VERO Venus Concept Inc

Venus Concept Inc. (“Venus Concept” or the “Company”) (NASDAQ: VERO), a global medical aesthetic technology leader, announced financial results for the three and nine months ended September 30, 2022.

Third Quarter 2022 Summary & Operating Highlights:

• Total revenue of $21.5 million, down $3.0 million, or 12%, year-over-year.
  • U.S. revenue down 4% year-over-year.
  • Cash system revenue up 30% year-over-year, representing approximately 59% of total systems and subscriptions revenue, compared to 39% in the prior year period.
• GAAP net loss attributable to stockholders of $14.6 million, compared to GAAP net loss attributable to stockholders of $9.8 million last year.
• Adjusted EBITDA loss of $7.7 million, compared to Adjusted EBITDA loss of $3.5 million last year.
• On October 3, 2022, the Company announced that Rajiv De Silva has been appointed as the Company’s Chief Executive Officer and a member of the Board of Directors, effective October 2, 2022.
• On October 11, 2022, the Company announced the appointment of Dr. Hemanth Varghese to the position of President & Chief Business Officer, effective October 17, 2022.

Management Commentary:

“Venus Concept delivered third quarter revenue results that were in line with the preliminary revenue expectations provided on October 3rd,” said Rajiv De Silva, Chief Executive Officer of Venus Concept. “While revenue declined on a year-over-year basis in Q3, our strategic initiative to prioritize cash systems sales resulted in a notably higher mix of cash system sales and stronger cash flow from the sale of our highly-differentiated technologies, compared to the prior year period. We also made progress on our strategic initiative to optimize our international operations including closing underperforming direct sales offices in countries which are not anticipated to produce sustainable results. The organization remains highly focused on our key strategic initiatives to further enhance the cash flow profile of our business and to accelerate our path to long-term, sustainable, profitability.”

Third Quarter and First Nine Months of 2022 Revenue by Region and by Product Type:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
		(dollars in thousands)								(dollars in thousands)
Revenues by region:
United States		$	11,774			$	12,259			$	38,319			$	35,345
International			9,765				12,304				36,892				37,643
Total revenue		$	21,539			$	24,563			$	75,211			$	72,988

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
		(dollars in thousands)								(dollars in thousands)
Revenues by product:
Subscription—Systems		$	7,193			$	12,634			$	29,490			$	33,958
Products—Systems			10,416				8,022				33,838				26,526
Products—Other (1)			3,125				2,961				9,702				9,330
Services (2)			805				946				2,181				3,174
Total revenue		$	21,539			$	24,563			$	75,211			$	72,988

(1)	Products-Other include ARTAS procedure kits and other consumables.
(2)	Services include extended warranty sales and VeroGrafters technician services. VeroGrafters technician services were discontinued in the fourth quarter of 2021.

 

Third Quarter 2022 Financial Results:

		Three Months Ended September 30,
		2022								2021								Change
(in thousands, except percentages)		$				% of Total				$				% of Total				$				%
Revenues:
Subscription—Systems		$	7,193			33.4				$	12,634				51.4			$	(5,441	)			(43.1	)
Products—Systems			10,416			48.4					8,022				32.6				2,394				29.8
Products—Other			3,125			14.5					2,961				12.1				164				5.5
Services			805			3.7					946				3.9				(141	)			(14.9	)
Total		$	21,539			100.0				$	24,563				100.0			$	(3,024	)			(12.3	)

Total revenue for the third quarter of 2022 decreased $3.0 million, or 12.3%, to $21.5 million, compared to the third quarter of 2021. The decrease in total revenue, by region, was driven by a 21% decrease year-over-year in international revenue and a 4% decrease year-over-year in United States revenue. Excluding the impact of changes in foreign currency exchange rates versus the U.S. dollar, total revenue and international revenue, on a constant currency basis, decreased 9% and 15%, respectively, compared to the third quarter of 2021. The decrease in total revenue, by product category, was driven by a 43% decrease in lease revenue and a 15% decrease in services revenue, offset partially by a 30% increase in systems revenue and a 6% increase in products revenue. The percentage of total systems revenue derived from the Company’s subscription model was approximately 41% in the third quarter of 2022, compared to 61% in the prior year period.

Gross profit for the third quarter of 2022 decreased $3.9 million, or 23%, to $13.4 million compared to the third quarter of 2021. Gross margin was 62.1%, compared to 70.5% of revenue for the third quarter of 2021. The change in gross margin was driven primarily by the year-over-year decline in revenue as well as a $1.4 million write-down of end-of-life devices and parts inventory, and a $0.8 million impact from changes in foreign currencies which depreciated relative to the U.S. dollar in the period.

