Q4 2023 Cutera Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Q Terra Inc. Fourth 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 I will now turn the call over to Greg Parker, Vice President of Finance and Investor Relations. Please go.
[noise] ahead.
Thank you operator, and thank you everyone for joining US with me today is Taylor Harris key terrorists, Chief Executive Officer, and Stuart drummer and interim CFO.
Following our prepared remarks, we'll take your questions.
Before we get started I'll note that the discussion today includes forward looking statements.
These forward looking statements reflect management's current forecast or expectation 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.
Or management's good faith belief as of that time with respect to future events.
We're looking statements include among others statements regarding financial guidance regulatory approvals and productivity improvements and plans to introduce new products and expand into additional geographies.
The 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 are 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 in our Form 10-Q subsequently filed.
<unk> also cautions you not to place undue reliance on forward looking statements, which speak only as of the date. They are made each air 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 things when it results in an adjusted basis. We believe these financial measures can facilitate a more complete analysis and greater transparency into care to 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 an alternative to the operating performance measures prescribed by GAAP.
With that it is my pleasure to turn the call over to our CEO Taylor Harris.
Thank you Greg good afternoon, and welcome to keep terrorists fourth quarter of 2023 earnings call.
I'll provide some summary comments regarding our fourth quarter financial results and then highlight our areas of focus and excitement for 2024, but first I want to thank the whole team acute care a little bit.
Performing so admirably.
<unk> set of circumstances because of our team's focus and dedication. We finished 2023 with fourth quarter results that were better than we had anticipated both for revenue and cash burn.
We've also been working hard to resolve a number of time consuming projects, including the transition of our district, good skin care line in Japan, as well as bringing manufacturing I'll be clear exactly plus back in house.
We can now turn our attention more fully to the future.
And on that note with a few months when you introduce a new corporate brand tagline vision mission statement instead of core values.
Our mission is to improve lives medical aesthetic technologies that are driven by science empowered through partnership.
This mission, both unites us as a team and energizes us because of the ability we have by supporting our customers to see the life changing impact that our technologies and services can have on people on a daily basis.
Gift that yes.
We've also redefined our core values, which you can remember if you are asking about it is well suited for acute care Pico.
Hey, Joe.
Josh and innovation.
The indication and ownership.
Teams from across Q Terra will be involved with each of these values it keeps them visible right.
So you can start to see how we are acute care up are bringing a new energy to aesthetics.
In the fourth quarter, we saw more of a stabilization in our business than we had anticipated as part of our guidance our international business in fact.
Sequentially from Q3 to Q4, while our North American business experienced a sequential decline, albeit more modest than we had expected.
Be clear revenue was stable from Q3 to Q4 with some capital revenue from a limited commercial release of our enhanced product offering.
Offsetting a continued decline in truth that Avenue.
The primary reason for this procedural softness has been a decrease in the number of contributing systems, which were less than 50% of the installed base during the fourth quarter.
As we've mentioned there are a number of accounts at which I'll be clear likely won't bring data and.
And we've seen many of these accounts did warm up however, and of critical importance. We're also identifying the successfactors for building a healthy I'll be clear franchise.
Average utilization rates of dermatology practices or approximately 50% higher than other specialties.
And a disproportionate percentage of our most successful accounts are dermatologists.
Beyond practice type no key determinants of success, we're having a position on side of the practice, having the entire office staff trained on I'll be clear handle on how to select patients communicate with them and set expectations.
As well as having acme patient flow and a willingness to invest in building awareness.
All of these best practices, coupled with our new business model or at the center of our efforts in 2024, which I'll speak to later.
Another key item from our Q4 results, but I would like.
To address this gross margin.
2023, our gross margin was depressed due to reduced volume the array of company specific operational issues that we've highlighted previously and a high level of inventory reserves.
In the fourth quarter alone, we took approximately $8 million of excess and obsolete inventory reserves.
But we are not scrapping this inventory will attempt to utilize it over time, but the appropriate accounting treatment of support reserves in place given the excess position we have.
Italy, Austria.
Adjusting for these reserves as well as our other non-GAAP items, our normalized gross margin was around 37% in Q4.
Comparable normalized measure in Q3 would have been approximately 30%.
