Venus Concept Inc. (NASDAQ:VERO) Q4 2021 Earnings Conference Call March 28, 2022 8:00 AM ET
CompanyParticipants
Dom Serafino – Chief Executive Officer
Domenic Della Penna – Chief Financial Officer
Ross Portaro – President of Global Sales
Conference Call Participants
Marie Thibault – BTIG
Jeffrey Cohen – Ladenburg Thalmann
Jon Block – Stifel
Operator
Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2021 Earnings Conference Call for Venus Concept. [Operator Instructions] 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-look 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 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.
Dom Serafino
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 of 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 in the U.S. customers and 14% growth in sales to international customers for the period.
We are very encouraged by our 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 we 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, 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 expect 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 6 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 continues 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 3 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 [indiscernible] per treatment to this device. Importantly, we estimate that the time of return of investment of 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 time lines we discussed with the Street 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.
Where 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 time lines 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 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 indication 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 4 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 identify — sorry, 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?
Domenic Della Penna
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% and 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 nonbrokered 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 cash flow positivity 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 noncash D&A of $4.5 million and noncash 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 — of the first fiscal quarter of 2022, 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.
Dom Serafino
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?
Ross Portaro
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 2 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 aesthetic pleasing and natural hair restoration versus the past methods. With our recent Bliss Max clearance, Venus Concept is the only company with 3 targeted modality solutions for fat, muscle and skin tightening in one system. Combine these 2 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 4 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 4 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 do 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 4 VPs, 5 regional directors, 4 robotic sales specialists, 40 area sales managers, 22 territory managers, 4 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 head count is 48. We also have distributors in over 40 countries.
With that, I’ll turn the call back to Dom for closing remarks. Dom?
Dom Serafino
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 2 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 2 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 2 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 those 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 6 commercialized aesthetic products, including 2 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 [indiscernible] has demonstrated in recent years.
There are 2 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 the 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 the 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 the total company growth beginning in fiscal year 2023 and beyond.
And with that, operator, we’ll now open the call to your questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from Marie Thibault with BTIG.
Marie Thibault
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?
Dom Serafino
Sure. Ross, you want to take that question from Marie?
Ross Portaro
Sure. Marie, obviously, we’re very excited with Bliss Max and the only system that has the 3 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 outstanding received and mostly because it’s a proven platform with Bliss with fat and skin tightening with our MP^2 technology and by adding the EMS muscle stimulation has created phenomenal interest.
Marie Thibault
Okay, that’s great. We look forward to the broader launch here. And then a question on AIme. The March 31 deadline of really only 3 days away, so a 2-part question here. What needs to happen until — for that approval comes 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?
Dom Serafino
Yes, great. So Marie, first of all, the first part of your question, 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 time lines that is typical for the FDA. Now FDA is usually a 90-day process. So we built in a little bit of cushion, quite frankly, to make sure that if there are any questions or sort of 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 the AIme. Supply chain issues when you’re doing a few at a time does impact a little bit of the time line, 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 be able to get the product commercially viable and available in early Q4, but that’s why we gave ourselves a bit of room.
Operator
Your next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.
Jeffrey Cohen
Nice to see the company at AAD a couple of days ago. So a couple of questions from our end. So 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?
Dom Serafino
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, DDP, you want to touch on where we’re going there.
Domenic Della Penna
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 — in the ARTAS side of the business 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.
Jeffrey Cohen
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?
Dom Serafino
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. And we feel very strongly that robotic technologies will play a more significant role in an industry where typically manual intervention has been the norm. And we think that this will address a number of different use, 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. And using artificial intelligence, machine learning, the imaging that we can do with the device, the level of precise assessment of this tissue, for example, through the cameras, et cetera, all of these things will help, we believe, improve the clinical outcome predictability, safety profile of platforms. And so 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 — as any start-up or a start-up 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, obviously, our financial models off of that experience.
Jeffrey Cohen
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?
Domenic Della Penna
Yes.
Operator
The next question comes from the line of Jon Block with Stifel.
Jon Block
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?
Dom Serafino
Yes. We’re seeing trends now that are similar to 2019, ahead of where we were. So the good news for us is that as we look globally on a consolidated basis — I mean, there’s always pockets, Jon, here and there. But overall, globally and especially in the U.S., we’ve seen really no impact of the Omicron to patient trends. So I think that we feel pretty good about how we’re going to see that patient utilization improve and continue to improve. As I mentioned earlier, the trends right now are consistently ahead of the 2019 numbers that we saw when we first brought IoT to the market.
Jon Block
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?
Dom Serafino
Yes. I think what’s really important is that we’re doing this in a 2-step process, Jon. I mean step one is, as with every product, Bliss Max, it doesn’t matter what it is, is establishing a strong network of KOLs. In order to be able to establish a strong network of KOLs, especially in the OB/GYN market, you have to have solid clinical data. One of the things that we’re proudest of the most over the 6 years that — and there’s a reason why we took 6 years to develop and bring this product to market versus some of our competitors, is that we wanted to have strong clinical data to be able to support the claims that we’re making about how this particular product benefits, a variety of different health issues for women. And so we’re comfortable with what we have available to be able to demonstrate to the KOLs in the OB/GYN community who are routinely looking for not, I’ll call it the sizzle, they’re looking for the steak, right? So they want to make sure that the product is properly positioned, so they feel comfortable with it.