Operating expenses for the third quarter of 2022 increased $2.1 million, or 9%, to $24.8 million, compared to the third quarter of 2021. The change in total operating expenses was driven by an increase of $2.1 million, or 18%, in general and administrative expenses and an increase of $0.6 million, or 33%, in research and development expenses, offset partially by a decrease of $0.7 million, or 8%, in sales and marketing expenses. Third quarter of 2022 general and administrative expenses include approximately $0.7 million of severance payments associated with a workforce reduction in Venus Spain and Venus Canada. For the three months ended September 30, 2021, general and administrative expenses included loss on the sale of a subsidiary in South Africa of approximately $0.2 million.

Operating loss for the third quarter of 2022 was $11.4 million, compared to operating loss of $5.4 million for the third quarter of 2021.

Net loss attributable to stockholders for the third quarter of 2022 was $14.6 million, or $0.22 per share, compared to net loss of $9.8 million for the third quarter of 2021. Adjusted EBITDA loss for the third quarter of 2022 was $7.7 million, compared to adjusted EBITDA loss of $3.5 million for the third quarter of 2021.

As of September 30, 2022, the Company had cash and cash equivalents of $6.8 million and total debt obligations of approximately $77.6 million, compared to $30.9 million and $77.3 million, respectively, as of December 31, 2021.

First Nine Months of 2022 Financial Results:

		Nine Months Ended September 30,
		2022								2021								Change
(in thousands, except percentages)		$				% of Total				$				% of Total				$				%
Revenues:
Subscription—Systems		$	29,490				39.2			$	33,958				46.5			$	(4,468	)			(13.2	)
Products—Systems			33,838				45.0				26,526				36.4				7,312				27.6
Products—Other			9,702				12.9				9,330				12.8				372				4.0
Services			2,181				2.9				3,174				4.3				(993	)			(31.3	)
Total		$	75,211				100.0			$	72,988				100.0			$	2,223				3.0

Total revenue for the nine months ended September 30, 2022, increased $2.2 million, or 3%, to $75.2 million. The increase in total revenue, by region, was driven by an 8% increase in United States revenue and a 2% decrease in international revenue. Excluding the impact of changes in foreign currency exchanges rates versus the U.S. dollar, total revenue and international revenue, on a constant currency basis, increased 6% and 3%, respectively, compared to the nine months ended September 30, 2021. The increase in total revenue, by product category, was driven by a 28% increase in systems revenue and a 4% increase in products revenue, offset partially by a 13% decrease in lease revenue and a 31% decrease in services revenue. The percentage of total systems revenue derived from our subscription model was approximately 47%, compared to approximately 56% for the nine months ended September 30, 2021.

Net loss attributable to stockholders for the nine months ended September 30, 2022 decreased $15.1 million, or 81%, to $33.8 million, or $0.52 per share. Adjusted EBITDA loss for the nine months ended September 30, 2022 decreased $10.9 million, or 134%, to $19.0 million.

Conference Call Details:

Management will host a conference call at 5:00 p.m. Eastern Time on November 10, 2022, to discuss the results of the quarter with a question and answer session. Those who would like to participate may dial 877-407-2991 (201-389-0925 for international callers) and provide access code 13733044. A live webcast of the call will also be provided on the investor relations section of the Company's website at ir.venusconcept.com.

For those unable to participate, a replay of the call will be available for two weeks at 877-660-6853 (201-612-7415 for international callers); access code 13733044. The webcast will be archived at ir.venusconcept.com.

About Venus Concept

Venus Concept is an innovative global medical aesthetic technology leader with a broad product portfolio of minimally invasive and non-invasive medical aesthetic and hair restoration technologies and reach in over 60 countries and 18 direct markets. Venus Concept’s product portfolio consists of aesthetic device platforms, including Venus Versa, Venus Legacy, Venus Velocity, Venus Fiore, Venus Viva, Venus Glow, Venus Bliss, Venus BlissMAX, Venus Epileve and Venus Viva MD. Venus Concept’s hair restoration systems include NeoGraft® and the ARTAS® and ARTAS iX® Robotic Hair Restoration systems. Venus Concept has been backed by leading healthcare industry growth equity investors including EW Healthcare Partners (formerly Essex Woodlands), HealthQuest Capital, Longitude Capital Management, Aperture Venture Partners, and Masters Special Situations.

