Q1 2024 Venus Concept Inc Earnings Call

Please standby.

Operator: Good morning, ladies and gentlemen, and welcome to the first quarter 2024 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.

Speaker Change: Good day, ladies and gentlemen, and welcome to the first quarter 2024 earnings Conference call for Venus concept, Inc.

Speaker Change: At this time, all participants have been placed in a listen only mode.

Speaker Change: Please note that this conference call is being recorded and that the recording will be available on the company's website for replay.

Operator: Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, 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.

Speaker Change: Before we begin I would like to remind everyone that our remarks and responses to your questions. Today may contain forward looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated including those identified in the risk factors section of our most recent 10-Q and our annual report on.

On Form 10-K filed with the Securities and Exchange Commission.

Speaker Change: 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.

Speaker Change: This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP we.

Operator: We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles, or GAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in our earnings press release issued today on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Rajiv Da Silva, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Speaker Change: 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'd now like to turn the call over to Mr. Rajiv de Silva Chief Executive Officer of Venus concept. Please go ahead Sir.

Rajiv Kanishka Liyanaarchchie De Silva: Thank you, operator, and welcome everyone to Venus Concept's first quarter 2024 earnings conference call. I'm joined on the call today by our Chief Financial Officer, Domenic Della Penna, and by our President and Chief Operating Officer, Dr. Hemanth Varghese. Let me start with an agenda of what we will cover during our prepared remarks.

Speaker Change: Thank you operator, and welcome everyone to Venus Concept's fourth quarter 'twenty 'twenty four 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 Doggie.

Speaker Change: Let me start with an agenda of what we will cover during our prepared remarks.

Rajiv Kanishka Liyanaarchchie De Silva: I will begin with a brief review of our Q1 2024 results and notable operating developments in the recent months. Then, Hemanth will share an update on our progress in several key operating areas. Domenic will then provide you with an in-depth review of our first quarter financial results and our balance sheet and financial condition at quarter end, as well as a review of our Q2 2024 revenue outlook outlined in today's press release. Then, we will open the call for your questions. With that agenda in mind, let's get started.

Speaker Change: I will begin with a brief review of our Q1 'twenty 'twenty four resolve and notable operating development in the recent months.

Speaker Change: Then came on and.

Speaker Change: An update on our progress and key several key operating areas.

Dominic: Dominic will then provide you with an in depth review of our first quarter financial results and our balance sheet and financial condition at quarter end as well as a review of our Q2 'twenty 'twenty four revenue outlook outlined in today's press release.

Dominic: And then we will open the call for your questions.

Dominic: With that agenda in mind, let's get started.

Rajiv Kanishka Liyanaarchchie De Silva: As detailed in our press release issued today, we are pleased to deliver revenue for Q1 2024 that exceeded the expectations we outlined in our fourth quarter earnings report. While our revenue results reflect a decline of 15% on a year-over-year basis, we are encouraged by the underlying trends we are seeing in the business to start 2024. While the business continues to be impacted by macroeconomic headwinds, which are pressuring the aesthetic sector as a whole, we were pleased to deliver growth in cash system sales on a quarter-over-quarter basis in both the U.S. and international markets in the first quarter.

Dominic Will: As detailed in our press release issued today, we are pleased to deliver revenue of.

Dominic Will: And even for Q1, 'twenty 'twenty four that exceeded the expectations, we outlined in our fourth quarter earnings support.

Dominic Will: While our revenue our results reflect a decline of 15% on a year over year basis. We are encouraged by the underlying trends we are seeing in the business to start putting in 'twenty four.

Dominic Will: While the business continues to be impacted by macroeconomic headwinds, which are pressuring the aesthetics sector as a whole we were pleased to deliver growth in cash system sales on a quarter over quarter basis in both the U S.

But in the first quarter.

Rajiv Kanishka Liyanaarchchie De Silva: Notably, we are seeing early indications that our strategic initiatives to exit unprofitable direct markets outside the U.S. are bearing fruit. International revenue increased more than 30 percent sequentially in the first quarter, driven by strong initial demand from new distribution partners added in late 2023 and stronger-than-expected artist system sales in the period. As discussed in recent calls, the challenging macroeconomic environment and tighter credit markets have impacted systems adoption throughout our business in recent quarters. The hair restoration business, in particular, has experienced notable increases in time-to-close systems deals given the higher ASP associated with these robotic capital equipment purchases.

Dominic Will: Notably we are seeing early indications that our strategic initiatives to exit unprofitable direct market outside the U S are bearing fruit.

