Venus Concept Inc. (NASDAQ:VERO), a global medical aesthetic technology leader, reported its first-quarter 2024 earnings with mixed results. While the company experienced a 15% year-over-year decline in total revenue, amounting to $17.5 million, it surpassed revenue expectations. This dip was partially offset by a 30% sequential increase in international revenue and a focus on cash system sales, which accounted for 75% of the total systems sales.
Venus Concept is also reporting early success in its strategic initiatives, including exiting unprofitable markets and reducing operating expenses. Despite these efforts, the company faced a net loss of $9.8 million. Still, it successfully reduced cash used in operations by 51% year-over-year and ended the quarter with $5.1 million in cash and cash equivalents.
Key Takeaways
- Venus Concept's total revenue reached $17.5 million, down 15% year-over-year, but exceeded expectations.
- International revenue grew more than 30% sequentially, driven by strong ARTAS system sales and new distribution partners.
- Cash system sales represented a significant portion of revenue, while lease revenue decreased.
- Operating expenses and cash used in operations both saw a significant decrease.
- The company is actively restructuring debt and has secured bridge financing.
- Net loss for stockholders stood at $9.8 million, with total debt obligations at approximately $76.7 million.
Company Outlook
- Venus Concept anticipates at least $16.5 million in total revenue for Q2 2024.
- The company is engaging with lenders and investors to evaluate strategic alternatives.
- A continued focus on working capital management is expected, with plans to accelerate collections and improve inventory management.
Bearish Highlights
- The U.S. market remains challenging for the company's hair business due to high device costs and limited financing options.
- There was a decrease in lease revenue, product systems revenue, and products other revenue.
Bullish Highlights
- Growth in cash system sales in both the U.S. and international markets.
- Successful strategic initiatives to exit unprofitable direct markets outside the U.S.
- Improvement in international hair business sales, particularly in Australia and Israel.
Misses
- A net loss of $9.8 million was reported for the quarter.
- Gross profit and total operating expenses decreased due to lower revenue.
Q&A highlights
- The company discussed efforts to improve inventory management and working capital.
- A robust sales and operations planning program is being implemented.
- Madryn owns the entirety of the company's debt stack, including a $2 million convertible note with EW.
Venus Concept's first quarter of 2024 reflects a company in transition, with a strategic refocus on profitable markets and cost reduction measures beginning to show promise. The company's ability to exceed revenue expectations despite a challenging market environment signals a potentially positive trajectory, provided it can continue to manage expenses and navigate its debt obligations effectively.
The focus on cash system sales and international growth, especially in Australia and Israel, suggests a strategic pivot that may offer a buffer against the headwinds in the U.S. market. As Venus Concept continues to engage with financial partners and refine its operational strategy, investors and stakeholders will be watching closely for signs of sustainable improvement in the quarters to come.
InvestingPro Insights
Venus Concept Inc. (VERO) faces a challenging financial landscape as it navigates through a period of strategic transition. Key insights from InvestingPro highlight the company's precarious position:
InvestingPro Data indicates a market capitalization of $4.11 million, reflecting the company's relatively small size in the medical aesthetic technology sector. The revenue for the last twelve months as of Q4 2023 stands at $76.35 million, yet the company has experienced a decline in revenue growth by 23.26% during the same period. This contraction is echoed in the quarterly figures, with a -25.34% change, underscoring the financial difficulties Venus Concept is facing.
Two critical InvestingPro Tips for Venus Concept include the company's significant debt burden and the rapid rate at which it is burning through cash. These factors are pivotal as they directly impact the company's ability to sustain operations and invest in growth opportunities. Moreover, analysts do not anticipate Venus Concept will be profitable this year, which may further strain its financial resources and affect investor confidence.
For readers interested in a deeper analysis, there are 11 additional InvestingPro Tips available, providing a comprehensive overview of Venus Concept's financial health and market performance. These tips can be accessed at https://www.investing.com/pro/VERO, offering valuable insights for those considering investment decisions.
