Venus Concept Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 15, 2025

There are 4 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter twenty twenty five 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'd 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 ks 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.

Operator

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 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.

Operator

Rajiv D'Silva, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Speaker 1

Thank you, operator, and welcome everyone to Venus Concept's first quarter twenty twenty five earnings conference call. I'm joined on the call today by our Chief Financial Officer, Dominic 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 first quarter results and operating developments in the recent months. Following that, Dominic will provide you with an in-depth review of our first quarter financial results as well as an update on our balance sheet and financial condition.

Speaker 1

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 for first quarter revenue results came in modestly softer than expected due to delays in the timing of new system sales expected in late March, driven by current market conditions. Some of these sales were consummated in early April. Fourth quarter revenue declined 22% year over year, driven by a 25% decline in systems revenue and to a lesser extent, a high single digit decline in procedure related products and service revenue.

Speaker 1

Our team delivered solid execution despite the continued challenging environment. The global capital equipment environment continues to present a level of uncertainty as to the timing and pace of new system adoption in both The U. S. And international markets across the aesthetic sector as a whole. Customer financing pressures, economic uncertainty, higher interest rates, tighter credit markets and uncertainty related to proposed tariffs continue to impact customer system adoption throughout our business.

Speaker 1

Despite the more challenged operating environment, the team continues to focus on our strategic priority to transition the company to higher quality cash revenues. Cash system sales in The U. S. Represented 80% of total U. S.

Speaker 1

System sales in the first quarter compared to 75% last year. 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 the overall time to close deals continues to impact our quarter to quarter systems sales results, we are encouraged by the team's continued focus on customer engagement and support, as well as prioritizing core products in The U. S, including BlissMax, WizardPro and VivaMD to improve sales efficiency. Our international results in the first quarter also reflect the impact of disrupted distributor ordering patterns due to the hesitancy on the part of our distributor partners given the uncertainty related to increased global macro headwinds and trade concerns.

Speaker 1

While we expect continued fluctuation in ordering patterns from our distribution partners in key international markets, we're 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. Our priority now is to ensure that we are as well positioned as possible to return to growth when the overall global capital equipment environment improves. We're actively working on evolving our portfolio and look forward to announcing our next body device in the second half of twenty twenty five. We're managing our cash burn through disciplined cost management and making targeted investments to support our long term growth. We believe that the increase of GLP-one usage by consumers is an exciting catalyst for the industry and a chance of Venus to highlight complementary benefits of our body technology, specifically skin tightening to our customers that are on mitigations.

Speaker 1

We enhanced our balance sheet condition in March by converting $11,000,000 of Madryn debt to equity. And in April, we secured a new bridge loan amendment from Madryn and two equity capital transactions, which together represent further validation from existing and new investors of the potential value creation opportunity that Venus offers. With that, let me turn the call over to Dominic for a review of our first quarter financial results and balance sheet. Dominic?

Speaker 2

Thanks, Rajeev. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the first quarter of twenty twenty five on a GAAP basis and all growth related items are on a year over year basis. We've reported total revenue of $13,600,000 down $3,800,000 or 22% year over year. As Rajeev mentioned earlier, our revenue results were softer than expected given the timing of system deals closing in The U. S.

Speaker 2

And distributor ordering patterns. We were encouraged to see some of the deals that were expected to close in late March close in early April. Distributor hesitancy towards placing orders remains a potential headwind given the heightened level of global macro and trade uncertainty in recent months. The year over year decrease in total revenue in the first quarter was driven by a 29% decrease in international revenue and a 16.5% decrease in United States. The year over year decrease in total revenue by product category, a 25% decrease in products systems revenue, a 25% decrease in lease systems revenue.

