Venus Concept (NASDAQ:VERO) Incorporated (ticker: VERO) reported a 15% year-over-year decline in revenue for the third quarter of 2024, amounting to $15 million, during its earnings call on November 14, 2024. The decrease was primarily driven by a 23% drop in U.S. revenue, though international sales remained stable.
Despite the downturn, the company highlighted a significant reduction in both operational cash use and debt, as well as an extension from NASDAQ to meet minimum bid price requirements. CEO Rajiv De Silva outlined the challenges faced in the U.S. market, such as macroeconomic pressures and longer deal cycles, but also noted strategic shifts and upcoming product launches aimed at revitalizing growth.
Key Takeaways
- Venus Concept's Q3 2024 revenue fell by 15% year-over-year to $15 million.
- U.S. revenue declined by 23%, while international sales stayed consistent.
- Distributor sales surged by nearly 60% following strategic restructuring.
- Lease revenue decreased by 39%, but cash system sales in the U.S. increased.
- Debt was reduced significantly from $46 million to approximately $34.6 million.
- NASDAQ granted an extension for compliance with bid price requirements.
- New product launches are planned for Q1 2025 in Australia and the U.S.
Company Outlook
- Management remains optimistic about international partnerships and regulatory clearances.
- The company anticipates continued growth and profitability in 2025.
- New products like Bliss MAX and a new body platform are set to launch in Q1 2025.
Bearish Highlights
- Gross profit decreased by $2.3 million to $9.9 million due to higher interest rates and reduced capital equipment sales.
- Net loss reported at $9.3 million, or $1.28 per share.
Bullish Highlights
- Cash system sales now represent 76% of U.S. system sales, up from 69% year-over-year.
- Operating expenses were cut by $1.9 million to $17.1 million.
- The company expects at least $17 million in revenue for Q4 2024.
Misses
- The company's internal lease programs contributed only 23% to total systems revenue, a decrease from 31% in the previous year.
Q&A Highlights
- CEO Rajiv De Silva expects improved ordering patterns in Q4 2024 as partnerships gain traction.
- Tight credit conditions are impacting larger purchases in the hair business.
- Consumer-level procedures remain affordable despite a slowdown in higher-priced procedures.
- Cash flow breakeven is anticipated in Q4, but sustained breakeven is likely in late 2025.
- Ongoing negotiations with Madryn Asset Management are expected to continue until a final capital structure is established.
- Temporary relief has been received on the MSLP loan's liquidity requirements.
In the face of a challenging U.S. market, Venus Concept Incorporated is navigating through macroeconomic pressures with strategic shifts and debt management. The company's focus on international partnerships and new product launches is a testament to its commitment to overcoming current hurdles and establishing a stronger foothold in the market. With the expectation of stronger cash flow in the fourth quarter and a long-term view towards sustained profitability, Venus Concept aims to adapt and thrive despite the softer revenue results witnessed in the third quarter of 2024.
InvestingPro Insights
Venus Concept's recent financial performance aligns with several InvestingPro Tips, providing additional context to the company's current situation. According to InvestingPro data, Venus Concept is operating with a significant debt burden, which corroborates the company's reported efforts to reduce its debt from $46 million to $34.6 million. This debt reduction strategy is crucial given the company's financial challenges.
The InvestingPro Tip indicating that Venus Concept is "quickly burning through cash" is particularly relevant in light of the company's reported 15% year-over-year revenue decline and the net loss of $9.3 million in Q3 2024. This cash burn rate underscores the importance of the company's focus on reaching cash flow breakeven, which management anticipates achieving in Q4 2024.
Another pertinent InvestingPro Tip reveals that analysts do not anticipate the company will be profitable this year. This aligns with Venus Concept's reported losses and the management's projection of sustained breakeven only by late 2025. The company's stock performance has also been concerning, with InvestingPro data showing that it is trading near its 52-week low and has fared poorly over the last month, reflecting investor sentiment in response to the company's financial challenges.
These insights from InvestingPro provide a broader perspective on Venus Concept's financial health and market position. Investors seeking a more comprehensive analysis can access 13 additional InvestingPro Tips for Venus Concept, offering a deeper understanding of the company's prospects and challenges.
Full transcript - Venus Concept Inc (VERO) Q3 2024:
Operator: Please standby. Good day, ladies and gentlemen, and welcome to the Third Quarter 2024 Earnings Conference Call for Venus Concept Incorporated. 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 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 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 for Venus Concept. Please go ahead, sir.
