Venus Concept Inc.

Q1 2023 Earnings Conference Call

5/15/2023

spk04: and our pioneering robotics R&D capability. We are in the final process of establishing a medical advisory board of leading physician partners that will support our preparation for full commercial launch. At this time, and in response to a difficult financing environment, we're also focused on accelerating our plan to bring the business to cash flow break-even and sustaining operations, thereby providing both financial security and investment flexibility for our long-term growth. As such, we have evolved our thinking on the scope of concurrent R&D programs that we can fully support and are exploring options to phase some of our R&D investment in energy-based devices and robotics programs to better stabilize core business performance and profitability before further leveraging the business with an expanded R&D program strategy. We remain very excited by the option value provided by our current R&D programs and will continue to explore opportunities to expand our capacity for growth investment. In addition, we're actively engaging in R&D partnering discussions with potential parties interested in leveraging our robotics and artificial intelligence team and development expertise for a range of exciting new programs, potentially providing a valuable source of non-dilutive growth funding. We look forward to sharing more updates on our progress in future calls. With that, let me turn the call over to Dominic for a review of our first quarter financial results balance sheet as of March 31st. Dominic?
spk01: Thanks, Hayman. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the first quarter of 2023 on a GAAP basis, and all growth-related items are on a year-over-year basis. We reported GAAP revenue of $20.5 million, down 22% year-over-year. The decrease in total revenue by region was driven by a 26% decrease year-over-year in international revenue, and an 18% decrease year over year in United States revenue. The decrease in total revenue by product category was driven by a 40% decrease in lease revenue, a 7% decrease in systems revenue, a 16% decrease in products revenue, offset partially by a 24% increase in services revenue. Turning to a review of our first quarter financial results across the rest of the P&L, Gross profit decreased 4.1 million or 23% to 13.7 million. The change in gross profit was driven primarily by the year-over-year decline in revenue in the United States and international markets driven by the strategic decision to focus on quality of revenue by de-emphasizing subscription sales and exiting and or right-sizing unprofitable direct markets. Gross margin was 66.7% compared to 67.3% of revenue in the first quarter of 2022. The change in gross margin was primarily due to a 0.4 million foreign exchange headwind as a result of most currencies depreciating relative to the US dollar. Adjusting for these factors, our gross margins are slightly above the prior year period. Total operating expenses decreased $3.3 million or 13% to $21.9 million. The change in total operating expenses was driven by a decrease of $3.1 million or 28% in sales and marketing expenses and a decrease of $0.3 million or 3% in general and administrative expenses. First quarter of 2023 GAAP general and administrative expenses include costs related to restructuring activities designed to improve the company's operations and cost structure. Excluding the costs related to restructuring activities, our non-GAAP operating expenses declined 4.3 million or 17% year over year. The total operating loss was 8.2 million compared to $7.4 million in the first quarter of 2022. Net interest and other expenses were $1.2 million compared to $0.9 million in the first quarter of 2022. Other expenses in the first quarter of 2023 include $77,000 of loss on disposal of subsidiaries related to a write-down of a balance owing from the prior sale of our Venus Russia subsidiary. Net loss attributable to stockholders for the first quarter of 2023 was $9.6 million or $1.85 per share compared to $8.6 million or $2.02 per share for the first quarter of 2022. Note, our net loss per share calculations in the current and prior year periods reflect the 1 to 15 reverse stock split. Adjusted EBITDA loss for the first quarter of 2023 was $5.7 million compared to $5.9 million for the first quarter of 2022. As a reminder, we have provided a full reconciliation of our gap net loss to adjusted EBITDA loss in our earnings press release. As of March 31st, 2023, the company had cash and cash equivalents of $6.4 million and total debt obligations of approximately $77.8 million compared to $11.6 million and $77.7 million, respectively, as of December 31st, 2022. Cash used in operations for the three months ended March 31st was $5.9 million and a 53% decrease in cash use year over year. The improvement in cash used in operations was driven by our restructuring plan efforts, improvements in working capital, and the benefits to our cash flow generation as a result of our initiative to focus on cash system sales, including a significant reduction in bad debt expense tracing to tighten credit screening practices in an otherwise challenged credit market. Cash used in operating and investing activities during the first quarter of 2023 was partially offset by $0.8 million of cash from financing activities in the period driven by proceeds from the issuance and sale of common stock pursuant to our equity purchase agreement with Lincoln Park Capital. Turning to a review of our guidance, as detailed in our press release, we reaffirmed our revenue guidance for the full year 2023 period. the company continues to expect total revenue for the 12 months ending December 31st, 2023 in the range of $90 million to $95 million, representing a decrease in the range of approximately 9.5% to 4.5% year-over-year. While we are not providing formal profitability guidance for the full year 2023, we are providing the following modeling considerations for use in evaluating our outlook for 2023. First, the 9.5% decline in revenue at the low end of our full-year guidance range continues to assume total revenue growth in the second half of 2023, offset by year-over-year declines in revenue in the first half of 2023 as we complete the transition to quality of revenues. We expect cash system sales to represent more than 