Venus Concept Inc.

Good day, ladies and gentlemen. Welcome to the second quarter 2023 earnings conference call for Venus Concept. At this time, all participants have been placed in a listen-only mode. Please note that this conference call is being recorded, and 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 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 will also include references to certain financial measures that are not calculated in accordance with general accepted accounting principles, or GAAP. We generally refer to those as non-GAAP financial measures. Reconciliation 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. Rahiv Delsilvia, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Thank you, operator, and welcome everyone to Venus Concept's Second Quarter 2023 Earnings Conference Call. I am joined on the call today by our Chief Financial Officer, Dominic Della Pena, and by our President and Chief Innovation and Business Officer, Dr. Hemant Wagis. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief overview of our Q2 results and notable operating developments in recent months. Hemant will share an update on our recent progress in our restructuring programs, R&D priorities, and new product pipeline progress, as well as our recently announced formation of a medical advisory board. Dominic will then provide you with an in-depth review of our second quarter financial results and our balance sheet and financial condition at quarter end, as well as a review of our 2023 financial guidance, which we reaffirmed in today's press release. Then we will 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 today, in the second quarter of 2023, we delivered total revenue of 20.1 million. These results are within the range of expectations we provided on our Q1 earnings call. Our second quarter revenue results reflect notable declines versus the prior year as expected. Similar to what we discussed on our Q1 call, the year-over-year revenue decline is a direct result of the strategic initiatives we are executing this year. Specifically, we are transitioning the company to higher quality revenues, exiting unprofitable direct operations in certain international markets, and implementing a series of restructuring activities which together are expected to enhance the cash flow profile of the business and to accelerate the path to long-term sustainable profitability and growth. Our results in Q2 point to continued progress towards these key strategic initiatives that we outlined earlier this year. First, we are pleased to report that cash system sales represented 74% of total system sales and subscription sales compared to 49% in the prior year period. Our progress towards this initiative is even more evident when looking at the mix of cash system sales in the U.S., which represented 82% of total U.S. systems and subscription sales in Q2 compared to 36% in the prior year period. Cash system sales to U.S. customers increased 55% year-over-year in Q2 And as expected, this growth fueled significant improvements in our cash generation given the higher quality of revenue cash system sales represent. Second, our restructuring activities continue to progress. We are right-sizing the business, reducing costs, and simplifying the organization. We delivered a 25% reduction in our non-GAAP operating expenses representing a reduction of $6.5 million year-over-year. Our progress in each of these areas in Q2 drove a 71 percent reduction in cash used in operations on a year-over-year basis and a 64 percent reduction in cash used in operations on a quarter-over-quarter basis. We believe this represents the clearest evidence that we are on the right track towards our goal of enhancing the cash flow profile of the business and accelerating the path to long-term, sustainable profitability and growth. We are particularly pleased with our performance in light of a very difficult financing environment for our end customers. This is even more relevant considering our shift from subscription revenues to higher quality cash system sales that rely on third-party financing for our customers. In addition, the inflationary economy has impacted higher price procedures such as those related to our hair business. There are two other items I wanted to briefly discuss. First, we remain highly focused on maximizing our capital resources as we work to manage our near to intermediate term debt obligations and to further enhance the company's foundation for achieving our longer term goals. As outlined on our recent calls, our strategic plan originally targeted a reduction in the company's cost structure by a total annual pre-tax savings of $13 to $15 million beginning in 2024 and achieving cash flow breakeven in the second half of 2024. We're evaluating a series of incremental initiatives to continue our path to cash flow breakeven in the second half of 2024 without impacting our 2023 objectives. We are also actively engaged in discussions with key lenders to ensure the requisite runway that allows us to execute a strategic plan and successfully achieve cash flow breakeven next year. We are appreciative of the constructive relationship that we have with our primary lenders. Second, we developed a plan for regaining NASDAQ continued listing compliance, which is approved by the exchange. NASDAQ provided us with an extension of the compliance period through November of 2023. I would now like to turn the call over to Dr. Hemant Wagees, who will share an update on recent progress in our restructuring programs, R&D investments, and new product pipeline initiatives, including a recently announced formation of a medical advisory board. Hemant. Thanks, Rajiv.