Well below historical levels, and we are squarely focused on efficiency initiatives, which should improve our cost position and gross margin profile over time beginning in 2024.
Turning to 2024, our team is excited about this new year.
Remains focused on the same three critical priorities, we discussed on our previous quarterly calls returning to operational excellence building, a global I'll be clear franchise and driving toward long term profitability.
We are making strides in each of these areas first operational excellence.
Our Chief operating Officer, Jeff Jones, and his team in just a few months we've made progress in the five key areas, we identified last year.
Product liability field service inventory control supply demand planning and cost of operations.
We're on track to remediate the most critical element to be that you would probably the middle of 2024 with ongoing improvement opportunities beyond that particularly in the area of cost control.
Well I can the liability performance improved in Q4 and.
And we have a dedicated team in place that is methodically identifying further opportunities.
We expect a continuation of the favorable trend that we saw late last year.
In the area of field service, we saw dramatic improvement in our North American service levels in the back half of last year wiping away most of the backlog of open cases, and reducing response times for new service calls.
For the field service team that's focused on elevating response time performance to levels above industry standard as well as rolling out best practices across our international regions.
So that we achieve the same level of service quality across the globe.
This team has started to attract great engineers from across the industry will enroll but showing the power of our culture of ongoing improvement and the momentum that can build quickly.
This bodes well for our plans for Q T R ought to be recognized as industry, leading both in technology and our service and support.
In terms of inventory management, where we experienced significant challenges last year.
Ended on a high note with our year end physical inventory count proceeding much faster than at year end 2022, and with no count related issues identified in the audit.
We've assembled a materials control team, which is implemented daily reviews to ensure the inventory movements are being transacted appropriately.
We've also opened our own warehouse, which allows us to consolidate more expensive third party warehouses with better control, while also providing room for the significant amount of I'll be clear and X L V plus inventory that we will be bringing on from Jabil.
On the planning front, we've introduced a new process in Q4 to better match supply and demand.
As a reminder, we've had too much inventory in certain areas, most notably I'll be clear too little in other areas.
Still building inventory in the first half of the year due to purchase commitments and the need to remediate shortages of certain key components.
But after that we should begin working down inventory, creating a cash tailwind for the company.
On the cost front, we've implemented key processes for repairing and reusing components as well as checking the quality of purchase material from rejecting those that aren't usable. We've also reviewed vendors for certain key components in an effort to reduce scrap rates. We're now producing all been clear in X L V plus in our house.
Thereby better leveraging our fixed overhead expense, while at the same time improving quality.
The operations team has also implemented new controls and processes around shipping, which has already begun to reduce freight expense.
Our second key priority is growing the Avi clear franchise.
In international markets, we commenced a limited commercial release phase at the <unk> meeting in February and we have had a highly favorable feedback from the first wave of new I'll be clear customers.
In North America during the first quarter, we broadened the availability of <unk> and I'll be clear offering which provide greater flexibility and simplicity.
<unk> business model offers the option to purchase the device upfront with a corresponding reduction in ongoing treatment called the practitioner.
Along with greater business model flexibility, we are offering a hardware and software upgrade that simplifies the user experience improve product reliability.
<unk> billing from a per patient model to paying for individual treatment cycles.
Our primary focus with all the player in all geographies is on partnering with our customers to build franchises with healthy utilization.
We believe a few challenges limited utilization in 2023, each of which we plan to address this year.
On the service front, we've already made significant progress and we have hardware and software updates.
Yes, the majority of issues that customers have seen since launch.
On the clinical front.
We have strengthened our clinical protocols.
See what consensus white paper from leading dermatologists.
This was recently published in the Dermatology Digest and serves as the basis for ongoing practice training.
We've also brought onboard a new medical liaison to help respond to customer question and make connections, but I'll be clear kols centres of excellence if needed.
Perhaps most important we are currently finalizing our plans for acute care of Academy.
Two day University style training program that will launch at the end of April.
In addition to providing clinical education Shaquira Academy is an important component of our overall effort to help customers build and grow there I'll be clear practices.
To this day.
We've also introduced an enhanced cooperative marketing program, which provides rising levels of rewards benefit.
