Q1 2022 Beauty Health Co Earnings Call
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Welcome to the beauty.
First quarter 2022 earnings conference call.
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During Q senior director of M&A and Investor.
Religion.
Go ahead. Good afternoon, everyone. Thank you for joining the beauty health companies conference call to discuss the company's first quarter 2022 financial results, which were released this afternoon and can be found on our website at beauty health Dot Com also available on our website as an investor presentation that will be referenced during this call.
With me on the call today is Andrew <unk>, President and Chief Executive Officer, and land well Chief Financial Officer of the Beauty Health company.
Before we get started I would like to remind you of the company's Safe Harbor language management may make forward looking statements, including guidance and underlying assumptions.
We're looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.
For a further discussion of risks related to our business see our filings with the SEC.
This call will contain non-GAAP financial measures such as adjusted gross margin adjusted EBITDA and adjusted EBITDA margin reconciliation of these non-GAAP measures to the most comparable GAAP measures are included in the earnings release furnished to the SEC and available on our website I will now turn the call over to Andrew <unk>, President and CEO of <unk>.
UT Health company.
Thank you Eduardo good afternoon, everyone and thank you for joining our first quarter earnings call I'm excited to walk you through our outstanding performance in the first quarter and update you on the progress we are making on the strategic Master plan that I presented last quarter.
Before turning to those topics I want to begin by thanking the global beauty health team and community for their hard work passion and commitment.
As I enter my fourth month.
I've had the privilege of meeting many of our talented employees and providers throughout the world you have extended such a warm welcome to me and you all make beauty health the incredible company and community. It is.
Your dedication and support we saw strong growth in the first quarter and continue to deliver against our strategic initiatives, having partnered closely with Brent. These past few months, we are very proud of the team's achievements and remain as confident as ever about the future as we carry this momentum forward.
I'll now turn to slide five to discuss the quarters highlights.
I am pleased to report net sales for the quarter grew nearly 59% year over year growth was driven by increasing our new door count in the U S and overseas during January and February combined with the deliberate and planned strategic promotions, we involved in connection with the U S launch of <unk> in mid March 10.
There is the digitally connected next generation delivery system, we co created with our community. This revolutionary system offers significant improvements and a person like experience for providers and consumers I'm thrilled by the strong early feedback we're receiving from the field, which validates experience led approach to innovation.
And product development.
Our since their launch plan consists of three phases, which I will detail for you shortly.
Sales team did an amazing job executing on the first phase of the planned rollout driving strong trade up volume along continued new system cells earlier.
Early adoption trends have far exceeded our expectations with trade up surpassing our forecast nearly three fold I would liken it within our industry to the same form up high from consumers that typically surrounds a major new launch providers was scrambling to buy delivery systems.
As a result of the early successes in there and the higher than anticipated demand for system trade ups I am pleased to raise our full year net sales outlook to a range of $330 million to $340 million up from our previous guidance of $320 million to $313 million.
I would also like to reaffirm the commitment that we made last quarter to delivering 50 million EBITDA in 2022.
Turning to slide six we are confident in our ability to perform in the current macroeconomic climate as we continue to execute on our master plan.
This plan is built on five key strategic pillars, which support our mission as a true category creator reinventing consumers relationships with their skin bodies and self confidence.
I'd like to now spend a few moments on each of those pillars.
As we discussed last quarter <unk> is key to driving innovation and connected experiences for our community.
Leverages data and personalization supplying I'll provide us with insights to better understand and meet consumer needs.
<unk> data transforms the experience, both consumers and providers and will drive increased engagement throughout the beauty health community.
As I mentioned <unk> is rolling out in three phases.
As you know we intentionally kept some under reps from our sales force and to kickoff phase one we delighted our team during our global sales meeting in Orlando with the unveiling of some debt.
Our sales force was static and immediately engaged their accounts with clear enthusiasm driving excitement and buzz within the community.
To help drive this excitement we ran an intentional and today Sydney trade up promotion in March to reward our loyal providers and convert them into champions of our new system. The.
The attractive yet profitable offer was targeted to our providers, who most recently purchased and elite system.
As we have stated previously our aim is to have our entire installed base on the <unk> platform. The promotion was an incredible success and progressing towards that goal and drove far greater demand than we expected.
We are delighted to have all of these providers utilizing our latest technology and providing connected superior consumer experience.
We kicked off phase II the start to the second quarter focused on engaging the entire sales force to accelerate new system placements, we see a huge untapped opportunity to expand that network, both through new locations and second system placements.
<unk> seen in Q1 and into the start of Q2 serves as a strong proof point for the continued market demand for our products and services.
Finally in phase III, we will focus on launching in international markets, where we see an incredible opportunity to expand the hydro facial brand. We expect this phase to kick off towards the end of 2022 or early next year.
Next slide eight will give you a flavor of how we continue to invest not providers in the quarter.
This pillar is critical to our growth because when we invest enough providers, we see double digit growth in their consumable purchases and second system sales haven't 50% faster.
As part of our efforts to support our providers in Q1, we opened our ninth and 10th Hydro social experience centers in New York and London, respectively.
Centers to serve as a critical part of our educational platform petitions, providing a space to house brand building events, where we showcased our products and our beautiful interactive setting.
