Q2 2022 Airsculpt Technologies Inc Earnings Call

Good morning, and welcome to Air Sculpt Technologies second quarter 2022 earnings Conference call.

Currently all participants are in a listen only mode.

As a reminder, today's call is being recorded and we have allocated one hour for prepared remarks and Q&A.

At this time I'd like to turn the conference over to Dennis Steen, Chief Financial Officer at ear Sculpt technologies. Thank you you may begin.

Good morning, everyone and thanks for joining us to discuss air Sculpt Technologies' results for the second quarter.

Joining me on the call today is our founder and Chief Executive Officer, Dr. Aaron Rollins, and our Chief operating Officer, Ron Zelle Hoff.

Before we begin I would like to remind you that this conference call May include forward looking statements. These statements may include our future expectations regarding financial results and guidance market opportunities and our growth risks and uncertainties that may impact these statements and could cause actual future results to differ.

Materially from currently projected results are described in this morning's press release and the reports we will file with the SEC all of which can be found on our website at investors <unk> elite body Sculpsure dotcom, we undertake no obligation to revise or update any forward looking statements or information except.

As required by law during our call today, we will also reference certain non-GAAP financial measures we.

We use non-GAAP measures and some of our financial discussions as we believe they are more accurately represent the true operational performance and underlying results of our business. A reconciliation of these measures can be found in our earnings release as filed this morning and in our most recently quarterly report when filed which will also be avail.

On our website.

Now I'm going to turn the call over to Dr. Robbins.

Dennis Good morning, and thank you all for joining us today I'm happy to say once again, the second quarter sauce reached the highest quarterly volume and revenue ever achieved in our history.

For the quarter, we generated $49 7 million of revenue, reflecting a growth of 42% over the prior year quarter.

During the quarter, we reached an exciting milestone performing over 30000 are scope cases, since our founding a decade ago.

We take immense pride in improving the lives of our patients while providing excellent care previously we announced the health research study we are undertaking.

Sex or procedures have on a patient's metabolic parameters recently, we submitted our study to the institutional review board for approval. Once we receive final approval from the IRB. We all began enrolling patients, which we expect to occur later this year, we will still anticipate having results for this study in 2023, we also recently.

And our Boston Center and expect to open in Philadelphia later in the third quarter and we expect our first international site in Toronto to open later this year once we receive final government approvals as we have said on previous calls we believe there is great opportunity to further expand our network of centers internationally, while still maintaining our growth domestically.

We are excited about the vast number of opportunities out in front of us and we look forward to capitalizing on these opportunities as we continue to deliver exceptional results to our patients. We also remain committed to building out our team to support our rapid growth.

We have been heavily focused on our clinical and operations infrastructure to manage our growth domestically and as we expand our global presence before I turn the call over to Ron I want to also comment on the special dividend. We are announcing this morning. We believe this dividend provides a meaningful cash return to our shareholders and underscores our confidence in the.

Our business and our balance sheet as we are funding the dividend with excess cash from our balance sheet. So this will not impact our gross leverage raw. Thank you Doctor Rollins and good morning, everyone I'm going to provide you with a development update regarding our de novo activity and procedure room expansion projects as previously reported.

Our center in Las Vegas opened in March of this year and we opened our newest location in Boston during the month of July we have now opened four centers in the past seven months, which demonstrates our ability to execute on our de Novo strategy at a rapid pace and each center is performing well, we expect our center in Philadelphia to.

Became operational in September and our Toronto location later in the fourth quarter once we finalize regulatory approval.

We have also secured space in Austin, Texas, and Irvine, California, which will likely be our next domestic sites. We anticipate these centers to open in the first half of 2023, and we are diligently working on accelerating our new center openings for the rest of 2023 and 2024.

We look forward to sharing more about those markets in the coming months, we have a desire to grow at even a faster pace, but our top priority is to maintain exceptional quality and safety for our patients as Doctor Rollins mentioned, we continue making investments in our support teams. So that we can accelerate our growth plans finally.

I am pleased to announce that we have now completed our procedure room expansion projects on existing centers all of our centers now have at least two procedure room and at three locations have three procedure rooms. It has been a busy first half of the year and these expansions along with the new center openings puts us.

