Q1 2022 Beauty Health Co Earnings Call
Good afternoon, and welcome to the beauty Health first quarter 2022 earnings Conference call.
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Dr. Keith.
D var.
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Sure Dan.
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I'd now like to turn the conference over to <unk>.
Our drinking senior director of M&A.
Please 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 are Andrew stand, President and Chief Executive Officer, and land will 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.
Forward 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 .
The beauty 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 continued 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 also significant improvements and a personal 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.
Allison their launch plan consists of three phases, which I will detail 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 surround 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 growth pillars, which support our mission as a true category creator reinventing consumers relationships with their skin buddies 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.
And does 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 engage their accounts with clear enthusiasm driving excitement and buzz within the community.
To help drive this excitement we ran an intentional and today since the 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, but 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 provided 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 cells, having 50% faster.
As part of our efforts to support our providers in Q1, we opened our ninth and 10th Hydro facial experienced centers in New York and London, respectively.
Center to serve as a critical part of our educational platform to institutions, providing a space to house brand building events, where we showcased our products in a 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, both Congress and Monistat.
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 continue 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 her 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 study 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 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 key 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.
Third we are focused on financially accretive opportunities ideally, both the top and bottom lines.
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 am 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> U S launch has been an overwhelming success, our investment and 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 a 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.
Hi to all of 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 razor blade.
Looking at the revenue model, we first saw our hydro station delivery system to provider.
Providers perform hydro facial treatments, including various booster serum option.
And the older their supply of consumables driving growth in our consumables 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 and what 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.
Successful launch is already driving higher than expected demand for treat us as providers look to upgrade their delivery system.
The Louis generic 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.
By nearly 59% year over year.
This was driven by strong global demand for both deliver systems and consumables.
The headwinds in APAC as.
As well as the successful launch of our <unk> delivery system in the quarter.
We drove delivered system sales growth of <unk>.
Approximately 62% with record system.
<unk> tradeoffs.
That's been dealt with the launch in the final week of the quarter. We are seeing the strength continue in Q2 as we take on yogurt. In 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 pressure.
Monthly improvement utilization trends throughout the quarter, particularly in the medical channel.
Globally, we saw year over year growth in net sales across all regions.
In the Americas region first quarter sales increased approximately 43% year over year to $44 6 million.
And Dale 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, partly 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, particularly those based in Shanghai. They have 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 can now leave there for.
<unk> 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 in the region also fueled the growth against the Covid impact the comp of Q1 of last year.
As was mentioned in the past year and promotions to drive higher sales in the fourth quarter of any given year consistent with trends you see across our 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 in the second half.
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 costs associated with launching and bill.
We 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 regions, where we acquired our distributors.
This was partially offset by higher supply chain and logistics costs as why treat up units sold during the quarter were there lower asps.
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.
First we sold a record 18 140, <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 trade up activity has a net zero impact on our installed base.
An existing system is removed from our installed base when the new trade out system and 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 our launch.
Before I move on I would like to take a moment to discuss this dynamic.
We strategically relief promotions in connection with the launch of spin bill to reward our loyal customers.
Treat our pricing was only in pacing Lee discounted persistence less than one year old and all of our promotional trade out offers result in profitable unit economics.
We're not selling trade ups 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 expectation.
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 what 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 immune system selves, 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 disruptions 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 briefly.
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 additional audit impacts related services.
That's why as 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 effort globally over the next few quarters will yield operating efficiencies within the business going forward.
Actually 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 will now move to our balance sheet highlights on page 18.
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.
They 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 $3 $30 million to $340 million up from our previous guide for $3 20 to 330 million driven by the early success of some deal and continue.
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 build out.
Starting next year, we will shift our focus to leveraging the investments to drive EBITDA margins back towards historical levels.
In conclusion, we're confident in our ability to continue to execute by carrying 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.
As Andrew mentioned, we're very optimistic about the potential upside to our guidance should macro conditions to 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. We 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. If you are using a speaker phone. Please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two.
Time, we will pause momentarily to assemble our roster and we do ask that you. Please observe.
