Venus Concept Inc. Q3 FY2020 Earnings Call

Good day, ladies and gentlemen, and welcome to the Third Quarter of 2020 Earnings Conference Call for Venus Concept Inc. Please note that this call is being recorded and the recording will be available on the Company's website for replay. Before we begin, I want to remind everyone that our comments and responses to your questions today may include forward-looking statements based on management’s current expectations and involve inherent risks and uncertainties that could lead actual results to differ materially from those indicated. These risks are detailed in the Risk Factors section of our most recent annual report filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, accessible on our website. We do not have an obligation to publicly update or revise our forward-looking statements due to new information or future events. This call will also reference certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable GAAP measures are available in our earnings press release issued today on the Investor Relations section of our website. I would now like to turn the conference over to Mr. Dom Serafino, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Thank you very much, operator, and welcome everyone to Venus Concept's Third Quarter 2020 Earnings Conference Call. I'm joined today on the call by our Chief Financial Officer, Domenic Della Penna; and Chad Zaring, our Chief Commercial Officer. Let me start with a brief agenda of what we will cover during our prepared remarks. I will start with an overview of our revenue performance in the third quarter, including color on how our business trends have continued to significantly improve amidst the continued challenges related to the COVID-19 pandemic. Chad and I will then provide an update on our progress in key strategic areas, including our targeted commercial strategy, our global restructuring activities, which are well underway, and our continued development work related to our robotics. Then Domenic will provide you with a more in-depth review of our quarterly financial results, as well as a summary of our balance sheet and financial conditions. And then we will open up the call to questions. With that overview in mind, let's get started. Beginning with a review of the third quarter revenue performance. We reported GAAP revenue of $20.7 million for the third quarter of 2020, representing a decrease of 21% year-over-year. As expected, our sales performance in the third quarter continued to be impacted by the business disruption caused by the global pandemic. We believe, however, there is reason for optimism. Sales increased 22% on a quarter-over-quarter basis, reflecting improving business trends in key markets that we experienced during the quarter. The improvements in business trends is most evident when evaluating the growth in patient procedures that we experienced during the quarter. Starting with the procedure trends with our aesthetic customers. Our real-time IoT data gives strong visibility into the active device trends for a large portion of our installed base. This average usage per system data reflects improving consumer activity and demand for our product procedures during the third quarter. Specifically, we saw an average usage per system trends in the U.S. return to growth on a year-over-year basis in July and August. And we ended the quarter at rates that were similar to what we were seeing from U.S. customers pre-COVID. Outside of the U.S., we have seen a wide variation of average usage per system trends depending on the region of the world in question. We have seen a steady month-to-month improvement and active device trends from aesthetic customers in Latin America since May. And by the end of September, average usage for systems was running at pre-COVID levels. Active device trends from aesthetic customers in the EMEA region were slower to recover in Q3. While we did see some nice uptick in average usage per system in September as compared to August, overall average usage per system was still running below pre-COVID levels. For the month of September, we estimated approximately 90% of our global customer base was being active with our devices, as compared to less than 10% during the month of April. Clearly, we are seeing a COVID recovery taking shape for our aesthetic customers using our devices around the world. In terms of the procedure trends for our hair restoration customers, a significant improvement in procedure trends we experienced in key markets during Q3 was very encouraging as global procedures on our ARTAS and ARTAS iX systems returned to growth in the third quarter, increasing 4% year-over-year and increasing 41% on a quarter-over-quarter basis. In North America, procedures of our ARTAS and ARTAS iX systems increased 35% year-over-year in Q3, offsetting the 23% decline in procedures in international markets compared to the same period of the prior year. This significant improvement in the U.S. hair restoration procedure trends we experienced in Q3 was obviously helped by the better environment during the quarter. Our ARTAS and ARTAS iX customers were very busy in Q3 meeting the high demand for hair restoration procedures in the period, driven in part by our strategy to engage with customers to drive clinic traffic. Importantly, third-quarter U.S. procedure growth also benefited from strong execution by our commercial team, towards our key strategies to engage the hair restoration customers in the U.S. who have ARTAS systems that we believe may have been underutilized in the past. While international procedures declined year-over-year, we did see a 33% increase in international sales quarter-to-quarter, which better reflects the improving business trends we experienced in Q3, driven primarily by the recovery of hair restoration procedure trends in EMEA outpacing what we have seen in APAC and Latin America. While the improving procedure trends we experienced during the third quarter are certainly encouraging, there is no denying that the challenging global capital equipment environment as a result of COVID-19 continues to have a material impact on our revenue results. That said, we are pleased to see the pace of our system adoption improve in Q3, as compared to Q2. I believe the improvements in system adoption trends we experienced in Q3 are a result of our team executing on our commercial strategy exceptionally well. I'm going to ask Chad to share some additional color on our strong commercial execution in Q3. Chad.

