Venus Concept Inc.

Good day, ladies and gentlemen, and welcome to the fourth quarter 2022 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. 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 can cause actual results to differ materially from those indicated, including those identified in the risk factors section of our most recent 10Q 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. 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 may also include references to certain financial measures that are not calculated in accordance with the 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. Rajiv Gosilva, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Rajiv Gosilva, Chief Executive Officer of Venus Concept Thank you, Operator, and welcome everyone to Venus Concept's fourth quarter 2022 Earnings Conference call. I am joined on the call today by our Chief Financial Officer, Dominic Della Penna, and by our President and Chief Innovation and Business Officer, Dr. Hemant Wagees. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a discussion of the key findings from our comprehensive strategic review of the business, which has informed the development of our transformational new strategic plan for the company going forward. Payment will then provide a summary of our new R&D strategy and pipeline priorities for 2023. Then, Dominic will provide you with an in-depth review of our fourth quarter financial results and our balance sheet and financial condition at year-end, as well as a review of our 2023 financial guidance. Following that, I will wrap up and open the call for your questions. With that agenda in mind, let's get started. As you would have seen in our press release issued this morning, in the fourth quarter of 2022, we delivered total revenue of $24.3 million. These results are in line with internal expectations and reflect the early impact of strategic actions taken to transition the company to higher quality cash revenues and an improved cash flow from operations profiles. These strategic actions included a shift to cash sales versus subscription sales and our efforts to improve the long-term profitability profile of our international operations. We will cover these topics in detail later in the call. Importantly, we have now completed our comprehensive strategic review of the company, which included an evaluation of its competitive positioning in the industry, commercial product strategy, R&D and technology strategy, operating model and talent, systems and processes, financial performance, capital structure, and possible partnership opportunities, among other things. I am energized by the findings of our review and excited about the path ahead. My initial impressions were confirmed during the strategic review. Venus Concept is an attractive platform in medical device aesthetics with competitive offerings across all key aesthetic treatment segments, a leadership position in automated hair restoration, and a distinctive R&D platform in robotics. Our customers are passionate about the benefits of Venus Concept's existing technologies, which support the company's nearly $100 million in global annual sales, and the pipeline of robotic platform applications with potential to be truly disruptive in the medical device aesthetics market in the future. Our revenue base is well diversified across our current portfolio of products, with nearly two-thirds of the company's total revenue in 2022 coming from key energy-based medical device aesthetics system sales of Versa, Legacy, Velocity, Bliss, and Bliss Maxx, and the industry-leading minimally invasive robotic hair restoration platform, Artus IX. The business also has a valuable recurring revenue stream from the sale of procedure-based consumables and services. The existing commercialized portfolio of energy-based devices and hair restoration solutions are indeed compelling. They enjoy strong brand recognition, address key unmet needs in the marketplace, and represent important growth drivers for the company going forward as they continue to gain market share in their primary addressable markets, which we estimate to be nearly $1.9 billion annually in the U.S. alone. That said, it is the company's pipeline of new and development-stage technologies that represent the most significant opportunities to transform the company's growth and profitability profile in the years to come. I firmly believe that the robust technology foundation the company has built over the last 10 years is truly impressive and that the potential of our robotics platform is very much underappreciated. Venus Concept has established technology expertise across robotics and multiple modalities of energy-based devices. This technology expertise has led to the development of a diverse range of proprietary and industry-leading offerings. supported by more than 100 U.S. patents and pending applications. We will see more color on the pipeline and our R&D strategy later on this call. Our comprehensive strategic review of the business, which has now been completed, also confirmed the significant challenges in the financial and organizational structure of Venus Concept. The business model had two fundamental differences versus other small-cap medical technology companies, which have contributed to the lack of profitability improvement and cash flow generation to date. First, the significant commercial and operating infrastructure built in markets outside the U.S. over the company's history. And second, the industry-first and highly differentiated subscription model, which enabled the company's growth historically, but at the cost of poor cash flow generations. After our review, I am confident that these challenges can be addressed by a new strategy for the company. Our comprehensive assessment of the business informed the