Q3 2022 Beauty Health Co Earnings Call
Ladies and gentlemen for joining us.
And welcome to the the beauty healthcare company third quarter 2022 earnings calls.
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I would now like to turn the conference over to Eduardo Roderick's Senior director of M&A and Investor Relations.
Please go ahead.
Thank you operator, and good morning, everyone. Thank you for joining the beauty health companies conference call to discuss the company's third quarter 2022 financial results, which were released this morning and can be found on our website a beauty health dot com.
Also available on our website, there's an investor presentation that will be referenced during this call.
With me on the call today are beauty health, President and Chief Executive Officer and Mike.
And Chief Financial Officer Leann.
Before we get started I would like to remind you of the Companys Safe Harbor language.
Management may make forward looking statements, including guidance and underlying assumptions.
Looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.
For 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.
Thank you Eduardo good morning, everyone and thank you for joining our 2022 third quarter earnings call over the next 30 minutes I will update you on a successful quarter.
Greg and the progress we have made across our strategic Master plan.
We will then walk you through the financials in more detail before we take your questions.
As always I want to start by recognizing and thanking the exceptional beauty health team and community around the world.
Performance reflects the passion and commitment to living up each day building confidence for our consumers provide as partners and employees.
As you'll see from our results our community remains low and highly engaged around the world craving that confidence boosting hydro facial globe.
We continue to execute against the strategy, we previously communicated our investing to build our infrastructure for scale to drive long term growth the margin expansion.
Together these factors underscore the strength of our resilient business model and I'm confident in our outlook.
I am pleased to report that we once again delivered ahead of topline expectations, marking the seventh consecutive quarter of doing so.
I am, especially proud of our team for delivering these results despite a difficult macroeconomic environment and headwinds such as FX pressures on the unexpected persistent the zero Covid policy in China.
I will get into that a little bit more detail later.
Even against this complex macro backdrop, we saw positive momentum in both delivery system and consumable sale producing net sales of $88 8 million.
Up 30% year over year, one of our strongest quarters on record.
We also reported quarterly adjusted EBITDA of $16 $5 million in the period.
We achieved mid double digit top line growth in all three of our operating regions.
Year over year, the Americas region grew 30%.
<unk> increased 34% and EMEA was up 21%.
Based on our progress I am pleased to announce we are raising our 2022 net sales guidance to a range of $360 million to $365 million.
Since we last spoke two key macroeconomic factors have become magnified.
First the U S. Dollar index has reached a 20 year high.
When compared to FX rates at the start to 2020 to the stronger U S. Dollar has created an $8 million year to date headwind in foreign direct market.
Second China recently renewed its commitment towards zero Covid policy.
As we have stated previously we conservatively model a gradual reopening in China to occur in the back half of this year and invested in the local infrastructure to capture the anticipated demand.
Unfortunately, an even more conservative scenario is unfolding with market closures and restrictions in China continuing to persist.
Despite this our APAC team delivered 44% net sales growth year over year.
In the near term, we remain cautiously optimistic about China is reopening we are monitoring the situation closely and expect to prudently manage additional investment in the market longer term the market continues to be a focus for our growth strategy.
Given these developments we are taking a measured approach to revise our 2022 adjusted EBITDA outlook to a range of $45 million to $50 million.
We have an agile business model and we remain cautiously optimistic in our ability to achieve $50 million in EBITDA, but we believe it is responsible that we update our guidance to a range, reflecting these macroeconomic challenges.
Once markets normalize we have strong fundamentals in place to capitalize on the demand and capture profitable growth.
Looking ahead, we still expect to drive year over year, adjusted EBITDA margin improvement and our overall three year plan as discussed during our Investor day.
Turning to slide six we continued to make progress against our five point Master plan.
First our strategy to expand our footprint and increase consumer access to hydro facial is working.
Moving to slide eight fueled by the <unk> U S sales momentum and strong global demand. We have sold nearly 6500 delivery systems year to date already eclipsing 2021 record year with one quarter still to go.
I want to take a moment to highlight our pricing initiatives.
So far this year, we have realized a 7% increase to our average selling price when compared to 2021. This is despite having over six times the number of lower priced trade ups when compared to 'twenty to 'twenty, one with credit to the launch that's in there.
As we have stated previously we remain on track to realize a high single digit average price increase on delivery systems for the year.
On the consumable side, you will remember from last quarters call that we instituted a mid single digit price increase in the U S. In may.
We have not seen any deterioration in demand as a result in fact utilization has improved year over year. Despite China's closure and we are pleased with the top line performance in what is usually a seasonally slower quarter.
We expect to take pricing on consumable and systems in Europe in the fourth quarter.
Turning to slide nine we continue to see a healthy growth throughout our Omnichannel network as we seek to meet consumers, where they live work and play.
A significant portion of consumers get their hydro facial at med Spa, a channel that continues to show healthy consumer demand and no signs of a slowdown.
We also continued to expand our hospitality and retail presence.