Thanks, Dom. As discussed on our Q2 call in August, we implemented a more targeted, near-term commercial strategy during the second quarter, which is focused on the following; Optimizing our pipeline and sales process and opening new strategic sales channels; diversifying and tightening clinician targeting; tailoring our selling strategies depending upon the geographic region of the country and arming our direct sales team with programs and messaging focused on six key product lines within our broad portfolio of 12 commercialized products. Focusing the team on key product lines has allowed us to drive system adoption in the face of COVID-19, and this targeted selling strategy has also contributed to an increasing percentage of our system sales that come from cash purchases, which has helped to improve our overall cash flow. The largest contributors to our sales results in Q3 were continued positive market response to our Venus Bliss non-invasive fat and body contouring platform and very strong adoption of the ARTAS hair restoration business in Q3. We outline the strategy for turning the ARTAS business around following our merger in late 2019. The new commercial strategy for ARTAS and ARTAS iX systems, products, and services is focused on driving broad-based adoption and utilization, which had not happened under the prior management. By way of reminder, there are three key tenets of this new commercial strategy. First, an improved pricing model focused on driving system adoption while improving the gross margin profile as a result of significant reductions in the cost of goods that we identified. The second key tenet of the new commercial strategy is a targeted plan to engage with clinicians to drive improved utilization of our installed base, including reinvigorating underutilized ARTAS systems. The third key tenet of the new commercial strategy, we believe will improve the growth trends for ARTAS is the fact that we are now able to offer the most comprehensive hair restoration solutions available today. With ARTAS and NeoGraft, we now have an end-to-end portfolio of minimally invasive solutions that is unique from any competitor in the $4.1 billion global hair restoration market. Simply stated, our new commercial strategy is clearly working. Sales of ARTAS systems and products in the third quarter increased 46% year-over-year to $4.8 million, impressive performance given the challenging capital equipment environment.

Thanks, Chad. We are also executing our strategic initiatives focused on enhancing our competitive positioning and maximizing our capital. We made notable progress in our efforts to reduce our operating expense profile as part of a restructuring program we discussed on prior calls that identified operating expense reduction opportunities of at least $20 million, which we are well on track to realize in 2020 and into 2021. This restructuring program, combined with the previously announced synergies and cost reductions, is expected to result in a total cost savings of approximately $38 million in 2020 and continuing into 2021. We are continuing to enhance our competitive positioning under the leadership of Chad Zaring with targeted strategies that include consolidation of direct selling operations in certain international markets and investing that capital primarily in the higher return more attractive U.S. market and enhancing our commercial team by eliminating multiple layers of sales management positions and calling underperforming representatives. We are relocating a portion of the savings for the expansion of our North American direct sales team, which we believe offers the highest ROI for these investment dollars. As of the end of the quarter, we have 51 direct representatives on the North American team and we expect to continue to strategically invest to increase to more than 60 by early 2021. Together we expect these efforts will result in a significant improvement in the Company's financial profile going forward. And finally, we continue to be excited with the progress we are making in product development. Specifically, our efforts to develop next-generation robotic technologies for medical aesthetic applications. We believe that the technology we are developing will offer dermatologists and plastic surgeons minimally invasive robotic solutions for medical aesthetic procedures that will improve the safety profile, provide better clinical predictability, significantly reduce operator fatigue and help clinics reduce treatment variability while also offering a significant competitive advantage in the areas of marketing and customer acquisition, specifically benefiting the dermatology and plastic surgery community. In fact, we plan to host a virtual R&D event on December 10th, where analysts and investors can learn more about the progress we have made in product development, speak with some of our key investigator physicians who are working with us to develop this exciting new category of technologies and better understand our near and longer-term strategy in this exciting area of next-gen medical device innovations. With that, let me turn the call over to Domenic Della Penna, who will provide you with a detailed review of our third-quarter financial results and discuss our balance sheet and financial condition. Dominic.

