Venus Concept Inc (VERO) 2024 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter and fiscal year 2024 earnings conference call for Venus Concept Inc. (Operator Instructions) 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 to differ materially from those indicated, including those identified in the Risk Factors section of our most recent 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.

Thank you, operator, and welcome, everyone, to Venus Concept's fourth-quarter 2024 earnings conference call. I am joined on the call today by our Chief Financial Officer, Domenic Della Penna.

Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief review of our fourth-quarter results and operating developments in the recent months. Following that, Domenic will provide you with an in-depth review of our fourth-quarter financial results, as well as our balance sheet and financial condition at year-end. 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, our fourth-quarter revenue results were softer than expectations we outlined on our third-quarter earnings call. Fourth-quarter revenue declined $2.4 million or 13% year over year, driven by a mid-teens decline in systems revenue and, to a lesser extent, a mid-single-digit decline in procedure-related products and service revenue. Importantly, the decline in system sales continue to be impacted by our strategic shift for prioritizing system sales versus subscription sales as expected. Lease revenue declined by $3.5 million or 58% year over year in the fourth quarter, which offset mid-teens growth in cash system sales in the period.

We are encouraged that our commercial team's focus on prioritizing cash deals is improving -- is proving effective. Cash system sales in the US increased 27% year over year and represented 87% of total US system sales in the fourth quarter, compared to 58% last year and 70% in the first nine months of 2024. We continue to believe that our efforts to reposition the business to prioritize cash system sales is the right strategy to enhance the company's long-term profitability profile.

While we were pleased to see strong growth in cash system sales in the US in the fourth quarter, global systems adoption continues to be impacted by macroeconomic headwinds, which are impacted in this aesthetic sector as a whole. Customer financing pressures, economic uncertainty, higher interest rates, and tighter credit markets continue to impact customer system adoption throughout our business.

The softer-than-expected total revenue results in Q4 were driven primarily by continued macro-related challenges impacting the overall time to close deals. In addition, we also experienced Venus-specific factors, which impacted our ability to close system deals, specifically a supply-related shortfall in inventory of select products.

I'm proud of our team's continued commitment to our strategy despite the challenging operating environment. The US team delivered fourth-quarter cash systems growth of 48% on a quarter-over-quarter basis. US cash system sales represented the majority of our US systems revenue in the period, which reflects the team's strong execution towards our strategic priority to transition the company to higher quality cash revenues.

Our efforts to reposition our international business from unprofitable direct markets to partnering with high-value distributors are also proving effective. Sales distributors more than doubled year over year in Q4, fueled by demand from new and existing distribution partners in the APAC and EMEA regions. While we expect continued fluctuations in ordering patterns from our distribution partners in key international markets, we are encouraged by the early evidence that our efforts to evolve our OUS commercial strategy to enhance future growth and profitability are on the right track.

Stepping back, our revenue results in fiscal year 2024 reflect a decline of 15% year over year, which is better than the performance many of our competitors delivered this year. It is important to remember that our total revenue results reflect the impact of the strategic initiatives we have executed throughout the year, primarily the shift to prioritizing cash system sales, which had a material impact on our total revenue results in 2024. Specifically, more than 60% of the year-over-year decline in total revenue this year is a result of our transition away from subscription system sales.

Importantly, we believe the impact on our year-over-year growth profile from the strategic transition is behind us, and we look forward to a more normalized business profile going forward. However, our quarterly business performance will continue to be impacted by macroeconomic headwinds. Despite these challenges, we remain focused on our strategic initiatives to enhance the cash flow profile of the business and accelerate the path to long-term sustainable profitability and growth.

We outlined the key elements of our transformation strategy on our fourth-quarter call last year, specifically, cost reductions, shifting to cash sales, and working capital management. The team's strong execution towards each of these key elements in 2024 contributed to this achievement. We achieved a 14% reduction in our cash used in operations year over year in 2024, which we view as solid performance given the continued headwinds to revenue growth that aesthetic sector participants have been facing over the last year. We continue to believe that the reduction in cash used in operations represents the clearest evidence that we are making progress with respect to the key elements of our transformation strategy.