To facilitate a more informed investment strategy, users can take advantage of a special offer using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
As Venus Concept strives to improve its financial standing, these InvestingPro insights provide a crucial context for understanding the company's current market position and future prospects.
Full transcript - Venus Concept Inc (VERO) Q1 2024:
Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2024 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 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 10-Q 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 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 De Silva, Chief Executive Officer of Venus Concept. Please go ahead, sir.
Rajiv De Silva: Thank you, operator, and welcome everyone to Venus Concept's first quarter 2024 earnings conference call. I'm joined on the call today by our Chief Financial Officer, Domenic Della Penna and by our President and Chief Operating Officer, Dr. Hemanth Varghese. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief review of our Q1 2024 results and notable operating developments in the recent months. Then Hemanth will share an update on our progress in key several key operating areas. Domenic will then provide you with an in-depth review of our first quarter financial results and our balance sheet and financial condition at quarter end as well as a review of our Q2 2024 revenue outlook outlined in today's press release. Then we will open the call for your questions. With that agenda in mind, let's get started. As detailed in our press release issued today, we are pleased to deliver revenue for Q1 2024 that exceeded the expectations we outlined in our fourth quarter earnings report. While our revenue results reflect a decline of 15% on a year-over-year basis, we are encouraged by the underlying trends we are seeing in the business to start 2024. While the business continues to be impacted by macroeconomic headwinds, which are pressuring the aesthetic sector as a whole, we were pleased to deliver growth in cash system sales on a quarter-over-quarter basis in both the US and International markets in the first quarter. Notably, we are seeing early indications that our strategic initiatives to exit unprofitable direct markets outside the US are bearing fruit. International revenue increased more than 30% sequentially in the first quarter, driven by strong initial demand from new distribution partners added in late 2023 and stronger-than-expected ARTAS system sales in the period. As discussed in recent calls, the challenging macroeconomic environment and tighter credit markets have impacted systems adoption throughout our business in recent quarters. The hair restoration business, in particular, has experienced notable increases in time to close systems deals given the higher ASP associated with this robotic capital equipment purchases. We remain cautiously optimistic that the operating environment will show improvement as we move through 2024. That said, we are encouraged by the continued evidence that our efforts to reposition the business and to focus on key strategic and operational initiatives are well founded. We are pleased to report that cash system sales represented 75% of total systems, subscription and lease program sales in the first quarter compared to 66% in the prior year period. Notably, global cash system sales increased more than 20% on a quarter-over-quarter basis in Q1, with particular strength in markets outside of the US, which posted cash systems growth compared to the prior year -- to the prior quarter and prior year periods. By way of reminder, one of our key strategic priorities in 2023 was to optimize our commercial and operational strategy in certain international markets and to reinvest those resources in higher opportunity markets to enhance the company's longer-term growth and profitability profile. We continue to execute towards our goal of having our new distribution partners identified, signed up and ordering in the majority of our key international markets in early 2024. We were pleased to see solid initial demand from these new distributors and continue to believe we are well positioned for profitable growth in these key markets in 2024. Importantly, our first quarter financial results support our belief that the key elements of our transformational strategy, cost reductions, prioritizing cash system sales and restructuring initiatives in the US and international markets are enhancing the cash flow profile of the business. We delivered a double-digit decrease in operating expenses in Q1 and generated 3.5 times more cash from working capital compared to the first quarter of 2023, which together helped drive a 51% reduction in cash used in operations year-over-year. We continue to believe that our expense and cash flow performance 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. Before I turn the call over to Hemanth, I wanted to highlight multiple important developments subsequent to quarter end. Specifically, the company announced multiple transactions reflecting material progress towards the company's strategic initiatives to restructure our debt obligations and secure bridge financing. On April 23rd, 2024, one of the company's largest lenders and investors, Madryn Asset Management purchased its Main Street Lending Program Loan or MSLP Loan from the City National Bank of Florida for an undisclosed amount. As of December 31, 2023, the MSLP Loan had an outstanding balance of $51.3 million. Following the close of the MSLP Loan program, the company and Madryn entered into a loan and security agreement for an aggregate principal amount of up to $5 million in debt financing to support near-term liquidity requirements. We appreciate the support and partnership from City National Bank since we entered into the loan agreement in December 2020. We're also very pleased that Madryn has demonstrated further commitment to the company's longer-term prospects with these transactions. We look forward to their continued support as we work towards our goal of returning to growth and sustained profitability in the future. I would now like to turn the call over to Dr. Hemanth Varghese, who will share an update on recent progress in our restructuring programs and our commercial product development and regulatory initiatives. Hemanth?