Thanks, Dom. My prepared remarks this afternoon will concentrate on the Company's financial results as reported under GAAP, unless noted otherwise. To clarify our reported and historical results, I want to emphasize a few points about our merger with Restoration Robotics. First, results before the fourth quarter of fiscal year 2019 reflect the performance of our legacy Venus Concept business. Second, starting from the fourth quarter of fiscal year 2019, our results incorporate contributions from Restoration Robotics. Total GAAP revenue for the third quarter decreased by $5.5 million, or 21%, year-over-year, amounting to $20.7 million. Our GAAP income statement shows that lease revenue, which includes our subscription program, fell by $7 million, or 43%, year-over-year to $9.4 million, while total products and services revenue rose by $1.5 million, or 16%, year-over-year to $11.2 million. The drop in lease revenue during the third quarter of 2020 was primarily due to the global pandemic's impact on business operations. Total products and services revenue comprised $4.8 million from sales of ARTAS and ARTAS iX systems. Sales of these systems increased by 46% year-over-year compared to $3.3 million in the third quarter of 2019, when Restoration Robotics was still a standalone company. The increase in sales of ARTAS systems indicates that our new commercial strategy is effective, bolstering our confidence in increasing adoption and usage of our hair restoration platforms moving forward. Now, for a brief overview of our revenue performance by geography and product line, which we detail in our 10-K and 10-Q filings. The year-over-year change in total GAAP revenue for the third quarter by geography was marked by a $3.1 million, or 20%, decline in international sales and a $2.3 million, or 23%, decline in U.S. sales from the previous year. By product category, the revenue decrease was driven by the previously mentioned $7 million drop in lease revenue and a $0.3 million, or 23%, decline in service sales. However, these were partially offset by a $1.5 million, or 125%, increase in sales of procedure-related products and a $0.4 million, or 6%, rise in system revenue, specifically cash sales or sales for systems expected to be paid for within a year. For the nine months ending September 30, 2020, subscription sales made up about 57% of our revenue compared to 70% in the same period last year, reflecting our 2020 strategy to prioritize six products more commonly sold through traditional sales methods to enhance cash flow. Regarding our performance in the third quarter from a financial perspective, gross profit dropped by $5.3 million, or 28%, year-over-year to $13.5 million, with a gross margin of 65.3%, down from 71.8% last year. The main cause for the year-over-year gross profit decrease was diminished revenue due to COVID-19 disruptions. The change in gross margin was influenced by the robust performance of our Robotic ARTAS systems sold at slightly lower margins compared to other systems. It is noteworthy that while our GAAP gross profit margin results show a decrease, Restoration Robotics improved its gross margins to approximately 50% in Q3 2020, up from about 31% in Q3 2019, indicating the early success of our strategic initiatives targeting the long-term profitability of ARTAS-related sales. Our total GAAP operating expenses declined by $6.5 million, or 26%, year-over-year to $18.8 million. This decrease was mainly due to a $3.5 million, or 39%, reduction in sales and marketing expenses and a $3.2 million, or 22%, dip in general and administrative expenses, somewhat offset by a $0.2 million, or 10%, increase in research and development expenses. Our total GAAP operating expenses included a $2.2 million bad debt charge stemming from reduced collections due to COVID-19 among our subscription customers. Excluding this COVID-19-related charge, operating expenses would have decreased by $8.7 million, or 34%, year-over-year in Q3 2020. Despite assuming the operating costs from our merger with Restoration Robotics, which did not influence our total GAAP operating expenses in Q3 2019, we achieved over $7 million in cost savings through our restructuring program in the third quarter, totaling more than $14 million over the first nine months of 2020. We still aim to achieve $20 million in total cost savings