Including matching fund for co branded marketing programs customers, who purchased you care of consumables.
Customers can use these funds to a simple white glove service provider of digital marketing tactics that are proven most effective at driving patient conversion.
From a financial return perspective, our new business model allows customers to achieve an even higher return on their investment as utilization grows.
And with our new programmatic support options, coupled with our key account manager team, we're providing the tools to help achieve this growth.
Lastly on RV clear as the pioneer of this technology, we are committed to ongoing clinical research not only within the field of Acme, but also in potential expanded indications.
During 2024 and partnership with leading researchers we plan to conduct pilot studies on the use of IV clear in both sebaceous hyperplasia and hidradenitis Suppurativa.
Both of which are conditions associated with the sebaceous gland.
These are areas of unmet clinical need affecting meaningful numbers of individuals and there's clear interest within the dermatology community and a novel treatment approach like I'll be clear.
During the second quarter, we will host an investor webinar.
Reintroduce the RB corridor from a scientific foundation to its clinical data profile.
In the treatment of acne and with potential extensibility into these new indications for use.
We will send a save the date in the weeks to come.
Our third and final priority is to drive toward profitability.
Everything we've covered regarding operational excellence and growth of the I'll be clear franchise should contribute meaningfully to our path to profitability.
On the cost structure, we have.
Now almost completed the global restructuring program that we initiated in Q4, 2023, which has reduced head count by close to 25%.
This reduction should lead the personnel related savings of over $20 million on an annualized basis.
Partially offsetting these savings though.
He will be an increased level of incentive compensation in 2024, assuming that we hit our corporate target as.
As well as some select new investments we.
We do for example plan to increase the footprint of our North American field organization with both capital reps and key account managers.
We also continue to invest in new product development, and we plan to launch a refreshed product platform later this year.
All of this contributes to our excitement regarding 2024 and beyond every team in the company has a critical role to play in achieving these objectives and together, we're going to make it happen.
I'll now turn it over to Stuart to provide more detail on Q4 and our guidance for 2024.
Thank you Taylor this afternoon, I will discuss our Q4 GAAP results as well as some non-GAAP results.
Conciliation of GAAP to non-GAAP gross margin and operating loss is included in our earnings release.
Total revenue for the fourth quarter was $49 5 million compared to $67 4 million for the same period in 2022 and compared to $46 5 million in Q3 of 2023.
Q4 revenue compared favorably to Q3 2023.
Creasing by $3 1 million, mainly due to strong capital equipment sales in our international markets as well as strength in skincare.
$17 8 million or 26% decrease from the fourth quarter of 2022 was due mainly to a $14 million decline in capital equipment revenue.
The decrease in capital equipment revenue resulted from continued macroeconomic pressures and a challenging financing environment, particularly for our north American customer base.
I'll be clear revenues for the fourth quarter of 2023 was $3 9 million.
That's a key for the September quarter, we announced that we were no longer considering I'd be clear as a separate reporting segment. Following a obviously a business model change and corporate restructuring.
Accordingly, we have included obviously at least fees and direct sales as part of systems revenue and I'd be clear treatment revenue as reported and consumables revenue comparative periods have been adjusted accordingly.
non-GAAP gross profit for the fourth quarter of 2023 was $9 9 million with a gross margin rate of 20% compared to a gross margin rate of 59, 4% for the fourth quarter of 2022. The primary driver with a 39 percentage point decrease the 19 percentage points impact from the increase in our reserve for excess inventory.
It looks like the decline in our capital equipment sales forecast and a provision for advocate of materials and finished goods.
Other contributors to the gross margin decrease includes an approximate 10 percentage points impact from lower manufacturing and sales volume as well as inventory variances identified through our annual physical count and writeoffs of demo equipment and skin care products.
non-GAAP operating expenses for the third quarter of 2023 with $36 million compared to $39 7 million for the same period last year. This is $3 $7 billion of decrease mainly reflects personnel savings, resulting from the restructuring we announced in November 2023, that's why it has lower sales commissions.
For the fourth quarter of 2023, we incurred a non-GAAP operating loss of $26 1 billion compared to an operating income of <unk> 2 million in the prior year period, and a loss of $28 7 million in the third quarter of 2023.
