Venus Concept Inc.

Good morning, ladies and gentlemen, and welcome to the third quarter 2021 earnings conference call for Venus Concept. 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. 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 in including those identified in the Risk Factors section of our most recent annual report on Form 10-K and 10-Q, filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in our earnings press release issued today on the investor relations portion of our website. I would now like to turn the call over to Mr. Dom Serafino, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Thank you, Operator, and welcome everyone to Venus Concept's third quarter of 2021 Earnings Conference Call. I am joined today on the call by our Chief Financial Officer, Dominic Della Penna, and Ross Portaro, our recently appointed President of Global Sales. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with an overview of our revenue results in the third quarter. I will then provide a summary of our operating progress in recent months, and then Dominic will provide with you with a more in-depth review of our quarterly financial results, our balance sheet, and our updated guidance for the full year of 2021. And then we will open the call to questions. With that overview in mind, let's get started with a review of our third quarter revenue performance and overall business trends. We reported gap revenue of $24.6 million, up 19% year-over-year. The increase in total revenue year-over-year was driven by a 67% growth in sales to US customers, which offset 10% decrease in sales to international customers during the same period. We are very encouraged by our overall demand trends we experienced during the third quarter, particularly in the United States. We saw continued improvements in system adoption trends in Q3 as well. While procedure trends were impacted with a tougher than expected operating environment in our global customer space during the quarter, We were pleased to see strong recovery in procedure trends during the month of September. Unfortunately, our total revenue results for Q3 do not fully reflect the favorable underlying demand environment as our international revenue was impacted by a $2.4 million of purchase orders from customers in APAC, EMEA, and Latin America that we were unable to deliver by quarter end. This backlog is directly a result of global supply disruptions related to COVID-19, specifically Specifically, as we have seen longer lead times and shortages in certain materials and components that are impacting our ability to manufacture the number of systems to meet the demand of our international customers. We have been working with our suppliers and third party manufacturers to mitigate supply risks. And as of this week, we have already delivered 1.4 million of the quarter end backlog. We intend to fulfill the majority of this remaining backlog during the fourth quarter of 2021 and the first quarter of 2022. We are understandably frustrated by these supply chain issues as they are masking the favorable demand trends we are seeing from customers around the world. To that end, if we had not encountered the supply chain issues, we would have reported total revenue growth of 30% year-over-year and international sales growth of 9% year-over-year for the third quarter. Diving deeper into our revenue performance and trends we experienced during the third quarter. Third quarter total revenue growth benefited from a 22% increase in total subscription and systems revenues compared to the prior year. By region, the U.S. customers were the largest contributor to the year-over-year growth in total subscription and revenues, system revenues, increasing 97%. By market, sales to aesthetic customers were the largest contributor to year-over-year growth by total subscription and system revenue, increasing 34%. year over year, driven predominantly by a 32% increase in sales of our franchise aesthetic platforms, which are the Venus Legacy, Venus Versa, and Venus Velocity, and a 119% increase in our sales of our newer aesthetic platforms, the Venus Bliss and Venus Glow, both of which drive growth in sales and consumables. Our total system shipments increased 15% year over year in Q3 2020, driven by 93% growth in shipments to customers in the U.S., reflecting continued improvement in the U.S. capital equipment environment during the quarter. System shipments under our subscription model increased 15% on a year-over-year in Q3 and represented 51% of the total global shipments in the period. As discussed on prior calls, the flexibility we have in our commercial model with unique pricing and payment options via our industry-first subscription model is an incredible lever that we have which differentiates us from competition. Importantly, this lever really empowers our commercial team to work with customers to identify not only the right technologies for their practices, but also the right business model for each individual clinic to meet their needs. With respect to procedure trends in the third quarter, our real-time IoT data on our systems gives a strong visibility to the active device trends for a large portion of our medical aesthetic install base. This average usage per system data reflects consumer activity consistent with what most companies have reported to date. Specifically, U.S. usage persistent trends were softer in July and August, some of which related to normal seasonality, and we saw a nice recovery in usage during the month of September. Outside the U.S., we continue to see varying usage trends depending on the region of the world, and with respect to pace of recovery from the pandemic. Procedure trends in our hair restoration customers in the third quarter reflect a larger impact from seasonality this year, with doctors returning to summer vacation activities with COVID restrictions eased compared to the third quarter of 2020. Procedures on our artist systems in North America did show month-to-month improvements during the quarter, but were basically flat year-over-year in Q3. Outside of North America, procedures of our artist systems were down year-over-year for the quarter, but did show strong improvements in September. Turning to a brief update on operating highlights in the third quarter. First, we continue to make notable progress in areas of new product development, clearance, and commercialization. Following the receipt of Health Canada authorization for