On a great path for continued growth.

With that I'll turn it back over to Dennis to provide additional details on our financial results. Dennis Thanks, Ron first I want to comment on the confidence we have in the strength of our business and our ability to sustain long term growth. We continue to focus on making investments that are essential to our growth initiatives, while also delivering exceptional return.

On capital during the quarter, our revenue increased $14 7 million to $49 7 million or 42% increase from the prior year quarter.

And our cases increased 22, 5% to 3691.

The increase is primarily a result of adding four de novo centers over the prior year quarter, which expanded our footprint to 19 centers as of June 32022.

Our revenue per case was 13453.

16% increase from the prior year quarter.

We continue to be pleased with our average revenue per case increases, which you did a patients continuing to have more areas treated at once.

Our same center revenue increased approximately 20% over the prior period comprised of a volume increase of approximately 5% and revenue per case increase of 15%.

Our same store growth can be attributed to favorable trends in the aesthetic space and are expanding our marketing and selling capabilities to increase brand awareness and attract more patients into our centers.

Our cost of service as a percentage of revenue was 35, 2% versus 32, 1% in the same period last year.

As we mentioned on previous calls we have been making clinical staffing additions to proactively prepare for accelerating our growth plans and as expected we began to leverage some of those investments during the second quarter as our nursing cost as a percentage of revenue declined 100 basis points compared to the first quarter of 2022.

As Ron mentioned in his remarks, we have opened four de novo as in the past seven months, which negatively impact our margins in the quarter by approximately 80 basis points. This is an improvement from the 130 basis point impact reported in the first quarter and we anticipate margins will continue to improve as the de novo's ramp up in case.

Our total customer acquisition cost for the quarter was approximately $2000 per customer and as expected was down sequentially from 2200 per customer in the first quarter of 2022.

Our adjusted EBITDA was $15 2 million for the quarter.

Adjusted EBITDA included approximately 1.9 million of public company related costs, which did not exist in the prior year quarter as we were a private company.

Normalizing the prior year to include these public company costs, our adjusted EBITDA growth rate would've been approximately 24% and adjusted EBITDA margin for the second quarter was 37%, which represents a sequential increase of 590 basis points from the first quarter of 2022 moving on to liquidity.

Our cash position as of June 30th.

$35 3 million and our $5 million revolver remains undrawn, our long term debt was approximately $83 million and our leverage ratio ratio at the end of the quarter as calculated under our credit agreement was one six times cash flow from operations for the quarter amounted to $10 4 million.

Reflects approximately 68% adjusted EBITDA to cash conversion as a reminder, we carry no accounts receivable as we received 100% payment upfront and our cost structure is highly variable as our surgeons received payment only after a surgery is performed.

We invested $1 9 million during the quarter, primarily related to opening our center in Boston and our upcoming opening in Philadelphia as well as our procedure room expansion projects.

We are reiterating our revenue guidance range of 175 to 179 million for the full year, which represents a 31% to 34% increase over 2021 levels. In addition, we are maintaining our adjusted EBITDA outlook of $58 million to $60 million finally, as we announced in this morning's release, our board has approved a <unk>.

Special dividend of 41 per share to be paid to shareholders of <unk>.

Record as of August 26, 2022, with a payment date of September 14th 2022.

We believe this special dividend demonstrates our confidence in the growth of our business due to our ability to deliver excellent free cash flow and the modest cost of opening new centers. This special dividend will not compromise our ability to deliver significant growth in the future, while allowing us to provide cash returned to our shareholders by using excess cash.

Cash from operations without increasing our gross leverage.

With that I'll turn the call over to the operator for a few questions operator.

Thank you we will now be conducting a question and answer session.

Due to time constraints, we ask that all callers limit themselves to one question and one follow up.

If you have additional questions you may re queue and those questions will be addressed time permitting.

If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Thank you. Our first question comes from the line of Josh Raskin with Nephron Research. Please proceed with your question.

Hi, Thanks, good morning.