Rajiv De Silva: Thank you, operator, and welcome everyone to Venus Concept's third 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 third quarter results and operating developments in the recent months. Hemanth will then share an update on our progress in several key operating areas. Following that, Domenic will provide you with an in-depth review of our third quarter financial results, as well as our balance sheet and financial condition at quarter-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 third quarter revenue results were softer than expectations we outlined -- and than the expectations we outlined on our second quarter earnings call. We were pleased to see the improving trends from our international business in the third quarter where sales are flat year-over-year as we begin to see the international -- initial benefits of the strategic restructuring activities we have executed over the last year. Our efforts to reposition our international business from unprofitable direct markets to partnering with high value distributors is beginning to take shape. Sales to distributors increased nearly 60% in Q3, 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 international commercial strategy to enhance future growth and profitability are on the right track. We look forward to continued demand from our new distribution partners, particularly those in APAC where we have registered new products in the second half of 2024 like the Bliss MAX in Australia and multiple product certifications in India, one of the largest aesthetics markets in the world. We expect to benefit from these new products entering key major markets to begin within the fourth quarter. With respect to our results in the US in the third quarter, the business continued to be impacted by macroeconomic headwinds which are pressuring the aesthetic sector as a whole. Customer financing pressures, high interest rates and tighter credit markets continue to impact customer systems adoption throughout our business. We did experience higher than expected end of quarter volatility which led to key deals being pushed. The greatest challenge remains the overall time to close deals which have not materially improved in recent quarters. We're encouraged that our commercial team's focus on prioritizing cash deals is proving effective. Cash system sales represented 76% of US system sales in the third quarter compared to 69% last year and 67% in the first half of 2024. Importantly, this strategic shift in commercial focus has a direct impact on our lease revenue results which declined 23% and 39% year-over-year in the US and in total, respectively, in the third quarter. 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. I am proud of our team's continued commitment to our strategy despite the challenging operating environment. Before I turn the call over to Hemanth, I wanted to provide an update on a few areas of notable progress made in the third quarter with respect to three of our key strategic initiatives. First, we remain focused on our strategic initiative to enhance the cash flow profile of the business and accelerate the path to long-term sustainable profitability and growth. Domenic will discuss our solid cash flow performance in Q3 later on the call, but I wanted to call out a few important highlights to underscore our recent progress on this front. We achieved a 25% reduction in our cash used in operations year-over-year, which we view as solid performance in light of the softer than expected revenue results in the third quarter. We have delivered a 40% reduction in our cash used in operations over the first nine months of 2024, which is particularly impressive given the continued headwinds to revenue growth that aesthetic sector participants have been facing over the last year. We continue to believe that this performance represents the clearest evidence that we are making progress with respect to this important strategic initiative. Second, we made material progress towards our strategic initiative to restructure the company's debt obligations and secure bridge financing during the third quarter. On September 26th, the company exchanged 15 million of its senior debt held by Madryn Asset Management in the Series Y preferred stock. Following this transaction, the company had total debt obligations of approximately 34.6 million, down from 25% from 46 million outstanding as of June 30, 2024, and down 54% 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. We're pleased that Madryn has demonstrated continued commitment to Venus Concept's long-term prospects with these transactions and look forward to our continued engagement with them as we execute our strategic plan. Third, on October 17th we were notified by NASDAQ that the company is eligible for an additional 180 calendar day period or until April 7, 2025 to regain compliance with the minimum bid price requirement. We're pleased to have been granted this extension and will look forward to remedy the deficiency before the extension period. I would now like to turn the call over to Dr. Hemanth Varghese who will share an important update on recent progress related to our other initiatives. Hemanth?
