Q3 2024 Venus Concept Inc Earnings Call
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Please stand by.
Speaker Change: Good day, ladies and gentlemen, and welcome to the third quarter 2024 earnings conference call for Venus Concept Incorporated. At this time, all participants have been placed in 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: Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated.
Speaker Change: 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.
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 generally refer to these as non-GAAP financial measures.
Speaker Change: 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: Thank you, operator, and welcome everyone to Venus Concept's third quarter 2024 earnings conference call.
Speaker Change: I'm joined on the call today by our Chief Financial Officer, Dominic Della Penna, and by our President and Chief Operating Officer, Dr. Hemanth Varghese.
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 review of our third quarter results and operating developments in the recent months.
Speaker Change: Hemanth will then share an update on our progress in several key operating areas.
Speaker Change: Following that, Dominic will provide you with an in-depth review of our third quarter financial results as well as a balance sheet and financial condition at quarter end.
Then, we will open the call for your questions.
With that agenda in mind, let's get started.
Speaker Change: As detailed in our press release issued today, our third quarter revenue results were softer than the expectations we outlined on our second quarter earnings call.
Speaker Change: We were pleased to see the improving trends from our international business in the third quarter, where sales are flat year over year, as we begin to see the initial benefits of the strategic restructuring activities we have executed over the last year.
Speaker Change: Our efforts to reposition our international business from unprofitable direct markets to partnering with high-value distributors is beginning to take shape.
Speaker Change: Sales to distributors increased nearly 60% in Q3, fueled by demand from new and existing distribution partners in the APAC and MIA regions.
Speaker Change: While we expect continued fluctuations in ordering patterns from our distribution partners in key international markets, we are encouraged by the early evidence that our efforts to evolve our international commercial strategy to enhance future growth and profitability are on the right track.
Speaker Change: We look forward to continued demand from our new distribution partners, particularly those in APAC, where we have registered new products in the second half of 2024, like the Blitz Max in Australia and multiple product certifications in India.
One of the largest aesthetics markets in the world.
Speaker Change: We expect the benefit from these new products entering key major markets to begin within the fourth quarter.
Speaker Change: With respect to our results in the U.S. in the third quarter, the business continued to be impacted by macroeconomic headwinds.
which are pressuring the aesthetic sector as a whole.
Speaker Change: Customer financing pressures, high interest rates, and tighter credit markets continue to impact customer systems adoption throughout our business.
Speaker Change: We did experience higher-than-expected end-of-quarter volatility, which led to key deals being pushed.
Speaker Change: The greatest challenge remains the overall time to close deals, which have not materially improved in recent quarters.
Speaker Change: We encourage that a commercial team's focus on prioritizing cash deals is proving effective.
Speaker Change: Cash system sales represented 76% of U.S. system sales in the third quarter, compared to 69% last year and 67% in the first half of 2024.
Speaker Change: Importantly, this strategic shift in commercial focus has a direct impact on our least revenue results, which declined 23% and 39% year-over-year in the U.S. and in total, respectively.
in the third quarter.
Speaker Change: We continue to believe that our efforts to reposition the business to prioritize cash system sales is the right strategy to enhance the company's long-term profitability profile.
and Hemanth Varghese.
Speaker Change: I am proud of our team's continued commitment to our strategy despite the challenging operating environment.
Speaker Change: First, we remain focused on our strategic initiative to enhance the cash flow profile of the business and accelerate the path to long-term sustainable profitability and growth.
Speaker Change: Domenic will discuss a solid cash flow performance in Q3 later on the call, but I wanted to call out a few important highlights to underscore our recent progress on this front.
Speaker Change: We achieved a 25% reduction in our cash use in operations year-over-year, which we view as solid performance in light of the softer-than-expected revenue results in the third quarter.
Speaker Change: We have delivered a 40% reduction in our cash used in operations over the first nine months of 2024, which is particularly impressive given the continued headwinds to revenue growth that aesthetic sector participants have been facing over the last year.