At these events new users typically make up 85% of the total attendees.
At the end of March we showcased our hydro facial installation at the aesthetics and N th in Medicine World Congress and modest cut.
One of the largest aesthetic events with 12000 attendees from over 120 countries.
The event, Dr. Paul <unk>, a renowned plastic surgeon and highest facial booster serum partner that with key opinion leaders doctors and providers to discuss the merits of the hydro facial delivery system. This.
Is just one of the many events, we participated in and around the world as it relates to expand I'll provide a network.
We also continued to undertake initiatives to accelerate brand awareness amongst consumers to that and I'm thrilled to announce a partnership with the iconic Jennifer Lopez and J Lo beauty brand, bringing a hydro facial by J Lo booster serum to the market.
We expect a broad rollout at this boosted in the fall along with consumer activation events to support the launch.
With her confidence swagger mass appeal and dedication to skincare that works J Lo is an ideal partner to help us accelerate and broaden awareness with consumers, we could not be more excited to partner with such an influential icon.
We constantly seek to validate the effectiveness of our investments in brand awareness by measuring key data points and I'm very encouraged by the level of consumer interest in hydro facial as measured by Google search trends.
As you can see on slide 10 search volume for our brand is at an all time high. Additionally, our latest net promoter score data measured in Q1 illustrates that we increased to 44 from 40 demonstrating continued consumer affinity.
Survey data shows we are increasingly gaining traction with a younger and more diverse consumer base interest for our product is robust and growing and we have a strong conviction that consumers will continue to develop treatments that empower them with the confidence to face life base first.
Next we remain focused on building out our global infrastructure with a few highlights to support our growth ambitions as demonstrated on page 11.
We are creating efficiencies within our supply chain and logistics process. This includes setting up a third party logistics center in Frankfurt for the EMEA region and such efforts will continue in Q2, as we seek to optimize the business Street value engineering projects.
We also continued to build our bench this quarter with targeted hiring to support our expansion plans at home and abroad, including key talent in technology marketing communications and the strategic China market.
These investments will create operating leverage as we scale accelerating our path to increase profitability in future periods.
And lastly, M&A remains a facet of our overall strategy, we maintain a very prudent and disciplined approach to acquisitions.
As discussed last quarter, we will continue to examine opportunities in a highly strategic and targeted manner.
In doing so there are three key criteria. We are focused on that will allow us to capture the white space between beauty aesthetics, and wellness bust it needs to be truly differentiated product or service with a high net promoter score.
Second it should be complementary to our platform and community leveraging that existing call point with the institution to drive synergies with existing costs and infrastructure and <unk>.
Third we are focused on financially accretive opportunities ideally, both the top and bottom lines in.
In summary, the team is making outstanding progress in fulfilling our master plan and I am excited to further advance these initiatives throughout the rest of the year.
I'm incredibly proud of what we accomplished in the first quarter and I am thrilled with the positive momentum we are seeing across the business <unk>.
<unk> launch has been an overwhelming success our investment in our providers are paying dividends consumer interest in our product has never been stronger and we are proud of the bench strength we built.
This momentum will be further fueled by upside such as the reemergence of cities locked down in China.
Once these cities reopened we are confident we will see a rapid acceleration of our business similar to what we've seen in other markets reopening around the world with that I will now turn the call over to Leah for more detailed discussion of our first quarter performance.
Thank you Andrew and thank you everyone for joining us.
Today, I'll walk you through our first quarter breakout.
Touch on our balance sheet and discuss our full year guidance.
Before jumping into the right now I want to take a few minutes to revisit our business model on page 15.
You will recall the razor razorblade model I explained last quarter.
We view the delivery system at our rigor and associated consumables as a reasonably looking.
Looking at the revenue model, we first saw our hydro station delivery system to provider.
<unk> performed hydrotheca treatments, including various booster serum option, they exhaust and older their supply of consumables driving growth in our consumable revenue segment.
Our provider, but typically purchase a delivery system for one of the freebie.
It is either their first purchase of a hydro station.
Or are they adding assist them to increase the volume of hydro facial treatments.
Can perform in their practice.
Or they are looking to trade up a previous generation delivery system to the current model.
Prenups historically represent a low single digit percentage of deleverage for the year.
However.
That's what's in their launch is already driving higher than expected demand for treat us as providers look to upgrade their delivery systems to this revolutionary new model.
I will touch more on trade up dynamics in a few moments.
I will now turn to our Q1 performance summary on page 16.
We're very proud of what we have accomplished in the first quarter. Despite lockdowns in China that deeply traveling crisis in Ukraine, persistent inflation and global supply chain disruption.
Looking at the top left of the slide you can see we delivered first quarter net sales of $75 4 million.
I find nearly 59% year over year.
This was driven by strong global demand for both delivery systems and consumables despite headwinds in APAC.
As well as the successful launch of our <unk> delivery system in the quarter.
We drove delivered system sales growth.
Approximately 62% with record system.
Appointed by <unk> tradeoffs.
<unk> was launched in the final week of the quarter. We are seeing the strength continue in Q2 as we take on new orders.
Addition to shipping out trade up deals.