Turning to our balance sheet, we ended the quarter with $143 6 million of cash and cash equivalents compared to $179 5 million at September 32023.
That's $36 million quarterly sequential decrease was primarily driven by a net loss after adding back noncash items of 28 million and other working capital changes.
And I. Thank you for the September quarter filed on March six of this year, we disclosed that a change and I have a clear strategy for the lease model to a direct sales model, which resulted in the reclassification from property plants and equipment to inventories of all other clear devices that had not been leased as well as I'd be clear paths.
Accordingly, the adequate inventory of materials and that type of thing.
Yes.
Been recorded as long term inventory at December 31, 2023.
Before we open the call for questions I would like to provide you with our outlook for 2024.
We are issuing revenue guidance of 160 million to $117 million, including $4 million of skin care revenue and through the transition in the first quarter.
We expect to continue to consume cash more heavily weighted towards the first half of 2024, as we close out certain supply chain obligations, primarily relates to Alex yeah.
Our expected cash and cash equivalents balance at December 31, 2024 is in the range of $55 million to $60 million.
Operator, we are now ready to begin the question and answer session.
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 you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then two we will pause for a moment as callers join the queue.
Our first question comes from George Sellers of Stephens. Please go ahead.
Hey, good afternoon, and thanks for taking the question.
Maybe just to start on guidance can you just parse out what that revenue guide it seems from it.
Systems consumable.
Also have a clear contribution throughout the year.
Thank you.
Yeah.
Sure Hey, George good to hear from you. So as we just a couple of thoughts on our revenue guidance as we looked at 2024, we were assuming that we have a similar macroeconomic backdrop as well.
What we faced in the second half and particularly the fourth quarter of last year.
And as you saw in our results in the second half of last year. We did have more of more pressure on the capital equipment portion of our business and in other parts and so we've assumed that.
Where we were exiting.
'twenty three is where things pick up in 2024.
On capital the for a couple of specifics for skincare, we're assuming $4 million of revenue that's what's embedded in our range and that's what we recorded in the months of January and February and we've now transitioned to that business. So there's no more skin care revenue.
And in aggregate we would have.
Our systems and our consumables slightly down year over year on a full year basis from 2023 to 2024, and that's because we have tough comps in the first half of the year, we are assuming as we move through the year that.
We performed better than that as we.
Disseminate more best practices with Avi clear and training that we're gonna start to see a pick up sequentially in our obviously our business.
Okay. That's really helpful. I appreciate that color and then maybe.
On the cash burn piece of it.
You mentioned, a few puts and takes with inventory building in the first half of the year, but there's also some cost saves.
How should we think about just the cadence and the progression of cash burn there sort of a step function improvement we should expect the second half of this year or how should we be thinking about that cash position specifically.
Yeah, you're you're absolutely right George so of the burn that we're anticipating in 2024 about 70% of it should be incurred in the first half of the year and that'll be more heavily weighted towards the first quarter and the reason for that is we've talked about in the back half.
Of last year is we still had purchase commitments related to inventory, particularly with all the clear and we've gotten a fair amount of that behind us with by wrapping up our agreement with Jabil. So in the first quarter a lot of that is occurring.
In fact, Q1 burn will probably be a little higher than we had in Q4 are either working capital movements and we will still have some of that in the second quarter, but by the second half of the year, we should be in a much more favorable position with respect to our burn profile.
In fact, we should have inventory at a level that we're able to start.
Working it down and having that become a source of cash for us offsetting some of the other elements of Osborn.
Okay, Great. That's really helpful. Thank you all for the time.
Yeah.
Our next question comes from Jon Block of Stifel. Please go ahead.
Hey, guys. This is Joe Federico on for Jon. Thanks, Thanks for taking the questions I guess just to start maybe on the I'll be clear revenue stable sequentially, but it included that lower procedural revenue I was just curious maybe what the thought was for the recurring revenue aspect to kind of turn.
And in the corner.
Are some of those unproductive.
Productive accounts that you mentioned better already dormant.
More to come.
And then I also just wanted to ask if there were any learnings from the early international launch of I'll be clear so far.
Sure. Thanks, Joe So yeah, let's start with Avi clear procedures, you're you're absolutely right that the primary factor affecting our procedure base with I'll be clear. It's just been that we went to a large number of counts early in the launch.