our Venus Fiore Feminine Health System in July, we are pleased to further expand our portfolio of technologies that can treat a broad range of common women's health conditions with our recent FDA 510 clearance of the Venus Freedom in October. Venus devoted nearly six years to developing this technology in order to create a comprehensive, safe, and effective system that has the ability to treat a variety of different women's wellness issues addressing important medical needs and supported with significant clinical data. We intend to sell the Venus Freedom using a unique utilization-focused business model which we believe will make the return on investment of this system very attractive for both Venus Concept and the OBGYN community. We began a limited launch of the Venus Fiori in Canada and the European Union in the third quarter of 2021, and we look forward to commencing a limited launch of the Venus Freedom in the US during the first quarter of 2022. Our efforts to expand the Venus Bliss portfolio of systems and products continues to progress as well. We submitted our request for 510 clearance for the Venus Bliss Max at the end of September. Venus Bliss Max is a new device that not only includes fat reduction and body contouring capabilities, but also has a muscle stimulation element to the technology. This device addresses the three most in-demand body contouring procedures in one platform workstation. We expect this device will have a list price of approximately $250,000 and contribute contributing gross margins above company current averages. We intend to add on a modest but important utilization fee of approximately $100 per treatment. And importantly, we estimate that the time to ROI of just 33 weeks for our customers, which we expect will be extremely compelling to our clinicians. And this compares nicely to the 28-week ROI of the current Venus Bliss customers we are achieving to date based on the visibility we have from our IoT data on the platforms. We are now targeting a potential clearance in Q1 of 2022 and a commercial launch in early 2022. Our strategy to expand the potential addressable market for both the existing Venus Bliss and eventually the Venus Bliss Max also continues to progress. Specifically, we are on track to targeting large areas of the body and specific indications of use. Securing these additional clearances will allow us to fully market key differentiators of the Venus Bliss and the Venus Bliss Max, optimizing our potential for increased market share in the largest and fastest growing area of the aesthetic market. We are targeting submission for these additional clearances in early 2022 with commercial introductions in Q2. We are pleased to announce that AMIE, our development project to create the next generation of robotic technologies for medical aesthetic applications, formally entered the clinical validation phase in recent weeks. We have finalized the protocol for our human clinical study which is now available on clinicaltrials.gov, and we are working through training and IDE approvals for our three clinical investigator sites. We expect to begin enrollment of up to 60 patients in December, and we intend to submit FDA clearance as soon as possible upon completion of the study, which, depending on the pace of enrollment, is expected to be by the end of Q3 2022. Since our last earnings call, we completed commercial design and finalized the look and feel design options of the device. AIMEE will consist of a cart and a six-axis robotic arm and vision system, which features automation to track and adapt to the curve of body surfaces. We are very excited about the prospects for our AIMEE device, a robotic non-stressor device that will potentially disrupt initially the skin tightening and directional lifting market, with plans to add additional clinical applications in the years to come. Firstly, I want to share also a few thoughts on important change in our leadership that we announced last month. We announced the appointment of Ross Portaro to the position of President of Global Sales, effective October 15th, 2021. Ross assumed the responsibilities of Chad Ziering, who resigned from his role as Chief Commercial Officer for personal reasons. Ross joined Venus as Vice President of EMEA earlier this year and is an accomplished leader and industry veteran with more than 30 years of experience in the healthcare sector, including key positions at Candela, Luminous, Medicis, and amongst others. Our commercial team has not missed a beat during this transition, and in fact, we are encouraged by the positive feedback from the team who appreciates Ross's strong pedigree in the medical aesthetics market and his passion for leading a commercial strategy centered around differentiated products in large and growing procedure categories, as well as Venus's commitment to the development and commercialization of disruptive robotic technologies in the medical aesthetic and hair restoration market. We are confident that Ross's reputation will also help us attract high-level industry talent over time. So to summarize the third quarter results, We are very encouraged by the overall demands we experienced during the third quarter, particularly with respect to system sales. While procedural trends were impacted by a tougher than expected environment that our global customers faced during the quarter, we are pleased to see a strong recovery in procedure trends during the month of September. Our global sales team continues to increase the qualified pipeline of new prospects across the full product portfolio, which gives us confidence in our increased revenue growth expectations for the balance of 2021. Our third quarter leases and systems revenue results, particularly in the U.S., combined with the strong qualified pipeline we are actively managing today, were the primary drivers of the increase in our full year 2021 guidance, which now calls for total revenue in the range of $104 million to $107 million, representing an increase of approximately 33% to 37% year over year. We are confident in our outlook for 2021 based on our belief that we have the right product portfolio and the right commercial strategy which has us extremely well positioned for future success in the near to intermediate term. With that, let me turn the call over to Dominic Della Penna, who will provide a detailed review of our third quarter financial results and discuss our balance sheet and financial condition. Dominic?