Key channel to broadening our brand visibility and bringing new consumers into the community.
In the hospitality space, we entered our first one hotel location and why Hawaii. We also expanded the iconic hotels like the Mandarin Oriental in Hong Kong and the addition in Miami Beach.
During the quarter hydro facial launched and supports the store of the future in Singapore.
We plan to expand its important and growing partnership further across Asia. As you know we are already in every support or in the U S. With recent additions in Canada.
In Germany, we launched and Douglas is luxury flagship industrial dog, Germany beauty and lifestyle hub, we also expanded to new locations with existing retail partners such as John Lewis throughout the UK and Galeries Lafayette in France.
Moving to slide 10, I'll provide as a central to our success and are among our most influential brand ambassadors.
Over many years, we have cultivated a unique and growing hydro faces community.
Our institutions are the heart of our brand and one of our most powerful assets. This community will be extremely difficult to replicate.
We continue to show our commitment to <unk> and look forward to welcoming even more talented applications to be part of the hydro facial nation.
Skincare specialist jobs are among the fastest growing occupations in the U S projected to grow 17% by 2031.
This job growth mirrors, accelerating consumer skin care demand and further validates our investment in a vibrant community of entities.
In fact recently, we shared our commitment to our providers in a big way.
And a love letter to hydro Facelifts on National efficient day, we hosted a beautiful Billboard in times square honoring our efficient partners on the big screen and generating $1 4 million impressions in just two days.
On slide 12, our growing and loyal community of professional applications continued to drive brand awareness.
Media value and utilization we are proud to go into the world's top educated repetitions training more than 35000 globally online and across our 13 experienced centers around the world.
In addition to evangelizing existing providers through our proprietary.
<unk> training courses, we also have curriculum aesthetic schools to <unk> student editions to our brand.
I am proud to say that hydro facial currently features in the curriculum at more than 80 of the top aesthetic schools in the U S, including a beta Institute and Paul Mitchell School with plans to significantly expand our footprint around the world.
The third pillar of our Master plan, we continue to invest in initiatives to drive brand awareness.
8% aided brand awareness represents our biggest opportunity for growth.
This initiative is critical to unlock and improved utilization as we continue to rapidly expand our install base.
Moving to slide 15, our marketing investments creating results.
So continued momentum with increasing consumer interest in the quarter.
And media values continues to shatter historical performance with 2022 year to date already surpassing 2021 total MV. Additionally.
Additionally, our worldwide Google search, it's trended meaningfully upward over the last two years.
In October we officially launched the highly anticipated hydro facial boosts the partnership with <unk> beauty.
Together, we developed an efficacious booster, which has been incredibly well received by consumers and providers.
Created an incredible bonds across social media and early results are encouraging.
<unk> was our most successful booster drop yet with pre sell selling out on the first day and in pressuring numbering in the hundreds of millions.
The J Lo boost exemplifies our strategy in action, we offer unmatched treatment optionality to providers and consumers broadening our brands reach and awareness worldwide, while maintaining our position at the forefront of innovation skin science and consumer relevance.
In addition to the <unk> beauty boosted this quarter, we expanded our boosted strategy and further hydro facials leadership as a truly unique platform the personalized skincare solution.
With around 20 boosted to choose from every hydro facial treatment is fully customizable all skin types and needs.
You will have seen our latest partnership announcements in just the last few days with skincare latest docket, then its growth and lifetime.
We're also leveraging cutting edge science to create a novel Exosomes booster.
Earlier in the third quarter to address signs of aging and inflammation in the skin.
The efficacy of our boost diplomas in treatment is gaining industry recognition.
Hydro special buy Mourad clarifying booster launched in the second quarter has been named the best probation for acne by Cosmopolitan magazine No. Other company offers boosters and the level of personalization that hydro face, we'll provide it as a unique differentiator and offers us a clear competitive advantage.
In the industry.
Moving to slide 18, we continued to build excitement for our brand outside of the provider offices.
Following the success in the U S. We expanded our global elution towards the APAC and EMEA for the first time in 2022.
These differentiated exponential marketing events create excitement and tandem among consumers and providers alike and are strengthening our brand.
This quarter alone, we took global Lucian to 15 cities across the world, reaching millions of new consumers in the process.
We are moving towards an immersive approach that leverages pop ups up footprint of 13 experience centers globally, and multi media for an adaptable and agile 360 degree activation format.
Appetite for our differentiate operating continues to grow globally, we are expanding our global infrastructure capability and leadership to meet increasing demand.
You can see some of this progress on slide 20.
Last week, we appointed David Klein as executive Vice President of global operations, leading production supply chain quality distribution and logistics and I'm pleased to welcome David to the beta help team.
We also continued investing in operational initiatives and infrastructure that we expect to deliver future leverage including progressing on the expansion of in region production in China, furthering our value engineering efforts and building.
Infrastructure to fuel future growth.
Moving to M&A on slide 21.
M&A does not happen in a vacuum and we are committed to creating value for shareholders through disciplined capital allocation.