It was.
Well over 1200, and many of those they may have try to I'll be clear, but have decided that it's probably not going to be a an ongoing part of their their practice, where they're still evaluating tso in by the fourth quarter, we had approximately.
5% of the account base that did not do a procedure. So that's what caused the procedure slowdown as we move from the initial launch phase into the second half of last year Q3, and Q4, so what we're doing right now where we're in a period as well.
We're going back out to market.
And having conversations with these with accounts who have all been cleared.
Of really helping diagnose well, what what some of the learnings and what some of the challenges are and I think the good news is that we're not hearing anything that's surprising to us.
And in fact, we hear from a lot of accounts that they want to be in the business of treating acne and they want to make I'll be clear work.
They need our help in that so that's exactly what we're doing and a lot of what I talked about in my prepared remarks is what are our initiatives that we're kicking off here, we've already kicked off much of it off in Q1 some to come in Q2, what are we doing to help support growth of utilization across the I'll be clear.
Count base.
And so I think there are a number of accounts who are.
Taking some time to to try to make that work.
That's that's the good news, but it will take some time for us to work with the account base to help identify the ones that are going to commit to all be clear and then start rebuilding that procedure base.
International learnings.
Or that it's it's great to start a launch in market in a disciplined methodical way and that's exactly what we're doing internationally. So we're now in approximately 10 markets outside of the U S.
Or outside of North America, and we are and in most of these markets. One maybe two K O L centers and there's been a lot of enthusiasm for the technology. There are other offices other practices, who have absolutely expressed interest in <unk>.
<unk> and Avi from your site, but we're taking our time and we're making sure. We support the this initial wave of customers. So that they can get great outcomes and they can become champions for the products. So I think the learnings internationally are there so far and it is early.
It's just showing us that.
When we do it right and partner with with Great I'll be clear accounts, we can build successful obviously their practices.
Okay, Great. That's that's really helpful. And then maybe just a quick follow up I know you had mentioned the expanded indications for I'll be clear.
I wanted to ask maybe about just new products in the core business are there any introductions planned for this year I think you know a while back we had heard about maybe some existing system refresh or could we see that this year or is that more of a 2025 of them. Thank you.
Okay.
Sure. Yes, we are planning on a new product introduction is a refresh of one of our successful product line.
And so we're we're excited about that we were not ready to talk specifics, but we are currently on track.
Around and maybe even before the mid year timeframe to bring that to market. So that'll be first and our product development team is.
He is working on other initiatives in the background, but those are not 2024 events.
Okay, great. Thank you.
Our next question comes from Margaret Kaczor of William Blair. Please go ahead.
Hey, guys. Good afternoon, thanks for taking the question.
I wanted to maybe start with cash.
Cash position to do that.
Yeah.
Trying to do the math on my end and even if I assume kind of 30% of the burn in the second half of 2024.
It gets me may be just kind of a $26 million burn in the second half.
Yeah.
All right.
Yeah.
Thanks, Bob.
Okay.
Cash dynamic.
So how do we think about that in and as we think about 2025 inventory big maybe up.
Its tail end of a cash generator you know could that.
He said no and spot.
Yeah, just give me some sense of Oh my gosh.
Thank you.
Sure. Thanks, Margaret so yeah.
Yeah, we're we're obviously not ready to give specific 2025 guidance, but you're you're in the ballpark as.
As we if we get into the second half of 2024, and that's obviously a much favorable position from a cash burn perspective to what we experienced in 2023 and to where we'll be in the in the first half of 2024.
And then as you think about launch launching off point into 2025 and beyond the what we're working on is building and I'll be clear.
Franchise that would have a higher margin than our consumer.
Consumable stream associated with it and so to the extent that we're successful with our initiatives.
We built momentum through 'twenty 'twenty, four and that should help us as we go into 2025 and I'd say similarly on the gross margins right. That's an area of high focus for US we're planning on improvements in 2024, but we still won't be back to you.
Levels that the company had achieved in previous years and so we're we're not stopping with where we're gonna be in 2024 or even in the in the second half of 2024.