Thanks, Dom. Given Dom's detailed review of our revenue results, I will begin with a review of our financial performance across the rest of the P&L. For the avoidance of doubt, unless otherwise noted, my prepared remarks this morning will focus on the company's reported results for the third quarter of 2021 on a GAAP basis, and all growth-related items are on a year-over-year basis. Gross profit increased 3.8 million, or 28%, to 17.3 million. Gross margin was 70.5%, compared to 65.3% of revenue in the third quarter of 2020. The increase in gross margin was primarily driven by higher sales of Venus consumables and improved revenue mix of system sales sold under our subscription program, primarily tracing to Venus Bliss and the discontinuation of our two to five advertising agency services. Total operating expense increased 3.9 million or 21% to 22.7 million. The increase in total operating expenses was driven by an increase of 3.1 million or 55% in sales and marketing expenses and to a lesser extent an increase of 0.7 million or 6% in general and administrative expenses and an increase of 0.1 million or 4% in R&D expenses compared to the third quarter of 2020. Total operating loss increased 0.1 million or 2% to 5.4 million. Net loss attributable to stockholders increased 2.6 million or 35% to $9.8 million. Non-GAAP adjusted EBITDA increased $2.2 million or 155% to $3.5 million. We have provided a full reconciliation of our GAAP net income to adjusted EBITDA in our press release this afternoon. Turning to the balance sheet, as of September 30, 2021, the company had $15.8 million of cash and cash equivalents and total debt obligations of approximately $77.8 million compared to $34.3 million and $79.6 million, respectively, as of December 31, 2020. The change in cash for the three months ended September 30, 2021. was driven primarily by a $7.3 million of cash used in operating and investing activities. We have significantly improved our cash performance during the first nine months of 2021. Our cash used in operations in the first nine months of 2021 declined 33% year over year, driven primarily by a reduction in our net loss and a 36% decline in cash used in working capital compared to the prior year period. Note our use of cash in the working capital line includes proactive investments in recent months to build safety stock of our longer lead time components given the global supply chain issues in 2021. Turning to a review of our guidance. As detailed in our press release this morning, we updated our revenue guidance for the full year 2021 period. The company now expects total revenue for the 12 months ending December 31st, 2021 in the range of $104 million to $107 million, representing an increase of approximately 33% to 37% year over year. While we are not providing formal profitability guidance for full year 2021, we would like to offer the following considerations for modeling purposes. First, given the strong gross margin performance over the first nine months of 2021, we now expect our gross margins to be in the range of 69% to 70% in 2021, compared to 68% to 70% previously. Second, we continue to expect gap operating expenses of approximately $88 million, representing a 26% decrease year over year. Importantly, this represents approximately $94 million of normalized operating expenses in 2021, which excludes certain items that impacted our GAAP operating expenses in 2020 and 2021, including non-cash goodwill impairment, incremental bad debt expense and recoveries, and the non-operating, non-recurring items related to retention, severance, and other legal expenses, which together represented approximately $2.3 million of costs and expenses last year. All of these items were detailed in our non-GAAP adjusted EBITDA reconciliation tables in 2020. Third, we expect our interest expense to be approximately $5 million, given the lower borrowing costs and debt obligations compared to the prior year. Fourth, we expect non-cash DNA of $5 million and non-cash stock comp of approximately $2.5 million. Fifth, we continue to expect our weighted average shares outstanding to be approximately $54 million. With that, operator, we will now open the call to your questions. Operator?

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. We do ask that you limit yourself to one question and one follow-up. If you'd like to ask additional questions, we invite you to add yourself to the queue again by pressing star 1. And our first question will come from Jeffrey Cohen with Ledenberg Thalmann.