From the end of March.
We also saw strong sales growth with consumables, which increased 54% year over year.
Importantly, we saw continued sequential monthly improvement in utilization trend throughout the quarter.
He currently in the medical channel.
Globally, we saw year over year growth in net sales across all regions EMEA.
In the Americas region first quarter sales increased approximately 43% year over year to $44 6 million.
Interest in Vail and strong sales productivity driven by conversion of marketing driven leap.
In APAC net sales increased nearly 47% year over year to $12 9 million.
This was driven by continued strength in Australia.
Nearly offset by strict lockdowns in certain parts of China.
Despite the softness in China, we're still confident in our full year guidance, which we are raising today.
I would like to take a moment to acknowledge our team in China.
Equally those based in Shanghai.
It had been so revealing and I'm proud of the way our team has come together to support our Shanghai colleagues by arranging for the delivery of fresh fruits and vegetables to their homes, while our colleagues cannot leave their friend doors.
Our thoughts remain with all those impacted by the lockdown measures.
Looking at EMEA net sales increased approximately 140% year over year to $17 9 million with broad based strength across the region.
As Andrew discussed.
Our marketing activation and trade show Human region also fueled the growth against the Covid impacted comp of Q1 of last year.
As was mentioned in the past.
And promotions drive higher sales in the fourth quarter of any given year consistent with trends you see across the beauty aesthetic.
And wellness industry.
I'd also like to remind you of our historical seasonality, which typically starts with lower Q1 versus Q4 of the prior year and sequentially build throughout the year.
Importantly, the strategic investments, we made early in the year boost our productivity and support a stronger sales and margins.
You can have.
We anticipate the seasonality trend to continue this year.
Our strong first quarter performance was supported by planned investments, including marketing activation and hiring efforts to support our international expansion.
You can see in the chart on the right. We saw adjusted EBITDA of $2 2 million for the quarter, which was impacted by the cost associated with launching and Dale.
Expect to see our adjusted EBITDA ramp up as we progress through the year.
Moving to the chart in the center of the Slide we reported a GAAP gross margin of 68, 9% and a 50 basis point year over year improvement in our adjusted gross margin to 72, 7%.
The lift was driven by our fixed cost leverage and continued margin pick up in the region, where we acquired our distributors.
This was partially offset by higher supply chain and logistics costs.
Why treat up units sold during the quarter, where they're lower.
We expect global supply chain and inflationary headwinds to continue throughout 2022.
Which will offset through pricing initiatives and the realization of margin accretion from our continued value engineering efforts in the second half of the year.
Finally, turning to the bottom of the slide.
I'd like to update you on our key performance indicators.
We're still at a record 1800 40, <unk> 90 of every system in the quarter, including 258 tradeoffs.
This resulted in an installed base of 21719 at the end of Q1.
It is important to note that treat up activity has a net zero impact on our installed base.
As an existing system is removed from our installed base when the new trade out system is solid.
Lastly, the average selling price of a delivery system for E. S. T was 21462 in the quarter.
Our ASP was impacted by the trade up activity from existing provider demand for this and bill during the first phase of launch.
Before we move on I would like to take a moment to discuss this dynamic.
We strategically relief promotion in connection with the launch of spin Dale to reward our loyal customers.
That pricing was only in pacing ladies counted persistent less than one year old and all of our promotional trade out offers result in profitable unit economics.
We're not selling trade up systems for our cost and our most aggressive offer expired at the end of March.
We have an increasingly strong and loyal following in our provider community and the reception to our trade up promotion exceeded our expectations.
This is a testament to the desirability of our revolutionary new delivery system.
As a result, we expect an additional impact to our ASP and gross margin in Q2 as a process. The initial wave of over 1000 trade up owners.
All that said, we view the ASP and gross margin impact from trade up as transitory as these sales will decrease as we progress throughout the year with the bulk of the impact occurring in Q2.
Further our sales team is bifurcated with a capital sales force closing on new system sales and handing over account management through our business development managers.
It is this business development managers that focus on trade up demand with our capital sales force focus on selling new delivery systems.
As a result, we do not expect deterioration in new system sales volume due to the trade up activity.
And I'll remind you that a new system sales and Dale carries a higher ASP and neutral gross margin than our previous delivery system.
This drives our conviction in being able to achieve a high single digit blended ASP increase in 2022, despite the trade up impact.
I will now dive into our first quarter cost details on slide 17.
As we said last quarter, we expect headwinds from global supply chain disruption in inflationary pressures.
Equally in freight to continue to impact our margin in 2022.
Selling and marketing expenses in the first quarter were $36 4 million compared to $17 1 million for the first quarter last year.
Breaking this down selling and marketing increased to 48, 3% of sales.
Over 230 basis points compared to the Covid impacted first quarter of 2021 or up 70 basis points compared to the fourth quarter of 2021.
This increase was driven by the cost of our global sales meeting, where we delightfully mentioned to our sales force with the launch of some deal.
Higher planned marketing spend to support the launch and higher personnel related expenses as we expand our talent globally to feel future growth.
As Andrew mentioned earlier, we constantly evaluate our marketing initiatives.
Order to maximize the ROI of our spend.
