Venus Concept Inc.

Good day, ladies and gentlemen, and welcome to the fourth 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 the current expectations of management and involve inherent risks and uncertainties that could cause actual results that differ materially from those indicated and including those identified in the risk factors section of our most recent 10-Q and our annual report on Form 10-K to be 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 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 on 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 fourth quarter of 2021 Earnings Conference Call. I'm pleased to be joined today by our Chief Financial Officer, Dominic Della Pena, and our President of Global Sales, Ross Portaro. Let me start with a brief agenda of what we'll be covering today during our prepared remarks. I will start with an overview of our revenue results in the fourth quarter. I will then provide a summary of our operating progress in key areas in recent months. Then Dominic will provide you with a more in-depth review of our quarterly financial results, our balance sheet, and our guidance for the full year 2022, which we introduced in today's press release. Then Ross will provide an update of our commercial priorities and global sales and distribution team update. And then we will open the call for questions. With that overview in mind, let's get started with a review of our fourth quarter revenue performance and our overall business trends. We reported gap revenue of $32.6 million, up 26% year-over-year. The increase of total revenue year-over-year was driven by 42% growth in sales in the U.S. customers and 14% growth in sales to international customers for the period. We are very encouraged by our overall demand trends we experienced during the fourth quarter. Total systems and subscription revenue increased 32% year-over-year, in Q4, and our procedure-related disposable revenue increased 14% year-over-year, excluding the impact of the suspension of our VeroGrafters service during that period. Importantly, our systems and subscription revenue growth was driven by key products we prioritized as part of our commercial strategy we discussed in recent investor calls. We experienced strong adoption of the Venus Bliss in our body franchise and a record quarter for the adoption in our hair restoration franchise. Fourth quarter systems and subscription growth also benefited from strong sales of other aesthetic products, including our Venus Legacy, Versa, Velocity, and EpiLeap products. Our team did a great job working through approximately 1.3 million of backlog during the fourth quarter, and we have fulfilled nearly all of the remaining backlog to date in Q1. With respect to procedure trends in the fourth quarter, Our real-time IoT data gives a strong visibility into 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 in the U.S. The nice recovery in usage trends in September that we discussed in our last call continued in October and November before moderating slightly in December as the Omicron variant impacted practices across the U.S. Outside of the US, we continue to see varying usage trends depending on the region of the world and the respective pace of recovery from the pandemic. Procedure trends for our hair restoration customers in the fourth quarter reflected a quarter-over-quarter improvement as expected. As discussed in our Q3 call, we saw a larger impact from seasonality in Q3 than we'd expected and expected procedure trends to improve in Q4, which ultimately came to fruition. Procedures of our artist systems in North America increased mid-single digits year-over-year and increased mid-teens sequentially. Outside North America, procedures on our artist systems were down year-over-year for the quarter, but increased high teens sequentially, driven primarily by improving procedure trends in EMEA. Now turning to a brief update on operating highlights in the fourth quarter and recent months. Overall, we've made considerable progress in the areas of new product development clearances and commercialization. We received our 510K clearance for the Venus Freedom in October, which expands our portfolio of technologies that can treat a broad range of common women's health conditions. Our limited launch of the Venus Fiori in Canada and the European Union began in 2004, and we are preparing for a limited launch of Venus Freedom in the U.S. during the first half of 2022. Note that we continue to believe that the Fiori and Freedom will be solid contributors to our multi-year growth profile beginning in 2023. We have continued to execute a measured and thoughtful strategy for this differentiated technology. Veena's concept devoted nearly six years to develop this technology in order to create a comprehensive, safe, and effective system that addresses important medical needs and is supported with significant clinical data. We are now focused on investing the requisite time to develop relationships with KOLs and educating potential customers in the OBGYN community on our unique utilization-focused business model, which we believe will make the return on investment of this system very attractive for both OBGYN practices and Venus Concepts. Our efforts to expand the Venus Bliss portfolio of systems and products continues to make progress as well. We received our 510K clearance for the Venus Bliss Max in January and are preparing for our commercial launch in Q2. Venus Bliss Max is a new device that not only includes fat reduction and body contouring capabilities, but also muscle stimulation technology. This device addresses three of the most in-demand body contouring procedures all in one workstation. We expect this new device will have a list price of approximately $229,900 and contributing gross profit margins above company averages. We intend on adding a modest but important utilization fee of approximately $100 per treatment to this device. Importantly, we estimate that the time of return of investment of just 33 weeks, which we expect will be extremely compelling to our clinician customers. Finally, we are proud of material progress we've made in recent months to advance our development, regulatory, and clinical strategy for AIMEE, our non-surgical robotic technology platform for medical aesthetics applications. As indicated in our earnings press release, we are targeting an FDA submission for a general indication for tissue excision and skin resurfacing by March 31st, 2022. This is significantly ahead of our