Venus Concept Inc. Q1 FY2021 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the First Quarter 2021 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 would 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-K and 10-Q filed with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of these 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. Dom Serafino, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Thank you, operator, and welcome everyone to Venus Concept's first quarter 2021 earnings conference call. I'm joined today on the call with 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 better than expected revenue results in the first quarter, including an update on how our business trends continued to improve during the period, which gave us further confidence in our 2021 revenue guidance, which we increased in our press release this afternoon. Chad will then discuss our strong system results in the first quarter and how we believe it was a direct result of both improving overall system adoption trends, particularly in North America, and a strong execution of our targeted commercial strategy. I will then provide a brief update on our continued progress in the area of new product development. And then Domenic will provide you with a more in-depth review of our quarterly financial results, our balance sheet and financial condition of our updated guide and updated guidance of 2021. And then, we will open up the call for questions. With that overview in mind, let's get started with a review of our first-quarter revenue performance and overall business trends. We reported GAAP revenue of 22.6 million for the first quarter of 2021, representing an increase of 56% year-over-year. Simply stated, we are very encouraged by our first-quarter performance and believe, in reflection, improving system adoption and procedural trends we experienced during the quarter. First quarter total revenue growth was driven by 93% year-over-year growth in sales to U.S. customers and 32% year-over-year growth in sales to international customers. Our first quarter results reflect both the continued improvement of our aesthetic and hair restoration procedure trends and the pace of system adoption. Our strong year-over-year growth we delivered in the first quarter is a direct result of the team's strong execution of our near to intermediate term growth strategy, which we have discussed in our recent Investor calls. By way of reminder, there are two key tenants of this focus growth strategy; one, implementing a targeted commercial strategy; and two, consolidating direct selling operations in certain international markets and reinvesting that capital primarily in a higher return, more attractive U.S. market. As discussed on prior calls, our efforts to implement this growth strategy over the second half of 2020 is one of the primary reasons we are off to such a strong start in 2021. We believe that this strategy has us incredibly well positioned to return above market growth as the global aesthetics and hair restoration markets continue to recover as we progress through 2021. The improvement in business trends is most evident when evaluating the improving procedure trends we experienced during the first quarter. Starting with the procedure trends for aesthetic customers, our real-time IoT data on our systems gives us strong visibility into active device trends for a large portion of our installed base and this average per use system data reflects improving consumer activity and demand for product procedures during the first quarter. Specifically, we saw an average usage per system in North America increase about 15% on a quarter-over-quarter basis. Outside of the U.S., we continue to see a wide variation in average usage per system trends depending on the region of the world in question. EMEA continues to lag the pace of recovery we are seeing in North America. However, after a difficult January, customer usage increased in both February and March and average utilization increased on a quarter-over-quarter basis in Q1. Latin America, average usage per system trends slowed in Q1 as compared to Q4 as the region continues to deal with COVID-related challenges. And finally, APAC’s recovery continued to be choppy through the first quarter of 2021. In terms of procedure trends for our hair restoration customers in the first quarter, we are very encouraged by the continued improvements in utilization trends among hair restoration customers as global procedures on our ARTAS systems increased 6% year-over-year in the first quarter. Most importantly, this global procedure growth was fueled by an impressive growth in North America, where procedures increased 33% year-over-year in Q1. Providing further detail, North America procedures increased on a year-over-year basis in each month of the quarter as well as culminating in a 76% procedure growth in the month of March. The strong procedure growth in our U.S. hair restoration business in Q1 was driven by a combination of an improving procedure environment during the quarter and strong execution by our current commercial team towards our key strategy to reengage with U.S. customers who have ARTAS systems that we believe had been underutilized. As discussed on prior calls, we have made a concerted effort to engage with ARTAS customers throughout North America over the last year, and we could not be happier with the results. We posted record procedures in North America in the first quarter, and utilization trends are being driven primarily by the existing installed base of customers. We look forward to continued strong utilization of our hair restoration business going forward. Now with respect to hair restoration procedure trends outside of the U.S. While international hair restoration procedures declined 24% year-over-year, we are seeing significant variability and recovery trends, depending on the region of the world in question. Each region showed meaningful improvement in trends during the first quarter, culminating in a total international hair restoration procedure declining just 2% year-over-year in the month of March. As we continue to build a deeper training and post-sales support in each region outside of North America, we expect to see procedure trends more closely mimic the North American performance in future quarters given the strong demand we've experienced for our ARTAS systems overall.