And then the last comment I would I would make in terms of trajectory. We're obviously not assuming any improvement in the macro backdrop here in 2024.
We're hopeful on that front, but we're not going to plan for it but the ease of further into the future that we get we would assume that conditions.
Can start to normalize and we can have a more favorable environment. That's of course speculative like I said, it's not built into the way. We're planning for this year. So those are just a few thoughts on the kind of give us optimism in the overall trajectory.
Okay I appreciate that.
And then I guess, a different way of looking at that.
Speaker Change: Yes, it does seem like the guidance is achievable based on.
Historical sequential progression and so on and off over the past.
Second half of 'twenty, three but maybe a different way of looking at it is also kind of looking at estimated.
So yeah, we don't have those numbers.
There was a reduction in force.
Perspective, what share you know what did you say.
In terms of route since that and productivity metrics and trends and then if you can just give us some context, let's based and I think that excuse me for 2020 pulled out and put that productivity suite.
Either what sure.
We'd like to welcome. Thank you.
So we we have seen relatively consistent over time rep productivity and that I would make that comment for.
Last year now, we obviously had we.
Did do a reduction in force because we were seeing that it was just a more challenging environment. So I think if we had kept the same number of reps. We would not have seen the same level of rep productivity. So we've tried to right size the organization based on the conditions on the go.
Round as.
As we've looked at 2024, though we were entering the year with our.
We're currently here in the first quarter.
And the low forties in terms of our capital field organization.
And we're in the.
Mid to upper teens in terms of our can organization and we do have plans to increase those those numbers that that field team force both on the capital and the Cam front, so our budget.
And guidance do assume that we're adding reps we've factored in the operating expense associated with that so we've got room to add 15 or more reps on the capital equipment front end and we're planning on getting to about 25 in our Campbell organization.
And so that's that's part of the guidance and it is also a part of the reason that we would expect.
Sequentially to be stronger as we are as we get to the back half of the year relative to the first half of the year and that also gives us confidence in what we were talking about previously to your question Margaret about trajectory as we're heading out of 2024.
And then the last comment I'd say, especially on the on the a Cam front, we think that number getting into the mid Twenty's based on where we're at right now or where we expect our Avi clear installed base to be this year. We think that's a good coverage level, but it's going to allow us to to support well the.
Avi clear customers, who commit to growing their overall utilization.
Okay perfect.
Speaker Change: Okay. That's helpful.
Sure.
Okay.
Our next question comes from Anthony Vendetti of Maxim Group. Please go ahead.
Thanks, Yeah. So I was just wondering if you could just talk about the transition from from cable.
But to your in house, how long is that going to take to transition are you set up.
You too.
Start manufacturing.
It sounds easy in and I'll be clear.
Or is that going to be a couple of month process or so.
Okay.
Thanks, Anthony Yes. So good news is we have already made that transition from a manufacturing perspective. In fact, we we never fully shut down our capability with those product lines. So we were although the plan had been to.
To fully transition, but we we retained the capability and we've been able to ramp that back up so the the main transition now is simply going to be bringing back the inventory that jabil had purchased so we had to purchase that and then work.
Restock, our warehouses, that's gonna be a.
It's a big project for our distribution organization, but from a production line perspective, we're in good shape already.
Okay and then.
Just looking at international sales obviously.
It's always been.
A big push into mostly in.
In most cases, a majority of the revenues.
Is it going to be.
Moving to 2004 as far as you can tell.
About 55% or so of your revenue and if it is going to change.
How come or how do you look at it.
For 24.
So for 'twenty for 2024, the big change is that our skin care business, which was Japan exclusively.
Is is now gone that was a distributed lower margin district distributed product line.
And so we will only have $4 million of skin care revenue this year compared to something in the mid thirties in 2023.
So that will bring down the percent contribution from international.
And then otherwise we have similar dynamics in North America and international in terms of the market backdrop.
We are launching Avi cleared for the first time in international and so that's creating some new enthusiasm.
Which is which is great for the organization, but I think if you adjust for the skincare, you'll you'll get to the right ballpark.
Okay, and then just in terms of.
Internationally.
Direct and indirect or direct and distributors any any change any change for that in 'twenty four.
No.
We're in similar a similar position in 2024.