Dominic Will: International revenue increased more than 30% sequentially in the first quarter driven by strong initial demand from new distribution partners added in late 2023 and stronger than expected August system sales in the period.

Dominic Will: As discussed on recent calls the challenging macroeconomic environment and tightening credit market have impacted systems adoption throughout our business in recent quarters. The heritage the hair restoration business. In particular has experienced notable increases in time to close systems deals given the higher.

Dominic Will: ESP associated with this robotic capital equipment purchases.

Rajiv Kanishka Liyanaarchchie De Silva: We remain cautiously optimistic that the operating environment will show improvement as we move through 2024. That said, we are encouraged by the continued evidence that our efforts to reposition the business and to focus on key strategic and operational initiatives are well-founded. We are pleased to report that cash system sales represented 75% of total systems, subscription, and lease program sales in the first quarter compared to 66% in the prior year period. Notably, global cash system sales increased more than 20 percent on a quarter-over-quarter basis in Q1, with particular strength in markets outside the U.S., which posted cash system growth compared to the prior quarter and prior year period.

Dominic Will: We remain cautiously optimistic that the operating environment, but show improvement as we move through 2020 four.

Dominic Will: That said, we're encouraged by the continued evidence that our efforts to reposition the business and to focus on our key strategic and operational initiatives are well founded.

Dominic Will: We are pleased to report the cash system sales represented 75% of total systems subscription and lease program sales.

Dominic Will: First quarter compared to 66% in the prior year period.

Dominic Will: Notably global tax system sales increased more than 20% on a quarter over quarter basis in Q1.

Dominic Will: Particular strength in markets outside of the U S, which posted cash systems growth compared to the prior year the.

Dominic Will: Prior quarter and prior year periods.

Rajiv Kanishka Liyanaarchchie De Silva: By way of reminder, one of our key strategic priorities in 2023 was to optimize our commercial and operational strategy in certain international markets and to reinvest those resources in higher opportunity markets to enhance the company's longer-term growth and profitability profile. We continue to execute towards our goal of having our new distribution partners identified, signed up, and ordering in the majority of our key international markets in early 2024. We were pleased to see solid initial demand from these new distributors and continue to believe we are well positioned for profitable growth in these key markets in 2024.

Dominic Will: But we have reminded at one of our key strategic priorities in 2023 was to optimize our commercial and operational strategy in certain international markets and to reinvest those resources in high opportunity markets to enhance the company's longer term growth and profitability profile.

Paul.

Paul: We continued to execute towards our goal of having our new distribution partners identify signed up and.

Speaker Change: Ordering in the majority of our key international markets in early 2024.

Paul: Pleased to see solid initial demand from these new distributors and continue to believe we are well.

Paul: Assistant and for profitable growth in these key markets in 2024.

Rajiv Kanishka Liyanaarchchie De Silva: Importantly, our first quarter financial results support our belief that the key elements of our transformational strategy, Cost Reductions, Prioritizing Cash Systems Sales, and Restructuring Initiatives in the U.S. and International Markets are enhancing the cash flow profile of the business. We delivered a double-digit decrease in operating expenses in Q1 and generated three and a half times more cash from working capital compared to the first quarter of 2023, which together helped drive a 51% reduction in cash used in operations year over year.

Paul: Importantly, our first quarter financial results support our belief that the key elements of our transformational strategy.

Paul: Cost reductions prioritizing cash system sales and restructuring initiatives in the U S and international market.

Paul: And the cash flow profile of the business.

Paul: We delivered a double digit decrease in operating expenses in Q1, and generally we generated three and a half times more cash from working capital compared to the first quarter of 2023.

Paul: Which together helped drive a 51% reduction in cash used in operations year over year.

Rajiv Kanishka Liyanaarchchie De Silva: We continue to believe that our expense and cash flow performance 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 sustainable profitability and growth. Before I turn the call over to Hemanth, I want to highlight several important developments subsequent to Quarter Ranch. Specifically, the company announced multiple transactions reflecting material progress towards the company's strategic initiative to restructure its debt obligations and secure bridge financing.

Paul: We continue to believe that our expense and cash flow performance 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 sustainable profitability and growth.

Paul: Okay.

Speaker Change: Before I turn the call over to him and I wanted to highlight multiple important developments subsequent to quarter end.

Speaker Change: Specifically, the company announced multiple transactions, reflecting material progress towards the company's strategic initiatives to restructure our debt obligations and secure bridge financing.