Hemanth Varghese: Thanks, Rajiv. Let me start by echoing Rajiv's comments by saying that despite the macroeconomic environment that's affected the entire industry this quarter, I'm proud with the team for progressing our business in several key areas. While a difficult quarter with persistent market headwinds affecting all companies in the aesthetic capital equipment market, our team has shown great resiliency leveraging the breadth of Venus technology offering and strong financial partnerships to provide real business solutions for our customers looking to grow and expand their practices. Due to the longer than expected deal cycles, we had strong momentum into the final weeks of the quarter, but unfortunately had several opportunities push into the following quarter. Some of these deals have since closed. In addition, we continue to grow our highly successful aesthetic event offerings in North America and now internationally, with each one showcasing our market leading technology with testimonials from industry leaders and customers. We've recently expanded these events into international markets with our first event held recently in Madrid where we received similar positive feedback from attendees -- similar to our previous events in North America. These anesthetic event experiences have been very well attended, highlighting a recovering level of demand and overall optimistic outlook for 2025. We look forward to seeing attendees at our upcoming events in Dallas, Toronto, Atlanta and Miami. We continue to bring best-in-class partners into our international distribution network. Our team has been working hard to identify partner companies with regional expertise and reach to bring our aesthetic devices into major growth markets, and this quarter is an inflection point in this transition process. We're extremely excited to have Paragon and Spectra as our new partners and we look forward to continuing the expansion of our international business in a profitable manner. In addition to finding strong partners, we're working hard to obtain regulatory clearances in key international markets for our products we believe can best fit local needs such as Bliss MAX and Venus Versa Pro, as evidenced from our latest registrations in Canada, Australia and Israel. We expect to continue with a steady cadence of additional international product clearances for our core platforms through 2025. Lastly, we're working hard in developing new platforms that address our customers most pressing needs. We continue to receive great feedback from users of our devices and have focused our targeted innovation efforts on our key platforms to address the major needs. We're pleased that we have completed the regulatory submission for our new body platform in the US. We are targeting the launch of this platform in Q1 2025, starting with the United States. We believe it will enable new and existing customers with the ability to provide patients with our best body technologies and deliver leading clinical results. We've also incorporated additional features and new capabilities designed to enhance workflow and practice development success. We look forward to providing more details over the coming months. With that, let me turn the call over to Domenic for a review of our third quarter financial results and balance sheet at quarter-end. Domenic?
Domenic Della Penna: Thanks, Hemanth. For the avoidance of doubt and unless otherwise noted, my prepared remarks will focus on the company's reported results for the third 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 million, down $2.6 million or 15% year-over-year. The decrease in total revenue was driven by a 23% decrease year-over-year in United States revenue as international revenues were flat year-over-year, a very encouraging sign. The decrease in total revenue by product category was driven primarily by a 39% decrease in lease revenue and a 10% decrease in products system revenue. As already noted, the difficult capital equipment environment in the US market is the primary driver for these decreases. The percentage of total systems revenue derived from the company's internal lease programs, Venus Prime and our legacy subscription model was approximately 23% in the third quarter of 2024 compared to 31% 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 to 28% in the first nine months of 2024. As discussed on our recent investor calls, this strategic initiative has been a key driver of the significant improvements in our cash generation and consistent with our focus on quality of revenue. For avoidance of doubt, this strategy remains a priority for the company. We continue to prioritize cash system sales and now believe the appropriate target mix for cash system sales revenue to be in the range of 70% to 75% of total system sales, with the balance coming from customer purchases facilitated through our structured in-house financing programs. In the current macro environment, third-party lending has tightened and so has access to capital. With this in mind, the ability to offer Venus Prime represents a valuable option to help with new system adoption. While we will continue to favor cash system sales with our new target of roughly 70% to 75% of our 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 our competitors. Turning to a review of our third quarter financial results across the rest of the P&L. Gross profit decreased $2.3 million or 19% to $9.9 million. The change in gross profit was primarily due to the effects of higher interest rates and tighter third-party lending practices which negatively impacted capital equipment sales in the US and a decrease in revenue due to the exit from unprofitable direct markets, partially offset by an improvement in third-party international distributor revenues. Gross margin was 66.1% of revenue compared to 69.2% of revenue for the third quarter of 2023. The change in revenue mix by geography, by product and by channel was the largest contributor to the year-over-year gross margin decline. Specifically, international sales and sales to our distributor partners represented larger portions of our total revenue mix compared to the third quarter of 2023. Total (EPA:TTEF) operating expenses decreased $1.9 million or 10% to $17.1 million. The change in total operating expenses was driven primarily by a decrease of $1.4 million or 14% in general and administrative expenses, a decrease of $0.3 million or 4% in selling and marketing expenses a decrease of $0.2 million or 12% in research and development expenses. Third quarter of 2024 GAAP general and administrative expenses include approximately $0.1 million of costs related to restructuring activities designed to improve the company's operations and cost structure compared to approximately $0.8 million for the third quarter of 2023. Total operating loss was $7.2 million compared to $6.8 million in the third quarter of 2023. Net interest and other expenses were $2.2 million compared to $2.5 million in the third quarter of 2033. The year-over-year change in net interest and other expenses was driven by a non-cash foreign exchange loss of $0.1 million compared to a non-cash loss of $0.9 million in the prior year period and modestly higher interest expense on outstanding borrowings offset partially by a $0.5 million of non-cash loss on debt extinguishment related to the debt exchange in September of 2024. Net loss attributable to stockholders for the third quarter of 2024 was $9.3 million or $1.28 per share compared to net loss of $9.1 million or $1.64 per share for the third quarter of 2023. Adjusted EBITDA loss for the third quarter of 2024 was $5.9 million compared to $4.6 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 September 30th, 2024, the company had cash and cash equivalents of $4.5 million and total debt obligations of approximately $34.6 million compared to $5.4 million and $74.9 million, respectively, as of December 31, 2023. The reduction of over $40 million in debt over the past nine months demonstrates our commitment to delever the balance sheet and improve the financial profile of the company. Cash used in operations for the three months ended September 30th was $3.1 million, a 25% decrease in cash used year-over-year. We're very proud of the continued improvement in reducing our cash used in operations despite the challenging operating environment. Specifically, we have delivered a 40% reduction in cash used in operations over the first nine months of 2024. We remain intently focused on further enhancement of the balance sheet and cash flow profile of the 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, turning to a review of our financial outlook for 2024 as outlined in our press release, the company expects total revenue for the three months ending December 31, 2024 of at least $17 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] And our first question will come from Jeffrey Cohen with Ladenburg Thalmann.