We have direct businesses and some of the major markets in Europe, as well as in Japan, and Australia and in other areas, we're working through distributors and so by and large that's the same as we transition from two.
Three to 24.
Okay, great. Thanks, so much I'll back in the queue I appreciate it.
Thanks Anthony.
Our next question comes from Matthew O'brien of Piper Sandler. Please go ahead.
Hi, This is the manta on for Matt. Thank you for taking our question.
I want to start off with them, but I'll be clear could you talk to us about.
At the top end well.
How many of these this time, particularly I guess the dorm that one made it back from the field.
And.
More details on that.
Hi, Samantha Yeah, sure happy to address that.
At year end, we had an installed base of about 1200 machines 1200 machines.
We've been out it's been great to be out and having conversations with.
With our installed base about Avi clear.
And as I referenced earlier, what's been interesting is that there there are a lot of accounts that are.
One wants to make I'll be clear work and so even though we've had a significant number who didn't do a procedure in the fourth quarter or in the third quarter. There have only been 125, so far that have been returned now we do.
Do have a list of another 175 that will be returned so that's 300 total out of the 1200.
Others, even if they haven't.
I hadn't done a procedure, where very low volume.
We think that many of them likely will end up returning but.
Some of them are taking a wait and see approach and so that's that's the nature of the conversations I think that that that plays well for us.
Because we're ramping up our support initiatives for our for our customers through Q1 and Q2.
Now on the other hand, where we've rolled out a new business model and that involves a capital purchase of the machine and I think people are also taking their time to assess well are they ready to purchase do they want to purchase or are they comfortable with the lease model.
Or or do they want a return of the machine. So it's going to take a few quarters for this to play out but the key it really all comes back to.
Can we alongside our customers identify the pathway for them to integrate Avi clear successfully.
That's what that's exactly what we're focused on here in the first half of the year end and we're feeling good about the conversations as well as our plans I think our plans are on target with what we're hearing the express need from the customer base.
Okay.
That's great. Thank you so much I'm I guess I'm just.
One more follow up on I know this year it doesn't expect any improvement in the macro environment I guess given that are you. What are you hearing from physicians on whether they do like the purchase model versus a rental model where the board.
For those centers that already have I'll be clear.
Right.
Well I think that in general.
Accounts are more familiar with the purchase model and for sure.
Over time, if they are able to ramp utilization did it makes a lot of sense for them and they get that there. There are some it this is not a universal sentiment. There are some who think that the actually the rental model was innovated and maybe that works.
For them.
So this is it's not all or nothing.
But I'd say the majority would express express a preference for the purchase model. However, they the big question for them, especially for the ones who have been very low utilized yours is hey, what's it going to take for me to make this a real part of my overall practice and so.
That's why.
While the business model I would say is important and it's a necessary part of long term success.
Most important right now that we're working hand in hand, with our customers to help them figure out how to integrate I'll be clear and grow utilization. So that's what we're focused on primarily.
Got it thank you so much.
Our next question comes from Jennie Tsai of Gabelli Fund. Please go ahead.
Hi, Thanks for taking my question.
What are your thoughts on our plans to address the maturities on the contracts that are coming up in 2026 and beyond.
Hey, Jamie good to hear from you. So yes, we just to sneak it for a few minutes about our convertible debt. We have three tranches of convertible debt. The first one is about two years away that's March of 2026.
The others are 2028 and 2029.
And if he doesn't 26 is the is the smallest it's about 70 million of face value.
So we don't have specific plans right now where we're focused.
Primarily on running the business and in all the priorities I talked about on the call, but we do want to address our capital structure.
And we believe that will have options to do that.
And so yeah, I think that's something that we will be working on it, especially after we get our all of these important I'll be clear initiatives well underway.
Okay.
Great. Thanks for the update.
Thanks, Jamie.
This concludes the question and answer session I would like to turn the conference back over to Taylor Harris for closing remarks.
Great. Thank you.
In closing I'll, just reiterate our excitement for our mission.
And so the opportunity that we have to deliver on these priorities operational excellence building, a global franchise with Avi clear and bringing new energy to aesthetics.
Thanks to the team for your passion and dedication and thanks, everybody for joining us today 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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