Rajiv Kanishka Liyanaarchchie De Silva: On April 23, 2024, one of the company's largest lenders and investors, Madrin Asset Management, purchased its Main Street Lending Program loan, or MSLP loan, from the City National Bank of Florida for an undisclosed amount. As of December 31, 2023, the MSLP loan had an outstanding balance of $51.3 million, following the close of the MSLP loan program. The company and Madrid entered into a loan and security agreement for an aggregate principal amount of up to $5 million in debt financing to support near-term liquidity requirements.

Speaker Change: On April 23rd 2024, one of the company's largest lenders and investors Madrian asset management purchased its main street lending program lowered our M. S. L. P alone.

Speaker Change: From the city National Bank of Florida for an undisclosed day Mark.

Speaker Change: As of December 31, 2020 three M. S. L. P loan had an outstanding balance of $51.3 million.

Speaker Change: Okay.

Speaker Change: Following the close of the MSL PD Lone program.

Speaker Change: The company is mad we'd entered into a loan and security agreement for an aggregate principal amount of up to $5 million in debt financing to support near term liquidity requirements.

Rajiv Kanishka Liyanaarchchie De Silva: We appreciate the support and partnership of City National Bank since we entered into the loan agreement in December 2020. We're also very pleased that Madren has demonstrated further commitment to the company's longer-term prospects with this transaction. We look forward to their continued support as we work towards our goal of returning to growth and sustained profitability in the future. I would now like to turn the call over to Dr. Hemanth Varghese, who will share an update on recent progress in our restructuring programs and our commercial product development and regulatory initiatives.

Speaker Change: We appreciate the support and partnership with the city National Bank since we entered into the loan agreement in December 2020.

Speaker Change: We are also very pleased that matter and has demonstrated their commitment to the company's long term prospects with these transactions.

Speaker Change: We look forward to their continued support as we work towards our goal of returning to growth and sustained profitability in the future.

Speaker Change: I would now like to turn the call over to talk to him into Ibs.

Speaker Change: Sure and update on recent progress in our restructuring programs and our commercial product development and regulatory initiatives Kemet.

Rajiv: Thanks Rajiv.

Hemanth Jacob Varghese: As discussed in our last earnings call, we've made considerable progress against several key initiatives of our corporate turnaround strategy. Let me share a little color on areas where we're making notable progress.

Speaker Change: As discussed on our last earnings call we've.

Kemet: We've made considerable progress against several key initiatives of our corporate turnaround strategy.

Speaker Change: Let me share a little color in areas, where we're making notable progress.

Hemanth Jacob Varghese: First, our cost reduction and cash management initiatives continue to progress well. Our focus on protecting our near-term cash runway has been productive, and the targeted incremental cost containment initiatives implemented in the second half of 2023 have further enhanced our ability to execute on our high priority strategic initiatives while still preserving liquidity. Second, as Rajiv mentioned earlier, our efforts to rationalize our international infrastructure, reduce costs, and simplify the organization continue.

Speaker Change: First our cost reduction and cash management initiatives continue to progress well.

Speaker Change: Our focus on protecting our near term near term cash runway has been productive and the targeted incremental cost containment initiatives implemented in the second half of 2023.

Speaker Change: Further enhance our ability to execute on our high priority strategic initiatives, while still preserving liquidity.

Speaker Change: Second as Rajeev mentioned earlier, our efforts to rationalize our international infrastructure reduce costs and simplify the organization can continues to progress we continue to engage with both existing and several new distribution partners to align with our new International strategy and we are pleased to see the initial demand for <unk>.

Hemanth Jacob Varghese: We continue to engage with both existing and several new distribution partners to align with our new international strategy, and we are pleased to see initial demand from two new exclusive partnerships we announced in December in the United Kingdom and India. We are tracking towards our goal of finalizing terms with additional new distribution agreements, which we intend to announce publicly upon completion, and remain on track to be substantially completed with our international repositioning in the coming months and ready to return to growth outside the U.S. in 2020.

Speaker Change: Two new exclusive partnerships, we announced in December and the United Kingdom and in India.

Speaker Change: We are tracking towards our goal of finalizing terms with additional new distribution agreements, which we intend to announce publicly upon completion and remain on track to be substantially completed with our international repositioning in the coming months and ready to return to growth outside the U S. In 2024.

