Good day, ladies and gentlemen, and welcome to the First Quarter 2024 Earnings Conference Call for Venus Concept Inc. 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 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 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 those 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. Rajiv De Silva, Chief Executive Officer of Venus Concept. Please go ahead, sir.

Thank you, operator, and welcome, everyone, to Venus Concept's First Quarter 2024 Earnings Conference Call. I'm joined on the call today by our Chief Financial Officer, Domenic Della Penna; and by our President and Chief Operating Officer, Dr. Hemanth Varghese. Let me start with an agenda of what we will cover during our prepared remarks. I will begin with a brief review of our Q1 2024 results and notable operating developments in the recent months. Then, Hemanth will share an update on our progress in several key operating areas. Domenic will then provide you with an in-depth review of our first quarter financial results and our balance sheet and financial condition at quarter end, as well as a review of our Q2 2024 revenue outlook outlined in today's press release. Then we will open the call for your questions. With that agenda in mind, let's get started. As detailed in our press release issued today, we are pleased to deliver revenue for Q1 2024 that exceeded the expectations we outlined in our fourth quarter earnings report. While our revenue results reflect a decline of 15% on a year-over-year basis, we are encouraged by the underlying trends we are seeing in the business to start 2024. While the business continues to be impacted by macroeconomic headwinds, which are pressuring the aesthetic sector as a whole, we were pleased to deliver growth in cash system sales on a quarter-over-quarter basis in both the U.S. and international markets in the first quarter. Notably, we are seeing early indications that our strategic initiatives to exit unprofitable direct markets outside the U.S. are bearing fruit. International revenue increased more than 30% sequentially in the first quarter, driven by strong initial demand from new distribution partners added in late 2023 and stronger-than-expected ARTAS system sales in the period. As discussed in recent calls, the challenging macroeconomic environment and tighter credit markets have impacted systems adoption throughout our business in recent quarters. The hair restoration business, in particular, has experienced notable increases in time to close systems deals given the higher ASP associated with this robotic capital equipment purchases. We remain cautiously optimistic that the operating environment will show improvement as we move through 2024. That said, we are encouraged by the continued evidence that our efforts to reposition the business and to focus on key strategic and operational initiatives are well founded. We are pleased to report that cash system sales represented 75% of total systems subscription and lease program sales in the first quarter compared to 66% in the prior year period. Notably, global cash system sales increased more than 20% on a quarter-over-quarter basis in Q1, with particular strength in markets outside of the U.S., which posted cash systems growth compared to the prior quarter and prior year periods. By way of reminder, one of our key strategic priorities in 2023 was to optimize our commercial and operational strategy in certain international markets and to reinvest those resources in higher opportunity markets to enhance the company's longer-term growth and profitability profile. We continue to execute towards our goal of having our new distribution partners identified, signed up and ordering in the majority of our key international markets in early 2024. We were pleased to see solid initial demand from these new distributors and continue to believe we are well positioned for profitable growth in these key markets in 2024. Importantly, our first quarter financial results support our belief that the key elements of our transformational strategy, cost reductions, prioritizing cash system sales and restructuring initiatives in the U.S. and international markets are enhancing the cash flow profile of the business. We delivered a double-digit decrease in operating expenses in Q1 and generated 3.5x more cash from working capital compared to the first quarter of 2023, which together helped drive a 51% reduction in cash used in operations year-over-year. We continue to believe that our expense and cash flow performance represents the clearest evidence that we are on the right track towards our goal of enhancing the cash flow profile of the business and accelerating the path to long-term sustainable profitability and growth. Before I turn the call over to Hemanth, I wanted to highlight multiple important developments subsequent to quarter end. Specifically, the company announced multiple transactions reflecting material progress towards the company's strategic initiatives to restructure our debt obligations and secure bridge financing. On April 23, 2024, one of the company's largest lenders and investors, Madryn Asset Management purchased its Main Street Lending Program Loan from the City National Bank of Florida for an undisclosed amount. As of December 31, 2023, the loan had an outstanding balance of $51.3 million. Following the close of the loan program, the company and Madryn entered into a Loan and Security Agreement for an aggregate principal amount of up to $5 million in debt financing to support near-term liquidity requirements. We appreciate the support and partnership with the City National Bank since we entered into the loan agreement in December 2020. We're also very pleased that Madryn has demonstrated further commitment to the company's longer-term prospects with these transactions. We look forward to their continued support as we work towards our goal of returning to growth and sustained profitability in the future. I would now like to turn the call over to Dr. Hemanth Varghese, who will share an update on recent progress in our restructuring programs and our commercial product development and regulatory initiatives. Hemanth?