timelines we discussed with the street and is a direct result of our team's strong execution and collaboration engagement with the FDA. We intend to issue a press release to formally notify the investment community of this important submission for regulatory clearances. Where we are not in control of the review and approval process to secure an FDA clearance, our internal timing expectations are based on historical review timelines in MedTech, which we believe gives us the potential for a limited release of AMIE in the fourth quarter of 2022. The prospects for non-surgical robotic technology platform, AIME, are very compelling, and we look forward to introducing this disruptive technology beginning later this year. It is important to remember that the AIME platform is just that, a platform, and it has been designed to support numerous different clinical applications via a unique upgrade path for the clinician, making it extremely cost-effective and differentiated from any products currently available to the aesthetic device market today. In parallel to this process, we are preparing to submit an additional clearance for general indication of tissue excision resurfacing. We have also made progress toward our strategy to secure specific clinical indications for AMI treatments of the face. As discussed on prior calls, we are pursuing an IDE clinical study evaluating the safety and efficacy of using AMI for the treatment of moderate to severe facial wrinkles. This study will support our FDA 510 submission for a specific clinical indication for the treatment of wrinkles on the cheek, which will further expand our annual addressable market opportunity and enhance our long-term growth profile. We have finalized the protocol, trained four clinical investigator sites, and are happy to announce that we've begun enrollment. We expect to have the first patient treatments in the coming weeks, and we intend to notify the investment community via a press release when we achieve this important clinical milestone. With that, let me turn the call over to Dominic Della Pena, who will provide you a detailed review of our fourth quarter financial results and discuss our balance sheet financial condition and our 2022 guidance. Dominic?

Thank you, Don. Given Don'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 will focus on the company's reported results for the fourth quarter of 2021 and on a GAAP basis and all growth related items are on a year over year basis. Gross profit increased 6.1 million or 37% to 22.8 million. Gross margin was 70% compared to 64.7% of revenue in the fourth 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. Total operating expenses were $26.9 million, essentially flat versus the prior year period. The change in total operating expenses was driven by an increase of $3.3 million, or 45%, in sales and marketing expenses, and an increase of $0.5 million, or 32%, in R&D expenses. partially offset by a decrease of 3.9 million or 22% in general and administrative expenses. Total operating loss decreased 6.1 million or 60% to 4.1 million. Net loss attributable to stockholders decreased 10.4 million or 70% to 4.3 million. Non-GAAP adjusted EBITDA loss increased by 0.2 million or 9% to 2.5 million. we have provided a full reconciliation of our GAAP net income to adjusted EBITDA in our press release. Turning to the balance sheet, as of December 31st, 2021, the company had $30.9 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 31st, 2020. Our net change in cash for the fourth quarter of 2021 was $15 million, driven by $15.7 million of cash from financing activities during the period, offset partially by cash used in operating and investing activities in Q4. On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold certain investors an aggregate of $9.8 million shares of our common stock and 3.8 million shares of our convertible preferred stock. The net proceeds from the securities sold in this non-brokered private placement transaction was $16.7 million. Our cash used in operations for the fourth quarter of 2021 was $400,000, reflecting a continuation of the significantly improved cash performance we have discussed throughout 2021. Specifically, for the 12 months ended December 31st, 2021, our cash used in operations was $19.8 million, down 31% year-over-year, driven by a reduction in our net loss and a 33% decline in cash used in working capital compared to the prior year period. Turning to a review of our guidance. As detailed in our press release, we introduced our revenue guidance for the full year 2022 The company expects total revenue for the 12 months ending December 31, 2022 in the range of $126 million to $130 million, representing an increase of approximately 20% to 23% year-over-year, compared to total revenue of $105.6 million for the 12 months ended December 31, 2021. While we are not providing formal profitability guidance for the full year 2022, Our outlook assumes we deliver another year of material profitability improvement, including a target of achieving cash flow positivity in the fourth quarter of 2022. For modeling purposes, we would like to offer the following considerations to help investors understand the underlying assumptions driving our 2022 profitability targets. First, we expect our gross margins to be in the range of 68% to 71%, as we see continued improvement in gross margins driven by mix, but also expect inflationary headwinds to pressure our cost of goods in 2022. Second, we expect continued expense management to drive notable operating leverage in 2022. Specifically, we expect gap operating expenses in the range of $98 million to $101 million, representing growth of 10% to 13% year over year, compared to our total revenue growth range of 20% to 23% this year. Third, we expect our interest expense to be approximately $4 million, and we expect non-cash DNA of $4.5 million and non-cash stock compensation of approximately $2.4 million. Fourth, we continue to expect our weighted average shares outstanding to be approximately $64 million. And finally, while it is not our practice to provide quarterly guidance, given that we are reporting in the last week of the first fiscal quarter of 2022, we thought it would be helpful to share our range of expectations for total revenue. As such, our full year 2022 revenue guidance includes the assumption that first quarter total revenue will be in the range of $26.5 million to $27.5 million, up 17% to 22% year over year. And now I'll turn the call back to Dom. Thanks, Dominic.