Hemanth Jacob Varghese: Third, our efforts to advance certain new product pipeline projects, secure regulatory clearances, and execute initial commercial launches are tracking favorably in early 2024. The U.S. commercial launch of our new multi-application platform, the Venus Versa Pro, is going well, and feedback from customers is very positive. We launched in the EU in the first quarter, and we were pleased to receive TGA clearance in Australia on April 3rd. We were also pleased to announce regulatory approval for the Venus Bliss Max on April 8th from the State of Israel Ministry of Health.

Speaker Change: Third our efforts to advance certain new product pipeline projects secure regulatory clearances and execute initial commercial launches are tracking favorably in early 2024.

Speaker Change: The U S commercial launch of our new multi application platform the Venus versus a pro is going well and feedback from customers is very positive.

Speaker Change: We launched in the EU in the first quarter and we were pleased to receive T. G. A clearance in Australia on April 3rd.

Speaker Change: We were also pleased to announce regulatory approval for the Venus Bliss snacks unequally from the state of Israel Ministry of Health.

Hemanth Jacob Varghese: Fourth, we are pleased with the positive early response from our company-wide rebranding initiative, Venus AI, and encouraging feedback from physician participants in our Nexthetic program recently hosted in March. By way of reminder, Nextsthetics is a new series of customer education and training events launched under our Venus AI rebrand. The Next Statics program represents a great example of how we are enhancing our focus on physician education and practice enhancement by empowering professionals in the aesthetics field with the knowledge, tools, and support they need to grow their business.

Fourth we are pleased with the positive early response from our company wide rebranding initiative means AI and encouraging feedback from physician participants in our next snacks.

Speaker Change: Nick static program.

Speaker Change: Recently hosted in March.

Speaker Change: By way of reminder, aesthetics is a new series of customer education and training events launched under our venous AI regret.

Speaker Change: The next steps program or is it represents a great example of how we are enhancing our focus on physician education practice enhancement by empowering professionals that extra yield with the knowledge tools and support they need to grow their businesses.

Hemanth Jacob Varghese: Finally, we've had some great success in this past quarter in expanding our commercial strategy to target corporate accounts. We secured a recent win with a fast-growing multi-center account which contributed solid system demand for Venus Viva and, more importantly, will deliver attractive recurring revenue from ongoing procedure-related demand for Viva tips. More details to follow. With that, let me turn the call over to Domenic for a review of our first quarter financial results and balance sheet at quarter end.

Speaker Change: Finally, we had some great success in this past quarter, expanding our commercial strategy to target corporate accounts with.

Speaker Change: We secured a recent win with a fast growing multicenter count, which contributed solid system demand convenience Tivo and more importantly will deliver attractive recurring revenue from ongoing procedure related demand for veeva chips more details to follow.

Dominic Will: With that let me turn the call over to Dominic <unk> for a review of our first quarter financial results and balance sheet at quarter end dominate.

Speaker Change: Thanks payment.

Domenic Della Penna: For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the first quarter of 2024 on a gap basis, and all growth-related items are on a year-over-year basis. We reported total revenue of $17.5 million, down $3.1 million, or 15% year-over-year. The decrease in total revenue by region was driven by a 15% decrease year-over-year in U.S.

Dominic Will: For the avoidance of doubt unless otherwise noted my prepared remarks will focus on the company's reported results for the first quarter of 2024 on a GAAP basis, and all growth related items are on a year over year basis.

Dominic Will: We reported total revenue of $17 5 million down $3 1 million or 15% year over year. The decrease in total revenue by region was driven by a 15% decrease year over year in U S revenue and a 14% decrease year over year and international revenue.

Domenic Della Penna: The decrease in revenue is primarily attributed to general macroeconomic headwinds that impacted customer access to capital and the effects of tighter third-party lending practices, which negatively impacted capital equipment sales. International revenue results were also impacted by the company's strategic initiatives related to exiting unprofitable direct markets in 2023. The decrease in total revenue by product category was driven by a 39% decrease in lease revenue, a 5% decrease in products systems revenue, and a 13% decrease in products other revenue, partially offset by a 13% increase in services revenue.

Dominic Will: The decrease in revenue is primarily attributed to general macroeconomic headwinds that impacted customer access to capital and the effects of tighter third party lending practices, which negatively impacted capital equipment sales.

International revenue results were also impacted by the company's strategic initiatives related to exiting unprofitable direct markets in 2023.

Dominic Will: The decrease in total revenue by product category was driven by a 39% decrease in lease revenue a 5% decrease in products systems revenue.

Dominic Will: 13% decrease in products other revenue.