Would that be by M&A or opportunistically buying back our stock.
The end of September our board authorized a share repurchase program of up to $200 million.
Of which $100 million was deployed and an accelerated share repurchase program.
The buyback decision was taken part of a larger disciplined capital allocation strategy and we continue to main a strong cash position to pursue opportunistic M&A M&A.
M&A remains a priority.
You will recall, our M&A criteria on slide 22.
Opportunities that provide a differentiated product or service with a high net promoter score.
Brands or services that are complementary to our existing platform and community leveraging the us tissue <unk> and investments that are financially accretive with a compelling revenue growth and profitability profile.
Our M&A philosophy remains unchanged from what we outlined at Investor Day.
<unk> responsible and prudent capital allocation.
Finally, before I turn it over to Leann I want to thank again, our teams around the world and reiterate how proud I am of what we accomplished in the first nine months of the year.
The global macroeconomic environment and dynamic COVID-19 situation in China presents challenges that are not unique to be to help with.
But the bulk of our investments nearly completed we remain confident in the ability of our teams to continue to execute on our master plan.
With that I will now turn the call to land for a more detailed discussion of our third quarter results.
Thank you Andrew and thank you everyone for joining the call.
Also like to thank our dedicated.
And partners around the world for delivering this quarter things out.
Top line expectations for the seventh consecutive quarter, and we navigate up a volatile global environment.
The underlying momentum across our business.
Well I'll, let so laser focused on delivering profitable growth.
By the complex not quite environment.
So Paul I wouldn't stop I'm, so proud of the results.
There are some highlights.
Outlook in a bit more detail.
Let's start with our net results on slide 25.
Net sales of 88.
8 million up 30% year over year.
What's driven by continued strong global demand for delivery system I'll talk to them about.
As a reminder, third quarter tends to be seasonally slower due to summer holidays.
Typically ramp up so our biggest quarter of the year in the fourth quarter.
No that would be our seasonality trends on a normalized basis.
Revenue.
Revenue associated with elevated trade up demand.
What we saw in the second quarter this year.
S launch ups and downs.
Turning to our results on slide 23.
We drove double digit growth across all three of our regions year over year.
In America.
30% year over year, driven by the success of <unk>.
Pat.
Impressive 44% year over year, well spiteful only small the openings in China during the quarter and a headwind from FX rates.
This demonstrates our team's resourcefulness.
In China to continue operating the business in a very difficult environment.
Our touch more on this strategically important market for a moment.
Outside of China, We saw continued strength in markets across the APAC region.
EMEA grew 21% year over year.
And we'll fully strengthening dollar.
It's negatively impacted our topline by approximately $3 million and roughly 2 million a lot of opportunity in Russia compared to last years third quarter.
And Youre now had the opportunity to visit EMEA during the quarter I'm, even more optimistic about the regions outlook.
Paris, London, Frankfurt, all providers all mentioned.
Demand for medical aesthetics, but no signs of slowing demand in their practices.
We will.
Monitor this region responding if market conditions warrant exercising our flexibility with strategic investment.
Great very popular our Kpis on page 27.
1800 <unk>.
In the quarter as expected, we saw last pronounced tree that level without additional promotion.
It's been to our historical experience.
We ended the quarter with the installed base of 24473 delivery system.
Lastly, the average selling price.
The delivery system in the quarter increased to 25947.
As Andrew mentioned.
With pricing across a number of systems and consumables in the U S.
As a reminder, we guided to a high single digit blended ASP increase for 2022.
Moving to slide 28, we reported a GAAP gross margin of 69, 3% or 75, 1% our adjusted basis.
Gross margin increased by 174 basis points, and 355 basis point year over year on a GAAP.
GAAP and adjusted basis, respectively.
Really driven by fixed cost leverage associated with higher volumes and stronger real life.
And pricing, partially offset by a headwind from global supply chain challenges.
Visionary crusher and FX rate.
Weather adjusted gross margins benefited from a one time write off.
Related to the discontinued prolonged dull pilot pilot program.
As I mentioned in September well underway with our value engineering efforts.
S localized manufacturing and supply chain optimization with some savings expected to flow through.
End of the fourth quarter.
Moving to the bottom right.
Reported adjusted EBITDA of $16 5 million for the third quarter.
Driven by strong demand that's been daily in the U S.
Internationally.
Cost of leverage associated with higher volumes and stronger realized delever system pricing, partly offset by the impact of FX rate supply chain headwinds that.
Sales commissions associated with higher revenue and increase in personnel related expenses.
This brings our year to date EBITDA up to 31 4 million.
I will now turn to slide 29 to touch on our updated outlook.
Andrew mentioned, we raised our guidance for net sales to a range of three 6%.
<unk> 5 million.
From our previous guidance of $3 40 to 350 million.
The continued momentum in delivery system placements and strong demand from consumers worldwide are the drivers behind the rates, partially offset by lower than expected opening in China and FX headwinds.
No.
