priority good transition the company into high quality cash rebalances.
None: Second our restructuring activities in certain international markets have resulted in headwinds.
None: <unk> trends as expected.
None: But we are reminded of one of our key strategic priorities in 2020, three but to optimize our commercial and operational strategy in certain international markets and to reinvest those resources in high opportunity markets to enhance the comprehensive longer term growth and profitability profile.
Our restructuring activities outside the U S have been included winding down direct operations in smaller and less profitable market.
None: And transitioning to partner with distributors.
None: With a target of having our new distributor partners in key markets identified signed up and up and running in the majority of our key international markets by early 2024.
None: With that we expect to be well positioned for a return to growth.
None: Key international markets this year.
None: Finally, while the macroeconomic environment had represented more of a headwind than we had contemplated our team is executing well. Despite these unexpected challenges.
As I mentioned importantly.
None: The company achieve its primary strategic objective between 23 to reduce cash used in operations by more than 50%.
None: Specifically our teams strong execution towards the strategic objective resulted in a 52% reduction in cash used in operations in 2023.
None: We believe that this represents the clearest evidence that we are on the right track towards our goal of enhancing the cash flow profile of the business and accelerating the path to long term.
Staying in both profitability and growth.
None: Two other noteworthy items I wanted to briefly discuss.
None: On March 25th we announced that we received a decision from the NASDAQ hearings panel granting our request for continued listing on the NASDAQ capital market subject to the company demonstrating compliance with NASDAQ listing rule 5550, b on or before May 28, and 24 and certain other conditions.
None: Yes.
None: We also announced on January 24th but.
None: The company's board of directors had authorized the exploration of <unk>.
None: Strategic options for the company.
None: Does that but focused on maximizing value for all stakeholders is currently underway.
As part of this effort the company is engaging with its lenders and existing shareholders as well as with external parties to explore avenues to improve the financial profile of the company with a view to longer term value creation.
We look forward to providing an update on this initiative at the appropriate time.
Speaker Change: I would now like to turn the call over to Dr. Hammond Buggies, who will who will share an update on recent progress and our restructuring programs new product pipeline initiatives and our recent company wide rebranding initiative.
Speaker Change: Mark an important inflection point not strategic cut it off.
Speaker Change: Thanks Rajiv.
Speaker Change: As discussed on our last earnings call. We've made considerable progress against several key initiatives of our corporate turnaround strategy let.
Speaker Change: Let me share a little color well, we're making notable progress.
Speaker Change: First.
Our cost reduction and cash management initiatives designed to accelerate our path to cash flow breakeven are progressing at or ahead of expectations.
Speaker Change: The targeted incremental cost containment initiatives implemented in the second half of the year has helped to protect our near term cash runway.
Speaker Change: Second our efforts to rationalize our international infrastructure reduce costs and simplify the organization are progressing well as we endeavor to establish the optimal mix of direct presence and distribution partners in key international markets around the world disk.
Speaker Change: Discussions are ongoing with existing and several new distribution partners.
Speaker Change: And with our new international strategy.
Speaker Change: We were pleased to announce the expansion of our international distribution network in December with the signing of two new exclusive partnerships.
Speaker Change: The United Kingdom and India.
Speaker Change: Multiple new distribution agreements or under negotiation, which has us on track to be substantially complete with our international repositioning and ready to return to growth outside the U S. In 2024.
Speaker Change: For our efforts to advance certain new product pipeline projects are ahead of expectations resulted.
Speaker Change: Oh, sorry go ahead of expectations resulted in strong momentum on new product introduction.
In recent months.
Speaker Change: After receiving five 10-K clearance in September we were pleased to announce the U S. Commercial launch of our new multi application platform the Venus versus a pro on November 1st.
Speaker Change: We were pleased to announce CE Mark Decker certification BV.
Speaker Change: Two market dizziness purse a pro system in European Union on February 22nd.