Thanks, Tom. Our first quarter sales results reflect strong execution of our commercial strategy and improving overall system adoption trends, particularly in North America. We shipped 366 systems to global customers in the first quarter, up 54% year-over-year, fueled by U.S. system shipment growth of nearly 150% year-over-year. While the capital equipment environment broadly showed improvements in Q1 as compared to Q4, the strong growth in system shipments we delivered in Q1 was really a result of our team’s strong execution. As discussed on prior calls, our targeted commercial strategy is focused on optimizing our pipeline and sales process and opening new strategic sales channels, diversifying and tightening clinician targeting, tailoring our selling strategies depending on the geographic region of the country, and arming our direct sales team with programs and messaging focused on six key product lines; Bliss, ARTAS and NeoGraft, Versa, Viva and Glow, four of which have meaningful recurring revenue streams. We delivered total leases and systems revenue growth of 78% year-over-year in the first quarter, which gives us further confidence that we have the right strategy and we are executing that strategy very effectively, which we also believe has us well positioned to drive continued above-market growth as the global capital equipment market continues to recover as we progress through 2021. Turning to a brief update on our Venus Bliss. We are happy with the continued strong market response to our differentiated non-invasive fat and body contouring platform. Global sales of Bliss increased more than 200% year-over-year in the first quarter. We continue to expect Bliss to be a significant driver of growth this year, fueled by the investments in both our commercial team and in our marketing strategy. We continued our Bliss Roadshow in Q1, a multi-city tour aimed at increasing the pipeline for Bliss and driving market development and consumer awareness. We plan to continue this Roadshow throughout Q2, which will include a Bliss University Master's class as well as preceptorships. We also recently announced that we've added Venus Williams as the Global Brand Ambassador for Venus Bliss, which we believe will create significant brand awareness with consumers and provide significant patient lead generation given her global recognition and appeal. We remain very confident that Venus Bliss offers a significant clinical and financial opportunity to the customers and patients that we serve and expect strong revenue contributions from this product throughout 2021. Regarding ARTAS performance in Q1, ARTAS sales exceeded expectations in the first quarter and represented the largest contributor to our leases and systems revenue growth compared to the prior year. Our new commercial strategy for ARTAS is clearly working. In addition to our targeted plan to engage with clinicians to drive improved utilization of our installed base, which I discussed earlier, our new commercial strategy is maximizing the opportunity of having the most comprehensive hair restoration solutions offered in the market today. With ARTAS and NeoGraft, we have an end-to-end portfolio of minimally invasive solutions unique from any competitor in the $4.1 billion global hair restoration market. We are seeing notable success with our customer targeting strategy as well and are driving strong new customer adoption among dermatologists and plastic surgeons in recent months. We expect to see accelerating growth trends as we move through 2021 in our hair restoration business, as we leverage our improved targeting strategies of these core doctors as well as large national accounts.