Speaker 2

The percentage of total systems revenue derived from the company's internal lease programs, Venus Prime and our legacy subscription model, was approximately 25% in the first quarter of twenty twenty five compared to 25% in the prior year period. Turning to a review of our first quarter financial results across the rest of the P and L. Gross profit decreased $2,900,000 or 25% to 8,800,000 The decrease in gross profit is primarily due to the effects of tighter third party lending practices, which negatively impacted capital equipment sales in The U. S. And a decrease in revenue in our international markets driven by the accelerated exit from unprofitable direct markets combined with distributor uncertainty over economic and trade patterns facing the macro environment.

Speaker 2

Gross margin was at 64.2% of revenue compared to 66.6% of revenue for the first quarter of twenty twenty four. Total operating expenses decreased $1,100,000 or 6 percent to $18,300,000 The reduction in first quarter twenty twenty five operating expenses reflects our continued progress in cost containment and streamlining of our operations. GAAP operating loss was $9,500,000 compared to $7,800,000 in the first quarter of twenty twenty four. Net interest and other expenses were $2,500,000 compared to $2,000,000 in the first quarter of twenty twenty four. The year over year change in net interest and other expenses was driven primarily by a $1,000,000 non cash loss on debt extinguishment, which did not impact prior period results and a non cash foreign exchange gain of $100,000 compared to a non cash loss of $300,000 last year, offset partially by lower interest expense on outstanding borrowings, which totaled $1,600,000 in the first quarter compared to $1,700,000 last year.

Speaker 2

Net loss attributable to stockholders for the first quarter of twenty twenty five was $12,400,000 or $17.44 per share compared to net loss of $9,800,000 or $16.91 per share for the first quarter of twenty twenty four. Weighted average shares outstanding for the first quarter of twenty twenty five and 2024 gives effect for the company's one-four-eleven reverse stock split effective 03/03/2025. Adjusted EBITDA loss for the first quarter of twenty twenty five was $8,300,000 compared to adjusted EBITDA loss of $5,100,000 for the first quarter of twenty twenty four. 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.

Speaker 2

As of 03/31/2025, the company had cash and cash equivalents of $3,200,000 and total debt obligations of approximately $35,500,000 compared to $4,300,000 and total debt obligations of approximately $39,700,000 respectively, as of 12/31/2024. This represents a $4,200,000 reduction in total debt obligations in the quarter. As Rajeev mentioned previously, we announced a new bridge loan amendment with our primary lender, Madron Asset Management, which increased our financing capacity by $10,000,000 We continue to appreciate the support of Madron as we execute on enhancing the financial profile of the business. We also announced three important items subsequent to quarter end. On 04/01/2025, the company exchanged $11,000,000 of its subordinated convertible notes held by affiliates of Madryn Asset Management for 379,311 shares of its Series Y preferred stock.

Speaker 2

This transaction allowed us to maintain NASDAQ compliance through achieving NASDAQ stockholders' equity threshold. On April 1014, the company announced registered direct offering priced at the market for the sale of a combined 715,273 shares of common stock for combined proceeds of $2,700,000 gross before deducting placement agent fees and other offering expenses. Lastly, with respect to our financial outlook for 2025, given the company's active dialogue with existing lenders and investors, the ongoing evaluation of strategic alternatives with various interested parties to maximize shareholder value and current market conditions impacted by trade disruptions, the company is not providing full year 2025 financial guidance at this time. The company does expect to see sequential revenue growth in the second quarter. With that, I'll turn the call over to the operator to open the call for your questions.

Speaker 2

Operator?

Operator

Thank you. Our first question comes from the line of Thomas McGovern with Maxim Group. Please proceed with your question.

Speaker 3

Hey, guys. Thank you for taking my question. So first, I wanted to talk about, you mentioned on the call several times as it relates to the international business, but just curious to have a better understanding as to how you expect recently enacted and proposed tariffs to impact your business as we move throughout 2025? Thanks.

Speaker 1

Dominic, do you want to take that, and I'll add to it.

Speaker 2

Sure. I can take that. So as you know, our business is primarily on the energy based side. We source our products directly from Israel through a contract manufacturer. And the tariffs that are announced in respect of Israel relate to about 10% at this stage.