<unk> also continued to invest in our training programs such as those hosted at our experience centers and our hydro facial connect program.
Our G&A expense of $26 3 million includes $3 9 million of noncash stock based compensation expenses $2 4 million of one time transaction and executive transition costs and $1 5 million litigation cost as we pursue ongoing patent and trademark infringement cases.
Investments in hiring infrastructure, Buildout and public company costs drove the increase in G&A expenses compared to $10 8 million in the first quarter of 2021 or $25 million in the fourth quarter of 2021.
Public company costs totaled 2 million this quarter, which include D&O insurance Sox compliance and addition of audit and tax related services.
That's why it's higher personnel related expenses due to increased head count.
We expect such public company cost to continue in the near term.
During the quarter.
We continue with our investment in building our international infrastructure.
As previously shared we successfully rolled out our first phase of our global ERP platform on November 1st which include the CRM and new <unk> platform. The global ERP platform increases, our agility and improves productivity by leveraging technology.
Continue to make progress with the expansion of that platform and we expect integration efforts globally over the next few quarters will yield operating efficiencies within the business going forward.
Touching on R&D.
At $2 2 million in the first quarter compared to $1 5 million in the prior year and $1 9 million in Q4.
This was driven by some bill as we ramp up technology spend to build our digitally connected platform, which is a major milestone for the business.
Overtime, we expect these technology investments to pay dividends for our digitally connected ecosystem and inform future product development.
As Andrew outlined earlier experienced lab innovation remains a key tenant of our master plan as it enables us to create differentiated products that drive rapid expansion and share in the beauty health market.
I'll now move to our balance sheet highlights on page 18, we.
We ended the quarter with $859 2 million in cash and cash equivalents with this balance we remain well positioned to execute on our hyper growth initiatives, while keeping strategic M&A opportunities actionable.
We continue to carry approximately $750 million in convertible notes on the balance sheet, which you will recall, we raised in the third quarter of 2021 to increase our flexibility for strategic acquisition among other uses.
We have also invested in inventory components as we bought ahead of the <unk> launch to ensure adequate supply and to blunt the impact of global supply chain disruptions.
Finally, our current shares outstanding are approximately $151 million.
Turning now to our full year outlook on slide 19.
As Andrew detailed we are raising our guidance for net sales to a range of $330 million to $340 million up from our previous guide for $3 20 to 330 million driven by the early success of some deals and continued strong demand for systems around the world.
As we have stated previously we reserve the right to continue to reinvest profits back into the business should conditions warrant such investment.
With us confirm our previously stated adjusted EBITDA guidance of $50 million for 2022.
You'll recall that 2022 will be our final year of elevated investment as we complete our infrastructure buildout.
Next year, we will shift our focus to leveraging the investments to drive EBITDA margin back towards historical levels.
In conclusion, we're confident in our ability to continue to execute.
Being out our operational initiatives and executing against that Masterplan.
We expect to see the typical sequential pick up in demand during the second quarter of the year.
Further bolstered by the very successful <unk> launch.
Note that our full year guidance considers continued macro disruption, including Lockdowns in China.
As Andrew mentioned, we're very optimistic about the potential upside to our guidance should macro conditions improve throughout the year.
We're extremely pleased with our performance for the fourth quarter of 2022 and remain as excited as ever about the opportunity in front of us and the continued momentum across the business.
I will now gladly take your questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
We are using a speakerphone please pick up your handset.
The key.
To withdraw your question. Please press Star then two.
This time, we will pause momentarily to assemble our roster and we do ask that you.
<unk> observed.
One question.
Our first question comes from Steph Wissink.
Jefferies. Please go ahead.
Thank you good day, everyone I'm, Andrew I wanted to ask your question about your marketing strategy. So you've given us a sneak peek into your super users and their updates on <unk>, but also the J Lo partnership if you could just talk a little bit about the range of marketing techniques. You are thinking about using are already implementing and then are there any other strategies that you have.
Developing that might be complementary to both the super users and kind of a celebrity partnership.
Hi, Stefan Thank you for joining Nicole I think as we spoke last quarter I think one of my first observations when I joined the beauty health companies that the marketing is very much focused on the on ground Activations in terms of the go evolution, So which was very successful with it.
Roy.
They had limited reach so I think what we've developed over the last three months together is a more balanced approach to marketing, where we still invest part of our budget in the on the ground tools around the well complemented by the experienced centers, which we've been opening up around the world and I think you visited about New York, one a few months ago.
And another part of that is what I recall mentioning last time is the need to build the digital marketing and of course, that's something which we've been investigating across social paid social as a compliment that I do feel there is a role in addition to the influences we've been working with with celebrity and Thats why Im really proud and excited.
The partnership with J Lo I think she is an icon and I think she'll be a great help in amplifying our brand awareness.
That's great and if I could just throw in one more question that the technical one but we're getting this question could you walk through the timing of revenue recognition on the trade ups. It sounded like you had some essentially trade up requests that you hadn't filled at the end of the quarter. So just walk us through how the trade up revenue recognition work and then how the cost.
Flow through as well from a P&L timing perspective, thank you.
Absolutely.
Great question. So as you know we launched now towards the second half of the.
March.