Hi, Dom, Dominic, and Rob. How are you?

Hey, good morning. Great, thanks. Hey, how are you?

Just a couple from my end. So firstly, could you discuss the backlog a little bit? So it sounded like 2.4, you were unable to pull through as far as production. and manufacturing, and you picked up 1.4 of that thus far in the fourth quarter. Do you expect the balance to come through by the end of the year, or how does that chain look as far as the manufacturing component side?

Yeah, thanks for the question, Jeff. I think that there's a couple of factors related to this particular topic. Yes, we have in fact filled 1.4. We had a resurgence in some of our legacy items, including our Venus legacy product and Velocity. The majority... of the business that represents that 2.4 came from our distributor network and EMEA, Latin America, and APAC. As we said, 1.4 has been filled. We expect a large portion of the other million outstanding to be captured in Q4, but there will be leakage into Q1 for sure based on our current visibility to our supply chain.

And the leakage is coming from... last quarter or you expect to have further orders in the fourth quarter that also spill into the first quarter?

Yeah, no, I think with our product mix and the improved forecasting of our sales organization under Ross's leadership I think is helping us for sure so we don't find ourselves short of particular SKUs in the quarter. So I think that overall we should be reasonably in good position based on what we know today. and what we've had delivered in terms of finished product. So when I talk about leakage, I'm talking about large orders related to suppliers that, you know, we will fill partial orders to keep them sort of moving forward. And I think sort of balance, if you will, the inventory requirements globally, including North America, where we're seeing very significant increase in our demand for some of our legacy historical products, as I said, the Venus Legacy and Velocity. So some will Some of the million dollars will be dripping into Q1. The number, we don't know exactly yet, but I would say it'll be, say, 50% portion or so into Q1. Got it.

And then secondly, could you clarify the difference between the Fiori and the Freedom? As you talked about, the Fiori is ex-US, Freedom is US. Is there a difference in the technology?

There's absolutely no difference in the technology. It was really more of a pathway for regulatory clearances and creating a separate brand for the U.S. market compared to the specific labeling that we have for Venus Fiore in the CE markets and Health Canada and the rest of the world. But it's exactly the same technology.

Got it. Okay, that does it for me. I'll jump back in queue. Thank you.

Great. Thanks, Jeff. Our next question comes from Marie Thibault with BTIG.

Hi, good morning. Thank you for taking the questions. I did want to just follow up on the international portion of the business and hear a little bit more about excluding some of these supply chain disruptions during the quarter, how the international commercial strategy is progressing. I understand that some markets have been consolidating and you've been focusing on some of the faster-growing markets. So I'd love to hear a little bit about how that progressed during the portal.

Yeah, I mean, that's a great question, Marie. So as you'll recall, at the beginning of the year, we were in the range of 29 direct offices. We've now, as part of our restructuring coming out of COVID, we're down to 18 direct offices, which we think are the best opportunities for us to contain sustained growth. In Q3, really, the growth, it was a blip, I guess, where we had a bit of a deceleration, not because of a demand standpoint. I mean, we had strong demand consistent to what we were seeing in North America, but it was where we could deliver product in order to fulfill the demands of our direct offices. We had to make decisions where we prioritized allocation of technologies, and in our European markets, and our APAC markets in Latin America, essentially our distributors were shortchanged with our product mix and deliveries. Our direct offices continued to perform very nicely through Q3, but we did suffer in aggregate, we did suffer temporarily through our distributor channel.

Okay, that's well understood, Dom. I guess I'll ask a follow-up here then on Fiori Freedom. Sure. When it comes to targeting some of those customers, it's a different call point than we're used to with much of the rest of your portfolio. So I'd like to hear about some of the investments you're making perhaps on the Salesforce side or how you're thinking about targeting those new customers. And thanks for taking the question.

Sure. Thanks, Marie. So that is exactly what we will do with the Venus Freedom and Fiore. It's very similar to what we did with the artist portfolio where we felt that there needs to be a specialized I'll call it a specialized sales organization. With the Venus, with the artist system, we dedicated essentially one expert to every region, which translated into seven in North America. We are doing the same thing with the Venus Fiore and the Venus Freedom. And those experts will understand, will have pedigree in the OBGYN market specifically. And the way we're structuring our business model is, for the OBGYN community will be very attractive and we think will provide us a very significant growth profile for this category in the utilization because historically this space of female wellness and health has been very successful in terms of utilization, in terms of revenue growth. So we think that the fact that we developed a technology specific for a variety of different clinical indications will be well and has been well received globally already with very significant clinical support to validate, I'll call it the six-year journey to get the product to market.