for the full year 2020. Additionally, while we recorded extra bad debt due to COVID-19 in the third quarter, it is crucial to note that starting in July 2020, our collection efforts greatly improved and continued to do so through September 2020. We entered into repayment plans with most non-paying customers, and as government restrictions lifted, we saw a significant rebound in collections as businesses reopened. In our largest subscription markets, we collected 104%, 97%, and 98% of our billings in July, August, and September respectively, compared to just 35% in May and 60% in June. Our device activation codes have proven effective in re-engaging customers with overdue payments once repayment arrangements were secured. Returning to our financial results for the third quarter, our total operating loss was $5.3 million, compared to an operating loss of $6.6 million the previous year. The GAAP net loss for the third quarter stood at $7.3 million, or $0.18 per share, compared to $9 million, or $1.77 per share, in the prior year. The weighted average shares used to calculate the net loss attributable to Venus Concept Inc holders were 40.5 million and 4.9 million for the third quarters of 2020 and 2019 respectively. The non-GAAP adjusted EBITDA loss for Q3 2020 was $1.4 million, unlike the adjusted EBITDA income of $28,000 for Q3 2019. We provided a complete reconciliation of our GAAP net loss to adjusted EBITDA in our press release this morning. Regarding our balance sheet, the company had $12.8 million and $15.7 million in cash and cash equivalents as of September 30, 2020, and December 31, 2019 respectively, with total debt obligations of roughly $74.5 million, including $3.9 million in line of credit borrowings and $4.1 million in government assistance loans, compared to total debt obligations of about $69 million, including $7.8 million in line of credit borrowings at December 31, 2019. The year-to-date cash change was due to a $26 million increase from financing activities offset by an operational cash use of $28.8 million. The rise in cash from financing activities primarily stemmed from $20.3 million in private placement proceeds in Q1, $6.2 million from issuing common stock to Lincoln Park under our new equity purchase agreement made in June, and $4.1 million from two small business loans under the Federal Paycheck Protection Program, partially offset by the repayment of $3.9 million from our credit facility. Additionally, on September 30th, the company entered into an amended agreement that mandates 50% of the interest payments from July 1, 2020, to September 30, 2020, to be made in cash, with the remaining 50% to be paid in kind, resulting in an average interest rate of 10.5% for Q3 2020. As of September 30, 2020, the company complied with all required covenants. Lastly, regarding our guidance, due to the rapidly changing environment and ongoing uncertainties from COVID-19, we withdrew our previously provided fiscal year 2020 revenue guidance on March 30, 2020. At this moment, we cannot ascertain the specific scope or duration of COVID-19's impacts on our financial and operational results for fiscal year 2020, hence we are unable to provide financial guidance at this time. However, we aim to return to offering annual guidance for fiscal year 2021 during our fourth-quarter call or potentially sooner. While we are not positioned to deliver formal financial guidance now, we would like to share some modeling considerations. In Q4 of 2019, GAAP operating expenses included contributions from our merger with Restoration Robotics only for November 7 to December 31. The combined companies had total operating expenses of $37.6 million in Q4 2019, incorporating about $5 million of merger-related costs, leading to a normalized OpEx of $32.6 million. We expect to achieve about a $12 million reduction in total combined company normalized operating expenses in Q4 2020, aiming for around $20 million in normalized OpEx for that quarter. Finally, we also anticipate an additional $3 million to $4 million in GAAP operating expenses for the fourth quarter due to non-operating charges regarding subsidiary closures and the consolidation of international sales offices, alongside potential bad debt expense provisions due to outstanding COVID-19-related billings. With that, we'll now open the call to questions.