development of a transformational new strategic plan, which we have begun to execute. This new strategic plan has six main pillars. Firstly, right-sizing the business by rationalizing our international infrastructure, reducing cost, and simplifying the organization. Two, reducing reliance on the use of the subscription sales model significantly. Three, focusing on the U.S. as a primary market while maintaining an optimal mix of direct presence and distributors in international markets. Four, maintaining a broad portfolio focus on energy-based devices and robotics but with better customer segmentation and a more robust customer-centric model to support market building. Five, investing in R&D with a primary focus on robotics as the future growth driver with targeted efforts to rejuvenate our energy-based product portfolio and to build a sustainable consumables revenue base to complement device sales. And six, leveraging an improved financial profile to provide a platform for inorganic growth and consolidation through M&A. Let me cover each of these elements briefly. We have already begun to implement the main actions related to rightsizing the company. As a reminder, we announced in early February a restructuring of the company, which has now been fully implemented in North America and Israel. We continue to streamline our operations in international markets. The restructuring focused on simplifying the organization, streamlining infrastructure, targeted business model changes, and reduction of spend not directly related to sales initiatives. As previously disclosed, when completed, we expect these restructuring activities will result in total annual pre-tax savings of $13 to $15 million beginning in 2024. With respect to the subscription model, While clearly innovative and unquestionably effective at driving adoption of Venus Concept's medical aesthetic technologies over the early years, the growth this model enabled came at the expense of heavy working capital investment due to the deferral of valuable cash flows. In addition, the company took on customer credit exposure, which increased due to the impacts of the COVID-19 pandemic and changes in the macro environment over the last few years. To be clear, the subscription model has a place in our go-forward strategy, though with much more stringent qualification requirements. However, we have already shifted the business away from subscription sales to cash sales meaningfully, and we will continue to prioritize cash sales over subscription sales going forward. The US continues to be the largest and most profitable medical device aesthetics market. With our strategic reorientation, the U.S. will be our priority focus. International markets represented between 51% and 57% of total revenue for the 2018 through 2021 fiscal year periods. While these markets continue to be important to the company, we will transition our less profitable markets to rely on distribution partners. This process began in 2022 and will continue in 2023. We believe that divesting our interests in smaller and less profitable international markets and reinvesting those resources in higher opportunity markets like the U.S. represent a key driver of profitability improvement in the future. The Venus product portfolio is distinctive in that it enables the company to compete in a broad array of market subsegments, including face, body, hair removal, and hair restorations. We see the benefit of continuing to serve all these market segments into the future. We will, however, differentiate and segment our product portfolio to better serve the needs of distinct customer segments. In addition, we will seek to better serve our customers in the key segments by utilizing data derived from our devices and by better supporting practice development efforts. We intend to continue to make investments in R&D, Our R&D efforts would be primarily focused on advancing our robotics platform in aesthetics, which we expect to be a key driver of our organic growth going forward. At the same time, we will make targeted investments to upgrade our energy-based device portfolio as well. In addition, we intend to pursue more durable, consumable components as part of our next-generation devices as well. And finally, as we improve our financial profile, we foresee being an ideal platform for bolt-on acquisitions and combinations in this fragmented industry. As we execute this strategy, 2023 is a year of refocusing and repositioning this concept to enhance the cash flow profile of the business and to accelerate the path to long-term, sustainable profitability and growth. I have a strong leadership team in place, with clear responsibilities in support of our five-way strategic plan. And they are all highly engaged, focused on value creation, and ready to lead the organization through this next stage of development. We believe that our newly defined strategic plan positions us to deliver positive cash flow from operations in the second half of 2024 and gap operating profitability and single-digit adjusted EBITDA margins on a full year basis in 2025, driven by prudent expense management, strong contributions to our total revenue growth from robotic system sales, increasing at a 40% CAGR over the next three years, and sustained performance in our energy-based portfolio. This plan will provide the foundation for achieving a long-term revenue CAGR of 10% and double-digit adjusted EBITDA margins. While our path to maximizing multi-year value creation is taking place, we are highly focused on maximizing our capital resources as we work to secure the requisite capital to execute our strategy and meet our near-to-intermediate-term debt obligations. I would now like to turn the call over to Dr. Hemant Wagis for a discussion of how our R&D strategy and pipeline priorities.