Thanks, Chad. I want to take a moment to highlight that while we are very proud of the early success we've demonstrated today towards this near to intermediate term growth strategy, we have not lost sight of the core mission of the company, which was founded more than 10 years ago. Our mission is to develop and provide world-class technologies to deliver clinical results in a safe, effective and easy way and to dedicate our company to best-in-class post-sales support philosophy that can help enhance the probability of financial success for our customers. Despite all of the challenges in the operating environment over the last year, our team has continued to operate with this mission in mind and our sales team has been further empowered by a key differentiator and, quite frankly, a hallmark of the Venus Concept story, specifically, the flexibility we have in our commercial model with unique pricing and payment options via our industry-first subscription model, which we use in certain product categories and in certain geographic markets. Our subscription model is similar to that of a cell phone, where the plan you pay for and the technology over time, and you can upgrade to the newest technology mid-contract for an extended contract term. Our subscription contracts are typically three-year agreements where we capture typically 40% of the contract economics in the first year. Our customers enjoy seamless and cost-effective upgrade opportunities, and our program payment plans are protected by a monthly device activation code. Systems shipped under the subscription model increased 40% year-over-year in the first quarter and represented more than 40% of our total global shipments in the period. This is an incredible lever that we can have, which, as I said, really empowers our commercial team to work with customers to identify not only the right technologies for their practice but, just as importantly, the right business model for participating clinics to meet their needs. Importantly, not all systems are offered under the subscription model. Certain high demand systems, including our ARTAS and most Venus Bliss systems, are only offered on a traditional cash sale basis. This is intentional, as the traditional cash sale features a more attractive cash flow profile for the company to go along with a strong growth profile as we scale new, innovative and disruptive aesthetics and hair restoration technologies in key markets around the world. So to summarize our first quarter results, we delivered better than expected growth fueled by improving utilization trends and strong system adoption, particularly in North America where system shipments increased nearly 150% year-over-year. Our first-quarter leases and system revenue results combined with a strong pipeline we actively manage today were the primary drivers of this increase in our full 2021 guidance, which now calls for total revenue in the range of 100 million to 105 million, representing an increase of approximately 28% to 35% year-over-year. We are confident in our outlook for 2021 based on our belief that we have the right product portfolio and the right commercial strategy, which has us extremely well positioned for future success over the near to intermediate term. Importantly, the longer-term outlook for the company is equally compelling as we continue to make progress in new product development, specifically our efforts to develop next-generation robotic technology for medical aesthetic applications. We believe 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 for greater clinical predictability, significantly reduce operator fatigue and help clinicians reduce treatment variability, while also offering a significant competitive advantage in the areas of marketing and new customer acquisition specifically benefiting the dermatology and plastic surgery community. We are very excited about the prospects of our RoboCore device, a robotic non-surgical procedure with the potential to disrupt the skin tightening market. We have completed our feasibility and safety studies with our handheld device, which included 15 patients and 90 treatment zones across six different body areas. We will be conducting a small animal study in Israel to secure additional data to support our handheld 510(k) submission, which we are currently targeting by the end of the third quarter. We will also continue to make progress in the preparation for our human clinical study to evaluate the robotic coring. We have identified three clinical investigator sites in the United States and expect to enroll up to 60 patients, with enrollment currently expected to begin by the end of the third quarter. We intend to submit for FDA clearance as soon as possible upon completion of the study, which, depending on the pace of enrollment, is expected sometime in the first quarter of 2022. We are also excited about the prospects of our new product introductions as we expand the Venus Bliss portfolio systems and products. Specifically, the Venus Bliss Max, a new device that not only includes fat reduction and skin tightening capabilities but also adds a muscle stimulation technology for body contouring and toning. We expect this new device will have a list price of $225,000, and we intend on adding a modest but important utilization fee to this device. We are still targeting FDA submission in late Q3 of 2021, which keeps us on track for the potential clearance by the end of 2021 and commercial launch in early 2022. With that, let me turn the call over to Domenic Della Penna who will provide a detailed review of our first quarter financial results and discuss our balance sheet and financial condition.