Our priority now is to return to growth, as a substantial part of our operational turnaround is complete. We are actively working on evolving our portfolio and look forward to announcing our next body device in the near future. We believe that the increase of GLP-1 usage by consumers is an exciting catalyst for the industry and a chance for Venus to highlight the complementary benefits of our body technology, specifically skin tightening to our customers that are on weight loss medications.

Now, before I turn the call over to Domenic, I wanted to provide an update on a few areas of notable progress and operating developments in 2024 and in recent months. First, we made material progress towards our strategic initiative to restructure the company's debt obligations and secure bridge financing in 2024. As of December 31, 2024, the company had total debt obligations of approximately $39.7 million, down 47% from $74.9 million outstanding as of December 31, 2023. The substantial reduction in overall debt is evidence of continued progress in the restructuring of the balance sheet and will enable us to be best positioned for future growth.

Second, on February 25, 2025, the company announced several changes to its senior leadership team, including the following: Dr. Hemanth Varghese, President and COO, departed the company to pursue other opportunities effective March 28, 2025; and Bill McGrail, EVP, Technical Operations and Compliance, retired effective February 28, 2025. Kirk Gunhus was appointed Chief Revenue Officer with global responsibility for Venus' sales assets. Ross Portaro was appointed as EVP, Commercial Strategy and Head of Venus Hair, with the primary focus on overseeing Venus Hair, expanding that business in all jurisdictions and evaluating strategic opportunities. Melissa Kang, the company's former EVP, Global Marketing and Product Management, was appointed Chief Product Officer. Michael Mandarello, the company's Chief Legal Officer, was appointed Head of Strategy and Operations to include the oversight of Venus' corporate strategy and operational execution in addition to his existing responsibilities.

This new management structure is designed to streamline decision making and best position the company for its return to growth and its journey towards profitability. This reorganization demonstrates our commitment to building the right team to enable future growth and maximize upcoming new product launches. I look forward to working with Kirk, Ross, Melissa, and Michael in their new roles. I also want to share my appreciation for the pivotal role Hemanth has played in executing the company's transformation efforts over the last two years and want to congratulate Bill on his well-deserved retirement.

In addition, on February 27, the company announced a 1-for-11 reverse stock split of the company's issued and outstanding common stock. The company's common stock began trading on the Nasdaq Capital Market on a split-adjusted basis at the open of trading on March 4, 2025. Venus stock traded above $1 for 10 consecutive trading days following the completion of the reverse stock split. And on March 18, 2025, we received a formal notice of compliance from Nasdaq.

Finally, on March 28, we announced an amendment to our bridge loan agreement with Madryn Asset Management that will increase our financing capacity by $10 million. This is evidence of the continued financial commitment from Madryn in our ongoing partnership.

With that, let me turn the call over to Domenic for a review of our fourth-quarter financial results and balance sheet at year-end. Domenic?

Thank you, Rajiv. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the fourth quarter of 2024 on a GAAP basis and all growth-related items are on a year-over-year basis.

We reported total revenue of $15.8 million, down $2.4 million or 13% year over year. The decrease in total revenue was driven by a 13% decrease year over year in both the United States and international revenue.

As Rajiv mentioned earlier, the decrease in total revenue by product category was driven primarily by a 58% decrease in lease revenue. Cash systems revenue and sales of products and services increased 10% year over year in Q4. The percentage of total systems revenue derived from the company's internal lease programs, Venus Prime and our legacy subscription model, was approximately 20% in the fourth quarter of 2024, compared to 41% in the prior year period.

Our focus on prioritizing cash system sales has been enhanced through various partnerships secured with preferred lenders in the US and in other key international markets. These preferred lending arrangements assist us in accelerating the lending approval cycle, offering competitive financing solutions to our customers and accelerating our cash funding requirements. The decrease in utilizing our internal lease programs is partially attributed to the recent success of these preferred lending arrangements.