70% of total subscription and system sales for full year 2023 compared to approximately 58% for full year 2022. This revenue mix shift is expected to result in a decline in lease revenue of approximately $16 million, offset partially by the expected growth in sales of cash systems which we expect will increase in the high teens year over year. Despite the expected net decline in total subscription and systems revenue, we expect an improvement in cash generation. Our total revenue guidance for 2023 also reflects approximately $8 million of year over year revenue impact related to the aforementioned strategic changes we are implementing in our international business this year. Excluding the impacts from prioritizing cash system sales and the strategic changes in certain international markets this year, we believe our total revenue growth would be 15% year over year on a normalized basis. Second, our full year 2023 revenue guidance includes the assumption that our second quarter total revenue will be in the range of 20 million to 22 million. Third, At the low end of our full year 2023 revenue range, we continue to expect relatively flat gross margins. Based on better than expected expense performance in Q1, we now expect GAAP operating expenses in the range of approximately $89 to $91 million compared to our prior guidance of $91 to $93 million. Note this updated GAAP operating expense guidance range includes approximately $1.8 million of restructuring severance and other non-operating expenses. The updated GAAP operating expense guidance range also includes approximately $9 million of non-cash expenses compared to approximately $10 million in our prior guidance range with the largest driver of change coming from better than expected bad debt expense. Excluding the aforementioned non-operating items and non-cash expenses, We now expect our cash operating expense target is approximately $78 to $80 million for 2023, down $2 million from our prior guidance range. This cash expense target reflects a reduction of $6 to $8 million, or 7 to 9% year-over-year, driven by the initial benefits from the restructuring activities announced in our press release in early February offset partially by strategic investments and R&D initiatives. Fourth, we continue to expect interest expense of approximately $6 million. And finally, our total revenue guidance for 2023 and our supporting modeling assumptions across the P&L are now expected to result in a reduction in our cash use from operations of more than 40% year over year. With that, operator, we will now open the call to your questions. Operator?
spk02: 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. One moment, please while we pull for questions. Thank you. And our first question will come from Jeff Cohen with Lattenburg. Please proceed with your question.
spk03: Hey, this is actually Destiny on for Jeff. Thank you for taking our questions. Just a few quick ones here. Can you talk a bit more about some of the drivers that you saw that resulted in the higher demand in the U.S. that you commented on at the beginning of the call?
spk00: Yes. Hi, Destiny. This is Rajeev. Thank you for the question. You know, it's really a high demand versus expectation. As you can imagine, we have a lot of moving parts with our transformation strategy, a primary one being the push for higher cash system sales, right? So, you know, what we found was that we were more successful than we had previously anticipated in the U.S., and you saw from our results our cash versus subscription ratio in the U.S. was higher than expected. So that was the driver of our success.
spk03: Got it. Okay, thank you. And then I also heard you mention some potential M&A efforts there. What does that look like and what kind of partner acquisition, et cetera, are you kind of evaluating at the moment? At a high level, of course. I know you can't give too much detail.
spk00: Sure. Yeah, just to be clear, I think that's a forward-looking aspiration that we have as we as we continue the transformation effort. So realistic right now, our priorities for 2023 are to reset the business, right? And I think we are really encouraged by the early results we're having. Now, the one element of business development that is high on our minds is partnering, particularly around our R&D program. So that's likely what you're going to see from us, not large-scale M&A. Now, that being said, we're a public company. We're always open-minded. if ideas come our way, but that's not something that we foresee in the very near term unless some great opportunities present themselves.
spk03: Okay, got it. So more partnering in the R&D area. Okay, I'm clear. And then last one for us, the development status of what you call the estera. Can you talk a little bit more about where it is in the development and clinical pipeline? In terms of timing, you mentioned 2024, and I'm wondering if you can give a little more granularity on timing, like maybe first half, second half.
spk00: You know, I'm going to have Hemant give you his perspective. I think one of the – we, of course, remain very excited about both Astera as well as Amy. Both are in a planning phase, and one of the things that we're trying to work through is the phasing of our investment in both of these projects, so there is still some uncertainty in terms of exactly what the timing looks like, but certainly we do stay and remain committed to both programs. Hemant, anything to add to that?
spk04: No, I think you largely said it. We'll be able to provide more information as we go along, but as Rajiv said, both are still in planning phase and coming along very well. We both see them in 24. Can't give more guidance on timing of when that could occur, but they are moving along well in the development processes.
spk00: And we expect to be able to provide another update on our next earnings call on this topic.
spk03: Okay, excellent. Then I'll just hang on until the next call. Thank you very much for taking our questions. I'll jump back in queue.
spk00: Great. Thank you, Destiny.
spk02: Thank you. As a reminder, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. We are currently showing no remaining questions in queue, and that does conclude our conference for today. Thank you for your participation, and have a wonderful day.
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