Thanks, Dom, and good afternoon, everyone. For the avoidance of doubt, unless otherwise noted, my prepared remarks this afternoon will focus on the company's reported results on a GAAP basis and all growth-related items are on a year-over-year basis. First-quarter total revenue increased by 8.1 million or 56% to 22.6 million. The year-over-year change in first-quarter total revenue by geography was driven by a $5.2 million increase or 93% in U.S. sales and a 2.9 million increase or 32% in international sales compared to the prior year period. The year-over-year change in the first quarter total revenue by product category was driven by an increase of 6.3 million or 180% in systems revenue, which are cash sales or sales of systems with payments expected in less than 12 months, driven by strong sales of ARTAS and key aesthetics product lines, which we have prioritized in our commercial strategy, which Dom and Chad discussed earlier, and an increase of 1.7 million or 25% in leases revenue, which is where our subscription program is reported and represents all system sales with typical lease terms of 36 months, and an increase of 0.3 million or 12% in other products revenue due to an increase in sales of procedure-related products including our ARTAS kits and other consumable products, offset partially by a decrease of 0.3 million or 19% in services revenue driven by the suspension of operations of the 2two5 marketing services in the second half of 2020. The percentage of systems revenue derived from our subscription model was approximately 47% in the three months ended March 31, 2021 compared to 66% in the three months ended March 31, 2020. Turning to a review of our first quarter performance across the rest of the P&L. Gross profit for the first quarter of 2021 increased 6 million or 64% to 15.2 million, representing a gross margin of 67.4% compared to a gross margin of 64% last year. The primary drivers of the year-over-year increase in gross margin were higher sales of our Venus consumables, improved revenue mix post the discontinuation of our 2two5 ad agency services and the non-recurrence of a purchase price adjustment impact related to the acquisition of Restoration Robotics in the prior year period. Total GAAP operating expense decreased 30.8 million or 58% to 22.1 million. The decrease in total operating expenses was driven by a goodwill impairment charge of 27.5 million, which impacted the prior year period only, and there was no impairment charge in the first quarter of 2021. Excluding this item, first quarter of 2021 operating expenses declined 13% year-over-year. Total operating loss in the first quarter of 2021 was 6.8 million compared to an operating loss of 43.6 million in the prior year period, an improvement in operating loss of 36.7 million or plus 84%. Net loss attributable to stockholders for the first quarter of 2021 was 9.3 million, or $0.17 per share, compared to net loss attributable to stockholders of 50.2 million, or $1.68 per share, for the first quarter of 2020. Weighted average shares used to compute net loss attributable to Venus Concept Inc. stockholders per share were 53.7 million and 29.8 million for the first quarters of 2021 and 2020, respectively. Non-GAAP adjusted EBITDA loss for the first quarter of 2021 was 5 million compared to adjusted EBITDA loss of 13.7 million for the first quarter of 2020, an improvement of 8.7 million or 63% year-over-year. We have provided a full reconciliation of our GAAP net loss to adjusted EBITDA in our press release this afternoon. Turning to the balance sheet. The company had 27.1 million and 34.4 million of cash and cash equivalents on hand as of March 31, 2021 and December 31, 2020, respectively, and total debt obligations of approximately 80.1 million, including government assistance loans of 4.1 million compared to total debt obligations of approximately 79.6 million, including government assisted loans of 4.1 million as of December 31, 2020. The change in cash for the three months ended March 31, 2021 was driven primarily by 8.2 million of cash used in operating activities offset by 1 million of cash provided from financing activities, including approximately $903,000 of total proceeds received from the exercise of 361,000 December 2020 public offering warrants at the exercise price of $2.50 per share in February 2021. Turning to a review of our guidance. As detailed in our press release this afternoon, the company updated its revenue guidance for the full year 2021 period, which was originally introduced in our press release on January 14, 2021, and reaffirmed in our fourth quarter earnings press release on March 31, 2021. Assuming no significant and persistent resurgence of COVID-19 in key markets that would negatively impact the company's customer base and based on strong pipeline activity, the company now expects total revenue for the 12 months ending December 31, 2021 in the range of 100 million to 105 million, representing an increase of approximately 28% to 35% year-over-year compared to total revenue of 78 million for the 12 months ended December 31, 2020. While we are not providing formal profitability guidance for full year 2021, we would like to offer the following considerations for modeling purposes. First, we continue to expect our gross margins to be in the range of 66% to 68% in 2021, driven by favorable revenue mix, with the U.S. growing faster than international markets in 2021, and from benefits related to our initiatives directed at reducing manufacturing costs of our Robotic ARTAS systems. Second, we continue to expect GAAP operating expenses of approximately 88 million, representing a 26% decrease year-over-year. Importantly, this represents approximately 10% growth in our normalized operating expenses, which exclude certain items that impacted our GAAP operating expenses in 2020, including a non-cash goodwill impairment charge of 27.5 million, incremental bad debt expense related to COVID-19 of approximately 11 million, non-operating non-recurring items related to retention, severance and other legal expenses, all of which were detailed in our non-GAAP adjusted EBITDA reconciliation tables in 2020, and together represented approximately 2.3 million of costs and expenses last year. Third, we expect our interest expense to be approximately 4.5 million given the lower borrowing costs and debt obligations compared to the prior year. Fourth, we continue to expect non-cash D&A of 5 million and non-cash stock compensation of approximately 2.5 million. Fifth, we continue to expect our weighted average shares outstanding to be approximately 55 million. Finally, while it is not our standard guidance practice and we do not expect to provide quarterly guidance in the future, given a significant impact of the COVID-19 pandemic and our second quarter of 2020 and the related benefit to our Q2 '21 year-over-year growth rates, we expect our total revenue in the second quarter of 2021 to increase approximately 40% to 45% year-over-year. With that, operator, we will now open the call to your questions.

Thank you. Our first question comes from Jeffrey Cohen of Ladenburg Thalmann. Please proceed with your questions.

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

Good, Jeff. How are you doing?

Hi, Jeff.

It was nice to see you recently, Chad. So just a couple of questions I wanted to dive into. So the systems shipped in Q1 of 366, would you say that approximately 40% of those are also leased along with your 40% commentary on the lease versus sold?

Yes, the systems shipped would be slightly higher than that on a unit basis because of obviously the cash impact on the percentage of cash. So you're in the ballpark.

Okay. Could you tell us which were the top two, three, or four platforms in Q1?

Top platforms in Q1 were the ARTAS system, the Bliss system and the Versa platform.

Okay, got it. I wanted to ask you, Dom, what’s your general perspective on the dermatology area? Is that a field that Chad and his team are directly entering? I’m considering the range of 450 to 750 nanometers between blue and red light and how that competes with some of the dermatology products at lower wavelengths.

Are you talking to acne treatments?

Yes.

These wavelengths are not new. The primary challenge for the dermatology community regarding acne treatment is not the effectiveness of the devices offered by various companies, including ours. The real issue lies with the customer base, as dermatologists must make strategic decisions about their return on investment for treatment rooms and whether they can charge teenagers and their parents enough to compensate for other procedures they might perform in those rooms, such as fat or hair restoration. Therefore, this category remains somewhat challenged overall. While we have an excellent clinical solution, the market opportunity is limited for all companies due to the demographic profile of most patients utilizing the treatment.

Okay, got it. And then lastly for me, just give us a ballpark flavor of how procedure volumes, which have grown dramatically year-over-year, how does that feel versus last January and February and any commentary into April or May? Thanks very much.

Yes, I think it's challenging. We need to focus on the sequential month-over-month growth. The real-time IoT data we gather gives us optimism as we observe a steady improvement in device activation and procedures being performed worldwide. However, different regions are impacted in varying degrees. Latin America is still behind due to a delayed response to COVID. Nonetheless, we are encouraged by the trends, especially in key areas like fat reduction, hair removal, and cellulite. We have surpassed pre-pandemic utilization levels at this point. The significant month-over-month improvement is crucial, and as we recover from the effects of COVID, we feel confident that we are back on track, and more importantly, our customers are benefiting from their investments.

Thanks for the commentary and nice quarter. Thank you.

Thanks, Jeff.

Thank you. Our next question comes from the line of Suraj Kalia with Oppenheimer. Please proceed with your questions.

Hi, Dom, Chad, Domenic. Can you hear me alright?

Yes. Great. Hi, Suraj. How are you doing?

Hi, Suraj.

So Dom, Chad or whoever is comfortable, let them take it. So I thought I heard Chad say the global sales of Bliss were up 200% year-over-year. Maybe you can help us drill down on the details a bit more? What are the actual numbers? And especially how is Bliss faring relative to where CoolSculpt was at this point in its lifecycle? And if I could just tack on a subpart to this question, Dom, the 25k for Bliss Max, what does your internal price sensitivity of demand suggest?

Yes, let me address the latter part of your question first, and then I'll pass it over to Chad for insights on the 200% growth. When I compare the rollout of Venus Bliss to the early phase of Zeltiq, I see several positive aspects. One key factor is that we've successfully hired individuals from Allergan, who joined us due to the strong economic benefits our offerings provide to customers. Today, we often engage with informed users who previously used CoolSculpt and experienced significant success. However, as competition entered the fat treatment market, doctors became more aware of the costs associated with using various devices. By intentionally keeping the disposable costs out of the fat treatment category, we have positioned ourselves advantageously. This decision makes financial sense, especially when paired with the reliable clinical results and high customer satisfaction we've observed. We believe we are creating a strong opportunity in the fat treatment market, reminiscent of the evolution clinics have experienced over the years. Even if clinics find themselves performing touch-up treatments, the economic benefits of our device far outstrip those of competitors with higher disposable costs per treatment.

Sure, Dom. Yes. Hi, Suraj. If you remember, in the first quarter of 2020, we were just beginning the full commercial launch of Bliss when COVID hit. We decided at the beginning of the fourth quarter, with planning happening in the third quarter while many markets were still closed, to conduct a geographically selective Roadshow in markets that were somewhat open. The results of that showed that our Q1 sales customers were cautious about making decisions due to concerns over clinic shutdowns and the return to normal procedures. However, we started to see the outcomes of these closed sales in Q1. We continued the Roadshow in Q1 and remain optimistic about the revenue prospects for Bliss for the rest of the year. The economic opportunity I'm observing in the market ties into the question regarding some of the core doctors. Alternatives to Bliss are now well established, and customers are focused on maximizing profit potential as patients come in, which aligns perfectly with the Bliss business model. Therefore, we anticipate strong performance for the product for the remainder of the year.

And just to add one more point to that, Suraj. The addition of Venus Williams has been extremely well received by our customer base. And all of the collateral materials, we announced it mid-quarter that we had signed an agreement with her, but we did complete a very extensive preparation package, if you will, of collateral marketing materials that will be released at various stages through Q2 and into Q3 and beyond that we think that that's going to have a very meaningful impact on our trajectory with this particular product as well.

Got it. Dom, I have one more question before I return to the queue. It's related to utilization metrics, particularly in the U.S. Can you share how the procedures per system per month are looking? Do the previous rules still apply? What does the bell curve look like? And Domenic, could you provide more detailed insights into the guidance components, specifically regarding legacy Versa, Bliss, and ARTAS? Any additional milestones you could share would be greatly appreciated. Thank you, gentlemen, for addressing my questions, and congratulations once again.

Okay. So thank you, Suraj. I'll take a shot at the first part of it and then Chad you can add a little bit more color. I think that it's important to recognize that we have dedicated a team to be focused on the utilization and the measurement of utilization because it gives us a good roadmap as to which products we should focus on in which geographies. Chad, perhaps you can touch on one of the key utilization metrics, which is our ARTAS and NeoGraft combination therapies for hair restoration, and the trends that we're getting there? While we don't release actual numbers, I think Chad you can sort of speak to the trends in North America.

The trends in North America were very positive, with a 33% increase year-over-year in ARTAS procedures. This growth was mainly due to the reengagement of underutilized systems, reflecting an improvement in same-store sales among active ARTAS accounts. While we encountered challenges in Q4 and Q1 with accessing clinics, training personnel, and conducting our five-day quick-start programs, much of the growth we're seeing comes from same-store sales, which is encouraging. Internationally, we experienced some fluctuations in ARTAS sales due to similar issues in onboarding new programs. However, as these fluctuations subside and we continue to sell new systems, we expect utilization trends for ARTAS to keep improving overall.

Yes, Suraj, I think you wanted to better understand the components related to the split of the systems. We don't disclose it by system, but you should consider ARTAS representing approximately 25% of our revenues at a high level. We continue to enhance that, as the percentage mix of ARTAS relative to the rest of the business is improving with the growth drivers we have for the robotics capability and our global sales team's understanding of its potential. We expect that percentage to possibly exceed 25% as we keep focusing on ARTAS. However, we want to emphasize that the base Venus business is very important to us, has high margins, and we are capitalizing on that with our subscription plan, especially with the Versa product.

Thank you. Our next question comes from the line of Jon Block with Stifel. Please proceed with your questions.

Great. Thanks, guys. Good afternoon. Nice quarter. Just a small handful for me. The first is just centered on hiring and how that's going. I think last quarter, Chad, you called out roughly 50 reps in North America. I believe you wanted to take that to 70. Pretty ambitious numbers there. But maybe if you can just give us an update on how the onboarding of the reps have gone to date? And just when you look out over the next several months, if you're thinking like that 70 rep number here in the U.S. and what?

Yes, Jon, great question. Good to speak with you. Both areas are going really well. We remain very optimistic about getting to 70. And per the business, if there's an opportunity to get beyond that, we'll make strategic decisions. But we remain on pace for that. We're very bullish. We've also gone back to in-person training. So I've attended them myself. So we're back to getting reps hands-on, on the devices for the last two classes. And that's significant because the more hands-on we can do with devices role plays, the more we can take them through the traditional sales model and sales approach, the shorter the onboarding time is especially for higher-priced products like Bliss when we have the opportunity to train the reps hands-on versus doing it remotely. So both areas, Jon, we're bullish on the hiring side.

And let me add – I’m sorry. No, go ahead, Chad.

I was going to ask where you ended the quarter, pardon me. Out of the 50, where did you end up?

I’m sorry. Approximately 60 and we remain on target for more than 70 by year-end.

Yes. We're just over 60 right now, Jon, and are fiercely hiring and getting people trained.

Okay, great. And then, Dom, second one for you and just sort of market share thoughts or comments. I know it's difficult in terms of different geographies and some guys are all capital and some guys are capital to recurring. But I think just broadly looking across aesthetics, you did see the market come back and come back pretty strong from end of '20 to '21. So if you were to try to pinpoint or isolate from a market share perspective, how you think Venus is performing relative to what you deem to be your closest peers? And then I’ve just got one last one.

Yes. Look, that is a tough question because I think it's how you define market share in the sense that if you're defining market share like most of our peers, taking a piece out of each other every quarter in the dermatology, plastic surgery professional market, that's one number. If you're talking about actually creating new market and expanding the size of the market, which is really what the primary motivation of Venus was from day one with our subscription model, and originally targeting a very significant portion of our business outside of the core. We're still in single digits if you define it by the traditional market. But I think that as each quarter goes by and we continue to sort of adjust I guess or reset the sales organization to what we were going to do pre-COVID with a dedicated team focusing on the professional market of dermatology and plastic surgery and a continuation of our business with the subscription and mostly in the non-core audience, we think that we can get our overall market share into double digits, but that's going to take a bit of time. But right now, without having the exact numbers, we would be in the single digits at this point.

Okay, great. Fair enough. And last one, DDP, maybe for you. The first quarter revenue growth was 56%, and the second quarter guidance is 40% to 45%. I think that the first half is around or close to 50% growth. The full-year guidance appears to be in the low 30% range, and the new products like Bliss and ARTAS are performing well. It seems like there is a notable slowdown expected in the latter part of 2021. Can you discuss whether that's due to factors beyond just comparisons? Thanks, guys.

A deceleration you mentioned? I just didn't see it because we're projecting 35% growth for the full year, right? So the first half is expected to perform better. However, what we face in the second half of 2020 is that our business did show recovery during that time. Therefore, we are compared to a second half that remains relatively weak. Still, we believe we can achieve significant growth compared to the second half of 2020.

Jon, we've taken a very conservative approach to this. We feel that there are two elements that may help improve the outcome in the second half. And specifically, as you know, as you hire new people in this industry, it typically takes two and sometimes three quarters for them to start to monetize on a consistent basis. So we've been on as obviously a bit of a hiring tear, especially in North America. And we have a national sales meeting, the first one in two years scheduled for mid-July to make sure that everybody's aligned for the back half of the year. So while on the surface that may look like a deceleration, I think that we feel pretty good about how we're going to be able to compare against the previous year and maintaining that growth profile.

Perfect. Very helpful. Thanks, guys.

Thank you. Our next question comes from the line of Marie Thibault with BTIG. Please proceed with your questions.

Hi. Just two quick questions. On your geographic shift moving from some international markets and re-devoting some resources to the U.S., is that shift mostly done at this point? I know there were some details in your filings about the countries that you were exiting, but would love to hear where you are in that process?

Yes, we're mostly finished with that process. There are a few smaller, non-material decisions left regarding closures and realignment. However, the main priority for us right now is to maintain our focus on direct investments in North America. Clearly, the strategy that Chad and his team are implementing is effective, and we see significant additional opportunities in that market. Given the lengthy onboarding process for sales representatives to become effective, we are accelerating this initiative now. Essentially, the operational challenges associated with closing offices and reallocating resources are nearly complete at this stage.

Okay, that's helpful. Can you provide insights on the distribution between subscription and direct systems revenue? Before COVID, we observed a split of around 60-40 or possibly even 70-30 leaning towards subscription. With the introduction of ARTAS and its success, I wonder if that has changed. Where do you see this distribution heading in the long term?

Yes. I think that one of the things that we need to be really aware of, and quite frankly, we need to do a better job of reporting with you guys, is there's a big difference between the percentage of subscription to cash business on a unit basis and the percentage of subscription to cash on a cash basis. Obviously, with a product like ARTAS that sells from the area of $250,000 and the Venus Bliss that sells in the area of $120,000, and those are predominantly on a cash basis, that's going to skew typical products to sell in the area of $60,000 or $70,000 done under the subscription for a variety of different reasons, not the least margin and so on. So, right now, the split is 45-55; 45 subscription, 55 cash, because of this proportion of contributions in Q1 of ARTAS and Bliss and obviously disposables, and by the way, also a renewed interest at the distributor level, which are all done on a cash basis. We do think though that when this sort of flattens out, we're going to be closer to a 50-50, 55-45 depending on the given quarter and depending on the mix. But I think the way you should model this, and for a whole lot of reasons, we think that 50-50, 55-45 is the right balance in terms of managing inflows of cash and still providing what I think is best in the industry for our business opportunity for customers who are looking to get into this sector.

Thank you. Our next questions come from the line of Anthony Vendetti with Maxim Group. Please proceed with your questions.

Thanks. I have a couple of quick questions about RoboCore. I'm curious about how you assess the commercial opportunity there and its current status. Also, while I understand you don’t provide product splits, you mentioned that ARTAS accounts for about 25% of revenues. Could you share some insights on Venus Glow and how well that product is performing or what percentage of sales it might represent?

Yes, I'll let Chad address the Venus Glow aspect of the question. Regarding RoboCore, we see this category of directional skin tightening and lifting as a unique opportunity. Several companies, including us, offer non-invasive technologies that produce reasonable results, but the consistency of these results varies from patient to patient, regardless of the provider. At one end of the spectrum, we have fully invasive procedures like facelifts or arm lifts, which many patients are hesitant to undergo. We believe there is an optimal area between these extremes in the minimally invasive category. We think RoboCore will effectively occupy that space, providing a broad range of treatment options for lifting and tightening with a minimally invasive approach. In our initial safety feasibility studies, we performed 90 treatments on 15 patients across six different body areas and were pleased with the early performance related to coring and directional lifting and tightening. We are now progressing to animal trials in Israel to gather histological data on tightening and directional lifting, which we expect to complete quickly. Simultaneously, we are preparing for a study involving 60 patients at three sites using our fully equipped robotic system. A few companies have attempted to enter this market with coring and microneedling techniques, but these are typically done manually. We believe there is a strong rationale for a robotic solution due to the nature of the treatment, which enhances both clinical outcomes and safety. We are confident that robots can deliver that precision. Chad, perhaps you could provide insight into the initiatives surrounding Venus Glow, Viva, and related products.

Sure. It's great to speak with you, Anthony. As we've observed from companies like HydraFacial, there is significant potential in this product category and in the subsequent sales of serums. However, it can be challenging to engage the sales representatives when they may focus on larger bundles valued between $300,000 and $400,000 with core medical professionals, which allows those products to receive more attention. This is fundamentally a volume-driven business, relying on the number of potential customers contacted. These larger deals require more time and dedication as we progress through the quarters. Therefore, we've decided to divide our strategy. We have our senior representatives concentrating on those major deals while onboarding some junior reps who will prioritize high-frequency calls. We want them to concentrate on building the pipeline, conducting demonstrations, and selling products like Venus Glow, which has an initial sale and a recurring consumable aspect, as well as our Venus Viva, which is a fantastic product. Although it can be part of bundled deals, it doesn't get the same level of attention as larger products like Bliss or ARTAS. We're feeling optimistic about this approach. We've established call plan targets, including how many customers should be contacted. We believe this strategy will prove effective, and if so, we will continue to implement this division of labor.

They will continue with that product, and while they may be promoted at some point, their focus will remain on it. The advantage of this strategy is its two-way nature. We will provide these representatives the chance to sell Venus Glow and Venus Viva in exchange for a higher commission percentage, making it a worthwhile endeavor for them. Additionally, there will be a model for sharing benefits if they generate leads for higher-priced products. It's important to avoid situations where a representative might hold back on a sale due to the commission structure. They will also have significant financial incentives to generate leads. We plan to maintain a long-term focus on Glow and Viva given their substantial consumables aspect. If someone excels and transitions to a robotic sales specialist, we will replace them with someone dedicated to Viva and Glow, ensuring we always have coverage in that area.

Understood. Okay, great. Thanks very much.

Thank you. We are currently showing no additional questions in the queue. That does conclude our conference for tonight. Thank you for your time this evening. And have a good night.

Thanks, everybody.

Thank you.

Thank you.