Hemanth Varghese: Thanks, Rajiv. As discussed on our last earnings call, we've made considerable progress against several key initiatives of our corporate turnaround strategy. Let me share a little color in areas where we're making notable progress. First, our cost reduction and cash management initiatives continue to progress well. Our focus on protecting our near-term cash runway has been productive and the targeted incremental cost containment initiatives implemented in the second half of 2023 have further enhanced our ability to execute on our high-priority strategic initiatives while still preserving liquidity. Second, as Rajiv mentioned earlier, our efforts to rationalize our international infrastructure, reduce costs and simplify the organization continues to progress. We continue to engage with both existing and several new distribution partners to align with our new international strategy and we are pleased to see the initial demand from two new exclusive partnerships we announced in December in the United Kingdom and in India. We are tracking towards our goal of finalizing terms with additional new distribution agreements, which we intend to announce publicly upon completion and remain on track to be substantially completed with our international repositioning in the coming months and ready to return to growth outside the US in 2024. Third, our efforts to advance certain new product pipeline projects, secure regulatory clearances and execute initial commercial launches are tracking favorably in early 2024. The US commercial launch of our new multi-application platform, the Venus Versa Pro, is going well, and feedback from customers is very positive. We launched in the EU, in the first quarter, and we were pleased to receive TGA clearance in Australia on April 3rd. We were also pleased to announce regulatory approval for the Venus Bliss MAX on April 8th from the State of Israel Ministry of Health. Fourth, we are pleased with the positive early response from our company-wide rebranding initiative, Venus AI and encouraging feedback from participants in our NEXThetics program recently hosted in March. By way of reminder, NEXThetics is a new series of customer education and training events launched under our Venus AI rebrand. The NEXThetics program represents a great example of how we are enhancing our focus on physician education, practice enhancement by empowering professionals in the aesthetics field with the knowledge, tools and support they need to grow their businesses. Finally, we had some great success in this past quarter in expanding our commercial strategy to target corporate accounts. We secured a recent win with a fast-growing multicenter account which contributed solid system demand for Venus Viva and more importantly will deliver attractive recurring revenue from ongoing procedure-related demand for Viva tips. More details to follow. With that, let me turn the call over to Domenic for a review of our first quarter financial results and balance sheet at quarter end. Domenic?