Speaker Change: We continue to believe that this performance represents the clearest evidence that we are making progress with respect to this important strategic initiative.
Speaker Change: Second, we made material progress towards our strategic initiative to restructure the company's debt obligations and secure bridge financing during the third quarter.
on September 26th.
Speaker Change: The company exchanged 15 million of its senior debt held by Madrin Asset Management into Series Y preferred stock.
Speaker Change: Following this transaction, the company had total debt obligations of approximately $34.6 million, down from 25%.
Speaker Change: from 46 million outstanding as of June 30, 2024, and down 54% from 74.9 million outstanding as of December 31, 2023.
Speaker Change: The substantial reduction in overall debt is evidence of continued progress in the restructuring of the balance sheet and will enable us to be best positioned for future growth.
Speaker Change: We are pleased that Madrid has demonstrated continued commitment to Venus Concept's long-term prospects with these transactions and look forward to our continued engagement with them as we execute our strategic plan.
Peace.
Speaker Change: Third, on October 17th, we were notified by NASDAQ that the company is eligible for an additional 180 calendar day period or until April 7th, 2025, to regain compliance with the minimum bid price requirement.
Speaker Change: We are pleased to have been granted this extension and will look forward to remedy the deficiency before the extension period.
Speaker Change: I would now like to turn the call over to Dr. Hemanth Varghese, who will share an important update on recent progress related to our other initiatives.
Hemanth?
Thanks Rajiv.
Speaker Change: Let me start by echoing Rajiv's comments by saying that despite the macroeconomic environment that's affected the entire industry this quarter, I'm proud with the team for progressing our business in several key areas.
while a difficult quarter with persistent market headwinds.
Speaker Change: affecting all companies in the aesthetic capital equipment market our team has shown great resiliency leveraging the breadth of Venus's technology offering and strong financial partnerships to provide real business solutions for our customers looking to grow and expand their practices
Speaker Change: Due to the longer-than-expected deal cycles, we had strong momentum into the final weeks of the quarter, but unfortunately had several opportunities push into the following quarter. Some of these deals have since closed.
Speaker Change: In addition, we continue to grow our highly successful and aesthetic event offerings in North America and now internationally, with each one showcasing our market-leading technology with testimonials from industry leaders and customers.
Speaker Change: We've recently expanded these events into international markets with our first event held recently in Madrid.
Speaker Change: where we received similar positive feedback from attendees similar to our previous events in North America.
Speaker Change: These next event experiences have been very well attended, highlighting a recovering level of demand and overall optimistic outlook for 2025. We look forward to seeing attendees at our upcoming events in Dallas, Toronto, Atlanta and Miami.
Speaker Change: We continue to bring best-in-class partners into our international distribution network.
Speaker Change: We're extremely excited to have Paragon and Spectra as our new partners, and we look forward to continuing the expansion of our international business in a profitable manner.
in addition to finding strong partners.
Speaker Change: We are working hard to obtain regulatory clearances in key international markets for our products we believe can best fit local needs, such as Bliss Max and Venus Versa Pro, as evidenced from our latest registrations in Canada, Australia and Israel.
Speaker Change: We expect to continue with a steady cadence of additional international product clearances for our core platforms through 2025.
Lastly...
Speaker Change: We are working hard in developing new platforms that address our customers' most pressing needs. We continue to receive great feedback from users of our devices and have focused our targeted innovation efforts on our key platforms to address the major needs.
Speaker Change: We are pleased that we have completed the regulatory submission for our new body platform in the U.S. We are targeting the launch of this platform in Q1 2025, starting with the United States.
Speaker Change: We believe it will enable new and existing customers with the ability to provide patients with our best body technologies and deliver leading clinical results.
Speaker Change: We've also incorporated additional features and new capabilities designed to enhance workflow and practice development success. We look forward to providing more details over the coming months.
Speaker Change: With that, let me turn the call over to Domenic for a review of our third-quarter financial results and balance sheet at quarter end. Domenic?
