Q2 2022 Beauty Health Co Earnings Call
Good morning, and welcome the Beauty Health Corp, 2022 earnings call.
All participants will be in listen only mode.
Do you need assistance, please and no conference that was my question as far key followed by zero.
After today's presentation there'll be opportunity to ask Washington.
Please note that this event is being recorded.
I would like to turn the call over.
And Mortal Rodriguez senior director.
M&A and Investor Relations. Please go ahead Sir.
Thank you operator, and good morning, everyone. Thank you for joining the beauty health companies conference call to discuss the company's second quarter 2022 financial results, which were released this morning and can be found on our website at beauty health Dot com.
Also available on our website is an investor presentation that will be referenced during this call.
With me on the call today are beauty health, President and Chief Executive Officer, Andrew Stanley and Chief Financial Officer Leann.
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 and adjusted EBITDA.
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 Stan <unk>, President and Chief Executive Officer of the Beauty Health company.
Thank you Eduardo good morning, everyone and thank you for joining our second quarter earnings call.
I'm excited to walk you through our spectacular second quarter performance as well as the strong progress we have made on our strategic Master plan.
Before we begin I want to welcome Marla Beck, who joined our board of directors in June as.
As the founder of Blue Mercury model that brings in valuable beauty industry D to C and retail experience to our board and have positive impact is already felt.
I also wish to extend a special thank you to the beauty health teams around the world.
Since becoming the CEO six months ago, I've had the privilege of working with and meeting hundreds the view on my travels.
I'm constantly inspired by your passion creativity and commitment and our excellent results are a testament to your amazing work.
With that I am pleased to announce that we achieved a record breaking quarter.
<unk> sales above $100 million in a single quarter for the first time ever.
You will see in our results that beauty health is firing on all cylinders with outstanding momentum across the business and a growing enthusiasm from our community for our efficacious patent protected hydro facial technology, which is fueling our growth.
All of these extraordinary achievements come while we are still in the very early stages of disrupting this dynamic beauty health category.
With our compelling competitive advantages. We believe we are just getting started on a growth journey.
Turning to slide five we posted record high net sales of $103 $5 million, representing nearly 56% growth year on year.
We also delivered a strong adjusted EBITDA of $12 $6 million up nearly 11% year over year.
It is our six consecutive quarter exceeding top line expectations.
Our sales growth is both impressive and accelerating driven by record hydro facial system sales.
We accelerated momentum in Q2 with total hydro face should delivery system sales growth of 85, 4% year over year setting another record up 2738 total delivery systems sold.
As part of this the <unk> rollout in the U S has been a tremendous success with 2265 Sundays placed since launch in March.
We are also seeing that consumer interest in hydro facial has never been higher and I will come on the growing momentum we are seeing here shortly.
We are breaking records across our business and the outlook has never been better.
Based upon our performance and ongoing momentum I am pleased to raise our 2022 net sales guidance to a range of $340 million to $350 million and I reaffirm our $50 million adjusted EBITDA outlook of growth of 53% versus 2021.
John .
The enthusiasm we see from a highly engaged community of providers validates raising our net sales guidance and our approach of investing to capture and fuel consumer demand is paying dividends.
The expected operating leverage generated from our investments should drive profitable growth for the years to come as we work towards better profitability by the end of 2022 and continue the momentum towards historical levels in 2023.
And I look forward to providing more detail on our long term growth ambition.
Our Investor day on the 15th of September .
I will now turn to slide six to discuss the drivers of our performance in the quarter.
In the Americas, we achieved growth of 76, 6% fueled by the launch of <unk>.
Having visited with hundreds of providers and consumers across the U S. There is an incredible enthusiasm for our new delivery system and we see it in our results.
Our performance in EMEA is similarly exceptional we registered growth of 56%. This was achieved by strong system sales and increased marketing activity across the region. We.
We have been actively investing in the brand and participating in high visibility trade shows and events. The energy we are creating behind the brand is palpable.
In line with our Omnichannel approach to reach consumers, where they live work and play we are also rapidly expanding into new channels, including retail.
We have just announced a permanent hydro facial presence at the iconic Galeries Lafayette flagship on Boulevard Haussmann in Paris in partnership with <unk>, who will be the exclusive aesthetic clinical provider in the state of the art Wellness Gallery set to open in September .
It is expected to be the largest space devoted to wellness in Europe . This complements the existing partnerships we have in other markets with sephora.
Alta Nordstrom and John Lewis.
Turning to APAC the region is dynamic and unsurprisingly persistent COVID-19 lockdowns in China impacted our results.
APAC net sales declined 16, 5%, partially offset by continued strength outside of China, especially in Australia.
Leann and I recently had the privilege to visit our teams and providers across the APAC region and the trip reinforced our belief in the large and untapped reservoir of growth that exists in APAC over the long term.
Looking ahead the success, we're seeing across the business and our growing momentum reinforce our confidence in the future.
Hydro facial is unrivaled breakthrough technology. It creates efficacious result, and it delivers a confidence boosting experience that consumers love.
We are at the Nexus of a thriving market for beauty and health.
With a resilient upper middle class consumer with a high affinity for beauty and we have a powerful flywheel that gives us the conviction to continue reinvesting in growth for the future.
Turning to slide seven we continue to make strong progress against our five point Master plan and I will share an update on each point.
First we remain focused on placing new systems. The first phase of Austin day, a rollout in the U S was an astounding success.
<unk> is a giant leap forward in skin health technology, our customers are raving about the connected system and user experience and on slide eight you can see some of the feedback we have received.