Thank you.

Our next question is from the line of Suraj Kalia with Oppenheimer Company.

Morning, Dom, Dominic, Rob. Can you hear me all right?

Yes, we can. Thank you. Thank you, Suraj.

Perfect. Hey, hope everyone is safe and healthy. Hey, so Dom, Dominic, specifically on the supply issue, right? If you just look at it on a macro level, it ain't going anywhere anytime soon. These are going to persist. So I'm curious, you know, how does the decision matrix look like as you all have supply issues? Is it basically FIFO based or just kind of walk us through in case any of these supply issues emerge again, whether in Q1 or Q4, and how do you all mitigate it?

Right. Look, you're right, Suraj. I mean, I think that every time you open the news, you know, you look at the news, there's some reference to a supply chain issue. I think in our case, what we did was we didn't expect certain demand in key products like the Venus, legacy products like the Venus Legacy. I hate to use that because it's the same word, but Venus Legacy and Velocity We've seen a resurgence in demand, particularly in our OUS markets through our distributor networks. And there's a lot of reasons for that discontinuation of competitor products in key categories like cellulite and even hair removal. And so we were caught a little bit by surprise on that. And we don't, you know, I think we've done a reasonably good job of planning production for all of our products. And we've taken into consideration with additional investment into inventory for long lead time items. So I think that we're managing it reasonably well based on what we know today and going through our anticipated Q4 demand and so on. There's a slight impact, but I think overall, I think we've done a reasonably good job of, I'll call it dodging the bullet, because of some surprises in a few categories. When it comes to FIFO, for example, that's partially true. I mean, I think that what we look at is we consider... you know, where we have our strongest demand, obviously, where we have our best profit, you know, margins potential as well, and where we service our customers directly. And I think that that's one of the reasons why in Q3, our European or OUS business suffered a little bit because we had to make decisions on where we would ship the products that we did have available to us, given this resurgence in a couple of key categories on the Venus historical business. But I think we're doing a pretty decent job right now of managing through that, Suraj. So I don't anticipate that the impact is going to be as dramatic going forward.

Got it. Hey, Dom, maybe you could give us a qualitative aspect of Venus Bliss adoption. And more specifically, I'm interested in the assumptions made for Bliss Max of a 33-week payback versus 20-week or something like that for the BLIS. If you can just kind of walk us through what are your utilization assumptions?

Yeah. So, you know, this is one of those categories where it's not an anecdotal commentary from my part. It's factual on data that we draw from all of our devices that are in the field globally. So we can benchmark regions how they're performing. And consistently since we launched the Bliss, even with a very significant increase in user base, the per store sales have been quite impressive. And so what that means is that on average, a clinic is doing somewhere between five and six fat reduction treatments a week with the current Bliss system. And we don't see any reason why that would be differentiated with the Venus Bliss Max. And currently with the Venus Bliss, about double that in the body contouring. So 5 to 6 on the fat and 5 to 10 or so on the body contouring, which is an element of the total treatment protocol. And that payback period right now, based on the ASP of the device globally and based on what the clinics typically charge for these procedures, whether they're individual costs or bundles, is about 26 weeks. The assumption that we made on the Venus Bliss Max is that by adding a third element, it will be the only platform in the market that will actually have a full body contouring workstation that will not only reduce fat, contour the tissue where the fat was reduced, as well as create muscle definition through our muscle stim device. We think that moving from 26 to 30, 33 weeks is a safe assumption based on our current global trends store for store with the Venus Bliss Max. And the extra six or seven weeks is really taking into consideration the intended or anticipated higher ASP. Additionally, what we will have is, as we said in our prepared remarks, about a $100 charge every time a treatment is being done with the muscle stim portion of the device at a very high margin.

Got it. And final, from my side, Dom, and I'll hop back in queue. Amy, is it supposed to be a 510K or a de novo 510K? Thank you for taking my questions.

It'll be a 510K. We have a strong belief that we'll be able to predicate our own ARTIS device and recent clearances from competitors. We've spoken with the FDA. We have a pretty good understanding of the track that we need to follow, and we're quite encouraged with what we're seeing with that device now that we have... design stop, and we're ready to move forward in our clinical trials, formal clinical trials.