The second part of this and this is equally, if not more important, OB/GYNs aren’t typically used to spending a lot of money on capital equipment. They’re quite — they don’t want to do it. And so what we did is we built a business model that was going to have a modest licensing fee to get into the business, somewhere in the area of $15,000 a unit. This will get the ball rolling. And then what we will do is have a utilization fee for each procedure that will contribute in a meaningful way. We didn’t plan a big number for 2022, just to be clear, because obviously we want to make sure that we can get the appropriate KOLs in place. We have those KOLs in place in Canada. We’re now working on the U.S. And so therefore, we’ll start to see some contributions, but it’s not going to move the needle dramatically in 2022 unless we’re surprised by the pace of adoption. But we feel that once we’ve established a good clinical team in the field in terms of KOLs, we’ll be able to build momentum through the year and we’ll start to see the benefits of that and hope it’s accretive in Q4 and beyond.
Jon Block
Okay, that’s great. And maybe last one for me, a 2-parter. DDP, 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 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 enhance label when you think about it from a commercial standpoint?
Dom Serafino
Yes. So I’ll let DDP answer the first and then I’ll answer the AIme question.
Domenic Della Penna
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, 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.
Dom Serafino
And does that answer your question, Jon, for DDP?
Jon Block
Certainly does. Yes.
Dom Serafino
Okay. So from an AIme perspective, as you know, there’s always early adopters, right? There are doctors out there that are going to want to be first to market with a platform. We fully anticipate that, that will be consistent. And the reason I can say that with a fairly high degree of confidence is that I’ve had a number of doctors reaching out to me directly proactively asking about robotics and where we’re going, and they want to be the first on the podium to talk about the advancements in aesthetic medicine. So all of those things are strong signals to us that we’re heading in the right direction. As it relates to the general clearances versus specific clearances, traditionally in our industry, doctors really — well, I’ll call it the aesthetic doctors now, dermatologists, plastic surgeons, typically are less concerned about specific clearances and more concerned about being market leaders. So we fully believe that based on the conversations we’ve had with the 4 physicians who have been selected to be our investigators for the second clearance with AIme for the face, we feel that we have a very high probability of having doctors who will use this device fairly quickly out of the gate and then tell us, quite frankly, where they’re treating patients as opposed to us telling them.
So — because like I said, most times, doctors who have any kind of ability to be on the podium like to be first to market with these platforms. And so we feel we have a good opportunity here to make an impact in 2022. How big that impact will be remains to be seen, but we feel pretty confident that we’ll be able to get out of the gate fairly strongly.
Operator
[Operator Instructions] Our next question is from the line of Anthony Vendetti with Maxim Group.
Unidentified Analyst
This is actually Jeremy on the line for Anthony. Just a quick question. At the end of your prepared remarks, you told us the breakdown of your 2 key franchises. You assume that 75% of your revenue for 2022 is going to be from those 2 franchisees. I’m just trying to figure out the math based on what you said from the 2021 revenue was coming from your legacy — more — 68% with some of your legacy products and then you had you said it’s going to be high single-digit growth. I’m just trying to figure out, could you maybe just explain a little more how that breaks out going into 2022 if you expect 75% from the 2 key franchises?
Dom Serafino
Yes. As we look at the 2 key franchises we described, right, the body franchise includes the Bliss and the Bliss Max. We have clearance for the Bliss Max from the FDA, and that will be the primary go-to product in the U.S. with a higher ASP. And the Bliss, which does not have any element of a disposable cost to it, and we’ve already seen the trends in Q4, is starting to gain traction, OUS in the price — as I said earlier, the price-sensitive markets. So that’s one of the franchises. The hair restoration franchise, which includes ARTAS, NeoGraft and the utilization per procedure will represent the second. That was well established in Q4 because — the trends — I think these 2 franchises contributed 38% of our revenue in 2021. Today, we believe, based on the trends that we saw in Q4 of 2022 and with the early interest in the Bliss Max, that it will represent 75% of our total business.
So I think that as you look at our business overall, it really is consistent with how we’ve strategized about going to the market, being very, very specific about how we hire our sales organization, how they target the market. So 75% year-to-year growth, that’s not necessarily revenue, right? We’re talking about overall performance and focus of the company.
Domenic Della Penna
Correct. So that 75% is — so if we’re growing $20 million, 75% of that $20 million of growth is coming from these 2 franchises.
Unidentified Analyst
Okay. So it’s total revenue growth. Okay, that makes a lot — that’s helpful. I thought it was just total revenue in there. Okay, great. And then just one for you. You mentioned — when you’re giving your — some of the 2020 outlook about gross margins, you mentioned there were some inflationary headwinds that was going to pressure your COGS. Is there — what type of steps — are you taking any steps to try and mitigate that? Maybe you could help us understand.
Domenic Della Penna
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 grid such that we’re looking to extract out 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 head those off such that we hope to balance out somewhere around the 70% range and possibly better.
Operator
We’re currently showing no additional participants in the queue. That will conclude today’s conference for today. Thank you for your participation.
Dom Serafino
Thanks, everybody.
Domenic Della Penna
Thank you.
Ross Portaro
Thank you.
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