This is a first of its kind of digital experience and beauty health and above in the U S is creating growing excitement abroad.
On slide nine you will find our execution plan.
The positive feedback we have with U S customers underscores the remarkable opportunity we see globally within there.
Internationally, we plan to launch <unk> in early 2023 in the meantime, we continue a remark lex expansion across existing and new channels and these important regions by our elite system.
Second we continue to invest in our providers, we are proud to be one of the world's top trainers of efficiency.
We view the unique relationship that we have created with this community.
Continuous education as a competitive advantage.
This highly engaged community of providers. In addition, the hydro facial nation, our most powerful advocates that inspire and educate consumers around the world every day about the benefits of hydro facial.
Unleashing human Magic by continued investment in education of our provider and its tissue community is a key pillar to driving increased utilization and brand awareness.
Provide as you go through our training become our most loyal engaged and enthusiastic brand and <unk> a.
They typically record double digit growth in consumable purchases and then second system cells happen, 50% faster.
One example of our investment in providers is SD Palooza an event, we created to educate and celebrate a wonderful hydro faithful community you can get a flavor for Este palooza here on slide 10, and the enormous amount of content.
Highly engaged community creates for us on social channels.
On Slide 11, you will see examples of other investments we have made in all providers.
We featured hydro facial at high profile trade shows in every region and have taken hydro specially on the road without globe Elution tool, which we extended to Europe . This year.
Third we continued to invest in initiatives to drive brand awareness the biggest growth opportunity for hydro facial is to increase our brand awareness.
We have a best in class product that is led by dose of try it and we made significant strides this quarter to expand our funnel by our investments in digital media partnerships with Influencers and key opinion leaders such as Dr. Paul NASA and the expanded global Lucian tool.
As you see on slide 12, more consumers are seeking information about hydro facial with Google search activity, reaching an all time high in Q2 up 30% year over year. We also generated record levels of earned media value this quarter.
As we look ahead to Q4, we will launch an incredible hydro facial boosts the partnership with J Lo beauty by Jennifer Lopez.
We are excited about the positive impact this will have on brand awareness given the strength of <unk> global community of loyal fans.
We are also driving brand awareness by expanding touch points with consumers as.
As you know late last year, we beta tested at home device called Glo and go.
Through this test we gained valuable insights that validated our belief in the potential opportunity of it.
<unk> product from Hydro <unk>.
We will refine the current concepts with the insights garnered from this test and launch a take home product at a future date in the meantime, we remain laser focused on continuing the successful global rollout of <unk>.
As a reminder, revenue from blowing go was never part about 2022 guidance.
Fourth.
We continue to build our global infrastructure.
Slide 13 illustrates some of the initiatives we advanced during the quarter.
The international integration of our ERP system is on track to be completed by the end of 2022.
Our global efforts in hiring talent.
Network automation and brand building are well underway.
We expect these initiatives will generate operating leverage in the years to come.
And fifth M&A.
Looking forward, we see a great opportunity in front of us to use M&A in a strategic and disciplined manner.
During the quarter, we invested $2 million in mixed in early stage technology advanced personalized skincare company.
It provides a great opportunity for us to test and learn in this rapidly growing space of personalization that leverages data and technology.
We continue to be laser focused on delivering strategic M&A on the left slide 14, you will see the acquisition criteria. We have previously laid out on the right is our playbook for building a beauty health platform. As you know we continue to be prudent in our approach and we remain focused on digestible.
Accreted differentiate products that leverage our unique community.
Before I turn it Julianne I want to reiterate how incredibly proud I am of what our team have achieved in the first half of the year.
Consumer interest and our confidence boosting experience has never been higher we attract a resilient highly desirable consumer and continue to see strong demand. The enthusiasm of our team is electrifying and we are eager to sustain our profitable hyper growth trajectory, we have a tremendous opportunity ahead of us.
I will now turn the call to Leann for a more detailed discussion about second quarter performance.
Thank you Andrew and thank you everyone for joining the call.
I'll just comment I'd like to thank our dedicated employees and partners around the globe.
Our best quarter ever.
This marks the sixth consecutive quarter of exceeding top line expectation.
Over the past few months and Youre now traveled throughout the U S and APAC.
Our coal and providers.
Cannot be washed out about the passion and excitement shared amongst <unk>.
Now I'll walk you through our second quarter results.
Cash on our balance sheet.
Our full year guidance in a bit mindful Pal.
Turning to our net sales results slide 16.
Both delivered record second quarter net sales of $103 5 million up 55, 7% year over year.
Softness in APAC from the call.
Lockdowns in China.
Strong global demand for delivery systems, and consumables drove the outperformance.
On the left.
Delivery systems sales.
With 85, 4% year over year with <unk> two.
2738.
Of which 1200.
Through our trade offs accounting for approximately 24 million dollar will all come into second quarter.
You will recall from last quarter at 742 of the trade up and sell it in Q2, while rollover from older playful tier one.
<unk> net sales generate some trade up in there.
Growth was 21, 5% year over year, a testament to the continued demand for our products.
Turning to similarly, we delivered strong sales for all of 2012, 8% year over year for a total of $38 8 million.
As a reminder.
Food and initial two to three months supply of consumables with National systems sold.
With Wolfson they'll trade up itself.
This contribute to a lag.
Pull through of consumables revenue a trend we expect to continue as we rapidly expand our install base and launched NBA out internationally early 2023.
We also executed our annual price increase.