Domenic: Thanks, Hemanth. For the avoidance of doubt and unless otherwise noted, my prepared remarks will focus on the company's reported results for the third quarter of 2024 on a gap basis and all growth-related items are on a year-over-year basis.
Domenic: We reported total revenue of $15 million, down $2.6 million, or 15% year-over-year.
Domenic: The decrease in total revenue was driven by a 23% decrease year-over-year in United States revenue, as international revenues were flat year-over-year, a very encouraging sign.
Domenic: The decrease in total revenue by product category was driven primarily by a 39% decrease in lease revenue and a 10% decrease in products system revenue.
Domenic: As already noted, the difficult capital equipment environment in the U.S. market is the primary driver for these decreases.
Domenic: The percentage of total systems revenue derived from the company's internal lease programs, Venus Prime, and our legacy subscription model was approximately 23% in the third quarter of 2024, compared to 31% in the prior year period.
Domenic: Our focus on prioritizing cash system sales has been enhanced through various partnerships secured with preferred lenders in the U.S. and in other key international markets.
Domenic: These preferred lending arrangements assist us in accelerating the lending approval cycle, offering competitive financing solutions to our customers, and accelerating our cash funding requirements.
Domenic: The decrease in utilizing our internal lease programs is partially attributed to the recent success of these preferred lending arrangements.
Domenic: The overall percentage of total systems revenue derived from our internal lease programs declined from approximately 42% in fiscal year 2022, to 33% in fiscal year 2023, to 28% in the first nine months of 2024.
as discussed on our recent investor calls.
Domenic: This strategic initiative has been a key driver of the significant improvements in our cash generation and consistent with our focus on quality of revenue.
Domenic: For avoidance of doubt, this strategy remains a priority for the company.
Domenic: We continue to prioritize cash system sales and now believe the appropriate target mix for cash system sales revenue to be in the range of 70% to 75% of total system sales.
Domenic: with the balance coming from customer purchases facilitated through our structured in-house financing programs.
Domenic: In the current macro environment, third-party lending has tightened and so has access to capital. With this in mind, the ability to offer Venus Prime represents a valuable option to help with new system adoption.
Domenic: While we will continue to favor cash system sales, with our new target of roughly 70-75% of our total systems revenue coming from cash sales, we are very pleased to have the unique lever of our Venus Prime program as a key differentiator from our competitors.
Domenic: Turning to a review of our third quarter financial results across the rest of the P&L.
Gross profit decreased $2.3 million or 19% to $9.9 million.
Domenic: The change in gross profit was primarily due to the effects of higher interest rates and tighter third-party lending practices, which negatively impacted capital equipment sales in the U.S.
Domenic: Gross margin was 66.1% of revenue compared to 69.2% of revenue for the third quarter of 2023.
Domenic: The change in revenue mix by geography, by product, and by channel was the largest contributor to the year-over-year gross margin decline.
Domenic: Total operating expenses decreased $1.9 million or 10% to $17.1 million.
Domenic: a decrease of 0.2 million or 12% in research and development expenses.
Domenic: Third quarter of 2024 GAAP General and Administrative Expenses include approximately $0.1 million of costs related to restructuring activities designed to improve the company's operations and cost structure, compared to approximately $0.8 million for the third quarter of 2023.
Domenic: Total operating loss was $7.2 million compared to $6.8 million in the third quarter of 2023.
Domenic: Net interest and other expenses were $2.2 million compared to $2.5 million in the third quarter of 2023.
Domenic: The year-over-year change in net interest and other expenses was driven by
Domenic: a $0.5 million of non-cash loss on debt extinguishment related to the debt exchange in September of 2024.
Domenic: Net loss attributable to stockholders for the third quarter of 2024 was $9.3 million or $1.28 per share compared to net loss of $9.1 million or $1.64 per share for the third quarter of 2023.
Domenic: Adjusted EBITDA loss for the third quarter of 2024 was $5.9 million compared to $4.6 million last year. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release.
Turning to the balance sheet.