Thanks, Rajiv. As discussed on our last earnings call, we've made considerable progress against several key initiatives of our corporate turnaround strategy. Let me share a little color in areas where we're making notable progress. First, our cost reduction and cash management initiatives continue to progress well. Our focus on protecting our near-term cash runway has been productive, and the targeted incremental cost containment initiatives implemented in the second half of 2023 have further enhanced our ability to execute on our high-priority strategic initiatives while still preserving liquidity. Second, as Rajiv mentioned earlier, our efforts to rationalize our international infrastructure, reduce costs and simplify the organization continue to progress. We continue to engage with both existing and several new distribution partners to align with our new international strategy, and we are pleased to see the initial demand from two new exclusive partnerships we announced in December in the United Kingdom and in India. We are tracking towards our goal of finalizing terms with additional new distribution agreements, which we intend to announce publicly upon completion and remain on track to be substantially completed with our international repositioning in the coming months and ready to return to growth outside the U.S. in 2024. Third, our efforts to advance certain new product pipeline projects, secure regulatory clearances and execute initial commercial launches are tracking favorably in early 2024. The U.S. commercial launch of our new multi-application platform, the Venus Versa Pro, is going well, and feedback from customers is very positive. We launched in the EU in the first quarter, and we were pleased to receive TGA clearance in Australia on April 3. We were also pleased to announce regulatory approval for the Venus Bliss MAX on April 8 from the State of Israel Ministry of Health. Fourth, we are pleased with the positive early response from our company-wide rebranding initiative, Venus AI, and encouraging feedback from participants in our NEXThetics program recently hosted in March. By way of reminder, NEXThetics is a new series of customer education and training events launched under our Venus AI rebrand. The NEXThetics program represents a great example of how we are enhancing our focus on physician education and practice enhancement by empowering professionals in the aesthetics field with the knowledge, tools and support they need to grow their businesses. Finally, we had some great success in this past quarter in expanding our commercial strategy to target corporate accounts. We secured a recent win with a fast-growing multicenter account that contributed solid system demand for Venus Viva and, more importantly, will deliver attractive recurring revenue from ongoing procedure-related demand for Viva Tips. More details to follow.

Thanks, Hemanth. For the avoidance of doubt, unless otherwise noted, my prepared remarks will focus on the company's reported results for the first quarter of 2024 on a GAAP basis, and all growth-related items are on a year-over-year basis. We reported total revenue of $17.5 million, down $3.1 million or 15% year-over-year. The decrease in total revenue by region was driven by a 15% decrease year-over-year in U.S. revenue and a 14% decrease year-over-year in international revenue. The decrease in revenue is primarily attributed to general macroeconomic headwinds that impacted customer access to capital and the effects of tighter third-party lending practices, which negatively impacted capital equipment sales. International revenue results were also impacted by the company's strategic initiatives related to exiting unprofitable direct markets in 2023. The decrease in total revenue by product category was driven by a 39% decrease in lease revenue, a 5% decrease in products systems revenue, a 13% decrease in products other revenue, partially offset by a 13% increase in services revenue. The percentage of total systems revenue derived from the company's subscription model and lease program sales was approximately 25% in the first quarter of 2024, compared to 34% in the prior year period and 41% in the fourth quarter of 2023, as evidence of the continued progress in focusing on cash sales. Turning to a review of our first quarter financial results across the rest of the P&L. Gross profit decreased $2.1 million or 15% to $11.6 million. The change in gross profit was primarily due to a decrease in revenue in our international markets driven by the accelerated exit from unprofitable direct markets. Gross margin was 66.6% of revenue, compared to 66.7% of revenue for the first quarter of 2023. Total operating expenses decreased $2.4 million or 11% to $19.4 million. The change in total operating expenses was driven primarily by a decrease of $0.9 million or 8% in general and administrative expenses, a decrease of $0.9 million or 32% in research and development expenses, and a decrease of $0.7 million or 8% in selling and marketing expenses. First quarter of 2024, GAAP general and administrative expenses include approximately $0.9 million of costs related to restructuring activities designed to improve the company's operations and cost structure, and approximately $0.4 million of expenses related to the Canada Revenue Agency for denial of Canada Emergency Wage Subsidy Claims filed by the company for certain periods between 2020 and 2021. The total operating loss was $7.8 million, compared to an operating loss of $8.2 million for the first quarter of 2023. Net interest and other expenses were $2 million compared to $1.2 million in the first quarter of 2023. The year-over-year change in net interest and other expenses was driven primarily by an increase in noncash foreign exchange loss of $0.3 million, compared to a noncash gain of $0.3 million in the prior year period. Net loss attributable to stockholders for the first quarter of 2024 was $9.8 million or $1.68 per share compared to a net loss of $9.7 million or $1.84 per share for the first quarter of 2023. Adjusted EBITDA loss for the first quarter of 2024 improved 11% year-over-year to $5.1 million compared to an adjusted EBITDA loss of $5.7 million for the first quarter of 2023. As a reminder, we have provided a full reconciliation of our GAAP net loss to adjusted EBITDA loss in our earnings press release. Turning to the balance sheet. As of March 31, 2024, the company had cash and cash equivalents of $5.1 million and total debt obligations of approximately $76.7 million compared to $5.4 million and $74.9 million, respectively, as of December 31, 2023. Cash used in operations for the three months ended March 31 was $2.9 million, a 51% decrease in cash use year-over-year. The year-over-year decrease in cash used in operations was driven primarily by strong working capital performance with more than $4.7 million of cash generated from working capital in the period. The improvement in working capital conversion is primarily related to our strategy to shift the mix of sales to cash versus subscription and lease program sales. Cash used in operating and investing activities during the first quarter of 2024 was partially offset by $2.6 million of cash from financing activities in the period, driven primarily by the net proceeds of $1.6 million from a note purchase agreement with EW Investors on January 18, 2024, and the net proceeds of $977,000 from the sale of 817,748 shares of the company's common stock at a price of $1.46 per share through a registered direct offering on February 22, 2024. Turning to a review of our financial outlook for 2024. As outlined in our press release, given the company's active dialogue with existing lenders and investors and the ongoing evaluation of strategic alternatives with various interested parties to maximize shareholder value, the company is not providing full year 2024 financial guidance at this time. For modeling purposes, the company expects total revenue for the three months ending June 30, 2024, of at least $16.5 million.