Thank you.

My pleasure.

The next question is from John Block with CIFL.

Thanks, guys. Good morning. Good morning, John. Maybe just to start on ARDIS, I know you mentioned some consumable headwinds year over year, I think more notably in the international markets. Can you just talk about the utilization expectations for that key product line going forward, Dom, and also with what you're willing to say about artist capital sales specific to the quarter? You might not break it down specifically, but what was artist in the quarter as a percent of total revenue? Was it in and around that 25% bogey? I'm guessing just based on some of the commentary, it might have been below. Thanks.

Yeah, John, thanks for the question. So the first part of it on the utilization aspect One of the things that we did end up seeing in early September was when we looked at our utilization trends on our devices, we saw that doctors were going back and actually taking vacations now. This was particularly evident in hair restoration clinics where the procedures tend to be longer. They're not typically delegated. The doctors are involved. I think that doctors finally reached a point where they, hey, I need to take a bit of time off. And so we saw that specifically in August to a greater level. In terms of directionally where we think that the utilization trends will go, we saw a very nice recovery in September, and that's continued into October and November. So we think that that was more of a blip because of the traditionally softer Q3. So in other words, we're heading back into a traditional recovery environment where Q3 historically in our industry has always been the softest quarter. So that happened. In terms of where we see the actual device business, historically what we've said is overall it typically represents about 40% to 45% combined with our Bliss product. That was softer in Q3 on the artist side. So collectively it was closer to 35%. The artist system, there were some delays. In our shipments at the end of the quarter, we had the orders and we had the pipeline. We just couldn't get them shipped for a variety of different reasons. It wasn't supply chain related, but it was just getting proper documentation, credit in place, financing in place, and so on. We were disappointed with the performance of artists in Q3, but we think that based on how we started early in Q4, where some of that slippage from Q3 moved and we closed deals in Q4, early Q4, and the current pipeline, we feel pretty confident we're back on track with the ARDA system.

That's great. That's very helpful, Collar. Thank you. And then maybe just to shift to the pipeline, the clinical trial for Amy, a bunch of good color there, Don. Thanks. It does seem like a little bit of a push on the timeline. What is that correct? And then what's that attributable to? In other words, is it just a function of a little bit more time getting the trial up and running, or are you leaving yourself some more wiggle room in terms of the pace of enrollment?

Yeah, I think there's a little bit of both. I think that to the last part of your question there, you know, we made a strategic decision to change two of the doctors that were going to be involved in our multicenter clinical trial, and it wasn't to knock on the doctors. We just felt that once we started to dig into, hey, can you enroll the patients, can you get them done on the timeline that we want, And do you have, quite frankly, the clinical bandwidth to do this? You know, unfortunately, we discovered that the answer to most of that was no. And at the same time, the inbound inquiries from a variety of different doctors in the dermatology and plastic surgery community gave us high level of confidence that we could significantly improve the exposure that Amy would get post-clinical completion on the podium through peer-reviewed papers, et cetera. So we're quite excited about the I'll call it the level of physicians that have actually presented themselves as options to be clinical sites for this. The second part of it is that supply chain did hurt us a little bit in building four platforms for clinical trials, three for sites, and then one backup. We have one system that's already been built, and we're basically moving it around to get the doctors well-versed and familiar with the device. But ideally, we'd like to have devices that are stationary, and that was a supply chain issue and getting some of the key components on a relatively low level of order for these devices to be able to get the clinical trials done. So there's a little bit of everything, John, but I think overall we feel pretty good about the trajectory of this product and the timelines to getting this product to market in 2022. Well, I'll tell you one thing, and I'll close on this, is that we're starting to see the opportunity that this particular platform has in other clinical indications. So in other words, the platform is being designed to be sort of like an a la carte platform where you'll have essentially an app on the screen and you'll be able to choose various clinical indications through the software algorithm. So that's quite exciting, and I think that's one of the key reasons why the type of doctor that has approached us today to want to participate has been significantly improved.

That's great. And last one for me, I don't know if this is fair game, but Ross, I believe you're on the call. Congratulations on the role. Is there anything to call out? And I know it's early, but at a high level that you think can be done differently, anything in particular that you're very excited about, more or less emphasis on certain product lines? We'd just love to hear, again, if they're game, your initial thoughts on the organization. Thank you.