Speaker Change: Finally, we're very excited.
Speaker Change: With the early feedback from our company wide rebranding initiative last October as discussed on our last earnings call Venus aesthetic intelligence or venous AI captures our strong commitment towards growing our global brand focusing on emerging technologies and services partnering with customers to build smarter practices and customized.
Speaker Change: Little treatments.
Speaker Change: We want our customers to know that we're not just a product innovation company.
Speaker Change: Rather we want to deliver more than meeting device performance. We're focused on delivering total practice performance from the moment patient enters the clinic to post street in recovery.
Speaker Change: Further by staying connected to our customers, we can start to leverage real time data across a growing network of connected devices.
Speaker Change: Hubbard meaningful business insights to define the best practice performance and fuel the next generation of mistake device technologies.
Speaker Change: And we were excited to announce the next that X program in March.
Speaker Change: <unk> is a new series of customer education, and training events launched under our venous AI regret next.
Speaker Change: Your next step program represents a great example of how we are enhancing our focus on physician education and practice enhancement by powering professionals in the field of aesthetic.
Speaker Change: Statics with knowledge tools and support they need to grow their businesses.
Speaker Change: With that let me turn the call over to Dominic for review of our fourth quarter financial results and balance sheet as of year end 2023 stomach.
Dominic: Thank you Hemant for.
Dominic: For the avoidance of doubt unless otherwise noted my prepared remarks will focus on the company's reported results for the fourth quarter of 2023 on a GAAP basis, and all growth related items are on a year over year basis.
Dominic: We reported total revenue of $18 1 million down $6 1 million or 25% year over year. The decrease in total revenue by region was driven by a 40% decrease year over year in international revenue and a 14% decrease year over year in the United States revenue.
Dominic: Our international business was impacted by the company's decision to exit three unprofitable direct markets in the past year as well as general macroeconomic headwinds that impacted customer access to capital.
Dominic: The decrease in total revenue by product category was driven by a 38% decrease in products systems revenue and a 30% decrease in products other revenue, partially offset by a 5% increase in lease revenue and a 4% increase in services revenue.
Dominic: Their percentage of total systems revenue derived from the company's subscription model was approximately 41% in the fourth quarter of 2023 compared to 29% in the prior year period and 31% in the third quarter of 2023.
Dominic: Turning to a review of our fourth quarter financial results across the rest of the P&L.
Gross profit decreased $3 7 million or 24% to $12 1 million. The change in gross profit was primarily due to a decrease in revenue in our international markets driven by the accelerated exit from unprofitable direct markets.
Dominic: Gross margin was 66, 5% of revenue compared to 65% of revenue for the fourth quarter of 2022.
Dominic: The change in gross margin was primarily due to improved margin management and reduced inventory write offs when compared to the previous period.
Dominic: Total operating expenses decreased $5 million or 20% to $19 7 million.
Dominic: The change in total operating expenses was driven primarily by a decrease of $2 7 million or 21% and general and administrative expenses.
Dominic: Kris of $1 4 million or 15% and selling and marketing expenses.
Dominic: And a decrease of 0.9 million or <unk> 35 per cent and research and development expenses.
Dominic: Fourth quarter of 2023, GAAP General and administrative expenses included include approximately 0.3 million of costs related to restructuring activities designed to improve the company's operations and cost structure.
Dominic: The total operating loss was $7 6 million compared to operating loss of $8 9 million for the fourth quarter of 2022.
Dominic: Net interest and other expenses were $3 7 million compared to $1 9 million in the fourth quarter of 2022.
Dominic: The year over year change in net interest and other expenses was driven primarily by a $2 million loss on debt extinguishment and higher interest expense.
Dominic: Offset partially by reductions in both noncash foreign exchange loss and the loss on disposal of subsidiaries compared to the prior year period.