Jeffrey Cohen: Hey, good morning. Thanks for taking our questions. So just a few for us out there. On the Prime program, do you expect things to level off at a Q3 level or would you expect it to increase? I know that you did talk about this 25% to 30% of your revenue comprised of Prime.
Rajiv De Silva: Sure. Yeah. Go ahead. Domenic.
Domenic Della Penna: Yeah. Hi, Jeff. I would expect -- like I mentioned, the cash proportion of our business should be 70% to 75% within that range, which implies that on the subscription side or on the in-house financing side, it should be somewhere between 25% and 30%. So, we're at the best level we've seen to date. Now again, that could shift slightly quarter-to-quarter, but we expect it to be more or less in the range that we saw in either Q2 or Q3 of this year. So, Q3 was a bit higher in terms of in-house financing and Q3 is a bit lower, but we expect it to fall in that range going forward. I don't see the cash mix exceeding 80% of our business at this time because we think that sweet spot is somewhere around 75/25.
Jeffrey Cohen: Okay. Got it. You made some mention of the body platform. Was that AI.ME you're referring to? And just clarify what that is and when we'll see it. I think you said Q1 '25.
Rajiv De Silva: Hemanth, do you want to take that one?
Hemanth Varghese: Sure. Thanks, Rajiv. Yeah. No, we're not referring to AI.ME. As we've discussed AI.ME, the AI.ME program has been delayed due to funding and prioritization of our R&D. So, this is the body -- energy-based body platform which will be a next-generation of our body systems that we have currently.
Jeffrey Cohen: Okay. Got it. And then, I guess, lastly, I was wondering, you did talk about EMEA and you did talk about APAC. Could you give us a little bit of a flavor of country-by-country or call out a few of the countries where you're seeing some strength and uptake and potential for growth through the coming year?
Rajiv De Silva: Hemanth?
Hemanth Varghese: Yeah. We've seen strength in Australia. We continue to have a very good business in Mexico and Canada has faced similar challenges to the US in terms of tight credit markets. I mean, we've seen that globally, but in particular in the US And Canada. It's been a bit of a challenge in the third quarter with some deals being pushed, but clearly markets like Australia and Mexico are key markets for us as well as Hong Kong and continue to do quite well.
Rajiv De Silva: Hemanth, do you want to talk about some of our new distribution partnerships and where we see the potential?
Hemanth Varghese: Yeah. A great example being India. Right? So, India we brought on board this past quarter and they helped us get registrations for multiple products. I think more are actually coming in that market and they're prepared to order multiple systems. And so that's a wide-open market for us and a big source of growth going into 25.
Jeffrey Cohen: Okay. Got it. Thanks for taking our questions.
Rajiv De Silva: Thank you, Jeff.
Operator: Our next question is from the line of Marie Thibault with BTIG. Please proceed with your question.
Sam Eiber: Hey, good morning, everyone. This is Sam on for Marie. Appreciate you taking the questions this morning. Maybe just following up on that last question, wondering how quickly some of these expansions in new markets like India could start contributing to revenue, how material that could be. And I know there were a couple of other recent wins like in Taiwan and Colombia. Just want to understand how material that could be to growth maybe here in Q4 or more so in 2025.
Rajiv De Silva: Hemanth?