<unk> international strategy of guiding towards a fixed dollar amount for 2020 for EBITDA to allow for outsized investment into global infrastructure for future growth.
Year to date global expansion investments have totaled 20 million much of which is fixed.
Hiring talent across our direct.
Markets are opening really care centers in Shanghai, Singapore, London, Paris and Frankfurt.
You heard from Andrew our guidance previously anticipated gradual opening of China.
Oh, the second half of 2022.
China renewed commitment to zero Covid policy at the party come back in October we now expect market in China to remain restricted longer than Orangeville anticipated.
Despite this we remain bullish on the long term growth opportunities in China represents for our business.
In addition to China Lockdown headwind, we have absorbed year to date FX impact of approximately 8 million to revenue as measured in constant currency, which flow through to meaningfully impact the EBITDA.
As a result of these macro economic factors affecting our ability to generate operating leverage.
We are revising our EBITDA outlook to a range of 45 to 50 million for 2022.
As Andrew mentioned, while we remain cautiously optimistic in achieving 50 million, but that they believe it is responsible to update our guidance to reflect these macroeconomic challenges.
I will emphasize that we continue to execute against these headwinds and agility oriented model upon completion of elevated investments to build scalable infrastructure.
<unk> strategic focus will shift to creating margin expansion.
As mentioned in September .
That operating leverage from our investments to drive year over year improvement in adjusted EBITDA margin.
Where man.
Nicely focused on our commitment.
Talking about growth.
I will now turn to slide 30 to walk through our cost detail.
Breaking down the opex items, selling and marketing expenses in the third quarter.
$39 8 million compared to 35 million in the quarter last year.
Primarily driven by sales commissions associated with higher revenue.
<unk> plant marketing program and a net increase in personnel related expenses.
The increase in selling and marketing expense was partially offset by a $2 6 million reduction in a cool for estimated bonus expenses, which were originally accrued at 200% a target amount.
As a percentage of sales selling and marketing was 44, 8% of myself in line with last year's third quarter of 44, 7%.
As Andrew mentioned earlier, we constantly evaluate our marketing initiatives to maximize the efficiency of our spend we also continue to invest in our training programs such as those hosted at our experienced center and our hydro facial connect program.
Compared to $19 2 million last year, our first quarter of 2020 to G&A expenses of $23 8 million, primarily reflects increases in professional fees and expenses associated with our continue hiring to build scale global infrastructure, including stock based compensation and recruiting fees.
The increase in G&A was partially offset by $12 9 million reduction in the accrual for estimated bonus expenses, which were orange light crude at 200% of cargo demand.
We anticipate higher G&A expense in upcoming quarter, given the extensive services related to our Sox testing and the completion of our global ERP implementation by January one 2023.
Moving down to R&D, the $2 2 million expense is consistent to our run rate trend for the past several quarters.
I will now.
Highlights on page 31.
We ended the quarter with roughly $684 million in cash and cash equivalents.
As Andrew mentioned, we deployed 100 nearly in the share buyback during the quarter under in a S. R.
We'll continue to invest in inventory to position ourselves with expected demand with.
With the build serving as hedge against potential supply chain bottlenecks in anticipation of launching <unk> internationally. The first half of next year.
With our cash balance, we remain well capitalized to execute.
This initiative, while keeping strategic M&A opportunities actionable.
Our $750 million of one 5% convertible notes due 2026 remain on the balance sheet as we shared previously.
The capital for M&A, among other capital allocation initiatives.
Our 50 million revolving credit facility remains undrawn.
Finally, our current shares outstanding approximately $143 2 million.
This figure reflects the retirement of approximately seven 7 million shares.
Surely deliver to us in connection with our ASR, representing 80% of the estimated number of total shares to be repurchased under the program.
As a reminder, we have board authorization for an additional 100 million of share repurchases.
In closing.
I'm proud of what we accomplished in the first nine months of the year.
Quarter after quarter this year and throughout its history. This business has proven resilient during a volatile macroeconomic environment.
We continue to remain confident in our ability to execute our strategy to deliver profitable growth.
Andrew and I will now gladly take your questions.
Thank you very much.
Even now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time because of the Pos momentum at least to assemble the roster.
Ladies and gentlemen, please limit your questions to one per participant.
So do you have a follow up question, we would request you to join the question queue.
The first question comes from Oliver Chen from Cowen.
Please go ahead.
Hi, Andrew and land great quarter.
As we think about your guidance whats embedded for what Youre seeing in Americas, and Europe and on the China side, what risk factors are you monitoring it sounded like you're incrementally cautious given the dynamic situation there.
As a quick follow up as we model marketing as a percentage of sales.
Near term view on that and longer term, there's a big awareness opportunity I know you are balancing of that relative to spend thank you very much.
Good morning, Oliver and thank you for joining the call I mean, firstly I'm extremely proud of what the team has achieved in Q3, we achieved our second highest revenue quarter increased utilization record levels of AMD and continued strength in Google trends in all of this despite as you raise the macroeconomic environment FX hedge.
When the war in Europe and of course, the persistent locked down in China.