Consistent to prior price increases there has been no material impact to reordering patterns.
Moving to the regional performance on the right.
America net sales grew 76, 6% year over year or 22%, excluding trade out driven by the outstanding performance of <unk>.
Wilson Dale placements.
In EMEA, we saw sales growth of 56% year over year, driven by high conversion on our marketing Activations in the region.
Results are a validation of our test and learn approach, where we experiment with driving consumer demand in various ways, including targeted trade shows.
<unk> experience in terms of events and.
Driving retail related activation.
We expect the boom and bust generated as a result of both initiatives will fuel growth for the rest of 2022.
As a result of the Covid Lockdowns in China net sales in APAC declined 16, 5%. Despite this we remain confident in our view on the APAC market opportunity even more so after that productive.
<unk> is that we had for the region, our orange guidance anticipated locked out in China in the first half of this year and our guidance models are gradually opening in the second half.
We ended the quarter with the installed base of 2000 and 2929 delivery systems.
As a reminder, trade up.
Our installed base.
<unk> system is removed from our installed base when a new trade ups system installed.
Lastly, the average selling price.
Delivery systems in the quarter was 23543.
And perhaps also the hyphen promotions associated with some deals launch behind US we expect to see sequential improvement in <unk> for the balance of the year. As a reminder, we guided to a high single digit blended ASP increased by 2022, incorporating both trade up and then they'll roll out.
In the U S.
Moving to slide 17.
GAAP gross margin of 69, 2% or 72, 3% our adjusted basis gross margin.
Bob.
Asia due to the incredible strong demand from providers for delivery system.
<unk> fixed cost leverage from higher sales volume with a multiple HIFU off our promotion having expired at the end of March and associate Women's ship, we expect trade up volumes to moderate in the second half of the year.
During the quarter, we delivered adjusted EBITDA of $12 6 million for the balance of the year, we expect our adjusted EBITDAX will ramp up significantly.
With historical seasonality as we see the pull through from our first half marketing spend and capitalized on the global demand.
We have stated repeatedly we reserve the right to continue reinvesting our upside as growth accelerated in order to set the business up for long term success.
Investments in our Golden Triangle sale marketing and training drive engagement.
<unk> and expand our community all of which are key.
Gradient.
<unk> long term growth.
I will turn to slide <unk> to discuss our cost profile.
Selling and marketing expenses in the second quarter was $44 9 million compared to $26 2 million for the second quarter last year, primarily driven by increases in planned marketing programs and.
Personnel related expenses and sales commissions associated with higher revenues.
Breaking this down selling and marketing increased to 43, 3% of sales up by 390 basis points compared to the second quarter of 2021, we're down 195 basis points compared to the first quarter of 2022.
The year over year percentage increase was driven by increased spend in marketing invest in our training program.
Personnel related expenses, including commissions.
Sequential decrease was primarily driven by Cynthia launch related investments in the first quarter of 2022.
Our G&A expense of $27 6 million increase from $26 3 million last quarter.
<unk> approximately $2 million of one time transaction costs of $1 1 million in.
Litigation cost to vigorously protect our technology and pursue ongoing patent and trademark infringement cases.
Touching on R&D, we invest.
$2 6 million in the second quarter compared to 3 million in the prior year, which reflects the wind down of some deal related R&D consulting costs.
Partially offset by investments in data and technology personnel.
I will now move to our balance sheet highlights on slide 19.
We ended the quarter with 821 million in cash and cash equivalents.
We remain well positioned to execute on our hyper growth initiatives, while keeping strategic M&A opportunities actionable.
We also continue to carry $750 million.
125% convertible notes on the balance sheet, which we opportunistically raised for M&A among other uses.
Our revolving credit facility remains undrawn.
Finally, our current shares outstanding are approximately 151 million.
Turning now to our full year outlook on slide 20.
As Angela detailed we've raised our guidance for net sales to a range of $3 40 to 350 million up from our previous guidance of $330 million to $340 million.
The early success of some deal in the U S and continued strong demand from consumers worldwide and the drivers behind the race.
Moving to the right, we reaffirmed our 2020 through adjusted EBITDA guidance of $50 million.
We have emphasized repeatedly that 2021 and 2022 are all size investment years for the business.
As Andrew already mentioned.
<unk> market opportunity and favorable dynamics support our investment to cement our leadership position in the rabbit growing beauty health category.
<unk> towards better profitability by the end of 2022 and to continue the momentum towards historical levels in 2023.
In conclusion, we're proud of our performance in the first half of the year and pleased with the position we're in to achieve our goals as we enter the second half we expect to see the typical sequential pickup in demand and are confident in our ability to generate a return.
Our investment spending as we can.
Capture that Underpenetrated market opportunity ahead of us.
We will now gladly take your questions.
Well begin the question and answer session.
That's a good question that Chris Star then one on you touched on the phone.
So let's think of volume please pickup your handset before pressing the keys.
Your question. Please press Star then two.
Tom will pause momentarily to assemble the roster.
First question comes from Margaret.
Oh William Blair. Please go ahead.
Hey, guys. This is Maggie on for Margaret today, Thanks for taking our questions.
I just wanted to start with the adjusted EBITDA Guide Joe.
Obviously, another quarter raising the revenue guide and then reiterating the adjusted EBIT Guide I know you guys have said.
And that you are continuing to reinvest in the business. So maybe can you talk about when you expect to get more leverage off of these investments, especially given the fact that you're rolling into a global launch at the beginning of 2023.
Thank you for joining our call this morning.
As we've previously stated.
