Venus Concept Inc. (NASDAQ:VERO) is a global medical technology company that specializes in developing, commercializing, and delivering minimally invasive and non-invasive medical aesthetic and hair restoration technologies and related services. With a focus on cost-effective, proprietary, and flexible platforms, the company has been able to expand beyond the traditional aesthetic industry markets of dermatology and plastic surgery and into non-traditional markets such as family medicine, general practitioners, and aesthetic medical spas.
Business Overview and History
Venus Concept was incorporated in the state of Delaware on November 22, 2002. The company has had a rich history of innovation, having developed and received regulatory clearance for twelve novel aesthetic technology platforms, including its renowned ARTAS and NeoGraft systems for hair restoration. Venus Concept's medical aesthetic technology platforms have received regulatory clearance for a variety of indications, such as treatment of facial wrinkles, temporary reduction of the appearance of cellulite, non-invasive fat reduction, and relief of minor muscle aches and pains in various jurisdictions around the world.
In 2010, the company adopted a share option plan to provide incentives for directors, officers, employees, and consultants through stock options. This plan was later amended and renamed as the 2019 Incentive Award Plan in 2017. Venus Concept has also engaged in various financing activities over the years. In 2016, Venus Ltd., a subsidiary of the company, entered into a credit agreement with Madryn Asset Management, which provided loans to certain Venus Concepts subsidiaries. In 2020, the company issued $26.7 million in secured subordinated convertible notes to Madryn Noteholders and executed a $50 million loan agreement under the Main Street Priority Loan Facility.
More recently, in 2023, Venus Concept entered into a securities purchase agreement for a multi-tranche private placement of up to $9 million in shares of senior convertible preferred stock. The company successfully sold $2 million in the initial placement in May 2023, followed by additional placements of $2 million in July, $1 million in September, and $2 million in October of the same year.
The company's revenue streams are primarily derived from the sale of systems through traditional sales contracts, internal financing programs, and distribution agreements, as well as from the sale of consumables, accessories, and extended warranty services. For the nine months ended September 30, 2024, approximately 28% of the company's total system revenues were derived from its internal financing programs, Venus Prime and its legacy subscription model. These programs are structured as sales-type finance leases, where the present value of all cash flows to be received under the agreement is recognized as revenue upon shipment to the customer.
In the United States, Venus Concept has obtained 510(k) clearance from the FDA for its various aesthetic technology platforms, while in international markets, the company markets its products in over 60 countries across Europe, the Middle East, Africa, Asia-Pacific, and Latin America. As of September 30, 2024, the company operated directly in 12 international markets through its 10 direct offices located in the United States, Canada, Japan, Mexico, Spain, Germany, Australia, China, Hong Kong, and Israel.
Financial Performance and Liquidity
For the nine months ended September 30, 2024, Venus Concept reported total revenue of $49.1 million, down 15.7% from the same period in the prior year. The decrease in revenue was primarily attributed to an acceleration in exiting unprofitable direct markets, an initiative to reduce the company's reliance on system sales under its lease programs, and the effects of tighter third-party lending practices, which negatively impacted capital equipment sales in both the U.S. and international markets.
Despite the revenue decline, the company has made significant progress in improving its cash flow profile. For the nine months ended September 30, 2024, cash used in operations decreased by 40% to $7.3 million, compared to $12.1 million in the same period of the prior year. This improvement in cash flow was driven by the company's strategic initiatives to prioritize cash system sales, which represented approximately 72% of total system sales in the first nine months of 2024, compared to 70% in the prior year period.
As of September 30, 2024, Venus Concept had cash and cash equivalents of $4.5 million and total debt obligations of approximately $34.6 million, down from $74.9 million as of December 31, 2023. The substantial reduction in debt was primarily due to a series of debt-to-equity exchanges with the company's lender, Madryn Asset Management, during 2024. These transactions have significantly strengthened the company's balance sheet and financial flexibility as it continues to execute its strategic transformation plan.
For the three months ended September 30, 2024, Venus Concept reported total revenue of $15.01 million, a decrease of 14.8% compared to the same period in 2023. The company's revenue is primarily generated from three main product segments: Leases, Products, and Services.
Lease Revenue for the three months ended September 30, 2024, was $2.68 million, or 17.9% of total revenue. For the nine months ended September 30, 2024, lease revenue was $10.73 million, or 21.9% of total revenue.