Hemanth Varghese: Sure. Well, look, we're not giving specific international guidance at this time, but following on what I spoke to before, when you look at bringing on new distributors, we're either bringing on new distributors in markets where we already have clearances and they can start selling right away or in markets like India where registrations have to occur and they help us actually obtain those registrations. In the latter case, there being a bit of a delay, sometimes by a quarter or more before they can actually start ordering and selling on any regular basis. And so, it will be a bit of a mix. We have got a number of new and renewed relationships with existing partners in markets where we already have product. And I think we're starting to see ordering patterns improve even this year. But I think that will be more consistent next year as they're all on board and starting to have a couple quarters under their belt.
Sam Eiber: Okay. That's helpful.
Rajiv De Silva: I think there's real potential for some of these partnerships to be picking up in the fourth quarter. Right? Which is what gives us more confidence around our projection for the fourth quarter.
Sam Eiber: Okay. Understood. Really helpful. Maybe just shifting to the demand environment and capital equipment environment. Wondering if there's any nuances between product categories. The body platform versus maybe some of the hair systems. Wondering if you're seeing any differences between one side versus the other.
Rajiv De Silva: Look, I think what we're seeing in the macro environment is that the credit environment is tight. Right? Which means larger the purchase, the larger the complication, the greater the complication in terms of customers securing credit and the longer it takes. Right? So, in our hair business, our Robot is one of the most expensive equipment we sell. So that certainly has impacted the selling cycle of the Robot. And then when it comes to our energy-based products, again, the real impact is for the higher priced items. Right? I think that's generally true across the industry. And it's also true that higher price procedures also -- have also slowed down. Now that doesn't impact us as much because most of our procedures at the consumer level tend to be very affordable. But it certainly does impact our hair business, because hair transplants are generally one of the higher cost procedures.
Sam Eiber: Okay. That makes sense. Maybe just final question from us here. Latest on cash flow outlook. Should we still be expecting breakeven here in Q4 or maybe more of a 2025 event?
Rajiv De Silva: Yeah. Look, I think the -- obviously expect -- the fourth quarter generally is one of the best quarters from a cash flow standpoint for the company. But that being said, as we think about sustained cash flow breakeven, we are looking at 2025 likely the back end of it. And obviously, a big part of it is macroeconomic headwinds that have softened revenues for us in the third quarter.
Sam Eiber: Makes sense. Thanks so much for taking the questions.
Rajiv De Silva: Thank you, Sam.
Operator: Thank you. [Operator Instructions] Our next question is from Thomas McGovern with Maxim (NASDAQ:MXIM) Group.
Thomas McGovern: Hey, guys. Yeah. So, a couple of my questions got covered already, so just have one for you guys. Just looking at your debt. You guys have done a great job over the course of 2024 reducing the net debt on your balance sheet. Just curious, I saw that you guys were able to extend the bridge financing agreement and we're able to take another million dollars off of that. And I believe it was October. Just curious, as you look at your debt situation now, what can we expect in '25 and in the fourth quarter in terms of continuing to reduce the balance there?
Rajiv De Silva: Yeah. This is a very important topic for the company, obviously, right? Now the good news here is that we have a very rational and constructive lender in Madryn, so we continue to work at it. We don't have a particular target in mind yet, but it's certainly in the company's best interest and Madryn's best interest to make sure this debt, amount of debt on the company's balance sheet is a manageable amount. Right? And Madryn has also continued to be very constructive in terms of providing the company with bridge financing, which we expect to continue.
Thomas McGovern: Gotcha. That's very helpful. And then just one last question on that. I also saw that you guys got some relief on the MSLP loan. Some of the terms included that you guys -- they would waive certain minimum liquidity requirements through the 30th of November. Just curious, as you look at that agreement in particular, kind of where do you expect that to land? Do you expect you guys to kind of extend some of those terms as we're approaching that November 30th mark, or just any commentary on that MSLP loan? Give some more color on that. That would be appreciated as well.
Rajiv De Silva: Sure. So just to remind you, this MSLP loan is what was bought out by Madryn back in April of 2024. And since then, the company has been in negotiations with Madryn as to what the ultimate capital structure of the company should look like. And during this time, Madryn has continually extended some of the covenant relief related to the MSLP loan. Right? So, it's generally extended month at a time, right, because that's the pace at which our negotiations go. And we would certainly expect continued relief from this covenants from Madryn until we find a final capital structure solution.
Thomas McGovern: Understood. I appreciate that color.
End of Q&A:
Operator: Thank you. We're currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation. You may now disconnect.
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