A young company with a large white space ahead of us to win that hyper growth mode with the board we put in a business plan that we are successfully delivering against that balances growth with posture variability. So in 2022 are continuing to invest in the business to drive that growth in demand around the world and I would also remind you that we are delivering 50 million.
<unk> EBITDA, which is the growth of over 50% more than last year. So acknowledged the importance to grow EBITDA and we are on track to do that but look we all just investing for growth here. We're building a moat around our business and it's a little bit like monopoly you need to own the properties to collect the rent and we do need to have as many providers with us.
Systems around the world.
To collect the consumer recurring revenue.
So 2022 is our final year of elevated investment and we will then focus on driving EBIT margin towards historical levels in 2023 and beyond.
Great. Thank you and then Youre about I wanted to ask the next one on the sundial launched so youre about one quarter into the launch so far within the U S. So can you talk about what youre seeing in the field kind of what data insights you've been able to gather and then any thoughts on.
Improvements in software and algorithms and update into the future.
Thank you and as we said in our recorded nights, we're really thrilled with.
The launch of Tinder in the U S.
Co invented with providers in mind and you saw that feedback on page eight of the deck, which has been very consistent with hearing I mean, it's a leap forward in technology and some of the the feedback were getting which gives us confidence so the global launch is.
The data connectivity the improvements in user interface.
Yes.
Touch screen technology.
Lights, dim LCD et cetera are all being a really big leap forwards, which the work.
Getting really good feedback on it.
In terms of the data, yes, we are gathering data. It's obviously early days with the 2010 days plus systems placed we're learning all the time.
We'd love to come back to the market and latest stage and really shed some of those insights.
What we're getting and of course, just like any Iot product.
We will continue to improve the software and as they experience as we learn and grow together with our business partners.
But very excited to launch internationally in the early part of 2023.
Great. Thank you so much.
Thank you.
Okay.
Thank you as a reminder, analyst all reminded.
Yourself to one question each.
Our next question will come from.
Jefferies. Please go ahead.
Thank you good morning, everyone I'm going to sneak two in because one is just a clarifying question Leon if you could just talk a little bit about your comments on the delivery system ESP you do expected to advance into that high single digit range for the year, but is there anything we need to be aware of in terms of sequencing on the pricing just coming off of the <unk> launch.
Andrew My bigger picture question is for you related to marketing strategy as you've come in and spend time in the business any changes that youre, making to the execution or activation of marketing anything you're learning from the Zen data launch that has the tweaking or shifting some of your focus within marketing mediums or plans for the back half.
You.
Good morning, Steph and thanks for joining the call. So I'll, let leann kick off then I'll handle the second part of that question.
Good morning, Seth. Thank you for the question, yes, so in terms of the edge ESP.
Well, we have nation is obvious a giving the actual sticker price force and Dale as we rollout in the U S. We're no longer selling other systems such as the Lee So as a result, all of the new units should automatically have a higher ASP.
It will be nearly stating is the fact that given the amount of trade up right at the most significant promotions ended in March and will continue to sell tradeoffs.
They have the right to promote as we see appropriate as we test and learn going forward. So on a blended basis, you're going to continue.
<unk> improvement in terms of that ASP for the second half of the year. So when we take the entire year. This is true.
To try to reinforce the guidance from the beginning we believe on the blended basis compared to last year, the ASP to be increasing by high single digits.
Thanks, and then on the second part of the question, Yes. It was six months to enroll yesterday Steph. So it's been obviously, a really exciting first half of the year for me I think we've learned a lot I think.
<unk> before our biggest opportunity.
Hydro facial is to build our brand awareness.
Shared last quarter that we recently tested it aided awareness, 9% unaided is 2%. So we're really set on the best kept secret in beauty, knowing that we have such a high NPS score at 44, which has been increasing so we know it's a great experience. We just as you get more consumers to try it and with that we've been.
Tweaking.
Pending our marketing strategy since I've been on board, we've obviously.
We approach. It is this pyramid approach to building our brand, where we're really leaning in on those doctors physicians key opinion leaders. The top that's why you've seen probably on the social and in a lot of what we've been doing with people like <unk> massive.
We've really been bringing that trust and credibility from the dispositions then we've really been doing the basics on digital we've really refined such paid social to really get that ticking well.
And finally, we've been working very closely with additions in other influence to really.
Amplify.
Branding and hopefully if you follow our trend <unk> seen a really leap forward in the quality and the amount of content with this content factory, which we've created in house, which is driving out Fabulous content every day and it's complemented by so much free earned media, which we get posted everyday from our highly engaged community of institutions that provide us the hydro.
Nation as I always refer to it.
Such powerful advocates for the brand and then finally, we're still doing the on ground Activations. The global issue. So we just finished a really successful tour of.
The U S. We also extended it to Europe for the first time. This year. So we're still doing the on the ground events, but I think the big pivot is is balancing that with broad reach digital marketing I think that's why we've seen record levels of digital search activity on Google This quarter and also a higher earned media value metrics ever so.
It's a really exciting time, where we're learning all the time, it's our approach test and learn and pivot with the data on ROI, which we received.
So Scott the only thing I'll add to that from an investment point of view on this is while we've been very vocal about we invest upfront right. So from a seasonality point of view all the big event happened already in the first half of the year. So this is another reason why we feel really comfortable especially given all the ROI where are we going to land for the second half of the year.
Very helpful. Thank you.
Thank you.
Thank you. Our next question will be from Albert Chen Cowen and company. Please go ahead.