Cautionary Statement Regarding Forward-Looking Statements

This communication contains contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained herein that are not of historical facts may be deemed to be forward-looking statements. In some cases, you can identify these statements by words such as such as “anticipates,” “believes,” “plans,” “expects,” “projects,” “future,” “intends,” “may,” “should,” “could,” “estimates,” “predicts,” “potential,” “continue,” “guidance,” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements include, but are not limited to, statements about our financial performance; the growth in demand for our systems and other products; and general economic conditions, including the global economic impact of COVID-19, and involve risks and uncertainties that may cause results to differ materially from those set forth in the statements. These forward-looking statements are based on current expectations, estimates, forecasts, and projections about our business and the industry in which the Company operates and management's beliefs and assumptions and are not guarantees of future performance or developments and involve known and unknown risks, uncertainties, and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this communication may turn out to be inaccurate. Factors that could materially affect our business operations and financial performance and condition include, but are not limited to, those risks and uncertainties described under Part II Item 1A—“Risk Factors” in our Quarterly Reports on Form 10-Q and Part I Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. You are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. The forward-looking statements are based on information available to us as of the date of this communication. Unless required by law, the Company does not intend to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise.

Venus Concept Inc.Condensed Consolidated Balance Sheets(Unaudited)

(In thousands of U.S. dollars, except share and per share data)

		September 30,				December 31,
		2022				2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	6,777			$	30,876
Accounts receivable, net of allowance of $13,102 and $11,997 as of September 30, 2022, and December 31, 2021, respectively			40,876				46,918
Inventories			24,241				20,543
Prepaid expenses			1,912				2,737
Advances to suppliers			3,605				2,162
Other current assets			3,351				3,758
Total current assets			80,762				106,994
LONG-TERM ASSETS:
Long-term receivables			23,253				27,710
Deferred tax assets			912				284
Severance pay funds			724				817
Property and equipment, net			2,180				2,669
Intangible assets			12,795				15,393
Total long-term assets			39,864				46,873
TOTAL ASSETS		$	120,626			$	153,867
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Trade payables		$	6,093			$	4,913
Accrued expenses and other current liabilities			17,335				19,512
Income taxes payable			827				294
Unearned interest income			2,575				2,678
Warranty accrual			1,147				1,245
Deferred revenues			1,535				2,030
Current portion of government assistance loans			—				543
Total current liabilities			29,512				31,215
LONG-TERM LIABILITIES:
Long-term debt			77,616				77,325
Income tax payable			592				563
Accrued severance pay			845				911
Deferred tax liabilities			54				46
Unearned interest income			1,355				1,355
Warranty accrual			426				508
Other long-term liabilities			213				348
Total long-term liabilities			81,101				81,056
TOTAL LIABILITIES			110,613				112,271
Commitments and Contingencies (Note 8)
STOCKHOLDERS’ EQUITY:
Common Stock, $0.0001 par value: 300,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 65,584,573 and 63,982,580 issued and outstanding as of September 30, 2022, and December 31, 2021, respectively			27				27
Additional paid-in capital			223,506				221,321
Accumulated deficit			(214,188	)			(180,405	)
TOTAL STOCKHOLDERS’ EQUITY			9,345				40,943
Non-controlling interests			668				653
			10,013				41,596
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	120,626			$	153,867

Venus Concept Inc.Condensed Consolidated Statements of Operations(Unaudited)(In thousands of U.S. dollars, except per share data)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Revenue
Leases		$	7,193			$	12,634			$	29,490			$	33,958
Products and services			14,346				11,929				45,721				39,030
			21,539				24,563				75,211				72,988
Cost of goods sold
Leases			2,608				2,938				8,069				7,444
Products and services			5,558				4,319				16,960				14,287
			8,166				7,257				25,029				21,731
Gross profit			13,373				17,306				50,182				51,257
Operating expenses:
Sales and marketing			8,094				8,775				27,484				26,743
General and administrative			14,128				11,990				41,471				31,983
Research and development			2,576				1,930				7,214				6,005
Gain on forgiveness of government assistance loans			—				—				—				(2,775	)
Total operating expenses			24,798				22,695				76,169				61,956
Loss from operations			(11,425	)			(5,389	)			(25,987	)			(10,699	)
Other expenses:
Foreign exchange loss			2,014				1,645				4,389				2,489
Finance expenses			1,219				1,000				3,176				4,046
Loss on disposal of subsidiaries			—				188				—				188
Loss before income taxes			(14,658	)			(8,222	)			(33,552	)			(17,422	)
Income tax (benefit) expense			(162	)			616				92				609
Net loss			(14,496	)			(8,838	)			(33,644	)			(18,031	)
Net loss attributable to stockholders of the Company			(14,605	)			(9,798	)			(33,783	)			(18,680	)
Net income attributable to non-controlling interest			109				960				139				649
Net loss per share:
Basic		$	(0.22	)		$	(0.18	)		$	(0.52	)		$	(0.35	)
Diluted		$	(0.22	)		$	(0.18	)		$	(0.52	)		$	(0.35	)
Weighted-average number of shares used in per share calculation:
Basic			65,255				54,145				64,462				53,994
Diluted			65,255				54,145				64,462				53,994