The overall percentage of total systems revenue derived from our internal lease programs declined from approximately 42% in fiscal year 2022 to 33% in fiscal year 2023 and 26% in fiscal year 2024. As discussed on our recent investor calls, this strategic initiative has been a key driver of the significant improvements in cash generation and is consistent with our focus on quality of revenue.

In the current macro environment, third-party lending has tightened and so has access to capital. These conditions often result in the postponement of capital equipment purchases. With this in mind, the ability to offer Venus Prime represents a valuable option to help with new system sales. While we continue to favor cash system sales, with our new target of roughly 70% to 75% of total systems revenue coming from cash sales, we are very pleased to have the unique lever of our Venus Prime program as a key differentiator from competitors.

Turning to a review of our fourth-quarter financial results across the rest of the P&L. Gross profit decreased $1.2 million or 10% to $10.9 million. The change in gross profit was primarily due to the effects of tighter third-party lending practices which negatively impacted capital equipment sales in both the US and international markets, partially offset by an improvement in third-party international distributor revenues.

Gross margin was 69.1% of revenue, compared to 66.5% of revenue for the fourth quarter of 2023. Our continued focus on margin management was the largest contributor to the year-over-year change in gross margin, while the change in revenue mix by geography, by product, and by channel was a contributor.

Total operating expenses decreased $2.1 million or 11% to $17.6 million. The change in total operating expenses was driven primarily by a decrease of $1.3 million or 13% in general and administrative expenses, a decrease of $0.7 million or 8% in selling and marketing expenses, a decrease of $0.2 million or 12% in research and development expenses. The reduction in fourth-quarter 2024 operating expenses reflects our continued progress in cost containment and streamlining of our operations.

GAAP operating loss was $6.7 million, compared to $7.6 million in the fourth quarter of 2023.

Net interest and other expenses were $2.1 million, compared to $3.7 million in the fourth quarter of 2023. The year-over-year change in net interest and other expenses was driven by non-cash foreign exchange loss of $1.0 million, compared to a non-cash gain of $0.7 million last year; interest expense on outstanding borrowings of $1.1 million, compared to $2.2 million last year; and a $2 million non-cash loss on debt extinguishment in the fourth quarter of 2023, which did not impact current period results.

Net loss attributable to stockholders for the fourth quarter of 2024 was $8 million or $11.23 per share, compared to a net loss of $11.1 million or $20.14 per share for the fourth quarter of 2023. Adjusted EBITDA loss for the fourth quarter of 2024 was $6.1 million, compared to $5.9 million last year. 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 December 31, 2024, the company had cash and cash equivalents of $4.3 million and total debt obligations of approximately $39.7 million, compared to $5.4 million and $74.9 million, respectively, as of December 31, [2023] (technical difficulty) and improve the financial profile of the company.

As Rajiv mentioned previously, we announced an amendment to our bridge loan agreement with our primary lender, Madryn Asset Management, that increases our financing capacity by $10 million. We continue to enjoy the support of Madryn as we execute on enhancing the financial profile of the business.

Cash used in operations for the three months ended December 31 was $3.8 million, compared to $0.8 million last year. The year-over-year change in cash used in operations was driven primarily by changes in net working capital, offset partially by an improvement in net loss year over year. Note, approximately half of the year-over-year increase in cash used in operations was related to an increase in advances to suppliers as part of our efforts to secure a requisite supply of component inventory to avoid continued impacts on system sales due to shortages.

Despite the increase in cash used in Q4, we are very proud of our continued improvement in reducing our cash used in operations in 2024 despite the challenging operating environment. We remain intently focused on further enhancement of the balance sheet and cash flow profile of our business and believe we have the right strategy to build the requisite foundation to support our growth and profitability goals in the years to come.

Lastly, with respect to our financial outlook for 2025, 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 2025 financial guidance at this time. The company expects total revenue for the three months ending March 31, 2025, of at least $14 million.

With that, I'll turn the call over to the operator to open the call for your questions. Operator?

(Operator Instructions) Marie Thibault, BTIG.

Hi. Good morning. Thanks for taking the questions. I appreciate that you're not able to give 2025 guidance, but I did catch the commentary that, post the strategic shift, you're looking for a more normalized business profile going forward. Can you characterize that for me a little further? It's just a little hard to know what a normal business profile is given the macroeconomic conditions. So any more details you can give on that would be helpful.