Hi, Andrew and Dan Congrats on a great quarter. As we think ahead. Your guidance includes that gradual reopening of China, just would love your thoughts on uncontrollable factors in that region and what you see happening also you mentioned supply chain and those considerations that continues to be a pretty dynamic topic.
Would love your thoughts on what Youre seeing there and what's embedded in guidance and then Andrew longer term.
Marketing as a percentage of sales theres, a huge awareness opportunity so.
What do you see happening to that line item in 2023 more broadly I'm sure we'll get more details over time. Thank you very much.
Thank you so I will kick off hand.
Hand over to Lina, maybe finish up with the last question as the China Oliver.
You know as we've discussed before we had a gradual opening in China built into our guidance.
It's why we obviously feel confident reiterating our commitment to a $50 million EBITDA, we've raised on net revenue.
In saying that.
Lockdowns further lockdowns et cetera would be something we need to balance, saying that we're just so thrilled with the results, which we have been seeing outside of China and outside of the lockdown cities within China across the APAC, especially in Australia, and I think in Atlanta, and I just returned from an extended trip of APAC.
Excluding China I think we just return with such huge optimism about the future and we see what a large sort of untapped reservoir I've growth. This region is for our business in the future.
You talked about supply chain, yes, absolutely hey, Oliver just to reiterate <unk> point.
You know we are growing so fast, especially if our APAC and EMEA you really do have to invest ahead right because we keep on talking about you have the higher the sales team the marketing and training, yes, you have to train them to get ready to continue with that growth. So from an investment point of view, it's always going to be ahead, a bit so I wanted to reiterate that point.
And followed by that we feel very strong in terms of the reception outside of the lockdown areas, but as Andrew had mentioned, it's hard to predict so we're kind of build that into our guidance in terms of supply chain I would say twofold. One we continue to buy ahead and really manage the cost.
Under our own control to we've been sharing with you with the network optimization play within having now setting up a CPI in Europe , but also trying to figure out secondary manufacturing in China, you will see temporary cost burden as you have these multiple sources.
But over time this is where the accretion is going to come from we kind of had alluded earlier that Wow. This is why we see potential margin upside beginning in Q4 and that would really work towards the next year as well.
Andrew Oliver and thank you to your last point on the on the marketing. So historically when this company was private which was not so long ago by the way.
They spend less than 5% on marketing I think last year. We finished at 10. This year, we're tracking for 12.
The next Gen. I think look it will continue to review and look at that this is a very different models of perhaps mass consumer beauty brands. It's not a very very high media model, we invest through that important golden triangle sales marketing and education. As you know is a biz business driver. So as we scale, we will be looking at the our revise.
On the investment very carefully to ensure that we're balancing.
Our need to drive awareness, but also <unk>.
During that we're delivering continued levels of profitability, but I think also the way we are refining our plans that balance now we have between on grand events, which deliver high ROI, but they are expensive with more broader reach activity has really helped us in good example, this year as the U S. We we cut down.
From 10 stops on the glow evolution, so to five this year, but that should not be seen as a negative because one of the reasons. We did that is that we have.
<unk> opened a network of education centers around the World New York is a great example, we've refurbished others around the country. So if you have a fantastic experience and I think you've been to the one in New York clearly you don't need to bring the global issue and so that's why we cut down the investment on the tour and shifted that investment to broader reach digital marketing so.
That's why we are winning.
Sounds very agile. Thanks, just one quick follow up on incoming question, we get is about.
Dry powder do you have a lot of financial flexibility and thinking about M&A. How are you seeing that market evolve given the reality evacuations and.
On the grow and go any tips on how we should think about modeling it.
Looks like you've been making a lot of beta testing progress. Thanks.
Sure. So in terms of M&A we've been.
We believe that M&A will be an important component in the future we have a unique opportunity to build up the BD health platform. However, since raising the capital last fall, we have been extremely disciplined and extremely prudent as we outlined in the remarks.
And we have seen valuations come down and continue to come down we are actively looking but we're going to quite to find the right opportunity, which is best for the company and our shareholders. In the meantime, we are laser focused on delivering our commitments and obviously globalizing the successful launch of <unk>.
In terms of blow and go look we did a.
Our beta test with a limited range of consumers to get data I mean, we are convinced that ultimately there is a long term opportunity for take home device, but with all the limb learnings, which we've now had from <unk>.
In terms of this beautiful it's connected.
And it gives a great user experience, we want to take all the insights from the test and ensure what we launched in the future as new better indifferent. So.
Wouldn't include any models for the moment and we will obviously update the market in future at the moment of course, we're laser focused on.
Really globalizing the Sunday.
Thanks Best regards.
Thank you.
Thank you. Our next question will be from Olivia Tong of Raymond James. Please go ahead.
Great. Thanks, good morning.
My question's a follow up on brand support.
We're in a period of fairly elevated brand support because of the launch but can you talk about the magnitude of spending.
For the rest of the year.
Okay.
Thanks, Andrew EBITDA outlook, obviously, a maintenance of profit on higher sales, which suggests more spending or less labor.
Clients are spending more or is this more about keeping powder dry to capitalize on opportunities. Thank you.
Good morning, Olivia, Yes, great point I mean, what we're trying to say is a lot of these marketing activations are planned way in that way.
<unk> ahead. This is why we will be emphasizing from a seasonality point of view whatever we invest in Q1 Q2 really benefit for the rest of the year.
I have to say there is the OE.
Excuse me digital marketing plan and other type of marketing, but you wouldn't see the outsized marketing activation as you witnessed in Q1 and Q2.