Ross, would you like to answer that? Ross, are you there? Are you muted? John, I think he's, I think, I'm not sure if he's having problems here with his line. I'll follow up.

All good. Thank you.

Yeah, we'll follow up on the follow-up call, but he'll be on, but I think he's traveling, so I think he may have had a little bit of a problem. Just to be clear, Ross has been with the organization for about five, six months, or five months now, but he started in EMEA, and then we brought him to North America because of the performance of resetting the organization there. But we'll talk about it on the ongoing calls.

It's great. Thanks for the call, guys.

No problem, John.

Our next question is from Anthony Venditti with Maxim Group.

Hey, good morning, Anthony.

Hey, good morning, Dom. How are you?

We're good, thanks. We're good.

So two questions, one on Venus Bliss Max and then one on supply chain. On the Venus Bliss Max, I just want to make sure our I understand the timeline because this looks like a significant potential driver for growth in 2022. I just want to talk about the FDA 510 submission, the exact timing there, the expected clearance, I think you said first quarter 22, and then commercialization in second quarter 22. Am I thinking about the timeline right, or can you just clarify that, please?

Sure. So we filed to the FDA September 30th. We received feedback from the FDA, I guess, about 10 days ago or so for some clarification. We have done that and we'll be resubmitting that shortly in a formal manner. We do anticipate that because of those questions, we got pushed off a little bit, but we anticipate that we'll see an FDA approval early in Q1 whether that's the end of January or mid-February. We do have a production schedule for approximately 15 systems to be available for us in Q1. But ultimately, in full release, we're looking at Q2. So it'll be staggered. Those first 15 units that we will have available to us will be used for populating key strategic partners in terms of KOLs. that we'll be able to do a lot of work very quickly, have a lot of commercial success, hopefully, and be able to articulate that to potential new customers. And so that's why we'll be in full release, if you will, in Q2. Hopefully that answers your question.

Yeah, no, that's great, Collar. That's very helpful. So the 15 systems in 1Q that are going to be available, those will be the KOLs and then full commercial release. Okay, good. And then... Look, every industry is having different supply chain issues. And I'm curious, you know, with the supply chain issues that are out there, whether it's shipping or so forth, you still were able to have a 70% gross margin here in the third quarter, and you're guiding towards 69, 70. So is the supply chain issues more of a timing situation for Venus Concept, or... Are you seeing actual impact on the cost of your goods going forward?

Yeah, so the answer to the second part is we haven't seen a device cost. We have contractual obligations with our suppliers. So from that standpoint, we've been able to protect our gross profit margin profile, especially on our Venus products that historically have been at very high margins, very nice margins. I think to the first part of your question, there have been some challenges with suppliers coming out of COVID. I mean, it's no different than seeing empty stores on the streets of Manhattan or wherever. Some suppliers were not able to come through the chaos, if you will, of 2020. And so we had to, quite frankly, scramble and find alternative sources. And whenever you find alternative sources for key components, there is a process that you need to go through to comply with a variety of requirements, including safety testing, et cetera, et cetera. So it's almost like building a new product when you have to change a component part on a particular platform. So we saw a little bit of that, not in our key growth drivers like the Venus Bliss or the Artist, but rather on some of the other items that, quite frankly, we didn't anticipate were going to have such a meaningful resurgence, and we saw that in Q3. So it left us scrambling a little bit. I mean, on one level, we're extremely encouraged that we have six- and seven-year-old products in our portfolio that are having experienced a somewhat renaissance here, which is great, and it quite frankly validates the quality of the technology and the clinical efficacy and patient acceptance of the product. So we're excited about that. On the other hand, it certainly left us in a situation where we were scrambling for sure.

Okay, great.

Thanks for that, Collin. And lastly, Anthony, just to make sure we're aligned, you know, the margins were helped by the mix, right? I mean, including improved disposable contributions across the Venus Glow, the Venus Viva, Versa, and obviously the artist. And I think that that's going to continue to help improve our margins over the next three to four quarters.

Okay, that's helpful. We also improved or increased our safety stock levels on certain key components such that we secure our Q4. So we're feeling a lot better about the fourth quarter. And that was part of the working capital build in the third quarter was in order to secure that supply because we were pretty tight entering into the third quarter. But we wanted to be able to match that fourth quarter demand, which for us is quite strong. with sufficient inventory. So that explains some of the working capital impact.

Okay, great. Thank you very much.

Our pleasure, Anthony. We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation.