Venus Concept Inc. Q4 FY2021 Earnings Call

Please standby. Good day, ladies and gentlemen and welcome to the Fourth Quarter 2021 Earnings Conference Call for Venus Concept. At this time, all participants have been placed on a listen-only mode. Please note that this conference call is being recorded and 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 10-Q and our annual report on Form 10-K to be 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 non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available on 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 fourth quarter of 2021 earnings conference call. I'm pleased to be joined today by our Chief Financial Officer, Domenic Della Penna, and our President of Global Sales, Ross Portaro. Let me start with a brief agenda of what we'll be covering today during our prepared remarks. I will start with an overview of our revenue results in the fourth quarter. I will then provide a summary of our operating progress in key areas in recent months. Then Domenic will provide you with a more in-depth review of our quarterly financial results, our balance sheet and our guidance for the full year 2022 which we introduced in today's press release. Then Ross will provide an update on our commercial priorities and global sales and distribution team update. And then we will open the call for questions. With that overview in mind, let's get started with a review of our fourth quarter revenue performance and our overall business trends. We reported GAAP revenue of $32.6 million, up 26% year-over-year. The increase of total revenue year-over-year was driven by 42% growth in sales to U.S. customers and 14% growth in sales to international customers for the period. We are very encouraged by the overall demand trends we experienced during the fourth quarter. Total systems and subscription revenue increased 32% year-over-year in Q4 and our procedure-related disposable revenue increased 14% year-over-year, excluding the impact of the suspension of our VeroGrafters service during that period. Importantly, our systems and subscription revenue growth was driven by key products we prioritized as part of our commercial strategy discussed in recent investor calls. We experienced strong adoption of the Venus Bliss in our body franchise and a record quarter for the adoption in our hair restoration franchise. Fourth quarter systems and subscription growth also benefited from strong sales of other aesthetic products, including our Venus Legacy, Versa, Velocity and Epileve products. Our team did a great job working through approximately $1.3 million of backlog during the fourth quarter and we have fulfilled nearly all of the remaining backlog to date in Q1. With respect to procedure trends in the fourth quarter, our real-time IoT data gives us strong visibility into the active device trends for a large portion of our medical aesthetic installed base. This average usage per system data reflects consumer activity consistent with what most companies have reported to date, specifically in the U.S. The nice recovery in usage trends in September that we discussed in our last call continued in October and November before moderating slightly in December as the Omicron variant impacted practices across the U.S. Outside of the U.S., we continued to see varying usage trends depending on the region of the world and the respective pace of recovery from the pandemic. Procedure trends for our hair restoration customers in the fourth quarter reflected a quarter-over-quarter improvement as expected. As discussed in our Q3 call, we saw a larger impact from seasonality in Q3 than we had expected and expected the procedure trends to improve in Q4 which ultimately came to fruition. Procedures of our ARTAS systems in North America increased mid-single digits year-over-year and increased mid-teens sequentially. Outside North America, procedures on our ARTAS systems were down year-over-year for the quarter but increased high teens sequentially, driven primarily by improving procedure trends in EMEA. Now turning to a brief update on operating highlights in the fourth quarter and recent months. Overall, we've made considerable progress in the areas of new product development clearances and commercialization. We received our 510(k) clearance for the Venus Freedom in October which expands our portfolio of technologies that can treat a broad range of common women's health conditions. Our limited launch of the Venus Fiore in Canada and the European Union began on 3/4 and we are preparing for a limited launch of Venus Freedom in the U.S. during the first half of 2022. Note that we continue to believe that the Fiore and Freedom will be solid contributors to our multiyear growth profile beginning in 2023. We have continued to execute a measured and thoughtful strategy for this differentiated technology. Venus Concept devoted nearly six years to develop this technology in order to create a comprehensive, safe and effective system that addresses important medical needs and is supported with significant clinical data. We are now focused on investing the requisite time to develop relationships with KOLs and educating potential customers in the OB/GYN community on our unique utilization-focused business model which we believe will make the return on investment of this system very attractive for both OB/GYN practices and Venus Concept. Our efforts to expand the Venus Bliss portfolio of systems and products continue to make progress as well. We received our 510(k) clearance for the Venus Bliss Max in January and are preparing for our commercial launch in Q2. Venus Bliss Max is a new device that not only includes fat reduction and body contouring capabilities but also muscle stimulation technology. This device addresses three of the most in-demand body contour procedures all in one workstation. We expect this new device will have a list price of approximately $229,900 and contributing gross profit margins above company averages. We intend on adding a modest but important utilization fee of approximately $250 per treatment to this device. Importantly, we estimate that the time of return on investment is just 33 weeks which we expect will be extremely compelling to our clinician customers. Finally, we are proud of material progress we've made in recent months to advance our development, regulatory and clinical strategy for AIme, our nonsurgical robotic technology platform for medical aesthetics applications. As indicated in our earnings press release, we are targeting an FDA submission for a general indication for tissue excision and skin resurfacing by March 31, 2022. This is significantly ahead of our timelines discussed with the market and is a direct result of our team's strong execution and collaboration engagement with the FDA. We intend to issue a press release to formally notify the investment community of this important submission for regulatory clearances. While we are not in control of the review and approval process to secure an FDA clearance, our internal timing expectations are based on historical review timelines in med tech which we believe gives us the potential for a limited release of AIme in the fourth quarter of 2022. The prospects for our nonsurgical robotic technology platform, AIme, are very compelling and we look forward to introducing this disruptive technology beginning later this year. It is important to remember that the AIme platform is just that, a platform, and it has been designed to support numerous different clinical applications via a unique upgrade path for the clinician, making it extremely cost-effective and differentiated from any products currently available to the aesthetic device market today. In parallel to this process, we are preparing to submit an additional clearance for general indications of tissue excision and resurfacing. We have also made progress toward our strategy to secure specific clinical indications for AIme treatments of the face. As discussed on prior calls, we are pursuing an IDE clinical study evaluating the safety and efficacy of using AIme for the treatment of moderate to severe facial wrinkles. This study will support our FDA 510(k) submission for a specific clinical indication for the treatment of wrinkles on the cheek which will further expand our annual addressable market opportunity and enhance our long-term growth profile. We have finalized the protocol to train four clinical investigator sites and are happy to announce that we've begun enrollment. We expect to have the first patient treatments in the coming weeks and we intend to notify the investment community via press release when we achieve this important clinical milestone. With that, let me turn the call over to Domenic Della Penna, who will provide you a detailed review of our fourth quarter financial results and discuss our balance sheet, financial condition and our 2022 guidance. Domenic?

Thank you, Dom. Given Dom's detailed review of our revenue results, I will begin with a review of our financial performance across the rest of the P&L. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the fourth quarter of 2021 on a GAAP basis and all growth-related items are on a year-over-year basis. Gross profit increased $6.1 million or 37% to $22.8 million. Gross margin was 70% compared to 64.7% of revenue in the fourth quarter of 2020. The increase in gross margin was primarily driven by higher sales of Venus consumables and improved revenue mix of system sales sold under our subscription program, primarily tracing to Venus Bliss. Total operating expenses were $26.9 million, essentially flat versus the prior year period. The change in total operating expenses was driven by an increase of $3.3 million or 45% in sales and marketing expenses and an increase of $0.5 million or 32% in R&D expenses, partially offset by a decrease of $3.9 million or 22% in general and administrative expenses. Total operating loss decreased $6.1 million or 60% to $4.1 million. Net loss attributable to stockholders decreased $10.4 million or 70% to $4.3 million. Non-GAAP adjusted EBITDA loss increased by $0.2 million or 9% to $2.5 million. We have provided a full reconciliation of our GAAP net income to adjusted EBITDA in our press release. Turning to the balance sheet. As of December 31, 2021, the company had $30.9 million of cash and cash equivalents and total debt obligations of approximately $77.8 million compared to $34.3 million and $79.6 million, respectively, as of December 31, 2020. Our net change in cash for the fourth quarter of 2021 was $15 million driven by $15.7 million of cash from financing activities during the period, offset partially by cash used in operating and investing activities in Q4. On December 15, 2021, we entered into a securities purchase agreement pursuant to which we issued and sold certain investors an aggregate of 9.8 million shares of our common stock and 3.8 million shares of our convertible preferred stock. The net proceeds from the securities sold in this non-brokered private placement transaction was $16.7 million. Our cash used in operations for the fourth quarter of 2021 was $400,000, reflecting a continuation of the significantly improved cash performance we have discussed throughout 2021. Specifically, for the 12 months ended December 31, 2021, our cash used in operations was $19.8 million, down 31% year-over-year, driven by a reduction in our net loss and a 33% decline in cash used in working capital compared to the prior year period. Turning to a review of our guidance. As detailed in our press release, we introduced our revenue guidance for the full year 2022 period. The company expects total revenue for the 12 months ending December 31, 2022, in the range of $126 million to $130 million, representing an increase of approximately 20% to 23% year-over-year compared to total revenue of $105.6 million for the 12 months ended December 31, 2021. While we are not providing formal profitability guidance for the full year 2022, our outlook assumes we deliver another year of material profitability improvement, including a target of achieving positive cash flow in the fourth quarter of 2022. For modeling purposes, we would like to offer the following considerations to help investors understand the underlying assumptions driving our 2022 profitability targets. First, we expect our gross margins to be in the range of 68% to 71% as we see continued improvement in gross margins driven by mix but also expect inflationary headwinds to pressure our cost of goods in 2022. Second, we expect continued expense management to drive notable operating leverage in 2022. Specifically, we expect GAAP operating expenses in the range of $98 million to $101 million, representing growth of 10% to 13% year-over-year compared to our total revenue growth range of 20% to 23% this year. Third, we expect our interest expense to be approximately $4 million and we expect non-cash depreciation and amortization of $4.5 million and non-cash stock compensation of approximately $2.4 million. Fourth, we continue to expect our weighted average shares outstanding to be approximately 64 million. And finally, while it is not our practice to provide quarterly guidance, given that we are reporting in the last week of the fiscal quarter, we thought it would be helpful to share our range of expectations for total revenue. As such, our full year '22 revenue guidance includes the assumption that first quarter total revenue will be in the range of $26.5 million to $27.5 million, up 17% to 22% year-over-year. And now, I'll turn the call back to Dom.

Thanks, Domenic. Before we open up the call for questions, I'd like to have Ross share an update on our commercial priorities and our global sales and distribution team. Ross?

Yes. Thanks, Dom. Before I address our Q4 execution of commercial strategy priorities, I'd like to touch on our current aesthetic product portfolio that is attracting proven aesthetic leaders to Venus Concept. With our current product portfolio and competitive advantages, our long-term growth will be supported by our two growth franchises: our hair restoration franchise which consists of ARTAS and NeoGraft; and our body franchise which consists of Bliss and Bliss Max. The number one growth market in aesthetics is men and the number one issue they face is hair loss. The ARTAS robot has been providing superior clinical efficacy as well as a more aesthetically pleasing and natural hair restoration compared to past methods. With our recent Bliss Max clearance, Venus Concept is the only company with three targeted modality solutions for fat, muscle and skin tightening in one system. Combine these two key growth franchises with Legacy, Versa, Velocity, Epileve and you have an unmatched aesthetic portfolio that will support our growth projections in 2022 and beyond. We are also most pleased with our Q4 execution of commercial strategy priorities. The most important starts at the top. We promoted or recruited four Vice Presidents for North America, a Vice President of Sales, U.S. East; a Vice President of Sales, U.S. West; a VP of Sales, Canada and North American National Accounts; and a Global VP of VERO Hair. We added aesthetic industry expertise while also promoting top Venus Concept aesthetic leaders. We also did the same at the regional level. To maximize our hair restoration advantage with ARTAS and NeoGraft, we added four robotic specialists in the U.S. and one in EMEA reporting directly to our Global VP of VERO Hair. This commercial strategy execution resulted in record sales in our hair restoration franchise in Q4. We expect to implement the same strategy with Venus Freedom later in 2022. Another commercial strategy priority was adding more aesthetic experience at the area sales manager and territory manager level as well as standardizing sales training. We continue to attract proven aesthetic sales leaders while also providing comprehensive sales training. The goal in Q4 was to establish the targeted North America head count for 2022 of 79, consisting of four VPs, five regional directors, four robotic sales specialists, 40 area sales managers, 22 territory managers, and four inside sales managers. We have filled 90% of these positions with the remaining 10% at the field level. Outside the U.S., we have direct commercial sales teams in the highest growth areas in EMEA, APAC and Latam or over 12 countries. Our OUS sales headcount is 48. We also have distributors in over 40 countries. With that, I'll turn the call back to Dom for closing remarks.

Thanks, Ross. In closing, I wanted to share some of the key assumptions supporting our growth expectations for 2022. Our 2022 total revenue outlook assumes more than 75% of our total revenue year-over-year comes from two key growth franchises: specifically, the first, our body franchise which includes systems and procedure-related revenue for our Venus Bliss and Venus Bliss Max products; and second, our hair restoration franchise which includes our systems and procedure-related revenue from our ARTAS and NeoGraft products. Together, these two key growth franchises represented approximately 38% of our full year 2021 revenue and we expect these growth franchises to increase more than 40% year-over-year in 2022. Importantly, we expect the contributions of total revenue growth from these two growth franchises to fuel continued growth in sales and procedure-related recurring revenue and to be accretive to our total company gross margins. Our 2022 total revenue outlook also assumes contributions from the portion of our business dedicated to medical aesthetics outside of the body franchise as discussed earlier. This portion of our business includes contributions from six commercialized aesthetic products, including two of our largest product lines, the Venus Legacy and Venus Versa. Sales of these aesthetic products represented approximately 68% of our full 2021 total revenue and have demonstrated highly durable, stable growth over time. We expect the sales of these products to increase in the mid-to-high single digits year-over-year in 2022, reflecting a continuation of the durable stable growth profile these products have demonstrated in recent years. There are two additional items to bear in mind when evaluating full year 2022 growth expectations. First, as mentioned earlier, our body franchise will be a material driver to total company growth this year, fueled by the commercialization of our Venus Bliss outside of the U.S. and commercialization of our Venus Bliss Max in the U.S. We do expect growth in our body franchise to be stronger over the second half of the year given the timing and expected ramp-up of the introduction of the Bliss Max continuing in Q2. Second, our 2022 revenue guidance does not assume material contributions related to the limited release of AIme in Q4 of 2022. We intend to update the investment community on the potential contributions from this initial commercial release of AIme following the receipt of 510(k) clearance. While AIme is not expected to materially impact 2022 growth, it is fair to assume that we will be highly focused on ensuring that we are well prepared to execute our commercial strategy for this highly differentiated robotic technology as soon as possible following receipt of regulatory clearance and would expect AIme to be a material contributor to total company growth beginning in fiscal year 2023 and beyond. And with that, operator, we'll now open the call to your questions.

Our first question will come from Marie Thibault with BTIG.

Good morning, Venus Concept team. Thank you for taking the questions and congrats on the recent progress. Wanted to ask this question here first about Bliss Max. Would love to hear how that product is being received now that it's in the market. Can you tell us a little bit more about how the clinicians are viewing that product?

Sure. Ross, do you want to take that question from Marie?

Sure. Marie, obviously, we're very excited about Bliss Max and the only system that has the three platforms for skin tightening, fat, and muscle. With a limited release in Q1, with a full launch coming in Q2, sales have been fantastic. We've actually quadrupled our availability of Bliss Max for the quarter-end close. We just recently attended the AAD and actually did some booth presentations and muscle stimulation demos. I can also tell you that we've had key KOL purchases to build the infrastructure and the foundation for the growth that we expect from the product. So it's been outstandingly received and mostly because it's a proven platform with Bliss with fat and skin tightening with our MP2 technology and by adding the EMS muscle stimulation has created phenomenal interest.

Okay, that's great. We look forward to the broader launch here. And then a question on AIme. The March 31 deadline is really only three days away, so a two-part question here. What needs to happen until for that approval to come through? It sounds like it's really just kind of a signing of a letter sort of deal here. And then secondly, why are we waiting until Q4 for that limited launch? What needs to happen in between for you to go ahead with the limited release of AIme?

Yes, great. So, Marie, first of all, we're confident we're going to be able to file by March 31. We had a meeting with the FDA earlier in the year and they indicated to us this pathway. We worked with them and so we feel fairly confident that we're going to be able to get our clearance in the timelines that are typical for the FDA. Now, the FDA process is usually 90 days. So we built in a little bit of cushion, quite frankly, to make sure that if there are any questions or delays at the FDA level, we could account for that in our assumptions when it comes to launching the product. We have a build process in place already for AIme. Supply chain issues when you're doing a few at a time do impact a little bit of the timeline, so we also want to give ourselves a little bit of cushion there as well. We feel pretty confident that we should be able to get the product commercially viable and available in early Q4, but that's why we gave ourselves a bit of room.

All right. Thank you so much.

Your next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.

Hi Dom, Domenic and Ross. How are you?

Good. Good morning.

Nice to see the company at AAD a couple of days ago. So a couple of questions from our end. Could you give us some thoughts about the trends on buying versus leasing for, I would say, most of the platform as far as how we're modeling systems going forward? Any trends there to read into? And was there any spillover at all from Q4 that we should expect to get pulled through into Q1?

Yes. I think that I'll let Domenic touch on a bit of the trends. But just to be clear that when we look at the traditional sale versus our subscription/lease programs, there is a difference between units as a percentage of our business and actual dollars. For example, when we're looking at the restoration like the ARTAS system for hair, that is not available under our subscription model. But it also has an ASP in the area of $250,000 or so. So it does materially impact the percentage of dollars generated versus subscription. Same thing with Venus Bliss. In terms of the trends, Domenic, do you want to touch on where we're going there?

Yes. In the fourth quarter, we had a significant uptick in system sales which are cash sales. A lot of that was driven by the fact that we had a record quarter for ARTAS in terms of units shipped. So ARTAS is sold strictly on a cash basis. So that kind of skewed it more towards cash in the fourth quarter and that's not a bad thing. We expect that in Q1 that will kind of rebalance back as our subscription business picks up slightly in Q1 relative to the kind of mix we saw in Q4. But clearly, both subscription and system sales are growing. They will vary a little bit quarter-to-quarter depending on how good a quarter we have on the ARTAS side. But with a focus on Bliss Max going forward, we expect that a certain component of Bliss Max sales will continue to be on subscription and that will kind of rebalance things in 2022.

Okay. And then can you walk us through how you're thinking about AIme and its rollout this year as far as the actual architecture? Is the ambition to have a clearance on the resurfacing with one such device at the tip of the arm and then tack on others such as wrinkles, et cetera, with other energies?