Dominic Will: Partially offset by a 13% increase in services revenue.

Domenic Della Penna: The percentage of total systems revenue derived from the company's subscription model and lease program sales was approximately 25% in the first quarter of 2024 compared to 34% in the prior year period and 41% in the fourth quarter of 2023, as evidence of the continued progress in focusing on cash sales. Turning to a review of our first quarter financial results across the rest of the P&L,

Dominic Will: The percentage of total systems revenue derived from the company's subscription model and lease program sales was approximately 25% in the first quarter of 2024 compared to 34% in the prior year period and 41% in the fourth quarter of 2023 has evidenced of the continued progress in focusing on.

Dominic Will: Cash sales.

Turning to a review of our first quarter financial results across the rest of the P&L.

Domenic Della Penna: Gross profit decreased $2.1 million, or 15%, to $11.6 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. Gross margin was 66.6% of revenue compared to 66.7% of revenue for the first quarter of 2023. Total operating expenses decreased $2.4 million, or 11%, to $19.4 million. The change in total operating expenses was driven primarily by a decrease of 0.9 million, or 8%, in general and administrative expenses, a decrease of 0.9 million, or 32%, in research and development expenses, and a decrease of 0.7 million, or 8%, in selling and marketing expenses.

Gross profit decreased $2 1 million or 15% to $11 6 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 Will: Gross margin was 66, 6% of revenue compared to 66, 7% of revenue for the first quarter of 2023.

Dominic Will: Total operating expenses decreased $2 4 million or 11% to $19 4 million.

Dominic Will: The change in total operating expenses was driven primarily by a decrease of 0.9 million or 8% and general and administrative expenses.

Dominic Will: Decrease of 0.9 million or 32% and research and development expenses.

Dominic Will: A decrease of <unk> 7 million or 8% and selling and marketing expenses.

Domenic Della Penna: In the first quarter of 2024, GAAP general and administrative expenses include approximately $0.9 million of costs related to restructuring activities designed to improve the company's operations and cost structure and approximately $0.4 million of expenses related to the Canada Revenue Agency for the denial of Canada emergency wage subsidy claims filed by the company for certain periods between 2020 and 2021. The total operating loss was $7.8 million compared to an operating loss of $8.2 million for the first quarter of 2023.

Dominic Will: First quarter of 'twenty 'twenty, four GAAP general and administrative expenses include approximately 0.9 million of costs related to restructuring activities designed to improve the company's operations and cost structure and approximately 0.4 million of expenses related to the Canada revenue agency for a day.

Dominic Will: Niall of Canada emergency wage subsidy claims filed by the company for a certain periods between 2020 in 2021.

Speaker Change: The total operating loss was $7 8 million compared to operating loss of $8 2 million for the first quarter of 2023.

Domenic Della Penna: Net interest and other expenses were $2 million compared to $1.2 million in the first quarter of 2023. The year-over-year change in net interest and other expenses was driven primarily by an increase in non-cash foreign exchange losses of $0.3 million compared to a non-cash gain of $0.3 million in the prior year period. The net loss attributable to stockholders for the first quarter of 2024 was $9.8 million, or $1.68 per share, compared to a net loss of $9.7 million, or $1.84 per share, for the first quarter of 2023.

Speaker Change: Net interest and other expenses were 2 million compared to $1 2 million in the first quarter of 2023, the year over year change in net interest and other expenses was driven primarily by an increase in noncash foreign exchange loss of zero point $3 million compared to a noncash gain of <unk>.

Speaker Change: <unk> 3 million in the prior year period.

Speaker Change: Net loss attributable to stockholders for the first quarter of 2024 was $9 8 million were $1 68 per share compared to a net loss of $9 7 million or $1 84 per share for the first quarter of 2023.

Domenic Della Penna: Adjusted EBITDA loss for the first quarter of 2024 improved 11% year-over-year to $5.1 million compared to an adjusted EBITDA loss of $5.7 million for the first quarter of 2023. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release.

Speaker Change: Adjusted EBITDA loss for the first quarter of 2024 improved 11% year over year to $5 1 million compared to adjusted EBITDA loss of $5 7 million for the first quarter of 2023.

Speaker Change: As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release.