Question limit.
Our first question comes from Jeff Wilson.
Jeffrey please.
Please go ahead.
Okay.
Thank you good day, everyone and Andrew I wanted to ask you a question about your marketing strategy. So you've given us a sneak peek into your super users in there.
<unk> tons and Dale, 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're developing that might be complementary to both the super users and kind of a celebrity partnerships.
Hi, Stefan Thank you for joining the call 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 ground sold around the world complemented by the experienced centers, which we've been opening up around the world and I think you visited about knee.
One a few months ago on 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 to announce the partnership with J Lo I think she is an icon and I think she'll be a great help and 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 a question could you walk through that.
Timing of revenue recognition on the trade up it sounds 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 costs flow through as well from a P&L timing perspective.
Yeah.
Absolutely.
Great question. So as you know we launched sail towards the second half of the month.
March and as you also know we've previously shared for Neil Mitchell from levels.
10 days and now we surprised and delighted ourselves people then we have to allow us with timing too.
Demo units for them as they sell more units so all of which as you heard us speaking.
We had.
Treat out 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 trade up back and then we ship it.
Isn't it.
Sure.
The point, we ship all the best.
When we recognize revenue based on the price.
And based on the value associated with the trade up with it.
And then we'll wait.
So thats really how that accounting treatment work, usually we take the cash.
As they put in Alagoas.
Okay. That's very helpful. Thank you.
The next question is from Oliver Chen with Cowen. Please go ahead.
Hi, the progress on some day I 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.
It's included in your guidance in terms of the international markets. Thank you.
Thank you for joining the call I'll start and then pass to Cindy.
So just the first part of your question so.
As I stated earlier.
We intentionally and plan to launch in mid March to encourage as many of our providers.
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 CFO gradual rollout of the <unk>.
System, So I'll pause, there and hand over to Andrew can comment on the margins and we can return to your international question, Lisa Thanks, Daniel Hi, Oliver, Yes, just to add on.
Andrew has stood out already.
Initially when you look at the trend as.
As we said the team is bifurcated so really.
Kind of the hunker side of the Anadarko lifting our membership and based on the trend. We're observing it's exactly as we anticipated you're starting to see the slowdown right because the best deal for the newly purchased essentially done by the end of March and we're starting to see more gradual slowdown our treat outside E. W.
And so from a margin point of view.
And the prepared remarks, Oliver essentially way anticipate ESG and gross margin impact in the second quarter, because that's really when you capture that.
Trailer volume and then we anticipate that margin start to come back up in the second half.
And that actually goes hand in hand, with all of the network kind of.
Optimization work with and we haven't even star when it comes about engineering. Since this is a brand new machine and we actually bought quite a bit upfront, but a component. So as you can appreciate the effort being put in is we anticipate to start to see less duration towards the end of 'twenty.
And in terms of the international markets I think what we've seen all of the with the exception of.
Specifically.
Shanghai, where we've had the we've seen a very encouraging uplift in EMEA had a very very strong quarter demand remains very strong.
So 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 encouraging sales of systems.
Systems.
Super Bowls, which gives us a lot of encouragement.
When 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.
Out there Oliver you guys can see the trend right when the lockdown wasn't such a big deal, but it had been growing 400, 300%.
The fact that we actually grow at 40% true Testament to the pool, but at the same time you are clear.
Any indication.
That growth is slowing down I think it causes a lot of that.
Very helpful. Thank you best regards.
Thank you.
Our next question is from Alan Gould with Jpmorgan. Please go ahead.
Okay.
Hey, guys congratulations on the good quarter.
I guess.
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 looked at the stronger consumables. So it's real.
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 <unk> until.
In mid March 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 carrier.
In 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 forte extremely high which shows the growing affinity to this brand.
That's why so much of what I'm doing as planned.
And we're doing as a team is to really increase 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 travel. This is Brian because when you 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 have.
We experienced in Q1.
Yeah, and Alan the only thing I'll add to that is actually one as we talked about we're very happy in terms of that sequential improvement.