As Rajiv described earlier, we've already made considerable progress against several key initiatives of our corporate turnaround strategy. On balance, we believe we are executing the strategic plan we outlined at the start of the year on or ahead of expectations. Let me share a little color in key areas where we're making notable progress. First, our cost reduction and cash management initiatives designed to accelerate our path to cash flow break-even are progressing at or ahead of expectations. It is a credit to the hard work and dedication of the entire Venus concept organization who've all greatly contributed to improving business performance. In addition, during Q2, we made the decision to target additional cost containment initiatives, including identifying areas where we can implement phased R&D investments to protect cash runway and accelerate our path to cash flow breakeven. Second, recognizing the challenging environment that many of our customers are facing, we've taken proactive steps to stay responsive to market headwinds and are implementing plans in the US and internationally to provide greater commercial momentum as we move through the balance of 2023. We have initiated several targeted programs to provide more operational flexibility to our commercial teams, including new financial tools and transaction support needed to provide an enhanced level of customer and deal support. We believe that these measures will enhance overall sales productivity while improving our ability to respond to an evolving market conditions. In the US, We're streamlining our internal financing processes, expanding our capacity to perform onsite demos, introducing new sales promotions and incentive programs, as well as enhancing our level of technical service commitments to our customers. Outside the U.S., our efforts to right-size the business are progressing well. We are rationalizing our international infrastructure, reducing costs, and simplifying the organization with a keen focus on establishing the optimal mix of direct presence and distribution partners in key international markets around the world. Third, as mentioned earlier, while refocusing our R&D efforts has resulted in phasing of some project spend to better manage cash burn, we've also been able to leverage our broad portfolio of technology and IP to advance certain new product pipeline projects ahead of expectations. Specifically, we now expect FDA 510 clearance in the third quarter and initial commercial introduction in the fourth quarter of a new medical device aesthetic system, the Versapro. The Versapro is the next generation version of the Venus Versa, one of the company's flagship products with more than 2,500 systems sold globally since introduction. The Versapro is our second generation Versa that leverages our novel MP squared, IPL, and nano fractional RF technology that treats color, texture, and tightening for the face and body with a choice of 10 hand pieces. We're adding the advances that have been made with VivaMD to provide higher power and deeper skin penetration for optimal results. We see this as an important near-term growth opportunity for new customers and an attractive upgrade opportunity for existing customers. We're proud of the R&D team's strong execution and commitment to our goals, which resulted in an accelerated product development process. The team has us poised for an exciting new product introduction in the fourth quarter of 2023 ahead of our original timeline. Our new product pipeline continues to progress favorably in terms of what we expect in 2024 as well. Specifically, we are on an accelerated plan for the commercial introduction of our next body system in the first half of 2024. And importantly, we are encouraged by the continued progress we are making in support of our target for commercial introduction of the Amy our next generation aesthetic robotics platform in the second half of 2024. As announced last month, we are very excited to have established our new medical advisory board for Amy. We are fortunate to have attracted the support of an industry leading group of physicians to help us realize Amy's full potential clinically. We look forward to engaging with this group to initiate a series of clinical studies over the next several months. These studies are designed to inform our AMI aesthetic robotics product development and clinical strategy, ensuring we continue to meet the evolving needs of patients and providers with advanced technologies and strong clinical impact. Our first three AMI systems for clinical use have been built and will be shipped to kick off initial study activities in Q3. It is important to note that we expect the commercial launch of AMI to be consistent with the 510K clearance we received in December of 2022. No further FDA clearances are required to support the commercial launch planned for H2 2024. With that, let me turn the call over to Dominic for a review of our second quarter financial results and balance sheet as of June 30th.