Speaker 2

Now negotiations are ongoing, but if we assume the 10% tariff is pulled, then that impact on the energy based side would have in 2025 an impact of between 11.5% on our gross margins, and that's exiting 2025. As we move into 2026, that impact could be between 22.5% of gross margins. Now, when we include our robotics business, which represents between 2025% of our business, the impact is somewhat similar. It would be in the sort of 1% to 2% range in 2025 in the second half. And in 2026, it would be somewhere in the 2% to 2.5% range as well.

Speaker 2

So when you sort of dissect the business, three quarters of the business is sort of sourced from products from Israel and one quarter of that relates to products that are manufactured through the robotics side in The U. S. But there are component parts that come from Europe in relation to the robotic side of the business. So in both counts, the tariffs we expect are in the 10% range, but could be lower depending on how the negotiations pan out both Israel and the EU. So overall, it would have a slight marginal impact on margins and that is without any mitigation efforts on our part, right?

Speaker 2

So we have the opportunities to try to recover some of that margin hit. But assuming there is no pricing recovery, that would be the maximum extent of the impact.

Speaker 1

Overall, Thomas, the actual impact of the tariffs on us is going to be very modest and likely manageable through pricing. I think the disruptions we're talking about is the fact that generally there's overall economic uncertainty around the world because of the uncertainty of the tariffs, which is causing our distributors to be more hesitant in terms of their purchasing patterns, right? So it's not a direct impact, it's an indirect impact.

Speaker 3

Understood. That makes a lot of sense. You mentioned also that there were several contracts with several sales that you expected to close at the end of the first quarter that were pushed into the second quarter. Were these mostly related to U. S.

Speaker 3

Sales? Or were you seeing some distributor orders that maybe you expect in the first quarter that have been pushed into 2Q?

Speaker 1

It's combination of the two. And again, it's generally tied to this issue of hesitancy in light of economic conditions, right, which is relevant to our U. S. Customers as well as our international distributors. People are people have the need for these devices, but are being more cautious.

Speaker 1

And oftentimes, a lot of us sales happen very much towards the very end of the quarter, literally on the last couple of days. And sometimes when these deal negotiations extend, it just extends beyond the end of the quarter, right, which is the phenomenon that we saw at the end of the first quarter.

Speaker 2

Yes. Thomas, the lending practices are much more difficult. The protocols that lenders are taking in terms of validating credit, etcetera, just take a lot longer. So it's tougher to get some of these deals closed. And we experienced not only on the distributor side, but in The U.

Speaker 2

S. That was our direct business. And even in Australia, we had deals that almost made it through in Q1, but closed shortly after Q1 ended. So it's impacting all markets.

Speaker 3

Understood. I appreciate the color there. And last thing for me, just you mentioned it briefly on the call, but obviously still planning to launch this next gen body contouring device. Just curious if you've given us an update on that, on the timeline if that remains on track for some time early second half of twenty twenty five? And then just maybe talk high level on kind of your initial expectations for traction and how you plan to ramp adoption of the next gen contouring device in the back half of the year?

Speaker 3

Thanks.

Speaker 1

Sure. On your first part of your question, yes, we do expect the same timing that we've talked about before, which is an approval and launch sometime in the early part of the second half of the year. The regulatory process is underway and as of now there's no reason to believe that the timing should extend. We have not yet really talked publicly about all aspects I'm not going to go into many details other than to say that this is a device that is has been developed based on a lot of customer feedback on some of our best selling devices that are already on the market.

Speaker 1

So we do expect meaningful market uptake when we do have it available. There's already a lot of customer excitement about it. And we expect to make more public commentary about it when the product is approved.

Speaker 3

Understood. I appreciate you taking the time to answer all my questions.

Speaker 1

Great. Thank you. Thanks, Thomas.

Operator

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

Speaker 1

Great. Thank you.

Speaker 2

Thank you.

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Earnings Conference Call
Venus Concept Q1 2025
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