Thank you. Our first question today is from Anthony Vendetti from Maxim Group. Your line is now live.

Thank you. Good morning.

Hey good morning, Anthony.

Good morning, Dom. I just wanted to talk a little bit more about the procedure pickup, you mentioned that by the end of the third quarter procedure volume has picked back up to pre-COVID levels. Is that continuing into October and November here in the U.S.?And then any more color on what is going on in EMEA and an international in terms of procedure volume, which I know hasn't been as concerned in terms of coming back?

Correct.

Okay, great. And I guess you said December 10th is when you are having this virtual event to go over the robotics.

Correct.

And can you talk a little bit more about that? Is that going to kick-off with one particular product, or are you going to talk about the opportunity to use robotics for multiple products, multiple treatments?

Right. So there are two purposes for this. Number one is to give the analysts and investment community an update on what we think are dramatic improvements in the implantation feature of the device. Anybody who was involved with restoration in the past felt or understood that they brought that particular feature to market, I think prematurely. We have taken the last year essentially to continue to redevelop that particular element of the device, which makes that device much more attractive commercially to, I will call it serious hair restoration clients. The second part of that meeting is to get an update as to where we are going right now with robotics beyond hair restoration. One of the things that is really important to understand and distinguish between us and other robotics-type event companies is that we don't have to spend $200 million to develop a platform. Restoration spent a significant amount of money developing the base platform for many, many years prior to us acquiring the company. And so, we have been working. We have done animal trials and we have now started to prepare for human trials with the next generation of robotics, and one of the areas that we are looking at is various parts of the anatomy where you can get directional tightening and potentially create a robotics platform for various injectable products, which is where we believe we can significantly increase the performance predictability of clinical outcome and certainly reduce operator, nurse fatigue, for example.

And just, Dom, can you talk just a little bit about the timing of when on the tightening side, when we might be able to see an actual commercial product, or do you have a timeframe for that at this point?

Yes. I as said, we finished our pig trials. We were very encouraged by what we saw histologically. We have done a very small in-house study, two of our employees actually that we treated in our R&D department, with the device of one of our physicians, some very promising results there albeit at a small sample size. We intend to be in clinical trials sometime at the end of Q1, early Q2, maybe sooner with some good fortune, which we will discuss on the 10th, with the next robotic platform and with any degree of luck before the end of 2021, we will have a commercial device available somewhere in the world.

Okay, great. Thanks so much. I will hop back in the queue.

Pleasure, Anthony.

Thank you. The next question is from Suraj Kalia from Oppenheimer. Your line is now live.

Good morning, Dom. Dominic and Chad, can you hear me all right?

We can. Thank you.

Perfect. So Dom, let me just kick-off on the last point you made about injectables. So, the way I understood injectables using a robotic platform, can you just walk us through how you will see the price elasticity of demand? And got me thinking, what would the competitor be for a clinical trial? Are you guys at liberty to discuss that now or should we wait for December 10th?

Yes, on that particular topic, I prefer to wait until December 10th without getting too specific right now. That said, Suraj, I think that one of the things that is really important for all of us to understand is the evolution of the industry in this somewhat commoditization of procedures. And I think that the dermatology and plastic surgery community in particular have been somewhat hard done by over time, in terms of price erosion, and so on. It has been difficult for them in the area of injectables, for example, not that they don't have a patient population that wants them to do it. But there are nurse practitioners, different med spas, and so on. They are doing Botox, fillers, volumizers, et cetera. We think that there are some significant clinical benefits to having a robotic delivery system which will allow for artificial intelligence to do proper mapping guidance and actually create some customizable treatment protocols for individual patients, which will take away a lot of the not guess factor, but experienced factor, if you will, with the nurses, for example, that are doing the injectables on behalf of the physician. So we are going to get into much more detail on that on the 10th. Chad, I don't know if there is anything else you want to add there coming from the robotic world.

Yes Dom. Hey, Suraj. I would say that there is already - when you think about injectables, and using our core platform and core technologies to make it a more scientific data-driven approach. There is already an established clinical and commercial model, one just has to look to orthopedics, vascular neurosurgery, where implants are placed in the body more precisely. Historically, they have been placed without robotic assistance without advanced vision, without artificial intelligence and data. And those models have been in place for some time. So there is probably an opportunity to look at the clinical and commercial models in those other adjacent areas, and determine how those same technologies can help with what Dom outlined.