It's to my point, Olivia just to sort of really reinforced this point.
It's not we're investing for growth, but as I said building. This moat around the business and it's like as I said has led that monopoly in LNG you need to own the properties. If we collect the rent that's why I invested in the first half.
Securing that leverage in the second half as we obviously continue the rollout of sundial.
Great. Thanks, and then.
What should we be thinking in terms of when investing airlines begin to bear fruit in consumables.
New customers are stacked.
And consumables purchasing the system, how long does that last and when should we start to see that flow through there. Thank you.
Hi, Olivia.
You think about where we had motion given this is a new lounge, we provided training kit.
Usually is two to three months worth of free customer of ours essentially for all the trade up and the new system sale and usually it depends though as we mentioned previously 12% of our customers actually buy a system.
You just sit back and look at a lag usually is between one to two quarter lag before they really yeah. So our vintage is not really caught in a way based on the year. It's really based on is that one system is a multi system how long they have own at what share of customer they are.
There is the OLED ramp up when it comes to consumable and we're kind of tracking utilization accordingly.
Thank you so much best of luck.
Thank you Larry.
Okay. Thank you.
Question will be from Korean Piper.
Piper Sandler. Please go ahead.
Please.
Hi, good morning, and congrats on the quarter and thanks for taking the question.
Just wanted to touch a bit on how youre thinking about the current inflationary.
Tax on consumers, obviously youre in.
<unk> been doing really well the first half of the year and utilization looks to be trending pretty well, but how are you thinking about utilization as we enter the back half of the year are you baking in any sort of conservatism.
Guidance in terms of as consumers start to space that Appointment's more came in last.
Not really seen any any signs of that at all just curious your thoughts there. Thank you.
Darrin Thanks for joining the call.
We obviously sit on this fabulous intersection of wellness et cetera et cetera ex.
Beauty and skincare and as you know from the other.
The companies, which you follow these.
These categories are extremely resilient in periods of economic downturn.
We speak to providers.
Every day all over the World, we've seen absolutely no slowdown in appetite for category for hydro facial.
And demand remains very strong.
Historically that has proven time and again, the lipstick index with the strength of skincare or aesthetics during periods of recession et cetera.
We look back at our own data when we were a private company so the global financial crisis.
Nine we still continue to grow.
Because twofold first consumers just like they would lipsett continue to prioritize spending and items, which make them feel good I would say these stocks will look good and feel healthy they're all on zoom more often these days hybrid working we're really benefiting for those tailwind.
So we're seeing that strength secondly, as we've talked before really the secret of our business model is hydro facial is a gateway service, so whereby far the lowest cost product and a doctor in a physician's office. So even the Dfc, we saw a trade down as consumers come in perhaps not doing more invasive expensive surgeries or pillars.
Still want to invest in themselves to make them feel good make them confident and Thats why we are benefiting and we see no demand and that's why we feel so confident and after speaking to so many providers around the world about the second half and why we have raised our guidance and reconfirmed EBITDA. So we're feeling very strong about that.
At the time ahead.
And currently the only thing I'll add when we look at our guidance for the second half of the year, let's see.
Taking into consideration of the Covid impact in China. In addition to that believe it or not talking to folks even in U S. The only cancellation will be hearing are related to cold. It. So there is still some resurgence here and there. So we kind of take that into consideration, but absolutely we feel really good in terms of that.
Consumables.
Very helpful. Thank you.
Thank you.
Thank you. Our next question will be from Jon Block of Stifel. Please go ahead.
Great. Thanks, guys good morning.
The <unk> is a little over 50% weighting of the full year guide, but EBITDA is roughly $15 million year to date, which implies $35 million in <unk> EBITDA.
Off the same if not a lower implied revenue number hopefully all of that made some sense. So can you just give us some color on where the leverage points come from and to wait 22, I'm guessing some of that might be the gross margin if the upgrade subside a bit but maybe you can speak to that and what about opex as many details as possible on how.
Do you guys get there and then I've got a shorter follow up.
Absolutely Hi, Joe.
Youre right. Our gross margin is definitely one of the area and ISI emphasize especially towards the last quarter of the year right, because we're still building that whole infrastructure and network optimization.
Senior to kind of spend and scale for the future, but absolutely in the Meanwhile, we're searching for kind of the accretion side of the equation. So we feel very strong in terms of that sequential improvement when it comes to gross margin, which would contribute until we provide our guidance taking into consideration of the current market environment.
As we always say, if the market environment improves, especially in China and other markets and if we generate additional revenue we will continue to invest back into the business, but we had pretty strong lever in terms of control.
G&A think about it as almost 50 50 split roughly speaking between fixed versus variable and there is various levers we can pull when it comes to the variable side of the equation, especially when it comes to marketing as we emphasize a lot of the heavy lifting has been done in the beginning of the year, we can certainly pull the lever there.
And in terms of some of the other infrastructure build the onetime items. Some of them are coming to finish. So you will start to see some of the leverage point there as well.
Perfect very helpful. And then second question admittedly somewhat unrelated but Andrew.
Just any reason to think about the international ramp for <unk> being different than what you've experienced here in the U S better or worse, I guess, where I'm going with this is the demand here in the U S was through the roof. So can you discount less or who care or is it just all about just getting the nexgen.
System and their providers hands due to the downstream positive impacts on utilization et cetera, but would just love your thoughts is that might be around the corner in early 'twenty three thanks.
John Thanks, and great to speak to you in part answered the question.