Yes. I think you've hit the nail on the head in terms of what AIme is. And to remind the audience that AIme is an acronym for artificial intelligence me. We feel very strongly that robotic technologies will play a more significant role in an industry where typically manual intervention has been the norm. We believe that this will address a number of different uses, most of which is efficiency of a platform whereby our system has been designed where we'll be able to take a variety of different energy-based solutions and integrate it into the robotic arm. Using artificial intelligence, machine learning, and the imaging that we can do with the device as well as the level of precise assessment of the tissue, for example, through the cameras, all these factors will help, we believe, improve clinical outcome predictability and safety profile of platforms. We do expect to have a number of units available this year. We don't know exactly what the number will be. But just to be clear, the first phase, like any startup in terms of an initial launch, will be dedicated to attracting the top KOLs that will be able to help us not only articulate the benefits of this platform but also help us expand the clinical indications as they learn more about what the platform can do with our clinical and R&D teams. So by the end of the year, we're going to have a pretty good assessment as to the potential for 2023 and we'll build our financial models off of that experience.

Got it. And one last one, if I may, for Domenic, just on the modeling purposes. You called out $98 million to $101 million on OpEx. Was that a GAAP number?

Yes.

Perfect. Thanks for taking our questions.

No problem, Jeffrey.

The next question comes from the line of Jon Block with Stifel. Please proceed with your question.

Great, thanks.

Good morning, Jon.

Good morning. Maybe the first one, Dom. Just on the IoT data. Again, you guys are unique, you get a real-time look in there. You talked about the trends exiting '21 but Omicron persisted into January and then people are always curious on aesthetics. As the world reopens, how dollars get reallocated if they do. So unless I missed it, my apologies but any color that you can give us on how the IoT trends played out from a patient perspective, call it, Jan, Feb, March?

Yes, we are observing trends now that resemble those of 2019 and are ahead of where we were then. The good news is that on a global consolidated basis, although there are always some variations, we have not seen any significant impact from the Omicron variant on patient trends, particularly in the U.S. We are optimistic about the continued improvement in patient utilization. Currently, the trends are consistently above the 2019 figures we encountered when we initially launched IoT in the market.

Okay, that's great color. And then maybe to pivot, I know we've talked about Bliss Max and AIme as well on the call but you've got a robust pipeline and you mentioned Freedom earlier. I think you called out a 1H '22 U.S. launch. How do we think about a revenue contribution this year from Freedom? And then anything more that you can share on the business model? I think it was last earnings call you talked about a little bit of a different business model because of the target market being the OB/GYNs and you've got to be a little bit more sensitive from a capital cost perspective. But any other color, Dom, that you can provide there?

Yes. It's crucial that we're approaching this in a two-step process. The first step involves building a strong network of key opinion leaders. To establish this network, particularly in the OB/GYN market, it's essential to have solid clinical data. We take pride in the extensive six-year development timeline for our product, Bliss Max, which sets us apart from competitors. This timeframe was necessary to ensure we have robust clinical data to support our claims about the product's benefits for various women's health issues. We're confident in the data we have to present to the OB/GYN community, who prioritize substance over flashiness. The second part is equally important, as OB/GYNs are typically cautious about spending on capital equipment. They prefer a modest licensing fee to enter the market, around $15,000 per unit, which we believe will encourage participation. Additionally, we'll implement a utilization fee for each procedure that will offer meaningful contributions. In 2022, we haven't set ambitious revenue goals because we want to ensure we establish the right KOLs. We already have KOLs in Canada and are working on the U.S. market. Therefore, while we expect some contribution, it may not be significant this year unless adoption exceeds our expectations. However, once we have a solid clinical team in place, we anticipate building momentum throughout the year, leading to positive outcomes by Q4 and beyond.

Okay, that's great. And maybe last one for me, a two-parter. Domenic, for you, on the supply side, it looks like you're caught up with the backlog. Maybe just a broad brush question, are you out of the woods there? The balance sheet looked good from a sort of an inventory perspective. And then, Dom, just for AIme, this might build on Jeffrey's question but I know you said no material impact in 2022 but can you talk about the receptivity from the docs with a general label for tissue excision and skin resurfacing versus the future expanded label for facial wrinkles? In other words, can you really get going with the launch on, call it, the general or do you need the enhanced label when you think about it from a commercial standpoint?