You also know we've previously shared for Neil Mitchell from levels in 14.
14 days, now with surprise and delight and ourselves.
Then we have to allow us the timing too.
More units for them as they sell more units so all of which as you heard us speaking.
We had over 1000 3000 units that essentially we were shifting after.
Part of that I'm sure the market so from accounting treatments point of view once we take the tree that back and then we ship the new unit up there a pound of pointless shipbuilding.
That's when we recognize the revenue.
All right.
And based on the value associated with it.
And then one way.
So thats really how that accounting treatment work, but usually we take the cash upfront as they put in older as well.
Okay. That's very helpful. Thank you.
The next question is from Oliver Chen with Cowen. Please go ahead.
Hi, the progress something that was very encouraging how do you expect the trade up mix to evolve in the next few quarters.
And also on the gross margin line, you mentioned pricing initiatives just would love your take on what we should incorporate.
Our models and your thoughts there.
A follow up on international.
What's included in your guidance in terms of the international NIM.
Markets. Thank you.
Thank you for joining the call I'll start and then pass them to.
So just the first part of your question so.
As I stated earlier.
We intentionally and planned.
Launch in mid March to encourage as many of our providers to get on the.
System, especially those and we've talked before about we've recently purchased the elite system, but of course, our ultimate goal is to get everyone on Cynthia because data and consumer knowledge will ultimately drive the growth we had the promotion, which we planned which finished at the end of March that drove very.
You had a short term demand and.
Which will also go into Q2, and then that promotion itself over the rest of the year.
Certainly and if you could talk about the U S market, where we've launched today youll see a more gradual rollout of the.
It's in the system.
Pause and hand over to Andrew can comment on the margins and we can return to your international question, Lisa Thanks, Daniel Hi, Oliver, Yes, so to add on.
<unk> already essentially when you look at that trend.
We said the team is bifurcated so really.
Kind of the hunker side of the team as yet and are focusing our new machines and based on the trend. We're all observing it's exactly as we anticipated you're starting to see the slowdown right because the best deal for the newly purchase is essentially done by the end of March and we're starting to see more gradual slowdown our treat outside the deal on that.
And so from a margin point of view.
I wanted to add.
Their remarks, Oliver essentially way anticipate ESG and gross margin.
Second quarter, because that's really when you capture that.
<unk> volume and then we anticipate that margin.
To come back up in the second and that actually goes hand in hand with all of the network.
Optimization work with <unk>.
Having this star when it comes about engineering.
Brand, New machine, and we actually bought quite a bit upfront, but a component. So as you can appreciate the effort being put in the queue.
<unk> start to really see less exploration towards the end of 'twenty.
And in terms of the.
The international markets I think what we've seen all of the with the exception of.
Pacifically.
Hi, where we've had the we've seen a very encouraging uplift in EMEA had a very very strong quarter demand remains very strong likewise, we saw markets, which have been locked down like in Australia, we've seen the business really et cetera, Indeed, even in China outside of Shanghai in Q1, we've seen really encourage.
Sales of Sis.
Systems and <unk>.
Super Bowls, which gives us a lot of encouragement.
The markets do and particularly Shanghai and other cities open up that will be upside for the rest of the year for the moment, though as land sites that we have built in the lockdown in our guidance, which we've given unconfirmed for the rest of the year.
Yes, the only thing to add there Oliver you guys can see the trend right when the lockdown wasn't such as each deal that it had been growing 200, 300%.
Fact that we actually grow at 40% true Testament to the team, but at the same time gives you a clear indication of that growth is slowing down.
Yeah.
Very helpful. Thank you best regards.
Thank you.
Our next question is from Alan Gould with Jpmorgan. Please go ahead.
Hey, guys congratulations on the good quarter.
I guess I just had a quick follow up some of the questions that were already asked you obviously had a very strong start to the year.
And you felt confident enough. Despite the fact that it seems like there is still some uncertainty out there with two omicron, hopefully tailing off but still driving some impacts that you were able to guide above the beat you saw in the quarter.
So when when you really think about beyond just the stronger since <unk> launch when we look at the stronger consumables. So it's really driving that and what gave you confidence to come out with such a strong guidance raise this early in the year.
Thanks, Kevin I think the important caveat to your question is actually we didn't launch since early.
Until mid March so we actually had a tremendous start to January and February by existing system sales and a new doors.
And consumables globally before we even launched <unk>.
In the U S and I think it's just.
It's just a testament to the strong demand for hydro station and the fact that consumers are still choosing to invest in their health care and skin care and ultimately confidence and I think as our brand awareness increases.
We've got record levels of search on Google trends, you've seen the increasing NPS score of 44 versus our previous measured a faulty extremely high which shows the growing affinity to this brand.
That's why so much of what I'm doing it and we're doing as a team is to really increase the brand awareness because we felt that we're really set on the best kept secret in D. C. So with J level unlocked more brand awareness to get more people to try. It. This time, because when you have to really get it to get it and we trial, we locked them in and they keep on coming back.
And that really talks to the success we've experienced in Q1.
Yeah, and Alan the only thing I'll add to that it's actually twofold.
As we talked about we're very happy in terms of that sequential improvement.