Last quarter, you had suggested revenues would be kind of in that mid forty's range for the second quarter, you always have sequentially or a seasonally strong quarter, but obviously a lot of upside in the quarter. So I'm curious if you could just sort of talk to you know some of the upside in and some of the drivers for that and then you know what I think.

[noise] about guidance it doesn't look like you're assuming much of that flows through the second half. So maybe other than conservatism is there anything we should be thinking about about potential headwinds for the second half.

Thanks, very much it's Erin Rollins.

We aren't giving specific quarterly outlook and we really are just reiterating our full guidance on both revenue and EBITDA, we remain very excited about the business.

And de Novo's are coming online and ramping up per expectations.

Josh This is Dennis and.

Wanted to just add to that too we also we.

We had some some.

<unk> and our rate during the quarter as well and as we've talked about.

Our rate can can bounce around from from quarter to quarter based on the areas of our patients get treated and things of that nature. So we had some improvement there sequentially that also kind of helped to lift up the revenue numbers for the quarter.

Gotcha and then just a quick follow up did you guys think about share buybacks are instead of the special dividend and maybe what makes the dividend the most attractive option to return to shareholders.

Yeah, Josh I mean, we looked at you know a couple of different options for US we felt you know the.

The dividend was the best thing for Us for this this time period.

We don't have a significant amount of our public float as it relates to that we did consider a buyback option. We just didn't think that was the best option at this point it may be something we look at in the future depending on you know where things are things shake out, but but we felt like the dividend was something to to demonstrate our confidence.

And the business our ability to generate a significant amount of free cash flow and and again, we're very excited we can do it without putting any additional debt on the balance sheet.

Perfect. Thanks.

Our next question comes from the line of Cornwall's Meyer with Piper Sandler. Please proceed with your question.

Hey, good morning, all and thanks for taking the question and congrats on the quarter.

I'd like to push you a little bit more on that.

Previous question there on the back half of the year now that we're a little bit farther into third Q3 is there any insights you can provide on how demand has been trending I know, it's been a lot of talk and give any inflationary impact on consumers and how that may impact demand is there just any color you can provide on how you're thinking about that for air Sculpsure.

Back half of the year.

Corinne I mean, again without giving quarterly type guidance I'm reiterating our our you know our revenue numbers for the outlook is something.

We're very confident in obviously Q2 was was very strong for us and we feel really good about where we are.

I'd like to add that we get our patients for multiple income brackets, but our marketing strategy is geared towards the upper middle class and above and they tend to be more resilient to challenging economic conditions.

That's helpful. Thank you and then just have you start thinking about bringing on more and more centers come 2023, and now that you're finishing out your on you know, adding on additional centers alright, I guess all rents to existing centers now that that's over with how should we be thinking about the cadence of door opening.

And going forward are we still targeting like three to four and then kind of related on the Toronto facility.

Is there any risk of not receiving government approval for Toronto or what is the process. There. Thank you.

Hi, Karen it's it's Ron on your on your first question you know what.

I said in our remarks earlier, we look forward to and we want to go ahead and increase the our openings. However, our guidance is still sitting at a three to four is as we mentioned we've done you know we've done basically eight this year with the four as well as they're.

Expanding our procedure rooms from from one to multiple rooms. This year as well. So you know we're at where we're set up for it we know everybody wants it and that's where that's what where we're shooting for.

In terms of in terms of Toronto, There's there's no risk it it's just a timing issue at this point.

Helpful. Thank you.

Lazy.

Our next question comes from the line of John Ransom with Raymond James. Please proceed with your question.

Hi, good morning.

If we look at the G&A and the revenue per procedure this quarter Dennis is that right.

How we should think about the balance of the year.

So on a G&A perspective, John I think that's where we're where we should we should sort of shake out the remainder of the year, obviously, our marketing cost, which you may or may not be including that in there.

If youre thinking about the total numbers.

We've made significant investments in the first half of the year and our infrastructure teams and we've recently brought on one one new executive and in July that's going to be focusing on our branding aspects of marketing and so but for the most part our G&A, we feel like we've gotten the majority of our.

Our support teams in place and expect to begin to leverage that even further as we move through this year as well as into next for sure.