Dominic: Net loss attributable to stockholders for the fourth quarter of 2023 was $11 1 million or $2.01 per share compared to net loss of $9 9 million or $2 11 per share for the fourth quarter of 2022.
Dominic: Adjusted EBITDA loss for the fourth quarter of 2023 improved 7% year over year to $5 9 million compared to adjusted EBITDA loss of $6 3 million for the fourth quarter of 2022.
As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release.
Dominic: Turning to the balance sheet as of December 31, 2023, the company had cash and cash equivalents of $5 4 million and total debt obligations of approximately $74 9 million compared to $11 6 million and $77 7 million respectively as of December.
Dominic: 31 2022.
Dominic: Cash used in operations for the three months ended December 31st with Zero point 8, Million% to 77% decrease in cash use year over year.
Dominic: And an 81% decrease in cash use quarter over quarter.
Year over year and sequential decrease in cash used in operations was driven primarily by strong working capital performance with more than $5 5 million of cash generated from working capital in the period.
Dominic: Cash used in operating and investing activities during the fourth quarter of 2023 was partially offset by $1.3 million of cash from financing activities in the period driven by the net proceeds of $1 8 million from the sale of senior preferred stock from the fourth tranche and the 2023 multi tranche.
Dominic: Private placement, which occurred on October 20th 2023.
None: Turning to a review of our financial outlook for 2024.
None: As outlined in our press release, given the company's active dialogue with existing lenders and investors and the ongoing evaluation of strategic alternatives with various interested parties to maximize shareholder value. The company is not providing full year 2024 financial guidance at this time.
None: The company expects total revenue for the three months ending March 31, 2024 of at least $16 5 million.
None: With that I'll turn the call over to the operator to open the call for your questions operator.
None: Thank you cause he would like to ask a question. Please take note 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.
None: Once again, that's star one to register a question at this time.
Murray Small: Today's first question is coming from Murray small P. T. I T. Please go ahead.
Murray Small: Hi, Thanks for taking the question I wanted to ask a question here about the Q1 outlook as long as the O U S outlook for Q1, you know just a forecast them well what is being included in that forecast that in terms of kind of macro environmental.
Murray Small: Pressures on your O U S and U S assumptions. If you can just give us some more detailed picture of what went into that outlook.
None: Sure let.
None: Let me, let me start I loved by Dominic add to it.
Dominic: So look as you can imagine the the first quarter is over right.
Dominic: And the only uncertainty at this point is revenue recognition. So so we've.
Dominic: Built some conservatism into that number or two to reflect the fact that recently had to go through our revenue recognition procedures, but.
But what I would say is that we are encouraged by what we're seeing in the international market in the in in the first quarter and that we are seeing our new distributors, placing orders we've also.
Dominic: <unk> seen a pick up in our business outside the U S. So all early indicators that that the return to growth for 'twenty 'twenty four is something that we can suddenly a spider depending on how the the remainder of the year goes in international markets in the U S. We continue to see the macroeconomic.
Dominic: That'd be saw a in the in the fourth quarter and certainly into themselves, maybe obviously not giving guidance for the full year at this point and do it in a strategic process, but we know we would not expect to see an improvement in that in the U S environment at least until the second half of the year.
None: Okay. That's very helpful. And then is there anything you can tell us on the evaluation of strategic options in terms of you know ideas or the options that are being narrowed down anything on timeline and also how you're managing cash flow in the meantime, thanks for taking the questions.
None: Sure.
None: Again, I'll start I'm going to hand, it over to Dominic talked about the past management part of the question.
Dominic: The look the strategic evaluation process is ongoing that's probably the the the only concrete statement I can make as you can imagine with these types of processes until you come to some conclusion, it's difficult to provide interim updates, but I will say the following which is that.
Dominic: This is a process that includes a multiple initiatives, what obviously is around and working with our lenders.
Dominic: I wanted to explore.
Dominic: The pathway is to increase the improve the company's financial profile that we're talking to our existing shareholders.