As we look to Q4 to answer your question, we're thinking a very measured view the new news since we spoke at Investor Day is of course, the macroeconomic environment deteriorates at an accelerated pace with the new use of course, which was China's decision to adopt and even stricter zero Covid policy, when we forecast a gradual Rio.
That said, we achieved 44% growth in China last quarter and those win in APAC last quarter in those windows when China reopened we sold a business bounce back very rapidly. So it gives us a lot of confidence when it does open up.
For Europe , and Dan and I have just recently turned from an extended trip in EMEA. We were extremely pleased to see the buoyancy of the consumer and demand we met providers across England, UK, France, and Germany, and again very very important consumer and provider in the U S. Another tremendous quarter plus 30 per seven.
30% strength of the consumer strength continued strength with Cimzia, which gives us a lot of confidence we're seeing absolutely no slowdown having said that we're mindful of the near term impact of macro pressures.
<unk> FY 'twenty to EBITDA guidance for Q4 reflects these related risks.
Measured manner. However, we remain cautiously optimistic to achieve the $50 million Im confident certainly led to the range. We've given learn anything to add yes, absolutely hi, Oliver So just to double click on your point, it's been a balancing act right on one hand, we absolutely need to invest in buying speed as we discuss.
Previously we have seen some return on investment, especially when you see the improvement in brand awareness and really will benefit us in the long run and we also had mentioned.
Did invest in APAC and EMEA as we turn to your distributor purchased from last year into direct and continuing to really fuel growth for the future. So I think as a team we feel very strongly about our future growth.
At the same time now we are being cautiously optimistic given the condition in China, you're asking limited opening right thats actually feel that 40% growth in APAC suffice to say, we've seen it again and again post the first one the pandemic how strongly APAC bonds back.
The 200% to 300% growth. So I think the team is ready and we are we have the muscle to pull the lever up and down one thing to really emphasize is on the investment for marketing we did invest for Q3.
Heavily in marketing.
Raise consumer awareness on the other hand doubled down to make sure. We get the leads so we can feel growth for the fourth quarter. So suffice to say for Q4, we will naturally ease of marketing investment.
To make sure we finish the year strong.
Thank you best regards.
Thank you.
Thank you.
The next question comes from Cory <unk> from Piper Sandler. Please go ahead.
Hey, good morning, Andrew Elliot Congrats on the quarter and thanks for taking the question.
Like to ask quickly about the cadence of delivery system sales that you saw throughout the quarter is there any color you can provide on maybe was it heavier toward it towards the front ended the quarter with heavier towards the backend.
How has that been trending here in the early parts of Q4, and then has there been any impact on the interest rate environment here. Thank you.
Good morning, Kevin and thanks for the question I'll kick off and let Leann, Ed we've seen actually consistent demand across the quarter.
All regions actually of course, APAC was of course impacted by the opening and closing and opening and closing and China, but across that we've seen very robust demand no slowdown.
Of course in the U S. We continued with the rollout of same day very strongly and prepare for our international launches.
<unk> markets and the hedge one of 2023 land Hi, Corey to answer that question and $1 million. This medical device business is usually a quarter and heavy.
Any given month because of the way we generate our lead usually is smartphone heavy as well, especially on the medical device side. That's just the way our seasonality in Britain works, obviously, we haven't seen slowdown as Andrew mentioned in the U S market. We are very encouraged as we continue to visit.
Our providers and the sentiment seems to be strong given the type of consumers with their waste service.
Yes.
Thank you.
Yeah.
The next question is from the line of Jon Block from Stifel. Please go ahead.
Great. Thanks, guys good morning.
First one is just a little detail, but I think I heard Andrew where land you called out FX impact of $8 million on the top line.
Adjusted EBITDA number you can give us I don't know two 3 million. It seems like we're getting caught up on two 3 million in EBITDA. So just curious if thats all FX related and then let me just ask about the phasing of 2023 for EBITDA because I think it's important to just maybe try to clean that up as best as possible should.
Should we expect sort of a repeat of what we had here in the U S and 22 in other words call. It a back end weighted 23, EBITDA number because youre going to launch in Deyoe internationally that usually means a little bit of a gross margin hit you've got the upfront launch costs associated with that so im not asking for the guide per se, but maybe just importantly walk us.
Through the phasing or the cadence based on that international <unk>. Thanks, guys.
Hey, John good to hear your voice.
Start with the facing I think suffice to say, we have that seasonality with shared prior we always have a strong Q4, and then followed by sort of eye drops for seasonality for Q1, and then from there in Q2 as a build and then dropped slightly in Q3, usually because of the summer holiday.
And then finish with a strong Q4.
As we shared at the Investor Day, I think from the EBITDA flow through his point of view is very much follows that cadence and then, especially you have to invest earlier in order to see the lead you generate from all of the marketing activity to flow through to field personnel.
Youre absolutely right John when you think about Q1, obviously, that's going to even into a less of the leverage point because of the revenue construct and usually in the EBITDA.