And then Rev per procedure anything to call out in the quarter down a reason I think that wouldnt continue through the year.

Well you know we've talked about this you know on a number of quarters now that that revenue per case number can bounce quite a bit depending on the patients that go man. What features they have performed what areas and things of that nature. We feel like we are beginning to sort of Max out to some degree in the.

<unk> per case number if the number would have dropped down.

Sub 13, it wouldn't necessarily shock us right now because again, we're we're pretty pretty still small volume business, but as we continue to grow that footprint that number is going to become more and more stable.

But we are working on some things to internally about.

Possibly some some additional types of things in the future that we're.

They could potentially give us a little bit of of impacting revenues future.

And then just lastly for me and I'll get back in queue.

Obviously the market you know went crazy with recession concerns.

Just remind us how far out are your visibility is on your bookings.

So on our bookings John I mean, we don't have a significant backlog in our procedure you know one of the things that we really have focused on over the last eight to nine months is really getting patient scheduled quicker one.

One of the things that that gave us backlog historically was that a significant number of our centers where single procedure room centers those legacy facilities, a doctor Owens started with and those centers, where the ones, where we had what we would have considered backlogs that we didn't necessarily feel comfortable with but now that we have every one of those now has been <unk>.

Banded it allows us to get patients treated really quickly. So so we never expect now a significant backlog because we will.

As a center kind of gets to the point of of a utilization that we think we need to begin to expand again, what we will do that as well.

Okay. Thank you.

Our next question comes from the line of Whit Mayo with STB Securities. Please proceed with your question.

Hey, Thanks, when I look at the rate per case on the non same store centers. It's running you know pretty high North of 14000 is there anything unique about the new centers, that's driving that I just presume it's higher demand for the <unk>.

Fat transfers, which presumably is as good as we kind of think out over the next year as those roll into the same store count, but just wondering if there's any learnings or early observations on the new center openings that you have anything that maybe surprised you good or bad things.

You know from a rate perspective, there's nothing that we would necessarily want to call out or that that really surprises us one way or the other on the same store group or the new the New Center group again, those numbers can can bounce again from quarter to quarter on a per case right.

Basis, but what I would say is obviously, where we're very pleased with where we are from a rate and we feel we feel good about it.

Okay. I mean, just any additional like observations as you just sort of reflect back on the recent centers that opened where you say wow like you know we've we've really got this kind of figure it out or like this kind of surprised us just.

You know anything that surprised you one way or another.

No no not at all they're all they're all doing very well and where we continue to be extremely excited at at our our openings right now the the newest ones on our are going according to plan and there has been known as one of the surprises.

Yeah, I think it just kind of reiterate our confidence in all the markets that we go into whether they be larger markets or mid markets, they're they're all performing are performing well.

Oh, I would say that as we do that the more we do this the better we get at it a smoother it goes.

Yeah, you know the better the easier of the ramp up is <unk>.

And part of that.

Spanning our support team to help US you know infrastructure as Ron said to take accelerate this the opportunities that are out in front of us.

And maybe just finally as a follow up on that you you have accelerated some of those investments in the infrastructure as you sort of referenced in the last six months and you talked about the higher G&A Dennis the new marketing had the new physician training person or recruiting whatever we're calling the title, but you know any any success story.

He is that you can talk about there any any early returns that you believe you're seeing other than perhaps some of the performance of the new centers just anything else it might be helpful. Thanks.

Yeah actually so we have to surgeon training fulltime surgeon traders one is based on the West Coast and one is based on the East coast and that is we're doing a really good job with physician recruitment and because we are hiring so many doctors both for existing centers that are expanding.

And then for new centers, our needs for training are being met and we're able to train these doctors very well and thoroughly and get them going faster more efficiently.

And honestly with better clinical quality than we could before so that's that's a big improvement.

Since we've gone public.

I'd also like to add that in terms of our expansion of our legacy one room centers you know we'd mentioned that it would be done by the end of the year and we've already completed we've already completed our expansion projects.

So it has helped us there as well.

Yeah, great. Okay. Thanks, a lot guys.

Thanks.