A similar slide for the market the only one ADC downtrend APAC, especially with China makes a lot of sense, what's the other thing that's really exciting for us.
Marketing as we observed increase in marketing.
We see significant growth for EMEA, especially on the consumable side, that's a clear indication of if we are increasing brand awareness and engaging we can see that return and then the last thing I'll remind you as I mentioned earlier, when we sell a new machine.
He comes with two Fremont.
So with all of these trade up that coming up that we sold in Q1 Q2 that would actually impact from fuel load.
Because the fact that we rolled out more so we're going to continue to monitor this very closely and kind of share with you guys.
Yes.
Thanks, and then really quick follow up it sounds like Theres, a little bit of flex on one the international launches and damn I really start so when we think about the guidance range that you have today and the fact that we saw that and only have one partial quarter you were able to generate so much interest in trading volumes ups and down what are you assuming.
For that in your guidance are you, leaving that all as upside given that you might see some of those launches slipped into 2023 or is there some contribution in there. Thank you very much.
Hi.
Last point I think Andrew has prepared remark had mentioned we wanted to be very thoughtful we wanted to launch internationally globally, making sure. The data connection so from a guidance point of view, we took that into consideration so depends on the launching here it depends on the condition that we're gonna be Aaron's Inc.
I think could be potential upside if we actually pull this forward.
Our next question is from Margaret Kaczor with William Blair. Please go ahead.
Hey, good afternoon, everyone and thanks for taking the question.
And I'll leave it to want to put a multifaceted one perhaps a little bit more detail around the Jennifer Lopez partnership so yeah.
What made her and her.
J Lo beauty.
Around the right partner for you guys and then as you look at what her role or J Lo beauties role is going to be over the course of the year.
In relation to awareness and engagement.
What are they going to do how are they going to partner to push and drive that engagement could do a quick follow our search and it looks like J Lo herself has got 200 million followers. So obviously a lot of touch interaction there depending on.
How are you guys set up that partnership.
Thanks, Margaret Thanks with your question you gave me part of the answer I mean, obviously, where I'm. So excited to partner with somebody as iconic as J Lo with boost assume the fact that she is one of the most.
Followed people on the planet with 200 million plus followers on Instagram alone.
We felt and also with the skincare line built on the premise of globe.
With hydrogen facial thats, something which product really delivers when you when you know you're below it.
And we felt it was really strong and very lumpy nickel partnership to help us really drive.
Brand awareness, we're very excited to launch in the fall there is a significant amount of consumer activation, which we're building with Jennifer and his team behind that launch in the fall.
So youll see that play out across the marketing during that period.
Okay, and then just to be clear that that ends up meaning that J Lo herself will actually be actively involved in that sense. Since you guys kind of continue this partnership thanks again.
Yes, I won't go into the details.
But yes of course it.
It'll be support around launching this exclusive booster serum with hydro <unk>.
The next question is from Amit Hazan with Goldman Sachs. Please go ahead.
Hi, This is Phil on for Amit Thanks for taking my question.
On the supply chain front, we had a.
And adjacent aesthetics equipment provider earlier today, commenting on a challenging supply chain environment for acquiring.
Componentry, just wondering if you can comment I saw obviously from a gross margin standpoint pressure from an inflationary cost standpoint are you seeing any disruption in terms of being able to satisfy with incredibly strong demand thus far for the equipment side of the equation. Thank you.
Thanks for the question I'll kick it off and hand, it over to Julian I mean first of all as I spoke to last goes I think leann and the team here did a fantastic job in buying forward.
Components for the launches in there we bought significantly so we've been able to satisfy quite adequately the demand in componentry.
<unk>.
While overwhelmed during the course of the last part of the cost of it the extreme demand.
And we've been working through in the last week or so to just completely.
And get them out the door on time, but that is not related to components that was just just more catching up with the demand and will be back by next week in full.
Fully up to date on those orders and deliveries Lyanne yeah. Thank you.
Yes.
Iterate the point there that's why we bought forward on the components. We also really extended our product production lines.
We're anticipating tightening in any concentrate up.
We're always very proud right. It's the same order coming in the same day 30, which kicked it up this is probably the first time you know the fact that we actually have a quote unquote back orders from March that the team's been working hard to fulfill so.
So very happy by the fact that we are able to see.
Satisfy that initial a chunk of demand and we're just kind of parsing that out at least from a margin point of view, we wanted to be very clear in terms of the ASP and gross margin impact because a lot of these tradeoffs all invest flowed through Q2, we'll emphasize that but again the teams.
Working very hard on value engineering to combat that.
Possibly.
And so in summary, very good job of pre buying ahead of this significant demand and still feel good about the position picture and to be able to satisfy demand moving forward.
Absolutely. Thank you and just to add.
We haven't even started to value engineer.
Yes, so that's all work to bid on future upside ultimately.
Thank you both for the comments.
The next question is from Kyle Rose with Canaccord Genuity.
Please go ahead.
Yes.
Great. Good afternoon, and thank you for taking the questions. This is <unk> on for Kyle to start I. Appreciate all the detail around trade ups here on the call with the promotional dynamics understood in the early stages here I was hoping maybe we could dig in a bit into the types of accounts doing those trade ups, maybe how long have they had the legacy system are there are the power users with multiple systems or <unk>.