Domenic Della Penna: Turning to the balance sheet, as of March 31, 2024, the company had cash and cash equivalents of $5.1 million and total debt obligations of approximately $76.7 million, compared to $5.4 million and $74.9 million, respectively, as of December 31, 2023. Cash used in operations for the three months ended March 31st was $2.9 million, a 51% decrease in cash use year over year. The year-over-year decrease in cash used in operations was driven primarily by strong working capital performance, with more than $4.7 million of cash generated from working capital in the period. The improvement in working capital conversion is primarily related to our strategy to shift the mix of sales to cash versus subscription and lease program sales.

Speaker Change: Turning to the balance sheet.

Speaker Change: As of March 31, 2024, the company had cash and cash equivalents of $5 1 million and total debt obligations of approximately $76 7 million compared to $5 4 million and $74 9 million respectively. As of December 31, 2023.

Speaker Change: Cash used in operations for the three months ended March 31 was $2 9, million% to 51% decrease in cashews year over year.

Speaker Change: The year over year decrease in cash used in operations was driven primarily by strong working capital performance with more than $4 7 million of cash generated from working capital in the period.

Speaker Change: The improvement in working capital conversion is primarily related to our strategy to shift the mix of sales to cash versus subscription and lease program sales.

Operator: Cash used in operating and investing activities during the first quarter of 2024 was partially offset by $2.6 million of cash from financing activities in the period, driven primarily by the net proceeds of $1.6 million from a note purchase agreement with EW Investors on January 18, 2024, and the net proceeds of $977,000 from the sale of 817,748 shares of the company's common stock at a price of $1.46 per share through a registered direct offering on February 22, 2024. Turning to a review of our financial outlook for 2024.

Speaker Change: Cash used in operating and investing activities. During the first quarter of 2024 was partially offset by $2 6 million of cash from financing activities in the period driven primarily by the net proceeds of $1 6 million from a note purchase agreement with EW investors on January 18th.

Speaker Change: 2024, and the net proceeds of 977000 from the sale of 870 817748 shares of the company's common stock at a price of $1 46 per share through a registered direct offering on February 22nd 2024.

Speaker Change: Sure.

Speaker Change: Yeah.

Speaker Change: Turning to a review of our financial outlook for 2024.

Operator: 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. However, for modeling purposes, the company expects total revenue for the three months ending June 30, 2024, of at least $16.5 million. With that, I'll turn the call over to the operator to open the call for your questions. Operator?

Speaker Change: 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.

Speaker Change: For modeling purposes, the company expects total revenue for the three months ending June 32024 of at least $16 5 million.

Speaker Change: With that I'll turn the call over to the operator to open the call for your questions operator.

Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Speaker Change: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow up.

Operator: We do ask that you limit yourself to one question and one follow-up. If you would like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. One moment, please, while we poll for questions. Our first question comes from Marie Thibault with VTIG. Please proceed with your question. Hi, good morning.

Speaker Change: He would like to ask additional questions. We invite you to add yourself to the queue again by pressing star one one moment. Please while we poll for questions.

Speaker Change: Our first question comes from Marie Thibault with V. T. I G. Please proceed with your question.

Marie Yoko Thibault: Hi, good morning. Thanks for taking the questions. Maybe I'll start here. We'd love to hear just a review of what you felt went better than expected in Q1 and a little bit more on assumptions for your guidance for Q2. You gave us that at least 16.5 million floor. We'd like to hear what's baked into that.

Hi, good morning, Thanks for taking the questions maybe I'll start here I'd love to hear just a review of what you felt went better than expected in Q1.

Marie Yoko Thibault: And a little bit more on assumptions for your guidance for Q2, you gave us that at least $16 5 million floor, but like to hear what's baked into that.

Rajiv Kanishka Liyanaarchchie De Silva: Jeremy, I think, in terms of your first part of the question, Marie, I think the strength in our international markets was better than expected. As you know, we've been doing this transition from direct presence in many of these markets. Distributors, in many cases, these are the first orders.

Maria: Terrific I think Oh at the thing in terms of your first part of the question Maria I think.

Maria: The the.

Maria: Strength in our international market was a better than expected.

Maria: As you know we've been doing this transition from.

Maria: From direct presence in many of these markets distributors and in many cases. This is saying this is the first order is we will also.

Rajiv Kanishka Liyanaarchchie De Silva: We were also positively surprised by the strength of the ARDIS system sales outside the U.S. So I think that, I would say, probably exceeded expectations. I think the U.S. performed as expected. You know, the macroeconomic headwinds probably impact the U.S., more so than they certainly have in the past. And given those headwinds, you know, we were pleased with the outcome in the U.S. as well.