Our next question comes from the line of Simeon Gutman with Morgan Stanley . Please proceed with your question.

Good morning, everyone can I ask about utilization or center utilization, how it's performing realize you've added capacity and then do you have a sense of where that ceiling maybe.

Right, Yes, you know normalized for the new centers and procedure rooms, where approximately 45% right now just to give you. The the estimate our full capacity as it at 85% surmount. So that's where we stand right right now and again from a procedure room count as of June 30th we were at.

38 procedure rooms.

Okay. That's fair I wanted to ask about the revenue per case, you mentioned it could be it could fluctuate, but we might be reaching some type of high point on it you know.

I don't think we have the comparisons I think to last year. So you know we try to look at it on a stack basis.

One I guess is it accelerating we you know we don't see what the underlying trying to and two that means that the the revenue per case component, we shouldn't assume much higher than what we what we hit this quarter going forward.

Yeah, So simeon.

Last year, we were second Eh second quarter, we were at 11600 per case again. This this quarter. We were at 13 four yeah. We've talked a number of times, how we really over the last you know year have gotten a lot of a lot of benefit we believe from air Sculpt T V.

And really educating the consumer to get more areas done at once and so that's uplifted our rates.

Now, we're starting to kind of.

You know, it's there's no exact science here some of it is a little bit of a feel as it relates to where we are I mean I'm not modeling significant increases on top of where we are right now and again, you know I kind of use that range of upper 12 to mid thirteen's is up as a as a as a range to kind of.

Look for but again.

Our cases in a case and so sometimes when you're your rate May go up your volume made ticked down just a little bit because you know you're spending more time with a patient in a procedure room and vice versa.

Okay. Thanks, Good luck in the second half.

Hey, thanks.

Our next question is a follow up from John Ransom with Raymond James. Please proceed with your question.

Hey, there.

You know this is my favorite topic.

You know as you expand your footprint and you know your your resources improve.

As we think about you know intermediate.

Yeah, what is the marketing and customer acquisition look like you know six months a year from now that that may or may not be different from what you've done historically.

Thanks, I'll answer that so as you know we hired a chief marketing officers less branding officer in July .

And we're really excited about her she's hit the ground running where down the road with with two potential big celebrities, we're working really hard at getting a P. R. That's not celebrity focus it's based on what we do and other.

Other forms of marketing that we will be launching soon.

Right now we have a strong return on our customer acquisition cost with gross margin per case of excess of 8000 per patient. So we're getting a forex return on our CIC and our customer acquisition cost was down so 2000 <unk>.

Down from 2200.

I do think that customer acquisition cost at least for the time being our while we gear up what I like to say other legs of the marketing table will fluctuate yeah, you know it it all.

Patterns right now on how many people are bidding for the same leads on Google the more people that were competing against the more costly and vice versa.

And.

Yeah. I. Appreciate you include me in your celebrity you wanted it to Oh I need to return your call. So that's that's great.

I'm kidding, I'm kidding, everybody getting.

This the second.

You know you talked in the past about some longer term initiatives around storing stem cells and quantifying health care at that so it's an update on those would be great. Thank you yeah, great Oh, well, we have started the stem cell initiative and it's just to allow patients to bank their stuff.

<unk> sells if they wish and it is a wellness thing it's not.

Something we're trying to make money on it we want to provide the absolute best service possible to our patients and we think that's an important option to offer them, that's something that's being rolled out slowly.

We really haven't made a verdict on whether or not we'll roll it out completely it just depends on if patients wanted to do it or not.

On the metabolic study we're proceeding according to our the timing we set we submitted the study to the IRB or waiting for final approval, we expect to enroll patients later this year likely in the fall with results expected in 2023.

And that's that's what we've talked about thus far.

Great. Thank you.

Thank you.

Yeah.

We have reached the end of the question and answer session I would now like to turn the floor back over to Dr. Rollins for closing comments.

I just want to thank everyone for listening to the call today and I want to thank my <unk>.

Credible team that is performing.

Performing so well and I can't tell you how proud I am to offer this special dividend we remain.

Incredibly focused on shareholder shareholder value and building this business. Thanks again.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.