System users, maybe just any color there on the customer profile participating in trade and outside of the aforementioned promotional targets.
Thank you and Thats a great question. Indeed, it's all of the above we've had.
Typically our system. They can last from anything from five to 10 years I would say the average though is circa five years old and we've had small independents embedded customers trading up I think what really struck us though was the chains.
We expected them to buy one or two in there.
Think this is really interesting effect when they decide they want to do the entire fleet. All at the same time. So they have an identical fleet and I think thats what drove enormous upside Julien.
During March as they took advantage of that trade up which was really fantastic to see because we are very keen to get everyone understood that Bob.
As possible. So we can really unlock the power of that data and really having that direct access to the consumer.
Understood. That's helpful. Andrew. Thank you and then maybe just an update on <unk> and go and how that limited the soft launch has been tracking it that still actively underway and maybe what are you looking to understand or what data are you looking to gather coming out of that launch when can we maybe expect something a little bit more formalized around that.
Yes, great question.
We remain confident there is a market for some form of take home device that we will take the time for a new technology team and I've just brought in some new people during this quarter to ensure that we're launching in some of the innovation is new.
And different to <unk> during the testing phase we started this process in the fourth quarter of last year as you know.
And we haven't included any of that product.
Any of our guidance et cetera for this year and I'll give you a more detailed update during the second quarter. Thank you. We hope is so focused on ensuring the flawless launches.
In Q1.
I want another floor set to review and got it.
Sure Fair enough. Thank you again for taking the question.
Thank you.
The next question comes from Jon Block with Stifel. Please go ahead.
Thanks, guys good afternoon.
Juggling a couple of things all things weren't asked earlier, maybe the first one just at a high level the extra $10 million.
For 2022, revs and EBITDA and change maybe just talk to us whats.
The investment going is it driving awareness as the leverage show up next year is it just heightened supply chain and inflation costs, which I think you've alluded to maybe just walk us through where those dollars are going and then it sounds like youre still committed to call. It the accelerating margin expansion to 23, but maybe if you could just comment there.
Alright. Thank you great question. So I think first of all in terms of the guidance. We just been so encouraged by the robust and continued demand we've been seeing for the consumer and their willingness to continue to turn to <unk>.
As I said earlier, we were winning new doors opening new doors and driving consumables, even before we launched <unk>.
What gave us the confidence to raise the guidance was just the exceptional response from the market from day, one and just still anecdotal feedback continuing from providers.
Demand remains very strong as consumers really continues to prove itself in terms of the marketing dollars. The majority of it is as we talked last quarter, we want to take that upside for not reinvest it and driving brand awareness to keep that virtuous father.
Got it.
To keep on driving that revenue and ultimately profit.
That's why we reaffirmed our commitment of $50 million.
EBITDA.
We have reserved the right to invest any over delivery that really fueling that growth of the brand.
John .
Add to that is from an investment allocation point of view.
Shared with you before that Golden triangle between sales and training and marketing.
We're constantly trying to optimize right so essentially for summer.
It's a matter of just hiring salespeople in training folks and marketing folks. So that's really number one is to make sure. We have the people and then in addition to that the entry point and Theres a lot of <unk> in this business and we're going to be very very disciplined and albeit they were pretty maniacal when it comes to managing both the topline and Bottomline, it's top of mind.
Fast.
Got it very helpful and maybe just as a follow up to go down. The road is in <unk>, where are you guys with the process of reps, reaching Eric I mean, we did checks and.
I'll take us through the roof, but actually surprisingly we didn't we didn't have every account reached by their web laying out the <unk> economics, if you would and so is it is it.
A complete full throttle go ahead are you pulling back a little bit to make sure that you can get these systems out the door in a decent time period and maybe the last tack on question posed to us about some Dale adopter and does it help you to re engage them for consumables utilization I know Andy you talked earlier about maybe some free consumables going.
With the new machine, but does it help revitalize the product is the Leds setup got up and forget it that type of things that helped driving a re engage each practices from a consumable standpoint. Thank you.
Yes, and I said a lot of time in this bill with provide us net additions during the last few weeks the launch.
Absolutely it's really.
Re engaging a new machine is really.
Also with the machines, the new training, it's really really driving the consumables and the whole interest.
And back into hydro facial so it's a really exciting.
I move for us and again, giving us confidence as we look forward to the rest of the year.
Yeah, John just to reiterate I would say twofold. One neutralization is absolutely key area of focus and to your point, we're actually doing a lot of training element to <unk> with RBS.
The customer, but albeit they were just launching and the fact that we had a lot of cleanup happening suffice to say theres a lot of effort on our end.
That's going to continue to really feel that as advocating along the way with our customer.
Customers.
As a reminder, please limit to one question.
Next question is from moment of your time with Raymond James. Please go ahead.
Great. Thank you I'll try and stick to one question.
Just on EBITDA you guys.
<unk> maintained the guide on EBITDA, despite better ourselves. So could you just talk a little bit about the key drivers of that was it.
A desire to do some more promotion obviously, we're all grappling with higher external costs. So is that a fair.