Yes. Hi, Marie. This is Rajiv. Thank you for the question.

As you said, with the macroeconomic environment, it is a little hard to predict. Now, in addition to that, obviously, we've been through a lot of structural changes in the business. And I think what we're saying is that those structural changes are now behind us. And as we look forward to the rest of 2025, we would expect our performance versus prior year to begin to improve versus last year. In other words, we do not expect to see the level of decline versus last year -- versus prior year as we did in 2024.

What's difficult to predict, of course, is what's going to happen in the global economy, the tariffs impact on the business, et cetera. And that's why we've been cautious. We're also being cautious because we continue to expect to have results from our strategic review of the business, which has obviously taken a little bit longer than expected. But in light of all of that, we didn't think it was prudent to have full-year guidance.

Okay. That's very helpful, Rajiv. And then my follow-up, I wonder if you could give us a little more detail on how the Venus Hair business is going. I know that has been, in the past, sometimes a bright spot for the business. I know it's a well-regarded product for sure. So I'm curious how customers are viewing that. If there's been much uptake, what volumes are like? Just some more detail on the hair business. Thank you.

Sure. As you know, we don't give product level guidance, but we are pleased with the performance of the Venus Hair business. And as you know, it's one of our higher-priced piece of equipment. And despite that, we've had good performance with the -- particularly on the Venus ARTAS Robot, both in the US as well as outside the US. And then more importantly, despite our financial constraints, we've worked on some pretty important R&D innovations around the robot and we look forward to progressing those in 2025.

And then finally, it is also one of these businesses because of its profile, and as you pointed out, how well it is received by customers that we've had more strategic interest in that specific business. So we continue to evaluate those options, as well as progress our internal R&D efforts. And it is an important value driver for the company.

Well understood. Thank you so much.

(Operator Instructions) Jeremy Pearlman, Maxim Group.

Thank you for taking my question. Good morning. You mentioned on the call that most of the strategic shift done in 2024 is now behind you. So maybe if you could just talk a little bit about going into 2025, what's your strategy to maybe see some top-line growth just across the business? Thanks.

Sure. So outside the US, it's really about getting to a normal rhythm of ordering with our new distribution partners. I think as we've said, the shift to distribution is complete, but distributor orders tend to be lumpy by its sheer nature. And one of the things we need to do in 2025 is to get to a bit more of a rhythm with those orders, and I suspect it will take us a couple of quarters to get to that point. But once we do, I think that we do look forward to growth in our international business.

In the US, we look forward to launching our new body system sometime later this year. We have not given specific guidance as to when we expect that to be, but we are cautiously optimistic that it will be sometime in the early part of the second half of the year and that we expect to be an important driver for the business.

Understood. And then maybe I know you've taken cost-cutting measures. Is there anything left on the table that you could still see as gaining some extra savings there? Or are you operating as lean as possible?

Yeah. I think we're at a point where the infrastructure is pretty efficient. And really, what -- the issue is lack of critical mass of sales. So in other words, with this existing cost base, we should be able to support a much higher level of sales. So we don't expect to need to add substantially to the cost base other than variables, you have some marketing expense that kind of expands with sales as we go. But we also don't think there are large areas of cost reduction opportunities that we have missed.

Okay, understood. And then just one last quick question. Everyone -- it's a hot topic, tariffs. How would that -- does that affect -- how would that affect your business at all, maybe more internationally in the US? Are your products produced in the US? I'm just curious, maybe talk about how tariffs could have an effect in your business. Thanks.

Sure. So our products -- it depends on the business. Our robot is assembled and manufactured in the US. Our energy-based products, for the most part, are manufactured in Israel. And depending -- of course, nothing is certain for sure. But so far, Israel has been protected from the increased tariffs. So from that standpoint, we do not expect a substantial near-term impact on our business.

Okay. Great. Thank you so much for taking my questions.

Thank you. We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation.

Great. Thank you.

Thank you.