Yes. From a supply chain perspective, we think the worst is behind us. Obviously, we've adjusted to the longer lead times that the supply chain and our providers demand in terms of our contract manufacturers. So we've gone through that adjustment process. We were able to build more Bliss Maxes that we were targeting to build by the end of Q1. We were able to have a few more units constructed in time. So we're feeling pretty good about the balance of the year from a supply chain point of view.

And does that answer your question, Jon, for Domenic?

Certainly does. Yes.

From the perspective of AIme, we recognize that there will always be early adopters. There are doctors eager to be pioneers with our platform, and we expect this trend to continue. I can say this confidently because I have received multiple inquiries from doctors who are proactively asking about our robotics and future developments, indicating their desire to lead in advancements in aesthetic medicine. These are strong indicators that we're on the right track. Regarding general versus specific clearances, aesthetic doctors, such as dermatologists and plastic surgeons, typically prioritize being market leaders over specific clearances. Based on discussions with the four physicians selected as our investigators for the second clearance with AIme for facial use, we believe there is a high likelihood that these doctors will quickly start using the device and provide feedback on patient treatments rather than us dictating it. Doctors often aim to be first to market with new platforms, so we see a significant opportunity to make an impact in 2022. The extent of that impact remains to be determined, but we feel optimistic about starting off strongly.

Great. Thanks for the color, guys.

No problem.

Our next question is from Anthony Vendetti with Maxim Group.

Hi, good morning. This is Jeremy on the line for Anthony. I have a quick question. At the end of your prepared remarks, you mentioned the revenue breakdown from your two key franchises, projecting that 75% of your revenue for 2022 will come from them. I’m trying to understand the calculations based on your 2021 revenue, which was 68% from your legacy products, and your expectation of high single-digit growth. Could you explain a bit more about how this projection breaks down for 2022 if you anticipate 75% of your revenue from the two main franchises?

Yes. As we evaluate the two main franchises we've discussed, the body franchise includes the Bliss and the Bliss Max. We have received FDA clearance for the Bliss Max, which will be our primary product in the U.S. due to its higher average selling price. The Bliss, which does not incur any disposable costs, has shown positive trends in Q4 and is gaining traction in price-sensitive international markets. The second franchise is hair restoration, which comprises ARTAS and NeoGraft, and we established utilization per procedure in Q4. Together, these two franchises accounted for 38% of our revenue in 2021. Based on the trends observed in Q4 of 2022 and initial interest in the Bliss Max, we believe they will contribute 75% of our total business. Looking at our overall business strategy, it aligns with our approach to market entry and the targeted hiring of our sales team. The 75% growth we are discussing refers to overall performance and focus rather than strictly revenue.

Correct. So if we're growing by $20 million, 75% of that growth is coming from these two franchises.

Okay, so it's total revenue growth. That's helpful. I thought it was just total revenue included. And then just one for you. You mentioned earlier regarding the 2020 outlook about gross margins that there were some inflationary challenges impacting your costs of goods sold. What steps are you taking to try and address that? Maybe you could help us understand.

Yes. We've commented that the range of 68% to 71%. So depending on the nature of these inflationary pressures because we could get a big increase on component parts in the second half of the year and be somewhat surprised by it, our point is that we have selectively managed our pricing structure such that we're looking to extract extra margin through 2022. Now depending on what those COGS headwinds are like, we could do better than 70%, 71%. But the plan is that we've taken enough initiatives to offset the COGS headwinds that we're anticipating. We've seen a bit of it trickle through and we're hearing rumors of more pressures coming down the road but we're prepared to address those such that we hope to balance out somewhere around the 70% range and possibly better.

Okay, all right. Great. Thank you very much. I’ll hop back in the queue.

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Thanks, everybody.

Thank you.

Thank you.