Got it. So at this question, either for Dom or Chad. Dom, you guys have been talking about ARTAS, and the performance has been pretty good over the last two quarters. I know Chad talked about new pricing mechanisms for this part of the business. Two-part question. Were these leads for ARTAS already in the pipeline, and just kind of walk us through the structural changes you guys are implementing; how sustainable do you see as we navigate the next six months with presumably are going to be difficult for everyone else?

Yes, I will answer the first part of that. And then will have Chad sort of describe what he has been doing with the sales organizations behind the scenes. Look, I think that the ARTAS Robot was sold by restoration with all the features, including implantation, which I think quite frankly, was premature, and did create some very significant pushback by customers who bought into that narrative before we were involved. What we did when we took over this company was we made two strategic decisions; number one, we had to find ways to improve the cost of goods sold, so that we can improve the margin profile, which we were able to do. The second part of this, which is very important, is that we stopped selling the robot with the implantation element to it. So that allowed us to reduce the price overall yet continue to improve the gross profit margin because of our work behind the scenes on the cost of goods sold. That said, as we start to get more comfortable with more users using the implantation portion of the device, we will now be able to add that on as an upgrade, typically in the area of about $50,000, which will allow us to now get the prices to a sort of - I will call it a point between where restoration was selling the devices prior to our involvement and where we are now, which will continue to help improve the gross margin profile on the device. What I can tell you is that we have had tremendous interest in the end selling of the product in EMEA, because now customers are starting to understand that because Venus is a global entity and not a regional one, they can get service and support and training in their local jurisdiction, which they were not able to do before. So we think that this is quite sustainable. And certainly, the procedural revenue that we are capturing in terms of the per procedure kit, we are at record quarters in Q3, more than anything that restoration had ever done in their history. And I will let Chad talk a little bit more about that and what he has been doing with the sales organization to ensure that we can have sustainability here and it is not something that will just sort of be a one-quarter victory.

Yes. Thanks, Dom. Yes, I would just make a few comments about that. Number one, we have heard from a lot of our customers, and what the pandemic has further exposed is a strong interest in these higher revenue procedures, maybe a lower volume, higher margin. So we have seen a lot of interest in general in the market based on the financial opportunity in hair restoration. The second thing is, as you probably know, procedures follow a pretty standard technology adoption curve. And so, what we are seeing now is an increase in the pipeline, driven partially by general market acceptance of robotics and ARTAS for hair restoration. So, we are seeing an opportunity to really get into new customers in the core market and talk to them about the benefits of hair restoration and ARTAS and they understand that. And then thirdly, we have looked at the end-to-end process. Programs don't fail, and when I say fail, meaning underutilization, underperformance expectations. They don't fail because of the robot. It is typically a gap in the program and the process. And so, what we have done with our team, a dedicated team of program development managers, is look, interview 30 to 40 U.S. customers and understand where in the program we can identify gaps to improve. And since then we have implemented some marketing relationships. We have improved our training program and we have improved our overall re-engagement program, which has resulted in an increase in procedures and an increase in the number of systems used, utilized, meaning less dark systems and an increase in our capital pipeline.

Got it. Dom, last couple of last couple of questions, and then I will let others jump in. Dom, give us the status of Venus Bliss and same-store sales versus new stores. Dominic, the collections for the subscription model, is it going to be a catch-up at a certain point, gentlemen? Congrats on the progress.

So, let me just address the Bliss. The Bliss part of the story, and then Dom can talk to you about the collections. We are very pleased with the market acceptance of the Bliss system. Our data that we have on utilization, again remember we are a company that has the ability to look at the devices in real time, is showing an average payback period within I think the average selling price of $110,000. The average payback period is approximately 36 weeks for customers who have acquired this platform. So this is data that we can get into deeper detail on as we have our conversations, but I think we are quite pleased with the market acceptance and most importantly, the product reliability in the field. Whenever you have new platforms to come to market, sometimes you have a burning period, if you will. But we executed properly here with a soft launch earlier in the year. And we are now into full production and sell-through of the device and payback periods that are very, very attractive to a customer who may be making a decision to get into not only non-invasive fat reduction, but a platform that also has the ability to simultaneously body contour, which is a very important distinction for most of the other devices out there that are targeting fat. Dom you want to deal with these collections?