Lower for Q1, it feels a little bit for Q2, and you have to keep in mind, if we're launching <unk> globally, you're going to see almost a little bit of the retreat of the tradeoff dynamic which is going to impact our gross margin. Once we launch and then it's going to come down a bit in the second half of the year, we usually huey.
A bit more of a marketing now and let that flow through so as a result, you usually see the strongest EBITDA flow through in the fourth quarter of the year back to the constant currency comment because of the way we that could keep a lot of the expenses that burden on the U S side. So when you think about that should flow through for our international market.
The flow through is very significant so obviously you can almost CHF 40.
Plas flow through because of the way we have constructed if that makes sense.
Yes, so $3 5 million on the <unk>.
40% call it.
Roughly three three and a half.
Thank you Jim.
Thank you.
The next question comes from Manav with Jackson.
Hey, good morning, everyone. Thanks for taking my questions.
I wanted to talk a little bit about kind of the growth that youre seeing in impressions, obviously incredibly good traction that we're seeing there.
And that's partly driven on the marketing spend but as we move into I guess 2023 and beyond can you talk about the leverage that we should expect to see here what should the FX impact be on the top and the bottom line.
Rough math based again on what we see today and I guess as we look at the long term guidance provided at the analyst day has anything changed between now and at that point in time. Thanks, guys.
Good morning, Margaret Thanks for the questions I mean first of all I'll kick off.
Just your last 0.1st we remain fully confident in the strength of our underlying business fundamentals, which we presented at the Investor day.
And we've just demonstrated this by raising our guidance for the full year as a proof point to the continued strong demand and utilization we've seen and of course as you mentioned with the impressions is being fueled by the investments, we're making in marketing to drive utilization as well as the new booster partnerships, which we have with J Lo the ones, we've announced this week from <unk>.
<unk> and Dr. Dennis Greg So long time long term plan remains firmly on track and I think it's important to note our revised EBITDA guidance does not reflect.
Demand or profitability problem, Rob the guidance reflects just the potential of temporary macro pressures blunting of operating leverage and as we said we remain really cautiously optimistic about our ability to achieve $50 million EBITDA guidance. This year I'll, let lee on any more detail.
Andrew Hi, Margaret so on the point of currency.
Exploring hedging programs this year, but as you know there is a lot of uncertainty in terms of the direction of the currency. So I think the team is laser focused on how do we come out with natural hedge right, making sure. The expenses are matching even more for the revenue for all of these international local market and <unk>.
Continue to explore potential for hedge programs as well so as a result, given the currency shift is difficult to foresee what is the impact that we're proactively managing Matt head.
Thanks.
Thank you.
The next question comes from Adam <unk> from Jpmorgan. Please go ahead.
Hi, guys I had a quick question on the topline it's been really great to see that capital momentum as youre going to continue that I would say a pace quite a bit stronger than initially contemplated but when we really think about the underlying consumable pull through.
I think there is an understanding now that there is a bit of a delay, especially with <unk>, where you offer.
<unk> quarter, or so of consumables, along with the initial sale, but even stripping out some of the strong <unk> sales you've had so far this year. It does look like consumables are lagging a little bit behind expectation you highlighted that youre continuing to see strong demand from the end consumer so I guess could you dive a little.
Deeper into why the consumables haven't really caught up as much as would be implied by your installed base.
Good morning, and thanks for the question you're absolutely right.
We're extremely proud of.
Q3 is actually our second highest revenue quarter and Youre right. We increased we increased utilization.
Despite China being pretty much locked down.
And as well as the war in Europe , and the impact there. So despite that and of course as you rightly pointed out with the launch of <unk>, we give away the starter black to get all providers Gary.
So despite all of that utilization still increase so I think we're really happy with that and of course with the investments, we're making in marketing the new booster portfolio, which we've launched that will continue to increase man. If you have anything to add.
Thank you Hey, Alan just to double click and Joe's point as we shared with you. Yes every single new system Lasalle, including the trade offs. We have provided one quarter worth of consumables. In addition to that as we sell more second system and multiple systems.
Often see those takes even longer time to ramp up because imagine they've already got a machine or two at the practice now theyre, adding additional lines. So we usually see a quarter to two quarters lag. This is why I asked week really laying down a lot of system. It takes time for the consumables will catch up around the globe I would also say the way we.
We measure it we're actually trying to seek out approximately based on the true utilization rate. So based on that true utilization rate, we actually did see slight improvement, especially for the market. That's not negatively impacted by closure like China or Russia was part of the equation and now it's not so with that said we continue.
<unk> to measure progress and this is why we're investing in brand awareness because by definition that also helps with utilization. In addition to expanding in boosters and other type of consumables. So the team is on it to continue into improve utilization. Thanks.
Got it and then a quick follow up.
Click a bit more on 2023 as well you provided at 18% to 20% target for adjusted EBITDA next year at the recent analyst day, and you've highlighted macro pressures have got worse currency.