Similar sized for the market the only wanted downtrend APAC, especially with China makes a lot of sense. What is the other thing that's really exciting for us.
Marty as we observed increasing marketing in EMEA, we see significant growth for us.
Especially on the consumable side, that's a clear indication of if we are increasing brand awareness and engaging we can't see that return and then the last thing I'll remind you as I mentioned earlier, when we sell a new machine.
It comes with two Fremont.
So with all of these tradeoffs that coming up that we saw in Q1 Q2 that would actually impact.
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, Sir.
Thanks, and then really quick follow up it sounds like Theres, a little bit of flex on one the international launches and Dan might 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, Evan.
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 collection. So from a guidance point of view, we took that into consideration. So it 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.
The next question is from Margaret Kaczor with William Blair. Please go ahead.
Hey, good afternoon, everyone and thanks for taking the question.
I'm going to leave it to one put a multifaceted one perhaps a little bit more detail around the Jennifer Lopez partnership so yep.
What made her and her.
J Lo beauty.
And the right partner for you guys and then as you look at what her role or <unk> role is going to be over the course of the year in.
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 Jaylo 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 and thanks with your question you gave me part of the answer I mean, obviously.
I'm, so excited to partner with somebody as iconic as J Lo with a boost assumed 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 glow with.
With hydrogen facial that's something which our product really delivers when you when you know you blow.
And we felt it was really strong and very logical partnership to help us really drive.
Brand awareness, we're very excited to launch in the fall.
Significant amount of consumer activation, which we're building with Jennifer and her team behind that launch in the coal.
So you will see that play out across the marketing during that period.
Okay, and then just to be clear that that ends up meaning that shale over stuff will actually be actively involved in that sense. Since you guys kind of continue this partnership thanks again.
Yeah, I won't go into the details.
But yes of course, it will be supporting 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 me Thanks for taking my question.
On the supply chain front, we had a.
In adjacent aesthetics equipment provider earlier today, commenting on a challenging supply chain environment for acquiring input 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.
And the team here did a fantastic job in buying forward.
Components for the launches and then we bought significantly so we've been able to satisfy quite adequately the demand in componentry.
We.
While overwhelmed during this call because again the last part of the course of 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 eye 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.
Youre right. The point there that's why we bought forward on the components. We also really extended our product production lines.
We're anticipating hygienist any concentrate up.
We're always very proud right. It's the same order coming in the same day of extra 30, let's kick. It off this is probably the first time you know the fact that we actually have a quote unquote backhaul Harrisburg marks that the team's been working hard to fulfill so very happy by the fact that we are able to satisfy that initial eight tons of demand.
We're just kind of parsing that out as we speak 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 trade up volumes that flowed through Q2, we'll end up at that but again.
Working very hard on value engineering to combat that.
A couple please.
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 this product yet 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.
Great. Good afternoon, and thank you for taking the questions. This is djabran 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 offs, maybe how long have they had the legacy system or their proper the power users with multi.
<unk> systems are single 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 Andy.
It's all of the above we've had.
Typically our system they could love tremendous going from five to 10 years I would say the average though is circa five years old and we've had a small independents embedded customers trading up I think what really struck us though was the chains.
We expect to them to buy one or two in there.
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.
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 soft launch has been tracking is 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 better.
And difference at Delek us 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 banking, we've been so focused on ensuring the flawless launches in day in Q1.
I want another quarter to review I blow 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. So hopefully these 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 is going is it driving awareness as a leverage of 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 go away again, if it sounds like youre still committed to call. It the accelerating margin expansion to 23, but maybe if you can just comment there.
Alright. Thank you great question. So I think first of all in terms of the in house guidance. We've 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 hydro facial.
As I said earlier, we were winning new doors opening new doors and driving consumables, even before we launched.
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.
<unk> 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, which we want to take that upside for that and reinvest it in driving brand awareness to keep that virtuous father.
Turning.
To keep on driving that revenue and ultimately profit.
That's why we reaffirmed our commitment of $50 million.
EBITDA.