Sure. Well, Suraj I mentioned that, in the month of July, August and September, we experienced collections around 104%, 97%, and 98%, respectively. So by virtue of the fact that we were able to collect 104% of expected collections in July, implies that we are reactivating accounts from being dormant to paying again, and then not only that, but they are also paying for some of the arrears that they owe us. And that is why we ended up with a number of 104%. And quite frankly, the numbers of 97% and 98% reflect that as well. So you still have an element of customers that perhaps aren't able to fully pay their collection amounts, but it is being offset by others that are paying the normal monthly amount plus the catch-up amount from arrears. So it is a combination of the two, and we are seeing very similar in October and November, whereby we are into the high 90s. And a lot of these repayment plans go out over a period of three to six months. So essentially, we are going to see this well into the first quarter of 2021. We will continue to see collections that are fairly close to the theoretical collection that we would like to see. Now, by theoretical, I mean, even companies like VISA don't expect that 100% of their customers are going to pay 100% of what they have standing on a certain day of the month, a lot of them will. And some of them are quite religious in doing so others take advantage of paying a partial amount or paying the minimum amount, and then it gets extended out over time. So even VISA has the same sort of issue whereby they get the majority of their customers are paying on a certain date. But then they get these stragglers that cannot make it in that month and they say the first of the following month. And then they effectively go on a sort of a pseudo-route repayment plan going forward. And Amex and VISA both publish default rates in the high single digits. But by default, I mean, when an account that doesn't pay at all, and it seems the fact that. But in the case of VISA most accounts end up paying, but they pay over a period of time. So that is what you are seeing here is that, we have got the majority are starting to pay again when they are supposed to pay and others are trying to make minimum payments to keep us from deactivating their codes, but they still need time to get back on track. And it varies by state, it varies by country, and it varies by the type of clinic they have and the type of machine that they have.

Thank you. Next question today is coming from Jeffrey Cohen from Ladenburg Thalmann. Your line is now alive.

Hi, Dom, Dominic, and Chad. How are you?

Hey, Jeff. Good. How are you?

Doing fine. Moving myself to a few questions. So, you have previously talked about some of the international results there and that you were going to put some back out to additionally show relationships. I think there was one mentioned in your press release and one territory. Could you talk about how that is progressing or not progressing and how you view that change over the coming year for example? Thank you.

Right. So, we identified obviously earlier in the year that there were going to be some significant challenges because of this pandemic. And having said that, we took a look at markets globally. We were in 29 direct markets in the past. We made a decision that countries that represented approximately $2 million of revenue would probably make more sense to close and go to a traditional distributor model and basically repatriate the OpEx in those jurisdictions into North America. We did talk about one country closed in Q3. There are a number of other ones that didn't make the cut by September 30th. So, we have a high degree of confidence we will be completed by the end of the year. And ultimately, as we said in the press release and in the notes earlier, we plan to repatriate a significant amount of that savings into the North American market because a single rep can generate $2 million in North America as opposed to a country that comes with all of the regulatory challenges and the various elements of bricks-and-mortar. So, we feel that by the end of Q4, we will be very close to our objective in terms of the remaining countries that will remain open long-term. And if not completed by the end of Q4, it will be early in Q1. Back in June of this year, we had 29 direct countries. And now we are down to 25. So we closed three late in June and another one just before we announced our results just closed the other day. So, we have gone down to about 25. And by the end of December, we expect to be down to 20 to 21 direct offices and reinvesting a lot of these savings going forward into the U.S. market.

And along those lines, could you call out names of the countries which stood out as far as during the third quarter in particular? Was it European territories?

Yeah. In European countries, France in particular was quite strong, Germany performed well, Spain performed well and the UK, ironically enough, even with all the lockdowns and things and the sort of rotating lockdowns there, the UK was very strong as well.

Okay. And second from me is, Dom, could you talk a little more about market and Bliss uptake? What are you finding at least domestically in North America as far as previous customers or their previous customers that also have other offerings that they have hardly been using and they are using Bliss as kind of inject therapy for which to add onto to the current practice, or are these new customers coming on board previously have no experience?