Domenic: As of September 30th, 2024, the company had cash and cash equivalents of $4.5 million and total debt obligations of approximately $34.6 million, compared to $5.4 million and $74.9 million, respectively, as of December 31st, 2023.
Domenic: The reduction of over $40 million in debt over the past nine months demonstrates our commitment to delever the balance sheet and improve the financial profile of the company.
Domenic: Cash used in operations for the three months ended September 30th was $3.1 million, a 25% decrease in cash use year-over-year.
Domenic: Specifically, we have delivered a 40% reduction in cash used in operations over the first nine months of 2024.
Domenic: We remain intently focused on further enhancement of the balance sheet and cash flow profile of the business.
Domenic: and believe we have the right strategy to build the requisite foundation to support our growth and profitability goals in the years to come.
Domenic: Lastly, turning to a review of our financial outlook for 2024, as outlined in our press release, the company expects total revenue for the three months ending December 31, 2024, of at least $17 million.
Speaker Change: With that, I'll turn the call over to the operator to open the call for your questions. Operator?
Speaker Change: Thank you. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: And our first question will come from Jeffrey Cohn with Landberg-Fallman.
Thank you.
Hey, good morning. Thanks for taking our questions.
Speaker Change: Just a few for us out there. On the prime program, do you expect things to level off at a Q3 level or would you expect it to increase? I know that you did talk about this 25 to 30 percent of your revenue comprised of prime.
Thank you, Jim.
Speaker Change: So I'm going to take it. Yeah, sorry. Yeah, go ahead.
Speaker Change: Yeah, hi Jeff. I would expect, like I'd mentioned, the cash proportion of our business should be 70 to 75 percent within that range, which implies that
Speaker Change: that we saw in either Q2 or Q3 of this year. So Q3 was a bit higher in terms of in-house financing.
Speaker Change: and Q3 is a bit lower. But we expect it to fall in that range going forward.
Speaker Change: Okay, got it. You made some mention of the body platform. Was that Amy you're referring to? And just clarify what that is and when we'll see it. I think you said Q125.
Speaker Change: Hemanth, do you want to take that one? Sure, thanks, Rajiv.
Hemanth Varghese: a next generation of our body systems that we have currently.
Thank you.
Speaker Change: Okay, got it. And then, I guess lastly, I was wondering, you did talk about EMEA and you did talk about AIPAC. Could you give us a little bit of a flavor of country by country or call out a few of the countries where you're seeing some strength and uptake and potential for growth through the coming year?
Speaker Change: We've seen strength in Australia, we continue to have a very good business in Mexico, and Canada has faced similar challenges to the U.S. in terms of tight credit markets. We've seen that globally, but in particular in the U.S. and Canada, it's been a bit of a struggle.
Speaker Change: a challenge in the third quarter with some deals being pushed, but clearly markets like Australia and Mexico are key markets for us and as well as Hong Kong and continue to do quite well.
Speaker Change: Hemanth, do you want to talk about some of our new distribution partnerships and where we see the potential?
Hemanth Varghese: Yeah, a great example being India, right? So India, we brought on board this past quarter and they helped us get registrations for multiple products. I think more are actually coming in that market and they're prepared to order multiple systems and so that's a wide open market for us and a big source of growth going into.
Okay, got it. Thanks for taking our questions.
Thank you, Jeff.
Speaker Change: Our next question is from the line of Marie Thibault with BTIG. Please proceed with your question.
Speaker Change: Hey, good morning everyone. This is Sam Wong from Marie. Appreciate you taking the questions this morning. Maybe just following up on that last question, wondering how quickly some of these expansions and new markets like India could start contributing to revenue, how material that could be, and I know there were a couple of other recent wins like in Taiwan and Colombia. Just want to understand how material that could be to growth, maybe here in Q4 or more so in 2025.
Hemanth?
Hemanth Varghese: Look, we're not giving specific international guidance at this time, but following on what I spoke to before.
Hemanth Varghese: When you look at bringing on new distributors, we're either bringing on new distributors in markets where we already have clearances...