<unk>.
No absolutely I will say that there is a really growing it Simon.
Outside of the U S about 10 day they've seen.
<unk> seen it at trade shows and events they've seen all the coverage and feedback online from our partners. So there's a big excitement clearly a big part of our model is that we have a playbook, which is very successful in the U S, which we look to rollout globally in the new year of course, there's nuances by market what we.
Do have as you know we've discussed before together is is global pricing that we like to control the pricing internally. So we don't have any.
Externally so we don't have any secondary market.
So no we feel very good about the plan and looking forward to rolling out in Q1 of 'twenty three.
Thank you the.
The next question will come from.
Mr. Allen Gong of Jpmorgan. Please go ahead.
Hey, guys. Congrats on the good quarter I just had one question kind of jumping back to the top line, so relative to kind of where the street was at heading into the print and looks like you came in above by roughly $20 million on the top line largely driven by year delivery system strength, but when I look at the guide you only raised if Iran.
$10 million on the top and bottom.
So I guess, how much of that is conservatism and what youre seeing in terms of trends so far in third quarter and how much of that could be maybe a little bit of pull forward given it looks like you did have a little bit higher.
Turn in the quarter relative to expectations. Thank you.
Thanks, Alan So in terms of the outsized Q2, and as we talked about before we've provided pretty deep promotion back in March right. So that generate a lot of the sales of the trade up and at this point, we're not being very promotional rates on back to John's point earlier, we're really controlling.
The pricing so in that vein, we will continue to sell trade up but you will see from a <unk> point of view of that should be moderate.
Because we're not really launching international to the earlier point she'll beginning of next year. So with that said, we should be really seeing the momentum building.
Just on the new sales and especially given what's going on with the gradual opening in China, and it's kind of hard to see right in terms of how the lockdown will continue to evolve.
We're being very thoughtful in terms of providing our guidance and where we emphasize as we are selling a lot of these new some bills and the tradeoffs, but keep on giving free consumables as well. So we take all of that into consideration and just like every other quarter. We emphasize if we do sell more in obviously.
We will continue to feel that this is a important the market says we have more clarity.
Okay.
Thank you and again when you remember limit yourselves to one question per analyst well last question will be from Bruce Jackson of the benchmark company. Please go ahead.
Hi, good morning, nice quarter, some follow up questions about Europe . It was very strong I was wondering if you could tell us a little bit about <unk>.
The end user demand is holding up and how the second half of the year.
<unk> given that you've got the partnership with inner skin could we see like similar levels or continued acceleration and then I've got one follow up.
Bruce Thanks for joining great to hear from me, we're extremely thrilled with the success in Europe , plus 56% for Dakota, and really continued momentum in demand I think.
A really case in point.
Where we make about investing forward, we've really upgraded our marketing late last year and early in the year in Europe seen are showing up if you follow us the tradeshows events influence events, you can see that payback coming through which really talks to our investment in getting leverage later, we've seen demand continue.
So we feel very good about the second half.
There is some activity.
In the plan, we have the global Ocean <unk>, So now, which we've extended to it for the first time, making its way around Europe , and obviously complement to by the end of the Jennifer Lopez J Lo launch, which is a global a launch from Q4, which will also help amplify so we really feel good about the guidance we've given of course.
If things etcetera rates in China opens up we will obviously upgrade now, but we're trying to balance now with some of the uncertainty we have in China.
And with that.
Our commitment to delivering our targets.
Hey, Bruce just to add one point just to remind everybody. We have no revenue concentration right. So if you think about we have over 20000 system out there by our biggest customers in less than 3% of our revenue. So just give you reemphasize the sense, we're carefully partnering and experimenting but use.
It doesn't really necessarily move the needle it's really in the long run.
As we see the fruition.
Okay, Okay and then.
My follow up is also related to Europe .
Foreign currency impact as most of the foreign currency impact in Europe , and how has that stabilized.
You do any hedging or is that something thats, just going to kind of flow through for the next couple of quarters. That's it for me. Thank you.
Great question Bruce Yeah.
And mindful and thoughtful when it comes to currency management, we're likely not going to go through a hedging program from accounting treatment point of view because those are very complex, but we're constantly working on operational hedging just to make sure. We have enough currency purchase both in APAC and in EMEA to make sure if I'm, a real cash not necessarily <unk>.
Realized his point of view.
To preserve our right and manage our hedging and currency.
Thank you. The next question will be from Carlo Canaccord Genuity. Please go ahead.
All right.
Great. Thank you for taking the questions.
I just wanted to see if you could comment.
A little bit more I realize it's a day it was early days and it's only been a.
Plus or minus 2000 units, but just the overall interaction that youre seeing with respect to the connectivity of <unk> relative to what youre seeing on that.
Consumer facing apps I mean are you able to drive.
Some push marketing type of initiatives there and then secondarily just following your social over the course of the last several months here, we're seeing a big focus maybe outside the face, including the Caribbean. The Deco Taj I think you're treating other body parts as well. So if you could just maybe unpack that a little bit for us to just help us understand.
Where.
Clinicians are starting to treat.
Thanks for joining the call and I'll start with the second part of your question, which you are absolutely Ryan thanks for saying that.
Forwarding content, it's been really intentional for us with the new team, we created in our content factory.
Look I think what is the beauty of our system is that for a provider and as petition. The revenue stream is just more about the pace and I think I've been really intention with the team since I joined that with this some on a bigger part of the body, which we can utilize the service almost biggest surface space means bigger consumables, so youre going to see big pushes behind bank.