Domenic Della Penna: Thanks, Hemanth. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the first quarter of 2024 on a GAAP basis and all growth-related items are on a year-over-year basis. We reported total revenue of $17.5 million, down $3.1 million or 15% year-over-year. The decrease in total revenue by region was driven by a 15% decrease year-over-year in US revenue and a 14% decrease year-over-year in international revenue. The decrease in revenue is primarily attributed to general macroeconomic headwinds that impacted customer access to capital and the effects of tighter third-party lending practices, which negatively impacted capital equipment sales. International revenue results were also impacted by the company's strategic initiatives related to exiting unprofitable direct markets in 2023. The decrease in total revenue by product category was driven by a 39% decrease in lease revenue, a 5% decrease in products systems revenue, a 13% decrease in products other revenue, partially offset by a 13% increase in services revenue. The percentage of total systems revenue derived from the company's subscription model and lease program sales was approximately 25% in the first quarter of 2024 compared to 34% in the prior year period and 41% in the fourth quarter of 2023 as evidence of the continued progress in focusing on cash sales. Turning to a review of our first quarter financial results across the rest of the P&L. Gross profit decreased $2.1 million or 15% to $11.6 million. The change in gross profit was primarily due to a decrease in revenue in our international markets driven by the accelerated exit from unprofitable direct markets. Gross margin was 66.6% of revenue compared to 66.7% of revenue for the first quarter of 2023. Total operating expenses decreased $2.4 million or 11% to $19.4 million. The change in total operating expenses was driven primarily by a decrease of $0.9 million or 8% in general and administrative expenses, a decrease of $0.9 million or 32% in research and development expenses, a decrease of $0.7 million or 8% in selling and marketing expenses. First quarter of 2024, GAAP general and administrative expenses include approximately $0.9 million of costs related to restructuring activities designed to improve the company's operations and cost structure and approximately $0.4 million of expenses related to the Canada Revenue Agency for denial of Canada Emergency Wage Subsidy Claims filed by the company for certain periods between 2020 and 2021. The total operating loss was $7.8 million, compared to operating loss of $8.2 million for the first quarter of 2023. Net interest and other expenses were $2 million compared to $1.2 million in the first quarter of 2023. The year-over-year change in net interest and other expenses was driven primarily by an increase in noncash foreign exchange loss of $0.3 million compared to a noncash gain of $0.3 million in the prior year period. Net loss attributable to stockholders for the first quarter of 2024 was $9.8 million or $1.68 per share compared to a net loss of $9.7 million or $1.84 per share for the first quarter of 2023. Adjusted EBITDA loss for the first quarter of 2024 improved 11% year-over-year to $5.1 million compared to adjusted EBITDA loss of $5.7 million for the first quarter of 2023. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release. Turning to the balance sheet. As of March 31st, 2024, the company had cash and cash equivalents of $5.1 million and total debt obligations of approximately $76.7 million compared to $5.4 million and $74.9 million, respectively, as of December 31st, 2023. Cash used in operations for the three months ended March 31st was $2.9 million, a 51% decrease in cash used year-over-year. The year-over-year decrease in cash used in operations was driven primarily by strong working capital performance with more than $4.7 million of cash generated from working capital in the period. The improvement in working capital conversion is primarily related to our strategy to shift the mix of sales to cash versus subscription and lease program sales. Cash used in operating and investing activities during the first quarter of 2024 was partially offset by $2.6 million of cash from financing activities in the period, driven primarily by the net proceeds of $1.6 million from a note purchase agreement with EW Investors on January 18th, 2024, and the net proceeds of $977,000 from the sale of 817,748 shares of the company's common stock at a price of $1.46 per share through a registered direct offering on February 22nd, 2024. Turning to a review of our financial outlook for 2024. As outlined in our press release, given the company's active dialogue with existing lenders and investors and the ongoing evaluation of strategic alternatives with various interested parties to maximize shareholder value. The company is not providing full year 2024 financial guidance at this time. For modeling purposes, the company expects total revenue for the three months ending June 30th, 2024 of at least $16.5 million. With that, I'll turn the call over to the operator to open the call for your questions. Operator?
Operator: Thank you. [Operator Instructions]Our first question comes from Marie Thibault with BTIG. Please proceed with your question.
Marie Thibault: Hi. Good morning. Thanks for taking the question. Maybe I'll start here. I would love to hear just a review of what you felt went better than expected in Q1 and a little bit more on assumptions for your guidance for Q2. You gave us that at least $16.5 million floor. I would like to hear what's baked into that.
Rajiv De Silva: Terrific. I think in terms of your first part of the question, Marie, I think the strength in our international markets was better than expected. And as you know, we've been doing this transition from direct presence in many of these markets, distributors. And in many cases, this is the first orders. We were also positively surprised by the strength of the ARTAS system sales outside the US. So I think that I would say probably exceeded expectations. I think the US performed as expected. The macroeconomic headwinds probably impact the US more so than it certainly has in the past. And given those headwinds, we were pleased with the outcome in the US as well. With respect to Q2, we see a continued, the same type of trends to continue into Q2. The macroeconomic headwinds have not dramatically improved, though in certain spots, they may be showing some signals of doing so. So the pressures in the US, we expect to continue. And in the International markets, it continue -- we continue to kind of expect a little bit of lumpy behavior until we get our new distributors on a more consistent ordering pattern. Hemanth or Domenic anything to add to that?