Venus Concept Inc.Condensed Consolidated Statements of Cash Flows(Unaudited)(in thousands)

		Nine Months Ended September 30,
		2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(33,644	)		$	(18,031	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			3,293				3,756
Stock-based compensation			1,552				1,602
Provision (recovery) for bad debt			5,912				(628	)
Provision for inventory obsolescence			1,753				1,107
Finance expenses and accretion			291				981
Deferred tax recovery			(620	)			(666	)
Loss on disposal of subsidiary			—				188
Gain on forgiveness of government assistance loans			—				(2,775	)
Loss on disposal of property and equipment			82				—
Changes in operating assets and liabilities:
Accounts receivable short and long-term			4,493				3,468
Inventories			(5,451	)			(4,373	)
Prepaid expenses			825				(112	)
Advances to suppliers			(1,443	)			(142	)
Other current assets			407				909
Other long-term assets			327				(102	)
Trade payables			1,180				(1,573	)
Accrued expenses and other current liabilities			(2,237	)			(3,135	)
Severance pay funds			93				(58	)
Unearned interest income			(103	)			127
Other long-term liabilities			(283	)			87
Net cash used in operating activities			(23,573	)			(19,370	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(297	)			(194	)
Cash received from sale of subsidiary, net of cash relinquished			—				(40	)
Net cash used in investing activities			(297	)			(234	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of costs			415				—
Exercises of 2020 December Public Offering Warrants			—				903
Payment of earn-out liability			—				(147	)
Repayment of government assistance loans			(543	)			—
Proceeds from exercise of options			23				332
Dividends from subsidiaries paid to non-controlling interest			(124	)			—
Net cash (used in) provided by financing activities			(229	)			1,088
NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH			(24,099	)			(18,516	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period			30,876				34,380
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH — End of period		$	6,777			$	15,864
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes		$	152			$	120
Cash paid for interest		$	2,885			$	2,852
FINANCING INFORMATION:
Common stock issuance costs		$	438				—

Use of Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP measure defined as net income (loss) before foreign exchange loss (gain), financial expenses, income tax expense (benefit), depreciation and amortization, stock-based compensation and non-recurring items for a given period. Adjusted EBITDA is not a measure of our financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measures derived in accordance with U.S. GAAP. Accordingly, you should consider Adjusted EBITDA along with other financial performance measures, including net income, and our financial results presented in accordance with U.S. GAAP. Other companies, including companies in our industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. We understand that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are: Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and although depreciation and amortization are non-cash charges, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

We believe that Adjusted EBITDA is a useful measure for analyzing the performance of our core business because it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other than the U.S. dollar, tax positions (such as the impact on periods or companies of changes in effective tax rates), the age and book depreciation of fixed assets (affecting relative depreciation expense), amortization of intangible assets, stock-based compensation expense (because it is a non-cash expense) and non-recurring items as explained below.

The following reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:

Venus Concept Inc.Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA

		Three Months Ended September 30,								Nine Months Ended September 30,
		2022				2021				2022				2021
Reconciliation of net loss to adjusted EBITDA		(in thousands)								(in thousands)
Net loss		$	(14,496	)		$	(8,838	)		$	(33,644	)		$	(18,031	)
Foreign exchange loss			2,014				1,645				4,389				2,489
Finance expenses			1,219				1,000				3,176				4,046
Income tax (benefit) expense			(162	)			616				92				609
Depreciation and amortization			1,081				1,305				3,293				3,756
Stock-based compensation expense			551				536				1,552				1,602
Gain on forgiveness of government assistance loans			—				—				—				(2,775	)
Inventory provision (1)			1,388				—				1,388				—
Other adjustments (2)			726				188				726				188
Adjusted EBITDA		$	(7,679	)		$	(3,548	)		$	(19,028	)		$	(8,116	)

(1) For the three and nine months ended September 30, 2022, the inventory provision represents a strategic review of our product offerings which culminated in a decision to discontinue production and sale of certain models and component parts, resulting in an inventory adjustment of $1.4 million.

(2) For the three and nine months ended September 30, 2022, the other adjustments are represented by severance payments associated with a workforce reduction in Venus Spain and Venus Canada of $0.7 million. For the three and nine months ended September 30, 2021, the other adjustments are represented by a loss on the sale of a subsidiary in South Africa ($0.2 and $0.2 million, respectively).

Investor Relations Contact:

ICR Westwicke on behalf of Venus Concept:
Mike Piccinino, CFA
VenusConceptIR@westwicke.com