We are currently showing no additional participants in the queue. That does conclude our conference for today. Thank you for your participation.

Maybe I'll start here. I would love to hear just a review of what you felt went better than expected in Q1 and a little bit more on assumptions for your guidance for Q2. You gave us that at least $16.5 million floor. I would like to hear what's baked into that.

Sure. I think in terms of your first part of the question, Marie, the strength in our international markets was better than expected. And as you know, we've been transitioning from direct presence in many of these markets to working with distributors. In many cases, this is even the first order. We were also positively surprised by the strength of the ARTAS system sales outside the U.S. So I would say that probably exceeded expectations. The U.S. performed as expected. The macroeconomic headwinds probably impacted the U.S. more so than they certainly have in the past. Given those headwinds, we were pleased with the outcome in the U.S. as well. With respect to Q2, we see continued trends carrying into Q2. The macroeconomic headwinds have not dramatically improved, though in certain spots, they may be showing some signals of doing so. We expect the pressures in the U.S. to continue, and in the international markets, we anticipate continued somewhat lumpy behavior until we get our new distributors on a more consistent ordering pattern. Hemanth and Domenic, anything to add to that?

No. I don't think so.

Okay. That's really helpful. Yes. That's very helpful. And then I appreciate the efforts that your team has been making on managing working capital and cutting cash burn in the quarter. What else is left to do on managing working capital? Is there more that you can be doing to collect receivables or work out inventory? Any target areas that you see room for added improvement?

Domenic, do you want to take that one?

Sure. I think the one area that we continue to focus on, very selectively, is working with key customers that, for example, like chain accounts, where we can accelerate the collection of amounts owed to us at a reasonable discount. We've been modestly successful in converting some of that. We currently have an opportunity now to convert a few hundred thousand dollars. We do that selectively with certain customers that owe us for bulk device sales. That augments our existing focus on cash sales. In addition, you'll notice that our inventory balance is lower, and we put in place a more robust sales and operations planning program that will continue to focus on inventory management, particularly because we believe there’s some opportunity to better focus on inventory turns and free up some working capital that way.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann.

So firstly, could you walk through and give us some better metrics or trends on the hair business, specifically from the first quarter and how '24 looks there?

All right. Good. Domenic, do you want to take that one?

Our hair trends are impacted by the tight capital equipment market. But having said that, internationally, we did show an improvement over Q4 in terms of ARTAS device sales. In the U.S., we were slightly ahead of Q4 but still facing a challenging environment when trying to sell a device that costs $250,000. The financing environment is such that, although capital may be available, it's not as accessible as it used to be. So we're cautiously optimistic about the second half of the year, but in terms of Q1, the underlying strength really came in internationally through distributor sales.

Okay. Got it. And then secondly, I just wanted to walk through the MSLP loan agreement. Does Madryn currently have the entirety of the $76.7 million now?

That's correct. Madryn owns the entire debt stack at this point, yes. And the face amount is what you quoted.

Okay. I got it. And just one clarification that you spoke about Q-over-Q international business, plus 30%. Could you talk a little bit about U.S. versus international? And call on, in particular, a few of the territories that are driving international, please?

Domenic, do you want to?

Yes. On the international front, we had a very good result in Australia in particular. In addition, we did have a bounce back in terms of our sales in Israel, which suffered through a very, very difficult fourth quarter. There was some traction we got in the first quarter of 2024 in Israel, notwithstanding a still challenging environment there. But those were the key direct markets. Additionally, we continue to make progress on signing up new distributors. It was a combination of improved performance in select direct markets like Australia and Israel, as well as improved distributor performance in the Rest of the World.

I just want to amend my answer from before. Just to clarify, our debt stack also includes about $2 million in a convertible note with EW. That is in addition to what Madryn owns at this point, although Madryn still owns the vast majority.

Got it. The note purchase, the $1.6 million, you're referencing?

That's correct. Yes, that's a net amount in Phase 2.