Maria: Positively surprised by the strength of the August system sales are outside of outside the U S. So I think that I would say it probably.

It exceeded expectations in the U S performed as expected and always are.

Maria: Macroeconomic headwinds probably impacted the U S Hum and a more so that is a it certainly has in the past and give us those headwinds we were pleased with the outcome in the U S as well.

Rajiv Kanishka Liyanaarchchie De Silva: With respect to Q2, we see the same type of trends continuing into Q2. You know, the macroeconomic headwinds have not dramatically improved, though in certain spots they may be showing some signals of doing so. So the pressure is in the U.S. We expect it to continue. And in international markets, it continues. We continue to kind of expect a little bit of lumpy behavior until we get our new distributors on a more consistent ordering pattern. Hemanth or Domenic, anything to add to that?

Maria: With respect to our Q2, we see a continued the same type of trends to continue into Q2, and the macroeconomic headwinds have not dramatically improved.

Maria: So in certain spots they may be showing some signals of living cell. So the pressures in the U S. We expect to continue.

Maria: And in the international market. It continues to be we continue to expect a little bit of a lumpy behavior until we get out new distributors on a on a more consistent ordering pattern.

Speaker Change: Humans domenic anything to add to that.

Rajiv Kanishka Liyanaarchchie De Silva: No, I don't think so. All right, Marie. Sorry. Go ahead. Okay. That's really helpful. Yeah, that's very helpful.

Domenic: No I don't think so.

Speaker Change: Alright.

Okay. That's really helpful. Yeah. That's very helpful. And then I. Appreciate the efforts that are your team has been making on managing working capital and cutting cash burn in the quarter and what else is left to do on managing working capital is there more that you can be doing to collect receivables worked out inventory any target areas that you see room for.

Marie Yoko Thibault: And then, appreciate the efforts that your team has been making on managing working capital and cutting cash burn in the quarter. What else is left to do in managing working capital? Is there more that you can be doing to collect receivables, work out inventory, or any target areas that you see room for added improvement? And thanks for taking the question. Domenic, you want to take that one? Sure, I think the one area...

Speaker Change: <unk> added an improvement and thanks for taking the questions.

Speaker Change: Dominic do you want to take that one.

Domenic Della Penna: Sure, I think the one area that we continue to focus on, on a very selective basis, is working with key customers, like Chain Accounts, where we can accelerate the collection of amounts owed to us at a reasonable discount. We've been, you know, modestly successful in converting some of that. We currently have an opportunity now to convert a few hundred thousand dollars, and we do that selectively with certain customers that owe us for bulk device sales, and that augments our existing focus on cash sales.

Dominic Will: Sure I think the one area that we continue to focus on on a very selective basis is working with key customers that for example, like chain accounts that if we can.

Accelerate the collection of amounts owed to us at a reasonable discount a we've been you know modestly.

Dominic Will: Modestly successful in converting some of that we currently have an opportunity now to convert a a few hundred thousand dollars and we do that selectively with certain customers that O S.

Dominic Will: For bulk device sales.

Dominic Will: And that augments our.

Dominic Will: Our existing focus on cash sales in addition.

Domenic Della Penna: In addition, you'll notice that our inventory balance is lower, and we put in place a more robust sales and operations planning program that will continue to focus on inventory management in particular because we do think there is some opportunity to better focus on inventory turns and free up some working capital that way.

Dominic Will: You'll notice that our inventory balances is lower and we've put in place a more robust sales and operations planning.

Dominic Will: Program that will continue to focus on inventory management in particular, because we do think theres some opportunity to chat to better focus on inventory turns and and free up some working capital that way.

Operator: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Jeffrey Cohen with Leidenberg Bauman. Please proceed with your question.

Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Our next question comes from Jeffrey Cohen Ladenburg Thalmann. Please proceed with your question.

Jeffrey Scott Cohen: Oh, hi Rajiv, Domenic, and Hemanth, how are you? Hey guys. First of all, could you walk through and give us some better metrics or trends on the hair business, specifically from the first quarter and how 24 looks there?

Jeffrey Scott Cohen: Oh, Hi, Rajeev I'm looking here and then how are you.

Speaker Change: Hey, Jeff.

Jeff: Good thanks, so much.

Jeffrey Scott Cohen: Firstly could you walk through and give us some better metrics or trends on to her business specifically from the first quarter and now 24 looks there.

Rajiv Kanishka Liyanaarchchie De Silva: All right, good. Domenic, do you want to take that one?

Speaker Change: Very good Dominic do you want to take that one.