Dominic: Also with a series of extended with parties, who have expressed some interest in the company.
Dominic: And those discussions are ongoing it is not Oh, you know you just suddenly not a process, where we can conclude that there's definitely two outcome yet.
Dominic: But I'm encouraged by the progress, we're making and I am hopeful that we should be able to make.
Dominic: As a progress update in the in the in the coming months are in a in the second in the second quarter.
Dominic: And on the cash management topic before I turn this over to Dominic are we.
Dominic: We are acutely focused on.
Dominic: Maintaining and improving the company's liquidity profile and that really is.
Dominic: A big part of our Oh for strategic initiative as well.
Dominic: As you probably saw we were able to do a small oh deal this quarter to bring a little bit of a passion and we continue to look for ways to.
Dominic: And hence our cash profile and we are also encouraged by the AR, but the mix of cash, but it's a substitution of sales in the first quarter, which has also been helpful.
Dominic: So with that Dominic let me just see if you want to add anything else to the cash question.
Sure I think where you saw in the fourth quarter, we continued to to reduce our burn we expect to continue that throughout all of 2020 for the fourth quarter is sort of the first quarter is a bit challenging because we've got very heavy.
Dominic: Expenses in relation to being a public company in the first fourth and the first quarter, but I think year on year, well, we'll demonstrate some decent results.
Dominic: But we're going to continue to focus on improving our overall cash burn in 2020 for and along the same lines of what we did in 2023 and the other thing I will point out is that in relation to your earlier question and in terms of international versus U S.
Dominic: S business in Q1.
Dominic: There are very many challenges that remain in the U S. But we actually had a fairly good outcome quarter over quarter.
Dominic: This year compared to last year in the U S. So we're starting to see signs where you know it certainly pointed in the right direction international as well, having signed up distributors, we expect that to benefit us in the second and in the second half of the year in particular.
Dominic: But we are encouraged by what we saw in the U S. In terms of performance notwithstanding some of the headwinds that we had we had a we had a better overall performance I would say in the U S are than what we had in Q4.
None: Thank you.
None: Okay.
Thank you once again Thats star one if he would like to register a question. The next question is coming from Jeffrey Cohen of Ladenburg. Please go ahead.
Jeffrey Scott Cohen: Oh, Hey, good morning couple of questions from Michigan.
No one could you talk about Amy.
And timelines anticipated a long shoes cheddar or for this year and then secondly could you talk a little bit about their business and any change there over the past few quarters you've experienced.
Jeffrey Scott Cohen: Sure.
Uh huh.
Feel those two questions.
None: So with respect to Amy as we as we have discussed we continue to be pretty excited about what we're gonna be able to do with Amy and the the opportunity.
None: With the with the <unk>.
None: What we've been doing on cash and phasing of R&D investments, we have prioritized the energy based products.
None: Early part of this year.
None: So call that we'd mentioned in the body system that we're targeting for 2024 and so Amy launch at this time at best would be back end of the year or.
None: 2025.
None: In terms of a potential time, we it is one we want to make sure we do correctly. So we're spending the time to.
None: To make sure we've gotten everything straight.
None: Yeah.
None: And the habits as a payment goes to the next part of their business as a whole I will say.
None: Q4 was a was a little tougher again with macroeconomic environments, our hair business, especially our artist robot being I'm, probably the most expensive all of our systems gets most affected by the tough financing environment.
None: But as Dominic had mentioned we are seeing some strong turnaround type trends in 2024.
None: And I think when we ultimately report on Q1 hair business, a rebound at 24 outlook looks strong as well.
Perfect. Thanks for taking my questions.
None: Thanks Ralph.
None: Thank you once again, ladies and gentlemen that is star one if he would like to register any questions at this time.
None: We are currently showing no additional participants in queue. This does conclude our conference for today. Thank you for your participation.
None: Thank you.
None: [music].
None: Yeah.
None: [music].