So we have reserved the right to invest any over delivering so really fueling that growth of the brand.
So John .
Add to that is from an investment allocation point of view.
We shared with you before that Golden triangle between sales and training and marketing support were constantly trying to optimize right. So essentially for some market. Its 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 to Andrew.
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 for us.
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 their okay. I mean, we did checks in the uptake was 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 and a decent time period and maybe the last tack on question talk to us about some Dale adopter and does it help to reengage them for consumables utilization I know Andy you talked earlier about maybe some free consumables.
Going out with the new machine, but does it help revitalize the practice led setup Gavin forget it that type of thing as it helped driving a re engage each practices from a consumable standpoint. Thank you.
Yes.
Simon This is Phil.
Provide us net additions during the last few weeks the launch at.
Absolutely it's really.
Re engaging new machines is really.
We also get the machines in your training it's really.
Driving the consumables and the whole interest.
And back into hydro facial so it's a really exciting moment 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 our <unk> with a customer, but albeit they were just launching the fact that we had a lot of trades happening suffice to say theres a lot of effort on Lora and the feel.
Thats going to continue to really feel that and advocating along the way with our.
Customers.
As a reminder, please limit to one question.
Next question is from Olivia Tong 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 more.
The 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 boxing 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.
With that.
The deployment in the <unk>.
<unk> evolution for 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, and I'll maybe ask.
Just wanted to emphasize that Angola, because we are a hyper growth company. So we always wanted to make sure there is.
<unk> 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 that.
And to drive further top line.
Speeding up our process or 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 Jaylo partnership.
<unk> allows the partner with others or is there any kind of exclusivity for you guys and then.
Honestly there is no shortage of celebrities with skincare lines right now so could you potentially is this an angle that you were thinking.
<unk> has some legs could you potentially partner with.
I went with others.
Celebrity social media Influencers et cetera.
Kind of curious on your.
On your view on ability to.
What percent platform further.
Sure.
First of all if we look at the pyramid of influence in how we drive the brand awareness.
And I think we spoke about this before the rollout physician Influencers beauty influencers wellness, but also celebrity but.
Some of those iconic agenda, who has a proven skincare brand builds around the premise of below with a following of over 200 million consumer.
Consumers just on Instagram was the absolute ideal partner for Us Thats why were so excited to partner with us.
And of course, the the partnership together.
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.
Yes, Olivia I just want to make sure we're N.
Essentially we all do.
You like pure exclusivity in the sense that actually allow us to partner with multiple players to the pyramid that Andrew was talking about.
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 isn't Israeli you always have a low Q1, and then start to build quarter after quarter. The fact that we have the backlog for the trade up that's going to come through for tissue sort of giving you a slight boost for the quarter is that.
If that's helpful.
That's helpful. Thank you very much.
Thanks.
The next question is.
Corinne.
Please go ahead.
Hi, good afternoon. Thanks for taking the question. So I'll just ask one quick one Harrison for getting up on time, but.
Is there any point, where youll stop supporting maybe older hydro facial systems.
Order too.
Kind of expand your rore of San Diego and get everyone converted over to <unk> I know you're not selling the older system.
Thats anymore, but like at what point will you start, making maybe consumables that fit that older system or providing maintenance for those.
Those older systems.
Thanks, Karen.
Just to reiterate as you know.
Our intention is to get everyone on Tinder is studying in the U S and ultimately globally clearly those valued customers do you have the older elite system, which we have warranties, we will continue to honor those launches of course.
Keep on manufacturing.
When needed.
Bennett facility, which you visited but of course, the ultimate goal is to get everyone on some debt 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 it is it somewhere between $43, 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.
Cindy.
Which of course will pay dividends, which will leverage later in the year before we lean forward in the Investor day.
I would 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 of investment in market and growing the brand and profitability. That's what we have in mind.
Yeah, no that only emphasizes the paros leverage, albeit they were still in the pandemic time for the APAC market, though you might not see that range come.
Please go ahead this year.
<unk> vision 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 Matt.
Yeah.
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 D. C that thank you all again for joining us today and 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.