Hemanth Varghese: No. I don't think so.
Rajiv De Silva: Okay. All right, Marie. Sorry. Go ahead.
Marie Thibault: Okay. That's really helpful. Yes. That's very helpful. And then I appreciate the efforts that your team has been making on managing working capital and cutting cash burn in the quarter. What else is left to do on managing working capital? Is there more that you can be doing to collect receivables, worked out inventory? Any target areas that you see room for added improvement? And thanks for taking the questions.
Rajiv De Silva: Domenic, do you want to take that one?
Domenic Della Penna: Sure. I think the one area that we continue to focus on a very selective basis is working with key customers that, for example, like chain accounts that if we can accelerate the collection of amounts owed to us at a reasonable discount. We've been modestly successful in converting some of that. We currently have an opportunity now to convert a few hundred thousand dollars. And we do that selectively with certain customers that owe us for bulk device sales. And that augments our existing focus on cash sales. In addition, you'll notice that our inventory balance is lower and we put in place a more robust sales and operations planning program that will continue to focus on inventory management, in particular, because we do think there's some opportunity to better focus on inventory turns and free up some working capital that way.
Operator: [Operator Instructions] Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Jeffrey Cohen: Hi, Rajiv, Domenic and Hemanth. How are you?
Rajiv De Silva: Hey, Jeff.
Domenic Della Penna: Good. Thanks.
Jeffrey Cohen: So firstly could you walk through and give us some better metrics or trends on the hair business specifically from the first quarter and how '24 looks there?
Rajiv De Silva: All right. Good. Domenic, do you want to take that one?
Domenic Della Penna: Our hair trends are impacted by the tight capital equipment market. But having said that, in the international side, we did show an improvement over Q4 in terms of ARTAS device sales. But in the US, we were slightly ahead of Q4, but still a challenging environment when you're trying to sell a device that is $250,000 million in terms of outlay. And the financing environment is such that although capital may be available, it's not as available as it used to be. So we're cautiously optimistic about the second half of the year. But in terms of Q1, the underlying strength really came in international through some distributor sales.
Jeffrey Cohen: Okay. Got it. And then secondly for us, I just wanted to walk through the MSLP Loan agreement. So does Madryn currently have the entirety of the 76.7 now?
Rajiv De Silva: That's correct. Madryn owns the entire debt stack at this point, yes. And the face amount is what you quoted.
Jeffrey Cohen: Okay. I got it. And just one clarification that you spoke about Q-over-Q international business plus 30%. Could you talk a little bit about US versus International and call out, in particular, a few of the territories that are driving international please? Thank you.
Rajiv De Silva: Domenic, do you want to?
Domenic Della Penna: Yes. I think on the international front, what we had is a good result, a very good result in Australia, in particular. And in addition, we did have a bounce back in terms of our sales in Israel, that suffered through a very, very difficult fourth quarter. And there was some traction that we got in the first quarter of 2024 in Israel, notwithstanding a still challenging environment there, obviously. But those were the key direct markets. In addition, we continue to make progress on signing up new distributors. So it was a combination of improved performance in select direct markets like Australia and Israel as well as improved distributor performance in Rest of World.
Jeffrey Cohen: Okay. Perfect. Thanks for taking our questions.
Rajiv De Silva: And Jeff I just want to amend my answer from before. Just to clarify, our debt stack also includes about $2 million in a convertible note with EW. So that is in addition to the -- to what Madryn owns at this point. Obviously, Madryn still owns the vast majority.
Jeffrey Cohen: Got it. The no purchase, the $1.6 million you're referencing?
Rajiv De Silva: That's correct. Yes. That's a net amount in the Phase 2.
Jeffrey Cohen: Okay, perfect. That does it for us. Thanks for taking our questions.
Operator: We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation.
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