Thank you, Rajiv. Venus has a strong history as a developer of high-quality, non-invasive, and minimally invasive treatment devices for the global aesthetic and hair restoration markets. We believe the value proposition underpinning our long-term growth strategy is the strength of our new product pipeline and our leading robotics and energy-based device R&D teams. This dedicated group of scientists and engineers have collectively brought to market over 10 innovative energy-based aesthetic platforms, and now two clinical robotic systems over the past 10 plus years, with unique product offerings targeting treatment solutions for all key customer segments in face, body, hair removal, and hair restoration. As a key part of our new strategic plan, we have dedicated investment to refocus the organization towards continuous innovation, building on our successful portfolio of treatment solutions with key new product introductions and differentiated new advancements for both physician-oriented and medispa-focused markets, highlighting advanced features, connectivity, and customer engagement solutions to drive utilization, better treatment outcomes, and ultimately, enhance ROI to our end customers. Furthermore, our robotics R&D team, located at our Medical Robotics Center of Excellence in San Jose, California, has decades of experience working together and a proven track record of developing proprietary technology in state-of-the-art vision recognition, IoT, artificial intelligence, and mechanical controls, delivering repeatable treatments with predictable outcomes, and they become the true engine for the company's new product development strategy. We've recently announced the introduction of the latest generation of ARTIS iX, which sets a new standard for hair transplantation by leveraging cutting-edge robotics, machine vision, artificial intelligence, and machine learning technologies. This advanced system offers a new level of speed to the implementation process, now allowing the implementation of up to 1,000 grafts per hour, while also improving speed of harvesting, resulting in a procedure that is up to 25% faster. Additional improvements include a new vision system, which improves patient tracking and follicle centering, resulting in better graft quality and enhanced precision. Going forward, this team will be a key catalyst for the future growth in the business, And our new product development strategy will be an essential component to our revenue growth starting 2024 and over the next several years. To do this, and as a key part of the new strategy, we've made a conscious choice to refocus efforts in 2023 with targeted investments to finalize development and bring forward two new systems by mid-2024. One of these new systems will be a brand new body contouring project called Estera. Building on everything we've learned over the last decade in innovative system design and advancing our best-in-class proprietary MP2 technology, this new all-in-one body shaping system will incorporate a full suite of new features and enhancements that will address some of the most pressing concerns we hear from customers around body contour, including skin laxity, cellulite, and muscle training. More to come on this exciting program as we get closer to launch in the first half of 2024. The second is Amy, our next generation aesthetic robotics platform, which received FDA 510 clearance this past December for fractional skin resurfacing. We believe that Amy has the ability to truly revolutionize aesthetic medical treatment paradigms. The Amy robotic system utilizes an advanced visualization system, machine vision, and artificial intelligence algorithms. target the dermis in a pre-planned, selective, and predictable manner. He uses a smart array of micro-coring hollow punches to precisely core and excise micro-skin fractions at precise depths to move up to 10% of the skin in the treatment area, leading to collagen deposition and fractional skin resurfacing of the treated area. AMIE is a first-of-its-kind robotics platform offering physicians minimally invasive treatments for high-demand procedures. We see AMIE as a versatile platform which we will continue to develop to provide innovative solutions in areas of medical aesthetics, starting with fractional skin resurfacing. This new technology may become a real game-changer in the area of medical aesthetics, offering a new level of consistency, predictability, and visualization, which will differentiate it from existing energy-based solutions. These critical advancements showcase Venus Concept's ongoing investment in technology, innovation, and clinical research towards robotics applications in the field of medical aesthetics. The AMI technology will be critical to maximizing the synergy between our well-established medical aesthetics business and our pioneering robotics R&D capability. We're in the process of establishing a medical advisory board of leading physician partners that will support our preparation for full commercial launch of Amy in the second half of 2024. Following the commercial launch of these priority products in 2024, we plan to continue with our commitment to our innovation strategy with several new technologies, systems, and features coming out over the next several years. More to come on this topic in future updates. With that, let me turn the call over to Dominic for a review of our fourth quarter financial results and balance sheet as of December 31st. Dominic?