Right. So, I will let Chad address a little bit of that. Now, I will throw it back. Chad, if you would like to talk about your experience on that.

Yes. I will be happy to. It is actually both. So, I mentioned earlier in the release about opening a new strategic sales channel. So I will start with that. The non-invasive fat reduction category is established. But one of the things customers really like about Bliss is actually the clinical benefits of efficacy and better patient tolerance is the fact that it has no disposables, no additional cost per usage that many of our products will do. But in this category, we made a strategic decision to not have that. So that is allowing us to get into places where they may have a different technology, and they are seeing the margins being depleted because of high cost of ownership per procedure. So that is a nice opportunity for us. On the existing customer side, we are running promotions and programs around for instance, legacy users who may do body only, and may want to increase revenue with a product like Bliss where they can actually do laser treatment as well as the RF application to increase their overall revenue, because we have such a large installed base, we are looking in the installed base as well. So it is a combination of both.

Okay, perfect. Thank you very much for taking my questions.

Thanks, Jeff.

Thank you. Our next question is coming from Marie Thibault from BTIG. Your line is now live.

Hi, thank you for taking the questions this morning. A quick follow-up on ARTAS; I would love, I guess, perhaps in Chad an update on how many target accounts the customer - the company has and how many of those accounts have been able to visit in the year since you took the range?

Marie, what was the second part of your question? How many - do you mean the pipeline?

How many of those target accounts you have been able to touch in the year that you have had the range here?

Got you. Yep. We have been really pleased with the increase in our pipeline since COVID hit, we have seen a huge increase globally with our overall pipeline. And even as a result of COVID, we have been able to add to the pipeline and touch the majority of those that were currently in the pipeline. So it is definitely a focus of our sales representatives, both U.S. and O.U.S. And we are quite pleased with the growth in our pipeline overall.

Marie, I wanted to just add to that a little bit, one of the things that is really important to understand is that, at the time when we did the acquisition, quite frankly on both sides of the fence, I would say that the pipeline management wasn't as disciplined as it is right now. And one of the words that Chad didn't use, but he should is that it is a qualified pipeline. In other words, it is not just people that showed a passing interest. It is a group of potential customers that have been vetted at a number of different levels. And I think that is really important. But the second part, not only having an increasing qualified pipeline and it is just as important is to make sure that our practice development team has been laser-focused on touching all of the current ARTAS customers prior to our takeover of the company. They had approximately 150 systems installed. And the mandate we gave our team was pretty clear. How do we get these customers activated and not feeling disillusioned about a fairly large investments that they had made in the past? And a big part of that was our hand-holding of the customer literally from, how do you answer the phone all the way to how do you process a patient through the consultation process and pricing your procedures. It is a long tedious activity, but it is well worth it because we believe that we are starting to now build a reasonable reputation in the marketplace for executing on a platform that historically has been somewhat hit and miss. And I think that is going to pay significant dividends and we are already seeing it in the actual per patient utilization kits that we sell on a month-to-month and quarter-to-quarter basis.

Okay. And then my follow-up I guess is, the new bullets of hiring that you are doing in the back half of this year of nine new sales repurchase. Any particular focus for those folks or are they going to be focused on the six main platforms that you are focused on here in the U.S.?

Chad.

Yes. So we are looking for a really diverse background. We like to combine some sort of aesthetics with robotics. They are focusing on all products, as one of the things we have mentioned is our ability and our interest in diversifying our call points, moving beyond the med spas into the core markets. So, certainly we are bringing in people that have a history of engaging and dealing with MDs in complex specialties. And we believe that will allow us to get in A, handle the product focus. B, drive our viewer hair products with ARTAS and C, we think they have the capabilities to sell those products. Now at some point, we are always going to look at the possibility to bifurcate our team, but right now they carry the oversight of our six focus products.

Thank you. We reached the end of our question-and-answer session. I would like to turn the floor over to management for your further closing comments.

Well, thanks everybody for taking the time this morning to join us on this call. We appreciate it, and look forward to the one-on-one calls that we will have with each of you. In the meantime, have a great day.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.