Has continued to get worse as well and are currently is going to reflect an incremental headwind to this year. Then it's only fair to assume that for part of next year.
Likely to reflect the challenge as well someone I think about that 18% to 20% how should we think about that.
Framed in terms of these ongoing challenges.
Alethia. Thank you.
We remain absolutely committed to the 18% to 20% for three.
Three reasons your coal this year 'twenty, one and 'twenty two have been what we've discussed many times over the years are years of elevated investment as a new public company. We've made all those investments to bring us up to Sox compliance to set up a three PL networks just to set up in region manufacturing in China to set up the teams around the <unk>.
The ERP the system many of those investments are one off since that we've been paying double but then this year. If you can imagine our <unk> in Europe , we already had an existing partner we've created a new one with double paying none of those investments will be.
Made repeated next year. So there's a number of one offs this year, which will give us leverage next year. We're of course monitoring the situation in China very closely but.
At some stage it will need to open up and we will be ready to capture that growth. When it does in the meantime, we have other levers, which we can manage very maniacally in terms of our variable expense. So we remain committed to our 18th <unk> EBIT guidance for 'twenty three.
Thank you.
Reminder, to the participants to please limit your questions to one participant. So do you have a follow up question. We request you to rejoin the question queue.
The next question comes from Ashley Hogan.
Jefferies. Please go ahead.
Hi, Thanks for taking our questions.
We're starting to see some signals of a trade of a trade down on beauty categories. We're just curious if youre seeing any of this for hydro Vishal and then any details you can provide us on traffic during the quarter.
Throughout the quarter, and maybe anything quarter to date.
Much.
Good morning, Ashley Thanks for your question.
I'll start with the your question on traffic I mean traffic with there's always seasonality in Q3, particularly in EMEA.
Some are compounded by the.
Stream hot weather, many people, taking extending holidays following the COVID-19 lockdown, so we've really sort of build over the quarter in EMEA of course, APAC was up and mainly linked to China outside of that traffic remained very strong and in the Americas and particularly in the U S and the Americas, we grew 30%.
Traffic has been and continues to be very robust I mean, Leon and I spent a lot of time visiting providers all over the world and especially in the U S. Recently and there is no signs of a slight impact in terms of trade down.
Have an experience any of that for hydro fascia, but actually as we gain because typically.
6% of our businesses in the medical channel doctors plastic surgeons et cetera by far we are the lowest cost service in a physician's office. So actually as we saw in <unk> nine when this company was private business actually benefits from trade for more expensive more invasive procedures during periods of economic <unk>.
Traction so we set to gain really are a lifeline for our providers when people kind of pulled the more expensive services. They want to keep up the skin health keep up our investment in their confidence.
Very accessible affordable price hydro peso so.
So we've seen the benefit I think that explains why we have seen no slowdown in terms of our business.
Wonderful. Thank you so much.
Thank you.
The next question comes from Kyle Rose from Canaccord Genuity. Please go ahead.
Great. Thank you for taking the questions.
Just wanted to touch on you had some <unk> out I think for <unk>.
Six months on the market or maybe a plus or minus.
One of the big promises of it as the connected aspect of it and the ability to really drive a flywheel effect from a marketing perspective, just wanted to see where you're at as far as harnessing some of that data and being able to.
Leverage your marketing activities and maybe expected timeline of when we should see that meaningfully changed over time.
Good morning, Colin. Thank you, yes, six months since the launch of Tinder, and we couldnt be happier with the rollout of course.
As we're expecting to launch an H one of 2023 internationally has been working hard to prevent that but we're learning a lot call I think where we're gathering a huge amount of data I think as we talked at Investor Day, I think once we build up a robust.
Set of.
Debuted <unk> across the U S. We'd like to share that across the very first customers and provided the book Tinder will exit the ones you helped us co develop it.
There is an inherent bias positive bias in the data we collected for this does provide us. So that's why we paused on sharing but I think we're learning a lot and.
Obviously, taking a lot of learning as we improve the system ahead of the rollout internationally.
So we'll be looking to share more data on that next year.
Thank you.
Thank you.
The next question comes from Bruce Jackson from the Benchmark Company. Please go ahead.
Hi, Good morning, and thank you for taking my question now as you monitor that.
Situation in China can you tell us what factors, you're watching and how that feeds into your decision process as to whether to accelerate launch activities.
Good morning, Bruce Thanks for the question absolutely I mean, clearly we have a very strong team on the ground in China with offices of course in Beijing and Shanghai. So we're obviously in constant contact with that team and I'll provide a network there.
And it's obviously, it's been very interesting for us to follow as we have these periods of closure followed by extremely rapid bounce back as the market opens.
So look we are preparing for a H one 2023 launch of <unk> in China. We have made the investments this year of course in the team the infrastructure the in region production, which we talked about at the Investor day, So we're really footwear ready to.
Ramp up and seize the growth opportunity as the market opens knowing we have a proof point when it opens Bruce we're really capture that upside.
Hi, Bruce is man here just to double click on your comment on the levers.