Hemanth Varghese: and they can start selling right away, or in markets like India where registrations have to occur and they help us actually obtain those registrations. In the latter case, there being a bit of a delay, sometimes by a quarter or more before they can actually start ordering and selling on any regular basis.
Hemanth Varghese: And so it will be a bit of a mix. We have got a number of new and renewed relationships with existing partners in markets where we already have product. And I think we're starting to see ordering patterns improve even this year. But I think that will be more consistent next year as they're all on board and starting to have a couple quarters under their belt.
Hemanth Varghese: There is real potential for some of these partnerships to be picking up in the fourth quarter, which is what gives us more confidence around our projection for the fourth quarter.
Speaker Change: Okay, understood. Really helpful. Maybe just shifting to the demand environment and capital equipment environment. Wondering if there's any nuances between product categories, the aesthetic platform, the body platform versus maybe some of the hair systems. Wondering if, you know, you're seeing any differences between, you know, one side versus the other.
Speaker Change: Look, I think what we're seeing in the macro environment is that...
Speaker Change: Which means the larger the purchase, larger the a large of the complication and greater the complication in terms of customers securing credit and the longer it takes.
Speaker Change: So, in our hair business, our robot is one of the most expensive piece of equipment we sell. So, that certainly has impacted the...
Speaker Change: And then when it comes to our energy-based products, again, the real impact is for the for the higher price items, right? I think that's generally true across the industry. And it's also true that
Speaker Change: our hair business because hair transplants are generally one of the higher cost procedures.
Speaker Change: Okay, that makes sense. Maybe just final question from us here. Latest on cashflow outlook, should we still be expecting break-even here in Q4 or maybe more of a 2025 event?
Speaker Change: Yeah, look, I think the, obviously we expect, the fourth quarter generally is...
Speaker Change: One of the best quarters from a cash flow standpoint for the company.
Speaker Change: But that being said, as we think about sustained cash flow, break even, we are looking at 2025 like to the back end of it. And obviously, a big part of it is how this macroeconomic headwinds that have softened revenues for us in the third quarter.
Thanks so much for taking the questions.
Thank you, Sam.
Speaker Change: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. Our next question is from Thomas McGovern with Maxim Group.
Speaker Change: Hey, guys. Yeah, so a couple of my questions got covered already, so just...
Speaker Change: I just have one for you guys, just looking at your debt, you guys have done a great job over the course of 2024 reducing the net debt on your balance sheet. Just curious, you know, I saw that you guys were able to extend...
Speaker Change: The Bridge financing agreement, and we're able to take another million dollars off of that, and I believe it was October. Just curious, as you look at your debt situation now, what can we expect in 25 and in the fourth quarter in terms of continuing to reduce the balance there?
Yeah, this is a very important
Speaker Change: topic for the company, obviously, right? Now, the good news here is that, you know, we have a.
a very rational and constructive lender in Madras.
Speaker Change: So we continue to work at it. We don't have a particular target in mind yet, but
Speaker Change: and Madhuri has also continued to be very constructive in terms of providing the company with bridge financing, which we expect to continue.
[inaudible]
Speaker Change: I also saw that you guys got some relief on the MSLP loan. Some of the terms included that you guys, they would waive certain minimum liquidity requirements through the 30th of November. Just curious, you know, as you look at that agreement in particular, where do you expect that to land? Do you expect you guys to kind of extend some of those terms as we're approaching that November 30th mark? Or just any commentary on that MSLP loan, put some more color on that, that would be appreciated as well.
Speaker Change: The ultimate capital structure of the company should look like, and during this time, Madren has continually extended some of the covenant relief.
related to the MSLP law, right?
Speaker Change: So, it's generally extended a month at a time, right, because that's the pace at which our negotiations go.
Speaker Change: And we would certainly expect continued relief from this covenants from Madrid until we find a final capital structure solution.
Understood. I appreciate that, caller.
Thank you.
Speaker Change: We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation. You may now disconnect.