Doctor, There and just would love a little bit more detail about your view on promotional levels and selling and marketing as we progress through the year.
Thanks Olivia.
First of all these.
The vast majority will be reinvested into training marketing and education.
Most of it's going really we see just with the robust trends we've seen in Q1 and into Q2, we want to keep that virtuous cycle going and just seeing.
But.
The deployment in the <unk>.
Evolution tool with the paid social with the upcoming <unk> event with very keen to make sure. We have the right investments to really maximize those opportunities and keep that virtuous father.
Turning so that's predominantly where the investment is yeah.
Yeah, maybe I just want to emphasize that.
Now because we are a hyper growth company. So we always wanted to make sure there's absolute dollar to fuel the growth and there is no.
We just want to reiterate the point, we're always going to be very thoughtful about exactly that drive further top line and New York.
Cleaning up our process will go forward, we will always allocated dollars back to marketing and training and other areas to fuel future growth.
Got it and just one quick follow up.
With respect to the channel partnership.
It should allow us to partner with others or is there any kind of exclusivity for you guys and then.
Obviously, there is no shortage of celebrities with skincare lines right now so could you potentially is this an angle that you were thinking.
Has some legs could you potentially partner with.
I went with others.
The celebrity social media Influencers et cetera.
Just kind of curious on your.
On your view on ability to leverage that platform further.
Sure.
First of all if we look at the pyramid of influence in how we drive the brand awareness I see a role for and I think we spoke about this before the rollout physician influences beauty influencers wellness, but also celebrity but.
Some of those iconic agenda, who has a proven skincare brand built around the premise of glow with a following of a 200 million.
Consumers just on Instagram was the absolute ideal partner for us that's what we're so excited to partner with us.
And of course, the partnerships are in skin, Brian already of course, the pharmacy, because J Lo booster serum and hydro specialists exclusive and we really look forward to activating that in the fall.
Yeah, Olivia I, just want to make sure we're N.
Essentially we do.
Do like pure exclusivity in the sense that actually allow us to partner with multiple players to the chairman that interest.
Yes.
Great. Thank you best of luck.
Thank you next question is from Bruce Jackson with the Benchmark Company. Please go ahead.
Hi, Thank you for taking my question with regard to the revenue guidance and the quarterly pace and usually you get a pretty big step up in Q2 can you just help us.
And how to model the revenue trajectory for the rest of the year.
Yeah. So as we mentioned, we're kind of a sequential rate growth business friendly you always have a low Q1, and then you start to feel it quarter after quarter. The fact that we have the backlog.
Backlog for that trade up that's going to come through for Q2 sort of giving you a slight boost.
Is that if that's helpful.
That's helpful. Thank you very much.
Okay.
The next question is.
Corinne.
Sir Please go ahead.
Hi, good afternoon. Thanks for taking the question. So I'll just ask one quick one harrington for getting up on time, but.
Is there any point, where youll stop supporting maybe older hydro facial systems and <unk>.
Order too.
Kind of expand your Robson deyoe and get everyone converted over to <unk> I know youre not selling the older systems.
Here in the U S anymore, but like at what point will you start making these consumables that fit that older system or providing maintenance for those.
The older systems.
Thanks, Karen.
Just to reiterate as you know.
Our intention is to get everyone on studying.
Starting in the U S and ultimately globally clearly those valued customers do you have the older elite system, which we have Laurent <unk> will continue to honor those warranties of course.
Keep on manufacturing.
When needed.
So in that facility.
Let's see what she visited but of course, the ultimate goal is to get everyone on Cynthia to get that data and unlock that direct relationship with the consumer.
Okay.
Our next question is from Linda Bolton Weiser.
With D. A Davidson. Please go ahead.
Hi, I was just curious I know that the marketing expenditure was pretty high to launch the new system in the first quarter, but I'm just kind of wondering on a long term basis, what is a normal selling and marketing ratio for this type of business.
It probably is higher than 43% because it was a little bit lower in 2021 as the world was ramping back up but is is it somewhere between 43% to 48% or like can you just give us some sense of what this business looks like kind of on a normalized run rate business.
Thanks.
Thank you Linda and as you rightly noted we of course leaned in this quarter.
Obviously, the exceptional launch.
Which of course will pay dividends, which will leverage later in the year.
Lean forward in the Investor day.
Give a guide of somewhere in the 30% to 40% range based on my experience is probably a good benchmark of what we'd be aiming to keep that virtuous file.
Growth investment and marketing growing the brand and profitability, that's what we have in mind.
Yeah and is that only thing I'll emphasize is the Pos leverage, albeit they were still in the pandemic time for the APAC market, though you might not see that range come.
Pre COVID-19 this year.
<unk> mission is really to your point longer term as we grow that should be.
Kind of a range we're thinking about.
Okay. Thanks very much.
Thank you Beth.
This concludes our question and answer session I would like to turn the conference back over to Andrew.
Sam Moore for any closing remarks.
Thank you operator.
To summarize we're extremely pleased with our first quarter results and the trends we're seeing across the business. We are excited to build on this momentum throughout the rest of the year as we continue to deliver that confidence boosting glow.
Best kept secret in beauty, but thank you all again for joining us today I look forward to connecting again with you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Goodbye.