Product Revenue, which includes system sales through traditional sales contracts and internal financing programs, was $8.90 million for the three months ended September 30, 2024, representing 59.3% of total revenue. For the nine months ended September 30, 2024, system revenue was $28.02 million, or 57.1% of total revenue. Other product revenue, including consumables and marketing supplies, was $2.74 million (18.3% of total revenue) for the three months and $7.95 million (16.2% of total revenue) for the nine months ended September 30, 2024.
Service Revenue, derived from extended warranty service contracts, was $0.68 million (4.5% of total revenue) for the three months and $2.37 million (4.8% of total revenue) for the nine months ended September 30, 2024.
Gross profit for the three months ended September 30, 2024, was $9.92 million, corresponding to a gross margin of 66.1%. For the nine months ended September 30, 2024, gross profit was $33.42 million, with a gross margin of 68.1%. Operating expenses for the three and nine month periods ended September 30, 2024, were $17.08 million and $53.93 million, respectively.
The company reported a net loss attributable to shareholders of $9.29 million for the three months ended September 30, 2024, and $39.03 million for the nine months ended September 30, 2024. Cash used in operations for the most recent quarter was $3.05 million, with free cash flow at negative $3.05 million.
In terms of liquidity, as of September 30, 2024, Venus Concept had a current ratio of 1.86 and a quick ratio of 1.18. The company has a credit facility with Madryn Asset Management that provided bridge financing of up to $5.0 million, some of which has been drawn down.
Operational Highlights and Strategic Initiatives
In addition to its financial progress, Venus Concept has also made notable advancements in its operational and strategic initiatives during the year. The company has continued to expand its international distribution network, securing new partnerships with Paragon Meditech in Taiwan, Quirugil S.A. in Colombia, and Spectra Medical Systems in India. These partnerships, coupled with recent regulatory approvals for key products like the Venus Bliss MAX in Australia and Canada, are expected to drive future international growth and profitability.
The company has also made strides in developing new innovative platforms to address its customers' evolving needs. In the third quarter of 2024, Venus Concept completed the regulatory submission for a new body platform in the U.S., which is expected to launch in the first quarter of 2025. This new platform will enable new and existing customers to provide patients with the company's latest body technologies and deliver leading clinical results, further strengthening its position in the aesthetic medical device market.
Risks and Challenges
While Venus Concept has shown resilience in navigating the current macroeconomic environment, the company faces several risks and challenges that investors should be aware of. The aesthetic medical device industry is highly competitive, and the company must continuously innovate and develop new products to maintain its competitive edge. Additionally, the company's operations in Israel and its reliance on a single major contract manufacturer in Israel expose it to potential supply chain disruptions and geopolitical risks.
Furthermore, the company's internal financing programs, which account for a significant portion of its revenues, expose it to credit risk from its customers. The ability of these customers to make timely payments under their agreements is crucial for the company's financial performance. Lastly, Venus Concept's ability to maintain its Nasdaq listing is an ongoing concern, as the company has faced challenges in meeting the exchange's minimum equity and bid price requirements in the past. In 2023, the company received a notice from Nasdaq stating that its stockholders' equity was below the minimum required for continued listing, although it was able to regain compliance in 2024.
The company has also had to navigate global economic conditions, including high inflation and rising interest rates, which have impacted customer financing and purchasing decisions. Additionally, the company's operations in Israel have been affected by regional conflicts and instability in the Middle East.
Guidance and Future Outlook
Venus Concept's Q3 2024 revenue results were described as "softer than expectations" outlined in the previous earnings call. However, for Q4 2024, the company expects total revenue of at least $17 million. While specific guidance for the full year 2024 or 2025 was not provided, the company remains focused on executing its strategic transformation plan and improving its financial performance.
Conclusion
Despite the headwinds faced in the aesthetic medical device industry, Venus Concept has demonstrated its ability to navigate the current environment through strategic initiatives focused on enhancing cash flow, streamlining its operations, and strengthening its balance sheet. The company's continuous innovation, expanding international footprint, and commitment to delivering cutting-edge aesthetic solutions position it well for long-term growth and value creation. As Venus Concept continues to execute its transformation plan, investors will need to closely monitor the company's progress in addressing its risks and challenges while capitalizing on the opportunities in the rapidly evolving aesthetic medical device market.