Domenic Della Penna: Our hair trends are impacted by the tight capital equipment market, but having said that, on the international side, we did show an improvement over Q4 in terms of artist device sales, but in the U.S., we were slightly ahead of Q4, but still a challenging environment when you're trying to sell a device that is a quarter of a million dollars in terms of outlay, and the financing environment is such that, although capital may be available, it So we're cautiously optimistic about the second half of the year, but in terms of Q1, the underlying strength really came from international through some distributor sales.

Dominic Will: Our hair trends are on are impacted by the tight capital equipment market, but having said that and the international side. We did show an improvement over Q4 in terms of.

Dominic Will: Artists device sales, but in the U S. We were slightly ahead of Q4, but still a challenging environment when you're trying to sell a device that is a quarter of a million dollars in terms of outlay.

Dominic Will: And and the financing environment is such that although capital may be available, it's not as available as it used to be.

Dominic Will: So we're cautiously optimistic about the second half of the year, but in in terms of Q1, the underlying strength really came in international through some distributor sales.

Jeffrey Scott Cohen: Okay, got it. And then, secondly for us, I just wanted to walk through the MSLP loan agreement. Does Majrin currently have the entirety of 76.7 now?

Speaker Change: Okay got it and then secondly for US there just wanted to walk through the Michel if your loan agreements so.

Speaker Change: Just imagine currently have the entirety of the $76 seven now.

Rajiv Kanishka Liyanaarchchie De Silva: That's correct. Madryn owns the entire debt stack at this point, yes, and the face amount is what you quoted.

Speaker Change: Yes, that's correct My Madrid Madrid owns the entire debt stack at this point, yes, and in the face amount of it is what you are what you quoted.

Jeffrey Scott Cohen: Okay, I got it. And just one clarification that you spoke about Q over Q, international business plus 30 percent. Could you talk a little bit about the U.S. versus international business and call out, in particular, a few of the territories that are driving international business, please?

Speaker Change: Okay I got it and just one clarification that you spoke about Q over Q International business, plus 30% could you talk a little bit about U S versus international and call out in particular, a few of the territories that are driving international. Please. Thank you.

Rajiv Kanishka Liyanaarchchie De Silva: I think on the international front, what we had was a good result, a very good result in Australia, in particular, and in addition, we did have a bounce back in terms of our sales in Israel, which suffered through a very, very difficult fourth quarter, and there was some traction that we got in the first quarter of 2024 in Israel, notwithstanding a still challenging environment there, obviously, but those were the key direct markets. In addition, we continue to make progress on signing up new distributors, so this was a combination of improved performance in select direct markets like Australia and Israel as well as improved distributor performance.

Speaker Change: Dominic.

Speaker Change: Yeah, I think on the international front, what we had is a a good result, a very good result in Australia in particular and Ah and in addition, we did have a bounce back in terms of our sales and in Israel.

Speaker Change: That's separate to a very very difficult fourth quarter and there was some traction that we got in the first quarter of 2024 are in Israel, notwithstanding a still challenging environment. There obviously, but there those are the key direct markets. In addition, we.

Speaker Change: You need to make progress on signing up new distributors. So it was a combination of improved performance and and select direct markets like Australia, and and Israel as well as improvement improved distributor performance and rest of world.

Rajiv Kanishka Liyanaarchchie De Silva: Okay, Jeff, I just wanted to, sorry, I just wanted to amend my answer from before. Just to clarify, our debt stack also includes about $2 million in a convertible note with EW. So that is in addition to what Madren owns at this point. Obviously, Madren still owns the vast majority. The No Purchase, the 1.6 you're referencing.

Speaker Change: Okay.

Rajiv Kanishka Liyanaarchchie De Silva: That's correct, yes. That's the net amount in phases 2.

Speaker Change: Just wanted to Oh, sorry, just one of them in my answer from before that just to clarify our debt stack also includes about 2 million and a convertible note with E. W. So that that is a in addition to the to what what might have been Oh ones. At this point, although it was a matter and so long as the vast majority.

Speaker Change: So they know purchased a 1.6 you're referencing.

Speaker Change: That's correct Yep.

Speaker Change: That's a net amount of interfaces places too.

Operator: Okay, perfect. That does it for us. Thanks for taking our question. We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation.

Speaker Change: Okay perfect. That's it for us thanks for taking our questions.

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Speaker Change: We are currently showing no additional participants in the queue that does conclude our conference for today. Thank you for your participation.

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