We actually did a lot of test and learn especially when they come to marketing activation.
Know how to move it up or down we've been living through the whole year last year. This is why you actually do see ethylene that despite the fact that the country's lockdown for extended period of time, we still generated sales it's precisely because how we approach the lever suffice to say we've been very thoughtful.
In terms of who to hire right. Most of the first we hire ahead, our salespeople marketing people in training folks because those folks are really importantly, but you have to see prepare them. So they really understand how to win the market.
Expand thoughtfully, which region maybe in China to go so just want to overemphasize. The fact that we made the investment we will have a core team, but we're also very agile. So we know how to turn it up and down if need be.
Thanks.
Yes.
Thank you and congratulations on the quarter.
Thank you. Thank you.
The next question comes from Olivia Tong from Raymond James. Please go ahead.
Hi, This is Devin Weinstein on for Olivia Tong I appreciate you taking our questions.
Wanted to ask a little bit about the customer trends that youre seeing.
I heard you say that youre, not seeing any trade down, but perhaps are there any.
Are you seeing less frequent visits from and consumers of the coming in the same amounts and then we would also like to hear.
On your <unk> customers are there is there any slowing through the sales cycle or any fallback in demand and then if not if conditions were to worsen in the macro.
What would be your first levers that you would pull to reaccelerate demand, whether it be increased marketing spend or perhaps some kind of promotional activity or anything else that comes to mind.
Kevin Thanks, very much for your question.
As I said it earlier.
Leann and I with the team spent a lot of traveling in the last few months across Asia over the summer EMEA or in the fall and most recently last week across the U S and wherever we go and speaking to providers as physicians the medical channel there is no slowdown the consumer.
Variable investing in skin health investing aesthetics across a range of categories in fact, one of the.
Biggest questions or comments, we get from providers, it's not there's no sign of slowdown in demand no increase in cancellation of bookings in total is finding enough staff to deliver the demanded services across a range of products, including hydro facial so extremely buoyant.
So absolutely no slowdown there and of course as I.
So another question.
Especially as one of those products, which particularly in the medical channel benefits. During these periods of economic contraction or uncertainty because whilst consumers may shy away from high investments in surgery or pillars or big laser treatment. They still want to invest in our skin health the confidence to keep that regimen.
And.
$150 as a starting price of hydro facial it's an extremely affordable and sticky service in most of our customers. So packages on subscriptions. So they're locked incident monthly visits. So that's what reflects the strong demand which has been flowing into our results in terms of.
Haven't seen any slight just slight demand at all but in terms of the leavers as Leon told to anywhere extremely.
Variable on our investment in and it's very easy for us to ramp up or down marketing, we tend to avoid promotions, that's not really part of our business model, but really doing the on ground events the trial and the brand awareness events, particularly as we launch boosters such as J Lo of the recent ones from Blackstone and Dennis Dr. Dennis gross sale.
To drive utilization and consumption.
Devin just only one point I'm going to double click I think we shared with you last quarter as well if you look at our consumer base. They are higher meter class right, because we often say our consumers visit our location at any given 0.32 places a year. So they show up in various areas.
Importantly, our super consumers most of them on average are upper.
Per meter class. This was some heart, both Andrew and I estimate visit it kind of validate that point and we have applications come every month at our.
Experienced in terms of training and we're constantly getting that real time information by the way when we went to Europe in almost to our surprise some of these locations either being in Paris or even in Frankfurt, we see a lot of men in the waiting room for their procedures, which is just another validation.
How folks feel about medical aesthetics in general.
That's all great to hear I appreciate you taking my questions.
Thank you.
Thank you.
The next question comes from Linda Bolton Weiser from D. A Davidson. Please go ahead.
Hi, yes. Thank you I was wondering if you could.
Update us on the reengineering of the sundial system and what's the progress so far on that and what does that mean for margins in 2023.
And in that.
So on the value engineering. This is a system that we're getting ready to launch globally. So it's a constant effort as we tweak the different kind of components that we use the enhanced and we're learning a lot.
Given the in region production, that's ongoing in China, as well that would really benefit us.
I have to say.
We have other than continuing to older rock component is just to make sure we have enough for to fuel that growth. So as you saw we invested a lot in inventory for future growth as well. This is why we guided to you're probably not going to see you're going to see continued improvement on gross margin, but youre not really going to see that true unlocking starting.
At the end of the year beginning of next year.
Thanks.
Thank you.
This concludes our question and answer session I would like to turn the conference back to Andrew Stanley for closing remarks.
Thank you everyone for your questions and to close I will say, we are proud of our results. We remain confident in our strategy to deliver profitable long term growth, we see strong demand around the world and we will continue to build our business. According to our $5 Master plan with disciplined management of our investment lead us to achieve our commitments.
I want to say a big thank you to our dedicated team and a passionate community of consumers and providers, who are the heart of our business. Thank you everyone for joining today's call.
Thank you.
The conference has now concluded.
Thank you for attending today's presentation you may now disconnect your lines.