This likely touch hydro bootie and legs, that's been a big thing that summer if you've been following us so thats really intentional.
And we put training and protocols in place and you know as other boosters activity, which could be coming down the line in the future, which will come and talk about at a later stage. So very excited about that area in terms of <unk> and data connectivity and our first.
Phase of this as we talked last quarter is really getting the systems out we've placed over the 2010 days with that learning, which we're getting in real time can provide us on that data, which beginning to collect that's going to help us.
Renew and re launch the app to give a better user experience.
In the near future.
And I will say.
We will look forward I think in a in a quarter chewing sharing a lot more data of what we're learning it's super interesting.
Isn't we're not sharing now theres a lot of bias in it you can imagine the first couple of thousand provide us about it.
Many of the much right up to the Super engaged with same day that really active they're posting as well. So that's obviously going to be an advice and the data to select that just even out the kinks, and we will come back and share some of the great and powerful learnings, we're getting which will help us really unlock future growth for our business in the future.
Great and then if I could just squeak.
One follow up is just obviously really strong demand for Sundar I was just wondering if you're seeing any different market trends with respect to interest in purchasing of the capital systems are you seeing it come from from different geographies <unk> different channels just wanted to see.
Where the demand is coming from thank you.
Good question I think obviously, we've launched at this stage only in the U S only and we've seen it come from everywhere I mean I think.
Largest providers all across the U S. Every state we had looked at actually before the call. It's very uniform, it's coming from everywhere the demand.
So there's no one particular state or channel in particular.
One is growing is a huge amount of momentum is such a big leap forward in technology does nothing like anything really in the spa and facial it's unofficial it's a hydro facial so theres a lot of excitement everywhere.
The only thing emphasize it.
<unk> talked about how attractive in terms of IRI to our customers and we're truly see that firsthand.
EMEA and APAC, there's no slowdown in.
In terms of buying the system either that's why we feel very confident.
You too.
Really roll it out at the most optimal timing, which is the beginning of next year. So that was really great to see.
Okay.
Thank you. Our next question will be from Linda Bolton Weiser of D. A Davidson. Please go ahead.
Yes, Hello, I was curious.
I know, it's a small part of your sales, but in the partners. The retail partners that you have sephora Ulta and Nordstrom et cetera, what are you seeing in terms of system usage levels.
How much have you returned to pre pandemic levels are you are those system at 50% of pre pandemic or like what is kind of the usage level.
<unk> is the growth in those retail partners more coming from increased usage of the system or are they actually starting to place more system in the stores. Thanks.
Linda Hi, and thanks for joining the call good to speak to you.
Retail is as you say small but really.
Rapidly growing it's an exciting moment for US obviously, we just announced today a partnership in Europe with the Gallery Lafayette, which we're super excited about to continue to expand.
Retail and by the way, it's not just retail we've got partnership with luxury hotels in a gym, which if you've followed us you've seen really growing over last quarter.
I think what we will say about <unk> is we don't breakout in detail is that.
Certainly if we speak for North America with our biggest presence in Europe biggest presence is across Ulta, Nordstrom and Sephora I think we've seen it all open up this year a number of these services of course are on hold for an extended time during COVID-19 and I think of course now with the opening we've seen consumers.
Come back in store.
Fed up with home shopping or curbside pickup and they coming for experience and of course hydro facial is really the only skin care experience on the floor and so many of these REIT status. So we have a real competitive advantage. So of course, they're getting mako or isn't getting blowouts of hair and where the skin service provider in this space. So we're really excited.
About the growth opportunity ahead.
Thank you.
Thank you next question will be from Amit how long a Goldman Sachs. Please go ahead.
Yes.
Hi, it's Phil Thanks for taking the question I'll limit it to just one.
You've previously anchored us to 3500 to 4000 systems.
Annually.
'twenty, one say over 6000 systems. This year 7000 8000.
Even if you look on a net basis, we are still well above that 35% to 4000 tonnes.
I guess the question is with the momentum in the business is that still the right way that you'd like to anchor us and have us thinking as we go on to the <unk> International launch in 'twenty, three and 'twenty four.
I feel great question, I think the context, where like even when we were talking about the 75 to 4000, it's a much more historical.
You'll recall, it's a very U S centric business, Brian with a 70 30 split and as we continue to grow but kind of have to take that into consideration the way as a company as we look at the trend. We are very much focused on new systems sales as a trend, which we have been disclosing to you on a quarterly basis and thats kind of the <unk>.
Base as we model out our business going forward.
That's helpful. Thanks, Dan.
Thank you.
This concludes our question and answer session.
Like to turn the conference back over.
So Andrew <unk> for closing remarks. Please go ahead.
Thank you operator in closing I will say, we are expecting about our results and are as confident as ever about the future of our business beauty health exists and that bright space, where beauty <unk> wellness and health converge. This is a space post COVID-19, which is growing rapidly and adding new devoted.
<unk> by the day, the beauty health category has proven its resiliency time and time again and upper Middle class consumer who is generally less impacted by economic downturn reinforces the conviction we have in achieving our outlook. We remain committed to our 22 2020 strategy of investing in the business.
And at the time to play offense is now and we expect our investments this year in sales marketing and training to strengthen our community and propel future growth, while still delivering an implied 2022 EBITDA growth of 53% growth year over year, and I'm eager to share more of our vision in detail at about about our long term growth <unk>.
During our Investor day on September 15th and I look forward to seeing many of you then thank you all again for joining us today Goodbye.
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